[Senate Hearing 112-321]
[From the U.S. Government Publishing Office]
S. Hrg. 112-321
NOMINATIONS OF: MARTIN J. GRUENBERG, THOMAS J. CURRY, AND S. ROY
WOODALL
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
ON
NOMINATIONS OF:
MARTIN J. GRUENBERG, OF MARYLAND, TO BE CHAIRPERSON, BOARD OF
DIRECTORS, AND A MEMBER, BOARD OF DIRECTORS, FEDERAL DEPOSIT INSURANCE
CORPORATION
__________
THOMAS J. CURRY, OF MASSACHUSETTS, TO BE COMPTROLLER OF THE CURRENCY
__________
S. ROY WOODALL, OF KENTUCKY, TO BE A MEMBER, FINANCIAL STABILITY
OVERSIGHT COUNCIL
__________
JULY 26, 2011
__________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
TIM JOHNSON, South Dakota, Chairman
JACK REED, Rhode Island RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii JIM DeMINT, South Carolina
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia MARK KIRK, Illinois
JEFF MERKLEY, Oregon JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina
Dwight Fettig, Staff Director
William D. Duhnke, Republican Staff Director
Charles Yi, Chief Counsel
Laura Swanson, Policy Director
Brian Filipowich, Professional Staff Member
Andrew Olmem, Republican Chief Counsel
Dana Wade, Republican Professional Staff Member
Chad Davis, Republican Professional Staff Member
Dawn Ratliff, Chief Clerk
Levon Bagramian, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
?
C O N T E N T S
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TUESDAY, JULY 26, 2011
Page
Opening statement of Chairman Johnson............................ 1
Prepared statement........................................... 26
Opening statements, comments, or prepared statements of:
Senator Shelby............................................... 2
WITNESSES
Paul S. Sarbanes, a former U.S. Senator from the State of
Maryland....................................................... 3
Senator Ben Nelson of Nebraska................................... 4
NOMINEES
Martin J. Gruenberg, of Maryland, to be Chairperson and a Member,
Board of Directors, Federal Deposit Insurance Corporation...... 6
Prepared statement........................................... 26
Thomas J. Curry, of Massachusetts, to be Comptroller of the
Currency....................................................... 7
Prepared statement........................................... 27
S. Roy Woodall, of Kentucky, to be a Member, Financial Stability
Oversight Council.............................................. 8
Prepared statement........................................... 28
Responses to written questions of:
Senator Corker........................................... 30
(iii)
NOMINATIONS OF:
MARTIN J. GRUENBERG, OF MARYLAND,
TO BE CHAIRPERSON AND A MEMBER, BOARD OF DIRECTORS, FEDERAL DEPOSIT
INSURANCE CORPORATION;
THOMAS J. CURRY, OF MASSACHUSETTS,
TO BE COMPTROLLER OF THE CURRENCY; AND
S. ROY WOODALL, OF KENTUCKY,
TO BE A MEMBER, FINANCIAL STABILITY OVERSIGHT COUNCIL
----------
TUESDAY, JULY 26, 2011
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:04 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Tim Johnson, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN TIM JOHNSON
Chairman Johnson. Good morning. I call this hearing to
order. Thanks to all of our nominees for joining us here today.
I also want to extend a warm welcome to our witnesses' family
and friends who are here with us.
Today we consider three nominees that will play a key role
in the continued safety and soundness of our financial system
as well as protecting consumers.
We need strong leadership at all our financial regulators,
and I am glad that the President has sent us three well-
qualified individuals to fill openings at the Federal Deposit
Insurance Corporation, the Office of the Comptroller of the
Currency, and on the Financial Stability Oversight Council.
Especially at this point in our economic and financial
recovery, these are extremely important positions to be filled.
Under the Wall Street Reform Act, the FDIC was given new
authorities that put an end to too big to fail by allowing the
orderly resolution of large, complex financial institutions.
Those authorities are a key part of making sure taxpayers are
never again forced to bail out Wall Street, and it is vital
that the FDIC have a Senate-confirmed Chairman as it works to
implement these rules.
Both the FDIC and OCC play crucial roles in our Nation's
ongoing housing recovery. Recent reports exposing abusive
practices by mortgage servicers and banks--from excessive fees
to fraudulent foreclosures--highlight the importance of
continued oversight and regulation of the housing sector.
The OCC and the FDIC also help ensure that consumers and
small businesses continue to have access to credit. From
maintaining consumers' access to a stable mortgage market, to
protecting small businesses' access to capital to help create
jobs, to promoting small community banks' ability to provide
credit to consumers in areas where big banks simply will not
go, both these agencies have their work cut out for them.
I will look to our nominees to place a priority on all
these issues at their agencies.
Last, the Financial Stability Oversight Council is a key
pillar of the Wall Street Reform Act. It was created to
identify systemic risks posed by large, complex financial
institutions before they threaten the stability of our economy.
I am pleased to consider the nomination of Mr. Woodall to be
the voting insurance expert on the FSOC. AIG showed us how
interconnected the insurance industry is with the health of our
economy, and I am sure Mr. Woodall's contribution as an FSOC
member will be invaluable.
The stability of our financial system, and of our economy,
is vitally important, and so I hope we can move expeditiously
on these nominations.
I now turn to Senator Shelby for any opening remarks he may
have. Senator Shelby.
STATEMENT OF SENATOR RICHARD C. SHELBY
Senator Shelby. Thank you, Mr. Chairman.
Today the Committee will consider several very important
nominations, as the Chairman has said. Martin Gruenberg has
been nominated to serve as Chairman of the Federal Deposit
Insurance Corporation. He is no stranger to the Banking
Committee, having served right here with us on the staff for
over 19 years. For the past 6 years, he serve as Vice Chair of
the Federal Deposit Insurance Corporation.
As Chairman, he would oversee the FDIC at a challenging
time. Due to the financial crisis and the weak economy, bank
failures continue at a steady pace. It will be no easy task for
the FDIC to resolve these failed banks in a manner that
protects the Deposit Insurance Fund.
The FDIC must also decide how it will undertake the new
regulatory responsibilities that it acquired under the Dodd-
Frank Act. I hope to hear how Mr. Gruenberg would approach both
of these tasks. In particular, I would like to learn his views
on whether the FDIC's new resolution authority will be
sufficient to end too big to fail and prevent further
Government bailouts.
Also before us today is Thomas Curry, who has been
nominated to be the Comptroller of the Currency. As the
regulator of our largest banks, the Comptroller plays a key
role in ensuring the safety and soundness of our whole banking
system. Accordingly, I hope to hear today Mr. Curry's views on
capital requirements. One of the lessons of the financial
crisis should be the importance of maintaining strong capital
requirements, especially for large global banks.
Finally, Roy Woodall has been nominated to served as a
member of the Financial Stability Oversight Council. He will be
a sole member on the Council specializing in insurance issues
and the first person to hold this position. He will be working
on a Council that includes the Treasury Secretary, the Federal
Reserve Chairman, and all of the heads of the major financial
regulatory agencies. Since Mr. Woodall will not be supported by
the staff of a financial regulator, unlike the other members of
the Council, I am interested in hearing how he believes he can
most effectively express his views and help the Council monitor
systemic risk.
The Federal Government has historically paid little
attention to insurance. The failure of AIG, however,
demonstrated that the Federal Government needs to do a far
better job monitoring risk in this critical facet of our
financial markets. Hopefully Mr. Woodall can improve the
Federal Government's understanding of the risk presented by
insurers and in so doing help prevent another AIG.
Mr. Chairman, I look forward to hearing from the nominees
here this morning.
Chairman Johnson. Are there any other Members who would
like to make any remarks?
[No response.]
Chairman Johnson. Now for a brief introduction of our three
nominees. Senator Paul Sarbanes, former Chairman of the Senate
Banking Committee, will introduce Martin Gruenberg. Senator
Sarbanes.
STATEMENT OF PAUL S. SARBANES, A FORMER U.S. SENATOR FROM THE
STATE OF MARYLAND
Senator Sarbanes. Chairman Johnson, thank you very much.
Senator Shelby, Senator Corker, Senator Toomey, Senator Moran,
I am pleased to be back in the Committee room, and I am mindful
of the Chairman's gentle admonition when he introduced me when
he said ``brief introduction.''
[Laughter.]
Senator Sarbanes. I will do my best to abide by that. It is
hard for a former Senator when he gets the microphone to do
that.
I am very pleased to have the opportunity to come before
the Committee today to introduce the President's nominee for
Chairman of the FDIC, Marty Gruenberg. Marty worked on the
staff of the Senate Banking Committee for almost two decades,
both as staff director of the Subcommittee on International
Finance and Monetary Policy and as senior counsel, and I think
all would agree made an extraordinary contribution to the work
of the Committee, and I should take a moment just to recognize
all staff to the Committee who do a terrific job day in and day
out. I have enormous respect and admiration for those who staff
the Committee, and this Committee in particular has had very
high standards over the years.
During his time on the Committee, he was involved in all of
the major legislation enacted by the Banking Committee,
including the Financial Institutions Reform and Recovery Act,
the Federal Deposit Insurance Corporation Improvement Act--
highly relevant to this nomination--Gramm-Leach-Bliley,
Sarbanes-Oxley, and so forth.
In August of 2005, he was appointed by President George W.
Bush to the FDIC as Vice Chairman and, of course, was
recommended out by this Committee and confirmed by the Senate.
As FDIC Vice Chairman, Marty was closely involved in all of
its efforts to respond to the financial crises we have
encountered. He actually served as Acting Chairman of the FDIC
for 8 months, from November of 2005, shortly after he went on
the board, until June of 2006 because Chairman Don Powell, a
close friend of President Bush's, left to go coordinate the
recovery effort in the gulf coast in the aftermath of Hurricane
Katrina.
Actually, 4 months after he left the Committee, he was
Acting Chairman of the FDIC. I called him up and said, ``Marty,
I read in the American Banker this morning that you are the
Acting Chairman of the FDIC in 4 months' time.'' So he gave a
kind of embarrassed laugh, and he said, ``Yes, that is right.''
