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THE ANNUAL TESTIMONY OF THE SECRETARY 

OF THE TREASURY ON THE STATE OF THE 

INTERNATIONAL FINANCE SYSTEM 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

DECEMBER 12, 2013 

Printed for the use of the Committee on Financial Services 

Serial No. 113–55 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

GARY G. MILLER, California, Vice Chairman 

SPENCER BACHUS, Alabama, Chairman 

Emeritus 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

MICHAEL G. GRIMM, New York 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

TOM COTTON, Arkansas 

KEITH J. ROTHFUS, Pennsylvania 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

December 12, 2013 ........................................................................................... 1 

Appendix: 

December 12, 2013 ........................................................................................... 63 

WITNESSES 

THURSDAY, DECEMBER 12, 2013 

Lew, Hon. Jacob J., Secretary, U.S. Department of the Treasury ...................... 7 

APPENDIX 

Prepared statements: 

Green, Hon. Al .................................................................................................. 64 

Lew, Hon. Jacob J. ........................................................................................... 65 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Bachus, Hon. Spencer: 

Insert from the Dodd-Frank Act Conference Committee .............................. 70 

McHenry, Hon. Patrick: 

Letter to Treasury Secretary Lew from Representative Garrett, dated 

June 7, 2013 .................................................................................................. 78 

Response letter to Representative Garrett from Treasury Assistant Secretary for Legislative Affairs Alastair M. Fitzpayne, dated July 12, 

2013 ................................................................................................................ 79 

Letter to Treasury Secretary Lew from Representative McHenry, dated 

June 7, 2013 .................................................................................................. 81 

Response letter to Representative McHenry from Treasury Assistant Secretary for Legislative Affairs Alastair M. Fitzpayne, dated July 26, 

2013 ................................................................................................................ 83 

Response letter from Representative McHenry to Treasury’s July 26, 

2013, letter, dated August 22, 2013 ............................................................ 85 

Letter to Federal Reserve Bank of New York President William C. Dudley 

from Chairman Hensarling, dated November 6, 2013 ............................... 86 

Letter to Treasury Secretary Lew from Chairman Hensarling and Representative McHenry, dated December 6, 2013 .......................................... 89 

Peters, Hon. Gary: 

Written statement of the American Automotive Policy Council (AAPC), 

the Mexican Automobile Industry Association (AMIA), and the Canadian Vehicle Manufacturers’ Association (CVMA) ..................................... 92 

Proposed Language to Address Currency Manipulation in the TPP ........... 96 

Lew, Hon. Jacob J.: 

Written responses to questions for the record submitted by Representative Duffy ....................................................................................................... 97 

Written responses to questions for the record submitted by Representative Fincher ................................................................................................... 101 

Written responses to questions for the record submitted by Representative Himes ..................................................................................................... 105 

Written responses to questions for the record submitted by Representative Hultgren ................................................................................................. 106 

Written responses to questions for the record submitted by Representative Luetkemeyer .......................................................................................... 107 

Page

IV 

Lew, Hon. Jacob J.—Continued 

Written responses to questions for the record submitted by Representative Moore ...................................................................................................... 109 

Written responses to questions for the record submitted by Representative Ross ......................................................................................................... 111 

Written responses to questions for the record submitted by Representative Rothfus ................................................................................................... 113 

Written responses to questions for the record submitted by Representative Sinema .................................................................................................... 115 

Written responses to questions for the record submitted by Representative Wagner ................................................................................................... 117 

(1) 

THE ANNUAL TESTIMONY OF THE 

SECRETARY OF THE TREASURY ON THE 

STATE OF THE INTERNATIONAL 

FINANCE SYSTEM 

Thursday, December 12, 2013 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 9:35 a.m., in room 

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

Members present: Representatives Hensarling, Bachus, Royce, 

Miller, Capito, Garrett, Neugebauer, McHenry, Campbell, Bachmann, Pearce, Posey, Fitzpatrick, Westmoreland, Luetkemeyer, 

Huizenga, Duffy, Hurt, Grimm, Stivers, Fincher, Stutzman, 

Mulvaney, Hultgren, Ross, Pittenger, Wagner, Barr, Cotton, 

Rothfus; Waters, Maloney, Sherman, Meeks, Capuano, Hinojosa, 

Clay, Lynch, Green, Cleaver, Perlmutter, Himes, Peters, Carney, 

Sewell, Foster, Kildee, Murphy, Delaney, Beatty, and Heck. 

Chairman HENSARLING. The committee will come to order. Without objection, the Chair is authorized to declare a recess of the 

committee at any time. 

Today’s statutorily required hearing is for the purpose of receiving the testimony of the Secretary of the Treasury on the state of 

the international finance system. 

Before we begin, I would like to make a few preliminary comments. I want to thank the Members and staff for their flexibility 

in scheduling. Due to the passing of the late Nelson Mandela, in 

order to accommodate a number of Members and the Secretary for 

both Mr. Mandela’s funeral and memorial services, we moved this 

hearing to this morning. 

So, as many Members know, today the committee will have a 

double feature. We will see the rest of you at 2:00, as well, for our 

monetary policy hearing, so Members will have an opportunity for 

lots of quality bonding time today. I wish to also announce ahead 

of time that at 11 a.m., I will declare a short recess of the committee. 

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

The committee meets today, again, to receive the annual testimony of the Secretary of the Treasury on reforming both the International Monetary Fund and the broader international financial 

system. 

2 

There are important questions that must be raised. Undoubtedly, 

hardworking American taxpayers suffer from bailout fatigue, having been forced now to pay for the bailouts of AIG, Fannie Mae, 

Freddie Mac, Chrysler, G.M., banks big and banks small, and most 

recently, the Federal Housing Administration. 

Many Americans question the wisdom of supporting the IMF and 

other multilateral financial institutions that take their hard-earned 

dollars and use them to bail out other countries. Americans do not 

want to be part of a bailout nation any more than they wish to be 

part of a bailout planet. 

An important question at the outset is whether the Administration’s credibility has been compromised and thus compromised our 

ability to reform multilateral financial institutions. An American 

President’s most awe-inspiring power may not be the ability to 

launch a drone strike, but that when he speaks, the world listens, 

and the world listens because the President’s words are backed by 

the moral authority of the United States of America. 

Lately, that moral authority of our Nation has been under question by the words of our President. Whether it is an erased red line 

in Syria, a deal with Iran that dismantles numerous sanctions but 

does not end the terrorist regime’s march towards a nuclear bomb, 

or revelations about spying on our allies, we now live in a world 

where too many of our friends no longer trust us and too many of 

our adversaries no longer fear us. 

The collapse in confidence and credibility is not confined to foreign lands. Here at home, millions of Americans took President 

Obama at his word when he promised no fewer than 36 times that 

they could keep their health insurance if they liked it. They now 

know better. 

Next, although the last couple of months have brought some welcome news on the jobs front, Americans continue to suffer through 

the slowest, weakest recovery in generations. Thus, regardless of 

the wisdom, many Americans now rightfully question our ability to 

continue supporting multilateral financial institutions like the 

IMF. 

When President Obama took office nearly 5 years ago, he was 

able to pass every major piece of legislation he wanted—the stimulus, Obamacare, the Dodd-Frank Act, the largest tax increase in 

our Nation’s history—and the results speak for themselves. 

Poverty is up. Income inequality is up. The debt has never been 

higher. Small businesses are drowning in the greatest sea of red 

tape in our Nation’s history. And the number of Americans in the 

labor force is at its lowest level in 30 years. 

Five years into these policies, hardship and anxiety abound. Just 

listen to what I hear from my constituents in the Fifth Congressional District of Texas, people like Nancy from Dallas, who wrote 

to tell me, ‘‘I have been looking for a job for close to 2 years. God 

has blessed me with many jobs on and off, but that does not pay 

the bills.’’ 

From Marsha in Reklaw, Texas, who said, ‘‘I have spent more 

time unemployed in the last 4 years than I have employed.’’ 

John from Alba, in my district, writes that he has had to close 

his business and says, ‘‘I am 70 years old, and I have tried to find 

3 

a job, but no one wants to hire a 70-year-old when so many younger people are out of work.’’ 

These people deserve better than the results of this Administration’s economic policies. Which brings us back to the central truth 

that you cannot strengthen and reform the global economy without 

first strengthening and reforming the American economy. That 

means respect for the rule of law, both fundamental tax reform and 

tax relief, freezing Federal red tape that is hindering job creation, 

and giving one-sixth of the economy, that is health care, back to 

the American people. 

And it also means ceasing to spend money we do not have. The 

single greatest threat to a stronger economy is our growing national debt. Witness the national debt clock to my left and right. 

This is a debt that has mushroomed under this President. Never 

in our history have so few indebted so many so quickly with such 

dangerous implications. 

We know our debt is unconscionable. It is unsustainable. And 

frankly, I believe it to be immoral. Yet, this President dismisses 

the threat at every opportunity and, I fear, leads a parade of Washington debt-deniers. 

Under the current policies we have, it is not a question of whether a debt crisis will come, it is a matter of when. For the sake of 

our economy, for the sake of our children, for the sake of our freedom, I would call upon the President to work with Congress now 

to avoid this catastrophe. Our Nation deserves better. 

At this time, I yield 6 minutes to the ranking member for her 

opening statement. 

Ms. WATERS. I want to thank Chairman Hensarling for holding 

this hearing. And I am delighted to welcome you, Secretary Lew, 

before our committee today to testify on the state of the international financial system. 

I would like to discuss what I believe to be one of the biggest social, economic, and political challenges we face today, both domestically and internationally. And that is the problem of growing inequality. Over the past 30 years, income inequality in the United 

States has been steadily increasing. This was the case even during 

periods of growth. Before the financial crisis, levels of inequality in 

the United States reached peaks not seen since the late 1920s. 

While other advanced and emerging market economies have also 

experienced rising income inequality, the most shocking shortcomings are right here in the United States, which has the highest 

level of inequality of any advanced industrial nation. In fact, today 

20 percent of the income in our country goes to the top 1 percent 

of Americans. 

If you look at inequality of wealth, it is even worse. The top 1 

percent holds about 40 percent of the country’s wealth. The gap between the rich and the poor in America has become a chasm. Moreover, the gains from growth during the recent recovery have accrued overwhelmingly to the wealthiest people in society. Almost 

95 percent of the income gains since the recovery began have been 

captured by the top 1 percent. This means that the most unequal 

advanced industrial economy in the world is becoming even more 

so. 

4 

I recognize that in a capitalist system, some degree of inequality 

is necessary for the function of a market economy since it creates 

incentives to work hard and take risk. But left entirely on its own, 

the market system will produce more inequality than is economically necessary. And here in our country, we have much more inequality than is necessary for efficiency. I believe this is a moral 

problem from the standpoint of social equity. 

But excessive inequality not only undermines social and political 

cohesion, it has also recently been shown to have negative effects 

on growth and stability as well. Recent research at the IMF has 

shown that excessive inequality slows growth because depressed 

earnings lead to weaker demand and lower consumption. Reducing 

inequality is increasingly understood to contribute to economic 

growth. 

Inequality is also a political problem. We now have an increasing 

degree of resistance on the part of many Americans to new trade 

agreements because they see themselves as victims of globalization, 

rather than as participants in its benefits. I believe our international economic policy has in fact been too one-sided, too focused 

on elevating the interests and mobility of capital over all other considerations. 

This was based on the misguided belief that unfettered markets 

would not only create wealth and stability, but would also trickle 

benefits down to others in society. But this isn’t what has happened. In fact, one of the most important lessons we have learned 

from the recent financial crisis is that markets must be deeply embedded in systems of governance. The idea that markets are efficient and self-correcting has received a mortal blow. 

I believe in capitalism, and I believe that the markets are the 

main engines of wealth creation in our country and elsewhere, but 

in order to be truly supportive of the free market, I believe you 

must also be supportive of government. This is because we need to 

have an appropriate set of public policies in place to reign in the 

excesses of the market, to help maintain stability, and to ensure 

that the benefits of capitalism and growth are broadly shared. 

We need to do a better job of dealing with equity. Questions at 

home, for example. We should be increasing the minimum wage, 

extending unemployment insurance, and providing trade adjustment and other assistance for those in the United States clustered 

in the low-skilled end, who are disadvantaged by globalization. 

Until we do that, and people begin to feel secure at home, we will 

not have the political support we need for more active engagement 

by the United States with the international economy. 

Mr. Chairman, I thank you for holding this hearing today. Some 

of what I have alluded to in my statement are issues that are being 

dealt with as we consider the budget today. And these issues that 

I have alluded to include, of course, the unemployment benefits 

that I understand may not be in the budget agreement. 

Also, I believe that providing trade adjustment and other assistance for those that I have pointed to, who end up clustered in the 

low-skilled end, are issues that we have not sufficiently dealt with. 

And I am looking forward to engaging you and others on these 

issues so that we can get at how we will deal with this income inequality that is a central theme of my testimony today. 

5 

I yield back the balance of my time. 

Chairman HENSARLING. The gentlelady yields back. 

The Chair now recognizes the gentleman from California, Mr. 

Campbell, the chairman of our Monetary Policy and Trade Subcommittee, for 3 minutes. 

Mr. CAMPBELL. Thank you, Mr. Chairman. 

And welcome, Secretary Lew. 

Your testimony today is required annually by the International 

Financial Institutions Act. And there is no shortage of international financial issues that we can discuss. I will let my opening 

statement stand for itself. But one of the things that you, I believe, 

will be discussing in your statement that we need to talk about is 

the IMF. And as a reminder, in 2009 Congress authorized a $100 

billion commitment to the IMF in an account called, ‘‘New Arrangements to Borrow.’’ 

Now, there is discussion of transferring $63 billion of that into 

a permanent paid-in-capital. And there is a lot of concern about 

this, Secretary Lew. 

The first thing is, we don’t believe this is just a bookkeeping entry. This puts the $63 billion significantly at risk, whereas currently, it is not. 

Second, in this era of budget cuts, there is a lot of concern up 

here of whether, when we are cutting a lot of domestic issues, as 

the ranking member just mentioned, is this the time when we 

should be increasing funding to first world countries around the 

world? And there is some concern of whether a lot of this money 

could go to European countries. And, yes, they have some crises 

and some problems, but can’t they deal with those within Europe 

without the U.S. taxpayer being involved? 

There is concern about moral hazard. Would the IMF, by making 

more loans to countries that are deeply in debt, be encouraging 

that kind of indebtedness, rather than trying to encourage these 

countries to get out of their debt, and not to spend so much and 

borrow so much? 

And then, finally, there are reforms, we understand, involved 

with the IMF in this additional contribution, but a lot of concern 

about whether those reforms are really enough, whether they go 

far enough to change the governance of the IMF as it should be. 

Mr. Secretary, if the Administration, if you and the President are 

committed to and want this $63 billion transfer, we need a couple 

of things. We need three things, actually. We need, first of all, you 

to make a formal request, which has not yet been received by this 

committee, for this money, for this transfer. Second, we need you 

to address these issues. 

And, third, we need you, and we need the President, if this is a 

priority, for $63 billion of U.S. taxpayer money, we need you, Mr. 

Secretary, and we need the President to vocally articulate why this 

is a priority in this era of limited budgets. And why these concerns 

that people on this committee have are not well-founded. 

Thank you. I look forward to your testimony. 

I yield back, Mr. Chairman. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from Illinois, Mr. Foster, for 1 minute, as well. 

6 

Mr. FOSTER. Thank you, Mr. Chairman. 

Thank you, Secretary Lew, for joining us today. 

Mr. Secretary when you left your first tour of duty in the White 

House in 2001, we were paying down our debt to the tune of a couple hundred billion dollars a year, and were on track to pay our 

debt down to zero by roughly 2008. 

In the next 8 years, we saw the surplus we were running reversed and the structural deficit exceeding $1 trillion a year in the 

next 8 years. 

We are also sitting on 8 straight years of uninterrupted job 

growth, roughly 22 million jobs in 8 years. And we saw in the 8 

years following your first departure, zero net job growth, 20 million 

people entered the job market with zero jobs produced for them. 

And we have made significant progress since entering the worst recession since the Great Depression. 

We have seen 45 straight months of consecutive private sector 

job growth, and there is much work left to be done. And I thank 

you for appearing today. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from Washington, Mr. 

Heck, for 1 minute. 

Mr. HECK. Thank you, Mr. Chairman. Secretary Lew, thank you 

for your service to the country, and for appearing at this hearing 

today. 

But the hearing I am most interested in is actually taking place 

at your Treasury Department as we speak. The Bank Secrecy Act 

Advisory Group is meeting right now and it is confronting the 

question of how to allow legal marijuana businesses to access the 

banking system. 

As you know, the voters in my State of Washington, and in Colorado, last year, approved initiatives to make marijuana legal for 

adults. These policies go into effect in the new year but we need 

cooperation from the Federal Government to make it work. 

If Federal banking regulations continue to prohibit marijuana 

businesses from using the banking system, these all-cash businesses will be a magnet for robberies and organized crime. 

You have the power to prevent that, Secretary Lew. I hope the 

advisory group agrees on a new workable guidance today, and I 

hope you swiftly approve it. 

Chairman HENSARLING. The time of the gentleman has expired. 

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

Maloney, for 30 seconds. 

Mrs. MALONEY. It is my pleasure to welcome Secretary Lew, who 

is from the great State of New York, and New Yorkers are very 

proud of your public service. 

My question concerns GSE reform. You mentioned in your testimony our growing economy and that your main job is to create 

jobs. Many economists have testified that one of the most important things we could do is bring certainty to housing finance. I 

hope you meant your comment on the efforts of the Administration 

to support housing finance reform and certainty in that area. 

Welcome, and I look forward to your testimony. 

Chairman HENSARLING. The time of the gentlelady has expired. 

7 

Today, we welcome the testimony of the Honorable, Jacob J. Lew, 

the Secretary of the Treasury of the United States. Secretary Lew 

appeared before our committee earlier this year, so I believe he 

needs no further introduction. 

Without objection, Secretary Lew’s written statement will be 

made a part of the record. 

Again, Mr. Secretary, welcome to the committee. You are now 

recognized for your oral testimony. 

STATEMENT OF THE HONORABLE JACOB J. LEW, SECRETARY, 

U.S. DEPARTMENT OF THE TREASURY 

Secretary LEW. Thank you, Mr. Chairman, Ranking Member 

Waters, and members of the committee. I appreciate the opportunity to testify today. And thank you for the flexibility and courtesy in rescheduling so that a number of us could attend the memorial services for Nelson Mandela. 

There are signs that the economic conditions are improving in 

advanced countries, led by the United States. Despite political 

headwinds, our economy has been steadily growing. 

Over the past 45 months, our businesses have created more than 

8 million jobs. While we are moving in the right direction, we have 

more to do to create jobs, accelerate growth, and put our economy 

on a firmer foundation. 

