Text: S.Hrg. 115-161 — THE FINANCIAL STABILITY OVERSIGHT COUNCIL ANNUAL REPORT TO CONGRESS

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[Senate Hearing 115-161]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 115-161


  THE FINANCIAL STABILITY OVERSIGHT COUNCIL ANNUAL REPORT TO CONGRESS

=======================================================================

                                 HEARING

                               BEFORE THE

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                                   ON

   EXAMINING THE FINANCIAL STABILITY OVERSIGHT COUNCIL'S 2017 ANNUAL 
   REPORT AND THE OPERATIONS AND ACTIVITIES OF THE FSOC THIS CONGRESS

                               __________

                            JANUARY 30, 2018

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs
                                
                                
                                

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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
BOB CORKER, Tennessee                JACK REED, Rhode Island
PATRICK J. TOOMEY, Pennsylvania      ROBERT MENENDEZ, New Jersey
DEAN HELLER, Nevada                  JON TESTER, Montana
TIM SCOTT, South Carolina            MARK R. WARNER, Virginia
BEN SASSE, Nebraska                  ELIZABETH WARREN, Massachusetts
TOM COTTON, Arkansas                 HEIDI HEITKAMP, North Dakota
MIKE ROUNDS, South Dakota            JOE DONNELLY, Indiana
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada
JERRY MORAN, Kansas                  DOUG JONES, Alabama

                     Gregg Richard, Staff Director

                 Mark Powden, Democratic Staff Director

                      Elad Roisman, Chief Counsel

                Brandon Beall, Professional Staff Member

                 Elisha Tuku, Democratic Chief Counsel

               Colin McGinnis, Democratic Policy Director

          Amanda Fischer, Democratic Professional Staff Member

           Corey Frayer, Democratic Professional Staff Member

                       Dawn Ratliff, Chief Clerk

                      Cameron Ricker, Deputy Clerk

                     James Guiliano, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                       TUESDAY, JANUARY 30, 2018

                                                                   Page

Opening statement of Chairman Crapo..............................     1
    Prepared statement...........................................    45

Opening statements, comments, or prepared statements of:
    Senator Brown................................................     2

                                WITNESS

Steven T. Mnuchin, Secretary, Department of the Treasury.........     4
    Prepared statement...........................................    45
    Responses to written questions of:
        Senator Brown............................................    48
        Senator Sasse............................................    53
        Senator Menendez.........................................    69
        Senator Warner...........................................    75
        Senator Van Hollen.......................................    77
        Senator Cortez Masto.....................................    77

              Additional Material Supplied for the Record

Letter submitted by Andrew M. Schaufele, Director, Bureau of 
  Revenue
  Estimates......................................................    85
Department of the Treasury 2017-2018 Priority Guidance Plan, 
  Joint
  Statement......................................................    86

                                 (iii)

 
  THE FINANCIAL STABILITY OVERSIGHT COUNCIL ANNUAL REPORT TO CONGRESS

                              ----------                              


                       TUESDAY, JANUARY 30, 2018

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10 a.m., in room 538, Dirksen Senate 
Office Building, Hon. Mike Crapo, Chairman of the Committee, 
presiding.

            OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

    Chairman Crapo. This hearing will come to order. Today, 
Treasury Steven Mnuchin will testify on Financial Stability 
Oversight Council's 2017 annual report and the operations and 
actions of FSOC this Congress.
    In December of last year, FSOC issued its 2017 annual 
report, in which it provided numerous recommendations, insights 
into the Council's key activities, and identified potential 
emerging threats to financial stability. One of the 
recommendations urged Congress to reform the housing finance 
system and boost the role of private capital in mortgage 
finance. I have repeatedly stated that the status quo is not a 
viable option and reforming the housing finance system is one 
of my key priorities.
    Testifying before the Banking Committee last year, 
Secretary Mnuchin reaffirmed his commitment to work with us to 
find a solution, and stressed the importance of finding a 
balance between ensuring strong taxpayer protection and ample 
access to credit.
    Four years ago, a bipartisan group of Senators passed a 
housing finance reform bill in this Committee. We have an 
opportunity now to build on that effort and create a broader 
coalition of Republicans and Democrats to pass a bill into law. 
This remains one of my top priorities, and I look forward to 
continuing to work with the other Members of this Committee, 
with Secretary Mnuchin, and other stakeholders throughout this 
process.
    Another focus of the report was cybersecurity, particularly 
in the financial services space. FSOC identified cybersecurity 
as an area requiring greater attention due to the increasing 
sophistication of cybercriminals and the growing scope and 
scale of malicious attacks, including data breaches. The list 
of significant cyberattacks and cyberbreaches both in the 
public and private sectors keeps growing at an alarming rate 
and seems to have impacted the majority of all Americans.
    The Council made recommendations to specifically address 
cybersecurity risks, including greater collaboration between 
the public and private sectors.
    It is critical that personal data is protected by both the 
Government and industry, and that when there is an attack or 
breach, the impact on victims is minimized.
    The report also highlighted key actions taken by the 
Council since the last report. This included FSOC rescinding 
the designation of two nonbank financial companies. Many of us 
on the Committee have long been critical of the lack of 
transparency and analytic rigor of FSOC's process for 
designating nonbank SIFIs.
    In November 2017, Treasury issued a report outlining 
recommendations for enhancing both the nonbank and financial 
market utility designation process, which included tailoring 
regulations to minimize burdens and ensuring the designation 
analyses are rigorous, clear, and transparent.
    In the past, the nonbank SIFI designation process has 
lacked clarity and consistency, with the threat of serious 
regulatory consequences for firms that received the 
designations. This inevitably translates into higher costs for 
consumers and the overall economy.
    When making determinations, the FSOC's process must be 
transparent, objective, and measurable, with clearly outlined 
criteria when such designations are appropriate. It must also 
provide clarity on how companies can shed such designations.
    I thank the Secretary for his work in these areas and for 
testifying before the Committee today, and look forward to his 
comments and insights on these and other important issues.
    Senator Brown.

           OPENING STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Mr. Chairman, and welcome, Mr. 
Secretary. I look forward to your testimony on the threats to 
financial stability.
    The economy has grown steadily for the past 8 years, in 
large part because of the hard-earned progress of the Obama 
administration. Unemployment has fallen and some, but certainly 
not all families have recovered from the financial crisis. We 
made some progress. We still have some pretty substantial 
challenges to financial stability in this country.
    Personal savings rates have fallen for years, now stand at 
only 2.4 percent, the lowest since September 2005. Household 
debt continues to climb. Job growth in 2017 was OK--we will 
hear about that tonight--but below job growth in 2017 was below 
the levels of job growth in 2011, 2012, 2013, 2014, 2015, 2016. 
Three million Americans have lost their health insurance since 
this President took office, the largest jump since Gallup 
started tracking coverage a decade ago.
    For the second year in a row, life expectancy for Americans 
actually fell, driven in large part by an opioid epidemic that 
has been ignored by too many in Washington.
    Stock markets around the world have been on a tear, which 
certainly helps the top fifth of Americans. By one estimate, 
these are the people who own 92 percent of stocks in the United 
States. It is good for workers with a 401(k)--we welcome that--
but too few workers have even that retirement security. Only a 
third of workers are making contributions to a 401(k) or a 
similar retirement plan.
    While the President likes to take credit for what he 
labeled an ugly bubble a little over a year ago, it will be 
interesting to see if he is eager to take credit for a down 
market.
    Most workers build wealth with a hard-earned paycheck, not 
a statement from their broker. While the economy's growth last 
year was the same as it averaged over the prior 3 years, the 
share that goes to wages continues to be far too weak, and for 
these people, a teamster in Toledo, a waitress in Waverly, a 
machinist in Mansfield, building a secure middle-class life is 
as tough as ever. The policies of this Administration and this 
Congress are only making these problems worse.
    The tax bill raises health care premiums--we know that--it 
gives a huge boost to the richest people in the country--we 
know that--and it could encourage more outsourcing. It keeps in 
placed the idiotic tax deduction that corporations get for 
shutting down in Lima or Zanesville, Ohio, and moving to Wuhan 
or Beijing. And, in fact, American companies will be enticed to 
do that even more because companies could owe absolutely 
nothing to the IRS on overseas manufacturing operations, 
brought to you by this most recent tax bill.
    Meanwhile, our kids will be left with the tab, picking up 
$1 trillion in new deficits, something that your party, and 
Republicans in this town, used to care about.
    I will be the first to acknowledge when a company does the 
right thing and boosts wages. I was asking bank CEOs to 
increase pay for their tellers, averaging about $13 an hour, 
custodians, and contract workers, long before the labor market 
was tight. I thank them when they do that. I call them and 
compliment them. And I offered an amendment to the tax bill to 
reward companies that did right by their workers, the Patriot 
Corporation Act.
    So I am happy that a combination of factors has caused some 
employers to pay their workers more, but let us keep it in 
perspective. Take Wells Fargo, a bank you are very aware of--
familiar with. After the tax bill, Wells Fargo put out a press 
release to brag about raising pay to $15 an hour. We welcome 
that and thank them for that. But last week the bank announced 
it was buying back more than $22 billion--billion with a B--of 
its own stock this year, dwarfing what it passed on to workers. 
Think about that. That is 288 times more spent to juice their 
stock than the cost of raising workers' pay--288 times.
    Bank of America announced a $17 billion stock buyback while 
saying it was phasing out free checking for certain customers, 
now charging them $12 a month.
    The middle class is not just getting the short end of the 
tax bill. We also know they will pay the price if we roll back 
the rules for the financial industry. This comes as no surprise 
since this Administration looks like a retreat for Goldman 
Sachs executives.
    The Treasury has issued a steady drumbeat of reports 
suggesting hundreds of changes to our consumer protection and 
financial stability rules that will make the risk and severity 
of the next crisis much greater. FSOC's tools are only as 
powerful as its members' willingness to use them. While past 
members of FSOC were eager to do the hard work of keeping Wall 
Street honest, this new team would rather join them for 
schnapps at a Swiss ski resort.
    Instead of fulfilling Wall Street's wish list, we should be 
finding a long-term solution for our budget. We should invest 
in our Nation's crumbling roads and bridges. We should ensure 
that workers are keeping the pensions they have earned.
    I agree with FSOC's warning that many multi-employer plans 
are in tough shape. If the Congress and the Administration do 
not act soon, we threaten the promises made to millions of 
retirees, hence our Butch Lewis Pension Act.
    I look forward to today's hearing and thank the Chairman 
and the Secretary.
    Chairman Crapo. Thank you, and Mr. Secretary, you can see 
there still are some disagreements among us here on the panel. 
I suspect we will get into some of those today during your 
testimony. We again appreciate you being willing to come here 
and report once again to us.
    With that we will turn to your testimony. You may begin 
your statement.

