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86–065 PDF 2003

S. HRG. 107–883

NOMINATIONS OF: ALBERTO F. TREVIN ̃O

CAROLYN Y. PEOPLES, RAFAEL E. CUE ́LLAR

MICHAEL D. SCOTT, JOHN M. REICH

DIANA E. FURCHTGOTT-ROTH, DEBORAH DOYLE

McWHINNEY, AND ARMANDO J. BUCELO, JR.

HEARING

BEFORE THE

COMMITTEE ON

BANKING, HOUSING, AND URBAN AFFAIRS

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

ON

NOMINATIONS OF:

ALBERTO F. TREVIN ̃ O, OF CALIFORNIA, TO BE ASSISTANT SECRETARY FOR

POLICY DEVELOPMENT AND RESEARCH, U.S. DEPARTMENT OF HOUSING

AND URBAN DEVELOPMENT

CAROLYN Y. PEOPLES, OF MARYLAND, TO BE ASSISTANT SECRETARY FOR

FAIR HOUSING AND EQUAL OPPORTUNITY, U.S. DEPARTMENT OF HOUSING

AND URBAN DEVELOPMENT

RAFAEL E. CUE ́LLAR, OF NEW JERSEY, TO BE A MEMBER OF THE BOARD

OF DIRECTORS OF THE NATIONAL CONSUMER COOPERATIVE BANK

MICHAEL D. SCOTT, OF NORTH CAROLINA, TO BE A MEMBER OF THE BOARD

OF DIRECTORS OF THE NATIONAL CONSUMER COOPERATIVE BANK

JOHN M. REICH, OF VIRGINIA, TO BE VICE CHAIRPERSON OF THE BOARD

OF DIRECTORS OF THE FEDERAL DEPOSIT INSURANCE CORPORATION

DIANA E. FURCHTGOTT-ROTH, OF MARYLAND, TO BE A MEMBER OF THE BOARD

OF DIRECTORS OF THE FEDERAL HOUSING FINANCE BOARD

DEBORAH DOYLE MCWHINNEY, OF CALIFORNIA, TO BE A DIRECTOR OF THE

SECURITIES INVESTOR PROTECTION CORPORATION

ARMANDO J. BUCELO, JR., OF FLORIDA, TO BE A DIRECTOR OF THE

SECURITIES INVESTOR PROTECTION CORPORATION

OCTOBER 3, 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

MARTIN J. GRUENBERG, Senior Counsel

JOSPEH R. KOLINSKI, Chief Clerk and Computer Systems Administrator

GEORGE E. WHITTLE, Editor

(II)

CONTENTS

THURSDAY, OCTOBER 3, 2002

Page

Opening statement of Chairman Sarbanes ........................................................... 2

Opening statements, comments, or prepared statements of:

Senator Allard ................................................................................................... 2

Prepared statement ................................................................................... 35

Senator Gramm ................................................................................................ 3

Senator Reed ..................................................................................................... 9

NOMINEES

Alberto F. Trevin ̃ o, of California, to be Assistant Secretary for Policy Development and Research, U.S. Department of Housing and Urban Development 3

Prepared statement .......................................................................................... 35

Biographical sketch of nominee ....................................................................... 36

Carolyn Y. Peoples, of Maryland, to be Assistant Secretary for Fair Housing

and Equal Opportunity, U.S. Department of Housing and Urban

Development ......................................................................................................... 4

Prepared statement .......................................................................................... 40

Biographical sketch of nominee ....................................................................... 42

Rafael E. Cue ́llar, of New Jersey, to be a Member of the Board of Directors

of the National Consumer Cooperative Bank .................................................... 6

Prepared statement .......................................................................................... 49

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

Michael D. Scott, of North Carolina, to be a Member of the Board of Directors

of the National Consumer Cooperative Bank .................................................... 8

Prepared statement .......................................................................................... 59

Biographical sketch of nominee ....................................................................... 60

John M. Reich, of Virginia, to be Vice Chairperson of the Board of Directors

of the Federal Deposit Insurance Corporation .................................................. 17

Prepared statement .......................................................................................... 64

Biographical sketch of nominee ....................................................................... 65

Diana E. Furchtgott-Roth, of Maryland, to be a Member of the Board of

Directors of the Federal Housing Finance Board .............................................. 19

Prepared statement .......................................................................................... 77

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

Deborah Doyle McWhinney, of California, to be a Director of the Securities

Investor Protection Corporation .......................................................................... 29

Prepared statement .......................................................................................... 89

Biographical sketch of nominee ....................................................................... 90

Armando J. Bucelo, Jr., of Florida, to be a Director of the Securites Investor

Protection Corporation ......................................................................................... 30

Prepared statement .......................................................................................... 98

Biographical sketch of nominee ....................................................................... 99

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Statement of Dianne Feinstein, a U.S. Senator from the State of California .... 112

Letters submitted by Diana Furchtgott-Roth ........................................................ 113

(III)

(1)

NOMINATIONS OF:

ALBERTO F. TREVIN ̃ O, OF CALIFORNIA

TO BE ASSISTANT SECRETARY FOR

POLICY DEVELOPMENT AND RESEARCH

AND

CAROLYN Y. PEOPLES, OF MARYLAND

TO BE ASSISTANT SECRETARY FOR

FAIR HOUSING AND EQUAL OPPORTUNITY

U.S. DEPARTMENT OF HOUSING AND URBAN

DEVELOPMENT

RAFAEL E. CUE ́ LLAR, OF NEW JERSEY

AND

MICHAEL D. SCOTT, OF NORTH CAROLINA

TO BE MEMBERS OF THE BOARD OF DIRECTORS OF

THE NATIONAL CONSUMER COOPERATIVE BANK

JOHN M. REICH, OF VIRGINIA

TO BE VICE CHAIRPERSON OF

THE BOARD OF DIRECTORS

FEDERAL DEPOSIT INSURANCE CORPORATION

DIANA E. FURCHTGOTT-ROTH, OF MARYLAND

TO BE A DIRECTOR OF THE

FEDERAL HOUSING FINANCE BOARD

DEBORAH DOYLE McWHINNEY, OF CALIFORNIA

AND

ARMANDO J. BUCELO, JR., OF FLORIDA

TO BE DIRECTORS OF THE

SECURITIES INVESTOR PROTECTION CORPORATION

THURSDAY, OCTOBER 3, 2002

U.S. SENATE,

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS,

Washington, DC.

The Committee met at 2:42 p.m. in room SD–538 of the Dirksen

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

Committee) presiding.

2

OPENING COMMENTS OF CHAIRMAN PAUL S. SARBANES

Chairman SARBANES. The hearing will come to order.

The Senate Banking, Housing, and Urban Affairs Committee

meets this afternoon to consider eight nominees who have been

sent to us by the President for various positions in the Administration. I want to welcome all of the nominees, as well as their families and friends who may be here with us and to thank the nominees for appearing before the Committee this afternoon.

We have decided to break this into three panels, so we will do

those seriatim. Our first panel will consist of four nominees:

Alberto Trevin ̃ o, who has been nominated to be the Assistant Secretary of Housing and Urban Development for Policy Development

and Research; Carolyn Peoples, who has been nominated to be the

Assistant Secretary of Housing and Urban Development for Fair

Housing and Equal Opportunity; Rafael Cue ́llar, nominated to be

a Member of the Board of Directors of the National Consumer Cooperative Bank; and Michael Scott, also nominated to be a Member

of the Board of Directors of the National Consumer Cooperative

Bank.

Before I swear in the nominees, hear their opening statements,

and then go to the question and answer period, I yield to Senator

Allard for any statement or comments he may have.

COMMENTS OF SENATOR WAYNE ALLARD

Senator ALLARD. Well, thank you, Mr. Chairman. I would like to

make my formal statement a part of the record and ask unanimous

consent to do that.

Chairman SARBANES. Without objection, so ordered.

Senator ALLARD. I would just make one request of all those

whose nominationS we are considering today, and that is that you

take a careful look at the Government Performance and Results

Act. I may not be here to ask that question but I think it is an important piece of legislation that passed by the Congress.

I would just ask that you take a careful look at it. It is the Government Performance and Results Act.

Thank you, Mr. Chairman.

Chairman SARBANES. Good. I would like to ask the nominees to

stand. It is the practice of this Committee to place nominees under

oath. If you would raise your right hands.

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. TREVIN ̃ O. I do.

Ms. PEOPLES. I do.

Mr. CUE ́LLAR. I do.

Mr. SCOTT. I do.

Chairman SARBANES. Do you agree to appear and testify before

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

Mr. SCOTT. I do.

Mr. CUE ́LLAR. I do.

Ms. PEOPLES. I do.

Mr. TREVIN ̃ O. I do.

Chairman SARBANES. Thank you. Please take your seats.

3

Mr. Trevin ̃ o, I think we will just start with you and move right

across the panel with the opening statements of the nominees. We

would be happy to hear from you, sir. And if anyone wants to introduce members of their family who might be here, why, we would

certainly invite you to do so as well.

COMMENTS OF ALBERTO F. TREVIN ̃ O, OF CALIFORNIA

TO BE ASSISTANT SECRETARY FOR

POLICY DEVELOPMENT AND RESEARCH

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Mr. TREVIN ̃ O. Thank you very much.

Chairman Sarbanes and Members of the Committee, it is an

honor and privilege to appear before you as President Bush’s nominee for Assistant Secretary for Policy Development and Research at

the Department of Housing and Urban Development.

I am looking forward to the prospect of leading HUD’s Office of

Policy Development and Research to develop creative and wellstructured solutions to the housing and community development

problems facing the Nation. If confirmed, I intend to implement a

long-term strategic approach to problem solving that uses research

and analysis to gain a comprehensive understanding of the problems confronting our cities and rural communities. This understanding will provide a strong foundation for innovative, long-term

solutions.

While I recognize the need to apply creative problem solving to

the immediate issues facing the Nation, I believe it is equally important to anticipate issues the country will face in the coming decades. This will enable PD&R to develop productive policy options

addressing emerging issues.

Another important responsibility of the Office of Policy Development and Research is to conduct evaluations of HUD’s programs

ensuring the programs are operating as Congress intended. The

Secretary’s fiscal year 2003 budget envisions an expansion of this

important activity.

I would like to thank you for scheduling this hearing during a

very busy time in the session. I look forward to learning of key

issues and concerns of this Committee to ensure PD&R’s research

agenda fully addresses them.

I appreciate your time and look forward to working with the

Members and their staff of this Committee.

Thank you.

Chairman SARBANES. Thank you very much, sir.

We have been joined by Senator Gramm and I will defer to him

now before I go to Ms. Peoples for any opening statement he might

wish to make.

COMMENTS OF SENATOR PHIL GRAMM

Senator GRAMM. Mr. Chairman, I will be brief. I have looked

over the resumes of our nominees today and, first, you cannot help

but notice that there are a lot of them.

[Laughter.]

I want to thank you, Mr. Chairman, for holding these hearings.

Second, I think that each and every one of them are eminently

qualified, either by their experience in the private sector or their

4

experience in Government, or both. And I want to commend the

President on choosing good people and I want to thank each of you

for your willingness to serve the greatest country in the history of

the world.

Our system works as well as it does because we have good people

who are willing to serve. It is no prize. You do not get rich doing

it. You are more likely to get criticized than you are to get praised,

and your name will never be on the front page of The Washington

Post unless you really screw something up.

[Laughter.]

But, nevertheless, there seems to be an endless line of people

that are willing to serve, and that encourages me.

Chairman SARBANES. Good. I also want to note for the Members

of the Committee, we have another nomination hearing scheduled

for tomorrow morning at 11:00 a.m. That is Phil Merrill, to be the

Chairman of the Export–Import Bank. And upon the completion of

that hearing, we will then have had hearings for all nominees sent

to the Senate by the President that fall under the jurisdiction of

this Committee. So on the nominee side of our agenda, we will not

have any further outstanding hearings after tomorrow morning.

Senator GRAMM. Well, Mr. Chairman, let me say I think that is

a commendable record and I thank you for it.

Chairman SARBANES. Ms. Peoples, we would be happy to hear

from you.

STATEMENT OF CAROLYN Y. PEOPLES, OF MARYLAND

TO BE ASSISTANT SECRETARY FOR

FAIR HOUSING AND EQUAL OPPORTUNITY

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Ms. PEOPLES. Thank you.

Again, I would like to introduce my family that are here. My

husband, Dennis, my son Derrick, my daughter Jackie, and my

other daughter Cheryl in the back. We are very pleased to be here.

Chairman SARBANES. We are pleased to have your family here.

Ms. PEOPLES. Chairman Sarbanes, Ranking Member Gramm,

and distinguished Members of this Committee, thank you for giving

me the privilege to address this Committee in consideration of my

confirmation as Assistant Secretary for Fair Housing and Equal

Opportunity.

I am here today with some very special people in my life. They

are my husband and my three children, my sisters and brothers.

I also want to acknowledge my friends from Catholic Charities,

MANPHA, The Beacon Institute, the Office of Fair Housing and

Equal Opportunity, and the University of Baltimore.

First, I would like to share a little of my background with you.

I am one of seven children born to the late Julius and Cornelia Jacobs. I was born and raised in Baltimore, Maryland. My father

served in the U.S. Army and worked most of his life as a laborer.

My mother was a housewife. For several years, we lived in public

housing and I attended local schools. From an economic standpoint,

we were considered poor. But as a family, we were rich, rich in

faith, character, values, and humor with a closeness that endures

even today. My mother, without doubt, was instrumental in forming my character and strong work ethic. Throughout my public

5

education, she always encouraged me to do my best. And it is that

drive for excellence that both inspires and motivates me in all my

endeavors.

Prior to my nomination by President Bush, I was Founder and

Executive Director of Jeremiah Housing, Inc., a faith-based, nonprofit housing services organization. Preceding this, my professional experience for the past 25 years has been exclusively in the

operation, coordination, and management of HUD-assisted and

sponsored housing. Beginning in 1976, as a manager of a Section

202/8 housing facility for the Presbytery of Baltimore. I left there

in 1980 and joined the Housing Services Division of Catholic Charities. Over a 19 year period, I progressed in various positions. I

later attended the University of Baltimore and earned a BS degree

in Finance and a Master’s degree in Business Administration.

As I was preparing for this testimony and thinking about fair

housing, I began to reflect upon discrimination and how it impacts

lives. I liken discrimination to an inflicted wound. The wound eventually heals, but invariably leaves a scar. As a woman of color, I

have experienced discrimination. One such experience when I was

8 years old left, an indelible imprint on me. My mother took me

to a department store in downtown Baltimore. After choosing several items of clothing, she took them to the counter to pay for

them. For several minutes, I watched as a the sales lady waited

on other people, but would not wait on my mother. After all the

customers standing next to my mother had been waited on and

exited the store, my mother remained at the counter until the sales

lady finally waited on her. When we left the store, I asked my

mother why the lady would not wait on her. Her reply to me was,

‘‘because we are colored.’’ Discrimination in any form is demeaning. Whether it comes as

a result of being denied housing because you have children, or if

a real estate agent steers you to a ‘‘certain’’ community or a lender

charges you extra fees not charged to other people, discrimination

is wrong and is against the law.

