Transcripts For CSPAN3 Federal Reserve Chair Janet Yellen Testifies On Oversight Operations 20160928

The meeting is coming to order and were going to declare the recess at any time and its called sem annual system on the sup super vision and i recognize myself for three minutes to give an opening statement. As we know the act decreased way beyond the monetary responsibilities. The act is made the fed omnipotent. Through the exercise of the heightened standards the fed can control the largest Financial Institutions in our economy. Former fed governor kevin warsh wrote that Central Bank Power is premisable when the scope is limited and the track record strong and the aaccount blt assured. None of that do we observe today where as the feds has taken us and the big banks are now bigger and the small banks are fewer and the Economic Growth lags and theres evidence that the economy is more stable. Two mu fed authorities granted under dod dx frank have been problematic. The see kra si make it impossible to measure the over sight or the integrity of the test findings. As columbia has testified its hard to believe that the current structure of the stress test could occur in a country of the United States. Dodds living will is to fundamentally restructure private businesses and the process that relies entirely on the person of the decrease of washington regulators. Can fed stands at too big to fail and occupies the board rooms of the largest financial institutes in the nation and decides how washington will bail them out if they get in trouble. Despite is claims that it taylors regulations to fit the size of Financial Institutions we know that not all banks are suffering under washingtons thumb. As we love on average one Financial Institution per day, consumers lose options to help them with the indy pen dense and then the opportunity to grow jobs and the big banks keep on getting bigger. Theres a better way. Former chair says that lawmakers and regulators give a Capital Buffers and they need to be concerned with the quality of the banks and loans and Security Portfolio since any losses are there by the shared holders and thats the dodd frank act to be shelled and ending the potential nol to destroy the market and the market laquidity and then the current fdic chair says that u. S. Banks operating with reasonable levels of capital should snot occur the same burden as those that do not. Former fbi share has also expressed support for the higher capital levels in waiting. She has said that the fed does not know what is risky. The fdic does not know that its risky. Did we not learn anything. Its been endorsed nationwide and including three noble Prize Winners ask by promoting a higher loss of the bank capital in exchange for the release of the regulations and then the Economic Growth for all bank bail outs for none and then assure that is the bank is accountable. We recognize the Ranking Member for five minutes. Thank you mr. Chairman for holding the meeting and thank you mr. Young for making yourself available the testify today. Just a few weeks ago we passed the ninth anniversary of the failure and leading up to 2008 much of the risk in the Banking System went unchecked by the regulators. Failure to quickly address faud and Miss Management resulted in the loss of more than 8 million joob jobs and millions of families lost their homes and entire industries were on the brink of collapse. Congress responded to this devastation by passing the most comprehensive overall of the system since the great depression. The dodd frank wall street reform and Consumer Protection act. The dodd frank act greatly increased the feds responsibility and authority for safe guarding the Financial System that also set minimum standards to insure that regulators did not lose sight of emerging risk again. The dodd frank act has required regulators to increase capital and acquitty standards, reduce the interconnection and the markets and then the large Financial Firms and the Risk Management. However, theres much work left to be done. As we have seen from the enormous failures of the management at wells fargo, its important to remind the committee and the public kwl these reforms were necessary in the first place. Fraudulent Retail Banking practices may not in and of themselves pose Systemic Risk but they indicate Miss Management that could be catastrophic and risier and more complex divisions of a Bank Holding Company. Supervisors and Law Enforcement must continue to hold both institutions and individuals aaccountable. I know you would keep that in mind over the next several weeks as you review living wills from the five banks that failed their submissions in april, and that includes wells fargo. Perry ellen, i am eager to hear about the feds process and wall street reform and how the boards super vision practices have revolved over the last several years and im interested to hear how the fed is using the flexibility to taylor regulations to the sizes and risks of different sizes of banks. Whose near failure opposed consequences on the economy eight years ago. Since the passage of dodd frank, congress has given the federal reacquaint Additional Authority in setting capital standards where the Insurance Firms subject to enhance super vision look forward to hearing about the regulators and insure ers. Yet, a few weeks ago the republicans pushed a bill that would severely undermine the efforts to regulate the Financial System. The chairmans miss guided legislation would is peel the over sight counsels ability to designate where none of the banks had it by