Gina ewing testified that the Biden Administration has driven a historic recovery over the last three years and address the need for Regulatory Framework stable corns and Digital Assets. Intelligence and the financials actor. This is about two hours. Committee on banking an the committee will come to order. Secretary ellen who has been taxable in the schedule and we had to change the time from yesterday to today and then she has to leave at 11 30. We will risk back that. I will enforce the five minute rule on myself and everyone else. Thank you for understanding, all of you. For a long time, its clear what gets rewarded and wall street. Bigger risks mean bigger profits. Your profits mean more stock options. Bigger profits mean fatter bonuses. Then we end up with a wall street culture that glorifies seen just how much they can get away with. Executives know that when big bets pay off, they get to cash out and when is bets failed, they dont clean up the mess. Workers and taxpayers and our communities will always. Thats what financial fiascoes boil down to. Their system encourages bad decisions and leads to an economy of access for executives in a shrinking middle class. Its how we get east palestine. The ceo of stalin does make 365 times what the average worker makes. We saw the story play out 11 months ago. Svp and other poorly run banks but trofa had of basic Risk Management and then as they imploded, small but this is all over the country worried how that make payroll if they could not access deposits themselves. Regulators had to step in as they always do to protect our economy while the executives walk away pretty happy. 2008 was the same story but on a bigger scale. Wall street took big risks with americans money just Like Silicon Valley Bank did wall street figured out it could make even bigger bets by exploiting gaps in our regulatory system. Always enticed a huge bonus is, wrist taking built up in the shadows until its too late to contain and we know how it turned out. Chaos and wall street put 9 million americans out of work. Millions lost their homes and wealth to fork leisure. I sighed in my own neighborhood is a 44105 more foreclosures in the first half of 2007 then any zip code in the united dates of america. A mess thats darted in new york boardrooms with big, burly supervised wall street companies, spreading two neighborhoods are in the countries, swallowing up hot homes, jobs and livelihoods. Some dismiss this its all in the past, all history. A once in a century catastrophe. We dont need to worry about that anymore but it showed us how wall street is always, always, always trying to hide the same old risky behaviors in new terms that their pr team has cooked up. They will not give up on in new ways to get around the rules so they can make bigger bets and make bigger profits. We let them get away with no oversight or safe guards read americans pay the price. Workers the price. We said too many times, 14 years ago we created the financial oversight console for all of our regulators which the distinguished secretary cherished. Her job is to monitor financial risk wherever it develops while other regulators only police some kinds of businesses. They take a birdseye 30,000 foot view of our Financial System. When they try to avoid the rules, they react. Their job is to close gaps in our system covering blind spots that anyone agency might have and can make sure safe guards are in place. The biggest, riskiest Financial Companies play a Critical Role in stopping the next hole in our economy and ending the cycle of bailout and long parachute for negatives with workers always stuck with the consequences. Its important as ever today. Financial companies, hedge funds, Insurance Companies holding nearly 28 trillion in assets. Over the last decade, the larger. These days, these companies are responsible for a lot of activity on wall street. These firms sitting in the middle of our biggest markets. Understanding employers cash to make payroll, finance buyouts, service mortgages or make huge bats with millions of dollars using money from workers pensions. Because these companies have become so central it would be all too easy for just one of them to drag down our Financial System. They have the same deeprooted temptation to take on more risk for a big payday. As anyone else and wall street does are even riskier. We know if one of these friends collapses, the executives will be just fine, but most of the country including zip code 44105 wouldnt. Thats why its so important when wall street tries to shape shift. Have sock must be there to take action on our economy. Its not a surprise that wall street and their allies have always wanted to kill anything that holds them accountable. Their lobbyists fought, viciously, some say to try to stop this. I think everybody in this committee remembers if they were here after we passed it. The chief lobbyist of Financial Services roundtable after we passed the bill. The chief lobbyist for the largest finance group of companies in the country said now its halftime. Now its halftime. Out of task their lobbyists for trying to block the council from doing its job, forcing it to sit on its and as risk builds up for they wanted to go as some of the most important tools for keeping our economy safe from reckless wall street behavior. They make wall street nervous which is why they fight so hard against what they are doing. Bringing oversight and accountability in the dark. They work to undermine its ability to impose safeguards of the riskiest Financial Firms. The message from the last administration was there. They are not really watching and will not really act. How wrong it was. It is changing today. They are in a better position to make sure that bad bets on wall street dont crush main street. They are focused on responding to new emerging risks or Financial System. Risks weve talked about before. Change in Artificial Intelligence as well as the old risk like shadow banks. They are also monitoring how commercial property markets affect our Banking System. An important concern given what weve seen just this week. In response for the critical work to safeguard National Security by cracking down on the system of finance. I work look forward to working with her to combat all the ways that bad actors are finding their activities including with new tools like Digital Assets. We cannot allow another financial crisis or another financial crash, sorry. Whatever the risk may come from, to set workers and consumers back. We need an economy where hard work, not financial speculation , pays off. A system that works for everyone. Not just for corporations, tax funds, their lobbyists who have far too much influence on this community. We know were still far from that economy and we have to link in corporate profiteering. Every time americans go to the grocery store, they play pay for stock backs, for executives. Every time they go to the grocery store, the paper stock buybacks and executive bonuses. What we see now is big things raising millions of dollars in a peer campaign to stop capital rules. We will make sure the taxpayers dont have to bailout another bank failure all to keep their lifestyles, all to keep their profits high. In this committee, we worked every day to and a system that rewards risky behavior with piles of Company Stock and huge cash bonus is instead of real economy and thats why this committee passed the bipartisan read act last year to crack down on the broken system. Its why we created this mission that is so important. Secretary ellen, thank you for rearranging your schedule to be with us. Can forward to it. And forward to being here today. We will have lots of questions about the economy and the state of affairs. It seems like some of my friends on the other side live in an alternate universe. The average american sees the economy that we have today and they just shake their heads. They cant understand what people in washington simply cant see. Two thirds of americans do not have 1000 in their savings account the Biden Administration has decimated, destroyed, leveled family after family after family. Inflation, 18 , and its not coming down, period and food up 20 . Energy 20 precast, 40 . Being raised in a family like i was raised in, a singleparent household and poverty, its not a problem. Its a crisis. A crisis brought to us by the Biden Administration and people who philosophically believe that a bigger government somehow leads to more success. That taking money out of their paychecks so that people have to figure out how to spend it better than the and here will somehow lead to a Better Future for their heads. Thats what we call in South Carolina hogwash. We also have the response ability to look at matters concerning National Security. Whether thats root and icing tools to better curve this influence or to curb cartels trafficking drugs across our borders and bad actors like iran. I wish you were here four months ago as a us to do to be here at the devastating attacks that hamas leveled on israel on october 7th. How much shame to know that this administration and your department continue to release billions of dollars to iran, helping them youll and fund their terror proxies. The American People and our israeli allies deserve an accounting for this administrations reckless release of 6 billion in august. And after october the seventh, another 10 billion in november and not to mention relaxing the sanctions that allowed hundreds of billions of dollars to flow because of the oil revenue. Thats devastating. Raising the alarm high in 24. My republican colleagues send you a letter demanding answers on how you can continue to to provide billions of dollars that we know Fund Terrorism throughout the middle east and destroy, devastate and eliminate so many israeli citizens, our strongest ally in the middle east. Partially funded by resources released by this administration and your department of treasury. Ive not seen a sense of urgency. I have not seen accountability. We find that frustrating. Just look at whats happening around the globe. Since october, there have been over 150 attacks by iran backed terrorist groups against american servicemembers. As tragic as that is, it also led to the loss of the lives of two navy seals and three members of our United States army. 30 servicemembers injured. These are American Patriot who put their lives on the line and we should have their backs. No one fears u. S. Deterrence because there is no u. S. Deterrence to fear and that lack of deterrence certainly encompasses the treasurys role in allowing funds to be released to known terrorist supporting regimes. The Biden Administrations policies have shifted America Forward in a position of strength on the world stage to a position of weakness for all to see the billiondollar paydays to our adversaries must stop. Its time to defend american servicemembers and american interests abroad and this starts with ending any payments, any relaxation of sanctions to iran. But defending america is not just about looking overseas. Its also about here at home. From a border crisis to a fentanyl emergency, we must use our economic tools to stop the flow of internal coming into this country. 