Employment, greater opportunities, but also, policies that will target those who are hurt the most. I thank you, mr. Chairman. I yield back. The gentlemans time expired. The chair now recognizes the gentleman from pennsylvania. For fooi minute five minutes. Thank you, mr. Chairman. Welcome chair. I want to talk briefly about custody banks, which you know follow a different Business Model from other financial institutions. Custodians do not make consumer loans or engage in investment banking. For these reasons pose relatively little credit risk. I understand that custody banks whose customers would include Pension Funds with millions of beneficiaries are finding it increasingly difficult to provide their core custody services, especially accepting large cash deposits. And this could worsen under a period of stress. One of the reasons appears to be Regulatory Reform such as the supplementary leverage ratio known as slr. They typically place cash received on deposit with the Federal Reserve. This is cash that comes from Pension Funds, endowments and other clients. However, the Federal Reserve supplementary leverage ratio does not recognize the essentially riskless nature of fed deposits or the necessity of these placements by custodians. This may cause the leading custody banks to reject customer cash deposit. My question is, is the Federal Reserve aware of the impact that this may be having on custody banks . If so, what do you propose to do about it . Well, this is something that was considered, what is the appropriate treatment of central Bank Deposits when the supplementry leverage ratio was adopted. A decision was made at the time that the leverage ratio is not our main capital tool but backup capital tool that is intended to in a crude kind of way base Capital Requirements on the overall size of a firms Balance Sheet and that for that reason it should be included. We have more recently put in Place Capital surcharges that apply to the eight largest u. S. Banking organizations, including two custody banks. And its likely that once those are in place, that they will become the binding Capital Requirement but i would encourage you to take a look at that. Its an issue for the banks. We have heard of the problem. I will address it. As you know, chair yellen, the bank of japan announced it would implement a negative Interest Rate policy in an effort to increase spending and spur growth. The decision follows close on the heels of the European Central banks announcement it would launch stimulus in march. Economists predicted that sweden, denmark, canada and australia and china may follow suit. In a recent editorial in the wall street journal, the former president of the Federal Reserve bank of st. Louis argued these gimmicks will not create the intended affects and they will only serve to divert attention from the actual structural problems that have plagued growth in the u. S. And around the world over the last decades, namely Regulatory Burden and tax policies that serve to constrain Business Investment and longterm growth. What do you say in response to mr. Pole . I agree that there are structural factors that have restrained u. S. Growth and also been responsible for rising inequality in the labor market. And its important to take steps to address those problems. They are steps in the domain of congress. But its important for the fed to try to achieve its mandate of having ensuring a state of the labor market where people who want to work are able to find jobs, where there are a sufficient number of them. Given the stress situations that exist in europe where there remains very high unemployment and in japan where inflation has for well over a decade undershot their inflation objective, its a tool that has proven useful to them. I want to talk a little bit. You testified earlier over the past number of years the fed kept federal rates at low levels. With that, you testified that even with this quote exceptional closed quote strategy, the economy achieved 2 growth. You added, quote, economy is being held back by headwinds. Im wonder if any of these head winds are manmade or to borrow a phrase anthropagenic. I could identify some. The Affordable Care act. A lost reform bill that missed the market. Epa regulations. These headwinds have hit folks in my district like a mom who now has to pay 400 bucks for allergy medicine for her kid who she used to pay 10. The coal miner who be able to pay for his mortgage. I wonder when the history economic history of this decade is written, are they going to say the fed tried to do with Monetary Policy what should have been done with fiscal policy . Well, i think its also important for congress to address structural factors that are holding down growth. Time of the gentleman has expired. The chair now recognizes the gentleman from missouri, mr. Cleaver, Ranking Member of the housing and insurance subcommittee. Mr. Chairman, thank you for being here, madame chair. Following through on some things that were said earlier, i have a bad knee, and ive had it operated on 11 times. But the weird thing is that whenever i go to the hospital for another surgery, they never operate on my shoulder or my fingers. For some strange reason they always operate on the same knee thats been hurt. I know thats weird. The issue is, we cant address unemployment in a certain sector by