Moreover, discrimination has a social impact. Just as my mother

and I had to wait in that department store until all others were

served, discrimination in America has denied many the opportunity

to share in the prosperity of this Nation. Since the passage of the

1968 Fair Housing Act, significant progress has been made in reducing barriers to fair housing and expanding homeownership opportunities for the historical victims of discrimination. Despite all

that has been accomplished, much more needs to be done. No one

should be denied the home of their dreams because of their race,

color, religion, national origin, sex, familial status, or disability.

While the Nation’s homeownership has reached a record high, a

large gap still remains between the percentage of minorities and

whites who own their own homes, 48 percent African-American and

47.6 percent Hispanic, compared to 74.3 percent for whites. We

must do all we can to ensure that discrimination is removed as a

barrier to the achievement of the American Dream.

The extent to which discrimination against persons with disabilities exists today is also problematic. Currently, HUD receives

nearly as many complaints of disability discrimination as it does

race complaints. There is a significant lack of accessible housing

6

units for persons with disabilities, both in private and in the subsidized housing. Noncompliance with the accessibility requirements

combined with the failure of landlords to provide necessary accommodations and modifications has contributed to a shortage of housing for persons with disabilities in housing developments.

I have a strong interest in helping improve the quality of life for

underserved and unserved persons. If I am confirmed by the Senate to this most important post, I pledge my full commitment to aggressively enforce civil rights and fair housing laws; to be diligent

in conducting timely investigations; to continue to reduce impediments to fair housing laws; to develop close working partnerships

with faith-based and grassroots organizations, local government,

and other agencies; to enforce departmental equal employment opportunity laws; to ensure effective program monitoring and compliance and develop performance-based measures to ensure quality.

With my extensive experience in HUD’s programs and policies,

combined with 25 years of proven management, organizational, and

policy development skills, I am eager to join the fine staff of the

Office of Fair Housing and Equal Opportunity in implementation

of our strategic goals and objectives.

In closing, I want to thank the Senator from my home State of

Maryland, Senator Sarbanes, and the Members of the Committee

for your courtesy. I want to thank President Bush for honoring me

with the opportunity to serve in his Administration, and to Secretary Mel Martinez for his strong support in the several months

since my nomination. I also want to give special thanks to Floyd

May for his wise counsel and advice. Finally, but not least, I want

to thank God for bestowing His grace and this very special honor

upon me.

Thank you.

Chairman SARBANES. Thank you, Ms. Peoples. That was a very

thoughtful statement and the Committee appreciates it.

Mr. CUE ́LLAR.

STATEMENT OF RAFAEL E. CUE ́ LLAR, OF NEW JERSEY

TO BE A MEMBER OF THE BOARD OF DIRECTORS OF

THE NATIONAL CONSUMER COOPERATIVE BANK

Mr. CUE ́LLAR. Chairman Sarbanes and distinguished Members of

the Committee, I am honored to appear today before you as a nominee for the Board of Directors of the National Consumer Cooperative Bank.

I am here because I believe my combined experience, as a military officer, entrepreneur, and community leader is consistent with

the mission of the National Consumer Cooperative Bank. It was established to address the financial needs of an underserved community. The Bank’s primary lines of business include multifamily and

commercial real estate services, commerical and small business

banking, community development, and personal banking. To date,

NCB has provided more than $6 billion in financing, thousands of

homeownership opportunities, school facilities for 4,500 students,

1,000 affordable assisted-living units, a health center serving

100,000 patients annually and more than 10,000 employee stock

owners. In short, the Bank provides economic empowerment.

7

My goal on this board is to bring these options to communities

like my own in Passaic, New Jersey. Once a deserted area of

marginalized immigrants that had to commute to New York for

work, now a thriving center of commerce because business people

like my father invested and started businesses to increase the city’s

economic vitality. I remember he would say, ‘‘No se puede sacar sin

dar’’—You cannot take without giving.

With those words in mind, I left to join the United States Navy

at the age of 17. This country had given my family opportunity

when we arrived as immigrants in 1970. I knew that opportunity

came with responsibility. And so it was for 9 years as I worked my

way up the ranks from enlisted to officer. I attended Fordham University on a NROTC scholarship and received my Bachelor’s degree

in Economics. The regimented training and discipline prepared me

for an even greater challenge.

After my father’s sudden death in 1996, I resigned my commission to fulfill my family duty and care for the business my father

began years before. I have been President and Chief Executice Officer of ECO & Sons, Inc., for 7 years. In that time, I have significantly increased revenue every year, diversified our products and

services, and created new jobs to expand the employee base. I inherited a large ‘‘bodega’’ in debt. However, today, due to strategic

planning and investment, ECO & Sons, Inc. makes a profit through

a successful independent supermarket, an upscale catering company, and an e-commerce site that survived the Internet downturn.

Currently, I own one of the top 500 Hispanic businesses in the

country, according to Hispanic Business Magazine.

In addition, I was selected as 1999 Dun & Bradstreet’s Number

2 Minority Entrepreneur, 1999 Finalist for Ernst & Young’s Entrepreneur of the Year, 2000 Finalist for Hispanic Business Magazine

Entrepreneur of the Year, and 2001 Finalist for Ernst & Young’s

Entrepreneur of the Year. To share the benefits of my success, I

work with several organizations including the Paterson Restoration

Corporation, New Jersey State Chamber of Commerce, William

Paterson University Foundation, and the United States Hispanic

Chamber of Commerce, to name a few.

While those accolades look great on a resume, what I am really

proud of is building a partnership with my community. They know

I am there to service their needs whether it is for groceries or otherwise. For instance, the Passaic fire last year put 75 families out

on the street without shelter or food. They came to me and we fed

those families three meals a day for 2 weeks and they ate with

dignity because that food came from a supermarket that they patronize. I was humbled that they came to me instead of one of the

big chain stores. I connect with my customers and peers alike.

I understand and have overcome the challenges that face minority entrepreneurs—the lack of capital, scarce resources, no mentoring. The NCB has developed and implemented a successful

model, a public and private sector partnership, to solve these problems and provide innovative solutions. With my experience, I will

be an integral part of those solutions.

I would be very proud to serve on the Board of Directors of the

National Consumer Cooperative Bank, and I truly appreciate your

consideration.

8

Allow me to answer any questions that you may have.

Chairman SARBANES. Thank you very much, sir.

Mr. Scott.

STATEMENT OF MICHAEL D. SCOTT, OF NORTH CAROLINA

TO BE A MEMBER OF THE BOARD OF DIRECTORS OF

THE NATIONAL CONSUMER COOPERATIVE BANK

Mr. SCOTT. Thank you.

Mr. Chairman, Senator Gramm, distinguished Members of the

Committee, it is an honor and privilege for me to appear before you

today as the President’s nominee to be a Member of the Board of

Directors of the National Consumer Cooperative Bank.

Before I begin my statement, I would like to thank my wife,

Janet and my children, Zachary and Taylor. Without their patience, understanding, and support, I could not be here before you.

Unfortunately, they are not able to be here today, as they continue

to live in North Carolina until we sell our home.

I would also like to thank Under Secretary Peter Fisher, Assistant Secretary Brian Roseboro, and Deputy Assistant Secretary

Roger Kodat for all of their support. Finally, I would like to thank

President Bush for the honor of this nomination and the opportunity to serve.

I am, and if confirmed, will continue to be, the Senior Advisor

to the Deputy Assistant Secretary for Government Financial Policy

at the Treasury Department. Prior to serving in the Administration, all of my previous experience has been in the private sector.

I have worked extensively in finance, capital markets, investments,

corporate strategy, financial analysis, and commercial lending.

It is my current and former experience that I believe will enable

me to be an effective contributor to NCB’s Board. NCB plays a vital

role in meeting the underserved needs of America’s cooperatives,

which range from housing cooperatives to affordable housing communities to small businesses to Alaska Native Corporations and

Tribal Entities. I hope to bring constructive ideas to the Board that

will help grow NCB in the important sectors it serves. Additionally,

I am keenly interested in NCB’s capital structure and assisting it

in addressing the statutory repayment of the Class A Notes that

the Federal Government holds, and that mature in 2020.

NCB is a multifaceted financial services company that enables

cooperative endeavors throughout America to grow and succeed.

These businesses are large and small. They serve rural and urban

communities. NCB helps them by crafting financial solutions tailored to their individual needs, and the needs of their members.

Chartered by Congress in 1978, NCB was privatized in 1981 as a

cooperatively owned financial institution. Currently, NCB is owned

by 1,841 of its customers.

NCB’s capital base is funded by long-term subordinated notes,

medium-term notes and commercial paper, loans from its banking

partners and customers, deposits through its subsidiary, NCB FSB,

and stock purchased by NCB members. The Bank’s medium-term

notes and commercial paper carry investment-grade ratings.

NCB’s primary lines of business include: Multifamily and commercial real estate, commercial and small business banking, community development services, and personal banking.

9

To date, NCB has provided more than $6 billion in financing.

Combined with balance sheet assets and letters of credit, NCB now

manages more than $3.6 billion in assets nationwide. NCB reported a profit of $14.6 million for the first 6 months of 2002. In

early September of this year, NCB distributed approximately $12.6

million in patronage dividends to its member-owners in the form

of cash and stock.

Last year alone: First, the Bank grew its deposit base by 50 percent, further diversifying its funding sources and lowering the capital costs for its customers. Second, the Bank received reaffirmation

of its investment-grade ratings by Moody’s (Baa1) and Standard &

Poor’s (BBB).

NCB has a distinguished history of serving the cooperative community and I believe that its future is extremely bright. I would

appreciate your support so that I may be able to contribute to its

future.

In closing, I would like to take this opportunity to thank you, Mr.

Chairman, and the Committee for the prompt consideration of my

nomination. Mr. Chairman, if confirmed, I commit to you, the

Members, and the NCB, all of my energy to serve with distinction

and honor. I would request that my additional statements be entered into the record on the background on the Bank and I would

be delighted to answer any questions.

Thank you.

Chairman SARBANES. Without objection, the full statement will

be included in the record.

We thank all of the panelists for their statements.

Chairman SARBANES. We have been joined by Senator Reed. Did

you have an opening statement, Senator Reed.

COMMENT OF SENATOR JACK REED

Senator REED. No, Mr. Chairman.

Chairman SARBANES. Let me ask the panelists a few questions.

I want to ask the two nominees for the National Consumer Cooperative Bank if they could just outline for us the financial situation

and arrangements of the Cooperative Bank. Where does your

money come from and how much of it do you put out each year

and, generally speaking, who do you put it out to, and so forth?

Mr. Cue ́llar, why don’t we start with you and then we will go to

Mr. Scott.

Mr. CUE ́LLAR. The National Consumer Cooperative Bank provides loans to cooperatives and their members. Half of the loan

portfolio is housing cooperatives, and the other half is to supermarket cooperatives, and other business cooperatives and their

members. Most of their capital funds came from within their membership.

The initial loan pool that created the Bank came through an act

of Congress back in 1979. In 1981, however, the Bank was

privatized. Because of its privatization, however, the Bank’s entire

slate of Board of Directors is not appointed by the President or

Government employees. Only a small percentage are because of the

bank’s debt with the Government.

10

The portfolio again to commercial real estate, commercial business banking, and community development is where the Bank does

its investing. If that answers your question.

Chairman SARBANES. Partially. Maybe Mr. Scott can elaborate

on it a bit more.

Mr. SCOTT. Sure. Mr. Chairman, banks, in general, rely on equity

capital and equity-like instruments and debt to be able to make

loans. The National Consumer Cooperative Bank’s effort, it has a

limited ability to raise equity capital, which is very important to

most traditional banks. The Bank’s lending to cooperatives, nonprofits, is met largely through the issuance of debt. The Class A

notes that the Government currently holds used to be equity prior

to the privatization. That $183 million is a very important part of

its capital structure that allows it to make the existing loans that

it does. Going forward, it has funded itself largely on the issuance

of debt.

Chairman SARBANES. How much of that debt is there, over and

above—there is about $183 billion of debt to the Treasury.

Senator GRAMM. Million. You said billion.

Chairman SARBANES. That is an important distinction.

[Laughter.]

Senator GRAMM. I do that all the time, so I am sensitive to it.

[Laughter.]

Chairman SARBANES. One hundred eighty-three million dollars

debt to the Treasury, which I take it the Bank is paying off over

time. Is that correct?

Mr. SCOTT. Yes, sir. It has a sinking fund to repay the Class A

notes. It is going to have to address how it pays off those notes in

the future.

Chairman SARBANES. Then it has borrowed further, Correct?

Mr. SCOTT. That is correct.

Chairman SARBANES. From whom? In the private markets?

Mr. SCOTT. Yes, from the capital markets and banks, in general.

Chairman SARBANES. How much of that debt is there?

Mr. SCOTT. Sir, I do not have the balance sheet with me. The onbalance sheet assets are I believe about $1.2 billion. Of that, you

have $183 million from the Class A notes. I believe there is about

$162 million of Class B equity and the rest would be in the debt

markets.

Chairman SARBANES. And how much money does the Bank put

out each year?

Mr. SCOTT. My understanding is that the Bank pays out about

55 percent of its net income in patronage dividends back to the cooperative members.

Chairman SARBANES. There is no implicit Federal guarantee of

the Bank’s debt?

Mr. SCOTT. None whatsoever. In fact, if you look at the Standard

& Poor’s and Moody’s ratings, which are essentially BBB, it is very

clear that the market does not view the NCB as an implicit Federal

guarantee.

Chairman SARBANES. Right. Now, is the position you hold at the

Treasury traditionally been, in effect, the President’s nominee to

the Bank? He nominates one person to represent Federal agencies

and departments. Is that correct?

11

Mr. SCOTT. That is correct.

Chairman SARBANES. Has it traditionally been whoever holds the

position you have now in the Treasury?

Mr. SCOTT. No, it has not. Traditionally, my understanding is

that during the 1980’s and 1990’s, it came from the Department of

Agriculture. This position itself has been vacant since 1991.

Chairman SARBANES. There has not been a person on the Board

for 10 years?

Mr. SCOTT. That is correct.

Chairman SARBANES. Well, my time is expired and I will cease

and I will come to the other two nominees in the following round.

Senator Gramm.

Senator GRAMM. I would be nervous about telling people that.

They may decide that they do not need you on the Board.

[Laughter.]

Well, Mr. Chairman, it made me a little nervous when Mr. Scott

was saying that they set up a sinking fund and they are going to

have to make some arrangement to pay the Federal Government.