 STATEMENT OF STEVEN T. MNUCHIN, SECRETARY, DEPARTMENT OF THE 
                            TREASURY

    Mr. Mnuchin. Thank you. Chairman Crapo, Ranking Member 
Brown, and Members of the Committee, thank you for inviting me 
today. One of my top priorities as Treasury Secretary is 
sustained economic growth for the American people, so I am 
happy to report that the growth rate of the economy over the 
past year was higher than the average over the prior 20 years, 
and included two straight quarters of 3 percent or higher GDP 
growth. The President promised robust growth, and he is 
delivering on that promise.
    I am here today to speak about the Financial Stability 
Oversight Council's 2017 annual report. This is an important 
vehicle for providing Congress and the public with the 
Council's assessments and recommendations relating to 
regulatory developments and potential risks to the financial 
system.
    This report emphasizes the importance of economic growth to 
maintaining a resilient financial system. Since the financial 
crisis, we have had time to assess the effectiveness of 
regulatory reforms and consider their unintended consequences. 
The report recommends that the Council member agencies address 
regulatory overlap and duplication, modernize outdated 
regulations, and tailor regulations based on the size and 
complexity of financial institutions.
    The report also discusses a number of risks that the 
Council is monitoring. One that I would like to emphasize in 
particular is cybersecurity. The financial system's heavy and 
increasing reliance on technology increases the risk that 
significant cybersecurity incidents could disrupt the financial 
sector and potentially impact U.S. financial stability. 
Substantial gains have been made, but I want to emphasize the 
need for sustained attention to these risks.
    The report makes a number of recommendations, including 
creation of a private sector council of senior executives in 
the financial sector to collaborate with regulators in order to 
mitigate cybersecurity threats.
    Turning to our growth policies, the Tax Cuts and Jobs Act 
passed last year was our top priority, and this overhaul of the 
tax code is already having a positive impact. Because of tax 
reform, over three million Americans have received special 
bonuses or other benefits, and over 250 companies have 
announced investments in their workforces. Companies are 
announcing higher wages and increased benefits, as well as 
greater spending on employee training, infrastructure, and 
research and development. These investments will lead to long-
term prosperity, and as companies continue to bring back cash 
from overseas, our economy will continue to grow.
    Let me now turn to some specific priorities for this new 
year.
    I want to commend the houses of Congress for their work on 
financial regulatory reform. The bipartisan Economic Growth, 
Regulatory Relief, and Consumer Protection Act is a balanced 
and thoughtful approach that better aligns our financial system 
to support economic growth in our communities. Further, the 
legislation reflects many of Treasury's recommendations from 
our Executive Order reports released last year. I encourage the 
Senate and the House to work together to move legislation as 
quickly as possible.
    In December, I wrote to Congress providing notification of 
my determination that a ``debt issuance suspension period'' 
would last until January 31st. Congress has not acted to 
suspend or increase the debt ceiling. I have determined that 
the DISP will be extended into February and will be notifying 
Congress as such. I respectfully urge Congress to act as soon 
as possible to protect the full faith and credit of the United 
States by increasing the statutory debt limit.
    The House and Senate have been working toward modernization 
of the Committee on Foreign Investment in the United States, 
CFIUS. I support the Foreign Investment Risk Review 
Modernization Act, FIRRMA, and applaud Senators Cornyn, 
Feinstein, and Burr and Representatives Pittenger and Heck for 
their leadership on this issue. A modernized CFIUS will enable 
us to protect our national security from current, emerging, and 
future threats, while preserving our longstanding open 
investment policy that is key to fostering innovation and 
economic growth. I look forward to working with Congress and 
the relevant committees to advance FIRRMA.
    One of Treasury's core missions is to safeguard the Nation 
by using the powerful economic tools in our arsenal. We will 
continue to take frequent and ongoing actions to combat threats 
from malicious actors. These include terrorist groups, 
proliferators of weapons of mass destruction, human rights 
abusers, cybercriminals, and rogue regimes like North Korea, 
Iran, and Venezuela. We continue to review intelligence to 
identify targets with maximum impact and deny them access to 
the U.S. and international financial systems, disrupt their 
revenue streams, and ultimately pressure them to change their 
behavior.
    On housing finance, the current situation of indefinite 
conservatorship for Fannie Mae and Freddie Mac is neither a 
sustainable nor a lasting solution. The Administration looks 
forward to working with Congress to reform America's housing 
finance system in a manner that helps consumers obtain the 
housing best suited to their own personal and financial 
situations while, at the same time, protecting taxpayers.
    I am proud of what we have accomplished so far, and there 
is more to do. Our country's potential is enormous, which is 
why Americans expect their Government to enact policies to 
allow them to succeed and prosper. Treasury's collaboration 
with Congress is vital to that mission, and we are working 
every day to make it a reality.
    Thank you very much and I look forward to answering your 
questions.
    Chairman Crapo. Thank you very much, Secretary Mnuchin. I 
appreciated your comments about the Economic Growth, Regulatory 
Reform, and Consumer Protection Act and appreciate your 
encouragement that we move it quickly. I also appreciated your 
comments on housing finance reform. As I indicated, it is 
currently my highest priority in the Committee.
    In the FSOC annual report last year, one recommendation 
made was that the regulators and market participants continue 
to take steps to encourage private capital to play a larger 
role in the housing finance system. I agree with that goal.
    Can you elaborate on why it is important for private 
capital to play a larger role and what steps you believe we can 
take to further encourage that?
    Mr. Mnuchin. Chairman Crapo, thank you very much. I 
fundamentally believe in the importance of the 30-year 
mortgage. I think it is important to the economy, and as we 
look at housing reform we need to look at Fannie Mae and 
Freddie Mac as well as the risks in FHA. And I am open-minded 
to many solutions and I have actually had some very productive 
conversations with several Members of your Committee on this, 
and look forward to working with you on them.
    I do believe that in order to protect taxpayers we do need 
to have substantial private capital and risk in front of any 
type of Government guarantee or Government support.
    Chairman Crapo. Well, thank you very much, and in the 
context of protecting taxpayers against a Government guarantee, 
there have been a number of different ideas about how to 
accomplish that as well, including the idea of private 
guarantors absorbing losses in front of the Government 
guarantee. If that were part of the model, do you believe it is 
important that such guarantors are subject to GSIB-like capital 
requirements to ensure that the taxpayers are protected?
    Mr. Mnuchin. I think it is very important that there is 
substantial capital and that the taxpayers are protected, and I 
look forward to working with you and your Committee, and also 
feel if there is any guarantee that the taxpayers are paid for 
putting that up as opposed to explicit guarantees that were not 
compensated in the past.
    Chairman Crapo. All right. Thank you. And moving to another 
topic, in the Treasury report on FSOC's designation process, 
Treasury recommended that the FSOC implement an activities-
based or industrywide approach to evaluating systemic risk. 
Similarly, in 2017, the International Association of Insurance 
Supervisors announced the development of an activities-based 
approach to assessing systemic risk in the insurance sector.
    How would an activities-based approach to assessing 
systemic risk work, and why is it more effective than the 
current entities-based approach?
    Mr. Mnuchin. I think it is more effective because, to the 
extent that we look at risky activities across an industry or 
within a sector, we can look at proper regulation that deals 
with those issues and eliminates systemic risk.
    Chairman Crapo. Moving to cybersecurity, cybersecurity is 
one of the most pressing issues, and you mentioned that again 
in your testimony, that faces companies, consumers, and 
Governments. The FSOC annual report identified cyberattacks on 
financial services companies as a potential vulnerability to 
U.S. financial stability, due to the increasing frequency and 
sophistication of such attacks.
    Where does the FSOC see gaps or shortfalls in cybersecurity 
today and, frankly, what steps can we take to address this?
    Mr. Mnuchin. Well, I am pleased to say that I do not see 
any specific gaps today, but I do think this is an area where 
we need to always be advancing issue, I think, whether it is 
recent issues we have seen in chips or recent software 
situation. This is something that we need to be very, very 
careful, we need to be working in public-private partnerships, 
we need to have ways of sharing intelligence when it is 
appropriate, and we need to make sure that whatever the cost, 
the United States financial system is protected from 
cyberattacks.
    Chairman Crapo. Thank you. I appreciate your attention to 
all these issues, and also the willingness you have to engage 
very aggressively with us on issues as they come forward, and I 
am sure we will be dealing with you on each of these as well as 
many more. And again, Mr. Secretary, I appreciate your 
attendance here today.
    With that, Senator Brown.
    Senator Brown. Thank you, Mr. Chairman. Based on the bank 
threshold in the Wall Street Reform Act, FSOC uses a $50 
billion threshold in its initial factor to determine if a 
shadow bank could cause systemic risk. The Treasury's November 
report suggests raising that level. If the Chairman's bank 
deregulation bill is enacted, is it safe to say FSOC would 
raise its threshold fivefold and would not put any resources 
into investigating any shadow bank below 250, as your report 
said?
    Mr. Mnuchin. I think that is correct and I think there is a 
general consensus from the regulatory community that the 
threshold should be raised. And, of course, the Committee could 
always make certain exceptions if there were significant 
instances.
    Senator Brown. Well, I challenge that statement. Maybe the 
regulators appointed by President Trump, not the regulators 
that have been in office that are leaving, do not say it should 
be 250, but more on that later.
    This bill, then, has other consequences beyond bank dereg. 
It would mean that the FSOC would be very unlikely to designate 
a large leverage hedge fund, like Long-Term Capital Management, 
which, when it failed, had just $129 billion in assets, 
leverage of 25-to-1, and more than $1 trillion in derivatives. 
With this exposure I think you are making the system less safe, 
to safe and sound, with those ideas.
    Second question. The June Treasury report on banking dereg 
said if we raise the $50 billion threshold for U.S. banks we 
should do the same for foreign megabanks, based on their 
domestic assets. So if the Chairman's bank deregulation bill is 
enacted, foreign banks with up to $250 billion in U.S. assets 
are going to be deregulated, akin to U.S. regional banks. 
Correct?
    Mr. Mnuchin. That is correct.
    Senator Brown. So the Treasury report specifically said if 
we move the $50 billion threshold up, it is the Department's 
position we should also move the threshold up for foreign 
banks. The report says the $50 billion threshold for CCAR 
stress test domestic and foreign banks should be raised too.
    So to be clear, the Chairman's bill, with your 
acquiescence, will deregulate banks like Santander that has 
repeatedly failed its stress test, and Deutsche Bank, basically 
the only bank that would lend President Trump money after his 
repeated bankruptcies and botched deals.
    The third question, Mr. Secretary. Last night your staff 
sent to the Committee various classified and unclassified 
reports, due under the Russia sanctions bill, including an 
unclassified oligarch's report that looked a lot like the 
Forbes list of Russia's wealthiest men. I hope the classified 
portion is more detailed and compelling.
    Also yesterday, CIA Director Pompeo said he did not see any 
reduction in Russian subversion of Western elections, nor did 
he expect them to back off their efforts to interfere in our 
own upcoming elections. The President reportedly will talk 
about the need for bipartisanship tonight. He cannot get any 
more bipartisan than the work that Senator Crapo and I did on 
the Russia sanctions bill--92-2 it passed. Yet it looks like 
the President did not impose any sanctions under the mandatory 
authorities we enacted, nothing to combat Russia's 
cyberactivity, no sanction on those helping its intelligence 
and defense sectors, nothing in response to its corrupt 
privatization of State-owned assets.
    So how can sanctions punish Russia interference in Ukraine 
and in American elections and deter future interference if 
these sanctions continue to sit on the shelf, unused by the 
President?
    Mr. Mnuchin. So let me first say I want to commend the TFI 
group, the Treasury, and the intelligence community who did an 
enormous amount of work in preparation of the report that we 
delivered last night.
    As we tried to outline in the unclassified version, the 
list in the unclassified version is senior political people, as 
well as oligarchs based upon a threshold of $1 billion or more 
of--based upon public. So you are correct that the public 
version does look a lot like the public----
    Senator Brown. I am sorry to interrupt but time is limited. 
So when are you going to take those sanctions off the shelf and 
use them, in terms of cybersecurity, in terms of intelligence, 
in terms of American elections?
    Mr. Mnuchin. There is a substantial amount of work that was 
done. I look forward to you reviewing the classified report, 
and we will----
    Senator Brown. No. It is----
    Mr. Mnuchin. ----be doing--based upon that, we will be 
looking at taking appropriate action.
    Senator Brown. My time is ticking. 98-2 in the Senate, 3 no 
votes in the House. There is a lot of belief on both sides of 
the aisle. I hear Senators talking privately about this, that 
this Congress and the American people do not trust the 
President on Russia, his closeness to Putin, all those things, 
and your delay on this, your slow walk, just enforces that last 
question.
    In November, FSOC cited persistent budget deficits as a 
threat to economic growth, the FSOC annual report. A month 
later the President, and a partisan majority in the Congress, 
ignored their own warnings, passing tax cuts for corporations 
and millionaires, that will add more than $1 trillion to the 
deficit. Immediately after passing the budget-busting tax bill, 
some of my colleagues started to turn toward gutting 
entitlements under the guise of fixing the deficit.
    I listened to candidate Trump come to Ohio for rally after 
rally after rally. He said he would protect Medicare. He said 
he would protect Medicaid. He said he would protect Social 
Security. So it is fair to add $1 trillion to the deficit for 
tax cuts and then have colleagues, Republican colleagues, with 
apparently the President's now acquiescence, to start talking 
about cutting Medicare and Medicaid and Social Security?
    Mr. Mnuchin. Senator Brown, first let me just comment on 
your previous comment. I do not think, in any way, we are slow-
walking the report that we delivered last night and I we look 
forward to discussing it with you in a classified setting.
    On the issue of the taxes, I think you know, as I have said 
before, the President, I believe, that with a breakeven of 35 
basis points, the tax bill will create growth, it will create 
enough revenue.
    Senator Brown. Nobody has ever believed that in the past. 
Why should we believe that now?
    Mr. Mnuchin. Again, I would be more than happy to meet with 
you and go through the numbers in our economic analysis.
    Senator Brown. But why the acquiescence on the attacks on 
Medicare, Medicaid, and Social Security, calling them 
unsustainable when the President promised to protect them?
    Mr. Mnuchin. Again, I have not made those comments, 
Senator.
    Chairman Crapo. Senator Shelby.
    Senator Shelby. Thank you. Mr. Secretary, thank you for 
your service. Also, I would be remiss if I did not thank you 
for your leadership and your steady hand in dealing with the 
tax reform measure, that a lot of us--maybe not all of us, but 
a lot of us believe is going to really help our economy, and we 
see signs of it already in the confidence, at least I see. But 
congratulations on that.
    FSOCs. When you designate an entity that is deemed 
systemically risky, that is a very, very important designation. 
I mean, it should not be done on a whim, should it not? It 
should be done very carefully with a lot of data and a lot of 
thought.
    When we look at insurance companies as an entity, and we 
look at banks as an entity, there might be some overlap, but 
two different models, at least I believe. Should they be viewed 
as such before you make a designation? What is your thought on 
that?
    Mr. Mnuchin. I think, as you pointed out, banks are very 
different from insurance companies. They have very different 
liabilities.
    Senator Shelby. Uh-huh.
    Mr. Mnuchin. And they should be reviewed carefully, which 
is something I believe we have done at the Committee over the 
last year.
    Senator Shelby. You have. When you designate--going back to 
that--when you designate an entity systematically risky, that 
is a profound thing. Would you agree with that?
    Mr. Mnuchin. I would.
    Senator Shelby. OK. Now I want to shift to something that I 
hope you will have some play in and some interest in, and that 
is the infrastructure. We keep talking about infrastructure. 
How are we going to come up--how is the Trump administration? I 
think a lot of Democrats and Republicans both know that we need 
an infrastructure bill. We need to do it. And, of course, it 
takes money to put that together. We know that.
    But how do we use an infrastructure bill, if we come with 
one, and I hope we will, to tap the private money in America, 
which you are very familiar with, there is a lot of it out 
there, that is looking for a better return on their investment? 
How do we do that, rather than just let the Government deal 
with infrastructure? Have you thought about that?
    Mr. Mnuchin. We have thought about that. the Administration 
has put a lot of work into this and the President looks forward 
to releasing his infrastructure plan shortly and working with 
Congress. And I agree with you that we should be looking at 
both Federal money, State money, as well as private money, as 
we look at infrastructure investment.
    Senator Shelby. But should not the infrastructure bill, 
from the standpoint of our future economy, the infrastructure 
in this country is so important to move goods, people, 
services, and be one of our top priorities? I think it might 
be.
    Mr. Mnuchin. I believe so, yes.
    Senator Shelby. The Chairman talked about cybersecurity. We 
know we are in the information age. So is everybody else in the 
world. We know that we get benefits from this--big benefits--
from modern information systems, but they are subject to 
attack, including our law enforcement, Pentagon, Treasury, 
Federal Reserve, and so forth.
    This is an ongoing risk management thing. I do not know how 
we get to the bottom of it, but that is a big, big challenge 
for all of us, and it has got to be for Treasury, is it not?
    Mr. Mnuchin. It is and that is why it is one of my top 
priorities, Senator.
    Senator Shelby. What should we do first? Should we worry 
about the financial system? Sure. Should we worry about our 
electrical grid? Sure. But we also have to worry, first of all, 
about national security and the implications of penetrating 
through cybersecurity, do we not?
    Mr. Mnuchin. That is correct and that is why we have a 
process across all the different agencies that we are focus on 
this. Homeland Security is responsible for the overall 
coordination. We are responsible for looking at the financial 
sector and dedicating a lot of resources to that.
    Senator Shelby. How do you think the economy will continue 
to grow? I like what I see out there. We feel it. People have 
got confidence. Do you feel like it is going to continue to 
move forward?
    Mr. Mnuchin. I do, and I think, as you know, the President 
is determined that we enact legislation that moves forward on a 
sustained economic growth, the 3 percent or higher. We are not 
focused on any one quarter. We are focused on sustained growth.
    Senator Shelby. Thank you. Thank you, Mr. Chairman.
    Chairman Crapo. Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman. Mr. Secretary, 
you have talked up the economy and the results of the Trump tax 
plan but I do not think the workers facing layoff at Carrier, 
Toys `R' Us, AT&T, Kimberly Clark, Walmart, and GE would share 
your enthusiasm, and I do not think we should be satisfied with 
the slowest year of job growth since 2011. So I have a much 
different view about what we need to do as it relates to the 
economy.
    But I want to get to a specific provision in the Trump tax 
bill, which gutted the State and local tax deduction and 
compelled thousands of New Jerseyans to rush to prepay their 
2018 property taxes before the start of the year in order to 
escape being taxed twice on the same dollar. And if it was not 
bad enough spending the holiday fretting over a tax hike, in 
came the Grinch, played by the IRS, to tell them they could not 
deduct their property taxes in 2017, despite paying them that 
year.
    Now this IRS advisory was confusing, frustrating, and, most 
importantly, was plain wrong--plain wrong. The Trump tax bill 
specifically prohibited the deduction of prepaid State income 
taxes, but it made no similar prohibition against prepaid 
property taxes.
    So my question, Mr. Secretary, is do you commit to fixing 
this fundamentally flawed IRS advisory and stopping the IRS 
from changing the rules in the middle of the game for working 
families?
    Mr. Mnuchin. Senator, actually, I do not think it was 
confusing. The intention for the IRS was actually to put 
something out that clarified.
    Senator Menendez. It is wrong.
    Mr. Mnuchin. What the IRS----
    Senator Menendez. Do you suggest that that advisory is 
right?
    Mr. Mnuchin. Yes, I do. What the IRS advisory----
    Senator Menendez. How is that possible that it is right 
when the legislative text is as clear as day? Section 11042 
specifically prohibits 2018 State and local income taxes from 
being prepaid and deducted from Federal income taxes in 2017. 
It is silent--silent--on the prepayment and deduction of 
property taxes. Now whether that exclusion was included 
intentionally or because of the secretive and rushed process by 
which the bill became law, the legislative text, through its 
deafening silence, actually is loud and clear on this topic. 
And that means the IRS advisory clearly contradicts the law and 
is nothing more than a back-door attempt to get these people 
who should not have--should be able to deduct their property 
taxes when they paid it.
    Mr. Mnuchin. Senator, what the IRS advisory did is it 
deferred it to the legal position of the State, and I would be 
more than happy to meet with you and go through that. The 
intent was that it would not allow taxpayers to abuse the 
system, and again, it was intended for clarification.
    Senator Menendez. Abuse.
    Mr. Mnuchin. It never said----
    Senator Menendez. The system is abusing them. They paid it 
in 2017. They should be able to deduct it in 2017. I hope that 
you can get to a point with us that you can help us on this, 
because it will be bad enough that in the next years they will 
not have that deduction. But they certainly should get the 
deduction for the year in which they paid it.
    Let me ask you this. The CIA Director Pompeo unequivocally 
states that he believes that Russia has every intention in 
meddling in the 2018 election. Do you agree with his 
assessment?
    Mr. Mnuchin. I defer to the CIA Director on that.
    Senator Menendez. You do not disagree with his assessment.
    Mr. Mnuchin. I am not disagreeing with him.
    Senator Menendez. Do you agree with the assessment for our 
intelligence community that Russia used a hybrid of political 
intelligence and defense tools to meddle in the 2016 U.S. 
elections?
    Mr. Mnuchin. Again, I am not going to comment on things 
that I have classified information on----
    [Overlapping speakers.]
    Senator Menendez. It is not a question of that. There has 
been plenty in the public sphere to have a judgment on this, 
because your department actually has jurisdiction over the 
enforcement of sanctions. So if you do not believe those things 
are true then maybe that goes to your view on sanctions policy.
    Mr. Mnuchin. Senator, I did not say I did not believe it 
was true. I said I was not----
    Senator Menendez. You did not tell me you did.
    Mr. Mnuchin. ----going to comment on----
    Senator Menendez. It is a simple--it is not classified.
    So yesterday the Treasury Department identified senior 
political oligarchs and political figures in Russia, as 
mandated in the Countering America's Adversaries Through the 
Sanctions Act, which I was one of the coauthors of, which this 
body passed 98-2. That law provided the tools and a deadline of 
yesterday to go after entities who support the very same 
Russian intelligence and defense agencies. However, is it not 
true that yesterday the Trump administration failed to apply a 
single new sanction against anyone who might be supporting 
these Russian efforts?
    Mr. Mnuchin. Senator, we very much agree with the purpose 
of the report. There was an extraordinary amount of work. I 
assume you have not yet reviewed the classified version. I look 
forward to----
    Senator Menendez. Just give me a simple yes or no, as my 
time----
    Mr. Mnuchin. What I want to----
    Senator Menendez. Have you, the Administration, imposed any 
new sanctions on any of these entities?
    Mr. Mnuchin. Again, the intent was not to have sanctions by 
the delivery report last night. The intent was to do an 
extremely thorough analysis. It is hundreds of pages, and there 
will be sanctions that come out of this report.
    Senator Menendez. The law is pretty clear and it seems to 
me not only did you have to describe the entities but you also 
had to pursue sanctions, and I will look forward to continuing 
to press that question of the Administration.
    Chairman Crapo. Senator Heller.
    Senator Heller. Mr. Chairman, thank you, and Mr. Secretary, 
thanks for taking time being with us today.
    I am sure you recall last August when you came to Las 
Vegas, had a roundtable with some prominent business leaders in 
my State. And what I am pleased about is that the promises and 
the questions, the concerns that were shared at that roundtable 
were delivered 4 months later, in December, with the tax bill 
that did file.
    Last week I had a town hall meeting out of my office with 
NFIB, and we called thousands of small businesses in the State 
of Nevada. Hundreds were on the line. And questions were asked, 
specifically with this new tax bill out there, what do you 
anticipate your business practices will be for this year? 
Ninety percent--90 percent of the small businesses in Nevada 
said that they were planning on expanding their business, that 
they are going to hire more employees, that they are going to 
provide bonuses, pay raises, and increase the minimum wage for 
their business. Ninety percent said they would either do parts 
or all or some of those business activities.
    Now, it was not a professional survey, by any means, but I 
was just pleased to know that what the White House and what 
your department attempted to do in December, I do believe, are 
being delivered on what we are seeing in the State of Nevada.
    We have had South Point Casino said it is going to double 
its 2,300 full-time workers' bonuses. We have seen 
Fontainebleau developers say that they are going to resume a 
stalled project and that the effects of that will be creating 
approximately 10,000 jobs. And we are seeing this across the 
State of Nevada and I want to thank you, the White House, and 
all your efforts of putting us where we are today and seeing 
this kind of expansion.
    So what do you anticipate economic growth being this year, 
from what you originally anticipated?
    Mr. Mnuchin. Senator, as I have said, and, first of all, 
thank you for your comments. I think, as you know, the tax rate 
on small businesses is the lowest it has been since 1930s and 
we are seeing that in terms of a pickup in growth.
    We would expect, again, over the next several years, 
sustained economic growth of 3 percent or higher.
    Senator Heller. I was in your office and you showed me that 
comment, written note from the President, saying that he wants 
5 percent growth. When are we going to get there?
    Mr. Mnuchin. He has delivered high ambitions for us, as you 
know.
    Senator Heller. What positive effects do we expect to see 
in Nevada over the next couple of years?
    Mr. Mnuchin. I am sorry. Could you repeat that, Senator?
    Senator Heller. Could you tell us what positive impacts we 
will see in the next couple of years through growth and 
business activities in the State of Nevada?
    Mr. Mnuchin. Well, I think one of the most important things 
is that we expect to see wage inflation. For the average 
America, their wages have really gone nowhere. It has been a 
great time for financial people, and one of the benefits we 
expect to see, of the tax bill, is wage growth.
    Senator Heller. What do you anticipate with capital coming 
back into the country? Apple just announced a new data center 
expansion in Reno, and it is a $30 billion capital expenditure 
over the next 5 years. Can we anticipate, or what do you 
anticipate over the next 5 years with capital coming back into 
the United States due to this tax bill?
    Mr. Mnuchin. We expect a lot. I had the pleasure of meeting 
with Tim Cook recently, to talk about their investment. 
Obviously they are bringing back hundreds of billions of 
dollar. They are paying a very large tax to do that, and they 
have made a major commitment to invest in the United States.
    I also had the opportunity to meet with many CEOs of 
international companies that, as a result of the tax bill, are 
now committed to bring manufacturing into the U.S., and we look 
forward to that.
    Senator Heller. Mr. Secretary, I am pleased that you are 
here, and to the Chairman, you know, we are seeing some huge 
expansions in the State of Nevada. In fact, some of it is 
actually causing problems. In northern Nevada our housing 
starts are about 20 percent behind. With the kind of expansion 
that we are seeing that has come from this piece of legislation 
that was passed in December, the Jobs Act is doing exactly 
that, technology and technical companies coming to the State of 
Nevada. We can list them, from Amazon to Tesla to Apple. The 
list of organizations that are moving into both the northern 
and the southern part of the State has been pretty incredible. 
And I am just pleased that we have the Treasury Secretary in 
front of us today to expound on some of these issues, and I 
want to thank you for the time.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you, Senator Heller. Senator Tester.
    Senator Tester. Thank you, Mr. Chairman and Ranking Member, 
and thank you for being here, Secretary Mnuchin.
    Are you familiar with the Marketplace Fairness Act, sales 
tax?
    Mr. Mnuchin. Yes, I am.
    Senator Tester. Will you and the President oppose creating 
this?
    Mr. Mnuchin. I think the President is--fundamentally 
supports the idea of some type of sales tax across the board 
and we look forward to working with you and others on that.
    Senator Tester. So what you are saying is the President 
would support a national online sales tax.
    Mr. Mnuchin. In my conversations with the President on 
that, he thinks that there are aspects of that that he likes a 
lot and he looks forward to working with you and others on it.
    Senator Tester. Will you direct the Treasury Department to 
conduct a study on what I believe would be burdensome costs on 
small businesses in non-sales tax States?
    Mr. Mnuchin. I would be more than happy to work with your 
office on that, and we think there are ways of dealing with 
that.
    Senator Tester. I would love to have that conversation, to 
figure out how we could do that.
    In a previous question on entitlement reform, you had said 
that you had not made the commitment to protect Social Security 
and Medicare, that the President had. Does that mean that you 
are looking to do reductions in Social Security and Medicare?
    Mr. Mnuchin. Not at all.
    Senator Tester. What does that mean then?
    Mr. Mnuchin. It just meant--again, it was a comment I was 
referring to, at the time. The President has made that 
commitment and I have every reason to believe he will continue 
with that commitment.
    Senator Tester. And do you believe, personally, that you 
will support him in that commitment?
    Mr. Mnuchin. Of course. Whatever the President wants to do, 
I will support.
    Senator Tester. OK. Do you believe that a 30-year fixed 
rate note would exist without a Government guarantee?
    Mr. Mnuchin. I think that a 30-year--well, again, I think 
it is critical that we have a 30-year mortgage. I do not 
believe that the private markets, on their own, could support 
it. So I think one of the things that we are looking at is 
various different solutions around that.
    Senator Tester. I gotcha and I do not disagree with any of 
your comments that you talked about with the GSE potential 
reform putting private money ahead of taxpayer dollars. The 
question that I have, and it relates to a previous person who 
was sitting at that desk a few days ago, that said he believed 
that the 30-year fixed rate mortgage would occur without a 
Government-backed guarantee. By your answer, I think you 
disagree with that. Do you believe that a 30-year fixed rate, 
even with public dollars up front, you need that Government 
backstop at some point in time?
    Mr. Mnuchin. Again, I am not trying to be cute.
    Senator Tester. No.
    Mr. Mnuchin. I think this is a complex thing. What I do 
believe is that Fannie and Freddie would not be able to exist 
without either an implicit or explicit Government guarantee, 
and if there is an implicit guarantee I would want taxpayers to 
be paid for it. So this is something that we are working with 
people and looking for solutions.
    Senator Tester. It is very complicated, but I agree with 
you. We need a 30-year fixed rate mortgage in this country and 
I think that as we talk about GSE reform, and there is plenty 
of options out there on the table, that we need to make sure 
that we do not do something that puts that at risk, because it 
would have incredible impacts on housing market and 
affordability housing, and all of the above.
    Mr. Mnuchin. I agree with that. Thank you, Senator.
    Senator Tester. Good. Good.
    Let us talk about FSOC for a second. It was put in, in 
Dodd-Frank, for nonbank financial companies--I do not need to 
give you a lecture on this. You know that. The FSOC has 
basically taken the companies that were designated and de-
designated them. I assume that you did research on that and 
found out that they were not systemically risky?
    Mr. Mnuchin. Actually, that is not the case. The only 
company that we de-designated as a result of them not being 
financially systemic was AIG, where they had de-levered and cut 
their risk----
    Senator Tester. OK.
    Mr. Mnuchin. ----significantly, and that is why that 
judgment was made. That is the only company we made that 
judgment.
    Senator Tester. So that decision was--the de-designation 
for Prudential or MetLife did not happen?
    Mr. Mnuchin. Again, the decision on MetLife had nothing to 
do with the risk of MetLife. The decision was there was a 
recommendation as it relates to a legal case that had nothing 
to do with the riskiness, and MetLife could, indeed, be subject 
to designation in the future.
    Senator Tester. OK.
    Mr. Mnuchin. So the issue was more around a legal issue.
    Senator Tester. And Prudential?
    Mr. Mnuchin. Prudential, again, would follow the same 
issues.
    Senator Tester. OK. So I guess the question is, could you 
confirm if the council is still functioning and still actively 
looking at companies, financial products, and assess their risk 
to the financial system? Are they still working?
    Mr. Mnuchin. Absolutely.
    Senator Tester. OK. Thank you, Mr. Chairman.
    Chairman Crapo. Thank you. Senator Cotton.
    Senator Cotton. Thank you, Mr. Chairman. Thank you, Mr. 
Secretary.
    Senator Brown started his remarks speaking of a Swiss ski 
resort. I presume he was referring to Davos, where the 
President addressed the World Economic Forum last week. To my 
knowledge, in Davos, all they do is do is have their party once 
a year, but in another Swiss ski resort, Basel, they purport to 
exercise great authority without accountability, at the 
Financial Stability Board.
    So let us address what happens in that Swiss ski resort, 
Mr. Secretary. I, and other Members of the Committee, recently 
sent the Administration a letter which raised concerns about 
the operation of the Financial Stability Board. We are 
concerned that it is more into a kind of global regulatory 
body, using its peer review mechanism as a quasi-enforcement 
tool to pressure U.S. companies into adopting global standards. 
I am concerned about that kind of regulatory creep into U.S. 
jurisdictions, especially considering how dissimilar our 
financial markets are from any foreign markets. For example, we 
have thousands of small lenders, we have independent asset 
managers, and we have an insurance industry regulated by our 
States, primarily.
    So simple question. Are FSB rules voluntary or binding?
    Mr. Mnuchin. They are voluntary.
    Senator Cotton. Are they suitable to be used by ex-
Presidents and U.S. courts, by regulatory agencies, or in 
private litigation?
    Mr. Mnuchin. Again, I am going to defer to the lawyers on 
that, but my view is not necessarily.
    Senator Cotton. Thank you. In 2015, four Chinese banks 
sought an exemption from an FSB rule related to how much 
capital they have to hold. Given that I agree with you that 
these rules are voluntary, it is strange that they would have 
to seek an exemption from such a rule. Can you imagine a 
scenario in which a U.S. bank or firm would have seek an 
exemption from an FSB rule?
    Mr. Mnuchin. Again, the U.S. banks are regulated by the 
U.S. regulators. I think the purpose of the international 
standards, from our standpoint, is to make sure that there is a 
level playing field for our banks and that to the extent that 
foreign banks have a lot less capital, that there are certain 
standards that they would adhere to. But that is not legally 
binding.
    Senator Cotton. Thank you. Let us talk now about the FSOC 
process for identifying systemically important financial 
institutions, especially under the last Administration, as it 
relates to the FSB. In July 2013, the FSB determined that three 
U.S. insurers--AIG, MetLife, and Prudential--were globally 
systemic important insurers, but at that time only AIG had been 
designated by the FSOC as a systemically important institution 
in the United States. Prudential was not designated as a SIFI 
by FSOC until September of 2013, MetLife not until December of 
2014.
    Since the FSB operates by consensus, however, this means 
that for months before the FSOC designated either Prudential or 
MetLife as SIFI or predecessor at Treasury and the Chair of the 
Fed, two of the most important members at FSOC, had already 
determined as members of the FSB to designate Prudential and 
MetLife as globally systemically important. So I would assume 
that if a firm is systemically important on a global scale, it 
must be systemically important in its own home country.
    I wonder, then, how the FSOC designation process, in the 
last Administration, for Prudential and MetLife could be 
considered fair and objective. The Treasury and the Fed, after 
all, had already determined, as members of the FSB, that they 
were globally systemic. Do you believe that this decision was 
simply a show trial by the FSOC in 2013 and 2014?
    Mr. Mnuchin. Senator, since I was not there I cannot 
comment on specifics, although I understand your concerns. I 
would say, fundamentally, I do believe that there should be 
better transparency at FSOC to the extent that companies are 
designated. They should understand why they are designated, and 
the basis of the risks.
    Senator Cotton. Can we be certain that we will not see a 
repeat of such a scenario in which the FSB designates a U.S. 
firm as globally systemically important before the FSOC 
designates it as systemically important in the United States?
    Mr. Mnuchin. I would not expect that to be the case. Thank 
you.
    Senator Cotton. Thank you. I think this is a very important 
issue. Financial experts around the world have not exactly 
covered themselves in glory for the last 25 years. Our Nation 
is not just the United States, but in Europe have faced some 
turbulent political times, with populist candidates and 
parties, on both sides, right and left, across our Nations, 
defeating more conventional politicians and parties because of 
the failure of our country's leaders to deliver stable, 
prosperous conditions for our citizens. I think it is important 
to remember that we are countries that are governed by our 
citizens, not by our experts, certainly not by unelected 
experts at Swiss ski resorts.
    Chairman Crapo. Senator Schatz.
    Senator Schatz. Thank you, Mr. Chairman. Mr. Secretary, 
thank you for being here. I want to try to get in three 
questions. The first is about the debt ceiling and the debt 
limit. I heard that the Vice President was at least open to the 
notion of repealing the statute overall. That is very 
attractive to me. Having been here under a Democratic 
President, now under a Republican President, and with a 
Democratic Senate and with a Republican Senate, I can say, 
definitively, that utilizing the debt ceiling statute as a sort 
of opportunity to take a policy ransom only harms our country.
    So I am wondering whether you would be willing to work with 
us on a statutory fix to just repeal this thing once and for 
all. I understand the political difficulty of doing it, 
because, on the record, you are increasing the amount of debt 
that the country is under. But the fact of the matter is there 
is no evidence that having a statutory requirement that we do 
this every 6 months or every 12 months or 18 months reduces 
spending at all, reduces the deficits at all.
    So I am wondering whether you could work with us, and we 
especially, frankly, need a little political support on the 
Republican side. I know they want to get rid of this as badly 
as we do, but they need cover from the Administration. We will 
need to work with you on this if you are open to it.
    Mr. Mnuchin. I have spoken to both the President and the 
Vice President and we are very open to bipartisan solutions to 
figure out something as an alternative to the current system 
that I think many of us would agree does not work well.
    Senator Schatz. Thank you. Your comments on the dollar in 
Davos, I think, surprised a lot of people, raised a lot of 
eyebrows. I just want to give you an opportunity to expand on 
them or clarify them, if you wish.
    Mr. Mnuchin. Sure. So, thank you. I have tried to clarify 
this now many times. This was clearly a situation where, at a 
press gaggle, I made a comment that had three parts to it, that 
was extremely balanced and very specific. It was not anything 
new. And the press took one part out of this and kept on 
playing it over and over.
    So let me be very clear. I absolutely support a long 
dollar, a strong dollar, as being in the long-term best 
interest of the country, and I strong support--we have a free 
currently market that we do not intervene in and have rely upon 
the most liquid market in the world. So the short term is not a 
concern of us and it was no way intended to talk down the 
dollar, whatsoever.
    Senator Schatz. Thank you. Yesterday the Administration 
declined to impose sanctions required under the bipartisan 
Russia Sanctions Law that passed with overwhelming majorities 
from the House and the Senate. It is not clear which parts are 
waivable and which parts are not. We are still doing the 
analysis. But what is clear is to the extent that there is 
discretion to waive or delay, the Administration has to have 
factual findings. And so can you tell us what those findings 
are?
    Mr. Mnuchin. Senator--and will repeat this again. I think 
that is a very unfair characterization of what we have done, 
OK, as I have said. There was an extraordinary amount of work 
that went into this. The classified report is hundreds of 
pages. I look forward to Congress reviewing this, OK? Our 
sanctions going forward will be based upon a lot of the work 
that the intelligence community did. It was our interpretation 
that we had to deliver the report to Congress yesterday, which 
we did and we fulfilled. Again, I want to commend a lot of 
career professionals, the Treasury----
    Senator Schatz. You are saying you did not waive or delay 
any sanctions?
    Mr. Mnuchin. We did not waive or delay. There will be, as a 
result of this work, we are looking at----
    Senator Schatz. They are just not implemented yet.
    Mr. Mnuchin. Again, that is----
    Senator Schatz. That sounds like a delay.
    Mr. Mnuchin. No, that is not a delay. What it was was, I 
think, as you know, our sanctions are based upon an enormous 
amount of intel work. There was an enormous amount of work that 
went into creating this report, and that is what we did. And 
now we will take the basis of that report and look at, kind of, 
as we do in the normal course, where it is appropriate to put 
sanctions.
    Senator Schatz. OK.
    Mr. Mnuchin. So this should in no way be interpreted as we 
are not putting sanctions on any of the people in that report.
    Senator Schatz. OK. I have got it. And one final question. 
I will take it for the record. On SIFI designations I am trying 
to understand--the underlying statute, right, is about the 
financial stability of the system, and you seem to be 
introducing a new criteria for consideration, which has to do 
with the burden on the institution that is designated 
systematically significant. And I am trying to figure out why 
that would matter under the policy objectives of the law 
itself. If we are trying to figure out whether something is 
systematically significant, it actually should not matter 
whether there is a burden on the institution designated. If we 
wanted to provide you with that discretion, we would have 
written the law accordingly. And I will just take that for the 
record. Sorry for going over.
    Chairman Crapo. Thank you. Senator Corker.
    Senator Corker. Thank you, Mr. Secretary. Thank you for 
being here. As you know, we talked a lot about the tax reform, 
a great deal, in our office. I will have to say I was 
surprised, I saw Christine Lagarde at the event last week and I 
went there because of my foreign policy activities, and I will 
say that she had revised upward world economic growth because 
of what the United States has done, which was quite shocking to 
me, actually, and to see what other countries are doing in 
response to what we did with tax reform is pretty amazing. So I 
do want to say it seems to be having an impact far beyond what 
we thought it would have, just on our own country.
    On the Russia issue, just to my friends, I am very vested 
in this. I was a big part of this passing, working very closely 
with Crapo and Brown. I actually think what they have done is 
exactly the right thing. We gave a period of time to warn 
people about doing business with Russia. That was the purpose 
of it. Our diplomats were involved in that. They did keep 
numbers of transactions from occurring. They have put together 
this report and now the process is that they will begin 
sanctioning.
    So just for what it is worth, as someone, as you know, that 
is more than glad to offer criticism if I think it needs to be 
offered, in this particular case I do think they have handled 
it in the way that it was supposed to be handled. I do look 
forward, though, to sanctions being put in place for those 
violators.
    On the issue of housing finance reform, which Senator Crapo 
brought up earlier, I know that you have been very involved in 
this in the past, understand it well. Let me just go through a 
series of questions quickly.
    The conservatorship that we now have is unsustainable. Is 
that correct?
    Mr. Mnuchin. Yes, I believe so.
    Senator Corker. And if we have a new model of housing 
finance reform--and there are people on both sides of the aisle 
that are working together and have worked together in the 
past--if we have a Government guarantee in the future, would it 
not be your preference that that be at the actual security 
level and not at the entity level?
    Mr. Mnuchin. That would be my preference.
    Senator Corker. So I think most of us understand, whereas 
as last time, taxpayers had to bail out, with hundreds of 
billions of dollars, the entities. What we really care about is 
the individual bars and that their securities are guaranteed. 
Is that correct?
    Mr. Mnuchin. That is what would create a sustained liquid 
market.
    Senator Corker. And I assume that if we were able to pass 
something here that you would want significant private capital 
in advance of an explicit guarantee, where if we are issuing 
guarantees, whereas was not the case in the past, these 
whatever entities are actually paying for those, so the 
Government is getting something for the eagle stamp, which is 
causing that 30-year mortgage to be guaranteed. Is that 
correct?
    Mr. Mnuchin. That is correct. So taxpayers would be 
compensated for any unlikely risk.
    Senator Corker. And I assume if we were to put in place a 
new regime, we would want to do what we could to end the too-
big-to-fail situation that we have today. Is that correct?
    Mr. Mnuchin. I believe so.
    Senator Corker. OK. So let me just--in the event we do not 
act, as you know we passed something in years past called Jump 
Start, which said that we could only revise these entities 
through a process of us acting. That ended December 31st at 
midnight. So now the Administration, if they so chose--and I 
think you have committed to the fact you are not going to leave 
things as they are. What would be your options, if we do not 
act--and I hope that we will? I mean, what would be your 
options with these entities?
    Mr. Mnuchin. There are certain administrative options that 
we have. These entities are very complicated. I would just say 
my strong preference would be to work with Congress on a 
bipartisan basis to reach a long-term solution.
    Senator Corker. Yeah. But in the event this great 
bipartisanship does not survive and we do not get this done--it 
is a very complicated topic--what are some of the steps that 
you might take? For instance, I know that in past 
Administrations the notion of putting these entities into 
receivership and moving forward with a clean slate has been 
laid out. Is that something that you have thought about?
    Mr. Mnuchin. Again, we have thought about and considered 
lots of things. I do not really want to go through, in this 
format, publicly, all the different alternatives. You and I 
have spoken. I would be more than happy to come see you. But 
there are lots of alternatives. I just want to be careful, 
given that they do have different market impacts.
    Senator Corker. Well, I appreciate that and I do appreciate 
your leadership on this leader and extreme knowledge. And I 
would just say that, Chairman, I know this is one of your 
goals. I actually believe that we have got an opportunity to do 
something--it is a very complex topic--that matters. We have an 
Administration that is willing to work with us. And I think, 
for the first time, we have an opportunity, because of just all 
the things that have occurred, that we have a lot of interest 
out there. Let us face it. I mean, we have people who have 
shareholder--we have shareholders in these entities today. And 
I understand some of the rubs that have existed there.
    I think we have got an opportunity, though, to really deal 
with all of the interest in a manner that is fair, but also 
move our Nation ahead in a manner that we do not have these two 
behemoths that basically are 100 percent, right now, backed by 
the Federal Government, and I hope we will get there.
    Chairman Crapo. Thank you, Senator. Senator Warren.
    Senator Warren. Thank you, Mr. Chairman. So after the 2008 
financial crisis, Congress created the Financial Stability 
Oversight Council, in order to monitor the risks in the 
financial system, and one of FSOC's main duties is to 
``identify gaps in regulation that could pose risks to the 
financial stability of the United States.''
    Now, Mr. Secretary, you are the head of FSOC. Despite that 
role, you appear to support a bill that this Committee has 
passed that would roll back the rules on banks between $50 
billion and $250 billion in assets. That is about 30 of the 40 
largest banks in this country.
    So what I want to understand today is why you are so 
confident that that would not pose a risk to the financial 
stability of the country. So, Mr. Secretary, how much does 
these 30 banks hold, collectively, in assets--deposits, 
securities, and so on?
    Mr. Mnuchin. Well, first of all, I think that we have very 
significant regulators that will continue to regulate----
    Senator Warren. But that is not my question. Excuse me, Mr. 
Secretary. I just asking you a straightforward question. We are 
talking about changing the rules----
    Mr. Mnuchin. Yes.
    Senator Warren. ----that 30 of the 40 largest financial 
institutions would lose their designation, automatic 
designation, as systemically significant financial 
institutions. And I am just asking you, that 30, how much do 
they collectively hold in asset?
    Mr. Mnuchin. It is a large number.
    Senator Warren. A large number.
    Mr. Mnuchin. You have it. I do not have it in front of me.
    Senator Warren. How about $4 trillion?
    Mr. Mnuchin. It is a large number.
    Senator Warren. How about $4 trillion? Does that sound 
about right?
    Mr. Mnuchin. Yeah, that is correct.
    Senator Warren. OK. And that is about what portion of the 
GDP?
    Mr. Mnuchin. Again, that is higher----
    Senator Warren. That is about a quarter of the entire GDP. 
During the 2008 financial crisis, do you know how much the 
taxpayers had to pay out in bailout money to those 30 of the 40 
largest banks in the country, in order to keep them up and 
floating?
    Mr. Mnuchin. Again, I assume you have that number there 
too, so I do not have it in front of me.
    Senator Warren. It is $50 billion, nearly $50 billion.
    So I am a little surprised that as the head of FSOC and the 
Secretary of the Treasury that you would support a bill without 
knowing how much you are actually reducing the regulation on it 
in this giant financial institutions. These banks hold the 
equivalent of about a quarter of the entire economy. They got 
$50 billion in bailout money, less than a decade ago, and yet 
you think we can roll back, reduce our oversight of them now.
    Now, so let me ask. Do you think that these $50 billion to 
$250 billion banks cannot pose a risk to the financial system?
    Mr. Mnuchin. Again, there could be banks, OK, that do pose 
a risk and could be designated. The purpose of this is, many of 
those banks are large community, regional banks that----
    Senator Warren. Excuse me. I am sorry. Are you saying that 
a bank of $200 billion is a community bank?
    Mr. Mnuchin. No. That is not what I am saying. I am saying 
they are regional banks, OK.
    Senator Warren. And are you saying regional banks cannot 
pose a risk to the financial system?
    Mr. Mnuchin. No. I did not say that. What I said is that 
many of those banks do not, OK. This is something that I 
believe there is bipartisan support for.
    Senator Warren. And my understanding is----
    Mr. Mnuchin. Again, I think----
    Senator Warren. ----if they do not pose a risk, you can 
always alter, under the current rules, how you regulate them. 
The question is the immediate designation so that you keep them 
on the watch list.
    You know, it is clear to me that these banks do pose a risk 
to the economy, and that is the reason that Congress said they 
should be on a watch list.
    But let me take a specific example. In the years leading up 
to the financial crisis, Countrywide Financial issued one out 
of every five mortgages in the country. It did more subprime 
and teaser-rate mortgages than almost anyone, and it turned 
around and sold them to Wall Street banks. It basically created 
all these grenades, pulled the pins out, threw them into our 
economy, and helped blow up the American economic system. At 
the height of its impact on the financial system, about 18 
months before the crash, Countrywide was a $200 billion bank, 
which is actually smaller than some of the banks that would be 
deregulated by this bill.
    So my question is, Mr. Secretary, why would you be so eager 
to take these banks off the watch list, to deregulate it, and 
make it easier for them to follow whatever practices they want 
to follow?
    Mr. Mnuchin. First of all, Senator, I share your concerns 
about Countrywide. I think there was lots of mistakes that went 
on there, particular with the mortgages that they underwrote 
and lots of blame to go around.
    Again, we believe that these entities, below this side, can 
be regulated by their primary regulators. But let me just say, 
this is something that requires bipartisan support and it is up 
for Congress to decide whether they want to raise the limits.
    Senator Warren. Well, thank you, Mr. Secretary, but as I 
understand it, you have been pushing on raising the level from 
$50 billion to $250 billion. If you think that means that we 
will be taking on more risk in the system--and I think that is 
what it means--I wish you would tell us so.
    You know, the banks have record profits right now. They are 
rolling in money. They just got a giant tax giveaway. They have 
got even more money. They do not need another chance to blow 
out this economy.
    Thank you, Mr. Chairman.
    Chairman Crapo. Senator Toomey.
    Senator Toomey. Thank you, Mr. Chairman, and Mr. Secretary, 
thank you for joining us once again. Let me just stay on this 
topic, since my colleague from Massachusetts has brought it up. 
I think an important point that needs to be stressed here, and 
I am curious to see if you agree, Mr. Secretary, but these 
banks that are $50 billion to $250 billion, and under this 
bipartisan regulatory relief measure, would no longer be 
automatically designated as SIFIs, they are extremely heavily 
regulated anyway. Outside of a SIFI designation, absent a SIFI 
designation, is it not true that all of these banks are subject 
to a huge raft of regulations that has nothing to do with the 
SIFI designation?
    Mr. Mnuchin. That is true.
    Senator Toomey. Right.
    Mr. Mnuchin. In many cases they are probably regulated by 
as many as four different entities.
    Senator Toomey. Right. Multiple regulators. And is it not 
also true that these banks now have huge capital standards, the 
industry is generally extremely heavily capitalized. Is it not 
also true that they have very high liquidity requirements, new 
requirements that did not exist prior to the crash, and is it 
not also true that most of these entities engage in pretty 
ordinary, plain vanilla banking activities as opposed to the 
more exotic, complex, and interconnected international business 
of the truly enormous banks? Are those all relative fact?
    Mr. Mnuchin. They are all true statements.
    Senator Toomey. Well, I think those are the reasons why it 
is perfectly reasonable to not automatically designate, for yet 
another regulatory overlay, those banks that do not create this 
systemic risk.
    Let me briefly thank you and congratulate you for your work 
and that of your team on tax reform. You folks in your 
organization were terrific to work with, and the collaboration 
between the Administration and Congress allowed us to produce 
something that is enormously constructive. I think you 
mentioned, in response to a question, that it is the view of 
Treasury that we are likely to have approximately 3 percent 
economic growth for some time. Did I understand that correctly?
    Mr. Mnuchin. That is true, and I just want to particularly 
thank you and Senator Scott and others who worked very closely 
with us on the tax bill.
    Senator Toomey. Well, thank you. I would just point out 
that the Congressional Budget Office forecasted, prior to the 
tax reform, that our economic growth would average 1.9 percent. 
We are now at approximately 3 percent before the tremendous 
benefits of this tax reform have fully kicked in, and we are 
already at the 3 percent. If we sustain anything close to 3 
percent, just for the record, the Federal Government will take 
in much more revenue as a result of a bigger economy than we 
were projected to take in with 1.9 percent growth. Is that 
true?
    Mr. Mnuchin. That is very accurate.
    Senator Toomey. And I think it is a very important factor.
    I want to touch briefly on the discussion on mortgages. I 
am eager to see us make some progress on this. I would--I am 
pleased that there seems to be a consensus that we should have 
private capital in front of taxpayer risk on guarantees.
    I would disagree with your view, but this is understandably 
a subjective matter, that a Government guarantee is a necessary 
precondition to have a liquid 30-year mortgage. As you know 
very well, the average life, or the duration, however you 
choose to measure it, of a 30-year mortgage is much less than 
that, typically depending on interest rates and how you look at 
it, anywhere, maybe 7 to maybe 12 years is about right. And we 
have a number of other nonguaranteed 30-year securities that 
play a very important role in the capital market.
    So I would just urge us to consider what I think is a very 
likely probability that we could have a very robust 30-year 
mortgage market without requiring the taxpayers to be at risk.
    Very quickly--I am running out of time--Mr. Chairman--Mr. 
Secretary, North Korea, we are seeing stories now, in yesterday 
or today's Wall Street Journal, reports behavioral changes by 
the regime in North Korea that might be linked to the sanctions 
that are making fuel, for instance, more difficult for them to 
obtain. I hope that is true. I think that strikes me as 
constructive. But I and my colleague on the Committee from 
Maryland, Senator Van Hollen, have legislation called the BRINK 
Act, which I think you are aware of, and which your staff has 
been very helpful. This would require additional round of 
sanctions against financial institutions that are facilitating 
business with North Korea. I think this is very important and I 
hope you will support our effort to get that done. It came out 
of this Committee with a unanimous vote, I believe.