As we know, economic progress at home depends, in part, on the 

global economy. And the global economy continues to face many 

challenges. A long recession in the euro area seems to be ending, 

while significant progress has been made in achieving financial stability. Europe is now in a position to place greater priority on 

boosting demand and reducing unemployment which remains very 

high in many countries. 

In Japan, the authorities have taken forceful action to begin ending deflation. But to achieve sustained success, Japan needs to undertake structural reforms to strengthen domestic demand growth. 

Recently, some emerging markets have slowed as post-crisis 

stimulus wanes. Emerging markets need to make reforms that increase their resilience and address structural constraints to growth. 

China’s new leadership recently announced bold commitments to 

reform. The pace and character of these reforms will shape China’s 

economic transition toward domestic consumption-led growth and 

away from resource-intensive export growth. 

An important part of my job is to work to create the most favorable external environment for U.S. jobs and businesses. The international financial institutions, the International Monetary Fund 

and multilateral development banks, are indispensable in this effort and we must preserve our leadership in these institutions. 

That is why it is so important that Congress act to approve IMF 

quota and governance reform. At the G-20 Seoul summit in 2010, 

we secured reforms that preserved the U.S. board seat and veto 

without increasing the U.S. financial commitment to the IMF. 

Right now, U.S. approval is the only remaining step needed for 

these important reforms to go into effect. If we fail to act, we risk 

a loss of U.S. influence at the IMF. 

To implement the IMF quota reforms, the Administration has 

provided draft legislation to reduce U.S. participation in the new 

8 

arrangements to borrow and simultaneously increased the size of 

the U.S. quota in the IMF by an equal amount. Our investment in 

the IMF is safe and sound. When the IMF lends, it does so subject 

to appropriate conditions and with safeguards to assure it is repaid. And its repayment record is outstanding. 

Investments in the multilateral development banks also provide 

substantial returns. These institutions leverage our limited contributions and multiply our impact by attracting contributions from 

other nations. They also effectively promote our national security 

and economic priorities, including opening up markets and lowering barriers for U.S. businesses abroad. 

It is important to note that the United States will be making 

new commitments to the International Development Association of 

the World Bank and the African Development Fund this year. 

These are the two largest sources of finance for the world’s poorest 

countries and their impact is enormous. As we maintain our commitments to the international financial institutions, it is crucial 

that we continue to strengthen the world’s financial system. 

The United States has led the global effort on international regulatory reform with many of the core reforms of Dodd-Frank largely 

completed at home. In fact, on Tuesday, the Volcker Rule, a centerpiece of these reforms, was finalized. This rule is both strong and 

comprehensive. It will change behavior and practice across our financial system to safeguard taxpayers from risks created by banks’ 

proprietary trading and investments in hedge funds and private equity funds. 

It also fulfills the President’s vision and the statute’s intent by 

setting tough, but workable restrictions, while continuing to allow 

banks to perform essential market functions. 

As we move forward with our international agenda in 2014, we 

will work with the G-20 and through the Financial Stability Board 

to promote consistent implementation of high-quality regulations. 

We will focus on advancing vigorous implementation of Basel III, 

ensuring risk-weighted assets are assessed consistently across borders, and that Basel III’s high-quality capital standard is met. 

We will also focus on strengthening arrangements for cross-border resolution of large complex financial institutions, promote swift 

implementation of convergent requirements for the over-thecounter derivatives markets, and develop a road map to address 

risks posed by shadow banking. 

We also have been at the forefront of efforts to use financial 

measures to advance key national security and foreign policy goals. 

Nowhere have our efforts been more concentrated than in using 

sanctions to advance our policy and prevent Iran from obtaining a 

nuclear weapon. 

Together with our international partners, and in close coordination with Congress, we have built the most effective sanctions regime in history. And even as we explore the possibility of a longterm agreement with Iran that would provide verifiable assurance 

that Iran cannot obtain a nuclear weapon, we will continue to enforce our sanctions vigorously, as our action this morning imposing 

sanctions on more than a dozen entities demonstrates. 

Chairman Hensarling, Ranking Member Waters, and members of 

the committee, across the global landscape, there is much work 

9 

ahead. And with your ongoing support, I am confident we will continue to protect America’s vital interests abroad and at home. 

Thank you, and I look forward to your questions. 

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

65 of the appendix.] 

Chairman HENSARLING. Thank you, Mr. Secretary. 

The Chair now yields himself 5 minutes for the purpose of questioning. 

Mr. Secretary, as OMB Director in February of 2011 you were 

quoted as saying, ‘‘It is an accurate statement that our current 

spending will not be increasing the debt. We have stopped spending 

money we don’t have.’’ 

You said that while you were introducing the President’s Fiscal Year 2012 budget, which according to CBO added $12.5 trillion to 

the gross national debt over a 10-year budget window. And under your watch as OMB Director, $1.4 trillion was added 

to the gross national debt. 

So I am trying to get some insight into the Administration’s view 

of our national debt. Do you still stand by those comments? Is 

there some context here for those comments? 

Secretary LEW. Mr. Chairman, at the time I was trying to explain the difference between a primary balance, a primary surplus, 

and spending, new spending, new commitments that are being 

made. 

The definition of primary balance is when the only deficits are 

related to paying interest on the national debt. And other than 

that, we are covering all of our expenses— 

Chairman HENSARLING. Let me move on— 

Secretary LEW. —the primary balance in I believe 2 years in our 

budget. 

Chairman HENSARLING. Let me then move on to a statement the 

President made fairly recently, about 6 weeks ago: ‘‘Don’t pretend 

as if America is going bankrupt at a time when deficits have been 

cut in half.’’ 

Isn’t it true, Mr. Secretary, that these deficits have only been cut 

relative to the largest deficits in our Nation’s history, save World 

War II? 

Secretary LEW. Mr. Chairman, I think if you look at the reduction in the deficit since 2009, we have seen the most rapid reduction in the deficit as a percentage of GDP— 

Chairman HENSARLING. But, again, Mr. Secretary, weren’t these 

the largest deficits in our Nation’s history save World War II? 

Secretary LEW. We did come in at a time when we inherited a 

very large deficit. We were in a financial crisis and an economic 

crisis spiraling out of control. 

Chairman HENSARLING. Mr. Secretary, if you are unaware, I 

would have your aides look into it. I think you will find that probably is true. 

Also, CBO recently released their latest long-term outlook. Have 

you had a chance to look at it? It came out about 6 weeks ago. 

Secretary LEW. I have—I am aware of it, yes. 

Chairman HENSARLING. Under that outlook, under either current 

law or current policy baselines, deficits come down temporarily 

until 2015 and then rise thereafter with no end in sight. 

10 

Isn’t that true, Mr. Secretary? 

Secretary LEW. Mr. Chairman, I came here prepared to discuss 

a wide range of issues. I have not reviewed the CBO report in detail. I can speak generally about this issue, and I would be happy 

to. 

Chairman HENSARLING. Isn’t it true, then, that the Administration has never submitted a budget that balances in 5 years, 10 

years, 50 years, or at any time? 

Secretary LEW. Mr. Chairman, the Administration has submitted 

budgets that took a fiscal situation that was out of control and 

brought it under control. We have achieved more progress reducing 

the deficit— 

Chairman HENSARLING. But, Mr. Secretary, has the Administration ever submitted a budget that balances over any time span? 

Secretary LEW. I don’t believe that the measure of an effective 

budget right now is whether— 

Chairman HENSARLING. That is fine, Mr. Secretary. But I get to 

ask the questions here. So if you don’t know or you— 

Secretary LEW. No, no, I do know. There is a point when it balances in the far distant future, but it is not in the 10-year window. 

Chairman HENSARLING. Not according to the Congressional 

Budget Office. 

Secretary LEW. Well— 

Chairman HENSARLING. So, according to whose analysis? Is this 

Treasury’s analysis? OMB’s analysis? Whose analysis? 

Secretary LEW. Mr. Chairman, I am happy to look at the projections of the budget. I did come to testify on a wide range— 

Chairman HENSARLING. Okay, let me, if I could, in the time I 

have remaining, move on to the debt ceiling. 

I think, as you know, just about every major deficit reduction 

package of the generation has been attached to a debt ceiling, 

Gramm-Rudman, PAYGO, OBRA, a Budget Enforcement Act, even 

today’s Budget Control Act. 

Every President in your lifetime and my lifetime has negotiated 

on a debt ceiling. I have had our capable staff research the issue. 

The debt ceiling tends to be the early warning system that spending is out of control. 

Yet on September 15th of this year, the President took the unprecedented and radical action of stating, ‘‘I will not negotiate on 

the debt ceiling.’’ 

So is it the position of this Administration that if Congress does 

not functionally repeal the debt ceiling and allow the President to 

spend what he wishes, that he is threatening default on our sovereign debt? 

Secretary LEW. Mr. Chairman, I would disagree with the characterizations of the debt ceiling as an early warning. The debt ceiling 

is at the very end. All the decisions that Congress makes in the 

budget, as it is making today, all the decisions Congress makes on 

entitlement programs and tax policies. That determines the spending— 

Chairman HENSARLING. My time is almost up. 

Secretary LEW. The debt ceiling is the very end— 

11 

Chairman HENSARLING. Are you aware of any other President in 

our lifetime who has taken the radical position of stating that he 

will not negotiate deficit reduction on the debt ceiling? 

Secretary LEW. Mr. Chairman, I think we learned in 2011, and 

we learned again just this past October, that treating the debt 

limit the way Congress did put our economy in grave danger. 

Every President in my lifetime has said the same thing. It is imperative to raise the debt ceiling and it is Congress’ unique and exclusive responsibility. 

Chairman HENSARLING. The time of the chairman has expired. 

And I would also say that every President in your lifetime has 

also negotiated on the debt ceiling. 

The Chair recognizes the ranking member for 5 minutes. 

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

I would like to see if I can get a clearer understanding about 

where we are in relationship to finance discussions and trade talks 

with Europe. 

I sent a letter to, I think you and the President, basically stating 

my position on whether or not we would be including financial 

services provisions in a trade agreement, and I indicated that I 

think it may undermine broader efforts by regulators in the United 

States and elsewhere in the world to address cross-border oversight. 

And I noticed that in a Wall Street Journal report it indicated 

that U.S. Treasury Secretary Jacob Lew poured cold water on a 

push by the European Union’s top financial markets regulator to 

include negotiations of a financial services regulation in E.U.–U.S. 

trade talks. 

But then I also note that there is another article that talks about 

the possibility that we are softening our position. So I would like 

some clarification from you today about where we are in those discussions. 

Secretary LEW. Congresswoman Waters, I think the issues of 

working on an international basis to make sure that we have a 

race to the top, to the highest standards possible in terms of financial stability is very important. 

We work actively through the G-20 and the Financial Stability 

Board, the FSB, to try and drive that process. 

I am actually of the belief and am proud that the United States 

is a leader, that we have taken decisive action, the most decisive 

action of any country in the world after the deep recession and economic crisis of 2008 and 2009. 

I have said on many occasions that I do not believe that trade 

agreements are an appropriate place for us to dilute the impact of 

the steps that we have taken to safeguard the U.S. economy, and 

I think that we should make a call to the world community in the 

appropriate fora, like the G-20 and the FSB to try and drive that 

race to the top. 

I have said that in public. I have said it in private conversations 

with the Europeans. 

Obviously, a trade agreement is very important. I think it would 

open up opportunities for U.S. economic growth and for European 

economic growth. 

12 

I would point out that Europe is 20 percent of the U.S. export 

market, so Europe’s core economy is important to us, and keeping 

that line of trade open is important to us. 

I look forward to making progress in the trade negotiations, and 

I look forward to making progress in terms of opening up access 

to financial markets for even more U.S. competition and more U.S. 

investment. 

Ms. WATERS. I would like to try and understand how much pressure you are receiving to introduce financial regulatory issues into 

these negotiations. 

Secretary LEW. The issue has come up, really, for the entire time 

that I have been Secretary, since February, March. It has been an 

issue that Europeans have raised. I have responded, as I just did 

in response to your question. 

And I made some pretty public remarks last week where I called 

on our international partners to work through the G-20 and the 

FSB to tighten standards. So I have tried to be very clear on our 

policy. 

Ms. WATERS. Are you—of course you are aware, you understand 

that efforts are already under way to deal with cross-border financial regulations including the G-20 and the Financial Stability 

Board. 

So our concerns, and some of the criticisms from other lawmakers, are that other Administration trade initiatives would effectively sidetrack domestic regulation in favor of international laws. 

And some of our Members are saying they fear that the ambitious Trans-Pacific Partnership could create rules affecting technology development that would supplant U.S. domestic regulation. 

Secretary LEW. Congresswoman, on the financial issues, I am 

quite familiar with it. On the technology issues, that is really an 

issue that the U.S. Trade Representative would be more appropriate to address. 

On the financial issues, I have been clear in every conversation 

that I have had that we are going to, in the text of agreements, 

promote opening markets for U.S. access, having standards consistent with our own. I have been very clear that watering down, 

in any way, U.S. regulatory standards is not appropriate in trade 

agreements in terms of protecting our financial markets, our financial system, and our economy. 

I do think, separately, we have to discuss what it means to harmonize across international boundaries. And I think we have seen 

very constructive developments, say in the derivatives area, where 

we took an initial action. The international community responded, 

and there is now a reconciliation so that we can have the world 

community reach the U.S. high standard. 

And we may sometimes have to go back and make some conforming changes for that to work. But if it is in our high standard, 

that is a real— 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from California, Mr. 

Campbell, the chairman of our Monetary Policy and Trade Subcommittee, for 5 minutes. 

Mr. CAMPBELL. Thank you Mr. Chairman. 

13 

Let me jog back to the IMF for a minute. One thing I know, an 

e-mail from a staff member with language does not constitute a formal request. If Congress is to consider the IMF money, we need a 

formal request from you, according to the law on that. 

But I don’t want to get into too much minutia on that. 

But one thing is, what this thing costs. Would you agree that if you move the $63 billion into paying capital, that it is not without 

risk? 

Secretary LEW. Congressman, I think if you look at the history 

of the IMF, it supports the statement I made that there is very little risk. 

Mr. CAMPBELL. Okay. But it is not zero. So— 

Secretary LEW. I believe it is awfully close to zero. 

Mr. CAMPBELL. But shouldn’t we have CBO tell us what they 

think? 

Secretary LEW. CBO has looked at this in the context of appropriations. 

If I could go back, Congressman, because I think the question of 

request is tied to the fact that we have been trying to be flexible 

in responding to what we have heard from Congress. 

In our budget last year, we proposed this as something that will 

be done as an authorization, as a mandatory provision. We heard 

back from Congress that there was a preference to deal with it as 

an appropriations matter. We responded and provided language 

that would do it as an appropriations matter. 

At the time, CBO looked at it— 

Mr. CAMPBELL. Okay. 

Secretary LEW. —and it did have a modest score. 

Mr. CAMPBELL. If I might say that authorizing committees like 

this don’t like things that go directly through appropriations without the people who are actually— 

Secretary LEW. We would be happy to do it either way. 

Mr. CAMPBELL. —involved in the issue—looking at the issue. So 

we would certainly, I think, on a bipartisan basis here, prefer it be 

done that way. 

But we think CBO should score this at risk. 

Is the President personally supportive of this transfer? 

Secretary LEW. Oh yes, the President is very much supportive of 

it. He has told me it is a very high priority in terms of our place 

in the world staying at the very strong point that we are at. 

I think on the cost side, CBO has scored it, but it is not a enormous score. CBO’s score was in the neighborhood of $300 million; 

it was not in the $63 billion range. 

Mr. CAMPBELL. There are different ways CBO scores things, and 

if they score it on a risk basis— 

Secretary LEW. Yes. 

Mr. CAMPBELL. We have to look at that. 

Let me get into the issue of trade and so forth that we talked 

about with Europe. Okay, I hear you that you say that you think 

the G-20 is a better venue for negotiating financial services, let’s 

say, harmonization than with the European trade agreement that 

is being worked on. 

Won’t the Europeans make the same arguments at the G-20 that 

they will here? Why is that any better or any different than trying 

14 

to harmonize these financial regulations as best we can through a 

trade agreement, particularly given how the borders in financial 

matters have dropped so much? 

Secretary LEW. I think if you look at the progress we have made 

internationally, since 2009, the G-20 and the FSB have been quite 

effective places to work through very complex, technical financial 

regulatory matters. 

I don’t think the trade context is the ideal place for that to be 

done. The people at the table there are not necessarily the right 

people, and the mechanisms already exist in the G-20. 

And the real point I was making, regardless of where we do it, 

is the core issue. When we enter into a trade agreement— 

Mr. CAMPBELL. Okay, let me just—you had a meeting in Brussels, I think on November 27th— 

Secretary LEW. I don’t remember the date, but yes, it was in 

Brussels. 

Mr. CAMPBELL. Okay. What was the outcome of that meeting? 

This was with the Europeans? 

Secretary LEW. I think, as I acknowledged in my response to 

Congresswoman Waters, that I have discussed this a number of 

times with the Europeans. They do make the argument that it 

should be in the trade agreement. 

We make the argument that it should be in the G-20 and the 

FSB. But the core issue, and I think, wherever we do it is we can’t 

dilute our protection of the U.S. financial system, the U.S. economy. 

That is the core principle that applies wherever we are doing 

business. 

Mr. CAMPBELL. Is it our position that we have the perfect financial regulation, worldwide, and everybody else in the world should 

copy us? I fail to— 

Secretary LEW. No. 

Mr. CAMPBELL. —understand why talking with the Europeans 

about this, understanding better what they want to do, why that 

is a problem? What is the risk to the U.S. financial system to do 

that? 

Secretary LEW. To be clear, Congressman, not at all. We talk to 

the Europeans and to our Asian partners in the G-20 and the FSB, 

we learn from each other, we take best practices from each other. 

We are very open. 

The question is whether it is a question of financial regulation 

or environmental regulation or labor rules, is a trade agreement 

the appropriate place to do it? 

Normally, in a trade agreement, the pressure is to lower standards on things like that and that is something that we just think 

is not acceptable. 

Mr. CAMPBELL. If I can stop you, because I only have a few seconds left. The chairman and I have written letters—several letters 

to you about this. We think and urge you to try at the European 

level, because the purpose of a trade agreement is to facilitate 

trade that benefits both economies. We can do that in the financial 

services area, and we should do it. 

Secretary LEW. Well— 

Mr. CAMPBELL. I yield back. 

15 

Secretary LEW. Our core goal is very consistent, we think we can 

achieve a trade agreement that opens up financial markets for 

much—even more robust cross-border trade and relations. And that 

is our goal. 

And our issue is not that we don’t want to coordinate on financial 

regulation, we very much do. It is critically important, and I think 

it is one of the biggest priorities we have. 

Chairman HENSARLING. The time of the gentleman has expired. 

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

the ranking member of our Monetary Policy and Trade Subcommittee, for 5 minutes. 

Mr. CLAY. Thank you, Mr. Chairman. Secretary Lew, as you 

know, an earthquake devastated Haiti on January 12, 2010, leaving millions homeless. 