I had thought and I forget, forgive me, but not only am I getting

old, but we have so many of these things. Am I right that when

we went through privatization, we set up a structure whereby, over

time, the Bank was going to pay the taxpayer back? Is that right?

Mr. SCOTT. The original structure mandated a 2020 maturity.

The Bank has, I believe in 1994, instituted a corporate strategy of

a combination of the sinking fund and raising money starting in

2005, that would raise most likely preferred stock to use to pay

down the Treasury. But there is actually not a mandated repayment schedule.

Senator GRAMM. Just the requirement as of that date that there

be a repayment.

Mr. SCOTT. October 31.

Senator GRAMM. But is there any money in this sinking fund?

Mr. SCOTT. Yes, there is. I believe right now there is $12 million.

Senator GRAMM. Thank you, Mr. Chairman.

Chairman SARBANES. Good. Anything else?

Senator GRAMM. No. Thank you, Mr. Chairman.

Chairman SARBANES. Senator Reed.

Senator REED. Thank you, Mr. Chairman. And I would like to

thank the nominees for thier testimonies. Good luck as all of you

take on these very important tasks.

Mr. Trevin ̃ o, if I may ask a question. You will be charged with

developing, monitoring, and supervising important research

projects. I wonder what experience you have in the area of either

conducting research or managing research? Could you elaborate?

Mr. TREVIN ̃ O. Yes, I can answer that several ways. One, from the

private-sector experience that I have in the development and planning of very large-scale projects, new communities, and working

with developers such as Jim Rouse in Columbia and also in Reston,

all of this is basic research because these were the state-of-the-art

developments in the country at that time.

And with General Electric, directing General Electric Foundation

research grants to various universities, including Washington University, MIT, UCLA, University of Michigan, North Carolina, and

12

these again were state-of-the-art research issues of large-scale new

town development.

Also, I have lectured or taught at many of the universities in this

country—Michigan, North Carolina, Harvard, Berkeley, USC, and

directed grants from other foundations to these universities.

Senator REED. So you have had a role in foundations awarding

grants and research contracts?

Mr. TREVIN ̃ O. With the GE Foundation, primarily. And then with

the Ford Foundation, I was just an advisor to them.

Senator REED. There are a number of difficult issues that you

will have to tackle. When I go through my State I hear continuous

clamor for more production of units. In fact, people will comment,

‘‘We have vouchers and we cannot use them because they cannot

find affordable houses.’’ They do not have physically the number of

units. Would increasing production be a focus of one of your policy

or research initiatives?

Mr. TREVIN ̃ O. As I stated, the approach that I generally take to

a problem is to look at the problem a little bit more holistic, if you

will, than the way it is been approached in the past.

Housing production, barriers to housing, if you look at the Kemp

Report, you could provide money to build housing, but the real

problem is in implementing that program. In today’s world, in most

communities, if you make an announcement that you are going to

build 100 to 200 units, whatever it might be, mixed-use, low-income, et cetera, the local community objects to those projects. It is

very difficult to get projects approved in communities. That is

called a NIMBY. That clearly can be a strategy. But from looking

at an entire program, you have to evaluate and make a determination whether that is the most feasible direction to move in. And

that would be part of the studies within PD&R.

Senator REED. Thank you.

Ms. Peoples, you have a very significant responsibility, and I

think you are going to take it on with the great passion you have

done all your work throughout your life. But you cannot do it alone.

I understand that there is a significant shortage of personnel in

the Office of Civil Rights. What are your plans now to mobilize

more people to do the work that you are so committed to doing?

Ms. PEOPLES. I agree that the Office of Fair Housing and Equal

Opportunity has been plagued by shortages in staff prior to the

past 4 years. We are actively engaged in correcting that by trying

to bring on additional staff to meet the demand, at least the problems that we are considering.

In terms of meeting the challenges that are ahead, we must at

least look to hiring additional people to fill those slots, particularly

in the area of enforcement. Investigators are very much needed in

the regional offices. And we are moving in that area at this point.

Senator REED. Thank you very much, Ms. Peoples and all of you

for your testimony.

Thank you, Mr. Chairman.

Chairman SARBANES. Thank you.

Mr. Cue ́llar, have you spent any time over at the National Cooperative Bank?

13

Mr. CUE ́LLAR. Yes. I actually today got my first tour of the Bank

itself and was there once previously when we had first discussed

the entire nomination process and how it all takes place.

Chairman SARBANES. I ask both of the nominees, did the Bank

provide as a kind of extended briefing for either of you in terms of

being new nominees to the Board?

Mr. CUE ́LLAR. We definitely got a briefing. Extended is probably

the briefing we will get after our confirmation, more than likely.

And then we will have a much more involved briefing.

If I am not mistaken, one of the reasons that we are not privy

to some of the information of the Bank is just because we are not

on the Board currently.

Mr. SCOTT. That is correct. I have spent about 3 hours with Mr.

Chuck Hackman. The detailed briefing as a Board Member does

come later, after we have been confirmed.

In answer to one of your questions, I neglected—in 1988, the

Bank acquired a thrift. So when you were asking, how does it fund

itself, they also actually have—a portion of that is funded through

deposits, very much like any other bank. But that is a relatively

small part of their capital base.

Chairman SARBANES. I am just sending them a message because

I am concerned that some of these boards or banks or so forth do

not brief their nominees the way they probably should before they

come to us, and actually, before they go into the job. I do not think

the agency should assume that they can do all the briefing post the

fact because that puts the Committee in the awkward position of

investigating matters with someone who hasn’t had a fairly comprehensive introduction to the work of the particular institution.

So, I hope you will take that message back with you.

Mr. Cue ́llar, I have a lot of respect for your career pattern here,

although you are still a very young man. How long did you serve

in the Navy?

Mr. CUE ́LLAR. Nine years, sir.

Chairman SARBANES. Nine years. And you went to Fordham on

an NROTC scholarship?

Mr. CUE ́LLAR. Yes, sir.

Chairman SARBANES. And then, you were in a career, but left because of the change in the family circumstances. So, you moved out

in order to look after the family business.

Mr. CUE ́LLAR. That is correct.

Chairman SARBANES. Have you been in charge of it yourself?

Mr. CUE ́LLAR. Yes, sir.

Chairman SARBANES. I mean you took it over after your father

passed away. Is that right?

Mr. CUE ́LLAR. Yes, sir.

Chairman SARBANES. You are the senior son, or the senior child,

I take it?

Mr. CUE ́LLAR. Actually, no. I am the youngest child.

Chairman SARBANES. Okay. I gather it has been quite successful.

Mr. CUE ́LLAR. We have done okay.

[Laughter.]

Chairman SARBANES. Quite successful, I would guess, is what

that means.

14

Ms. Peoples, let me ask you a couple of questions and then I

have one or two for Mr. Trevin ̃ o.

The office that you are being nominated to head is understaffed

currently by about 50 full-time employees. What is your view of

that? Or first of all, is that accurate? Then what plans might you

have to try to remedy that situation?

Ms. PEOPLES. Well, a plan is already in place. Many of those positions have been filled. So, we do not have the shortage that we

had prior to a couple of months ago.

Chairman SARBANES. I am pleased to hear that.

Ms. PEOPLES. I am very pleased as well.

[Laughter.]

Chairman SARBANES. Let me ask you, there has been a backlog

of fair housing complaints which have not been reviewed at HUD,

although I understand that they are taking steps to try to process

these claims quickly.

My concern is this. Claims need to be processed quickly or within

a reasonable period of time. But I am also concerned that the

claims get properly and thoroughly examined so that we make sure

that we are rendering appropriate judgments. Do you have any

comment on this balance between moving the claims along and

making sure, on the other hand, they are adequately reviewed?

Ms. PEOPLES. Well, that is one of the problems I think that resulted from being understaffed. I am pleased to say that as of last

week, we get weekly reports on the status of the cases and we have

decreased our backlog to now I believe it is 35 percent of our cases

are aged. And that compares to over 80 percent back in 2000. So,

we are making progress in that area.

Chairman SARBANES. Mr. Trevin ̃ o, when you were at HUD back

in the early 1970’s, the New Communities Program was under your

jurisdiction.

Mr. TREVIN ̃ O. That is right, Title 7.

Chairman SARBANES. Yes. Tell me about that program.

Mr. TREVIN ̃ O. The person really responsible for the legislation

was Lud Ashley, Congressman from Ohio. The program was a loan

guarantee program to fund infrastructure for new communities.

And the idea was these new communities would be able to alleviate

some of the problems of suburban sprawl and so forth. Actually,

during the time of the legislation, I was with General Electric at

the time and GE was going to build experimental cities, at least

explore that potential. Some of this information really is not

known, but it was an interesting period.

Jim Rouse at Columbia was just getting started, as well as Bob

Simon, R.E. Simon, at Reston. Those were two that were starting

to work in parallel with this program. And with new communities,

the major issue, any large-scale development, is the infrastructure

costs, the front-end loading of debt. The new Title 7 was to alleviate that problem by providing lower-cost funds for this front period.

And payback on a new community is something like 15 to 18 years,

so it is a very high risk.

I really had nothing to do with the program for maybe 6 to 8

years of its original inception. When Secretary Lynn became Secretary of HUD, he wasn’t quite sure what to do with this particular

program. There was thought that it was not being managed propVerDate 11-MAY-2000 11:05 Apr 07, 2003 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 86065.TXT SBANK4 PsN: SBANK4
15

erly. He called me in. At that time I had a fairly substantial background in this project. I had been with the Irvine Company, which

is the largest land development project in the country. I agreed to

come back for a year to look at the prospects of this program,

whether there was any opportunity to repay the loans that were

being made.

The pipeline was basically filled with projects, two in Rochester,

some in Texas between Ft. Worth and Dallas. And there were

maybe 12 projects. And the total commitment was about $700 million at that time. We are talking about 1972 dollars.

Bill Simon was Secretary of Treasury at that time. Tom Bomar

was head of the Home Loan Bank. Secretary Jim Lynn at HUD.

I brought in Ray Watson, who was the President of the Irvine Company, and myself. And so, we formed the Board of Directors. I established the methodology to evaluate the potential of the taxpayer

ever recovering the $700 million, made the determination that the

projects were ill-conceived, and recommended to Senator Proxmire

and to Congressman Ashley that we terminate the program. And

that, in a nutshell, is my experience with it. I was here 17 months.

Chairman SARBANES. Columbia and Reston were not part of the

program, were they?

Mr. TREVIN ̃ O. No, no.

Chairman SARBANES. You were just trying to emulate that if you

could.

Mr. TREVIN ̃ O. Yes, we were trying to solve the front-end financing for those type of projects. If you follow the large-scale New

Town Program in this country, none of them have really had financial success. Rouse eventually lost that project to the banks, as well

as Bob Simon. I was instrumental with GE in placing Appliance

Park at Columbia and we purchased 500 acres to try to resolve

some of his cashflow problems. That was my decision, to assist

Rouse.

In Texas, the two people were Nasher and Eddie Marcus, who

also had a project. It was called Flower Mountain. So large-scale,

new town development again is very similar to the issue that was

brought forward about building housing. Some of these decisions

are made locally to get zoning, attraction of industry, job base,

many issues.

As with two projects in Rochester, which was losing population

and declining economy, it really did not take much to make a determination that they would never be able to repay the debt.

Chairman SARBANES. The HUD website says that the Office of

Policy Development and Research, ‘‘. . . is committed to investing

in the development of reliable databases describing housing market

conditions and needs, as well as documenting how HUD programs

work, how much they cost, and who they serve.’’

Regrettably, we hear from many people, including some people at

HUD, that many of the databases do not contain reliable information. I would be interested in your comments on this situation and

what might be done to make sure that HUD’s systems contain correct and helpful data on housing programs. I think this is an important part of the responsibility that you would have as Assistant

Secretary.

16

Mr. TREVIN ̃ O. There is no doubt that statistical information is

vital in making decisions, just as with new communities. It is hard

to imagine that these new communities were located without understanding the market forces.

There is the American Housing Survey. Many of the issues related to that are do you ask the right question? And I think that

is an issue I certainly am familiar with and I cannot really speak

to that subject at this point. But it does not take a terrible amount

of change in order to try to get statistical information that is more

relevant to the needs of the markets. It is the user of the information that has to make a determination of what type of information

is vital?

Some of these collection mechanisms take decades to develop. In

my opening statement, I mention the fact that a person does have

to take a longer-term view of research and you cannot just totally

respond to putting out fires. You have to look at it a little bit long

term.

Chairman SARBANES. I take it that you perceive this, though, as

a major challenge that you are going to have to deal with. Would

that be correct?

Mr. TREVIN ̃ O. Oh, yes. There is no doubt that all issues of strategic planning are a major challenge because what you are doing

is you are weighing between competing funding, competing decisions as to how you are going to implement. When I was with General Electric or with Walt Disney, of course these are the same

issues of limited resources and using those resources or optimizing

those resources for whatever you determine is important—affordable housing, transportation, whatever it might be.

Chairman SARBANES. Senator Gramm, do you have anything you

would like to ask?

Senator GRAMM. No, Mr. Chairman.

Chairman SARBANES. We want to thank the panel very much.

We appreciate your testimony.

We will now turn to our next panel, which we announced earlier:

John Reich and Diana Furchtgott-Roth. If they’d come forward.

[Pause.]

We are going to turn now to the nomination of John Reich, who

has been nominated to be the Vice Chairperson of the Board of Directors of the Federal Deposit Insurance Corporation. Mr. Reich is

currently serving a term as a Director of the FDIC. That was reported out by this Committee and confirmed by the Senate. Prior

to becoming an FDIC Director, Mr. Reich had served on the staff

of our colleague, Senator Connie Mack, for 12 years, and had previously worked in the banking industry for a number of years.

Diana Furchtgott-Roth has been nominated to be a Director of

the Federal Housing Finance Board, which is the board that regulates the Federal Home Loan Bank System, a system of 12 regional

banks created in 1932 by the Congress to ensure the availability

of funds for home mortgage lenders. The banks are cooperatively

owned by their members. I think it now includes almost 8,000 institutions. And last year, its assets totaled almost $700 billion. The

Housing Finance Board is charged with overseeing this extensive

system. Ms. Furchtgott-Roth has recently been the Chief of Staff at

the Council of Economic Advisors. Prior to that, she was a resident

17

fellow at the American Enterprise Institute. And in the first Bush

Administration, served as an Associate Director of the Domestic

Policy Committee.

I ask the nominees to stand so that we can place them under

oath. As I indicated, it is the standard practice of this Committee.

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. FURCHTGOTT-ROTH. I do.

Mr. REICH. I do.

Chairman SARBANES. Do you agree to appear and testify before

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

Mr. REICH. I do.

Ms. FURCHTGOTT-ROTH. I do.

Chairman SARBANES. John, why do not we hear from you first

and then we will turn to Ms. Furchtgott-Roth.

