Internet caucus taking a look at internet privacy and personal data protection. The chair of the Federal Reserve, janet yellen, testified on the u. S. Economy and Monetary Policy appearing before the House Financial Services committee on wednesday for about three hours. The committee will come to order. Without objection the chair is authorized to suggest a recess for the committee at any time. This is the annual testimony on the Federal Reserves supervision and regulation of the Financial System. I now recognize myself for three minutes to give an opening statement. The dodd frank act requires the Federal Reserves vice chair of supervision to testify before our Committee Twice a year regarding the supervision and regulation of Financial Institutions. Regrettably, five years after the passage of dodd frank, no such person exists. President obama has been unwilling or unable to follow the law in a point at vice chair. We can no longer wait for the president to do his job so we can be allowed to do ours. Thus chairman yellen appears before us today in substitution. As we know, dodd frank rewarded the Federal Reserve with broad, new, sweeping regulatory powers despite its contributions to the last financial crisis. Under the dodd frank, the fed can now functionally control every major corner of the Financial Services sector of our economy, separate and apart from its traditional Monetary Policy authority. Su disturbingly, the fed does so that is neither transparent or obvious to the authority. They are not able to shield their regulatory activities by improperly cloaking them behind its traditional Monetary Policy independence. What is clear is despite the largest monetary stimulus in our nations history, in seven years of near sfwlezero Interest Rate middle income families are not getting ahead and are falling further behind. Gdp growth is coming in at an anemic 75 . Our economy has limped along at about half the postwar average. That means every man, woman and child is a thousand dollars poorer than they should be, and millions could be fully employed when they are not. Capital that could fuel robust Economic Growth instead remains sidelined due to a regulatory tsunami, much of it dictated by dodd frank and promulgated by the Federal Reserve. Thus, serious questions must be asked. Why isnt the fed subject to statutory costs benefit analysis . Why has the fed yet to find any connection between its volcker rule or any other rule in the precipitous drop in Bond Market Liquidity . Why does the fed cough kabucke drama where banks punish . With its all encompassing new Regulatory Authority under dodd frank is a dangerous mix. It is a threat to Economic Growth not to mention the principles of due process, checks and balances and the rule of law. If were not careful, our central bankers will soon become our central planners. Fortunately, the house will soon have the opportunity to reform the fed and make it more transparent with the federal oversight reform and modernization act offered by our colleague mr. Hai zinga and approved by this committee. I now yield five minutes to the Ranking Member for an opening statement. Thank you, mr. Chairman, for holding this hearing and thanks to Federal Reserve chair yellen for making herself available to testify. The 2008 financial crisis inflicted staggering damage to our economy. Within the months before president obama took office, shedding more than 800,000 jobs a month, home foreclosures displacing millions of families, and entire industries on the brink of collapse. Congress responded to this devastation bypassing the most comprehensive overhaul of our Financial System since the great depression, the doddfrank wall street reform and Consumer Protection act. The act entrusted significant responsibility to the Federal Reserve and directed the fed to improve its Supervisory Program so that another crisis of such scope and depth would never happen again. Recognizing that the Federal Reserve failed to apply appropriate prudential standards to large banks, congress directed the fed to impose enhanced requirements for capital, liquidity, Resolution Planning and other factors to ensure that no large bank or group of banks could again endanger our economy. Im eager to hear from chair yellen on the progress of these reforms along with a description of how the fed is using the flexibility embedded in doddfrank to tailor regulations appropriate to the sizes and risks of different types of banks. Congress specifically permitted the fed to differentiate among companies on an individual basis or by category, considering their capital structure, riskiness, complexity, financial activities, size and other factors. The fed could use this authority. Likewise, the doddfrank provided the fed with new responsibility to collectively regulate the activities of systemically risking banks entities such as insurance company, aig, systemic consequences on our economy just seven years ago. I very much would like to hear from chair yellen about how the fed has bolstered its expertise to take on these new responsibilities. Let me also express my deep concern about legislation this committee considered during a markup this week that would severely