the feds and decr creating a huge of unmonitored risks in the system. The legislation would also replace and carefully consider limit on the banking activities with nothing but an in sufficient equity cushion and the risky behavior that nearly destroyed the economy in 2008. More over, as we and congress consider another funding resolution, we must be mindful of the continued attempts to defund the regulators works and for the first time in resent memory economy data indicates that the middle class is benefitting from the recovery, failure to heed that is going to put it in jeopardy. Thank you mr. Chairman and i yield back my time. Now we recognize the gentlemen from texas and chairman of the Financial Institution from the subcommittee for two minutes. Thank you mr. Chairman. Its in the super vision and regulations of the Financial Institutions. The role of vice chair serves as aa designated o official in the Federal Reserve who over sees and in 2010 chairman champion of the rule note that had the creation might turn out to be one of the most important things in here meaning the dodd frank. It focuses the responsibility on one person. President obama has failed to nominate anyone to fill this important position. The position that sets regulatory policies and respe represents the United States. I remained concern that had the governor dan exercises these authorities outside of the construct and today i hope to understand better many of the resent actions taken by the Federal Reserve and for example how you does the Federal Reserve reduce the Bank Leverage interact with the resent recommendations to aappeal the banking authority. What type of risks does the fed that try to mitigate in the resent capital and similarly, what would the impact be in the users and the physical commodity and does the Federal Reserve recognize the exposure and the characteristics of the margin and does it plan to reevaluate the positions in the rule given the resent discussions. While yellen may not be the best to answer these questions, its important for her to do so given the president ial in action. With that i want to say that this is my last time to be in this committee with the chair yellen, and i thank the chair for her making herself available to us and thanks again for her service and her capacity. With that i yield back. Gentlemen yields back. Today we welcome the testimony of janet yellen. She has testified on a number of occasions, and she needs to nurth er introduction and with that the written statement is made part of the record and youre recognized for five minutes to give an oral presentation of your testimony, thank you. Thank you. Chairman hensarling and ranking waters and other member of the committee, i appreciate the opportunity to testify this morning on the Federal Reserves regulation and super vision of Financial Institutions. One of the Federal Reserves fundamental goals is to make sure that the super vvise erie program is tailored to the risks thats opposed and as we saw in 2007 and 2008, failure of the systemically important Financial Institutions can destabilize the Financial System and under mine the real economy. The largest most complicated firms must therefore be summit to preden shl standards that are more so than the standards that apply to other firms. Small and medium size banking organizations whose failure we generally would pose a risk to the system should be subject to standards that are materially less stran ris. They have built a supervise erie program thats consistent with the principals. We have implemented key standards to limit the Financial Stability risks posed by the largest and most complex banking firms. We continue to work on some remaining standards and to access the adequate si and with respect to small and medium size banks we must build on the steps that we have taken to sure that they do not face unRegulatory Burdens. Looking forward we must continue to monitor the new risks since another key lesson from the crisis is that Financial Stability threats change over time. The Federal Reserves post crisis efforts to tlethen the regulation and super vision of large banks who focused on the safety and soundness of the firms and unlimiting the adverse affects that theyre distress or failure could have on the Financial System in the broader system. We have aimed to increase by establishing a set of stan stards and including capital and laquidity requirements for a large domestic and foreign banking organizations and we have aimed to make it more resolvable through for example the living wills process and our proposed Long Term Debt requirements. The introduction of the capital stress testing for the large banking organizations has been one of the signatures and supervise erie innovations since the crisis and as it demonstrated, Capital Buffers that seem adequate and with the environment may turn out to be far less than adequate during the periods of stress. For this reason the Federal Reserve conducts supervise erie stress tests each year on the banks organizations with 50 billion or more in total assets to determine whether they have sufficient capital to continue the operations through the periods of the economy stress and market turbulence and whether the Capital Planning frame work are adequate to the risks profiles. The expectations in the stress Testing Program that large banking organizations should maintain the sufficient Capital Buffers to with stand the period of significant stress promotes the resilience of the firms and Financial System and more generally. While the stress Testing Program