STATEMENT OF JOHN M. REICH, OF VIRGINIA

TO BE VICE CHAIRPERSON OF THE BOARD OF DIRECTORS OF

THE FEDERAL DEPOSIT INSURANCE CORPORATION

Mr. REICH. Thanks very much, Mr. Chairman. I appreciate your

holding this hearing today. I know that time is of the essence for

this body and to a hold a hearing with this many nominees is

something that I am sure that we all appreciate. Mr. Chairman,

Senator Gramm, it is a pleasure to be here today. I am privileged

and honored to be sitting in this spot. And I am honored by the

President’s nomination and appreciate very much also the support

of Chairman Don Powell, who has been very supportive since the

nomination.

In the almost 2 years that I have served on the Board of Directors of the FDIC, we have witnessed some significant changes in

the economy and the banking issues. In fact, Mr. Chairman, you

may recall that I was here last September. It happened to be on

September 11. We had just started the hearing and were underway

only about 5 minutes, when we had to terminate the hearing because of the events of that day which triggered some challenges to

our country and to our financial system that no one could have

foreseen.

I am proud of my nearly 25 years in the banking business before

I came to Washington, DC, which was about 13 years ago, to work

for my friend, Former Senator Connie Mack, a period of time which

lasted nearly 12 years. The combination of those experiences, the

private sector and here on the Hill have allowed me to bring a perspective to the Board’s deliberations that recognizes the vital role

that banks play in their communities and that their customers play

in the communities and in the economy of the Nation as a whole.

Before my life in Washington, I was active for many years in a

number of different charitable and nonprofit organizations. And the

cumulative effect, I think, of that nonprofit experience, the private

sector, and the public service since then enables me to evaluate

issues which come before the Board of the FDIC in a fair and balanced manner which balances the interests of the banks, their customers, and the deposit insurance funds and the Nation’s economy.

18

Under the leadership of Chairman Don Powell during the past

year, the FDIC has been at the forefront of many issues facing the

industry. We have brought together leading thinkers on such key

issues as corporate transparency, financial institution disclosure,

risk management, and, of course, our work with deposit insurance

reform. Following up on an initiative that was begun under Chairman Tanoue, we have launched the financial literacy effort called

Money Smart with the stated goal of establishing partnerships

with 1,000 organizations around the country and every State in the

Union and plan to distribute 100,000 copies of Money Smart in

three languages and expose a million consumers to this financial

literacy program over the next 5 years.

We are also engaged in a major effort to reduce unnecessary regulatory burden and to tap the tremendous potential of technology

to streamline bank supervision, while not sacrificing our primary

goal of ensuring the safety and soundness and consumer compliance of the Nation’s banking system. These are just a few of the

initiatives that are underway at the FDIC today.

While the FDIC has been aggressively moving forward on these

developing issues, we have not neglected our primary mission of

protecting depositors in the event of bank failures. In fact, I believe

that the lessons learned in one of those failures was particularly

instructive to me as a new Member of the Board about this time

last year.

Following the resignation of Chairman Tanoue, I was serving as

the Acting Chairman of the FDIC during the failure of Superior

Bank in the Chicago area. It wasn’t just the size of the institution,

about a $2.2 billion institution, that was instructive. As this Committee knows from your oversight, the failure raised a number of

issues, ranging from subprime lending, to residuals and accounting

opinions to regulatory cooperation and access, to management liability that challenged the leadership and the staff of the FDIC to

modify established methods of handling bank failures and to create

some innovative new approaches. This experience, along with other

experiences during my almost 2 years on the Board, combined with

chairing the committees of the Board, standing committees, I think

enable me to serve effectively as the Director of the FDIC and as

the Vice Chairperson of the FDIC, if I am confirmed.

The FDIC occupies a unique position in our Government. We are

keenly aware of the importance of our mission of maintaining the

safety and soundness and the trust of the American people and the

Nation’s financial system. It is an organization with a highly capable, professional, and dedicated staff. I look forward to continuing

to work with them in fulfilling our mission. And with all of the successes, I believe that there is still an amazing untapped potential

of the FDIC that is just surfacing. I am honored that the President

has nominated me for this position and I again thank you for having this hearing.

I am happy to address questions.

Chairman SARBANES. Thank you very much. We appreciate your

statement.

Ms. Furchtgott-Roth.

19

STATEMENT OF DIANA E. FURCHTGOTT-ROTH, OF MARYLAND

TO BE A DIRECTOR OF THE

FEDERAL HOUSING FINANCE BOARD

Ms. FURCHTGOTT-ROTH. Thank you very much, Mr. Chairman,

Senator Gramm, and distinguished Members of the Committee for

the opportunity to appear before you today. I am honored that

President Bush has nominated me to be a Director of the Federal

Housing Finance Board, and I am deeply humbled to appear before

you today at this confirmation hearing. If confirmed, I would be the

first full-time female Director of the Board.

I want to express my appreciation to you, Mr. Chairman, the

Senator from my home State of Maryland. I would also like to express my appreciation to Senator Gramm for everything that he

has done on my behalf. He’ll be sorely missed by his many friends

everywhere.

I would like to take this opportunity to introduce my husband,

Harold, and my six children, Leon, Francesca, Jeremy, Godfrey,

Theodore, and Richard.

Senator GRAMM. Let’s have them all stand up.

Chairman SARBANES. Yes.

[Laughter.]

Senator GRAMM. Beautiful children.

Chairman SARBANES. Yes. Very good. We are pleased to have all

of you with us.

Ms. FURCHTGOTT-ROTH. I am very happy that they can take time

out of their busy work and school schedules. It was a real fight to

get them out of school today on the Code Blue day. They almost

wouldn’t let us take them out. But we managed, telling them that

it was an historic occasion.

I am also profoundly grateful to my parents, Ellen and Gabriel

Roth, for making the difficult decision to come here 35 years ago

from England. I remember sailing into New York Harbor on Labor

Day weekend, 1967, and seeing the Statue of Liberty. To be honest,

its symbolism did not mean much to me then as a child. I was just

glad that the 5 days of seasickness were over. But it became more

and more important as I have grown into adulthood and made the

choice to become an American. My parents’ decision gave me the

opportunity to work in the White House under President Reagan,

President George H.W. Bush, and our current President Bush, as

well as marrying a wonderful man and having six children. Nowhere else in the world can immigrants have such opportunities.

It is extraordinarily hard to do what my parents did, and pack

up all one’s possessions and three young children and move to a

new country, a country my mother had not even visited. The story

is that my father called my mother from the United States and

said, ‘‘We have to move here, they even heat the bathrooms.’’ Our

home in England had kerosene heaters that my father would go

around filling every night before he went to bed. There was no

heater in our family’s only bathroom, as was common practice in

many English homes.

And that brings me to the subject of housing, and the Federal

Housing Finance Board. Many people ask about my interest in the

Federal Housing Finance Board. Housing affects all of us—all of us

need somewhere to live. And many either own homes, or aspire to

20

do so—it is part of the American Dream. With such a large purchase, the financing mechanism is critical.

Our housing and capital markets work so well that many people

assume that there is nothing special about them. But, internationally, these well-functioning systems are rare. Our standard fixed 30

year mortgage is not standard in most other countries, even in the

developed world. Generally, people in other countries are required

to put down much larger sums, and borrow at rates which vary directly with the prime rate of lending. So when the prime rate goes

up, mortgage payments unpredictably take more money away from

groceries and clothing. And housing can be so scarce that selling

a home and moving to another city becomes practically impossible.

If I should have the honor of being confirmed, I would try to preserve and to improve the flexible financial systems that America

has and make it possible for more Americans to take advantage of

them.

The Federal Housing Finance Board oversees the Federal Home Loan Bank System, a group of 12 banks which have $700 billion

in assets and approximately 8,000 member banks. The Board

makes sure that the System is on a sound financial footing, an

important task, as can be seen by recent developments in the corporate and accounting world.

The Federal Home Loan Bank System makes it easier for small

banks to lend money to Americans for mortgages. In the first days

of banking, banks could only lend out what they had on hand in

deposits. Later, they acquired the ability to borrow from some

sources to make loans to others. The 8,000 member banks can now,

through the Federal Home Loan Banks and the Board’s Office of

Finance, take advantage of pooling their requests for funds to

achieve lower rates, which get passed on directly to the consumer.

About 68 percent of American households own homes. But the

rate for minorities is far lower, with fewer than half of Hispanics

and African-American households owning homes. President Bush

and the Federal Housing Finance Board are trying to raise these

levels. The Board’s Affordable Housing Program helps improve

homeownership among these groups, a vital social goal. Recently,

the Board expanded the amount of affordable housing program

funds that Federal Home Loan Banks can contribute toward downpayment assistance programs for first-time homebuyers, one of the

most important steps in purchasing a home.

Chairman Sarbanes and Members of the Committee, I am honored to appear before you today. If confirmed, I promise to work

closely with this Committee and Congress to ensure the safety and

soundness of the Federal Home Loan Bank System and fulfillment

of the System’s affordable housing goals. I look forward to answering any questions that you might have.

Chairman SARBANES. Thank you all very much.

Mr. Reich, let me ask you a couple of questions. When we did the

hearing on the failure of Superior Bank, we had that issue about

the OTS that refused the FDIC’s request to participate in its examination of Superior. But I understand that they then entered into

an agreement to allow the FDIC to participate in the other regulators’ bank examinations. First, is this correct? And, is the agreement holding in terms of your practice now?

21

Mr. REICH. It is correct, Mr. Chairman. Not too long thereafter,

after a good bit of staff work by the senior staffs of the regulatory

agencies, the OTS, the OCC, the FDIC, and the Fed, we did complete a memorandum of understanding for back-up authority. That

has been in existence now for probably most of this year. It is

working very well.

I want to emphasize that the relationship that currently exists

between the Chairman and directors of the regulatory agencies is,

I think, excellent today. There have been a number of instances

where those agencies have invited us in to participate in examination on an unsolicited, unasked basis.

So, we could not be more pleased today at the FDIC with the

interagency cooperation and the way that the other agencies are

welcoming the FDIC into examinations of three-, four-, and fiverated institutions, or any kinds of situations where they feel that

there may be special interest to us.

Chairman SARBANES. Well, I am encouraged to hear that.

After the failure of Keystone, there was an effort by the Federal

bank regulators to propose stricter capital rules to limit the concentration of residuals in banks. The bank failed in September

1999. The comment period closed on December 26, 2000. When we

had our first hearing on October 16, 2001, there was still no final

rule.

You spoke at that hearing about the importance of updating the

capital rules and indicated that you would make every effort to get

that done. And at the end of November, the Federal regulators

jointly announced the publication of a final rule.

I know that you were instrumental in that process and I just

wanted to express my appreciation to you here for doing that. Do

you have any sense of why it took so long to bring that to fruition?

Mr. REICH. It was a combination of the complexity of the issues,

the number of agencies that were involved in trying to come to

terms with what the capital requirements should be and those

kinds of situations. But I will say that in the past year or so, and

I want to compliment Chairman Don Powell of the FDIC who is the

Chairman of the FFIEC, there is at our agency certainly, and I

think on the staff of the FFIEC, a heightened sense of urgency.

Long timelines within our organization are no longer acceptable.

And that heightened sense of urgency has yielded benefits in a

number of different areas.

I would also add that greater participation by the principals,

greater involvement by the principals in addition to the staff has

produced positive results in making things happen in a shorter

period of time.

Chairman SARBANES. Ms. Furchtgott-Roth, do you think it would

be appropriate for you to be highlighted in an invitation to a political fundraiser as a special guest, being a Member of the Board of

the Federal Housing Finance Board, when the invitations to that

political fundraiser were going to the institutions for which you are

the regulator?

Ms. FURCHTGOTT-ROTH. I understand that according to the ethics

regulations, Members of the Board of Directors of the Housing Finance Board are allowed to participate in political events as long

as their title is not used, as long as it is just their name that is

22

used. And it is common practice among many people in the Administration to participate in such events.

Chairman SARBANES. Regulators to do so?

Ms. FURCHTGOTT-ROTH. Yes, it is common practice.

Chairman SARBANES. You do not see a problem? You would be

happy with that practice? Would you do it yourself? Would you be

bothered by being featured as a special guest at a political fundraiser, and then have the invitations for that fundraiser go to the

heads of the institutions that you are charged with regulating?

Ms. FURCHTGOTT-ROTH. I would make sure that I complied with

all ethics laws—— Chairman SARBANES. No, no, no. That does not get me to where

I want to go. Do you have any problem with that?

Ms. FURCHTGOTT-ROTH. As long as I complied with all the ethics

laws, then, and the invitations were sent to a large enough group

of people, then I wouldn’t have a problem. Of course, just sending

it to, say, the 12 bank presidents I would regulate, I would think

would pose a problem. If, on the other hand, there were thousands

and thousands of invitations sent out, and some of them happened

to reach the bank presidents, there is no problem with that under

the ethics regulations.

Chairman SARBANES. Well, now, you are a regulator. What is

your view of how you should be used for political fundraising?

Should you be used at all?

Ms. FURCHTGOTT-ROTH. I think that there are many people in

Washington who are in the position of regulating. Political appointees are not covered by the Hatch Act. Those covered by the

Hatch Act are not permitted any political activity. But Presidential

appointees are not covered by the Hatch Act. And therefore, they

are permitted participation, as long as their title is not used, as

long as just their name is used.

Chairman SARBANES. Do you remember Eugene Ludwig, who

was a Comptroller of the Currency?

Ms. FURCHTGOTT-ROTH. I do, yes.

Chairman SARBANES. He went to a coffee at the White House at

which members of the banking industry were present. Do you remember that?

Ms. FURCHTGOTT-ROTH. I do not recall that he went to a coffee

at the White House. But I have met Mr. Ludwig and he is an extremely intelligent person, very well informed.

Chairman SARBANES. And he was sharply criticized for that because it was felt, as a regulator, he ought not to be participating

in something that arguably, was a political fundraiser, although it

was not a charged event. People were not paying for a ticket. It

was just, I guess, laying the ground work. But he was sharply criticized for that.

I am trying to get at what your own sensibilities are on this important issue.

Ms. FURCHTGOTT-ROTH. Well, having just finished being Chief

Ethics Officer at the Council of Economic Advisors, I am familiar

with a lot of these ethics rules, and there are also many of these

ethics rules, so much so that each agency needs not only a chief

ethics officer, but many other attorneys, to make sure that these

laws are complied with. And the Office of Government Ethics has

23

regular seminars on different aspects of the laws and there are ethics officers at each agency.

If I were put in a situation, I would go to the ethics office at the

Federal Housing Finance Board and say, does this comply with the

ethics regulations?

Chairman SARBANES. Suppose I came to you and said, I am going

to hold a political fundraiser and I am going to invite the heads of

the regional home loan banks and their other principal officers to

my political fundraiser. And I want to send out this invitation for

this political fundraiser and I am going to say in the invitation that

you are going to be a featured guest at my political fundraiser.

