<DOC>
[109 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:35500.wais]
S. Hrg. 109-901
NOMINATIONS OF: JAMES LAMBRIGHT,
ARMANDO J. BUCELO, JR., TODD S. FARHA,
JOHN T. RYMER, JOHN W. COX, AND WILLIAM HARDIMAN
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
ON
nominations of:
james lambright, of missouri, to be president of
the export-import bank of the united states
__________
armando j. bucelo, jr., of florida, to be chairman of
the securities investor protection corporation
__________
todd s. farha, of florida, to be member of the board of directors
of the securities investor protection corporation
__________
jon t. rymer, of tennessee, to be inspector general of the federal
deposit insurance corporation
__________
john w. cox, of texas, to be chief financial officer of
the u.s. department of housing and urban development
__________
william hardiman, of michigan, to be member of the board of directors
of the national institute of building sciences
__________
MAY 16, 2006
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
Available at: http: //www.access.gpo.gov /congress /senate/
senate05sh.html
U.S. GOVERNMENT PRINTING OFFICE
35-500 PDF WASHINGTON : 2007
---------------------------------------------------------------------
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)512-2250 Mail: Stop SSOP,
Washington, DC 20402-0001
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
RICHARD C. SHELBY, Alabama, Chairman
ROBERT F. BENNETT, Utah PAUL S. SARBANES, Maryland
WAYNE ALLARD, Colorado CHRISTOPHER J. DODD, Connecticut
MICHAEL B. ENZI, Wyoming TIM JOHNSON, South Dakota
CHUCK HAGEL, Nebraska JACK REED, Rhode Island
RICK SANTORUM, Pennsylvania CHARLES E. SCHUMER, New York
JIM BUNNING, Kentucky EVAN BAYH, Indiana
MIKE CRAPO, Idaho THOMAS R. CARPER, Delaware
JOHN E. SUNUNU, New Hampshire DEBBIE STABENOW, Michigan
ELIZABETH DOLE, North Carolina ROBERT MENENDEZ, New Jersey
MEL MARTINEZ, Florida
Kathleen L. Casey, Staff Director and Counsel
Steven B. Harris, Democratic Staff Director and Chief Counsel
Andrew Olmem, Counsel
Justin Daly, Counsel
Jonathan V. Gould, Counsel
Dean V. Shahinian, Democratic Counsel
Aaron Klein, Democratic Economist
Patience R. Singleton, Democratic Counsel
Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
George E. Whittle, Editor
(ii)
?
C O N T E N T S
----------
TUESDAY, MAY 16, 2006
Page
Opening statement of Chairman Shelby............................. 1
Opening statements, comments, or prepared statements of:
Senator Sarbanes............................................. 2
Senator Crapo................................................ 4
Senator Martinez............................................. 4
Senator Dodd................................................. 10
Senator Allard............................................... 11
Prepared statement....................................... 29
WITNESS
Kit Bond, A U.S. Senator from the State of Missouri.............. 5
NOMINEES
James Lambright, of Missouri, to be President of the Export-
Import Bank of the United States............................... 6
Biograpical sketch of nominee................................ 32
Armando J. Bucelo, Jr., of Florida, to be Chairman of the
Securities Investor Protection Corporation..................... 12
Biograpical sketch of nominee................................ 40
Todd S. Farha, of Florida, to be Member of the Board of Directors
of the Securities Investor Protection Corporation.............. 14
Biograpical sketch of nominee................................ 54
Jon T. Rymer, of Tennessee, to be Inspector General of the
Federal Deposit Insurance Corporation.......................... 21
Prepared statement........................................... 29
Biograpical sketch of nominee................................ 60
John W. Cox, of Texas, to be Chief Financial Officer of the U.S.
Department Of Housing And Urban Development.................... 21
Prepared statement........................................... 30
Biograpical sketch of nominee................................ 67
William Hardiman, of Michigan, to be Member of the Board of
Directors of the National Institute of Building Sciences....... 22
Biograpical sketch of nominee................................ 74
(iii)
NOMINATIONS OF:
JAMES LAMBRIGHT, OF MISSOURI,
TO BE PRESIDENT,
EXPORT-IMPORT BANK OF THE UNITED STATES;
ARMANDO J. BUCELO, JR., OF FLORIDA,
TO BE MEMBER,
BOARD OF DIRECTORS, SECURITIES INVESTOR PROTECTION CORPORATION;
TODD S. FARHA, OF FLORIDA,
TO BE MEMBER,
BOARD OF DIRECTORS, SECURITIES INVESTOR PROTECTION CORPORATION;
JOHN T. RYMER, OF TENNESSEE,
TO BE INSPECTOR GENERAL,
FEDERAL DEPOSIT INSURANCE CORPORATION;
JOHN W. COX, OF TEXAS,
TO BE CHIEF FINANCIAL OFFICER,
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WILLIAM HARDIMAN, OF MICHIGAN,
TO BE MEMBER, BOARD OF DIRECTORS,
NATIONAL INSTITUTE OF BUILDING SCIENCES
----------
TUESDAY, MAY 16, 2006
U.S. Senate,
Committee on Banking, Housing and Urban Affairs,
Washington, DC.
The Committee met at 10:43 a.m., in room SD-538, Dirksen
Senate Office Building, Senator Richard C. Shelby (Chairman of
the Committee) presiding.
OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY
Chairman Shelby. The hearing will come to order.
This morning, we will consider several nominations, and I
appreciate the willingness of the nominees to appear before the
Committee today. Today's hearing will consist of three panels.
Our first panel will consist of Mr. James Lambright, who has
been nominated to be President of the Export-Import Bank. Mr.
Lambright is currently the Acting President and Chairman of the
Export-Import Bank. Prior to assuming his current position, he
served as the Bank's Executive Vice President and Chief
Operating Officer. Mr. Lambright came to the Bank in 2001 from
Credit Suisse-First Boston, where he was Vice President of
Private Equity. A native of St. Louis, Missouri, Mr. Lambright
graduated from Harvard Law School and received a bachelor's
degree from Stanford University.
Our second panel will consist of Mr. Armando Bucelo and Mr.
Todd Farha, who have been nominated to be Directors of the
Securities Investor Protection Corporation. Mr. Bucelo is being
renominated to serve as a director. He was first appointed to
the Board in 2002, and earlier this year, President Bush
appointed him Chairman of the Board. Mr. Bucelo is an attorney
at his own firm in Coral Gables, Florida. He earned his law and
bachelor's degrees from the University of Miami.
Mr. Farha is currently the President and Chief Executive
Officer of WellCare Health Plans, Inc., a leading multistate
provider of managed health care services. A native of Wichita,
Kansas, Mr. Farha received his bachelor's degree from Trinity
University and his MBA from Harvard Business School.
Our third panel will consist of three nominees, Mr. Jon T.
Rymer, who has been nominated to be Inspector General of the
Federal Deposit Insurance Corporation. Mr. Rymer is currently
on active duty in the Ohio Army National Guard, serving as
Command Sergeant Major of the 155th Chemical Battalion. Mr.
Rymer previously served as a Director of KPMG, LLP and as
Executive Vice President for Bank America of Arkansas. Mr.
Rymer received his bachelor's degree from the University of
Tennessee and his MBA from the University of Arkansas.
Mr. John Cox has been nominated to be the Chief Financial
Officer at the U.S. Department of Housing and Urban
Development. He began his professional career as an accountant
with Ernst & Young, LLP. He also served as the Chief Financial
Officer and Chief Accounting Officer for BMC Software.
Mr. William Hardiman has been nominated to be a Member of
the Board of Directors of the National Institute of Building
Sciences. Currently, Mr. Hardiman represents the 29th District
in the Michigan State Senate. Previously, he served 10 years as
the Mayor of Kentwood, Michigan. We look forward to hearing
from each of you later.
Senator Sarbanes.
STATEMENT OF SENATOR PAUL S. SARBANES
Senator Sarbanes. Mr. Chairman, thank you very much. I join
you in welcoming the nominees before the Committee this
morning. I obviously hold public service in high esteem, and I
congratulate all of the nominees, and I appreciate their
willingness to serve the Nation.
Let me just say first of all about Jim Lambright, who has
been nominated to serve as Chairman and President of the
Export-Import Bank. He has been at the Bank now for a number of
years, and he brings a very substantial background to this
work. He is no stranger to the Committee. He has testified on
more than one occasion, including on the pending
reauthorization of the Export-Import Bank, and I understand
that there is going to be a full Committee hearing on this
reauthorization in the near future.
Chairman Shelby. Absolutely.
Senator Sarbanes. I do want to express my very strong
concern that there are currently three empty seats on the five-
person board of the Export-Import Bank, and in fact, the Bank
is only able to achieve a quorum in order to conduct its
business because Mr. Lambright is serving in an acting capacity
under the Vacancies Act. In February of this year, the Bank
came close to losing a quorum of three Board members
altogether, and I simply want to take this opportunity to urge
the Administration to move immediately to fill the other
vacancies.
Chairman Shelby. Absolutely.
Senator Sarbanes. We ought not to have this situation. It
is not good for the Bank. It is not good for the country.
The second panel, the Securities Investor Protection
Corporation, which, of course, was created by Congress to give
investors certain protections against losses relating from the
failure of their securities brokerage firms. Under SIPC,
broker-dealers contribute to the fund, which helps customers of
failed brokers recover their cash and securities, with limits
of $500,000 per customer; cash claims are limited to $100,000.
It is a very important part of the whole picture to maintain
investor confidence, and we need SIPC to operate in an
effective, efficient, and fair manner. I welcome the two
nominees who will be before us on the second panel, and I look
forward to hearing from them, Mr. Bucelo and Mr. Farha.
The third panel is a mix of offices, Jon Rymer to be the
Inspector General of the FDIC; John Cox to be Chief Financial
Officer of the Department of Housing and Urban Development, and
Bill Hardiman to be a Member of the Board of the National
Institute of Building Sciences. I want to emphasize the
importance of the position for which Mr. Rymer has been
nominated. He brings important experience in internal auditing
and consulting for the banking industry. I am pleased to see
that. The FDIC's Office of Inspector General is an independent
unit that conducts audits, investigations, and other reviews of
the FDIC's programs and operations.