is successful since it was first introduced in 2009, the crisis reinforced the need for regulators and supervisors to continuely revisit the effectiveness of their toofls and adjust as needed over time. As my written testimony indicates in more detail and as my colleague discussed in the speech earlier this week, were considering making several changes to our stress testing methodology and process. Leading idea thats emerged from a substance of review of the comprehensive capital anal sis reviewer ccar program is to intergrate it with the regulatory capital frame work. Affecting the c charge in the stress test. Were also considering making certain changes to the stress test used in ccar. Were looking at c car any Bank Holding Company that has less than 250 billion in totalle assets and that does not have Significant International or none bank activity. As well as reducing the amount of data that the firms are required to submit for the stress testing purposes. On this and other changes to ccar that were considers, we will seek the in put before adopting. I know the Community Banks play a vital role in the districts and among the lessons of my year of experience on the Federal Reserves is that when it comes to Bank Regulations and super vision, one size does not fit all. And to the laws and without relating the Regulatory Burden and the rules as it approaches should be lay tornados to different types of institutions such as Community Banks. The Federal Reserve has already done an amount to reduce the burden on the Community Banking organizations and were looking for additional opportunities including potential simplification of the capital frame work for the Community Banks. In conclusion, our post approach to the regulation and super vision is both forward looking and tailored to the level of risks that firms pose to Financial Stability in the broad broader economy. Standards for the banking organizations are more than the standards for small and medium size banks which is appropriate given the impact that the failure of the distress of those firms could have on the economy. As i have discussed, we anticipate taking aadditional actions in the near term to further taylor the regulatory and supervise erie frame work. Even as we finalize the major elements of the reform, the work is not complete. We must carefully monitor the impact of of the regulatory changes that we have made and remain individual lent to the Financial Stability. We must stand ready to adjust the reck la tory approach where the changes are warranted. The work that we do to insure the work of the Financial System remains strong and stable is designed to protect and support the real economy and sustains the businesses and jobs on which american households rely. Thank you the chair recognizes himself for five minutes. First yellen, please know that i was encouraged by the aspects of the testimony. I believe that theres hopeful growing bipart son consensus that we need more tailoring of regulations and particularly on page 13 of your testimony, your recommendation that congress consider carving out Community Banks from the rule and compensation limits in section 956 and i was encouraged by your announcement today concerning the ccar quality review exception. I think thats wise and a very small step in the right direction before we get back i want to see that dodd frank demand s that there are 11 different factors that be considered in the Selection Process such items as leverage, off Balance Sheet exposures and in the process, do you weigh each of these 11 factors equa y equally . Are you talking about the nonFinancial Firms . Yes. That they have designate and. Yes. In the case of those firms as required they prepare an anal sis. My question is of the 11 factors that you must consider, do you consider each one equally or for example is leverage for important to Systemic Risk than factor four and importance of the source . So when it comes down to looking at a firm, the question that they have to consider is special to the firm so its individual to the firm . Its virgindividual, but the question is where im going is this what is the impact of the u. S. Financial system of the distress of that particular firm. With 11 different factors that are considered combined that leads to 2,048 different ways in which these criteria can be combined and the statue says that you shall consider these and can can i safely assume that ayou and other members cannot process 2,048 different combinations of this and these 11 criteria . So what the analysis presented and does is looks at the specifics of the Balance Sheet and exposures of an individual firm under consideration and analyzes how the factors would come into play and impact financial sta billation. I guess that my point chair yellen is that its hard not to conclude that this is a very discretionary process. Lets move go the living will in the ccar. So the banks organizations submitted living wills in 2014 and the gao found that the fed in the fdic had not reviewed those submissions. I understand that many of these are a thousand pages long with the living wills and i have one testimony that the ccar reports are tens of thousands of pages long and i heard one of 42,000 pages long. So i guess my first question is does anybody at the fed actually read these reports and can i safely assume that you dont . You can safely assume that many people at the fed read the report. Does someone really read a 42,000 page report cover to cover and know what 20 to do wi it . Our staff in the fdic do, and all of the governors