U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

81–759 PDF 2013

THE ANNUAL REPORT OF THE FINANCIAL 

STABILITY OVERSIGHT COUNCIL 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

MAY 22, 2013 

Printed for the use of the Committee on Financial Services 

Serial No. 113–24 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

GARY G. MILLER, California, Vice Chairman 

SPENCER BACHUS, Alabama, Chairman 

Emeritus 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

MICHAEL G. GRIMM, New York 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

TOM COTTON, Arkansas 

KEITH J. ROTHFUS, Pennsylvania 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

May 22, 2013 ..................................................................................................... 1 

Appendix: 

May 22, 2013 ..................................................................................................... 59 

WITNESSES 

WEDNESDAY, MAY 22, 2013 

Lew, Hon. Jacob J., Secretary, U.S. Department of the Treasury ...................... 8 

APPENDIX 

Prepared statements: 

Lew, Hon. Jacob J. ........................................................................................... 60 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Ellison, Hon. Keith: 

Financial Crimes Enforcement Network FY 2013 President’s Budget Submission ........................................................................................................... 68 

Financial Crimes Enforcement Network FY 2014 President’s Budget Submission ........................................................................................................... 71 

Lew, Hon. Jacob J.: 

Written responses to questions submitted by Representative Ellison ......... 74 

Written responses to questions submitted by Representative King ............. 76 

Written responses to questions submitted by Representative Stivers ......... 78 

(1) 

THE ANNUAL REPORT OF THE FINANCIAL 

STABILITY OVERSIGHT COUNCIL 

Wednesday, May 22, 2013 

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

The committee met, pursuant to notice, at 10:05 a.m., in room 

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

Members present: Representatives Hensarling, Bachus, Royce, 

Lucas, Capito, Garrett, Neugebauer, McHenry, Campbell, 

Bachmann, Pearce, Posey, Fitzpatrick, Luetkemeyer, Huizenga, 

Duffy, Hurt, Grimm, Stivers, Fincher, Stutzman, Mulvaney, 

Hultgren, Ross, Pittenger, Wagner, Barr, Rothfus; Waters, 

Maloney, Velazquez, Watt, Sherman, Meeks, Capuano, McCarthy 

of New York, Lynch, Scott, Green, Cleaver, Ellison, Perlmutter, 

Himes, Peters, Carney, Sewell, Foster, Kildee, Murphy, Delaney, 

Sinema, Beatty, and Heck. 

Chairman HENSARLING. The committee will come to order. 

Without objection, the Chair is authorized to declare a recess of 

the committee at any time. 

The Chair now recognizes himself for 5 minutes for an opening 

statement. 

This morning, we welcome Treasury Secretary Jacob Lew for his 

first appearance before the Financial Services Committee. Today, 

the Secretary is here to present, according to statute, the third annual report of the Financial Stability Oversight Council, or FSOC. 

The FSOC is an amalgamation of regulators heading agencies 

that either helped cause the financial crisis or were largely negligent in preventing it in the first place, notwithstanding they had 

the regulatory power to do so. 

Yet, we know the root cause of the crisis was not deregulation; 

it was dumb regulation. Federal policy strong-armed, incented institutions to loan money to people to buy homes that ultimately 

they could not afford. This dramatically eroded historically prudent 

underwriting standards of the subprime and alt-A mortgages that 

led to the financial crisis. 

More than 70 percent were incented and backed by the Federal 

Government through Fannie Mae, Freddie Mac, the FHA, and 

other programs. This speaks for itself. 

So in many respects, as we examine FSOC, the regulators that 

helped precipitate the last crisis are now put in charge of preventing the next. And, according to the U.S. Government Accountability Office (GAO), after 3 years they don’t have much to show 

2 

for it. Just last month, we received testimony from the GAO that 

FSOC ‘‘has still not developed a structure that supports having a 

systematic or comprehensive process for identifying potential 

emerging threats.’’ 

Yet, FSOC has been granted sweeping new powers within our 

economy. And this is disconcerting to me. Because as we know, on 

occasion, regulators may not just be dumb, they may not just be 

negligent; they may actually be criminal. 

Just down the hall, as we speak, the House Oversight and Government Reform Committee is holding a hearing where, according 

to her attorney of record, top IRS official Lois Lerner is ‘‘pleading 

the Fifth’’ Amendment for having led an IRS division which trampled upon the First Amendment. 

The American people are appalled that the most feared government agency has been permitted to attack their most sacred rights. 

The American people are appalled at the arrogance of the agency. 

They are appalled by this abuse of power. And for the last 21⁄2

months, and for the foreseeable future, this agency, the IRS, just 

like FSOC, reports to you, Mr. Secretary. 

And although the IRS is clearly accountable to you, the Consumer Financial Protection Bureau (CFPB), and the Office of Financial Research (OFR), two agencies which are part of FSOC, are 

not. Neither the Bureau nor the Financial Research Office answers 

to anyone. A single director who cannot be removed by the President at will heads both. 

Spending by both agencies is unaccountable to Congress or the 

Administration. Neither is bound by the constraints of the government pay scale. And both agencies have subpoena power. 

Something else both of these FSOC agencies have in common is 

that they are engaged in gathering massive, massive amounts of 

information about private American citizens. 

At the same time, the IRS, thanks to its enforcement powers that 

it gained with Obamacare, is building the largest personal information database the government has ever seen. The CFPB is monitoring how millions of Americans interact with their lenders. And 

the OFR is working to gather enough information in its computers 

that would equal all the data held in all the U.S. academic research libraries combined. This is big data for ‘‘Big Brother.’’ 

As the IRS scandal reminds us, the freedom of every American 

is endangered when a government agency abuses its power and 

misuses sensitive information entrusted to it. In light of the recent 

scandals, this is an appropriate time to remind everyone that our 

committee maintains on its Web site a confidential way for Americans to report evidence of abuse of power by the Federal agencies 

under our jurisdiction. We encourage all concerned and informed 

citizens to use it. 

Secretary Lew, we look forward to discussing these issues and 

many others with you in detail in today’s hearing. 

At this time, I will now recognize the ranking member for 2 minutes for an opening statement. 

The gentlelady is recognized. 

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

I am very pleased to welcome Secretary Lew to his first appearance before the Financial Services Committee to deliver the annual 

3 

report of the Financial Stability Oversight Council, as required by 

the Dodd-Frank Act. 

We are aware of your tremendous responsibilities. We are very 

pleased that you were confirmed. And many of us look forward to 

working with you to ensure that you are able to do the best job possible. 

As the Council notes in its report, despite some positive developments in 2012, the housing market remains anemic and the foreclosure crisis continues to weigh heavily on our fragile economy. 

However, mortgage lenders’ poor servicing standards have yielded ongoing court challenges, slowing the process and leaving millions of homeowners in limbo as they contend with the inadequate 

government programs and mass settlements. 

RealtyTrac reported that from January of 2007 to December of 

2011, there were more than 4 million completed foreclosures and 

more than 8.2 million foreclosure starts. And while estimates of future foreclosures range widely, Moody’s Analytics recently estimated that foreclosures will strike another 3 million homes in the 

next 3 or 4 years. 

Accordingly, I do hope, Mr. Secretary, that you can discuss with 

the committee how housing, both legacy issues and perspective reform, factors into this agenda. 

Lastly, I am concerned that our financial system remains at risk 

from delays in implementation of Dodd-Frank and continued industry challenges, both here in Congress and in the courts, to weaken 

the rules before they have been implemented. While Title VII of 

Dodd-Frank was designed to increase the transparency of the overthe-counter derivatives market, many of the most critical components remain stalled in rulemaking, challenged in the courts, or obstructed in the Congress. 

This slow pace of Title VII rulemakings, combined with delays in 

implementation of the Volcker Rule, finalization of the living wills, 

and designation of Systemically Important Financial Institutions 

(SIFIs) is only made more troubling when considered in the context 

of the myriad financial scandals, from LIBOR and the money-laundering cases to illegal foreclosures that have occurred since the 

passage of the Wall Street Reform Act. 

For these reasons, I am concerned that our financial system remains fragile, despite substantial improvements since 2008. 

I, therefore, look forward to your testimony and insights that you 

may be able to provide on all of the above matters and what FSOC 

is currently doing to monitor systemic risk and preserve financial 

stability. 

I yield back the balance of my time. 

Chairman HENSARLING. The Chair now recognizes the gentlelady 

from West Virginia, Mrs. Capito, for 2 minutes. 

Mrs. CAPITO. Thank you. I would like to thank the chairman for 

yielding me time. 

And I would like to welcome our witness today. 

Like most Americans, I was shocked and dismayed to learn of 

the IRS’ admission on May 10th that they had specifically targeted 

conservative groups for political reasons. 

This witch hunt is an insult to the American people and to the 

very freedoms that are at the heart of our Nation’s democracy. No 

4 

group, regardless of their political affiliation, should ever be discriminated against because of their political beliefs. 

The First Amendment protects the rights of individual Americans and groups to express their views without fear or concern of 

intimidation. 

Not only is Mr. Lew serving as the Secretary of the Treasury, as 

the IRS’ transgressions unfold, he was also the White House Chief 

of Staff from January 2012 until his confirmation in January 2013. 

We need to know more from the Secretary about what steps are 

being taken to ensure that this breach of trust never happens 

again. We need to know if further examination is necessary to ensure that this behavior is not occurring in other divisions of the 

IRS. 

And we need to know why and how, as Chief of Staff and Secretary of the Treasury, Mr. Lew did not take immediate steps to 

bring this un-American action to light? 

After all, reports indicate that senior IRS officials have known 

about these abuses for 2 years, and senior White House officials admitted to learning about them 1 month ago. 

Americans deserve the truth. As public servants, we all take an 

oath to uphold the Constitution. The American people entrust us 

to be honest stewards of the freedoms and liberties that are at the 

core of our Nation’s democracy. 

It is clear that actions taken by the IRS employees and senior 

officials violated that trust and are counter to this duty. 

This is a sad chapter for our Nation’s democracy, and it is incumbent upon this Administration to take all appropriate measures to 

ensure that this type of intimidation and discrimination does not 

happen again. 

I yield back. Thank you. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from New York, Mr. Meeks, for 21⁄2 minutes. 

Mr. MEEKS. Mr. Secretary, I would like to welcome you to your 

first appearance before this committee. I know that in your testimony before the Senate Banking Committee yesterday, you emphasized making sure that Dodd-Frank implementation is done quickly 

to provide new protections for consumers, while ensuring we take 

a well-rounded approach in looking at the system as a whole. 

I look forward to your testimony and commend you on the Council’s findings regarding Basel III implementation, international coordination, and protecting the Nation’s financial system from frequent and varied cyber attacks. 

As to community banks and Basel III, I am encouraged by your 

position on the application of Basel III capital rules to community 

banks. Often the sole source of mortgage financing, community 

banks, which were not responsible for bringing the Nation’s economy to the brink during the financial crisis, should not be held to 

the same standards as larger banks and other systemically risky 

institutions. 

I was also pleased to hear during your testimony yesterday that 

Basel III would be a floor and not a ceiling for the international 

community. 

5 

In my view, the United States should remain a competitive financial market with the necessary safeguards enacted in DoddFrank. 

And I am interested to hear how the Council will strenthen the 

core of the nation of financial regulation, both domestically and 

internationally, not only by pulling up global standards and reducing importing systemic risk into the United States through the effective implementation of Basel III, but also in the cross-border cooperation that is key to implementing the FDIC’s Orderly Liquidation Authority (OLA) under Title II of Dodd-Frank. 

Now, I want to just briefly talk about the revelations last week 

in the Treasury’s Inspector General’s report. The excessive scrutinizing of particular groups by the IRS is certainly wrong. And the 

IG report findings showing that some employees at the IRS exercised poor judgment in using inappropriate methods to determine 

if groups qualify for tax-exempt status are troubling. 

While these methods are unacceptable and troubling because all 

individuals and organizations should be treated fairly by the IRS, 

the report stated that the conduct was not politically motivated. 

I commend President Obama and you, Secretary Lew, for taking 

swift action to restore public confidence in the IRS. And I hope that 

while the IRS is taking these corrective measures, it does not shy 

away from curtailing organizations attempting to abuse their taxexempt status. 

I have a specific example in mind when I raise this issue. The 

IRS 501(c)(3) exemption requires that in order to be tax exempt 

under Section 501(c)(3) of the Internal Revenue Code, an organization ‘‘may not attempt to influence legislation as a substantial part 

of its activities, and it may not participate in any campaign activity 

or against any political candidates.’’ 

Here, I have a fund-raising letter from a 501(c)(3) organization. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Alabama, the 

chairman emeritus, Mr. Bachus, for 1 minute. 

Mr. BACHUS. Thank you. 

Congratulations on your appointment, Secretary Lew. And thank 

you for appearing before the committee today. 

Secretary Lew, you are obviously familiar with Dodd-Frank, due 

to your position as the Director of OMB. Now, you are about to confront all of it—the good, the bad and the ugly—as I have said. 

One of the common elements in the Democratic and Republican 

reform proposals that preceded Dodd-Frank was the formation of 

some type of systemic risk council to help regulators share information and coordinate their actions. These councils differed in their 

details. And of course, the end result was the Financial Services 

Oversight Council. 

Our expectation throughout the rulemaking and under the statute was that it would be transparent and have accountability, especially considering the high-level nature of the regulators involved. 

So it is particularly disturbing to me, especially considering the 

events in the news over the past few weeks, that the GAO has 

found that there is a serious lack of transparency at the FSOC. 

Very little is put down in writing or made available to the public. 

6 

And as I noted to Attorney General Holder, when you don’t have 

a record, you don’t know the details, and there is no accountability. 

So my hope is as Chairman of FSOC, you will work with us to 

assure more accountability and more transparency. 

Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Alabama, Ms. Sewell, for 1 minute. 

Ms. SEWELL. I want to thank Ranking Member Waters and 

Chairman Hensarling for scheduling this critically important hearing today. 

I also would like to welcome Secretary Lew and thank him for 

his testimony today. 

I am very encouraged to find out that since the Council’s last annual report, the U.S. financial system has continued to strengthen 

and make incremental progress. 

I am also encouraged to see that many of the stop-gap measures 

and regulations put into place by Dodd-Frank have succeeded in 

providing oversight, transparency, and continued liquidity in the 

marketplace. 

However, this report is also very sobering, in that it identifies 

significant and unresolved risks in the financial marketplace. 

This report points to lingering structural vulnerabilities in the 

wholesale funding markets, continued overdependency on government and agency guarantees in the housing market, and the 

emerging operational risks to our financial systems posed by increasing cyber attacks, just to name a few. 

Our work as Members of Congress is obviously far from done. 

And we must continue to remain vigilant in providing the necessary guidance and oversight to fully realize the overall objective 

of Dodd-Frank. 

At this time, there may even be commonsense reforms that we 

must consider, to make technical corrections in order for its purpose to be felt. 

I want to applaud the Secretary, as well as administrators at 

FSOC, for their efforts in providing that transparency. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Michigan, Mr. Kildee, for 1 minute. 

Mr. KILDEE. Thank you, Chairman Hensarling and Ranking 

Member Waters. 

And welcome, Secretary Lew. 

Five years after the greatest economic crisis since the Great Depression, home values continue to recover. One way we can improve financial stability, increase property values, and rebuild 

neighborhoods is by eliminating blight and abandonment in our 

communities. 

Yesterday, I hosted a meeting for Members—including from this 

committee, Mr. Huizenga and Mr. Peters—with Assistant Secretary 

Tim Massad to discuss the ongoing importance of demolition in certain housing markets, including places like Flint and Saginaw, 

Michigan, which I represent. 

This issue is not just important to my district, though, but to cities and towns across the country. 

7 

Targeted demolition strengthens municipalities and affects their 

long-term sustainability. Leaving blight and abandonment in buildings and neighborhoods not only hurts homeowners nationwide, but 

also makes our communities less safe, as vacant, run-down properties often are the sites of crime. 

I look forward to your testimony today, and to working with 

Treasury to continue to identify ways to eliminate blight and abandonment in our communities. 

Thank you very much. 

Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Ohio, Mrs. Beatty, 

for what he hopes will be 1 minute. 

Mrs. BEATTY. Thank you, Mr. Chairman, and Ranking Member 

Waters. 

And thank you, Secretary Lew, for your testimony today and, 

more importantly, for your service to this country. 

This year’s annual FSOC report discusses several different areas 

of concern that continue to pose ongoing threats to the systemic financial market stability. 

And though some are uncontrollable, there are some that I believe can be resolved through the actions of this Congress. 

Specifically, the report mentions the U.S. fiscal policy in the absence of bipartisan consensus as an ongoing risk. And since over 

the last 2 years, unfortunately most of what has been showcased 

has been our bickering and disregarding the deficit, government 

spending and raising the debt ceiling—so today, hopefully with 

your guidance and testimony, we can look at this report seriously 

and work together to find a common cause. 

And thank you very much for being here to help us do that. 

Chairman HENSARLING. And thank you very much for coming in 

under time. 

Today, we welcome the Secretary of the Department of the 

Treasury, the Honorable Jacob J. Lew, who was confirmed by the 

Senate on February 27th of this year to serve as our Nation’s 76th 

Secretary of the Treasury. 

His prior Government service includes tenures at heading up 

OMB for both the Obama and Clinton Administrations, as well as 

serving as a Deputy Secretary at the State Department. 

In addition to Secretary Lew’s public service, he served as the 

managing director and chief operating officer for two different 

Citigroup business units, and as an executive vice president and 

COO of New York University. 

No stranger to the halls of Congress, our Secretary has served 

for 8 years as an adviser to former Speaker Tip O’Neil. Secretary 

Lew holds degrees from Harvard College, and the Georgetown University Law Center. 

Secretary Lew, you will be recognized to give an oral presentation of your testimony. And without objection, your written statement will be made a part of the record. 

I wish to inform all Members that we have agreed to release the 

Secretary at 12:45 p.m. today. 

Mr. Secretary, welcome. Please proceed. 

8 

STATEMENT OF THE HONORABLE JACOB J. LEW, SECRETARY, 

U.S. DEPARTMENT OF THE TREASURY 

Secretary LEW. Thank you, Mr. Chairman. 

I would like to, just at the outset, say that I think all of us are 

in the same place, that our thoughts and prayers are with those 

affected by the devastating tornadoes in the Oklahoma City area. 

