[Senate Hearing 107-882]
[From the U.S. Government Publishing Office]
S. Hrg. 107-882
NOMINATIONS OF: JOANN JOHNSON
DEBORAH MATZ, ANTHONY S. LOWE
CYNTHIA A. GLASSMAN, AND ROEL C. CAMPOS
=======================================================================
HEARINGS
before the
COMMITTEE ON
BANKING, HOUSING, AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
ON
NOMINATIONS OF:
JOANN JOHNSON, OF IOWA, TO BE A MEMBER OF THE
CREDIT UNION ADMINISTRATION BOARD
__________
DEBORAH MATZ, OF NEW YORK, TO BE A MEMBER OF THE
CREDIT UNION ADMINISTRATION BOARD
__________
ANTHONY S. LOWE, OF WASHINGTON, TO BE ADMINISTRATOR OF THE
FEDERAL INSURANCE AND MITIGATION ADMINISTRATION
FEDERAL EMERGENCY MANAGEMENT AGENCY
__________
CYNTHIA A. GLASSMAN, OF VIRGINIA, TO BE MEMBER OF THE
SECURITIES AND EXCHANGE COMMISSION
__________
ROEL C. CAMPOS, OF TEXAS, TO BE A MEMBER OF THE
SECURITIES AND EXCHANGE COMMISSION
__________
MARCH 14, MAY 8, AND JULY 23, 2002
__________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
PAUL S. SARBANES, Maryland, Chairman
CHRISTOPHER J. DODD, Connecticut PHIL GRAMM, Texas
TIM JOHNSON, South Dakota RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York WAYNE ALLARD, Colorado
EVAN BAYH, Indiana MICHAEL B. ENZI, Wyoming
ZELL MILLER, Georgia CHUCK HAGEL, Nebraska
THOMAS R. CARPER, Delaware RICK SANTORUM, Pennsylvania
DEBBIE STABENOW, Michigan JIM BUNNING, Kentucky
JON S. CORZINE, New Jersey MIKE CRAPO, Idaho
DANIEL K. AKAKA, Hawaii JOHN ENSIGN, Nevada
Steven B. Harris, Staff Director and Chief Counsel
Wayne A. Abernathy, Republican Staff Director
Dean Shahinian, Counsel
Sarah Kline, Counsel
Tom Readmond, Republican Professional Staff Member
Jospeh R. Kolinski, Chief Clerk and Computer Systems Administrator
George E. Whittle, Editor
(ii)
C O N T E N T S
----------
THURSDAY, MARCH 14, 2002
Page
Opening statement of Chairman Sarbanes........................... 1
Opening statements, comments, or prepared statements of:
Senator Gramm................................................ 2
Senator Johnson.............................................. 2
Prepared statement....................................... 14
WITNESS
Charles E. Grassley, a U.S. Senator from the State of Iowa....... 5
Prepared statement........................................... 14
NOMINEES
JoAnn Johnson, of Iowa, to be a Member of the Credit Union
Administration Board........................................... 4
Prepared statement........................................... 15
Biographical sketch of nominee............................... 17
Deborah Matz, of New York, to be a Member of the Credit Union
Administration Board........................................... 6
Prepared statement........................................... 25
Biographical sketch of nominee............................... 26
Additional Materials Supplied for the Record
Letter to Senator Paul S. Sarbanes from the National Association
of
Federal Credit Unions, dated March 6, 2002..................... 35
----------
WEDNESDAY, MAY 8, 2002
Opening comments of Chairman Sarbanes............................ 37
WITNESS
Mike DeWine, a U.S. Senator from the State of Ohio............... 37
Prepared statement........................................... 48
NOMINEE
Anthony S. Lowe, of Washington, to be Administrator of the
Federal
Insurance and Mitigation Administration, Federal Emergency
Management Agency.............................................. 40
Prepared statement........................................... 48
Biographical sketch of nominee............................... 50
Response to written questions of Senator Akaka............... 54
----------
TUESDAY, JULY 23, 2002
Opening statement of Chairman Sarbanes........................... 57
Opening statement, comments, or prepared statements of:
Senator Enzi................................................. 58
Senator Akaka................................................ 60
Senator Allard............................................... 61
Senator Dodd................................................. 61
Senator Corzine.............................................. 66
Senator Gramm................................................ 74
NOMINEES
Cynthia A. Glassman, of Virginia, to be a Member of the
Securities and Exchange Commission............................. 63
Prepared statement........................................... 78
Biographical sketch of nominee............................... 79
Response to a written question of Senator Corzine............ 117
Roel C. Campos, of Texas, to be a Member of the Securities and
Exchange Commission............................................ 64
Prepared statement........................................... 103
Biographical sketch of nominee............................... 105
Response to a written question of Senator Corzine............ 117
NOMINATIONS OF:
JOANN JOHNSON, OF IOWA
AND
DEBORAH MATZ, OF NEW YORK
TO BE MEMBERS OF THE
NATIONAL CREDIT UNION
ADMINISTRATION BOARD
----------
THURSDAY, MARCH 14, 2002
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 3:20 p.m. in room SD-538 of the
Dirksen Senate Office Building, Senator Paul S. Sarbanes
(Chairman of the Committee), presiding.
OPENING STATEMENT OF CHAIRMAN PAUL S. SARBANES
Chairman Sarbanes. The Committee will come to order.
I am pleased to welcome before the Banking, Housing, and
Urban Affairs Committee this afternoon the two nominees to be
members of the board of the National Credit Union
Administration, JoAnn Johnson of Iowa and Deborah Matz of New
York.
Both of these nominees received recess appointments to the
Board on January 22, and therefore are currently serving as
members of the board. The Committee today will consider their
nominations for terms on the board. If confirmed, Ms. Johnson's
term would expire on August 2, 2007 and Ms. Matz's term would
expire on August 2, 2005.
Ms. Johnson graduated from the University of Northern Iowa
in 1971. She owned and ran a family farm from 1971 until 1995.
From 1995 until she received her recess appointment to the
NCUA, she was a member of the Iowa State Senate, where she
served 4 years as Chair of the State Senate Ways and Means
Committee, and most recently as Chair of the Commerce
Committee.
Ms. Matz received her undergraduate degree from Cornell in
1971, a master's degree from George Washington in 1976. She was
a Community Development Representative for the New York area
office of HUD right out of college, and then she worked with
Congressman Peter Peyser of New York, whom we knew, as his
legislative assistant. She then worked as an Economist for the
Joint Economic Committee of the Congress from 1977 to 1984, and
again from 1987 until 1989. She then worked at the Department
of Agriculture over the last 8 years in several senior
executive positions, including Deputy Assistant Secretary for
Administration. After leaving the Agriculture Department she
worked as an Executive Officer with the Washington office of
the Food and Agricultural Organization of the United Nations.
Both of these nominees bring an independent background and
perspective to the board of the National Credit Union
Administration, and I expect to support their nominations. They
also are in the somewhat unusual circumstance of having their
nominations considered by the Senate for the first time after
they have begun service in the positions for which they have
been nominated. They are therefore in a position perhaps to
share with the Committee their views on the positions for which
they have been nominated based on a brief but nevertheless
useful tenure on the board, and we look forward to their
statements.
With that, I yield to Senator Gramm.
COMMENTS OF SENATOR PHIL GRAMM
Senator Gramm. Mr. Chairman, thank you very much. I will be
very brief.
We have two excellent nominees and I intend to support them
both. I want to thank you for being willing to engage in public
service. It is a very high calling, and it is vitally
important.
Also, I want to urge each of you as a member of this
regulatory body to always remember that you are not there to
represent the interests of credit unions. You are there to
represent the interests of the working men and women of the
United States of America. It is their interest that should
always be put first, and I look forward to working with both of
you in your capacity as confirmed members of the board.
Thank you very much.
Chairman Sarbanes. Thank you very much, Senator Gramm.
Senator Johnson.
STATEMENT OF SENATOR TIM JOHNSON
Senator Johnson. Mr. Chairman, thank you very much for
moving forward so quickly with the confirmation of Deborah Matz
and JoAnn Johnson to the NCUA board. It is a special pleasure
for me today to welcome in particular nominee Matz before the
Committee. I have known Debbie and her husband Marshall for
many years. I am confident that Debbie will make a superb NCUA
board member. She is here today with her husband Marshall and
son Peter. Daughter Hayley is away at college right now, but it
is a wonderful family and I know that Deborah will do a
wonderful job at NCUA.
In fact, Mr. Chairman, I know that you know her abilities
and reputation firsthand, because of her service as a Member of
the Joint Economic Committee during your tenure as Chairman. In
continuing her long and distinguished public service career,
Debbie served as Deputy Assistant Secretary of Agriculture for
Administration, filling a very important role of overseeing the
administration of the Department of Agriculture's day-to-day
operations.
I would like to take just a moment to thank the nominees
for their willingness to serve on the NCUA board. I know that
there are more lucrative options, no doubt, in the private
sector. But we are grateful to you for your commitment to
public service.
Mr. Chairman, credit unions and the financial services
industry have changed dramatically since the founding of the
NCUA in 1970. Today our 10,000 credit unions, with over $480
billion in assets, serve more than 79 million people in the
United States with a broad array of services from basic savings
accounts to credit cards to even home mortgages. Yet at the
same time the basic mission of credit unions remains the same,
to serve their members. Credit unions enjoy a tremendously
loyal customer base, and most credit unions work hard to create
an environment where members feel comfortable doing business.
Unfortunately, I have several commitments this afternoon
that may prevent me from staying as long as I would like at
this hearing. But there is an issue that I would like to ask
the nominees to either address today or during the question and
answer period, or filing a written submission to the Committee.
With your permission Mr. Chairman, I would like to ask the
question in my opening statement.
Chairman Sarbanes. Sure.
Senator Johnson. And then at the appropriate time the
nominees can respond.
Chairman Sarbanes. I will be happy to yield to you right at
the outset.
Senator Johnson. Let me just ask this question very
quickly.
Many State-chartered credit unions have expressed concern
over the process by which the NCUA establishes its overhead
transfer rate. As I understand it, the overhead transfer rate
is the amount of money taken out of the share fund to pay for
the NCUA's insurance-related activities.
Historically, NCUA has estimated the transfer rate at 50
percent. Recently, however, it raised the rate to 67 percent
and then lowered it to 62 percent. NCUA's overall budget is
funded partially by exam fees from Federally chartered credit
unions and partially by the share fund. When the transfer rate
is increased, two things happen. One, the share fund provides a
larger proportion of the NCUA budget, and two, exam fees for
Federally chartered institutions go down, because exam fees end
up representing a smaller proportion of the NCUA budget.
State-chartered credit unions have expressed concern about
the increase to the 62 percent on both substantive and
procedural grounds. I would be very interested to know our
nominees' thoughts on the current overhead transfer rate; and
in addition, do they believe that changes should be made in the
way the NCUA board develops the transfer rate. More
specifically, should there be greater transparency in the
process?
Once again, Mr. Chairman, thank you for holding this timely
hearing, and thank you again to two extraordinary nominees that
are before us here today.
Chairman Sarbanes. Thank you very much, Senator Johnson.
I will now turn to the nominees. It is the practice of this
Committee to swear nominees in before giving their testimony,
so I would ask you to stand and take the oath.
[Oath administered to nominees.]
Chairman Sarbanes. Thank you very much. Senator Johnson,
why don't we hear from you? I notice the staff, which is very
sensitive to these matters, has put your nameplate there as
Senator Johnson. I guess once a Senator, always a Senator.
[Laughter.]
Ms. Johnson. Always known by your highest title.
Chairman Sarbanes. We would be happy to hear from you.
STATEMENT OF JOANN JOHNSON, OF IOWA
TO BE A MEMBER OF THE
NATIONAL CREDIT UNION ADMINISTRATION BOARD
Ms. Johnson. Thank you very much, Mr. Chairman.
Mr. Chairman, Senator Gramm, Senator Johnson, thank you
very much for giving me the opportunity to appear today as a
nominee for the board of the National Credit Union
Administration. I am deeply honored to have been nominated by
President Bush to serve our country in this way, and I am
grateful for the attentive consideration this Committee has
given me since the President forwarded my name to you for your
consideration.
I would also like to thank Senator Grassley for all he has
done on my behalf, helping me through this nomination process.
Chairman Sarbanes. I know he was planning to try to be here
to introduce you, but he is tied up as I understand it, we were
informed, at a meeting of the Senate Judiciary Committee.
Ms. Johnson. Fine. He may try to stop by.
Chairman Sarbanes. So we understand.
Ms. Johnson. Thank you.
I also want to thank NCUA Chairman Dennis Dollar for all of
his assistance, and my new colleague, Deborah Matz, for her
camaraderie as we travel a common course together. I would also
like to acknowledge the constant support of my husband, Brian,
who could not be here today.
In accepting the President's recess appointment on January
22, I traded in my legislator duties as an Iowa State Senator
for regulator responsibilities, and having been a legislator, I
appreciate and respect the distinction between the two. I
learned the skills of a legislator and the need to hear all
sides of an issue, and chart a course for an equitable
solution. I will be continuing that policy at NCUA, if
confirmed, and consultations with Congress will be an important
part of the deliberative process I shall engage in as a NCUA
board member.
I do not bring an agenda with me to this position, but I do
have some standards that will guide my actions as a regulator.
I want to be sure NCUA's core duties are done extremely well,
maintaining a robust share insurance fund and an effective
supervision program, critical elements to the independent
credit union movement. I want to emphasize the wise use of
resources at NCUA, and I want to be responsive to credit unions
to develop prudent decisions that meet the needs of a dynamic
and growing industry.
In my few weeks on the NCUA board, I have spent much of my
time meeting with NCUA office directors, studying NCUA
programs, and meeting with other interested parties to gain a
fair assessment of the larger credit union picture. The
consultations I have had with you, Mr. Chairman, and other
Members of the Committee in preparation for this hearing have
been valuable to me as I assess the challenges ahead.
My Iowa background encompasses a background of family
agriculture, education, and community service. I have also
served more than 7 years in the Iowa Senate. I was privileged
to chair two committees, the Ways and Means Committee and the
Commerce Committee in the Senate. My duties called on me to
address and negotiate diverse issues concerning taxes and
budgeting, commerce, financial institutions, and economic
development. Consequently, I believe I will bring the necessary
skills with me to judge fairly the important policies and
issues that will come before me at NCUA.
I know this Committee is looking for the Board to exercise
good judgment. That means maintaining a safe and sound credit
union financial system, which is exactly what we have inherited
and what I am committed to maintain and bequeath to my
successors.
With so many people continuing to join credit unions around
the country, more Americans, whether they know it or not,
depend on the regulatory decisions and systems that ensure
quality and integrity nationally. Well-run credit unions that
efficiently provide consumer financial services in today's
diverse marketplace are an essential and vital part of the
financial community in the United States, providing members
credit for provident and productive purposes, just as they have
done since they began to fill those needs at the beginning of
the last century.
Mr. Chairman, thank you for the opportunity to appear
before the Senate Committee on Banking, Housing, and Urban
Affairs today. I am honored to be here, and I pledge to work
closely with you and Members of this Committee and the Congress
during my term to ensure the continued health and sound
policies for the Nation's credit union system.
Thank you.
Chairman Sarbanes. Thank you very much.
Before we turn to Ms. Matz, we have been joined by Senator
Grassley. Chuck, we went ahead because we understood you were
tied up, but we would be very happy to hear from you now.
STATEMENT OF CHARLES E. GRASSLEY
A U.S. SENATOR FROM THE STATE OF IOWA
Senator Grassley. Thank you.
You have already been introduced to Senator JoAnn Johnson,
so it is my privilege to speak in favor of her.
Chairman Sarbanes. She just made a very good statement, so
you are riding the wave here.
[Laughter.]
Senator Grassley. And I hate to have this letdown, but you
know me.
You know, it was about 16, 17 years ago I had the privilege
of appearing before this Committee to introduce another Iowan,
a former U.S. Senator from Iowa to this very same position. So
it is a great deal of good feeling on my part that Iowans have
so many well-qualified people to serve the National Credit
Union people, and particularly to do it on their board.
So I am here to introduce you to one of the three Bush
nominees for this board. Ms. Johnson and I have a lot in common
in the sense that we are both alumni of the University of
Northern Iowa. Also we both served in the State legislature,
although I served there before she was born, and we were both
raised on farms and we grew up with an appreciation of a very
unique way of life of the Midwest, maybe not just Iowa, but
Iowa's kind of exceptional to us.
JoAnn Johnson has been serving the State of Iowa since she
became a dedicated teacher after graduation from that good
university that teaches people how to teach well. She was a
teacher and coach at Adair-Casey High School, and not only was
she teaching physical education classes, but she also did the
community things like teaching Sunday school and helping youth
in 4-H clubs.
Now since 1994, JoAnn Johnson has consistently displayed
her leadership talents in the Iowa State legislature, being
Chair of the Senate Commerce Committee. As chair of the Iowa
Senate Ways and Means Committee, she helped reduce the tax
burden for Iowans by over $700 million, helped to restructure
the utility property tax system, and cochaired a 2 year interim
study on State tax structure. In 1999, she was named Senator of
the Year by an outstanding trade association in Iowa, the
Associated General Contractors.
Not only is she a leader, but I think something you have to
be when you are a regulator, as she is in this position--you
have to be a listener. She makes sound judgments after hearing
both sides of the issue. She is dedicated to the people helping
people philosophy that is the basis for credit unions, and as
credit unions exist solely for the purpose of serving their
members, I am confident that JoAnn Johnson will act in the best
interests of all credit unions and the communities they serve,
and for the national good. She is a voice that is right for the
National Credit Union Board.
Thank you, Mr. Chairman.
Chairman Sarbanes. Thank you very much. We certainly
appreciate your statement. I know you have a very tight
schedule, so we understand if you have to excuse yourself.
Ms. Matz, we would be happy to hear your statement.
STATEMENT OF DEBORAH MATZ, OF NEW YORK
TO BE A MEMBER OF THE
NATIONAL CREDIT UNION ADMINISTRATION BOARD
Ms. Matz. Thank you.
