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S. HRG. 111–73

THE IMPACT OF ECONOMIC RECOVERY EFFORTS
ON CORPORATE AND COMMERCIAL REAL ESTATE LENDING

HEARING
BEFORE THE

CONGRESSIONAL OVERSIGHT PANEL
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION

MAY 28, 2009

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THE IMPACT OF ECONOMIC RECOVERY EFFORTS ON CORPORATE AND
COMMERCIAL REAL ESTATE LENDING
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S. HRG. 111–73

THE IMPACT OF ECONOMIC RECOVERY EFFORTS
ON CORPORATE AND COMMERCIAL REAL ESTATE LENDING

HEARING
BEFORE THE

CONGRESSIONAL OVERSIGHT PANEL
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION

MAY 28, 2009

Printed for the use of the Congressional Oversight Panel

(

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WASHINGTON

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2009

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CONGRESSIONAL OVERSIGHT PANEL
PANEL MEMBERS
ELIZABETH WARREN, Chair
SEN. JOHN SUNUNU
REP. JEB HENSARLING
RICHARD H. NEIMAN

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DAMON SILVERS

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CONTENTS
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Opening Statement of Hon. Elizabeth Warren, Chair, Congressional Oversight Panel ............................................................................................................
Statement of Richard Neiman, Member, Congressional Oversight Panel ..........
Statement of Hon. John E. Sununu, Member, Congressional Oversight Panel .
Statement of Damon Silvers, Deputy Chair, Congressional Oversight Panel ....
Statement of Hon. Jerry Nadler, U.S. Representative from New York ..............
Statement of Hon. Carolyn Maloney, U.S. Representative from New York .......
Statement of Til Schuermann, Vice President, Bank Supervision, Federal
Reserve Bank of New York .................................................................................
Statement of Richard Parkus, Head of CMBS and ABS Synthetics Research,
Deutsche Bank Securities, Inc. ...........................................................................
Statement of Jeffrey Deboer, Chief Executive Officer, The Real Estate Roundtable .......................................................................................................................
Statement of Kevin Pearson, Executive Vice President, M&T Bank ..................
Statement of Mark Rogus, Senior Vice President and Treasurer, Corning
Incorporated ..........................................................................................................

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THE IMPACT OF ECONOMIC RECOVERY EFFORTS ON CORPORATE AND COMMERCIAL
REAL ESTATE LENDING
THURSDAY, MAY 28, 2009

U.S. CONGRESS,
CONGRESSIONAL OVERSIGHT PANEL,
New York, NY.
The Panel met, pursuant to notice, at 10:09 a.m. in the Rosenthal Pavilion at New York University, Elizabeth Warren, Chairman
of the Panel, presiding.
Attendance: Professor Elizabeth Warren [presiding], Mr. Richard
Neiman, Senator John Sununu, Damon Silvers, Representative
Jerry Nadler, Representative Carolyn Maloney, Dr. Til
Schuermann, Richard Parkus, Jeffrey DeBoer, Kevin Pearson, and
Mark Rogus.
The Chair. The hearing of the Congressional Oversight Panel
will now come to order. And is this mike turned on? Can we hear
okay? Good. All right. Not good feedback.
Welcome to today’s hearing, ‘‘The Impact of Economic Recovery
Efforts on Corporate and Commercial Real Estate Lending.’’
My name is Elizabeth Warren, and I am the chair of the Congressional Oversight Panel. I would like to begin this morning by
thanking my colleague Richard Neiman, who is the superintendent
of banks of the State of New York. He and his staff put in extraordinary efforts to help us arrange this hearing, and we are very
grateful for his time and for his expertise in pulling together this
hearing.
I also want to thank Patrick McGreevy of the Congressional
Oversight Panel staff who, once again, has done a wonderful job for
us in being able to put one of these field hearings together.
And I particularly want to thank New York University School of
Law for hosting us here, for giving us this space so we could have
this hearing.
So with thanks to everyone, I want to start with Superintendent
Neiman and ask him to make opening remarks.

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STATEMENT OF RICHARD NEIMAN, MEMBER,
CONGRESSIONAL OVERSIGHT PANEL

Mr. NEIMAN. Thank you very much, Chair Warren.
Good morning, and I thank you all for appearing here today at
this important hearing of the Congressional Oversight Panel on
corporate and commercial real estate lending.
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I would also like to thank Congresswoman Maloney and Congressman Nadler for their participation here today. Although I am
much more accustomed to being on the other side of the witness
table when attending hearings with them, I am thrilled that they
could fit today’s hearing into their busy schedules.
Their roles on the House Financial Services Committee and Congresswoman Maloney’s role as chair of the Joint Economic Committee make them both directly related to the topics we are discussing here today, and their attendance emphasizes the importance of the issues for New York.
Finally, I also would like to again thank New York University for
providing this beautiful venue.
When we sometimes speak of the financial crisis, it is as if it
were one event, when really it is a cascade of multiple crises that
overlap and reinforce a downward trend. This panel has been seeking input on these various crises through field hearings across the
country. In Nevada and Prince George’s County, Maryland, we focused on the foreclosure crisis. Last month in Milwaukee, Wisconsin, we focused on small business lending.
Now we are here in New York to examine the effect of continuing
market uncertainty on mid-size and large corporations, as well as
the commercial real estate borrowers. The purpose of today’s hearing is to assess both credit availability and the impact of the recession on borrower demand. And to do this, we will explore questions
such as are banks continuing to lend to these important sectors,
and how are their underwriting and other credit lending practices
changing?
Is the credit contraction driven more by supply or by demand?
How is the freeze in the securitization market affecting credit access, and to what extent can bank lending fill that gap? How will
the markets adapt? What will be the new normal in credit markets? What will they look like? What is the impact that the Treasury and the Federal Reserve programs, such as TALF, having or
are expected to have in restoring stability for corporate and commercial lending?
Can we expect to have a wave of defaults in commercial real estate lending? And if so, will it be another tsunami like residential
subprime? And finally, what will be the ultimate impact of a slowdown in commercial lending? What impact will it have on our communities? What does this mean for jobs and for economic development opportunities?
These are difficult issues with moving parts, and we are fortunate to have a diverse group of leading experts here today to offer
their testimony. On our first panel, we are going to have Til
Schuermann, the vice president in risk management of the Fed,
who will provide us a comparison to past recessions, as well as an
overview of the exponential growth in non-bank credit and the impact of bank lending.
Richard Parkus from Deutsche Bank’s analysts group will explore the drivers of default in commercial real estate lending, as
well as the volume of loans at risk.
On our second panel, Kevin Pearson, executive vice president,
M&T Bank, will be offering a lender’s perspective on credit trends
and the unique role that regional banks play in this sector.

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Jeffrey DeBoer, the CEO of the Real Estate Roundtable, will discuss the impact of the credit contraction and the recession on real
estate borrowers and developers.
And then Mark Rogus, senior VP and treasurer of Corning, will
also provide insight into the impact on large corporations, as well
as the reduced credit access of the impact of their customers and
suppliers.
So I want to thank each of you for your participation this morning and look forward to hearing your perspective and thoughts on
the issues we will be discussing this morning.
The corporate and commercial real estate lending markets are
facing serious challenges. However, unlike the subprime crisis in
residential mortgages, in this case, we have the opportunity to anticipate what is coming and address the issues before it becomes
an even bigger crisis. We have a narrow window in which we can
take action and avert the worst. Time is of the essence.
Through this hearing, I am hopeful that we will gain a much
deeper understanding of the complexities and the scope of the
issues impacting corporate and commercial lending. We all hear
that commercial real estate is the next shoe to drop, but what we
want to know here is how big is that shoe and how big a dent is
it going to make?
And I am particularly interested in measuring the effectiveness
of Treasury’s programs to date. So, building on that assessment, we
must begin exploring the additional steps Treasury and Congress
can take to mitigate the developing problem and ensure that these
sectors continue to fuel our economy.
So thank you, and I look forward to hearing from both our distinguished witnesses.
[The prepared statement of Mr. Neiman follows:]

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The CHAIR. Thank you, Superintendent Neiman.
Senator Sununu.

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STATEMENT OF HON. JOHN E. SUNUNU, MEMBER,
CONGRESSIONAL OVERSIGHT PANEL

Senator SUNUNU. Thank you, Madam Chair.
And thank you, Richard, and your staff, for helping to put together the hearing today. I know it took a lot of work and a lot of
cooperation from the staff in Washington working with you, and
pleased to have that.
We have got really three terrific panels, beginning with Congressman Nadler and Congresswoman Maloney, who I know have
done a tremendous amount of work on these issues. Not just since
the initiation of the current financial crisis, but these are issues
that they are familiar with, that they have worked on before because they represent what is still the financial capital of the world
and what we certainly hope remains the financial capital of the
world.
I think this hearing is particularly important because while we
read about the residential mortgage crisis in the newspapers every
day, falling asset prices and foreclosures, we really don’t hear as
much about problems and challenges in the commercial and industrial and commercial mortgage-backed securities markets. It hasn’t
been quite as visible in part because a lot of the problems that people expect to emerge and anticipate emerging really haven’t been
forced to the surface.
And I think we will hear about some of the reasons for that
today. We will get a better understanding of the risks that exist in
the marketplace and, I hope, explore some of the ways in which the
TARP programs that have been put into place might help to deal
with those risks and uncertainties.
I think it is essential that we have strong, accurate, clear data
and information for the panel to work on in preparing its assessments for Congress and the Treasury because we can’t just work
on anecdotal information. Even when stories do appear and there
is discussion in the mainstream press about challenges in the commercial and industrial markets, we can’t just try to collect a bunch
of news stories and assume that that really represents the precise
state of the market.
So having witnesses from the Fed, having witnesses from industry, having witnesses from the commercial banking sector is absolutely important and essential for the panel to be able to do its job
effectively. As the chair is fond of saying, the plural of anecdote is
not data. And——
Senator SUNUNU [continuing]. If nothing else, I have incorporated that into my own lexicon because we have seen time and
time again, whether we are dealing with the consumer markets,
credit card markets, small business lending, we need to make sure
we are all working from accurate information and accurate data if
we are going to be able to draw a reasonable conclusion.
So, again, I appreciate all the staff work necessary to put together a strong field hearing, and I look forward to the testimony
this morning.
Thank you, Madam Chair.

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The Chair. Thank you, Senator.
Mr. Silvers.

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STATEMENT OF DAMON SILVERS, DEPUTY CHAIR,
CONGRESSIONAL OVERSIGHT PANEL

Mr. SILVERS. Thank you, Madam Chair.
Good morning, and like my fellow panelists, I want to express my
thanks to New York University for providing us with this beautiful
space, to the staff for their hard work in what promises to be a
highly informative hearing, and in particular, to my fellow panelist
Richard Neiman, who put a great deal of time and energy into putting this hearing together here in his home State.
We are honored today by the presence of two leaders from New
York’s congressional delegation—Representative Carolyn Maloney,
the chair of the Joint Economic Committee of Congress, and Jerry
Nadler, the representative from here in Manhattan, who has been
a leading voice on behalf of the public interest in commercial law
in the Congress of the United States.
This hearing is unusual in the brief history of the Congressional
Oversight Panel. In each of our past field hearings, we have heard
from American families, from homeowners, from small business
people, and community bankers who have done much to educate
this panel as to the impact of the financial crisis and the Emergency Economic Stabilization Act, known to most Americans as the
financial bailout.
But today, we hear from an S&P 500 company, one of our 25
largest banks, the Real Estate Roundtable, and the Federal Reserve Bank of New York. Yet this witness list is entirely appropriate.
One key measure of whether our financial system is functioning
is whether large-scale enterprises, be they firms or real estate development projects, can obtain financing on reasonable terms in relation to the risks those projects represent.
If such financing is not available, then existing jobs disappear,
and new ones are never created. Innovation does not happen.
Urban centers turn into parking lots and vacant lots. Investors liquidate and take losses on what should have been viable investments, adding to the downward pressure on our economy and our
capital markets.
The financial crisis poses two threats of this kind. As my colleague Richard Neiman alluded to, the financial crisis is not a single thing. It is a complicated set of intertwined phenomenon.
The first type of threat it poses is the threat of a general loss
of confidence in financial institutions and financial markets. We
faced an acute threat of this type in September and October of last
year, and judging by a number of measures, such as the persistence of historically high short-term credit spreads and the prolonged freeze in asset-backed securities markets, fear of this type
has not entirely gone away.
And this type of generalized fear can lead both to skyrocketing
credit costs and the simple disappearance of liquidity from credit
markets such that credit is not available at any price. However,
thanks in part, I believe, to the actions taken under the Emergency

