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The committee will come to order. Without objection, the chair is authorized to declare a recess in the committee at any time. This hearing is entitled semiannual testimony on the Federal Reserve supervision and regulation of Financial System. I now recognize myself for three minutes to give an opening statement. As we all know the dodd frank act vastly increased the powers of the fed way beyond has traditional Monetary Policy responsibilities. The act has made the fed omnipotent but cannot make it omniscient. No act can. Through the exercise of socalled heightened prudential standards the fed can control the largest Financial Institutions in our economy. Former fed governor kevin warsh recently wrote Central Bank Power is permissible in a democracy only when its scope limited, its track record strong and accountable assured. None of that do we observe today. Where his feds omnipotents has taken us . The big banks are bigger, Economic Growth lags and theres scant evidence our economy is more stable. Two new fed expanded authorities granted under dodd frank are controversial and problematic. Secrecy surrounding the stress test make it almost impossible to measure the fed Regulatory Oversight or integrity of the test findings. As a columbia professor says, its hard to believe the current structure are stress test could occur in a country like the United States which prizes the rule of law, protection of Property Rights and adherence to due process. Dodd franks living wills grant the fdic and fed unbridled and on reviewable discretion under a standardless process that relies entirely upon the personal discretion of washington regulators. The fed stands at the center of dodd franks codification of too big to fail. It occupies the board rooms of the largest Financial Institutions in our nation and decides how they can deploy their capital sending a clear signal that washington will bail them out if they get in trouble. Despite claims by the fed is tailors regulations to fit the size of Financial Institutions, we know small banks are suffering disproportionately under washingtons thumb. As we lose on average one Community Financial institution per day, consumers lose options to help them achieve financial independence, Small Businesses news opportunities to grow jobs, and the big banks just keep getting bigger. There is a better way. Former fed chair Alan Greenspan said lawmakers and regulators give an elevated Capital Buffers need to be far less concerned about the quality of the banks loans and portfolios since any losses would be absorbed by shareholders not taxpayers. This would enage the dodd frank act to be shelved, ending its potential to distort the market. A current fdic vice chair has said u. S. Banks engaged in core banking activities and operating with reasonable levels of capital should not incur the same Regulatory Burden as those that do not. Former fdic share sheila bair has also expressed support for higher capital levels in place of Regulatory Risk weighting. Feed the doesnt know whats risky. The fdic doesnt know whats risky. Didnt we learn anything from the crisicrisis, unquote. Its. Endorsed by renowned exists nati nationwide including three nobel prize winners. Financial choice act fosters Economic Growth for all, Bank Bailouts for none and ensures the fed is accountable and remained focused on good mlt Monetary Policy. The chair now recognizes the Ranking Member for five minutes. Thank you for holding this hearing and thank you chair yellen for making yourself available to testify today. Just a few weeks ago we passed the ninth anniversary of the Lehman Brothers failure leading up to 2008. Much of the risk in our Banking System went entirely unchecked by regulators. Failure to quickly address fraud and mismanagement resulted in the loss of more than 8 million jobs as unemployment topped 10 . Millions of families lost their homes, and entire industries were on the brink of collapse. Congress responded to this devastation by passing the most comprehensive overhaul of our Financial System since the Great Depression. The dodd frank wall street reform and Consumer Protection act. The dodd frank act greatly increased the feds responsibility and authority for safeguarding the Financial System but also set minimum standards to ensure that regulators didnt lose sight of emerging risk again. The dodd frank act has required regulators to increase capital and liquidity standards, reduce interconnection in the Financial Markets and more closely scrutinize large Financial Firms Risk Management. However, theres much work left to be done. As we have seen from the enormous failure of a Risk Management at wells fargo, its important to remind the committee and the public why these reforms were necessary in the first place. Fraudulent Retail Banking practices may not in and of themselves pose Systemic Risk but they surely indicate mismanagement that could be catastrophic and riskier and more complex divisions of a Bank Holding Company. Supervisors and Law Enforcement must continue to hold both institutions and individuals accountable. Chair yellen, i know you will keep that in mind over the next several weeks as you review living wills from the five banks that failed their submissions in april and that includes wells fargo. Chair yellen, i am eager to hear about the feds progress in implementing wall street reform and how the boards supervision practices have evolved over the last several years, specifically, i am interested in hear more about how the fed is using the flexibility embedded in dodd frank to tailor regulations appropriate to the sizes and risk of different types of banks. Todd frank also provided the fed in consultation with the Financial Stability Oversight Council with new responsibility to regulate the activities of systemically risky nonbanks, entities such as the Insurance Company aig whose near failure imposed dire systemic consequences on our economy just eight years ago. Since the passage of dodd frank, congress has given the Federal Reserve Additional Authority in setting capital standards for Insurance Firms subject to enhance supervision. Look forward to hearing about the boards progress on regulating insurers. Yet just a few weeks ago, in this committee, the republicans pushed a bill that would severely undermine efforts by the fed to regulate the Financial System. The chairmans misguided legislation would repeal the Financial Stability Oversight Councils ability to designate nonbanks for enhanced supervision by the fed creating a huge swath of unmonitored risk in our Financial System. The legislation would also replace carefully considered limits on banking activities with nothing but an insufficient 10 equity cushion encouraging the reckless and risky behavior that nearly destroyed our economy in 2008. Moreover, as we in congress consider another funding resolution, we must be mindful of continued attempts to defund regulators work implementing dodd frank. For the first time, Economic Data indicates that the middle class is benefiting from the recovery. Failure to heed the lessons of the past will put that progress in jeopardy. Thank you, mr. Chairman, and i yield back the balance of my time. Chair now recognizes the gentleman from texas, the chairman of our Financial Institutions subcommittee, for two minutes. Thank you, mr. Chairman. Todays hearing is fundamental to understanding developments in the prudential supervision and regulation of our Financial Institutions. The role of vice chair of supervisions serves as the stas torly designated official to oversee supervision. In 2010, paul volcker, champion of the volcker rheum noted the reaction of this might turn out to be one of the most important things in here, meaning the dodd frank. It focuses the responsibility on one person. Yet president obama has failed to nominate anyone to fill this important position. A position that sets prudential regulatory responsibility and sets the United States in International Banking forums like the Financial Stability board. I remain concerned that governor dan tirillo continues to exercise these authorities outside the construct and mandated oversight of congress. I hope to understand the regulatory actions taken by the Federal Reserve. For example, how does the posture on reducing Bank Leverage interact with its recent recommendations to repeal the Merchant Banking authority. What type of risk is the fed trying to mitigate in capital proposal for commodities activity . Similarly, what wourld the impact be in a physical commodity activity decreases or stops. And finally, does the Federal Reserve recognize the exposure reducing characteristics of segregated margin and does it plan to reevaluate its position in the leverage ratio rule given recent Basil Committee discussions. Its incumbent upon her to do so in the president ial inaction. With that, mr. Chairman, this is my last time to be in this committee with chair yellen. Ill thank the chair for making herself available to us. And thanks again for her service in her capacity. With that, i yield back. Gentleman yields back. Today we welcome the testimony of the honorable janet yellen. Chair yellen has previously testified before our committee on a number of occasions. I believe she needs no further introduction. Without objection, chair yellen, your written statement will be made part of the record. You are recognized for five minutes to give an oral presentation of your testimony. Thank you. Thank you. Chairman hensarling, Ranking Member waters and other members of the committee, i appreciate the opportunity to testify this morning on the Federal Reserves regulation and supervision of responsible institutions. One of the Federal Reserves fundamental goals is to make sure that our regulatory and Supervisory Program is tailored to the risk the different Financial Institutions pose to the system as a whole. As we saw in 2007 and 2008, the failure of systemically important Financial Institutions can destabilize the Financial System and undermine the real economy. The largest, most complicated firms must, therefore, be subject to prudential standards that are more stringent than the standards that apply to other firms. Small and mediumsized banking organizations whose failure would generally pose much less risk to the system should be subject to standards that are materially less stringent. The Federal Reserve has made substantial progress in building a regulatory and Supervisory Program that is consistent with these principles. We have implemented key standards designed to limit the Financial Stability risks posed by the largest, most complex banking firms. We continue to work on some remaining standards and to assess the adequacy of this package of measures. With respect to small and medium sized banks, we must build on the steps we have already taken to ensure that they do not face undue Regulatory Burdens. Looking forward, we must continue to monitor for the emergence of new risks, since the lesson from the crisis is that Financial Stability threats change over time. The Federal Reserves postcrisis efforts to strengthen its regulation and supervision of large banks focused on promoting the safety and soundness of these firms. And on limiting the adverse effects that their distress or failure could have on the Financial System in the broader economy. Weve aimed to increase the resiliency of the largest banking organizations by establishing a broad set of enhanced prudential standards, including capital liquidity requirements for large domestic and foreign banking organizations. And weve aimed to make large Financial Institutions more resolvable through, for example, the living wills process and our proposed longterm debt requirements. The introduction of capital stress testing for large banking organizations has been one of our signature regulatory and supervisory innovations since the financial crisis. As events during the financial crisis demonstrated, Capital Buffers that seem adequate in a benign environment may turn out to be far less than adequate during periods of stress. For this reason, the Federal Reserve conducts supervisory stress tests each year on banking organizations with 50 billion or more in total assets to determine whether they have sufficient capital to continue operations through periods of economic stress and market turbulence. And whether the Capital Planning frameworks are adequate to their risk profiles. The expectation embodied in our stress Testing Program that large banking organizations should maintain sufficient Capital Buffers to withstand a period of significant stress promotes the resilience of those firms and of the Financial System more generally. While our stress Testing Program has been successful since it was first introduced in 2009, the crisis reinforced the need for regulators and supervisors to continually revisit the effectiveness of their tools and adjust as needed over time. As my written testimony indicates in more detail and as my colleague discussed in his speech earlier this week, we are now considering making several changes to our stress testing methodology and process. A leading idea thats emerged from a substantive review of our comprehensive capital Analysis Review or ccar program is to integrate ccar with our regulatory capital framework, thus effectively included surcharges in the stress test. We are also considering making certain changes to the stress test assumptions used in ccar. In addition, were considering exempting from the qualitative portions of ccar any Bank Holding Company that has less than 250 billion in total assets and that does not have Significant International or nonbank activity. As well as reducing the amount of data these firms are required to submit for stress testing purposes. On this and other changes to ccar that were considering, we will, of course, Seek Public Input before moving to adopt them. I know that Community Banks play a vital role in many ever your districts. Among the lessons of my years of experience at the Federal Reserve, have reinforced that when it comes to Bank Regulation and supervision, one size does not fit all. To effectively promote safety and soundness and to ensure that institutions comply with applicable Consumer Protection laws, without creating undue Regulatory Burden, rules and supervisory approaches should be tailored to different types of institutions such as Community Banks. The Federal Reserve has already done a considerable amount to reduce Regulatory Burden on Community Banking organizations. But were looking for additional opportunities, including potential simplifications of the regulatory capital framework for Community Banks. In conclusion, our postcrisis approach to regulation and supervision is both forward looking and tailored to the level of risk that firms pose to Financial Stability in the broader economy. Standards for the largest most complex banking organizations are now significantly more stringent than the standards for small and medium sized banks, which is appropriate given the impact that the failure or distress of those firms could have on the economy. As ive discussed, we anticipate taking additional actions in the near term to further tailor our regulatory and supervisory framework. Yet even as we finalize the major elements of postcrisis reform, our work is not complete. We must carefully monitor the impact of the regulatory changes we have made and remain vigilant regarding the potential emergence of new risks to Financial Stability. We must stand ready to adjust our regulatory approach where changes are warranted. The work we do to ensure the Financial System remains strong and stable is designed to protect and support the real economy that sustains the businesses and jobs on which american households rely. Thank you, chair. The chair now recognizes himself for five minutes for questions. First, chair yellen, please know that i was encouraged by many aspects of your testimony. I believe there is hopeful growing bipartisan consensus that we need more tailoring of regulations. And particularly on page 13 of our testimony, your recommendation that congress consider carving out Community Banks from the volcker rule and instead of composition limits in section 956. I was also encouraged by your announcement today, what we heard from governor turullo concerning ccars qualitative review exemption. I think that is wise and a very small step in the right direction. Chair yellen, before we get to the application of heightened prodential standards, i