Chairman Sarbanes, Senator Gramm, Senator Johnson, I appear
before you today as a board member and nominee to the board of
the National Credit Union Administration. With me today is my
husband, Marshall Matz, and our son Peter, a sophomore at
Langley High School in McLean, Virginia. Our daughter Hayley, a
junior at Tulane University, is listening online.
Chairman Sarbanes. Not a bad deal, Peter, to get out of
school today for this event.
[Laughter.]
Ms. Matz. Mr. Chairman, first, I would like to thank you
and the Committee for conducting this hearing so quickly after
my nomination, especially given your full agenda. I appreciate
the counsel and support that I have received from your staff,
Steve Harris, Marty Gruenberg, and Judith Keenan, in
particular.
I am especially grateful to the distinguished Senate
Majority Leader, Senator Tom Daschle, for recommending me, and
to President Bush for nominating me to this position. Senator
Daschle's support and confidence is deeply appreciated.
I would like to thank NCUA Chairman Dennis Dollar and my
fellow board member and nominee, JoAnn Johnson, for their warm
welcome, and the spirit of professional collegiality that
already exists on the board. And last, but not least, I want to
thank the talented staff at NCUA who have provided thorough
briefings and insights on many of the functions of this
independent agency.
Mr. Chairman, if confirmed, I will bring to the NCUA Board
over 20 years of public sector experience. For 9 years, I
served as an Economist with the Joint Economic Committee of
Congress, followed by 7 years as a Presidential Appointee at
the U.S. Department of Agriculture. While at USDA I chaired the
Loan Resolution Task Force, created to resolve delinquent farm
loans in excess of $1 million. When I was appointed to the Task
Force, the portfolio was over $1 billion in principal; when the
Task Force ended, we had resolved virtually all of the loans
that were not encumbered by litigation or bankruptcy
proceedings.
What type of board member and regulator do I hope to be? I
will have several guiding principles. I will work hard to
ensure that credit unions remain safe and sound financial
institutions. As a member of three credit unions, I will be
dedicated to the goals and purposes of the original enabling
legislation. I strongly identify with the ideal of helping
working people and others who are not being served by
traditional financial institutions. I will strive to be
recognized as a fair and thoughtful regulator--one who realizes
the value and necessity of regulation while being sensitive to
the needs of those who are being regulated. If confirmed, I
will work closely with all the Members of this Committee and
Members of Congress, to insure the financial integrity of
credit unions in a changing environment.
In closing, I consider credit unions to be the jewel in the
crown of the financial service sector. I will work diligently
to protect this precious jewel, to end predatory loan
practices, and to extend the benefits of credit unions to all
eligible Americans, particularly the underserved.
Mr. Chairman, thank you again for the opportunity to appear
before you today. I would be pleased to answer any questions
that you and your colleagues might have.
Chairman Sarbanes. Thank you very much. I thank both of you
for very good statements.
As I indicated, I yield my time to Senator Johnson so he
can pursue inquiry.
Senator Johnson. Thank you, Mr. Chairman. I do not mean to
be stepping out of line here.
But as I observed, the question that I raised earlier in my
opening statement had to do with the transfer rate and the
transparency of the process determining those rates, and I
wonder whether either of you would have any observations to
share with us. I know that you are relatively early on in your
career as a regulator, and it may be a bit unfair to spring
this on you, but it is a question that I think is a fundamental
one, and one that I think there is a great deal of interest in.
Senator Johnson, any observations about the process or the
proper rate?
Ms. Johnson. Yes, sir.
I recognize that there is considerable debate among the
industry on this issue. Having come from a State legislative
position and working within a State that has primarily State-
chartered credit unions, I had heard a little bit about the
overhead transfer rate, and have thus heard more since I
arrived here.
The previous board adopted what they thought was a fair
rate, and it actually was a reduction from 66 percent down to
62 percent. They believed that that reflected the insurance
costs that they were incurring, and as you know that rate is
set for the next 2 years. The NCUA has had an outside
consultant evaluate the process, and there were no significant
flaws cited in that report. However, the report is ongoing.
During my tenure, I intend to study this issue very
closely. I have received the assignment, so to speak, of being
the liaison to the National Association of State Credit Union
Supervisors, or (NASCUS), and will be attending the NASCUS
conference very soon, where I know I am going to hear more on
this issue. I will study it and the recommendations that have
been made by the outside consultant, and it would be my intent
to be a very prudent steward of the resources and to run a lean
and efficient agency.
Senator Johnson. Very good.
Ms. Matz, any observations you would share with us on this
issue?
Ms. Matz. I too have met with several of the State
regulators and executives from State-chartered credit unions,
and have heard a great deal about this issue. I told them that
I would study this issue carefully. The Board does not have to
act on this issue for another couple of years, so it is not an
issue that I have looked into in depth, but I will, and I would
be happy to work with you and your staff before we come to any
agreement about how we are going to proceed.
Senator Johnson. I think that is all that can be asked for.
I appreciate your observations on both the substance of the
rate and the transparency issue on process, and there is no
question that this is an issue that will continue to be with us
for some time. I have a great deal of confidence that you both
will apply your best energy and thought to this issue. Thank
you.
Chairman Sarbanes. Thank you, Senator Johnson.
Senator Gramm.
Senator Gramm. Mr. Chairman, Senator Johnson--I know her
mom is here. I do not know what other family members have come.
I wanted to give her an opportunity to introduce her mother and
whoever else is here that she would like to introduce.
Ms. Johnson. Thank you, Senator.
I would like to introduce Jean Johnson, who is sitting here
in the front row. And I will introduce one other Iowan who I
have with me. Julie Starnes will be joining me at the NCUA
staff, so I am pleased to have Julie here as well.
Chairman Sarbanes. We are pleased to have both of them
here.
Senator Gramm. I have always thought that a candidate
supported by their mother must be all right.
[Laughter.]
Chairman Sarbanes. One not supported by their mother is
certainly not the right one.
[Laughter.]
Senator Gramm. If your mother is not with you, you would
better check your hand. I remember once I was debating Claude
Pepper--you remember old Claude? And we were talking about
Medicare, which is an excruciatingly difficult subject, and I
got this note from the cloak room that I had a telephone call.
So I walked to the cloak room, and my mother was on the phone.
She says, ``When that sweet Claude Pepper's talking, you shut
up and you listen to what he's got to say.''
[Laughter.]
Senator Gramm. Of course, Claude Pepper was as wrong as he
could be.
[Laughter.]
Senator Gramm. But I shut up and listened to what he had to
say.
Mr. Chairman, I do not have any questions. I just would
have this observation. At the beginning of every Congress, I go
back and read the Constitution. I have always thought if I were
on a regulatory body, that every 2 years I would go back and
read the Act that established that body and set the rules.
I would have to say that my dealings with credit unions
have been very positive in my career in the Senate. The credit
union in the modern era is an unusual entity in that it is a
cooperative. It was established for a specific purpose. As I
like to say, everybody should have an opportunity to join a
credit union, but they ought not to have an opportunity to join
the same credit union. So, the whole scope of membership is a
very difficult issue, and it is an issue that it seems to me
that you have to go back to the founding principles and judge
things on the basis of them.
Another issue is the role of credit unions. One of the
problems with any institution is that it tends to move away
from its original objective. And I think it is something that
in your capacity, you need to watch very closely. I would have
to say my State has a very large number of credit unions. Our
credit unions perform excellent service, and I think they are
basically safe and sound institutions.
But, it is very important to look at the scope of
membership issue. You had the question from Senator Johnson,
basically related to the insurance fund, and it is never
popular to raise fees. It is always popular to lower them. But,
your mandate is to try to figure out what is in the public
interest, and whatever is in the public interest will
ultimately be in the interest of credit unions.
So I look forward to working with you.
Thank you, Mr. Chairman.
Chairman Sarbanes. Thank you very much, Senator Gramm.
I would like to first pursue one of the points Senator
Gramm mentioned. This Committee moved quickly in 1998 with the
Credit Union Membership Access Act after the credit union
movement faced, in a sense, a very difficult decision handed
down by the Supreme Court that might well have--I mean, the
predictions of the impact on the credit union movement were
quite strong, and I think probably correct.
That legislation, which provided a statutory basis for the
multiple common bond, which is now in practice, also included a
number of safety and soundness reforms which were based upon
recommendations from the Treasury Department as a consequence
of a very detailed study. Those included establishing of
statutory capital standards for credit unions, and a system of
prompt corrective actions to enforce those standards. Have you
had a chance to evaluate how well that aspect of that
legislation is being carried out, the safety and soundness
reforms? Senator Johnson?
Ms. Johnson. In our early weeks as members of the board, we
have dealt with some prompt corrective action situations. So
from the little that I have seen, yes, there is the opportunity
to be--you know, to act quickly and to take corrective action
as needed. To give an in-depth on it would be premature for me
to say.
But safety and soundness is bottom line. It is why we are
there, and I think the things that are in place are adequate as
far as I can see at this point.
Chairman Sarbanes. Ms. Matz.
Ms. Matz. I would agree. At our board meeting just
yesterday, the board voted unanimously to receive quarterly
call reports instead of semiannual call reports, so that the
data can be monitored more closely. And the prompt corrective
actions, as far as I can see, are working well.
Chairman Sarbanes. I just want to underscore, that was a
package at the time, and the safety and soundness provisions
that were included in the legislation did not come out of thin
air. They were the result of a very careful study by the
Treasury Department. So we are anxious that part of the
legislation also receive attention.
I want to ask you a more far-reaching question. Let me set
the premise a little bit. Credit unions benefit from
significant tax and regulatory benefits that are not available
to banks and thrifts, when you look at the range of financial
institutions. They are tax-exempt. They have a separate,
independent Federal regulator and a separate deposit insurance
fund. And, of course, we hear about this from others from time
to time.
The basis for doing this, at least in the perception of
many, is that because they have a particular mission with an
important public benefit in terms of meeting the consumer
credit needs of people that otherwise might not have access,
that they are entitled to this special status.
Now on the part of some of the credit unions, they have
recently been seeking significantly expanded powers, reductions
in regulatory limitations--for instance, unlimited authority to
offer their members business loans, either elimination or
significant weakening of the common bond requirement, which is
what we passed after the Supreme Court really raised a very
difficult barrier. NCUA has been very liberal in allowing the
community credit charter to be used over an expansive
geographical area. For example, it has allowed a community-
chartered credit union to define the entire city of San
Francisco as its community.
Do you feel there is any perception in the industry--and I
would ask you all whether you perceive--that there is a tension
between these two things? The more credit unions push to become
like other financial institutions--in other words, move out of
the mold that has been set for them--then the more difficult it
is to justify special status in terms of taxing and regulating.
After all, if they are going to end up being like and
behaving like any other financial institution, a bank or a
thrift, then why shouldn't they be subjected to the same
framework of treatment as a bank or thrift? Do you have any
views on that issue, either yourself or any view on whether the
industry understands or perceives a growing tension in this
regard?
Ms. Johnson. Senator, I dealt with the same tension on the
State level, especially while chairing the Ways and Means
Committee. The tax issue was there all the time. I used to call
it kind of the turf battle between the financial institutions.
And in my capacity as chair, I did do things for the banks. We
did Subchapter S legislation under my tenure, and I dealt with
tax issues for the banks. At the same time, I have always felt
that the credit unions deserve their tax-free status because of
the way that they are structured. They are a nonprofit
cooperative, and under that structure, I still believe that the
tax-free status is still applicable.
You are right that there will always be that continued
tension as each tried to fight out that turf. But credit unions
do still have a restricted field of membership, and to that end
they do have restrictions on them that other financial
institutions do not have.
Chairman Sarbanes. Ms. Matz.
Ms. Matz. Well, you are raising several issues that
confronted the board at our first meeting on February 7, just
after I had arrived at the board on January 23; particularly
the issue of what constitutes local, and how big should credit
unions be.
At that meeting, I abstained on a vote of converting a
credit union to a community charter because I just was not sure
of what the Congressional intent was on the word local. I had
asked our attorneys what the legislative history was, and was
advised that there is no legislative history on the word,
local. So perhaps this Committee can give us some guidance on
that.
But you are raising an issue that we are trying to deal
with, trying to decide what is local and what are common bonds,
and I will work with this Committee to try to come to some
determination on those issues.
Chairman Sarbanes. Let me just throw into the mix. It is my
own view that the more the credit unions seek to be like other
financial institutions in the range of their powers and in
their membership, that they begin to undercut or weaken the
argument that exists to give them differential tax and
regulatory treatment. I mean, otherwise you are creating a
situation in which particular institutions have these tax and
regulatory benefits and yet on the operating side--they
eventually would be behaving just like any other financial
institutions. And, of course, those institutions say, why
should we be placed in this competitive situation? Either give
us the tax and regulatory benefits, or treat them in that area
the same way that we are treated.
I am in favor of the bargain that was struck, which is to
carry through on what I think is the basic purpose of the
credit union movement, and I think is the underlying rationale
for this tax and regulatory treatment. But it can create a
tension, and I am just interested whether you perceive that the
industry is aware of that. Do you have any sense whether they
perceive that there is a tension there?
Ms. Johnson. Senator, one of the things that we are really
focused on is, we have dealt with some of these community
charters, really delving into the business plan that they must
present on how they are going to serve this community. And for
those that want to add an underserved area in particular,
paying attention to how do they actually intend to serve this
underserved area. That is a requirement, and that is under our
purview, and I assure you that that will be given the strictest
attention.
Senator Gramm. Mr. Chairman, one other provision was
included in the bill responding to the Supreme Court decision.
And that was, for the first time in a formal way, we set a cap
on the amount of business lending that credit unions could do.
I identify very much with what the Chairman is saying. I tried
to make it clear to all my credit union people that ultimately
you have to decide. If you want to do a bunch of commercial
lending, you do not want to be in the credit union business.
I know there has been a bill in the House that would raise
the limit of commercial lending, I think it is 12\1/2\ percent
under our bill. I am very much opposed to that bill in the
House. My view is credit union commercial lending should be
very narrow, and it should be focused very strictly and very
tightly defined on their members. I think if credit unions are
going to get into very substantial commercial lending, they are
running right out from under their charter. And I do believe
that the board needs to take a good, hard, dispassionate look
at this field of membership issue. Because again, I think it is
very important that everybody have an opportunity to join a
credit union, and the field never should be so narrow that that
is not the case.
But it is the natural tendency of institutions to want to
grow and prosper. I think it is very important that this
lending cap on commercial lending be very narrowly defined,
that we do not let institutions get around it. And it is very
important to keep an eye on this scope of membership issue.
Because I agree with the Chairman that in the end, if you are
going to get the benefits of being in the credit union
business, you have to be a credit union.
You could almost say a partnership is nonprofit, in the
sense that the benefits go to the partners. So, I do not think
that in and of itself is enough to justify the tax exemption.
It has to be carrying out the original mission of the law, and
that original mission was to primarily provide consumer lending
on a cooperative basis where people pool their resources and in
the process got access to credit.
I do think there is a real market out there for credit
unions in that particular area. But there is this very real
temptation to get off into other areas, and again there is a
limit--I do not know how you would define it, but I think I
would know it when I see it--where you get out of the credit
union business and into commercial lending on the equivalent of
a bank or a thrift.
Probably, given you all have been on the job a short period
of time, these are the two most profound issues related to
credit unions. We probably are not fair putting you on the spot
about it. But these are very real issues, and they are things
we were concerned about when we wrote that law.
Chairman Sarbanes. My own perception is that this issue
tends to be driven by a few large credit unions with a very
highly active management, and they are driving this thing. I
think most of the credit unions are staying within the original
charter purposes. But it is an important issue, and as Senator
Gramm says, we really do not expect you to give us a long
disquisition on it now.
I do want to note that the U.S. credit union movement has
been involved in trying to help develop credit unions abroad in
countries that are not well-served in terms of their financial
institutions. That is a very constructive initiative, and it
obviously has to be done carefully. But they are in a position
maybe to make a real contribution in that regard. We had a
hearing here on remittances for Mexico and Latin America, and
one of the ways of trying to address this was to see if we
could not strengthen the credit union movement in those
countries.
I have one final question, and it really tracks again
something that Senator Gramm said at the outset. I am
interested in your view of the mission of the NCUA. Should it
be an independent regulator of the credit union industry, a
promoter of the credit union industry, a combination of both?
Do you have any view on that?
Ms. Johnson. The NCUA is the regulator, first and foremost.
Do I believe in credit unions? Absolutely, but I am not their
cheerleader. I am there to regulate, and I know that decisions
that I make are not always going to be what they want to hear.
But my decisions will have to be what I believe is best for the
industry.
I am interested in moving the industry forward and to meet
the changing needs of their members, because we do have
changing needs in this day and age. We saw how September 11
changed things so drastically in a short period of time for a
lot of industries, including the financial industry. So we have
to be up to speed and I think we have to be able to deal with
things on a very quick turnaround. But I am there to regulate,
and that will be my mission.
Chairman Sarbanes. Ms. Matz.
Ms. Matz. I would agree with that. Safety and security of
the credit unions is clearly our first priority. To the extent
we can help credit unions achieve safety and soundness, that is
our mission.
Chairman Sarbanes. Thank you.
Senator Gramm and I have been on this Committee long enough
that we had to clean up the savings and loan situation, which
cost the taxpayers hundreds of billions of dollars. That was
just a breakdown altogether. You cannot go through that
experience without being mindful of the safety and soundness
considerations.
Thank you both very much. We have some hearings scheduled
for next week, which will be the last week before the recess. I
am hopeful we can arrange to put these nominees on one of those
hearing dates, and schedule a short business meeting to move
these nominations forward. We are anxious to get you fully in
place.
Thank you very much. The hearing is adjourned.
[Whereupon, at 4:10 p.m., the hearing was adjourned.]
[Prepared statements, biographical sketches of the
nominees, and additional material supplied for the record
follow:]
PREPARED STATEMENT OF SENATOR TIM JOHNSON
Mr. Chairman, thank you for moving forward so quickly with the
confirmation of Deborah Matz and JoAnn Johnson to the NCUA Board. It is
critical that we move as quickly as possible to get these oversight
positions filled, and strong supervision of our Nation's financial
institutions is of particular importance.
