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THE ANNUAL REPORT OF THE FINANCIAL 

STABILITY OVERSIGHT COUNCIL 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

JULY 25, 2012 

Printed for the use of the Committee on Financial Services 

Serial No. 112–151 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

FRANK C. GUINTA, New Hampshire 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

JAMES H. CLINGER, Staff Director and Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

July 25, 2012 ..................................................................................................... 1 

Appendix: 

July 25, 2012 ..................................................................................................... 53 

WITNESSES 

WEDNESDAY, JULY 25, 2012 

Geithner, Hon. Timothy F., Secretary, U.S. Department of the Treasury ......... 8 

APPENDIX 

Prepared statements: 

Bachus, Hon. Spencer ...................................................................................... 54 

Paul, Hon. Ron .................................................................................................. 56 

Geithner, Hon. Timothy F. .............................................................................. 58 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Hayworth, Hon. Nan: 

Letter to Secretary Geithner from various Members of Congress, dated 

June 15, 2012 ................................................................................................ 64 

Geithner, Hon. Timothy F.: 

Financial Stability Oversight Council (FSOC) 2012 Annual Report ............ 66 

Written responses to questions for the record submitted by Representatives Paul, Perlmutter, Posey, Royce, and Schweikert .............................. 281 

(1) 

THE ANNUAL REPORT OF THE FINANCIAL 

STABILITY OVERSIGHT COUNCIL 

Wednesday, July 25, 2012 

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

The committee met, pursuant to notice, at 9:33 a.m., in room 

2128, Rayburn House Office Building, Hon. Spencer Bachus [chairman of the committee] presiding. 

Members present: Representatives Bachus, Hensarling, Royce, 

Paul, Manzullo, Jones, Biggert, Miller of California, Capito, Garrett, Neugebauer, McHenry, Campbell, Pearce, Posey, Fitzpatrick, 

Westmoreland, Luetkemeyer, Huizenga, Duffy, Hayworth, Renacci, 

Hurt, Dold, Schweikert, Grimm, Canseco; Frank, Waters, Maloney, 

Gutierrez, Velazquez, Watt, Sherman, Meeks, Capuano, Clay, 

McCarthy of New York, Baca, Lynch, Miller of North Carolina, 

Scott, Green, Cleaver, Moore, Donnelly, Himes, and Carney. 

Chairman BACHUS. The hearing will come to order. 

The committee is honored to welcome Secretary Geithner to deliver the annual report of the Financial Stability Oversight Council 

(FSOC). 

As previously noticed, under Committee Rule 3(f)(2), time for 

opening statements is limited to 8 minutes for each side of the 

aisle. Without objection, all Members’ written statements will be 

made a part of the record. 

The Chair now recognizes Mr. Fitzpatrick for 1 minute for an 

opening statement. 

Mr. FITZPATRICK. Thank you, Mr. Chairman. 

And thank you, Secretary Geithner, for taking the time to be 

with us this morning. 

We are all interested in avoiding the next financial crisis, and I 

think we can all agree that the best place to start is by doing no 

harm. 

This committee spent a lot of time examining the effect of DoddFrank on the ability of small banks on Main Street to comply and 

compete in light of the new and additional burdens that have been 

placed on them. And it is the opinion of many that the law favors 

big banks and hurts small banks, which, in turn, hurts small business, which is the group to whom we are looking for job creation 

in the future. 

But the more immediate issue remains lack of growth in the 

economy. High and increasing marginal tax rates reduce economic 

growth by creating strong disincentives to hard work, savings, investment, and entrepreneurship. Just last week, Ernst & Young reVerDate Nov 24 2008 17:10 Apr 11, 2013 Jkt 076122 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\76122.TXT TERRI
2 

ported that increasing taxes would do more harm to our economy. 

I hope that the FSOC will begin to address the pro-economicgrowth policies that Americans are waiting for: lower budget deficits; smarter regulatory policy; and Tax Code simplification that 

lowers rates and expands the base. 

And we all look forward to your testimony. 

Thank you, sir. 

Chairman BACHUS. Thank you. 

The Chair now recognizes Mr. Duffy for 1 minute. 

Mr. DUFFY. Thank you, Mr. Chairman, for yielding. 

Secretary Geithner, I know we are here today to talk about the 

stability of the Nation’s financial system. As I travel around the 

northwest corridor of Wisconsin, I can tell you that my constituents 

feel that the financial system is far from stable. They are concerned 

about the economy. 

And as we go through the hearing today, I guess I would like to 

hear your commentary on the LIBOR scandal, the euro crisis, the 

American debt crisis, the American jobs crisis, the American economic growth crisis, and the codification of ‘‘too-big-to-fail’’ in the 

Dodd-Frank Act. I also want to hear your views on why you think 

this has been the longest and lamest recovery since World War II 

and what we can do to turn the ship around. 

I yield back. 

Chairman BACHUS. Thank you. 

Ms. Hayworth for 1 minute. 

Dr. HAYWORTH. Thank you, Mr. Chairman. 

And thank you, Mr. Secretary, for appearing before us again. 

Your work and your comments about the FSOC are so important. 

And I share the concern that Mr. Fitzpatrick has raised and Mr. 

Duffy has raised regarding having a robust economy in the face of 

the new regulations that are being promulgated as a result of 

Dodd-Frank. 

I know that the Office of Financial Research and FSOC are 

working together to formulate the designation of nonbank financial 

companies as systemically important. And I have a letter I would 

ask unanimous consent to be introduced into the record regarding 

some concerns in terms of the coordination between FSOC and the 

OFR and, of course, the entities themselves so that we do not create a disruptive or, if you will, enterprise-compromising situation 

through promulgation of rules that may not be practically applied 

in the real world where we face global competition and the rest. 

And, indeed, sir, you have advocated for global cooperation, in 

terms of extraterritoriality, which I think is a very important stand 

and one that I hope you will share with the Commodity Futures 

Trading Commission (CFTC) as they contemplate those rules. But 

I do look forward very much to your testimony regarding how we 

go forward in a way that will be least disruptive and, in fact, will 

enhance the economy. 

Chairman BACHUS. Thank you. 

Mrs. Maloney for 3 minutes. 

Mrs. MALONEY. First of all, I would like to welcome Secretary 

Geithner and thank you for your extraordinary public service. This 

may be the last time that you testify before the Financial Services 

Committee, and I really want to make sure that my appreciation— 

3 

and certainly the appreciation of many Americans—is expressed to 

you and my gratitude for steering us through the worst financial 

crisis in our lifetime, certainly in my lifetime. 

I would like to hear today about what it cost this country last 

summer when we went up against the debt ceiling and the crisis 

that ensued because Congress could not make a decision, the hundreds of millions, billions of dollars, what it meant to American 

families. And I would like to know, what would happen, financially, 

if we come up to that cliff again this summer? What is it going to 

mean for American families? And how much did it cost America 

during that crisis? 

I also want to note the statement made earlier today by Sanford 

Weill, the former Citigroup chairman and CEO, on ‘‘Squawk Box’’ 

on CNBC: ‘‘What we probably should do is go and split up investment banking from banking, have banks be deposit takers, have 

banks make commercial loans and real estate loans, have banks do 

something that is not going to risk the taxpayer dollars, that is not 

too big to fail.’’ 

I feel that is a very strong statement, stronger than the Volcker 

Rule, calling for the strictest Volcker Rule possible, a return really 

to Glass-Steagall. And certainly the goal of this committee and the 

Treasury Department is not to have this type of crisis again. What 

is your reaction to that? I feel that this statement is something we 

should certainly act on. 

On LIBOR, I would like to hear your statement about what you 

could do or what you could not do. England is a separate, sovereign 

country. To what extent can our country impose requirements on 

a foreign country? 

And I would like to hear about the car industry. How was it that 

the Treasury Department, with others, was able to save 1.4 million 

jobs and turn an industry that was failing into an industry that is 

now employing, expanding, and exporting? That is a terrific story 

of success. Thank you for your role and your leadership in achieving that for American workers and in many other ways. 

My time has expired. Thank you. 

Chairman BACHUS. Thank you. 

Mr. Renacci for 1 minute. 

Mr. RENACCI. Thank you, Mr. Chairman. 

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

and thank you for your service. 

In your testimony today, I look forward to hearing exactly what 

the FSOC has done to make our financial system stronger and 

more secure. 

One of the most obvious lessons of the financial crisis was that 

the system had become too complex for banks and their regulators 

to effectively manage. We had become overly reliant on a web of 

bloated government agencies that were incapable of covering all 

the cracks in our system. However, instead of simplifying the system and reducing the amount of jurisdictional bickering between 

regulators, we decided to double-down on a failed system. Instead 

of consolidating the number of regulators and providing clear responsibilities, we rewarded the failure of certain agencies and then 

added three more bureaucracies for good measure. 

4 

Today, I hope to hear from you what FSOC has done to strengthen our regulatory system. I would like to hear what has been done 

to end ‘‘too-big-to-fail’’ and rein in the reckless behavior that led to 

the financial crisis. And, most importantly, I would like to hear 

what FSOC plans to do to hold regulators accountable for being 

asleep at the wheel during the financial crisis. 

Thank you for being here today. 

And I yield back. 

Chairman BACHUS. Thank you. 

Mr. Dold of Illinois for 1 minute. 

Mr. DOLD. I thank the chairman. 

Secretary Geithner, thank you for taking your time to be with us 

today. 

Our bipartisan objective has to be to maximize private sector job 

growth and global competitiveness while also ensuring economic 

stability. Regulations are obviously necessary, but they must be 

sensible and balanced. The rules must be transparent, unambiguous, and objectively enforced. Anything less leaves us with many 

unnecessary and potentially negative consequences: diminished 

global competitiveness; erratic enforcement; potential regulatory favoritism; higher costs; reduced product availability; and weaker 

economic growth and job creation. 

Unfortunately, in many respects, our regulatory environment 

isn’t sensible or balanced. I don’t think that any of these are controversial points. For example, President Obama has called for a 

rigorous cost-benefit analysis of existing regulations and proposed 

regulations. So I am particularly interested in how FSOC is coordinating and correcting ambiguous, conflicting, and unnecessarily 

burdensome regulations, in addition to addressing jurisdictional 

battles among regulatory agencies. 

I am also concerned and interested in whether you might recommend ways to simplify, consolidate, and streamline the regulatory agencies themselves. The New York Times has called DoddFrank’s failure to do so a ‘‘lost opportunity,’’ and I think that we 

might also have some bipartisan agreement on that point. 

I yield back. 

Chairman BACHUS. Thank you. 

Mr. Schweikert of Arizona. 

Mr. SCHWEIKERT. Thank you, Mr. Chairman, and Mr. Secretary. 

I have almost the same concerns you have heard from some of 

the other opening statements. We are engaged in a little project in 

our office where we are trying to build a flowchart of all the regulatory mechanics, all the touches to those who are regulated, and 

then trying to predict some of the rule promulgation. And the chart 

is just becoming absolutely Byzantine. 

Should we be coming together trying to move toward a single 

point of contact from a regulatory environment to something that 

is much more simple, much more understandable? Has DoddFrank, maybe in good intentions, created a structure that is absolutely unworkable for the future? 

And just as sort of a personal side area I have great interest in, 

I would love if you have a second to touch on bonds being issued 

by United States. Should we be moving much, much, much further 

out in the WAM, back to the discussions of the super bonds, considVerDate Nov 24 2008 17:10 Apr 11, 2013 Jkt 076122 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\76122.TXT TERRI
5 

ering where interest rates are, on the outside of the curve right 

now? 

Thank you, Mr. Chairman. 

Chairman BACHUS. Thank you. 

The ranking member, Mr. Frank, is recognized for 5 minutes. 

Mr. FRANK. Mr. Chairman, as my retirement approaches, a certain amount of nostalgia is inescapable. I try not to indulge it, but 

I am overwhelmed with it today. It is 2006 all over again. 

When I was about to become chairman of this committee after 

the 2006 election, I was besieged by The Wall Street Journal and 

Wall Street people and the Chamber of Commerce with pleas that 

we deregulate America, that if we did not dismantle SarbanesOxley and cut back on the oppressive regulation of the financial 

community, everybody would soon be in England or in Hong Kong. 

And, of course, what then happened was the worst collapse of the 

American economy in a very long time, precisely because of the 

lack of regulation. 

People seem to have forgotten that. I am hearing again that the 

problem in the American economy is too much regulation. 

Ben Bernanke, who I will remind people—when George Bush, 

President George Bush, had an important economic appointment to 

make, he sent for the usual suspect, who was always Ben 

Bernanke. He appointed Ben Bernanke to be on the Board of Governors of the Federal Reserve in his first full year. Then, he made 

him Chairman of the Council of Economic Advisers. And then, he 

made him Chairman of the Federal Reserve. Ben Bernanke stays 

on as Chairman of the Federal Reserve as the most bipartisan person in this City. 

And he testified before us, and as my colleague, Mr. Himes, and 

some others noted, he listed the headwinds against the American 

economy. Excessive regulation of the financial industry wasn’t one 

of them. And he said, yes, there are all kinds of factors, but he was 

asked and he said, no, it is not a significant headwind. Europe is 

a headwind. And, of course, my colleagues on the other side have 

tried to retard the efforts of some, including Mr. Bernanke, to help 

with that. 

So we are being told now the problem is not enough freedom for 

the people whose irresponsibility caused this problem. We are 

being told to back off. We are being told that, gee, the regulations 

are too complicated for these poor people in the financial industry 

to understand. What was too complicated for them to understand? 

Their own razzle-dazzle shenanigans. That is what got them into 

trouble. 

And I do want to address this question of consolidation. People 

said we have created all these new agencies. There were two agencies that had pretty much similar functions: the Office of Thrift Supervision; and the Office of the Comptroller of the Currency. We 

consolidated those. So we got rid of one operating agency, and we 

created one new operating agency. The FSOC is not a new agency; 

it is a coordinating council. And the Office of Financial Research 

is not an operating agency; it gets information, which I understand 

some people don’t want us to have. 

But we did create one new agency, and that is really what they 

are worried about. It is called the Consumer Financial Protection 

6 

Bureau (CFPB). And for the first time, we took from existing bank 

regulators the function of protecting consumers and made it their 

primary job. And it has been working very well. 

I think we have had 11 hearings now, oversight hearings, in 

which people have complained that there is no oversight of this institution. That is not their complaint. Their complaint is it is 

standing up for consumers, as it recently did regarding Capital 

One. 

Now, I will acknowledge there was one major flaw in our structure that I wish I could fix. We should not have a separate Securities and Exchange Commission and Commodity Futures Trading 

Commission. The biggest single gap we had in the American financial regulatory system was the decision to not regulate derivatives 

at all. And we made a major breakthrough in the financial reform 

bill by regulating derivatives. We are just now getting those rules 

in place, partly because 10 people had to be involved: 5 at the SEC; 

and 5 Commissioners at the CFTC. And derivatives are split. The 

problem is, that split reflects a deep cultural and economic split in 

America. 

The Commodity Futures Trading Commission was created many 

years ago to deal with protecting, theoretically, farmers, while the 

Securities and Exchange Commission was created to deal with the 

financial community. I would very much like to get that consolidated. I notice the Republicans talked about consolidation. They 

left that one out. They talked about consolidating the bank industry, the bank agencies. 

So I just want to go back again to the fundamental point. The 

notion that the problem in America today with the financial institutions is too much regulation—once a week we get a demonstration that is not true: the banks lying about LIBOR, a disgraceful 

pattern of behavior of simply lying; Mr. Dimon at JPMorgan Chase, 

a very well-regarded, justifiably well-regarded executive, losing 

control of derivatives trading so billions and billions—and just like 

with AIG, they don’t know how much money they had lost; and 

Capital One admitting that they had vendors who were cheating 

people. Only an independent consumer bureau was able to step in. 

Now, there have been problems in the past. We had a Comptroller of the Currency who, frankly, was not a good regulator in 

the sense of being tough on the banks. We have a new one, Mr. 

Curry, and I think you are going to see a great deal of improvement. 

But the notion that our problem is too much regulation, I guess 

I am struck by the precocity of people who make that comment, because it is a very articulate statement coming, apparently, from 

people who were born sometime early in 2009. 

Chairman BACHUS. Thank you, Ranking Member Frank. 

Mr. Grimm of New York is recognized for 1 minute. 

Mr. GRIMM. Thank you, Mr. Chairman. 

And good morning, Mr. Secretary. 

