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DOMESTIC AND INTERNATIONAL POLICY UPDATE 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

ON 

REVIEWING DOMESTIC AND INTERNATIONAL POLICY ISSUES AND RECEIVING UPDATES ABOUT THESE ISSUES FROM THE SECRETARY OF 

THE DEPARTMENT OF TREASURY 

MAY 18, 2017 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.govinfo.gov/ 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

MIKE CRAPO, Idaho, Chairman 

RICHARD C. SHELBY, Alabama 

BOB CORKER, Tennessee 

PATRICK J. TOOMEY, Pennsylvania 

DEAN HELLER, Nevada 

TIM SCOTT, South Carolina 

BEN SASSE, Nebraska 

TOM COTTON, Arkansas 

MIKE ROUNDS, South Dakota 

DAVID PERDUE, Georgia 

THOM TILLIS, North Carolina 

JOHN KENNEDY, Louisiana 

SHERROD BROWN, Ohio 

JACK REED, Rhode Island 

ROBERT MENENDEZ, New Jersey 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

JOE DONNELLY, Indiana 

BRIAN SCHATZ, Hawaii 

CHRIS VAN HOLLEN, Maryland 

CATHERINE CORTEZ MASTO, Nevada 

GREGG RICHARD, Staff Director 

MARK POWDEN, Democratic Staff Director 

ELAD ROISMAN, Chief Counsel 

JOE CARAPIET, Senior Counsel 

MATT JONES, Professional Staff Member 

LAURA SWANSON, Democratic Deputy Staff Director 

ERIN BARRY, Democratic Professional Staff Member 

DAWN RATLIFF, Chief Clerk 

CAMERON RICKER, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)

C O N T E N T S 

THURSDAY, MAY 18, 2017 

Page 

Opening statement of Chairman Crapo ................................................................. 1 

Opening statements, comments, or prepared statements of: 

Senator Brown .................................................................................................. 2 

WITNESS 

Steven T. Mnuchin, Secretary, Department of the Treasury ............................... 4 

Prepared statement .......................................................................................... 45 

Responses to written questions of: 

Senator Brown ........................................................................................... 47 

Senator Toomey ......................................................................................... 51 

Senator Sasse ............................................................................................ 52 

Senator Reed .............................................................................................. 62 

Senator Rounds ......................................................................................... 64 

Senator Menendez ..................................................................................... 65 

Senator Tillis ............................................................................................. 67 

Senator Warner ......................................................................................... 74 

Senator Warren ......................................................................................... 76 

Senator Kennedy ....................................................................................... 83 

Senator Van Hollen ................................................................................... 84 

(III)

(1) 

DOMESTIC AND INTERNATIONAL POLICY 

UPDATE 

THURSDAY, MAY 18, 2017 

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. 

The Committee met at 10 a.m., in room SD–538, Dirksen Senate 

Office Building, Hon. Mike Crapo, Chairman of the Committee, 

presiding. 

OPENING STATEMENT OF CHAIRMAN MIKE CRAPO 

Chairman CRAPO. This hearing will come to order. 

Today we will receive testimony from the Secretary of the United 

States Department of Treasury on domestic and international policy issues. 

Thank you, Mr. Secretary, for attending today. 

This is Secretary Mnuchin’s first hearing since being sworn in as 

Treasury Secretary in February, and we look forward to our discussion. 

Many of this Committee’s priorities fall within the jurisdiction of 

the Treasury Department, including housing finance reform and 

development of policies to encourage a healthier economy. We look 

forward to working with you and your staff on these priorities and 

improving the lives of Americans. 

Housing finance reform remains the most significant piece of unfinished business following the crisis, and it is important to build 

bipartisan support for a path forward. Last week, we received testimony from Federal Housing Finance Agency Director, Mel Watt. At 

that hearing, Director Watt emphasized that it is Congress that 

needs to act to determine the future of housing finance reform. The 

hearing reinforced why conservatorship is unsustainable—namely, 

GSEs having zero capital, taxpayers on the hook for losses, and the 

Government effectively taking all risks. 

A number of groups have released proposals for reform in recent 

months, including the MBA, the ICBA, the Milken Institute, several co-authors writing jointly for the Urban Institute, and many 

others. 

Three years ago, seven Republicans and six Democrats on this 

Committee voted in support of a comprehensive housing finance reform bill. A key priority for this Congress is to build on that bipartisan legacy and these new ideas and pass legislation that will create a sustainable housing finance system for future generations. 

I look forward to working with you, Secretary Mnuchin, and your 

staff at the Treasury Department as this Committee develops this 

2 

bipartisan legislation that will fix the broken housing finance 

system. 

Regarding economic growth, I am encouraged by President 

Trump’s Executive Order on Core Principles for Regulating the 

Financial System. I understand that the Treasury Department will 

be issuing a report identifying laws and regulations that inhibit 

Federal regulation of the U.S. financial system in a manner consistent with the core principles soon. I will review this report and 

work with you, regulators, and Members of the Committee to enact 

measures to improve our financial system. 

Financial regulation should help ensure a safe and sound financial system, but in a tailored manner to help grow and maintain 

a healthy economy. We want our Nation’s banks to be well capitalized and well regulated, without being drowned by unnecessary 

compliance costs. Undue regulation chills innovation and imposes 

significant and unnecessary costs and burdens on financial institutions and companies, often disproportionately on smaller ones. 

For example, community banks and credit unions lack the personnel and infrastructure to handle the overwhelming regulatory 

burden of the past few years, yet in many ways are treated the 

same as the world’s biggest institutions. Our regulatory regime 

should be properly tailored and avoid a one-size-fits-all approach. One area I would like this Committee to address is the $50 billion SIFI threshold for regional banks. In prior hearings, we have 

discussed whether $50 billion is the appropriate threshold, and 

I hope that we can work together to craft a more appropriate 

standard. 

My goal is to work with you, Secretary Mnuchin, Senators of this 

Committee, and financial regulators to look for ways to improve 

regulation and foster economic growth, while maintaining resiliency in the economy. 

Senator Brown. 

STATEMENT OF SENATOR SHERROD BROWN 

Senator BROWN. Thank you, Mr. Chairman. Welcome, Mr. Secretary. Nice to see you two days in a row. Thank you so much. 

I thank Chairman Crapo for calling this hearing. Treasury has 

played a key role in our Government since its creation more than 

two centuries ago. That role expanded in the wake of the Great Recession when it became clear, at great cost, that the rules in place 

for financial services were inadequate. Given the greater role that 

the Treasury Secretary plays in oversight of Wall Street, it makes 

sense that he devotes some of his time to conveying his views and 

those of the Administration on issues within this Committee’s jurisdiction to us and to the public. 

So far, that communication has been insufficient. Questions 

posed to the Secretary by me and questions posed to the Secretary 

by other Senators have gone either unanswered or were answered 

by non sequiturs. So I hope today will give an opportunity to all 

of us for more forthright conversations. 

On Tuesday, we held an ordinary hearing that, in my mind, 

turned out to be quite extraordinary. Three of the four nominees 

will work in national security positions in Treasury, if confirmed; 

the fourth will work in a national security position at Commerce. 

3 

One Senator after another felt compelled to ask the nominees, to 

ask each of them, if they would put the law and the Constitution 

and their country ahead of loyalty to the President. Amazing and 

unprecedented that we thought we had to ask that question. Given 

all the troubling revelations from the White House and about the 

White House, such a question is vital for every nominee in a sensitive position. This was hours before we learned that President 

Trump very likely asked FBI Director Comey to shut down an 

investigation. 

Honesty is critical. Our national interests are undermined, 

whether national security or domestic economic security, when our 

leaders traffic in falsehoods. You cannot lead if we do not believe 

you. And when I say ‘‘we,’’ I mean the American public. China was 

a champion of currency manipulation, and then it was not. Wealthy 

taxpayers would not get a tax cut, and then they would. The deficit 

would be eliminated in 8 years, and then it would not. Wall Street 

was getting away with murder, but now it has too big a compliance 

burden. The carried interest loophole would be closed, but now 

maybe not. We must invest $1 trillion in our ‘‘Third World infrastructure,’’ but now there seems to be no rush. No cuts to Medicaid, 

it was promised; now a $900 billion—$900 billion—cut to Medicaid 

is fine. 

The President launched the examination of Dodd-Frank with the 

claim that creditworthy borrowers cannot get loans, but the spigot 

is not dry and we do not need to, in the President’s words, original 

words perhaps, ‘‘prime the pump.’’ Bank loans and profits are at 

record levels. These are facts that bear repeating. Bank loans and 

profits are at record levels. 

The President was elected saying Wall Street has caused tremendous problems for us; ‘‘we are going to tax Wall Street,’’ his words. 

Now that he is in office, he seems to have forgotten the tremendous 

problems that Wall Street created for middle-class families across 

America. That same amnesia seems to have infected a number of 

my colleagues who seem to forget what Wall Street did 10 years 

ago to our country, to our economy, to our families, to our neighborhoods. The President sacked a dedicated public servant for a bank 

lawyer to oversee the Nation’s biggest banks. He is threatening the 

Consumer Bureau, one of the only champions that consumers have 

in the executive branch. 

Can we improve upon how we regulate the banks and the shadow banks and the rest of the financial services industry? Of course 

we can. I believe we can do so for smaller institutions. But let us 

do so based on facts. The fact is that one in five homeowners in 

the city of Cleveland—one in five—holds a mortgage that is more 

than 120 percent of the value of their home. The fact is that bank 

lending has grown 6 percent annually over the past 3 years. Loan 

growth at community banks was 8 percent—8 percent—this past 

year. Lending stalled in the first quarter of this year. Why? Because demand was not there. 

The fact is that U.S. households have more debt now than they 

did at the peak in 2008, driven by increased auto and student debt. 

The fact is the wealthiest Americans may have recovered from the 

Great Recession, recovered and then some, but many, many families like these Cleveland homeowners have not. If we want to 

4 

improve our economy, we would be better off debating how to create jobs through an effective means like infrastructure investment 

rather than the thoroughly discredited trickle-down approach, 

whether achieved through the Tax Code or by raising the speed 

limit for Wall Street. 

Thank you, Mr. Chairman. 

Chairman CRAPO. Thank you. 

Secretary Mnuchin, we will now turn to you. You have the time 

that you may need to make a statement. If you would like to introduce anyone, as you choose, you may do so. And the time is yours. 

STATEMENT OF STEVEN T. MNUCHIN, SECRETARY, 

DEPARTMENT OF THE TREASURY 

Mr. MNUCHIN. Thank you. I would like to introduce my fiancee, 

Louise Linton, who is with me this morning, as well as many other 

members of my team at Treasury. 

Chairman Crapo, Ranking Member Brown, and Members of the 

Committee, it is an honor to appear before you today for the first 

time as Treasury Secretary. During my confirmation hearing, I 

promised to work with Congress to create and maintain prosperity 

for all Americans. I want to reaffirm that commitment to you 

today. 

Let me begin by discussing the Treasury’s recent report on foreign exchange policies of our major trading partners. Ensuring that 

American business, consumers, and workers face a level playing 

field is one of the essential components of this Administration’s 

agenda. When foreign governments engage in currency manipulation, it makes the playing field uneven, which is why we regularly 

monitor these practices. 

After careful study, the Treasury Department has found that no 

major trading partner met the criteria for currency manipulation 

during the current reporting period. We will continue to follow this 

important issue and have established a ‘‘Monitoring List’’ of economies that warrant close attention. This list comprises China, Germany, Japan, Korea, Switzerland, and Taiwan. 

Additionally, we are committed to rethinking our foreign agreements and trading practices to ensure that they are both free and 

fair to American business and workers. In my discussions with the 

IMF and the finance ministers of the G–20, I have emphasized this 

goal, and I will continue to do so. 

Turning to our domestic agenda, it has been more than 30 years 

since we have had comprehensive tax reform in this country. Combined with often imprudent regulations crafted in the midst of the 

crisis, the entire American prosperity has slowed. I believe that a 

goal of 3 percent GDP or higher economic growth is achievable if 

we make historic reforms to both taxes and regulation. 

There are about 100 people working at the Treasury on the issue 

of tax reform. It is our goal to bring relief to middle-income Americans and make American business competitive again. We will do 

this all while simplifying the tax system. 

On regulatory reform, Treasury is preparing its initial report in 

response to the President’s Executive Order on ‘‘Core Principles for 

Regulating the United States Financial System.’’ These principles 

5 

provide a road map for the Administration’s approach to financial 

services regulation. 

We have taken a systemic approach in our work by meeting with 

a variety of stakeholder groups to hear what works, what does not 

work, and what can be improved. Our initial report contains recommendations to provide relief for community banks and make 

regulations more efficient, effective, and appropriately tailored. 

Housing finance reform is another priority of mine. This has 

been an unresolved issue for far too long and one we are committed 

to fixing. We will ensure that there is both ample credit for housing 

and that we do not put taxpayers at risk. This Committee has done 

extensive work on this along with your work on community financial institution regulatory relief. My hope is that we can partner on 

both of these issues. I look forward to working with the Congress 

to develop a solution. 

Finally, another area that is crucially important to Treasury is 

our commitment to combating terrorist activities and financing. We 

have announced a number of sanctions against individuals and entities associated with destabilizing regimes like Syria, Iran, and 

North Korea. This work is essential to the Administration’s efforts 

to continue to keep Americans safe. 

The first few months of this Administration have been significant. We have been working hard at Treasury to develop and implement policy that will allow the economy to grow. This will make 

the dream of prosperity once again a reality for all Americans. 

Thank you. 

Chairman CRAPO. Thank you very much, Secretary Mnuchin. 

And I want to thank you personally for your responsiveness to this 

Committee. We appreciate your willingness to work with us on 

these issues, and certainly your expertise and assistance can help 

us get to the right results. 

I want to ask my first question about housing finance reform and 

the status quo. As I indicated in my opening remarks, last week 

Director Watt of the FHFA indicated that this was critical for Congress to deal with. My question to you is: Do you agree that the 

status quo is unsustainable and that Congress must move on this 

issue? 

Mr. MNUCHIN. Thank you, Chairman Crapo. I do agree completely with that. We are committed to working with you on a solution on housing reform. I think we need to fix Fannie and Freddie. 

We are committed to make sure that there is proper liquidity in 

the housing markets. It is a very, very important part of the American economy, and we need to make sure that there is ample credit 

for the middle class to buy homes, while at the same time making 

sure that the taxpayers are not at risk. As you know, the Treasury 

has a very big line outstanding to those two entities. 

Chairman CRAPO. Well, thank you. And as you know, during the 

113th Congress, this Committee developed a comprehensive housing reform bill. We had to make a lot of compromises to achieve 

that bipartisan legislation. 

As the Committee again focuses on housing finance reform, what 

do you think are the key compromises that need to be achieved? 

Mr. MNUCHIN. Well, I think we are open to working with you, 

as I have suggested. We need to find a solution that creates necVerDate Nov 24 2008 09:55 Feb 21, 2018 Jkt 046629 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 S:\DOCS\26522.TXT SHERYL
6 

essary liquidity while making sure we do not put taxpayers at risk. 

And while we have been busy working on tax reform and focusing 

on regulatory issues, during the second half of this year I will focus 

on housing reform and look forward to speaking to many of you on 

ideas. 

Chairman CRAPO. Well, one of the big issues that does face us 

on housing finance reform is whether there should be an explicit 

Government guarantee provided through the housing system. Do 

you believe that such a guarantee is necessary? And if so, how do 

we deal with implementing adequate taxpayer protections in exchange for any Government guarantee? 

Mr. MNUCHIN. Well, I think it is a bit early for me to make a 

conclusion on whether a guarantee is necessary. That is something 

that we would like to study very carefully, and if there is a guarantee, we would want to make sure that there is ample credit and 

real risk in front of that guarantee so that taxpayers are not at 

risk. 

Chairman CRAPO. All right. Thank you. 

I want to move quickly to the Executive order that the President 

has issued. I notice I only have a couple minutes left, and I did not 

at the beginning of this remind all of our colleagues that we need 

to pay very close attention to the 5 minutes for questioning because 

I am confident that every Senator on this Committee wants to have 

his or her opportunity to speak with you. So I will just in my last 

2 minutes quickly bring up the Order that President Trump signed 

in February outlining the Administration’s Core Principles for Regulating the U.S. Financial System. 

Now, the Executive order requires you to report within 120 days 

on the extent to which existing laws and regulations promote those 

core principles and to identify laws and regulations that inhibit the 

Federal regulation of the U.S. financial system in a manner consistent with them. 

And, by the way, I strongly agree with those core principles, and 

I am looking very much forward to working with you on this effort. 

Can you tell the Committee some of the specific issues you have 

looked at and perhaps some of the findings that we may expect to 

see in your report? 

Mr. MNUCHIN. Yes, thank you. We have had a very large group 

at Treasury working on this. One of the things that I emphasized 

to the team ahead of time was that we wanted to make sure that 

we reached out to many different groups and got feedback, that 

this was not something that Treasury was just designing on its 

own. 

I know certain people refer to this as a ‘‘review of Dodd-Frank.’’ 

That is one of the things we are looking at. But it is actually much 

broader than that in looking at the core principles. 

We have met with over 16 different groups, many of them having 

50 to 100 people. We have had community banks. We have had 

small- and medium-sized banks. We have reached out to each one 

of the regulators and had working groups with each one of the 

independent regulators to make sure we have input from them. 

And we will be issuing a series of reports, the first one coming out 

shortly, which will be on banking. And I will say one of the big 

focuses, we will make sure that as we have different regulators, we 

7 

have proper coordination between them, and this is something that 

I have also been working on at FSOC where I take my responsibility as Chair very seriously. 

Chairman CRAPO. Thank you very much. 

Senator Brown. 

Senator BROWN. Thank you, Mr. Chairman. And welcome again, 

Mr. Secretary. 

At your nomination hearing on January 19th—and as a member 

of the Finance Committee, I was there—you stated that OneWest, 

the bank you were affiliated with, did not engage in robosigning 

and other types of misconduct related to mortgage practices. Since, 

there has been a lot of news, including reports in Ohio from perhaps our State’s most conservative newspaper, some 1,900 signings 

in Ohio just in the six largest counties, reports that OneWest did, 

in fact, engage in robosigning. Earlier this week, your former company, Financial Freedom, settled with the Department of Justice 

for $89 million—$89 million—related to violations of Federal law. 

Do you stand by that January 19th testimony? 

Mr. MNUCHIN. Yes. Let me first comment and let me first say 

that, as you know, I am no longer on the board of CIT, so I only 

have access to public information and what I have read. But I 

would like to comment on the Financial Freedom settlement which 

was in the recent press. 

Let me first say—— 

Senator BROWN. Please make it as short as possible. I have other 

questions. 

Mr. MNUCHIN.——that these issues were identified by my management team and self-reported to HUD and FHA when we 

became aware of them. These were issues that existed prior to us 

taking over the bank. We were concerned. We sent a team to go 

see the FHA Commissioner, and we dealt with that. 

We also took reserves, and as soon as we learned there were 

issues, we put in policies to correct those issues immediately. 

Senator BROWN. I am sorry to interrupt, but my question, Mr. 

Secretary, was did you—you said that OneWest did not—forgetting 

the settlement. You said OneWest did not engage in robosignings. 

Do you stand by that statement from January 19th that you said 

under oath to the Finance Committee? 

Mr. MNUCHIN. I do, and I would also just comment, I believe in 

a series of questions that were issued to me after that hearing, we 

responded on the definition of robosigning. And, again, I am no 

longer at the bank, so I cannot comment—— 

Senator BROWN. I know that. All right. 

Mr. MNUCHIN.——on anything that—— 

Senator BROWN. Thank you. Chairman Crapo mentioned the Executive order, and then you gave us some detail about it, and I am 

appreciative of that. As you and your team at Treasury work 

through this, are you reviewing the reforms made to the mortgage 

market that would address practices that took place in places like 

IndyMac and OneWest, including protecting—and you mentioned 

all the banks that you have brought in the room, but there are customers, there are community people that you did not mention. But 

the practices that took place at OneWest and IndyMac, protecting 

home buyers from predatory mortgages, banning robosignings, 

8 

other harmful servicing practices, evaluating borrowers for their 

ability to repay a loan, are you looking at—are you reviewing those 

reforms? 

Mr. MNUCHIN. There will be a series of reports, and we will be 

making recommendations on things that impact home mortgages. 

Senator BROWN. I am just concerned, as I sit through these hearings year after year after year, that so many of my colleagues have 

suffered this collective amnesia about what happened 10 years ago. 

I do not want you as Treasury Secretary to suffer from the same 

affliction. 

Another question. You are meeting with stakeholders on the Wall 

Street reform Executive order and housing finance reform. How 

many industry groups have you—not your staff, but how many industry groups have you met with versus how many consumer 

groups? 

Mr. MNUCHIN. First of all, let me just comment on your other 

thing. I will not forget those issues. I lived with those issues very 

seriously from the problems at IndyMac, and I spent many years 

trying to fix those and work on home loan modifications. 

In regards to industry groups, I have met with several groups of 

industry leaders and community areas. We have worked with 

them, and we have had several meetings of large groups that have 

come in. 

Senator BROWN. Could you spell out for this Committee—I assume you cannot recite numbers now, but would you get back to 

this Committee within the week that the Chairman usually calls 

on to delineate whom you have met with, which banks? I mean, 

give us a litany of—I mean, diversity of meetings is not small 

banks, medium banks, large banks. There are customers, there are 

community groups. There is all that. So if you would spell out specifically whom you have met with and give that to this Committee, 

whom you have met with about the Executive order, if you would 

be willing to do that. 

Mr. MNUCHIN. We would be more than happy to do that on a 

confidential basis. 

Senator BROWN. Of course. Of course, and I accept that and 

would honor that. 

Last question, Mr. Secretary. You committed to Senator Hatch in 

the Finance Committee that you would respond to all the Finance 

Committee members’ questions. I wrote to you 2 1⁄2 months ago, on 

March 2nd. I have not received an answer that I asked for about 

potential conflicts of interest and ownership in the Administration. 

Just today, there is a front-page story in the, shall we say, mainstream media—it is the Wall Street Journal—about the President’s 

business partners and his financial entanglements with a Russian 

bank that is on the sanctions list. So I would like to pose the question again that I asked in Finance in follow-up—I am sorry, that 

I wrote to you on March 2nd. Will you get a complete list of Trump 

business associates and financial ties to ensure that any foreign 

entanglements are benign with respect to the laws you enforce— 

terrorism, money laundering, sanctions, CFIUS, IRGC associations 

and the like? So would you commit to us to get a complete list of 

Trump business associates and financial ties because of the threat 

they could have to ensure that they are, in fact, benign? 

9 

Mr. MNUCHIN. Well, let me first say I did review before I came 

today to make sure that my staff had fully responded to all the inquiries from you and the Committee, and I believe we have. And 

if there are outstanding questions that you have from letters that 

you have sent us, please make sure you follow-up with me after 

this, and we will make sure that we are responsive. 

In regards to your specific question, again, if you would just send 

me a note on what you are looking for, we will review internally 

whether it is appropriate to come from us or somewhere else, and 

we are happy to respond to you. 

Senator BROWN. I appreciate that. Thank you for your cooperation. But the letter was March 2nd. It was not answered. I am asking it again. I will follow up with a letter again. But we want to 

know—we want a complete list—I mean, people in this country are 

troubled by the President’s business connections. They are troubled 

when the President’s family goes to another country to do business 

and American taxpayers provide security for their families and that 

money goes to the Trump business empire, including the President. 

People want to know about those financial entanglements. That is 

not an academic or a political science exercise. It is not even a political exercise. It is about the national security of this country, and 

it is about people wanting, needing to know that information. So 

I reiterate how important it is. 

We just last week listened to the nominee for CFIUS and terrorism and financial crimes, all those very important issues—or 

those positions, and we want to make sure his ties do not affect 

their ability, the Under Secretary of Treasury for Terrorism and Financial Crimes, the ability of the CFIUS nominee to do their jobs. 

Mr. MNUCHIN. Well, I can assure you I take the CFIUS responsibility very seriously. I review the cases weekly. My team reports 

to me on it, and I can assure you that if there were any cases that 

involved the President or any members of his family, they would 

be treated very seriously, and we would review them like anything 

else. 

Senator BROWN. But the public needs to know that as you review 

them. 

Thank you, Mr. Chairman. 

Senator SHELBY. [Presiding.] Senator Corker. 

Senator CORKER. Thank you, Mr. Chairman. 

Mr. Secretary, thank you for being here. I appreciated our conversation yesterday evening, and I know that you heard Chairman 

Crapo’s commitment to housing reform in his opening comments. I 

know that you have got some tax reform issues and others to deal 

with, but it is my sense that you are strongly committed to finally 

dealing with housing finance reform in an appropriate way. Is that 

correct? 

Mr. MNUCHIN. That is correct, and I hope that is something that 

we can do on a bipartisan basis. 

Senator CORKER. And I think the only way to do it appropriately, 

where you deal with some of the charter issues that are necessary 

to really go beyond the model that we had back in 2008, the only 

real way to do that is through congressional action. Is that correct? 

Mr. MNUCHIN. My strong preference is to do it through congressional action and working with you and your colleagues. I will say 

10 

that, obviously, the Treasury has a lot of exposure and taxpayers 

are at risk. But my strong preference is to do it exactly as you have 

described. 

Senator CORKER. I talked to you a little bit about the—I guess 

a couple nights ago Mr. White called me to talk a little bit about 

a conversation we had had here publicly about the capital cushion 

and some other issues, and, you know, I sincerely believe that he 

feels strongly about the position that he has laid out. I discussed 

that with you a little bit last night, and I know your position there. 

But it seems like we have got another 75 days or so to figure out 

the appropriate resolve to that. Is that correct? 

Mr. MNUCHIN. That is, and I appreciated you calling me and 

talking about that issue. I have had the opportunity to meet with 

Mel Watt several times. The last time we talked about the dividend 

extensively, and I did tell him that it was our expectation at Treasury that they would pay us the dividend, and we hope they continue to do so per the agreement. 

Senator CORKER. I think most of the models that have been put 

forth to try to resolve the issues that have continued to exist with 

Fannie and Freddie, most of them call for an explicit guarantee because of the fact that there was an implied guarantee, which really 

caused the situation where there were private gains and public 

losses. Certainly if there is any guarantee that is put in place after 

hopefully a large amount of capital being put in front, that is something that should be priced, should it not? 

Mr. MNUCHIN. Absolutely. If we do end up with a situation 

where the Government is issuing a guarantee, no different than 

FDIC insurance or FHA insurance, the Government and the taxpayers should be compensated for that risk. 

Senator CORKER. Well, I would just like to say, again, there has 

been a lot of work, Senator Warner and myself, many of the people 

here at the Committee, have spent a great deal of time on this 

issue. As I mentioned to you last night, I doubt we will have a Secretary of Treasury like you that knows as much about this topic 

as you, and I look at this as a tremendous opportunity really to resolve this issue because of your knowledge and the strong interest 

on our Committee. 

I think when we attempted this back in 2013, we did so in a 

fashion that was so complicated, very difficult, even though we 

passed something out of the Committee, to bring that into the 

mainstream on the floor, and certainly in front of the American 

people. My sense is there has been a lot of work to streamline 

since, and I will say I feel for the first time a real opportunity to 

align not just the interest of U.S. taxpayers and the fact that we 

want to have a housing finance system that is robust, but also, in 

fairness, one that more fully aligns the public sector interest and 

the private sector interest. 