reviewed i find that very difficult to believe. The gao says that the living wills can cost up the 500 billion and the average business is capitalized with 30,000, so the fact that youre taking away the opportunity to capitalize 3,500 Small Business with a living will that may or may not be read or useful, do you consider the cost of this process or impose it upon the Financial Institutions . We consider eliminating too big to fail to be a key objective of dodd frank, so that the american taxpayers will not be forced to bare the burden of a large firm, and i will tell you that the full board of the governors met on the o order of 12 times and we had to consider in great detail all of the key aspects of the living wills of each of these firms. I see my time has expired and the chair recognizes the Ranking Member for five minutes. Thank you very much mr. Chairman. As you know the reforms that we have passed to make the Financial System are constantly under attack, and many accuse us of one size fits all regulations. As you know the dodd frank act has rules based on the evaluations of the bank risks. I cannot count the number of republican deregulatory that have passed the house floor that were not serious enough to be consider in the republican control senate. However, i know that i as well as others democrats on this commit tee have worked with you to identify areas of improve and use your discretion when necessary. Governor terell oos to the stre testing is the recent example of the stress testing. I think that you just said in your testimony that you were taken a look at banks with less than 250 billion in assets and that you were considering some changes provided they were not involved in a lot of trading and International Trading in particular. Would you tell us what that is all about again . Yes, there are two portions to the stress Testing Program. The institutions over 50 billion and one is a quantitative stress test to see what the impact is severely adversed would be in the Capital Position and we expect to continue subjecting all of the firms over 50 billion to that quantitative part of the stress test but theres also a qualitative part relating to the firms Capital Planning process and that is something that currently all of the firms both 50 billion are subject to and were proposing eliminating that and reducing some of the reporting requirements aassociated with stress testing for the banks under 250 billion as you said that dont have a lot of International Activity or nonbanking business and we look at the national Capital Planning of the firms and that its adequate and that many of them are working on the expectations and we believe that we can relieve the firms of. I would like to thank you for paying attention to the concerns that have been aaddressed by the members of the committee and i would like to thank you for recognizing it and coming up with all of this legislation and really interferes with the ability to exercise the authority that you have. I am very appreciative for that. Let me go on to the next question. Janet yellen, i am on the largest banks over the last five years and i must say that i have not been encouraged by that process and april you were officially declaring five living wills as noncredit and bank of america, bank of new york, state bank and wells fargo. These banks are required to submit these wills to you. They have had five years to identify and aaddress the problems. If any of the living wills are in sufficient in october, will you use the Additional Authority under the act and quickly reduce. Its the authority that we have to impose a higher capital and thats with released to the public for the bank deals and then we will carefully and quickly review the submissions that are dubai o october 1st to see if the deficiency has been remedy. I would say more broadly and when identify the range and then things that we did not think rose to the level of deficiency and want the submissions due in 17 to see if they have been corrected or not and then its a process and those things and it looked deficiency. The chair recognizes and then thats the chairman of the financial. Its required on the report and thechb its the ability and then its an issue of proposed rule making and then imposed the capit Capital Requirements and then its prohibit any of the activities and then the documents to federalize on the term and then the environmental risk or the risks, how does the fed define it. Well, the fed is motivating and then its enormous environmental consequences and then its a disaster and other things and then the kinds of consequences that its there are concerns and then have done a rule making of the physical comod de as we indicated and attempt to address the risks that we think in the area and have recommended and then its the Merchant Banking. I guess that the question is when youre analyzing a risk and go back and look at thats something that if that happens gain theres a problem and i cannot think of an event. Well well theyre able to hold and then its the kmom de. Well, we look at what is permissible and then what is with it. Its not a question of going back and then the history to see whats happened in the past and then its a concern that is it. Well, were just trying to think of whats happening and then trying to make the institutions and then pay a penalty in the capital and regulations and then for the events that may not have happened or may not happen again. I want to turn to the sur charge. And then its the tax of the Capital Market activity. Can you make up the sur charge and