want to take a step back to how we do the Selection Process in the first place. As a member of fsoc, as you probably know, dodd frank demands there are 11 different factors to be considered in the sifi Selection Process. Lever amg off Balance Sheet exposures. The cifi designation, do you weigh each of these 11 factors equally . Ure you talking about the nonfshl Financial Firms . Yes. The fsoc has designated . Yes. In the case of those firms as required, the fsoc prepares an analysis i know, but my question is of the 11 statutory factors you must consider, do you consider each one equally or, for example, is leverage more important to Systemic Risk than factor for important, source of credit and liquidity . When it comes down to looking at an actual firm, the question that fsoc has to consider taking those factors into account is special to that firm. So its individual to the firm . Its individual. The question is that i guess where im going with this what would be the systemic impact on the u. S. Financial system of the distress of that particular firm. With 11 different factors that are considered, combined, that leads to 2,048 different ways in which these 11 criteria can be combined. The statute says you shall consider these but can i safely assume that you and other members cannot process 2,048 different combinations of these 11 different criteria . What the analysis presented to fsoc does is look at the specifics of the Balance Sheet and exposures of an individual firm under consideration and analyzes how those factors would come into play and impact Financial Stability. I guess my point, chair yellen, its hard not to conclude that ultimately this becomes a very discretionary process among members of fsoc. Lets now move to the living wills and ccar process. So 11 banking organizations submitted rather voluminous living wills in 2014 and the gao found that the fed and the fdic had not reviewed those submissions. I understand many of these submissions are thousands of pages long, with respect to living wills. Ive had at least one testimony that the ccar reports are tens of thousands of pages long. Ive heard one of 42,000 pages long. So i guess my first question is, does anybody at the fed actually read these reports, and can i safely assume you dont . You can safely assume that many people at the fed read these reports, and does somebody really read a 42,000page report cover to cover . And know what to do with it . Our staff and the fdic staff do. And i think its fair to say that all of the governors reviewed i find that very difficult to believe. But the gao has said thatneys li these living wills can cost up to 105 million. The average Small Business is capitalized with 30,000. So de facto, youre take away the opportunity to capitalize 3,500 Small Businesses with a living will that may or may not be read that may or may not be useful. Do you consider the cost of this process as you impose it upon the Financial Institutions . We consider eliminating too big to fail to be a key objective of dodd frank so that the american taxpayers will not be forced to bear the burden of a failure of a large firm. And i would tell you that the full board of governors met on the order of 12 times. We had around 12 board meetings to consider in great detail all the key aspects of the living wills of each of these firms. My time is expired. The chair recognizes the Ranking Member for five minutes. Thank you very much, mr. Chairman. As you know, the reforms we have passed to make the Financial System are constantly under attack. And many accuse us of one size fits all regulations. As you know, the dodd frank act has provide the Federal Reserve with broad discretion to adjust the rules based on your evaluations of bank risk. I cannot count the number of republican deregulatory bills that are passed the house floor which were not serious enough to even be considered in the republicancontrolled senate. However, i know that i, as well as other democrats on this committee, have worked very constructively with you to identify areas of improvement and use your discretion to tailor regulations when necessary. Governor turullos announcement regarding reforms to the stress Testing Process are a recent example of that cooperation. And i think you just said in your testimony that you were taking a look at banks with less than 250 billion in assets and that you were considering some changes, provided they were not involved in a lot of trading and International Trading in particular. Would you tell us what that is all about again . Yes. There are two portions to the stress Testing Program for the institutions over 50 billion. One is a quantitative stress test to see what the impact in the severely adverse scenario would be on the firms capital position. And we expect to continue subjecting all of the firms over 50 billion to that quantitative part of the stress test. But there is also a qualitative part relating to a firms Capital Planning process. And that is something that currently all of the firms above 50 billion are subjected, to and we are proposing eliminating that and reducing some of the reporting requirements associated with stress testing for the banks under 250 billion, as you said, that dont have a lot of International Activity or nonbanking business. And we think that our normal supervisory process where we look at the kapts planning processes of these is adequate and that many of these firms are meeting our expectations. And this issa i significant burden we think we can relieve these firms of. Idd like to thank you for paying attention to the concerns addressed by members of this committee. And id like to thank you for recognizing that not only do we have concerns but these concerns that can be addressed if wed work with you rather than coming up with all of this legislation that really interferes with your ability to exercise the authority that you have. Im very appreciative of that. Let me go on to the next question. Chair yellen, ive been closely following the progress of the living wills at the largest banks over the last five years, and i must say that ive not been encouraged by that progress. In april of this year, you and the fdic finally took the important step of officially declaring five living wills as noncredible. Jpmorgan chase, bank of america, bank of new york melon, state bank and wells fargo. These banks are required to submit their wills to you in the next week. These banks have had five years to identify and address problems within their organizations. If any of their living wills is still insufficient in october, will you use your Additional Authority under the dodd frank act to quickly and severely reduce the risk these banks present to our economy . We certainly do stand ready to use the authority that we have to impose higher capital and other standards on these firms if they have not corrected the deficiencies that weve identified. Weve been very specific with the five firms in indicating what the deficiencies are. We have released to the public the letters that detail those deficiencies. We will carefully and quickly review the submissions that are due by october 1st to see if those deficiencies have been remedied. But i would say more broadly for all of the firms, the fdic and the board identified a range of shortcomings, things that we did not think rose to the level of deficiencies but nevertheless are things that we want to see corrected. And we will be reviewing the next round of submissions due in 2017 to see if theyve been corrected or not. And its conceivable that if theres been no progress, those things could later rise to the devil of deficiencies. Thank you very much. I yield back. The chair now recognizes the gentleman from texas, the chairman of the Financial Institutions subcommittee. Thank you, mr. Chairman. Chair yellen, this month, the fed and fcc put out its required report on Bank Investment activities required under section 620 of the dodd rank. It raises several concerns with physical commodity. Last week the fed issued a notice of proposed rule making where it would impose significant Capital Requirements on covered fiscal commodity activities that would prohibit many of these activities in the documents, that federalized on the term environmental catastrophic risk or catastrophic risk. How does the fed define that risk, and how does the fed measure it . Well, the fed has been motivated in this rule making by looking at the enormous environmental consequences of things like oil spills, the bp disaster and the kinds of consequence consequences those can cause financially for firms and also reputationally. And we concerned and have done a rule making on fiscal commodity activities as you indicated that attempt to address the risks that we think exist in that area and have recommended to Congress Repeal of the Merchant Banking authority for essentially the same set of reasons. When youre analyzing risk and you look at past activities to determine, do i hedge my risk against that, the question is, what past environmental catastrophes have posed a problem for Financial Holding companies. Can you point to something that, gosh if that happens again, theres a problem. I cant think of an event that happened that impacted those Financial Holding companies. Well, under the Merchant Banking authority but this is a different there are two different authorities. The Merchant Banking and them being able to hold the commodities. I want to specifically talk about the commodities. We look at whats permissible and see that there could be environmental risks associated with it. Its not a question of just going back through history to see what has happened in the past. Its forward looking concern that the permissible activities could pose risks. Im a little afraid that were just trying to think of things that could happen and then trying to make all of these Financial Institutions somehow pay a punitive penalty in either capital regulation for events that may not have happened and may never happen again. I want to then turn to the surcharge and stress test. The some have stated the surcharge effectively works as a tax on Capital Market activities. Can you kind of name the components thats make up the surcharge and what activities tend to increase the score . There are a set of factors that are considered in determining the gsub surcharge, including things like interconnectedness and reliance on shortterm wholesale funding. Factors that would increase the likely systemic repercussions of the failure of the firm. And as you said, the gcib surcharges can be thought of as taxes imposed on these firms that serve two purposes. First, they by insisting that firms hold more capital to address the risks that their failure could impose on society, on the broader economy, they ought to be less liable to fail in holding more capital accomplishes that. And it may create an incentive for these firms to center their activities in so when you look at that, for example, complexity is one of those. And that, i think, talks about the size of the banks assets involved in Market Making and interconnectiveness components, dealer to dealer trading hoe ii hear hedging ae i for hedgin making. And trading similar to the intercorrectedness. When you look at all of those things youre penalizing those entities for, its making markets in Capital Markets. What many of us are concerned about is the message to the banks right now is, just get out of the Capital Markets area because the regulators are making it very punitive to be in those activities. Time of the gentleman has expired. The chair now recognizes the gentle lady from new york, ms. Maloney. Ranking member of the Capital Markets subcommittee. Thank you, mr. Chairman. I believe that chair yellens performance so far has been nonpartisan, admirable and has proven that she is more than capable of navigating these difficult waters and guiding the u. S. Economy back to robust Economic Growth. So i am disturbed by anyone in a recent debate or anywhere who suggests that chair yellen is somehow acting politically. Nothing could be further from the truth, and i would like to thank you for the service to our country over your long career in government. Thank you. And i would like to begin with a question on Monetary Policy before we get to regulation. You said last week at the fomc meeting that one of the reasons the fed didnt raise rates was because more people had come back into the labor force without the Unemployment Rate going down, which suggested to you that the economy, and i quote, had a little more room to run, end quote. But you also said that if things stay on the current course, you expect one increase in Interest Rates before the end of this year. So what does that mean . Does that mean that you expect the Unemployment Rate to start falling again soon . So in other words, does this mean that you think that the economy 4 a little more room to run but not that much room to run . Exactly what did you mean . So let me try to clarify. For this entire year, job creation has been running at a pace of about 180,000 jobs per month. And that is a pace its a little bit less than we saw in 2015. But nevertheless well above the pace of job creation thats sustainable over the longer run given trends in the labor force. Now i have been pleasantly surprised to see that the Unemployment Rate actually hasnt fallen over that time. Because people have been drawn back into the labor force, and that really means and with inflation running below 2 , were really not seeing meaningful upward pressure on inflation. And we havent seen the Unemployment Rate fall. But Monetary Policy is accommodative. Eventually continued job creation at that pace would cause the economy to overheat and would push the Unemployment Rate down to lower levels than now. So Monetary Policy is accommodative. We want to make sure the expansion is one and the good performance of the job market is sustainable over the medium term if we allow the economy to overheat, we could be faced with having to raise Interest Rates more rapidly than we would want, which could conceivably jeopardize that good state of affairs that weve come close to achieving. So we expect to see the Unemployment Rate fall farther. We expect to see solid job growth continue, but we do need, if things continue on their current course, to gradually remove the accommodation that is there. Now its probably not that much. Our estimate of how much accommodation there is has come down over time as economists have reconsidered what is a neutral stance of policy. But nevertheless, theres accommodation, and while theres no fixed timetable for removing it, many of my colleagues indicated in their recent projections the majority that they would see it as appropriate to make a move to take a step in that direction. This year, if things continue on the current path and no significant new risks arise. Thank you. Id like to ask you about the stress test also. Some people have argued recently that the fed should put the economic scenarios it develops for the stress test out for formal notice and comment for the public and for interested parties in order to lift industry and others weigh in on the assumptions that you use. Of course, the fact the fed can tweak these scenarios every year to account for new market developments is one of the main reasons why i would say theyre useful. So could you respond to that quickly . Very briefly, please. Just very briefly, we want to make sure that those scenarios are based on timely information and address the most significant risks we see. We have put out for comment both the principles underlying our stress tests and information about how we construct the scenarios so firms have quite a good idea of what they can expect in terms of a scenario that theyll face. But all the details we dont put out for comment. The time of the gentle lady from new york has expired. The chair now recognizes the gentleman from new jersey, mr. Garrett, chairman of our Capital Markets subcommittee. I thank the chairman. As you know, last week there was the big fomc meeting. And, surprise, to no surprise, the fed decided to continue the extraordinary accommodative Monetary Policy. Now i know youve taken the position the feds position are all purely data driven and thats where some of the questions were before. And that has absolutely nothing to do with politics. But you know, less and less people really do believe that. Let me just give you two or three headlines out of last week regarding fomc meeting. From politico. Yellen