[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]






                      THE ANNUAL TESTIMONY OF THE
                      SECRETARY OF THE TREASURY ON
                     THE STATE OF THE INTERNATIONAL
                            FINANCIAL SYSTEM

=======================================================================

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 8, 2014

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 113-78


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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California, Ranking 
    Chairman                             Member
SPENCER BACHUS, Alabama, Chairman    CAROLYN B. MALONEY, New York
    Emeritus                         NYDIA M. VELAAZQUEZ, New York
PETER T. KING, New York              BRAD SHERMAN, California
EDWARD R. ROYCE, California          GREGORY W. MEEKS, New York
FRANK D. LUCAS, Oklahoma             MICHAEL E. CAPUANO, Massachusetts
SHELLEY MOORE CAPITO, West Virginia  RUBEEN HINOJOSA, Texas
SCOTT GARRETT, New Jersey            WM. LACY CLAY, Missouri
RANDY NEUGEBAUER, Texas              CAROLYN McCARTHY, New York
PATRICK T. McHENRY, North Carolina   STEPHEN F. LYNCH, Massachusetts
JOHN CAMPBELL, California            DAVID SCOTT, Georgia
MICHELE BACHMANN, Minnesota          AL GREEN, Texas
KEVIN McCARTHY, California           EMANUEL CLEAVER, Missouri
STEVAN PEARCE, New Mexico            GWEN MOORE, Wisconsin
BILL POSEY, Florida                  KEITH ELLISON, Minnesota
MICHAEL G. FITZPATRICK,              ED PERLMUTTER, Colorado
    Pennsylvania                     JAMES A. HIMES, Connecticut
LYNN A. WESTMORELAND, Georgia        GARY C. PETERS, Michigan
BLAINE LUETKEMEYER, Missouri         JOHN C. CARNEY, Jr., Delaware
BILL HUIZENGA, Michigan              TERRI A. SEWELL, Alabama
SEAN P. DUFFY, Wisconsin             BILL FOSTER, Illinois
ROBERT HURT, Virginia                DANIEL T. KILDEE, Michigan
STEVE STIVERS, Ohio                  PATRICK MURPHY, Florida
STEPHEN LEE FINCHER, Tennessee       JOHN K. DELANEY, Maryland
MARLIN A. STUTZMAN, Indiana          KYRSTEN SINEMA, Arizona
MICK MULVANEY, South Carolina        JOYCE BEATTY, Ohio
RANDY HULTGREN, Illinois             DENNY HECK, Washington
DENNIS A. ROSS, Florida              STEVEN HORSFORD, Nevada
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 8, 2014..................................................     1
Appendix:
    May 8, 2014..................................................    45

                               WITNESSES
                         Thursday, May 8, 2014

Lew, Hon. Jacob J., Secretary, U.S. Department of the Treasury...     6

                                APPENDIX

Prepared statements:
    Lew, Hon. Jacob J............................................    46

              Additional Material Submitted for the Record

Lew, Hon. Jacob J.:
    Written responses to questions for the record submitted by 
      Chairman Hensarling and Representatives Duffy, Hinojosa, 
      Hultgren, Moore, Posey, and Ross...........................    57

 
                      THE ANNUAL TESTIMONY OF THE
                      SECRETARY OF THE TREASURY ON
                     THE STATE OF THE INTERNATIONAL
                            FINANCIAL SYSTEM

                              ----------                              


                         Thursday, May 8, 2014

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:03 a.m., in 
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling 
[chairman of the committee] presiding.
    Members present: Representatives Hensarling, Royce, Capito, 
Garrett, Neugebauer, McHenry, Campbell, Pearce, Posey, 
Fitzpatrick, Luetkemeyer, Huizenga, Hurt, Stutzman, Mulvaney, 
Hultgren, Pittenger, Barr, Cotton, Rothfus; Waters, Maloney, 
Velazquez, Sherman, Meeks, Hinojosa, Clay, McCarthy of New 
York, Lynch, Green, Moore, Ellison, Carney, Foster, Kildee, 
Delaney, Sinema, Beatty, Heck, and Horsford.
    Chairman Hensarling. The committee will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time. This hearing is for the 
purpose of receiving the Secretary of the Treasury's annual 
report on the state of the international finance system.
    I now recognize myself for 5 minutes to give an opening 
statement.
    Secretary Lew, we welcome you back to the committee. We 
trust that your testimony on the state of the international 
finance system will prove insightful and forthright.
    I would note that on his very first day in office, 
President Obama declared his Administration would be, and I 
quote, ``the most open and transparent in history.'' The 
President pledged a ``new era,'' and an ``unprecedented level 
of openness across the massive Federal Government.''
    Regrettably, the American people have instead witnessed 
what Time Magazine recently described as ``the most secretive 
presidency in American history,'' an Administration that has 
``censored more documents and delayed or denied access to more 
government files than ever before.'' Again, the source is Time 
Magazine, not Tea Party Monthly--Time Magazine.
    From matters surrounding the IRS, to Obamacare, to 
Benghazi, this Administration has refused to be accountable to 
the American people and their elected Representatives in the 
United States Congress, a co-equal branch of Government 
enshrined in Article I of our Constitution.
    Too often the Administration has obfuscated answers, 
delayed answers, or refused to provide answers, a pattern that 
is seen throughout the Administration. To focus a moment on 
Treasury, the Center for Effective Government released a report 
card a few weeks ago grading Federal agencies on their 
implementation of the Freedom of Information Act. No agency in 
what is supposed to be history's ``most open and transparent'' 
received an A. The Treasury Department received a D, but in 
fairness to the Secretary, several agencies received an F.
    This is not a surprise to many of us since requests for 
information from this committee unfortunately are too often 
ignored or delayed or, Mr. Secretary, produced on the eve of 
your next appearance. And Mr. Secretary, as you know--we know 
you are a busy man, but appearances before our committee have 
proven challenging to schedule, and during your last appearance 
before our committee, I personally asked you if this 
Administration had ever submitted a balanced budget. Twice, I 
did not receive an answer.
    Also, in your last appearance before our committee, Mr. 
Garrett asked you if the Volcker Rule would have a negative 
impact on the corporate bond market. Three times you declined 
to answer that question. Mr. McHenry asked you whether Treasury 
had ever sought a legal opinion on debt payment prioritization. 
In that case, you did not answer four separate times.
    Mr. Secretary, when it comes to my questioning I want to be 
fair, but I would like an answer. I would be happy to give you 
a moment to put it in context, but I would respectfully 
request, again, that questions that are put to you are 
answered.
    Mr. Secretary, with respect to scheduling, we know that you 
have recently had surgery. We are glad that you are recovering. 
I think most of us have said that both privately and publicly.
    And we are certainly not unsympathetic to the havoc that 
wreaked on your schedule. But I do note that press reports 
indicate that subsequent to your return to work, you did manage 
to schedule 2 full days of appearances in Detroit, 2 full days 
of meetings at the World Bank.
    Today we are grateful, but we also know that you are only 
going to schedule 2 hours this month for a statutorily required 
appearance before our committee--a statutorily required 
appearance that is now 2 months late and comes on the heels of 
the last statutory appearance before the committee, which was 9 
months late. As we both know, your next statutory appearance is 
scheduled next month. I would respectfully request that you 
prioritize the appearance and schedule sufficient time to 
answer all Member questions.
    Briefly, let me turn to the state of the international 
finance system. On the important matter of increased taxpayer 
commitment to the IMF, I feel again, the Administration was 
somewhat less than open and transparent.
    The fact that the IMF is moving forward with a package for 
the Ukraine without the quota increase would seem to belie the 
Administration's claim that the increase was essential to the 
IMF's ability to render effective assistance to Ukraine. I am 
sure we will hear more from the Secretary on that matter.
    And as I gaze to my left and my right, looking at the 
national debt clock spinning out of control, I again wonder 
about the wisdom of effectively converting an emergency 
commitment to the IMF to a permanent one. And when I hear of 
proffered reforms, a robust exceptional access framework 
appears to be lacking, and it begs the question of whether on a 
go-forward basis, the reforms that have been proffered will 
lead the IMF to exacerbate or mitigate global bailout 
mentality. I believe Chairman Campbell will have more to say on 
this subject in his opening comments and in his questions.
    Again, Mr. Secretary, we do welcome you back here. We wish 
you a continued good recovery. We look forward to having you 
back next month, at which time we hope you will be able to stay 
longer and catch up on your schedule.
    The Chair now recognizes the ranking member for 4 minutes 
for an opening statement.
    Ms. Waters. Thank you very much, Mr. Chairman.
    Mr. Secretary, we are delighted to have you here this 
morning. And I am very pleased that despite the fact that you 
have only enjoyed your position for a very short period of 
time, the Administration continues to be successful in growing 
this economy.
    In the last 50 months, as you are indicating, the private 
sector has created 9.2 million jobs, and we are very pleased. 
Because of our oversight responsibilities here, we have worked 
hard, you have worked hard, and the housing market certainly is 
improving.
    We are very pleased about the rise in home prices and, of 
course, what is happening with our homeowners as we get out 
from under the loss of wealth that we had been experiencing 
following the recession. Now, we have so many homes that are no 
longer underwater.
    However, today this hearing is supposed to deal with 
concerns about what is happening in the international 
community. So I would like to move quickly to talk a little bit 
about the IMF.
    I had hoped that by this point we would have ratified the 
IMF quota reforms that modernize the IMF to take account of 
rapid changes in the global economy. As you are well aware, 
these reforms were negotiated by the Bush Administration and 
completed in 2010 by President Obama. And despite repeated 
efforts by this Administration to secure their passage, they 
continue to languish here under the Republican-controlled 
House.
    Negotiated in 2008 by the Bush Administration and completed 
in 2010 by President Obama, the reforms would modernize the IMF 
to take account of rapid changes in the global economy. But 
despite the benefits these reforms would entail, House 
Republicans already this year rejected two efforts by the 
Administration to attach to larger measures legislative 
language that would authorize U.S. participation in the reform 
package.
    The 2010 agreement would double the IMF's general resources 
to ensure the emergency lender has enough firepower to respond 
to crisis hitting its members. It would also update the 
governing structure, how the IMF's voting power is distributed 
among members, to reflect a global economy in which emerging 
markets are now major growth drivers and some European 
countries have lost their economic might.
    These reforms are an essential first step to maintain the 
IMF's legitimacy in a volatile world. But none of this will 
happen until the United States has approved its new quota, 
which would require a shift in U.S. funds, not new financial 
commitment.
    In my view, depriving it of the resources to combat future 
global market crises would directly undercut the U.S. national 
interest. Growth remains below potential in most regions, 
including in major markets for the United States, and 
unemployment in many countries remains at historic highs, with 
the number of long-term jobless still growing. If these crises 
are not solved soon, an entire generation could be blighted.
    Global stability is ultimately nurtured through trust in 
international institutions that resolve issues through 
cooperation rather than economic or political dominance. Should 
the IMF reforms continue to be delayed, what is at risk is the 
trust that is key to the stability of the international system.
    I see that my time has expired, so I yield back. And thank 
you very much.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from California, Mr. Campbell, the Chair of our Monetary Policy 
and Trade Subcommittee, for 3 minutes.
    Mr. Campbell. Thank you, Mr. Chairman.
    And thank you for coming, Mr. Secretary.
    As you know, I and the majority of this committee opposed 
the 2010 agreement that was made by the Administration, made 
almost 4 years ago now. But there are three points I want to--
you and I have discussed and debated that opposition both 
publicly and privately.
    There are three points I would like to make in my 3 minutes 
about that opposition. Point one: Please don't confuse the 
opposition to the agreement with opposition to the IMF or the 
United States' leadership role in the IMF. The IMF serves a 
very important purpose worldwide for stability of economies 
around the world and the world economy generally, and the 
United States' leadership role in it has been important, has 
been critical, and is a leadership role which we should not 
abdicate and from which we should not step back.
    So please understand and don't confuse, just because we 
don't agree with the agreement that was made 4 years ago 
doesn't mean that we are against the U.S. involvement in, 
leadership of, or the mission of the IMF. We are not.
    That being said, here is what we don't agree with: We don't 
believe that the IMF, in order to achieve that mission, needs 
any more taxpayer money. Now I know your belief is, and I am 
sure you will say in your opening remarks, that it is not 
additional taxpayer money because it has already been put in an 
account, the NAB account, with the IMF. I get that. But we can 
rescind that. That is not a permanent commitment at this point.
    In fact, we could introduce a bill tomorrow to rescind 
about $60 billion of that and bring that money back. And that 
is what I think we ought to do is we ought to be bringing that 
money back, because the IMF has over $200 billion in forward-
lending authority. It does not need any additional U.S. 
taxpayer funds to accomplish its mission and accomplish its 
role.
    Third, the reforms in the 2010 agreement are a step 
forward. They are positive. No disagreement there. But they 
don't go far enough.
    Even with those reforms--and consider that they were made 4 
years ago. We have had the euro crisis since then. There has 
been a lot of change in the world--the Ukrainian issue, all of 
these other changes that have happened just in these last 4 
years. Even after those reforms, the IMF is still too euro-
centric and still does not have enough controls to make sure 
that we are not encouraging countries to take on too much debt 
because the IMF will take care of it at some point later.
    It is not that the reforms in the 2010 agreement go too 
far; it is that they don't go far enough. What we believe we 
need is more reforms and less U.S. taxpayer dollars to assure 
our leadership in and the role of the IMF in the future. I look 
forward to discussing this further in our questions.
    Thank you.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Minnesota, Mr. Ellison, for 1 minute.
    Mr. Ellison. Thank you, Chairman Hensarling, and Ranking 
Member Waters.
    And welcome back to the committee, Secretary Lew.
    I regret that I have to leave early today. A dear friend of 
mine, and of this whole country, has gone to his reward, and so 
I am going to go attend Congressman Oberstar's services.
    But I just wanted to say that I am committed to preserving 
and expanding the remittances lifeline to Somalia. I want to 
continue to enlist the Treasury Department in seeking solutions 
to improve the lives of all people abroad who need and rely on 
remittances from our country. And together I think we can make 
Somalia--and other countries--a stronger nation, a more secure 
nation, and a better partner for the United States by improving 
the flow of remittances and providing technical assistance to 
help Somalia set up a world-class banking system that will 
withstand scrutiny and can push away terrorist financing.
    On Tuesday, we passed the Money Remittances Improvement 
Act. That is great. And the language of the bill granted 
authority that the Treasury sought, and so thank you.
    That is all I have today. Farewell.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Clay, the ranking member of our Monetary Policy and Trade 
Subcommittee, for 3 minutes.
    Mr. Clay. Thank you, Mr. Chairman.
    And thank you, Secretary Lew, for your attendance today.
    The IMF was created post-World War II at the Bretton Woods 
Conference. The goal of the IMF is to create a cooperative and 
institutional framework for the global economy that would 
facilitate international trade and balance global economics to 
build and grow.
    The Bretton Wood Act required congressional authorization 
to change the U.S. quota of shares in the fund or for the 
United States to vote to amend the articles of agreement of the 
IMF or the World Bank. Thus Congress has veto power over major 
decisions of both institutions. In regards to voting power, the 
United States is the only country able to unilaterally veto 
major IMF decisions.
    Recently, Congress passed the Ukraine bill, which provides 
close to $1 billion in guarantees, and imposes sanctions on 
Russia.
    As stated to you this past December, an earthquake 
devastated Haiti on January the 13, 2010, leaving millions 
homeless. In the wake of the disaster the American people and 
the global community rallied to provide relief to the Haitian 
people. As the Center for Economic and Policy Research points 
out in a report, despite billions of dollars pledged to build 
back a better Haiti, more than 350,000 Haitians remain 
internally displaced and it is unclear what sustainable impact 
our funds have had.
    Mr. Secretary, can you give members of this committee a 
progress report? You stated to me and this committee that you 
would, and as of today this committee has not received this 
information.
    One problem that the IMF faces with the American public is 
perception. Most Americans ask, ``Why should the U.S. 
Government spend money on the IMF?'' after looking at the 
current situation in Haiti. Most Americans believe if the U.S. 
Government, through the IMF, cannot get it right in Haiti, 
which is a few hundred miles from the coast of Florida, how can 
they get it right in Ukraine, which is on the other side of the 
world?
    Mr. Secretary, I am looking for answers and hopefully you 
can provide them today. We wrote you and inquired about this in 
December and have not heard back from you, so I am looking for 
your response.
    Thank you very much.
    I yield back, Mr. Chairman.
    Chairman Hensarling. The gentleman yields back.
    Today, we welcome the Honorable Jacob Lew, U.S. Secretary 
of the Treasury, to our committee today. He has previously, as 
you know, testified before our committee, so I believe he needs 
no further introduction.
    Without objection, Secretary Lew's written statement will 
be made a part of the record.
    Mr. Secretary, I would request that you give a brief 
presentation orally of your written testimony, given the 
limitation of your scheduling.
    Again, Mr. Secretary, welcome. You are now recognized for 
your statement.