It is just a reminder of the terrible ravages that natural disasters 

can cause. And our hearts and prayers are with the families who 

are suffering there. 

Chairman Hensarling, Ranking Member Waters, members of the 

committee, thank you for the opportunity to testify today regarding 

the Financial Stability Oversight Council’s 2013 annual report. 

Before I address the report, I want to say just a few words about 

the Treasury Inspector General for Tax Administration’s report last 

week, which showed that some employees at the IRS used outrageous methods to determine if certain groups qualified for tax-exempt status. 

As the Inspector General’s report indicates, while this conduct 

was not politically motivated, it was unacceptable and it was inexcusable. Administering the Tax Code without any hint of bias is a 

solemn obligation that must be carried out with the highest of 

standards. That is why I moved quickly to take steps to restore 

confidence in the IRS. 

Within 24 hours of the report coming out, I asked for and received the resignation of the acting Commissioner. And within 24 

hours, the President appointed a new acting Commissioner, Daniel 

Werfel. He is a person of high integrity and he has earned the confidence of Democrats and Republicans for his professionalism. 

I have directed incoming Acting Commissioner Daniel Werfel, 

who just starts today, to carry out a thorough review of this conduct, and to take action on three specific things: first, making sure 

that those who acted inappropriately are held accountable for their 

actions; second, examining and correcting any failures in the system that allowed this behavior to happen; and third, taking a forward-looking view in determining whether the IRS has systemic 

problems that need to be addressed. 

The acting Commissioner will hit the ground running. He will 

take actions as needed. And he will report to me on his progress 

within 30 days. We are going to make sure that nothing like this 

ever happens again. 

I would like to turn now to the Council’s annual report. This report represents extensive collaboration among Council members, 

agencies, and staff. It gives us a chance to provide Congress and 

the public with the Council’s assessment of significant financial, 

market, and regulatory developments, potential emerging threats 

to financial stability, and recommendations to strengthen the financial system. 

I want to point out that the strength of our financial system depends greatly on the strength of our economy. Now, there is no 

doubt that we have made significant progress recovering from the 

worst economic crisis since the Great Depression. 

The economy has grown for 15 consecutive quarters. The private 

sector has been creating jobs for 38 straight months. The housing 

market is healing. Our deficits are falling at the fastest rate in decVerDate Nov 24 2008 18:03 Nov 15, 2013 Jkt 081759 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\81759.TXT TERRI
9 

ades. But there is more to be done. We need to keep our foot on 

the accelerator. Economic growth and job creation need to be more 

rapid. 

The President has put forward a comprehensive jobs and growth 

plan. His path forward strengthens the recovery by making needed 

investments in manufacturing, innovation, infrastructure, and 

worker training, while taking a balanced approach to restoring our 

long-term fiscal health. This strategy will not only help grow our 

economy now and well into the future, it will replace the sequester 

with sensible deficit reduction measures. 

Since the Council’s last annual report, our financial system has 

grown stronger in a number of ways. Capital and liquidity levels 

for the largest financial institutions have increased. Regulators 

have taken additional steps towards improving transparency and 

risk mitigation in derivatives and other markets. 

And the implementation of the Dodd-Frank and internal coordination on G20 reform priorities have brought significant progress 

towards establishing a more resilient and stable financial system, 

both domestically and globally. 

On the topic of Dodd-Frank implementation, the Council and its 

member agencies continue to put reforms in place. It is important 

to note that while additional work remains, we are much closer to 

the end of the process than we are to the beginning. 

We have seen a good deal accomplished recently, including: 

progress on the Council’s evaluation of an initial set of nonbank financial companies for potential designation; progress on a new 

framework for the consolidated supervision of large financial institutions; progress on a new framework for the Orderly Liquidation 

Authority; progress on implementing provisions related to living 

wills; progress on reducing risk and increasing transparency in the 

derivatives markets; and progress on enhancing protections for borrowers and other participants in the mortgage markets. 

Despite these positive developments, there are still risks to U.S. 

financial stability. The Council’s report identifies those risks and 

makes specific recommendations to mitigate them. 

For instance, it is our judgment that market participants and 

regulators need to take steps to reduce vulnerabilities in wholesale 

funding markets; that government agencies, regulators, and business need to address operational risks posed by technology failures, 

natural disasters, and cyber attacks; and that reforms are needed 

to address the reliance on self-reported reference interest rates like 

LIBOR. 

Mr. Chairman, I want to thank the other members of the Financial Stability Oversight Council and all the staff involved with the 

2013 annual report for their hard work and dedication. This is an 

ongoing effort, and we look forward to continuing to work with you, 

this committee, and Congress to make sure we have a more resilient and stable financial system. 

With that, I conclude my opening remarks, and I look forward to 

answering your questions. 

Thank you. 

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

60 of the appendix.] 

Chairman HENSARLING. Thank you, Mr. Secretary. 

10 

And I would remind all Members, at the direction of the Speaker, 

that later today during our vote series, there will be a moment of 

silence for all the victims of the Oklahoma tornadoes, and an opportunity to reflect upon that great tragedy. 

The Chair will now recognize himself for 5 minutes for questions. 

Mr. Secretary, I am personally not going to spend a whole lot of 

time with you on discussing who knew what, when, with respect 

to the IRS scandal, but I would like to say this: I don’t know the 

level of responsibility that you and the President bear for this scandal, but I know it is not zero. And I think the American people 

would like to hear a little bit more from you and the President that 

the buck stops here, as opposed to hear no evil, see no evil, and 

I know nothing, nothing, nothing. 

And that may just be a little bit of unsolicited advice. So I am 

not going to look retrospectively. I am going to look prospectively. 

I know you have seen the forms that the IRS has sent to American 

citizens. The IRS now reports to you, Mr. Secretary, and has for 

the last 21⁄2 months. 

So I look through these forms and I find out where the IRS is 

asking American citizens for all of their activity on Facebook and 

Twitter, including hard copies of all advertising on social media. 

Under your watch, will it be appropriate for IRS agents to ask 

for this information? 

Secretary LEW. Mr. Chairman, I take responsibility for the management of the Treasury Department and for the management 

oversight of the IRS. There is a difference between general management oversight and the very important line that exists between 

policy roles and the Administration of the tax system. 

For decades, we have had an appropriate line— 

Chairman HENSARLING. But Mr. Secretary, the Administration 

just fired someone. That would seem to indicate there is some control over the policies of the IRS. 

So to the extent that you have the ability, and the Administration has the ability to hire and fire the head of the IRS, will it be 

appropriate for the IRS, going forward, to ask for this information 

from American citizens? 

Secretary LEW. Mr. Chairman, if I could just finish the thought 

that I was on? 

There is a very important distinction between hiring a Commissioner of the IRS and there is one other political appointee at the 

IRS, the General Counsel. The rest of the IRS— 

Chairman HENSARLING. Are you positing an inability— 

Secretary LEW. —for appropriate reasons, it is a career agency. 

And there is involvement on policy matters, but on administration 

of the tax— 

Chairman HENSARLING. So, are you unable to impact the policy? 

Secretary LEW. On policy, I will continue, as Secretaries of Treasury have and should, to express views on tax policy— 

Chairman HENSARLING. Okay, Mr. Secretary, I get to control the 

time here. But in your opinion, is it appropriate to ask American 

citizens about their prayer life, how often they attend prayer meetings and what percentage of time of organizations are spent in 

prayer groups? 

11 

Secretary LEW. Mr. Chairman, I am not familiar with the specific 

document that you are looking at. 

As a general matter, there is the highest regard for the— 

Chairman HENSARLING. —release by the IRS— 

Secretary LEW. —personal privacy of individuals is very high priority. Protecting of individuals from the kinds of questions that invade their privacy is a very high priority. 

Chairman HENSARLING. You have some ability to impact who 

heads the IRS. 

So, in your personal opinion, is it appropriate for the IRS to be 

asking about the prayer lives of American citizens? 

Secretary LEW. Mr. Chairman, it is a hypothetical question, since 

I am not familiar— 

Chairman HENSARLING. It is not hypothetical, Mr. Secretary, to 

the people who received this application, on penalty of perjury, if 

they didn’t disclose their prayer lives to the IRS. 

Secretary LEW. Mr. Chairman, I cannot respond to a form that 

I haven’t had the chance to see. I am happy to get back to you on 

a specific— 

Chairman HENSARLING. Okay, if you would, Mr. Secretary. And 

after being on the job for 21⁄2 months, and it is one of the biggest 

scandals that has rocked Washington in years, I would hope in the 

matter of priorities of the Secretary of Treasury, you would undertake to review this material going forward. 

Secretary LEW. Mr. Chairman, I have made clear that it is an 

extraordinarily high priority, my highest priority to restore confidence in the IRS. That is why we have a new acting Commissioner who is taking over today. 

His first job is to find out who is accountable and make sure people are held accountable for any actions that were wrongful. Secondly, he is— 

Chairman HENSARLING. Mr. Secretary, regrettably, my time is 

running out. I assume you will have ample opportunity to speak 

more about the IRS. 

I am actually going to change subjects, which may be pleasant 

for you. In the FSOC report, on page 13, it states, ‘‘The Council recommends that the Treasury, HUD, and FHFA continue to work 

with Congress and other stakeholders to develop housing reform 

system.’’ 

Mr. Secretary, I have been either the chairman or the vice chairman of this committee for the last 21⁄2 years. And I am unaware 

of any activities of either HUD or Treasury to work with Congress. 

I am aware of the White Paper that was released, that has now 

gathered dust for over 2 years. 

So I am not sure who Treasury and HUD has been working with, 

but it hasn’t been this committee. And I see my time has expired. 

I would like to have the opportunity to speak to you about this 

later, to find out if the Administration intends on doing anything 

with their White Paper besides allowing it to gather dust on housing reform. 

The Chair now recognizes the ranking member for 5 minutes. 

Ms. WATERS. Thank you very much. 

12 

Mr. Secretary, I wanted to talk with you about living wills, but 

I think it is important, before I deal with public policy that we are 

all concerned about, that we make some things clear on the record. 

As I understand it, the knowledge about the IRS problem was 

only learned recently by you. Is that correct? 

Secretary LEW. That is correct. 

Ms. WATERS. And, as I understand it, the President was not told 

about the problem by his Chief of Staff or anyone else. Is that correct? 

Secretary LEW. That is correct. Until it was a public— 

Ms. WATERS. I beg your pardon? 

Secretary LEW. Until the report was completed, yes. 

Ms. WATERS. Okay. And I understand that there is an investigation going on. 

Secretary LEW. There are multiple reviews here on the Hill and 

by the Department of Justice and within the IRS. 

Ms. WATERS. And so, the Administration has not in any way said 

they were not willing to try and find out what was happening in 

the correct way. Is that correct? 

Secretary LEW. Yes. Quite the contrary, we are determined to 

make sure. The activities that were disclosed by the Inspector General are unacceptable. We have said so in the strongest terms. 

We have appointed an acting Commissioner who is going to make 

sure people are held accountable, who is going to make sure we 

find out how there was a breakdown in communication and management to permit it, and to look more broadly at the IRS to make 

sure that nothing like this could ever happen again. 

So we are very determined to restore confidence that the IRS is 

operating without any bias, which is our obligation. And we are 

committed to doing that. 

Ms. WATERS. Again, and my colleague, the chairman of this committee, said that he knows that you and the President must have 

known something. He said basically that you must have had some 

information. Would you please take as much time as you want that 

I have left, because you were interrupted and you did not have 

time to respond to that. 

And if you feel the need to say something else about it, please 

use my time to do that. 

Secretary LEW. Congresswoman, I was informed of the fact that 

there was an audit under way on March 15th, when I had an initial meeting with the Inspector General. 

It was brought to my attention at a very high level, that it was 

an investigation regarding 501(c)(4) approvals. And I was told that 

there could be some troubling findings. Then, I did what is an appropriate thing; I did not do anything to get in the way of an independent IG review. That is what agency heads should do. They 

should give the IG the opportunity to complete their work, and 

make sure they have access to people and records that they need. 

As has been discussed over the last few days, there was some 

discussion, as is appropriate, between attorneys and other staff at 

agencies and the White House, for situational awareness. 

Now, I want to make clear, the reason that it was not brought 

to my attention before the report came public, what the facts 

were—and the reason it was not brought to the President’s attenVerDate Nov 24 2008 18:03 Nov 15, 2013 Jkt 081759 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 K:\DOCS\81759.TXT TERRI
13 

tion before the Inspector General completed his report is that there 

was nothing that we should have done to interfere with an Inspector General report. 

Just like the IRS should not impose any political influence on the 

administration of the tax system, agency heads and senior political 

officials should not exercise any action to interfere with an Inspector General review. 

So the first we knew of the facts was when they become public 

on the Friday before last, in a general way, and then, just last 

Tuesday, when the actual IG report was delivered. 

Within 24 hours of getting the IG report, we took action. We 

asked for and we got the resignation of the acting Commissioner. 

And 24 hours after that, the President appointed a new acting 

Commissioner who starts today, who is going to undertake the task 

that I described with the three very important parts: accountability; finding out what happened; and making sure it never happens again. 

Ms. WATERS. Thank you so very much, Mr. Secretary. 

And now, for some public policy. 

Secretary LEW. Yes. 

Ms. WATERS. What can we do to help get these living wills in, 

so that we can make sure that we have a process that works in the 

orderly wind-down that— 

Secretary LEW. Congresswoman, we have made great progress in 

the area of living wills with the largest financial institutions. We 

now have living wills on file for the very largest institutions. 

I think the challenge is now to make sure that we know that 

those can work. And I think the operational issues are not insignificant. 

We are not, hopefully, going to have a test of these any time 

soon. We are going to need to do the kinds of exercises that make 

sure that you have confidence in the capital that is available and 

the structures that are available, so that if there is a crisis, they 

work. 

We are committed to doing that, and the regulatory agencies responsible for the living wills are as well. 

Ms. WATERS. I thank you very much, Mr. Secretary. And I look 

forward to working with you. 

I yield back the balance of my time. 

Chairman HENSARLING. The Chair now recognizes the gentlelady 

from West Virginia, Mrs. Capito, for 5 minutes. 

Mrs. CAPITO. Thank you. 

Thank you, Mr. Secretary, 

And you heard my opening statement, so I am going to ask a 

question regarding the IRS scandal. I think what would be in the 

best interests of the taxpaying citizens of this country is to know, 

as you said, that this could never happen again. 

How are we going to be able, or the Administration going to be 

able to convince the American public that being targeted for political beliefs or religious beliefs or lifestyles or whatever—in order 

for this to put the American mind at ease, which I think is going 

to be very difficult, you have to come forth with everything. 

14 

And so, how do you plan—are you going to issue a report, fire 

more people? What kind of end-game is there going to be to lay this 

to rest? 

Secretary LEW. Congresswoman, there is nothing more important 

than restoring the confidence of the American people in the IRS. 

It is central to the capacity of the IRS to function effectively, which 

is central to the capacity of our system of government to function 

effectively. 

Mrs. CAPITO. Right. 

Secretary LEW. I think that by taking the action that we took 

last week and bringing in new leadership immediately, we now 

have a person in place who will very quickly get on with, first, 

making sure we hold people accountable. That is very important. 

We have to get the facts and we have to make sure any actions 

that are taken are based on fact. 

Second, the kind of scrutiny that we need to do now has to get 

at, how did this happen? 

Mrs. CAPITO. Right. 

Secretary LEW. How could the communications be so bad? How 

could the management be so loose? 

And I can’t sit here today and tell you we have completed that. 

Somebody began today, in whom I have the utmost confidence to 

get that under way very quickly. 

But I think the third piece is really ultimately the answer. We 

have to look beyond the facts here and ask more broadly, is there 

something systemic about the management structure of the Internal Revenue Service that needs to be fixed to be able to say with 

confidence that not just with regard to this area, but more broadly, 

we have taken the kind of look to be able to say that we can be 

confident that this won’t happen again? 

Now, there is all kinds of information people have to provide on 

a confidential basis to the IRS. We have to protect people’s confidentiality. 

Mrs. CAPITO. Right. 

Secretary LEW. And I think that while most of us would rather 

not have to file a lot of forms, when you want to get approved as 

a not-for-profit— 

Mrs. CAPITO. But how do people who provide that information, 

no matter what it is, know it is going to be held in the strictest 

confidence? 

I think the erosion of trust here is tremendous. And I think the 

best advice I would give to you is that bad news doesn’t get better 

with time. You have to get it out there. And you have to get it out 

in the strongest, in the most honest way, with the American people. 

And so I am going to move to the substance of your appearance 

here today. I have two questions. 

One is, Secretary Geithner, your predecessor, in talking about 

implementation of Dodd-Frank, he and I had several conversations. 

And he talked about how we have all this new regulation and we 

are going to scrape out the old regulation, outdated regulation, outmoded. 

15 

And then, when questioned, he really couldn’t come up with any 

outdated or outmoded regulation that he actually was draining 

from the overpiling of regulation in the financial sector. 

Is this an area in which you are interested? Is the FSOC dealing 

with this? 

Because we hear daily, it is not one regulation, it is not two, it 

is the continuous weight of regulation that is dragging down particularly our community banks and regional banks. 

Secretary LEW. Congresswoman, I will tell you that, in general, 

that is an area of great concern to me. I have not had the time yet, 

in 21⁄2 months, to go backwards. I am very much committed to 

making the full implementation of Dodd-Frank happen in as quick 

a timeframe as possible. 

But I will say that when I was OMB Director, we did, for the 

very first time, take a look back in the overall regulatory system, 

to ask agencies what do you have on the books that is out of date 

and that can be eliminated? And we eliminated a whole bunch of 

regulations across the government. I think it is an exercise that we 

should not just move forward, we have to look backwards and forwards, both. 

Mrs. CAPITO. Right. 

Secretary LEW. And I hope we can get Dodd-Frank in place and 

have the ability to do that. 

Getting Dodd-Frank implemented is still a fair amount of work. 

And getting it done quickly, I think, is a very, very important priority. 

Mrs. CAPITO. I hope the next time you come before the committee, you can give me some specifics— 

Secretary LEW. Sure. 

Mrs. CAPITO. Because I am going to ask you— 

Secretary LEW. And I look forward to— 

Mrs. CAPITO. —other regulations that you have been able to— 

Secretary LEW. It is something I am personally committed to as 

a general principle. 

