[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]



 
                   THE ANNUAL REPORT OF THE FINANCIAL


                      STABILITY OVERSIGHT COUNCIL

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 22, 2016

                               __________

       Printed for the use of the Committee on Financial Services
       

                           Serial No. 114-103
                           
                           
                           
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
SCOTT GARRETT, New Jersey            GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas              MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico            RUBEN HINOJOSA, Texas
BILL POSEY, Florida                  WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK,              STEPHEN F. LYNCH, Massachusetts
    Pennsylvania                     DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia        AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri         EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan              GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin             KEITH ELLISON, Minnesota
ROBERT HURT, Virginia                ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio                  JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee       JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina        BILL FOSTER, Illinois
RANDY HULTGREN, Illinois             DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida              PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina     JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri                 KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky                  JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania       DENNY HECK, Washington
LUKE MESSER, Indiana                 JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
TOM EMMER, Minnesota

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

                              ----------                              
                                                                   Page
Hearing held on:
    September 22, 2016...........................................     1
Appendix:
    September 22, 2016...........................................    59

                               WITNESSES
                      Thursday, September 22, 2016

Lew, Hon. Jacob J., Secretary, U.S. Department of the Treasury...     5

                                APPENDIX

Prepared statements:
    Lew, Hon. Jacob J............................................    60

              Additional Material Submitted for the Record

Hensarling, Hon. Jeb:
    Letter from Treasury regarding questions for the record......    68
    Written statement of the Property Casualty Insurers 
      Association of America.....................................    69
Huizenga, Hon. Bill:
    Letter from Representative Huizenga and Representative Moore 
      to Dr. Jim Yong Kim, President, World Bank Group, 
      expressing alarm over the World Bank's cancelled Uganda 
      Transport Sector Development Project, dated July 14, 2016..    77
    Response letter from Dr. Jim Yong Kim, dated August 2, 2016..    79
Pearce, Hon. Stevan:
    Article entitled, ``A Fed Insider Warns of the Risk of Low 
      Rates''....................................................    81
Rothfus, Hon. Keith:
    Letter to Senator Pat Toomey from Patrick Gallagher, 
      Chancellor of the University of Pittsburgh, dated October 
      30, 2015...................................................    85
    Letter to Representative Mike Doyle from Rich Fitzgerald, 
      County Executive, Allegheny County, Pennsylvania, dated 
      December 1, 2015...........................................    87
    Letter to Senator Pat Toomey from David J. Gray, Senior Vice 
      President for Finance and Business/Treasurer, The 
      Pennsylvania State University, dated December 14, 2015.....    89
    Letter to Senator Robert P. Casey, Jr., from William Peduto, 
      Mayor of Pittsburgh, Pennsylvania, dated May 4, 2016.......    90
    Letter to Representative Mike Doyle from John K. Weinstein, 
      Treasurer, Allegheny County, Pennsylvania, dated November 
      23, 2015...................................................    92
Waters, Hon. Maxine:
    New York Times editorial entitled, ``The Fake $400 Million 
      Iran `Ransom' Story,'' dated August 23, 2016...............    93


                   THE ANNUAL REPORT OF THE FINANCIAL



                      STABILITY OVERSIGHT COUNCIL

                              ----------                              


                      Thursday, September 22, 2016

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:06 a.m., in 
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling 
[chairman of the committee] presiding.
    Members present: Representatives Hensarling, Royce, Lucas, 
Garrett, Neugebauer, Pearce, Posey, Fitzpatrick, Luetkemeyer, 
Huizenga, Duffy, Stutzman, Hultgren, Pittenger, Wagner, Barr, 
Rothfus, Messer, Schweikert, Guinta, Tipton, Williams, 
Poliquin, Love, Hill, Emmer; Waters, Maloney, Velazquez, 
Sherman, Meeks, Capuano, Hinojosa, Scott, Perlmutter, Carney, 
Sewell, Foster, Kildee, Murphy, Delaney, Beatty, Heck, and 
Vargas.
    Chairman Hensarling. The Financial Services 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 annual 
testimony of the Chair of the Financial Stability Oversight 
Council (FSOC). I now recognize myself for 3 minutes to give an 
opening statement.
    With today being the official start of fall, it is 
disappointing that the Financial Stability Oversight Council 
has delivered the equivalent of a summer rerun. Its 2016 annual 
report is basically identical to its 2015 annual report, 
breaking little new ground and adding little new value.
    FSOC, charged with identifying risks to our financial 
stability, continues to mention only in passing the need for 
fundamental housing finance reform. It fails to adequately 
analyze the substantial risk that Fannie Mae and Freddie Mac, 
institutions at the epicenter of the last financial crisis, 
pose for precipitating the next.
    Furthermore, since the advent of the Dodd-Frank Act, we are 
losing, on average, one community financial institution a day 
in America, as they are crushed by a Federal regulatory burden. 
The big banks have only grown bigger. Banking system 
consolidation can clearly contribute to heightened financial 
system risk, yet there is absolutely no mention in FSOC's 
report of Federal regulatory risk brought on by Dodd-Frank, a 
glaring omission.
    But the most scandalous omission remains FSOC's conspiracy 
of silence regarding the existential threat posed by America's 
unsustainable national debt and our staggering unfunded 
obligations. Since President Obama came to office, the national 
debt has increased by a mind-boggling 84 percent. The 
Congressional Budget Office (CBO) noted in a recent report that 
the President's 2017 budget would add nearly $7.5 trillion to 
our publicly held debt, equivalent to $59,609 for every 
American household.
    CBO recently warned that such high and rising amounts of 
debt have, ``serious long-term consequences for the economy and 
would constrain future budget policy.'' On this, again, FSOC 
remains silent, and thus its annual report loses credibility.
    Although FSOC's annual report is disappointing, this 
committee's focus must remain on FSOC's frightening and likely 
unconstitutional powers. FSOC's open-ended and virtually 
standardless SIFI designation process clearly gives Federal 
regulators broad license to concentrate immense economic power 
in their own hands. The designation authority is taking our 
financial system, regrettably, one step closer to a government-
controlled utility model, a model whereby Washington will 
allocate credit to politically favored classes at the cost of 
our freedom and our prosperity. This must change.
    Finally, FSOC's highly politicized structure and penchant 
for secrecy are emblematic of a shadow regulatory system that 
is antithetical to American democratic principles. That is why 
it is so important that last week this committee favorably 
reported the Financial CHOICE Act. The Financial CHOICE Act 
will help bring about economic growth for all and bailouts for 
none. It will end bailouts once and for all by removing FSOC's 
ability to designate privileged too-big-to-fail firms and it 
replaces bailouts with bankruptcy. It would protect our 
financial system with high levels of loss-absorbing private 
capital and impose the strictest fines and penalties ever on 
those committing financial fraud. It would hold FSOC 
accountable and focus its mission solely on the vital task of 
monitoring emerging threats to our financial system. It is 
undoubtedly a better way forward.
    I now yield 5 minutes to the ranking member for an opening 
statement.
    Ms. Waters. Thank you very much, Mr. Chairman.
    Secretary Lew, thank you for joining us today to discuss 
the Financial Stability Oversight Council's 2016 annual report.
    Last week, the U.S. Census reported that median household 
income increased by more than 5 percent, the largest increase 
in both percentage and dollar terms since the government began 
tracking this data nearly 50 years ago. The Census Bureau also 
reported that the poverty rate declined by 1.3 percentage 
points and that the number of people without health insurance 
in the United States declined by 4 million.
    All told, our progress is rather remarkable compared to 
where we were 8 years ago when, during the last days of the 
Bush Administration, we were shedding more than 700,000 jobs 
per month and millions of people were being displaced from 
their homes.
    But make no mistake, we need to be doing more, especially 
to address the wealth gap, and particularly for African 
American and Hispanic households, whose economic security was 
devastated by the financial crisis.
    Unfortunately however, there is an unnerving sense of 
amnesia from my colleagues on the other side of the aisle about 
the dark days of the crisis. Here we are, 8 years after that 
devastation and more than 6 years after Dodd-Frank became the 
law of the land, considering the same harmful deregulatory 
proposals that would undo the critical progress we have made.
    Just think about this. Two weeks ago, one of the largest 
banks in the United States, which was supposedly one of the 
most well-run, was found to have opened more than 2 million 
unauthorized deposit and credit accounts for unsuspecting 
customers. This is a massive fraud of historic proportions that 
begs the question of what further reforms may be needed. And 
yet, in this committee the answer is deregulation and more 
opportunities for Wall Street to write the rules of the game. 
And like the Consumer Financial Protection Bureau, the FSOC is 
on the front line of those attacks.
    With Wall Street reform, we created the FSOC to look across 
the entire financial system, identifying gaps that may exist 
between regulators and action to prevent another meltdown. No 
longer would we allow banks to shop around for the weakest 
regulator or move money around the globe to escape regulation.
    Earlier this year, we saw just how effective the FSOC can 
be in preventing companies from growing too large or risky as 
to threaten the economy. General Electric Capital voluntarily 
agreed to shrink itself and sell off much of its consumer 
financial business, returning to its roots as an industrial 
company. The firm is now smaller, safer, and less likely to 
cause risk to the rest of the financial system if it becomes 
stressed. In turn, FSOC allowed GE Capital to shed its 
systemically important designation and the higher regulatory 
standards that came with it.
    What this means is that Wall Street reform is working as it 
should. The system is creating incentives for firms to shrink 
themselves and it is ensuring that companies like GE renew 
their focus on creating jobs in the real economy.
    And yet, despite this progress, my colleagues on the 
opposite side of the aisle are intent on dismantling the FSOC. 
Nowhere has this effort been more apparent than the chairman's 
Dodd-Frank repeal bill, which received bipartisan opposition in 
the committee last week. This harmful legislation would strip 
the FSOC of its ability to designate nonbanks for heightened 
supervision, repeal all existing designations for large complex 
firms like AIG, and otherwise limit its ability to operate 
effectively. This bill and others would put Wall Street back in 
the driver's seat and leave consumers and investors to fend for 
themselves.
    Rather than continuing this committee's focus on harmful 
rollbacks, we should be supporting further reform and exploring 
how we can do more to prevent scandals like the one at Wells 
Fargo.
    So I look forward to your testimony, Secretary Lew, on the 
state of our financial markets and what we need to keep doing 
to prevent a repeat of the 2008 financial crisis.
    Thank you, Mr. Chairman, and I yield back the balance of my 
time.
    Chairman Hensarling. The Chair now recognizes the gentlemen 
from Texas, Mr. Neugebauer, chairman of our Financial 
Institutions Subcommittee, for 1 minute.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    The Financial Stability Oversight Council's mission is to 
ensure the stability of the U.S. financial system and to 
identify future risks to the system. It was given authority to 
designate banks and nonbanks alike for heightened regulation. I 
believe, however, it also has the responsibility to ensure that 
the recommendations and designations are appropriately 
calibrated and provide sufficient clarity to the marketplace.
    To date, FSOC has failed to live up to its duty to be a 
responsible Federal agency. First, FSOC has failed to exercise 
its authority under Section 115 of Dodd-Frank to ensure that 
the application of heightened prudential standards is applied 
fairly to the bank holding companies. In the face of analysis 
from the Office of Financial Research that suggests $50 billion 
banks aren't systemically important, FSOC has instead chosen 
arrogance over prudent tailoring.
    Second, the FSOC has failed to implement a fair, 
transparent, and measured process when designating nonbanks as 
systemically important. As the U.S. District Court Judge 
Collyer noted, the determination process is ``fatally flawed.'' 
Yet, FSOC has created additional regulatory uncertainty by 
appealing this legal ruling.
    Third and finally, the FSOC's regulatory protectionism has 
failed to identify market concerns like those seen with the 
liquidity constraints in the bond markets.
    I hope today we will finally get to hear substantive 
answers to legitimate policy questions instead of the usual 
Democratic talking points praising Dodd-Frank.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from New Jersey, Mr. 
Garrett, the chairman of our Capital Markets Subcommittee, for 
1 minute.
    Mr. Garrett. Thank you, Mr. Chairman.
    And, Mr. Secretary, it is good to see you again. I 
understand that you are a tough man to nail down to get to this 
hearing today, even though it is the rule of law. But I guess I 
would be too if my job was to come here and try to defend FSOC.
    So we are starting to get at a point of an Administration's 
tenure where people inevitably turn to talking about legacy and 
what you all will be leaving behind. Unfortunately, when it 
comes to FSOC, the Obama Administration's legacy will be 
remembered by what? Secrecy, obfuscation, and a continued 
refusal by the Administration, and especially you, to answer 
the most basic and simple questions to provide transparency to 
either this committee, to Congress, and most importantly, the 
American people.
    And it is not just the legislative branch that notices 
this. The recent court decision invalidating the designation of 
MetLife is a reminder to all of us that we live in a system 
governed by the rule of law, Mr. Secretary, and not by the rule 
of bureaucrats.
    So, Mr. Chairman, I hope the Treasury Secretary finally 
understands this, and I look forward to some of his answers 
today. With that, I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    Today, we welcome the testimony of the Honorable Jack Lew, 
Secretary of the Treasury. Secretary Lew has previously 
testified before this committee on a number of occasions, so I 
believe he needs no further introduction.
    Mr. Secretary, without objection, your written statement 
will be made a part of the record, and you are now recognized 
for 5 minutes to give an oral presentation of your testimony. 
Thank you.