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Economic Stabilization Act, the threat of systemic breakdown has
eased significantly.
The second threat, though, is much more specific. It is the threat
posed not by a general loss of confidence, but by the actual weakness of key large financial institutions. This problem is more insidious because, unlike a general credit crisis, it can be hidden—hidden by accounting tricks, hiding by compliant regulators, hidden
even by well-meaning policymakers.
But weak financial institutions in survival mode will not provide
credit directly and will not participate in asset-backed securities
markets to the extent that our economy needs. The possible resulting downward pressure on markets such as commercial real estate
can lead to further weakening of bank balance sheets, resulting in
a long-term banking crisis feeding economic stagnation, such as occurred in the 1990s in Japan.
And while we have seen the stress test results and the debates
associated with those results, in a way, the real measure of the
health of the banks is are they playing their role in the credit system appropriately?
What makes answering this question such a challenge is determining what constitutes appropriate credit provision in the context
of a burst credit bubble and rapidly declining demand for credit.
Appropriate credit provision is not the same thing as maintaining
or reviving a bubble fueled by the collapse of underwriting standards.
The written testimony we have received for this hearing, which
is very thoughtful, nonetheless presents something of a paradox.
On the one hand, we have the cautious optimism expressed by the
written testimony of Mr. Schuermann from the Federal Reserve
Bank of New York. On the other hand, we have somewhat urgent
warnings in relation to the commercial real estate market coming
from the analyst reports of Mr. Parkus of Deutsche Bank and, to
a lesser degree, from Mr. DeBoer from the Real Estate Roundtable.
And the Treasury Department’s most recent bank lending survey, conducted in March, shows continuing contractions in bank
lending, both commercial and industrial and in commercial real estate.
Anecdotally, although as my colleague Senator Sununu says, it
is not data, we still have anecdotes. I hear from people in the real
estate business that credit remains simply not available for large
new projects or for refinancings.
I also read stories like the account in the New York Times recently of the fate of Hartmarx, a significant New York State employer and the manufacturer of President Obama’s suits. Wells
Fargo, a major TARP recipient, was reported to be in a mode of favoring the certain lower returns and job losses associated with liquidation over the less certain higher returns and job preservation
associated with a sale to a continuing operator.
I hope that this hearing will sort out these paradoxes and help
our panel better understand the current state of business and commercial real estate credit markets and the role played in those
markets by TARP recipient institutions, both directly and indirectly through the asset-backed securities markets.
I look forward to our witnesses’ testimony.

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[The prepared statement of Mr. Silvers follows:]

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The CHAIR. Thank you, Mr. Silvers.
STATEMENT OF ELIZABETH WARREN, CHAIR,
CONGRESSIONAL OVERSIGHT PANEL

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The advantage of going last in the opening statements is that I
have the privilege of agreeing with my colleagues. And I cannot let
the moment pass without agreeing with Senator Sununu about the
importance of accurate and detailed information.
Data are critical not only because we can’t design programs accurately if we don’t know what is going on. It is really the case that
we can build a meaningful recovery only if we build it on reality.
So I hope that is an important part of this hearing today.
I also want to agree with Superintendent Neiman and with Mr.
Silvers about the point about the interconnected economy here.
This crisis may have begun with subprime mortgage lending. What
that meant, as people defaulted on their mortgages was that banks
got into a great deal of trouble and started to stumble. They cut
back on their lending. That, in turn, meant that businesses cut
their inventories and their employees, which, in turn, meant that
there were fewer people who could afford to pay their mortgages.
This is something that economists call an adverse feedback loop,
thus proving that they deserve tenure. The rest of us just call it
a vicious cycle. But either way, it means a lot of suffering for a lot
of people.
So today, what we are going to talk about is a continuation of
a series of field hearings we have had, the current state of corporate and commercial real estate lending. And what I really want
to focus on here today is how this slowdown in lending affects even
those of us who have never owned a business, never leased a building, and never made a loan. We all should care enormously about
the data that we will talk about today and what comes out of this
hearing.
[The prepared statement of Ms. Warren follows:]

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I want to start this morning with Congressman Nadler. It is a
great privilege to welcome you here. I have known Congressman
Nadler for a very long time and hold his work, particularly in the
area of family and small business economic security, in the highest
regard. And so, I ask you if you would make some remarks, please,
sir.

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STATEMENT OF HON. JERRY NADLER, U.S. REPRESENTATIVE
FROM NEW YORK

Representative NADLER. Well, thank you very much. And thank
you for holding this important hearing and for inviting me to testify.
I first want to welcome you to the 8th Congressional District,
which includes Wall Street, the physical and symbolic center of the
Nation’s financial services industry. The district stretches from the
Upper West Side of Manhattan through downtown into Coney Island and the neighborhoods of Southwest Brooklyn. All of these
communities have, whether directly involved with Wall Street or
not, felt the current financial crisis acutely.
I also want to thank, as members of the panel have, NYU Law
School, not only for arranging these facilities for us this morning,
but for hosting my son as a student at the law school.
Today, we are here to look into the real-life impact of the crisis
and how Federal legislators can do better to guide the recovery
process, make it more efficient and transparent, and maximize its
success. Congress created this panel to ensure that there would be
an independent watchdog able to account for $700 billion that Congress made available to stabilize the financial system.
It is critical that we understand whether this money is really
making it easier for families and businesses to obtain credit on fair
terms. If financial institutions are saved, but families and businesses continue to founder, then the TARP legislation will have
been a failure. The need for this panel and its work are vital.
I would urge the panel to continue to fulfill its entire mandate
as set out in Section 124 of the bill that established it, which requires that, in addition to monitoring the use of the funds made
available by Congress, the panel should analyze ‘‘the current state
of the regulatory system and its effectiveness at overseeing the participants in the financial system and protecting consumers and provide recommendations for improvement, including recommendations regarding whether any participants in the financial system
markets that are currently outside the regulatory system should
become subject to the regulatory system, the rational underlying
such recommendation, and whether there are any gaps in existing
consumer protections.’’
These are important questions, and Congress added them to your
legislative mandate for a reason. The fact is that while the TARP
funds may have begun to stabilize the financial system, a vitally
important purpose of the law, it is clear that the benefits are not
going to all of the players in our credit markets.
As your reports have rightly pointed out, consumers and small
businesses are not experiencing the kinds of benefits that Congress
had intended. As was said a moment ago, loan credit is still in a
contractionary situation. And despite Senator Sununu’s abjuration

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about the use of anecdotes, I will provide one anecdote from very
near here.
A few weeks ago, I was talking to the executive director of the
LGBT Center, which is a few blocks from here. The LGBT Center
is a charitable institution. It is a nonprofit institution and gets a
considerable amount of funding from earmarked funds from State
and local governments. And putting the controversy over earmarks
aside, it gets these funds earmarked by name to the LGBT Center
on West 13th Street in the State budget that passes by April and
in the city budget that passes by June.
So it gets $4 million or $5 million a year, something on that
order of magnitude. And the funds are not available from the budgets that are passed in April and June until November or December.
And they typically take out bridge loans, bridge loans against city
and State receivables guaranteed by name in the budget, and can
no longer do so.
This institution tells me they can no longer get bridge loans suddenly for no reason against earmarked funds in the city and State
budget for a period of six months. That tells me something is very
wrong with the credit market. It is not real estate, but something
is very wrong with the credit market when a nonprofit institution
cannot get a bridge loan against a receivable earmarked in the
budget by name, guaranteed by law, guaranteed within the fiscal
year by law, unless the city or the State goes bankrupt.
So we have some work to do on getting the banks to extend credit on reasonable terms in reasonable situations. And I hate to generalize from that, but that seems a very apropos anecdote.
In some cases, further legislative action has been necessary. For
example, the recent enactment of the Credit Card Accountability,
Responsibility, and Disclosure Act of 2009, principally sponsored by
my colleague sitting to my left, Ms. Maloney, was a response to the
increasing hardships imposed by the credit card industry on borrowers.
It is unconscionable that the industry should be the recipient of
billions of funds in taxpayer assistance while at the same time
making things even harder on consumers. In the future, Congress
must continue to act if taxpayers are not realizing substantive benefit from these expenditures.
I would also urge this panel to continue to look at the effectiveness of foreclosure mitigation efforts and the effectiveness of the
program from the standpoint of minimizing long-term cost to the
taxpayers and maximizing the benefits for taxpayers—that is a direct quote—as required under Section 125. It is a great disappointment to me that Congress has so far failed to reform the bankruptcy code to allow individual debtors to modify mortgages secured by their family homes, just as the owners of vacation homes,
investment properties, factories, and family farms may now do.
So far, the voluntary system of mortgage modification has been
a stunning failure. Recently, Congress established a number of programs that would use taxpayer funds to help modify mortgages.
There is no reason why the cost of a bad loan should not be apportioned among the parties to a transaction gone bad.
Nonetheless, since 1978, families have been singled out in bankruptcy as the only debtors for whom modification is categorically

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unavailable. Union contracts can be modified. Other secure debts
can be modified, but not mortgages.
In view of the aid the banking industry has been receiving, from
cash to increased deposit insurance to a variety of other goodies,
I believe it is unacceptable for us to continue to allow this anomaly
to continue.
Now I want to talk a bit more broadly. I do not believe that the
current plan that has been advanced under the TARP legislation,
I do not believe it will work to get the credit flowing. I will associate myself with the criticisms of that plan by economists such as
Paul Krugman, Joe Stiglitz, Bob Kuttner, and James Galbraith,
and others who say the plan simply will not work.
To quote from a recent article by Bob Kuttner, ‘‘Instead of closing
or breaking up failed banks, dividing the losses between taxpayers
and bondholders, and getting the successful banks quickly back to
health, the Treasury is propping up the incumbent banks. Worse,
it is doing so with convoluted schemes backed by loans from the
Federal Reserve and guarantees against losses from the Treasury.
The hope is that the speculators will bid up the value of toxic securities on banks’ books. This policy is likely to prolong the agony
and leave a still-wounded banking system dragging down the real
economy.’’
I believe that to be accurate. I don’t see how this plan—unless
you assume that the toxic assets are worth a lot more than they
seem to be, I don’t see how this plan can work. What we should
do instead—and I want to advance two propositions—is, one, either, as has been urged—I am not going to go into it because all
of these economists have urged it at great length—we should do
what the FDIC normally does and as I quoted from Bob Kuttner
a moment ago. This has been called nationalizing the banks,
though that is a misnomer. But doing what was normally done, we
are still doing every day today with smaller banks so as to get
credit flowing again.
Alternatively, if we are to insist on continuing on the path we
are on, I want to suggest one of two alternative paths of action in
addition to what we are currently doing because I believe that
doing what we are doing is going to continue with weak banks for
a long time, not advancing credit, and stymieing the economy.
If we are going to continue doing that, we ought to do something
in addition. And what we ought to do in addition is either one of
the two following things. One, take a large amount of money, and
I am just taking this figure out of the air, $100 billion—but that
order of magnitude—and form brand-new banks.
Or two, announce that the Federal Government is going to capitalize brand-new banks, invite the private sector in for private investments. There is plenty of available capital now. There is a
shortage of investment opportunities. The savings rate is suddenly
sky high after about 30 years when that wasn’t true.
Invite in private capital. I would anticipate that the private capital might exceed the Government capital by a factor of 4 or 5.
These banks can then, unburdened by toxic securities, lend at a
ratio of perhaps 10 or 12 to 1, as they normally do. You can get
credit flowing in the economy again. I have not analyzed the effect

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that that would have on the existing banks, but at least it would
get credit flowing again.
And the Federal Government and the banking system, the State
banking systems, could give help in setting up those new private
banks. And after an appropriate period of time, the Federal Government could sell its capital for presumably a profit, but the economy will not be hamstrung by lack of credit because these new
banks will not have to worry about the problems inhibiting the existing large banks from functioning. That is from functioning as
sources of credit.
Alternatively, if that is too radical a suggestion, take a very large
amount of money—$50 billion, $100 billion—and fund existing,
fund 100 or 200 existing. I have no idea what those numbers
should be. It is off the top of my head. But fund existing small and
regional banks that have not engaged in the orgy of speculation
and the derivatives and don’t have the toxic assets on their books,
banks that have done the traditional boring banking and let them
continue to do traditional boring banking, but with a larger capital
base and much greater penetration.
So that these banks, which are functioning now, which are profitable, which are good banks, can become bigger banks with an infusion of Federal dollars that can then be sold for a profit later. But
at least these banks then, without forming new banks, would presumably supply a lot of credit to the system while you figure out
what to do with the Bank of America and the Citigroups and the
other banks that have these so-called toxic assets on the books.
And I think unless we do something along these lines, either
change our policy along the lines of Krugman and Stiglitz, et al.,
or supplement the policy by forming new banks or funding existing
smaller banks, you are not going to see credit, and we are going
to have another Japanese lost decade, but it will be called the
American lost decade.
Moving forward, we need to maintain real oversight as our plan
unfolds and the economy recovers. We need comprehensive regulatory reform in order to stave off the next financial catastrophe.
We need to take away from this experience a lesson I had thought
the Nation learned in 1929, that sound regulation in markets is
necessary to maintain stability. That markets are fine, but they
cannot function on an even keel without proper regulation.
We do know that this crisis is real and immediate. Our recovery
is directly dependent on the Federal Government’s expert management and oversight of the TARP and on getting credit flowing
again, which I do not believe the current plan is doing. And this
can only be achieved with total transparency as we move forward.
Again, I thank the panel for its crucial work.
The CHAIR. Congressman, thank you very much. Lively, as always.
Thank you.
Representative NADLER. Thank you.
The CHAIR. Now I want to welcome Congresswoman Maloney,
fresh off her victory last week of the passage of the credit card
holders’ bill of rights.
Congressman Maloney has proven both that she has foresight
and that she is a fighter. She took on a fight that many believed