The American people were told when Dodd-Frank was signed 

into law that they could rest assured these regulatory failures were 

going to be a thing of the past. Yet over the last 2 years, we have 

seen massive-scale regulatory failures. We have witnessed the collapse of MF Global; over a billion dollars of customer funds misVerDate Nov 24 2008 17:10 Apr 11, 2013 Jkt 076122 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\76122.TXT TERRI
7 

appropriated. In the last month, we have seen the collapse of PFG 

Commodities; close to $200 million in customer funds missing. Now 

we are learning, obviously, of a tremendous manipulation of the 

LIBOR interest rates. That is something regulators might have 

known for as far back as 4 years ago. 

So I am very interested in hearing from you, Mr. Secretary, how 

do we get the American people to feel that these 400-plus new regulations under Dodd-Frank are going to give them the comfort and 

the certainty that they need to invest and come back into the markets? But as someone who really does believe, as I think most 

Americans believe, that we have the strongest economy that was 

ever built and is the envy of the world, will Dodd-Frank make 

stronger, more robust capital markets, and will it lead to more 

American jobs? 

Thank you, and I yield back. 

Chairman BACHUS. Thank you. 

And our last statement will come from the gentleman from 

Texas, Mr. Canseco. 

Mr. CANSECO. Thank you, Mr. Chairman. 

The crisis of 2008 was caused by a number of factors, but I think 

at this point we can say with confidence that a lack of authority 

or information by regulators was not one of them. 

Instead of advancing a true reform of our regulatory structure, 

Dodd-Frank doubled down on the failures of the past by elevating 

the influence of the same agencies that missed the last crisis. This 

notion that a new supercouncil of regulators will predict the next 

financial calamity is a fallacy. All it does is further distract regulators from their core duty, which is to police the financial markets. 

And we have already seen an example of this with MF Global. This 

is harmful for our financial system and our economy, and I am 

eager to look into this matter further. 

I yield back the balance of my time. 

Chairman BACHUS. Thank you. 

Before I recognize Secretary Geithner, let me say that the Secretary has indicated that he must leave at noon today. To accommodate as many Members as possible to question the Secretary, 

the Chair announces that he will strictly enforce the 5-minute rule. 

Members who wait until the final few seconds to ask a question of 

the Secretary should be advised that they will be asked to suspend 

when the red light comes on so that we can allow other Members 

to be recognized. 

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

made a part of the record. You are recognized for a 5-minute summary of your testimony. 

Mr. FRANK. Mr. Chairman? 

Chairman BACHUS. And the ranking member is recognized. 

Mr. FRANK. I ask unanimous consent to say ‘‘hurray’’ for what 

you just said. And I hope you will strongly enforce it. 

Chairman BACHUS. Thank you. And I know I will have your cooperation. So thank you. 

Mr. Secretary, you are recognized. And the only thing that will 

not be strictly enforced is the 5-minute limit on your statement. 

8 

STATEMENT OF THE HONORABLE TIMOTHY F. GEITHNER, 

SECRETARY, U.S. DEPARTMENT OF THE TREASURY 

Secretary GEITHNER. Chairman Bachus, Ranking Member Frank, 

and members of the committee, thanks for giving me another 

chance to testify before this committee today on the recommendations of the Financial Stability Oversight Council’s annual report. 

But, of course, I am happy to try to also address the range of other 

comments and questions you raised in your opening statements. 

As the Council’s report outlines, we have made significant 

progress in the United States repairing and reforming our financial 

system. We have forced banks to raise more than $400 billion in 

capital to reduce leverage and to fund themselves more conservatively. The size of the shadow banking system, the parallel banking system, has fallen by trillions of dollars. The government has 

closed most of the emergency programs put in place during the crisis and recovered most of the investments made into the financial 

system. On current estimates, the TARP bank investments, for example, will generate an overall profit of approximately $22 billion. 

Credit to the business sector is expanding, and the cost of credit 

has fallen significantly from the peaks of the crisis. 

These improvements have made the financial system safer, less 

vulnerable to future economic and financial stress, more likely to 

help rather than to hurt future economic growth, and better able 

to absorb the impact of failures of individual financial institutions. 

But, of course, we still face very significant economic and financial challenges. The ongoing European crisis presents the biggest 

risk to our economy. The economic recession in Europe is hurting 

economic growth around the world, and the ongoing stress in financial markets in Europe is causing a general tightening of financial 

conditions, exacerbating the slowdown in growth. 

Here in the United States, the economy is still expanding, but 

the pace of economic growth has slowed during the last two quarters. In addition to the pressures from Europe and the broader 

global economic slowdown, U.S. growth has been hurt by the earlier rise in oil prices, the ongoing reduction in spending at all levels 

of government, and slow rates of growth in household income. 

The slowdown in U.S. growth could be exacerbated by concerns 

about the approaching tax increases and spending cuts and by uncertainty about the shape of the reforms to tax policy and spending 

that will ultimately be necessary to restore fiscal sustainability. 

These potential threats underscore the need for continuing progress 

in repairing the remaining damage from the financial crisis and enacting reforms to make the system stronger for the long run. 

The regulators have made important progress over the last 2 

years in designing and implementing the regulations necessary to 

implement the financial reforms you call ‘‘Dodd-Frank.’’ Nine out 

of ten of the rules with deadlines before July 2, 2012, have been 

either proposed or finalized, and the key elements of the law will 

largely be in place by the end of this year. 

We have negotiated new, much tougher global capital requirements, with even higher requirements for the largest banks. We 

now have the ability, the authority, to put the largest financial 

companies under enhanced supervision and prudential standards, 

9 

whether they are banks or nonbanks, and also the ability to subject 

key market infrastructure firms to tougher prudential standards. 

The SEC and the CFTC are putting in place a new framework 

for derivatives oversight, providing new tools for combating market 

abuse and bringing the derivatives markets out of the shadows. 

The FDIC has new authority in place for protecting the financial 

system and the taxpayer from the potential future failures of large 

financial institutions. And the Consumer Financial Protection Bureau has worked to simplify and improve disclosure of mortgage 

and credit card loans so that consumers can make better choices 

about how to borrow responsibly. 

This process of reform is a very complicated process. It is a complicated and challenging process because our system is complicated, 

the financial system itself is complicated, because we want to target damaging behavior without damaging access to capital and to 

credit, because we want the reforms to endure as the financial 

market and innovation evolve over time, and because we need to 

coordinate the work of multiple agencies, not just here in the 

United States but in the financial centers around the world. 

Beyond the reforms enacted in Dodd-Frank, the Council has put 

forward a number of recommendations to help strengthen our financial system going forward. Reforms are necessary to address remaining vulnerabilities in the short-term funding markets and particularly to mitigate the risk of potential runs in the future on 

money market funds and to reduce intraday credit exposure in the 

tri-party repo market, which is a secured funding market. 

Regulators should establish and enforce strong protections for 

customer funds that are deposited for trading. Financial firms and 

regulators should continue to improve risk-management practices, 

including by strengthening their capital buffers, stress-testing disciplines, internal disciplines around complex trading strategies, 

and other areas. 

The Council recommends further improvements in the quality 

and availability of financial data. The Office of Financial Research 

will continue to lead this effort, as it has done so impressively over 

the past year. 

Finally, the Council continues to support progress toward comprehensive housing finance reform that will be designed to bring 

private capital back into the housing market. 

These recommendations will build on the very considerable 

progress made by the members of the Council over the past few 

years in making our system safer and stronger and more resilient, 

less vulnerable to crisis, with stronger protections for investors and 

for consumers. We have a lot of work ahead of us, however, and 

we need your support to make these rules both strong and effective. And we need your support to make sure the enforcement 

agencies have the resources they need to prevent fraud and manipulation and abuse. 

I want to thank the other members of the Financial Stability 

Oversight Council and the staff of the other agencies for all the 

work they have done over the past year, not just on this particular 

report. And I want to underscore again that we look forward to 

working with this committee and with the Congress as a whole in 

this important effort of building a stronger financial system. 

10 

Thank you, Mr. Chairman. 

[The prepared statement of Secretary Geithner can be found on 

page 58 of the appendix.] 

Chairman BACHUS. Thank you. 

The Chair yields himself 5 minutes for questions. 

Mr. Secretary, it is widely reported that you discovered in 2007 

that the world’s biggest banks were manipulating LIBOR. Your 

own recommendations, made in May of 2008, the following year, indicated your recognition that there was an incentive to misreport. 

That obviously raises substantial questions about the honesty of 

the LIBOR submissions and the presence of fraud. 

When did you alert the U.S. Treasury and the Justice Department of the possibility that LIBOR was being manipulated or 

rigged? And to whom did you state those concerns? 

Secretary GEITHNER. Thank you, Mr. Chairman. 

In 2008, as the financial crisis intensified and there were broader 

concerns about the financial strength of banks, European banks 

were having a tougher time raising dollars, those LIBOR rates 

began to rise. And there was a lot of concern in the market that 

the way the rate was structured made it vulnerable to 

misreporting. 

Those concerns were widely available in the market, and they 

were published in The Wall Street Journal and the Financial 

Times, among other publications. At that time—this was in the 

spring of 2008—we took a very careful look at these concerns. We 

thought those concerns were justified, and we took the initiative to 

bring those concerns to the attention of the broader U.S. regulatory 

community, including all the agencies that have responsibility for 

market manipulation and abuse. 

Chairman BACHUS. And that included the Treasury Department 

and the Justice Department? 

Secretary GEITHNER. I briefed the President’s Working Group on 

Financial Markets. The members of that group included the CFTC, 

the SEC, and the Fed. 

Chairman BACHUS. How about the Justice Department? 

Secretary GEITHNER. Justice is not a member of that committee. 

And then— 

Chairman BACHUS. But let me ask you this: You were aware of 

the possibility of fraud? 

Secretary GEITHNER. We were absolutely aware, not just of the 

reports that banks were underreporting and misreporting, but the 

nature of the rate—again, this is a rate set in London, overseen by 

the British Bankers’ Association, and it is a rate that is a constructed average of estimates, principally by foreign banks, of what 

they might pay to borrow in 10 currencies at very different maturities— 

Chairman BACHUS. There were three U.S. banks. 

Secretary GEITHNER. Three at that time, 3 of 16, now 3 of 18. 

But we were aware of the risk that the way this was designed 

created not just the incentive for banks to underreport but gave 

them the opportunity to underreport— 

Chairman BACHUS. Right. 

Secretary GEITHNER. —and that was a problem. 

11 

Chairman BACHUS. Right. I know that you went to the British 

regulators, but what action did you take? You were aware that 

they took no action, I believe? 

Secretary GEITHNER. Again, let me explain what I did. Our first 

instinct, of course, was not just to brief the broader U.S. regulatory 

community, including the enforcement agencies, but to bring this 

to the British. And I personally raised this with the governor of the 

Bank of England, and then I sent him a very detailed memorandum recommending a series of changes. And then— 

Chairman BACHUS. Yes. And he has denied having any evidence 

of rigging or of misconduct, but, according to what you supplied 

him, his testimony would not be correct; is that right? 

Secretary GEITHNER. Again, I felt that we did the important and 

fully appropriate thing, which was to bring to the attention not just 

to the people in Washington— 

Chairman BACHUS. And what— 

Secretary GEITHNER. —but to the British of the, not just of the 

reports and the concerns that were broadly available in the market 

and the public domain, but also of the range of problems in the 

way this rate was designed that created that vulnerability. And so, 

we brought those concerns to their attention. 

Chairman BACHUS. Sure. 

Secretary GEITHNER. And we felt—and I still believe this—that 

it was really going to be on them to take responsibility for fixing 

this. 

Chairman BACHUS. Let me ask you this: You reported it to the 

President’s Working Group in May of 2008. What action, if any, 

was taken at that time to address the concerns that LIBOR was 

being misreported, the existence of fraud and rigging? 

Secretary GEITHNER. What the CFTC did in roughly the same 

timeframe is to initiate a confidential but very far-reaching investigation—ultimately, it took 4 years—which resulted in a very, very 

strong, appropriately strong enforcement response you saw announced earlier this month. Ultimately, that investigation brought 

in the SEC and the Department of Justice— 

Chairman BACHUS. Okay. 

Secretary GEITHNER. —and other agencies. 

Chairman BACHUS. Sure. 

Let me ask you this last question: You used LIBOR to set the 

AIG $182 billion and also the $100 billion TALF. Now we know 

that those were understated. Does that work to the disadvantage 

of the taxpayer? 

Secretary GEITHNER. We were in the position of investors all 

around the world. In many cases, you have to choose a rate to decide to use as a reference for what you are lending in that context. 

And we did what everybody else did, which is to use the best rate 

available at the time. 

Now, we are all taking a very, very careful look—and this is a 

matter of litigation, as you know, not just the ongoing enforcement 

investigations—about to what extent the rate was moved up or 

moved down or actually affected in any way. I don’t know yet what 

the results of those discussions will be, and I can’t speak to them, 

but you are right to point out that we, like investors around the 

12 

world, had to take advantage of the rates available at the time, and 

we chose LIBOR at that point, as did many others. 

Chairman BACHUS. Thank you. 

Congressman Frank? 

Mr. FRANK. Thank you. 

Mr. Geithner, I just want to get the context, because what has 

happened here is that some of the leading financial institutions in 

the world behaved in an outrageous fashion. These were not bad 

guesses about derivatives. This was not overconfidence about mortgages. This was conscious deception in their own self-interest. And 

it was done not just by individuals but by an association that was 

given powers to self-regulate in some ways. So as I hear some of 

my colleagues talk about the need for more self-regulation and less 

prescriptive regulation, LIBOR comes to mind as a very strong reputation. 

But part of this—and this is troubling to me, and it hasn’t happened yet this morning; I hope it doesn’t—but in the press and 

elsewhere, there has been an effort to kind of blame you for all this 

because you happen now to be the Secretary of the Treasury in the 

Obama Administration. And there is, it seems to me, extraordinary—you were an important official, but not one of the top officials. I don’t mean to denigrate you. The presidency of the Federal 

Reserve is an important institution. It has been given more importance recently than it has ever had before, as people want to say 

that you were running the world back then. You had a Chairman 

of the Federal Reserve who was setting the LIBOR—using LIBOR 

to set the rates. Mr. Bernanke was in charge of AIG. You had Secretary of the Treasury Paulson. So we do want to remind people 

that this all happened under the Administration of President Bush, 

and the President’s Working Group to which you reported was 

President Bush’s Working Group, with Mr. Cox at the SEC, Mr. 

Paulson, et cetera. 

And I stress that because there was a failure to be tough enough 

with these private sector people who were doing this, but the notion that it was really all the problem of the President of the Federal Reserve of New York is striking. 

I want to be very clear. You reported this to the President’s 

Working Group on Financial Reform. Who are the members of that 

group? Who were they in 2008? Give me names. 

Secretary GEITHNER. The Chairman of the Federal Reserve, the 

Chairman— 

Mr. FRANK. Mr. Bernanke. 

Secretary GEITHNER. —of the CFTC, the Chairman of the SEC, 

and a— 

Mr. FRANK. The Secretary of the Treasury? 

Secretary GEITHNER. And the Secretary of the Treasury. 

Mr. FRANK. All right, so we have four— 

Secretary GEITHNER. Those were the core members of the group. 

Probably the Chairman of the FDIC, I think at that stage, was 

there maybe occasionally. But those were the core members. 

Mr. FRANK. All right. So these were all Bush appointees. 

And I think this is a problem not of the regulators but of the private sector—and of the British, because this was a British association. But if people are going to start pointing fingers at regulators, 

13 

all those people were Presidential appointees confirmed by the Senate. You were not a Presidential appointee. 

Secretary GEITHNER. No. 

Mr. FRANK. So these were five or six people above you in the organizational chart to whom you reported what you found. And 

maybe things weren’t done tough enough, although I am struck 

that you note that the CFTC, to its credit, did begin the investigation which culminated in this. 

So we have a situation where private banks, formed in a British 

association but with American bank participation, grievously misbehave. You hear about it and report it to the financial working 

group consisting of Bush appointees, many of whom I value highly 

and with whom I worked closely in 2008. And some people believe 

that not enough was done. If that is the case, it does seem to me 

that responsibility should be broadly shared. 

