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86–039 PDF 2003

S. HRG. 107–882

NOMINATIONS OF: JOANN JOHNSON

DEBORAH MATZ, ANTHONY S. LOWE

CYNTHIA A. GLASSMAN, AND ROEL C. CAMPOS

HEARINGS

BEFORE THE

COMMITTEE ON

BANKING, HOUSING, AND URBAN AFFAIRS

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

ON

NOMINATIONS OF:

JOANN JOHNSON, OF IOWA, TO BE A MEMBER OF THE

CREDIT UNION ADMINISTRATION BOARD

DEBORAH MATZ, OF NEW YORK, TO BE A MEMBER OF THE

CREDIT UNION ADMINISTRATION BOARD

ANTHONY S. LOWE, OF WASHINGTON, TO BE ADMINISTRATOR OF THE

FEDERAL INSURANCE AND MITIGATION ADMINISTRATION

FEDERAL EMERGENCY MANAGEMENT AGENCY

CYNTHIA A. GLASSMAN, OF VIRGINIA, TO BE MEMBER OF THE

SECURITIES AND EXCHANGE COMMISSION

ROEL C. CAMPOS, OF TEXAS, TO BE A MEMBER OF THE

SECURITIES AND EXCHANGE COMMISSION

MARCH 14, MAY 8, AND JULY 23, 2002

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

(

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

PAUL S. SARBANES, Maryland, Chairman

CHRISTOPHER J. DODD, Connecticut

TIM JOHNSON, South Dakota

JACK REED, Rhode Island

CHARLES E. SCHUMER, New York

EVAN BAYH, Indiana

ZELL MILLER, Georgia

THOMAS R. CARPER, Delaware

DEBBIE STABENOW, Michigan

JON S. CORZINE, New Jersey

DANIEL K. AKAKA, Hawaii

PHIL GRAMM, Texas

RICHARD C. SHELBY, Alabama

ROBERT F. BENNETT, Utah

WAYNE ALLARD, Colorado

MICHAEL B. ENZI, Wyoming

CHUCK HAGEL, Nebraska

RICK SANTORUM, Pennsylvania

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

JOHN ENSIGN, Nevada

STEVEN B. HARRIS, Staff Director and Chief Counsel

WAYNE A. ABERNATHY, Republican Staff Director

DEAN SHAHINIAN, Counsel

SARAH KLINE, Counsel

TOM READMOND, Republican Professional Staff Member

JOSPEH R. KOLINSKI, Chief Clerk and Computer Systems Administrator

GEORGE E. WHITTLE, Editor

(II)

(III)

CONTENTS

THURSDAY, MARCH 14, 2002

Page

Opening statement of Chairman Sarbanes ........................................................... 1

Opening statements, comments, or prepared statements of:

Senator Gramm ................................................................................................ 2

Senator Johnson ............................................................................................... 2

Prepared statement ................................................................................... 14

WITNESS

Charles E. Grassley, a U.S. Senator from the State of Iowa ............................... 5

Prepared statement .......................................................................................... 14

NOMINEES

JoAnn Johnson, of Iowa, to be a Member of the Credit Union Administration

Board ..................................................................................................................... 4

Prepared statement .......................................................................................... 15

Biographical sketch of nominee ....................................................................... 17

Deborah Matz, of New York, to be a Member of the Credit Union Administration Board ............................................................................................................. 6

Prepared statement .......................................................................................... 25

Biographical sketch of nominee ....................................................................... 26

ADDITIONAL MATERIALS SUPPLIED FOR THE RECORD

Letter to Senator Paul S. Sarbanes from the National Association of

Federal Credit Unions, dated March 6, 2002 .................................................... 35

WEDNESDAY, MAY 8, 2002

Opening comments of Chairman Sarbanes ........................................................... 37

WITNESS

Mike DeWine, a U.S. Senator from the State of Ohio .......................................... 37

Prepared statement .......................................................................................... 48

NOMINEE

Anthony S. Lowe, of Washington, to be Administrator of the Federal

Insurance and Mitigation Administration, Federal Emergency

Management Agency ............................................................................................ 40

Prepared statement .......................................................................................... 48

Biographical sketch of nominee ....................................................................... 50

Response to written questions of Senator Akaka .......................................... 54

TUESDAY, JULY 23, 2002

Opening statement of Chairman Sarbanes ........................................................... 57

Page

IV

Opening statement, comments, or prepared statements of:

Senator Enzi ..................................................................................................... 58

Senator Akaka .................................................................................................. 60

Senator Allard ................................................................................................... 61

Senator Dodd .................................................................................................... 61

Senator Corzine ................................................................................................ 66

Senator Gramm ................................................................................................ 74

NOMINEES

Cynthia A. Glassman, of Virginia, to be a Member of the Securities and

Exchange Commission ......................................................................................... 63

Prepared statement .......................................................................................... 78

Biographical sketch of nominee ....................................................................... 79

Response to a written question of Senator Corzine ....................................... 117

Roel C. Campos, of Texas, to be a Member of the Securities and Exchange

Commission ........................................................................................................... 64

Prepared statement .......................................................................................... 103

Biographical sketch of nominee ....................................................................... 105

Response to a written question of Senator Corzine ....................................... 117

(1)

NOMINATIONS OF:

JOANN JOHNSON, OF IOWA

AND

DEBORAH MATZ, OF NEW YORK

TO BE MEMBERS OF THE

NATIONAL CREDIT UNION

ADMINISTRATION BOARD

THURSDAY, MARCH 14, 2002

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

The Committee met at 3:20 p.m. in room SD–538 of the Dirksen

Senate Office Building, Senator Paul S. Sarbanes (Chairman of the

Committee), presiding.

OPENING STATEMENT OF CHAIRMAN PAUL S. SARBANES

Chairman SARBANES. The Committee will come to order.

I am pleased to welcome before the Banking, Housing, and

Urban Affairs Committee this afternoon the two nominees to be

members of the board of the National Credit Union Administration,

JoAnn Johnson of Iowa and Deborah Matz of New York.

Both of these nominees received recess appointments to the

Board on January 22, and therefore are currently serving as members of the board. The Committee today will consider their nominations for terms on the board. If confirmed, Ms. Johnson’s term

would expire on August 2, 2007 and Ms. Matz’s term would expire

on August 2, 2005.

Ms. Johnson graduated from the University of Northern Iowa in

1971. She owned and ran a family farm from 1971 until 1995.

From 1995 until she received her recess appointment to the NCUA,

she was a member of the Iowa State Senate, where she served 4

years as Chair of the State Senate Ways and Means Committee,

and most recently as Chair of the Commerce Committee.

Ms. Matz received her undergraduate degree from Cornell in

1971, a master’s degree from George Washington in 1976. She was

a Community Development Representative for the New York area

office of HUD right out of college, and then she worked with Congressman Peter Peyser of New York, whom we knew, as his legislative assistant. She then worked as an Economist for the Joint Economic Committee of the Congress from 1977 to 1984, and again

from 1987 until 1989. She then worked at the Department of AgriVerDate 11-MAY-2000 11:36 Apr 04, 2003 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 86039.TXT SBANK4 PsN: SBANK4
2

culture over the last 8 years in several senior executive positions,

including Deputy Assistant Secretary for Administration. After

leaving the Agriculture Department she worked as an Executive

Officer with the Washington office of the Food and Agricultural Organization of the United Nations.

Both of these nominees bring an independent background and

perspective to the board of the National Credit Union Administration, and I expect to support their nominations. They also are in

the somewhat unusual circumstance of having their nominations

considered by the Senate for the first time after they have begun

service in the positions for which they have been nominated. They

are therefore in a position perhaps to share with the Committee

their views on the positions for which they have been nominated

based on a brief but nevertheless useful tenure on the board, and

we look forward to their statements.

With that, I yield to Senator Gramm.

COMMENTS OF SENATOR PHIL GRAMM

Senator GRAMM. Mr. Chairman, thank you very much. I will be

very brief.

We have two excellent nominees and I intend to support them

both. I want to thank you for being willing to engage in public service. It is a very high calling, and it is vitally important.

Also, I want to urge each of you as a member of this regulatory

body to always remember that you are not there to represent the

interests of credit unions. You are there to represent the interests

of the working men and women of the United States of America.

It is their interest that should always be put first, and I look forward to working with both of you in your capacity as confirmed

members of the board.

Thank you very much.

Chairman SARBANES. Thank you very much, Senator Gramm.

Senator Johnson.

STATEMENT OF SENATOR TIM JOHNSON

Senator JOHNSON. Mr. Chairman, thank you very much for moving forward so quickly with the confirmation of Deborah Matz and

JoAnn Johnson to the NCUA board. It is a special pleasure for me

today to welcome in particular nominee Matz before the Committee. I have known Debbie and her husband Marshall for many

years. I am confident that Debbie will make a superb NCUA board

member. She is here today with her husband Marshall and son

Peter. Daughter Hayley is away at college right now, but it is a

wonderful family and I know that Deborah will do a wonderful job

at NCUA.

In fact, Mr. Chairman, I know that you know her abilities and

reputation firsthand, because of her service as a Member of the

Joint Economic Committee during your tenure as Chairman. In

continuing her long and distinguished public service career, Debbie

served as Deputy Assistant Secretary of Agriculture for Administration, filling a very important role of overseeing the administration of the Department of Agriculture’s day-to-day operations.

I would like to take just a moment to thank the nominees for

their willingness to serve on the NCUA board. I know that there

3

are more lucrative options, no doubt, in the private sector. But we

are grateful to you for your commitment to public service.

Mr. Chairman, credit unions and the financial services industry

have changed dramatically since the founding of the NCUA in

1970. Today our 10,000 credit unions, with over $480 billion in assets, serve more than 79 million people in the United States with

a broad array of services from basic savings accounts to credit

cards to even home mortgages. Yet at the same time the basic mission of credit unions remains the same, to serve their members.

Credit unions enjoy a tremendously loyal customer base, and most

credit unions work hard to create an environment where members

feel comfortable doing business.

Unfortunately, I have several commitments this afternoon that

may prevent me from staying as long as I would like at this hearing. But there is an issue that I would like to ask the nominees

to either address today or during the question and answer period,

or filing a written submission to the Committee. With your permission Mr. Chairman, I would like to ask the question in my opening

statement.

Chairman SARBANES. Sure.

Senator JOHNSON. And then at the appropriate time the nominees can respond.

Chairman SARBANES. I will be happy to yield to you right at the

outset.

Senator JOHNSON. Let me just ask this question very quickly.

Many State-chartered credit unions have expressed concern over

the process by which the NCUA establishes its overhead transfer

rate. As I understand it, the overhead transfer rate is the amount

of money taken out of the share fund to pay for the NCUA’s insurance-related activities.

Historically, NCUA has estimated the transfer rate at 50 percent. Recently, however, it raised the rate to 67 percent and then

lowered it to 62 percent. NCUA’s overall budget is funded partially

by exam fees from Federally chartered credit unions and partially

by the share fund. When the transfer rate is increased, two things

happen. One, the share fund provides a larger proportion of the

NCUA budget, and two, exam fees for Federally chartered institutions go down, because exam fees end up representing a smaller

proportion of the NCUA budget.

State-chartered credit unions have expressed concern about the

increase to the 62 percent on both substantive and procedural

grounds. I would be very interested to know our nominees’

thoughts on the current overhead transfer rate; and in addition, do

they believe that changes should be made in the way the NCUA

board develops the transfer rate. More specifically, should there be

greater transparency in the process?

Once again, Mr. Chairman, thank you for holding this timely

hearing, and thank you again to two extraordinary nominees that

are before us here today.

Chairman SARBANES. Thank you very much, Senator Johnson.

I will now turn to the nominees. It is the practice of this Committee to swear nominees in before giving their testimony, so I

would ask you to stand and take the oath.

[Oath administered to nominees.]

4

Chairman SARBANES. Thank you very much. Senator Johnson,

why don’t we hear from you? I notice the staff, which is very sensitive to these matters, has put your nameplate there as Senator

Johnson. I guess once a Senator, always a Senator.

[Laughter.]

Ms. JOHNSON. Always known by your highest title.

Chairman SARBANES. We would be happy to hear from you.

STATEMENT OF JOANN JOHNSON, OF IOWA

TO BE A MEMBER OF THE

NATIONAL CREDIT UNION ADMINISTRATION BOARD

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

Mr. Chairman, Senator Gramm, Senator Johnson, thank you

very much for giving me the opportunity to appear today as a

nominee for the board of the National Credit Union Administration. I am deeply honored to have been nominated by President

Bush to serve our country in this way, and I am grateful for the

attentive consideration this Committee has given me since the

President forwarded my name to you for your consideration.

I would also like to thank Senator Grassley for all he has done

on my behalf, helping me through this nomination process.

Chairman SARBANES. I know he was planning to try to be here

to introduce you, but he is tied up as I understand it, we were informed, at a meeting of the Senate Judiciary Committee.

Ms. JOHNSON. Fine. He may try to stop by.

Chairman SARBANES. So we understand.

Ms. JOHNSON. Thank you.

I also want to thank NCUA Chairman Dennis Dollar for all of

his assistance, and my new colleague, Deborah Matz, for her camaraderie as we travel a common course together. I would also like

to acknowledge the constant support of my husband, Brian, who

could not be here today.

In accepting the President’s recess appointment on January 22,

I traded in my legislator duties as an Iowa State Senator for regulator responsibilities, and having been a legislator, I appreciate and

respect the distinction between the two. I learned the skills of a

legislator and the need to hear all sides of an issue, and chart a

course for an equitable solution. I will be continuing that policy at

NCUA, if confirmed, and consultations with Congress will be an

important part of the deliberative process I shall engage in as a

NCUA board member.

I do not bring an agenda with me to this position, but I do have

some standards that will guide my actions as a regulator. I want

to be sure NCUA’s core duties are done extremely well, maintaining a robust share insurance fund and an effective supervision program, critical elements to the independent credit union movement.

I want to emphasize the wise use of resources at NCUA, and I

want to be responsive to credit unions to develop prudent decisions

that meet the needs of a dynamic and growing industry.

In my few weeks on the NCUA board, I have spent much of my

time meeting with NCUA office directors, studying NCUA programs, and meeting with other interested parties to gain a fair assessment of the larger credit union picture. The consultations I

have had with you, Mr. Chairman, and other Members of the ComVerDate 11-MAY-2000 11:36 Apr 04, 2003 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 86039.TXT SBANK4 PsN: SBANK4
5

mittee in preparation for this hearing have been valuable to me as

I assess the challenges ahead.

My Iowa background encompasses a background of family agriculture, education, and community service. I have also served more

than 7 years in the Iowa Senate. I was privileged to chair two committees, the Ways and Means Committee and the Commerce Committee in the Senate. My duties called on me to address and negotiate diverse issues concerning taxes and budgeting, commerce, financial institutions, and economic development. Consequently, I

believe I will bring the necessary skills with me to judge fairly the

important policies and issues that will come before me at NCUA.

I know this Committee is looking for the Board to exercise good

judgment. That means maintaining a safe and sound credit union

financial system, which is exactly what we have inherited and

what I am committed to maintain and bequeath to my successors.

With so many people continuing to join credit unions around the

country, more Americans, whether they know it or not, depend on

the regulatory decisions and systems that ensure quality and integrity nationally. Well-run credit unions that efficiently provide consumer financial services in today’s diverse marketplace are an essential and vital part of the financial community in the United

States, providing members credit for provident and productive purposes, just as they have done since they began to fill those needs

at the beginning of the last century.

Mr. Chairman, thank you for the opportunity to appear before

the Senate Committee on Banking, Housing, and Urban Affairs

today. I am honored to be here, and I pledge to work closely with

you and Members of this Committee and the Congress during my

term to ensure the continued health and sound policies for the Nation’s credit union system.

Thank you.

Chairman SARBANES. Thank you very much.

Before we turn to Ms. Matz, we have been joined by Senator

Grassley. Chuck, we went ahead because we understood you were

tied up, but we would be very happy to hear from you now.

STATEMENT OF CHARLES E. GRASSLEY

A U.S. SENATOR FROM THE STATE OF IOWA

Senator GRASSLEY. Thank you.

You have already been introduced to Senator JoAnn Johnson, so

it is my privilege to speak in favor of her.

Chairman SARBANES. She just made a very good statement, so

you are riding the wave here.

[Laughter.]

Senator GRASSLEY. And I hate to have this letdown, but you

know me.

You know, it was about 16, 17 years ago I had the privilege of

appearing before this Committee to introduce another Iowan, a

former U.S. Senator from Iowa to this very same position. So it is

a great deal of good feeling on my part that Iowans have so many

well-qualified people to serve the National Credit Union people,

and particularly to do it on their board.

So I am here to introduce you to one of the three Bush nominees

for this board. Ms. Johnson and I have a lot in common in the

6

sense that we are both alumni of the University of Northern Iowa.

Also we both served in the State legislature, although I served

there before she was born, and we were both raised on farms and

we grew up with an appreciation of a very unique way of life of the

Midwest, maybe not just Iowa, but Iowa’s kind of exceptional to us.

JoAnn Johnson has been serving the State of Iowa since she became a dedicated teacher after graduation from that good university that teaches people how to teach well. She was a teacher and

coach at Adair–Casey High School, and not only was she teaching

physical education classes, but she also did the community things

like teaching Sunday school and helping youth in 4–H clubs.

Now since 1994, JoAnn Johnson has consistently displayed her

leadership talents in the Iowa State legislature, being Chair of the

Senate Commerce Committee. As chair of the Iowa Senate Ways

and Means Committee, she helped reduce the tax burden for

Iowans by over $700 million, helped to restructure the utility property tax system, and cochaired a 2 year interim study on State tax

structure. In 1999, she was named Senator of the Year by an outstanding trade association in Iowa, the Associated General Contractors.

Not only is she a leader, but I think something you have to be

when you are a regulator, as she is in this position—you have to

be a listener. She makes sound judgments after hearing both sides

of the issue. She is dedicated to the people helping people philosophy that is the basis for credit unions, and as credit unions exist

solely for the purpose of serving their members, I am confident that

JoAnn Johnson will act in the best interests of all credit unions

and the communities they serve, and for the national good. She is

a voice that is right for the National Credit Union Board.