    Mr. Mnuchin. Thank you.
    Chairman Crapo. Thank you. Senator Heitkamp.
    Senator Heitkamp. Thank you, Mr. Chairman, and thank you, 
Secretary, for coming. Just a couple of kind of follow-on 
points. Obviously, no one wants to put the financial 
institutions in jeopardy or in any way limit the ability of the 
economy to thrive. I think it is critically important that we 
make the public understand that we simply went in the bill from 
designating automatically to basically allowing the regulators 
to designate some entity as a SIFI. We have not abandoned that 
process, and so I want to make that point.
    I also want to make another point. I think it is 
fascinating when people hear CBO statistics but they do not 
want to take all of CBO. It is called cherry-picking. Cherry-
pick the statistic that most makes your argument, whether it is 
we are only going to have a 1.9 percent projected growth when 
the growth has been over 2 percent for a prolonged period of 
time.
    So I want to talk a little bit about CBO projections, 
because the love fest that we are having here needs to have a 
little discussion about CBO forecasts on deficits, which, as 
you know, Moody's has recently issued a report on what they 
think are the econometric considerations and results of the tax 
bill. It is not exactly consistent with the story that we are 
hearing today.
    So CBO forecasts that the Administration's $1.5 trillion 
tax bill will send deficits to 4.6 percent of gross domestic 
product by 2020, versus 3.6 under the forecast made last July. 
So, you know, talking about they were forecasting lack of 
growth. Obviously, the forecast today is that we are growing 
the debt.
    The publicly held debt, which doubled as a shared GDP 
during and after the recession was projected, before the tax 
cut, to rise from 78 percent this year to 91 percent over the 
coming decade. The CBO now expects the tax change to send this 
ratio to 97.5.
    You know, if we are going to use CBO statistics, let us use 
CBO statistics. And this is--it is like we handed a credit 
card, and at the same time we handed a credit card, with debt 
on it, to the next generation, we are failing to fix over 
50,000 bridges. That is another way to hand debt and deficit 
on.
    And I know the Administration is looking at an 
infrastructure plan that could, in fact, be adopted here. It is 
not going to be robust enough. Right now, if you look at the 
Corps of Engineers, the Corps of Engineers has a queue of 
projects. If they do not get another dime about what they are 
doing, it is going to take at least 17 years, in current 
dollars, to finish those projects.
    So we have now made a choice. We have made an economic 
choice and we have made an economic gamble. But let us not 
pretend that we have not taken a risk here, that this is all 
rosy. Do not pretend that we are being fiscally responsible 
every day that we are here.
    And so I am going to leave it at that. I want to talk about 
something that hits people every day, and that is the 
insecurity and multi-employer pensions. We have got a plan, 
which the Ranking Member has ably presented, the Butch Lewis 
plan. It is incredibly important to thousands of North 
Dakotans, thousands of people. The President promised to help 
exactly these people, who now are being threatened with 
dramatic cuts in their pensions. Will this Administration 
support the Butch Lewis bill and help us get it on the spending 
package?
    Mr. Mnuchin. First of all, let me thank you for your 
comments on the regulatory issue, because you are right, it 
does not preclude the regulators from designating people. I 
think that was an important point.
    On the multi-employer pensions, it is a very complicated 
issue. I have had the opportunity to study this the last year, 
and meet with, actually, workers on this issue, and we look 
forward to working with you on different solutions.
    Senator Heitkamp. But what is your plan? These are exactly 
the people the President promised that he would represent, the 
forgotten people. And we stand alone on this side, trying to 
fix this. We have not gotten a lot of help from the other side 
of the aisle. We need you guys. We need the Administration that 
has made a commitment to stand up for these workers who are 
threatened with, in my case, some 70 percent reduction in their 
pensions. That is unfathomable. That is unspeakable.
    And so you can you help us, and what is your idea? If you 
do not like Butch Lewis, what is your idea? But let us get this 
done.
    Mr. Mnuchin. Well, we look forward to working with both 
parties on this.
    Senator Heitkamp. No. That is not--you know, I hear that 
all the time. ``I look forward to working with you.'' You know 
what? This problem has been hanging out there. We have a 
solution on the table. We need a result. It is not enough to 
have a process. We need a result for these pensions. And I want 
to thank the Ranking Member for the excellent work that he and 
his staff have done on this. We are proud to stand with you. 
And if that is not the solution, tell me what is. But these 
folks need to be made whole.
    Chairman Crapo. Senator Scott.
    Senator Scott. Thank you, Mr. Chairman. Secretary, good to 
see you again. Let me say, at the beginning, as Senator Toomey 
did as well, thank you for your hard work on the tax reform 
package. You have helped to accomplish something that has not 
been done in over 30 years. And specifically, thank you for 
helping the IRS get the new withholdings done in time for, 
hopefully, the February 15th paychecks. My understanding is 
that somewhere around 8 out of 10 employees will see more money 
in their take-home pay. That is significant progress for folks 
who are living paycheck to paycheck. They are going to have a 
greater appreciation in a tangible way of the success of this 
Administration and, frankly, of your leadership. So thank you 
for that.
    I would also like to say thank you because between the 
President's Executive order last spring and the Treasury's 
report last November, the Administration has made solid 
progress on the issue of nonbank SIFI designations. But imagine 
getting pulled over for speeding in a neighborhood without any 
speed limit sign. It is kind of how you get designated a SIFI, 
from a nonbanking perspective. Then imagine the ticket does not 
have any instructions on how to pay it. That is how you find 
your way out of being a SIFI.
    And I would like to make sure that folks back at home who 
are not involved in the financial industry at all understand 
and appreciate the complexity of something that is as profound 
as SIFI designation, but to do so in language that we all 
understand and appreciate. And that is just how dizzying this 
process is for the average person to understand and appreciate, 
but the impacted on those folks, because of designations, is 
significantly higher costs in doing business.
    There should be clarity around what gets you labeled as a 
SIFI and what gets you off of being designated. Without a 
doubt, FSOC should release public explanations for its 
designations.
    So my question for you, and I know that you agree with much 
of this, is what specific steps are you and FSOC taking to 
bring about these needed reforms?
    Mr. Mnuchin. Thank you, Senator, and I thought that was a 
very good and interesting analogy. So I share your view on 
transparency. It does not mean that people cannot get tickets, 
but we have got to post the speed limit.
    So we are working with the Committee on looking at 
guidelines and trying to figure out how we can have more 
transparency in the process.
    Senator Scott. Thank you. What is the level of involvement 
of other Council members in recent FSOC decisions?
    Mr. Mnuchin. Very active.
    Senator Scott. Good. There have been some questions about 
that and I think it is important for us to recognize that FSOC 
is still meeting, still actively involved in the process.
    Mr. Mnuchin. Absolutely. We have had public and private 
meetings and there has been robust discussion at the principles 
and the staff. A lot of work went into what has been done this 
year.
    Senator Scott. Thank you.
    Next question. Not Congress, not you, but the district 
court now requires a cost benefit analysis, which I support. My 
question is can you walk me through what a FSOC cost benefit 
analysis will look like, and what is taken into consideration?
    Mr. Mnuchin. We are working on that and as we develop those 
thoughts we look forward to coming to your office and reviewing 
with them before they are implemented.
    Senator Scott. That will be an important part of the 
process to understand it before it happens. Thank you.
    Last question, or actually just a statement. Last May, I 
asked that you reevaluate the need to include property and 
casualty insurance premiums under FATCA reporting requirements. 
In October, Treasury issued a priority guidance plan that 
included doing just that.
    I appreciate your responsiveness and I hope I can count on 
the same level of responsiveness as we work with you on Kroll 
Bond Rating Agency's inclusion in the IFC's investor 
guidelines. Thank you.
    Chairman Crapo. Senator Cortez Masto. Good timing.
    Senator Cortez Masto. I did time that perfectly. Thank you.
    Thank you for being here, Secretary. Interesting morning.
    So let me start off, just a comment. I have heard some of 
the conversation back and forth and I think in response to one 
of my colleagues you made the comment that it has been a great 
time for financial people. That concerns me. There are many 
people across this country who are still struggling, and that 
is where we should be looking, those working families.
    The other thing I want to point out, I am from Nevada. We 
had the worst recession we have ever seen. We are still coming 
out of it. And, in fact, there was a report that came out that 
shows that Nevada's economic forecast is doing very well. 
Experts are bullish on Nevada's overall economy this year, 
anticipating continued recovery from the recession and growth. 
They cite four key markers for that outlook: wages, because the 
average private weekly wage for Nevada workers peaked in 
October, representing a 2.3 percent year-over-year; 
construction activity, construction now is the Silver State's 
fastest growing sector; discouraged workers, the number of 
discouraged workers, those who left the labor force because the 
could not find a job has dropped; and Nevada's GDP has show 
significant continual growth over the past 5 years. That is an 
incredible statistic, considering we were the hardest hit in 
2007, because of the economy.
    What I just cited to you was a report that came out in 
January 1, 2017, before you or President Trump were even in 
office. So the comments that I am hearing today that somehow 
this tax reform bill contributed to where we are today in 
Nevada to me is a misnomer, and it does not give respect to the 
Governor, and every single legislator, and every single leader, 
both Republican and Democrat, in the State who has worked hard 
for Nevada to come out of recovery.
    With that said, I am hoping the actions that you take 
continue to benefit what we are doing in Nevada and I look 
forward to working there. But I think it is questionable now 
where that is going to lead in the year to come.
    The other area that is very difficult in the State of 
Nevada right now, and we have been having this conversation, is 
affordable housing. Half of renters pays more than 30 percent 
of their income for rent and utilities. One in four renters pay 
more than half of their income for rent. Only about 5 million 
families live in public housing or benefit from Section 8 or 
other HUD- or USDA-assisted housing programs. For every low-
income family who gets some housing assistance, four families 
receive no housing assistance at all.
    So while I am relieved that the low-income housing tax 
credit and private activity bonds remain--they support 90 
percent of all affordable housing built in our Nation--their 
value has gone down. Some say this could result in 200,000 
fewer affordable units built in the next decade. Wages are 
stagnant or increasing modestly but the rent is going up.
    When will the Treasury address the affordable rental 
housing crisis?
    Mr. Mnuchin. It is an important issue and we look forward 
to working with you on it.
    Senator Cortez Masto. OK. That seems to be the standard 
answer for everything.
    Let me ask you this. Will the President's proposed 
infrastructure bill including funding to invest in our 
affordable housing infrastructure?
    Mr. Mnuchin. I think that when the President releases it 
there will be the opportunities in affordable housing, as in 
other things.
    Senator Cortez Masto. Are you working with the President 
how to address that--those needs?
    Mr. Mnuchin. Not specifically affordable housing but yes, 
the overall infrastructure, and that can be part of it.
    Senator Cortez Masto. When will Treasury and HUD begin 
publishing the monthly housing scorecard again? Apparently 
there has not been one issued in nearly 2 years.
    Mr. Mnuchin. I was not aware of that but I will look into 
that and get back to you.
    Senator Cortez Masto. OK. And then let me just say, I am 
disappointed that the Treasury Department killed the myRA 
program. Half of workers do not have access to a retirement 
account at work. The national savings rate is going down. How 
does the Treasury Department plan to help more people save for 
retirement?
    Mr. Mnuchin. Again, that is actually something I looked at 
very carefully, and it really--it has--the desire or the reason 
to get rid of it had nothing to do with our view on savings, 
and we do want to. It was just the cost of maintaining it, 
there were very, very few people who were using it, with a 
staggering cost, and we would rather reallocate those--that 
money to other ways that we can help people in saving and 
retirement.
    Senator Cortez Masto. So do you have a program that you are 
looking at right now?
    Mr. Mnuchin. We moved those people into the private sector 
and we are looking at different programs to encourage private 
solutions, yes.
    Senator Cortez Masto. OK. I would like to know, if you 
would, in the future, as you develop your programs and what you 
are looking at to make sure you are reaching out to my staff 
and working with us as well.
    I noticed my time is all up--is basically up, so I will 
submit the rest of my questions for the record. Thank you.
    Chairman Crapo. Thank you. Senator Tillis.
    Senator Tillis. Thank you, Mr. Chairman, and Secretary, 
thank you for being here.
    I want to go back. You know, we are 10 years past the 
financial crisis. We now have a bipartisan bill that is 
intended to provide regulatory relief for community banks and 
regional banks. Can you tell me a little bit about why you 
think that is important and what benefits are ultimately 
accrued to businesses and customers of those banks?
    Mr. Mnuchin. Sure. First of all, I believe that too many of 
the banking assets are held in the large banks, and one of the 
ways to distribute risk is to allow the smaller banks to 
continue to grow effectively and not have them burdened by 
unnecessary regulation. So I think that, one, this accomplishes 
more diversification in the banking, and I also think that 
lending is very important, in terms to growing the economy, and 
in many cases the local bank, the community bank, the regional 
bank has those relationships. They know how to lend and we want 
to encourage them to lend.
    Senator Tillis. Do you think that the people wanting to 
startup a bank--we have got a very unhealthy, I think, 
situation in the banking ecosystem today, and that is the 
number of de novo banks that have come up. It is a very 
disturbing trend in North Carolina. We have lost about half of 
ours since the financial crisis, in a State that had a vibrant 
environment before, in North Carolina. Do you feel like a part 
of the reason why we are just not seeing that churn on banks 
is, at least in part, attributed to the fact that they have a 
regulatory hurdle that they would have to climb, that makes it 
difficult for them to make the business model work?
    Mr. Mnuchin. I do.
    Senator Tillis. I want to ask you, also, about--you know, 
with tax reform, if you were--let us say, in December, we 
failed to pass tax reform, and so the current tax regimen was 
going to be the regimen for the next 10 years. Where do you 
think we would ultimately be, economically, over a 10-year 
period?
    Mr. Mnuchin. I think we would be substantially lower than 
we are and probably in the low twos.
    Senator Tillis. One of the things that we have seen, it is 
true that the economy was turning. Some States were doing 
better before the President took office. I think we saw 
significant increase last year largely attributed to a calming 
regulatory overreach, and this year I think it will be a 
combination of continuing that regulatory reform, right-sizing 
regulations, and of the benefits of tax reform.
    Now as businesses start looking ahead and looking at how 
the tax cuts affect their business, we have seen hundreds of 
businesses announce pay raises. We are seeing de facto minimum 
wages being created in the banking industry and the retail 
industry as a result of announcements that have been made by 
large organizations. We have seen pay increases. We have seen 
bonuses. We have seen plans for capital deployment. I do not 
think that there is any doubt that the vast majority of those 
occurred as a result of the tax plan, and they would not have 
occurred if we had not passed that to the President's desk. Do 
you agree with that?
    Mr. Mnuchin. I do.
    Senator Tillis. Now there is one piece that I think has 
been criticized that I would like for you to talk a little bit 
about, and that has to do with stock buy-backs. Some people 
here think that using that--some of the resources that come 
through tax reform to do stock buy-backs is a bad thing. I do 
not necessarily agree with that, in many cases.
    Can you talk about what actually occurs when a company does 
a stock buy-back, what they are likely to do with the 
resources?
    Mr. Mnuchin. Sure. It is really just a reallocation of 
capital. So companies have a decision. They can reinvest money 
in their business, they can pay dividends, or they can buy back 
stock. And to the extent that they buy back stock or they pay 
dividends, that is capital that flows out to investors that can 
be recycled and put into other businesses. So it is a natural 
flow of funds from businesses that have excess capital to 
businesses that need to raise capital.
    Senator Tillis. So it also ultimately contributes to an 
increase in the GDP and economic growth.
    Mr. Mnuchin. Yes, it does.
    Senator Tillis. The last question I have for you actually 
relates to what you are going to do, as Secretary, for 
regulatory relief within your own rulemaking authorities. Can 
you give me some sense of what your priorities are over the 
next year or so, in terms of areas that you think--through the 
rulemaking process, not through congressional action--that we 
could see some of the--I know you cannot get into specifically 
what you want to do, but in the areas of regulations that you 
think that need to be looked at and may be right-sized, what 
can we expect?
    Mr. Mnuchin. Again, we will look across the board in the 
financial area.
    Senator Tillis. And, Secretary, I appreciate you being 
here. I actually appreciate you offering to work with us and 
partner with us and do--on a bipartisan basis, come up with 
good outcomes that, on a bipartisan basis, like the Banking 
Regulatory Relief Bill. I see one member who was here who 
worked with us to get that out of the Committee and to the 
Senate and hopefully to the House. We look forward to working 
with you on a continuing basis, on a bipartisan basis, to get 
regulations right and get the economy moving even more quickly 
than it is at this time.
    Thank you.
    Chairman Crapo. Senator Jones.
    Senator Jones. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary, for your appearance here today.
    I want to go back, though. I want to defer a couple of my 
questions at the top of my time here to go back to Senator 
Heitkamp's questions concerning the pension bill and the 
Ranking Member's bill that is pending now, which I told him I 
was going to sign on. That is an important bill for folks in my 
State, and I think we can agree that there is a looming crisis 
in that.
    I appreciate your answer about, you know, looking forward 
to working with us, but I would kind of like to start that 
process now. And, if you could, just give me your ideas, give 
me your thoughts about what do--you have looked at the bill. 
What about the bill was OK, anything, and are there other 
things that we need to be looking at to try to solve that 
crisis?
    Mr. Mnuchin. First of all, thank you, and I would be more 
than happen to meet with you. Again, this is a significant 
problem. I do not believe there is a simple solution. It is 
complicated. I would be happy to go through in aspects, but 
this is something that I look forward to working with Senator 
Brown and Chairman Crapo and figure out what are the various 
different solutions.
    So we have a lot of resources at Treasury. I think, as you 
know, one of the things we look at is restructurings. We have a 
very prescribed formula of what we can do and what we cannot 
do. But as I said, I am aware of the problem that exists.
    Senator Jones. And you would acknowledge that it is a 
significant problem for those that have those pensions.
    Mr. Mnuchin. I would say it is a significant problem. I do 
not know what the--it is not one with a clear, simple solution.
    Senator Jones. Yes.
    Mr. Mnuchin. But we look forward to working with the 
Committee.
    Senator Jones. All right. Thank you, Mr. Secretary.
    The Small Business Jobs Act of 2010 was created to support 
a lot of local small businesses and to help accelerate growth. 
That was an important initiative for Alabama. I think we 
created a number of jobs; we got $31 million. But that has 
now--round one has effectively run out. Would you support a 
reauthorization of the SBCI?
    Mr. Mnuchin. Not necessarily but I would not rule it out. 
Again, it is something that I would work with Congress and we 
need to look at more carefully.
    Senator Jones. All right.
    I was not here when the tax bill was brought to the floor 
and passed, and I am sure you may have talked about this ad 
nauseum, and I apologize. But you mentioned earlier that the 
tax bill would help create wage inflation and help wage growth. 
That is a big problem, again, in my State. The median income is 
$47,000 a year, which is below all but a handful of States. In 
some counties, that median income is below $30,000 a year.
    Could you just explain how the tax bill, as it exists right 
now, is going to help in places like Alabama, and particularly 
those rural areas where the median income is $27--, $28,000 a 
year?
    Mr. Mnuchin. Sure, and that is a big concern of the 
President, as I commented, that workers have not had the type 
of raises that they should have. I would be happy to go through 
with you--the Council of Economic Advisors put out a piece that 
showed that the average would be about $4,000. We believe that 
as there is significant more investment into business, that 
that will lead to wages going higher.
    Senator Jones. All right.
    The other thing that is coming up, and we are talking--I 
know the President will be talking about tonight, as has been 
mentioned here, is infrastructure, and a huge infrastructure 
bill. We are also talking about immigration and border 
security, where the Administration is asking for $25 billion in 
this year to be placed for border security, which generally 
everyone wants better border security.
    My concern, though, is that the CBO reports that talk about 
the debt that is being created by that tax bill, $1 trillion 
over 10 years, and I know we are going to try to tap in, as 
Senator Shelby said, some private investment. But private 
investment in the infrastructure is not going to help in my 
rural areas. You are not going to have a toll road in Dallas 
County over one bridge, or certain roads there.
    How are we going to pay for all of this? How are we going 
to pay for the $25 billion? How are we going to pay for the 
infrastructure if we are having to wait to catch up? And 
hopefully the tax bill will do as exactly what you said and 
will grow the economy and we will get more money coming in. But 
how are we going to pay for that infrastructure now and the 
border security?
    Mr. Mnuchin. Well, I think, as you know, we do not agree 
with the CBO analysis as to--on the tax bill. We do think the 
revenues will go up significantly. On the infrastructure, it is 
going to have to be a combination of, as I said, Federal 
dollars, State dollars, and private dollars. I agree with you 
completely. There are many, many infrastructure projects that 
are not going to be privately funded.
    Senator Jones. All right. I see my time is up. Thank you, 
Mr. Chairman.
    Chairman Crapo. Thank you. Senator Rounds.
    Senator Rounds. Thank you, Mr. Chairman. Good morning, sir.
    Mr. Mnuchin. Good morning.
    Senator Rounds. I am just curious. First of all, I 
appreciate the time that you have been in the chair already so 
I am going to try to be brief and not repeat a lot of the items 
that have been laid out today.
    But, as you know, on January 18th, the FSOC and MetLife 
filed a joint motion to dismiss an earlier FSOC appeal which 
was an effort to designate MetLife as a SIFI. Additionally, on 
September 29, 2017, FSOC voted to rescind its designation of 
the American International Group, or AIG. These moves leave 
Prudential as the lone nonbank designated SIFI.
    I understand that FSOC is given the ability to designate 
nonbank SIFIs under Section 113 of the Dodd-Frank. Given your 
comments on FSOC today, should the Banking Committee consider 
changes to Section 113 and to the structure of the FSOC more 
broadly?
    You mentioned greater transparency is necessary to FSOC. 
Would you recommend other changes as well, specifically with 
regard to this section?
    Mr. Mnuchin. Again, I do not have specific recommendation 
to that section because I think there are things that we can do 
at the committee level, and as you have mentioned, in the case 
of AIG they were de-designated because they significantly 
reduced their risk, and that was the decision of the Committee. 
In the case of MetLife there was a legal view and a decision to 
drop the appeal. So I do not think we need legislative changes 
at this point.
    Senator Rounds. OK. I know that Senator Scott had done a 
series with regard to the cost benefit analyses that were being 
used, and I am just curious. I would kind of like to follow up 
just a little bit with his questioning. Do you intend to push 
for an interpretive guidance from FSOC to reflect that agency 
action is appropriate only if a cost benefit analysis can show 
that it does more good than harm?
    Mr. Mnuchin. We are going to go through reviewing those 
guidelines, and I want to be careful to make conclusions before 
I have had a chance to review that with the Committee Members. 
But we are in favor of more transparency in the analysis of 
cost benefit.
    Senator Rounds. So you would be interested in a further 
discussion with the members of--when you say ``the 
committee''----
    Mr. Mnuchin. Excuse me. Of FSOC, not of this Committee.
    Senator Rounds. OK. I was going to say, we would be happy 
to have that discussion with you as well.
    In the past, also, on another issue, in the past there has 
been a great deal of concern surrounding the role of the 
Financial Stability Board, the FSB, and the FSOC designation 
process. As you know, the FSB is an international body that 
makes recommendations about the global financial system. While 
the United States is represented in the FSB, the body has no 
authority over U.S. financial regulation. However, past 
actions, such as the designation of Prudential and MetLife 
raise questions over the influence of the FSB and FSOC's SIFI 
designations.
    Can you commit, or would you discuss with us your 
philosophy with regard to the role that the FSB will play, or 
perhaps no role, in future FSOC designations? What are your 
thoughts and where do you see the committee going?
    Mr. Mnuchin. I do not see FSB having any role in future 
designations at FSOC.
    Senator Rounds. Would that be a change from previous 
activity or previous considerations, in your opinion?
    Mr. Mnuchin. I cannot comment on what the committee did 
before I was on it, although I share some of the concerns that 
have been raised.
    Senator Rounds. So more appropriate to perhaps take under 
advisement, but most certainly independently from anything 
proposed by our international group.
    Mr. Mnuchin. Absolutely.
    Senator Rounds. We have all recently watched the swings in 
bitcoin's market value. Bitcoin, along with numerous other 
cryptocurrencies has seen their values jump substantially since 
the beginning of 2017. Do you see cryptocurrencies as a threat 
to financial stability?
    Mr. Mnuchin. I am glad you brought up one of my favorite 
subjects. We have got something new to talk about now. So I do 
not see it as a treat to financial stability but I see them as 
very important issues. We have set up a subcommittee of FSOC to 
look at this.
    My primary concern about cryptocurrencies is twofold. One, 
I want to make sure that these are not used by bad guys, that 
they do not turn into old Swiss numbered bank accounts. In the 
United States, if you are dealing with these cryptocurrencies 
in our wallets and other things, you have the same BSA, you 
have the same money-laundering requirements as banks. We want 
to make sure that around the world that exists. And I also want 
to make sure that consumers understand the issues around 
cryptocurrencies.
    Senator Rounds. Just one last--just a very quick follow-up 
on that particular issue. Do you think you have the tools 
available to you now, both in terms of legislative authority 
and the manpower, to actually follow through and enforce with 
regards to the concerns that you have expressed?
    Mr. Mnuchin. I do think we have them now, but having said 
that this is an evolving world and we will not be bashful in 
coming back and asking for more resources.
    Senator Rounds. Thank you. Thank you, Mr. Chairman.
    Chairman Crapo. Senator Donnelly.
    Senator Donnelly. Thank you, Mr. Chairman. Mr. Secretary, 
thanks for being here.
    Mr. Secretary, the recently enacted NDAA, the National 
Defense bill, included an amendment I authored to require a 
comprehensive strategy from all the agencies--that includes 
Treasury--within 90 days of enactment to address the threat 
posed by North Korea. That was enacted in late November. This 
is due by March 15th.
    Have you had any discussions about Treasury's reporting 
requirements in regards to this North Korean strategy?
    Mr. Mnuchin. I probably spend more time on North Korea than 
almost any other subject. So the report will be part of this, 
but we spend a lot of time at Treasury discussing these issues.
    Senator Donnelly. I appreciate the fact that you discuss 
those issues. Will you be meeting the required reporting date 
of March 15th with Treasury strategy regarding North Korea?
    Mr. Mnuchin. I have no reason to think that we will not 
meet that deadline, so I anticipate we will.
    Senator Donnelly. OK. Thank you.
    This has been mentioned before. I will mention it again. It 
is absolutely critical to my State as well, and it is in 
regards to the pension situation we find ourselves in. We are 
working to protect the pensions of coal miners, Teamsters, 
participants of more than 140 multi-employer pension plans, and 
we must shore up this system before it grows even worse. I know 
you have met some of these retires in the past, and we could 
really use your support to help get the legislation across the 
finish line.
    I am also a sponsor of the Butch Lewis Act. Are you willing 
to support the Butch Lewis legislation in order to ensure the 
solvency of these plans?
    Mr. Mnuchin. Again, I am not willing to specifically 
support that legislation but I am willing to sit down with you 
and others, on a bipartisan basis, and figure out a solution.
    Senator Donnelly. OK. Do you have any specifics of 
legislation you will support at this time?
    Mr. Mnuchin. I would rather not go through it at this 
moment in time. As I said, it is a complicated issue. It is one 
of the more complicated issues I have come across in the last 
year.
    Senator Donnelly. When you meet with me, will you bring 
specifics at that time?
    Mr. Mnuchin. Yes. I would be more than happy to do that.
    Senator Donnelly. OK.
    Let me tell you about a meeting I had in Oakland City, 
Indiana, and it was with about 300 miners and their spouses, 
the retired miners, and they had just gotten their health 
benefits. And they said, ``Harry Truman made this promise to 
us,'' and to be able to get this, for one of the miners there, 
it mean he could still get the medicine he needed so that his 
wife, who was in a terminal medical condition, could get that 
medicine and live out her remaining days in peace and without 
pain. That is how important that was. And they said, ``This 
pension piece is equally important to us, so we do not find 
ourselves living hand to mouth at the end of the day.''
    And you have been kind enough to agree to meet with me, and 
I know you have met with others. Will you meet with our miners 
and our truck drivers to go through this, to answer their 
questions? They are our friends and neighbors. They are 
citizens of my State. They want to know what the future holds.
    Mr. Mnuchin. We had a meeting last year and I would be 
happy to conduct a meeting this year, again, with workers 
across different industries who are affected by this.
    Senator Donnelly. OK.
    Senator Sasse and I lead the Banking Subcommittee on 
National Security and International Trade and Finance, and we 
held a hearing last spring on North Korea, and asked former 
Administration officials how we can more effectively deploy 
sanctions. Unsurprisingly, as I am sure it is unsurprising to 
you too, the conversation focused largely on China and the 
possibility of secondary sanctions on Chinese institutions.
    I know Treasury has imposed sanctions on a number of 
Chinese entities that have served as sources of trade and 
revenue for North Korea. Have you see that those secondary 
sanctions have been effective as a deterrent in regards to 
North Korea?
    Mr. Mnuchin. Yes, very much so.
    Senator Donnelly. When you look at this, does China, do you 
think, have a basic understanding of where and how North Korea 
is using China's banks and economy?
    Mr. Mnuchin. I do.
    Senator Donnelly. And does that activity occur at the 
largest Chinese banks, including State-owned banks, or does 
North Korea intentionally funnel primarily to the smaller 
Chinese banks that are less susceptible to U.S. pressure?
    Mr. Mnuchin. I do not want to go through the specifics of 
this in this setting but I would be happy to come and talk to 
you about it. But I will say we are having very, very specific, 
ongoing dialogue with the Chinese banks. I just sent my under 
secretary over there. She met with a large group of people and 
regulators, and we are having very good dialogue with the banks 
over there. And we will continue to have sanctions where 
appropriate.
    Senator Donnelly. I would--I appreciate that and I would 
like that meeting to be sooner rather than later, in light of 
the significantly dangerous situation we find ourselves in with 
North Korea.
    Mr. Mnuchin. We will follow up with you to get that on the 
books.
    Senator Donnelly. Thank you, Mr. Secretary. Mr. Chairman, 
thank you very much.
    Chairman Crapo. Thank you. Senator Reed.
    Senator Reed. Well, thank you, Mr. Chairman. Thank you, Mr. 
Secretary, for joining us here today.
    In the 2017 FSOC annual report they called for underscoring 
the necessity of sustained senior-level attention on 
cybersecurity risks and their potential systemic implications. 
Could you elaborate, give us more understanding of what you are 
doing, because cyber seems to be in the headline of every 
paper, every day? Please.
    Mr. Mnuchin. Well, thank you. It is a very important 
subject. I am spending a lot of time on this. I am happy to 
report, as I said earlier. I do not see anything at this moment 
that is risk to the financial sector, but we need to continue 
to invest lots of money, and this has to be a combination of 
our intelligence community, our experts at Treasury, our 
experts in the regulators, as well as private industry. We need 
to be working very, very closely together, because this is 
something that is evolving every day.
    Senator Reed. I just--apropos of your comment ``evolving 
every day,'' I saw, I think this week, the story about the ATMs 
that can be remotely controlled by bad people. In fact, there 
is one, I think, if you have the right sort of magic words you 
can go up and demand money and it just flows out. If that is 
not checked, that would, you know, an upheaval on our banking 
system.
    Mr. Mnuchin. Yeah. That has actually been going on for 
years. So at first people put skimmers on and now they are 
using little doctored things. But that--the ATMs, I think, have 
been upgraded to where we are OK, but there plenty of other 
cyberattacks that we need to stay ahead of.
    Senator Reed. Let me ask you a related question, is that 
given the fact that this is an onslaught by both organized, 
State-sponsored entities, criminal entities, individual hackers 
that have talents, et cetera, have you had adequate personnel 
and experts in the Treasury Department to carry on this 
expanding work?
    Mr. Mnuchin. Again, I would say right now we do, but I am 
not going to bashful to come back and ask for more resources as 
this evolves, if we need it.
    Senator Reed. We have talked about digital currencies. My 
colleague, Senator Rounds, raised the issue, and you seem to 
enjoy questions about digital currency, so I will give you 
another one. That is that FSOC is, as you point out, involved 
not just in terms of the stability of the financial system with 
these digital currencies but also with nefarious activities by 
money laundering, avoiding sanctions. That raises the question 
of how closely are you aligned with our intelligence community 
in terms of the intelligence problems here, i.e., circumventing 
sanctions, criminals using it to support terrorist activities--
you can go down a long laundry list. What is your relationship 
with the intelligence communities?
    Mr. Mnuchin. Very closely. I meet with Director Pompeo and 
others on a regular basis and at all levels of the Treasury we 
have daily interaction and people going back and forth. So it 
is very good working relationships.
    Senator Reed. Have you noticed a significant increase in 
these types of nefarious actors using cryptocurrencies, or is 
it just that the problem has stabilized, or is it growing?
    Mr. Mnuchin. Again, I want to be a little bit careful of 
what I say in this format, but what I would say is there is not 
something that is of significant concern to us today, but it is 
something we need to actively monitor. And it is a bigger 
concern of mine in other countries. So that is our big push, 
whether it be at the G7 or the G20, to make sure that other 
countries are regulating these activities the way we are.
    Senator Reed. Just stepping back for a moment, as the 
chairperson of the FSOC you have multiple agencies reporting to 
you. We have raised multiple topics here today--
cryptocurrencies, cybersecurity, particularly. Do all your 
component agencies have the expertise, the relevant expertise 
and the personnel to fully engage with you? You might be very 
well intentioned but if--you know, if you cannot count on an 
agency that has different responsibility, your intentions will 
not be, at the end of the day, up to the job.
    Mr. Mnuchin. Again, I would say right now I think we do, 
but one of the things we want to make sure is we have the 
proper coordination so that when we have all these resources we 
can use them appropriately together. And again, as I have said, 
I will not be bashful if the agencies need to come back and 
more resources.
    Senator Reed. Just a quick question. Will you--are you 
contemplating doing an assessment of the threat and the 
resources and presenting it, I assume first to the 
Administration, but to us, so that we have an idea? Because in 
the past, you know, we have had agencies who have come up and--
at the directly, particularly, of ONB, said we do not need 
anything, when, in fact, they were really in arrears in terms 
of personnel and resources. Can you make that commitment?
    Mr. Mnuchin. That is something in the early states that we 
are working on and I think it makes sense.
    Senator Reed. Thank you, Mr. Secretary.
    Chairman Crapo. Thank you. Senator Van Hollen.
    Senator Van Hollen. Thank you. Thank you, Mr. Chairman. 
Welcome, Mr. Secretary. Sorry, I was in another committee 
hearing, and I do want to start by thank you and the Department 
for your input on the legislation, the BRINK Act. I think 
Senator Toomey mentioned it. The Chairman has been working very 
hard to get a vote scheduled on that, and I appreciate working 
with you and your team on the issues related to North Korea.
    A lot of the issues I was going to cover have been 
addressed, but this is the first time, I believe, you have been 
before the Congress since the passage of the tax bill, and by 
all accounts the President tends to talk a little bit about 
that this evening. And you and I will find plenty to disagree 
with about the tax bill, in general.
    But in the interest of truth in advertising I do think it 
is worth pointing out a couple of things that were said that 
the plan would do, which it did not. And one, of course, is 
that it ended up providing big tax breaks to very wealthy 
Americans. And you recall because you have been faced with this 
question before.
    Back in November of '16 you said, and I quote, ``Any 
reductions we have in upper income taxes will be offset by less 
deductions so there will be no absolute tax cut for the upper 
class.'' That is not true with respect to the final bill, is 
it? I mean, there are net tax reductions for the upper class.
    Mr. Mnuchin. There are overall. There are people who did 
not get them but there are overall. Yes, that is the case.
    Senator Van Hollen. And I do think it is worth pointing 
out, Mr. Chairman, that the Joint Committee on Taxation, which, 
of course, is the official sort of scorekeeper on tax matters, 
concluded that households that make more than $1 million per 
year will get an average tax cut of $64,000 in 2019 alone. And, 
Mr. Secretary, do you have any reason to doubt that analysis?
    Mr. Mnuchin. I do not have the numbers in front of me, but 
I think our numbers--I do not have any reason to doubt that.
    Senator Van Hollen. Thank you.
    And let me go back to another statement. This was made by 
candidate Trump in May, 2016. He said with respect to his tax 
plan, and I quote, ``Everybody is getting a tax cut, especially 
the middle class.'' Speaker Ryan, and later Republican leader 
McConnell made statements about how everybody in the middle 
class, every single person, was going to get a tax cut, and 
that turned out not to be the case either, right?
    Mr. Mnuchin. I think we worked very hard, that almost 
everybody got a tax break. But as you know, the tax system was 
very complicated, and as we simplified it certain people have 
different situations, but again, over 90 percent of the people 
have gotten tax breaks.
    Senator Van Hollen. Well, Mr. Secretary, with all respect, 
we just had a State analysis, and this is a bipartisan result 
in the State of Maryland. And it was performed by Maryland 
Bureau of Revenue Estimates, and they concluded that 376,000 
Maryland families are going to get a tax increase as a result 
of the bill that passed the Congress, and that those tax 
increases will average $2,080 per family. I do not know what 
you mean by ``almost nobody,'' but 376,000 Marylanders, that is 
a lot of people just in the State of Maryland.
    And if you look at the impact of those tax cuts, they also 
concluded that 123,000 Maryland families who make between 
$25,000 and $50,000 a year are going to get tax hikes, and for 
them it will be an average tax hike of $759. That is not 
consistent with earlier claims that everybody was going to get 
a tax reduction, is it?
    Mr. Mnuchin. I will assume your numbers are correct.
    Senator Van Hollen. Well, that is a lot of people, just in 
Maryland. And so Maryland, like other legislators and others 
around the country, actually scrambling to try to protect the 
people in our States from tax increases that they are going to 
face as a result of this tax bill. I am hoping that the 
Department of Treasury will actually work with this--work with 
the States on this. If your intention was, as the President 
indicated early on, that nobody in the middle class should see 
a tax increase, I hope you will work with us, especially as it 
relates to issues of eliminating the deduction for State and 
local taxes, the SALT deduction, which results in double 
taxation. I hope you will be working with us to actually 
accomplish what the President said he wanted to accomplish on 
the campaign trail, and I look forward to that discussion.
    Mr. Mnuchin. Thank you.
    Chairman Crapo. Thank you very much, Senator Van Hollen, 
and Senator Kennedy, who had to go preside until noon, which is 
about 5 minutes ago, is on his way back, and I so I told him 
that I would keep the hearing open. And while we are waiting 
just a few minutes for Senator Kennedy to return, I thought I 
would take another opportunity to ask you a few questions, Mr. 
Secretary. And I want to go into this tax question. You have 
been asked a number of questions today about taxes.
    I sit on the Finance Committee and was a part of the team 
that helped to write this tax bill. And, Senator Van Hollen, I 
do kind of wonder about the numbers you are getting from your 
State. What was the one about zero to $25,000?
    Senator Van Hollen. No--123,000 Maryland families who make 
between $25,000 and $50,000 a year will get tax hikes. Average 
tax hike for that group, $759.
    Chairman Crapo. Well, I do not know exactly what that is, 
but let tell you some of the stuff that we ran into, in terms 
of these kinds of scores--and we will just have to check it 
out. But when we eliminated the individual mandate, which was a 
tax on people who did not want to buy insurance that the law 
forced them to buy, that was scored by some of the tax scorers, 
including the Joint Tax Committee, as a tax increase.
    Now how can telling people that they can voluntarily avoid 
a tax turn it into a tax increase? The way that happened was, 
Joint Tax said if they do not take advantage of the Obamacare 
subsidy of several thousand dollars to buy insurance, that that 
they do not want to buy, that the value of that insurance is 
a--that they are voluntarily choosing not to get the subsidy 
for, the value of that subsidy is a tax increase.
    Some of us found that that was an outrageous assumption to 
be making in calculating these kinds of things, and so we asked 
Joint Tax to run the numbers without calling it a tax increase 
when someone voluntarily chooses not to take a Government 
subsidy. When they ran those numbers it turns out that--and I 
would like you to verify this, if you can, Mr. Secretary--the 
analysis of the tax code that we implemented showed that every 
single income cohort in the tax code, starting from 0 to 10 and 
going on up to the highest income categories, every single 
income tax cohort got a tax cut.
    Can you verify that, Mr. Secretary?
    Mr. Mnuchin. I can.
    Chairman Crapo. And can you also verify that the largest 
percentages of tax cuts were in the lower- and middle-income 
categories?
    Mr. Mnuchin. Yes, I believe that is the case.
    Chairman Crapo. Now, I will be the first to say that, as 
the Secretary has indicated, you can go into each cohort and 
find individuals who, because of their particular tax 
circumstances, might have seen their taxes go up, particularly 
if they live in a State with high State and local taxes. That 
is something that happened.
    But I think it needs to be said, that every single, 
solitary tax cohort got a tax cut, and the highest percentages 
of tax cuts were in the lower- and middle-income categories. 
And I just--can you verify that again, Mr. Secretary?
    Mr. Mnuchin. Yes.
    Chairman Crapo. I think those things are important. I have 
seen a lot of analyses of this code and many other different 
tax provisions, and I just think we have to be very careful 
when we look at the study that some group has done, and be sure 
we understand what the assumptions that they are making are 
when they do their calculus.
    I have a--I want to shift real quickly, and I expect 
Senator Kennedy to come through the door at any moment--but, 
Mr. Secretary, you have spoken a lot today about a wide range 
of issues. Are there any areas, either in the FSOC report or 
the Treasury reports that you think we need to continue 
monitoring or that we should pay greater attention to here? 
This is just an open question to you, to tell us what you would 
like us to be focusing on.
    Mr. Mnuchin. No. I think we have had the opportunity to 
talk about a lot of interesting issues across the board. 
Obviously, cyber, we have talked about a lot. We touched on 
cryptocurrencies, which is something that we are spending time 
looking at. We have talked about the designation process. We 
look forward to working with you and the Committee to raise the 
threshold. That does not mean that those entities will not be 
regulated. They will be regulated. And as the Senator pointed 
out, it does not mean that they cannot be designated.
    So we look forward to working with you on that, and housing 
reform, I am glad we have had a lot of conversations today on 
housing reform. I hope we do figure out a solution to this so 
that we do not leave these entities around for another 10 
years. And as I have said, I am open-minded to working with you 
and the Committee on lots of solutions, with the understanding 
that we maintain a 30-year mortgage, and with the understanding 
if we put the Government taxpayer at risk on a guarantee, which 
we do not have to do but we will look at different 
alternatives. But if we do do that, that the taxpayer is 
compensated and that there will not be any explicit--implicit 
guarantees that they are not compensated for.
    Chairman Crapo. Well, thank you. And I do, before it turn 
it to--in fact, I am going to let Senator Van Hollen have a 
comeback, if you would like to.
    Senator Van Hollen. Very briefly, I would just first of all 
say on the--the analysis I gave you was based on our State 
Board of Revenue estimates----
    Chairman Crapo. Mm-hmm.
    Senator Van Hollen. ----and there is no mention there at 
all of the Affordable Care Act component.
    But I would love to share information, because I do think a 
lot more people are going to see tax increases than suggested.
    The last point I would make, Mr. Chairman, as you know, 
that if someone had a $200, you know, tax liability and now it 
is $100, that is a 50 percent cut. So, yes, those folks who 
had--who were in the lower brackets who got tax cuts, they were 
a higher percentage, but that does not take away the fact that 
the average tax cut for a millionaire was $67,000, according to 
Joint Tax. And I think we could have avoided that in this 
process. All right.
    Chairman Crapo. Understood.
    Senator Van Hollen. I appreciate the opportunity.
    Chairman Crapo. It is always going to be the case that when 
you have tax cuts across the board, those who pay more taxes 
will get larger tax cuts, in dollars.
    Senator Van Hollen. Well, especially when you reduce the 
top rate, which was not required to be done in order to close 
loopholes.
    Chairman Crapo. Understood.
    Senator Van Hollen. But we should have another 
conversation. I appreciate the opportunity, Mr. Chairman.
    Chairman Crapo. Senator Kennedy, before I come back to you, 
or go to you, I want to ask just one more question. This 
relates, again, to basically the economic growth and the 
deficit issue. Just a couple of quick things. The CBO score 
that was issued this year, for budget purposes and also was 
used in discussion of the tax bill, projected a 1.9 percent 
rate of the economy. Correct?
    Mr. Mnuchin. Correct.
    Chairman Crapo. And am I also correct that it projected 
that the economy would grow only at 1.9 percent for 10 straight 
years?
    Mr. Mnuchin. That is correct.
    Chairman Crapo. In other words, zero growth in the rate of 
growth of the economy, under current law, and that is what the 
CBO projected. It is that projection, that absolutely flat-line 
projection, that if we do nothing we will see nothing in terms 
of growth, that has been used to analyze and make the claims 
about this tax bill.
    The argument is that this is going to generate $1 trillion 
worth of deficit. How much would the economy need to grow, to 
average over the next decade, before there is not a--before it 
is revenue neutral? Do you know that number?
    Mr. Mnuchin. It is about 30 to 35 basis points.
    Chairman Crapo. Which is about 2.3 percent?
    Mr. Mnuchin. Yes.
    Chairman Crapo. So if the economy can average 2.3 percent 
instead of 1.9 percent over the next decade, there will be no 
deficit from this tax bill. Correct?
    Mr. Mnuchin. That is correct.
    Chairman Crapo. And we are already at 3, and the projects 
that the Council of Economic Advisors has put out is we hope to 
be able to maintain that 3 for a decade.
    Mr. Mnuchin. That is correct.
    Chairman Crapo. I understand those are projections, and I 
understand there are lots of arguments about those projections, 
but at least this far in we are exceeding what is needing to be 
achieved in order to avoid any deficit.
    Mr. Mnuchin. That is correct, Mr. Chairman.
    Chairman Crapo. All right. Thank you. Senator Kennedy.
    Senator Kennedy. Thank you, Mr. Chairman. Thank you, Mr. 
Secretary.
    Mr. Mnuchin. Nice to see you.
    Senator Kennedy. I want to start by associating myself with 
the remarks of Senator Shelby, and thank you for your hard work 
on our tax legislation.
    Mr. Mnuchin. Thank you.
    Senator Kennedy. Can we agree that the revenue generated, 
the one-time revenue, generated by the repatriation of monies 
from overseas profits back to the United States is nonrecurring 
revenue?
    Mr. Mnuchin. Yes.
    Senator Kennedy. OK. Then why do not we match that up with 
a nonrecurring expense like infrastructure?
    Mr. Mnuchin. Well, it----
    Senator Kennedy. Does that make sense in terms of 
budgeting----
    Mr. Mnuchin. Again----
    Senator Kennedy. ----101?
    Mr. Mnuchin. ----I would just say, at the end of the day, 
you know, cash and revenues are fungible. So from our 
standpoint, we were just looking at from the tax standpoint and 
we would leave it to Congress on the appropriations side.
    Senator Kennedy. So you would not be opposed if we decided 
to dedicate all of the tax revenues, one-time tax revenues, 
that are generated by monies repatriated, one time, to the 
United States from overseas profits, and we match those up, as 
any first-year accounting student would recommend that you do, 
with one-time, nonrecurring expenses like infrastructure. You 
would not have any objection with that?
    Mr. Mnuchin. I would have no objection with that 
whatsoever.
    Senator Kennedy. Can we agree that would be a swell idea?
    Mr. Mnuchin. That sounds like a terrific idea.
    Senator Kennedy. Good. You are going to ask us to raise the 
debt limit.
    Mr. Mnuchin. I already have, yes.
    Senator Kennedy. OK. I know you are not clairvoyant but 
over the next 3 years, and perhaps 7 years, how many more times 
are you going to ask us to raise the debt limit?
    Mr. Mnuchin. I assume a lot.
    Senator Kennedy. Should not we do something about that?
    Mr. Mnuchin. Again, I think the President is very much 
concerned about the rate increase of the debt, and particularly 
that it grew over the last 8 years. His first priority was to 
create economic growth. That is the single most important thing 
that will create revenues. And over time we need to figure out 
where we can have Government savings to deal with the deficit.
    Senator Kennedy. Well, we are at $20 trillion and climbing, 
and at some point we are going to have to change the name of 
the Department of the Treasury to the Department of the Debt, 
because there is not going to be any treasure left.
    Now, in the past year we have added, what, $536 billion to 
that?
    Mr. Mnuchin. That is about right.
    Senator Kennedy. OK. I mean, it would seem to me that we 
need to have an adult discussion at some point about how we are 
going to get control of that.
    Mr. Mnuchin. I think the long-term debt and the long-term 
budget deficits are something that Congress needs to be 
conscious of.
    Senator Kennedy. OK. I want to talk to you about the 
sanctions. Can we agree that at least for the past 5 years that 
President Putin has acted like a thug?
    Mr. Mnuchin. I am not going to use that terminology, but 
there are clearly issues that we need to address, and that we 
have done with sanctions, and as I have said earlier, now that 
we delivered the report last night there will be additional 
sanctions going forward.
    Senator Kennedy. Well, let us go through the list. Ukraine, 
Crimea, Syria, he meddled in our election, he is helping North 
Korea cheat. I mean, it seems to me that in terms of sanctions, 
we ought to hit him so hard he is coughing up bones. I mean, he 
is not getting better. He is getting worse. I do not understand 
why we are not--why the Administration is not imposing the 
sanctions that the U.S. Congress overwhelmingly supported.
    Mr. Mnuchin. Again, I apologize because I said this earlier 
and you were not here, but we did an enormous amount of work in 
the intel community and Treasury putting together this report. 
I encourage you to look at the classified version, which is 
hundreds of pages. We delivered that last night, and we intend 
to now use that report and that intelligence to go forward with 
additional sanctions.
    Senator Kennedy. When?
    Mr. Mnuchin. We will be working on--we are already working 
on that. Now that we have finished the report, that is the next 
part of----
    Senator Kennedy. In the next--I do not meant to interrupt 
you. I am sorry. Were you through?
    Mr. Mnuchin. Yeah. No, I mean, again, I want to be careful, 
but in the near future you will see additional sanctions.
    Senator Kennedy. Is that near future within the next month?
    Mr. Mnuchin. Again, I want to be careful because the 
sanctions process, there is a process of declassifying. I do 
not want to commit it is going to be within the next month, but 
I can assure you as quickly as we can do this, this will be. So 
in the next several months you will see it. It may be a month. 
I just want to be careful in making that commitment. It is a 
thorough process of the work that needs to be done.
    Senator Kennedy. He is not getting any better, Mr. 
Secretary. Maybe you are seeing something and there is 
something in classified information that we are not seeing, and 
if there is, I would sure like to see it, because what you 
allow is what will continue.
    Mr. Mnuchin. All right. I understand. Thank you.
    Senator Kennedy. And I really think we are sending the 
wrong message at this critical juncture. I mean, his activities 
alone, in helping North Korea cheat, ought to require 
additional sanctions.
    Mr. Mnuchin. I understand, and we look forward to working 
with you on this, and there is a lot of activity here.
    Senator Kennedy. Thank you, Mr. Chairman.
    Chairman Crapo. Thank you, and I have just a couple of 
quick announcements. Some Senators may want to ask some 
additional records--questions for the record, and those will be 
due by February 16th, Tuesday. And, Mr. Secretary, we ask that 
you respond to those questions as promptly as you can.
    And that concludes this hearing. Thank you for your 
testimony again. This hearing is adjourned.
    [Whereupon, at 12:21 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
               PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
    Today, Treasury Secretary Steven Mnuchin will testify on the 
Financial Stability Oversight Council's 2017 annual report and the 
operations and actions of FSOC this Congress.
    In December of last year, FSOC issued its 2017 annual report, in 
which it provided numerous recommendations, insights into the Council's 
key activities, and identified potential emerging threats to financial 
stability.
    One of the recommendations urged Congress to reform the housing 
finance system and boost the role of private capital in mortgage 
finance.
    I have repeatedly stated that the status quo is not a viable option 
and reforming the housing finance system is one of my key priorities.
    Testifying before the Banking Committee last year, Secretary 
Mnuchin reaffirmed his commitment to work with us to find a solution, 
and stressed the importance of finding a balance between ensuring 
strong taxpayer protection and ample access to credit.
    Four years ago, a bipartisan group of Senators passed a housing 
finance reform bill in this Committee.
    We have an opportunity now to build on that effort and create a 
broader coalition of Republicans and Democrats to pass a bill into law.
    This remains one of my top priorities, and I look forward to 
continuing to work with the other Members of this Committee, Secretary 
Mnuchin, and other stakeholders throughout this process.
    Another focus of the report was cybersecurity, particularly in the 
financial services space.
    FSOC identified cybersecurity as an area requiring greater 
attention due to the increasing sophistication of cybercriminals and 
the growing scope and scale of malicious attacks, including data 
breaches.
    The list of significant cyberattacks and cyberbreaches both in the 
public and private sectors keeps growing at an alarming rate and seems 
to have impacted the majority of all Americans.
    The Council made recommendations to specifically address 
cybersecurity risks, including greater collaboration between the public 
and private sectors.
    It is critical that personal data is protected by both the 
Government and industry, and that when there is an attack or breach, 
the impact on victims is minimized.
    The report also highlighted key actions taken by the Council since 
the last report.
    This included FSOC rescinding the designation of two nonbank 
financial companies.
    Many of us on the Committee have long been critical of the lack of 
transparency and analytic rigor of FSOC's process for designating 
nonbank SIFIs.
    In November 2017, Treasury issued a report outlining 
recommendations for enhancing both the nonbank and financial market 
utility designation process, which included tailoring regulations to 
minimize burdens and ensuring the designation analyses are rigorous, 
clear, and transparent.
    In the past, the nonbank SIFI designation process has lacked 
clarity and consistency, with the threat of serious regulatory 
consequences for firms that received designations.
    This inevitably translates into higher costs for consumers and the 
overall economy.
    When making determinations, the FSOC's process must be transparent, 
objective, and measurable, with clearly outlined criteria when such 
designations are appropriate.
    It must also provide clarity on how companies can shed such 
designations.
    I thank the Secretary for his work in these areas and for 
testifying before the Committee today, and look forward to his comments 
and insights on these important issues.
                                 ______
                                 