I said, ``Marty, is this a great country or what?''
[Laughter.]
Senator Sarbanes. I simply want to close with this
observation. Given his experience on the Banking Committee and
at the FDIC, Marty is extremely well prepared to serve as its
Chairman. He would bring right from the beginning stability and
continuity to the work of the FDIC, which, as both the Chairman
and the Ranking Member indicated, is a very important
consideration. I simply say to the Members of the Committee I
know Marty to be a person of exceptional ability and character,
and I very strongly commend him to you for this position.
Thank you all very much.
Chairman Johnson. Thank you, Senator Sarbanes.
I will now introduce Thomas Curry. Thomas Curry took office
on January 12, 2004, as a member of the Board of Directors of
the FDIC for a 6-year term. Mr. Curry also serves as the
Chairman of the NeighborWorks America Board of Directors. Prior
to joining the FDIC's Board of Directors, Mr. Curry served five
Massachusetts Governors as the Commonwealth's Commissioner of
Banks. He also served as the Chairman of the Conference of
State Bank Supervisors from 2000 to 2001.
Senator Ben Nelson will now introduce Roy Woodall.
STATEMENT OF BEN NELSON, A U.S. SENATOR FROM THE STATE OF
NEBRASKA
Senator Nelson. Good morning, Mr. Chairman and Ranking
Member Shelby and Members of the Committee. Thank you for
conducting this hearing today and for giving me the opportunity
to offer a few comments on an outstanding nominee, Roy Woodall,
who has been nominated to be a member of the Financial
Stability Oversight Council.
When Roy asked me to be here with him today to introduce
him, I said I would be honored to do so because Roy and I go
back a ways, and then some. In fact, I first got to know Roy in
the year ``The Sound of Music'' won the Academy Award for Best
Picture and the first TV episode of ``Star Trek'' was
broadcast. You know what it cost to send a letter first class
then? Five cents.
Now, that might seem like a hundred years ago. Not quite,
but it was 45 years ago. You see, I first met Roy in 1966 when
he was appointed Commissioner of the Kentucky Insurance
Department and I was working in the Nebraska Department of
Insurance at the time. Over these years I have followed his
career closely. We have kept in touch, and we have many common
friends.
As we all know, the Dodd-Frank law calls for appointment of
``an independent insurance expert'' to make sure that the
insurance viewpoint is acknowledged in the Financial Stability
Oversight Council's work. I can think of no one better
qualified to be that independent insurance expert than Roy
Woodall. He is an outstanding leader who possesses a sharp
mind, has the background and knowledge needed to do the job
well. Equally important, he has the wisdom, too.
He brings an invaluable perspective gained through a half-
century of experience in insurance and insurance regulation.
Roy Woodall has worked at the State level as an insurance
attorney and helped rehabilitate troubled insurance companies.
He has been a national leader serving as the president of the
National Association of Life Companies and after a merger
served as a senior official in the American Council of Life
Insurers, and in more recent years as a senior insurance
analyst for the Department of Treasury.
Mr. Chairman, I ask that the Committee work diligently and
quickly to work toward the confirmation of Roy Woodall. He will
fulfill the duties of this position with skill, wisdom,
integrity, and, I believe, great success.
Thank you, Mr. Chairman.
Chairman Johnson. Thank you, Senator Nelson. I will look
forward to hearing the nominee's testimony.
Will the nominees please rise and raise your right hand? Do
you swear or affirm that the testimony that you are about to
give is the truth, the whole truth, and nothing but the truth,
so help you God?
Mr. Gruenberg. I do.
Mr. Curry. I do.
Mr. Woodall. I do.
Chairman Johnson. Do you agree to appear and testify before
any duly constituted committee of the Senate?
Mr. Gruenberg. I do.
Mr. Curry. I do.
Mr. Woodall. I do.
Chairman Johnson. Please be seated.
Please be assured that your written statement will be part
of the record. Please also note that Members of this Committee
may submit written questions to you for the record, and you
should respond to these questions promptly in order for the
Committee to proceed on your nomination.
I invite all the witnesses to introduce your family and
friends in attendance before beginning your statement.
Mr. Gruenberg, please begin.
STATEMENT OF MARTIN J. GRUENBERG, OF MARYLAND, NOMINATED TO BE
CHAIRPERSON AND A MEMBER, BOARD OF DIRECTORS, FEDERAL DEPOSIT
INSURANCE CORPORATION
Mr. Gruenberg. Thank you very much, Mr. Chairman. If I may,
I would like to introduce my wife, Donna, who is sitting right
behind me here.
Chairman Johnson, Ranking Member Shelby, Members of the
Committee, it is my privilege to appear before you as the
President's nominee to serve as Chairman and Member of the
Board of the Federal Deposit Insurance Corporation.
I would like to thank President Obama for the honor of this
nomination and Chairman Johnson and Ranking Member Shelby for
scheduling this confirmation hearing.
I have had the privilege of serving as Vice Chairman and
Board Member of the FDIC since 2005, having been nominated by
President Bush and confirmed by the Senate. From November 2005
to June 2006, as Senator Sarbanes indicated, I served as Acting
Chairman following the departure of former Chairman Donald
Powell. I am now again serving as Acting Chairman following the
recent departure of former Chairman Sheila Bair.
Prior to joining the FDIC, as you know, I worked for
Senator Sarbanes on the staff of the Senate Committee on
Banking, Housing, and Urban Affairs from January 1987 to August
2005. During that period I had the opportunity to work on the
major legislation acted on by the Committee including FIRREA,
FDICIA, the Riegle-Neal Interstate Banking Act, the Gramm-
Leach-Bliley Act, and the Sarbanes-Oxley Act.
In addition to working on some of the key pieces of
legislation governing the operations of the FDIC, I have had
the opportunity to serve on the Board as it responded to the
most severe financial crisis in the United States since the
1930s. I think it is fair to say that the deposit insurance,
resolution, and supervision functions of the FDIC proved
critical to maintaining public confidence and financial
stability during the crisis.
The experiences of serving on the staff of the Senate
Banking Committee and on the Board of the FDIC have been good
preparation to serve as Acting Chairman and, if confirmed,
Chairman of the FDIC during what remains a challenging period
ahead. If I may say, there are some positive signs. Although
over 880 insured institutions remain on the FDIC's problem bank
list, we believe that number may have peaked and may start
heading down in the near future. Similarly, although the FDIC
closed 157 failed banks last year, we are projecting a
substantially smaller number of bank failures this year. Fifty-
eight banks have failed thus far this year. That is compared to
103 at this time last year. The FDIC's Deposit Insurance Fund,
which had a negative balance as a result of the costs of the
bank failures, actually moved into positive territory at the
end of June.
In terms of priorities, the FDIC will have significant new
responsibilities to implement under the Dodd-Frank Act for the
resolution of systemically significant financial institutions.
As the primary Federal regulator of the majority of our
country's community banks, the FDIC carries a particular
responsibility for the future of this crucial segment of our
financial industry. Finally, the FDIC will also continue to
play a leading role in expanding access to insured financial
institutions to all Americans as a vehicle for economic
opportunity and financial security.
Mr. Chairman and Ranking Member Shelby, it has been a great
privilege for me to serve on the Board of the FDIC for almost 6
years now. I have come to have a deep respect for the
professionalism and dedication of the staff of the FDIC who
have performed with such distinction during this recent
difficult period. I believe that the FDIC, which celebrated its
75th anniversary just 3 years ago, has proven itself to be one
of our country's great public institutions. It is certainly the
greatest honor of my career to have been nominated by the
President to serve as Chairman of the FDIC and to be considered
by this Committee for confirmation.
Thank you very much, and I will be pleased to respond to
your questions.
Chairman Johnson. Thank you, Mr. Gruenberg.
Mr. Curry, please begin.
STATEMENT OF THOMAS J. CURRY, OF MASSACHUSETTS, NOMINATED TO BE
COMPTROLLER OF THE CURRENCY
Mr. Curry. Chairman Johnson, Ranking Member Shelby, and
Members of the Committee, thank you for this opportunity to
appear before you today. I am honored that President Obama has
nominated me to be Comptroller of the Currency.
Eight years ago, I had the honor to be nominated by
President Bush and to come before this Committee for
confirmation hearings to be a Board Member of the Federal
Deposit Insurance Corporation. It has been a tremendous
privilege to serve at the FDIC during one of the most
tumultuous economic periods in our Nation's history. I take
great pride in the work of the FDIC and its very dedicated
staff who maintained the American people's trust in the FDIC
deposit insurance guarantee and the fundamental safety and
soundness of our financial system. Independent and professional
bank regulatory agencies like the FDIC and the Office of the
Comptroller of the Currency are one of the strengths of our
financial system.
Prior to my Federal service, I served five successive
Massachusetts Governors as the Commonwealth's Commissioner of
Banks for approximately 10 years and served for 7 years as a
senior State bank regulatory official and attorney. My State
bank regulatory experience also coincided with the New England
banking crisis of the late 1980s and early 1990s. During this
period of regional economic disruption and subsequent recovery,
I gained invaluable experience and perspective which served me
well as an FDIC Board Member.
My 25 years of experience as a Federal and State bank
supervisor has underscored the fundamental importance of a safe
and sound banking industry to our economy, particularly in
times of stress. Economic recovery and prosperity requires a
healthy, independently regulated banking system that has both
the financial capacity and confidence to extend credit to
individuals and businesses.
In sum, I believe my public service career has given me
invaluable financial safety and soundness and public protection
regulatory experience and judgment to capably serve as the
Comptroller of the Currency, if confirmed.
It has been the greatest professional honor of my life to
serve my country during this difficult time. Should the Senate
choose to confirm me, I look forward to the opportunity to lead
the team at the Office of Comptroller of the Currency as it
serves the individuals, businesses, and communities that
benefit from a safe, sound, and fair national bank system.
Thank you, Chairman Johnson and Ranking Member Shelby, for
this opportunity, and I look forward to your questions.