Mrs. CAPITO. That is good news to me. Thank you. 

Lastly, I only have 25 seconds. Basel III is a great—I chair the 

Financial Institutions Subcommittee. We have, with the ranking 

member, talked about this quite a bit, the inability of community 

and small banks to deal with the risk-weighted aspects of Basel III. 

Have you considered pushing that back for those institutions? 

And why are they involved anyway? 

And I just ran out of time, so— 

Secretary LEW. Mr. Chairman, if I could just take a half a 

minute to answer the question? 

Chairman HENSARLING. A brief moment. 

Secretary LEW. I think that it is very important that all of the 

regulatory agencies take into consideration whether or not there 

are special issues regarding small and medium-sized institutions. 

The law, in many regards, has reflected that. And in the review of 

regulations, the agencies are looking at that as well. 

I think that the discussion I have heard in the last few weeks 

suggesting that maybe Basel III should be repealed or not be used, 

I worry about that as a principle. Because Basel III is a floor for 

the world, and we want the world to kind of have a race to the top. 

16 

And if we don’t keep Basel III as that driver for a race to the 

top, we face financial— 

Chairman HENSARLING. The time of the gentlelady has expired. 

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

Velazquez, for 5 minutes. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Welcome, Mr. Secretary. I would like to discuss with you another 

issue that is on the minds of Americans, and that is the state of 

the economy. 

We continue to see improvement in the housing sector, with increased construction activity, more sales and higher prices. As you 

know, the economic recovery relies heavily on a healthy housing 

market. In your opinion, could complete privatization of the secondary mortgage market, as some policymakers have proposed, create procyclical conditions where too much credit is available in 

good times, and too little when there are problems, thus exacerbating downturns? 

Secretary LEW. Congresswoman, I think that our challenge as we 

go through winding down Fannie Mae and Freddie Mac is really 

in multiple parts. First, we have to make sure taxpayers recover 

the big investment they made during the financial crisis in those 

institutions. We are working very hard to do that. They have longlived assets and it is going to take a while to wind down those institutions. 

We also have to be thinking ahead to how do we have a housing 

market that strikes the right balance, that provides opportunity for 

homeownership and the economic activity that goes with that, since 

so much of the construction employment and other employment in 

our country is related to housing construction, with the prudential 

considerations that institutions and individuals not be overextended, creating the seeds of some future crisis. 

We are working on that. I think it is very important that we 

have a reduction in the presence of Federal direct and guaranteed 

loans; that we have an active private capital market for mortgages. 

And that is our goal as we move forward. 

Ms. VELAZQUEZ. Thank you. 

Mr. Secretary, some stakeholders have alleged that last year’s 

LIBOR manipulation enriched the largest banks, to the detriment 

of community and regional banks. As you know, community banks 

are a significant source of small business lending. And we continue 

to hear the obstacles that small businesses are facing in accessing 

capital. 

What have Federal regulators done since the LIBOR scandal 

broke to prevent manipulation of key interest rates that impact the 

cost of credit for small businesses? 

Secretary LEW. Congressman, I think they are kind of separate 

issues. The manipulation of LIBOR was a terrible abuse of trust, 

in addition to—the world financial community and participants in 

it had accepted LIBOR as something that was a market-determined reference rate. And then the manipulation of it was very, 

very unsettling, in addition to being just very wrong and bad behavior. 

Going forward, one of the things the FSOC report makes clear 

is that we need to work on an international basis with other finanVerDate Nov 24 2008 18:03 Nov 15, 2013 Jkt 081759 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 K:\DOCS\81759.TXT TERRI
17 

cial regulators and with market participants to develop an alternative to LIBOR, because there needs to be a broadly accepted 

market reference rate to take the place of LIBOR, if there is a need 

to replace it. So that is one area where there is substantial 

progress being made. 

I think in terms of the kind of transmission mechanisms for capital to be made available to small business, that is a very complicated practice. And I think that the tradeoff that I was describing in the area of housing lending, that same tradeoff exists in 

commercial lending. 

There is a need for small and medium-sized enterprises to have 

access to credit. That means taking some level of risk. Banking 

does involve some level of risk. We need to make sure that institutions don’t take risks that become taxpayer burdens afterwards. 

Striking that balance correctly so that we can open up the channels 

of lending to small- and medium-sized enterprises is very important. 

Ms. VELAZQUEZ. But we have to also provide a level playing field 

for those regional and community banks that are really the ones 

that are lending to small businesses and not put them at a disadvantage. 

Secretary LEW. Yes, and as I was indicating before, I have met 

with small and medium-sized bank representatives. I have shared 

the concerns they have raised with me with the regulators. I have 

the very clear understanding that the regulators are sensitive to 

those concerns. And as they work through the implementation of 

these rules, things like the Basel III rules, they are working to try 

and address the legitimate issues that have been raised. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. I yield back. 

Chairman HENSARLING. The gentlelady yields back the balance 

of her time. 

The Chair now recognizes the gentleman from New Jersey, Mr. 

Garrett, for 5 minutes. 

Mr. GARRETT. I thank the chairman. 

And I too want to get to the seminal issues on financial services, 

but let me just touch initially on the issue with regard to the IRS. 

I must say, first of all, that I found your opening comment on 

this disingenuous at best, because your initial statement was that 

as soon as you found about the situation, you were outraged. You 

found it outrageous conduct. You took immediate action. You made 

this the top priority. This was going to be your first focus. 

And the very first question from the chairman, asking you about 

documents from your own agency, that are from your agency, that 

are in the public domain, that have been in the press for literally 

weeks now—and again, from your agency—your response was that 

you know nothing about them; you do not know the details; and 

you would have to get back to us. 

If this was really your first priority, if you were going forward 

trying to solve the situation, not retrospectively but in the future, 

I would think, sir, that you would know about the basic documents 

that everyone else in this room knows about. 

But that is a rhetorical question. We can judge for ourselves 

whether you are really trying to fix this for the future, and make 

it a priority. 

18 

Secretary LEW. If I could respond— 

Mr. GARRETT. My time is limited. In another hearing room, there 

is another woman, who is a woman from the IRS, Lois Lerner, formerly from the IRS, who has stated that—I think she has taken 

the Fifth Amendment. But she has stated that she has done nothing wrong; she had done nothing criminally wrong or did not violate any IRS rules or regulations. 

Would you agree with her assessment that she did absolutely 

nothing wrong, did not violate any rules, regulations, or criminal 

conduct in any way, shape or form? 

Secretary LEW. Congressman, I think it is important that we get 

to the bottom of the facts— 

Mr. GARRETT. Yes or no, do you think she did anything— 

Secretary LEW. Congressman, it is not a yes or no, and if I could 

be permitted to answer your question, I would like to do so. 

Mr. GARRETT. Sure. 

Secretary LEW. You have asked me a question which—we have 

a new acting Commissioner who has taken office today— 

Mr. GARRETT. Right. 

Secretary LEW. —who is beginning today to get to the very bottom of who should be held accountable. I am committed to—I am 

meeting with him this afternoon. I am not waiting for 30 days to 

meet with him. 

Mr. GARRETT. Good. 

Secretary LEW. I didn’t wait for 5 minutes after I read the IG report to get on top of it. I got on top of it right away. 

Mr. GARRETT. What did you do? 

Secretary LEW. What did I do? I got the wheels in motion to get 

a new IRS Commissioner in there as soon as possible. 

Mr. GARRETT. You fired someone immediately here in the case, 

before you knew whether he did anything criminally wrong, violated any regulation whatsoever. So you are able to make that decision— 

Secretary LEW. Congressman, I think that if you are talking 

about an agency where an IG report makes clear that there was 

behavior that was totally unacceptable, in order to restore confidence, you begin at the top. We needed a new head of the IRS, 

which we have as of today. We are going to get to the bottom of 

it. Anyone who is accountable will be held accountable. 

Mr. GARRETT. Okay. So you don’t know whether she did anything 

wrong or— 

Secretary LEW. Congressman, I am going to wait to have all the 

facts. I don’t have all the facts. We have to make decisions. 

Mr. GARRETT. But you were able to make a decision to fire someone without knowing whether he did anything— 

Secretary LEW. I knew the fact that he was the acting Commissioner of an agency that had lost the public trust. 

Mr. GARRETT. What position did she have? 

Secretary LEW. I think that as the head of an agency, there was 

a standard that is unique. Frankly, even— 

Mr. GARRETT. But do you know what position she has? 

Secretary LEW. —even if— 

Mr. GARRETT. Do you know what position she has? 

19 

Secretary LEW. —even if there is no wrongdoing at the head of 

the agency, I think it is the right action. 

Mr. GARRETT. Do you know what position she held? 

Secretary LEW. Yes, I do. 

Mr. GARRETT. And it is or was? 

Secretary LEW. She is the Deputy Commissioner in this area. 

Mr. GARRETT. In this area. So wouldn’t she be responsible for 

this area if she was the head of that area? 

Secretary LEW. Congressman, I am not going to go through person by person asking questions that I can’t answer right now, and 

none of us can answer right now. But I am committed, as we have 

made very clear publicly, that everyone who is accountable will be 

held accountable. 

Mr. GARRETT. Okay. So let us take a look at some of the people 

that maybe you are responsible for. According to the IG’s testimony 

last week, the IG alerted the IRS and Treasury officials to the investigation in May or June. Have you confirmed that the General 

Counsel and Deputy Secretary were, in fact, briefed by the Inspector General back in 2012? 

Secretary LEW. Congressman, I think that we have made clear 

that the Deputy Secretary was aware of the fact that an audit was 

under way. He did not become familiar with the details of it until 

I did last Tuesday. 

Mr. GARRETT. Okay. Do you know whether or not he—this would 

be Deputy Secretary Wolin, correct? 

Secretary LEW. Correct. 

Mr. GARRETT. Right. Do you know who, if anyone, he advised 

about the investigation back at that time? 

Secretary LEW. We have over the last few days made clear that 

there were, as appropriate, conversations among staff where the 

fact of an investigation was clear. And subsequently in the last few 

weeks, as draft reports were being either—the facts in them or the 

reports themselves were available, that there were conversations. 

But there was no action taken by anyone in the Treasury Department in any way to interfere with the Inspector General’s report. 

And that was the number one goal and responsibility. 

Mr. GARRETT. I understand. I understand why you don’t want to 

get involved there. Did he contact the IRS Commissioner and advise him to correct the false testimony that the Commissioner had 

given to Congress just the month before? 

Secretary LEW. Congressman, I told you that there were conversations as appropriate for people who needed to understand that 

there was an investigation. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from North Carolina, 

Mr. Watt, for 5 minutes. 

Mr. WATT. Thank you, Mr. Chairman. 

And I thank Mr. Lew for being here. 

Let me turn our attention to FSOC, since I thought that is what 

this hearing was about, rather than the Internal Revenue Service. 

I assume the Internal Revenue Service is not on the FSOC. Is that 

correct? 

Secretary LEW. No, it is not. 

20 

Mr. WATT. Okay. One of the things that you all have been doing, 

according to your testimony, is designating some financial institutions as particularly significant to the economy, which results in 

them being given enhanced scrutiny and some higher standards. 

So you have designated some financial institutions. And at the 

bottom of page 6 of your prepared testimony, you say you have designated 8 financial market utilities. What kinds of utilities are 

those? 

Secretary LEW. It would be utilities like clearinghouses. 

Mr. WATT. Okay. And then you also say that you are looking at 

a number of nonbank financial companies that will be designated. 

What kinds of institutions are those? 

Secretary LEW. Congressman, the identity of the companies has 

not been publicly noted because in order to go through this process, 

it requires getting very confidential information from the companies. And it would be inappropriate for me to list the specific entities. 

The test that is used, the standard is whether the failure of those 

companies—the material distress of those companies will be a 

threat to U.S. financial stability. So the question is, if something 

were to happen in a nonbank entity that could become a kind of 

systemic problem. And that is the way the review is structured. It 

is really the interconnection between the company and the broader 

state of financial stability. 

Mr. WATT. Which actually gets me to the point that I was trying 

to get to circuitously. A number of people have raised concerns that 

by designating these entities, we somehow give the impression that 

they are so important that the government won’t allow them to fail. 

Walk us through, if you would, how we make sure that doesn’t end 

up happening, both statutorily under Dodd-Frank and through the 

process that the Council is following. 

Secretary LEW. The determination is not at all to create the impression that a firm might be too-big-to-fail. It is quite the opposite. 

It is to ask the question, does a firm need to be regulated in a way 

so that it won’t fail and won’t cause that kind of distress to the 

broader financial stability. The more likely consequence of being 

designated would not be to get bigger. 

I don’t think that any designated firm gets any protection by 

being designated. What they get is a higher level of scrutiny and 

regulatory oversight by the appropriate regulatory body. 

FSOC does not actually take on the regulatory function. If the 

vote of FSOC is to designate a nonbank, there will be regulatory 

oversight by the appropriate regulatory body. So in many cases, it 

will be the Federal Reserve Board, with its regulatory authority 

over bank and bank-like institutions. 

Mr. WATT. And would each one of those significant institutions 

end up having to do one of those living will scenarios if FSOC designated them as— 

Secretary LEW. I think if they are at a size level that would require it. I believe it will be a case-by-case determination, but I 

would have to get back to you on that. 

Mr. WATT. All right. 

On page 2 of your testimony, you indicate that reforms are needed in the LIBOR system to address the reliance on voluntary selfVerDate Nov 24 2008 18:03 Nov 15, 2013 Jkt 081759 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 K:\DOCS\81759.TXT TERRI
21 

regulated and self-reported reference interest rates. Can you tell us 

what kinds of reforms might be in the contemplation on that front? 

Chairman HENSARLING. Briefly if you could, Mr. Secretary? 

Secretary LEW. Thank you, Mr. Chairman. 

These reference rates are interwoven into millions of financial 

transactions on a contractual basis. We need to have reference 

rates that are reliable and not subject to manipulation. And we 

need, if LIBOR is not in that status at some point, to have an alternative to go to. 

And I think that working with the international financial regulatory agencies and working with market participants developing 

an alternative is critical, because even if you don’t ultimately need 

to move to a different reference rate, there needs to be another reference rate available. 

We— 

Chairman HENSARLING. The time of the gentleman has expired. 

Secretary LEW. Thank you, Mr. Chairman. 

Chairman HENSARLING. At this time, without objection, our 

chairman emeritus is recognized for 1 minute to speak out of order. 

Mr. BACHUS. Thank you. 

Today, the staff of the House of Representatives loses one of its 

most valuable staff members. I think we all know and love Warren 

Tryon, who served as the Deputy Staff Director, a very intelligent, 

diligent, informed individual. 

And in tribute to him and really all the valuable work of our 

staff, both on committees and our personal staff, I would like Warren to stand up and take a bow. 

[applause] 

And I appreciate that, Mr. Chairman. 

Chairman HENSARLING. And now, the Chair recognizes the chairman emeritus for his 5 minutes. 

Mr. BACHUS. Thank you. 

Secretary Lew, the GAO and really many press reports and articles have criticized the secrecy of the FSOC. Last week, there was 

an article in a Washington paper where one gentleman heading up 

a nonprofit organization with liberal leanings actually said that the 

FSOC’s proceedings make the Politburo look open by comparison. 

They treat their information as if it were state secrets. 

The Council doesn’t transcribe its meetings. Is that correct? 

Secretary LEW. Minutes are kept. 

Mr. BACHUS. Minutes. 

Would you commit to transcribing the meetings as the GAO has 

recommended, and releasing those transcripts, with appropriate 

redactions, after a certain period of time, as the Fed does? 

Secretary LEW. Mr. Chairman, I think that FSOC deals with 

matters that range from very company-specific, proprietary information to broad— 

Mr. BACHUS. And I understand appropriate redactions. The Fed 

redacts confidential— 

Secretary LEW. And I think that for where the FSOC has moved 

in policy areas, it has tried to be very open in terms of public notice 

and taking comments. So for example, in the area of the money 

market rule recommendations to the SEC, they have been open for 

comment. And many, many— 

22 

Mr. BACHUS. I understand comment. But would you commit, at 

least, to following the same thing that the Fed does about releasing 

those transcripts? 

Secretary LEW. Congressman, I would have to go back and look 

at that. 

Mr. BACHUS. Okay, thank you. Take a look at that. That is all 

I ask. 

The FSOC doesn’t keep transcripts and I don’t even think they 

keep minutes of their staff meetings or subcommittee meetings or 

the committee meetings. That is where most of the work is done. 

Would you commit to transcribing those proceedings and keeping 

minutes of those meetings? 

Secretary LEW. Congressman, I am not aware of practices where 

meetings like that are normally transcribed. The challenge of working in these complicated areas involves many, many meetings. 

And I am happy to follow up with you on— 

Mr. BACHUS. Sure. 

Secretary LEW. —the concerns you have about transparency— 

Mr. BACHUS. I think most minutes—yes. But as you know, you 

are chairman. This is one of the most important committees or 

councils in response to the financial crisis. I think it is important 

from a historic basis. 

Secretary LEW. Congressman, when congressional staff meet to 

draft important legislation, there aren’t minutes of those conversations either. 

Mr. BACHUS. Right. 

Secretary LEW. So, I think these are complicated questions. 

Mr. BACHUS. Sure. 

Secretary LEW. I am happy to pursue it with you. 

Mr. BACHUS. Take a look at what the GAO recommended— 

Secretary LEW. I will take a look— 

Mr. BACHUS. —and the statutory language which encourages 

transparency and see if you can’t give us some assurances. Thank 

you. 

Let me ask you this, you have been questioned about this IRS 

thing. You now know that there was a ‘‘Be on the Lookout’’ list that 

included Tea Parties, patriot groups, and Project 9/12, which is 

Glenn Beck’s group, and that it was maintained since early 2010. 

Now, in 2012, there were quite a number of press reports about 

this. And it is my understanding that in May, several people at 

Treasury were briefed. But then, as Chief of Staff of the White 

House, you were briefed in June and alerted by, I think, Mr. 

George. 

Secretary LEW. My first conversation on this with Russell George 

was March 15, 2013, after I became Treasury Secretary. 

Mr. BACHUS. All right, now are you aware that last Friday, he 

testified that he briefed you? 

Secretary LEW. I think he testified that he briefed me in March 

2013. 