Thank you, Mr. Chairman.

Chairman SARBANES. Thank you very much. We certainly appreciate your statement. I know you have a very tight schedule, so we

understand if you have to excuse yourself.

Ms. Matz, we would be happy to hear your statement.

STATEMENT OF DEBORAH MATZ, OF NEW YORK

TO BE A MEMBER OF THE

NATIONAL CREDIT UNION ADMINISTRATION BOARD

Ms. MATZ. Thank you.

Chairman Sarbanes, Senator Gramm, Senator Johnson, I appear

before you today as a board member and nominee to the board of

the National Credit Union Administration. With me today is my

husband, Marshall Matz, and our son Peter, a sophomore at Langley High School in McLean, Virginia. Our daughter Hayley, a junior at Tulane University, is listening online.

Chairman SARBANES. Not a bad deal, Peter, to get out of school

today for this event.

[Laughter.]

Ms. MATZ. Mr. Chairman, first, I would like to thank you and the

Committee for conducting this hearing so quickly after my nomination, especially given your full agenda. I appreciate the counsel and

support that I have received from your staff, Steve Harris, Marty

Gruenberg, and Judith Keenan, in particular.

7

I am especially grateful to the distinguished Senate Majority

Leader, Senator Tom Daschle, for recommending me, and to President Bush for nominating me to this position. Senator Daschle’s

support and confidence is deeply appreciated.

I would like to thank NCUA Chairman Dennis Dollar and my fellow board member and nominee, JoAnn Johnson, for their warm

welcome, and the spirit of professional collegiality that already exists on the board. And last, but not least, I want to thank the talented staff at NCUA who have provided thorough briefings and insights on many of the functions of this independent agency.

Mr. Chairman, if confirmed, I will bring to the NCUA Board over

20 years of public sector experience. For 9 years, I served as an

Economist with the Joint Economic Committee of Congress, followed by 7 years as a Presidential Appointee at the U.S. Department of Agriculture. While at USDA I chaired the Loan Resolution

Task Force, created to resolve delinquent farm loans in excess of

$1 million. When I was appointed to the Task Force, the portfolio

was over $1 billion in principal; when the Task Force ended, we

had resolved virtually all of the loans that were not encumbered by

litigation or bankruptcy proceedings.

What type of board member and regulator do I hope to be? I will

have several guiding principles. I will work hard to ensure that

credit unions remain safe and sound financial institutions. As a

member of three credit unions, I will be dedicated to the goals and

purposes of the original enabling legislation. I strongly identify

with the ideal of helping working people and others who are not

being served by traditional financial institutions. I will strive to be

recognized as a fair and thoughtful regulator—one who realizes the

value and necessity of regulation while being sensitive to the needs

of those who are being regulated. If confirmed, I will work closely

with all the Members of this Committee and Members of Congress,

to insure the financial integrity of credit unions in a changing environment.

In closing, I consider credit unions to be the jewel in the crown

of the financial service sector. I will work diligently to protect this

precious jewel, to end predatory loan practices, and to extend the

benefits of credit unions to all eligible Americans, particularly the

underserved.

Mr. Chairman, thank you again for the opportunity to appear before you today. I would be pleased to answer any questions that

you and your colleagues might have.

Chairman SARBANES. Thank you very much. I thank both of you

for very good statements.

As I indicated, I yield my time to Senator Johnson so he can pursue inquiry.

Senator JOHNSON. Thank you, Mr. Chairman. I do not mean to

be stepping out of line here.

But as I observed, the question that I raised earlier in my opening statement had to do with the transfer rate and the transparency of the process determining those rates, and I wonder

whether either of you would have any observations to share with

us. I know that you are relatively early on in your career as a regulator, and it may be a bit unfair to spring this on you, but it is a

question that I think is a fundamental one, and one that I think

8

there is a great deal of interest in. Senator Johnson, any observations about the process or the proper rate?

Ms. JOHNSON. Yes, sir.

I recognize that there is considerable debate among the industry

on this issue. Having come from a State legislative position and

working within a State that has primarily State-chartered credit

unions, I had heard a little bit about the overhead transfer rate,

and have thus heard more since I arrived here.

The previous board adopted what they thought was a fair rate,

and it actually was a reduction from 66 percent down to 62 percent. They believed that that reflected the insurance costs that

they were incurring, and as you know that rate is set for the next

2 years. The NCUA has had an outside consultant evaluate the

process, and there were no significant flaws cited in that report.

However, the report is ongoing.

During my tenure, I intend to study this issue very closely. I

have received the assignment, so to speak, of being the liaison to

the National Association of State Credit Union Supervisors, or

(NASCUS), and will be attending the NASCUS conference very

soon, where I know I am going to hear more on this issue. I will

study it and the recommendations that have been made by the outside consultant, and it would be my intent to be a very prudent

steward of the resources and to run a lean and efficient agency.

Senator JOHNSON. Very good.

Ms. Matz, any observations you would share with us on this

issue?

Ms. MATZ. I too have met with several of the State regulators

and executives from State-chartered credit unions, and have heard

a great deal about this issue. I told them that I would study this

issue carefully. The Board does not have to act on this issue for another couple of years, so it is not an issue that I have looked into

in depth, but I will, and I would be happy to work with you and

your staff before we come to any agreement about how we are

going to proceed.

Senator JOHNSON. I think that is all that can be asked for.

I appreciate your observations on both the substance of the rate

and the transparency issue on process, and there is no question

that this is an issue that will continue to be with us for some time.

I have a great deal of confidence that you both will apply your best

energy and thought to this issue. Thank you.

Chairman SARBANES. Thank you, Senator Johnson.

Senator Gramm.

Senator GRAMM. Mr. Chairman, Senator Johnson—I know her

mom is here. I do not know what other family members have come.

I wanted to give her an opportunity to introduce her mother and

whoever else is here that she would like to introduce.

Ms. JOHNSON. Thank you, Senator.

I would like to introduce Jean Johnson, who is sitting here in the

front row. And I will introduce one other Iowan who I have with

me. Julie Starnes will be joining me at the NCUA staff, so I am

pleased to have Julie here as well.

Chairman SARBANES. We are pleased to have both of them here.

Senator GRAMM. I have always thought that a candidate supported by their mother must be all right.

9

[Laughter.]

Chairman SARBANES. One not supported by their mother is certainly not the right one.

[Laughter.]

Senator GRAMM. If your mother is not with you, you would better

check your hand. I remember once I was debating Claude Pepper— you remember old Claude? And we were talking about Medicare,

which is an excruciatingly difficult subject, and I got this note from

the cloak room that I had a telephone call. So I walked to the cloak

room, and my mother was on the phone. She says, ‘‘When that

sweet Claude Pepper’s talking, you shut up and you listen to what

he’s got to say.’’ [Laughter.]

Senator GRAMM. Of course, Claude Pepper was as wrong as he

could be.

[Laughter.]

Senator GRAMM. But I shut up and listened to what he had to

say.

Mr. Chairman, I do not have any questions. I just would have

this observation. At the beginning of every Congress, I go back and

read the Constitution. I have always thought if I were on a regulatory body, that every 2 years I would go back and read the Act

that established that body and set the rules.

I would have to say that my dealings with credit unions have

been very positive in my career in the Senate. The credit union in

the modern era is an unusual entity in that it is a cooperative. It

was established for a specific purpose. As I like to say, everybody

should have an opportunity to join a credit union, but they ought

not to have an opportunity to join the same credit union. So, the

whole scope of membership is a very difficult issue, and it is an

issue that it seems to me that you have to go back to the founding

principles and judge things on the basis of them.

Another issue is the role of credit unions. One of the problems

with any institution is that it tends to move away from its original

objective. And I think it is something that in your capacity, you

need to watch very closely. I would have to say my State has a very

large number of credit unions. Our credit unions perform excellent

service, and I think they are basically safe and sound institutions.

But, it is very important to look at the scope of membership

issue. You had the question from Senator Johnson, basically related to the insurance fund, and it is never popular to raise fees.

It is always popular to lower them. But, your mandate is to try to

figure out what is in the public interest, and whatever is in the

public interest will ultimately be in the interest of credit unions.

So I look forward to working with you.

Thank you, Mr. Chairman.

Chairman SARBANES. Thank you very much, Senator Gramm.

I would like to first pursue one of the points Senator Gramm

mentioned. This Committee moved quickly in 1998 with the Credit

Union Membership Access Act after the credit union movement

faced, in a sense, a very difficult decision handed down by the Supreme Court that might well have—I mean, the predictions of the

impact on the credit union movement were quite strong, and I

think probably correct.

10

That legislation, which provided a statutory basis for the multiple common bond, which is now in practice, also included a number of safety and soundness reforms which were based upon recommendations from the Treasury Department as a consequence of

a very detailed study. Those included establishing of statutory capital standards for credit unions, and a system of prompt corrective

actions to enforce those standards. Have you had a chance to evaluate how well that aspect of that legislation is being carried out, the

safety and soundness reforms? Senator Johnson?

Ms. JOHNSON. In our early weeks as members of the board, we

have dealt with some prompt corrective action situations. So from

the little that I have seen, yes, there is the opportunity to be—you

know, to act quickly and to take corrective action as needed. To

give an in-depth on it would be premature for me to say.

But safety and soundness is bottom line. It is why we are there,

and I think the things that are in place are adequate as far as I

can see at this point.

Chairman SARBANES. Ms. Matz.

Ms. MATZ. I would agree. At our board meeting just yesterday,

the board voted unanimously to receive quarterly call reports instead of semiannual call reports, so that the data can be monitored

more closely. And the prompt corrective actions, as far as I can see,

are working well.

Chairman SARBANES. I just want to underscore, that was a package at the time, and the safety and soundness provisions that were

included in the legislation did not come out of thin air. They were

the result of a very careful study by the Treasury Department. So

we are anxious that part of the legislation also receive attention.

I want to ask you a more far-reaching question. Let me set the

premise a little bit. Credit unions benefit from significant tax and

regulatory benefits that are not available to banks and thrifts,

when you look at the range of financial institutions. They are taxexempt. They have a separate, independent Federal regulator and

a separate deposit insurance fund. And, of course, we hear about

this from others from time to time.

The basis for doing this, at least in the perception of many, is

that because they have a particular mission with an important

public benefit in terms of meeting the consumer credit needs of

people that otherwise might not have access, that they are entitled

to this special status.

Now on the part of some of the credit unions, they have recently

been seeking significantly expanded powers, reductions in regulatory limitations—for instance, unlimited authority to offer their

members business loans, either elimination or significant weakening of the common bond requirement, which is what we passed

after the Supreme Court really raised a very difficult barrier.

NCUA has been very liberal in allowing the community credit charter to be used over an expansive geographical area. For example,

it has allowed a community-chartered credit union to define the entire city of San Francisco as its community.

Do you feel there is any perception in the industry—and I would

ask you all whether you perceive—that there is a tension between

these two things? The more credit unions push to become like other

financial institutions—in other words, move out of the mold that

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has been set for them—then the more difficult it is to justify special status in terms of taxing and regulating.

After all, if they are going to end up being like and behaving like

any other financial institution, a bank or a thrift, then why

shouldn’t they be subjected to the same framework of treatment as

a bank or thrift? Do you have any views on that issue, either yourself or any view on whether the industry understands or perceives

a growing tension in this regard?

Ms. JOHNSON. Senator, I dealt with the same tension on the

State level, especially while chairing the Ways and Means Committee. The tax issue was there all the time. I used to call it kind

of the turf battle between the financial institutions. And in my capacity as chair, I did do things for the banks. We did Subchapter

S legislation under my tenure, and I dealt with tax issues for the

banks. At the same time, I have always felt that the credit unions

deserve their tax-free status because of the way that they are

structured. They are a nonprofit cooperative, and under that structure, I still believe that the tax-free status is still applicable.

You are right that there will always be that continued tension

as each tried to fight out that turf. But credit unions do still have

a restricted field of membership, and to that end they do have restrictions on them that other financial institutions do not have.

Chairman SARBANES. Ms. Matz.

Ms. MATZ. Well, you are raising several issues that confronted

the board at our first meeting on February 7, just after I had arrived at the board on January 23; particularly the issue of what

constitutes local, and how big should credit unions be.

At that meeting, I abstained on a vote of converting a credit

union to a community charter because I just was not sure of what

the Congressional intent was on the word local. I had asked our attorneys what the legislative history was, and was advised that

there is no legislative history on the word, local. So perhaps this

Committee can give us some guidance on that.

But you are raising an issue that we are trying to deal with, trying to decide what is local and what are common bonds, and I will

work with this Committee to try to come to some determination on

those issues.

Chairman SARBANES. Let me just throw into the mix. It is my

own view that the more the credit unions seek to be like other financial institutions in the range of their powers and in their membership, that they begin to undercut or weaken the argument that

exists to give them differential tax and regulatory treatment. I

mean, otherwise you are creating a situation in which particular

institutions have these tax and regulatory benefits and yet on the

operating side—they eventually would be behaving just like any

other financial institutions. And, of course, those institutions say,

why should we be placed in this competitive situation? Either give

us the tax and regulatory benefits, or treat them in that area the

same way that we are treated.

I am in favor of the bargain that was struck, which is to carry

through on what I think is the basic purpose of the credit union

movement, and I think is the underlying rationale for this tax and

regulatory treatment. But it can create a tension, and I am just interested whether you perceive that the industry is aware of that.

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Do you have any sense whether they perceive that there is a tension there?

Ms. JOHNSON. Senator, one of the things that we are really focused on is, we have dealt with some of these community charters,

really delving into the business plan that they must present on

how they are going to serve this community. And for those that

want to add an underserved area in particular, paying attention to

how do they actually intend to serve this underserved area. That

is a requirement, and that is under our purview, and I assure you

that that will be given the strictest attention.

Senator GRAMM. Mr. Chairman, one other provision was included

in the bill responding to the Supreme Court decision. And that

was, for the first time in a formal way, we set a cap on the amount

of business lending that credit unions could do. I identify very

much with what the Chairman is saying. I tried to make it clear

to all my credit union people that ultimately you have to decide.

If you want to do a bunch of commercial lending, you do not want

to be in the credit union business.

I know there has been a bill in the House that would raise the

limit of commercial lending, I think it is 121⁄2 percent under our

bill. I am very much opposed to that bill in the House. My view

is credit union commercial lending should be very narrow, and it

should be focused very strictly and very tightly defined on their

members. I think if credit unions are going to get into very substantial commercial lending, they are running right out from under

their charter. And I do believe that the board needs to take a good,

hard, dispassionate look at this field of membership issue. Because

again, I think it is very important that everybody have an opportunity to join a credit union, and the field never should be so narrow that that is not the case.

But it is the natural tendency of institutions to want to grow and

prosper. I think it is very important that this lending cap on commercial lending be very narrowly defined, that we do not let institutions get around it. And it is very important to keep an eye on

this scope of membership issue. Because I agree with the Chairman

that in the end, if you are going to get the benefits of being in the

credit union business, you have to be a credit union.

You could almost say a partnership is nonprofit, in the sense

that the benefits go to the partners. So, I do not think that in and

of itself is enough to justify the tax exemption. It has to be carrying

out the original mission of the law, and that original mission was

to primarily provide consumer lending on a cooperative basis where

people pool their resources and in the process got access to credit.

I do think there is a real market out there for credit unions in

that particular area. But there is this very real temptation to get

off into other areas, and again there is a limit—I do not know how

you would define it, but I think I would know it when I see it—

where you get out of the credit union business and into commercial

lending on the equivalent of a bank or a thrift.

Probably, given you all have been on the job a short period of

time, these are the two most profound issues related to credit

unions. We probably are not fair putting you on the spot about it.

But these are very real issues, and they are things we were concerned about when we wrote that law.

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Chairman SARBANES. My own perception is that this issue tends

to be driven by a few large credit unions with a very highly active

management, and they are driving this thing. I think most of the

credit unions are staying within the original charter purposes. But

it is an important issue, and as Senator Gramm says, we really do

not expect you to give us a long disquisition on it now.

I do want to note that the U.S. credit union movement has been

involved in trying to help develop credit unions abroad in countries

that are not well-served in terms of their financial institutions.

That is a very constructive initiative, and it obviously has to be

done carefully. But they are in a position maybe to make a real

contribution in that regard. We had a hearing here on remittances

for Mexico and Latin America, and one of the ways of trying to address this was to see if we could not strengthen the credit union

movement in those countries.

I have one final question, and it really tracks again something

that Senator Gramm said at the outset. I am interested in your

view of the mission of the NCUA. Should it be an independent regulator of the credit union industry, a promoter of the credit union

industry, a combination of both? Do you have any view on that?

Ms. JOHNSON. The NCUA is the regulator, first and foremost. Do

I believe in credit unions? Absolutely, but I am not their cheerleader. I am there to regulate, and I know that decisions that I

make are not always going to be what they want to hear. But my

decisions will have to be what I believe is best for the industry.

I am interested in moving the industry forward and to meet the

changing needs of their members, because we do have changing

needs in this day and age. We saw how September 11 changed

things so drastically in a short period of time for a lot of industries,

including the financial industry. So we have to be up to speed and

I think we have to be able to deal with things on a very quick turnaround. But I am there to regulate, and that will be my mission.

Chairman SARBANES. Ms. Matz.

Ms. MATZ. I would agree with that. Safety and security of the

credit unions is clearly our first priority. To the extent we can help

credit unions achieve safety and soundness, that is our mission.

Chairman SARBANES. Thank you.

Senator Gramm and I have been on this Committee long enough

that we had to clean up the savings and loan situation, which cost

the taxpayers hundreds of billions of dollars. That was just a

breakdown altogether. You cannot go through that experience without being mindful of the safety and soundness considerations.

Thank you both very much. We have some hearings scheduled

for next week, which will be the last week before the recess. I am

hopeful we can arrange to put these nominees on one of those hearing dates, and schedule a short business meeting to move these

nominations forward. We are anxious to get you fully in place.

Thank you very much. The hearing is adjourned.

[Whereupon, at 4:10 p.m., the hearing was adjourned.]