                PREPARED STATEMENT OF STEVEN T. MNUCHIN
                 Secretary, Department of the Treasury
                            January 30, 2018
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
thank you for inviting me today. One of my top priorities as Treasury 
Secretary is sustained economic growth for the American people, and so 
I am happy to report that the growth rate of the economy over the past 
year was higher than the average over the prior 20 years and included 
two straight quarters of 3 percent or higher GDP growth. The President 
promised robust growth, and he is delivering on that promise.
    I am here today to speak about the Financial Stability Oversight 
Council's 2017 annual report. This is an important vehicle for 
providing Congress and the public with the Council's assessments and 
recommendations relating to regulatory developments and potential risks 
to the financial system.
    This report emphasizes the importance of economic growth to 
maintaining a resilient financial system. Since the financial crisis, 
we have had time to assess the effectiveness of regulatory reforms and 
consider their unintended consequences. The report recommends that 
Council member agencies address regulatory overlap and duplication, 
modernize outdated regulations, and tailor regulations based on the 
size and complexity of financial institutions.
    The report also discusses a number of risks that the Council is 
monitoring. One that I would like to emphasize in particular is 
cybersecurity. The financial system's heavy and increasing reliance on 
technology increases the risk that significant cybersecurity incidents 
could disrupt the financial sector and potentially impact U.S. 
financial stability. Substantial gains have been made, but I want to 
emphasize the need for sustained attention to these risks. The report 
makes a number of recommendations, including creation of a private 
sector council of senior executives in the financial sector to 
collaborate with regulators in order to mitigate cybersecurity threats.
    Turning to our growth policies, the Tax Cuts and Jobs Act passed 
last year was our top priority, and this overhaul of the tax code is 
already having a positive impact. Because of tax reform, over three 
million Americans have received special bonuses or other benefits, and 
over 250 companies have announced investments in their workforces. 
Companies are announcing higher wages and increased benefits, as well 
as greater spending on employee training, infrastructure, and research 
and development. These investments will lead to long-term prosperity, 
and as companies continue to bring back cash from overseas, our economy 
will continue to grow.
    Let me now turn to some specific priorities for this new year.
    I want to commend both houses of Congress for their work on 
financial regulatory reform. The bipartisan Economic Growth, Regulatory 
Relief, and Consumer Protection Act is a balanced and thoughtful 
approach that better aligns our financial system to support economic 
growth in our communities. Further, the legislation reflects many of 
Treasury's recommendations from our Executive Order reports released 
last year. I encourage the Senate and the House to work together to 
move legislation as quickly as possible.
    In December I wrote to Congress providing notification of my 
determination that a ``debt issuance suspension period'' (DISP) would 
last until January 31st. As Congress has not acted to suspend or 
increase the debt ceiling, I have determined that the DISP will be 
extended into February and will be notifying Congress as such. I 
respectfully urge Congress to act as soon as possible to protect the 
full faith and credit of the United States by increasing the statutory 
debt limit.
    The House and Senate have been working toward modernization of the 
Committee on Foreign Investment in the United States (CFIUS). I support 
the Foreign Investment Risk Review Modernization Act (FIRRMA) and 
applaud Senators Cornyn, Feinstein, and Burr and Representatives 
Pittenger and Heck for their leadership on this issue. A modernized 
CFIUS will enable us to protect our national security from current, 
emerging, and future threats, while preserving our longstanding open 
investment policy that is key to fostering innovation and economic 
growth. I look forward to working with Congress and the relevant 
committees to advance FIRRMA.
    One of Treasury's core missions is to safeguard the Nation by using 
the powerful economic tools in our arsenal. We will continue to take 
frequent and ongoing actions to combat threats from malicious actors. 
These include terrorist groups, proliferators of weapons of mass 
destruction, human rights abusers, cybercriminals, and rogue regimes 
like North Korea, Iran, and Venezuela. We continue to review 
intelligence to identify targets with maximum impact, deny them access 
to the U.S. and international financial systems, disrupt their revenue 
streams, and ultimately pressure them to change their behavior.
    On housing finance, the current situation of indefinite 
conservatorship for Fannie Mae and Freddie Mac is neither a sustainable 
nor a lasting solution. The Administration looks forward to working 
with Congress to reform America's housing finance system in a manner 
that helps consumers obtain the housing best suited to their own 
personal and financial situations while, at the same time, protecting 
taxpayers.
    I am proud of what we have accomplished so far, and there is more 
to do. Our country's potential is enormous, which is why Americans 
expect their Government to enact policies that allow them to succeed 
and prosper. Treasury's collaboration with Congress is vital to that 
mission, and we are working every day to make it a reality.
    Thank you and I look forward to answering your questions.
        RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
                     FROM STEVEN T. MNUCHIN