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

    Secretary Lew. Thank you, Chairman Hensarling, Ranking 
Member Waters, and members of the committee. I appreciate the 
opportunity to testify today regarding the 2016 annual report 
of the Financial Stability Oversight Council.
    We have just passed the eight-year anniversary of the 
collapse of Lehman Brothers. Every autumn this dates provides a 
grim reminder of the most severe financial crisis of our 
lifetimes. But it is also an opportunity to measure the 
tremendous progress we have made to build a safer and more 
resilient financial system that will support long-term economic 
growth.
    Six years ago, we worked together to put in place the most 
far-reaching, comprehensive update of the financial regulatory 
system since the Great Depression. The Dodd-Frank Wall Street 
Reform and Consumer Protection Act addressed serious weaknesses 
that contributed to the crisis, putting in place new consumer, 
investor, and taxpayer protections and effectively restoring 
confidence in our Nation's financial system.
    Today, the success of these reforms continues to be 
reflected in a long and stable economic recovery. We have cut 
the unemployment rate in half. Our economy is more than 10 
percent larger than its pre-recession peak. U.S. businesses 
have added a total of 15.1 million jobs since private sector 
job growth turned positive in early 2010. And our financial 
system is safer and more resilient, providing the critical 
underpinnings for more inclusive long-term growth.
    Recent Census Bureau data demonstrates that significant 
strides have been made. The Nation's poverty rate is down. For 
Hispanics and African Americans, it is at the lowest level in 
more than a decade. Household incomes are rising, with 2015 
seeing the fastest 1-year growth since the Census Bureau began 
reporting on household income in 1967.
    Recent enforcement actions by the OCC and the CFPB also 
remind us of the ongoing need for robust protections and that 
that need is very real. Without a strong consumer watchdog, the 
financial system can be dangerous for consumers and businesses 
alike. Indeed, one of the most important lessons of the crisis 
was the need for a financial regulator dedicated to looking out 
for and protecting consumers.
    The last financial crisis had at its core abusive practices 
that should have been prevented. As the only regulatory agency 
focused solely on consumer financial protection, the CFPB is 
designed to ensure that markets for consumer financial products 
and services are fair, transparent, and competitive, and it has 
been fulfilling this statutory mission actively and well.
    The conduct that led to recent enforcement actions again 
underscores the importance of finalizing strong, sensible 
executive compensation rules, a central component of Wall 
Street reform.
    Moving forward, it is critical that we continue to build 
upon the success of Wall Street reform in creating a framework 
for responding to risks that arise in any part of the financial 
system. Rather than regulating purely in reaction to crises, 
Wall Street reform established a forward-looking approach that 
is focused on regulating and identifying risks presented by 
markets as a whole and by types of activities wherever they are 
conducted.
    The Financial Stability Oversight Council exemplifies this 
approach. Previously, financial regulators too often operated 
in silos, and there was no single agency or group specifically 
charged with collectively monitoring and maintaining financial 
stability.
    For the last 6 years, FSOC has brought the entire financial 
regulatory community together to be on watch for signs of 
vulnerability and to respond to emerging threats to financial 
stability before they turn into crises.
    Today, the Council continues to benefit from the diversity 
of expertise and perspectives of its members, and the Council 
has been open-minded and deliberative in its approach, 
regularly engaging with stakeholders, frequently updating the 
public on its views and actions, and always remaining careful 
to avoid a one-size-fits-all approach to addressing different 
types of risks, and always asking important questions and 
looking to data and analysis for answers.
    Before I discuss the Council's finding in its sixth annual 
report, it is worth noting the report's significance. The 
Council's annual report serves as a key mechanism for public 
accountability and transparency, setting a marker for action, 
and outlining the Council's priorities and a roadmap for the 
year ahead. It is the product of extensive collaboration and 
data-driven analysis, capturing the consensus of the Council's 
members on key risk areas, as well as recommendations to 
mitigate those risks. Importantly, the report includes a 
statement signed by each of the Council's 10 voting members 
that affirms that all of the issues and recommendations in the 
report should be fully addressed.
    The Council's 2016 annual report focuses on 12 key areas 
that have been the topic of Council discussions over the past 
year. These areas include cybersecurity, risks associated with 
asset management products and activities, reforms to wholesale 
funding markets, and global, economic, and financial 
developments. For each area the report cites progress made and, 
if necessary, the need for further action on the part of 
Council members and member agencies.
    Cybersecurity remains a key area of focus for the Council. 
In response to increasing threats presented by cyber attacks, 
the U.S. financial sector has stepped up efforts to improve 
security across the system. Efforts include incident response 
planning, greater information sharing and analysis, and 
establishing private sector best practices for assessing risk.
    The report makes several recommendations for building on 
this important work. The Administration remains committed to 
staying ahead of this issue, and we look forward to working 
with both the Council and Congress as we continue to address 
it.
    The Council is focused on potential risks to financial 
stability posed by asset management products and activities. As 
these products and activities represent an increasingly 
important part of the U.S. financial sector, the Council will 
continue to evaluate their implications for financial 
stability.
    To that end, in April of this year we published an update 
regarding the Council's review of potential risks in this area, 
in particular focusing on liquidity, redemption, and leverage 
risks. This update was the result of nearly 2 years of data-
driven analysis and engagement with key stakeholders and 
reflects the Council's focus on asking tough questions to help 
inform its views. Our work in this area is ongoing, and we plan 
to provide timely public updates as our analysis continues.
    Let me close by saying that in the years ahead, it is vital 
that we remain vigilant to ensure that we do not return to the 
pre-crisis way of doing things, looking narrowly at 
jurisdictional lines dictated by the kind of charter a firm has 
selected and reacting to old problems instead of identifying 
and addressing the threats that lie ahead. The old approach did 
not work, and regulators did not respond in time to prevent a 
crisis. We cannot go back.
    That means we must not only remain steadfast in opposing 
efforts to roll back reform, but also that we must continue to 
build on the progress that we have made. The work of the 
Council has been critical to this progress, and it is important 
that the Council continue to have the tools necessary to 
respond to future threats as they emerge.
    I want to thank the other members of the Council and all 
the staff involved in the development of the 2016 annual report 
for their hard work and commitment. I would encourage the 
committee to work with the Council to build on the progress 
that we have discussed today.
    The recent news of consumer fraud by a large firm should 
strengthen our collective resolve to work together to build on 
Wall Street reform, rather than advancing legislation that 
would return us to the days when we had broad regulatory gaps 
and weak consumer protections.
    Going forward, I am confident that the progress we have 
made over the past 6 years will continue to promote the 
strength and stability of the U.S. financial system for many 
years to come.
    Thank you, Mr. Chairman. I appreciate your accommodating my 
schedule by adjourning at 1 p.m., and I will do my best to keep 
my responses brief so we can get in as many questions as 
possible.
    [The prepared statement of Secretary Lew can be found on 
page 60 of the appendix.]
    Chairman Hensarling. The Chair now recognizes himself for 5 
minutes for questions.
    Mr. Secretary, one of the emerging threats listed in the 
FSOC report is the possibility of a destructive cyber attack. 
As I believe you recall, it wasn't 6 months ago that seven 
Iranians linked to the Iranian Revolutionary Guard were 
indicted for a coordinated cyber attack on major U.S. financial 
institutions. Attorney General Loretta Lynch said at the time, 
``These attacks were relentless, they were systematic, and they 
were widespread.''
    So I have a couple of questions about the recent $1.7 
billion in payments the Administration recently made to Iran, 
payments that we now know were made in cash, made in secret, 
and $400 million of which we know coincided with the release of 
American hostages.
    Secretary Kerry, your fellow Cabinet member, said of 
related sanctions relief under the JCPOA, ``I think that some 
of it will end up in the hands of the Iranian Revolutionary 
Guard Corps or other entities, some of which are labeled 
terrorists.''
    So isn't it true, Mr. Secretary, that since the $1.7 
billion was paid in cash, we have no way of tracing the money, 
and you have no way of assuring us that it will not be used for 
terrorist purposes?
    Secretary Lew. Well, Mr. Chairman, the payments that you 
are referring to are payments related to the Hague Tribunal 
settlement. President Obama--
    Chairman Hensarling. I understand that, but the question 
is, can you trace it, and can you guarantee us that it will not 
be used for terrorism?
    Secretary Lew. We have laid out the facts related to this 
transfer in a letter sent to this committee. The payments 
complied with U.S. sanctions--
    Chairman Hensarling. I understand that, Mr. Secretary, but 
it is a yes-or-no question. Can you guarantee us that it will 
not be used for terrorist purposes? Because I don't believe you 
can trace it.
    Secretary Lew. Mr. Chairman, if you would just give me a 
minute, I will answer your question, just give me a minute.
    Chairman Hensarling. Well, if you would answer the 
question, I would allow you to give the context.
    Secretary Lew. Mr. Chairman, you in your question 
characterized this incorrectly. It was not ransom. It was 
settlement of a contractual dispute.
    Chairman Hensarling. I didn't use the word ``ransom,'' Mr. 
Secretary. I said it--
    Secretary Lew. You did.
    Chairman Hensarling. No, I didn't. You could read the 
record. I said it coincided with the release of American 
hostages.
    Secretary Lew. You have asked a specific question about 
where the money goes. The payment went to the Central Bank of 
Iran. We do a lot of work to monitor the support that Iran 
gives to terrorist organizations. We have not seen--
    Chairman Hensarling. What I asked, Mr. Secretary, was, 
could you trace the money? Can you trace the money?
    Secretary Lew. We have not seen an increase in terrorist 
funding by Iran.
    Chairman Hensarling. Okay. I think we will move on, Mr. 
Secretary, because I am not getting an answer. But I want to 
know--and we have pursued this line of questioning before--who 
authorized the cash payment? We know that cash has been called 
the currency of terrorism. You have an entire office at 
Treasury devoted to terrorism and financial intelligence. 
According to press reports, senior officials at the Justice 
Department indicated objections.
    Did you object to the payment or were you the one who 
authorized the cash payment?
    Secretary Lew. Mr. Chairman, the President spoke clearly to 
the facts of this on January 17th. We have given you the 
details in a letter. This was a settlement of a contract claim 
where the United States Government and the American taxpayer 
was exposed to potentially $5 billion to $10 billion of 
additional damages--
    Chairman Hensarling. It was the settlement of a contract. 
The question is, Mr. Secretary--you are avoiding the question--
who authorized the cash payment?
    Secretary Lew. The method of payment is a technicality. The 
agreement to settle a contract dispute was a substantive issue.
    Chairman Hensarling. It is not a technicality to those who 
are on the receiving end of Hezbollah missiles in Israel.
    Secretary Lew. The payments were consistent with our 
sanctions laws. They were consistent--
    Chairman Hensarling. Did you authorize the cash payment, 
yes or no?
    Secretary Lew. The method of payment was worked through a 
process that we outlined in a letter that we provided to this 
committee.
    Chairman Hensarling. Okay. Mr. Secretary, isn't it true 
that under 31 U.S.C. 1304, you must personally certify payments 
for the Judgment Fund? So these funds could not have been 
released except on your signature?
    Secretary Lew. Mr. Chairman, I am telling you the payments 
were properly made. I was aware of them. I was cognizant that 
it was happening. It was an appropriate settlement of a 
contract dispute that saved the American taxpayer billions of 
dollars.
    Chairman Hensarling. If you won't tell us who authorized 
the cash payment, what we do know is on multiple occasions, the 
Administration said that you had no choice but to use cash, 
and, in fact, your State Department spokesman on August 3rd 
said, ``It couldn't be done over wire transfers.'' The 
President himself on the very next day said, ``We could not 
wire the money.'' Yet, a Treasury Department spokesman 
acknowledged that on at least two occasions, the U.S. did make 
payments via wire transfer, in July 2015 or April 2016.
    So did Politico get it wrong, did your spokesperson get it 
wrong, or did the President get it wrong? Why were we misled?
    Secretary Lew. Mr. Chairman, the President got it right. 
You weren't misled. The payments were made as described--
    Chairman Hensarling. There were two wire transfers made, 
one in July 2015 and one in April 2016.
    Secretary Lew. Mr. Chairman, I am happy to answer your 
question, but you have to stop interrupting me every time I 
start.
    Chairman Hensarling. Well, if we would get answers, then I 
wouldn't have to interrupt.
    Secretary Lew. I am happy to answer your question, but you 
have to let me speak.
    Chairman Hensarling. Okay. I would like to listen.
    Secretary Lew. All right. We have done a very effective job 
cutting Iran off from the international financial system. The 
payment that was made by wire to Iran was not for a billion 
dollars, and not for a million dollars. It was for $900,000. It 
went to a foreign bank account that Iran had. And it was a 
difficult process to get the money, as it has been difficult 
for Iran to get access to its own money under the JCPOA, 
because we have been so effective in isolating Iran from the 
international financial system.
    The method of payment--
    Chairman Hensarling. The wire transfers were made.
    Secretary Lew. The method of payment--
    Chairman Hensarling. That is correct?
    Secretary Lew. The method of payment is a technical detail. 
The agreement was that this settlement would go to the Central 
Bank of Iran, and it was done in a way that was consistent with 
the agreement.
    Chairman Hensarling. You are confirming that at least two 
wire transfers went to Iran, correct?
    Secretary Lew. Mr. Chairman, I am telling you that before 
the transaction that we are discussing, the transfer we are 
discussing, one had gone. The other was subsequent. It was for 
$900,000. And it was a difficult process because, as it has 
been hard under the JPOA and the JCPOA, it has taken Iran a lot 
of time to get access to its own money that it is entitled to 
under the agreement.
    I am not saying--
    Chairman Hensarling. Thank you, Mr. Secretary. I believe 
that the President did get it wrong.
    My time has expired.
    Secretary Lew. No. You are totally incorrect. I just 
disagreed with you, Mr. Chairman.
    Chairman Hensarling. The Chair now recognizes the ranking 
member for 5 minutes.
    Ms. Waters. Mr. Chairman, I would like unanimous consent to 
enter into the record from the opinion pages of The New York 
Times an editorial entitled, ``The Fake $100 Million Iran 
Ransom Story.''
    Chairman Hensarling. Without objection, it is so ordered.
    Ms. Waters. I think it is perhaps incumbent upon us to help 
debunk the distortion of what took place with Iran.
    Let me just say, it is not simply about the so-called 
ransom story that has been made up by my colleagues. Every 
attempt that my colleagues on the opposite side of the aisle 
have made to discredit the Iran agreement, to try to dismantle 
the Iran agreement, has been made.
    Just yesterday, we were on the floor with a bill that 
simply said that my Republican colleagues wanted to identify 
and list, I don't know, a whole array of the leadership of Iran 
and expose them for their assets, where they came from, what 
they are doing with it. They have been told over and over again 
that even that action did nothing but signal harassment and a 
conclusion by Iran of a bad faith effort by the United States.
    I don't know why they continue it. As a matter of fact, I 
have said over and over again that this country needs the 
support of the Congress of the United States as our President 
takes the rightful leadership to act on behalf of this country 
and to negotiate deals and to do the business of the 
Presidency. But what we find is an undermining of this 
President at every turn, and it has been absolutely shameful 
what has been happening with this Iranian agreement.
    And so this conversation that just took place is just one 
more effort for my colleagues to send a message across the 
world that our President cannot count on the Congress of the 
United States, that we negotiate in bad faith, and that somehow 
what is going on in the United States is bad for the rest of 
our allies who have supported us.
    This ties in to what the Presidential candidate Mr. Trump 
is doing. He has a theme about making America great again. Some 
of us think America is already great to begin with. And his 
alliance with Putin, his friend that he may be doing business 
deals with, all of this ties in together.
    What are we doing? In the name of trying to acquire the 
Presidency and align themselves with Trump, are they continuing 
to try and dismantle the leadership of this country, to 
undermine us, talk about how bad we are, how crippled we are, 
how Mr. Trump knows better than our generals, on and on and on 
again?
    It needs to stop. You should not have to suffer this today. 
This is a continuing of a political effort, I guess to align 
with the theme of America not being so good, not so great, and 
what they are doing somehow with Mr. Trump is going to make it 
better. This is absolutely outrageous.
    I had some other things that I wanted to talk with you 
about today, but let's just put it on the line. What we have 
here is the opposite side of the aisle, the Republican Party 
and Mr. Trump, who are not only not supportive of the 
President, they just don't think this country is much good. 
They just don't think that the generals know what they are 
talking about. They just think Putin is our friend. They just 
think somehow this country has gone to the dogs, I suppose, and 
they have to do everything that they can to prove it by proving 
that somehow this Iranian deal that is going to help keep the 
world safe, and certainly the Middle East safe, that somehow it 
is wrong, it is no good, and it should be undermined, be damned 
our allies who joined in with us in this deal to help reduce 
Iran's ability to have the kind of nuclear capability that 
could cause a holocaust.
    And so I just want to tell you, Mr. Secretary, I am sorry 
that you have to endure this. This should not be a place where 
this kind of politics is placed, put before you. It is 
happening. I would hope that you would refrain from even trying 
to answer some of these questions that are being raised.
    This is a great country. The Iranian deal was a great deal. 
The President provided great leadership. We don't have to be 
ashamed of it. Shame on them.
    I yield back the balance of my time.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Texas, Mr. Neugebauer, chairman of our Financial 
Institutions Subcommittee.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    Before I get to my FSOC question, I just want one follow-up 
question from Chairman Hensarling, and this is just a yes or 
no. Did we record the serial numbers on the cash that was 
delivered to the Iranians?
    Secretary Lew. Congressman, I would have to check--
    Mr. Neugebauer. Could you check on that? I think that was 
the chairman's question. I just want to know if we have some 
traceability there.
    My question applies to your capacity as Treasury Secretary 
and chairman of the FSOC. As you are probably aware, the 
Federal banking agencies submitted a required report on 
investment activities of banks required under Section 620 of 
the Dodd-Frank Act. This month the report was delivered to 
Congress and to FSOC, and the Federal Reserve Board made a 
recommendation to Congress to repeal the merchant banking 
authority for banks.
    As you know, Gramm-Leach-Bliley gives the joint rulemaking 
authority both to the Federal Reserve and to the Treasury to 
issue regulations implementing merchant banking authority and 
limitations. In fact, they did so in 2001.
    Before the submission of the 620 report, did the Federal 
Reserve consult the Treasury Department regarding its 
recommendations on repealing the merchant banking provision?
    Secretary Lew. Congressman, it was a report prepared by the 
regulators independently. We obviously are familiar with the 
issue, but we were not involved in the preparation of that 
report.
    Mr. Neugebauer. So I guess since Congress gave the 
authority to, and the Treasury has joint rulemaking authority 
with the Federal Reserve--
    Secretary Lew. I believe the report was under a different 
authority than the joint rulemaking. There were two different 
pieces of work that were involved.
    Mr. Neugebauer. It was a recommendation?
    Secretary Lew. Yes.
    Mr. Neugebauer. Do you agree with the recommendation?
    Secretary Lew. So, look, we are looking at the report and 
would be happy to work with this committee as we review it to 
respond more fully. We just received the report as well.