Mr. BACHUS. Actually, he says—he is talking about May and 

June 2012: ‘‘I alerted Commissioner Shulman on May 30th. I subsequently alerted the General Counsel on June 4th, and subsequently alerted Deputy Secretary Neal Wolin about this matter. 

23 

And then upon assumption into the division, I mentioned it to Secretary Lew—’’ 

Secretary LEW. But that was just March 2013. I was confirmed— 

Mr. BACHUS. All right. 

Secretary LEW. —on February 27th. 

I think it is important to note that the fact of the ongoing audit 

was not a secret. It was publicly posted— 

Mr. BACHUS. Sure. 

Secretary LEW. —on the Inspector General’s Web site in October 

2012. 

Mr. BACHUS. And it was the subject of numerous newspaper articles back in March— 

Secretary LEW. But it was just the fact of the audit being undertaken. 

Mr. BACHUS. Specific information that even Democratic legislators had leaned on the Administration to conduct investigations. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from New York, Mr. 

Meeks. 

Mr. MEEKS. Thank you, Mr. Chairman. 

First, I just want to finish off where I ended in my opening statement. Because we have to make sure that we tighten up, but I just 

want to make sure that we don’t lose the fact that some people 

abuse their tax-exempt status. And I stated, I had a specific example in mind. 

I talked about not only that a 501(c)(3) exemption requires that 

to be tax exempt under 501(c)(3) of the Internal Revenue Code, an 

organization may not attempt to influence legislation as a substantial part of its activities and may not participate in any campaign 

activity or against any political candidate. 

Now, 501(c)(3) is supposed to be more confined than 501(c)(4). 

And I have a fund-raising letter from a 501(c)(3) organization. I 

will read a few lines: 

‘‘I am writing to ask for your help. We want to finish him off. 

Let me explain why this is so important. Barack Obama is President. The Democrats control Congress. Your gift would allow us to 

show that the Empress Pelosi has no clothes. And soon Barack 

Obama will have to take a stand. Your gift will help us expose the 

hypocrisy of Obama and his allies in Congress.’’ 

Is this letter okay from a 501(c)(3) organization, to send a fundraising letter like this? 

But my point is I hope that in the face of the very real need to 

prevent any future overreach and targeting by the IRS, we don’t 

lose sight of the important role of the IRS in answering questions 

like these that are also at the heart of the public trust. 

With that, Mr. Secretary, I am going to go to the issue at hand. 

I just wanted to make sure that—to let people know that the IRS 

has oversight over this, and it is important for all of the people to 

make sure that once you get the 501(c)(3) or (c)(4) designation, that 

they still should oversee those organizations and make sure they 

don’t overstep their bounds. 

So, going to FSOC and the issue at hand, as I also stated in my 

opening, I am encouraged to hear that, while you have stated that 

there is need to implement Dodd-Frank quickly, you also mention 

24 

the need to look at the system as a whole by crafting rules that 

are more tailored to institutions, rather than a one-size-fits-all regime. 

So, I am asking, what are your views on and what are your 

thoughts on bifurcating Basel III in order to make community 

banks more secure by establishing a simple cap ratio applicable to 

community banks in order to allow them to operate more effectively 

for our economy? 

Secretary LEW. Congressman, I think that the Basel III rules, 

which are now being worked on by the Federal Reserve Board, will, 

in all likelihood, based on public statements made by members of 

the Fed, reflect the differences in risk in some ways. 

So, there are capital surcharges for very large institutions already. I don’t know where they are going to set the rates, how they 

are going to address it, but I think that there are important differences between small and large institutions. 

The thing that I think we have to keep in mind is that small and 

medium-sized banks are not without some element of systemic risk. 

And we were all focused on the financial crisis of 2008. But in the 

1980s, the financial crisis was a savings and loans financial crisis. 

So, I think we have to look at risk not just as a question of size, 

but at the characteristics, the activities, and the exposure. 

We are very much aware of the fact that community banks play 

an important role in all of our States and in all of our communities. 

And I think the law has reflected that. And I think the regulators 

are attentive to it as they are writing their rules. 

Since they haven’t completed their rules, it is difficult for me to 

address exactly how they will be taken into consideration. But I 

know that there is an effort very much to take it into consideration. 

Mr. MEEKS. And also, in yesterday’s testimony before the Senate 

Banking Committee, you mentioned that Basel III would be a floor 

as opposed to a ceiling. So, how will the implementation of Basel 

III pull up global standards everywhere, thereby reducing the risk 

that the United States faces by undercapitalized institutions from 

around the world? 

Secretary LEW. We have made a lot more progress than a lot of 

other countries since the financial crisis in terms of recapitalizing 

our financial institutions, in terms of putting liquidation authority 

and resolution authority in place. There is a lot of work to be done, 

and our financial stability is connected to the financial well-being 

of institutions that are regulated in other parts of the world. 

It has a lot to do with our ability to address some of these crossborder issues, also. We are not going to lower our standards to 

some other standard. We are going to have the world’s standards 

at a higher level. And we are working in the G20 and in other bodies to try and bring world standards up. Basel III is a piece of that. 

Mr. MEEKS. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, Mr. 

Neugebauer. 

Mr. NEUGEBAUER. I thank you, Mr. Chairman. 

Secretary Lew, welcome. 

In your previous life as the Chief of Staff for the President, I am 

sure you are aware that the President was not really fond of the 

25 

Citizens United case. In fact, he is quoted as saying, ‘‘The Supreme 

Court reversed a century of law that I believe will open the floodgates for special interests.’’ 

You may also be aware that some of the Senate Democratic leaders wrote in 2010, including Financial Services Committee Chairman Baucus and Senator Schumer, a call for the IRS to investigate 

conservative 501(4) organizations. 

At that time, did you or the President think that was a good 

idea, what the Senator suggested, that the IRS look into those organizations? 

Secretary LEW. Congressman, I am not familiar with the Senator’s statement at the time, so I can’t comment on that. 

Mr. NEUGEBAUER. It was a letter that they sent to the IRS. You 

are not aware of that letter? 

Secretary LEW. I couldn’t hear you. 

Mr. NEUGEBAUER. Excuse me? 

Secretary LEW. I couldn’t hear you, I’m sorry. 

Mr. NEUGEBAUER. It was a letter to the IRS. You are not aware 

of the letter? 

Secretary LEW. As Chief of Staff, I would not get an IRS letter. 

You know— 

Mr. NEUGEBAUER. I think it was fairly well-publicized. I don’t 

think it was a big secret that they had written that letter. 

But let me ask you a question. Had you known about the letter, 

do you think that you and the President would have thought it was 

a good idea for Members of the Senate or the House to be asking 

the IRS to investigate or to audit organizations? 

Secretary LEW. My position has been, and always will be, that 

the IRS has to be beyond political reproach. There can be no question of political bias. There can be no question of political motivation. I think organizationally, it has to be set up that way, and in 

terms of how it is operated, it has to be that way. 

That is why we said it is so unacceptable that these practices 

happen. And there is no disagreement on criticizing the practices 

that are the subject of these questions. 

The question is, how do we fix it? We are committed to fixing it. 

And there are legitimate questions as to who qualifies for 501(c)(3) 

and 501(c)(4) status, but it has to be in a politically neutral way. 

There should be no element of bias in it. I have said that to Democrats. I have said that to Republicans. I said it before this set of 

facts became open. 

Mr. NEUGEBAUER. Thank you, Mr. Secretary. You have said that 

before, and I agree. And I just would say that I think that America 

is going to be watching how you handle this, because I think people 

will define a lot of your service in that capacity. 

I want to move on to another question. 

As the Secretary of the Treasury, you are obviously governed by 

our laws, including the SIFI provision as set forth in Dodd-Frank. 

You are also one of the three representatives on the Financial 

Stability Board, which, I understand is about to finalize their designation of what we call GSIs. And given the policy that will be determined by this Board, versus what we are going to do with the 

SIFIs in this country, many of us are very concerned, particularly 

that some of our U.S.—or insurance companies could be disadvanVerDate Nov 24 2008 18:03 Nov 15, 2013 Jkt 081759 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\DOCS\81759.TXT TERRI
26 

taged by this designation, because this is a lot less transparent 

process than what is going on in the United States. 

Can you comment on—what you can assure us that we are not 

going to disadvantage domestic companies with a process that is 

going on that is not as transparent? 

Secretary LEW. Congressman, as we go through the review of 

whether or not to make these determinations, we are working with 

all the firms and understand they will have every opportunity to 

comment. It will be a process where they have full visibility into 

what we are doing. 

We have worked at the international level to try and have as 

much, as we can, common approaches. Obviously, it is more complicated in the international setting. It is very important to us in 

this and in all areas that we strike the right balance of protecting 

the U.S. economy. And sometimes, that means taking actions that 

may be higher levels of prudential concern than other countries are 

taking. 

What we are trying to do is convince them to raise their standards. We are trying to level the playing field, because it is in their 

interest and in our interest for us all to be comparably taking steps 

to make sure we don’t have financial crises. 

The questions we are asking for these nonbank institutions really get at their interconnectedness to the broader question of financial stability. So, we are not stepping into the role of being a State 

insurance Commissioner. We are looking at whether or not there 

are levels of risk that warrant the designation. 

Mr. NEUGEBAUER. I would just say that having different capital 

requirements for the people who are inside the box versus the people outside the box will cause some competitive disadvantage. 

Would you agree with that? 

Secretary LEW. I think that we need to make sure that we are 

addressing the statute’s requirement that we do the review based 

on whether or not there is a material risk to financial stability. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Massachusetts, 

Mr. Capuano. 

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

And thank you, Mr. Chairman, for having this hearing. 

Mr. Secretary, I want to associate myself with the remarks of 

Mr. Meeks and Mr. Neugebauer. I do agree with them. And I think 

the only difference overall between our side and their side is that 

we are willing to give you the benefit of the doubt that you are 

going to do the right thing, but you know the country is watching. 

All of us are watching, and you know that. And I have faith that 

you will do the right thing as we move forward. 

It also strikes me as not surprising that, had you not fired someone, today you would be criticized for not having fired someone. It 

is an interesting little box of cute little tricks to play, but I think 

it is worth pointing out. 

So either way, you were going to lose that argument, or at least 

be beat up a little bit. And I am not going to participate in that 

particular one. I will try something else. 

Mr. Secretary, I want to talk about what FSOC does, some of the 

things. Right now, as of today, almost all the money that was given 

27 

out during the bailout and during the difficult times has been paid 

back. Almost all the money. The most glaring example of who has 

not is Fannie and Freddie. My numbers show approximately $187 

billion of taxpayer money went to Fannie and Freddie, and none 

of it has been technically paid back, although $65 billion has been 

paid. And another $66 billion is about to be paid, which would represent about 70 percent of the overall. 

But that money is not allowed to go towards payment of the principal. It is my understanding that Treasury or FSOC could simply 

change the way that is accounted and allow them to pay off their 

debt, like everyone else was allowed. Every bank, every private 

company was allowed to pay off their debt with interest, by the 

way, and dividends. And I would like to note that every penny that 

has been paid back, the government has made a very good profit. 

I am not suggesting we shouldn’t make one on Fannie and 

Freddie, but I am simply asking that as you move forward, you 

take a look within your own shop, your shop now, to make sure 

that we allow Fannie and Freddie, as they pay back, to be credited 

for that payment. 

If that happens it: number one, is the right thing to do; and number two, accepts reality. The reality is, they have paid back almost 

$130 billion of the money—or are about to do it—that we have 

loaned them. And I think they should get credit for at least some 

of that. It is my understanding that that could be done internally 

in Treasury. 

I would like you to take a look at that and get back to us when 

you can, as to if you can, please do it. If you won’t, tell me why. 

And if you can’t, tell me what action we need to take. 

Similarly, to the FHA: The FHA right now, as you know, is probably, in this fall, about to have to take what is called a draw on 

Treasury, even though they have $30-some-odd billion sitting in 

the bank. And no thoughtful person thinks they are actually going 

to have to access taxpayer money. The law requires them to do it 

because they are below a certain percentage of their outstanding 

numbers. 

I think that is ridiculous. I think FHA should be allowed to draw 

when they need the money, but should not be required to draw 

when they do not. And I would like you to take—we are filing a 

bill on that. And at some point, I would like your response and 

your comments on whether that is a good move or a move that you 

would like to see amended. 

Would you like to go right ahead? I have one more after this. Go 

ahead, though. 

Secretary LEW. I am happy to get back to you, Congressman, on 

both issues. 

I would just say, very briefly, that the treatment of Fannie and 

Freddie was set up so that all of the profits go to the taxpayers— 

Mr. CAPUANO. Yes. 

Secretary LEW. —until they are out of conservatorship, until they 

have discharged all their obligations. 

I think that is a very high priority. And I am happy to follow up 

with you on the other question. 

28 

Mr. CAPUANO. But, as it is currently done, they will not be able to get out of conservatorship because they will still owe us $187 billion at any given time. So, that is— 

Secretary LEW. On the FHA drawdown, I am also happy to follow 

up with you. But the economic significance of the difference is probably not as great as the description sounds, if they don’t need to 

draw on it— 

And we are following prudent practices in the rules to make sure 

that FHA is able to continue functioning— 

Mr. CAPUANO. I totally agree. I just think that it distracts us 

from the real discussion of FHA. 

The last thing I want to talk about is derivatives. I know you 

had a discussion on the LIBOR issue. My understanding is the 

LIBOR issue might involve upwards—it has been reported of a 

$500 trillion market. 

I know that there is an international review going on. I have also 

read recently about another potential scandal. That is interest 

rates, but also in the interest rates swaps category, another $400 

trillion of a market that may be the exact same thing by the exact 

same players. We are talking close to $1 quadrillion worth of a market, which 

is obscenely ridiculous. I had to look it up; it has 15 zeros. I have 

never used the term ‘‘quadrillion’’ in public before. I hope to never 

do it again. 

I am not a scientist, so I don’t get to count molecules. 

That being the case—and I apologize, my time is about up, but 

I would like to know at some point what FSOC is going to do about 

these scandals that are brewing. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from California, Mr. 

Campbell. 

Mr. CAMPBELL. Thank you, Mr. Chairman. 

I will say ‘‘quadrillion,’’ just so that it is a bipartisan term. 

Okay. Secretary Lew, getting back to the IRS issue. The IG’s 

audit determined there was targeting. Do you believe it is important to know why that targeting occurred? 

Secretary LEW. Congressman, I think it is important to hold accountable everyone who is accountable. That process is under way. 

We have a new acting Commissioner who is taking over today. 

That will be his first order of business, to make sure we know who 

made what decisions, whose behavior warrants— 

Mr. CAMPBELL. But shouldn’t they know why this occurred? Isn’t 

that a logical question? 

Secretary LEW. It is very important, I think, that the IG’s report 

noted there was no evidence of political pressure being brought to 

bear. 

I can tell you I think that there is no— 

Mr. CAMPBELL. Okay. Okay. But, Mr. Secretary, the IG, their 

purpose was to determine whether it existed, not why. 

Now, because they didn’t present any evidence in that report, 

does that lead you to conclude that there was no political involvement in this at all? 

Secretary LEW. I think, appropriately, we did nothing to interfere 

with an IG’s report. The IG’s report came out just 1 week ago. 

29 

There are ongoing efforts, with a new Commissioner coming in, to 

take a review of the personnel involved and to take any necessary— 

Mr. CAMPBELL. So we should determine— 

Secretary LEW. I think—if I could just finish? 

Mr. CAMPBELL. Okay. 

Secretary LEW. We have multiple hearings under way. We have 

the Department of Justice undertaking a review. 

So I think that there is an awful lot going on. 

Mr. CAMPBELL. Including to determine why? 

Secretary LEW. Their review is whether or not there was any 

criminal activity. 

Mr. CAMPBELL. Have you asked them to determine why? Because 

intent is involved in criminal activity and other things. Correct? 

Secretary LEW. I think we have said that it is unacceptable behavior. And those who participated in it will be held accountable. 

I think the fact that there is no evidence of any political involvement is very important. But it doesn’t make the actions any less— 

Mr. CAMPBELL. Just because there is no evidence now doesn’t 

mean there isn’t evidence out there we haven’t found. Isn’t that 

correct? 

Secretary LEW. I think the IG— 

Mr. CAMPBELL. Are you trying to find that evidence, if it is out 

there? 

Mr. Secretary, if somebody robs a bank, it is reasonable to conclude that they did it for the money. 

Now, you can’t assume they did it for the money, but it is reasonable to conclude they did it for the money. 

When someone targets organizations entirely of one political 

bent, it is reasonable to conclude that was the reason for doing it. 

Now, not— 

Secretary LEW. But— 

Mr. CAMPBELL. —you can’t assume that— 

Secretary LEW. When concerns like this arise— 

Mr. CAMPBELL. —finding that out. Shouldn’t you, as Treasury 

Secretary, overseeing the IRS, be trying to find that out? 

Secretary LEW. When concerns like this come up, the place you 

go is to the Inspector General to do an investigation. That is what 

has happened. That is what is ongoing. 

Mr. CAMPBELL. Okay, but now it is out there. It is the IRS, it 

is within the Department of the Treasury. You are the Secretary 

of the Treasury. Don’t you want to know why these people did this? 

Secretary LEW. Congressman, I have said many times and I will 

repeat: I am committed, and the President is committed to making 

sure we figure out what happened here, and holding people accountable for wrong behavior, and making sure it never happens 

again. 

So, of course, I care. 

But I also believe that it would be inappropriate to stand between an IG and an investigation or, for that matter, to interfere 

with other investigations, like criminal investigations. 

Mr. CAMPBELL. Have you spoken to anybody in the Treasury or 

IRS about this, since you found out about it, in terms of, why were 

these people doing this? What were they trying to accomplish here? 

30 

Secretary LEW. Congressman, I think that the facts will all— 

Mr. CAMPBELL. Have you had any conversations like that? 

Simple question. 

Secretary LEW. Since this IG report came out, I have had many 

conversations about what steps we need to take. Step number one 

was getting the resignation of the Commissioner. 

Step number two was getting a new Commissioner. I am going 

to meet after this hearing with the new Commissioner. I haven’t 

had a chance this morning to do so. But I will meet with him on 

his first day. 

Mr. CAMPBELL. Have you learned anything you can share with 

us perhaps about the motivations for this? 

Secretary LEW. Congressman, I think we all have the same facts 

in front of us at this point. And we will cooperate with investigations, because we want to know the facts. 