Now, let me ask you this question about ‘‘too-big-to-fail.’’ The legislation, as you know, says that if a large financial institution cannot pay its debts, it is put out of business and that no money can 

be spent by the Federal Government on the process of putting it 

out of business. These are the death panels. They weren’t for old 

ladies in the health bill; they were for big banks in the financial 

reform bill. The CEO and the other officers are gone, the shareholders are wiped out, and the board is dissolved. That is what the 

law says. And the law also says that if there is any money that has 

to be spent to wind it down responsibly, you or your successor is 

mandated, not authorized, to recover it. 

Now, what I read is, from, for instance, the President of the Federal Reserve of Dallas and his staff, that is not going to work, because if there was a failure of a large institution, there would be 

overwhelming pressure on you or your successor to provide Federal 

funds to keep that institution alive. Do you think that is likely? 

Secretary GEITHNER. Unlikely, but I wouldn’t have the authority. 

Mr. FRANK. You would be breaking the law to do that. 

Secretary GEITHNER. Again, what Congress did is change the law 

to limit the authority available to the regulators to protect an institution from its mistakes. 

Mr. FRANK. And they are then put out of business. 

By the way, there are some now, on the more conservative side, 

who lament that. There is a new book out by Mr. Conrad, who was 

a managing director, I believe, of Bain—I just had a copy sent to 

me by the National Review—complaining that we have restricted 

the ability of the Federal regulators to intervene to save an institution too much. 

But I appreciate your point. If a large institution failed now, you 

would have no option under the law but to have it fail. And if anything had to be done to put it out of business, you would get the 

money back from the banks. 

Thank you. 

Chairman BACHUS. Thank you. 

Mr. Hensarling? 

Mr. HENSARLING. Thank you, Mr. Chairman. 

Good morning, Mr. Secretary. 

I still don’t quite understand your answer concerning the New 

York Fed’s use of LIBOR. On the one hand, I think you have said 

14 

that, ‘‘We acted very early in response. We were worried about it, 

we were concerned about it.’’ But it appears that the early response 

was to keep using it, which means it appears that you treated it 

almost as a curiosity or something akin to jaywalking as opposed 

to highway robbery. 

I think I just heard you earlier in your testimony say, ‘‘It was 

our best choice.’’ There are other interest rate indexes out there. 

How can a number that you know has been manipulated—how can 

that possibly be the best choice? 

Secretary GEITHNER. Again, we were concerned about this, and 

we did the important, very consequential thing of bringing it to the 

attention of the full complement of regulatory authorities that Congress had given responsibility and authority for market manipulation and abuse. And— 

Mr. HENSARLING. But you weren’t obligated to use it. The New 

York Fed was not obligated to use LIBOR. Yes or no? 

Secretary GEITHNER. No, of course not. But— 

Mr. HENSARLING. Okay. 

Secretary GEITHNER. But we had to make a basic choice among 

alternatives at that time, and I think that was the right choice 

back then. 

Mr. HENSARLING. Between a manipulated number and a nonmanipulated number? 

Secretary GEITHNER. No, again, I wouldn’t say it that way. I 

would say this was a rate that was structured in a way that was 

vulnerable to misreporting. We were very concerned— 

Mr. HENSARLING. Apparently. 

Secretary GEITHNER. —about that. And what we decided to do 

was to try to initiate a reform of the process with the British but 

also just to make sure the relevant authorities made use of it— 

Mr. HENSARLING. If I could, Mr. Secretary, I am sorry, we have 

a limited amount of time. I would like to ask another question 

here. 

As I review the annual report, I see a lot of discussion of the European debt crisis. Frankly, I see very little discussion of the U.S. 

debt crisis. We know that on a nominal basis, this country has now 

racked up more debt in the last 3 years than in the previous 200 

years. We now know that our debt-to-GDP ratio exceeds our economy. 

Even in the President’s own budget, after the 10-year window, 

his budget states, ‘‘The fiscal situation deteriorates badly.’’ The 

President has previously said that the major driver of our longterm debt is Medicare and Medicaid, our healthcare spending; 

nothing comes close. Yet—and that was in 2009—I have yet to see 

a reform plan for entitlement spending out of this Administration. 

You testified before the Budget Committee in February of this 

year. In response to Budget Committee Chairman Paul Ryan, you 

said that he was ‘‘right to say we—meaning the Administration— 

are not coming before you today to say that we have a definite solution to that long-term problem. What we do know is we don’t like 

yours.’’ That was in February. I assume I haven’t missed any of the 

news clips stating that the Administration has come out with a 

plan. 

15 

So if the President says this is the major driver—we know that 

the head of the Federal Reserve has also spoken about our 

unsustainable spending driven by entitlement spending. I look at 

this report; I cannot find one mention of the word ‘‘entitlement,’’ 

not one mention of the word ‘‘Medicare,’’ not one mention of the 

word ‘‘Medicaid.’’ Yet, your own budget says ‘‘fiscal situation deteriorates badly.’’ 

How can this not be cited as a major factor that could disrupt 

U.S. financial stability? And when, if ever, is the Administration 

going to move on this? 

Secretary GEITHNER. Congressman, as you know, the Council’s 

job is not to recommend to the Congress long-term reforms to entitlement spending or recommend solutions to our long-term fiscal 

crisis. We agree, as you said, that our fiscal deficits are 

unsustainable. And— 

Mr. HENSARLING. Mr. Secretary, if I could, what is chapter 3 of 

this report all about, ‘‘Annual Report Recommendations?’’ Does this 

not impact the competitiveness and stability of U.S. financial markets, our fiscal unsustainability? 

Secretary GEITHNER. We did identify in the report, as I did in my 

statement in summarizing the report, that these broad, long-term 

fiscal risks are a significant risk to the American economy and ultimately, therefore, to the financial system. And we highlighted that 

basic risk in the report, as was appropriate. But what we didn’t 

do— 

Mr. HENSARLING. But you make other recommendations. You 

just make no recommendation on what is actually driving, according to the President of the United States, the debt crisis. 

Secretary GEITHNER. I think it would be a strange thing to ask 

the Fed, the SEC, and the CFTC to recommend a detailed Medicare reform plan. That would be a strange thing. 

So you are right to say it is a risk, and the Council is right to 

highlight that risk. But I don’t think it is correct to say that the 

Council should have laid out reform recommendations for restructuring a— 

Mr. HENSARLING. I am out of time, but perhaps next time you 

could help me with a highlighter, because I don’t see it. 

Chairman BACHUS. Thank you, Mr. Hensarling. 

Ms. Waters? 

Ms. WATERS. Thank you very much. 

According to Andrew Lo, a professor at MIT, this LIBOR fixing 

scandal dwarfs by orders of magnitude any financial scam in the 

history of markets. That is pretty strong. I would like you to tell 

me if you think that statement is true. 

I would also like to know what impact this manipulation had on 

our financial markets and what impact it is going to have moving 

forward. And take time to tell us about your series of changes that 

you recommended. 

I would like to give you time and not take up all the time, so 

please go ahead. 

Secretary GEITHNER. Okay. Let me just say a bit about this 

broader question, and thank you for giving me the chance to do so. 

In the detailed recommendations we gave to the British, we identified a series of specific things that would make it untenable for 

16 

this rate to be affected by the banks’ incentive to lower their reported cost of funds. We gave them, again, very specific detailed 

changes for doing that. And if those had been adopted—more of 

those had been adopted and sooner, you would have limited this 

risk going forward. 

Right now, let me just highlight a few things we think are important, given where we are today, because you are going to want to 

know what is next, what is ahead of us. So let me just walk 

through that, if you would just give me a minute. 

The Council and the regulating agencies, relevant agencies, 

which means the Fed and the SEC and the CFTC, are in the process of taking a very careful look at how to address any potential 

implications of this remaining challenge for the financial system. 

These bodies are carefully examining other survey-based measures 

of interest rates in financial crisis overseen by private financial 

firms to assess any potential there for misreporting similar problems. They are carefully examining a broad range of potential reforms and alternatives to LIBOR. 

There is a global effort led by the Financial Stability Board, 

which includes all the world’s major central banks and market regulators together, to review potential reforms. We are considering 

how to deal with the careful and delicate question of how do we 

make it possible for enforcement agencies that are undertaking a 

confidential investigation which reveals behavior that could impact 

the financial system as a whole—how to make it possible for them 

to share that information, with appropriate protections and safeguards, with the relevant agencies which have responsibility to the 

overall functioning of the system. That is a very important question. 

We need to take a very careful look at parts of the system where 

we rely or where the market relies, still, on informal private bodies 

run by financial firms like the British Bankers’ Association that 

have some formal or informal self-regulatory rule. A very important 

question that your colleague referred to earlier. 

And, of course, I think we all need to make sure that these enforcement agencies have the resources they need to do their job. 

Just to give a specific example, you have a small town with a police 

department. The population of that town increases by 10 to 100 

times. You are going to need to increase the size of the police department. It is a necessary, responsible thing to do. And if we do 

that, you will have a more powerful deterrent, tougher enforcement, and that will come earlier, with broader effects for all of us. 

Now, in addition to each of those things, of course we are going 

to cooperate fully and be fully responsive to the requests of this 

committee for broader information on this. And, of course, we will 

brief the Congress on the progress of each of those efforts looking 

at reform and implications and how to reduce the vulnerability of 

the system in the future to similar problems like this. 

Ms. WATERS. Given those recommendations and the problems we 

have had with the economic meltdown in this country, what else 

can Congress do to ensure that the interest rates that are being 

paid between the banks are fair and equitable and somehow will 

not negatively impact that person who has taken out a mortgage 

in the United States? 

17 

Secretary GEITHNER. Again, I think what you should do is what 

you are doing, which is you are conducting oversight of these agencies and these efforts. And you should ask for periodic updates 

from these agencies on the reforms under way to address that risk. 

That is fully appropriate. We welcome that effort, and we will be 

fully responsive to it. 

Ms. WATERS. Thank you very much, Mr. Chairman. I yield back. 

Chairman BACHUS. Thank you. 

Dr. Paul? 

Dr. PAUL. I thank you, Mr. Chairman. 

And good morning, Mr. Secretary. 

I have a question about the President’s Working Group on Financial Markets. There is an article that said the Fed briefed the 

President’s Working Group on Financial Markets in June of 2008. 

And during that time, I assume you were President of the New 

York Fed, in June of 2008? 

Secretary GEITHNER. It was actually in May that we briefed 

them, and I was the one who did it. 

Dr. PAUL. Okay. The article said June, but, okay, May. It said 

the Fed briefed the Working Group. Does that mean you did it or 

somebody else from the Fed? 

Secretary GEITHNER. It was on the agenda of the meeting, and 

I went to provide—I wasn’t a member of the group, but I occasionally went—I went to provide an update on this issue. And then my 

staff subsequently briefed officials of the Treasury and, separately, 

officials of the SEC and the CFTC. 

Dr. PAUL. Okay. You are the Chairman of that group right now, 

correct? 

Secretary GEITHNER. Yes, I am the Chairman of the Council. 

Dr. PAUL. Okay. In relation to that meeting you had and the 

meetings you have had since, do you keep detailed minutes of all 

those meetings? 

Secretary GEITHNER. We do keep minutes of the Council meetings today, and we put those minutes in the public direct record, 

with whatever the appropriate lag is to make sure we have a review by the agencies. 

Dr. PAUL. So all records get—how often do those meetings lead 

to policy changes, where you make a decision and the Fed goes out 

and does something or Treasury does something or getting involved 

in the markets at all? How often does that happen? 

Secretary GEITHNER. The Council is still in its early stage of implementing the authority Congress gave it. 

The Congress gave it two different sets of authorities. One is specific responsibility for things like designating financial market utilities that have systemic implications. That is a specific responsibility the FSOC has which we have acted on. 

But Congress gave it a set of broader coordinating responsibilities in service of something many of you have spoken to, which is 

trying to make sure that you are not leaving large gaps in the system and the agencies that have similar responsibilities are working 

together, not against each other. That is a more general responsibility, not a specific one. 

Dr. PAUL. Not specific. 

18 

On LIBOR, I don’t want to get into the details of fraud and who 

committed crimes and who should be punished and whatnot; I 

want to talk about the principle. And the principle here is that people are complaining because they believe LIBOR was fixed, that 

the interest rates were fixed, and that it benefited somebody financially. And I don’t think there is a big argument on that. That is 

what all the talk is about, and that is why Barclays was actually 

penalized for it. 

But isn’t this a whole lot like exactly what the Federal Reserve 

does? Aren’t they fixing interest rates all the time for the benefit 

of special individuals? If the market goes down, interest rates are 

lowered, and there is good evidence to show the market usually 

comes back up. If banks get into trouble, interest rates are lowered. 

Right now, interest rates are, like, zero, and banks get a lot of free 

money. And they turn around and they put it back in the Fed, and 

they earn interest and they buy Treasury bills, and they are doing 

quite well. So it seems like there is a tremendous amount of manipulation of interest rates for the benefit of some individuals. 

But this manipulation of interest rates harms people who save 

money. If they are retired and they can’t earn anything, it seems 

like, in the sense of morality and economic policy, our monetary 

system is every bit as guilty as what we are accusing LIBOR of 

doing. 

Now, the Fed may be protected by rules and laws, but isn’t there 

a similarity? Isn’t there something that we should question about 

the manipulation of interest rates for the special benefits of some 

individuals, as the Fed does this? 

Secretary GEITHNER. No, I would not make any comparison. I 

don’t think they are remotely similar. The Fed, with authority Congress gave it to maintain— 

Dr. PAUL. I am not talking about the authority. I am talking 

about what they did. I recognize that. 

Secretary GEITHNER. But what the Fed is doing is, with the responsibility Congress gave it to keep prices low and stable over 

time and unemployment low over time, it is using a set of tools in 

the public interest to achieve those objectives. I would say that is 

a fundamentally different thing from the behavior of individual 

banks to misreport the price they are paying or they might pay to 

borrow— 

Dr. PAUL. Okay. I don’t think we will resolve that, because I 

have one other quick question. 

Would you support a change in policy where the Fed could buy 

Treasury debt directly so it didn’t go through the bond brokers, 

where they make huge commissions on this? Wouldn’t this be much 

better for the American taxpayer? 

Secretary GEITHNER. For the Fed to directly finance? 

Dr. PAUL. Yes, why can’t they buy Treasury bills from the Treasury? Instead, we have 20 or so bond dealers, and I think they make 

some commissions on this. And then the Fed goes out and buys 

these bonds, and bond dealers make money off this. 

Secretary GEITHNER. Let me be careful in answering that question. Let me just tell you that I personally am a strong defender 

of two very important principles. One is to try to make sure the 

Fed has full independence on monetary policy independent of poliVerDate Nov 24 2008 17:10 Apr 11, 2013 Jkt 076122 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\76122.TXT TERRI
19 

tics, but also to make sure that there is nothing in this relationship 

between the Fed and the Treasury that would raise concerns that 

the Federal Reserve is directly financing the fiscal deficit of the 

United States. That would be something very damaging to the 

Fed’s independence, to the credibility of monetary policy, and to the 

fiscal credibility of the United States. 

I don’t think that is what you are implying, of course. I know you 

wouldn’t support that at all. And so maybe I should talk to you in 

more detail about your specific questions about the market function 

issue. 

Chairman BACHUS. Thank you. 

Mrs. Maloney for 5 minutes. 

Mrs. MALONEY. Mr. Secretary, thank you for your service. 

It is absolutely huge that Sandy Weill has called for the breakup 

of the big banks. And I would like a detailed answer in writing on 

what this means to the financial crisis. If investment banking and 

banking had been separated, what would that have meant for AIG, 

for Bear Stearns, for Lehman, for Wachovia, for all of the big 

banks? 

But I want to use my time today on crises that we are in right 

now, which is LIBOR, and also the debt-ceiling crisis and what it 

meant in financial loss to the American families last summer and 

what could it mean in the future. 

But specifically on LIBOR, was this a British problem or a U.S. 

problem? 

Secretary GEITHNER. It was a rate set in London that had implications far beyond London, not just in the United States but in financial markets around the world. 

Mrs. MALONEY. Okay. And was it set by an association or professionals in the United States or elsewhere? Who set it? 

Secretary GEITHNER. It was set by the British Bankers’ Association, which is a group of banks. 

Mrs. MALONEY. Okay. Were you aware of any other members of 

the President’s Working Group following this issue? 

Secretary GEITHNER. As I said, we briefed that broader set of relevant agencies, so they were aware of it. These reports were in the 

public domain. And, as you know, the CFTC started at that time 

a very far-reaching, to their credit, investigation that ultimately involved a range of other authorities. 

Mrs. MALONEY. Did the New York Fed or the Federal Reserve 

have enforcement authority in any way? 