    Mr. Neugebauer. So does the Treasury believe it has the 
appropriate tools to analyze the risk from merchant banking 
activities?
    Secretary Lew. Yes, I think we have the ability to 
understand merchant banking. It is not new to us that there are 
issues regarding merchant banking. You are asking about a 
specific report that came about a week ago.
    Mr. Neugebauer. So with the tools that you have and the 
activities that you had in the past, have you found that 
merchant banking is too risky, or you haven't been able to 
mitigate it, or what would be your response on merchant 
banking?
    Secretary Lew. Look, I think that the issue regarding 
merchant banking is really an issue that has arisen out of the 
fact that in the original legislation, Dodd-Frank legislation, 
distinctions were made between different kinds of activities so 
that private equity is treated one way, merchant banking is 
treated another way. And I think we are going to need to take a 
look at whether there are inconsistencies there that do require 
attention, and I would be happy to get back to you.
    Mr. Neugebauer. So I think basically there is probably 
approximately $26.7 billion in merchant banking investments 
held by banks. If the vote was to eliminate merchant banking 
activities, who is going to take up that slack?
    Secretary Lew. Well, I think it would require legislative 
action. As I understand the recommendation that the regulators 
made, was they proposed legislative action to remove a 
provision that exempts merchant banking from the rules. So it 
would require this body to act.
    Mr. Neugebauer. So that recommendation was made to FSOC, 
and FSOC has not acted on that recommendation?
    Secretary Lew. We just got the recommendation very 
recently. We haven't had a meeting since we got the report. I 
am not aware of administrative authority that exists to do 
that. But I would be happy to check and get back to you.
    Mr. Neugebauer. So you weren't consulted, and you have just 
received the report. Is that what you are saying?
    Secretary Lew. The report came to us, I forget if it was a 
week or 10 days ago, and it was done by the regulators 
independently.
    Mr. Neugebauer. But you didn't have any prior knowledge--
    Secretary Lew. No, no.
    Mr. Neugebauer. --that that was going to be the 
recommendation?
    Secretary Lew. I don't believe so. I am happy to check.
    Mr. Neugebauer. So what will be the process moving forward? 
When will FSOC take up discussions on that particular 
recommendation?
    Secretary Lew. I will have to get back to you, Congressman. 
We haven't had an FSOC meeting since that report came in, and I 
am not in a position to respond until we have had a chance to 
look at it and discuss it.
    Mr. Neugebauer. So will FSOC report its findings to 
Congress?
    Secretary Lew. We are happy to work with this committee 
going forward as we review it and as you review it. We got the 
recommendations, as I point out, just very recently.
    Mr. Neugebauer. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, Ms. 
Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Mr. Secretary, last week the majority passed legislation 
that will severely hobble the CFPB by subjecting it to a 
politicized Congressional appropriation process, repealing the 
single director structure and putting up significant roadblocks 
to its ability to create rules and enforce them. More 
shockingly, it will remove the Bureau's authority to bring 
enforcement cases against abusive products and services.
    In light of what we know about the impact of predatory 
products leading up to the financial crisis and the recent 
evidence that Wells Fargo was trying to extract profit in 
deceptive ways, what will these changes to the CFPB do to 
Americans' economic security?
    Secretary Lew. Congresswoman, I think that if you look at 
the financial crisis, it is undeniable that at the heart of it 
was a practice of mortgage lending that was abusive and that 
when it became a part of our financial system through complex 
financial instruments, ended up triggering a financial crisis. 
So we know that abusive practices are not just unfair and bad 
in terms of the individuals who are affected, but if left 
unchecked, can become a real threat to financial stability.
    I think the recent actions taken by the CFPB and the OCC 
reflect the ongoing need for tough consumer protection, for 
independent consumer protection, and for an agency set up in a 
way that is workable, which is what we have now in the CFPB. I 
think it is a good thing that there was a place for those 
issues to go for them to be addressed. It was the largest fine 
that the CFPB has made.
    I am not saying that every issue becomes an issue of 
financial stability. I actually think it is important to 
address things, even if it is just a question of abusing 
millions of consumers. But we also know that when these kinds 
of abuses occur, it can accumulate into financial stability 
risk.
    So for both reasons, I think it is critical that the CFPB 
maintain the ability to operate, and I believe it has operated 
very well. And if you go around to the industries that are 
affected by the CFPB, there actually are many who say the same 
thing, that they have done their job very well.
    Ms. Velazquez. Thank you. And then we wonder why there is 
so much anger among working people in this country. So here we 
have regulations to prevent the same crisis that we saw from 
happening again, and yet people continue to use deceptive ways 
to get people and to exploit working families in this country.
    I hope that the Department of Justice looks into this and 
brings justice, not only for the families that are impacted and 
the consumers that were impacted, or even for those workers 
that were tricked into going into behavior that was not the 
right behavior just because of the pressure coming from the top 
at the bank.
    Mr. Secretary, you are well aware that Puerto Rico is 
currently facing a severe financial crisis. The median 
household income is $18,000, just one-third of the national 
average. Forty-six percent of the population lives below the 
poverty line.
    On top of these challenges, the island is still struggling 
with the Zika virus, which has infected now 20,000 people on 
the island, including 1,500 pregnant women. And just yesterday, 
a massive power outage left the island without electricity. 
Half a million people in the island today have no water.
    I know we passed PROMESA that was signed into law in June. 
It will provide for a control board and a restructuring 
mechanism for the island's $70 billion debt.
    My question to you is, PROMESA did not include any proposal 
to reinvigorate the island's economy for the long term. The 
U.S. Government has a colony in the Caribbean. It is Puerto 
Rico. We have a moral responsibility.
    So given the situation that I just described, what is your 
view of what is needed to happen in Puerto Rico? Should we in 
Congress revisit what we did and come out with--
    Chairman Hensarling. The time of the gentlelady has 
expired. If the Secretary could give a brief answer, please.
    Secretary Lew. Thanks, Mr. Chairman.
    I would just say briefly, PROMESA was extremely important. 
It will provide the basis for Puerto Rico to have a fiscal plan 
that leads to debt restructuring and financial stability. But 
as we have always said, alone it is not enough. There needs to 
be more action.
    We have proposed that Puerto Rico be treated as States are 
treated for the purpose of Medicaid reimbursement and for the 
earned income tax credit, things that really would stimulate 
the economy, and we look forward to working with this Congress 
to take additional steps to make sure that there is a long-term 
economic plan for Puerto Rico.
    Chairman Hensarling. Again, the time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from New Jersey, Mr. 
Garrett, chairman of our Capital Markets Subcommittee.
    Mr. Garrett. Thank you, Mr. Chairman.
    Mr. Secretary, I think it is fair to say that all of us in 
Congress, myself included, are outraged at the activity that 
occurred over at Wells Fargo, that I know you are very familiar 
with, over a number of years. The entire incident now has a 
number of people clamoring for regulators to be tough when they 
finalize the incentive compensation rules under Section 965 of 
Dodd-Frank, which I am sure you are familiar with.
    The current proposal is intended to limit compensation of 
financial firms and includes a provision that would require 
something called clawbacks of compensation for certain high-
level executives that could go back as far as 7 years. But like 
a lot of things for the other side of the aisle, it depends on 
just what executives we are talking about here when this 
happens.
    And so let me give you one example: you, Mr. Secretary. You 
joined Citigroup back in 2006, and by 2008, you became the 
chief operating officer of the Citigroup Alternative 
Investments unit, which at that time managed $54.3 billion. 
Then the Alternative Investments group began to do what? 
Hemorrhage money that year. And by the end of 2008, Citigroup 
had laid off more than 50,000 employees. The stock price 
dropped by 75 percent. And then, of course, they were bailed 
out by who? The American taxpayers, to the tune of $45 billion.
    Then, to add insult to injury, last year the SEC announced 
that two Citigroup affiliates, including the one where you were 
the chief operating officer, agreed to pay $180 million to do 
what? To settle charges that your unit defrauded investors.
    So you were the senior officer at the Citigroup unit which 
lost money, that contributed to the bank's near collapse, and 
which later was charged with defrauding investors. Talk about a 
legacy. Was any of your compensation at Citigroup ever clawed 
back? That is a yes or no.
    Secretary Lew. Congressman, I am proud of my record 
implementing financial reform, pushing hard for--
    Mr. Garrett. So was any of--
    Secretary Lew. --pushing hard for the executive comp rule.
    Mr. Garrett. I am not asking that, Mr. Secretary. Let's 
just get to the question. I saw how you did not answer the 
chairman's question.
    Simple question: Was any of your money, your seven-figure 
compensation package, ever clawed back for the time that you 
were the chief operating officer?
    Secretary Lew. The issues regarding my compensation have 
been well worked over.
    Mr. Garrett. So then it is an easy answer, Mr. Secretary.
    Secretary Lew. I have answered many questions. I was paid 
in a way that is well-understood and disclosed. I am telling 
you that my services in this role--
    Mr. Garrett. Mr. Secretary, please answer the question.
    Secretary Lew. --have been to make sure that we put rules 
in place that work going forward.
    Mr. Garrett. Mr. Secretary, simple question. You were paid. 
Your unit was defrauded.
    Secretary Lew. Congressman, I--
    Mr. Garrett. Was any of your money ever clawed back?
    Secretary Lew. I was not subject to any action of any kind 
because--
    Mr. Garrett. Okay.
    Secretary Lew. --no one has ever asked any questions that 
led to that, nor will they.
    Mr. Garrett. See, Mr. Secretary, simple. The answer is no. 
None of your money was--
    Secretary Lew. And let's remember what my role was when I 
was there.
    Mr. Garrett. Yes, you were the chief operating officer 
involved--
    Secretary Lew. Yes, I was responsible for administrative 
activities, not for designing risk products. So let's just 
remember what my role was.
    Mr. Garrett. Mr. Secretary, you were a senior executive.
    Would the proposed incentive compensation rules capture or 
impact any of your compensation if those rules were in place 
back then?
    Secretary Lew. I am not aware of anything that relates to 
me personally, but I also am not directly involved in writing 
the rules, so I can't tell you exactly where they are. I have 
urged the regulators to have broad such rule.
    Mr. Garrett. Should the rules be such that senior 
executives--and Elizabeth Warren doesn't make differentiation 
between COOs and CEOs. She says all senior executives should 
have clawbacks. Is she wrong?
    Secretary Lew. I think that the questions that have been 
asked in designing these rules have been, how do you align 
incentives for risk taking?
    Mr. Garrett. That is not the question.
    Secretary Lew. No, but that is what the driving issue is. 
How do you make sure that there is not an incentive in the 
compensation to take risk--
    Mr. Garrett. Here is one--okay, let me ask you this then. 
Here is an alignment.
    Secretary Lew. And that is the right question. That is what 
we have been pushing.
    Mr. Garrett. Mr. Secretary, thanks. Here is one on the 
alignment. When you left there, despite all the hemorrhaging 
and the taxpayer bailout, you received something called a 
bureaucratic parachute. You had a promise in your contract that 
you would be paid $944,000 if you took a high-level position in 
the U.S. Government. Hey, I guess you got that, didn't you?
    Was that a payment contingent upon you doing and your unit 
doing a good job? Was that contingent upon the fact of whether 
or not there was any fraud in your unit? Or did you just get 
paid regardless?
    Secretary Lew. Congressman, my compensation was based on my 
performance at the job. The only thing that that provision said 
was I didn't lose my last year's pay.
    Mr. Garrett. The performance of your job? The company lost 
75 percent stock. It went down.
    Secretary Lew. Congressman, you don't know what my job was.
    Mr. Garrett. Well, yes, I do. It is in this disclosure as 
to what you are. You were the coordinator for all the units, 
oversee coordination between operations, technology, human 
resources, legal, financial, regional departments. Seems like 
you had your finger on every single aspect of the company. I 
guess you are telling us that you are not responsible for 
anything.
    So, Mr. Chairman, I will end with this. I want to make it 
clear for the record that so long as you are a high-ranking 
Democratic official you can make allthe money that you want on 
Wall Street, but if you are not one of them, then you have to 
play by the rules if the company collapses.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from California, Mr. 
Sherman.
    Mr. Sherman. Mr. Secretary, let me spend the first couple 
of minutes on stuff so noncontroversial that I don't think 
anybody in the room will disagree, because you deserve at least 
a couple of minutes.
    Secretary Lew. I don't need any time. I am fine.
    Mr. Sherman. Oh, I know. But you deserve it anyway.
    First, thank you for the Treasury Department announcement 
and clarification that I asked for last time you were here. So 
the 8,000 people from my district who had to evacuate for 
months due to the world's largest methane leak can clearly 
understand that they are not going to be taxable on the money 
they got to reimburse them for their expenses when they were 
living outside their home.
    Second, last time you were here, back in March, I brought 
up the issue of a U.S.-Armenia tax treaty. I know we have told 
your staff, so I am not blindsiding you here, that I would 
bring this up again. And the answer I have gotten from your 
staff is, hey, it would be wonderful if we did it, but it is a 
matter of prioritizing our resources. So I want to review with 
you why I think it is a priority.
    Canada, whose Treasury Department analog has maybe a tenth 
of your resources, negotiated a treaty with Armenia. Your 
Department has negotiated treaties with Luxembourg and Malta 
and with dozens of other countries. But what I think your staff 
may be losing track of is they are looking at everything 
through solely an economic lens, and they also need to look 
from a geopolitical and foreign policy lens.
    And I am asking your Department to just have one tax lawyer 
spend a few months to do something, and I want to describe how 
important it is from the standpoint of the Congress and the 
standpoint of the executive branch, State Department, foreign 
policy, Defense Department.
    We in Congress have provided a billion dollars of aid to 
Armenia over the last 25 years. The executive branch has a 
policy of getting the Newly Independent States that became 
independent from the Soviet Union, to wean them from Moscow. 
And that is so important that not only have you done tax 
treaties with Estonia, Latvia, and Lithuania, but we have put 
our lives on the line. We admitted Estonia into NATO. We could 
be at war with Russia. We could lose soldiers in the field.
    Now, I am not asking anybody in the Treasury Department to 
put their life on the line. Just asking to do something that 
should be rather easy because I have persuaded--well, I have 
talked with the Armenians. They will start with your model 
treaty.
    Given that the Congress has provided a billion for this 
objective, given that our soldiers are ready to die for this 
objective, can you spare a tax lawyer for a few months?
    Secretary Lew. So, Congressman, I understand the strategic 
significance of Armenia and appreciate the source of your 
concern. We obviously look at these tax treaties through an 
economic tax policy lens, and the basic question that we ask 
is, can we avoid the kind of double taxation that treaties are 
meant to avoid? We don't have any evidence that there is double 
taxation.
    Mr. Sherman. That was the answer you gave last time. It is 
a chicken and egg. There is no investments because there is no 
tax treaty. There is no tax treaty because there is no 
investment.
    I have done my best to persuade you on this, and I have 
just a minute to go on to something, and that is, too big to 
fail is too big to exist. You and FSOC have the right to break 
them up. People on this committee could cosponsor the Sanders-
Sherman bill and break them up.
    We know that they are so big, they are too-big-to-fail. We 
know that if they get in trouble, they will be bailed. The 
chairman says, well, don't list them, and they won't be bailed. 
We were all here--many of us here in 2008. If they are about to 
go under, this Congress will pass new laws to bail them out.
    So we are talking about fail. We are talking about bail. We 
are also talking about jail, because the Attorney General 
announced that he would be reluctant to criminally indict them, 
these institutions, because of the effect it would have on the 
economy.
    But Wells Fargo has given us two more reasons, one 
Democrat, one Republican. It appears as if Wells Fargo, for 
example, was too big to manage. Here you had, they hired 5,300 
good people. They established a system that caused those people 
to commit 2 million felonies. They didn't monitor. They didn't 
notice. That is too big to manage and, and, finally, too big to 
regulate, because all the regulators at Wells Fargo missed this 
too.
    Too big to fail. Too big to jail. Too big to regulate. Too 
big to manage. Please break them up.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Luetkemeyer, chairman of our Housing and Insurance 
Subcommittee.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Good morning, Mr. Secretary. I would like to have my 
questions in the areas of SIFI designations and community 
banking, so let me start out with the SIFI designation stuff.
    Dodd-Frank calls for the automatic designation of any bank 
with more than $50 billion in assets to be a SIFI. Mr. 
Secretary, we have had Barney Frank, the author of the Dodd-
Frank bill, in this committee, sitting in that chair, who has 
testified in this committee that he told us that the $50 
billion threshold is arbitrary and that we should look at 
alternative methods for determination. We have also heard from 
other regulators, such as Chair Yellen, Governor Tarullo, also 
on this issue, and they support a different approach as well.
    Would you agree that size should not be the only thing to 
determine what a systemically important financial institution 
is?
    Secretary Lew. Congressman, I think ultimately the real 
issue is risk, and size is one indicia of risk.
    Mr. Luetkemeyer. Do you agree then it is not just size?
    Secretary Lew. I think part of the challenge is that when 
people talk about what size bank is a big bank, the 
conversation is often unconnected to where the banks fall in 
terms of size. There aren't that many banks over 50, and when 
you talk about numbers like the piece of legislation did last 
year of drawing the line at 500, you are talking about only a 
very few institutions. Some of the largest institutions are in 
between.
    Mr. Luetkemeyer. Mr. Secretary, I have just a few minutes 
here please.
    My piece of legislation takes away all of the size 
definitions. Size is only one issue. As you can see there is on 
the board here--you probably can't see it from where you are 
sitting.
    Secretary Lew. I can't read it from here.
    Mr. Luetkemeyer. Behind you is a copy of a chart from the 
Office of Financial Research Brief Series dated April 13, 2016, 
and this is how globally systemic important banks are 
determined. And as you can see, there are five separate things, 
and those separate criteria are exactly the five criteria that 
I have in my bill: size, interconnectedness, suitability, 
complexity, cross-jurisdictional activity.
    If those are good enough to determine a G-SII, should they 
not be good enough to determine what a SIFI is here in the 
United States?
    Secretary Lew. I think the challenge is that the 
designation process is a very cumbersome one, and if you were 
to require the decisions firm by firm for every single firm, it 
would require a much more massive structure than we currently 
have.
    Mr. Luetkemeyer. A minute ago, though, you said that 
complexity is something we need to take a look at. Yet now you 
are going back to size. If you do that, we are looking at an 
institution that is $50 billion at the bottom end of this 
versus the larger banks that are $2 trillion. That is 40 times 
difference in size.
    Secretary Lew. Yes, I totally agree that there is a 
difference.
    Mr. Luetkemeyer. How can a bank that is $50 billion--
    Secretary Lew. We have tried in every way that we can to 
use regulatory flexibility and keep looking for new regulatory 
flexibilities and to treat firms differently based on what is 
appropriate to their risk level.
    Mr. Luetkemeyer. The way to treat them more equitably and 
more fairly and more flexibly is to support my bill from the 
standpoint that suddenly we have different criteria that you as 
a regulator can use. This is something that even the Office of 
Financial Research says is a way to go about it. So it is a 
little frustration on my part.
    Can you tell me, sir, what the cost is to designate a SIFI?
    Secretary Lew. I would have to get back to you on what the 
cost. It is a long process.
    Mr. Luetkemeyer. Okay. What is the cost to de- designate? 
And you have already got--
    Secretary Lew. I am sorry. I couldn't hear you.