What would you say to me?

Ms. FURCHTGOTT-ROTH. The first thing I would do is I would go

to the ethics officer and see if it were legal. If it were legal, then,

Chairman Sarbanes, I would say that I would be happy to appear

at your fundraiser, as long as it were legal according to——

Chairman SARBANES. Well, I would be unhappy about that. And

it seems to me that what you should say to me is I do not think

I should do that. I do not think as a regulator of these banks, that

I should come to your political fundraiser. Clearly, the appearance

of that is not good. Would you agree with that?

Ms. FURCHTGOTT-ROTH. It depends on how many other people

are invited. Usually, there are thousands and thousands of people

invited to these fundraisers. People get invitations all the time.

Chairman SARBANES. Do you anticipate going around town appearing at political fundraisers?

Ms. FURCHTGOTT-ROTH. I have never been to one before and I

have never had my name listed on one before.

Chairman SARBANES. Would you commit now not to go to one as

a regulator, that you would regard it as contrary to maintaining an

appearance of impartiality?

Ms. FURCHTGOTT-ROTH. I commit myself to always abiding by

the ethics laws we have. I mean, there might be circumstances. For

example, if you, Chairman Sarbanes, wanted me to come to one of

your fundraisers and you thought it would be helpful that I come.

And I was not listed as Federal Housing Finance Board. Then, absolutely, I would come.

Chairman SARBANES. I hope that I would have the good sense

never to invite you and place you in that position. And were I ever

to fall off that standard, I would hope that you would have the

good sense to turn me down.

Senator Gramm.

Senator GRAMM. Let me go to this issue.

It seems to me that in terms of your rights as a citizen to attend

a fundraiser, I hope that you would not go to Senator Sarbanes’

fundraiser.

[Laughter.]

I would hope that you would come to my fundraiser.

But I think there is a distinction you should draw, and let me

try to draw it for you. I think in terms of your ability to be an active political citizen, as a Presidential appointee, you have every

right to do that.

I do believe that when you are regulating people and your decisions mean potentially millions of dollars to them, that you have

24

to be very sensitive that no one ever believes that your good offices

or your judgment could be for sale. I think that is what Senator

Sarbanes is saying.

For example, if I had a fundraiser and the Comptroller of the

Currency, who is now a Democrat, came to my fundraiser, I think

that would be fine. On the other hand, if I invited him as a special

guest and then I invited bankers from around the country who sort

of would be coming to visit with him as a special guest, I think that

would cross over the line.

And I think that you are going into a totally different situation

than you have ever been in before, and I know your sensitivity to

wanting to protect your full rights as a citizen because you have

political views and you want to support people you support. But

when you are a regulator, there is a line that you cannot cross and

you have to ask yourself, is my name being used as an attraction

to people who might believe that by coming and contributing, they

might influence my decisions? And if you conclude that is the case,

whatever the ethics rules say, then I would think it was not a very

good idea.

Ms. FURCHTGOTT-ROTH. The appearance of impropriety or of propriety is extremely important, especially in this town, as you mentioned in your earlier remarks.

Chairman SARBANES. Does that mean that you agree with Senator Gramm’s analysis or that you are still holding to the position

that you would refer it to the ethics officer and whatever they, in

effect, told you was what you would do?

Ms. FURCHTGOTT-ROTH. Well, the first thing I would do in any

case is refer something to the ethics office. I mean, in any case,

they know the ins and outs of these kinds of things.

Chairman SARBANES. You could have a standard higher than——

Ms. FURCHTGOTT-ROTH. If it were targeted specially at bank regulators, then that is one thing and I would not be a special guest

at that event. But I think the fundraiser to which you are referring, if there were thousands and thousands of invitations sent out

and it wasn’t targeted at the banking sector—it is difficult to work

out beforehand who these invitations go to because there are so

many mailing lists that it would be possible that it would get to

someone in the banking sector.

Chairman SARBANES. But let us assume that hundreds were sent

out, but encompassed within the hundreds were banking institutions for whom you were the regulator and you were being featured

as the special guest at the fundraiser.

Ms. FURCHTGOTT-ROTH. I think if it were targeted at a sector I

was regulating, I would not participate. If it were a general type

of fundraiser, then——

Chairman SARBANES. Well, by participating, we are not talking

about showing up at the fundraiser. We are talking about headlined as a special guest at the fundraiser.

Ms. FURCHTGOTT-ROTH. Right.

Chairman SARBANES. So this invitation goes out and it says,

come to my fundraiser. My special guest is Ms. Furchtgott-Roth.

Now it may or may not say that you are on the finance board, but

that is at least for people in the know, that is known. And amongst

the invitation list are going to be, although it may be broader than

25

that, will be people that are in the industry that you are regulating. Would you allow yourself to be listed as a special guest on

an invitation of that sort?

Ms. FURCHTGOTT-ROTH. It depends on how broad the mailing list

was. If it were a very large mailing list, I would. If it were a small

group, I would not.

Senator GRAMM. I think we are probably drawing a distinction

here that does not exist. If you recieved an invitation and it is has

your name on it, that is your name. You are the special guest. And

your name is unusual, but not a household word.

Ms. FURCHTGOTT-ROTH. Right.

Senator GRAMM. And people are being invited to come with you

as a special guest, and you have reason to believe that among those

who would be invited are people that you would regulate. It seems

to me that that is very different than, say, your neighbor hosting

a fundraiser—do you live in Virginia or Maryland?

Ms. FURCHTGOTT-ROTH. Maryland.

Senator GRAMM. Your neighbor is hosting a fundraiser for Ellen

Saurbrey. And so people in the community send out invitations to

people who live in that community and you list the neighbors’ names on it. Perfectly legit, it seems to me. But when you are singled out as the honored guest and you know it is going to people

that you are regulating, it seems to me that that is bad policy, and

it something that you ought not to do.

Ms. FURCHTGOTT-ROTH. Right. If I knew it was going to people

I was regulating, then I would avoid it. But sometimes when one

does not know who is in all these lists, you say, yes, fine, I will

be a special guest at your fundraiser, and then it goes out to standard lists, and you just do not know who is on it.

Chairman SARBANES. Yes, but that is all the more reason not to

allow yourself to be used as a special guest. You are moving now

into a position in which you have regulatory authority over significant financial institutions. So, you will be in a position to make decisions that have potentially wide economic repercussions for these

institutions and for the officers of these institutions. Now it seems

to me you have to start thinking in a very different way because

just the appearance of being able to influence a regulator’s judgment in that political context is a serious matter.

Ms. FURCHTGOTT-ROTH. Mr. Chairman, I have never been listed

on any fundraiser as a special guest or anything else. But, as you

say, I am moving into a different area. One does see many cabinet

secretaries featured as special guests at fundraisers and many of

the people invited undoubtedly have ties to some of those areas.

Chairman SARBANES. Well, do you think your role as a regulator

and the responsibilities that flow with that are the equivalent to

the role of a cabinet secretary?

Ms. FURCHTGOTT-ROTH. Absolutely not. They both regulate different types of areas. A cabinet secretary has far more power and

is far broader. Cabinet secretaries have regulatory powers over

vast areas. This is just a very small agency.

Chairman SARBANES. No, no, no. My understanding is that the

Secretary of the Treasury has to stay removed from the OCC in

terms of regulatory decisions which the Comptroller of the Currency makes, and that arena is protected from what would otherVerDate 11-MAY-2000 11:05 Apr 07, 2003 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 86065.TXT SBANK4 PsN: SBANK4
26

wise be perceived as political interference, or an effort to influence

the decisionmaking through political contributions.

Senator GRAMM. Mr. Chairman, let me suggest this. We have a

nominee before us who, by her own admission, has never been a

guest at a fundraiser. I would like to suggest that you—— Ms. FURCHTGOTT-ROTH. I have never been listed on the program

at any of these fundraisers.

Senator GRAMM. Yes. What I would suggest is that you go back

and think about this, trying to separate yourself as a citizen and

your position as a regulator. This is a small agency, but they have

$700 billion.

Ms. FURCHTGOTT-ROTH. Right.

Senator GRAMM. Seven hundred billion dollars. That is a lot of

money. And I do believe that, as a regulator, you have a different

set of standards and you have to apply what we would call in the

country a smell test. Does this look right? Does this smell right?

And again, I think you have to differentiate between yourself as a

citizen, where you and your neighbors are supporting anybody. And

I have a feeling that you would be supporting the right people, so

I do not want you to get out of politics, and there is no reason you

should. But I do believe that when you are regulating a certain industry, you have to be very careful about any appearance that

somehow, through that fundraiser, that you might be influenced.

The fact that you are not going to be influenced anyway does not

change the fact that there might be a perception.

So, I would like to propose, Mr. Chairman, that we just simply

have the candidate go back and think about this special case and

send a letter to the Chairman and to me basically stating your conclusion and what kind of commitment you would make about it,

because I think what has happened here is, as a person who is a

naturalized citizen and very much committed to being a full citizen,

this is a special circumstance and it is one I think you need to

think about. I think if you could put something into writing on it,

having thought about it, I think it would be useful to us.

Ms. FURCHTGOTT-ROTH. Okay. I will do that, yes.

Senator GRAMM. I just want to make a point. The Federal Home

Loan Bank Board has been an entity that has worried me. We had

a fellow named Bruce Morrison, and he was the Chairman. I guess

he was the Chairman of the Board that you will be on. Is that

right?

Ms. FURCHTGOTT-ROTH. That is correct, yes.

Senator GRAMM. I was concerned about him to begin with because I thought he was too political. But he had done something

very mean to me when I was in the House and I felt if I blocked

his nomination, that I would look petty. And so, I let him go. But

what happened very quickly thereafter was that, in my mind, just

crazy things started happening at the Federal Home Loan Bank

Board. Salaries were exploding. And look, I believe in competitive

pay. I understand it is hard to get good people. Senator Sarbanes

and I are doing this for the glory.

[Laughter.]

I understand it is hard to get good people, but at least my feeling

at the end of the last Congress as this was coming to a conclusion

was that this was an agency completely out of control.

27

And so, I would like to ask you, if you are confirmed into this

position, to take a hard, long look at the Federal Home Loan Bank

Board, at these salary structures, at the whole question of paying

directors, because I believe that you are not coming into what I

would perceive to be a position where things are in a position that

that would be considered the norm. I believe that this was almost

a runaway agency 2 years ago. Now, I do not know what has happened in the interim of 2 years.

Ms. FURCHTGOTT-ROTH. The person who made the highest salary

in the Federal Government, James Bothwell, $240,000 a year, has

just been let go. They had a number of RIF’s at the agency, letting

go some of these high-paid people and hiring more bank supervisors, more examiners, because they only had eight examiners and

there were 12 Federal Home Loan Banks, and they need a lot more

examiners.

Senator GRAMM. Well, I do not know what the magic number is,

I am just urging you to take a long, hard look at it.

Ms. FURCHTGOTT-ROTH. Right.

Senator GRAMM. Again, I would rather have one good person

than 100 bad ones. I do not object to paying people competitive salaries, but I just had the impression 2 years ago that this was a

runaway operation. I would like to ask you to take a very close look

at it.

Ms. FURCHTGOTT-ROTH. Yes, I certainly would if I had the honor

of being confirmed.

Senator GRAMM. Thank you, Mr. Chairman.

Chairman SARBANES. I gather that some of the bank presidents

are making between $500,000 to $800,000 a year. Is that right?

Ms. FURCHTGOTT-ROTH. That is correct, yes. They are private entities, though, rather than governmental. They are not Federal

Government employees. They are private entities.

Senator GRAMM. Why do they call it Federal Home Loan Bank

Board?

Chairman SARBANES. It is a private entity, but only within the

Home Loan Bank System.

I think there are some important questions about this System

and we would intend to get the Chairman in to answer. Actually,

many of the questions we were earlier directing to you need to be

directed to him since I was putting to you a hypothetical, but we

have a real-life situation with him.

But I do not know what is going on. I am told that the bulk of

the Federal Home Loan Bank advances go to a small number of

very large members. According to the Board’s own data, 30 percent

of the total advances of the System go to just 10 institutions. In

some home loan bank regions, the concentration is even higher. For

example, over 80 percent of the advances from the San Francisco

bank go to only five institutions.

Should the Federal Home Loan Banks be primarily devoted to

providing low-cost funding to such large institutions? They have direct access. Maybe they should graduate from the System. What is

the rationale of providing these, in effect, subsidized advances from

the Home Loan Bank in such a highly concentrated form? Do you

have a view on that?

28

Ms. FURCHTGOTT-ROTH. Yes. It does not really make sense when

you look at it; but in practice, the way it works is that banks are

allowed to borrow as much as they want up to the level of their

collateral. There is no cap placed on how much they can borrow.

That is why one gets large institutions borrowing so much more

than small institutions.

If a small institution had more collateral and wanted to borrow

more, that institution could. It is not as though the banks, the

large banks, are driving out the small banks in terms of lending

because there is no cap on lending in the whole system. As long

as there is the collateral, a Federal Home Loan Bank can borrow

as much as it wants and a member bank can borrow as much as

it wants. That is why you get this situation with these large banks

wanting to borrow more than the small ones. In fact, there were

more small institutions let in under that magnificent piece of legislation: The Gramm–Leach–Bliley Act allowed more small community banks to become members of the Federal Home Loan Bank

without having the 10 percent of their assets in housing.

So one can see that these very small institutions have less of a

demand for funds. They do not want to make such big loans as the

large ones. That is why one gets to that situation. But there isn’t

any limit on the borrowing, so the banks can borrow as much as

they want.

Chairman SARBANES. I thought the Home Loan Banks were lending significant amounts without collateral in the form of unsecured

loans, often through the overnight market.

Ms. FURCHTGOTT-ROTH. The 12 Federal Home Loan Banks have

recently completed new capital requirements as mandated under

Gramm–Leach–Bliley, and that process is finished. It just finished

last August with the Federal Home Loan Bank of New York. They

all meet the capital standards set out under the law.

Chairman SARBANES. I thank the panel. Actually, there is a vote

on. We will have to defer beginning the next panel until after the

vote. We will go and vote, I am not sure whether Senator Gramm

can return. I will return in order to conclude the other two nominees. I thank the two nominees for coming before the Committee.

Mr. REICH. Thank you, Mr. Chairman.

Chairman SARBANES. The hearing stands in recess and upon our

return, we will go to the third and final panel.

[Recess.]

Chairman SARBANES. We will now turn to our third panel. I

apologize to our nominees, but we have no control over these votes,

as you can appreciate it. We have two nominees to be Directors of

the Securities Investor Protection Corporation: Deborah Doyle

McWhinney and Armando J. Bucelo. Did I pronounce it right, sir?

Mr. BUCELO. Yes, you did, Mr Chairman.

