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[Senate Hearing 112-752]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 112-752

 
NOMINATIONS OF: JEROME H. POWELL, JEREMY C. STEIN, JEREMIAH O. NORTON, 

                 RICHARD B. BERNER, AND CHRISTY ROMERO

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON

                   BANKING,HOUSING,AND URBAN AFFAIRS

                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                                   ON

                            NOMINATIONS OF:

Jerome H. Powell, of Maryland, to be a Member of the Board of Governors 
                     of the Federal Reserve System

                               __________

   Jeremy C. Stein, of Massachusetts, to be a Member of the Board of 
                Governors of the Federal Reserve System

                               __________

    Jeremiah O. Norton, of Virginia, to be a Member of the Board of 
         Directors of the Federal Deposit Insurance Corporation

                               __________

    Richard B. Berner, of Massachusetts, to be Director, Office of 
             Financial Research, Department of the Treasury

                               __________

 Christy Romero, of Virginia, to be Special Inspector General for the 
                     Troubled Asset Relief Program

                               __________

                             MARCH 20, 2012

                               __________

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

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

                  U.S. GOVERNMENT PRINTING OFFICE
80-197                    WASHINGTON : 2013
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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York         MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii              JIM DeMINT, South Carolina
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin                 PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia             MARK KIRK, Illinois
JEFF MERKLEY, Oregon                 JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado          ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina

                     Dwight Fettig, Staff Director

              William D. Duhnke, Republican Staff Director

                       Charles Yi, Chief Counsel

                     Laura Swanson, Policy Director

              Brian Filipowich, Professional Staff Member

                 Andrew Olmem, Republican Chief Counsel

                Mike Piwowar, Republican Chief Economist

                     Beth Zorc, Republican Counsel

            Dana Wade, Republican Professional Staff Member

                       Dawn Ratliff, Chief Clerk

                     Riker Vermilye, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)

                            C O N T E N T S

                              ----------                              

                        TUESDAY, MARCH 20, 2012

                                                                   Page

Opening statement of Chairman Johnson............................     1

Opening statements, comments, or prepared statements of:
    Senator Shelby...............................................     3
        Prepared statement.......................................    25

                               WITNESSES

Dan Coats, a United States Senator from the State of Indiana.....     3
Jerome H. Powell, of Maryland, nominee for Member of the Board of 
  Governors of the Federal Reserve System........................     5
    Prepared statement...........................................    25
    Response to written questions of:
        Senator Moran............................................    31
Jeremy C. Stein, Ph.D., of Massachusetts, nominee for Member of 
  the Board of Governors of the Federal Reserve System...........     6
    Prepared statement...........................................    26
    Response to written questions of:
        Senator Moran............................................    32
Jeremiah O. Norton, of Virginia, nominee for Member of the Board 
  of Directors of the Federal Deposit Insurance Corporation......     7
    Prepared statement...........................................    27
Richard B. Berner, Ph.D., of Massachusetts, nominee for Director, 
  Office of Financial Research, Department of the Treasury.......     9
    Prepared statement...........................................    28
Christy Romero, of Virginia, to be Special Inspector General for 
  the Troubled Asset Relief Program..............................    10
    Prepared statement...........................................    29

                                 (iii)

                            NOMINATIONS OF:

                     JEROME H. POWELL, OF MARYLAND,

               TO BE A MEMBER OF THE BOARD OF GOVERNORS,

                        FEDERAL RESERVE SYSTEM;

                   JEREMY C. STEIN, OF MASSACHUSETTS,

               TO BE A MEMBER OF THE BOARD OF GOVERNORS,

                        FEDERAL RESERVE SYSTEM;

                    JEREMIAH O. NORTON, OF VIRGINIA,

               TO BE A MEMBER OF THE BOARD OF DIRECTORS,

                 FEDERAL DEPOSIT INSURANCE CORPORATION;

                  RICHARD B. BERNER, OF MASSACHUSETTS,

             TO BE DIRECTOR, OFFICE OF FINANCIAL RESEARCH,

                      DEPARTMENT OF THE TREASURY;

                      CHRISTY ROMERO, OF VIRGINIA,

                    TO BE SPECIAL INSPECTOR GENERAL,

                     TROUBLED ASSET RELIEF PROGRAM

                              ----------                              

                        TUESDAY, MARCH 20, 2012

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:08 a.m. in room SD-538, Dirksen 
Senate Office Building, Hon. Tim Johnson, Chairman of the 
Committee, presiding.

           OPENING STATEMENT OF CHAIRMAN TIM JOHNSON

    Chairman Johnson. Good morning. I call this hearing to 
order.
    Thanks to all of our nominees for joining us here today. I 
also extend a warm welcome to our nominees' families and 
friends who are here with us.
    Today we consider five nominees, each of whom is 
individually accomplished. These nominees, if confirmed, will 
have important responsibilities for our Nation's economy: 
setting monetary policy; supervising and regulating some of our 
largest and most complex financial institutions; continuing to 
ensure the proper use of TARP funds; and providing policymakers 
and regulators with meaningful data to safeguard our financial 
system.
    We need strong leadership in these posts to solidify our 
Nation's economic recovery and to help prevent another 
financial crisis. I am glad the President has sent us five 
well-qualified individuals to fill vacancies at the Federal 
Reserve Board of Governors, the Federal Deposit Insurance 
Corporation, the newly created Office of Financial Research, 
and the Special Inspector General of the Troubled Asset Relief 
Program.
    We will now proceed to witness introductions.
    Jerome Powell has been nominated to serve as a Governor on 
the Federal Reserve Board. Mr. Powell is currently a visiting 
scholar at the Bipartisan Policy Center in Washington, D.C., 
where he focuses on Federal and State fiscal issues. Mr. Powell 
previously served as Under Secretary of the Treasury for 
Finance under President George H.W. Bush.
    Jeremy Stein is also a nominee to serve on the Board of 
Governors of the Federal Reserve. Professor Stein has a long 
and distinguished academic career, teaching economics for more 
than a decade in his current position at Harvard, and another 
decade before that teaching finance at MIT.
    Jeremiah Norton has been nominated to be a Member of the 
Board at the FDIC. Mr. Norton is currently the executive 
director of J.P. Morgan Securities. From 2007 to 2009, Mr. 
Norton served as the Deputy Assistant Secretary for Financial 
Institutions Policy at the Department of the Treasury. Before 
that, Mr. Norton served on the legislative staff of 
Representative Ed Royce.
    Richard Berner currently serves as Counselor in the Office 
of Research and Quantitative Studies at the Department of the 
Treasury. Dr. Berner was a member of, among others, the 
Economic Advisory Panel of the Federal Reserve Bank of New 
York, the Panel of Economic Advisers of the Congressional 
Budget Office, and the Executive Committee of the Board of 
Directors of the National Bureau of Economic Research.
    Christy Romero has been nominated to be the Special 
Inspector General for TARP. She has served as the Deputy 
Special Inspector General since February 2011 and as the Chief 
of Staff at SIGTARP before that. Ranking Member Shelby and I 
sent a letter to the President last year, asking him to 
nominate a ``strong watchdog'' who ``will be fully focused on 
protecting taxpayers in the administration of TARP.'' I believe 
the President has done that in nominating Ms. Romero, a person 
who brings years of experience from the SEC investigating 
financial fraud and insider trading.
    Congratulations to you all on your nominations.
    It is my hope that after today's hearing this Committee can 
move quickly to a markup of the nominees. I ask that Members 
submit their written questions to the nominees by noon this 
Friday, and I ask that the nominees please have their answers 
back to the Committee by noon on Tuesday, March 27.
    This Committee reported out and the Senate confirmed 17 of 
the President's nominees last year. It is my hope that along 
with today's five nominees we can confirm the remaining seven 
nominees that we already reported out of this Committee.
    I now turn to Senator Shelby for any opening remarks he may 
have. Senator Shelby.

             STATEMENT OF SENATOR RICHARD C. SHELBY

    Senator Shelby. Mr. Chairman, I have an opening statement. 
I would just ask that it be made part of the record so we can 
move on with our business today.
    Thank you.
    Chairman Johnson. Thank you, Senator Shelby.
    Are there any other Members who would like to make a brief 
opening statement?
    [No response.]
    Chairman Johnson. Senator Coats joins us today to make an 
introductory statement for Mr. Norton. Senator Coats.

STATEMENT OF DAN COATS, A UNITED STATES SENATOR FROM THE STATE 
                           OF INDIANA

    Senator Coats. Mr. Chairman, thank you, and, Senator 
Shelby, thank you. It is a great pleasure to be here to support 
the nomination of Jeremiah Norton for Member of the Board of 
Directors of the FDIC. It is a privilege for me to be able to 
do this. I have known Jeremiah and his family for more than 25 
years. I have high regard for them and their sense of value and 
their sense of commitment to public service and integrity. They 
have raised their son with all the right values, in my opinion.
    Jeremiah's educational background and academic achievements 
as well as his professional experience I think speak for 
themselves. You mentioned his professional experience. I 
believe all of that is combined to make him well prepared to 
serve as a very effective Member of the Board of Directors at 
the FDIC.
    I called Jeremiah and said, ``Jeremiah, why would you want 
to leave such a valued position in the private sector to come 
back to Government?'' I think it is a reflection of him and his 
values that the sense of purpose that I think has brought us to 
the U.S. Senate and is bringing these fine people away from 
prestigious positions in the private sector, academic, and so 
forth, back to public service. That sense of purpose is very 
much a part of Jeremiah's decision, and I highly applaud him 
for that.
    His integrity, his commitment to excellence, the kind of 
hard work that I have seen him demonstrate in both academic 
achievement as well as professional achievement I think is 
something to be very commendable, and his commitment, as I 
said, to public service.
    But, you know, Mr. Chairman and Senator Shelby, in the end 
the numbers get crunched and the money gets transferred, but 
ultimately what we need out of our supervisory agencies is a 
commitment to make sure that the trust of the American people 
and the trust of those who use the financial system is ensured. 
Those millions of Americans, hundreds of millions of Americans 
that deposit money into our financial institutions, small 
amounts, medium, large, savings for education for their 
children, savings for perhaps starting a business, they need to 
go to bed in the evening knowing that their money is safely 
provided for and insured and is there for them when they need 
it. Those small business people that are trying to transfer 
their dreams into reality need to know that there is credit 
available for them and that the credit will continue to be 
available for them if they provide the right qualifications for 
receipt of those loans. And those institutions that do all the 
money moving throughout the world in a global financial economy 
need to know that there are rules which they have to abide by, 
that there is correct oversight and supervision, that risk 
management is very much a part of what they need to be 
conscious of.
    Jeremiah Norton has spent time at the Department of 
Treasury as Deputy Assistant Secretary during the time when the 
two of you were deeply engaged in saving this country from 
default, from collapse of the financial system. That experience 
is invaluable in terms of looking to the future, in terms of 
how to assess the rules and the procedures that need to be in 
place.
    But, again, it comes down to that question of trust, and I 
have great trust in Jeremiah Norton that he will be one of 
those members of the Board of Directors that can assure the 
American people that their sleep at night can be safe and sound 
while their money is being watched over by somebody who really 
knows what he is doing.
    So I thank you for the opportunity and am proud to be able 
to recommend him for your consideration for confirmation.
    Chairman Johnson. Thank you, Senator Coats. Please feel 
free to excuse yourself.
    We will now swear in today's witnesses. Will the nominees 
please rise and raise your right hand? Do you swear or affirm 
that the testimony that you are about to give is the truth, the 
whole truth, and nothing but the truth, so help you God?
    Mr. Powell. I do.
    Mr. Stein. I do.
    Mr. Norton. I do.
    Mr. Berner. I do.
    Ms. Romero. I do.
    Chairman Johnson. Do you agree to appear and testify before 
any duly constituted Committee of the Senate?
    Mr. Powell. Yes.
    Mr. Stein. Yes.
    Mr. Norton. Yes.
    Mr. Berner. Yes.
    Ms. Romero. Yes.
    Chairman Johnson. Please be seated.
    Please be assured that your written statement will be part 
of the record. I invite all the witnesses to introduce your 
family and friends in attendance before beginning your 
statement.
    Mr. Powell, please begin.
    Mr. Powell. Thank you, Mr. Chairman, Senator Shelby. I 
would like to introduce my wife, Elissa, of some 26 years 
sitting behind me, as well as people I will not identify, many 
friends and current and former colleagues who are here today, 
which I really appreciate.
    Thank you.
    Chairman Johnson. Please proceed.
    Mr. Stein. Thank you, Mr. Chairman. I have a bunch of 
family here. I have my wife, Anne, and then hiding back there 
are my parents, Eli and Ellie Stein, and my sister, Karen 
Stein.
    Chairman Johnson. Mr. Norton.
    Mr. Norton. I would like to introduce my parents, Phillip 
and Patricia Norton, and thank them for their support. And 
thank you to Senator Coats for his warm introduction.
    Chairman Johnson. Dr. Berner.
    Mr. Berner. Senator, I would like to introduce my wife, 
Bonnie, over here; my children, our children, Matt and Laura; 
my sister; and some other friends and family. Thank you.
    Chairman Johnson. Ms. Romero.
    Ms. Romero. Thank you, Chairman. I am pleased to have my 
family here today. I have Adrienne Goldsmith. I have my father, 
Augusto Romero; Brooke Campbell and Julia Campbell. Also my 
mother, Audrey Romero, is not in attendance today, and my 
oldest daughter, Chelsea Campbell, is away at college and 
hopefully attending classes right now.
    [Laughter.]
    Chairman Johnson. Mr. Powell, please begin your testimony.