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2 years ago, 3 years ago was completely unwinnable. And as I understand it, there was a ceremony in the Rose Garden on Friday,
signing the bill that she has championed into law.
So, Congresswoman Maloney, thank you very much for being
here. Welcome, and we welcome your remarks.

srobinson on DSKHWCL6B1PROD with HEARING

STATEMENT OF HON. CAROLYN MALONEY, U.S.
REPRESENTATIVE FROM NEW YORK

Representative MALONEY. Well, thank you, Chairwoman Warren,
for your leadership not only on this oversight panel, but you were
a voice in the wilderness for many years on the need for credit card
reform. I read your papers with great interest. They inspired me
in my work, and you were talking about these abuses long before
the Federal Reserve issued, in response to my legislation, a report
calling them abusive, deceptive, anti-competitive, and totally unfair.
So it was a long battle, but Professor Warren, you were one of
the first voices and a great leader in it. And if anyone should have
been in the Rose Garden on Friday, it should have been you, Professor Warren. But I am sure you were probably working on this
new need to move our economy forward.
I am very proud of the work of the Superintendent of the great
State of New York Neiman for holding this hearing and inviting me
to speak today on this topic of great importance. Your leadership
in so many areas, not only on this board, but with our whole financial system, has been terrific.
And all of the members, I join my colleague Jerry Nadler in
thanking NYU for what they do for our communities and our students. My daughter joins his son as a proud graduate of NYU Law
School and is now practicing law.
And I just want to begin on how very important this is, and I
agree with Mr. Sununu, you shouldn’t have anecdotes. You should
have the scientific data. But I must tell you that in the district that
I represent, some of the most respected businessmen of great accomplishment, of great standing in the business community, they
are all telling me that the access to commercial credit is absolutely
frozen, that you cannot get it anywhere and that it is a crisis condition.
The amount of concern that I am feeling from the stakeholders
in this area is equivalent to the anti-terrorism risk insurance proposal that we needed to get our economy moving in New York.
Jerry and I fight every day in response to 9/11. But of all the programs that the Government provided, the most important in terms
of getting our economy moving was the Government support, which
gladly they have never had to tap into, of the anti-terrorism risk
insurance program.
We could not even build a hot dog stand until that program was
put in place. And what I am hearing from the industry is that if
something is not done, that there will be a total collapse in this
area with loss of jobs that Mr. Silvers so adequately expressed in
his opening statement.
The problems that lenders and borrowers are facing in the commercial real estate market have been overshadowed by the persistent crisis we have been grappling with in residential mortgages.

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But we are coming to an absolute critical juncture as many commercial real estate mortgage loans, issued at the height of the real
estate bubble, are coming due for refinancing.
As we all know, a well-functioning commercial real estate market
depends on the ability of mortgage holders to refinance because
commercial real estate or CRE loans are often not self-amortizing,
that is paying off the principal during their term. They are subject
to large balloon payments at the close of the payment period. Refinancing is critical to meeting these obligations, as tenant rent payments are often not sufficient to cover the payment.
However, in this highly constrained credit market that we now
live in, even borrowers with performing CRE loans who have equity
in their properties report to me that they are having trouble getting refinancing. It is simply not there. Then there are the many
borrowers whose commercial mortgages are underwater because
the property simply isn’t worth today what they paid for it a few
years ago.
To be sure, data on the commercial real estate market offer a
mixed picture. According to figures released by the Federal Reserve, 66 percent of domestic banks reported falling consumer demand for CRE loans, a trend that started in the third quarter of
2006.
But these statistics do not tell the whole story. At the same time
that banks are reporting falling demand, more banks have reported
tightening credit standards on commercial real estate loan applications. In the past three months alone, two-thirds of banks say their
CRE loan standards have tightened.
Surely stringent credit requirements have had an effect on suppressing demand, most notably by dampening enthusiasm for investing in commercial property in the first place. The commercial
real estate time bomb is ticking. An estimated $400 billion in commercial real estate debt is set to mature this year, with another
$300 billion due in 2010.
If mortgagers are unable to refinance or otherwise pay these
large balloon payments, we could expect to see the default rate
climb much higher than the current 6.4 percent reported by commercial banks in the first quarter of this year. That, in turn, translates into potentially crippling bank losses that our recovering financial system is still too fragile to withstand, even with the news
that banks have raised or announced some $50 billion in new private capital since the release of the stress test results.
Doing nothing is not an option because this looming crisis in
commercial real estate lending could lead to an all-too-familiar predicament, where banks suffer significant losses, major owners of
hotels and shopping centers are forced into bankruptcy, foreclosed
properties push commercial real estate prices further downward,
and a perfect storm of all these forces combine to inhibit prospects
for a sustained economic recovery and result in greater job loss.
In response, the Federal Reserve last week announced that it
would extend the TALF, the Term Asset-Backed Securities Loan
Facility, to include both new and legacy commercial mortgagebacked securities. They are putting up, I understand, roughly $100
billion for these loans, and they urge—my constituents urge that
it be for at least a 5-year period that you can get this because most

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of their commitments are 3, 5, 7, 10 years, and 3 years is simply
not enough.
I think the timing is very interesting. You have organized this
important hearing, and right before it, they have announced the access to the TALF program. So I congratulate you for being on top
of a pressing issue in our country.
I do want to say that the regulations have not come out, which
has many people mystified as how they apply, how they can move
it into their business model. In other words, the Fed will issue
loans secured by both existing loans as well as new ones. In expanding the eligible collateral for TALF loans, the Fed said this
step was intended not only to restart the secondary market in commercial-backed securities, but indirectly to encourage CMBS originations, including refinancing.
The soon-to-be-launched public-private investment program will
also provide an additional source of demand for legacy commercial
mortgage-backed securities. I applaud these efforts by the Federal
Reserve and the Treasury, but at the same time, we need to be
very cautious of a potential problem first noted by the special inspector general for the TARP program.
He has pointed out that if private parties are allowed to buy legacy assets through the PPIP program and then sell them to TALF,
taxpayer exposure to losses will be increased with no corresponding
increase in taxpayers’ share of profit. I believe that the Treasury
and Federal Reserve should guard against this possibility in order
to preserve the integrity of both the TALF program and the PPIP
program and to safeguard taxpayer dollars.
With that in mind, I would say that the effects of TALF and
PPIP on the commercial mortgage-backed securities market should
be monitored very closely. We need to see if these programs help
to restart this important market. If they do not, we may need to
consider additional measures to aid the commercial real estate
market.
I thank you for this opportunity. I would like to just respond to
some issues raised. On the FDIC insured banks, the Financial
Services Committee on which I serve is now reviewing legislation
to expand that program to non-bank entities so that there is a reasonable way to confront these crises, as we have been able to do
with FDIC-insured banks.
I would also urge you to have a similar hearing on housing and
the housing market. That is likewise frozen. And as long as real
estate is in a downward spiral, we will not recover. As almost every
economist has said, if we do not get a hold on the downward fall
of real estate values, we will not dig our way out of this recession.
And we have come forward with various proposals, but we have not
really taken the necessary steps to move forward.
I also know from all of the reports that credit is still not moving
into the communities in a way that it should. I have even had leaders from the private sector come and say, similar to what my colleague said, why doesn’t the Government just put a bank out there
someplace with strong underwriting requirements where we can
get access to capital? It is still not flowing.
And many ideas have come forward that any additional money
be required to go into the communities and providing jobs and pro-

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viding it, but a hearing I would request on real estate and also the
access to capital, which my constituents in reports are showing is
still not available.
I want to thank you very much for your efforts here today. I believe your body is Government at its best, looking at problems, trying to anticipate them and provide appropriate leadership to Congress, being a voice for change and what we should be—pointing
out what needs to be done. And we thank you very much, and I
am honored to have this opportunity to speak before you today.
Thank you.
The CHAIR. Thank you very much, Congresswoman. Thank you
very much, Congressman. We appreciate your being here today.
Thank you.
Mr. Schuermann and Mr. Parkus, if you could take your seats,
please?
Dr. Schuermann, Mr. Parkus, you have both been introduced earlier by Superintendent Neiman. We also have your written statements, which will become part of the official record. You are going
to see a little timer. To the extent you can, we would like to hold
the oral part to 5 minutes each so that we have more time for questions and more time for interaction.
I understand you are going to be presenting data, though, and
we are not going to shortchange that. So thank you very much.
Dr. Schuermann, would you like to start.

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STATEMENT OF TIL SCHUERMANN, VICE PRESIDENT, BANK
SUPERVISION, FEDERAL RESERVE BANK OF NEW YORK

Dr. SCHUERMANN. Yes, thank you.
Members of the panel, thank you for giving me the opportunity
to discuss with you some of the recent trends in commercial lending and especially the role banks have played and are playing in
the provision of credit to this important sector.
My name is Til Schuermann. I am a vice president of the Federal
Reserve Bank of New York. I wish to preface my remarks by noting
that they do not reflect the official views of the Federal Reserve
Bank of New York or any other component of the Federal Reserve
System.
In early 2007, just before the crisis hit, U.S. commercial banks
had $10 trillion of assets on their balance sheets. About 60 percent
was composed of what we may think of as traditional banking assets in the form of loans and leases. And of that, about $1.2 trillion,
or 20 percent, was in the form of commercial and industrial or C&I
lending, and about $1.4 trillion, or 24 percent, in commercial real
estate or CRE lending, the topic of today’s hearing.
Meanwhile, the sum total of assets in other important non-bank
intermediaries, such as finance companies, the Government-sponsored enterprises, investment banks, and importantly, issuers of
securitized non-mortgage assets, such as auto loans, credit card receivables, student and small business loans, was over $16 trillion.
So when one adds provision through corporate bonds and commercial paper, one realizes that—how is that?
The CHAIR. That is better.
Dr. SCHUERMANN. Good. So when one adds credit provision
through corporate bonds and commercial paper, one realizes that

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commercial banks have provided only about 20 percent of total U.S.
lending since the early ’90s. In the four decades prior, banks’ share
was closer to 40 percent. So the rise of market-based instead of
bank-based credit provision in the last 20 years has been substantial and important.
But banks play a critical role as shock absorbers to the financial
system. So when times are good, borrowers and investors, so those
that need and those that supply funds, seem content to move outside the safety net of the regulated banking system.
So when a shock hits, however, those investors return to the
safety of banks. And firms, in turn, draw down their loan commitments they have in place for a rainy day. So credit assets, such as
auto loans, small business loans, credit card receivables, and some
commercial real estate, that once were easily securitized and
moved off of bank balance sheets into the capital markets now remain on bank balance sheets and, therefore, use up scarce lending
capacity.
So, in short, banks intermediate when the markets don’t or can’t.
And what we see is a flight to banks. And at the same time, there
is a limit to how much banks can reintermediate in place of markets, and that limit is typically dictated by capital.
Capital is a constraint on banks’ balance sheets, meaning their
lending capacity, even in good times. We impose minimum capital
standards on banks as a buffer against unexpected losses. Where
banks extend credit, regulators and market participants expect
that they will have ample capital standing behind those commitments.
But during the crisis, banks have been confronted with a perfect
storm as those very same assets moving onto bank balance sheets,
as well as loans and securities already on banks’ portfolios, face increased risk of credit deterioration and losses, especially if we experience a prolonged and a deep recession.
So banks have been playing this role of shock absorber in times
of capital market disruption for decades. In this way, they helped
the markets weather the storm in the fall of 1998, following Russia’s sovereign bond default and the demise of the hedge fund
LTCM. And during the darks days of September and October 2008,
just 10 years later, banks faced an unprecedented demand on their
balance sheet capacity. So that by the end of 2008, bank balance
sheets had swelled to over $12 trillion from $10 trillion just at the
dawn of the crisis.
There are, however, some important differences from 1998 and
especially so for C&I and CRE lending. Aside from the obvious and
the immediate, which is that the financial crisis is just far more
severe than the turmoil experienced in the fall—in the few months
in the early fall of 1998, we are now in the midst of what many
consider to be the worst recession since World War II.
We want banks to expand credit, but not at the expense of credit
quality. And indeed, lending patterns follow the trends of the overall economy so that during recessionary times when demand for
credit naturally declines, so does bank lending.
It may take some time for bank lending to rebound to pre-recession levels. In the last two recessions, both of which were milder
and shorter than the current one, it took at least 5 years to restore