75,000 american lives have been lost to fentanyl. When we have known it National Security threats crossing our border and fentanyl production facilities popping up across mexico with the help of chinese pell presses and Chinese Workers and precursors, we have a massive problem. Too Many Americans live, live lives with family members lost. Devastation that so many families feel today is undeniable because of fentanyl. My friend lost his son last year less than a year ago to fentanyl. We can do so much more, and there is so little action to stop what we know is a killer across our southern border. I look forward to hearing your thoughts on how we and this crisis and how he and this race is now. Timeout time see this administration placing artisan issues above the American People. The results of biden economics as i said earlier is devastating. Talking about gas prices, energy prices, food prices, the lack of savings. We have to ask ourselves, how can American Families achieve the American Dream when so many of them have so little money in their savings account . How can an average millennial afford to become a firsttime homebuyer when Interest Rates are so high because of inflation is not transitory, its permanent. Brought to us by the Biden Administration. We should not do what weve seen done on the global stage from you and this administration. Focus more on leading the European Countries are helping me your countries devastate american businesses requirement policies. Go to china and spend more time talking about policy than we do ip theft. I know this sounds like a lot, but youve been given an awesome rest ons ability to improve the economy, protect america and and lead us to a Better Future. Instead of that, weve seen proposals that allow for this government to spy on america accounts with as little as 600 in transactions. It will and with this. I know your jurisdiction is the financial crimes enforcement and weve seen and heard abuses using their power to track americans for shopping at Sporting Goods stores, purchasing bibles and making transactions with political keywords. I sent a letter to you just a few weeks ago specifically asking about these allegations. The Treasury Department should provide materials have been providing materials to financial and tuitions researching americans Financial Transactions using technology that reveal political interest. I would love to hear a response to that. If true, this is a gross abuse of power grid it was created to stop Money Laundering not to spy on americans. It was not created for political motivation. I conclude with this. America deserves better. Than what the Biden Administration and the department of treasury has delivered to the. Senator scott, secretary, please proceed. Thanks for joining us again. Thank you, good morning. Chairman, Ranking Member scott, members of the committee my thank you for advice inviting me to testify took over the past three years, the Biden Administration is driven to historic recovery. Gdp growth is strong and in addition has the wind significantly. Weve also achieved a healthy labor market. The primate Labor Force Participation rate is up by over two Percentage Points from january 2021. The Unemployment Rate remains below 4 . Continuing the longest streak in 50 years. Real wages have increased. Household median wealth has, too, by 37 between 2019 and 2022. Thats the largest three year increase on record and families are now putting their additional income and accumulated savings back into the economy. Our continued economic strength depends on a solid and resilient u. S. Financial system. Throughout 2023, the Financial Stability Oversight Council monitored a wide range of risks. Including risks stemming from commercial and Residential Real Estate sectors and answer global conflicts and technological developments. When two regional banks failed last march, we acted quickly to banks with several similar vulnerabilities to maintain confidence in the Banking System. The council also increased transparency this year issuing an analytic framework for the first time that provides the public with indepth information on how it monitors, assesses and responds to potential financial risks. Let me now highlight five areas of ongoing work better with her detailed in the councils 2023 annual report. First the council is focused on risks from the Banking Sector there and from nonbank Financial Institutions. It supports member agent these plans to review capital measures, appropriate reflect the banking and the tuitions ability to prove losses. Large conflicts, interconnected banks and addressing vulnerabilities in intervals and depositor composition. NonFinancial Institutions are an important source of capital in Financial Markets but also pose a potential risk to the Financial System, including risks related to the liquidity mismatch and leverage. Securities and Exchange Commission initiatives focused on hedge funds, money market funds and other Investment Funds are in importance in the forward year. As long as the council is focused on agencies enhance assessment efforts and increase in coordination around related Financial Stability risks. From an severe and frequent climate related events. Financial regulators should also continue to promote disclosures that allow investors and financial and tuitions to consider these risks and investment lending decisions. Heard, the key focus has been bolstering protections against Cyber Security risk. The council promotes sharing timely and actionable cybersecurity informational, including ongoing partnerships between state and federal agencies and the private sector. Fourth, the council is closely monitoring the increasing use of Artificial Intelligence and Financial Services, which brings potential benefits, such as reducing costs. And potential risks like cyber and other risks. Financial institutions and Market Participants should continue deepening their expertise and monitoring capacity in this area. Fifth, the council is focused on Digital Assets and related risks such as runs on crypto acid platforms and staple corns, potential vulnerabilities for the crypto asset price volatility and the proliferation of forms acting outside of or out of compliance with applicable laws and regulations. Applicable rules and regulations should be enforced. Congress passed legislation to provide for the regulation of stable coins and for the spot market of Crypto Assets that are not securities. We look for it to continuing to engage with congress on this. I look forward to taking your questions on these and other areas. Thanks. We appreciate you being flexible and scheduling this. We move the hearing to 9 00 because she needs as much time as possible. Has to leave at 11 30 exactly. I will enforce the fiveminute role in myself and everyone else. Even the banking regulators after a banking crisis had used up in and stabilize the system. They take out side risks to enrich themselves and really suffer consequences. 14 years ago, the imposed wrist guards and the biggest Financial Firms. Why are these authorities important for ensuring that wall street is a rentable when it puts our Financial System at risk . Thank you for the question. I think if we look back to the financial crisis in 2008 and recognize some investment banks like Lehman Brothers that were not banks at all but rather shadow banks or nonbank Financial Institutions had very little capital and where immensely highly leveraged. And their failure twitched off the financial crisis, the likes of which we had not seen since the great depression. As you mentioned in your opening comments, the toll that this took on American Workers and businesses was literally enormous. The Unemployment Rate rose close to double digits. And it took almost a decade to recover from that. So making sure, we, of course focus on the Banking Sector. That there are nonbanks that impose risks with their material distress or their failure can pose tremendous spillovers and risks to the entire Financial System. When the council identifies such a firm. The appropriate way to handle that. Frank created an ability to designate such firms, supervision by the Federal Reserve and they need to have higher Risk Management capital liquidity standards. Following through with the nonbank designation guidelines. We know that terrorist groups like hamas, al qaeda, hezbollah have used Digital Assets to raise and transfer funds. We have important tools to counter illicit finance but most of them date back to the post 9 11 era. Do we need to update our counterterrorism tools to respond to the risk created by Digital Assets . We do have authorities, many authorities that enable us to act, but weve identified a number of holes in our authorities and have composed a list of bastions for ways in which treasuries authorities could and should be strengthened and we look forward to working with you to try to accomplish that. We will work with you on that so you can do as much needs congressional authority. Even cooperative all along and we will continue. Ive asked questions. It seems like almost overnight last march we learned the actions of a few Bank Executives but the whole system under stress. Thank you, the system stabilized. The lesson is that the risk to our banks can build up and suddenly emerge without much warning is what happened last year when our Banking System faces unexpected stresses. Explain to us how Strong Capital rules reduce Systemic Risk and help protect depositors and Small Businesses. Capital is available so our losses from anticipated shocks. What happened last march is that a couple of banking organizations that have really mismanaged their interestrate risk which is a classic risk, something in a rising Interest Rate environment and two. Writer realized or unrealized losses for banks. Strong capital enables these banks to remain viable. Not the tail. And unfortunately, Silicon Valley bank touched off and had enormous uninsured deposits and adequate liquidity and suffered these losses, suffered a run. That run threatened similar runs in other institutions that also have exposure to ensure deposits. The president and treasury and regulators take actions to try to stem a systemic bank run. I believe we were successful in accomplishing that. The senator from south is recognized. Thank you. And welcome to the committee. The senator headed up a letter. Eight of us sent a letter to you. The letter was asking that you would, 28 timeline. The section 123 report on the Economic Impact of a regulation to address Systemic Risk. Analysis is critical at a time when regulators are pursuing complex changes to all parts of the Financial System. The report is three years overdue and your response to the letter would be requested fairly quickly. I would encourage you to direct counsel to direct statutory obligations in the next six months and asked unanimous consent from the committee, mr. Chairman, that the letter be entered into the record. Thank you, mr. Chairman. Im going to start out, like i said. I will ask an easy annual report stated u. S. Banks to continue to have sound levels of regulatory capital and healthy levels of profitability while maintaining ample liquidity buffers. As the chairwoman of the council, i think you would agree with the statement. Correct . Yes. You have been very careful in the past not to discuss the endgame discussions and i assume you dont want to talk about them . Correct. The fact we make it clear that the banks have sound level of regular capital and healthy levels of profitability while maintaining ample liquidity buffers suggest we may not need a lot of additional changes with regards to the endgame proposals. Secretary yellen, fair to say our government is not on a fiscally responsible pathway . We d do need to reduce deficit and to stay on a fiscally sustainable pathway. Thus far, in real terms, the interest burden of the debt has remained within or