House Appropriations Hearing with Secretary Lew
House Committee on Appropriations Subcommittee
on Financial Services
“Budget Hearing – Department of Treasury”
Wednesday, March 4, 2015
Key Topics & Takeaways
- Volcker Rule: Rep. Graves (R-Ga.) asked Lew if he could encourage regulators to respond to firms holding legacy securitizations. Lew answered that the Volcker Rule was designed with the understanding that “institutions with different sizes have different situations.” He added that a “number of issues have come up” and “regulators have taken a look as the information comes in.” According to Lew, the regulators have “been responding on a regular basis, but not always with action.”
- FSOC Non-bank SIFI Designation Process: Rep. Crenshaw (R-Fla.) asked Lew to explain the non-bank systemically important financial institution (SIFI) designation process. Lew responded that the process is based on “interconnectedness” and “structure,” and that the “kind of entity has varied.” Crenshaw asked if fund advisors may be “on the hook to pay for some bad actors.” Lew explained that the FSOC “has looked at every matter with a case-by-case review” and the “findings will determine where designations are appropriate.” Lew assured that the FSOC is committed to “being fact and analytically driven” to ensure that savers have a safe and sound system.
- Liquidity and Bond Market: Graves asked Lew how to “pre-examine” of regulation on bond market liquidity. Lew responded that Treasury is constantly looking at both the incremental and cumulative effects on the economy. He stated, “I do not believe it has had an adverse effect on the economy.”
Participants
- The Honorable Jacob J. Lew, Secretary of the Department of Treasury
Opening Statements
In his opening statement, Subcommittee Chairman Ander Crenshaw (R-Fla.) emphasized the difference between spending and outlays According to Crenshaw, mandatory spending has increased since 2009 while discretionary spending has decreased. He suggested that this means the Appropriations Committee is cutting spending. Crenshaw also highlighted the importance of working with both the Budget Committees and the authorizing committee to “help lift the yoke.”
Crenshaw added that he is troubled by a number of recent events including the Financial Stability Oversight Council’s (FSOC) recent guidance to improve transparency. He said he “questions why the FSOC would not create a process that everyone can enjoy.”
He also added that the Achieving a Better Life Experience (ABLE) Act levels the playing field for many Americans that will now be able to use tax free savings accounts, but that the Treasury Department needs to administer the regulations to allow states to administer the accounts.
In his opening statement, Subcommittee Ranking Member Jose Serrano (D-N.Y.) said he applauds efforts to restore funding for the Internal Revenue Service (IRS) to “more sustainable and effective levels.” He also pointed to Treasury’s Community Development Financial Institutions Fund (CDFI) fund as an underfunded program.
In her opening statement, House Appropriations Committee Ranking Member Nita Lowey (D-N.Y.) said she is interested in the funding for state and foreign operations and applauded the $2.5 trillion deficit reduction in the President’s FY2016 Budget proposal.
Testimony
In the interest of time and due to House votes, Treasury Secretary Jacob Lew did not provide an oral testimony and referred to his submitted testimony.
Questions
FSOC
Crenshaw said regulations from the Dodd-Frank Consumer Protection and Financial Reform Act have created more confusion in the markets instead of bringing stability. Lew responded that the economy is safer since the recent financial crisis and the “steps that have been taken have done a lot to reduce the level of risk.” Lew cited the FSOC as an improvement to the regulatory regime because the FSOC brings regulators together from across the economy to examine systemic risk. He said that many times the FSOC looks at an issue and then goes back to the primary regulatory for rulemaking action, as in the case of money market reform.
Next, Crenshaw asked Lew to explain the non-bank systemically important financial institution (SIFI) designation process. Lew responded that the process is based on “interconnectedness” and “structure,” and that the “kind of entity has varied.”
Crenshaw asked if fund advisors may be “on the hook to pay for some bad actors.” Lew explained that the FSOC “has looked at every matter with a case by case review” and the “findings will determine where designations are appropriate.” Lew assured that the FSOC is committed to “being fact and analytically driven” to ensure that savers have a safe and sound system.
Operation Chokepoint
Rep. Tom Graves (R-Ga.) discussed Operation Chokepoint and asked Lew if he could commit to resolving the issues with proposed guidance. Lew responded that it is an ongoing process.
Graves asked Lew if he could encourage regulators to respond to firms holding legacy securitizations. Lew answered that the Volcker Rule was designed with the understanding that “institutions with different sizes have different situations.” He added that a “number of issues have come up” and that “regulators have taken a look as the information comes in.” According to Lew, the regulators have “been responding on a regular basis, but not always with action.”
