Link for video of this COP Meeting 10/22/2009

Here is the Text for the testimony of The Honorable Herbert M. Allison, Jr.

Assistant Secretary of the Treasury for Financial Stability

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Written Testimony for Congressional Oversight Panel, October 22, 2009
Chair Warren, Members of the Panel, thank you for the opportunity to testify today regarding Treasury’s efforts under the Emergency Economic Stabilization Act of 2008 (EESA) and the Troubled Asset Relief Program (TARP). You have asked me in particular to describe the progress of our efforts and to assess the effectiveness of our strategy in stabilizing the financial sector. You have also asked me to discuss the findings and recommendations of your recent report on our foreclosure mitigation efforts. I am happy to address these subjects and look forward to engaging in a dialogue with you after my testimony.
TARP - Progress to Date and Effectiveness
One year ago, we were in the midst of one of the worst periods in our financial history. Immediate, strong action was needed to avoid a complete meltdown of the financial system.
On October 3, 2008, Congress passed the Emergency Economic Stabilization Act of 2008, recognizing the need to take difficult but necessary action and giving the Treasury Department unprecedented authority to stabilize the U.S. economy by creating TARP.
The actions of the Treasury Department under TARP last fall must be viewed together with many other actions taken by the government to address the crisis, including Treasury’s Money Market Mutual Fund Guarantee Program, the Federal Reserve’s liquidity programs that support both financial institutions and the commercial paper market, and the FDIC’s Temporary Liquidity Guarantee Program. These efforts collectively succeeded in preventing a catastrophic collapse of our financial system. However, when President Obama took office, the financial system remained extremely fragile and the Administration faced a rapidly evolving set of grave challenges.
In January 2009, what America faced was no longer just a financial crisis; it was a full-blown economic crisis. In January alone, we lost 741,000 jobs, the largest single month decline in 60 years. Home foreclosures were increasing at a rapid rate. Businesses and families were struggling to find credit. It was feared that those banks that remained standing had too little capital and too much exposure to risky assets. Secondary markets for credit had essentially come to a halt; and liquidity in a broader range of securities markets had fallen sharply. Overall, American families had lost $10 trillion in household wealth.
In short, the economy was in a free fall and there was increasing concern we were headed towards a second Great Depression. Christina Romer, the Chair of the President’s Council on Economic Advisors, recently gave a speech outlining just how close we came to a second Great Depression. She noted that the decline in household wealth from December 2007 to December 2008 was 17% - five times the decline that occurred in 1929.
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The Administration confronted this situation by taking forceful action on several fronts. A comprehensive strategy was put in place to stabilize the financial system and the housing market, to stimulate economic activity, and to provide help to those in most need. We still have a way to go before complete recovery takes hold, but we have stepped back from the brink.
The work we have done under our Financial Stability Plan helped avert a collapse of our financial system. As such, the Treasury is now in a position to begin winding down TARP programs that helped put large banks and the auto companies on a sounder footing. It is time to set a new direction for the TARP, to account for the recent improvements in capital markets and to address lingering weaknesses in housing markets and small business lending.
While the next steps for TARP will focus on the twin challenges of helping responsible families keep their homes and small businesses get better access to credit, it is still appropriate here to provide an update on the progress and impact of the range of existing programs.
Capital Purchase Program
As you know, a key program under TARP has been the Capital Purchase Program (CPP), which has provided a total of $205 billion to 679 financial institutions, including over 300 small and community banks. This capital has been essential in stabilizing the financial system, enabling banks to absorb losses from bad assets while continuing to lend to consumers and businesses.
Treasury also worked with the federal banking regulators to develop a plan for “stress tests”. This was a comprehensive, forward looking assessment of the capital held by the largest 19 US banks. The design of the tests and their results were made public, a highly unusual step taken because of the unprecedented need to reduce uncertainty and restore confidence.
Since the stress test results were released in early May, banks of all sizes have raised over $80 billion in common equity and $40 billion in non-guaranteed debt. Importantly, that capital raising has enabled more than 30 banks to repay the TARP investments made by Treasury. We have received over $70 billion in principal repayments, and over $6.5 billion in dividends, interest and fees from CPP participants. In addition, we expect banks to repay another $50 billion over the next 12 to 18 months.