What I won’t do is I won’t put any kind of political intervention 

in the review of an IG, and I won’t put political intervention in the 

administration of the tax system, because the cure would be worse 

than the disease there. 

Mr. CAMPBELL. That is good. We don’t want political intervention 

now. But we need to find out whether there was political intervention then, because that is significant to— 

Secretary LEW. It is also significant that the IG found no evidence of any political pressure. So, we have no evidence. If there 

becomes evidence, that would be significant. But I can’t respond to 

evidence that has not yet been uncovered. And there will be much 

time put into figuring out what happened here. 

Mr. CAMPBELL. Then, let us uncover it. 

Thank you, Mr. Secretary. 

I yield back. 

Chairman HENSARLING. The Chair now recognizes the gentlelady 

from New York, Mrs. Maloney, for 5 minutes. 

Mrs. MALONEY. I would like to thank the chairman and the ranking member. 

And welcome, Secretary Lew, from the great State of New York. 

And the residents of that great State are very proud of your public 

service. 

Secretary LEW. Thank you. 

Mrs. MALONEY. We are very proud of you. Congratulations on 

your appointment. 

In Dodd-Frank, there were a number of regulations that we 

called upon the agencies to come forward with. Could you bring us 

up to date on how quickly we are going to get these regulations 

into effect? 

Specifically, I am interested in three areas: the nonbank designation; the Volcker Rule; and the capital rule requirements. 

I, for one, do not favor legislating capital rule requirements. I 

think it is dependent on many changing factors. 

But could you comment on the Basel-required capital requirement of roughly 3.5 percent, which fluctuates, but also the new bill 

that has been put in the Senate, with Mr. Vitter and others that 

would require a 15 percent capital requirement? 

And, again, congratulations on your service. 

Secretary LEW. Thank you very much, Congresswoman. 

31 

From literally my first day as Treasury Secretary, I have been 

putting an enormous amount of my time into stepping on the accelerator in the implementation of Dodd-Frank. 

I went from my swearing-in to the meeting of the Financial Stability Oversight Council, and chaired my first meeting within an 

hour of being sworn in. 

I have met with—we have had three FSOC meetings. I have met 

in between that with many of the regulators independently. 

I believe that the role of the Treasury Secretary as Chairman of 

FSOC is to continually keep the pressure on for action. And I have 

made the case to them, and I have made the case publicly, that we 

have to measure our progress in weeks and months, not years. We 

have to get to the end of implementing the regulations. 

I think it is important to take that a step back and to remember 

that one of the reasons for delay was that there was a political 

fight over repealing Dodd-Frank. We had an industry that was 

fighting with everything it had to slow down the implementation. 

And I think we are beyond that. I think there is now a consensus 

in the industry and, certainly, from the view of myself and other 

regulators, that getting Dodd-Frank implemented is a top priority. 

I think that will give stability, in terms of knowing what the 

rules of the road are, and then, like everything else that we do, it 

will require fine-tuning as we go along. 

One of the problems we got into between the Great Depression 

and 2008 is we went more than half a century without taking a 

hard look at what we had done. This is going to require constant 

attention. The financial industry evolves too rapidly to take 50 or 

70 years off between taking a hard look at whether the tools we 

have are effective. 

On the nonbank rules, we are hoping to make determinations 

soon at the FSOC level. On the Volcker Rule, we have five agencies 

that are working together, I think trying very hard to come out 

with a common approach, which would be the best way to have 

clarity in the marketplace, and on capital requirements, the Fed is 

moving ahead and working toward finalizing regulations. 

From statements that have been made by Fed Members in the 

last few weeks, I think that they are working toward trying to create a system that gets as close as possible to meeting the concerns 

of small financial institutions, while being able to say that we have 

ended too-big-to-fail, and we are encouraging them to get to a conclusion as quickly as possible. 

Mrs. MALONEY. Specifically on Volcker, I know that the institutions that I have the privilege of representing have already implemented the proprietary rule. They have moved out of their major 

headquarters, any proprietary trading into a different organization 

or stopped it completely. 

But could you speak a little more on the market-making rule 

that they are working on, on how do we maintain liquidity in the 

markets but at the same time have financial stability and safety 

and soundness? 

Secretary LEW. Yes. 

Mrs. MALONEY. Many people are very concerned about getting 

that rule right, in order to keep our competitive edge as a— 

32 

Secretary LEW. It is very important to get the rule right, because 

what looks like the same activity may be a very different activity. 

If you are a market maker and you need to have an inventory in 

order to play the role as a market maker, that is very different 

from taking a bet and buying with proprietor capital, a stake for 

yourself. 

So the rules are going to have to distinguish between the different reasons that financial institutions hold assets. They are 

working very hard on this. The definitions matter, the coordination 

amongst the agencies matter, and I will be reconvening those 

groups to make sure that all five agencies are talking to each 

other. 

Mrs. MALONEY. Thank you. And GSC reform: where do you stand 

on that? No answer? Okay. My time has expired. Congratulations. 

Secretary LEW. Thank you. 

Chairman HENSARLING. The Chair would like to yield the witness 10 minutes to speak on the matter— 

[laughter] 

But he won’t. The Chair now recognizes the gentleman from New 

Mexico, Mr. Pearce, for 5 minutes. 

Mr. PEARCE. Thank you, Mr. Chairman. 

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

When I was in college, I had a professor of statistics who was 

making the point that I am sure everyone has heard, that if you 

put an infinite number of chimpanzees in a room with an infinite 

number of typewriters, they would eventually write the works of 

Shakespeare. 

And you are asking us to believe that you have an infinite number of IRS agents, conducting an infinite number of audits, and 

they all just happen to be conservatives. That is more preposterous, 

sir, than my statistics professor. 

The fact that I got an email before the story broke from a gentleman in Socorro, New Mexico, who had been singled out and he 

didn’t know why he was singled out for an audit and there was 

nothing in the audit that said what it was about. 

But he noticed a handwritten name on the outside of the folder, 

and at the end of the interview, after no significant questions on 

his practices in his business, was asked if he knew that name. He 

didn’t know the name. 

On the way home, he said, ‘‘By golly, I think that is the guy who 

went to that meeting 3 years ago.’’ He went to one meeting and he 

didn’t much care for it—the Tea Party hadn’t gotten organized, but 

it was the same guy who eventually who organized the Albuquerque Tea Party—went to one meeting, wrote a small check, 

maybe $25, and for that, 3 years later, he is picked out, and you 

want us to believe there are no political overtones. You don’t find 

any political nuances to the situation, sir, and I find that to be an 

incredible situation. 

We are also told, as we have been told in many other scandals 

of this scandal-ridden Administration that the Administration had 

no knowledge. Just to run a few fast and furious, the Administration had no knowledge. We had an American border agent killed 

with rifles that were sent illegally into Mexico, a crime was committed. No one yet has been held accountable. 

33 

Jon Corzine took $1.5 billion from segregated accounts in 2011. 

And I hear you saying things like, ‘‘I don’t want to get in the way 

of the investigation.’’ The facts have come out. At what point, sir, 

are you going to be suspicious that the facts won’t come out? 

It was 2011, and Mr. Corzine has yet to be charged. And it is 

a crime to take out money from segregated accounts. We could take 

a look at the GSA conference, the DOJ tapping of AP phones. 

Maybe you are willing to talk about the DOJ tapping of Mr. John 

Rosen’s phone and his parents. It was said he is a co-conspirator. 

A co-conspirator says, ‘‘guilty.’’ And I wonder what his parents 

were accused of. 

So we are sitting here, today, understanding that this Administration had no knowledge of any of these circumstances. Not even 

of Benghazi. And we are to sit here, and take the—I think one of 

my colleagues said ‘‘artful’’ answers that you give—myself, I don’t 

know. 

What I am going to ask about is the war on the poor in which 

this Administration engaged. In driving interest rates to zero, you 

are decimating the people who have no political—no financial sophistication. These are people who are 8 times more likely to have 

money in just bank accounts—the aging, the elderly. They are the 

people who come out to my town halls and say, ‘‘I have lived my 

life correctly. I bought my home. I have a savings account. I was 

expecting that I could live on my savings, and now I am having to 

dip into it, because I get no interest every month.’’ 

This Administration continues to have its war on the poor, and 

the elderly, to the benefit of Wall Street, while you tout you are 

doing so much for the 99 percent when the case is exactly opposite. 

So I don’t really have any great impression that you are going 

to answer any of the questions that come up today. I don’t have 

any great impression that you will stop your war on the poor. Just 

know that we realize it is going on. 

New Mexico’s $31,000 with our per capita income. We recognize 

a war on the poor when we see it. 

And I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Georgia, Mr. 

Scott. 

Mr. SCOTT. Thank you very much, Mr. Chairman. 

Welcome, Secretary Lew. It is good to have you here. I think that 

you have expressed your concern over this issue. The Administration is concerned over it. And we certainly look forward to you 

helping to move to a speedy conclusion of this IRS situation, for 

there is no more penetrating agency, that penetrates into the personal lives of the American people, as the IRS. 

And let me say that concern over this investigation goes for 

Democrats and Republicans as well. This is not a Democratic or 

Republican issue; this is an American issue. And the American people are expecting us to get to the bottom of it, and not politicize 

it, not score these political points. 

One of the things I do want to mention to you is that yesterday, 

in the Senate Finance Committee, former Commissioner Shulman 

mentioned that he knew about this investigation, that there were 

34 

facts shown to him, but he did not take that information to higherups. 

The reason I mentioned this is because Mr. Shulman was a Bush 

Administration appointee, and Mr. Shulman served as the Commissioner of the IRS from May of 2008, I believe, until October of 

2012, just 6 months ago. 

So my question is that in getting to the facts of this who knew 

what, when, wouldn’t you think since the IRS is a agency of the 

Treasury Department, that the agency should have brought this to 

the Treasury Department when he knew of it? Shouldn’t he have 

done so? 

Secretary LEW. Congressman, I think that the first line of responsibility here is the IRS Commissioner. The IRS Commissioner 

is in day-to-day contact with all of the different departments of the 

IRS, and fixing anything that is wrong in the IRS is a fundamental 

part of the IRS Commissioner’s job. Making sure the system runs 

well is part of the IRS Commissioner’s job. 

We are bringing in a new acting Commissioner today, and we are 

charging him with: first, making sure we find out who is accountable; second, finding out what went wrong; and third, being sure 

that anything that needs to be fixed is fixed, going forward. 

Mr. SCOTT. Right. The point I wanted to make is that—because 

everybody is looking at where this goes. Does it go all the way up 

to the President? But it is very important for the record to show 

that his Commissioner, who was the Commissioner during much of 

the investigation, knew what was going on, and testified before the 

Senate Finance Committee yesterday that he did not take it to the 

higher-ups. That is important. 

Let me ask about Basel III, if I may— 

Secretary LEW. If I could just say one additional word on that, 

Congressman. 

I think it is important that—I didn’t know there was even an 

audit until March 15th. I didn’t know the results until it was final. 

The President found out about it when the report became public. 

If there was any sense of political involvement in any way, interfering with this investigation, that would be a real problem. 

And it didn’t happen. So I think it is a good thing that we didn’t 

know about the investigation that was going on. 

Mr. SCOTT. Right. Very good. Let me ask you about Basel III, if 

I may. What would you say are the likely effects that differences 

of implementation between the United States and other foreign jurisdictions of the derivative’s credit valuation adjustment or the 

CVA capital requirement might have on American financial institutions and end-users of these derivative products? Do you share the 

concern of implementing Basel III requirements, and is this an 

issue that the FCO—OOC is already reviewing? 

Secretary LEW. Congressman, we are concerned with Basel III 

and with other areas of implementation of Dodd-Frank and other 

financial rules that we both do what we need to do to protect the 

U.S. economy from the kind of risks that we never want to see 

again, but also to work with our international partners to where 

we can harmonize standards and reach a level so there is a competitive level playing field. 

35 

We have made good progress in the G20. We are working with 

our G8 partners. I have already been in many meetings with my 

counterparts at the finance ministry level and with central bankers. It is going to be a complicated undertaking. We have different 

legal systems. We have different standards. 

The thing that we have to be clear about is that our first obligation is to make sure that we make the U.S. financial system sound. 

And then, we work with others to bring their standards up. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair recognizes the gentleman from Florida, Mr. Posey. 

Mr. POSEY. Thank you, Mr. Chairman. 

Mr. Secretary, how long was left on the term of the Commissioner whose resignation you sought? 

Secretary LEW. He was an acting Commissioner. His term is 

until he actually departs; he is a career employee. So there is not 

a term limit on his time as a career employee. 

Mr. POSEY. So had it not been for this event, you expect he would 

have been Commissioner forever? Is that correct? 

Secretary LEW. Under the Vacancy Act, there was a limit in 

terms of how long you could have the title of acting— 

Mr. POSEY. Yes, yes, and how long is remaining on that timetable? 

Secretary LEW. Because of the length of time, it was coming up 

sometime, I think, in June— 

Mr. POSEY. Yes— 

Secretary LEW. —but the important fact— 

Mr. POSEY. I only have 5 minutes— 

Secretary LEW. No, I need to answer your question, Congressman— 

Mr. POSEY. I have some questions I want to ask you. 

Secretary LEW. He would have remained in the position that he 

had, with all the authority afterwards unless he resigned, which he 

did. 

Mr. POSEY. I read your written testimony, and it says, ‘‘The 

strength of our financial system ultimately depends on the strength 

of our economy.’’ You talk about the sequester having hurt confidence, which is a key driver of economy. 

And I just think everyone knows that spending more money than 

you make doesn’t do anything to inspire confidence either, and proposing budgets that never balance doesn’t do anything to inspire 

confidence either, and in plain English, I think that you might 

have recommended we try and do the budget process and not level 

it by C.R.s, and maybe send that message over to the Senate if you 

ever get to talk to them. 

You mentioned that job creation and economic growth have to be 

a top priority, and next to Obamacare, the biggest impediment to 

job growth in this country right now seems to be the overuse and 

overstepping of administrative rules that are killing more jobs than 

this Administration could ever begin to put in place. 

Last year, the Treasury wrote a rule that would require all banking institutions to submit to them the names of all nonresident 

alien depositors. The Mercatus Center said that could have an impact of over $88 billion, yet the Department of the Treasury never 

did a cost/benefit analysis, which is required of every agency who 

36 

writes a rule with an impact of shafting the public for more than 

$100 million. 

Can we count on you to at least do a cost/benefit analysis before 

that rule takes effect and we have further financial harm to our 

country? 

Secretary LEW. Congressman, I am going to have to get back to 

you on that specific rule, and I am happy to do so. 

Mr. POSEY. How long do you think it will be before you can get 

back to us, because we would really, really like to stop this thing 

in its tracks as soon as possible? 

Secretary LEW. In 21⁄2 months, I have been involved in a lot of 

different matters. I haven’t worked on that specific matter. So I 

will take a look at it and get back to you. 

Mr. POSEY. Any idea how long it will take you to look at it? 

Secretary LEW. I am going to take a look at it, and get back to 

you, Congressman. 

Mr. POSEY. I think in regard to Mr. Pearce’s question, and before 

that Mr. Campbell’s from California, you said there is an awful lot 

you would have to look into to answer Mr. Campbell’s questions, 

but when the gentleman from Georgia, Mr. Scott, asked you, you 

didn’t have any hesitation at all saying that there was no knowledge at the top about what was taking place. How do you make the 

distinction between the two answers? 

Secretary LEW. I know what I know. I know when I heard about 

this for the first time. I can answer with great confidence on that. 

Mr. POSEY. Okay. In answer to Mr. Pearce’s question, there is a 

pattern called: ‘‘Admit nothing, deny everything, and blame everybody until it blows over.’’ I think that would be the proper answer 

to your question, Mr. Pearce. 

Mr. Chairman, my time is about up. I yield back. 

Chairman HENSARLING. Time has been yielded back. 

The Chair now recognizes the gentleman from Texas, Mr. Green. 

Mr. GREEN. Thank you, Mr. Chairman. I thank you and the 

ranking member for the hearing. 

I thank the witness for appearing today. And I also thank the 

witness for making note of those who are victims in Oklahoma. It 

is important that we not forget. Notwithstanding all of the other 

things that are on agendas, we should remember what has happened. And I assure you that at the appropriate time, I will cast 

my vote for aid to the victims in Oklahoma. 

I would also like to remind everyone that Dr. King called to our 

attention that on some questions we have to do that which is neither safe nor politic nor popular. Your not interceding in the audit 

may not have been safe, may not have been politic, and may not 

be popular, but it was the right thing to do. And you don’t need 

validation when you are doing the right thing, Mr. Secretary. It 

was the right thing to do. 

Let us move on to page 5 of your testimony or your statement 

that you have provided. On page 5, you indicate under impacts of 

fiscal policy that, ‘‘To guard against future threats to our economy 

and financial stability policy makers should avoid using last 

minute resolutions to fiscal policy matters such as debt ceiling and 

deficit reduction as a negotiating tactic.’’ 

37 

I would like for you to elaborate on this, because as you know, 

we will again confront debt ceiling and deficit reduction questions. 

Would you elaborate on how this adversely impacts the economy, 

given that you have indicated that the economy needs confidence, 

the consumers need confidence, businesses need confidence? And 

would you elaborate on how this impacts the confidence factor? 

Secretary LEW. I would be happy to, Congressman. 

In 2011, we had a series of crisis-driven, deadline-driven negotiations that created a broad sense that there was dysfunction in our 

government, which undermined confidence in the business community in the United States. It undermined confidence amongst rating 

agencies. We saw, for the first time, a downgrade of the United 

States’ credit rating, not because of our economic condition, but because of our political condition. 

I talk to people around the world in positions of authority, and 

it makes them very uneasy whether they are in businesses or making financial economic policy decisions, when the United States 

looks like it is in constant crisis. 

I think that if you look at 2012, there was some progress made. 

We saw less of the brinksmanship in 2012 than we did in 2011. We 

saw issues getting addressed, and an attempt was being made to 

avoid having that kind of anxiety, which makes it harder for businesses to invest and harder to get the economy moving. 

We have to stay on a path where we do our business or Congress 

does its business. And on the debt limit, the President has made 

clear that Congress has the responsibility to raise the debt limit. 

Every bill that we owe, whether it is interest on a Treasury bill or 

whether it is a payment for the rent in a building that we lease, 

it is an obligation of the Federal Government, and for our entire 

history, the U.S. Government has paid its obligations. 