Graves referred to the letter from Rep. Jeb Hensarling (R-Texas) to Lew from July 2014 regarding the effect of the Volcker Rule on bond liquidity. Hensarling wrote, “A lack of liquidity in the corporate bond market makes it more expensive for businesses to grow and create jobs, and could therefore have profound consequences for the U.S. economy.”Graves asked Lew how to “pre-examine those effects.” Lew responded that Treasury is constantly looking at both the incremental and cumulative effects on the economy. He stated, “I do not believe it has had an adverse effect on the economy.” Lew added that “more regulation has caused the economy to recover” and that “having confidence in the market is something that helps the economy.” He clarified that he does not subscribe to the idea that the regulation has caused less economic activity.
Sanctions on Iran
Lowey asked Lew about the effects of sanctions on Iran. He said Iran’s economy has not recovered from the “damage” caused by U.S. sanctions and that “all options remain on the table to make sure Iran does not have nuclear weapons.”
Sequestration
Lowey asked Lew to explain his views on sequestration. Lew said “sequestration was never meant to take effect.”
Rep. Scott Riggell (R-Va.) asked Lew to explain the “partial lift from sequestration from the Administration.” Lew said the President’s FY2016 Budget presents a path to hit primary balance in the next ten years. He clarified that the remaining deficit would be related to servicing old debt, but “not the buildup of old debt.”
CFPB Cost Benefit Analysis
Rep. Sanford Bishop (R-Ga.) asked Lew if the Consumer Financial Protection Bureau (CFPB) has conducted cost-benefit analysis on pre-paid cards. Lew said he would have to defer to the CFPB.
Interest Rates
Rep. Steve Womack (R-Ark.) asked Lew to predict future interest rates. Lew responded that he “never predicts them” and the “markets will make their decision on how to react.”
Revenue
Rep. Chaka Fattah (D-Ill.) asked Lew how to find additional revenue. Lew answered by pointing to the President’s FY2016 Budget and said that it is important to “find a revenue base that supports us.” Lew added that stepped up basis is important.
ABLE Act
Rep. Crenshaw noted that the IRS has to write rules pertaining to the implementation of the ABLE Act, and must do so before a July deadline. He noted that “a lot of states are moving ahead” with their own implementation, as they will be ones to administer this program. He asked Lew if the IRS will meet its deadline. Lew said the IRS is “working very hard” and said he hoped it will meet this deadline.
Crenshaw said that rules for 501(c)(4) entities were “pulled back” due to concerns that they would be a “wet blanket” on the 2014 elections and that there is a lack of movement now due to potential impact on the 2016 elections. He asked if there is a timeline for completion of these rules. Lew explained that the rules received over 150,000 comment letters that “all require attention” and that the IRS will have a “careful process moving forward.”
For more information on this event, please click here.
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House Committee on Appropriations Subcommittee
on Financial Services
“Budget Hearing – Department of Treasury”
Wednesday, March 4, 2015
Key Topics & Takeaways
- Volcker Rule: Rep. Graves (R-Ga.) asked Lew if he could encourage regulators to respond to firms holding legacy securitizations. Lew answered that the Volcker Rule was designed with the understanding that “institutions with different sizes have different situations.” He added that a “number of issues have come up” and “regulators have taken a look as the information comes in.” According to Lew, the regulators have “been responding on a regular basis, but not always with action.”
- FSOC Non-bank SIFI Designation Process: Rep. Crenshaw (R-Fla.) asked Lew to explain the non-bank systemically important financial institution (SIFI) designation process. Lew responded that the process is based on “interconnectedness” and “structure,” and that the “kind of entity has varied.” Crenshaw asked if fund advisors may be “on the hook to pay for some bad actors.” Lew explained that the FSOC “has looked at every matter with a case-by-case review” and the “findings will determine where designations are appropriate.” Lew assured that the FSOC is committed to “being fact and analytically driven” to ensure that savers have a safe and sound system.
- Liquidity and Bond Market: Graves asked Lew how to “pre-examine” of regulation on bond market liquidity. Lew responded that Treasury is constantly looking at both the incremental and cumulative effects on the economy. He stated, “I do not believe it has had an adverse effect on the economy.”
Participants
- The Honorable Jacob J. Lew, Secretary of the Department of Treasury
Opening Statements
In his opening statement, Subcommittee Chairman Ander Crenshaw (R-Fla.) emphasized the difference between spending and outlays According to Crenshaw, mandatory spending has increased since 2009 while discretionary spending has decreased. He suggested that this means the Appropriations Committee is cutting spending. Crenshaw also highlighted the importance of working with both the Budget Committees and the authorizing committee to “help lift the yoke.”
Crenshaw added that he is troubled by a number of recent events including the Financial Stability Oversight Council’s (FSOC) recent guidance to improve transparency. He said he “questions why the FSOC would not create a process that everyone can enjoy.”
He also added that the Achieving a Better Life Experience (ABLE) Act levels the playing field for many Americans that will now be able to use tax free savings accounts, but that the Treasury Department needs to administer the regulations to allow states to administer the accounts.