    Mr. Luetkemeyer. What is the cost to de-designate? You have 
already got all the information. Your examiners are in the 
banks. They live there. You have all the information at hand. 
What additional costs are there to de-designate? Or would there 
be additional costs?
    Secretary Lew. Which institutions are you talking about 
right now, Congressman?
    Mr. Luetkemeyer. The ones that are designated SIFIs.
    Secretary Lew. The ones that FSOC has designated?
    Mr. Luetkemeyer. Yes, the ones that are designated--
    Secretary Lew. The largest firms?
    Mr. Luetkemeyer. Yes, the ones that are designated by the 
$50 billion threshold.
    Secretary Lew. So there are two different issues. We have 
designated 12 institutions that are large nonbank institutions 
for insurance companies--
    Mr. Luetkemeyer. Yes, but the ones that are over $50 
billion, sir, also have to pay fees, have to be under the same 
regime, regulatory regime, as the big guys.
    Secretary Lew. That is not an FSOC determination. They are 
covered under Dodd-Frank for oversight and supervision.
    Mr. Luetkemeyer. Okay. Okay.
    Secretary Lew. We don't make the designation.
    Mr. Luetkemeyer. But my question is, you already have the 
information to designate them, what additional costs are there 
to de-designate? I am just asking a question about cost, not 
whether you can or not. I am just asking about cost.
    Secretary Lew. I think the process of determining whether 
they are covered now is a fairly simple one, because it is 
based on a review of information that is available on size. If 
you had an individual firm-by-firm review to see whether you 
meet multiple criteria, it is a very different process than the 
current one. So for me to answer the question in the current 
versus--
    Mr. Luetkemeyer. Okay. One more quick question. One more 
quick question. My time is totally expired here.
    In my home State of Missouri, we have 44 banks less than 
$50 billion at the end of 2015. Twenty-six of them lost money. 
Those are all targets for merger. In fact, one in my district 
30 miles away from me was merged on Monday morning. This is all 
due to the complexity and the increased cost of compliance. 
What are you going to do about that? Does concern you at all?
    Secretary Lew. I agree with you that small financial 
institutions, community banks, and regional banks play an 
important part in our financial landscape. They meet important 
needs. We are continuing to look for how we can craft 
flexibilities that are appropriate so that we can make sure 
that the risks are visible but not overly burdensome. And we 
look forward to working together to find ways to do that.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from New York, Mr. 
Meeks.
    Instead, the Chair recognizes the gentleman from Texas, Mr. 
Hinojosa.
    Mr. Hinojosa. Thank you, Mr. Chairman. And thank you, my 
good friend, Greg Meeks. Thank you.
    Mr. Secretary, thank you for your testimony today. We 
appreciate your efforts as chairman of the Financial Stability 
Oversight Council to identify the risks to our financial 
stability and to respond to emerging threats and 
vulnerabilities in our financial system.
    The chairman's Dodd-Frank repeal bill, which received 
bipartisan opposition in the committee this past week, would 
provide a so-called off-ramp for Dodd-Frank and Basel III's 
capital and liquidity requirements and it would replace those 
safeguards with an insufficient leverage ratio that fails to 
contain the guardrails in other proposals. For example, while 
the chairman has attempted to conflate this bill with proposals 
from people like FDIC Vice Chair Thomas Hoenig, the chairman's 
proposal doesn't include the same limits on derivatives 
activity in order to receive regulatory relief.
    So, Mr. Secretary, my question is: Can you discuss how 
replacing more complex risk weights along with other Dodd-Frank 
measures might make sense for community banks engaged in 
traditional banking activities but is wholly insufficient when 
it comes to global mega banks?
    Secretary Lew. Yes. Congressman, that is a very good 
question. I think we should be looking for ways to simplify 
reporting, where appropriate, for small banks that don't engage 
in a lot of risky activities. We have to always be aware that 
even small banks are in the business of making risk decisions. 
That is what banks do. And we have seen in the past that in the 
accumulated activity, small institutions can create a financial 
risk that is significant, but it is different than the 
activities of large global financial institutions. And we 
should be trying to distinguish.
    For the largest financial institutions, I think if you look 
at what we have done in financial reform and Wall Street reform 
that has made the system safer, we have gotten much more 
transparency. We see what they are doing. We see what they are 
holding. We understand how it is connected to the financial 
system. They have capital buffers internally. So when they take 
risks, we know how much of the risk that they are taking they 
can absorb before they have to look outside for any kind of 
help.
    I think if we were to roll that back, it would be terrible. 
It would be--we have done it, a lot of other major economies 
have done it. If you look at how the global financial system 
responds to shocks nowadays, we could just look back to the 
week after the vote in the United Kingdom on Brexit. There was 
a sense of confidence in financial institutions that just 
wouldn't have existed without financial reform.
    Mr. Hinojosa. Thank you for that clarification. So what 
impact would H.R. 5983, the chairman's Dodd-Frank repeal bill, 
have on financial stability and international confidence in the 
U.S. banking system and capital markets if it were enacted?
    Secretary Lew. Look, I believe that if we were to roll back 
some of the protections in Wall Street reform that that 
legislation would roll back, it would bring back concerns about 
the stability of the U.S. financial system the next time there 
is a bump in the road. Bumps in the road happen. They are 
either geopolitical or economic. You want a financial system 
that can withstand those kinds of shocks. We are in a much 
stronger place now, and I think it is a mistake to go back.
    And if I could just add, there is some things we still need 
to do. From the back and forth a few minutes ago, you wouldn't 
know it. We are pressing very hard for executive compensation 
rules to be finalized by the regulatory bodies so that we can 
align risk-taking incentives and compensation in a better way.
    Mr. Hinojosa. I agree that we have come a long way in 
recovery. So let me ask a question on the economic recovery of 
our country. Much more progress needs to be made in order for 
us to climb out of that hole created by the 2008 Great 
Recession, which was spurred by an historic Wall Street-created 
financial crisis. Tell us, to what extent would our progress 
have been even more remarkable had the Republicans in Congress 
not been so committed to fiscal austerity?
    Secretary Lew. Congressman, I believe that the early 
imposition of tight fiscal controls was actually something that 
held back our recovery here in the United States. We would have 
grown faster if we had put longer term deficit reduction in 
place, not slammed on the brakes so quickly.
    Mr. Hinojosa. Would GDP be higher today?
    Secretary Lew. I believe it would. And we have seen, since 
we have more sensible policies through two budget agreements 
putting in place longer term savings and freeing up short-term 
spending, the economy has actually done better.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Michigan, Mr. 
Huizenga, chairman of our Monetary Policy and Trade 
Subcommittee.
    Mr. Huizenga. Thank you, Mr. Chairman. So many issues, so 
little time.
    I do want to say, first of all, congratulations, Mr. Lew. 
Oftentimes, depending on who is sitting in there, you get a 
Jekyll or Hyde performance on the other side of the aisle. 
Quite honestly, I am waiting for the outrage of the other side 
with vaunted claims of how the economy has benefited Hispanics 
and African Americans that you just spoke about in your 
testimony. A robust economy is needed for all. Unfortunately, 
this Administration has not provided that. Wall Street is doing 
just fine. Main Street is not. And intercity Main Street is 
even doing worse. And I just--it is, I guess, going to the dogs 
characterization depends on who is sitting in the seat. So they 
like who is saying it, just not what is being said.
    I got just teed up. Now I had a question at the end of 
this, but I got teed up by my colleague from Texas about this. 
You testified as well that Dodd-Frank and the Council have 
``made the financial system safer.'' However, former Treasury 
Secretary and Harvard president Lawrence Summers says that 
``major financial institutions don't look any safer than they 
were before Dodd-Frank and may even be more risky.'' He also 
flagged Dodd-Frank's myriad of regulatory restrictions as a 
prime suspect for this duplicity. So I am going to follow up 
with that in a written question. But I am going to give you 
literally 20 seconds here to address that.
    Secretary Lew. I don't think that paper in any way called 
for rolling back Wall Street reform.
    Mr. Huizenga. But it said it didn't work.
    Secretary Lew. I think what it did was it looked at one 
indication, market evaluations, and used that to do some 
analysis. We have seen markets get things wrong. They didn't 
predict the subprime crisis because of what was going on in the 
financial sector. It didn't predict the outcome of the vote in 
the United Kingdom. So I would be careful to just assume that 
one thing--you have to look at the whole picture.
    Mr. Huizenga. While we are on the United Kingdom, obviously 
we saw that European unity was something that has been called 
for as Greece has been bailed out before. We have had this 
personal conversation. I have contacted Treasury Department 
well over a year regarding further IMF financial participation 
in a Greek bailout, and I am urging you to oppose that. Even 
former executive director of the fund who voted for the first 
bailout has come out against a third one.
    Since you last appeared before us, the IMF's evaluation 
office released a scathing report on the fund's involvement in 
Greece, blasting its debt sustainability analysis and 
concluding, ``that the best governance was not practiced, as 
the board was poorly informed and too late in several 
instances, and as a result the decision-making and supervisory 
roles of the executive board were undermined.''
    At some point, we have to acknowledge the damage the IMF's 
credibility has been immense. And you have stated that it was 
important for European unity. We have seen elections, the 
Brexit in England. We just--recent elections in Germany that I 
am sure have many of your colleagues over there very concerned.
    My next issue is the World Bank. And, Mr. Chairman, I would 
like to submit for the record a couple of letters to the record 
that were sent by Ms. Moore, my ranking member, and myself. We 
wrote a letter to President Kim--
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Huizenga. --expressing our alarm over a failed 
transportation project in Uganda. This project was linked to 
the sexual exploitation of children, among other appalling 
consequences. Moreover, the bank's new safeguards have been 
criticized for ignoring human rights, even as they protect, and 
this is not a joke, the rights of farm animals. Given all this, 
I hope we can work together so that the ongoing IDA 
negotiations result in realistic commitments as well as true 
reforms at the bank.
    Thank you.
    And finally, just kind of rounding off, going back to the 
chairman's questioning on Iran. There was a letter to Senator 
Marco Rubio in June that Thomas Maloney, the senior at 
Legislative Affairs, said: The Administration has not been and 
is not planning to grant Iran access to the financial system. 
To be clear, until Iran has addressed other concerns we have 
with its behavior outside the nuclear file, the U.S. financial 
system, including the branches of U.S. financial institutions 
abroad, will remain off limits to Iran, and U.S. persons will 
not be able to provide financial services or products to Iran 
without explicit authorization.
    Iran's behavior is outside of the nuclear profile. 
Terrorism remains unchanged. You even said that earlier. You 
said it hasn't gotten worse. That means it hasn't gotten better 
either. Just yesterday, you announced the authorization of U.S. 
financial institutions to finance aircraft sales. Doesn't this 
contradict your written assurances to Congress?
    Secretary Lew. No, Congressman. The licenses that were 
issued yesterday for aircraft were something that were 
negotiated in the Joint Comprehensive Plan of Action, and they 
were consistent with it. It goes only to entities that do not 
engage in terrorism and it cannot be used--
    Mr. Huizenga. The $1.4 billion in cash was consistent with 
it too, but it doesn't make it right.
    Secretary Lew. The U.S. financial system remains closed, 
except for very specific purposes. And this I don't believe--I 
am not aware of a transaction through a U.S. financial system 
that will support it. But a licensed activity is the only 
exception.
    Mr. Huizenga. My time has expired.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from New York, Mr. 
Meeks.
    Mr. Meeks. Thank you, Mr. Chairman.
    And let me first welcome you, Secretary Lew. It is coming 
another way, but as a member of this committee and a member of 
the Foreign Affairs Committee, I think that I want to--this 
piece talking about the settlement payment to Iran, as I see 
what they put up on the board and I have heard the questions by 
the chairman when I was listening in my office, it just seems 
to me that my colleagues on the other side of the aisle are 
using as fodder for a convenient political spin. They are 
playing politics this election year. And the majority have 
quickly turned to these talking points about the 
Administration's settlement being a ransom payment. This 
despite the fact that the Obama Administration had, in fact, 
briefed Congress in advance, I say that again, it had been said 
before, Congress was briefed in advance of the $1.7 billion 
settlement of a longstanding claim with the Government of Iran. 
You did brief Congress. Is that not correct?
    Secretary Lew. It was fully described by the President at 
the time, and we briefed Congress at the time.
    Mr. Meeks. And it is not the first time, nor is it unusual 
that--in fact, I think that it was a smart thing using leverage 
when conducting diplomatic negotiations. That is a common and 
smart strategy that is utilized not only by this Administration 
but has been done by past ones also. Is that not correct?
    Secretary Lew. I believe that settling something for $1.7 
billion when you were exposed to $5 to $10 billion of risk is 
the right outcome.
    Mr. Meeks. In fact, that is right. Because isn't it true, 
Mr. Secretary, that had the Administration not negotiated the 
Hague settlement, we would have ended up ultimately paying much 
higher for the 1979 failed arms sale?
    Secretary Lew. I believe that we resolved it in a way that 
saved the United States and U.S. taxpayers substantial 
exposure.
    Mr. Meeks. And on top of that, for the record, on top of 
that, since the establishment of the U.S.-Iran Claims Tribunal, 
all U.S. citizens' claims against Iran that were registered 
under the Algiers Accords have also been resolved, and 
Americans, as a result, by us doing that, have gotten about--
what is it? About $2.5 billion in payments?
    Secretary Lew. Yes. I don't know the total, but to my 
knowledge, they have all been paid.
    Mr. Meeks. So let me--and the record should be clear about 
that, that this was a smart deal done utilizing leverage that 
you had. You have leverage, you don't give it up, you utilize 
it. That was done by the Administration. And the fact of the 
matter is, I would like to say that it was something that 
nobody else did, it was unique, your thought, but other 
Administrations have done the same thing. Democrats and 
Republicans. Is that not correct?
    Secretary Lew. Settling outstanding claims?
    Mr. Meeks. That is right.
    Secretary Lew. Yes. It is not a new phenomenon. It 
obviously is a new conversation. For decades, we haven't had an 
ability to have a conversation with Iran to settle this. And we 
faced the possibility of an enormous judgment against the 
United States.
    Mr. Meeks. So let me go back to what we were talking about, 
in the time that I have left, and that is dealing--which is 
FSOC. Because FSOC, which was created by Dodd-Frank Act, is 
something that I believe is an absolute necessity as a 
framework so that we can deal with the complex multisector 
interconnected financial risks in our financial markets. And I 
encourage FSOC to further embrace greater transparency in its 
designation process and in how designated entities would be 
regulated. Because it is key, I strongly believe that we should 
emphasize and focus on working with the designated firms so 
that they can de-risk, if we work with them, and they no longer 
become risky, it is much better to eliminate systemic risk as 
opposed to supervising it. Is that not correct?
    Secretary Lew. Yes. Congressman, I actually think that the 
process the GE went through demonstrates that it is a two-way 
street. GE, for its own business reasons, changed its focus to 
go back to being an industrial as opposed to a financial firm. 
It came and made the showing that it was no longer engaged in 
the activities that caused it to be designated, and we quickly 
responded by de-designating. And we have not--for the debate 
about designation, you would think that hundreds of firms have 
been designated. It is four nonbanks and eight utilities. We 
are not out going aggressively to designate firms. We 
identified firms with a high level of risk. And if another firm 
were to appear that presented risk, we should go forward.
    But we always lay out the basis for designation so that 
they know what it is that is making them be designated. And it 
is a business decision whether they want to be in the form they 
are with some additional oversight or change their business 
structure. It is not like being designated stops you from doing 
your business. It just means we have more visibility so we can 
see what is going on.
    Mr. Meeks. Thank you. I had another question, but I think I 
am out of time and I don't want to hear that gavel from the 
chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Wisconsin, Mr. 
Duffy, chairman of our Oversight and Investigations 
Subcommittee.
    Mr. Duffy. Thank you, Mr. Chairman.
    And welcome, Mr. Lew. I want to go back to your Iran deal. 
I think you testified that wire transfer payments were made to 
Iran before the $1.7 billion cash payment and--
    Secretary Lew. I testified that one $900,000--
    Mr. Duffy. Went before.
    Secretary Lew. Yes.
    Mr. Duffy. And--
    Secretary Lew. Sometime before.
    Mr. Duffy. That is my recollection too. And a wire transfer 
also went to Iran after the cash payment. Is that correct?
    Secretary Lew. Yes.
    Mr. Duffy. So the fact is, per your testimony, that wire 
transfers to Iran are possible. I will take that at face value.
    Secretary Lew. No. Congressman, it is very important.
    Mr. Duffy. No, no, no, no.
    Secretary Lew. The wire transfer--you have to understand 
what a wire transfer does.
    Mr. Duffy. I am--my time. Let me get to my question, 
though.
    Secretary Lew. What you stated was incorrect.
    Mr. Duffy. I am going to repeat my question.
    Secretary Lew. So I just want to make it clear what you 
stated was incorrect.
    Mr. Duffy. Now, you made a wire transfer before the cash 
payment, you made a wire transfer after the cash payment. And 
the President told the American people that we could not wire 
the money. So it leads me to believe that the Administration 
has not been truthful--
    Secretary Lew. No, Congressman.
    Mr. Duffy. --with the American people, based on your 
testimony today, because wire transfers could take place.
    Secretary Lew. Indulge me to answer your question. The wire 
transfer goes to an account in a foreign bank. A European bank, 
say. It doesn't go to the Central Bank of Iran directly. The 
question is, if you have a contract settlement with a party 
that you have no trust, they don't trust us, we don't trust 
them, they are not asking can you get the money to an account 
that they may or may not be able to get access to. It was part 
of the negotiation to get the money to the Central Bank of 
Iran.
    Mr. Duffy. Okay. So but wire transfers can take place. And 
the wire transfer before the $1.7 billion and the wire transfer 
after the $1.7 billion, were those also converted to cash?
    Secretary Lew. Just as a factual matter, Congressman, it 
was quite--
    Mr. Duffy. Yes or no.
    Secretary Lew. --it was quite challenging for Iran--
    Mr. Duffy. Were those converted to cash?
    Secretary Lew. --to get access to that money. It was quite 
challenging.
    Mr. Duffy. There's a reason for that. Right? They are the 
lead sponsor of terror. We have rules in place so they can't 
access cash.
    Secretary Lew. I enforced those rules. Yes, I understand 
those rules.
    Mr. Duffy. So let's talk about the rules. In the Code of 
Federal Regulation, you can't load up a plane full of cash in 
the U.S. and fly it to Iran lawfully. So to get around that 
rule, what did you do? You wired the money to Europe and then 
had it converted to cash and sent to Iran so you didn't violate 
the law. So, yes, you complied with the law, but you got around 
the spirit of the law. Right?
    Secretary Lew. Congressman, we have successfully cut Iran 
off from the U.S. financial system. When we agreed--
    Mr. Duffy. I agree.
    Secretary Lew. --to settle a legal claim with Iran, part of 
that agreement is you make payment. The way you make payment is 
you wire money to their account or you--
    Mr. Duffy. Convert it to cash?
    Secretary Lew. The question was, how do they get access to 
the payment of the settlement? And we worked through foreign 
banks, and they wanted access--
    Mr. Duffy. Mr. Lew, the problem--
    Secretary Lew. --which was not unreasonable, given that it 
was a negotiated settlement.
    Mr. Duffy. It is unreasonable because this is a bad deal.
    Secretary Lew. No, Congressman.
    Mr. Duffy. No, Mr. Lew. They are the lead sponsor of terror 
in the world.
    Secretary Lew. Let's go back to the deal.
    Mr. Duffy. We have cut them--no, no. We have cut them off 
from cash because cash is the currency of terror.
    Secretary Lew. Yes.
    Mr. Duffy. And so when you make payments, yes, you are 
going to make it to a foreign bank. And they are restricted in 