[Prepared statements, biographical sketches of the nominees, and

additional material supplied for the record follow:]

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PREPARED STATEMENT OF SENATOR TIM JOHNSON

Mr. Chairman, thank you for moving forward so quickly with the confirmation of

Deborah Matz and JoAnn Johnson to the NCUA Board. It is critical that we move

as quickly as possible to get these oversight positions filled, and strong supervision

of our Nation’s financial institutions is of particular importance.

It is a special pleasure for me to be here today to welcome nominee Matz before

the Committee. I have known Debbie and her husband Marshall for many years,

and I am confident that Debbie will make a superb NCUA board Member. In fact,

Mr. Chairman, I know that you know her abilities and reputation firsthand because

of her service as a member of the Joint Economic Committee during your tenure

as Chairman. In continuing her long and distinguished public service career, Debbie

served as Deputy Assistant Secretary of Agriculture for Administration, filling a

very important role of overseeing the administration of the Department of Agriculture’s day-to-day operations.

I would like to take just a moment to thank the nominees for their willingness

to serve on the NCUA Board. I am confident both of you could earn much higher

salaries in the private sector, and we are grateful to you for your commitment to

public service.

Mr. Chairman, credit unions and the financial services industry have changed

dramatically since the founding of the NCUA in 1970. Today, over 10,000 credit

unions with over $480 billion in assets serve more than 79 million people in the

United States with a broad array of services—from basic savings accounts, to credit

cards, to home mortgages. Yet at the same time, the basic mission of credit unions

remains the same: to serve their members. Credit unions enjoy a tremendously loyal

customer base, and most credit unions work hard to create an environment where

members feel comfortable doing business.

Unfortunately, I have several commitments this afternoon that will prevent me

from staying to the end of this hearing. But there is one issue that I would ask the

nominees to address either during the question and answer period or in a written

submission to the Committee.

Many State-chartered credit unions have expressed concern over the process by

which the NCUA establishes its overhead transfer rate. As I understand it, the

overhead transfer rate is the amount of money taken out of the ‘‘Share Fund’’ to

pay for the NCUA’s insurance-related activities. Historically, NCUA has estimated

the transfer rate at 50 percent. Recently, however, it raised the rate to 67 percent,

and then lowered it to 62 percent.

The NCUA’s overall budget is funded partially by exam fees from Federally chartered credit unions and partially by the Share Fund. When the transfer rate is increased, two things happen: (1) the Share Fund provides a larger proportion of the

NCUA budget; and (2) exam fees for Federally chartered institutions go down because exam fees end up representing a smaller proportion of the NCUA budget.

State chartered credit unions have expressed concern about the increase to 62 percent on both substantive and procedural grounds. I would like to hear your thoughts

on the current overhead transfer rate. In addition, do you believe changes should

be made to the way the NCUA Board develops the transfer rate? Should there be

more transparency in the process?

Once again, Mr. Chairman, thank you for holding this hearing, and thanks to our

two witnesses for their willingness to appear before us today.

—————

PREPARED STATEMENT OF CHARLES E. GRASSLEY

A U.S. SENATOR FROM THE STATE OF IOWA

MARCH 14, 2002

I am glad to have the pleasure to introduce JoAnn Johnson today as one of three

Bush Administration nominees for the National Credit Union Board. JoAnn Johnson

and I have a lot in common. We are both alumni of the University of Northern Iowa

and alumni of the Iowa State Legislature. We were both raised on farms, and grew

up with an appreciation for the unique way of life in Iowa.

JoAnn Johnson has been serving the State of Iowa since she became a dedicated

teacher and coach for Adair-Casey High School in Adair, Iowa. Not only was she

teaching physical education classes, but she also was teaching Sunday school and

helping youth in the 4–H club.

Since 1994, JoAnn Johnson has consistently displayed her leadership talents in

the Iowa State Legislature. She was named Chair of the State Senate Commerce

Committee for the 29th General Assembly. As Chair of the Iowa Senate Ways and

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Means Committee, Senator Johnson helped reduce the tax burden for Iowans by

over $700 million. She restructured the utility property tax system, and cochaired

a 2 year interim committee on State tax structures. In 1999, JoAnn Johnson was

named Senator of the Year by the Associated General Contractors of Iowa.

Not only is she a leader, but JoAnn Johnson is a listener. She makes sound judgement after hearing both sides of the issue. She is dedicated to the ‘‘people-helpingpeople’’ philosophy. As credit unions exist solely for the purpose of serving their

members, I am confident that JoAnn Johnson will act in the best interest of all

credit unions and the communities they serve. She is a voice that is right for the

National Credit Union Board.

Thank you.

—————

PREPARED STATEMENT OF JOANN JOHNSON

MEMBER-DESIGNATE, NATIONAL CREDIT UNION ADMINISTRATION

MARCH 14, 2002

Mr. Chairman, Senator Gramm, and distinguished Members of the Committee,

thank you very much for the opportunity to appear before you today as a nominee

for the Board of the National Credit Union Administration. I am deeply honored to

have been nominated by President Bush to serve our country in this way, and I am

grateful for the attentive consideration this Committee has given me since the

President forwarded my name to you for your consideration.

I want to thank Senator Grassley for all he has done on my behalf, introducing

me to the Committee and advising me throughout this nomination process. I also

want to thank NCUA Chairman Dennis Dollar for all his assistance and my new

colleague, Deborah Matz for her camaraderie as we travel a common course together. I also want to acknowledge the constant support of my husband, Brian.

In accepting the President’s recess appointment on January 22, I traded in my

legislator duties as an Iowa State Senator for regulator responsibilities—and having

been a legislator, I appreciate and respect the distinction between the two. I learned

the skills of a legislator and the need to hear all sides of an issue and chart a course

to an equitable solution. I will be continuing that policy at NCUA, if confirmed, and

consultations with Congress will also be an important part of the deliberative process I shall engage in as a NCUA Board Member.

I do not bring an agenda with me to this position, but I do have some standards

that will guide my actions as a regulator:

• I want to be sure NCUA’s core duties are done extremely well; maintaining a robust share insurance fund and an effective supervision program—critical elements

to the independent credit union movement in my opinion.

• I want to emphasize the wise use of resources at NCUA.

• I want to be responsive to credit unions to develop prudent decisions that meet

the needs of a dynamic and growing industry.

In my few weeks on the NCUA Board, I have spent much of my time meeting

with NCUA office directors, studying NCUA programs, and meeting with other

interested parties to gain a fair assessment of the larger credit union picture. The

consultations I have had with you, Mr. Chairman, and other Members of the Committee in preparation for this hearing have been valuable to me as I assess the challenges ahead.

My Iowa background encompasses a background in family agriculture, education,

and community service. I also served nearly 8 years in the Iowa Senate. I was privileged to chair two committees, the Ways and Means Committee and the Commerce

Committee. My duties called on me to address and negotiate diverse issues concerning tax and budgeting, commerce, financial institutions, and economic development. Consequently I believe I bring the necessary skills with me to judge fairly

the important policy issues that will come before me at NCUA.

I know this Committee is looking for the Board to exercise good judgment. That

means maintaining a safe and sound credit union financial system, which is exactly

what we have inherited and what I am committed to maintain and bequeath to my

successors.

With so many people continuing to join credit unions around the country, more

Americans, whether they know it or not, depend on the regulatory decisions and

systems that assure quality and integrity nationally. Well-run credit unions that efficiently provide consumer financial services in today’s diverse marketplace are an

essential and vital part of the financial community in the United States providing

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members credit for provident and productive purposes—just as they have done since

they began to fill those needs at the beginning of the last century.

Mr. Chairman, thank you for the opportunity to appear before the Senate Committee on Banking, Housing, and Urban Affairs today. I am honored to be here and

I pledge to work closely with you and Members of this Committee and the Congress

during my term to ensure the continued health and sound policies for the Nation’s

credit union system.

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PREPARED STATEMENT OF DEBORAH MATZ

MEMBER-DESIGNATE, NATIONAL CREDIT UNION ADMINISTRATION

MARCH 14, 2002

Chairman Sarbanes, Senator Gramm, Members of the Committee, I appear before

you today as a Board member and nominee to the Board of the National Credit

Union Administration. With me today is my husband, Marshall Matz, and our son

Peter, a sophomore at Langley High School. Our daughter Hayley, a junior at

Tulane University, is listening to us online.

Mr. Chairman, first and foremost, I would like to thank you and the Committee

for conducting this hearing so quickly after my nomination, especially given your

full agenda. I appreciate the counsel and support that I have received from your

staff, Steve Harris, Marty Gruenberg, and Judith Keenan, in particular.

I am especially grateful to the distinguished Senate Majority Leader, Senator Tom

Daschle, for recommending me, and to President Bush for nominating me, to this

position. Senator Daschle’s support and confidence is deeply appreciated.

I would like to thank NCUA Chairman Dennis Dollar and my fellow Board member and nominee, JoAnn Johnson, for their warm welcome and the spirit of professional collegiality that already exists on the Board. And last, but not least, I want

to thank the talented staff at NCUA who have provided thorough briefings and insight on the many functions of this independent agency.

Mr. Chairman, if confirmed, I will bring to the NCUA Board over 20 years of public sector experience. For 9 years, I served as an Economist with the Joint Economic

Committee of Congress, followed by 7 years as a Presidential appointee at the U.S.

Department of Agriculture (USDA). While at USDA I chaired the Loan Resolution

Task Force, created to resolve delinquent farm loans in excess of $1 million. When

I was appointed to the Task Force, the portfolio was over $1 billion in principal;

when the Task Force ended, we had resolved virtually all of the loans that were

not encumbered by litigation or bankruptcy proceedings.

What type of Board member and regulator do I hope to be? I will have several

guiding principals:

• I will work hard to ensure that credit unions remain safe and sound financial institutions.

• As a member of three credit unions, I will be dedicated to the goals and purposes

of the original enabling legislation. I strongly identify with the ideal of helping

working people and others who are not being served by traditional financial institutions.

• I will strive to be recognized as a fair and thoughtful regulator—one who realizes

the value and necessity of regulation while being sensitive to the needs of those

who are being regulated.

• If confirmed, I will work closely with all Members of this Committee, and all

Members of Congress, to ensure the financial integrity of credit unions in a changing environment.

In closing, I consider credit unions to be the ‘‘jewel’’ in the crown of the financial

service sector. I will work diligently to protect this precious jewel; to end predatory

loan practices; and to extend the benefits of credit unions to all eligible Americans,

particularly the underserved.

Mr. Chairman, thank you again for the opportunity to appear before you today.

I would be pleased to answer any questions that the Committee may have.

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(37)

NOMINATION OF:

ANTHONY S. LOWE, OF WASHINGTON

TO BE ADMINSTRATOR

FEDERAL INSURANCE AND MITIGATION

ADMINISTRATION OF THE FEDERAL

EMERGENCY MANAGEMENT AGENCY

WEDNESDAY, MAY 8, 2002

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

The Committee met at 10:20 a.m. in room SD–538 of the Dirksen

Senate Office Building, Senator Paul S. Sarbanes (Chairman of the

Committee), presiding.

OPENING COMMENTS OF CHAIRMAN PAUL S. SARBANES

Chairman SARBANES. The heairng will come to order. I apologize,

Mike, and also to the nominee, but I ran into a bad backup on the

Baltimore–Washington Parkway on my way in.

Before I do my opening statement, I will go directly to Senator

DeWine, who is here to introduce Anthony Lowe. I know he has

other conflicting engagements and we can take care of that and you

can go on about your business.

STATEMENT OF MIKE DEWINE

A U.S. SENATOR FROM THE STATE OF OHIO

Senator DEWINE. Mr. Chairman, thank you very much. As someone who lives in Annandale, Virginia, when I am out here, I understand about the traffic backups and what can happen.

It is my pleasure today to introduce Anthony Lowe, to be the

Administrator of the Federal Insurance and Mitigation Administration at FEMA. Let me first welcome his wife, Angela, his daughters, Ashton and Ariana, his mother, Betty Harris, his brother,

Rev. Paul Lowe, his mother-in-law, Barbara Barry, her husband,

Mohamado, and father-in-law, Thomas Caldwell, who are all seated

here behind me.

Chairman SARBANES. Well, we are very pleased to have the family here. Why don’t you all stand up so that we can acknowledge

you.

Very good. Thank you all for coming.

Senator DEWINE. Mr. Chairman, let me just take a moment to

tell the Committee about Anthony’s background and qualifications.

In 1982, Anthony graduated from the University of Washington

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with a degree in international political science. He went on to receive his law degree from the University of Santa Clara in California. He has studied law in Singapore and also in China.

Prior to working directly for me and on the Judiciary Committee,

Anthony was a Land Planning Commissioner for the City of

Redmond, Washington, from 1994 to 1996. In this position, Anthony had an opportunity to really apply many of the land use

planning guidelines that are now administered by the Federal Insurance and Mitigation Administration.

He served a number of years, Mr. Chairman, as my Senior Legislative Counsel on the Antitrust, Competition, and Business and

Comsumer Rights Subcommittee of the Judiciary Committee.

Let me just ask the Committee to submit the rest of my statement, make it a part of the record. I just want to comment, if I

could, Mr. Chairman, and share with you my experiences with

Anthony.

Chairman SARBANES. The full statement will be included in the

record.

Senator DEWINE. I appreciate that very much. This is an individual who I have worked with on a daily basis closely for, as I

said, a number of years. He is someone who every single day gets

the job done. Candidly, many times I never knew how he got the

job done. But he has great people skills, Mr. Chairman, and you

can appreciate that with the people who help you get your mission

done and achieve what you want to achieve every day.

Anthony was someone who I would talk to about issues in broad

concept, and he would go out, put the legislation together, and see

that it got passed. That is the type of leadership ability he has.

And, as you know, to survive around here, not only do you have

to have good ideas and good analytical ability, and serving on the

Judiciary Committee, you have to be a good lawyer. But, you also

have to get along with people, and you have to know how to deal

with people. And, you have to have some management skills. Anthony has these things. And so, I know that for this position and,

candidly, for any position that Anthony would be nominated for, he

will do just a fantastic job.

I want to submit my written statement, which goes into a lot

more detail, to the Committee and thank you for your courtesy and

for considering Anthony for this very important position.

Chairman SARBANES. Well, thank you very much, Senator

DeWine, for a very strong statement. I have always been impressed

by the effectiveness and skill of Senator DeWine in dealing with

some complex issues. And I am pleased this morning that we are

uncovering the basis on which he was able to do that.

[Laughter.]

Senator DEWINE. That is true, Mr. Chairman.

[Laughter.]

My concern, if I could interject, is where I go from here.

[Laughter.]

But we will see. Maybe my true ability will be uncovered now.

So, I thank you.

Chairman SARBANES. Thank you very much.

This morning, the Committee is considering the nomination of

Anthony S. Lowe, to be the Administrator of the Federal Insurance

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and Mitigation Administration, called FIMA, at the Federal Emergency Management Agency, called FEMA. So we have FIMA inside

of FEMA here, and I want to welcome Mr. Lowe and his family

here today.

Anthony Lowe is no stranger to public service. From 1997 until

this nomination, he was Senior Legislative Counsel with the U.S.

Senate Judiciary Committee’s Subcommittee on Antitrust, Competition, and Business and Consumer Rights, as we have just heard

from Senator DeWine. Before joining the Subcommittee, he served

the citizens of his home State of Washington in a number of positions—Deputy Prosecutor for King County, member of the planning

commission for the City of Redmond, Legal Counsel for the Washington State Senate, and a previous tenure here as Legislative Assistant to our former colleague, Senator Slade Gorton.

Anthony Lowe is a graduate of the University of Washington,

cum laude, Santa Clara University School of Law, and only

recently, he went on to get a degree from the Virginia Union University School of Theology. So, if all else is of no avail, he is in a

position maybe to bring some divine grace upon us in solving some

of these problems.

[Laughter.]

As Administrator of the Federal Insurance and Mitigation Administration, Mr. Lowe will have the opportunity to continue his

public service by helping communities prepare to meet some of

their most difficult challenges.

Only last week, we saw in Maryland, when the tornado touched

down, how extensive the devastation from a natural disaster can

be to a community, taking people’s lives and destroying their

homes and their businesses.

The Insurance and Mitigation Administration works with communities around the country to help reduce damages from disasters

like tornados, hurricanes, floods, and fires. Its assistance has led

to increased use of wind-resistant and water-resistant building designs, elevation of buildings above flood levels, adoption of stricter

building codes and more disaster-sensitive land-use planning.

FIMA also runs the National Flood Insurance Program. There

was a reorganization, in which they put together the Federal Flood

Insurance Program and the Mitigation Administration. So both of

those now would be under Mr. Lowe’s jurisdiction.

The National Flood Insurance Program was created in 1968 in

response to the lack of such insurance being offered by the private

sector. This program made flood insurance available in the communities that adopted flood plain management regulations designed to

reduce future damages from flooding, and it is now available in

over 19,000 participating communities nationwide. The availability

of flood insurance helps Americans prepare for floods, while reducing the need for Federal disaster assistance after the flood. And the

improved flood plain management techniques adopted by communities participating in the program have led to a significant reduction in both the number of losses and the cost of losses due to

floods.

As FIMA’s Administrator, Mr. Lowe will work closely with communities across the country as they prepare for and respond to disasters. We look forward in this Committee to working with him in

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this very important responsibility. I know that FEMA Administrator Allbaugh is anxious to have you on the job. He and I in fact

have conversed about it, and so we have tried to move this hearing

up and do it promptly in an effort to try to get you on the job.

Now, before we take your opening statement, I want to ask you

to stand and take the oath. It is a practice of this Committee to

place our nominees under oath.

Do you swear or affirm that the testimony that you are about to

give is the truth, the whole truth, and nothing but the truth, so

help you God?

Mr. LOWE. I do.

Chairman SARBANES. Do you agree to appear and testify before

any duly constituted committee of the U.S. Senate?

Mr. LOWE. I do.

Chairman SARBANES. Thank you very much. We would be happy

to hear your statement.

STATEMENT OF ANTHONY S. LOWE, OF WASHINGTON

TO BE ADMINSTRATOR, FEDERAL INSURANCE AND

MITIGATION ADMINISTRATION

FEDERAL EMERGENCY MANAGEMENT AGENCY

Mr. LOWE. Thank you very much for holding this hearing so expeditiously on my nomination for the Administrator of the Federal

Insurance and Mitigation Administration at FEMA.

