[Senate Hearing 107-883]
[From the U.S. Government Printing Office]
S. Hrg. 107-883
NOMINATIONS OF: ALBERTO F. TREVINO
CAROLYN Y. PEOPLES, RAFAEL E. CUELLAR
MICHAEL D. SCOTT, JOHN M. REICH
DIANA E. FURCHTGOTT- ROTH, DEBORAH DOYLE
McWHINNEY, AND ARMANDO J. BUCELO, JR.
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
ON
NOMINATIONS OF:
ALBERTO F. TREVINO, OF CALIFORNIA, TO BE ASSISTANT SECRETARY FOR
POLICY DEVELOPMENT AND RESEARCH, U.S. DEPARTMENT OF HOUSING
AND URBAN DEVELOPMENT
__________
CAROLYN Y. PEOPLES, OF MARYLAND, TO BE ASSISTANT SECRETARY FOR
FAIR HOUSING AND EQUAL OPPORTUNITY, U.S. DEPARTMENT OF HOUSING
AND URBAN DEVELOPMENT
__________
RAFAEL E. CUELLAR, OF NEW JERSEY, TO BE A MEMBER OF THE BOARD
OF DIRECTORS OF THE NATIONAL CONSUMER COOPERATIVE BANK
__________
MICHAEL D. SCOTT, OF NORTH CAROLINA, TO BE A MEMBER OF THE BOARD
OF DIRECTORS OF THE NATIONAL CONSUMER COOPERATIVE BANK
__________
JOHN M. REICH, OF VIRGINIA, TO BE VICE CHAIRPERSON OF THE BOARD
OF DIRECTORS OF THE FEDERAL DEPOSIT INSURANCE CORPORATION
__________
DIANA E. FURCHTGOTT-ROTH, OF MARYLAND, TO BE A MEMBER OF THE BOARD
OF DIRECTORS OF THE FEDERAL HOUSING FINANCE BOARD
__________
DEBORAH DOYLE MCWHINNEY, OF CALIFORNIA, TO BE A DIRECTOR OF THE
SECURITIES INVESTOR PROTECTION CORPORATION
__________
ARMANDO J. BUCELO, JR., OF FLORIDA, TO BE A DIRECTOR OF THE
SECURITIES INVESTOR PROTECTION CORPORATION
__________
OCTOBER 3, 2002
__________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
PAUL S. SARBANES, Maryland, Chairman
CHRISTOPHER J. DODD, Connecticut PHIL GRAMM, Texas
TIM JOHNSON, South Dakota RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York WAYNE ALLARD, Colorado
EVAN BAYH, Indiana MICHAEL B. ENZI, Wyoming
ZELL MILLER, Georgia CHUCK HAGEL, Nebraska
THOMAS R. CARPER, Delaware RICK SANTORUM, Pennsylvania
DEBBIE STABENOW, Michigan JIM BUNNING, Kentucky
JON S. CORZINE, New Jersey MIKE CRAPO, Idaho
DANIEL K. AKAKA, Hawaii JOHN ENSIGN, Nevada
Steven B. Harris, Staff Director and Chief Counsel
Wayne A. Abernathy, Republican Staff Director
Martin J. Gruenberg, Senior Counsel
Jospeh R. Kolinski, Chief Clerk and Computer Systems Administrator
George E. Whittle, Editor
(ii)
C O N T E N T S
----------
THURSDAY, OCTOBER 3, 2002
Page
Opening statement of Chairman Sarbanes........................... 2
Opening statements, comments, or prepared statements of:
Senator Allard............................................... 2
Prepared statement....................................... 35
Senator Gramm................................................ 3
Senator Reed................................................. 9
NOMINEES
Alberto F. Trevino, of California, to be Assistant Secretary for
Policy Development and Research, U.S. Department of Housing and
Urban Development 3
Prepared statement........................................... 35
Biographical sketch of nominee............................... 36
Carolyn Y. Peoples, of Maryland, to be Assistant Secretary for
Fair Housing
and Equal Opportunity, U.S. Department of Housing and Urban
Development.................................................... 4
...............................................................
Prepared statement........................................... 40
Biographical sketch of nominee............................... 42
Rafael E. Cuellar, of New Jersey, to be a Member of the Board of
Directors
of the National Consumer Cooperative Bank...................... 6
Prepared statement........................................... 49
Biographical sketch of nominee............................... 50
Michael D. Scott, of North Carolina, to be a Member of the Board
of Directors
of the National Consumer Cooperative Bank...................... 8
Prepared statement........................................... 59
Biographical sketch of nominee............................... 60
John M. Reich, of Virginia, to be Vice Chairperson of the Board
of Directors
of the Federal Deposit Insurance Corporation................... 17
Prepared statement........................................... 64
Biographical sketch of nominee............................... 65
Diana E. Furchtgott-Roth, of Maryland, to be a Member of the
Board of
Directors of the Federal Housing Finance Board................. 19
Prepared statement........................................... 77
Biographical sketch of nominee............................... 79
Deborah Doyle McWhinney, of California, to be a Director of the
Securities
Investor Protection Corporation................................ 29
Prepared statement........................................... 89
Biographical sketch of nominee............................... 90
Armando J. Bucelo, Jr., of Florida, to be a Director of the
Securites Investor
Protection Corporation......................................... 30
Prepared statement........................................... 98
Biographical sketch of nominee............................... 99
Additional Material Supplied for the Record
Statement of Dianne Feinstein, a U.S. Senator from the State of
California..................................................... 112
Letters submitted by Diana Furchtgott-Roth....................... 113
(iii)
NOMINATIONS OF:
ALBERTO F. TREVINO, OF CALIFORNIA
TO BE ASSISTANT SECRETARY FOR
POLICY DEVELOPMENT AND RESEARCH
AND
CAROLYN Y. PEOPLES, OF MARYLAND
TO BE ASSISTANT SECRETARY FOR
FAIR HOUSING AND EQUAL OPPORTUNITY
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
----------
RAFAEL E. CUELLAR, OF NEW JERSEY
AND
MICHAEL D. SCOTT, OF NORTH CAROLINA
TO BE MEMBERS OF THE BOARD OF DIRECTORS OF
THE NATIONAL CONSUMER COOPERATIVE BANK
----------
JOHN M. REICH, OF VIRGINIA
TO BE VICE CHAIRPERSON OF
THE BOARD OF DIRECTORS
FEDERAL DEPOSIT INSURANCE CORPORATION
----------
DIANA E. FURCHTGOTT-ROTH, OF MARYLAND
TO BE A DIRECTOR OF THE
FEDERAL HOUSING FINANCE BOARD
----------
DEBORAH DOYLE McWHINNEY, OF CALIFORNIA
AND
ARMANDO J. BUCELO, JR., OF FLORIDA
TO BE DIRECTORS OF THE
SECURITIES INVESTOR PROTECTION CORPORATION
----------
THURSDAY, OCTOBER 3, 2002
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 2:42 p.m. in room SD-538 of the
Dirksen Senate Office Building, Senator Paul S. Sarbanes
(Chairman of the Committee) presiding.
OPENING COMMENTS OF CHAIRMAN PAUL S. SARBANES
Chairman Sarbanes. The hearing will come to order.
The Senate Banking, Housing, and Urban Affairs Committee
meets this afternoon to consider eight nominees who have been
sent to us by the President for various positions in the
Administration. I want to welcome all of the nominees, as well
as their families and friends who may be here with us and to
thank the nominees for appearing before the Committee this
afternoon.
We have decided to break this into three panels, so we will
do those seriatim. Our first panel will consist of four
nominees: Alberto Trevino, who has been nominated to be the
Assistant Secretary of Housing and Urban Development for Policy
Development and Research; Carolyn Peoples, who has been
nominated to be the Assistant Secretary of Housing and Urban
Development for Fair Housing and Equal Opportunity; Rafael
Cuellar, nominated to be a Member of the Board of Directors of
the National Consumer Cooperative Bank; and Michael Scott, also
nominated to be a Member of the Board of Directors of the
National Consumer Cooperative Bank.
Before I swear in the nominees, hear their opening
statements, and then go to the question and answer period, I
yield to Senator Allard for any statement or comments he may
have.
COMMENTS OF SENATOR WAYNE ALLARD
Senator Allard. Well, thank you, Mr. Chairman. I would like
to make my formal statement a part of the record and ask
unanimous consent to do that.
Chairman Sarbanes. Without objection, so ordered.
Senator Allard. I would just make one request of all those
whose nominationS we are considering today, and that is that
you take a careful look at the Government Performance and
Results Act. I may not be here to ask that question but I think
it is an important piece of legislation that passed by the
Congress.
I would just ask that you take a careful look at it. It is
the Government Performance and Results Act.
Thank you, Mr. Chairman.
Chairman Sarbanes. Good. I would like to ask the nominees
to stand. It is the practice of this Committee to place
nominees under oath. If you would raise your right hands.
Do you swear or affirm that the testimony that you are
about to give is the truth, the whole truth, and nothing but
the truth, so help you God?
Mr. Trevino. I do.
Ms. Peoples. I do.
Mr. Cuellar. I do.
Mr. Scott. I do.
Chairman Sarbanes. Do you agree to appear and testify
before any duly-constituted committee of the U.S. Senate?
Mr. Scott. I do.
Mr. Cuellar. I do.
Ms. Peoples. I do.
Mr. Trevino. I do.
Chairman Sarbanes. Thank you. Please take your seats.
Mr. Trevino, I think we will just start with you and move
right across the panel with the opening statements of the
nominees. We would be happy to hear from you, sir. And if
anyone wants to introduce members of their family who might be
here, why, we would certainly invite you to do so as well.
COMMENTS OF ALBERTO F. TREVINO, OF CALIFORNIA
TO BE ASSISTANT SECRETARY FOR
POLICY DEVELOPMENT AND RESEARCH
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Mr. Trevino. Thank you very much.
Chairman Sarbanes and Members of the Committee, it is an
honor and privilege to appear before you as President Bush's
nominee for Assistant Secretary for Policy Development and
Research at the Department of Housing and Urban Development.
I am looking forward to the prospect of leading HUD's
Office of Policy Development and Research to develop creative
and well-structured solutions to the housing and community
development problems facing the Nation. If confirmed, I intend
to implement a long-term strategic approach to problem solving
that uses research and analysis to gain a comprehensive
understanding of the problems confronting our cities and rural
communities. This understanding will provide a strong
foundation for innovative, long-term solutions.
While I recognize the need to apply creative problem
solving to the immediate issues facing the Nation, I believe it
is equally important to anticipate issues the country will face
in the coming decades. This will enable PD&R to develop
productive policy options addressing emerging issues.
Another important responsibility of the Office of Policy
Development and Research is to conduct evaluations of HUD's
programs ensuring the programs are operating as Congress
intended. The Secretary's fiscal year 2003 budget envisions an
expansion of this important activity.
I would like to thank you for scheduling this hearing
during a very busy time in the session. I look forward to
learning of key issues and concerns of this Committee to ensure
PD&R's research agenda fully addresses them.
I appreciate your time and look forward to working with the
Members and their staff of this Committee.
Thank you.
Chairman Sarbanes. Thank you very much, sir.
We have been joined by Senator Gramm and I will defer to
him now before I go to Ms. Peoples for any opening statement he
might wish to make.
COMMENTS OF SENATOR PHIL GRAMM
Senator Gramm. Mr. Chairman, I will be brief. I have looked
over the resumes of our nominees today and, first, you cannot
help but notice that there are a lot of them.
[Laughter.]
I want to thank you, Mr. Chairman, for holding these
hearings.
Second, I think that each and every one of them are
eminently qualified, either by their experience in the private
sector or their experience in Government, or both. And I want
to commend the President on choosing good people and I want to
thank each of you for your willingness to serve the greatest
country in the history of the world.
Our system works as well as it does because we have good
people who are willing to serve. It is no prize. You do not get
rich doing it. You are more likely to get criticized than you
are to get praised, and your name will never be on the front
page of The Washington Post unless you really screw something
up.
[Laughter.]
But, nevertheless, there seems to be an endless line of
people that are willing to serve, and that encourages me.
Chairman Sarbanes. Good. I also want to note for the
Members of the Committee, we have another nomination hearing
scheduled for tomorrow morning at 11:00 a.m. That is Phil
Merrill, to be the Chairman of the Export-Import Bank. And upon
the completion of that hearing, we will then have had hearings
for all nominees sent to the Senate by the President that fall
under the jurisdiction of this Committee. So on the nominee
side of our agenda, we will not have any further outstanding
hearings after tomorrow morning.
Senator Gramm. Well, Mr. Chairman, let me say I think that
is a commendable record and I thank you for it.
Chairman Sarbanes. Ms. Peoples, we would be happy to hear
from you.
STATEMENT OF CAROLYN Y. PEOPLES, OF MARYLAND
TO BE ASSISTANT SECRETARY FOR
FAIR HOUSING AND EQUAL OPPORTUNITY
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Ms. Peoples. Thank you.
Again, I would like to introduce my family that are here.
My husband, Dennis, my son Derrick, my daughter Jackie, and my
other daughter Cheryl in the back. We are very pleased to be
here.
Chairman Sarbanes. We are pleased to have your family here.
Ms. Peoples. Chairman Sarbanes, Ranking Member Gramm, and
distinguished Members of this Committee, thank you for giving
me the privilege to address this Committee in consideration of
my confirmation as Assistant Secretary for Fair Housing and
Equal Opportunity.
I am here today with some very special people in my life.
They are my husband and my three children, my sisters and
brothers. I also want to acknowledge my friends from Catholic
Charities, MANPHA, The Beacon Institute, the Office of Fair
Housing and Equal Opportunity, and the University of Baltimore.
First, I would like to share a little of my background with
you. I am one of seven children born to the late Julius and
Cornelia Jacobs. I was born and raised in Baltimore, Maryland.
My father served in the U.S. Army and worked most of his life
as a laborer. My mother was a housewife. For several years, we
lived in public housing and I attended local schools. From an
economic standpoint, we were considered poor. But as a family,
we were rich, rich in faith, character, values, and humor with
a closeness that endures even today. My mother, without doubt,
was instrumental in forming my character and strong work ethic.
Throughout my public education, she always encouraged me to do
my best. And it is that drive for excellence that both inspires
and motivates me in all my endeavors.
Prior to my nomination by President Bush, I was Founder and
Executive Director of Jeremiah Housing, Inc., a faith-based,
nonprofit housing services organization. Preceding this, my
professional experience for the past 25 years has been
exclusively in the operation, coordination, and management of
HUD-assisted and sponsored housing. Beginning in 1976, as a
manager of a Section 202/8 housing facility for the Presbytery
of Baltimore. I left there in 1980 and joined the Housing
Services Division of Catholic Charities. Over a 19 year period,
I progressed in various positions. I later attended the
University of Baltimore and earned a BS degree in Finance and a
Master's degree in Business Administration.