how they might use that money. And they want to access the cash 
because the cash is untraceable and they can use it for 
nefarious things that we object to. And you made the payment 
anyway in cash.
    Secretary Lew. Congressman, the Joint Comprehensive Plan of 
Action gives Iran access to its own money in international 
banks.
    Mr. Duffy. I don't have much time left.
    Secretary Lew. No. Let me answer your question, 
Congressman.
    Mr. Duffy. Hurry up.
    Secretary Lew. This is a very important question. Part of 
the agreement that caused Iran to dismantle its nuclear program 
and increase their--make it take 12-plus months, not 3 months, 
to develop a nuclear weapon--which they dismantled their 
nuclear program. We had to keep our part of the deal, which was 
to give them access to their own money.
    Mr. Duffy. In cash, right.
    Secretary Lew. They have been having a hard time. And I am 
not going to apologize for saying we need to keep our deal. 
They need to get access to that cash.
    Mr. Duffy. I am going to reclaim my time. I heard you--
    Secretary Lew. And in the case of settling a contract--
    Mr. Duffy. We can have a disagreement on--this is my time, 
though.
    Mr. Lew, I have--
    Secretary Lew. Mr. Chairman, can the Congressman get a few 
more seconds so I can answer his question? We shouldn't have to 
talk over each other. This is a very important matter.
    Chairman Hensarling. Without objection, but the time 
belongs to the gentleman from Wisconsin.
    Mr. Duffy. If I could have unanimous consent for another 30 
seconds?
    Chairman Hensarling. Without objection, the gentleman is 
accorded an extra 30 seconds.
    Secretary Lew. I respect the question. And I don't want to 
be talking over each other. I would like to explain it.
    A deal is a deal. When you have a country dismantle its 
nuclear program and you give them access to their money, that 
means they are going to get money. It is going to go to the 
Central Bank. We knew that. We said all along we are going to 
make sure that we keep our eye on what they do in terms of 
nefarious activities and use our other authorities to stop 
that.
    Mr. Duffy. I have given you the time, but I only have now 
30 seconds. But I know, I wish I had more time. I wish I did, 
but maybe we will talk over coffee one day.
    Secretary Lew. But the other half of my comment actually is 
very important.
    Mr. Duffy. Can you guarantee--Mr. Lew, you say you cut a 
good deal, you are proud of the deal. Can you guarantee the 
American people that that $1.7 billion in cash will not be used 
to fund terror?
    Secretary Lew. Look, Congressman, I have said--
    Mr. Duffy. I will take that as a no. Yes or no.
    Secretary Lew. These are not yes or no questions.
    Mr. Duffy. They are yes or no questions.
    Secretary Lew. Be serious, Congressman.
    Mr. Duffy. I am very serious.
    Secretary Lew. All right. Then give me a chance to answer 
your question.
    Mr. Duffy. This is a serious issue.
    This is a yes or no. I have a few more moments. So in 
regard--
    Secretary Lew. Congressman, if I have the time, I will 
answer your question. If not, let's be serious.
    Mr. Duffy. It is a yes or no. So I have one more question 
for you. We have unfrozen assets. Right? Whether it is $100 
billion or they had payments, that is only $40 billion. Do you 
know if any of that money has also been allowed to go to Iran 
in cash or gold or any other--
    Secretary Lew. Congressman, people are coming up with all 
kinds of--
    Mr. Duffy. You are the Treasury Secretary. That is why I am 
ask you.
    Secretary Lew. I have seen things--
    Mr. Duffy. I am asking the Treasury secretary.
    Secretary Lew. We have--we gave--
    Mr. Duffy. Yes or no.
    Secretary Lew. Mr. Chairman, may I answer the question?
    Congressman, you--
    Chairman Hensarling. Please answer the question.
    Secretary Lew. --have a letter that our department sent you 
describing the transfer of cash. We have laid it out clearly. 
We have come up and given classified briefings. We continue to.
    Mr. Duffy. My question for you that you wanted to answer, 
and I guess if he could answer the question. He has asked for 
it, Mr. Chairman, and I ask unanimous consent to allow that.
    I am now talking about the $100 million of unfrozen assets 
that might only be $40 billion. Not even $100 billion. Any of 
that money that you are aware of as the Treasury Secretary, not 
rumors, but you as the secretary, do you know if any of that 
money has been allowed to go to Iran, of those unfrozen assets, 
in cash or gold or any other kind of currency payment?
    Secretary Lew. Congressman, the--
    Mr. Duffy. Yes or no.
    Secretary Lew. Congressman, the money is Iran's money. And 
when it comes to the Central Bank of Iran, one way or another, 
it gets turned into cash that they can use. So you are only 
talking about what mode of transfer.
    Mr. Duffy. Because you--
    Secretary Lew. I am not aware of cash transfers.
    Mr. Duffy. You have allowed it to happen, sir.
    I yield back.
    Chairman Hensarling. The time of the gentleman has long 
since expired.
    The Chair now recognizes the gentlelady from New York, Mrs. 
Maloney, ranking member of our Capital Markets Subcommittee.
    Mrs. Maloney. Thank you, Mr. Chairman.
    And welcome, Secretary Lew. I want to ask you about 
cybersecurity. And as you know, there have been several 
reported examples where hackers have successfully stolen banks' 
credentials for the SWIFT system that banks use for 
international payments, and then used these stolen credentials 
to initiate fraudulent funds transfers. In one case, hackers 
were able to steal $81 million from the Bangladesh Central 
Bank's account at the New York Fed.
    And I am concerned, and I want to know are you concerned, 
that repeated instances of fraudulent transfers through the 
SWIFT system will undermine the confidence, and I would say, 
the safety and soundness of international payments, and do you 
believe that this poses a systemic risk?
    Secretary Lew. Congresswoman, obviously we are aware of the 
reported intrusions into the SWIFT system. And I would have to 
refer you to SWIFT for detailed responses on that.
    We do have confidence in the integrity of the global 
financial system, but we are also very much aware of the risks 
that the threat of cyber attack presents to every part of our 
financial system, and really every part of our electronic 
lives. It is true about utilities. It is true about virtually 
every system that we deal with.
    That is why the Presidenthas been so clear that we need to 
take the strongest action to have a coordinated approach to 
both putting best practices in place, sharing information, 
removing the stigma of being attacked. Because whether you are 
a business, a government, or an individual, you didn't 
necessarily do something wrong that you were attacked. We have 
to stay a step ahead of the bad actors. That means that the 
more you know about how attacks are made, the more you can 
build systems to protect against them. You know that the 
attackers are going to come up with something new. It is not 
like they will stop where they are. We need to make sure that 
systems are updated so that you have the right equipment as 
well as the right software approaches.
    I think this is going to be a part of our lives for some 
time to come. We have to make sure it doesn't become a threat 
to financial stability. I actually think the financial system 
is a step ahead of most other sectors. But that gives me little 
comfort, because the financial system requires electricity, it 
requires all of the other things that are part of our broader 
infrastructure that we all depend on. This is a serious, 
serious challenge throughout our economy and the world.
    Mrs. Maloney. Thank you. I would also like to ask you about 
Brexit. And just 2 days after the FSOC published its annual 
report, the U.K. Voted to leave the European Union. And the day 
after that vote, the FSOC held an emergency meeting that was 
reported to discuss the financial stability and implications of 
the Brexit vote.
    Now that you have had time to reflect and to study this and 
to consider various scenarios for how the U.K. Will manage its 
exit, do you see any real risks to the financial stability of 
the United States coming from the Brexit initiative? And if the 
U.K. And the EU fail to reach a deal on financial services 
before the U.K. Leaves, could that pose a systemic risk to our 
financial system?
    Secretary Lew. Congresswoman, I think in the period right 
around the vote and after, there was very good preparation by 
central banks and by finance ministries to make it clear that 
there were sufficient resources in place to prevent what was a 
very volatile period from spilling over into a period of real 
loss of confidence. I think it was actually a measure of the 
success of financial reform that there was enough confidence in 
financial institutions because we knew what their balance 
sheets looked like, we knew what their capital was. And it gave 
central banks the ability to respond as decisively as they did.
    Mrs. Maloney. And lastly--my time is almost over, and I 
want to talk about you de-designated GE Capital. It was the 
first de-designation in the council's history. And this came 
after GE Capital made significant changes to its business model 
and divested nearly $300 billion of assets. Now, some critics 
of the FSOC have claimed that GE Capital only escaped after 
they sold off virtually all of their financial businesses, and 
that therefore FSOC requires companies to gut themselves in 
order to be redesignated. Is that true? Is the only way for a 
company to get de-designated is to really divest? Or was GE 
Capital a unique case?
    Secretary Lew. Each designation is a unique case. It is 
based on the facts that are presented and the analysis of the 
company and the risk that it presents. In the case of GE, they 
made a business decision that, from my conversations with the 
company, had less to do with designation and more to do with 
their strategic vision of where the company should go. It had 
the effect of changing the analysis in a material way. And they 
were de-designated.
    Every company knows why they were designated. They all 
understand what their strategic business plans are. And they 
have the basis for making the decisions for themselves.
    Mrs. Maloney. Thank you very much for your service.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from New Mexico, Mr. 
Pearce.
    Mr. Pearce. How are you doing, Mr. Secretary? Nice to have 
you here today.
    Secretary Lew. Always a pleasure.
    Mr. Pearce. I could tell.
    When the FSOC was created, basically you were charged with 
three statutory mandates, and the first being to identify the 
risk to the financial stability of the United States. So that 
is pretty well-established.
    Now, in your report today, you say that for the first time 
ever we can identify and respond to emerging threats to the 
U.S. financial stability. And then you go on to say that the 
council, the FSOC council, convenes regularly to monitor market 
developments and take action when needed to protect the 
American people. And then you continue on even further to say 
that the FSOC is supposed to report on recommendations for 
specific actions to mitigate the risks.
    For over 6 years, the Fed has kept interest rates extremely 
low. In fact, near the zero level. Mostly, the inflation doves 
in the Fed have downplayed the effect on the market. Now, just 
last week, you had the head of the Boston Fed, President 
Rosengren, he has been one of the biggest doves saying that 
there is no connection here. He came out and made a statement 
that says that he is concerned that easy money could be letting 
markets get out of hand as they were before the crisis. That 
sent the markets into turmoil.
    And so a market that hadn't changed barely 1 percent in the 
previous month and a half suddenly was changing tremendously in 
the next 3 or 4 days. So the market is indicating some concerns 
that it might be true.
    So I guess my question--I would like to also submit that 
article for the record, Mr. Chairman.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Pearce. And then you have also Veritude saying that 
they are not going to trade in the bond market because it is 
just too hard to price. It is too unstable.
    Now, to me, those are things that in my small town New 
Mexico way seem like they could be impacts on the stability--
the financial stability of the United States. But I was kind of 
surprised because I am just thumbing through, I haven't read 
the whole thing, but I am looking at your report, not just what 
you said here today, and I don't see much about monetary policy 
affecting the markets the way that they seem to be.
    So I guess my question is, when you are ever sitting around 
talking to Janet Yellen, do you ever kind of look away from the 
TV cameras and say: We ought to be talking about this. It has a 
little effect maybe? Do you ever bring that up?
    Secretary Lew. Congressman, obviously, like all of our 
predecessors, the Chair of the Fed and I talk to each other, 
both in meetings and out of meetings, and I would hope that 
that remains true, because as the two senior economic--
    Mr. Pearce. Okay. You are just now talking, sir. And with 
all respect, I am not trying to interrupt if you were really 
getting in saying: Yes, we have talked about it and stuff. But 
you are saying you want the conversation to be friendly and 
continue, and my time is escaping. And so I am not going to 
bother you anymore. I am just going to continue to make the 
points. Because I think that you are not looking at the 
financial instability at all that is coming up.
    When I am talking a look here, the Wall Street Journal of 
May 20 says that it is not China, not the U.K. It is the lack 
of liquidity in the markets that is going to be a big problem. 
When I take a look at Bloomberg, they talk about today's 
postcrisis regulations intended to make banks safer and 
discourage risk taking are eroding profits and forcing dealers 
to rethink their business model. These changes have created a 
vacuum in the bond market making trading much riskier. And then 
they go on in the same report to say that all of this matters 
because the $100 trillion global bond market is an essential 
part of the machinery that keeps the world economy going. And 
it is not even being referred to in your report.
    And finally, then where it all comes down to hit the road, 
is September 21st, a $1.9 trillion shortfall in the United 
States State and local pension fund is poised to grow as near a 
record low bond yields and global stock market turmoil reduce 
investment gains, that they are expecting 7 percent rate of 
return and they are getting 1 percent. And none of this is in 
your report, which leads me to think that you are not dealing 
with the financial instability of the U.S. at all.
    I yield back, Mr. Chairman. Thank you.
    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.
    Welcome, Mr. Secretary. And I have to say, I think that--
well, first of all, thank you for your service to your country. 
And I think my predecessor, Joe Moakley, would be very proud of 
the job that you are doing.
    Secretary Lew. I am proud to have been connected to him.
    Mr. Lynch. Yes. Good man. We miss him.
    I do want to revisit the issue raised by the gentlelady 
from New York, Mrs. Maloney, around the SWIFT. That system was 
compromised. She is absolutely correct. $81 million. 
Apparently, a transfer from the Bangladesh Central Bank, but 
the payment was authorized to the New York Fed, and then the 
money ended up in the Philippines, and there we lost track of 
it.
    And so given the size, the volume of transactions between 
central banks and commercial banks on that SWIFT network, it 
does raise some concerns. And I was wondering--I did read a 
story in Reuters that we are in informal discussions with the 
Philippines. They would like to be part of TPP. Now, I am 
against TPP, but as long as you are having these discussions, 
one of the gaps in that whole theft of $81 million was that the 
Philippines have created an exemption for their casinos under 
the antimoney laundering protocols that we have at FATF. And I 
am just wondering, in those discussions, if we could persuade, 
no matter where TPP goes, if we could persuade the Philippines 
to get in compliance with that antimoney laundering protocol 
that we have--with a lot of the FATF countries, that might be a 
good use of our time.
    Secretary Lew. Congressman, I think in general, the more we 
bring other countries up to high standards of being able to 
stop illicit financial activity, to see money laundering, the 
better able we will be to take actions, not just in response to 
cybercrime, but in terms of funding of terrorism and other 
things of the like. I think the challenge of making sure our 
computer systems are safe is one that, as I was saying to 
Congresswoman Maloney, we deal with every day. Every CEO in the 
world deals with it every day. And it is going to be an ongoing 
challenge.
    I know SWIFT is taking very seriously the breaches that 
have been reported. And it is going to require action kind of 
broadly through the financial system to stay ahead of these 
cyber attacks.
    Mr. Lynch. All right. Chairman Hensarling has set up a 
terrorist financing task force here that I share with Mr. 
Fitzpatrick. And we are just very concerned. In the 
Philippines, Abu Sayyaf is very active there. So God knows 
where this $81 million went. But that would certainly be a 
problem.
    I want to revisit the SIFI designation process a little 
bit. I know that the courts rejected the application of SIFI to 
MetLife. And I am just curious how that has changed your 
analysis. And I know you have sort of a three-stage review 
there. How is that going? Do you think MetLife is a risk 
because they have been declassified, I guess, de-designated?
    Secretary Lew. To be clear, a lower court has ruled in 
favor. We have appealed that. We believe we have the legal case 
to prevail on appeal. So we don't believe that the end of the 
MetLife case will be to de-designate, but that is obviously up 
for the courts to decide.
    I think the process we went through was a rigorous one. The 
record supports the decision that we made. And I think some of 
the basis for the court's decision is very flawed. I have made 
that clear. That is something that our appeal makes clear.
    Mr. Lynch. Yes.
    Secretary Lew. I think going forward, the point I made 
earlier is, I think, very important to keep in mind. We have 
not designated 500 institutions.
    Mr. Lynch. Well, I know that.
    Secretary Lew. We have designated 12.
    Mr. Lynch. You said previously there are a very, very small 
number of companies and utilities.
    Secretary Lew. And they are--for a reason. Because they are 
so--
    Mr. Lynch. But let me--I just want to--my time is running 
out. So--okay. So there is this process that I hear from some 
of the companies and banks that might be affected that--and it 
was cited in the lower court's decision, that there is not 
enough flexibility for them to adjust their structure in a 
timely fashion to avoid SIFI designation. Is that something you 
are working on or--is that part of your response?
    Secretary Lew. I think that the process of consultation in 
the designation process has been very good. It has gotten 
better over time, but it has been very good all along. I 
think--
    Mr. Lynch. That is according to you, just so you know. Some 
people don't feel that way. But I agree with you.
    Secretary Lew. I think that it is not because there is a 
misunderstanding. It is because of basic issues of what 
businesses are doing, what they are about. And it is not that 
it--we obviously think that if decisions are made to reduce 
risk, that is a good thing. But if you are going to maintain a 
business organization that presents a high degree of risk, 
having oversight is important. It doesn't put anyone out of 
business.
    Mr. Lynch. Okay. Thank you for your indulgence, Mr. 
Chairman. I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from California, Mr. 
Royce, chairman of the House Foreign Affairs Committee.
    Mr. Royce. Thank you, Mr. Chairman.
    Mr. Lew, welcome.
    Secretary Lew. It's good to be with you.
    Mr. Royce. We are glad you are here. I know that back in 
1986, you sat next to Tip O'Neill back when he and Ronald 
Reagan were working on the 1986 Tax Act. And I was wondering 
what advice you might give maybe the next Administration in 
terms of how the Speaker and how the President could work on 
the compromises that would get us to a result, in my view, like 
that one. I think you are somewhat optimistic about the 
consequences of the economic growth that we saw after the 1986 
act as well.
    So I wanted just to speak for a second to this issue you 
mentioned about this bipartisan widespread agreement that our 
current business tax rate is stifling economic growth and that 
it is making us uncompetitive. And there is an agreement, I 
think, on the need to eliminate loopholes. And I think also 
some of us who agree we should be taking tax revenue from money 
parked overseas to pay for infrastructure projects here, there 
is perhaps that element too that could help move this through.
    There seems to be some disagreement on whether to include 
small businesses that file on the individual side to include 
the passthrough companies. And I have followed your thinking 
through the years. I know early on, you thought it should all 
be done at once, and last month, I think you mentioned it 
needed to be broken up in terms of how it was handled. But I 
thought I would ask you that question, and especially in terms 
of how we were able to achieve that result in 1986.
    Secretary Lew. Congressman, it is a great question. It is 
actually something I have given a lot of thought to. I think we 
have made a lot of progress in the discussions on a bipartisan 
basis on business tax reform. I think in terms of how we should 
close loopholes, how we should lower rates, how we should deal 
with international income, have a minimum tax, I think that we 
have an emerging consensus that has the ability to get 
bipartisan support. I think you put your finger on something 
that has been an issue. And I think it is a misunderstood 
issue. And if I could take just a minute, I would like to 
explain why.
    You can do business tax reform on the corporate side and 
provide a lot of benefit to small businesses by letting them 
deduct everything that they spend on investment by giving them 
simplified procedures. Real small businesses would benefit from 
where the emerging consensus for business tax reform is. The 
institutions that wouldn't--the businesses that wouldn't 
benefit are not small businesses. They are LLCs that organized 
after the last tax reforms to go from being corporations to 