It is an honor to appear before the Committee. I would like to

express my deep appreciation to President Bush for nominating me

for this position, as well as to Director Allbaugh, for the confidence

and trust that he has placed in me.

The Nation, particularly since September 11, recognizes the outstanding leadership of the President and Director Allbaugh, and it

would be my privilege to serve alongside them.

I want to thank Senator DeWine for his kind and gracious remarks, and for giving me an opportunity to serve the country as

an attorney on his Judiciary Subcommittee staff. Senator DeWine,

former Senator Slade Gorton, the late Judge William L. Dwyer, the

late Marian Diggs and Alice Warinner, have all taught me to strive

for the public good, intellectual excellence, personal integrity, and

then to pass it on, and I thank them.

I would also like to thank those who support me from day-to-day

and ground me. First, I would like to introduce my wife, Angela

Caldwell Lowe, her father, Thomas Caldwell, my daughter,

Ariana—she is 10 months old—my mother, Betty Harris.

Chairman SARBANES. I see Mr. Caldwell is carrying out the responsibilities of a grandfather here this morning.

[Laughter.]

Mr. LOWE. Linda is a close friend of our family from North Carolina, who accompanied my brother, Reverend Doctor Paul Lowe.

Mohamadou Barry, who is holding my daughter Ashton Lowe, who

is almost 5 years old. My mother-in-law, Barbara Barry, and a dear

friend of mine, Angela Williams, who served with me on the Judiciary Committee, working for Senator Kennedy. And we also went

through theology school together, both of us being on staff on the

Judiciary Committee, and on the weekends traveling to Richmond

to attend Virginia Union University, School of Theology.

41

Chairman SARBANES. Is there something about the work of that

Subcommittee that drives you to divinity school?

[Laughter.]

Mr. LOWE. I would also like to say something about the FEMA

staff, because a number of them have come. I am not sure if that

is support, but I hope so.

Howard Leikin, the Deputy Insurance Adminstrator at FIMA.

The Acting Director sits behind me, Bob Shea, who is also the Deputy Mitigation Administrator at FIMA. Both of them have long

years of commitment at FIMA and I appreciate their support and

assistance throughout this process. There are a number of other

FEMA staff also present, and I also appreciate them appearing as

well to show support for me.

If confirmed for this position at FEMA, I would be the first

administrator of the newly realigned Federal Insurance and Mitigation Administration. Last August, Director Allbaugh, as part of

the major realignment within FEMA, brought together the Former

Federal Insurance Administration and the Former Mitigation Directorate into a single organization, the Federal Insurance and

Mitigation Administration, FIMA.

All of the resources of both organizations are now merged under

the new FIMA, to form a cohesive unit to coordinate the delivery

of the Nation’s hazard reduction programs. These programs have

been called the cornerstone of emergency management since they

focus on the protection of life and property.

As Administrator of FIMA, I would be an outspoken advocate for

the Administration’s mission to protect lives and to reduce the loss

of property from disasters. My vision is for the Federal Insurance

and Mitigation Administration to become the premier all-hazard

agency across the Federal Government. I believe we can do this by

building upon our strong public- and private-sector partnerships to

substantially protect our homeland from the risks of disasters. I

have enjoyed my meetings with both members and staff leading up

to this hearing. If confirmed, it would be my hope to continue the

exchange of ideas we have already begun.

I appreciate the important role this Committee plays, not only in

the passage of our governing legislation, but also in the counsel you

offer to ensure the law reflects its highest intent and serves the

best interests of our Nation. You provide an invaluable resource

that I hope to avail the Federal Insurance and Mitigation Administration, as I carry out the duties of this new job.

I am committed to the people’s needs. Recently, while walking

the streets of LaPlata, Maryland, I observed firsthand the tragic

destruction and suffering left in the wake of the April 28 tornado.

It reminded me of the absolute necessity to do the right things for

the right reasons and at the right time. So many people in need

depend on us.

In an earlier disaster, I recall being told about a victim looking

at her flooded home and ruined belongings and asking a simple but

profound question: ‘‘Why did they ever let people build here in the

first place?’’ Each level of Government must take stock in answering it. The programs of the Federal Insurance and Mitigation Administration are working and will continue to work with State and

local governments to reduce future suffering and prevent losses in

42

areas subject to hazards. As a Redmond City Planning Commissioner, many of these programs guided our development decisions

to keep our community from harm’s way.

Mitigation and insurance—these are the two pillars of FIMA.

They form the cornerstone of emergency management. Mitigation

is a hard term to define, but I would suggest words do not adequately express actions that we see when we look at FIMA.

Mitigation means building safer and smarter in areas prone to

hazards. It means elevating new construction in flood plains above

harm’s reach, and in some cases, keeping buildings out of harm’s

way by not building in certain areas in the first place. Where mistakes have been made in the past, mitigation means removing

buildings out of harm’s way. It means retrofitting buildings in the

flood plains and in the earthquake-prone areas to withstand future

damage. It means designing and encouraging safe rooms in tornado

alley.

And knowing that our efforts cannot prevent all future damages

from the forces of nature, we have insurance. We are, after all, east

of Eden, and we know we will experience the inevitable upheavals

of nature. So we have insurance to protect people from financial

hardship and ruin after a natural disaster. Here, we can encourage

all property owners to buy private-sector insurance to cover their

losses from wind, fire, and hail. And because there is a gap in the

private sector for flood coverage, Congress authorized the National

Flood Insurance Program. Through the flood program, FIMA will

continue to provide flood insurance protection to citizens who are

at risk from water disasters. Mitigation and insurance—they are

the people’s work.

Last night, I read my daughter Ashton the story of Noah. In that

story, God told Noah specifically how to build the Ark to ensure the

survival of humanity. Mitigation and insurance are really God’s

work. It is an honor to be nominated to discharge these duties for

the Nation. With the guidance of Congress, the support of States

and the private sector, and the active involvement of communities,

I believe, together, we can lead America to prepare for, prevent, respond to, and recover from disasters.

Again, I thank the Committee and I appreciate your consideration, Mr. Chairman.

Chairman SARBANES. Thank you very much. We appreciate your

thoughtful statement. I have a few questions I would like to ask

you. First of all, I want to address FEMA’s flood plain maps.

Mr. LOWE. Yes.

Chairman SARBANES. Which I think everyone agrees are in serious need of modernization, since they are the maps that communities rely on in making decisions about building locations and the

property owners rely on in determining whether to buy flood insurance. How important a priority do you think modernizing the

FIMA’s flood maps are?

Mr. LOWE. For me and for the flood program, it is the numberone priority. And the reason why it is the number-one priority is

because 25 million people use those maps every year. They are citizens. They are lenders. They are staff. They are banks. There are

so many people who rely on those maps to make decisions.

43

For the insurance program, ratings are set based on those maps.

Two-thirds of those maps are older than 10 years, probably even

older than 15 years, and we have about 2,500 areas which are not

mapped at all. And so, this leads to bad decisions.

It also is the case now, post-September 11, that the detail that

those maps provide can be useful in other areas. And I am speaking of, for example, homeland security. If we were to digitize those

maps, as the President has called for with his request for $300 million in additional map funding, we would have an opportunity to

update those maps and automate the entire process. So on a GIS

technology platform, we could begin to add layers of detail which

are helpful for many other purposes. And so, this is really a high

priority, I believe, for the country.

Chairman SARBANES. We are encouraged that the President’s

budget calls for a significant increase in funding for flood map modernization. I have talked to Director Allbaugh about this.

Of course, this is the first installment. It has to be followed by

others if we are going to complete the job. And I think one of the

very important responsibilities that you would have is, one, to work

the money through the Congress, the money that is in the current

budget. Two, then to make sure that there is money in the next

budget. Then to work that through the Congress. And money in the

subsequent budget, work that through the Congress. How long

would it take us, moving at an intense pace, to get a full set of

modern flood maps? Do you have any idea?

Mr. LOWE. About 3 years. I think 2 to 3 years.

Chairman SARBANES. Yes.

Mr. LOWE. That is working at a fairly good pace. And I think a

lot of that depends on the decisions that are made today on the

technologies that are used and the method that we go about mapping in the quickest and most efficient possible manner.

Chairman SARBANES. Well, I hope you will keep it as a very high

priority. I think it would be a significant accomplishment if, under

your tenure, we could end up with fully modernized flood maps. If

remapping places more homes in the flood zone, how will people be

notified about that?

Mr. LOWE. The flood program works in cooperation with communities, with local community flood plain managers and the like.

And so, modernization and digitization of these flood maps allows

us to update the information so we, in fact, know who is where.

Based upon that information FIMA would send a notice to those

people so that they know where they are located in regards to the

flood plain. The community at large including the flood plain manager and developers would also be involved in that process.

Chairman SARBANES. Right. I understand that many at-risk

properties still remain uninsured. In fact, the President’s budget

establishes a goal of increasing the number of flood insurance policies in force by 5 percent in 2003. What actions do you have in

mind to increase participation in the flood insurance program?

Mr. LOWE. For the flood insurance program, that is a high priority as well. Obviously, we are not able to spread the risk and

lower costs or even maintain them, unless we are able to increase

policy growth. And so, there are a couple of things that need to

happen.

44

It is my understanding over the last period of time, perhaps a

year or so, there has been a great deal of attention on this issue.

And one of the things that has been found is that retention is a

major problem. If we look at policy growth last year, it was 15 percent. So there is a 15 percent increase, about 600,000 policies, last

year. But at the same time, there is also a loss of about 500,000

policies, if you will, out of the back end. And so, retention becomes

a major issue.

GAO is also working on a study now dealing with lender compliance. And it may, in fact, be the case that during the refinance period, literally, the computer system being used by the industry may

be dropping out, inadvertently, people who should be insured and,

in fact, by law, are required to be insured. So, if we can begin to

fill that hole, that is helpful. But we also have to continue to educate people and deliver the message of the importance of prevention and insurance.

Chairman SARBANES. I am interested in those figures. Are there

any surveys as to why people are dropping out? Can you pinpoint

the factors?

Mr. LOWE. I do not know if we know all the factors. I have asked

this question and I know that the insurance staff has been working

to try to figure it out. In fact, they have been meeting. They met

last week with our private-sector partners, and I am sure part of

those discussions were trying to understand with all of our stakeholders the real problems. I understand there is also a study on

that which hopefully will be out soon. Internally, a working group

has also been formed to figure out what all the causes are so that

we can begin to address them.

Chairman SARBANES. I think the Committee would be interested

in what your findings are——

Mr. LOWE. We would be happy to share that information.

Chairman SARBANES. ——when you work through the study, as

to the reason why you have such a significant number who have

flood insurance and then drop it.

Actually, as I understand it, flood insurance is required for property owners in a 100 year flood plain who hold a mortgage from

a Federally regulated lending institution. The lenders are responsible for insuring that flood insurance is in place if it is required

and the banking regulators are responsible for insuring that the

lenders are carrying out their responsibility. Now, we have heard

some concern about the level of compliance with these requirements. Do you have any view as yet about the level of compliance?

And if so, what can FEMA do to improve compliance?

Mr. LOWE. Yes. As I understand, Congress, in fact, has asked for

a report on this. I know GAO is working on that report on lender

compliance and I understand that that is supposed to be done at

the end of May. I am not in a position to know as yet what those

findings may be. I certainly have not seen any drafts. It is clear,

though, that FIMA is not in a position, has no regulatory authority

in that regard. So we are relying on lending regualators to really

enforce those provisions. We want to work with them, to be helpful

as we can. I am hopeful that I can begin to engage them if I am

confirmed, so that there is closer coordination, so we all understand

what we need to do and what needs to be accomplished.

45

Chairman SARBANES. Well, if these requirements are not being

met, we really need to tighten that up. I would hope that that is

something you could review in short order and see what can be

done.

Mr. LOWE. Certainly, Senator.

Chairman SARBANES. I wanted to ask about the relationship between subsidy reduction and mitigation activities. Properties that

were built before a flood map was available for the properties’ location pay a subsidized premium for flood insurance. There have

been proposals made either to reduce or eliminate that subsidy.

Now, the difficulty is if you reduce or eliminate the subsidy without increased mitigation funding, it could result in significantly

higher premiums that would put a substantial burden on policyholders who may not be able to reduce their risk or move without

substantial mitigation assistance from FEMA. Now these were

properties that were there before we ever put the current framework into place, so they have always gotten, in a sense, a special

treatment. But it is a recognition that they were there, in a sense,

ahead of time. What is your view about this problem?

Mr. LOWE. This is a serious issue. It has, in fact, been around

for some time. But it is something that needs to be resolved. There

are about 1.2 million insurance policies in the flood program that

are subject to the subsidy that you referred to. We started out, I

understand, with about 100,000 historically, when the program was

created, which was really kind of an agreement with local communities that we would subsidize those policies if we gained their participation in the management of the flood plain. Those policies pay

between about 35 to 45 percent of the actuarial rate for flood insurance. So the subsidy is fairly high.

As you know, the Administration has recommended in its budget

to begin to reduce that subsidy on homes that are nonresidential,

vacation homes and the like, over a period of time. Obviously, that

is something that would have to occur by working with Congress

and figuring out what such a time might be.

There is an issue as it pertains, particularly to residential homes,

perhaps a little less on vacation homes, as to the impact on renters

who may be renting a vacation home as a permanent residence.

And that is an issue that is perhaps not as much an insurance

issue, but it is a housing issue and it is an issue that the director

is concerned about.

Currently, there is a report that is being prepared that deals

with the demographics of people who would be subject to subsidy

reduction and what the impact of that would be on HUD’s programs. And so, the director is very concerned about that, as I am

as well. This is something that we want to work with Congress on

to make sure that we do the right thing by all who are involved.

Chairman SARBANES. Yes, this is a complex issue and we need

to proceed in a very prudent way in addressing it. It needs to be

addressed, but we could create lots of problems if we do not do it

correctly. And we look forward to working with you on that.

I want to ask you about the President’s proposal to replace the post-disaster hazard mitigation grant program with a new $300

million competitive grant program for pre-disaster mitigation, as I

understand it.

46

Mr. LOWE. Right.

Chairman SARBANES. And this is in lieu of, rather than in addition to, or complementary to, as I understand it. The concern I

have is that FEMA’s post-disaster mitigation program, which has

been its primary mitigation effort, took advantage of the window

of opportunity that exists in the post-disaster environment, to get

local cost-sharing on projects and, perhaps more importantly, to get

a kind of motivation to undertake these mitigation activities. Now,

with a pre-disaster program, would this opportunity to get mitigation activities undertaken be lost?

I am in favor of doing pre-disaster mitigation so you do not have

the disaster and the damage. On the other hand, I really prefer to

see it as in addition thereto, so that we still have some money or

commitment to do post-disaster mitigation, when localities and

their constituents may be significantly more disposed to do something. And that is certainly been the experience in my State. We

have found people much more willing to undertake significant mitigation efforts in the aftermath of a disaster. It is not exactly the

best way to do it, but dealing with the human temperament, I do

not know that we want to just close that aspect out and throw it

all into pre-disaster mitigation. Do you have any thoughts on that?

Mr. LOWE. Yes, I do. The budget did suggest that. The director

has been clear on the record, in hearings, as well as with me directly, that he strongly believes that we need both, and there

should be a balance. So that is my charge. In walking the streets

of LaPlata and beginning to really look at how the community itself

was coming together and people were helping each other to sift

through the rubble and to begin to try to put their lives back together again, it was clear that there was a community of people

who were ready to take some action to prevent this harm in the

future.

I have given your staff a little briefing packet on the damage at

LaPlata. And when you look at that, what you begin to see is there

are some fairly straightforward and, I would suggest, simple things

that can be done to avoid substantial damage. But right now, there

is an opportunity. The Hazard Mitigation Grant Program has been,

as you know, made available to Maryland for mitigation activities,

and I know that some folks from FIMA are in Maryland to begin

to talk to communities, to people, homeowners, businesses, about

some of the steps, particularly as it pertains to building construction, that can be taken to mitigate future harm. And so, this is exactly the balance that needs to occur.

As you mentioned, for example, as it pertains to subsidy and repetitive loss properties, we are again talking about pre-disaster.

And again, those pre-disaster mitigation funds can be very helpful.

So, again, that is an area where pre-disaster mitigation is important, as well as post-disaster mitigation.

Chairman SARBANES. Well, I do want to express our appreciation

to you for moving quickly on the LaPlata situation. Obviously, I

was there the day after and saw the extraordinary damage that

was done. We know you are in there now working closely with

them under the Mitigation Grant Program so that they undertake

long-term hazard mitigation methods.

47

These materials that you prepared, the LaPlata tornado damage

survey and other materials, are extremely helpful. And we look forward to working very closely with you on this particular effort

right now. The governor, of course, was there only yesterday and

made a major commitment of State funds. And we have an opportunity to use this disaster to really help the community to come

back. They have been badly battered and the fact that FEMA was

in there very quickly was important in helping to boost people’s attitudes about what the prospects are.

But we do not want to let down on that effort. It is, of course,

right at hand, so there is an opportunity, really, for people right

in central headquarters to, as you did, actually get out there and

see it, and also, to keep tabs on it. So, we may have a chance here

to really show how this should be done, a kind of test-case example.

I encourage you on the efforts.

The other thing is, once you have been in the position for a

while, we may want to come back and do an oversight hearing. I

am not going to take the time this morning to look at the extent

of the financial exposure that exists and to analyze that in terms

of the coverage of the insurance in force, the premiums, the balances and so forth and so on. But that all, of course, also needs to

be looked at.

But we are anxious to get you on the job. I am hopeful I can get

the Committee to move this nomination in the near future, over the

next couple of weeks, I would hope, and so we can get you into

place—well, hopefully, sometime this month. I would like to get

that done, so you can forget about the confirmation process. You

cannot forget about the Senate, but you can forget about the confirmation process.

Mr. LOWE. We will not forget about the Senate. Thank you,

Chairman Sarbanes.

Chairman SARBANES. And get on about your business.

The hearing stands adjourned.

Mr. LOWE. Thank you.

[Whereupon, at 11 a.m., the nomination hearing was adjourned.]

