in the line of duty n virginia alone, 550 have made the ultimate sacrifice. these represent individual lives, families left heartbroken, and communities forever changed. as we honor national police week i urge my colleagues to join us in support by passing these bills. i yield back. the speaker pro tempore: pursuant to clause 12-a of rule 1, the chair declares the house in and live now to a hearing with the house financial services committee, with testimony from the chair of the fdic and the

vice chair for supervision at the federal reserve. live coverage here on c-span. mr. luetkemeyer: i've been here a long time. this is my 14th year in this committee. which is a long time. also know that you lied to me. you lied to the chairman, you lied to this committee. on operation choke point. and it took an email where we found you involved before we confronted you and you admitted it in my office that you were involved in this and it stopped. since then, since your new term, you've been involved in it again.

you were here with your three representatives and also admitted wrongdoing there. also there's weak management from the standpoint of regulation. that's what your job really is. as evidenced by the three banks that failed last year. as a bank examiner, there is no way in the world i would have allowed a bank model of those three banks to exist. 80% to 95% uninsured deposits. are you kidding me? no way. you knew about it for a year. did nothing. and in doing that you endangered not only the viability of those banks but the viability of our system. because what happened? they went down, runs were started on other banks around the country, got phone calls from everybody, bankers worried about what was going to happen. all because of the lax management and lack of regulation. and you're part of the problem as well. you and chopra and gruenberg tried to do something with this

bank merger situation. shame on you guys. you have become the michael cohen of the fdic. and you need to go. if you have the decency, please step down. if not, i would urge the president of the united states to replace you asap. with that, mr. chairman, i yield back. >> the gentleman yields back. the gentleman from illinois, mrr five minutes. mr. foster: thank you, mr. chairman. last friday the fsoc issued a report on nonbank mortgage servicing. in your statement following your vote to approve that report, you stated that the report identifies important financial stability concerns that need to be addressed by congress. the press release notes that nonbank mortgage companies originated approximately 2/3 of mortgages in the united states and owned servicing rates on

54%. i came in in march of 2008. so i spent a lot of the first years cleaning up the mess of an underregulated mortgage industry and the damage it did to families in america. this note reports the benefits of this trend, such as supporting lending to historically underserved community, but also the risks that are associated with it. can you speak a little bit about some of the risks associated with concentration in this space and other dangers? >> thank you for the question, congressman. so, as the report noted, today mortgage servicing is concentrated in a relatively small number of nonbank mortgage servicers. there are certain fragilities that come with that. mr. foster: can you be more specific? what is the scale of this concern? would it have implications for the g.s.e.'s?

fannie, freddie? what would contagion look like in this area that would be a source for financial worry? mr. hsu: it depends on the nature of the problem that manifests. as you pointed out, there are strong connections with the g.s.e.'s. sometimes these mortgage servicers. and of course the g.s.e.'s are then connected to the banking system. so the potential for widespread contagion from issues or problems at the nonbank mortgage service companies could be severe. mr. foster: could you be a little more specific? what are a couple example nightmare scenarios where you could have contagion? mr. hsu: well, so, at the very extreme there could be massive disruption of mortgage servicing which would really impact the significant portion of the mortgage market, in which case, that's billions and trillions of dollars that are flowing through

the system that would be disrupted. and that could have knock-on effects onto both g.s.e.'s and the banks. mr. foster: the report includes several recommendations for congress, including providing additional authorities to help firms manage the risk. to promote information sharing between the state and federal regulators would share the burden here. can you speak a little bit about how those recommendations, if followed through by congress, would promote financial stability? mr. hsu: sure. so one of the primary recommendations is for congress to strengthen both the supervision and the framework around a mortgage service company so they're held to a standard that enables safety and soundness in that market. that's the core of it. in addition to that, i think this was discussed earlier, having an industry-funded fund that will provide liquidity as necessary in case there's liquidity issues at those services. mr. foster: this would be like

the depth or liquidity? is it liquidity in the sense that you'd pledge asset or is this something where the industry as a whole would be responsible for replenishing the fund? mr. hsu: it's more the latter. and the detail that was would still need to be worked out obviously but the idea is that the industry itself. mr. foster: then i'm immediately led back to the comment about, ok, maybe move this more back into the banks. there already is a dip for it and trying to understand the reason for the market moving away. mr. hsu: so we want to make sure that for any given activity, especially with mortgages, there's risk and that risk has to be managed and properly buffered for, both for capital and liquidity. we want to make sure those standards are applied equal request and appropriately wherever they take place. inside or outside the banking