It is a special pleasure for me to be here today to welcome nominee
Matz before the Committee. I have known Debbie and her husband Marshall
for many years, and I am confident that Debbie will make a superb NCUA
board Member. In fact, Mr. Chairman, I know that you know her abilities
and reputation firsthand because of her service as a member of the
Joint Economic Committee during your tenure as Chairman. In continuing
her long and distinguished public service career, Debbie served as
Deputy Assistant Secretary of Agriculture for Administration, filling a
very important role of overseeing the administration of the Department
of Agriculture's day-to-day operations.
I would like to take just a moment to thank the nominees for their
willingness to serve on the NCUA Board. I am confident both of you
could earn much higher salaries in the private sector, and we are
grateful to you for your commitment to public service.
Mr. Chairman, credit unions and the financial services industry
have changed dramatically since the founding of the NCUA in 1970.
Today, over 10,000 credit unions with over $480 billion in assets serve
more than 79 million people in the United States with a broad array of
services--from basic savings accounts, to credit cards, to home
mortgages. Yet at the same time, the basic mission of credit unions
remains the same: to serve their members. Credit unions enjoy a
tremendously loyal customer base, and most credit unions work hard to
create an environment where members feel comfortable doing business.
Unfortunately, I have several commitments this afternoon that will
prevent me from staying to the end of this hearing. But there is one
issue that I would ask the nominees to address either during the
question and answer period or in a written submission to the Committee.
Many State-chartered credit unions have expressed concern over the
process by which the NCUA establishes its overhead transfer rate. As I
understand it, the overhead transfer rate is the amount of money taken
out of the ``Share Fund'' to pay for the NCUA's insurance-related
activities. Historically, NCUA has estimated the transfer rate at 50
percent. Recently, however, it raised the rate to 67 percent, and then
lowered it to 62 percent.
The NCUA's overall budget is funded partially by exam fees from
Federally chartered credit unions and partially by the Share Fund. When
the transfer rate is increased, two things happen: (1) the Share Fund
provides a larger proportion of the NCUA budget; and (2) exam fees for
Federally chartered institutions go down because exam fees end up
representing a smaller proportion of the NCUA budget. State chartered
credit unions have expressed concern about the increase to 62 percent
on both substantive and procedural grounds. I would like to hear your
thoughts on the current overhead transfer rate. In addition, do you
believe changes should be made to the way the NCUA Board develops the
transfer rate? Should there be more transparency in the process?
Once again, Mr. Chairman, thank you for holding this hearing, and
thanks to our two witnesses for their willingness to appear before us
today.
----------
PREPARED STATEMENT OF CHARLES E. GRASSLEY
A U.S. Senator from the State of Iowa
March 14, 2002
I am glad to have the pleasure to introduce JoAnn Johnson today as
one of three Bush Administration nominees for the National Credit Union
Board. JoAnn Johnson and I have a lot in common. We are both alumni of
the University of Northern Iowa and alumni of the Iowa State
Legislature. We were both raised on farms, and grew up with an
appreciation for the unique way of life in Iowa.
JoAnn Johnson has been serving the State of Iowa since she became a
dedicated teacher and coach for Adair-Casey High School in Adair, Iowa.
Not only was she teaching physical education classes, but she also was
teaching Sunday school and helping youth in the 4-H club.
Since 1994, JoAnn Johnson has consistently displayed her leadership
talents in the Iowa State Legislature. She was named Chair of the State
Senate Commerce Committee for the 29th General Assembly. As Chair of
the Iowa Senate Ways and Means Committee, Senator Johnson helped reduce
the tax burden for Iowans by over $700 million. She restructured the
utility property tax system, and cochaired a 2 year interim committee
on State tax structures. In 1999, JoAnn Johnson was named Senator of
the Year by the Associated General Contractors of Iowa.
Not only is she a leader, but JoAnn Johnson is a listener. She
makes sound judgement after hearing both sides of the issue. She is
dedicated to the ``people-helping-people'' philosophy. As credit unions
exist solely for the purpose of serving their members, I am confident
that JoAnn Johnson will act in the best interest of all credit unions
and the communities they serve. She is a voice that is right for the
National Credit Union Board.
Thank you.
----------
PREPARED STATEMENT OF JOANN JOHNSON
Member-Designate, National Credit Union Administration
March 14, 2002
Mr. Chairman, Senator Gramm, and distinguished Members of the
Committee, thank you very much for the opportunity to appear before you
today as a nominee for the Board of the National Credit Union
Administration. I am deeply honored to have been nominated by President
Bush to serve our country in this way, and I am grateful for the
attentive consideration this Committee has given me since the President
forwarded my name to you for your consideration.
I want to thank Senator Grassley for all he has done on my behalf,
introducing me to the Committee and advising me throughout this
nomination process. I also want to thank NCUA Chairman Dennis Dollar
for all his assistance and my new colleague, Deborah Matz for her
camaraderie as we travel a common course together. I also want to
acknowledge the constant support of my husband, Brian.
In accepting the President's recess appointment on January 22, I
traded in my legislator duties as an Iowa State Senator for regulator
responsibilities--and having been a legislator, I appreciate and
respect the distinction between the two. I learned the skills of a
legislator and the need to hear all sides of an issue and chart a
course to an equitable solution. I will be continuing that policy at
NCUA, if confirmed, and consultations with Congress will also be an
important part of the deliberative process I shall engage in as a NCUA
Board Member.
I do not bring an agenda with me to this position, but I do have
some standards that will guide my actions as a regulator:
I want to be sure NCUA's core duties are done extremely well;
maintaining a robust share insurance fund and an effective
supervision program--critical elements to the independent credit
union movement in my opinion.
I want to emphasize the wise use of resources at NCUA.
I want to be responsive to credit unions to develop prudent
decisions that meet the needs of a dynamic and growing industry.
In my few weeks on the NCUA Board, I have spent much of my time
meeting with NCUA office directors, studying NCUA programs, and meeting
with other
interested parties to gain a fair assessment of the larger credit union
picture. The consultations I have had with you, Mr. Chairman, and other
Members of the Committee in preparation for this hearing have been
valuable to me as I assess the challenges ahead.
My Iowa background encompasses a background in family agriculture,
education, and community service. I also served nearly 8 years in the
Iowa Senate. I was privileged to chair two committees, the Ways and
Means Committee and the Commerce Committee. My duties called on me to
address and negotiate diverse issues concerning tax and budgeting,
commerce, financial institutions, and economic development.
Consequently I believe I bring the necessary skills with me to judge
fairly the important policy issues that will come before me at NCUA.
I know this Committee is looking for the Board to exercise good
judgment. That means maintaining a safe and sound credit union
financial system, which is exactly what we have inherited and what I am
committed to maintain and bequeath to my successors.
With so many people continuing to join credit unions around the
country, more Americans, whether they know it or not, depend on the
regulatory decisions and systems that assure quality and integrity
nationally. Well-run credit unions that efficiently provide consumer
financial services in today's diverse marketplace are an essential and
vital part of the financial community in the United States providing
members credit for provident and productive purposes--just as they have
done since they began to fill those needs at the beginning of the last
century.
Mr. Chairman, thank you for the opportunity to appear before the
Senate Committee on Banking, Housing, and Urban Affairs today. I am
honored to be here and I pledge to work closely with you and Members of
this Committee and the Congress during my term to ensure the continued
health and sound policies for the Nation's credit union system.
PREPARED STATEMENT OF DEBORAH MATZ
Member-Designate, National Credit Union Administration
March 14, 2002
Chairman Sarbanes, Senator Gramm, Members of the Committee, I
appear before you today as a Board member and nominee to the Board of
the National Credit Union Administration. With me today is my husband,
Marshall Matz, and our son Peter, a sophomore at Langley High School.
Our daughter Hayley, a junior at Tulane University, is listening to us
online.
Mr. Chairman, first and foremost, I would like to thank you and the
Committee for conducting this hearing so quickly after my nomination,
especially given your full agenda. I appreciate the counsel and support
that I have received from your staff, Steve Harris, Marty Gruenberg,
and Judith Keenan, in particular.
I am especially grateful to the distinguished Senate Majority
Leader, Senator Tom Daschle, for recommending me, and to President Bush
for nominating me, to this position. Senator Daschle's support and
confidence is deeply appreciated.
I would like to thank NCUA Chairman Dennis Dollar and my fellow
Board member and nominee, JoAnn Johnson, for their warm welcome and the
spirit of professional collegiality that already exists on the Board.
And last, but not least, I want to thank the talented staff at NCUA who
have provided thorough briefings and insight on the many functions of
this independent agency.
Mr. Chairman, if confirmed, I will bring to the NCUA Board over 20
years of public sector experience. For 9 years, I served as an
Economist with the Joint Economic Committee of Congress, followed by 7
years as a Presidential appointee at the U.S. Department of Agriculture
(USDA). While at USDA I chaired the Loan Resolution Task Force, created
to resolve delinquent farm loans in excess of $1 million. When I was
appointed to the Task Force, the portfolio was over $1 billion in
principal; when the Task Force ended, we had resolved virtually all of
the loans that were not encumbered by litigation or bankruptcy
proceedings.
What type of Board member and regulator do I hope to be? I will
have several guiding principals:
I will work hard to ensure that credit unions remain safe and
sound financial institutions.
As a member of three credit unions, I will be dedicated to the
goals and purposes of the original enabling legislation. I strongly
identify with the ideal of helping working people and others who
are not being served by traditional financial institutions.
I will strive to be recognized as a fair and thoughtful
regulator--one who realizes the value and necessity of regulation
while being sensitive to the needs of those who are being
regulated.
If confirmed, I will work closely with all Members of this
Committee, and all Members of Congress, to ensure the financial
integrity of credit unions in a changing environment.
In closing, I consider credit unions to be the ``jewel'' in the
crown of the financial service sector. I will work diligently to
protect this precious jewel; to end predatory loan practices; and to
extend the benefits of credit unions to all eligible Americans,
particularly the underserved.
Mr. Chairman, thank you again for the opportunity to appear before
you today. I would be pleased to answer any questions that the
Committee may have.
NOMINATION OF:
ANTHONY S. LOWE, OF WASHINGTON
TO BE ADMINSTRATOR
FEDERAL INSURANCE AND MITIGATION
ADMINISTRATION OF THE FEDERAL
EMERGENCY MANAGEMENT AGENCY
----------
WEDNESDAY, MAY 8, 2002
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:20 a.m. in room SD-538 of the
Dirksen Senate Office Building, Senator Paul S. Sarbanes
(Chairman of the Committee), presiding.
OPENING COMMENTS OF CHAIRMAN PAUL S. SARBANES
Chairman Sarbanes. The heairng will come to order. I
apologize, Mike, and also to the nominee, but I ran into a bad
backup on the Baltimore-Washington Parkway on my way in.
Before I do my opening statement, I will go directly to
Senator DeWine, who is here to introduce Anthony Lowe. I know
he has other conflicting engagements and we can take care of
that and you can go on about your business.
STATEMENT OF MIKE DEWINE
A U.S. SENATOR FROM THE STATE OF OHIO
Senator DeWine. Mr. Chairman, thank you very much. As
someone who lives in Annandale, Virginia, when I am out here, I
understand about the traffic backups and what can happen.
It is my pleasure today to introduce Anthony Lowe, to be
the
Administrator of the Federal Insurance and Mitigation
Administration at FEMA. Let me first welcome his wife, Angela,
his daughters, Ashton and Ariana, his mother, Betty Harris, his
brother, Rev. Paul Lowe, his mother-in-law, Barbara Barry, her
husband, Mohamado, and father-in-law, Thomas Caldwell, who are
all seated here behind me.
Chairman Sarbanes. Well, we are very pleased to have the
family here. Why don't you all stand up so that we can
acknowledge you.
Very good. Thank you all for coming.
Senator DeWine. Mr. Chairman, let me just take a moment to
tell the Committee about Anthony's background and
qualifications. In 1982, Anthony graduated from the University
of Washington with a degree in international political science.
He went on to receive his law degree from the University of
Santa Clara in California. He has studied law in Singapore and
also in China.
Prior to working directly for me and on the Judiciary
Committee, Anthony was a Land Planning Commissioner for the
City of Redmond, Washington, from 1994 to 1996. In this
position, Anthony had an opportunity to really apply many of
the land use planning guidelines that are now administered by
the Federal Insurance and Mitigation Administration.
He served a number of years, Mr. Chairman, as my Senior
Legislative Counsel on the Antitrust, Competition, and Business
and Comsumer Rights Subcommittee of the Judiciary Committee.
Let me just ask the Committee to submit the rest of my
statement, make it a part of the record. I just want to
comment, if I could, Mr. Chairman, and share with you my
experiences with
Anthony.
Chairman Sarbanes. The full statement will be included in
the record.
Senator DeWine. I appreciate that very much. This is an
individual who I have worked with on a daily basis closely for,
as I said, a number of years. He is someone who every single
day gets the job done. Candidly, many times I never knew how he
got the job done. But he has great people skills, Mr. Chairman,
and you can appreciate that with the people who help you get
your mission done and achieve what you want to achieve every
day.
Anthony was someone who I would talk to about issues in
broad concept, and he would go out, put the legislation
together, and see that it got passed. That is the type of
leadership ability he has. And, as you know, to survive around
here, not only do you have to have good ideas and good
analytical ability, and serving on the Judiciary Committee, you
have to be a good lawyer. But, you also have to get along with
people, and you have to know how to deal with people. And, you
have to have some management skills. Anthony has these things.
And so, I know that for this position and, candidly, for any
position that Anthony would be nominated for, he will do just a
fantastic job.
I want to submit my written statement, which goes into a
lot more detail, to the Committee and thank you for your
courtesy and for considering Anthony for this very important
position.
Chairman Sarbanes. Well, thank you very much, Senator
DeWine, for a very strong statement. I have always been
impressed by the effectiveness and skill of Senator DeWine in
dealing with some complex issues. And I am pleased this morning
that we are uncovering the basis on which he was able to do
that.
[Laughter.]
Senator DeWine. That is true, Mr. Chairman.
[Laughter.]
My concern, if I could interject, is where I go from here.
[Laughter.]
But we will see. Maybe my true ability will be uncovered
now. So, I thank you.
Chairman Sarbanes. Thank you very much.
This morning, the Committee is considering the nomination
of Anthony S. Lowe, to be the Administrator of the Federal
Insurance and Mitigation Administration, called FIMA, at the
Federal Emergency Management Agency, called FEMA. So we have
FIMA inside of FEMA here, and I want to welcome Mr. Lowe and
his family here today.
Anthony Lowe is no stranger to public service. From 1997
until this nomination, he was Senior Legislative Counsel with
the U.S. Senate Judiciary Committee's Subcommittee on
Antitrust, Competition, and Business and Consumer Rights, as we
have just heard from Senator DeWine. Before joining the
Subcommittee, he served the citizens of his home State of
Washington in a number of positions--Deputy Prosecutor for King
County, member of the planning commission for the City of
Redmond, Legal Counsel for the Washington State Senate, and a
previous tenure here as Legislative Assistant to our former
colleague, Senator Slade Gorton.
Anthony Lowe is a graduate of the University of Washington,
cum laude, Santa Clara University School of Law, and only
recently, he went on to get a degree from the Virginia Union
University School of Theology. So, if all else is of no avail,
he is in a position maybe to bring some divine grace upon us in
solving some of these problems.
[Laughter.]
As Administrator of the Federal Insurance and Mitigation
Administration, Mr. Lowe will have the opportunity to continue
his public service by helping communities prepare to meet some
of their most difficult challenges.
Only last week, we saw in Maryland, when the tornado
touched down, how extensive the devastation from a natural
disaster can be to a community, taking people's lives and
destroying their homes and their businesses.
The Insurance and Mitigation Administration works with
communities around the country to help reduce damages from
disasters like tornados, hurricanes, floods, and fires. Its
assistance has led to increased use of wind-resistant and
water-resistant building designs, elevation of buildings above
flood levels, adoption of stricter building codes and more
disaster-sensitive land-use planning.
FIMA also runs the National Flood Insurance Program. There
was a reorganization, in which they put together the Federal
Flood Insurance Program and the Mitigation Administration. So
both of those now would be under Mr. Lowe's jurisdiction.
The National Flood Insurance Program was created in 1968 in
response to the lack of such insurance being offered by the
private sector. This program made flood insurance available in
the communities that adopted flood plain management regulations
designed to reduce future damages from flooding, and it is now
available in over 19,000 participating communities nationwide.
The availability of flood insurance helps Americans prepare for
floods, while reducing the need for Federal disaster assistance
after the flood. And the improved flood plain management
techniques adopted by communities participating in the program
have led to a significant reduction in both the number of
losses and the cost of losses due to floods.
As FIMA's Administrator, Mr. Lowe will work closely with
communities across the country as they prepare for and respond
to disasters. We look forward in this Committee to working with
him in this very important responsibility. I know that FEMA
Administrator Allbaugh is anxious to have you on the job. He
and I in fact have conversed about it, and so we have tried to
move this hearing up and do it promptly in an effort to try to
get you on the job.
Now, before we take your opening statement, I want to ask
you to stand and take the oath. It is a practice of this
Committee to place our nominees under oath.
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. Lowe. I do.
Chairman Sarbanes. Do you agree to appear and testify
before any duly constituted committee of the U.S. Senate?
Mr. Lowe. I do.
Chairman Sarbanes. Thank you very much. We would be happy
to hear your statement.
STATEMENT OF ANTHONY S. LOWE, OF WASHINGTON
TO BE ADMINSTRATOR, FEDERAL INSURANCE AND
MITIGATION ADMINISTRATION
FEDERAL EMERGENCY MANAGEMENT AGENCY
Mr. Lowe. Thank you very much for holding this hearing so
expeditiously on my nomination for the Administrator of the
Federal Insurance and Mitigation Administration at FEMA.
It is an honor to appear before the Committee. I would like
to express my deep appreciation to President Bush for
nominating me for this position, as well as to Director
Allbaugh, for the confidence and trust that he has placed in
me.
The Nation, particularly since September 11, recognizes the
outstanding leadership of the President and Director Allbaugh,
and it would be my privilege to serve alongside them.