being passthroughs. It is interstate pipeline companies, it is 
large financial firms like hedge funds.
    I think that if we look at the impact on real small 
businesses, we can get there. And I hope that we can, like, 
break apart where the impact of individual rates really falls. 
It doesn't fall on the small neighborhood business. It is 
falling on these very large firms. And I think it would be a 
shame if that were to be an obstacle to cleaning up a business 
tax code that is profoundly broken. It is causing terrible 
consequences. We see the European commission now reaching into 
our tax base with state aid fines. That is a terrible thing. We 
need to stop it by fixing our Tax Code.
    And you put your finger on what I think brings it together 
so we should be able to get bipartisan consensus, which is 
using the one-time revenue that comes from having a tax apply 
to overseas income, whether it comes home or not, to fund 
infrastructure. That is one-time revenue. It is a perfect use 
for one-time revenue.
    Mr. Royce. Let me ask you another question too. And that is 
on the intersection of domestic and international regulations 
in the area of the Financial Stability Board. I am concerned 
that U.S. regulators, at least in part, rely on FSB 
determinations, yet FSB is not subject to the procedural due 
process. So I think we have an interest here in starting with 
FSOC rather than starting at the other end with European, 
Swiss-based FSB, where we end up without notice and comment or 
prohibitions on arbitrary and capricious actions, and then we 
work to accommodate the Europeans rather than the other way 
around.
    Given the impact that designation can have on a company, 
why utilize a process that lacks some basic protections here? 
Why don't we reverse that process?
    Secretary Lew. Congressman, we do it the way you want us to 
do it. The only designations that we make, we make based on 
U.S. procedures. The FSB is a policy shaping, not an action 
determining body. It is not binding on nations, but it does 
help bring other countries closer to meeting our standards. And 
I think it is good for us to have other countries have higher 
regulatory standards.
    Mr. Royce. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Georgia, Mr. 
Scott.
    Mr. Scott. Secretary Lew, I want to go back to the Iranian 
discussion for a moment, but from another perspective. We all 
agree the Iranian agreement is done, it is there, and that it 
is--whether you agree with it or not. But here is my concern. 
We all must agree that as a result, right now, Iran stands 
flush with billions and billions and billions of dollars. And 
as you alluded to, much of their own money. And I respect the 
President. He has tried very hard with this deal. I respect 
that deal. But here is my concern.
    We have an obligation to Israel to make sure that they have 
a memorandum of understanding. But here is the point, 
Secretary. The President recently issued his memorandum of 
understanding, and it is woefully weak. It is about the same 
amount of money as we did in 2008. Because, as you know, in the 
Naval Transfer Vehicle Act of 2008, we established a fact in 
law that the amount of military aid we give to Israel must make 
sure that Israel has the qualitative military edge. There is 
absolutely no way.
    But the President, in his memorandum of understanding, 
giving Israel about the same amount of money that we gave 10 
years ago when we had our foot on Iran's neck, the economyis 
down. Now they are flush with hundreds of billions of dollars 
more. So much so that they are now shipping weapons to Israel's 
enemies up and down and all around the place. As you know, we 
were able to successfully stop three shiploads of weapons going 
to the Houthis, going to Hezbollah, going to Hamas, Syria, all 
of those places.
    My point is this. The President--some of us here in 
Congress want to work with the President. And I want to ask you 
if you could convey to him that David Scott wants to work with 
him. I have served on the NATO Parliament Assembly. I was the 
vice chair--the chairman of our Science and Technology 
Committee. We spent 2 years working on the Iranian agreement. I 
understand that. That is past. But now we got Iran, Israel's 
number one enemy, flush with all this money. And we have an 
obligation in the Naval Transfer Act of 2008 to make sure that 
they have the qualitative military edge. And they don't have it 
with the President offering--Bush offered in 2008, I think it 
was about $3.3 billion a year, and the President is talking 
about like $3.7 billion, when Iran is so far superior in its 
money. It has already put in $19 billion for moneys in weapons 
from China and Russia, and all that.
    So what I wanted to ask you was that if you could convey to 
the President that Congress has a step in this too. Let us work 
together. That memorandum of understanding for Israel, in order 
to make sure they had the qualitative military edge as by law 
we are saying, should be close to $7 billion a year. It is 
Congress that appropriates that money. Give us a seat at the 
table. Let us work with him on it. Could you do that for me?
    Secretary Lew. Congressman, I think just a couple points. 
First, I met yesterday in New York at the U.N. with Israel's 
finance minister who saw the MOU as being very important in 
terms of guaranteeing Israel's both military and financial 
security. So I don't think your view is shared necessarily by 
the Government of Israel.
    Secondly--
    Mr. Scott. But let me tell you something, what my view is. 
I helped write that law in 2008. We made sure that they got the 
qualitative military edge.
    Secretary Lew. Which we have continued to stand by.
    Mr. Scott. And this does not--
    Secretary Lew. We continue to stand by that, yes.
    Mr. Scott. You don't have the qualitative military edge 
giving them the same amount of money.
    Secretary Lew. I will leave the discussion of the military 
issues to our military experts. But this, as a financial 
matter, is a very important commitment between the United 
States and Israel. And I am proud that we were able to do it. I 
don't think--
    Mr. Scott. Congress appropriates the money. Don't you think 
we have a role in that?
    Secretary Lew. Congress always has the right to appropriate 
the money. I won't challenge that.
    If I could just say, though, I think anyone comparing 
Israel's economy and Iran's economy, Iran has a broken economy. 
They have gotten some relief because of taking apart their 
nuclear program. But Israel has a very--
    Mr. Scott. There is not a dime of that goes to the Iron 
Dome or to David Sling or to combat the traffic of weapons 
going to Israel.
    Secretary Lew. And I totally agree with you. We should 
stand with Israel to make sure--
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Florida, Mr. 
Posey.
    Mr. Posey. Thank you very much, Mr. Chairman.
    Secretary Lew, I have an issue that ties in with the 
chairman's question about the role of the Treasury in making 
payments. For 6 years, 6 long tortuous years, I have been 
fighting for a group of former hostages held captive by the 
Revolutionary Armed Forces of Columbia, better known as FARC. I 
know you are familiar with them.
    You see, these men were on a U.S. Government 
counternarcotics mission when they were captured by the FARC. 
One American was executed and the other three were held hostage 
for 5\1/2\ years. They were subject to conditions that neither 
you nor I can even begin to imagine. Horrible.
    After returning home, the former hostages were granted a 
judgment under the Antiterrorism Act for damages against the 
FARC. However, the accounts to fund this judgment have been 
blocked by the Treasury Department since the Office of Foreign 
Assets Control is now designating all FARC accounts as kingpin. 
Congress clearly wanted terrorism victims to be compensated 
when it passed the law to allow them to access the frozen 
assets of terrorists. But the Office of Foreign Assets Control 
has eliminated their ability to do that by designating all FARC 
assets as kingpin. A small change to TRIA would fix this.
    The bill that accomplishes this, H.R. 3394, the Captive 
Act, passed the House unanimously. Totally bipartisan, 
unanimous, in July. Now I am hearing that the Office of Foreign 
Asset Control is blocking the bill in the Senate. In the 
meantime, the FARC peace accord includes reparations for 
Columbian victims of the FARC terrorism, and a $450 million 
appropriation to implement the accord is waiting for 
Congressional passage. However, here we have American victims 
of terrorism who went through years of torture on behalf of the 
United States Government who have still not been compensated.
    My question for you is: Will you please work with me and 
these former hostages who have suffered so much already at the 
hands of FARC so that they don't have to suffer at the hands of 
Congress and bureaucrats in the future, and let's get them 
compensated?
    Secretary Lew. Congressman, I share your concern for 
victims of terrorism. And I understand that it is a very 
complex and heavily litigated issue regarding multiple claims 
to a limited pool of money. As I know you are aware, TRIA 
allows a person who has a judgment to go against blocked 
assets. But currently, the term ``blocked assets,'' as defined 
by TRIA, gives access to funds that are frozen pursuant to two 
statutes, IEEPA and the Trading With the Enemy Act. IEEPA is 
the principal tool that we at Treasury use to sanction 
terrorist organizations and their members as well as victims of 
state sponsors of terrorism.
    The Kingpin Act, as I know you know, is designed 
specifically to create tools to deal with the threat that our 
country faces because of the international narcotics 
trafficking. And amending TRIA to have the definition of 
blocked assets include property frozen under the Kingpin Act 
could very much undermine our efforts on that very important 
mission as well. So we would look forward to working together 
to pursue how we address the concerns that we share in terms of 
victims of terror having access to compensation. But our 
concerns are to protect another, I think, shared goal that we 
be able to take very decisive action to stop narcotics 
trafficking.
    Mr. Posey. I am a little bit confused how giving American 
patriots the same or equal consideration of foreign people who 
have been terrorized would undermine any of our security 
efforts to fight terrorism or narcoterrorism.
    Secretary Lew. So the Kingpin Act is designed to provide 
resources that go against fighting narcotics trafficking.
    Mr. Posey. I understand that. But this is taking resources 
from narcoterrorists and compensating American victims. And, I 
just don't think there is any excuse for any bureaucrat in this 
country to hold up--to willingly, knowingly, willfully hold up 
the compensation of these gentlemen when it could be remedied 
so very easily.
    Chairman Hensarling. The time of the gentleman--
    Mr. Posey. I think there is a special place in hell for 
people that would do that.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from North Carolina, 
Mr. Pittenger.
    Mr. Heck. Mr. Chairman?
    Chairman Hensarling. For what purpose does the gentleman 
from Washington--
    Mr. Heck. I thought the protocol was to alternate between 
political parties. I have not yet had my opportunity.
    Chairman Hensarling. I apologize to the gentleman from 
Washington. The gentleman from Washington is now recognized for 
5 minutes.
    Mr. Heck. Thank you, sir.
    Mr. Secretary, thank you for being here. I thought it might 
be interesting if we return to the ostensible purpose of our 
hearing today, namely the Annual Report of the Financial 
Stability Oversight Council. And I want to direct your 
attention to page 16 and some of the language relating to 
housing reform.
    Among other things, it says, ``The Council recommends that 
regulators and market participants continue to take steps to 
encourage private capital to play a larger role in the housing 
finance system. Further, the council acknowledges that, under 
existing regulatory authorities, Federal and State regulators 
are approaching the limits of their ability to enact reforms 
that foster a vibrant, resilient housing finance system. The 
council therefore reaffirms its view that housing finance 
reform legislation is needed to create a more sustainable 
system.''
    So I am one who believes that it is a far stretch of the 
imagination to believe that conservatorship is a status which 
should exist in perpetuity. That it is implicitly by definition 
something that is temporary. So I would like to see us move 
forward. But yet it is not altogether clear to me what is meant 
and the whys behind these assertions in this report. For 
example, what is inherently unstable about the status quo, as 
much as I would like to see us move forward? I do not 
understand why it is the council believes that what we have is 
not stable as a consequence.
    Secretary Lew. Congressman, we continue to have a housing 
finance system where most mortgages are in one way or another 
government backed, either through FHA or through the GSEs, 
which are in conservatorship. We think a more stable approach 
would be to have private capital taking risk, coming in, and 
having a mortgage market that is not dependent on having a 
backstop of government support.
    Mr. Heck. Why would it be more stable? I understand why it 
would be--arguably, I would understand why it would be more 
vibrant and more dynamic, because if we were to increase 
private sector participation, we might have more innovation. 
But what is inherently unstable about how we do things now?
    Secretary Lew. If ultimately the goal is to attract private 
capital into the housing market, it would be a good thing if we 
had avenues for private capital to have business models to get 
into the housing market and bear the risks that they are taking 
in a way that is not fully dependent on one or another form of 
government backstop. The challenge is how to get legislation 
that would permit the development of the structure that would 
meet those criteria.
    Mr. Heck. I agree with all that, Mr. Secretary, except I 
still don't hear an answer to my question. What is unstable 
about how we are doing it now?
    I agree with everything you said about the importance of 
moving forward with increased private capital participation, 
but the report says that it would be more stable. What is 
unstable about how we are doing it?
    Secretary Lew. If you go back to the period before the 
financial crisis, it was explicitly said that the government 
didn't stand behind the GSEs. Then there was a financial crisis 
and the government had to bail out the GSEs, which is why we 
are in the conservatorship now.
    I don't think that anyone designed a system for permanent 
conservatorship or wanted a system of permanent 
conservatorship, but it requires legislation to move on from 
where we are. To me, as someone who cares deeply in long-term 
access to housing in this country, it would be better if we 
right now had a blueprint in legislation for what the mortgage 
finance of the future looks like.
    Mr. Heck. Do you believe that home ownership, the 
percentage of the population enjoying home ownership, would 
increase if we were to allow for increased private sector 
capital?
    Secretary Lew. I think it certainly could, yes. Obviously, 
it depends how it is done, so I can't answer in an unqualified 
way.
    I think it is important that anyone who is creditworthy 
should have access to a home mortgage. I think right now we 
have a tighter credit box than is necessarily warranted, and we 
have tried through clarifying some of the regulatory issues, 
things like put-back risk, to ease the credit box some. But we 
also saw in the lead-up to the financial crisis that it is not 
a good thing for people who can't afford a mortgage to get in 
over their head.
    So striking that balance right and having risks borne where 
the decisions to take a risk are being made would be a better 
way in the future. Obviously, we are going to do everything we 
can to keep the mortgage market healthy during the period of 
conservatorship.
    Mr. Heck. Thank you, Mr. Secretary.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from North Carolina, 
Mr. Pittenger.
    Mr. Pittenger. Thank you, Mr. Chairman.
    Hello, Mr. Lew. It's good to see you.
    Secretary Lew, did the Office of Terrorism and Financial 
Intelligence, did that office raise any concerns about the 
method of payment to Iran, the hundreds of millions of dollars 
in cash to a State Department-designated sponsor of terrorism? 
Did they raise any concerns?
    Secretary Lew. Congressman, I am obviously not going to get 
into any individual things in this setting.
    Mr. Pittenger. They are under your purview, and I just 
asked you a direct question. Did they raise any concerns?
    Secretary Lew. I would say that the view within the 
Treasury Department is that everything that we did was 
consistent with both good policy and the law.
    Mr. Pittenger. So they didn't raise any concerns?
    Secretary Lew. I am really not going to comment one way or 
the other on what I did or I didn't hear from intelligence 
briefers.
    Mr. Pittenger. This is your Office of Terrorism and 
Financial Intelligence in Treasury.
    Secretary Lew. We have consistently seen analysis and 
shared analysis that shows--
    Mr. Pittenger. Were you apprised of any concerns by that 
office?
    Secretary Lew. Congressman, I was not briefed internally on 
reasons not to proceed with this transaction, but I am not 
going to describe who told me what.
    Mr. Pittenger. Did that office conduct any analysis as to 
the impact of sending ultimately billions of dollars over to 
Iran?
    Secretary Lew. Congressman, we have done extensive analysis 
on what Iran is doing outside of the JCPOA, the Joint 
Comprehensive Plan of Action, and we have tried as best we can, 
and we have some ability to see what is going on, to see what 
the--
    Mr. Pittenger. How many banks operate--Mr. Secretary, 
excuse me, but we have limited time.
    Secretary Lew. But I didn't answer your last question.
    Mr. Pittenger. How many banks operate under the SWIFT 
authority that gives them access to the international financial 
system, how many banks in Iran have that capacity?
    Secretary Lew. I would have to get back to you, 
Congressman.
    Mr. Pittenger. That would be an important thing to know.
    Secretary Lew. If I can just go back, it really is 
important to answer your last question. We have been looking to 
see if, as we said at the time the JCPOA was agreed to, that 
there would not be a substantial increase in funding, and we 
are not seeing the increase in funds available to Iran going to 
the purposes that we all want to stop. If we see it, we will 
stop it. If we see ships going, we will try to stop them.
    Mr. Pittenger. I think going through the financial system, 
through the SWIFT bank authority, has enormous impact.
    Mr. Secretary, Pastor Saeed Abedini, he was one of the 
hostages. I went over and greeted him in Germany when he 
arrived. As he was waiting in Iran to depart from the Swiss 
airline, Swiss-provided aircraft, to go to Germany, he asked 
one of the guards: Why the wait? Why can't we board and leave? 
And Pastor Abedini testified in Congress and also in the media 
that they were waiting for a plane to arrive, and once that 
plane arrived, then they would be able to depart. And, of 
course, we have seen pictures of planes that arrived and bags 
coming off.
    Did it ever really concern you that the reality of paying 
for these hostages, these ransoms, was not just perception, but 
in reality that is what the Iranians believed?
    Secretary Lew. Congressman, I can't speak to what anyone 
else believed, but I can tell you what I understood at the time 
and what I know now. We had three separate negotiations, all of 
which were going on because a window had been opened at the 
same time. We didn't talk to Iran for decades, but with the 
negotiation of the Joint Comprehensive Plan of Action, we had 
the ability to negotiate for the release of Americans being 
held against their will. We had the ability to settle an 
outstanding legal claim. The fact that all those things came 
together is because we were talking to each another.
    Mr. Pittenger. When you see that the three hostages were 
released--
    Secretary Lew. I couldn't hear you. I am sorry.
    Mr. Pittenger. In fact, it became very offensive to Pastor 
Abedini. He said: What is going to happen now is we have 
exacerbated the problem, and we are going to see a dollar 
amount put on every hostage.
    Secretary Lew. But, Congressman, there is a fundamental 
difference between ransom, which is when you give your money to 
another party, than having separate transactions where you give 
a party its own money.
    Mr. Pittenger. It all happened at the same time.
    Secretary Lew. And that is all this was.
    Mr. Pittenger. One last question I would like to ask you, 
20 seconds. Mr. Secretary, have we ever paid cash in large sums 
to any other government before?
    Secretary Lew. I would have to go back and check the 
history. We do a lot of business in a lot of ways. I know your 
time is almost up, Congressman. I know this has been a very 
difficult week in your city, and I just want to express my own 
personal sympathies to the families that have been injured and 
suffered a loss.
    Mr. Pittenger. Thank you. We need the leadership of Martin 
Luther King in my City today. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Kentucky, Mr. 
Barr.
    Mr. Barr. Thank you, Mr. Chairman.
    Secretary, welcome back to the committee.
    If I could just follow up on the questions from my 
colleague from North Carolina related to the Administration not 
seeing where the money is going, and I think your testimony was 
you don't see money going to terrorist elements. That kind of 
begs the question, if you are transferring money to the 
Government of Iran in cash, of course you are not going to see 
whether or not, that is the whole point.
    Secretary Lew. We actually tried to keep track of what is 
going on as best we can see it in all ways.
    Mr. Barr. But the question that has been asked and I am 
still looking for an answer is, can you track cash payments to 
Iran and whether or not that ends up in the hands of, say, 
Hezbollah?
    Secretary Lew. So, look, the challenge--and this is an 
issue we dealt with directly when the Joint Comprehensive Plan 
of Action was being debated. I cannot tell you Iran will stop 
doing things we don't want them to do. We are going to do 
everything we can to stop them using those authorities.
    But just as we had agreed in the JCPOA that they would have 
access to their money, we said we will do everything we can to 
stop the flow of money. But once money goes into the Central 
Bank of Iran, the mode of transfer is not the issue. We have 