helps clinton dodge a bullet. From the l. A. Times, is the fed politically biased . Look at its Interest Rate decisions as election nears. Market watch. A fed rate hike and other important decisions again being put off until after the election. Youve told our committee and the public on countless occasions the fed is not subject to undue political pressure. But as a saying goes, perception is reality. Whether you like it or not, the publics increasingly believes the fed independence is nothing more than a myth. The fed has an unacceptable cozy relationship both with the Obama Administration and with higher ups in the democratic party. I brought this up a year ago and let me run through some of those points raised then. You personally have weekly lunches with political and partisan heads over at the department of treasury. There is, in fact, a revolving door between the treasury appointees and the board of governors. Your predecessor, chairman bernanke made a Decision Just weeks before the president had to go before the voters in 2012 and looking at your record, your speech on income inequality. Something you never talked about before but which became a Major Political theme for the administration and you gave it just weeks before that last election. Now let me give you one most recent one. Maybe you can just comment on this in a couple yes and nos. Little information about last weeks fomc, implications for the markets and the election. But brain ird contributed the maximum amount to the Hillary Clinton campaign and she did so while she was a sitting member of the fed board. And there was numerous reports that have come out stating the governor is angling for a top job with the Clinton Administration if hillary wins. So some basic questions knowing thats all on the table. Because of the appearance of conflict and impropriety there, has governor brainerd ever offered to recuse herself from voting at the fomc . Has she . Governor brainerd, like all of us, is subject to the restrictions of the hatch act. Has she offered to recuse herself . No. Because of her political involvement . The answer is no . Have you ever asked the im sorry. The hatch act does not prohibit political contributions. I get that. But we see the appearance of the conflict and so its a basic question. Has governor brainerd ever offered to recuse herself . The answer is no. Have you ever asked governor brainerd to recuse herself because of her close involvement with the campaign and making contributions . Shes have you ever asked . Shes acting in a way that is permitted by the rules we are subject to. And each one of us has to decide i understand that. So the answer is the answer is shes never offered to recuse herself. Youve never asked her to recuse herself. To your knowledge has governor brainird been in contact with the Clinton Campaign regarding a potential job in a potential future administration . Are you aware of that . I have absolutely no awareness of that. There have been published media reports talking about that. Youre not familiar with those media reports . Whats important to me is whether or not in our Decision Making, our collective Decision Making i see politics being brought to bear in reasoning about our decisions. And i have never seen that on the part of any of my colleagues. If you learned shes had communications with clinton as far as trying to get a job, would that change your opinion as to whether she should be asked to recuse herself . I dont think that there is a conflict of interest there. So someone a federal governor can be in direct negotiations with a Political Campaign looking for a future job, and that is not a conflict as far as youre concerned . You know, we do have is that a conflict or not . If they are having direct negotiations with either Political Party to ask for a job next year, while they are a sitting governor, do you see that as a conflict . Will the gentleman yield . There is no time. Id like to have an answer. Is that a conflict . Will the gentleman yield . Will you be asking your governors whether they are engaged in such activity . Will the gentleman yield . The gentleman is apparently not yielding. Can the witness give a brief answer . I would have to consult my counsel. Im not aware thats a conflict, but i would the time of the gentleman has expird. The chair recognizes the gentle lady from new york, miss velazquez. Chair yellen, puerto rico is currently facing an historic crisis. 46 of the population lives below the poverty line. Three times that of the u. S. Mainland. Employment in puerto rico stands at roughly 1 million, down nearly 300,000 from 2007. In the meantime, the u. S. Economy has gained almost 10 million jobs in the same time frame. On top of this challenge, struggle with zika virus and last week, a blackout swept the island. When the u. S. Mainland faced severe challenges from 2007 to 2009, Congress Passed and the president signed sweeping stimulus legislation. The american recovery and reinvestment act. Do you believe that this legislation was helpful in fostering an economic recovery for the u. S. . I do think puerto rico faces very serious economic and fiscal problems, as you have described. They have been building for a long time, and the commonwealth faces very significant challenges. I think the framework that Congress Passed provides tools that maybe enable the commonwealth to avert some worst case scenarios, the ability to restructure debt should make it possible to put in place a fiscal adjustment that will be one less uncertain and entail further cuts to government spending, but i understand all of that, chair yellen. It will take time for the fiscal control board to do its work, and the situation in puerto rico is really very difficult at this time. My question to you is, how can we spur investment in puerto rico . How can we foster Economic Growth and not wait for the fiscal control board because the reality is people are leaving the island. The most productive workforce is leaving the island. They are facing Serious Problems with a Health Care System that is broken. And my question to you is, do you believe that a puerto ricofocused stimulus plan will have similar effect on the islands economy, like we did here in 2008, 2009 . So this is really something im not an expert on what the appropriate programs are for puerto rico to deal with its longstanding problems, and i think thats squarely a matter for congress and the administration to consider. Okay. Thank you for that answer. We cannot forget that puerto rico is part of the United States. That we have a responsibility and moral obligation. After all, we dont hide priority in some of the important issues they are facing such as medicaid and medicare. Chair yellen, last friday, the Federal Reserve bank of philadelphia launched a research and Advocacy Initiative to examine the interaction between economic inequality in the u. S. And its implication for Economic Prosperity and growth. How is the fed hoping its findings will further the economic inequality discussion . I dont see it as a political plot. I see it as a contribution in terms of, you know, promoting Economic Growth among those who have been left behind. Yes, i think the high level of poverty and inequality in the United States is a concern and should be a concern to all americans and an important challenge that our nation hopefully will address. And this initiative is really focused on trying to understand what some of the key factors are that are driving those outcomes. And looking at practice to see, based on real world experiences with programs that are attempting to address poverty, what works and what lessons can be learned that might be of use to communities trying to deal with entrenched poverty. Thank you. The chair now recognizes the gentleman from missouri. Thank you, mr. Chairman. And chair yellen, welcome. We spoke a lot about the sheer volume of rules coming out of the Federal Reserve. Its rule after rule, layer of regulation after layer of regulation impacting Financial Institutions across this country whether they serve a Small Community in missouri or customers across the globe. Now we have the Merchant Banking and fiscal commodities involvement by the fed. As my colleague has indicated. And i hope that you work with this body with regard to those rules. Fed officials have made statements that the benefits outweigh the risks yet we seem to be intent on trying to find a solution where there is no problem. That concerns me greatly and we intend to have a number of written questions for you to respond to with regards to that issue. Today, though, i want to discuss some the cifi designation stuff that mr. Turullo announced this past week. Its important. We certainly now recognize cifi should be established based on risk, not just on size. Thats an um portent thing. Secretary lew was here last week. We need to look at other factors, other than size. That seems to be your position now as well. With regards to that, can you tell me what administrative cost will be incurred by the fed to remove the ccar requirement . Can you tell me what the cost by the fed to remove the ccar requirement of being a cifi . The stress test . Well, we believe that stress tests are a very important way im not talking about whether you do or do not. What is the cost what is the savings that youre going to have, or is there a cost to designate . Is there a cost to administratively remove the ccar requirement . Is there a cost in terms of dollars and cents that we spend on it . Yeah, does the fed have to does it cost you something to administratively remove the ccar designated requirement. Does it cost us to implement it and run the tests and are you asking me to remove the requirement, does it cost you money . Does it cost us money to remove the requirement . It does not. The ccar requirement, does it cost you money to do that . Does it cost us money, no. Okay. Thats what i but i think it could be a cost in terms of safety and soundness. Im talking about the fed. Does it cost you money to remove the ccar requirement . You said no. Thats the answer to my question. Well, any cost also that we incur in carrying out ccar in the stress testing is passed on to those institutions who pay for the cost of their supervision. Okay. Research conducted analysis. 33 u. S. Bank Holding Companies based on basically the tenets of my bill hr1309. Given all this work has been done, can you tell me whats you think the cost would be for fsoc to designate and redesignate a Financial Institution. For fsoc to dedegsignate or redesignate these institutions if they nor longer cifis, according to the bill. I have a bill that says you have to look at these. And if it shows that the institutions are not cifis, you have to dedesignate them and redesignate them if they are. Is there a cost to that . Well, yes, i think its clear that these institutions can you give me a figure . No, i cannot give you a figure. Can you give me a ballpark . 100 bucks . A thousand bucks . A million bucks . I cant give you an estimate. The fsoc staff, which includes the Federal Reserve, informed the cbo the dedesignation and redesignation will have a cost of 60 million. You think thats reasonable . I honestly dont know. Ive not looked tat. Any idea how your staff arrived at that figure . This is the fsoc staff. Well, no, they did it in conjunction with the Federal Reserve staff which is part of fsoc. Your staff came up with this figure. I have not reviewed how they came up with that figure. Okay. If we write you a letter, youd be willing to give us a response on that . I can try to do that. Very quickly, you made the comment with regards to what youve all done for Community Banks to help them with the regulatory problems. Inunidation of rules and regulations. Can you give me several examples. Examples of what weve done . Yeah. We changed the small Bank Holding Company policy statement to raise the threshold for capital regulation of i think we do that in congress. You did, and we raised we put that into effect. We have im glad to know you implemented our law. Thank you very much. The time of the gentleman has expired. The chair recognizes the gentleman from california, mr. Sherman. Madam chair, good move or nonmove earlier this month at the fmoc. Now some in politics on monday will say that our economy is in such terrible shape that those who make economic policies are obviously incompetent. Then theyll come back on wednesday and say its urgent that we raise Interest Rates because our economy may overheat and Economic Growth could get out of hand. Only in this room can you juxtapose those two positions. We need to allow Small Business loans, ive been told by many bankers, if theres a 2 or 3 risk a business will go under, they cant make the loan. Jamie dimon was sitting where you are and couldnt find qualified Small Business borrowers under that standard so he sent so he sent his money to london where it was eaten by a whale. It would do a lot for the security of our Financial System and also help the economy of this country. If banks were able to make prime plus three, prime plus four loans to businesses that have a little risk and of course provide a reasonable reserve. Instead im told if you dont qualify for priel plus 2 you leave the office. And taylor your regulations and i would say the more you designate. The less you would regulate. Its the hugest institutions that were really Systemic Risks. And the elephant in the room or maybe the stagecoach. I remind you it has the authority and ive said that before in this room. People say you must have an mouse. And it reaches a certain size and then it divides. And the smartest minds on wall street could as well. Too big to fail, too big to exist. Lets look at the elements of that. And too big not to bail. Thats why we bail them out. 2008. Too big to fail is too big to jail. Thats why eric holder cant diet certain executives and institutions because it would have too big of an effect on the economy. Too big to fail. Too big to compete with. And thats why some studies get 80 basis points off the cost of capital and might be less because of the expectation of providing a capital that will bail them out. But wells fargo to break these institutions up. They created a system where they hired good americans and turn 5300 of them into felons. 2 million felonies. They failed to monitor the system when they saw that there was a that some individuals created phony accounts they fired a thousand of them and didnt change the system and didnt fire the executives that created the system. Now from a democratic side they say too big to fail is too big to manage. From a republican side i heard too big to fail is too big to regulate but whether the fault is the regulators that cant regulate it or the managers that cant manage it, too big to fail is too big to miss. So my question for you is will you seriously consider using your authority, as i think youre required to review and consider using your authority, will you at least seriously consider breaking up wells fargo . Well, we will hold the largest organizations to exceptionally high standards of Risk Management internal controls. Consumer protection. But if you broke them up instead of holding them up to high standards peel could choose which Financial Institution to go with. By saying youre going to hold the giant institutions up to standards. Something you have not been able to do 2 million times. 