Chairman Johnson. Thank you, Mr. Curry.
Mr. Woodall, please begin.
STATEMENT OF S. ROY WOODALL, OF KENTUCKY, NOMINATED TO BE A
MEMBER, FINANCIAL STABILITY OVERSIGHT COUNCIL
Mr. Woodall. Chairman Johnson, Ranking Member Shelby, and
distinguished Members of the Committee, it is my honor to
appear before you today, and I am also deeply honored to be
President Obama's nominee for this position. And I would also
like to thank you and your staff for the time you have spent
with me, helping to move my nomination forward.
With me today is my wife, Jane, my best friend and life
partner of 53 years, along with our four sons and their
respective families. Jane is a former English teacher and
school principal and now serves as the General Manager of the
Smithsonian Chamber Music Society at the National Museum of
American History. Our sons, in chronological order: Sam, the
oldest, is an attorney in Washington; Brock is a hardwood
flooring contractor in Georgia; Claiborne works with the
Virginia Natural Heritage Program in Abingdon, Virginia; and
Garner, our youngest, is an intelligence analyst with the FBI.
When we get together with our daughters-in-law and nine
grandchildren, there are 19 of us, and I think most of them are
here today filling up this space.
If approved by this Committee and confirmed by the Senate,
I know that the constant support and guidance of this wonderful
family will continue to enlighten my thoughts and actions as I
carry out the duties as a member of the Financial Stability
Oversight Council, better known as FSOC.
As stated earlier, FSOC was created by the Dodd-Frank Wall
Street Reform and Consumer Protection Act to identify risk to
U.S. financial stability, promote market discipline, and
respond to emerging threats. The FSOC is comprised of existing
Federal financial services regulators as voting members, and
both Marty and Tom would be serving on that as heads of the two
agencies. However, since there is no existing Federal financial
services regulator in the insurance field, the bill provided
for a Presidential appointment of an independent person with
insurance expertise in order to assure that insurance, which
represents a substantial portion of the United States financial
system, is appropriately recognized and accommodated within the
new framework.
I frankly know of no one who could technically qualify as
an undeniable ``expert'' in all aspects of the highly
diversified and constantly changing insurance industry, as well
as its State-based regulatory regime and its international
position. However, if I am confirmed, I do believe that my
half-century of experience in insurance would provide FSOC with
the insurance perspective that was envisioned by the Dodd-Frank
Act.
Insurance is in my blood. My grandfather, C.A. Woodall,
started selling insurance from a mule-drawn wagon in 1904 and
continued to be a leading insurance producer in Princeton and
western Kentucky for over 50 years. My father, Roy Woodall,
Sr., started his own general agency in Paducah, Kentucky, in
the 1920s and ran it until he retired in 1973.
I was first introduced to the regulatory side of insurance
as a law student in the summer of 1961 at the University of
Kentucky when I was an intern at the Kentucky Insurance
Department. After getting my law degree in 1962, I continued to
work as an attorney for the department, became general counsel
in 1964, and was appointed commissioner in 1966. After the
completion of my term, I practiced law with a firm in
Louisville, Kentucky, until 1972, at which time I became a
court-appointed rehabilitator of three publicly owned life
insurance companies that had been seized by the State. The
rehabilitation was concluded successfully in 1976, and from
then until 1980 I worked as the assistant to the president of a
family owned insurance company in Louisville, Kentucky. At that
time I was selected to become the President of an Atlanta-based
insurance trade association, the National Association of Life
Companies, which merged in 1993 with the American Council of
Life Insurers, or ACLI, as many of you know it. Following the
merger I served ACLI as managing director of issues and chief
counsel for State relations until my retirement in 1999. I then
became Of Counsel to an Atlanta-based law firm and was pretty
well set on that type of work for the rest of my life, but then
9/11 hit.
As with many others I know, the terrorist attacks of 9/11
changed the focus of my life and my career. I became an
insurance consultant to the Congressional Research Service as
it addressed the needs of Congress in developing the Terrorism
Risk Insurance Act, or TRIA. Following the passage of TRIA, I
was asked by Treasury to assist in its implementation of the
new law. I continued to serve as Treasury's senior insurance
policy analyst for 8 years, monitoring all types of insurance
issues and the State insurance regulatory system.
In all of these insurance-related areas, my experiences
taught me lasting lessons about the various aspects of
insurance. Also, I believe that those experiences qualify me to
serve in the position to which I have been nominated. If
confirmed by the Senate, I pledge to work closely with the
other members of FSOC, and to continue expanding my knowledge
of, fascination with, and passion for the complex world of
insurance and the substantial role that it plays in our
financial system.
Thank you again for opportunity to appear before you today,
and I look forward to answering any questions that you might
have.
Chairman Johnson. Thank you, Mr. Woodall.
We will now begin the question-and-answer period. Will the
clerk please put 5 minutes on the clock for Members' questions?
Mr. Gruenberg, can you tell us how the new Office of
Complex Financial Institutions positions the FDIC to address
its new responsibilities?
Mr. Gruenberg. Yes, Mr. Chairman. The key new
responsibility that the FDIC has under the Dodd-Frank Act is
responsibility for the Title II authorities for the orderly
liquidation of systemically significant financial companies. In
addition, we have a responsibility under Title I for the
resolution plans that systemically significant companies will
be required to prepare.
These are really new responsibilities and authorities
created under this Act and implementing them in a credible way
is really the major new challenge for the agency. In fact, in
some sense, it is a major new challenge for any agency of any
financial regulator around the world. And to undertake this
responsibility, as you indicate, we have established a new
Office of Complex Financial Institutions which will have three
key responsibilities.
First, there will be a group within that office responsible
for monitoring the condition of the large systemically
significant companies from the standpoint of resolvability.
Second, there will be a group responsible for overseeing
the development of the resolution plans that will be required
of all systemically significant companies under the Act. That
is a joint authority that the FDIC shares under the law with
the Federal Reserve and we are in the process of developing a
rule for the implementation of that responsibility. Those
resolution plans have to meet the standards of the Bankruptcy
Code. In addition to the plans that the institutions will
prepare, the FDIC will be preparing our own plans for the
resolution of these companies using our Title II authorities.
And finally, the third group within this office will be
responsible for dealing with the cross-border relations with
the foreign supervisors for the international operations of
these systemic companies. Many of them, as you know, have
extensive foreign activities and an effective resolution of
these companies really will require cooperation and
coordination across borders.
This is our major new challenge. We are in the process of
setting this office up. We expect it to be fully operational by
the end of this year. And in some sense, from an operational
side, it is our top priority in terms of the implementation of
the legislation.
Chairman Johnson. Mr. Curry, as Comptroller, you will be
expected to be independent, exercise independent judgment, and
act independently from the Treasury Department. Are you
prepared to act independently and use your own judgment?
Mr. Curry. Senator, yes, I believe so. I have, I think, a
25-year history of acting independently as both a member of the
FDIC, an independent agency of the United States, and as Bank
Commissioner for the Commonwealth of Massachusetts. As Bank
Commissioner, in particular, you are called upon often to make
decisions that affect individuals, institutions, and
communities. Many times, those decisions are unpopular.
However, I believe in my past history and experience, I have
demonstrated the independence to fairly and reasonably apply
the rules and laws that govern bank regulation.
Chairman Johnson. Mr. Woodall, as the FSOC works to
complete its rulemaking to designate Systemically Important
Financial Institutions, or SIFIs, you will be the lone
insurance voice voting on this rule. How will you approach this
crisis, and do you think insurance companies should be
designated?
Mr. Woodall. Well, as far as the first part, fortunately,
there are two other insurance members that are members of FSOC,
even though they are not voting members. One is the Director of
the Federal Insurance Office that was created by the Dodd-Frank
Act and the other one is a State regulator, John Huff from
Missouri, who represents the State regulators. So there are
really three of us that would be working on insurance issues,
but the appointed position that I have been nominated for is
the only voting member. Certainly, I will be working in
cooperation with the other two members and with all members of
FSOC in trying to bring the insurance perspective.
Now, as far as the question as to whether insurers are
systemic, I think that has to be done on a case-by-case basis
and looking under the hood of each insurance company to see
whether or not they are systemic. But I think, generally, that
most people agree and I agree that if a company follows a
traditional core model of insurance products and insurance
practices, they are likely not to be systemic. However, you do
not know that until you see what sort of products they are
selling, what sort of interconnectedness there might be with
either other insurance companies or noninsurance companies or
banking institutions, and I think that is why it does have to
be done on a case-by-case basis.
Chairman Johnson. Senator Shelby.
Senator Shelby. Thank you, Mr. Chairman.
Basel III--Mr. Gruenberg and Mr. Curry, both the FDIC
Chairman and the Comptroller, as you well know, play important
roles in ensuring that our Nation's banks hold sufficient
capital to guard against another financial crisis. Recently,
the Basel Committee reached an agreement on the new Basel III
capital accords with the aim to increase capital requirements
for large international banks. Mr. Gruenberg and Mr. Curry, do
you support higher capital requirements for large financial
institutions, and what is your assessment of the new Basel III
capital accords? Will they work and will they be sufficient?
Mr. Gruenberg.
Mr. Gruenberg. Thank you, Senator Shelby. We do support the
new Basel III agreements. The FDIC is a member of the U.S.
delegation to the Basel Committee. I have participated as the
FDIC's representative at Basel Committee meetings. And I think
we view the Basel III agreement as a step forward to strengthen
capital both in the United States and, quite importantly,
internationally.
Historically, U.S. institutions have generally had higher
levels of capital than some of the large foreign financial
institutions and Basel III will have the effect of both
strengthening the quality and amount of capital under the U.S.
standards and, importantly, apply those standards
internationally for both the leverage ratio and a risk-based
capital standard. So from both a domestic standpoint and an
international standpoint, it seems to us to be a significant
step forward.
Senator Shelby. Mr. Curry.