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C&I lending to pre-recession levels. And so, the charts that accompany my statement and that I have up here on the easel demonstrate this pattern quite vividly.
So the first chart, the top one, shows weekly C&I lending since
1985 and with the recession periods shaded in. You notice the current one isn’t quite—we don’t know when it is going to end. Lending peaks as one enters the recession and then declines, continuing
to decline even after macroeconomic growth resumes.
The second chart below indexes the very same data to 100 at the
beginning of the respective recessions and follows lending for 5
years, or about 250 weeks. So, in contrast to the previous two recessions, the current recession actually saw an increase in bank
C&I balances during the fall of 2008. So just into the recession.
So this reflected the onboarding of off-balance sheet assets by
banks, as well as the drawing down of loan commitments by firms
with a latter effect being especially strong from mid-September to
late October of 2008, where you see that spike just going up quite
dramatically.
So this ballooning of bank balance sheets exactly reflects the
reintermediation we expect during a time of financial turmoil. But
it was not until early 2009, one year into the current recession,
that we started to see the more typical recessionary pattern of balance sheet decline.
But if the two previous recessions are any guide, and to be sure,
they were milder and shorter than the current one, we may well
experience a period of more modest lending at banks before credit
demand picks up. And this decline will likely be due to a combination of bank capital constraints and reduced market demand for
banks loans.
Now capital injections from both private investors and the Government very likely helped significantly in enabling banks to play
this important shock absorber role during the current crisis. So not
only were banks faced with a sudden and unprecedented demand
for balance sheet room, but they were beginning to experience
heavy write-downs on loans already made with a prospect of still
further write-downs to come.
The additional capital raised by the banking system in the course
of 2008 and, more recently, in 2009 has given banks a buffer
against future losses, as well as lending headroom that is badly
needed in light of the drawdown of commitments that banks have
experienced.
The result of the recently completed bank stress test has greatly
reduced the uncertainty about just how much capital is needed for
the largest banks to weather this storm and to continue to play
their credit reintermediation role while capital markets slowly open
up again.
Now the disruption of non-bank lending and investment within
the last 18 months has hit commercial real estate especially hard.
Commercial banks have typically provided less than half of the
credit consumed by this market. Commercial mortgage-backed securities, or CMBS, make up about a quarter of CRE lending and
with the rest coming from life insurers, thrifts, GSEs, and other financial institutions.

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CMBS issuance has plummeted from over $300 billion in 2007 to
well under $50 billion in 2008. Banks have picked up some of the
slack. So here, too, just like in C&I lending, banks are
reintermediating credit where the capital markets have shut.
Now banks cannot pick up all the slack. Reinvigorating the capital markets to intermediate between the supply and demand for
credit is clearly very important. The Federal Reserve’s Term AssetBacked Securities Loan Facility, or TALF, is designed to help with
this process by providing financing for the securitization of consumer assets. So, for example, auto loans, credit cards, student
loans, and small business administration loans, as well as some
CMBS. And as a result, spreads on consumer asset securitizations
have already started to narrow.
Now, to be sure, this, like other Government programs, is not
meant to replace private markets, but rather, TALF and similar
programs are designed to help restart markets by providing some
price transparency.
Bankers are starting to see some green shoots. The Federal Reserve’s Senior Loan Officer Opinion Survey suggests that while the
supply of credit remains tight, the extent of tightening has abated
in recent quarters. One closely watched indicator of banks’ appetite
of extending credit is the net percent of loan officers reporting
tightening standards for approving new loans.
After more than a year and a half of steady tightening, the net
percent of loan officers reporting tightening standards for loans to
large- and medium-sized firms reached an unprecedented peak of
84 percent in the fourth quarter of 2008. Since then, however, the
tightening has fallen for two consecutive quarters down to 40 percent in April.
The tightening in standards for approving CRE loans has also
abated, though not as dramatically. The net fraction of lenders reporting tightening standards for CRE dropped from a peak of 87
percent in the fourth quarter of 2008 to 66 percent in 2009.
The CHAIR. Dr. Schuermann, can we bring it to an end? I just
want to make sure we have time for questions.
Dr. SCHUERMANN. Sorry, I shall. Yes.
The CHAIR. And we are at about double our time here.
Dr. SCHUERMANN. Twenty seconds, and I will be done.
The CHAIR. You bet.
Dr. SCHUERMANN. Thank you.
So the supply of commercial credit remains tight, but just as
clearly, the extent of tightening is abating. But the same cannot be
said for loan demand. The same survey reports that the net fraction of loan officers reporting weaker demand in April 2007 was 60
percent for C&I and 66 percent for CRE.
So, in sum, while green shoots may be sprouting in bank lending
for commercial purposes, real estate or otherwise, it is really premature to start planning for the harvest. The combination of acute
stresses in financial markets together with stresses on bank balance sheets in the middle of the worst recession in a generation
should caution us from believing that recovery is just around the
corner.
Thank you, and I apologize for going over my time.
[The prepared statement of Dr. Schuermann follows:]

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The CHAIR. No, not at all. Thank you, Dr. Schuermann.
Mr. Parkus.
Pull the mike close. It is not as sensitive. There you go. It is on.

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STATEMENT OF RICHARD PARKUS, HEAD OF CMBS AND ABS
SYNTHETICS RESEARCH, DEUTSCHE BANK SECURITIES, INC.

Mr. PARKUS. Chairwoman Warren——
The CHAIR. Could you pull it a little closer?
Mr. PARKUS. Sure.
The CHAIR. I know it is a nuisance, but——
Mr. PARKUS. Oh, okay.
The CHAIR. Thank you.
Mr. PARKUS. Madam Chairwoman and distinguished members of
the panel, my name is Richard Parkus. I am a research analyst
working at Deutsche Bank Securities here in New York. I have
been employed by Deutsche Bank since 1998, and my specialty is
in providing coverage for the securitization markets, including the
commercial mortgage-backed securities market.
It is a privilege for me to testify at this important hearing to explore the current state of commercial and industrial lending and to
discuss the effectiveness of Government efforts to restart credit
markets.
My testimony today will focus on three research reports that I
recently published. The first report, published on April 23rd of this
year, titled, ‘‘The Future Refinancing Crisis in Commercial Real
Estate,’’ addresses what we believe will be a widespread refinancing problem for commercial mortgages over the coming decade.
The other two reports, both published in May of this year, provide our views on the likely efficacy of the TALF programs, both
for legacy CMBS and for new issue CMBS. All three of these reports have been provided to the panel as my written submission.
Before addressing my research, I must note that the views I express here today are my own and do not necessarily represent
those of Deutsche Bank or any of its staff members.
It will be useful to begin with a few words about the size and
structure of the commercial real estate debt market. The total market is approximately $3.4 trillion in size, with the CMBS market
making up about 25 percent, banks and thrifts about 50 percent,
and insurance companies 10 percent.
Commercial mortgages are non-recourse loans secured by income-producing properties—offices, shopping centers, hotels, et
cetera. Most commercial mortgages have 3- to 10-year terms. At
maturity, the loan balance is typically between 85 and 100 percent
of the initial balance, depending on whether or not the loan amortizes.
Thus, at maturity, the borrowers must repay an amount which
is not much below the initial loan amount. In the vast majority of
cases, borrowers do this by refinancing. That is, by taking out a
new loan that is large enough to allow them to pay off the old loan.
In cases where the value of the property has declined significantly since the loan was originated, the borrower may not be able
to qualify for a new loan large enough to cover the maturing loan.
In such circumstances, the end result is often maturity default,
where the lender forecloses on the loan and liquidates the property.

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Now to the future refinancing problems in commercial mortgages. As in most other credit markets, underwriting standards
weakened significantly in commercial real estate debt markets
from 2005 through 2007. Weakening underwriting standards, combined with widespread availability of cheap financing and high leverage, helped drive commercial real estate prices up nearly 60
percent between 2004 and the market’s peak in mid 2007.
As the credit crisis took hold and intensified during 2008 and
2009, underwriting standards tightened dramatically. The allowable leverage plummeted, and the cost of credit, i.e., credit spreads,
skyrocketed.
The combination of these three factors alone has, in our view,
caused commercial real estate values to fall by at least 25 to 35
percent from their peak levels in 2007. In addition to this, declining rents and rising vacancy rates have pushed commercial real estate values down a further 10 to 15 percent. Thus, values have now
fallen by 35 to 45 percent and may well fall further, particularly
in certain markets.
As a result, many commercial mortgages, particularly those originated during the 2005–2007 timeframe, will simply not qualify at
maturity to refinance into a mortgage sufficiently large to pay off
the existing mortgage. The lender will then be faced either with
foreclosing on the loan and liquidating the property or granting the
borrower a maturity extension.
The question is what proportion of loans are likely to face this
situation when they mature? Is this a small problem, or is this a
large problem?
Our research studies this question purely within the CMBS market because that is the only segment of the commercial real estate
debt market where there exists a wealth of data for virtually every
loan. Our conclusion is that this is likely to be a big problem, a
very big problem.
We believe that within CMBS, as many as two-thirds of the outstanding commercial mortgages may face problems refinancing at
maturity over the coming decade. In dollar terms, as much as $400
billion of commercial mortgages in CMBS securitizations may have
refinancing issues.
Recall now that CMBS is only 25 percent of the commercial real
estate debt market. There is, in addition, more than $1 trillion of
commercial mortgages in bank portfolios, and this excludes almost
$600 billion of construction loans, by far the riskiest category of
‘‘commercial’’ mortgage debt, as well as $200 billion of multi-family
loans, another risky category.
In our view, even the core commercial mortgages in bank portfolios are likely to be at least as risky as those in CMBS and possibly much riskier. If one simply extrapolates the scale of the potential problem in CMBS to commercial mortgages in bank portfolios, the conclusions are daunting.
Of the $1.3 trillion of commercial mortgages in CMBS and bank
portfolios maturing over the next 5 years, more than $800 billion
may well have trouble refinancing. Moreover, in our view, the
granting of maturity extensions by lenders is unlikely to provide a
solution to this problem.

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We strongly support the efforts of the Fed and Treasury with respect to both TALF for legacy CMBS and TALF for new issue
CMBS programs and believe that they are likely to help improve
the liquidity in and functioning of commercial real estate finance
markets. We stress, however, that neither program is likely to significantly impact the future refinancing problems outlined above.
These refinancing problems are the result of loans failing to qualify for refinancing due to massive price declines and a paradigm
shift in the underwriting standards. They are not the result of illiquid and poorly functioning credit markets.
I thank you again for this opportunity to share my admittedly
less than rosy assessment, and I am happy to take any questions.
[The prepared statement of Mr. Parkus follows:]

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The CHAIR. Good. Thank you very much, Mr. Parkus. I appreciate it.
If we can, I am just going to move to the questions quickly. And
as much as you can keep your questions short—this is always
hard—we appreciate it, just so everyone gets a chance to ask as
much as we can.
I would like to start with a question about the stress test. We
are working on this now for our report. It has certainly been in the
news.
One of the issues that I am concerned about and hope you might
speak to, given the kind of data you are talking about in particular,
Mr. Parkus, but also you, Dr. Schuermann, is the question of the
length of time that should be in the stress test projections. We are
trying to understand the riskiness and effect in the banking system
right now, and that is not only for the purposes of understanding
our own exposure, but also for purposes of trying to attract new
capital.
But no one thinks that at the end of 2010, the game stops. The
notion is it is going to go forward. So in light of the data you are
talking about, do you have concerns about whether the stress test
has appropriately captured the period of greatest risk?
Mr. Parkus.
Mr. PARKUS. Chairwoman Warren, I have to admit I am not—
I do not have expertise in the details of the stress test. I do, however, understand the timeframe for the stress test was, I believe,
3 years. And that, if that is the case, that would, in my view, be
fairly short, as many of the mortgages that we are looking at do
not mature for quite a while, and losses in commercial real estate
and defaults often tend to be very what we refer to as ‘‘backended.’’ They tend to occur well into the life of the mortgage.
The CHAIR. Right. Actually, let me just ask you this on a data
question as we do this. I was reading—your reports are very good,
but often the data are cumulative. I take it, though, that you have
them on year-by-year maturity dates?
Mr. PARKUS. I do.
The CHAIR. So that it is possible, in effect, to model out what the
wave looks like.
Mr. PARKUS. Exactly. We do that in a very precise way.
The CHAIR. And might we be able to have access to some of those
data if we have further conversations about it?
Mr. PARKUS. Absolutely.
The CHAIR. That could be very helpful, I think, on this very question.
Dr. Schuermann, would you like to add anything?
Dr. SCHUERMANN. Sure. The stress test scenario was a 2-year
scenario through the end of 2010. But my colleague is correct in
saying that there is an implicit third year because we thought
about—part of the stress test looked at provisions for loan losses
or expected loan losses for the following year. So, in that sense, it
is taking into account sort of a longer horizon than just 2 years.
The CHAIR. Do you have concerns, in light of Mr. Parkus’ data,
that we may be stress testing the wrong end of the curve or at
least not the most worrisome end of the curve?