I want to thank Senator DeWine for his kind and gracious
remarks, and for giving me an opportunity to serve the country
as an attorney on his Judiciary Subcommittee staff. Senator
DeWine, former Senator Slade Gorton, the late Judge William L.
Dwyer, the late Marian Diggs and Alice Warinner, have all
taught me to strive for the public good, intellectual
excellence, personal integrity, and then to pass it on, and I
thank them.
I would also like to thank those who support me from day-
to-day and ground me. First, I would like to introduce my wife,
Angela Caldwell Lowe, her father, Thomas Caldwell, my daughter,
Ariana--she is 10 months old--my mother, Betty Harris.
Chairman Sarbanes. I see Mr. Caldwell is carrying out the
responsibilities of a grandfather here this morning.
[Laughter.]
Mr. Lowe. Linda is a close friend of our family from North
Carolina, who accompanied my brother, Reverend Doctor Paul
Lowe. Mohamadou Barry, who is holding my daughter Ashton Lowe,
who is almost 5 years old. My mother-in-law, Barbara Barry, and
a dear friend of mine, Angela Williams, who served with me on
the Judiciary Committee, working for Senator Kennedy. And we
also went through theology school together, both of us being on
staff on the Judiciary Committee, and on the weekends traveling
to Richmond to attend Virginia Union University, School of
Theology.
Chairman Sarbanes. Is there something about the work of
that Subcommittee that drives you to divinity school?
[Laughter.]
Mr. Lowe. I would also like to say something about the FEMA
staff, because a number of them have come. I am not sure if
that is support, but I hope so.
Howard Leikin, the Deputy Insurance Adminstrator at FIMA.
The Acting Director sits behind me, Bob Shea, who is also the
Deputy Mitigation Administrator at FIMA. Both of them have long
years of commitment at FIMA and I appreciate their support and
assistance throughout this process. There are a number of other
FEMA staff also present, and I also appreciate them appearing
as well to show support for me.
If confirmed for this position at FEMA, I would be the
first
administrator of the newly realigned Federal Insurance and
Mitigation Administration. Last August, Director Allbaugh, as
part of the major realignment within FEMA, brought together the
Former
Federal Insurance Administration and the Former Mitigation
Directorate into a single organization, the Federal Insurance
and Mitigation Administration, FIMA.
All of the resources of both organizations are now merged
under the new FIMA, to form a cohesive unit to coordinate the
delivery of the Nation's hazard reduction programs. These
programs have been called the cornerstone of emergency
management since they focus on the protection of life and
property.
As Administrator of FIMA, I would be an outspoken advocate
for the Administration's mission to protect lives and to reduce
the loss of property from disasters. My vision is for the
Federal Insurance and Mitigation Administration to become the
premier all-hazard agency across the Federal Government. I
believe we can do this by building upon our strong public- and
private-sector partnerships to substantially protect our
homeland from the risks of disasters. I have enjoyed my
meetings with both members and staff leading up to this
hearing. If confirmed, it would be my hope to continue the
exchange of ideas we have already begun.
I appreciate the important role this Committee plays, not
only in the passage of our governing legislation, but also in
the counsel you offer to ensure the law reflects its highest
intent and serves the best interests of our Nation. You provide
an invaluable resource that I hope to avail the Federal
Insurance and Mitigation Administration, as I carry out the
duties of this new job.
I am committed to the people's needs. Recently, while
walking the streets of LaPlata, Maryland, I observed firsthand
the tragic destruction and suffering left in the wake of the
April 28 tornado. It reminded me of the absolute necessity to
do the right things for the right reasons and at the right
time. So many people in need depend on us.
In an earlier disaster, I recall being told about a victim
looking at her flooded home and ruined belongings and asking a
simple but profound question: ``Why did they ever let people
build here in the first place?'' Each level of Government must
take stock in answering it. The programs of the Federal
Insurance and Mitigation Administration are working and will
continue to work with State and local governments to reduce
future suffering and prevent losses in areas subject to
hazards. As a Redmond City Planning Commissioner, many of these
programs guided our development decisions to keep our community
from harm's way.
Mitigation and insurance--these are the two pillars of
FIMA. They form the cornerstone of emergency management.
Mitigation is a hard term to define, but I would suggest words
do not adequately express actions that we see when we look at
FIMA.
Mitigation means building safer and smarter in areas prone
to hazards. It means elevating new construction in flood plains
above harm's reach, and in some cases, keeping buildings out of
harm's way by not building in certain areas in the first place.
Where mistakes have been made in the past, mitigation means
removing buildings out of harm's way. It means retrofitting
buildings in the flood plains and in the earthquake-prone areas
to withstand future damage. It means designing and encouraging
safe rooms in tornado alley.
And knowing that our efforts cannot prevent all future
damages from the forces of nature, we have insurance. We are,
after all, east of Eden, and we know we will experience the
inevitable upheavals of nature. So we have insurance to protect
people from financial hardship and ruin after a natural
disaster. Here, we can encourage all property owners to buy
private-sector insurance to cover their losses from wind, fire,
and hail. And because there is a gap in the private sector for
flood coverage, Congress authorized the National Flood
Insurance Program. Through the flood program, FIMA will
continue to provide flood insurance protection to citizens who
are at risk from water disasters. Mitigation and insurance--
they are the people's work.
Last night, I read my daughter Ashton the story of Noah. In
that story, God told Noah specifically how to build the Ark to
ensure the survival of humanity. Mitigation and insurance are
really God's work. It is an honor to be nominated to discharge
these duties for the Nation. With the guidance of Congress, the
support of States and the private sector, and the active
involvement of communities, I believe, together, we can lead
America to prepare for, prevent, respond to, and recover from
disasters.
Again, I thank the Committee and I appreciate your
consideration, Mr. Chairman.
Chairman Sarbanes. Thank you very much. We appreciate your
thoughtful statement. I have a few questions I would like to
ask you. First of all, I want to address FEMA's flood plain
maps.
Mr. Lowe. Yes.
Chairman Sarbanes. Which I think everyone agrees are in
serious need of modernization, since they are the maps that
communities rely on in making decisions about building
locations and the property owners rely on in determining
whether to buy flood insurance. How important a priority do you
think modernizing the FIMA's flood maps are?
Mr. Lowe. For me and for the flood program, it is the
number-one priority. And the reason why it is the number-one
priority is because 25 million people use those maps every
year. They are citizens. They are lenders. They are staff. They
are banks. There are so many people who rely on those maps to
make decisions.
For the insurance program, ratings are set based on those
maps. Two-thirds of those maps are older than 10 years,
probably even older than 15 years, and we have about 2,500
areas which are not mapped at all. And so, this leads to bad
decisions.
It also is the case now, post-September 11, that the detail
that those maps provide can be useful in other areas. And I am
speaking of, for example, homeland security. If we were to
digitize those maps, as the President has called for with his
request for $300 million in additional map funding, we would
have an opportunity to update those maps and automate the
entire process. So on a GIS technology platform, we could begin
to add layers of detail which are helpful for many other
purposes. And so, this is really a high priority, I believe,
for the country.
Chairman Sarbanes. We are encouraged that the President's
budget calls for a significant increase in funding for flood
map modernization. I have talked to Director Allbaugh about
this.
Of course, this is the first installment. It has to be
followed by others if we are going to complete the job. And I
think one of the very important responsibilities that you would
have is, one, to work the money through the Congress, the money
that is in the current budget. Two, then to make sure that
there is money in the next budget. Then to work that through
the Congress. And money in the subsequent budget, work that
through the Congress. How long would it take us, moving at an
intense pace, to get a full set of modern flood maps? Do you
have any idea?
Mr. Lowe. About 3 years. I think 2 to 3 years.
Chairman Sarbanes. Yes.
Mr. Lowe. That is working at a fairly good pace. And I
think a lot of that depends on the decisions that are made
today on the technologies that are used and the method that we
go about mapping in the quickest and most efficient possible
manner.
Chairman Sarbanes. Well, I hope you will keep it as a very
high priority. I think it would be a significant accomplishment
if, under your tenure, we could end up with fully modernized
flood maps. If remapping places more homes in the flood zone,
how will people be notified about that?
Mr. Lowe. The flood program works in cooperation with
communities, with local community flood plain managers and the
like. And so, modernization and digitization of these flood
maps allows us to update the information so we, in fact, know
who is where. Based upon that information FIMA would send a
notice to those people so that they know where they are located
in regards to the flood plain. The community at large including
the flood plain manager and developers would also be involved
in that process.
Chairman Sarbanes. Right. I understand that many at-risk
properties still remain uninsured. In fact, the President's
budget establishes a goal of increasing the number of flood
insurance policies in force by 5 percent in 2003. What actions
do you have in mind to increase participation in the flood
insurance program?
Mr. Lowe. For the flood insurance program, that is a high
priority as well. Obviously, we are not able to spread the risk
and lower costs or even maintain them, unless we are able to
increase policy growth. And so, there are a couple of things
that need to happen.
It is my understanding over the last period of time,
perhaps a year or so, there has been a great deal of attention
on this issue. And one of the things that has been found is
that retention is a major problem. If we look at policy growth
last year, it was 15 percent. So there is a 15 percent
increase, about 600,000 policies, last year. But at the same
time, there is also a loss of about 500,000 policies, if you
will, out of the back end. And so, retention becomes a major
issue.
GAO is also working on a study now dealing with lender
compliance. And it may, in fact, be the case that during the
refinance period, literally, the computer system being used by
the industry may be dropping out, inadvertently, people who
should be insured and, in fact, by law, are required to be
insured. So, if we can begin to fill that hole, that is
helpful. But we also have to continue to educate people and
deliver the message of the importance of prevention and
insurance.
Chairman Sarbanes. I am interested in those figures. Are
there any surveys as to why people are dropping out? Can you
pinpoint the factors?
Mr. Lowe. I do not know if we know all the factors. I have
asked this question and I know that the insurance staff has
been working to try to figure it out. In fact, they have been
meeting. They met last week with our private-sector partners,
and I am sure part of those discussions were trying to
understand with all of our stakeholders the real problems. I
understand there is also a study on that which hopefully will
be out soon. Internally, a working group has also been formed
to figure out what all the causes are so that we can begin to
address them.
Chairman Sarbanes. I think the Committee would be
interested in what your findings are----
Mr. Lowe. We would be happy to share that information.
Chairman Sarbanes. ----when you work through the study, as
to the reason why you have such a significant number who have
flood insurance and then drop it.
Actually, as I understand it, flood insurance is required
for property owners in a 100 year flood plain who hold a
mortgage from a Federally regulated lending institution. The
lenders are responsible for insuring that flood insurance is in
place if it is required and the banking regulators are
responsible for insuring that the lenders are carrying out
their responsibility. Now, we have heard some concern about the
level of compliance with these requirements. Do you have any
view as yet about the level of compliance? And if so, what can
FEMA do to improve compliance?
Mr. Lowe. Yes. As I understand, Congress, in fact, has
asked for a report on this. I know GAO is working on that
report on lender compliance and I understand that that is
supposed to be done at the end of May. I am not in a position
to know as yet what those findings may be. I certainly have not
seen any drafts. It is clear, though, that FIMA is not in a
position, has no regulatory authority in that regard. So we are
relying on lending regualators to really enforce those
provisions. We want to work with them, to be helpful as we can.
I am hopeful that I can begin to engage them if I am confirmed,
so that there is closer coordination, so we all understand what
we need to do and what needs to be accomplished.
Chairman Sarbanes. Well, if these requirements are not
being met, we really need to tighten that up. I would hope that
that is something you could review in short order and see what
can be done.
Mr. Lowe. Certainly, Senator.
Chairman Sarbanes. I wanted to ask about the relationship
between subsidy reduction and mitigation activities. Properties
that were built before a flood map was available for the
properties' location pay a subsidized premium for flood
insurance. There have been proposals made either to reduce or
eliminate that subsidy.
Now, the difficulty is if you reduce or eliminate the
subsidy without increased mitigation funding, it could result
in significantly higher premiums that would put a substantial
burden on policyholders who may not be able to reduce their
risk or move without substantial mitigation assistance from
FEMA. Now these were properties that were there before we ever
put the current framework into place, so they have always
gotten, in a sense, a special treatment. But it is a
recognition that they were there, in a sense, ahead of time.
What is your view about this problem?
Mr. Lowe. This is a serious issue. It has, in fact, been
around for some time. But it is something that needs to be
resolved. There are about 1.2 million insurance policies in the
flood program that are subject to the subsidy that you referred
to. We started out, I understand, with about 100,000
historically, when the program was
created, which was really kind of an agreement with local
communities that we would subsidize those policies if we gained
their participation in the management of the flood plain. Those
policies pay between about 35 to 45 percent of the actuarial
rate for flood insurance. So the subsidy is fairly high.
As you know, the Administration has recommended in its
budget to begin to reduce that subsidy on homes that are
nonresidential, vacation homes and the like, over a period of
time. Obviously, that is something that would have to occur by
working with Congress and figuring out what such a time might
be.
There is an issue as it pertains, particularly to
residential homes, perhaps a little less on vacation homes, as
to the impact on renters who may be renting a vacation home as
a permanent residence. And that is an issue that is perhaps not
as much an insurance issue, but it is a housing issue and it is
an issue that the director is concerned about.
Currently, there is a report that is being prepared that
deals with the demographics of people who would be subject to
subsidy reduction and what the impact of that would be on HUD's
programs. And so, the director is very concerned about that, as
I am as well. This is something that we want to work with
Congress on to make sure that we do the right thing by all who
are involved.
Chairman Sarbanes. Yes, this is a complex issue and we need
to proceed in a very prudent way in addressing it. It needs to
be addressed, but we could create lots of problems if we do not
do it correctly. And we look forward to working with you on
that.
I want to ask you about the President's proposal to replace
the post-disaster hazard mitigation grant program with a new
$300 million competitive grant program for pre-disaster
mitigation, as I understand it.
Mr. Lowe. Right.
Chairman Sarbanes. And this is in lieu of, rather than in
addition to, or complementary to, as I understand it. The
concern I have is that FEMA's post-disaster mitigation program,
which has been its primary mitigation effort, took advantage of
the window of opportunity that exists in the post-disaster
environment, to get local cost-sharing on projects and, perhaps
more importantly, to get a kind of motivation to undertake
these mitigation activities. Now, with a pre-disaster program,
would this opportunity to get mitigation activities undertaken
be lost?
I am in favor of doing pre-disaster mitigation so you do
not have the disaster and the damage. On the other hand, I
really prefer to see it as in addition thereto, so that we
still have some money or commitment to do post-disaster
mitigation, when localities and their constituents may be
significantly more disposed to do something. And that is
certainly been the experience in my State. We have found people
much more willing to undertake significant mitigation efforts
in the aftermath of a disaster. It is not exactly the best way
to do it, but dealing with the human temperament, I do not know
that we want to just close that aspect out and throw it all
into pre-disaster mitigation. Do you have any thoughts on that?
Mr. Lowe. Yes, I do. The budget did suggest that. The
director has been clear on the record, in hearings, as well as
with me directly, that he strongly believes that we need both,
and there should be a balance. So that is my charge. In walking
the streets of LaPlata and beginning to really look at how the
community itself was coming together and people were helping
each other to sift through the rubble and to begin to try to
put their lives back together again, it was clear that there
was a community of people who were ready to take some action to
prevent this harm in the future.
I have given your staff a little briefing packet on the
damage at LaPlata. And when you look at that, what you begin to
see is there are some fairly straightforward and, I would
suggest, simple things that can be done to avoid substantial
damage. But right now, there is an opportunity. The Hazard
Mitigation Grant Program has been, as you know, made available
to Maryland for mitigation activities, and I know that some
folks from FIMA are in Maryland to begin to talk to
communities, to people, homeowners, businesses, about some of
the steps, particularly as it pertains to building
construction, that can be taken to mitigate future harm. And
so, this is exactly the balance that needs to occur.
As you mentioned, for example, as it pertains to subsidy
and repetitive loss properties, we are again talking about pre-
disaster. And again, those pre-disaster mitigation funds can be
very helpful. So, again, that is an area where pre-disaster
mitigation is important, as well as post-disaster mitigation.
Chairman Sarbanes. Well, I do want to express our
appreciation to you for moving quickly on the LaPlata
situation. Obviously, I was there the day after and saw the
extraordinary damage that was done. We know you are in there
now working closely with them under the Mitigation Grant
Program so that they undertake long-term hazard mitigation
methods.
These materials that you prepared, the LaPlata tornado
damage survey and other materials, are extremely helpful. And
we look forward to working very closely with you on this
particular effort right now. The governor, of course, was there
only yesterday and made a major commitment of State funds. And
we have an opportunity to use this disaster to really help the
community to come back. They have been badly battered and the
fact that FEMA was in there very quickly was important in
helping to boost people's attitudes about what the prospects
are.
But we do not want to let down on that effort. It is, of
course, right at hand, so there is an opportunity, really, for
people right in central headquarters to, as you did, actually
get out there and see it, and also, to keep tabs on it. So, we
may have a chance here to really show how this should be done,
a kind of test-case example. I encourage you on the efforts.
The other thing is, once you have been in the position for
a while, we may want to come back and do an oversight hearing.
I am not going to take the time this morning to look at the
extent of the financial exposure that exists and to analyze
that in terms of the coverage of the insurance in force, the
premiums, the balances and so forth and so on. But that all, of
course, also needs to be looked at.
But we are anxious to get you on the job. I am hopeful I
can get the Committee to move this nomination in the near
future, over the next couple of weeks, I would hope, and so we
can get you into place--well, hopefully, sometime this month. I
would like to get that done, so you can forget about the
confirmation process. You cannot forget about the Senate, but
you can forget about the confirmation process.
Mr. Lowe. We will not forget about the Senate. Thank you,
Chairman Sarbanes.
Chairman Sarbanes. And get on about your business.
The hearing stands adjourned.
Mr. Lowe. Thank you.
[Whereupon, at 11 a.m., the nomination hearing was
adjourned.]