In the wake of the disaster, the American people and the global 

community rallied to provide relief to the Haitian people. As the 

Center for Economic and Policy Research points out in a recent report, despite billions of dollars pledged to build back Haiti, more 

than 350,000 Haitians remain internally displaced, and it is unclear what sustainable impact our funds have had. 

Secretary, can you give members of this committee a progress report on post-earthquake humanitarian reconstruction and development efforts in Haiti? 

Secretary LEW. Congressman, I would have to get back to you on 

a update. I was deeply involved in putting together the Haitian relief package when I was Deputy Secretary of State. I have not had 

the opportunity in the last few months to become familiar with the 

detailed, up-to-date assessment, but I am happy to do so and get 

back to you. 

Mr. CLAY. This is the second time I have inquired about this. 

One of your Deputy Secretaries was supposed to get back to me a 

couple of months ago, and I haven’t heard anything. 

Secretary LEW. I am happy to get—we will get back to you. I was 

not aware of that. 

I think if you look at the relief response in Haiti, we responded 

quickly with the emergency assistance. We responded generously 

with economic assistance. I know the question you are asking is on 

the efficacy of that effort. I share the concern that when we go in, 

we have to be successful. 

And I am happy to go back and look into it and get back to you. 

Mr. CLAY. Thank you. 

Secretary LEW. I personally was very committed to putting that 

package together and I would actually very much like to be able 

to get back to you on that. 

Mr. CLAY. I look forward to your response. 

And on the euro zone, economic growth is still a continued challenge with the annual GDP growth now forecast at zero—at minus 

0.1 percent in the E.U. and minus 0.4 percent in the euro area for 

2014. 

European Commission President Jose Manuel Barroso, stated 

that the economic austerity policies in Europe have reached their 

limits and they should receive minimum political and social support. 

16 

He also pointed out that E.U. should focus on growth measures 

in the shorter term as reforms in the public finances sector should 

take time to have any effect. 

Additionally, a recent report by the IMF states that too much 

austerity is self-defeating, which means that the continuous fiscal 

austerity for some countries in the euro zone, especially in the 

south, leads to an even deeper recession, in most cases deeper than 

projected. 

In this vein, how do you think the United States and, more particularly through its participation in the IMF, could channel its efforts in alleviating the harsh consequences of this continuous crisis 

that has brought severe economic and social traumas to these countries? 

Secretary LEW. Congressman, we have been deeply involved in 

multilateral and bilateral discussions on the response to Europe’s 

economic challenges. I know in my own conversations with finance 

ministers around Europe, I have made the case very strongly that 

Europe needs to worry about growth; that, as it looks at the weakest economies in Europe, it needs to stay focused on the reforms 

and structural changes. 

But as they look at the pace of fiscal consolidation, they also 

have to look at the enormous unemployment and the economic effect and the social effect that has. 

I think we have actually made some progress in these conversations and I don’t want to exaggerate at the same time how much 

progress we have made. 

I think you are seeing more flexibility in terms of the timetables 

for fiscal consolidation. You are seeing recognition that the structural changes are very hard and that, as countries make them, 

they need to have some breathing room. 

But you have also seen sustained pressure to stay on the path. 

I don’t disagree with that general direction because it is not sustainable for Europe’s economies or their national finances to be in 

a place that is unsustainable. 

But I think when you are looking at 20 percent or 30-plus percent unemployment rates, that has a very, very serious impact on 

domestic demand, the potential for economic growth, and ultimately political stability. 

So I have had these conversations. I do believe we are making 

progress. I think that the IMF is sensitive to the trade-off. I think 

if you look at the G-20 communiques over the last year, they have 

increasingly moved towards a position that reflects the view I am 

expressing. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from West Virginia, Mrs. 

Capito, chairman of our Financial Institutions and Consumer Credit Subcommittee, for 5 minutes. 

Mrs. CAPITO. Thank you, Mr. Chairman. 

Thank you, Mr. Secretary, for joining us today. The Treasury Department recently announced revised guidelines on how the MLBs 

will be financing coal-fired power plants in emerging markets. 

As you can imagine, I represent a State that exports 30 percent 

of the total coal exports because we can’t burn them at home, and 

17 

we are having difficulty with the President’s war on coal. And now, 

it seems like it is an international war on coal. 

Explain this policy to me. 

And are you really in the—as part of your stated goals, fastgrowing African countries were supposed to present new opportunities for U.S. businesses. 

What kind of energy development is going on if we can’t help 

them with the cheapest, most affordable, and reliable base load energy production that we have around the world? 

Secretary LEW. Congresswoman, our policy on coal and on the 

climate impact is one that I know we have some differences on. But 

we believe very strongly domestically and internationally that we 

need to drive towards developing technologies that have a less adverse impact on the climate situation. 

So we have taken the view that at home, we need to use fuel 

more efficiently. We need to develop renewable energy technologies. 

We very much believe that we have a lot of potential to export 

technology overseas. 

You look at most of the developing countries, in some cases hydroelectric power is an abundant source of power. In many cases, 

highly distributed renewable energy is a very efficient form of technology. 

Mrs. CAPITO. Are you talking about wind and solar? 

Secretary LEW. Wind and solar and— 

Mrs. CAPITO. And you are aware how much we have to subsidize 

that here to make it any kind of cost-benefit? 

Secretary LEW. The challenge to develop cost-competitive renewable technology is something to which we have dedicated a lot of 

energy. We believe that we are getting there. And we believe in 

order to meet our international objectives on climate, it is important that we have a consistent approach domestically and internationally. 

Mrs. CAPITO. My concern on the innovation—and I don’t disagree 

on the innovation and the goal, the ultimate goal, to make it cleaner, more efficient and less emissions. I am all for that. 

But I feel like, if you are cutting off the emerging markets, which 

are the fastest growing markets, from development—from being 

able to finance these kinds of facilities, you are going to stifle innovation in this country, because universities and such aren’t going 

to devote the resources to it when they think they are looking at 

a dead end here. 

And so, not only from the human element of these folks in Africa 

who can’t even access just baseline power generation, I am very 

concerned. 

And another thing I would like to say is I also represent a lot 

of natural gas interests. We have a glut of natural gas in this country; it is wonderful. It creates jobs, all down the spectrum, and you 

know this, I am certain, in your position. 

But we are now embarking on whether we should be exporting 

our natural gas. And my question to you would be, is part of this 

global initiative—natural gas is a carbon fuel. Is that next? Is that 

the next thing that is not going to have any kind of financing opportunities for the MLBs? 

18 

Secretary LEW. We have obviously been very aggressively developing natural gas resources in this country and other less emitting 

fossil fuel. So we have been encouraging the development. 

I think the export question is a different one. The Department 

of Energy has responsibility for reviewing natural gas export license proposals. 

Obviously, it has been a source of enormous strength to our economy, that we have had an energy revolution, where the cost of energy as an input into production has made the United States a 

much more attractive place to invest. And that is something we are 

very anxious to continue. 

I would defer to the Department of Energy to review these export 

licenses, and I would be happy to follow up with you on that. 

On the question of kind of the need for power in the third world, 

we totally agree. One of the President’s major initiatives is what 

he calls Power Africa, which is that we need to make sure that the 

African continent has access to electricity to fuel economic growth. 

And we are working side by side in the international community 

to be very strong partners in that because— 

Mrs. CAPITO. And many of these countries that you are working 

with, Germany, for instance, are building themselves more coalfired power plants in their own country because they have had to 

shut down their nuclears because of the potential negatives there. 

And so I am just very concerned about this because I think it 

hurts the American innovator; I think it hurts American jobs and 

it certainly picks winners and losers in this country. 

And unfortunately—I love living in West Virginia, but this Administration has picked us as one of the ones to lose. And I deeply 

resent that. 

Thank you. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Hinojosa, for 5 minutes. 

Mr. HINOJOSA. Thank you, Mr. Chairman. 

And Secretary Lew, thank you for your testimony. Thank you for 

being here with us today. 

I am going to ask a question outside the realm of international 

finance. I would like to first ask you about an issue in which I have 

great interest. 

As co-chair of the Financial and Economic Literacy Caucus with 

Mr. Stivers, I am interested in the progress of the Financial Literacy and Education Commission known as FLEC, of which you 

are Chair, and also the upcoming President’s Advisory Council on 

the Financial Capability for Youth, which the Treasury will coordinate. 

As you know, FLEC was created by Congress to coordinate Federal financial literacy strategy. 

What is your personal philosophy on financial literacy? 

And what do you hope to achieve in 2014? 

Secretary LEW. Congressman, I am a strong believer in financial 

literacy and have been for a long time. I think that people have to 

make informed decisions when they make financial decisions in 

their life. 

19 

For all too many Americans, it is a mystery when they make 

those decisions. I have taken FLEC very seriously. I have gone to 

several meetings. I have worked with CFPB Director Cordray on 

these issues. 

We have made it clear that it is a matter of importance to us personally that we continue to make progress in this area. 

I actually think, if you look at the work that the CFPB has done, 

they have actually made a lot of progress creating the tools for financial literacy. 

Part of the challenge is that people have to understand the documents that they end up looking at when they enter into transactions. Part of the challenge is to make sure that the documents 

are understandable. 

And I think if you look at the simplified mortgage disclosure 

forms that the CFPB has recently issued, it is approaching a level 

where people who are not financial professionals actually can understand the documents they are about to sign. 

So I think we have to remember that you have to work in both 

directions. You have to increase the awareness and the education 

of people in the economy, but you also have to make sure that the 

transactions are not so masked in language that is not comprehensible and in pages and pages of detail that hide the key points. 

And I think they have made significant progress in that area. 

Mr. HINOJOSA. I look forward to working with you over the next 

2 years in trying to take it to a much higher level. 

And I am going to move to an international situation that we are 

discussing. 

In your testimony that I read, you state that Europe has made 

great gains towards financial stability. Like you, I am cautiously 

optimistic about the improving economies of the United States and 

Europe. 

Secretary, how confident are you in the health of the economies 

of the eurozone, and what are the indicators that you are watching 

the closest? 

Secretary LEW. Congressman, I look at the progress of the 

eurozone and think about watching on a daily basis in the spring 

and summer of 2012 when there was the real fear that any day 

could bring a crisis. And we have made a lot of progress from there. 

There are still a lot of knotty problems, difficult situations that 

need to be worked through, tough structural decisions that have to 

be implemented, and risks that are still there. But it is not in the 

same place of fear that there is going to be an immediate crisis 

that it was just a year, 18 months ago. 

I think they have made a lot of progress. They have a lot more 

progress to make. I think that the GDP measures are significant. 

They were negative broadly and now they are positive broadly. It 

is not equally distributed. Some of the economies, particularly in 

northern Europe, are doing much better. 

I think if you look at the economies of Europe, there is a correlation between how well they are recovering and how much they 

have embraced the need to make tough structural changes. And I 

think that one of the things we continue to do is try to be very understanding of how hard that is and the impact it has in the short 

20 

term. But to keep the pressure on, because that is the path they 

need to follow. 

Mr. HINOJOSA. I have read that some of the countries like 

Greece, Italy, Spain, Portugal, and others have very high unemployment rates in the group from 18 to 25 years of age, very similar to the problems we have in the United States. How are they 

addressing that? 

Secretary LEW. They do have very high unemployment rates in 

Europe and the youth unemployment rate is very high. I think that 

one of the reasons I mentioned earlier that we are seeing some additional flexibility on timetables is recognition of that. 

Excuse me, Congressman, I am getting over a cold. 

I think that if you look at—excuse me—this has been a challenging week. 

[laughter] 

Chairman HENSARLING. Take your time, Mr. Secretary. But you 

can give a short answer, since the time of the gentleman has expired. 

[laughter] 

Secretary LEW. My problem is that my voice is not coming back. 

Mr. HINOJOSA. Mr. Chairman, being a Texan, give me 1 more 

minute, won’t you? 

Secretary LEW. Sorry, Congressman, but I have been losing my 

voice all week, and this was a longer stretch than I have had for 

much of the week. So, if you will just bear with me. 

I think the economy in Europe is moving in the right direction. 

Some of the structural changes are significant in terms of opening 

opportunities to young workers. One of the keys is opening up the 

channels of credit so that small and medium-sized enterprises have 

access to capital, because that is where the opportunities for young 

workers will come from. 

Mr. HINOJOSA. Thank you. 

Chairman HENSARLING. The time of the gentleman has longsince expired. 

Secretary LEW. I apologize for coughing through part of it. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

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

and Government Sponsored Enterprises Subcommittee, for 5 minutes. 

Mr. GARRETT. Thank you, Mr. Chairman. 

Mr. Clay’s question sort of precedes mine. Today, I wanted to 

focus my time on two important issues, accountability and transparency to the American people. 

I have been quite disturbed at this Administration’s clear pattern 

of stonewalling anyone who dares shine the light of day into the 

inner workings of this Administration, from a terrorist attack on a 

U.S. embassy in Benghazi and Attorney General Eric Holder’s refusal to turn over key documents, to a lack of this Administration’s 

cooperation with Congress in providing details regarding 

Obamacare’s failed implementation. 

Requests for simple information have either been met with silence or outright refusal by this Administration. This pattern has 

continued at the Department of the Treasury under your leadership. 

21 

Mr. Clay had a very simple question and your answer to him 

was, ‘‘Don’t blame me; I didn’t know; it was my staff.’’ In my case, 

it was back on June 7th, 6 months ago, I sent a letter to you asking 

for details on 3 simple and straightforward questions regarding the 

IRS scandal. First, I asked when was the first time that you became aware of the IRS targeting taxpayer groups, including targeting independent of knowledge on the I.G.’s investigation. Curiously, the answer came not from you, but from an Assistant Secretary a month-and-a-half later, basically refusing to answer the 

questions. 

The second question I asked was whether you attended any 

meetings with then-Commissioner Shulman, and whether there 

were any discussions at that time regarding the IRS conservativeleaning organizations or their tax-exempt status, and a couple of 

other simple yes-or-no questions. Again, a refusal from you to answer yes-or-no questions. 

So then, after several months more passed, I simply called your 

office and said, ‘‘Would you, Mr. Secretary, just give me 5 minutes 

on the phone so we could talk?’’ And your answer was, ‘‘No, I cannot talk to you, I am too busy.’’ So then, I offered to actually have 

a meeting with you, not in my office. I agreed to go down to your 

office at your convenience at any time just for 5 minutes to discuss 

this. And your answer was, no, you were too busy for the last 6 

months to meet with a Member of Congress. 

So my first question is: Is it appropriate for you and your staff 

to deny even a 5-minute phone call or a 5-minute discussion with 

a Member of Congress on important issues relevant to them? 

Secretary LEW. Congressman, first of all— 

Mr. GARRETT. That is a yes-or-no question, too. 

Secretary LEW. —I answered Congressman Clay’s question quite 

directly. I demonstrated my knowledge— 

Mr. GARRETT. To my question—could you answer mine now? 

Secretary LEW. —and I will follow up on it and get back to him. 

You and I went back and forth at the hearing I appeared at this 

committee before. And I gave you all the information I had and 

that remains the case now. 

Mr. GARRETT. You never answered the three questions in the letter, and to this day, you have not. Do you think it is appropriate 

that you would not pick up the phone and talk to a Member of Congress? 

Secretary LEW. Congressman, I have responded to your question 

on multiple occasions. 

Mr. GARRETT. You did not. This letter is not from you. This is 

from some Assistant Secretary. In 6 months, I have not gotten an 

answer from you. And Mr. Secretary, I am still not getting an answer from you right now, and I think it is deplorable that you 

would not answer a Member of Congress and it makes—we have 

to raise these issues over and over again. 

But let me get on to other issues— 

Secretary LEW. Congressman, on the question of the letter, it has 

been for generations traditional for the Assistant Secretary for Legislative Affairs to respond. When I was OMB Director, I responded 

to the President’s letters— 

22 

Mr. GARRETT. Mr. Secretary, your assistant did not answer the 

question. When I followed up and I simply asked to speak to you 

to get a clarification, you would not answer it. So let’s move on because obviously you are continuing in the pattern of this Administration of not answering simple yes-or-no questions, and you are 

doing it here. 

Let’s go on—I know I am wasting my time because you are wasting the American public’s time when you will not simply answer, 

‘‘Did you meet with someone?’’ That is a simple yes-or-no question. 

In the time that we have left, let’s look at the Volcker situation 

and the rules that have just come out on this. Do you believe that 

there is any negative impact on the corporate bond market by the 

new rules that have come out? 

Secretary LEW. I think that the rule as it has come out of the 

five agencies reflects an important balance between maintaining 

the markets and protecting the economy from the risks— 

Mr. GARRETT. Right. So will there be any negative impact on the 

corporate bond market and liquidity? 

Secretary LEW. I think that the financial sector will be able to 

manage implementing— 

Mr. GARRETT. Will there be any negative impact upon the corporate bond market? 

Secretary LEW. Look, I think— 

Mr. GARRETT. That is a yes-or-no question. Will there be a negative impact on liquidity? 

Secretary LEW. Congressman, it is not a yes-or-no questions. It 

is a very complicated issue and I am happy to respond to you, but 

it is not a yes-or-no question. It is an important balance that we 

make sure that firms do not take on risks that put taxpayers in 

their place, taking on risk if they fail. 

Mr. GARRETT. So, let’s stop there then. Let’s stop there, Mr. Secretary. You are saying that it is okay for them to take on risks 

such as in the muni market and on sovereign debt, but not corporate debt? You created exemptions in it, did you not, so they 

could invest in Detroit, for example, which is a failed bankrupt 

city. They could invest in foreign Spanish banks, which are exceptions as well. So, they can take on and gamble in those markets? 

Secretary LEW. I think if you look at the— 

Mr. GARRETT. That is a yes-or-no question, Mr. Secretary. 

Secretary LEW. —rule, we have struck a balance to protect our 

markets—their depth, their liquidity, and also to protect taxpayers 

from being exposed to inappropriate risk. I think the agencies did 

an excellent job striking that balance to keep economic growth 

going and to protect the economy and the taxpayer. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Cleaver, for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

Thank you, Mr. Secretary, for being here today. 

I just have a couple of questions. We learned early on that there 

is something in every space; nature abhors a vacuum. And so, this 

is a question asking just for your opinion. What do you think would 

happen if there is a void left as a result of the United States’ nonleadership in the IMF? 

23 

Secretary LEW. Congressman, I think that U.S. leadership in the 

world is important to the United States and it is important for the 

world. As I talk with my counterparts in Asia and Europe, I hear 

over and over again, ‘‘We need the United States to be the strong 

leader that you are.’’ 

In the IMF, what we see is with our contribution, which is less 

than 20 percent of the entirety of the IMF, we have enormous influence. We have veto over some important decisions, and we have 

the influence that goes with that to help drive decision-making in 

a way that serves U.S. interests and a sounder global economy. 

I think that is important for the United States. I also think it 

is important for the world. We are already seeing that when—if the 

United States in any way steps back, there is a rush to come in 

and it kind of starts to fraction, break apart some of that influence. 