2 million phony accounts so youre saying youre going to continue to do a great job of regulating the too big to fail because youre not going to break them up . Well, we believe it is possible, even though its extremely challenging. Break them up. Now recognize the man from michigan. Thank you mr. Chairman and madam chair. Appreciate you being here but quite honestly, no offense, i wish you werent. We need to have the vice chair of supervision to be here. This is something that the administration has refused to position that the administration has refused to appoint for six years now. Governor has essentially fulfilled the function as position the chair feds Board Commission on supervision but he is not in this position. And hold the fed accountable through semiannual hearings. This is a requirement of dodd frank. Some of my friends believe a script that cant be changed or altered in anyway but they conveniently refused some of the other areas. Do you believe there should be a nomination to fill this position. We would certainly welcome a nomination. Have you brought that up in your weekly lunches . This is a matter for the administration. Thats not my question. Have you brought it up . I mean, youre having to be here in somebody elses stead. Have you brought it up with the administration or specifically secretary lu or anybody else. Im not going to discuss what i have or havent discussed with the very decree tear. Its an administration responsibility. Well continue to hold you responsible for that obligation which is something that you shouldnt be held for but thats your decision. Do you believe that any and all rule making regarding regulatory or supervision should be suspended until this vice chair is no, i think the board of governors is charged with supervision and putting in place regulations and were carrying that. Who do we hold responsible for that then . Well, im responsible and my colleagues are responsible. As long as youre willing to fulfill that only fwags. I am certainly sharing that responsibility. I need to move on. And regulatory and supervision and supervisory roles. And the fact is that like many my fed oversite reform and reform act and by extension the choice act we are trying to bring some separation to your function as Monetary Policy makers as well as your regulatory and supervisory roles. Former senator and Banking Committee chairman chris dodd as well as chairman frank at the time had advanced legislation or advanced the notion that those ought to be separate duties and that your regulatory and supervisory roles ought to be put on budget and im curious, were they wrong in that assessment. Congress decided to. You would welcome and congress decided you were welcome and putting your regulatory and supervisory roles under budget and with reviews just like everybody else, every other regulator versus a separation of your Monetary Policy duties. And their budgets mandated by congress and theyre covered by collections from the industry and i would very much worry that we would like the flexibility and ramp up our supervision at times when we he have all of these other regulators that are there as well. It seems to me you want to have your cake and eat it too. You want to have this super duper regulatory role where its on this stuff but youre not willing to subject yourself to where all the other regulators go through. And that just seems that rarely do i say that i agree with barney frank but i believe that chairman frank at the time had this right and there is that separate role. My last issue as were quickly closing out here, some have not believed that dodd change cannot be changed anyway shape or form. You said on page 4 a number of times there ought to be these adjustments. Have you spoken to these other reps that disagree with you and say we cannot touch dodd frank. A very brief answer please. We have said this would be desirable changes. I hope youre expressing that to the members. The time of the gentleman has expired and recognizes the gentleman in new york. Its a pleasure to welcome you back to this committee and let me just say on the outset i also thank you for staying who you are and being nonpartisan and independent despite there being some especially in the president ial politics with which we currently eastbound gauged in saying your decisions are based upon a partisan way. In fact i think that its good when you are criticized from both the left and the right. That probably means youre doing the right job because youre not focused on either side. And we and this committee specifically reinforce the banking supervision power of the Federal Reserve in dodd frank. There is clearly a need to heighten our banking examinations and regulatory frame work. I think that thats clear from what took place back in 08. Were seeing banks take bolder steps to reduce risks and you indicated and to exit out of certain risky activities. And even if some say banks are bigger today than before the financial crisis, that probably may be true from a simple perspective but its not a complete picture and not only some businesses but they boosted their capital and liquidity buffers which increases the size of their Balance Sheets but it makes them safer and sound the institutions. This is the complicated stuff which is true. And yet you still have wells fargo which causes us to have great cob certains and need to go next and questions for him and theres some progress and the consequences and i want to shift for that now because its well documented that one of those unintended consequences of banks derisking has been banks getting out of certain communities and countries and denying services to millions of low income americans. Not because the risk the too high but certainly because the Profit Margins are not considered high enough. Theres serious consequences on vital banking and financial flows also but another major problem happening in several communities here including in a district like mine is that banks are Closing Branch branches. In fact, the economist released a report last month entitled banking deserts and Branch Closing and soft information. U. S. Banks shut nearly 5,000 branches since the financial crisis as a result. Residents of low income neighborhoods have become some what more likely to live in a banking desert. That is why i have called to revamp of the Community Investment app and cosigned by 40 of my colleagues. Some are still signing on. So chair yellen its obvious that cra is not working as it was meant to work when it was passed 40 careers ago and i had this discussion and i strongly believe that part of the solution resides in enabling greater collaboration between large banks and cdfis including minority deposit institutions so that these institutions can take over assets and branches before they close and more importantly so they can preserve Banking Services and relationships in low income communities of color. And constant dialogue on this and some thoughts on this matter. I am concerned to Banking Services and low income communities and we are working with minority institutions to provide support to them and enhancing the very important and valuable role that they play in ensuring the services to these communities. And 40 years ago there was one thought of you and banking and cra put in so that you had ways we can revitalize and reramp cra and institutions taking place today so these communities are not neglected and then become part of banking deserts. Were having a look at cra and on the agencies. And put out Additional Guidance in recent years thats meant to address issues that have arisen and well look at whats appropriate. The gentleman from wisconsin. Chairman of our oversight investigation subcommittee. Madam chair, welcome, obviously looking back to 2008, the crisis had a huge impact not just on the Financial Service sector but a huge impact across the country and many of the families that we represent and i would argue that this massive dodd frank bill was passed in a time of fear where people were concerned about the future of our country and the future of their family and 2,300 page bill was passed before the dust even settled and we have a full analysis of what caused the crisis and we were told by our friends across the aisle that i would argue opened up their cabinets, their file cabinets and dumped in every wish bag issue that they had for probably a decade but they made a promise to the American People that when they passed that bill they would be ending too big to fail because people were concerned not just about the economy but the fact that the taxpayer, their money was going to bailout large Financial Institutions. Do you agree now almost a decade on they ended too big to fail. We have taken very significant steps toward thats not a question. We were promised that we would end too big to fail. I wasnt here, that they would end too big to fail. I think the American People have a right to know what you think. Have we ended too big to fail . Yes or no . As i said, i think too big to fail is less significant problem now than it was before. So youre saying its still a problem. Too big to fail still exists, yes . I think we have made very important and meaningful strides toward ending it. These are simple questions. Im sorry. I dont think its a black or white thing. Yes or no. I can tell you congressman duffy we have ended too big to fail. America is better off and the fact that i am the chair of the fed . Or frankly, no we havent. We havent ended too big to fail. We made progress but we havent ended it. We have done a great deal to make it possible for systemic institution to resolve successfully. And accomplishing much better. We hadnt edited too big to fail and Elizabeth Warren admits we havent ended too big to fail. The Ranking Member, my friends across the aisle will admit clearly in hearings here we havent ended too big to fail. So my question for you is a 2,300 page bill giving you and other regulators significant authority has had a huge impact on the Financial Sector and our economy. If we havent ended too big to fail, is it a failure of dodd frank or a failure of the fed. Im sorry. Im not willing to describe it as a failure. Too big to fail. We have made great progress in trying to achieve that and its not a black or white issue. When i go home, this was a devastating crisis and had a huge impact on your familiful we had a 2,030 page pill and you cant get a loan from your credit union or Community Bank and chair yellen came in and she said we have made progress. So we have a system that is much safer and sounder. It is much more resilient. It has much more capital and much more liquidity and better although certainly not perfect. I disagree on many issues we liz beth warren but at least shes truthful on that one. Larry sommers, im sure you read his piece said that capital information is at least superficially inconsistent with the view that banks are far safer today and some support for the notion that risks have actual hi increased. Larry sommers, do you disagree with mr. Sommers as well . I do. I disagree with that conclusion because sit based on the notion that markets properly evaluated the risks and banking organizations and the crisis and nothing could be further from the truth. In 1788 James Madison worried that laws may become so voluminous that they cannot be read or so incoherent that they cannot be understood. 2,030 pages in dodd frank. 30,000 new regulatory restrictions. 600 pages and you cant tell me with all of that rule and regulation that you havent eradicated the threat of too big to fail . Time of the gentleman has expired. The time recognizes the gentleman from massachusetts. Thank you madam chair for being here again. I just want to clarify a few things. Im not aware of anybody that doesnt want to amend dodd frank including me. And totally against and almost builds with an offer. Will the gentleman yield . Not right now. But thank you. Too big to fail. Too big to fail. A agree thats why i offer the bill to bring back. All of my colleagues are welcome to join that bill. Thats why hr 888 that the Community Bankers support, all of my colleagues are welcome to join that bill and thats why i joined my colleague on the other side mr. Garrett. Now if youre not paying attention when garrett and i can agree on hr 2625 that directly relates to the feds ability to bailout banks. All my colleagues are welcome to join that bill as well. I know mrs. Yellen wouldnt like that bill and i appreciate that but doesnt kill you. Just squeezes a little. There are bills that are out there to do more. All you have to do is read them and join us. If garrett and i can do it, you sure can find a way to do it. Dont get used to us working together either but thats a different issue. Mrs. Yellen, lets assume for the sake of discussion we had a large bank youre keeping a very close eye on. And then over the last five years has had 16 Enforcement Actions against them including one from the fed. Lets assume the bank had a fed fine of 85 million. And in that agreement the consent agreement that they signed with you they said internal controls are not adequate to prevent instances and in order to receive incentive compensation, altered or false identified income documents and deflated perspective barrowers loans that they would not have otherwise been qualified to receive. That was 2011. Obviously hypothetical of course and since that time we had 15 other violations across the board with pretty much every Alphabet Agency you can find. Doj, occ, fha, fcc and pretty much every state in the nation totaling 10, almost 11 billion in fines. Those actions including defrauding student loans, mortgage holders, credit unions, identity perfection, kick backs, insider trading, defrauding freddie, defrauding finn. Worker Health Issues discriminating against African Americans and hispanics. Defrauding investors, foreclosure abuses and on and on and on and then just this year, earlier, when you rejected their living will, your letter cited concerns about quality control, Senior Management, oversite, accuracy and other information reported and even though the Leadership Steering Committee had input to the plan and same bank. Same bank just defraughted 2. 5 million of its own customers. Its own customers. A million and a half. How long does this stuff go on before you get outraged and take action. As you pointed out we have done something you described many 2011. A fine to this bank is laughable. I know you know that. And to this bank they made 23 billion last year. In 85 million bank is barely a footnote and you know that. Many regulators have been involved in. Just your turn today. Were in the case of this institution. Were the supervisor of the Holding Company. We have already instituted a review of all of the other banking organizations because we are very concerned with all of the compliance problems. Of laws. You moe theyre laughing at you. Time of the gentleman from massachusetts has expired. The chair now recognizes the gentleman from new hampshire. Thank you. Chair yellen, to your right. Thank you. Thank you for being here today. I want to talk a little bit about Community Banks. You and i know the importance and the role they play in our financial eco system. My state is a small state. 1. 3 Million People and we have very close relationship with our Community Banks. We have 10 federally chartered banks and we have 16 state chartered banks and we have ten out of state chartered banks. So its not a significant number but they are very important critical to consumers. But due to the severe regulations. And are subject too they are now limiting products and services to their customers and my constituents. When Community Banks should be focused on providing access to credit for consumers their focus and attention on compliance with the burdensome regulatory requirements seem to take the priority of their time. And straight up 25 of their time and resources on compliance and this has been increasing as a result of the growth of regulatory. And Regulatory Compliance on community Financial Institutions. Institutions that are smaller. That Service Customers in new hampshire. So we want to do everything we can to reduce burdens on Community Banks and recognize they are laboring under a significant set of Regulatory Burdens where you are going through the process and looking at a number of concrete ways in which we can reduce that burden and we have taken a number of steps on our own to reduce the frequency and intrusiveness of exams to make it more risk focused to do more work. Not on the premises of the bank to try to reduce burden. You asked if the burdens had fallen on Community Banks. And the fact that the smaller means these burdens can be significant relative to their budgets. But the most restrictive requirement versus been focused on the larger institutions. And subject to a much more stringent set of do you think theres a disproportion gnat impact. Theres quite a bit of research taking place. We have a conference thats taking place at the moment thats looking at those burdens. They are significant burdens for a very small bank and a certain fixed cost involved in doing it. We had two mergers in the last six months in the state of new hampshire. My fear is that that is going to continue. And i hope that you can identify very specifically and very quickly before the end of the year. Could reduce that Regulatory Burden and is going to be coming to washington and because our economy requires and relies on them a different point i want to bring up in your written testimony you recommended that congress considered the rule and dodd franks acts and regarding your recommendation that committee banks be carved out would you agree in concept. And those Banking Institutions that do not engage. And keep those entities that engage in training. We certainly said that we thought Smaller Institutions should be exempt and the exact definition i would have to look at i would have to look at more carefully. You talked about the 80,000 per month this economy is generating. Can you tell me the Labor Participation rate is changing. Is it below 62 . I dont believe so. Let me just have a look. It is currently 62. 