Mr. Curry. Senator, I would agree with Vice Chairman
Gruenberg that capital is critically important to the health of
our financial system. At the FDIC, I think we have a
demonstrated position of looking for both higher quantity and
quality of capital. I would also offer that this past crisis
and earlier crises have demonstrated that when institutions or
the banking system needs capital is when it is the hardest to
obtain it. So having strong capital levels in place in advance
of an economic downturn is critically important.
With respect to Basel III, Basel III, I think, achieves
those important goals of stronger capital on an international
basis and will work to potentially eliminate any unlevel
playing field between domestic banking institutions and foreign
institutions.
Senator Shelby. Preemption language--I will address this to
Mr. Curry. There is an ongoing debate on whether the Dodd-Frank
Act changed the standard for determining when national banks
are subject to State law. The OCC and the authors of the
preemption amendment in Dodd-Frank have taken one position. The
Treasury Department has disagreed with that view. Mr. Curry,
what are your views about how the Dodd-Frank preemption
provisions have been interpreted by the OCC and the Treasury?
Mr. Curry. I understand that the actual language of Dodd-
Frank is a matter of some controversy between interested
parties. Generally speaking, I think the principle is clear
from the Constitution that the Federal law supercedes
conflicting State law and that is an important concept to
remember.
Senator Shelby. Is that the position that the Comptroller's
Office takes?
Mr. Curry. I believe so. It is a Federal agency----
Senator Shelby. Are you aware of the position that the
Treasury Department is taking?
Mr. Curry. I understand that the Treasury Department did
file a public comment on the OCC's position. I think that
having a comment on the record is probably the most appropriate
way to express those views. Ultimately, I think it is incumbent
upon the OCC to maintain its independence as a bank regulatory
agency and to remain free from any undue influence from any
external source.
Senator Shelby. Mr. Gruenberg, a report by the Government
Accountability Office--we call it GAO, as you know--concluded
that prompt corrective action has not prevented sizable losses
to the Deposit Insurance Fund. The GAO found that every bank
that underwent prompt corrective action because of capital
deficiencies and failed since 2008 has produced a loss to the
Deposit Insurance Fund. The GAO also found that the, and I will
quote, ``the presence and timeliness of enforcement actions
were inconsistent.'' Their words. For example, more than 80
percent of the banks that failed were on the regulatory watch
list that you alluded to earlier for more than a year on
average before failing.
Do you agree with GAO's findings, and what steps would you
take as Chairman to improve prompt corrective action and
protect the Deposit Insurance Fund? What would you do
differently than we have been doing?
Mr. Gruenberg. Thank you, Senator. I do agree with the
findings of the GAO report. I think one of the lessons we have
learned from this crisis is that capital tends to be a lagging
indicator and capital is the trigger for prompt corrective
action, so that during the course of this crisis, to the extent
we are relying on capital as an early warning device for
problems at institutions, it did not prove as effective as we
would have liked.
I should point out that PCA still proved important because
it established, once an institution reaches that critically
undercapitalized level of 2 percent, it provides for certainty
in terms of the resolution process, which is quite important.
But in terms of an early warning indicator, it really has not
proven as effective as it could have been.
I should note that for each failing institution, the
Inspector General of the FDIC has to prepare a report on the
causes of the failure--these are called material loss reviews--
and our Inspector General in the course of conducting these
reviews identified three key factors common to failing
institutions. One was rapid growth. Two was concentration in
commercial real estate. And three was reliance on broker
deposits and other volatile deposits.
I actually chair the Audit Committee at the FDIC, which
oversees our IG. We have asked the IG to prepare a set of
recommendations for us based on these material loss reviews as
to how prompt corrective action could be improved and we expect
to receive that report in the near future. We will be glad to
share the results of that report.
Senator Shelby. With the Committee? Thank you. Thank you,
Mr. Chairman.
Chairman Johnson. Senator Reed.
Senator Reed. Thank you very much, Mr. Chairman.
Mr. Gruenberg, Chairman Bernanke earlier this--a few months
ago, actually, or weeks--said that the Federal Reserve is
committed to rulemaking on resolution authority of the so-
called living wills for large financial institutions by late
this summer. What is the FDIC's schedule with respect to this
rulemaking?
Mr. Gruenberg. Late summer, Senator. We have been working
in tandem with the Federal Reserve. It has actually been a very
cooperative process. We are really near--we issued a joint rule
earlier this year. I think we are near completion of the final
rule and we do expect to issue the final rule in August.
Senator Reed. Very good. Thank you so much.
You are the primary regulator of community banks and they
are vital to our economy. They usually are the ones that are
doing the most aggressive lending to small business and have
the best record in terms of lending to small business and that
creates jobs.
Your view of the impact of Dodd-Frank on the community
banks and community banking. Many of the provisions of Dodd-
Frank were specifically excluded from application to small
banks given that, one, they were not a major cause, and two,
this dynamic contribution they make to local economies. But can
you give me a brief sort of view of where you think they stand
at the moment.
Mr. Gruenberg. Yes, Senator. As you note, the FDIC is the
primary Federal regulator of the majority of community banks in
the United States, so I think it is fair to say we bear a
particular responsibility for the future of that important
segment of our financial industry. I would note community banks
account for about 11 percent of the banking assets in the
United States but account for nearly 40 percent of the small
business lending done by all insured institutions in the U.S.
So they really occupy a very important niche in our financial
system.
On balance, I believe they have come through this episode
reasonably well. They have been impacted. Of the 380 or so
institutions that have failed in the course of this episode,
over 300 of them have been institutions with assets less than
$1 billion. But it is worth noting that even with that, we
still have nearly 7,000 community banks in the United States
and most of them have worked their way through this difficult
period in good shape and are really positioned now to continue
to play their important role.
In regard to Dodd-Frank, you noted accurately that in many
of the provisions that are applied to the larger institutions,
smaller institutions are excluded, and I would note in
particular the deposit insurance provisions of Dodd-Frank, on
balance, I think, are actually helpful to community banks. The
increase in the limit on deposit insurance to $250,000 is
something that community banks have sought and has proven to be
during the course of this crisis a valuable source of
attracting liquidity to community banks, which proved quite
stabilizing.
In addition, the Act changes the assessment base on which
deposit insurance premiums are charged from deposits to assets.
The consequence of that is actually to shift the burden of
funding deposit insurance more to institutions with assets over
$100 billion, and for institutions with assets under $10
billion, they will actually, in the aggregate, receive a 30
percent reduction in their deposit insurance premiums under the
Act. So it will mean real money for community banks and should
be helpful to them.
So, on balance, particularly those provisions, I think were
positive.
Senator Reed. Thank you very much.
Mr. Curry, just first a quick comment. You have served at
the State level under a number of Governors--Governor Dukakis,
Governor Weld, Governor Celluci, Governor Swift, and Governor
Romney, both Republicans and Democrats. So you have been
essentially recognized from both sides of the aisle as a
consummate professional and I think that is a quality that we
are looking for in the next OCC Director--Comptroller.
The other factor, too, is I think you bring a valuable
perspective to the efforts because a lot of the issues, as has
been suggested by some of the questions, involves this constant
sort of discussion of and rebalancing of the lines between
appropriate national authority and local State banking
regulations, local State banking institutions.
So I am particularly pleased that you have been nominated
and I wish you well. I also, too, want to join Senator Shelby,
who has been one of the most vigorous advocates for strong
capital rules, to reinforce his point about the need for the
U.S., we hope--I hope--the OCC Comptroller, to have significant
capital in place.
Mr. Curry. Thank you, Senator.
Senator Reed. And since my time has expired, you are going
to provide a valuable sort of expertise because the world of
insurance is--it is not a Federal world here in the United
States, but internationally, particularly. I note that in Great
Britain, 30 percent of the assets in their financial system are
held by insurance companies, not by financial institutions, or
banks, rather, but 15 percent in the United States. So both
looking within the United States and looking internationally,
your views are going to be extremely important, and once again,
I would hope that we will move quickly to confirm you and get
you on the FSOC. Thank you for your service. Thank you.
Chairman Johnson. Senator Corker.
Senator Corker. Thank you, Mr. Chairman, and I thank all of
you for being here today and being willing to serve the way
that you have offered yourself, and I thank your families for
being here. I know you certainly will not receive many tough
questions with all of these family members in the audience, so
we are glad they are here and we are glad to see all of them.
I will start with you, Mr. Vice Chairman, soon to be
Chairman. When Dodd-Frank was being debated and discussed, the
previous Chairman did an outstanding job of convincing the
majority of members of the Senate and the House to turn you
into a super-entity with orderly liquidation abilities. As we
were leading up to that, many of the rating agencies began
saying that because they really thought that too big to fail
was going to end, they were thinking about downgrading these
institutions.
Now that the law is law and people have interpreted what it
really says, the big four institutions in our country are
receiving disproportionately higher ratings and benefits. So it
is evident that most of the world does not believe that we have
ended too big to fail and I am wondering if there is anything
that you are going to come see us about to change orderly
liquidation so that people know that, in fact, we are in this
country going to end the prospect of any entity being too big
to fail.
Mr. Gruenberg. Thank you, Senator. That is really a
critically important question, if I may say. It is our view
that the authorities provided under Title II and Title I of the
new law really are sufficient to deal with the issue. The
challenge to us and what I think we are going to have to
demonstrate with credibility to the financial markets is our
capability to implement the authorities that we have been
given, and that was really the basis of my response to the
question that Chairman Johnson asked earlier. We have to
demonstrate the capability to close a systemically significant
financial company without creating a significant disruption to
the financial system as a whole. There is no greater priority
for us.
It does not surprise me that much that the markets are in
some sense taking a ``show me'' attitude. Simply providing an
authority is not a demonstration of the capability and
willingness to carry it out. And I think the challenge to the
FDIC, in particular, will be to demonstrate both that we have
the capacity and the willingness to implement it.
Senator Corker. Do you think the Bankruptcy Code ought to
be tremendously expanded so that people know that unless there
is some really unusual situation, there is a better vehicle for
institutions through bankruptcy?