Chairman SARBANES. Okay. Before I take your statements, I

have to swear you in, as is our practice.

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. BUCELO. I do.

Ms. MCWHINNEY. I do.

29

Chairman SARBANES. Do you agree to appear and testify before

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

Ms. MCWHINNEY. I do.

Mr. BUCELO. I do.

Chairman SARBANES. Please take a seat.

Mr. BUCELO. Thank you.

Chairman SARBANES. Ms. McWhinney, why don’t we hear from

you first, and then we will go to Mr. Bucelo.

STATEMENT OF DEBORAH DOYLE McWHINNEY

OF CALIFORNIA, TO BE A DIRECTOR OF THE

SECURITIES INVESTOR PROTECTION CORPORATION

Ms. MCWHINNEY. Mr. Chairman, thank you. Good late afternoon.

Chairman SARBANES. Everyone’s gone, yes.

[Laughter.]

Ms. MCWHINNEY. I am President of Schwab Institutional, an arm

of the Charles Schwab Corporation that provides services to investors through commission-based independent investment advisors.

But beyond my position at Schwab, I am the very proud mother of

Megan and Aidan, two wonderful teenagers who could not join me

today because of their studies.

Both of my girls are studying U.S. Government now and I just

cannot wait to get home today and tell them about this experience.

But I particularly want to thank you for exhibiting the kind of attention and diligence in the questioning I have seen here this afternoon that will make them proud to be U.S. citizens. And I mean

that in all sincerity. But be nicer to me, please.

[Laughter.]

Chairman SARBANES. I thought we asked a very simple question.

We just had trouble getting an answer.

[Laughter.]

Ms. MCWHINNEY. I am not a regulator.

[Laughter.]

Schwab was founded more than 30 years ago on the principle of

helping individuals to become educated, informed, and sensible investors—and our company remains focused on the individual investor today. I am honored to have been nominated by President Bush

as a Director of the Securities Investor Protection Corporation,

where I am looking forward to continuing that focus on the individual investor.

We are all painfully aware of the economic slowdown and stock

market fall-off of the last 2 years. The Dow Jones Industrial Average is off more than 34 percent from its January 2000 high, and

Nasdaq is down a more startling 77 percent. Millions of individual

investors have lost countless trillions of dollars of wealth. For

many Americans, those investments constitute the bulk of their retirement savings, the money they were hoping to use to buy a first

home or send their kids to college—in sum, their most cherished

financial hopes and dreams.

That is why I believe there are few more important organizations

than the Securities Investor Protection Corporation. SIPC has a

narrow but extremely important role: Whenever a brokerage firm

fails or goes bankrupt, SIPC steps in to return the money investors

had with that firm as quickly and as painlessly as possible. No

30

waiting for years of drawn-out court cases and bankruptcy hearings. SIPC gets the cash or securities that the individual investor

had with the failed firm and returns it to that investor, so that he

or she can move that money to a more reliable company.

I wish that there was not a need for an organization like SIPC.

But there is a very real need, and today that need is stronger than

it has been in decades. Investors have a lot to worry about, with

the accounting and ethics of some of the country’s most respected

companies now being questioned, the economy in a prolonged

downturn, and the stock market retreating to levels not seen in

several years. Investors should not have to worry about what happens if their brokerage firm goes under. With SIPC, they do not

have to. More than 99 percent of eligible investors get their money

back with the SIPC’s help. In the past 30 years, more than 600,000 investors have recovered nearly $14 billion in assets with the

SIPC’s help.

If I am confirmed as a Director of SIPC, I promise the Members

of this Committee and the millions of individual investors around

the country that I will bring the vigilance and dedication that the

role deserves. Individual investors are comfortable knowing that

SIPC is behind them if anything should happen, and I will work

hard to maintain and strengthen that confidence. In this era of

uncertainty about the stock market, SIPC directors should bring

nothing less than their full attention to their task. If I am confirmed, I promise to do so in the tradition of the many directors before me who have helped maintain a solid foundation beneath the

strongest capital markets in the world.

Thank you very much. I will be happy to answer questions.

Chairman SARBANES. Thank you very much. We appreciate your

statement.

Mr. Bucelo.

STATEMENT OF ARMANDO J. BUCELO, JR., OF FLORIDA

TO BE A DIRECTOR OF THE

SECURITIES INVESTOR PROTECTION CORPORATION

Mr. BUCELO. Mr. Chairman, I am honored to appear before you

as President Bush’s nominee to serve on the Board of Directors of

the Securities Investor Protection Corporation, better known to all

of us as SIPC. I am deeply grateful to President Bush for awarding

me the privilege of this nomination. It is now my pleasure to introduce my wonderful wife, Beatriz, companion and best friend for

over 20 years, and my son, Alexander, a 9 year old baseball star

who indeed will play with the New York Yankees one day, and

upon his retirement from baseball, hopes to be President. I have

also been blessed with two other children, Alexis Marie, a 17 year

old National Honor Society student ranked in the top percentile of

her class, and blessed with the gift of pen and speech. And last,

but not least, my 15 year old son, Armando Joseph, who is taller

than I am and is considered an excellent swimmer and water polo

player, and who, along with Alexis and myself, is a black belt first

degree in karate. Mr. Chairman, and Members of the Committee,

I thank God every day for my family.

I am a proud Cuban-born American citizen. I arriving in this

great country of ours over 40 years ago, with my parents looking

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for freedom and opportunity for my sister and I. Because of my father, Dr. Bucelo, and my mother Carmen, 83 and 74 years young

respectively, I am what I am today. We are forever thankful and

appreciative of the opportunities given to us by the United States

of America.

I have been an attorney for the past 23 years, specializing primarily in real estate, corporate, and banking. As a result of my

professional endeavors, I have been exposed to a myriad of career

opportunities dealing in said fields. I had the opportunity to serve

as a Director of Freddie Mac—Federal Home Loan Mortgage Association—during President George Bush’s Administration. During

my tenure at Freddie Mac, I was able to cooperate in the efforts

to lead such a powerful and gigantic institution into its preparations for the 21st century. I also had the pleasure to serve as

Cuban American National Chairman of the National Republican

Senatorial Committee, where I attempted to establish a substantial

dialogue, as well as a strong working relationship between Cuban

Americans in this country and Members of the Senate. Among

other activities, I am currently a Director of the National Housing

and Development Corporation, created in 1997, to help preserve

more of the Nation’s at-risk affordable housing stock. Its principal

purpose is to improve the quality of life of all of our national residents, making clean, safe, and attractive, family housing, as well

as affordable rents its foundation. Finally, I serve as the Trustee

of Miami-Dade Community College, the largest community college

in the Nation, and from which I am a proud graduate.

As we all know, SIPC was created by the Securities Investors

Protection Act of 1970, to provide certain protections against losses

to customers from the failure of securities firms.

If honored by confirmation by the U.S. Senate, I vow to be a

strong advocate for fairness and common sense. As a newcomer to

the world of SIPC, I will promptly learn all I need to in order to

work closely with this Committee, the Senate, and Members of the

House of Representatives. I may not know the answers to may

questions today, but I give you my word I do anticipate and welcome the charge for which I have been selected with both eagerness

and humility. Mr. Chairman, I thank you for the opportunity you

have given me to speak before you. I, along with the rest of this

country, admire the work all of you are doing on our behalf, and

I personally want to congratulate you for guiding us through these

difficult times.

Thank you, and I will be more than happy to answer any of your

questions, sir.

Chairman SARBANES. Thank you very much, sir.

The first question I want to put to both of you is, presumably,

and I think you made reference to it, Ms. McWhinney, in your

questionnaire. But you both, I assume, have had discussions with

SIPC on how to handle any possible conflict of interest because

these are part-time appointments and you will each continue in

your current employment, as I understand it.

Mr. BUCELO. That is correct.

Ms. MCWHINNEY. That is correct.

Chairman SARBANES. Have you had such discussions to work out

the arrangements for recusals and so forth?

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Ms. MCWHINNEY. I have been covered both by the Office of Government Ethics, and then I also had a conversation with Michael

Dunn about that, and should anything come up with Schwab or

any of its subsidiaries, I would recuse myself.

Chairman SARBANES. Have you worked out a written protocol, or

was that an oral protocol?

Ms. MCWHINNEY. It was a written protocol with Government

Ethics that I signed, I believe in December of last year, when the

process started.

Chairman SARBANES. All right. Good.

Ms. MCWHINNEY. I have been in positions when I was in banking

where I have had to do that before. So, I have some experience

when I have to draw the line.

Chairman SARBANES. Okay. Good.

Mr. BUCELO. Same case here, Mr. Chairman. I was with Freddie

Mac for a number of years. I have not been fully briefed by SIPC.

I have not met with them, but I have carried many conversations

with its president. And by all means, I am aware of the consequences and I intend to fully abide by them.

Chairman SARBANES. It is interesting, these organizations, people get nominated by the President, and we are happy to consider

them, but you would think that the agency to which they were

going would—this is not directed to you, it is directed to them—

would invest some time and effort in preparing their prospective directors for the hearings before the Senate. You can go back and tell

SIPC I said that.

Ms. MCWHINNEY. Actually, with all due respect, Mr. Dunn has

spent quite a bit of time with me.

Chairman SARBANES. Okay.

Ms. MCWHINNEY. This began over a year ago and several times

I have talked to him about it, even before I came to meet with

Presidential staffing last summer. Their website is actually pretty

good and has a lot of information on it that you can garner. Then

I spent this morning with them going over a lot more in depth.

Chairman SARBANES. I am pleased to hear that.

Mr. BUCELO. I could not meet with him, but he has always been

available, Mr. Chairman.

Chairman SARBANES. Okay.

Mr. BUCELO. And every time I have needed something, he has

been there to respond.

Chairman SARBANES. Now, Mr. Bucelo, I was just kind of curious. How large is your law office?

Mr. BUCELO. You are looking at it.

Chairman SARBANES. Okay.

[Laughter.]

So, you are a sole practitioner.

Mr. BUCELO. Yes, sir, I am.

Chairman SARBANES. That is a tough road to hoe, isn’t it?

Mr. BUCELO. Especially when my partner and boss is sitting

right behind me.

[Laughter.]

She is my top paralegal. We do primarily corporate banking and

real estate. And by that I mean we represent loan closings. We

have a title company called Metro-Dade Title. So whenever John

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and Mary go borrow money, they go to a bank, process the loan,

I do the title work.

Chairman SARBANES. Okay. How old were you when you came to

the United States?

Mr. BUCELO. I was very young, 5, 6 years old.

Chairman SARBANES. So, you did all of your schooling, then,

down in Florida.

Mr. BUCELO. Yes, sir, I did. My father was an attorney—is—he

is very much alive, an attorney and judge in Cuba. We came over

here. As a matter of fact, he had just finished a serious bout with

hepatitis. He almost died. We came here. He began working. My

mother did the same. Went to school, went to Miami-Dade Community College. Ironically enough, that is where I sit now as trustee.

That is at the top of the heap. That is the institution that gave me

the opportunity to continue. Then I went to the University of

Miami undergraduate and law school.

Chairman SARBANES. Was your father able to——

Mr. BUCELO. No, he never did because of the language barrier.

He is retired. He was a realtor for many years.

Chairman SARBANES. In May 2001, the General Accounting Office issued a report called Securities Investor Protection—Steps

Needed to Better Disclose SIPC Policies to Investors. They made a

number of recommendations there. They wanted greater transparency from SIPC and more information provided to the investors.

Are either of you familiar with that report?

Mr. BUCELO. Yes, sir, I am.

Ms. MCWHINNEY. Yes.

Mr. BUCELO. I briefly reviewed it.

Chairman SARBANES. Well, I commend it to you. We think it

made a number of worthwhile proposals.

I know SIPC recently instituted new informational programs for

the benefit of investors, and I would appreciate it if you all would

look at the report and its recommendations and its workings.

Obviously, at this particular time, we have to do everything we

can to try to restore and bolster investor confidence. And SIPC is

part of that. I mean, it is not right in the center of it, but it is part

of that total picture.

We passed the legislation here for making accountants accountable and corporate governance. But we need to strengthen all of

the institutions that deal with it, and SIPC is one of them. So, I

think you would be assuming your responsibilities at a particularly

important time. And we do have this pretty recent GAO study

which gives us some ideas.

SIPC—how often will you all be meeting?

Mr. BUCELO. Four or five times a year.

Chairman SARBANES. For a couple of days each time? How does

that work?

Mr. BUCELO. Pretty much.

Chairman SARBANES. There is a question about the adequacy of

the SIPC fund reserve. In fact, I understand that SIPC has commissioned a study to analyze the adequacy of the current level of

its reserves, which are $1.2 billion, but they hold about $3 trillion

of investor securities. Of course, that is a very wide gap there. It

is important to monitor the adequacy of the SIPC fund reserves in

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light of contemporary market conditions and I would commend that

to you as well.

Questions have been raised about the responsiveness and cost of

the trustees who are hired by SIPC to handle investor claims from

failed broker-dealers. One article stated, ‘‘Their critics say that

trustees wanting repeat business from the corporation have an incentive to minimize pay-outs to investors.’’ The New York Times

had an article entitled: ‘‘Many Holes Weaken Safety Net For Victims Of Failed Brokerages.’’ If confirmed, would you, oversee this process to assure both that

trustees honor appropriate investor claims without undue burdens?

And that the costs of administering the claims program are appropriate for the work performed and for the benefits received by the

investors?

Ms. MCWHINNEY. Definitely.

Mr. BUCELO. Yes, sir.

Chairman SARBANES. You are in a very key position. Arthur

Levitt, as I have heard him speak on more than one occasion, that

you have this huge population of investors and, yet, they are the

least, as it were, well organized to protect their interests. We set

up these various institutions to try to do that. Of course, you do

not get into the act until someone elsewhere has defaulted on their

responsibility and then you end up trying to help ameliorate the

situation. But that is a very important role and it is part of the

system that we have structured now to try to make people feel

more confident.

The broker-dealers are controlled by the market officials and

they are tightening up their whole approach. But this is an important responsibility that you are taking on, and we wish you well

in it. And we appreciate your coming. I have no further questions.

I know you have to catch a plane sometime soon, and I want to

make sure that you do that.

Mr. BUCELO. Thank you, Mr. Chairman.

Ms. MCWHINNEY. Thank you.

Chairman SARBANES. Thank you all very much.

The hearing stands adjourned.

[Whereupon, at 5:15 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 WAYNE ALLARD

Mr. Chairman, today we have an impressive line-up of nominees for a number of

different positions and agencies. I appreciate your commitment to promptly confirming nominees. With the Nation at war the President needs a strong team in

place.

In particular, I am interested in our two HUD nominees. Through my work on

the Housing Subcommittee I have seen how important it is to have top level appointments at the Department of Housing and Urban Development. It is my hope

that we can get these officials confirmed quickly.

