Hearing of the Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee of the House Committee on Financial Services - State of the Bond Industry

Interview

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REP. CAPITO: Thank you, Mr. Chairman.

Thank you, Governor, for being here today.

I have two questions. First of all I want to ask, with the Chairman's permission, to insert into the record a letter from our community bankers.

I'm from the state of West Virginia, very rural state. And in this -- in knowing that you were going to be before us when we are talking about bond insurance, they are calling attention to HR 2091, which would allow community banks to partner with federal homeland banks.

It's actually not in our jurisdiction, but I want to highlight that, because I feel that this legislation would allow our banks to assist smaller West Virginia communities, charitable health care facilities and institutions of higher ed to raise tax-exempt funds, where such borrowers are unable to obtain bond insurance or letters of credit from large market players on or at more attractive terms.

Do you find, as governor of your state, that you do have these entities that are really sort of left out because of the expense of the bond insurance and other things, and that we need to try to find, for instance, something like this to be a more creative backstop for them.

MR. SPITZER: Well, I certainly support the concept of providing greater access to the capital markets in ways that might circumvent the need to get the bond insurance.

I'm not sure I could say definitively as I sit here that there are entities in New York State that have been precluded from getting the raise in the capital they need because of this. I just know if that's how the market has played out.

But I certainly believe, as we look back now at the premiums that are paid, and ask, what is the value derived for it. That's a fair question. What the -- whether government entities are getting fair value, or whether or not this is the best mechanism for them to raise capital.

REP. CAPITO: I'd like to -- I think this is the topic I'd like to get into in terms of small community banks.

The other thing I'd like to ask you is, in our background information on this hearing -- I've been reading about this because this is very complicated, and most of the bond insurers, I understand, are domiciled in New York, is that correct, as far as you know?

MR. SPITZER: I think most of them are -- yes, that is correct -- some of them elsewhere in the nation. But yes, most of them are in New York State.

REP. CAPITO: But then it goes on to say that, generally speaking, that since they are state-regulated that basically New York State is sort of looked at as the marquee, and has -- do you feel that because most of these entities are domiciled in New York, do you feel like your insurance commissioner, or you call him the --

MR. SPITZER: Superintendent.

REP. CAPITO: -- superintendent -- has been a default federal regulator?

MR. SPITZER: Well, I think it is, to a certain extent, the case that when there are a limited number of entities that act in a particular sector, and they all, as you say, by default or by statute, are regulated by one entity, it has a national impact, or even one can argue, even an international impact.

So by virtue of that, yes. The superintendent's office in New York has become the regulatory entity that has defined, to a certain extent, the playing field.

REP. CAPITO: So then taking that one step forward in defining some of the issues, and I realize that you've lined out several areas where you think maybe to lay the blame, or wherever the things fell through the cracks, or however you want to state it.

Lessons learned, I guess, through your superintendent being the default national or federal supervisor over these bond insurance. I mean, I suppose we could look to New York to help us develop, in a very professional way, ways that we can avoid this in the future.

MR. SPITZER: I certainly would hope so. And the superintendent is seated right behind me, and I think he'll be on your next panel. I'm sure he would -- he will volunteer some ideas that he thinks, at least, will benefit, or could benefit the marketplace as we move forward to try to create that regulatory framework.

REP. CAPITO: Thank you, Governor.

At last I'd like to echo some of the comments of my -- of my constituents -- my fellow members up from the other side of the aisle.

In representing small communities, it is extremely important for infrastructure development, for clean water, for all the things, that maybe big-city livers think, you know, everybody has. We still have great need. And in know you do in the State of New York as well.

And so it's the stability in this market, and affordability is extremely important for us to be able to move forward.

So I thank you.

MR. SPITZER: Thank you.

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