Mr. Gruenberg. I think the way the law is structured, the
premise is that the Bankruptcy Code is still the first recourse
for dealing with the failure of a financial company. It is only
in the circumstance--and frankly, I hope and expect it to be
rare--where a determination is made that, in effect, if you are
going through the bankruptcy process, it could present issues
for the system as a whole, in which case you would turn as a
final resort to the orderly liquidation authority under Title
II. I think it is a last measure to avoid a disruption to the
system, and I think that is as it should be.
Senator Corker. Would you be willing to work with us to
tighten up orderly liquidation and to make sure that these
large institutions are not enjoying significant benefits
because people believe that they are too big to fail, and to
work with us on streamlining the Bankruptcy Code so that it
would actually work better for these large highly complex
institutions?
Mr. Gruenberg. Yes, sir.
Senator Corker. OK. Thank you. We talked a little bit in
our office. I think you are aware that one of the biggest
complaints community bankers have across this country is the
lack of consistency with the examiners in charge. You know it
is a problem. So a big part of your problem, and I think you
know this, is going to be to get the culture better as it
relates to that issue, not in any way criticizing the former
Chairman. We had these same conversations. But the examiners in
charge, to make sure their careers are not interrupted by
making mistakes, are no doubt being overly zealous and really
creating a self-fulfilling prophecy around our country. I think
you are aware of that and I hope you will work to end that.
Mr. Gruenberg. Senator, I will have no higher priority than
the community bank responsibilities, and we will work with our
examiners to assure that examinations are done in as balanced
and fair a way as possible.
Senator Corker. I just have a few seconds. To you, Mr.
Curry, I think we all are concerned about this Federal
preemption issue. I know that you were State Commissioner of
Banking for Massachusetts back in 2000 and made a quote, and I
just want you to reaffirm that this is not where you are, but
we suggest that--this is you--``we suggest that Federal
preemption itself sometimes has the unintended consequence of
limiting State regulators' ability to protect consumers and
ensure a healthy banking and lending industry. Many States
responded through statute or regulation to protect consumers
from predatory practices. However, it has been the perhaps
unintended consequence of Federal preemption that has made it
difficult for States to offer the protection their consumers
demand.''
So you are going to be in a position, obviously, of making
sure that we have uniform national standards, and yet seem to
have in the past indicated that you question that, and we just
want you to affirm that you absolutely are not going--you are
going to be independent, you are not going to let Treasury
brow-beat you into a different position, and that you are
denouncing this former position.
Mr. Curry. I want to assure you, Senator, that I will
zealously enforce and uphold the National Bank Act,
particularly where it relates to Federal preemption.
What I would want to point out is that I think that the
Dodd-Frank Act's provisions actually resolve some of the issues
that I was highlighting in that statement. There is now much
more clarity in terms of the role of State Attorneys General,
the applicability of Federal law to it and its relation to
State consumer financial laws. And you also have the creation
of the CFPB to address any gaps in terms of consumer
protection. So I do think that my statement in the past is
actually addressed by Dodd-Frank.
Senator Corker. Thank you both, and Mr. Woodall, you are
apparently universally loved.
[Laughter.]
Senator Corker. I may have a question for you later, but we
will see. Thank you.
Chairman Johnson. Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman.
Let me in this atmosphere that we are in here in Washington
right now, let me strike a bipartisan note with Senator Corker
and say to you, Mr. Gruenberg, that his observation about
community banks and just banks in general, you know, we are
sitting on the Committee saying to those institutions,
particularly those that we helped save in 2008, we would like
to see you lend, and then we listen to a chorus of voices that
say, well, everything you want us to do, we are being told
totally different by examiners.
So the question is, how do you strike the pendulum in the
right way? We are not talking about speculative lending,
obviously. For those of us who had to cast the votes to change
the course of 2008, we do not want to see that again. By the
same token, many of us have the observation that the pendulum
has swung so far that we are creating a crisis in terms of
getting access to capital and moving this marketplace and
creating an economy that can thrive again. Without that access
to capital, it is not going to happen. And if I have listened
to one bank president or board of directors after another, I
get a common thread, and when I get a common thread, I do not
always believe it is contrived.
So I hope that you--you know, we have performing assets
that are being asked to be recapitalized. We have areas of
lending in which there are basically examiners saying, do not
do it. So I understand that there were some who were not the
cop on the beat when they needed to be, but that does not make
them now the total opposite. So I would like to hear how you
will direct to find this balance in the pendulum so we can get
this economy moving again.
Mr. Gruenberg. Thank you, Senator. That really is one of
the key questions. The FDIC has six regional offices around the
country. Over the course of this year, I had the opportunity to
visit each of our regional offices, and in each office, I met
with a group of our examiners without senior management
present, except for one meeting where the senior manager kind
of snuck in. But the rest, it was without management present to
try to hear from them what they were seeing in terms of the
institutions they were examining.
What we tried to communicate to them was the need for
balance and to work with the institutions to enable them to the
maximum extent they can to carry out their basic mission, which
is extending credit to creditworthy borrowers.
I will tell you, for what it is worth, it is my sense that
most of our examiners are career professionals who try to carry
out their job in a balanced way. I have no doubt that there are
some that go too far or go overboard. I think most are trying
to do their best in a difficult environment.
What I will say to you is we are staying in close touch.
People often talk about a disconnect between the policy makers
in Washington and the examiners in the field. We will do our
best to maintain or see that that connection is followed
through, to stay in close touch with our examiners, and to
encourage them to exercise judgment and discretion to allow
these institutions to carry out their basic purpose. That is
certainly going to be one of my top priorities.
Senator Menendez. Well, I appreciate that.
Let me ask both of you, Mr. Curry and yourself, I am
concerned that if the qualified residential mortgage definition
being worked out by regulators is not broad enough, it could
hurt a housing market that is already suffering enormously in
terms of being part of our national economic recovery,
especially if you perceive high downpayments of 20 percent or
more. Can you comment on that?
Mr. Curry. I would be happy to, Senator. We are in the
process at the FDIC, and with the other Federal bank regulatory
agencies, of reviewing the comment letters, the numerous
comment letters on both the risk retention proposal and its
qualified residential mortgage exemption provisions. The issues
you raised of whether or not the proposal appropriately
excludes a large number of American families and households
from home ownership is an issue that we are looking at very
carefully and are mindful of the consequences to those families
and individuals as well as our economy.
Mr. Gruenberg. Senator, I just might add, as you know, the
agencies went forward with a Notice of Proposed Rulemaking on
this issue. When the FDIC Board approved that Notice of
Proposed Rulemaking, I commented at the time that we will have
to strike a balance between trying to address the problems made
evident in this crisis in terms of securitization and proper
underwriting of mortgages with access to mortgage credit for
creditworthy borrowers. I think that is the challenge of this
rule. We extended the comment period. We expect to get
additional comment and are seeking it and I think we understand
a close review of this rule is going to be necessary.
Senator Menendez. Well, we are going to be looking at it
with great interest.
Finally, Mr. Curry, I will not go through all of the
specifics of it, but we have sent, along with ten of our
colleagues and about a dozen House colleagues, to the OCC as
well as to other agencies the issue of alleged reports on
mortgage modifications that suggests that the continued
practice of robo-signing continues to be a reality, which is
not acceptable and is not acceptable under the law. It should
not be acceptable for the regulatory agencies. We are being
told--we have been told by the regulatory agencies that that
practice has ended, yet there are reports that it has not.
So my question is, the question that is put before all of
you who have jurisdiction in this field, is will you disclose
the results of the foreclosure reviews on a bank-by-bank basis,
including the letters of engagement for the independent
consultants performing those reviews and the action plans by
the mortgage services? I have got to believe--I know that there
is some claim of proprietary realities. The Congressional
Research Service has said that, in fact, it can be released in
the public interest. There has to be some medium here by which
you can assure those of us who are both policy makers as well
as the public that this has ended.
Mr. Curry. Senator, I think the robo-signing mortgage
foreclosure issue is an extremely important one that affects
individuals, families, the banking industry, and the overall
mortgage finance industry. I think it is critically important
that we work to restore credibility to that system. I think
that the framework that is under the cease and desist orders--
consent orders that were issued by the OCC and the other
Federal regulatory agencies--were an important first step in
trying to restore that credibility. I think, as well, the
greater transparency that the agencies can show in how failures
in that system are being corrected and individuals who have
been harmed will find redress is critically important, and I
think the agencies and the OCC, in particular, if I were
confirmed, should work to be as transparent as possible,
consistent with any governing supervisory or legal
restrictions.
Senator Menendez. Well, we will look forward to that. Thank
you, Mr. Chairman.
Chairman Johnson. Senator Moran.
Senator Moran. Mr. Chairman, thank you very much.
Mr. Gruenberg, Mr. Curry, Mr. Woodall, thank you for your
current and past public service. Thank you for your interest in
providing even additional leadership.
Mr. Woodall, you seem to have avoided any kind of serious
conversation today. I only have to suggest to you that you must
be a good person because your grandchildren are so well
behaved.
[Laughter.]
Senator Moran. Congratulations.
I want to focus my attention on community banks, as has
been at least in conversation today a topic of conversation.
You indicate, Mr. Gruenberg, in your testimony, ``As the
primary Federal regulator of the majority of our country's
community banks, the FDIC carries a particular responsibility
for the future of this crucial segment of our financial
industry.''
I have genuine concern that community banks are on the
verge of becoming a thing of the past, and in large part I
believe that because of the increasing regulatory burden that
is being placed upon those banks.
I do not know whether you would know a number, but I would
be interested in knowing what the percentage of regulatory cost
is in comparison to assets or loans or deposits as compared to
larger financial institutions. But in my view--and Kansas has
lots of community banks. They are the ones, as you outlined,
making loans to small business, in our case to farmers and
ranchers. It is a different kind of environment. If you are
seeking a loan at a community bank and you are someplace in a
larger city with a larger financial institution, those personal
relationships are important in rural States like mine. And I
have had this conversation with every regulator that has sat in
this room, and I would admit, Mr. Gruenberg, you have been in
this room much longer than I have. But I have had this
conversation at every opportunity, and I always get the same
answer, which is, ``We take special consideration, we account
for community banks. We understand their importance.'' But
there is virtually no end to the concern or criticism raised by
our commercial banks about the regulatory environment which
they in and the amount of money which is being spent to comply
with regulations, the additional staff that is necessary. And
it would be one thing, I suppose, if community banks were not
succeeding because they no longer serve an economic purpose,
but that is not the case. In my view, the demise, the fewer
number of community banks is much more related to the
environment in which they are finding themselves having to
work.