Secretary GEITHNER. The New York Fed has a range of authority, but the enforcement powers of the Fed rest with the Board of 

Governors in Washington, not with the individual reserve banks. 

But the other agencies that are part of our system—and it is a 

complicated system, as many of you have said—involve a range of 

other authorities and responsibility for things like market manipulation and abuse. 

Mrs. MALONEY. Could you have taken any action, as Secretary 

of the Treasury, against Barclays? 

Secretary GEITHNER. As Secretary of the Treasury? 

Mrs. MALONEY. Yes. Or as head of the New York Fed at the 

time. 

20 

Secretary GEITHNER. I don’t think the Secretary of the Treasury, 

then or now, has direct enforcement authority that was relevant to 

that. The Congress has given that authority to other agencies, 

which is appropriate. 

Mrs. MALONEY. Could you have taken action against Barclays at 

the New York Fed? 

Secretary GEITHNER. Again, at the New York Fed, I believe—and 

I have thought a lot about this, as you know, as you would expect— 

I believe we did the necessary, appropriate thing very early in the 

process. 

Mrs. MALONEY. Could you put this in context in terms of the 

other things that you were working on in 2008? I know that I was 

getting calls from my constituents, screaming that there was a run 

on the markets. There was a fear of a complete financial meltdown. 

What was it like for you? What were you working on in 2008? Can 

you put this into the context of what was happening at the time? 

Secretary GEITHNER. You are right to remind us that at that period, we were—it got much worse later, but at that point the pressures on the financial system here and around the world were very 

acute. And they were creating the real risk of a broader run, broader collapse on the American financial system. The recession was already many-quarters old at that point, so we were seeing the economic effects of it, and it was certainly going to get dramatically 

worse. 

And, of course, we had a lot to do at that point. But on LIBOR, 

again, we were worried about this, we were concerned about it, and 

that is why we did what we did at that point, despite all those 

other preoccupations. 

Mrs. MALONEY. Could you comment also on the debt-ceiling crisis 

this country suffered through last summer? What did it cost our 

country? What did it cost American families? And what would happen if we had yet another debt-ceiling crisis, if we went over the 

cliff again, in terms of pain, suffering, increase in debt and deficit, 

increase of unemployment? 

Could you explain what the impact was last summer? And what 

could it be if we can’t get together and come forward with a reasonable agreement? 

Secretary GEITHNER. The threat of default that hung over the 

U.S. economy in that period of time, June and July of 2011, was 

very damaging. It caused economic growth to slow at a very early, 

vulnerable time in the recovery. It caused stock prices in the 

United States and around the world to fall sharply, doing a lot of 

damage to the savings of the average American. 

It caused a precipitous drop in consumer and business confidence, magnifying the slowdown in growth. The shock to consumer confidence, to business confidence, was larger than you see 

in a typical recession—very damaging, very substantial, completely 

avoidable, not necessary. And it would be irresponsible to put the 

country through that again. 

Mrs. MALONEY. My time has expired. This may be the last time 

you testify before us. Thank you for your public service. 

Mr. DOLD [presiding]. The Chair recognizes the gentleman from 

North Carolina, Mr. Jones, for 5 minutes. 

Mr. JONES. Mr. Chairman, thank you very much. 

21 

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

I have said many times in my district and here in Washington 

that the two worst votes I have made in the 18 years I have been 

in Congress were on the Iraq war, which was very unnecessary, 

and on the repeal of Glass-Steagall. 

I was here with many of my colleagues, some on the dais today, 

when President Bush and Secretary Paulson called on Congress to 

bail out those who, in my opinion, were gambling on Wall Street 

with the taxpayers’ money. And we bailed out those in trouble— 

I didn’t vote for it then, so I won’t take the blame on that one. 

But it seems like every time the financial institutions get in trouble, they come to the Congress and the taxpayer and say, we need 

for you to help us out. Mr. Dimon in the last 3 or 4 weeks first 

acknowledged that they had made a $2 billion mistake in investments, I guess; then it later became $10 billion. 

And the American people are just tired and sick and fed up with 

how—and I think a lot of it, quite frankly—if I could vote today to 

create public financing, we might could bring some sanity to this 

issue that we are talking about, the financial institutions, and really have oversight that we should have. But we are not going to 

change the way we finance campaigns, I realize that, and you can’t 

change it if you wanted to. 

But my question to you is, isn’t it time to have a discussion and 

a debate about the reinstatement of Glass-Steagall? 

Secretary GEITHNER. Congress thought about that very carefully 

in the context of the Dodd-Frank discussions, and I am sure it will 

consider it in the future again. And that is an appropriate thing 

to do. 

But the reforms Congress enacted were very tough and very 

strong against just the risk you said, because they force banks to 

hold much, much more capital against risk and the large banks to 

hold much more than small banks. That is a very important thing. 

They limit how large banks can get as a share of the system as a 

whole. That is a very important thing. 

And as your colleague said earlier, they deprive the institutions 

of government of the ability to come in and rescue a bank from its 

failures. All we can do is to try to protect the economy from the 

failures banks will inevitably make. And they will make mistakes; 

it is inevitable in that context. Our job is not to prevent them from 

making mistakes. We can try to do that. Our job is to make sure 

that when they make mistakes, they don’t imperil the broader 

American economy and the safety of people’s savings and make it 

harder for businesses to borrow. And this law was the toughest, 

most far-reaching, most comprehensive set of protections against 

that concern than the United States has ever contemplated. 

Should we keep looking at what more we could do to make the 

system safer? Absolutely. And I expect Congress to continue to do 

that. You should always go back and examine those judgments in 

this case. 

But I think it is a very tough set of constraints against the risk 

you said, and we should give those reforms a chance to take effect 

and to work. 

Mr. JONES. Mr. Secretary, I appreciate your comments. I think 

that for too long that we continue to—I was one of the few RepubVerDate Nov 24 2008 17:10 Apr 11, 2013 Jkt 076122 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\76122.TXT TERRI
22 

licans to vote for Dodd-Frank. It was a decision I made that there 

was more good than bad in that legislation, and that if it was properly implemented, maybe it would do what was necessary to bring 

some honesty and integrity to the markets. And so therefore, I 

hope that most of my colleagues will give Dodd-Frank a chance. 

Maybe there are certain aspects of it that need to be reviewed, but 

that is true in any complex legislation. 

But I continue to say that I would hope that we would take a 

serious look. I joined Ms. Kaptur in H.R. 1489, to reinstate GlassSteagall. I think that, and I am not trying to interpret your words, 

but it seems to me that it would benefit us to at least have a hearing from experts, you being one, about the possibility of reinstating 

aspects of Glass-Steagall for certain types of banks. 

But with that, Mr. Chairman, I thank the Secretary for his answers to my questions very much. I yield back. 

Mr. DOLD. The gentleman yields back. 

The Chair recognizes the gentleman from Illinois, Mr. Gutierrez, 

for 5 minutes. 

Mr. GUTIERREZ. Thank you very much. 

First of all, I would like to go back to, how did you find out about 

the manipulation of Barclays and the LIBOR manipulation? How 

did you first find out about it? 

Secretary GEITHNER. As I said earlier, there was a lot of concern 

in the market and a lot of talk in the financial markets, much of 

which was ultimately published in major newspapers of record, 

about not just the potential that banks could misrepresent what 

they were paying to borrow, but that they were actually doing that. 

So we first learned about those concerns, at least I first learned 

about those concerns, in the early part or the spring of 2008, and 

we acted very quickly, Congressman, at that stage. 

Mr. GUTIERREZ. And you learned about it through published 

news reports? 

Secretary GEITHNER. No, we learned through a variety of ways. 

As you know, one of the things the New York Fed does is it spends 

a lot of time talking to people in the financial markets about what 

is going on. So it is a basis on those—on those reports, not just 

what was in the public, in the press. 

Mr. GUTIERREZ. Okay. And so what you did is—what did you do 

as a consequence of that publicly, or privately, in order to respond 

to what you were seeing were manipulations in the LIBOR rate? 

Secretary GEITHNER. First, we took a very careful look at whether there was any basis for those concerns, and we thought there 

was. 

Mr. GUTIERREZ. Okay. 

Secretary GEITHNER. And then we briefed the relevant members 

of the American financial oversight bodies, meaning the Treasury, 

the Fed, the SEC, the CFTC and others, and then we brought this 

to the attention of the British. 

Mr. GUTIERREZ. You wrote them a memo, didn’t you? 

Secretary GEITHNER. And we wrote them a detailed memorandum with very specific, detailed recommendations for how to fix 

it, and of course—and they responded affirmatively to those recommendations; said they shared the concern, supported the recommendations, and would pursue them. 

23 

Mr. GUTIERREZ. To the best of your knowledge, the investigation 

that led to the $453 million fine against Barclays and the continuing investigation began where? 

Secretary GEITHNER. That is a question you should refer to the 

CFTC, but I believe they have said publicly that their investigation 

began in roughly the same time period in April 2008. 

Mr. GUTIERREZ. So if we look at the investigation that leads to 

the fine, it begins at the moment in which you are made aware, 

as head of the New York Reserve, and carry out your responsibilities, and then you informed the Secretary of the Treasury, the job 

that you currently hold, of this situation. 

What was the response of the other major stakeholders in our 

markets, in the protection and the oversight of our markets, to 

your comments about this and your inquiry? 

Secretary GEITHNER. I believe they share our concerns, and, as 

I said, the British, too, share our concerns. And the concerns that 

we shared and those that were in the public domain at that time 

were a sufficient basis for the CFTC to initiate this very far-reaching investigation. 

Mr. GUTIERREZ. I want to ask about the annual report, which I 

am sure you are dying to get to. So identified risks to the financial 

stability of the United States, promote market discipline by eliminating expectation of government bailout, respond to emerging 

threats to the U.S. financial system. Tell us how are you doing? 

How is the Council doing? You agree that those are your three 

major goals? Or how are you doing? 

Secretary GEITHNER. I would say it is a little early still. I will 

tell you what I think the main challenge is. We have a very complicated system of financial oversight, which involves a lot of different agencies. They share a lot of responsibilities. And they are 

writing a set of rules that are very complicated by definition because the problems are complicated, and we have a huge interest 

as a country in making sure they do that stuff carefully with all 

necessary speed, but do so in a way where they are not creating 

new opportunities, new gaps in the systems, new incentives for 

people to move risk to where the regulations are softer. And that 

is the challenge. Congress did not give the Council the authority 

to override the independent jurisdictional authority of those agencies. Those are proud agencies. 

Mr. GUTIERREZ. Can you give us examples of measures you have 

taken to protect and ensure that there aren’t any—maybe I asked 

the wrong question. 

Secretary GEITHNER. Oh, I am sorry. I think you have to step 

back and look at the scale of the changes that have been put in 

place in our system not just by the measures we took in the financial emergency, but in the reforms that took place. 

Again, just to take two examples of that: $400 billion more capital in finances today. We moved much more aggressively than any 

other country at any other time in modern financial regulations 

that I am aware of to force these banks to hold much more capital 

against the risks they were taking. 

Mr. GUTIERREZ. That is in direct response to actions that the 

Council recommended be taken? 

24 

Secretary GEITHNER. And to the authority we have in the law 

and, of course, what we did in the crisis. 

The derivatives, complicated challenges in derivatives. These 

agencies have made major, major progress in laying out a sweeping 

set of comprehensive reforms that bring more transparency to 

those markets and give them new tools to combat manipulation 

and abuse. 

The Consumer Financial Protection Bureau, apart from the enforcement actions you have heard about in public, and apart from 

their new effort to bring supervision to nonbank entities in consumer finance so they are protected, too, they have taken very important steps to make mortgages and credit card forms easier to 

understand so that individuals can compete for better terms and 

are much more aware of the risks in borrowing. 

I think those are the best examples. The FDIC has put in place 

a very innovative framework with a huge amount of global support 

to implement this important objective of the law to make sure that 

when firms make big mistakes, we put them out of their misery 

with no cost to the taxpayer, with as little damage as we can to 

the rest of the system. They deserve a huge amount of credit for 

a creative, very innovative framework using the authority that 

Congress gave them. 

Those things in bank capital, in derivatives oversight, in consumer protection, in what some people call bankruptcy for large 

dumb banks, those things are very consequential, important reforms. 

We have a lot of work to do still, though. Housing finance system, a lot of work still to do in that context, a lot of rules still to 

be refined. 

Mr. DOLD. The gentleman’s time has expired. 

The Chair recognizes the gentlewoman from Illinois, Mrs. 

Biggert, for 5 minutes. 

Mrs. BIGGERT. Thank you, Mr. Chairman, and thank you, Mr. 

Secretary, for being here. 

Which regulator dropped the ball with regard to AIG? Which regulator was in charge of regulating AIG FP, which is the AIG division that engaged in the nonexistent risk management of its credit 

default swaps trading and led to its near collapse? Were State insurance regulators in charge of that, or was it the Federal holding 

company regulator of the OTS? 

Secretary GEITHNER. I do not believe there was any competent 

authority that was responsible and accountable for the broad consolidated entities of that very complicated global system. 

Now, you are right to say that the OTS did have some—somewhat broader responsibilities alongside of the States, but I do not 

believe that their authority extended to the type of comprehensive 

oversight that obviously would have been—was necessary. 

Mrs. BIGGERT. Who is regulating AIG right now? Earlier this 

morning, the TARP Special Inspector General issued a pretty 

damning report about AIG oversight. SIGTARP found that for more 

than 2 years, AIG has had no consolidated banking regulator of its 

noninsurance financial business, and the OCC is now responsible 

for regulating the AIG Federal Savings Bank, but that is a tiny 

25 

piece of the AIG operation, according to SIGTARP, but not the rest 

of the company. 

The Federal Reserve did not regulate AIG before the bailout and 

has not regulated it since. But the Fed could take over if 

SIGTARP—according to SIGTARP, that it would be the savings 

and loan holding company, but they don’t think that is going to be 

in existence too long. I take that back—that the Treasury—until 

the Treasury holds less than 50 percent of the—of AIG, then maybe 

the Fed could take that over. 

But meanwhile, AIG is engaged in security lending and investing, among other things, mortgage-backed securities. And this credit swap portfolio seeds $168 billion. So the proponents of DoddFrank say that the law was about ending ‘‘too-big-to-fail’’ and regulating the financial industry, that it has become too big. But yet 

after Dodd-Frank, there is no regulator for AIG. How is this possible? 

Secretary GEITHNER. What Dodd-Frank did, and this was very 

important, was it gave the United States the authority to designate 

a nonbank financial institution that could cause systemic—could 

cause broader damage to the system, like AIG, to give the Council 

the authority to designate those firms and give the Fed the ability 

to provide that broad, comprehensive oversight you referred to. And 

with that authority, the Council and its agencies are now carefully 

examining which of the firms out there that present that potential 

risk need to be brought within these broader, tougher constraints 

on capital and leverage. And the Council is in the process of doing 

that. It designated 2 weeks ago a set of financial market utilities 

for the same reasons, and it is looking very, very carefully not just 

at AIG— 

Mrs. BIGGERT. But they really haven’t done anything about— 

there is no oversight. Who is in charge of regulating AIG right 

now? 

Secretary GEITHNER. What the Congress does is give the Council 

and ultimately the Fed, if the Council designates that firm, that 

authority. And we are moving to put that in place. 

Mrs. BIGGERT. But does that mean that there is no regulator 

right now? 

Secretary GEITHNER. Under the laws of the land, that is true. 

That is the way our system works. That is why in Dodd-Frank we 

asked for the authority to make sure that we could designate. And 

we are going to make sure we use that authority carefully, but we 

are moving carefully because, as you know, and many of your colleagues referred to this, when you think about how to apply these 

rules to insurance companies, other types of institutions, you want 

to do it carefully. So we are moving carefully. But AIG is a dramatically different entity than it was in 2007. 

Mrs. BIGGERT. Okay. But in addition, SIGTARP said there is no 

plan to wean AIG off of TARP. Could your team please submit the 

plan to SIGTARP and to Congress? 

Secretary GEITHNER. I am happy to brief you, but let me just say 

it briefly. We have—our remaining financial exposure to AIG of the 

taxpayer is in the form only of equity now. We have sold a large 

chunk of that. We plan to sell as much as we can as soon as we 

26 

can because we want nothing more than recovering that taxpayers’ 

money. 