I know I talked to you a little bit about some potential proposals 

last night on the phone, but I just want to thank you for your interest in this and look forward to hopefully completing the work that 

is the last piece of work, the one piece of work that really should 

have been front and center on financial reform when we did it in 

2010. And I want to thank you for your concern, your interest, and 

hopefully involvement in bringing this to a close. 

11 

Mr. MNUCHIN. Thank you. I am committed to work with you on 

it. 

Chairman CRAPO. [Presiding.] Thank you. 

Senator Reed. 

Senator REED. Thank you, Mr. Chairman, and thank you, Mr. 

Secretary, for joining us today. 

You noted in your testimony the importance of the work done in 

the Treasury Department to identify and disrupt terrorist activities 

specifically by targeting their financial networks, and this work is 

critical and depends a great deal on cooperation of our allies 

around the world, specifically where intelligence sharing is concerned. 

After the recent revelation that President Trump shared highly 

classified information with the Russian foreign minister, reportedly 

information given to him by an ally but shared without its knowledge, do you have concerns about the chilling effect this is likely 

to have on our relationships with these critical intelligence-sharing 

partners? 

Mr. MNUCHIN. Well, I cannot comment on what information was 

shared or not since the only thing I know is what I read in the 

press. But I will say I am probably spending 50 percent of my time 

on TFI issues. It is, I think, perhaps the most important issue right 

now as part of my job. I assure you that I take it very seriously. 

I have had two foreign trips, meeting with both the G–7 and G– 

20, and in each one of those meetings with my counterparts, I have 

discussed this. And I am happy to report that we have a very close 

working relationship with our partners and our allies on this issue 

and something I think can be incredibly effective in stopping terrorism throughout the world. 

Senator REED. Thank you. The White House has also asked you 

to review the orderly liquidation authority established by the DoddFrank Act. And as you know, the statutory purpose of the OLA is 

to provide the necessary authority to liquidate failing financial 

companies that pose a significant risk to the financial stability of 

the United States and a mandate that mitigates such risk and 

minimizes moral hazard. And I would like to highlight some of the 

OLA provisions and ask whether you support them. 

In the case of a failure of a mega bank, do you support the mandatory removal of the mega bank’s executives and board members 

responsible for the failure? 

Mr. MNUCHIN. Again, we are going through an extensive review 

of OLA as instructed by the President. We are just starting that 

process. I have had discussions with many finance ministers and 

Governors throughout Europe, and this is something that is obviously very important to them as well. 

It would be premature for me to make any specific comments on 

any aspects of it. We are doing a review. I am open-minded to looking at all these, and I look forward to issuing a report, and we 

would be more than happy to come back and update you once we 

have done more work on it. 

Senator REED. Let me, recognizing your answer, put on the 

record two other issues which I would like you to give particular 

attention, and I will put it in the form of a question, understanding 

that your response would probably be similar to your initial 

12 

response. Do you support the FDIC’s authority to claw back compensation from executives and directors substantially responsible 

for the failure? 

Mr. MNUCHIN. I would say as a general matter I think that that 

is a good policy that has been instituted. So, again, it is something 

we will review, but, yes, I generally support that. 

Senator REED. Would you support the statutory mandate that 

taxpayers shall bear no losses from the exercise of any authority 

under OLA? 

Mr. MNUCHIN. Again, I would say that that is an objective, but, 

again, I would reserve comments, specific comments, until we complete the review. Obviously, we do not want to put taxpayers at 

risk in any way, and that is one of the reasons we are looking at 

all the core principles. 

Senator REED. Mr. Secretary, the tax plan is rather terse in details, but it suggests that some of the highest-income Americans 

would receive significant tax cuts, and the majority of the tax relief 

to the remaining Americans would be rather minuscule or certainly 

small. And there is a possibility that in the proposal there could 

be indeed some increases on individual families or individual taxpayers. 

Are you committed now to ensuring that there will be no increase on families or individual taxpayers of less than $250,000 a 

year? And I am picking that as kind of a reference point, but are 

you committed to something like that? 

Mr. MNUCHIN. Let me just say that, obviously, tax reform is 

something that we are working on with the House and the Senate. 

But I can assure you that the President’s objective and my objective is that we create a middle-income tax cut and that we do not 

raise taxes on the middle-income. If anything, the opposite. We are 

trying to create a middle-income tax cut. 

Senator REED. Would that tax cut be equivalent to the tax cut 

enjoyed by the very richest Americans, people who make about— 

the 1 percent, highest 1 percent? 

Mr. MNUCHIN. Again, obviously, we are working on the details. 

One of the things we have done is we have proposed getting rid of 

almost every single deduction, which is something that is used by 

the rich, in return for a slight reduction in taxes. And our objective 

is that 95 percent of Americans will not need to use itemized deductions and will be able to fill out simplified tax returns. And we 

look forward to working with you as we progress on the details. 

Senator REED. Thank you, Mr. Secretary. 

Chairman CRAPO. Senator Toomey. 

Senator TOOMEY. Thank you, Mr. Chairman. And, Mr. Secretary, 

thanks for joining us. Good to see you again. 

I do want to take a moment to compliment you on the extraordinary accessibility. You have been before groups of us, members 

of the Finance Committee. I have lost track of the number of times 

you have been on the Hill to get input on the various issues in your 

brief. You have been available by phone. You have hosted meetings 

at the White House. And that is a very welcome change from the 

previous regime, and I am grateful for your accessibility and responsiveness. 

13 

I also want to commend you for reiterating the goal that we 

should be striving to create an environment in which we can sustain growth that is above 3 percent. I think that is entirely achievable, and it is a very important goal. So thanks for mentioning 

that. 

As a quick follow-up to the comments from the Senator from 

Rhode Island, I would just like to underscore that as you do this 

review of the OLA and the OLF, I hope we will keep in mind that 

this very convoluted construct, which, at the end of the day, contemplates a taxpayer-funded bailout through the OLF of a failed 

bank, it is a creature of the fact that we do not have an adequate 

resolution mechanism in bankruptcy. And some of us have been 

working for some time on legislation that would give us the confidence that we could resolve even a very large, complex firm in 

bankruptcy so that we would not need to put taxpayer funds at 

risk indirectly through the OLF, nor all of these very prescriptive 

punishment mechanisms that the FDIC would subjectively decide 

to impose, of which the Senator from Rhode Island mentioned a 

few. 

In this general topic, I wanted to address one of the egregious 

problems with the FSOC, which you chair now, and it has to do 

with the designation of these too-big-to-fail firms, the SIFI designation. It strikes me there are several obvious problems with the way 

that had been run, and I am hoping to get your reassurance it is 

going to be run differently. 

Some of the things I have objected to is a completely opaque 

process where a prospective designee would have no idea the criteria by which they would be designated. Second is a complete lack 

of a defined so-called stringent regulation, which is the DoddFrank-prescripted punishment for being designated; no clear off 

ramp; no mechanism by which you could, once designated, change 

your business practices so that you could be relieved of the designation. And even firms like asset managers had to worry about being 

designated, and asset managers, as you know, do not intermediate 

credit risk. They do not fund themselves with deposits. They do not 

have the kind of risk profile that banks have. 

So my question for you is: Can you assure us that under your 

leadership the FSOC is not going to launch a whole new wave of 

designations and is not going to be run in this very opaque fashion? 

And could you share with us how you do intend to lead the FSOC 

since it does exist in statute? 

Mr. MNUCHIN. Sure. Well, again, I take my responsibility of 

Chair of FSOC very seriously, not only on the designation issue, 

but it is also a very important forum where we can talk about 

issues across the regulators. Cybersecurity is something that I am 

very focused on, and we are working at FSOC and other areas with 

the regulators. 

Specifically on your question, the President has signed an Executive order where we are reviewing the FSOC designation process. 

Again, it is early in that work, but I will tell you I do support the 

concept of transparency, and I do believe that if a company is being 

designated, that they should understand what would be required to 

be de-designated if they want to de-risk their business. So, yes, 

14 

generally in regulation, I believe that there should be transparency. 

Senator TOOMEY. Thanks. And then just quickly on the CFPB, I 

remain deeply concerned that the way this entity was structured 

has left it completely unaccountable, and it behaves as an unaccountable regulator in many ways. The House Financial Services 

Committee had to take extraordinary steps to even discover the nature of their processes in their regulation of indirect auto lending, 

despite the fact that the statute forbids them to regulate auto lending. They continue to fail to produce a timeline that we have requested to explain their involvement in the discovery of the Wells 

Fargo abuses, where it appears that the CFPB jumped in at the 

end to take credit for what others had done. And Director Cordray 

has still yet to respond to QFRs that I submitted to him over a 

year ago. I think this lack of responsiveness and accountability is 

the logical consequence of an entity that even a court has determined is unconstitutional in its construct. 

I hope you would agree to work with us to change the governance 

of this entity, make it subject to appropriations and appropriate 

congressional oversight. 

Mr. MNUCHIN. Yes, we would work with you on that. 

Senator TOOMEY. Thank you. 

Thank you, Mr. Chairman. 

Chairman CRAPO. Thank you. 

Senator Menendez. 

Senator MENENDEZ. Thank you, Mr. Chairman. Mr. Secretary, 

welcome. 

Mr. MNUCHIN. Thank you. 

Senator MENENDEZ. The President spent a great deal of time on 

the campaign trail highlighting those neighborhoods and communities throughout the country that seldom reap the benefits of economic expansion but are reliably and disproportionately burdened 

by economic downturns. And in responses to my questions for the 

record after your confirmation hearing, you said, ‘‘I share your commitment to bring back jobs to these communities that have been 

so gravely affected by economic conditions for which they had no 

part in creating. If confirmed, I will work with you to make sure 

the poorest and rural areas of America are no longer left behind,’’ 

which was heartening to hear. 

So, with that, let me ask you about community development financial institutions (CDFIs), the private community partners that 

have stepped up for the better part of a century to inject capital, 

create jobs, provide mortgage credits, small business loans, banking 

services in those forgotten communities. 

In 2016 alone, CDFIs made over 39,000 loans and investments 

totaling more than $3.6 billion, financed over 11,000 small businesses and over 33,000 affordable housing units. 

So explain to me, how is it possible to reconcile the President’s 

promises and your commitments with the Administration’s plan to 

eliminate the community development financial institution from 

the very foundation on which these investments are made possible? 

Mr. MNUCHIN. Sure. Well, let me first again say I am committed 

to work with you on helping these communities. In traveling with 

the President during the campaign, I had the opportunity to see a 

15 

lot of this, and I also had the opportunity at OneWest to see this 

where previous loans had been made improperly by IndyMac. 

In regards to your question on CDFIs, as you know, the President’s budget has as a priority to make sure that we reinstitute 

proper spending for the military. The President is very concerned 

that we have not made those proper investments over the last 

number of years, and that that required a huge investment on the 

part of the Government. So we had to make difficult decisions in 

where we would try to save money on other areas. 

While I share some of your concerns with the CDFIs, we had to 

look at this across a lot of different priorities. It is an area where 

this market is mature and there is private capital that will come 

in and the banks do lend. But I do share your concerns on this. 

Senator MENENDEZ. Well, let me respond to that, because I believe in a strong defense. We spend more than the next seven countries combined. And we can do better, but not at the cost of everything that makes America worthy of fighting for and dying for, and 

not at the cost of millions of Americans who languish in an economic situation for which none of us generally would want to live 

in. 

And when I looked at the budget justification that was put out 

by the Administration, the justification proposed in the budget outline as to why it should be zeroed out is not even an accurate description of the program’s statutory purpose. It said that this was 

to ‘‘jump-start an industry.’’ That was not the case. It was created 

to promote access to capital and promote economic growth in economically distressed areas. 

So we obviously disagree on the value of the program because in 

my mind, when there are more than 50 million Americans living 

in communities with high percentages of adults who are not working and many who have no high school degree, every block has a 

few vacant homes, and incomes are stagnant, these communities 

desperately need investments that will allow them to start small 

businesses, create jobs, purchase homes. This is why I thought I 

was going to find common ground with the Administration, but zeroing out, for example, CDFIs, even in your desire to do national 

defense, does not make any sense on behalf of the very people who 

we supposedly want to defend. We want to defend, but we also 

want to create economic opportunities. 

So even the banking industry, the ABA and the ICBA, said it 

best in their letter to Congress requesting full funding. They said 

CDFIs work in the exact communities that were the focus of this 

conversation, they are uniquely positioned to understand local credit needs. 

So as we go into the 2018 fiscal cycle, I hope that you can be an 

advocate within the Administration for something that would meet 

the President’s goal and your own stated goal. And, you know, I 

hope to be able to work with you to make that happen. 

Last, I wrote a letter in March to you concerning the real possibility that the Administration would be forced to deal with an offer 

from Russia’s state-owned oil company to acquire critical entity infrastructure in the United States. Last year, Venezuela’s large 

state-owned oil company, PDVSA, pledged nearly 50 percent of 

Citgo shares to Rosneft as collateral for its loan. I received your 

16 

response on Friday evening and, frankly, it does not say anything. 

It just recites relevant statutes and standard CFIUS procedures. 

So my question is: Would it concern you, Mr. Secretary, if Venezuela’s state-owned oil company defaults on the debt, and as a result, Russia’s state-owned oil company exercised a near-majority 

ownership stake if they have not purchased additional shares in 

the open market? They may have, the possibility being the majority 

owner. With 48 U.S. petroleum product terminals, 3 refineries in 

3 different States, 9 pipelines throughout the country, wouldn’t 

that be something that would concern you? 

Mr. MNUCHIN. Well, let me just be very clear in stating this. This 

is an issue that I am aware of, not just from your letter but from 

other people who have raised the concern. I can assure you that 

this, like any other national security issue, will be reviewed at 

CFIUS, and at the appropriate—where national security issues are 

also discussed in other confidential settings. And at the appropriate 

time, I would be more than—as issues progress, on a classified 

basis we would be more than happy to have a confidential discussion. 

Senator MENENDEZ. Well, I look forward to that. 

Thank you, Mr. Chairman. 

Chairman CRAPO. Thank you. 

Senator Scott. 

Senator SCOTT. Thank you, Mr. Chairman. It is good to see Mr. 

Tillis here with us today. Everyone is giving him thumbs up, so it 

is good to see you healthy here. 

[Applause.] 

Senator SCOTT. That is why I do not run at 8 a.m. in the morning, however. Excuse me. We will talk to you later. 

Mr. Secretary, it is good to see you here as well. Like you, I had 

a past professional life. I spent about 20 years in the insurance industry. Now, that may not be as cool as making ‘‘The LEGO Batman Movie,’’ but it is germane to my question. 

I was pleased to see the President call for you to review the 

FSOC’s nonbank SIFI designation authority. I think examining the 

transparency, the due process, and likelihood of distress associated 

with these designations is good public policy. At the end of the day, 

insurance companies are not banks, and they should not be treated 

as such. 

Under existing law, FSOC includes an independent member with 

insurance expertise. Most FSOC members can have their vacancies 

on the Council filled by whoever takes their place. The law specifically allows that. Unfortunately, such a provision does not exist for 

the independent member with insurance expertise. 

When the current insurance expert’s 6-year term ends, there will 

be no one there to take his place and no voting member with any 

insurance expertise. Do you believe that Congress should address 

this discrepancy between the vacancies of the FSOC members? And 

if so, how would you suggest that we do so? 

Mr. MNUCHIN. First of all, let me just say I have had the opportunity to meet with him several times. I do think it is very important that we have someone on the FSOC that represents and has 

experience in the industry, knowledge. I would be happy to work 

with you on that issue. We are aware that his term is coming up, 

17 

and if you or anybody else have suggestions for us for someone to 

replace him, we would be happy to listen to that. But I share your 

concern, and we want to make sure that we keep that spot on 

FSOC. 

Senator SCOTT. I assume that when you make your presentation 

to the President on your review, that you would perhaps bring that 

issue up to the President as well? 

Mr. MNUCHIN. Yes. 

Senator SCOTT. I want to thank Chairman Crapo and Ranking 

Member Brown who have both committed to solving this issue as 

well. So I think if we work as a Committee, we can solve this discrepancy that is unusual and certainly not practical. 

Thank you. 

Chairman CRAPO. Thank you. 

Senator Tester. 

Senator TESTER. Thank you, Mr. Chairman and Ranking Member Brown, and thank you for being here, Secretary Mnuchin. I appreciate your presence at this hearing. 

Senator Moran and I have a community bank reg relief bill 

called the CLEAR Act. Have you had a chance to take a look at 

that at all? 

Mr. MNUCHIN. I have only looked at it briefly, but I would be 

happy to get together with you and go through it. 

Senator TESTER. OK. The reason I bring that up is that it is a 

bipartisan bill. There are a number of Democrats that are willing 

to work with you and Republicans that are willing to work with 

you to try to get some common sense reg relief for community 

banks, and if you could take a peek at that and get back to us, I 

would like that a lot. 

Mr. MNUCHIN. I would be more than happy to do that, and I can 

assure you that one of the things that will be in the report to the 

President is relief for community banks. 

Senator TESTER. Thank you. 

There is a bill out there called the Marketplace Fairness Act. It 

deals with requiring small businesses to collect sales tax on behalf 

of other States and local governments when selling goods over the 

Internet. Are you familiar with that bill? 

Mr. MNUCHIN. I am familiar with the bill. 

Senator TESTER. Do you or the President have a position on that 

bill? 

Mr. MNUCHIN. I have not discussed it with the President, so I do 

not know his view. I think this is something that we seriously need 

to look at, and I share certain concerns of yours on it. 

Senator TESTER. How about a national sales tax in general? Is 

that something that the Administration supports? 

Mr. MNUCHIN. We have had no discussions on a national sales 

tax. It is not something that we are inclined to do. 

Senator TESTER. OK. Recently, you along with NEC Director 

Cohn announced a one-page tax plan and a briefing. The document 

is not specific, but that is OK. Nonpartisan experts have said that 

this plan could cost $5.5 trillion. I do not think any of us here 

think that that is a good idea, saddling the kids with additional 

debt. I think even Senator McConnell has recently said the plan 

cannot add to the debt. 

18 

Could you commit that this plan, this tax relief plan, would not 

add to the debt? 

Mr. MNUCHIN. First of all, let me assure you that this plan—we would never propose a plan that we thought would cost $5 trillion. 

OK? Only specific parts of the plan were released, so I do not know 

how it could be responsibly scored. And what I have said repeatedly is that any plan we put forward we believe should be paid for 

with economic growth. 

Now, I am concerned as to whether some of the models will attribute enough growth in dynamic scoring, but when we present 

the details, we will present how we think it should be paid for. 

Senator TESTER. I would just—a couple things. First of all, the 

budget that the President put out—and, quite frankly, Senator 

Menendez talked to part of it, but it does not bode well for rural 

America. So if we are talking about economic growth and rural 

America to pay for a tax plan based on the budget that the President laid out, we have got some huge problems. I am just telling 

you it is not going to happen with that budget. I will just be quite 

honest with you. 

The other thing I would say is that I am very suspicious of dynamic scoring because it has been done before. It is not the first 

time we have been here. And oftentimes, through dynamic scoring, 

the end product looks really good, but then when reality hits, it is 

not that way at all. 

So if you are concerned about the debt—and I do believe you are, 

by the way—I would just ask this needs to be done very prudently. 

Mr. MNUCHIN. I can assure you that I am very concerned about 

the debt, and I will give you my 10-second commercial on the debt 

limit, which we do need to raise, and I look forward to working 

with all of you on that. 

Senator TESTER. And we look forward to working with you on 

that, too. 

GSE reform has been brought up several times. Do you support 

a 30-year fixed-rate note? 

Mr. MNUCHIN. I do indeed. 

Senator TESTER. OK. And you talked several times about protecting taxpayers, and I think that is a solid. Would your support 

for that go away if, in fact, there was some taxpayer risk with the 

GSE rebuild? 

Mr. MNUCHIN. Well, again, I think that the 30-year mortgage has 

been a fundamental part of our—— 

Senator TESTER. Yes, no doubt. 

Mr. MNUCHIN.——mortgage finance for as long as most people 

can possibly remember. 

Senator TESTER. It is a big deal. 

Mr. MNUCHIN. Again, if we end up with a scenario where we 

need some type of explicit guarantee, I would expect that it would 

be paid for, and I would expect that it would hopefully never be hit, 

no different than there is an FDIC Insurance Fund or an FHA Insurance Fund. 

Senator TESTER. OK, OK. The FSOC underwent a number of 

changes related to transparency and the designation process. You 

have talked about some of them: notifying companies when they 

move between stages, making public the calculation for Stage 1 

19 

evolution, providing more information to companies as they go 

through their annual review. 

Would you support codifying those changes into law? 

Mr. MNUCHIN. Again, we are looking at recommendations, but I 

think that is one of the things we will look at and potentially recommend. 

Senator TESTER. OK. Thank you very much. 

Thank you, Mr. Chairman. 

Chairman CRAPO. Thank you. 

Senator Shelby. 

Senator SHELBY. Mr. Secretary, thank you for your willingness to 

serve. You bring unique experience from the private sector to the 

Office of Treasury. You know well that we need meaningful bank 

reform. You have been in the banking business. 

A lot of us have pushed for overall and comprehensive bank reform, but it seems to me that a lot of the smaller banks and 

regional banks that, to my knowledge, having been here 31 years 

on this Committee and Chairman three times, that they do not 

pose a systemic risk to this country, you know, the small banks 

and regional banks. 

So do you support in concept and would you work with us to try 

to bring some meaningful fundamental bank reform to our system? 

Mr. MNUCHIN. Absolutely. And I think that regional banks and 

community banks are critically important to lending. These are the 

banks that know the communities, know what is needed, and they 

know how to make loans, and we should make sure that they can 

do it without undue regulatory burden, without putting taxpayers 

at risk. 

Senator SHELBY. And, sir, aren’t they mainly the banker for the 

small- and medium-sized businesses in this country which are the 

job creation machines? 

Mr. MNUCHIN. They are indeed. 

Senator SHELBY. On the tax reform, which we are all interested 

in and we have talked about, we talk about the corporate rate, 35 

percent is too high. Of course, nobody pays 35 percent, as we know. 

But I have brought this up with the Administration several times. 

A lot of us have. Most of the small- and medium-sized businesses 

that we are talking about in this country are taxed under Subchapter S of the IRS Code, and that is the pass-through. Is that 

correct? 

Mr. MNUCHIN. That is. 

Senator SHELBY. So if we are talking about tax relief for the biggest of the biggest, what are some of your proposals or what are 

you working on—you have got a lot of smart people working on 

this—for the small businesses and so forth? Because I for one 

would not want to support a big reduction just for the biggest of 

the biggest and do nothing for our basic base and job creation 

small- and medium-sized businesses. Are you working in that area? 

Mr. MNUCHIN. Yes, thank you, Senator. We share your concerns, 

and I have referred to this in the plan as a ‘‘business rate’’ as opposed to a corporate rate. We need to figure out and we have a 

large team working on how we would deal with pass-throughs. 

But I also just want to emphasize that we are committed to making sure that rich people do not use pass-throughs as a loophole to 

20 

pay lower rates. So we do want small- and medium-sized businesses to have the benefit of lower rates, but we will make sure 

that, you know, not every single accountant, lawyer, and doctor 

who should be paying higher personal rates sets up an LLC or a 

pass-through to get around the system. 

Senator SHELBY. But, again, this is the backbone of our economy, 

is it not? 

Mr. MNUCHIN. It is, and we are working hard on how we create 

growth in that part of the economy. 

Senator SHELBY. I do not want to put you on a calendar right 

now, but as you flesh this out and you get into the weeds on this, 

I hope you will be briefing us. I know the Finance Committee has 

jurisdiction over this, but we have more than a passing interest in 

all of it. 

Mr. MNUCHIN. Absolutely, and we will be more than happy to 

come back and brief you and your staff on this. 

Senator SHELBY. Thank you very much. 

Chairman CRAPO. Thank you, Senator Shelby. 

Senator Heitkamp. 

Senator HEITKAMP. Thank you, Mr. Chairman. And welcome, Mr. 

Secretary. 

Mr. MNUCHIN. Thank you. 

Senator HEITKAMP. This is your first appearance in front of this 

Committee, and I could not agree with you more. One of the demands of the American public and the responsibility of Washington, DC, is to encourage economic growth. That can solve a lot 

of our problems as we go forward. And so I want to talk a little 

bit about the Ex-Im Bank. It is not a big surprise to a lot of people 

on this Committee that I will be raising it. 

In 2014, Ex-Im Bank’s last fully functioning year, the Bank supported 164,000 jobs across the country. That is compared to about 

52,000 jobs in 2016. That is because we did not have a quorum. 

In 2015 alone, three Chinese export credit agencies financed a total of $500 billion. The potential there is that those could have 

been markets that we were accessing, but we are not getting access 

to today. 

Do you believe that the Ex-Im Bank is a critical tool for enabling 

American manufacturing competitiveness? 

Mr. MNUCHIN. I do. I have actually spent a lot of time looking 

at this, and I am concerned that, without more members on it, they 

can only make loans up to $10 million. I think that the board 

should obviously look at credit risk and everything else, but the ExIm Bank is an important tool, and the President has proposed adding new members. 

Senator HEITKAMP. One of the great fears that we have is that 

the suggestion of the leadership of the Ex-Im Bank going to former 

Representative Scott Garrett, who really is not just a critic of the 

Bank and a reformer, I think he is someone that we are very concerned would not advance the interest of the Bank and does not believe in the mission of the Bank, not just reforming the Bank. 

Do I have your commitment to work on a bipartisan basis to forward leadership in the Bank that would, in fact, make sure that 

the Bank is fully functioning and that these credits actually come 

before the board for up-or-down approval? 

21 

Mr. MNUCHIN. I am sorry. I just want to make sure I understood 

your question. Is it on—— 

Senator HEITKAMP. My question is: If, in fact, Scott Garrett’s 

name is advanced to lead the Bank as Chairman, we are deeply 

concerned that many of these credits that are—you know, $30 billion worth of manufacturing today will not even see the light of day 

because the head of the Bank has the ability to set the agenda for 

the board. And so it is very important that—you know, I quite honestly do not care if Mr. Garrett is on the board, but I do care if 

he is setting the agenda for the Ex-Im Bank. 

And so my commitment to you—or my question to you is: Are 

you willing to work on a bipartisan basis so that we can move 

these nominees as expeditiously as possible without getting into 

the weeds on someone that many of us suspect might be a saboteur 

of the Bank? 

Mr. MNUCHIN. Yeah, I mean, I cannot comment on his specific 

situation. He was proposed by the President. I would say I can assure you that the President is interested in making sure that the 

Ex-Im Bank can lend. We have had lots of business people come 

in and talk about this, and it is something that Director Cohn and 

I are deeply involved in. 

Senator HEITKAMP. OK. I would tell you that I raised this issue 

as early as December with the President and was grateful to hear 

that he was supporting the Bank. But as we move forward—we are 

already in May, looking to June—we do not have nominees yet, and 

the nominees that have been proposed I think cause great hesitation on our part. And so we will leave it there. 

I wrote you a letter on May 11th—you should have received it 

by now—about the Central States Pension System. These are good 

Americans, the kind of Americans that the President talks about 

every day, who worked very hard, negotiated and bargained for a 

pension and health care, and yet they are being told in many cases 

in my State that their pensions will be reduced 70 percent. Now, 

we were able to, I think, reject—Treasury rejected a plan that was 

submitted. 

Where are you at with reviewing Central States? And how do 

you see this moving forward? 

Mr. MNUCHIN. So, again, let me just comment on—I do recall 

this is something that you mentioned at my meeting and confirmation. I am a lot more familiar today on this issue than I was beforehand. 

At Treasury, we perform an important function when people 

make applications on these, but it is not a subjective function. It 

is a function of we go through and run tests. I share your concerns, 

and we look forward to working with you and others. It is a complicated issue. 

