We could reach even more kids in need. My food Bank Provides more hot meals a day or case throughout the year. Children who visit partner sites were not partner sites a model to receive a nutritious meal bubble have a safe alternative to being on the streets. They get tutoring mentoring and sports. Far too many children cant read afterschool programs particularly in the summer. My stay of less than 10 of the lowincome kids in and 18 nationally. Why is that . Our programs are concentrated in Jefferson County and urban county were programming and services are available at many children can get the sites. The current number of 3d model which requires real designated site works great in these instances were children have congregated for tutoring and mentoring. We face two challenges enriching kids in a warm rural community. Lack of sites and transportation. Those communities simply lack facilities were kids can congregate and consuming that which makes the onset eating requirement difficult or impossible to comply with. Even schools that try to provide feeding report low participation rates because kids are not able to travel to the site each day. Several policy changes you can make would help reach markets during the summer and afterschool and we believe will require a twopart strategy. First, strength in the sybase model by streamlining programs and making it easier for providers to expand the number of sites for children. We have to operate two different federal programs. Wondering the school year and another in the summer, even serving the same kids the same meals at the same sites yearround. Moving to one program will allow us to focus on feeding kids for not pushing paperwork. Additionally, lowering the area element that should the threshold from 15 to 40 will expand the sites available and align eligibility with other federally funded youth programs. No two communities at the same. We need to continue to mainstream accountability while providing new Program Models that local communities can tailor circumstances can make progress in closing the summer gap. Dare to care rents privately funded programs. Our Backpack Program provides children with this on the weekend and in the summer. Limited resources mean they cannot provide a backpack to every kid who needs one. But it looked in the mobile summer feeding programs for Rural Communities are so smelled far apart that the time requirement of having kids eat a full meal before going to the next location would limit the number of children and the cosper hypnotist. Waiving the requirement to allow the Program Models and hard to reach areas will address barriers and significantly expand the number of children we reach. Finally the summer demonstration project will provide another model effective at reducing Food Insecurity and nature shame. This model, film is a children receiving free and reduced price meals are given in ebt card to purchase the Retail Stores in the summer. We would like to see this expanded in communities that pioneered and are particularly difficult to reach. I would like to close by saying i am convinced the child hunger is a solvable problem. It will require collaboration between government, business and nonprofit stakeholders and we count on it to a close in the summer hunger cap a top priority and child nutrition reauthorization and get food banks likeminded tools they need to serve every hungry child. I thank you for the opportunity to testify and im happy to take questions. Thank you for the opportunity to be here today. Im the state director of West Virginia and i would like to give you my of the last two reauthorization finale implemented them at the state agency level. As you know in april 2007 iowa and released a report church and standards for foods in schools. Nine months later West Virginia adopted standards and School Nutrition policy. The progressive standards were implemented in the cafeteria and outside the cafeteria. We were quite schools have more fresh fruits and vegetables are we also implemented the scam and 1 milk provision. Our sodium standard was 100 milligrams of sodium a little more stringent than the tier one requiremerequireme nt and we adapted the whole greenwich standard back in 2008. We do not permit all card sales in West Virginia and children into the cafeteria they get a unit test method make similar pattern for usda. We thought it was the right thing nutritionally for the student and financially for the School District. Outside the cafeteria we implemented the competitive sales roles for all foods sold, and served to students during the school day. Junk food machines vending machines and vending machines and stories had to mean attrition standard set forth by the iom. We also address how the fundraising and require a School Fundraising was to occur during the school day on School Property that it had to meet the nutrition standards as well. We also instituted the professional standards at the time and had a staffing requirement whereby we required continuing education hours in a certain level degree for the Food Service Director district level. Additionally, we did Something Different as well. We address the food coming in from outside sources. Weve done everything we could to ensure the School Environment was a safe and Healthy Learning environment and the cafeteria and the School Environment yet we turned a blind eye to what was coming in the back door in the form of parties and things of that nature. We instituted a provision to address that as well. In 2010 in anticipation of the healthy hunger free kids act we redirected our focus on the technology and developed a statewide automated Electronic System whereby every Public School in West Virginia utilizes the same pointofsale software. Students that come to the Public School system in West Virginia a lot of times well just put their finger their index finger on a biometric scanning pad and it logs and categorizes the nail. That is increased efficiency and accountability in the program and has dispensed with a lot of the over claiming problems other School Districts were seeing. The direct certification match when you have a statewide system like this is done at the state agency level. We do the direct certification match as well as the determination for Community Eligibility at the state agency and we pushed the date it down to schools. One schools figured their claim for reimbursement the data is loaded to the district level and push to the state agency level. The interface goes both ways in the state agency to the school from the school to the state agency. I do a maximum were able to a statewide eligibility so the needy families typically look around throughout the state. But we are able to do is focus on ensuring that meal eligibility benefits were not interrupted. No longer were they required to submit an application at the new School District eligibility followed them just like their name or their student i. D. Did. This also made it easy for us to monitor the system and improve the efficiency and integrity of the system. The threeyear monitoring cycle went from a five year to three or was not a burden for us. 50 of the monitoring is completed in our office at the Central Office at the state agency level before we even entered the field. We have a great relationship with the the snap intended to Foster Childs folks to get the direct certification uploaded on a weekly basis. We also piloted the secondyear Community Eligibility. The firstyear West Virginia was not select to but we did it anyway. They piloted a state agency level and something called the free meals pilot project. Cep is alive and thriving in West Virginia. 54 of all of our Public Schools or Community Eligibility West Virginia and im very proud of that. The key to that working with an act that we brought about called the seed to achieve act was an actor Legislature Passed every of my School Breakfast with the instructiinstructi onal day. Im about to run out of time. The act passed without a fiscal note and actually builds upon the programs we are to have in place and ensure that all children would receive at least two reimbursed meals per day. Thank you and ill take questions. Ms. Jones. First thank you for inviting me here today to testify. School nutrition professionals across kansas are working hard to ensure children receive attrition required for the health and academic success. Hungry children simply cannot learn and thrive. The Public Schools are the secondlargest School District in kansas. I am responsible for all financial aspects of our nutrition programs. Our department has 275 employees serving 24,000 meals per day on a 12. 5 million budget. 27 of our students receive free or reduced price meals. Adelaide we are committed to delivering nutritious meals thanks to our free backtrace in the classroom and five Elementary Schools we are serving 850 more healthy practice each day. Resulting in fewer targets and absentees and better behavior estimates are no longer complaining about being hungry. We participate in summer feeding serving 1900 meals per day come expanding access to Critical Services themselves are programmed to remain financially sound like providing attrition title ii her students. Even before the healthy hunger free kids act, School Nutrition professionals have worked hard to improve school menus. In our district weve offered unlimited fruits and vegetables, served whole grains and meat limits on calories and unhealthy fats by reducing sodium. However we face many challenges. Under the rules many students now bring meals from home. Our Elementary School participation has dropped more than 9 and at the secondary school, revenue has dropped as many students have stopped purchasing all of her choices. Almost all the students leaving a Lunch Program are paid students. If the trend continues the School Cafeteria will no longer be a place for all students go to eat, but a place where poor students go to get their free meal. We have worked for years to fight the stigma so it is heartbreaking to see our progress decline. Give the students are leaving the program for a variety of reasons. Had lunch at putting mandates as many schools to raise lunch prices. Many families do not qualify for a meal assistance butter meal assistance butter straight win financially. As we continue to raise prices some will no longer be able to afford to be with us and financial losses may force our programs to cut staff so they impact the community. Smart snack rules have led to huge declines in all a cart with an estimated loss of 700,000 in revenue. Items such as are fresh to go salad had to be taken off the menu because the small amounts of meat cheese and salad dressings do not meet the sodium and requirements. Our sub sandwich was a very popular all cart item but to make the rules we have to shrink their size, remove the cheese then switch to whole grain bread. Now we saw very few. We have also had