 STATEMENT OF JEROME H. POWELL, OF MARYLAND, TO BE A MEMBER OF 
      THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

    Mr. Powell. Thank you, Mr. Chairman and Senator Shelby. I 
am honored and grateful to President Obama for the privilege of 
appearing before this Committee today as a nominee to the 
Federal Reserve Board. If I am confirmed, I will work to the 
best of my abilities to carry out the responsibilities of this 
office.
    Most of my career has been in the private sector, including 
close to 30 years working in the financial markets as an 
attorney, an investment banker, and finally as an investor. I 
believe that my practical experience in financial markets would 
provide a valuable perspective in the Federal Reserve Board's 
deliberations.
    I also served as Assistant Secretary and then Under 
Secretary of the Treasury from 1990 through 1993, and 
throughout that period, I worked closely with this Committee 
and appeared in this room a number a significant number of 
times in hearings and markups. Since I left public service in 
1993, it has been my highest aspiration to serve again, and it 
means a great deal to me to have the possibility to do so.
    My earlier service also occurred during a period of great 
economic turmoil. I arrived at Treasury in June 1990 at the 
beginning of the saving & loan cleanup. A year later, we faced 
the insolvency of the Bank Insurance Fund and also faced 
multiple failures of large financial institutions as well as a 
severe credit crunch, with businesses and consumers unable to 
get credit on affordable terms.
    I was deeply involved in addressing all of these serial 
crises and in the major legislation that typically followed, 
including the FDIC Improvements Act of 1992, or FDICIA. I also 
led the Administration's response to a major bidding scandal in 
the Treasury markets in 1991-92, which resulted in the 
Government Securities Act of 1992, as well as substantial 
revisions to the Treasury's auction rules.
    Since leaving Treasury in 1993, I have remained a careful 
student of economic policy and events, always with the thought 
that I might have the opportunity to return to public service. 
Like many others, over the years I have grown increasingly 
concerned about our ever more unsustainable fiscal position, 
the performance of our economy, and most of all our collective 
failure to come together around a plan of action.
    In 2010, I left the private sector with the intention of 
spending the rest of my career working on those issues. Since 
then, I have worked full time as a visiting scholar at the 
Bipartisan Policy Center, focusing on State and Federal fiscal 
issues. Last summer, I authored a widely distributed study of 
the operation of the Federal debt ceiling. After that, I put 
together a public simulation of the failure of a large, global 
financial institution under the new provisions of Dodd-Frank. 
In 2010, I also led another public simulation of the financial 
collapse of a large, fictitious American state, among other 
projects.
    Economic policymakers, including those at the Fed, will be 
working in the shadow of the financial crisis for some time, 
and there are enormous challenges on every front. This is a 
time to apply the lessons we have learned from the crisis and 
set the stage for another long period of prosperity.
    In monetary policy, the task will be providing support for 
the still weak economy but exiting the current highly 
accommodative policies in time to avoid higher inflation. Along 
with other governments and central banks around the world, the 
Fed is also in the middle of a once-in-a-generation 
refashioning of the global financial regulatory architecture. 
There is much work to be done in implementing the decisions 
that Congress has made and in finalizing and implementing 
international accords like Basel III.
    At the heart of these broad reforms is the project of 
ending our practice of protecting creditors and sometimes 
equity holders of large global financial institutions in 
extremis--or ``too big to fail.'' What we have long needed is a 
mechanism to handle an orderly resolution of a large, failing 
institution. Realizing this objective will be the work of many 
years, and I would love to play a part in that.
    Thank you again for the honor of this hearing, and I look 
forward to responding to your questions.
    Chairman Johnson. Thank you.
    Dr. Stein, please proceed.

STATEMENT OF JEREMY C. STEIN, Ph.D., OF MASSACHUSETTS, TO BE A 
 MEMBER OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

    Mr. Stein. Chairman Johnson, Senator Shelby, thank you very 
much for giving me the opportunity to appear before you today. 
I am honored to have been nominated by President Obama to be a 
Member of the Board of Governors of the Federal Reserve. It is 
an important job at a challenging time for both the U.S. 
economy and the global financial system, and I am eager to 
contribute to our meeting those challenges.
    I have spent most of my career as an academic economist, 
with a few breaks for Government service. I graduated from 
Princeton University in 1983, got my Ph.D. from MIT in 1986, 
and have since been on the faculties at both MIT and Harvard--
most recently, since 2000, as a professor in Harvard's 
economics department. In between, I served on the task force 
appointed by President Reagan to investigate the 1987 stock 
market crash. I also spent a year as a senior staff economist 
on President George H.W. Bush's Council of Economic Advisers. 
And for 6 months in 2009, I was an adviser to NEC Director 
Summers and to Treasury Secretary Geithner, helping to 
formulate a policy response to the crisis that was then 
engulfing our financial system.
    As an academic, my research and teaching have been focused 
on financial markets, and for many years I have been especially 
interested in the interplay between monetary policy and 
financial institutions, trying to understand the real-world 
details of how monetary policy filters through the banking 
system to ultimately impact both borrowers and lenders. Other 
topics that I have worked on that are of relevance to a 
position at the Fed include: the role of small banks in small 
business lending; the housing market; risk management in 
financial firms; and financial regulation.
    In the last few years, my research and teaching have been 
heavily influenced by my experiences working at the NEC and 
Treasury in 2009. For example, I developed and taught a new 
course on the financial crisis, which has given me a chance to 
step back and reflect on the many policy decisions taken during 
this eventful period, the mistakes made, and the lessons 
learned.
    This reflection has reinforced one of my core beliefs as an 
economist: the need to be humble and honest about the 
limitations of our understanding. I am a big believer in the 
value of economic theory, but the role of theory should be to 
help organize the jumble of evidence before us in such a way 
that when new facts come in, we can most clearly see how and 
why we have had it wrong in the past and adjust our thinking 
accordingly. Too often in economics, theories have been used in 
a rigid fashion, making us less not more open to learning from 
what happens in the real world. This is when things have gone 
badly off the rails for economists, as well as for those who 
rely on us for policy advice.
    The Federal Reserve's mission remains as it was before the 
onset of the financial crisis: to deliver on its dual mandate 
of price stability and maximum employment, and to help 
safeguard the stability of the financial system. But to pursue 
this mission in a dramatically altered economic environment, 
the Fed has shown a laudable ability to adapt and evolve--in 
terms of the tools it has used to conduct its monetary and 
lender-of-last-resort policies, and, importantly, in the 
substantially enhanced degree of transparency that it now 
offers the outside world. I am fully committed both to the 
mission of the Fed itself and to this spirit of pragmatic, 
open, and nonideological engagement with the unknown challenges 
that surely lie ahead.
    Thank you again for the opportunity to testify before you 
today. I would be delighted to answer any questions you might 
have. Thank you.
    Chairman Johnson. Thank you.
    Mr. Norton, please proceed.

STATEMENT OF JEREMIAH O. NORTON, OF VIRGINIA, TO BE A MEMBER OF 
    THE BOARD OF DIRECTORS OF THE FEDERAL DEPOSIT INSURANCE 
                          CORPORATION

    Mr. Norton. Thank you, Chairman Johnson, Ranking Member 
Shelby, and Members of the Committee. It is an honor and a 
privilege to be nominated by the President and to come before 
you today as a nominee for the Board of Directors of the FDIC.
    I am very appreciative of the Chairman and Ranking Member 
for scheduling today's hearing and of Members and their staff 
for taking time to meet with me in the weeks and days leading 
up to this morning. I appear before you today with full and 
complete recognition of the serious responsibility associated 
with the position to which I have been nominated.
    The FDIC performs a critical role in our Nation's financial 
system. Since its creation by the Congress in 1933, the FDIC 
has helped to maintain stability in the financial system 
through its provision of deposit insurance and supervision of 
banking entities. If confirmed to the position, I believe that 
my experience both in Government and in the private sector 
would bring meaningful value to the Board and to the regulation 
of financial institutions.
    First, earlier in my career as an aide to Congressman Ed 
Royce, a member of the House Financial Services Committee, I 
learned not only the issues and challenges facing the FDIC and 
other financial regulators, but also gained an understanding of 
the role financial institutions play in the lives of 
individuals and communities within the real economy. I 
appreciate the important oversight role that the Congress plays 
in guiding the FDIC and other regulatory agencies.
    Second, from 2007 to early 2009, I was privileged to serve 
in the United States Treasury Department as Deputy Assistant 
Secretary for Financial Institutions Policy. In that position, 
I oversaw the development, analysis, and coordination of the 
Department's policies on legislative and regulatory issues 
affecting regulated and nonregulated financial institutions. 
Additionally, while at the Treasury, I worked closely with the 
regulatory agencies--including the FDIC--to help the country 
quickly respond to the most severe financial crisis since the 
1930s.
    Last, in my current and most recent professional role, I 
work in the private sector providing investment banking 
services to financial institutions, both large and small. I 
believe this background enables me to provide an important 
perspective on the way in which regulation impacts financial 
institutions and the communities they serve, the capital 
markets, and the broader market for goods and services.
    In this critical period for all financial regulators, 
including the FDIC, should I be confirmed to the Board, I will 
bring the collection of my experiences to help guide the FDIC 
as we continue to encounter challenges in the financial system 
and in the broader national and global economies. In addition 
to helping ensure that our country's banks are able to operate 
in a safe, sound, and balanced manner, I believe it is 
imperative that the FDIC work with the other regulators, both 
domestically and internationally, to prioritize and address 
issues that pose risks to the financial system.
    If confirmed, I pledge to work with my colleagues at the 
agencies, the regulatory community, and the Congress as we 
address these and other important issues.
    Thank you, and I look forward to your questions.
    Chairman Johnson. Thank you.
    Dr. Berner, please proceed.