Other metrics further support our conclusion that TARP capital has had a positive effect. First, the TED spread, which measures the difference between interbank lending rates and T-bills and is a measure of the risk in the banking system, had grown to 338 basis points (bps) in December 2008. As a point of reference, the TED spread rose to 219 points in December of 1930. At the end of last week, the TED spread was approximately 23 bps. Second, conditions in interbank markets have continued to improve. The spreads of LIBOR rates to overnight index swap (”OIS”) rates, a useful measure of banks’ short-term borrowing costs, declined in the third quarter (see Figure B below). The spreads of the one-month and 3-month LIBOR over OIS have
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narrowed to levels about equal to those prevailing before the financial crisis after having spiked to previously unforeseen levels. In line with these improvements in bank funding markets, the use of the Federal Reserve liquidity facilities directed at depository institutions has declined.
Figure B
When the Obama Administration took office, the Treasury had outstanding commitments to banks under the CPP and other programs of $238 billion. Since mid-January, we have invested $11 billion in nearly 400 institutions, while receiving the repayments noted above of $70 billion. Thus, since January, we have reduced the size of the Treasury’s investments in the banking system by $59 billion to $180 billion, shifting the mix of remaining CPP investments significantly toward small and community banks.
Other Programs
Let me turn now to some of the other EESA programs and their impact on the overall economy. The Public-Private Investment Partnership (PPIP) was designed to help cleanse the balance sheets of major financial institutions and re-liquefy key markets for financial assets. Recently, the first closings with asset managers selected to run the PPIP funds have taken place, and to date Treasury has closed on approximately $9.2 billion of capital commitments, representing $12.3 billion of purchasing ability when combined with private capital. Although purchases of assets under the program are just beginning, the announcement of the program itself helped reassure investors. Since the announcement, non-agency mortgage-backed securities have
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gone up substantially in price. Prime fixed rate securities issued in 2006 that traded as low as $60 in March have increased in value by over 40 percent as additional liquidity has come back to the markets. That improvement in financial market conditions has created the positive backdrop to enable us to proceed with the program at a scale smaller than initially envisioned. Treasury expects to provide approximately $30 billion in equity and debt financing to special purpose entities (SPEs) formed by the PPIP fund managers.
Another problem area of the economy one year ago was the asset-backed securities markets, through which credit is extended to consumers, small businesses and students. The Term Asset-Backed Securities Loan Facility (TALF) has been a successful effort to help restart those markets. Opened in March 2009, TALF is a lending facility operated by the Federal Reserve Bank of New York (FRBNY) under which FRBNY provides term non-recourse loans collateralized by certain types of AAA-rated asset-backed securities (ABS). Treasury has consulted in the design of the program and will provide up to $20 billion for the purchase of ABS in the event of a default.
I am pleased to report that, since March, a total of $79.6 billion of new TALF-eligible ABS has been brought to market, of which $46.5 billion was funded using TALF loans. This aid to the securitization market has had a decidedly positive impact on liquidity, spreads, and the availability of consumer and small business credit. The figure below details the entire market impact (TALF and non-TALF) on the for AAA-rated interest rate spreads for credit card receivable and automobile loan-backed securities.
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This decline in spreads leads Treasury to believe that there will be less reliance on TALF funding in the future as TALF “money” becomes more expensive in comparison to financing now available in the private markets - an original design of the program.
As you know, Treasury has also implemented a number of programs designed to stabilize specific institutions or sectors of the economy. For example, Treasury has implemented the Automotive Industry Financing Program (AIFP) for General Motors (GM), Chrysler, GMAC, Chrysler Financial and automotive parts suppliers, the Targeted Investment Program (TIP) for Bank of America and Citigroup, the Asset Guarantee Program (AGP) and has provided support, in conjunction with the Federal Reserve, to American International Group (AIG). In each case, Treasury responded quickly to help stave off further deterioration in the financial condition of the institutions involved and the overall economy. In the case of the automotive industry, Treasury’s leadership and forceful action helped GM and Chrysler effect large-scale asset sales through bankruptcy court proceedings that resulted in leaner and more efficient companies.