below historic norms. The president s budget last year suggested substantial deficit reduction that would continue to hold the level of interest expense at comfortable levels. But we would need to Work Together to try to achieve those savings. Recognizing that that is part of the messaging that is out there. It seems to me that the Debt Service Costs on the treasury securities increased by 237 billion yearoveryear. Does not seem to be sustainable. Shortterm Interest Rates have risen considerably as the fed has tightened monetary policy. The expectations of actually , longterm rates have risen but by somewhat less. The expectations of most forecasters and of the recent analysis by the cbo suggested, while Interest Rates are expected to be above the low levels they were prior to the financial crisis, they are expected to decline somewhat. My understanding is that, to accommodate for the rising cost of servicing our debt, the Treasury Department announced another increase of its longer dated debt options. If we dont course correct, on the federal deficit, it may reach a point where no one is willing to take on our government issued debt. Is that a possibility . It could in an extreme case, i see no sign of that now. Our debt is highly valued, the most liquid asset, not only for americans but around the world. Of course, we need to stay on a fiscally sustainable path. If the treasury auctions are such there is less interest in the debt, would the fed have to restart quantitative easing and would that be a part of the plans in the near future in the next two years . I will not comment on what the fed will or should do. I would simply say, as you know, the feds responsibility is to maintain full employment and hold inflation down. I think they would attempt to fulfill that congressional mandate. These five minutes go by fast. Thank you. Senator reed of rhode island . Thank you for your remarkable job with unemployment now 3. 7 . It has been that way for 24 months, the longest stretch since 1960. This administration has made Gross Domestic Product grow and we have an expansion of the labor force. By most statistics, i would add real wages have also grown. We are seeing the growth of real wages in minority communities, which frequently are the last, if they ever get the benefits of expansion. That is one of the fairest expansion we have ever seen with disproportionate gains at the low end. A reflection of the policies president by and you have taken , creating jobs, not simply hoping it trickles down from the select few. That is correct. Let me change topics, the treasury secretary announced its moneylaundering assessment which said Investment Advisors to private funds such as hedge funds, private equity funds post the highest risk of Money Laundering because they are exempt from antiMoney Laundering regulations. Can you describe the assessment and does this present a danger to United States . I believe it does represent a danger to our Financial System. It creates holes that facilitate illicit financial activities. Investment advisors have never been subject to comprehensive industrywide aml cft regulations. At this point, there is a patchwork where some Investment Advisors implement some measures. Some of them are duly registered as brokerdealers or a part of Financial Holding companies. But there are holes in the system which allow illegitimate or illicit investors to shop around for an Investment Advisor who does not inquire into the source of wealth. The treasury is planning to issue a proposed rule that would apply aml cft requirements to those Investment Advisors. Essentially, it appears that some of these advisors are subject to regulation are taking the money of russians, chinese, et cetera, and moving it through hedge funds and essentially washing it in the United States. That is absolutely correct. We have identified instances where Investment Advisors have worked with sanctioned individuals, corrupt officials, tax evaders, and criminals. This is really a risk to us and the globe. We need to address it. Let me switch gears. One of the issues we all face, particularly in metropolitan areas, the demand for commercial real estate. Which puts pressure on the banks, lenders, developers, is the fsoc looking at this in a comprehensive way . For impact on the real estate sector and also the Banking Sector . We have been looking at it in a comprehensive way and working with the Bank Supervisors to understand exposures. I believe we have discussed, in almost all of our fsoc meetings , commercial real estate and gotten reports and on our own analysis. You are right, particularly for Office Buildings in metropolitan areas, vacancy rates have gone way up, especially for other than class a building. Interest rates are substantially higher, valuations are falling, so, it is obvious there will be stress and losses associated with this. Banking supervisors are working with their banks to manage this risk, to identify it. I believe this will not end up being a Systemic Risk to the Banking System. The exposure of the largest banks is quite low, but there may be Smaller Banks stressed by these developments. Senator kennedy of louisiana is recognized. Madam secretary, i have watched you for years, even before i came to washington. When i have time, i do, i enjoy reading your speeches. I think you are what cool looks like. [ laughter ] you are a good sport every day to defend bidenomics. It is like trying to defend a fungal infection. Bidenomics is paying more to live worse, isnt it . I would not agree with that characterization. Bidenomics first tried to address the pain that households were expressing because of the pandemic and to help them survive. Small businesses, households, people who had lost their jobs, to prevent the kind of scarring we saw after the financial crisis. As the economy began to recover and we quickly, of all advanced countries that experienced the pandemic, no country has done better than the United States in quickly having the labor market recovery, resuming growth, and the largest wage increases of any advanced country. And then, mediumterm, bidenomics is focused on helping middleclass families lead better lives, address the problems they have, create jobs. I only have five minutes. Good try. These high prices are here to stay, arent they . Let me amend that, these high prices caused by bidenomics , are here to stay . The high prices were not caused by bidenomics. We suffered a pandemic that resulted in severe they are here to stay, arent they . I dont expect the level of prices to go down, but the rate of inflation some prices will be higher than they were before the pandemic and stay higher wages have risen considerably. And the pace of price increases has receded over the last six months with a measure of inflation, the fed focuses on, has been running exactly if wages if wages are going up if you dont get a pay raise, you are screwed. A difference between disinflation and deflation, i am happy to have disinflation and that is what you talk about, that means prices are rising less rapidly than they were. That is a far cry from deflation , which means the level of the high prices caused by bidenomics are here to stay. Here is what j powell just said on february 4th, he was asked the question, inflation is one thing, prices are another and i wonder if there is a reason to believe people will see the prices of things decline. Here is what the chairman said, so the prices of some things will decline, others will go up , we dont expect a decline in the overall price level. That does not tend to happen in economies except in very negative circumstances. He is talking about a recession. It would take a recession to get these prices down. We dont have to get the prices down. We dont . Wages are going up. A metric that is worth knowing, that the median American Household, worker let me stop you. You dont think we need to get these prices down . You dont think it is bad bacon is up 20 , chicken up 23. 5 , coffee up 30 , gasoline is up for the 4 , new cars and trucks up 20 because people can afford that is used cars, because people cant afford a new car . They are up 24 under bidenomics , you dont think we need to get the prices down . Wages are also up more not up 24 , not up 27 , not up 31 . People are getting good at barely getting by because of bidenomics. American households have many pressures on the budget. President biden is devoted to doing what we can as an Administration Whether healthcare costs, insulin co pays, energy costs, getting these prices down, and helping American Households afford a decent middleclass life. But, what is true, the median worker in the United States, if you compare today with 2019, can purchase the same basket of goods with 1400 left over to save or spend. Americans, on average, are better off in spite of the fact that the level of prices is higher. Good try. Thank you. Talking about affordability, lets stay in that realm but talk about something my republican friends did not support. The American Rescue plan. Which i am proud to have voted for and provided a historic increase to the Child Tax Credit. By boosting the credit to 3600 to infants and toddlers, 3000 for children, and paying those credits on a monthly basis, Child Poverty decreased by 30 in 2021. In the same year, Food Insecurity decreased by 24 . The equivalent of 2 million fewer children going hungry. For parents, it paid for baby formula, child care, so many other things. This critical lifeline stopped for working families across the nation at the end of 2021 is it your opinion that the American Rescue plan enhanced Child Tax Credit is the reason for decreased Child Poverty in 2021 . I believe a recent study showed that about a half of the decrease in Child Poverty was directly attributable to the Child Tax Credit and there were other things that also served to lower it. How many more children would be lifted out of poverty if the bipartisan policy workers act was signed into law . I dont know the exact numbers but additional children. Based on what we saw previously, looking at what the credit is in that legislation, to me, it is a proven track record of delivering brighter futures for our children. I want to thank the chairman for his continued work on this issue and i hope it passes legislation shortly. Climate change is causing the property and Casualty Insurance market to buckle under competing pressures to provide returns for shareholders and sell a product that policyholders can afford. As businesses, insurance has an obligation to their shareholders to make a profit, and as policymakers we have a right to be concerned when families cannot afford or access necessary homeowners coverage. Allstate and state farm have stopped writing new policies in california. 15 other companies have stopped writing new policies in florida and insurance giant aig will reduce the Homeowners Insurance business in communities across the United States, new york, delaware, florida, colorado, montana, wyoming, 12 of homeowners will forgo home insurance. Can you discuss, as noted in the report, how climate risk drives a negative feedback loop to economic and Financial Stability . We are very concerned about the developments you just cited. Of course, the absence of insurance or being priced out of insurance, as this climate risk intensifies, is harming the wellbeing of households and the cost of living. It is also creating risk to Financial Stability because many banks have exposure through loans to the risks that can come if they have noninsured losses and there can be a feedback loop that works to disadvantage. Wildfire, droughts, flooding, for those deniers, if you have no insurance, for most americans, the biggest single asset is at risk at the end of the day. The fsoc report made some mention of the housing shortage when discussing vulnerabilities in a Residential Real Estate market. I worry that not enough emphasis is being placed on this crisis nationwide as we face a shortage of 3. 