   STATEMENT OF THE HONORABLE JACOB J. LEW, SECRETARY, U.S. 
                   DEPARTMENT OF THE TREASURY

    Secretary Lew. Chairman Hensarling, Ranking Member Waters, 
and members of the committee, thank you for the opportunity to 
testify today. I appreciate your cooperation in rescheduling 
this hearing, and I will keep my opening remarks brief to 
permit maximum time for questions.
    Because of the grit and determination of the American 
people, the United States economy has experienced nearly 5 
years of growth. Our businesses have created 9.2 million jobs 
over the last 50 months. Our deficits have also been cut by 
more than half.
    Still, we need to keep our focus on actions that can help 
accelerate growth, create jobs, and expand opportunity, as last 
week's advanced report of GDP showed.
    One of the most cost-effective ways to confront our 
economic challenges is with our investments in the 
international financial institutions. These institutions, which 
include the International Monetary Fund and the multilateral 
development banks, promote a more stable global economy while 
also protecting our national security and advancing our values 
and interests around the world.
    The World Bank and other multilateral development banks are 
critical to our economy, and the testimony I submitted lays out 
in detail how they help unlock export markets, foster 
opportunities for American businesses, and create jobs in the 
United States. Yet, given the heightened attention on Europe 
right now, I am going to use the remainder of my time to talk 
about what is happening in Ukraine and the significance of the 
International Monetary Fund.
    I know everyone here wants to do everything possible to 
address the crisis in Ukraine, and we have taken significant 
steps unilaterally and with our international partners to 
promote stability, especially with the Ukrainian elections 
happening later this month.
    As part of our response, we have coordinated a global 
effort to impose serious economic costs on Russia and hold 
accountable those who have violated Ukraine's sovereignty and 
territorial integrity.
    As President Putin has admitted, our sanctions have caused 
additional damage to Russia's already weak economy. Consider 
that the ruble has fallen to near all-time lows, Russian stocks 
this year have dropped significantly, and investors are fleeing 
Russian markets.
    The IMF forecasts that $100 billion in investment will exit 
Russia this year, and Russia has already slipped into 
recession. At the same time, Russian companies are finding it 
harder to get capital, and Russia's credit rating was recently 
downgraded to just above junk status.
    Our strategy has been to move in a systematic and targeted 
way, and we urge Russia to pursue a diplomatic solution to this 
situation. Should Russia continue its unlawful and provocative 
acts, we have a range of tools at our disposal including 
sanctions that would target companies in certain important 
sectors of the Russian economy.
    Now as we stand with the Ukrainian people during this 
critical time, it is essential that Congress pass the 2010 IMF 
quota reforms. The $1 billion in loan guarantees that we are 
providing Ukraine is an important step, but our bilateral 
assistance, while important, is not enough. The IMF approved a 
very important assistance program for Ukraine just last week, 
and only the IMF has the capacity to provide the full sweep of 
financial and technical support that Ukraine requires and will 
continue to require for the foreseeable future.
    The IMF is the world's first responder in a crisis of this 
kind and is the one institution with a proven track record of 
helping countries like Ukraine implement market-based 
restructuring and restore growth.
    Prominent business leaders, Members of Congress, and former 
senior Administration officials of both parties have affirmed 
that passage of the 2010 IMF quota reforms is critical to the 
United States. Blocking these reforms threatens our leadership 
position in the IMF and undermines our international 
credibility.
    Passing them, though, is a win-win for the United States. 
These reforms do not require us to commit one new dollar to the 
IMF, and they will allow us to maintain our strong influence 
within this institution.
    At this time of geopolitical uncertainty, it is critical 
that we continue to demonstrate our longstanding bipartisan 
commitment to American leadership in the world and the 
important role that the IMF plays in containing economic 
crises.
    With that, let me thank you for the opportunity to appear 
before you today, and I look forward to answering your 
questions.
    [The prepared statement of Secretary Lew can be found on 
page 46 of the appendix.]
    Chairman Hensarling. Thank you, Mr. Secretary.
    The Chair yields himself 5 minutes for questions. I want to 
start off my line of questioning dealing with the Financial 
Stability Oversight Council (FSOC) and its interaction with the 
G-20's Financial Stability Board. There is bipartisan concern 
about the--if you will, the who, what, where, when, and why of 
designating nonbank financial institutions as systemically 
important financial institutions (SIFIs), which, as you know, 
can have huge, not just domestic but global, implications for 
the financial system and the economy.
    So, Treasury is one of the members of the G-20's Financial 
Stability Board, which has designated at least three U.S. 
insurance companies now as global SIFIs: MetLife; Prudential; 
and AIG. Correct?
    Secretary Lew. That is correct.
    Chairman Hensarling. And as part of that process, did 
Treasury approve of that global SIFI designation?
    Secretary Lew. Mr. Chairman, I think it is important to put 
the FSB and FSOC responsibilities in context.
    Chairman Hensarling. Mr. Secretary, again, I am happy to 
give you time to give the context, but could we get the answer 
first and then the context? Because sometimes I fear I get the 
context; I don't get the answer--
    Secretary Lew. Mr. Chairman, the FSB is a group that acts 
by consensus, and it does not make rules for any of the 
national governments. Each of our national authorities makes 
our own rules, and only the FSOC can designate with the effect 
of that designation having real meaning in terms of what 
happens afterwards.
    Chairman Hensarling. Allow me to ask it this way then: Did 
Treasury consent in the designations?
    Secretary Lew. Mr. Chairman, the process is a consensual 
process. Ever country has its own ability to make its own 
decisions for itself.
    Chairman Hensarling. I understand that, Mr. Secretary.
    Secretary Lew. And the process--
    Chairman Hensarling. So is the answer yes, that Treasury 
consented, or did Treasury object?
    Secretary Lew. Mr. Chairman, what I am--the point I am 
trying to make is that the designation that has an effect is 
the FSOC designation. We have not made a determination with 
regard to one of the companies--
    Chairman Hensarling. I understand that.
    Secretary Lew. --with regard to others. Any decision that 
we make will be guided by the process in the FSOC, where we 
consider very carefully all the evidence, and ultimately, the 
case made by each firm.
    Chairman Hensarling. Let me try it one more time: Did 
Treasury consent or object to the designation by the Financial 
Stability Board of designating AIG, MetLife, and Prudential as 
global SIFIs?
    Secretary Lew. Mr. Chairman, it is not a vote; it is a 
consensus decision made in the FSB.
    Chairman Hensarling. I sense, Mr. Secretary, we are just 
not going to see eye-to-eye--
    Secretary Lew. Yes, I--
    Chairman Hensarling. --on what an answer to a question is--
    Secretary Lew. I think the real--
    Chairman Hensarling. --but let me move on with the limited 
time that I have.
    Secretary Lew. But if I could just--
    Chairman Hensarling. Please.
    Secretary Lew. --make one other point, Mr. Chairman.
    The process by which these designations are made is one 
where FSOC goes through very substantial analysis. It is never 
the case that you start with a decision. You always make a 
decision based on the analysis of facts, and a firm has the 
ability to--
    Chairman Hensarling. I understand that, Mr. Secretary. I am 
just trying to figure out what Treasury's decision was, and you 
seemingly--
    Secretary Lew. We have not--
    Chairman Hensarling. --won't tell us.
    Secretary Lew. --made an FSOC decision.
    Chairman Hensarling. I guess de facto, there was consent. 
But I don't understand why it is so difficult to admit it in 
open testimony if that is what happened.
    Secretary Lew. The place where Treasury will make a 
decision on whether or not to designate a firm is in the FSOC.
    Chairman Hensarling. Okay, well the question is, then, to 
what extent is FSOC following the lead or the direction of the 
Financial Stability Board, since shortly after participating in 
the Financial Stability Board's proceedings, FSOC designated at 
least two of the nonbank insurance companies as SIFIs, correct?
    Secretary Lew. Those processes were well under way at FSOC 
at that point. They were made independent of the decision made 
at the FSB based on the analysis in--
    Chairman Hensarling. How are they independent if you have 
already sat through one set of proceedings? So you are saying 
that one set of proceedings had nothing to do with the other 
set of proceedings?
    Secretary Lew. The decisions made at the Financial--the FSB 
do not require that a national authority take an action.
    Chairman Hensarling. No, I understand that, Mr. Secretary.
    Secretary Lew. And what they do--what I was going to do by 
putting it in context is, in response to the financial crisis, 
what the FSB has become is a place where an international 
conversation can take place to try and put model approaches 
that lead us closer to doing the right thing--
    Chairman Hensarling. I understand that, Mr. Secretary.
    Your time is limited and my time is limited at the moment, 
so let me just end with this statement. There is increasing, 
again, bipartisan concern about the immense discretionary power 
that FSOC has, and frankly, how little transparency it has, 
notwithstanding the actions taken yesterday. It has an 
incredible ability to take these nonbank institutions and 
effectively put them into a bailout position with very little 
transparency, with very little indication of the methodology 
used by which to make these decisions and adjudications.
    As you well know, we will have you back next month. We will 
have another hearing next month on this process. I would simply 
call upon you, as head of FSOC, to cease and desist with these 
designations until all of our questions can be answered fully 
and Congress can exercise its oversight authority over this 
incredible process.
    Secretary Lew. Well--
    Chairman Hensarling. With that, I yield 5 minutes to the 
ranking member.
    Secretary Lew. Mr. Chairman, if I may, on the question of 
FSOC, which we will have more of an opportunity to discuss, I 
think it is important to know that the statute set it up for a 
purpose and FSOC is carrying out a statutory responsibility. 
And it does it with great care and great--and a process that I 
think has great integrity.
    Chairman Hensarling. And very little transparency.
    Five minutes to the ranking member?
    Ms. Waters. Thank you very much.
    Mr. Secretary, I really want to talk about two things here. 
First of all, in your testimony you did hit on a point that 
many of us here on our side of the aisle are particularly 
concerned about. Specifically, you noted that despite the 
growth in corporate profits, and all-time highs in the stock 
market, the poor and the middle class continue to struggle to 
make ends meet.
    Could you expand a bit on your role in promoting 
opportunities for entrepreneurship and small business? What is 
Treasury's role in promoting ladders of opportunity? And what 
can Congress do to help you to be more effective in that 
mission?
    And in answering that question, could you talk a little bit 
about the Small Business Access to Capital Act? I have co-
sponsored that with Gary Peters. This would help to create 
opportunities for small businesses by granting them access to 
capital they need to grow their businesses. I know there is 
some activity over in the Treasury. Could you help me out a 
little bit on that?
    Secretary Lew. Congresswoman, we obviously worry at large 
about the state of the economy, because growth in the economy 
has everything to do with how small businesses and--and middle-
class families will do. But with specific regard to small 
business, there are a number of programs at Treasury that I 
think have been enormously helpful, and they range from the New 
Markets Tax Credit to the CDFI programs to the States Small 
Business Investment Initiative.
    I think if you look at these programs--and when I was in 
Detroit I got a chance to see each of these programs, the 
results that we were having. It was very important to actually 
see what is happening with these programs.
    The SSBCI program--there is a parts manufacturing plant in 
Detroit which is making factory replacement parts for U.S. auto 
manufacturers. Those parts would not be manufactured in the 
United States, probably, if there had not been the assistance 
from SSBCI to get the kind of financing necessary to take a 
plant that would have been a vacant and--a property that was an 
eyesore and turn it into 200 local jobs.
    So I think the act that you are describing that you have 
co-sponsored would reauthorize SSBCI, and we would look forward 
to working with you and the Congress to finding a path towards 
continuing to invest in economic growth that is generated by 
small businesses in urban and rural areas.
    Ms. Waters. I am very appreciative of that.
    And I will be in contact with you about the New Markets Tax 
Credits. I think there needs to be a little reform there. We 
have so many of the bigger organizations or companies or 
businesses that are having the advantage of the program, but we 
have a lot of other community organizations that want to get 
more involved. So, we will talk about that more.
    This gives me an opportunity now to talk about servicing. I 
understand that the Financial Stability Oversight Council's 
annual report, which came out yesterday, identified market 
servicing--in particular, nonbank market servicing--as an 
emerging issue that we should all be paying a close attention 
to.
    On the issue of nonbank services, the report notes that 
market servicing rights are increasingly being transferred to 
these companies. While the Consumer Financial Protection Bureau 
(CFPB) servicing rules apply to these companies with regard to 
consumer protection, many of these companies are not subject to 
prudential standards such as capital, liquidity, or risk 
management.
    Now, I am paying attention to this because in the subprime 
meltdown--and doing loan modifications I learned an awful lot 
about the services. I learned that many of them were not well-
trained; I learned that many of them were involved in ways that 
they could benefit from having second liens themselves; on and 
on and on.
    So we are worried about this. Can you tell us what you 
know, what you understand about these services? And should we 
be paying attention to this report that just came out?
    Secretary Lew. Congresswoman, the reason that we 
highlighted it in the FSOC annual report is it is an area that 
we think warrants more attention. The CFPB plays a very 