system. the fsoc report gets at that. we want to level up. we want to make sure that playing field is level and leveled up. mr. foster: is the fsoc doing exactly the job we hoped you would do to actually look around the corner and look holistically at the system and say, ok, are there things that we are going to be having hearings about next year? after things blow up, to the extent that you're able to foresee and prevent those, you're doing your job well. so thank you and my time's up. i yield back. >> the gentleman from michigan, the chair of the oversight subcommittee, mr. huizenga is, recognized for five minutes. mr. huizenga: thank you, mr. chairman. i want to clarify something that seems to be a well-worn path for some on the committee about this report only being about you because gottlieb didn't look anywhere else. sheila bear was mentioned twice in that report. one referencing the cultural claiming she started after a 2008 altercation that you had.

chairmaning williams was referenced four times, referencing her attempts to improve the culture, including creating team fdic which stands for fdic employees to get involved, cleaning up your mess once again. if there was any negative or derogatory information on any of the chairs, they would have included it. you had earlier said to the chairman that your staff regularly briefs you on bank policy or issues related to banks and that sometimes that bad news is regarding bank

failures. what we learned though in our own investigation as a committee, we did dozens of transcribed interviews and had dozens of whistleblowers that came forward outside of cleary. we learned that in our own investigation that senior advisors actively prepared and coached their staff before briefing you, warning them about your behavior. did you know that? >> no. heuz heuz fdic staff -- mr. huizenga: fdic staff had been known to cry after leaving meetings with you and others had to comfort colleagues after interacting with you. no such stories were documented about either chair bear or chairmaning williams -- chair mcwilliams. they delayed delivering news that they fear wood upset you and your reactions -- feared would upset you and your reactions had a chilling effect on communication.

if your staff are so afraid to give you bad news and they delay telling you that news, it simply makes a bad situation even worse. sir, you're the wrong person for the job to clean up this mess. the mission of the fdic is far too important and you are unwilling or unable to accept negative information. any delay of information getting to the chairman of the fdic is a recipe for disaster. if you can't deal with bad news, you are the wrong person for this job. i want to hit on one other important point. last time you were before the committee, you were asked directly by the chair if you had ever been subject of an investigation. you said no. then after some self-reflection during a break for votes and i believe a call from a reporter, you admitted that you actually had. just like you did today, you were parissing your words -- parcing your words. cleary gottlieb report explained that the 2008 incident you were made, where you made a senior executive feel personally

attacked, the reporter alleged that the staffer felt humiliate the and you created a hostile environment. i'd like to include a redacted copy of that 2008 management inquiry into the record. mr. mchenry: without objection. mr. huizenga: that person was arlise upton-key while you were vice chairman at the time and recently you just named an fdic chairman's award for operational excellence after ms. key, upton-key. so you named an award after the same woman who you screamed at and the same woman who accused of withholding information for being disloyal to you. sir, i certainly hope this isn't some sick ruse to buy her silence. and i'm going to use your own opening statement to close mine. on page two, well, page two, you said, this misconduct first surfaced last year. that's simply not true. this had been out there as rumors and innuendo and many

other complaints. but you also say you regret not having identified deeper cultural issues at fdic sooner. sir, you created the culture. you created the culture there. and you are the wrong person for the job. and you finish on page three going on to paining four, the three -- page four, the three core elements of your action plan outlined. provide one more support for victims is your first point. number two, strengthen process for reporting and investigating complaints. number three, improving accountability for anyone who is found to engage in misconduct, including through separation from the agency. how can this not be you, sir? you're the wrong person for the job. and i yield back. mr. mchenry: the gentlewoman from ohio, mrs. beatty, is now recognized for five minutes. mrs. beatty: thank you, mr. chairman, and ranking member. to our witnesses here today. i'm not sure where to begin. i have sat here and listened to

my colleagues on both sides of the aisle and i agree with a lot that has been said on both sides of the aisle. as a black woman, as someone, when congressman heintz asked to you reflect on talking to those individuals -- himes asked to you reflect on talking to those individuals and especially women, i was sitting here thinking how i would feel. and then i reviewed again the massive report and executive summary of the fdic report. i'm not going to go through it because much has been said and rightly so. this is troubling. it is a longstanding culture of sexual harassment and misconduct. i don't know where to start with the blame. but this didn't just happen now. if you go to the middle of the report, which i spent many hours along with my cleel counsel and