Senator HEITKAMP. It certainly is, and I look forward to your response to the May 11th letter. Thank you, Mr. Secretary. 

Senator SHELBY. [Presiding.] Senator Rounds. 

Senator ROUNDS. Thank you, Mr. Chairman. 

Mr. Secretary, we appreciate the opportunity to visit with you 

today. I would like to talk about just a couple of items. 

I would like to go back to an insurance-related issue, if I could, 

and that has to do with the U.S.-EU Covered Agreement. We may 

22 

be getting into the weeds a little bit on it, and if you would like 

to take it for the record, that would be fine. I am curious. There 

are different types of insurance carriers that do business in the 

United States. Some do business in Europe as well. They all want 

to be able to—or at least a number of them want to be able to do 

business both within the European market but also within the 

United States market. Some only do business here. A lot of our 

property/casualty carriers do, but they have reinsurance connections with the European market. 

Their concern in many cases—there is a little bit of a discrepancy 

between some of the reinsurers who want to basically have full access and capability to do business in all of the EU markets, and 

because of that, there was a covered agreement that was created, 

one in which we have a temporary seat basically in this decisionmaking body. But property/casualty carriers on our side of the 

ocean have some real concerns about what the impacts are of being 

included in this Covered Agreement, which leaves a number of different areas unanswered with regard to it. 

Some of my friends on the other side of the aisle suggested in 

our last meeting with Treasury officials that when I indicated it 

was kind of like passing a law to find out what is in it, that I was 

going back to Obamacare and that I did not need to do that at this 

time. But this Covered Agreement which is there leaves some real 

unanswered questions for a number of our property/casualty carriers that are doing business within the United States, but who 

may be subject to some of the requirements found under the Covered Agreement in the future. 

Would you just simply—number one, I will submit a question 

specifically to you for the record on it, but would you commit to 

work with us and get back with us on taking a second look at what 

is in that Covered Agreement, whether or not it really is in the 

best interest of most of the carriers that do business within the 

United States market today? 

Mr. MNUCHIN. I will. And I would just comment this is another 

area that I am actually a lot more familiar with than when I first 

came during my hearing. We have had several internal meetings 

where I have been briefed on this. We have actually reached out 

to industry, and we are aware of—there are people who support it 

and people who do not support it. The agreement specifically, this 

is something we do in conjunction with the U.S. Trade Representative, and now that the Trade Representative has been confirmed, 

we will be close to making a decision. But we would be more than 

happy to reach out to you and hear your views before we make that 

final decision. 

Senator ROUNDS. Thank you. I just think some of the questions 

which they have asked really do deserve to be able—we should be 

able to get an answer to them one way or another before we actually get into this. 

Mr. MNUCHIN. I can assure you we will, and this is something 

I am familiar with. 

Senator ROUNDS. All right. Thank you, Mr. Secretary. 

Also, in following up a little bit on Senator Shelby’s discussion 

in terms of the tax rates and so forth and the fact that a lot of our 

job creators are not C corporations, they are S corporations, and so 

23 

forth, but they all come back down to a private tax rate or an individual tax rate. I am just curious. You know, we have a lot of discussion here about tax reform. Within a 74,000-page tax bill, some 

of those pages giveth and some taketh away when every time we 

talk about simplification we can have people that get hurt and people that have an advantage or that receive an advantage. When we 

start talking about doing that, and particularly if we are doing 

this, there are going to be individuals who will lobby hard against 

not allowing some of the deductions to be removed, even if there 

is a lower tax rate, once they have done the calculation in their 

own situation. 

While we want to see a simplification, and I think a lot of people 

out there would love to see that happen, there is also a concern 

that, as the President would suggest, it is truly time to prime the 

pump similar to the way that it occurred during the Kennedy administration and during what was a very successful Reagan administration where we refueled the economy. Part of that has got to 

be regulatory reform, but the second part is actually allowing a few 

more dollars to remain with individuals so that they can reinvest 

back into businesses as well. 

When we get right down to it, are we stuck with only a program 

which is revenue neutral, meaning that we basically are going to 

take away as much as we give back? Or could we actually consider 

some sort of a downpayment perhaps on a tax plan in which we 

allow for a reduction in actual taxes collected so that that can be 

reinvested back in the economy in a very small nature, perhaps as 

in a bill that I am suggesting and one that I will be introducing 

in which we take our basic tax rate for those individuals at 10 

down to 8, from 15 to 13, from 25 to 23, from 30 to 28, from 35 

to 33, from 39 to 37. It is not a huge expense, and yet it may very 

well impact those at the very bottom a little bit more than those 

at the top, and it would be a downpayment to the American public 

clearly indicating that there are additional resources that they can 

invest back into business and basically back into the economy. 

Mr. MNUCHIN. Well, the President and I fundamentally believe 

that tax reform is critical to growing the economy and getting back 

to sustained economic growth. We look forward to working with 

you. I think different people will have different views as to under 

what scenarios it should be revenue neutral. As we have heard 

today, some people believe in dynamic, some people believe in static. The President does believe that we need to create economic 

growth and that we are willing to have lower tax revenues in the 

short term if that will create economic growth. 

I think as I have said, the difference between 2 percent and 3 

percent GDP is roughly $2 trillion over a 10-year period of time. 

That is a lot of money, and economic growth will help us deal with 

a lot of other complicated economic issues we have. 

Senator ROUNDS. Thank you, Mr. Secretary. 

Thank you, Mr. Chairman. 

Chairman CRAPO. [Presiding.] Thank you, Senator. 

Senator Van Hollen. 

Senator VAN HOLLEN. Thank you, Mr. Chairman. Thank you, 

Mr. Secretary, for your service. 

24 

Recently, I sent you a letter together with many of my colleagues 

on this Committee objecting to your decision to put Keith Noreika 

in charge at the OCC by using a maneuver that evaded Senate confirmation. As you well know, the OCC serves as the chief banking 

regulator overseeing over 2,000 banks, and Mr. Noreika has spent 

most of his career working very closely to protect the interests of 

those banks. 

I appreciate the letter I got back yesterday. It raised some additional questions, and I am going to be sending you another letter 

to ask you to respond to the following questions: 

Why were you willing to install him as head of the OCC before 

his ethics pre-vetting has actually been certified so that the American public can know whether or not conflicts exist now that he is 

in charge, at least for now, of regulating 2,000 banks? 

And, second, your letter indicated that Mr. Noreika’s special temporary 130-day status allows him to avoid President Trump’s ethics 

pledge, and I am going to want to know whether that would allow 

him to immediately leave the OCC and lobby or work on behalf of 

big banks. And I am also interested in whether all this means that 

you will be presenting a nominee in the next 130 days. So I am 

going to send you a letter to ask for your follow-up on that. 

I want to ask you a question about tax policy, and I agree with 

my colleagues who have said that if we are going to do tax reform—and I think tax reform can work, can be an important step— 

that we should focus on middle-income tax relief and not another 

round of tax breaks for the very wealthy and special interests. 

In fact, Mr. Secretary, last November you agreed with that statement, and I quote what you said in November: ‘‘Any reduction we 

have in upper-income taxes will be offset by less deductions, so 

there will be no absolute tax cut for the upper class.’’ That is what 

you said. 

Now, Senators Reed and Tester have asked you questions about 

the tax reform plan that you are thinking of submitting or will be 

submitting. I have a question related to a tax cut plan that is already in progress that you and President Trump have strongly endorsed, and that is the House health care plan, which, according 

to the Congressional Budget Office, has $900 billion in tax cuts, including $270 billion in tax cuts that go to higher-income families, 

and the analysis of that tax cut is that millionaires will get on average $50,000 a year in tax cuts. And that is because what we did 

in the Affordable Care Act was we applied capital gains and net 

income taxes, Medicare taxes, on very high income individuals on 

their investment income so they could help shoulder their share of 

the Medicare Trust Fund. 

That totally violates—totally violates—the standard you set forward in November, doesn’t it? 

Mr. MNUCHIN. Let me just first—— 

Senator VAN HOLLEN. It is really a yes-or-no question, Mr. Secretary. 

Mr. MNUCHIN. The first question you asked I wanted to respond 

to, which was on the Comptroller of the Currency, the OCC. So, 

yes, it is our intention—we actually have someone who the President has approved that is going through the FBI vetting process. 

I think as you know, unfortunately, with all the candidates, this is 

25 

a time-consuming process. But we do hope that there will be somebody who is cleared and somebody who will go through a Senate 

confirmation process. So this was in no way an attempt to put 

someone in who would not be going through. This is someone who 

is in on an acting basis. 

On your second comment, I have only been partially involved in 

the health care. That is not really in my priority area of responsibility. My comments are really more focused on tax reform and, 

yes, the President’s intent is that there is a middle-income tax cut, 

and that is our major focus—— 

Senator VAN HOLLEN. Mr. Secretary, my question was it is a fact 

that the healthcare bill, so-called healthcare bill that passed the 

House has $900 billion in tax cuts, combined with almost $900 billion in cuts to Medicaid and some to Medicare. So a huge pillar of 

this is tax cuts. And isn’t it the case that the provision that gets 

rid of the Medicare tax on investment income flatly contradicts 

your test that any reduction we have in upper-income taxes will be 

offset by less deductions so there will be no absolute tax cut for the 

upper class? Isn’t it an absolute tax cut for millionaires? Yes or no. 

Mr. MNUCHIN. Again, my comments were focused on tax reform—— 

Senator VAN HOLLEN. Mr. Secretary, this is tax policy. It is a 

tax—Mr. Chairman, I think it—what has been interesting about 

this healthcare debate is that you have got this major tax change 

masquerading under the cover of health care. Why is there a big 

tax cut in a healthcare bill? You are the Secretary of the Treasury. 

You deal with tax policy. 

Mr. MNUCHIN. Again, I think the idea was that that tax was 

hurting investment and jobs in this country, and that, again, that 

was part of the healthcare repeal. So, yes, factually, that tax will 

help people who are investing money back into the economy and 

will create jobs. 

Senator VAN HOLLEN. All right, Mr. Chairman. It flatly contradicts your statement of no absolute tax cuts for the upper class. 

It is a flat contradiction. 

Thank you, Mr. Chairman. 

Chairman CRAPO. Senator Perdue. 

Senator PERDUE. Thank you, Chair. Mr. Secretary, thank you for 

being here. 

Mr. MNUCHIN. Thank you. 

Senator PERDUE. I appreciate you being willing to step up and 

do this, and it is nice to have a private sector guy in here trying 

to figure this out. 

I want to go to the debt and the portfolio. We have got about $20 

trillion of debt all in. That is about a third of all sovereign debt 

in the world. It is about 200 total debt—200 trillion of total debt 

in the world. But one out of every three Government debt dollars 

that are out there are ours. 

We have also got the largest debt balance sheet in history, and 

the question is: During this period of low interest rates, about a little over 50 percent, I think, are 3 years or less in maturity, while 

the United Kingdom has about 48 percent of their bond portfolio 

is 20 years or longer. 

26 

So my question is: Is this something that you guys are taking a 

look at? And do you plan to go a little longer while interest rates 

are still in somewhat of a low environment? 

Mr. MNUCHIN. It is. It is something that I have talked about. We 

are studying ultra-long bonds, which would be 50-year bonds or 

even longer. We have been working with the Treasury Borrowing 

Advisory Committee, which is comprised of outsiders, to advise us 

on what the market is for that. And it is something that we will 

consider as we look at debt management. No decision has been 

made, and we are seeking guidance as to the demand. 

Senator PERDUE. All right. Thank you. 

Let us move to Basel III. Can we talk about that for a second? 

Mr. MNUCHIN. We can. 

Senator PERDUE. It is part of your job, as I understand it. You 

know, it looks to me like that we are unilaterally way ahead of our 

other signatory partners in Basel III in terms of our capital reserve 

requirements. It looks to me like as a business guy that for small 

banks and community banks, regional banks, that they are inordinately hampered by the cost of compliance and also by this reserve 

requirement. 

Is there any attempt in your future priorities to look at what we 

are doing regarding our future commitments to Basel III and what 

we can do to get the other partners in Basel III to line up and at 

least catch up with us in terms of the commitment of the safety 

for banks? 

Mr. MNUCHIN. There is, and I have had conversations most recently when I was at the G–7 in Bari with other board governors 

and other finance ministers about Basel III, and it is something 

that we will be looking at as part of the President’s Executive 

order. 

Senator PERDUE. But no decision is taken yet regarding it? 

Mr. MNUCHIN. No decisions have been taken, and I think as you 

know, Chairwoman Yellen is—the Fed is the one who technically 

participates in Basel, but it is something that we are looking at. 

Senator PERDUE. Thank you. I met with her this week and 

talked about that, and we talked about the fact that we have got 

somewhere around $6 trillion of liquidity, U.S. liquidity, that is 

really not at work in the economy today, between the Russell 1000 

balance sheets that have a very strong liquidity position, probably 

the strongest ever, a few trillion dollars in the bank balance sheets 

because of this capital reserve requirement, and then also the 

unrepatriated U.S. profits. 

Let me move to growth just for a second, because the capital investment is one that I think is a part of our future in terms of getting the economy moving again. It looks to me like—the GAO has 

said that—or CBO has said that 1 percent of GDP growth is about 

$3 trillion over a decade in terms of Federal impact on the Federal 

budget. But yet we tend to talk in the Senate about spending cuts 

or tax increases as a bilateral conversation, and yet growth really 

is very rarely talked about because it is an esoteric term here in 

the Senate. But I know that is job one for you guys. 

Can you talk about how to balance those and relative to—the 

800-pound gorilla in the room, relative to our deficit spending, and 

that is, mandatory expenses, and how the President and how the 

27 

Administration sees fiscal policy now marrying up with the monetary policy of our future? 

Mr. MNUCHIN. Well, let me just comment. You did talk about repatriation, and that is something that we are looking at as part of 

tax reform, because there are literally trillions of dollars sitting offshore. It is not a surprise. With the highest corporate tax rate, 

worldwide taxation, and this concept of deferral, why would U.S. 

companies bring money back? So as part of tax reform, we do hope 

that there are literally trillions of dollars that come back. And as 

it relates to the other economic issues, we look forward to continuing to talk to you about them. 

Senator PERDUE. But the corporate tax rate also puts U.S. companies at risk for foreign companies who have a lot of liquidity who 

can come in and make an acquisition of a U.S. company and basically use the tax arbitrage to basically pay for that acquisition. Is 

that not correct? 

Mr. MNUCHIN. They can indeed, and I hear that almost every 

day as I meet with business leaders reminding me of that, particularly U.S. companies who feel like they are at risk of getting taken 

over and at risk of having the jobs moved outside of the United 

States. We have an uncompetitive system that we need to fix. 

And I would also just comment there are several economic reports that over 70 percent of the corporate tax burden is actually 

borne by the workers. And for far too long, workers in this country 

have not had wage increases. That is something that we clearly 

saw when we met with hundreds of business leaders across the 

country and something we are focused on. 

Senator PERDUE. Thank you for that. 

Thank you, Mr. Chairman. 

Chairman CRAPO. Thank you. 

Senator Warner. 

Senator WARNER. Thank you, Mr. Chairman. Secretary Mnuchin, 

good to see you again. 

Mr. MNUCHIN. Nice to see you. 

Senator WARNER. I do not want to belabor the point that Senator 

Van Hollen was making, but I would just add, beyond the fact that 

the healthcare legislation, which I strongly oppose, offered a massive tax cut for folks like you and me, it also—and I say this as 

a former Governor—is really just a transfer of obligation from the 

Federal Government, which used to share in the Medicaid responsibility, to the States. It is an $830 billion transfer of responsibility 

back to the States. 

Now, the States can cut their Medicaid, or they can end up resulting in dramatic tax increases to continue to pay for that Medicaid, which will slow the kind of growth that Senator Perdue and 

I would like to see. 

So I really hope—I know today is tax reform, but the healthcare 

debate really is going to influence how many of us approach the tax 

reform debate, because whether it comes from repatriation, when 

it comes to these other issues, I want to work with you. 

Mr. MNUCHIN. I appreciate that. 

Senator WARNER. But we have got to do it in a way that is at 

least deficit neutral and does not follow up on something that, 

frankly, does not do the best for health care, does not 

28 

disproportionately benefit folks like you and me, and, candidly, is 

simply a transfer of responsibility to the States. 

I want to move to two other topics in my time. One is, as you 

are aware, I am up to my eyeballs in the issue around the Russia 

investigation, and it is, I have said repeatedly, maybe the most important thing I will ever do in public life. Senator Burr and I have 

asked the Treasury Department for cooperation, particularly from 

the FinCEN division, on getting appropriate documents that will be 

part of our investigation. I am happy to see that we received some 

of those documents yesterday, and we are reviewing them. My understanding of how we query that big data is going to require some 

collaboration. And I just would like to ask you at this hearing that 

we will have your commitment, your personal commitment, that 

you will continue to work with this bipartisan committee and bipartisan investigation in a way so that we can get to the bottom 

of it and get the facts out to the American public. 

Mr. MNUCHIN. Yes, you have my assurance, and I did meet with 

my general counsel and review and make sure we were being responsive to you on that. 

Senator WARNER. I appreciate that, because this is an area of 

enormous interest, and this particular area in terms of, in a sense, 

following the money is something that is terribly important. So I 

appreciate that, and I will try to hold you to it. 

Actually, I think somebody else raised this issue, but I want to 

take you through at least a hypothetical in terms of the kind of orderly liquidation authority in Title II of Dodd-Frank, Title II which 

my good friend Senator Corker and I spent a lot of time on it, the 

one part of Dodd-Frank that actually got 80 votes. 

The hypothetical is this: If we have a large $1 trillion-plus SIFI 

institution headquartered in the United States and operating 

across the world with multiple subsidiaries, if it runs into a credit 

crunch and the rest of the financial industry stops doing business 

with this SIFI, and it therefore fails, in order to have an orderly 

failure and wind-down, would you agree that shareholders need to 

be wiped out in that SIFI institution? 

Mr. MNUCHIN. Again, it is hard to respond to a hypothetical situation, but—— 

Senator WARNER. But the normal course would be—— 

Mr. MNUCHIN. Yes, but—— 

Senator WARNER.——if the institution got into trouble and we do 

not want to have a taxpayer bailout, you would want to have, first 

of all, the shareholders wiped out, right? 

Mr. MNUCHIN. Again, let me just comment on that it is hard to 

comment on a hypothetical—— 

Senator WARNER. But if a large institution is failing, I would 

think you would want, based upon earlier comments, and everybody else’s comments, you would want the shareholders wiped 

out—— 

Mr. MNUCHIN. I would—— 

Senator WARNER.——you would want the creditors to take some 

losses. 

Mr. MNUCHIN. I would expect—— 

Senator WARNER. You would want the management fired. 

29 

Mr. MNUCHIN. I would expect that shareholders would be wiped 

out before the Government was risked. I am only saying that it is 

a hypothetical situation. There could be situations, OK, where, for 

various regulatory reasons, Title I and Title II may not be appropriate. 

Senator WARNER. I guess what I believe is that if you wipe out 

the shareholders, wipe out the management, end up having the 

creditors take the loss, and you have still got a liquidity issue, you 

need some backstop there. And I believe that, while not perfect by 

any means, the orderly liquidation process we set up in Title II 

makes the most sense. And I just find—I know my time is running 

out here, but back when we had your confirmation, we talked about 

this. I referenced the fact that the National Bankruptcy Conference, which is composed of bankruptcy judges and lawyers, believes ‘‘orderly liquidation authority under Title II should continue 

to be available, even if the Bankruptcy Code is amended.’’ 

I just hope that as you go through this process—I know you are 

reviewing Title II. If there are ways to improve—but some folks 

who are characterizing Title II as a bailout I think are—frankly, 

it is not accurate. And there is a recoupment clause, as you know, 

for any of that liquidity that may be needed in the short term. 

So thank you. I know we are going to have more conversation on 

this, but I wanted to at least put this out for further—— 

Mr. MNUCHIN. Yes, and thank you. And let me just assure you, 

we have not reached any conclusions on this. So this is something 

we are looking at. We have not reached a conclusion. And I do 

share your concern and the concern others Senators have expressed. The current Bankruptcy Code does not work for financial 

institutions, and liquidity is a serious concern as to even if we went 

through a bankruptcy process. 

So I look forward to continuing to work with you on this. 

Senator WARNER. Thank you. 

Chairman CRAPO. Senator Kennedy. 

Senator KENNEDY. Thank you, Mr. Chairman. Good morning, Mr. 

Secretary. For your benefit and mine, I am going to ask you to encapsulate your answers within 30 seconds. If you could, we can 

cover more ground. 

A few months ago, the Chairwoman of the Federal Reserve was 

with us, and she was asked what, if anything, the community 

banks and credit unions defined as less than $10 billion in assets 

did wrong in 2008, and she said, ‘‘Nothing.’’ Do you agree with 

that? 

Mr. MNUCHIN. I do. 

Senator KENNEDY. Would you support a bill that would eliminate 

community banks and credit unions defined as less than $10 billion 

in assets from supervision under Dodd-Frank? 

Mr. MNUCHIN. That is likely going to be one of the recommendations that we make when we come out with the report. 

Senator KENNEDY. Because if you do that, it is not as if the community institutions are not going to still be regulated. Is that not 

accurate? 

Mr. MNUCHIN. That is correct. They would be regulated by their 

primary regulator, which would make sense. 

30 

Senator KENNEDY. OK. Do we still have financial institutions in 

America that are too-big-to-fail? 

Mr. MNUCHIN. I do not believe that anything is too-big-to-fail. 

Some of them may be too big to succeed. 

Senator KENNEDY. Do we still have financial institutions in 

America that are so big that if they did fail, it would have a substantial, reprehensible, if you will, impact on the American economy? 

Mr. MNUCHIN. It could. 

Senator KENNEDY. OK. Do you think Dodd-Frank has eliminated 

that risk? 

Mr. MNUCHIN. Again, I would just make the comment that it is 

very fact-specific as opposed to being hypothetical. 

Senator KENNEDY. OK. If those financial institutions that I just 

referenced had more capital, would that help them? 

Mr. MNUCHIN. I believe right now that the large financial institutions actually have plenty of capital. 

Senator KENNEDY. But if they had more, it would make them 

safer, wouldn’t it? 

Mr. MNUCHIN. Well, more is obviously always better than less, 

but the question is, if more is stopping them from lending, that is 

concerning. 

Senator KENNEDY. OK. My question is not meant to suggest my 

thinking about this. I honestly want your opinion. What do you 

think about Glass-Steagall? 

Mr. MNUCHIN. Glass-Steagall, we do not support a separation of 

banks from investment banks. We think that that would have a 

very significant problem on the financial markets, on the economy, 

on liquidity. And we think that there are proper things that potentially we could look at around regulation, but we do not support a 

separation of banks and investment banks. 

Senator KENNEDY. OK. Why is our productivity growth so low, in 

your opinion, in our economy? 

Mr. MNUCHIN. I think that is a complicated question that is 

going to take a lot more—— 

Senator KENNEDY. You have got a full 30 seconds. 

Mr. MNUCHIN.——than 30 seconds, but I will be happy to come 

back and talk to you about it. I think—— 

Senator KENNEDY. Can you just give me the CliffsNotes version? 

Mr. MNUCHIN. I think it is a multi-factor issue. It is a combination of regulatory issues. It is a combination of job training issues. 

It is a combination of tax issues. I think there are a lot of issues 

that is leading to lower productivity. 

Senator KENNEDY. Now, if we could increase productivity growth 

from 1 percent to what I think is normal, 2 percent, wages ought 

to go up, right? 

Mr. MNUCHIN. That is true, and we would create huge growth in 

GDP. 

Senator KENNEDY. OK. Once again, this is a question, not a suggestion. Do you think it is possible to do legislation to incent businesses to do more profit sharing so that it is a win-win, the idea 

being that it would increase profits for the entity as well as incent 

workers to work harder and, therefore, make them more productive 

and make their wages go up? 

31 

Mr. MNUCHIN. I think there has been very successful scenarios 

of companies with profit sharing, but I support leaving that to private industry to decide what is best. I do not support legislation 

for that. 

Senator KENNEDY. OK. I have got 30 seconds. Could you tell me 

why GDP growth is so anemic? 

Mr. MNUCHIN. You know, I listen to a lot of economists tell me 

why we are in a secular situation and give me all the reasons. I 

have repeatedly said that may be the case, but we are going to do 

everything. I think fundamentally we need to grow GDP and our 

focus is a combination of tax reform, regulatory relief, and renegotiating trade agreements that will create sustained economic growth. 

Senator KENNEDY. Thank you, Mr. Chairman. Thank you, Mr. 

Secretary. 

Chairman CRAPO. Thank you. 

Senator Warren. 

Senator WARREN. Thank you. 

I want to go back to your remarks about Glass-Steagall. As you 

know, the original Glass-Steagall was put in place to divide commercial banks and investment banks. The law was repealed in 

1999, which created the too-big-to-fail banks like Citigroup and 

JPMorganChase that got so large. And since then, there have been 

many proposals, including my own bipartisan bill, with Senators 

McCain, Cantwell, and King, for a 21st century Glass-Steagall that 

would break up the banks and modernize the wall between commercial banking and investment banking. 

Now, I want to look at the history of this. The President and this 

Administration have said repeatedly that they support a 21st century Glass-Steagall. It was in the Republican Party platform. Donald Trump said it specifically a few weeks before the election. You 

said, ‘‘We need a 21st century Glass-Steagall,’’ at your confirmation 

hearing. And now you have just said exactly the opposite. 

You know, in the past few months, you and the President have 

had a number of meetings with big banks’ CEOs and lobbyists. Is 

that the reason for the reversal on Glass-Steagall? 

Mr. MNUCHIN. No, not at all. There actually was not a reversal. 

So—— 

Senator WARREN. It was not a reversal? 

Mr. MNUCHIN. No. Let me just explain. So the Republican—— 

Senator WARREN. I am ready. 

Mr. MNUCHIN.——platform did have Glass-Steagall. We during 

the campaign—and I had the opportunity to work with the President on this—specifically came out and said we do support a 21st 

century Glass-Steagall. 

Senator WARREN. Yes. 

Mr. MNUCHIN. Which is that means that there are aspects of it, 

OK, that we think may make sense. But we never said before that 

we supported a full separation of banks and investment banks. 

Senator WARREN. I am sorry—— 

Mr. MNUCHIN. If we had said that, we would have—we would 

have—— 

Senator WARREN. Let me just stop you right there, Mr. Secretary. 

Mr. MNUCHIN. You are not letting me finish. 

32 

Senator WARREN. Yeah, I am not because I really have to understand what you have just said. There are aspects of Glass-Steagall 

that you support, but not breaking up the banks and separating 

commercial banking from investment banking? What do you think 

Glass-Steagall was if that is not right at the heart of it? 

Mr. MNUCHIN. Again, I am well aware of what Glass-Steagall 

was, and as you may know, the original concern about GlassSteagall was actually about conflicts, not about credit risk. And if 

we had supported a full Glass-Steagall, we would have said at the 

time that we believed in Glass-Steagall, not a 21st century GlassSteagall. We were very clear in differentiating it. 

Now, I now realize that I had not—— 

Senator WARREN. Could I ask you to answer—— 

Mr. MNUCHIN.——realized that your bill was named ‘‘The 21st 

Century Glass-Steagall,’’ so—— 

Senator WARREN. Yes, and has been for 3 years now. 

Mr. MNUCHIN. I apologize that I was not aware of that, so we 

were—— 

Senator WARREN. But I still have not heard the answer to my 

question. What do you think Glass-Steagall was if it was not separating commercial banking from investment banking—from ordinary banking? 