One of our larger banks in our State, their CEO told me
earlier this year that community banks for the first time in
history are calling the large bank asking, ``Are you at all
interested in buying us? It is no longer any fun. The
regulatory environment and costs that we encounter no longer
make this a profitable venture.''
So you see continued consolidation. The numbers are out
there. We have fewer community banks as a result of some of the
closures that have occurred. But in large part, it seems to me
it is because they are consolidating with other banks in order
to spread the regulatory costs among more assets and more
loans.
And so while I appreciate your reassurance, it is somewhat
like you said, Mr. Gruenberg, about the too big to fail in
response to Mr. Corker. We are waiting for the evidence that
something is different in regard to those community banks. And
so, in particular, I want to--and I certainly agree with you
that the FDIC insurance issues that you raise I think are a
positive development. But let me particularly raise with you
the disparate treatment of capital standards between community
banks and large financial institutions.
The definition of ``well capitalized'' seems to have a
different definition in regard to whether or not you are a
large or small bank, and many of our community banks are being
regulated in which they are required to have a much higher
percentage of capital than our smaller banks--I am sorry, than
our larger banks, many of which those larger banks are under
other regulatory restrictions as a result of their financial
condition.
So my point is that there is a double standard, in my view,
between the capital requirements that small banks, community
banks are required to have and that of larger financial
institutions across the country, including on Wall Street.
And so my question is: Will you continue to regulate higher
capital levels for the so-called too small to save community
banks and in a sense let Wall Street--I do not want to say
that--in a sense have a double standard, a disparate standard
compared to Wall Street financial institutions?
Mr. Gruenberg. Well, Senator, let me try to respond to
that. It is my understanding that, as a matter of the rules
that apply today, they are the same across the board. I think
it is fair to say that community banks as a general matter
actually have higher capital than larger institutions.
I think from my own perspective, one of the important
authorities of the new law is to impose enhanced prudential
requirements on our largest systemically significant
institutions for precisely the point you make. They do derive
an implicit benefit from their size, and to a certain extent,
their capital requirements have not fully reflected those
benefits. And that approach is reflected in the Basel III
accords that Senator Shelby asked about earlier. In addition,
there is provision to impose what in effect is an additional
surcharge on our largest institutions. That authority is under
the Dodd-Frank Act. There is a new international agreement to
impose a particular additional level of capital on our largest
banks in an effort to both have them account for the systemic
risks that they pose and to bring about some greater leveling
of the playing field with the smaller institutions.
I agree with you that that playing field has not been
level. We should make efforts to try to bring greater balance
to it. One of the things we can do under the new law which I
think is important, in addition to the capital and prudential
requirements, is to develop the capacity to place these large
institutions into receivership because until you can do that,
that also contributes to the funding advantage that they have.
Senator Moran. True.
Mr. Gruenberg. So on that end of it, I think the FDIC
carries a responsibility in regard to the large institutions,
and as you noted and I noted earlier, we have a responsibility
for the small institutions.
Senator Moran. Well, there is a belief among bankers that
there is an attitude at the FDIC that small banks are more
difficult to regulate, it takes more assets, the sense that you
do not believe--not you personally, but the FDIC does not
believe the management skills and capabilities are there. So I
assume that in this setting you are going to tell me that is
not the case, but I would just reaffirm what I continually hear
about a belief that the FDIC has--I would not say a policy but
an approach that says it would be a lot better for our economy
if there were a lot fewer financial institutions. I will tell
you for the economy of Kansas that would not be the case.
Mr. Gruenberg. Senator, I appreciate you raising that
point. I would say to you, it is my view we do not have that
attitude toward community banks. Quite the contrary, we think
they are really quite different in operation, and in a positive
way, from the large institutions. In some sense, their business
model, if anything, has been validated during the course of
this crisis. They stay close to their customers. They rely on
core deposits. They generally are a source of stability during
difficult times. And they serve a function in their communities
that is really quite unique and quite important for small
business, for rural areas, for small towns that otherwise might
not have access to financial services.
I will note we do have a Community Bank Advisory Committee.
It is made up of 14 community banks from around the country.
Our board meets with those bankers three times a year to hear
directly from them what they and their colleagues are
encountering in the field. We are endeavoring to stay close to
this issue. I know we are less than perfect, but I do commit to
you this is something that will be a matter of continuing
attention for us.
Senator Moran. Thank you, Mr. Gruenberg.
Thank you, Mr. Chairman.
Chairman Johnson. Mr. Gruenberg and Mr. Curry, it seems to
me that when producing a cost/benefit analysis of each
individual rule your agency writes, you must also take into
account the cost of the financial crisis and the harm inflicted
on consumers, investors, and the overall economy. How will you
ensure that your agencies are taking into account the costs of
this crisis when evaluating the costs and benefits of the new
rules?
Mr. Curry. Thank you, Chairman Johnson. I think it is
critically important that all the agencies--the FDIC and the
OCC in particular--identify and appropriately weigh all the
costs as well as the benefits for any proposed rulemaking. And
as you identified, the cost of the crisis I think is an
appropriate factor to be weighed in that price as the long-term
cost especially.
What is critical, I think, to any rulemaking is to have an
open process and to encourage input from all affected sources,
and I think the FDIC, which I have been associated with for the
last 8 years, almost 8 years, has been very effective in
reaching out to interested parties to hear their views and to
help assess the costs as well as the benefits of any rule that
comes before the agency.
Mr. Gruenberg. Mr. Chairman, I would just add to that. When
the FDIC has a rulemaking to do, we put together an
interdivisional team to oversee that process, and the way that
works is that team comes up with a series of options for
implementing the regulation. And the whole purpose of the
exercise is to evaluate the different options, in effect to
weigh the balance between costs and effectiveness. And when we
come out with a proposed rule, quite often in our Notice of
Proposed Rulemaking not only do we put forward the proposal
that is agreed to by that working group, but we will also ask
for comment on the other options that are developed by that
group in some sense to get a full airing of the different
approaches for implementation, to get the benefit of public
comment for the series of options.
And I would note that our Inspector General undertook a
review of three of our rulemakings pursuant to the Dodd-Frank
Act, in effect to evaluate the economic analysis that we do.
And I refer you to that report. I think it is fair to say that
that report found our process pretty credible and balanced. So
I think we do a pretty good job. I am sure we could do better.
Chairman Johnson. Mr. Curry, do you anticipate a good and
effective partnership with the CFPB in the rulemaking process
and other functions?
Mr. Curry. I think there is an important opportunity to
collaborate between the bank regulatory agencies and the CFPB.
I think that issues and rulemakings in this area really tend to
have elements of both disciplines at stake. I would use as an
example the implications from a financial safety and soundness
or risk management standpoint of the nontraditional mortgage
loan products. They have both elements of consumer protection
and also, as we saw in the financial crisis, significant
financial consequences to our banking system. If I were to be
confirmed, I think it would be beneficial as a two-way street
for the OCC to communicate to the CFPB the financial context in
which a proposal would operate and also for the OCC, who will
retain the ability to--or the responsibility to supervise
institutions under $10 billion, to have the opportunity to be
aware of emerging or potential consumer protection issues.
So, in summary, I think there really is a need for close
collaboration and communication between the OCC, the banking
agencies, and the CFPB.
Chairman Johnson. Senator Shelby.
Senator Shelby. I would like to pick up on Senator Corker's
question about too big to fail and so forth. I would think that
the ideal situation would be a message from the regulators that
nobody is too big to fail, and that if you do reckless things
and you are--the Comptroller of the Currency, the FDIC, and the
Fed are the big regulators here--that we are going to close you
down no matter who you are. Of course, we are going to try to
prevent as regulators you from getting into this kind of
trouble if you are hands on. But we all realize that a lot of--
not everything, but a lot of the blame for the financial
crisis, a lot of it came from the regulators right here. When I
was Chairman of this Committee, I asked questions of the
regulators, not you but the others, the Federal Reserve
Chairman, the FDIC Chairman at that time, the Comptroller: What
are the conditions of the bank? We had a hearing on this. I
hope that the Chairman will continue this, to hold a hearing
specifically on the condition of our banking system. And what
was the answer right here? Right here in this Committee. The
banks are in good shape. But they were not. They were
undercapitalized and in a lot of instances not well managed,
hands off instead of hands on.
You do have the capacity now--I think you could have had it
then, more capacity. But I agree with Mr. Gruenberg here that
you have got to have the will, and you have got to send the
message. Part of it is a message, but they will not believe
you. What is the old story you have heard all your life? If you
tell somebody you are going to shoot them if they cross the
line and you do not shoot them, they have got you, you know?
The question is: What are you as the regulators are going to do
your job? You got the capacity but you have the will. I hope
you do. And I think that the regulatory environment is tough.
The Senator from Kansas got into that.
I have never worried about--maybe I should--a lot of the
small banks bringing systemic risk in this country, on this
country or into this country. But some of the biggest
institutions will--have and will again. I do worry about
Europe, and as the Chairman said, the Acting Chairman, a lot of
our European banks are undercapitalized, much more so than us.
Basel III, which we have all worked on. I think you have got
the framework, and the question is: Will you as the regulators
implement Basel III capital?
My question to both of you: If a foreign bank--let us say
it is a German bank or a French bank or a British bank--doing
business in this country if they are undercapitalized, do you
have any power over them at all as to their capital standards
doing business in this country? Because they could cause
systemic risk here. Marty?
Mr. Gruenberg. Senator, to the extent the foreign bank has
a subsidiary here subject to our regulatory authorities, the
answer to that is yes.