the same challenge, if you had given them the money through a 
check, we would still have to watch where the money goes 
afterwards. We are doing that. We do not see it going.
    Mr. Barr. Can you tell us in Congress and the American 
people today that the $1.7 million that was transferred in cash 
is not funding terrorism?
    Secretary Lew. Look, I understand that you are focused on 
the cash, but we are looking at how much money is going to 
support regional--
    Mr. Barr. That is a no. I interpret what you are saying as 
a no.
    Secretary Lew. Congressman, don't interpret me. I will 
speak for myself. I will speak for myself.
    Mr. Barr. We all know you can't tell us whether or not that 
money is not going to be used--
    Secretary Lew. Congressman, can you show me, contrary to 
our analysis, that we have seen--
    Mr. Barr. The point is it was your testimony that you don't 
see it going to terrorism, but that is why you don't see it 
going to terrorism, because it is in cash.
    Secretary Lew. No, Congressman, that is not why. That is 
not why.
    Mr. Barr. Let me switch to another topic. Let me switch to 
another topic.
    Secretary Lew. I can't in this setting describe to you 
everything that we know and see, but that is not correct.
    Mr. Barr. This is evidence why the Iran deal is bad for 
America. It is bad for Israel. It is bad for our allies. And it 
is bad in terms of preventing terrorism.
    Let me switch to another topic. Let me switch to another 
topic.
    Secretary Lew. But, Congressman, you just got to the core--
you just got to the core issue, which we disagree on.
    Mr. Barr. The time is mine, Mr. Secretary. Let me switch to 
another topic.
    Do small community banks and credit unions represent 
competition to large institutions like Wells Fargo?
    Secretary Lew. I am going to go back and answer your last 
point
    Mr. Barr. No, I really want to move on.
    Secretary Lew. I really want to answer the last question.
    Mr. Barr. You can send me a letter. We can visit 
afterwards. I really do want to move on to the issue of Wells 
Fargo. I would like to move on to the issue of Wells Fargo.
    Secretary Lew. I think the world is safer with nuclear 
weapons not being 3 months away from development in Iran. That 
is a fundamental disagreement.
    Mr. Barr. Mr. Secretary, can I ask you another question?
    Chairman Hensarling. The time belongs to the gentleman from 
Kentucky
    Mr. Barr. Mr. Secretary, do small community banks and 
credit unions represent competition to large institutions such 
as Wells Fargo?
    Secretary Lew. I think that there should be competition at 
all levels of the banking structure.
    Mr. Barr. Do they represent competition to large 
institutions like Wells Fargo?
    Secretary Lew. In some of their business they do.
    Mr. Barr. According to the FDIC, at year end 2010, the year 
that the Dodd-Frank Act became law, there were 7,657 banks. By 
the end of 2015, the number had declined to 6,182. The number 
of community banks had declined by 14 percent, double the rate 
of that in the period leading up to Dodd-Frank. Credit unions, 
we have lost 1,500 credit unions in this country since Dodd-
Frank.
    So since the enactment of Dodd-Frank, the number of new 
bank charters can be counted on the fingers of one hand. You 
have few new charters, you have much fewer banks, and you have 
1,500 fewer credit unions. You have less competition. Not a 
very good record for enhancing financial stability. And, I 
would add, eliminating the competition to large banks like 
Wells Fargo.
    If I was a defrauded customer of Wells Fargo, I would be 
angry at the institution, no doubt about it. But I also would 
be angry that the promises from the politicians that Dodd-Frank 
was going to protect me are hollow promises and that maybe why 
that is the case is that large banks like Wells Fargo have less 
competition today.
    Secretary Lew. Congressman, I think if I was injured by a 
financial institution, I would be glad that there is a CFPB out 
there to protect me
    Mr. Barr. Let's talk about that, because the CFPB was 
around in 2011 when these alleged activities began, and it 
wasn't, in the timeline that I have seen, it wasn't until 2015 
that the OCC got the CFPB involved. It looks to me like a case 
of regulatory incompetence.
    Secretary Lew. I think if you look at how the facts 
unrolled here, the action that was taken this week reflected 
the OCC and the CFPB taking action, and there would have been 
no CFPB if it weren't for Dodd-Frank.
    Mr. Barr. You know what? Far from an argument for enhancing 
the power of the CFPB, I think what the Wells Fargo scandal 
says is that we need to reform the CFPB so it actually focuses 
on its mission of protecting consumers instead of taking away 
choices from consumers.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Pennsylvania, 
Mr. Rothfus.
    Mr. Rothfus. Thank you, Mr. Chairman.
    Secretary Lew, over the last 7 years the spirit of 
Washington has been to never let a crisis go to waste, and the 
result of that attitude has been the crafting of rules that 
systematically take a wrecking ball to one industry after 
another.
    Cambria-Rower Business College in Johnstown, Pennsylvania, 
for example, closed its doors this summer, after serving its 
community for over 100 years, because of the Department of 
Education's crackdown on higher education providers, thousands 
of coal miners have been laid off in my district and across the 
country as their employers have been bankrupted by Washington 
regulations, and millions have had their health insurance 
wrecked. As I have noted many times in this room, community 
banks are closing or consolidating in a desperate effort to 
stay viable in the face of a swarm of new rules and 
regulations.
    And now, unfortunately, the Federal Government's wrecking 
ball has another target: money market funds. As you know, the 
July 2014 amendments to Rule 2(a)7, which go into effect next 
month, on October 14, require stable value institutional, 
prime, and tax-exempt money market funds to be offered only 
with a floating net asset value, or NAV. The FSOC annual report 
touches on money market funds, and I want to add some context 
here.
    Many institutions face legal constraints or have policies 
that prohibit them from investing in cash pools that fluctuate 
in value. In fact, for them the stable NAV is an intrinsically 
valuable feature of money market funds.
    In anticipation of this rule, we have seen nearly $1 
trillion rush out of prime and tax-exempt funds. Prime funds, a 
key source of funding for corporations and banks, have dropped 
by 48 percent. Tax-exempt funds, which buy approximately 70 
percent of the short-term debt issued by municipalities, 
universities, and hospitals, have dropped 42 percent.
    And on that, Mr. Chairman, I would like to offer into the 
record letters to Senator Pat Toomey from the officers at Penn 
State and the University of Pittsburgh expressing concern about 
what is happening in this industry and support for Senator 
Toomey's legislation to address this.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Rothfus. And also letters from the Allegheny County 
executive, the Allegheny County treasurer, and the mayor of 
Pittsburgh to my colleague, Congressman Doyle, expressing 
similar concerns.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Rothfus. This has caused borrowing costs for firms, 
municipalities, hospitals, and schools to spike at a time when 
they need access to affordable capital, and much of the money 
that has moved out of prime and tax-exempt funds has gone into 
Treasury and government funds. In other words, the effect of 
the rule has been to stifle investor demand for commercial 
paper and debt issued by municipalities and important 
institutions in our communities and to stimulate demand for 
debt issued by the Federal Government and the GSEs.
    This rule effectively subsidizes Fannie, Freddie, and the 
Federal Government at the expense of the private market and 
borrowers. This thwarts investor preference by forcing 
investors into government funds to get the stable NAV.
    With all of this distortion and disruption and the tilting 
of the playing field, I don't think we can say that this rule 
is necessary or helpful. Money market funds have a long history 
of stability and security through the financial crisis, and I 
worry that this wrecking ball will take out an important and 
necessary part of our financial system.
    Are you aware of the exodus of funds from prime and tax-
free money market funds and the subsequent flow into government 
funds?
    Secretary Lew. Congressman, we have been monitoring flow of 
funds. I don't think that the impact that we have seen is as 
dramatic as what you are describing, and I think--
    Mr. Rothfus. I would encourage you to listen to the 
municipalities and the universities that are out there and to 
gauge what they are seeing.
    Secretary Lew. So, Congressman, I think we have to--I am 
sorry?
    Mr. Rothfus. Go ahead. You were going to say?
    Secretary Lew. No, we have to remember that during the 
financial crisis there was a real concern about the stability 
of money market funds. There was a very careful, measured 
action taken by the SEC to try and put in place rules that 
would govern, which I think are going to enhance financial 
stability. We are not seeing dislocations in the marketplace on 
a broad basis--
    Mr. Rothfus. You haven't seen a trillion dollars move out 
of these funds?
    Secretary Lew. I am not saying money hasn't--
    Mr. Rothfus. Isn't that a significant dislocation?
    Secretary Lew. I think that we are not seeing problems 
arising in the market where funding needs can't be met. And 
that is the metric that we look at. Is there liquidity in the 
market? Are markets working? And markets are working.
    Mr. Rothfus. Would you agree that this has tilted the 
playing field? If you need a stable NAV and your only option is 
to go to a fund that has Fannie paper or Freddie paper or 
Treasuries, that that is going to have a preference over 
municipals and AAA corporate bonds?
    Secretary Lew. I think you have to look at the whole 
picture, Congressman. We had a situation during the financial 
crisis where the risk that money market funds were going to 
break the buck? Almost took what was the worst recession since 
the Great Depression and throw a switch to make it a depression 
itself.
    There was a serious issue here. I don't think the action 
taken has caused disruptions that to date have raised serious 
concerns. But we will look at it. Obviously, we will continue 
to look at it.
    Mr. Rothfus. Again, I think you want to talk to the 
universities, talk to the municipalities, because this is a big 
issue for them.
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Arizona, Mr. 
Schweikert
    Mr. Schweikert. Thank you, Mr. Chairman.
    It's always an interesting time when you get to come hang 
out with us, right?
    Secretary Lew. It is never boring.
    Mr. Schweikert. Can I do just an idiosyncrasy, but I am 
interested in this. And I ran over here, so I didn't have 
enough time, so I am doing part of this from memory. In, I 
think, April there is something, I think it is referred to as 
the 387 rule. It is how taxes or how you value if you have 
taken a stock interest in a loan.
    Secretary Lew. 385
    Mr. Schweikert. 385, that is it. Sorry. Thank you for 
correcting me.
    If I remember just the preamble on the rule proposal was 
what, 75 pages? So the preamble trying to describe the proposed 
rule was actually longer than the rule itself.
    Where do you see that? I know a number of organizations, a 
number of folks from Arizona, where we are a State that is very 
entrepreneurial and trying to desperately bring in capital and 
are worried about sort of the tax treatments underlying. And I 
know I am getting a little technical. But, first, where do you 
see those rule mechanics?
    Secretary Lew. So, Congressman, we issued the 385 rule as 
part of our effort to make it harder for U.S. companies to 
invert, to take U.S. companies and change the address and avoid 
U.S. tax liability.
    The reason the preamble was a bit lengthy is we raised a 
number of questions that we wanted to get comments on. So we 
weren't surprised that issues were raised. We raised the issues 
ourselves in the preamble.
    While we got hundreds of comments, it all comes down to six 
issues, which we have been working hard at addressing, and I am 
pretty comfortable that we are going to be able to have a final 
rule that resolves many of the concerns that have been raised 
but that won't damage the principal purpose of the rule, which 
was to stop inversions and to stop earning stripping and taking 
unfair advantage of the tax system.
    Mr. Schweikert. Those are two very different things, 
though. On one side, I will use--I despise the term earning 
stripping, I mean, between merged organizations or affiliated 
organizations and the recognition of do you consider this a 
stock holding or is it really a debt pledged with stock or 
convertible to preferred. That is different than the inversion 
debate.
    So you could see from my view of the world as sort of 
someone that sees the world as an accountant, are we sort of 
conflating some of the different issues.
    Look, it is a hard read. I accept that.
    Secretary Lew. We have said all along that the best way to 
deal with inversions is through tax reform and legislation. We 
have limited administrative tools, and we use Section 385, 
which in its simplest way has broader impact than you need. We 
are working to address the consequences that are not central.
    Mr. Schweikert. But do you think as you are sort of 
addressing towards the final rule, there is that--I am 
reaching--279, it is the tax treatment, where you can't 
recognize the interest costs between the organizations? I think 
that was also within the rule set.
    Secretary Lew. Are you talking about the financial 
transactions between foreign subsidiaries of a U.S. firm?
    Mr. Schweikert. Actually I think it is within an 
acquisition and the costs in between.
    Secretary Lew. I am going to have to follow up and get the 
specific question.
    What I can tell you about the way we have handled this 
rulemaking is we have done it by the book, by the 
Administrative Procedures Act. We have gotten comments. We have 
taken meetings, hundreds of conversations. We have talked to 
committees of Congress of jurisdiction. And I think we are 
going to be able to put final rules out that address many of 
the concerns that have been raised.
    Mr. Schweikert. I had one other question I have always 
wanted to ask you. If we would do tax reform, particularly if 
we would clean up our territorial tax system, solution?
    Secretary Lew. I think what we have proposed and what I 
think there is bipartisan support for is something that is a 
bit of a hybrid system. We think that there should be a minimum 
tax on U.S. income overseas.
    Mr. Schweikert. No, no, no, I remember that, but truly if 
we developed a true--
    Secretary Lew. I think the hybrid approach is better 
myself.
    Mr. Schweikert. Okay, be preferred. But I am a territorial 
tax system person, but it would solve--
    Secretary Lew. But that is why I think there is a--in 
answer to Chairman Royce's question--I think there is the basis 
for a bipartisan compromise here. We have worked very hard to 
build that.
    Mr. Schweikert. Okay, because you saw Chairman Brady a 
couple of months ago did sort of put out an outline, and within 
that was some territorial tax--
    Secretary Lew. And Chairman Camp before him put out 
proposals that overlapped considerably with the proposals that 
we have put forward. I think that this is something tax writers 
should be able to work through early next year.
    Mr. Schweikert. Okay. Just wonderful.
    Can I steal 15 seconds?
    Chairman Hensarling. Fifteen seconds.
    Mr. Schweikert. We have our demographic crisis. You in a 
previous life did some great writings in talking about what is 
about to happen debt-wise. Can I beg of your organization to at 
least do a solicitation of the appetite for long-term U.S. 
sovereign debt to see if we could maybe do some of our 
financing over the demographic bubble?
    Secretary Lew. Congressman, we remain open-minded to new 
approaches, but we have done a lot to lengthen the weighted 
average of maturities.
    Mr. Schweikert. Outside the current WAM, I am talking 45, 
65, 100s.
    Secretary Lew. I am happy to have a longer conversation. I 
can't with the gavel going.
    Mr. Schweikert. Thank you, Mr. Chairman, for your 
tolerance.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Maine, Mr. 
Poliquin.
    Mr. Poliquin. Thank you, Mr. Chairman, very much.
    Mr. Lew, thank you very much for being here. I noted that 
when you walked in you indicated very clearly to me that you 
had not taken your Maine summer vacation. I want to let you 
know that Maine is a wonderful place to have a fall vacation, 
and I am sure your wife would greatly appreciate it, and we 
would appreciate it.
    Secretary Lew. If only I got a fall vacation.
    Mr. Poliquin. Yes, really.
    Sir, Americans are very alarmed and very frightened about 
an increasing number of terrorist attacks here at home and 
abroad. Do you agree with the State Department's assessment 
that the country of Iran is a primary state sponsor of 
terrorism, yes or no?
    Secretary Lew. We have implemented all of the rules on 
terrorism.
    Mr. Poliquin. Do you agree that Iran is a state sponsor of 
terrorism, yes or no?
    Secretary Lew. I have--
    Mr. Poliquin. Mr. Lew, you are really good about not 
answering questions.
    Secretary Lew. We have made that designation.
    Mr. Poliquin. Do you agree that Iran is a state sponsor of 
terrorism, yes or not? Do you agree with the State Department?
    Secretary Lew. I obviously agree that they are a state 
sponsor of terrorism.
    Mr. Poliquin. Okay. You agree. I got it. Do you also agree 
that untraceable cash is the currency of terrorism?
    Secretary Lew. I do believe that cash in the private 
economy is a big problem because you can't track it.
    Mr. Poliquin. Great. Okay. So now let's go beyond. Okay, we 
agree on those two things. Thank you very much.
    Secretary Lew. Congressman, just to be clear--
    Mr. Poliquin. It is my time, not yours, my time, not yours, 
sir.
    Now, you authorized the cash being flown into Iran. Now for 
whatever reason you authorized it, that is fine. That is your 
decision. I think it was a mistake, but you did it.
    Now, my question is the following. I know that the United 
States Government owed Iran this money. How about if we had 
instead put pressure on them to abandon their support of 
terrorism and disavowed their goal in their public statements 
about destroying Israel? What if we just had not transferred, 
you had not authorized the transfer of cash to Iran until they 
gave up their goal of destroying Israel and stopped sponsoring 
terrorism? Wouldn't that have been a good idea?
    Secretary Lew. As a simple matter, Congressman, we wouldn't 
have been able to resolve the dispute that left America at risk 
of having a $10 billion settlement.
    Mr. Poliquin. That is not the point, sir. That is not my 
point.
    Secretary Lew. That is precisely the point.
    Mr. Poliquin. Why in the world wouldn't you just--
    Secretary Lew. We have done--
    Mr. Poliquin. I am asking the question, sir. Why wouldn't 
you continue to withhold those payments until they stopped 
sponsoring terrorism? Why wouldn't you do that?
    Secretary Lew. Congressman, I think you are mixing a bunch 
of things up. We are taking action. We have taken dozens of 
actions to designate entities that support terrorism. We are 
continuing to take our sanctions responsibilities very 
seriously to stop Iranian activity supporting terrorism.
    Mr. Poliquin. Let's move on. Let's move on. You are not 
going to answer the question, Mr. Lew.
    Mr. Lew. I am answering the question.
    Mr. Poliquin. You are really good about not answering the 
question.
    Secretary Lew. If you would give me the time, I am happy 
to.
    Mr. Poliquin. Last year your Administration, or the 
Administration of which you are a part, floated a horrible 
idea, which was to tax college savings plans. Do you agree that 
was a very bad idea?
    Secretary Lew. Congressman, that was withdrawn before it 
was even dry ink.
    Mr. Poliquin. I know it was. And the reason it was 
withdrawn, Mr. Lew, is because there were so many of us that 
made such a stink that it is a bad idea to tax college savings 
plans to make it more difficult for kids in Maine.
    Secretary Lew. We have done an awful lot to expand 
opportunity for college education in this country.
    Mr. Poliquin. Okay, let's move on. So you walked it back, 
your Administration walked it back.
    Secretary Lew. And I am very proud of our record, and I 
would love to talk about it.
    Mr. Poliquin. And I thank you very much, Mr. Lew, for 
agreeing with everybody that was a horrible idea.
    Now, here is my next question to you.
    Secretary Lew. I hope you will agree that expanding Pell 
grants and student loans has been a good thing.
    Mr. Poliquin. Here is my next question to you. Here is my 
next question, Mr. Lew.
    There is about--I may not have this number exactly right--
there is roughly 24 trillion of private pension savings out 
there, retirement savings, folks that are trying to build up 
nest eggs to augment their Social Security payments when they 
retire.
    Do you think it is a good idea to tax retirement savings, 
like your Administration thought it was a good idea to tax 
college savings plans? Do you think it is a good idea to tax--
    Secretary Lew. I am not sure I understand your question.
    Mr. Poliquin. Do you think it is a good idea to tax 
retirement savings?
    Secretary Lew. We have promoted retirement savings 
through--
    Mr. Poliquin. Do you think it is a good idea--
    Secretary Lew. What proposal are you asking me to comment 
on?
    Mr. Poliquin. Because your Administration thought it was a 
great idea to tax college savings plans until you folks walked 
it back. Do you think it is a good idea--
    Secretary Lew. If it is your proposal, I am happy to look 
at it. We haven't made that proposal.
    Mr. Poliquin. It is not a proposal. I do not advocate for 
that. So you don't either.
    Secretary Lew. I thought you were proposing it.
    Mr. Poliquin. No, of course I am not. You know better than 
that, Mr. Lew.
    Secretary Lew. I would tell you I don't think it is a good 
idea.
    Mr. Poliquin. Great. Then we agree on something. You think 
it is a bad idea--you think it is a bad idea to tax retirement 
savings.
    Secretary Lew. We have IRAs. We have 401(k)'s. We have all 
kinds of tax-protected savings for retirement.
    Mr. Poliquin. Then do I get your commitment and will you 
speak to the American people right now that if the 