STATEMENT OF RICHARD B. BERNER, Ph.D., OF MASSACHUSETTS, TO BE 
   DIRECTOR, OFFICE OF FINANCIAL RESEARCH, DEPARTMENT OF THE 
                            TREASURY

    Mr. Berner. Thank you, Chairman Johnson, Ranking Member 
Shelby. Thanks for the opportunity to be here today.
    I am honored that President Obama and Secretary Geithner 
have asked me, if confirmed, to serve as Director of the Office 
of Financial Research at this critical moment for our Nation's 
economy and financial system.
    Earlier I introduced my wife, Bonnie, and our children, 
Matt and Laura, but I want to thank them for supporting and 
encouraging me to return to public service.
    As you know, the Office of Financial Research was 
established to serve the Financial Stability Oversight Council, 
its member agencies, and the public by improving the quality, 
transparency, and accessibility of financial data and 
information, by conducting and sponsoring research related to 
financial stability, and by promoting best practices in risk 
management.
    Those goals all represent challenges. I am fully committed 
to help build this institution to fulfill those goals, and I 
believe that my family background and my educational and 
professional training have equipped me with the dedication and 
skills to meet those challenges.
    My mother, who is 97, was a town meeting member and taught 
me the ingredients of good government. My father, who passed 
away in 2005, taught me respect for the virtues of free markets 
and capitalism, as well as an understanding of their 
shortcomings. My parents had different political views, but 
they agreed on the importance of public service.
    In my education, I turned to economics and its power to 
make peoples' lives better. I received an A.B. from Harvard 
College and a Ph.D. from the University of Pennsylvania. My 
training in college and graduate school gave me the tools to 
analyze the economy and financial markets and to appraise 
economic and financial policies.
    Most important, I believe my career has provided me with 
the skills in research, data, and markets necessary to serve as 
Director of the Office of Financial Research. My career helped 
me develop broad knowledge of the changing global economy, 
financial institutions, financial markets, and financial 
regulation. Through many market and economic cycles, I saw both 
the benefits of financial innovation and the costs of periods 
of severe market stress.
    My professional experience has also equipped me to 
understand the needs of policymakers and risk managers. In my 
first job, I served as an economist at the Board of Governors 
of the Federal Reserve System. Subsequently, I directed the 
Policy Analysis Group at Wharton Econometrics. I served for 30 
years at four major financial services firms, on the Senior 
Management Committee of one and on the Risk Management 
Committees of two; most recently, as co-head of Global 
Economics at Morgan Stanley. As Counselor in the Treasury, I 
currently advise Secretary Geithner on financial and regulatory 
issues.
    My service on advisory boards has also kept me on the 
cutting edge of policymaking, research, and data. I have served 
on advisory boards for the Federal Reserve Bank of New York, 
the Congressional Budget Office, the National Bureau of 
Economic Research, and the Bureau of Economic Analysis. As an 
associate on the Counterparty Risk Management Policy Group II--
that was a group of market participants assembled in 2005 to 
identify and resolve many of the problems in our financial 
system--I gained further insight into the complex plumbing of 
the financial system.
    Finally, I believe I have the critical thinking skills to 
challenge conventional wisdom and a passion for a stronger, 
safer, and appropriately regulated financial system that guides 
my vision for how the office should fulfill its mission.
    We face many challenges to rebuild the financial system, 
one that helps our economy grow and restore lost jobs. I am 
humbled and honored by the opportunity to help meet those 
challenges and to serve our Nation. If confirmed, I would look 
forward to working with the Members of this Committee and 
Congress. I will work hard to carry out my oath of office and 
to earn your trust and confidence.
    Thank you. I look forward to your questions.
    Chairman Johnson. Thank you.
    Ms. Romero, please proceed.