2 million homes, this is driving up the price of housing and placing vulnerable americans such as seniors and those with lower incomes at risk. Do you agree that the housing sources shortage could pose a serious threat to the economy . If so, what could congress do to help alleviate that circumstance . I certainly agree that this is a big problem for a very large number of americans. President biden has made a number of different proposals to attempt to address this, that congress has not passed. I do think it is an area that requires close attention and action by congress to address. Toys neighborhood section 202 housing for the elderly and other things, Public Housing is facing a 70 billion Capital Needs backlog and section 202 program has not kept up with the rising need of affordable senior housing. Senator scott of South Carolina . Thank you for being here you and i would agree on one thing, the United States, a strong United States is vital, a vital part of Global Security one of the challenges i have, i started my Opening Statement with something related to the iranian regimes proxy attacks on our american soldiers. This administration, under your leadership in the Treasury Department, has released 6 million before the october 7 attack, 10 million after the october attack and 100 billion dollars relating to the relaxation of the oil sanctions. That leads to attacks by the houthis, it is in part because this administration downgraded the houthis from a terrorist organization. I couple that with the resources released to iran, the question is, how do you provide iran with millions of dollars knowing they are orchestrating attacks against our servicemembers . I assume your answer in part will be some of those dollars are frozen, even though there have been a couple of opportunities of accessing those resources. We both understand the fungible nature of money. I would love to hear your answer. Number two, i have spoken with you before during these hearings, you are very good, and i may have to cut you off. Okay. First of all, i want to say, the Treasury Department has been extremely aggressive and very vigilant about sanctions on the iranian regime. We have worked very hard and had many sanctions, actions, addressed at iranian oil shipments, doing what we can to minimize revenues from oil. We have taken many actions in the aftermath of the attacks on israel to close down channels for hamas and other iranian affiliated groups to use the Financial System to fund their malicious activities. The record is clear, we have done a great deal. You and i will not get to an agreement. I do think that the record is clear, when you look at it, the administrations actions have placed more resources for iran and not fewer dollars. The 6 billion you are referring to, were iranian funds that were frozen in korea. You permitted these funds to be transferred to qatar. They can only, both when they were in korea and now used for humanitarian purposes and there are strict controls to make sure that they are directed only at humanitarian purposes. I have very little time left and the chairman is being tough on us in relation to time. I will say that, if you give me 600, i had a need, i would use other money to deal with the need if you were trying to restrict the dollars, that is why i talked about the fungible nature of dollars. Another issue with the fsoc designations. Specific designations under fsoc , fsoc finalize guides on framework to evaluate nonbank Financial Firms for designation as a threat to our Financial Stability. They meet the new framework of fsoc it would be designated and subject to Federal Reserve supervision regulations. In 2019, fsoc issued a commonsense proposal that evaluated the firms based on their business activities, required a consideration of their financial health, and most importantly would have required the government to conduct a costbenefit analysis prior to making any such designation. Recently, my understanding is, the way you have restructured it, no longer is the cost benefit analysis necessary, no longer do use the activities based approach. Instead, because of unpredictability of the financial crisis, such an analysis is not reasonably estimable, useful, or warranted. When you eliminate actual standards that people can understand, and do something far more flexible and subjective , it makes it even more difficult for companies to figure out when they are at not a threat of becoming a a cifi. We revised the 2019 guidance because it made it all but impossible to designate a firm as a cifi, and deprived fsco of a tool that congress, in dodd frank commented for it to have. Doddfrank does not require a costbenefit analysis and for very good reason, you just cited the reason, we are talking about some cost to an individual firm and the benefit is reduced probability of a devastating financial crisis like the one we had in 2008 that can deprive millions and millions of hardworking americans and businesses of their livelihoods. To try to assign a number to what that benefit is, even now, if you ask researchers what is the what was the cost of the 2008 financial crisis . It was obviously huge, but, to try to put a number on it is an artificial exercise. It is clear that doddfrank did not intend it. With respect to an activities based approach, the 2019 guidance said that there was a preference for an activities based approach and designation can only be used if an activities based approach would not work. There is no preference for designation. It is not the preferred approach. I think, you as an expert, that is saying a lot. Let me suggest that, only the government thinks that figuring out the cost of something is unnecessary. Determining the activities that lead to the threat is unnecessary. From a business perspective, that is remarkable. Senator tester of montana. I want to talk about china. There is no doubt they want to replace us as the worlds economic leader. That is a given. It is a given they will not play fair, they never have and i dont think they ever will. I am pleased that fsoc is making sure we have appropriate mitigation and Response Management in place. It is awfully hard to protect against threats that are not on the radar. Do we have a good enough handle on where these threats from foreign adversaries are directed . What are you seeing as far as threats are concerned . Fsoc is only concerned with threats to the u. S. Financial system. Cybersecurity that could involve china, there may be Artificial Intelligence that we have identified as a threat. But china poses a number of threats that the Biden Administration and u. S. Treasury are concerned about and attempting to address that would not be in the domain of fsoc. Amen. Do you have a handle on these threats and where theyre coming from . As it applies to the Financial System . Cyber and military are other situations. As it applies to our Financial System . If they can take away our confidence in it, they have taken a great step towards achieving their goal. We are particularly concerned about cyber threats, ransomware, and a. I. Let me talk about a different issue that senator rounds and i have been working on dealing with north korea, russia, iran, china with foreign farmland. We have a bill and we have asked i want to get your help on this. Quite frankly, we have pushed back because they dont think this is in the purview. I think agriculture and food is National Security and i think that there are dictatorships around the world that use food to control people and i dont want to be in this situation or else democracy would be gone. When it comes to buying farmland , does cfius have the capacity to analyze and make a determination on what is going on . Cfius as it applies to farmland and agribusiness . As it applies to farmland, i believe cfius has the ability to review real estate transactions if they are close to identifying sensitive facilities. I am talking about everything in the United States, not just military facilities, which i dont think has been done very well. I am talking about, even if theyre purchasing next to my farm, purchasing in connection with one of these four country upon just government, can we make that determination . We do agree that Food Security is National Security. I do not know that we would have the ability not near such an installation. To be honest with you, you may not, the question is, what does Congress Need to do to make it so that they have that ability . I think this is a serious problem. What do we have to do to make sure they have that ability . Do we have to fund the more . Put additional mandates . I think they are concerned about semi conductors mostly. I got no problem with that. When it comes to farmland, agribusiness, what do we have to do to make sure they are paying attention . For cfius to take action on this, i think would require legislation. I know you have been a leader in proposing such regulation. I believe the Treasury Department has worked with you. We are happy to do that. I appreciate that. It is bipartisan and i think a real threat we need to take seriously we found out about a chinese dinner who bought 200,000 acres in oregon and we did know anything about it. We need to be more proactive. Thank you for being here. Thank you. That chinese billionaire, i spoke with the farm bureau and one of the things theyre working on is, not just prohibition, but having the data , and we will come to you and the administration about how to do that. We have a bill to do it but it needs to be more aggressive so we know what they are doing with their sleightofhand. Senator smith of minnesota is recognized. Thank you. Welcome, secretary yellen. Good to see you. I appreciate the chance to be with you. I would like to ask about some of the broader Economic Issues that we see and respond to the questions senator kennedy was asking you. As the fed has raised Interest Rates, a lot of economists predicted that the economy we would be well into a recession but that hasnt happened. The economy has been defying expectations driven it seems to me by historically strong consumer spending. That has been driving Economic Activity and growth. As you were attempting to point out, since President Biden took office, wages have increased significantly for low and middle income earners. Do i have that right . That is true. I think, last year, nearly 60 of workers saw their wages outpace prices, surpassing pre pandemic levels, correct . Yes. Purchasing power, which is what matters, what you can purchase with money in your wallet, is up, true . Yes, it is up. I think the number i mentioned is the median worker could purchase the same basket of goods as in 2019 and have 1400 left over. That is not that is right i am not an economist but, i took macroeconomics in college, when you have price deflation, the economy is shrinking and people are actually much worse off in that circumstance. Yes. We have any good, strong labor market. Right. Some would argue that the way some prices have gone up, including food, for example , if you look at those price increases, not asking for you to comment, those price increases, and the massive