Q.1. A Treasury report on nonbank financial company 
designations issued last year \1\ recommended that Financial 
Stability Oversight Council (FSOC) pivot to an activities-based 
approach, and away from nonbank financial company designations, 
as the method by which FSOC attempts to mitigate systemic risk.
---------------------------------------------------------------------------
     \1\ https://www.treasury.gov/press-center/press-releases/
Documents/PM-FSOC-Designations-Memo-11-17.pdf
---------------------------------------------------------------------------
    What kinds of activities by nonbank financial companies 
would be considered as having effects on financial stability?

A.1. The Council monitors all aspects of financial markets and 
institutions to fulfill its important statutory role of 
identifying and responding to risks to financial stability. 
Council members are considering the recommendations made in 
Treasury's November 17, 2017, report on FSOC designations, and 
I look forward to working with them to determine how best to 
implement the recommendations.

Q.2. How do those activities differ from the ``Emerging Threats 
and Vulnerabilities'' identified in Section 6 of the FSOC 
Annual Report? \2\
---------------------------------------------------------------------------
     \2\ https://www.treasury.gov/initiatives/fsoc/studies-reports/
Documents/FSOC_2017_Annual_Report.pdf

A.2. The Council's annual reports describe potential emerging 
threats to U.S. financial stability, as well as vulnerabilities 
in the financial system. The Council's annual reports also make 
recommendations to enhance the stability of U.S. financial 
markets. I look forward to working with the Council to 
determine how best to implement Treasury's recommendations 
---------------------------------------------------------------------------
regarding an activities-based approach in this context.

Q.3. Does the FSOC intend to update its systemically important 
financial institution (SIFI) final rule and interpretive 
guidance to explain how it will conduct activities-based 
reviews? \3\
---------------------------------------------------------------------------
     \3\ https://www.treasury.gov/initiatives/fsoc/Documents/
Nonbank%20Designations%20-%20Final%20Rule%20and%20Guidance.pdf

A.3. I expect that the Council will update its rule and 
interpretive guidance regarding nonbank financial company 
designations in light of Treasury's recommendations in this 
area and taking into account the perspectives of all Council 
---------------------------------------------------------------------------
members.

Q.4. Once identified, will those activities be made public?

A.4. Consistent with its commitment to making its deliberations 
and actions transparent to the public and stakeholders, the 
Council regularly makes public statements regarding potential 
risks to financial stability that it identifies.

Q.5. How sure are you that the data necessary for monitoring 
the activities described in Question 1 is available in a timely 
manner, given the current prevalence of data gaps, a number of 
which are pointed out in the 2017 FSOC Annual Report?

A.5. The Council and its members, including State and Federal 
regulators, are able to gather extensive data regarding 
potential risks to U.S. financial stability. To the extent that 
gaps exist, we work to identify and address those concerns, as 
described in the Council's annual reports.

Q.6. Are you confident that the FSOC will have the ability to 
fill data gaps and gather the necessary information FSOC needs 
to monitor and prevent the emergence of financial crisis-level 
risky activities while at the same time you are shrinking the 
FSOC and Office of Financial Research (OFR) staff?

A.6. The Council and its members, including State and Federal 
regulators, are able to gather extensive data regarding 
potential risks to U.S. financial stability. To the extent that 
gaps exist, we work to identify and address those concerns, as 
described in the Council's annual reports. The OFR will 
continue to play an important role in improving the coverage, 
quality, and accessibility of financial data, as well as data 
sharing between agencies.

Q.7. The Treasury Report on nonbank financial company 
designations issued last year \4\ provided that the FSOC 
shouldn't just consider whether a failure of a nonbank would be 
catastrophic when making a designation decision, but also 
should consider the ``likelihood'' of a firm's failure. Bear 
Stearns was trading for $65 a share a week before it failed, 
when it was bought for $2 a share--with $30 billion in backing 
from the Federal Reserve. Regulators have a bad track record of 
predicting failures.
---------------------------------------------------------------------------
     \4\ Supra n. 1.
---------------------------------------------------------------------------
    Please discuss how FSOC would assess the likelihood of a 
firm failing.

A.7. Council members are considering the recommendations made 
in Treasury's November 17, 2017, report on FSOC designations, 
and I look forward to working with them to determine how best 
to implement the recommendations.

Q.8. Isn't the point of a designation to avoid a catastrophic 
nonbank financial company failure, even if it's a remote event?

A.8. The Council has a variety of statutory authorities for 
identifying and responding to potential risks to U.S. financial 
stability. It is important that the Council use its tools in a 
manner that is both effective and efficient.

Q.9. Could an FSOC determination that a nonbank financial 
company was ``likely'' to experience material financial 
distress cause a flight of creditors, customers or other 
counterparties of such firm? How would the FSOC mitigate such a 
run risk?

A.9. Council members are considering the recommendations made 
in Treasury's November 17, 2017, report on FSOC designations, 
and I look forward to working with them to determine how best 
to implement the recommendations.

Q.10. Under the revised process set forth in the Treasury 
Report issued last year, would AIG have been designated in 
2013?

A.10. I was not involved in the Council's original designation 
of AIG, so I cannot speak to that process. In 2017, the Council 
conducted an annual reevaluation of AIG in accordance with the 
Dodd-Frank Act and the Council's existing procedures regarding 
nonbank financial company determinations. In that reevaluation, 
the Council concluded that AIG no longer met the statutory 
standard for designation.

Q.11. On page 3 of the Executive Summary, the 2017 FSOC Annual 
Report says ``as a result of postcrisis regulatory reforms, the 
U.S. financial system is clearly stronger and better positioned 
to withstand a market shock or an economic downturn than it was 
before the financial crisis.''
    Can you provide examples of reforms you think have been 
beneficial?

A.11. The creation of the Council itself has been beneficial in 
bringing together the expertise of Federal financial 
regulators, State regulators, and an independent insurance 
expert to share information and collaborate to promote 
financial stability. The Council serves as an important forum 
to monitor market developments and identify potential threats 
to financial stability. The financial system has also benefited 
from other changes including increased capital and liquidity at 
our largest financial institutions.

Q.12. The 2016 FSOC Annual Report \5\ contained recommendations 
concerning the mitigation of operational risk, securities 
lending risk, and resolvability and transition planning, all 
under its discussion of asset management products and 
activities. The 2017 Report omits discussion of these topics.
---------------------------------------------------------------------------
     \5\ https://www.treasury.gov/initiatives/fsoc/studies-reports/
Pages/2016-Annual-Report.aspx
---------------------------------------------------------------------------
    Why?

A.12. The Council's 2017 annual report noted that it continued 
to assess the potential for financial stability risks to arise 
from certain asset management products and activities, 
particularly in the areas of liquidity and redemption, 
leverage, operational functions, securities lending, and 
resolvability and transition planning.

Q.13. The 2017 FSOC Annual Report discusses multi-employer 
pension plans, and notes that according to the Pension Benefit 
Guaranty Corporation (PBGC), over 1 million participants in 
such plans are facing insolvency.
    What is the FSOC doing to mitigate the risks posed by 
insolvent multi-employer plans?

A.13. Both Treasury and the Council have been very focused on 
pension-related issues. The Council's 2017 annual report 
analyzes risks related to pension funds and notes that the 
Council supports efforts to improve the quality, timeliness, 
and depth of disclosures of pension financial statements, as 
well as the use of market valuation for pension data as 
described in guidance issued by the Governmental Accounting 
Standards Board.

Q.14. Could such insolvency cause financial instability across 
particular demographics or regional economies?

A.14. Sections 4.2.3 and 4.13.4 of the Council's 2017 annual 
report describe a number of risks related to pension funds.

Q.15. The Treasury Report on nonbank financial company 
designations issued last year outlines five policy goals to 
guide your review of the FSOC's work.
    Why didn't it include a mention of promoting financial 
stability or preventing a financial crisis?

A.15. The Council's statutory mission includes identifying 
risks to U.S. financial stability and responding to emerging 
threats to the U.S. financial system, and I expect all of the 
Council's activities to further those goals.

Q.16. Can you provide an update on the status of the FSOC hedge 
fund working group established under the prior Administration?

A.16. The Council is looking at these and other activities as 
part of its regular work to monitor all sectors of the U.S. 
financial system.

Q.17. Please provide the legal analysis authored by Treasury 
Department or FSOC counsel providing the rationale for 
determining the number of voting members in the vote to de-
designate AIG as a nonbank SIFI. This should include the legal 
rationale providing that a recused member of the FSOC is 
excluded from the vote tally. Please also provide the legal 
basis for the Council's understanding that Mr. Noreika's 
limited term as Acting Comptroller of the Currency had not yet 
expired at the time of the AIG de-designation vote.

A.17. The minutes of the Council's September 22, 2017, meeting 
describe in detail the advice I relied on from Treasury's 
Office of the General Counsel in this matter, as follows:

        [The Chairperson] stated that he had been advised by 
        counsel that the phrase ``voting members then serving'' 
        is best read to refer to members able to serve by 
        casting a valid vote on the issue in question. He 
        explained that the word ``serve'' is commonly used to 
        mean discharging the duties of an office, and that the 
        effect of a recusal is to prevent a recused member from 
        discharging those duties with respect to a specific 
        vote. He stated that a recused Council member is 
        therefore out of service with respect to a vote he is 
        recused from, even though he continues to hold office 
        and serve on other matters. He then explained that 
        counsel had informed him that this reading of the 
        statutory language was supported by judicial 
        interpretation of similar language in a law that sets 
        the standard for appellate judges to vote for 
        rehearing. He stated that counsel had also informed him 
        that this reading was consistent with other provisions 
        of the Dodd-Frank Act, including section 111(c) (which 
        provides that when an agency head is legally 
        ``disabled'' by recusal, the acting agency head serves 
        in his place as a Council member on the subject of the 
        recusal) and section 111(i) (which uses the word 
        ``serve'' in connection with the performance of Council 
        duties, not service as the head of an agency). The 
        Chairperson stated that counsel had also informed him 
        that this reading of the statute was consistent with 
        the common practice of other multimember bodies, 
        including the SEC, the FDIC, the U.S. Supreme Court, 
        and the Federal appellate courts. Finally, he stated 
        that counsel had informed him that, even assuming there 
        is more than one reasonable interpretation of the 
        statutory language, this interpretation is more sound 
        because (1) an alternative interpretation would defeat 
        the purpose of recusal by treating a recusal as the 
        equivalent of a ``no'' vote and would arbitrarily treat 
        vacancies differently from recusals; (2) the 
        alternative interpretation would incentivize parties to 
        engage in strategic behavior to trigger recusals, 
        because a recusal would convert the recused member into 
        an effective ``no'' vote; and (3) the alternative 
        interpretation could affect the exercise of the 
        resolution authority under Title II of the Dodd-Frank 
        Act, for which Congress used the same ``members then 
        serving'' language.

    I would refer you to the Office of the Comptroller of the 
Currency regarding the term of Acting Comptroller Noreika.

Q.18. The current FSOC independent member with insurance 
expertise, Mr. S. Roy Woodall, maintains an independent office 
outside of Treasury, and recruited a small staff to assist him 
with his statutory responsibilities, and, with the approval of 
the other FSOC members, maintained an independent member budget 
within the larger FSOC budget.
    As Chair of the FSOC, are you committed to maintaining an 
independent budget, staff and office for the incoming FSOC 
independent member with insurance expertise?

A.18. The independent insurance member's role on the Council 
was established by statute to be just that--independent. I 
expect to continue to support the independence of that office, 
consistent with the Dodd-Frank Act.

Q.19. On November 20, 2017, Zions Bancorporation issued a press 
release \6\ in which it announced it would be merge its holding 
company parent into its bank, thus no longer being a bank 
holding company (BHC) subject to supervision by the Federal 
Reserve under the Bank Holding Company Act. Section 117 of 
Dodd-Frank provides that BHCs with more than $50 billion in 
assets that were bailed out with taxpayer funds during the 
financial crisis through the Troubled Asset Relief Program 
cannot escape Fed supervision by ceasing to be a BHC, and 
instead should continue to be regulated by the Fed as a nonbank 
SIFI, unless the FSOC de-designates the firm. Zions indicated 
in a press release that it would seek such a de-designation. 
\7\
---------------------------------------------------------------------------
     \6\ https://www.prnewswire.com/news-releases/zions-bancorporation-
announces-plans-to-simplify-its-structure-by-merging-parent-company-
into-its-banking-subsidiary-300559183.html
     \7\ Ibid.
---------------------------------------------------------------------------
    Given that the Treasury report on FSOC designations from 
last year said that designations represented a ``blunt 
instrument'' approach, \8\ does this mean that Zions 
Bancorporation will be granted the Section 117 de-designation 
it seeks?
---------------------------------------------------------------------------
     \8\ Supra n. 1.

A.19. At this time, the Council has not received an application 
under Section 117 of Dodd-Frank from any institution. If the 
Council receives such an application, I expect the Council to 
---------------------------------------------------------------------------
conduct a careful and deliberate analysis on the merits.

Q.20. Will the FSOC be applying the activities-based approach 
that the Treasury Department recommended in the November FSOC 
report with respect to BHCs that shed their holding company 
structure and seek to be de-designated under Section 117?

A.20. The Dodd-Frank Act sets forth the factors the Council is 
required to consider in the case of an application under 
section 117 of the statute, and the Council will comply with 
those statutory obligations.

Q.21. How will the FSOC's nonbank SIFI final rule and 
interpretive guidance be applied to a business model like Zions 
when the nonbank SIFI criteria was never designed to evaluate a 
bank?