important role in terms of the consumer protection aspect of 
it, but as unregulated entities, the questions that you pointed 
to in terms of capital, liquidity, and servicing capacity are 
very important.
    Our mortgage system only works well when payments are made 
and credited properly and the system flows. If that function 
were to break down in any way, it would wreak havoc with the 
mortgage system.
    We didn't put it in the report because we think that it is 
today a burning crisis; we put it in because the job of FSOC is 
to look ahead at what are the problems that could emerge. This 
is one of the areas which we think warrants additional 
attention. And I think it is one of the really sensible things 
about FSOC, which is that it is not made to ask what happened 
in the last crisis, but what are the things we should be 
worrying about as we look forward.
    Ms. Waters. Thank you. Servicing is an extremely important 
issue. Thank you.
    I yield back.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from California, the 
Chair of our Monetary Policy and Trade Subcommittee, Mr. 
Campbell, for 5 minutes.
    Mr. Campbell. Thank you, Mr. Chairman.
    Back to international affairs, if we may, let's start at 
the point of agreement. IMF is important. The United States' 
leadership in it is important. Agreed?
    Secretary Lew. I think we agree on that.
    Mr. Campbell. Okay.
    Secretary Lew. I hope we agree on that.
    Mr. Campbell. All right. Very good.
    So, let's get to the matter of the two places where we 
disagree, the first being the matter of how much capital the 
IMF needs to perform their function and how much additional 
U.S. taxpayer money. Now if I can put this in some perspective 
for you, one of the things that we will all be struggling with 
later this summer--and the Administration as well--is the 
bankruptcy or lack of cash running out of the transportation 
fund.
    And we could bring this money back. I understand it is 
scored as an investment, so if--and I understand--$100 billion 
went in there in 2009. We can't get all $100 billion back 
because some of that money has been permanently deployed, but 
we can get $50 billion or $60 billion or so back, and it would 
score at something, which arguably we could use to help with 
this rather difficult situation that we are facing this summer.
    Are you open to discussing something different than the 
agreement that was made in 2010 in terms of the United States' 
financial commitment to the IMF--or additional financial 
commitment?
    Secretary Lew. Congressman, I don't think we get to 
unilaterally decide to reopen the 2010 agreement. The 2010 
agreement is an international agreement. If we walk away from 
it, it falls apart and there is no agreement. So it leaves the 
IMF in a place where it has no ability to address the reform 
issues or to recapitalize the quota system.
    I actually don't agree with your characterization of there 
being sufficient resources in the IMF if you were to withdraw 
the new arrangement to borrow monies. Right now, the way the 
IMF is planning to deal with a crisis, were a crisis to 
develop, would be to use both the quota and the NAB. We saw in 
2008-2009 how quickly resources get called into play.
    I actually don't think that if we and other countries 
withdrew from the new arrangements to borrow and the quota 
reform is not enacted that the IMF would be properly funded to 
deal with a crisis.
    So I think that is a fundamental difference in terms of 
what the need is.
    Mr. Campbell. And on your second point, that is a 
legitimate disagreement. You don't know. Nobody can know for 
sure how much more they might need or what crisis would occur.
    And of course, the IMF is not the only international 
entity; it is not the only one supporting Ukraine; it is not 
the only one out there that is available. So, granted. That is 
simply a disagreement as to whether additional U.S. taxpayer 
money--given all the limitations we have on that these days--is 
best deployed in that way.
    To your first point that you made though, I agree, if we 
walk away from the 2010 deal it falls apart and there is no 
deal, but we can make a new deal, can't we?
    Secretary Lew. The 2010 agreement was worked on for many 
years between two Administrations. It reflected a compromise 
where the United States maintained its position and Europe 
essentially gave up share so emerging markets could have a 
growing share. It preserved our veto power and our leadership 
role in the institution.
    I think it is a good deal for the United States. I think it 
is a good deal for the IMF. I think opening it up creates an 
enormous amount of uncertainty.
    And I actually think the point you just made about there 
are other institutions, I don't think there is another 
institution. There is no other institution that could have 
provided almost $18 billion of support for Ukraine in the time 
that the IMF did.
    And that will be the foundation for Ukraine having an 
economically viable future and a politically stable one.
    Mr. Campbell. My only point is that the E.U. came in with 
money. We came in with money directly.
    Secretary Lew. But it is all built on the IMF.
    Mr. Campbell. There were other--no, I am not disagreeing 
with that. I am just saying that it doesn't have to be 100 
percent of all that goes in there.
    Going back to the reforms, because I have less than a 
minute here, do you agree with me--or with us up here--that 
ideally we would like those reforms to go farther than they 
did?
    Secretary Lew. I think that the world--you made the point 
in your opening remarks that the world has changed since 2010. 
I hear that from a lot of countries in the world who say that 
since 2010, they have issues they would like to address.
    The problem is if you were to go back and address those 
issues now, I don't know that it would get resolved in a way 
that is as constructive as 2010. It would take a very long 
time. And the 2010 agreement was a good step.
    Mr. Campbell. I hate to cut you off, but in my last 10 
seconds, I would just like to leave you with this thought. We 
have been at odds on this thing. We don't have to be at odds. I 
think it would be more constructive if we had conversations 
rather than just throw things at each other over a wall.
    Secretary Lew. I agree with that. You and I have had good 
conversations in private on this. I have talked to dozens of 
Members of the House and the Senate on this, and I will 
continue to make myself available for those conversations any 
time.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Missouri, Mr. Clay, 
the ranking member of our Monetary Policy and Trade 
Subcommittee.
    Mr. Clay. Thank you, Mr. Chairman.
    And, Mr. Secretary, I have just received a letter from 
Assistant Secretary Fitzpayne in response to our inquiry, a 
letter dated April 9th and I am just seeing it. But I have 
noticed that the U.S. contribution of $120 million to the Haiti 
reconstruction fund, and that deals with housing 
reconstruction, rubble removal, and education. Do you have 
anything else you can update us on as far as progress?
    Secretary Lew. Congressman, we did respond, as you noted. I 
would be happy to go back and get a more detailed response. I 
think the history of providing assistance in Haiti has been 
very challenging, not just in response this round but in 
previous rounds.
    It is something that we have put an awful lot of effort 
into trying to make sure that the assistance we provide and 
that is provided through international financial institutions 
builds a foundation for a sustainable future for Haiti. But 
Haiti is a very, very difficult challenge.
    I think it is hard to compare countries. Haiti has a lot of 
unique characteristics. We very much want that money to be used 
well and to leave Haiti with a stable future. We look forward 
to working with you to go through the analysis of that.
    Mr. Clay. Thank you so much.
    Let's shift to the Ukraine. There is a perception that 
quite a few of our European partners rely on imports of fuel 
and natural gas from Russia. Talk about the effectiveness of 
strategy by targeting the inner circle of billionaires close to 
Vladimir Putin and what kind of impact that has had.
    Secretary Lew. Congressman, our strategy from the start has 
been to make clear that we were going to take decisive action. 
It would be action that they felt and that it would be 
indicative of our willingness to go further down that path 
should we need to.
    The sanctions that we have put in place have targeted 
people in the Russian government, some of the largest business 
executives in Russia, a bank that is the bank that many of 
these people who are close to the president of Russia bank at. 
And it has gotten their attention.
    I think that we see many indications that they are very 
concerned about the sanctions, that it is hurting their 
economy. The thing about sanctions that I always say, 
regardless of country, is sanctions do not change the policies 
of another country; sanctions create an environment where 
leaders understand the consequences that if they fail to change 
their policies, their country is going to be hurt.
    And I think that we have succeeded in that, and part of the 
reason we have succeeded is the resolve we have shown. The 
President has put in place an Executive Order that makes very 
clear that we have more tools at our disposal.
    I think our cooperation with the European allies is very 
important. If we act alone in the world, it doesn't have the 
same effect. If we sanction a company and somebody from another 
country comes in and does business with it, then that is back-
filling the activity that we have shut down.
    So it is very important to cooperate on international 
lines. We are working with the G-7, with our European allies, 
and we--I do it with my counterparts at the finance minister 
level; the President does it with leaders; the Secretary of 
State does it with foreign ministers.
    I think we are making progress. I think the meetings that 
the President and Chancellor Merkel had last Friday reflected 
that, as did their public statements.
    Mr. Clay. About the $1 billion loan guarantee agreement, 
how will the loan guarantee help return Ukraine to a path of 
economic recovery?
    Secretary Lew. The package that the IMF put in place, 
which, as you know, is close to $18 billion, is going to create 
challenges in the Ukrainian economy. It is going to raise gas 
prices; it is going to result in a weaker exchange rate.
    The burden needs to be borne by those who can afford to 
bear it, and the billion dollar loan guarantee in large part 
will be used to make sure that those who really can't bear the 
burden have some recourse.
    As a matter of preserving political stability, that is very 
important. It is one thing to tell a company that can use gas 
more efficiently that it is going to be paying more for gas; it 
is another thing to tell families to shut off the heat in a 
cold winter.
    So I think our loan guarantee is a very important piece 
that fits in. And, the IMF is sometimes in a position where it 
imposes conditions that are quite difficult. The loan guarantee 
is meant to put some real funding behind easing some of the 
burden on the most vulnerable people in Ukraine.
    Mr. Clay. Thank you, Mr. Secretary, for your response.
    Mr. Chairman, I yield back.
    Chairman Hensarling. The Chair now recognizes the 
gentlelady from West Virginia, the Chair of our Financial 
Institutions Subcommittee, Mrs. Capito, for 5 minutes.
    Mrs. Capito. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary, for returning to the 
committee. You might recall that the last time you were here, 
in December, the two of us had a brief conversation about the 
guidance on the financing of coal plants by MDBs, and today I 
have some specific questions about that guidance.
    Mr. Upton and Mr. Whitfield wrote to you to gather 
additional background information about how the guidance was 
developed, and I would like to ask unanimous consent to insert 
the letter to Secretary Lew from the two Representatives into 
the record.
    Chairman Hensarling. Without objection, it is so ordered.
    Mrs. Capito. Yes. I believe they sent this nearly 5 months 
ago, and to this date they have not received a response from 
you.
    I have a couple of questions. Countries other than the 
United States provide support for coal-fired power plants 
overseas. For instance, China's export-import bank recently 
made a $1 billion investment in a Serbian coal plant. In many 
cases, don't you feel that the financing from developing 
countries or development banks in countries like China simply 
replace our U.S. financing and cause developing countries to 
use the Chinese coal technologies and equipment, et cetera, 
rather than coal technology made in the United States?
    Secretary Lew. Congresswoman, we obviously have been 
working with our international partners to fashion an approach 
to energy in developing countries where we promote resources 
that will not contribute to the climate problems that we have. 
We have not made it a uniform approach. For the poorest 
countries, we continue to have an exception for coal 
facilities--
    Mrs. Capito. Have you done that? Have these MDBs 
participated in the financing of coal plants in the poor 
countries, to your knowledge?
    Secretary Lew. I would have to check what the approvals 
have been, but I know our position is that for the very poorest 
countries, we would support them.
    I would say that the MDBs have supported some coal projects 
that we absented ourselves from voting on, for example in 
Pakistan. So, there has been approval of coal projects.
    I think the challenge we have in part is, how do we put 
technologies in place that are truly sustainable in those 
environments. It is actually not very likely that many of the 
poor countries would be buying lots of coal from the United 
States. That is not where they are--we are not selling a lot of 
coal to developing countries.
    You asked the question about technologies, and I think that 
is actually the more relevant issue.
    Mrs. Capito. Right.
    Secretary Lew. We have a lot of technologies that we think 
ought to be in the mix of what they are buying, and we very 
much would like the mix of technologies to be one that both 
promotes access of U.S. companies to sell technology, but also 
clean and sustainable energy resources.
    Mrs. Capito. I think the concern is that we are dis-
incenting our American technology to go around the world, and 
we are requiring CCS and things that are really unobtainable, 
particularly in an economic model.
    Let me ask you another question in this vein. What other 
Federal agencies did Treasury talk to, to develop this 
guidance? Was it EPA? Did you talk to Nettle in Morgantown, 
West Virginia, where they are doing a lot of the development of 
these technologies? What kind of other folks weighed in on 
this?
    Secretary Lew. There was an interagency discussion. I would 
have to go back and check with the participants--
    Mrs. Capito. Okay. I think that is part of the questions 
the two Congressmen have asked that I would like to get an 
answer to.
    I am going to shift gears here quickly. As Chair of the 
Financial Institutions Subcommittee, we have obviously spent a 
lot of time trying to protect and work with our community banks 
and credit unions to not put them in this one-size-fits-all.
    What kind of consideration, when you are going out into the 
international regulatory arena, are you giving to make sure 