    STATEMENT OF CHRISTY ROMERO, OF VIRGINIA, TO BE SPECIAL 
    INSPECTOR GENERAL FOR THE TROUBLED ASSET RELIEF PROGRAM

    Ms. Romero. Thank you, Chairman Johnson, Ranking Member 
Shelby. It is with great honor that I appear before you today 
as President Obama's nominee for Special Inspector General at 
SIGTARP. I want to thank each of you for the support that you 
have given to SIGTARP over the years.
    I also want to thank my parents, who instilled in me a call 
to public service, one which I hope to live up to, and I also 
hope to instill in my three beautiful daughters--Chelsea, 
Brooke, and Julia. My father, Augusto Romero, who is here 
today, joined the United States Navy as a young man in the 
Philippines, and he served our country for 20 years. And every 
day, as a child, I would watch him with great pride putting on 
his Navy uniform each day. My mother, Audrey Romero, raised all 
seven of us kids alone while my father was deployed. And when 
my dad's ship would return back, all the sailors would line the 
deck of the massive ship, standing ramrod straight with their 
hands clasped behind their back in their full white dress 
uniform. And I would search for my dad's face, and when I would 
find it, he was always beaming with pride, and so was I.
    My brother, Scott Romero, has also served our country, 
wearing camouflage, in year-long deployments in Bosnia, 
Afghanistan, and Iraq. So with two veterans in the family, 
there would be an expectation that I, too, would commit to 
public service. So I left private practice, and I went to the 
Securities and Exchange Commission where I investigated fraud 
in order to protect investors. I also had the privilege of 
serving as counsel to two SEC Chairmen--the current Chairman 
Mary Schapiro and former Chairman Christopher Cox--and I have 
much admiration for both.
    During my time at the SEC, our Nation suffered a profound 
financial crisis, and the Government's response included TARP. 
I had a deep concern for who would safeguard the TARP money 
against fraud. And as I voiced these concerns to a friend of 
mine, he told me that if I was really concerned, I should 
volunteer by joining a new office called SIGTARP. And that is 
exactly what I did in August of 2009. And since then, I have 
had an unwavering commitment to SIGTARP's mission of 
transparency, oversight, and enforcement.
    I am deeply humbled by the confidence that President Obama 
has shown in nominating me to such an important position. Our 
Nation continues to face challenges with $120 billion in TARP 
funds outstanding and $51 billion that still could be spent. 
There is also fraud by those who sought to exploit TARP, and I 
am committed to answering these challenges.
    My experience of serving on the staff at the SEC, in 
leading the dedicated and courageous team at SIGTARP during the 
last year, and serving as SIGTARP's Chief of Staff for nearly 2 
years, has prepared me to serve as Special Inspector General. 
As a result of my experience at the SEC, I developed a strong 
resolve to protect investors. Once again I am protecting 
investors--the very taxpayers who funded TARP.
    In the last year, I have prioritized SIGTARP's criminal 
investigations, and under my leadership, 44 individuals have 
been criminally charged as a result of a SIGTARP investigation. 
And I will tell you that the 45th individual is being charged 
as we speak in a Federal courtroom right now in Alexandria. 
These charges carry severe repercussions such as prison 
sentences.
    I also take very seriously SIGTARP's oversight role. In the 
last year alone, I have issued 28 recommendations designed to 
protect TARP funds against fraud, waste, and abuse. In 
addition, the American taxpayers have a right to know how TARP 
funds are spent, and I have led SIGTARP to issue a series of 
reports bringing significant transparency to TARP.
    Although I may not wear a uniform like my father and my 
brother, I share their dedication to public service. If 
confirmed, I pledge to work closely with you to advance our 
mutual goal of protecting taxpayers. This Committee's support 
of SIGTARP has been instrumental in giving weight to SIGTARP's 
recommendations and in keeping a watchful eye over the TARP 
funds. I am committed to maintaining the close relationship 
between this Committee and the office which I am nominated to 
lead. It has certainly been the greatest privilege of my career 
to be nominated by President Obama for this important role and 
to be considered by this Committee for confirmation.
    I thank you very much. I would be delighted to answer any 
questions that you may have.
    Chairman Johnson. Thank you all for your testimony.
    We will now begin asking questions of our nominees. Will 
the clerk please put 5 minutes on the clock for each Member for 
their questions?
    Dr. Stein and Mr. Powell, as a Governor at the Fed, you 
will play a key role in finalizing a number of Wall Street 
reform rules, such as the Volcker Rule and new macro prudential 
and capital rules for large financial firms. What are your 
thoughts about this task? And how do you plan to work with the 
Chairman and other Governors? Mr. Powell.
    Mr. Powell. Thank you, Mr. Chairman. The Fed's role in the 
matter of Dodd-Frank is one of implementation, and my first 
thought is that the job is to implement the rules, the Volcker 
Rule and all the other rules, in a way that is faithful to the 
language of the statute but that minimizes any negative impact 
on credit availability and economic activity.
    I would also say that we need to keep in mind that we had a 
financial system and a regulatory system that worked very well 
for a long period of time--reasonably well for a long period of 
time--and then in 2007, financial institutions failed broadly, 
and the regulatory system in a way failed with it. And so it is 
definitely time to try to learn the important lessons--mistakes 
were made by everyone involved--and try to rebuild a regulatory 
system that will do a better job of seeing problems coming and 
preventing them from coming and, frankly, build financial 
institutions that will be strong enough to withstand a big 
storm in case the radar does not work next time either.
    So, really, that is how I see the role of the Fed in 
relation to implementing Dodd-Frank.
    Chairman Johnson. Dr. Stein.
    Mr. Stein. Thank you, Mr. Chairman. As your question 
suggests, the implementation of Dodd-Frank is one of the most 
important and consequential tasks for the Fed over the next 
several years. As Mr. Powell suggested, at a broad level, the 
job of the Fed is to implement faithfully the statute while 
minimizing undue regulatory burden, especially, I should note, 
for the smaller community banks for whom such a burden is hard 
to bear and for whom many of the issues in Dodd-Frank are not 
intended to be front and center.
    A couple of other specific things--obviously, there are 
many, many issues that fall into this, but a couple specific 
things that I think deserve particular focus. One is the 
general issue of international cooperation and harmonization so 
that on the one hand we can have appropriately robust capital 
and liquidity standards for the largest banks to help mitigate 
too-big-to-fail issues, while at the same doing the best one 
can to keep the playing field level and, importantly, level not 
only in terms of the rules as they are written, but the rules 
as they are, in fact, carried out and implemented.
    A second point I would just like to note--it is also an 
international issue--is dealing with multijurisdictional issues 
having to do with the orderly liquidation authority element of 
the Dodd-Frank Act. The better a job that the Federal Reserve 
and the other regulators can do in nailing down the specifics--
and these are very complicated issues in many cases of how a 
liquidation would work, the more credible will be the threat to 
impose losses on the shareholders and on the creditors of a 
large institution, and in turn the better a job one will be 
doing in terms of removing any perception of an implied 
Government subsidy.
    So, again, there are other issues, but I think those are 
some of the important ones.
    Chairman Johnson. Mr. Norton, one of my priorities is 
preserving the community banking model. There is a significant 
concern from this industry that the model is threatened from 
consolidation, regulation, competition, and the current exam 
environment. What do you see as the most significant threats to 
community banking? And how will you work with your colleagues 
on the Board to strengthen community banks?
    Mr. Norton. Thank you, Mr. Chairman. As you pointed out, 
community banks are an important mechanism for providing credit 
to our Nation's economy, especially small businesses and 
farmers. I think the smallest banks, those under $1 billion in 
assets, represent about 10 percent of the banking assets in the 
system but provide about 40 percent of loans to small 
businesses and farmers. So it is critically important that 
regulation recognizes that import and that the FDIC, which is 
the primary Federal regulator for a majority of those banks, 
takes that responsibility very seriously. If I were to be 
confirmed and join the Board, I certainly would share that 
burden and responsibility to get it right.
    With regard to your second question, I am very committed to 
working with the other members of the Board, should I be 
confirmed. It is very important, given the number of rules that 
the FDIC and the other agencies must propose and finalize, to 
have a good working relationship and get our work done 
expeditiously.
    Chairman Johnson. Dr. Berner, the OFR released its 
strategic framework. If confirmed, how do you intend to 
implement the strategic framework outlined in the plan and 
ensure that OFR is accountable?
    Mr. Berner. Thank you, Senator. The strategic plan that we 
just released that you referred to has five key goals that I 
think will guide us in implementing the work of the OFR.
    The first is to serve the needs of the Financial Stability 
Oversight Council in providing data and research to help the 
Council identify threats to financial stability.
    The second is to promote data-related standards and best 
practices and data management.
    The third is to build a center for excellence in financial 
research, one that complements the work that is going on 
elsewhere in the Council but does not duplicate it, in effect 
fills in the gaps, helps to fill in the gaps in our knowledge.
    The fourth key goal of our plan is to distribute data 
appropriately to the members of the public, to the Council for 
the benefit of them and their work, but to safeguard those data 
appropriately and to make sure that any confidential data are 
kept just that--confidential.
    And, last, our goal is to make the Office of Financial 
Research an efficient and cost-effective and world-class 
workplace.
    So those are the five goals of our strategic plan, and we 
plan to use them in implementing the work of the Office of 
Financial Research.
    Chairman Johnson. Ms. Romero, how will you ensure that 
SIGTARP continues its investigative role over the use of TARP 
funds? And what ideas do you have to make it stronger under 
your leadership?
    Ms. Romero. Thank you, Chairman Johnson. I appreciate your 
question. I also want to say I am very touched by the words 
that you said for me in your opening statement, and I thank you 
for that and for your support.
    If confirmed, the investigations will be a very high 
priority for me, and it has been over the last year. I believe 
that we need to act very swiftly to try to detect and stop any 
fraud related to TARP before it is too late, for example, if a 
bank fails. So the time to act is now. And one of the focuses 
of the priorities of investigations, if confirmed, under my 
leadership will be in looking at the banks that have received 
TARP funds. And we have right now over 150 criminal 
investigations into a number of different areas, including the 
banks that have received TARP funds, and making sure that there 
is no fraud in the TARP funds, that there is no fraud in the 
application for the TARP funds.
    This is very important for not only bringing accountability 
and justice through jail time, but also SIGTARP investigations 
actually bring money back to the Government and back to 
victims. And as a result of SIGTARP's investigations, there 
have been orders of forfeiture and restitution of nearly $4 
billion.
    We also stopped a very significant, one of the longest 
running and largest bank frauds in our Nation, and this was at 
Colonial Bank and Taylor, Bean & Whitaker where seven people 
were convicted, and Lee Bentley Farkas is serving 30 years, 
which is a very, very significant prison sentence for a white-
collar crime.
    The important thing about that case which is telling of 
SIGTARP's investigations is that Treasury was ready to send 
$553 million in TARP funds to Colonial Bank. We stopped that 
money from going out, and the prevention of the loss of all of 
that money, which is what would have happened, due to fraud 
will more than pay for SIGTARP during its entire existence.
    Chairman Johnson. Senator Shelby.
    Senator Shelby. Thank you, Mr. Chairman.
    I would like to direct this question to Mr. Powell and Dr. 
Stein. The Fed's balance sheet stands at almost $3 trillion. 
And while the FOMC minutes reveal that the Board of Governors 
has discussed the principles that should ``guide the strategy 
of shrinking the Fed's balance sheet,'' the Fed has not 
publicly announced a formal plan.
    Do you believe that it is necessary for the Fed to announce 
its formal plan for shrinking its balance sheet? And if not, 
why should it remain a secret? Mr. Powell, you first, and then 
Dr. Stein.
    Mr. Powell. Thank you, Senator Shelby. I think the broad 
point I would make to start is that the timing of the exit from 
the balance sheet and from the highly accommodative monetary 
policy generally is one of the most critical questions that we 
would face, if confirmed, at the Fed, so very, very important.
    I think that the Fed has gone maybe a little farther than 
your question might suggest. In the June 2011 minutes, they 
announced a plan, and they sort of announced a series of steps 
that they would take starting with--well, it is five steps. 
They do not come to mind right off the top of my head, but----
    Senator Shelby. To deleverage the balance sheet?
    Mr. Powell. Yes, ending with asset sales. It will come to 
me--as soon as I turn the mic off, I will remember them, but 
there are five steps. And so they have gone a little farther 
than you suggest, but getting out of a large balance sheet like 
that is unprecedented, it is terribly important, and it is not 
done until it is done. The plan is there, but it needs to be 
executed, and I am ready to play my part in that.
    Senator Shelby. But it has got to be done right; otherwise, 
it could cause havoc in the marketplace, could it not?
    Mr. Powell. Yes. There is tremendous risk in that, the 
exit, and I think that is well understood. You run the risk of 
inflation, disturbing inflation expectations, asset bubbles, 
and all of that. And so that is why it is terribly important to 
do it right and not to do it too early either. It is difficult. 
You do not want to do it too early and snuff out a recovery 
that is still weak.
    Senator Shelby. Absolutely.
    Mr. Powell. And you do not want to do it too late and let 
inflation out of the bag. So that is a challenge.
    Senator Shelby. Dr. Stein.
    Mr. Stein. Again, I know the Fed has made some broad 
principles clear, and my view is that the Fed on a number of 
dimensions has been very good about increasing transparency. 
And as your comments suggest, this is another place where I 
think it is important to think about these issues. My guess is 
that as the moment gets closer, it will be important to start 
letting markets know the tactics, the sort of tactical level 
decisions of how things will evolve. I have not been involved 
in the discussions enough to have a good sense of exactly when 
and how that will happen, but I am certainly committed to the 
principle of being transparent as we go. And obviously one does 
not want to have disruptive impact on markets by unwinding the 
balance sheet in an unexpected way.
    So, I would fully endorse the principle that one be more 
transparent going forward as----
    Senator Shelby. But the bottom line here, the deleveraging 
has got to be done right.
    Mr. Stein. It will be one of the most important tasks, 
along with the regulatory implementation, one of the most 
important tasks for the Fed over the next several years for 
sure.
    Senator Shelby. This same question to both of you. The Wall 
Street Journal recently reported that the Board of Governors 
has held just two public meetings since Dodd-Frank was enacted. 
Do you believe whether or not it is important for Governors, 
the Board of Governors of the Fed, to meet in an open forum to 
publicly discuss their viewpoints prior to implementing rules? 
Or do you believe the Fed's practice of not publishing internal 
dissent should be changed? How do you go about this? Mr. Powell 
first.
    Mr. Powell. To begin, when I was in office before, the Fed 
did not even announce what it did in an FOMC meeting. There was 
no press release until 1994, which was after I left, so the 
level of transparency now with the press conferences and the 
forecasts, it is night and day, and all the things that the 
Chairman does.
    But in terms of public meetings, I cannot think of a single 
reason why the Fed would not have more public meetings. It has 
done so historically. Given all the focus on transparency, for 
some reason the number of public meetings has come down, and I 
think it is a perfectly good question: Why would that be the 
case? I read the same article, and there was a comment in there 
by a couple of the Governors saying, ``Yes, we will do more 
public meetings.'' So I suspect there will be more public 
meetings going forward.
    Senator Shelby. Dr. Stein.
    Mr. Stein. Just to underscore the progress that the Fed has 
made on transparency and the fact that it is clearly a work in 
progress, that one wants to continue on this path and with this 
broad theme. And I agree that on the regulatory dimension, more 
transparency would be a good thing.
    Now, I have not been involved at a detailed level enough in 
the rulemaking process to know what the best mode of doing that 
is, whether it is open meetings, whether it is other things. 
But I am certainly sympathetic and committed to trying to do a 
better job on that dimension.
    Senator Shelby. I will direct this question to Mr. Norton. 
Are Basel III capital standards high enough? Some people think 
they are not; some think they are too high. What is your 
assessment of these capital standards, if you have had a chance 
to study them? And are they sufficient in your judgment to 
prevent another crisis or to mitigate a crisis?
    Mr. Norton. Senator, I think my view on the Basel III 
capital requirements is that it is a tremendous step forward, 
especially given where we were--both in the United States and 
globally--with regard to bank capital levels.
    I am particularly pleased to see that not only the amount 
of capital has gone up as a result of Basel III, but also the 
quality of capital, and more common equity being a focal point 
of that agreement. As you know, the coordination of regulation, 
both domestically and internationally, is an important process, 
so I think from my perspective outside looking in, the United 
States has done a good job of encouraging higher capital and 
better quality capital, and I am supportive of that.
    Senator Shelby. Mr. Norton, do you know of any financial 
institution offhand that has been well capitalized, well 
managed, and well regulated that has failed?
    Mr. Norton. Senator, I cannot think of one. From my 
professional experience, you can see that institutions that 
have sufficient capital and have good management and take that 
responsibility seriously tend to do well.
    Senator Shelby. Thank you.
    I want to direct this question to Mr. Berner. Under Dodd-
Frank, sir, the Director of the OFR has the authority to 
collect information about the American people under the pretext 
of monitoring systemic risk. This type of authority raises 
serious privacy concerns with a lot of people, conservative and 
liberal both.
    What are the statutory limits of your authority, as you 
understand it, to collect information about the American 
people? In other words, give us the full spectrum of financial 
information that you could collect, as you understand it, under 
the pretext of monitoring systemic risk. And is there any 
information that the OFR cannot collect even if it could help 
improve the monitoring of systemic risk?
    Mr. Berner. Senator Shelby, thanks for your question. 
First, let me state that, as you know, the goals of the Office 
of Financial Research are to collect those data on behalf of 
the Council that will help it in monitoring threats to 
financial stability, and that really is our primary focus. And 
those data, as a result, tend to be the ones that are involved 
with financial transactions between institutions or between 
institutions and their clients.
    I also want to say that preserving the confidentiality of 
those data when they are confidential or secure is the highest 
priority for the Office of Financial Research. Likewise, 
preserving the privacy of individuals in our economy is of the 
utmost importance, and we take those goals and that mandate 
very seriously.
    So I stated before that we will be extremely thoughtful and 
judicious about the way we collect data, where----
    Senator Shelby. And what you do with that data.
    Mr. Berner. And to be very thoughtful and judicious about 
what we do with those data as well, Senator. We are not 
collecting data for collection's sake. We are interested only 
in collecting those data that will help us fulfill our mandate. 
And we want to avoid duplication in the collection of data if 
they are already collected by other agencies.
    You referred to the statute. The statute actually does 
provide several safeguards that are important in prescribing 
what the OFR can do. Specifically, we need to go to the 
supervisors of record, the other regulatory agency, to find out 
whether those data are, first, being collected already, and if 
so, then there is no need for us to do additional collection.
    To that end, we are in the process of completing an 
inventory of the data that are held collectively by the Council 
to make sure that we do not duplicate and so that the Council 
is fully aware of the data that are being collected.
    Senator Shelby. Thank you.
    I have one last question of Ms. Romero. Before the passage 
of the legislation that created the Small Business Lending Fund 
that you are familiar with, a lot of people warned that it 
would create a TARP II bailout. A lot of the concern was that 
banks receiving TARP loans would simply use the program to pay 
off TARP loans and then refinance into SBLF loans at a lower 
rate. You understand that, I think.
    Ms. Romero. Absolutely.
    Senator Shelby. A recent Treasury report dispute this 
notion, stating that it is not a TARP program. But about how 
may banks that received TARP funds ended up refinancing into 
the Small Business Lending Fund?
    Ms. Romero. Thank you for that.
    Senator Shelby. Do you have some data on that?
    Ms. Romero. Absolutely. Thank you for that. This is an 
important issue, Senator. I am happy to have a chance to 
address it. One-hundred-thirty-seven banks came out of TARP and 