opportunities to serve diet soda sugar free gum and coffee. We have chosen not to serve these items, but it shows you how regulations do not always make sense. Despite our best efforts to make meals more appealing we are struggling with student acceptance. We are particularly challenged by an wholegrain restrictive, pizza crust and other items that appeal to her students. Every student must not take a fruit or vegetable with their meals whether they intend to eat it or not. As a result weve seen an increase in good food going to waste in our schools. We promote fruit and vegetable choices with free samples and night try to stickers to encourage consumptions but forcing students to take fruits and vegetables turns a and vegetables turns a healthy choice into a negative experience, encourage and educate is always the best option. Olathe program selfsupporting and operates on a tight budget after labor and supply costs insurance, utilities equipment and other expenses we are left with 1 dollar to spend on food for each tray. Imagine going to the Grocery Store with 5 to spend for a family of four, including milk fruit, vegetable and a healthy entree. Could you do that everyday of the week . My involvement in the school of attrition of kansas has allowed me to witness the accomplishments all across kansas and missouri. Some districts overcome challenges under the new role particularly those with high free and reduced price eligibility, which provides higher reimbursed and and participation in access to federal grants and programs. However, many districts are struggling with reduced revenue, declining participation in the higher cost of preparing meals. We dont have access to many federal grants. That is why it is vital to allow flexibility to allow programs to be successful for the students and families we serve. A lot of negative press about School Nutrition programs for flexibility. Today this is her fault. We are only asking to make sure all are successful, have shaken the knowledge that we know what is best for the children thank you for the opportunity. Ill take any questions. Yes. Thank you and good morning. Id like to thank chairman roberts and Ranking Member stabenow for inviting me here today. As i was introduced, i am dr. Sandra hassink at the american pediatrics, Nonprofit Organization of 62,000 primary care pediatrician and pediatric medical and surgical specialists Whose Mission it is to obtain the optimal physical, mental and social health and wellbeing for all infants, children adolescents and young adults. Its an honor to be here today speaking about a subject to which ive dedicated my lifes work. Childhood obesity and connection between nutrition and health. The foundation of child health are built upon insuring the three basic needs of every child. Sound and appropriate nutrition, stable, responsive and nurturing relationships and safe and healthy environment and communities. Meeting these needs through each child is fundamental to achieving and sustaining Optimal Health and wellbeing into adulthood for every child. Early investments in child health and nutrition are crucial. The time. From pregnancy through Early Childhood is one of rapid physical, cognitive, emotional and social development and because it is the time. In a childs life can set the stage for a lifetime of good health and success in learning relationships or it can be a time of toxic stress when physical, mental and social health and learning are compromised. Micronutrients such as iron and folate have demonstrated effects on Brain Development that are commonly deficient in pregnant women in the United States. These deficiencies lead to delays in attention, motor development, poor shortterm memory and lower i. Q. Scores. One of the most Effective Investments congress can make during the prenatal to school age. It is to support the special Supplemental Nutrition Program for women, inference and children and i think the committee for his strong bipartisan support over the past four decades. Which helps give children a healthy start by providing attrition as foods nutrition and breastfeeding support. Children who receive wic have improved birth outcomes come increased rates of unionization, better access to health care through medical home and participation may help reduce childhood obesity. Wic has played an Important Role in promoting breastfeeding and improving breastfeeding initiation. We recommend the Committee Say to find ways to promote initiatioinitiatio n and continuation even further in the program, including by an increase in the authorization for the breastfeeding Peer Counseling Program for 180 million. Wic is a targeted intervention for mothers and Young Children impacts longterm in nature including improved health outcome, educational prospects and prosperity of communities. As a pediatrician and seeing firsthand the importance of nutrition and child health. When i started my practice and chatted with management 27 years ago i was in adolescents. When i retired last october at a special clinic for children under five at the obesity and we were seen him since. These children already showing the effects of their increased body mass index on Blood Pressure in measures of blood sugar control. We saw obesity related Liver Disease in 4yearolds and children of prediabetes at age six. Today our children are experiencing an unprecedented nutritional crisis resulting in the double burden of Food Insecurity and obesity. The connecting factor is poverty. The highest rates of obesity are fine people at the lowest incomes increase in the picture of Food Insecurity in children is that of a child with overweight over obesity consuming a poor quality diet. Good nutrition is not only an essential component of chronic disease prevention and treatment. It also helps treat the effects of chronic hunger. Wic is one intervention to address the double burden. Families for schools, childcare committees and pediatricians play Important Role. When youre in the middle of an epidemic come you cannot keep doing what youve always been doing. As pediatricians, parents, leaders and policymakers, we have an obligation to ensure the food we provide this help you nutritionists and we model Healthy Eating as adults. Good nutrition and childhood set the stage for Lifelong Health and just like we vaccinate to protect against illness we can also vaccinate against chronic disease by providing pregnant women and children with nutritional assistance and breastfeeding support and as we celebrate our mothers this weekend, i urge the committee to the mothers and children nutritional needs first. Our Childrens Health simply cannot wait. Thank you. Ill be happy to take any questions. Thank you very much. We will proceed with questions. Thank you to each of you for your comments. We appreciate it. Dr. Hassink, thank you for reminding us that the children being healthy and have a chance to succeed. Mr. Goff i want to start with you. What i think a West Virginia in the ball kind of schools, and yet your state is 100 compliant with the new mill failures including smart snacks. Looks like youre ahead of the game anticipating things. I want to congratulate you in this state for that. I am wondering how you were able to do some of the schools in the state to be able to achieve the goals and secondly, when many schools rely an a la carte sales to supplement their budgets. We understand tight budgets for schools but the change in healthier items doesnt seem to have impacted your school. I do to help schools achieve and how is that you are able to do that including a la carte sales and away they didnt hurt your schools . Thank you for the kind comments. When we adopted the iowan standards in 2008 after they were released and put together a comprehensive Implementation Plan as far as bringing the schools on board. We went through the black guys like everyone else is going through. We used quarterly workshops. You have to communicate with each Service Director through the internet. We issued guidance memos. We met with principles groups. We met with superintendent groups. We did presentations before boards to get the word out and what you know just why the standards are changing why we were doing what we were doing and the Science Behind it. We created a website called smart foods for parents to educate parents about the changes. So weve had a very comprehensive Implementation Plan and the staff at the state agency level in preparation for all the changes as well as far as great writers as a registered nurse and think that he and our Automated System where we have an Electronic Technology system that is integrated throughout the entire state. They just need to know one system. Should reviewers just have to monitor one system. Many concerned that were untrue mr. Lord spoke of we dont see because the Community Eligibility determination is done at the state agency level and we notify of the information. Print reduced application is online so weve had a lot of a lot of problems are experienced with the paper application which has basically become obsolete in West Virginia. As far as a la carte, we in West Virginia when children come into our cafeterias, either good or cafeterias, you either get a unit test method is the pattern fully reimbursed by the federal government regardless of whether it is for a reduced price or paid them that challenges the best interest. We also worked to have salad bars put in place. By not offering a la carte sales that make the point of sale a lot not a lot of back today so that lends itself to increased accountability as far as logging and claiming the meals. Weve never had an issue as far as revenue goes on a la carte sales. You get a unit test meal but you get the full price of the paid meal and the full federal reimbursement, so you get both Revenue Streams in West Virginia. All a card was never an issue for us. Well its very impressive what youve done when you look at the automated pointofsale and the statewide eligibility so schools dont have to focus on math and it moves with the child. I think that is really something we need to look at him how to save the cost of paperwork for schools and families and still achieve things. Congratulations. Mr. Riendeau weve had a lot of bipartisan support over the years for summer meal programs and we want to continue that. We dont need to strengthen both the congregate and noncongregate models. Im concerned we create more flexibility. In michigan weve submitted a request for a waiver for the congregate requirements and unfortunately was denied because of the current restrictions when a waiver can be issued. I wonder if you may speak more about the need for flexibility in terms of the summer and what is happening in terms of communities. Whether it is where children need or what has been called grab and go rather models why this is important. Sure. Thank you for the question. We serve both urban and Rural Counties. That