[Prepared statement, biographical sketch of the nominee,
and response to written questions follow:]
PREPARED STATEMENT OF MIKE DeWINE
A U.S. Senator from the State of Ohio
May 8, 2002
Mr. Chairman, I am pleased that this Committee is considering the
nomination of Anthony S. Lowe for Administrator of the Federal
Insurance and Mitigation Administration (FIMA), at FEMA. I welcome his
wife, Angela; his daughters, Ashton and Ariana; his mother, Betty
Harris; his brother, Reverend Paul Lowe; his mother-in-law, Barbara
Barry; and her husband, Mohamadou.
I would like to take a few moments to tell the Committee about
Anthony's background and qualifications. In 1982, Anthony graduated cum
laude from the University of Washington with a degree in international
political science. He went on to receive his law degree from the
University of Santa Clara in California, and he has studied law in
Singapore and China.
Prior to working for me, Anthony was a Land Planning Commissioner
for the City of Redmond, Washington from 1994-1996. In this position,
Anthony had an opportunity to apply many of the land use planning
guidelines that are now administered by the Federal Insurance and
Mitigation Administration. He served as my Senior Legislative Counsel
on the Antitrust, Competition, and Business and Consumer Rights
Subcommittee of the Judiciary Committee.
Anthony possesses great integrity and has the professional
background and executive skills necessary to get the job done. Because
the FIMA Administrator must develop broad strategies and set policy, as
well as persuade and coordinate with others at the highest levels, the
success of its natural hazard risk reduction programs will rest on the
ability of someone who can lead and forge relationships. That is
precisely what Anthony Lowe will bring to this position.
While working for me, Anthony spearheaded legislative initiatives
on anticrime and counterterrorism technology, law enforcement
assistance, and legal protections for the mentally ill and children.
Among these legislative issues, one of the most notable laws enacted
was the Crime Identification Technology Act of 1998, with its billion-
dollar authorization and its charge to assist State and local
communities in their anticrime and counterterrorism technology
programs. That law has helped set the tone for the application of
technology in securing our borders against terrorism. It is also part
of our effort to keep citizens out of harm's way in the event of a man-
made disaster.
Anthony's Federal, State, and local government experiences also
have given him a unique perspective to oversee the complex programs of
the Federal Insurance and Mitigation Administration. Furthermore,
because he has significant experience fashioning and implementing
national programs, I know he appreciates the complex programs of FEMA--
the National Flood Insurance Program, the National Earthquake Hazards
Reduction Program, and Dam Safety, among many others that actually are
delivered at the local level.
All of this demonstrates, Mr. Chairman, that Anthony Lowe is right
for the job of Administrator of the FIMA. I am confident that he will
bring the same leadership, the same personal and professional
integrity, and the same determination to the position of Administrator.
I wholeheartedly support his confirmation, and I encourage my
colleagues to do the same.
----------
PREPARED STATEMENT OF ANTHONY S. LOWE
Administrator-Designate, the Federal Insurance and
Mitigation Administration
Federal Emergency Management Agency
May 8, 2002
Chairman Sarbanes, Senator Gramm, and Members of the Committee,
thank you for holding this hearing today on my nomination to be
Administrator of the Federal Insurance and Mitigation Administration at
the Federal Emergency Management Agency (FEMA). It is an honor to
appear before this Committee.
I would like to express my deep appreciation to President Bush for
nominating me for this position, and to Director Joe Allbaugh for the
trust and confidence he has shown in me. The Nation, particularly since
September 11, recognizes the outstanding leadership of the President
and Director Allbaugh, and it would be a privilege to serve alongside
them.
I want to thank Senator DeWine for his kind introductory remarks
and for giving me an opportunity to serve the country as an attorney on
his Judiciary Subcommittee. Senator DeWine, Former Senator Slade
Gorton, the late Judge William L. Dwyer, the late Marian P. Diggs and
Alice Warinner, have all taught me to strive for the public good,
intellectual excellence, personal integrity, and then, to pass it on.
Thank you.
If confirmed, I would be the first Administrator for the newly
realigned, Federal Insurance and Mitigation Administration. Last
August, Director Allbaugh, as part of a major realignment within FEMA,
brought together the Former Federal Insurance Administration and the
Former Mitigation Directorate into a single organization, the Federal
Insurance and Mitigation Administration (FIMA). All of the resources of
the separate organizations are now merged under the new FIMA to form a
cohesive unit to coordinate the delivery of the Nation's natural hazard
reduction programs. These programs have been called the cornerstone of
emergency management since they focus on the protection of life and
property.
As Administrator of FIMA, I would be an outspoken advocate for the
Administration's mission to protect lives and reduce the loss of
property from natural hazards. My vision is for the Federal Insurance
and Mitigation Administration to become the premier all-hazard agency
across the Federal Government. I believe we can do this by building
upon our strong public- and private-sector partnerships to
substantially protect our homeland from the risks of natural disasters.
I have enjoyed my meetings with both Members and staff leading up
to this hearing. If confirmed, it would be my hope to continue the
exchange of ideas we have already begun. I appreciate the important
role the authorizing Committee plays, not only in the passage of our
governing legislation, but also in the counsel you offer to ensure the
law reflects its highest intent and serves the best interests of our
Nation. You provide an invaluable resource that I hope to avail the
Federal Insurance and Mitigation Administration as I carry out the
duties of my new job.
I am committed to people's needs. Recently, while walking the
streets of LaPlata, Maryland, I observed the tragic destruction and
suffering left in the wake of the tornado, and it reminded me of the
absolute necessity for me to do the right things, for the right
reasons, and at the right time. So many people in need depend on us.
In an earlier disaster, a victim was looking at her flooded home
and ruined belongings when she asked a simple but profound question,
``Why did they ever let people build here in the first place?'' Each
level of Government must take stock in answering it. The programs of
Federal Insurance and Mitigation Administration are working, and will
continue to work with State and local governments to reduce future
suffering and prevent losses in areas subject to hazards. As a Redmond
City Planning Commissioner, many of these programs guided our
development decisions to keep our community from harms way.
Mitigation and insurance--these are the two pillars of FIMA that
form the cornerstone of emergency management. Mitigation is a hard term
to define but actions speak far louder than words. Mitigation means
building safer and smarter in areas prone to natural hazards. It means
elevating new construction in the flood plains above harm's reach, and,
in some cases, keeping buildings out of harm's way by not building in
certain areas in the first place. Where mistakes have been made in the
past, mitigation means removing buildings out of harm's way. It means
retrofitting buildings in the flood plains and in earthquake-prone
areas to withstand future damage. It means designing and encouraging
``safe'' rooms in tornado alley.
And, knowing that our efforts cannot prevent all future damages
from the forces of nature, we have insurance. We are, after all, east
of Eden, and we know we will experience the inevitable upheavals of
nature. So we have insurance to protect people from financial hardship
and ruin after a natural disaster. Here, we can encourage all property
owners to buy private-sector insurance to cover their losses from wind,
fire, and hail. And because there is a gap in the private sector for
flood coverage, Congress authorized the National Flood Insurance
Program. Through the flood program, FIMA will continue to provide flood
insurance protection to citizens who are at risk from water damage.
Mitigation and insurance--they are the people's work. Last night, I
read to my daughter Ashton, the story of Noah. In that story, God told
Noah specifically how to build the Ark to ensure the survival of
humanity. Mitigation and insurance are really God's work. It is an
honor to be nominated to discharge these duties for the Nation. With
the guidance of Congress, the support of States and the private sector,
and the active involvement of communities, I believe together, we can
lead America to prepare for, prevent, respond to, and recover from
disasters.
Again, thank you for the consideration you have given me today. I
would be happy to answer your questions.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR AKAKA FROM ANTHONY S.
LOWE
Q.1. In the President's fiscal year 2002 budget request, the
pre-disaster grant-based mitigation program was eliminated
because it was deemed ineffective. This $25 million program was
maintained in FEMA's fiscal year 2002 budget by Congress. In
the President's fiscal year 2003 budget request, all disaster
mitigation programs are consolidated into a $300 million pre-
disaster mitigation grant program. Each time the Administration
has changed the disaster mitigation programs, those eliminated
have been labeled ``ineffective'' by the Office of Management
and Budget. How will the effectiveness and benefits of the
mitigation programs be determined in the future?
A.1. The key to strengthening our mitigation programs and
increasing effectiveness is to allow mitigation to be achieved
in a more predictable manner. With more funding available on an
annual basis, State and local governments would be in a better
position to plan, establish, and implement their mitigation
priorities.
FEMA would collaborate with its State partners and other
stakeholders to improve the programs, as well as to develop a
fair, reasonable, and appropriate means for the competitive
review and
selection of grant proposals. For example, criteria would focus
on quality of the proposed projects, ability of the project to
address State and community mitigation priorities, and cost-
effectiveness. The competitive award of the grants should bring
a greater emphasis to selecting projects that would offset the
Federal costs of disasters, again leading to increased
effectiveness and benefits of the Federal dollars expended for
this purpose.
In addition, we would plan to establish a project
evaluation process to determine how well projects achieved
mitigation goals. This effectiveness evaluation would help to
better link resources to performance information for planning
and reporting purposes, and would provide opportunities to
identify and promote ``best practices.'' The effectiveness
information also could be used in reviewing and adjusting
evaluation criteria for future grant competition, as
appropriate.
Q.2. The proposed mitigation program will be administered
through a competitive grant process to award $300 million to
States. How will the Federal Insurance and Mitigation
Administration (FIMA) ensure public participation from State
and local emergency managers and officials on the proposal?
A.2. FEMA's strategy will be to partner with the States and
organizations representing local officials to involve them in a
number of ways, collaborating to define the competitive grant
program guidance and policy. FIMA will look for both formal and
informal opportunities to ensure that collaboration takes
place. For example, senior FEMA managers recently attended a
meeting of the National Emergency Managers Association (NEMA),
where we were able to obtain their thoughts and ideas regarding
the implementation of the proposed program. In addition, we are
planning to hold a listening session later this year to include
other constituent organizations for both State and local
officials.
As the program is implemented, States would play a
substantial role coordinating with their local communities to
solicit, review, and prioritize grant applications. We
anticipate establishing a board consisting of Federal, State,
and local experts to conduct the final application review and
selection. The competitive award of the grants should bring a
greater emphasis to selecting projects nationwide that will
offset the Federal costs of disasters. The States would
continue to play an essential role in the implementation of all
of FEMA mitigation grant programs, including providing
technical assistance to communities. Finally, a project
evaluation process would be established to determine how well
projects achieve mitigation goals. States would play an active
role in establishing this process, which would help to better
link resources to performance information for planning and
reporting purposes.
Q.3. The Disaster Mitigation Act of 2000 requires States and
local communities to develop mitigation plans by November 2003
in order to qualify for future mitigation funds. How will FIMA
assist the States in developing plans and implementing this new
requirement by November 2003? What resources will be necessary
to provide this assistance?
A.3. To assist States and local communities (including tribes)
in developing mitigation plans that meet the planning
requirements of the Disaster Mitigation Act of 2000, Federal
Insurance and Mitigation Administration will provide technical
assistance in the form of how-to guides and as-needed
individual help, and policy guidance and information to ensure
consistent application of the require-
ments nationwide. In addition to providing technical assistance
with the general planning provisions, FIMA will provide focused
assistance with the risk assessment portion of the planning
process by marshaling our resources in building sciences, loss
estimation (using FIMA's Hazards U.S. (HAZUS) software), and
multihazard mapping. State-focused risk assessment workshops
are planned for early fiscal year 2003.
Many tools and resources have already been developed and
deployed. In April, FIMA conducted 10 regional workshops on the
DMA planning requirements, where all States were in attendance.
One How-To Guide was published in August 2001, and eight more
are in development and/or production. A local mitigation
planning workshop has been developed for the States to deliver
to their
localities.
Over $20 million in Pre-Disaster Mitigation (PDM) grants
will be made available to States and tribes in fiscal year
2002, the bulk of which is being used by States to revamp
existing planning programs to meet the new DMA requirements.
The Administration has requested a significantly greater amount
of PDM funding for fiscal year 2003, and while this funding can
be used for a variety of mitigation initiatives, it is expected
that at a minimum, a similar amount of funding will be
available to support mitigation planning in the next fiscal
year as well.
Q.4. Does the Administration's proposal to consolidate all
disaster mitigation programs into a pre-disaster grant-based
mitigation program make it easier to implement the Disaster
Mitigation Act requirements? How so?
A.4. The Disaster Mitigation Act of 2000 provides a real
incentive for communities to assess their risks, evaluate their
vulnerabilities, and incorporate an action plan into the
ongoing planning processes that many jurisdictions undertake
already. With the recognition of the importance of mitigation
planning, many communities will be better positioned to develop
cost-effective proposals for mitigation projects and
activities. Under the fiscal year 2003 budget proposal,
communities would no longer be dependant on a disaster
declaration in order to obtain a FEMA grant to protect their
constituents, meaning that State and local governments would be
in a much better position to plan, establish, and implement
their mitigation priorities, thereby supporting the goals of
the Disaster Mitigation Act of 2000.
With the recognition of the importance of mitigation
planning, many communities will be better positioned to develop
cost-effective proposals for mitigation projects and
activities. Awarding grants on a competitive basis will help to
ensure that the most worthwhile, cost-beneficial projects
receive funding. Funded activities will reduce the risks of
future damage in hazard prone areas, thereby reducing the need
for future disaster assistance. The development of State and
local mitigation plans could be used as a focal point for
coordination of Homeland Defense Community activities, as well
as focusing on hazard mitigation and land use issues.
Although we strongly support the proposed program, the
Director and I also strongly believe that both pre-disaster and
post-disaster mitigation funding is necessary, and that a
balance needs to occur in the use of those programs and funds.
In the immediate post-disaster environment, States, local
communities, and citizens affected by disaster recognize the
need for effective mitigation and are willing to take the steps
necessary to remove themselves from harm's way and reduce or
eliminate the losses and costs associated with future events.
The infusion of funds made available following disasters have
enabled critical mitigation work to be done. However, because
the funds are tied to specific disaster events, implementation
of long-range mitigation priorities established through a
comprehensive planning process at the State and local community
level is sometimes difficult to achieve. The current proposal
for a pre-disaster mitigation program, providing consistent
levels of funding from year to year, coupled with an
appropriate post-disaster program or post-disaster funding
would greatly assist in achieving those mitigation priorities.
NOMINATIONS OF:
CYNTHIA A. GLASSMAN, OF VIRGINIA
AND
ROEL C. CAMPOS, OF TEXAS
TO BE MEMBERS OF THE U.S.
SECURITIES AND EXCHANGE COMMISSION
----------
TUESDAY, JULY 23, 2002
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:05 a.m. in room SD-538 of the
Dirksen Senate Office Building, Senator Paul S. Sarbanes
(Chairman of the Committee), presiding.
OPENING STATEMENT OF CHAIRMAN PAUL S. SARBANES
Chairman Sarbanes. This hearing will come to order.
This morning, the Committee on Banking, Housing, and Urban
Affairs meets to hold a hearing on the nominations of Cynthia
A. Glassman and Roel C. Campos, to be Members of the Securities
and Exchange Commission.
The SEC as we are all very well aware, plays a vital role
in protecting investors and promoting the integrity and
efficiency of the securities markets. In recent months, the
securities markets have experienced an erosion in public
confidence. Investors have seen too many instances of faulty
accounting, misleading stock recommen-
dations, unreliable auditor certifications, and inadequate
issuer disclosures.
The Congress is seeking to address these problems. Last
Monday, the Senate passed, by a vote of 97 to 0, the Public
Company Accountability Reform and Investor Protection Act,
which came out of this Committee. And currently, the Senate and
the House are in conference seeking to reach agreement on a
bill to send to the President. The President has indicated that
he would like to have a bill before the August recess of the
Congress and I think many of us subscribe to that objective and
that is what we are seeking to accomplish.
The SEC is a pivotal actor in all of this, and its strong
and effective actions to address these challenges could help to
restore confidence in the markets and to increase their
integrity.
We meet this morning to consider two nominees whose
appointment I believe would help to strengthen the Commission,
and I welcome both of them before the Committee.
Cynthia Glassman, who is a graduate of Wellesley College
with a B.A. in economics, Wellesley has an enviable reputation
for producing these economics graduates. They had this
marvelous teacher there who has been featured in a number of
articles over the years. Ms. Glassman is part of that coterie
that went through that process.
She also went on to the University of Pennsylvania to get
an M.A. and a Ph.D. in economics. She then worked at the
Federal Reserve Bank of Philadelphia. Then was an Economics
Supervisor at the University of Cambridge in England. She came
back and went to work for the Federal Reserve Board here in
town, eventually rising to the position of Chief of the
Financial Reports Section.
She left the Fed and went into private activity, was a
Senior Economist at Economists, Inc., and then for a decade
worked at Furash & Company, a consulting firm serving the
financial services industry, where she rose to the position of
Managing Director.
Before this nomination to the SEC, she had, for 5 years,
worked at Ernst & Young, rising to the position of Principal in
the Quantitative Economics and Statistics Group.
Now, Ms. Glassman has been serving as a Commissioner since
January of this year, having received a recess appointment from
President Bush. She has also been on the boards of the Federal
Reserve Board Credit Union, the National Economists Club, Women
in Housing and Finance, a very active group with whom we have
interacted, and they do a number of very good projects which I
am personally familiar with, and also on the Commission on
Savings and Investment in America.
Roel Campos is a graduate from the U.S. Air Force Academy,
from the UCLA Graduate School of Business with an MS degree,
and from Harvard Law School with a J.D. degree.
He served as an officer in the Air Force. He then practiced
law in the private sector. He served as Assistant U.S. Attorney
in the Central District of California from 1985 to 1989. And
since 1995, he has been the Senior Vice President and Principal
Owner of El Dorado Communications, a Houston, Texas radio
broadcasting company.
Mr. Campos has been active in the community in Houston,
serving on a number of boards and commissions. And we welcome
his appearance before the Committee today.
With that, I yield to my colleagues.
Senator Enzi.
STATEMENT OF SENATOR MICHAEL B. ENZI
Senator Enzi. Thank you, Mr. Chairman. I appreciate your
willingness to have a hearing for these final two SEC nominees
before the August recess. And it is my hope that we can move
them through the Senate before we depart for the August recess.