I think it makes an important contribution to the stability
of and public confidence in the Nation's financial system. One
of the main responsibilities of the Inspector General's office
is to inform the FDIC Chairman and Congress of problems in the
FDIC programs and operations and the necessity for and progress
of corrective actions. It also conducts criminal investigations
in coordination with the Justice Department and U.S. Attorneys
throughout the country, the FBI, the IRS, and State and local
enforcement agencies. An acting Inspector General responsible
for overseeing the operations of the office has been in place
since January 2005. That is 15, 16 months ago. And so, I am
relieved, and I guess in a sense pleased, although I am
displeased that it has not come sooner, that the President is
now filling this important position.
Now, Mr. Cox, who comes to the job of Chief Financial
Officer of HUD, has had important previous experience that is
relevant to this work. This is a very important position. In
fact, the Department has consistently had difficulty managing
its financial and program systems. I see Senator Bond nodding
his head. This has been a problem for many years across many
administrations, I would note.
These financial systems are crucial tools that managers at
the Department should be able to use to help evaluate the
programs they oversee. Current and accurate financial
information is important, should be available to HUD and here
on Capitol Hill. This position has remained vacant for over a
year. I mean, HUD has a budget of about $30 billion in annual
appropriations, oversees $400 million in FHA insurance, so
finally, this position is being filled.
Finally, I want to thank Mr. Hardiman. He actually serves
on a volunteer basis at the Board of the National Institute of
Building Sciences, which seeks to improve the building
regulatory environment and facilitate the introduction of new
and existing products and technology.
Mr. Chairman, I look forward to hearing from our nominees
today.
Chairman Shelby. Thank you.
Senator Sarbanes. And I welcome all of them before the
Committee.
Chairman Shelby. Senator Crapo.
STATEMENT OF SENATOR MIKE CRAPO
Senator Crapo. Thank you very much, Mr. Chairman, and I
will be brief, but I do want to thank you for bringing the
nomination of Mr. Lambright forward promptly and for what I
hope will be expedited treatment of this nomination.
I am a strong supporter of Jim Lambright to be the Chairman
and President of the Export-Import Bank. His expertise and his
experience is going to be very helpful to both us on the
Committee as well as the Bank itself as we move forward with
reauthorization of the Export-Import Bank. As Senator Sarbanes
has indicated, he is no stranger to this room. He has testified
twice before our Subcommittee on International Trade and
Finance to discuss the reauthorization of the Ex-Im Bank, and I
think he has shown that he has earned a reputation of working
with all sides and I believe enjoys wide support and respect
both in and out of Congress. I cannot think of a better choice,
and I am hopeful that we can expedite this process.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Martinez, do you have an opening
statement?
STATEMENT OF SENATOR MEL MARTINEZ
Senator Martinez. Mr. Chairman, I have an opening statement
for panel two if I could.
Chairman Shelby. Thank you.
Senator Martinez. Thank you very much.
Chairman Shelby. Senator Bond, we welcome you to our
Committee for any statement you want to make on behalf of the
nominee.
STATEMENT OF KIT BOND
A U.S. SENATOR FROM THE STATE OF MISSOURI
Senator Bond. Mr. Chairman, Members of the Committee, it is
good to be back in this room in which we spent many hours. I
worked in this room with you, Senator Sarbanes, on the problems
of HUD, and I have since had the dubious distinction of being
either the member or the Chairman of the Appropriations
Subcommittee who has dealt with that problem for many years,
and I think Senator Sarbanes' understatement was that we have
not yet gotten financial controls over that very important
Department.
But we are here today on another matter, and this one gives
me a great honor and pleasure to introduce James Lambright to
this Committee, reintroduce him as President-Designate for the
Export-Import or Ex-Im Bank. I have known Jim's family for
decades, since before I first ran for Governor in Missouri back
in the early 1970's. I am very proud that Jim is a native of
St. Louis. As you said, Mr. Chairman, he graduated with honors
from Harvard Law School, received a bachelor of arts in
linguistics from Stanford. He is a term member of the Council
on Foreign Relations and a Henry Crown Fellow of the Aspen
Institute.
Presently, as you know, he is Acting President of Ex-Im,
having been elevated to that role from his position as the
Bank's Executive Vice President and Chief Operating Officer in
July 2005 by President Bush. Before that, Jim created and ran
the Credit and Risk Management Group, overseeing risk
assessment activities for the Bank's transaction flow of nearly
$1 billion per month. He came to Ex-Im in 2001 from Credit
Suisse-First Boston in Los Angeles, where he was Vice President
for Private Equity. While there, he specialized in the
underwriting and negotiation of real estate and venture capital
transactions. Thus, in addition to being eminently qualified
for the position of President of the Bank, Jim is a man of
energy, commitment, and integrity, who will bring all those
good qualities of character to the Bank.
Throughout his career, Jim has had a reputation for
creativity and competence. I am confident that he will approach
his job at the Bank with the same intelligence and enthusiasm
he has brought to all of his other endeavors. The new President
must have leadership skills to run such a large agency. Let me
assure you that what I know about him, Jim Lambright is the
right man for this job, and with the important upcoming
reauthorization, I trust that the Committee can move quickly to
consider this nomination, and I would urge your favorable
consideration.
Thank you, Mr. Chairman.
Chairman Shelby. Mr. Lambright, will you stand and be
sworn?
[Witness sworn.]
Senator Sarbanes. Mr. Chairman.
Chairman Shelby. Yes.
Senator Sarbanes. Senator Stabenow wanted to be here this
morning to welcome and introduce Mr. William Hardiman who is
from Michigan and has been nominated to be a Member of the
Board of Directors of the National Institute of Building
Sciences. Regrettably, she has a direct conflict with another
Committee of hers.
Chairman Shelby. Okay. Any written statement will be made
part of the hearing record on her behalf.
Senator Sarbanes. Certainly. Thank you very much.
Chairman Shelby. Thank you, Senator.
Mr. Lambright, do you have any family members you want to
introduce?
STATEMENT OF JAMES LAMBRIGHT, OF MISSOURI,
TO BE PRESIDENT,
EXPORT-IMPORT BANK OF THE UNITED STATES
Mr. Lambright. Yes, I would like to recognize my father,
Steve Lambright.
Chairman Shelby. Thank you.
Mr. Lambright. Thank you.
Chairman Shelby. You proceed as you wish.
Mr. Lambright. Thank you, Mr. Chairman.
Mr. Chairman, Senator Sarbanes, Members of the Committee, I
am pleased to come before you today as you consider my
nomination to be President of the Export-Import Bank of the
United States. I would like to thank Senator Bond for his kind
introduction. I want to thank President Bush for the confidence
he has shown in me by nominating me to lead an organization I
hold in such high regard.
Reflecting on my nearly 5 years at Ex-Im Bank, I am struck
by the good fortune I have enjoyed working for three leaders,
each of whom achieved a high degree of private sector success
and demonstrated a deep commitment to public service.
In 2001, I came to Washington from investment banking to
work for the Bank's then-Chairman, John Robson. In the short
time that we served together before his untimely passing,
Chairman Robson showed through his attitude and actions that
there is no canvas as big to paint on as that offered by public
service. Then, under Vice Chairman Eduardo Aguirre, I was able
to take on increasing levels of responsibility and assist him
in applying best practices from private sector banking to the
Bank's operations.
Most recently, I served under Chairman Philip Merrill, to
whom I owe a tremendous debt of gratitude for his trust and
confidence in providing me an opportunity to assume a senior
leadership role.
If confirmed, I hope to continue this line of service and
leadership in a way that best positions Ex-Im Bank to fulfill
the important mandate given it by Congress, to create and
sustain American jobs by helping to finance export transactions
that would not otherwise go forward.
To be clear, if confirmed, my focus will be U.S. exporter
competitiveness. My top priorities will be: Pursuing the
successful reauthorization of the Bank; institutionalizing
recent changes to our small business program, which included
the creation of a dedicated small business division; and
preparing the Bank to face nontraditional competition emerging
within the evolving global economy.
During my tenure at the Bank, and particularly in my
capacity as Acting President over the last 9 months, I have
come to see the primary job of the Bank's President as
navigating the Bank between two beacons established in our
charter. One beacon represents our customers, America's
exporters, to whom we owe our aggressive support. The other
beacon represents our shareholders, the U.S. taxpayers, to whom
we owe our prudent stewardship. I have found that the smoothest
course between these beacons can best be chartered through
cooperation with all stakeholders.
To that end, I have worked closely with Members of Congress
on their concerns about particular cases, changes to our small
business program, and other issues relating to the Bank's
current reauthorization. I have made a concerted effort to
reach out to our customers, large and small, to understand
better their views of how Ex-Im Bank can deliver its services
more effectively and efficiently. And, I have maintained strong
relationships with my fellow Board members, Linda Conlin and
Senator Max Cleland.
If confirmed, I will continue to manage the Bank in a way
that pays close attention to the concerns of Members of
Congress, the Bank's customers, and my fellow Board members as
we all work together to support U.S. exporter competitiveness.
Mr. Chairman, Senator Sarbanes, Members of the Committee,
it is with great respect that I ask for favorable consideration
of my nomination. I will be pleased to respond to your
questions. Thank you.
Chairman Shelby. Thank you, Mr. Lambright.
Mr. Lambright, if confirmed, which I believe you will be,
you will assume significant responsibilities. Ex-Im authorized
nearly $14 billion in financing last year and has approximately
400 employees. Your management will have a decisive impact on
how effectively Ex-Im utilizes these resources to support
American exports. What do you see as the most significant
management issues facing Ex-Im, and how do you plan to confront
them? You have been there awhile. You are the acting now.
Mr. Lambright. I think of them in terms of shorter range
versus longer range challenges. In the short-term, we need to
get the Bank through reauthorization and implement the guidance
Congress gives us, and part of that will be finding the right
organizational structure and devotion of resources to maximize
our support for small businesses that export. But in the longer
range, there is a lot going on in the world of export credit
that the Bank will need to adjust to in the future. There is an
emergence of competitors that are not parties to our OECD
agreements that govern much of our behavior. I am thinking of
Brazil, India, and China in particular, and figuring out how
the Bank can best support exporters in the face of this new
competition. This is the biggest challenge.