that we are not bringing regulations from an international 
regime into our country that has a totally different banking 
system, that we are asking some folks to change their business 
models--insurance companies is another example--that really 
doesn't fit into this model? What can you tell them about 
that--tell us?
    Secretary Lew. Congresswoman, what I tell them is that we 
have taken great care--Congress has taken great care as it has 
written its laws and regulators have taken great care as they 
have implemented them to make sure that they don't have a one-
size-fits-all approach, that they treat community banks, where 
appropriate, differently, and they have been exempted from many 
rules and have special provisions put in that reflect their 
economic realities.
    I actually make the case in international meetings that we 
have a banking system that reaches out to all parts of our 
economy and actually makes capital available in communities to 
small businesses in a way that they don't. So, I use our system 
as something of an example, because there is a real problem in 
Europe, for example, with access to capital by small 
businesses.
    Mrs. Capito. Well, we need to preserve that.
    Secretary Lew. We do.
    Mrs. Capito. And I appreciate your comments. Thank you.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentlelady from New York, Mrs. 
Maloney, the ranking member of our Capital Market Subcommittee.
    Mrs. Maloney. Welcome, Secretary Lew. I want to ask you 
about the current report on terrorism risk insurance from the 
President's working group on financial markets, which you 
chair.
    The report found that TRIA has been a resounding success 
since it was enacted in 2002. It has ensured that terrorism 
risk insurance is available and has kept prices steady and 
affordable.
    But the report also contains some troubling information. It 
found that, ``the market currently is tightening in light of 
uncertainty as to whether TRIA will be renewed.''
    Based on this, would you say that Congress' and this 
committee's failure to swiftly reauthorize TRIA is actually 
harming the American economy by driving up insurance prices 
unnecessarily?
    Secretary Lew. Congresswoman, we strongly support the 
reauthorization of TRIA, and we think the sooner the better. 
The market has changed since the attack on the World Trade 
Center gave rise to the need for a program like this, but it 
hasn't completely healed.
    And I think it is a real problem if there is not an 
extension of TRIA, and in our largest, most populated areas, 
institutions start having challenges getting terrorism 
insurance. At the time when it was put into effect, I had 
firsthand knowledge of what it meant to try to get terrorism 
insurance. I worked as chief operating officer for New York's 
largest employer, and we didn't have access to private 
insurance at the time. It was very scary.
    So I think it is important. We have to work together on 
this. We have to do it in a way that reflects the changes in 
the market. And I think the sooner we have that conversation to 
work on a bipartisan way to get it enacted, the better.
    Mrs. Maloney. As we all know, and I am sure you know, too, 
it is very rare that Congress passes a bill that does exactly 
what it is supposed to do and doesn't cost the taxpayers one 
cent. But that is exactly what happened with the passage of 
TRIA, and it has been successful for over a decade.
    So my question is, based on the report from the President's 
working group, do you think it is wise to make any dramatic 
changes in TRIA?
    Secretary Lew. Congresswoman, I think that reauthorizing is 
critically important. And we should look at whether or not 
changes can be agreed to that are appropriate, but 
reauthorizing it is the critical issue. And we have made clear 
we want to work together on that.
    Mrs. Maloney. Does the private market have the capacity to 
step in if the government exits the terrorism risk insurance 
market?
    Secretary Lew. I think, as our report indicated, we don't 
think that the private market would be able to fully meet the 
needs and there would be an issue of the price. It is obviously 
not exactly the same situation we had in 2001, but the need is 
still there. And that is why reauthorization is so important.
    Mrs. Maloney. And obviously if, God forbid, we have another 
attack, the government will respond and be as helpful as 
possible. Wouldn't you say that it makes all the sense in the 
world to have this framework in place in the event that you do 
have it?
    Secretary Lew. I think it is better to anticipate and 
insure against risks than it is to just wait until something 
happens and then there is no one, other than the government, 
who can step in.
    Mrs. Maloney. Do you think increasing the trigger for that 
government backstop in TRIA will force small and medium-sized 
insurers out of the market entirely, ultimately increasing the 
cost to government?
    Secretary Lew. The question of the trigger is one that I 
would be happy to look at in detail. Obviously, the existing 
program has worked well. Whether or not there is any room there 
is something that I would have to examine.
    Mrs. Maloney. And in terms of the reauthorization, do you 
think that reauthorizing the program for 3 years will provide 
enough certainty for the markets? Most of us have supported 
legislation for 5 years or 10 years. What do you think about 
the idea of just 3 years for the TRIA reauthorization?
    Secretary Lew. In general, you hear from the business 
community certainty is just critical to their comfort in making 
investment decisions, so I think more certainty is better than 
less. But reauthorization is better than expiration. So, it is 
a conversation that I think we all ought to have.
    Mrs. Maloney. Thank you for your testimony.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentleman from New Jersey, Mr. 
Garrett, Chair of our Capital Markets Subcommittee.
    Mr. Garrett. Thanks. I didn't hear the Secretary's 
schedule. You are here today for about 2 hours, is that 
correct?
    Secretary Lew. That is correct.
    Mr. Garrett. Yes. And did I hear--are you scheduled to be 
with us next week?
    Secretary Lew. Our offices are working on--
    Mr. Garrett. But are you scheduled here next week?
    Secretary Lew. I think our offices are working on finding a 
time that is--
    Mr. Garrett. All right. I was hoping that I could get a 
``no,'' so I could lay the foundation to actually get a yes-or-
no answer out of you, but even on a simple question like that, 
I guess I can't. So let's go on to the substantive questions.
    Secretary Lew. I don't believe next week is one of the 
options, but--
    Mr. Garrett. Right. Let's go on to the substance.
    FSB, in their press release, says that they made the 
designations that the chairman talked about in consultation 
with IAFIS and national authorities. Yes-or-no question: Are 
you the national authority that they consulted with?
    Secretary Lew. There are a number of U.S. representatives 
on the FSB.
    Mr. Garrett. And are you the national authority that they 
consulted with on this issue?
    Secretary Lew. I am trying to answer your question. There 
are multiple U.S. authorities--
    Mr. Garrett. Who are they?
    Secretary Lew. It is the Federal Reserve Board and the 
SEC--yes, the Federal Reserve Board and the SEC.
    Mr. Garrett. Okay. So they did this in consultation--and 
your word was there was a consensus--was there a vote taken by 
all the authorities--U.S. authorities? Because it is the--
    Secretary Lew. Typically, the FSB is not a body that votes, 
so that is why--when a body acts by consensus it usually--
    Mr. Garrett. When a body works by consensus, it says--has 
the people in the room and says, ``Let's see where everybody 
stands on it.'' So did the U.S. authorities all agree with this 
position? Did they say where they--did you indicate where you 
felt on this position?
    Secretary Lew. Look, I expressed my views on these matters 
in FSOC meetings.
    Mr. Garrett. I am asking here, did you give your position 
on this, and did each of the other U.S. authorities give their 
position on the insurers? That is a yes-or-no question.
    Secretary Lew. Congressman, it is not really a yes-or-no 
question, because the--
    Mr. Garrett. You did not give your opinion?
    Secretary Lew. We have representatives who participate in 
the FSB.
    Mr. Garrett. I understand that. Did you give your opinion?
    Secretary Lew. The process that I--
    Mr. Garrett. Did you give your opinion? I want a yes or a 
no.
    Secretary Lew. I am trying to answer your question, 
Congressman. The process--
    Mr. Garrett. Would you please give me a yes or a no? You 
could tell us how many hours you are going to be here. Can you 
tell me whether you gave your opinion on whether these should 
be globally--
    Secretary Lew. Congressman, I expressed my views on these 
matters in the FSOC.
    Mr. Garrett. So the answer is yes. Okay.
    Secretary Lew. I have never relinquished my ability to make 
decisions to anybody other than FSOC.
    Mr. Garrett. Thank you. So the answer is yes, you gave your 
opinion. Did the other U.S. authorities give their opinion?
    Secretary Lew. You will have to ask the other authorities.
    Mr. Garrett. So was it the consensus of the U.S. 
authorities--did you agree that this was the correct decision 
by the--
    Secretary Lew. Congressman, I understand you are trying to 
ask yes-or-no questions, but to maybe answer your question, if 
you will just give me the ability to give--
    Mr. Garrett. I would love to do that in writing or in 
meetings. But you have not returned my phone calls and you have 
not agreed to a meeting with me, so I am doing it here.
    Are you the national authority on the areas dealing with 
asset management? Would you be the authority in that area or 
would that be the SEC?
    Secretary Lew. Congressman, the--
    Mr. Garrett. Yes?
    Secretary Lew. FSOC is now looking at questions regarding 
asset management. The regulatory body that has principal 
regulatory jurisdiction over asset managers is in many cases 
the SEC, but there are aspects of it regulated by other 
agencies as well.
    Mr. Garrett. So would they be the authority that would be 
responsible in this matter?
    Secretary Lew. U.S. regulatory bodies do not make their 
decisions in international group.
    Mr. Garrett. If they don't, who does?
    Secretary Lew. The FSB is not making U.S. policy. It is--
    Mr. Garrett. I am asking a simple question. As far as the 
decisions at FSB that the U.S. regulators are present at, that 
you have already identified, will you be the authority in this 
area? Will all three of you have to agree? Will the SEC have 
the authority to make this decision?
    Who makes these decisions? If we don't know, then maybe we 
should have legislation directing this, if you can't give us a 
yes-or-no answer.
    Secretary Lew. Congressman, I would be happy to speak to 
you about how the FSB works and the important function it 
plays.
    Mr. Garrett. Would you be happy to also give us the 
criteria that the FSB and the FSOC use in their criteria 
decision-making, as well?
    Secretary Lew. The FSOC has worked in a very systematic 
way.
    Mr. Garrett. Would you be willing to give us the criteria 
for--by FSB and by FSOC? That is a yes-or-no question.
    Secretary Lew. FSOC has published on its Web site a lot of 
information about designations made--
    Mr. Garrett. They have a lot of information.
    Secretary Lew. Yes.
    Mr. Garrett. They have not indicated what their criteria 
is. So would you be willing to say here and now that for both 
FSB and for FSOC that you would identify specifically what the 
criteria is? And if not, why not?
    Secretary Lew. Congressman, we have indicated the basis for 
our judgments in FSOC where we have made designations, and as I 
have said a number of times, the FSB--
    Mr. Garrett. Would you be willing to allow Members of 
Congress to appear and attend these FSOC meetings, closed 
meetings?
    Secretary Lew. That is a separate question.
    Mr. Garrett. It is the next question. Very good.
    Secretary Lew. I have 1 second. I am happy to answer your 
question--
    Mr. Garrett. Would you allow Members of Congress to come 
into closed meetings? If not, why not?
    Chairman Hensarling. Brief answer, if possible.
    Secretary Lew. The FSOC process is one that balances 
carefully the important issues of transparency with the need to 
deal with issues that are regulatory matters where proprietary 
and confidential information and supervisory information is 
discussed. We work very hard to create a way of balancing that 
and I look forward to working with you on it.
    Mr. Garrett. Is that a yes or a no?
    Secretary Lew. I don't think open FSOC meetings are the--
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, Ms. 
Velazquez, for 5 minutes.
    Ms. Velazquez. Thank you, Mr. Chairman.
    And welcome, Mr. Secretary.
    U.S. participation in the IMF advances many of our 
interests overseas, notably developing foreign markets for 
small business exports. Can you please elaborate on how our 
continued support of the IMF helps our economy and small 
businesses create jobs? And I do not want a yes-or-no answer.
    Secretary Lew. Thank you.
    Congresswoman, if you look at where the demand in the world 
is, it is mostly outside of the United States. Europe is the 
largest export market. At a time when the IMF stepped in during 
the financial crisis to make sure that Europe didn't just 
continue to just careen into a depression, that meant that 
there would be demand for U.S. products.
    And it is not one-to-one. You can't say that if the economy 
avoids depression business X, then business Y or Z gets a 
certain amount of business. But we know the aggregate, U.S. 
exports are higher and small businesses are a big part of that.
    So I think that the United States has both economic and 
national security reasons that the IMF is just of critical 
importance. And our leadership in the world is very much 
compromised when we don't keep our commitments like the 2010 
reforms, or we make a situation where the world is looking at 
the United States as the obstacle to moving into a more secure 
place.
    Ms. Velazquez. Thank you.
    Secretary Lew. Just in the case of Ukraine, we pushed very 
hard for the kind of package that the IMF ended up putting in 
place. I am proud of the fact that we succeeded, but I can tell 
you, it was harder because we are the one country that is 
standing in the way of the IMF reforms.
    Ms. Velazquez. Thank you.
    Mr. Secretary, the United States continues to negotiate 
with its 11 partners in terms of the Trans-Pacific Partnership 
trade agreement. As you know, the Administration has been less 
than forthcoming with specifics of the agreement.
    Can you elaborate today on how this trade agreement will 
benefit U.S. small and medium-sized exporters?
    Secretary Lew. Congresswoman, Ambassador Froman has been up 
for many meetings on the Hill and I have been up for many 
meetings on the Hill. We look forward to continuing to consult 
with Congress. Obviously, I have relatively narrow areas of 
responsibility of the financial sector and USTR has the broad 
responsibilities.
    I would just point to the meetings that the President had 
just a few days ago in Japan, and it underscores the importance 
to the U.S. economy. The President was insisting that one of 
the things that has to happen with TPP is that Japan has to 
open its auto and agriculture sectors to imports. While there 