A.21. The Dodd-Frank Act sets forth the factors the Council is 
required to consider in the case of an application under 
section 117 of the statute, and the Council will comply with 
those statutory obligations. In particular, the Council is 
required to consider whether an applicant under section 117 
meets the standards under section 113--namely, whether the 
company's material financial distress, or the nature, scope, 
size, scale, concentration, interconnectedness, or mix of its 
activities, could pose a threat to U.S. financial stability. 
The Council will be able to consider whether a former bank 
holding company meets those standards.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SASSE
                     FROM STEVEN T. MNUCHIN

Q.1. I'd like to continue our ongoing conversation about 
deficits and the debt, in light of the Treasury Department's 
obligation to advise the President on ``domestic and 
international financial, monetary, economic, trade and tax 
policy . . . '' In response to my questions for the record for 
your May 18, 2017, Senate Banking Committee appearance, you 
agreed with the Financial Report of the U.S. Government's 
statement that `` `the projected continuous rise in the debt-
to-GDP ratio indicates that current policy is unsustainable.' 
'' You also said that ``[r]educing the deficit to levels that 
are sustainable over time is critical . . . '' and agreed that 
``a continually increasing level of debt to GDP is not 
sustainable.'' (citation and quotation omitted).
    While I appreciate that answer, it was not responsive to 
whether you agreed with then-Federal Reserve Chair Yellen that 
``fiscal policymakers should soon put in place a credible plan 
for reducing deficits to sustainable levels over time.''
    Do you agree with this?

A.1. The President's 2019 Budget is a credible plan to reduce 
deficits to sustainable levels over time. Under the President's 
budget, the debt-to-GDP ratio slowly rises until 2022 at 81.9 
percent, and then falls rapidly to 72.6 percent in 2028.

Q.2. If so, what should the targeted debt-to-GDP ratio be?

A.2. The President's 2019 budget will reduce the debt-to-GDP 
ratio as the economy grows and further reduces Federal 
spending. We do not target a specific debt-to-GDP ratio.

Q.3. Is it possible to address the projected unsustainable rise 
in debt-to-GDP ratio without reforming nondiscretionary 
spending, particularly in light of your statement in response 
to my May questions for the record that an aging population 
will result in increased Government spending and reduced tax 
receipts?

A.3. No. The extent to which those programs needs to be 
reformed, however, can be mitigated by robust economic growth 
as a result of the tax, trade, and regulatory policies promoted 
by the Administration in the FY2019 budget.

Q.4. Should the Administration consider policy reforms that 
could reduce nondiscretionary spending, in order to reduce our 
debt and deficit over time?

A.4. In the President's budget our economic program and reduced 
Federal spending will reduce our debt.

Q.5. If so, what policies should the Administration consider? 
Should the Administration preserve any particular 
nondiscretionary program (such as Medicare or Medicaid) from 
reforms?

A.5. The President's Budget recommends efficiency-enhancing 
reforms across a wide spectrum of nondiscretionary programs. It 
is important that those reforms do not adversely affect those 
who are at or near retirement age and therefore unable to plan 
for changes in expected benefits, but no program should be 
exempt from changes that promote efficient operations and the 
elimination of wasteful spending.

Q.6. I'd like to continue our ongoing conversation about trade. 
In my questions for the record for now-Federal Reserve Chairman 
Jerome Powell's November 28th, 2017 confirmation hearing, I 
asked now-Chairman Powell if the measure of the U.S.'s trade 
deficit with another country (the bilateral trade deficit) was 
``a useful metric to consult to evaluate whether trade with 
that country hurts or helps our economy.'' In response, now-
Chairman Powell said: The overall U.S. trade balance is the 
most useful measure for evaluating the impact of trade on the 
U.S. economy. That balance is affected by many factors, 
including savings and investment in the United States, economic 
conditions abroad, and movements in exchange rates. Bilateral 
trade deficits are less informative. For example, U.S. workers 
and businesses could benefit when the United States runs a 
deficit with one country by importing goods that we use as 
inputs to produce goods to sell to another country. In this 
example, a focus on the bilateral deficit would obscure the net 
effect on the U.S. trade balance and the overall benefit to the 
economy.
    Do you agree with Chairman Powell that ``[b]ilateral trade 
deficits are less informative?'' If so, why does the 
Administration aim in NAFTA renegotiations to reduce our 
bilateral trade deficit with Mexico and Canada?

A.6. The Administration has focused its trade policies on 
countries with which we have large trade deficits in goods and 
we will continue to seek to reduce a range of unbalanced trade 
relationships.
    Specifically, we continue to press our trading partners to 
reduce tariffs, remove nontariff barriers that block U.S. 
exports, counter dumping and unfair subsidies with robust trade 
remedies, and tackle unfair trade practices more generally.
    In examining the trade practices of countries with which we 
have large trade deficits, we have identified a number of 
barriers that we can work to remove in order to help U.S. 
workers and firms in support of the Administration's trade 
agenda.
    Our effort to modernize NAFTA is a top Administration 
priority and a key part of our trade agenda.

Q.7. I'd like to discuss cybersecurity. I understand that some 
of these questions may involve classified and law enforcement-
sensitive information, and I am eager to work with you to adapt 
my request in a manner that accommodates public safety and 
national security interests while ensuring maximum transparency 
for the American people. In your January 30, 2018, appearance 
before the Senate Banking Committee, you were asked by Senator 
Crapo ``[w]here does the FSOC see gaps or shortfalls in 
cybersecurity protection today?'' While you did speak to the 
importance of ``always . . . advancing issues'' you also said 
that ``I don't see any specific gaps today.''
    Can you elaborate on what you mean by that statement? For 
example, do you believe no major structural changes are 
necessary for our Nation's cybersecurity efforts, even in light 
of the Equifax breach and the SEC breach of their EDGAR filing 
system?

A.7. Treasury's work depends on partnerships with various 
stakeholders, including private sector institutions and 
industry groups, and other Government entities to enhance the 
security and resilience of the U.S. financial services sector. 
As Treasury is not a regulator, we do not have knowledge of 
specific weaknesses of specific institutions regarding 
cybersecurity that may have been identified through the course 
of regulatory examinations. While there is comprehensive 
cybersecurity regulation in place for institutions that are 
covered by financial regulators, we must address the challenge 
of correctly implementing and maintaining what we know must be 
done.
    The two tenets of Treasury's mission, maintaining a strong 
economy and strengthening the national security by combating 
threats to the U.S. financial system and the economy, have been 
furthered by driving discussions and conversations. So, while 
we continue to work to centralize cybersecurity leadership 
within Treasury to work collaboratively and transparently to 
protect critical financial infrastructure, we do not see any 
specific gaps at this moment. We instead must work to mitigate 
risk that we naturally carry with proper information sharing 
through our various partnerships.

Q.8. What steps is the Treasury Department taking to improve 
cybersecurity at our Nation's financial institutions and within 
the Treasury Department itself?

A.8. Treasury's efforts are focused on helping the financial 
services sector improve its security as the sector-specific 
agency under Presidential Policy Directive 21 (dated February 
21, 2013). Since Treasury itself is not a regulator in this 
area, as mentioned above, our ability to be effective depends 
on a wide range of both public and private partnerships. 
Treasury's efforts, led by the Department's Office of Critical 
Infrastructure Protection and Compliance Policy, works closely 
with the many members of the private sector, the Department of 
Homeland Security, law enforcement, Federal and State financial 
regulators through the Financial and Banking Information 
Infrastructure Committee (FBIIC) to reduce cybersecurity and 
operational risk and improve resilience in the financial 
sector.
    We work to reduce these risks in various ways. We are a 
strong proponent and driver for effective and timely 
cybersecurity information sharing. This includes not only 
sharing information from the Government to the sector, but 
encouraging sector members to share information with each 
other. This helps other institutions identify and deflect 
cybersecurity attacks. Or, if an institution is already 
breeched with a contagion, increased sharing helps improve the 
ability to identify, contain, and eradicate the malicious code.
    Another example of our work is our Hamilton Exercise 
Program, which is geared toward major functions of the U.S. 
financial sector. Treasury has also carried out regional 
cybersecurity exercises focused specifically on smaller 
financial sector companies. These exercises are an opportunity 
for firms to practice incident response procedures; share and 
refine best practices; develop stronger connections with 
similar firms in their communities; and, often, for regulators 
to engage in a neutral setting. This program, and others like 
it, benefit smaller firms, which are a key component of our 
financial sector.
    Internally, Treasury continuously evaluates its 
cybersecurity posture to understand areas of strength and 
identify opportunities for improvement. Treasury actively 
partners with the Department of Homeland Security (DHS) to 
implement Federal-wide initiatives to improve cybersecurity 
defenses. These have included implementation of Trusted 
Internet Connections, the National Cybersecurity Protection 
System, and the Continuous Diagnostics and Mitigation program. 
Treasury also leverages multiple services provided under the 
DHS National Protection and Programs Directorate's Office of 
Cybersecurity and Communications to help all Federal civilian 
agencies improve their cybersecurity defense.
    In addition, the Department has identified opportunities to 
enhance cyberdefense across the enterprise through strategic 
investment in additional technical capabilities. The Department 
is also in the process of implementing the NIST cybersecurity 
risk framework. Treasury is executing multiple projects to 
introduce new capabilities across the Department, including 
Data Loss Prevention, inspection of encrypted network traffic, 
automated incident response for workstations and servers, and 
enhancement of enterprise threat analysis capabilities. 
Finally, Treasury engages with its bureaus to develop and 
implement plans to mitigate any potential weaknesses identified 
in weekly DHS vulnerability scans, quarterly Risk Management 
Assessments from the Office of Management and Budget, and 
annual cybersecurity program evaluations conducted by the 
Department's Inspectors General.

Q.9. Are you concerned that a cyberbreach at the Treasury 
Department could jeopardize the Treasury Department's 
operations, endangering national security, or cause broader 
systemic financial risk? If so, please describe the 
consequences of such breaches.

A.9. As the steward of U.S. economic and financial systems, the 
Department of the Treasury performs functions that are critical 
to the Nation's financial infrastructure, such as the 
production of coin and currency, the disbursement of payments 
to the American public, revenue collection, and the borrowing 
of funds necessary to run the Federal Government. To accomplish 
the Department's mission, Treasury bureaus operate information 
systems that store, process, and/or transmit information of 
varying degrees of sensitivity. To identify which of its 
systems would, if breached, pose the greatest risk to 
Departmental operations, national security, and/or broader 
financial systems, Treasury applies Federal-wide guidance for 
managing critical infrastructure and information systems. This 
allows the Department to prioritize cybersecurity defense of 
those systems and infrastructure for which a breach would be 
most likely to cause the greatest harm.
    The consequences of a breach (i.e., a cybersecurity 
incident resulting in exfiltration of sensitive information to 
unauthorized parties or to authorized parties for unauthorized 
purposes) of any critical infrastructure system or other 
information system would depend on the specific nature of the 
affected system, but could potentially include: exposure of 
personally identifiable information of U.S. taxpayers, 
increasing their risk of monetary or identity theft; or loss of 
Federal revenue.

Q.10. How many cyberbreaches have there been at the Treasury 
Department? Have any of these breaches come close to 
jeopardizing the Treasury Department's operations, endangering 
national security, or causing broader systemic financial risk?

A.10. Treasury understands ``cyberbreaches'' to refer to 
incidents like those reported to have occurred at Equifax and 
the Securities and Exchange Commission, in which unauthorized 
parties exfiltrate sensitive data from agency information 
systems. Between 2008 and 2012, network intrusions and system 
compromises involving Advanced Persistent Threat (APT) actors 
led to three incidents in which sensitive data was found to 
have been exfiltrated. The Department responded by working to 
mature computer network defenses, particularly targeting 
vulnerabilities known to be exploited by APT actors. Since 
2012, no further such intrusions have been detected.
    Subsequent cyberbreaches affecting Treasury data have 
leveraged public-facing applications that provide access to 
data from the Internal Revenue Service (IRS). These breaches 
did not result from technical weaknesses in the affected 
systems. In each case, individuals utilized personally 
identifiable information stolen from non-Treasury sources to 
impersonate taxpayers to the applications, thereby gaining 
inappropriate access to taxpayer data. Since 2015, Treasury has 
experienced and reported two such incidents involving IRS 
applications. The breaches did not endanger national security 
or introduce systemic financial risk, but the breaches did 
impact IRS operations as well as increase the likelihood that 
fraudulent tax returns would be processed. In response to this 
threat, the IRS has tightened authentication requirements for 
its public-facing applications. This has led criminals to 
explore other means of exfiltrating taxpayer data. Treasury and 
the IRS are continuing efforts to identify and block potential 
avenues of taxpayer data exfiltration.

Q.11. What is the most likely cyberthreat to our financial 
system?

A.11. There are a wide range of cyberthreats to our financial 
systems; none of these are particularly novel or surprising. It 
is impossible to say any one threat is the most likely, given 
the widespread diversity of our financial system, both 
geographically (to include the cloud in some cases), and in 
terms of a wide range of heterogeneous new and legacy 
technologies. In some cases, the biggest cyberthreat is an 
indirect one due to a reliance upon another critical 
infrastructure such as energy or telecommunications. We need to 
examine the question from an all-hazards approach, in order to 
strengthen cybersecurity, we need to help better prepare the 
sector from threats than can result in the greatest harm, such 
as: trusted insiders with highly privileged access, phishing 
and related attacks as a way to plant destructive malware into 
a network Another example would be an attack exploiting a 
``zero-day'' vulnerability, which leaves no opportunity of 
detection there would be no patch already available; poor 
cyberhygiene (timely patching, secure configurations, sound 
network design, etc.), physical threats (ranging, for example, 
from hurricanes, to fires, to terrorism) and outside attackers. 
As such, Treasury remains dedicated to working with the private 
sector and regulators to better prepare the financial services 
sector.

Q.12. How could a large scale cyberattack on our financial 
system impact the U.S. economy and international economy? For 
example, are you concerned that hackers could pose a national 
security or systemic risk by accessing the live markets and 
shutting down trading, deleting trade information, or otherwise 
sparking a major crisis?

A.12. There is a high degree of redundancy and resiliency built 
into most institutions of the sector. For example securities 
are usually traded on multiple exchanges and exchanges 
themselves have their own backup facilities and services, 
typically real-time failover. This redundancy reduces the 
expected impact on the economy because a large scale attack 
would require a concerted attack on more than a dozen exchanges 
and their backup facilities. Furthermore, exchanges, as 
private-sector entities have the authority to order a shutdown 
should they detect a situation that warrants it.
    To help decrease the likelihood of similar attacks against 
multiple institutions, I cannot emphasize enough the importance 
of sharing information within the sector. We are able to better 
understand our risk when we communicate effectively with the 
sector as a whole. I have instructed my staff to be as 
supportive as they are able, but it is important to note that 
the private sector owns and operates the bulk of the critical 
infrastructure that Treasury and others in Government seek to 
help protect. It is also critically important to highlight that 
Treasury's cybersecurity mission is designed to support not 
just large financial institutions, but also the smaller 
financial sector companies that are the primary interface with 
the financial system for millions of Americans.
    Treasury works on a regular basis to assist all financial 
sector companies large and small by encouraging the use of 
baseline protections, assisting with response and recovery 
activities, and facilitating information sharing. Treasury does 
this work in close partnership with the Department of Homeland 
Security, law enforcement, financial regulators, and industry 
groups such as the Financial Sector Information Sharing and 
Analysis Center.

Q.13. If so, please describe the consequences of such a breach.

A.13. I have stated before that nongovernmental estimates have 
found the cost of criminal data breaches will cost global 
businesses $8 trillion over the next 5 years. At this time it 
is not possible to estimate the consequences of a specific 
hypothetical breach.
    It is not possible to estimate the consequences of a 
hypothetical breach.

Q.14. Is the Treasury Department considering recommending or 
imposing new regulations on financial institutions or 
recommending or new agency policies, in order to mitigate 
cybersecurity risk? If so, what regulations or policies?

A.14. As mentioned above, the Financial and Banking Information 
Infrastructure Committee (FBIIC) continues to serve as a 
successful venue for coordinating approaches among agencies 
with different statutory authorities, and Treasury believes 
that FBIIC should be the focal point to drive domestic 
regulatory harmonization efforts. By harmonizing 
cyberregulatory requirements and oversight procedures, industry 
tells us that significant efficiencies will result. Within 
FBIIC, Treasury has supported efforts to promote the National 
Institute of Standards and Technology (NIST) Cybersecurity 
Framework as a common lexicon for regulatory agencies to 
incorporate into their supervisory efforts; to expand and 
complete efforts to map existing regulatory guidance to reflect 
and incorporate appropriate elements of the Framework; and to 
advance work as to whether cybersecurity examinations could be 
further coordinated. Treasury has also worked to help inform 
industry of the NIST voluntary framework and its uses.

Q.15. Is there a risk that new cybersecurity regulations could 
actually introduce some cybersecurity risk by introducing an 
incentive for companies to focus more on complying with the 
regulation, instead of leveraging private sector resources to 
implement innovative cybersecurity techniques? If so, what 
steps can be taken to mitigate this risk?

A.15. Broadly speaking, in the past, we have certainly seen 
that the introduction of ill-informed, poorly coordinated, 
duplicative regulation across the multiple regulators in the 
sector has resulted in significantly increased regulatory 
compliance burden.
    Therefore, as mentioned above, an end goal of our current 
cybersecurity harmonization effort is to reduce burden by 
harmonizing existing regulations, eliminating any that may no 
longer be necessary (e.g., due to advances in protective 
technologies) and thereby improve cybersecurity by freeing up 
resources to invest in improving security. In order to move in 
this direction to benefit Americans and the financial services 
sector, we need to complete and further efforts by Treasury to 
promote the National Institute of Standards and Technology 
(NIST) Cybersecurity Framework as a common lexicon for 
regulatory agencies to incorporate into their supervisory 
efforts to facilitate this reduction of duplicative regulation.

Q.16. I'd like to ask about our sanctions policy toward North 
Korea. I understand that some of these questions may involve 
classified and law enforcement-sensitive information, and I am 
eager to work with you to adapt my request in a manner that 
accommodates public safety and national security interests 
while ensuring maximum transparency for the American people.
    Since North Korea was designated a State Sponsor of 
Terrorism on November 20, 2017, has the Treasury Department, in 
coordination with the State Department, seen a reduction in 
financial flows to the North Korean regime? If so, where is 
that reduction primarily coming from?

A.16. The State Department's determination that North Korea is 
a State Sponsor of Terrorism did not have a direct impact on 
our assessment of financial flows to North Korea, in part 
because U.S. and U.N. sanctions against North Korea were 
already--and continue to be--so robust. U.S. sanctions, 
including those that Treasury imposes, allow us to target any 
person who engages in significant trade with North Korea or has 
operated in any one of 10 identified industries of North Korea, 
among other things. Treasury has used its authorities broadly 
and aggressively to target financial networks and facilitators 
of the regime. Over the past several months, Treasury has 
designated dozens of companies that were collectively 
responsible for hundreds of millions of dollars in trade with 
North Korea. In addition to U.S. sanctions, U.N. sanctions are 
having an impact on financial flows to North Korea. The U.N. 
maintains export bans on sectors that collectively represented 
$1 billion of hard currency earnings for the regime per year.

Q.17. Does the Treasury Department have a minimum estimate of 
revenue the North Korean regime receives from its ``guest 
worker'' partnerships? If so, what is that estimate?

A.17. The Associated Press estimated last October that labor 
brings in revenue of $200 million to $500 million annually to 
the North Korean Government, most of which comes from China and 
Russia. My staff would be happy to provide further details in a 
classified briefing.

Q.18. Which countries host North Korean ``guest workers''?

A.18. Russia and China host the majority of North Korean 
laborers. Gulf countries and countries throughout Africa have 
historically hosted several thousand workers. My staff would be 
happy to provide further details in a classified briefing.

Q.19. In your opinion what are primary policy options if the 
United States was to penalize foreign partners, allies, and 
adversaries that host North Korean work crews within their 
countries?

A.19. The United States continues to apply maximum economic and 
diplomatic pressure to counter North Korea's illicit finance 
activities that support its nuclear and ballistic missile 
program, including the use of North Korean laborers. U.N. 
Security Council
    Resolution 2397 calls on Member States to expel North 
Korean laborers in their territories by December 2019 and 
Member States are also prohibited from issuing new work visas 
to North Korean laborers. In line with the U.S. Government's 
approach that U.N. Security Council resolutions are the floor, 
not the ceiling, Treasury is using all of its available tools 
to disrupt North Korean laborers from earning funds in support 
of North Korea's ballistic and nuclear weapons program. In most 
cases, North Korean workers only receive a portion of their 
earnings and the majority of their wages are provided directly 
to the regime. We are taking a number of steps to address this 
issue. First, Treasury is designating individuals and entities 
that are facilitating the exportation of North Korean laborers 
overseas. Second, the U.S. Government, including Treasury, is 
pressing all countries to immediately expel North Korean 
laborers and is clearly messaging its willingness to designate 
any foreign companies involved in hiring North Korean labor. 
Third, we are isolating the North Korean financial system in 
order to disrupt the flow of funds to North Korea. North 
Korea's embassies abroad are often involved in arranging 
contracts for laborers and the U.S. Government is actively 
urging all countries to ensure that North Korea downsizes its 
diplomatic staff in each embassy.

Q.20. Is the Treasury Department currently considering pursuing 
any of these options?

A.20. The Department of the Treasury remains aggressive in 
working to identify and sanction entities and individuals 
involved in North Korea's illicit finance activities, including 
the use of North Korean laborers to support its nuclear and 
ballistic missile programs. The U.S. Government, including 
Treasury, is also engaging with foreign Governments to urge 
them to immediately expel North Korean workers.
    On November 21, 2017, Treasury designated Korea South-South 
Cooperation Corporation, which has operated in at least China, 
Russia, Cambodia, and Poland, for its involvement in exporting 
workers from North Korea.
    On October 26, 2017, Treasury identified the External 
Construction Bureau and the Ch'olhyo'n Overseas Construction 
Company pursuant to E.O. 13722 as agencies, instrumentalities, 
or controlled entities of the Government of North Korea or the 
Workers' Party of Korea. OFAC also designated Kim Kang Jin, the 
Director of the External Construction Bureau, pursuant to E.O. 
13687 for being an official of the Government of North Korea or 
the Workers' Party of Korea. Beyond North Korea, the External 
Construction Bureau has been located in Kuwait, Oman, Qatar, 
and the United Arab Emirates. The Ch'olhyo'n Overseas 
Construction Company is reported to earn foreign currency for 
North Korea, and it has been located in Algeria. According to 
the State Department report issued simultaneously with these 
sanctions measures, ``employees of Ch'olhyo'n are kept in 
slave-like conditions, including having salaries and passports 
withheld by DPRK security officials assigned as site 
supervisors, meager food rations, poor living conditions, and 
severe restrictions on their freedom of movement.''
    Since the start of this Administration, Treasury leadership 
has engaged with countries throughout the Gulf, Africa, and 
Southeast and East Asia to press them to immediately expel 
laborers.

Q.21. Are there currently any countries that procure North 
Korean arms and thus fund North Korea military activities? If 
so, what are those countries?

A.21. The procurement of North Korean arms remains a critical 
concern, and Treasury continues to investigate any individual 
or entity involved in purchasing arms or providing North Korea 
funds for military or police training. We would be happy to 
provide additional information on countries currently involved 
in this activity in a classified setting. As part of its 
overseas procurement networks, North Korea maintains weapons 
representatives abroad to both sell and buy weapons and dual-
use goods for North Korea. Most recently, on January 24, 2018, 
Treasury designated ten North Korean representatives of the 
U.N.- and U.S.-designated Korea Ryonbong General Corporation. 
The representatives were located in China, Russia, and Georgia 
and we continue to press those countries to immediately expel 
the representatives. According to the United Nations Panel of 
Experts February 2018 Final Report, North Korea continues 
robust military cooperation and arms sales with Syria, Myanmar, 
Mozambique, and other African Nations. The Panel has also 
reported that over 40 shipments were made by North Korea to the 
U.S.-designated Syrian Scientific Studies and Research Center 
(SSRC) since 2012, including acid-resistant tiles used for 
large-scale chemical manufacturing facilities but not including 
chemical weapon components or materials. While Treasury does 
not comment on investigations of specific potential targets, 
Treasury does continue to investigate all instances of 
procurement and weapons sales and will not hesitate to use its 
authorities to target any individual or entity involved.

Q.22. What is the minimum estimate of revenue the Kim regime 
receives from those transactions?

A.22. We would be happy to discuss this in a classified 
setting.

Q.23. Has the U.S. Treasury imposed sanctions on these 
countries for these transactions with the North Korean 
military?

A.23. Yes, Treasury has and will impose sanctions on any person 
that procures arms from North Korea or otherwise supports the 
North Korean military, in addition to sanctions on any person 
that facilitates revenue for North Korea's weapons of mass 
destruction (WMD) or ballistic missile programs. For instance, 
on January 24, 2018, we designated representatives of Korea 
Ryonbong General Corporation, which specializes in acquisition 
for North Korean defense industries and support to Pyongyang's 
military sales. The same day, we also designated Dandong 
Jinxiang Trade Co., Ltd., which reportedly conducted trade with 
U.N.- and U.S- designated Tangun Trading Corporation, a North 
Korean company that is primarily responsible for the 
procurement of commodities and technologies to support North 
Korea's defense research and development programs. Similarly, 
in June 2017, Treasury designated Ardis Bearings LLC, a Moscow-
based company, for its support to Tangun Trading Corporation.

Q.24. On February 2, 2018, it was reported that in 2017 North 
Korea violated U.N. sanctions to earn an estimated $200 million 
from exporting coal, iron, steel, and other commodities. Is the 
Treasury Department considering any steps that could reinforce 
U.N. sanctions and encourage implementation?

A.24. We aggressively pursue for designation any person that 
violates U.N. sanctions. Since the start of this 
Administration, Treasury has sanctioned 212 companies, 
individuals, and vessels for North Korea-related activities. 
Most of these designations are connected to U.N. sanctions 
violations. For example, on February 23, 2018, we sanctioned 27 
entities, 28 vessels, and one individual in response to ongoing 
U.N. sanctions violations. Among those sanctioned, nine were 
international shipping companies and their nine vessels that 
have been used to transport coal from North Korea or engaged in 
U.N.-prohibited ship-to-ship transfers of refined petroleum 
products. Also in that action, we designated Tsang Yung Yuan, 
who has a history of sanctions evasion activities and has 
coordinated North Korean coal exports with a Russia-based North 
Korea broker. Treasury also designated two of Tsang's 
companies, Pro-Gain Group Corporation and Kingly Won 
International. Also on February 23, we issued a shipping 
advisory to alert persons globally to the deceptive shipping 
practices used by North Korea to evade sanctions. The North 
Korean shipping industry is a primary means by which North 
Korea evades sanctions to fund its nuclear weapons and 
ballistic missile programs.

Q.25. Last year significant progress was made in isolating the 
North Korean regime from SWIFT. Can you provide an update on 
the current progress on isolating the regime's access to the 
financial messaging service? Is there more work to be done?

A.25. In March 2017, SWIFT cut off the four North Korean banks 
that were still connected to its system. As a result, North 
Korea no longer has direct access to the international 
messaging system through SWIFT but Treasury remains concerned 
that North Korea uses deceptive practices to indirectly access 
the international financial system such as through front 
companies and financial and trade operatives who earn and move 
money through the international financial system and are 
located outside of North Korea. As the U.N. Panel of Experts 
(PoE) noted in its most recent report, in 2017, more than 30 
representatives of North Korean banks and trade companies 
operate outside of North Korea in countries such as China and 
Russia, in contravention of United Nations Security Council 
resolutions (UNSCRs). The PoE also noted that these trade and 
financial representatives play a role in supporting North 
Korea's prohibited programs, including by acting as fronts for 
designated entities and individuals, as well as engaging in 
commercial activities that violate the UNSCRs. Treasury is very 
focused on highlighting this activity and taking steps to shut 
it down. Treasury has now sanctioned 26 North Korean financial 
representatives and 12 representatives of weapons-related 
entities known to have operated in China. These North Korean 
operatives are highly skilled and trusted, and we have 
repeatedly called on China and Russia and other countries to 
expel them.

