From the honorable randal quarles, Federal Reserve vice chairman for supervision; the honorable jelena mcwilliams, chairman of the fdic; and the honorable rodney hood, chairman of the ncua. Welcome to all of you. This hearing provides the committee an opportunity to examine the current state of and recent activities related to the regulatory and supervisory activities of these agencies. It has been over a year now since the enactment of s. 2155, the Economic Growth, regulatory relief and Consumer Protection act, and the work of the agencies to implement most of the laws provisions, including the tailoring rules for u. S. Banks and u. S. Operations of foreign banks. Your agencies should also carefully review the existing supervisory frameworks and make any necessary adjustments to appropriately align them with the tailoring rules and requirements. On july 30, 2019, all of the Republican Banking Committee members and i sent a letter to the federal banking regulators urging your agencies to finalize several outstanding provisions of s. 2155, such as the Community Bank leverage ratio and shortform call reports, and to further tailor regulations to promote Economic Growth, including addressing the current expected credit losses accounting standard, the volcker rule, interaffiliate margin and madden. Thank you for acting on many of these priorities. I encourage you to continue exploring additional opportunities to tailor rules. In that july letter, as well as an october 2018 letter to your agencies, several Banking Committee republicans and i urged your agencies to revise the volcker rule, including using your discretion granted by congress to address the current covered funds overlybroad definition. Although your agencies joined the sec and cftc to issue a proposal revising several aspects of the volcker rule, the covered funds provision was left relatively untouched. I encourage your agencies to take quick action to address the covered funds issue by revising the definitions overlybroad application to venture capital, other longterm investments and loan creation. Separately, in september, shortterm borrowing rates spiked as a result of a large Corporate Tax payment coming due, and 300 billion in treasuries hitting the market, even in light of Banks Holding a surplus of cash at the fed, currently around 1. 4 trillion. In light of these events, banks could have stepped in to alleviate the volatility in those markets by lending some of the excess cash that they hold at the fed. So why did they not do that . Some have suggested that certain aspects of the feds supervision and regulations imposed after the 2008 financial crisis may have exacerbated this problem, specifically the treatment of cash versus treasuries. Although the fed has taken some steps to address the issue in the shortterm by buying treasuries and lending funds, it is important that the fed review the details of its current regulatory and supervisory regime for potential longterm fixes. Now quickly turning to guidance, senators tillis, perdue, rounds, cramer and i wrote to gao in february asking for its legal opinion as to whether three Federal Reserve supervision and regulation letters constitute a rule under the congressional review act. In its october response, gao concluded that two of the letters, including one providing a new supervision framework for large Financial Institutions and another related to recovery planning, are rules under the cra, and are required to be submitted to congress for review. During the Banking Committees april hearing on this very issue, i urged your agencies to follow the cra and submit all rules to congress, even if they have not gone through a formal noticeandcomment rulemaking to continue providing more clarity about the applicability of guidance. I encourage the federal banking regulators to take a more deliberate approach going forward, and take any necessary steps to rectify informal guidance that has not been submitted to congress. In january 2019, the ncua announced the portion of regulations that would be reviewed as a part of the process through which the agency reexamines all of its existing regulations every three years. The Comment Period for that review process has since closed, and i look forward to learning more about the regulatory recommendations provided to the ncua and its roadmap for actions going forward. Finally, the Banking Committee has been exploring Digital Currencies over the last few congresses, especially in light of the recent development of the libra Digital Currency, started by facebook. In july, i asked Federal Reserve chairman powell about his understanding of and the feds role in the project. Although chairman powell noted that the fed has set up a working group to focus on libra and is in contact with the other regulatory agencies, he also said that there is not any one agency that can stand up and have oversight over this. Given its scope, regulators across the globe continue to evaluate libra, its potential impact in the marketplace, and consider appropriate and necessary regulatory responses. It seems that Digital Currencies are inevitable, and the u. S. Needs to lead by providing clear rules of the road. During this hearing, i look forward to learning more about the status of addressing the overlybroad covered funds definitions in the volcker rule, especially with respect to long term investments; how the agencies are thinking through the recent turmoil in the repo market, and what adjustments may be appropriate for a longterm fix; whether the supervisory framework that applies to banks currently