The effects of EESA and TARP cannot be evaluated in a vacuum - they must be considered in conjunction with the many other measures the government has taken to combat this crisis. Nevertheless, in many ways, as noted above, we believe the programs have been successful. As the utilization of the extraordinary policies put in place to combat the financial crisis declines, Treasury looks ahead to a prudent exit and the sustainable supply of credit for consumers and families. The financial system still has significant issues which must be addressed - key parts of the financial system remain impaired and the system as a whole is still somewhat fragile. Unemployment is too high and the equity markets remain volatile. We must continue to be ready to provide support if needed, and we must unwind these programs carefully, so that the nascent recovery is not disrupted.
Housing - Updates and a Response to the October 9th Recommendations
You have asked that I address the findings and recommendations of the Congressional Oversight Panel in their recent October 9th report. We welcome the thoughts of the Congressional Oversight Panel on the nation’s housing crisis, and we thank you for your suggestions on how to improve the Making Home Affordable Program.
The Congressional Oversight Panel report correctly recognizes that the Home Affordable Modification Program (HAMP), is achieving its intended goal of providing struggling borrowers with more affordable modified monthly payments - it reports that HAMP is saving families an average of $500 a month on permanent modifications. I am pleased that on October 8, almost one month ahead of the November 1 benchmark set earlier this year, we reached a new milestone of more than 500,000 trial loan modifications underway.
As of September 30th, we have signed contracts with 63 servicers, including the five largest. Between loans covered by these servicers and loans owned or guaranteed by the GSEs, more than 85 percent of all residential mortgage debt in the country is now covered by the
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program. As of September 30th, more than 757,955 trial modifications have been offered under HAMP, and as of October 8th, more than 500,000 trial modifications are underway.
Today, I want to outline some of the recent steps that Treasury and the Administration have taken or will shortly be taking to improve the effectiveness of HAMP with the goal of strengthening the housing sector, helping millions of homeowners and laying the foundation for economic recovery and financial stability.
First, we are committed to helping eligible homeowners obtain a final modification if they are qualified for HAMP. We do not want eligible borrowers to fail the trial period because the document requirements are unnecessarily burdensome. We recently released guidance - Streamlined Borrower Documentation - that reduces the volume of paperwork needed to obtain a trial modification or final modification, and standardizes documentation across servicers. We worked with the Internal Revenue Service, for example, to to simplify the process of obtaining income tax return transcripts directly from the IRS, eliminating the need for borrowers to mail or fax bulky returns. The new standardized forms provide borrowers with more information about the modification process but in a format that is easy to understand. We hope and expect that the streamlined document revisions to HAMP will enable more borrowers to successfully complete the requirements of the trial period and enable them to obtain a permanent modification.
Second, we are developing a foreclosure alternatives program for HAMP, which will provide incentives for short sales and deeds-in lieu of foreclosure where borrowers are unable or unwilling to complete the HAMP modification process. We are aware that there are many borrowers whose modifications under HAMP will not be sufficient to keep them out of foreclosure; for example, borrowers who do not have sufficient income to support a modified payment. The Foreclosure Alternatives Program can help prevent costly foreclosures and minimizes the damage that foreclosures impose on borrowers, financial institutions and communities.
Third, we have established denial codes that require servicers to report the reason for modification denials in writing to Treasury. We will shortly require servicers to use those denial codes as a uniform basis for sending letters to borrowers who were evaluated for HAMP but denied a modification. In those letters, borrowers will be provided with a phone number to contact their servicer as well as the HOPE hotline, which has counselors who are trained to work with borrowers to help them understand reasons they may have been denied a modification and explain other modification or foreclosure prevention options that may be available to them.