8 . Time. My time has expired but i dont think that has changed over the last several months. Time of the gentleman has expired. It hasnt changed. Time of the gentleman has expired. The chair now recognizes the gentleman from texas. Thank you chairman and Ranking Member waters for convening this hearing. And please kpep my sincere fwrat tuesday for your leadership at the fed. I commend you for acting in the absence of advice chair for supervision of bank Holding Companies and nonbank institutions. And strengthen in the face of Global Market and unpredictability and other emerging threats. We can attribute continued growth and stronger and more resilient economy to your leadership and the protections afforded by dodd frank act. My question chair yellen is in your opinion do financial regulators currently have the discretion they need to correctly taylor regulatory and supervisory standards or should we in Congress Take action . Well, i think by and large we do have the scope we need to taylor these regulations. We have pointed out a few areas where we have limitations. The incentive compensation rules are another where we can do some tayloring put not as much as we would like. Congress did act to address our the restrictions we faced in the area of insurance in designing an appropriate set of capital standards for insurance centered savings and loan Holding Companies. And we appreciate that and used it to impose a set of standards for those companies that we think are appropriate and theres some areas where we needed congresss help but by and large we have a good deal of scope as we see appropriate. You need to know that i continue to hear from banks of all sizes in my Congressional District that theyre burdened by regulations and costly stress tests. Several hangs to the year hi stress test known as the comprehensive capital analysis and review were announced on monday. Can you tell us what changes were plead guilty made to this review process and how that is expected to help Community Banks that are not internationally active nor participating in risky nonbank activities and also there are regulatory relief it was in the wall street journal an article that talks about trying to have some Regional Bank systems given some relief. Yes. Thank you about that for me. Over 50 billion have been part of our socalled comprehensive capital and stress testing regimes and the proposal we put on monday would exempt from the qualitative parts of that process bank Holding Companies under 250 billion that do not have significant foreign activities or significant nonbanking activities and the qualitative part they would no longer be subject to. Im also wanting to address the problems that in wall street and some of the investors, especially working families investing in their 401k how are they effecting the United States economy and as the largest foreign holder of u. S. Treasuries with over 1 trillion in reserve is the Federal Reserve concerned that recent sellings by china could significantly and negatively effect the u. S. Dollar. Theres decades of very rapid growth. Thats something to be expected given all the progress they have made and a more consumer based economy. And standpoint for the United States but its very challenging. And earlier in the year and last year there were disruptions in markets related to their currency and their approach to managing their exchange rate. They told treasuries, mainly to support their currency which was under downward pressure and in recent months approach better. The time has expired. Thank you. I share ahong with my colleagues concern over a proposed rule that the fed released on friday increasing the cost for Financial Companies to engage with their clients and comomty markets. And a number of end users associated with reform and regulation within the markets. And the nature of my district and the district of oklahoma and Commodity Markets to my district. And users about the concerns on this issue. I too am concerned about the issue on and their ability to participate in Commodity Marketsful while we should of course continue to address risk to safety and soundness it appears this rule simply seeks to discourage a kpaebs participation in these activities through appal requirements rather than through an actual effort to target and mitigate risk within the system. In drafting this proposal i guess my questions would be the following. In crafting this proposal did the fed examine historic loss data and commodity activities as well as how losses in this business related to losses in other parts of the banks business. We did take a very careful look at the nature of banks involvement in this area and considered the risks that that activity entails and it is important to recognize that Financial Holding companies would still launder these proposals and be committed to engage in physical commodities trading with end cruisers. Thats not something that would change with this proposal does is put in place additional risk based Capital Requirements for activities that involve commodities for which federal or state law would impose liabilities if the commodity were released into the environment and were worried about environmental risk. Could you provide us on the information about how you made the determinations. What the perspective was and how it actually effected businesses. I think i and the rest of the committee would appreciate what the Historic Foundation was. It also appears that youre raising risk weighing to 300 for companies that engage in this business which will of course make it much more expensive for all of these companies. Could you also provide the committee with the analysis that was used to arrive at this 300 as an appropriate amount. How did you get there . We will get back to you on some details. I would simply note, again, i commented earlier we discussed this on many occasions my district is agriculture and energy. Were wheat and cattle, pork, cotton, oil and gas, were he l electricity and having more participants in the markets give us we believe a much better price situation if we restrict our tools to protect ourselves. If we restrict access to the markets by others theres a great concern we will suffer and ultimately the consumer that benefits from that supply will suffer too. One last thought or maybe a comment id like to reinforce one more time with you chair and customers in their margin. I understand that the committee negotiations continue but recent reports are not encouraging for the end users in my district and the clearing infrastructure that has long supported their hedging needs. In this complicated world we live in we need more tools. Not fewer. We need more Cost Effective tools. Not more expensive tools. Helped protect us for those kind of consequences if it gets out of hand. And with that mr. Chairman, i guess i yield back. Thank you mr. Chairman and madam chair thank you for being here. I appreciate it. I want to go back to the questions around the wells fargo scandal. Now i do understand that theres been a small fine paid by wells fargo but in light of what they did here, 2 million fraudulent accounts i know they fired 5,000 lower level employees. Theres been a little bit of claw back by the bank itself. But in terms of your role, you are the primary regulator for the bank for wells fargo Holding Company, right . Were the primary regulator for the Holding Company but these abuses occurred in the bank and controller of the currency and they have authority and theyre the ones that brought these actions. I give them great credit for that as well as the lflt a. Los angeles authority was involved as well. Is there anything that you can do . Looking at what happened here . This is why it spread. This is a disgrace really. What happened . 2 million fraudulent accounts and the low level employee who is are fired, you know, didnt just think this up themselves. They obviously had incentives that were put in place and any ideas from your standpoint as to what might be done as regular withdrew lags or legislation to prevent this from happening again . Well, the controller of the currency and the cfpp have demanded in their actions that remedies be put in place. We now the initiated broad based review for all the largest banking organizations of their compliance regimes and governance. Let me just ask you. This is a huge, huge thing here. 2 million fraudulent accounts. Can you think of any circumstances where a bank might be required to admit guilt . There was no admission of guilt here. At all. By the ceo. Or the bank itself. If it didnt happen here, how can we imagine that a bank might be required to take responsibility. I think by doing this, by continually letting the banks off the hook and nobody has to admit guilt, you actually build an incentive for this stuff to happen. I just it blows my mind and theyre paying a slap on the risk fine. Its not bogger . And we have 100,000 employees and 5,000 did this and sort of blowing it off. And i think it is very important that Senior Management be held accountable and when there are individuals identifiable individuals that have been involved in wrong doing. And theyre all lawyered up and this value and getting after them. Just get after them and make their life hell. We have to create a disincentive for the ceos to do the wrong thing. They completely ignored any of the safety and soundness and just basic responsibilities here. And id like to see somebody held accountable at that point. And i would be amazed if this action is limited to wells fargo. Its probably the practice at a lot of banks. Theres a lot of cross pollenization on. And were looking at any of the other big banks doing this type of thing. The cfpb is in all the largest banks and we have undertaken. We have undertaking a look comprehensively not only in the consumer area but compliance generally because there have been a very disturbing pattern of violations. They occurred in the Foreign Exchange trading and many different areas. Sanctions, violations and were taking a comprehensive look at the biggest banks. I have 17 seconds i just want to say in closing what a wonderful job the occ an especially cfpb did this on. This is why they are there and i very seldom hear great things about the crossexamination fpb. They did an amazing job here. And my faith in that agency. Thank you. I yield back. Time of the gentleman has expired. The House Foreign Affairs committee. Thank you chair yellen. Good to see you today. I had a question. Maybe its a bit to follow up on his point about the unprecedented consolidation that we have seen in community Financial Institutions where there are fewer and fewer of them and these smaller the Smaller Institutions have fewer assets over which to spread their ever growing compliance costs. So they often seek those economies then through mergers and thats what leads to this situation of we have fewer banks today than we did during the Great Depression and are you worried about the consequences of consolidation in, you know, for communities and for our economies . And eventually for overleverages. You end up with a few big institutions having so much. I do think its essential that we have vibrant set of Community Banks serving americas community and play a very special role into our Financial System and its important that it remain healthy and producing Regulatory Burden is important and it is something that we will seek to foster using every available tool that we have. Community banks a challenging environment today for reasons that go beyond regulation. The low level of Interest Rates and flat yield curve and slow pace of growth in the economy or also factors that are making it difficult for them to thrive but they are tremendously important to the role they play for american households and businesses and we will certainly do everything that we can to yes and some of that is driven by Monetary Policy. Some of that is driven by fiscal policy an thats another way in which theyre adversely impacted by decisions made in washington. So seems to me at the heart of the consolidation is really an avalanche of rules that forced Smaller Institution to hire extra staff and with that in mind you said earlier that youre looking for concrete ways to reduce Regulatory Burdens and and in the report you increased. And small and mid Cap Companies and are you confident that if we act on those recommendations that are in that report they will be alternative sources of capital for portfolio companies. Thats one question i wanted to ask and another is based on your answer to my colleague earlier is it correct to conclude theyre based not on historical risks but theyre based on a projection of the possibility of potential future risks and the reason i ask those questions is because as we look back at the financial crisis, theres no evidence that Merchant Banking and commodity activities were part of the crisis. What was at the heart of the crisis was a concentration of risk in bad home loans and securities tied to those loans so as you limit activity are you concerned that as youre limiting the diversity kags of risk and thus adding to the concentration. The hard he we make it on these banks the harder the concentration of risks in the big Investment Banks and larger institutions and that was what i was going to ask you. And with respect to alternative sources of Equity Financing the private equity Venture Capital would be alternative sources and the Merchant Banking constitution is not very large and would not have the significant negative effect. Of course banks would still be able to provide a wide range of le lending advisory and other financial customers that would include Technology Firms and others and they would have the ability to continue making investments in Financial Firms. The time of the gentleman from california has expired. The chair now recognizes the gentleman from georgia. Mr. Scott. Thank you. Its so wonderful having you back again. Each time you come we talk about initiatives and thats the overwhelming Unemployment Rate facing Young African american men. He was a blunt instrument and you urged congress to introduce the legislation to target this well i took your direction and introduced two pieces of a legislation and i certainly hope youll say a kind word for because if you and knowing your dual duty as both inflation as well as unemployment, if you say a word of support here you can help us pass these two pieces of legislation. Now the first one is the deal with our crumbling infrastructure. That is coming. That is a big, big issue. What we want to do on this first bill is to address and develop a job and on the job training. Targeting African American men 18 to 39. That is the hardest hit for unemployment. Nationally at 38 . And some are 50 and we want to set that up. It will come under the secretary of labor that will coordinate the programs and work with the labor unions like the ibw, the plumbers, the pipe fitters, the iron workers and steal workers. All of those unions helping to build our crumbling infrastructure and these Training Programs and job programs and let me just say they will be in hightechnology areas because you cant do all of this without computer coding. And very important to get those in there and get that program started. The second has to do and we have to reinvest in what we call land grant universities. Those 1890s and 1860s that were set up after the civil war. Schools like tus ke gee university in alabama. Texas, florida a m, all of those. What we want to create a new area now they can only spend the money in education, research and extension. We juan scholarships. To get these young kids in there, the big jobs are opening and agriculture business. Its the food we eat t clothes we wear, now energy and all of that. And give each of these schools 1 million which they can spread over that 5 year period for scholarships. These bills are bipartisan. We have excellent cosponsors. Folks like kevin cramer from North Carolina. Love of utah. Adams from North