increase on corporate profits, i would argue that that seems to be the driver of prices going up more than some of the investments that the administration and congress, democrats in congress, have made in the American People. Let me get to that if i may. I am interested in to know what you think has been the impact of those Big Investments senator kennedy was talking about i am proud of, Big Investments in american infrastructure, broadband, improving veteran healthcare, lowering the cost of prescription drugs, bringing manufacturing back to the United States. Could you talk about what impact that has had on the historic recovery in our economy . So, i think the legislation is a trifecta of Legislation Congress passed, the infrastructure bill, the semiconductor act, and the Inflation Reduction Act, we are seeing an investment boom and it is creating good jobs for Many Americans in parts of the country that have not seen a lot of opportunity in recent decades. The work we are doing shows that a disproportionate amount, both of the infrastructure spending, and the investments we are seeing, that have been announced, because of the ira, are going to parts of the country where income is below average and infrastructure needs are greatest. It is spurring job creation and the benefits are being very widely shared. In fact, if you look at the performance of the American Economy compared to the performance of other economies around the world, we are doing much better. Ours is the best. We made more of these broad based investments in the American People that other economies did, right . Yes, we have, we have made impressive investments and, if you look at the Inflation Reduction Act, it is parking an enormous boon in clean energy across the spectrum. Great. Thank you, mr. Chair. Senator butler of california is recognized. Thank you, madam secretary, for your Incredible Service to our country in such a challenging time. I want to commend you and the Biden Administration for the sound economic policies that we have in place. What you have said, what i believe the fsoc report illuminates for all of us, bidenomics works. We have record low unemployment, a robust economic growth, rising wages. To pick up where senator smith left off, i would love you to get the opportunity to explain to the American People how this leads to historic investments of the ira in American Rescue plan had contributed to the stronger economy and stronger labor market. Give you some time to really explain to the American People. One of the things that has been holding our economy back is a failure to invest in infrastructure. We used to be among the very handful of Top Countries around the world in terms of quality of our infrastructure. We are now decreased because we had inadequate investment and now we are seeing roads and bridges that have been falling apart which affects commerce, people are caught for hours in traffic jams, all across the country. We are seeing new infrastructure he built. It is not just old infrastructure but what a modern economy needs, broadband , both the American Rescue plan and the infrastructure bill are providing the funding to make sure that every American Household has access to high speed internet. I remember, during the pandemic, when we were read stories about families driving their kids to a mcdonalds and sitting in the parking lot so that they could do the homework and access broadband, that will be a thing of the past. Of course, the Inflation Reduction Act and the chips act are making sure that the United States will play a significant role in it is a matter of National Security. Of resilience, of our supply chain, and making sure we are creating good jobs in the industries that will be powering our economy in the u. S. In years to come. We are seeing that the bill has strong apprenticeship standards for the entire clean energy set of investments, so we are making sure that the jobs created are good, highpaying jobs and that people get the training they need to be able to fill them. There are many aspects of this legislation designed to ensure that all parts of the country benefit from it. Particularly, parts of the country that have not really seen a lot of opportunity, and that would include communities that have been dependent on coal, and low Income Community where there are bonuses for investing there. President biden said he would build the economy from the bottom up in the middle out and i appreciate you helping to explain that a bit more to the American People. Two areas, secretary, i would name and give you a quick opportunity to respond and we will submit the questions for the record. Right now, as senator menendez pointed out, the Climate Crisis is at the front door of california the historic grains, 400 mudslides, 700,000 people without power. As we sit here, the fsoc report has talked about insurers leaving markets all across the country, including california. I would love to get your thought on how nonbanking lenders and others, nonfsoc Government Agencies are working to integrate financial and climate data so that we can actually get your thoughts about how the health of banks and nonbank lenders will be affected by the lack of insurance being available . We are doing a great deal of work on that. The federal Insurance Office recently approved a survey that will be very granular at the zip code level to understand trends in insurance. The state insurance regulators, they plan to collect similar data. We are working with them and we will get a very granular understanding of what is happening to the availability and pricing of insurance. Policymakers, i think, as they begin to address what is becoming a crisis, this is not straightforward to do. But we look forward to working with congress to see what response may be appropriate. It will have an effect on banks. It raises the risks and we are focused heavily on the agencies working with the Banking Community so that banks understand how the developments are impacting the losses that a bank would experience from the lending it is doing. And the value of homes and businesses. That banks are lending to. Senator cortez masto . In nevada, we have similar concerns. Severe disasters, landslides, mudslides, same thing i heard from my colleagues and property of changes in Casualty Insurance and home prices, that exacerbate the Affordable Housing crisis we see in nevada and across the country. One of the recommendations is to enhance or establish information sharing protocols among federal and state agencies. What does that mean . We are going to try to collect data, the federal Insurance Office, that gives us a lot of insight into this issue, and with state agencies as well . Is that a part of the collaboration . We would like to collaborate with the state agencies, they regulate the insurance industry. They are looking at these issues as well. In order to reduce burdens on businesses, and make sure we have compatible data, we are trying to collaborate on this effort. Please let us know, particularly if accessing that state data and that collaboration will be key, let us know how we can help. Very good. We will do so. Many of us a year later, the regulators have strengthened regulations supervision to address what we saw happening in march of 2023, the bank failures. In response to the failures of Silicon Valley bank, First Republic bank, how have the agencies altered their approach to supervision . This is a matter for the individual agencies. Both the fdic and the fed have done input in the public domain, reports on what happened , and these reports include analysis of the failings, their own failings, in terms of their supervisory programs. Clearly, i believe they have testified, strengthening supervision so that they address taking more time i appreciate that, is that happening . Are the Bank Supervisors actually following through on the recommendations that we saw coming out of the fdic and the fed . I believe that they are but fsoc is not attempting to engage in an independent assessment of the agencies. I think, calling up the agencies directly and asking them for followup i appreciate, helps to have an independent view but i appreciate that. One final thing, nonbank Mortgage Originators and services, i see in the data that , i am sure you see, they gain market share from banks over the last 10 years, nonbanks originated approximately 70 of Single Family mortgages in the first half of 2023. Does this shift away from banks to nonbanks, pose a Financial Stability risk because they can access shortterm money . Yes. Fsoc is focused on that. Because, nonbank Mortgage Companies lack access to deposits which banks have. The shortterm, they are light on shortterm financing that may be a lot less stable than deposits. And, in stressful times, their credit lines can be pulled. They do not have access to the kinds of liquidity backstops that banks have, such as the feds discount window. They have very limited capital and Mortgage Service rights are less liquid assets. So, there is concern, that in stressful market conditions, we could see the failure of one of these, as you said, this has become very significant in the mortgage market. Thank you. Senator warner from virginia . My colleagues talked about financing of terrorism. Yesterday, treasury issued an annual Risk Assessment for illicit finance in the wake of the horrific hamas attack. It states that hamas is a well resourced group that garner substantial Financial Resources from numerous and divisive sources, uses Virtual Asset Service providers and money transmitters globally to move money. In 2016, the United States put sanctions in place for hezbollah. Now, 120 days after the horrific attacks from october 7th, we have not put secondary sanctions in place to hamas or any other foreign terrorist organizations. We have tried to stop that. Put together with senators rounds, romney, the terrorist financing prevention act to address this. This would make sure all foreign terrorist organizations would be covered and have them go after, not only the secondary banking, but their ability to use crypto. I appreciate treasury helping a lot with Technical Assistance on this piece of legislation. I want to give you the opportunity to speak to this and whether you think this legislation is needed. We understand, without it, you cannot put the full bevy towards them. There are limitations treasury faces and we certainly support the goal of the bill. It would help give us authorities that would enable us to better deal with the very significant threat. I will count that as an endorsement. I will move to another topic. Artificial intelligence. Fsoc report identifies ai as a major risk for the Financial Sector i have been surprised that we have not seen more use of ai tools on manipulation already. I sometimes fear they may be happening and they may not be fortune 100 companies but fortune 200 or 500 companies. We may find that it is happening in real time. As somebody that was very involved with the doddfrank with the creation of fsoc , i think it is record so far has been mixed. If there was ever a case to look across all the regulatory entities within the Financial Sector, a problem like ai i think would be perfectly suited for fsoc. Legislation with senator kennedy, it would have fsoc play that role on ai, as well as, look at the issues that already exist in securities around our manipulation. But increase the penalties if ai tools are being used. Do you agree that this is an area where congress should move quickly to make sure we have a comprehensive approach