[Prepared statement, biographical sketch of the nominee, and response to written questions follow:]

48

PREPARED STATEMENT OF MIKE DeWINE

A U.S. SENATOR FROM THE STATE OF OHIO

MAY 8, 2002

Mr. Chairman, I am pleased that this Committee is considering the nomination

of Anthony S. Lowe for Administrator of the Federal Insurance and Mitigation Administration (FIMA), at FEMA. I welcome his wife, Angela; his daughters, Ashton

and Ariana; his mother, Betty Harris; his brother, Reverend Paul Lowe; his motherin-law, Barbara Barry; and her husband, Mohamadou.

I would like to take a few moments to tell the Committee about Anthony’s background and qualifications. In 1982, Anthony graduated cum laude from the University of Washington with a degree in international political science. He went on to

receive his law degree from the University of Santa Clara in California, and he has

studied law in Singapore and China.

Prior to working for me, Anthony was a Land Planning Commissioner for the City

of Redmond, Washington from 1994–1996. In this position, Anthony had an opportunity to apply many of the land use planning guidelines that are now administered

by the Federal Insurance and Mitigation Administration. He served as my Senior

Legislative Counsel on the Antitrust, Competition, and Business and Consumer

Rights Subcommittee of the Judiciary Committee.

Anthony possesses great integrity and has the professional background and executive skills necessary to get the job done. Because the FIMA Administrator must develop broad strategies and set policy, as well as persuade and coordinate with others

at the highest levels, the success of its natural hazard risk reduction programs will

rest on the ability of someone who can lead and forge relationships. That is precisely

what Anthony Lowe will bring to this position.

While working for me, Anthony spearheaded legislative initiatives on anticrime

and counterterrorism technology, law enforcement assistance, and legal protections

for the mentally ill and children. Among these legislative issues, one of the most

notable laws enacted was the Crime Identification Technology Act of 1998, with its

billion-dollar authorization and its charge to assist State and local communities in

their anticrime and counterterrorism technology programs. That law has helped set

the tone for the application of technology in securing our borders against terrorism.

It is also part of our effort to keep citizens out of harm’s way in the event of a manmade disaster.

Anthony’s Federal, State, and local government experiences also have given him

a unique perspective to oversee the complex programs of the Federal Insurance and

Mitigation Administration. Furthermore, because he has significant experience fashioning and implementing national programs, I know he appreciates the complex programs of FEMA—the National Flood Insurance Program, the National Earthquake

Hazards Reduction Program, and Dam Safety, among many others that actually are

delivered at the local level.

All of this demonstrates, Mr. Chairman, that Anthony Lowe is right for the job

of Administrator of the FIMA. I am confident that he will bring the same leadership, the same personal and professional integrity, and the same determination to

the position of Administrator. I wholeheartedly support his confirmation, and I encourage my colleagues to do the same.

—————

PREPARED STATEMENT OF ANTHONY S. LOWE

ADMINISTRATOR-DESIGNATE, THE FEDERAL INSURANCE AND

MITIGATION ADMINISTRATION

FEDERAL EMERGENCY MANAGEMENT AGENCY

MAY 8, 2002

Chairman Sarbanes, Senator Gramm, and Members of the Committee, thank you

for holding this hearing today on my nomination to be Administrator of the Federal

Insurance and Mitigation Administration at the Federal Emergency Management

Agency (FEMA). It is an honor to appear before this Committee.

I would like to express my deep appreciation to President Bush for nominating

me for this position, and to Director Joe Allbaugh for the trust and confidence he

has shown in me. The Nation, particularly since September 11, recognizes the outstanding leadership of the President and Director Allbaugh, and it would be a privilege to serve alongside them.

49

I want to thank Senator DeWine for his kind introductory remarks and for giving

me an opportunity to serve the country as an attorney on his Judiciary Subcommittee. Senator DeWine, Former Senator Slade Gorton, the late Judge William

L. Dwyer, the late Marian P. Diggs and Alice Warinner, have all taught me to strive

for the public good, intellectual excellence, personal integrity, and then, to pass it

on. Thank you.

If confirmed, I would be the first Administrator for the newly realigned, Federal

Insurance and Mitigation Administration. Last August, Director Allbaugh, as part

of a major realignment within FEMA, brought together the Former Federal Insurance Administration and the Former Mitigation Directorate into a single organization, the Federal Insurance and Mitigation Administration (FIMA). All of the resources of the separate organizations are now merged under the new FIMA to form

a cohesive unit to coordinate the delivery of the Nation’s natural hazard reduction

programs. These programs have been called the cornerstone of emergency management since they focus on the protection of life and property.

As Administrator of FIMA, I would be an outspoken advocate for the Administration’s mission to protect lives and reduce the loss of property from natural hazards.

My vision is for the Federal Insurance and Mitigation Administration to become the

premier all-hazard agency across the Federal Government. I believe we can do this

by building upon our strong public- and private-sector partnerships to substantially

protect our homeland from the risks of natural disasters.

I have enjoyed my meetings with both Members and staff leading up to this hearing. If confirmed, it would be my hope to continue the exchange of ideas we have

already begun. I appreciate the important role the authorizing Committee plays, not

only in the passage of our governing legislation, but also in the counsel you offer

to ensure the law reflects its highest intent and serves the best interests of our Nation. You provide an invaluable resource that I hope to avail the Federal Insurance

and Mitigation Administration as I carry out the duties of my new job.

I am committed to people’s needs. Recently, while walking the streets of LaPlata,

Maryland, I observed the tragic destruction and suffering left in the wake of the

tornado, and it reminded me of the absolute necessity for me to do the right things,

for the right reasons, and at the right time. So many people in need depend on us.

In an earlier disaster, a victim was looking at her flooded home and ruined belongings when she asked a simple but profound question, ‘‘Why did they ever let

people build here in the first place?’’ Each level of Government must take stock in

answering it. The programs of Federal Insurance and Mitigation Administration are

working, and will continue to work with State and local governments to reduce future suffering and prevent losses in areas subject to hazards. As a Redmond City

Planning Commissioner, many of these programs guided our development decisions

to keep our community from harms way.

Mitigation and insurance—these are the two pillars of FIMA that form the cornerstone of emergency management. Mitigation is a hard term to define but actions

speak far louder than words. Mitigation means building safer and smarter in areas

prone to natural hazards. It means elevating new construction in the flood plains

above harm’s reach, and, in some cases, keeping buildings out of harm’s way by not

building in certain areas in the first place. Where mistakes have been made in the

past, mitigation means removing buildings out of harm’s way. It means retrofitting

buildings in the flood plains and in earthquake-prone areas to withstand future

damage. It means designing and encouraging ‘‘safe’’ rooms in tornado alley.

And, knowing that our efforts cannot prevent all future damages from the forces

of nature, we have insurance. We are, after all, east of Eden, and we know we will

experience the inevitable upheavals of nature. So we have insurance to protect people from financial hardship and ruin after a natural disaster. Here, we can encourage all property owners to buy private-sector insurance to cover their losses from

wind, fire, and hail. And because there is a gap in the private sector for flood coverage, Congress authorized the National Flood Insurance Program. Through the

flood program, FIMA will continue to provide flood insurance protection to citizens

who are at risk from water damage.

Mitigation and insurance—they are the people’s work. Last night, I read to my

daughter Ashton, the story of Noah. In that story, God told Noah specifically how

to build the Ark to ensure the survival of humanity. Mitigation and insurance are

really God’s work. It is an honor to be nominated to discharge these duties for the

Nation. With the guidance of Congress, the support of States and the private sector,

and the active involvement of communities, I believe together, we can lead America

to prepare for, prevent, respond to, and recover from disasters.

Again, thank you for the consideration you have given me today. I would be happy

to answer your questions.

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RESPONSE TO WRITTEN QUESTIONS OF SENATOR AKAKA

FROM ANTHONY S. LOWE

Q.1. In the President’s fiscal year 2002 budget request, the pre-disaster grant-based mitigation program was eliminated because it

was deemed ineffective. This $25 million program was maintained

in FEMA’s fiscal year 2002 budget by Congress. In the President’s

fiscal year 2003 budget request, all disaster mitigation programs

are consolidated into a $300 million pre-disaster mitigation grant

program. Each time the Administration has changed the disaster

mitigation programs, those eliminated have been labeled ‘‘ineffective’’ by the Office of Management and Budget. How will the effectiveness and benefits of the mitigation programs be determined in

the future?

A.1. The key to strengthening our mitigation programs and increasing effectiveness is to allow mitigation to be achieved in a

more predictable manner. With more funding available on an annual basis, State and local governments would be in a better position to plan, establish, and implement their mitigation priorities.

FEMA would collaborate with its State partners and other stakeholders to improve the programs, as well as to develop a fair, reasonable, and appropriate means for the competitive review and

selection of grant proposals. For example, criteria would focus on

quality of the proposed projects, ability of the project to address

State and community mitigation priorities, and cost-effectiveness.

The competitive award of the grants should bring a greater emphasis to selecting projects that would offset the Federal costs of disasters, again leading to increased effectiveness and benefits of the

Federal dollars expended for this purpose.

In addition, we would plan to establish a project evaluation process to determine how well projects achieved mitigation goals. This

effectiveness evaluation would help to better link resources to performance information for planning and reporting purposes, and

would provide opportunities to identify and promote ‘‘best practices.’’ The effectiveness information also could be used in reviewing and adjusting evaluation criteria for future grant competition,

as appropriate.

Q.2. The proposed mitigation program will be administered

through a competitive grant process to award $300 million to

States. How will the Federal Insurance and Mitigation Administration (FIMA) ensure public participation from State and local emergency managers and officials on the proposal?

A.2. FEMA’s strategy will be to partner with the States and organizations representing local officials to involve them in a number of

ways, collaborating to define the competitive grant program guidance and policy. FIMA will look for both formal and informal opportunities to ensure that collaboration takes place. For example,

senior FEMA managers recently attended a meeting of the National Emergency Managers Association (NEMA), where we were

able to obtain their thoughts and ideas regarding the implementation of the proposed program. In addition, we are planning to hold

a listening session later this year to include other constituent organizations for both State and local officials.

55

As the program is implemented, States would play a substantial

role coordinating with their local communities to solicit, review,

and prioritize grant applications. We anticipate establishing a

board consisting of Federal, State, and local experts to conduct the

final application review and selection. The competitive award of the

grants should bring a greater emphasis to selecting projects nationwide that will offset the Federal costs of disasters. The States

would continue to play an essential role in the implementation of

all of FEMA mitigation grant programs, including providing technical assistance to communities. Finally, a project evaluation process would be established to determine how well projects achieve

mitigation goals. States would play an active role in establishing

this process, which would help to better link resources to performance information for planning and reporting purposes.

Q.3. The Disaster Mitigation Act of 2000 requires States and local

communities to develop mitigation plans by November 2003 in

order to qualify for future mitigation funds. How will FIMA assist

the States in developing plans and implementing this new requirement by November 2003? What resources will be necessary to provide this assistance?

A.3. To assist States and local communities (including tribes) in developing mitigation plans that meet the planning requirements of

the Disaster Mitigation Act of 2000, Federal Insurance and Mitigation Administration will provide technical assistance in the form of

how-to guides and as-needed individual help, and policy guidance

and information to ensure consistent application of the requirements nationwide. In addition to providing technical assistance

with the general planning provisions, FIMA will provide focused

assistance with the risk assessment portion of the planning process

by marshaling our resources in building sciences, loss estimation

(using FIMA’s Hazards U.S. (HAZUS) software), and multihazard

mapping. State-focused risk assessment workshops are planned for

early fiscal year 2003.

Many tools and resources have already been developed and deployed. In April, FIMA conducted 10 regional workshops on the

DMA planning requirements, where all States were in attendance.

One How-To Guide was published in August 2001, and eight more

are in development and/or production. A local mitigation planning

workshop has been developed for the States to deliver to their

localities.

Over $20 million in Pre-Disaster Mitigation (PDM) grants will be

made available to States and tribes in fiscal year 2002, the bulk

of which is being used by States to revamp existing planning programs to meet the new DMA requirements. The Administration

has requested a significantly greater amount of PDM funding for

fiscal year 2003, and while this funding can be used for a variety

of mitigation initiatives, it is expected that at a minimum, a similar amount of funding will be available to support mitigation planning in the next fiscal year as well.

Q.4. Does the Administration’s proposal to consolidate all disaster

mitigation programs into a pre-disaster grant-based mitigation program make it easier to implement the Disaster Mitigation Act requirements? How so?

56

A.4. The Disaster Mitigation Act of 2000 provides a real incentive

for communities to assess their risks, evaluate their vulnerabilities,

and incorporate an action plan into the ongoing planning processes

that many jurisdictions undertake already. With the recognition of

the importance of mitigation planning, many communities will be

better positioned to develop cost-effective proposals for mitigation

projects and activities. Under the fiscal year 2003 budget proposal,

communities would no longer be dependant on a disaster declaration in order to obtain a FEMA grant to protect their constituents,

meaning that State and local governments would be in a much better position to plan, establish, and implement their mitigation priorities, thereby supporting the goals of the Disaster Mitigation Act

of 2000.

With the recognition of the importance of mitigation planning,

many communities will be better positioned to develop cost-effective proposals for mitigation projects and activities. Awarding

grants on a competitive basis will help to ensure that the most

worthwhile, cost-beneficial projects receive funding. Funded activities will reduce the risks of future damage in hazard prone areas,

thereby reducing the need for future disaster assistance. The development of State and local mitigation plans could be used as a focal

point for coordination of Homeland Defense Community activities,

as well as focusing on hazard mitigation and land use issues.

Although we strongly support the proposed program, the Director

and I also strongly believe that both pre-disaster and post-disaster

mitigation funding is necessary, and that a balance needs to occur

in the use of those programs and funds. In the immediate post-disaster environment, States, local communities, and citizens affected

by disaster recognize the need for effective mitigation and are willing to take the steps necessary to remove themselves from harm’s

way and reduce or eliminate the losses and costs associated with

future events. The infusion of funds made available following disasters have enabled critical mitigation work to be done. However, because the funds are tied to specific disaster events, implementation

of long-range mitigation priorities established through a comprehensive planning process at the State and local community level

is sometimes difficult to achieve. The current proposal for a pre-disaster mitigation program, providing consistent levels of funding

from year to year, coupled with an appropriate post-disaster program or post-disaster funding would greatly assist in achieving

those mitigation priorities.

(57)

NOMINATIONS OF:

CYNTHIA A. GLASSMAN, OF VIRGINIA

AND

ROEL C. CAMPOS, OF TEXAS

TO BE MEMBERS OF THE U.S.

SECURITIES AND EXCHANGE COMMISSION

TUESDAY, JULY 23, 2002

U.S. SENATE,

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS,

Washington, DC.

The Committee met at 10:05 a.m. in room SD–538 of the Dirksen

Senate Office Building, Senator Paul S. Sarbanes (Chairman of the

Committee), presiding.

OPENING STATEMENT OF CHAIRMAN PAUL S. SARBANES

Chairman SARBANES. This hearing will come to order.

This morning, the Committee on Banking, Housing, and Urban

Affairs meets to hold a hearing on the nominations of Cynthia A.

Glassman and Roel C. Campos, to be Members of the Securities

and Exchange Commission.

The SEC as we are all very well aware, plays a vital role in protecting investors and promoting the integrity and efficiency of the

securities markets. In recent months, the securities markets have

experienced an erosion in public confidence. Investors have seen too

many instances of faulty accounting, misleading stock recommendations, unreliable auditor certifications, and inadequate issuer disclosures.

The Congress is seeking to address these problems. Last Monday,

the Senate passed, by a vote of 97 to 0, the Public Company Accountability Reform and Investor Protection Act, which came out of

this Committee. And currently, the Senate and the House are in

conference seeking to reach agreement on a bill to send to the

President. The President has indicated that he would like to have

a bill before the August recess of the Congress and I think many

of us subscribe to that objective and that is what we are seeking

to accomplish.

The SEC is a pivotal actor in all of this, and its strong and effective actions to address these challenges could help to restore confidence in the markets and to increase their integrity.

We meet this morning to consider two nominees whose appointment I believe would help to strengthen the Commission, and I

welcome both of them before the Committee.

58

Cynthia Glassman, who is a graduate of Wellesley College with

a B.A. in economics, Wellesley has an enviable reputation for producing these economics graduates. They had this marvelous teacher there who has been featured in a number of articles over the

years. Ms. Glassman is part of that coterie that went through that

process.

She also went on to the University of Pennsylvania to get an

M.A. and a Ph.D. in economics. She then worked at the Federal Reserve Bank of Philadelphia. Then was an Economics Supervisor at

the University of Cambridge in England. She came back and went

to work for the Federal Reserve Board here in town, eventually rising to the position of Chief of the Financial Reports Section.

She left the Fed and went into private activity, was a Senior

Economist at Economists, Inc., and then for a decade worked at

Furash & Company, a consulting firm serving the financial services

industry, where she rose to the position of Managing Director.

Before this nomination to the SEC, she had, for 5 years, worked

at Ernst & Young, rising to the position of Principal in the Quantitative Economics and Statistics Group.

Now, Ms. Glassman has been serving as a Commissioner since

January of this year, having received a recess appointment from

President Bush. She has also been on the boards of the Federal Reserve Board Credit Union, the National Economists Club, Women

in Housing and Finance, a very active group with whom we have

interacted, and they do a number of very good projects which I am

personally familiar with, and also on the Commission on Savings

and Investment in America.

Roel Campos is a graduate from the U.S. Air Force Academy,

from the UCLA Graduate School of Business with an MS degree,

and from Harvard Law School with a J.D. degree.

He served as an officer in the Air Force. He then practiced law

in the private sector. He served as Assistant U.S. Attorney in the

Central District of California from 1985 to 1989. And since 1995,

he has been the Senior Vice President and Principal Owner of El

Dorado Communications, a Houston, Texas radio broadcasting company.

Mr. Campos has been active in the community in Houston, serving on a number of boards and commissions. And we welcome his

appearance before the Committee today.

With that, I yield to my colleagues.

Senator Enzi.

STATEMENT OF SENATOR MICHAEL B. ENZI

Senator ENZI. Thank you, Mr. Chairman. I appreciate your willingness to have a hearing for these final two SEC nominees before

the August recess. And it is my hope that we can move them

through the Senate before we depart for the August recess.