Chairman Shelby. The Export-Import Bank is required by law
to allocate 20 percent of its aggregate loan guarantee and
insurance authority for financing exports to small businesses
in America. Since this mandate was enacted, it is my
understanding that Ex-Im has never met that goal of 20 percent.
If confirmed, what actions will you take to ensure or try to
meet that 20 percent small business mandate, which I think is
important to the country.
Mr. Lambright. I agree with you that it is very important,
Mr. Chairman. Upon assuming my current position, nothing has
received more attention than our efforts to increase support
for small business exporters. We have already made a number of
changes, including the creation of an Outreach Division,
focused exclusively on reaching small business exporters,
headed by a new Senior Vice President. We have designated
specialists within each of the business units who will handle
just small business applications, and I am sure that there is
more we can do, and if confirmed, I will continue to focus on
exploring new and creative ways to support small businesses.
Chairman Shelby. Ex-Im's mission is to provide export
financing when the private sector is unable or unwilling to do
so. By providing export financing to exports to developing
countries which private banks are unwilling to provide, Ex-Im
facilitates the development of new markets for U.S. exports,
for business.
In your view, can Ex-Im do more to expand the U.S. exports
to developing countries, and can it safely assume the
additional risk that financing exports to these countries would
involve some risk, as you know?
Mr. Lambright. There certainly is more that we can do. Ex-
Im Bank is a provider of a service, and like any service
provider, we can do more, and we can do it better. So we are
looking at a lot of ways that we can do what we do more
efficiently and more effectively. We have a new online
application program that will be launched next month that
should make it a lot easier for our customers to apply and will
also help us manage the credit risk, which touches on the
second point you raised about protecting the taxpayer from
exposing them to too much risk.
Chairman Shelby. Many foreign export credit agencies have
entered into what they call co-financing agreements that you
are very familiar with by which they agree to jointly support
exports from each of their respective nations. Co-financing
helps exporters around the world work together to compete for
large transactions. How many co-financing agreements has Ex-Im
entered into, and do you think that Ex-Im needs to enter into
any additional co-financing agreements? Do you have any opinion
on that?
Mr. Lambright. Yes, we currently have five co-financing
agreements. The last one was an agreement I signed a few months
ago with Atradius, the Dutch export credit agency, but I do
think that there is more we can do. The Europeans are ahead of
us in this respect, largely because the European market is so
integrated by currency and production, but there is more that
U.S. Ex-Im can do on the co-financing front to help our
exporters.
Chairman Shelby. The Export-Import Bank Reauthorization Act
of 2002, Mr. Lambright, mandated that Ex-Im implement
technology improvements to improve its small business outreach
and to enhance the tracking of all of Ex-Im's pending
transactions. One of those initiatives to meet this mandate was
Ex-Im Online. Despite having 4 years to meet this, however, Ex-
Im, to my understanding, has still not finished developing the
Ex-Im Online. When do you expect that to be operational?
Mr. Lambright. June 1.
Chairman Shelby. June 1. That is good news.
Senator Sarbanes.
Senator Sarbanes. Thank you very much, Mr. Chairman.
I wanted to ask you about these vacancies on the Export-
Import Board, which I mentioned in my opening statement, but it
is an issue that has me very concerned. Chairman Merrill's term
expired on January 20, 2005. The term of the Vice Chairman,
April Foley, expired on the same date, and the term of Joe
Grandmaison expired on that date, January 20, 2005. That is
about slightly over 15 months ago.
Now, under the terms of the Export-Import Bank structure,
they can stay on for 6 months, which they did in each instance,
and then, they have to leave the Board altogether, so you have
a vacancy. So the Board was without a quorum. I mean, it had
only two members, not three.
Now, they used the Vacancies Act to put you in there on an
acting basis, thereby giving it a quorum, but is this not a
problem? What is your view on these--so many vacancies and the
ability of the Board to function in a normal, rational way?
Mr. Lambright. It is an important concern, Senator
Sarbanes. Fortunately, as you know, we were able to have a
quorum, and so, since the terms expired, we have not had to
interrupt the regular meetings of our Board to provide
authorizations for export credits to our customers. But you
correctly note that we might have had a problem with that.
Senator Sarbanes. You do not get the benefit of the advice
and counsel of a full Board. Furthermore, the way the statute
is written, two of the five Members have to come from the party
other than the President's party, and I think the thinking
behind that was that you would get a balanced board. It would
help to take the Ex-Im Bank out of politics, not thrust it into
politics, which I think is a very important consideration.
But obviously, that balance can be affected by having these
empty seats. And it seems to me that the objective should be to
have a fully appointed Board, not just enough to constitute a
bare quorum, which can transact business, but if that is going
to be, maybe you should change it to a three-member Board
instead of a five-member Board. I mean, the rationale for a
five-member Board I think is pretty good but begins to collapse
if these seats are allowed to go unfilled.
Now, obviously, you do not make the nominations, but as the
prospective Chairman of the Board, you are going to have a
heavy responsibility in making sure the Bank works right.
Chairman Shelby. He is going to want them.
Senator Sarbanes. And it seems to me, I want to just
energize you on this particular issue. Mr. Chairman, I think it
is very important. In fact, I have some hesitation moving ahead
on these Export-Import nominations until the Administration
comes through with its other nominees. You know, they are
partly crippled, in my perception.
Chairman Shelby. They should be at full strength.
Senator Sarbanes. Strength, yes.
Chairman Shelby. Senator Sarbanes, if you want to, we can
work together and maybe contact the Administration and tell
them how important this is, not to just us but to the operation
of the Bank as well.
Senator Sarbanes. Yes, I think that is very helpful. I
mean, Mr. Grandmaison has been down there. He has done a good
job, from all accounts, but he is out there in the wings, I
guess, just waiting around, and we need a nominee for Ms.
Foley. In fact, she is going to have a hearing here very
shortly. She has been nominated by the President to be the
Ambassador to Hungary.
Chairman Shelby. Senator Martinez, do you have any
questions?
Senator Martinez. No, sir.
Chairman Shelby. Not of these nominees?
Senator Martinez. Only to comment that I think Mr.
Lambright is an eminently qualified individual, and I look
forward to his confirmation.
Chairman Shelby. Senator Dodd.
Senator Sarbanes. Mr. Martinez is anxious to get to these
Florida nominees.
Chairman Shelby. Absolutely.
[Laughter.]
Senator Martinez. It is a couple of friends from Florida
who are here, sir, and I thought I would talk about them when
the time came, but I am patiently awaiting.
Senator Sarbanes. We understand.
Senator Dodd.
STATEMENT OF SENATOR CHRISTOPHER J. DODD
Senator Dodd. Thank you, Mr. Chairman. I apologize getting
here a little bit late, and as the Chairman and Senator
Sarbanes know, I have a particular interest in how well the
Export-Import Bank does. My spouse is a former Vice Chair of
the Bank, Chief of Staff of the Bank.
Senator Sarbanes. A very good one, too.
Senator Dodd. And she had a wonderful experience; still
raves and talks about the friendships she developed down there
and what a terrific job this institution--I think one of the
smallest if not the smallest of our Federal agencies; there may
be a smaller one, but I am not aware of what it would be and
just does a remarkable job. It is such a unique place and
performs a very unique function. I mean, there are very few
places where job creation really can occur, and the Bank has
had some remarkable leaders over the years and is doing some
very exciting things in environmental, small businesses, and
making credit more available under difficult circumstances and
been a real engine for growth and success.
And so, I bring a strong bias in support of this
institution and on the few occasions I have had a chance to
meet people at the Bank who have dedicated themselves with
careers at the Bank and really made a wonderful contribution.
And I just want to underscore what Senator Sarbanes and Senator
Shelby have said here, and I intended to raise the same issue,
and that is I know in the past, there have been Chairs who
frankly would have probably preferred a smaller Board, maybe no
Board at all in some cases, given the fact that boards can be
unruly from time to time, and they do not necessarily all
agree. And I know there are some heated discussions from time
to time on whether or not a certain proposal should go forward
or not.
But until we statutorily change, and that is a decision to
make, and I am not sure we ought to, but that is a legitimate
question, but in the meantime, we should try and fill these
positions to have the full complement. And so, I would
underscore what has been said and would join the Chairman and
Senator Sarbanes in any communication they might share with the
White House or others about sending these names up. And I
gather, in the case of Joe Grandmaison that there has been
White House support for that decision. We just have not seen
any documentation. At least I am led by the memos I have from
my staff that that is the case, and if it is not the case,
then, we should know that as well, but I underscore what
Senator Sarbanes has said. I think the general impression I had
was that Joe did a pretty terrific job at the Bank and really
was very knowledgeable and tremendously helpful in his position
as a Member of the Board.
So, I would hope, Mr. Chairman, that you could communicate
however you want to communicate but add my voice to that
communication as well.
Senator Sarbanes. Absolutely.
Senator Dodd. And it is important that we get people in
place, and the Acting Chair is a new creation, I think, if I am
not mistaken. There has never been an Acting Chair before. We
either had a Chair or did not have a Chair.
Mr. Lambright. I am not aware of a precedent for it.
Senator Dodd. I think that is a precedent setting move.
Creative, in a sense, I must say, and I understand why, but my
hope would be that we would fill these seats as soon as we can.
Chairman Shelby. Senator Dodd, you make an excellent point.
We will work on that together.
Senator Dodd. Thank you, Mr. Chairman.
Chairman Shelby. Senator Allard.
STATEMENT OF SENATOR WAYNE ALLARD
Senator Allard. Mr. Chairman, I just want to follow up on
one area. I just want to put a statement in the record.
Chairman Shelby. Without objection, the full statement will
be made part of the hearing record.
Senator Allard. And I just want to thank Mr. Lambright for
taking on the responsibilities that he has already begun to
assume and raise a question about how he is getting along with
the Inspector General. You know, we reauthorized the Export-
Import Bank, and during that deliberation, I pushed to have an
Inspector General for the Export-Import Bank, because this is
the only institution we had out there, as I understood it, that
gave direct loans or gave loan guarantees that did not have an
inspector general there, and I just wanted to know how you
viewed your relationship with him and if that is helpful or
not. Do you find him helpful at this particular point in time?