refinanced into SBLF, which is non-TARP----
    Senator Shelby. 137?
    Ms. Romero. 137 of 332 banks went into SBLF.
    Senator Shelby. A lot of banks. What are the costs to the 
taxpayers here? Can you calculate that yet?
    Ms. Romero. The amount of money that SBLF put out was 
around $4 billion. More than half of that went to refinance the 
banks out of TARP.
    This goes to a bigger concern that I have. Really, if 
confirmed, this would be a high-priority area for me. What 
about the banks who were left? I mean, there are nearly 400 
banks left in TARP, and there was this big push to get the 
largest banks out.
    Senator Shelby. And how much money is owed by these banks 
to TARP now, roughly?
    Ms. Romero. For banks, there is owed----
    Senator Shelby. Still in TARP.
    Ms. Romero.----$20 billion.
    Senator Shelby. $20 billion.
    Ms. Romero. That is correct. And so there was no sort of 
corresponding big push to get the community banks out of TARP, 
except for this SBLF legislation, and this did end up having 
137 banks come out of TARP and refinance into SBLF.
    One of the recommendations that I just recently made in the 
last couple of months was to tell Treasury come up with a 
concrete plan for the rest of the banks, work with the banking 
regulators to try to get those banks back on their feet without 
Government assistance before the dividend, the TARP dividend 
rate increases from 5 percent to 9 percent, which happens next 
year.
    Senator Shelby. How much money is still owed to the 
Government through the TARP loans, unpaid?
    Ms. Romero. Thank you. I appreciate that question as well. 
Taxpayers are owed $132 billion.
    Senator Shelby. $132 billion still outstanding.
    Ms. Romero. That is correct. We are not going to get all of 
that back; $12 billion has already been written off, and the 
recent cost estimate----
    Senator Shelby. $12 billion has been lost, right?
    Ms. Romero. That is correct.
    Senator Shelby. OK. And what is the rest, ma'am?
    Ms. Romero. The recent cost estimate of TARP is $68 
billion.
    Senator Shelby. $68 billion. So that is a long way from 
being a break-even place, isn't it?
    Ms. Romero. That is a long way. There is a lot of work left 
to be done, a lot of challenges left in TARP.
    Senator Shelby. Thank you very much.
    Ms. Romero. Thank you.
    Senator Shelby. Thank you, Mr. Chairman.
    Chairman Johnson. Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman.
    I would like to ask our two nominees to the Fed--there are 
those of us who have worked very hard to put policies and be 
supportive of policies in place to get this economy moving 
again, and we see that from a whole host of indicators it is 
moving in a positive direction. But many of us are still 
concerned that it is tenuous.
    So the question for me is: Give me a sense of how you view 
tightening monetary policy. How do you know when you have 
reached a point where that is wise? What considerations will 
you take into account? For both of you, yes.
    Mr. Stein. If you would like, I will take the first shot. 
Thank you very much, Senator.
    At the broadest level, I would want to be guided by the 
Fed's dual mandate, which is, on the one hand, price stability 
and, on the other hand, maximum employment. So as we go 
forward, as you know, the Fed has indicated an expectation, 
given the sort of current expectations for the economy's path, 
that monetary policy is likely to remain highly accommodative 
through 2014.
    I just wanted to emphasize that my understanding and my 
interpretation of that is that that is not a commitment on the 
part of the Federal Reserve. That is what sometimes is called 
the Fed's reaction function, that is to say, given our 
estimates, this is what we expect. But, very importantly, it is 
not a commitment, and if the economic situation were to change, 
for example, as you suggest, if the economy were to strengthen 
materially faster than expected, it would be absolutely 
warranted to revisit--again, just guided by the dual mandate--
the path of the easing. So I think, one will have to consider 
the data as it comes in, both the data for the strength of the 
economy as well as inflation data, and try and balance that on 
a going-forward basis.
    Senator Menendez. And in that duality of responsibility 
that the Fed has, is that an equal footing?
    Mr. Stein. Yes, it is my understanding that they are on an 
equal footing, with just the note that, of course, in many 
cases--and particularly, I think, in this case--the two goals 
are likely to be complementary because, of course, as the 
economy strengthens, it will both tend to push inflation up and 
to push employment up as well, so you will be moving in the 
same direction of converging on both of the two goals. So I 
think they are complementary in that sense.
    Senator Menendez. Mr. Powell.
    Mr. Powell. Thank you, Senator Menendez. I am in 
significant agreement with Dr. Stein's points. As discussed 
earlier, the timing of the Fed's exit from the balance sheet 
and from all other aspects of its now highly accommodative 
monetary policy is a critical question. And I cannot do better 
than to say that it has to be weighed under the dual mandate, 
of which both aspects are equal. And the Committee recently 
published its reaction function, which is to react in a 
balanced and symmetrical way, and I would certainly be bound by 
that and be open-minded. It is not a date that you could pick 
here today. It is going to depend on the future path of the 
economy.
    Senator Menendez. How do you both view how the housing 
market has responded to the Fed's low interest rate monetary 
policies? That should be helping homeowners. What is your 
assessment so far? And if you would change anything, what would 
that be?
    Mr. Stein. Well, as you know, the housing market continues 
to struggle in many parts of the country, and this is an issue 
not only of macroeconomic concern, but it is a wrenching issue 
for many of the families that are involved in the foreclosure 
process. It is costly not only at the macro level, but for the 
neighborhoods that are involved in foreclosure.
    Typically, when the Fed eases monetary policy, that is 
quite helpful because families can refinance and thereby lower 
their mortgage burden. That has been a more difficult process 
this time around because it is hard to refinance when your 
loan-to-value ratio is so high that you cannot qualify for a 
new mortgage.
    So that has been a challenge. I think that is one of the 
reasons that the Fed has maintained an accommodative policy, is 
because they are pushing effectively against a relatively 
strong headwind coming from this issue. So there are a number 
of policy options on the table for dealing with this. A number 
of them are fiscal in nature and so are more properly the role 
of Congress to consider. But it, again, remains one of the 
important challenges for us to kind of keep front and center.
    Senator Menendez. So would you do anything different than 
what is being done at this point in time with the indicators as 
they exist?
    Mr. Stein. I think one thing that is more in the Fed's 
bailiwick, if you will, which is worth considering, although I 
am not an expert on this issue, is its supervisory policy with 
respect to real estate owned; this is to say, the banks that 
own an inventory of foreclosed properties. And one wants to be 
careful not to create impediments to kind of the natural market 
adjustment which may involve more rental as opposed to putting 
a lot of properties on the market. So I think that there is 
room to be thoughtful about that, and I look forward to kind of 
learning more.
    Senator Menendez. Mr. Powell.
    Mr. Powell. When the Fed eases, one of the principal 
channels for its easing to take an effect on the economy is the 
housing market, and that is not happening to a significant 
degree now due to structural issues in the economy. So the 
stimulus that is being provided is not having that desired 
effect, as Dr. Stein indicated. And some of the things that can 
be done are perhaps within the Fed's jurisdiction, but many of 
them are not, about the structure of the housing market. And to 
the extent it is within the Fed's jurisdiction, it would have 
to do with bank regulatory policy and making sure that 
regulators do have--in my prior experience in Government, 
regulators crack down in a downturn. It is just human nature. 
Things happen that are embarrassing and they get tougher--and 
it is appropriate to some level--but it has a way of 
accentuating a downturn. So you have to be careful about that.
    In addition, as an outsider, you can see the Fed racking 
their brains about ways to help the housing market. If there 
were a silver bullet, I think we would have used it by now, but 
I do think that both changing real estate owned policy and 
bringing private capital into that, as apparently is now 
happening, are constructive areas of focus.
    Senator Menendez. Mr. Norton, I want to take off where Mr. 
Powell just left off in his observation that in a downturn the 
ratcheting further creates a downturn. Do you believe the FDIC 
is currently striking the right balance between what many of us 
on this Committee have said to institutions that have come 
before us, which is we want responsible lending to take place, 
but we do want lending to take place, versus what I hear back 
at home that I have to give, you know, 10 or 12 points over 
LIBOR and my firstborn to get a loan? What do you think is the 
present balance? Is it the right balance, or can we do better?
    Mr. Norton. Senator, I see it today from my seat in the 
private sector, and I hear a lot of the same comments that you 
just alluded to, that there has been an effort in the field to 
perhaps restrict credit when there are some good loans out 
there to be made. So if I were to join the Board, it would be a 
critical component of something I would be focused on to make 
sure the message from Washington is consistent with the message 
in the field, that we need to recognize that especially 
community banks are an important mechanism to credit for the 
economy, and the business models of community banks are 
different than the business models of very large banks, and we 
can regulate both appropriately and safely and allow them to 
perform their role in the economy.
    Senator Menendez. I hope we can get the right balance 
struck here because I think the pendulum has swung too far the 
other way.
    Let me ask you one other--two final questions, Mr. 
Chairman. What are your views on TAG?
    Mr. Norton. I was in the Government when the TAG program 
came to life in the depths of the financial crisis, so it was 
certainly an important tool that the official community used to 
stabilize the banking system. As we know, the program expires 
under the statute at the end of this year, so I think that 
provides a good opportunity for the FDIC, the Congress, and the 
regulatory community to review the program and see if it is 
merited for further extension or if it has served its purpose.
    Senator Menendez. Obviously, community banks are seeking an 
extension. They believe it would be very helpful. But you do 
not have a definite view at this point as to whether that is 
desirable?
    Mr. Norton. I think, if you would not mind, I would like to 
have a broader set of information if I were to be on the Board, 
if confirmed, to make that assessment. But I think it is 
certainly worthy of serious consideration.
    Senator Menendez. Finally, Dr. Berner, let me ask you--I 
think your position is very important. There are those--I chair 
the Housing Subcommittee for this Committee, and there are 
those who have said in hearings before us that the weak state 
of the housing market poses a systemic risk. What do you 
believe of that?
    Mr. Berner. Well, Senator, thanks for your question. There 
is no question that a weak housing market, if it threatens the 
economy and the health of financial institutions and the 
financial system more broadly, could pose a systemic risk. And 
I think what we saw in the crisis was that that certainly was a 
possibility.
    If confirmed, I would think that that is a key area for 
research and for collecting more data so that we can evaluate 
the extent to which what is going on in housing markets and 
housing finance continues to pose not just a threat to housing 
per se but to the broader economy and the financial system, and 
that certainly is one of our goals.
    Senator Menendez. Well, the other thing I would commend to 
you is the commercial real estate mortgage market that is 
unfolding. It is a multi-trillion-dollar market. It is a market 
that I do not believe presently would be absorbed under the 
present system, and it is a real challenge that I think people 
are not paying attention to is unfolding.
    I remember years ago, with a different set of witnesses, 
well before the housing market had its tremendous dive, I said 
we are going to face a tsunami of foreclosures. I was told that 
I was an alarmist and, unfortunately, I wish I had been wrong. 
But they were wrong and I was right. I am concerned about the 
commercial real estate mortgage market and what is unfolding, 
and an opportunity to try to think about that before it unfolds 
in a way that creates big challenges to a lot of our financial 
institutions should the marketplace not be able to absorb a 
couple trillion dollars of unfolding debt that will be due for 
refinancing but I just presently do not see in the existing 
marketplace. So we would look forward to some of your attention 
on that upon your confirmation.
    Mr. Berner. Thank you, Senator.
    Senator Menendez. Thank you, Mr. Chairman.
    Chairman Johnson. Ms. Romero, I understand SIGTARP has 
partnered with CFPB and Treasury to combat HAMP mortgage 
modification scams. Please describe how this coordinated effort 
will better protect innocent homeowners. Are there other ways 
SIGTARP is working with other agencies to fight fraud?
    Ms. Romero. Thank you for that question, Chairman. This is 
a very important area that I have focused on in the last year.
    Mortgage modification fraud is really just an outrageous 
type of fraud. These are struggling homeowners who are seeking 
help, and someone promises them that if they pay them up front 
a fee and not pay their mortgage and not talk to their lenders, 
these scam artists will ensure that they get a HAMP mortgage 
modification and get their mortgage payment lowered.
    This has been a very serious area that we have focused on 
as SIGTARP and, if confirmed, I would continue to prioritize. 
And as we have brought accountability and justice through 
stopping these frauds and supporting the prosecution against 
these people who are doing this, we were talking to victims and 
realize that a lot of these victims were falling prey to these 
schemes through the Internet.
    So in working with the SIGTARP staff, what I decided to do 
was work with Google and Microsoft to shut down the advertising 
for these scams on the Internet, and we were able to do that 
with 125 Web sites that we identified. But that shut down 
advertising relationships with hundreds and hundreds of agents 
for these people.
    On top of that, I have made a big push to try to educate 
homeowners, and what I would like is ultimately for homeowners 
to know these scams when they see it and know that they are a 
scam. I would like this to be as popularly known as the 
Nigerian email scams.
    So what I did was I approached the CFPB and Treasury and 
asked them to join a task force with me where we would educate 
homeowners, and so we issued a fraud alert, and the next step 
that we are moving forward is working with military bases to 
try to educate our armed forces so that they do not fall prey 
to these schemes.
    All of SIGTARP's investigative work is done with partners. 
This is how we leverage the resources that we have. And we work 
significantly on the President's Financial Fraud Enforcement 
Task Force. I spent the last year really building strong 
partnerships, particularly with our prosecutors, because 
SIGTARP just investigates cases and then we refer them on to 
prosecution, and the results of those partnerships have been 
very, very strong, and we have been able to have 100 percent of 
the cases we refer be accepted for prosecution.
    Chairman Johnson. Senator Hagan.
    Senator Hagan. Thank you, Mr. Chairman. Thank you for your 
testimony today.
    Dr. Berner, given your background at the Federal Reserve 
Bank in New York and as a senior executive at major financial 
services firms, I was hoping--I want to ask a couple of 
questions about primary dealers. As we all know, primary 
dealers serve as trading counterparties of the New York Fed in 
its implementation of monetary policy set by the Federal Open 
Market Committee. These dealers distribute our U.S. debt in 
exchange for revenue generated through the appreciation of 
financial positions they take on at weekly Fed auctions.
    Is it common for primary dealers to enter into hedging 
transactions designed to mitigate risks that arise from 
participation in a Fed auction?
    Mr. Berner. Senator Hagan, thanks for your question. The 
primary dealer community is not something that is directly our 
focus in the Office of Financial Research, but certainly, if 
confirmed, we want to look at all the factors that might 
constitute threats to financial stability. So if you will 
permit me, again, if confirmed, that is something that we could 
focus on in the future.
    Senator Hagan. Does anybody else have any comments on that?
    [No response.]
    Senator Hagan. OK. Thank you.
    Let me ask about gasoline prices. Mr. Powell and Dr. Stein, 
in recent weeks we have seen an uptick in the price of oil and 
of gasoline at the pump. Yet at the same time, demand for oil 
in the United States is at its lowest level since 1997. Can you 
discuss your views on the drivers of these price increases if 
U.S. demand is low?
    Mr. Powell. Thank you, Senator Hagan. I am not an expert in 
the oil market, but I can tell you that what I have read 
suggests this explanation, and it makes sense to me: gasoline 
prices are significantly a function of crude oil prices, and 
crude oil prices have gone up very significantly in the last 
couple of months, to a big degree because of what is happening 
in the Middle East and the threat that there might be an 
outbreak of hostilities there and that the Strait of Hormuz 
might close. You know, it tracks very well with that series of 
events, so that makes sense to me.
    In addition, because of the high price of crude, some of 
the refining capacity in the United States is being taken out, 
so it is kind of spring cleaning for refining capacity, so you 
have more expensive oil trying to go through a smaller and 
smaller funnel, and that leads to higher prices at the gas 
pump. So when I read a lot of commentary on that issue, that is 
what I take away.
    Mr. Stein. Senator, thank you for the question. Yes, so on 
top of the supply factors that Mr. Powell alludes to, while, as 
you noted, the demand here has not been overwhelming, the 
demand from abroad, from China and from others, is also helping 
to push the prices up. Obviously this is something of a first-
order concern for the Fed, although it is important to say that 
energy prices and commodity prices in general tend to be quite 
volatile. So the right way to respond to that is one has to be 
a little bit careful given the lags in policy and so forth. So 
it clearly bears very, very careful watching these days, but 
one does not want to immediately overreact in terms of a policy 
response.
    Senator Hagan. Thank you, Mr. Chairman.
    Chairman Johnson. I thank the witnesses for your testimony 
and for your willingness to serve our Nation.
    I ask Members of this Committee to submit questions for the 
record by noon this Friday, March 23, and I request that the 
witnesses submit your answers to us by noon on Tuesday, March 
27.
    This hearing is adjourned.
    [Whereupon, at 11:21 a.m., the Committee was adjourned.]
    [Prepared statements and responses to written questions 
supplied for the record follow]:
            PREPARED STATEMENT OF SENATOR RICHARD C. SHELBY
    Thank you, Mr. Chairman. Today, the Committee will consider five 
important nominations.
    Jerome Powell and Jeremy Stein have been nominated to be Members of 
the Board of Governors of the Federal Reserve. Mr. Powell is currently 
a visiting scholar at the Bipartisan Policy Center. He has several 
years of experience working in financial markets as an attorney and 
investment banker. He served as Assistant Secretary and Under Secretary 
of the Treasury for Finance during the Savings & Loan crisis and the 
cleanup that followed.
    Dr. Stein is currently a professor of economics at Harvard 
University. In addition to being an accomplished academic, he has 
served as a staff economist to the Presidential Task Force on Market 
Mechanisms after the 1987 stock market crash and as a senior advisor to 
the Treasury Secretary after the financial crisis. Dr. Stein has also 
served as an economic advisor to the Federal Reserve Bank of New York 
for several years.
    I hope to receive assurances from both Fed nominees that they will 
work to increase the Fed's transparency and accountability to Congress 
and the public.
    Jeremiah Norton has been nominated to be a Member of the Board of 
Directors of the Federal Deposit Insurance Corporation. Mr. Norton 
currently is an executive director with J.P. Morgan Securities. Prior 
to that role, he served as the Deputy Assistant Secretary for Financial 
Institutions Policy in the Treasury Department before and during the 
financial crisis. I look forward to hearing how his private and public 
sector experience will help guide him in the important challenges 
facing the FDIC as it implements the Dodd-Frank Act.
    Richard Berner has been nominated to be the first Director of the 
Office of Financial Research in the Treasury Department. Dr. Berner is 
currently a counselor to the Treasury Secretary. He has worked as an 
economist at the Fed and four major financial services firms. Dr. 
Berner has also served on economic advisory boards to the Department of 
Commerce, the Congressional Budget Office, and the Federal Reserve Bank 
of New York. I look forward to hearing how he plans to build the office 
and what initiatives he will undertake to achieve the OFR's statutory 
mission.
    Christy Romero has been nominated to be the Special Inspector 
General for the Troubled Asset Relief Program, or SIGTARP. Today, TARP 
has about $120 billion outstanding, and the government still owns 70 
percent of AIG, 32 percent of General Motors, and almost 74 percent of 
Ally Financial, formerly GMAC bank.
    Ms. Romero has served for over two-and-a-half years at SIGTARP, 
including as Acting Special Inspector General and Deputy Special 
Inspector General. During her tenure, SIGTARP investigations have led 
to criminal charges against 33 individuals. She has also managed 
efforts to combat widespread fraud associated with TARP loan 
modification programs. Ms. Romero brings with her years of experience 
in investigations and securities law, including as a Counsel to both 
the former and current Chairmen of the Securities and Exchange 
Commission. I look forward to hearing how she plans to lead SIGTARP and 
protect taxpayers while overseeing Treasury's management of TARP.
    I thank all of the nominees for their willingness to serve and to 
appear before the Committee this morning. Thank you, Mr. Chairman.
                                 ______
                                 