But I would say, just to remind the committee that on current 

estimates—and this is a remarkable thing—the taxpayer will earn 

a substantial positive return on the full scope of tens of billions of 

dollars of exposure we took to AIG to protect the economy from its 

failures. 

Mrs. BIGGERT. Would you submit a plan? 

Mr. DOLD. The gentlelady’s time has expired. If you can just get 

back in writing on any questions, that would be great. 

Secretary GEITHNER. Again, I am happy to respond and lay out 

our broad view of how we get out of our remaining exposure. 

Mr. DOLD. The Chair recognizes the gentlelady from New York, 

Ms. Velazquez, for 5 minutes. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

And thank you, Secretary Geithner, for your service. 

Some stakeholders have found that the LIBOR manipulation enriched the largest banks to the detriment of community and regional banks. As you know, community banks are a significant 

source of small business lending, and we have dealt with this issue 

since 2008, the lack of access to capital for small businesses, and 

as a result we passed the small business lending bill. Some firms 

have estimated that U.S. community banks sustained $448 million 

in damages for that year alone. 

My question to you is: How does an artificially low LIBOR rate 

hurt small banks that operate on slim profit margins and rely more 

on interest income than large banks? 

Secretary GEITHNER. That is an issue which a lot of people are 

taking a very careful look at. And it is a matter of litigation and 

ongoing review by the bunch of agencies that should be taking a 

look at it. And I think it will take a little time for them to give 

you a good answer to that basic question, but I am sure they would 

be happy to do that. 

Ms. VELAZQUEZ. Roughly $10 trillion in loans are indexed to 

LIBOR, affecting the cost of many financial products including 

mortgages and small business loans. What impact will the LIBOR 

scandal have on access to credit for small businesses? 

Secretary GEITHNER. I don’t think it will have any material impact on access to credit for small businesses. 

Ms. VELAZQUEZ. So, Mr. Secretary, how do we restore public confidence in the financial sector? 

Secretary GEITHNER. We do it by making sure we put in place 

tough rules. We give people the resources and authority necessary 

to enforce those rules, and where the responsible agencies find evidence of bad behavior, they should be punished for it. 

That is what it is going to take, and I would just say the obvious. 

We, as the financial market of the United States, and those institutions that dominate it, obviously have a long way to go in restoring 

the trust and confidence of the American people and their ability 

to protect consumers and manage the risks they face. 

Ms. VELAZQUEZ. Okay. Thank you, Mr. Chairman. 

Mr. DOLD. The Chair recognizes the gentleman from California, 

Mr. Miller, for 5 minutes. 

Mr. MILLER OF CALIFORNIA. Thank you. 

27 

Secretary Geithner, welcome. It is good to have you with us 

again. 

FSOC asked the Office of Financial Research to conduct a comprehensive study on the asset management industry, analyzing the 

extent to which such firms might pose systemic risk, and we sent 

you a letter in mid-June, and you haven’t had time to respond to 

that, but I would like to ask some of the questions that we put to 

you in the letter. 

What process is the OFR using to receive formal input from the 

asset management industry and other groups, and when do you anticipate the OFR will conclude the study? 

Secretary GEITHNER. I don’t know where they are in the process. 

I know they are making a lot of progress on it, and it is an important thing to do, in part because the Council has to figure out what 

to do with their designation authority for that mix of institutions, 

if anything. And what they are doing right now is taking advantage of all of the public information available about the risks, instruction in those institutions, what it means for the system, and 

they are going to be able to take advantage relatively quickly of the 

new disclosure requirements, reporting requirements, that the law 

passed in that context. 

But they are making progress, and I welcome your attention to 

it, and we would be happy to— 

Mr. MILLER OF CALIFORNIA. Maybe you can respond to it in a letter. We don’t have time today. 

Section 175 of Dodd-Frank requires the FSOC to confer with foreign regulators regarding global SIFI regulations. And global SIFI 

regulations crafted without effective international coordination will 

likely increase costs, confusion, and complexity. Even worse, they 

may be contradictory or harmful to the purposes of systemic risk 

which you have to deal with. 

What are you doing to ensure that global SIFI oversight is coordinated with foreign regulators and does not become worse, contradictory to foreign regulations; and if there is not global coordination, what impact could that have on the U.S. economy? 

Secretary GEITHNER. Briefly what this—what your colleague is 

referring to is the requirement that we have negotiated globally to 

put on the largest firms higher capital requirements against the 

risks they hold. So they are forced to hold more capital against risk 

than a smaller institution. That seems sensible and fair given the 

risk they pose to the system. 

Now, what we did is negotiate uniform rules. That is not enough, 

because you want to make sure they are enforced on a common 

basis, and that is a very challenging process to have a level playing 

field. So what the Fed is doing is trying to work out, with other 

supervisors and central banks, are ways to make sure that the 

rules are enforced in a consistent way. 

Mr. MILLER OF CALIFORNIA. Are you applying that to foreign regulators also? 

Secretary GEITHNER. Exactly, and they are part of that process, 

too, because, of course, everybody wants there to be a level playing 

field. 

Mr. MILLER OF CALIFORNIA. If we don’t, it is going to be a detriment to our economy. 

28 

Secretary GEITHNER. Exactly. Like in this area and many others, 

if you end up raising standards in the United States and leaving 

them lower and weaker outside the United States, then risks will 

just shift to those markets, and that will ultimately hurt us, too. 

Mr. MILLER OF CALIFORNIA. Recent rulemakings by the Fed that 

apply to insurers include the Fed’s recently proposed capital standards implementing the Basel III and Collins amendment. The big 

criticizers consider it to be bankcentric and unworkable. What actions do you think the Fed potentially needs to take to ensure that 

they are treating insurers as insurers and not banks? 

That is a tremendous concern from the insurance industry today, 

that they are getting into an area the Feds were never authorized 

to get into. Yet, it looks like the way the language is coming out, 

it is going to splash over, and it should not. 

Secretary GEITHNER. I am aware of that concern, and what the 

Federal Reserve has said in response to that concern is that they 

recognize that if they were in a position where they had to apply 

these broad standards on capital and leverage to a financial institution, that includes an insurance company, they would have to 

make some changes to it to recognize the specific differences in the 

insurance business from banking, and that makes sense. 

So they understand that, and they are taking a look, a careful 

look at it, and they have a team of people looking at how it would 

need to be adapted if in the end, as your colleague just referred, 

the Council decides to designate, for example, AIG, as just one example. 

Mr. MILLER OF CALIFORNIA. I guess the question—if I can be direct, it will probably relieve a lot of concern by the industries—do 

you agree that capital standards need to be appropriately recognized, and the difference between banks and insurance companies 

absolutely needs to be defined where they don’t splash over and 

one encompasses the other? Because I have been meeting with 

more and more bankers and insurance companies, but the insurance sector is extremely concerned that this splash-over that they 

are seeing out there is going to have a hugely detrimental impact 

on their organizations, and they are absolutely unprepared for it. 

Secretary GEITHNER. I agree with you that they have to be 

adapted and modified, probably not just in the capital area, too, 

and I think the Fed shares that view, too. 

I am actually much more confident, though, that they are going 

to be able to—if they are faced with that need, that they are going 

to be able to do it in a way to mitigate those concerns. 

Mr. MILLER OF CALIFORNIA. And you agree those concerns need 

to be mitigated? 

Secretary GEITHNER. Absolutely, and I think they can be. 

Mr. MILLER OF CALIFORNIA. I would like to see that implemented 

beyond—I understand your statement, and I agree with that, but 

I would like to make sure that it is implemented. 

I yield back, thank you. 

Mr. DOLD. The gentleman yields back. The gentleman from 

North Carolina, Mr. Watt, is recognized for 5 minutes. 

Mr. WATT. Thank you, Mr. Chairman, and I thank the Secretary 

for being here. 

29 

Mr. Secretary you have gotten a lot of questions about LIBOR, 

and I think that is important because it obviously affects rates at 

which individuals are able to get loans, so I don’t want to minimize 

the importance of it. But I don’t want to dwell on that. I actually 

want to deal with two other things that are significantly important 

in my community, one of which you referenced on page 4 of your 

testimony where you said the Council recommends a set of reforms 

to address structural vulnerabilities, particularly in wholesale 

short-term funding markets, such as money market funds. 

A lot of my constituents have funds invested in money market 

funds, so I am wondering if you would just send me or tell me 

where I can access what these recommended reforms are so that 

we can take a closer look at them. I won’t dwell on that either, but 

that is important also. 

What I do want to dwell on is automobile dealerships because 

the Special Inspector General for the Troubled Asset Relief Program came out with a report. I understand that you all are disputing some of the conclusions that they reached, but the facts are 

hard to dispute, and those facts suggest that by June 10, 2009, 

Chrysler had terminated 789 dealerships, and General Motors had 

wound down 1,454 dealerships. 

That has a significant impact in all of our congressional districts. 

I want to approach it from the minority perspective, because the 

statistics indicate that the number of ethnic minority dealers was 

disproportionate in the number who were terminated, and that African-American-owned automobile dealers were hit the hardest 

with a decline of 50 percent, from 523 dealerships owned to 261. 

A number of those were in my congressional district. When I was 

practicing law 20 years ago, I had five African-American-owned 

dealerships in my congressional district that I represented. They 

don’t exist anymore. 

So my question to you is what leverage, if any, do we still have 

with these automobile companies to leverage them into being more 

aggressive in rebuilding those minority-owned—or at least in the 

new dealerships that are being opened, giving some preference, as 

they had been historically, to minority dealerships? 

Secretary GEITHNER. I would be happy to think about that question more and come back to you on it, and I understand your concern with it. I would say that we have been, and the President has 

been very clear that even though as part of our effort to save this 

industry in the crisis, we ended up owning, and still own GM, so 

a significant amount of common equity, we have been very careful 

not to get in the business of running those institutions. 

Mr. WATT. I understand that. I am not criticizing. I think it was 

wonderful that we bailed out the automobile industry. We wouldn’t 

have a domestic industry if we had not done that, in my opinion. 

So I am not questioning that. 

The Inspector General says the government has had quite a role 

in pushing the termination of these things. I guess what I am asking for is you to give some thought to how we can now go back and 

help to restore. And we can talk more offline. I think my—I have 

10 seconds left in this 5-minute interval here. 

So we can talk more. I just want your commitment to brainstorm 

with us about how we might be able to address this problem. 

30 

Secretary GEITHNER. You have my commitment. 

Mr. WATT. I yield back. 

Mr. DOLD. I thank the gentleman. 

The Chair recognizes the gentleman from New Jersey, Mr. Garrett, for 5 minutes. 

Mr. GARRETT. And I thank you, Mr. Chairman and Mr. Secretary. 

Mr. Secretary, I hear all of the whispers on the LIBOR situation. 

You really can’t have your cake and eat it, too. You have been before this committee countless times since 2008, and if this is the 

crime of the century, as so many people are reporting it to be, 

never once did you ever come and mention it as being a problem. 

Never once did you come here and say this is what you are going 

to do about it. Never once did you say these are the new regulations that you would propose for Congress to take. 

You worked with this Administration during the last Administration with the ranking member trying to pass a 2,300-page DoddFrank piece of legislation. Never once during that entire discussion 

did you say this was a huge problem or a medium-sized problem, 

and we think this should be included in there. You never did that 

during the last 4 years, and now it comes out that this is the crime 

of the century, and something needs to be done about it. 

Chairman Bachus raised the issue and asked, why did you, 

knowing these problems, knowing the falsifications, go on working 

with the Fed, and set up these bailout programs with the AIG situation, where the—where you use LIBOR in there, and work with 

the benchmark in TALF? 

In essence, what your answer in all of those areas is, we are just 

like every—what did you say exactly? We did what investors did 

elsewhere. We are just like investors around the world. 

Mr. Secretary, you are not like investors around the world. You 

are the Secretary of the Treasury of the United States of America. 

You had the authority for 4 years to come to us, lay out the problem, and lay out the solutions. And for 4 years, you didn’t do anything about it. 

Now, the banks may have made problems, and I am not defending them for 1 minute, but we are looking to the Secretary of the 

Treasury not to come in after the fact and do what every other regulator has done, and that is to point the finger at someone else. 

You also said, when people do wrong things, they should be punished. In the private sector, that occurred. If a private bank did 

something wrong, they have been punished in this situation to the 

tune of hundreds of millions of dollars. Someone lost their job because of this. When is something going to happen with the regulators who did something wrong here? When is something going to 

happen to the regulators who didn’t catch this, didn’t do anything 

about it, didn’t change regulations, didn’t tell anybody in Congress. 

Will they be fined? Will any regulator from the top down lose their 

job, Mr. Secretary? 

Secretary GEITHNER. Congressman, in my judgment the regulators did the necessary, appropriate thing in this context, and they 

started that process very early. 

Mr. GARRETT. You told Congress about this? 

31 

Secretary GEITHNER. No, well, let me explain what we did. 

Again, what we did—and, again, these concerns were in the public 

domain, a matter of public record. 

Mr. GARRETT. Okay. I understand. 

Secretary GEITHNER. No, that is not what I am saying. I am saying that we did not take full responsibility for this having looked 

into these concerns and believed they were a problem, we took the 

initiative to brief the broader regulatory community, so they had 

that information even though it was in the press, and we pushed 

the British to resolve it. We did that very early. We did that very, 

very quickly. 

Mr. GARRETT. Did the regulators implement any changes on the 

banks in this country with regard to their reporting this information, or their divisions, between their trading and their reporting 

information, did the banks take any action to make sure that this 

information, when you set up these new programs, that you were 

guaranteed, that you were assured that now the problem has been 

solved? 

Secretary GEITHNER. Again, the two things that happened—and 

as I said in my other remarks, there is going to be more that is 

going to have to happen—is the British set in motion a set of reforms. 

Mr. GARRETT. I am not asking about the British. 

Secretary GEITHNER. I am coming to that. 

And the CFTC initiated at that time a very far-reaching, confidential investigation that ultimately included the SEC and Justice, and as you have seen, it resulted in a very tough, appropriately tough, enforcement action. That is the way our system 

works, and that is the way it should work. 

Mr. GARRETT. By the way, that is the same Justice Department 

that the chairman asked you whether you notified, and you indicated that they were not at the table, so you did not notify them. 

I am just taken aback by the fact that there is always so much 

finger pointing by the regulators after the fact. 

But let me now just turn to what you are here for today, and 

that is the nonbank SIFI designation. So we have the SIFI designation with regard to the banks. What are we seeing as the result? 

So we have the—those with over $50 billion of assets have been 

designated ‘‘too-big-to-fail.’’ We have seen a doubling down in size 

of this, the consolidation of the industry. Why does that occur? Because they know with the designation of ‘‘too-big-to-fail,’’ they are 

going to find their funds are cheaper. There is going to be consolidation in the industry. Why in the world would we want to extend 

this consolidation, this problem, to the nonfinancial sector? 

And I will just close with this: I think it is the wrong way to go. 

I will be dropping legislation in to try to prevent this. There is no 

reason to look at asset management firms, insurance companies, finance companies and designate them as ‘‘too-big-to-fail’’ and spread 

the problem that we have in the banking sector over to this sector, 

and allow them to get cheaper funding because of this, allow them 

to swallow up their lesser entities. Why would you want to do that? 

Secretary GEITHNER. We have no intention of doing that. The law 

does not allow us to do that, and we would not want to do that for 

the reasons you said. And I don’t think you are—I respect your conVerDate Nov 24 2008 17:10 Apr 11, 2013 Jkt 076122 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 K:\DOCS\76122.TXT TERRI
32 

cerns, but I don’t think you are right to believe that designation 

itself will confer a financial advantage, and let me just explain 

why. The purpose of this authority is to make sure that institutions 

that could threaten the broader economy are required to hold capital against risk, and hold more capital against risk than other institutions than the market would force them to hold. 

I think if you listen carefully, if you look carefully at the markets 

now—there is a debate about this right now—you will find it hard 

to justify the view that designation is something firms would welcome, that it will come with an advantage. In fact, many of your 

colleagues are spending a lot of time trying to prevent us from designating firms because they are worried it will come with constraints that will be tough on them. 

But I understand your concern, respect your views on it, and we 

can debate this a long time. I am sure we will in the future. 

Mr. GARRETT. I yield back the balance of my time. 

Mr. DOLD. Thank you. 

The Chair recognizes the gentleman from California, Mr. Sherman, for 5 minutes. 

Mr. SHERMAN. I am trying to understand what is going on here. 