Mr. Lambright. Well, since 2002 at the last
reauthorization, this was the first fiscal year that we were
appropriated funds for an Office of Inspector General.
Senator Allard. That is right.
Mr. Lambright. And this is another position where we are
waiting for a nomination for filling the spot.
Senator Allard. Another one of those vacancies, Mr.
Chairman, that we maybe should visit, because the Inspector
General is the eyes and ears----
Chairman Shelby. The Administration needs to fill them, and
we need to confirm them.
Senator Allard. Yes. It is the eyes and ears of this
Committee and the Members of Congress, and we need to get the
input, and we need to get him on board. So, I would encourage
you and the Ranking Member, if you would, to also bring that
up.
Chairman Shelby. Absolutely.
Senator Allard. Thank you very much.
Do you think it is going to be helpful to you to have an
Inspector General?
Mr. Lambright. I think that there is a lot that an
Inspector General would add to our operations. We have a strong
system of internal controls with an Audit Committee currently,
but we are already in the process of making preparations to
receive the Inspector General and have a fully functioning
Office of Inspector General as soon as possible.
Senator Allard. Thank you very much, Mr. Chairman.
Chairman Shelby. Mr. Lambright, we appreciate your
willingness to serve, and we will try to expedite this
nomination. Thank you very much.
Mr. Lambright. Thank you very much, Mr. Chairman.
Chairman Shelby. We are going to call up the second panel,
if you will take your seats.
[Witnesses sworn.]
Chairman Shelby. Your written testimony will be made a part
of the record. If you will just briefly sum up your testimony
here this morning, and if you have any members of your family
you want to introduce, you proceed.
STATEMENT OF ARMANDO J. BUCELO, JR., OF FLORIDA
TO BE CHAIRMAN,
SECURITIES INVESTOR PROTECTION CORPORATION
Mr. Bucelo. Thank you, Mr. Chair. With me today is my wife,
Beatrice, and my son, Alex. Senator Sarbanes, if you remember,
4 years ago, I brought Alex as a 9-year-old before you.
Senator Sarbanes. He has come back again; all right.
Mr. Bucelo. And you interrogated him as far as his baseball
ability. He has won two batting titles since 2002.
Senator Sarbanes. Good.
Mr. Bucelo. And he is glad to be back.
Chairman Shelby. I think Senator Sarbanes has been waiting
here. I mean, Senator Sarbanes has been waiting. Senator
Martinez is really waiting.
[Laughter.]
Chairman Shelby. Go ahead.
Mr. Bucelo. Would you like me to make my opening statement?
Chairman Shelby. Yes, sir, you may proceed.
Mr. Bucelo. Mr. Chairman, Senator Sarbanes, Members of the
Committee, I am pleased to appear before the Committee today as
SIPC's Chairman. With me today is also SIPC's President Stephen
Harbeck and SIPC's General Counsel, Josephine Wang. Not with me
today is my daughter, Alexis. She is a 20-year-old graduate of
the University of Miami. She will be entering law school next
year and my son A.J. He is a 19-year, second-year student at
Miami-Dade Community College, which is the largest college in
the country and of which I am a trustee appointed by Governor
Bush.
And if I may just take a second, also not with me today is
my father. He is 87. He is not doing very well. I am eager to
get back to him, and I just wanted to mention his name. Thank
you very much.
It is an honor to serve as SIPC Chairman, and I look
forward to a full term in that capacity. I joined the SIPC
Board in 2002 as a Director and Vice Chairman, and since the
appointment of SIPC's Chairman Tim Timken as Ambassador to
Germany in late 2005, I have served as its Chairman.
I am very proud of my association with SIPC, Mr. Chairman,
which, as we all know, serves to protect investors in the event
of brokerage firm failures, as Senator Sarbanes previously
mentioned. During the years I have served on the Board, I have
had the opportunity to see for myself that this segment of the
investor safety net is functioning very well.
A brief background of SIPC will be useful to the Committee
in measuring how far investor protection has gone since SIPC's
inception. In 1969 and 1970, as we all know, customer losses
mounted as the rate of stockbroker failures accelerated.
Congress responded by enacting the Securities Investor
Protection Act, SIPA. SIPA had many purposes: Mainly to protect
individual investors from financial hardship, to insulate the
economy from the disruption which can follow the failure of a
major financial institution, and obviously to achieve a general
upgrading of financial responsibility requirements of brokers
and dealers, to eliminate, as much as possible, the risks which
lead to customer loss. SIPA also created SIPC at that time, and
among other things, established procedures for liquidating
financially troubled broker-dealers who are members of SIPC.
I am proud to report that SIPC is about to conclude the
largest brokerage firm liquidation in its 36-year history. MJK
Clearing Corporation was a prominent regional brokerage firm in
Minneapolis that failed when a fraudulent stock loan scheme
completely depleted its cash reserves. In the troubled period
of late September 2001, that was before my time, SIPC and a
trustee appointed to liquidate the firm returned control of
customer assets to 175,000 customers in approximately one week.
SIPC advanced $177 million in returned cash and securities to
those investors. I am extremely pleased to report to the
Committee that as the case comes to a close, as a result of
rigorous litigation efforts to recover missing customers'
assets, all customers, all creditors, all lenders and SIPC have
been paid, Mr. Chairman, 100 cents on the dollar plus interest.
SIPC's board and staff are very proud of this achievement. As
the only attorney on the Board, I have come to appreciate the
complexity of the legal issues that SIPC faces with regard to
bankruptcy and securities law. I can report to the Committee
that investors have benefited from SIPC's vigorous pursuit of
those who are responsible for any particular brokerage firm
failure.
I am also pleased to report at this time to the Committee
that the regulatory system is preventing brokerage firm failure
in the first place. Only one small brokerage firm failed in
2005. Only one small firm has failed this year. This is an
incredible record. We attribute these outstanding results to
the Securities and Exchange Commission, the State regulatory
authorities, and the securities industry self-regulatory
organizations that monitor, in fact, the financial health of
the securities brokerage industry. As I noted in SIPC's 2005
Annual Report, investor confidence in the securities markets is
enhanced when investors know that the brokerage firm failure is
a rare event.
Our Board is committed to maintaining adequate resources to
fulfill SIPC's statutory mission. SIPC's fund now stands at
well over $1.3 billion, a historic high. As Chairman, I have
initiated a Board-level Investment Committee to make sure that
SIPC continues the prudent management of the fund. No taxpayers
funds, I repeat no taxpayer funds, have ever been used in the
SIPC program, and the Board continually monitors the adequacy
of SIPC funding.
Investor education has been my number one priority since I
have been Chairman. The statute that created SIPC is, by the
very nature of bankruptcy and securities laws, a complex and
technical law. We have also undertaken a continuing public
interest media campaign to make sure investors know what SIPC
protects, and equally important, Mr. Chairman, what it does not
protect.
Finally, SIPC is preparing for the future and the
inevitable problems we have not faced in the past. We have
tested a business continuity program, complete with an
emergency alternative work facility. We are also preparing for
the possibility of brokerage firm failure that crosses
international borders. SIPC has executed memoranda of
understanding at this stage with its counterparts in Canada and
the United Kingdom. Others will follow.
In summary, SIPC is very robust financially, fulfilling its
statutory mission and preparing for the future. I am very
pleased to be its Chairman, and I am honored to be here. Thank
you.
Chairman Shelby. Do you have any family members you want to
introduce?
STATEMENT OF TODD S. FARHA, OF FLORIDA,
TO BE MEMBER OF THE BOARD OF DIRECTORS,
SECURITIES INVESTOR PROTECTION CORPORATION
Mr. Farha. No, sir.
Chairman Shelby. You can proceed as you wish.
Mr. Farha. Good morning, Chairman Shelby, Senator Sarbanes,
and distinguished Members of the Committee. My name is Todd S.
Farha, and it is my pleasure to appear before you as a
candidate for the Board of Directors of the Securities Investor
Protection Corporation. I am honored to be nominated to serve
on the SIPC Board and look forward to my public service if
confirmed by the Senate.
I understand you have been informed of my background, so I
will only highlight my qualifications and why I am pleased by
the opportunity to serve on the SIPC Board of Directors.
I am a native of Wichita, Kansas. I received my bachelor's
degree in economics magna cum laude from Trinity University and
my MBA with distinction from Harvard Business School.
As you know, I am the President and CEO of WellCare Health
Plans, headquartered in Tampa, Florida. WellCare is one of the
largest providers of managed care services, targeted to
government-sponsored healthcare programs, such as Medicare and
Medicaid. We are pleased to be participating in the
groundbreaking Medicare Part D program, and with enrollment of
over 800,000 Medicare Part D members today, WellCare now ranks
among the top five prescription drug plans in the country,
filling close to 100,000 prescriptions per day for Medicare
beneficiaries in all 50 States.
I am pleased to have the opportunity to serve on the Board
of Directors of the Securities Investor Protection Corporation.
SIPC serves a vital role to strengthen investor confidence in
our capital markets. SIPC has a demonstrated track record of
recovering $14.2 billion in assets for an estimated 624,000
investors.
As a Board member, my priority is ensuring that SIPC
remains focused on continuing to execute its mission. I will
hold the organization accountable for the results of its
efforts, and I will work closely with SIPC's management to
support their continuing daily responsibilities. I know
Chairman Armando Bucelo has made tremendous progress in
advancing SIPC's mission during his tenure, and I would look
forward to working with him to continue this progress.
As the CEO of a public company, I have experience in issues
of corporate governance, compliance, public disclosure, and
Sarbanes-Oxley implementation. I take seriously all aspects of
these responsibilities and the need to ensure the utmost
discipline and integrity in every area of corporate governance.
I seek your support of my nomination to the Board of
Directors of SIPC. If confirmed, I believe my experience as a
CEO of a public company as well as my prior experience and
education, will prove valuable to SIPC.