for the upside and downside of ai in the Financial Sector . I think the administration would welcome a Congressional Initiative in this area. Fsoc , this year, identify ai as a vulnerability that could create Systemic Risk. We are working very hard to deepen our understanding of the ways in which that could happen. And to monitor rapidly changing developments to be able to define best practices for Financial Institutions. Again, we have worked closely with your office and i hope you will look at the bill by senator kennedy and i. It is at least a good starting point for giving you the tools and as having the guardrails. Last question, the fed, as we think about how we prevent future svbs and reports a bank that took on some of the assets of signature may be having challenges. We may need new regulation but we should use tools, the discount window, repeatedly reported that the discount window, a lot of these banks fell into disrepair did not have a process in place. I think we need to go beyond the guidance that has been given and make mandatory usage of the window so we can make sure it is easily used. People are concerned about any kind of reputational risk. Can you speak to this issue and how we can make sure banks utilize this tool set up since the beginning of the fed . I absolutely agree. Inadequate access to liquidity because of a failure by Banking Institutions to post collateral with the fed in a timely way, this is something that, i think , is being reviewed and it would not surprise me to see new initiatives in this area and it is a critically important area. Senator warren of massachusetts is recognized. Good to see you, secretary yellen. I want to talk about the 1 people, not billionaires but billionaire banks, american has more than 4700 banks but the ones with the power to crash our economy, and the ones that get government bailouts are not the Community Banks. The ones that pose a threat are the giant banks, multibillion dollar banks. The fed has proposed increased capital standards to make these giant banks hold more capital. It turns out that, even among those billiondollar banks, nearly 90 already hold enough capital. So, what we are talking about is a handful of the biggest banks that would have to hold a little more capital. Secretary yellen, i want to make sure i have this right, with the new rule on capital standards have no impact on Community Banks . And, in fact, only make a handful of giant banks hold more capital . These terms apply to banks with more than 100 billion or significant trading activities and Community Banks have far lower assets. I am not aware of any this is not about our Community Banks. This is about our biggest banks. Why is it so important for these giant banks to hold more capital . Capital is a measure of the resources the bank has to absorb losses in the face of a shock. Even in normal times the capital is something a bank has to have two land. It is critical to meeting the borrowing needs of households and businesses throughout the economy. When a shock hits like we saw in the financial crisis, a bank can fail if it runs through the capital it has. If it is a large bank or one that is highly interconnected to other Financial Institutions, its failure can have devastating consequences for the Financial System as a whole. The failure of one bank can transmit huge problems to other banks it lends to or borrows from, they we hit near doubledigit unemployment when the Financial System collapsed. It hits hardworking americans, it hits businesses that really had nothing to do with any of the activities that cause this. So higher capital standards are about making the bank safer but its about making all of us safer basically . Yes because it diminishes the odds of a systemic failure. Of a systemic failure and thats why it is so important for these big banks. Look at whats happening today. Less than a year, after three billionaire banks collapsed, another one, new York Community bank is now teetering so, we are just trying to make sure that these giant banks dont go broke and come back to the american taxpayer like they have done before, to get a bailout. But the big banks like jp morgan, bank of america, citibank and wells fargo are fighting back hard against these capital standards. Theyve spent millions of dollars lobbying, they are running ads during the nfl playoffs claiming that if they have to be a little bit safer, it will somehow raise grocery prices for American Families. In other words, they want us to believe that big banks are really worried about americans grocery bills. Nobody believes that, so the question is, what is this really about . The answer is profits. If giant banks have to hold back just a little more capital, that could buy into their buybacks and their executive compensation. In fact, Morgan Stanley recently said it out loud, the banking lobby is fighting to water down the capital rules so that these giant banks can create, quote, a significant increase in buybacks. Secretary ellen, let me ask, do you know how much money the four biggest banks return to their shareholders through stock buybacks and dividends over the last decade . My guess is that its a large amount. I looked this up. 630 billion. And do you know how much the average ceo pay at these big banks was . In just 2022, just in that one year . Im not sure. My guess would be around 30 million. 28 million. Very, very close. So higher Capital Requirements may means fewer stock buybacks and somewhat smaller bonuses for the ceos. These giant banks say that they will stop making Mortgage Loans if they have to hold a little more capital. But i have to say here, who can trust these guys . In 2020, jamie diamond at j. P. Morgan made big headlines when he pledged to make 40,000 Mortgage Loans to black applicants. 40,000, thats a lot. More than three years later, how many loans have they actually made two black applicants . 122. Yeah. So thats what this is all about. The biggest banks want to be able to push hundreds of millions of dollars out the door to investors and ceos, while the banks take on more risks and when things go wrong, and they will go wrong, they want taxpayers to bail them out again. They claim that if the fed does not cave, peoples groceries will cost more. I am sick of bailouts and i am sick of banks that lied to the American People. We need stronger capital rules to reduce the need for bailouts , and i urge our regulators to finalize these rules as quickly as possible. Thank you, mister chairman. I believe there are two senators on the way but in the meantime i want to ask another question. For decades we have had, and i appreciate your exchange with senator smith pointing out the economy in this country versus other countries pointing out wage growth in this country. People were hit hard by inflation. People for good reason are concerned. I think its clear, though, that a big part of inflation has been all the corporate buybacks and corporate greed and generally wall street predators. I often cite in this committee that the ceo of stellantis, which uaw was on strike with, or against, the ceo is 365 times what the average worker makes and that speaks volumes. The senator of alabama is recognized. Thank you, mister chairman. Late last year, i asked various regulators who came before this committee whether they believe their Banking System was strong or not. And they all answered yes, so today i would like to start with that same question for you. In your opinion, is the us Banking Sector strong . On balance, the answer is yes. What are you balancing . There are some risks and there are some institutions that will face stresses from commercial real estate that we know is significantly impact did , particularly Office Buildings, by the pandemic. Interest rates are higher. Loans will have to be refinanced in an environment with higher interest charges, lower valuations and rising vacancy rates. For some banks this will be a concern, but on balance i would say this system is well capitalized. One of the things that weve been looking at, and i want to talk about you leading the council. You are obviously the chair and of the efforts to monitor the risk and vulnerabilities of the Financial System with which you just named a few. I would certainly hope that part of this and part of what you are evaluating is the potential risk that regulations and rules coming out, coming out of the very own agencies that you oversee, what risk those may pose to our economies. I think these regulations could fundamentally weaken the Banking Sector so i just want to talk to you about that. Are you assessing that and the implications of these new regulations or rules and what they will do to the American Economy . I think youve raised a very valid issue, but the charge is to identify vulnerabilities in the Financial System, and threats that could lead to systemic financial consequences. And, not to undertake an evaluation of the cost of the Financial Sector of actions that regulators have taken. So i dont think we are the right agency i do hope, though, that you are looking at the cumulative impact of all of these things. It seems that everything is moving so fast. We look at where our economy is and i think someone needs to take a step back and take a look at how all of these things layer onto each other, what they do, and what they do to the end user. This is about everyday americans. This is about people all across the state of alabama so i am certainly hopeful that there is someone who is taking a look in a broad way, at all of these things and how they work or dont work, more importantly, together. Speaking of risk, i want to discuss the us sanctions policy. While i appreciate you being here today i was frustrated that the Treasury Department did not appear before this Committee Following the october 7 atrocities that we saw occur across the globe. That was no doubt a day where we saw. Evil. I want to talk to you specifically about our relationship with iran. It is no secret that they are the leading state sponsor of terrorism, providing hundreds of millions of dollars to support terrorist organizations like hamas, hezbollah, the coozies as well as proxies. They are actively carrying out other atrocities including attacks on american civilians and servicemembers. We know that weakness invites aggression and we want peace, and have to do that through strength. Terrorists are emboldened to target americans and our allies and it seems that this administration in the face of that has doubled down on a strategy of appeasement. My question to you, secretary yellen is after those attacks, the administration took actions to sanction a number of members of hamas and operatives and financial facilitators but obviously that was too little too late. How long had the administration know about the financers of this terrorist attack prior to the actual date of october 7 . Well we have been focused on hamas and other similar organizations and have been taking actions on sanctions before the attacks. We gained a lot more information in the aftermath of the attacks and have taken many more actions. Weve also been cracking down on iran with respect to oil shipments, with respect to their chemicals sector. With respect to steal. And respectfully my time is up. I would just say its not working. We have to go back to a pressure of maximum strategy because right now the middle east is on fire. Iran is having its will and we have three american servicemembers dead. Weve got to move. We are very focused on it. Senator fetterman is recognized, of pennsylvania. Thank you, mister chairman. Secretary yellen. I get to talk to one of the leading experts of the economy here. I want to talk about this year. So President Biden has now brought down inflation and now last month, over 350,000 new jobs, right . And the economy is growing at 3. 