British banks lied to the British Bankers’ Association. The Bank of 

England and other British regulators screwed up and didn’t catch 

them even though they got extraordinary outside help from an 

ocean away. And so since the British, some British bankers, lied 

and some British regulators screwed up, the solution is obvious: We 

have to blame America. In particular, we have to find some American we can blame, preferably one of the opposite political party. 

I, for one, am not part of the ‘‘blame America first’’ crowd. What 

happened in London has caused an awful lot of private contracts, 

mortgage—adjustable-rate mortgages, et cetera, to be off by perhaps a half a dozen or a dozen basis points. That is not a huge outcome for any one individual consumer, and in many cases the consumer benefited. And some consumers and ordinary investors were 

hurt. 

But today we have attorneys, American attorneys, who have 

forms. They have mortgage forms, they have contracts, and they 

have all got plugged in there LIBOR, one or another kind of 

LIBOR. And it is natural for them to want to have a dollar-denominated, interest-rate-sensitive adjustment mechanism in their contracts, but I think now most of them would prefer to have one that 

is not a result of a few private actors acting privately. They would 

prefer to have a government-released rate, or maybe one that is 

tied to a public market, auction market, that is so broad that it 

can’t be manipulated. 

A few in my own party have suggested that I return to the practice of law, and therefore, when I get—go back to my old forms, and 

they say ‘‘LIBOR,’’ what alternative benchmarks are available? 

Secretary GEITHNER. We are, and everybody else is, taking a 

very good look at just that question, and there are lots of potential 

alternatives to this. The challenge, though, is not finding a rate 

that captures the government’s cost of funds; the challenge is trying to figure out what is the way to capture the credit risk and exposure to a bank. 

33 

The right people are taking a look at just that question, and they 

are going to do it carefully and look at all of the alternatives, and 

they will brief us and brief you as they go through that process. 

Mr. SHERMAN. I would hope very much—one of the things they 

like the Federal Government to do is weights and measure, and it 

would be great if you could release this. And there are going to be 

court cases where people go in and seek modification of contracts, 

prospectively or retroactively, and it would be great if judges can 

turn to the Secretary of the Treasury and say, when the parties 

agreed to LIBOR, they didn’t agree to something private and subject to manipulation. And the thing that isn’t subject to manipulation, that is closest is a report that I look forward to getting from 

your Department. 

In your opening statement you said, as we move forward, we 

must take care not to undermine the housing market, which is 

showing signs of recovery, but is still weak in many areas. A few 

have suggested that one of the great things we could do for the 

Federal Treasury is to eliminate the home mortgage deduction and 

eliminate the property tax deduction. That would no doubt drive 

housing prices down, and I wonder whether a decline in housing 

prices would be bad for the economy, bad for the deficit, but particularly bad given the fact that today we are not just a government. You happen to own a couple of large companies, Fannie Mae 

and Freddie Mac, and obviously, if home prices go down, foreclosures go up, and the loss on each foreclosure goes up. 

So obviously, home mortgage, losing the home mortgage deduction would bring in some money, but what effect would it have on 

the Federal Government through its effect on the economy, and 

Fannie and Freddie? 

Secretary GEITHNER. I think you were right in describing the effect, and I think that it is important to remind people that we have 

a very long way to go to repair the remaining damage in the housing market. And I think our overwhelming obligation now still is 

to be doing everything we can to give people a chance who can afford to, to just stay in their homes, transition to other types of 

housing opportunities, take advantage of short sales, and repair 

and heal the terrible damage still out there. 

That has to be our overwhelming responsibility still, and we are 

going to continue to use all of the authority we have, but also to 

encourage Congress, like we have, in considering legislation to 

make it easier to refinance if you are underwater, do things which 

would help our broader objective. We need to be very sensitive to 

it still. And, of course, as we do those things, we want to make sure 

we are not making the long-term problems worse for the country 

and the taxpayer, and we will be very attentive to that, too. 

Mr. SHERMAN. Thank you. 

Mr. DOLD. The Chair recognizes the gentleman from Texas, Mr. 

Neugebauer, for 5 minutes. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

Mr. Secretary, it is good to have you back. 

Mr. Secretary, I want to go back to April of 2008, and I think 

that is when you were President of the Federal Reserve Bank in 

New York, you first addressed or started addressing the issue of 

LIBOR. Now, were you aware in the fall of 2007 that some inforVerDate Nov 24 2008 17:10 Apr 11, 2013 Jkt 076122 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 K:\DOCS\76122.TXT TERRI
34 

mal emails were coming into the New York Fed saying that there 

was something up with LIBOR? 

Secretary GEITHNER. Congressman, I do not believe that I was 

aware of those specific concerns before that period, roughly in the 

spring of 2008. But in response to your request and others, the 

New York Fed, my colleagues are going back and looking at the full 

range of things available, and we will share that with you, make 

sure you have that. 

Mr. NEUGEBAUER. And I was looking at your response back to 

the Bank of England about this disclosure, and basically I thought 

what you made in I think it was five or six bullet points there, 

some structural recommendations of how maybe LIBOR could be 

more reflective. 

But here is my issue with that. If they were having structural 

problems, I thought your email was appropriate. But what was 

being disclosed here was fraud, that this rate was being manipulated. Mr. Dzivi, who is the—I guess he was the Special Counsel 

for the Federal Financial Crisis Inquiry Commission—said the regulator has an obligation to make a criminal referral if he suspects 

a crime may have occurred, and how manipulating LIBOR didn’t 

rise to that level is a little puzzling to him, and it is a little puzzling to me. 

Secretary GEITHNER. I think you should think about—I thought 

about this in two different ways. One is you had a rate set in London overseen by the British Bankers’ Association, which, because 

of its design, created not just the incentive to underreport, but the 

opportunity to do that. 

That was a problem for a lot of different reasons, including the 

opportunity it created for fraud and manipulation, not just underreporting. So it was very important that there be an effort to fix 

those problems in the rate, and, of course, our first instinct, as you 

might expect, at that point was to go to the British, and they said, 

we agree with you. We are on it. 

Now, we didn’t know whether that was going to be sufficient or 

not, so we also did, I think, the appropriate thing. Again, we did 

it at an early stage, even though these concerns were in the press. 

And we went and briefed the relevant authorities with enforcement 

authority and responsibility for fraud and manipulation so that 

they would have the ability to choose whether to act on those concerns. And we thought the combination of the concerns in the public domain and the efforts we took directly with them provided 

more than enough basis for action. So not just reform the structure 

of the rate, but to pursue the behavior that was obviously so consequential. 

Mr. NEUGEBAUER. I talked to Mr. Gensler, and he said really 

where they got their information to proceed was not from the New 

York Fed, but basically from The Wall Street Journal article that 

prompted them to open up an enforcement action. 

But, it wasn’t just a British problem. You know well, and you 

have been involved in the financial markets for a very long time. 

You are very knowledgeable. You had to know that manipulating 

LIBOR wasn’t a small impact. There were people on the buy side 

and the sell side. Some people benefited, but some people were losers because of that. And a lot of financial transactions, as one of 

35 

my colleagues mentions, are tied to that and indexed off of that. 

And the outcome of that transaction is based on that. So, there are 

domestic U.S. banks that are a part of that. 

Secretary GEITHNER. Absolutely, I agree with you. This rate had 

implications for not just the United States, but for financial markets around the world and currencies. 

Mr. NEUGEBAUER. The world. 

Secretary GEITHNER. And that is why we did what we did. We 

did not view this as something that was some small, life-related 

problem with the impact limited to London in that context, and you 

are exactly right. 

So, again, what we did was try to push them to fix it, reform it— 

‘‘fix’’ is a bad word in this context—and to make sure that the U.S. 

enforcement agencies and authorities were able to focus on— 

Mr. NEUGEBAUER. I am going to interrupt you there just a 

minute, because—after the June memo, did you ever follow up and 

say, hey, what have you guys done since our last conversation or 

our last memo? 

Secretary GEITHNER. We did, and my colleagues did. And the 

British Bankers’ Association at three separate points, I think, after 

we acted in this context announced some changes to that process. 

But obviously, we don’t think they went far enough. 

Mr. DOLD. The gentleman’s time has expired. 

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

for 5 minutes. 

Mr. MEEKS. Thank you, Mr. Chairman. 

Mr. Secretary, I want to go back to something in the area of 

what Mr. Sherman was talking about. I understand and agree that 

LIBOR is very important, but what I have found to be a continuing 

divide between—is Wall Street and Main Street. And you touched 

on it previously, in answer to Mr. Sherman’s question, that there 

is a lot to be done for those individuals who are underwater in 

mortgages and that whole area. 

I believe we did the right thing when we did TARP, but there 

are a lot of questions now with reference to—and here is what 

Main Street says: ‘‘Well, we helped out others; what happens to 

me? Why can’t we get a hand up on this stuff?’’ 

Recently, I saw in the New York Times there was some, I think, 

out-of-the-box type of proposals, one of which where governments 

have used the legal doctrine of eminent domain. And people look 

at it generally in real estate or in property, but using eminent domain to purchase underwater mortgages at a fair-market value, 

then work with private investors to reissue new mortgages with 

smaller balances to homeowners. In so doing, homeowners would 

no longer be underwater and would be able to repair their credit 

rating so that they would not be—not likely default, and thus new 

investors would be repaid, and the taxpayers won’t be involved. 

There won’t be anything added to the budget. 

So my first question is, to me, that sounded like somewhat outof-the-box thinking. Have you, or the Administration or Treasury 

thought about—what do you think about that kind of proposal? 

And if you are not thinking about this in particular, what kind of 

out-of-the-box thoughts do you have to help homeowners? 

36 

Secretary GEITHNER. We are carefully looking at exactly that 

proposal. It raises a lot of complicated legal and policy questions, 

but we have to look at those carefully in this context. 

I do think it is important to recognize that there is a broad range 

of other tools available for States, probably because we have helped 

them by providing them money through the Hardest Hit Fund, 

available to the GSEs themselves, Fannie and Freddie, within existing authority, to provide principal reduction to homeowners who 

are deeply underwater, but can afford to make payments if their 

mortgages are modified in that context. 

We have been very supportive of those programs and the programs we administer under HAMP, and we have encouraged the 

other agencies to take advantage of those things, and we are going 

to continue to do that. But we will carefully look at those proposals 

and look at all of their implications. 

Mr. MEEKS. Because clearly, and you mentioned HAMP, which 

has been a good program, but too many people have not been able 

to take advantage of it. And, too many are still suffering. And part 

of that same piece, Wall Street, Main Street, is banks lending 

money. 

There was another article that was in The Wall Street Journal, 

I think it was by Alan Blinder, where he was talking about an effort to get banks to lend money again. And he talked about the central banks in Europe cutting their interest they pay on excess reserves to zero; that the Danish cut it to a negative 0.2 percent, 

meaning banks have to pay the central bank to keep reserves with 

them; and that this was a powerful incentive to either lend or— 

have the bank to either lend money or put money into the markets. 

Now, you work closely with the Federal Reserve. Do you think 

a policy or something like that would be beneficial if it was implemented here, and would it help our economy? 

Secretary GEITHNER. Congressman, I want to be very careful not 

to comment on the authorities the Fed has or how to use them just 

in respect of the independence of the Fed. But I will tell you my 

general view on this. The economy is not growing fast enough. Unemployment is very high. There is a huge amount of damage left 

in the housing market. Americans are still living with the scars of 

this crisis. 

The institutions with authority should be doing everything they 

can to try to make economic growth stronger. That is an obligation 

we all share. Congress, under the Constitution, has the authority 

for the most powerful tools we have available to help economic 

growth. We would like Congress to use those tools now in this context. And, again, we will keep supporting anything practical, sensible that would make growth stronger; help get more people back 

to work; help make credit more available to people, not just to buy 

a home or to refinance a mortgage, but to make sure businesses 

can expand to meet growing demand for their products. 

We made a lot of progress doing that. Lending to small businesses is growing. Lending to the overall economy is growing. It is 

shrinking in Europe still. It is growing in the United States because of the things we did. But we have a lot of work to do, and 

I think that given the damage remaining from this crisis, the obliVerDate Nov 24 2008 17:10 Apr 11, 2013 Jkt 076122 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 K:\DOCS\76122.TXT TERRI
37 

gation we all share still would be to do as much as we can to make 

sure we are getting growth stronger. 

Mr. DOLD. The gentleman’s time has expired. 

The Chair recognizes the gentleman from North Carolina, Mr. 

McHenry, for 5 minutes. 

Mr. MCHENRY. Thank you, Mr. Chairman. 

Mr. Secretary, thanks for being here today. 

Just to note for the record, about Vice Chairman Hensarling’s 

and Congressman Garrett’s line of questioning about the LIBOR 

issue, it was about 3 months later that—after you, the LIBOR 

issue came to note, and you shared this information that you 

agreed to the AIG credit line that was tied to LIBOR. I just want 

to note that for the record. The taxpayers are on the hook for that, 

$85 billion. 

So, Mr. Secretary, the unresolved eurozone debt crisis obviously 

had a severe consequence for the global economy. Do you agree? 

Secretary GEITHNER. Oh, absolutely. 

Mr. MCHENRY. That has an impact on the American economy; 

does it not? 

Secretary GEITHNER. It has already had a significant impact in 

slowing growth here and around the world, yes. 

Mr. MCHENRY. A significant impact. 

Secretary GEITHNER. Yes. 

Mr. MCHENRY. So in the FSOC report you say concerning the 

Spanish fiscal performance—concerns about the Spanish fiscal performance have persisted, fueling doubts about the prudence of adhering to strict budget targets amid deepening recession. And as a 

result, euro area finance ministers agreed to a relaxation of Spain’s 

fiscal targets and assistance to recapitalize its troubled banking 

sector. Market reacted adversely to this. 

It seems to me that Spain is proof positive that relaxing fiscal 

targets and spending more money just doesn’t work. So would 

Spain be better off had they maintained or adhered to more austere 

fiscal targets? 

Secretary GEITHNER. My own view is that the actions the Spanish Government is taking and the strategy that the Europeans support in that context is moving in the right direction. Let me just 

explain why. You are right to remind us all that if you have 

unsustainable deficits over time, and you leave them unaddressed, 

it is going to hurt you economically, absolutely. We agree with that. 

But when you are in recession, as Europe is, or even if you are in 

a period where growth is still slow, you want to be very careful 

that when you are putting in place reforms to address those longterm questions of sustainability, you do so where they are phased 

in gradually over time, and they aren’t making the growth challenges worse. 

Mr. MCHENRY. Sure. 

Secretary GEITHNER. The balance is going to differ across countries. What is appropriate for Spain now would be very different 

than what is appropriate for Italy, and certainly no comparison to 

what is appropriate for us. 

Mr. MCHENRY. Do you believe that the issues in the eurozone are 

going to get worse before they get better? 

38 

Secretary GEITHNER. It depends on the choices they make going 

forward. Again, they are doing a set of important, necessary, tough 

things on the reform side to make their economies work better, 

more competitive, but also to make sure that the institutions of Europe over time create better fiscal disciplines and better management of their financial systems, which got very big and very risky, 

very leveraged. But in the near term, they are going to have to do 

more to make sure there is confidence in their markets and banking systems, and those countries that are doing these right things 

face lower borrowing rates. 

Mr. MCHENRY. Of note, though, of interest, which is there might 

be a parallel, there may not be, but U.S. public debt as a percentage of the GDP is greater than it was in Spain, when their 10-year 

Spanish sovereign jacked up to 7 percent when all of this action 

took place. 

So do you think that the market is already discounting sort of 

the adverse consequences of the eurozone crisis on the world economy? 

Secretary GEITHNER. There is no way to know that. You just 

can’t tell. You know what markets do, and you know markets get 

things wrong. 

Mr. MCHENRY. You only can tell in looking back, right? 

Secretary GEITHNER. And even then you can’t really tell. What 

you can tell is the market every day is making a new assessment 

about whether the European leaders are going to do enough to hold 

it together. They have committed to do that. They have said that 

is their intention, their plans. They have the ability to do that, 

but— 

Mr. MCHENRY. But my question to you with the time remaining 

is what is the Obama Administration’s plan that you are putting 

forward for the eurozone debt crisis? I know there have been numerous summits. You are frequently there. You are spending a significant amount of time on a significant problem; are you not? 

Secretary GEITHNER. I am. 

Mr. MCHENRY. Okay. So do you have any plans, like a Bretton 

Woods-style large action by the world to take on this issue? What 

is the Obama Administration’s plan? You said it has a significant 

impact on our economy. What is the significant plan you are putting forward to take on and to actually show some leadership on 

this? 