Fourth, we have expanded the efforts of the federal government to combat mortgage rescue fraud and put scammers on notice that we will not stand by while they prey on homeowners seeking help under our program. On September 17, Secretary Geithner hosted Attorney General Eric Holder, Housing and Urban Development (HUD) Secretary Shaun Donovan, Federal Trade Commission (FTC) Chairman Jon Leibowitz, Financial Crimes
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Enforcement Network (FinCEN) Director Jim Freis and attorneys general from 12 states to discuss emerging trends and proactive strategies to combat fraud against consumers in the housing markets as well as best practices to bolster coordination across state and federal agencies.
In its October 9th report, the Congressional Oversight Panel recommended that Making Home Affordable address option ARM loans and negative equity, as well as unemployed borrowers. Let me briefly describe these issues.
Option ARMS
Some types of mortgage loans, like pay option ARMs, present unique challenges. The goal of HAMP is to reduce monthly payments to manageable levels, and place troubled borrowers into amortizing, fixed rate mortgages. Where borrowers on an option ARM are already having trouble paying the introductory low teaser rates - the relatively short initial fixed-rate periods when the option ARM bears an interest rate that is substantially below the “fully indexed” rate - it may be difficult to reduce the monthly payment and modify into an amortizing fixed rate loan. Despite these challenges, our current program permits borrowers with pay-option ARMs to use HAMP when they meet other eligibility criteria. In fact, the COP report showed that some borrowers with adjustable rate mortgages are getting modifications under HAMP.
Negative Equity
The Administration’s plan focuses on affordability because achieving an affordable payment is essential to keep at-risk homeowners in their homes. Data from past cycles suggest negative equity alone is unlikely to be sufficient to cause default, and though this cycle could be different, there is little evidence suggesting a dramatic change in behavior. However, (Making Home Affordable) MHA recognizes and addresses the problem of negative equity as well. HAMP can help homeowners with negative equity reduce their mortgage payments to affordable levels. Servicers will be required to evaluate borrowers for a Hope for Homeowners refinance at the same time they are evaluated for a Home Affordable Modification, and to offer the Hope for Homeowners refinance if the borrower qualifies. The Department of Housing and Urban Development recently issued a mortgagee letter and other materials to assist implementation of Hope for Homeowners. Greater use of an improved Hope for Homeowners program will help to reach borrowers with negative equity and allow them to regain a positive equity position.
HAMP also uses incentives to servicers and investors to reduce borrowers’ interest rates - or write down their principal, if the servicer chooses - to bring down the monthly payment to a level the borrower can afford. Additional incentives are available to borrowers to help them pay down principal more quickly. The Administration’s goal is to maximize program participation in order to provide an affordable and sustainable solution for as many struggling borrowers as possible.
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Unemployment
We recognize unemployment is a significant problem contributing to the ongoing foreclosure crisis. Rising unemployment and other recessionary pressures have impaired the ability of many otherwise responsible families to stay current on their mortgage payments. Unemployed borrowers that will receive at least nine months of unemployment benefits are eligible for a modification under HAMP. The COP report showed that this is working - the report showed that unemployed borrowers are receiving modifications through HAMP. We continue to study ways to help unemployed homeowners and we remain committed to meeting the challenges of reducing foreclosures and helping people maintain their homes.
Improving Transparency
The Panel recommended in its October 9th report that Treasury should increase transparency of MHA - in eligibility, reasons for denial and other issues touching homeowners, and in disclosure of performance data. We agree that borrowers should be provided with clear explanations for loan modification denials. For that reason, we established the denial codes described above that require servicers to report the reason for modification denials to Treasury, and we intend to require servicers to use those denial codes as a basis for sending written letters to borrowers who were evaluated for HAMP but were denied a modification.
We also agree that transparency of the Net Present Value (NPV) model - a key component of the eligibility test - is important. We are increasing public access to the NPV white paper, which explains the methodology used in the NPV model. We are also working to increase transparency of the NPV model, so that there can be a wider understanding of how the model works among housing counselors and borrowers.
We are working with participating servicers to establish operational metrics to measure the performance of servicers in responding to borrowers, such as average borrower wait time for inbound borrower inquiries, and response time for completed applications. We plan to publish these metrics on a servicer-by-servicer basis in our monthly public reports.