staff -- legal counsel and staff here going through this, the report says this has been going on for years. so now i'm not going to maybe accept whether it was william or bear cleaning it up. i think all of you are at fault. i think everybody that sat in that seat has to take some ownership. i don't know what they tried to clean up. nor you. but i don't make it just this watch. i am so bothered that three of you to me share in this, because this is massive. if we go to the middle of that 300, 400 report, there were some 510 hotline reports. and i think it's important for us to know, 97 individuals reported 145 separate incidents of sexual harassment, unwelcomed

sexual advances, 91 individuals reported 141 separate occasions of gender and sexual assault-based -- sexuality-based discrimination. 187 individuals reported 320 separate incidents of workplace bullying, threat and verbal abuse. this is not small. now, i do welcome the fact that you accepted responsibility. that you have put a plan together. but i guess i'm curious, are we going to go back and look at all of those things? where is the accountability? was somebody terminateed? will people go back as a result of this and be terminateed? and while that won't repair what has happened to some of these individuals, for anyone, for a female employee to be touched or to have to watch videos, to be asked to carry a child, that is

not something that this congress would accept. this is not a democrat or republican but i want to be fair on both sides. it's not you just as a leader with this administration who should be admonished. everybody should be admonished. and i guess what i want to hear is let's open up pandora's box. let's go look at all those managers. it is from the top down. but there are a whole lot of people that are getting a pass today while we're beating the heck out of you. a whole lot of people should be sitting with you and behind you that should also carry in this blame. so i don't want anyone to think -- because i'm all about putting people over politics. people over politics. and that is what i stand for and i know my colleagues here do as well. so i just wanted to put it into the record, i don't think i have a question. but i want you and all those who

report under you, you should not carry this burden alone. now, you should lead it and everything that has been said on both sides of the aisle, you're going to have to weather because we have it here before us. but i am suggesting that you go back and a whole lot of other folks need to be responding to the questions that my colleagues are asking to help at least show that we care about all of these individuals that have had to have been exposed to this. mr. chairman, i yield back. mr. mchenry: the gentlelady from missouri, the chair of the capital markets subcommittee, mrs. wagner is, recognized for five minutes. mrs. wagner: i thank you, mr. chairman. you've been at the fdic for 19 years. leading it mostly for 10 of those years. during that time, you apparently never once took it upon yourself to look into the toxic workplace

that you're leading. that is until the "wall street journal" published articles details your ill temper and inappropriate behavior towards fdic employees. after your reputation was put at risk, then and only then did you decide to work on getting your house in order, sir. in this report, 500, north of 500 employees came forward with complaints of sexual harassment, discrimination and other workplace misconduct. this is a massive number and it's only scratching the surface. for context, you have over 5,000 employees, the fdic today. quick answers to these questions, sir. chairman, how often do you get out of d.c. and visit fdic

regional and field offices? mr. gruenberg: i try to visit each -- we have six regional offices around the country. i try to visit each regional office at least once a year. mrs. wagner: and the field offices? mr. gruenberg: generally not -- we have 70 -- mrs. wagner: do you not go to the field offices, once a year you go to the regionals. do you meet with rank and file employees when you have those once a year visits? mr. gruenberg: yes, i do. mrs. wagner: did it ever once occur to you that something highly inappropriate was going on at these offices? mr. gruenberg: the kind of deep-seeded workplace culture did not come through in those visits. mrs. wagner: you got to be kidding me. why? how could you not know? you've been there on the board 19 years and you are telling me that you've never heard a single

story of harassment and, sir, i remind you, you are under oath. mr. gruenberg: congresswoman, i understand the question and why you ask it. in those visits i met with employees, rank and file employees. it simply did not come forward. mrs. wagner: well, this report has some of the most horrific h.r. abuses that i have ever read in my life. we can talk all day about your personal management problems and that i find appalling also. but what's more concerning is the complete ignorance and the -- of the well-being of the employees that you're entrusted with leading and the fact that you don't even visit or talk to them -- once a year to six field -- or regional offices, never to one of the 70 field offices? your employees have lost confidence in you, sir. i have lost confidence in you. and congress has lost confidence