As I was preparing for this testimony and thinking about
fair housing, I began to reflect upon discrimination and how it
impacts lives. I liken discrimination to an inflicted wound.
The wound eventually heals, but invariably leaves a scar. As a
woman of color, I have experienced discrimination. One such
experience when I was 8 years old left, an indelible imprint on
me. My mother took me to a department store in downtown
Baltimore. After choosing several items of clothing, she took
them to the counter to pay for them. For several minutes, I
watched as a the sales lady waited on other people, but would
not wait on my mother. After all the customers standing next to
my mother had been waited on and exited the store, my mother
remained at the counter until the sales lady finally waited on
her. When we left the store, I asked my mother why the lady
would not wait on her. Her reply to me was, ``because we are
colored.''
Discrimination in any form is demeaning. Whether it comes
as a result of being denied housing because you have children,
or if a real estate agent steers you to a ``certain'' community
or a lender charges you extra fees not charged to other people,
discrimination is wrong and is against the law.
Moreover, discrimination has a social impact. Just as my
mother and I had to wait in that department store until all
others were served, discrimination in America has denied many
the opportunity to share in the prosperity of this Nation.
Since the passage of the 1968 Fair Housing Act, significant
progress has been made in reducing barriers to fair housing and
expanding homeownership opportunities for the historical
victims of discrimination. Despite all that has been
accomplished, much more needs to be done. No one should be
denied the home of their dreams because of their race, color,
religion, national origin, sex, familial status, or disability.
While the Nation's homeownership has reached a record high,
a large gap still remains between the percentage of minorities
and whites who own their own homes, 48 percent African-American
and 47.6 percent Hispanic, compared to 74.3 percent for whites.
We must do all we can to ensure that discrimination is removed
as a barrier to the achievement of the American Dream.
The extent to which discrimination against persons with
disabilities exists today is also problematic. Currently, HUD
receives nearly as many complaints of disability discrimination
as it does race complaints. There is a significant lack of
accessible housing units for persons with disabilities, both in
private and in the subsidized housing. Noncompliance with the
accessibility requirements combined with the failure of
landlords to provide necessary accommodations and modifications
has contributed to a shortage of housing for persons with
disabilities in housing developments.
I have a strong interest in helping improve the quality of
life for underserved and unserved persons. If I am confirmed by
the Senate to this most important post, I pledge my full
commitment to aggressively enforce civil rights and fair
housing laws; to be diligent in conducting timely
investigations; to continue to reduce impediments to fair
housing laws; to develop close working partnerships with faith-
based and grassroots organizations, local government, and other
agencies; to enforce departmental equal employment opportunity
laws; to ensure effective program monitoring and compliance and
develop performance-based measures to ensure quality.
With my extensive experience in HUD's programs and
policies, combined with 25 years of proven management,
organizational, and policy development skills, I am eager to
join the fine staff of the Office of Fair Housing and Equal
Opportunity in implementation of our strategic goals and
objectives.
In closing, I want to thank the Senator from my home State
of Maryland, Senator Sarbanes, and the Members of the Committee
for your courtesy. I want to thank President Bush for honoring
me with the opportunity to serve in his Administration, and to
Secretary Mel Martinez for his strong support in the several
months since my nomination. I also want to give special thanks
to Floyd May for his wise counsel and advice. Finally, but not
least, I want to thank God for bestowing His grace and this
very special honor upon me.
Thank you.
Chairman Sarbanes. Thank you, Ms. Peoples. That was a very
thoughtful statement and the Committee appreciates it.
Mr. Cuellar.
STATEMENT OF RAFAEL E. CUELLAR, OF NEW JERSEY
TO BE A MEMBER OF THE BOARD OF DIRECTORS OF
THE NATIONAL CONSUMER COOPERATIVE BANK
Mr. Cuellar. Chairman Sarbanes and distinguished Members of
the Committee, I am honored to appear today before you as a
nominee for the Board of Directors of the National Consumer
Cooperative Bank.
I am here because I believe my combined experience, as a
military officer, entrepreneur, and community leader is
consistent with the mission of the National Consumer
Cooperative Bank. It was established to address the financial
needs of an underserved community. The Bank's primary lines of
business include multifamily and commercial real estate
services, commerical and small business banking, community
development, and personal banking. To date, NCB has provided
more than $6 billion in financing, thousands of homeownership
opportunities, school facilities for 4,500 students, 1,000
affordable assisted-living units, a health center serving
100,000 patients annually and more than 10,000 employee stock
owners. In short, the Bank provides economic empowerment.
My goal on this board is to bring these options to
communities like my own in Passaic, New Jersey. Once a deserted
area of marginalized immigrants that had to commute to New York
for work, now a thriving center of commerce because business
people like my father invested and started businesses to
increase the city's economic vitality. I remember he would say,
``No se puede sacar sin dar''--You cannot take without giving.
With those words in mind, I left to join the United States
Navy at the age of 17. This country had given my family
opportunity when we arrived as immigrants in 1970. I knew that
opportunity came with responsibility. And so it was for 9 years
as I worked my way up the ranks from enlisted to officer. I
attended Fordham University on a NROTC scholarship and received
my Bachelor's degree in Economics. The regimented training and
discipline prepared me for an even greater challenge.
After my father's sudden death in 1996, I resigned my
commission to fulfill my family duty and care for the business
my father began years before. I have been President and Chief
Executice Officer of ECO & Sons, Inc., for 7 years. In that
time, I have significantly increased revenue every year,
diversified our products and services, and created new jobs to
expand the employee base. I inherited a large ``bodega'' in
debt. However, today, due to strategic planning and investment,
ECO & Sons, Inc. makes a profit through a successful
independent supermarket, an upscale catering company, and an e-
commerce site that survived the Internet downturn. Currently, I
own one of the top 500 Hispanic businesses in the country,
according to Hispanic Business Magazine.
In addition, I was selected as 1999 Dun & Bradstreet's
Number 2 Minority Entrepreneur, 1999 Finalist for Ernst &
Young's Entrepreneur of the Year, 2000 Finalist for Hispanic
Business Magazine Entrepreneur of the Year, and 2001 Finalist
for Ernst & Young's Entrepreneur of the Year. To share the
benefits of my success, I work with several organizations
including the Paterson Restoration Corporation, New Jersey
State Chamber of Commerce, William Paterson University
Foundation, and the United States Hispanic Chamber of Commerce,
to name a few.
While those accolades look great on a resume, what I am
really proud of is building a partnership with my community.
They know I am there to service their needs whether it is for
groceries or otherwise. For instance, the Passaic fire last
year put 75 families out on the street without shelter or food.
They came to me and we fed those families three meals a day for
2 weeks and they ate with
dignity because that food came from a supermarket that they
patronize. I was humbled that they came to me instead of one of
the big chain stores. I connect with my customers and peers
alike.
I understand and have overcome the challenges that face
minority entrepreneurs--the lack of capital, scarce resources,
no mentoring. The NCB has developed and implemented a
successful model, a public and private sector partnership, to
solve these problems and provide innovative solutions. With my
experience, I will be an integral part of those solutions.
I would be very proud to serve on the Board of Directors of
the National Consumer Cooperative Bank, and I truly appreciate
your consideration.
Allow me to answer any questions that you may have.
Chairman Sarbanes. Thank you very much, sir.
Mr. Scott.
STATEMENT OF MICHAEL D. SCOTT, OF NORTH CAROLINA
TO BE A MEMBER OF THE BOARD OF DIRECTORS OF
THE NATIONAL CONSUMER COOPERATIVE BANK
Mr. Scott. Thank you.
Mr. Chairman, Senator Gramm, distinguished Members of the
Committee, it is an honor and privilege for me to appear before
you today as the President's nominee to be a Member of the
Board of Directors of the National Consumer Cooperative Bank.
Before I begin my statement, I would like to thank my wife,
Janet and my children, Zachary and Taylor. Without their
patience, understanding, and support, I could not be here
before you. Unfortunately, they are not able to be here today,
as they continue to live in North Carolina until we sell our
home.
I would also like to thank Under Secretary Peter Fisher,
Assistant Secretary Brian Roseboro, and Deputy Assistant
Secretary Roger Kodat for all of their support. Finally, I
would like to thank President Bush for the honor of this
nomination and the opportunity to serve.
I am, and if confirmed, will continue to be, the Senior
Advisor to the Deputy Assistant Secretary for Government
Financial Policy at the Treasury Department. Prior to serving
in the Administration, all of my previous experience has been
in the private sector. I have worked extensively in finance,
capital markets, investments, corporate strategy, financial
analysis, and commercial lending.
It is my current and former experience that I believe will
enable me to be an effective contributor to NCB's Board. NCB
plays a vital role in meeting the underserved needs of
America's cooperatives, which range from housing cooperatives
to affordable housing communities to small businesses to Alaska
Native Corporations and Tribal Entities. I hope to bring
constructive ideas to the Board that will help grow NCB in the
important sectors it serves. Additionally, I am keenly
interested in NCB's capital structure and assisting it in
addressing the statutory repayment of the Class A Notes that
the Federal Government holds, and that mature in 2020.
NCB is a multifaceted financial services company that
enables cooperative endeavors throughout America to grow and
succeed. These businesses are large and small. They serve rural
and urban communities. NCB helps them by crafting financial
solutions tailored to their individual needs, and the needs of
their members. Chartered by Congress in 1978, NCB was
privatized in 1981 as a cooperatively owned financial
institution. Currently, NCB is owned by 1,841 of its customers.
NCB's capital base is funded by long-term subordinated
notes, medium-term notes and commercial paper, loans from its
banking partners and customers, deposits through its
subsidiary, NCB FSB, and stock purchased by NCB members. The
Bank's medium-term notes and commercial paper carry investment-
grade ratings.
NCB's primary lines of business include: Multifamily and
commercial real estate, commercial and small business banking,
community development services, and personal banking.
To date, NCB has provided more than $6 billion in
financing. Combined with balance sheet assets and letters of
credit, NCB now manages more than $3.6 billion in assets
nationwide. NCB reported a profit of $14.6 million for the
first 6 months of 2002. In early September of this year, NCB
distributed approximately $12.6 million in patronage dividends
to its member-owners in the form of cash and stock.
Last year alone: First, the Bank grew its deposit base by
50 percent, further diversifying its funding sources and
lowering the capital costs for its customers. Second, the Bank
received reaffirmation of its investment-grade ratings by
Moody's (Baa1) and Standard & Poor's (BBB).
NCB has a distinguished history of serving the cooperative
community and I believe that its future is extremely bright. I
would appreciate your support so that I may be able to
contribute to its future.
In closing, I would like to take this opportunity to thank
you, Mr. Chairman, and the Committee for the prompt
consideration of my nomination. Mr. Chairman, if confirmed, I
commit to you, the Members, and the NCB, all of my energy to
serve with distinction and honor. I would request that my
additional statements be entered into the record on the
background on the Bank and I would be delighted to answer any
questions.
Thank you.
Chairman Sarbanes. Without objection, the full statement
will be included in the record.
We thank all of the panelists for their statements.
Chairman Sarbanes. We have been joined by Senator Reed. Did
you have an opening statement, Senator Reed.
COMMENT OF SENATOR JACK REED
Senator Reed. No, Mr. Chairman.
Chairman Sarbanes. Let me ask the panelists a few
questions.
I want to ask the two nominees for the National Consumer
Cooperative Bank if they could just outline for us the
financial situation and arrangements of the Cooperative Bank.
Where does your money come from and how much of it do you put
out each year and, generally speaking, who do you put it out
to, and so forth?
Mr. Cuellar, why don't we start with you and then we will
go to Mr. Scott.
Mr. Cuellar. The National Consumer Cooperative Bank
provides loans to cooperatives and their members. Half of the
loan portfolio is housing cooperatives, and the other half is
to supermarket cooperatives, and other business cooperatives
and their members. Most of their capital funds came from within
their membership.
The initial loan pool that created the Bank came through an
act of Congress back in 1979. In 1981, however, the Bank was
privatized. Because of its privatization, however, the Bank's
entire slate of Board of Directors is not appointed by the
President or Government employees. Only a small percentage are
because of the bank's debt with the Government.
The portfolio again to commercial real estate, commercial
business banking, and community development is where the Bank
does its investing. If that answers your question.
Chairman Sarbanes. Partially. Maybe Mr. Scott can elaborate
on it a bit more.
Mr. Scott. Sure. Mr. Chairman, banks, in general, rely on
equity capital and equity-like instruments and debt to be able
to make loans. The National Consumer Cooperative Bank's effort,
it has a limited ability to raise equity capital, which is very
important to most traditional banks. The Bank's lending to
cooperatives, nonprofits, is met largely through the issuance
of debt. The Class A notes that the Government currently holds
used to be equity prior to the privatization. That $183 million
is a very important part of its capital structure that allows
it to make the existing loans that it does. Going forward, it
has funded itself largely on the issuance of debt.
Chairman Sarbanes. How much of that debt is there, over and
above--there is about $183 billion of debt to the Treasury.
Senator Gramm. Million. You said billion.
Chairman Sarbanes. That is an important distinction.
[Laughter.]
Senator Gramm. I do that all the time, so I am sensitive to
it.
[Laughter.]
Chairman Sarbanes. One hundred eighty-three million dollars
debt to the Treasury, which I take it the Bank is paying off
over time. Is that correct?
Mr. Scott. Yes, sir. It has a sinking fund to repay the
Class A notes. It is going to have to address how it pays off
those notes in the future.
Chairman Sarbanes. Then it has borrowed further, Correct?
Mr. Scott. That is correct.
Chairman Sarbanes. From whom? In the private markets?
Mr. Scott. Yes, from the capital markets and banks, in
general.
Chairman Sarbanes. How much of that debt is there?
Mr. Scott. Sir, I do not have the balance sheet with me.
The on-balance sheet assets are I believe about $1.2 billion.
Of that, you have $183 million from the Class A notes. I
believe there is about $162 million of Class B equity and the
rest would be in the debt markets.
Chairman Sarbanes. And how much money does the Bank put out
each year?
Mr. Scott. My understanding is that the Bank pays out about
55 percent of its net income in patronage dividends back to the
cooperative members.
Chairman Sarbanes. There is no implicit Federal guarantee
of the Bank's debt?
Mr. Scott. None whatsoever. In fact, if you look at the
Standard & Poor's and Moody's ratings, which are essentially
BBB, it is very clear that the market does not view the NCB as
an implicit Federal guarantee.
Chairman Sarbanes. Right. Now, is the position you hold at
the Treasury traditionally been, in effect, the President's
nominee to the Bank? He nominates one person to represent
Federal agencies and departments. Is that correct?
Mr. Scott. That is correct.
Chairman Sarbanes. Has it traditionally been whoever holds
the position you have now in the Treasury?
Mr. Scott. No, it has not. Traditionally, my understanding
is that during the 1980's and 1990's, it came from the
Department of Agriculture. This position itself has been vacant
since 1991.