is where the difference between the two models is most stark. The vast majority of the meals we serve are served in Jefferson County the home of louisville urban county a place where there are plenty of sites for kids to gather in the summer size of programming in the goodies the kids want to be apart a and kids are there and it is easy for us to get deals to the kids and have the kids consume them on site and allow us to comply with the requirements of that program. In fact our model is based on a 6000 squarefoot kitchen we invested in to build two years ago provides 1000 hot meals a day and takes into the sites. The Program Works while they are. With a need for flexibility comes and his inner counties. Many are very rural and frankly they just dont have the community centers, the facilities for kids to gather. Even if they did theres a transportation issue. Many are living in hollis, small communities. So what we would like to see is the ability to work on the ground with government and Business Leaders to come up with unique partnerships and innovative programs tailored to meet specific needs. If we could have the flexibility we talk about here i am confident we could reach many, many more kids in need. As i mentioned in my testimony, 90 of the kids who are eligible dont get it because this is a site go to or they cant. Thank you three. Ms. Jones. Thank you for your help and archer verse in kansas and enjoy the School Lunches. A few were provided flexibility what changes would you make . I would allow us to go back to the 50 whole grain so we are able to add some of those items back that the kids enjoy such as wholegrain biscuit did not have much flavor. I dont know if any of you have tried them. The crackers taste like sawdust. Just some of those simple items. Our children love chicken nuggets. All kids love chicken nuggets. With the coating on the chicken nuggets, they no longer like the flavor. Simple things we could do without. I would go back to encouraging kids to take fruits and vegetables, which is what we want to do in our district. We keep hearing it is just a half a cup. But we have 29,000 students in our district. That is a lot of half cups. If two thirds of those kids be fruits and vegetables, that is still 10,000 half cups that we throw away and over a year that is 1. 7 million half cups. In our district, we want the kids to be fruits and vegetables we have unlimited fruits and vegetables. We go into school all times encouraging and giving them stickers because we want them to try fruits and vegetables. Because of other tight budgets we have right now this may be something we have to do away with with unlimited fruits and vegetables and i would hate for the students who want to eat theirs to lose the opportunity because other students are forced to take them and throw them in the trash. Also, i would like to be able to make the decision on whether to raise the prices for our meals. I think a lot of our students gathered in the programs because they can no longer afford to pay the milk price. I was visiting with the growth the other day she said her mother now makes her choose two days a week to leave with us because they can no longer afford to pay the cost. I would like to be able to do that too. Just enjoying the whole green champion to exempt that standard and i would give you every opportunity to discuss that. At any rate. Let me also ask you their sons school is doing well implementing the standards. The school is obviously with a lot of resources. In your testimony you mentioned some high free and reduced price districts in kansas have also overcome challenges. Is there a way to characterize the districts having a hard time or is it based on the individual image . The reason i bring this up as i think the distinguished senator from michigan and i put it to rural and smalltown schools. And goodness knows they have a problem with that. But i am not sure if getting this exactly right. Is there a way to characterize the districts having a hard time or does it vary based on the individual community and how they accept the program et cetera, et cetera. Theres been a lot of talk about training. Im trying to get at something and the attitude of the community or the district. Not much choice in this regard. Help me out here. Districts like my own at a lower amount of free and reduced. A lot of the kids are making the choice to bring their own lunch or if you are in a district that has a high free and reduced those kids pretty much will still eat what they are being served. I was actually speaking to a director from a larger district and he said because of the revenue he is losing with his students, he will end up in the red for the first time and this is his attempt to be being there. A lot of the problem is those schools that do not at the high free and reduced on had the ability to get the grants available to those high free and reduced schools. In my school we have a centralized building. Whereto registered dietitians on staff. We have to pay for all of our costs, benefits. We pay and direct cause to districts to help pay for utilities. Little School Districts how someone within the school said they dont have the extra cost a large districts have. Plus many of them have high free and reduced. They not only do not have the expense we have come that they are able to bring in more revenue. The bank you have addressed with some of us may have is a bias. That is exactly what i was asking about. As so many different questions here i would say to my colleagues. I do want to get to senator donnelly who is next and then we have senator hoeven. Thank you, mr. Chairman. To thank you for being here. Mr. Riendeau, i know youre based in louisville, but let everybody know dear to care serves washington crawford, harrison, floyd and clark county in my home state of indiana. I want to talk about something i know youve heard about as well and that is the area you serve just outside of it is scott county, just to the north of where you serve the needs had a devastating hiv epidemic. The county has one of the highest Food Insecurity raise her children in our state. I was wondering in your mind, what is the best way to reach those kids to make sure theyve had enough to eat him and to make sure they stay in school and hopefully stay away from drugs as well. Thank you, senator. Yes, i live just down the road from scott county and i want you to know personally i share your pain with what is happening. It is terrific. In my mind what is happening that are sort of point to the larger issue before the committee with the whole reauthorization that is invested in our kids today can prevent so many issues down the road. We heard kids who grow up in a food insecure environment are going to have all kinds of issues and at issues and as they age up they find themselves with less options for becoming productive of a selfsufficient members of the community. Im not an expert on drug addiction or hiv, but i would have to guess that there is a very close correlation between the levels of Food Insecurity you see in that county and the problems theyre facing with alternatives to turn to. The best way one of the great ways to better serve counties would be going back to the Ranking Members question about flexibility, giving us the ability to tailor programs to provide food to kids in those Rural Counties with the current model in current regulations may not do so well. Which ties into my next question that in some of our rural areas to serve and throughout the rest of the state and country there are programs for kids on the weekend and such. I know you helped to work without also. Do you think as you look at that we would be able to reach more food insecure children if those meals a map program are eligible for reimbursement as i know the funds come from the private sector for that. Absolutely. That program in our case with dare to care and serving Rural Counties is one of the programs were used to reach kids in Rural Counties. When kids are congregated at school, it is the one place we can get a trishs food to take home for the weekend. Currently we fund the program entirely with private donations so its entirely funded program, but in my mind the great Public Private partnership because we Leverage Private dollars to address the issue that they can address with federal dollars. The answer is yes. If we could find a way to find a new Revenue Source that would certainly have to reach these kids. Thank you. Dr. Hassink, one of the areas of concern for me with Food Insecurity is the general obesity occurred in children. As you look at that going forward, what can be done teach about Healthy Eating lifestyle is and how to prevent things like diabetes type two because they can be so debilitating. Well, thank you. We as pediatricians see the rise in type2 diabetes in younger and younger children, something we never thought wed have to deal with as pediatricians. Starting early to solid foods and good feeding practices to start out right is essential. Many of the children with type2 diabetes already by age five have had obesity. That means family education. Stronger links with the health care term and food and providing information about food programs providing education understanding what is available for families in the community would get them off to a good start. In 2007 when we wrote the expert guidelines for obesity, we considered all children at risk for obesity in this country and weve trained physicians to do preventive counseling for everyone because of the problem. Thank you to the panel for all your work to try to help her children and families. Thank you, mr. Chairman. Thank you senator donnelly. Senator hoeven. Thank you, mr. Chairman. You mention in your testimony the difficulties of complying with standards and whole grains. What can we do to help in that regard . We just want to make sure we dont go forward with target to further sodium because right now we are able to get by. We are struggling but were able to meet those requirements. If we go on the target to come and that means we are serving level. There will be no flavor to the kids food. I receded enough for my director knowing the student surveys are back from parents and many say their children are no longer eating with us because there was no taste to their food. That is a big concern and if we continue on, that will be even a larger concern. Last year i included a provision that actually kept the whole grains at 50 rather than 100 of the Grain Products having to be whole grain enriched. Now ive introduced legislation with senator king. This is bipartisan legislation. That would both keep bias at the lower sodium levels did not go to the next target level and would continue a provision that 50 of the Grain Products have to be whole grain enriched. Is that something you think is workable and your say would find workable and other states would find workable . Absolutely. Touch on for just a minute issues as far as the competitive requirements for the followup card menu. We want to make sure School Lunches are held and kids are eating them and we also want you to continue with all of her. I understand issues in terms of what you provide all occurred. We would like to be able to serve items on all occurred that are also on the reimbursable meal because right now you have to look at each all occurred item. If its on the meal you can compare that throughout the week and fit into the requirements. Its much more difficult to get an item to serve on all occurred. We would like to be able to do that. It should be healthy enough to serve all occurred. Suggest some flexibiliflexibili ty. Flexibility absolutely. Mr. Goff glad to hear of your successes of implementing the program in West Virginia and certainly flexibility does not need a Good Nutrition standard is making sure we have healthy meals that what you did then schools are able to make their budgets. Could you tell me how many schools have applied for an exemption from 100 whole grain required that . Well we did the 100 whole grain required that back in 2008. The only thing that is effected our schools that was implemented across the board in all schools and schools arent having a problem with it. The only thing that is touched in West Virginia is as it relates to cost and that is only because we have schools that are having trouble getting the product. And i missed the point. In some cases whether its the turkey has pasta when what is its not just to brag to other products. Some flexibility is helpful and that is why ive advanced to 50 whole grain enriched. Youve got quite a few schools that have applied for exceptions. When some flexibility be helpful to them here . I cant speak for the schools. When youre looking at granting waivers, my fear is that would be a Huge Industry a pause to come on board and make the products were available at a sooner time. We have lots of waiver request implementing standards as it relates to professional standards or even competitive sales. If you have a good standard in the childs best interest, you hold that standard. I certainly cant speak for a state like kentucky, but our participation in West Virginia and school meals is the highest its ever been. Our breakfast participation is starting to exceed that of lunch. I think in West Virginia and we have cooperative purchasing groups that pull efforts to get the product. I think we are on the right track there. You dont feel there needs to be any flexibility even though you have schools that have applied for exemptions . I dont know the number of schools. 22 schools. We have about 700. That is cause for an exemption or waiver until the product can become available. It was my understanding it was more related to pasta. I understand in some cases they relates to pasta or turkey as are of these other products and that makes sense that they are healthy and the kids will eat them. The current dietary guideline recommendations allow for refined grains as well. So what if we allow it in the dietary guidelines why would that flexibility in that regard makes sense for school kids too . I understand. Thank you, mr. Chairman. Senator stabenow additional question. Thank you again to all of you. I guess im trying to put into his ive realized we are making changes or serve in the process of moving in the direction of all of us of wanting to be more focused on health and wellness and we all know the benefits of that. We know sometimes change is hard and i do have to say ive visited a lot of School Districts. Some very creative where you take vegetable of the green peppers and onion and the kids dont even know theyre getting it. Another is where someone says you have to eat broccoli. Theres a different reaction depending on how things are presented and we want to be in the Creative Process of that where we are sneaky and then. I wanted to ask you about the exemptions for whole grains. My dear friend, i really mean that, from north dakota has been very passionate about this. I do thousands of schools across the country, we had 350 requests for waivers on whole grains. His 900 School Districts alone. For request in kansas. So i am wondering, have you received any request that this point in again why would you believe schools wouldnt be asking for the flexibility of the waiver we put in place at this point. I couldnt give you the number. Weve ceded some requests. Its my understanding talking with the groups that comprise our stay at the request is for pasta and it is because the product is not readily available for them to purchase and have something to do with the particular product has trouble maintaining its consistency. So until more about product hits the market some of our schools were struggling with it. Weve had been in place since 2008. They are very accepting out what they called the brown bread. Its a good standard and good standard and will need to wait for industry to come up to speed. I wonder also. There are differences between larger and smaller districts and some that had the Community College ability. Ms. Jones was then in larger districts with the smaller number of students qualified for free and reduced lunches and so on. In West Virginia, how do you handle that with the larger districts where theres the economics of that first schools because i am sure that is different. How do you handle that in terms of districts were virtually all of the children are qualifying for free and reduced lunch work may be less than 50 . As far as the economics of funding and someone. That seems to be one of the concerns. There are fewer children being reimbursed on free and reduced lunch. Thats a great question. We implemented Community Eligibility. The first or they piloted that, we were selected so we did our impression meals and we knew that if we selected nine districts if we didnt fundamentally change something it will create a problem with the budget. We worked in conjunction with their state legislature and pass senate bill 663 called the West Virginia feat to achieve back. One of the provisions of the act is a realigned breakfast for the instructional day. We are offering breakfast at the worst possible time at the start of the school when the bell is ringing, buses arrived in may kids want to talk to their friends. So we have a say about that mandate school can no longer compete with the start of the school. And has to be offered at their breakfast in the classroom breakfast after first. Her breath first after the bell is some combination of that. What it has done in conjunction with Community Eligibility or breakfast participation is starting to exceed that of lunch. Financially speaking, that is very good for the programs because the margin of profit if you look at the federal reimbursement versus the cost of producing breakfast the margin of profit is higher than that of lunch. This is the most important meal of the day and now we have the naysayers in the beginning for example, the teachers they didnt want food in the classrooms will now go to bat for the program and are promoting the program because they can see such a huge difference in test scores student attentiveness can reduce charities, fewer trips to the school nurse from the fewer behavioral problems. And is change the way we educate kids in West Virginia. We have one School District districtwide, mason county, their breakfast participation average 90 . 90 of the children had a breakfast on a daily basis. That is how we have done it through the economies of scale to produce one more breakfast or one additional breakfast is the cost is not that significant that the federal revenue coming in on one more breakfast is substantial. Thank you very much. I know my time is. Thank you. Excuse me. Senator bullard. Thank you, mr. Chairman. I apologize to you and the Ranking Member for running back and forth today. This is such an important hearing an important topic for ourselves than the rest of the committee. I am on another committee that has to do with Violent Crimes and things like that. All of these things go together. And again, i know these have been discussed but its such an important thing. Our somerville participation has increased in recent years and is very, very important. We struggle to reach children in rural areas. Can you talk about the challenge of experience with the Meals Program and also based on your experience can you give us concrete recommendations as to what we can do to overcome those challenges . Sure. As i said before, dare to care serves urban and Rural Counties and much like your Rural Counties in indiana, the distance between the communities is so great and the communities are so small that its just very, very difficult to find locations where kids can go and congregate. Unlike our urban counties there were robust boys and girls clubs of holiday programming and lots of things these kids want to get to. The challenge is to find a way how to get these kids access to summer food based on the realities of the county in which they live. Simply put as several different options. One of the thoughts we have is we actually have a bias. Where the school bus now and we are looking at the possibility of preparing meals in our community kitchen, loading those and taking them on the bus out to the Rural Counties than simply driving to the hollows where youll have a community of 20 families and dropping the meals off and letting the kids consume them as the bus goes away it goes to the next community. The challenge with that model under the current row is amongst the kids unless we stop in the kids eat the meal on the bus and we count the number of children, we cant be reimbursed. The sustainability of the model is doubtful. That is the challenge. But its one of the things we like to consider is allowing us to look at flexible models. Im sure in arkansas would benefit deeply from that. Let us look at those who make those eligible for reimbursement as well. Mr. Goff you mentioned you started your program in 2009 and i think thats right. Our states need the flexibility to feel that they do his best. Based on 2009 until now what are your obesity levels . Have they gone down flat now continue to go up . In West Virginia . We adopted standards in 2008. Wouldve happened as a result . I think our obesity rate has leveled off. I dont have the data. I do know that our School Environments are healthier in West Virginia. Hunger and obesity that sidebyside from trying to put the finger on the culprit and have done everything in our power. I agree with that. The only reason i mentioned that if this really does go together with a whole host of other things. We need to address this. Like i said, i dont disagree that you all are doing a great job in a sense of doing what you feel is best for your kids. For one of the problems we ran into if they feel like if we just do this or that in this area we will