in you. you, sir, should be fired. not resign. fired. mr. chairman, i ask unanimous consent to enter into the record a letter from the independent women's forum and the independent women's voice requesting the chair's resignation. mr. mchenry: without objection. mrs. wagner: mr. hsu, your report identified a, quote, these are all quotes, patriarchal insular toxic boys club culture where there was, quote, widespread fear of retaliation and where, quote, management's response to allegations of misconduct as well as culture and conditions gave rise to them have been insufficient and infective -- ineffective. the report found that cultural and structural changes were necessary. mr. gruenberg has been on the fdic board for is the years and the patriarch for 10 of those years. in those 10 years of leadership, has he failed to address these abhorrent workplace conditions? and what makes you believe he remains qualified to implement

the necessary cultural and structural changes outlined in your report? mr. hsu: so as the report notes, what's needed for effective leadership of the agency at this time is leadership that empathizes and fully recognizes all of the -- mrs. wagner: ok, i don't need a regurgitation. mr. hsu, your own report states chairman gruenberg's reputation raises questions about the credibility of the leadership's response to the crisis and the moral authority to lead a cultural transformation. do you now renounce the findings of your own report, sir? mr. hsu: no, i accept those findings. i fully accept those findings. mrs. wagner: how on earth do you believe that he can lead this agency into a new and better day and culture? mr. hsu: i believe he has taken full responsibility for all -- mrs. wagner: no, he has not. he doesn't even visit the agencies. he wasn't aware of one single harassment report? my time's expired. i have questions for you too,

vice chair barr, but i'll submit those in writing. i yield back. mr. mchenry: the gentleman from massachusetts is now recognized for five minutes. mr. lynch: thank you, mr. chairman. so i come out of the building trades, i was be a iron worker for about -- i was an iron worker for about 20 years. and it was a rough and tumble workplace. you know, we work hard, we play hard. i get that. but this report, you know, makes the iron workers look like boy scouts compared to what was going on at the fdic. rather than using all my time to recount the parade of horribles here and outrageous conduct on the part of fdic employees, i'm going to ask you, you know, people spending their time railing at you and you're not getting a chance to tell us, what's the plan here? this cannot continue. i got to tell you, as a former

foreman and a general foreman, i would have fired a whole bunch of people at the fdic. i would have just fired them flat-out. and you need to fire some people. if you're going to clean this up, i mean, you don't treat women like this. you don't treat humans like this. whether they're women or people of color or lgbtq kids, i saw an interchange there where they were, you know, handed very -- handled really poorly. what's your plan? what's your plan going forward? what are you going to do here to straighten this mess out? you say you're the guy to do it. tell me about that. mr. gruenberg: fundamentally we got to break the good old boys network that is at the core of the report, protecting each other and providing an obstacle to employees coming forward to report abusive experiences.

we have to break that. the report says -- mr. lynch: are you going to fire anybody or you have fired anybody? mr. gruenberg: we've separated four employees this year who have engaged in misconduct. and -- mr. lynch: separated, what's that? did you fire them? or reassign them? mr. gruenberg: they haven't received termination notice -- they either received termination notices and were fired or informed about disciplinary action before the disciplinary takes place, they leave the agency or retire. mr. lynch: how many people you have fireed? mr. gruenberg: four separated this year. mr. lynch: sounds like you need to fire more people than that. four people didn't do all of this. a lot of people did this. mr. gruenberg: dry with that -- i agree with that. i agree with that. mr. lynch: what else? mr. gruenberg: we need, as the report recommends, fundamental structural change to break the network which is why we are proposing setting up a new independent office outside of

the organizational structure at the agency, where we would consolidate all of the misconduct responsibilities, the reporting complaint, the investigation of complaints, utilizing independent third parties to do investigations, and for disciplining misconduct when it occurs. mr. lynch: look -- mr. gruenberg: and it would report directly to the board of directors. mr. lynch: ok. so we need to be informed. we need reports every couple of weeks on who you're firing and the changes that you made. you're on a short leash. you know, a lot of people here would like to see you gone, to be honest with you. i'm not so sure you're the guy to make the changes but maybe you are. maybe you can prove that to us. i don't know. i don't know. it will take some doing. but things have to change there. mr. hsu, i would like to talk about financial services at some point here.