Mr. MNUCHIN. Again, the fundamental part of Glass-Steagall 

was, as you have just outlined, the separation of investment banking from commercial banking, because people were concerned about 

conflicts in issuing securities. 

Senator WARREN. And how do you separate without breaking up 

the big banks that have integrated these two things? 

Mr. MNUCHIN. Again, the integration of commercial banking and 

investment banks has gone on for a long period of time. That is not 

what caused the problems during the financial crisis. And if we did 

go back to a full separation, you would have an enormous impact—— 

Senator WARREN. So—— 

Mr. MNUCHIN.——on liquidity and lending to—— 

Senator WARREN. So let me—— 

Mr. MNUCHIN.——small- and medium-sized businesses. 

Senator WARREN. So let me get—let me get this straight. Let me 

get this straight. You are saying that you are in favor of GlassSteagall, which breaks apart the two arms of banking—— 

Mr. MNUCHIN. No, I said—— 

Senator WARREN.——regular banking and commercial banking, 

except you do not want to break apart the two parts of banking. 

This is like something straight out of George Orwell. You are saying simultaneously you are in favor of breaking up the banks—that 

is what Glass-Steagall is. 

Mr. MNUCHIN. I have never said we are in favor of breaking up 

the banks and separating. If we had, it would have been very simple—— 

Senator WARREN. OK. Let me try it one more time—— 

Mr. MNUCHIN. We would not have—— 

Senator WARREN. We are going to run out of time here, but I 

have to try this one more time. What does it mean to be in favor 

33 

of 21st century Glass-Steagall if it does not mean breaking apart 

these two functions in banking? 

Mr. MNUCHIN. You know what? I would be more than happy to 

come see you—— 

Senator WARREN. No, I—— 

Mr. MNUCHIN.——and follow up and talk about this. 

Senator WARREN. Just tell me what it means. 

Mr. MNUCHIN. Had we—we never came out and—— 

Senator WARREN. Just tell me what it means—— 

Mr. MNUCHIN.——said we should separate banks—— 

Senator WARREN. Tell me what—— 

Mr. MNUCHIN.——from investment banks—— 

Senator WARREN.——21st century Glass-Steagall means if it does 

not mean breaking apart those two functions. It is an easy question—or an impossible question. 

Mr. MNUCHIN. It is actually a complicated question—— 

Senator WARREN. I will bet. 

Mr. MNUCHIN.——because there are many aspects of it. OK? The 

simple answer, which we do not support, is breaking up banks from 

investment banks. We think that would be a huge mistake. But, 

again, I am more than happy to listen to your ideas on it. You obviously have strong views, and I would be happy to follow up and listen to you. 

Senator WARREN. This is just bizarre, the idea that you can say, 

‘‘We are in favor of Glass-Steagall, but not breaking up the’’—— 

Mr. MNUCHIN. We never said we were in favor of Glass-Steagall. 

We said we were in favor of a 21st century Glass-Steagall. It could 

not be clearer. 

Senator WARREN. ‘‘We are in favor of a bill that is called ‘Breaking up the banks, only do not break up the banks.’ ’’ 

Thank you, Mr. Chairman. This is crazy. 

Chairman CRAPO. Senator Tillis. 

Senator TILLIS. Well, the good news is you are going to be able 

to finish your answers because I am going to drill down on this. 

I have some other questions that, if time allows, I will get to. But 

isn’t it kind of fair to say that the 2008 financial crisis demonstrates that nondiversified companies like Lehman, AIG, Washington Mutual had the most significant economic failings? 

Mr. MNUCHIN. I am sorry. What was your question? 

Senator TILLIS. In other words, the nondiversified institutions 

seemed to be most susceptible in the 2008 crisis. 

Mr. MNUCHIN. Yeah, well, I mean, in the case of AIG, they were 

diversified. They just took a massive amount of risk that they 

never should have taken, and the same with Lehman and others. 

So I think I agree with you. 

Senator TILLIS. Would you just go back? And you were saying 

that breaking up of the banks would have an enormous impact. 

Can you give me an idea of what that would look like? 

Mr. MNUCHIN. Again, when we are talking about breaking up the 

banks, I think what you—one, there are people who just think 

banks are too big and that they should be broken up into smaller 

banks. I would say our view is that what we should be doing is 

supporting and making sure that community banks and regional 

banks can grow so we do not just end up with big banks. 

34 

I think if you are talking about separating investment banking 

from commercial banking, that is completely different than the concept of breaking up big banks. 

Senator TILLIS. I agree, and that is what I am referring to. You 

touched on community banks, and I know in your opening statement that you referred to community banks. I did hear you refer 

to regional banks earlier. And I know in the CLEAR Act that I believe is cosponsored by Senators Tester and Moran, a concern that 

I have there is whether or not we are hitting the right target for 

where we are talking about regulatory relief based on institution 

size. 

Do you have any thoughts on when you are providing regulatory 

relief what that would look like, how you would actually structure 

it so you could provide that targeted relief to, I think, banks or financial institutions that may be a little bit larger than is targeted 

in the CLEAR Act? 

Mr. MNUCHIN. I agree with that completely, and when we come 

out with the report, that will be one of the recommendations. 

Senator TILLIS. Do you have any sense and rough order of magnitude what that would look like? 

Mr. MNUCHIN. I think that generally there are people who be- lieve that we should raise the $50 billion limit considerably, and 

as you have said, there are people who believe that we should raise 

the $10 billion limit. So we are looking at both of those. But we 

believe that there should be a greater differentiation. Banks that 

have $50 billion do not play the same risk as a bank that has $750 

billion or $2 trillion. 

Senator TILLIS. What other regulations or provisions of DoddFrank do you feel should be revisited beyond what we have just 

talked about for mid-sized and regional banks? And, specifically, I 

think it was Senator Menendez that was talking about trying to 

get to the folks that need access to loans to be able to invest, the 

mid-sized and smaller businesses I guess primarily. But what other 

areas should we be looking at or what other areas are you going 

to give us as feedback for where we should be prioritizing any other 

provisions of Dodd-Frank? 

Mr. MNUCHIN. Well, I look forward—in the next couple of weeks, 

we will be delivering the extensive report, and we will be more 

than happy to come and sit down with the Committee and go 

through the recommendations. It will be quite detailed. 

Senator TILLIS. Good. We are looking for that because I think we 

need leadership from the Administration to focus our efforts so that 

we can get to bipartisan reforms. I do not think—I mean, there are 

a lot of singles and doubles that we can hit if we get a very clear 

indication from the Administration what will be well received and 

what we can get bipartisan support for regulatory relief. But I 

think that we have to have explicit recommendations. I am looking 

forward to getting those detailed recommendations as quickly as 

possible so that the Chair can continue his good work trying to get 

bipartisan support. 

I only have about 35 seconds remaining. In 35 seconds—or I 

guess you can go over a little bit—can you tell me what direction 

we should take or what the Administration thinks we should take 

on GSE reform? 

35 

Mr. MNUCHIN. Yeah, I mean, I think—— 

Senator TILLIS. And not waiting for us to come up with something, but giving us an outline? 

Mr. MNUCHIN. Yeah. So this is something that, you know, we 

will come back in the second half of the year and make recommendations to you. 

Senator TILLIS. Will it be as extensive as the report we are expecting on the—— 

Mr. MNUCHIN. I think we would like to kind of give a clear outline as to what our recommendation would be, and, obviously, we 

need to work with Congress. And I do view this as something that 

needs to be done on a bipartisan basis. But, yes, just like we are 

doing on the core principles, we will be reaching out to many different groups, specifically consumers, specifically realtors, people 

who need access to capital, mortgage bankers, and we will come 

back with a specific suggestion. 

Senator TILLIS. Thank you, Mr. Secretary. 

Mr. MNUCHIN. Thank you. 

Chairman CRAPO. Senator Cortez Masto. 

Senator CORTEZ MASTO. Thank you, Mr. Chair. 

Secretary Mnuchin, I represent Nevada and for 8 years there 

was the Attorney General, and I have to say I have been sitting 

here listening to your comments, and I have some concerns. And 

let me just start off by saying I give everybody the benefit of the 

doubt. Even as Attorney General, it was about working for the betterment of people in our community, making sure everybody was 

coming together to work together. And I am concerned about how— 

what I have seen, some of the responses and the dancing around 

that you have done here to some of the questions. And the only 

other time I had that opportunity to hear that was from some 

bankers and Wall Street executives who were in my conference 

room as Attorney General during the worst foreclosure crisis we 

have ever seen. And the one thing they said to me was, ‘‘Well, we 

are all doing it, and if you are going to come after me, you are 

going to have to come after all of us.’’ And you know what I did? 

I went after them. And this is my concern: I am still hearing the 

same kind of dance, looking for the betterment of people instead of 

businesses and big corporations, instead of looking out for homeowners and consumers and seniors and servicemembers. So let me 

start off with this question because this is why I am concerned. 

You recently spoke at a conference of executives where the 

cheapest ticket to attend cost $12,000, and you joked, and I quote, 

you said, ‘‘You should all thank me for your bank stocks doing better.’’ I am sure you do not feel that way today. But this remark 

came during a discussion of your efforts to roll back Wall Street 

reform, including under an Executive order signed by President 

Trump, before a roomful of powerful Wall Street executives. 

Well, let me just tell you this: While you are working to undo 

those financial protections, I am still hearing from constituents in 

my State who are suffering. And let me just quote you some of 

what I am hearing from them based on your actions and what we 

are seeing from this Administration. 

36 

Ruby from Reno said, ‘‘This bill needs to stay in effect. The regulations are needed now more than ever as you cannot depend on 

the big banks to just be honest.’’ 

We have Susan from Elko: ‘‘Please do not weaken the financial 

regulations that were meant to prevent a repeat of the financial 

collapse that led to the Great Recession. It will only hurt the middle class.’’ 

Katherine from Sparks said: ‘‘Appalling that the regulations 

monitoring banks would be lowered. Stand against the Executive 

order and rolling back Wall Street reform.’’ 

Why doesn’t President Trump’s Executive order that rolls back 

the Wall Street reform mention consumer or investor protection 

even once? Why doesn’t it direct you to consider the financial needs 

of borrowers, students, servicemembers, seniors, homeowners? 

What are you doing to ensure that you are looking out for those 

best interests? And who are you surrounding yourself with so that 

you just do not hear from executives but you also get the perspective of homeowners and victims of that 2008 collapse? Because I 

have not heard today anything that you have said that is looking 

out for the interests of the people that I just talked about. 

Mr. MNUCHIN. Well, I can assure you we are interested in looking out for all those people, and this is not about—— 

Senator CORTEZ MASTO. And what are you doing specifically—— 

Mr. MNUCHIN.——rolling back reform. On homeowners, on the 

mortgage side, we are absolutely looking at people who do not have 

proper access to mortgage credit. We are looking at all different aspects, and this is not about rolling back regulation for big banks. 

This is about making sure that small- and medium-sized businesses, homeowners, have access to proper credit. That is what we 

are focused on to grow this economy. 

Senator CORTEZ MASTO. Well, let me tell you my concerns. First 

of all, I am troubled by the people you are bringing into the Treasury. Press reports suggest that you are advocating for the appointment of another OneWest executive to head the Office of the Comptroller of the Currency, our regulator entrusted with overseeing 

more than 2,000 national banks. And your senior counsel, whom 

you hired to run housing finance policy, was instrumental in managing the line of credit for Morgan Stanley to New Century, a toxic 

subprime lender that went bankrupt in 2007. As Attorney General, 

I sued for this very conduct, and this conduct was the subject of 

a $2.6 billion Justice Department settlement in 2016. 

Do you have anyone on your leadership team that has advocated 

for borrowers or worked on behalf of homeowners? 

Mr. MNUCHIN. Absolutely. First of all, we absolutely are very interested in protecting borrowers and homeowners. It is very critical 

to everything that we are doing. And this is something that is 

going to be a big focus of the Treasurer when she starts, who has 

lots of experience, having worked at the Small Business Administration and also having come up the ranks through UPS and managed a big part of their business. And a big part of her focus will 

be on community outreach and making sure—and I am sorry you 

feel that way about our appointments at the Treasury. I think we 

have an enormously incredible staff. We have an incredible career 

staff. We have lots of people inside the Treasury who have been 

37 

with us that have tremendous experience. And I think as you may 

know, I started loan modifications at IndyMac, and that is something that we were very proud of. 

Senator CORTEZ MASTO. I do not have enough time, and I do not 

want to go through that, because I think we are going to disagree 

on what you did to help homeowners in Nevada with OneWest. But 

let me just say this: I hope I am wrong. I hope that you prove me 

wrong and you are out there advocating and the people around you 

are going to be advocating for the very constituency that I just 

talked about. Because I will tell you what: Right now I have not 

heard any specifics with middle-class tax breaks; I have not heard 

any specifics on how you are going to address the very people that 

I just talked about. Talking in absolutes and without bringing specifics into the conversation concerns me. 

And so I am looking for very specific information, so I hope that 

you have that and we will have the ability to work together. 

Mr. MNUCHIN. OK. Well, I will contact your office, and I look forward to getting together with you and your staff, and we will come 

over and talk about how we appreciate the issues in Nevada and 

the housing issues. And I will follow-up in the next couple of weeks 

to come and see you. 

Senator CORTEZ MASTO. Thank you. 

Chairman CRAPO. Senator Schatz. 

Senator SCHATZ. Thank you, Mr. Chairman. 

Mr. Secretary, thank you for being here. I have some questions 

about your tax proposals, and the first is a process question. There 

are basically two paths for the Administration and for the Congress 

in terms of tax policy, whether or not you are going to move 

through reconciliation, which requires 51 votes, or whether you are 

going to move through the regular order for legislation, which 

would require 60 votes and, of course, would result in a bipartisan 

product. 

So the first question is: Do you intend to work through reconciliation or through the regular order? 

Mr. MNUCHIN. Well, I mean, that is a decision for the Senate. 

What I would say is I hope that we can get bipartisan support for 

tax reform. As we have outlined, middle-income tax cuts, making 

businesses competitive, creating jobs—— 

Senator SCHATZ. So I have a—— 

Mr. MNUCHIN.——and I hope the Democrats support that. 

Senator SCHATZ. Mr. Secretary, I have a lot of questions, so I 

just—and they are mostly about process, so yes or no or a quick 

sentence would be great. Do you have any more details since this 

piece of paper was released on April 26th? 

Mr. MNUCHIN. We have a large team of people that is working. 

Yesterday I met with the Finance Committee. We are having outreach to lots of different people, and we expect in the near term 

to have something with a lot more details. 

Senator SCHATZ. So is it fair to say—I mean, I am looking at 

your proposal and media reporting around it. Yes or no, is it accurate to say that the plan cuts the corporate tax rate, cuts the passthrough rate, reduces the top marginal tax rate for individuals, 

eliminates the AMT, and eliminates the estate tax? 

Mr. MNUCHIN. That is correct. 

38 

Senator SCHATZ. OK. So I think it was 2 days ago or maybe 3, 

Leader McConnell made a statement that tax reform must be paid 

for. Is that the view of the Administration? 

Mr. MNUCHIN. Again, it will be paid for through growth, so yes. 

Senator SCHATZ. I just—sorry, my colleague got a chuckle out of 

that. I am trying not to. But I guess the question I have—and let 

us just be really blunt here. I understand your position, which is 

essentially tax cuts pay for themselves. But I think what I am 

hearing is that you are not concerned with the sort of formal processes that determine whether or not, at least in the context of the 

legislative branch, something is paid for. You are basically asserting not just through dynamic scoring, which is a new technique of 

measuring the impact of legislation that the Congress adopted over 

the last 4 or 5 years. But you are saying: You know what? We are 

just going to ignore CBO and just hope, allege, assert that tax cuts 

always generate more revenue and pay for themselves. And that 

is—— 

Mr. MNUCHIN. No, that is—— 

Senator SCHATZ. But that is a change in the way the tax policy 

is being made. 

Mr. MNUCHIN. Again, let me just comment, that this is math. So, 

you know, you can create models. As we have seen during the financial crisis, sometimes models work, and sometimes models do 

not work. 

Senator SCHATZ. But are you going to rely on the math of CBO 

or are you going to generate your own arithmetic? 

Mr. MNUCHIN. Again, what I have said, OK—and let me just be 

clear. The tax reform is something that obviously the Administration is driving forward but needs the support of the House and 

Senate. I believe that we will have three scores: a static score, a 

dynamic score per the process with Joint Tax, and we will—— 

Senator SCHATZ. And then your score? 

Mr. MNUCHIN. We will likely have developed out of Treasury— 

we have over 100 people—a different view of growth and show 

those numbers. And when it is voted on—— 

Senator SCHATZ. You are going to have, as you say, a static score, 

a dynamic score, and then a Treasury score? 

Mr. MNUCHIN. Again, what I would say is there will be a Joint 

Tax score, and there will be a score that shows what we believe the 

impact is. That is correct. 

Senator SCHATZ. So Senator McConnell also said that a border 

adjustment tax would not pass the Senate. My view is that the 

same is true for a value-added tax. And I guess as I am looking 

at the so-called loopholes that you are looking at closing, without 

a VAT or a BAT, you are just not going to be able to generate the 

revenue to do tax reform. So my concern is that either you are 

going to try to jam a VAT or a BAT through, or you are basically 

not doing tax reform, you are doing tax cuts unpaid for with sort 

of a little bit of spin on the ball. 

So could you just allay my concerns that you actually—I understand we may have a different view of the revenue impacts of tax 

cuts. That is an interesting and legitimate conversation to have. 

But you cannot possibly believe that we do not need to generate 

39 

some revenue to make up for the holes that we are creating in the 

Tax Code. 

Mr. MNUCHIN. First of all, we absolutely believe that we have to 

generate revenue, and that is why, again, we are trying to create—— 

Senator SCHATZ. So if not a VAT and a BAT, then where? 

Mr. MNUCHIN. Can I just answer? 

Senator SCHATZ. Sure. 

Mr. MNUCHIN. So we absolutely believe we need to generate revenue. We are very concerned about the debt, OK? And we will go 

through the math and show you. Clearly, in the case of business 

taxes, there are many, many companies that pay much less than 

the 35-percent rate. And there are many companies that leave foreign profits offshore. This is all about broadening the base. 

And in regards to the BAT, we have said to Chairman Brady in 

its current format that it does not work, although we will look at 

something else if they want to present—— 

Senator SCHATZ. I am over time. I would just like to make one 

final comment with the permission of the Chairman. 

Chairman CRAPO. Briefly. 

Senator SCHATZ. And I apologize. What concerns me is that it 

seems to me that you are very sure about where you want to cut 

taxes and you are very vague about how you want to generate the 

revenue to make up for those tax cuts, and that is a dangerous position to be in, because all the things that you are sure you want 

to do mostly benefit the wealthiest among us, and all the things 

that are very vague and may be done in secret and in private are 

the things that may be harming most of our constituents. And that 

is my deep and abiding concern about this process. 

Thank you. 

Mr. MNUCHIN. Well, there is nothing that will be done in deep 

and secret. When the tax bill is generated, it will have all the specifics, and it will have the distribution, and there will be complete 

transparency in the process. 

Chairman CRAPO. Senator Donnelly. 

Senator DONNELLY. Thank you, Mr. Chairman. I just want to follow up and support the comments of my colleague Mr. Schatz that 

what is actually happening is the appearance that we will be making those working-class families, the ones who are struggling the 

most are going to be the ones whose funds go away from to help 

the richest among us. 

We find ourselves with $20 trillion now, $20 trillion in debt, and 

we were going to dynamically score our way out of $20 trillion in 

debt for the last 30 years, and we just find that the pile gets bigger 

and bigger and bigger. And I laughed one time when somebody 

said to me about the dynamic scoring, I said, ‘‘Well, then 

theoretically, if we go to zero, we should have more money than we 

ever dreamed of in history,’’ because as the tax rates go lower and 

lower and lower, we theoretically have more income coming in. 

And so one of my greatest fears as I look at the tax reform, as 

I look at where we are going, as I look at the budget that goes forward, we have budgets that dramatically increase spending in 

areas and tax reform that has huge cuts. And I think all you are 

40 

doing is just adding to the deficit, which is incredibly irresponsible 

to the children of this country. 

Mr. MNUCHIN. Well, I can assure you we have no interest in 

doing that, and the fact that the deficits and the national debt 

went from $10 trillion to $20 trillion is something we are very concerned about. And, again, as I have said before, if we make cuts, 

this is going to be about broadening the base and paying for it. 

Senator DONNELLY. But we have heard that before, and you have 

seen in various times where the deficit just increased when we—— 

Mr. MNUCHIN. Well, actually, the time we had a surplus under 

Clinton and Secretary Rubin was where the economy grew incredibly, which nobody expected. They never thought they were going 

to and they could not have predicted that type of revenue. This is 

all about how we need to create economic growth, and I hope that 

is something that everybody in this room—— 

Senator DONNELLY. And then we had the follow-on tax cuts after 

that—— 

Mr. MNUCHIN.——will work with us on it. 

Senator DONNELLY.——that blew up the deficit as well. So, you 

know, there were specific tax cuts that occurred after that that increased the deficit. But I also want to talk about outsourcing, and 

the President has talked about how this is one of his biggest priorities, is stopping outsourcing. My State, Indiana, is where Carrier 

is. It is where Rexnord is. It is where these workers who did an 

amazing job creating the best products in the world were summarily fired for no reason other than $3-an-hour wages in Mexico. 

And I was disappointed to see that the recent tax proposal did not 

have any provisions that addressed outsourcing in regards to 

things such as clawing back tax breaks for companies that moved 

jobs overseas or incentivizing companies to invest in our communities. 

And when I met with President Trump—I met with him at the 

White House and told him about an end-outsourcing bill I have— 

he was very, very supportive of this. And so what I would like to 

get is any specific policies that you are working on now in a tax 

reform package to address this outsourcing; to incentivize that, 

keeping jobs here; to claw back any tax breaks that go to companies that are moving jobs overseas. I would love the details of that. 

Mr. MNUCHIN. OK. Well, first of all, let me say I would be happy 

to get together with you and go over your ideas on outsourcing. I 

can assure you that the President is—— 

Senator DONNELLY. And the good part is I laid them out to the 

President, and he told me he was 100 percent behind them. 

Mr. MNUCHIN. I will get together with you, and we will go 

through them. I can assure you the President is very concerned 

about jobs leaving this country. I think that you know one of the 

main reasons why he wants to renegotiate NAFTA in the case of 

Carrier and others, you know, he personally picked up the phone 

and made calls. And we are very concerned about that and—— 

Senator DONNELLY. And we have supported all of those efforts. 

Mr. MNUCHIN. In all of my trips overseas, I have told my counterparts we expect free and fair trade and better trade deals, and 

that for too long American workers have been hurt by jobs leaving 

this country, whether it is because we have an uncompetitive tax 

41 

system or whether we have bad trade deals. And the President has 

talked about the concept of reciprocal deals and reciprocal taxes. 

Senator DONNELLY. I am about out of time, but I want to ask you 

about one more subject: currency manipulation. For a long time, we 

have suffered in Indiana. We have seen products dumped on our 

shores. We have seen steel dumped in our State and around our 

country, and currency manipulation has been a big part of that. 

The President promised to label China a ‘‘currency manipulator.’’ 

China has been able to rack up a huge trade surplus because of artificially keeping their currency low over the years at the expense 

of our companies. And in your testimony, you state that the Treasury Department found no major trading partner currently meets 

the criteria to be considered a currency manipulator, including 

China. 

I guess the question is: What happened? 

Mr. MNUCHIN. Again, first of all, thank you, because we did a lot 

of work. I brought the report—— 

Senator DONNELLY. I am very impressed, and it has very attractive graphics. 

Mr. MNUCHIN. Page 13—— 

Senator DONNELLY. But the President told us that he said China 

was a currency manipulator. What happened? 

Mr. MNUCHIN. Page 13, we specifically reference, OK, China’s 

intervention for roughly a decade, OK? And there is no question 

that they did. This is for a very specific period of time. We went 

through a very specific test. If anything, during this period of time 

China has used their currency reserves to go the other direction, 

which is actually good for American workers. And I have had very 

specific conversations with my counterparts that we will continue 

to monitor this behavior very carefully. 

I am glad you like the graphs. 

Senator DONNELLY. Very attractive. I am a lot more concerned 

about the currency manipulation, though. 

Thank you, Mr. Chairman. 

Mr. MNUCHIN. So are we, I can assure you. 

Chairman CRAPO. Thank you, Senator. 

And, Secretary Mnuchin, a vote has been called. The questioning 

has concluded. Senator Shelby wants to make one brief statement, 

and then actually Senator Brown wants to make I guess a statement and a couple of real quick questions, and then we will be 

wrapped up. 

Senator Shelby. 

Senator SHELBY. Mr. Secretary, we appreciate your appearance 

and your candor here today. You are a breath of fresh air. We want 

you to stay that way. 

I want to pick up on the Export-Import Bank and the question 

by the Senator. I believe that the two nominees by the President, 

former Congressmen Garrett and Bachus, are good appointments. 

I do have some fundamental differences with the role of the Bank. 

A lot of us do. I had 2 days of hearing when I was Chairman of 

the Committee to try to reform the Bank because, if my numbers 

are about right, what I have been told—you would know offhand— 

about $2 trillion of our exports each year, a little more than that, 

and only about 1 percent or 1.5 percent or something used the 

42 

Export-Import Bank, and that we all know that the Bank is used 

primarily, as far as the numbers, by one or two big companies. 

A lot of us believe that is corporate welfare. You know, that bothers us. I would hope that the Administration—and the President 

talked about this at one time—would look at ways to reform the 

Bank. I know that is separate legislation than just the nominees 

themselves. I hope you will not close your eyes to that because you 

know a lot about the private market. 

Mr. MNUCHIN. Not only would I not close my eyes, I would welcome working with you and the Committee. But we do support reopening the Bank for more than $10 million loans. But we also 

have a team at Treasury who has worked and will work with you 

on making sure that it is not just for two large companies. 

Senator SHELBY. But the majority of the Republicans in the Senate a year or so ago voted against reauthorizing the Bank because 

we could not get real meaningful reform. So that would be a priority, I think, for a lot of us. Maybe not all of us. 

Mr. MNUCHIN. We are willing to work with you on that. 

Senator SHELBY. Thank you. 

Chairman CRAPO. Senator Brown. 

Senator BROWN. Thank you, and I wanted 30 seconds to address 

what Senator Shelby just said. The blemish on this Committee and 

this Committee’s stonewalling last year affected economic growth 

because we did not have a functioning Export-Import Bank, as you 

just said, Mr. Secretary, for over $10 million. 

A couple of real quick questions. I know there is a vote called on 

the floor. Are you aware, Mr. Secretary, of any White House—these 

are really housekeeping measures that the Chairman and I sometimes do. Are you aware of any White House guidance, formal or 

informal, urging Administration officials not to respond to or to 

delay in responding to Democratic Senators? 

Mr. MNUCHIN. I am not. 

Senator BROWN. OK. Thank you for that. 

You committed to Chairman Hatch you would respond to Finance 

Committee members’ questions. Will you commit to responding to 

Members in both parties of this Committee in a timely manner to 

all requests for information? 

Mr. MNUCHIN. Yes, I will. 

Senator BROWN. Good. Thank you. 

And the last question is a little longer, but I hope you can do it 

quickly. Are Treasury and FHFA working together to prevent another draw on Treasury by the GSEs? If so, how are you doing 

that? 

Mr. MNUCHIN. I am sorry. What was the question? 