3 , right . Yes. Unemployment is now at 3. 7 . Thats pretty good right . And is the longest stretch under 4 in 50 years. In fact, that was 36 months of job growth, right . Yes. And of course wages are up as well. Correct. And then now, the tao and the s p 500 are now at record highs, right . Yes. Oh my gosh. So the dow was over 38,600 . 3600 . And the nasdaq is almost 16,000. Right . Is it fair to say that our economies and the recovery is really the envy of the world . We are doing better than any other advanced country. And actually when i drove myself back to washington dc from pittsburgh this week, i was able to gas up at under three dollars a gallon and we are not talking about gas prices any more. But now, some randoms on tik tok put up videos at mcdonalds that they compare a 16 meal. What is more reflective of our economy . Some kind of a tik tok about mcdonalds, or with all those other statistics that ive been discussing other than this question . All the statistics that you mentioned are highly relevant and by and large, extremely positive. It is true that the level of some prices that are important to consumers have risen since the pandemic. One of those would be rent. Food prices are somewhat higher. When you use vehicles. But wages have also gone up. And now inflation has moderated very substantially, and in fact by the measure that the fed pays the most attention to, inflation over the last six months has been running at 2 at an annual rate. Wages are now going up substantially more rapidly. 2 . Is their target. Oh my gosh. So, prices are not rising rapidly any more. Wages continue to. The number eyesight is that the median worker in the United States can purchase the same typical basket of goods as in 2019 and have 1400 left over to spend or save. And again, its remarkable that now people want to talk about some random extra meal at mcdonalds for 16 which really is a rigged situation, but now anybody, any experts would say that our economy is the envy of the world. What is lost in translation in our National Conversation about where we are literally and our economy versus some of the other discussions in other parts of the media . Well, we do see much more positive surveys of Consumer Sentiment in recent months since inflation has come under control and wages are rising more quickly. When americans are asked about, a recent poll asking about their own personal financial situation, more than 60 said they felt good, and more than 60 said they thought 2024 would be a better year. Sometimes when people are asked about the economy and how other people are doing, they seem more negative on it. But their own assessment of their own situation, as well as their behavior when it comes to spending more starting Small Businesses, we are really seeing record Small Business formation and that is something that only really occurs when people feel confident about the future of the economy. Thank you senator fetterman. Great job, thank you. If you would like to also give you a shout out i will give you 30 seconds. Thank you mister chairman. More important if youd like to give me a shout at you get an extra minute. I understand. [ laughter ] secretary yellen, welcome back. Last week the treasury outlined debt issuance plans for the upcoming quarter and it included some unexpectedly optimistic that funding estimates so i have a few questions around that if i might start there. First, can you explain the treasurys elevated reliance on bill issuance . Which is more costly to the american taxpayer, certainly more costly than using notes or bonds. Is it because youve got concerns about demand for long data instruments, or is it that you are trying to time where the fed might go with rate cuts . We rely heavily on a regular and addictive will schedule of options. I understand that. We never try to time the market. We are in there for the long term and want to make sure that there are not significant surprises from Market Participants. So we have quarterly refunding schedules that are well considered and follow that principle. I understand but shortening the duration, where you are on the curve, very short. What is the thought process behind that . Well we are close to the proportion that has been recommended by the treasury borrowing advisory committee. Does close to meeting you are shorter or longer . I believe we have a slightly higher shortterm issuance lets come back to the optimistic funding estimates themselves. The estimates for this coming quarter just released last month were unexpectedly high and im wondering whats driving this next quarters increased estimate. Is it strong inflows you are expecting or is it tax receipts or something structural that you see in the economy that causes your projection to be higher for this coming quarter . I need to come back to you with details. I know weve actually lowered our estimate of the amount that we will need to borrow in the First Quarter. In our quarterly refunding we indicated that we expected to borrow 760 billion in the First Quarter and a lesser amount in the second quarter. And actually, this estimate is lower than what we had expected. Its more optimistic as a result and im just trying to understand what you anticipate is driving inflows and why it is just this quarter. Why it would not manifest itself in the coming quarters. There are patterns that depend on when we get tax receipts, so as tax receipts come in in april theres less need. So you are optimistic that tax receipts will be higher than projected . I need to look into it and i would like to get back to you with details. You and i have talked about this before and it has to do with the politically politicization of what is happening at the treasury. On multiple occasions weve talked about how there is an irs contractor that has been leaking confidential tax information. To the president , to private citizens. And the presiding judge appropriately referred to what happened as illegal and said quote, it was an intolerable attack on our constitutional democracy. Exporting the irs for political purposes is deeply a man deeply concerning and you referred to this as deeply damaging and i just want to know you still stand by that statement 6 00 i do. I believe that protection of personal taxpayer information is utterly essential and we are devoted to it. I know that, although i cant give you the details i just want to point one thing that deeply concerns me. Even more damage continues to be inflicted on the credibility of the treasury. You think about the revelation that the bureau under your watch directed Financial Institutions to flied customers who demonstrated quote, extremist indicators like the word trump or maga or whether they make transactions to purchase religious books. Its not an irs contractor doing it. This is the administration itself taking personal data to target political foes. Do you believe that people who purchase bibles are extremists . Certainly not. I want to put this matter in perspective. First of all, the mission is to safeguard the Financial System from illicit use to combat money longer Money Laundering certainly not to target americans for purchasing bibles or voting for donald trump . Certainly not to target americans for purchasing bibles. Fincen is supposed to work with Financial Institutions on their Money Laundering detection programs so there are interchanges and conversations between fincen and Financial Institutions. I believe that the matter that you were referring to dates back to before my time as treasury secretary and in the aftermath of the january 6 attack on the capital. The attack on the capital building. There were efforts to work with Financial Institutions to determine what had happened and to work with them to provide relevant information. And purchasing a bible is a relevant information . Thats ridiculous. Its a shame. I will get back to you with more detailed information when ive had a chance to study this thoroughly. Please do. Understand that this dates back, these were conversations between, i believe staff at fincen and Financial Institutions that are, is the purpose of fincen. So the details, i promise to thoroughly investigate under your charge. A number of things happened between january 1 and january 20 of 2021. Welcome madam secretary and thank you for the work that you are doing. I do want to talk about the economy and just ask you to reflect on when nonpartisan groups like the Congressional Budget Office predicted where we would be in terms of unemployment today, background the time the president was sworn in, when the pandemic was in full swing, the economy was hurting, and before we pass the American Rescue plan. I must admit i cant remember the print precise numbers but the impact of the pandemic was expected to be very severe and to last a very long time. The us economy has done an order of magnitude better than would have been expect did by cbo or other forecasters back then. I do believe the Biden Administration policies have played a very Important Role for that performance. It has exceeded all expectations and as you said earlier in the testimony certainly surpassed any of our other partner economies around the world. You mentioned supply chain issues creating bottlenecks that led to price increases around the time of the pandemic. Theres another thing at work when it comes to high food prices now and i think the president has spoken to this somewhat, which is price gouging in the sense that the Profit Margins of some of the big grocery manufacturers today exceed the Profit Margins before the pandemic. Is that an accurate statement . I believe it is. I believe the council of economic advisers has looked at this i think that is true. Thats one reason the president has been so focused on going after price gouging and junk fees. I know the treasury plays a role in that. Is that something you and your team are working on . We participate in economic discussions and policymaking absolutely. Thank you for the role that you are playing. If i could just ask you about investor advisor reporting requirements . Because you are often before the appropriations subcommittee that i chair and we have had this ongoing conversation about the fact that youve got russian oligarchs and other kleptocratic who have used partners like private equity and Hedge Fund Managers to attempt to clean their ill gotten gains. You mentioned already the fact that we had the Beneficial Ownership law. I understand just yesterday youve included some folks within the real estate area. But can you talk about progress that you are making in this a broader area of Investment Advisors . It is important that we try to close one door but it doesnt do us any good if it leaves the back door wide open. Investment advisors is a Financial Sector that has not been uniformly covered by aml cft requirements. There are some Investment Advisors who are brokers or may be covered by some rules but there is certainly Investment Advisors that are not covered. Our Risk Assessments show that that is an area that provides an avenue for sanctioned individuals, for criminals and the like, to move wealth and invest in the United States without the sources of their wealth being detect detected. So are we making progress in terms of developing a role to close this loophole . Yes