WASHINGTON — Republican lawmakers sharply questioned Treasury Secretary nominee Jack Lew on Wednesday, asking him to detail his role at Citigroup in the lead-up to the financial crisis and his views on a range of banking issues.
Sen. Orrin Hatch, R-Utah, took the lead in asking about Lew's involvement with several Citi securities that are alleged to have been misleadingly marketed. Lew served as chief operating officer in the bank's global wealth management business and its now-failed alternative investments unit from 2006 to 2009.
Lew repeatedly defended his work with the bank, saying his job was to manage budget operations of the business unit, not direct its investments.
"I was not in the business of making investment decisions," said Lew, the White House chief of staff. "I was certainly aware of things that were going on. Working at a financial institution I learned a great deal about financial products. But I wasn't designing them, and I wasn't opining on them."
Lawmakers also pressed Lew on his Citi compensation for 2008, including a $940,000 bonus paid the day after the firm accepted a bailout under the Troubled Asset Relief Program.
"Explain why it might be morally acceptable to take close to a million dollars out of a company that was functionally insolvent and about to receive about a billion dollars of taxpayers' support," said Sen. Chuck Grassley, R-Iowa.
Lew responded that he was "an employee in the private sector compensated in a manner consistent with other people."
"I'll leave for others to judge," Lew said.
For all the questions, however, the Republicans failed to draw blood from the nominee, who generally appeared calm and unflappable, making it all but certain he will be confirmed.
"Frankly, I think you've done really well today," Hatch told Lew near the end of the almost three-hour hearing.
Still, the hearing elicited some views from Lew on key financial services issues, where he has been mostly a blank slate until now.
Asked about the Treasury Secretary's role as chair of the Financial Stability Oversight Council, Lew told Sen. Pat Toomey, R-Penn., that there must be a balance between too much regulation and too little.
"I think we need to very much be attentive to all regulations, particularly in an area that's as important to the economy as the financial services area," Lew said. "I think we also have to be attentive to the costs of the failure to regulate appropriately that we saw in 2008 and 2009, the enormous loss of economic power in this country because of the financial crisis."
Sen. Maria Cantwell, D-Wa., meanwhile, pressed Lew about his views on bringing back the Glass-Steagall Act, a depression-era law repealed in 1999 that separated the activities of commercial and investment banks.
Lew ultimately disagreed with some critics who have argued that the law should be reinstated to avoid another financial crisis, urging instead that new rules designed for the modern financial era would be a better fit.
"Glass-Steagall has over the years become something of an anachronism, and much of the activity in the financial world has gotten beyond it," he said. "I think the problems we had leading up to the financial crisis were evidence that our financial regulatory system did not keep pace with the complexity of the financial system."
Lew also praised Dodd-Frank for addressing many of the regulatory gaps made evident by the crisis.
"I think Dodd-Frank was a critically important step in reasserting proper regulatory oversight … and I think as we go forward we have to ask questions as we complete the implementation of Dodd-Frank," he said. "Are there more actions that are needed? And do those actions make sense in 2013? … I don't think it's just the resuscitating a 1930s statute, it's a question of what do we need to do to manage the challenges."
The nominee also fielded several housing policy questions, saying he would continue to keep an eye on the spate of housing rules released by regulators this year, including the qualified mortgage rule, as well as the separate qualified residential mortgage rule, which has yet to be finalized.
"The QRM rule is really designed to make sure that we don't get back into a situation where institutions create risk to the system, or create the risk that the taxpayers will have to come in and bail out failed institutions," Lew said. "I would work on these issues going forward to make sure that the goals are achieved with the least burden possible."
In addition, he lent his support several times during the hearing for a bill to allow more homeowners to refinance, an issue that Obama raised in his State of the Union address Tuesday night.
"Right now, you've got homeowners who are locked into 6%, 7%, 8% mortgages when they should be able to get 3 ½% or 4 % mortgages," Lew said. "We ought to be able to do that on a bipartisan basis."
Lew also tackled concerns over "too big to fail" raised by Sen. Sherrod Brown, D-Ohio, who said large banks continue to receive a funding advantage in the marketplace because of the perception they will be bailed out.
"One of the jobs of FSOC is to eliminate the market's expectations that the government will serve as a backstop in the event of failure," Brown said.
But Lew said the administration has already grappled with that issue, both in Dodd-Frank and through a suggested tax on the largest institutions.
"Dodd-Frank dealt with 'too big to fail' and on top of that, we think there should be a fee on large money center banks to approximate the risks they presented in the past," Lew said.
Brown said the administration may need to rethink its position once the Government Accountability Office completes a study on why big banks have a lower cost of funds than small or mid-sized institutions.
"If GAO finds these subsidies exist, will you commit to working with Senator [David] Vitter and me to take further steps to eliminate that government subsidy, that government support for these megabanks?" Brown asked.
Lew, who at times seemed confused by exactly what Brown was seeking, said the administration would take another look at the issue once the report was out.
"I'll be happy to follow up with you, Senator, and understand the GAO report and work on having a system that appropriately encourages smaller banks to have the opportunities that they should have," Lew said.