undermine efforts by the fed to regulate both banks and nonbanks. With regard to banks, the legislation would hamstring the feds ability to regulate all but the largest globally active banks, ignoring how the failure of many large, interconnected Regional Banks could have dire consequences for our economy. Similarly other legislation would undermine the Financial Stability oversight counsels ability to identify supervisory gaps, designate nonbank firms for enhanced prudential regulation, and ensure the fed is regulating them on a comprehensive, consolidated basis. Finally, as we just surpassed the fiveyear anniversary of doddfrank, i think it is important to remind the committee and the public of the need to be ever vigilant of the threat of another crisis. Among our supervisors we must guard against complacency and regulatory capture. Among our law enforcement, we must hold institutions and individuals accountable, something former chairman ben bernanke, in his recent book, said we did not adequately do. Here in congress we must be mindful of attempts to defund and defame doddfrank. The American Economy has made substantial progress since the depths of the crisis. But that progress will be threatened if we do not protect these reforms both in statue and in practice. So thank you, mr. Chairman, and i yield back the balance of my time. The lady yields back. The chairman now recognizes the gentleman from texas, mr. Nogenbau, rerks, chairman of our financial subcommittee, for two minutes. Today marks the First Time Since the passage of doddfrank that someone from the Federal Reserve has testified under the statutorily created vice chair of supervision. Yet today the person testifying was not appointed or confirmed for that position. I remain baffled the president has failed to put forth a single name for this role. I feel its in part that dan tarillo, who serves as chairman of the internal banking supervision, can already exercise many of the authorities and in a defacto capacity, free from any checks and balances. The Federal Reserve, in addition to its Monetary Policy regulation, operates many Financial Institutions, some of them the largest in the world. We have seen decisions driven largely by the Federal Reserve that artificially manipulated the liquidity. Under stress testing, the process is likely the most important thing the bank must do this year remains completely free from any oversight. Internet banking and standards are aggravated and implemented. These are operations and deserve much of our needed attention and oversight. Today i hope chairman yellen will address some of the more intricate points of banking regulation and supervision. Specifically i hope to get a better understanding of how she sees each capital and Rule Making Committee working together. I hope to see how the market manipulates institutional regulations. Weve already seen the bond market where volatility has remained in the liquidity coverage ratio. Finally, i hope to hear her reports of how to make ccar more transparent. She must also talk about how the regulatory standards are prioritized in the ccar environment. I look forward to this particular hearing. Today we welcome the testimony of chairwoman janet yellen. Chair yellen has previously testified at our committee before, so i believe she needs no introduction. Ms. Yellen, your statement will be made a part of the record. You are allowed five minutes to give us an oral testimony. Thank you for being here. I think you need to hit the microphone there. Chairman henserling and other members of the committee, i appreciate the chance to testify on the regulation and supervision of Financial Institutions. One of the firms fundamental goals is to promote a Financial System thats strong, resilient and able to serve a healthy and growing economy. We work to ensure the safety and soundness of the firms we supervise and also to ensure that they comply with applicable Consumer Protection laws so that they may, even when faced with stressful financial conditions, continue serving customers, businesses and communities. This morning id like to discuss how we have transformed our regulatory and supervisory approach in the wake of the financial crisis. Before the crisis, our primary goal was to ensure the safety and soundness of individual Financial Institutions. A key shortcoming of that approach was that we did not focus sufficiently on shared vulnerabilities across firms where the systemic vulnerability of the largest complex firms. In the fall of 2008, the failure or near failure of several of these firms, many of which we did not supervise at the time, sparked a panic that engulfed the Financial System and much of the economy. Today we aim to regulate and supervise Financial Firms in a manner that promotes the stability of the Financial System as a whole. This has led to a comprehensive change in our oversight of large Financial Institutions. As my written testimony describes in more detail, we have introduced a series of requirements for the largest and most complex banking organizations that reduced the risk to the system in our economy that could result from their failure or distress. In addition, we now supervise Financial Institutions