wasn't a final agreement, I think there was progress made there 
that is laying the way for an agreement which will open 
important markets.
    Overall, I think the United States has a great interest in 
being part of the growing Pacific economy, and it would not 
serve U.S. interest if we didn't have a high-quality agreement 
where we got to sell our goods.
    Ms. Velazquez. Can we trust that there will be safeguards 
in place so that small and medium-sized businesses will not be 
put at a disadvantage?
    Secretary Lew. The theory behind TPP was a new approach to 
trade agreements. It was to say we are going to set a high 
level and only countries that are willing to abide by high 
standards can be part of it. So if we can get a high standards 
agreement, I think it will help across the board with U.S. 
exports, and that will help small businesses.
    Ms. Velazquez. Thank you.
    After we experienced our own financial crisis in 2008, this 
government took drastic action to stabilize the system, 
stimulate the economy, and enact strong new financial reforms. 
But some have argued that these measures have placed U.S. 
companies at a competitive disadvantage.
    With our economy now in strengthening recovery, can we now 
say that the U.S. firms actually have an advantage over foreign 
competitors as a result of our efforts?
    Secretary Lew. I think that if you look at the U.S. 
recovery, it has been stronger and deeper and longer than 
recoveries in other places because we responded with clarity 
and decisiveness, both in terms of our fiscal policy and in 
terms of financial reform. I am proud of the fact that we are 
leaders in driving the world to its higher standards so that we 
don't have a crisis like that again.
    And it is important that we cooperate in international 
bodies where we don't relinquish our decision-making but what 
we do is try to drive the world to a higher standard overall so 
that we are not out there alone with high standards. Frankly, 
this is not a world where you can have your own high standards 
and be safe if you don't have high standards around the world.
    Ms. Velazquez. Thank you.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Neugebauer, Chair of our Housing and Insurance Subcommittee.
    Mr. Neugebauer. Secretary Lew, thank you for being here 
today.
    As you know, Mr. Secretary, in the President's 2015 budget 
proposal, it had a section on the Terrorism Risk Insurance Act 
(TRIA). In that proposed section it stated that the 
Administration was committed to implementing reforms to limit 
taxpayers' exposure, achieve cost neutrality. It also went on 
to say that it would work to identify appropriate adjustments 
that would achieve a full transition to the private sector. And 
then finally, the section offered suggested reforms to be 
increasing the program trigger and the industry co-pay.
    Mr. Secretary, is that pretty much the Administration's 
current position on TRIA?
    Secretary Lew. As I was saying just a few moments ago, our 
position is that TRIA needs to be reauthorized and we look 
forward to working with Congress on a bipartisan basis to 
reauthorize it in a way that is effective.
    Mr. Neugebauer. So, Mr. Secretary, did you not have any 
input into the President's budget proposal under the TRIA 
section, since TRIA falls under your--
    Secretary Lew. No. I have tried to indicate an openness to 
looking at either straight reauthorization--
    Mr. Neugebauer. Mr. Secretary, the question is did your--
did Treasury have--write that part of the--I know that all of 
the agencies pool together as the President puts the budget 
together, but that comment should have originated from Treasury 
since you oversee TRIA, right?
    Secretary Lew. The provisions in the budget reflect the 
Administration view. The report that we issued--
    Mr. Neugebauer. So the Administration view, then, is that 
you think we should move to, and I quote again, ``transition to 
the private sector,'' and that some of the suggested reforms 
are to change the program trigger and the co-pay? That would be 
the Administration's position?
    Secretary Lew. Any specific decisions we would make on 
provisions would have to be connected to our most current 
analysis of what the market conditions are, and the impact. The 
report that we just recently issued indicates that the market 
is not ready to step in and do this without an ongoing 
extension of TRIA.
    Mr. Neugebauer. But transitioning to the private sector was 
a part--and I quote--``achieve a full transition to the private 
sector.'' That is Treasury's decision?
    Secretary Lew. Yes. But I didn't--I don't recall the 
timeframe. I don't know that there was a timeframe in there.
    Mr. Neugebauer. It says transition, and so--but you would 
support transition to the private sector over a period of time?
    Secretary Lew. But the question of can we--could we not 
have TRIA and have access to insurance? We do not believe that 
right now the market is such that without TRIA there would be 
adequate access to this insurance.
    Mr. Neugebauer. But maybe changing the program triggers and 
the co-pay would be one way to transition to that?
    Secretary Lew. I am happy to discuss specific issues, but I 
don't think any of the language you read suggests specific 
positions based on the current conditions of the market.
    Mr. Neugebauer. When was this written? What do you know now 
that you didn't know then?
    Secretary Lew. The report that was just issued--was issued 
just about a week or 2 ago is the most current analysis. And we 
would look forward to working on a bipartisan basis to 
reauthorize TRIA and we would be open to ideas that are 
consistent with the policy that we have set forth. But not 
having a reauthorization or having a reauthorization that 
doesn't permit market access would be a bad thing.
    Mr. Neugebauer. I want to go back to another issue that 
some of my colleagues have been talking about, but in a little 
bit different perspective. I know that they have been talking 
about the Financial Stability Board's role and your interaction 
and maybe the Fed's interaction on the designation of GISIs. 
But as you also know, the Financial Stability Board has 
directed the International Association of Insurance Supervisors 
(IAIS) to come up with capital standards for internationally 
active insurers, and this would impact about 40 of our domestic 
companies.
    I think the real question that we have here and the reason, 
Mr. Secretary, that you are getting a lot of questions here is, 
I think there is a lot of concern, both from Members of 
Congress and the industry, that who is representing the U.S. 
interests at the table? And if you acquiesce and say you 
support some of the things that this Financial Stability Board 
is proposing and some of these international agencies begin to 
adopt these standards, it could impact the competitiveness of 
U.S. companies.
    And I think what we want to hear is that you are not saying 
with a wink and a nod to the Financial Stability Board, ``Hey, 
we support these ideas.'' I think a lot of folks are concerned 
that the U.S. regulatory structure is adequate and that the 
insurance industry did probably did as well as any financial 
industry during the downturn.
    Secretary Lew. Congressman, I have tried to make it clear 
that any designation of U.S. firms will be made in FSOC by a 
process that is very thorough and listens carefully to the 
concerns raised by U.S. firms. I do think there is real benefit 
to the FSB looking at issues on a global international basis to 
have standards where other countries are lifting their 
standards as well. We have never delegated our ability to be 
the supervisors of our own firms.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from California, Mr. 
Sherman, for 5 minutes.
    Mr. Sherman. A couple of observations: These standards we 
are negotiating for are published standards. Our Asian 
competitors are experts in unpublished and sub rosa obstacles 
that our small businesses simply can't deal with.
    And also, as to the IMF developing markets, it is also 
developing competitors, both good and bad.
    As to China currency, Mr. Secretary, we have talked about 
it before. A recent report that China is boasting about shows 
that on a purchasing power parity basis, China's economy is 
roughly the size of ours. What that means is that on the 
standard they are bragging about, their currency is undervalued 
not by 20 percent or 30 percent, but 50 percent.
    I know you are working to try to push up their currency. We 
could identify them as a currency manipulator and impose 
tariffs. I know that isn't the Administration position. But I 
hope you would take a look at the Chinese boasting that the 
real measure of the size of their economy, and hence, the real 
measure of their currency, shows a 50 percent undervaluation.
    I want to turn your attention to Norwalk, Connecticut. 
There is the Financial Accounting Standards Board, which is 
proposing that we capitalize all leases. This will add $2 
trillion to the liabilities of American businesses and $2 
trillion to the assets, as well. This will throw off every 
ratio between liabilities and owner's equity and is estimated 
to devastate not only real estate but manufacturing and retail. 
It cost millions of jobs--$400 billion off of our GDP.
    I don't think you came here to discuss that, but I do 
hope--usually you would just leave to Norwalk, Connecticut, and 
the FASB these intricate issues, but when we are talking about 
trillions of dollars on balance sheets and hundreds of billions 
of dollars of effective--on our economy, I hope that you and 
your staff would take a look at this FASB proposal.
    Secretary Lew. We would be happy to take a look at it.
    Mr. Sherman. In May and December of last year you came and 
said you would be happy to take a look at the California system 
for worldwide unitary apportionment. Because one of the 
questions you haven't been asked here is, if a television set 
is designed in Japan, manufactured in Malaysia, and sold in 
California, where is the profit earned? And the answer, of 
course, is the Cayman Islands.
    We need to go with a new system for calculating what 
portion of a multinational's income is subject to U.S. tax. I 
know you promised to look at it then. I can't imagine that you 
have had the time.
    Secretary Lew. I actually did go back, and my Assistant 
Secretary for Tax Policy has taken a look at it and he would be 
happy to follow up with you.
    Mr. Sherman. Okay. So I will give him a call and we will 
take it from there. And that is--
    Secretary Lew. And, Congressman, if I can just go back to 
your characterization about the size of the Chinese economy, I 
think that just for--
    Mr. Sherman. I want to squeeze in another question. I have 
made the point before. Their currency is undervalued. I hope 
you do even more--
    Secretary Lew. I just want to defend the U.S. economy. 
Our--
    Mr. Sherman. It is a great economy.
    Secretary Lew. --per capita purchasing power--
    Mr. Sherman. Mr. Secretary--
    Secretary Lew. --and our strength in the world is number 
one still.
    Mr. Sherman. We are number one. Go, America. Next question.
    Secretary Lew. I don't think anyone would trade their 
economy for ours.
    Mr. Sherman. I am not trading anything for anybody. Go, 
America.
    Now, you are trying to get us to go along with this IMF 
change. You have said the IMF being under this new and the 
existing system, we have a veto over what decisions they make. 
And I was told often that we had a veto at the World Bank, a 
very similar institution. And then the World Bank loaned $1.4 
billion to Iran.
    I had a chance just last week to talk to the number two at 
the IMF--a Chinese national, Zhu Min. He tells me that, no, the 
United States does not have the kind of veto that would 
prevent--which would allow us to prevent IMF lending to Iran 
and that, in fact, the IMF has an economic team in Tehran now 
doing the work that would allow the IMF and other international 
lenders to decide whether to make loans to Iran.
    Now I hope that the United States and Europe remain united 
as to what sanctions to impose on Iran, but I don't know what 
the policies are going to be. Can you go back to the 
negotiating table before you come to Congress to negotiate--go 
back to the negotiating table at the IMF and say, ``We need to 
go to Congress and prove to them that we alone can block loans 
to Iran if that is American policy?''
    Secretary Lew. Congressman, the way our veto works at the 
IMF is that we have a veto over administrative changes in the 
IMF; we don't have a veto over each decision that is made. Our 
veto gives us a disproportionate voice at the IMF and it gives 
us the ability in almost every case to drive decisions where we 
want them to go. The reason we need to do the IMF reforms is to 
make--
    Mr. Sherman. But if I empower the IMF, the IMF may empower 
Tehran.
    Secretary Lew. But if the United States doesn't have the 
strong voice it has, our ability to have the IMF make the 
decisions that we believe are right is weakened. And that is 
why IMF reform is so important.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from New Mexico, Mr. 
Pearce, for 5 minutes.
    Mr. Pearce. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary, for being here.
    And as a veteran and strong supporter of our military and 
national security, I was fascinated that you mentioned national 
security 5 times in your handout to us. But I also note that 
you specifically referenced what you are doing, too, in 
Afghanistan and Pakistan.
    Pakistan and Afghanistan are ranked number two and three on 
a global terror index. Both counties are known for harboring 
and exporting and terror.
    So, is there some explanation you can give as to why we 
would be supporting the building of economies in areas that 
basically are--I think the comments on the Web pages for the 
terrorists say they would like to annihilate America and 
annihilate Americans. Any reason that we should be taking that 
and running with it?
    Secretary Lew. If you are asking why we have U.S. policies 
to promote a different kind of Afghanistan and Pakistan through 
our assistance programs--is that--
    Mr. Pearce. I am just asking why we are lending money--
    Secretary Lew. I think we all well-learned--
    Mr. Pearce. --to build economies in terrorist states.
    Secretary Lew. We have been involved through two 
Administrations, or multiple Administrations in both parties, 
in trying to make sure this is not a haven for terrorists to 
plan attacks on the United States in that part of the world. 
And our efforts are really aimed at making sure that there is 
not that kind of a haven, and part of it is making sure that 
there is an economy that works for people who are not inclined 
in that direction--
    Mr. Pearce. Looking at what is going on in Iran and what 
will happen in Afghanistan--
    Secretary Lew. I think we have proven our will to take the 
fight to terrorists in Afghanistan and Pakistan.
    Mr. Pearce. I think with us pulling our troops out, I think 
the judge is still out on--and the jury is still out on whether 
or not that nation will slide into the same sorts of things 
that we find in Iraq now. So I just find it interesting that at 
a time when we are cutting our military budget--the President's 
budget slashed Defense spending, and so it looks like maybe 
they are going to subcontract the defense of the Nation out to 
the IMF, and I really appreciate you taking that role.