I don’t think we should let that happen. It is just too important. 

Mr. CLEAVER. I think in some ways we are wanting to become 

isolates, I think, in the world, and I have some problems with a 

lot of expansionist things we do. But I am concerned about the IMF 

and our leadership and economic financial participation. 

My other question, though. I represent Kansas City, Missouri. 

Missouri, not Kansas. And that is important. 

That’s right. I am just getting an ‘‘amen’’ from my colleagues. 

Secretary LEW. I started out here working for somebody who said 

all politics is local. I get it. 

[laughter] 

Mr. CLEAVER. Yes. 

Kansas City used to be the second largest manufacturer of automobiles in the world behind Detroit. And Detroit has fallen, Kansas City has fallen. I think we are fifth now. But in recent times, 

we have been building up again. And when I speak with the automobile manufacturers and the workers, the unions, their biggest 

concern is currency manipulation. I was part of a group that sent 

a letter to the President asking for currency manipulation discipline in the TPP. Is that possible? What is your position on that, 

or what is the Administration’s position on that? 

Secretary LEW. Congressman, we have worked hard and focused 

hard on currency issues for a long time. From the moment I 

stepped in at Treasury, it has been an issue that has been very 

much on my agenda. And if you look at the progress we have made 

working in the G-20 and the G-7, we have gotten the leading economies of the world to agree to principles that reflect our own, which 

is that currencies should be market-determined, exchange rates 

should be market-determined, and that the tools that governments 

use should be domestic tools for domestic purposes. 

We have maintained our focus on that in our bilateral conversations. We have seen progress in the conversations. 

Any trade agreement that we reach has to be built on the principles that we have worked to reach in places like the G-20. And 

those are principles that undergird everything that we do. 

So without addressing the specifics of any of the negotiations, it 

is a core underlying bedrock principle that we are going to be deriving from market-determined exchange rates. We believe the G20 is an appropriate place to do that, and we have made great 

progress there. 

24 

Mr. CLEAVER. Thank you for that, because it will be difficult for 

a lot of people to support it in light of the currency manipulation 

that is going on, particularly with China. And as you know, that 

creates an imbalance in the sale of automobiles and that is— 

Secretary LEW. I have engaged directly with the Chinese on a 

regular basis on this, and we have seen real progress in terms of 

the exchange rate approaching—not reaching, but approaching— 

the point that we are pressing them to get to. I think that they understand they have to get to a market-determined exchange rate. 

In our exchange report, we try and focus in great detail on the 

progress made and where there are still concerns, where interventions are troubling. We have to keep pressing on it, and that is 

what we are doing. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

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

5 minutes. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

Thank you, Mr. Secretary, for being here this morning. 

Mr. Secretary, on October the 7th, I wrote a letter to the Director 

of the Federal Insurance Office (FOI), Mr. McRaith, inquiring 

about three reports that are required by law to be submitted to this 

committee. One of those reports, a report on insurance modernization, is nearly 3 years overdue. Not surprisingly, I have not received any response to my letter. 

Do you find it acceptable that these reports have not been submitted to this committee and in some cases are over 3 years past 

due? 

Secretary LEW. Congressman, I know there is a report that is 

virtually complete and will be here very shortly—I hope even before you leave for your break. 

Mr. NEUGEBAUER. Mr. Secretary, I appreciate that, but on a 

number of occasions that is the same story that I have gotten from 

Mr. McRaith, is that, ‘‘We are going to have that shortly. We are 

going to have that shortly.’’ And actually, that dialogue began last 

year. 

It is not like these are a little bit late. Some of these reports are 

3 years late. And it is—this Administration talks a lot about transparency. But, as I think you have heard some of my colleagues say, 

we are a little concerned—it is hard to have transparency when 

you are not hearing from the Administration. 

Secretary LEW. Congressman, the modernization report is a very 

important piece of work. They have virtually completed it. It is in 

the stages of kind of final production, which is why I can say with 

some confidence that it will be here very shortly. 

Mr. NEUGEBAUER. So when you say shortly, is that shortly next 

year or the year after? 

Secretary LEW. No, no, I am hoping, as I say, before you leave. 

So, I am hoping it is days, not weeks. 

The work that the FIO has done is very important. They have 

brought a knowledge of insurance into Treasury at a time when we 

know that the insurance industry is highly interconnected with 

other aspects of the financial system. It is a complicated system 

25 

where we have a lot of respect for State regulation, but there are 

issues of national importance as well. And I think this report, when 

it is issued—it won’t resolve these issues, but it will cue up for a 

serious discussion some very important policy questions. And I look 

forward to engaging with you on those. 

Because, frankly, the report will not be the final word. It is going 

to be opening the conversation so that we can work together on 

this. 

Mr. NEUGEBAUER. Actually, Mr. Secretary, that segues into my 

next question. The G-20 leaders declaration coming out of the St. 

Petersburg meeting in September stated that the G-20 leaders 

‘‘look forward to the International Association of Insurance Supervisors’ further work to develop a comprehensive groupwide, supervisory and regulatory framework for internationally active insurance groups, including quantitative capital standards.’’ 

Were you personally consulted about that statement? Did you 

have input into that statement? 

Secretary LEW. I am aware of it. It is something that was part 

of the discussions— 

Mr. NEUGEBAUER. Did you support the inclusion of that language 

in the report? 

Secretary LEW. I very much support the FIO being part of the 

international conversation and asking these questions so that as 

we inquire domestically as to what are the right steps to take, we 

do it in concert with our international partners. And the statement 

doesn’t prescribe the end result. It is a process that I think we 

should be engaged in, yes. 

Mr. NEUGEBAUER. So, as you know, the European model is more 

bank-like in the way that they regulate their insurance industry 

over there. Do you support that same kind of regulatory framework 

for U.S. domestic companies that have a much different regulatory 

structure? 

Secretary LEW. I think that raises some very important and some 

pretty complicated issues. I think that where there is an appropriate need for regulation, we ought to be sensitive to the differences between insurance companies and other financial institutions. 

I know the regulators have looked at this and they are looking 

at being flexible as they use the tools they have. And if they don’t 

have all the tools they need, it is something we should talk about. 

Because to the extent that there is a need for regulation of insurance companies, it ought to reflect the characteristics of insurance 

companies. 

Mr. NEUGEBAUER. I think one of the things that we hear from 

the industry, though, as this dialogue is going on, is that there is 

not a lot of transparency, again, in this process and that the industry, particularly the U.S. domestic insurance industry, feels like 

that they are being kind of left out of this debate and discussion. 

And I think they may be concerned that there is some movement 

within Treasury and others to move to a European model for regulating U.S. insurance companies that many people feel like—when 

you go back and look at the crisis, the insurance industry fared extremely favorably. 

26 

Secretary LEW. The inquiries that have taken place with regard 

to the Financial Stability Oversight Council (FSOC) have really 

been questions of determining whether there is systemic risk that 

is presented by any individual insurance companies. 

The question of how to regulate them is a totally different question. The FSOC standard is to make the determination on risk. 

And I think that we are very much interested, as regulators follow through, that they think this through carefully and that we not 

jump to a conclusion which says the banks and insurance companies are exactly the same. So— 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Illinois, Mr. Foster, for 5 minutes. 

Mr. FOSTER. Thank you, Mr. Chairman. 

I would like to switch a moment to the question of the Iran sanctions. And then, first of all, congratulate you on the recent—this 

morning’s designation of an additional batch of these. 

However, it seems to me that the rate at which these have been 

coming out is sort of erratic. In the 6 weeks prior to the Iranian 

elections in June, the Treasury Department issued 7 notices of designations of sanctions violators that included more than 100 new 

people, companies, aircraft, and sea vessels. 

Since June 14th, when Hassan Rouhani was elected, the Treasury Department issued only 2 designation notices that identified 

only 6 people and 4 companies as violating the sanctions. 

And now we have a new batch, for which I commend you. 

And so, my question is, to what do you attribute this sort of erratic, batch-by-batch nature of the designations? Just start with 

that. 

Secretary LEW. Congressman, the work of enforcing sanctions is 

painstaking work that we have an extraordinarily talented team at 

Treasury working on. They are dedicated to it, they are committed 

to it. And they make progress at the pace that they make progress. 

I think the designations today reflect the fine work that they have 

done and the determination that we have to be true to what I said 

in my opening remarks and what I have said over and over again, 

that we will continue to investigate for violations of sanctions and 

take action where we find them. 

That is important to the sanctions being effective, that they be 

implemented. 

Mr. FOSTER. Now, in light of this 6-month freeze and negotiating 

window, many people, including myself, have the concern that companies will say, oh, boy, the sanctions are going to go away in 6 

months, and that you will see massive cheating on the sanctions 

for companies that are trying to gain a commercial advantage with 

anticipating the easing of the sanctions. 

And I was wondering, do you feel like you have all of the authority you need to make sure that any company that is caught cheating on the sanctions gains no commercial advantage from that? 

Secretary LEW. Congressman, enforcement is the answer. And I 

have said in every meeting I have had with CEOs since the interim 

agreement that there should be no uncertainty, we are continuing 

to enforce sanctions, no one should think that having Iran on a bill 

of lading or on a financial record is going to go unnoticed, that we 

27 

are going to stay on this and that this is not an opening up of any 

door to relaxing our core financial, banking, and oil sanctions. 

I said it in a public speech again last night. I have probably 

talked to several hundred CEOs in one group or another, and delivered the message personally. 

So I don’t know how to be more clear than that. It is not like 

we have some other mechanism, other than enforcement. But we 

are very clear that any CEO, any business that steps into a space 

that violates sanctions is doing it at the risk of having an enforcement action. 

Mr. FOSTER. Yes. But do you anticipate, for example, that a company that is caught cheating on this will have sanctions that extend past the time that normal sanctions would be released? 

Secretary LEW. Congressman, the duration of sanctions is something that is a technical matter depending on the violation and the 

provision, so rather than give you an off-the-cuff answer, I would 

rather follow up and do it on a more detailed basis, based on which 

provision you are referring to. 

Mr. FOSTER. Okay. So I would like to change for a moment to a 

couple of things that relate to your position on FSOC and some important issues there. 

One is the application of, basically, banking capital standards to 

insurance companies. And I wonder if you have any reaction to the 

appropriateness of that? 

Secretary LEW. To be clear, the only actions taken at FSOC regarding insurance companies were to designate the institutions 

that met the standard of financial—presenting that degree of financial risk. 

The question of how they are regulated is something that each 

of the regulators will now be dealing with. They have made it clear 

that they are looking at how to do this in a way that works. 

The charge under FSOC is not to implement; it is to make the 

determination as to whether or not there is that kind of systemic 

risk. And then, the tools of each of the regulators will be used as 

appropriate. 

But, as I tried to indicate in my response to Congressman Neugebauer, we understand that banks and insurance companies are not 

identical. 

Mr. FOSTER. And another issue related to this in the few seconds 

left is the issue of collateralized loan obligations and risk retention 

which is—obviously, C.L.s were not involved in our financial collapse, and the specter of risk retention is something that makes a 

lot of people uncomfortable. 

And I was wondering if you have a reaction to that? 

Secretary LEW. I think, in general, the idea that firms should internalize their risks is a very important principle. There are many 

ways to achieve that. And we have tried, as we have laid out our 

actions in response to financial reform, to make that clear. 

The test is are firms putting themselves at risk rather than tax 

payers at risk for the business decisions that they are making? And 

it is—capital is part of it and restrictions, like some of the things, 

the Volcker Rule, are part of it, and leverage as well. 

Chairman HENSARLING. The time of the gentleman has expired. 

28 

The Chair now recognizes the gentleman from North Carolina, 

Mr. McHenry, chairman of our Oversight and Investigations Subcommittee, for 5 minutes. 

Mr. MCHENRY. Mr. Chairman, I request unanimous consent to 

submit for the record five letters from the leadership of this committee to the Treasury Secretary, and two responses from Treasury 

to those letters. 

Chairman HENSARLING. Without objection, it is so ordered. 

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

I want to state this for the record. Article I of the U.S. Constitution establishes and makes vital the oversight authority of the Congress vis-a-vis the Executive Branch. And I am sure you agree with 

that notion. 

But your Treasury Department has stiff-armed this committee in 

its oversight capacity by your unsupported refusal to provide complete responses to this committee. That is unacceptable. 

Chairman Garrett already covered his concern. I also sent you a 

letter on August 22, 2013, requesting documents that were the subject of a FOIA request made by a public interest group. 

The Treasury’s position is that the Department would provide 

this committee with only redacted documents that group already 

received. This implies that FOIA is applicable to Congress. 

Mr. Secretary, I would hope you understand that FOIA does not 

apply to Congress, and that you will direct your Legislative Affairs 

staff that they will provide those documents promptly. 

Furthermore, in addition, on November 6, 2013, Chairman Hensarling sent a letter to the New York Fed requesting information 

regarding contingency planning related to U.S. debt limit. 

The New York Fed pointed the finger at the Treasury Department, claiming they needed the Treasury’s permission to produce 

the requested information. 

Although we have rejected the Fed’s claim that it needs Treasury 

permission, I ask that you commit to resolving this issue and ensuring that the committee receives the requested documents by the 

requested production date of December 18th. 

You can respond in writing. We will move forward. 

Additionally, this question of prioritization of debt, Mr. Secretary, you have mentioned in the past that you are unsure whether your Department has the legal authority to prioritize debt payments in the event of a failure to raise the debt ceiling. 

I voted to raise the debt ceiling. I think we have to—we have an 

obligation to pay our obligations. 

But have you requested from the—or has your Department requested from the Office of Legal Counsel, the Department of Justice, an answer to this question? 

Secretary LEW. Congressman, on the question of responsiveness 

to oversight, I very much accept— 

Mr. MCHENRY. I just asked for you to respond in writing to that. 

If you would address this prioritization question: Have you asked 

or your Department asked whether or not you can prioritize debt 

from the Office of Legal Counsel— 

Secretary LEW. Congressman, the question— 

Mr. MCHENRY. —of the Department of Justice. 

29 

Secretary LEW. The question of prioritization is fundamentally a 

policy question. And I think, as your comments reflected, I do not 

believe nor has any President nor any Treasury Secretary— 

Mr. MCHENRY. I understand that. You have established that. Let 

me ask you to answer my question. 

Secretary LEW. And I have also said publicly that ultimately— 

Mr. MCHENRY. I appreciate that, but I have 1:54 left. Have you 

asked the Department of Justice’s Office of Legal Counsel whether 

or not you have the authority, in the event of not raising the debt 

ceiling, to prioritize debt payments? 

Secretary LEW. The issue of whether or not that decision can be 

made is fundamentally a Presidential decision. It would be a communication— 

Mr. MCHENRY. I know, but have you— 

Secretary LEW. It would be— 

Mr. MCHENRY. —as Treasury Secretary, your Department, requested from the Office of Legal Counsel whether or not you can 

prioritize? 

Secretary LEW. Let me answer your question, Congressman. 

It would fundamentally be a question between the White House 

counsel and the Justice Department, because the President— 

Mr. MCHENRY. Okay. Let me point you to the fact that a Huffington Post article from last week says the Obama Administration 

took the platinum coin option more seriously than it let on. This idea that you have a $1 trillion coin minted and deposited 

at the Fed, and then draw upon that, it is, according to the Huffington Post, the Administration did ask the Office of Legal Counsel 

for this absurd idea to actually be judged whether or not it is legal. 

Yet at the same time, you will not say that you have asked 

whether or not you can prioritize payments? That is deeply concerning— 

Secretary LEW. I am prepared to discuss the policy on both of 

those issues. I don’t disagree with you that the platinum coin is not 

a serious option. 

Mr. MCHENRY. Good. I am glad we agree on that. 

Let me ask one final question on Volcker. 

Who is the primary enforcer of the Volcker Rule? 

Secretary LEW. So if I could just go back, Congressman, on the 

question of the debt limit, the real issue is we must keep all of our 

obligations. 

Mr. MCHENRY. I agree. Let me ask you— 

Secretary LEW. That is the— 

Mr. MCHENRY. Who is the primary enforcer of the Volcker Rule? 

Secretary LEW. The Volcker Rule is a rule that came out of five 

different agencies. As you know— 

Mr. MCHENRY. So there are five different primary enforcers or 

is there one— 

Secretary LEW. There are different aspects of the Volcker Rule, 

depending on what kind of a financial institution you are. You are 

regulated by— 

Mr. MCHENRY. Will you submit in writing sort of your view of 

this as Chairman of FSOC? 

Secretary LEW. I am happy to respond to your question in writing. 

30 

Chairman HENSARLING. The time of the gentleman has expired. 

As previously announced, the Chair now adjourns the committee 

for a brief recess. ‘‘Brief’’ is going to be defined as approximately 

less than 5 minutes. The committee stands in recess. 

[recess] 

Chairman HENSARLING. The committee will come to order. 

The Chair now recognizes the gentleman from Connecticut, Mr. 

Himes, for 5 minutes. 

Mr. HIMES. Thank you, Mr. Chairman. 

And thank you, Mr. Secretary, for being with us today. 

I have a few question, but I just want to take a minute, maybe, 

to restore a little bit of order to this—or balance to this discussion 

that has emerged on our debt. 

Mr. Secretary, like you, I believe that a concern with our debt 

is prudent. And I think I say that with some credibility, having 

supported measures that balance our long-term debt scenario, some 

of which were unpopular. 

However, when that concern becomes ideology blind to all facts 

and economic advice and reality, it is something different than prudence. In the 5 years I have been here, I have heard over and over 

and over again that the question is not if we will have a disaster 

associated with our debt, but when, that just around the corner is 

a debt-induced disaster that the Federal Reserve’s expansionary 

monetary policy, inflation is just around the corner. 

And of course, the hallmark of every single one of those multiple 

predictions in the last 5 years is that they have been absolutely 

wrong. 

Of course, in those 5 years, a consensus has developed in the economic community broadly shared that in fact the fiscal, the 

contractionary fiscal policies of this Congress, the austerity, have 

meaningfully contributed to a reduction in growth and to the loss 

of otherwise creatable jobs in this economy. 

Mr. Secretary, you might be interested to know that when Chairman Bernanke was sitting just where you are sitting, I asked him, 

conscious as I am of the importance of long-term stability in our 

debt, whether he could point to any industrialized country which 

had better managed the tensions in the last 5 years between the 

need to reduce long-term debt and the need to assist in economic 

recovery. Sometimes, there are significant tension in those two 

needs. 

The Chairman of the Federal Reserve, Ben Bernanke, could not 

name a country which had better managed those tensions. And I 

know you have been a part of that effort and I thank you for your 

work in that regard. 

Mr. Secretary, my question is about the Volcker Rule. Like you, 

I was pleased to see that the regulators finally came out with a 

rule. I agree with you; I think that it is strong and comprehensive. 