Senator BROWN. I am sorry. Are Treasury and FHFA, Mel Watt 

and you, working together to prevent another draw on the Treasury by the GSEs? And if so, how are you going to do that? 

Mr. MNUCHIN. No, my conversations with Mel Watt have been 

specifically, one, around the dividend, and that we believe the dividend payment should be paid; and, two, that we are willing to work 

with him and with Congress on housing reform. Those are the conversations we have had. 

Senator BROWN. OK. Thank you for that. 

Thank you, Mr. Chairman. 

43 

Chairman CRAPO. OK. Thank you. 

Senator Warren has come back, and she wants to briefly ask a 

few questions. We will do that, and then we will be done. 

Senator WARREN. OK, and I will not ask about Glass-Steagall. I 

will ask about something else. 

I want to ask about the tax proposal that the Administration released a few weeks ago. It proposed slashing the rate on all passthrough entities—partnerships, LLCs, S corporations—to 15 percent. So I just want to take a look for a minute at who that benefits. 

Seventy percent of all income from pass-through entities goes to 

the top 1 percent of taxpayers. That is households making more 

than $450,000 a year. And according to an analysis this week from 

the nonpartisan Tax Policy Center, this pass-through change would 

put over $1 trillion in the pockets of the top 1 percent of households while 95 percent of middle-income households would receive 

zero in tax benefits from it. 

So other than creating new tax deductions for yachts, it is hard 

to come up with a more targeted tax cut that goes to the rich other 

than this cut on the rate on pass-throughs. 

So, Secretary Mnuchin, with working families struggling to make 

ends meet, why is this Administration giving the ultra-wealthy this 

massive tax cut? 

Mr. MNUCHIN. So I can assure you—and I have said this repeatedly—we are not going to allow all pass-throughs to get that rate. 

We are going to make sure that small- and medium-sized businesses have the benefit. But we will put procedures in place—and 

I specifically said this—to make sure that people who should be 

paying higher taxes do not use pass-throughs to arbitrage the 

system. 

Senator WARREN. If I can just understand, there are two parts 

to your answer that I just want to make sure I am understanding 

what you are saying. Are you saying people who currently receive 

pass-through under your proposals may not receive pass-through in 

the future? 

Mr. MNUCHIN. Again, the concept is that there will be a box that 

you have to check that says, ‘‘I am eligible for the business tax,’’ 

which is—— 

Senator WARREN. OK, and are you—— 

Mr. MNUCHIN.——15 percent, and there will be qualifications 

around that. So, no, it is not—— 

Senator WARREN. Will that shrink up the number of people who 

receive it now? Because right now—I am not talking about new 

people coming in—it is $1 trillion in tax breaks to the top 1 percent. 

Mr. MNUCHIN. Trust me, we have run the numbers, OK? And despite the fact that lots of people have asked me these questions, we 

are sensitive to the deficit and everything else. And you are correct, 

if we let every single pass-through holder, that would be purely 

arbitraging the system—— 

Senator WARREN. It is currently a pass—I am not changing it. 

Currently a pass-through—— 

Mr. MNUCHIN. Yes, that is correct. We are not—— 

Senator WARREN. You are not going to do that. 

44 

Mr. MNUCHIN.——going to allow every single pass-through, and 

specifically, people who are making lots of money will not be able 

to use pass-throughs. There will be criteria as to whether you are 

eligible for the business tax if you are a pass-through. It will not 

be available for everyone. 

Senator WARREN. And you are going to limit this to small businesses? 

Mr. MNUCHIN. Small and medium-sized businesses, yes. 

Senator WARREN. OK, limited to that. That is what I wanted to 

understand. 

Thank you very much for the indulgence, Mr. Chairman. Thank 

you. 

Chairman CRAPO. Thank you very much. 

And now the questioning has concluded, and, Secretary Mnuchin, 

the hearing is concluded. Before I hit the gavel, though, I just want 

to thank you for your openness and your work with the Committee. 

I mirror what Senator Toomey said. You have been very willing to 

give us your time, both in formal hearings as well as in private 

meetings with the Senators of this Committee and of other committees, and I appreciate your outreach to us. 

Thank you very much for being here. 

Mr. MNUCHIN. Thank you. A pleasure. 

Chairman CRAPO. The hearing is adjourned. 

[Whereupon, at 12:14 p.m., the hearing was adjourned.] 

[Prepared statements and responses to written questions supplied for the record follow:] 

45 

PREPARED STATEMENT OF STEVEN T. MNUCHIN 

SECRETARY, DEPARTMENT OF THE TREASURY

MAY 18, 2017 

Chairman Crapo, Ranking Member Brown, and Members of the Committee, it is 

an honor to appear before you today for the first time as Treasury Secretary. During 

my confirmation hearing I promised to work with Congress to create and maintain 

prosperity for all Americans. I want to reaffirm that commitment to you today. 

Let me begin by discussing the Treasury’s recent report on the foreign exchange 

policies of our major trading partners. Ensuring that American businesses, consumers, and workers face a level playing field is one of the essential components 

of this Administration’s agenda. When foreign governments engage in currency manipulation, it makes the playing field uneven, which is why we regularly monitor 

these practices. 

After careful study, the Treasury Department has found that no major trading 

partner met the criteria for currency manipulator during the current reporting period. We will continue to follow this important issue and have established a ‘‘Monitoring List’’ of economies that warrant close attention. This list comprises: China, 

Germany, Japan, Korea, Switzerland, and Taiwan. 

Additionally, we are committed to rethinking our foreign agreements and trading 

practices to ensure that they are both free and fair to American businesses and 

workers. In my discussions with the IMF and the finance ministers of the G–20 I 

have emphasized this goal and will continue to do so. 

Turning to our domestic economic agenda, it has been more than 30 years since 

we have had comprehensive tax reform in this country. Combined with often imprudent regulations crafted in the midst of crisis, the engine of American prosperity has 

slowed. I believe that a goal of 3 percent GDP or higher economic growth is achievable if we make historic reforms to both taxes and regulation. 

There are about 100 people working at the Treasury on the issue of tax reform. 

It is our goal to bring meaningful relief to middle-income Americans and make 

American businesses competitive again. We will do this all while simplifying the 

system. 

On regulatory reform, Treasury is preparing its initial report in response to the 

President’s Executive Order on ‘‘Core Principles for Regulating the United States Financial System.’’ These Principles provide a roadmap for the Administration’s approach to financial services regulation. We have taken a systematic approach in our 

work by meeting with a variety of stakeholder groups to hear what works, what 

does not work, and what can be improved. Our initial report will contain recommendations to provide relief for community banks and make regulations more efficient, effective, and appropriately tailored. 

Housing finance reform is another priority of mine. This has been an unresolved 

issue for far too long and one we are committed to fixing. We will ensure that there 

is both ample credit for housing and that we do not put taxpayers at risk. This Committee has done extensive work on this along with your work on community financial institution regulatory relief. My hope is that we can partner on both of these 

issues. I look forward to working with the Congress to develop a solution. 

Finally, another area that is crucially important to Treasury is our commitment 

to combating terrorist activities and financing. We have announced a number of 

sanction actions against individuals and entities associated with destabilizing regimes like Syria, Iran, and North Korea. This work is essential to the Administration’s efforts to continue to keep Americans safe. 

The first few months of this Administration have been significant. We have been 

working hard at the Treasury to develop and implement policy that will allow the 

economy to grow. This will make the dream of prosperity once again a reality for 

all Americans. 

Thank you and I look forward to answering your questions. 

(47) 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN 

FROM STEVEN T. MNUCHIN 

Q.1. As requested at the hearing, please provide me a complete list 

of all meetings you have had with stakeholders, including industry, 

financial regulatory agencies, advocates, and others about the Core 

Principals Executive Order and Housing Financing Reform. Please 

indicate which meetings you attended and which meetings were 

only attended by Treasury staff. 

A.1. I participated in the meetings with large banks and community banks. I planned to participate in the consumer advocate 

meeting but was unable to due to a scheduling conflict. While not 

specifically related to the Executive order, I have met with advocate groups where the Core Principles were discussed. I have 

chaired two Financial Stability Oversight Council (FSOC) meetings 

and have met with almost all of the heads of financial regulatory 

agencies at least once, both within the context of the FSOC meetings and outside of those meetings. All of these groups are outlined 

below. A complete list of all stakeholder engagements lead by 

Treasury staff was sent to your office on June 2. 

Consumer Advocates 

Advancing the Seed 

Archimedes Institute 

California Association for Micro Enterprise Opportunity 

Centro de Vida Church 

Christ Our Redeemer Church 

Connect Authentically 

Impact Southern California Community Development Corporation 

Instituto de Avance Latino Community Development Corporation 

Latino Coalition for Community Leadership 

Los Angeles Latino Chamber of Commerce 

Macedonia Community Development Corporation 

National Asian American Coalition 

National Diversity Coalition 

OASIS Center International 

Operation HOPE 

Orange County Interdenominational Ecumenical Council 

Templo Calvario Community Development Corporation 

US-Sino Friendship Association 

Industry Groups 

Banc of California 

Bank of America Corporation 

Bank of Bennington 

Barclays US LLC 

Bank of New York Mellon Corporation 

Cape Cod Five Mutual Company 

Capital One Financial Corporation 

Cardinal Bank 

Cedar Rapids Bank and Trust Company 

Centric Financial Corporation 

Century Bank and Trust Company 

Citigroup Inc. 

48 

Citizens Financial Group, Inc. 

Credit Suisse Group AG 

Deutsche Bank AG 

EagleBank 

First National Bank of Elkhart 

FirstCapital Bank of Texas 

German American Bancorp 

Goldman Sachs Group, Inc. 

Grand Rapids State Bank 

HSBC North American Holdings 

JPMorgan Chase & Co. 

MainStreet Bancshares, Inc. 

Morgan Stanley 

Northwest Bancshares, Inc. 

PNC Financial Services Group, Inc. 

Royal Business Bank 

Santander 

Security Bancorp, MHC. 

State Street Corporation 

TD Group US Holdings 

First State Bank 

The Peoples Bank Co. 

Union State Bank of Everest 

U.S. Bancorp 

UBS Group AG 

Wells Fargo & Company 

Windsor Federal Savings Bank 

Regulators 

Commodity Futures Trading Commission 

Consumer Financial Protection Bureau 

Federal Reserve Board of Governors 

Federal Deposit Insurance Corporation 

Federal Housing Finance Agency 

FSOC Independent Member with Insurance Expertise 

National Credit Union Administration 

Office of the Comptroller of the Currency 

Securities and Exchange Commission 

Q.2. At the hearing, you stated that the OneWest management 

team flagged problems at Financial Freedom for HUD. However, 

the Department of Justice credited Sandra Jolley for bringing the 

problems to the attention of Federal officials, and even gave her a 

whistleblower award. Can you clarify whether you or OneWest 

management self-reported the problems before Ms. Jolley raised 

them? Please provide the Committee with supporting documentation. 

A.2. I no longer have any affiliation with CIT or OneWest Bank. 

Specific questions regarding this matter are best directed to CIT, 

which acquired OneWest in August 2015. 

Q.3. During your confirmation process, I asked you about solutions 

for housing finance reform. At the time, you said that the GSES 

need capital. Has that changed and if not, how do you propose they 

build capital given the terms of the preferred stock purchase agreement? 

A.3. The $258 billion of undrawn capacity under the Senior Preferred Stock Purchase Agreements (PSPAs) gives the marketplace 

confidence that the GSEs will remain solvent and continue to provide liquidity and stability to the mortgage market. However, the 

GSEs’ prolonged conservatorship has been an unresolved issue for 

49 

far too long and one we are committed to fixing. I look forward to 

working with the Congress to develop a solution. 

Q.4. At the time Mr. Noreika’s appointment as Acting Comptroller 

of the Currency, he was representing Ant Financial, a Chinese 

company that is currently under review by CFIUS. What, if any, 

conversations did you or your staff have with Mr. Noreika about 

his representation of Ant Financial while you were vetting him to 

serve as Acting Comptroller? Separately, have you or your staff 

spoken with him as part of the CFIUS review? Do you believe that 

there are any conflicts of interests by having conversations about 

a job position, as the same person is representing a foreign company that is being reviewed by you as part of the CFIUS process? 

A.4. In line with its statutory confidentiality restrictions, Treasury 

does not discuss cases before the Committee on Foreign Investment 

in the United States (CFIUS), including whether or not any case 

has been filed with CFIUS. Treasury would not engage with OCC 

on CFIUS matters that do not involve a company subject to OCC 

regulation or that provides goods or services to the OCC. Although 

Mr. Noreika identified the clients he represented in the last 2 years 

during his ethics vetting process, we are not aware of any conversations with Mr. Noreika specific to Ant Financial during any 

part of this process. As a Government employee, Mr. Noreika must 

recuse from participating in any particular matter involving specific parties in which a recent former client or employer is or represents a party. 

Q.5. In a world where cyberattacks against U.S. companies and 

Government agencies to acquire Americans’ personal identifiable 

information (PII) are a frequent occurrence, what steps is the 

Treasury taking to protect Americans against these risks? Are you 

concerned about acquisitions of U.S. companies by foreign companies that may make it easier for the foreign governments to gather 

personal data on American citizens, including servicemembers? Do 

you consider foreign access to Americans’ PII a national security 

threat? How will CFIUS consider these types of potential risks? 

A.5. Treasury has identified cyber threats as one of the most pressing economic, financial stability, and national security risks and 

made financial sector cybersecurity and resiliency a top policy and 

operational priority. Effectively executing Treasury’s mission and 

responsibilities to improve the security and resilience of the U.S. 

financial system requires a ‘‘whole-of-Treasury’’ approach. 

As it relates to the protection of PII within Treasury’s internal 

systems, Treasury has established a Cybersecurity Enhancement 

Account (CEA) that has specific line items dedicated to enterprisewide operational cybersecurity improvements. This includes enhancing capabilities such as data loss/leakage protection (DLP) and 

encryption of data in transit/at-rest for our high value assets, many 

of which process large amounts of personally identifiable information. Treasury collaborates with other agencies to help ensure our 

cybersecurity protections are properly calibrated and effective 

against today’s cyber threats. 

With limited exceptions, the private sector owns and operates the 

critical financial services sector infrastructure that Treasury seeks 

to help protect as a part of its cybersecurity mission. Thus, TreasVerDate Nov 24 2008 09:55 Feb 21, 2018 Jkt 046629 PO 00000 Frm 00053 Fmt 6601 Sfmt 6601 S:\DOCS\26522.TXT SHERYL
50 

ury’s work depends on partnerships with various stakeholders, including private sector institutions and representatives, and other 

Government partners to enhance the security and resilience of the 

U.S. financial services sector. 

Treasury’s Investment Security Office is responsible for the implementation of Treasury’s responsibilities as Chair of CFIUS. 

CFIUS has, for many years, considered the collection of sensitive 

personal data of American citizens—including data specific to 

servicemembers and other Government employees, as well as more 

general bulk customer data—as a factor in its national security reviews. New commercial innovations in recent years have increased 

the ease with which data can be collected, stored, aggregated, and 

accessed, presenting new national security considerations. CFIUS 

will continue to consider potential foreign access to sensitive personal data in its analysis of the threats, vulnerabilities, and national security consequences of the transactions under its review. 

And where such considerations constitute a national security risk, 

CFIUS will continue to either mitigate such risk, or—when the risk 

cannot be sufficiently mitigated—recommend to the President that 

he block or suspend the transaction. 

Q.6. You said during the hearing that you take your responsibility 

as Chair of the Financial Stability Oversight Council (FSOC) very 

seriously. In that role, you said that you are focused on cybersecurity. What other risks to the financial system concern you and 

what steps are you taking, as the Chair of FSOC, to address these 

risks? 

A.6. The FSOC will fulfill its responsibilities to monitor risks to 

U.S. financial stability, including by focusing on areas such as cybersecurity, market liquidity, housing finance reform, and global 

economic and financial developments, among other areas. We are 

happy to work with you and your staff to discuss areas of particular interest in more detail. 

Q.7. Under section 4 of the Bank Holding Company Act, the Secretary of the Treasury has some authority to participate in establishing restrictions upon merchant banking. At your confirmation 

hearing you committed to looking into financial holding companies’ 

involvement in merchant banking activities and that you would 

work on it. What are you doing to address this issue? 

A.7. In February, the President signed an Executive order that 

tasks Treasury with reporting on the extent to which existing laws, 

regulations, and other Government policies promote or inhibit the 

Core Principles for financial regulation set forth in the Executive 

order. As part of this process, we are considering a broad set of financial regulations that affect banks’ investments and other activities. In its initial report under the Executive order, addressing the 

regulation of depository institutions, Treasury did not propose new 

restrictions on the merchant banking activities of financial holding 

companies, but will continue to assess whether regulations are consistent with the Core Principles described in the Executive order. 

Financial holding companies are permitted by statute to 

engage in merchant banking activity. The Treasury Secretary and 

the Federal Reserve Board have authority to issue joint rules 

51 

implementing this authority, and they jointly issued merchant 

banking rules in 2001. 

Q.8. Last week, you told Senator Toomey that you want to work 

with Congress to appropriate funds for the CFPB. Supporters of 

CFPB oppose this change because it would be used to starve the 

agency of resources, resulting in less protection for consumers. The 

President’s budget appears to confirm this strategy. It shows $6.8 

billion in savings from reducing funding for CFPB. Is it possible to 

have $6.8 billion in savings without zeroing out the CFPB’s entire 

budget? If it is possible, please explain. If it is not possible, why 

did you testify that you wanted to appropriate funds for the CFPB 

when the Administration’s position is that the agency should receive no funding? 

A.8. The Budget proposes to restructure the Consumer Financial 

Protection Bureau (CFPB), limit the CFPB’s mandatory funding in 

2018, and provide discretionary appropriations to fund the CFPB 

beginning in 2019. This would yield $6.8 billion in mandatory savings over the budget window. Subjecting the reformed CFPB to the 

appropriations process would provide the oversight necessary to 

impose financial discipline and prevent future overreach by the 

CFPB. Under this proposal, the President’s Budget for fiscal year 

2019 and each subsequent year would include a request for appropriations to fund the reformed agency within the discretionary 

totals. 

RESPONSE TO WRITTEN QUESTION OF SENATOR TOOMEY 

FROM STEVEN T. MNUCHIN 

Q.1. I was pleased to see President Trump announce his intention 

to nominate a reform-minded individual to head the Export-Import 

Bank. Under former Congressman Scott Garrett’s leadership, I expect that the Export-Import Bank will better protect taxpayer dollars and give greater consideration to the potentially disruptive impact of its activities on domestic companies and American consumers. I look forward to learning more about Congressman Garrett’s plans at his confirmation hearing. 

Prior to providing the bank’s board with a quorum, the Administration should also share with the Committee what reforms it 

would like to see implemented at the Export-Import Bank. Please 

describe what, if any, reforms you view as appropriate. In particular, what steps can the bank take to better protect taxpayers, 

understand its impact on domestic competition, and better quantify 

subsidies that it provides to customers? Finally, how does the Administration plan to engage with our major trading partners to negotiate an end to trade-distorting export credit financing as required by Sec. 55002 of the FAST Act (P.L. 114–94)? 

A.1. The Administration is focusing its current efforts on restoring 

EXIM’s board quorum so that EXIM has a leadership team in place 

to continue implementing reforms in the Export-Import Bank Reform and Reauthorization Act of 2015. Treasury looks forward to 

working with the White House and Congressman Garrett following 

his confirmation to discuss future additional reforms to ensure 

EXIM is better protecting taxpayer dollars. 

52 

The Administration is negotiating the reduction of export credits 

among our major trading partners through the International Working Group on Export Credits (IWG). The IWG, comprising major 

OECD and non-OECD providers of Government-backed export 

credit support, aims to establish a set of disciplines on official export financing in order to reduce subsidies and market distortions, 

and promote a level playing field for exporters. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR SASSE 

FROM STEVEN T. MNUCHIN 

Q.1. I’d like to discuss the Trump administration’s trade policy, 

given the Treasury Department’s policy and advisory role in this 

area. 

Q.1.a. How does the Treasury Department estimate a 45 percent 

tariff on Chinese goods would impact the U.S. economy? 

A.1.a. My top priority is to boost U.S. economic growth and our 

trade policy should support that effort. 

We are engaging the Chinese intensively through our 100-day action plan and have established the Comprehensive Economic Dialogue to remove unfair trade barriers. We are making important 

progress and wish to continue to engage China constructively. 

We have not made any decisions about possible tariff measures, 

but we reserve the right to protect the U.S. economy against trading partners that maintain unfair trade practices. 

Q.1.b. How does the Treasury Department estimate a 20 percent 

tariff on Mexican goods would impact the U.S. economy? 

A.1.b. My top priority is to boost U.S. economic growth and our 

trade policy should support that effort. 

We look forward to modernizing NAFTA and engaging constructively with our Canadian and Mexican counterparts to maintain 

the existing benefits of the agreement while addressing outdated 

aspects and improving the agreement overall to the benefit of U.S. 

workers, farmers, ranchers, and firms. 

Q.1.c. The Treasury Department recently declined to label any 

major U.S. trading partner a currency manipulator. Is the Treasury Department concerned that labeling a major U.S. trading partner a currency manipulator would spark a trade war? 

A.1.c. There has been a trend in the last 2 years toward reduced 

currency intervention by key trading partners. 

However, it is critical that this not represent merely an opportunistic response to shifting global macroeconomic conditions—in 

particular changes in capital flows which have created depreciation 

pressures on many emerging market currencies—but a durable policy shift away from foreign exchange policies that facilitate unfair 

competitive advantage. 

Treasury is committed to aggressively and vigilantly monitoring 

and combating unfair currency practices. 

Q.1.d. How does the Treasury Department expect a trade war with 

China to impact the U.S. economy? 

A.1.d. We are not planning a trade war with China. 

53 

Q.1.e. How does the Treasury Department expect a trade war with 

Mexico to impact the U.S. economy? 

A.1.e. We are not planning a trade war with Mexico. 

Q.1.f. Mexico has reportedly been exploring ways to reduce corn 

imports from the United States, including by opening up trade with 

Brazil or Argentina. Is there a risk that the Administration’s rhetoric on trade will drive other countries to explore other import markets? 

A.1.f. We seek to maintain the benefits of NAFTA while it is modernized. This includes the benefits that have accrued to U.S. farmers and ranchers. We expect that Mexico will continue to see the 

United States as an important source. 

Q.1.g. Should the United States always adhere to its WTO obligations? 

A.1.g. The Administration is in the process of reviewing our trade 

agreements, including the WTO agreements. As part of our trade 

agreement review, the United States is examining how we can 

make the WTO more effective and hold trading partners accountable. 

Q.1.h. Under what circumstances should the United States ignore 

its WTO obligations? 

A.1.h. The Administration is in the process of reviewing our trade 

agreements, including the WTO agreements. As part of our trade 

agreement review, the United States is examining how we can 

make the WTO more effective and hold trading partners accountable. 

Q.1.i. The Trump administration is reportedly taking steps to 

begin the process to renegotiate NAFTA. What steps should be 

taken to ensure that these negotiations result in a successful new 

agreement, instead of the dissolution of NAFTA? 

A.1.i. We are just beginning the process of NAFTA modernization, 

including through the congressional notification and consultation 

process. The Administration is focused on getting a better deal for 

American workers, farmers, ranchers, and firms. We believe this is 

possible to achieve with these important trading partners. 

Q.1.j. Would dissolving NAFTA be preferable to maintaining the 

current version of NAFTA? 

A.1.j. Our relationships with Mexico and Canada are strong and 

we believe that we can work together to get a fair deal while maintaining the existing benefits. 

Q.1.k. How would the dissolution of NAFTA impact the U.S. economy? 

A.1.k. We are working toward a modernization of NAFTA that will 

benefit the U.S. economy. 

Q.1.l. What trade agreements are the Trump administration considering renegotiating? How would the Administration rank the importance of each renegotiation? 

A.1.l. President Trump signed an Executive order tasking the 

Department of Commerce and the United States Trade 

54 

Representative (USTR) with conducting a performance review of all 

our existing international trade agreements. 

Q.1.m. What trade agreements are the Trump administration considering pursuing during its first term? How would the Administration rank the importance of each potential agreement? 

A.1.m. The President has already made clear some of his top trade 

priorities including modernization of NAFTA. We are seeking to negotiate a number of bilateral deals with key trading partners, and 

we look forward to consulting Congress on trade priorities. 

Q.2. I’d like to explore the Treasury Department’s views on China. 

Q.2.a. To what extent is China’s currency convertible into currency 

from other countries? 

A.2.a. Your question identifies a statutory factor that the Department of Commerce must consider under Section 771(18)(B) of the 

Tariff Act of 1930 as part of its review of a country’s designation 

as a nonmarket economy. 

As you know, in March 2017, the Department of Commerce initiated a new inquiry to review China’s designation as a nonmarket 

economy, and that review is ongoing. 

Q.2.b. To what extent are wages in China set by the free market? 

A.2.b. Your question identifies a statutory factor that the Department of Commerce must consider under Section 771(18)(B) of the 

Tariff Act of 1930 as part of its review of a country’s designation 

as a nonmarket economy. 

As you know, in March 2017, the Department of Commerce initiated a new inquiry to review China’s designation as a nonmarket 

economy, and that review is ongoing. 

Q.2.c. To what extent are foreign companies and investors allowed 

to freely invest in China? 

A.2.c. U.S. investors have noted significant obstacles to investing 

in China, due to regulatory hurdles and restrictions that China 

places on foreign investment. The Administration is engaging with 

China to promote fair and open access to Chinese markets for 

American companies. 

Q.2.d. To what extend does the Chinese government own or control 

the means of production within the country? 

A.2.d. Your question identifies a statutory factor that the Department of Commerce must consider under Section 771(18)(B) of the 

Tariff Act of 1930 as part of its review of a country’s designation 

as a nonmarket economy. 

As you know, in March 2017, the Department of Commerce initiated a new inquiry to review China’s designation as a nonmarket 

economy, and that review is ongoing. 

Q.2.e. To what extent does the Chinese government control the allocation of resources and firm decisions over prices and outputs 

within the country? 

A.2.e. Your question identifies a statutory factor that the Department of Commerce must consider under Section 771(18)(B) of the 

Tariff Act of 1930 as part of its review of a country’s designation 

as a nonmarket economy. 

55 

1 U.S. Congressional Research Service, The United States Withdraws from the TPP, Report 

IN10646, February 13, 2017. 

As you know, in March 2017, the Department of Commerce initiated a new inquiry to review China’s designation as a nonmarket 

economy, and that review is ongoing. 

Q.2.f. China continues to advance the Regional Comprehensive 

Economic Partnership (RCEP), a regional multilateral trade agreement in the Pacific that includes our current free trade agreement 

(FTA) partners, South Korea and Australia, as well as Japan, a potential FTA partner. According to the Congressional Research Service, should the RCEP move forward in its current form, the ‘‘United 

States would face higher tariffs in RCEP markets.’’1

Has the Administration expressed concern that many of our trading partners could run to RCEP markets under trade rules set by 

China? What actions is the Administration taking to secure our 

trade interests in the Pacific after the withdrawal from TPP? 

A.2.f. Trade, including with countries in the Pacific region, is a 

very high priority for the Administration, and we are actively considering next steps on reviewing ways to improve our trade relations with key partners. While we have withdrawn from TPP, we 

remain fully committed to strengthening our economic relationships across the Asia-Pacific region. 

Q.2.g. The Administration announced that the United States will 

soon have access to China’s $2 billion beef market. Nebraska has 

one of the largest and most innovative beef industries in the Nation and welcomes the opportunity to compete in China. When does 

the Administration expect negotiations to be finalized? 