Carolina. Gwen graham of florida. Now Pete Sessions who is our house rules Committee Chairman all are are on this bill. So would be very, very helpful and im going to ask my assistant if would you take those to them right now tanner so you can have those . All im asking, ill not using you to use a blunt instrum, im asking you to use your golden choice and if you speak and say a kind word it will help us get these bills passed and not only will the African American community thank you but all of america. We all know this man with the highest Unemployment Rate of 18 to 39 are also the child producing ages. This goes directly to helping us deal with that family break down structure. Madam secretary i want to ask you one other thing. You know, you have an opportunity to do something very significant. And in my hometown of atlanta and then its retired. Never had an African American a regional fed president. Im asking you, take this opportunity to make history. We have many excellently qualified African Americans and i want to applaud what youre doing with the car test and committing to working with this committee. The time of the gentleman has expired. The chair now recognizes the gentleman from new mexico, mr. Pierce. Thank you mr. Chairman. Thank you chairman yellen for being here. I want to catch up now that the gentle lady from new york mentioned the problems in puerto rico if youd just summarize tho those. I think deep seeded structural problems pertaining to puerto ricos Economic Situation on giving rise and exacerbated problems those looked thanks now when im looking back through the 2008 crisis and want to during that period of time. Primarily because we engaged in a program of purchasing longterm assets both u. S. You are the ri securities. You got assets from the banks and were having problems and stabilizing banks. No we didnt assets from fanning or somebody, right . You have receiver ship by u. S. Government and. Okay. All right. Thats fine. Now, we were treated to mr. Lou testifying to a couple of days ago and he identified in his testimony that hes required as the head of the committee to identify and respond to emerging threats on the Financial Stability. Now, i pointed out to is him that one of the low Interest Rates mr. Graham came out with a statement on the 21st in the wall street journal saying, i think we need to rethink that theres a cost theres a cost of full employment, basically. So hes talking about bubbling prices that might be caused by easy money. So my question to mr. Lou is, have the two of you ever talked that maybe one of the emerging threats to Financial Stability might be the easy money policy. Yall havent had a discussion, or you have . We do discuss threats to Financial Stability. About your easy money policy, specifically have you talked about that. If hes going to identify it. He ought to identify the easy money policy, thats not coming from me. Thats coming from the guy thats most often on the side of easy money. His singled out commercial real estate as an area that hes concerned with and i would he says that easy money policies could be letting markets get out of hand, that sounds a little bit broader that reits. Easy money policies could be letting markets get out of hand. Well, your there is the possibility that in a world of very low Interest Rates that investors will search for yield and take on additional risks. And were very much aware of that and so weve got a difference of opinion among board members, but then you get Something Like says were going to stay out of the bond market completely because its hard to price the assets. Because what . The largest etrader signaling that his company is dpoeng to stay away from many securities because of the under lining assets are hard to trade. The inability to sell or trade heads of positions. What is he talking about, Corporate Bonds, or what . In my opinion, maybe the bond market over all it looks like is stimulated by government policy and saying everything is good and then i looked at your asset you typically increase i just look at the fact that your balance treat is now up to four trillion. Youve almost doubled in the last four or five years, youre contending to find something in general and then i look at the debt, so puerto rico has got roughly 76 depth to gdp ratio and ours is one to one. Im sorry, but i think somebody ought to be talking about stability of the Financial Market and United States because it looks desperately unstable. Thank you, mr. Chairman, appreciate. The chair now recognizes gentleman from texas mr. Green subcommittee. Wh you did was extraordinary in a time of great crisis. And i just dont believe those who look through the vista of time. I dont believe that they will see these an unkind, unfair, unwanted or imprudent things i think they will judge you well and you will be im going to do my best to stay away from wells fargo, but i must tell you, its difficult. Simply because of one reason, if i just may mention this one, the 185 million in penalties is. According to some standards x about three days of profits. So this becomes a line item under the cost of doing business. So its hard. I have some other things, but first let any do this. Let me just discuss with you the whole notion of too big to fail. Theres a bit of double speak taking place because a good many people when they speak of two big too fail. They mean that there will never be another bank that will fail as opposed to what i believe most people under the case to be, not have a bank thats so big that when it fails it creates misery throughout the economic order. Thats what were talking about. Thats what too big is all about. Thats what dodd frank does, were still implementing aspects of it. But too big to fail is addressed and dodd frank and its addressed in a very profound way, the living wills, that helps us to understand how to put the big institutions out of their misery. Dodd frank allows us to separate them, if we need to, and e vis rate them if necessary. Too big to fail is all about winding down these big aigs of the World Without them taking the economic order with them. Id like to make a point if i may before you respond to the question of Community Banks. Madame chair the big banks have hijacked the term Community Bank. You and i understand that most banks in this koun there are under a billion dollars, most of them. Under a billion dollars well, the big banks have conclude thadd you can be a 50 billion bank, 100 billion bank and still be a Community Bank. There in lies the problem, because when we make efforts to help the Community Bank which are Smaller Banks, the big banks step in and they want all of the benefits that the real Community Banks a bit more double speak, the real Community Banks they want those benefits i aplaued you for what youre looking at. I read your statement and you want to there are people in congress who would like to help Community Banks, but we cannot do it at the risk of bringing in the big institutions who would benefit from it to the detriment from what were trying to do in dodd frank. Im sharing these thoughts with you because i honestly believe that you have some great insight into these things given what weve done with qe and all of the tools that youve utilized, how important is it for us to have investment and infrastructure, both president ial candidates have talked about it. Interest rates are exceedingly low at this time, how important is or would Infrastructure Investments be helpful in promoting sound Economic Growth. I welcome your answer. Well, i guess my perspective is that weve had very disappoi disappointing pace of growth in the u. S. Economy and productivity growth. Growth for out put and worker have been exceptionally slow. Half percent per year for the last five years, maybe twice that over the last decade with low and historical terms and thats critical to Living Standards and investments of all sorts, i think, are essential to raise growth and promote improved Living Standards for americans in the years to come. Time gentleman has expired. The chair recognizes the gentleman from South Carolina. I have a couple of questions. Theres been some attention in the last few months about the recent decision about theback of japan to start purchasing equities my question is simple. Is it looking at the possibility of adding the purchase of equities to its tool box as it looks at Monetary Policy. The Federal Reserve is not permitted to purchase equities. We can only purchase u. S. Treasuries and agency securities. I did mention in the speech in jackson, although where i discussed longer term issues difficulties we could have in adding accommodation may be somewhere in the future down the line that this is the kind of thing that Congress Might consider but if you were to do so, its not something the Federal Reserve is asking for and. It would take a change in the law to do that. Thank you. Lets move on to regulatory questions. I appreciate that. Thank you for straighting that out. Both asked you about the proposed changes on the ways that you want to regulate commodities trading, why are you trying to do this. Because were worried about the risk that some forms of commodities activities posed the banking organization. I heard you give that. But the truth is, thats never happened yet, has it . That risk has never been incurred, no trading in the commodities markets has ever been sued. They didnt end up in the commodities trade are getting shrewd. They didnt end up where theyre getting sued. Theres never been that occurrence of that risk being occurred. It doesnt broadly prohibit commodities trading. Its focused on activities where there are significant environmental hazards. We can say for another day whether or not 1,200 ratios prohibit the fact of the matter youre trying to regulate a risk that has never actually in the real world been incurred by a commodities trader; is that correct . We have had huge environmental accidents that have created e norm mouse liability and we do have a couple of banking organizations that congress has grandfathered broad rights to engage in commodities storage and distribution those risks certainly exists. You can make the argument that there are other risks that banks incur that are actually more tangible and perhaps more likely than an environmental disaster leading to a claim against them based upon commodities trading. It is and no offense, its risky for banks to be in new york, right. Its a target for terrorism. Theyve incurred that particular risk in the past, the Federal Reserve decide in order to make banks safer they couldnt do business in new york city. No, we certainly have not decided that. Could you, in theory . I dont know. I would suggest that you probably could. If you can do this. Were doing to require you to change your rules because of this risk we perceive you might incur, that same line of reasoning could be applied to something as es oteric. What we do require banks have back up authority. When we had Hurricane Sandy that greatly effected new york, that there are back up sites. My last line of questioning has to do with something entirely difference in the blotch technology. You spoke at an International Conference back here in june, i think there were 990 central bankers and you talked specifically about it and i wonder if you want to take this opportunity to talk about the feds commitment to light regulatory touch and speak to whether or not you yourself are looking at implementing Block Chain Technology in your operations. Were not but we are studying a whole set of innovations and the ways block chain is being considered for use by banks and nonbanks. It could have very significant implications of for the payments system and for the conduct of business. We want to foster innovation, i think, innovation using these technologies could be extremely helpful and bring benefits to society. At this point were simply trying to understand the nature of these innovations. At the same time, Consumer Protection will also be something thats important, but were not doing rule writing in the setting, were trying to understand ways in which these innovations are shaping the financial the time of the gentleman from South Carolina has expired. The chair now recognizes the gentleman from delaware. I have a couple myself. Under the vocal rule dodd frank allowed an additional period of time for groups to divest liquid assets and the feds have acknowledged they need to make adjustments to the timeline that currently ends july 2016. These investments, i think there was a question earlier about the commodities about the commodities, physical investments which are difficult to sell by liquid definition, i join 11 other members, democrats and republicans on the committee on a may letter to you asking you to refine your definition of provide clarity for on the timeline for institutions so theyre not forced in a fire sell situation which actually could help Pension Funds and others that are holders of these, so youve extended the time i understand to july of 2017 but further guidance and decision has been made. We did get a letter where you said the Federal Reserve board to conform with these fund investments. Could you expand on that. Is that a casebycase basis you come out with a more general rule to provide greater certainty. I think were trying to establish some guidelines that would provide greater certainty. Were looking at that very carefully, i cant give you details but we recognize theres a significant issue there and well try to provide clarity. That would be great to provide some guidance so that they can you know, theyll have to otherwise start selling these unwinding. We understand. Thats great. You know the complaint we hear from the Smaller Banks is that these regulations require and they incur additional costs, mostly with staff if they have to bring on. Do you have any census as to whether this will enable the banks to reduce their costs of regulatory. I think that this changed should be quite meaningful for the banking organizations that will be effected and make it a significantly less onerous process for them. I guess at the end of the day the question is whether or not theyll actually be able to, you know, reduce their staff that is dedicated to that function right now. Ive talked to local banks in my area and my state. I said help me understand and they obviously went through individuals that are were hired to address compliance. So i cant give you an estimate of what the resource implications will be. Theyll still be required to conduct quantity tae tiff portions of the stress test. Were looking at ways for the Smaller Institutions to reduce data. Thats great and we appreciate the efforts in that respect. The last question is pretty general, but youve been through and provided in your testimony your supervisory activities. We all talk about what happened in 2008 the last time. What worries you Going Forward. Do you think about Going Forward with respect to banking framework as well there have been some discussion of that in terms of too big too fail. What are the concerns that you have looking ahead. So i do think weve made progress within the regulated banking sector. I think its safer and i think we have i think we have addressed some things. Money market fund reform is Going Forward areas of concerns like the try party repo market. Unregulated parts. So outside of the banking. Financial system. Thank you madame care, keep up the good work. The chair now recognizes the gentleman from florida, mr. Ross. Thank you mr. Chairman. I want to talk to you specifically about specific designations and i know that into the Financial Stability board does it. When the fsb does that. If they were to suggest that there were institution that was globally significantly important, does that permeate or otherwise effect or influence the designation as a for fsoc. No, it has its own specific. Guidelines. Guidelines and does its own reviews. And lets talk about those guidelines because i know they were brought up earlier and they were statutorily put in there. Theyve had a tendency to deviate from those. In other words, lets look at the metlife decision. The metlife decision, i think, exposed something that weve been concerned about for quite some time and thats the deviation from regulatory requirements that for example, fsoc consider the actual losses of which if a nonbank Financial Institution were to go under and in the metlife decision, i think the court found that that wasnt done. In fact, i think the court in that particular