I am, however, concerned by the explicit exemption for proprietary trading with respect to sovereign bonds, and frankly, also the 

exemption for muni bonds. The headline, ‘‘Bank Brought Low by 

Investments in Greek Debt,’’ I think, is probably not just an idea, 

and certainly it is a possibility in the future. 

31 

So I wonder if you could address the ability under the Volcker 

Rule of the banks to invest in securities which could be very, very 

risky and quite volatile over time. 

Secretary LEW. Congressman, obviously our initial core concern 

was the treatment of U.S. Treasurys. And issues arose, particularly 

with regard to the impact that the rule would have on banks with 

relationships with other foreign nationals and their sovereign debt. 

I believe that the way the provisions were worked out provides 

guidelines, a path for sovereign debt bonds to be treated appropriately. I think if you look at the structure of the rule, it is clear 

that there is accountability at the level of the CEO to come up with 

a plan for implementing these rules in a way that is consistent 

with the statute and the risks that are being undertaken. 

So I don’t think all of the detail is necessarily reflected in the 

black-letter law of the rule. There are going to be questions of interpretation. It was deliberately left to be worked out by the regulators and the firms to reach a balance so that we don’t shut down 

a very important sovereign market, including the market for U.S. 

Treasurys. 

So it is something we will continue to work on with this committee and with the regulators. 

If I could just say a word on— 

Mr. HIMES. I have one other question. I appreciate that answer. 

I just, having worked in that industry for a long period of time, 

know they will gravitate towards exemptions. And both munis and 

sovereign bonds present the possibility of very real risk. So I hope 

that you and the regulators will continue to watch that closely. 

One other question before I run out of time, Mr. Secretary, pertains to a statement in your written testimony—Dodd-Frank, many 

of the regulatory changes being largely completed now. I wonder 

if—I am heartened to hear that, but I wonder if in my 30 or so seconds remaining you could talk a little bit about how you are feeling 

about systemic risk, and in particular the problem of too-big-to-fail. 

To make the question very simple, has Title II succeeded in fact 

in reducing the likelihood that we will see a major dislocation or 

problem in one of our major banks? 

Secretary LEW. I am not sure I can do that in 5 seconds. Mr. 

Chairman, do I have— 

Chairman HENSARLING. You have 3 seconds. 

[laughter] 

We will give you about 20 or 30 seconds. 

Secretary LEW. Yes, we have made enormous progress since 

2009. We are much safer and sounder. And I made some very detailed remarks on this last week. I would be happy to give a more 

detailed response when I have the time. 

Mr. HIMES. Thank you. 

Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Alabama, Mr. 

Bachus, our chairman emeritus, for 5 minutes. 

Mr. BACHUS. Thank you. 

Mr. Secretary, I am going to introduce for the record some dialogue from the conference committee that we had just 2 weeks beVerDate Nov 24 2008 12:07 Jul 16, 2014 Jkt 086690 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 K:\DOCS\86690.TXT TERRI
32 

fore we passed Dodd-Frank. And it is what we are still dealing 

with now that we have the Volcker Rule. 

Chairman HENSARLING. Without objection, it is so ordered. 

Mr. BACHUS. What I asked, and this was on June 23rd, I asked 

Mr. Frank if he was aware of any other country that had committed to adopting the Volcker Rule that would be imposed on U.S. 

firms if this bill went into effect. And I actually said that the European financial ministers have indicated that the Volcker Rule restrictions would actually violate E.U. universal banking laws. 

I reminded him that, and Chris Dodd, Chairman Dodd also, he 

had said just 3 months before, ‘‘For us to adopt this rule without 

the rest of the international community, that makes it unworkable.’’ 

And I then said that I felt like universal, unilateral adoption of 

the Volcker Rule by the United States will only undermine our 

competitive advantage, and therefore is going to undermine the 

profitability of financial institutions. If it does that, it raises the 

cost of capital to American business, consumers, and home buyers, 

and it will slow economic activity and job creation. And we all 

agree on the need for more jobs in our country. 

Mr. Frank responded to me, and the first thing he said is just 

sort of a diatribe on Republicans. But after four pages of that, he 

said, ‘‘As for the rest of the world, we are going to get this bill done 

and then we are going to take it to the G-20 and there will be serious conversations going on with the rest of the world.’’ He talked 

about Davos, where people were coming together to talk about banning proprietary trading. And he assured me that the world was 

moving in that direction. And Mr. Kanjorski joined that. So, he 

goes on for several pages, and basically assures me that the world 

is going to go along with it. 

We know now that they haven’t. And just this week, in talking 

about the Volcker Rule, the Federal Reserve noted, ‘‘This rule may 

create a competitive disadvantage for U.S. financial institutions because their foreign peers are still able to trade proprietarily. There 

does not seem to be any traction right now for other countries to 

follow suit with similar rules.’’ 

In my opinion, what I said then will happen now, absent restrictions in other countries. Under the Volcker Rule, prohibited transactions will likely be offshored to foreign banks, shifting the risky 

behaviors to another venue, but not eliminating it from the global 

financial system as a whole. 

I also quoted Mr. Geithner, just as when we talked about the 

rule. Mr. Geithner was quoted as saying, when I asked him in a 

hearing a year before, and I repeated that, about proprietary trading and banning it. He said, ‘‘Most of the losses that were material 

for the weak institutions and the strong relative to capital did not 

come from proprietary trading activity. They came overwhelmingly 

from what I think can fairly be described as classic extensions of 

credit.’’ 

So what I am saying is that Secretary Geithner said that proprietary trading—and others have also said this—was not a significant cause of the financial meltdown. We have adopted the rule 

prohibiting proprietary trading. The rest of the world has not. Does 

that concern you? 

33 

Secretary LEW. Congressman, I think fundamentally our objective has to be to meet the challenge of making sure that we are 

taking the steps we need to to safeguard the U.S. financial system, 

the U.S. economy, and then to try to bring the world to that high 

standard. 

Mr. BACHUS. But after 31⁄2 years, have we brought the world— 

Secretary LEW. I think we have in many areas. I think you are 

seeing a lot of progress in capital, in leverage, in— 

Mr. BACHUS. Have any other countries adopted— 

Secretary LEW. I think that now we have just completed—our 

agency has just completed the Volcker Rule— 

Mr. BACHUS. Let me just— 

Secretary LEW. I would just point to the comments made by the 

European commissioner who is responsible for financial regulation, 

just yesterday, which were quite favorable towards the Volcker 

Rule and the policy— 

Mr. BACHUS. All right. They are quite favorable, but has any 

country adopted it? 

Secretary LEW. I think that other countries will have to make 

their own judgments. We will continue to make the case. If you 

look at the response in the United States— 

Mr. BACHUS. Have any of them adopted it? 

Secretary LEW. I think the question to me is: What is the 

strength of the U.S. financial services industry? Are we leaving the 

U.S. financial services industry— 

Mr. BACHUS. I understand that. Have any other countries adopted a Volcker Rule? 

Chairman HENSARLING. The time of the gentleman has expired, 

but if the Secretary would like to give a yes-or-no answer to the 

question? 

Secretary LEW. I think that the Volcker Rule in the form it is in 

is unique, but other countries are looking at— 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Michigan, Mr. 

Peters, for 5 minutes. 

Mr. PETERS. Thank you, Mr. Chairman. 

Secretary Lew, thank you so much for your testimony and for appearing here today before our committee. 

As you know, the United States is in the process of negotiating 

the Trans-Pacific Partnership, which is a multilateral free trade 

agreement that now includes Japan, a country with a history of 

both currency manipulation and closing off their auto markets for 

imports. 

I sent a letter to the Administration in December of 2011 which 

argued that Japan should not be included in the TPP negotiations 

until they open up their market to U.S. automobiles. And I, to this 

day, remain very deeply concerned about the impact of Japan’s inclusion in those negotiations. 

This hearing, of course, is focused on international finance. And 

so, I would like to focus on the currency manipulation issue. I know 

Mr. Cleaver asked you some questions about that earlier. But currency manipulation has cost millions of jobs in the United States 

and many of those jobs were in my home State of Michigan. 

34 

There have been various proposals ranging from my colleague, 

Congressman Sander Levin, to The Peterson Institutes to the auto 

industry, to address currency manipulation in the TPP without 

tying a country’s hands to its own monetary policy. 

Today, I have with me language from the Automotive Policy 

Council that I would like to enter into the hearing record, Mr. 

Chairman. 

Chairman HENSARLING. Without objection, it is so ordered. 

Mr. PETERS. And as I mentioned, this proposal would direct currency manipulation—or would target, rather, direct currency manipulation without stopping necessary quantitative easing by evaluating first the protracted large-scale intervention in one direction 

in the exchange market; excessive and prolonged accumulation of 

foreign assets and, three, prolonged current account deficits or surpluses. 

So my question is, just generally speaking, do you support strong 

and enforceable currency manipulation provisions in a free trade 

agreement to address trade-distorting practice, generally speaking? 

Secretary LEW. Congressman, I tried in my response to Congressman Clay to explain my view. And I am happy to do it again. 

I believe that it is very important that we continue to insist on 

having market determined exchange rates, that we do that through 

the proper mechanisms. 

We have done it, I think, quite effectively through the G-20. We 

are doing it quite effectively in bilateral relations. 

I think if you look at the policies country by country in our currency report, try to analyze in some detail what we see as problematic and what we see as movement in the right direction. 

With regard to some countries, in Japan, we, for a decade, were 

saying Japan needed to do something to get its economy moving. 

The deflation in Japan was hurting the world economy and it was 

hurting the U.S. economy as well. 

Whether or not their monetary policies are manipulation or not 

depends whether or not they abide by the standard of market determined exchange rates and domestic tools for domestic purposes. 

Obviously, it is a fine line. We are going to keep our eye on that 

line to make sure that countries don’t cross it. And when they cross 

it, we are going to press very hard. We have done it time and 

again. 

I have met with my counterparts from Japan on many occasions. 

I met with my counterparts from China on many occasions. And we 

have made it exceedingly clear that this is a matter of necessity in 

order for us to have our bilateral relations continue to improve. 

And I think we are making a lot of progress. A trade agreement 

has to be built on that firm commitment for us to continue making 

progress on these matters. 

Mr. PETERS. In response, in the negotiations that have gone on 

that you talked about, the problem still is about enforcement and 

whether or not we have the ability to step up and enforce those 

kinds of actions on currency manipulation and hopefully bring it to 

an end. 

And that is why I think it is important to actually have it in the 

agreement, in the TPP agreement. And I just want to say that in 

June of this year, 230 House Members, including 30 Members who 

35 

are on this committee, including myself, sent a letter to the President calling for currency manipulation disciplines to actually be 

written into the TPP. 

And in September, we had 60 Senators who sent you and Ambassador Froman a letter calling for strong and enforceable currency 

manipulation disciplines in the TPP. Now to my knowledge, none 

of us has received even a letter in response—and this is a letter 

from 230 House Members and 60 Senators. 

Does the Administration plan to send a letter and respond directly as to what will be in this TPP to us? 

Secretary LEW. Congressman, I realize this is different than the 

letter, but I have spent a fair amount of time with Members of 

Congress on this. I spent several hours with the Ways and Means 

Committee on both sides discussing it. I have talked to many Members about it. I look forward to remaining in close conversation. 

Mr. PETERS. Good. I appreciate that. And hopefully, we can get 

that in the agreement. 

I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Georgia, Mr. 

Westmoreland, for 5 minutes. 

Mr. WESTMORELAND. Thank you, Mr. Chairman. 

And thank you, Mr. Secretary, for being here. This is kind of off 

the subject, but I would like to ask this of all of our witnesses, are 

you taking part in the Affordable Care Act change? 

Secretary LEW. Congressman, like most of the employees at the 

Treasury, I participate in the Federal employee health benefit plan. 

Mr. WESTMORELAND. Okay. So you haven’t voluntarily gone on 

the exchange? Because all the staff in here and the Members here 

are required to be on the exchange. And if it is such a good deal— 

Secretary LEW. The goal of the Affordable Care Act obviously is 

for employers to provide coverage. Federal employees have access 

to coverage with cost sharing between the Federal Government and 

the employee. And I participate in the Federal employee health 

benefit plan, as do most employees. 

Mr. WESTMORELAND. We are all envious. We wish we could have 

stayed there, too. 

I want to follow up a little bit on the Volcker Rule. 

From 2006 to 2009, you were the lead at Citigroup’s alternative 

investment unit, correct? 

Secretary LEW. I was in the—I ran operations, not the business 

practices. 

Mr. WESTMORELAND. But you ran that group’s proprietary trading, right? 

Secretary LEW. Just to be clear, I was chief operating officer. So 

I was responsible for kind of the internal mechanics in the business. I was not making investment decisions. 

Mr. WESTMORELAND. Okay. But you were doing proprietary trading. 

Secretary LEW. The firm did, yes. 

Mr. WESTMORELAND. Yes. 

Would those people still have a job today? 

Secretary LEW. I think I have spoken to my views in my response 

to questions on the Volcker Rule. I think coming out of the finanVerDate Nov 24 2008 12:07 Jul 16, 2014 Jkt 086690 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 K:\DOCS\86690.TXT TERRI
36 

cial crisis, it is incumbent on all of us to ask what was happening 

before 2008 that should be done differently. I believe that this— 

Mr. WESTMORELAND. But you never thought you or Citigroup or 

anybody else was doing anything wrong? Did you feel like you all 

were doing something that was sleazy or— 

Secretary LEW. I think, going forward, the challenge we have is 

to ask the questions: how do we take risk out of the financial system; how do we maintain strong, healthy financial institutions; 

how do we protect taxpayers from being exposed— 

Mr. WESTMORELAND. While Citigroup was doing the proprietary 

trading, do you think they were weakening the company or taking 

a big risk? 

Secretary LEW. I think that the challenge going forward is to 

look at what practices can we put in place to make sure we have 

visibility into financial institutions and make sure that they are 

not taking on risks which they can’t internally absorb themselves. 

And I think the Volcker— 

Mr. WESTMORELAND. Did you ever take any of the—did your 

group or Citigroup ever take on any of these things that they didn’t 

feel they can manage? 

Secretary LEW. I am not testifying today on behalf of one firm 

or another. 

Mr. WESTMORELAND. Oh, I know. 

Secretary LEW. I think I have made it clear that the positions I 

have taken reflect my view and the view of the Administration. 

And it may not be consistent with views that are shared by people 

I may have worked with in the past. 

Mr. WESTMORELAND. Sure. 

On November 26th, the Treasury and the IRS published in the 

Federal Register proposed guidance for clarifying the range of acceptable political activities for tax-exempt social welfare organizations under Section 501(c)(4) of the Internal Revenue Code. 

Were the same IRS personnel who targeted the nonprofit conservative organizations responsible for making the decision as to 

what is political and what is not political under the law? 

Secretary LEW. To be clear, Congressman, in the aftermath of 

what we all discovered was going on in that program, all of the 

senior leadership in that area has been replaced. We have had significant new leadership, a set of leadership changes put in. 

So in general, it is— 

Mr. WESTMORELAND. Who is going to be making the decision as 

to what— 

Secretary LEW. There is a policy in there, to be clear, there was 

an I.G. report. The I.G. report called on us to take a number of actions. And one of the actions was to provide greater clarity here. 

The notice that you are describing was not a final act. It was 

asking for comment to— 

Mr. WESTMORELAND. All right— 

Secretary LEW. —conversation. I think we have some policy that 

we have to make. And that policy is policy that is going to be made 

by policy officials and we should do it in conversation— 

Mr. WESTMORELAND. Do you think it is good to be putting new 

rules in while we are in the process of trying to investigate? 

37 

Secretary LEW. I think it is important that we took all of the I.G. 

recommendations seriously. We have acted on each of them. This 

was one. And while it is not final, it is a step in the direction of 

working through what the right— 

Mr. WESTMORELAND. When do you think it will be finalized? 

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

schedule. I don’t know the exact schedule. This was the first step. 

So, it is some space away from being final. 

I think this is an important subject and there is a need for comment and for us to hear the different views. 

Mr. WESTMORELAND. Thank you, sir. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Michigan, Mr. Kildee, for 5 minutes. 

Mr. KILDEE. Thank you, Mr. Chairman. 

I have a couple of questions, but I just wanted to say, Mr. Secretary, that today, as I think we are all aware, the Treasury Department designated a number of entities that have been providing 

support for Iran in violation of international sanctions. 

And I just want to thank you for your continued diligence on that 

point. It is obviously important to the Congress. There is discussion 

and a lot of debate occurring even as we speak on this particular 

question. And it is a pretty dynamic condition that we are in. 

For me, it is particularly important. I have a constituent, Amir 

Hekmati, a former U.S. Marine who was held prisoner and has 

been for nearly 21⁄2 years in Iran. So I want to thank you for your 

continued diligence on this subject. And if there is time, I would 

invite any comment that you might have on that particular question. 

I just want to return to the question of the Trans-Pacific Partnership. I represent Flint, Michigan, and Saginaw, Michigan—communities that—in the case of my own hometown, once had 79,000 auto 

workers, people working for the auto industry directly, and now 

that number is roughly one-tenth that number. So we have seen 

the effect of some trade agreements that are sold on the notion of 

economic growth but don’t necessarily deliver, and in particular 

communities actually have exacerbated an already difficult problem. 

And for a year now, under the direction of Prime Minister Abe, 

Japan has taken a number of drastic macroeconomic measures, including setting negative yen interest rates, engaging in major 

quantitative easing measures, including setting negative interest 

rates. That has caused the yen to drop roughly 20 percent to the 

dollar over the past year, severely undermining our competitiveness. 

And I guess I would like to ask, without going into much further 

detail, what will Treasury do to ensure that U.S. exports remain 

affordable and domestic manufacturing jobs are protected as we 

move forward and potentially see TPP enacted, and particularly 

with Japan’s involvement? 

Secretary LEW. Congressman, I think our commitment to making 

sure we have a healthy U.S. auto industry is reflected in many actions that we have taken. And I was very pleased this week that 

we were able to sell the final shares of GM stock that the governVerDate Nov 24 2008 12:07 Jul 16, 2014 Jkt 086690 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 K:\DOCS\86690.TXT TERRI
38 

ment owns, and leave GM and Chrysler stronger than anyone 

thought they would be. And it is our goal to have a competitive domestic auto industry. It is so important to our economy and to our 

country. 

I think that the challenge of—in taking the policy agreements 

that we have reached on exchange rates, which I described earlier, 

and making sure each country lives up to them is something that 

we have to do constantly. We have to do it in our bilateral conversations. We have to do it in our multilateral conversations. 

I think that we have taken it very seriously. We continue to take 

it very seriously. And we are making progress. 

I think that the fact that we got an agreement in the G-20 in 

February to the principles that I described is very significant. Living up to that commitment is something I remind my counterparts 

on a constant basis is as important as the agreement itself. 

I think if you look at Japan’s economy, they were in a long-term 

period of deflation and negative economic growth. There was a 

need for them to take action with their combination of policies. And 

the question of whether they ultimately crossed the line is one that 

we are very alert to, and as we said in our currency report, we will 

keep an eye on. 

