S. HRG. 113–306 OVERSIGHT OF FINANCIAL STABILITY AND DATA SECURITY HEARING BEFORE THE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS UNITED STATES SENATE ONE HUNDRED THIRTEENTH CONGRESS SECOND SESSION ON EXAMINING REGULATORY EFFORTS TO IMPROVE FINANCIAL STABILITY AND DATA SECURITY REGULATORY STANDARDS, UPDATING THE FI- NALIZATION OF THE ‘‘VOLCKER RULE’’, AND RECEIVING A PROGRESS REPORT ON OTHER RULES REQUIRED BY THE DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT FEBRUARY 6, 2014 Printed for the use of the Committee on Banking, Housing, and Urban Affairs ( Available at: http://www.fdsys.gov/ U.S. GOVERNMENT PRINTING OFFICE 88–375 PDF WASHINGTON : 2014 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate 0ct 09 2002 09:56 Dec 19, 2014 Jkt 000000 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 S:\DOCS\88375.TXT SHERYL BANKI-41578DSA with DISTILLER COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS TIM JOHNSON, South Dakota, Chairman JACK REED, Rhode Island MIKE CRAPO, Idaho CHARLES E. SCHUMER, New York RICHARD C. SHELBY, Alabama ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee SHERROD BROWN, Ohio DAVID VITTER, Louisiana JON TESTER, Montana MIKE JOHANNS, Nebraska MARK R. WARNER, Virginia PATRICK J. TOOMEY, Pennsylvania JEFF MERKLEY, Oregon MARK KIRK, Illinois KAY HAGAN, North Carolina JERRY MORAN, Kansas JOE MANCHIN III, West Virginia TOM COBURN, Oklahoma ELIZABETH WARREN, Massachusetts DEAN HELLER, Nevada HEIDI HEITKAMP, North Dakota CHARLES YI, Staff Director GREGG RICHARD, Republican Staff Director LAURA SWANSON, Deputy Staff Director GLEN SEARS, Deputy Policy Director PHIL RUDD, Legislative Assistant GREG DEAN, Republican Chief Counsel JELENA MCWILLIAMS, Republican Senior Counsel DAWN RATLIFF, Chief Clerk TAYLOR REED, Hearing Clerk SHELVIN SIMMONS, IT Director JIM CROWELL, Editor (II) VerDate 0ct 09 2002 09:56 Dec 19, 2014 Jkt 000000 PO 00000 Frm 00002 Fmt 0486 Sfmt 0486 S:\DOCS\88375.TXT SHERYL BANKI-41578DSA with DISTILLER CONTENTS THURSDAY, FEBRUARY 6, 2014 Page Opening statement of Chairman Johnson ............................................................. 1 Opening statements, comments, or prepared statements of: Senator Crapo ................................................................................................... 2 Senator Reed ..................................................................................................... 3 WITNESSES Mary J. Miller, Under Secretary for Domestic Finance, Department of the Treasury ................................................................................................................ 4 Prepared statement .......................................................................................... 33 Responses to written questions of: Senator Crapo ............................................................................................ 105 Senator Kirk .............................................................................................. 106 Daniel K. Tarullo, Governor, Board of Governors of the Federal Reserve System ................................................................................................................... 5 Prepared statement .......................................................................................... 37 Responses to written questions of: Senator Crapo ............................................................................................ 109 Senator Menendez ..................................................................................... 116 Senator Kirk .............................................................................................. 121 Martin J. Gruenberg, Chairman, Federal Deposit Insurance Corporation ......... 7 Prepared statement .......................................................................................... 44 Responses to written questions of: Senator Crapo ............................................................................................ 123 Senator Menendez ..................................................................................... 130 Senator Kirk .............................................................................................. 133 Thomas J. Curry, Comptroller of the Currency, Office of the Comptroller of the Currency ..................................................................................................... 8 Prepared statement .......................................................................................... 56 Responses to written questions of: Senator Crapo ............................................................................................ 136 Senator Menendez ..................................................................................... 140 Senator Kirk .............................................................................................. 144 Mary Jo White, Chair, Securities and Exchange Commission ............................ 10 Prepared statement .......................................................................................... 68 Responses to written questions of: Senator Crapo ............................................................................................ 146 Senator Merkley ........................................................................................ 149 Senator Kirk .............................................................................................. 154 Mark P. Wetjen, Acting Chairman, Commodity Futures Trading Commission . 11 Prepared statement .......................................................................................... 97 Responses to written questions of: Senator Crapo ............................................................................................ 156 Senator Merkley ........................................................................................ 160 Senator Kirk .............................................................................................. 163 (III) VerDate 0ct 09 2002 09:56 Dec 19, 2014 Jkt 000000 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 S:\DOCS\88375.TXT SHERYL BANKI-41578DSA with DISTILLER VerDate 0ct 09 2002 09:56 Dec 19, 2014 Jkt 000000 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 S:\DOCS\88375.TXT SHERYL BANKI-41578DSA with DISTILLER OVERSIGHT OF FINANCIAL STABILITY AND DATA SECURITY THURSDAY, FEBRUARY 6, 2014 U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. The Committee met at 10:14 a.m. in room SD–538, Dirksen Sen- ate Office Building, Hon. Tim Johnson, Chairman of the Com- mittee, presiding. OPENING STATEMENT OF CHAIRMAN TIM JOHNSON Chairman JOHNSON. I call this hearing to order. Today, the Committee continues its oversight of the implementa- tion of the Dodd-Frank Wall Street Reform and Consumer Protec- tion Act. There has been good progress since our last hearing, in- cluding the completion of the long-awaited Volcker Rule. I believe our economy is on much more stable footing, in part due to the ef- forts of our witnesses and their staffs. However, there is still work to be done, and oversight will con- tinue to be a top priority for this Committee. Some of the pending work includes enhanced capital, leverage, and liquidity rules for the largest banks, a new regulatory framework for nonbank finan- cial companies designated as SIFIs, QRM, and the new derivatives rules. I have asked the witnesses to outline their timeline for com- pleting these and other rules and to provide information on how each agency’s rules will reduce systemic risk and enhance financial stability. To date, the regulators have been thoughtful and responsive. For example, they worked quickly to address a concern raised by com- munity banks that the Volcker Rule unintentionally could have re- sulted in large, unexpected losses for some. I ask that the agencies continue to monitor the impact of their actions and to coordinate their ongoing work. Agency implementation of Wall Street Reform should also continue to be focused on institutions and activities that pose the greatest systemic risks. Final rules should not be one-size-fits-all for banks and insurance companies, nor should they impose unnecessary burdens on community banks and credit unions. In recent weeks, American consumers have been victims of large data breaches at national retailers, their personal information ex- posed to identity theft and fraud. Those responsible must be held accountable, and we must examine what more can be done to bet- ter safeguard consumer information going forward. I have asked each agency to detail its coordination with other regulators and law (1) VerDate 0ct 09 2002 09:56 Dec 19, 2014 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\DOCS\88375.TXT SHERYL BANKI-41578DSA with DISTILLER 2 enforcement on data breaches, as well as each agency’s role in the retail payment system. Wall Street Reform created an important financial stability watchdog, the FSOC. In its most recent annual report, the FSOC identified securities threats in cyberspace as a potential systemic risk. I want to hear what each agency testifying today is doing to mitigate cyber and other data security risks, as well as protect con- sumer data at the agencies they regulate. I now turn to Ranking Member Crapo for his opening statement. STATEMENT OF SENATOR MIKE CRAPO Senator CRAPO. Thank you, Mr. Chairman. I have repeatedly stressed the need for