Chairman Sarbanes. There has not been a person on the Board
for 10 years?
Mr. Scott. That is correct.
Chairman Sarbanes. Well, my time is expired and I will
cease and I will come to the other two nominees in the
following round.
Senator Gramm.
Senator Gramm. I would be nervous about telling people
that. They may decide that they do not need you on the Board.
[Laughter.]
Well, Mr. Chairman, it made me a little nervous when Mr.
Scott was saying that they set up a sinking fund and they are
going to have to make some arrangement to pay the Federal
Government.
I had thought and I forget, forgive me, but not only am I
getting old, but we have so many of these things. Am I right
that when we went through privatization, we set up a structure
whereby, over time, the Bank was going to pay the taxpayer
back? Is that right?
Mr. Scott. The original structure mandated a 2020 maturity.
The Bank has, I believe in 1994, instituted a corporate
strategy of a combination of the sinking fund and raising money
starting in 2005, that would raise most likely preferred stock
to use to pay down the Treasury. But there is actually not a
mandated repayment schedule.
Senator Gramm. Just the requirement as of that date that
there be a repayment.
Mr. Scott. October 31.
Senator Gramm. But is there any money in this sinking fund?
Mr. Scott. Yes, there is. I believe right now there is $12
million.
Senator Gramm. Thank you, Mr. Chairman.
Chairman Sarbanes. Good. Anything else?
Senator Gramm. No. Thank you, Mr. Chairman.
Chairman Sarbanes. Senator Reed.
Senator Reed. Thank you, Mr. Chairman. And I would like to
thank the nominees for thier testimonies. Good luck as all of
you take on these very important tasks.
Mr. Trevino, if I may ask a question. You will be charged
with developing, monitoring, and supervising important research
projects. I wonder what experience you have in the area of
either conducting research or managing research? Could you
elaborate?
Mr. Trevino. Yes, I can answer that several ways. One, from
the private-sector experience that I have in the development
and planning of very large-scale projects, new communities, and
working with developers such as Jim Rouse in Columbia and also
in Reston, all of this is basic research because these were the
state-of-the-art developments in the country at that time.
And with General Electric, directing General Electric
Foundation research grants to various universities, including
Washington University, MIT, UCLA, University of Michigan, North
Carolina, and these again were state-of-the-art research issues
of large-scale new town development.
Also, I have lectured or taught at many of the universities
in this country--Michigan, North Carolina, Harvard, Berkeley,
USC, and directed grants from other foundations to these
universities.
Senator Reed. So you have had a role in foundations
awarding grants and research contracts?
Mr. Trevino. With the GE Foundation, primarily. And then
with the Ford Foundation, I was just an advisor to them.
Senator Reed. There are a number of difficult issues that
you will have to tackle. When I go through my State I hear
continuous clamor for more production of units. In fact, people
will comment, ``We have vouchers and we cannot use them because
they cannot find affordable houses.'' They do not have
physically the number of units. Would increasing production be
a focus of one of your policy or research initiatives?
Mr. Trevino. As I stated, the approach that I generally
take to a problem is to look at the problem a little bit more
holistic, if you will, than the way it is been approached in
the past.
Housing production, barriers to housing, if you look at the
Kemp Report, you could provide money to build housing, but the
real problem is in implementing that program. In today's world,
in most communities, if you make an announcement that you are
going to build 100 to 200 units, whatever it might be, mixed-
use, low-income, et cetera, the local community objects to
those projects. It is very difficult to get projects approved
in communities. That is called a NIMBY. That clearly can be a
strategy. But from looking at an entire program, you have to
evaluate and make a determination whether that is the most
feasible direction to move in. And that would be part of the
studies within PD&R.
Senator Reed. Thank you.
Ms. Peoples, you have a very significant responsibility,
and I think you are going to take it on with the great passion
you have done all your work throughout your life. But you
cannot do it alone.
I understand that there is a significant shortage of
personnel in the Office of Civil Rights. What are your plans
now to mobilize more people to do the work that you are so
committed to doing?
Ms. Peoples. I agree that the Office of Fair Housing and
Equal Opportunity has been plagued by shortages in staff prior
to the past 4 years. We are actively engaged in correcting that
by trying to bring on additional staff to meet the demand, at
least the problems that we are considering.
In terms of meeting the challenges that are ahead, we must
at least look to hiring additional people to fill those slots,
particularly in the area of enforcement. Investigators are very
much needed in the regional offices. And we are moving in that
area at this point.
Senator Reed. Thank you very much, Ms. Peoples and all of
you for your testimony.
Thank you, Mr. Chairman.
Chairman Sarbanes. Thank you.
Mr. Cuellar, have you spent any time over at the National
Cooperative Bank?
Mr. Cuellar. Yes. I actually today got my first tour of the
Bank itself and was there once previously when we had first
discussed the entire nomination process and how it all takes
place.
Chairman Sarbanes. I ask both of the nominees, did the Bank
provide as a kind of extended briefing for either of you in
terms of being new nominees to the Board?
Mr. Cuellar. We definitely got a briefing. Extended is
probably the briefing we will get after our confirmation, more
than likely. And then we will have a much more involved
briefing.
If I am not mistaken, one of the reasons that we are not
privy to some of the information of the Bank is just because we
are not on the Board currently.
Mr. Scott. That is correct. I have spent about 3 hours with
Mr. Chuck Hackman. The detailed briefing as a Board Member does
come later, after we have been confirmed.
In answer to one of your questions, I neglected--in 1988,
the Bank acquired a thrift. So when you were asking, how does
it fund itself, they also actually have--a portion of that is
funded through deposits, very much like any other bank. But
that is a relatively small part of their capital base.
Chairman Sarbanes. I am just sending them a message because
I am concerned that some of these boards or banks or so forth
do not brief their nominees the way they probably should before
they come to us, and actually, before they go into the job. I
do not think the agency should assume that they can do all the
briefing post the fact because that puts the Committee in the
awkward position of investigating matters with someone who
hasn't had a fairly comprehensive introduction to the work of
the particular institution. So, I hope you will take that
message back with you.
Mr. Cuellar, I have a lot of respect for your career
pattern here, although you are still a very young man. How long
did you serve in the Navy?
Mr. Cuellar. Nine years, sir.
Chairman Sarbanes. Nine years. And you went to Fordham on
an NROTC scholarship?
Mr. Cuellar. Yes, sir.
Chairman Sarbanes. And then, you were in a career, but left
because of the change in the family circumstances. So, you
moved out in order to look after the family business.
Mr. Cuellar. That is correct.
Chairman Sarbanes. Have you been in charge of it yourself ?
Mr. Cuellar. Yes, sir.
Chairman Sarbanes. I mean you took it over after your
father passed away. Is that right?
Mr. Cuellar. Yes, sir.
Chairman Sarbanes. You are the senior son, or the senior
child, I take it?
Mr. Cuellar. Actually, no. I am the youngest child.
Chairman Sarbanes. Okay. I gather it has been quite
successful.
Mr. Cuellar. We have done okay.
[Laughter.]
Chairman Sarbanes. Quite successful, I would guess, is what
that means.
Ms. Peoples, let me ask you a couple of questions and then
I have one or two for Mr. Trevino.
The office that you are being nominated to head is
understaffed currently by about 50 full-time employees. What is
your view of that? Or first of all, is that accurate? Then what
plans might you have to try to remedy that situation?
Ms. Peoples. Well, a plan is already in place. Many of
those positions have been filled. So, we do not have the
shortage that we had prior to a couple of months ago.
Chairman Sarbanes. I am pleased to hear that.
Ms. Peoples. I am very pleased as well.
[Laughter.]
Chairman Sarbanes. Let me ask you, there has been a backlog
of fair housing complaints which have not been reviewed at HUD,
although I understand that they are taking steps to try to
process these claims quickly.
My concern is this. Claims need to be processed quickly or
within a reasonable period of time. But I am also concerned
that the claims get properly and thoroughly examined so that we
make sure that we are rendering appropriate judgments. Do you
have any comment on this balance between moving the claims
along and making sure, on the other hand, they are adequately
reviewed?
Ms. Peoples. Well, that is one of the problems I think that
resulted from being understaffed. I am pleased to say that as
of last week, we get weekly reports on the status of the cases
and we have decreased our backlog to now I believe it is 35
percent of our cases are aged. And that compares to over 80
percent back in 2000. So, we are making progress in that area.
Chairman Sarbanes. Mr. Trevino, when you were at HUD back
in the early 1970's, the New Communities Program was under your
jurisdiction.
Mr. Trevino. That is right, Title 7.
Chairman Sarbanes. Yes. Tell me about that program.
Mr. Trevino. The person really responsible for the
legislation was Lud Ashley, Congressman from Ohio. The program
was a loan guarantee program to fund infrastructure for new
communities. And the idea was these new communities would be
able to alleviate some of the problems of suburban sprawl and
so forth. Actually, during the time of the legislation, I was
with General Electric at the time and GE was going to build
experimental cities, at least explore that potential. Some of
this information really is not known, but it was an interesting
period.
Jim Rouse at Columbia was just getting started, as well as
Bob Simon, R.E. Simon, at Reston. Those were two that were
starting to work in parallel with this program. And with new
communities, the major issue, any large-scale development, is
the infrastructure costs, the front-end loading of debt. The
new Title 7 was to alleviate that problem by providing lower-
cost funds for this front period. And payback on a new
community is something like 15 to 18 years, so it is a very
high risk.
I really had nothing to do with the program for maybe 6 to
8 years of its original inception. When Secretary Lynn became
Secretary of HUD, he wasn't quite sure what to do with this
particular program. There was thought that it was not being
managed properly. He called me in. At that time I had a fairly
substantial background in this project. I had been with the
Irvine Company, which is the largest land development project
in the country. I agreed to come back for a year to look at the
prospects of this program, whether there was any opportunity to
repay the loans that were being made.
The pipeline was basically filled with projects, two in
Rochester, some in Texas between Ft. Worth and Dallas. And
there were maybe 12 projects. And the total commitment was
about $700 million at that time. We are talking about 1972
dollars.
Bill Simon was Secretary of Treasury at that time. Tom
Bomar was head of the Home Loan Bank. Secretary Jim Lynn at
HUD. I brought in Ray Watson, who was the President of the
Irvine Company, and myself. And so, we formed the Board of
Directors. I established the methodology to evaluate the
potential of the taxpayer ever recovering the $700 million,
made the determination that the projects were ill-conceived,
and recommended to Senator Proxmire and to Congressman Ashley
that we terminate the program. And that, in a nutshell, is my
experience with it. I was here 17 months.
Chairman Sarbanes. Columbia and Reston were not part of the
program, were they?
Mr. Trevino. No, no.
Chairman Sarbanes. You were just trying to emulate that if
you could.
Mr. Trevino. Yes, we were trying to solve the front-end
financing for those type of projects. If you follow the large-
scale New Town Program in this country, none of them have
really had financial success. Rouse eventually lost that
project to the banks, as well as Bob Simon. I was instrumental
with GE in placing Appliance Park at Columbia and we purchased
500 acres to try to resolve some of his cashflow problems. That
was my decision, to assist Rouse.
In Texas, the two people were Nasher and Eddie Marcus, who
also had a project. It was called Flower Mountain. So large-
scale, new town development again is very similar to the issue
that was brought forward about building housing. Some of these
decisions are made locally to get zoning, attraction of
industry, job base, many issues.
As with two projects in Rochester, which was losing
population and declining economy, it really did not take much
to make a determination that they would never be able to repay
the debt.
Chairman Sarbanes. The HUD website says that the Office of
Policy Development and Research, ``. . . is committed to
investing in the development of reliable databases describing
housing market conditions and needs, as well as documenting how
HUD programs work, how much they cost, and who they serve.''
Regrettably, we hear from many people, including some
people at HUD, that many of the databases do not contain
reliable information. I would be interested in your comments on
this situation and what might be done to make sure that HUD's
systems contain correct and helpful data on housing programs. I
think this is an important part of the responsibility that you
would have as Assistant Secretary.
Mr. Trevino. There is no doubt that statistical information
is vital in making decisions, just as with new communities. It
is hard to imagine that these new communities were located
without understanding the market forces.
There is the American Housing Survey. Many of the issues
related to that are do you ask the right question? And I think
that is an issue I certainly am familiar with and I cannot
really speak to that subject at this point. But it does not
take a terrible amount of change in order to try to get
statistical information that is more relevant to the needs of
the markets. It is the user of the information that has to make
a determination of what type of information is vital?
Some of these collection mechanisms take decades to
develop. In my opening statement, I mention the fact that a
person does have to take a longer-term view of research and you
cannot just totally respond to putting out fires. You have to
look at it a little bit long term.
Chairman Sarbanes. I take it that you perceive this,
though, as a major challenge that you are going to have to deal
with. Would that be correct?
Mr. Trevino. Oh, yes. There is no doubt that all issues of
strategic planning are a major challenge because what you are
doing is you are weighing between competing funding, competing
decisions as to how you are going to implement. When I was with
General Electric or with Walt Disney, of course these are the
same issues of limited resources and using those resources or
optimizing those resources for whatever you determine is
important--affordable housing, transportation, whatever it
might be.
Chairman Sarbanes. Senator Gramm, do you have anything you
would like to ask?
Senator Gramm. No, Mr. Chairman.
Chairman Sarbanes. We want to thank the panel very much. We
appreciate your testimony.
We will now turn to our next panel, which we announced
earlier: John Reich and Diana Furchtgott-Roth. If they'd come
forward.
[Pause.]
We are going to turn now to the nomination of John Reich,
who has been nominated to be the Vice Chairperson of the Board
of Directors of the Federal Deposit Insurance Corporation. Mr.
Reich is currently serving a term as a Director of the FDIC.
That was reported out by this Committee and confirmed by the
Senate. Prior to becoming an FDIC Director, Mr. Reich had
served on the staff of our colleague, Senator Connie Mack, for
12 years, and had previously worked in the banking industry for
a number of years.
Diana Furchtgott-Roth has been nominated to be a Director
of the Federal Housing Finance Board, which is the board that
regulates the Federal Home Loan Bank System, a system of 12
regional banks created in 1932 by the Congress to ensure the
availability of funds for home mortgage lenders. The banks are
cooperatively owned by their members. I think it now includes
almost 8,000 institutions. And last year, its assets totaled
almost $700 billion. The Housing Finance Board is charged with
overseeing this extensive system. Ms. Furchtgott-Roth has
recently been the Chief of Staff at the Council of Economic
Advisors. Prior to that, she was a resident fellow at the
American Enterprise Institute. And in the first Bush
Administration, served as an Associate Director of the Domestic
Policy Committee.
I ask the nominees to stand so that we can place them under
oath. As I indicated, it is the standard practice of this
Committee.
Do you swear or affirm that the testimony that you are
about to give is the truth, the whole truth, and nothing but
the truth, so help you God?