The way to control spending in the future and the way to reduce 

the deficits in the future, is to make sensible tax and spending policies. It is not to say, we won’t pay the bills that we have already 

obligated. And that is why I think Congress just needs to pass the 

extension of the debt limit. 

Mr. GREEN. Thank you. 

Let us move quickly to one additional topic. You talked about 

how we have to concern ourselves with stability in terms of the 

Oversight Council. And I would like for you, if you would, to just 

explain very briefly how important it is to maintain FSOC, given 

that you have made a comment about too-big-to-fail and how you 

see too-big-to-fail. 

So would you comment please on FSOC and how it will help us 

to maybe not eliminate but help us to keep taxpayers off the hook 

on too-big-to-fail issues? 

Secretary LEW. Congressman, FSOC is a kind of unique agency 

or council. It has some areas of direct responsibility, but mostly it 

is a coordinating role and as Chair it is to pull together the different actors in our quite complicated financial regulatory system 

to act in a decisive way and a coordinated way. 

I think that is very important. These are areas where if you have 

five regulators going off in five different directions, it could cause 

massive confusion and a large burden. I think that there is analytic 

work being done and shared that is very helpful, and I hope that, 

38 

as Chair, I will play the role to help drive the process towards sensible decision-making in a timely manner. 

Mr. GREEN. Thank you, Mr. Chairman. 

I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Luetkemeyer. 

Mr. LUETKEMEYER. Thank you. 

Thank you, Mr. Chairman. 

Thank you, Mr. Lew. 

One of the problems with being on the lower part of the totem 

pole here is that you wind up with a lot of questions which have 

already been asked, so let me just go through some things to just 

kind of clean up a couple of the questions that were brought up in 

my mind. 

One of the things is with regard to the investigation going on 

with— 

Secretary LEW. I apologize, I can’t hear you because of the— 

Mr. LUETKEMEYER. Okay. There we go. 

Okay, one of the questions that I hope that this afternoon when 

you talk to your new Commissioner and discuss with him this investigation, it is not only to have him investigate what Ms. Lerner 

and her group were doing with regards to the conservative folks in 

her tax exempt department, but also the request that was made by 

lots of folks with regards to the liberal groups and not investigating 

those. 

I have sent you personally about 3,000 documents and a request 

to investigate one. I sent you a letter last week to also, again, ask 

for this investigation to take place. That was 3 years ago, and was 

never given any sort of anything but a stone wall over the last 3 

years. 

So, I think that this investigation should be broader than just 

looking at conservative groups. It should be looked at on the lack 

of action with regards to investigating the liberal groups, and, as 

the gentlemen from New York said, the oversight that was supposed to be provided with regards to those activities. 

One of the questions that came up also with regards to SIFI designation, I know that in discussing a lot of the banking circles the 

definition is very concerning to them, from the standpoint that a 

while ago, you made the comment—I think it is in your testimony 

yesterday also—with regards to size. You also made the comment 

that perhaps the risk and the activities that they take should also 

be taken into consideration. 

So, do you have a preference in that, if, whenever you start looking at a designation for banks with regards to Systemically Important Financial Institutions whether it should be based on size or 

whether it should be based on risk of the activities they are engaged in? 

Secretary LEW. I think that size is one of the characteristics that 

suggests risk, but it is certainly not the only one. You can have a 

large institution that is very well-capitalized and entirely safe. You 

can have a medium-sized institution that plays a role in the financial marketplace that is far in excess of its size— 

Mr. LUETKEMEYER. Right. 

39 

Secretary LEW. —and creates more risk. So I think it has to be 

a balanced approach. 

Mr. LUETKEMEYER. I appreciate that, because I think that is the 

direction that we need to go. 

Following up on Chairman Hensarling’s question a while ago, 

with regards to the kinds of questions that the IRS should be able 

to ask its citizens with regards to compiling their tax returns and 

investigating their activities, are you intending to go through the 

types of questions that are on some of these forms to try and winnow out some of these unnecessary and actually very intrusive 

questions with regards to getting into the private lives of individuals? 

Secretary LEW. I think that in terms of the facts that we have 

seen with regard to this set of determinations on 501(c)(4)s, they 

clearly went to an unacceptable place, and we have made clear— 

I have made clear that we need to fix that. 

So it is going to be the job of the IRS Commissioner to take the 

lead on that, but it is something that I will continue to pay attention to, being respectful of the line between Treasury and IRS, not 

reaching into the administration of the tax system. Because frankly, I do think that would run the risk of politicizing things in a way 

that it shouldn’t. 

So there is not— 

Mr. LUETKEMEYER. Will you take him this message this afternoon, then, when you talk to him and say this was brought up in 

our committee today? That the kinds of questions you ask are more 

than intrusive, that there needs to be a streamlining of this process 

to get back to your finding out the facts of things— 

Secretary LEW. I will share the message, and my own view is we 

should only ask for the information that is necessary and no more. 

Mr. LUETKEMEYER. Okay. Thank you very much on that. 

Following up on one other thing that is of concern to me with regards to FSOC, your organization has the responsibility, according 

to one of its purposes, to respond to emerging threats to the stability of the United States financial system. I fail to see in the report recommendations on things that happened to actually minimize those threats or find a way to keep them from happening in 

the future. 

For instance, regarding the London Whale situation, I fail to see 

where FSOC promulgated any new rules. With regards to the 

FED’s Q.E. program, I see nothing in there that ever even mentions that. At what point are you going to support winding it down? 

Are you going to continue to support the quantitative easing program? 

My concern is that, and in response to some of your questions on 

these things, you kept saying, ‘‘Well, it needs time to do this and 

do that.’’ Mr. Secretary, it is kind of like a doctor waiting for the 

cancer to take over the patient. If we don’t start doing something 

pretty soon on some of these things, it is not going to happen at 

all. 

Secretary LEW. If I could just respond very briefly. 

Chairman HENSARLING. Briefly, Mr. Secretary. 

Secretary LEW. I think if you look at the report and the recommendations, it identifies the areas that FSOC believes are the 

40 

areas of greatest risk. It does lay out for the next year the things 

that we should be looking at. And this will be an evolving list as 

we go forward. 

But take wholesale funding, for example. That is a big risk. 

There is a lot of activity to be had there. So I think we do go 

through and identify the big systemic risks and I would be happy 

to follow up. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair recognizes the gentleman from Minnesota, Mr. Ellison. 

Mr. ELLISON. Thank you, Mr. Secretary. 

And I also thank the chairman and the ranking member. 

Mr. Secretary, I just want to make a comment. First of all, whenever you are dealing with institutions that involve human beings, 

things go wrong. Something went wrong with this situation. As a 

person who is probably on the liberal end of the political spectrum, 

I don’t like the idea that somebody—tea party people—got more 

scrutiny. I just want it even. 

But I will say this. The President denounced this. You have publicly disapproved of it. There has been an apology issued, which is 

shocking to me because you never see that. And I think that somebody ought to at least say there has been an apology and the President has promised to make sure that steps will be put in place to 

not have it happen again. 

I just want to say that because I think the truth is that you can’t 

take the politics out of politics. No doubt somebody is going to try 

to turn this into some election gold. But I think it should be our 

interest in this body to make sure that if you are a 501(c)(4) organization, you in fact are a social welfare organization. And if you 

are not, then you cannot get that exemption. 

And there was more scrutiny on some of the tea party groups, 

but as I read the record in the press, they all got it. Now, that 

doesn’t excuse anything, but it does mean to me that there are 

groups of various persuasions that are applying for this kind of exemption that shouldn’t be getting it because they are not actually 

social welfare groups and actually are political in nature. 

I hope you will make sure that there are no political tests, but 

in fact that anybody who is actually trying to electioneer shouldn’t 

get get this designation. I just want to say that. 

Secretary LEW. Congressman, I totally agree. There should be no 

bias. There should be an even standard. I am not aware of any bias 

in favor of groups on the other side. If that were the case, it would 

be wrong, and there has to be an evenhanded, unbiased system of 

administering our Tax Code. 

Mr. ELLISON. That is right. And I just want to say that you all 

have said you are going to do something and I trust that you will. 

Please keep it up. 

I have a question of kind of a particular nature. In President 

Obama’s last three budget submissions, the Treasury Department 

requested Congress to enact legislation to provide permission for 

State and Federal regulators of money services businesses to share 

information. Are you aware that has happened? 

Secretary LEW. I am generally familiar with it, yes. 

41 

Mr. ELLISON. Okay. I ask unanimous concent to enter into the 

record a Financial Crimes Enforcement Network budget request for 

Fiscal Years 2013 and 2014, with no objection. 

And so last month, Mr. Duffy from Wisconsin, Mr. Paulsen, my 

good friend from Minnesota who is no longer on the committee, but 

is on Ways and Means, and I introduced the Money Remittances 

Improvement Act. 

This bill incorporates the request for the President’s FinCEN 

budget. I am eager to see the bill pass. And my hope is that it increases availability of affordable remittances to people in Somalia, 

because I have a large community from that region. In Minnesota, 

we have about 33,000 Somali-Americans and they need to send 

money home to sustain their families. 

Of course, we want you to protect the public from people who inappropriately use the money wiring system, but I really do believe 

that there is no better foreign aid than remittances? And I just 

hope that Treasury recommendation can recommend the bill and 

can help streamline the regulatory system. 

I just want to add this: Some bankers in my district have told 

me that the accumulation of regulations makes it expensive for 

them to facilitate these transactions that they do want to facilitate. 

U.S. Bank has agreed to try to make a way to do it. But at the 

end of the day, streamlining and consolidating some auditing would 

be helpful. 

If you could respond? 

Chairman HENSARLING. Without objection, the gentleman’s materials will be entered into the record. 

Mr. ELLISON. Thank you, Mr. Chairman. 

Secretary LEW. Congressman, we would very much hope that 

some form of the provisions we have proposed that are similar to 

the proposals that you have made are included in legislation. Getting that balance right is very important; making sure that we 

screen out payments that are for bad purposes, for terrorist finance 

purposes is critical. 

But having a system in place that permits legitimate remittances 

and an either State or Federal law that ensures that would be very 

important. 

Chairman HENSARLING. The gentleman’s time has expired. 

The Chair recognizes the gentleman from Wisconsin, Mr. Duffy. 

Mr. DUFFY. Thank you, Mr. Chairman. 

Mr. Secretary, thank you for being here today. 

I have a quick question for you. When did you become aware of 

the allegations that the IRS is targeting conservative groups? 

When did you become aware that targeting was going on? 

Secretary LEW. Congressman, I have testified several times today 

on this. I am happy to do it again. I learned the fact of an investigation was under way on March 15th, but I did not know any of 

the details at that time. 

Mr. DUFFY. Mr. Lew— 

Secretary LEW. I became familiar with specific details when it 

became public— 

Mr. DUFFY. I want you to answer my question, okay? You are 

aware that there is a scandal going on right now in Washington 

about the IRS targeting Americans. You are aware of that scandal? 

42 

Secretary LEW. Congressman, I have been testifying on it for 2 

days. 

Mr. DUFFY. That is right. So in regard to that scandal, when did 

you become aware that targeting of groups was going on? 

Secretary LEW. Congressman, I just answered your question. 

Mr. DUFFY. No, you didn’t. 

Secretary LEW. I am happy—I first saw the report a week ago— 

Mr. DUFFY. Hold on a second, Mr. Lew. I am not talking about 

a report. 

When did you become aware in your capacity as a chief or any 

other capacity, that there was targeting going on of Americans? I 

am not asking about a report. I am not asking about the IG. When 

did you become aware that there was targeting of Americans from 

the IRS? 

Secretary LEW. Congressman, I had no fact that I was in possession of until the date— 

Mr. DUFFY. I didn’t ask you that. When did you become aware 

that the IRS was targeting Americans? No specific— 

Secretary LEW. I was notified on— 

Mr. DUFFY. No IG report, when did you become aware— 

Secretary LEW. —March 15th that there was an investigation 

under way. I learned on the Friday before last— 

Mr. DUFFY. Mr. Lew, I am not asking you about an investigation. 

Secretary LEW. —I learned last Tuesday the IG report recommendation. 

Mr. DUFFY. Mr. Lew, I am not asking you about an investigation. 

I don’t care—I know that you found out about the IG investigation 

on March 15th. Everyone here knows that. That is not my question 

to you. 

My question is: when did you learn that the IRS was targeting 

different Americans because of political views? 

Secretary LEW. Congressman, I had no knowledge until the date 

that I am describing. People can make all kinds of allegations, but 

I had knowledge as of the dates that I described. 

Mr. DUFFY. So the first time that you heard about any targeting 

of Americans by the IRS was when you read the IG report? Is that 

your testimony? 

Secretary LEW. Congressman, you asked me— 

Mr. DUFFY. Is that your testimony? 

Secretary LEW. —you are asking me when I knew. I answered 

when I knew. 

Mr. DUFFY. No, you didn’t answer. You did not answer my question. And you know what? 

Secretary LEW. I am not sure what you are looking for, Congressman. 

Mr. DUFFY. I am asking a very specific question that you dodged, 

and our President has dodged. If you want to look back at the 

President’s testimony, he received the same question that I just 

asked you, and what he said was, ‘‘Let me answer it specifically. 

I learned about the IG report on this date.’’ 

I am not asking you or the President when you heard about an 

IG report. I want to know when you learned that the IRS was targeting Americans. When? 

43 

Secretary LEW. And I am telling you when the facts were available to me. 

Mr. DUFFY. Outside of the IG report? The first time you heard 

about it was the IG report? 

Secretary LEW. I had no facts until— 

Mr. DUFFY. I am not asking about facts. 

Secretary LEW. What are you asking me? 

Mr. DUFFY. I am asking you— 

Secretary LEW. I only testify on facts. 

Mr. DUFFY. When did you learn that there the IRS was targeting 

Americans? When did you learn it? I am not asking you about specific facts. 

Secretary LEW. I will answer— 

Mr. DUFFY. I am not asking about the IG. When did you know 

that this targeting was going on? 

Secretary LEW. You are not going to like my answer, because I 

learned about it when I learned about it. 

Mr. DUFFY. When was that? 

Secretary LEW. I did not know there was an investigation— 

Mr. DUFFY. I didn’t ask you about an investigation. 

Secretary LEW. Well, I—what are—I didn’t know— 

Mr. DUFFY. I am not asking about an investigation. 

Ms. WATERS. Mr. Chairman? Mr. Chairman? 

Secretary LEW. Congressman, you can ask me a question— 

Chairman HENSARLING. The time belongs to the gentleman from 

Wisconsin. 

Ms. WATERS. Mr. Chairman, I would ask that the witness not be 

badgered. 

Mr. DUFFY. I would ask that the witness answer the question. 

Secretary LEW. Congressman, I am answering your question. 

Mr. DUFFY. No, you are not. You keep saying—you are dodging 

me, because the bottom line is you knew before the IG report came 

out that the IRS was targeting Americans— 

Secretary LEW. Congressman, I am answering your question. 

Mr. DUFFY. —and that is why you are answering the question 

the way you are— 

Secretary LEW. I did not know— 

Mr. DUFFY. That is why the President— 

Ms. WATERS. Regular order, Mr. Chairman, regular order. 

Secretary LEW. I did not know the facts until the dates that I— 

Chairman HENSARLING. The time belongs to the gentleman from 

Wisconsin. 

Mr. DUFFY. Let us try it again. When did you learn that the IRS 

was targeting Americans? When did you learn about— 

Secretary LEW. Congressman, I have said so many times that it 

is unacceptable behavior. That I learned on March 15th that there 

was an investigation, with no facts. I learned the facts a week ago 

Friday and then I saw the report last Tuesday. 

Mr. DUFFY. America now knows. I reclaim my time. 

Secretary LEW. —saw the report on Tuesday. 

Mr. DUFFY. I reclaim my time. 

It is evident that you knew before March 15th because you keep 

answering my question, because you don’t want to lie to Congress 

that you knew about an investigation— 

44 

Secretary LEW. I did not have any facts until the dates I am telling you of. I don’t understand what— 

Mr. DUFFY. Answer my question. 

Secretary LEW. —I had no facts until— 

Mr. DUFFY. I am not asking about facts. 

Secretary LEW. What are you asking me about? 

Mr. DUFFY. When did you learn—that is my question—when did 

you learn—give me the date—when did you learn, Mr. Lew, that 

the IRS was targeting Americans? Give me a date. When did you 

learn it? 

Secretary LEW. Congressman, I learned about this in the dates 

that I have told you about. 

Mr. DUFFY. That Americans were being targeted or an IG report? 

Secretary LEW. Congressman, I was not aware of any of these 

facts until the dates I have told you about. 

Chairman HENSARLING. The time of the gentleman has expired. 

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

Mr. SHERMAN. Mr. Secretary, take a deep breath. You have 

earned it. 

Secretary LEW. I am fine. 

Mr. SHERMAN. I want to focus on a different tax scandal, since 

that seems to be what we are talking about, and that is our failure 

to collect taxes from multinational corporations. Apple computer is 

just an apple on top of the iceberg. It appears as if they have less 

than 4 percent of their assets, less than 4 percent of their sales, 

and less than 4 percent of their payroll in the Republic of Ireland 

but somehow have 65 percent of their profits attributed to the Emerald Island. That is damn effective tax accounting. 

One view put forward by the Chamber of Commerce is, hey, we 

are just never going to be able to tax multinational corporations, 

U.S. corporations that earn money abroad are just never going to 

be paying taxes in United States, and we shouldn’t even try and 

just let ’em repatriate their profits, because we do want the profits 

repatriated. 

The other approach—and I don’t know if you are familiar with 

it—is the approach California took for many decades, and that is 

the worldwide unitary approach. And I wonder if I can count on 

you and your staff to take a look at that. 

You can be hated by the Chamber of Commerce—but you may 

achieve that on your own—and others, but it is actually a system 

that they cannot evade and would allow us to collect taxes on the 

appropriate percentage of worldwide income of all the multinational corporations that do business in the United States. I don’t 

know if you have a comment on that— 

Secretary LEW. Congressman, if I could comment just briefly, 

when we laid out principles of tax reform last year, we tried to address this issue in terms of a conceptual approach. And we see 

business tax reform as being very important to lower statutory 

rates and make the United States a more competitive place to have 

businesses call home. 