Chairman Sarbanes. It is my intention to try and schedule a
Committee meeting, if not here, then off the floor while we are
voting over the next day or two, to report them out. That would
then get them on the calendar and that would give us all of
next week to move them through. Of course, the calendar is
being held up, as you know, by Senator McCain. But perhaps that
will be worked out. There are a number of people backed up
there.
But if we can get them out of the Committee and get them
positioned, then if that gate opens up, why, it is certainly my
desire and hope that we can get these two nominees and the two
we heard last week, which are the four Commissioners, all in
place, confirmed with their terms and everything, and then we
will have a fully functioning Commission.
I have been telling the Administration from the beginning,
that have as soon as they got all of these nominees up to us,
we would do a hearing, and that is exactly what we are doing.
Senator Enzi. Well, I appreciate your following through on
that and the added emphasis to get it done by the August
recess, if possible, because, as you have already mentioned in
your statement, the Commission does need a full Commission for
all of the weighty decisions that have been thrust on them and
that we are about to thrust on them, so that they can do the
most effective job possible.
As we saw last Friday, the investor certainty is still
extremely low. The Dow dropped nearly 400 points in a single
day. So it is clear that investors do not know what is around
the corner.
I do not know that any of us know what is around the
corner. I do not think that Washington passing legislation will
calm all of those fears, but I do hope that the legislation
will tell investors that corporate wrong-doers will have severe
penalties and perhaps a jail cell waiting for them if they lie
to shareholders.
I believe the Commission has done a good job of handling
the situation. Chairman Pitt and the Commission staff seem to
have worked tirelessly to implement the important reforms to
cleanse the climate of corruption. Most importantly, in an
effort to conclude all of the restatements, they are requiring
that the CEO's of the thousand largest companies to certify
their companies' financial statements. From what I understand,
all of these companies are working diligently to scrub their
statements to ensure investors of their accuracy. This is the
type of due diligence that we need.
It seems that everybody is beginning to do their part.
Companies are increasing stock buy-back plans. Corporate
compensation packages are beginning to be reduced. And other
market forces are correcting the corporate corruption. These
initiatives will do more to restore confidence in the market
than any legislative proposal developed by Congress.
In addition, if the bill passed by the Congress does not
provide adequate safeguards for the companies and their
auditors, it will merely add to the uncertainty.
I think the Commission will be well served having two
individuals as qualified as these two nominees that we have
before us today, and I am happy to assist in getting this
process finished.
I cannot impress on the two of you enough the
responsibility that you are about to undertake, although I
sense that you already know that. I applaud your willingness to
come to the public sector and sacrifice your time and
compensation to assist the country in renewing the faith in the
markets.
Again, Mr. Chairman, I appreciate your holding this hearing
so we can move these nominees through the Senate. I hope that
we can confirm them expeditiously and I look forward to working
with you and the other Members of the Committee as we work to
keep America's capital markets vibrant and the envy of the
world.
Thank you.
Chairman Sarbanes. Thank you very much, Senator Enzi.
Senator Akaka.
COMMENTS OF SENATOR DANIEL K. AKAKA
Senator Akaka. Thank you very much, Mr. Chairman. I am
delighted to be here with you and my friend across the aisle,
Senator Enzi, and to join you in welcoming our witnesses this
morning, Mr. Roel Campos and Ms. Cynthia Glassman. And I thank
you, Mr. Chairman, for telling us about their lives and where
they are coming from.
Also, I want to welcome your families. If you do not mind,
Mr. Chairman, I would like to ask Mr. Campos and Ms. Glassman,
in that order, to introduce your family to the Committee.
Chairman Sarbanes. Please go ahead.
Senator Akaka. Mr. Campos.
Mr. Campos. Thank you, Senator. Please allow me to
introduce my wife Mini, who is sitting right here behind me.
Mini and I were high school sweethearts. She is my life's
partner, my closest friend, and my wisest adviser. Mini is a
graduate of Harvard Medical School and a practicing physician.
We have been blessed with two sons, David and Daniel. David is
16, Daniel is 12. Our sons bring us pride and joy every day of
our lives.
Senator Akaka. Do your sons happen to be here?
Mr. Campos. My sons could not be here today.
Senator Akaka. Thank you.
Chairman Sarbanes. Ms. Campos, that was a very definitive
statement of Mr. Campos' love and affection for you.
[Laughter.]
Senator Dodd. I think he read it, in fact.
[Laughter.]
Mr. Campos. I had to because I did not think I could
remember it at all.
[Laughter.]
Chairman Sarbanes. Ms. Glassman.
Ms. Glassman. Thank you very much. I would like to
introduce my husband of 33 years, Len Glassman. He is sitting
right behind me. He too is a physician. My mother-in-law, Mary
Glassman, who has come down from Philadelphia for this hearing.
My son, Ken, right here, who is at Goldman Sachs in New York.
And his wife, who is also a doctor, Melissa Glassman.
Chairman Sarbanes. Good.
Ms. Glassman. They have come down from New York for this.
Thank you.
Chairman Sarbanes. We are very pleased to have you all
here.
Senator Akaka. Mr. Chairman, I am glad that we are moving
on with Members for the Commission here because we know that
the Securities and Exchange Commission, the Congress, and the
country really are facing many great challenges. We need to
fill the Commission with its Members. And this is because we
are in the wake of incidents of misrepresentation of corporate
fraud. The SEC will play a huge part in helping us bring back
the confidence to our country and the industry.
The SEC must have effective leadership. We are looking to
both of you adding toward that, and in order for the Commission
to meet these significant challenges.
So, I want to wish you well. And hearing from the Chairman
of your qualifications, there is no question you will certainly
add to the Commission. And I would tell you at this point you
have my support.
Thank you very much, Mr. Chairman.
Chairman Sarbanes. Thank you, Senator Akaka.
Senator Allard.
COMMENTS OF SENATOR WAYNE ALLARD
Senator Allard. Thank you, Mr. Chairman. I am just going to
make a brief comment.
I would like to welcome Ms. Glassman and Mr. Campos. I
understand, Mr. Campos, you are a graduate of the Air Force
Academy.
Mr. Campos. Yes, sir.
Senator Allard. So, you spent a little time in Colorado.
Chairman Sarbanes. It was a wonderful experience, wasn't
it, Mr. Campos, being there in Colorado?
[Laughter.]
Mr. Campos. It was outstanding.
Senator Allard. And that prepared you for the battle that
you are now going to enter into, I am sure.
[Laughter.]
Mr. Campos. Everything has been easy since then.
[Laughter.]
Senator Allard. Well, I would just like to join my
colleagues in welcoming both of you to this Committee today. I
want to thank you for you willingness to serve our country in
your capacity as Members on the Securities and Exchange
Commission.
There has been a lot of attention media paid to the
Securities and Exchange Commission in recent months. Here in
this Committee, we have held a lot of hearings and crafted
legislation involving the SEC as well.
The Securities and Exchange Commission was created by
Congress in 1934 to promote stability in the markets and to
protect the investor. A great deal needs to be done at the SEC
to restore its role as the investor's advocate. In the current
environment, and in the midst of the loss of investor
confidence in our markets, it is going to be particularly
challenging.
The SEC needs more resources in order to strengthen its
enforcement authority, as well as more qualified personnel at
the agency in order to play this role. Both of you have
impressive and experienced backgrounds and I appreciate that,
and I think you have your work cut out for you. I am sure that
you will be working hard and I am looking forward to hearing
your ideas about what we can do to improve investor confidence.
Mr. Chairman, I look forward to hearing from the nominees.
Chairman Sarbanes. Thank you, Senator Allard.
Senator Dodd.
STATEMENT OF SENATOR CHRISTOPHER J. DODD
Senator Dodd. Well, thank you very much, Mr. Chairman.
Let me join the Committee in welcoming both of you. I
congratulate you on the nominations which you have received
from the President. It is a high honor to be asked to serve.
And all of us are deeply grateful to both of you for your
willingness to serve.
This is a challenging time. As someone said the other day
when we were considering the nomination of another committee,
that this is going to be a very difficult time at the SEC. That
is true. But I also think it is a tremendously exciting time
considering the challenges we face. And both of you bring a
high degree of competency to these nominations. So, I look
forward to voting for you and to also working with you.
Just a couple of comments. Mr. Campos, I gave an address on
Sunday morning at the National Council of La Raza in Miami at
their annual convention. And you should know that there is a
great deal of excitement within the Hispanic and Latino
community over your nomination. They wanted me to convey that
to you, how excited they are that you are going to be a member
of the SEC.
The only other thing that I would like to say to you is
about the investor confidence issues that we talk about all the
time. It is very important, and looking over your testimony, I
think you understand that, both of you, very well.
The point I made the other day is something that needs to
be stressed. And that is the importance of retaining your
independence. You have been asked by people to serve. Your
names have been put forward by people in the political world.
Your nominations are made by the President of the United
States.
Unlike other positions in the Cabinet, the
Commissionerships of the SEC require a high degree of
independence, not to get caught up in the day-to-day
machinations of political agendas. That is not to say that you
are unmindful of them, but just to be careful not to be drawn
into the vortex of all of that, particularly in these days. I
think it has always been true, but particularly now. And so, I
would just say a word of caution as you begin this journey of
serving in a very distinguished and important post in
Washington, that you keep that in mind, if you could, during
your tenure.
With that, Mr. Chairman, I look forward to the testimony of
our witnesses, and congratulations to both of you, and your
families as well. This is a very exciting time for you.
Chairman Sarbanes. Very good. Thank you, Senator Dodd.
I say to the nominees, it is the practice of this Committee
to swear in nominees at the outset of their hearing. So, I ask
you to stand and take the oath.
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?
Ms. Glassman. I do.
Mr. Campos. I do.
Chairman Sarbanes. Do you agree to appear and testify
before any duly-constituted committee of the U.S. Senate?
Mr. Campos. I do.
Ms. Glassman. I do.
Chairman Sarbanes. Thank you very much.
Ms. Glassman, why don't we hear from you first, and then we
will hear from Mr. Campos, and then we will go to questions.
I will say to my colleagues and to the nominees, there is a
vote scheduled at 10:45 a.m. So, that we will move as
expeditiously as we can. But my guess is that we will probably
have to recess for the vote and then come back.
But we will proceed apace here and see how things unfold.
Ms. Glassman.
STATEMENT OF CYNTHIA A. GLASSMAN, OF VIRGINIA
TO BE A MEMBER OF THE
U.S. SECURITIES AND EXCHANGE COMMISSION
Ms. Glassman. Thank you, Chairman Sarbanes and the
distinguished Members of this Committee.
I am deeply honored to appear before you today to seek your
approval of my nomination by President Bush to serve as a
member of the Securities and Exchange Commission. If confirmed
by the Senate, I look forward to continuing to fulfill the
responsibilities of a SEC Commissioner along with my new
colleagues.
I am a Ph.D. economist with 30 years of experience
analyzing financial services regulatory policy issues in the
public and private sectors. I have worked at the Federal
Reserve, two small consulting firms, a large accounting firm
and, for the past 6 months, the SEC. Specific expertise that I
bring to my responsibilities as a Commissioner includes risk
management, competitive analysis, and financial reporting. I
have also specialized in conducting analyses on the continuing
relevance of a wide range of financial services regulations in
a changed business environment.
As an economist, I believe very strongly in letting markets
work. Nevertheless, there is an important role for regulatory
oversight to ensure that competition is fair, and that
information provided to customers is clear, accurate, and
complete. Regulations should create the right incentives to
accomplish their goal, should be based on a good understanding
of how the business works, and should not result in unintended
consequences, either for the regulated companies or for their
customers. In the current environment, the need for strong
regulatory oversight could not be more apparent.
When I was being considered for an appointment to the
Commission last fall, I had identified several issues as
important to the SEC's mission: Are the Depression-era rules
under which the SEC operates still relevant? Is the regulatory
process providing the right incentives, or is it resulting in
unintended consequences? Is the securities market structure
appropriate? Are investors receiving the information they need
about domestic and global companies to make good investment
decisions? Is investor education adequate for our complex
financial markets?
Recent events have shown how critical these issues are.
Almost 6 months into my recess appointment as SEC Commissioner,
I am outraged at the financial fraud, misleading information,
and investor losses that have come to light. Given the
extraordinary events of the last year, the Commission's number
one job right now is to restore investor confidence in our
markets and market participants. There is no question that
companies must be held accountable, and individuals need to be
held responsible, for adhering to both the letter and the
spirit of the Federal securities laws. But the SEC, in
partnership with Congress, the Administration and the States,
must continue to be a driving force in assuring that we have
the appropriate securities laws and rules and that we enforce
them vigorously.
I began my career in the public sector with the Federal
Reserve System, and I am proud to return to public service as a
Commissioner of the SEC. My 6 months of hands-on experience as
a Commissioner have increased my respect for the agency and its
entire staff and my appreciation of the challenges the
Commission faces.
Thank you, Mr. Chairman, Senator Gramm, and Members of this
Committee for this opportunity. I would be happy to answer any
questions that you have.
Chairman Sarbanes. Thank you very much, Ms. Glassman.
Mr. Campos, we would be happy to hear from you.
STATEMENT OF ROEL C. CAMPOS, OF TEXAS
TO BE A MEMBER OF THE
U.S. SECURITIES AND EXCHANGE COMMISSION
Mr. Campos. Thank you, Mr. Chairman.
Chairman Sarbanes, distinguished Members of this Committee,
I cannot describe to you the sheer delight I feel today and the
deep appreciation that I have for this opportunity to appear
before you today. I am deeply honored to have been nominated to
serve my country on the Securities and Exchange Commission.
With your indulgence, I will very briefly share some of my
life's experiences and perspectives, and then provide a few
observations about the unique challenges facing the SEC.
I am Mexican-American. My life's journey began in the small
town of Harlingen, Texas, near the Mexican border in the
southern tip of Texas. I was raised in a humble household, in
which only Spanish was spoken. My father, who could not be here
today, is 88 years old. Like many in his generation, my father
had to drop out of school in the 6th grade to help on the
family farm. Later, when his country needed him, my father
volunteered and enlisted in the U.S. Army to serve in World War
II. He was always proud that he volunteered and was not
drafted. My father saw combat in Europe and was wounded in
Germany and became partially disabled. During my childhood, my
father often had three or four jobs at one time to make ends
meet and to provide for our family. My brothers and I would
often help my dad in doing construction or whatever extra job
he had committed to do. He taught my brothers and sister that
honest hard work was noble, that service to our country was
honorable, and that education was the most valuable possession
a person could have.
My dad had a simple version of the American Dream. He
believed that hard work and sacrifice would produce better
opportunities for his children and permit him to live with
dignity in his old age. Like millions of Americans today, my
dad today is retired and lives on his savings, Social Security,
and pension benefits. The series of recent business scandals
and the resulting crisis of confidence in our financial markets
threatens the future of my father, as well as millions of
retirees in America. In my hometown of Houston, Texas, I have
seen neighbors, who had worked for years for a certain major
company that has been the subject of investigation, suddenly
and without warning, be without a job, without meaningful
severance, and with their retirement accounts wiped out. I
worry, that inevitably, these corporate abuses may create a
separate crisis of confidence and that the American public will
come to question whether the American Dream has become an
illusion. If I am confirmed, I pledged to work tirelessly with
you and my colleagues at the SEC to restore the faith of the
public in the integrity of our financial markets.
I have been blessed during my life to have had the
opportunity to pursue higher education and to serve my country.
As you know, apart from my military service, I was a Federal
prosecutor in Los Angeles. I investigated, tried, and convicted
Members of major criminal enterprises and sent them to jail. I
am informed that if the Senate chooses to confirm me, I will be
the first person to serve as an SEC Commissioner with a law
enforcement background. If confirmed, I will bring my
experience and accept the heavy responsibility to fairly and
carefully judge and determine the appropriate enforcement
action and sanctions in the many pending and future SEC
investigations.
As you also know, I have spent about 16 years in private
legal practice as a corporate transactions lawyer and as a
corporate litigation and trial attorney. For the past few
years, I have been an executive and part owner of a small
private company. If confirmed, I will bring to the Commission
my experience in having dealt with the challenges of building
and operating a company in the private sector. One of the
missions of the SEC that I will embrace if confirmed is to
promote an environment in which small, entrepreneurial, and
emerging companies can raise capital efficiently. As we all
know, small and emerging companies will produce much of the
Nation's future economic growth, creating a large share of
tomorrow's new jobs and innovation, and such companies will
help to validate the American Dream. Over the years, the SEC
together with the able oversight of this Committee has earned
universal
respect and admiration. If confirmed, I promise to use all of
my God-given abilities to uphold the SEC's legacy of exercising
fair and tough-minded regulatory authority.
The Senate last week took a historic and courageous step in
restoring the public's confidence in the financial markets by
passing the Public Company Accounting Reform and Investor
Protection Act of 2002. I, along with the rest of the Nation,
are in your debt Chairman Sarbanes for the crucial role that
you and this Committee played in bringing about this
legislation. If I am honored by being confirmed, I look forward
with great anticipation to working with you Mr. Chairman, with
Senator Gramm, with the distinguished Members of this
Committee, and with Chairman Pitt, and my fellow Commissioners,
and the talented staff at the SEC. There is much work to be
done. However, I believe that we can together succeed and ably
discharge our sacred trust and our obligations to the American
people.
Thank you for this opportunity to appear before you today.
I will do my best with any questions that you may have.
Chairman Sarbanes. Thank you very much, Mr. Campos.
We have been joined by Senator Corzine. Jon, do you have an
opening statement that you would like to make?
COMMENT OF SENATOR JON S. CORZINE
Senator Corzine. No, other than to welcome the nominees and
I appreciate the fact that we are moving rapidly with this.
Thank you.
Chairman Sarbanes. Since there is this vote and I have to
be here at the beginning and at the end as the Chairman, if
there are colleagues of mine who, because of their schedule,
feel they will not be able to return after the vote, I would be
happy to yield to them now to try to get their questioning in
because I know some will leave to go to the vote and will not
be able to come back.
Senator Dodd. I think we are okay. We have 25 minutes.
Chairman Sarbanes. Very good. Let me ask, first of all,
because I am prompted by a story that is in the paper today:
SEC Union Workers Reach Accord On Work Rules.