Ms. Furchtgott-Roth. I do.
Mr. Reich. I do.
Chairman Sarbanes. Do you agree to appear and testify
before any duly-constituted committee of the U.S. Senate.
Mr. Reich. I do.
Ms. Furchtgott-Roth. I do.
Chairman Sarbanes. John, why do not we hear from you first
and then we will turn to Ms. Furchtgott-Roth.
STATEMENT OF JOHN M. REICH, OF VIRGINIA
TO BE VICE CHAIRPERSON OF THE BOARD OF DIRECTORS OF
THE FEDERAL DEPOSIT INSURANCE CORPORATION
Mr. Reich. Thanks very much, Mr. Chairman. I appreciate
your holding this hearing today. I know that time is of the
essence for this body and to a hold a hearing with this many
nominees is something that I am sure that we all appreciate.
Mr. Chairman, Senator Gramm, it is a pleasure to be here today.
I am privileged and honored to be sitting in this spot. And I
am honored by the President's nomination and appreciate very
much also the support of Chairman Don Powell, who has been very
supportive since the nomination.
In the almost 2 years that I have served on the Board of
Directors of the FDIC, we have witnessed some significant
changes in the economy and the banking issues. In fact, Mr.
Chairman, you may recall that I was here last September. It
happened to be on September 11. We had just started the hearing
and were underway only about 5 minutes, when we had to
terminate the hearing because of the events of that day which
triggered some challenges to our country and to our financial
system that no one could have foreseen.
I am proud of my nearly 25 years in the banking business
before I came to Washington, DC, which was about 13 years ago,
to work for my friend, Former Senator Connie Mack, a period of
time which lasted nearly 12 years. The combination of those
experiences, the private sector and here on the Hill have
allowed me to bring a perspective to the Board's deliberations
that recognizes the vital role that banks play in their
communities and that their customers play in the communities
and in the economy of the Nation as a whole. Before my life in
Washington, I was active for many years in a number of
different charitable and nonprofit organizations. And the
cumulative effect, I think, of that nonprofit experience, the
private sector, and the public service since then enables me to
evaluate issues which come before the Board of the FDIC in a
fair and balanced manner which balances the interests of the
banks, their customers, and the deposit insurance funds and the
Nation's economy.
Under the leadership of Chairman Don Powell during the past
year, the FDIC has been at the forefront of many issues facing
the industry. We have brought together leading thinkers on such
key issues as corporate transparency, financial institution
disclosure, risk management, and, of course, our work with
deposit insurance reform. Following up on an initiative that
was begun under Chairman Tanoue, we have launched the financial
literacy effort called Money Smart with the stated goal of
establishing partnerships with 1,000 organizations around the
country and every State in the Union and plan to distribute
100,000 copies of Money Smart in three languages and expose a
million consumers to this financial literacy program over the
next 5 years.
We are also engaged in a major effort to reduce unnecessary
regulatory burden and to tap the tremendous potential of
technology to streamline bank supervision, while not
sacrificing our primary goal of ensuring the safety and
soundness and consumer compliance of the Nation's banking
system. These are just a few of the initiatives that are
underway at the FDIC today.
While the FDIC has been aggressively moving forward on
these developing issues, we have not neglected our primary
mission of protecting depositors in the event of bank failures.
In fact, I believe that the lessons learned in one of those
failures was particularly instructive to me as a new Member of
the Board about this time last year.
Following the resignation of Chairman Tanoue, I was serving
as the Acting Chairman of the FDIC during the failure of
Superior Bank in the Chicago area. It wasn't just the size of
the institution, about a $2.2 billion institution, that was
instructive. As this Committee knows from your oversight, the
failure raised a number of issues, ranging from subprime
lending, to residuals and accounting opinions to regulatory
cooperation and access, to management liability that challenged
the leadership and the staff of the FDIC to modify established
methods of handling bank failures and to create some innovative
new approaches. This experience, along with other experiences
during my almost 2 years on the Board, combined with chairing
the committees of the Board, standing committees, I think
enable me to serve effectively as the Director of the FDIC and
as the Vice Chairperson of the FDIC, if I am confirmed.
The FDIC occupies a unique position in our Government. We
are keenly aware of the importance of our mission of
maintaining the safety and soundness and the trust of the
American people and the Nation's financial system. It is an
organization with a highly capable, professional, and dedicated
staff. I look forward to continuing to work with them in
fulfilling our mission. And with all of the successes, I
believe that there is still an amazing untapped potential of
the FDIC that is just surfacing. I am honored that the
President has nominated me for this position and I again thank
you for having this hearing.
I am happy to address questions.
Chairman Sarbanes. Thank you very much. We appreciate your
statement.
Ms. Furchtgott-Roth.
STATEMENT OF DIANA E. FURCHTGOTT-ROTH, OF MARYLAND
TO BE A DIRECTOR OF THE
FEDERAL HOUSING FINANCE BOARD
Ms. Furchtgott-Roth. Thank you very much, Mr. Chairman,
Senator Gramm, and distinguished Members of the Committee for
the opportunity to appear before you today. I am honored that
President Bush has nominated me to be a Director of the Federal
Housing Finance Board, and I am deeply humbled to appear before
you today at this confirmation hearing. If confirmed, I would
be the first full-time female Director of the Board.
I want to express my appreciation to you, Mr. Chairman, the
Senator from my home State of Maryland. I would also like to
express my appreciation to Senator Gramm for everything that he
has done on my behalf. He'll be sorely missed by his many
friends everywhere.
I would like to take this opportunity to introduce my
husband, Harold, and my six children, Leon, Francesca, Jeremy,
Godfrey, Theodore, and Richard.
Senator Gramm. Let's have them all stand up.
Chairman Sarbanes. Yes.
[Laughter.]
Senator Gramm. Beautiful children.
Chairman Sarbanes. Yes. Very good. We are pleased to have
all of you with us.
Ms. Furchtgott-Roth. I am very happy that they can take
time out of their busy work and school schedules. It was a real
fight to get them out of school today on the Code Blue day.
They almost wouldn't let us take them out. But we managed,
telling them that it was an historic occasion.
I am also profoundly grateful to my parents, Ellen and
Gabriel Roth, for making the difficult decision to come here 35
years ago from England. I remember sailing into New York Harbor
on Labor Day weekend, 1967, and seeing the Statue of Liberty.
To be honest, its symbolism did not mean much to me then as a
child. I was just glad that the 5 days of seasickness were
over. But it became more and more important as I have grown
into adulthood and made the choice to become an American. My
parents' decision gave me the opportunity to work in the White
House under President Reagan, President George H.W. Bush, and
our current President Bush, as well as marrying a wonderful man
and having six children. Nowhere else in the world can
immigrants have such opportunities.
It is extraordinarily hard to do what my parents did, and
pack up all one's possessions and three young children and move
to a new country, a country my mother had not even visited. The
story is that my father called my mother from the United States
and said, ``We have to move here, they even heat the
bathrooms.'' Our home in England had kerosene heaters that my
father would go around filling every night before he went to
bed. There was no heater in our family's only bathroom, as was
common practice in many English homes.
And that brings me to the subject of housing, and the
Federal Housing Finance Board. Many people ask about my
interest in the Federal Housing Finance Board. Housing affects
all of us--all of us need somewhere to live. And many either
own homes, or aspire to do so--it is part of the American
Dream. With such a large purchase, the financing mechanism is
critical.
Our housing and capital markets work so well that many
people assume that there is nothing special about them. But,
internationally, these well-functioning systems are rare. Our
standard fixed 30 year mortgage is not standard in most other
countries, even in the developed world. Generally, people in
other countries are required to put down much larger sums, and
borrow at rates which vary directly with the prime rate of
lending. So when the prime rate goes up, mortgage payments
unpredictably take more money away from groceries and clothing.
And housing can be so scarce that selling a home and moving to
another city becomes practically impossible. If I should have
the honor of being confirmed, I would try to preserve and to
improve the flexible financial systems that America has and
make it possible for more Americans to take advantage of them.
The Federal Housing Finance Board oversees the Federal Home
Loan Bank System, a group of 12 banks which have $700 billion
in assets and approximately 8,000 member banks. The Board makes
sure that the System is on a sound financial footing, an
important task, as can be seen by recent developments in the
corporate and accounting world.
The Federal Home Loan Bank System makes it easier for small
banks to lend money to Americans for mortgages. In the first
days of banking, banks could only lend out what they had on
hand in deposits. Later, they acquired the ability to borrow
from some sources to make loans to others. The 8,000 member
banks can now, through the Federal Home Loan Banks and the
Board's Office of Finance, take advantage of pooling their
requests for funds to achieve lower rates, which get passed on
directly to the consumer.
About 68 percent of American households own homes. But the
rate for minorities is far lower, with fewer than half of
Hispanics and African-American households owning homes.
President Bush and the Federal Housing Finance Board are trying
to raise these levels. The Board's Affordable Housing Program
helps improve homeownership among these groups, a vital social
goal. Recently, the Board expanded the amount of affordable
housing program funds that Federal Home Loan Banks can
contribute toward downpayment assistance programs for first-
time homebuyers, one of the most important steps in purchasing
a home.
Chairman Sarbanes and Members of the Committee, I am
honored to appear before you today. If confirmed, I promise to
work closely with this Committee and Congress to ensure the
safety and soundness of the Federal Home Loan Bank System and
fulfillment of the System's affordable housing goals. I look
forward to answering any questions that you might have.
Chairman Sarbanes. Thank you all very much.
Mr. Reich, let me ask you a couple of questions. When we
did the hearing on the failure of Superior Bank, we had that
issue about the OTS that refused the FDIC's request to
participate in its examination of Superior. But I understand
that they then entered into an agreement to allow the FDIC to
participate in the other regulators' bank examinations. First,
is this correct? And, is the agreement holding in terms of your
practice now?
Mr. Reich. It is correct, Mr. Chairman. Not too long
thereafter, after a good bit of staff work by the senior staffs
of the regulatory agencies, the OTS, the OCC, the FDIC, and the
Fed, we did complete a memorandum of understanding for back-up
authority. That has been in existence now for probably most of
this year. It is working very well.
I want to emphasize that the relationship that currently
exists between the Chairman and directors of the regulatory
agencies is, I think, excellent today. There have been a number
of instances where those agencies have invited us in to
participate in examination on an unsolicited, unasked basis.
So, we could not be more pleased today at the FDIC with the
interagency cooperation and the way that the other agencies are
welcoming the FDIC into examinations of three-, four-, and
five-rated institutions, or any kinds of situations where they
feel that there may be special interest to us.
Chairman Sarbanes. Well, I am encouraged to hear that.
After the failure of Keystone, there was an effort by the
Federal bank regulators to propose stricter capital rules to
limit the concentration of residuals in banks. The bank failed
in September 1999. The comment period closed on December 26,
2000. When we had our first hearing on October 16, 2001, there
was still no final rule.
You spoke at that hearing about the importance of updating
the capital rules and indicated that you would make every
effort to get that done. And at the end of November, the
Federal regulators jointly announced the publication of a final
rule.
I know that you were instrumental in that process and I
just wanted to express my appreciation to you here for doing
that. Do you have any sense of why it took so long to bring
that to fruition?
Mr. Reich. It was a combination of the complexity of the
issues, the number of agencies that were involved in trying to
come to terms with what the capital requirements should be and
those kinds of situations. But I will say that in the past year
or so, and I want to compliment Chairman Don Powell of the FDIC
who is the Chairman of the FFIEC, there is at our agency
certainly, and I think on the staff of the FFIEC, a heightened
sense of urgency. Long timelines within our organization are no
longer acceptable. And that heightened sense of urgency has
yielded benefits in a number of different areas.
I would also add that greater participation by the
principals, greater involvement by the principals in addition
to the staff has produced positive results in making things
happen in a shorter
period of time.
Chairman Sarbanes. Ms. Furchtgott-Roth, do you think it
would be appropriate for you to be highlighted in an invitation
to a political fundraiser as a special guest, being a Member of
the Board of the Federal Housing Finance Board, when the
invitations to that political fundraiser were going to the
institutions for which you are the regulator?
Ms. Furchtgott-Roth. I understand that according to the
ethics regulations, Members of the Board of Directors of the
Housing Finance Board are allowed to participate in political
events as long as their title is not used, as long as it is
just their name that is used. And it is common practice among
many people in the Administration to participate in such
events.
Chairman Sarbanes. Regulators to do so?
Ms. Furchtgott-Roth. Yes, it is common practice.
Chairman Sarbanes. You do not see a problem? You would be
happy with that practice? Would you do it yourself? Would you
be bothered by being featured as a special guest at a political
fundraiser, and then have the invitations for that fundraiser
go to the heads of the institutions that you are charged with
regulating?
Ms. Furchtgott-Roth. I would make sure that I complied with
all ethics laws----
Chairman Sarbanes. No, no, no. That does not get me to
where I want to go. Do you have any problem with that?
Ms. Furchtgott-Roth. As long as I complied with all the
ethics laws, then, and the invitations were sent to a large
enough group of people, then I wouldn't have a problem. Of
course, just sending it to, say, the 12 bank presidents I would
regulate, I would think would pose a problem. If, on the other
hand, there were thousands and thousands of invitations sent
out, and some of them happened to reach the bank presidents,
there is no problem with that under the ethics regulations.
Chairman Sarbanes. Well, now, you are a regulator. What is
your view of how you should be used for political fundraising?
Should you be used at all?
Ms. Furchtgott-Roth. I think that there are many people in
Washington who are in the position of regulating. Political
appointees are not covered by the Hatch Act. Those covered by
the Hatch Act are not permitted any political activity. But
Presidential appointees are not covered by the Hatch Act. And
therefore, they are permitted participation, as long as their
title is not used, as long as just their name is used.
Chairman Sarbanes. Do you remember Eugene Ludwig, who was a
Comptroller of the Currency?
Ms. Furchtgott-Roth. I do, yes.
Chairman Sarbanes. He went to a coffee at the White House
at which members of the banking industry were present. Do you
remember that?
Ms. Furchtgott-Roth. I do not recall that he went to a
coffee at the White House. But I have met Mr. Ludwig and he is
an extremely intelligent person, very well informed.
Chairman Sarbanes. And he was sharply criticized for that
because it was felt, as a regulator, he ought not to be
participating in something that arguably, was a political
fundraiser, although it was not a charged event. People were
not paying for a ticket. It was just, I guess, laying the
ground work. But he was sharply criticized for that.
I am trying to get at what your own sensibilities are on
this important issue.
Ms. Furchtgott-Roth. Well, having just finished being Chief
Ethics Officer at the Council of Economic Advisors, I am
familiar with a lot of these ethics rules, and there are also
many of these ethics rules, so much so that each agency needs
not only a chief ethics officer, but many other attorneys, to
make sure that these laws are complied with. And the Office of
Government Ethics has regular seminars on different aspects of
the laws and there are ethics officers at each agency.