Chairman SARBANES. It is my intention to try and schedule a

Committee meeting, if not here, then off the floor while we are voting over the next day or two, to report them out. That would then

get them on the calendar and that would give us all of next week

to move them through. Of course, the calendar is being held up, as

you know, by Senator McCain. But perhaps that will be worked

out. There are a number of people backed up there.

59

But if we can get them out of the Committee and get them positioned, then if that gate opens up, why, it is certainly my desire

and hope that we can get these two nominees and the two we

heard last week, which are the four Commissioners, all in place,

confirmed with their terms and everything, and then we will have

a fully functioning Commission.

I have been telling the Administration from the beginning, that

have as soon as they got all of these nominees up to us, we would

do a hearing, and that is exactly what we are doing.

Senator ENZI. Well, I appreciate your following through on that

and the added emphasis to get it done by the August recess, if possible, because, as you have already mentioned in your statement,

the Commission does need a full Commission for all of the weighty

decisions that have been thrust on them and that we are about to

thrust on them, so that they can do the most effective job possible.

As we saw last Friday, the investor certainty is still extremely

low. The Dow dropped nearly 400 points in a single day. So it is

clear that investors do not know what is around the corner.

I do not know that any of us know what is around the corner.

I do not think that Washington passing legislation will calm all of

those fears, but I do hope that the legislation will tell investors

that corporate wrong-doers will have severe penalties and perhaps

a jail cell waiting for them if they lie to shareholders.

I believe the Commission has done a good job of handling the situation. Chairman Pitt and the Commission staff seem to have

worked tirelessly to implement the important reforms to cleanse

the climate of corruption. Most importantly, in an effort to conclude

all of the restatements, they are requiring that the CEO’s of the

thousand largest companies to certify their companies’ financial

statements. From what I understand, all of these companies are

working diligently to scrub their statements to ensure investors of

their accuracy. This is the type of due diligence that we need.

It seems that everybody is beginning to do their part. Companies

are increasing stock buy-back plans. Corporate compensation packages are beginning to be reduced. And other market forces are correcting the corporate corruption. These initiatives will do more to

restore confidence in the market than any legislative proposal developed by Congress.

In addition, if the bill passed by the Congress does not provide

adequate safeguards for the companies and their auditors, it will

merely add to the uncertainty.

I think the Commission will be well served having two individuals as qualified as these two nominees that we have before us

today, and I am happy to assist in getting this process finished.

I cannot impress on the two of you enough the responsibility that

you are about to undertake, although I sense that you already

know that. I applaud your willingness to come to the public sector

and sacrifice your time and compensation to assist the country in

renewing the faith in the markets.

Again, Mr. Chairman, I appreciate your holding this hearing so

we can move these nominees through the Senate. I hope that we

can confirm them expeditiously and I look forward to working with

you and the other Members of the Committee as we work to keep

America’s capital markets vibrant and the envy of the world.

60

Thank you.

Chairman SARBANES. Thank you very much, Senator Enzi.

Senator Akaka.

COMMENTS OF SENATOR DANIEL K. AKAKA

Senator AKAKA. Thank you very much, Mr. Chairman. I am delighted to be here with you and my friend across the aisle, Senator

Enzi, and to join you in welcoming our witnesses this morning, Mr.

Roel Campos and Ms. Cynthia Glassman. And I thank you, Mr.

Chairman, for telling us about their lives and where they are coming from.

Also, I want to welcome your families. If you do not mind, Mr.

Chairman, I would like to ask Mr. Campos and Ms. Glassman, in

that order, to introduce your family to the Committee.

Chairman SARBANES. Please go ahead.

Senator AKAKA. Mr. Campos.

Mr. CAMPOS. Thank you, Senator. Please allow me to introduce

my wife Mini, who is sitting right here behind me. Mini and I were

high school sweethearts. She is my life’s partner, my closest friend,

and my wisest adviser. Mini is a graduate of Harvard Medical

School and a practicing physician. We have been blessed with two

sons, David and Daniel. David is 16, Daniel is 12. Our sons bring

us pride and joy every day of our lives.

Senator AKAKA. Do your sons happen to be here?

Mr. CAMPOS. My sons could not be here today.

Senator AKAKA. Thank you.

Chairman SARBANES. Ms. Campos, that was a very definitive

statement of Mr. Campos’ love and affection for you.

[Laughter.]

Senator DODD. I think he read it, in fact.

[Laughter.]

Mr. CAMPOS. I had to because I did not think I could remember

it at all.

[Laughter.]

Chairman SARBANES. Ms. Glassman.

Ms. GLASSMAN. Thank you very much. I would like to introduce

my husband of 33 years, Len Glassman. He is sitting right behind

me. He too is a physician. My mother-in-law, Mary Glassman, who

has come down from Philadelphia for this hearing. My son, Ken,

right here, who is at Goldman Sachs in New York. And his wife,

who is also a doctor, Melissa Glassman.

Chairman SARBANES. Good.

Ms. GLASSMAN. They have come down from New York for this.

Thank you.

Chairman SARBANES. We are very pleased to have you all here.

Senator AKAKA. Mr. Chairman, I am glad that we are moving on

with Members for the Commission here because we know that the

Securities and Exchange Commission, the Congress, and the country really are facing many great challenges. We need to fill the

Commission with its Members. And this is because we are in the

wake of incidents of misrepresentation of corporate fraud. The SEC

will play a huge part in helping us bring back the confidence to our

country and the industry.

61

The SEC must have effective leadership. We are looking to both

of you adding toward that, and in order for the Commission to

meet these significant challenges.

So, I want to wish you well. And hearing from the Chairman of

your qualifications, there is no question you will certainly add to

the Commission. And I would tell you at this point you have my

support.

Thank you very much, Mr. Chairman.

Chairman SARBANES. Thank you, Senator Akaka.

Senator Allard.

COMMENTS OF SENATOR WAYNE ALLARD

Senator ALLARD. Thank you, Mr. Chairman. I am just going to

make a brief comment.

I would like to welcome Ms. Glassman and Mr. Campos. I understand, Mr. Campos, you are a graduate of the Air Force Academy.

Mr. CAMPOS. Yes, sir.

Senator ALLARD. So, you spent a little time in Colorado.

Chairman SARBANES. It was a wonderful experience, wasn’t it,

Mr. Campos, being there in Colorado?

[Laughter.]

Mr. CAMPOS. It was outstanding.

Senator ALLARD. And that prepared you for the battle that you

are now going to enter into, I am sure.

[Laughter.]

Mr. CAMPOS. Everything has been easy since then.

[Laughter.]

Senator ALLARD. Well, I would just like to join my colleagues in

welcoming both of you to this Committee today. I want to thank

you for you willingness to serve our country in your capacity as

Members on the Securities and Exchange Commission.

There has been a lot of attention media paid to the Securities

and Exchange Commission in recent months. Here in this Committee, we have held a lot of hearings and crafted legislation involving the SEC as well.

The Securities and Exchange Commission was created by Congress in 1934 to promote stability in the markets and to protect the

investor. A great deal needs to be done at the SEC to restore its

role as the investor’s advocate. In the current environment, and in

the midst of the loss of investor confidence in our markets, it is

going to be particularly challenging.

The SEC needs more resources in order to strengthen its enforcement authority, as well as more qualified personnel at the agency

in order to play this role. Both of you have impressive and experienced backgrounds and I appreciate that, and I think you have

your work cut out for you. I am sure that you will be working hard

and I am looking forward to hearing your ideas about what we can

do to improve investor confidence.

Mr. Chairman, I look forward to hearing from the nominees.

Chairman SARBANES. Thank you, Senator Allard.

Senator Dodd.

STATEMENT OF SENATOR CHRISTOPHER J. DODD

Senator DODD. Well, thank you very much, Mr. Chairman.

62

Let me join the Committee in welcoming both of you. I congratulate you on the nominations which you have received from the

President. It is a high honor to be asked to serve. And all of us are

deeply grateful to both of you for your willingness to serve.

This is a challenging time. As someone said the other day when

we were considering the nomination of another committee, that

this is going to be a very difficult time at the SEC. That is true.

But I also think it is a tremendously exciting time considering the

challenges we face. And both of you bring a high degree of competency to these nominations. So, I look forward to voting for you

and to also working with you.

Just a couple of comments. Mr. Campos, I gave an address on

Sunday morning at the National Council of La Raza in Miami at

their annual convention. And you should know that there is a great

deal of excitement within the Hispanic and Latino community over

your nomination. They wanted me to convey that to you, how excited they are that you are going to be a member of the SEC.

The only other thing that I would like to say to you is about the

investor confidence issues that we talk about all the time. It is very

important, and looking over your testimony, I think you understand that, both of you, very well.

The point I made the other day is something that needs to be

stressed. And that is the importance of retaining your independence. You have been asked by people to serve. Your names have

been put forward by people in the political world. Your nominations

are made by the President of the United States.

Unlike other positions in the Cabinet, the Commissionerships of

the SEC require a high degree of independence, not to get caught

up in the day-to-day machinations of political agendas. That is not

to say that you are unmindful of them, but just to be careful not

to be drawn into the vortex of all of that, particularly in these days.

I think it has always been true, but particularly now. And so, I

would just say a word of caution as you begin this journey of serving in a very distinguished and important post in Washington, that

you keep that in mind, if you could, during your tenure.

With that, Mr. Chairman, I look forward to the testimony of our

witnesses, and congratulations to both of you, and your families as

well. This is a very exciting time for you.

Chairman SARBANES. Very good. Thank you, Senator Dodd.

I say to the nominees, it is the practice of this Committee to

swear in nominees at the outset of their hearing. So, I ask you to

stand and take the oath.

Do you swear or affirm that the testimony that you are about to

give is the truth, the whole truth, and nothing but the truth, so

help you God?

Ms. GLASSMAN. I do.

Mr. CAMPOS. I do.

Chairman SARBANES. Do you agree to appear and testify before

any duly-constituted committee of the U.S. Senate?

Mr. CAMPOS. I do.

Ms. GLASSMAN. I do.

Chairman SARBANES. Thank you very much.

Ms. Glassman, why don’t we hear from you first, and then we

will hear from Mr. Campos, and then we will go to questions.

63

I will say to my colleagues and to the nominees, there is a vote

scheduled at 10:45 a.m. So, that we will move as expeditiously as

we can. But my guess is that we will probably have to recess for

the vote and then come back.

But we will proceed apace here and see how things unfold.

Ms. Glassman.

STATEMENT OF CYNTHIA A. GLASSMAN, OF VIRGINIA

TO BE A MEMBER OF THE

U.S. SECURITIES AND EXCHANGE COMMISSION

Ms. GLASSMAN. Thank you, Chairman Sarbanes and the distinguished Members of this Committee.

I am deeply honored to appear before you today to seek your approval of my nomination by President Bush to serve as a member

of the Securities and Exchange Commission. If confirmed by the

Senate, I look forward to continuing to fulfill the responsibilities of

a SEC Commissioner along with my new colleagues.

I am a Ph.D. economist with 30 years of experience analyzing financial services regulatory policy issues in the public and private

sectors. I have worked at the Federal Reserve, two small consulting

firms, a large accounting firm and, for the past 6 months, the SEC.

Specific expertise that I bring to my responsibilities as a Commissioner includes risk management, competitive analysis, and financial reporting. I have also specialized in conducting analyses on the

continuing relevance of a wide range of financial services regulations in a changed business environment.

As an economist, I believe very strongly in letting markets work.

Nevertheless, there is an important role for regulatory oversight to

ensure that competition is fair, and that information provided to

customers is clear, accurate, and complete. Regulations should create the right incentives to accomplish their goal, should be based

on a good understanding of how the business works, and should not

result in unintended consequences, either for the regulated companies or for their customers. In the current environment, the need

for strong regulatory oversight could not be more apparent.

When I was being considered for an appointment to the Commission last fall, I had identified several issues as important to the

SEC’s mission: Are the Depression-era rules under which the SEC

operates still relevant? Is the regulatory process providing the right

incentives, or is it resulting in unintended consequences? Is the securities market structure appropriate? Are investors receiving the

information they need about domestic and global companies to

make good investment decisions? Is investor education adequate for

our complex financial markets?

Recent events have shown how critical these issues are. Almost

6 months into my recess appointment as SEC Commissioner, I am

outraged at the financial fraud, misleading information, and investor losses that have come to light. Given the extraordinary events

of the last year, the Commission’s number one job right now is to

restore investor confidence in our markets and market participants. There is no question that companies must be held accountable, and individuals need to be held responsible, for adhering to

both the letter and the spirit of the Federal securities laws. But the

SEC, in partnership with Congress, the Administration and the

64

States, must continue to be a driving force in assuring that we

have the appropriate securities laws and rules and that we enforce

them vigorously.

I began my career in the public sector with the Federal Reserve

System, and I am proud to return to public service as a Commissioner of the SEC. My 6 months of hands-on experience as a Commissioner have increased my respect for the agency and its entire

staff and my appreciation of the challenges the Commission faces.

Thank you, Mr. Chairman, Senator Gramm, and Members of this

Committee for this opportunity. I would be happy to answer any

questions that you have.

Chairman SARBANES. Thank you very much, Ms. Glassman.

Mr. Campos, we would be happy to hear from you.

STATEMENT OF ROEL C. CAMPOS, OF TEXAS

TO BE A MEMBER OF THE

U.S. SECURITIES AND EXCHANGE COMMISSION

Mr. CAMPOS. Thank you, Mr. Chairman.

Chairman Sarbanes, distinguished Members of this Committee,

I cannot describe to you the sheer delight I feel today and the deep

appreciation that I have for this opportunity to appear before you

today. I am deeply honored to have been nominated to serve my

country on the Securities and Exchange Commission.

With your indulgence, I will very briefly share some of my life’s

experiences and perspectives, and then provide a few observations

about the unique challenges facing the SEC.

I am Mexican-American. My life’s journey began in the small

town of Harlingen, Texas, near the Mexican border in the southern

tip of Texas. I was raised in a humble household, in which only

Spanish was spoken. My father, who could not be here today, is 88

years old. Like many in his generation, my father had to drop out

of school in the 6th grade to help on the family farm. Later, when

his country needed him, my father volunteered and enlisted in the

U.S. Army to serve in World War II. He was always proud that he

volunteered and was not drafted. My father saw combat in Europe

and was wounded in Germany and became partially disabled. During my childhood, my father often had three or four jobs at one

time to make ends meet and to provide for our family. My brothers

and I would often help my dad in doing construction or whatever

extra job he had committed to do. He taught my brothers and sister

that honest hard work was noble, that service to our country was

honorable, and that education was the most valuable possession a

person could have.

My dad had a simple version of the American Dream. He believed that hard work and sacrifice would produce better opportunities for his children and permit him to live with dignity in his old

age. Like millions of Americans today, my dad today is retired and

lives on his savings, Social Security, and pension benefits. The series of recent business scandals and the resulting crisis of confidence in our financial markets threatens the future of my father,

as well as millions of retirees in America. In my hometown of

Houston, Texas, I have seen neighbors, who had worked for years

for a certain major company that has been the subject of investigation, suddenly and without warning, be without a job, without

65

meaningful severance, and with their retirement accounts wiped

out. I worry, that inevitably, these corporate abuses may create a

separate crisis of confidence and that the American public will

come to question whether the American Dream has become an illusion. If I am confirmed, I pledged to work tirelessly with you and

my colleagues at the SEC to restore the faith of the public in the

integrity of our financial markets.

I have been blessed during my life to have had the opportunity

to pursue higher education and to serve my country. As you know,

apart from my military service, I was a Federal prosecutor in Los

Angeles. I investigated, tried, and convicted Members of major

criminal enterprises and sent them to jail. I am informed that if

the Senate chooses to confirm me, I will be the first person to serve

as an SEC Commissioner with a law enforcement background. If

confirmed, I will bring my experience and accept the heavy responsibility to fairly and carefully judge and determine the appropriate

enforcement action and sanctions in the many pending and future

SEC investigations.

As you also know, I have spent about 16 years in private legal

practice as a corporate transactions lawyer and as a corporate litigation and trial attorney. For the past few years, I have been an

executive and part owner of a small private company. If confirmed,

I will bring to the Commission my experience in having dealt with

the challenges of building and operating a company in the private

sector. One of the missions of the SEC that I will embrace if confirmed is to promote an environment in which small, entrepreneurial, and emerging companies can raise capital efficiently. As

we all know, small and emerging companies will produce much of

the Nation’s future economic growth, creating a large share of tomorrow’s new jobs and innovation, and such companies will help to

validate the American Dream. Over the years, the SEC together

with the able oversight of this Committee has earned universal

respect and admiration. If confirmed, I promise to use all of my

God-given abilities to uphold the SEC’s legacy of exercising fair and

tough-minded regulatory authority.

The Senate last week took a historic and courageous step in restoring the public’s confidence in the financial markets by passing

the Public Company Accounting Reform and Investor Protection

Act of 2002. I, along with the rest of the Nation, are in your debt

Chairman Sarbanes for the crucial role that you and this Committee played in bringing about this legislation. If I am honored by

being confirmed, I look forward with great anticipation to working

with you Mr. Chairman, with Senator Gramm, with the distinguished Members of this Committee, and with Chairman Pitt, and

my fellow Commissioners, and the talented staff at the SEC. There

is much work to be done. However, I believe that we can together

succeed and ably discharge our sacred trust and our obligations to

the American people.

Thank you for this opportunity to appear before you today. I will

do my best with any questions that you may have.

Chairman SARBANES. Thank you very much, Mr. Campos.

We have been joined by Senator Corzine. Jon, do you have an

opening statement that you would like to make?

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COMMENT OF SENATOR JON S. CORZINE

Senator CORZINE. No, other than to welcome the nominees and

I appreciate the fact that we are moving rapidly with this.

Thank you.

Chairman SARBANES. Since there is this vote and I have to be

here at the beginning and at the end as the Chairman, if there are

colleagues of mine who, because of their schedule, feel they will not

be able to return after the vote, I would be happy to yield to them

now to try to get their questioning in because I know some will

leave to go to the vote and will not be able to come back.

Senator DODD. I think we are okay. We have 25 minutes.