solve a problem and the reality with p. E. And lots of other things after school at dignity is all of that goes together and if we dont do it all, we will be in trouble. Ms. Jones, you mentioned in your testimony the importance of flexibility. Can you top to us a little bit about specifically the flexibility that you like in some areas or two. Sure. Just when we talk about are all a card the fact we had to take a healthy choice off like a submarine sandwich with turkey and cheese, that doesnt make sense to me. That is a healthy item. We would like to have the flexibility to put those items back on our a la carte items. Having the decision to be able to raise the price of a meal or not should be determined by each district by what they feel their involvement would be able to pay for. We want to be able to keep those kids in most cafeterias because we cant serve a nutritious meal if we dont have been eating with us. As us. Those are the things we are wanting to look at. Like i said, with fruit and vegetable we want to encourage our kids something we have always thought was very important. But we do not want to lose our limited fruits and vegetables because we cant afford to do that anymore. Shortterm memory, iq scores and everything that everybody strives for. Im not asking you to expand upon that research. I think it is selfevident but about to let you know how much we appreciate your coming in your statement. I am now moving to the conclusion of our hearing this afternoon. Yes, it is this afternoon. Thank you to each of our witnesses and to the first panel as well for taking your time, your very valuable time to share your views that are related to the child nutrition programs. These testimonies that have been provided today are very valuable to the committee to hear firsthand and to keep on record. Your thoughts and insights will be especially helpful as we undergo the reauthorization process. Into my fellow members i would ask that any additional questions that they may have for the record be submitted to the committee five Business Days from today, or by 5 p. M. Ex thursday may 14. The committee now stands adjourned. [inaudible conversations] coming up on cspan2 a discussion about the financial crisis with better researcher janet yellen and imf managing director christine lagarde. Then live to the Brookings Institute or look at how the u. S. And germany are shaping research, development and regulation of driverless cars. Today marks the 70 anniversary of the end of world war ii in europe. And carries and veterans will mark the anniversary with a cinema at the National World war ii memorial in washington, d. C. With former secretary of state madeleine albright, White House National security advisor susan rice an author and world war ii historian. This will be followed by a flyover of dozens of world war ii aircraft. You can watch the event at 10 30 a. M. Eastern on cspan. They are an incredible family, nine of them have worked at the white house tonight if youd james comey the only current parttime butler who i did get to interview. He is still there. He might be the right. He works every week at the white house. Nine members of his family have worked there. Is our goals were made of these which is like a head butler. He told me my vocals ran the white house. They brought him in when he was 17 in 1959 during the eisenhower administration. He is to working there and he describes how used to work in the kitchen and give such a skinny public eye they kept getting an ice cream to eat. Thats what i wanted to do is pay tribute to these people. Sunday night that at each event pacific on cspan q a. Next, the man who directed International Monetary Fund Christine Lagarde and Federal Reserve board chair janet yellen. To discuss lessons from the financial crisis and address the events leading up to and during the crisis. National and international effects and safe guards in place to prevent another economic downturn. This is hosted by the International Monetary fund and the institute for new economic thinking its just under one hour. Fromwell let me begin by thanking the organizers for inviting me to participate jointly with managing director look art, my colleague and friend in this important dialogue on the role of finance in society. The Financial Sector is vital to the economy. And well functioning Financial Sector promote job creation, innovation and inclusive Economic Growth. But with when the incentives facing Financial Firms are distorted, these firms may act in ways that could harm society. Appropriate regulation coupled with vigilant supervision is essential to address these issues. Unfortunately, in the years preceding the financial crisis, all too many firms took on risks they could neither measure nor manage. Leverage interconnectedness and maturity illiquidity transformation escalated to Dangerous Levels across the Financial System. The result was the most severe financial crisis in economic downturn since the great depression. Almost 9 million americans lost their jobs. Roughly twice as many lost their homes, and all too many have ended up underwater. To be sure some individuals and families borrowed unwisely, but too often Financial Institutions encouraged the behavior that resulted in such massive debt. In my remarks today i will discuss some Important Reasons why the incentives facing Financial Institutions were distorted and the steps the regulators are taking to realign those incentives. Before discussing incentives that contributed to the build up risk to Financial Institutions id like to highlight the important contributions that the Financial Sector makes to the economy and society. First and foremost, Financial Institutions channel societies scarce savings to productive investments. Theres by promoting business formation and job creation. Access to capital is important for all firms but its particularly vital for startups and young firms which often lack a sufficient string of earnings to increase employment and enjoy finance capital spending. In Fact Research shows that more highly developed Financial Systems disproportionately benefit entrepreneurship. The Financial Sector also helps households save for retirement purchase homes and cars, and whether unexpected developments. Many financial innovations such as the increased availability of lowcost neutral funds have improved opportunities for households diversity in asset markets and diversify their holdings. Expanded Credit Access sl households maintain Living Standards when something job loss, illness or other unexpected contingencies. Technological innovations have increased the ease and convenience with which individuals make and receive payments. The contribution of the Financial Sector to household Risk Management and business investment, as well as the significant contribution of Financial Sector development to Economic Growth, has been documented in many studies. Such Research Shows that across countries and over time, Financial Development up to a point have disproportionately benefited the poor and serve to alleviate economic inequality. Despite these benefits as weve seen, actions by Financial Institutions have the potential to inflict harm on society. Instead provide Financial Security through prudent mortgage underwriting the Financial Sector prior to the crisis facilitated a bubble in the Housing Market and too often encouraged households to take on mortgages and neither understood nor could afford. Recent research has raised important questions about the benefits and costs of the rapid growth of the Financial Services industry in the United States over the past 40 years. A combination of responses to distorted incentives by players throughout the Financial System created an environment conducive to a crisis. Excessive leverage placed institutions at great risk of insolvency in the event that severe, albeit low probability, problems materialized. Over reliance on fragile shortterm funding by many institutions left of the system vulnerable to runs. And excessive risktaking increase the probability that severe problems would, in fact materialize. Moreover regulators and the structure of the regulatory system itself did not keep up with changes in the Financial Sector. And were insufficiently attuned to systemic risks. Once concerns begin to develop about escalating losses at large firms, into the liquidity and capital interacted in an adverse feedback loop. Funding pressures contributed to fire sales of Financial Assets and losses, reducing capital levels and tightening liquidity pressures, alternating in the near collapse of the Financial System in late 2008. Culminating. Several factors encourage excessive leverage including Market Perceptions that some institutions were too big to fail. Financial institutions also had an incentive to engage in regular arbitrage, moving assets to undercapitalized offBalance Sheet vehicles. The complexity of the largest banking organizations also may have impeded market discipline. In addition financial intermediation outside of the traditional Banking Sector grew rapidly in the years up to 2007 leaving gaps in the regulatory umbrella. And conflicts in the incentives facing managers, shareholders, and creditors may have induced banks to increase leverage. To strengthen banks resilience the Federal Reserve and other banking agencies have substantially increased Capital Requirements. Regulatory minimums are capital relative to risk weighted assets are significantly higher. And Capital Requirements no focus on the highest Quality Capital such as common equity. In addition to which riskbased standards, Bank Holding Companies and depositories faced a leverage ratio requirement. Also significant high capital standards, both risk weighted and leverage ratios are being applied to the most systemically important banking organizations. Such surcharges are appropriate because of the substantial harm that the failure of a System Institution would inflict on the Financial System and the economy. Higher capital standards provide large, complex institutions with an incentive to reduce their systemic footprint. We are also important annual stress tests to gauge large institutions ability to weather a very severe downturn and distress of counterparties and, importantly, continue lending to households and businesses. Firms that do not meet these standards face restrictions on dividends and share buybacks. As the result of these changes for the largest banks tier one common equity, the highestquality form of capital, has more than doubled since the financial crisis. New liquidity regulations will also improve incentives in the Financial System. Prior to the crisis, institutions incentives to rely on shortterm borrowing to Fund Investments in riskier or less liquid instruments were distorted in two important ways. First, many investors were willing to accept a very low Interest Rate on shortterm liabilities of Financial