Streamlining HAMP Processes
The Panel also recommended that Treasury should implement greater uniformity and streamline processes in MHA. As described above, we have recently released the streamlined documentation program, which standardizes and simplifies the documentation required for modifications.
In addition, within the next few weeks, the Treasury expects to implement internet capabilities that will allow borrowers to fill-in, download, and print these standardized documents to send to their servicer. As we continue to enhance the Making Home Affordable website, we look forward to providing borrowers with a centralized location through which they
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can access borrower documents, apply directly for a modification, and ultimately communicate with their servicer to track the status of their modification.
Making Program Enhancements to HAMP
The October 9th report recommended that Treasury should consider program enhancements to HAMP, such as localizing NPV models, and lowering the debt-to-income (DTI) eligibility test. Servicers are permitted to enter in their own variables for several elements of the NPV calculations. For this process, servicers rely on standardized home price valuation products and service providers that can accommodate housing data as granular as street-by-street pricing information.
Foremost among Treasury’s efforts to localize the NPV models has been the Home Price Decline Protection (HPDP) incentive payment. The HPDP payments provide lenders additional incentives for modifications where home price declines have been most severe and lenders fear these declines may persist. These incentives will encourage servicers to undertake more modifications in areas hard hit by home price declines.
Improving Servicer Accountability
The Panel also recommended that Treasury should ensure rigorous compliance and accountability with strong sanctions for non-compliant servicers. Freddie Mac, Treasury’s compliance agent for HAMP, began servicer reviews in July. Recognizing that many of the servicer’s processes are newly developed and most modifications are still in their trial periods, these reviews have focused on the servicer’s implementation activities, looking to identify process improvements at this early stage. As loans move into the official modification status and as servicers’ processes mature, Freddie Mac’s reviews will focus more on risk-based activities and compliance trend issues.
Freddie Mac also began a “second look” review process, where Freddie Mac will audit servicers to review a sample of HAMP modification applications that have been declined by the related servicers. This “second look” process began in August, and is designed to minimize the likelihood that borrower applications are overlooked or that applicants are inadvertently denied a modification. In addition, the second look program is examining servicer non-performing loan (NPL) portfolios to identify eligible borrowers that should have been solicited for a modification, but were not.
Following these reviews, Treasury will receive performance assessments of each servicer’s program compliance as prepared by Freddie Mac, and we plan to institute substantial penalties for non-compliance. These penalties may include withholding or reducing payments to servicers, requiring repayments of prior payments made to servicers with respect to affected loans, or requiring additional servicer oversight.
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Furthermore, Treasury has recently developed a compliance committee for HAMP to review and understand servicers’ compliance results and determine appropriate remedies. The compliance committee’s actions range from requiring improperly rejected loans to be modified, to operational enhancements to monetary actions.
We recognize that any modification program seeking to avoid preventable foreclosures has limits, HAMP included. HAMP does not, nor was it ever intended to address every delinquent loan. For those who fail the NPV test, but fall within HAMP’s eligible population, Treasury is finalizing guidelines that would provide incentives for borrowers and servicers to pursue alternatives to foreclosure through a deed in lieu or short sale transaction.
We remain committed to helping American families during this crisis and will aggressively continue to build on our progress to date. Sustained recovery of our housing market, and the mitigation of foreclosures, is critical to lasting financial stability and promoting a broad economic recovery. Consequently, we appreciate your suggestions for improvement to HAMP and we look forward to working with you to help keep Americans in their homes, restore stability to the US housing market and ensure a sustained economic recovery.
Conclusions
It has been over a year since the most devastating financial crisis since the Great Depression. In the panic that followed, our financial system nearly ground to a halt. Congress’ swift response in enacting EESA and approving the TARP funds prevented a truly catastrophic collapse. Fortunately, we have moved back from the financial brink and are headed toward economic recovery, thanks in part to the programs we have enacted under EESA. Nevertheless, risks remain. We must make sure the financial recovery continues to take hold. In particular, sustained recovery of our housing market and of small businesses is critical to lasting financial stability and promoting a broad economic recovery. We look forward to working with you to help keep Americans in their homes, restore stability to the US housing market and to the financial system, help ensure small businesses have access to credit, and ensure a sustained economic recovery.