the activities. Well, the factors that are considered in determining in the sur charge including things like interconnectedness and reliance on short term wholesale funding factors that would increase the likely systemic repercussions of the failure and the firm. As you said its the sur charge and can be thought of as taxes imposed on these firms that serve two purposes and first and consisting that firms hold more capital to address the risks that the failure could impose on society on the broader economy and they ought to be less liable in holding more capital accomplishes that and it may create an incentive to have the activities in a way to. Will, its one of those and then it talks about the size of the banks in the Market Banking and then the interacting and then its the training and then the interconnected to this and then its all of those things that youre penl liezing for and then its making markets and i think many of us are concerned about the message to the banks right now is just get out of the Capital Markets area because the regulators are getting to the activities. The time for the gentlemen expires and we recognize the lady from new york and the Capital Market subcommittee. Thank you. Thank you mr. Chairman and add month rabl and proven that she is more than capable of navigating these difficult waters and then guiding the u. S. Economy back to robust economy growth and i am disturbed by anyone in a resent debate or anywhere and suggest that and then thats from the truth and i would like to thank you for the service to the country over the long career and government. I would like to begin with the policy and then its the meeting and then its one of the reasons that the fed did not raise rates was because more people had come back into the labor force and suggested to you that the economy, and i quote, had a little bit more room to run. You said that if things stay on the current course, you expect an increase in the rates before the end of this year. So what does that mean . Does that mean that you expect and exactly what did you mean . So let me try to clarify and for the entire year and the piece of o about a thousand jobs per month and thats the pace and thats the piece of the job creation and sustainable and then thats the labor force and and then we see the Unemployment Rate and then its the labor force and then we really dont have the inflation and we have not seen the Unemployment Rate for the fall. Its eventually continued job creation that the pace and would cause the economy to over heat and would push the Unemployment Rate down to the lower and then the Monetary Policy and then its a good performance of the job market is sustainable over the medium term if we allow the economy to over heat and that could jeopardize the good state of affairs that we have come close to achieving. And then we expect to see the solid job growth continue and then things continue on the current course. Its probably not that much on what it is has come down over time as if we consider what is a neutral and then its the accommodation because theres no fixed time together and then they could see it as appropriate to make it to make a step in that direction and this year if things continue on the. Okay. Now the stress test also and some people argue that recently the fed should put the scenarios that develop for the stress tests out for the formal notice and comment for the public and for interested parties in order to to lift up the others in and if assumptions and then its for the year and then the main reason that we think that its useful. Very briefly please. Very briefly we want to make sure that theres the scenario and then significant risk and we see that we have put out for comment both principles and then the information about how we construct the scenarios and then firms have quit a idea of what they can expect and then the scenario that they will face and all of the details we dont put out for the comment. And then thats the lady from new york has expired and the chair recognizes the gentlemen from new jersey from the Capital Market subcommittee. Thank you. Theres a big echo in the meeting and surprise to no surprise the fed decided to do what . Monitor policy. Now i know that you have taken the position and its all purely data driven and then theres nothing to do with politics. Let me just give you two or three headlines out of last week for the meeting. From around here yellen helps clinton dodge a bullet. From the la times, is the fed bias . Look at the interest decision as the election nears. A fed hike again being put off until after the election. See, yellen, you have told the committee and public that theyre not undue to the pressure. As the saying goes perception is reality. Whether you like it or not the public believes that the fed independence is nothing more than a myth. The fed has a close relationship both with the Obama Administration and with higher ups in the democratic parties. I brought this up a year ago and let me run through the points that i raised then. You personally have weekly lunches with political and pa partisan heads and theres a revolving door with the treasury appointees and the board of governors. A decision was made just weeks before the president had to go before the voters in 2012 and looking at your record and the speech on income and something that you never talked about before and was a Major Political theme for administration and you gave it weeks before the last election. Now, let me give you a resent one and you can comment on this with a couple of yes or no. Tlfts