on a more coordinated, forwardlooking basis. At the same time, weve been careful to make more measured approaches to firms on the other end of the spectrum. Were committed to ensuring that the supervision of smaller institutions is tailored to the Business Model of larger institutions. In supervising Community Banks, were refining our riskfocused approach which aims to target Examination Resources to higher risk areas of each banks operations and to ensure that banks maintain Risk Management capabilities appropriate to their size and complexity. Given the Important Role the banks play in their communities and the economic support they provide across the country, we recognize that supervision of Community Banks must be balanced and measured. The regulatory forms weve adopted throughout the crisis impose risks of large Financial Institutions in two ways. First, our reforms reduce the probability that large Financial Institutions will fail by requiring those institutions to make themselves more resilient to stress. However, we recognize we cannot eliminate the possibility of a Large Institutions failure. Therefore, a second goal of our postcrisis reforms was to eliminate a systemic end that would result if a Financial Institution were to fail. Again, my statement provides more detail, but i would like to highlight for you two examples of how were addressing this too big to fail challenge. First, to limit the systemic effect of a Large Institutions failure, the board and the federal Deposit Insurance Corporation have adopted a Resolution Plan rule that requires large banking organizations to show how they could be resolved in an orderly manner under the bankruptcy c e code. Second, the board just last week proposed a role setting longterm debt and total loss absorbing capacity requirements for the very largest banks in the United States. With the new requirements, if losses were to wipe out a firms capital and push a firm into resolution, a sufficient amount of longterm, unsecured debt would provide a mechanism for absorbing losses and recapitalizing the firm without generating contagion across the Financial System and damaging the economy. In addition to strengthening the regulation of the largest, most complex Financial Institutions, we have also transformed our supervision of these firms. Our work is now more forward looking and multidisciplinary, drawing on a wide range of expertise. We put together this operation with the creation of the Large Institution supervision coordinating committee, or liscc, which is charged with supervision of the firms that pose elevated risks to u. S. Financial stability. The liscc program complements traditional, specific supervisory work with horizontal programs that examine the same firms at the same time on the same set of issues in order to promote better monitoring of trends and consistency of assessments across firms. For example, our comprehensive capital analysis and review, or ccar, ensure that large bank holding companies, including the liscc firms, have rigorous, forward Capital Planning processes and limited forms of capital to operate during times of stress. I would note that capital at the u. S. Banks alone have more than doubled since 2008, an increase of almost 500 billion. Our new regulatory and supervisory approaches are aimed at helping ensure these firms remain strong. While more work remains to be done, i hope you will take away from my testimony just how much has changed. Our supervisory approach is more comprehensive and forwardlooking while also tailored to fit the level of oversight to the scope of the institution and the risks it poses, and the Federal Reserve is committed to remaining vigilant as a regulator and supervisor of the financial instituti institutions that serve our economy. Thank you. I would be pleased to respond to your questions. The chair now yields himself five minutes for questions. Chairman yellen, the first question i have deals with the concern, has the fed crossed the line from being regulator to manager . Weve had a number of individuals come to our committee to tell us that fed officials have regularly attended Corporate Board meetings of the systemically important Financial Institutions under the feds purview. Is that true . So im not sure if thats true. It is not so you are unaware of any fed officials attending Board Meetings its conceivable that that might have occurred. Im not saying that it did not occur. I dont i would have to get back to you with if it did occur, what Legal Authority would you cite for having employees of the fed invite themselves into Corporate Boardrooms . I dont know what the circumstances are in question, but i can, for example, tell you that when i was president of the San Francisco fed that i occasionally would attend a portion of a Board Meeting of one of the firms that we supervised to make a presentation to the board about our supervisory findings and the emphasis but you are unaware of any fed officials attending these Board Meetings . You have no personal knowledge of this, and this is not a policy with the fed . I really dont have details about what fed officials we would appreciate it if you could look into this, chair yellen, and