decision said that one of the reasons theyre over turns that designation is because there was no assessment of cost or losses. No assessment of losses that would have been sustained the financial trouble. Is that correct. Is that your understanding. They didnt calculate the losses. And they went at this capriciously. What concerned me about this. I was involved in the process and i dont think it was capricious at all. And i understand. To rely upon making these decisions roy who is the only member of who has an insurance background is the only one who voted to not designate metlife and yet that was ignored i think hes getting a little bit of recognition from the court there. Why would you ignore his recommendation with his background. Insurance commissioner, understanding of the requirements, different set of risks than bank and other Financial Institutions have to have. It just seems like it wasnt well, there was a slr Detailed Analysis done of the risks that metlifes failure to pose to the u. S. Financial system much of that analysis has been made available and is on the web site. I mean, lets face it. They have a 30 year Risk Assessment there as opposed to a bank that has a daytoday, minute to minute. And i guess that i think this is what were finding out from the metlife decision. We have to address these nonbank Financial Institutions in a whole different way than we address the banking industry. For example, if you would not agree that were trying to prevent too big to fail if we keep these institutions solvent that we have some kind of criteria where they can be assessed, corrected and then able to not be designated if theyre following a process or procedure that prevents them of being assessed. Only a few firms who have been designated. They dont know theyre designated until theyre in, what, stage three. They find out earlier than that. Theres no offering for them i guess what im suggesting. Theres an off ramp. Well they sold out. Ge capital, they basically said, were doing to get rid of this because we dont have want to have that control to interrupt our book of business. That was divestiture. If they changed their Business Model in a way that significantly alters the risks that they posed at the u. S. Financial system, that is an off ramp. That reconsider every year whether or not designations remain appropriate. Its an annual review process and if a firm wants to understanding why they were designated make significant changes that le deuce the risks they pose to the u. S. Financial system, they can thank you and wouldnt be in the best interest to put them on notice as soon as possible so the correction can be made to keep them from having to be even considered. Well, i think the firms understand. Thank you i appreciate your testimony. I yield back. Time of the gentleman is expired. The chair recognizes the gentle lady from ohio, ms. Batie. Thank you for being here today. I just have a few things. But, first, let me say thank you for clearing up what we can and cant do under the hatch act what my colleague was asking in that but also let me just say, i imagine in your historic position that you get a lot of people who want to have lunch with you or come and meet with you because of your scholarship and your brilliance. I can remember being over in the ray burn room and could barely get in there when someone announced that you were there. High powered people, more security in that room people wanted to pick your brain and hear from you. So let me personally say to you, im glad that people in high places want to come and learn about what we do. Also, probably and you can nod or not, probably safely assume that no one has pressured you from the white house or president obama to it reminds me of 1972 when burns was in your position. When you go back and play those nixon tapes, he succumbed to doing that because pressure was put on him by republicans that he was meeting with to have an effect on that upcoming election im pretty sure you have not been asked to do that by our president or president ial candidate. Ive never been pressured in any way by the administration, my experience has been greatly respects the independent to make decisions in akccord with our congressional. Thank you, chairman, i wanted to make sure that we got that entered while maybe my colleague from new jersey brought it up. He was thinking about what republicans had done in the past. But, let me move on and say, i, too join that letter that repeatedly we have to hear about the letters that were written and how typically how democrats dont respond. Not only did you respond, it wasnt a form letter. You actually acknowledge the concerns we had about minorities, specifically, africanamericans and women and mr. Chairman, she actually gave us, not one, but three suggestions of what we could do to meet this challenge. So i wanted to personally tpg thank you because ive been hard on you and all the other federal organizations about working about working with minorities to improve the Unemployment Rate and to make sure that we have more women and minorities working in your organization. But let me just say this, i would like to discuss the diversity of the 12 reserve Regional Banks around the country, especially as it relates to the president s of those organizations i think we can do better than that. My staff and i were reminded of the rooney rule, i dont know if you get that sports analogy or not, let me just say to you and my colleagues, im going to have something thats called the baby rule, where we would like to start with federal organizations like yours and simply say that as you look at these positions, you actually identify and, at least, interview one person who is a minority. So, congress, i am very focused on diversity and the Federal Reserve and a key priority. Weve made progress but we need to do better. And i have created a work stream at the board to think about all of the different ways in which we can promote diversity in the work that we do. At the level of president ial appointments i would very much like to say i hope that we can see greater diversity. And in the search process Seek Public Input. Theres a Broad National search that every attempt is made to assemble that qualified candidates are considered and i really dwo hope the time for gentle lady from ohio has expired. The chair recognizes the gentlemen from North Carolina. Notes improvements of the recent years. He states, that adjustments in all aspects of the program should be made as conditions and practices evolve. Well, the fed has passed several rules pointing to resolve blt. Requirements prohibiting close outs and therefore a run and single counterparty credit limits. In light of that. Will you be recalibrating the surcharge before you consider including it in the post stress minimums. We will put out a proposal were likely to approve a proposal that would effect the treatment of the surcharges in our stress testing regime. Were not reconsidering at this time the calculation of those surcharges but as the governor explained. An integrated system for incorporating those surcharges in our risked base capitol requirements and integrating the losses we identify in the stress test as part of the Risk Base Capital regime. Should it be recalibrated. In sure that it interacts with other Bank Regulations. Well, i dont see a reason why it should be recalibrated at this time. Are you aware of any firmly grounding research that require your consideration contributes to Systemic Risk. The factors that generally do contribute Systemic Risks. What research do you have and measured how each of the 11 contributed. Did you have research that related to that . What helped you determine that . Well, i believe theres a wide body of research that looks at factors bearing on financial instability that identifies those factors as relevant. Well the legislative demands that each factor be considered. So yes or no, just please, you know, tell us, are you aware of any such research for each of these factors. That quantifies its importance. Yes. Can you state with clarity, the firm of Ground Research thats attributed to establishing these factors. There are lots of Research Papers on this topic, i would not say ones that quantity the impact of each factor. You know theres been some controversy regarding the transfer of 1. 7 billion to iran. I know the fed helped facilitate this that was said by secretary lou to build deadly. Dont care to get into that. I would like to address the issue that administration told members of this committee yesterday that iran needed those bank notes to help support the value of iranian you an expert currency flows. I would like to ask you if theres any reason that you can imagine why iran having several pallets of euros in the central bank of iran could help support the better than having that value on account saying the central bank of the netherlands. I dont have an opinion about that. Were we acted as fiscal ancient of the treasury and have no involvement beyond following instructions that they give us with respect to payments. You dont have an opinion on that. Sir, it is just something i havent i havent looked at. I ask this because some people believe that the real reason iran wanted the cash was it can be used to enable acts of terrorism and the committee has had difficult time getting the administration to explain why they didnt just wire the money as they had made on previous other payments. Im sorry, thats something youre going to have to address to treasury. Weve dealt with the insurance factor, some will the fed First Consult with the insurers primary well my time has passed im sorry. Time of the gentleman from North Carolina has expired. Due to the chairs chair yellens departure time. They anticipate clearing ms. Moore. Ms. Wagner, mr. Bar on the republican side the gentle lady from wisconsin, ms. Moore, the ranking subcommittee is now recognized. Thank you, so much mr. Chairman. And thank you, chair honorable chair yellen for joining us here today. I have a lot of questions so im going to move through them very quickly. Youve had a lot of questions and concerns here today about why you why youve maintained Interest Rates so low and when youre going to raise them and having to do that. Theres a growing course of community folk and workers who has challenged the fed and tool their. They say youve spent so much time worrying about inflation and being let concerned like people like to brag about the recovery. What other tools you may have in your tool kit and how youre not ignoring that problem. And its very clear that as the labor market improves africanamericans can see outside gains and thats where they are now they are seeing those gains, which is not to say they dont have much higher Unemployment Rates and their remain, obviously, significant forms of disadvantage. There are clearly gains taking place for africanamericans as the labor market how does that fit in with your decisions to raise Interest Rates . So congress has charged us with pursuing maximum employment and priced stability and weve been very focused on our employment mandate and remain so we are pursuing a policy that will result in further strengthening of the labor market and thats very good thing. We also have to keep our eye on inflation and inflation is running under our 2 objective that gives us some head room and some running room to remain focused on the employment side of our objective but we have to keep both things in mind and are keeping both things in mind. We have 2 inflation objective. I want to ask you something that perhaps i havent asked you before. I was here when we put dodd frank together and i spent a lot of time studying the efficacy of that and yet we continue to hear calls to reinstate glass eagle. Can you share with us about the importance of the vocal rule and the limitations or the importance of reinstalling glass eagle if you think thats the case. The rule does prohibit. Were making sure that these firms can continue to make markets is important but it does include proprietary trading. It does not allow them to make markets, what would be a glass eagle look like in 2016. I guess what a glass steegle would require would be the separation of commercial banking and Investment Banking and require restructuring of companies that now have substantial Investment Bank sub sid dairies. Is that a practical thing that we should look at . Well, people have different views on this, were trying to make sure that this can these combinations can operate in a safe and sound manner and would say that thats not what was really responsible, at least, in my opinion for the financial crisis. In fact, most of the some of the most Serious Problems took place in stand alone Investment Banks and very that werent part of bank Holding Companies at all and now theyre subject to consolidated supervision. I have ten seconds left, im wondering. You have a prosele to meet longterm debt requirements. Yes. Sorry about that. Time of the gentle lady has expired. The chair recognizes the gentle lady from missouri. Welcome chair yellen. As i know youre aware. Late last year issued a call for evidence to help provide data and feedback for accumulative review of all of the post financial crisis regulations that have been issued ntin the past eight years. If asked whether the u. S. Should immeme implement a similar review, vice chairman for supervision, what are your thoughts on the u. S. Doing such a review, chair yellen. Well, i think we are continuing to finalize these regulations and want to come to the end of implementing them and targeted reviews of different aspects of the work that weve done become appropriate over time as governor mentioned, i mentioned in my testimony. We have undertaken a comprehensive review of our stress Testing Program weve consulted with the organizations that are effected by it with outside academics. Weve looked at its cost and burdens carefully and we are going to be recommending and already have, to some extent, changes that we think are appropriate in light of those reviews and over time, my guess is that other areas. Well, we already put out earlier this week, proposal that would exempt the dont engage in nonbanking activities to be exempt from the nonqualitative part of our review. Thats already out and other aspects of the proposal. If i can continue, given that many foreign bank regulators, such as those in europe, in japan, and others on the committee are pushing back against some of the capital rule proposals from the u. S. Wouldnt it make sense for the u. S. To conduct such a kind of a comprehensive, ill say review, as theyre doing in the particularly since u. S. Regularly gold plates or regulations beyond what they call for. Well, we have carefully looked at whats appropriate as weve undertaken these capital regulations, some cost benefit analysis has been done and in the case of the surcharges, there was careful analysis done of the levels at which they should be set and i dont think its time now for a comprehensive thing. You talked r. Governor said it would be difficult to conduct and it it would require a big model that would require a lot of assumptions. How is this any different from the feds stress test which also incorporate a lot of kind of macro assumptions. Well in the case of the capitol regulations and other aspects what were mainly talking about is reducing the probability and severity of a financial crisis and one of the reasons that it becomes difficult to do the type of analysis that youre discussing is that financial crisis few and far between and there is no clear rigorous way how does a particular regulation effect what is tail risk. My remaining short time here its been eight years and the eu is calling vigorously as our other countries call for everyday in review, shouldnt the state at least attempt to understand the cumulative effects, its rules are having on the economy, what are the other ways the fed monitors the impact the regulations are having on growth. Well, we are carefully monitoring how our regulations are working and by and large my conclusion is that we have to safer and sounder Banking System. Time of the gentle lady has expired the chair recognizes the gentleman from minnesota, mr. Ellison. The chair and Ranking Member. Chair thank you for your great service. I definitely appreciate it. And, you know, im of the opinion that, you know, the some of the criticism that you have to endure from certain quarters, you know, is really is short sided considering the ability for congress has certain