    When you talk frequently about Ukraine in your report, have 
you all dealt with the allegations that $20 billion in gold 
disappeared from the Ukraine, that $37 billion in loans 
disappeared from the Ukraine, that $70 billion was moved 
offshore in the last couple of years out of Ukraine? And we are 
going to go in there and we are going to stabilize situations 
where that kind of loss of assets is occurring? And so, have 
you all dealt with those allegations?
    Secretary Lew. Congressman, one of the first actions we 
took when the current situation developed in Ukraine was to 
take actions to try and stop the movement of money that was 
illegally taken out of Ukraine. It is something that we and the 
international community need to make sure that we do our part 
on, but there needs to be reform in Ukraine and a different 
kind of leadership in Ukraine.
    I think if you look at the interim government, it is trying 
very hard--and I think being quite effective under very 
difficult circumstances--trying to take a different course and 
not have the kinds of practices that you are describing, which 
is part of what has created the problem in Ukraine that they 
are dealing with right now. And it was not entirely a problem 
of Ukraine's making; there was a lot of influence from Russia 
over the years.
    Mr. Pearce. I will play that clip for my constituents, but 
I suspect I will not get a round of approval to vote from 
people who make $31,000 a year average income in my district to 
bail out countries--Greece--they refused to pay the tax--40 
percent of the people refused to pay taxes. And you want people 
in New Mexico to pay taxes for the people over there who won't 
pay their own taxes? I think that is going to be a hard sell, 
and I will play back your answers.
    Secretary Lew. We have never lost a dollar on the IMF. So 
if you are talking about the IMF--
    Mr. Pearce. I am just talking about situations. And you are 
here saying that we are the first responders in economic crises 
around the world, and I am just telling you that the idea that 
I am going to go back and explain to constituents why I would 
vote for something like that is probably not going to happen.
    Secretary Lew. But, Congressman, that is an important 
distinction--
    Mr. Pearce. Now, if you would--
    Secretary Lew. The United States is not the responder.
    Mr. Pearce. --please, I have 39 seconds.
    Secretary Lew. The IMF is.
    Mr. Pearce. If you would please give me my time.
    I guess my last question is that there appears to be an IMF 
practice not to lend money into states which are illegally 
partitioned, divided up, maybe a civil war is going on. Our 
loans to the Ukraine, then, seem to give validity to Russia's 
position in the Crimea. Do you have a comment on that in 10 
seconds?
    Secretary Lew. I think we have made quite clear we think 
Russia's behavior is illegal and is not recognized by the 
United States or the rest of the world.
    Mr. Pearce. But there may be a de facto difference in what 
the practice says.
    Thank you. I yield back, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, Mrs. 
McCarthy, for 5 minutes.
    Mrs. McCarthy of New York Thank you, Mr. Secretary. I 
appreciate it.
    I am going to give you a moment or two to be able to answer 
the question explaining to people back home why the IMF is so--
I don't think we spend enough time with our constituents. I 
have, because the years I have been on the NATO 
parliamentarians, I see where the money goes, I see what the 
money does, especially in the smaller nations that need an 
upper hand. The money does go and help the regular people, like 
it would be, like say, for FEMA to help my people back home 
after Hurricane Sandy. So it is important to me that we get 
this passed.
    I understand that if we do not live up to our obligations--
do you have any idea who might take our place if we don't live 
up to our obligations?
    Secretary Lew. The first part of your question--it is so 
important to have an international body that is the first 
responder when there is an economic crisis. It should not be 
the United States in every case. In almost every case, it is 
the IMF. There is no substitute for the IMF. In Ukraine, we put 
a billion dollar loan guarantee on top of an almost $18 billion 
IMF package.
    Mrs. McCarthy of New York Right.
    Secretary Lew. Our loan guarantee would not solve the 
problem, and I can't imagine the United States stepping in to 
do that job entirely on its own. We have never lost a dollar in 
the IMF, so what we have done is we have, in the post-World War 
II world, created an institution where we promote economic 
stability and a world that promotes U.S. economic growth, 
because we export to growing countries, and political stability 
where there wouldn't have been otherwise. So it is incredibly 
important that the IMF be there.
    Now as far as our role in the IMF, there is no doubt the 
emerging economies have grown and they want a stronger voice. 
The 2010 reforms were a step--an important step--towards giving 
more of that voice to emerging economies. It did not come from 
the United States; it was really a reallocation from Europe to 
the emerging economies.
    Where our veto does come in is we have to agree to changes 
at the IMF, but it is not a great thing for the leader of the 
world to be standing, blocking a reform that protects our 
interests when many others would say, ``Why doesn't your share 
go down?''
    Now, while they can't do that to us, they can't impose it 
on us, our ability to drive decisions where we want them to go 
in the IMF requires that we be seen as the leader who keeps our 
word. And I have no doubt that China would like to have a 
larger interest in the IMF. There are a lot of other countries 
that would like to have a larger say.
    Preserving our share, making sure that we keep our veto, 
having the strongest, most powerful voice in the world on these 
issues is part of what makes us the leader of the world.
    Mrs. McCarthy of New York I think that when you think about 
the way you just answered that question--we talk about being a 
leader, a moral leader, certainly showing the way on working 
towards those countries that are looking for democracy, and I, 
for one, certainly would prefer to see us in the format as far 
as leadership, versus some of the other developing countries. 
And I think people have to take that into consideration.
    I am sure that the majority of us here on this committee or 
in this Congress would not like to see some dictatorship coming 
from other countries that are emerging. So that is some way 
that we have to protect it.
    I think there is a misunderstanding also on the amount of 
money that goes in and what our share is. But in the end, that 
is a payment towards leadership, and I think it is, thus, 
extremely important, and I am hoping my colleagues, as they get 
to understand this issue a little bit better, that we will be 
able to get this through as far as up on to the Floor and for a 
vote.
    We have worked on this for years, the same with the Export 
Import Bank. I know that is a little bit on the side, but for 
this country, it is extremely important. And for my 
constituents and for every little small business to have a part 
of that only grows our economy, and those are ways that we can 
go.
    So with that being said, I thank you for your work. I know 
a lot of people don't understand it. I would say to my 
colleagues not so much to go out on a CODEL but to take trips 
that are educational and see how this all works in the other 
parts of the world, which--the trips are not fun, you work hard 
and it takes up your time, but it is quite an education.
    With that, I yield back.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentleman from Michigan, Mr. 
Huizenga, the vice chairman of our Monetary Policy and Trade 
Subcommittee.
    Mr. Huizenga. Thank you, Mr. Chairman.
    And I appreciate you being here as well today, Mr. Lew.
    Do you believe that the IAIS should develop global 
insurance capital standards?
    Secretary Lew. I think that it is important for there to be 
a global discussion of this, because while we have to make 
decisions for ourselves, and every national authority has to 
make decisions for itself, it is very useful to have an 
international discussion that drives the conversation to a high 
standard. I would just point out that in that IAIS process, our 
insurance experts sit at the table and have a strong voice.
    Mr. Huizenga. I understand. But should they be the ones 
developing it? That is not the place for just conversation; 
that is the place where they are developing standards, correct?
    Secretary Lew. Right. But I think it is important--it is 
more like a model code than it is law.
    Mr. Huizenga. Okay.
    Secretary Lew. And it leaves each national authority the 
ability to address issues in their own way.
    Mr. Huizenga. I understand. And I understand this might be 
in the bailiwick of the USTR, but would you support, then, 
financial services being a part of the TTIP conversations?
    Secretary Lew. No. I think it is important for financial 
services to be in the channels that they are in, where I think 
they are discussed in an effective way in international 
settings. We have been driving the discussion over the last 
number of years--
    Mr. Huizenga. I'm sorry, is that a yes or a no on TTIP?
    Secretary Lew. I do not think that they should be included 
in TTIP and subject to trade actions because I think that we 
each have requirements in our national authorities to do 
prudential regulation, and our standards have to be based on 
what it is that maintains the soundness of our financial 
system.
    Mr. Huizenga. So even with the Europeans potentially giving 
ground on some ag issues and some other things, as they have 
indicated at least to me and some of my colleagues, it seems to 
me if they are--the Europeans are interested in discussing 
financial services that might be a place we want to go.
    So having said that, can you assure me and the committee 
that any of these new rules that are developed by IAIS will be 
compatible with our State-based system of regulation?
    Secretary Lew. We do have a State-based system of 
regulation. Our Federal Insurance Office has taken a look at 
how to think about this in the future and it very much reflects 
the deep tradition we have of State-based regulation.
    When I am in international meetings, it is something people 
don't understand all over the world.
    Mr. Huizenga. Sure. No, I--
    Secretary Lew. It requires a lot of explanation.
    Mr. Huizenga. So, it sounds like the answer is ``maybe.''
    Secretary Lew. Well, no. We have a system of State-based 
regulation. We will make decisions in the United States on any 
changes that come in that, if at all. And it is a tradition 
that is very important.
    Mr. Huizenga. I am sure you are a very smart man, very 
well-read, so I assume that you are well aware that in recent 
months, Federal Reserve Chair Yellen, Governor Tarullo, and 
others have stated that insurance companies ``have unique 
business models,'' I think was the phrase that was used in this 
committee, that make them very different from banks, and that a 
bank-centric regulatory model really isn't going to work for a 
lot of these insurance companies.
    And coming from Michigan, we are the domicile of a couple 
of different Canadian insurance companies that are very 
recognized and well-known, not even necessarily physically-
based, but the entry point is Michigan. And it seems to me when 
we are talking Canada and the United States, the largest 
trading partners in the world, we are not dealing with the 
problems that caused the economic downfall here.
    So I think there is a lot of concern by a number of us as 
how we are going to be dealing with these roles. And I just 
am--I understand you don't want to answer the question of what 
the position of Treasury is advocating at the FSB to promote 
these state-based systems.
    At least, that is what I have heard, and my colleague from 
Texas, Chairman Hensarling, and a number of others have tried 
to take a run at that. You don't want to answer whether you are 
advocating or not advocating; you are just saying you are a 
part of the process of review. But there are a lot of us 
looking for some assurance that we are not going to throw the 
baby out with the bath water here.
    Secretary Lew. Yes. I think that the question of 
designating the largest and most systemically significant 
institutions, we have only made a few decisions to apply that 
designation.
    Mr. Huizenga. So why--
    Secretary Lew. And there aren't a lot of firms that would 
meet the threshold test--
    Mr. Huizenga. But then why would these just apply to 
international players? What is not going to make you say, let's 
apply these standards to domestic--large domestics?
    Secretary Lew. I think if you look at the process that FSOC 
has gone through, it--we are not going to be applying it to all 
insurance companies in the United States, only companies that 
present systemic risk. And there, I think it is important, as 
Chair Yellen said, that they be regulated in a way that 
reflects the realities of their business model. And I know the 
regulators are looking at ways to do that.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair recognizes the gentleman from New York, Mr. 
Meeks, the ranking member of our Financial Institutions 
Subcommittee.
    Mr. Meeks. Thank you, Mr. Chairman.
    Mr. Secretary, I hope you recall that not too long ago we 
had a conversation at the White House regarding minority 
inclusion. I later followed up with a letter to your office 
asking that a greater number of minority-owned businesses and 
professionals be included in the Treasury's recently announced 
program to issue new floating rate notes.
    Since then, the Association of Securities Professionals, 
which is the premier trade association for minorities and women 
in the financial services industry, has brought to my attention 
that the Pension Benefit Guaranty Corporation (PBGC) and 
several other Federal pension funds are not contracting any 
minority- or women-owned firms for asset management, brokerage, 
and other financial services.
    A lot of the Members sitting here today--led by the ranking 
member--authored Section 342 of the Dodd-Frank Act on minority 
inclusion. And we frankly have yet to see its implementation at 
a level that meets many of our expectations. And so I was 
wondering if you could offer us any evidence or facts that 
point to the contrary?
    Secretary Lew. I think the record at Treasury, if you look 
at the TARP program, has been one where there has been 
substantial progress made on the representation of women- and 
minority-owned businesses, and it is something we take very 
seriously and we work very hard on.
    The floating rate auction is handled like all other 
auctions are. It is developed internally with--the product is 
developed internally within Treasury and it is handled through 
the primary dealers. So, it is really not a program where we 
have contracts that we are putting out.
    But where we do contracts, where there are those issues, we 
take these issues very seriously, and I am happy to look at the 
issue you are raising with regard to PBGC.
    Mr. Meeks. Yes, because I need you, because it seems as 
though, and here the whole idea is to make sure because there 
are lots of dollars there and it seems that they are going to 
certain segments and others are being left out. And the 
opportunity at least to participate in the system is not there.