Secretary GEITHNER. As you know, and as the European leaders 

have said in public, we have played a very active role in encouraging them to move much more aggressively to contain the damage 

from this crisis. And we have been careful to help where we had 

the ability to help in that context, mitigate the pressure on us, we 

have done that. The Fed swap lines are one example of that. We 

have also been very supportive of the IMF in some circumstances 

coming in, and on tough conditions for reform, providing some assistance in that context, and we will continue to do that. 

But fundamentally this is—the solutions to this problem are 

going to have to come from the Europeans. They are the ones who 

are going to have to finance it. They are the ones who are going 

to have to agree on it. It has to fit with their politics and their economics. 

39 

We can’t want this more than them. What we can do is what we 

are doing was try to put—pressure is the wrong word—to put—I 

will use it—to put as much pressure as we can on them to move 

more quickly and credibly to address this because of the implications for us. 

Mr. DOLD. The gentleman’s time has expired. 

The Chair recognizes the gentleman from Massachusetts, Mr. 

Capuano, for 5 minutes. 

Mr. CAPUANO. Thank you, Mr. Chairman. 

Thank you, Mr. Secretary, for being here. 

Mr. Secretary, we have heard a lot of people now who obviously 

think—some people think you didn’t do enough in 2008, and that 

is great. But it kind of strikes me that these are the very same people who thought you were doing too much probably most of the 

time. They don’t like any regulation. They are currently undercutting and defunding the SEC and the CFTC and others who do regulation. They argue against every regulation on everything, no 

matter what it is, particularly in the financial services industry, 

and they learned nothing from 2008. 

Do you think that is really the best way to move forward? What 

would you say to people who say that now that—we are not happy 

with what you didn’t do before, but now we don’t like what you are 

doing now? 

Secretary GEITHNER. I don’t know what to say to them except to 

say, as you did, that we have had compelling, overwhelmingly compelling evidence in the financial crisis of the damage you can do to 

the average American when you allow a system to outgrow any 

sensible set of protections and safeguards for consumers, et cetera, 

and that is what happened to our country. And the responsibility 

of this body and of the Executive Branch is to make sure we put 

reforms in place that prevent that from happening, and that is 

what we are working so very hard to do. 

And as you said, we are facing enormous opposition to doing 

that, and we are going to work against that because we are going 

to make sure these reforms are tough. But, again, you need to not 

just have good design, tougher rules and protections; you need to 

have agencies— 

Mr. CAPUANO. Do you think the word ‘‘hypocritical’’ might be appropriate here? 

Secretary GEITHNER. I would leave that to others to say. But, 

again, as I said in my opening statement, we need the support of 

this committee and this Congress to put these rules in place and 

to make sure these agencies have the resources they need to enforce them. 

Mr. CAPUANO. On another matter, Mr. Secretary, I am just curious, do you agree with Moody’s comments that they made on June 

21st of this year when they downgraded 15 financial institutions? 

On page 14, and this is a direct quote from the page, ‘‘We believe 

the FDIC—and I assume they mean others—remains committed to 

achieving the goals set out in Title II of Dodd-Frank, including ending bailouts of too-big-to-fail institutions.’’ 

Do you agree with the Moody’s assessment? 

Secretary GEITHNER. I will say it this way. I try to never comment on those reports, for obvious reasons. But what they point 

40 

out, as your colleagues have done today, is to remind people that 

under these reforms, Congress has limited very significantly the 

ability of the Government of the United States to in the future 

come in and protect an institution from its failures. 

And for that reason, if you look at the financial markets today, 

there is much less confidence in markets—and this is a good thing, 

fundamentally—that Congress or the Administration in the future 

would come in and protect them from their mistakes. And that is 

a good thing, and you are right to highlight it. 

Mr. CAPUANO. It also strikes me, on another matter, that some 

of the very same people who voted to repeal the Glass-Steagall Act 

are also the ones complaining that some banks are getting bigger 

today. I happen to agree with them; I voted against that repeal. 

And I wish they had voted against that repeal, as well, but they 

didn’t. 

Obviously, the LIBOR matter can’t be ignored today, and I don’t 

intend to ignore it. But I am not interested in rehashing history because that will come out over the next several months as to what 

was done and what wasn’t. This isn’t the place for it. 

But, nonetheless, I will tell you that since we passed DoddFrank, in just the last year or so, we have had the MF Global 

issue, we have had Capital One having a significant fine, and now 

we have seen Barclays has agreed to a $450 million fine. All those 

numbers are big, but $450 million to Barclays is about 1 percent 

of their annual revenue. So it is interesting, it is a good number, 

but it is not the kind of number that is going to change anything. 

And yet, on page 9 of the executive summary of FSOC’s report, 

you, I think quite properly—or the drafters quite properly point 

out, ‘‘The vulnerabilities in the financial system can be grouped 

into three broad classes.’’ They do one and two. The third class 

states, ‘‘and behavioral vulnerabilities, the incentives to take too 

much risk.’’ I understand you are working on that, and we will continue to do that. But, obviously, those are not in place yet; otherwise, these instances wouldn’t have happened. They took too much 

risk—maybe a different type of risk, the risk of manipulating a 

market. 

But I would ask a simple question. I know this is not your place, 

as the Secretary of the Treasury. But as a member of FSOC, more 

importantly, do you think it would be appropriate for FSOC to stay 

in touch or be in touch with the Justice Department to inform 

them—and I guess I would first ask you the question, do you think 

the markets would be well-served if individuals were held liable for 

criminal activity, if there is criminal activity here? 

Now, certainly, Barclays and the Justice Department have indicated that there might be criminal activity in this LIBOR situation. 

Many of us think so. But if people are doing something wrong, at 

some point, some individual has to be held responsible. At least, 

that is my opinion, and I guess I would like to hear your opinion 

on the matter. 

Secretary GEITHNER. I want to be careful not to respond directly 

to the question you raised about these enforcement actions, but I 

will say the following: It is very important to this country that we 

have in place a very tough enforcement regime so that people who 

violate the law are held accountable for their actions, so that they 

41 

are not just held accountable but that we are deterring others from 

engaging in that behavior. 

We have a huge interest as a country in trying to restore a sufficiently powerful enforcement mechanism. And part of that is good 

rules against manipulation and abuse, but a big part of it is to 

make sure that there are adequate resources available to enforcement agencies. If we starve them of resources, they will not be able 

to do an adequate job of protecting investors and consumers in this 

context. 

So I am very supportive of that basic imperative, and we are 

going to keep working very hard to meet that test. 

Mr. CAPUANO. Thank you, Mr. Secretary. 

Mr. DOLD. The gentleman’s time has expired. 

The Chair recognizes the gentleman from New Mexico, Mr. 

Pearce, for 5 minutes. 

Mr. PEARCE. Thank you, Mr. Chairman. 

Thank you, Mr. Secretary, for being here. 

As you respond to Ms. Maloney on the questions about the separation of the investment banks from the independent community 

bankers, I would like to be included in that written response. 

I have to say that you have an impressive resume: Dartmouth, 

Johns Hopkins, started young in the Department of the Treasury, 

worked for five Secretaries of the Treasury, Chairman of the New 

York Fed, Secretary of the Treasury. Notwithstanding one of my 

friends on the other side of the aisle trying to make you sound like 

a choir boy in the room with these terrible Bush appointees who 

were kind of overwhelming you, you have a really strong resume 

and you have accomplished a lot. 

I think you recognize there are critics who said you didn’t have 

enough experience when you went with the New York Fed. There 

are critics who—you all said that—I think the estimation is that 

you worked with the Bush Administration, Mr. Paulson, to minimize the effects in 2008. And there are people who strongly question whether or not the actions actually did that or they didn’t. And 

so, we can accept the fact that there are discussions. 

I don’t know fancy policy. I am just a Congressman from New 

Mexico. We don’t have big banking institutions. I am not going to 

sit here and dazzle you with some question that is going to reorient 

your thinking about the country. But I have an obligation to those 

people who elected me to represent them. 

Now, the whole idea the Administration came in with was a definite change for the country, and it was pitched that this is the hope 

for the future. And we have sustained 8 percent unemployment, we 

have financial difficulties that are erupting everywhere, you have 

pension systems that are going to fall trillions of dollars short that 

is going to make the debt in Europe look small. 

And it looks like you are not going to stay. If you don’t believe 

in the pathway that you have laid out—I am just going by what 

our friends on the other side of the aisle said, that this is probably 

the last time. I don’t know, I haven’t read any reports, I am not 

on the inside of that room. 

So if you are going to go, or even if you stay, why should the people of New Mexico, who are all 99 percent—I doubt we have any 

42 

of the 1 percenters in New Mexico—why should they believe and 

trust you or the policies that you have set in place? 

Secretary GEITHNER. Let me just say a few things in response to 

that. 

I believe very strongly that this country, this economy, is in a 

much stronger place than it was when the President took office. I 

think by every measure, we are in a dramatically stronger place 

and a much better position to deal with the many challenges still 

ahead of us. And we face many challenges still, not just on our fiscal deficits and the remaining problems people face getting a job 

or keeping a home. 

I also believe that the policies we have laid out, have put before 

the Congress, are the best way to make the country stronger, not 

just to go back to living within our means, but to make sure we 

are protecting the safety net for Americans and that we are making 

the economy more competitive in the future in that context. So I 

am strongly committed to those things. 

Now, you are right that, like you, I am in public office. I have 

the privilege, in that context, of making lots of decisions. Those decisions are going to be controversial decisions. I have taken a lot 

of criticism for judgments I have had to make from both sides. All 

I can do and what is my responsibility is to do what I think is in 

the public interest and to help the President deal with the problems facing the country. 

Those judgments are going to be viewed by everybody, looked at, 

appropriately. And I fully respect the process of oversight you guys 

undertake in this context. It is the right thing to do, and you guys 

should do that process. But all I can do is make sure I am doing 

things that I think are in the public interest. 

Mr. PEARCE. Okay, I appreciate that. 

On page 4, the FSOC report talks about the fact that budgetary 

trims are unsustainable. In your written testimony, you talk about 

the fact that the budgets are being cut, that government spending 

is being cut, which is causing a weakness of the economy. 

So when the report talks about how the budget trims are 

unsustainable, is that talking about the debt and the deficits, or is 

that talking about the cutting and spending that is occurring, in 

your opinion? 

Secretary GEITHNER. It is true that government spending is falling across the American economy, and that is making growth 

weaker than it would otherwise be. It is also true, of course, that 

our long-term deficits are unsustainable, and it would be good for 

the country for Congress to enact— 

Mr. PEARCE. Why are they unsustainable? What is the problem 

with those? What is the problem with debt? 

Secretary GEITHNER. The deficits are too high, and if left 

unaddressed, then our debt will grow to be too large, and ultimately— 

Mr. PEARCE. Let me finish up here. I just have a second. 

I noticed that you spent a lot of time in very strong words talking about the debt discussion, the debt-ceiling discussion— 

Mr. DOLD. The gentleman’s time has expired. 

Mr. PEARCE. —but almost no time talking about debt. And I 

think that is a huge indication of where you are. 

43 

Mr. DOLD. If you could just give that to us in writing, that would 

be great. 

The gentleman’s time has expired. 

The Chair recognizes the gentleman from Massachusetts, Mr. 

Lynch, for 5 minutes. 

Mr. LYNCH. Thank you, Mr. Chairman. 

Mr. Secretary, I want to thank you, as well, for helping the committee with its work. 

There is a document that has been referred to a number of times. 

Let me first ask you—this is regarding your response back in 2008, 

when—I believe it was in April of 2008—there was a series of articles that came up in the British press, also in the Financial Times, 

about the possible manipulation of LIBOR by some of the British 

banks. And then you had an opportunity, you responded, if I understand your earlier testimony, you informed the President’s Working 

Group on Financial Reform. 

And just to be clear on that, back then it was Secretary Paulson, 

it was Ben Bernanke at the Fed, it was Chris Cox at the SEC, and 

who was the fourth member? The CFTC? Do you remember? 

Secretary GEITHNER. The CFTC. And there were other agencies, 

too, represented on that, but it was the heads of all the agencies. 

Mr. LYNCH. Okay. 

So, after you informed them, you also—I have a document that 

has been mentioned a few times. It is a memo. It is dated 6/1/2008, 

5:00 p.m., and the cover page says it was actually delivered the 

previous Tuesday. It is addressed to Mervyn King. Was he the governor of the Bank of England at that time? 

Secretary GEITHNER. Yes. 

Mr. LYNCH. And then, it is from you. 

So can I have somebody—I want to put a fine point on this, because you have talked about your response, but in subsequent 

questions it seems to be ignored. So I just want to make sure this 

goes into the record and that we have a clear understanding of 

what you actually did when you were at the Federal Reserve Bank. 

It has here a—it says, ‘‘Recommendations for Enhancing the 

Credibility of LIBOR,’’ FRBNY Markets and Research and Statistics Group. Do you recall what the recommendations that you 

made—this is unfair. I have the document and you don’t. 

That would help. Thank you. 

I think, to save time, maybe you could just look at the document 

and say exactly what it is, rather than me asking you these questions one at a time. 

Secretary GEITHNER. The six specific recommendations read as 

follows: strengthen governance and establish a credible reporting 

procedure; increase the size and broaden the composition of the 

U.S. Dollar Panel; add a second U.S. dollar LIBOR fixing for the 

U.S. market; specify transaction size; only report the LIBOR maturities for which there is a net benefit; and eliminate incentives to 

misreport. Under each of those subheadings, we gave a series of 

specific suggestions for how to do that. 

And, again, that goes on to explain, in pretty significant detail, 

the range of potential vulnerabilities in the way this thing was 

being run. 

Mr. LYNCH. Exactly. 

44 

Mr. Chairman, I would ask unanimous consent that this memo 

from Secretary Geithner—actually, back then, the head of the Federal Reserve Bank of New York, to the governor of the Bank of 

England be accepted into the record. 

Mr. DOLD. Without objection, it is so ordered. 

Mr. LYNCH. Thank you. 

Mr. Secretary, there is also an article that came out yesterday 

in the press, and I can’t lay my hands on it, but it talked about 

the fact that a lot of the requests for manipulating LIBOR came 

from traders who were asking to lower LIBOR, as opposed to coming from lenders asking to raise LIBOR to enhance their loan portfolios. 

In this particular article—and I wish I had it with me—it talked 

about the fact that for Barclays and a number of these other banks, 

two-thirds of their depository assets were actually invested and 

used in their trading portfolio, and only one-third of their depository assets were used for making loans. So there was a bigger upside if they could lower LIBOR and enhance their trading positions, 

as opposed to raising the interest rate to enhance their loan performance. 

This goes back to really what the Volcker Rule is trying to get 

at. And I just want to know, do you think that fact, that banks— 

and this goes to Mr. Weill’s—I know Mrs. Maloney talked about 

Sandy Weill this morning on ‘‘Squawk Box,’’ talked about the fact 

that maybe we have to go back and look at what banks are doing. 

And if we are going to have the taxpayers supporting— 

Mr. DOLD. The gentleman’s time— 

Mr. LYNCH. —their conduct and the performance of their basic 

businesses— 

Mr. DOLD. The gentleman’s time has expired. 

Mr. LYNCH. —is it better to separate the risk-taking versus the 

traditional lending? 

Secretary GEITHNER. Good question. And, again, in response to 

that general set of questions about how to think about the Volcker 

Rule in this context and what other things we can do to mitigate 

risk, I will be happy to respond more to the Member’s questions. 

Mr. LYNCH. Thank you, Mr. Secretary. 

I yield back. 

Mr. DOLD. The gentleman’s time has expired. 

The Chair recognizes the gentleman from Pennsylvania, Mr. 

Fitzpatrick, for 5 minutes. 

Mr. FITZPATRICK. Thank you, Mr. Secretary, for your testimony, 

your time today, and for the report. 

I wanted to follow up on the questions that Mr. Pearce was asking regarding annual budget deficits and the growing national 

debt. In the report, on page 8, entitled, ‘‘Potential Emerging 

Threats to United States Financial Stability,’’ you write that, 

‘‘Threats to financial stability, like threats to national security, are 

always present, even if they are not always easy to discern in advance.’’ 

A couple of years ago, Admiral Michael Mullen, at the time the 

Chairman of the Joint Chiefs of Staff, said that the greatest threat 

to our national security is our national debt, which shocked a lot 

45 

of people. Do you agree that a growing national debt is a significant threat to our economic and financial security going forward? 