``After 532 days of negotiations, the SEC and its union
employees agreed to a contract that will allow workers to
telecommute 2 days a week, among other provisions. The
agreement still needs approval by the union Members and SEC
Chairman Pitt addresses basic working conditions.''
And it goes on to describe that. Of course, the fact that
they have been at it for 532 days, a year and a half, is in
itself not a very good comment. But I am hopeful that this
agreement will be approved and the SEC will be able to get its
labor/management relations back on track.
Now one of the issues that was not addressed in this
agreement, but is very important, concerns pay. Earlier this
year, Chairman Pitt distributed $25 million in raises without
union involvement, according to this article, which sparked a
demonstration in front of the SEC's Washington headquarters.
Union workers carried signs mocking the pay raises as a ``Pitt-
ance.''
Our bill significantly increases the authorization for the
SEC. It takes it up to $776 million.
The Senate Appropriations Committee, the Subcommittee that
deals with the SEC budget, has put in $750 million in the
budget for the year beginning October 1. And when we took it
up, we said that there are three things that we thought the
Commission really needed to do with this money.
One was pay parity in all respects, both salary and
benefits. Two was upgrading the technical systems, the
computers and so forth. Three--and this was something that
Senator Dodd and Senator Corzine had been pushing--well, they
had been pushing the whole thing strongly, but additional
accountants and examiners. In other words, to boost up the
staff.
I am just interested in how important you think an enhanced
budget is for the SEC, how strongly you will fight for it? And
on that, I make the observation, if the Chairman of the SEC
Commissioners does not fight for the budget, I do not know who
will. And how important you think this infusion of resources is
to the ability of the SEC to do its job?
Why don't I go to you first, Ms. Glassman. You have been
down there now about 6 months, I guess.
Ms. Glassman. Right, I have been there 6 months, and I
could not agree more that we need more money.
We desperately need more people. You mentioned the lawyers,
the accountants. Don't forget the economists. We need more of
those as well.
[Laughter.]
Chairman Sarbanes. I apologize to the economists.
[Laughter.]
Mr. Campos. Commissioners?
[Laughter.]
Ms. Glassman. We need technology. We need vastly improved
technology. And pay parity will go a long way to helping our
retention efforts. Our retention is much worse than our sister
agencies, the banking agencies. Part of the reason is, or
probably most of the reason is, they are paid better than we
are. Pay parity will bring us up to those levels.
The simple answer is, yes, we need the money. We will use
it. You know the Chairman has a special study, apparently the
first of its kind, to evaluate how we are currently using our
resources. The results of that study will help us allocate the
new resources appropriately and efficiently. But I know we need
them.
Chairman Sarbanes. The GAO actually, at our request, did a
study on the pay parity issue and the turnover at the SEC. And
the comparison with the other financial regulatory agencies is
quite marked in terms of retention. Generally, the cause is
perceived to be that they have the pay parity and the SEC does
not.
Mr. Campos.
Mr. Campos. Senator, you could not be more correct in
pointing out that the resources are absolutely essential. The
SEC and its people are dedicated, hard-working, but they need
more resources. We need more people, enforcement, simple things
like trial technology to be able to bring these enforcement
actions, are desperately needed. More capable lawyers who can
bring these complicated cases.
Keep in mind that trying a case that involves financial
fraud is a very complicated endeavor. You need not just bodies,
but people who have the experience, people who have the
capability to present a case effectively and successfully in
court and to obtain the correct results.
Parity, without question, has to happen, must happen, and
is needed. And the staff at the SEC expects it, and I assume
that is a given. The budget that has been thrown out is fair
and every one of those dollars can be used well by the SEC.
Chairman Sarbanes. Good. My time is expired.
Senator Enzi.
Senator Enzi. Thank you, Mr. Chairman.
Senator Dodd is the Chairman and I am the Ranking Member on
the Securities Subcommittee of the Banking Committee. One of
the things that we were looking at when we first got these jobs
is doing a review of all of the securities laws, doing a
complete review. I would be interested in both of your opinions
on whether we should do that.
Ms. Glassman. I will go first. The laws are 70 years old.
And so, I think a review is warranted, although the environment
being what it is right now, in terms of priorities, it may not
be timely to do this right now.
But I do agree that it is important, and it ties in with
something that Chairman Pitt has asked me to do, which is to
oversee a review of all of our regulations, to make sure that
they are efficient and effective in the current environment,
given all the changes in the markets and technology.
I have started the process. We are beginning that review.
One of the potential outcomes of the review is, on certain
regulations, we will determine that there might be a need for
legislative change.
So, I would look forward to working with the Committee, if
you are doing a law review as we do our regulation review, to
coordinate and get them both done together.
Senator Enzi. Thank you.
Mr. Campos, any comments?
Mr. Campos. I agree generally, Senator Enzi. I believe that
is a worthwhile endeavor. The laws are 70, 80 years old.
Nonetheless, the basic premise of the law for Federal
securities regulation is material information disclosure. It is
not merit-based, which some States still have. So the essence
of the way our securities laws work still seems to me to be a
fairly ingenious creation and allows it to be a live set of
laws which, through rulemaking and through the various efforts
that this Committee and the Congress have done, have allowed it
to be very flexible and to keep up with the demands of
technology and the changes in the economy.
Senator Enzi. Thank you.
Do either of you have a position on the existing Nasdaq
exchange application?
Ms. Glassman. The issues are extremely complex. Balancing
the evolving market structure with the more traditional market
structure is taking a lot of thoughtful review by the staff and
ultimately, by the Commissioners. As I said, I think all of the
market structure needs to be looked at in a comprehensive way.
That application has to be part of that comprehensive
framework.
Mr. Campos. I believe it is a great testament that we are
looking at fundamental changes that would work here. It is a
very complex issue with many sides and many views. The SEC
staff has been working very diligently on coming up with their
positions and providing information back to this Committee and
others who requested it. I have an open mind and I believe in
general that the fundamental changes will be positive.
Senator Enzi. Thank you. I will yield the rest of my time.
Chairman Sarbanes. Thank you.
Senator Akaka.
Senator Akaka. Thank you very much, Mr. Chairman.
I want to commend the Chairman for all of his work on the
bill that we just passed. It was so outstanding to have 97 of
our colleagues vote for a bill that was crafted by the Chairman
and Members of this Committee. That bill will be helpful in
what you both will be doing.
I have a special interest in financial education along with
several of my colleagues on this Committee. After your recess
appointment, Ms. Glassman, in January, you have had several
months to become familiar with the agency. As you know, the SEC
works with public organizations to foster educational programs
and provides neutral information about saving and investing.
What is your evaluation of the SEC's current efforts to educate
the public about investing and what should be done to enhance
these programs?
Ms. Glassman. I share your interest in investor education.
It is critical to making sure that investors make wise
decisions. As an economist, I think it is important that
markets have the information that is fair and clear, but also
that the investors have the knowledge to understand that
information. So as I said, investor education is critical.
Our investor education group is terrific. They are so
enthusiastic and they are so good. Since I have been there, we
have had our forums for corporate governance and accounting
oversight. We have had an investor summit. Our investor
education group has put on a program in Norfolk, along with the
military, for specific help in investor education. We have
wonderful brochures. We have a great website. We had a terrific
scam. I do not know if you read about it, but it was a scam on
the Internet in which people were told about this wonderful new
investment and, if they clicked through, ultimately, it was one
of those too-good-to-be-true investments, which of course it
was. If they clicked through to the end, they got a notice that
said, if you were willing to put your money in this, you have
made a big mistake, essentially, and provided some information.
So, as I said, I think our programs are good.
However, there is a lot more to do. I have seen the
statistics on financial literacy in the high schools, and for
adults, and they are abysmal. We really need more investor
education in the schools, through the work place, wherever
people will listen, especially for retirees because they are
the ones who now have lump sums of money to put in our markets
that have gotten more complex.
In my own small way, I have worked on this issue. I am on
the board of a preschool and child care center for low-income
families and I have helped with financial literacy programs
there. I just think it is critical, and we all need to work
together to improve it.
Senator Akaka. Thank you for that response.
Mr. Campos, I will ask you the same question. What are your
thoughts on the issue of financial education?
Mr. Campos. I think it is extremely important, Senator.
We have a system in place here in America, the greatest
marketplace in the world, the envy of the world. And yet, most
Americans do not understand how stock prices work. They do not
understand that they can lose money. Most Americans cannot read
a financial statement. They do not understand what a balance
statement is.
It is extremely important that our public gets educated.
And in this way, more Americans will eventually be able to
participate in the capital and the wealth creation that our
system provides.
It is extremely difficult. I commend you for that goal. It
is extremely difficult to execute it. There are so many
different areas that have responsibility here. I would like to
see something in the high schools that the SEC and other
agencies could participate in in some way that is an
appropriate use of the taxpayers' money.
But high school students need to know simple ABC's of
finances. They need to know how to use credit cards. They need
to know that they can run out of money in their checkbooks.
Simple things like that are so crucial.
I agree with you. I feel strongly about that issue. If this
Senate honors me by giving me the confirmation, that will be
one of my areas of great interest at the SEC.
Senator Akaka. Well, I thank you for your responses. I feel
that having people understand how things work will play an
important part in restoring public confidence in the financial
markets. I commend you for it.
Mr. Chairman, my time is up. Thank you very much.
Chairman Sarbanes. Thank you very much, Senator Akaka.
I would just note that this Committee has taken an active
interest in financial education. We held a couple of hearings,
including one with Chairman Pitt, Chairman Greenspan, and
Secretary O'Neill. And Members of this Committee have been very
active.
Senator Enzi, when he was in the State Senate in Wyoming,
was instrumental in putting in place important provisions at
the State level with respect to financial education. And he has
sustained that interest here. Both Senator Akaka and Senator
Corzine have taken a number of initiatives, and of course,
Senator Dodd and Senator Allard and myself all remain
interested.
So, we look forward to interacting with both of you. This
is not a front-burner issue, so to speak. But in the total
picture, it is quite important and it could make a significant
difference.
The fact is we have a lot of financially illiterate people,
but who have some money and they are caught up. They are being
scammed, as it were, left and right. We need to work at
addressing that.
Senator Allard.
Senator Allard. Thank you, Mr. Chairman.
The Chairman made the statement that you will have
additional resources coming your way, and that will be by way
of dollars, primarily. I agree that you need to have additional
resources. Have you given any thought on what you are going to
do to focus your mission, how you are going to direct these
additional resources in order to more clearly be able to
accomplish the mission of the Securities and Exchange
Commission?
Ms. Glassman. At this point, I think we all have our own
views. Assuming confirmation goes forward, we will have four
new Commissioners.
Senator Allard. Would you like to share with me some of
your views?
Ms. Glassman. My personal views? The highest priority in
the short term is more enforcement staff. We are really
stretched to the limit. The enforcement people are stretched to
the limit as are the accountants, in the current environment.
So staffing is obviously critical. And pay parity. That is a
given.
I also think we really need improved technology. If we had
better technology, for example, to better prioritize our
reviews of the filings, from the perspective of which are the
ones that are most likely to be a problem, that would free up
resources and allow us to leverage better what we have. So
improved technology is very important.
Regarding the specific systems, I am not a technology
expert, but I know there are a number of areas where our
technology is pretty obsolete and we really do need more state
of the art technologies. That would be one of my highest
priorities.
Senator Allard. Mr. Campos.
Mr. Campos. Senator, I believe that, as all of the Members
have mentioned in their remarks, the lack of public confidence
issue is so large right now. The swiftest way to promote that
is through
effective enforcement.
To use a very simple analogy which is not perfectly
appropriate, but you need more cops on the beat, essentially,
to do the work and to do it well. And I think that has great
significance.
People fear there will be over-enforcement, I do not
believe in those fears. The dedication, the integrity, the
professionalism of the people who will be doing the enforcement
is paramount. And the effort there to deal with all of the
different problems arising right now, we need to work through
that backlog.
So that I think is the foremost use. All of the divisions
have very important missions and all of that would be something
that would obviously be presented and carefully thought about
at the Commission, with the full Commission.
Priorities are just like managing any limited resources in
any company. We will make decisions and we will share them with
this Committee and anyone else who is interested, and pursue
it.
Senator Allard. Both of you have mentioned enforcement is
an important part of where we need to focus our additional
resources. What do you see as the biggest challenges to
strengthening enforcement?
Ms. Glassman. Right now it is pay and it is positions. We
have a terrific staff. The enforcement group does a wonderful
job. Our litigators are really strong. But because of our
budget constraints, we have been losing the really important
middle management layer. That is the layer that we have to
recruit from the private sector because we need people with the
experience.
So the challenge is the pay and the budget. I think people
want to work for the SEC. I have met a huge number of the
staff. I have tried to meet all of them over the 6 months that
I have been there, and have found them to be really dedicated.
People on the outside also want to work for us, so if we
can pay them and if we can get past our budget constraints,
then I think we will get the people we need. But we really need
good people.
Senator Allard. Now what is the problem there? Do we have
people coming in and getting on the SEC staff and it is a
career-builder? And then they see that there are other
opportunities open to them in the corporate world because they
are on the SEC staff ? What is happening there?
Ms. Glassman. I think, as in any Government agency, that is
part of it. You get the Government experience and go to the
private sector, although a number of people have come back.
They have gone to the private sector and come back to the SEC.
But I think some of it is just the pay. It is difficult, given
the opportunity cost at the other agencies, as well as in the
private sector. There is a limit to how long people can stay
within our pay ranges and raise a family and pay for education
and all of those other things that they have to look forward to
with children.
Senator Allard. Mr. Chairman, thank you.
Chairman Sarbanes. Thank you, Senator Allard.
Senator Dodd.
Senator Dodd. Thank you, Mr. Chairman. Again, my
congratulations to both of you.
A couple of things. First, I appreciate Senator Enzi
bringing up the potential of some hearings on the Securities
Subcommittee looking at all the rules. But I also take, Ms.
Glassman, your points. I think right now we should just try and
get the accounting reform bill done before we start having a
large-scale revision. I do not want to frighten the markets if
we are going to start rewriting the rules here altogether.
[Laughter.]
But it is something that we should look at and I appreciate
both your comments on that.
Second, let me underscore something that Senator Sarbanes
said, and that is about the reports this morning on the labor
issues. I am not going to ask you to comment on this, but I
will just make the statement myself and urge you, as two people
who will be at the Commission, to see if we cannot resolve
these labor issues.
This does not help in the midst of everything else, in
light of your responses to Senator Allard's questions regarding
the major issues down there with pay and longevity, retention,
and so forth. Labor issues do not help that matter when you are
trying to track good people if it looks as though this is a
place where people do not get along between management and the
workforce. So it is going to be critically important that those
issues be resolved. And I do not know whose responsibility that
solely is, but I suspect the Commissioners can play a role
here. I would urge you to do so.
You both have remarkable backgrounds and extensive
experience. And there has been lately this notion of what
someone described, I cannot recall who said it, but guilt by
occupation, in a sense, and I speak of the accounting
profession, Ms. Glassman.
I have great respect for those people. I know there are
others who feel this way. I certainly believe that Arthur
Andersen should have been brought on the carpet. I am not sure
92,000 people should have lost their jobs worldwide. And I am
waiting for someone at Enron to get a parking ticket. I hope
they do in all of this.
But I would like you to comment about the accounting
profession. What needs to be done? It has been a little
disconcerting for those of us up here who helped craft this
legislation that we now have before us, that so many leaders of
the accounting profession were so adamantly opposed to this
bill. Now many of them I think are coming around a bit. But it
did not help, it seems, when we were trying to initiate some
reforms in this area, to have an accounting profession be so
adamantly opposed to what we were trying to do.
I wonder if you might just share with us some of your own
thoughts on what you think needs to be done to get this
critically important profession back on its feet again, in a
sense, at least the perception of it. And I wonder if you might
also just comment on what you think of this bill, the
accounting reform bill. I am going to ask both of you to talk
about it, to give us your general thoughts of what you think of
this legislation.
Ms. Glassman. I am very supportive of the legislation. I
think it accomplishes a number of goals that I personally think
are critical for the accounting industry.
Senator Dodd. Can you speak up just a little? I apologize
for the microphones.
Chairman Sarbanes. Just pull the microphone close to you.
Ms. Glassman. Is that better?
Senator Dodd. Yes.
Chairman Sarbanes. Even closer.
Ms. Glassman. The accounting industry needs better
oversight, both substantively and in terms of perception. This
bill provides a lot of the elements of the oversight that are
important. I think the oversight has to be independent of the
profession, and the way the board is set up in the bill
accomplishes that. The funding has to be independent. It cannot
rely on the profession. And the bill does that as well.
The reviews have to have a dedicated staff so that it is
not the accounting firms reviewing each other, at least not as
the leaders of the reviews. I am not quite sure how the
staffing is going to work on the reviews, but they need to be
led by people who are not at the firms.
Those are some of the critical issues. Also, the reviews
need to be timely. At least for the larger firms, the reviews
need to be every year, which is in the bill.
Those things are critically important and I think it is
unfortunate that the accounting firms are lobbying you.
Hopefully, they will see that this is beneficial for them
because the markets need to have confidence in the accounting
firms, as well as in the companies themselves.
Senator Dodd. Exactly. Well, what needs to be done by the
firms themselves, just the internal structuring? Is there
something going on in the structure of accounting firms that is
creating this kind of problem that is giving the public this
perception that seal that you guys give all the time that we
have relied on for so many years is now raising doubts about
whether or not that seal is a good seal?
Ms. Glassman. The firms themselves have to look at the way
they compensate people, how they incent people, and to make
sure that they are not creating conflicts within their own
partnership.
Senator Dodd. Someone said to me that a lot of the problems
arose here when this consulting function became the leader
rather than the audit function. And the divisions within these
businesses between the auditing/consulting function raised an
awful lot of the problems that we have seen in the last few
months. What do you think of that opinion?
Ms. Glassman. There appears to be some truth to that.
However, there are some good reasons to have certain consulting
functions at the accounting firms because of the specific
expertise that they bring. I am not an accountant. I am an
economist.
Senator Dodd. I know that.