Chairman SARBANES. Very good. Let me ask, first of all, because

I am prompted by a story that is in the paper today: SEC Union

Workers Reach Accord On Work Rules.

‘‘After 532 days of negotiations, the SEC and its union employees

agreed to a contract that will allow workers to telecommute 2 days

a week, among other provisions. The agreement still needs approval by the union Members and SEC Chairman Pitt addresses

basic working conditions.’’

And it goes on to describe that. Of course, the fact that they have

been at it for 532 days, a year and a half, is in itself not a very

good comment. But I am hopeful that this agreement will be approved and the SEC will be able to get its labor/management relations back on track.

Now one of the issues that was not addressed in this agreement,

but is very important, concerns pay. Earlier this year, Chairman

Pitt distributed $25 million in raises without union involvement,

according to this article, which sparked a demonstration in front of

the SEC’s Washington headquarters. Union workers carried signs

mocking the pay raises as a ‘‘Pitt-ance.’’

Our bill significantly increases the authorization for the SEC. It

takes it up to $776 million.

The Senate Appropriations Committee, the Subcommittee that

deals with the SEC budget, has put in $750 million in the budget

for the year beginning October 1. And when we took it up, we said

that there are three things that we thought the Commission really

needed to do with this money.

One was pay parity in all respects, both salary and benefits. Two

was upgrading the technical systems, the computers and so forth.

Three—and this was something that Senator Dodd and Senator

Corzine had been pushing—well, they had been pushing the whole

thing strongly, but additional accountants and examiners. In other

words, to boost up the staff.

I am just interested in how important you think an enhanced

budget is for the SEC, how strongly you will fight for it? And on

that, I make the observation, if the Chairman of the SEC Commissioners does not fight for the budget, I do not know who will. And

how important you think this infusion of resources is to the ability

of the SEC to do its job?

Why don’t I go to you first, Ms. Glassman. You have been down

there now about 6 months, I guess.

Ms. GLASSMAN. Right, I have been there 6 months, and I could

not agree more that we need more money.

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We desperately need more people. You mentioned the lawyers,

the accountants. Don’t forget the economists. We need more of

those as well.

[Laughter.]

Chairman SARBANES. I apologize to the economists.

[Laughter.]

Mr. CAMPOS. Commissioners?

[Laughter.]

Ms. GLASSMAN. We need technology. We need vastly improved

technology. And pay parity will go a long way to helping our retention efforts. Our retention is much worse than our sister agencies,

the banking agencies. Part of the reason is, or probably most of the

reason is, they are paid better than we are. Pay parity will bring

us up to those levels.

The simple answer is, yes, we need the money. We will use it.

You know the Chairman has a special study, apparently the first

of its kind, to evaluate how we are currently using our resources.

The results of that study will help us allocate the new resources

appropriately and efficiently. But I know we need them.

Chairman SARBANES. The GAO actually, at our request, did a

study on the pay parity issue and the turnover at the SEC. And

the comparison with the other financial regulatory agencies is quite

marked in terms of retention. Generally, the cause is perceived to

be that they have the pay parity and the SEC does not.

Mr. Campos.

Mr. CAMPOS. Senator, you could not be more correct in pointing

out that the resources are absolutely essential. The SEC and its

people are dedicated, hard-working, but they need more resources.

We need more people, enforcement, simple things like trial technology to be able to bring these enforcement actions, are desperately needed. More capable lawyers who can bring these complicated cases.

Keep in mind that trying a case that involves financial fraud is

a very complicated endeavor. You need not just bodies, but people

who have the experience, people who have the capability to present

a case effectively and successfully in court and to obtain the correct

results.

Parity, without question, has to happen, must happen, and is

needed. And the staff at the SEC expects it, and I assume that is

a given. The budget that has been thrown out is fair and every one

of those dollars can be used well by the SEC.

Chairman SARBANES. Good. My time is expired.

Senator Enzi.

Senator ENZI. Thank you, Mr. Chairman.

Senator Dodd is the Chairman and I am the Ranking Member

on the Securities Subcommittee of the Banking Committee. One of

the things that we were looking at when we first got these jobs is

doing a review of all of the securities laws, doing a complete review. I would be interested in both of your opinions on whether we

should do that.

Ms. GLASSMAN. I will go first. The laws are 70 years old. And so,

I think a review is warranted, although the environment being

what it is right now, in terms of priorities, it may not be timely

to do this right now.

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But I do agree that it is important, and it ties in with something

that Chairman Pitt has asked me to do, which is to oversee a review of all of our regulations, to make sure that they are efficient

and effective in the current environment, given all the changes in

the markets and technology.

I have started the process. We are beginning that review. One of

the potential outcomes of the review is, on certain regulations, we

will determine that there might be a need for legislative change.

So, I would look forward to working with the Committee, if you

are doing a law review as we do our regulation review, to coordinate and get them both done together.

Senator ENZI. Thank you.

Mr. Campos, any comments?

Mr. CAMPOS. I agree generally, Senator Enzi. I believe that is a

worthwhile endeavor. The laws are 70, 80 years old.

Nonetheless, the basic premise of the law for Federal securities

regulation is material information disclosure. It is not merit-based,

which some States still have. So the essence of the way our securities laws work still seems to me to be a fairly ingenious creation

and allows it to be a live set of laws which, through rulemaking

and through the various efforts that this Committee and the Congress have done, have allowed it to be very flexible and to keep up

with the demands of technology and the changes in the economy.

Senator ENZI. Thank you.

Do either of you have a position on the existing Nasdaq exchange

application?

Ms. GLASSMAN. The issues are extremely complex. Balancing the

evolving market structure with the more traditional market structure is taking a lot of thoughtful review by the staff and ultimately,

by the Commissioners. As I said, I think all of the market structure

needs to be looked at in a comprehensive way. That application has

to be part of that comprehensive framework.

Mr. CAMPOS. I believe it is a great testament that we are looking

at fundamental changes that would work here. It is a very complex

issue with many sides and many views. The SEC staff has been

working very diligently on coming up with their positions and providing information back to this Committee and others who requested it. I have an open mind and I believe in general that the

fundamental changes will be positive.

Senator ENZI. Thank you. I will yield the rest of my time.

Chairman SARBANES. Thank you.

Senator Akaka.

Senator AKAKA. Thank you very much, Mr. Chairman.

I want to commend the Chairman for all of his work on the bill

that we just passed. It was so outstanding to have 97 of our colleagues vote for a bill that was crafted by the Chairman and Members of this Committee. That bill will be helpful in what you both

will be doing.

I have a special interest in financial education along with several

of my colleagues on this Committee. After your recess appointment,

Ms. Glassman, in January, you have had several months to become

familiar with the agency. As you know, the SEC works with public

organizations to foster educational programs and provides neutral

information about saving and investing. What is your evaluation of

69

the SEC’s current efforts to educate the public about investing and

what should be done to enhance these programs?

Ms. GLASSMAN. I share your interest in investor education. It is

critical to making sure that investors make wise decisions. As an

economist, I think it is important that markets have the information that is fair and clear, but also that the investors have the

knowledge to understand that information. So as I said, investor

education is critical.

Our investor education group is terrific. They are so enthusiastic

and they are so good. Since I have been there, we have had our

forums for corporate governance and accounting oversight. We have

had an investor summit. Our investor education group has put on

a program in Norfolk, along with the military, for specific help in

investor education. We have wonderful brochures. We have a great

website. We had a terrific scam. I do not know if you read about

it, but it was a scam on the Internet in which people were told

about this wonderful new investment and, if they clicked through,

ultimately, it was one of those too-good-to-be-true investments,

which of course it was. If they clicked through to the end, they got

a notice that said, if you were willing to put your money in this,

you have made a big mistake, essentially, and provided some information. So, as I said, I think our programs are good.

However, there is a lot more to do. I have seen the statistics on

financial literacy in the high schools, and for adults, and they are

abysmal. We really need more investor education in the schools,

through the work place, wherever people will listen, especially for

retirees because they are the ones who now have lump sums of

money to put in our markets that have gotten more complex.

In my own small way, I have worked on this issue. I am on the

board of a preschool and child care center for low-income families

and I have helped with financial literacy programs there. I just

think it is critical, and we all need to work together to improve it.

Senator AKAKA. Thank you for that response.

Mr. Campos, I will ask you the same question. What are your

thoughts on the issue of financial education?

Mr. CAMPOS. I think it is extremely important, Senator.

We have a system in place here in America, the greatest marketplace in the world, the envy of the world. And yet, most Americans

do not understand how stock prices work. They do not understand

that they can lose money. Most Americans cannot read a financial

statement. They do not understand what a balance statement is.

It is extremely important that our public gets educated. And in

this way, more Americans will eventually be able to participate in

the capital and the wealth creation that our system provides.

It is extremely difficult. I commend you for that goal. It is extremely difficult to execute it. There are so many different areas

that have responsibility here. I would like to see something in the

high schools that the SEC and other agencies could participate in

in some way that is an appropriate use of the taxpayers’ money.

But high school students need to know simple ABC’s of finances.

They need to know how to use credit cards. They need to know that

they can run out of money in their checkbooks. Simple things like

that are so crucial.

70

I agree with you. I feel strongly about that issue. If this Senate

honors me by giving me the confirmation, that will be one of my

areas of great interest at the SEC.

Senator AKAKA. Well, I thank you for your responses. I feel that

having people understand how things work will play an important

part in restoring public confidence in the financial markets. I commend you for it.

Mr. Chairman, my time is up. Thank you very much.

Chairman SARBANES. Thank you very much, Senator Akaka.

I would just note that this Committee has taken an active interest in financial education. We held a couple of hearings, including

one with Chairman Pitt, Chairman Greenspan, and Secretary

O’Neill. And Members of this Committee have been very active.

Senator Enzi, when he was in the State Senate in Wyoming, was

instrumental in putting in place important provisions at the State

level with respect to financial education. And he has sustained that

interest here. Both Senator Akaka and Senator Corzine have taken

a number of initiatives, and of course, Senator Dodd and Senator

Allard and myself all remain interested.

So, we look forward to interacting with both of you. This is not

a front-burner issue, so to speak. But in the total picture, it is quite

important and it could make a significant difference.

The fact is we have a lot of financially illiterate people, but who

have some money and they are caught up. They are being

scammed, as it were, left and right. We need to work at addressing

that.

Senator Allard.

Senator ALLARD. Thank you, Mr. Chairman.

The Chairman made the statement that you will have additional

resources coming your way, and that will be by way of dollars, primarily. I agree that you need to have additional resources. Have

you given any thought on what you are going to do to focus your

mission, how you are going to direct these additional resources in

order to more clearly be able to accomplish the mission of the Securities and Exchange Commission?

Ms. GLASSMAN. At this point, I think we all have our own views.

Assuming confirmation goes forward, we will have four new Commissioners.

Senator ALLARD. Would you like to share with me some of your

views?

Ms. GLASSMAN. My personal views? The highest priority in the

short term is more enforcement staff. We are really stretched to the

limit. The enforcement people are stretched to the limit as are the

accountants, in the current environment. So staffing is obviously

critical. And pay parity. That is a given.

I also think we really need improved technology. If we had better

technology, for example, to better prioritize our reviews of the filings, from the perspective of which are the ones that are most likely to be a problem, that would free up resources and allow us to

leverage better what we have. So improved technology is very important.

Regarding the specific systems, I am not a technology expert, but

I know there are a number of areas where our technology is pretty

71

obsolete and we really do need more state of the art technologies.

That would be one of my highest priorities.

Senator ALLARD. Mr. Campos.

Mr. CAMPOS. Senator, I believe that, as all of the Members have

mentioned in their remarks, the lack of public confidence issue is

so large right now. The swiftest way to promote that is through

effective enforcement.

To use a very simple analogy which is not perfectly appropriate,

but you need more cops on the beat, essentially, to do the work and

to do it well. And I think that has great significance.

People fear there will be over-enforcement, I do not believe in

those fears. The dedication, the integrity, the professionalism of the

people who will be doing the enforcement is paramount. And the

effort there to deal with all of the different problems arising right

now, we need to work through that backlog.

So that I think is the foremost use. All of the divisions have very

important missions and all of that would be something that would

obviously be presented and carefully thought about at the Commission, with the full Commission.

Priorities are just like managing any limited resources in any

company. We will make decisions and we will share them with this

Committee and anyone else who is interested, and pursue it.

Senator ALLARD. Both of you have mentioned enforcement is an

important part of where we need to focus our additional resources.

What do you see as the biggest challenges to strengthening enforcement?

Ms. GLASSMAN. Right now it is pay and it is positions. We have

a terrific staff. The enforcement group does a wonderful job. Our

litigators are really strong. But because of our budget constraints,

we have been losing the really important middle management

layer. That is the layer that we have to recruit from the private

sector because we need people with the experience.

So the challenge is the pay and the budget. I think people want

to work for the SEC. I have met a huge number of the staff. I have

tried to meet all of them over the 6 months that I have been there,

and have found them to be really dedicated.

People on the outside also want to work for us, so if we can pay

them and if we can get past our budget constraints, then I think

we will get the people we need. But we really need good people.

Senator ALLARD. Now what is the problem there? Do we have

people coming in and getting on the SEC staff and it is a careerbuilder? And then they see that there are other opportunities open

to them in the corporate world because they are on the SEC staff?

What is happening there?

Ms. GLASSMAN. I think, as in any Government agency, that is

part of it. You get the Government experience and go to the private

sector, although a number of people have come back. They have

gone to the private sector and come back to the SEC. But I think

some of it is just the pay. It is difficult, given the opportunity cost

at the other agencies, as well as in the private sector. There is a

limit to how long people can stay within our pay ranges and raise

a family and pay for education and all of those other things that

they have to look forward to with children.

Senator ALLARD. Mr. Chairman, thank you.

72

Chairman SARBANES. Thank you, Senator Allard.

Senator Dodd.

Senator DODD. Thank you, Mr. Chairman. Again, my congratulations to both of you.

A couple of things. First, I appreciate Senator Enzi bringing up

the potential of some hearings on the Securities Subcommittee

looking at all the rules. But I also take, Ms. Glassman, your points.

I think right now we should just try and get the accounting reform

bill done before we start having a large-scale revision. I do not

want to frighten the markets if we are going to start rewriting the

rules here altogether.

[Laughter.]

But it is something that we should look at and I appreciate both

your comments on that.

Second, let me underscore something that Senator Sarbanes said,

and that is about the reports this morning on the labor issues. I

am not going to ask you to comment on this, but I will just make

the statement myself and urge you, as two people who will be at

the Commission, to see if we cannot resolve these labor issues.

This does not help in the midst of everything else, in light of

your responses to Senator Allard’s questions regarding the major

issues down there with pay and longevity, retention, and so forth.

Labor issues do not help that matter when you are trying to track

good people if it looks as though this is a place where people do

not get along between management and the workforce. So it is

going to be critically important that those issues be resolved. And

I do not know whose responsibility that solely is, but I suspect the

Commissioners can play a role here. I would urge you to do so.

You both have remarkable backgrounds and extensive experience. And there has been lately this notion of what someone described, I cannot recall who said it, but guilt by occupation, in a

sense, and I speak of the accounting profession, Ms. Glassman.

I have great respect for those people. I know there are others

who feel this way. I certainly believe that Arthur Andersen should

have been brought on the carpet. I am not sure 92,000 people

should have lost their jobs worldwide. And I am waiting for someone at Enron to get a parking ticket. I hope they do in all of this.

But I would like you to comment about the accounting profession.

What needs to be done? It has been a little disconcerting for those

of us up here who helped craft this legislation that we now have

before us, that so many leaders of the accounting profession were

so adamantly opposed to this bill. Now many of them I think are

coming around a bit. But it did not help, it seems, when we were

trying to initiate some reforms in this area, to have an accounting

profession be so adamantly opposed to what we were trying to do.

I wonder if you might just share with us some of your own

thoughts on what you think needs to be done to get this critically

important profession back on its feet again, in a sense, at least the

perception of it. And I wonder if you might also just comment on

what you think of this bill, the accounting reform bill. I am going

to ask both of you to talk about it, to give us your general thoughts

of what you think of this legislation.

73

Ms. GLASSMAN. I am very supportive of the legislation. I think

it accomplishes a number of goals that I personally think are critical for the accounting industry.

Senator DODD. Can you speak up just a little? I apologize for the

microphones.

Chairman SARBANES. Just pull the microphone close to you.

Ms. GLASSMAN. Is that better?

Senator DODD. Yes.

Chairman SARBANES. Even closer.

Ms. GLASSMAN. The accounting industry needs better oversight,

both substantively and in terms of perception. This bill provides a

lot of the elements of the oversight that are important. I think the

oversight has to be independent of the profession, and the way the

board is set up in the bill accomplishes that. The funding has to

be independent. It cannot rely on the profession. And the bill does

that as well.

The reviews have to have a dedicated staff so that it is not the

accounting firms reviewing each other, at least not as the leaders

of the reviews. I am not quite sure how the staffing is going to

work on the reviews, but they need to be led by people who are not

at the firms.

Those are some of the critical issues. Also, the reviews need to

be timely. At least for the larger firms, the reviews need to be

every year, which is in the bill.

Those things are critically important and I think it is unfortunate that the accounting firms are lobbying you. Hopefully, they

will see that this is beneficial for them because the markets need

to have confidence in the accounting firms, as well as in the companies themselves.

Senator DODD. Exactly. Well, what needs to be done by the firms

themselves, just the internal structuring? Is there something going

on in the structure of accounting firms that is creating this kind

of problem that is giving the public this perception that seal that

you guys give all the time that we have relied on for so many years

is now raising doubts about whether or not that seal is a good seal?

Ms. GLASSMAN. The firms themselves have to look at the way

they compensate people, how they incent people, and to make sure

that they are not creating conflicts within their own partnership.

Senator DODD. Someone said to me that a lot of the problems

arose here when this consulting function became the leader rather

than the audit function. And the divisions within these businesses

between the auditing/consulting function raised an awful lot of the

problems that we have seen in the last few months. What do you

think of that opinion?

Ms. GLASSMAN. There appears to be some truth to that. However,

there are some good reasons to have certain consulting functions

at the accounting firms because of the specific expertise that they

bring. I am not an accountant. I am an economist.

Senator DODD. I know that.