A.2.g. We sent the first shipment of beef to China on June 19th. 

The 100-day period runs through July 16, 100 days after the conclusion of the Presidential Summit in April. 

Q.3. I’d like to discuss the current state of the economy. 

Q.3.a. What portion of currently unemployed, underemployed and 

discouraged workers will have to retool their skill set to enter a 

new sector of the economy to become fully employed? 

A.3.a. The Administration is committed to making sure that the 

American economy continues to generate jobs. One factor that 

helps bring people back into the labor force and particularly into 

more highly skilled jobs is the availability of education and training opportunities. 

A 2016 study conducted by the Pew Research Center concluded 

that since 1980, employment has been expanding at a faster pace 

in jobs that require higher levels of education, training, and experience. The study also reported on views about training and education among the employed and unemployed. It found: 

• Employment in occupations requiring average to above-average 

education has risen by about two-thirds since 1980, while employment in jobs requiring below-average education and training has increased by only one-third since that year. 

• Among those who are unemployed but looking for work, about 

one-quarter have reported that they took a class or received 

extra training in the past year to help them obtain a job. 

56 

• Of those who did not obtain additional training, two-thirds reported that they could not afford to do so, while one-third did 

not know this type of training was available. 

• Among those who are unemployed but looking for work, only 

about half feel that they have the education and training needed to obtain the kind of job they want. 

The Administration believes that some of the jobs that have 

moved overseas can be brought back to the United States. In the 

manufacturing sector, where employment has fallen by nearly onethird since 2000, workers may need to retool to fill those jobs. In 

a 2015 report from the Manufacturing Institute, seven out of 10 

manufacturing executives reported shortages of workers with adequate technological skills. 

Annual BLS data for 2016 show that 94.4 million persons were 

counted as ‘‘not in the labor force.’’ Only 224,000 of that total number, or 0.2 percent, indicated that they were outside the labor force 

specifically because they were in school or obtaining training. 

Q.3.b. Will this percentage of unemployed, underemployed, and 

discouraged workers that must enter a new sector increase in the 

future? 

A.3.b. The U.S. labor market is considered one of the most dynamic 

in the world, constantly adapting to changing economic conditions. 

The U.S. economy has created an average of 162,000 jobs monthly 

since the start of 2017 and solid jobs growth is expected to continue. Tight labor market conditions are likely to pull more workers from the sidelines and into the economy. 

That said, it is difficult to project precisely how employment 

among prime-age workers will evolve and to which sectors such 

workers will gravitate. The fact that job growth is fastest in sectors 

requiring higher levels of education implies that unemployed, underemployed, or discouraged workers will likely need the right education and training in order to enter a new sector. 

Q.3.c. What is the average age of an unemployed or underemployed worker that decides to leave the workforce altogether instead of seeking to retool their skill set and enter a new sector? 

A.3.c. Annual data from the Bureau of Labor Statistics show that 

in 2016, among those not in the labor force who also indicated that 

they ‘‘do not want a job now,’’ 58.8 percent of the group was 55 

years and older, 23.8 percent was 25 to 54 years, and 17.5 percent 

was 16 to 24 years. 

It is difficult to say definitely whether, or in what numbers, persons from any of these groups might elect to re-enter the work 

force, whether in the same sector or a new one. Presumably, the 

decision to leave the workforce altogether, versus obtaining additional skills, would depend upon the cost of required training. For 

example, of the three occupations with the highest projected 

changes in employment through 2024 (personal care aides, registered nurses, and home health aides), training requirements vary 

widely. To become a registered nurse would require extensive and 

expensive training for a period of years, whereas the other two occupations would require only short-term training and licensing, all 

at much less cost. 

57 

Q.4. I’d like to explore your views on artificial intelligence and automation. This March you were asked about artificial intelligence 

at an event hosted by Axios. You said, ‘‘I think that [it] is so far 

in the future—in terms of artificial intelligence taking over American jobs—I think we’re, like, so far away from that.’’ You then 

went on to say that this issue was ‘‘[n]ot even on [your] radar 

screen.’’ As recently as 6 months ago, the Obama White House published a report by Jason Furman of the President’s Council of Economic Advisors on ‘‘Artificial Intelligence, Automation, and the 

Economy.’’ According to the report, ‘‘[a]ccelerating artificial intelligence capabilities will enable automation of some tasks that have 

long required human labor. These transformations will open up 

new opportunities for individuals, the economy, and society, but 

they have the potential to disrupt the current livelihoods of millions of Americans.’’ 

• Can you elaborate on what positive and negative impacts, if 

any, the increasing artificial intelligence and automation of 

routine work tasks will pose to the economy over the longterm, particularly for wages and employment? 

• How long will it take for these risks to come to significant fruition? 

• What sectors of the economy will benefit the most from automation? 

• What sectors of the economy will benefit the least from automation? 

• What—if any—policy solutions are the Treasury Department 

exploring in order to respond to intelligence and automation? 

A.4. I was specifically referring to artificial intelligence not the impact of technology and robotics on the economy. In general, technological innovations allow the economy to better use its existing resources, allowing us to produce more output with the same inputs. 

While higher output is desirable, there is no guarantee that the 

economic gains from adopting new technology are widely shared, 

which means that some, maybe most, workers are worse off even 

though the economic ‘‘pie’’ has gotten bigger. Technology brings 

labor market disruptions that are both good and bad, and the policy challenge will be addressing those distributional consequences. 

Given the difficulty in predicting how jobs will change and who 

will ultimately be helped and harmed by technology, prudent public 

policy should try to position the labor force as a whole to make the 

best use of technology while addressing any distributional problems 

that arise from the adoption of new technologies. Humans will likely still have a relative advantage in tasks that involve, for example, 

social interactions, physical dexterity, or human judgment, so the 

jobs that adapt to new technologies will have humans emphasize 

those types of tasks while technology complements them. However, 

employment in jobs that do not include such tasks may decline significantly, and then it falls to policymakers to determine whether 

and how to help displaced workers. Human capital development, 

for both future workers and those who are displaced by technology, 

would help mitigate some job losses by allowing workers to adapt 

to the newly demanded jobs. 

58 

Q.5. I’d like to explore your views on deficits and the debt. 

Q.5.a. During Federal Reserve Chair Yellen’s February 14, 2017, 

Senate Banking Testimony, Chair Yellen told Senator Corker that 

‘‘fiscal sustainability has been a long-standing problem . . . and 

the U.S. fiscal course, as our population ages and healthcare costs 

increase, is already not sustainable.’’ Do you agree? 

Q.5.b. In correspondence with me last year, Chair Yellen told me 

that ‘‘fiscal policymakers should soon put in place a credible plan 

for reducing deficits to sustainable levels over time.’’ Do you agree? 

Q.5.c. What level of deficits and debt would the Treasury Department consider sustainable over the long-run? 

Q.5.d. What metrics would the Treasury Department consult in 

order to evaluate the impact of the U.S.’s debt and deficit levels? 

What levels must these metrics reach in order for the U.S. debt 

and deficit to be sustainable? 

A.5.a.–d. Chair Yellen’s testimony is consistent with analysis and 

conclusions presented in the annual Financial Report of the U.S. 

Government (FRUSG). Since the introduction in the fiscal year 

2010 FRUSG of reporting on long-term fiscal projections (i.e., fiscal 

sustainability reporting), the reported conclusion in each successive 

year’s report has remained unchanged—that ‘‘the projected continuous rise in the debt-to-GDP ratio indicates that current policy is 

unsustainable.’’ This conclusion is consistent with the Congressional Budget Office’s (CBO’s) and Government Accountability Office’s (GAO’s) projections. 

The fiscal sustainability analysis presented in the FRUSG is prepared by OMB and Treasury in accordance with Statement of Federal Financial Accounting Standards (SFFAS) 36, Comprehensive 

Long-Term Projections for the U.S. Government. The analysis considers projected deficits and debt as a percentage of gross domestic 

product (GDP) assuming current law and policy continue unchanged over the projection period. As such, the analysis is considered to be based on projections, not predictions, and is intended to 

assist readers of the FRUSG in assessing whether future budgetary 

resources of the U.S. Government will likely be sufficient to sustain 

public services and to meet obligations as they come due. 

Reducing the deficit to levels that are sustainable over time is 

critical. SFFAS 36 states, ‘‘While many experts agree that some 

level of public debt is reasonable and acceptable, there is no universally agreed upon ‘sustainable’ percentage of debt to GDP. However, all experts agree that a continually increasing level of debt 

to GDP is not sustainable.’’ 

In accordance with SFFAS 36, the FRUSG discussion of longterm fiscal projections or fiscal sustainability focuses on trends in 

deficits and debt as a percentage of GDP. Chart E from the fiscal 

year 2016 FRUSG presents the trend in Public Debt as a percentage of GDP (debt to GDP ratio) from 1940 through 2016. As can 

be seen from Chart E, the debt-to-GDP ratio has varied widely over 

time. While the FY-end 2016 debt-to-GDP ratio was reported as 77 

percent, that ratio was as high as 106 percent in 1946, shortly following the end of World War II. 

59 

Q.5.e. Assuming current policy and current demographic trends, 

how will population aging impact the U.S. fiscal situation over the 

next 10 years? 

A.5.e. As the population ages, a larger share of individuals will retire and exit the labor market. As a result, tax receipts and payments will be lower. In addition, as the population ages, more individuals will become eligible to receive Social Security and Medicare 

benefits, which will result in increases in Government spending. 

Q.5.f. Assuming current policy and current demographic trends, 

how large does the Treasury Department expect the shortfall to be 

between retiring workers and new entrants into the workforce, over 

the next 10 years? 

A.5.f. The 2016 Annual Report of the Social Security Trustees projected that by 2022, there will be 2.6 workers per Old-Age, Survivors, and Disability Insurance (OASDI) beneficiary. By 2027, the 

2016 Annual Report of the Social Security Trustees projected that 

there will be 2.4 workers per OASDI beneficiary, approximately 17 

percent lower than the 2015 number of covered workers to OASDI 

beneficiaries (2.8) and approximately 28 percent lower than the 

2007 number of covered workers to OASDI beneficiaries (3.3). 

While the definition of ‘‘covered workers’’ and ‘‘OASDI beneficiaries’’ are not exactly equivalent to ‘‘new entrants’’ and ‘‘retiring 

workers,’’ these projections of a declining number of covered workers to OASDI beneficiaries suggest that the gap between the number of new entrants and retiring workers will increase. (see 

https://www.ssa.gov/oact/tr/2016/lr4b3.html). 

CBO projects that the labor force participation rate will decline 

from 62.8 percent in 2017 to 61.0 percent in 2027 and to 59.3 percent in 2047. CBO, however, notes that without the effects of the 

aging of the population, the labor force participation rate would remain roughly constant over the next 30 years. (see https:// 

www.cbo.gov/sites/default/files/52480-appendixa.pdf.) 

Q.5.g. What policy changes are the Treasury Department considering to address the impact of population aging on our fiscal situation? 

A.5.g. The Administration’s budget proposal identifies potential 

policy solutions to many of these issues. Treasury is also investigating policies to increase labor force participation and increase 

savings. Treasury looks forward to working with the Congress to 

address these issues. 

Q.5.h. How would the Treasury Department evaluate the economic 

impact of an unfunded $1 trillion infrastructure spending package? 

A.5.h. The Administration continues to work and develop policy 

proposals relating to infrastructure. The impacts of these policy 

proposals will depend on a number of details regarding the state 

of the economy and the proposal itself. Examples include: how close 

the economy is to full employment, monetary policy, the types of 

projects undertaken and the efficiency of public investment, and 

the extent of private sector participation. Treasury looks forward to 

working with the Congress on infrastructure policy proposals. 

Q.6. Australia has created a Standard Business Reporting regime 

(SBR) that allows a firm to complete one filing to comply with 

60 

2See https://www.xbrl.org/sbr-savings-in-australia-soar/. 3See: Trump’s quiet economic crisis, Glickman, Steve (February 27, 2017), available at: 

http://www.foxnews.com/opinion/2017/02/27/trumps-quiet-economic-crisis.html; citing: Dynamism in Retreat, Consequences for Regions, Markets & Workers, Economic Innovation Group 

(February 2017), available at: http://eig.org/dynamism. 4Foster, Lucia, John Haltiwanger, and Chad Syverson, 2008, ‘‘Reallocation, Firm Turnover, 

and Efficiency: Selection on Productivity or Profitability?’’ American Economic Review 98: 394– 

425. 5 Acemoglu, Daron, Ufuk Akcigit, Nicholas Bloom, and William Kerr, 2013, ‘‘Innovation, Reallocation, and Growth,’’ NBER Working Paper 18993. 

multiple regulatory disclosure requirements. This has extensively 

reduced the amount of required data fields, saving the Australian 

economy more than a $1.1 billion annually by one estimate.2 Is a 

similar SBR system possible in the United States? (DF) 

A.6. Treasury agrees that more needs to be done to minimize duplicative data reporting. A number of recommendations on reducing 

regulatory burdens are identified in Treasury’s first report pursuant to Executive Order 13772 (‘‘Core Principles for Regulating the 

United States Financial System’’). 

Q.7.a. According to research from the Economic Innovation Group, 

the new startup rate is near record lows, dropping by ‘‘half since 

the late 1970s’’ and the total number of firms in the U.S. dropped 

by around 182,000 from 2007–2014.3

Is the Treasury Department concerned about this decline in new 

starts and broader economic consolidation? 

A.7.a. The number and age of firms in the economy are not systematically monitored by the Treasury Department. However, Treasury 

is interested in the forces that contribute to productivity growth because it links closely to higher standards of living and well-being 

in the United States. In this context, the decline in the rate of 

startup firms may be noteworthy because they are essential to the 

firm churning process that helps to reallocate labor and capital to 

more productive uses, and contributes to innovation and productivity growth. There is evidence that new firms are more physically 

productive than either incumbent or exiting firms, on average.4

Young firms also have higher innovation intensities than mature 

firms (larger ratio of R&D spending to sales).5

The declining number of aggregate firms is not necessarily cause 

for concern from an economic perspective. Consolidation often reflects the growth of more efficient firms which gain market shares 

in part by replacing less productive firms. When capital flows toward high productivity investment opportunities and results in 

consolidation, this consolidation contributes to economic dynamism 

and productivity growth. 

Q.7.b. What—if any—policy solutions are the Treasury Department 

exploring in order to respond to these challenges? 

A.7.b. Treasury continues to examine ways to ensure that young, 

innovative firms have access to capital to support their growth and 

sustainability. Over the years, Treasury has administered a number of programs that provided capital to financial intermediaries 

that support new and existing small businesses across the country. 

For example, two Treasury Department programs established by 

the Small Business Jobs Act of 2010 have helped to boost small 

businesses’ access to capital. The Small Business Lending Fund 

61 

provided $4 billion to community banks to enable them to increase 

small business lending at a time when credit markets were severely constrained. The State Small Business Credit Initiative injected nearly $1.5 billion in a range of State financing programs 

(including venture capital for innovative startups) to help small 

businesses to enter and compete in their local markets. 

In addition, as Treasury reviews the regulatory landscape, we 

will assess the general approach to regulation and supervision of 

the primary sources of small business credit. Regulatory requirements and compliance relevant to small business lending should 

not have an adverse impact on small businesses and the communities they serve. Reducing regulatory burden, particularly for community banks, which provide nearly half of all small business 

loans, would help promote capital access for small businesses and, 

more broadly, support economic growth and job creation in the 

United States. 

Q.8. I’d like to inquire about the Treasury Department’s various 

sanctions efforts: 

Q.8.a. Secondary sanctions are theoretically effective because they 

force a firm to choose between accessing the U.S. financial system 

and engaging in prohibited activities. Is the U.S. financial system 

dominant enough for this strategy to work? 

A.8.a. Yes. 

Q.8.b. Does Treasury have the capabilities to track or fight against 

ransomware that uses cryptocurrency, and if not, is it in the process of developing said capabilities? 

A.8.b. Treasury leverages its regulatory tools and technical expertise to help protect our financial system from illicit cyber activity, 

including ransomware. Under the Bank Secrecy Act (BSA), 

FinCEN regulates as money transmitters, virtual currency exchangers, administrators, mixers and other individuals or entities 

engaged in virtual currency money transmission, subjecting them 

to anti-money laundering and countering the financing of terrorism 

(AML/CFT) obligations, including registration, compliance, recordkeeping, and reporting requirements. The information required, together with FinCEN’s analysis of suspicious activity reports (SARs) 

relating to virtual currency activities, helps support law enforcement investigations targeting ransomware attacks and other 

cybercrimes and track their illicit proceeds. In addition, to address 

the transnational nature of virtual currency transactions, the Office of Terrorist Financing and Financial Crimes (TFFC) has led 

global efforts to encourage other countries to regulate virtual currency exchangers, administrators, and other virtual currency businesses, pursuant to international AML/CFT standards. However, a 

new generation of privacy-enhancing cryptocurrencies and more 

sophisticated mixers provides significantly greater anonymity in 

virtual currency transactions and is not amenable to currently 

available network analytic tools, presenting a potential challenge to 

future sanctions implementation. 

I will ensure Treasury has the capabilities to address cybercrime 

and the abuse of virtual currencies, including by appropriate regulatory responses and by working with interagency and private 

sector partners to develop and implement more powerful analytic 

62 

tools, and will strengthen those capabilities where needed. Treasury will also actively support similar efforts by foreign counterparts. 

Q.8.c. What challenge does block chain pose to future sanctions, 

and does Treasury have the capabilities to meet those challenges? 

A.8.c. Blockchain technology and other financial technology offer 

numerous potential innovations that could provide many benefits 

to the financial sector, its customers, and the broader economy. In 

implementing these new technologies, we expect all relevant parties to continue to follow all appropriate regulations, including 

those related to sanctions. 

Q.8.d. What challenge does bitcoin pose to future sanctions, and 

does Treasury have the capabilities to meet those challenges? 

A.8.d. A new generation of privacy-enhancing cryptocurrencies and 

more sophisticated mixers provides significantly greater anonymity 

in virtual currency transactions and is not amenable to currently 

available network analytic tools, presenting a potential challenge to 

future sanctions implementation. Treasury is actively working to 

improve its capabilities to address new challenges, including in the 

sanctions context. We will continue addressing this issue, including 

by appropriate regulatory responses and by working with interagency and private sector partners to develop and implement more 

powerful analytic tools. 

Q.8.e. Does Treasury have the necessary resources and capabilities 

to conduct a North Korean leadership asset hunt, as the North Koreans are adept at developing shell companies and other methods 

of hiding money? 

A.8.e. North Korea is a top priority, and I am ensuring Treasury 

uses all its tools and authorities to fully implement the President’s 

objective of a denuclearized Korean peninsula. Additionally, Treasury continues to use its strong relationships with allies and partner 

countries to achieve this Administration goal. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED FROM 

STEVEN T. MNUCHIN 

Q.1. Student Loan Servicing: In April, Secretary DeVos rescinded 

guidance for student loan servicers that was based on joint principles developed in consultation with the Department of Treasury 

and the Consumer Financial Protection Bureau. Was the Department of Treasury consulted before this decision was made? Given 

the Department of Treasury’s involvement with administrative 

wage garnishment, tax refund offsets, and other collection tools for 

defaulted student loans, what role should the Department of Treasury play in setting standards for student loan servicing? 

A.1. Treasury was not consulted regarding the recently revised 

servicing requirements for the Federal student loan servicing 

contract or the rescission of the July 2016 servicing guidance. 

Treasury has worked with the Department of Education and an 

interagency group on standards for Federal student loan servicing, 

including the Federal student loan servicing guidance issued by 

Education in July 2016. Treasury continues to monitor Federal 

63 

student loan servicing issues and provides expertise where appropriate. 

Q.2. Tax Loophole: The Administration’s one-page tax plan promises to ‘‘eliminate tax breaks for special interests.’’ Each year, corporations accused of illegal behavior settle out of court with the 

Federal Government and then take advantage of a tax loophole to 

deduct millions of dollars in settlement costs from their tax bills. 

My bipartisan bill with Senator Grassley, the Government Settlement Transparency and Reform Act, would close this loophole and 

ensure these settlement costs in the future aren’t tax deductible. 

Would you support this bipartisan proposal as a part of overall tax 

reform? 

A.2. The Government Settlement Transparency and Reform Act 

largely codifies current law under I.R.C. § 162(f) and creates a new 

mandatory reporting and disclosure requirement for certain Government settlements. The Treasury Department and IRS would 

welcome these types of proposals and other changes to reduce complexity and disputes related to the deductibility of Government settlement costs. 

Q.3. Tax Reform: The Administration’s stated goals for tax reform 

are to primarily provide tax relief for the middle class and to balance tax cuts for the wealthiest Americans by eliminating most 

itemized deductions in favor of a larger standard deduction. Yet 

many middle-class families, particularly first-time home buyers 

with children, rely on a combination of exemptions and deductions 

in order to manage their finances and provide for their families. 

Will the Administration commit that it will not, under any circumstances, endorse an overall tax reform package that increases 

the overall tax bill for any taxpayer making under $250,000 per 

year? 

A.3. The President’s stated goal in tax reform is to provide a tax 

cut to the middle class. I fully support that goal and am working 

with the Congress to achieve that goal. Until an agreement is 

reached, I cannot pledge specific outcomes on select taxpayer 

groups. 

Q.4. IRS Data Retrieval Tool: The removal of the IRS data retrieval tools has made completing the FAFSA more difficult, putting the neediest students at risk of not successfully completing the 

form or any additional verification process, and therefore, losing access to student financial aid. For borrowers, it could mean losing 

access to income-driven repayment plans, increasing the likelihood 

of default. What is the Department of Treasury doing to get this 

vital tool back online? What steps are being taken to ensure that 

security enhancements do not create new barriers for low-income 

students or struggling student loan borrowers to access the assistance they are entitled to? How are the Departments of Education 

and Treasury sharing the responsibility and costs for a solution to 

the data retrieval tool problem? 

A.4. Treasury and Education are working together to make 

changes to the FAFSA frontend and Data Retrieval Tool (DRT) 

backend such that a secure, fully functional system can be reactivated by October 2017. While at one point Treasury and 

64 

Education considered an interim technical solution that would 

allow the system to be reactivated sooner, it came with the potential that low-income students or struggling student loan borrowers 

might be unable to access the assistance to which they are entitled. 

Treasury and Education continue to work to determine the cost allocation for the changes required, noting technical solutions will be 

implemented on each Department’s respective information systems. 

Q.5. Office of Financial Research: The Office of Financial Research 

(OFR) was established to support the work of the Financial Stability Oversight Council, and in particular, to help FSOC and its 

member agencies identify risks before they snowballed into another 

financial crisis, like the last one, that hit working class families 

particularly hard. The OFR is intended to be a data driven, deeply 

analytical, and apolitical research organization that speaks truth to 

power, and like the proverbial canary in the coal mine, serves as 

an early warning system while there is still time to avert disastrous consequences. Mr. Secretary, do you see value in keeping 

such an early warning system? 

A.5. Treasury is reviewing the OFR’s structure and authorities 

pursuant to Executive Order 13772 (‘‘Core Principles for Regulating 

the United States Financial System’’) and Executive Order 13781 

(‘‘Comprehensive Plan for Reorganizing the executive branch’’). As 

part of these reviews, Treasury is taking a close look at the OFR’s 

role. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR ROUNDS 

FROM STEVEN T. MNUCHIN 

Secretary Mnuchin, Section 4(h)(ii) of the Covered Agreement 

seems to set forth prescriptive criteria for a group capital assessment that the United States must adopt in order for the European 

Union to live up to its side of the agreement. In calling for ‘‘preventive’’ and ‘‘corrective’’ measures to be a part of the group capital assessment, I fear the European Union is attempting to export EUstyle group-level regulation, which is at odds with our legal entity 

regulatory system in the United States. 

Q.1. Is it Treasury’s position that the European Union intends to 

accept the final version of the NAIC’s group capital calculation in 

whatever form ultimately adopted by the NAIC? 

A.1. In March, I directed that before the United States makes any 

decisions regarding the U.S.–EU covered agreement, Treasury 

should hear from interested parties. Treasury has undertaken a series of meetings with interested stakeholders and Members of Congress to gather feedback on the agreement and provide updates regarding the Administration’s decisionmaking process. Treasury is 

currently considering next steps in consultation with USTR. Treasury welcomes your input on this matter. 

Q.2. Without reopening negotiations on the agreement itself, will 

Treasury commit to seeking a formal exchange of letters with the 

European Union to accompany the ratification of the Covered 

Agreement, explicitly clarifying that Section 4(h)(ii) does not commit the United States to creating a new group capital requirement? 

65 

Short of an exchange of letters with the European Union, are 

there assurances that Treasury can give to Congress that Section 

4(h)(ii) does not commit the United States to creating a new group 

capital requirement? 

A.2. In March, I directed that before the United States makes any 

decisions regarding the U.S.–EU covered agreement, Treasury 

should hear from interested parties. Treasury has undertaken a series of meetings with interested stakeholders and Members of Congress to gather feedback on the agreement and provide updates 

regarding the Administration’s decisionmaking process. Treasury is 

currently considering next steps in consultation with USTR. Treasury welcomes your input on this matter. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR MENENDEZ 

FROM STEVEN T. MNUCHIN 

Q.1. Two weeks ago, in testimony before this Committee, FHFA Director Watt warned that if either of the Enterprises experience 

losses next year, be it operational or the result of accounting adjustments, they will likely need to draw on their lines of credit at 

the Treasury due to the capital buffers being drawn down to zero 

at the end of this year. Director Watt warned that the impacts of 

such a draw could be significant, impacting liquidity in the secondary market and ultimately making it more expensive for families to purchase homes. As Director Watt explained, his preferred 

method to address this issue is to work with you to amend the 

agreements between Treasury and the Enterprises to allow them 

to keep a small capital buffer to ensure small losses do not require 

a draw. Director Watt told us he has had that conversation with 

you. 

• In your opinion, what would be the potential market impacts, 

both to the secondary market and for borrowers, if either of the 

Enterprises are in a position that requires a draw on the 

Treasury next year? 

• Do you agree with Director Watt’s assessment that an Enterprise draw on the Treasury could have significant market impacts, both to the secondary market and ultimately for borrowers? 

• During the hearing last week, you said your ‘‘conversations 

with Mel Watt have been specifically, one, around the dividend, and that we [the Administration] believe the dividend 

payment should be paid; and two, that we are willing to work 

with him and with Congress on housing reform.’’ What assurances can you provide that the Administration is committed to 

avoiding a draw? 

A.1. Currently $258 billion of undrawn capacity remains available 

to the GSEs under the Senior Preferred Stock Purchase Agreements (PSPAs), which serves as a backstop against future GSE 

losses. This support gives the marketplace confidence that the 

GSEs will remain solvent and continue to provide liquidity and stability to the mortgage market. As long as taxpayers are at risk for 

losses at one or both of the GSEs, they should be fully compensated 

for their extraordinary support that they have provided and 

66 

continue to provide. The Administration is committed to housing finance reform more broadly and supports Congressional efforts to 

this end. 

Q.2. The Administration’s budget relies on a savings of $6.8 billion 

over 10 years from ‘‘restructuring the Consumer Financial Protection Bureau.’’ Given the fact that the CFPB’s fiscal year 2017 budget is $636 million—essentially one-tenth of the proposed savings— 

these so-called savings would effectively reduce the Bureau’s annual budget to zero. This is a less of a ‘‘restructuring’’ and more 

of a full-throttled obliteration of the Bureau. 