Ms. Glassman. And so, I never actually participated in an
audit. There are some areas of expertise that the consulting or
advisory functions bring to the audit. There are some that are
not critical and may cause some conflicts. I think it is
important for the firms and the oversight board to sort those
out and create the right incentives, both internally and
externally.
Senator Dodd. Mr. Campos, quick answer on the bill. What do
you think of the bill?
Mr. Campos. I think that the bill is a tremendous piece of
work. It is almost revolutionary to get this enacted at this
particular time. It does exactly what Commissioner Glassman is
referring to. It creates an oversight board. It provides
crucially a requirement of independence.
I believe that the consulting that is prohibited is right
on the money. If the audit function requires expertise, then,
ultimately, the audit function will charge more for its
services. And its services are crucial for confidence in
financial statements.
So it is worth more money. That is the simple fact. And
just an observation: I think anybody who is in business has
difficulty changing. This essentially is tough love in terms of
this legislation. No one is against accountants. But they serve
a very unique function under our system. This bill will require
firms to do business differently. But they do not have to
eliminate consulting. They just cannot do it for the same
company they are auditing.
Senator Dodd. Thank you both.
Thank you, Mr. Chairman.
Chairman Sarbanes. Thank you, Senator Dodd.
Senator Gramm.
STATEMENT OF SENATOR PHIL GRAMM
Senator Gramm. Mr. Chairman, thank you very much.
I was down at Judiciary to introduce Priscilla Owen. By the
way, I thought every committee of the Congress introduced the
visiting Members first and let them speak. We do it right.
Judiciary lets those on the committee speak. I hoped to be back
up here quickly.
Chairman Sarbanes. They probably saw it as an opportunity
to lecture you this morning.
Senator Gramm. Yes. Well, it was like many lectures I have
heard. People used to say that they were worried about college
professors indoctrinating. And I used to say, if they are no
better at indoctrinating than they are at teaching, they are
not dangerous.
[Laughter.]
I have had an opportunity to visit with both of our
nominees. I think that they are both excellent people. I intend
to support them. I would just like to give a little lecture of
my own.
[Laughter.]
And that is that you are going into an independent agency
at a time when there is going to be tremendous criticism. We
probably have a Chairman who is as qualified as anyone who has
ever been Chairman and who has probably the most distinguished
background of anyone who has ever been Chairman. And who was
confirmed unanimously. And now people line up to denounce him,
I guess because by doing so, you get your name in the paper.
And if you want to be quoted, you have to be more extreme than
the last guy who made the statement.
But in any case, my concern, and I just leave it with you
since I have already decided to vote for both of you, is that
with all of this criticism coming from outside the Commission,
there is going to be this real tendency to have divisions in
the Commission and to try to show those divisions publicly, as
people take this criticism personally.
There is something to be said in working in a collegial
body. We have a Senator here, Senator Byrd, who tries to remind
us of our responsibility to the institution. We do not always
listen to the lectures, but they are always right. I just want
to encourage both of you as Members of the Commission to
realize it is not personal. Many of these criticisms have no
purpose other than promoting the ends of the criticizer.
In expressing and working for what you think is right
within the Commission, I hope that both of you will do it in a
constructive way. If there is ever been a time where we need a
Commission that works together and that really proves that an
independent agency can embody people from very different
backgrounds with very different opinions and yet be effective,
I think that time is now.
So, I want to commend both of you to basically realize, to
explain to your children that you are really not as bad as they
are going to read in the paper.
[Laughter.]
Then go on about your business doing a good job. Remember
the old Lincoln adage. Everybody was criticizing Lincoln. He
had the best response I have ever heard. He said that if I
spent my time trying to defend myself against these criticisms,
I would never get anything done. And in the end, if the critics
prove right, having a league of angels swear I was right will
make no difference. If you do a good job, in the end, people
will note it and they will appreciate it.
Finally, let me just thank both of you for your willingness
to serve. One of the things that I have always been impressed
by in sitting on this Committee is I know there are people out
there who think everybody has some kind of angle and that they
are all doing this for some promotion of their own individual
interest. I am continually struck by people who are willing to
make great sacrifices to serve the greatest country in the
history of the world. It is a country that deserves being
served, and I appreciate both of you being willing to serve in
this important agency at a very critical time.
And so, I am proud to support both of you, and I thank you,
Mr. Chairman.
Chairman Sarbanes. Thank you, Senator Gramm.
Ms. Glassman. Thank you.
Chairman Sarbanes. Senator Corzine.
Senator Corzine. Thank you, Mr. Chairman.
Let me echo, as I am sure all my colleagues would, the
sentiment that Senator Gramm reflects on service.
Chairman Sarbanes. Senator Gramm will be leaving the Senate
at the end of this year. As we get all these people in place,
there will be a SEC there for quite a period of time that will
reflect his input here.
Senator Gramm. And then I will be able to become rich in
this environment that you are going to create.
[Laughter.]
Senator Corzine. Ms. Glassman, you are an economist. You
made the point several times today. What do you think, and
particularly connecting it with some of the remarks, or at
least the thrust of the questions that Senator Akaka brought
forward, about financial literacy in this country? How do you
think the American investing public understands the footnoting
of options, and whether they are able to derive the implied
expense that might be there, or maybe some of us think should
be clearly reflected? I would certainly like to hear your
opinion on that as well.
But the important issue is do you think when you put
together the financial literacy concerns that both of you have
expressed and then look at the options questions, have we had a
misallocation of capital as a function of how our income
statements have been presented to the investing public?
Ms. Glassman. The simple answer to your first question is I
would be astonished if most Americans understood the footnotes
in the financial statements. But the real question is on the
question of options.
As an economist, I think stock options, do represent an
expense to the shareholders. Clearly, they dilute the
shareholders' interests. Therefore, it is important not only
that shareholders understand the impact of that dilution on
their interest, but also that they have the ability to vote on
those options, at least to the extent that they are material.
At the Commission, we have definitely been moving in that
direction.
Whether options should be explicitly expensed or very
clearly stated in the management discussion or upfront in the
report, I believe is an accounting issue that is best left to
FASB. But whatever the outcome, I think it is critical that
options are clearly understood. The market is already
recognizing this. The market now understands the importance of
options.
Senator Corzine. As an SEC Commissioner, you believe it
should best be left with FASB?
Ms. Glassman. The specific accounting treatment should be
left with FASB. However, I think it is important that the
information itself be pulled up out of the footnotes somehow,
whether it is in the MD&A or explicitly expensed. A number of
companies, as you know, are already expensing it. The problem,
and the reason it is not a simple decision, is that the
valuation of the options is very complex. Getting agreement on
what makes sense in terms of valuing them is really the hard
part.
Chairman Sarbanes. I would point out to my colleagues that
the second set of lights on the vote--there is a vote on--have
gone off just now.
Jon, why don't you continue? It is my intention when you
finish, if you are satisfied at that point, to adjourn the
hearing instead of resuming. But I will come back if anyone
wants to pursue it.
Senator Corzine. I would love to hear the shorthand
response to the allocation of capital that many economists and
econometricians have spoken to that we have misallocated,
potentially.
Ms. Glassman. To the extent that investors in the market
did not understand the impact of the options, and I believe
that until relatively recently, most people did not understand
the impact, then, clearly, resources have been misallocated.
Senator Corzine. Mr. Campos, any comments on any of these
issues?
Mr. Campos. It is a complex issue. I think all who have
studied and all academics right now would agree with Chairman
Greenspan and Warren Buffett that options are compensation and
need to be treated as such. Clearly, options dilute earnings.
You would hope that sophisticated financial analysts would
understand that and have been factoring that in, but clearly,
the public hasn't.
The other issue that I am concerned about is if we go down
this road, which I think is appropriate, and FASB should be
allowed because they have done a lot of work on this issue, to
finish up, if GAAP ends up essentially requiring expensing of
options, when you have small companies that are not publicly
traded, that are not publicly held, that essentially are start-
ups, you have a huge difficulty of valuation of their options.
And a lot of those companies' ability to attract talent has to
do with those options. The American Dream, if you will, of
creating a company and creating value. Those options are
essential. And how do you value those options when you have
only an idea to speak of at that particular point in time?
Senator Corzine. Thank you.
Chairman Sarbanes. Well, I want to thank the witnesses. Ms.
Glassman, I have to ask you a question because it comes up in
the press. Some assert this Commissioner came out of the
accounting business, that that is a troubled area right now
that needs tight oversight and supervision. They have raised
questions about people taking over the Commissionership coming
out of that background. What would your response be to that?
Ms. Glassman. I have had a 30 year career. The last five
were at an accounting firm as an economist. That experience has
been very helpful in my understanding of how the accounting
industry and the accounting profession do their jobs and how
they are organized. But I do not work for them any more. For
the past 6 months, I have worked for the American public. And
if confirmed, I will continue to work for the American public.
Chairman Sarbanes. Thank you very much. I thank both of our
nominees. It has been a very good hearing, and the hearing
stands adjourned.
Mr. Campos. Thank you.
Ms. Glassman. Thank you.
[Whereupon, at 11:16 a.m., the hearing was adjourned.]
[Prepared statements, biographical sketches of nominees,
and response to written questions follow:]
PREPARED STATEMENT OF CYNTHIA A. GLASSMAN
Member-Designate, U.S. Securities and Exchange Commission
July 23, 2002
Chairman Sarbanes, Senator Gramm, and distinguished Members of the
Committee, I am deeply honored to appear before you today to seek your
approval of my nomination by President Bush to serve as a Member of the
Securities and Exchange Commission. If confirmed by the Senate, I look
forward to continuing to fulfill the responsibilities of an SEC
Commissioner along with my new colleagues.
Accompanying me today on this important occasion are my husband,
Dr. Leonard Glassman, my son and his wife, Kenneth and Dr. Melissa
Glassman, and my mother-in-law, Mary Glassman.
I am a PhD economist with 30 years of experience analyzing
financial services regulatory policy issues in the public and private
sectors. I have worked at the Federal Reserve, two small consulting
firms, a large accounting firm, and for the past 6 months, the SEC.
Specific expertise that I bring to my responsibilities as a
Commissioner includes risk management, competitive analysis, and
financial reporting. I have also specialized in conducting analyses on
the continuing relevance of a wide range of financial services
regulations in a changed business environment.
As an economist, I believe strongly in letting markets work.
Nevertheless, there is an important role for regulatory oversight to
ensure that competition is fair, and that information provided to
customers is clear, accurate, and complete. Regulations should create
the right incentives to accomplish their goal, should be based on a
good understanding of how the business works, and should not result in
unintended consequences, either for regulated companies or for their
customers. In the current environment, the need for strong regulatory
oversight could not be more apparent.
When I was being considered for an appointment to the Commission
last fall, I had identified several issues as important to the SEC's
mission:
Are the Depression-era rules under which the SEC operates
still relevant?
Is the regulatory process providing the right incentives, or
is it resulting in unintended consequences?
Is the securities market structure appropriate?
Are investors receiving the information they need about
domestic and global companies to make good investment decisions?
Is investor education adequate for our complex financial
markets?
Recent events have shown how critical these issues are. Almost 6
months into my recess appointment as SEC Commissioner, I am outraged at
the financial fraud, misleading information, and investor losses that
have come to light. Given the extraordinary events of the last year,
the Commission's number one job right now is to restore investor
confidence in our markets and market participants. There is no question
that companies must be held accountable, and individuals need to be
held responsible, for adhering to both the letter and the spirit of the
Federal securities laws. But the SEC, in partnership with the Congress,
the Administration, and the States, must continue to be a driving force
in assuring that we have the appropriate securities laws and rules and
that we enforce them vigorously.
I began my career in the public sector with the Federal Reserve
System, and I am proud to return to public service as a Commissioner of
the SEC. My 6 months of hands-on experience as a Commissioner have only
increased my respect for the agency and its entire staff and my
appreciation of the challenges the Commission faces.
Thank you, Mr. Chairman, Senator Gramm, and Members of this
Committee for this opportunity. I would be happy to answer any
questions you may have.
PREPARED STATEMENT OF ROEL C. CAMPOS
Member-Designate, U.S. Securities and Exchange Commission
July 23, 2002
Chairman Sarbanes, Senator Gramm, distinguished Members of this
Committee, I cannot adequately describe to you the sheer delight that I
feel and the deep appreciation that I have for the opportunity to
appear before you today. I am deeply honored to have been nominated to
serve my country on the Securities and Exchange Commission.
Please allow me to introduce to you my wife, Mini. Mini and I were
high school sweethearts. She is my life partner, my closest friend, and
wisest adviser. Mini is a graduate of Harvard Medical School and is a
practicing physician. We have been blessed with two sons, David, who is
16 and Daniel, who is 12. Our sons bring Mini and me joy and pride
every day of our lives. Regrettably, our sons could not be here with us
today.
With your indulgence, I will very briefly share some of my life's
experiences and perspectives and then provide a few observations about
the unique challenges facing the SEC.
I am Mexican-American. My life's journey began in the small town of
Harlingen, Texas, near the Mexican border in the southern tip of Texas.
I was raised in a humble household, in which only Spanish was spoken.
My father, who could not be here today, is 88 years old. Like many in
his generation, my father had to drop out of school in the sixth grade
to help on the family farm. Later, when his country needed him, my
father volunteered and enlisted in the U.S. Army to serve in World War
II. He saw combat in Europe and was wounded in Germany and became
partially disabled. During my childhood, my father often had three or
four jobs at one time to make ends meet and to provide for our family.
My brothers and I would often help my dad in doing construction or
whatever extra job he had committed to do. He taught my brothers and
sister that honest hard work was noble, that service to our country was
honorable, and that education was the most valuable possession a person
could have.
My dad had a simple version of the American Dream. He believed that
hard work and sacrifice would produce better opportunities for his
children and permit him to live with dignity in his old age. Like
millions of Americans today, my dad today is retired and lives on his
savings, Social Security, and pension benefits. The series of recent
business scandals and the resulting crisis of confidence in our
financial markets threatens the future of my father and millions of
retirees. In my home town of Houston, Texas, I have seen neighbors, who
had worked for years for a certain major company, suddenly and without
warning, be without a job, without meaningful severance, and with their
retirement accounts wiped out. I worry, that inevitably, these
corporate abuses may create a separate crisis of confidence and that
the American public will come to question whether the American Dream
has become an illusion. If confirmed, I pledge to work tirelessly with
you and my colleagues at the SEC to restore the faith of the public in
the integrity of our financial markets.
I have been blessed during my life to have had the opportunity to
pursue higher education and to serve my country. As you know, apart
from my military service, I was a Federal prosecutor in Los Angeles. I
investigated, tried, and convicted Members of major criminal
enterprises and sent them to jail. I am informed that if the Senate
chooses to confirm me, I will be the first person to serve as an SEC
Commissioner with a law enforcement background. If confirmed, I will
bring my experience and accept the heavy responsibility to fairly and
carefully judge and determine the appropriate enforcement action and
sanctions in the many pending and future SEC investigations.
As you also know, I have spent about 16 years in private legal
practice as a corporate transactions lawyer and as a corporate
litigation and trial attorney. For the past few years, I have been an
executive and part owner of a small private company. If confirmed, I
will bring to the Commission my experience in having dealt with the
challenges of building and operating a company in the private sector.
One of the missions of the SEC that I will embrace if confirmed is to
promote an environment in which small, entrepreneurial, and emerging
companies can raise capital efficiently. As we all know, small and
emerging companies will produce much of the Nation's future economic
growth, creating a large share of tomorrow's new jobs and innovation,
and such companies will help to validate the American Dream. Over the
years, the SEC together with the able oversight of this Committee has
earned universal respect and admiration. If confirmed, I promise to use
all of my God-given abilities to uphold the SEC's legacy of exercising
fair and tough-minded regulatory authority.
The Senate last week took a historic and courageous step restoring
the public's confidence in the financial markets by passing the Public
Company Accounting Reform and Investor Protection Act of 2002. I, along
with the rest of the Nation, am in your debt Chairman Sarbanes for the
crucial role that you and this Committee played in bringing about this
legislation. If I am honored by being confirmed, I look forward with
great anticipation to working with you Mr. Chairman, Senator Gramm, and
this Committee, and with Chairman Pitt and my fellow Commissioners and
the talented staff at the SEC. There is much work to be done. However,
I
believe that we can together succeed and ably discharge our sacred
trust and our obligations to the American people.
Thank you for this opportunity to appear before you today. I will
do my best with any questions you may have.
RESPONSE TO A WRITTEN QUESTION OF SENATOR CORZINE FROM CYNTHIA
A. GLASSMAN
Q.1. Senator Corzine would like to give both nominees the
opportunity to answer the second part of his question regarding
whether there has been a misallocation of capital given the
current footnoting of options.
A.1. To the extent that the average investors do not understand
the implications of a company's grant of stock options on the
company's earnings, their investment decisions are not fully
informed. Investments made on the basis of such an inadequate
understanding would result in the misallocation of resources
because those companies that issue such options may be
perceived to have higher earnings than they would if the impact
of the options were fully understood.
While information on the impact of stock options is
contained in the footnotes to financial statements, it is my
impression that, at least until recently, many investors were
not aware of the information and what it meant for them. Given
the recent publicity on the issue, investors, analysts, and the
media are much more cognizant of the dilutive effect of stock
options and the impact of stock options on investors' returns.
More transparency of the impact of stock options could only
result in better resource allocation.
RESPONSE TO A WRITTEN QUESTION OF SENATOR CORZINE FROM ROEL C.
CAMPOS
Q.1. Senator Corzine would like to give both nominees the
opportunity to answer the second part of his question regarding
whether there has been a misallocation of capital given the
current footnoting of options.
A.1. Assuming the Senator refers to capital that has been used
to purchase equity, the answer would depend on the quality of
the analysis done in evaluating the financial statements.
Presumably, sophisticated analysts and users of financial
statements have used and interpreted footnotes and understood
the consequences and use of stock options in effecting earnings
per share and the ultimate net income results. To the extent
users of financial statements have not been sophisticated users
of financial statements, then the impact of stock options may
not have been properly assessed to determine the prospects of
an investment in that company. Clearly, most of the Members of
the public are not sophisticated users of financial statements
and likely have not understood the impact on earnings and
future share price from the existence of stock options.