Institutions or on securitizations without demanding adequate compensation for severe but unlikely risks such as a temporary loss of market liquidity. And perhaps these firms expected Government Support or simply considered illiquidity a very remote possibility. Second come institutions attempts to shift their holdings once concerns about credit or Liquidity Risk of those creator firesale dynamic the amplified declines in market values, causing unanticipated spillovers onto other institutions and across market. Recently completed regulations aim to strengthen liquidity. For example, a new liquidity coverage ratio requires internationally active banking organizations to hold sufficient high quality liquid assets to meet their projected net cash outflows during a 30 day stress period. A new process, the comprehensive liquidity analysis and review, said supervisor expectation for liquidity Risk Management and evaluations institutions practices against these benchmarks. A proposal for a mix Stable Funding which would require better liquidity management at horizons beyond that covered by the liquidity coverage ratio. A proposed capital surcharge the largest firms would discourage over reliance on shortterm wholesale funding. Also be fcc has adopted changes in regulations that may help avoid future runs on prime money market funds. And reforms in the tripartite repo market reduce risks associated with intraday exposures. In the aftermath of the crisis that Congress Passed the banking like the regulators with challenging and changing the perception that any Financial Institution is too big to fail by ensuring that even very large banking organizations can be resolved without harming Financial Stability. Steps on the way to achieve this objective. In particular banking organizations are required to put their living wills. Plans for the rapid enormous resolution in the event of insolvency. Regulators are considering requiring that Bank Holding Companies have sufficient total loss absorbing capacity including longterm debt to enable them to be loud or down without Government Support. In addition the fdic has designed a strategy that it could deploy known as single point of entry, to resolve a systemically Important Institution in an orderly manner. The crisis also revealed that Risk Management at large complex Financial Institutions was insufficient to handle the risks that some firms have taken. Compensation systems all too frequently failed to appropriately account for longerterm risks undertaken by employees. And lax controls in some cases contributed to unethical and illegal behavior by banking organizations and their employees. The Federal Reserve has made improving Risk Management and internal controls a top priority. For example the comprehensive capital analysis and review, which includes the stress test i mentioned also involves an evaluation to ensure that firms have a sound process in place for measuring and monitoring the risks they are taking and for matching their capital levels to those risks. Also supervisors from the fed and other agencies have pressed firms to improve their internal controls and to make boards of directors more directly responsible for compensation decisions and employee conduct. As i noted, the financial crisis revealed weaknesses in our nations system for supervising and regulating the financial industry. Prior to the crisis regulatory agencies, including the Federal Reserve, focus on the safety and soundness of individual firms as required by their legislative mandate at the time, rather than the stability of the Financial System as a whole. Our regulatory system did not provide any supervisory watchdog with responsibility for identifying and addressing risks associated with activity and institutions that were outside the regulatory perimeter. The rapid growth of a shadow not a Financial Sector left significant gaps in regulation. In response, the doddfrank mandated the Federal Reserve to allow it to consider risky Financial Stability in supervising Financial Firms under its charge. Within the Federal Reserve we reorganized our supervision of the most system of Important Institutions to emphasize what we call a horizontal perspective, which examines institutions in a group and in comparative terms focusing on their interaction with the broader Financial System. We also created a new office within the fed to identify emerging risks to Financial Stability in the broader Financial System, both the bank and nonbank Financial Sectors, and to develop policies to mitigate systemic risk. Doddfrank created the interagency Financial Stability Oversight Council chaired by the treasury secretary and the Federal Reserve is a member. Its charged with identifying systemically important Financial Institutions and systemically risky activities that are not subject to consolidated supervision and designated designating those institutions and activities for appropriate supervision. And its charged with encouraging greater information sharing and policy coordination across financial regulatory agencies. My topic is broad and my time is short so let me end with three thoughts. First, i believe that we and other supervisory agencies have made significant progress in addressing incentive problems within the Financial Sector, especially within the Banking Sector. Second policymakers, including those of us at the Federal Reserve, remain watchful for areas in need of further action or in which the steps taken to date need to be adjusted. And third engagement with the broader public is crucial to ensuring that any future steps move our Financial System closer to where it should be. Active debate and discussion of these issues at this conference and in other forums is important to improving our understanding of the challenges that remain. Thank you. [applause] thank you very much chair yellen. Thank you very much for being here with us today. I would like to say thank you thank you very much for organizing this, convincing as that this was a worthy project and for setting the bar pretty high. Janet, you took us to a vivid walk down memory lane by explaining again with the financial crisis had been and how it was addressed. I would like to go just a little step further back not to the roman days like jan mcdavid. Volterra, back in the 18th century. Volterra was a keen observer of the reality of society and houston to have said about bankers, if you see a banker jump out of the window. Follow him because there is certainly money to be made. [laughter] the window could be the subprime, or Something Else but ill come back to boulder and a second. I couldnt agree that important progress on the predatory reform agenda has improved the resilience of Financial Systems and i also welcome the continued vigilance of the fed and other institutions. Yet as we all know into many places Financial Stability is still not well entrenched. Our recent global Financial Stability report issued on the leadership of ahead of our mcm Department Finds that Financial Stability risks are rising, rotating from banks to nonbanks, from sovereign from sovereign to nonsovereign from banks solvency to market liquidity and from advanced countries to emerging countries. Back to voltaire, i wonder whether he would have said make sure you follow the banker. He mightve said having read the Financial Times this morning, follow the financier. Migration from the Banking Sector to the financial nonBanking Sector. So theres still work to be done to address distorted incentives in the Financial System. Entity actions are precipitated the crisis where boastfully, mostly not so much prevalent as driven by shortterm profit motivation. This suggests that we need to build a Financial System that is both more ethical and more oriented to the needs of the real economy. A Financial System that serves society and not the other way around, that serves itself. So did they would like to do is focus on how to induce a change in the culture of the Financial Sector, how to better align financial incentives with societal objectives. And in doing so i think we need to look at both the Regulatory Environment but also the individual accountability. So let me start with the role of rules and regulations. Today more than six years on Regulatory Framework still faces several challenges that precipitated the crisis. What have we done . A lot, as janet has just explained, but the job is not completed enemy will be because of that rotation or migration phenomenon that we observed it will continue to be work in progress. But think of the rules that are not tight enough and oversight not strong enough. Which is why we need for the progress on the two big ticket institutions. Think of the culture of compensation based on shortterm gains rather than sustainable profits which induces greater risktaking and shorttermism. I whenever back in 2010 when the fsb with the good leadership in that, ive identified what the compensation system should be to avoid that shorttermism. Boy, that was a heated debate and im not sure that was concluded in a very effectively. So how can we address these problems . We have been done at the imf in depth working october 2014 gfs are go go for those not in the physical the Financial Sector report on how stations and governance structures can help reduce risktaking behavior and realign incentives in the Financial System. Let me highlight just tiki takeaways. First on compensation incentives lead to competition practices need to change so that rewards are no longer so much tied to myopic actions and excessive risktaking. Our work showed that compensation packages can be structured to favor the longterm performance and soundness of the firm of those who work for them. For example, remuneration should become edison cases it has become, should become subject to possible cancellation and clawback provisions in cases of by the misconduct performative downturn and certainly in cases where the institution will require the direct support of taxpayers. Another way is to give the shareholders, the bondholders a stronger voice in compensation structures of top executives. And that included positive steps in that regard. Our analysis covering a sample of more than 800 banks from 72 Different Countries suggests that shareholders say on pay is becoming much more widespread. For example, in 2005 only 10 of the banks allowed shareholders to cast nonbinding vote on management compensation. Today 80 of banks have instituted this policy. Weve also seen some encouraging steps were recently by the sec. The proposed changes should make it easier for shareholders to determine whether executive compensation is like with the firms Financial Performance or not. As a reformed order i have to say that those principles have to be constantly revisited because a panel of experts like me back many years ago used to work on the rules and make sure that that is a nice way a round. So again it is and