Thank you very much, and I look forward to answering any
questions or clarifying any comments I made.
Chairman Shelby. Thank you.
We will start with you, Mr. Bucelo. The Securities Investor
Protection Act, the 1970 legislation that created the
Securities Investor Protection Corporation, has been
substantially amended only once, in 1978. In your estimation,
does the Act need to be modernized or amended in any way, or do
you want to withhold that?
Mr. Bucelo. At this time, Mr. Chairman, I do not believe
that there is any need for any major legislative changes. We
are in direct conversation; as a matter of fact, I will be
meeting with Chairman Cox on Friday.
Chairman Shelby. Good.
Mr. Bucelo. There are a few issues that are pending on the
table, but at this time, there is nothing as far as any major
changes.
If I may also at this time report to Senator Sarbanes, 4
years ago, your marching instructions to me, sir, were to make
sure that SIPC was adequately funded, and we are. As a matter
of fact, what we have done is made it a topic at virtually
every SIPC Board meeting since I appeared before you in 2003
after the most expensive brokerage firm failure, the one I
previously mentioned. Senator Sarbanes, SIPC commissioned, the
latest in a long series of independent studies, and that study
concluded that a loss in excess of $500 million is expected
once every 100 years. Using what they call the Ruin Theory
analysis, an early study indicated that there was a 1 in 40,000
chance that SIPC would not have sufficient funds. We now have a
commercial line of credit of $1 billion, plus the backing of
the Federal Government of $1 billion, so we are okay. We feel
very confident. And I know you made it a point, Senator
Sarbanes, 4 years ago to make sure that I did that as then-Vice
Chairman.
Chairman Shelby. It is very important.
Mr. Bucelo. Yes, I think it is incredibly important.
Chairman Shelby. The number of brokerage firm liquidations
are at an all-time low. You have only had one customer
protection proceeding this year is my understanding.
Mr. Bucelo. That is correct, sir.
Chairman Shelby. There were only two last year and one in
2004. In your view, why have there been so few?
Mr. Bucelo. I do not know, and I really do not want to
know.
[Laughter.]
Chairman Shelby. That is good news.
Mr. Bucelo. That is very good news. When I became a member
of the Board 4 years ago, I was Acting Chairman for a number of
months pending the confirmation of Chairman Timken, I insisted
that one of my major goals as Vice Chairman was to make sure
that the public was well-informed. And again, when I was
appointed to the Board of SIPC, in Miami, people said you
received a Presidential appointment. They said what to? SIPC.
What was that? I mean, a lot of people know the FDIC. The
answer is I believe we are informing the investor, and based on
that, we are proud to report that we have only had one case
this year.
Chairman Shelby. That is wonderful. The Corporation's
financial health appears to be strong. Are there any challenges
or potential problems that you know about that may lay ahead
and that we need to know about?
Mr. Bucelo. No, sir, none, Mr. Chairman.
Chairman Shelby. Some people have suggested that the fund
should also be allocated to cover fraud at brokerage firms. The
classic example would be a pump-and-dump case. What is your
view regarding the Securities Investor Protection Corporation
reimbursing investors for market losses?
Mr. Bucelo. There are strong arguments against protecting
against fraud. The first thing that comes to my mind when I
hear fraud is a stockbroker with a potential victim saying go
ahead and do it; invest here and there, and if anything goes
wrong, SIPC will pay for it.
Chairman Shelby. That is right. It could be open-ended,
could it not?
Mr. Bucelo. That is right, it could open up a Pandora's
box. Irrespective of the fact that it would need Congressional
authorization, I would never recommend that.
Chairman Shelby. I did not suggest that. I just asked about
it.
Mr. Bucelo. Oh, okay.
Chairman Shelby. Yes, sorry.
Mr. Bucelo. Yes, I think definitely, Congress should not
make any change without considering the policy concerns and
costs, and I am very concerned, so my gut feeling would be no.
Chairman Shelby. I have several questions, one question for
you. To fund the operation, 6,000 members pay a flat annual fee
of $150 is my understanding. This has been the funding
arrangement since 1996. But over 25 years prior to that, the
Corporation had assessed fees on a sliding scale based on net
operating revenues. Why should the smallest broker-dealer pay
the same fee as the large Wall Street firms? Just a question.
Mr. Farha. Mr. Chairman, a very good question and one that
I will not represent that I am expert in. I have been briefed
by the SIPC leadership team on the general issues regarding
SIPC. I think your question exposes an interesting issue that
perhaps we should evaluate at SIPC and determine if a sliding
scale is appropriate based on whatever study----
Chairman Shelby. I do not know myself, but I just suggest
to you that you should maybe look at it.
Mr. Farha. Clearly merits evaluation and a very good
question.
Chairman Shelby. Senator Sarbanes.
Senator Sarbanes. Thank you very much, Mr. Chairman.
Mr. Bucelo, how long have you been Chairman now?
Mr. Bucelo. Since Chairman Timken was appointed Ambassador
to Germany; late 2005.
Senator Sarbanes. How long was there a vacancy in the
Chairmanship? Do you recall?
Mr. Bucelo. When I became a member of the Board of
Directors, and I was appointed Vice Chairman, I was Acting
Chairman for about 7, 8 months pending the confirmation of
Chairman Timken.
Senator Sarbanes. Right.
Mr. Bucelo. Then, Chairman Timken was made U.S. Ambassador
to Germany in late 2005, at which time, I became Acting
Chairman. And then, I was nominated by President Bush and made
Chairman.
Senator Sarbanes. In a relatively short period of time?
Mr. Bucelo. Yes, yes, Senator.
Senator Sarbanes. I am relieved to hear that. I do not like
these positions being in a floating status.
Mr. Bucelo. No, sir.
Senator Sarbanes. I do not think it is good for the
workings of the institution.
Mr. Bucelo. No, sir.
Senator Sarbanes. The GAO, in a 2004 report, concerning the
Securities Investor Protection Corporation, stated that the
SEC, and I am now quoting the GAO, ``found that SIPC had
inadequate internal controls over the fees and expenses awarded
to trustees and their counsel.''
And then, the GAO added, to address SEC's concerns, SIPC is
in the process of enhancing its controls for reviewing and
assessing fees. Now, obviously, these internal controls are
important for any organization. How have you progressed on this
concern expressed by the SEC? This is now not quite a couple of
years ago.
Mr. Bucelo. Although not personally involved as a member of
the Board, I know for a fact that President Harbeck and the
entire administration has thoroughly looked into that, and I
know that changes have been made, and as far as I am concerned
now, we are back on track, and not that we ever deviated, in my
opinion, but they had some concerns, and we addressed them.
Senator Sarbanes. If you could go back, I understand that
you have instituted a number of changes with respect to this
which have tightened up your procedures, but given that the GAO
raised this concern in its report, if you could go back and
take another look at this, we would appreciate that.
Mr. Bucelo. We will do so.
Senator Sarbanes. I am not going to go into this proposal
that SIPC submitted to raise compensation of its Board Members.
That has been withdrawn, as I understand it.
Mr. Bucelo. That is correct, Senator.
Senator Sarbanes. It does, however, lead to a question
about the salaries that are being paid to the SIPC employees,
which are, I think it is fair to say, fairly high-end, and how
much attention is the SIPC Board paying to these compensation
levels?
Mr. Bucelo. Very much so, and----
Senator Sarbanes. When you compare it with the SEC, it is
quite a contrast, actually.
Mr. Bucelo. The SIPC staff contains a high degree of
specialized professionals, in my opinion, and they definitely
discourage a revolving door type of procedure in and out. We
have had employees there for--well, our President has been
there close to 30 years. And they benefit--I believe SIPC
benefits from the lengthy tenure of these professionals.
I am of the opinion--this is one voice speaking--that
salaries are definitely below those in the private sector and
in some instances substantially less than other financial
services professionals in government, and as such, we did a
little bit of a study, and if you will, for example, the
Municipal Securities Rulemaking Board, its executive makes--it
is a package in excess of $1 million; the ABA Securities
Association, same thing, American Bankers Association.
So in order for us, Senator Sarbanes, to keep the level of
professionalism and competency that we have, I sincerely and
truly do not believe that we are overpaying anybody. As a
matter of fact, I think, for example, you take our highest, the
CEO, our President, his salary is under $300,000, which I
believe is not competitive at all. He has a full package of
approximately $400,000, which, I believe, is quite low when you
compare it to the NASD and other institutions comparable to
SIPC.
But nevertheless, we as a Board do in fact regulate that
and keep an eye on it, and I will do whatever you indicate me
to do as----
Senator Sarbanes. It is always a challenge, and I think you
have outlined it fairly well, the balancing act that has to
take place.
Mr. Bucelo. That is correct.
Senator Sarbanes. So, I do not think we can ever anticipate
that the salaries in the public sector will reach those that
exist in the private sector, particularly in the financial
sector.
Mr. Bucelo. That is correct.
Senator Sarbanes. Actually, a lot of concerns are now being
raised about the private sector compensation.
Mr. Bucelo. Yes, sir.
Senator Sarbanes. Every day, you read the business section
of The Wall Street Journal or The New York Times, there is
another major story on that issue, but I think it is important
for the SIPC Board to keep this matter in focus.
Mr. Bucelo. We do.
Senator Sarbanes. I wanted to just ask one question: How
old were you when you came to the United States from Cuba?
Mr. Bucelo. 1960--my God, I am so old now; 3, 4 years old.
Senator Sarbanes. All right; well, you have had a very
impressive life story, and I mentioned that before when you
were here.
Mr. Bucelo. Yes, thank you; I appreciate that.
Senator Sarbanes. I wanted to recognize my respect for you.
Mr. Bucelo. Coming from you, it is an honor.
Senator Sarbanes. Mr. Farha, I want to put just one
question to you. I am drawn to do so. It is like a dangling
bait before a fish or something.
[Laughter.]
Mr. Farha. Thank you, Senator.
Senator Sarbanes. You say in your statement as the CEO of a
public company, I have had experience in issues of corporate
governance, compliance, public disclosure, and Sarbanes-Oxley
implementation. How has your experience been with Sarbanes-
Oxley implementation?
[Laughter.]