                 PREPARED STATEMENT OF JEROME H. POWELL
              Nominee for Member of the Board of Governors
                         Federal Reserve System
                             March 20, 2012
    Chairman Johnson, Senator Shelby and Members of the Committee, I am 
honored and grateful to President Obama for the privilege of appearing 
before this Committee today as a nominee to the Federal Reserve Board. 
If I am confirmed, I will work to the best of my abilities to carry out 
the responsibilities of this office.
    Most of my career has been in the private sector, including close 
to 30 years working in the financial markets as an attorney, an 
investment banker and finally as an investor. I believe that my 
practical experience of the private sector and the financial markets 
would provide a valuable perspective in the Federal Reserve Board's 
deliberations.
    I also served as Assistant Secretary and then Under Secretary of 
the Treasury for Finance from 1990 through 1993. Throughout that 
period, I worked closely with this Committee, and appeared in this room 
a number of times as a witness in hearings and markups. Since I left 
public service in 1993, it has been my highest aspiration to serve 
again. It means a great deal to me to have the possibility to do so.
    My earlier service also occurred during a period of great economic 
turmoil. I arrived at Treasury in June 1990 at the beginning of the 
saving & loan cleanup. A year later we faced the insolvency of the Bank 
Insurance Fund. We also faced multiple failures of large financial 
institutions as well as a severe ``credit crunch'', with businesses and 
consumers unable to get credit on affordable terms.
    I was deeply involved in addressing these serial crises and in the 
major legislation that followed, including the FDIC Improvements Act of 
1992, or ``FDICIA''. I also led the Administration's response to a 
major bidding scandal in the Treasury markets in 1991-92, which 
eventually resulted in the Government Securities Act of 1992, as well 
as revisions to the Treasury's auction rules.
    Since leaving Treasury in 1993, I have remained a careful student 
of economic policy and events, always with the thought that I might 
have the opportunity to return to public service. Like many others, 
over the years I have grown increasingly concerned about our ever more 
unsustainable fiscal position, the performance of our economy, and most 
of all our collective failure to come together around a plan of action.
    In 2010, I left the private sector with the intention of spending 
the rest of my career working on those issues. Since then, I have 
worked full time as a Visiting Scholar at the Bipartisan Policy Center, 
focusing on Federal and State fiscal issues. Last summer I authored a 
widely distributed study of operation of the Federal debt ceiling. 
After that, I put together a public simulation of the failure of a 
large, global financial institution under the new rules of Dodd-Frank. 
In 2010, I also led another simulation of the financial collapse of a 
large, fictitious American state, among other projects.
    Economic policymakers, including those at the Fed, will be working 
in the shadow of the financial crisis for some time. There are enormous 
challenges on every front. This is a time to apply the lessons we have 
learned from the crisis, and set the stage for another long period of 
prosperity.
    In monetary policy, the task will be providing support for the 
still weak economy but exiting the current highly accommodative 
policies in time to avoid higher inflation. Along with other 
governments and central banks around the world, the Fed is also in the 
middle of a once in a generation refashioning of the global financial 
regulatory architecture. There is much work to be done in implementing 
the decisions Congress has made, and in finalizing and implementing 
international accords such as Basel III.
    At the heart of these broad reforms is the project of ending our 
practice of protecting creditors and sometimes equity holders of large 
global financial institutions in extremis--too big to fail. What we 
have long needed is a mechanism to handle an orderly resolution of a 
large, failing institution. Realizing this objective will be the work 
of many years. And I would like to play a part in that.
    Thank you again for the honor of this hearing. I will be happy to 
respond to your questions.
                                 ______
                                 