    And so, I would love to have a further dialogue. I think 
this is very important, and maybe we need to go through the 
process again as to what it is and how some of these firms 
could--they want to compete with anyone else. They are not 
asking for anything special, but they want to make sure the 
door of opportunity is there. And that is why we noticed when 
we went through all of this previously; Section 342 was very 
important to us.
    And so, I would love to have another follow-up discussion 
in that regard and see what we can do there.
    Secretary Lew. I would be happy to.
    Mr. Meeks. Let me then also ask--the OCC, the FDIC, the 
NCUA, and the Federal Reserve all recently testified before 
this committee, and they all have established permanent and 
high-level offices in their organizations that specifically 
deal with small and community financial institutions.
    They further testified that they all agreed that it was 
good practice to have such functional and policy-making 
separations between big institutions and community financial 
institutions. The U.S. Treasury sets broad financial and 
economic policies for the entire financial industry.
    Community bankers have long complained about a lack of 
voice at the U.S. Treasury and how one-size-fits-all financial 
policies and regulations have been detrimental to their 
business model. So it just seems to me, wouldn't it make sense 
to have a separate office and/or official--senior official at 
the Treasury who handles specifically small or community 
financial institutions?
    Secretary Lew. Congressman, let me start by agreeing that 
the concerns of small banks, and small businesses have to be 
treated very seriously and incorporated into any decision we 
make that affects their interests. I think our record shows 
that we have done that by action as we have gone through 
various decisions that we have made.
    I am not sure that having a separate silo for smaller firms 
actually helps accomplish that goal. There is the risk that 
decisions start getting isolated from each other and you don't 
see the potential impact. So I am happy to look at the idea, 
but to me the important question is, as each decision is made, 
are those kinds of questions being asked and answered?
    And I would worry a little bit that by creating a place 
where people worry about that and suggesting that it is not 
everyone's responsibility, you could end up with less, not more 
impact. But I am happy to look at it.
    Mr. Meeks. Okay. And lastly, the House is voting today on 
the Electrify Africa Act. And we now have nominees--new 
nominees, in fact, at the World Bank and the African 
Development Bank who will be instrumental in pushing the 
initiative forward as they view these very important 
development institutions.
    What can the U.S. Treasury do to ensure that this 
initiative is successful and that American firms, and 
particularly minority firms, can participate in the Electrify 
Africa Act?
    Chairman Hensarling. The time of the gentleman has 
regrettably expired.
    An exceedingly brief answer, Mr. Secretary?
    Secretary Lew. Congressman, I am happy to look at the 
proposal. I would just say that Power Africa is a very 
important initiative that the President has announced and that 
we are working on in conjunction with other agencies, and I 
would be happy to follow up.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from North Carolina, Mr. McHenry, the Chair of our Oversight 
and Investigations Subcommittee.
    Mr. McHenry. Good morning.
    Secretary Lew. Good morning.
    Mr. McHenry. Are you having a good day?
    Secretary Lew. I am having a fine day. I hope you are, too.
    Mr. McHenry. Yes, I am. Thank you.
    Are you a member of the FSOC?
    Secretary Lew. I am the Chair.
    Mr. McHenry. Okay. So that is a yes?
    Secretary Lew. Yes.
    Mr. McHenry. Oh, good. You have actually said yes or no 
today. This is excellent. So we just want to start off on that 
basis that we have had two nice exchanges here.
    I want to ask you about the nonbank SIFI designation 
process. As a member of FSOC, and as the Chair, as you just 
said, do you meet with firms that are to be designated or 
contemplated to be designated?
    Secretary Lew. The way the process is set up, the initial 
stages are done using public information, but as it proceeds 
into a stage where it is being considered for a decision, there 
is contact with the companies to get information. And after a 
preliminary judgment is made, the firm has the ability to meet 
with the entire Council.
    Mr. McHenry. All of the FSOC voting members?
    Secretary Lew. Yes. One firm, Prudential, availed itself of 
that opportunity and the entire FSOC met with them.
    Mr. McHenry. Is that before or after the notice of proposed 
designation?
    Secretary Lew. It is after the proposed designation but 
before an action has been taken.
    Mr. McHenry. Before the action has been taken. So the FSOC 
votes to propose the designation, then the firm is able to in 
essence appeal and come before you?
    Secretary Lew. Right. But they are having extensive contact 
with the people preparing the record.
    Mr. McHenry. Are those your deputies or is that some lower 
level?
    Secretary Lew. It is either the deputies or the technical 
staff--
    Mr. McHenry. So in this whole process, do you ever meet 
with these firms that are potentially designated?
    Secretary Lew. I just described how we meet with them.
    Mr. McHenry. Okay, then explain this to me: So you only 
meet with the firms as a full group after you have proposed a 
designation that they are SIFIs? Is that correct?
    Secretary Lew. There is--
    Mr. McHenry. Is that correct?
    Secretary Lew. As a member of FSOC, that is where I have 
met with them, yes. But there is extensive contact with the 
firms before that point.
    Mr. McHenry. Are voting members meeting with firms to be 
designated?
    Secretary Lew. Only after the proposed designation.
    Mr. McHenry. Okay. Thank you.
    So, why is that the case? Can you cite a rule or regulation 
on why you only meet with them after you have proposed their 
designation as an SIFI?
    Secretary Lew. We have laid out a procedure that we work 
through in an orderly way, where a record is established, where 
in the early stages, the goal is not to have there be any kind 
of a notion that these are market-sensitive processes.
    Reaching out creates a different situation than not 
reaching out. So there is a desire to first look at all the 
public information before you even take the step of reaching 
out.
    Mr. McHenry. Right, but you only meet with them--
    Secretary Lew. But before a designation is made, there is 
extensive contact.
    Mr. McHenry. You only meet with them after you make a 
market-moving designation with a proposed SIFI designation. You 
only meet with these folks afterwards. As a voting member, you 
have already testified that is the case.
    Secretary Lew. In stage three, where the record is put 
together for the FSOC to make a judgment, there is extensive 
back-and-forth with the company, and that is preparing a record 
that goes to the voting members. And after a proposed 
designation is made--which is all confidential; there is 
nothing public in that process--the firm has the opportunity to 
meet with the Council.
    Mr. McHenry. Okay. So let me move on.
    You sent a letter yesterday stating that what you said in 
front of the--your testimony in front of the Senate was 
incorrect. You said if the debt limit was not raised, and 
assuming Treasury had sufficient cash on hand, the New York 
Fed's system would technologically be capable of continuing to 
make principal and interest payments from Treasury, counter 
what you testified. And I appreciate you correcting the record.
    So my question is, if the Fed is able to make principal and 
interest payments, why is your assertion that credit markets 
would freeze still correct?
    Secretary Lew. Congressman, I stand by everything I have 
said about the debt limit, including at that hearing. There--
    Mr. McHenry. Actually, you were saying that you were 
incorrect at the hearing in this letter.
    Secretary Lew. No, that is not what the letter says, and I 
am happy to answer your question. I only have 10 seconds.
    Mr. McHenry. Go for it.
    Secretary Lew. A little bit more time would be helpful.
    Chairman Hensarling. Please, Mr. Secretary.
    Secretary Lew. There is no way to pick and choose what 
payments you make of the Federal Government without defaulting, 
so even if you have a technical ability to write a check to pay 
interest and principal, then you are not paying Social Security 
or veterans' payments or contractor payments. And if you don't 
extend the debt limit you end up with the Government of the 
United States, for the first time in its history, defaulting. 
Nobody should want to do that.
    The question I was responding to yesterday was just a 
technical question, and the letter speaks for itself.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Massachusetts, 
Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary, for helping the committee 
with its work.
    I will be in Ukraine again next week, and the last time I 
was there I heard considerable complaints about what was 
perceived as our weakness in terms of economic sanctions 
against Russia, so I know that the results have been mixed at 
best.
    But I do know that between the Federal Reserve and the 
Treasury, we maintain currency exchange reserves that allow 
parties who engage in international trade to convert their 
rubles, for example, into dollars. And I think one of the most 
impactful things we could do, I think if we really wanted to 
get Russia's attention, would be to restrict the ability of 
those businesses in Russia to convert their rubles into 
dollars. And I think if the E.U.--if the European Central Bank 
did the same thing, I think it would send a very strong message 
to the Russians that from a financial position, we completely 
disapprove of what their activities are in Crimea and in 
Eastern Ukraine.
    Is this something that you have thought about or Treasury 
has considered in terms of a sanction? Because these individual 
sanctions on the oligarchs are not getting us there, and unless 
we are not really serious, this is something that we should be 
thinking about.
    Secretary Lew. Congressman, I think we have been very clear 
that we have additional steps we can take. The President has 
issued an Executive Order that gives me the authority to 
designate sectors in the Russian economy. We have been taking 
steps which I believe have had an impact; they are clearly 
being felt by Russia.
    The goal of these sanctions is for President Putin to 
change his policy. It is for there to be a way out of this 
through a diplomatic resolution. And we are--we hope we don't 
need to take additional steps, but we have made clear that we 
have additional steps--
    Mr. Lynch. Reclaiming my time, the impact seems to be very, 
very narrow. It is on the oligarchs. But Putin's popularity for 
what he is doing is still very, very high. He still has the 
support of the Russian people because the impact is not being 
felt on them and they are not seeing the consequences of--they 
are not feeling the consequences of his actions.
    What I am saying is that if we restrict the currency 
exchange for the ruble, I think it would have a detrimental 
effect on the value of the ruble, the liquidity. And if the 
Europeans do the same thing, we could really send a very 
strong--an extremely strong message to Putin and to the Russian 
people that this is not a behavior that we condone.
    Secretary Lew. I don't think that there is any doubt on the 
part of the Russian leadership that we have additional steps we 
could take that will increase the amount of pain it causes to 
the Russian economy. And I think the expectation of that has 
had an effect on their judgments, but obviously not the effect 
to correct the situation.
    We are going to continue at this, and we have made it clear 
that it is unacceptable. We have made it clear. It is not the 
goal of sanctions to cause pain to the Russian people; it is to 
change the policy of the Russian government.
    I think the Russian economy is weak. It has gotten weaker 
and people are beginning to feel it. And whatever popularity 
there was around the initial moves in Crimea, the pain is only 
going to get worse and worse if they don't--
    Mr. Lynch. All right. I am going to have to reclaim my 
time.
    Look, the European Bank for Reconstruction and Development 
is basically the only international financial institution that 
has a specific mandate to work in countries, and this is a 
quote from their enabling act: ``those countries committed to 
and applying the principles of multiparty democracy, pluralism, 
and market economics.'' Oddly enough, the United States has 10 
percent of the voting power within the European Bank for 
Reconstruction and Development. And yet, they are doing 
business in Russia.
    And do you really think that is consistent with our 
participation in that program, to support what Putin is doing 
by continuing to invest in Russia through the European Bank for 
Reconstruction and Development?
    Secretary Lew. Since this current situation has developed 
there have not been loans to entities that are connected to the 
Russian government. There were a couple of loans made to firms 
that had no connection to the policies.
    But as the situation on the ground changes, it is one of 
the many things that we are going to keep our eye on as to 
whether the policy there also should change. We would not 
support loans that would support the Russian government.
    Mr. Lynch. I hope so. All right, thank you. Thank you, Mr. 
Secretary.
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    Speaking of time, because of the time that the Secretary 
has agreed to spend this morning, the Chair intends to call on 
three more Members: Mr. Royce; Mr. Green; and Mr. Mulvaney.
    The Chair now recognizes the gentleman from California, Mr. 
Royce, Chair of the House Foreign Affairs Committee.
    Mr. Royce. Thank you, Mr. Chairman. I appreciate it.
    Mr. Secretary, as you know, the Fed, the Treasury through 
the FIO, and the NAIC are all engaged with the IAIS over the 
development of international capital standards for certain 
insurers. And I am somewhat troubled to hear that IAIS is 
likely to propose that the capital standards be applicable to 
more than just systemically important firms. In other words, 
they are going to extend that to internationally active 
insurance groups.
    I think it has been noted today that Treasury also sits on 
the Financial Stability Board, which engaged the IAIS and 
oversees that institution through this process. And as a 
threshold matter, I am very concerned to hear stakeholders talk 
to me about the lack of coordination among U.S. representatives 
engaged in IAIS.
    Unlike some of my colleagues, I do think there should be a 
strong Federal role in coordination. So my question is this: 
How can we ensure that our participants in this process speak 
with a uniform voice and ensure that we support insurance-
centric standards so that U.S. companies who operate around the 
globe are not disadvantaged here at home or in other countries?
    Secretary Lew. Congressman, I am not aware of a difference 
amongst the U.S. participants in terms of the principle you 
just stated, that there be insurance-centric standards if 
standards are applied. The IAIS has participants from--who have 