For the benefit of all the nominees, let me raise a point I consider very important—we need results-based management. In particular, I would ask all the nominees to study carefully the Government Performance and Results Act and apply it

to their decisionmaking process.

Finally, I would urge you to communicate regularly with Congress and keep us

informed of your work. We all have a common goal of wanting to provide effective

and efficient service for American taxpayers, and good communication will help us

both. I look forward to working closely with each of the nominees.

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PREPARED STATEMENT OF ALBERTO F. TREVIN ̃ O

ASSISTANT SECRETARY-DESIGNATE

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

OCTOBER 3, 2002

Chairman Sarbanes and Members of the Committee, it is an honor and privilege

to appear before you as President Bush’s nominee for Assistant Secretary for Policy

Development and Research at the Department of Housing and Urban Development.

I am looking forward to the prospect of leading HUD’s Office of Policy Development and Research to develop creative, well-structured solutions to the housing and

the community development problems facing the Nation. If confirmed, I intend to

implement a long-term strategic approach to problem solving that uses research and

analysis to gain a comprehensive understanding of the problems confronting our cities and rural communities. This understanding will provide a strong foundation for

innovative, long-term solutions.

While I recognize the need to apply creative problem solving to the immediate

issues facing the Nation, I believe it is equally important to anticipate issues the

country will face in the coming decades. This will enable PD&R to develop productive policy options addressing emerging issues.

Another very important responsibility of the Office of Policy Development and Research is to conduct evaluations of HUD’s programs ensuring the programs are operating as Congress intended. The Secretary’s fiscal year 2003 budget envisions an expansion of this important activity.

I would like to thank you for scheduling this hearing during a very busy time in

the session. I look forward to learning of key issues and concerns of this Committee

to ensure PD&R’s research agenda fully addresses them.

I appreciate your time and look forward to working with members of the staff of

this Committee.

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PREPARED STATEMENT OF CAROLYN Y. PEOPLES

ASSISTANT SECRETARY-DESIGNATE

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

OCTOBER 3, 2002

Chairman Sarbanes, Ranking Member Gramm, and distinguished Members of

this Committee, thank you for giving me the privilege to address this Committee

in consideration of my confirmation as Assistant Secretary for Fair Housing and

Equal Opportunity.

I am here today with some very special people in my life. They are my husband

and my three children, my sisters, and brothers. I also want to acknowledge my

friends from Catholic Charities, MANPHA, The Beacon Institute, the Office of Fair

Housing and Equal Opportunity, and the University of Baltimore.

First, I would like to share a little of my background with you today. I am one

of seven children born to the late Julius and Cornelia Jacobs. I was born and raised

in Baltimore, Maryland. My father served in the U.S. Army and worked most of his

life as a laborer; my mother was a housewife. For several years, we lived in public

housing and I attended local schools. From an economic standpoint, we were considered poor. But as a family, we were rich . . . rich in faith, character, values, and

humor with a closeness that endures even today. My mother, without doubt, was

instrumental in forming my character and strong work ethic. Throughout my public

education, she always encouraged me to ‘‘do my best.’’ It is that drive for excellence

that both inspires and motivates me in all my endeavors.

Prior to my nomination by President Bush, I was Founder and Executive Director

of Jeremiah Housing, Inc., a faith-based, nonprofit housing services organization.

Preceding this, my professional experience for the past 25 years has been exclusively in the operation, coordination, and management of HUD-assisted and sponsored housing. Beginning in 1976, as a manager of a Section 202/8 housing facility

for the Presbytery of Baltimore, I left there in 1980 and joined the Housing Services

Division of Catholic Charities. Over a 19 year period, I progressed in various positions. I attended the University of Baltimore and earned a BS degree in Finance

and a Master’s degree in Business Administration.

As I was preparing for this testimony and thinking about fair housing, I began

to reflect upon discrimination and how it impacts lives. I liken discrimination to an

inflicted wound. The wound eventually heals, but invariably leaves a scar. As a

woman of color, I have experienced discrimination. One such experience when I was

8 years old left, an indelible imprint on me. My mother took me to a department

store in downtown Baltimore. After choosing several items of clothing, she took

them to the counter to pay for them. For several minutes, I watched as a the sales

lady waited on other people, but would not wait on my mother. After all the customers standing next to my mother had been waited on and exited the store, my

mother remained at the counter until the sales lady finally waited on her. When

we left the store, I asked my mother why the lady would not wait on her. Her reply

to me was, ‘‘because we are colored.’’

Discrimination in any form is demeaning. Whether it comes as a result of being

denied housing because you have children, or if a real estate agent steers you to

a ‘‘certain’’ community or a lender charges you extra fees not charged to other people—discrimination is wrong and is against the law.

Moreover, discrimination has a social impact. Just as my mother and I had to

wait in that department store until all others were served, discrimination in America has denied many the opportunity to share in the prosperity of this Nation. Since

the passage of the 1968 Fair Housing Act, significant progress has been made in

reducing barriers to fair housing and expanding homeownership opportunities for

the historical victims of discrimination. Despite all that has been accomplished,

more needs to be done. No one should be denied the home of their dreams because

of their race, color, religion, national origin, sex, familial status, or disability.

While the Nation’s homeownership has reached a record high, a large gap still remains between the percentage of minorities and whites who own their own homes

(48 percent African-American–47.6 percent Hispanic compared to 74.3 percent for

whites). We must do all we can to ensure that discrimination is removed as a barrier to the achievement of the American Dream.

The extent to which discrimination against persons with disabilities exists today

is also problematic. Currently, HUD receives nearly as many complaints of disability discrimination as it does race complaints. There is a significant lack of

accessible housing units for persons with disabilities, both in private and subsidized

housing. Noncompliance with the accessibility requirements combined with the failVerDate 11-MAY-2000 11:05 Apr 07, 2003 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6621 86065.TXT SBANK4 PsN: SBANK4
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ure of landlords to provide necessary accommodations and modifications has contributed to a shortage of housing for persons with disabilities in housing developments.

I have a strong interest in helping to improve the quality of life for underserved

and unserved persons. If I am confirmed by the Senate to this most important post,

I pledge my full commitment to aggressively enforce civil rights and fair housing

laws; to be diligent in conducting timely investigations; to continue to reduce

impediments to fair housing laws; to develop close working partnerships with faithbased and grassroots organizations, local government and other agencies; to enforce

departmental equal employment opportunity laws; to ensure effective program monitoring and compliance and develop performance-based measurements to ensure

quality.

With my extensive experience in HUD’s programs and policies, combined with 25

years of proven management, organizational, and policy development skills, I am

eager to join the fine staff of the Office of Fair Housing and Equal Opportunity in

implementation of our strategic goals and objectives.

In closing, I want to thank the honorable Senator from my home State of Maryland, Senator Sarbanes, and the Members of the Committee for your courtesy. I

want to thank President Bush for honoring me with the opportunity to serve in his

Administration, and to Secretary Mel Martinez for his strong support in the several

months since my nomination. Finally, but not least, I want to thank God for bestowing His grace and this special honor upon me.

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PREPARED STATEMENT OF RAFAEL E. CUE ́ LLAR

BOARD MEMBER-DESIGNATE, NATIONAL CONSUMER COOPERATIVE BANK

OCTOBER 3, 2002

Chairman Sarbanes and distinguished Members of the Committee, I am honored

to appear today before you as a nominee for the Board of Directors of the National

Consumer Cooperative Bank.

I am here because I believe my combined experience, as a military officer, entrepreneur, and community leader is consistent with the mission of the National Consumer Cooperative Bank. It was established to address the financial needs of an underserved community. The Bank’s primary lines of business include multifamily and

commercial real estate services, commerical and small business banking, community

development, and personal banking. To date, NCB has provided more than $6 billion in financing, thousands of homeownership opportunities, school facilities for

4,500 students, 1,000 affordable assisted-living units, a health center serving

100,000 patients annually and more than 10,000 employee stock owners. In short,

the bank provides economic empowerment.

My goal on this Board is to bring these options to communities like my own in

Passaic, New Jersey. Once a deserted area of marginalized immigrants that had to

commute to New York for work, it is now a thriving center of commerce because

business people like my father invested and started businesses to increase the city’s

economic vitality. My father would say, ‘‘No se puede sacar sin dar.’’—‘‘You cannot

take without giving.’’

With those words in mind, I left to join the United States Navy at the age of 17.

This country had given my family opportunity when we arrived as immigrants in

1970; I knew that opportunity came with responsibility. And so it was for 9 years

as I worked my way up the ranks from enlisted to officer. I attended Fordham University on a NROTC scholarship and received my Bachelor’s degree in Economics.

The regimented training and discipline prepared me for an even greater challenge.

After my father’s sudden death in 1996, I resigned my commission to fulfill my

family duty and care for the business my father began years before. I have been

President and Chief Executice Officer of ECO & Sons, Inc. for 7 years. In that time,

I have significantly increased revenue every year, diversified our products and services, and created new jobs to expand the employee base. I inherited a large ‘‘bodega’’

in debt, however today due to strategic planning and investment, ECO & Sons, Inc.

makes a profit through a successful independent supermarket, an upscale catering

company, and an e-commerce site that survived the Internet downturn. Currently,

I own one of the top 500 Hispanic businesses in the country, according to Hispanic

Business Magazine.

In addition, I was selected as 1999 Dun & Bradstreet Number 2 Minority Entrepreneur, 1999 Finalist for Ernst & Young’s Entrepreneur of the Year, 1999 Hispanic

Business Magazine Entrepreneur of the Year, 2000 Finalist for Hispanic Business

Magazine Entrepreneur of the Year, and 2001 Finalist for Ernst & Young’s Entrepreneur of the Year. To share the benefits of my success, I work with several organizations including the Paterson Restoration Corporation, New Jersey State Chamber

of Commerce, the William Paterson University Foundation, and the United States

Hispanic Chamber of Commerce—to name a few.

While those accolades look great on a resume, what I am really proud of is building a partnership with my community. They know I am there to service their needs

whether it is for groceries or otherwise. For instance, the Passaic fire last year put

75 families out on the street without shelter or food. They came to me and we fed

those families three meals a day for 2 weeks and they ate with dignity because that

food came from a supermarket that they patronize. I was humbled that they came

to me instead of one of the many big chain stores. I connect with my customers and

peers alike.

I understand and have overcome the challenges that face minority entrepreneurs—the lack of capital, scarce resources, no mentoring. The NCB has developed

and implemented a successful model, a public and private sector partnership, to

solve these problems and provide innovative solutions. With my experience, I will

be an integral part of those solutions.

I would be proud to serve on the Board of Directors of the National Consumer

Cooperative Bank, and I truly appreciate your consideration.

Allow me to answer any questions that you may have.

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PREPARED STATEMENT OF MICHAEL D. SCOTT

BOARD MEMBER-DESIGNATE, NATIONAL CONSUMER COOPERATIVE BANK

OCTOBER 3, 2002

Chairman Sarbanes, Senator Gramm, distinguished Members of the Committee,

it is an honor and privilege for me to appear before you today as the President’s

nominee to be a Member of the Board of Directors of the National Consumer Cooperative Bank (NCB).

Before I begin my statement, I would like to thank my wife Janet, and my children, Zachary and Taylor. Without their understanding, patience, and support, I

could not be here before you. Unfortunately, they are not able to be here today, as

they continue to live in North Carolina until we sell our home.

I would also like to thank Under Secretary Peter Fisher, Assistant Secretary

Brian Roseboro, and Deputy Assistant Secretary Roger Kodat for all of their support. Finally, I would like to thank President Bush for the honor of this nomination

and the opportunity to serve.

I am, and if confirmed, will continue to be, the Senior Advisor to the Deputy Assistant Secretary for Government Financial Policy at the U.S. Department of the

Treasury. Prior to serving in the Administration, all of my previous experience has

been in the private sector. I have worked extensively in finance, capital markets,

investments, corporate strategy, financial analysis, and commercial lending.

It is my current and former experience that I believe will enable me to be an

effective contributor to NCB’s Board. NCB plays a vital role in meeting the underserved needs of America’s cooperatives, which range from housing cooperatives to

affordable housing communities to small businesses to Alaska Native Corporations

and Tribal Entities. I hope to bring constructive ideas to the Board that will help

grow NCB in the important sectors it serves. Additionally, I am keenly interested

in NCB’s capital structure and assisting it in addressing the statutory repayment

of the Class A Notes that the Federal Government holds, and that mature in 2020.

NCB is a multifaceted financial services company that enables cooperative endeavors throughout America to grow and succeed. These businesses are large and small.

They serve rural and urban communities. NCB helps them by crafting financial solutions tailored to their individual needs and the needs of their members. Chartered

by Congress in 1978, NCB was privatized in 1981 as a cooperatively owned financial

institution. Currently, NCB is owned by 1,841 of its customers.

NCB’s capital base is funded by long-term subordinated notes, medium-term notes

and commercial paper, loans from its banking partners and customers, deposits

through its subsidiary, NCB FSB, and stock purchased by NCB members. The

Bank’s medium-term notes and commercial paper carry investment-grade ratings.

NCB’s primary lines of business include: Multifamily and commercial real estate,

commercial and small business banking, community development services, and personal banking.

• To date, NCB has provided more than $6 billion in financing.

• Combined with balance sheet assets and letters of credit, NCB now manages more

than $3.6 billion in assets nationwide.

• NCB reported a profit of $14.6 million for the first 6 months of 2002. In early

September of this year, NCB distributed approximately $12.6 million in patronage

dividends to its member-owners in the form of cash and stock.

• Last year alone:

1. The Bank grew its deposit base by 50 percent, further diversifying its

funding sources and lowering the capital costs for its customers.

2. The Bank received reaffirmation of its investment-grade ratings by

Moody’s (Baa1) and Standard & Poor’s (BBB).

NCB has a distinguished history of serving the cooperative community and I believe that its future is extremely bright. I would appreciate your support so that I

may be able to contribute to its future.

In closing, I would like to take this opportunity to thank you, Mr. Chairman, and

the Committee for the prompt consideration of my nomination. Mr. Chairman, if

confirmed, I commit to you, the Members and the NCB, all of my energy to serve

with distinction and honor. I would be delighted to answer any questions you and

other Members of the Committee may have.

Thank you.

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PREPARED STATEMENT OF JOHN M. REICH

VICE CHAIRPERSON-DESIGNATE, BOARD OF DIRECTORS

FEDERAL DEPOSIT INSURANCE CORPORATION

OCTOBER 3, 2002

Mr. Chairman, I want to thank you for scheduling this hearing today, as I know

your time is limited in the remaining days of this session. Chairman Sarbanes, Senator Gramm, Members of the Committee, I am honored by the President’s nomination to be the Vice Chairperson of the Federal Deposit Insurance Corporation, and

I am privileged to be sitting in this spot this afternoon. I also appreciate the support

which FDIC Chairman Don Powell has given my nomination.