needs to be updated to better reflect changes made in the tailoring rules; and how the agencies are thinking about the libra project, including what u. S. Regulatory framework merits consideration to balance innovation and protect its users and privacy. I thank each of you for your willingness to join the committee today to discuss your agencies regulatory and supervisory activities, and these important issues. Senator brown. Thank you, mr. Chairman. Welcome to the three regulators here. I want to start by noting that typically when we have the financial regulators testify, the comptroller of the currency is also here. Mr. Otting had a conflict today. He is expected to announce changes to the Community Reinvestment act shortly, changes that the Civil Rights Community and others are very concerned about. I share those concerns, and i expect that we will have him up before this committee to talk about this proposal and other activities at the occ soon. Thanks. We all saw how wall streets financial schemes hurt regular people when they blow up in bankers faces, like they did in 2008. You all saw the devastation of the crisis. Whether as a staffer in the senate, while serving at the agency you now lead, or at a private equity firm after a stint at treasury, you had a front row seat. You can argue about or discuss responsibility. We can talk about that later. Thats why im concerned about the collective amnesia you all appear to have as you make changes to the bank rules, changes that allow wall street to get back to its old tricks, and that i fear will cost americans their jobs, homes, and savings the next time complicated bets blow up in bankers faces. But what is sometimes harder to see are the schemes that hurt families and the economy even when they work exactly how wall street intends. My state is the setting of one of those wall street schemes. Twelve years ago, just before the financial crisis, a giant private equity firm bought a Nursing Home Company based in toledo that operated facilities nationwide. Soon that Nursing Home Company was being strangled by debt from risky leveraged loans. It laid off hundreds of staff and let its patients suffer under negligent, horrifying conditions. According to the washington post, staffing cuts meant there werent enough nurses to respond to patients. Health Code Violations rose dramatically. In pennsylvania, a patient broke her hip and crashed to the floor when a staffer tried to do a twoperson job and move her on his own. Patients faced other Living Conditions that no human should have to endure, waiting in soiled clothing and dirty beds for help that was never going to come. And all the while, that wall street private equity firm was extracting more profits. Last year, the Nursing Home Company went bankrupt. But that didnt stop the private equity firm from making huge profits on their investment. This is what happens when leveraged loans, collateralized loan obligations, and leveraged buyouts work as designed. Wall street extracts all the profits out of the company, and the rest of us, workers, patients, our families, we pay for it. Today wall street is looking for profits anywhere it can find them, and these schemes squeeze money out of every part of the economy, not only healthcare. It may be from a hospital in philadelphia or ohio but is also manufactured Home Communities in iowa and ive seen where private equities commit and raised the rent 50 and people are captive having to live there and much higher rent that they didnt expect so manufactured Home Community in New Hampshire not just harming individual families but entire communities. Imagine how bad it will be if these complex Financial Transactions blow up like the subprime mortgage ones did in 2008. This is just one of so many challenges working families are facing. We got a report this week showing that almost half of all American Workers are stuck in low wage jobs. One in four families spend more than half of their income on rent and utilities. I know people seeing about this economy but think about this tenure economy where growth has declined a a bit in the last couple of years but think about that, almost half of American Workers are stuck in lowwage jobs. One in four families spend more than half of their income on rent and utilities. If one thing goes bad in their lives, they lose their home. Forty percent of americans are so short on cash they would be forced to borrow money to cover a 400 expense. Those of the people the three he worked for. You dont work for this president. You dont work for wall street or the banks. You worked in part for the half population that cant come up with 40 of the population that cant come up with 400. More and more families have to borrow just to get by, credit card debt, student loan debt, and mortgage debt, are all higher than before the crisis. Wall street squeezes more out of every paycheck, adding to their billions. If regular americans are struggling ten years into a socalled recovery when the stock market is booming, what will happen in a recession . This cant be how the Financial System should work. The regulators job isnt to protect profits for big banks and big corporations. Its to protect our economy and our Financial System, and the ordinary families that the system is supposed to serve. I guess when the president says draining the swamp, he really means betraying workers and giving wall street free rein to prey on them and wring every last cent out of profit of our communities. This president uses his phony populism, racism, antisemitism, antiimmigrant slander, to divide