But it also is a way of addressing this issue, because what we 

would do is we would put a minimum tax in place so that there 

is something of a hybrid system that you pay a minimum tax and 

45 

then you could repatriate with no tax above that if you have paid 

the minimum tax on your foreign earnings in the first instance. 

And we would like to work—there are some other ideas that 

have been developed. I think, in fact, we have something of a hybrid system now. This would make it a little bit more closer to 

what you are describing, somewhere in the middle. 

Mr. SHERMAN. The worldwide unitary system is completely different, I think, than what you are describing. I hope that you will 

take a look at it— 

Secretary LEW. I am happy to look at the California— 

Mr. SHERMAN. And it is a system that California ultimately 

made optional because we faced such incredible pressure from the 

worldwide business community. But the Federal Government is a 

little more influential in world business decisions and this would 

be a system that would eliminate the 482 audits, would eliminate 

all the shenanigans, substantially increase—I think the best estimate is $1.2 trillion over the next 10 years. I know you spent a lot 

of last year focusing on trying to produce $1.2 trillion from many 

sources over a 10-year period. As to the tax issue— 

Secretary LEW. —it is still under way, I might add. 

[laughter] 

Mr. SHERMAN. I understand. 

As to the other tax issue that is being discussed here, I always 

wanted to be on the Ways and Means Committee and be at a hearing devoted to tax issues, 501(c)(4) secret super PACs can spend 

unlimited amounts of secret money influencing Federal elections, 

but they are subject to certain limitations. And I hope that we will 

enforce those limitations as the law requires, no matter how politically difficult. At the same time, we have to do it, obviously, impartially. 

Now, when a ship sinks out of negligence, you might be inclined 

to fire the admiral of the fleet, but the captain of the ship and even 

the officer of the deck ought to have some effect on their careers. 

Do you need additional narrowly crafted legislative tools so that 

those who are not Presidential appointees at the IRS—which is everybody but two—can face appropriate personnel action for the 

mistakes made in this case? 

Secretary LEW. Congressman, obviously, the rules that govern 

the treatment of Federal employees are the same for most agencies 

of government, so it is a broader question than just— 

Mr. SHERMAN. Let me just change—only in the IRS do you have 

a circumstance where many very top managers are civil service, 

and the question is— 

Secretary LEW. I am happy to— 

Mr. SHERMAN. —do we need take a look at that? 

Secretary LEW. —yes, one of the things that I have asked the 

new acting Commissioner to do is to look at—question structural 

organizational issues to see if there are changes we need. I don’t 

want to jump to a conclusion, not having had that review, but I am 

happy to look at that. 

Mr. SHERMAN. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair recognizes the gentleman from North Carolina, Mr. 

McHenry. 

46 

Mr. MCHENRY. Thank you, Secretary Lew, for your service to our 

government. 

Now, back to the IRS question—we have a few more questions. 

When you were White House Chief of Staff, I assume you were just 

as concerned about this then as you are today. Is that fair? 

Secretary LEW. What is the ‘‘this?’’ 

Mr. MCHENRY. I am returning to the scandal within the IRS of 

the IRS targeting conservative groups. I assume— 

Secretary LEW. I wasn’t aware of the issue of this investigation 

or to the facts that we have come to know. So it was not on my 

radar at the time. 

Mr. MCHENRY. So you were not aware of the IG audit at that 

time? 

Secretary LEW. No, I learned about the IG audit on March 15, 

2013, when I met with— 

Mr. MCHENRY. Okay. Were you aware of the internal investigation within the IRS prior to that? 

Secretary LEW. No, I was not. 

Mr. MCHENRY. Okay. So as Chief of Staff, did you hear news reports about the IRS targeting conservative groups? 

Secretary LEW. I was not aware of any facts at the time— 

Mr. MCHENRY. No, no, I am asking a separate question than 

what you are answering, and I have heard the answers you have 

given prior to that. 

So I don’t want to talk over you, but I do want to restate the 

question. At the time you were Chief of Staff, did you read or hear 

of the allegation that the IRS was targeting conservative groups? 

Secretary LEW. I do not recall paying attention to this issue 

when I was— 

Mr. MCHENRY. No, no, I understand. Paying attention is one 

thing— 

Secretary LEW. I do not recall any articles that I read on the subject. 

Mr. MCHENRY. You don’t recall— 

Secretary LEW. I have no recollection. 

Mr. MCHENRY. Okay. Okay. So did you—you don’t recall anything. So therefore, you couldn’t have pursued any allegations? 

Secretary LEW. If I don’t recall having done it—obviously, one 

has to have the— 

Mr. MCHENRY. I am asking this question— 

Secretary LEW. If I take your—if I were aware of there being 

something that was being investigated in this way at the agency, 

I would have stayed out of it as Chief of Staff. 

Mr. MCHENRY. Okay, you would have stayed out of it. 

Just to be clear, you wouldn’t have picked up the phone and 

called Chicago to say, ‘‘By the way, just to put it out there, we are 

in a Presidential election year. We have a scandal at the IRS, an 

agency— 

Secretary LEW. No, that is not— 

Mr. MCHENRY. No, no, no, hold on. Let me finish. But you 

wouldn’t have picked up the phone and said, ‘‘Hey, guys, you know, 

this might be a political issue that the President might have to answer in, I don’t know, a Presidential campaign debate.’’ This is 

47 

something which is fairly common, where the Chief of Staff communicates with the campaign, I assume. 

So to ask this question is not absurd, sir. 

Secretary LEW. But Congressman, if I wasn’t aware of it, and I 

had no conversations at the time, you are creating a narrative that 

doesn’t exist. 

Mr. MCHENRY. Okay. 

Secretary LEW. I just want you to know. 

Mr. MCHENRY. Okay, but you did that on other issues, as a good 

Chief of Staff? This is not new. I am not trying to catch you on 

something. 

Secretary LEW. Congressman, obviously, as Chief of Staff, you 

deal with many, many topics with many, many people. But you are 

asking me about a specific subject— 

Mr. MCHENRY. Okay, then, let me just move on— 

Secretary LEW. —answer. But if I can just say, though— 

Mr. MCHENRY. —and let me ask you this question, okay. 

Secretary LEW. —you created a narrative that— 

Mr. MCHENRY. My time is limited, sir, okay. 

Secretary LEW. Well— 

Mr. MCHENRY. Just to get this on the record. 

Secretary LEW. In fairness, you should give me at least 30 seconds to respond. 

Mr. MCHENRY. Sir, you haven’t actually responded to any of 

these questions in a meaningful way, so 30 seconds won’t actually 

apparently mean anything because you are reciting the same line 

over and over again. 

So while you were Chief of Staff, did anyone at the White House 

or in the Executive Office of the President ever suggest the IRS or 

Treasury—that the IRS should focus additional scrutiny on the application of conservative groups? 

Secretary LEW. I am—not that I am aware of. 

Mr. MCHENRY. Okay. We are just asking these things to certainly understand where things stand. 

So while you were Chief of Staff, did anyone in the White House 

or in the Executive Office of the President meet with or in any way 

communicate with Members of Congress regarding these letters 

that Members of Congress sent on the left to say target conservative groups on the right, raising concerns about the targeting of 

conservative groups? 

Secretary LEW. Not that I am aware of. 

Mr. MCHENRY. Not that you are aware of. 

Okay, so to remind you sir, in March of 2012, the Associated 

Press and the New York Times ran stories about this allegation. 

You were then Chief of Staff. And is it your testimony here today 

that you were never aware of those allegations raised in those two 

news organizations? 

Secretary LEW. I have already testified that I have no recollection of it. 

Mr. MCHENRY. No recollection. 

Okay, so when Commissioner Shulman of the IRS testified before 

Congress in March of 2012, and these questions were posed to him, 

he said, ‘‘There has been a lot of press about that.’’ And your testiVerDate Nov 24 2008 18:03 Nov 15, 2013 Jkt 081759 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 K:\DOCS\81759.TXT TERRI
48 

mony today is that as White House Chief of Staff, you didn’t know 

about it. 

So the final question I have for you is that— 

Secretary LEW. Congressman? Congressman, if you would give 

me the 30 seconds that I think I deserve to respond. It would be 

inappropriate— 

Mr. MCHENRY. Hold on. I ask unanimous consent that the gentleman have 30 seconds. So understand that Democrats are objecting to their witness. 

Chairman HENSARLING. The time of the gentleman has expired, 

and the Chair will take the liberty of, without objection, offering 

our witness 30 seconds to comment. 

Secretary LEW. Thank you, Mr. Chairman. 

Chairman HENSARLING. The gentleman has objected. 

The Chair recognizes the gentleman from Massachusetts, Mr. 

Lynch. 

Mr. LYNCH. Mr. Secretary, first of all, thank you for your willingness to come before this committee and help us with our work. 

Why don’t I yield you 30 seconds and you can finish your answer? 

Secretary LEW. Thank you, Congressman. 

I think the fundamental issue here is there is separation in the 

enforcement administration of our tax system so that it is supposed 

to be insulated from political involvement. It would be inappropriate as White House Chief of Staff, or as Secretary of the Treasury, to try to put any political pressure on our tax system. 

I never did, and I never would. And that is why I didn’t pay an 

awful lot of attention to questions of the administration of our tax 

system, because it wasn’t something that I would have intervened 

in. There is intentionally a separation so that the tax system will 

not be biased. And I think that what the President has made clear, 

what I have made clear is that this behavior is unacceptable. We 

have to find out the facts. We have to take action where people 

need to be held accountable, and we have to make sure it never 

happens again. 

But, please, let us not get into a world where we start having 

the White House jump in for the administration of our tax system, 

because that will be a cure well worse than the disease. 

Mr. LYNCH. I thank you. 

And in fairness—you know what? I just think that the circumstances here are sort of politicized, anyway, when the IRS has 

conceded the fact that they did use political terms, such as ‘‘tea 

party’’ and ‘‘patriot.’’ And any group critical of how the government 

is being run, those were the standards that they were using. 

So, I guess the circumstances sort of invites this type of accusation, but I accept and I agree with your answer, Mr. Secretary, 

again. 

I would like to ask you more about what we have been doing in 

this committee; 2 weeks ago, this committee passed a set of bills 

amending Title VII of Dodd-Frank. And I believe those provisions 

significantly undermine the high port reforms to the over-thecounter derivatives market we achieved in Dodd-Frank. 

A GOA report earlier this year estimated that the cost of the financial crisis was about $22 trillion, and that the opaque and 

49 

largely unregulated derivatives market was at the heart of the crisis. And now, not even 5 years after those dark days, we are, in 

this committee, I believe, planting the seeds for the next crisis. 

And before any of the regulations mandated under Dodd-Frank 

to reform the derivatives markets have been finalized, this committee has passed what are being called ‘‘technical fix’’ bills to prevent those reforms from ever happening. 

I read last week that former Chairman Sheila Bair talked about 

the original push-out provision of Section 7-16. And, Mr. Secretary, 

I know that you sent a letter prior to this committee’s markup of 

those bills urging us not to advance that legislation, calling it premature, disruptive, and harmful to the implementation of key derivatives reform. 

Could you explain to this committee why these bills, in your 

opinion, are destructive to our economy and to meaningful Wall 

Street reform? 

Secretary LEW. Congressman, I think it is very important for the 

regulators who have been given authority to implement these revisions and for that process to be completed. 

Many of the concerns—some of the concerns that are raised in 

the legislation actually are going to be addressed, as I understand 

it, as these rules are forthcoming. Not necessarily all, but the legislation is premature because we haven’t yet had the opportunity to 

complete the process. 

In the first 2 years of Dodd-Frank’s history, the fight was, should 

it be repealed, or should it be implemented? It slowed down the implementation process. And then, at the end of 2 years, there were 

concerns that there was uncertainty because the rules were not yet 

in place. 

Our first responsibility now is to make sure we get all the rules 

in place, we get that certainty, and I think we are now at a point 

where the financial industry actually would like us to complete the 

regulations. They are not in the place they were in fighting for repeal. And we just need to finish the work. 

And I am committed with regard to the entire implementation of 

Dodd-Frank to really keeping the pressure on all of the different 

parties, as Chairman of FSOC, to keep making progress. And I 

can’t say exactly when the process will be completed, but we are 

moving, and we are well on our way, and we are going to make a 

lot more progress this year. 

Mr. LYNCH. I seem my time is just about expired. I yield back. 

Chairman HENSARLING. The time of the gentleman was about to 

expire. 

The Chair now yields to the gentleman from Michigan, Mr. 

Huizenga. 

Mr. HUIZENGA. I appreciate that, Mr. Chairman. 

Chairman Lew, I appreciate you being here. And maybe we can 

use a slightly different section of your briefing book, or maybe not 

use the briefing book at all, and discuss a few other issues. 

But I do—I was hearing your answer to my colleague about implementation and the uncertainty being out there. And I just have 

to tell you, I don’t buy it. 

It is pretty clear that this Administration would veto any attempt that—as much as I might desire eliminating Dodd-Frank 

50 

and starting over and fixing it a different way, it seems to me that 

this Administration would be pretty clear on a veto message on 

that. 

And how in the world that would stop you all from implementing 

the rules—now, I would say that it is probably because this monster is so massive and has so many problems with it that you have 

realized that you can’t go in and implement it the way that it is 

currently written. 

And frankly, 2 weeks ago, we had 9 bills that moved through 

here. All but one of those were in a bipartisan fashion—fixing derivatives. 

Last year, I had a bill signed into law by the President. That was 

fixing an issue with the CFPB in privacy. We have a myriad of 

other bills that are going to go in. We had a hearing yesterday on 

conflict minerals and some of the issues and problems that are 

there. 

These are bipartisan fixes, trying to address this problem. And 

I will note that you sent a letter opposing all nine of those bills 

that were passed, and eight of those nine were passed in a bipartisan fashion. 

So, how you can blame Congress, or one side of the aisle or the 

other for a lack of progress seems to be a stretch to me. And you 

had mentioned on LIBOR—you were asked earlier about LIBOR. 

And your quote was: ‘‘It was a tremendous violation of trust.’’ I 

think you are sensing a lot of the frustration, not just up here, but 

in the general public. 

There is a feeling and a frustration that there is not trust, and 

that things have been politicized in the budget process, in the regulatory system. And I have a specific one that just came to light to 

me, which I thought was interesting. 

OMB—and I know you are former—it is not maybe under your 

current bailiwick, so please give me some insight, if you could, 

OMB has decided that FASB, GASB, PCAOB, SIPC—all these 

other regulatory advisors and those kinds of things—they are subject to sequester. Under Section 109 of Sarbanes Oxley, it distinctly 

says that these are not Federal dollars. These are user fees that 

are coming in and fees that are paid into these organizations. 

And the frustration is that it seems like every time this Administration has come to a fork in the road, and one direction is making 

some very tough, difficult decisions—I understand it. We are having to do that in our own personal offices. 

We are having to do that in our own personal lives. Every business in America that I am aware of is having to make those tough, 

difficult decisions. But making it work, or politicizing it and trying 

to make it painful, it seems that this Administration has gone with 

the painful route. 

Shutting down the White House for spring break, FAA—whatever it might be. And just to give you a little sense, that is a sense 

of frustration. And I know this is sort of an archaic element, and 

you might not be specifically aware of it, but why the OMB would 

come in and tell these organizations that they are somehow subject 

to the sequester just is baffling to me. 

Secretary LEW. Congressman, I can’t address the specific facts 

around those decisions, but I do know that OMB has just been callVerDate Nov 24 2008 18:03 Nov 15, 2013 Jkt 081759 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 K:\DOCS\81759.TXT TERRI
51 

ing these issues on a straight basis. But they are—you either do 

or don’t get covered— 

Mr. HUIZENGA. I think the real problem is that the— 

Secretary LEW. Sequestration was designed to be a bad policy to 

force Congress to act, so no one should be surprised when it— 

Mr. HUIZENGA. Put out by the Obama White House, I might add. 

Secretary LEW. It has—it was designed to get Congress to act. 

Mr. HUIZENGA. Okay. So, please point out to some of your colleagues Section 109 of Sarbanes Oxley. That would be helpful. 

Page 13 of your report, the chairman had talked a little bit about 

this with the Housing—my background is real estate, construction. 

I, too, am baffled as to what HUD and FHA—continue to work 

with Congress and other stakeholders. 

There has been radio silence. Other than the White Paper that 

was talked about, it is been radio silence from this Administration 

on what we are going to do and what direction we are going to go 

with our GSEs. And that, in my mind, needs to change. Take 15 

seconds if you want to address that and what we are going to do. 

Secretary LEW. I don’t know that I can do it in 9 seconds, but 

it is an important subject. We look forward to making progress on 

it in a bipartisan way. 

Mr. HUIZENGA. But how can you claim that you have been working with us when you haven’t been? 

Saved by the bell. Okay. 

Chairman HENSARLING. While the Chair is also curious, the time 

of the gentleman has expired. 

I wish to alert all Members that, in agreement with the Secretary’s schedule, I believe we will be able to clear four more Members, and then we will excuse the Secretary. 

The gentleman from Colorado, Mr. Perlmutter, is recognized. 

Mr. PERLMUTTER. Thank you, Mr. Chairman. 

I thank you, Mr. Lew, for being here. You have stayed a lot cooler under fire than I was just a moment ago. 

And I want to thank my friend Mr. Lynch for granting you those 

30 seconds to explain your position, because I would have given you 

the 30 seconds. But I think this committee is better than the badgering that I have seen you undertake or you have had to face 

today. 

So, let us just talk—since we have talked so much about 

501(c)(4), I think we ought to read what 501(c)(4) says. It says, ‘‘An 

exempt—an organization described in Section C or D of Subsection 

401 shall be exempt from taxation under this subtitle’’—this is 

501—‘‘lest such exemption is denied under Section 502 or 503.’’ 

You come down to 4—is says, ‘‘Civic leagues or organizations not 

organized for profit, but operated exclusively for the promotion of 

social welfare or local associations or employees, a member of membership of which is limited to the employees of a designated person 

or persons in a particular municipality, and the net earnings of 

which are devoted exclusively to charitable, educational, or recreational purposes.’’ 

So, the IRS has an obligation to look at exemptions that people 

request. Most people are paying their taxes. Most Americans are 

out there paying their taxes, but there are certain people who seek 

52 

exemptions under 501(c)(4). But those have to be scrutinized. They 

have to be scrutinized impartially, but they have to be scrutinized. 