Mr. Farha. Absolutely.
It is interesting: We took our company public in 2004, so
that makes us a relatively young New York Stock Exchange-listed
company, and the process of complying with Sarbanes-Oxley, and
in our first year, we did fully comply with no reservations
from our auditors, which we thought was quite an
accomplishment; I think it had a number of positive impacts on
the company. It enhanced our focus on process and internal
controls and processes for managing and verifying those
controls.
And I mentioned that I take very seriously the compliance,
and quite frankly, as I sign the reports that are required
under your Act, I do so with the cognizance of the liability
that it creates. So, I think it has been a definite positive on
our company. I would mention to you that the cost of compliance
is meaningful, both in terms of our auditors as well as other
professional staff, but I think a balanced approach would
clearly say it has had a positive impact on the company.
Senator Sarbanes. Okay; and I guess the costs are in some
respects like an investment in capital goods. I mean, once you
put the systems in place and everything, it is, I guess,
reasonable to assume in subsequent years, the costs will not
run at that level; is that a fair assumption, do you think?
Mr. Farha. In fact, that is an accurate assumption, and as
we have gone through our recent Audit Committee, the hours of
our auditors allocated for year two review of our 404
compliance are reduced. So, I think your statement is
definitely accurate.
Senator Sarbanes. Okay; thank you very much. I appreciate
that.
Chairman Shelby. Senator Martinez? I want to know who got
here first.
Senator Martinez. I think I did. I was older when I got
here, first of all, I should say.
Mr. Bucelo. He is a lot older.
[Laughter.]
Senator Sarbanes. The Committee is obviously going to have
to look into this Florida monopoly of this SIPC Board.
[Laughter.]
I think that is a question for us and not for you.
Senator Martinez. But I am delighted to be here to welcome
these Floridians to the Committee and very honored to have an
opportunity to speak on both of their behalves, Mr. Chairman. I
am not going to have a lot of questions for them. I am
basically here to say how pleased I am as the Senator from
Florida that we have these dedicated people who offer
themselves to public service. I am particularly impressed with
Mr. Farha's comments on Sarbanes-Oxley; well done, sir.
But Mr. Bucelo and I share a common background, as Senator
Sarbanes indicated, and a shared bond of our life experience as
Cuban-Americans making it in this wonderful land. And so, I am
very pleased and proud to welcome him here. He is someone who
also shares a legal background, which we both have, he as a
Miami Hurricane and me as a Florida State Seminole, but
nonetheless----
Chairman Shelby. You are friends other than that.
Senator Martinez. Other than that, we get along very well.
I was recently at Miami-Dade Community College. You
mentioned being on the Board, and this is one of the many
community activities that I know Armando is a part of and a
remarkable college and a great institution that is serving the
community so well. And so, I am just delighted, Mr. Chairman,
to welcome him here. I know he has done a great job in his Vice
Chair position; will do equally as well in the future, and
Alex, I am proud of your batting prowess, buddy. I may have to
get you with Andrew, who is 12 and cannot hit the curve ball.
But anyway.
[Laughter.]
Mr. Bucelo. Neither can he.
Senator Martinez. Todd Farha is a good friend and also
someone who I believe is a very innovative person in the area
of health care. I am so glad, Todd, that you mentioned your
involvement with Medicare Part D and the success that you have
had in implementing that. His company is innovative in the
managed health care area in Tampa, Florida; very strong and
rising entrepreneur in our State and someone that we also have
a lot of pride in his contributions to our State. So, I am
delighted that they are both going to be serving in this
capacity and very pleased to be able to welcome to the
Committee and look forward, Mr. Chairman, to a swift vote on
their nominations and again, a confirmation in the full Senate
in the near future.
Mr. Farha. Thank you, Senator.
Mr. Bucelo. Thank you, Senator.
Chairman Shelby. Mr. Farha, did you start this company?
Mr. Farha. No, I acquired it as a leveraged buyout in 2002.
Chairman Shelby. And you are doing well with it.
Mr. Farha. Thank you very much.
Chairman Shelby. What we need in health care is more
competition and I hope ultimately some market forces involved.
Mr. Farha. Absolutely. Thank you, Senator.
Chairman Shelby. We thank you both for appearing. We will
try to expedite your nominations as soon as possible. And we
feel good about your nominations.
Mr. Bucelo. Thank you, Mr. Chairman.
Mr. Farha. Thank you, Mr. Chairman.
Chairman Shelby. We are going to call up the third panel if
we can: Jon Rymer, Inspector General-designee, Federal Deposit
Insurance Corporation; John W. Cox, Chief Financial Officer-
designee, Department of Housing and Urban Development; William
Hardiman, Member of the Board of Directors nominee, National
Institute of Building Sciences.
[Witnesses sworn.]
Chairman Shelby. Mr. Rymer, we will start with you. I will
tell all of you that without objection, all of your written
testimony will be made part of the hearing record, and if you
will just briefly sum up what you basically want to say; before
then, if you have any family members you want to introduce, you
may. Mr. Rymer, we will start with you.
STATEMENT OF JON T. RYMER, OF TENNESSEE,
TO BE INSPECTOR GENERAL,
FEDERAL DEPOSIT INSURANCE CORPORATION
Mr. Rymer. Thank you, Mr. Chairman. I would like to
introduce my wife, Deb, and my son, Thomson, who are with me
here today.
Chairman Shelby. I think that is always wise to introduce
your wife.
Mr. Rymer. Yes, sir, it is, absolutely. And sir, you do
have my opening statement and I would like to include it in the
record.
Chairman Shelby. It has been made a part of the record.
Mr. Rymer. And so, I will forego that and be prepared to
answer any questions you may have, sir.
Chairman Shelby. Thank you.
Mr. Cox.
STATEMENT OF JOHN W. COX, OF TEXAS,
TO BE CHIEF FINANCIAL OFFICER,
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Mr. Cox. Yes, sir, Mr. Chairman, I am happy to introduce my
wife, Sally.
Chairman Shelby. Absolutely. You all are smart men.
Mr. Cox. And my daughter, Kate. I also have my mother and
father.
Chairman Shelby. Point them out to us, your wife here and
your daughter.
Mr. Cox. My daughter, Sally.
Chairman Shelby. Good.
Mr. Cox. I also have my mother and father from Texas.
Chairman Shelby. Absolutely.
Mr. Cox. And my in-laws here are from Virginia.
Chairman Shelby. That is good.
Mr. Cox, do you have anything to say other than your
opening statement?
Mr. Cox. No, sir, I do not.
Chairman Shelby. Okay; Mr. Hardiman, do you have any family
here?
STATMENT OF WILLIAM HARDIMAN, OF MICHIGAN,
TO BE MEMBER OF THE BOARD OF DIRECTORS,
NATIONAL INSTITUTE OF BUILDING SCIENCES
Mr. Hardiman. I do not, Mr. Chairman.
Chairman Shelby. You will pay for that later, will you not?
Mr. Hardiman. I probably will. I do acknowledge that my
wife is such an important part of my life.
Chairman Shelby. Absolutely.
Mr. Hardiman. But she could not make it today.
Chairman Shelby. Sure.
Mr. Hardiman, do you have any oral statement? Your written
statement will be made a part of the record?
Mr. Hardiman. Thank you, Mr. Chairman. I just want to say
that I am just honored to be here. It is really a pleasure. I
serve in the Michigan State Senate, so I do understand that
brevity is----
Chairman Shelby. That is where I started, too, in the
Alabama Senate.
Mr. Hardiman. Oh, wonderful.
Chairman Shelby. Good experience.
Mr. Hardiman. Maybe there is hope for me as well.
Chairman Shelby. You will be here if you want to be. Maybe
you will go into other things.
Mr. Hardiman. Thank you.
I do want to say that I am honored to be appointed by
President Bush to serve on the Board of Directors for the
National Institute of Building Sciences. You have seen my
background. I think I have some things to add to the Board.
Chairman Shelby. Absolutely.
Mr. Hardiman. And I would be pleased to answer any
questions you have.
Chairman Shelby. We like all of these nominees. We want to
move them as soon as we can, but we have to do our duty up here
to go through. Mr. Rymer, I have several questions here for
you, if I could for the record.
Mr. Rymer. Yes, sir.
Chairman Shelby. In your view, what is the appropriate
relationship of the Inspector General to the FDIC, and how does
the Office of the Inspector General contribute to the safety
and soundness of the banks the FDIC regulates?
Mr. Rymer. A two-part question, sir, and I would answer it
this way, the first of which is that the relationship between
any Inspector General, the Board, and the Chairman is one of
advice. I mean advice in the sense that the IG must maintain a
significant degree of independence from policymaking and direct
activities within that organization.
And, a successful IG has to be viewed as a part of the
leadership team. So as policies are developed, they can be
developed in such a way that they address any potential risks
that may be associated with the new policy and that those risks
are identified and the policies modified as needed.
Chairman Shelby. Absolutely. Your professional experience
includes the Army, an accounting firm, and several banks. You
have a good background. Can you elaborate on how these past
experiences will contribute to your effectiveness as Inspector
General?
Mr. Rymer. Yes, sir, certainly. I began my career, and the
majority of my civilian career, as a banker, and spent about 16
years in positions of increasing responsibility. I understand
how banks operate. I understand the interface between a bank or
bank executives and a regulatory body, particularly such as the
FDIC.
I understand that the cooperation of banks is critical for
the FDIC to complete its mission, so the fact that I bring that
banking experience, I think, is very important. The other thing
is as a banker, I spent a significant amount of time dealing
with customer issues, fairness issues, and how a bank would
interface with its customers, so I am very aware of the role
that the FDIC plays in upholding consumer rights as they use
financial services.
Second, I would say that obviously, my experience as an
auditor with a Big Four accounting firm was very valuable and
that all of my audit experience was focused in the financial
services community, large banks down to small thrifts and
savings and loans. I spent a lot of time there understanding
credit policy as it was developed, and as you are well aware,
Mr. Chairman, if the FDIC experiences problems with a member
bank, it will inevitably start with credit. So, I have spent a
great deal of time auditing credit processes in banks.