responsibilities to provide fiscal stimulus as well. I think we have not done it. I think weve kind of failed on it and i think all we ever talk about around here is how we can cut budgets as opposed to do things that i think really grow the company any way, thats just my opinion. Ill leave that to the leave on on the side. Its quite clear that wells fargo misused unemployment benefits. I think its a terrible corporate practice. Section 956 of dodd frank as well as other regulators to finalize senate based for Financial Institutions such that those rules dont encourage material losses or inappropriate risks those rules were suppose to be completed nine months after the passage of the act. Can you give me can you give us a status update on when we can expect to see those rules. The proposals, the rank went out for comments. Comments have been received and, i believe, the staffs of the agencies working through those nows. I will do everything that i can for the Federal Reserve to be ready to act on this as soon as possible. One of the things thats occur today me, the ceo is pretty well compensat compensated. The number i found was like 19 million. Hes not losing his job, apparently not yet. We should see about 5,300 people who were let go. I make no comment on whether they should have been let go, or whether they deserve to be. When you set up a situation where youre insent vising moving accounts the way they were and some of the demand that were put on them. You can see how it could happen i guess my question to you, is how can line level workers be held accountable to the degree that they clearly have been and yet nobody in middle or upper management seems to be taking responsibility for it. I mean, they havent lost their jobs can you give us some insight to how some of our banking Management Practices are being practiced so that only the people at the bottom end of the food chain end up bearing all the responsibility. Senior management has a responsibility and its essential that they be held accountab accountable compensation schemes that, for example, are based solely on volume are prohibited under the rule that the six agencies of proposed but even prior to the adoption of that, the banking agencies have put out back in supervisory guidance on compensation that had the same expectation they should be reviewing to make sure they dont result in compliance failures and ill treatment that they have to be consistent with fair treatment of customers and consider risks and this is an expectation and it will be fo form formalized in a rule hopefully when the six agencies are able to finalize that. But Senior Executives are responsible and theyre responsible for setting up Risk Management schemes in their organization that would be detecting such problems, that they have a strong internal audit function that would be reviewing and detecting compliance problems and that these problems would not only be acted on by Senior Management but es ska lated to the board of directors that has an important responsibility here. Thank you, so i really appreciate your answer because i agree with it. My good friend from wisconsin, congressman duffie was asking you to respond about an opinion piece. I got the sense that you might have you might want to elaborate a little bit more on, you know, what he asked you, would you like to take the 20 or so seconds to stretch out on your answer a little bit. So, thank you for that. Some find that measures of riskiness of bank debt havent diminished since the financial crisis. Two reasons, he finds that, one, is that prior to the crisis clearly Market Participants under estimated risk. And, second, were dealing with two big too fail and investors can no longer expect that they will be shielded from risks if things go wrong in their firm. The time of the gentleman. Thank you, chair. I yield back. The chair recognizes the gentleman from kentucky, mr. Bar. Thank you mr. Chairman. I want to touch, first, on Monetary Policy and then shift over to the Federal Reserve supervision and regulation of Financial System. Briefly, our Monetary Policy in your press Conference Last Week you stated that the recent pick up in Economic Growth and continued progress has strengthened the case for increase in federal fund rate you went on to say conditions are strengthening and we expect to continue and the headline on bloombergs web site from covering this hearing, this hearing is that yellen sees solid job growth. In response to my colleague, i think i heard you say that the labor force Participation Rate has not moved and, of course, we all know the Economic Growth is week, the bureau of Economic Analysis reports that jdp out put in the First Quarter of this year was. 8 and the Second Quarter of this year only 1. 1 and productivity, which is a real important indicator of Economic Growth is in retreat. Its been decreasing by almost half a over the last four quarters. So the question is on monitor policy, how does your comments about Economic Growth and progress in the labor markets square with these stubborn facts. Well, Economic Growth has been very slow and thats extremely disappointing. Productivity growth, in particular, has been really very very low and, as you mentioned over in recent years, negative, which is a very depressing finding. And in that sense, the economy is not doing well. But we are creating a lot of jobs, the Unemployment Rate is declined to the neighborhood of what most of us would consider to be full employment. And theres a very significant downward pressure on Labor Force Participation thats coming from the aging of the population. Well, lets just say, okay, if i can just interject, aging of the population may be one factor. The other factor is not coming down for good reason, but wrong reason, namely theres a frustrated work force out there thats complete lly giving up looking for work. Let me talk about some of the drag on the economy. Obviously you have a role in conducting Monetary Policy and one of the dual the dual mandate functions maximum employment, thats an objective of the Federal Reserve, supervision and regulating institutions ensure safety and soundness is another important mission. What im worried about and what might explain some of the dragon in our economy is that regulatory over reach can be across purposes with your Interest Rate policies and the left hand may not know what the right is doing. Let me give you an example of what im talking about. In the post dodd frank world, financial firnls are supervised by multiple agencies, more than ever before. The fdic, the oci, the scc, the cftc, the cfpb, these agencies promulgating regulations, theyre performing regulations with respect to rule makings the approach of the market regulators can flex with the safety and soundness regulators which can conflict with the Consumer Protection regulator. And on supervision, often the substance of examinations overlap, but the timetables dont and so Data Collection among financial regulators can be ununder nacoordinated. This is not undue burden on Financial Firms that may be drags our economy. It may lead to gaps and suggestion. When you look at wells fargo and the scandal that weve seen there and the Consumer Fraud that went unpunished for five years, based on the timeline weve seen, and the primary Consumer Protection agency is coming in on the tail end of that, again, according to the timeline weve seen. Do you acknowledge that maybe the lack of regulatory coordination and inefficiency may be a problem. Secondly wharks do you think about proposals to consolidate or at least reduce the number of financial regulators to reduce regulatory incompetence, to reduce duplication or conflict or at least consolidate examinations and Data Collection efforts between and among regulators. Well, we have a complicated regulatory system, theres no doubt about it and we recognize that the issues youre discussing can create a great deal of burden. For our part, we worked very closely with the controller and with the fdic and also with the cfbp. And in the remaining time and i dont have much time, the Merchant Banking, will you commit that youll provide us with analysis with the type of cost that this could impose on companies. It was recommendation to congress and not a rule. Time and the gentleman has expired. The chair wishes to remind all members, the chair intend to recognize the gentleman from washington and pennsylvania and adjourn the hearing. The gentleman from washington is now recognized. Thank you mr. Chairman, chair yellen thank you so much for being here. Im not quite there yet toward the healthier economy. I think its useful to look farther ahead to the next economic cycle. Thats what i read with interest that the committee projected last week that the fed funds rate will top out at two and three quarters to 3 . That and give you a lot of room to deal with the next recession and as i am fond for saying neither god or anyone else is outside. We will have another recession. So my question is why dont you consider raising the inflation rates so that you have more bullets and your most powerful weapon to combat the next recession. Well, this is something that researchers are looking at and are talking about and for the reasons that you gave, i think it is an appropriate subject for research and for consideration if we remain in a low Interest Rate environment for a very long time. Its not something that the fomc is actively considering. Not at this time. Are you open to it . At the moment, i this its not its not a priority for us to consider that never, that its not something i think its appropriate for researchers to consider the cost and benefits of it carefully. Its not something were actively looking at but i wouldnt say its something we could never look at. We are focused on trying to achieve our 2 objective. We want to emphasize 2 is not a ceiling on the inflation rate, its the target where we would like to be that inflation can be above and below 2 at different times. We dont expect to always be there. I think weve realized are you concerned . The basis of my question is you dont have enough bullets in your most powerful weapon. Are you not concerned at all . I am concerned, and i gave a speech at jackson hole that addresses this issue. First of all, i think we may be required to use the same kinds of tools we used during the crisis in the event of future downturn and i emphasized that, that those need to be permanent parts of our arsenal. Beyond that, yes, further things, its important to do research on further things. I emphasized congress should also consider what its role should be. Thank you. I actually read the speech. Thank you. Last time you were here i asked you when does america get a raise . When does what . When does america get a raise. I want to go down this road with you again briefly. Obviously the economy is moving, although not there in a healthy direction. Car sales are up, home sales are up. Median Household Income was up fairly materially. Wage growth still stuck, i think, at about 2 1 2 . Even in the last weak recovery wage growth was 4 . Chairman yellen, when does america get a wage . Get a raise . Wage growth has increased a little bit. I think as the recovery progresses we will see some more pick up in wages. But productivity growth is a very important determination of real wage growth or inflation adjusted wage growth. If nominal wage growth were to pick up and inflation picked up in tandem, that wouldnt be a real wage increase. What we want to see is wages going up without its involving inflation going up. Ultimately, the size of those paycheck increases in the long run are driven by productivity growth. Productivity growth has been very low. And i think thats one of the things that is holding down the improvement in Living Standards. So we are seeing some signs of a pick up, but ultimately if productivity growth doesnt pick up, faster nominal wage growth would prove to be inflationary. Thats a fundamental driver. Quickly, what would you define as full employment as measured by u6, currently stuck at 9. 7. I dont have a definition. Its higher than it was before the crisis, even though u3 is down to normal levels. I think that does signify some time expired. Chair recognizes gentleman from pennsylvania. Thank you, chairman. I want to touch on one thing following up on mr. Mulvaneys question. I think you testified with respect to needing Legal Authority in the event the fed wanted to purchase corporate equities. Is that right . Yes. I said we do not have. You would need additionally before you did something. Same hold true for Corporate Bonds . Yes. We cannot purchase Corporate Bonds. I want to take a few minutes to address issues i raised with you earlier this week. Im concerned about the level of influence fsb has on fsoc designation process. In a letter to g23 finance minister and Central Bank Governors mark kearney made clear members had a, quote, ongoing commitment to implement fsbs policies and that, quote, full, consistent and prompt implementation was section. Was essential. Some may dismiss this as inconsequential prose. Fsoc operates in the spirit of the words. Three identified as gsiis have also been designated by fsoc for fed supervision. With that in mind i wanted to ask you a few questions about the relationship between fsb and fsoc Decision Making. What is the role of the u. S. Members of fsb in considering whether to designate Insurance Companies under the gsii process . Well, a number of agencies take part in the fsb, the Federal Reserve, the treasury, are all members of the fsb and engage in their work. Under fsb charter countries commit to complement International Financial standards. What steps has u. S. Taken for fsb, u. S. Insurance companies as systemically important . None, because fsb designation has no impact in the United States and United States have to go through own rule making process. The fsoc analysis is completely separate and focused on slightly Different Things than fsb analysis and entirely separate processes. Did the Federal Reserve support the fsbs designation of prudential and metlife at gsiis before fsoc designated them . The Federal Reserve only joined aias that played a role here in 2013. To the best of my knowledge, we didnt participate in their analysis with the basis for the original designations. But the Federal Reserve does participate with the fsb, yes . We do participate in the fsb. In the process of fsb designated these as gsiis, what would the Federal Reserves position have been . I believe that the i have to check this out, but i believe that the fsoc designations of these firms occurred before the final the designations by the fsb. But i have to look at that more carefully. Well want to follow up on that. My understanding is the fsb designated them and then fsoc went and designated them. Because it seems if you agree to designate a u. S. Company as globally significant under the fsb regime, that that would end up influencing that the company is going to be designated as systemically important within the United States. Wouldnt you agree with that . Well, as i said, the fsoc process is separate. And i believe that the fsoc designations took place before the list of gsiis was put out. Could an fsb gsii designation be considered a, quote, other riskrelated factor under section 113 of the dodd frank act . I didnt catch that. Could an fsb gsii designation, if the fsb designates an Insurance Company as a gsii, could that designation be considered another riskrelated factor under section 113 of the dodd frank act . Not to the best of my knowledge. I yield back, mr. Chairman. The time of the gentleman has expired. I would like to thank our witness for her testimony today. Without objection, all members will have five legislative days within which to submit additional written questions for the witness to the chair which will be forwarded to the witness for her response. I would ask our witness to please respond promptly as you are able. Without objection, all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record. This hearing stands adjourned. [ room noise ] this weekend, cspans cities tour, along with our Comcast Cable partners, will explore the literary life and history of pueblo, colorado. Its really the railroad and steel and coal industry that bring pueblo as a city to where it is today. It speaks to how this is a natural place to settle. People still keep coming back to this place because its a sort of natural place to build a

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