In the almost 2 years I have served as a Member of the FDIC Board we have

witnessed significant change in the economy and banking issues. In fact, Mr. Chairman, you may recall that I was about to testify at this very table on September 11

when the events of that day stopped the hearing and triggered challenges and

changes to our country’s financial system that no one could have foreseen.

My nearly 25 years of experience as a community banker before I came to Washington to work with my good friend, Former Senator Connie Mack for nearly 12

years, has allowed me to bring a perspective to the Board’s deliberations that recognizes the vital role that banks and their customers play in the economic success of

their communities. Before my life in Washington, I was active for many years in

a variety of community service organizations, and the affect of all of these private,

nonprofit, and public service experiences causes me to evaluate issues which come

before the Board in a manner which balances the interests of banks, consumers, the

deposit insurance funds, and the Nation’s economy.

Under the leadership of Chairman Don Powell during the past year, the FDIC has

been, and is, at the forefront of many of the issues facing the financial industry

today. We have brought together leading thinkers on such key issues as corporate

transparency, financial institution disclosure, and risk management, and, of course,

our work on Deposit Insurance Reform. We have launched a major financial literacy

effort called Money Smart with the stated goal of establishing partnerships with

1,000 organizations and institutions, in all 50 States, to distribute 100,000 copies

of Money Smart in three languages and expose one million consumers to our financial education program over the next 5 years.

We are also engaged in a major effort to reduce unnecessary regulatory burden

and to tap the tremendous potential of technology to streamline bank supervision—

while not sacrificing our primary goal of ensuring the safety and soundness and consumer compliance of the banking system. These are just a few of the many initiatives and activities underway at the FDIC today.

While the FDIC has been aggressively moving forward on these developing issues,

we have not neglected our primary mission of protecting depositors in the event of

bank failures. In fact, I believe that the lessons I learned in one of those failures

provide me with a unique credential to serve as Vice Chairperson of the FDIC.

Following the resignation of former Chairman Donna Tanoue in July 2001, I was

serving as the Acting Chairman of the FDIC when Superior Bank failed on July 27,

2001. It was not just the size of this failure—more than $2 billion in assets—that

was instructive. As this Committee knows from its oversight, this failure raised a

number of issues ranging from subprime lending, to residuals and accounting opinions, to regulator cooperation and access, to management liability, that challenged

the leadership and staff of the FDIC to modify established methods of handling

bank failures and to create some innovative new approaches. This experience along

with other experiences gained during the past nearly 2 years I have served on the

Board, combined with my duties chairing of all of the standing committees of the

FDIC Board help, I believe, to enable me to serve effectively as Vice Chairman of

the FDIC.

Mr. Chairman, the FDIC occupies a unique position in the American Government.

We are keenly aware of the importance of our mission of maintaining confidence

and trust of the American people in the Nation’s financial system. It is an organization with an outstanding, highly capable, professional staff. I look forward to my

continued affiliation with both its mission and its people. With all of its successes,

I also believe that there is still an amazing untapped potential at the FDIC that

is just surfacing and will help shape the contours of the financial system for years

to come. I am honored the President has nominated me to play an important role

in that future, and, again, I wish to thank you for holding this hearing. I will be

happy to address any questions you many have.

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PREPARED STATEMENT OF DIANA E. FURCHTGOTT-ROTH

DIRECTOR-DESIGNATE, FEDERAL HOUSING FINANCE BOARD

OCTOBER 3, 2002

Thank you very much, Mr. Chairman, Senator Gramm, and distinguished Members of the Committee for the opportunity to appear before you today. I am honored

that President Bush has nominated me to be a Director of the Federal Housing

Finance Board and I am deeply humbled to appear before you today at this confirmation hearing. If confirmed, I would be the first full-time female Director of the

Board.

I want to express my appreciation to you, Mr. Chairman, the Senator from my

home State of Maryland. I would also like to express my appreciation to Senator

Gramm for everything that he has done on my behalf. He will be sorely missed by

his many friends everywhere.

I would like to take this opportunity to introduce my husband, Harold, and my

six children, Leon, Francesca, Jeremy, Godfrey, Theodore, and Richard.

I am also profoundly grateful to my parents, Ellen and Gabriel Roth, for making

the difficult decision to come here 35 years ago from England. I remember sailing

into New York Harbor on Labor Day weekend, 1967, and seeing the Statue of Liberty. To be honest, its symbolism did not mean much to me then as a child. I was

just glad that the 5 days of sea sickness were over. But it became more and more

important as I have grown into adulthood and made the choice to become an American. My parents’ decision gave me the opportunity to work in the White House

under President Reagan, President George H.W. Bush, and our current President

Bush, as well as marrying a wonderful man and having six children. Nowhere else

in the world can immigrants have such opportunities.

It is extraordinarily hard to do what my parents did, and pack up all one’s possessions and three young children and move to a new country, a country my mother

had not even visited. The story is that my father called my mother from the United

States and said, ‘‘We have to move here, they even heat the bathrooms.’’ Our home

in England had kerosene heaters that my father would go around filling every night

before he went to bed. There was no heater in our family’s only bathroom, as was

common practice in many English homes.

And that brings me to the subject of housing, and the Federal Housing Finance

Board. Many people ask about my interest in the Federal Housing Board. Housing

affects all of us—all of us need somewhere to live. And many either own homes, or

aspire to do so—it is part of the American Dream. With such a large purchase, the

financing mechanism is critical.

Our housing and capital markets work so well that many people assume that

there is nothing special about them. But, internationally, these well-functioning systems are rare. Our standard fixed 30 year mortgage is not standard in most other

countries, even in the developed world. Generally people in other countries are

required to put down much larger sums, and borrow at rates which vary directly

with the prime rate of lending. So when the prime rate goes up, mortgage payments

unpredictably take more money away from groceries and clothing. And housing can

be so scarce that selling a home and moving to another city becomes practically impossible. If I should have the honor of being confirmed, I would try to preserve and

improve the flexible financial systems that America has and make it possible for

more Americans to take advantage of them.

The Federal Housing Finance Board oversees the Federal Home Loan Bank System, a group of 12 banks which have $700 billion in assets and approximately 8,000

member banks. The Board makes sure that the System is on a sound financial footing, an important task, as can be seen by recent developments in the corporate and

accounting world.

The Federal Home Loan Bank System makes it easier for small banks to lend

money to Americans for mortgages. In the first days of banking, banks could only

lend out what they had on hand in deposits. Later, they acquired the ability to borrow from some sources to make loans to others. The 8,000 member banks can now,

through the Federal Home Loan Banks and the Board’s Office of Finance, take advantage of pooling their requests for funds to achieve lower rates, which get passed

on directly to the consumer.

About 68 percent of American households own homes. But the rate for minorities

is far lower, with fewer than half of Hispanics and African-American households

owning homes. President Bush and the Federal Housing Finance Board are trying

to raise these levels. The Board’s Affordable Housing Program helps improve homeownership among these groups, a vital social goal. Recently, the Board expanded the

amount of Affordable Housing Program funds that Federal Home Loan Banks can

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contribute toward downpayment assistance programs for first-time homebuyers, one

of the most important steps in purchasing a home.

Chairman Sarbanes and Members of the Committee, I am honored to appear before you today. If confirmed, I promise to work closely with this Committee and Congress to ensure the safety and soundness of the Federal Home Loan Bank System

and fulfillment of the System’s affordable housing goals. I look forward to answering

any questions that you might have.

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PREPARED STATEMENT OF DEBORAH DOYLE McWHINNEY

DIRECTOR-DESIGNATE, SECURITIES INVESTOR PROTECTION CORPORATION

OCTOBER 3, 2002

Good afternoon. My name is Deborah Doyle McWhinney, and I am President of

Schwab Institutional, an arm of the Charles Schwab Corporation that provides services to investors through commission-based independent investment advisors. But

beyond my position at Schwab, I am the very proud mother of Megan and Aidan,

two wonderful teenagers who could not join me today because of their studies.

Charles Schwab was founded more than 30 years ago on the principle of helping

individuals to become educated, informed, and sensible investors—and our company

remains focused on the individual investor today. I am honored to have been nominated by President Bush as a Director of the Securities Investor Protection Corporation, where I look forward to continuing that focus on the individual investor.

We are all painfully aware of the economic slowdown and stock market fall-off of

the last 2 years. The Dow Jones Industrial Average is off more than 34 percent from

its January 2000 high; and the Nasdaq is down a more startling 77 percent. Millions of individual investors have lost countless trillions of dollars of wealth. For

many Americans, those investments constitute the bulk of their retirement savings,

the money they were hoping to use to buy a first home or send their kids to college—in sum, their most cherished financial hopes and dreams. It is a frustrating

time to be an investor.

That is why I believe that there are few more important organizations than the

Securities Investor Protection Corporation. SIPC has a narrow but extremely important role: Whenever a brokerage firm fails or goes bankrupt, SIPC steps in to return

the money investors had with that firm as quickly and as painlessly as possible. No

waiting for years of drawn-out court cases and bankruptcy hearings. SIPC gets the

cash or securities that the individual investor had with the failed firm and returns

it to that investor, so that he or she can move that money to a reliable company.

I wish that there was not a need for an organization like SIPC. But there is a

very real need, and today that need is stronger than it has been in decades. Investors have a lot to worry about, with the accounting and ethics of some of the country’s most respected companies now being questioned, the economy in a prolonged

downturn, and the stock market retreating to levels not seen in several years. Investors should not have to worry about what happens if their brokerage firm goes

under. With SIPC, they do not have to. More than 99 percent of eligible investors

get their money back with SIPC’s help. In the past 30 years, more than 600,000

investors have recovered nearly $14 billion in assets with SIPC’s help.

If I am confirmed as a Director of SIPC, I promise the Members of this Committee

and the millions of individual investors around the country that I will bring the vigilance and dedication that the role deserves. Individual investors are comfortable

knowing that SIPC is behind them if anything should happen, and I will work hard

to maintain and strengthen that confidence. In this era of uncertainty about the

stock market, SIPC directors should bring nothing less than their full attention to

their task. If I am confirmed, I promise to do so in the tradition of the many directors before me who have helped maintain a solid foundation beneath the strongest

capital markets in the world.

Thank you very much. I will be happy to answer questions.

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PREPARED STATEMENT OF ARMANDO J. BUCELO, JR.

DIRECTOR-DESIGNATE, SECURITIES INVESTOR PROTECTION CORPORATION

OCTOBER 3, 2002

Chairman Sarbanes, Ranking Member Gramm, and distinguished Members of the

Committee, I am honored to appear before you as President Bush’s nominee to serve

on the Board of Directors of the Securities Investor Protection Corporation, better

known as SIPC. I am deeply grateful to President Bush for awarding me the privilege of this nomination. It is now my pleasure to introduce my wonderful wife,

Beatriz, companion and best friend for over 20 years, and my son, Alexander, a 9

year old baseball star who indeed will play with the New York Yankees one day,

and upon his retirement from baseball, hopes to be President. I have also been

blessed with two other children, Alexis Marie, a 17 year old National Honor Society

student ranked in the top percentile of her class, and blessed with the gift of pen

and speech, and last, but not least, my 15 year old son, Armando Joseph, who is

taller than I am and is considered an excellent swimmer and water polo player, and

who, along with Alexis and myself, is a black belt first degree in karate. Mr. Chairman and Members of the Committee, I thank God every day for my family.

I am a proud Cuban-born American citizen. Arriving in this great country of ours

over 40 years ago, with parents looking for freedom and opportunity for my sister

and I. Because of my father, Dr. Bucelo, and my mother Carmen, 83 and 74 years

young respectively, I am what I am today. We are forever thankful and appreciative

of the opportunities given to us by the United States of America.

I have been an attorney for the past 23 years, specializing primarily in real estate, corporate, and banking. As a result of my professional endeavors, I have been

exposed to a myriad of career opportunities dealing in said fields. I had the opportunity to serve as a Director of Freddie Mac (Federal Home Loan Mortgage Association) during President George Bush’s Administration. During my tenure at Freddie

Mac I was able to cooperate in the efforts to lead such a powerful and gigantic institution into its preparations for the 21st century. I also had the pleasure to serve

as Cuban American National Chairman of the National Republican Senatorial Committee, where I attempted to establish a substantial dialogue, as well as a strong

working relationship between Cuban Americans in this country and Members of the

Senate. Among other activities, I am currently a Director of the National Housing

and Development Corporation, created in 1997, to help preserve more of the Nation’s at-risk affordable housing stock. Its principal purpose is to improve the quality of life of all of our national residents, making clean, safe, and attractive family

housing, as well as affordable rents its foundation. Finally, I serve as Trustee of

Miami-Dade Community College, the largest community college in the Nation, and

from which I am a proud graduate.

As we all know, SIPC was created by the Securities Investors Protection Act of

1970, to provide certain protections against losses to customers from the failure of

securities firms.

If honored by confirmation by the U.S. Senate, I vow to be a strong advocate for

fairness and common sense. As a newcomer to the world of SIPC, I will promptly

learn all I need to in order to work closely with this Committee, the Senate and

Members of the House of Representatives. I may not know the answers to may questions today, but I give you my word I do anticipate and welcome the charge for

which I have been selected with both eagerness and humility. Chairman Sarbanes,

Senator Gramm, and Members of the Committee, I thank you for the opportunity

you have given us to speak before you. I along with the rest of this country, admire

the work all of you are doing on our behalf and we congratulate you for guiding

us through these difficult times.

Thank you, and I will be more than happy to answer any of your questions.

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STATEMENT OF DIANNE FEINSTEIN, A U.S. SENATOR FROM

THE STATE OF CALIFORNIA

I regret that I cannot introduce Alberto Trevin ̃ o today, who has

been nominated as the Assistant Secretary of the Department of

Housing and Urban Development’s Office of Policy Development

and Research.

This is not the first time Mr. Trevin ̃ o has been before the Senate

in a confirmation hearing, as he has served both the Nixon and the

Ford Administrations. I am sure that his expertise will again be

beneficial to the Department and to the Nation.

Mr. Trevin ̃ o’s extensive background with the Urban Interface

Group has allowed him to work to solve a variety of problems in

affordable housing and strategic planning. From evaluating senior

housing markets, to developing affordable housing strategies to

meet the diverse needs of America’s homebuyers, Mr. Trevin ̃ o has

honed his skills in urban planning and strategic development. This

is knowledge that will benefit him in spurring development of affordable housing and boosting homeownership rates.

Mr. Trevin ̃ o was born in Inglewood, California, and went to the

University of California in Berkeley, before continuing his studies

with graduate work at Harvard. His background in strategic planning and affordable housing, and his current experience with urban

planning and development, will prove an asset to the Department.

I am confident that Mr. Trevin ̃ o will ably lend his insight to the

Office of Policy Development and Research in working toward longterm solutions to the problems confronting our cities and our rural

communities.

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