In his opening statement, Subcommittee Ranking Member Jose Serrano (D-N.Y.) said he applauds efforts to restore funding for the Internal Revenue Service (IRS) to “more sustainable and effective levels.” He also pointed to Treasury’s Community Development Financial Institutions Fund (CDFI) fund as an underfunded program.
In her opening statement, House Appropriations Committee Ranking Member Nita Lowey (D-N.Y.) said she is interested in the funding for state and foreign operations and applauded the $2.5 trillion deficit reduction in the President’s FY2016 Budget proposal.
Testimony
In the interest of time and due to House votes, Treasury Secretary Jacob Lew did not provide an oral testimony and referred to his submitted testimony.
Questions
FSOC
Crenshaw said regulations from the Dodd-Frank Consumer Protection and Financial Reform Act have created more confusion in the markets instead of bringing stability. Lew responded that the economy is safer since the recent financial crisis and the “steps that have been taken have done a lot to reduce the level of risk.” Lew cited the FSOC as an improvement to the regulatory regime because the FSOC brings regulators together from across the economy to examine systemic risk. He said that many times the FSOC looks at an issue and then goes back to the primary regulatory for rulemaking action, as in the case of money market reform.
Next, Crenshaw asked Lew to explain the non-bank systemically important financial institution (SIFI) designation process. Lew responded that the process is based on “interconnectedness” and “structure,” and that the “kind of entity has varied.”
Crenshaw asked if fund advisors may be “on the hook to pay for some bad actors.” Lew explained that the FSOC “has looked at every matter with a case by case review” and the “findings will determine where designations are appropriate.” Lew assured that the FSOC is committed to “being fact and analytically driven” to ensure that savers have a safe and sound system.
Operation Chokepoint
Rep. Tom Graves (R-Ga.) discussed Operation Chokepoint and asked Lew if he could commit to resolving the issues with proposed guidance. Lew responded that it is an ongoing process.
Graves asked Lew if he could encourage regulators to respond to firms holding legacy securitizations. Lew answered that the Volcker Rule was designed with the understanding that “institutions with different sizes have different situations.” He added that a “number of issues have come up” and that “regulators have taken a look as the information comes in.” According to Lew, the regulators have “been responding on a regular basis, but not always with action.”
Graves referred to the letter from Rep. Jeb Hensarling (R-Texas) to Lew from July 2014 regarding the effect of the Volcker Rule on bond liquidity. Hensarling wrote, “A lack of liquidity in the corporate bond market makes it more expensive for businesses to grow and create jobs, and could therefore have profound consequences for the U.S. economy.”Graves asked Lew how to “pre-examine those effects.” Lew responded that Treasury is constantly looking at both the incremental and cumulative effects on the economy. He stated, “I do not believe it has had an adverse effect on the economy.” Lew added that “more regulation has caused the economy to recover” and that “having confidence in the market is something that helps the economy.” He clarified that he does not subscribe to the idea that the regulation has caused less economic activity.
Sanctions on Iran
Lowey asked Lew about the effects of sanctions on Iran. He said Iran’s economy has not recovered from the “damage” caused by U.S. sanctions and that “all options remain on the table to make sure Iran does not have nuclear weapons.”
Sequestration
Lowey asked Lew to explain his views on sequestration. Lew said “sequestration was never meant to take effect.”
Rep. Scott Riggell (R-Va.) asked Lew to explain the “partial lift from sequestration from the Administration.” Lew said the President’s FY2016 Budget presents a path to hit primary balance in the next ten years. He clarified that the remaining deficit would be related to servicing old debt, but “not the buildup of old debt.”
CFPB Cost Benefit Analysis
Rep. Sanford Bishop (R-Ga.) asked Lew if the Consumer Financial Protection Bureau (CFPB) has conducted cost-benefit analysis on pre-paid cards. Lew said he would have to defer to the CFPB.
Interest Rates
Rep. Steve Womack (R-Ark.) asked Lew to predict future interest rates. Lew responded that he “never predicts them” and the “markets will make their decision on how to react.”
Revenue
Rep. Chaka Fattah (D-Ill.) asked Lew how to find additional revenue. Lew answered by pointing to the President’s FY2016 Budget and said that it is important to “find a revenue base that supports us.” Lew added that stepped up basis is important.
ABLE Act
Rep. Crenshaw noted that the IRS has to write rules pertaining to the implementation of the ABLE Act, and must do so before a July deadline. He noted that “a lot of states are moving ahead” with their own implementation, as they will be ones to administer this program. He asked Lew if the IRS will meet its deadline. Lew said the IRS is “working very hard” and said he hoped it will meet this deadline.
Crenshaw said that rules for 501(c)(4) entities were “pulled back” due to concerns that they would be a “wet blanket” on the 2014 elections and that there is a lack of movement now due to potential impact on the 2016 elections. He asked if there is a timeline for completion of these rules. Lew explained that the rules received over 150,000 comment letters that “all require attention” and that the IRS will have a “careful process moving forward.”
For more information on this event, please click here.