Q.26. I'd like to ask about our sanctions policy toward Russia. 
I understand that some of these questions may involve 
classified and law enforcement-sensitive information, and I am 
eager to work with you to adapt my request in a manner that 
accommodates public safety and national security interests 
while ensuring maximum transparency for the American people.
    On January 29, 2018, the Trump administration announced it 
would not impose additional sanctions against individuals and 
entities doing business with the Russian defense and 
intelligence sectors because the Countering America's 
Adversaries Through Sanctions Act (CAATSA) was ``serving as a 
deterrent.'' Has the Treasury Department withheld implementing 
Congressional sanctions because of a ``deterrent'' effect in 
the past? If so, when and under what circumstances?

A.26. We refer you to the Department of State, which has 
responsibility for implementing Section 231 of CAATSA.

Q.27. What are the specific metrics the Department of Treasury 
used to calculate a ``deterrent'' effect?

A.27. We refer you to the Department of State, which has 
responsibility for implementing Section 231 of CAATSA.

Q.28. What level of divestment from those industries 
constituted a ``substantial reduction'' and therefore warranted 
the decision to not impose sanctions?

A.28. We refer you to the Department of State, which has 
responsibility for implementing Section 231 of CAATSA.

Q.29. What is the level of investment in those industries that 
would be considered ``substantial'' and would necessitate the 
consideration of sanctions?

A.29. We refer you to the Department of State, which has 
responsibility for implementing Section 231 of CAATSA.

Q.30. What was the specific time horizon used to make the 
determination that there was a ``substantial reduction'' in 
transactions to these sectors?

A.30. We refer you to the Department of State, which has 
responsibility for implementing Section 231 of CAATSA.

Q.31. Who are the primary individuals, entities, and States 
that currently investing in the Russian defense and 
intelligence sectors?

A.31. We refer you to the Department of State, which has 
responsibility for implementing Section 231 of CAATSA.

Q.32. Since the adoption of CAATSA, has Treasury witnessed 
attempts at sanctions evasion? If so, what are the primary ways 
and means that the Russian defense and intelligence sectors are 
receiving continued funds?

A.32. We refer you to the Department of State, which has 
responsibility for implementing Section 231 of CAATSA.

Q.33. The initial release of the unclassified oligarch and 
parastatal entity list seems to have been hastily thrown 
together. Numerous analysts have made the comment that the 
unclassified list seems to primarily rely on a Forbes list of 
Russian billionaires. How can you stand by both the 
unclassified and classified reports as accurate representations 
of fulfilling the letter and the spirit of Section 241 (a) of 
CAATSA?

A.33. This Administration is very focused on pressuring Russia 
for its continued efforts to destabilize Ukraine, occupy 
Crimea, meddle in elections, as well as for its endemic 
corruption and human rights abuses. Our most recent Russian 
related action on April 6, 2018, specifically targeted Russian 
oligarchs and elites who profit from Russia's corrupt system. 
OFAC designated 7 Russian oligarchs and 12 companies they own 
or control, 17 senior Russian Government officials, and a 
State-owned Russian weapons trading company and its subsidiary, 
a Russian bank, under Executive Order (E.O.) 13661 and E.O. 
13662, authorities codified (CAATSA), as well as E.O. 13582.
    To date, the Administration has sanctioned 136 individuals 
and entities under our Ukraine/Russia-related sanctions 
authorities. On January 26, 2018, Treasury sanctioned 42 
individuals and entities, and in 2017, Treasury imposed 
sanctions on 58 individuals and entities related to Russia and 
Ukraine. We also target Russian malign activities through other 
sanctions authorities. On March 15, 2018, OFAC designated five 
entities and 19 individuals under CAATSA and E.O. 13694 for 
their role in conducting destabilizing activities, ranging from 
interference in the 2016 U.S. election to conducting 
destructive cyberattacks, including the NotPetya attack, which 
was launched by the Russian military and was the most 
destructive and costly cyberattack in history.
    On December 20, 2017, we designated five individuals 
pursuant to the Sergei Magnitsky Rule of Law Accountability Act 
of 2012, bringing the total designated under this program to 
49. Additionally in 2017, we designated nine Russians targeted 
for malign activities related to the North Korea sanctions 
program, and the President imposed sanctions on two Russians 
under Executive Order 13818, which implements the Global 
Magnitsky Human Rights Accountability Act.
    Treasury's track record demonstrates that we have and will 
continue to actively target the full range of Russian malign 
activities. And in considering additional future measures, 
Treasury will look for opportunities to use the full range of 
authorities at its disposal, including CAATSA. We treat 
responsibility of administering U.S. sanctions programs with 
the utmost seriousness. The report required under CAATSA 
Section 241 was released in an unclassified form, with a 
classified annex that reflects in great detail the extensive 
work of experts within the Department of the Treasury, the 
Office of the Director of National Intelligence (ODNI), and the 
Department of State, as well as other key agencies. For the 
purposes of the unclassified report, and consistent with our 
interest in avoiding asset flight and protecting intelligence 
sources and methods, we wanted to cast a wide net that 
encompassed a range of senior political figures and oligarchs 
while not tipping our hand to any future action. A critical 
aspect of effective sanctions implementation is avoiding 
providing notice to potential targets in order to reduce the 
risk that they can move their funds or obscure their connection 
to property in which they have an interest. By releasing the 
report in the manner we did, Treasury sought to respond to the 
provisions of the statute while preserving our ability to take 
meaningful action against potential future targets. As I have 
made clear, we are using the report to inform future actions.

Q.34. Are there changes to either Section 241 or CAATSA more 
broadly that Congress should consider that would lead to the 
development of a list that achieves its desired end; namely, 
public identification of Putin's closest associates?

A.34. We do not have suggestions at this time, but note that 
publicizing such associates risks tipping them off that they 
may be subject to sanctions. We would be pleased to have 
discussions with you or your staff on this question, and we 
stand ready to brief you or your staff on Treasury's efforts to 
target and counter the full range of Russian malign activities.

Q.35. Is the Treasury Department considering imposing sanctions 
on any of the individuals identified in either the classified 
or unclassified lists required by Section 241? If so, how many?

A.35. We cannot comment on possible future designations or on 
the status or existence of ongoing investigations. However, we 
remain aggressive in working to identify and sanction entities 
and individuals involved in these activities. As I have made 
clear, we are using the report to inform future actions.

Q.36. I'd like to ask about our sanctions policy towards 
Hezbollah. I understand that some of these questions may 
involve classified and law enforcement-sensitive information, 
and I am eager to work with you to adapt my request in a manner 
that accommodates public safety and national security interests 
while ensuring maximum transparency for the American people.
    On Friday, February 2, 2018, the Department of Treasury's 
Office of Foreign Assets Control (OFAC) designated 6 
individuals and 7 entities with terror-related sanctions and 
specifically targeted connections to Adham Tabaja, a Specially 
Designated Global Terrorist (SDGT). Are there additional 
individuals and entities with ties to Tabaja that have not been 
designated? If so, how many and what was the justification for 
not designating them?

A.36. We cannot comment on possible future designations or on 
the status or existence of ongoing investigations. However, any 
person whom we determine has provided material support to, or 
has acted for or on behalf of, Adham Tabaja or Hezbollah, can 
be designated. In general, we continue to investigate networks 
of Specially Designated Nationals and Blocked Persons (SDNs) 
following their designation, and, as evidenced by our February 
2, 2018, action, designates additional persons as appropriate.

Q.37. Can you provide a minimum estimate for the amount of 
funding Tabaja secured for Hezbollah since his designation as a 
SDGT?

A.37. We would be happy to discuss this in a classified 
setting.

Q.38. How many other individuals currently designated as SDGTs, 
are continuing to act as financiers for Hezbollah?

A.38. In general, we continue to investigate the networks 
associated with SDNs following their designation, and as 
evidenced by our February 2, 2018, action, designate additional 
persons as appropriate.

Q.39. Can you provide a minimum estimate for the amount of 
funding these other individuals have secured for Hezbollah over 
the last 5 years?

A.39. We would be happy to discuss this in a classified 
setting.

Q.40. Does the Treasury Department regularly estimate and 
monitor the assets of key Hezbollah officials and how these 
assets were acquired? If so, does Treasury provide regular 
reporting on these estimates to Congress?

A.40. We would be happy to discuss this in a classified 
setting. On an annual basis, OFAC produces the Terrorist Assets 
Report (TAR) for Congress which identifies blocked property in 
the interest of various designated terrorist organizations, 
including those of Hezbollah. The TAR also identifies blocked 
property in the interest of State Sponsors of Terrorism. The 
most recent report is available at https://www.treasury.gov/
resource-center/sanctions/Programs/Documents/tar2016.pdf.

Q.41. Since the adoption of the Hezbollah International 
Financing Prevention Act (HIFPA), how has Hezbollah's financing 
network evolved to continue financing its activities?

A.41. We continue to use all available authorities to target 
Hezbollah and its networks of terrorists regardless of where 
they operate. We are committed to imposing sanctions against 
Hezbollah, and we will continue to expose, block, and disrupt 
Hezbollah's finances and deny Hezbollah access to the U.S. and 
international financial systems. As Hezbollah continuously 
evolves its methods for financing its operations, we're able to 
use an extremely broad set of authorities, including HIFPA, to 
target their activities. The Treasury Department has designated 
Hezbollah pursuant to three Executive orders, and the State 
Department has designated the group as a Foreign Terrorist 
Organization. In addition, Treasury has designated over 110 
individuals and entities for their material, financial, or 
other support to Hezbollah. These actions, combined with 
international engagement, continue to place significant strain 
on Hezbollah's financial and commercial facilitators. The 
Treasury Department also works with Lebanese and third-country 
authorities where Hezbollah operates to target Hezbollah's 
finance and procurement networks in Lebanon and across the 
globe, restricting access to financial institutions, 
identifying new avenues to curb Hezbollah's operations, and 
designating Hezbollah operatives and supporters.

Q.42. Is the Treasury Department considering secondary 
sanctions under HIFPA to financial institutions that bank for 
Hezbollah members and its associates outside of the Middle 
East, specifically in Europe, Africa, and South America?

A.42. We cannot comment on possible future designations or on 
the status or existence of ongoing investigations. However, we 
remain aggressive in working to identify and sanction entities 
and individuals involved in these activities.

Q.43. If the Treasury Department is considering secondary 
sanctions on these institutions why has it not acted to impose 
secondary sanctions?

A.43. Treasury cannot comment on possible future designations 
or on the status or existence of ongoing investigations. 
However, through our global engagement, we highlight to third-
countries the risk of secondary sanctions if their banks engage 
in transactions with Hezbollah.

Q.44. Are there criminal activities that Hezbollah engages in 
that are currently not covered under U.S. sanctions?

A.44. No, Hezbollah is already subject to U.S. sanctions. 
Hezbollah is designated pursuant to three Executive orders, 
including two counterterrorism-related authorities and one of 
our authorities targeting the Syrian regime, in addition to the 
State Department's designation of the group as a Foreign 
Terrorist Organization. Each of these authorities imposes 
blocking sanctions on persons determined to meet the criteria 
for designation. In addition, OFAC can prohibit or impose 
strict conditions on the opening or maintaining in the United 
States of a correspondent account or a payable-through account 
on any foreign financial institution OFAC determines to have 
knowingly facilitated a significant transaction for Hezbollah. 
As a result, OFAC has wide authorities to designate Hezbollah 
and those providing material support to, or acting for or on 
behalf of, Hezbollah.

Q.45. Does the Treasury Department have a list of what have 
been called ``super facilitators,'' individuals who are not 
personally members of Hezbollah but provide the organization 
with specific services to enhance its criminal enterprises?

A.45. Treasury cannot comment on possible future designations 
or on the status of, or existence of, ongoing investigations. 
As evidenced by our February 2, 2018, designation of 13 persons 
as SDGTs with ties to Hezbollah, Treasury is determined to 
expose and disrupt Hezbollah's financial, facilitation, and 
support networks. We are aggressively investigating and taking 
appropriate action against individuals and entities who provide 
material support to the organization.

Q.46. Does the Treasury Department have a minimum estimate for 
the amount of funding these ``super facilitators'' have secured 
for Hezbollah over the last 5 years?

A.46. We would be happy to discuss this in a classified 
setting.

Q.47. Is the Treasury Department considering designating 
Hezbollah as a Transnational Criminal Organization (TCO)?

A.47. Hezbollah is already designated pursuant to three 
Executive orders, including two counterterrorism-related 
authorities and one of our authorities targeting the Syrian 
regime, in addition to the State Department's designation of 
the group as a Foreign Terrorist Organization. Each of these 
authorities imposes blocking sanctions on persons determined to 
meet the criteria for designation. Treasury's Office of Foreign 
Assets Control also issued regulations in April 2016 
implementing the Hezbollah International Financing Prevention 
Act of 2015. The regulations impose secondary sanctions on any 
foreign financial institution that is determined to be 
knowingly engaged in significant financial activities related 
to Hezbollah. As a result, a designation of Hezbollah as a 
Transnational Criminal Organization would not impose any 
additional sanctions or restrictions not already in place 
against Hezbollah. However, we will continue to review this 
possible authority.

Q.48. If the Treasury Department is considering designating 
Hezbollah as a TCO why has it not proceeded to designate?

A.48. Hezbollah is already designated pursuant to three 
Executive orders, including two counterterrorism-related 
authorities and one of our authorities targeting the Syrian 
regime, in addition to the State Department's designation of 
the group as a Foreign Terrorist Organization. Each of these 
authorities imposes blocking sanctions on persons determined to 
meet the criteria for designation. Treasury's Office of Foreign 
Assets Control also issued regulations in April of 2016 
implementing the Hezbollah International Financing Prevention 
Act of 2015. The regulations impose secondary sanctions on any 
foreign financial institution that is determined to be 
knowingly engaged in significant financial activities related 
to Hezbollah. As a result, a designation of Hezbollah as a 
Transnational Criminal Organization would not impose any 
additional sanctions or restrictions not already in place 
against Hezbollah.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
            SENATOR MENENDEZ FROM STEVEN T. MNUCHIN

Q.1. Last year, the Administration proposed cutting more than 
$6 billion dollars from critical Federal housing and community 
development programs like CDBG, and supportive housing for the 
disabled and the elderly. When asked about this, Secretary 
Carson said the Administration ``considers housing a 
significant part of infrastructure,'' and not to worry because 
``the infrastructure bill that's being worked on has a 
significant inclusion of housing in it.'' So I was surprised to 
see there's not a single mention of housing in any reports of 
the President's infrastructure plan.
    Does the Administration consider our aging affordable 
housing stock part of our Nation's infrastructure?

A.1. The President's recent infrastructure outline is a 
comprehensive framework that addresses more than just 
traditional infrastructure and aims to promote investment 
across American communities. We look forward to working with 
Congress to enact infrastructure legislation.

Q.2. What specific plans does the Administration have to invest 
in preservation and creation of affordable homes to address our 
current shortage of more than 7 million affordable rental homes 
for low-income households?

A.2. The United States needs a comprehensive approach to its 
housing policy. Treasury stands ready to work with Congress on 
reform that supports the vital role housing plays in the 
financial security of American families and the broader U.S. 
economy.

Q.3. The Countering America's Adversaries Through Sanctions Act 
(CAATSA) requires the President to work with the State 
Department, Treasury and ODNI. While the President has 
threatened to withdraw from the JCPOA and has issued a limited 
number of new sanctions, you have yet to present this mandated 
comprehensive regional strategy.
    When can we expect to see that?

A.3. We refer you to the Department of State, which is 
responsible for this report, pursuant to Section 103 of CAATSA.

Q.4. Earlier this month, United Nations Officials again 
expressed concern that Iran may be violating an arms embargo by 
continuing to supply weapons to Hezbollah and by providing 
missiles and drones to actors in Yemen. CAATSA provided 
expanded authorities to designate entities supporting the 
import and export of arms to and from Iran.
    When can we expect the Administration to fully implement 
and utilize the provisions of this law to counter Iran's 
continuing activity throughout the region, including its 
support for terrorism and arms trafficking?

A.4. This Administration takes the threat posed by Iran very 
seriously. We have aggressively targeted the full range of 
Iranian malign activities under all of our Iran-related 
sanctions authorities and will continue to do so in response to 
the Iranian regime and the Islamic Revolutionary Guard Corps's 
(IRGC) destabilizing activity in Syria, support to the 
murderous regime of President Bashar al-Assad, and provision of 
funding to proxies, including the Houthis and Hezbollah. As of 
the date of this hearing, Treasury has issued 10 tranches of 
sanctions, designating 97 individuals and entities in the 
Middle East, Asia, and Europe in connection with the IRGC and 
Iran's support for terrorism, ballistic missile programs, 
cyberattacks, transnational criminal activity, censorship, and 
human rights abuses. Additionally, Treasury has actively 
implemented the Countering America's Adversaries Through 
Sanctions Act (CAATSA). For example, on October 13, 2017, 
consistent with Section 105 of CAATSA, Treasury's Office of 
Foreign Assets Control (OFAC) put additional pressure on the 
IRGC by designating the IRGC pursuant to Executive Order (E.O.) 
13224, our counterterrorism authority, for providing material 
support to the IRGC-Qods Force (IRGC-QF). OFAC took further 
action against the IRGC on October 31, 2017, by amending the 
Global Terrorism Sanctions Regulations (GTSR), 31 CFR part 594, 
to apply the blocking provisions of the GTSR to 41 foreign 
persons that have been identified by OFAC as officials, agents, 
or affiliates of the IRGC. Treasury presses key allies and 
partners at every opportunity to take concrete action, whether 
jointly with the United States or independently, to address 
Iran's malign activities. Treasury is engaged in ongoing, 
productive discussions to advance partner action. As you know, 
CAATSA Section 107 requires the President to impose sanctions 
on persons he determines are knowingly engaged in certain 
activities related to the supply, sale, or transfer of 
enumerated arms and related material to or from Iran, among 
other things. The President delegated primary responsibility 
for making the determination described in Section 107(a) of 
CAATSA to the Secretary of State, so we defer to our State 
Department colleagues on specific questions related to that 
provision.

Q.5. We understand that the State Department has eliminated the 
Office of Coordinator for Sanctions Policy, despite sanctions 
being one of the most effective diplomatic tools we have.
    How has the Treasury Department responded to this 
organizational shift?

A.5. The Treasury Department develops targeted economic 
sanctions through a rigorous process in conjunction with a 
range of interagency partners, including the State Department. 
Prior to taking action, we work closely with the State 
Department and others to ensure that our sanctions are 
consistent with our national security objectives and complement 
other U.S. Government activities. We continue to have a strong 
working relationship with a number of offices within the State 
Department that relate to our actions and authorities.

Q.6. Have you ramped up your efforts to ensure sanctions 
coordination and effectiveness?

A.6. The Treasury Department is continually working to ensure 
that our targeted economic sanctions are highly effective and 
implemented in conjunction with other agencies' actions, 
including diplomatic efforts by the State Department. We 
develop and administer sanctions in close coordination with a 
range of interagency partners, including the intelligence 
community and law enforcement partners. We constantly calibrate 
our authorities and assess their effects to achieve maximum 
impact, and sanctions are part of an interagency strategy that 
includes our other economic authorities, diplomacy, 
intelligence, law enforcement, and our other elements of 
national power.

Q.7. How many new employees has the Department hired in the 
Office of Foreign Asset Control?

A.7. Since the beginning of fiscal year 2017, OFAC has hired 
and on-boarded 55 new employees, and has an additional 9 
selections currently in the on-boarding process. OFAC is 
continually recruiting and hiring employees to ensure that it 
is appropriately staffed to support all of our country's 
foreign policy and national security challenges. As part of a 
resource increase described below, Treasury is planning on 
giving OFAC new resources.

Q.8. What are the current staffing levels of the Terrorism and 
Financial Intelligence Office? We've heard concerning reports 
about a sharp decline in staffing for critical positions. Can 
you provide information on staffing levels for TFI and OFAC 
over the past 2 years?

A.8. TFI's work is vital to our national security and its work 
is of increasing importance and breadth. There has been an 
increase--not a decline--in staff for TFI positions. In 
addition, we requested additional resources in both FY2018 and 
FY2019 budgets, a clear recognition of the great value this 
Administration places on TFI's tools. TFI is continually 
recruiting and hiring employees to ensure that we have the 
knowledge, skills, and expertise to address our country's most 
critical national security challenges. In the last 2 years, the 
staffing levels for TFI and OFAC have gradually increased. As 
reported in the Fiscal Year 2019 Budget in Brief, staffing 
levels for TFI, to include FinCEN, stood at 669 direct FTE for 
fiscal year 2017. This number increased to 725 for fiscal year 
2018, which does not account for the significant increase in 
personnel due to the additional funding for TFI that was 
included in the FY2018 Omnibus Appropriations bill signed by 
President Trump. OFAC has similarly increased staffing levels. 
At the end of FY2017, OFAC had 187 employees on-board. As of 
early 2018, OFAC had 202 employees on-board.

Q.9. The Administration is celebrating the passage of a tax 
overhaul specifically crafted to provide massive breaks to the 
biggest banks and largest corporations. All along, the 
Administration claimed that the benefits would trickle down to 
the people that need it most--those who haven't seen a raise in 
a decade and those who work multiple jobs just to get three 
meals a day on the table.
    Can you explain how undermining the Community Reinvestment 
Act, which requires banks to make loans to creditworthy 
borrowers in low- and moderate income communities, helps 
achieve the Administration's stated intent to reach those who 
need it most?

A.9. Treasury has no intentions of undermining CRA. Treasury's 
policy teams have been engaging with a wide range of 
stakeholders to study CRA and assess potential improvements to 
the administration of CRA. As of April 3, 2018, we shared our 
findings with the regulators responsible for CRA 
administration.

Q.10. I sent a letter to you a few weeks ago regarding 
Venezuela's stated interest in developing a cryptocurrency for 
the explicit purpose of evading U.S. sanctions. Shortly 
thereafter, Treasury warned that U.S. investors in the 
cryptocurrency would be subject to sanctions risk.

A.10. Setting aside the technical hurdles that may inhibit or 
delay the launch of Venezuela's cryptocurrency, can you give us 
a sense of what tools and enforcement mechanisms Treasury can 
use to track the development of cryptocurrencies by adversarial 
countries like Venezuela and Russia?
    We are taking action to mitigate potential sanctions 
evasion risks associated with the petro, other sovereign 
digital currencies, and virtual digital currencies (digital 
currencies that are not issued or guaranteed by any 
jurisdiction and are not legal tender in the jurisdiction of 
issuance (i.e., non-fiat)).
    On March 19, 2018, President Trump issued Executive Order 
13827, which prohibits, as of such date, all transactions 
related to, provision of financing for, and other dealings in, 
by a United States person or within the United States, any 
digital currency, digital coin, or digital token, issued by, 
for, or on behalf of the Government of Venezuela on or after 
January 9, 2018, including the petro. The prohibition in E.O. 
13827 is not limited to the petro; it also covers dealings in 
any other ``digital currency, digital coin, or digital token'' 
the Government of Venezuela may issue going forward. This scope 
prevents the regime from evading the E.O. by merely changing 
the name of the digital currency or coming out with alternate 
digital currencies, digital coins, or digital tokens. Treasury 
continues to monitor Venezuela's efforts to develop its own 
sovereign digital currency closely, and stands ready to respond 
further to any attempts to circumvent U.S. sanctions.
    We also remain focused on efforts by Venezuela, Russia, and 
North Korea to exploit other digital currencies to circumvent 
U.S. sanctions. Under our existing sanctions authorities, 
persons subject to U.S. jurisdiction, including entities that 
process transactions using sovereign digital currencies or 
virtual currencies, are responsible for ensuring that they do 
not engage in transactions prohibited by sanctions administered 
by the Office of Foreign Assets Control (OFAC). OFAC compliance 
obligations apply, regardless of the currency in which a 
transaction is denominated, and OFAC will not hesitate to take 
action against persons that violate these prohibitions. To 
further underscore this point to the compliance community and 
general public, on March 19, 2018, OFAC issued several digital 
currency-related Frequently Asked Questions (FAQs) that provide 
guidance on the application of U.S. targeted financial 
sanctions in the digital currency space.
    Treasury has effective investigatory and enforcement 
mechanisms to follow and counter the illicit use of virtual 
currencies for sanctionable conduct, as well as for money 
laundering, terrorist financing, and other nefarious purposes. 
As the administrator of the Bank Secrecy Act, Treasury's 
Financial Crimes Enforcement Network (FinCEN) requires money 
transmitters operating in convertible virtual currencies, 
including convertible virtual currency exchangers and 
administrators, to register with FinCEN, have anti-money 
laundering/counter financing of terrorism (AML/CFT) programs, 
identify customers above certain transactional thresholds, and 
file reports on suspicious transactions that assist law 
enforcement investigations. The Internal Revenue Service, under 
authority delegated by FinCEN, examines virtual currency money 
transmitters for AML/CFT compliance. In addition, FinCEN has 
used its civil enforcement authorities against virtual currency 
businesses that fail to comply with their AML/CFT obligations. 
Last summer, for example, in partnership with the Department of 
Justice, FinCEN took enforcement action against BTC-e, an 
internet-based, foreign-located virtual currency exchanger, for 
willful violation of AML/CFT laws. FinCEN assessed a $110 
million civil money penalty against BTC-e and a $12 million 
penalty against Russian national Alexander Vinnik, one of BTC-
e's operators. Treasury is also actively engaged in U.S. 
Government efforts to identify and combat illicit 
cyberactivity, which often involves the abuse of virtual 
currency, including in the case of North Korea. Our efforts 
include support to domestic and international law enforcement 
investigations, outreach to foreign partners, the development 
of sanctions, and enforcement actions. We are prepared to bring 
all of these tools and authorities to bear to address national 
security and other illicit financing threats associated with 
the development of digital currencies by adversarial countries.

Q.11. In January Turkish banker Mehmet Hakan Atilla was found 
guilty in a Federal court room for his involvement in perhaps 
the largest ever sanctions evasion scheme which resulted in 
tens of billions in dollars and gold being moved from Turkey to 
Iran. President Obama signed the Iran Freedom and Counter-
Proliferation Act (IFCPA) in January 2013. The law closed the 
gold loophole so that Turkey could no longer export gold to 
Tehran. Tehran reportedly sought to keep the loophole open so 
that it could import as much gold as possible at a time when 
the U.S. and its allies were seeking to enforce financial 
sanctions on Iran.
    Was there a request to delay implementation of provisions 
that could have benefitted Iran's importation of gold?

A.11. The Department of the Treasury did not, to the best of 
our knowledge, receive a request from Turkey to delay the 
implementation or enforcement of the gold provisions of the 
Iran Freedom and Counter-Proliferation Act of 2012 (IFCA). As 
discussed below, though IFCA was signed into law in January 
2013, the gold provisions of IFCA did not take effect until 
July of that year.

Q.12. When was the law implemented and how?