will continue to be work in progress and that should be the case. Second, changes in governance structures also matter. The key field during the crisis was in the internal control and Risk Management systems of institutions. Think of the recent example of the london whale, for instance. In many cases Financial Risks were either ignored or underestimated and in the particular case of systemic risk, they were not well understood at all. Failure happens that both a management and the board level. So one way to address this then is early to establish a clear distinction between the management on the one hand and the board on the other hand. We have seen that banks with more independent Board Members take fewer risks. Another way to venture qualifications and skills of Board Members come and key technical professionals through rigorous fit and proper criteria. And to make sure that again that is also work in progress, i sat on the board of ing back many years ago and the basis of the bank was changing so quickly that constant Training Programs were actually necessary for us to understand what was going on his beginning of the banking industries. Training, training, and education. But regulation alone cannot solve the problem. Whether something is right or wrong cannot be simply reduced to whether or not it is permissible under the law. What is needed is a culture that induces bankers to do the right thing even when nobody is watching. Ultimately we need more individual accountability. Good Corporate Governance is forged by the ethics of its individuals that involves moving beyond corporate worldbased behavior to valuebased behavior. We need to go to focus on promoting individuals integrity. Virtues are developed and nurturing Good Behavior over time. Again education, training. One Club Solution is to set a strong tone at the top of the institution. As the chinese say a fish rots from the head. Establishing a culture of ethical behavior is rewarded and relapses and integrity are not tolerated but are sanctioned. You will forgive me, but i believe very strongly that more Women Leaders would also help. There have been many studies now [applause] many studies have shown that the new leadership is more inclusive. Probably a little bit more riskaverse but there might not be something that wrong in being occasionally riskaverse. I dont mean to be excluding anybody at all. But you might remember a question that i, too passed, what wouldve happened if it hadnt been Lehman Brothers but lehman and sisters . [laughter] against this background i hope to see more work done on governance, unchanged and risk culture. The fund has always been a strong supporter of regulators and supervisors, independent supervisors as well as will continue to do so. But i would like to see institutions themselves take up this matter shareholders, bondholders are they should be striving for Better Climate in wisconsin. This applies both to advanced and emerging economies. And, indeed, emerging economies can learn a lot from the valuable lessons from the pitfalls of their advanced counterparts. On this point we released a study a few days ago that reexamines financial deepening from the viewpoint of the emerging markets. The key finding is that they gains from growth and stability from financial deepening remain large for most emerging markets. But there are limits on the size and speed. When Financial Sector development outpaces the strength of the framework there is excessive risktaking and instability. The experience in many countries including in the United States has exposed the dangers of Financial Systems that have grown too big too fast. Our analysis on emerging markets and shows that regulatory reforms can actually increase the benefits from Financial Development while reducing the risks. Im sure many of you have heard and some may have said its going to refrain from that financial innovation. As a finance minister ive heard that many times a few years ago. But based on that study, that change the register framework would curtail, hamper financial government and innovation, and stifle growth, may very well be misplaced or on the whole the same set of principles that increase the financial debt also contribute to greater stability. But better relationally to greater possibility for development and stability. Here let me step back and highlight the important distinction between financial debt and Financial Inclusion. Especially as we strive this year to deliver on imported milestone 2015 year of development. The year of financing for development, the year of Sustainable Development growth. Financial systems around the world are quite sizable but they exclude many individuals. Many individuals many firms from Financial Services resist the temptation of asking you to guess how many people are actually excluded. 2 billion 2 billion people worldwide remain without bank accounts. 2 billion people do not have a bank account. Now, there has been improvement because its 20 less over the last three years but still 2 billion is a massive number. Moreover financial exclusion is far from being solidly a lowincome country or an emerging market issue. For example, even here in the United States, surveys find that some 8 of u. S. Households are unbank and some 20 are underbanked. Study showed a broader system can boost job creation to increase investment in education and help people manage risk and absorb financial shocks better our own analysis that will be released later in the autumn finds a Financial Inclusion is particularly important, sorry for women. Empowering and economically and allowing them to invest in education which they do a lot more than their male counterparts. So it is room for improvement. Market penetration globally still on women, a staggering 42 of women lack access to basic Financial Services compared to 35 for men. This gap is a big if we consider the role of women in the provision of Financial Services. Yet desirable as it is as an objective, Financial Inclusion is not without risk. Particularly it leads to excessive financial risktaking. Our forthcoming Analysis Shows its supported by good regulation, good supervision, and independent supervision financial cushion can actually go hand in hand with Financial Stability. So in conclusion, the financial crisis has exposed several faultlines and provided many lessons, and overarching lessons is building sustainable and inclusive growth hinges on collaborative effort. It requires supervisors and regular to work on managing risks and to Work Together to requires building resilience in all countries, requires real in between Corporate Culture and societal objectives. One final point. I hear and ive heard many times over that it would be so much better if the bankers were boring again. You know what . I fundamentally disagree with that because it takes the few that for bankers to finance the real economy is boring. It is not my definition of boredom and i dont think it should be ours. Financing Companies Providing credit, assessing risk properly, transforming maturity between savings and investment, and overtime is not a boring activity at it should be regarded as a high value activity. Its the definition of boredom is working for the real economy and the definition of excitement is just making a lot of money, i think we have to changed a few things around. Thank you very much. [applause] so christine i think i wondered if you would tell us a little bit more about what the fund is doing all around the world to improve regulation and supervision. I know you have active programs and would be good to hear of things like your involvement is. We operate at different levels. We operate at the global level and we see each other regularly and how is it is represented of those media. We participate in the Financial Stability board. We sit on various committees that often meet in switzerland and we tried to bring a perspective that is not so much of central bankers perspective, are not so much the supervisors of the particular countries perspective but the more global perspective. We are also trying to bring to those meetings of use and the voices of those that are not necessarily representative. And i are thinking about some of emerging markets economy some of the low income countries. And that i think is a Critical Role that we have to continue playing. Vent at the local apple that is a lot of activity going on either when we do the annual sort of audit of economy of our 188 members, because there is often experts in banking monetary policies and finance join the teams come and that is taking place annually in which will be called the article for review. But we also do something that is highly valued by the membership which is called fsoc the Financial Sector assessment work that is done by specialized team, and the worldcom quite a while to actually go under the skin of the banking and Financial Sector and give a candid sort of Third Party Assessment of what we where the risks are, what the policies should be and its a really good health check that is valued by the membership and very often published as well. So it gives transparency to the review that we do. So thats pretty much it. I try to disassociate what would you sort of globally and what we do at the National Level as well. Is it okay for me to ask you a question . Would you like to take a turn . I want to ask you one. Thats fine. I just want him i know what to the one oh at ascot and thats the one that you know i have sort of competitive financial time advertising, but, frankly, that frontpage was quite staggering. Now that the Banking Sector in the wake has been much better we capitalize, you mentioned the quality of the capital required they overcharge on some of the large players liquidity ratios, leverage a limitation, and theres a lot to be said about that. So it seems that theres quite a lot of tools that have applied but as weve seen theres a development of the shadow banking. Not shadow banking. They dont like shadow banking because it feels like a bit weird certainly so they prefer the financial nonBanking Sector which is probably more inclusive where you have some really helpful and needed people but also some take massive risk. Shouldnt regulation go beyond the Banking Sector and shouldnt it be more supervision particularly some of those players what to call on a taxpayers to support . Thats a great question, and i think absolutely the financial crisis just very clearly revealed their even outside their regulatory nonbanking part of the Financial Sector. We had risks that were very similar to the risks we have traditionally had in banking. An example is lehman and bear stearns, the two firms with ing i got into the troubled were not regulated at all come and get the risks that they were taking were very similar to the kinds of risks that lead to runs on banks in the past. And markets. But legal market, the market that developed for