If I were put in a situation, I would go to the ethics
office at the Federal Housing Finance Board and say, does this
comply with the ethics regulations?
Chairman Sarbanes. Suppose I came to you and said, I am
going to hold a political fundraiser and I am going to invite
the heads of the regional home loan banks and their other
principal officers to my political fundraiser. And I want to
send out this invitation for this political fundraiser and I am
going to say in the invitation that you are going to be a
featured guest at my political fundraiser. What would you say
to me?
Ms. Furchtgott-Roth. The first thing I would do is I would
go to the ethics officer and see if it were legal. If it were
legal, then, Chairman Sarbanes, I would say that I would be
happy to appear at your fundraiser, as long as it were legal
according to----
Chairman Sarbanes. Well, I would be unhappy about that. And
it seems to me that what you should say to me is I do not think
I should do that. I do not think as a regulator of these banks,
that I should come to your political fundraiser. Clearly, the
appearance of that is not good. Would you agree with that?
Ms. Furchtgott-Roth. It depends on how many other people
are invited. Usually, there are thousands and thousands of
people invited to these fundraisers. People get invitations all
the time.
Chairman Sarbanes. Do you anticipate going around town
appearing at political fundraisers?
Ms. Furchtgott-Roth. I have never been to one before and I
have never had my name listed on one before.
Chairman Sarbanes. Would you commit now not to go to one as
a regulator, that you would regard it as contrary to
maintaining an appearance of impartiality?
Ms. Furchtgott-Roth. I commit myself to always abiding by
the ethics laws we have. I mean, there might be circumstances.
For example, if you, Chairman Sarbanes, wanted me to come to
one of your fundraisers and you thought it would be helpful
that I come. And I was not listed as Federal Housing Finance
Board. Then, absolutely, I would come.
Chairman Sarbanes. I hope that I would have the good sense
never to invite you and place you in that position. And were I
ever to fall off that standard, I would hope that you would
have the good sense to turn me down.
Senator Gramm.
Senator Gramm. Let me go to this issue.
It seems to me that in terms of your rights as a citizen to
attend a fundraiser, I hope that you would not go to Senator
Sarbanes' fundraiser.
[Laughter.]
I would hope that you would come to my fundraiser.
But I think there is a distinction you should draw, and let
me try to draw it for you. I think in terms of your ability to
be an active political citizen, as a Presidential appointee,
you have every right to do that.
I do believe that when you are regulating people and your
decisions mean potentially millions of dollars to them, that
you have to be very sensitive that no one ever believes that
your good offices or your judgment could be for sale. I think
that is what Senator Sarbanes is saying.
For example, if I had a fundraiser and the Comptroller of
the Currency, who is now a Democrat, came to my fundraiser, I
think that would be fine. On the other hand, if I invited him
as a special guest and then I invited bankers from around the
country who sort of would be coming to visit with him as a
special guest, I think that would cross over the line.
And I think that you are going into a totally different
situation than you have ever been in before, and I know your
sensitivity to wanting to protect your full rights as a citizen
because you have political views and you want to support people
you support. But when you are a regulator, there is a line that
you cannot cross and you have to ask yourself, is my name being
used as an attraction to people who might believe that by
coming and contributing, they might influence my decisions? And
if you conclude that is the case, whatever the ethics rules
say, then I would think it was not a very good idea.
Ms. Furchtgott-Roth. The appearance of impropriety or of
propriety is extremely important, especially in this town, as
you mentioned in your earlier remarks.
Chairman Sarbanes. Does that mean that you agree with
Senator Gramm's analysis or that you are still holding to the
position that you would refer it to the ethics officer and
whatever they, in effect, told you was what you would do?
Ms. Furchtgott-Roth. Well, the first thing I would do in
any case is refer something to the ethics office. I mean, in
any case, they know the ins and outs of these kinds of things.
Chairman Sarbanes. You could have a standard higher than--
--
Ms. Furchtgott-Roth. If it were targeted specially at bank
regulators, then that is one thing and I would not be a special
guest at that event. But I think the fundraiser to which you
are referring, if there were thousands and thousands of
invitations sent out and it wasn't targeted at the banking
sector--it is difficult to work out beforehand who these
invitations go to because there are so many mailing lists that
it would be possible that it would get to someone in the
banking sector.
Chairman Sarbanes. But let us assume that hundreds were
sent out, but encompassed within the hundreds were banking
institutions for whom you were the regulator and you were being
featured as the special guest at the fundraiser.
Ms. Furchtgott-Roth. I think if it were targeted at a
sector I was regulating, I would not participate. If it were a
general type of fundraiser, then----
Chairman Sarbanes. Well, by participating, we are not
talking about showing up at the fundraiser. We are talking
about headlined as a special guest at the fundraiser.
Ms. Furchtgott-Roth. Right.
Chairman Sarbanes. So this invitation goes out and it says,
come to my fundraiser. My special guest is Ms. Furchtgott-Roth.
Now it may or may not say that you are on the finance board,
but that is at least for people in the know, that is known. And
amongst the invitation list are going to be, although it may be
broader than that, will be people that are in the industry that
you are regulating. Would you allow yourself to be listed as a
special guest on an invitation of that sort?
Ms. Furchtgott-Roth. It depends on how broad the mailing
list was. If it were a very large mailing list, I would. If it
were a small group, I would not.
Senator Gramm. I think we are probably drawing a
distinction here that does not exist. If you recieved an
invitation and it is has your name on it, that is your name.
You are the special guest. And your name is unusual, but not a
household word.
Ms. Furchtgott-Roth. Right.
Senator Gramm. And people are being invited to come with
you as a special guest, and you have reason to believe that
among those who would be invited are people that you would
regulate. It seems to me that that is very different than, say,
your neighbor hosting a fundraiser--do you live in Virginia or
Maryland?
Ms. Furchtgott-Roth. Maryland.
Senator Gramm. Your neighbor is hosting a fundraiser for
Ellen Saurbrey. And so people in the community send out
invitations to people who live in that community and you list
the neighbors' names on it. Perfectly legit, it seems to me.
But when you are singled out as the honored guest and you know
it is going to people that you are regulating, it seems to me
that that is bad policy, and it something that you ought not to
do.
Ms. Furchtgott-Roth. Right. If I knew it was going to
people I was regulating, then I would avoid it. But sometimes
when one does not know who is in all these lists, you say, yes,
fine, I will be a special guest at your fundraiser, and then it
goes out to standard lists, and you just do not know who is on
it.
Chairman Sarbanes. Yes, but that is all the more reason not
to allow yourself to be used as a special guest. You are moving
now into a position in which you have regulatory authority over
significant financial institutions. So, you will be in a
position to make decisions that have potentially wide economic
repercussions for these institutions and for the officers of
these institutions. Now it seems to me you have to start
thinking in a very different way because just the appearance of
being able to influence a regulator's judgment in that
political context is a serious matter.
Ms. Furchtgott-Roth. Mr. Chairman, I have never been listed
on any fundraiser as a special guest or anything else. But, as
you say, I am moving into a different area. One does see many
cabinet secretaries featured as special guests at fundraisers
and many of the people invited undoubtedly have ties to some of
those areas.
Chairman Sarbanes. Well, do you think your role as a
regulator and the responsibilities that flow with that are the
equivalent to the role of a cabinet secretary?
Ms. Furchtgott-Roth. Absolutely not. They both regulate
different types of areas. A cabinet secretary has far more
power and is far broader. Cabinet secretaries have regulatory
powers over vast areas. This is just a very small agency.
Chairman Sarbanes. No, no, no. My understanding is that the
Secretary of the Treasury has to stay removed from the OCC in
terms of regulatory decisions which the Comptroller of the
Currency makes, and that arena is protected from what would
otherwise be perceived as political interference, or an effort
to influence the decisionmaking through political
contributions.
Senator Gramm. Mr. Chairman, let me suggest this. We have a
nominee before us who, by her own admission, has never been a
guest at a fundraiser. I would like to suggest that you----
Ms. Furchtgott-Roth. I have never been listed on the
program at any of these fundraisers.
Senator Gramm. Yes. What I would suggest is that you go
back and think about this, trying to separate yourself as a
citizen and your position as a regulator. This is a small
agency, but they have $700 billion.
Ms. Furchtgott-Roth. Right.
Senator Gramm. Seven hundred billion dollars. That is a lot
of money. And I do believe that, as a regulator, you have a
different set of standards and you have to apply what we would
call in the country a smell test. Does this look right? Does
this smell right? And again, I think you have to differentiate
between yourself as a citizen, where you and your neighbors are
supporting anybody. And I have a feeling that you would be
supporting the right people, so I do not want you to get out of
politics, and there is no reason you should. But I do believe
that when you are regulating a certain industry, you have to be
very careful about any appearance that somehow, through that
fundraiser, that you might be influenced. The fact that you are
not going to be influenced anyway does not change the fact that
there might be a perception.
So, I would like to propose, Mr. Chairman, that we just
simply have the candidate go back and think about this special
case and send a letter to the Chairman and to me basically
stating your conclusion and what kind of commitment you would
make about it,
because I think what has happened here is, as a person who is a
naturalized citizen and very much committed to being a full
citizen, this is a special circumstance and it is one I think
you need to think about. I think if you could put something
into writing on it, having thought about it, I think it would
be useful to us.
Ms. Furchtgott-Roth. Okay. I will do that, yes.
Senator Gramm. I just want to make a point. The Federal
Home Loan Bank Board has been an entity that has worried me. We
had a fellow named Bruce Morrison, and he was the Chairman. I
guess he was the Chairman of the Board that you will be on. Is
that right?
Ms. Furchtgott-Roth. That is correct, yes.
Senator Gramm. I was concerned about him to begin with
because I thought he was too political. But he had done
something very mean to me when I was in the House and I felt if
I blocked his nomination, that I would look petty. And so, I
let him go. But what happened very quickly thereafter was that,
in my mind, just crazy things started happening at the Federal
Home Loan Bank Board. Salaries were exploding. And look, I
believe in competitive pay. I understand it is hard to get good
people. Senator Sarbanes and I are doing this for the glory.
[Laughter.]
I understand it is hard to get good people, but at least my
feeling at the end of the last Congress as this was coming to a
conclusion was that this was an agency completely out of
control.
And so, I would like to ask you, if you are confirmed into
this position, to take a hard, long look at the Federal Home
Loan Bank Board, at these salary structures, at the whole
question of paying directors, because I believe that you are
not coming into what I would perceive to be a position where
things are in a position that that would be considered the
norm. I believe that this was almost a runaway agency 2 years
ago. Now, I do not know what has happened in the interim of 2
years.
Ms. Furchtgott-Roth. The person who made the highest salary
in the Federal Government, James Bothwell, $240,000 a year, has
just been let go. They had a number of RIF's at the agency,
letting go some of these high-paid people and hiring more bank
supervisors, more examiners, because they only had eight
examiners and there were 12 Federal Home Loan Banks, and they
need a lot more examiners.
Senator Gramm. Well, I do not know what the magic number
is, I am just urging you to take a long, hard look at it.
Ms. Furchtgott-Roth. Right.
Senator Gramm. Again, I would rather have one good person
than 100 bad ones. I do not object to paying people competitive
salaries, but I just had the impression 2 years ago that this
was a runaway operation. I would like to ask you to take a very
close look at it.
Ms. Furchtgott-Roth. Yes, I certainly would if I had the
honor of being confirmed.
Senator Gramm. Thank you, Mr. Chairman.
Chairman Sarbanes. I gather that some of the bank
presidents are making between $500,000 to $800,000 a year. Is
that right?
Ms. Furchtgott-Roth. That is correct, yes. They are private
entities, though, rather than governmental. They are not
Federal Government employees. They are private entities.
Senator Gramm. Why do they call it Federal Home Loan Bank
Board?
Chairman Sarbanes. It is a private entity, but only within
the Home Loan Bank System.
I think there are some important questions about this
System and we would intend to get the Chairman in to answer.
Actually, many of the questions we were earlier directing to
you need to be directed to him since I was putting to you a
hypothetical, but we have a real-life situation with him.
But I do not know what is going on. I am told that the bulk
of the Federal Home Loan Bank advances go to a small number of
very large members. According to the Board's own data, 30
percent of the total advances of the System go to just 10
institutions. In some home loan bank regions, the concentration
is even higher. For example, over 80 percent of the advances
from the San Francisco bank go to only five institutions.
Should the Federal Home Loan Banks be primarily devoted to
providing low-cost funding to such large institutions? They
have direct access. Maybe they should graduate from the System.
What is the rationale of providing these, in effect, subsidized
advances from the Home Loan Bank in such a highly concentrated
form? Do you have a view on that?
Ms. Furchtgott-Roth. Yes. It does not really make sense
when you look at it; but in practice, the way it works is that
banks are allowed to borrow as much as they want up to the
level of their collateral. There is no cap placed on how much
they can borrow. That is why one gets large institutions
borrowing so much more than small institutions.
If a small institution had more collateral and wanted to
borrow more, that institution could. It is not as though the
banks, the large banks, are driving out the small banks in
terms of lending because there is no cap on lending in the
whole system. As long as there is the collateral, a Federal
Home Loan Bank can borrow as much as it wants and a member bank
can borrow as much as it wants. That is why you get this
situation with these large banks wanting to borrow more than
the small ones. In fact, there were more small institutions let
in under that magnificent piece of legislation: The Gramm-
Leach-Bliley Act allowed more small community banks to become
members of the Federal Home Loan Bank without having the 10
percent of their assets in housing.
So one can see that these very small institutions have less
of a demand for funds. They do not want to make such big loans
as the large ones. That is why one gets to that situation. But
there isn't any limit on the borrowing, so the banks can borrow
as much as they want.
Chairman Sarbanes. I thought the Home Loan Banks were
lending significant amounts without collateral in the form of
unsecured loans, often through the overnight market.
Ms. Furchtgott-Roth. The 12 Federal Home Loan Banks have
recently completed new capital requirements as mandated under
Gramm-Leach-Bliley, and that process is finished. It just
finished last August with the Federal Home Loan Bank of New
York. They all meet the capital standards set out under the
law.
Chairman Sarbanes. I thank the panel. Actually, there is a
vote on. We will have to defer beginning the next panel until
after the vote. We will go and vote, I am not sure whether
Senator Gramm can return. I will return in order to conclude
the other two nominees. I thank the two nominees for coming
before the Committee.
Mr. Reich. Thank you, Mr. Chairman.
Chairman Sarbanes. The hearing stands in recess and upon
our return, we will go to the third and final panel.
[Recess.]
Chairman Sarbanes. We will now turn to our third panel. I
apologize to our nominees, but we have no control over these
votes, as you can appreciate it. We have two nominees to be
Directors of the Securities Investor Protection Corporation:
Deborah Doyle McWhinney and Armando J. Bucelo. Did I pronounce
it right, sir?