deep expertise in the U.S. insurance industry, including the 
State regulatory process. So I think it is important that our 
participation there is very well-informed, and it is important 
not just on the substance but in the tradition of State 
regulation in the United States.
    Mr. Royce. I understand, Mr. Secretary, but the reason for 
the question is we had a hearing here which vetted and where we 
heard about those differences of opinion. And so, that is why I 
raised it.
    But let me point out another point, and that is the FSB is 
also actively looking at designating nonbank companies as 
global SIFIs. A few months ago, the FSB proposed a $100 billion 
threshold for designating investment funds as G-SIFIs.
    How was such an arbitrary number set? That was my first 
question.
    And to be fair, I am suspicious of the $50 billion 
threshold for U.S. banks as well. It is not a risk-based 
assessment.
    In this case, it appears that this $100 billion threshold--
here is the point--exclusively captures only U.S. funds. At 
$100 billion, that is what it does. No foreign funds currently 
meet that threshold. So why would you support global 
designation criteria that only impact U.S. funds and put them 
at a disadvantage compared to their foreign competitors, and 
why support arbitrary thresholds at all?
    Secretary Lew. Congressman, the only designation that would 
result in regulation would be a national authority designation, 
which would have to have been made in the United States by 
FSOC. And I just want to point out that our review in this area 
has not concluded that designation is the right option. We 
don't know that--there are other ways that the issue might be 
addressed and it might not need any further action.
    So we have not made a judgment in FSOC how to proceed with 
it. We are in the early stages of doing what FSOC was created 
to do, which is look ahead at the future challenges and make 
sure that we are thinking about them in advance.
    Mr. Royce. And from that I take that in these negotiations 
you are resisting this designation which would put U.S. firms 
at this competitive disadvantage?
    Secretary Lew. What I am saying is--
    Mr. Royce. I understand that it is an ongoing process--
    Secretary Lew. Yes.
    Mr. Royce. --but I was just trying to figure out where you 
actually are in the process--
    Secretary Lew. There is no ambiguity--
    Mr. Royce. --your position.
    Secretary Lew. --the decision on U.S. firms will be made in 
the United States and will be made by FSOC.
    Mr. Royce. Thank you, Mr. Chairman.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from Texas, Mr. 
Green, the ranking member of our Oversight and Investigations 
Subcommittee.
    Mr. Green. Thank you, Mr. Chairman.
    I thank the ranking member.
    And I thank the witness for appearing today.
    Let's, for a moment, talk about a cost-benefit analysis, 
because as we look at the IMF, the benefit that it accords the 
world, not just the United States, in my opinion outweighs the 
cost. Can you give some brief analysis in terms of cost versus 
benefit as it relates to the IMF?
    And if you would like to, you can direct it toward the 
United States, but I truly think that the global economy has a 
better standing because the IMF makes contributions. For 
example, if there is a bank that is solvent and at a time of 
crisis it is about to default, the IMF can prevent that from 
occurring and that then helps the global economy, which we 
happen to be a part of.
    Secretary Lew. Congressman, I can't give you a quantitative 
answer but I can tell you qualitatively that the U.S. economy 
and the global economy would be in a much worse place right now 
if the IMF didn't exist, and if the IMF wasn't acting 
responsibly both in moment of crisis, like 2008-2009, and when 
individual countries face crises.
    Our economic growth in the United States can't be separated 
from economic growth around the world. As I was saying earlier, 
most of the demand in the world is not in the United States. 
Europe, if it were in a freefall through the last 5 years, 
wouldn't have just been a problem for Europe; it would have 
been a problem for the United States because we export from the 
United States and our growth and global growth are 
interconnected.
    The fact that the IMF steps in with tough measures, 
responsible programs are based on countries putting their 
fiscal house in order and reforming their systems, and it puts 
the resources behind economic recoveries. And I think that 
right now, you are seeing one after another country in Europe 
emerge and go to the market with bond issues; you are seeing 
around the world in Asia and Latin America countries that are 
stronger because of the IMF programs; and you are seeing the 
United States, where our economic growth is, in significant 
part, tied to our ability to export to those markets.
    So I can't give you exact numbers. I would be happy to go 
and try and put some numbers to it. But it is an enormously 
important institution, both for the United States and the 
world.
    Mr. Green. Thank you. I think you have given a good 
representation of how it impacts positively the United States 
and the world economy.
    Just to give some indication that the IMF is not a liberal 
institution, is it true that the increases in quota--that five 
of the increases in quota of the IMF took place under the reign 
of Republican Presidents?
    Secretary Lew. I haven't looked at the number, but I can 
tell you, Republican and Democratic Administrations alike since 
World War II have made all the arguments that I am making here 
today.
    Mr. Green. On page 11 of your statement that you submitted, 
we have an indication that every living Treasury Secretary from 
James Baker on has gone on record urging us to support the IMF. 
Is this still a true statement?
    Secretary Lew. I can't speak for each of them individually. 
If it was in my statement, I assume I checked it at the time. 
So I always like to give people a chance to speak for 
themselves.
    Mr. Green. I understand.
    And finally this: Is there a way for us to separate 
ourselves from the world economy and, in so doing, not have the 
ability to engage in diplomacy by way of utilizing our economic 
prowess? By participating with the IMF, this is a means by 
which we can use diplomacy as the first option.
    Can you just comment on how we have the benefit of 
diplomacy as a first option?
    Secretary Lew. I think that the United States leads by 
example. Everyone would love to have our economic system and, 
for all of our challenges, our political system. We are the 
strongest, most stable country in the world. Everyone in the 
world looks to us as being the measure of strength.
    In an international financial context, the IMF is a place 
where we have an outsized voice because of that and because we 
have kept our commitments. And the reason I have such a passion 
for us ratifying the 2010 reforms is it would just be a 
terrible disservice to the United States and to our role in the 
world for that to erode at all.
    Mr. Green. If we didn't have the IMF, would you recommend 
that we create one?
    Secretary Lew. There is nothing else that does what the IMF 
does.
    Mr. Green. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from South Carolina, 
Mr. Mulvaney, for 5 minutes. He will be our last questioner.
    Mr. Mulvaney. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary.
    Secretary Lew, you are statutorily required to make this 
presentation, aren't you?
    Secretary Lew. Yes, this is a statutorily required--
    Mr. Mulvaney. I understand that you have decided that you 
are only going to make yourself available for 2 hours, which I 
think expires here in the next couple of minutes. What is the 
statutory authority, sir, for you to limit your testimony to 2 
hours?
    Secretary Lew. Congressman, it was an arrangement we--
agreement we reached--
    Mr. Mulvaney. Do you have any statutory authority to 
unilaterally limit--
    Secretary Lew. I believe the statute just requires a 
hearing.
    Mr. Mulvaney. I'm sorry?
    Secretary Lew. I believe the statute just requires a 
hearing.
    Mr. Mulvaney. So you don't have any statutory authority to 
say you are going to be present for a certain number of hours--
    Secretary Lew. I have tried to make myself available on any 
number of occasions to the committee. This is the third time I 
have had this hearing, and I have had other--
    Mr. Mulvaney. There are 20 members of this committee who 
won't get a chance to talk to you today. That represents 
roughly 14 million people. Would you be willing to stay for an 
extra hour?
    Secretary Lew. Congressman, I--we will work with the 
chairman on when--
    Mr. Mulvaney. I understand you have been working with the 
chairman since January 14th of this year to try and set up this 
meeting. We have also, I understand, been trying to work with 
you for a meeting next month. Will you appear before this 
committee in May, sir?
    Secretary Lew. This is May.
    Mr. Mulvaney. Excuse me, in June for the FSOC hearing?
    Secretary Lew. Congressman, I am going to leave that to be 
worked out between the committee and my staff. I--
    Mr. Mulvaney. Have you instructed your staff to make you 
available for a hearing before this committee in June?
    Secretary Lew. I am sitting here because I committed to 
this hearing and I have told the chairman I will work on trying 
to--
    Mr. Mulvaney. Will you commit to a hearing before this 
committee regarding--
    Secretary Lew. Congressman--
    Mr. Mulvaney. --the FSOC in June?
    Secretary Lew. Congressman, I will work out a date that 
works for both of us.
    Mr. Mulvaney. I will take that as a no.
    I want to follow up--
    Secretary Lew. --a date that works for both of us.
    Mr. Mulvaney. I want to follow up on Mr. McHenry's 
questioning regarding the letter that you sent last night 
regarding prioritization of payments. And I think you said to 
him that while it was technologically possible to prioritize 
payments, that it would still constitute default because Social 
Security checks wouldn't go out, contracts wouldn't be 
fulfilled, et cetera.
    Is that an accurate representation of your testimony to Mr. 
McHenry?
    Secretary Lew. It is close.
    Mr. Mulvaney. That is fine. How do you define ``default?''
    Secretary Lew. I think when the Government of the United 
States fails to meet its obligations, it is in default of 
whatever obligation it has failed to meet.
    Mr. Mulvaney. So to you it means more than just not paying 
principal or interest on debt?
    Secretary Lew. Correct.
    Mr. Mulvaney. And it is your understanding, then, based on 
your letter of last night, that if the Treasury has sufficient 
funds, it will be able to make principal and interest payments 
on debt?
    Secretary Lew. No. All I said last night is that a check-
writing system could work. It is not my decision to choose what 
to pay and what--
    Mr. Mulvaney. No, that is not what you said last night. You 
said that the New York Fed's systems would be technologically 
capable of continuing to make principal and interest payments--
    Secretary Lew. Technologically capable.
    Mr. Mulvaney. --while Treasury was not making other kinds 
of payments. And my question to you is, if the Treasury is 
making payments on principal and interest but not making other 
payments, is that default, in your mind?
    Secretary Lew. Congressman, first of all, you did not 
accurately restate my letter because it does not--
    Mr. Mulvaney. Actually, I read it word for word.
    Secretary Lew. But you are leaving out the words 
``technologically capable.'' It does not say that the payments 
will be made; it is not my decision. Only the President of the 
United States can decide whether or not to do that.
    Mr. Mulvaney. Did you tell anybody outside of Treasury--
    Secretary Lew. --and that decision has never been made by a 
President of either party.
    Mr. Mulvaney. Did you tell anyone outside of Treasury--did 
you tell anyone who owns any debt of the United States of 
America that their principal and interest payments could 
technologically be paid--were capable of being paid--in the 
event the debt ceiling was not--
    Secretary Lew. The question that I was asked and answered 
on many occasions was has a decision been made, and I answered 
``no.''
    Mr. Mulvaney. But the question you are being asked now, 
sir, is did you tell anybody else on Wall Street, anybody who 
owns any debt, that they were capable of being paid in the 
event the debt ceiling did not get raised?
    Secretary Lew. I can't speak for all conversations that 
might have happened. I am not aware of any conversation I--
    Mr. Mulvaney. I am not asking about all--I am asking about 
your conversations.
    Secretary Lew. I am not aware of any conversation--
    Mr. Mulvaney. Did you ever tell Morgan Stanley they were 
going to get paid? Did you ever tell Bank of America they were 
going to get paid?
    Secretary Lew. I have no recollection of any conversation 
that I had with any party.
    Mr. Mulvaney. Do you have any recollection of having any 
conversation with any Wall Street firms regarding 
prioritization of payments?
    Secretary Lew. Look, I had many conversations where people 
asked what the decision was and I have said to them what I have 
said here.
    Mr. Mulvaney. I am not asking about the decision; I am 
asking you about the capability. The letter last night said it 
was technologically capable of making the payments. Who else 
knew that?
    Secretary Lew. Congressman, the--
    Mr. Mulvaney. When did you know that they were 
technologically capable of making the payments?
    Secretary Lew. The question of whether or not we make 
payments is the--
    Mr. Mulvaney. I am not asking that. Mr. Lew, when did you 
know the payments could be made?
    Secretary Lew. Congressman, I would have to check; I don't 
recall the date. But the issue is--and I don't know why anyone 
would want to be in a place where the United States--
    Mr. Mulvaney. But that is not my question, sir. My question 
is not why we would want to know; the question is, why did your 
testimony change?
    Secretary Lew. My testimony did not--
    Mr. Mulvaney. And who else did you tell? Who were you 
telling--
    Secretary Lew. Congressman, my testimony didn't change.
    Mr. Mulvaney. --back in October that they were going to be 
paid when you were on national television telling people we 
were going to default? That is my question.
    Secretary Lew. Because you asked me my definition of 
default, it is the same today as it was then. If the United 
States of America fails to pay--
    Mr. Mulvaney. So if we ask you on television next time if 
debt-holders will be paid, you will say ``yes?''
    Secretary Lew. No Congress has ever put the United States 
in a position where it couldn't pay its bills, and no 
Congress--
    Mr. Mulvaney. But next time the debt ceiling becomes an 
issue and people ask you, ``Will debt holders be paid,'' will 
you say yes?
    My time is up.
    Thank you, Mr. Chairman.
    Chairman Hensarling. Thank you.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place his responses in the record. Also, 
without objection, Members will have 5 legislative days to 
submit extraneous materials to the Chair for inclusion in the 
record.
    This hearing stands adjourned.
    [Whereupon, at 12:07 p.m., the hearing was adjourned.]
    
    
    
    
                            A P P E N D I X



                              May 8, 2014

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