A.12. IFCA was signed into law on January 2, 2013, as part of 
the National Defense Authorization Act for Fiscal Year 2013. 
Most of the provisions in IFCA, including Section 1245 
(relating to the imposition of sanctions with respect to the 
sale, supply, or transfer of certain materials, including 
precious metals, to or from Iran), took effect 180 days after 
enactment, which was July 1, 2013. On June 3, 2013, the 
President issued Executive Order 13645 which, among other 
things, implemented certain provisions of IFCA, including 
Section 1245. The effective date of E.O. 13645 was July 1, 
2013. On June 3, 2013, OFAC also issued guidance in the form of 
a series of FAQs, including on the implementation of Section 
1245 of IFCA. The guidance served to clarify to the compliance 
community, including foreign financial institutions, what would 
be sanctionable under IFCA beginning on July 1, 2013. 
Furthermore, Senior Treasury officials emphasized in their 
engagements with Turkish and other officials, as well as 
foreign banks and companies, that gold trade with Iran was 
sanctionable and that these measures would be strictly 
enforced.
    On January 20, 2014, as part of the Joint Plan of Action 
(the pre-cursor to the Joint Comprehensive Plan of Action 
(JCPOA)), and pursuant to Section 1245(g) of IFCA, the 
Secretary of State waived the application of sanctions on the 
sale, supply, or transfer to or from Iran of gold and other 
precious metals by non-U.S. persons not otherwise subject to 
the Iranian Transaction and Sanctions Regulations, provided 
that the transactions did not involve (i) persons on the 
Treasury Department's Office of Foreign Assets Control's (OFAC) 
List of Specially Designated Nationals and Blocked Persons (SDN 
List) other than persons listed solely for meeting the 
definition of the Government of Iran or an Iranian financial 
institution, and (ii) funds drawn from certain restricted 
accounts. Since January 16, 2016 (Implementation Day of the 
JCPOA), the United States has waived sanctions on transactions 
by non-U.S. persons for the sale, supply, or transfer to or 
from Iran of gold and other precious metals pursuant to Section 
1245(g) of IFCA, in exchange for Iran's implementation of 
nuclear-related commitments under the JCPOA.

Q.13. What is the status of our negotiations with Halkbank and 
the Turkish Government about any penalties to Halkbank?

A.13. We cannot comment on the existence or status of any 
potential or ongoing enforcement actions. We take very 
seriously, however, any activity that might violate or 
undermine the integrity of our sanctions programs. OFAC, the 
office which administers and enforces the sanctions programs 
for the Treasury Department, maintains a practice of actively 
following up on leads and ensuring that appropriate enforcement 
action is taken in response to any apparent violations of our 
sanctions programs.

Q.14. What is the likelihood that President Erdogan or other 
senior Turkish officials will face a penalty?

A.14. Again, we cannot comment on the existence or status of 
any potential or ongoing enforcement actions. We take very 
seriously, however, any activity that might violate or 
undermine the integrity of our sanctions programs. OFAC, the 
office which administers and enforces the sanctions programs 
for the Treasury Department, maintains a practice of actively 
following up on leads and ensuring that appropriate enforcement 
action is taken in response to any apparent violations of our 
sanctions programs.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER
                     FROM STEVEN T. MNUCHIN

Q.1. Intel Document Request--As you are aware, the Senate 
Select Committee on Intelligence is conducting an inquiry into 
Russian interference in the 2016 U.S. election. In that 
capacity, Chairman Burr and I sent you a request for documents 
on August 11th of last year. That is almost 6 months ago. 
Having received no response, the Chairman and I followed up on 
December 7th of last year. But still, we are waiting on the 
documents.
    Will Treasury cooperate with the Intelligence Committee's 
inquiry?
    When, exactly, should we expect the documents from our 
August 11th and December 7th requests?
    What is the cause for the delay?
    Will you commit to getting the Intelligence Committee all 
requested documents by the end of February?

A.1. As you know, the Department of the Treasury has cooperated 
and will continue to cooperate with the Senate Select Committee 
on Intelligence's (SSCI) inquiry. Treasury has provided 
documents responsive to SSCI's requests of both August 11 and 
December 7. Treasury maintains regular contact with SSCI staff 
and will continue to keep SSCI updated.

Q.2. Cybersecurity--In its semiannual report, the Office of the 
Comptroller of the Currency noted that concentration in third-
party service providers, such as providers of enterprise 
software or security products and services, can increase 
cybersecurity risk. The cybersupply chain risk--and 
particularly of so-called software ``monoculture''--was vividly 
illustrated in June 2017, when a major global cyberattack was 
able to spread across Ukraine (and then globally) via 
compromise of a piece of accounting software used by virtually 
all Ukrainian firms.
    What role does FSOC, or other financial regulators, have in 
addressing supply chain risk in the financial services sector?

A.2. Treasury works with the financial services sector to 
understand and manage risks associated with the supply chain. 
As neither Treasury nor FSOC is a regulatory agency, we work in 
a voluntary fashion with financial institutions and regulators 
to encourage the implementation of best practices and industry 
standards.

Q.3. Do you have concerns related to the sector's dependence on 
a particular vendor's product or service?

A.3. Treasury, in our role as sector-specific agency, is 
constantly examining with our agency and regulatory partners 
ways to mitigate the risk that the financial services sector 
naturally carries.

Q.4. The report also says that financial regulators should 
``establish a harmonized risk-based approach utilizing'' the 
National Institute of Standards and Technology (NIST) Framework 
for Improving Critical Infrastructure Cybersecurity 
(Framework), ``which can be leveraged to assess cybersecurity 
and resilience at the firms they regulate.''
    Do you believe that financial regulators today are fully 
assessing the cybersecurity and resilience at the firms they 
regulate?

A.4. There are over 97,000 known vulnerabilities in the 
National Vulnerability Database at the National Institute of 
Standards and Technology (NIST). With specific regard to the 
unique circumstances of the financial services sector, this is 
an on-going challenge for the regulators.

Q.5. What metrics and tools are they relying on to evaluate 
these risks?

A.5. As Treasury is not a regulator, we do not have knowledge 
of specific weaknesses of specific institutions regarding 
cybersecurity that may have been identified through the course 
of regulatory examinations.

Q.6. What more needs to be done in this area?

A.6. As Treasury is not a regulator, we do not have knowledge 
of specific weaknesses of specific institutions regarding 
cybersecurity that may have been identified through the course 
of regulatory or other examinations.

Q.7. The recent FSOC report devotes significant attention to 
information sharing among private sector firms and the 
Government. Information sharing is, inarguably, a priority. At 
the same time, firms and even Government entities vary in their 
ability to effectively process, and operationalize, shared 
threat information.
    What steps are you taking to ensure that, particularly for 
smaller financial institutions, threat information can be 
effectively digested and operationalized so that these firms 
can evaluate risk in real time and take appropriate remedial 
steps?

A.7. As Treasury is not a regulator, we do not have knowledge 
of specific weaknesses that of specific institutions regarding 
cybersecurity that may have been identified through the course 
of regulatory or other examinations.

Q.8. Cryptocurrency--Given the many varied Federal interests 
that cryptocurrencies implicate--consumer protection, 
preservation of the dollar as the world's reserve currency, 
adequate anti-money laundering and counterterrorism 
protections--is there a single Federal regulator that is well 
positioned to analyze the risks and benefits of 
cryptocurrencies?
    Is the FSOC the best forum for analyzing the issue?
    Has FSOC analyzed this issue?

A.8. Recent developments related to crypto-assets have raised 
policy issues that implicate the jurisdiction of various 
Federal regulators and agencies, including numerous FSOC member 
agencies. It is therefore important that the Federal Government 
work to address the various policy issues raised by crypto-
assets in a coordinated manner.
    Treasury, including through its leadership of the FSOC, is 
taking a leading role in coordinating among Federal agencies in 
order to promote our overall mission of maintaining a strong 
economy and our role in formulating and implementing fiscal and 
tax policy and combatting illicit finance.

Q.9. Apart from the regulation of cryptocurrency exchanges and 
markets, should the Federal Government take a look at whether 
there should be limitations on the features or governance of 
cryptocurrencies? Which agency is best positioned to perform 
that analysis?

A.9. Treasury is working with numerous Federal regulatory 
agencies to assess, monitor, and respond to potential risks 
that crypto-assets could pose. We will continue those efforts, 
including our collaboration with the regulators with 
jurisdiction over aspects of these markets.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
           SENATOR VAN HOLLEN FROM STEVEN T. MNUCHIN

Q.1. Mr. Secretary, during the hearing you stated that you had 
``no reason to doubt'' that the average household making more 
than $1 million per year gets a substantial tax cut from the 
recently enacted tax law, despite your earlier commitment that 
there would be ``no absolute tax cut for the upper class.'' 
According to the Joint Committee on Taxation, which provides 
nonpartisan tax analysis to Congress, the bill provides a total 
tax cut of $36.853 billion to the 572,000 household with 
incomes above $1,000,000 in 2019, which translates to a 
windfall of more than $64,000 per household (JCX-68-17). Your 
answer implied that the Department of the Treasury has 
conducted analysis that reached a similar conclusion, based on 
your reference to ``our numbers.''
    Has the Department of the Treasury conducted a 
distributional analysis that calculates the average tax change 
for households in different income groups, and the number of 
households in each income group with tax increases or tax cuts? 
If so, please provide that analysis.

A.1. According to the Joint Committee on Taxation, the share of 
Federal taxes paid by the Nation's top-income families will 
increase. I refer you to that analysis.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
          SENATOR CORTEZ MASTO FROM STEVEN T. MNUCHIN

Q.1. In the past, the nonprofit responsible for administering 
Hardest Hit Funds in Nevada, the Nevada Affordable Housing 
Assistance Corporation (NAHAC), has had difficulty 
administering funds to Nevada families in need due to 
programmatic failures, and wasteful spending. Now under new 
leadership, NAHAC has taken steps to ensure that Nevada's 
allocation is getting out the door to homeowners seeking 
relief.
    One of those steps has included submitting a number of 
policy proposals, which were recently approved by Treasury. 
These changes include programmatic adjustments to income 
limits, unemployment mortgage assistance, mortgage 
reinstatement and principal reduction programs. NAHAC will also 
be implementing a proposal to partner with the Nevada Housing 
Division to create a downpayment assistance program.
    Does the Treasury Department intend to provide technical 
assistance to NAHAC in implementing these programs, 
particularly the downpayment assistance program?

A.1. Treasury's Office of Financial Stability (OFS) has 
provided technical assistance to NAHAC with respect to the 
implementation of existing programs and in the development of 
any future programs such as a downpayment assistance program. 
OFS has also provided opportunities for NAHAC to discuss 
development and implementation of existing and future programs 
with other Hardest Hit Fund States through summits and regular 
conference calls. Treasury will follow its existing process to 
review submissions for HHF program changes in order to 
determine adherence to the requirements that all HHF programs 
are designed to prevent avoidable foreclosures and stabilize 
housing markets.

Q.2. As you know, the Treasury Department's Office of Minority 
and Women Inclusion was established by Wall Street Reform, and 
is responsible for all matters regarding diversity in 
management, employment and business activities.
    Please tell me the dates that you met with the head of the 
Office of Minority and Women Inclusion.

A.2. I had the opportunity to meet with Dr. Lorraine Cole, who 
heads OMWI for Treasury Departmental Offices, three times so 
far in 2018. On February 1, she joined me in a meeting on the 
topic of urban revitalization arranged in collaboration with 
the White House. On February 13, she participated in an event 
that I hosted with about 30 African American business people in 
recognition of Black History Month. On March 6, she provided a 
briefing to me on the status of business diversity, workforce 
diversity, and workplace inclusion within Treasury Departmental 
Offices. In addition, I host a monthly meeting with myself and 
Dr. Lorraine Cole.

Q.3. How many women work in Senior Leadership at the Treasury 
Department? It looks like of 22 senior positions, only three 
are held by women. Is that correct?

A.3. The Treasurer of the United States is female, as is one of 
the Department's three undersecretaries. A Deputy General 
Counsel and numerous Deputy Assistant Secretaries and Senior 
Advisors across the Department are also female.
    Isabel Patelunas, the nominee to be Assistant Secretary for 
Intelligence and Analysis, is still awaiting confirmation by 
Senate despite being approved by the Senate Intelligence 
Committee on July 25, 2017. I again encourage the Senate to 
swiftly approve her nomination. Isabel's nearly 30 years of 
experience in the intelligence community will be a great asset 
to the Department.
    More broadly, women make up 28 percent of the career senior 
executive positions in the Treasury Departmental Offices.

Q.4. How many Latinos? African Americans? Native Americans? 
Asian Pacific Americans?

A.4. Among the Presidentially Appointed positions, we have one 
Latina, the Treasurer of the United States.

Q.5. When will Treasury update its required Minority and Women 
Inclusion report? The most recent report seems to be from 2014.

A.5. Treasury provided updated Office of Minority and Women 
Inclusion reports in March 2018.

Q.6. In your first year as Secretary of Treasury, the Treasury 
Department has published many reports on your plans to weaken 
safety and soundness rules for big banks, Wall Street 
investment firms, and corporations that want to send jobs 
overseas but when it comes to working families, you've issued 
no reports to help families who struggle to pay the ever-rising 
rent. While I'm relieved that the Low Income Housing Tax Credit 
and Private Activity Bonds remain--they support 90 percent of 
all affordable housing built in our Nation--their value has 
gone down. Some say this could result in 200,000 fewer 
affordable units built in the next decade.
    Will the President's proposed infrastructure bill include 
funding to invest in our affordable housing infrastructure--
repair broken elevators, upgrade roofs and windows, etc.? Even 
before the hurricanes and floods, there was a backlog of $26 
billion worth of repairs needed to public housing.

A.6. The President's recent infrastructure outline is a 
comprehensive framework that addresses more than just 
traditional infrastructure and aims to promote investment 
across American communities. We look forward to working with 
Congress to enact infrastructure legislation.

Q.7. When will Treasury and HUD begin publishing the monthly 
Housing Scorecard again? There hasn't been one reissued in 
nearly 2 years.

A.7. Treasury continues to produce an internal Scorecard that 
aggregates metrics that reflect the state of the United States 
housing market.

Q.8. I appreciate your repeated urging for Congress to avoid a 
catastrophic default.
    Can you lay out the harms that would come to families, our 
Nation's economy and our international reputation if the U.S. 
defaulted on our national debt?

A.8. Failing to honor our outstanding debt could result in 
further downgrades to our credit rating, and increased 
borrowing costs that would ultimately be borne by the American 
taxpayer for years to come. It could also cause serious 
disruption to the American economy, and potentially lead to 
another recession. Interest rates could increase not only for 
the U.S. Government, but for all Americans who borrow money, 
including homeowners, students, and businesses attempting to 
grow.

Q.9. I'm disappointed that the Treasury Department killed the 
myRA program. Half of workers do not have access to a 
retirement account at work. The national savings rate is going 
down.
    Please share with me how the Treasury Department calculated 
the cost of the program?

A.9. The Treasury Department previously calculated the cost of 
the myRA program by aggregating its actual expenses for FY14, 
FY15, FY16, and an estimate for FY17. The updated actual cost 
of the program through FY17 was $72.5 million. In particular, 
the cost of the program reflects the infrastructure costs 
associated with account hosting, such as the implementation of 
web sites and provision of customer service. It also reflects 
costs for research and promotion, including the development of 
messaging materials for employers and individuals, efforts to 
get word out about the program, and surveys of potential and 
actual customers. Finally, the total also reflects the cost of 
Federal employees who oversee the program.

Q.10. How much was spent on research and promotion for the myRA 
program? How was that money allocated?

A.10. The myRA program spent approximately $24.8 million on 
research and promotion, including costs for the development of 
campaign materials, for outreach to employers and influencer 
organizations, and for other market research.

Q.11. How many staff were allocated the program? What was their 
median salaries?

A.11. The number of staff on the program has varied over time. 
At peak staffing, the program had 17 employees and a median 
salary of approximately $112,000.

Q.12. How were you spending funds on account hosting when all 
you were doing was providing workers with access to a product 
that resembled the TSP's G-fund account?

A.12. myRA gave workers access to retirement savings bonds 
offered within Roth IRA accounts. Providing the Roth IRA 
accounts required an account hosting infrastructure. This 
infrastructure included the myRA.gov landing site, an account 
enrollment site, and an account access site. It included IT 
support and a customer service center. It also included back 
office support staff to mail documents to account owners, 
comply with tax laws, and mitigate the risks of fraud.

Q.13. How much did you spend on account hosting before any 
investments arrived?

A.13. By the time the first investments arrived in December 
2014, the myRA program had paid $8 million for setting up 
infrastructure related to account hosting.

Q.14. Increased funding for the IRS would reverse the short-
sighted and damaging budget cuts which have increased our 
national debt, left the IRS ill-equipped to combat refund 
errors and fraud, drastically reduced taxpayer services, 
dangerously reduced audits, and limits the IRS's ability to 
implement new laws passed by Congress. \1\ Last year's Trump 
budget proposal only provided $11 billion, a $239 million cut 
from already inadequate 2017 levels. \2\
---------------------------------------------------------------------------
     \1\ https://www.washingtonpost.com/news/powerpost/wp/2017/03/30/
democrats-call-for-largest-irs-budget-to-improve-service-as-trump-
calls-for-cuts/?utm--term=.4110e035aa96
     \2\ https://www.cbpp.org/research/federal-budget/trump-budget-
continues-multi-year-assault-on-irs-funding-despite-mnuchins
---------------------------------------------------------------------------
    What will you do to ensure that the IRS receives adequate 
resources to fight identity theft, respond to questions, 
expedite business incorporations, etc.?

A.14. Funding for the IRS is a priority for the Department. In 
2018 we worked with Congress to ensure that the IRS had 
sufficient funding to implement the tax reform law, including 
funding to answer taxpayer questions, as well as base funding 
to provide taxpayer service and continue our enforcement 
efforts. The 2019 Budget proposes $11.1 billion in base funding 
for the IRS including $2.2 billion for taxpayer services 
salaries and expenses, $4.6 billion for enforcement salaries 
and expenses, $4.2 billion for running key tax filing and 
compliance IT applications, and $110 million for IT 
modernization.
    Furthermore, the Budget proposes a program integrity cap 
increase of $362 million in 2019 to expand audit coverage and 
protections against identity theft and improper payments. We 
are committed to monitoring the IRS's performance and working 
with Congress to identify appropriate funding levels in the 
future.

Q.15. In 2016, the Department of Justice settled a case against 
OneWest's subsidiary Financial Freedom, which sold reverse 
mortgages to senior citizens. \3\ The settlement totaled 
eighty-nine million dollars ($89 million) and related to 
Financial Freedom defrauding taxpayers by submitting false 
insurance claims to HUD. I have data suggesting that Financial 
Freedom foreclosed on one-hundred and eighty-one (181) Nevada 
seniors during your tenure.
---------------------------------------------------------------------------
     \3\ https://www.justice.gov/opa/pr/financial-freedom-settles-
alleged-liability-servicing-federally-insured-reverse-mortgage
---------------------------------------------------------------------------
    The House bill to gut Wall Street Reform (H.R. 10) would 
severely restrict subpoena authority and other enforcement 
tools used by DOJ under the statute they used to bring this 
case.
    Do you support rolling-back the law that the Justice 
Department used to sue your old bank for fraudulent 
foreclosures against seniors? \4\
---------------------------------------------------------------------------
     \4\ Namely, Section 512 of H.R. 10 seeks to narrow the scope of 
the DOJ's subpoena power by requiring a court order or a personally 
signed subpoena from the Attorney General or Deputy General instead of 
the current practice of allowing any investigating attorney from any 
U.S. Attorney's Office in the country to issue a subpoena.
      Also, the Section amends the Financial Institutions Reform, 
Recovery and Enforcement Act (FIRREA) by providing that actionable 
cases may only been brought when there is fraud ``against a federally 
insured financial institution or by a federally insured financial 
institution against an unaffiliated third person'' rather than 
``affecting a federally insured financial institution.'' The practical 
impact of this would be to eliminate liability for acts committed by 
financial institutions and instead only allow for liability in cases 
when a person violates Federal law against a financial institution or 
when a financial institution commits misconduct against ``an 
unaffiliated third person''--a term that the proposal does not define 
and that leaves open to question the DOJ's ability to use FIRREA in the 
manner that it has to date.

A.15. The Department of Justice should have all appropriate 
tools it needs to effectively enforce the law. Regarding the 
---------------------------------------------------------------------------
House bill, I would refer you to the Department of Justice.

Q.16. Moving forward, what do you plan to do to protect seniors 
from predatory financial products?

A.16. I agree that it is important to protect seniors from 
predatory financial products. Agencies with enforcement 
authority, including the Department of Justice, should use 
their authority to protect seniors from any unlawful activity. 
Where the Treasury Department can assist law enforcement in 
those efforts, we are fully committed to doing so.

Q.17. Background: In S. 2155, Section 402 changes the 
supplementary leverage ratio, and allows banks to exempt funds 
from custodial banks when calculating the amount of capital 
needed to offset risk. While some argue that funds from 
custodial banks are safer, custody banks have had compliance 
problems. For example, in September 2017, State Street paid 
more than $35 million to settle charges that it overcharged 
customers, generating approximately $20 million in improper 
revenue for the bank. \5\
---------------------------------------------------------------------------
     \5\ The Securities and Exchange Commission. ``State Street Paying 
Penalties to Settle Fraud Charges and Disclosure Failures''. The 
Securities and Exchange Commission. September 7, 2017. Available at: 
https://www.sec.gov/news/press-release/2017-159.
---------------------------------------------------------------------------
    Secretary Mnuchin, as I'm sure you know, one of the reasons 
the financial crisis was so devastating was because many banks 
kept toxic assets off their balance sheet, and as a result, 
held less capital than needed when these assets started to 
fail.
    Section 402 of S. 2155 changes the supplementary leverage 
ratio to allow banks to hold custodial bank funds off the 
balance sheet when calculating how much capital is needed to 
offset risk. But even custodial banks have had compliance and 
fraud problems--just last September, State Street was fined $35 
million for fraudulently charging customers.
    Do you believe that allowing banks to move funds deposited 
by custodial banks off balance sheets could cause banks to hold 
less capital and leave themselves open to risks posed by 
custodial banks?

A.17. The leverage ratio is an important feature of improving 
the safety and soundness of the U.S. regulatory capital regime 
for banking organizations. However, deposits held at central 
banks that are the result of custody activities are 
fundamentally low risk asset exposures that are not the type of 
risky leveraged activities that the leverage ratio was designed 
to constrain. Moreover, a regulatory capital regime that makes 
the leverage ratio the primary binding capital constraint on 
firms could have the unintended outcome of actually encouraging 
additional risk-taking by banking organizations.

Q.18. Follow up: Isn't allowing banks to hold less capital part 
of what contributed to the failure of some Wall Street banks 
and made the financial crisis much worse? Why should we allow 
weaker financial cushions for financial institutions that have 
already shown they cannot adequately assess the risk on their 
own balance sheets?

A.18. The aim of policy is to make leverage ratio requirements 
a backstop to the risk-based capital regime, which we think 
results in a better overall set of incentives for firms. 
Moreover, we think the Fed maintains its full authority to set 
overall capital levels and has the authority to adjust leverage 
ratio requirements to take into account any change in the 
treatment of deposits held at central banks.

Q.19. In November 2017, Treasury issued a report regarding 
goals that FSOC should achieve. Suggestions included changes to 
the designation process, and focusing on an ``activities-based 
approach.''
    During the financial crisis, regulators were unaware that 
credit default swaps, the very instrument that tanked the 
financial markets, were risky to markets until it was too late.
    If FSOC moves from a simple threshold to a more complex 
analysis, how do you think regulators at the Federal and State 
level will be able to adequately catch risky products before 
they cause significant damage to the economy?

A.19. Members of the Financial Stability Oversight Council are 
considering the recommendations made in Treasury's November 17, 
2017, report on FSOC designations, and I look forward to 
working with them to determine how best to implement the 
recommendations.

Q.20. It's being reported today that MetLife found weakness in 
its internal controls. Supposedly, these weaknesses are making 
MetLife delay the release of its Q4 financial report.
    Did you know about the problems with MetLife's internal 
financial reporting when you urged FSOC to drop the lawsuit 
designating MetLife as a Significantly Important Financial 
Institution?

A.20. As I stated in January, I am pleased that the Justice 
Department settled the MetLife case, consistent with the 
recommendation by a majority of FSOC voting members. Treasury 
has recommended specific reforms to make its nonbank financial 
company designation process more analytically rigorous, clear, 
and transparent. As Chairman of FSOC, I will be working with 
the Council to clarify and revise its nonbank designation rule 
and interpretive guidance.

Q.21. As you are aware, cannabis and cannabis related 
businesses, including landlords and companies providing 
security services, face challenges when accessing financial 
services from State- or federally chartered financial 
institutions. As a former Attorney General, I am concerned 
about money laundering and other crimes in an industry that 
generates hundreds of millions of dollars in revenue, but is 
forced to operate on a cash-only basis and without access to 
financial services. Currently, financial institutions are 
operating under guidance issued by Treasury's Financial Crimes 
Enforcement Network (FinCEN) that gives such institutions 
regulatory certainty when they provide financial services to 
cannabis related businesses. This guidance has made State-legal 
cannabis operations safer and more secure while allowing the 
industry to continue to provide medicine to patients and 
millions of tax dollars to State governments. Thus, I am 
greatly concerned by your testimony in a recent hearing before 
the House Financial Services Committee that FinCEN's guidance 
was being reviewed.
    During any review of the current FinCEN guidance, will 
Treasury commit to taking into account the greater risk of 
money laundering and other crimes when State-legal cannabis 
businesses are forced to operate on a cash-only basis or 
otherwise denied financial services?

A.21. The review of the current FinCEN guidance is being 
conducted consistent with FinCEN's mission to safeguard the 
financial system from illicit use and combat money laundering 
and promote national security through the collection, analysis, 
and dissemination of financial intelligence and strategic use 
of financial authorities. We will continue to consult with the 
Department of Justice to ensure that law enforcement-related 
issues are addressed.

Q.22. During any review of the current FinCEN guidance, will 
Treasury collaborate with other Federal financial regulators to 
issue a joint guidance governing how financial institutions can 
effectively serve marijuana-related businesses?

A.22. Since the 2014 guidance was issued, FinCEN has continued 
discussions with both the public and private sectors involved 
with State-authorized marijuana-related businesses, including 
the relevant financial communities, as well as State and 
Federal regulators and authorities. We continue to consider the 
feedback we have received. We will continue to consult with the 
Department of Justice and the appropriate Federal prudential 
regulators and other stakeholders regarding this issue. We will 
continue to consult with the Department of Justice to ensure 
that law enforcement-related issues are addressed.

Q.23. During any review of the current FinCEN guidance, will 
Treasury commit to working with State governments to ensure 
that States allowing adult and medicinal use of cannabis are 
represented during the process?

A.23. FinCEN works to provide as much certainty as possible 
with respect to how financial institutions must comply with 
FinCEN's regulations consistent with the purposes of the BSA. 
Since the 2014 guidance was issued, FinCEN has continued 
discussions with both the public and private sectors involved 
with State-authorized marijuana-related businesses, including 
the relevant financial communities, as well as State and 
Federal regulators and authorities. We continue to consider the 
feedback we have received. We will continue to consult with the 
Department of Justice and the appropriate Federal prudential 
regulators and other stakeholders regarding this issue.
              Additional Material Supplied for the Record
 LETTER SUBMITTED BY ANDREW M. SCHAUFELE, DIRECTOR, BUREAU OF REVENUE 
                               ESTIMATES
                               
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