tokennization. i know you just had a symposium on that. i'm the ranking democrat on digital currencies and i'm just, you know, i'm just concerned about -- i have a question. is it possible to tokenize any security? mr. hsu: it depends on how that term is being used. i think we have to be very, very careful. mr. lynch: which term? tokennization or security? mr. hsu: tokenizaton. some people are using that term very loosely and i would caution against that. for tokennization to solve the underlying problem of settlement, it has to be fully aligned with the legal system. so you have to solve not just the technological problem, you have to solve the underlying who owns it, how do you transfer ownership, how do you risk management. and that is the right way to approach it. that's a symposium that we held, to tackle all of those questions. there are folks out there talking about tokennization who are only talking about the

technology layer and that's half of it. mr. lynch: my fear is that the tokennization issue the technological part of it, could upend, could turn the traditional security system upside down. is that a legitimate fear? mr. hsu: that's a possibility if it's not done correctly. mr. lynch: ok. thank you. mr. chairman, i yield back. thank you. mr. mchenry: the gentleman from texas, mr. williams, is recognized for five minutes. mr. williams: thank you. before i begin with my questions, i'd like to state for the record that i strongly condemn your actions exposed in a recent report. many of my colleagues have touched on this today. but this 234-page investigation detailed a very toxic environment within your agency and i'm a small business owner. i know how that can hurt a business. your actions and the actions of the individuals involved are unacceptable and i will not be -- we don't tolerate that. next i'd like to follow up a little bit on what mrs. wagner said. how are we supposed to believe you're willing or even able to

implement a culture change if you can't accept responsibility for your own actions? we've heard that you took a tour to a regional office for listening sessions. well, it's safe to say that didn't go well either. and i've been told that one of these listennings sessions, an employee asked you directly who their allies are, and asked you directly, who is my ally, and you responded, i've got to get back to you. well, if that answer is too complicated for you, i think you're the wrong person to lead this change. and you'll get back to them, the answer here was pretty easy. it's me. i'm your ally. you're the chairman of this agency, which with a total workforce of over 1,000 of employees, at the very least these employees should feel like they are -- that you are their ally. with that being said, let me move on to chairman barr. i would like to begin by discussing the long-term debt proposal, the proposal would require a covered bank to hold debt equal to at least 6% of its risk weight in assets.

this amount is far too high for regional banks given their risk profile. this will increase these banks' costs and these increased costs will inevitably be passed down to consumers like me, a small business owner, without strengthening financial stability. imposing such stringent requirements on regional banks not only stifles their ability to lend to small businesses and stimulate local economies but also undermines the fundamental principles of free market capitalism which hinders competition, innovation within the financial sector. so, vice chair, how do you see the standardized 6% impacting smaller banks and do you think there is a value in tailoring the percentage required based on the size of the financial institution? mr. barr: thank you, congressman williams. it's a really critically important question. we are looking very much at the question of what the right calibration is for different sizes of institution. we received a lot of comments on that question. we're taking those very seriously. we want to have a requirement that improves the resiliency of the financial system and that also respects the diversity of our financial system which is

really a critical goal. mr. williams: thank you for that. i have serious concerns about how the bass il3 end game proposal is going to negatively impact small businesses and the institutions that serve them and provide for small businesses' individual needs. i still don't see why we can't do it the american way, why they can't follow america. in this proposal -- this proposal will severely reduce financing and success to capital for small businesses, making it harder to maintain operations and expand their operations. this could result in a domino effect stifling economic growth in local communities where these banks are often a driver of entrepreneurship and businesses like mine, we go to community and local banks. as a consequence, the proposal risk hampering innovation and job creation, businesses across this country are struggling to navigate this regulatory landscape. and handle the increase in burdensome requirements. so comptroller hsu, has the o.c.c. held discussions

regarding the bass il3 proposal with small businesses? and how you have taken businesses' concerns into account? mr. hsu: thank you for the question. so we've received quite a few comments from small businesses and those interested, expressing trt of small businesses and those comments, we've taken those all into account as part of the process, as my colleagues have pointed out. taking very seriously, we're looking very closely at those. mr. williams: ok, very good with that in mind, i yield my time back. mr. mchenry: the gentleman yields his time. we'll now recognize the gentleman from california, mr. vargas, for five minutes. mr. vargas: thank you very much, mr. chairman. i do apologize at the outset for my voice. i'm starting to lose it, i know it's a bad thing for a politician. but it happens. i was excited today, some time ago, to talk about oversight of the prudential regulations and regulators, i should say, and i was very anxious to talk about basil 3-rbgs the end game. it was