Administration sends out a proposal to tax retirement plans, 
you will stand up against it, sir?
    Secretary Lew. I think I can safely say that in the next 4 
months we are not going to be sending a new proposal.
    Mr. Poliquin. Will you stand up against it if that idea is 
floated?
    Secretary Lew. Congressman, we are in the last 4 months of 
this Administration, so I think--if this was 2 years ago, it 
would be one thing.
    Mr. Poliquin. Okay. I am assuming, since you think it is a 
bad idea--I am assuming, since you think it is a bad idea--we 
are on the same page, thank you, Mr. Lew--you will stand up 
against any attempt to tax retirement savings. That is what I 
heard? Thank you.
    Secretary Lew. Congressman, don't put words in my mouth. I 
am happy to answer a detailed question.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Pennsylvania, 
Mr. Fitzpatrick, the chairman of our Terrorism Financing Task 
Force
    Mr. Fitzpatrick. Thank you, Mr. Chairman.
    Mr. Secretary, proposed staff reallocations at the 
Treasury's Office of Terrorism and Financial Intelligence, TFI, 
have raised some concerns about how they might affect the 
execution of TFI's various missions, but also raise questions 
about compliance with appropriations language, civil service 
rules, and constraints on the gathering and use of financial 
intelligence data.
    Further, the amount of information on the proposed moves 
supplied to Congress has been minimal, and it appears that TFI 
is proceeding with them at full speed, that despite bipartisan 
staff admonitions to slow the process down until there is 
Congressional buy-in, for fear of creating disruption in this 
critical part of our country's effort to stop the financing of 
terrorism and other financial crimes.
    The fact that the plans are intended to be complete before 
a new President, a new secretary or deputy secretary takes 
office, raises the possibility that they may not agree with the 
realignment, creating more disruption as further moves or 
reversal might have to occur.
    So with that in mind, Mr. Secretary, I have a couple of 
questions. First is what is the purpose and what are the 
specifics of the proposal, if you can share them with us, 
please?
    Secretary Lew. Congressman, TFI is an extraordinary 
organization. I couldn't be more proud of the work that they do 
and the effectiveness they have. It is a new organization. It 
was pulled together, cobbled together from a number of 
different subagencies after 9/11.
    Mr. Fitzpatrick. Can you tell us about the proposal 
specifically?
    Secretary Lew. And one of the things that good management 
requires is that you, particularly with a new organization, try 
and make sure that you get it right.
    I think the current acting under secretary, Adam Szubin, 
who grew up as a career official in TFI--
    Mr. Fitzpatrick. What is the proposal, Mr. Secretary?
    Secretary Lew. I am happy to get back to you on the details 
of the proposal. Frankly, I have deferred considerable latitude 
to the acting under secretary because he is truly expert in all 
of the detailed work that they do.
    Mr. Fitzpatrick. You may not have the answer to the 
question, but if you are agreeing to please get back to us.
    Secretary Lew. No, but what I can answer--
    Mr. Fitzpatrick. Staff has repeatedly asked for the 
information and it has not received any information about it.
    Secretary Lew. We have scheduled a briefing on the Senate 
side. We are happy to schedule a similar conversation on the 
House side.
    The challenge here is to ask, how do you take an 
organization that used to be separate organizations and make 
sure that it is as healthy as possible to do the very important 
work it does? And that is what the acting under secretary has 
been looking at. No final decisions have been made. It is still 
a work in progress.
    Mr. Fitzpatrick. On the work in progress, knowing where it 
is going, because my concern is--and you just in response to 
Mr. Poliquin's question said, sir, this is the end of the 
Administration, don't get us on record. If you are moving 
forward--
    Secretary Lew. He was asking me about a new tax proposal.
    Mr. Fitzpatrick. If you are moving forward with the 
proposal to change the alignment, you need to come to us with 
some specifics. So I would ask, with the specifics that you do 
know, what impact would it have on the Treasury's ability to, 
say, enforce the Bank Secrecy Act?
    Secretary Lew. We obviously take all of the 
responsibilities, including the Bank Secrecy Act, at the 
highest level of seriousness. There is no aspect of TFI's work 
that isn't important. And this is about--
    Mr. Fitzpatrick. Do you have any idea the impact of these 
proposed moves on the Bank Secrecy Act and the enforcement by 
Treasury?
    Secretary Lew. The objective is to make sure that TFI as an 
institution operates more effectively and more efficiently, not 
diminishing any of the activities.
    Mr. Fitzpatrick. You are speaking to all these questions at 
the 30,000-foot level. You don't have any specifics?
    Secretary Lew. I didn't come here today with the plan in 
front of me. We will follow up at the staff level.
    Mr. Fitzpatrick. Okay. I appreciate that.
    Mr. Secretary, are there any declared whistleblowers at the 
agency?
    Secretary Lew. Not that I am aware of. I am looking back to 
see. Yes, my staff is not aware.
    Mr. Fitzpatrick. Not that you are aware of.
    Have any staff at TFI been ordered not to talk to Congress 
about this proposal that I spoke about in my first question?
    Secretary Lew. I know that there are some things that are 
in the clearance process, and we have to go through the 
clearance process internally within the Administration. But it 
is only a normal process, it is not anything specific about 
this.
    Mr. Fitzpatrick. Why can't TFI redirect a portion of its 
anticipated 17 percent growth in FTE in the President's fiscal 
year 2017 budget or what ends up appropriated in a continuing 
resolution?
    Secretary Lew. If I could ask, if you could submit a 
question, I am happy to take it. That is at a level of detail 
that I would have to look at the question in more detail.
    Mr. Fitzpatrick. Mr. Secretary, I appreciate your 
willingness to try to answer the questions. You are not able to 
answer any of the questions here today. I would just--
    Secretary Lew. Congressman, I pay attention to a lot of 
details, but these are pretty small details, and I don't 
understand the question.
    Mr. Fitzpatrick. Sure. But any major realignment, first of 
all, needs to be included so that we understand in the 
appropriations process what our respective--
    Secretary Lew. No, I agree.
    Mr. Fitzpatrick. We will get you the question.
    Secretary Lew. Yes, I am happy to answer the question.
    Mr. Fitzpatrick. How long will it take you to answer these 
types of questions?
    Secretary Lew. If you give me the question today, we will 
get back as soon as we can. I would like to understand the 
question and be able to give you a complete answer.
    Mr. Fitzpatrick. Thank you, Mr. Secretary.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Colorado, Mr. 
Perlmutter.
    Mr. Perlmutter. Mr. Secretary, good to see you. Thank you 
for your service. Thanks for coming in and answering these 
questions even when my friends are kind of pounding away. I 
appreciate the way you handle it, the seriousness of this, but 
also your willingness to have a little bit of give and take 
with my friends.
    So I am going to just talk about a couple of things, first 
to thank you, thank the President. When President Obama took 
office, my district was at about 10 percent unemployment. We 
are on average about 3 percent today, and that is even--so the 
suburbs of Denver--and that is even with oil and gas not doing 
very well in my State, which would put us at about 2 percent 
unemployment.
    But strong economy. Foreclosures, which had been off the 
charts at the beginning of the Obama Administration, now very 
strong housing market, almost too strong. Hopefully supply 
starts catching up with demand. And lots of jobs. Strong 
economy.
    I just want to thank you for your part in doing that, 
because it is been a long, long road. So thanks to you. Thanks 
to this Administration.
    The other thing I want to talk about and say thanks, but we 
certainly aren't there, and since the chairman is here, he 
knows this subject, it is marijuana and banking. And he knows 
it because I always bring it up, because we have to confront 
this and deal with it at some point. At least 25 States have 
some level of marijuana legalization, some kind of a regulatory 
structure in place, either for medical marijuana or 
recreational marijuana. If you add the States that have 
cannabis oil to deal with seizures, that is probably another 
eight States, and there are several that have it on their 
ballots this year.
    And the Federal law, particularly in the banking sector, 
and the State laws, kind of run smack dab into each other. And 
I appreciate the assistance that the Administration and 
Treasury have provided to give banks some potential path to 
allow legitimate businesses to be able to have banking 
services. So thank you for that.
    Now, my question is on this proposed 385 rule on debt 
equity kinds of transactions between subsidiaries or the parent 
and a subsidiary and money going offshore. I know that you all 
are trying to deal with inversions, and I appreciate that. But 
I guess I want to talk to you about it. I want you to tell me 
what you think the 385 is intended to do.
    And I would just ask you all to be looking at those 
transactions that sort of have been in the hopper, and then 
this new rule comes down and it changes the economics of the 
deal in a tremendous way. And I would ask you to consider 
either grandfathering in those deals that are in--haven't yet 
closed or may be closing, and the effects on those particular 
deals.
    So I turn it over to you, sir.
    Secretary Lew. Congressman, the principal objective of the 
rule is to try to shut down inversions and to shut down the use 
of kind of blatant tax-avoidance devices.
    There were a number of issues raised in the preamble to the 
regulation, the draft regulation, saying we know that we took a 
kind of simple approach, that is going to raise concerns, we 
would like to get comment on each of the issues that might not 
be central to the core purpose.
    Not surprisingly, we got a lot of comments. The comments 
kind of circle around a half a dozen issues. We have been 
working on each of those issues to try to come up with policy 
solutions that address what might be peripheral or unintended 
impacts, protecting the core objective of the rule.
    We are making very good progress. I think that the business 
community feels that we have listened to the concerns raised. 
That is certainly what I am hearing. We have listened to the 
members of the tax-writing committees of Congress and many 
other Members of Congress, and we are working to try and 
finalize the rule.
    Critics of the rule quickly asked us to add enough time to 
the comment period so that it would be impossible to do a final 
rule. And we did not want to do that. We want to do a good 
rule. We will only do a good rule. So if we don't finish with a 
good rule, we won't do it. But I think we have time to do a 
good rule.
    Mr. Perlmutter. And I think you do too, and I appreciate 
the fact that you have been taking comments from folks. I guess 
I want you to hear again particularly those instances where 
there is this lookback of 3 years or 36 months, there is the 
potential for a deal that was--and these are big and 
complicated deals--that you take into consideration the fact 
that they were underway as this regulation came into play. So 
please look towards some grandfathering on this.
    Secretary Lew. And thanks for your comments at the 
beginning of your remarks.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Indiana, Mr. 
Stutzman.
    Mr. Stutzman. Thank you, Mr. Chairman.
    And thank you, Mr. Lew. It is good to see you again, and I 
appreciate your time here.
    I would like to talk about the situation at Wells Fargo 
Bank. I was looking at an article that you have a couple of 
quotes, and I would like to read them. It says that after the 
Senate hearing the other day, that Senator Robert Menendez of 
New Jersey had said they will hold a hearing on the bank's 
aggressive sales tactics next week.
    ``The magnitude of this situation warrants thorough and 
comprehensive review,'' the committee members said in a letter 
on Monday. And now, Treasury Secretary Jack Lew is adding his 
voice to the chorus of criticism.
    ``The pattern of behavior that we have seen here is 
something that needs to stop. It is not acceptable to do things 
that are designed to increase either an individual or firm's 
bottom line by deceiving customers or passing on charges that 
are either invisible or they don't know about.
    ``This is a wake-up call,'' he continued. ``It should 
remind all of us, and firms, that culture and competition make 
a difference. How you reward people, how you motivate people, 
what values you hold people to matter.''
    You said that, correct?
    Secretary Lew. I think a couple words were misquoted there, 
but yes.
    Mr. Stutzman. Well, looking at the timeline--and I will 
talk about the CFPB. I don't think the CFPB is serving the 
American people. This is case number one, proof number one. You 
look at the timeline, that we know that wrongful termination 
lawsuits were filed against Wells Fargo by former employees 
alleging fraudulent accounts back in 2009. Wells Fargo started 
seeing a CFPB presence in the Wells Fargo offices in 2011, 
early 2012. Is that correct?
    Secretary Lew. Congressman, I can't comment on a specific 
regulatory matter. I don't have visibility into all of the 
details, into any of the internal details of regulatory 
actions.
    Mr. Stutzman. Okay. Then, in mid-2013, CFPB apparently 
first hears of the problems at Wells Fargo through 
whistleblower tips.
    The point that I am trying to make to you is CFPB is not 
doing its job.
    Secretary Lew. I don't agree with that, Congressman.
    Mr. Stutzman. When did you know about the situation at 
Wells Fargo?
    Secretary Lew. Congressman, I was not aware of the 
situation in the depth, the scope of it, until the final 
action. Obviously, there had been some news coverage, but the 
full magnitude of it was a matter that regulators were looking 
at. I think but for the CFPB, the penalties would not have been 
in place.
    Mr. Stutzman. That is true, but the greater penalty to 
Wells Fargo is going to come from their customers. I am a Wells 
Fargo customer, and I am mad. I am upset about it. And I am mad 
at them, but I am also mad at the CFPB, I am mad at the 
government, because 5,300 people were fired. This is not just a 
small scam.
    Secretary Lew. Congressman, if you are proposing increasing 
CFPB resources so they can have more people watching, I would 
be happy to work with you.
    Mr. Stutzman. I knew you would say that, because that is 
always the answer from a failed agency, is give us more 
funding, give us more so we can go in and find this.
    They were in Wells Fargo as early as 2011, 2012, and 
approximately 939 employees were fired for improper sales 
practices in 2011. Another 1,000 in 2012. Another 1,250 in 
2013. And then CFPB, who has been there for almost 2 years, 
first hears about it through whistleblower tips. What were they 
doing?
    Secretary Lew. Congressman, I really can't comment on what 
the regulatory actions--I just don't--they properly doing that 
independently.
    What I can tell you is for a brand new organization, the 
CFPB has done an enormous amount of good work to make sure that 
the American consumer, when they get a mortgage, can understand 
what they are getting, to make sure that banks cannot put in 
place the kinds of provisions that led to the subprime crisis 
in 2008. And they have a cop on the beat roll as well, and I 
think it is a good thing they were there to levy a penalty 
against this behavior.
    Mr. Stutzman. I don't see how it could take this long--
5,300 people were talking somewhere. Somebody had to know 
something. And I don't know how you didn't know about it. When 
did you first hear about it?
    Secretary Lew. Congressman, I don't recall when I first 
heard about it, but I just told you the scope of it was 
obviously quite dramatic in the final regulatory action.
    Mr. Stutzman. Well, I tell you, the American people don't 
trust Washington, and now this has happened. This was supposed 
to prevent big situations like this happening.
    Secretary Lew. Let's agree on what we can agree on. We 
should have tough regulators who are watching to see that 
things that hurt consumers get stopped and don't happen.
    Mr. Stutzman. Then we should fire--
    Secretary Lew. Let's work together on that.
    Mr. Stutzman. Let's fire a bunch of CFPB regulators--
    Secretary Lew. I think you are going in a place that I 
wouldn't go. That is not fair.
    Mr. Stutzman. We are firing them at Wells Fargo.
    Secretary Lew. We can continue this conversation.
    Mr. Stutzman. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from Utah, Mrs. 
Love.
    Mrs. Love. Thank you.
    Secretary Lew, thank you for being here. We are getting 
close to the final moments and you get to head out.
    But I ran across an analysis that was done by the 
Corporation for Enterprise Development and the Institute for 
Policy Studies, and the analysis stated that it would take 228 
years for Black families to amass wealth of White families in 
the United States. Is that something that the Administration is 
concerned about?
    Secretary Lew. Congresswoman, I am not familiar with that 
analysis, but we are very, very concerned about the differences 
in asset accumulation and income-earning capability.
    Mrs. Love. It was really interesting because in your 
opening statement it almost sounded like you thought that we 
were doing okay and that everything was--
    Secretary Lew. We are doing a lot better, but we have 
consistently said that the benefits of growth are not being 
experienced as broadly as they should be and the difference in 
terms of the impact of the housing crisis on the only asset 
that a lot of African American families had, their home, was 
disproportionate. So there is still a lot of work to do.
    Mrs. Love. It also states that it is going in a different 
direction. When we look at all of the industries, we just 
talked about the CFPB, we talked about some of these other 
agencies, that has made it a lot more difficult for Black 
families to get ahead.
    What we are concerned about, and what I see often, is that 
most--a lot of the time--the majority of the time, these are 
agencies that actually hurt the people that they vowed to 
protect. And I was wondering if you were looking into some of 
these policies and if you could see the same things that aren't 
just my opinions, but opinions of people on both sides.
    Secretary Lew. We have done quite a number of things to 
look at financial inclusion, access to the financial system, 
access to credit, to actively promote more inclusive practices, 
both in the private sector and in terms of things that we can 
do.
    I will give you an example. When we have summer jobs, we 
are promoting that summer job programs are linked to opening a 
bank account.
    Mrs. Love. Are you actually looking at the current policies 
that actually are hurting American families, especially the 
poorest among us, and seeing if there is any way that we can 
correct some of those policies? That is what I am asking. I am 
not asking you to do more. I am actually asking if you are 
seeing any areas where we can undo some of the damage that has 
been done.
    Secretary Lew. I don't agree necessarily with what the 
source of the damage is, but I am certainly agreeing with you 
that the result is unacceptable.
    Mrs. Love. I know I have very little time. I just wanted to 
get your opinion on that.
    Secretary Lew. It is an interesting subject I would love to 
spend more time on. It is one of the central topics we have to 
make progress on as a country.
    Mrs. Love. In the next few days my colleagues and I on the 
Subcommittee for Monetary Policy and Trade are scheduled to 
have a hearing to examine the implications of the Financial 
Stability Board for U.S. growth and competitiveness. Since you 
are here today, I wanted to take an opportunity to ask you just 
a few questions about the FSB.
    As you are aware, many of us remain concerned about the 
extent to which U.S. regulators defer to international bodies 
like the FSB when it comes to promulgation of regulations that 
impact the United States institutions and the United States 
economy.
    So another international organization similar to the FSB is 
the Basel Committee on Bank Supervision. The group is currently 
considering changes to the regulatory framework known as Basel 
III. So, as reported last month, European members of the Basel 
Committee are apparently pushing back against the proposed 
changes to how Basel III framework assesses credit, 
operational, market risks, with some European members 
reportedly threatening to reject the proposal.
    It seems that the European regulators are willing to defend 
their rules, their institutions, in such organizations. Why are 
the United States regulators by contrast so willing to defer to 
the agenda of the FSB?
    Secretary Lew. I don't think that is an accurate 
description of how U.S. regulators participate. We have used 
our involvement in the FSB, in the Basel Committee, and all of 
the international bodies to drive an agenda of increasing the 
quality of regulation and making it closer to the United 
States.
    Mrs. Love. Okay. So can you give me a single example in 
which you or your Treasury colleagues have objected or resisted 
an FSB initiative?
    Secretary Lew. The FSB only makes decisions by consensus, 
so it doesn't get to a decision if it is not a consensus. We 
drive that process with our views.
    Mrs. Love. So you have never objected to any--
    Secretary Lew. No, no, I didn't say--
    Mrs. Love. Can you give me some sort of example?
    Secretary Lew. I have 10 seconds left. We are happy to get 
back to you in writing.
    Mrs. Love. Okay. I yield back.
    Chairman Hensarling. The gentlelady yields back.
    There are no other Members in the queue, so I would like to 
thank the Secretary for his testimony today.
    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.
    We would ask, Mr. Secretary, that you respond as promptly 
as you are able.
    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 12:54 p.m., the hearing was adjourned.]

                            A P P E N D I X



                           September 22, 2016
                           
                           
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