Hearing of the Senate Banking, Housing and Urban Affairs Committee - The State of the United States Economy and Financial Markets

Statement

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SEN. ELIZABETH DOLE (R-NC): Yes. Thank you, Mr. Chairman.

First, I certainly want to echo the favorable comments that we've heard this morning regarding GSE reform. I've been a sponsor of that legislation -- co-sponsor with Senator Hagel and I'm very pleased to hear the strong support. And I hope we can move on that expeditiously.

Chairman Cox, since the passage of Sarbanes-Oxley, there've been a number of complaints from smaller companies, from financial institutions, with regard to Section 404 and the burdensome nature of compliance, especially from the financial institutions because they're heavily regulated.

Has there been any thought of easing the Section 404 requirements for these institutions?

MR. COX: Most definitely, Senator. In fact, both at the Securities and Exchange Commission and at the Public Company Accounting Oversight Board, which implements the audit rules for S-Ox 404 we have taken upon ourselves to slay the 404 beast.

It has been, more than any part of Sarbanes-Oxley, the subject of criticism both here in the United States and abroad -- not so much because of what Congress intended this provision to do but because of the way that it was implemented.

And so to begin with, the SEC issued guidance for companies that had not existed before -- the companies were having to use the guidance that was intended for auditors -- so that they could be their own internal assessment without the auditors under 404(a).

And second we repealed entirely the long and cumbersome and very extensive auditing standard that had been adopted under very urgent conditions right after the passage of Sarbanes-Oxley Audit Standard Number 2 and replaced it with something that is shorter, simpler, more principles-based, top-down, risk-focused, guided by materiality and scaled to companies of all sizes.

That is now going to kick in for this year and we're going to have a cost study -- we do have a cost study underway at the SEC to make sure that it's working as we intended.

Finally with respect to the smaller public companies we have on multiple occasions extended their time for compliance and we have just done so one more time into 2009.

SEN. DOLE: Thank you.

Secretary Paulson, on January 24th, Business Week reported that sovereign wealth funds were the main topic of the Davos, the World Economic Forum talks. This has been mentioned already this morning, but I wanted to get you reflect on this a moment because I know that some countries like Norway have a more transparent investment process while other countries like China and Russia have less so.

What is the current status of the Treasury's work in this area with appropriate international entities to come up with a way that these funds can be at least more transparent or better understood?

SEC. PAULSON: Senator Dole, thank you very much. We're quite focused on this topic. And like Chairman Cox says, this -- although they are a growing part of the capital markets in terms of their size, on a relative basis, they're still fairly modest.

But we are quite focused and what we're focused on is to make sure that what they're driven by is commercial and economic purposes -- we've had a history for many, many years with sovereign wealth funds and for the most part they are driven by getting, you know, a higher risk adjusted return. They're driven by economic purposes.

We at Treasury have spent a lot of time meeting with the sovereign wealth funds -- we had a breakfast at Treasury where we had 25 or 30 of them there and they all assure us that they're driven by economic intent. But our purpose there is to come up and we're encouraging IMF to work with them and others to come up with a set of business practices, best practices, principles, whatever that have to do with governance, that have to do with transparency that will help them convince so many of the countries that are going to be the recipients of their investment that their intent is for economic purposes.

And again, I want to reiterate what Chairman Cox says -- in this country we welcome foreign investment. That is the highest vote of confidence anyone can pay is to make a direct investment in our economy. We want to be welcoming to that investment but we also want to be vigilant.

SEN. DOLE: Thank you very much.

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