Here is the text for Oversight Panelist

Opening Statement of Elizabeth Warren
Congressional Oversight Panel Hearing with
Assistant Secretary for Financial Stability Herb Allison
October 22, 2009
Welcome, Assistant Secretary Allison. We appreciate you taking your time to join us today. The first time you appeared before us, it was only your first week on the job and you were just getting started. We are very happy to have you back to give us an update on the Troubled Asset Relief Program.
It has been more than a year since Congress authorized $700 billion to rescue the financial sector and stabilize the economy. The program provided direct and immediate help for the largest financial institutions, but smaller institutions, small businesses, and homeowners facing foreclosure have waited much longer and received much less help. Meanwhile, the people who funded the bailout, the American taxpayers, are bombarded with news that the Wall Street firms that benefited from TARP assistance are reporting windfall quarterly profits and preparing to reward their executives handsomely with hefty bonuses while unemployment remains close to 10 percent, loan defaults continue to rise, and the foreclosure crisis has no apparent end in sight.
Many of the factors that caused the crisis remain in place. The financial sector is more consolidated today than it was a year ago, meaning the public is still at the mercy of institutions that are considered “too big to fail”. Toxic assets remain on the books of the banks, and there is little to inspire confidence in bank balance sheets. The health of small and mid-sized banks remains a significant concern. These banks overwhelmingly support small business lending. Already this year, 99 of these banks have failed-a four-fold increase from 2008. Particularly worrisome is their exposure to commercial real estate assets, which pose a threat to overall financial stability.
Regulatory reform-the change in the rules that will prevent this crisis from happening again-remains in the future.
Quite naturally, taxpayers are concerned about what this means for their economic security. We hope you can provide some answers today, to put TARP in the proper context and to help us understand where we are and where we go from here. At the core of the Panel’s mission is ensuring that TARP operates with transparency and accountability. We thank you and your staff
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Opening Statement of Elizabeth Warren, October 22, 2009 -2
at the Office of Financial Stability for working with us. We’ve come a long way, but many questions still remain.
Each month, the Congressional Oversight Panel releases a detailed oversight report on TARP. The September report examined TARP assistance to the domestic automotive industry. It highlighted a number of outstanding issues concerning the perils of public ownership of private companies and the challenges of exiting the market and returning the taxpayers’ investment. This month, the Panel released an assessment of the first six months of Treasury’s foreclosure mitigation program, Making Home Affordable. The report raises a number of concerns about the scope, scale, and long-term success of the program. In the coming months, the Panel will assess the impact of TARP and other stabilization initiatives on the economy. The November report will evaluate the role of government guarantees from Treasury, the FDIC, and the Federal Reserve in stabilizing the financial sector. The December report will provide a year-end review of the overall impact of TARP on the credit and housing markets and the economy in general. We look to you today to address these concerns and inform our future inquiries.
Finally, with only a few months left until TARP is scheduled to expire, the question of whether the Secretary will exercise his authority to extend the program looms large. The public should know the criteria upon which this decision will be made. They have a huge stake in the fate of TARP’s $700 billion and a right to understand the decision-making process.
Thank you again for taking time to appear before the Panel today. We look forward to your testimony.

Here is the Text for Oversight Panelist:

Opening Statement of Richard Neiman
Congressional Oversight Panel Hearing with
Assistant Secretary for Financial Stability Herb Allison
October 22, 2009
Mr. Assistant Secretary, thank you for being here today. You know more than anyone how important today’s hearing is to the American public. It was about a year ago that the U.S. government told the American taxpayer that the financial system faced possible collapse if taxpayers did not provide $700 billion to rescue it.
The taxpayers did what was asked, and they did it even though it meant swallowing what some perceive as a very bitter pill. I don’t have to tell you about the reluctance, and in some cases the outrage, of providing financial support to some of the very institutions that helped cause the crisis, many of which pay their employees more money in one year than many Americans make in lifetime.