Ms. GLASSMAN. And so, I never actually participated in an audit.

There are some areas of expertise that the consulting or advisory

functions bring to the audit. There are some that are not critical

and may cause some conflicts. I think it is important for the firms

74

and the oversight board to sort those out and create the right incentives, both internally and externally.

Senator DODD. Mr. Campos, quick answer on the bill. What do

you think of the bill?

Mr. CAMPOS. I think that the bill is a tremendous piece of work.

It is almost revolutionary to get this enacted at this particular

time. It does exactly what Commissioner Glassman is referring to.

It creates an oversight board. It provides crucially a requirement

of independence.

I believe that the consulting that is prohibited is right on the

money. If the audit function requires expertise, then, ultimately,

the audit function will charge more for its services. And its services

are crucial for confidence in financial statements.

So it is worth more money. That is the simple fact. And just an

observation: I think anybody who is in business has difficulty

changing. This essentially is tough love in terms of this legislation.

No one is against accountants. But they serve a very unique function under our system. This bill will require firms to do business

differently. But they do not have to eliminate consulting. They just

cannot do it for the same company they are auditing.

Senator DODD. Thank you both.

Thank you, Mr. Chairman.

Chairman SARBANES. Thank you, Senator Dodd.

Senator Gramm.

STATEMENT OF SENATOR PHIL GRAMM

Senator GRAMM. Mr. Chairman, thank you very much.

I was down at Judiciary to introduce Priscilla Owen. By the way,

I thought every committee of the Congress introduced the visiting

Members first and let them speak. We do it right. Judiciary lets

those on the committee speak. I hoped to be back up here quickly.

Chairman SARBANES. They probably saw it as an opportunity to

lecture you this morning.

Senator GRAMM. Yes. Well, it was like many lectures I have

heard. People used to say that they were worried about college professors indoctrinating. And I used to say, if they are no better at

indoctrinating than they are at teaching, they are not dangerous.

[Laughter.]

I have had an opportunity to visit with both of our nominees. I

think that they are both excellent people. I intend to support them.

I would just like to give a little lecture of my own.

[Laughter.]

And that is that you are going into an independent agency at a

time when there is going to be tremendous criticism. We probably

have a Chairman who is as qualified as anyone who has ever been

Chairman and who has probably the most distinguished background of anyone who has ever been Chairman. And who was confirmed unanimously. And now people line up to denounce him, I

guess because by doing so, you get your name in the paper. And

if you want to be quoted, you have to be more extreme than the

last guy who made the statement.

But in any case, my concern, and I just leave it with you since

I have already decided to vote for both of you, is that with all of

this criticism coming from outside the Commission, there is going

75

to be this real tendency to have divisions in the Commission and

to try to show those divisions publicly, as people take this criticism

personally.

There is something to be said in working in a collegial body. We

have a Senator here, Senator Byrd, who tries to remind us of our

responsibility to the institution. We do not always listen to the lectures, but they are always right. I just want to encourage both of

you as Members of the Commission to realize it is not personal.

Many of these criticisms have no purpose other than promoting the

ends of the criticizer.

In expressing and working for what you think is right within the

Commission, I hope that both of you will do it in a constructive

way. If there is ever been a time where we need a Commission that

works together and that really proves that an independent agency

can embody people from very different backgrounds with very different opinions and yet be effective, I think that time is now.

So, I want to commend both of you to basically realize, to explain

to your children that you are really not as bad as they are going

to read in the paper.

[Laughter.]

Then go on about your business doing a good job. Remember the

old Lincoln adage. Everybody was criticizing Lincoln. He had the

best response I have ever heard. He said that if I spent my time

trying to defend myself against these criticisms, I would never get

anything done. And in the end, if the critics prove right, having a

league of angels swear I was right will make no difference. If you

do a good job, in the end, people will note it and they will appreciate it.

Finally, let me just thank both of you for your willingness to

serve. One of the things that I have always been impressed by in

sitting on this Committee is I know there are people out there who

think everybody has some kind of angle and that they are all doing

this for some promotion of their own individual interest. I am continually struck by people who are willing to make great sacrifices

to serve the greatest country in the history of the world. It is a

country that deserves being served, and I appreciate both of you

being willing to serve in this important agency at a very critical

time.

And so, I am proud to support both of you, and I thank you, Mr.

Chairman.

Chairman SARBANES. Thank you, Senator Gramm.

Ms. GLASSMAN. Thank you.

Chairman SARBANES. Senator Corzine.

Senator CORZINE. Thank you, Mr. Chairman.

Let me echo, as I am sure all my colleagues would, the sentiment

that Senator Gramm reflects on service.

Chairman SARBANES. Senator Gramm will be leaving the Senate

at the end of this year. As we get all these people in place, there

will be a SEC there for quite a period of time that will reflect his

input here.

Senator GRAMM. And then I will be able to become rich in this

environment that you are going to create.

[Laughter.]

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Senator CORZINE. Ms. Glassman, you are an economist. You

made the point several times today. What do you think, and particularly connecting it with some of the remarks, or at least the

thrust of the questions that Senator Akaka brought forward, about

financial literacy in this country? How do you think the American

investing public understands the footnoting of options, and whether

they are able to derive the implied expense that might be there, or

maybe some of us think should be clearly reflected? I would certainly like to hear your opinion on that as well.

But the important issue is do you think when you put together

the financial literacy concerns that both of you have expressed and

then look at the options questions, have we had a misallocation of

capital as a function of how our income statements have been presented to the investing public?

Ms. GLASSMAN. The simple answer to your first question is I

would be astonished if most Americans understood the footnotes in

the financial statements. But the real question is on the question

of options.

As an economist, I think stock options, do represent an expense

to the shareholders. Clearly, they dilute the shareholders’ interests.

Therefore, it is important not only that shareholders understand

the impact of that dilution on their interest, but also that they

have the ability to vote on those options, at least to the extent that

they are material. At the Commission, we have definitely been

moving in that direction.

Whether options should be explicitly expensed or very clearly

stated in the management discussion or upfront in the report, I believe is an accounting issue that is best left to FASB. But whatever

the outcome, I think it is critical that options are clearly understood. The market is already recognizing this. The market now understands the importance of options.

Senator CORZINE. As an SEC Commissioner, you believe it

should best be left with FASB?

Ms. GLASSMAN. The specific accounting treatment should be left

with FASB. However, I think it is important that the information

itself be pulled up out of the footnotes somehow, whether it is in

the MD&A or explicitly expensed. A number of companies, as you

know, are already expensing it. The problem, and the reason it is

not a simple decision, is that the valuation of the options is very

complex. Getting agreement on what makes sense in terms of valuing them is really the hard part.

Chairman SARBANES. I would point out to my colleagues that the

second set of lights on the vote—there is a vote on—have gone off

just now.

Jon, why don’t you continue? It is my intention when you finish,

if you are satisfied at that point, to adjourn the hearing instead of

resuming. But I will come back if anyone wants to pursue it.

Senator CORZINE. I would love to hear the shorthand response to

the allocation of capital that many economists and econometricians

have spoken to that we have misallocated, potentially.

Ms. GLASSMAN. To the extent that investors in the market did

not understand the impact of the options, and I believe that until

relatively recently, most people did not understand the impact,

then, clearly, resources have been misallocated.

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Senator CORZINE. Mr. Campos, any comments on any of these

issues?

Mr. CAMPOS. It is a complex issue. I think all who have studied

and all academics right now would agree with Chairman Greenspan and Warren Buffett that options are compensation and need

to be treated as such. Clearly, options dilute earnings. You would

hope that sophisticated financial analysts would understand that

and have been factoring that in, but clearly, the public hasn’t.

The other issue that I am concerned about is if we go down this

road, which I think is appropriate, and FASB should be allowed because they have done a lot of work on this issue, to finish up, if

GAAP ends up essentially requiring expensing of options, when you

have small companies that are not publicly traded, that are not

publicly held, that essentially are start-ups, you have a huge difficulty of valuation of their options. And a lot of those companies’ ability to attract talent has to do with those options. The American

Dream, if you will, of creating a company and creating value. Those

options are essential. And how do you value those options when

you have only an idea to speak of at that particular point in time?

Senator CORZINE. Thank you.

Chairman SARBANES. Well, I want to thank the witnesses. Ms.

Glassman, I have to ask you a question because it comes up in the

press. Some assert this Commissioner came out of the accounting

business, that that is a troubled area right now that needs tight

oversight and supervision. They have raised questions about people

taking over the Commissionership coming out of that background.

What would your response be to that?

Ms. GLASSMAN. I have had a 30 year career. The last five were

at an accounting firm as an economist. That experience has been

very helpful in my understanding of how the accounting industry

and the accounting profession do their jobs and how they are organized. But I do not work for them any more. For the past 6 months,

I have worked for the American public. And if confirmed, I will continue to work for the American public.

Chairman SARBANES. Thank you very much. I thank both of our

nominees. It has been a very good hearing, and the hearing stands

adjourned.

Mr. CAMPOS. Thank you.

Ms. GLASSMAN. Thank you.

[Whereupon, at 11:16 a.m., the hearing was adjourned.]

[Prepared statements, biographical sketches of nominees, and response to written questions follow:]

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PREPARED STATEMENT OF CYNTHIA A. GLASSMAN

MEMBER-DESIGNATE, U.S. SECURITIES AND EXCHANGE COMMISSION

JULY 23, 2002

Chairman Sarbanes, Senator Gramm, and distinguished Members of the Committee, I am deeply honored to appear before you today to seek your approval of

my nomination by President Bush to serve as a Member of the Securities and Exchange Commission. If confirmed by the Senate, I look forward to continuing to fulfill the responsibilities of an SEC Commissioner along with my new colleagues.

Accompanying me today on this important occasion are my husband, Dr. Leonard

Glassman, my son and his wife, Kenneth and Dr. Melissa Glassman, and my mother-in-law, Mary Glassman.

I am a PhD economist with 30 years of experience analyzing financial services

regulatory policy issues in the public and private sectors. I have worked at the Federal Reserve, two small consulting firms, a large accounting firm, and for the past

6 months, the SEC. Specific expertise that I bring to my responsibilities as a Commissioner includes risk management, competitive analysis, and financial reporting.

I have also specialized in conducting analyses on the continuing relevance of a wide

range of financial services regulations in a changed business environment.

As an economist, I believe strongly in letting markets work. Nevertheless, there

is an important role for regulatory oversight to ensure that competition is fair, and

that information provided to customers is clear, accurate, and complete. Regulations

should create the right incentives to accomplish their goal, should be based on a

good understanding of how the business works, and should not result in unintended

consequences, either for regulated companies or for their customers. In the current

environment, the need for strong regulatory oversight could not be more apparent.

When I was being considered for an appointment to the Commission last fall, I

had identified several issues as important to the SEC’s mission:

• Are the Depression-era rules under which the SEC operates still relevant?

• Is the regulatory process providing the right incentives, or is it resulting in unintended consequences?

• Is the securities market structure appropriate?

• Are investors receiving the information they need about domestic and global companies to make good investment decisions?

• Is investor education adequate for our complex financial markets?

Recent events have shown how critical these issues are. Almost 6 months into my

recess appointment as SEC Commissioner, I am outraged at the financial fraud,

misleading information, and investor losses that have come to light. Given the extraordinary events of the last year, the Commission’s number one job right now is

to restore investor confidence in our markets and market participants. There is no

question that companies must be held accountable, and individuals need to be held

responsible, for adhering to both the letter and the spirit of the Federal securities

laws. But the SEC, in partnership with the Congress, the Administration, and the

States, must continue to be a driving force in assuring that we have the appropriate

securities laws and rules and that we enforce them vigorously.

I began my career in the public sector with the Federal Reserve System, and I

am proud to return to public service as a Commissioner of the SEC. My 6 months

of hands-on experience as a Commissioner have only increased my respect for the

agency and its entire staff and my appreciation of the challenges the Commission

faces.

Thank you, Mr. Chairman, Senator Gramm, and Members of this Committee for

this opportunity. I would be happy to answer any questions you may have.

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PREPARED STATEMENT OF ROEL C. CAMPOS

MEMBER-DESIGNATE, U.S. SECURITIES AND EXCHANGE COMMISSION

JULY 23, 2002

Chairman Sarbanes, Senator Gramm, distinguished Members of this Committee,

I cannot adequately describe to you the sheer delight that I feel and the deep appreciation that I have for the opportunity to appear before you today. I am deeply honored to have been nominated to serve my country on the Securities and Exchange

Commission.

Please allow me to introduce to you my wife, Mini. Mini and I were high school

sweethearts. She is my life partner, my closest friend, and wisest adviser. Mini is

a graduate of Harvard Medical School and is a practicing physician. We have been

blessed with two sons, David, who is 16 and Daniel, who is 12. Our sons bring Mini

and me joy and pride every day of our lives. Regrettably, our sons could not be here

with us today.

With your indulgence, I will very briefly share some of my life’s experiences and

perspectives and then provide a few observations about the unique challenges facing

the SEC.

I am Mexican-American. My life’s journey began in the small town of Harlingen,

Texas, near the Mexican border in the southern tip of Texas. I was raised in a humble household, in which only Spanish was spoken. My father, who could not be here

today, is 88 years old. Like many in his generation, my father had to drop out of

school in the sixth grade to help on the family farm. Later, when his country needed

him, my father volunteered and enlisted in the U.S. Army to serve in World War

II. He saw combat in Europe and was wounded in Germany and became partially

disabled. During my childhood, my father often had three or four jobs at one time

to make ends meet and to provide for our family. My brothers and I would often

help my dad in doing construction or whatever extra job he had committed to do.

He taught my brothers and sister that honest hard work was noble, that service to

our country was honorable, and that education was the most valuable possession a

person could have.

My dad had a simple version of the American Dream. He believed that hard work

and sacrifice would produce better opportunities for his children and permit him to

live with dignity in his old age. Like millions of Americans today, my dad today is

retired and lives on his savings, Social Security, and pension benefits. The series

of recent business scandals and the resulting crisis of confidence in our financial

markets threatens the future of my father and millions of retirees. In my home town

of Houston, Texas, I have seen neighbors, who had worked for years for a certain

major company, suddenly and without warning, be without a job, without meaningful severance, and with their retirement accounts wiped out. I worry, that inevitably, these corporate abuses may create a separate crisis of confidence and that the

American public will come to question whether the American Dream has become an

illusion. If confirmed, I pledge to work tirelessly with you and my colleagues at the

SEC to restore the faith of the public in the integrity of our financial markets.

I have been blessed during my life to have had the opportunity to pursue higher

education and to serve my country. As you know, apart from my military service,

I was a Federal prosecutor in Los Angeles. I investigated, tried, and convicted Members of major criminal enterprises and sent them to jail. I am informed that if the

Senate chooses to confirm me, I will be the first person to serve as an SEC Commissioner with a law enforcement background. If confirmed, I will bring my experience

and accept the heavy responsibility to fairly and carefully judge and determine the

appropriate enforcement action and sanctions in the many pending and future SEC

investigations.

As you also know, I have spent about 16 years in private legal practice as a corporate transactions lawyer and as a corporate litigation and trial attorney. For the

past few years, I have been an executive and part owner of a small private company.

If confirmed, I will bring to the Commission my experience in having dealt with the

challenges of building and operating a company in the private sector. One of the

missions of the SEC that I will embrace if confirmed is to promote an environment

in which small, entrepreneurial, and emerging companies can raise capital efficiently. As we all know, small and emerging companies will produce much of the

Nation’s future economic growth, creating a large share of tomorrow’s new jobs and

innovation, and such companies will help to validate the American Dream. Over the

years, the SEC together with the able oversight of this Committee has earned universal respect and admiration. If confirmed, I promise to use all of my God-given

abilities to uphold the SEC’s legacy of exercising fair and tough-minded regulatory

authority.

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The Senate last week took a historic and courageous step restoring the public’s

confidence in the financial markets by passing the Public Company Accounting Reform and Investor Protection Act of 2002. I, along with the rest of the Nation, am

in your debt Chairman Sarbanes for the crucial role that you and this Committee

played in bringing about this legislation. If I am honored by being confirmed, I look

forward with great anticipation to working with you Mr. Chairman, Senator

Gramm, and this Committee, and with Chairman Pitt and my fellow Commissioners

and the talented staff at the SEC. There is much work to be done. However, I

believe that we can together succeed and ably discharge our sacred trust and our

obligations to the American people.

Thank you for this opportunity to appear before you today. I will do my best with

any questions you may have.

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RESPONSE TO A WRITTEN QUESTION OF SENATOR CORZINE

FROM CYNTHIA A. GLASSMAN

Q.1. Senator Corzine would like to give both nominees the opportunity to answer the second part of his question regarding whether

there has been a misallocation of capital given the current

footnoting of options.

A.1. To the extent that the average investors do not understand

the implications of a company’s grant of stock options on the company’s earnings, their investment decisions are not fully informed.

Investments made on the basis of such an inadequate understanding would result in the misallocation of resources because

those companies that issue such options may be perceived to have

higher earnings than they would if the impact of the options were

fully understood.

While information on the impact of stock options is contained in

the footnotes to financial statements, it is my impression that, at

least until recently, many investors were not aware of the information and what it meant for them. Given the recent publicity on the

issue, investors, analysts, and the media are much more cognizant

of the dilutive effect of stock options and the impact of stock options on investors’ returns. More transparency of the impact of

stock options could only result in better resource allocation.

RESPONSE TO A WRITTEN QUESTION OF SENATOR CORZINE

FROM ROEL C. CAMPOS

Q.1. Senator Corzine would like to give both nominees the opportunity to answer the second part of his question regarding whether

there has been a misallocation of capital given the current

footnoting of options.

A.1. Assuming the Senator refers to capital that has been used to

purchase equity, the answer would depend on the quality of the

analysis done in evaluating the financial statements. Presumably,

sophisticated analysts and users of financial statements have used

and interpreted footnotes and understood the consequences and use

of stock options in effecting earnings per share and the ultimate

net income results. To the extent users of financial statements

have not been sophisticated users of financial statements, then the

impact of stock options may not have been properly assessed to determine the prospects of an investment in that company. Clearly,

most of the Members of the public are not sophisticated users of

financial statements and likely have not understood the impact on

earnings and future share price from the existence of stock options.