              PREPARED STATEMENT OF JEREMY C. STEIN, Ph.D.
              Nominee for Member of the Board of Governors
                         Federal Reserve System
                             March 20, 2012
    Chairman Johnson, Senator Shelby, and Members of the Committee, 
thank you very much for giving me the opportunity to appear before you 
today. I am honored to have been nominated by President Obama to be a 
Member of the Board of Governors of the Federal Reserve. It's an 
important job at a challenging time for both the U.S. economy and the 
global financial system, and I am eager to contribute to our meeting 
these challenges.
    I have spent most of my career as an academic economist, with a few 
breaks for government service. I graduated from Princeton University in 
1983, got my Ph.D. from MIT in 1986, and have since been on the 
faculties at both MIT and Harvard-most recently, since 2000, as a 
professor in Harvard's economics department. In between, I served on 
the task force appointed by President Reagan to investigate the 1987 
stock market crash. I also spent a year as a senior staff economist on 
President George H.W. Bush's Council of Economic Advisors. And for six 
months in 2009, I was an advisor to NEC Director Summers and Treasury 
Secretary Geithner, helping to formulate a policy response to the 
crisis that was then engulfing our financial system.
    As an academic, my research and teaching have been focused on 
financial markets, and for many years I have been especially interested 
in the interplay between monetary policy and financial institutions-
trying to understand the real-world details of how monetary policy 
filters through the banking system to ultimately impact borrowers and 
lenders. Other topics that I have worked on that are of relevance to a 
position at the Fed include: the role of small banks in small-business 
lending; the housing market; risk management in financial firms; and 
financial regulation.
    In the last few years, my research and teaching have been heavily 
influenced by my experiences working at the NEC and Treasury in 2009. 
For example, I developed and taught a new course on the financial 
crisis, which has given me a chance to step back and reflect on the 
many policy decisions taken during this eventful period, the mistakes 
made, and the lessons learned.
    This reflection has reinforced one of my core beliefs as an 
economist: the need to be humble and honest about the limitations of 
our understanding. I am a big believer in the value of economic theory, 
but the role of theory should be to help organize the jumble of 
evidence before us in such a way that when new facts come in, we can 
most clearly see how and why we've had it wrong in the past, and adjust 
our thinking accordingly. Too often in economics, theories have been 
used in a rigid fashion, making us less, not more open to learning from 
what happens in the real world. This is when things have gone badly off 
the rails for economists, and for those who rely on us for policy 
advice.
    The Federal Reserve's mission remains as it was before the onset of 
the financial crisis: to deliver on its dual mandate of price stability 
and maximum employment, and to help safeguard the stability of the 
financial system. But to pursue this mission in a dramatically altered 
economic environment, the Fed has shown a laudable ability to adapt and 
evolve--in terms of the tools it has used to conduct its monetary and 
lender-of-last-resort policies, and the substantially enhanced degree 
of transparency that it now offers to the outside world. I am fully 
committed both to the mission of the Fed itself, and to this spirit of 
pragmatic, open and non-ideological engagement with the unknown 
challenges that surely lie ahead.
    Thank you again for the opportunity to testify before you today. I 
would be delighted to answer any questions you might have. Thank you.
                                 ______
                                 
                PREPARED STATEMENT OF JEREMIAH O. NORTON
              Nominee for Member of the Board of Directors
                 Federal Deposit Insurance Corporation
                             March 20, 2012
    Thank you Chairman Johnson, Ranking Member Shelby, and Members of 
the Committee. It is an honor and a privilege to be nominated by the 
President and to come before you today as a nominee for the Board of 
Directors of the Federal Deposit Insurance Corporation (FDIC).
    I am very appreciative of the Chairman and Ranking Member for 
scheduling today's hearing and of Members and their staff for taking 
time to meet with me in the days and weeks leading up to this morning. 
I appear before you today with full and complete recognition of the 
serious responsibility associated with the position to which I have 
been nominated.
    The FDIC performs a critical role in our Nation's financial system. 
Since its creation by the Congress in 1933, the FDIC has helped to 
maintain stability in the financial system through its provision of 
deposit insurance and supervision of banking entities. If confirmed to 
the position to which I have been nominated, I believe that my 
experience both in government and in the private sector would bring 
meaningful value to the FDIC Board and to the regulation of financial 
institutions.
    First, earlier in my career as an aide to Representative Edward R. 
Royce, a Member of the House Financial Services Committee, I learned 
not only the issues and challenges facing the FDIC and other regulatory 
agencies, but also gained an understanding of the role financial 
institutions play in the lives of individuals and communities within 
the real economy. I appreciate the important oversight role that the 
Congress plays in guiding the FDIC and other regulatory agencies. 
Second, from 2007 to early 2009 I was privileged to serve in the United 
States Treasury Department as Deputy Assistant Secretary for Financial 
Institutions Policy. In that position, I oversaw the development, 
analysis and coordination of the Treasury Department's policies on 
legislative and regulatory issues affecting regulated and nonregulated 
financial institutions. Additionally, while at the Treasury Department, 
I worked closely with the regulatory agencies--including the FDIC--to 
help the country quickly respond to the most severe financial crisis 
since the 1930s. Last, in my current and most recent professional role, 
work in the private sector providing investment banking services to 
financial institutions, both large and small. I believe this background 
enables me to provide an important perspective on the way in which 
regulation impacts financial institutions and the communities they 
serve, the capital markets, and the broader market for goods and 
services.
    In this critical period for all financial regulators, including the 
FDIC, should I be confirmed to the FDIC Board, I will bring the 
collection of my experiences to help guide the FDIC as we continue to 
encounter challenges in the financial system and the national and 
global economies. In addition to helping ensure that our country's 
banks are able to operate in a safe, sound, and balanced manner, I 
believe it is imperative that the FDIC work with the other regulators, 
both domestically and internationally, to prioritize and address issues 
that pose risks to the financial system.
    If confirmed, I pledge to work with my colleagues at the agency, 
the regulatory community, and the Congress as we address these and 
other important issues. Thank you.
                                 ______
                                 