Mr. Bucelo. Yes, you did, Mr Chairman.
Chairman Sarbanes. Okay. Before I take your statements, I
have to swear you in, as is our practice.
Do you swear or affirm that the testimony that you are
about to give is the truth, the whole truth, and nothing but
the truth, so help you God?
Mr. Bucelo. I do.
Ms. McWhinney. I do.
Chairman Sarbanes. Do you agree to appear and testify
before any duly-constituted committee of the U.S. Senate?
Ms. McWhinney. I do.
Mr. Bucelo. I do.
Chairman Sarbanes. Please take a seat.
Mr. Bucelo. Thank you.
Chairman Sarbanes. Ms. McWhinney, why don't we hear from
you first, and then we will go to Mr. Bucelo.
STATEMENT OF DEBORAH DOYLE McWHINNEY
OF CALIFORNIA, TO BE A DIRECTOR OF THE
SECURITIES INVESTOR PROTECTION CORPORATION
Ms. McWhinney. Mr. Chairman, thank you. Good late
afternoon.
Chairman Sarbanes. Everyone's gone, yes.
[Laughter.]
Ms. McWhinney. I am President of Schwab Institutional, an
arm of the Charles Schwab Corporation that provides services to
investors through commission-based independent investment
advisors. But beyond my position at Schwab, I am the very proud
mother of Megan and Aidan, two wonderful teenagers who could
not join me today because of their studies.
Both of my girls are studying U.S. Government now and I
just cannot wait to get home today and tell them about this
experience. But I particularly want to thank you for exhibiting
the kind of attention and diligence in the questioning I have
seen here this afternoon that will make them proud to be U.S.
citizens. And I mean that in all sincerity. But be nicer to me,
please.
[Laughter.]
Chairman Sarbanes. I thought we asked a very simple
question. We just had trouble getting an answer.
[Laughter.]
Ms. McWhinney. I am not a regulator.
[Laughter.]
Schwab was founded more than 30 years ago on the principle
of helping individuals to become educated, informed, and
sensible investors--and our company remains focused on the
individual investor today. I am honored to have been nominated
by President Bush as a Director of the Securities Investor
Protection Corporation, where I am looking forward to
continuing that focus on the individual investor.
We are all painfully aware of the economic slowdown and
stock market fall-off of the last 2 years. The Dow Jones
Industrial Average is off more than 34 percent from its January
2000 high, and Nasdaq is down a more startling 77 percent.
Millions of individual investors have lost countless trillions
of dollars of wealth. For many Americans, those investments
constitute the bulk of their retirement savings, the money they
were hoping to use to buy a first home or send their kids to
college--in sum, their most cherished financial hopes and
dreams.
That is why I believe there are few more important
organizations than the Securities Investor Protection
Corporation. SIPC has a narrow but extremely important role:
Whenever a brokerage firm fails or goes bankrupt, SIPC steps in
to return the money investors had with that firm as quickly and
as painlessly as possible. No waiting for years of drawn-out
court cases and bankruptcy hearings. SIPC gets the cash or
securities that the individual investor had with the failed
firm and returns it to that investor, so that he or she can
move that money to a more reliable company.
I wish that there was not a need for an organization like
SIPC. But there is a very real need, and today that need is
stronger than it has been in decades. Investors have a lot to
worry about, with the accounting and ethics of some of the
country's most respected companies now being questioned, the
economy in a prolonged downturn, and the stock market
retreating to levels not seen in several years. Investors
should not have to worry about what happens if their brokerage
firm goes under. With SIPC, they do not have to. More than 99
percent of eligible investors get their money back with the
SIPC's help. In the past 30 years, more than 600,000 investors
have recovered nearly $14 billion in assets with the SIPC's
help.
If I am confirmed as a Director of SIPC, I promise the
Members of this Committee and the millions of individual
investors around the country that I will bring the vigilance
and dedication that the role deserves. Individual investors are
comfortable knowing that SIPC is behind them if anything should
happen, and I will work hard to maintain and strengthen that
confidence. In this era of
uncertainty about the stock market, SIPC directors should bring
nothing less than their full attention to their task. If I am
confirmed, I promise to do so in the tradition of the many
directors before me who have helped maintain a solid foundation
beneath the strongest capital markets in the world.
Thank you very much. I will be happy to answer questions.
Chairman Sarbanes. Thank you very much. We appreciate your
statement.
Mr. Bucelo.
STATEMENT OF ARMANDO J. BUCELO, JR., OF FLORIDA
TO BE A DIRECTOR OF THE
SECURITIES INVESTOR PROTECTION CORPORATION
Mr. Bucelo. Mr. Chairman, I am honored to appear before you
as President Bush's nominee to serve on the Board of Directors
of the Securities Investor Protection Corporation, better known
to all of us as SIPC. I am deeply grateful to President Bush
for awarding me the privilege of this nomination. It is now my
pleasure to introduce my wonderful wife, Beatriz, companion and
best friend for over 20 years, and my son, Alexander, a 9 year
old baseball star who indeed will play with the New York
Yankees one day, and upon his retirement from baseball, hopes
to be President. I have also been blessed with two other
children, Alexis Marie, a 17 year old National Honor Society
student ranked in the top percentile of her class, and blessed
with the gift of pen and speech. And last, but not least, my 15
year old son, Armando Joseph, who is taller than I am and is
considered an excellent swimmer and water polo player, and who,
along with Alexis and myself, is a black belt first degree in
karate. Mr. Chairman, and Members of the Committee, I thank God
every day for my family.
I am a proud Cuban-born American citizen. I arriving in
this great country of ours over 40 years ago, with my parents
looking for freedom and opportunity for my sister and I.
Because of my father, Dr. Bucelo, and my mother Carmen, 83 and
74 years young respectively, I am what I am today. We are
forever thankful and appreciative of the opportunities given to
us by the United States of America.
I have been an attorney for the past 23 years, specializing
primarily in real estate, corporate, and banking. As a result
of my professional endeavors, I have been exposed to a myriad
of career opportunities dealing in said fields. I had the
opportunity to serve as a Director of Freddie Mac--Federal Home
Loan Mortgage Association--during President George Bush's
Administration. During my tenure at Freddie Mac, I was able to
cooperate in the efforts to lead such a powerful and gigantic
institution into its preparations for the 21st century. I also
had the pleasure to serve as Cuban American National Chairman
of the National Republican Senatorial Committee, where I
attempted to establish a substantial dialogue, as well as a
strong working relationship between Cuban Americans in this
country and Members of the Senate. Among other activities, I am
currently a Director of the National Housing and Development
Corporation, created in 1997, to help preserve more of the
Nation's at-risk affordable housing stock. Its principal
purpose is to improve the quality of life of all of our
national residents, making clean, safe, and attractive, family
housing, as well as affordable rents its foundation. Finally, I
serve as the Trustee of Miami-Dade Community College, the
largest community college in the Nation, and from which I am a
proud graduate.
As we all know, SIPC was created by the Securities
Investors Protection Act of 1970, to provide certain
protections against losses to customers from the failure of
securities firms.
If honored by confirmation by the U.S. Senate, I vow to be
a strong advocate for fairness and common sense. As a newcomer
to the world of SIPC, I will promptly learn all I need to in
order to work closely with this Committee, the Senate, and
Members of the House of Representatives. I may not know the
answers to may questions today, but I give you my word I do
anticipate and welcome the charge for which I have been
selected with both eagerness and humility. Mr. Chairman, I
thank you for the opportunity you have given me to speak before
you. I, along with the rest of this country, admire the work
all of you are doing on our behalf, and I personally want to
congratulate you for guiding us through these difficult times.
Thank you, and I will be more than happy to answer any of
your questions, sir.
Chairman Sarbanes. Thank you very much, sir.
The first question I want to put to both of you is,
presumably, and I think you made reference to it, Ms.
McWhinney, in your questionnaire. But you both, I assume, have
had discussions with SIPC on how to handle any possible
conflict of interest because these are part-time appointments
and you will each continue in your current employment, as I
understand it.
Mr. Bucelo. That is correct.
Ms. McWhinney. That is correct.
Chairman Sarbanes. Have you had such discussions to work
out the arrangements for recusals and so forth?
Ms. McWhinney. I have been covered both by the Office of
Government Ethics, and then I also had a conversation with
Michael Dunn about that, and should anything come up with
Schwab or any of its subsidiaries, I would recuse myself.
Chairman Sarbanes. Have you worked out a written protocol,
or was that an oral protocol?
Ms. McWhinney. It was a written protocol with Government
Ethics that I signed, I believe in December of last year, when
the process started.
Chairman Sarbanes. All right. Good.
Ms. McWhinney. I have been in positions when I was in
banking where I have had to do that before. So, I have some
experience when I have to draw the line.
Chairman Sarbanes. Okay. Good.
Mr. Bucelo. Same case here, Mr. Chairman. I was with
Freddie Mac for a number of years. I have not been fully
briefed by SIPC. I have not met with them, but I have carried
many conversations with its president. And by all means, I am
aware of the conse-
quences and I intend to fully abide by them.
Chairman Sarbanes. It is interesting, these organizations,
people get nominated by the President, and we are happy to
consider them, but you would think that the agency to which
they were going would--this is not directed to you, it is
directed to them--would invest some time and effort in
preparing their prospective directors for the hearings before
the Senate. You can go back and tell SIPC I said that.
Ms. McWhinney. Actually, with all due respect, Mr. Dunn has
spent quite a bit of time with me.
Chairman Sarbanes. Okay.
Ms. McWhinney. This began over a year ago and several times
I have talked to him about it, even before I came to meet with
Presidential staffing last summer. Their website is actually
pretty good and has a lot of information on it that you can
garner. Then I spent this morning with them going over a lot
more in depth.
Chairman Sarbanes. I am pleased to hear that.
Mr. Bucelo. I could not meet with him, but he has always
been available, Mr. Chairman.
Chairman Sarbanes. Okay.
Mr. Bucelo. And every time I have needed something, he has
been there to respond.
Chairman Sarbanes. Now, Mr. Bucelo, I was just kind of
curious. How large is your law office?
Mr. Bucelo. You are looking at it.
Chairman Sarbanes. Okay.
[Laughter.]
So, you are a sole practitioner.
Mr. Bucelo. Yes, sir, I am.
Chairman Sarbanes. That is a tough road to hoe, isn't it?
Mr. Bucelo. Especially when my partner and boss is sitting
right behind me.
[Laughter.]
She is my top paralegal. We do primarily corporate banking
and real estate. And by that I mean we represent loan closings.
We have a title company called Metro-Dade Title. So whenever
John and Mary go borrow money, they go to a bank, process the
loan, I do the title work.
Chairman Sarbanes. Okay. How old were you when you came to
the United States?
Mr. Bucelo. I was very young, 5, 6 years old.
Chairman Sarbanes. So, you did all of your schooling, then,
down in Florida.
Mr. Bucelo. Yes, sir, I did. My father was an attorney--
is--he is very much alive, an attorney and judge in Cuba. We
came over here. As a matter of fact, he had just finished a
serious bout with hepatitis. He almost died. We came here. He
began working. My mother did the same. Went to school, went to
Miami-Dade Community College. Ironically enough, that is where
I sit now as trustee. That is at the top of the heap. That is
the institution that gave me the opportunity to continue. Then
I went to the University of Miami undergraduate and law school.
Chairman Sarbanes. Was your father able to----
Mr. Bucelo. No, he never did because of the language
barrier. He is retired. He was a realtor for many years.
Chairman Sarbanes. In May 2001, the General Accounting
Office issued a report called Securities Investor Protection--
Steps Needed to Better Disclose SIPC Policies to Investors.
They made a number of recommendations there. They wanted
greater transparency from SIPC and more information provided to
the investors. Are either of you familiar with that report?
Mr. Bucelo. Yes, sir, I am.
Ms. McWhinney. Yes.
Mr. Bucelo. I briefly reviewed it.
Chairman Sarbanes. Well, I commend it to you. We think it
made a number of worthwhile proposals.
I know SIPC recently instituted new informational programs
for the benefit of investors, and I would appreciate it if you
all would look at the report and its recommendations and its
workings.
Obviously, at this particular time, we have to do
everything we can to try to restore and bolster investor
confidence. And SIPC is part of that. I mean, it is not right
in the center of it, but it is part of that total picture.
We passed the legislation here for making accountants
accountable and corporate governance. But we need to strengthen
all of the institutions that deal with it, and SIPC is one of
them. So, I think you would be assuming your responsibilities
at a particularly important time. And we do have this pretty
recent GAO study which gives us some ideas.
SIPC--how often will you all be meeting?
Mr. Bucelo. Four or five times a year.
Chairman Sarbanes. For a couple of days each time? How does
that work?
Mr. Bucelo. Pretty much.
Chairman Sarbanes. There is a question about the adequacy
of the SIPC fund reserve. In fact, I understand that SIPC has
commissioned a study to analyze the adequacy of the current
level of its reserves, which are $1.2 billion, but they hold
about $3 trillion of investor securities. Of course, that is a
very wide gap there. It is important to monitor the adequacy of
the SIPC fund reserves in light of contemporary market
conditions and I would commend that to you as well.
Questions have been raised about the responsiveness and
cost of the trustees who are hired by SIPC to handle investor
claims from failed broker-dealers. One article stated, ``Their
critics say that trustees wanting repeat business from the
corporation have an incentive to minimize pay-outs to
investors.'' The New York Times had an article entitled: ``Many
Holes Weaken Safety Net For Victims Of Failed Brokerages.''
If confirmed, would you, oversee this process to assure
both that trustees honor appropriate investor claims without
undue burdens? And that the costs of administering the claims
program are appropriate for the work performed and for the
benefits received by the investors?
Ms. McWhinney. Definitely.
Mr. Bucelo. Yes, sir.
Chairman Sarbanes. You are in a very key position. Arthur
Levitt, as I have heard him speak on more than one occasion,
that you have this huge population of investors and, yet, they
are the least, as it were, well organized to protect their
interests. We set up these various institutions to try to do
that. Of course, you do not get into the act until someone
elsewhere has defaulted on their responsibility and then you
end up trying to help ameliorate the situation. But that is a
very important role and it is part of the system that we have
structured now to try to make people feel more confident.
The broker-dealers are controlled by the market officials
and they are tightening up their whole approach. But this is an
important responsibility that you are taking on, and we wish
you well in it. And we appreciate your coming. I have no
further questions.
I know you have to catch a plane sometime soon, and I want
to make sure that you do that.
Mr. Bucelo. Thank you, Mr. Chairman.
Ms. McWhinney. Thank you.
Chairman Sarbanes. Thank you all very much.
The hearing stands adjourned.
[Whereupon, at 5:15 p.m., the hearing was adjourned.]
[Prepared statements, biographical sketches of the
nominees, and additional material supplied for the record
follow:]
PREPARED STATEMENT OF SENATOR WAYNE ALLARD
Mr. Chairman, today we have an impressive line-up of nominees for a
number of different positions and agencies. I appreciate your
commitment to promptly confirming nominees. With the Nation at war the
President needs a strong team in place.