Senator Shelby. And what does that mean? Does that mean you
have some capacity to deal with their capital, their overall
capital? Because their overall capital is what matters.
Mr. Gruenberg. To the extent that we are dealing with the
capitalization of their foreign operations, that is something
we do not have direct authority over, and that is, frankly, why
these international agreements are very important, not only to
reach them but to monitor compliance with them. And we really
need to develop that capacity to monitor not only our own
compliance but what the major foreign institutions are doing,
because at the end of the day it does all come together, and
risk there poses risk here as well.
Senator Shelby. Mr. Curry, do you have any thoughts on
that? Because some of those big foreign banks are doing
business here, and some of them, as you know, had some shaky
foundations just a few years ago.
Mr. Curry. I would have to agree with Vice Chairman
Gruenberg that, with respect to the OCC, they would have to be
a supervised entity by the OCC to take action.
I would comment that I agree with you that you cannot
legislate supervisory fortitude. It is something that you have
to bring to the table, and I would hope, if confirmed, that I
would do that. And I also believe that it is appropriate for
all the banking agencies to look at, as the Vice Chairman
mentioned with the material loss reviews, how we could have
done better and to learn from the lessons of this recent
crisis.
Senator Shelby. Mr. Woodall, I know you have gotten by here
today, but I think that we basically believe that you are well
qualified for this position. And you do have a well-behaved,
nice-looking family. That does not hurt anything.
[Laughter.]
Senator Shelby. But this position is unique here, as you
pointed out and as we know, the position you have been
nominated to serve on. You will be the first person to hold the
insurance seat on the Financial Stability Oversight Council and
how you carry out your duties will set important precedents for
the role of this position that we will have in the future on
the Council.
What contributions do you see--and I know you do not see
every crisis because they have not emerged yet--can this
position make to improve the effectiveness of the Council from
the perspective of insurance companies? And you will be, as you
well know, in the company of some very powerful people,
including the two here perhaps, and also the Chairman of the
Federal Reserve and others at Treasury. How do you see your
position there? I do not believe you are going to be a
shrinking violet. You did not take the position for that.
Mr. Woodall. No, I do not intend to be a shrinking violet.
Senator Shelby. I do not believe you are a shrinking
violet. I see four sons behind you.
[Laughter.]
Mr. Woodall. In trying to bring the perspective of the
insurance world--and it is not just the insurance industry or
just the regulators or the international part--it is all of
that.
Senator Shelby. And a lot of financial products are created
through the insurance company, just like banks, in a different
way.
Mr. Woodall. That is right. As I said, those products
sometimes, when they veer away from what the normal model, take
on more risk, and they could, in some way have systemic risk
involved in them. But that is what we have to look at, and we
have to look at it from a company-by-company aspect. But the
fact that the insurance industry is such a large part of
financial services, I think that in all the issues that come
before FSOC, there essentially is an insurance element, in the
total picture of financial services. And as I said, this is a
new creation, and I am an independent voice. I will not be
speaking for the Administration or for the industry, or for the
State regulators. I have to take all of that into account,
along with what is happening at the international level, and
vote my conscience.
Senator Shelby. But there are some big insurance companies
that could cause systemic risk to this country. I hope they do
not ever, but, you know, they are such a size they could. But
they, too, have got to have standards of capital and working
capital and everything that goes with it, have they not?
Mr. Woodall. Well, you have been talking about Basel with
the banks.
Senator Shelby. Right.
Mr. Woodall. Well, on the insurance side, you have got
Solvency II----
Senator Shelby. And prevent another AIG. We do not want to
go down that road.
Mr. Woodall. And I think I tried to address that.
Senator Shelby. You did.
Mr. Woodall. As I said before, history showed us that when
an insurance company, that one in particular, went beyond what
the traditional model was, it got us into trouble. And you have
to look under the hood and make sure there are not any
regulatory gaps in there that would bring systemic risk. That
is why the FIO was set up, too, to help identify any sort of
regulatory gaps and to help develop within the Federal
Government positions both nationally and internationally on
insurance issues.
Senator Shelby. Well, thank you.
Thank you, Mr. Chairman.
Chairman Johnson. I thank the witnesses for your testimony
and for your willingness to serve our Nation.
I ask all Members of this Committee to submit questions for
the record by noon this Friday, July 29, and I request that the
witnesses submit your answers to us by close of business on
Tuesday, August 2, so that we can move your nominations forward
as quickly as possible.
This hearing is adjourned.
[Whereupon, at 11:32 a.m., the hearing was adjourned.]
[Prepared statements and responses to written questions
supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN TIM JOHNSON
Thanks to all of our nominees for joining us here today. I also
want to extend a warm welcome to our witnesses' family and friends who
are here with us.
Today we consider three nominees that will play a key role in the
continued safety and soundness of our financial system as well as
protecting consumers.
We need strong leadership at all our financial regulators, and I am
glad the President has sent us three well qualified individuals to fill
openings at the Federal Deposit Insurance Corporation, the Office of
the Comptroller of the Currency, and on the Financial Stability
Oversight Council.
Particularly at this point in our economic and financial recovery,
these are extremely important positions to be filled.
Under the Wall Street Reform Act, the FDIC was given new
authorities that put an end to ``too big to fail'' by allowing the
orderly resolution of large, complex financial institutions. Those
authorities are a key part of making sure taxpayers are never again
forced to bail out Wall Street, and it is vital that the FDIC have a
Senate confirmed Chairman as it works to implement these rules.
Both the FDIC and OCC play crucial roles in our Nation's ongoing
housing recovery. Recent reports exposing abusive practices by mortgage
servicers and banks--from excessive fees to fraudulent foreclosures--
highlight the importance of continued oversight and regulation of the
housing sector.
The OCC and FDIC also help ensure that consumers and small
businesses continue to have access to credit. From maintaining
consumers' access to a stable mortgage market, to protecting small
businesses' access to capital to help create jobs, to promoting small
community banks' ability to provide credit to consumers in areas where
big banks simply won't go, both these agencies have their work cut out
for them.
I will look to our nominees to place a priority on all these issues
at their agencies.
Lastly, the Financial Stability Oversight Council is a key pillar
of the Wall Street Reform Act. It was created to identify systemic
risks posed by large, complex financial institutions before they
threaten the stability of our economy. I am pleased to consider the
nomination of Mr. Woodall to be the voting insurance expert on the
FSOC. AIG showed us how interconnected the insurance industry is with
the health of our economy, and I am sure Mr. Woodall's contribution as
an FSOC member will be invaluable.
The stability of our financial system, and of our economy, is
vitally important and so I hope we can move expeditiously on these
nominations.
______
PREPARED STATEMENT OF MARTIN J. GRUENBERG
To Be Chairperson and a Member, Board of Directors, Federal Deposit
Insurance Corporation
July 26, 2011
Chairman, Johnson, Ranking Member Shelby, Members of the Committee,
it is my honor to appear before you as the President's nominee to serve
as Chairman and Member of the Board of the Federal Deposit Insurance
Corporation.
I would like to thank President Obama for the honor of this
nomination, and Chairman Johnson and Ranking Member Shelby for
scheduling this confirmation hearing.
I have had the privilege of serving as Vice Chairman and Board
Member of the FDIC since August 2005. From November 2005 to June 2006 I
served as Acting Chairman following the departure of former Chairman
Donald Powell. I am now again serving as Acting Chairman following the
departure of former Chairman Sheila Bair.
Prior to joining the FDIC, as you know, I worked for Senator
Sarbanes on the staff of the Senate Committee on Banking, Housing, and
Urban Affairs from January 1987 to August 2005. During that period I
had the opportunity to work on the major legislation acted on by the
Committee including FIRREA, FDICIA, the Riegle-Neal Interstate Banking
Act, the Gramm-Leach-Bliley Act, and the Sarbanes-Oxley Act.
In addition to working on some of the key pieces of legislation
governing the operations of the FDIC, I have had the opportunity to
serve on the Board of the FDIC as the FDIC responded to the most severe
financial crisis in the United States since the 1930s. I think it is
fair to say that the deposit insurance, resolution, and supervision
functions of the FDIC proved critical to maintaining public confidence
and financial stability during the crisis.
The experiences of serving on the staff of the Senate Banking
Committee and on the Board of the FDIC have been good preparation to
serve as Acting Chairman and, if confirmed, Chairman of the FDIC during
what remains a challenging period ahead. There are positive signs.
Although over 880 insured institutions remain on the FDIC's problem
bank list, we believe that number may have peaked and may start heading
down in the near future. Similarly, although the FDIC closed 157 failed
banks last year, we are projecting a substantially smaller number of
bank failures this year. Fifty-eight banks have failed thus far this
year compared to 103 at this time last year. The FDIC's Deposit
Insurance Fund, which had been in negative balance as a result of the
costs of the bank failures, moved into positive territory at the end of
June.
In terms of priorities, the FDIC will have significant new
responsibilities under the Dodd-Frank Act for the resolution of
systemically significant financial institutions to implement. As the
primary Federal regulator of the majority of our country's community
banks, the FDIC carries a particular responsibility for the future of
this crucial segment of our financial industry. Finally, the FDIC will
also continue to play a leading role in expanding access to insured
financial institutions to all Americans as a means for economic
opportunity and financial security.
Mr. Chairman, it has been a great privilege for me to serve on the
Board of the FDIC for almost 6 years. I have come to have a deep
respect for the professionalism and dedication of the staff of the FDIC
who have performed with such distinction during this recent difficult
period. I believe that the FDIC, which celebrated its 75th anniversary
just 3 years ago, has proved itself to be one of our country's great
public institutions. It is certainly the greatest honor of my career to
have been nominated by the President to serve as Chairman of the FDIC,
and to be considered by this Committee for confirmation.
Thank you very much. I would be pleased to respond to your
questions.
______
PREPARED STATEMENT OF THOMAS J. CURRY
To Be Comptroller of the Currency
July 26, 2011
Chairman Johnson, Ranking Member Shelby, and Members of the
Committee, thank you for the opportunity to appear before you today. I
am honored that President Obama has nominated me to be Comptroller of
the Currency.