             PREPARED STATEMENT OF RICHARD B. BERNER, Ph.D.
           Nominee for Director, Office of Financial Research
                       Department of the Treasury
                             March 20, 2012
    Chairman Johnson, Ranking Member Shelby, and distinguished Members 
of the Committee, thank you for the opportunity to be here today.
    I am honored that President Obama and Secretary Geithner have asked 
me, if confirmed, to serve as Director of the Office of Financial 
Research at this critical moment for our Nation's economy and financial 
system.
    I am grateful to my wife, Bonnie, and to our children, Matt and 
Laura, for supporting and encouraging me to return to public service. 
Thank you for coming to this hearing today.
    As you know, the Office of Financial Research (OFR) was established 
to serve the Financial Stability Oversight Council (Council), its 
member agencies, and the public by improving the quality, transparency, 
and accessibility of financial data and information, by conducting and 
sponsoring research related to financial stability, and by promoting 
best practices in risk management.
    Those goals all represent challenges. I am fully committed to help 
build this institution to fulfill those goals, and I believe that my 
family background and my educational and professional training have 
equipped me with the dedication and skills to meet those challenges.
    My mother, who is 97, was a town meeting member and taught me the 
ingredients of good government. My father, who passed away in 2005, 
taught me respect for the virtues of free markets and capitalism, as 
well as an understanding of their shortcomings. My parents had 
different political views, but they agreed on the importance of public 
service.
    Summer jobs in high school, as a stock boy in a camera store and a 
lifeguard at a local pool, taught me about work and teamwork. I also 
learned the rewards of dedication and hard work as a competitive 
swimmer. These lessons carried through to my education and professional 
career.
    In my education, I turned to economics and its power to make 
peoples' lives better. I received an A.B. from Harvard College and a 
Ph.D. from the University of Pennsylvania. My training in college and 
graduate school gave me the tools to analyze the economy and financial 
markets, and to appraise economic and financial policies.
    Most important, I believe my career has provided me with the skills 
in research, data, and markets necessary to serve as Director of the 
Office of Financial Research. My career helped me develop broad 
knowledge of the changing global economy, financial institutions, 
financial markets, and financial regulation. Through many market and 
economic cycles, I saw both the benefits of financial innovation and 
the costs of periods of severe market stress.
    My professional experience has also equipped me to understand the 
needs of policymakers and risk managers. In my first job, I served as 
an economist at the Board of Governors of the Federal Reserve System. 
Subsequently, I directed the Policy Analysis Group at Wharton 
Econometrics. I served for 30 years at four major financial services 
firms, on the Senior Management Committee of one and on the Risk 
Management Committees of two; most recently, as Co-Head of Global 
Economics at Morgan Stanley. As Counselor in the Treasury, I currently 
advise Secretary Geithner on financial and regulatory issues.
    My service on advisory boards has also kept me on the cutting edge 
of policymaking, research, and data. I have served on advisory boards 
for the Federal Reserve Bank of New York, the Congressional Budget 
Office, the National Bureau of Economic Research, and the Bureau of 
Economic Analysis. As an associate on the Counterparty Risk Management 
Policy Group II--a group of market participants assembled in 2005 to 
identify and resolve many of the problems in our financial system--I 
gained further insight into the complex plumbing of the financial 
system.
    Finally, I believe I have the critical thinking skills to challenge 
conventional wisdom and a passion for a stronger, safer, and 
appropriately regulated financial system that guides my vision for how 
the Office should fulfill its mission.
    We face many challenges to rebuild the financial system, one that 
helps our economy grow and restore lost jobs. I am humbled and honored 
by the opportunity to help meet those challenges and serve our Nation. 
If confirmed, I would look forward to working with the Members of this 
Committee and Congress. I will work hard to carry out my oath of office 
and to earn your trust and confidence.
    Thank you. I look forward to answering your questions.
                                 ______
                                 
                  PREPARED STATEMENT OF CHRISTY ROMERO
                 Nominee for Special Inspector General
                     Troubled Asset Relief Program
                             March 20, 2012
    Thank you, Chairman Johnson, Ranking Member Shelby, and Members of 
the Committee. It is with great honor that I am here before you today 
as the President's nominee for the position of Special Inspector 
General at SIGTARP. I am very grateful to the Committee Members for the 
support each of you has given to SIGTARP.
    I am pleased to have my family here today. I would like to thank my 
parents who instilled in me a call to public service, which I hope to 
live up to, and hope to instill in my three beautiful daughters 
Chelsea, Brooke, and Julia. My father, Augusto Romero, who is here 
today, joined the United States Navy as a young man in the Philippines 
and served our country for 20 years. My mother, Audrey Romero, raised 
all seven children alone during my father's deployments. As a child, I 
was exceptionally proud to watch my Dad put on his Navy uniform each 
day. When his ship would return from deployment with every sailor 
lining that massive deck standing ramrod straight, hands clasped behind 
their back, I would find my Dad's face among the sea of white uniforms. 
He was always beaming with pride, and so was I. My brother Scott Romero 
has also answered the call to service, wearing camouflage to protect 
our country in yearlong deployments to Bosnia, Afghanistan, and Iraq.
    With two veterans in the family and the expectation that I too 
would commit to public service, I left private practice to investigate 
fraud for the Securities & Exchange Commission. I also had the 
privilege of serving as counsel to two Chairmen of the SEC, the current 
Chairman Mary Schapiro and former Chairman Christopher Cox, and I have 
much admiration for both.
    During my time at the SEC, our Nation suffered a profound financial 
crisis and the Government's response included TARP. I had a deep 
concern for who would safeguard TARP money against fraud. A friend told 
me that if I was really concerned, I should volunteer by joining a new 
office called SIGTARP. And that is exactly what I did in August of 
2009. Since then, I have had an unwavering commitment to fulfilling 
SIGTARP's mission of enforcement, transparency, and oversight.
    I am deeply humbled by the confidence that President Obama has 
shown in nominating me to serve in such an important role. Our Nation 
continues to face challenges with $120 billion in TARP funds 
outstanding, $51 billion not yet spent, and fraud by those who sought 
to exploit TARP. I am committed to answering these challenges.
    My experience of serving on the staff at the SEC, in leading the 
dedicated and courageous team at SIGTARP during the last year, and 
serving as SIGTARP's Chief of Staff for nearly 2 years, has prepared me 
to serve as Special Inspector General. As a result of my experience at 
the SEC, I developed a strong resolve to protect investors. Once again 
I am protecting investors--the very taxpayers who funded TARP. I have 
prioritized SIGTARP's criminal investigations. In the last year under 
my leadership, 44 individuals have been criminally charged as a result 
of a SIGTARP investigation. These charges carry severe repercussions 
such as prison sentences. I also take very seriously SIGTARP's 
oversight role and in the last year, I have led SIGTARP to issue 28 
recommendations to protect TARP from fraud, waste, and abuse. In 
addition, the American taxpayers have a right to know how TARP funds 
are spent, and I have led SIGTARP to issue a series of reports 
providing significant transparency.
    Although I may not wear a uniform like my father and brother, I 
share their dedication to public service. If confirmed, I pledge to 
work closely with you to advance our mutual goal of protecting 
taxpayers. This Committee's support of SIGTARP has been instrumental in 
giving weight to SIGTARP's recommendations and ensuring a watchful eye 
over TARP. I am committed to maintaining the close relationship between 
this Committee and the office that I am nominated to lead. It has 
certainly been the greatest privilege of my career to be nominated by 
the President to serve as the Special Inspector General at SIGTARP and 
to be considered by this Committee for confirmation.
    Thank you very much. I would be pleased to respond to any 
questions.
 RESPONSE TO WRITTEN QUESTIONS OF SENATOR MORAN FROM JEROME H. 
                             POWELL

Q.1. The regime that limits credit exposures in Europe is 
generally not comparable to the regime established in the 
Federal Reserve's proposed rule to implement Sections 165 and 
166 of Dodd-Frank. Since the Federal Reserve's proposal 
currently contains significant differences and is generally 
more onerous than the European Union's Capital Requirements 
Directive, are you at all concerned that U.S. institutions will 
have a competitive disadvantage with their European peers?

A.1. Section 165 of Dodd-Frank requires the Board to establish 
enhanced prudential standards for those institutions that are 
covered, including concentration limits under Section 165(e). 
In carrying out this obligation, it is important that the Board 
avoid unnecessary negative competitive effects.
    The December 2011 Notice of Proposed Rulemaking (the 
``NPR'') is open for comment through the end of April 2012. In 
order to better inform decisions regarding a final rule, the 
NPR specifically invites comment on its quantitative impact. As 
the Board reviews comments on the NPR and moves toward 
development of a final rule, it is important that it avoid 
hampering the competitiveness of U.S. institutions, provided 
always that it remain faithful to the language of the statute.
    It is also appropriate for the Board to seek international 
harmonization of large exposure rules. The NPR states that 
Basel Committee on Banking Supervision is considering such a 
harmonized approach, and that the Board may amend the proposed 
rule to make it consistent with such an approach.
    Section 165(b)(2) also requires the Board to apply enhanced 
prudential standards, including concentration limits, to 
qualifying foreign banking organizations that it supervises, 
while giving ``due regard to the principle of national 
treatment and equality of competitive opportunity.'' The Board 
has not yet issued regulations under this authority.

Q.2. Similar to the ``Volcker Rule'', U.S. Treasuries are 
exempted from the Federal Reserve's rules on counterparty 
credit limits while foreign high-grade sovereigns are not. Can 
you make the case that this is an appropriate distinction? What 
should the Federal Reserve be doing to understand how this 
would impact American firms and markets?

A.2. The proposed rule exempts U.S. Treasuries but not State 
and local government debt or foreign sovereign debt. My 
understanding is that the exemption of Treasuries was done in 
part to harmonize the rule with several other Federal lending 
restrictions that apply to U.S. banks. The NPR specifically 
seeks comments on the scope of this exemption and the Board's 
decisions on a final rule should be informed by such comments.
                                ------                                

 RESPONSE TO WRITTEN QUESTIONS OF SENATOR MORAN FROM JEREMY C. 
                             STEIN

Q.1. The regime that limits credit exposures in Europe is 
generally not comparable to the regime established in the 
Federal Reserve's proposed rule to implement Sections 165 and 
166 of Dodd-Frank. Since the Federal Reserve's proposal 
currently contains significant differences and is generally 
more onerous than the European Union's Capital Requirements 
Directive, are you at all concerned that U.S. institutions will 
have a competitive disadvantage with their European peers?

A.1. The financial crisis has made clear the need to better 
understand and control single-counterparty concentrations at 
systemically important financial institutions (SIFIs), and to 
reduce inter-SIFI interconnectedness. At the same time, as the 
Federal Reserve and other regulators move forward with the 
implementation of Dodd-Frank, it will be important to make 
every effort to harmonize the rules for SIFIs internationally, 
to the extent that this can be done consistently with safety 
and soundness considerations, and with the intent of the 
statute itself. In the specific case of large exposure rules, 
it should be noted that the Basel Committee is currently 
exploring whether it makes sense to pursue international 
harmonization of these rules. This would be one way to reduce 
any potential adverse competitive effects of the Fed's single-
counterparty credit limit rules on U.S. banking firms relative 
to foreign banking organizations. It should also be noted that 
the Fed's single-counterparty credit limits only apply to bank-
holding companies with more than $50B in total assets. 
Accordingly, they do not apply to community banks or even 
medium-sized regional banks.

Q.2. Similar to the ``Volcker Rule'', U.S. Treasuries are 
exempted from the Federal Reserve's rules on counterparty 
credit limits while foreign high-grade sovereigns are not. Can 
you make the case that this is an appropriate distinction? What 
should the Federal Reserve be doing to understand how this 
would impact American firms and markets?

A.2. The exemption of U.S. Treasuries, but not foreign 
sovereign debt, is not specific to the Federal Reserve's rules 
on counterparty credit limits. Rather, it is a more general 
feature of other principal lending restrictions to which U.S. 
banking firms are subject. Other examples include national bank 
lending limits (Office of the Comptroller of the Currency), 
affiliate transaction limits (Fed's Regulation W), and insider 
lending limits (Fed's Regulation O). So the treatment in this 
particular case is arguably consistent with a significant body 
of precedent, and serves to harmonize the rules along this one 
dimension. The Federal Reserve has sought comment on its 
proposal on the treatment of sovereign exposures, and on the 
quantitative impact of the proposal on U.S. banking firms. The 
Fed should carefully consider any comments it receives on this 
issue as it crafts a final version of the rule.
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