we are. Absolutely we expect to issue a proposed rule soon. In my remaining time i want to ask you about the Outbound Investment proposals. The Biden Administration has put them forward to try to present prevent capital from the United States helping to invest in chinas military. This is obviously an effort that requires cooperation from our allies around the world. Can you provide an up date on where that effort stands . In response to an executive order, the treasury prepared a notice of proposed rulemaking which it issued that asked a series of questions that proposes both information gathering and some restrictions which indicates it is contemplating restrictions in the areas of Artificial Intelligence, semiconductors and quantum computing areas that seemed to have a clear nexus to National Security risks. Weve received comments and hope to come out with notice of proposed rulemaking that takes account of the comments that closes down channels. We have export controls and other controls, but these Outbound Investments is a way of providing into chinas military or other countries of concern that need to be closed in. I appreciate that and just to make sure with our allies, i think you would agree. We are working closely with our allies and urging to, urging them to adopt similar regulations. Senator vance is recognized. Thank you mister chairman. Sort of the run up to the acquisition by jp morgan. I want to sort of start with a basic question. So to recap, the Systemic Risk exception was triggered for the situation which was pretty dire, pretty significant. Because the exception was triggered, the fdic effectively engaged in what i would call it a bailout or whatever term you want to apply. Depositors were made whole and the shareholders were not. That the argument of course was that it somehow prevented a broader panic or bank run in the markets. Im curious if you could take me back to that decision coming up on a year ago. Why did you think, given that sv be was so focused on the technology and Venture Capital sector, the sector that i know well, why did you think it posed a Systemic Risk or why did you and the broader board decide that . We were concerned about contagion to other banks. The source of the problem was really two things that affected Silicon Valley bank. One was losses, mainly unrealized but nevertheless, obvious losses from a failure to manage Interest Rate risk properly. Interest rates had risen substantially. The firm had purchased longer term assets, the value of which fell in a higher Interest Rate environment, and that was a risk that affected many banks in the United States so that risk was not in any way confined just to Silicon Valley banks. Many banks suffered similar losses. The other issue is that Silicon Valley bank relied very, very heavily on uninsured deposits. We saw a pace of runs that was beyond anything understood. But other banks also, we actually had quite a high level of uninsured deposits in the Banking System. Many americans may have felt that uninsured depositors, their funding was immobilized in a resolution, that the same thing could happen to them at other banks. Understood. One followup question and if i have time i will talk about acquiring us steel but quickly if you could on this. My understanding is that there were multiple bids when sv be collapsed and multiple bids on the table for acquiring svb and its assets. At the time public reporting suggested that the difference between the jp morgan bid and the next best was 20 billion. I believe that you are talking about First Republic that went to j. P. Morgan chase . Im talking about svb. Did they go to j. P. Morgan . Sorry, sorry, First Republic. Youre right. My understanding of the public reporting is that there was a 20 billion difference between the best bid, j. P. Morgans and the second best from First Republic. Some of the following reporting and private conversations ive had suggest that the difference was about 1 billion. So number one, what was the difference . In terms of the bids, i didnt see them. This is a question for Marty Gruenberg who is head of the fdic. But i will say under the law the fdic is required to accept the highest bid that reduces fdic losses as much as possible. Details of what the bids were you will have to consult with him. I guess the worry is, im very worried about the three tiered bank system. You want small medium and large banks but i also want a healthy bank sector below those. My concern here is that we actually did not care enough about concentration and how that transaction manifested itself. I guess the simple question is, is that because you did not have the tools to analyze that transaction with concerns about concentration, or because you had the tools and didnt use them . Let me first say i share your concern and believe its important to have a diverse Banking System. I believe there were a number of bids by different banks for svb and for First Republic. As i said i believe under the law that the fdic is required to accept the bid that results in the smallest losses to the deposit insurance fund. Understood, thank you. Thank you so very much chair brown. It has been 14 years, 14 years since the passage of the Affordable Care act, yet 10 states including georgia have not fully expanded medicaid. Let me be clear, closing the healthcare gap is the right thing to do but its also the smart thing to do. Its good for our economy. A recent report from the council of economic advisers concluded that Medicaid Expansion increases the disposable income of those gaining Health Coverage and for those who are listening and watching a want to be clear that when we say expansion we are not talking about a new program. Or spending additional dollars. We are talking about the fact that citizens in states like georgia dont have access and they are subsidizing healthcare and other states while hospitals are closing. But the council of economic advisers pulls into sharp focus the importance of this, the ways in which we allow hard working families to spend less on health care and more on essentials like schools, diapers and school supplies. How state economies have post expansion specifically compared to nonexpansion states. States that have expanded medicaid, how that expansion has improved the economies of those state juxtaposed with states that are nonexpansion states . I honestly cannot give you numerical assessments of that. I havent done that but generally states that have expanded medicaid have done better, and certainly the households in those states and especially lower income households have been relieved of burdens that allow them to spend more to support themselves and the economies of those state. Heres what we do know about closing medicaid coverage gaps in georgia. If we were to close the medicaid coverage gap in georgia it would be 1. 2 billion in additional federal support that i secured to the American Rescue plan, act. That money is sitting on the table. 600,000 georgians in that gap would mean 56,000 new jobs every year and 12,000 of those in rural communities. It would mean 6. 5 billion per year generated in economic output so i am hopeful and remain hopeful that georgia lawmakers will do the right thing for georgians and close the healthcare coverage gap. I want to move on to the Child Tax Credit and earned income tax credit which i helped pass through the American Rescue plan. It was transformational for Many Americans reducing the number of kids living in poverty by more than 40 . All in all, these provisions collectively lifted 10 million children above the poverty line or just slightly below the poverty line. They help georgians purchase essentials like food, diapers and coats, lifesaving prescription drugs, but unfortunately these provisions expired and we lost dramatic gains that we made in combating childhood poverty. The 2023 fsac and will report noted that while Consumer Financial health remains positive we see recent indicators of falling savings and rising credit card and auto loan delinquencies. The Child Tax Credit was a tax cut that put money into the pockets of families. What economic benefits to we see from policies like this that focused on reducing childhood poverty, including on a family s ability to save . I think it had an utterly dramatic effect on households and as you mentioned, it resulted in a massive reduction in Child Poverty. In 2021 it fell to 5. 2 which is the lowest on record. And of course it means that families had many still struggling because of the pandemic, had the resources to support their children and make sure that they werent deprived of the food and other support that they need to go on to lead good lives and be productive members of the workforce as they get older. Many of these payments went to families that were in dire need. Its a tremendously important support. Thank you so much. I am very much in favor of tax cuts for working families and this is why weve got to restore the Child Tax Credit and this is why the enhanced credit found within the bipartisan tax relief for American Families and workers act is an important first step and i hope we can get that legislation passed soon. Thank you senator and soon after you came here in 2001, we passed the most important attack on Child Poverty in decades and thank you for your leadership role in it. Secretary yellen, thank you. I know that this Committee Hearing and the preparation time for a hearing like this takes a huge chunk out of, maybe the most complicated job in the federal government and certainly one of the most complicated every week. It seems like we learn about another responsibility that the Treasury Department has. I remember and i still talk about the call that i had with you after the president signed the american recovery act and we pass it on march 6. Within a couple weeks of our conversation you immediately brought in commissioner reddick who was a trump appointee but who was reasonable and professional and we got that moving. By july checks went out to the families of 60 million children, 2 million of them in my state, and changed the lives of so many and would change lives dramatically if we could renew it as we are trying to do now. For senators who wish to submit questions the questions are due one week from today 15 february and then you will have 45 days, you and staff to respond to any questions. Thank you so much for your public service. Earlier today has lawmakers met to examine a proposed rule from the Consumer Financial Protection Bureau to regulate payment applications and digital wallets. Watch the entire house Financial Services subCommittee Hearing tonight at 9 00 oclock eastern on cspan. Cspan on the free mobile video app or online at cspan. Org. For voices 2024, we are asking voters across the country what issue is most important to you in this election and why . Most important issue, this political season is immigration. Economics and the deficit. I think that homelessness is an issue that needs to be addressed. We invite you to share your voice by going to our website, select the record your voice tab and recorded 32nd video telling is your issue and why. Voices 2024. Be a part of the conversation. Your unfiltered view of government and funded by these Television Companies and more including comcast. Consulting executives testified on their work for saudi arabia and other foreign clients before a senate subcommittee. The four Companies Represented advised saudi arabia on the countrys Public Investment in sports and on the
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