But it is a good thing for the U.S. economy for Japan to be out 

of deflation and growing; is one of our biggest trading partners. 

And in our relations with countries, we don’t shy away from being 

very direct on making sure that they live up to their obligations 

which they have agreed to, in the case of Japan as a member of 

the G-20. 

Mr. KILDEE. I thank you for that. I just want to make sure that 

there is continued diligence on this. The auto community has really 

suffered. Many communities don’t consider themselves auto communities, but I would suspect that every Member of Congress, on 

this committee in particular, would say the fact that we have such 

a trade deficit, and particularly in the auto sector, impacts the local 

economy and it really affects our ability to put people back to work. 

Secretary LEW. If I could just respond on the issue you started 

with. We are very sensitive to the suffering of people who are held 

in—Mr. Hekmati is very much on our minds. I would refer you to 

the State Department. They have kept a very close eye on this. 

Mr. KILDEE. Thank you very much. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Florida, Mr. Ross, 

for 5 minutes. 

Mr. ROSS. Thank you, Mr. Chairman. 

Mr. Secretary, thank you very much for being here. 

In my home State of Florida, insurance plays a significant role 

in our economy and our markets. We have natural disasters there 

probably more frequently than other States. 

In fact, Kevin McCarty, our insurance commissioner, has testified on the importance of insurance companies to appropriately 

match their assets with liabilities. And I am encouraged with the 

Federal Reserve Board’s recent announcement that more insurance 

experts are necessary as we look into continuing in the regulatory 

scheme, especially with capital requirements under Basel III. 

39 

My concern, and you have addressed this a little bit, you have 

acknowledged that there is a difference between capital requirements, I think, for insurance companies and for banks. You stated 

in your initial testimony—your written testimony today that, ‘‘We 

will focus on promoting vigorous implementation of Basel III, ensuring that risk weighted assets are assessed consistently across 

borders, and that Basel III’s high-quality capital standard is met.’’ 

My concern has to do with what assurances can the Treasury 

give to make sure that certain insurance companies are not subject 

to bank-centric capital requirements which do not fit their business 

models? 

Secretary LEW. Congressman, I know that as the regulators look 

at implementing supervision, they are looking very hard at the 

question of how to treat insurance companies. Obviously, they don’t 

have infinite flexibility. They— 

Mr. ROSS. But you acknowledge that there is a difference between the two. 

Secretary LEW. I have acknowledged there is a difference, and I 

have acknowledged that they are looking to define flexibility in 

their tools. I can’t speak for them in terms of how they will exercise 

that. 

Mr. ROSS. Would you give them any—would you give these insurance companies any advice as to how to prepare for what may be 

coming down the pike as far as capital requirements? 

Secretary LEW. My advice would be for them to work closely with 

the regulators that supervise them, and to have this conversation 

that we are having right now. 

Mr. ROSS. Again, looking back at my State of Florida, I think we 

have a very good framework. And we have a very good regulatory 

scheme. The Financial Stability Oversight Board, of which the Department of the Treasury is a member, released a report in August 

recommending that the United States consider federalizing insurance supervision. Is this something with which you agree? 

Secretary LEW. I think that we need to keep taking a look at how 

we are working at the State level, and at the Federal level. 

Mr. ROSS. Because there is a pre-emption there that we have to 

be concerned with. And I think in Dodd-Frank, we have reaffirmed 

McCarran-Ferguson and that State-based regulatory schemes work 

for consumers. But there must be something here that allows for 

some assurance that consumers can be guaranteed that the Federal 

Government is not going to impose new requirements that raise 

premiums. 

Secretary LEW. The question that Congressman Neugebauer was 

asking earlier about studies, the reports that— 

Mr. ROSS. Right. 

Secretary LEW. —the Federal Insurance Office is issuing, when 

they issue the report on the future of the insurance industry, it will 

raise some of these questions so that we can have a discussion of 

what, if any, is an appropriate Federal role. 

And we have been very respectful of the States’ role in this area. 

We are also very aware that there is an interconnectedness which 

raises national issues. And we have to have the conversation— 

Mr. ROSS. Good. Because I want to give you an example. Most 

insurance companies use statutory accounting principles. They reVerDate Nov 24 2008 12:07 Jul 16, 2014 Jkt 086690 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 K:\DOCS\86690.TXT TERRI
40 

quired by—in fact, the National Association of Insurance Commissioners recommends that. However, the Generally Accepted Accounting Principles (GAAP), are used more for bank-centric entities. 

If FSOC deems certain non-bank entities to be Systemically Important Financial Institutions (SIFIs), would they not then require 

them to change their accounting procedures from the way they report to the State to change to the way they report to the Federal 

Government? That is an issue I see that could realistically happen. 

Secretary LEW. I know from the conversations that I have had 

with regulators that they are very sensitive to the fact that there 

is an ongoing regulatory structure. And these are issues they are 

working their way through. 

Remember, we are just beginning this practice. 

Mr. ROSS. Oh, I agree. 

Secretary LEW. —we have to work our way through to make sure 

we—at a Federal level we do the job appropriately, and we do it 

in a way that doesn’t unduly disrupt— 

Mr. ROSS. And, again, just some assurance for—because ultimately it is the consumer who is going to have to pay for this. Because the cost of compliance is one of the largest—in fact compliance officers are one of the fastest growing occupations in this 

country, thanks in large part to the regulatory environment that 

we have here. 

But I guess my concern is that we know what is coming. We 

know that there is going to be a time when an insurance company 

may have to make a decision as whether they can accommodate the 

regulatory scheme of accounting principles, and in order to do so, 

their cost is going to have to be passed on to somebody. 

And I guess I am just looking for some assurance that may not 

have to happen. 

Secretary LEW. Congressman, I can assure you that the regulators are looking carefully at how to do this in a way that works 

for the economy and for the industry. 

Mr. ROSS. I am very hopeful about that. 

Thank you. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair recognizes the gentleman from Florida, Mr. Murphy, 

for 5 minutes. 

Mr. MURPHY. Thank you, Mr. Chairman. 

Thank you, Mr. Secretary, for being here. 

Back to the Volcker Rule, there has obviously been a lot of discussion about that today. We started to hear a few questions—Mr. 

McHenry brought this up, and didn’t really give you a chance to 

answer. Would you mind taking a minute to talk about how the 

regulators are going to split up their responsibilities in regulating 

Volcker? 

Secretary LEW. The regulators regulate different entities based 

on their characteristics. So depending on where institutions are 

currently supervised, that will flow through into the Volcker Rule, 

depending on who their primary regulator is, and what products 

they are engaged in. 

So I don’t think the Volcker Rule actually creates new lines. The 

reason there are five agencies is we have a regulatory structure 

41 

that divides up responsibilities for different institutions and different products. The Volcker Rule is just an extension of that. 

Mr. MURPHY. Will there be a clear head of those functions? 

Secretary LEW. I think the clarity that each of the agencies 

issued the same rule, they went through a process where they 

worked hard to simplify it. 

It is not a long rule. It is about 70 pages long. It leaves some 

space for supervisors to engage with the entities that they supervise to work through some detail. 

And I know that the intent is to have clarity that there is one 

set of rules. And now, it will be implemented through a regulatory 

structure that sometimes does create some shades of difference between entities based on what regulator has jurisdiction over them 

and what the characteristics of the entity are. 

So, I think there is an underlying issue in our regulatory system, 

that it is a complicated system which divides up responsibility 

amongst many different regulatory authorities. 

I think actually, in the case of the Volcker Rule, the fact that 

they were able to agree on common rule text is a step forward. It 

is, I think, unprecedented to have had five agencies act on the 

same day, on the same rule text. 

And that should give some encouragement that there is really a 

goal here of doing it in a sensible way. 

If I could just take one moment, earlier I was asked about 

whether other countries have a form of the Volcker Rule. And, 

while I said the Volcker Rule is unique, it is, in fact, the case that 

France and Germany have their own form of rules here. So we are 

not the only country to be dealing with this issue of proprietary 

trading. 

Mr. MURPHY. So you are not worried that this will, in fact, set 

American companies back, put us at a disadvantage? 

Secretary LEW. I’m sorry? Could you— 

Mr. MURPHY. You are not worried that this will, in fact, set 

American companies back? 

Secretary LEW. I believe that the American financial system is 

sounder and America’s financial services companies are sounder because of all the steps we have taken since 2009. 

I don’t think that it served our industry or our economy well to 

go through the financial crisis that we did in 2008 and 2009. 

So, if one balances kind of short-term and long-term issues, I 

think we are leaving the industry safer and sounder than it was, 

and that is a good thing. 

Mr. MURPHY. Another question, shifting gears a little bit: I wonder if you can put a number on what the dysfunction in this institution has cost the American taxpayer? Whether it is the shutdown, the sequester instead of the smart spending cuts, continuing 

resolutions, if you can put a number on that? 

Secretary LEW. It is hard to put one number. I believe deeply 

that the uncertainty and anxiety caused by the repeated financial 

crises, fiscal crises that were manufactured because of this process 

have hurt the economy. I think we see businesses holding back because they are uncertain about what the next 6 months will bring. 

I think today is actually a step in the right direction. Small as 

the budget agreement is compared to the grand bargain people 

42 

talked about, it backs out some short-term discretionary cuts that 

were hurting the economy, replaces them with longer-term structural savings, and it provides clarity, so that for the next couple of 

years, Congress can hopefully avoid the kind of dysfunction you described. 

Mr. MURPHY. Let’s hope so. I have 1 minute— 

Secretary LEW. But I would just underscore that it is important 

to extend the debt limit in the same way. 

Mr. MURPHY. Thank you. 

I want to ask about FSOC and their process of designating institutions as systematically important. 

Recently, there have been some reports saying that large asset 

managers will be designated as SIFIs. I wonder if you can talk 

briefly about that decision and if you are going to be relying on the 

Office of Financial Research’s (OFRs) recent report on asset managers to make that determination. 

Secretary LEW. Congressman, first of all, the Office of Financial 

Research study is a piece of research. It is not a decision by FSOC. 

It is just one of the pieces of analysis that will be considered. And 

it will be part of it. OFR was created in order to provide FSOC 

with that kind of research. 

I think the important thing is we can’t be afraid to ask questions. 

And it doesn’t mean you know the answer when you ask the questions. We have to follow the data and the analysis where it takes 

us. And we have to do it in an open-minded way. 

Mr. MURPHY. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Kentucky, Mr. 

Barr, for 5 minutes. 

Mr. BARR. Mr. Secretary, welcome to the committee. 

Is the mission of the Export-Import Bank to support U.S. exports 

and jobs for U.S. workers? 

Secretary LEW. It is to promote opportunities for U.S. export, 

which is good for the U.S. economy and for creating U.S. jobs. 

Mr. BARR. And is the mission of the Export-Import Bank to pick 

winners and losers among U.S. industries? 

Secretary LEW. It is to level the playing field in the world so U.S. 

industry has the ability to compete in a fair way. 

Mr. BARR. The reason why I ask those questions is because I am 

from Kentucky, and like Chairwoman Capito, from a coal-producing State, and so I share her concern about Treasury directives 

and policies with respect to the coal industry. 

We want to see a future for the coal industry and the vitality of 

the American coal industry. 

Kentucky is the third largest coal-producing State in the country. 

And so, my questions really are directed on behalf of the 6,200 coal 

miners in my State who have lost their jobs, with all respect, because of the anti-coal policies of this Administration over the last 

couple of years. 

And so, with respect to the policies directed to the multilateral 

development banks, most notably the World Bank, opposing funding for new coal plants and also the Export-Import Bank has adopted at the Administration’s direction stringent carbon standards 

that essentially prohibit funding for coal-fired power plants abroad. 

43 

I noted with optimism the written testimony that you presented 

here today, where you indicated that Treasury has worked successfully to secure support from the World Bank and the African Development Bank for President Obama’s Power Africa Initiative, which, 

as you say, aims to bring energy to half-a-billion people in sub-Saharan Africa. 

I share your interest in that, because for many parts of the world 

coal-generated electricity is vital, because it remains one of the 

only means to lift people out of darkness, literal darkness, into energy diversity and energy prosperity. 

And, in fact, the International Energy Agency estimates that 

over 1.3 billion people on this planet, nearly 20 percent of the 

world’s population, live with no access to electricity, to say nothing 

of the 1.7 billion who have very limited access. 

So my question is, the rhetoric in your written testimony that we 

want to deliver energy, diversity, and opportunity to people living 

in poverty in Africa, and the reality of the policy which is depriving 

these impoverished people of access to affordable, reliable coal-fired 

power, how do you reconcile the policy, the reality of the policy, and 

this rhetoric and this desire, the rhetorical desire to deliver energy 

opportunities to people in poverty? 

Secretary LEW. Congressman, we believe very much in being 

good partners in helping developing countries gain access to electricity. It is key to their economic growth and their further development. 

There are a lot of ways to develop electricity for a lot of these 

countries. Renewables and hydro and natural gas are— 

Mr. BARR. But the reason why these countries are in poverty and 

the reason why these people are in poverty is because they don’t 

have access to affordable, reliable, baseload power. Coal is a proven 

technology. Why would we discriminate against this particular reliable source of energy? 

Secretary LEW. As I tried to explain in my response to Congresswoman Capito, we have very strong concerns about climate change 

domestically and internationally. And we are trying to balance our 

concerns while promoting access to energy around the world. 

Mr. BARR. I understand. I heard your testimony before. 

Secretary LEW. Our policy is—regards our vote in international 

bodies. 

Mr. BARR. Right. 

Secretary LEW. It does not regard private financing. Nor does it 

in every case— 

Mr. BARR. With respect, to reclaim my time, I would encourage 

Treasury to reconsider. If the goal truly is to deliver energy diversity and opportunities to impoverished nations, we ought to consider true energy diversity, which would include a portfolio of coalfired power. 

Quickly shifting to the Volcker Rule, I do want to focus on the 

ambiguity and complexity of the Volcker Rule and whether or not 

the rule is capable of consistent enforcement. 

You have heard in recent days after the final issuance of the 

rule, Fed Governor Sarah Bloom Raskin at the Federal Reserve 

talking about how Section 619 of Dodd-Frank certainly doesn’t 

specify enforcement standards. 

44 

She indicates that the SEC may bring one perspective in its supervision of broker-dealers, and the OCC may bring a different perspective. 

Commissioner Gallagher of the SEC says that banking agencies 

can employ discretion, whereas at the SEC, a rule is a rule, and 

they have a different approach. 

So with a 71-page textual rule, no guidance really in the statutory language of Section 619, and 882 pages of explanation, how 

are banking and market regulators under your purview supposed 

to enforce this rule? How are the five separate regulators supposed 

to enforce the rule consistently when they have such divergent philosophies? 

Secretary LEW. Mr. Chairman, may I take just 30 seconds to respond? 

Chairman HENSARLING. Brief response, please. 

Secretary LEW. Congressman, I think that we have for 100 years 

seen the evolution of our financial regulatory system that has 

worked to create the five bodies. I think that the fact that the five 

agencies agreed to an identical rule text and are embarking on supervision and enforcement from a common starting point is enormous progress. So, I think we are going into this stronger than 

anyone might have expected. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Maryland, Mr. 

Delaney, for 5 minutes. 

Mr. DELANEY. Thank you, Mr. Chairman. 

And thank you, Mr. Secretary, for joining us here today. 

I was going to frame my question around the issue of asset managers being systemically important, which I don’t think they should 

be deemed systemically important. But my good friend and colleague from Kentucky made me think about another question that 

I want to ask you, kind of a follow up to what you were talking 

about. 

And I would just be interested in your opinion on this topic. If 

you were confronted with the following kind of policy question that 

was being posed to the President, which is that we would implement some form of market-driven and market-based carbon tax. 

And if the revenues produced from that form of a carbon tax were 

used entirely to provide a variety of tax breaks to individuals and 

businesses, so that it was a revenue-neutral proposal. But we actually had a true market-based carbon tax, which is something I am 

in favor of, but that the revenues generated from something like 

that were entirely given back to the American population either 

through individual tax breaks or through corporate tax breaks. 

How would you advise the President to think about something 

like that? What would be your directional view on a step like that? 

Secretary LEW. Congressman, this has obviously been debated 

over many decades. I was part of an Administration that proposed 

a BTU tax and was unsuccessful because it had such resistance in 

the 1990s. I think these are questions we have to look at. But the 

right context is in terms of comprehensive tax reform where you 

are looking overall at our tax system and how to make it more conducive to a growing, efficient economy. 

And the Administration has not made any proposals— 

45 

Mr. DELANEY. Right. I agree with you. Obviously, the best way 

to do tax reform is in a comprehensive manner, both for individual 

and corporate. And I say this respectfully, I am not trying to pin 

you down, but if you were just presented with the option that I 

have described, which—so I am not going to allow you to defer to 

comprehensive reform because I agree with comprehensive reform. 

But just directionally, I am trying to get a sense as to how you 

weigh these things. 

Because politically, when we think about a carbon tax, again a 

market-based carbon tax which allows the private markets to do 

what I think we oftentimes try to have regulators do too much of. 

I would much rather see the private market adjust behavior in a 

way that I think is in the best interests of us across the long term, 

as opposed to trying to regulate that behavior. 

But if we were to have a real market-driven carbon tax, and the 

only way that could be done politically was by taking those tax revenues and giving them back to individuals and corporations 

through a variety of tax reductions, do you think directionally, that 

is something you would be supportive of? Or are you not at a point 

where you could comment on that? 

Secretary LEW. Congressman, I am really not at a point where 

I could comment on it. I haven’t looked closely at this matter in recent years. I think that it would be a good thing if we got deeply 

into the debate over broad tax reform in a context that helps deal 

with our long-term fiscal challenges. It is not enough to be revenueneutral. It has to help solve the fiscal challenges we face. And we 

haven’t gotten deeply into that discussion— 

Mr. DELANEY. But if it were just revenue-neutral, do you think 

it is compelling enough to take this step towards behavior that, in 

my opinion, would change climate change? 

Secretary LEW. I appreciate that you are asking the question for 

a third time, but I am just going to have to say I would have to 

look at it and get back to you. 

Mr. DELANEY. Do you think climate change is a big economic risk 

to the United States? 

Secretary LEW. I do. 

Mr. DELANEY. Do you think corporate tax rates are too high? 

Secretary LEW. I think that, as we have made clear, we think 

that it is important that we do business tax reform so we lower the 

statutory rate, being more competitive, and flatten out some of the 

system so that it doesn’t distort economic decision-making. 

Mr. DELANEY. Okay. Thank you, sir. 

I yield back. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from Pennsylvania, Mr. 

Rothfus, for 5 minutes. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

Thank you, Mr. Secretary, for being here today. 

I would like to touch a little bit on the coal-fired power generation guidelines that have recently come out, following up on Congressman Barr and Congresswoman Capito. 

Did the Administration consult with other countries and develop 

these new policies as a result of multilateral negotiations at the 

boards of these institutions? 