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Dr. SCHUERMANN. While I am not an expert in commercial real
estate, some of the poor underwriting occurred late—much like in
other parts of the real estate business, occurred late in the recent
cycle. So that would be in ’04, ’05, ’06.
So typical maturities for these loans are 5 years. So that still
takes us into, a bulk into the tail end of the period that the stress
test took into account. For sure, there are going to be some of the
losses that will occur after this horizon, but I think I feel comfortable that a sizable portion of the commercial real estate exposure was, in fact, taken into account in the stress test.
The CHAIR. Well, Mr. Parkus’s data may help us with that.
Dr. SCHUERMANN. Indeed.
The CHAIR. Yes.
Could I ask a question about your testimony? Another data based
question, if you will indulge me. You write in your testimony that
one closely watched indicator of banks’ appetite for extending credit
is the net percent of loan officers reporting tightening standards for
approving new loans.
After more than a year and a half of steady tightening, the net
percent of loan officers reporting tightening standards for loans
reached an unprecedented peak of 84 percent in the fourth quarter
of 2008. You noted since then, however, the net percent for tightening has fallen for two consecutive quarters to 40 percent.
What I don’t understand is exactly how this is calculated. So
each time, you ask a loan officer are you loosening, staying the
same, or tightening? If everyone has tightened, 84 percent have
tightened, and then let us just say most of them stay the same and
40 percent, whether it is 40 percent of the 84 or some overlapping
or the ones who didn’t tighten last time tightened, that doesn’t
seem to me that things are getting better.
It only seems to me that things are getting better when we have
reports of loosening standards. And I am not seeing that. I am seeing your—you seem to be celebrating the fact that there are fewer
who are tightening, but if they have left it just as tight as it was
in the preceding quarter, I am not quite understanding how that
improved things. Perhaps you could enlighten me?
Dr. SCHUERMANN. So I actually am not, by any means, an expert
on this survey. I don’t know exactly how those nuances are calculated.
The pattern, though, that we are seeing is, in essence, fairly typical of recessions is that there is the sort of peak tightening and
then slow loosening well into the recession. It takes a while before
reduced tightening. It takes a while before actual loosening happens. But the trend is certainly there that loosening, I don’t know
if it is just around the corner, but——
The CHAIR. Well, I am not seeing anything in your testimony
about loosening yet. So if you have more data on that——
Dr. SCHUERMANN. There is no loosening yet.
The CHAIR [continuing]. That could be valuable. Good.
Senator Sununu. Thank you.
Senator SUNUNU. Thank you.
If there is a silver lining, maybe it isn’t that things are getting
worse, but that they are worsening at a slower rate.
The CHAIR. Because they are already so bad?

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Senator SUNUNU. When we look at the relative growth of C&I,
you have got two previous recessions, 2001 and the ’90–’91 recession. In those past recessions, how much of that decline was driven
by the constriction of supply, the tightening standards, and how
much of it was demand driven?
Dr. SCHUERMANN. You know, this is one of the most difficult
questions any economist faces in doing empirical work is trying to
tease apart because what you see is prices moving and quantities
moving. What you don’t see is, is that due to supply shifts or demand shift?
So I don’t know the answer to that question, but what is clear
is that both play a very important role.
Senator SUNUNU. I think it is fair to say that the initial objectives of the TARP, and the CPP in particular, was to establish
some basic level of stability in the financial markets as a precursor
for more normal operation. And I think that some credit has to be
given to the CPP for, again, stabilizing the situation, especially in
November and December of last year.
But now we are trying to understand whether and when the
markets begin to operate more normally, and I appreciate that you
can’t tell how much of that is supply driven and how much of it
is demand driven. But what metrics would you look at as good criteria for determining whether our credit markets, and C&I in particular, are operating more normally?
Dr. SCHUERMANN. So there are several metrics that are at our
disposal. Pricing is a very important one. Pricing for commercial
lending in the form of corporate bonds, commercial paper—corporate bonds simply being long-term, commercial paper being
short-term borrowing—and also securitizations, securitization of a
variety of assets.
I am looking at the pricing that that commands in the market.
The latter, we are certainly seeing already a decline in the pricing,
a tightening of those spreads. Even after just the announcement of
TALF, there was a tightening of spreads, which continued after the
first couple of deals were completed. So I would look to the market’s data for pricing and spreads, as well as quantity data in
terms of issuance and C&I lending in banks.
Senator SUNUNU. Mr. Parkus, I guess this is in your first report,
and I don’t know if it is an appendix, page 20, some of the latter
parts of the report, you list out all of these deals, deal by deal, and
you show an equity deficiency loss through 2012 and then the lifetime loss.
Now some of the deals—I think this is a vintage 2007, I am not
going to be too specific here. But there are deals that show an equity deficiency of 32 percent, 31 percent, 37 percent. Pretty significant numbers. And lifetime losses for those specific deals of 21 percent, 18 percent, 23 percent. Those are huge numbers, from my
perspective, looking at potential loss of a vintage 2007 deal.
When you put this out, when you released this report, was this
perceived to be new information, relatively new information or a
new analysis? And I am curious to know how the particular holders
of this paper reacted and how markets, more broadly, reacted?
Mr. PARKUS. Senator Sununu, yes. The analysis was considered
to be a new look at a problem that everybody sort of had in the

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back of their mind. However, there are so many problems to confront today in commercial real estate, the problems of refinancing
are easy to brush to the side.
Senator SUNUNU. Did many people try to argue that, well, you
didn’t understand this deal?
Mr. PARKUS. No.
Senator SUNUNU. You didn’t really look carefully enough?
Mr. PARKUS. No, no.
Senator SUNUNU. This is actually a good deal. It is not going to
be 28 percent, but it is really 2 percent?
Mr. PARKUS. No. The interesting thing about the feedback was
that, and I have heard from several hundred people in every—
mortgage brokers, every type of individual investor, people involved
in commercial real estate markets. I have not heard one comment
of disagreement with the basic findings.
I should mention that all this report does is in a very quantitative and highly parameterized way simply look at how many
loans may not—under a very reasonable set of assumptions look
like they will not qualify for refinancing.
Senator SUNUNU. I have one last question.
The CHAIR. Senator, can we be really short?
Senator SUNUNU. Yes. You talk a lot about the fixed-rate CMBS
and the floating-rate CMBS, but you also show debt held by insurance companies and banks and thrifts. I know you didn’t do a detailed analysis, but the comparative underwriting standards for
those deals as well do you think are similar to the ones that you
did look at in detail?
Mr. PARKUS. Yes and no. Insurance company portfolios are comprised of much higher quality on average loans. They tend to be
long-term fixed-rate loans, and for the most part, we believe that
the problems will be much—at a much lower scale for loans originated by insurance companies.
Bank portfolios are a different story. In our view, for a variety
of reasons that I could get into, we view core commercial real estate—and this is quite apart from the construction loans and the
multi-family loans that are broken out—core commercial real estate, in our view, is at least as risky and, in our view, probably significantly riskier.
Senator SUNUNU. Thank you.
The CHAIR. Thank you.
Superintendent Neiman.
Mr. NEIMAN. Thank you.
Mr. Parkus, I would like to follow up on that because I am fascinated by your testimony and your reports, where you indicate
that commercial mortgages held in bank portfolios may be riskier
and more likely to underperform than commercial real estate mortgages held by CMBS. Because, to me, that is counterintuitive to
the extent that you would expect that origination and hold would
have a tighter underwriting standard than an originate-to-distribute model. Could you expand on that?
Mr. PARKUS. Sure. Mr. Neiman, let me just explain that this is
highly conjecture. We don’t know exactly what is in bank portfolios,
and this is one of the problems. In CMBS, we know exactly what

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85
is there. We know every loan characteristic. It is perfectly transparent.
In bank portfolios, we are going on, unfortunately, anecdotal evidence. But some of the principal characteristics that we are basing
our views on are the following. First of all, loans in bank portfolios,
and there is significant difference, differentiation across banks in
this. But loans tend to be much shorter maturities than in CMBS.
CMBS loans tend to be 10-year, fixed-rate loans for the bulk of
the industry. What that means is that most of these loans don’t
mature until ’15, ’16, ’17. You can see that in the graph in the report. There is some maturity, there are some 5-year loans, and
those are maturing over the next few years.
The point about this is that the loans—the shorter the maturity
of the loan, the greater the risk of the loan because the loan was
originated, most of these loans were originated at the peak of the
market, and the shorter the maturity, the more they will be coming
up for refinancing at the trough of the market.
If you had a 30-year loan, we probably would have no problems
here, even if they were IO loans. The horizon is so long. So the maturity term profile is very important.
The second is that bank lending tends to be much more skewed
towards transitional types of properties, properties where in-place
cash flows are currently low relative to projected future cash flows.
A property, which is—say, a property, a new office building, which
is purchased and being renovated, currently, the rent levels are
low. The expectation is within a year or two after the renovation
is complete, you re-lease at higher rent levels.
In many cases, the size of the loan is based on the projected future—the projected higher future cash flows. That is a major problem. If we looked at sort of transitional loans in CMBS, that is the
floating-rate sector, relatively small sector, but a major sector
nonetheless. Almost everything we are seeing now come up for refinancing is defaulting, almost everything at this point.
Mr. NEIMAN. That was very helpful.
You mentioned the expansion of the TALF to impact the maturity default issue in terms of addressing liquidity, but not credit.
I would like you both to kind of comment on how expansion of the
TALF to include CMBS particularly, legacy CMBS, will have on the
impact of credit availability in these markets and particularly on
the CRE likely default and refinancing issues.
Mr. PARKUS. Well, TALF for legacy securities will and has already driven credit spreads in dramatically. With existing what we
view as relatively risk-free AAAs or very low risk AAA securities
out there, if you can imagine AAA securities with very low risk offering 18 percent yields, it is hard to get an investor interested in
buying new loans when he can just buy an existing risk-free AAA
bond at two or three times the yields.
So getting those yields down sort of takes away the alternative
very juicy opportunities. That is the importance of legacy TALF, at
least in my view. Of course, it has the advantage of helping out,
of getting pricing to more rational levels. Right now, there is a tremendous liquidity premium in the market.
TALF for new issue is important for getting new credit. We believe that these are very important and likely to be successful pro-

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86
grams in helping to get mortgage credit flowing, flowing to loans
that qualify. This is the key issue.
This is why the amount of origination may not be a great metric
for is the market working? The market works. I would say the market is not working when mortgage credit is going to loans that
don’t qualify. That was what got us into this problem in the first
place.
And that is why, in my view, we don’t want to see underwriting
standards easing. We want to see them extremely tight for the
foreseeable future. And I believe that that is where they will remain.
Mr. NEIMAN. Thank you.
I also hope that you will both stay for the next panel to hear the
dialogue, and we may want to follow up with you on issues with
this panel and on the next panel.
Thank you.
The CHAIR. Good. Thank you.
Thank you.
Mr. Silvers.
Mr. SILVERS. I would like to turn to commercial and industrial
lending for a moment. Dr. Schuermann, your testimony focused on
the shift from institutional forms of credit to market-based forms
of credit. Could you please explain how that—to what extent that
has occurred in the commercial and industrial market?
And obviously, there has always been a public bond market for
large issuers, but for those issuers that are not able to access that
market, to what extent has that shift occurred in that type of commercial and industrial lending?
Dr. SCHUERMANN. All right. Now that is a very good question.
The shifting from bank-based lending to market-based lending for
C&I has been much longer in forming and much more extensive
through the growth of the capital markets, commercial paper
issuance and corporate bond issuance.
But another form of this intermediation actually is the selling of
loans that the banks do into the capital markets. So bundling up
of loans and selling them. That actually increased more than fourfold from the mid ’90s until about 2007 and, for the first time, declined last year. So that is important in part because even the degree to which banks’ regular intermediation activity is part of the
credit provision process for C&I lending, they also counted on being
able to offload some of these risks from their balance sheet to create additional room by putting them into the capital markets in the
form of direct loan sales.
Mr. SILVERS. What percentage of bank C&I lending was then
subsequently resold during the run-up to the crisis? Do you know?
Dr. SCHUERMANN. Oh, gosh. That is a good question. I don’t have
that, but I can get that for you.
Mr. SILVERS. All right, and then—but my further question is if
you are a business in the market for a commercial and industrial
credit and you are not of the scale to access the bond markets or
the commercial paper markets, which is even a larger-scale enterprise, has there really been, even in the most recent years, an alternative to bank financing and to what degree?