• How does the Administration plan to ensure fair markets for 

consumer financial products and to enforce Federal laws that 

protect hard-working families from unfair and predatory practices in the mortgage industry, by credit card issuers, by student loan companies, and so forth, if the CFPB has no funding? 

A.2. I strongly support robust consumer financial protection. I also 

believe that the CFPB should be funded through the annual Congressional appropriations process like most Federal agencies. Congress’ power of the purse serves as an important check to ensure 

that Federal agencies exercise their power responsibly and spend 

taxpayer dollars wisely. 

Q.3. In January 2016, the U.S. Patent and Trademark Office granted a license to allow Cubaexport to renew an expired trademark 

registration for Havana Club rum. Cubaexport is an entity wholly 

owned by the Cuban government, and this decision reverses a longstanding policy that had denied Havana Club rights to Bacardi 

LLC in the United States. Despite repeated inquiries, the Office of 

Foreign Assets Control has yet to provide a satisfactory and legally 

sound answer for this decision which in effect rewards the Castro 

government that continues to oppress its people and deny them 

basic human rights. 

Previously, when making licensing decisions, OFAC has relied 

upon Section 211, which determines ‘‘whether the applicant has obtained the consent of the original owner of the stolen mark or the 

latter’s bona fide successor-in-interest to register or renew that 

mark.’’ Since Havana Club was illegally confiscated from the Jose 

Arechabala Company (JASA), this decision to award the trademark 

to Cuba raises serious concerns about intellectual property policy 

implications. 

• Are you planning to uphold OFAC’s decision to award the 

trademark to the Cuban government? Or will you commit to 

reviewing and clarifying why OFAC departed from precedent 

and declined to apply Section 211? 

A.3. Neither Treasury’s OFAC nor the Department of State has 

taken any position on ownership of the Havana Club trademark, 

which we understand is the subject of ongoing litigation before the 

U.S. District Court for the District of Columbia in the case captioned Bacardi & Co. Limited v. Empresa Cubana Exportadora de 

Alimentos y Productos Varios. Instead, OFAC issued a specific license authorizing Cubaexport to engage in all transactions necessary to renew and maintain the Havana Club trademark at the 

USPTO. OFAC took this action after consulting with the 

67 

Department of State, as it often does when processing license requests with foreign policy implications. The Department of State 

evaluated the referral in light of a number of factors, including 

U.S. policy with regard to trademark rights associated with confiscated property, and recommended that OFAC issue the requested specific license. 

With respect to Section 211 of the Omnibus Consolidated and 

Emergency Supplemental Appropriations Act, 1999, OFAC agrees 

that it limited the applicability of a general license in its regulations that had broadly authorized the registration and renewal of 

trademarks in which Cuba or a Cuban national has an interest. 

Section 211 does not address OFAC’s specific licensing authority, 

however. Finally, as you are aware, the Trump administration is 

continuing its review of our Nation’s foreign policy with respect to 

Cuba. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR TILLIS 

FROM STEVEN T. MNUCHIN 

Q.1. Can you outline for me and for the Banking Committee what 

your agenda is for housing finance and GSE reform? Do you think 

there should be an explicit Government backstop? Do you believe 

we should create a new entity as we consider how to move out of 

the conservatorship for Fannie and Freddie? If so, what does this 

new entity look like? Does having two GSEs make sense—is that 

anachronistic? Do they presently compete against each other? Does 

consolidation make sense? Can you outline how you and the Treasury Department envision housing finance reform and the core principles that you would like to see? What role do you think FHFA 

should have in crafting policy objectives for GSE reform? 

A.1. Housing finance reform is a priority of the Treasury and of the 

Administration. We are working across the Administration on developing housing principles and engaging with stakeholders inside 

and outside the Government in advance of providing recommendations. 

Q.2. You have stated publicly that a top priority of yours in the 

housing space is taxpayer protection. Private capital is essential to 

safety and soundness and, in the end, taxpayer protection. What 

are you going to do to raise all available forms of capital in the 

housing system to protect taxpayers? How much capital do Fannie 

and Freddie need to protect taxpayers from bailouts over the full 

housing cycle? 

A.2. The GSEs remain in Federal Housing Finance Agency (FHFA) 

conservatorship, leaving taxpayers at risk for any capital shortfalls 

per the commitments provided through the Preferred Stock Purchase Agreements. Our housing finance policy should be clear and 

should be designed to provide financing for homeowners and owners of multi-family units. Additionally, it should increase private 

sector participation and protect taxpayers. Treasury continues to 

study this issue and engage with stakeholders inside and outside 

the Government in advance of providing recommendations. 

Q.3. The HERA statute that governs the GSE Conservatorship specifically mandates that they be ‘‘placed into a sound and solvent 

68 

condition.’’ There has been a lot of debate over whether or not 

FHFA should suspend the dividend payments to Treasury and 

whether or not this prohibits the GSEs from building enough capital. Hypothetically, if FHFA suspended the dividend payments, is 

there a level that the GSEs could reach in terms of sufficient capital to prevent a future draw from Treasury? 

A.3. Currently, $258 billion of undrawn capacity remains available 

to the GSEs under the Senior Preferred Stock Purchase Agreements (PSPAs), which serves as a backstop against future GSE 

losses. This support gives the marketplace confidence that the 

GSEs will remain solvent and continue to provide liquidity and stability to the mortgage market. As long as taxpayers are at risk for 

losses at one or both of the GSEs, they should be fully compensated 

for their extraordinary support that they have provided and continue to provide. 

Q.4. The AIG re-capitalization was structured in a way that protected taxpayers and brought risk capital in to purchase the Government shares. Is this not a successful model for the GSEs? 

A.4. Housing finance reform is a priority of the Treasury and of the 

Administration. We are working across the Administration on developing housing principles. Treasury continues to study this issue 

and engage with stakeholders inside and outside the Government 

in advance of providing recommendations. 

Q.5. A recent academic paper estimated that Treasury’s warrants 

for stock of Fannie and Freddie were worth $80 to $90 billion dollars if the GSEs build capital? Do you think they should build capital? How do you attract different sources of capital for the GSEs? 

How will this help the taxpayer? 

A.5. Currently, $258 billion of undrawn capacity remains available 

to the GSEs under the Senior Preferred Stock Purchase Agreements (PSPAs), which serves as a backstop against future GSE 

losses. This support gives the marketplace confidence that the 

GSEs will remain solvent and continue to provide liquidity and stability to the mortgage market. Our housing finance policy should 

be clear and should be designed to increase private sector participation and protect taxpayers. Treasury continues to study this 

issue and engage with stakeholders inside and outside the Government in advance of providing more detailed recommendations. As 

long as taxpayers are at risk for losses at one or both of the GSEs, 

they should be fully compensated for their extraordinary support 

that they have provided and continue to provide. 

Q.6. The HERA statute passed in 2008 strengthened regulation of 

the mortgage space and gave FHFA the same strong safety and 

soundness powers that other Federal financial regulators have and 

its predecessor OFHEO lacked. What new safety and soundness 

powers do we need to ensure no more bailouts in the mortgage 

space? What additional powers should Congress bestow upon 

FHFA? 

A.6. We support FHFA’s efforts to reduce risk to taxpayers during 

the GSEs’ conservatorship, including efforts to transfer part of the 

credit risk from the GSEs to the private market as well as oversee 

the reduction of the GSEs’ investment portfolios. Treasury 

69 

continues to study this issue and engage with stakeholders inside 

and outside the Government in advance of providing recommendations. 

Q.7. The $5 trillion dollar GSE bond market is the second most liquid in the world after U.S. Treasuries. Several GSE reform proposals redo the ‘‘plumbing’’ for this market by having new entities 

do the mortgage securitization and guarantee functions. Does this 

pose a risk to the secondary mortgage market, and how will this 

impact the consumer’s ability to get a mortgage? 

A.7. We are working across the Administration on developing housing principles and engaging with stakeholders inside and outside 

the Government in advance of providing recommendations. 

Q.8. Some GSE reform plans take parts or functions of Fannie and 

Freddie and give them to the Government to operate. Given our recent disastrous experience with the Federal student loan program, 

why should we trust the Government to run mortgages? 

A.8. Treasury continues to study this issue and engage with stakeholders inside and outside the Government in advance of providing 

recommendations. 

Q.9. Beyond the housing system, what are you doing to attract 

global capital into the United States? If we are going to have economic growth in our country beyond the 2 percent, don’t we need 

additional investment in the United States? How is Treasury and 

the White House incentivizing global investment in the United 

States, and how does the lack of action on health care, tax reform, 

immigration reform, and the like implicate the consideration of 

global investors when evaluating how they are going to invest in 

the United States? Can you discuss how U.S. economic growth implicates the growth of other foreign sovereigns and the consequences to our future generations if we do not address the aforementioned issues? 

A.9. The Administration is putting in place plans to reach 3 percent economic growth to ensure the United States becomes an even 

more attractive place to invest. These plans include regulatory reform, trade reform, and tax reform. Failure to increase the rate of 

U.S. economic growth through such policies would imperil the economic prospects of future generations and may lead to a loss of 

competitive advantages currently enjoyed by the United States. 

Q.10. Can you discuss the underlying assumptions in the recent 

budget proposal from the White House? The budget assumes that 

we are going to have economic growth at 3 percent or greater over 

a 7-year period and that tax reform will be deficit neutral—can you 

discuss both of these and how you envision Congress working toward those goals? 

A.10. The President’s 2018 Budget follows from the central assumption that all of the President’s policy proposals will be enacted. The Administration’s proposals for simplifying taxes, cutting 

regulation, building infrastructure, reforming health care, and 

boosting domestic energy production are expected to improve the 

supply side of the U.S. economy and spur faster growth. 

The Administration’s economic growth assumptions are optimistic but not unprecedented. The Obama administration’s initial 

70 

policy-based forecast for its first 5 years in office was 0.5 percentage point higher than the comparable CBO forecast at the time; the 

Reagan administration’s policy forecast was 1.4 percentage points 

higher. The Trump administration’s policy forecast for first 5 years 

is 0.8 percentage point above CBO’s. 

The rate of GDP growth is expected to increase gradually to 3.0 

percent by 2020 and then remain at that level for the duration of 

the forecast window. The Administration projects a permanently 

higher trend growth rate as a result of its productivity-enhancing 

policies and a greatly improved fiscal outlook. 

Although demographic headwinds are playing a role in slower 

growth, the main culprit is weak productivity growth. Over the 

years 1948 to 2007, average annual productivity growth was 2.3 

percent. From 2011–2016, it was 0.5 percent annually (real output 

per labor hour in nonfarm business sector). A return to the productivity growth seen from 1995 through 2005—when it averaged 2.8 

percent annually—would bring U.S. economic growth very close to 

rates reflected in the Budget. 

The 2018 Budget shows what robust, sustained economic growth 

combined with significant fiscal consolidation could achieve by 

2027. 

I have stated that the 2018 Budget should be looked at as a ‘‘preliminary document’’ when it comes to tax reform because it would 

be ‘‘premature’’ to provide detailed fiscal projections based on initial policy principles and before a full-blown legislative effort. I 

have noted that ‘‘ultimately the numbers will be completely transparent.’’ 

The White House has committed to making the Federal Government ‘‘lean and accountable to the people’’ while ensuring that national security and public safety are paramount. The 2018 Budget 

offers one possible course of action for fulfilling those promises. It 

presents a set of major initiatives that would reduce Federal expenditures by more than $3.5 trillion over the next 10 years. If all 

of these cuts were pursued and if the tax reform were deficit neutral without accounting for feedback effects, then the Federal Government would run a surplus by 2027 and the debt-to-GDP ratio 

would decline from 77.4 percent this year to 59.8 percent in 2027. 

The Budget incorporated the growth benefits of the tax reform as 

one element of the $2.1 trillion ‘‘effect of economic feedback’’ and 

made the assumption that the overall tax reform would be revenueneutral before accounting for economic feedback. As the specifics of 

tax reform become more available, we may wish to revisit the revenue projections. 

We look forward to working with Congress on reforms that will 

foster faster growth and improve the country’s fiscal outlook. 

Q.11. I know the Administration is in the process of issuing multiple reports on a host of issues. One issue that I repeatedly hear 

about is the Volker Rule and Leveraged Lending Guidance. Are 

both of those issues going to be addressed in the Treasury’s reports 

and can you commit to giving explicit recommendations to Congress on how we should address these issues? 

71 

A.11. Treasury’s response to the President’s Executive Order on 

Core Principles for Regulating the United States Financial System 

includes recommendations on these issues. 

Q.12. Can you give me your opinion on Whistleblowers and Whistleblower protections? 

• Federal law requires the Government to provide a reward to 

a Whistleblower of a percentage of all collected revenues in a 

successful prosecution. However, and potentially to the detriment of this program, the IRS has continued to limit rewards 

to a percentage of the back taxes collected. Can you explain to 

me why the IRS’ actions have not comported to that of the 

statute? 

A.12. The Department of the Treasury and the Internal Revenue 

Service (IRS) are committed to administering the Whistleblower 

Program in a manner that is both fair for potential whistleblowers 

and effective for the IRS in detecting underpayments of tax and 

violations of the internal revenue laws. The Treasury Department 

and the IRS recognize the risks faced by whistleblowers and support legislation to provide legal protections to whistleblowers from 

retaliation by employers, much like those protections accorded 

under other whistleblower award programs. 

Section 7623(b) requires the IRS to pay whistleblower awards if 

the whistleblower meets certain statutory requirements. These 

mandatory awards are equal to a percentage of the ‘‘collected proceeds (including penalties, interest, additions to tax, and additional 

amounts).’’ I.R.C. § 7623(b)(1). The scope of the term ‘‘collected proceeds’’ is not limited to just ‘‘back taxes’’ because the statute clarifies that ‘‘collected proceeds’’ ‘‘includes penalties, interest, additions 

to tax, and additional amounts.’’ The legal interpretation of the full 

scope of the phrase ‘‘collected proceeds’’ is currently the subject of 

litigation, and therefore, we cannot provide any additional comment on this matter. The Treasury Department and IRS would, 

however, welcome any discussion with your office aimed at supporting the effectiveness of the Whistleblower Program. 

Q.13. In a speech you delivered on March 24th, you identified cybersecurity as a primary concern with respect to financial markets. 

A concern from some market participants is that financial regulators are issuing rules or guidance that is not harmonized and 

that is so prescriptive that it limits an entity’s ability to respond 

to dynamic cyber threats. What are your plans to promote regulatory harmonization and principle-based cybersecurity regulations? 

• How will the Treasury use FSOC to coordinate and harmonize 

cybersecurity roles among financial regulators? 

A.13. In response to the increasing threat posed by malicious cyber 

activity, Federal and State financial regulators have undertaken 

significant steps to develop regulatory guidance and examination 

tools related to cybersecurity. Effectively coordinating regulatory 

approaches to defining, regulating, and evaluating cybersecurity 

risk management practices among agencies will bolster the common goal of mitigating cyber risk within the sector and enhancing 

the sector’s resiliency. Treasury believes cybersecurity risk 

72 

management is an important topic and is actively working on several efforts related to regulatory harmonization. 

The FSOC has highlighted the importance of cybersecurity across 

the financial services sector, as well as the potential risk to 

financial stability posed by cybersecurity failures. The 2016 FSOC 

Annual Report recommended that as financial regulators adopt approaches to cybersecurity supervision, they endeavor to establish a 

common risk-based approach to assess the cybersecurity and resiliency of the firms they regulate. The FSOC noted that, informed 

by their regulatory and supervisory process, individual regulators 

could leverage that common risk-based approach to address any 

unique statutory and regulatory requirements, as well as any distinct cybersecurity risks presented by the segments of the financial 

sector they oversee. 

To further the recommendations outlined by FSOC, Treasury has 

supported regulatory coordination on several fronts. The Financial 

and Banking Information Infrastructure Committee (FBIIC) serves 

as a useful venue for coordinating approaches among agencies with 

different statutory authorities and Treasury believes the FBIIC 

should be the focal point to drive domestic regulatory harmonization efforts. Within the FBIIC, Treasury has supported efforts to 

promote the National Institute of Standards and Technology 

(NIST) Cybersecurity Framework as a common lexicon for regulatory agencies to incorporate into their supervisory efforts; expand 

and complete efforts to map existing regulatory guidance to reflect 

and incorporate appropriate elements of the NIST Framework; and 

advance work as to whether cybersecurity examinations could be 

further coordinated. Internationally, Treasury has also encouraged 

further collaboration and partnership through the G–7 Cyber Experts Group in the financial area. 

Q.14. What is the Treasury Department’s plan for providing meaningful regulatory relief for mid-sized and regional banks to help 

them deploy capital and make loans to help grow business and infrastructure? 

A.14. Treasury agrees that mid-sized and regional banks are key 

to the financial system. Treasury supports efforts to right-size regulations to address actual risks posed to the financial system rather than the current one-size-fits-all regulatory model. Treasury’s response to the President’s Executive Order on Core Principles for 

Regulating the United States Financial System makes recommendations to reduce regulations that are inappropriately applied to the business model of these financial institutions. 

Q.15. In your testimony, you indicated that you reject the notion 

that some banks are too-big-to-fail, and instead suggested that 

some might be ‘‘too-big-to-succeed,’’ can you elaborate on what you 

mean by that? You also suggested that large financial institutions 

have sufficient capital but that capital buffers have prevented 

banks from lending. In my view, using arbitrary asset thresholds 

to determine if a bank is risky or should be designated a SIFI ignores the actual risk a bank may pose to the financial system. Do 

you believe we should have thresholds, or should regulators consider the types of assets held, the interconnectedness of a bank, its 

substitutability and its global reach when determining risk? 

73 

• I share your goal of trying to spur economic growth through 

the elimination of regulations that hinder lending. If you do 

not believe that thresholds are proper at any size, can you outline for me how you plan on right-sizing regulations and 

putting into place a mechanism so that prudential regulators 

and institutions have clear rules-of-the-road with regard to 

how they will be regulated and how regulations will be tailored 

based on the risk-profile of the institution? 

A.15. We believe in appropriate regulation and in ensuring that 

taxpayers will not be at risk. At the same time we have to ensure 

that banks can lend and provide liquidity. Treasury’s recent response to the President’s Executive Order on Core Principles for 

Regulating the United States Financial System includes recommendations to more appropriately tailor regulations for midsized and regional banks so that such firms can help promote economic growth. 

Q.16. As we in Congress continue to work on a specific way forward on reforming the bank SIFI designation process, and we 

think there is quite a bit of agreement on this, what is the Administration doing to use your existing authority to tailor the rules 

that mid-sized and regional banks operate under? As you know 

from your time on the board at CIT, the resources these companies 

put into the annual capital planning and stress testing processes, 

as well as resolution planning, do not seem to be commensurate 

with their business models and risk. These resources could be better used to fuel lending in the economy. 

A.16. As noted above, Treasury’s recent response to the President’s 

Executive Order on Core Principles for Regulating the United 

States Financial System includes a number of recommendations designed to improve how regulations apply to mid-sized and regional 

banks. 

Q.17. Another area in need of significant financial regulatory reform is within the retirement space. Do you believe that mutual 

funds are SIFIs? Such designation would impose significant regulatory risks to these entities, such as a host of banking regulations, 

even though they are already heavily regulated by the SEC. Is this 

an area that your financial regulatory report will address, and will 

you put forth a recommendation to Congress to advance a statutory 

change to remove mutual funds from the scope of SIFI designation? 

A.17. Pursuant to a Presidential memorandum issued on April 21, 

Treasury is currently reviewing the FSOC’s processes for designating nonbank financial companies and financial market utilities. 

Treasury’s goal is to ensure that the FSOC’s processes are transparent, efficient, and effective. Further, the Presidential memorandum calls for a pause in the FSOC’s designations while we complete our review. 

Q.18. What other regulations and provisions of Dodd-Frank do you 

feel should be revisited to help mid-sized and regional banks grow 

loans and economic activity in communities across the country? 

A.18. Treasury’s recent response to the President’s Executive Order 

on Core Principles for Regulating the United States Financial 

74 

System includes a number of recommendations designed to improve 

how regulations apply to mid-sized and regional banks. 

Q.19. Have you been briefed on MiFID II and are you aware of the 

standards set forth in MiFID II? Are you concerned about how 

MiFID II’s research rules might affect money managers in the 

United States? Data and research suggests that the implications of 

MiFID II will be significant among domestic asset managers, global 

asset managers, brokers, and the like, and I am concerned that unless the United States acts there will be drastic affects for the U.S. 

research. Can you commit to working with the SEC in finding a solution to this problem? 

A.19. The MiFID II legislative package is very broad and covers a 

number of areas, including regulation of trading venues, market 

transparency, investor protections, research fees, and other areas. 

Under the terms of MiFID II, research fees and commission fees 

must be unbundled. Investment firms must either pay for research 

out of their own resources or from a Research Payment Account 

controlled by the firm and funded by specific research charges to 

clients. MiFID II rules do not apply to U.S. firms per se, but the 

limitations they impose on EU-registered financial services providers could spill over and impact the ability of U.S. firms to continue to provide research services to their European clients. 

As the effective date of January 3, 2018, approaches, Treasury 

remains engaged with our European counterparts to ensure that 

the playing field remains level and open to fair competition. At the 

same time, Treasury continues to work domestically with the regulatory agencies, including the SEC, all of whom are involved in regular dialogue with the European authorities. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR WARNER 

FROM STEVEN T. MNUCHIN 

Q.1. In the past, market participants and regulators have expressed concerns about the lack of transparency into treasury securities trading. In fact, FINRA recently passed, and the SEC 

approved, a rule requiring the reporting of certain treasury securities transactions for the purpose of collecting additional detail 

about the market. Are there other policies that you are considering 

that could promote transparency into these markets? For example, 

are there potential systemic benefits to policies that permit broader 

market participant access to the clearing of treasury securities? 

A.1. Central clearing for cash Treasury transactions has existed 

since the mid-1980s, through the Fixed Income Clearing Corporation (FICC). FICC’s largest member firms are all SEC-registered 

brokers and dealers subject to a comprehensive regulatory regime. 

Many principal trading firms are not members of FICC, so their 

trades are not directly cleared by FICC. FINRA reporting is expected to capture roughly 90 percent of Treasury market transactions, covering trades of FINRA members with non-FINRA members, as is common in the dealer-to-client market, and trading on 

major dealer-to-dealer platforms, such as BrokerTec and eSpeed. 

Q.2. In October 2016, the Federal Reserve Bank of New York 

hosted a conference on the evolving structure of the U.S. treasury 

75 

market. It appeared there was broad consensus that central clearing of treasury securities activity would have several benefits: increased transparency, decreased settlement and operational risk, 

and more efficient management of collateral because a CCP would 

have a more accurate view of the total exposure of each market 

participant. 

• Are you reviewing this issue as part of your response to the 

President’s Executive order on financial regulation? 

• Do you believe that increased centralized clearing of treasury 

securities would reduce aggregate counterparty and credit risk 

in the system? 

A.2. Treasury is continuing to study U.S. Treasury market structure issues, including the potential effects of increased centralized 

clearing of Treasury securities. Increased clearing could reduce 

counterparty and credit risk. The cost of central clearing could result in higher auction yields for Treasury securities, decrease incentives to provide secondary market liquidity, and increase operational risk due to the creation of a central point of failure. 

Q.3. The longest dated bond Treasury currently floats is the 30- 

year. The United Kingdom and Canada have floated 50-year debt, 

while Japan and Mexico have been able to float 100-year bonds. 

Even Princeton University and Goldman Sachs float 50-year debt. 

I understand Treasury is currently studying the issuance of ‘‘ultralong’’ bonds. In light of that, do you believe that there is adequate 

appetite for the U.S. to float 50-year Treasury bonds, especially 

while interest rates are near historic lows and the United States 

continues to be a haven for global investors? 

A.3. Treasury regularly issues securities in a wide range of maturities, from the 1-month bill to the 30-year bond and studies additional security types in order to achieve the lowest cost of financing 

to taxpayers over time. A number of other sovereign issuers (including Canada, France, Japan, and the United Kingdom) have 

sold ultra-long bonds over the past several years and I believe that 

we should evaluate whether issuing at longer-dated tenors would 

help us to achieve the lowest cost of financing over time. Benefits 

of ultra-long issuance can include: reducing the potential volatility 

in Treasury’s debt service costs, and lowering Treasury’s exposure 

to higher interest rate environments as it refinances its debt portfolio. Treasury has a nearly $14 trillion marketable debt portfolio. 

Treasury is assessing the size and depth of the market and the impact to 30-year issuance in order to evaluate whether the ultra-long 

security makes sense for Treasury. 

Q.4. I strongly agree with you that we should examine this issue 

and see if the United States can lock in lower rates over a longer 

period of time. But there is significant pushback from some market 

participants, who worry about one-time issuances or a lack of ‘‘regular and predictable’’ issuances. What is your take on that concern? 

Could you address it by announcing quarterly issuances to ensure 

sufficient demand and a predictable schedule? 

A.4. We continue to study ultra-long bonds and assess market demand. As part of the May 2017 quarterly refunding process, Treasury asked the primary dealer community to estimate the potential 

76 

1For a summary of the well-documented insolvency of these taxpayers, cross-validated by multiple sources of Federal administrative data, see: https://www.washingtonpost.com/news/gradepoint/wp/2016/12/23/feds-refuse-to-stop-taxing-the-canceled-student-debt-of-severely-disabledpeople/?utmlterm=.07ecd4ff1eed. 

volume of demand for ultra-long sovereign issuance and at what 

price, relative to our 30-year bond offering, we could reasonably expect an ultra-long to price. Treasury posed similar questions to the 

Treasury Borrowing Advisory Committee, or TBAC, and analysis 

from that Committee was posted to the Treasury website in May. 

In addition, Treasury has been reaching out to traditional long-duration institutional buy-side market participants (pension funds 

and life insurance companies) to assess demand for such a product. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR WARREN 

FROM STEVEN T. MNUCHIN 

Tax Administration 

Q.1. The Higher Education Act allows the Department of Education to forgive Federal student loans for borrowers with total and 

permanent disabilities. In 2016, the Social Security Administration 

identified 387,000 Social Security beneficiaries with Federal student loans who were eligible for such a discharge due to their 

‘‘medical improvement not expected’’ diagnosis. The Treasury Department, however, has failed to issue any guidance on how these 

Social Security beneficiaries who are totally and permanently disabled, many of whom are also veterans, would be taxed on these 

discharges. 

• Do you believe Treasury should exercise the full scope of its 

authority to ensure that Social Security beneficiaries who are 

totally and permanently disabled should not be unduly taxed 

on these student loan discharges? 

• Will you issue guidance clarifying that the General Welfare 

Doctrine applies to student loan discharges for total and permanent disability, consistent with Rev. Rul. 57–102? Alternatively, will you exercise your authority under the insolvency 

exception under 26 USC 108(a)(1)(B) to issue guidance that excludes from income the student loan discharges for totally and 

permanently disabled Social Security beneficiaries?1

• Will Treasury instruct the Department of Education not to 

issue 1099–Cs to the IRS for these student loan discharges in 

order to avoid an extraordinary and avoidable compliance burden on borrowers who are totally and permanently disabled 

and an expensive and unnecessary compliance burden on the 

IRS? 

A.1. The Treasury Department is reviewing student loan issues 

generally, and staff from our Office of Tax Policy and our General 

Counsel’s office recently had a conversation with your staff regarding these specific student loan discharge issues. As you know, student loan discharges are subject to income tax as a result of the 

Tax Code, which also provides certain limited exceptions but not 

any that could provide a blanket exception for this category of borrower. While it is too early to commit to any particular approach 

77 

2GAO (2006), Paid Tax Return Preparers: In a Limited Study, Chain Preparers Made Serious 

Errors. Washington, DC: April 2006. 

that the Treasury Department may undertake, we want to continue 

working with you on this important issue. 