So the stakes of the effectiveness of Treasury’s use of that $700 billion are very high. Treasury’s programs have to work to stabilize the financial system, but they also have to work so people feel that they have also gained from the $700 billion infusion. Treasury’s programs must restore credit for small businesses that promote entrepreneurship and create jobs, and the programs must keep people in their homes by preventing avoidable foreclosures. Success in these endeavors goes beyond just restoring confidence in our financial system; this success is critical to maintaining confidence in our democratic system.
Remembering back to our first hearing with Secretary Geithner in April, I am glad to say that we can have a different conversation today than we had then. The Department of Treasury deserves credit for making substantial progress. We are by no means out of this crisis, but yours and Secretary Geithner’s efforts averted disaster, and that should be recognized.
But our gains remain fragile, particularly as they apply to the people who need Treasury’s programs the most. As you and I discussed in our last hearing together over the summer, it is critical that we redouble our efforts to help the millions of homeowners facing foreclosures. I am grateful to Treasury for participating in our hearing last month in Philadelphia. It was the first time Treasury, Fannie Mae, and Freddie Mac came together in a public forum with housing advocates and mortgage lenders to discuss the progress of the Administration’s foreclosure prevention programs. I intend to follow up on several of the issues that came out of that hearing with you today.
I also intend to ask you about improving access to credit for the tens of thousands of small businesses that employ the vast majority of our economy’s workers. I’d like to commend your
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Opening Statement of Richard Neiman, October 22, 2009 -2
office and the Administration for announcing initiatives yesterday to provide capital for community banks that are substantial lenders to small businesses. One year later, the financial system needs to start working better for small businesses and all Americans.
I look forward to our conversation.

Here is the text for Oversight Panelist:

Opening Statement of Damon Silvers
Congressional Oversight Panel Hearing with
Assistant Secretary for Financial Stability Herb Allison
October 22, 2009
Good morning. It is again a pleasure and honor to welcome Herb Allison. I am pleased with your willingness to make yourself available to our panel both in these formal settings as well as more informally.
This hearing convenes as the Office of Financial Stability and the Treasury Department are undertaking a number of initiatives that appear to be efforts to respond to concerns raised by this Panel regarding the provision of credit to business, particularly small business, continued excessive and perversely structured executive compensation at major TARP recipient institutions, and the continuing escalation of the home foreclosure crisis.
While my sense of these initiatives is that they are directionally correct, I look forward to hearing today from Assistant Secretary Allison about the scope and design of these initiatives.
I also want to compliment Assistant Secretary Allison on the OFS’s handling of the cancellation of the Bank of America asset guarantee. Bank of America clearly benefited from the perception on the part of the markets that this guarantee was effectively in place, and it is only appropriate that it should pay a fee for having done so.
However, I remain extremely concerned that as a result of having a strategy with TARP that is fundamentally about buying time, that we are at risk of a vicious cycle. Persistent high unemployment, in part generated by the initial financial crisis, breeds more foreclosures and a continued housing depression, which in turn keeps our major financial institutions weak and causes continued high rates of failures of small banks. Weakness in the banking sector then acts as a powerful headwind, preventing the revival of employment outside those firms that can access public debt markets.
With this concern in mind, I hope that Assistant Secretary Allison can discuss with us with some specificity the current state and future prospects of the largest financial institution that are continuing recipients of TARP assistance-AIG, Citigroup, Bank of America and Wells Fargo.
Ultimately, the Wall Street bonuses that got so much attention this past week make tangible and specific the growing feeling among the public that we are back to business as usual on Wall Street, while the financial system is failing to play its proper role in supporting the real economy
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Opening Statement of Damon Silvers, October 22, 2009 -2
on Main Street. I am interested in the immediate steps Treasury is taking to counter this perception in areas like executive pay, but the real test will be whether we really repair the banking system so that it can function again, or whether we repeat the unpleasant experience of long term economic stagnation Japan went through in the 1990’s.
I look forward to hearing from Assistant Secretary Allison and again extend my thanks to him for joining us.