And then, last, I think what I have learned as a soldier is
the discipline and the pride and the honor in serving the
United States. That is why I decided rather than to go back
into public accounting, with the Senate's approval, sir, I
would like to continue my Government service as an Inspector
General.
Chairman Shelby. Do you anticipate any specific challenges
in your office as Inspector General?
Mr. Rymer. Well, sir, from what I can see, from the public
information I have reviewed, I see no specific challenges. I
think any new manager or leader has a responsibility to
evaluate programs once he or she assumes office, whether it is
funding levels, staffing levels, organization structure, but at
this point, sir, I am not aware of any specific problems.
Chairman Shelby. In its April 2006 audit report just a few
weeks ago, the Office of Inspector General noted certain
deficiencies in the methods employed by the FDIC to calculate
the reserve ratio of the Bank Insurance Fund. Accurate
reporting of the reserve ratio is basically essential to ensure
the continued viability of the insurance fund, which we deal
with here. Are you aware of this report, and if you have not
been, will you get into it and its recommendations? Where are
you on that?
Mr. Rymer. Yes, sir, I have read the report as published on
the OIG's Website. As I would summarize the report as an
auditor, I would view the issue that the report raises as one
of significance of decisions or degree of governance: Should
that decision to have basically not changed the calculation
method for Oakar deposits come before the full Board or not,
and I think as an outsider----
Chairman Shelby. It is a very important area.
Mr. Rymer. Yes, sir. I think as an outsider, it probably
should have received more Board attention than it did.
Chairman Shelby. You will look into it seriously, though.
Mr. Rymer. Yes, sir, I will.
Chairman Shelby. Mr. Cox, financial controls.
Mr. Cox. Yes, sir.
Chairman Shelby. GAO has stated that HUD's financial
management systems cannot currently provide the day-to-day
information needed by its managers to effectively manage and to
monitor the Department's programs. A lot of us believe it is
critical that HUD have reliable financial and accounting
systems. It is key. Are you familiar with the problems
confronting HUD's financial management systems, and have you
faced or resolved similar systems probably in your previous
private sector experience?
Mr. Cox. Yes, sir, I have. I have reviewed those issues in
the GAO reports and been briefed by the staff at the
Department.
Chairman Shelby. That is a big challenge there.
Mr. Cox. It is a very big challenge. My experience in the
private sector dealt very much with these similar type of
issues, and taking large, complex IT environments, many of
which are ancient in terms of their technology, and bringing
them into a common standard; the Department is close to making
an acquisition decision on bringing that up to speed with a
common, off the shelf technology solution, which they have
already successfully implemented at FHA. I am very comfortable
that my experience, I can help them guide through that if I am
confirmed.
Chairman Shelby. FHA's single family mortgage insurance is
the subject. GAO has for some time considered FHA single family
mortgage insurance a high risk to the Federal Government, to
the taxpayers.
Mr. Cox. That is right.
Chairman Shelby. For instance, GAO has stated that, ``HUD's
system for rating the underwriting quality of loans does not
adequately assess the risks that the loans pose to the agency's
insurance fund.''
With the Administration's proposing to expand the range of
its current underwriting, some of us are concerned that HUD is
moving forward without knowing the real risk posed. Have you
had the opportunity to discuss with FHA's underwriting
standards and assure that the program's true risk is reflected
on HUD's financial statements? I think it has to be stated some
way.
Mr. Cox. Yes, sir, I have, and clearly, I am not on board
yet, and if I am confirmed, I will be very much involved with
that issue, but what I can tell you is that for the current
fiscal year, it is my understanding that the estimation of the
loan loss reserves is very close to the actual experience. So
the actuarial work that has to be done to estimate that, there
have been improvements made in those models in the current
year, and we will continue to make improvements there. And as
you said, with the current FHA proposals on the table for a
risk-based premium, that has to be part of that mix as well.
Chairman Shelby. I am concerned that HUD's current
acquisition practices leave the Department vulnerable to theft
and to fraud. For instance, GAO has reported that HUD lacks
adequate supporting documentation and effective controls over
its computer purchases. GAO found that HUD did not consistently
report purchases or even inspect the quantity or quality of its
purchases. I know you are not there yet. Are you aware of any
of these deficiencies? And if so, what is your plan to get your
hands around that?
Mr. Cox. Yes, sir, I have actually been briefed on that
specific topic, and there are specific control mechanisms in
place. The Office of Administration at HUD now specifically has
a plan of internal control to monitor those physical assets. So
we have made improvements since that report was issued.
Chairman Shelby. If you can do that, you will do a great
job for the country.
Mr. Cox. Thank you.
Chairman Shelby. Improper payments subject.
I believe it is also vital in all of HUD's program that
payments, be they to local governments, housing authorities, or
contractors, be accurate and timely. Congress took a major step
in addressing this problem in 2002 with the Improper Payments
Information Act. In the past, HUD has had considerable errors
in its payment systems, particularly with the Section 8 Rental
Assistance program. Are you aware of this issue, and what are
some of the methods that you used in the private sector to
guarantee that payments were accurate and timely? I think it is
just financial management.
Mr. Cox. It is good management, and I am actually pleased
to tell you that from the period of 2001 to 2004, HUD reduced
its estimated improper payments by 62 percent and was the first
cabinet-level agency to report green on the President's----
Chairman Shelby. But you can reduce it more, I hope.
Mr. Cox. Absolutely; 62 percent means I have still got 38
percent out there that needs to be reduced. I will use my
private sector experience to reduce those payments. One thing
we are doing, particularly, you mentioned Section 8, is we are
involved in income verification. That has had a big impact on
reducing improper payments, and there is more work to do, some
of which we can do at the Department; some of which may require
some legislative fixes.
Chairman Shelby. A lot of that is bordering on fraud, too,
is it not?
Mr. Cox. That is right. But having the income verification
through the HHS systems allows us to prevent that fraud before
it occurs.
Chairman Shelby. If you could bring some of the basic,
fundamental private sector systems to HUD, you will be doing a
great service to the taxpayer.
Mr. Cox. I will do my best, sir.
Chairman Shelby. Federal financial management improvement.
It has been 10 years since Congress passed the Federal
Financial Management Improvement Act, which requires an
agency's underlying financial systems and individual financial
transactions to meet Federal financial standards. This past
September, GAO reported that HUD's external auditor concluded
that HUD is still not compliant with the Act's requirements.
Are you aware of HUD's current lack of compliance on a
transactional level?
Mr. Cox. I am aware of that, and that is part of the IT
projects that we are working on.
Chairman Shelby. Do you believe the relation to have a
strong accounting or transaction base in relation to the
overall accuracy of the agency's financial statements? In other
words, you have to have accuracy here.
Mr. Cox. Absolutely, and more importantly, you have to have
that information so the program heads can use that information
to run the Department.
Chairman Shelby. Thank you, Mr. Cox.
Mr. Hardiman, disaster-resistant construction: I am not
sure whether you had an opportunity to visit the Gulf States,
Alabama, Florida, Louisiana, Mississippi, and, of course,
Texas. One thing that continues to strike me is that newer
structures often withstand natural disasters when the older
structures do not. It depends on the standard of building, I
suppose. What role do you see by the NIBS, which is very
important, I think, having in developing safer, more disaster-
resistant building technologies?
Mr. Hardiman. Mr. Chairman, I have not visited the Gulf
States since the hurricane, but I have prior to that. But I
believe my experience in the past--I served as mayor of a very
fast growing community prior to going to the Senate. I believe
that experience will help me in working with not only the
building trades but also engineers and architects. We work with
all of them to build safe structures.
Chairman Shelby. It basically pays to build strong
structures.
Mr. Hardiman. Absolutely.
Chairman Shelby. It is just common sense.
Mr. Hardiman. So, I think we have to work together and
listen to each other. I think that is going to help us move a
long way in making sure that our structures are safe and that
our regulations are obeyed but something that can be obeyed by
the building trades.
Chairman Shelby. Community partnerships.
Mr. Hardiman. Absolutely.
Chairman Shelby. As you are very aware, building
regulations are almost exclusively decided at the local or
State level. Hence, much of the important research conducted at
NIBS is dependent upon adoption by the State and local
governments. I believe that your own experience as a mayor,
public sector at the State and local level, can increase this
collaboration, because you understand, you have been where it
works or does not work.
Mr. Hardiman. Absolutely.
Chairman Shelby. Would you share with the Committee any
insights that you have as a locally elected official and
serving as one that could increase this level of collaboration
or understanding between the NIBS and the local governments?
Mr. Hardiman. Absolutely, Mr. Chairman.
As I mentioned, I served as Mayor of Kentwood for about 10
years, and that was one of the fastest growing cities in the
State of Michigan. Many times, I saw that some of the officials
had one opinion, and the builders, architects, had another. And
I believe that my ability, and I love doing this, of drawing
people together, let us sit down and talk this through and work
on a better solution was very helpful in meeting the demands
not only of the market but also meeting the safety demands that
government should really enforce. And so, I would love to take
that same type of bridge building to the National Institute of
Building Sciences.
Chairman Shelby. Another important concern is seeing that
the opportunity to own a home is available to all Americans. We
all think that is important. One of the obstacles to
homeownership for many families is simply the high cost of
housing today. Part of this high cost is sometimes driven by
land use regulations. What role do you see for the National
Institute of Building Sciences in helping to reduce some of the
regulatory burden placed on home construction to moderate the
high cost of construction materials? How can we make some
progress there?
Mr. Hardiman. I really believe that sometimes, there are
regulations that are promulgated that may be good in someone's
eyes, but sometimes, they are not necessary. Sometimes, the
regulators do not realize what it does to the cost of housing,
and without that communication, that public-private
partnership, they are certainly not perhaps working out a
better way to bring about the safety but keep the costs down.
So once again, I think that having a meeting of the minds,
bringing people together is a good way to try to do that.
In Kentwood, we looked very hard at land use, obviously,
because we are a growing city. And I think we had a wonderful
master plan, which we executed. But we also worked very hard to
avoid unnecessary regulations. I remember being approached by
the homebuilders about a change in the regulation in the width
of a stairway that was put into one of the series of
regulations, and we took a good look at it, realized that the
cost that it would have to all homeowners or home purchasers,
and made a change but still had very safe housing.