Q.2.a. In the President’s FY2018 Budget released on May 24, 2017, 

the Administration proposes to increase oversight of paid tax return preparers, projecting this to raise $439 million over 10 years. 

What prompted the Administration’s concerns about paid tax return preparers? 

A.2.a. In 2009, recognizing the growing reliance by taxpayers on 

paid tax return preparers and the concurrent impact on tax administration, the IRS launched a comprehensive review of tax return 

preparation. Under 31 U.S.C. § 330, the Secretary has the authority to regulate practice before the IRS. Regulations under that section, referred to as ‘‘Circular 230,’’ regulate the practice of licensed 

attorneys, certified public accountants, and enrolled agents and actuaries. In 2009, IRS conducted a formal review of its regulation 

of paid tax return preparers. After significant consideration and 

input from taxpayers, tax professionals, and other stakeholders, 

Treasury and the IRS amended Circular 230 to regulate practice of 

all paid tax return preparers, including individuals who are unlicensed and unenrolled. Paid tax return preparers challenged these 

regulations in Loving v. Commissioner. The Court of Appeals for 

the District of Columbia Circuit determined that these regulations 

exceeded the IRS’ authority. 

Q.2.b. What risks do you see as a result of lax oversight of these 

paid preparers? 

A.2.b. Paid tax return preparers have an important role in tax administration because they assist taxpayers in complying with their 

obligations under the tax laws. Incompetent and dishonest tax return preparers increase collection costs, reduce revenues, disadvantage taxpayers by potentially subjecting them to penalties and interest as a result of incorrect returns, and undermine confidence in 

the tax system. 

Q.2.c. Does the Administration already have empirical documentation of this risk? If so, can you share it with me? 

A.2.c. A few studies exist that document the relationship between 

paid return preparers and tax return errors and examine the effect 

of preparer regulation. A 2006 report by GAO 2 finds that errors 

are common among returns prepared by commercial tax return 

preparation chains, with some errors resulting in an over claim of 

tax refunds of nearly $2,000. We also direct the Committee to the 

report that the IRS submitted to the Committee on Appropriations 

on the accuracy of returns prepared by participants in the IRS voluntary program for the 2015 tax season compared to accuracy of 

returns prepared by the same population of preparers prior to the 

2015 tax season. 

Q.2.d. What additional oversight of paid preparers does the Administration envision? Will this oversight include increased transparency of pricing so that taxpayers may compare costs across paid 

preparers? 

78 

3Paul Weinstein Jr. and Bethany Patten, The Price of Paying Taxes II: How paid tax preparer 

fees are diminishing the Earned Income Tax Credit (EITC) (April 2016) (online at http:// 

www.progressivepolicy.org/wp-content/uploads/2016/04/2016.04-WeinsteinlPattenlThe-Priceof-Paying-Takes-II.pdf). 

A.2.d. The proposal would explicitly provide that the Secretary of 

the Treasury has the authority to regulate all paid tax return 

preparers. This proposal would be effective as of the date of enactment. 

Q.2.e. What agencies will you work with to implement this oversight of paid preparers? 

A.2.e. The Internal Revenue Service works closely with the Department of Justice to enjoin unscrupulous individuals and entities 

from preparing tax returns and to prosecute those who engage in 

criminal activity. 

Q.2.f. What timeline can we expect for this commitment to increase 

oversight of paid preparers? 

A.2.f. If legislation providing authority to regulate all paid tax return preparers is enacted, the Treasury Department will implement such legislation promptly. Until then, the IRS has an interim 

program, the Annual Filing Season Program, to encourage tax return preparers to voluntarily demonstrate that they meet the minimum standards of competency. To complement the Annual Filing 

Season Program, the IRS also has a public education campaign to 

encourage taxpayers to make informed decisions when choosing a 

paid tax return preparer. 

Q.3. In 2015, Congress required that no EITC or ACTC refunds be 

issued until after February 15th, even though tax returns are accepted in January. This new delay spurred a significant uptick in 

‘‘tax-time financial products’’—short-term loans to taxpayers that 

use the tax refund as collateral and often conceal the full price of 

tax-preparation fees that are directly withdrawn from the tax refund. One survey of storefront tax preparation chains found that 

EITC recipients were charged an average of $400 per return.3

• Do you believe taxpayers should lose portions of their EITC 

and or ACTC refunds to paid preparers or tax-time financial 

products, rather than receiving the full value of their refunds? 

• Will you commit to assessing the full dollar value of EITC and 

ACTC refunds that go to the tax preparation industry rather 

than to taxpayers? 

• Who have you assigned at the OCC to review the tax-time financial products offered by the tax preparation industry? 

• Will you, or your delegate, commit to briefing the Financial 

Institutions and Consumer Protection Subcommittee of the 

Senate Banking Committee on the Treasury Department’s 

oversight of tax-time financial products? 

A.3. Beginning with refunds paid in 2017, the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) changed the law to 

prohibit payment of refunds with respect to tax returns claiming 

the EITC or ACTC until February 15. 

79 

4Sec. 2004 of (P.L. 105–206). 

In conjunction with faithfully carrying out the laws enacted by 

Congress, I am committed to making our tax system as efficient as 

possible, while also protecting the integrity of the system. 

In 2015, the Office of the Comptroller of the Currency (OCC) updated 2010 guidance to outline safety and soundness measures that 

national banks and Federal savings associations (collectively, 

banks) should follow if they offer tax refund-related products. 

Those measures include but are not limited to, the following: ensuring that the bank maintains sound risk management policies, procedures, and practices; implementing effective internal controls and 

review standards for advertising and solicitations; and, providing 

appropriate disclosures that explain material aspects of the products to consumers. The Senior Deputy Comptroller for Compliance 

and Community Affairs is monitoring the implementation of this 

guidance in regard to banks that they supervise; the OCC indicates 

that one national bank is currently providing such products. 

I understand that you have requested the Government Accountability Office examine the use and impact of tax-time financial 

products. The Treasury Department will certainly work with GAO 

in their research and we would look forward to their findings. 

Q.4. In 1998, the IRS Restructuring and Reform Act directed the 

Secretary of the Treasury to develop procedures to implement a 

‘‘return-free’’ filing system by 2006.4 Despite this generous 

timeline, the Treasury Department has yet to fulfill this mandate. 

• Will you use the full scope of your authority as Secretary to 

make tax filing faster, easier, and cheaper for working families? 

• Will you fulfill your obligations under the IRS Restructuring 

and Reform Act to ‘‘develop procedures for the implementation 

of a return-free tax system under which appropriate individuals would be permitted to comply with the Internal Revenue 

Code of 1986 without making the return required under section 6012?’’ 

A.4. A simpler, fairer, and more efficient tax system is critical to 

growing the economy and creating jobs. Our outdated, overly complex, and burdensome tax system must be reformed to unleash 

America’s economy, and create millions of new, better-paying jobs 

that enable American workers to meet their families’ needs. Going 

forward, we are committed to continue working with Congress and 

other stakeholders to carefully and deliberatively build on these 

principles to create a tax system that is fair, simple, and efficientone that puts Americans back to work and puts America first. 

Q.5. In 2015, Congress directed the Internal Revenue Service to 

contract with private debt collection companies for certain uncollected tax receivables. Although the IRS oversees these contracts, 

the Federal Trade Commission is tasked with overseeing enforcement of the Fair Debt Collections Practices Act, which also applies 

to these debt collectors. 

• Has Treasury already been in contact with the FTC about IRS 

contractor compliance with the FDCPA? Will you commit to 

working with the FTC to ensure ongoing compliance with the 

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5https://www.law360.com/articles/924367/chamber-asks-treasury-to-nix-inversion-estate-taxrules. 

FDCPA by these private debt collection IRS contractors in 

order to protect taxpayer rights? 

A.5. Section 6306(g) of the Internal Revenue Code provides that the 

Fair Debt Collection Practices Act (FDCPA) applies to private debt 

collection agencies. As a result, the IRS requires that, as a condition of receiving a contract with the IRS, private debt collection 

agencies must respect taxpayer rights including, among other 

things, abiding by the consumer protection provisions of FDCPA. 

The IRS and FTC have been in contact regarding contractor compliance with the FDCPA, and the IRS has confirmed for the FTC 

that private debt collection agencies will not be using robocalls or 

prerecorded messages as part of their collection activities. In addition, the Treasury Inspector General for Tax Administration maintains a hotline for consumer complaints about private debt collection agencies or to report misconduct by its employees. The Treasury Department and IRS take all complaints about private debt 

collection agencies seriously and will work with the FTC and any 

other relevant agency in the interest of protecting taxpayer rights. 

Q.6.a. In 2016, the Treasury Department issued tough rules to stop 

multinational corporations from a whole range of cross-border tax 

dodging. These new regulations focused on ‘‘earnings stripping,’’ 

when foreign companies load up their U.S. subsidiaries with debt 

from the foreign parent in order to zero out U.S. taxes with interest 

deductions. The rules also cracked down on ‘‘corporate inversions,’’ 

when U.S. companies merge with a smaller foreign company in 

order to claim a foreign tax residence. On May 15, 2017, the Chamber of Commerce asked you to withdraw these rules.5

• Do you believe the Treasury Department should increase tax 

preferences for foreign owned multinational corporations by 

rolling back section 385 regulations? 

A.6.a. In April 2016, the Treasury Department and the IRS issued 

proposed regulations (REG–108060–15) under section 385 of the 

Code that primarily (i) established threshold documentation 

requirements that ordinarily must be satisfied in order for certain 

related-party interests in a corporation to be treated as indebtedness for Federal tax purposes (documentation rules), and (ii) treated as stock certain purported debt instruments that are issued to 

a controlling shareholder in a distribution or in another transaction 

that achieves an economically similar result (transaction rules). On 

October 21, 2016, the Treasury Department and the IRS issued 

final and temporary regulations that substantially revised the proposed regulations (81 Fed. Reg. 72858). In particular, the final and 

temporary regulations were limited to apply to U.S. borrowers only 

and provided additional rules to exempt certain transactions and 

types of U.S. borrowers from application of the regulations. 

Earnings stripping through related-party borrowing generally refers to a borrower that borrows from an affiliate and thereby incurs 

deductible interest expense. U.S. subsidiaries of foreign-parented 

multinational groups may engage in earnings stripping by borrowing from related foreign lenders to arbitrage the tax rate 

81 

6The transaction rules in the section 385 regulations also apply to other related party transactions that are described as economically similar to a distribution and not financing new investment in the operations of the borrower. 

difference between the interest deduction in the United States (currently 35 percent) and the interest income in a lower-tax lending 

jurisdiction. The United States has statutory limits on the amount 

of related-party interest expense that may be deducted in a tax 

year under section 163(j) of the Code. The interest expense limitation under section 163(j) is computed as a percentage of the U.S. 

taxpayer’s adjusted taxable income. 

The transaction rules in the section 385 regulations do not directly address excessive related-party interest expense in a manner 

similar to section 163(j). Rather, the transaction rules in the section 385 regulations address specific issuances of new related-party 

debt that is issued by the purported borrower to a related party in 

a corporate distribution (sometimes referred to as a ‘‘dividend 

note’’).6 Also, unlike the section 163(j) earnings stripping limitations, the transaction rules in the section 385 regulations recharacterize an issuance of a purported debt instrument as stock rather 

than limiting the amount of deductible interest expense associated 

with the purported debt instrument. In other words, the transaction rules in the section 385 regulations characterize a purported 

related-party debt instrument as debt or stock for tax purposes 

under certain prescribed circumstances without regard to whether 

or not the borrower has excessive related-party interest expense 

under the current section 163(j) interest expense limit. 

On April 21, 2017, President Trump signed E.O. 13789, which orders the Secretary to immediately review all significant tax regulations issued by the Department of the Treasury on or after January 

1, 2016, and, in consultation with the Administrator of the Office 

of Information and Regulatory Affairs, Office of Management and 

Budget, identify in an interim report to the President all such regulations that: (i) impose an undue financial burden on United 

States taxpayers; (ii) add undue complexity to the Federal tax laws; 

or (iii) exceed the statutory authority of the Internal Revenue Service. The Treasury Department in Notice 2017–38 identified the section 385 regulations as meeting the criteria of the President’s 

order. A final report will be issued at a later time recommending 

specific actions to mitigate the burden imposed by the regulations 

identified in the interim report. No decision has currently been 

made on what action will be taken with respect to the section 385 

regulations or the other regulations identified. In addition, the 

Trump administration and the Treasury Department are actively 

engaged with Congress on tax reform. As such, the Treasury Department is carefully considering the section 385 regulations in 

connection with E.O. 13789, and the statutory earnings-striping 

limits under section 163(j) in connection with formulating its recommendations for tax reform. 

Q.6.b. You have described anecdotal concerns by U.S. companies of 

foreign takeovers. Do you have empirical documentation of an uptick in foreign acquisitions of U.S. targets relative to U.S. acquisitions of foreign targets? 

82 

7 Business in the United States: Who Owns it and How Much Tax Do They Pay? Michael Cooper, John McClelland, James Pearce, Richard Prisinzano, Joseph Sullivan, Danny Yagan, Owen 

Zidar, Eric Zwick, in Tax Policy and the Economy; Volume 30, Brown. 2016. 

A.6.b. United Nations Conference on Trade and Development 

(UNCTAD) data on flows of foreign direct investment (FDI) into 

and out of the United States are quite variable from year to year. 

Outward flows exceeded inward flows each year from 2007 through 

2014, though inward flows were larger in 2015. The widely acknowledged U.S. tax advantages for inbound and outbound investment compared to U.S. domestic investment by U.S. persons and 

nontax reasons for cross-border investment suggests that this comparison is not definitive on this issue. 

Q.6.c. Do you believe relaxing rules on corporate inversions, so that 

U.S. companies can merge with foreign companies to claim a foreign tax residence, helps create American jobs? 

A.6.c. Most U.S. public corporate inversions do not involve top executives moving from the United States to the new country of corporate residence, but some do. Beyond that, it is not clear that 

corporate inversions reduce U.S. jobs in the short run, but we know 

of no convincing evidence that corporate inversions tend to increase 

U.S. employment. 

Tax Reform 

Q.7. As you know, 70 percent of all income from pass-through entities goes to the top 1 percent of taxpayers.7 In your testimony before the Banking Committee, you stated that not all pass-throughs 

would receive the preferential business tax rate proposed by the 

Administration and that you would propose eligibility requirements 

for the preferred tax rate. 

• How will you limit eligibility for the business tax rate to middle-class taxpayers who receive income from pass-throughs? 

Will there be a specific tax bracket for claiming the preferred 

rate? 

• How will you limit eligibility for this business tax rate to 

small- and medium-size businesses? 

A.7. There are a number of approaches to limit the preferential 

pass-through rate to certain taxpayers and businesses. We are confident that we can develop effective measures to appropriately target income that should be eligible for the preferential rate, and we 

look forward to working with Congress to further develop these 

proposals. 

Q.8. The Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC) are some of our Nation’s most effective anti-poverty programs for working families. Many struggling families, however, 

have their refundable tax credits swallowed up by bankruptcy 

trustees, undermining the very purpose of these refundable tax 

credits. In a survey of consumer Chapter 7 bankruptcy asset cases, 

bankruptcy trustees took some form of tax refunds in 65 percent 

of the asset cases, with an average capture of $3,404 per asset case. 

• In your tax reform proposals, will you ensure that the EITC 

and CTC are protected from creditor attachment, just like 

83 

8Dalie Jimenez, The Distribution of Assets in Consumer Chapter 7 Bankruptcy Cases, American Bankruptcy Law Journal, Vol. 83, p. 795, 2009. 

Social Security benefits and certain retirement benefits under 

ERISA?8

A.8. The current treatment of the EITC and CTC is a function of 

the Bankruptcy Code, not the tax code. Nevertheless, as a general 

matter, we are open to considering all proposals that meet the Administration’s core principles of tax reform. 

ISIS 

Q.9. Is the Treasury Department taking additional steps to shut off 

ISIS from the international financial system and from other financial networks like money remittance channels and currency auctions? Does the Department believe that additional authority from 

Congress would be helpful in this effort, and if so, what authority 

would the Department seek? 

A.9. Treasury is leading global efforts to prevent ISIS from accessing the international financial system. It is sanctioning ISIS senior 

leaders, financiers, facilitators, recruiters, and money services businesses, and has worked closely with Iraqi authorities to ensure 

that bank branches within ISIS-controlled territory in Iraq were 

completely cut-off from the Iraqi and international financial systems. Treasury has also helped to put in place safeguards at the 

Central Bank of Iraq to deny ISIS access to U.S. dollar currency 

auctions and to strengthen oversight of exchange houses and 

money transfer companies, key channels through which ISIS moves 

funds. Further, Treasury has worked multilaterally, through bodies 

like the Counter-ISIS Finance Group—an integrated part of the 

broader Defeat ISIS Coalition—and the Egmont Group of Financial 

Intelligence Units and the Financial Action Task Force to share information on ISIS’s finances and its cross-border financial networks, and to identify opportunities for disruption. 

Treasury believes it has sufficient authority from Congress to 

counter ISIS’s finances. 

Iran 

Q.10. Iran is still on the Financial Action Task Force (FATF) blacklist of countries that are a high risk of money laundering and terrorist financing. Last year Iran made commitments to FATF to 

make structural reforms in these areas. Will you work with FATF 

to compel Iran to address its money laundering and terrorist financing problems? 

A.10. Yes. Treasury will continue to work within the FATF and 

ICRG to hold Iran accountable for AML/CFT deficiencies and pressure Iran to address those deficiencies. 

RESPONSE TO WRITTEN QUESTION OF SENATOR KENNEDY 

FROM STEVEN T. MNUCHIN 

Q.1. Mr. Secretary, as you know, I was a part of a group of Senators who wrote to you in March urging you to end FSOC’s ‘‘toobig-to-fail’’ policies by addressing the designation of—bank ‘‘systemically important financial institutions’’ (or ‘‘SIFIs’’). There are a 

84 

number of banks that have been designated by FSOC as SIFI. 

There are serious economic consequences to these decisions, starting with a dramatically higher level of regulatory burden on the 

bank that is accompanied with significantly higher compliance 

costs. An annual reevaluation could allow designated financial institutions an 

opportunity to submit a plan with any additional materials necessary to contest the determination that material financial distress 

at the bank, or the nature, scope, size, scale, concentration, interconnectedness, or mix of the activities of the nonbank financial 

company, could pose a threat to the financial stability of the United 

States. 

As you and your staff begin FSOC reform, have you given consideration to building an annual reevaluation process of the designation decisions for banks, to determine how to best tailor which of 

the enhanced supervision provisions should apply to each bank? 

A.1. In February, the President signed an Executive order that 

tasks Treasury with reporting on the extent to which existing laws, 

regulations, and other Government policies promote or inhibit the 

Core Principles for financial regulation set forth in the Executive 

order. As part of this process, we are considering a broad set of financial regulations that affect banks and other institutions. In its 

initial report under the Executive order, addressing the regulation 

of depository institutions, Treasury recommended that Congress 

amend the $50 billion threshold under Section 165 of the DoddFrank Act for the application of enhanced prudential standards to 

more appropriately tailor these standards to the risk profile of 

bank holding companies. 

Additionally, pursuant to a Presidential Memorandum issued on 

April 21, Treasury is currently reviewing the FSOC’s processes for 

its designations of nonbank financial companies and financial market utilities to evaluate, among other things, whether the existing 

processes provide for sufficient transparency and provide entities 

with adequate due process. 

The FSOC remains subject to its statutory requirement to reevaluate its previous designations of nonbank financial companies, 

and we will continue to do so. As part of each annual reevaluation 

of a nonbank financial company’s designation, the FSOC invites 

the company to meet with staff and to submit information relevant 

to the FSOC’s analysis. For companies that have contested their 

designation during the FSOC’s annual reevaluation process, the 

FSOC has voted on whether to rescind the designation and provided the company with a notice explaining the primary basis for 

its decision. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR VAN 

HOLLEN FROM STEVEN T. MNUCHIN 

Low Income Housing Tax Credit 

Q.1. Mr. Mnuchin, the President’s Budget proposes over $7 billion 

in cuts to affordable housing programs. At the same time, the proposed reduction on corporate taxes will decrease the amount of 

LIHTC equity that can be raised and that will decrease the number 

85 

of affordable rental apartments that can be built or preserved. The 

LIHTC helps in the financing of the majority of affordable housing 

development. In Maryland, the LIHTC program has produced 

58,910 units of affordable housing and has generated $6.34 billion 

in local income to the economy. The combination of decreased funding for affordable housing programs and decreased utilization of 

the LIHTC could have disastrous impacts on the production and rehabilitation of affordable housing. 

Since the budget dramatically reduces funding for affordable 

housing programs, is Treasury considering modifying the LIHTC 

program in order to help fill some gaps in these cuts? Has Treasury 

studied possible impacts of tax reform on the LIHTC? Is Treasury 

planning on making any changes to the program should these corporate tax reductions go into law? 

A.1. Created in the 1986 Tax Reform Act and codified in 26 U.S.C. 

§ 42, the Low Income Housing Tax Credit (LIHTC) subsidizes the 

construction or substantial rehabilitation of affordable housing 

units. We look forward to examining the LIHTC program as part 

of the Administration’s work with Congress on comprehensive tax 

reform, including the broader issue of the tax code’s impact on affordable housing. 

Office of the Comptroller of the Currency (OCC) 

Q.2. Regarding the appointment of Keith Noreika as Acting Comptroller of the Currency, please respond to the following questions: 

• Why were you willing to install him as head of the OCC before 

his ethics pre-vetting was certified so that the American public 

can know whether or not conflicts exist? 

• Mr. Noreika’s special temporary 130-day status allows him to 

avoid President Trump’s ethics pledge if he leaves the OCC in 

130 days or less. Does that allow him to lobby or work on behalf of financial institutions regulated by the OCC? 

• Additionally please respond to the following questions related 

to Mr. Noreika’s appointment: 

Legal Authority 

• Can you describe the authorities of a First Deputy Comptroller 

and enumerate the differences between a First Deputy Comptroller appointed to the position of Comptroller as opposed to 

a Comptroller who has been confirmed by the Senate? Will 

there be any limits on his duties and authorities as Acting 

Comptroller of the Currency? 

• Will Mr. Noreika be serving as Acting Comptroller or as a 

counselor from the Department of Treasury? 

• As a ‘‘special Government employee,’’ will he be limited in any 

capacity from undertaking the duties to run the agency? 

• Will Mr. Noreika have the authority to sign enforcement orders in his new capacity? If he does not have this authority, 

how does the OCC plan on executing enforcement orders during his tenure? 

• Will Mr. Noreika have the authority to close financial institutions regulated by the OCC? If he does not have this authority, 

86 

how does the OCC plan on closing undercapitalized financial 

institutions during his tenure? 

• Will Mr. Noreika have the authority to authorize mergers and 

approve new charters? If he does not have this authority, how 

does the OCC plan on approving mergers and new bank charters during his tenure? 

• Will Mr. Noreika be a voting member of the Financial Stability 

and Oversight Council (FSOC)? If he does not have this authority, how does the OCC plan to have a voice at the FSOC? 

Independence 

• Mr. Noreika has represented numerous clients in the financial 

services industry, including companies with substantial pending or potential matters before the OCC. In order to avoid any 

potential impropriety (or the appearance of it), is Mr. Noreika 

required to recuse himself from any matters which may result 

in a conflict or the appearance of a conflict? 

• Please provide a detailed list of any such recusals that will be 

required of Mr. Noreika, based upon his disclosure of financial 

interests or prior representation. 

• Has Mr. Noreika been granted any exemptions or waivers related to matters involving his work for previous clients? 

• Is it your understanding that Mr. Noreika will continue to 

serve as First Deputy Comptroller following the nomination 

and confirmation of Mr. Curry’s successor? Does Mr. Noreika 

plan to return to his legal practice after his time at the OCC? 

Circumventing Confirmation 

• When was the last time a Treasury Secretary appointed someone from outside the OCC to lead the agency? Please describe 

the process for installing that person at the OCC. 

• Why wasn’t Mr. Noreika simply nominated for the position of 

Comptroller? 

• What are the Administration’s plans for nominating a new 

Comptroller of the Currency, and when will the Senate Banking Committee receive nomination papers for the nominee? 

• Why didn’t the Administration choose an individual already 

within the OCC as Acting Comptroller during this period of 

transition? 

A.2. On May 5, 2017, I appointed Mr. Noreika as a Deputy Comptroller and further designated him as First Deputy Comptroller. 

Mr. Noreika is a leading expert in the regulation and supervision 

of national banks and Federal savings associations. He has deep 

experience in helping banks operate in a safe and sound manner, 

provide fair access to financial services, and provide credit needed 

for business expansion and job growth. 

In appointing Mr. Noreika, I exercised my authority, granted by 

statute, to ensure continued leadership at the Office of the Comptroller of the Currency. Specifically, the National Bank Act authorizes the Secretary of the Treasury to appoint up to four Deputy 

Comptrollers of the Currency and to designate one as First Deputy 

Comptroller (12 U.S.C. § 4). The Secretary’s statutory authority 

87 

does not limit the pool of candidates from which the Secretary may 

make such an appointment. 

By law, the First Deputy Comptroller acts as Comptroller in the 

event of a vacancy or absence or disability of the Comptroller. Specifically, the National Bank Act provides that ‘‘[d]uring a vacancy 

in the office or during the absence or disability of the Comptroller,’’ 

the First Deputy Comptroller, succeeded by the other Deputy 

Comptrollers, ‘‘shall possess the power and perform the duties attached by law to the office of the Comptroller.’’ Id. The primary duties of the office of the Comptroller are set forth in the National 

Bank Act. (See 12 U.S.C. §§ 1–16, §§ 481–86.) The First Deputy 

Comptroller is authorized to perform all duties of the office in the 

absence of a Comptroller. 

Prior to his appointment, Mr. Noreika underwent a thorough ethics pre-vetting by the career ethics staff of the Treasury Department. While serving as Acting Comptroller, Mr. Noreika will adhere to the same comprehensive ethics and conflict of interest rules 

as all OCC employees. He has resigned from his former law firm 

and will not engage in any outside employment activities while 

serving. He has filed a public financial disclosure report which will 

be available upon request once certified, and he has divested all assets that could pose a conflict of interest. Mr. Noreika is recused 

from any particular matters involving specific parties in which his 

former law firm, or a client for whom he provided services in the 

last year, is, or represents, a party. This recusal obligation applies 

regardless of whether Mr. Noreika was previously involved in the 

particular matter at issue. He has not been granted any ethics 

waivers or exemptions related to matters involving his work for 

previous clients. 

The Office of Government Ethics (OGE) has made clear that the 

current Administration’s ethics pledge, like the previous Administration’s ethics pledge, does not apply to appointees such as Mr. 

Noreika who are expected to serve on an interim basis. Specifically, 

pursuant to OGE guidance, the Obama administration and Trump 

administration pledges do not cover ‘‘special Government employees,’’ defined as employees or officers who are expected to perform 

duties on fewer than 130 days within a 365-day period. This interim status does not affect Mr. Noreika’s responsibilities as Acting 

Comptroller. Mr. Noreika intends to serve until a permanent 

Comptroller is confirmed. 

The Comptroller of the Currency is appointed by the President, 

by and with the advice and consent of the Senate. On June 6, 2017, 

the President nominated Joseph M. Otting to serve in this position. 

We look forward to working with Members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs in its consideration 

of Mr. Otting’s nomination.