Jack Lew's confirmation hearing featured none of the theatrics of other recent cabinet confirmation hearings, but the former White House Chief of Staff nevertheless faced a tough round of questioning.
The Senate Finance Committee on Wednesday threw dozens of broad-ranging questions at Lew about virtually every pressing economic issue of the day. Exactly how Washington should deal with its fiscal woes was a top query, and as a two-time director of the Office of Management and Budget, Lew had answers at the ready, particularly on the most urgent economic matter currently facing Washington.
Lew said that simply rearranging the sequestration cuts set to kick in at the start of March would still deliver a significant hit to the economy. Rather, he advocated a "balanced approach" to avoiding sequestration cuts, the Obama administration's language of choice for its policy toward sequester. Lew advocated increased revenue alongside spending cuts as important parts of how to tackle the nation's fiscal problems—a stance that stands to rankle Republicans, many of whom have advocated against revenue increases.
"[W]e cannot allow the series of harmful automatic spending cuts known as the sequester to go into effect on March 1. These cuts would impose self-inflicted wounds to the recovery and put far too many jobs and businesses at risk," he said during his opening statement.
The partisan divide on fiscal philosophy extended into discussions on tax reform. Lew advocated broadening the tax base and lowering rates, but Republican Sen. John Thune of South Dakota voiced his preference for boosting revenue "the old-fashioned way"—by lowering taxes, thereby boosting economic growth and boosting revenues.
The discussion included a variety of other economic topics—international trade and income inequality, for example—but also ventured into relatively new territory for a Treasury nominee. As Treasury Secretary, Lew, like his predecessor Timothy Geithner, would serve as chair of the Financial Stability Oversight Council, a financial regulatory body created by the 2010 Dodd-Frank financial reform bill.
How Lew would handle financial regulation was a key question in the banking industry going into Wednesday's hearing.
"With less than half of all of the rules required by Dodd-Frank completed, and many required to be promulgated by multiple agencies, it is critical that agencies do so in a coordinated fashion," wrote Kenneth Bentsen, Jr., executive vice president of public policy and advocacy at the Securities Industry and Financial Markets Association, a finance industry trade group, in a blog post Wednesday morning. Bentsen, a former congressman and the nephew of Lloyd Bentsen who served as President Bill Clinton's Treasury Secretary in the 1990s, emphasized that an unnecessarily complex regulatory framework may in fact create more risk within the financial sector.
Indeed, Dodd-Frank did not go very far in simplifying regulation, says one expert, meaning that implementation will have to be performed very thoughtfully going forward.
"We have a fragmented mess of a regulatory system. We have literally hundreds of regulatory agencies at the state and federal levels, and they don't always play nicely together," says James Angel, associate professor of finance at Georgetown University's McDonough School of Business.
Lew, a former Citibank executive, fielded extensive questions about how he would handle regulation. Lew said implementing oversight provisions of Dodd-Frank would be "an extraordinarily high priority" if he were confirmed, but he provided few specifics regarding his ideas about financial regulation. He told New Jersey Democratic Sen. Robert Menendez that he would not support reimplementation of Glass-Steagall, the law that once upon a time divided commercial and investment banking activities (it was repealed during the Clinton administration). Instead, he said, new regulations should be created to fit modern banking.
"As we go forward we have to ask questions as we complete implementation of Dodd-Frank. Are more actions needed? They have to be actions that make sense in 2013," he said.
Republican Sen. Orrin Hatch of Utah, the committee's ranking member, was perhaps the most outspoken committee member on Lew's time at Citi. In his opening statement, Hatch pointed out what he sees as a potential conflict of interest.
"You were the chief operating officer over two [Citibank] units that engaged in the sort of activities the Volcker Rule is meant to prevent," Hatch said. "Therefore, if you were to be confirmed, it could lead to an awkward situation in which, in your role as Chair of the FSOC, you would effectively be saying to financial firms: Do as I say; not as I did."
Lew defended his time at Citi as giving him valuable experience and fielded myriad other tough questions over the three-and-a-half-hour hearing. That he made it through without stumbles is no surprise; he has served as head of the Office of Management and Budget twice, making him a veteran of confirmation hearings.