saying we can operate on the whole body and it gets better. That has never been true. I differ a little from my colleagues in that i dont think its your responsibility. I dont think the fed has the responsibility even with the dual mandate. I think it is to be handled legislatively. I dont think were going to get that done. The other thing i have to say is that it has been set every time you come i have to say it because i have to get it off my chest. The, you know i do think that were declaring minority unemployment too big to curtail. Thats somewhat troublesome. But the wall street and the big six banks, you know, are too big to jail. You rob a convenience store. You go to jail. You rob 300 million americans, you get a cocktail. And i think thats whats creating all this anger around the country. I know you dont run the justice department. And i know you dont vote on legislation that could address some of these other issues. But i think we gotta say it as much as we can because i dont think i dont think the world is hearing us. Now, i would like to yield now the remainder of my time to the Ranking Member of the Financial Services committee. Thank you very much, mr. Cleaver. As you know, originally, i was thinking about dealing with the question of the subpoena, except if you dont mind, i am so focused on all of this money that goes to these too big to fail banks. Trying to understand, number one, not only the fact that Goldman Sachs got 121 million, jp morgan 910 million and that with the rise in Interest Rates from a quarter percent to a half percent, this will double. And this money keeps its going to the big banks. Its a subsidy to keep them from lending money. And we have this big need thats been discussed by my colleagues about this high Unemployment Rate and the lack of creativity and thinking about how we could deal with this. And these banks too big to fail who we are finding every day because of the predatory lending et cetera, are getting support from the feds. Please, please explain that. Its an essential tool that we need to adjust the level of shortterm Interest Rates. From the standpoint of the taxpayer, our payment of those interest on reserves we have very large reserve balances. We have 2. 5 trillion roughly of reserves in the Banking System as compared with 20 billion or 30 billion prior to the crisis. The counterpart of that on our Balance Sheet is that we hold a very large stock of assets on which we are earning a substantially higher rate of return than we are paying to the banks and that differential between what we earn on our holdings of longterm treasuries and mortgage back securities and the 25 or 50 basis points we pay to the banks, that differential all shows up in the taxpayers pocket. It is money that congress can use to address all of the problems that you have discussed. I have heard okay. Over last year, we transferred 100 billion because of that. Now, if we dont pay interest on reserves and must use another technique to adjust shortterm Interest Rates, likely we will be forced to greatly shrink our Balance Sheet in a rapid fashion and the total amount of money going from the Federal Reserve to congress will be significantly diminished. In addition to that, it would have very adverse affects on the economy. Well, i want you to know that not only am i concerned it looks like were about to have some bipartisan concern on this issue. I hear that. And while i understand the argument that you are making about the big banks, we cannot feel sorry for them in terms of the amount of Interest Rates, you know, that they are getting or not getting. Et cetera. We really do have to deal with this issue. I understand what you are trying to explain by shortterm Interest Rates. But if i may, madam, let me just say this. That we have an opportunity with the discount window to allow for loans from some of these Small Community banks that they are not getting. And if that money went into the Small Community banks, they would be able to do job creation and to support Small Businesses. Et cetera. And we just dont get why they are precluded from doing this and increasing the Job Opportunities in the community while we have given the subsidy to the big banks. We just dont get it. Although i agree with much of what the Ranking Member has said, she has long spent her time. The chair now recognizes the gentle lady from utah. Ms. Love. Thank you, mr. Chairman. Thank you, chair yellen, for being here today. Chair yellen, im increasingly concerned about the impact of doddfrank regulations on real Economy Economic growth and especially job creation. Which i would like to just ask you a few questions about. If you look beyond the headlines, the headline numbers from last fridays job numbers and include discouraged workers and the underemployment, real underemployment real unemployment remains high, nearly 10 . In addition, millions of people have stopped looking for jobs. They have dropped out of the workforce. Its a dynamic that is driving the nations workforce Participation Rate to an alltime low at 62. 