46 

Secretary LEW. We have had discussions. I would have to check 

whether they were discussions that would rise to a level of negotiations. 

Mr. ROTHFUS. I would be interested in hearing if they were, so 

if you could please follow up with us in writing to see who was involved with those. 

My concern is that this is essentially a unilateral political decision that was made at the White House without consulting our 

friends and allies. 

Secretary LEW. We have had conversations with our friends and 

allies about it. So it is obviously our view, but it is not something 

that we have just done without talking to our friends and allies. 

Mr. ROTHFUS. Can you tell us whether the countries that will be 

made ineligible for development bank funding for coal-fired power 

plants agree with this new U.S. policy? 

Secretary LEW. I think you can see from the facilities proposals 

that are moving through that there are plans that continue to be 

presented for funding. 

Mr. ROTHFUS. Yes, we hear a lot about China doing a lot of investing in Africa. Won’t countries just start buying Chinese coalfired power plants that are less durable and that do not have the 

same rigorous standards that we have in the United States? 

Secretary LEW. I think that relates to a separate question, which 

is that China is increasingly looking for ways to increase its participation in multilateral—in international— 

Mr. ROTHFUS. Is China adopting the same regulations or the 

same guidelines that you— 

Secretary LEW. I don’t believe so. 

Mr. ROTHFUS. Is it fair— 

Secretary LEW. I will say this, that China— 

Mr. ROTHFUS. Is it fair, Mr. Secretary, to deny underdeveloped 

countries the opportunity to grow their economy with low-cost energy the way the United States has? 

Secretary LEW. Congressman, we are trying to help underdeveloped countries gain access to bountiful and, in many cases, renewable energy sources. 

Mr. ROTHFUS. How many people have been lifted out of poverty 

because of solar power? 

Secretary LEW. Hydro is a big factor in many underdeveloped 

countries. And I think solar and renewable have potential. I would 

say this about China, China is confronting climate change in a very 

real way because they are dealing with a public health problem in 

their own country which they— 

Mr. ROTHFUS. Has China suspended the construction of coal-fired 

power plants? 

Secretary LEW. They haven’t suspended, but they are very much 

focused on how they can reduce carbon emissions. 

Mr. ROTHFUS. I would like to switch gears a little bit. In a recent 

article that appeared in the pages of The Wall Street Journal, it 

was reported that the number of banking institutions in the United 

States has fallen to its lowest level since the Great Depression, 

down from a peak of more than 18,000 institutions to below 7,000. 

This significant decline has come almost entirely in the form of 

exits by banks with less than $100 million in assets, in other 

47 

words, our community banks. Rising regulatory cost is cited as a 

major reason why these numbers are declining. Over the past year, 

this committee has heard from a number of witnesses about these 

rising regulatory costs and how they acutely burden small financial 

institutions, both community banks and credit unions. 

Mr. Secretary, are you concerned about these bank closures and 

consolidation within the financial services industry? 

Secretary LEW. Congressman, I think community banks play a 

very important role in our economy. I have met with community 

bank representatives on quite a number of occasions. I have met 

with regulators and I have shared my concerns with them. 

I think that if you look at the actions taken by regulators, it 

shows a great deal of attention to trying to carve out rules that 

treat community banks appropriately, even the Volcker Rule that 

was finalized this week. So I think we are concerned with the 

health of community banks and are trying to balance the responsibilities we have to ensure safety and soundness in the financial 

system with a good opportunity for community banks to be healthy. 

Mr. ROTHFUS. In a recent speech that you delivered at the Pew 

Charitable Trusts, you heralded the work of the Consumer Financial Protection Bureau, particularly its implementation of the new 

qualified mortgage standards which will go into effect in a couple 

of weeks. You also criticized the work of this committee to institute 

much-needed reforms at the CFPB to make the Bureau more transparent and accountable to the American people. 

Just a few weeks ago, before you delivered that speech, Chairwoman Capito and I held a roundtable back in Pittsburgh where 

we heard firsthand from banks, credit unions, housing advocates, 

and community development organizations about how the Q.M. 

rule as currently written will cause significant harm to the economy and housing market and will make it more difficult for working families in western Pennsylvania and around the Nation to buy 

homes. 

As the Chairman of FSOC, you have some oversight authority 

over CFPB rulemaking, including QM. So I would like to hear your 

response to these concerns. 

Secretary LEW. Congressman, I think that as Director Cordray 

has indicated, they are working through the final details, and I believe that many of those concerns can be addressed. And when the 

institutions understand better— 

Mr. ROTHFUS. Those concerns—I would encourage you to listen 

to the advocates for the low- to moderate-income borrowers. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Ohio, Mrs. Beatty, 

for 5 minutes. 

Mrs. BEATTY. Thank you, Mr. Chairman, and Ranking Member 

Waters. 

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

First, let me start by saying thank you to all of the Assistant 

Secretaries, Assistant Chiefs of staff or Assistant Legislative Directors for their scholarship and their hard work because I am sure 

much of what you are getting today has been scribed, signed, and 

sent from some assistant. 

48 

So I guess my question to you would be, in your selection of assistant secretaries, would you say, yes or no, that some of them in 

their complex specialty areas are as talented or even more talented 

than you? 

Secretary LEW. I am thankful every day that I work with people 

who know much more about many of the things that I work on 

than I do. I think that is a requirement in any of these positions 

that we have. We make the Federal service attractive to people 

who come with technical knowledge and the ability to help support 

decision-making by policymakers like myself. 

Mrs. BEATTY. Thank you. 

We have heard the word ‘‘radical’’ used to describe President 

Obama’s response to our financial crises. So hearing it used with 

so much disdain, I decided that I would do some research on radical responses and plans from Presidents. 

And President Bush came up repeatedly. Let me just share with 

you: President Bush outlines radical plan to part-nationalize banks. 

And he said this in a press conference from the White House as 

he authorized hundreds and hundreds of billions of dollars with 

banks to shore up the financial crises in 2008. 

And in his televised statement, he said, it was essential, although it was unprecedented, it was necessary to be aggressive to 

address the financial crises. 

So would you say sometimes, when you are a real leader, it takes 

radical actions—and that is not said with disdain—whether it is 

climate preparedness, whether it is health care, whether it is the 

debt ceiling, that real leaders sometimes must take aggressive, radical actions? 

Secretary LEW. I will leave to others whether the word ‘‘radical’’ 

is the right word to describe it. But taking decisive and effective 

action is a mark of leadership. And it is one that I am proud that 

we have tried to follow in the work I have been describing today. 

Mrs. BEATTY. Thank you. 

Now to something a little more related to financial services. 

For almost 11 months, I have served on the Financial Services 

Committee. And certainly, we have heard, as you have heard, a lot 

about oversight and regulation. Is it too hot, is it too warm, where 

should we be in between with it? 

So my first question to you is, is there a broadly comparable 

market segment of what we call small or mid-sized banks in places 

like Europe or China? 

Secretary LEW. The banking systems overseas tend to be very 

concentrated. And they have a real challenge in many countries 

opening up lines of capital that get into small and medium-sized 

enterprises. 

So I think the variety, the diversity of the U.S. system serves us 

well. And I think we have the deepest and most liquid financial 

markets in the world. Part of that is due to the fact that we have 

a variety of different kinds of institutions serving different needs. 

Mrs. BEATTY. Okay. Would applying the same banking regula- tions, let’s say covering a $2 trillion bank, be appropriate for, let’s 

say, a $40 billion bank? 

Secretary LEW. We have tried, as I noted a few moments ago, at 

every level to be sensitive to the fact that our rules have to treat 

49 

differently firms that present different characteristics and that 

they have to be designed to meet the needs of ensuring financial 

stability. 

And that is why there are special provisions that provide a different kind of treatment for smaller banks than larger banks. It is 

why we have supplemental requirements on the very largest banks, 

ranging from the living wills to supplementary capital requirements. So we can’t have a one-size-fits-all system, and we don’t. 

Mrs. BEATTY. Then lastly, generally speaking, is there any reason, based on that answer, to believe that the average, small or 

mid-sized bank is actively participating in global financial activities? 

Secretary LEW. I think every bank has its own unique book of 

business, but I think most of your smaller banks are dealing with 

pretty much local business. 

Mrs. BEATTY. Okay. 

Thank you very much. I yield back. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from California, Mr. 

Royce, the chairman of the House Foreign Affairs Committee, for 

5 minutes. 

Mr. ROYCE. Thank you, Mr. Chairman. 

Mr. Secretary, I want to thank you for your comments to Mr. 

Neugebauer earlier today regarding the Federal Insurance Office 

Modernization Report. And that report was originally introduced to 

Dodd-Frank through an amendment that I co-sponsored with another Member here on this committee. 

One of the goals for a long time on insurance modernization has 

been this concept of trying to create more uniformity, first of all, 

hopefully less government price and product control, but instead 

more competition infused into the system. 

We have sort of moved in the other direction in some ways in recent years because now we have layered regulation at the Federal 

Reserve on top of a tangled web of State bureaucracy and a lot of 

duplicative regulations. 

So I think it is more important than ever that we restart this 

conversation on how to best serve the insurance consumer in this 

country. And it appears the report apparently is off the printer, 

and it is on to the binder. 

And so my hope was that you could shed some more light on 

what we should expect, and will that report include specific language on recommendations to improve the uniformity of insurance 

regulation in the country, or even our ability to deal with international regulatory issues where we are out of compliance and so 

forth? 

Secretary LEW. Congressman, I don’t want to jump too far ahead 

of the report being released so that you can read it and make an 

evaluation of it on your own in its entirety. 

But I would say this, that in the work that has been done in preparing it, there has been a lot of focus on the fact that we have 

a history of State regulation of insurance in this country. We have 

cross-cutting national concerns; finding a way to balance that even 

better than we have in the past is important. And that means cueing up important questions for further scrutiny. 

50 

I think that is what the report really tries to do, to focus on the 

issues that we need to deal with together, to answer the questions 

that you are posing. I don’t think you will find that the report is 

conclusory in all of these areas. 

Mr. ROYCE. We did have that previous Treasury blueprint, which 

did lay out recommendations for legislative action. My hope was 

that it would be decisive enough to at least delineate. 

Secretary LEW. I think that you will find ample food for thought 

in the report when it comes out. And I would look forward to following up, once we can talk through the details. 

Mr. ROYCE. I will look forward, Mr. Secretary, to meeting with 

you on that. 

I wanted to jump over to Iran sanctions and a specific question I had on the $4.2 billion in oil sales over the next 6 months that 

the interim agreement stated that we are going to allow Iran to access. 

And the other aspect of that is there is also language in the 

agreement where it sort of puts a pause on this concept of nations 

having to significantly reduce their purchases. 

But going to that first point, nowhere in the law does it explicitly 

allow for a limited release of these funds. And so if they are going 

to access this $4.2 billion in currency, under what specific authority 

will you allow that repatriation? 

How would that work in terms of the hard currency coming into 

the Iranian regime? Are you going to invoke a waiver to do that 

or— 

Secretary LEW. Congressman, if I can get back to you on the specific legal authority, I would be happy to do that. Let me just address the economic issue and try to put it in a bit of perspective. We have immobilized roughly $100 billion of Iranian assets. So, the relief of $4.2 billion is a small fraction of the assets that we 

have immobilized. 

Mr. ROYCE. I understand that. 

Secretary LEW. And even during the 6-month period of the interim agreement, there will be an additional $30 billion of foregone 

oil sales because of the sanctions. 

Mr. ROYCE. Because of the existing sanctions. 

Secretary LEW. Yes. So we are continuing to keep the pressure 

on Iran in a very serious way. 

Mr. ROYCE. But I would—we are a little off-topic here in terms 

of the authority. I would like to get an answer on that. But I will 

say this, sanctions are largely psychological, not just legal. So when 

you pick up The Wall Street Journal and a headline says, ‘‘Businesses Rushing To Iran To Do Business.’’ And you have read the 

articles about oil and gas queuing up because of the anticipation, 

of course is that once you start down this road, sanctions start to 

unravel. 

So I am not sure that the impact is going to be as slight as you 

think it is. Already you see their currency rebounding, going up 30 

percent. It is partly the result of reversing course. 

Secretary LEW. Mr. Chairman, if I could just respond briefly. 

Chairman HENSARLING. Briefly, Mr. Secretary. 

Secretary LEW. Iran’s economy has shrunk by 5 percent over the 

last year because of sanctions. The relief that we are talking about 

51 

is roughly 1 percent of their economy. There is still going to be 

more pain put on their economy. Whatever is driving Iran to 

change its views and negotiate in an interim context will continue 

to force them to continue to make concessions to get real relief, 

which is the only way they will get real relief is if they forego their 

nuclear program. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Washington, Mr. 

Heck, for 5 minutes. 

Mr. HECK. Thank you, Mr. Chairman. 

I am grateful to my colleague from Kentucky for having asked 

about the Export-Import Bank because it reminded me of a question I have been wanting to ask for some time. 

As you know, Mr. Secretary, the Export-Import Bank is scheduled to expire next October 1st. As you also well know, the ExportImport Bank transferred to you $1.057 billion about 6 weeks ago 

in what otherwise would be called profits. And as you know, the 

Export-Import Bank has been independently assessed to have created by virtue of its activity approximately a quarter of a million 

jobs. 

But my question to you, sir, is if we were to allow the ExportImport Bank to expire, the Bank which has never used one red 

cent of Federal Treasury or tax dollars, would that render the 

United States of America the only developed nation on the face of 

the globe without an entity something like the Export-Import 

Bank? 

Secretary LEW. Congressman, I have to do a little research to answer whether it would be the only one. But we certainly would find 

ourselves facing an unlevel playing field because so many countries 

have programs like this. 

Mr. HECK. Thank you. Now, I want to return to the subject of 

my opening statement. 

I noted that it prompted a chuckle or two when I asked you 

about the role of the Department of the Treasury in providing access to banking services to otherwise legally constituted marijuana 

businesses in well-regulated States. In Washington State and Colorado last year, the voters approved adult use of marijuana. The Department of Justice said if the State is well-regulated, they will 

stand down on enforcement of criminal activity and prosecution. 

But these businesses still do not have access to banking services. 

And in Washington State, it has been forecast by fairly reputable 

work that it will be about a $1 billion a year sector of the economy. 

This is a serious question. A billion dollars in cash floating 

around an economy where the businesses which otherwise legally 

operate cannot access depository services, can’t issue checks, can’t 

receive credit card payments. In fact, all cash. It is, in fact, sir, an 

open invitation—it is setting out the welcome mat to organized 

crime and disorganized crime. 

It is setting out the welcome mat for tax avoidance. It is an open 

invitation to all sorts of activities which will render us and our 

communities and our neighborhoods less safe. 

Now, the context is today, right now as we speak, the Bank Secrecy Act Advisory Group is meeting. The Financial Crimes Enforcement Network (FinCEN), a division of the Treasury, is with 

52 

them. I suspect they are talking about some guidelines to parallel 

the Department of Justice’s efforts to allow access to bank services. 

My question to you, sir, is: Given all of this, do you recognize, do 

you understand, and will you acknowledge the threats to public 

safety if these businesses, otherwise legally constituted, do not 

have access to bank services? 

Secretary LEW. Congressman, I recognize the serious challenges 

that are attendant to this, and obviously when there are State laws 

and Federal laws that are not consistent, it creates complicated decisions that have to be made. I look forward to seeing the work 

that comes out of these meetings that you are describing and will 

evaluate them when they are presented to me. 

Mr. HECK. Would you commit, even in a general sense, to a 

timeline of action, keeping in mind that in both Colorado and 

Washington State, these businesses go live in a matter of a few 

weeks from now? 

Secretary LEW. Congressman, I can’t commit to a timeline until 

I see the results of the work that is done here, but I am happy to 

follow up on the matter with you. 

Mr. HECK. You understand the urgency? 

Secretary LEW. I understand the external timeline quite well. 

And when informed of the recommendations, I would be happy to 

follow up. 

Mr. HECK. Finally, in the very brief amount of time remaining, 

I want to commend you for the work that your agency and you 

yourself personally undertook to lead the adoption of the Volcker 

Rule. We are all aware that there are lawsuits pending and that, 

according to news reports, several more are possible. 

My question to you, and again a brief answer: What would be 

your general statement about the risk associated to the progress 

that you have deemed earlier here and a speech last week that the 

combination of this rulemaking has provided toward the objective 

of safety and soundness of our financial institutions and our economy if those suits, some or all of them, are successful? 

Secretary LEW. Obviously, I have spoken to how important I 

think the rule is. I know that the foundation for it is strong. And 

I would think that it would be a much better thing if it just goes 

forward as is. 

Mr. HECK. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair recognizes the gentleman from California, Mr. Miller, 

our vice chairman, for 5 minutes. 

Mr. MILLER. Thank you, Mr. Chairman. 

Welcome. It is good to have you here this afternoon. I know it 

was this morning a few minutes ago, but there has been a great 

deal of discussion. 

Secretary LEW. It seems to happen. 

[laughter] 

Mr. MILLER. Pardon me? 

Secretary LEW. It seems to happen— 

Mr. MILLER. I know. It goes quickly. 

There has been discussion regarding what would result if bank 

asset standards were applied to insurance companies. I know that 

has been touched on a little bit during the hearing today. 

53 

But during your confirmation hearing, Sarah Bloom Raskin said, 

‘‘A one-size-fits-all approach is not going to work here. Insurance 

companies have a very different set of asset and liability structure 

than do banks, and to regulate them in terms of a one-size-fits-all 

approach is not going to be an effective form of supervision or regulation.’’ 

Do you concur and agree with this? 

Secretary LEW. I tried to indicate in response to several other 

members of the committee that I think it is important that the regulators look at what it requires to regulate insurance companies 

appropriately, to look at the discretion they have within their authorities to make distinctions. And that we are going to work together on this going forward to make sure we do it right. 

But the objective of the review that the Financial Stability Oversight Council made was to determine whether or not there was systemic risk. The job of tailoring the regulatory approaches is really 

in the hands of each of the respective supervisory regulatory agencies. And I know they are all focused on trying to do this effectively. 

Mr. MILLER. Yes, but my concern is the timing. Treasury’s position has been that no statutory change should be made to DoddFrank until implementation is complete, which is late, as far as I 

am concerned, yet the Federal Reserve has previously expressed a 

few that Section 171 of Dodd-Frank, the Collins amendment provision, constrains their ability to tailor standards to non-bank business models such as insurance. And Chairman Bernanke confirmed 

that when he was here—several times. 

So my concern is that even though it is acknowledged that there 

is a problem and it won’t work, the Treasury position is that we 

are not going to do anything until after the implementation is complete, and my position is that it is too late at that point in time. 

And I think it is a matter of timing. But are you willing to work 

to help solve this problem in your roles at Treasury and FSOC? 