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87
Dr. SCHUERMANN. Well, there has been finance companies that
have been there, and that market actually has grown.
Mr. SILVERS. So what portion would you say they would be of
that market?
Dr. SCHUERMANN. I don’t have that. But again, that I can get for
you.
Mr. SILVERS. What I am trying to get at is would you agree that
really commercial banks have remained the primary source of credit for that portion of the C&I market that can’t access the public
capital markets.
Dr. SCHUERMANN. They are certainly a very important source of
credit for that small business and middle market, the privately
held firms that don’t have sort of a natural other access to either
market, aside from the finance companies.
Mr. SILVERS. And in a way that is, say, quite different from what
has happened in mortgages and credit cards and so forth, where
there has been a move, a very heavy move away from bank financing into credit cards?
Dr. SCHUERMANN. Yes, I think that is definitely fair to say. Yes.
Mr. SILVERS. Okay. That is very helpful. Thank you.
Mr. Parkus, I was very struck by the conclusion of your testimony, where you said that really this is not a liquidity problem,
that the problems in commercial real estate finance are not a liquidity problem fundamentally, but fundamentally, essentially a
question of value.
Am I paraphrasing you——
Mr. PARKUS. That is right, Mr. Silvers.
Mr. SILVERS. A, it struck me they are parallel to the problems
we face in the residential mortgage market, where there is definitely a value issue embedded in everything. But what I wanted to
put to sort of get your thoughts on is what—is there a solution to
the problem that a lot of people lent a lot of money on essentially
unrealistic assumptions? Is there a solution here other than the
fact that those people are going to take a haircut?
Mr. PARKUS. Not in my view. There are no easy solutions to this.
There is no way to—there are very large losses embedded in the
system, and those losses can either be—we can either confront
those quickly, which I think would be by far the best approach. Or
we can let them remain and stagnate in portfolios.
Mr. SILVERS. The stagnation option would, in your view, would
come from a kind of an extending and figuring out ways to extend
the time horizons here?
Mr. PARKUS. Yes, precisely.
Mr. SILVERS. You would view that as a stagnations choice?
Mr. PARKUS. That is right.
Mr. SILVERS. What is the—I think our charge, as I think we were
reminded by our congressional witnesses earlier, our charge is
heavily oriented toward the interaction of the financial crisis with
the real economy, with jobs, with incomes, and so forth. It strikes
me in listening to your testimony that there are kind of several different interwoven problems in your data—that your data highlights.
And I don’t mean problems with your data. I mean the problems
that your data highlight. One problem is the lack of financing—one

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problem is this haircut problem, that there are a lot of loans out
there that can’t be refinanced for good reason, right?
Mr. PARKUS. Right.
Mr. SILVERS. Another problem is that there appears to be, as a
result of all these things, no financing available for existing
projects, in part because of the crowding out problem you alluded
to.
What should we be focused on here? Meaning, should we be expending public resources to try to rescue the existing sort of investors and so forth? Should we be expending public resources to try
to get new projects started, assuming proper underwriting terms?
Do you follow my——
Mr. PARKUS. Yes, I do. I would say that certainly the TALF programs are perfectly suited to getting credit up and running.
I should be clear that there really are two sources of problems
here. There are currently poorly functioning credit markets, particularly in commercial real estate, that is operating now and preventing many loans that do qualify, that do qualify for a mortgage
under the tighter underwriting standards from getting credit.
Those problems will and should be addressed by the existing TALF
programs.
Quite apart from this and what I am addressing in my research
is sort of a problem which is already in the system. It is not—these
results do not rely on poorly functioning credit markets. These are
problems that we have inherited that are in the system already.
Did I address your question?
Mr. SILVERS. Yes, I am well over, and I thank you both.
The CHAIR. Thank you very much.
Thank you, Dr. Schuermann. Thank you, Mr. Parkus.
Both witnesses are excused. We hope we will be able to talk with
you later and have some more questions about data. If you are able
to stay for another half hour, it would give us the option if we have
more questions as we go with the next panel.
Thank you very much. We appreciate your time.
If I could have Mr. DeBoer, Mr. Pearson, and Mr. Rogus, please?
Thank you, gentlemen.
As with the earlier panel, your written statement will become
part of the official record. So I will ask you to hold your remarks,
if you could, to 5 minutes. And I am going to be a bit more aggressive about time just so that we will all have time to ask questions.
Is it ‘‘Mr. De-Bore’’ or ‘‘Mr. De-Beer’’?
Mr. DEBOER. ‘‘De-Bore.’’
The CHAIR. DeBoer. Okay. Mr. DeBoer, could you begin, please?
Mr. DEBOER. Sure.
The CHAIR. Thank you.

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STATEMENT OF JEFFREY DEBOER, CHIEF EXECUTIVE
OFFICER, THE REAL ESTATE ROUNDTABLE

Mr. DEBOER. Thank you, and good morning.
My name is Jeff DeBoer, and I am president and CEO of the
Real Estate Roundtable. We are headquartered in Washington,
D.C.
I am here today to continue to sound the alarm bell. In our view,
the current financial system, the banking system, simply doesn’t

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89
have enough capacity to meet the growing demand for commercial
real estate debt, and that is why there needs to be this reconnection between the loan originating market and the secondary market.
Albeit this reconnection needs to be under new terms, where
there is stronger underwriting, where real values are recognized,
and where there is additional equity. But the process needs to be
moving forward.
The commercial real estate industry today is in deep stress for
two reasons. First of all, from a macroeconomic point of view, unemployment is obviously high and going higher. Consumers aren’t
spending, and people aren’t traveling either for business reasons or
personal reasons. That causes net operating income on properties
to drop substantially, and it is causing property values to drop substantially.
But secondly, and perhaps more importantly, as we have heard
and it is no secret now, that the credit markets are essentially
closed for refinancing existing real estate debt or securing new debt
on properties. This lack of a functioning credit market is putting
further downward pressure on property values and is causing
many commercial property owners to face what we call maturity
default on their loans.
This has and will continue to create great problems for the banking industry, for the system as a whole, and for the economy as a
whole. And that is why this hearing today is very well conceived,
and I congratulate you for doing that.
The size of the problem today is large, and it is getting larger,
and it needs to be addressed. The commercial real estate market
is valued at approximately $6.5 trillion. It is supported by about
$3.4 trillion of debt. As we have heard from the previous panel,
this debt is typically 10 years or less in maturity. Therefore, it is
constantly maturing every year. Just like the flowers hopefully
bloom in the spring, debt matures and hopefully gets refinanced.
We have heard already from Congresswoman Maloney that the
size, we estimate somewhere between $300 billion and $500 billion
of loans, both CMBS and non-CMBS loans that mature this year,
the amount of maturities will explode in the next few years, reaching about $2.6 trillion, we believe, between 2010 and 2012.
We know that the sources of—the primary sources of this credit
are banks and CMBS. About 83 percent of all financing comes from
that, and we know that both of those sources are essentially shut
down. The bottom line is we have a liquidity crisis here that affects
even well-positioned, strong assets, which have good debt coverage
are in a very difficult, if not impossible, situation to get refinanced.
Some people say why should we care? We care because that in
addition to dropping values, the lack of available financing causes
values to drop even further artificially. This, in turn, reduces revenues for local governments that depend on healthy real estate markets to provide the funds for education, road construction, law enforcement, energy planning, and other things that we all like to
have in our communities.
It sometimes surprises people when I report that local governments, on average, require about 50 to 70 percent or get about 50

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to 70 percent of their local budget money from commercial real estate property values and transaction taxes.
Artificially low values also mean fewer transactions. Commercial
property transactions on a year-over-year basis are down about 80
percent. That means fewer jobs at the local level. It means fewer
construction jobs. It means fewer retrofitting jobs. And it means
fewer opportunities for building owners to become more energy efficient and have green jobs.
Importantly, a growing number of Americans have a stake in
commercial real property because of their investments in pension
plans, 401(k) plans, and direct investments in R-E-I-Ts, REITs in
the public marketplace. So, as goes commercial real estate, so goes
jobs, so goes retirement, and so forth.
We like the TALF. We think it will help reconnect the originating market, as has been described. I won’t go into many details
there, maybe in questions. We also like the PPIP. We think that
it will be particularly helpful for legacy assets.
But I do want to underscore one thing that was touched on by
Mr. Parkus.
The CHAIR. If we can wrap up?
Mr. DEBOER. Very quickly, equity is going to be important. In
addition to these programs that you have, we need to find a new
equity source. It is not within your purview to look at it, but there
are restrictions that currently apply only to foreign investment in
U.S. equity, real estate. These need to be reviewed by Congress.
That is where the equity could come from. That is how we can possibly get out of this program.
Thank you very much.
[The prepared statement of Mr. DeBoer follows:]

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The CHAIR. Thank you.
Mr. Pearson.

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STATEMENT OF KEVIN PEARSON, EXECUTIVE VICE
PRESIDENT, M&T BANK

Mr. PEARSON. Good morning, Madam Chair and panel.
I appreciate the opportunity to——
The CHAIR. Could you pull that a little closer?
Mr. PEARSON. Yes. I appreciate the opportunity to speak with
you today.
For those of you that are not aware, M&T Bank is a regional
bank headquartered in Buffalo. We conduct our business primarily
through our main subsidiary, M&T Bank. We have branch operations that span from New York, Pennsylvania, Maryland, Virginia, Delaware, New Jersey, West Virginia, and the District of Columbia.
Jumping right into our commercial lending activities, since that
is the purpose of today, you should think of M&T Bank as a bank
providing the whole spectrum of commercial products and services
to middle-market companies, small business, real estate developer/
operators. We have some specialties within the bank where we
focus on Government banking, as well as healthcare. Broadly
speaking, this has been our focus, as well as our retail side, for
many, many years.
Just to shift to our loan activity, because this is something that
I am sure you would be interested in. Comparing the first quarter
of 2008 to the first quarter of 2009, our commercial balances increased by 4.9 percent. Specific to the New York metro area, our
balances grew by 6 percent.
I would like to comment on the overall lending environment. As
we look out today, we recognize that this is a time when consumer
and business spending and investment is being scaled back due to
the ongoing U.S. recession. We are seeing diminished demand for
commercial facilities across the entire footprint of the bank. This
decrease is consistent with some of the findings that were referenced earlier.
While we have seen a drop in demand, we recognize that a significant number of commercial borrowers have been unable to find
financing because of the pullback, if not outright shuttering, of
many sources of non-bank credit. Collectively, we could refer to
them as the ‘‘shadow banking system.’’
The growth in the secondary market has been significant. As a
frame of reference, in ’78, commercial banks and thrifts held 71
percent of all private, nongovernmental U.S. loans. With the advent of new forms of credit delivery, particularly those tied to the
capital markets and loan securitization, the banking system’s share
of outstanding private sector credit has declined steadily, falling to
less than 40 percent at year end 2008.
Retrenchment of the securitized lending markets, particularly in
terms of commercial real estate financing, is causing some borrower demand to gravitate back toward bank balance sheets. However, many of these loan requests are transactional in nature and
do not fit well within the traditional relationship-oriented focus of
M&T’s community bank model.

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As for lending standards, we continue to approach our lending
activities in the same manner that we have conducted them in recent years. This entails building long-term mutually beneficial relationships with borrowers located generally within our geographic
footprint, lending to credit-worthy businesses and people with
whom we have banking relationships, and limiting nonrelationshipbased activity in markets where we have no branches.
M&T has not significantly tightened lending standards over the
past 18 months, nor did we generally loosen our standards in the
run-up to the current economic disruption. As an example, M&T is
a long-time lender to the New York City commercial real estate
market, with a long institutional memory of the late 1980s real estate crash.
As such, we maintained our disciplined underwriting assumptions throughout the expansion and subsequent decline in New
York City real estate activity. These assumptions focus on conservative cash flow, rental growth, and cap rate assumptions, and the
use of recourse where appropriate.
With respect to the Treasury’s Capital Purchase Program, M&T
received the minimum amount available to us, which was 6 percent
of our risk-weighted assets, or $600 million. These funds are being
used to support lending within our geographic footprint.
As a result of the Provident acquisition announced in the last
week, M&T has assumed an additional $151.5 million in CPP
funds. Since receiving the funds, M&T has continued to originate,
refinance, and renew commercial loans within our market footprint. Although, as mentioned above, we have been seeing signs of
weakening loan demand, consistent with what other banks have reported, our plan remains to use the funds received under the CPP
to support lending activities consistent with our previously described traditional community banking model.
Thank you.
[The prepared statement of Mr. Pearson follows:]

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101
The CHAIR. Thank you very much, Mr. Pearson.
Mr. Rogus.