Eight years ago, I had the honor to be nominated by President Bush
and to come before this Committee for confirmation hearings to be a
Board Member of the Federal Deposit Insurance Corporation (FDIC). It
has been a tremendous privilege to serve at the FDIC during one of the
most tumultuous economic periods in our Nation's history. I take great
pride in the work of the FDIC and its very dedicated staff who
maintained the American people's trust in the FDIC deposit insurance
guarantee and the fundamental safety and soundness of our financial
system. Independent and professional bank regulatory agencies like the
FDIC and the Office of the Comptroller of the Currency are one of the
strengths of our financial system.
Prior to my Federal service, I served five successive Massachusetts
Governors as the Commonwealth's Commissioner of Banks for approximately
10 years and served for 7 years as a senior State bank regulatory
official and attorney. My State bank regulatory experience also
coincided with the New England banking crisis of the late 1980s and
early 1990s. During this period of regional economic disruption and
subsequent recovery, I gained invaluable experience and perspective
which served me well as an FDIC Board Member.
My 25 years of experience as a Federal and State bank supervisor,
has underscored the fundamental importance of a safe and sound banking
industry to our economy particularly in times of stress. Economic
recovery and prosperity requires a healthy, independently regulated
banking system that has both the financial capacity and confidence to
extend credit to individuals and businesses.
In sum, I believe my public service career has given me invaluable
financial safety and soundness and public protection regulatory
experience and judgment to capably serve as the Comptroller of the
Currency, if confirmed.
It has been the greatest professional honor of my life to serve my
country during this difficult time. Should the Senate choose to confirm
me, I look forward to the opportunity to lead the team at the Office of
Comptroller of the Currency as it serves the individuals, businesses,
and communities that benefit from a safe, sound, and fair national bank
system.
Thank you, Chairman Johnson and Ranking Member Shelby for this
opportunity. I look forward to your questions.
______
PREPARED STATEMENT OF S. ROY WOODALL
To Be a Member, Financial Stability Oversight Council
July 26, 2011
Chairman Johnson, Ranking Member Shelby, and distinguished Members
of the Committee, it is my honor to appear before you today. I am also
deeply honored to be President Obama's nominee for this position and I
want to thank you and your staff for the time you have spent with me,
helping to move my nomination forward.
With me today is my wife, Jane, my best friend and life partner of
53 years, along with our four sons and their respective families. Jane
is a former English teacher and now serves as the General Manager of
the Smithsonian Chamber Music Society at the National Museum of
American History. Our sons, in chronological order are: Sam, an
attorney in Washington; Brock, a hardwood flooring contractor in
Georgia; Claiborne, who works with the Virginia Natural Heritage
Program in Abingdon, Virginia; and Garner, who is an Intelligence
Analyst with the FBI. When we get together with our daughters-in-law
and nine grandchildren, which we do frequently, there are 19 of us.
If approved by this Committee and confirmed by the Senate, I know
that the constant support and guidance of my wonderful family will
continue to enlighten my thoughts and actions as I carry out my duties
as a member of the Financial Stability Oversight Council (FSOC).
FSOC was created by the Dodd-Frank Wall Street Reform and Consumer
Protection Act to identify risk to U.S. financial stability, promote
market discipline and respond to emerging threats. The FSOC is
comprised of existing Federal financial services regulators as voting
members. However, since there is no insurance regulatory agency at the
Federal level, Dodd-Frank provides for a Presidential appointment of
``an independent insurance expert'' in order to assure that insurance,
which represents a substantial portion of the U.S. financial system, is
appropriately recognized and accommodated within the new FSOC
framework.
I frankly know of no one who could technically qualify as an
undeniable ``expert'' in all aspects of the highly diversified and
constantly changing insurance industry, as well as its State-based
regulatory regime and international position. However, if I am
confirmed, I do believe that my half century of experience in insurance
would provide FSOC with the insurance perspective envisioned by Dodd-
Frank. Aspects of that career include experience as a State insurance
regulator, insurance attorney, insurance company rehabilitator,
insurance trade executive, and a Federal insurance resource at the
Congressional Research Service and the U.S. Treasury.
Insurance is in my blood. My grandfather, C.A. Woodall, started
selling insurance from a mule-drawn wagon in 1904 and continued to be a
leading insurance producer in Princeton and Western Kentucky for over
50 years. My father, Roy Woodall, Sr., started his own general agency
in Paducah, Kentucky, in the 1920s and ran it until he retired in 1973.
I was first introduced to the regulatory side of insurance as a law
student in the summer of 1961, when I was an intern at the Kentucky
Insurance Department. After getting my law degree in 1962, I continued
to work as an attorney for the Department; became General Counsel in
1964, and was appointed Commissioner in 1966. After the completion of
my term, I practiced law with a Louisville law firm until 1972, at
which time I became a court-appointed rehabilitator of three publicly
owned life insurance companies that had been seized by the State. The
rehabilitation was concluded successfully in 1976, and until 1980 I
worked as the Assistant to the President of a family owned life insurer
in Louisville, Kentucky. At that time I was selected to become the
President of an Atlanta-based insurance trade association, the National
Association of Life Companies, which was merged in 1993 with the
American Council of Life Insurers (ACLI). Following the merger I served
the ACLI as Managing Director/Issues and Chief Counsel, State Relations
until my retirement in 1999. I then became Of Counsel to an Atlanta-
based law firm in its Washington office.
As with many others I know, the terrorist attacks of 9/11 changed
the focus of my life. I became an insurance consultant to the
Congressional Research Service as it addressed the needs of Congress in
developing the Terrorism Risk Insurance Act (TRIA). Following the
passage of TRIA, I was asked by Treasury to assist in its
implementation of TRIA. I continued to serve as Treasury's Senior
Insurance Policy Analyst for 8 years, monitoring all types of insurance
issues and the State insurance regulatory system.
In all of these insurance-related areas, my experiences taught me
lasting lessons about the various aspects of insurance. Also, I believe
that those experiences qualify me to serve in the position to which I
have been nominated. If confirmed by the Senate, I pledge to work
closely with the other members of FSOC, and to continue expanding my
knowledge of, fascination with, and passion for the complex world of
insurance.
Thank you for opportunity to appear before you today. I look
forward to answering any questions that you may have.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORKER
FROM S. ROY WOODALL
Q.1. An important decision yet to be finalized by the Financial
Stability Oversight Council (FSOC) deals with the method for
determining what financial firms and insurance companies may be
designated as systemically important. What metrics do you think
should be considered by the FSOC in making a determination of
whether an insurance company is systemically important?
A.1. Section 113 of the Dodd-Frank Act (DFA) sets out a list of
10 specific considerations that FSOC is to consider in
determining whether a U.S. nonbank financial company, including
an insurance company, should be designated as systemically
important and thus subject to enhanced supervision by the Board
of Governors of the Federal Reserve. These statutory
considerations or criteria are:
1. The extent of the leverage of the company;
2. The extent and nature of the off-balance-sheet exposures
of the company;
3. The extent and nature of the transactions and
relationships of the company with other significant
nonbank financial companies and significant bank
holding companies;
4. The importance of the company as a source of credit for
households, businesses, and State and local governments
and as a source of liquidity for the United States
financial system;
5. The importance of the company as a source of credit for
low-income, minority, or underserved communities, and
the impact that the failure of such company would have
on the availability of credit in such communities;
6. The extent to which assets are managed rather than owned
by the company, and the extent to which ownership of
assets under management is diffuse;
7. The nature, scope, size, scale, concentration,
interconnectedness, and mix of the activities of the
company;
8. The degree to which the company is already regulated by
one or more primary financial regulatory agencies;
9. The amount and nature of the financial assets of the
company; and
10. The amount and types of the liabilities of the company,
including the degree of reliance on short-term funding.
It would appear that some of these statutory criteria are
more relevant than others with respect to insurance entities
and groups in order to determine their overall risk. As I said
in my testimony before the Committee, I believe that each large
nonbank financial company under consideration by FSOC should be
examined on a case-by-case basis, utilizing both quantitative
metrics and qualitative judgments. It would appear to me that
the following criteria drawn from the statutory list above
would be of primary utility to FSOC in establishing those
metrics necessary to determine whether an insurance company
might present systemic concerns:
1. Size: While size alone is not a determinative
consideration, larger insurance entities or groups are
likely to be more interconnected. Thus FSOC could use
size to identify a subset of those larger firms that
could possibly be systemic and thereby present a threat
to the financial system. Smaller insurers and those
that clearly do not diverge from the traditional
insurance core model would probably not need to be
subject to the same degree of scrutiny unless they
might be involved in specialized lines of insurance
directly connected to the financial system, such as
monoline or financial guarantee insurers. FSOC could
consider various size metrics such as total
consolidated assets of a firm or group, total assets of
noninsurance financial entities within a firm or group,
as well as total consolidated liabilities (including
off-balance sheet liabilities, guarantees, and
derivatives) of a firm or group.
2. Interconnectedness: In order to measure the importance of
the insurer in the equities market, the bond market,
and the residential and commercial mortgage market,
FSOC could review the maximum ownership share of these
asset classes. It could also look at derivative
exposure in order to capture the counterparty exposure
risk beyond transactions to hedge existing risks.
3. Degree to which the insurer is already regulated: FSOC
could profile the number of primary or domiciliary
State regulators of insurance entities, as well as the
number of other State regulators with regulatory
jurisdiction by virtue of the entities' being licensed
in their State. It could also be important to determine
which entities within a group are unregulated. Also
important could be an evaluation of the nature and
extent of any supervision on a group wide basis.
4. Other applicable metrics that could be of assistance in
certain situations would include: lack of substitutes,
leverage, liquidity risk, and maturity mismatch.
If confirmed by the Senate, I look forward to working with
the other FSOC members, and especially the two nonvoting
insurance members, to develop in a fair and transparent manner
the appropriate metrics to be used; and also to exercise my
independent judgment, based on my years of experience, in
applying those metrics.