There was an article this week in The Denver Post. It says, ‘‘A 

Colorado conservative group believed to be targeted by the Internal 

Revenue Service is operating without any tax exempt status and 

spent more than $1 million last year against Democrats, public 

records show.’’ I was one of those Democrats who was the recipient 

of some of the ads, apparently, of this organization. 

In an editorial in the Post this weekend by Curtis Hubbard, I 

want to read one section, ‘‘So-called 501(c)(4) social welfare groups 

have increasingly been putting money into political campaigns. 

Their spending increased from about $40 million in 2004 to upwards of $150 million in 2008, according to the Center for Responsive Politics. But the real boom came after the Supreme Court’s 

Citizens United ruling in 2010, as the groups’ campaign spending 

soared beyond $300 million in 2012. Much more is believed to have 

been spent, but the groups are only required to report on spending 

in the 60 days leading up to the general election and 30 days prior 

to a primary.’’ 

Many 501(c)(4) nonprofit ‘‘social welfare’’ organizations are simply fronts for political operations that provide anonymity to donors, 

and with anonymity comes a lack of accountability. 

So the IRS, in my opinion, whether it is an exemption for this 

or some other kind of an exemption, has a responsibility on behalf 

of the taxpayers to look at these things. Do it impartially, obviously, that has been much of what the conversation has been 

about. But specifically here, when it talks about civic leagues or organizations operated exclusively for the promotion of social welfare, 

not for political purposes. 

So despite all of this tempest that we are in right now, sir, I 

would ask that the IRS continue in an impartial way to look at 

these particular exemptions. So, that is just my point on that. I 

think one of the reasons we are so off on this subject is because 

since Barack Obama took office, the stock market has doubled, unemployment has dropped, inflation is low, real estate is selling. So 

let us not talk about those things, let us talk about this—potentially two people in Cincinnati. Let us devote all the time to that. 

One of the things that came up last week that particularly disturbs me is a bill the Republicans are pushing which prioritizes the 

country’s debts. The country has, since its inception, paid everything pari passu equally. And now they want to start prioritizing 

it, which means we are not going to pay somebody. 

I hope, Mr. Secretary, that under your watch, we pay everybody 

pari passu, and I would like you to comment on that bill. 

Secretary LEW. I couldn’t agree more that there is no distinction 

between defaulting on one or another obligation. If you are in default, you are in default. And prioritization doesn’t solve that problem. You need to extend the debt limit. 

Mr. PERLMUTTER. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair recognizes the gentleman from New York, Mr. Grimm. 

Mr. GRIMM. Thank you, Mr. Chairman. 

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

53 

It is been a bit contentious and I know it is not an easy day for 

you. But I am going to start with going back to an unpleasant area, 

and then I will move on to other substantive issues. 

When was the last time you spoke with the four individuals who 

were testifying in the other committee today—Lois Lerner, Russell 

George, Neal Wolin, and Doug Shulman? 

Secretary LEW. I have never spoken with Lois Lerner. I met with 

Russell George several weeks ago. And I haven’t—Neal Wolin is my 

Deputy, so I see him every day. And I haven’t seen Doug Shulman 

since sometime before he left the IRS. 

Mr. GRIMM. The few conversations that you did have, was any 

of that about testimony or about the situation—the scandal? 

Secretary LEW. I have testified already that Russell George on 

March 15th informed me that there was an audit under way, so I 

spoke with him about it then as he reviewed a number of pending 

matters. He didn’t give me the details. He did give me a heads up 

that it could be troubling, but I didn’t know in what way. 

I haven’t spoken with him. He may have been at a staff meeting 

after that, but I haven’t spoken with him since. 

Mr. GRIMM. Thank you. You have clearly testified that you didn’t 

want to get involved in an investigation, and I think that is the 

proper and prudent policy to have. Stating that, there were people 

in the White House who knew there was an investigation, there 

was a problem. There were people in Treasury who knew prior to 

you and the President finding out. 

In retrospect, again not saying that you had to take action, but 

do you think you should have been notified that there was a problem? 

Secretary LEW. Congressman, I really believe that on a matter 

like this, the general practice that is followed at Treasury is the 

right one, which is that the Secretary is not brought into the conversation on an IG report until there is a final report. Reports go 

through changes in degree and direction— 

Mr. GRIMM. But even before—if I may, Mr. Secretary—though, 

but prior to the IG report, wasn’t there an internal investigation 

at the IRS? 

Secretary LEW. I am, obviously, while I have been at Treasury, 

there has not been anything that— 

Mr. GRIMM. But I am asking you in general, now that you are 

the Secretary, what is your policy going to be? In other words, you 

have a new Commissioner that you spoke about— 

Secretary LEW. Yes, we have a new Commissioner, and I will be 

meeting with the new Commissioner this afternoon. 

Mr. GRIMM. Right. So will you be telling your new Commissioner 

that if something like this arises, you want to be notified? 

Secretary LEW. Just to be clear, I think that as a general matter, 

the Treasury Secretary needs to have visibility into the general 

management of the IRS. But the Treasury Secretary, for all kinds 

of appropriate reasons, does not intervene in the administration of 

the tax system. So there is a fine line there, and I think it is very 

important to honor that line. 

Mr. GRIMM. But I am specifically asking you if there is a problem 

such as something that arises to this level—this is probably one of 

the biggest scandals in the history of the IRS—are you going to adVerDate Nov 24 2008 18:03 Nov 15, 2013 Jkt 081759 PO 00000 Frm 00057 Fmt 6633 Sfmt 6633 K:\DOCS\81759.TXT TERRI
54 

vise your Commissioner—is it going to be your policy that if there 

is a major problem going on, you want to be advised of it or not? 

That doesn’t mean you will take action, because maybe for political 

reasons you would say, just as the attorney general did with Mr. 

Corzine, he recused himself, but he knew what was going on. 

Secretary LEW. Congressman, if in fact either I or the President 

had known some of these facts earlier, you would be asking me, 

‘‘What did we do?’’ It is a very fine line to preserve information and 

the ability to make sure that there is— 

Mr. GRIMM. I agree. But I am asking—because it is such— 

Secretary LEW. I think we are going to have to work our way 

through, in an agency like the IRS that has a delicate balance between being part of Treasury, but an independent, having the right 

line. 

Mr. GRIMM. But with all due respect, you have to still have a policy— 

Secretary LEW. And I am going to meet this afternoon with the 

new acting Commissioner— 

Mr. GRIMM. I am just asking you—I am not saying whether it 

is good or bad, I am just asking you what your policy is going to 

be now that you have a new Commissioner. In light of what has 

happened, what will your policy be? 

Secretary LEW. My policy will be to hold the IRS accountable and 

make sure the IRS holds people accountable for their behavior, to 

make sure that we find out what happened here in terms of the 

breakdown of the management, of the communication of the IRS to 

permit it, and we look to see whether there are systemic problems. 

On an ongoing basis, I will work with the new Commissioner to 

make sure that I have visibility into that which is appropriate, but 

I will stop short of intervening in the Administration of the tax system. 

Mr. GRIMM. Again— 

Secretary LEW. And that is going to take some— 

Mr. GRIMM. —okay, I want to move on, but again, intervention 

is different than knowledge. I have asked that 3 or 4 times. You 

just won’t answer the question. That is fine. Let is just move on. 

Mr. Secretary, I am hearing that the Treasury is thinking about 

floating variable rate notes. I have a big problem with that. Is that 

true, first of all, that the Treasury is considering floating variable 

rate notes? 

Secretary LEW. I just wanted to double-check. There is a proposal 

that is out from I think several weeks ago. 

Mr. GRIMM. My time has expired. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair recognizes the gentleman from Delaware, Mr. Carney. 

Mr. CARNEY. Thank you, Mr. Chairman. Thank you for having 

this hearing today. 

And thank you, Mr. Secretary, for coming in, and for your answers to the questions. 

I am going to try to focus—first, a comment about what you have 

said. As a former Secretary of Finance at the State level, whose responsibilities or whose jurisdiction included tax administration, I 

certainly appreciate your kind of hands-off approach to that adminVerDate Nov 24 2008 18:03 Nov 15, 2013 Jkt 081759 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 K:\DOCS\81759.TXT TERRI
55 

istration of taxes, and understand why it is necessary for the political appointee at a place like Treasury or where I served. 

I would like to ask you a few questions about your role as Chair 

of the FSOC. And the first one is, we hear a lot, we hear it in this 

committee, we hear it from folks on the other side of the aisle, and 

we hear it from people who come in that too-big-to-fail still exists. 

What would you tell folks who say that? 

Secretary LEW. Congressman, I think the challenge we have is 

to be able to get to the end of the implementation of Dodd-Frank 

and then answer that question by saying, ‘‘too-big-to-fail is over.’’ 

That is what the policy of Dodd-Frank is. That is our policy in 

terms of implementing Dodd-Frank. 

We are not yet at the finish line. So, I think that there is a challenge if you take a snapshot today and you look ahead. I think if 

you look at the debate that has taken place over the last number 

of months, there are different approaches to what additional actions are needed. There is authority in Dodd-Frank to turn a number of dials to different levels in terms of capital requirements, in 

terms of leverage requirements. 

And until that process is complete, it is going to be a little challenging to answer it in the present tense. But I certainly hope the 

answer, and I intend for the answer to be that too-big-to-fail is 

over. 

Mr. CARNEY. Our former chairman and ranking member, Mr. 

Frank, would argue that the Orderly Liquidation Authority effectively ends too-big-to-fail. 

Secretary LEW. Yes, but it makes it so we don’t have the authority to do it. 

Mr. CARNEY. Right, right. The second question I would like to 

ask you, and you have been asked about it a little bit, is about 

housing finance reform. Your report talks about allowing the GSEs 

to wind down and to try to encourage and get more private capital 

into the mortgage market. 

A few weeks ago, we had a presentation here in committee by a 

guy by the name of Jim Millstein, who has worked kind of on the 

details of that. Treasury has a paper that was presented here in 

committee about a year or 2 years ago that described at a very 

high level three options. 

Mr. Millstein has put the meat on the bones of what was option 

number three, kind of a hybrid where there would be a more limited Federal role, a specific guarantee, reinsurance, actually, like 

the FDIC. Have you seen that proposal? And if you have, what do 

you think about it? 

Secretary LEW. I have seen it, and I have actually asked my staff 

to do an analysis of it. We are in an ongoing process working 

through what the next steps should be, and we welcome the contribution to the debate. 

Mr. CARNEY. Yes, I would love to see your staff’s analysis of that 

and any concerns and issues that are raised by it. It is very intriguing to me. I have met with Mr. Millstein and his staff. He was 

here in front of the committee. And it seems to work out, basically 

that option three that is included in the Treasury White Paper of 

a couple of years ago. 

56 

Secretary LEW. Obviously, the challenge as we go forward is 

going to be to strike that balance so that we maintain access to 

mortgages, 30-year mortgages, and we avoid having institutions get 

back into the place where they fell back on an implied guarantee 

that created the financial crisis. 

Mr. CARNEY. And that was exactly his advice and to be careful, 

frankly, about the transition from where we are today, where more 

than 90 percent of mortgages are being federally-insured, which is 

a really bad situation. 

Secretary LEW. Either directly or federally. 

Mr. CARNEY. Right, right, right. 

Lastly, my first term in the last Congress, I sent a letter that 

was signed by other Members encouraging Treasury to be a little 

bit more aggressive with foreclosure prevention programs that you 

have. In particular, the one that is most effective in our State, the 

State of Delaware, is HAMP, and our local officials at the State 

housing authority have used it, and it has been very effective in 

helping keep people in their homes. 

And I would just encourage you do that. I would be happy to resend the letter or talk to your staff about it for a minute, if you 

would, on your approach to foreclosure prevention. 

Secretary LEW. Congressman, I think we have made progress, 

but we still have a lot more to do. I think that both HAMP and 

HARP have done a lot of good directly, but they have also indirectly created a set of practices that the private sector has stepped 

into. 

So we have seen six-plus million homeowners be able to refinance or restructure. We have more work to do, and we have to 

take advantage of this time when interest rates are low to make 

as much progress as we can for middle-class homeowners. 

Mr. CARNEY. Thanks very much. I look forward to hearing more 

about it. 

Chairman HENSARLING. The last Member to be recognized will be 

the gentleman from Indiana, Mr. Stutzman, who is recognized for 

5 minutes. 

Mr. STUTZMAN. Thank you, Mr. Chairman. 

And thank you, Mr. Lew, for being here today. I do want to just 

make a statement, then I have another question. 

This audit of the IRS started roughly over a year ago. You were 

the Chief of Staff at the time. I hope that you will give us confidence as we moved through this and as more details come out 

that, as the leadership of the White House, that if this is one of 

the biggest scandals that this Administration or the IRS is dealing 

with, that you should have known about it. 

Leadership expects to know about these things, and if you say 

that you only knew of the facts on March 15th, I hope that you are 

asking the people below you, ‘‘Why didn’t I know about this?’’ 

Because I read in a report that you said that you were outraged 

when you heard of the facts. And if this is the biggest scandal that 

this Administration is facing, you should be outraged. And I hope 

that somebody below you is going to face the consequences, because 

leadership really should step up and find out why you didn’t know. 

Now, I would like to talk a little bit about what we see on the 

wall here on the debt clock. Mr. Secretary, on March 13th, the 

57 

President said, ‘‘We don’t have an immediate crisis in terms of 

debt. In fact, for the next 10 years it is going to be in a sustainable 

place.’’ 

Under President Obama’s budget proposal, can you tell me how 

long it will be until the budget balances? 

Secretary LEW. Congressman, I think, as you know, the budget 

does not balance in a 10-year window. And that is not what he 

meant when he said a ‘‘sustainable place.’’ His budget would bring 

the deficit as a percentage of GDP and the debt as a percentage 

of GDP back into a sustainable range. 

If anything, we are overachieving on deficit reduction right now, 

given where we are in terms of the current year and immediate 

economic needs. 

So the goal should not be to balance the budget right now. The 

goal should be to be on a path where we have a sustainable— 

Mr. STUTZMAN. What year should be our goal? 

Secretary LEW. I don’t think that the year is what is most significant. I think the path we are on is what is most significant. 

Mr. STUTZMAN. But for my 11- and 7-year old, when can they expect the Federal Government to balance the budget? 

Secretary LEW. I think that the test is, are we building an economy for the future? Are we running our fiscal policy so that we 

have a deficit and a debt that are sustainable? And are we addressing it in a fair and balanced way? 

The President has put together a budget proposal that would do 

that, and we are looking forward to a bitpartisan— 

Mr. STUTZMAN. —are you suggesting we should raise—raise 

taxes, then, to balance the budget? 

Secretary LEW. I think that we should have a fair mix of spending reductions and loophole closing that would give us the ability 

to, in a fair and balanced way, be on a long-term path to fiscal sustainability. 

Mr. STUTZMAN. We have already raised taxes. I want to talk 

about what, really, I think is holding up the economy, and that is 

the health care law. 

As I talk to folks around northeast Indiana, they consistently 

say, ‘‘I don’t have any certainty. I don’t know what is going on.’’ 

And this plays right back into the IRS issue, because the IRS is 

going to be one of the main agencies of administering the health 

care law. Is that correct? 

Secretary LEW. It is one of many agencies, but HHS is the main 

agency. 

Mr. STUTZMAN. But the IRS is going to be involved. 

Do you think that the confidence level of the American people in 

the IRS, as they administer, as they start to roll out the health 

care law is going to be increased at all? Is there going to be more 

skepticism? 

Secretary LEW. I have said over and over again that it is a top 

priority to restore confidence in the IRS. We are committed to 

doing that. After this hearing today— 

Mr. STUTZMAN. Do you know Sarah Hall Ingram? 

Secretary LEW. I do not know her, no. 

Mr. STUTZMAN. Okay. She was the head of the tax-exempt office 

during what we understand to be—during the targeting of AmeriVerDate Nov 24 2008 18:03 Nov 15, 2013 Jkt 081759 PO 00000 Frm 00061 Fmt 6633 Sfmt 6633 K:\DOCS\81759.TXT TERRI
58 

cans. And now she is—and I don’t know how you don’t know her— 

the head of the health care law—rolling out the health care law. 

Should you know her? 

Secretary LEW. Typically, I deal with Treasury staff, who deal 

with others in the IRS on policy matters. 

If I can just correct the facts that you just described, my understanding—and we—facts matter, we have to make sure the facts 

are correct, that her responsibilities at the time when awareness 

of this investigation, these problems, became known, was working 

on the Affordable Care Act. And— 

Mr. STUTZMAN. So you know of her, then? 

Secretary LEW. I know of her, of course. Yes. 

Mr. STUTZMAN. Okay. All right. So do you think it would be inappropriate for her to continue or to remain in the position she is as 

now the head of the health care—as the rollout— 

Secretary LEW. I just said that facts matter. If the facts are that 

she was not in the position—taking day-to-day responsibility for 

this at the time in question, then the question is, is she doing her 

job on the Affordable Care Act effectively? And I am sure the new 

acting Commissioner who will take over today will look at that. 

Mr. STUTZMAN. I can tell you, the American people are not trusting of this Administration right now. 

Chairman HENSARLING. The time of the gentleman has expired. 

I would like to thank the Secretary for appearing today, and 

thank him for his testimony. 

The Chair notes that some Members may have additional questions for this witness, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to this witness 

and to place his responses in the record. Also, without objection, 

Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. 

Before adjourning, pursuant to the committee’s organizing resolution, Mr. Ross is hereby transferred from the Subcommittee on 

Oversight and Investigations to the Subcommittee on Housing and 

Insurance. 

And pursuant to the committee’s organizing resolution, Mr. 

Rothfus is hereby appointed to serve on the Subcommittee on Oversight and Investigations and the Subcommittee on Financial Institutions and Consumer Credit. 

This hearing stands adjourned. 

[Whereupon, at 12:55 p.m., the hearing was adjourned.] 

(59) 

A P P E N D I X 

May 22, 2013 

60 


81759.001
61 


81759.002
62 


81759.003
63 


81759.004
64 


81759.005
65 


81759.006
66 


81759.007
67 


81759.008
68 


81759.009
69 


81759.010
70 


81759.011
71 


81759.012
72 


81759.013
73 


81759.014
74 


81759.015
75 


81759.016
76 


81759.017
77 


81759.018
78 


81759.019