7 . I want you to know that i agree with my colleague on the other side of the aisle, representative scott, when he talks about the large number of unemployment with our young black americans. Meanwhile, Economic Growth slowed to just. 7 in the fourth quarter. Im concerned that the fed and other financial regulators may not have a firm grip on the cumulative impact on the real economy of thousands of pages of the new doddfrank regulations, especially new capital and liquidity rules. Im wondering if you share some of those concerns. Well, i recognize that some of the new concerns are burdensome and do raise banks cost of financial intermediation. In designing those regulations, were always trying to achieve a balance between the benefits of creating a sounder and more resilient Financial System that is less likely to be subject to the kind of devastating financial crisis that we had. Were balancing that against burdens that can raise the cost of capital or diminish financial mediation. Intermediation. And we have tried to strike a reasonable balance remembering. And we have tried to strike a reasonable balance rememberinin. And we have tried to strike a reasonable balance remembering that the financial crisis, nothing resulted in more harm for a longer period of time than the financial crisis that we lived through. And i think we now have a much safer and sounder Financial System. Okay. So another study by the American Action forum found that Consumer Credit availability deteriorated 12 to 14 since the passage of doddfrank. Im concerned also that the growing number of borrowers unable to access affordable banking, bank financing, a lot of borrowers from districts lowincome areas in my district, these are hard working americans that have that are turning to highcost and unregulated online lenders to be able to get the access to the credit that they need, whether its purchasing a car or even starting a small business. Theyre finding that their ability to access this type of credit is unavailable to them. So im wondering if you also share some of my concerns about Credit Availability and the higher cost alternatives. I do share your concerns about Credit Availability. I think its clear that Credit Availability has, in particular, segments been diminished. Home loans, mortgages for example, for individuals without pristine credit ratings, is really difficult, remains difficult to obtain. In part, we have regulations that are meant to address harms. I think lending standards were too easy prior to the financial crisis. We dont want to go back to lending standards that are so loose that they lead to the kinds of predatory lending and harms that we had that took a toll on the economy and on lowincome households in communities. We need to achieve a reasonable balance. Were searching for that. Being on the subcommittee of Monetary Policy, i wanted to ask you just a quick question on Monetary Policy and whats happening in europe. I dont know if you addressed this. Very quickly, implications of european financial instability on the american Financial System. What are the implications of the Federal Reserve and the ecb pursuing divergent monetary policies . The ecb has been addressing high unemployment and inflation that slipped very meaningfully below their 2 goal by putting in place negative Interest Rates in large scale asset purchase programs. The u. S. Has done better. Were among advanced economies about the strongest. So we have divergent monetary policies. It put upward pressure on the dollar over a long period of time which harmed manufacturing. And net exports. It has resulted in negative influences on a part of our economy. Time of the gentle lady expired. The chair recognizes the gentleman from missouri. Mr. Clay, Ranking Member of the financi financial subcommittee. Thank you, mr. Chairman. Thank you for being here. The Federal Reserve has a congressional dual mandate to seek maximum employment while limiting inflation. To limit inflation, the Federal Reserve raises Interest Rates which slows the economy by discouraging people from borrowing, to buy homes or cars, and discouraging businesses from investing. With this reduced demand, businesses will hire fewer workers, and as a result, workers will have less bargaining power, meaning they will be less likely to get pay increases. The decision to raise Interest Rates is based on the assessment of the open Market Committee of the Federal Reserve about whether inflation or unemployment poses a greater threat toe American Economy. Unfortunately, the members of the fomc largely come from the financial industry. And as a result, tend to be more concerned about inflation than the population as a whole. Less concerned about unemployment. How do we square that . Madame chair. So, first of all, i want to say that the committee is deeply focused on unemployment. We have two objectives, not one, maximum employment and price stability, which we have interpreted as 2 inflation objective. I really take issue with the idea that were not focused on achieving our maximum employment objective. We are. Monetary policy has been highly accommodating. The fed funds rate was at zero for seven years. We also have a large Balance Sheet that is provided a lot of additional accommodation. So were not talking about tightening Monetary Policy or a tight Monetary Policy. We have an economy that now has made substantial progress, creating 13 million jobs with the Unemployment Rate down to 4. 9 . We took one small step to raise shortterm Interest Rates but continue to have an accommodative Monetary Policy which we see as consistent with further progress in th