In particular, I am interested in our two HUD nominees. Through my
work on the Housing Subcommittee I have seen how important it is to
have top level appointments at the Department of Housing and Urban
Development. It is my hope that we can get these officials confirmed
quickly.
For the benefit of all the nominees, let me raise a point I
consider very important--we need results-based management. In
particular, I would ask all the nominees to study carefully the
Government Performance and Results Act and apply it to their
decisionmaking process.
Finally, I would urge you to communicate regularly with Congress
and keep us informed of your work. We all have a common goal of wanting
to provide effective and efficient service for American taxpayers, and
good communication will help us both. I look forward to working closely
with each of the nominees.
----------
PREPARED STATEMENT OF ALBERTO F. TREVINO
Assistant Secretary-Designate
U.S. Department of Housing and Urban Development
October 3, 2002
Chairman Sarbanes and Members of the Committee, it is an honor and
privilege to appear before you as President Bush's nominee for
Assistant Secretary for Policy Development and Research at the
Department of Housing and Urban Development.
I am looking forward to the prospect of leading HUD's Office of
Policy Development and Research to develop creative, well-structured
solutions to the housing and the community development problems facing
the Nation. If confirmed, I intend to implement a long-term strategic
approach to problem solving that uses research and analysis to gain a
comprehensive understanding of the problems confronting our cities and
rural communities. This understanding will provide a strong foundation
for innovative, long-term solutions.
While I recognize the need to apply creative problem solving to the
immediate issues facing the Nation, I believe it is equally important
to anticipate issues the country will face in the coming decades. This
will enable PD&R to develop productive policy options addressing
emerging issues.
Another very important responsibility of the Office of Policy
Development and Research is to conduct evaluations of HUD's programs
ensuring the programs are operating as Congress intended. The
Secretary's fiscal year 2003 budget envisions an expansion of this
important activity.
I would like to thank you for scheduling this hearing during a very
busy time in the session. I look forward to learning of key issues and
concerns of this Committee to ensure PD&R's research agenda fully
addresses them.
I appreciate your time and look forward to working with members of
the staff of this Committee.
PREPARED STATEMENT OF CAROLYN Y. PEOPLES
Assistant Secretary-Designate
U.S. Department of Housing and Urban Development
October 3, 2002
Chairman Sarbanes, Ranking Member Gramm, and distinguished Members
of this Committee, thank you for giving me the privilege to address
this Committee in consideration of my confirmation as Assistant
Secretary for Fair Housing and Equal Opportunity.
I am here today with some very special people in my life. They are
my husband and my three children, my sisters, and brothers. I also want
to acknowledge my friends from Catholic Charities, MANPHA, The Beacon
Institute, the Office of Fair Housing and Equal Opportunity, and the
University of Baltimore.
First, I would like to share a little of my background with you
today. I am one of seven children born to the late Julius and Cornelia
Jacobs. I was born and raised in Baltimore, Maryland. My father served
in the U.S. Army and worked most of his life as a laborer; my mother
was a housewife. For several years, we lived in public housing and I
attended local schools. From an economic standpoint, we were considered
poor. But as a family, we were rich . . . rich in faith, character,
values, and humor with a closeness that endures even today. My mother,
without doubt, was instrumental in forming my character and strong work
ethic. Throughout my public education, she always encouraged me to ``do
my best.'' It is that drive for excellence that both inspires and
motivates me in all my endeavors.
Prior to my nomination by President Bush, I was Founder and
Executive Director of Jeremiah Housing, Inc., a faith-based, nonprofit
housing services organization. Preceding this, my professional
experience for the past 25 years has been exclusively in the operation,
coordination, and management of HUD-assisted and sponsored housing.
Beginning in 1976, as a manager of a Section 202/8 housing facility for
the Presbytery of Baltimore, I left there in 1980 and joined the
Housing Services Division of Catholic Charities. Over a 19 year period,
I progressed in various positions. I attended the University of
Baltimore and earned a BS degree in Finance and a Master's degree in
Business Administration.
As I was preparing for this testimony and thinking about fair
housing, I began to reflect upon discrimination and how it impacts
lives. I liken discrimination to an inflicted wound. The wound
eventually heals, but invariably leaves a scar. As a woman of color, I
have experienced discrimination. One such experience when I was 8 years
old left, an indelible imprint on me. My mother took me to a department
store in downtown Baltimore. After choosing several items of clothing,
she took them to the counter to pay for them. For several minutes, I
watched as a the sales lady waited on other people, but would not wait
on my mother. After all the customers standing next to my mother had
been waited on and exited the store, my mother remained at the counter
until the sales lady finally waited on her. When we left the store, I
asked my mother why the lady would not wait on her. Her reply to me
was, ``because we are colored.''
Discrimination in any form is demeaning. Whether it comes as a
result of being denied housing because you have children, or if a real
estate agent steers you to a ``certain'' community or a lender charges
you extra fees not charged to other people--discrimination is wrong and
is against the law.
Moreover, discrimination has a social impact. Just as my mother and
I had to wait in that department store until all others were served,
discrimination in America has denied many the opportunity to share in
the prosperity of this Nation. Since the passage of the 1968 Fair
Housing Act, significant progress has been made in reducing barriers to
fair housing and expanding homeownership opportunities for the
historical victims of discrimination. Despite all that has been
accomplished, more needs to be done. No one should be denied the home
of their dreams because of their race, color, religion, national
origin, sex, familial status, or disability.
While the Nation's homeownership has reached a record high, a large
gap still remains between the percentage of minorities and whites who
own their own homes (48 percent African-American- 47.6 percent Hispanic
compared to 74.3 percent for whites). We must do all we can to ensure
that discrimination is removed as a barrier to the achievement of the
American Dream.
The extent to which discrimination against persons with
disabilities exists today is also problematic. Currently, HUD receives
nearly as many complaints of disability discrimination as it does race
complaints. There is a significant lack of
accessible housing units for persons with disabilities, both in private
and subsidized housing. Noncompliance with the accessibility
requirements combined with the failure of landlords to provide
necessary accommodations and modifications has contributed to a
shortage of housing for persons with disabilities in housing
developments.
I have a strong interest in helping to improve the quality of life
for underserved and unserved persons. If I am confirmed by the Senate
to this most important post, I pledge my full commitment to
aggressively enforce civil rights and fair housing laws; to be diligent
in conducting timely investigations; to continue to reduce
impediments to fair housing laws; to develop close working partnerships
with faith-based and grassroots organizations, local government and
other agencies; to enforce departmental equal employment opportunity
laws; to ensure effective program monitoring and compliance and develop
performance-based measurements to ensure quality.
With my extensive experience in HUD's programs and policies,
combined with 25 years of proven management, organizational, and policy
development skills, I am eager to join the fine staff of the Office of
Fair Housing and Equal Opportunity in implementation of our strategic
goals and objectives.
In closing, I want to thank the honorable Senator from my home
State of Maryland, Senator Sarbanes, and the Members of the Committee
for your courtesy. I want to thank President Bush for honoring me with
the opportunity to serve in his Administration, and to Secretary Mel
Martinez for his strong support in the several months since my
nomination. Finally, but not least, I want to thank God for bestowing
His grace and this special honor upon me.
PREPARED STATEMENT OF RAFAEL E. CUELLAR
Board Member-Designate, National Consumer Cooperative Bank
October 3, 2002
Chairman Sarbanes and distinguished Members of the Committee, I am
honored to appear today before you as a nominee for the Board of
Directors of the National Consumer Cooperative Bank.
I am here because I believe my combined experience, as a military
officer, entrepreneur, and community leader is consistent with the
mission of the National Consumer Cooperative Bank. It was established
to address the financial needs of an underserved community. The Bank's
primary lines of business include multifamily and commercial real
estate services, commerical and small business banking, community
development, and personal banking. To date, NCB has provided more than
$6 billion in financing, thousands of homeownership opportunities,
school facilities for 4,500 students, 1,000 affordable assisted-living
units, a health center serving 100,000 patients annually and more than
10,000 employee stock owners. In short, the bank provides economic
empowerment.
My goal on this Board is to bring these options to communities like
my own in Passaic, New Jersey. Once a deserted area of marginalized
immigrants that had to commute to New York for work, it is now a
thriving center of commerce because business people like my father
invested and started businesses to increase the city's economic
vitality. My father would say, ``No se puede sacar sin dar.''--``You
cannot take without giving.''
With those words in mind, I left to join the United States Navy at
the age of 17. This country had given my family opportunity when we
arrived as immigrants in 1970; I knew that opportunity came with
responsibility. And so it was for 9 years as I worked my way up the
ranks from enlisted to officer. I attended Fordham University on a
NROTC scholarship and received my Bachelor's degree in Economics. The
regimented training and discipline prepared me for an even greater
challenge.
After my father's sudden death in 1996, I resigned my commission to
fulfill my family duty and care for the business my father began years
before. I have been President and Chief Executice Officer of ECO &
Sons, Inc. for 7 years. In that time, I have significantly increased
revenue every year, diversified our products and services, and created
new jobs to expand the employee base. I inherited a large ``bodega'' in
debt, however today due to strategic planning and investment, ECO &
Sons, Inc. makes a profit through a successful independent supermarket,
an upscale catering company, and an e-commerce site that survived the
Internet downturn. Currently, I own one of the top 500 Hispanic
businesses in the country, according to Hispanic Business Magazine.
In addition, I was selected as 1999 Dun & Bradstreet Number 2
Minority Entrepreneur, 1999 Finalist for Ernst & Young's Entrepreneur
of the Year, 1999 Hispanic Business Magazine Entrepreneur of the Year,
2000 Finalist for Hispanic Business Magazine Entrepreneur of the Year,
and 2001 Finalist for Ernst & Young's Entrepreneur of the Year. To
share the benefits of my success, I work with several organizations
including the Paterson Restoration Corporation, New Jersey State
Chamber of Commerce, the William Paterson University Foundation, and
the United States Hispanic Chamber of Commerce--to name a few.
While those accolades look great on a resume, what I am really
proud of is building a partnership with my community. They know I am
there to service their needs whether it is for groceries or otherwise.
For instance, the Passaic fire last year put 75 families out on the
street without shelter or food. They came to me and we fed those
families three meals a day for 2 weeks and they ate with dignity
because that food came from a supermarket that they patronize. I was
humbled that they came to me instead of one of the many big chain
stores. I connect with my customers and peers alike.
I understand and have overcome the challenges that face minority
entrepre-
neurs--the lack of capital, scarce resources, no mentoring. The NCB has
developed and implemented a successful model, a public and private
sector partnership, to solve these problems and provide innovative
solutions. With my experience, I will be an integral part of those
solutions.
I would be proud to serve on the Board of Directors of the National
Consumer Cooperative Bank, and I truly appreciate your consideration.
Allow me to answer any questions that you may have.
PREPARED STATEMENT OF MICHAEL D. SCOTT
Board Member-Designate, National Consumer Cooperative Bank
October 3, 2002
Chairman Sarbanes, Senator Gramm, distinguished Members of the
Committee, it is an honor and privilege for me to appear before you
today as the President's nominee to be a Member of the Board of
Directors of the National Consumer Cooperative Bank (NCB).
Before I begin my statement, I would like to thank my wife Janet,
and my children, Zachary and Taylor. Without their understanding,
patience, and support, I could not be here before you. Unfortunately,
they are not able to be here today, as they continue to live in North
Carolina until we sell our home.
I would also like to thank Under Secretary Peter Fisher, Assistant
Secretary Brian Roseboro, and Deputy Assistant Secretary Roger Kodat
for all of their support. Finally, I would like to thank President Bush
for the honor of this nomination and the opportunity to serve.
I am, and if confirmed, will continue to be, the Senior Advisor to
the Deputy Assistant Secretary for Government Financial Policy at the
U.S. Department of the Treasury. Prior to serving in the
Administration, all of my previous experience has been in the private
sector. I have worked extensively in finance, capital markets,
investments, corporate strategy, financial analysis, and commercial
lending.
It is my current and former experience that I believe will enable
me to be an
effective contributor to NCB's Board. NCB plays a vital role in meeting
the underserved needs of America's cooperatives, which range from
housing cooperatives to affordable housing communities to small
businesses to Alaska Native Corporations and Tribal Entities. I hope to
bring constructive ideas to the Board that will help grow NCB in the
important sectors it serves. Additionally, I am keenly interested in
NCB's capital structure and assisting it in addressing the statutory
repayment of the Class A Notes that the Federal Government holds, and
that mature in 2020. NCB is a multifaceted financial services company
that enables cooperative endeavors throughout America to grow and
succeed. These businesses are large and small. They serve rural and
urban communities. NCB helps them by crafting financial solutions
tailored to their individual needs and the needs of their members.
Chartered by Congress in 1978, NCB was privatized in 1981 as a
cooperatively owned financial institution. Currently, NCB is owned by
1,841 of its customers.
NCB's capital base is funded by long-term subordinated notes,
medium-term notes and commercial paper, loans from its banking partners
and customers, deposits through its subsidiary, NCB FSB, and stock
purchased by NCB members. The Bank's medium-term notes and commercial
paper carry investment-grade ratings.
NCB's primary lines of business include: Multifamily and commercial
real estate, commercial and small business banking, community
development services, and personal banking.
To date, NCB has provided more than $6 billion in financing.
Combined with balance sheet assets and letters of credit, NCB
now manages more than $3.6 billion in assets nationwide.
NCB reported a profit of $14.6 million for the first 6 months
of 2002. In early September of this year, NCB distributed
approximately $12.6 million in patronage dividends to its member-
owners in the form of cash and stock.
Last year alone:
1. The Bank grew its deposit base by 50 percent, further
diversifying its funding sources and lowering the capital costs
for its customers.
2. The Bank received reaffirmation of its investment-grade
ratings by Moody's (Baa1) and Standard & Poor's (BBB).
NCB has a distinguished history of serving the cooperative
community and I believe that its future is extremely bright. I would
appreciate your support so that I may be able to contribute to its
future.
In closing, I would like to take this opportunity to thank you, Mr.
Chairman, and the Committee for the prompt consideration of my
nomination. Mr. Chairman, if confirmed, I commit to you, the Members
and the NCB, all of my energy to serve with distinction and honor. I
would be delighted to answer any questions you and other Members of the
Committee may have.
Thank you.
PREPARED STATEMENT OF JOHN M. REICH
Vice Chairperson-Designate, Board of Directors
Federal Deposit Insurance Corporation
October 3, 2002
Mr. Chairman, I want to thank you for scheduling this hearing
today, as I know your time is limited in the remaining days of this
session. Chairman Sarbanes, Senator Gramm, Members of the Committee, I
am honored by the President's nomination to be the Vice Chairperson of
the Federal Deposit Insurance Corporation, and I am privileged to be
sitting in this spot this afternoon. I also appreciate the support
which FDIC Chairman Don Powell has given my nomination.