Secretary LEW. Congressman, I believe that each of the regulatory agencies is looking at what discretion they have within their 

current statutes. I don’t know that they have reached final judgments in every case. I don’t believe they have. I think there are 

some differences of view as to how much flexibility they have. And 

I think we will need to continue looking at this and working together if there is an issue. 

Mr. MILLER. But if there is an acknowledgment—and I am not 

arguing with you. We have a tough job ahead. But if there is an 

acknowledgement that there is a problem, and yet the agency that 

is going to move forward with the implementation acknowledging 

that there is a problem, and allow that implementation to occur, 

saying that we will somewhat fix it later like the Feds say, it 

seems like we should step back and say, ‘‘We know there is a problem here, we know this is not going to work, so why don’t we take 

care of it in a normal process instead of after the fact?’’ 

Secretary LEW. Obviously, each of the issues that comes up 

under Dodd-Frank has somewhat different character. Many of the 

issues where we have taken the view that it is premature were 

issues where agencies were still in the process of making judgments and the legislation was jumping ahead of it. 

54 

Mr. MILLER. I understand that, but— 

Secretary LEW. And this is one that I believe is more complicated. I think that— 

Mr. MILLER. Especially for insurance companies. 

Secretary LEW. I think that it is a mistake to conclude that the 

agencies don’t have any flexibility here, because I know that there 

is some flexibility that they do have. And whether it is enough is 

the question. 

I think we have to wait and see if it is enough. And I would look 

forward to continuing the conversation, if it turns out not to be. 

Mr. MILLER. Okay. That is fair. 

On September 30th, Treasury’s Office of Financial Research 

(OFR), published a report entitled, ‘‘Asset Management and the Financial Stability,’’ at the direction of FSOC. 

In the introduction, the report states that, ‘‘the asset managers’ 

activities differ in important ways from commercial banking and 

that asset managers act primarily as agents, managing assets on 

behalf of clients as opposed to investing on the manager’s behalf. 

Losses are borne by and, again, accrue to clients rather than asset 

management firms.’’ 

Do you agree with the study that the asset management banking 

firms are different? 

Secretary LEW. I think there is no doubt that they are different. 

And the question is whether or not there are systemic risks that 

rise to the level of designation. 

I would just point out that OFR’s study was not a regulatory undertaking. It was an analytic study. It is a totally separate matter 

to reach a determination— 

Mr. MILLER. But do you see a clear line between the functions? 

Secretary LEW. I think that we deal with a complex financial system where we have many different players that have different 

functions. They sometimes look more similar in some cases than 

others. 

But to acknowledge that they are different seems to me to be 

necessary to understand each of them. 

And the question as to whether or not there are issues of systemic risk has to flow from the character of what each organization 

is, and we can’t be afraid to ask the questions. 

Mr. MILLER. Thank you. I appreciate it. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Green, 

for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

I thank the ranking member. I would like to associate myself 

with the opening comments of the ranking member, and I would 

like to pursue some of what she discussed. 

By the way, I welcome you to the committee, Mr. Secretary. 

I have before me, Mr. Secretary, an article entitled, ‘‘The top 25 

hedge fund managers earn more than all the 500 top CEOs together.’’ 

The first paragraph reads, ‘‘The best chance of becoming super 

rich is to be one of the highest paid hedge fund managers or masters of the universe,’’ as it said here. 

55 

‘‘In 2010, the top 25 hedge fund managers combined earned 

roughly four times,’’ some things bear repeating, ‘‘roughly four 

times as much as all of the 500 CEOs at the top of the 500 giant 

corporations that make up the S&P 500 Index.’’ 

And then it indicates that the average pay of these 25 hedge 

fund managers was $134 million in 2002, and peaked at over $1 

billion in 2007. 

Now, we go down to paragraph number seven, quickly. Okay. 

This one I find quite interesting. It talks about the poverty among 

managers of law firms. It reads, ‘‘The poverty in the higher ranks 

of law firm partners is striking. The average profit per partner was 

just $1.6 million in 2010.’’ 

I would call to your attention 2007, when a hedge fund manager 

made over $3 billion—by the way, I don’t begrudge any of these 

people for making the money that they make—and that is a lot of 

money, and it is difficult to get your mind around it. That is about 

$400 per second. It would take a minimum-wage worker 198,000 

years to make that $3 billion. 

Which brings me to my question: Speculative income is taxed at 

a lower rate than ordinary income. Are there policies that we 

should review such that this type of inequality does not continue 

to expand, because the chasm between the poor partners at law 

firms who are only making $1.6 million and the super rich hedge 

fund managers has to be dealt with. 

What policies could we implement, if you can tell me quickly, to 

deal with this? 

Secretary LEW. Congressman, I think the President spoke at 

great length to this question of inequality just the other day. It is 

a deep, deep problem. 

I don’t think, frankly, the poverty of the attorneys you are talking about is what he was focusing on, but it was the challenges of 

minimum-wage workers who work full-time but don’t break 

through the poverty line and can’t support their families. 

So I think we have to ask different questions of what can we do 

to provide opportunity for people to rise to the middle-class, how 

do we make sure people who work full-time have a middle-class income? And things like raising the minimum wage are part of that. 

Things like the action taken at the beginning of this year when the 

top tax rate went back to where it was before the tax cuts of 2001, 

2003 is part of it. 

But we have a lot more work to do. And we fundamentally have 

to focus on building a growing economy that is creating jobs that 

have good salaries and good middle-class opportunities. 

That is where the growth in our country is going to— 

Mr. GREEN. Let me just quickly intercede. And I appreciate your 

answer. Would you agree that ordinary income is taxed at a higher 

rate than speculative income? 

Secretary LEW. Earned and unearned income are taxed differently. And I have over the years thought that we have to look 

at that as a question of whether we have it in the right place. 

Raising the top rate was part of it. And, as we go through individual tax reform, we ought to be asking these kinds of questions. 

56 

Mr. GREEN. Generally speaking, and this is in a very general 

sense, speculative income is taxed at roughly around 15 percent. Is 

that a fair statement? 

Secretary LEW. Correct. 

Mr. GREEN. And ordinary income, which secretaries make, probably you, your ordinary income is at around 35 percent. Is that correct? 

Secretary LEW. Correct. 

Mr. GREEN. So these minimum-wage workers who work full time 

and live below the poverty line, something has to be done, Mr. Lew. 

And I appreciate your— 

Secretary LEW. I think we have to have a tax system that encourages investment. We have to have a tax system that encourages people to work. And I think we have a lot more work to do. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from North Carolina, 

Mr. Pittenger, for 5 minutes. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

Mr. Secretary, thank you for your service, and for being here 

today. 

Mr. Secretary, during the October Government shutdown, the 

Treasury Department and the Administration declared that there 

were about 90 percent of the Treasury’s 15,009 IRS employees 

deemed to be nonessential, including nearly every staffer of the Financial Crimes Enforcement Network (FinCEN) and the Office of 

Foreign Asset Control (OFAC). 

The Treasury put out a statement bemoaning the state of affairs. 

It said, ‘‘This massively reduced staffing impairs OFAC’s ability to 

execute terrorism, financial intelligence, broader efforts to combat 

money laundering and illicit finance, protect the integrity of the 

U.S. financial system, and disrupt the financial underpinnings of 

our adversaries.’’ 

Let me read some statements put out by the Treasury, one on 

September 27th. It says that the Treasury ‘‘assures the public that 

in the unfortunate case of the lapse in appropriations, it will continue to provide certain critical functions, among them terrorism 

and financial offices will continue collection, analysis, and reporting 

of intelligence as well as the administration of the specially designated nationals.’’ 

A little bit later, you put out another statement that said, ‘‘The 

Office of Foreign Asset Control, which implements the U.S. Government’s financial sanctions, has had to furlough nearly all of its 

staff due to the lapse in congressional funding, and it is unable to 

sustain its core functions.’’ 

According to this press guidance, this massively reduced staffing 

for TFI offices ‘‘undermines the efforts to combat money laundering 

and illicit finance, protect the integrity of the U.S. financial system, 

and disrupt the financial underpinnings of our adversaries.’’ 

Mr. Secretary, the Treasury kept top political appointees on the 

job during this time and declared them to be essential. At the same 

time, they furloughed almost every professional who is tasked with 

stopping the funding of terror and stopping people doing business 

with Iran’s rogue regime. 

57 

By that decision, those jobs were deemed nonessential. That 

troubles me deeply and leads to a few questions. 

First, how is preventing a terror attack on the United States and 

preventing Iran from developing a nuclear weapon nonessential? 

And what sort of jobs were more important than that? 

Secretary LEW. Congressman, going back to October, I believed 

deeply then, and I believe deeply now, that there were many bad 

consequences that came from the fact that there was that kind of 

brinksmanship, and important things weren’t happening because 

the Government shut down. 

So, that is just a consequence of shutting down the government. 

There were guidelines put out by the Office of Management and 

Budget that we adhered to in making the judgments. There are 

categories of employees, who, because of their status, fall on one 

side of the line or the other. 

I can tell you that we brought back the staff who were needed 

to support the negotiations that were going on with regard to Iran. 

We had the capacity to do that. 

But there are consequences to shutting down the government. 

And you can’t keep the whole government open when the government shuts down. 

So— 

Mr. PITTENGER. Mr. Secretary, let me ask you this, though. You 

made the statement on September the 27th in the lapse of appropriations that these important functions related to the Department 

regarding collecting analysis and reporting intelligence would continue in the midst of the shutdown. 

What happened between the time of that statement and the subsequent statement that says that you would have massively reduced staffing? 

Secretary LEW. Congressman, during the days of the shutdown, 

at the beginning of the shutdown, there was not even a flow of intelligence information coming in because our intelligence operation 

was in the same position that our threat-financing— 

Mr. PITTENGER. Mr. Secretary, with all due respect, it is clear 

that you kept political appointees intact. It is clear that you eliminated jobs of professionals whose assignment it is to protect this 

country. And I think it is not clear to the American people why you 

would make that type of decision. 

Secretary LEW. Congressman, we followed the guidelines of the 

Office of Management and Budget. We followed the rules and the 

law regarding these determinations. And the problem, when you 

have the kind of confrontation that shuts down the government— 

Mr. PITTENGER. Mr. Secretary, my time is up. But what I will 

say is you have two different statements here, one, that you would 

continue to fund it and and that later you did not. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair announces to all Members that under the agreed-upon 

schedule with the Secretary, we have an opportunity for 2 more 

Members to question him. 

The Chair now recognizes the gentleman from California, Mr. 

Sherman, for 5 minutes. 

Mr. SHERMAN. Thank you. 

58 

Secretary Lew, I want to commend you and Secretary Cohen for 

the effective and hard work to enforce existing sanctions, laws, particularly your new announcement today. 

Secretary Kerry testified before the Foreign Affairs Committee 

yesterday that we were going to move forward in force, and you 

have proved him right. 

The Chair made an opening statement focusing on bailouts. We 

have worked hard together, the Chair and I and many others, to 

prevent statutes from providing pre-existing bailout authority. 

But I would point out that we didn’t have pre-existing bailout authority in 2008. That is why we changed the statute. We adopted 

TARP. He and I opposed that at the time. But I hope he will join 

me in co-sponsoring the bill to say that too-big-to-fail is too-big-toexist. 

Because I will tell you now, if Goldman Sachs is going under, you 

and I may be working against a bailout. Who knows? Maybe we 

won’t be. But in any case, I don’t think we are going to have a different result. 

Too-big-to-fail is too-big-to-exist. And I know the Secretary, along 

with the other regulators, has the authority under Dodd-Frank to 

break up the too-big-to-fail, but I am not sure he is going to do it 

until you and I pass a law requiring it. 

Mrs. Maloney made an excellent opening statement focusing on 

the need for a stable housing finance system. I would add that the 

higher conforming loan limit that we have in her city and mine and 

10 other high-cost areas actually makes money for Fannie Mae and 

Freddie Mac and thus for the Federal Government. 

And we would increase the national debt if we cut that back. 

Mr. Campbell focused on the $63 billion change of status at the 

IMF. He pointed out a number of things Congress would want to 

see on any bill authorizing that. 

I will add one more, speaking only for myself, and that is there 

should be a requirement that the IMF, prior to us dealing with 

that $63 billion, suspend Iran and that Iran be ineligible for any 

transactions with the IMF until such time as by an 80 percent majority the IMF board determined that they had, indeed, abandoned 

their nuclear weapons program. 

Mr. Green pointed out the focus on the unfairness in tax rates. 

Even if you believe—and I will point out the capital gains rate is, 

in effect, 23.8 percent, not quite as bad as 15 percent, but still, less 

than ordinary working people are paying. 

And even if you believe that we should have a lower rate for 

money—profits earned on capital risk, the hedge fund managers 

are able to take their earned income and treat it as capital gain 

unless they make it based in the Cayman Islands, et cetera, and 

it is a 0 percent rate. 

Speaking of international taxation, Mr. Secretary, the last time 

you were here, in May, in my questions I focused on the California 

system of apportionment for international taxation, known as the 

California System. And you promised that you would look at it. I 

won’t put you on the spot here and ask for a full discussion. 

But I wonder if you could commit that we will talk about that, 

to cut the Gordian knot and eliminate the transaction-by-transaction approach and instead say that if a company is 50 percentVerDate Nov 24 2008 12:07 Jul 16, 2014 Jkt 086690 PO 00000 Frm 00062 Fmt 6633 Sfmt 6633 K:\DOCS\86690.TXT TERRI
59 

based in the United States, we ought to tax 50 percent of its worldwide income. 

So, can I count on you for further discussions on that? 

Secretary LEW. I am happy to continue the conversation. 

Mr. SHERMAN. And then I would also add—and this is a smaller 

fix—that we ought to disallow any deduction for payment for the 

use of intellectual property if that intellectual property was developed in a high-cost—in a high-tax country like the United States 

but has now been transferred to a low-cost country, such as the 

Cayman Islands. 

Your Department and you personally issue a report on currency 

manipulation. The National Association of Manufacturers says the 

renminbi is undervalued by almost 40 percent. And frankly, if we 

were able to prevent that undervaluation, you would be here testifying about the labor shortage in the United States. 

Why have you not reported to us that China is indeed manipulating its currency? 

Secretary LEW. Congressman, I have addressed the issue of exchange rates a number of times. I believe we have pushed very 

hard on China to move towards a market exchange rate. They have 

appreciated substantially. 

Mr. SHERMAN. Tariffs would push them a lot harder. 

Secretary LEW. We are going to continue to push them. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Minnesota, Mrs. 

Bachmann, for 5 minutes. 

Mrs. BACHMANN. Thank you, Mr. Chairman. 

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

I understand that today the Treasury Department made additional designations regarding sanctions of companies, rogue companies, front organizations that were dealing with Iran. That was a 

good move. I think that is a positive move that the Treasury Department made. 

But it seems that additional sanctions against Iran would be exactly what is needed now to let Iran know that the United States 

would do whatever it takes, including a military option, to stop 

Iran from reaching its stated goal of ultimately having a nuclear 

program. 

And what I am wondering—Congress was not aware that the Administration was undertaking secret negotiations with Iran regarding sanctions relief with its nuclear program for that period of 

time. Were you aware of these secret negotiations with Iran? 

Secretary LEW. Congresswoman, I have been aware of many 

things going on with regard to Iran, but I don’t think this is an appropriate place to discuss that topic. 

Mrs. BACHMANN. The reason why I ask that is because a report 

came out on November 8th that, in June, when Mr. Rouhani was 

elected president of Iran, that at that time it appeared, from a review of Treasury notices, that there was a distinct cutting back on 

the number of designations that were being made against companies. 

That designation, again, was done today. And I—one report said 

that in the 6 weeks prior to the Iranian elections in June, Treasury 

60 

issued 7 notices of designations of sanctions violators that included 

more than 100 new people, companies, aircraft, and sea vessels. 

Since June 14th when Hassan Rouhani was elected, the Treasury 

Department only issued 2 designation notices that identified 6 people and 4 companies as violating the Iran sanctions. 

So it seems like two things have gone on. While the secret negotiations were going on between the United States and Iran, it 

seems to me that at the worst possible time in the negotiations, beginning last June, the United States intentionally chose to weaken 

our hand and our negotiating position with Iran at a crucial time— 

sending a signal of weakness, sending a signal of sanctions reductions, and at the same time, it appears that the Obama Administration was strengthening Iran’s hand in those negotiations. 

It also appears that two things were happening with the Obama 

Administration: cutting back on the number of designations; and 

making it very clear that they were adamantly opposed to new 

sanctions. Both of those would send the signal to Iran that we 

mean business that they will never have a nuclear weapon. And it 

seems that the exact wrong tack was taken from the Treasury Department. And it seems that it is Treasury more than any other 

agency that sent the signal to Iran that they are going to prevail— 

Secretary LEW. Congresswoman— 

Mrs. BACHMANN. —in the negotiations rather than the United 

States. 

Secretary LEW. —I disagree with that characterization almost 

completely. I think that this Administration has pushed on an 

international basis for the toughest sanctions in history, which is 

the only reason that Iran is looking to make concessions and the 

only reason there is any chance that there will be a peaceful resolution of this. 

I think Treasury’s enforcement of sanctions has been consistent. 

The action taken today, the action taken yesterday—a negotiated 

settlement with the Royal Bank of Scotland, these are matters that 

take months to develop. And we are working every day. And I have 

said to hundreds of CEOs: Make no mistake about it, enforcement 

will continue. We are not taking our eye off of the ball at all, and 

we will not. 

Mrs. BACHMANN. There are a number of companies that are essentially front organizations for Iran to have—front organizations 

to help the regime to be able to continue to proliferate and do the 

work that they are doing. It seems to me that the bottom line with 

Iran is, will they have the right to enrich uranium? It doesn’t seem 

to me that when we are pulling back on the number of designations 

from June, essentially to this week, that we have sent a signal of 

strength. It appears that we have sent a signal that America is 

weak, America is in decline. America is pulling back militarily, and 

we are weakening ourselves economically. 

Secretary LEW. I think if you look at Iran’s economy, they are 

feeling the pain of these sanctions every day. They are feeling the 

5 percent decline in GDP, the 40 percent inflation, the devaluation 

of the rial. They are seeing all kinds of pain. And that is the only 

reason— 

Mrs. BACHMANN. Which was exactly why we got them to the negotiating table. So at the time when we finally have them talking, 

61 

the Obama Administration decided to strengthen their hand and 

weaken our own. 

I yield back. Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentlelady has expired. 

We will end questioning at this time. 

Secretary Lew, we appreciate your testimony today. However, a 

number of questions do remain unanswered, as do a number of 

written inquiries from Members on both sides of the aisle. So thus, 

early in the new year, we will take the liberty of inviting you back 

in hopes that these questions can be addressed. We trust you will 

accept our invitation. 

The Chair notes that some Members may have additional questions for this witness, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to this witness 

and to place his responses in the record. Also, without objection, 

Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. 

This hearing stands adjourned. 

[Whereupon, at 12:44 p.m., the hearing was adjourned.] 

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A P P E N D I X 

December 12, 2013 

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