Secretary GEITHNER. If left unaddressed, our long-term fiscal 

deficits would damage the American economy. I agree, if left 

unaddressed, that would be true. 

Mr. FITZPATRICK. Henry Morgenthau, Jr., was, of course, Secretary of the Treasury under President Franklin Delano Roosevelt, 

and he has been often quoted recently. One particular quote I just 

want to highlight here. He said, I think it was in the late 1930s, 

‘‘We are spending more money than we have ever spent before, and 

it does not work. I want to see this country prosperous. I want to 

see people get a job. We have never made good on our promises. 

I say after 8 years of this Administration we have just as much unemployment as when we started and an enormous debt to boot.’’ 

What is different between the late 1930s and what is happening 

right now, in light of Secretary Morgenthau’s comment? 

Secretary GEITHNER. That is a good question and a good context, 

and it is worth looking back to that point. 

Chairman Greenspan and others have said that this crisis was 

caused by a shock, a storm much larger than what caused the 

Great Depression, but because of the things we did, we were able 

to get the economy growing again much more quickly. And the 

economy is really much stronger than it was at that period in history that you referred to and much stronger than it was when we 

came into office. 

The fiscal challenges we face—you are right to say that those 

deficits are unsustainable, but these are very manageable challenges for our country at this time in history. They are much more 

manageable than the challenges that are faced by any other country around the world. 

And I think the challenge we face is not just to recognize they 

are unsustainable and to work to bring them down to earth, but 

we have to decide how to do it. Because in doing that, we have to 

balance the obvious concern, we need to have growth stronger, but 

also we have to protect our national security interests and we have 

to make sure we protect the basic safety net for retirees and for 

low-income Americans. So we are going to have to make some 

tough choices about what do we do for education, what do we do 

for infrastructure, what do we do for incentives for investment so 

we are making growth stronger over the long run, as we figure out 

a way how to make sure that we make those commitments to retirees and to low-income Americans more sustainable over time. 

And I think that is the challenge. I think that is what separates 

us. What separates us is not a recognition that these fiscal deficits 

are unsustainable. What separates us is a debate about what is the 

best composition of spending, savings, and tax reforms to restore 

sustainability. 

Mr. FITZPATRICK. Normally, what follows a debate is a budget 

resolution. Would you agree, in order to bring this back down to 

manageable levels, wouldn’t passing a budget resolution in both 

houses of the Congress put us on a path toward getting those deficits under control? 

Secretary GEITHNER. I know where you are coming from on that 

question, but I would just make the obvious point that you are 

46 

right that Congress has to act. It won’t happen on its own. It is 

not enough for us to propose things. Congress has to come together 

and negotiate a framework that brings these reforms— 

Mr. FITZPATRICK. So you are aware it has been over 3 years since 

the Senate Democrats have passed a budget resolution. We passed 

one this year, we passed one last year; that hasn’t stopped the Federal Government from spending $10 trillion since the Senate has 

passed a budget resolution. 

Section 112(b)(2) of Dodd-Frank requires that each voting member of the FSOC submit a signed statement indicating what reasonable steps such member believes the government should be taking 

to ensure financial stability. Yet neither the annual report nor any 

individual member has recommended that the Senate Democrats 

pass a budget resolution. 

Any comment on that? 

Secretary GEITHNER. That is true, but, again, I think it would be 

strange if we were to ask the SEC or the CFTC to tell Congress 

how it should restore fiscal sustainability. And, again, there is 

nothing standing in the way of Congress taking more action—it has 

taken some action—taking more action to reduce the deficit, except 

that you need both sides to come together and reach some agreement. 

Mr. FITZPATRICK. I yield back. 

Mr. DOLD. The gentleman’s time has expired. 

The Chair recognizes the gentleman from North Carolina, Mr. 

Miller, for 5 minutes. 

Mr. MILLER OF NORTH CAROLINA. Thank you, Mr. Chairman. 

Secretary Geithner, you have said today and previously that you 

and others at the New York Fed became aware in 2008 that there 

were concerns about LIBOR, that LIBOR was vulnerable to manipulation, it was essentially an honor system, there were incentives 

to misreport. And there were rumors; there were reports in the 

public domain that that was, in fact, happening, that the New York 

Fed conducted an investigation, decided that there was a basis for 

those concerns, and passed along the concerns to the FSA and the 

Bank of England, as well as to the members of the President’s 

Working Group on Financial Reform. 

But among the documents released by the New York Fed is a 

transcript from a telephone conversation on April 11, 2008, between an employee of the New York Fed, Fabiola Ravazzolo, and 

an unnamed Barclays trader, in which the Barclays trader said 

that, yes, they were reporting about 20 basis points lower than 

what it would really cost them to do it; that when they had posted 

an honest, a correct LIBOR rate, there was an article that they 

were coming in higher than the other banks. There is an implication the other banks were also misreporting. But he said, yes, that 

when that happened, there was an article in the Financial Times 

that raised questions about Barclays, or the other banks knew 

something about Barclays that was not known generally; Barclays’ 

stock went down, and so they decided they weren’t going to report 

an accurate LIBOR anymore. In fact, he said, ‘‘So we know that we 

are not, um, posting, um, an honest LIBOR.’’ And the reason that 

they did it was not to have questions about Barclays’ financial conditions. 

47 

And this was a month after Bear Stearns and—JPMorgan Chase 

bought Bear Stearns in a fire sale that the New York Fed was involved in. 

Did you know of this conversation? 

Secretary GEITHNER. Congressman, I do not believe I was aware 

of that specific conversation—made aware of that specific conversation. But I didn’t need to be made aware of that because— 

Mr. MILLER OF NORTH CAROLINA. Why not? 

Secretary GEITHNER. —because the concerns about the structure 

of the rate and the broad concerns across the market about what 

could be potentially happening we thought were a sufficient basis 

on which to do the things I said I did, which is to, again, try to 

get— 

Mr. MILLER OF NORTH CAROLINA. But, Mr. Secretary, this conversation is not just about the vulnerability of LIBOR to manipulation, but, in fact, an admission that it was, in fact, being manipulated, that there were false reports being filed by someone who was 

involved in it. 

And is there any—I asked Chairman Bernanke this last week— 

element of criminal fraud that isn’t admitted to in this transcript? 

Secretary GEITHNER. There is a set of lawyers who will answer 

that question, and you can be confident they are going to do that. 

But, again, on this basic point, we had a sufficient basis, based 

on what the market was saying was happening and the way this 

thing was designed, on which to take the actions we took. 

Mr. MILLER OF NORTH CAROLINA. Yes. I understand that. But did 

the employees of the New York Fed who were involved in market 

surveillance tell you of this conversation or perhaps others like it, 

that it was not just theoretically possible but participants in 

LIBOR admitted that they were, in fact, misreporting—did they— 

were you told that it was not just a theoretical vulnerability, that, 

in fact, it was happening? 

Secretary GEITHNER. I believe that—and this is why we did what 

we did—that we were not concerned this was just a theoretical vulnerability. We were concerned about the range of different reports 

that were out there we thought were credible that banks were actually misreporting, underreporting. 

So it was not on the basis of a theoretical concern that we did 

the things we did. It was on the basis of concern that those reports 

were plausible and credible. And, again, that is why we took the 

steps we did. 

Mr. MILLER OF NORTH CAROLINA. Okay. But Chairman Bachus 

asked you if you reported to Justice. You said, no, that Justice was 

not part of the President’s oversight, or the President’s Working 

Group. So you did not report this conversation or any others like 

it to the Justice Department. You did not, did you? 

Secretary GEITHNER. I want to be careful about this, but—and 

my colleagues at the New York Fed are going back over the full 

records in this case. 

I do not know what the New York Fed staff did in terms of who 

else they informed about specific—I don’t know that, but— 

Mr. MILLER OF NORTH CAROLINA. But you did not. 

Secretary GEITHNER. No, I did not. 

Mr. MILLER OF NORTH CAROLINA. You did not. Okay. 

48 

Mr. Secretary, you also said earlier that litigation was certainly 

possible, it was being contemplated. Various lenders who had—or 

now have either filed suit or are contemplating litigation against 

the LIBOR banks for having gotten paid too little in interest. 

There was probably no greater lender during that period than 

the United States Government. Are we considering filing litigation, 

pursuing claims to get back some of the money, some of the interest that we did not get because LIBOR was artificially low during 

that period? 

Secretary GEITHNER. I do not know whether we were disadvantaged by this practice. Obviously, we will take a careful look at 

that. 

We also don’t know what the net effect was of this behavior on 

those prices at that point. As many of your colleagues have said, 

there are some people who believe that people who borrowed money 

generally benefited, and people who lent money generally did not 

benefit. It is not clear that is the case. But, again, that is going to 

be the subject of a very careful, extensive review by a lot of people 

in this context, and it is going to take some time for them to figure 

that out. 

Mr. DOLD. The gentleman’s time has expired. 

In an effort to try to honor our commitment to make sure the 

Secretary gets out on a hard stop and also to try to make sure we 

are getting as many questions as possible, the Chair is going to recognize the gentleman from Michigan, Mr. Huizenga, for 3 minutes. 

Mr. HUIZENGA. All right. Thank you. I appreciate that, Mr. 

Chairman, and Mr. Geithner, as well, for being here. 

I would like you to expand a little bit and maybe revisit—I was 

watching ‘‘Squawk Box’’ this morning when Sandy Weill made his 

comments. I then saw the crawler about Glass-Steagall, and I was 

like, okay, did he really specifically say that? And he did kind of 

go back and revisit it. 

But I don’t know if you have had a chance to see it or read it. 

I certainly would like to then get your reaction, both here but then 

more in depth, as I am sure you will be looking at it. 

So if you have any reaction or comment? 

Secretary GEITHNER. Again, I haven’t seen those reports, so I 

don’t know exactly what he said, don’t know what he meant. 

But on the broader question about laying out to this committee 

the extent of the actions Congress has authorized and taken to 

limit this risk, I would be happy to walk you all through that in 

as much detail as you would like. I would be happy to— 

Mr. HUIZENGA. It struck me that maybe he was kind of getting 

at the too-big-to-fail element and the question of whether just some 

of the organizations are too big. Do you—can you comment on that? 

Secretary GEITHNER. That is a widespread and common subject 

of concern, and it is something that people are going to be looking 

at for a long period of time. But I do think it is important to recognize that we did force these banks to hold much, much more capital 

against the risk they take. We forced a dramatic restructuring of 

the financial system. Congress put in place limits on how large 

they can get and deprived the government of the ability to come 

in and rescue them from their mistakes in very significant ways. 

49 

And if you look at the net impact of those actions on how the 

market perceives the risk of ‘‘too-big-to- fail,’’ that market perception is diminished significantly. But I am not saying that is the end 

of the story; it is just worth noting. 

Mr. HUIZENGA. I do want to touch on the reserves here in the remaining time. You had talked about a $400 billion increase in reserves and the fact that the cost of credit has fallen. It does strike 

me, though, that whether it is Denmark, Switzerland, countries out 

of the eurozone, or the euro market, the United States, in a way 

it is sort of Gulliver among the Lilliputians. It is not that we are 

doing so great or that maybe they are doing so great; it is just that 

maybe everybody else is such a mess and the flight to credit is 

coming to here. 

But I had a very prominent economist out of Chicago, Dr. Bob 

Genetski, who actually put out an email today to his clients—I 

happen to be on that list—regarding those reserves. And he was 

saying that reduced access of reserves by the Fed was $100 billion 

and that means that there is $100 billion less. And I have emailed 

him back, looking to hear his answer. 

But it does seem that—his argument is basically that it runs 

counter to a lot of the goals, some of those reserve requirements 

that on one hand were requiring additional reserves, yet on the 

other hand were lowering interest rates through quantitative easing and other things to try to stimulate more liquidity. 

Is it truly a liquidity problem, or do we have some other issues? 

Secretary GEITHNER. I would be happy to look at his concerns if 

you want to share them with me, and I would be happy to try to 

respond, although that might be for the Fed. 

But I think those are combining two different things. There is $400 billion more capital in the financial system than there was before the crisis, which is a necessary, very important thing. It makes 

the system safer— 

Mr. HUIZENGA. Is that because of the reserves? 

Secretary GEITHNER. And that is a different thing. Some people 

use those words interchangeably, but I think you are referring to 

a question about excess reserves in the banking system, the incentives to hold them and what that does. But I would be happy to 

take a look at his concerns. 

Mr. HUIZENGA. I appreciate that. And we will maybe put that 

down in writing, and I would love to get that response. So, thank 

you. 

Mr. DOLD. The gentleman’s time has expired. 

Secretary Geithner, there has been a request from some of my 

colleagues to see if we could have an equal number of Members on 

each side ask questions. So, with your indulgence, we would like 

to see if we could have you stay for an additional 3 minutes. 

Secretary GEITHNER. Okay. 

Mr. DOLD. The Chair recognizes the gentleman from Texas, Mr. 

Green, for 3 minutes. 

Mr. GREEN. Thank you, Mr. Geithner. I will be as pithy and concise as possible. 

You indicated that the economy is in much better shape now 

than when the President took office. And I am bringing this to your 

attention notwithstanding LIBOR and FSOC, all of which are imVerDate Nov 24 2008 17:10 Apr 11, 2013 Jkt 076122 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 K:\DOCS\76122.TXT TERRI
50 

portant, but I am bringing it to your attention because if we are 

not very careful, the fatuous will be perceived as fact. 

I think that it is important for you to reiterate the condition that 

this economy was in when the President took office and juxtapose 

that to where we are now, such that we can move forward with a 

much better opportunity to improve the economy. So I would like 

to yield time to you to, please, sir, do not allow the fatuous to become fact. 

Secretary GEITHNER. I want to emphasize that we have a long 

way to go, and it is still a very tough economy. We have to be open 

and honest with that. But, just for comparison, the U.S. economy 

was shrinking at an annual rate of 9 percent in the last quarter 

of 2008. We were on the verge of what most people thought was 

a plausible chance the American financial system would collapse at 

that time. You had seen trillions and trillions of lost wealth in the 

savings of Americans. 

And 6 months later, because of the actions that we took, Congress authorized, the Fed took, the things we took to fix the broken 

financial system, the economy was growing. A remarkable turnaround in a very short period of time. And the economy has been 

growing now for 3 years since. 

Not fast enough. And the reason it has not been growing faster 

is because of this combination of concerns you are all aware of, 

which is: Europe is hurting us; spending by the government is now 

declining, not increasing; and people have been bringing down their 

debt and trying to fix some of the problems that got us into this 

mess. 

So we have a long way to go, but, absolutely, we are in a much 

stronger position than we were at that time in our history. 

Mr. GREEN. To be more specific—because we have incredible people saying some incredible things, and I am sure you are very 

much aware of some of these incredible statements—we were about 

to lose the American auto industry. I think you agree. And do you 

agree that the auto industry is in a position now such that it is 

coming back? 

Secretary GEITHNER. I do. 

Mr. GREEN. At the time the President came into office, the financial system was almost in collapse. Do you agree that it has been 

stabilized and that it is now in much better shape than it was 

when the President took office? 

Secretary GEITHNER. Absolutely. 

Mr. GREEN. At the time the President took office, do you agree 

that economic uncertainty, while people say that there is much of 

it now—and I concur, there is some—but economic uncertainty was 

to the extent that banks would not lend to each other? 

Secretary GEITHNER. That is true. 

Mr. GREEN. Would not lend to each other. Which is why you 

could not structure a deal with banks to save the auto industry, because the banks wouldn’t lend to each other. They weren’t about 

to go out and try to salvage an auto industry when they were trying to salvage themselves. True? 

Secretary GEITHNER. True. There is no private market solution 

to a financial crisis like we faced. 

Mr. GREEN. And for those who want to— 

51 

Mr. DOLD. Time has expired. 

Mr. GREEN. —lay all of this at your feet, I have heard a new 

term called a ‘‘black swan event.’’ Is there some semblance of that 

with this? 

Secretary GEITHNER. Oh, absolutely, yes. 

Mr. GREEN. Thank you very much. 

Mr. DOLD. The gentleman’s time has expired. 

Mr. Secretary, I want to thank you for your time and your testimony today. 

The Chair notes that some Members may have additional questions for this witness, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for Members to submit written questions to this witness and to 

place his responses in the record. 

The hearing is now adjourned. 

[Whereupon, at 12:08 p.m., the hearing was adjourned.] 

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