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STATEMENT OF MARK ROGUS, SENIOR VICE PRESIDENT AND
TREASURER, CORNING INCORPORATED

Mr. ROGUS. Thank you, Madam Chairwoman.
And thank you to the panel for inviting me. It is my privilege to
speak to you today.
My name is Mark Rogus. I am the senior vice president and
treasurer at Corning. I joined Corning in 1996, following a 10-year
career as a banker at Wachovia Bank. In my current role, I have
a wide array of responsibilities, including all of the capital market
activities for the company, cash management, trade credit, investments, i.e., the defined benefit programs, as well as our global insurance activities.
Corning Incorporated is a 157-year-old company. We are
headquartered in western New York State in the town of Corning.
Our stock is publicly traded on the New York Stock Exchange, and
we enjoy at market cap of about $22 billion. We have about 24,000
employees globally and a very large presence in the State with
about 5,000 employees here just in New York.
I want to remark that I did provide slides to the panel, and I will
send my script that I have written sort of on the fly to the panel
as well so it can be entered as testimony.
The CHAIR. Thank you.
Mr. ROGUS. Corning is an innovation-driven technology company.
We operate in five operating segments with two significant joint
ventures—Dow Corning, located in Michigan, and Samsung Corning Precision, located in Korea. We are a world leader in glass
and ceramic keystone components that enable high-technology systems in multiple markets.
Our business strategy is enabled by our focus on research and
development activities, which, in turn, relies on the enforcement of
a robust set of patent protection legislation in order to maintain
our market position in a fiercely competitive global technology marketplace. On average, we invest about 10 percent of our revenues
every year in research, development, and engineering.
We have a very rich corporate history. We have delivered many
innovations over our 157 years, ranging from the glass envelope
that we worked with Thomas Edison on to encapsulate his electric
filament to the invention of optical fiber, which is the backbone
today of our telecommunication systems and broadband deployment
globally.
The committee asked me today to come and speak to you about
how has the financial crisis affected our capital needs and whether
the availability of credit has changed for Corning over the last 12
months and if there is an impact that has resulted from these
changes on our business plans or capital planning.
In my slides, I have categorized four generic areas that treasurers use to support their liquidity requirements. Against the four
buckets of capital, Corning entered into the recent financial crisis
with significant existing cash balances totaling $3.5 billion at the
end of December of 2007.

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102
By the end of 2008, this balance had contracted to $2.8 billion,
due largely to continued investment in capital expansion overseas
and domestically and through shareholder distributions in the form
of dividends and share repurchases.
These cash deposits are supplemented by our internally generated cash flow from our wholly owned businesses, as well as dividends from our 50 percent-owned joint ventures that I mentioned
previously.
Second, we do take advantage of a short-term unsecured trade
credit provided through our trading partners and used in our normal working capital cycle.
Third, we maintain access to committed and uncommitted credit
lines from our banks. For Corning, that total is slightly more than
$1.1 billion. It is important to note that these credit lines were put
in place before the credit crisis began and, I hope, will mature after
the credit crisis ends.
These credit arrangements are also augmented by our access to
the public capital markets, and we use the public capital markets
for event-driven or opportunistic long-term financing.
So despite the financial crisis that appeared on the radar in mid
2007 and persists today, Corning has been able to meet all of its
capital needs, and we have not altered any of our capital structure
decision-making or our business plans as a result of the crisis.
As context for my response, though, I would note that we designed our current capital structure based on the lessons that we
learned recovering from the tech crisis earlier in the decade. We
lowered our tolerance for financial risk and specifically took actions
to reduce our use of leverage and increase our cash balances.
While we were not foresightful enough to know that this economic crisis would hit us, our strategy has served us well.
We have successfully avoided a number of specific issues that
have resulted through this particular crisis. Our surveillance of our
counterparties, however, remains very high, both the bank counterparties and insurance counterparties. We continue to monitor very
closely their actions and, frankly, have relied less on banks, preferring to use the public capital markets for our credit capacity.
I do want to note one item that is of concern to Corning, albeit
indirectly, that is a direct result of the recent credit crisis.
The CHAIR. Mr. Rogus, if I could just ask you to wrap up? We
are over time now.
Mr. ROGUS. Yes. So through our joint venture, Dow Corning, they
invested about $1 billion in student loan auction rate securities.
Through the good work of the attorney general in New York State,
the Securities Exchange Commission, the Commonwealth of Massachusetts, a consent decree was reached that requires broker dealers
to make efforts to provide an orderly secondary market for trading
these securities.
Based upon the lack of progress, I would put forth that we need
further action to stimulate secondary market auctions to increase
liquidity to institutional holders of these securities. This will significantly impact Dow Corning’s ability to continue to invest and
pay dividends to its shareholders.
Thank you.
The CHAIR. Thank you, Mr. Rogus.

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Mr. Pearson, it sounds like, from your description, that you are
part of the new avant-garde group known as ‘‘boring bankers.’’
Would that be fair?
Mr. PEARSON. If you were an employee of M&T Bank, you would
know we are not avant-garde. There is nothing that has changed
in terms of how we have approached business, though some are
trying to model after us.
The CHAIR. Fair enough. So that is why I wanted to ask you in
particular about your assessment of TALF and its effect on restarting, or stimulating perhaps would be the right word, commercial
lending. Could you give us your views on that?
Mr. PEARSON. I am not—M&T Bank does not have any conduit
or securitization apparatus. So we have——
The CHAIR. That is what makes your opinion important on this.
Mr. PEARSON. We have watched from afar through the years, and
particularly the last several years, of loans making their way
through the system that we would never have underwritten. Those
what I would define as riskier loans don’t exist at M&T Bank.
The way that I see the TALF today is that it is a good first step,
but I think that we have a long way to go. The fact that the AAA
securities could effectively be pledged as collateral for liquidity,
that is the program that is on the table today, simply frees up liquidity for a segment of the CMBS world, those AAA holders.
There are the other, if you will, tranches in the capital stack all
the way down to the B note and equity holders, where much of the
problem in the CMBS world is. From my vantage point, bringing
that group into the program will help to bring capital back into the
system. The TALF, as it is designed or described today, I think, is
a good step. But I am not sure that that solves the problem.
The CHAIR. And do you think—if I can just follow up a little bit,
do you think that is a need for an expanded Government program,
or that is really going to take recovery of the markets for people
to want to venture into B territory?
Mr. PEARSON. I assumed that a question along these lines would
come up today, and I have been thinking about this and consulting
with some of my colleagues. And what I would say is that the first
thing that needs to be accomplished is that we bring confidence
back into the system.
We have many customers who have a lot of money sitting on the
sidelines, and they are going to sit on the sidelines until they have
confidence that the system, in fact, will start to work again. So I
think confidence has to be the first thing that we restore.
Beyond that, unfortunately, I hesitate responding because I am
not expert enough in that area.
The CHAIR. Fair enough. Thank you.
Actually, if I could just turn to you on it, Mr. DeBoer? You mentioned at the conclusion of your testimony that you support the
TALF, but I am sure you also heard Mr. Parkus’s note. 25 percent
of commercial financing is through the TALF. And I wonder if you
might speak to the experience we have had with three rounds of
TALF. Is the need here for greater funding, greater support
through the current vehicle or through a richer variety of programs
to stimulate or support lending in the commercial area?

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Mr. DEBOER. Right. Well, first of all, the TALF, in and of itself,
is not the total solution. It is just—it is a first step, and it is a first
step because it helps price discovery. Right now, there is no price
discovery on the AAAs to speak of.
If people don’t know what the values are of AAAs, they don’t
know what the values of the rest of the capital stack are to price
off it. So if you can restart and light the fuse on the AAAs and get
price discovery, the theory is that you can then price the rest of the
capital stack off of the AAAs, which currently have no price.
And as we have seen in the ABS market, we have seen spreads
come down substantially in the asset-backed securities market,
which is the only thing so far that the TALF has been used for.
We have seen spreads come down. We have seen additional financing in the ABS market, even outside of the TALF. There have been
non-TALF deals done in the ABS market where, prior to TALF
coming to being, there was none over the previous, I think, 18
months. So that is significant in and of itself.
Should there be a richer variety or mixture of securities in the
TALF? We do support the legacy securities to be in there. We think
that Mr. Parkus identified all the proper reasons why that is a
good idea.
The CHAIR. Thank you.
Mr. DEBOER. Yes.
The CHAIR. Thank you.
Senator Sununu.
Senator SUNUNU. Mr. DeBoer, one of the other things you mentioned in your testimony was the recent expansion in the number
of credit rating agencies allowed to participate in the TALF. I think
it went from three to five. Why is that important, and what impact
do you think it might have, both on the program and in the broader context of competition in the credit rating agency market?
Mr. DEBOER. Yes. Well, we think competition among the rating
agencies is a good thing, and so expanding from three to five, we
think, is a positive move just because more out there means more
competition and more transparency. We think that is a very positive thing.
I would put a little add-on to that point as well. We also are very
supportive of what the SEC has done recently and continues to do
in terms credit rating agency reform to make more transparency to
try and address the conflict of interest situations that may or may
not be out there.
But again, this may go to my colleague’s point about confidence
in the market. Investors need to feel that these securities are what
they say they are, and so that goes to the basis of can we depend
on what the credit rating agencies are saying and telling investors?
So all of this hangs together, I think, in a well thought out plan.
Senator SUNUNU. Thank you very much.
I am going to defer to my other colleagues, given our time constraint.
The CHAIR. Thank you, Senator.
Superintendent Neiman.
Mr. NEIMAN. Thank you.
I would like to follow up with Mr. DeBoer and hope to get time
for both a C&I question and a commercial real estate question. You

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know, I have analogized the commercial real estate problem to
many of the same contributing factors to the subprime crisis—weak
underwriting standards by lenders, cheap financing, large role for
securitization process, overinflated appraisals, overinflated rent
rolls equivalent to overstated income, limited equity, an assumption that real estate values are going to increase and you will be
able to refinance in the future.
In fact, the only distinction was raised in a discussion I had with
a very large New York real estate developer. He said, well, there
is one big distinction, and that is that the borrowers in these cases
were not taken advantage of. They were sophisticated and knew
exactly what they were doing.
One, do you agree with those comparisons? And maybe even
though if they are the same contributing factors, what does that
say about the solutions? We heard from Mr. Parkus simply the extension of the maturity date is not the appropriate approach. Are
there others that we should be considering?
Mr. DEBOER. First of all, I don’t disagree with what you are saying, particularly as it relates to ’05, ’06, ’07 vintage loans. Poor underwriting, low equity, overly optimistic projections on performance. Having said that—and I also agree these are sophisticated
borrowers.
Having said that, what has happened now, just like in the
subprime market where it spread beyond those types of borrowers,
this now is a contagion that affects all borrowers in all parts of the
country regardless of whether their assets are performing, whether
there is strong debt coverage when you come for renewal or not.
And that is the problem that we are talking about.
Going forward, as I mentioned, I think these changes in the credit rating agency world and the underwriting world are significant.
The TALF applies to newly issued AAAs. We assume that a newly
issued AAA will have stronger underwriting criteria. The industry
certainly wants that. We want strong underwriting, good equity,
good policy. As we go forward, this will be a positive thing.
The problem is getting from today’s world, where there is no
credit because there was too much credit, to getting and translating to a world where there is adequate and appropriate credit
for transactions that need that credit. And it is that bridge that the
TALF hopefully will provide and get us to that area of that response, sir.
Mr. NEIMAN. Mr. Pearson, from a bank’s perspective, do you have
any particular views?
Mr. PEARSON. I will start by saying that I agree with your assessment that the ’05 to ’07 vintages in the CMBS world very analogous to the subprime issues on the residential side. Just to give
you a data point, we had a difficult time growing our real estate
portfolio in the New York City market during that period of time
because it didn’t make sense, whether it was pricing, valuations,
cap rates.
I might also offer up that those sophisticated borrowers that you
are referring to may have actually cashed out all of their equity
with the CMBS financing. So they may today not have any real
dollars at risk. There are quite a number of examples in this marketplace that are in the press that we could point to.