assetbacked commercial paper, money market funds, all of these markets develop their important source of credit to the economy but they also had one life characteristic. So when troubles developed they were essentially runs in these markets. And in some cases as you mentioned, the government and the money market case did come in and set them. So it is very important to keep an eye on an appropriate regulate the shadow Banking Sector. I think were making some progress. The Financial Stability Oversight Council is charged with designating some nonbanking institutions as systemic and then putting them under Federal Reserve supervision and so far they have designated for nonfinancial companies, and also at of what they call Financial Market utilities into these that do Central Clearing or played a key role in the payment and settlement system. These have been designated and are supervised and recognized to have systemic risk. We have adopted new regulations. We saw problems in securitization, the fact that in the run up to the crisis so many securitizers didnt really keep risk on all ballots Balance Sheet. They did netscape and again. We put in place regulations that i could make it significant difference. Money market the sec has put in place new roles for prime institutional funds that get rid of the fixed dollar value they have floating in mid asset values. But i think what we do run the risk of there, although the sec did decide to allow firms to impose fees, that something that could create Financial Stability risk which we need to watch. The socalled triparty legal market which is a major source of shortterm wholesale funding. Back and integrate risks that were taking steps come important steps to mitigate. Central counterpoint, of course try to move as many derivative contracts as possible into central counterparties that have been cleared by central counterparties and that something that reduce risks and complexity and enhanced Financial Stability, but then these entities themselves become systemic including need supervision. Something that you had mentioned and imf work is that we have a major growth of openended mutual funds where you have funds that are investing in highly illiquid assets and yet investors in those funds are promised immediate liquidity. If they are runs on those bunch of a kind of liquidity maturity transformation of their to give rise to very substantial moves in asset prices. Youve highlighted and youre focused on that as well. And created the illusion. Yes yes. So let me come back to you christine, if i could with a question. The regulatory reforms that are taking place in the United States, in britain and elsewhere, there may be spillovers to emerging markets. And i wonder if the fund is doing some work in trying to assess what impact of these reforms might be in other countries . Sure. Yes, we do we do that thanks to the global role that we play and a National Level involvement that we have. I think at the global level what has been really striking for me is how we have been able to bring together regulators and supervisors. Sometimes to not have a chance to Pay Attention to what could have been or whats worse loopholes, space proper charge and that in quite a few of those. So we played the role of bringing together all those that are changing the rules but i remember vividly a meeting we had with all present in them together with other central bankers and supervisors and after discussing where one set of rules was going to actually be an issue for another region where different regulations were employed. I think we played that particular role. In terms of spillover spill over what we have certainly observed lately is because of the different Business Model that is induced by the new regulation as a whole, we have observed a change in the bank themselves where the size has reduced them where their footprint has changed as well and where a lot of those branches that were in the entire world, remember those days when banks were saying we are global and they would have that lots of points on the map to say we are all there. I think the map would look a lot different today. That has caused them to sell their operations to generate regional banks, the National Banks out of their better prepared to grow and are prepared to take over what the large players were downloading essentially in order to satisfy the requirements. Other has been that particular spillover on space. The third role but we try to place actually to help emerging market economies, lowincome countries and developing countries actually just to change the regulation. And important in their own right into a system, the proper set of rules that will help them deepen the Financial Markets and make it more inclusive as well as safer. I think which is referred to which show that deepening and including come and more inclusive Financial Sectors are actually not come its not mutually asked exclude from growth provided theres the right set of rules and supervision in place. So we worked very hard on those principles. Okay, back to me to ask you question. And in a way im going back to my point about the alignment of incentives and with the societal purposes and that group financed as janet described earlier. You talk yourself about the danger of distorted incentives in the Financial Sector are there are critics out there who will argue that with a very low Interest Rates, zero interest on occasion, this is distorting incentives and leaving to build up risks to Financial Stability. So what can you tell them . So i think this is a very important question, and i think what i first have to say is that Interest Rates, low Interest Rates in the United States weve had the federal funds rate our target has been at zero for an unthinkable six plus years and we are now seeing Interest Rates at zero or even negative levels in other advanced countries. There is a reason for this. The reason is do we think this policy is only necessary to help our economies move back to full employment and to achieve our price stability objectives. The intentions of Financial Stability, meeting those objections pashtun objectives has a favorable Financial Stability affect. Low Interest Rates are supported job creation and Economic Growth come has helped Household Survey and the United States engage in Balance Sheet repair to be able to pay down debt and are in a much sounder position as our banks. So it is true that in a low interest environment we need to be sensitive and watch for risk to Financial Stability. Low Interest Rates can certainly and sent some investors to reach for yield. They can incentivize them to take on leverage positions can create commercial stability risk. I guess we are doing two things. We are monitoring very carefully to look to see if those risks are developing and to the extent we do see some risks developing, course were trying to take action where we can but we are speaking out more generally about the risks that we see developing. And i can give you a couple of examples. In the market for leveraged loans, we have certainly seen reach for yield and we are seeing deterioration in underwriting standards. And thats something weve been highlighting for a number of years and in our role as a supervisor of Financial Institutions that are underwriting these loans, we are trying to ensure that underwriting standards move up and our higher to diminish risks. Weve also seen a spread on highyield debt which certainly looks like a reach for yield type of behavior. I guess i would highlight that equity market valuations at this point generally are quite high. They are not so high when you compare the returns on equities to the returns on safe assets like bonds which are also very low, but there are potential dangers of it. And the Interest Rates obviously not only short longterm Interest Rates are at very low levels, and that would appear to embody longterm premiums which can move and can go very rapidly. We saw this in the case of a temper tantrum and 2013 where there were some very sharp upward movements in rates and you do have divergent policies potentially around the world. We need to be intensive to the possibility that when the fed decides its time to begin raising rates, these premiums could move up and we could see a sharp jump in longterm rates. So we are trying to come as ive repeatedly said, so we dont take markets by surprise but in addition to that i would say low Interest Rates can create interest risk of Financial Institutions. Many banks are finding their margins compressed. They have an incentive to take on additional duration or credit risk, Interest Rates move up i can create risks in our supervision in a stress test we are looking for that and analyzing their ability to withstand that. Insurance companies can Pension Funds are subject to the same kinds of pressures in the low Interest Rate environment. They find it hard to use their return targets. So fsoc staff and other predator agencies are monitoring, for example, Insurance Companies and Pension Funds. So over although i think my assessment at this point would be the risk to Financial Stability are moderated but not at this point. I say that because we are not seen any broadbased pickup in leverage. We are not seeing rapid credit growth. We are not seeing an increase in maturity transformation. And i would call those things kind of the hallmark of financial bubble or the precursors of the financial crisis. But these are things we, of course, are focusing on very carefully. If i may follow up i know were just about to run out of time but compare the situation in 2007 and i remember those days when you were telling us the europeans the research for yield yet there is a bubble formation, its pretty much under control. To the point where they found out that they did not have the legal ground they did not have the legal basis for the macroprudential tools to address them in due course. Are you better equipped today . I think we are better equipped today. Simply because in some of these markets, money market funds and repo markets and so forth, we have improved regulation so those things i think function better than they did before the crisis. And we dont really come i think we were not aware in the run up to the crisis of what was happening in broker dealers and investment banks. And there were many that were standalone entities that were not banking organizations. Now we have much higher capital and liquidity standards. And that applies to all of the major broker dealers and investment banks. So i think there was a great deal we missed before the crisis, and i believe we are better positioned now and have better tools. Okay, i think, i see them all saying time up. So we will say time up and thank you very much for your patience and for listening to the both of us. Thank you so much thank you. [applause] [inaudible conversations]
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