us, to distract from all the ways he and his handpicked cronies have betrayed working families and left them struggling. Thats not how a democracy should function, and i am deeply worried that if you dont stand up for workers and families, so much in our economy and our democracy is at risk. Thank you, mr. Chairman. Thank you. We will now turn to our witnesses. Ask you give remarks in the order i introduced you. We will turn you first, mr. Quarles. Thank you very much, chairman crapo, Ranking Member brown, members of the committee. Thank you for the opportunity to appear today. My colleagues and i join you on the cusp of a significant and shared milestone, which is the full and faithful implementation of Congress Efforts to improve Financial Regulation in the form of the Economic Growth regulatory relief and Consumer Protection act. Today i will briefly review the steps weve taken towards this milestone, share information on the state of the Banking System and discuss the continuing need to ensure our regular framework is both coherent and effective. The act was an effort to consolidate a of work on financial reform. And a specific target response to the conditions facing todays banking organizations and their customers. It was also rooted however in longstanding congressional proxy of reviewing the work done in the immediate aftermath of the crisis, of addressing any gaps, and of ensuring the public and private resources go towards the best and most efficient use. The latest supervision and regulation report delivered in connection with my testimony today confirms that we have stable, healthy and resilient Banking Sector with robust capital in liquidity positions, stabled on performance and strong loan growth, steady improvements in safety and soundness, and several areas of continued supervisory focus including operational resiliency and cyber related risks. The Banking System is substantially better prepared to manage unexpected shocks today that was before the financial crisis. And now when the waters are relatively calm is the right time to examine the efficiency and effectiveness of our protection against future storms. With last years reform Legislation Congress made a significant down payment on the task and less than 18 months after the passage, weve implemented all of its major provisions. Earlier this year we completed a cornerstone of the legislation tapering on rules for regional banks, and building on our existing work that firms with greater risk should be, meet higher standard and have more screwed up. We relied heavily on a firms total asset and proxy for those risks, and for the cost of the Financial System would incur if the firm failed. This simple asset proxy was clear and critical, rough and ready. It was neither risk sensitive nor complete. Our new rules and put a broader set of indicators to assess the need for greater supervisory scrutiny and maintain the most stringent requirements strictest oversight for the largest and most complex firms. We and our interagency codes have worked on a range of measures to address the issues facing Smaller Banks with particular attention to the Committee Bank business model. And our goal through this intense regulatory activity has been to faithful intimate congresses instructions but those instructions also speak to a broader need in one central ongoing work which to ensure the obligatory regime is that only simple and efficient and transparent, but also coherent and effective. Financial regulation like any area of policy is a product of history. Each component dates from a particular time and place and it was designed, debated and acted to address a particular set of needs. No rule can ever be truly evergreen. Gaps in areas for improvement will always reveal themselves over time. Our responsibilities to address those gaps without creating new ones, to understand fully the interaction among regulations, to reduce complexity where that is possible and to ensure our and i will book supports the safety, stability and strength of the Financial System. My colleagues and by paying to a smooth transition away from libor and other legacy benchmark rates come to sensible treatment of new Financial Products and technologies, and to clear consistent supervisory communication which reflects and reinforces our regulations and laws. My written testimony and the accompanying supervision regulatory report covers each of these areas in greater detail and i appreciate the opportunity to discuss them with you today. Thank you and i look forward to answering your questions. Thank you very much. Chairman mcwilliams. Chairman crapo, Ranking Member brown, members of the committee, and fellow staff, thank you for the opportunity to testify today. 18 months ago i began serving as the 21st chairman of the fdic. During this time the fdic has undertaken a great amount of work with a particular emphasis on three overarching goals. Strengthening the Banking System as a continues to evolve, ensuring that fdic supervised institutions can meet the needs of consumers and businesses, and fostering Technology Come solutions, and encouraging innovation at Community Banks and the fdic. The fdic has made significant progress in each of these areas and i appreciate the opportunity to share our progress with this committee. Before discussing the fdic is work to strengthen the Banking System i would like to begin by providing context regarding the current state of the industry. The u. S. Banking industry has enjoyed an extended positive Economic Growth. July this expansion became the longest on record in the