I think having that dialogue is very important, and I would
work to do that if confirmed by the Senate.
Chairman Shelby. Let me get into disaster modeling with you
just a little. In addition to building technologies, the
National Institute of Building Sciences also helps develop
technologies to estimate the impact on natural disasters. One
of these projects is the NIBS Multi-Hazard Loss Estimation
Model. This technology could help localities plan appropriate
mitigation activities in order to reduce the future losses from
natural disasters.
Could you share with the Committee some of the activities
you witnessed at the local level in terms of disaster
mitigation? I know you are not coming from the hurricane area.
You might have tornadoes up in Michigan; I am not sure. Are
there additional tools that could be developed by NIBS which
could help communities plan for natural disasters?
Mr. Hardiman. Mr. Chairman, I believe that various regions
have different threats, and certainly, we do have those in
Michigan as well, and there are those threats all across the
United States. I believe a real key is utilizing the
information that is available, and certainly, the National
Institute of Building Sciences provides good information that
can help municipalities. But I also believe that a key, and we
did this in Kentwood, was we would go through and exercise
every year to make sure that we were prepared. And then, the
key is to execute, once there is a disaster, and I believe that
emphasizing that, emphasizing the communication between the
State, the county, and the local governments as well as the
Federal Government in making sure that that will be executed
when there is a disaster is also very key.
Chairman Shelby. That is good.
Gentlemen, I do not have any other questions. We have two
votes coming up on the Senate floor. I appreciate your
appearance. I appreciate your willingness to serve. It is a
great honor, and we will try to expedite your nominations out
of the Committee to the Senate floor as soon as possible. The
hearing is adjourned.
[Whereupon, at 12:05 p.m., the hearing was adjourned.]
[Prepared statements, biographical sketches of nominees,
and additional material supplied for record:]
PREPARED STATEMENT OF SENATOR WAYNE ALLARD
I would like to thank Chairman Shelby for convening the Committee
this morning to consider pending nominations. I appreciate the
opportunity to learn more about the nominees' backgrounds, as well as
their intentions for their agencies.
First, I would like to welcome James Lambright, who is nominated to
be President of the Export-Import Bank. With this Committee currently
considering reauthorization of the Export-Import Bank, it is especially
important to have strong leadership in place, and his experience will
be helpful.
Next, I would like to welcome Armando Bucelo and Todd Farha, both
of whom are nominated to the Board of Directors of the Securities
Investor Protection Corporation. The Securities Investor Protection
Corporation has recovered $14.2 billion in assets for 624,000 investors
when brokerage firms closed due to bankruptcy or other financial
problems.
Finally, I would like to welcome our third panel, comprised of Jon
Rymer, nominated to be the Inspector General for the FDIC; John Cox,
nominated to be the CFO for HUD; and William Hardiman, nominated to be
on the Board of Directors for the National Institute of Building
Sciences. As Chairman of the Housing Subcommittee, I am particularly
interested in the position of CFO at HUD. HUD administers billions of
taxpayer dollars, and I have been concerned by the length of time that
this key position has remained vacant.
Our nominees bring outstanding private sector credentials to their
positions, and I appreciate their willingness to enter or remain in
public service. I encourage them to remain focused on results and
outcomes, rather than processes. I look forward to your testimony.
----------
PREPARED STATEMENT OF JON T. RYMER
Inspector General-Designate
Federal Deposit Insurance Corporation
May 16, 2006
Chairman Shelby, Ranking Member Sarbanes, and Members of the
Committee, it is my great honor to have been nominated by President
Bush for the position of Inspector General (IG) of the Federal Deposit
Insurance Corporation (FDIC). I am privileged and humbled by the
opportunity to appear before this Committee today. I would like to
thank the Members of the Committee and their staffs who met with me as
I prepared for this hearing. I would also like to thank former FDIC
Chairman Powell for his expression of confidence in me. Finally, and
importantly, I want to acknowledge and offer my heartfelt thanks to my
wife and son for their commitment and support during my career.
Mr. Chairman, as you and the Members of the Committee are well
aware, the responsibilities of Inspectors General are defined by the
Inspector General Act of 1978, as amended. This Act requires all
Inspectors General to supervise and coordinate audit and investigative
activities; prevent and detect fraud and abuse in agency programs; and
make recommendations to senior management aimed at improving the
economy, efficiency, and effectiveness of programs and operations.
Additionally, the Inspector General at the FDIC investigates fraudulent
activities associated with FDIC-supervised institutions, federally
insured financial institution failures, and the recovery of assets
after insured institutions fail. The FDIC IG is also responsible for
keeping the Congress, the FDIC Chairman, and the Board of Directors
informed of problems and corrective actions within the Corporation. If
confirmed, I will use my experience as a banker, an auditor, and a
soldier to fulfill these responsibilities to the best of my ability.
As a banking executive, I have held leadership roles in projects
and activities ranging from running major business units to mergers and
divestitures, systems conversions, and business and strategic planning.
Along with many of these positions came management and leadership
responsibilities for hundreds of employees.
During my years with a big four accounting firm, I provided
services to scores of banking clients on matters of process
improvement, assurance processes, and internal auditing. My clients
ranged from international banks to community banks, thrifts, and credit
unions. As a result, I understand banking operations and am familiar
with the concerns of bankers and customers alike.
I also take pride in my 25 years of service in the active and
reserve components of the U.S. Army. I have learned that it is a
special privilege and honor to serve the United States. I have also
learned that it is a serious duty requiring vigilance and integrity.
I appreciate the vital role that the FDIC plays in insuring
deposits and helping ensure the safety and soundness of our banking
system. I am also keenly aware of the growing globalization and
complexity of the financial services industry, the importance of
protecting consumers, and the many challenges and potential threats to
the stability of the banking system. If confirmed, I will capitalize on
my past experience and commit to providing the strong, independent
oversight of the FDIC envisioned by the IG Act. I will also look
forward to working with the Congress and the other leaders of the FDIC
to preserve the public trust and confidence in the banking system that
has endured since the Corporation's creation in 1933.
In closing, Mr. Chairman, I thank you and the Members of the
Committee again for allowing me to appear here today. This concludes my
prepared statement. I would be pleased to respond to any questions that
you or other Members of the Committee may have.
----------
PREPARED STATEMENT OF JOHN W. COX
Chief Financial Officer-Designate,
U.S. Department of Housing and Urban Development
May 16, 2006
Chairman Shelby, Senator Sarbanes, and distinguished Members of the
Committee, my name is John Cox. I thank you for the privilege to appear
before the Committee today as it considers my nomination to serve as
Chief Financial Officer of the U.S. Department of Housing and Urban
Development. I want to thank you and all the Members of the Committee
and your staffs who have met with me over the past weeks.
I would like to thank President Bush and Secretary Jackson for
giving me the opportunity to serve our country. I am humbled and
honored by this appointment. Second, I want to thank my family, many of
whom are here today. I want to recognize my wife Sally and daughter
Kate who have been very supportive of me in this process. I want to
also recognize my mother and father, Jo and Wallace Cox. We are blessed
to have other family members and friends who have traveled to be here
today.
My great-grandparents moved to Texas in the late 1800's. They were
sheepherders and lived first in a dirt dugout. They moved to my
hometown of Haskell, Texas and purchased a home in the early 2000's. My
grandfather purchased his first home for $2,500 in the late 1920's. I
vividly recall my grandmother telling me how she was in tears when she
learned that he had borrowed funds to purchase their first home. She
was concerned that she had not been frugal enough with the family
budget. My father paid $6,500 for their first home in 1963 and was
advised by the banker that, no offense, but he was the proud owner of a
$4,000 lot and a $2,500 home. I purchased a home in Houston that was
guaranteed by FHA. Mr. Chairman, I only wish I could say that in 2006 I
found a similarly priced home in the district!
I graduated from Texas A&M University with a bachelor's degree in
accounting. My first job was for Ernst & Young LLP. Subsequently, my
15-year career at BMC Software in Houston, Texas prepared me well for
the role I hope to assume at HUD. BMC is a New York Stock Exchange
company with $1.5 billion in revenue and operations in fifty countries.
My team prepared and monitored expense budgets and sales forecasts,
prepared and reviewed audited financial statements, prepared and
presented quarterly management scorecards to the board of directors,
and managed a billion dollar securities portfolio. As the Chief
Financial Officer at BMC, I was responsible for the implementation of
Section 404 of the Sarbanes-Oxley Act of 2002. As Chairman of the Audit
Committee of the Board of Benchmark Electronics, Inc., I had the
fiduciary responsibility of ensuring that our shareholders could take
comfort in knowing that Benchmark's internal controls were adequate. I
have also served on Benchmark's nominations and governance and
compensation committees. Benchmark is a New York Stock Exchange company
with annual sales in excess of $2 billion.
If confirmed, I will ensure that as the Department moves toward
implementation of OMB Circular A-123 (the Federal Government equivalent
of Sarbanes-Oxley Section 404), our focus is on improving the process
and efficiency of government. I am confident my experience as an
executive sponsor on numerous large, complex IT projects shows that I
can manage projects effectively, within scope and on budget. Updated,
modernized financial systems are critical to HUD's success in meeting
the President's management agenda.
My goals for HUD include working to improve internal controls,
improving the timeliness and effectiveness of our financial reporting
leading to both ``clean'' financial statements as well as improved
decisionmaking by the Department's program heads, implementing FFMIA
compliant financial systems and improving HUD's metrics on the
President's management agenda. There is a lot of work to do and, if
confirmed, I look forward to getting started.
In closing, I realize that Washington can be a very partisan city.
But HUD's goals of providing Americans opportunities to increase
homeownership, promoting decent affordable housing, and strengthening
communities are issues that all of us can support, regardless of party.
If confirmed, I look forward to working with the President, Secretary
Jackson, and Congress to ensure that this mission is accomplished. I am
proud to do what I can in public service.
Thank you, Mr. Chairman, Senator Sarbanes, and all Members of the
Committee for your time and consideration of my nomination.
I am pleased to answer any questions you may have.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]