In the almost 2 years I have served as a Member of the FDIC Board
we have witnessed significant change in the economy and banking issues.
In fact, Mr. Chairman, you may recall that I was about to testify at
this very table on September 11 when the events of that day stopped the
hearing and triggered challenges and changes to our country's financial
system that no one could have foreseen.
My nearly 25 years of experience as a community banker before I
came to Washington to work with my good friend, Former Senator Connie
Mack for nearly 12 years, has allowed me to bring a perspective to the
Board's deliberations that recognizes the vital role that banks and
their customers play in the economic success of their communities.
Before my life in Washington, I was active for many years in a variety
of community service organizations, and the affect of all of these
private, nonprofit, and public service experiences causes me to
evaluate issues which come before the Board in a manner which balances
the interests of banks, consumers, the deposit insurance funds, and the
Nation's economy.
Under the leadership of Chairman Don Powell during the past year,
the FDIC has been, and is, at the forefront of many of the issues
facing the financial industry today. We have brought together leading
thinkers on such key issues as corporate transparency, financial
institution disclosure, and risk management, and, of course, our work
on Deposit Insurance Reform. We have launched a major financial
literacy effort called Money Smart with the stated goal of establishing
partnerships with 1,000 organizations and institutions, in all 50
States, to distribute 100,000 copies of Money Smart in three languages
and expose one million consumers to our financial education program
over the next 5 years.
We are also engaged in a major effort to reduce unnecessary
regulatory burden and to tap the tremendous potential of technology to
streamline bank supervision--while not sacrificing our primary goal of
ensuring the safety and soundness and consumer compliance of the
banking system. These are just a few of the many initiatives and
activities underway at the FDIC today.
While the FDIC has been aggressively moving forward on these
developing issues, we have not neglected our primary mission of
protecting depositors in the event of bank failures. In fact, I believe
that the lessons I learned in one of those failures provide me with a
unique credential to serve as Vice Chairperson of the FDIC.
Following the resignation of former Chairman Donna Tanoue in July
2001, I was serving as the Acting Chairman of the FDIC when Superior
Bank failed on July 27, 2001. It was not just the size of this
failure--more than $2 billion in assets--that was instructive. As this
Committee knows from its oversight, this failure raised a number of
issues ranging from subprime lending, to residuals and accounting
opinions, to regulator cooperation and access, to management liability,
that challenged the leadership and staff of the FDIC to modify
established methods of handling bank failures and to create some
innovative new approaches. This experience along with other experiences
gained during the past nearly 2 years I have served on the Board,
combined with my duties chairing of all of the standing committees of
the FDIC Board help, I believe, to enable me to serve effectively as
Vice Chairman of the FDIC.
Mr. Chairman, the FDIC occupies a unique position in the American
Government. We are keenly aware of the importance of our mission of
maintaining confidence and trust of the American people in the Nation's
financial system. It is an organization with an outstanding, highly
capable, professional staff. I look forward to my continued affiliation
with both its mission and its people. With all of its successes, I also
believe that there is still an amazing untapped potential at the FDIC
that is just surfacing and will help shape the contours of the
financial system for years to come. I am honored the President has
nominated me to play an important role in that future, and, again, I
wish to thank you for holding this hearing. I will be happy to address
any questions you many have.
PREPARED STATEMENT OF DIANA E. FURCHTGOTT-ROTH
Director-Designate, Federal Housing Finance Board
October 3, 2002
Thank you very much, Mr. Chairman, Senator Gramm, and distinguished
Members of the Committee for the opportunity to appear before you
today. I am honored that President Bush has nominated me to be a
Director of the Federal Housing
Finance Board and I am deeply humbled to appear before you today at
this confirmation hearing. If confirmed, I would be the first full-time
female Director of the Board.
I want to express my appreciation to you, Mr. Chairman, the Senator
from my home State of Maryland. I would also like to express my
appreciation to Senator Gramm for everything that he has done on my
behalf. He will be sorely missed by his many friends everywhere.
I would like to take this opportunity to introduce my husband,
Harold, and my six children, Leon, Francesca, Jeremy, Godfrey,
Theodore, and Richard.
I am also profoundly grateful to my parents, Ellen and Gabriel
Roth, for making the difficult decision to come here 35 years ago from
England. I remember sailing into New York Harbor on Labor Day weekend,
1967, and seeing the Statue of Liberty. To be honest, its symbolism did
not mean much to me then as a child. I was just glad that the 5 days of
sea sickness were over. But it became more and more important as I have
grown into adulthood and made the choice to become an American. My
parents' decision gave me the opportunity to work in the White House
under President Reagan, President George H.W. Bush, and our current
President Bush, as well as marrying a wonderful man and having six
children. Nowhere else in the world can immigrants have such
opportunities.
It is extraordinarily hard to do what my parents did, and pack up
all one's possessions and three young children and move to a new
country, a country my mother had not even visited. The story is that my
father called my mother from the United States and said, ``We have to
move here, they even heat the bathrooms.'' Our home in England had
kerosene heaters that my father would go around filling every night
before he went to bed. There was no heater in our family's only
bathroom, as was common practice in many English homes.
And that brings me to the subject of housing, and the Federal
Housing Finance Board. Many people ask about my interest in the Federal
Housing Board. Housing affects all of us--all of us need somewhere to
live. And many either own homes, or aspire to do so--it is part of the
American Dream. With such a large purchase, the financing mechanism is
critical.
Our housing and capital markets work so well that many people
assume that there is nothing special about them. But, internationally,
these well-functioning systems are rare. Our standard fixed 30 year
mortgage is not standard in most other countries, even in the developed
world. Generally people in other countries are
required to put down much larger sums, and borrow at rates which vary
directly with the prime rate of lending. So when the prime rate goes
up, mortgage payments unpredictably take more money away from groceries
and clothing. And housing can be so scarce that selling a home and
moving to another city becomes practically impossible. If I should have
the honor of being confirmed, I would try to preserve and improve the
flexible financial systems that America has and make it possible for
more Americans to take advantage of them.
The Federal Housing Finance Board oversees the Federal Home Loan
Bank System, a group of 12 banks which have $700 billion in assets and
approximately 8,000 member banks. The Board makes sure that the System
is on a sound financial footing, an important task, as can be seen by
recent developments in the corporate and accounting world.
The Federal Home Loan Bank System makes it easier for small banks
to lend money to Americans for mortgages. In the first days of banking,
banks could only lend out what they had on hand in deposits. Later,
they acquired the ability to borrow from some sources to make loans to
others. The 8,000 member banks can now, through the Federal Home Loan
Banks and the Board's Office of Finance, take advantage of pooling
their requests for funds to achieve lower rates, which get passed on
directly to the consumer.
About 68 percent of American households own homes. But the rate for
minorities is far lower, with fewer than half of Hispanics and African-
American households owning homes. President Bush and the Federal
Housing Finance Board are trying to raise these levels. The Board's
Affordable Housing Program helps improve homeownership among these
groups, a vital social goal. Recently, the Board expanded the amount of
Affordable Housing Program funds that Federal Home Loan Banks can
contribute toward downpayment assistance programs for first-time
homebuyers, one of the most important steps in purchasing a home.
Chairman Sarbanes and Members of the Committee, I am honored to
appear before you today. If confirmed, I promise to work closely with
this Committee and Congress to ensure the safety and soundness of the
Federal Home Loan Bank System and fulfillment of the System's
affordable housing goals. I look forward to answering any questions
that you might have.
PREPARED STATEMENT OF DEBORAH DOYLE McWHINNEY
Director-Designate, Securities Investor Protection Corporation
October 3, 2002
Good afternoon. My name is Deborah Doyle McWhinney, and I am
President of Schwab Institutional, an arm of the Charles Schwab
Corporation that provides services to investors through commission-
based independent investment advisors. But beyond my position at
Schwab, I am the very proud mother of Megan and Aidan, two wonderful
teenagers who could not join me today because of their studies.
Charles Schwab was founded more than 30 years ago on the principle
of helping individuals to become educated, informed, and sensible
investors--and our company remains focused on the individual investor
today. I am honored to have been nominated by President Bush as a
Director of the Securities Investor Protection Corporation, where I
look forward to continuing that focus on the individual investor.
We are all painfully aware of the economic slowdown and stock
market fall-off of the last 2 years. The Dow Jones Industrial Average
is off more than 34 percent from its January 2000 high; and the Nasdaq
is down a more startling 77 percent. Millions of individual investors
have lost countless trillions of dollars of wealth. For many Americans,
those investments constitute the bulk of their retirement savings, the
money they were hoping to use to buy a first home or send their kids to
college -- in sum, their most cherished financial hopes and dreams. It
is a frustrating time to be an investor.
That is why I believe that there are few more important
organizations than the Securities Investor Protection Corporation. SIPC
has a narrow but extremely important role: Whenever a brokerage firm
fails or goes bankrupt, SIPC steps in to return the money investors had
with that firm as quickly and as painlessly as possible. No waiting for
years of drawn-out court cases and bankruptcy hearings. SIPC gets the
cash or securities that the individual investor had with the failed
firm and returns it to that investor, so that he or she can move that
money to a reliable company.
I wish that there was not a need for an organization like SIPC. But
there is a very real need, and today that need is stronger than it has
been in decades. Investors have a lot to worry about, with the
accounting and ethics of some of the country's most respected companies
now being questioned, the economy in a prolonged downturn, and the
stock market retreating to levels not seen in several years. Investors
should not have to worry about what happens if their brokerage firm
goes under. With SIPC, they do not have to. More than 99 percent of
eligible investors get their money back with SIPC's help. In the past
30 years, more than 600,000 investors have recovered nearly $14 billion
in assets with SIPC's help.
If I am confirmed as a Director of SIPC, I promise the Members of
this Committee and the millions of individual investors around the
country that I will bring the vigilance and dedication that the role
deserves. Individual investors are comfortable knowing that SIPC is
behind them if anything should happen, and I will work hard to maintain
and strengthen that confidence. In this era of uncertainty about the
stock market, SIPC directors should bring nothing less than their full
attention to their task. If I am confirmed, I promise to do so in the
tradition of the many directors before me who have helped maintain a
solid foundation beneath the strongest capital markets in the world.
Thank you very much. I will be happy to answer questions.
PREPARED STATEMENT OF ARMANDO J. BUCELO, JR.
Director-Designate, Securities Investor Protection Corporation
October 3, 2002
Chairman Sarbanes, Ranking Member Gramm, and distinguished Members
of the Committee, I am honored to appear before you as President Bush's
nominee to serve on the Board of Directors of the Securities Investor
Protection Corporation, better known as SIPC. I am deeply grateful to
President Bush for awarding me the privilege of this nomination. It is
now my pleasure to introduce my wonderful wife, Beatriz, companion and
best friend for over 20 years, and my son, Alexander, a 9 year old
baseball star who indeed will play with the New York Yankees one day,
and upon his retirement from baseball, hopes to be President. I have
also been blessed with two other children, Alexis Marie, a 17 year old
National Honor Society student ranked in the top percentile of her
class, and blessed with the gift of pen and speech, and last, but not
least, my 15 year old son, Armando Joseph, who is taller than I am and
is considered an excellent swimmer and water polo player, and who,
along with Alexis and myself, is a black belt first degree in karate.
Mr. Chairman and Members of the Committee, I thank God every day for my
family.
I am a proud Cuban-born American citizen. Arriving in this great
country of ours over 40 years ago, with parents looking for freedom and
opportunity for my sister and I. Because of my father, Dr. Bucelo, and
my mother Carmen, 83 and 74 years young respectively, I am what I am
today. We are forever thankful and appreciative of the opportunities
given to us by the United States of America.
I have been an attorney for the past 23 years, specializing
primarily in real estate, corporate, and banking. As a result of my
professional endeavors, I have been exposed to a myriad of career
opportunities dealing in said fields. I had the opportunity to serve as
a Director of Freddie Mac (Federal Home Loan Mortgage Association)
during President George Bush's Administration. During my tenure at
Freddie Mac I was able to cooperate in the efforts to lead such a
powerful and gigantic institution into its preparations for the 21st
century. I also had the pleasure to serve as Cuban American National
Chairman of the National Republican Senatorial Committee, where I
attempted to establish a substantial dialogue, as well as a strong
working relationship between Cuban Americans in this country and
Members of the Senate. Among other activities, I am currently a
Director of the National Housing and Development Corporation, created
in 1997, to help preserve more of the Nation's at-risk affordable
housing stock. Its principal purpose is to improve the quality of life
of all of our national residents, making clean, safe, and attractive
family housing, as well as affordable rents its foundation. Finally, I
serve as Trustee of Miami-Dade Community College, the largest community
college in the Nation, and from which I am a proud graduate.
As we all know, SIPC was created by the Securities Investors
Protection Act of 1970, to provide certain protections against losses
to customers from the failure of securities firms.
If honored by confirmation by the U.S. Senate, I vow to be a strong
advocate for fairness and common sense. As a newcomer to the world of
SIPC, I will promptly learn all I need to in order to work closely with
this Committee, the Senate and Members of the House of Representatives.
I may not know the answers to may questions today, but I give you my
word I do anticipate and welcome the charge for which I have been
selected with both eagerness and humility. Chairman Sarbanes, Senator
Gramm, and Members of the Committee, I thank you for the opportunity
you have given us to speak before you. I along with the rest of this
country, admire the work all of you are doing on our behalf and we
congratulate you for guiding us through these difficult times.
Thank you, and I will be more than happy to answer any of your
questions.
STATEMENT OF DIANNE FEINSTEIN, A U.S. SENATOR FROM THE STATE OF
CALIFORNIA
I regret that I cannot introduce Alberto Trevino today, who
has been nominated as the Assistant Secretary of the Department
of Housing and Urban Development's Office of Policy Development
and Research.
This is not the first time Mr. Trevino has been before the
Senate in a confirmation hearing, as he has served both the
Nixon and the Ford Administrations. I am sure that his
expertise will again be beneficial to the Department and to the
Nation.
Mr. Trevino's extensive background with the Urban Interface
Group has allowed him to work to solve a variety of problems in
affordable housing and strategic planning. From evaluating
senior housing markets, to developing affordable housing
strategies to meet the diverse needs of America's homebuyers,
Mr. Trevino has honed his skills in urban planning and
strategic development. This is knowledge that will benefit him
in spurring development of affordable housing and boosting
homeownership rates.
Mr. Trevino was born in Inglewood, California, and went to
the University of California in Berkeley, before continuing his
studies with graduate work at Harvard. His background in
strategic planning and affordable housing, and his current
experience with urban planning and development, will prove an
asset to the Department.
I am confident that Mr. Trevino will ably lend his insight
to the Office of Policy Development and Research in working
toward long-term solutions to the problems confronting our
cities and our rural communities.