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My view, going back to some of the comments from Mr. Parkus,
is that while we do have some maturity risk, as has been pointed
out, we also have the ability to sit down with our borrowers and
talk through how we will sovle the problems. This is a benefit
banks have and how M&T approaches maturity risk.
The ability to work with borrowers does not exist in the CMBS
world. I was speaking with a client who is very active in the CMBS
world, and he has a $6 million loan, 50 percent loan to value, cash
flowing property, needs it extended. It is coming to maturity in a
month.
He can get through to the master servicer, but the special
servicer will not return his call.
Mr. NEIMAN: Sounds familiar.
Mr. PEARSON Right? So——
The CHAIR. Sounds like lots of people with subprime mortgages.
Mr. PEARSON. Yes, exactly. It is very similar. So when we talk
about this refinance risk, I think that it is very, very important
that the banking system, if you will, be looked at on a more granular basis to try to understand a particular bank’s lending philosophy before we decide that we are going to experience the 50 to 70
percent losses on our mortgages.
The CHAIR. Thank you very much, Mr. Pearson.
Mr. Silvers.
Mr. SILVERS. That was a really helpful exchange.
The CHAIR. Yes.
Mr. SILVERS. And I want to follow up on it a little bit because
before Mr. Neiman took my question, I was—I really wanted—Mr.
Parkus’s comments in response to my questions pained me because
I am concerned about what happens if we restructure what appears
from his charts to be these underwater real estate loans, how people get hit.
I want to ask both Mr. Pearson and Mr. DeBoer to talk about
are the solutions—are there solutions here, rather than have the
whole range of institutions that have invested in these properties
get hammered, particularly on the equity side? Do you agree with
Mr. Parkus’s comment that drawing out the time horizon is not
helpful?
But, B, are there solutions of the type that Mr. Pearson was beginning to talk about, involving making renegotiation, rational renegotiation easier here? We have been very frustrated about this
in the residential real estate area, where the same set of problems
exist. But to each of you.
Mr. PEARSON. I will just address your couple of questions. First
of all, I would tell you that the banks, broadly speaking, do have
an ability to renegotiate loans or extend loans. Perhaps adding a
5 year option to a maturing deal. What we are going to look at the
underlying cash flows of the property. We may run into valuation
problems on some loans because the comps that the appraisers are
going to use might depress the values.
We need to look at each deal in its entirety, and make a prudent
lending decision, which is what everybody expects us to be doing.
Mr. Silvers, you were probably not as pained as I was when Mr.
Parkus made his comments because while I agree the banking system has maturing risk, I think it is very dangerous to use a broad

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brush when talking about losses that may be realized across the
banking system.
I am not suggesting that we won’t experience pain. We are
caught in the down draft, and even if we have good underwritings,
more than likely there will be some problems. So I really believe
it is blocking and tackling that is required and the banking system
can do that. The CMBS market is strapped and stretched right
now, and they cannot do that.
Mr. SILVERS. Would that suggest that policymakers maybe ought
to try to focus on seeing if the CMBS market can—if something can
be done in the CMBS market to make it easier to act like the
banks?
Mr. PEARSON. To the extent that some involvement and support
could be there without undermining or changing the contractual arrangements that exist that are critical to a functioning economy
and commercial real estate world, I think that is something that
should probably be looked at.
Mr. SILVERS. Mr. DeBoer.
Mr. DEBOER. Great question. The short answer is, yes, policymakers should do something, and they can do something. The
CMBS loans are almost entirely held in a REMIC structure, the
real estate mortgage investment conduit structure. The reason that
you cannot get a special servicer to sit down and talk is because
the rules basically don’t allow them to renegotiate these loans that
are held in a REMIC until there is an imminent default coming up.
So somebody who is sitting there looking at a loan that is going
to roll in 2012 can’t go now and renegotiate it. Even if they want
to put in additional equity, even if they have a cash flowing property, they can’t do it.
And so, we have been talking to the Treasury Department about
allowing some rule modification to give more flexibility to the investors, to the borrower, and to the special servicer to renegotiate
these loans up front where a positive result can occur for all people.
Now, obviously, the issue about changing contractual relation´
ships and affecting senior bondholders vis-a-vis junior bondholders
is very, very important. But sometimes they all want to do this, but
the rules simply don’t allow them. So, yes, you can.
As far as looking at existing problems, the TALF is a forwardlooking issue, and that is what we should be focusing on from a
policy perspective, not in a sense bailing anyone out, but in a sense
bailing out the credit markets to make it work and allow it to
work. That is what we are looking at.
And just one other comment. But securitization, in and of itself,
is not a bad thing. In fact, it is a very good thing. It will allow more
credit in an expanding economy that we have that needs this credit. The problem is that the underwriting and some of the criteria
to do securitizations was not as tight as it possibly should be.
But we shouldn’t get in a mindset where securitization, per se,
is a bad thing. It is a good thing if it is done in the right ways.
The CHAIR. Mr. DeBoer, thank you very much.
If you will bear with us, we are going to do one more round of
questions in deference to our host. Superintendent Neiman is going
to take 5 more minutes for questions, and then we will call this
hearing to a close.

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Thank you.
Superintendent Neiman.
Mr. NEIMAN. I appreciate that very much because I think we are
very fortunate to have a large corporate lender, a large regional
bank here, and it would be a shame to leave without understanding what the new bank funding market in the future is going
to look like and understand what the current restraints are.
And I think, Mr. Rogus, when you and I talked in advance, there
were some concerns over the bank funding market in the future,
whether it would entail more restrictive terms, whether lines
would be lower than they are today. I think you expressed some
concerns over even the lines that you have.
Today’s Times has a story of a survey of small business companies who claim that in applying to—over 1,500 surveyed said when
they have applied to small banks for loans in the past, they were
three times more likely to get credit than those who applied to
larger banks.
So I would like to get a sense from you and Mr. Pearson are
those concerns real, and in the future, will there be differences in
both the availability in terms of credit, as well as from a corporate
sense in terms of funding from capital markets versus the banking
market?
Mr. PEARSON. Do you want to go first?
Mr. ROGUS. Sure. So it is a great question. I do believe that the
fundamental changes that have occurred in bank lending practices
will persist after this credit crisis is over.
My colleague’s remarks from the Fed on the deceleration of the
tightening of credit spreads has not resulted in a loosening of credit
standards. They may have stabilized, but they have stabilized at
a level that is, in my opinion, in a large corporate context, punitive.
And it forces treasurers in my position to seek other avenues of
capital. That is a fact.
So as I sit in my seat today thinking about the future is to rely
less on the banking infrastructure to provide that level of capital
to a large company and to simply get the capital and put it on my
balance sheet in the form of cash.
It is not clear to me that credit lines for large, multinational
corporates will continue to serve a valid purpose in the future. Or
said differently, I think treasurers will take a much more conservative stance on that point.
Mr. PEARSON. To add to that, the way that I think about this is
that there is a break point probably in terms of the borrowing
needs of the particular company. And perhaps it is by the time you
move up into the couple of hundred million dollars of borrowing
and more that looking for alternative sources is going to become
more critical.
I think it is very important that everybody be aware that smaller
companies than Corning, a company who might borrow $100 million to $200 million would suggest that they are having more difficulty with credit is that a bank like ours, who has the ability to
underwrite—meaning commit, say, $100 million with the idea of
selling it down and bringing in participants—we are not able today
to take on that underwriting risk because we are not comfortable

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that we have banks or investors that will come into that particular
syndication.
So today I would tell you that on the $50 million and less, I
think there is a little bit more freeing up of underwriting, if you
will. We have looked at a couple in the last week where we would
be willing to take a little bit of underwriting risk.
But I really believe that it is that company that has borrowing
needs from the $100 million to $200 million where the banking system needs to focus its efforts and get the system working again to
provide credit. And I am sure that my colleague to the right knows
that one of the things that is critical for banks to lend is that we
have deposits.
And the difficulty that we have is to expect the banks just to
lend when we have very limited deposits coming from a large borrower. That means we have to turn to other sources of funding,
whether it is gathering deposits or other term or overnight funding.
So I think that we have got some work, some challenges in this
particular respect for things to free up.
But banks like ours, you know, we are continuing to be out there.
Now we are partnering up. We are going to another large bank
who will underwrite $50 million, we will underwrite $50 million.
We come together to solve the company’s problems.
Mr. ROGUS. The only thing I might add to your comments is I
agree there is a bifurcation in the market. Large corporates, I
think, will probably tend to steer to the capital markets. Small or
middle-market businesses, which we rely on in some part in our
supply chain, will, in fact, need the banking system to regain its
footing. This is one of the larger risks; that treasurer’s can’t see
what is happening down in the supply chain; where our suppliers
are actually getting their credit, and whether the credit standards
are tightening or loosening?
My other comment my panel colleague’s remark about
securitization—as a potential investor in these securitized bank
loans. I think that you will see large pension funds shift to quality
and move away from these risky asset classes. Treasurers will not
invest in assets that have historically been liquid and reasonably
priced and get caught holding illiquid securities in when their pension are cash funds.
And so, sales of syndicated loans once were an interesting investment because they provided some modicum of a incremental yield.
I suspect large corporate investors won’t be buying those instruments anymore.
Mr. PEARSON. One last comment?
The CHAIR. Yes, go ahead, Mr. Pearson.
Mr. PEARSON. Just to draw a distinction for everybody that as
you are gathering information and drawing your conclusions, it is
very important to understand that the super regionals or regional
banks like ours really never were the large credit providers to the
Cornings. It would have been Citi, Chase, the five largest banks in
the country, where they could underwrite $500 million at a shot.
So I think it is important that the focus be in the area where the
problem is as opposed to expecting the regional banks to have done
something that we never did and, frankly, never should in terms
of taking that type of exposure.

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The CHAIR. Thank you, Mr. Pearson.
And reflecting our panel’s engagement, Mr. Silvers has asked for
indulgence to ask just one more question, and then we truly will
adjourn.
Mr. Silvers.
Mr. SILVERS. Yes, Mr. Rogus, you actually began to touch on my
question, which was I appreciate even more than I did before I
came here the thoughtfulness with which your enterprise is run.
But the question of supplier and customer access to credit for enterprises smaller scale than yours is one that I would hope you
would talk about more broadly with respect to enterprises less fortunate than yours in certain respects.
I would also invite Mr. Pearson to elaborate on the comment he
just ended with, which strikes me as intertwined with this, which
is where is the problem here in the banking system in C&I lending
and how might policymakers think about fixing it?
Mr. ROGUS. So from my vantage point, I think the risk to large
employers like Corning, given the evolution of the supply chain, is
those elements where our transparency is limited. So while we
might have 10,000, individual suppliers that we draw from, our
ability to surveil those 10,000 suppliers is almost negligible.
What we do spend a lot of attention, though, is on looking at the
super regional banks and their willingness to lend. And what we
see generally has been positive. We haven’t had any of our suppliers come to us. And typically, they would. They would come to
us and ask us to be the bank.
They would say we are not getting lending from our local banks.
Can you please give us extended terms, allow us to not—give us
the money ahead of time. Give us an advance. Do something like
that.
The good news is we are not seeing that, at least in our experience.
Mr. PEARSON. How—if I have got your question right, how to
break the logjam that exists perhaps certainly on the larger companies in the whole country. The difficulty is that the investor pool
that, A, Citibank or the large banks would draw from, they could
be banks. They could be other equity funds or equity-sponsored
funds. It would be buying paper, et cetera. That has dried up because of those entities having problems elsewhere.
So it may not just be somebody saying, well, we are going to
tighten things up and affect Corning or others. It is a broad liquidity issue or problems they are facing elsewhere.
And also I will say this in jest, probably the pricing even for
some of the best companies out there got down to a level that for
a bank just to have loan exposure with no ancillary business made
it very hard to meet our profitability returns. What I will say is
that as far as the C&I, the basic middle-market companies out
there, I think it is important to continue having these kinds of conversations with bankers because what I will tell you, interestingly
enough, we are competing for deals.
So I can’t think of one company that has left the bank. That
there are credit problems, perhaps people left, but we are keeping
our customers. And as for new prospects, we are bringing them in,
but there is competition.

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So I think that it is important that all of this information kind
of be corrected and interpreted correctly as best as possible.
Mr. SILVERS. Thank you.
The CHAIR. Good. Thank you very much.
Thank you, Mr. Rogus. Thank you, Mr. Pearson. Thank you, Mr.
DeBoer. Appreciate your being here today.
Appreciate your staying, Mr. Parkus and Dr. Schuermann.
Thank you all for being here, and this meeting of the Congressional Oversight Panel, is now adjourned.
[Whereupon, at 12:23 p.m., the hearing was adjourned.]

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