tlfts a doubt for the markets and the election that was reported earlier this year that they contributed the maximum amount to the Hillary Clinton campaign. She did so while she was a sitting member of the fed board. There were numerous reports state thag the governor is aang for a top job in Hillary Clinton wins. Thats there out on the table because of the appearance of the conflict as governor brandon ever rekuzed herself from the foc . She like all of us is subject to the restrictions of the hatch act. She has off aerrered to reku herself . No. It does not prohibit political contributions. I get that and so we see the appearance of the conflict and so its a basic question. Has she ever recaused herself . Have you ever asked her because of the contributions . She is acting in a way thats permitted by the rules. So your answer were subject to and each one of us has to decide for ourself the answer is she has never recused herself. Has shall be in there with a future job of the administration. Are you aware of that at all . I have no aawareness of that. There have been reporting talking about that and youre not familiar with that. What is important to me is in the collective decision making. I see the politics being brought to bare in reasoning of that decision and i have never seen that on the part of any of my colleagues. If you learn that she has had communications with clinton as far as trying to get a job, would that change the opinion as to whether she should be add to rekus herself . I dont think that theres a conflict of interest. So she can be looking for a future job and thats not a conflict as far as youre concerned . We do have is that a conflict or not that theyre having direct negotiations with either party to ask for a job each year while theyre a sitting governor, do you see that as a conflict . I would like is that a conflict. Would you be asking the governors if theyre engaged the gentlemen is not yielding and the time that the gentlemen has expired. Can the witness give a brief answer . I would have to consult my counsel. Im not aware that its a conflict . The time of the gentlemen has expired and the chair recognizes the gentle lady from new york, ms. Velasquez. Thank you. Chairman, puerto rico is currently facing a historic crisis. 46 of the population lives below the poverty line. Three times that of the u. S. Main land. Employment in puerto rico stands at roughly 1 million, down nearly 300,000 from 2007. In the meantime, the u. S. Economy has gained almost ten million jobs in the same time frame. On top of these challenges, the island is struggling with zika virus and last week a blackout swept the island. When the main land faced severe challenges from 2007 to 2009, Congress Passed and the president signed sweeping stimulus legislation. The american recovery and reinvestment act. Do you believe that this election was helpful in fostering an economic recovery for the u. S. . Well, i do think puerto rico faces very serious economic and fiscal problems as you have described. They have been building for a long time and the commonwealth faces very significant challenges. I think the framework that Congress Passed provides tools that may be en that may enable the commonwealth to avert some worst case scenarios. The ability to restructure debt should make it possible to put if place a fiscal adjustment that will be one thats less uncertain and hopefully entails smaller cuts to government spending. But i understand that. Chair yellen, it will take time for the fiscal control board to do its work and the situation in puerto rico is really very difficult at this time. My question to you is how can we spur investment in puerto rico . How can we foster Economic Growth and not wait for the fiscal control board . Because the reality is, people are leaving the island. The most productive workforce is leaving the island. Theyre facing Serious Problems with a Health Care System that is broken and my question to you is, do you believe that if puerto rico focused on the stimulus plan will have a similar effect on the island like in 2008, 2009 . So this is really something im not an expert on what the appropriate programs are for puerto rico to deal with its long standing problems around i think thats squarely and i think thats squarely a matter for the congress and the administration to consider. Okay. Thank you for that answer. We cannot forget that puerto rico is part of the United States. That we have a responsibility, a moral obligation. After all, we dont provide priority in some of the important issues that theyre facing, such as medicaid and medicare. Chair yellen, last friday the Federal Reserve bank of philadelphia launched a research and Advocacy Initiative to examine the interaction between economic inequality in the u. S. And its implication for macroeconomic prosperity and growth. What is the fed hoping to learn from this initiative and how is the fed hoping its findings will further the economic inequality discussion . So i dont see it as a political plot. I see it as a contribution in terms of, you know, promoting Economic Growth among those who have been left behind. Yes, i think the high level of poverty and inequality in the United States is a concern. Should be a concern to all americans and an important challenge that our nation hopefully will address and the this initiative is really focused on trying to understand what some of the key factors are that are driving those outcomes and looking at practice to see based on real world experiences with programs that are attempting to address poverty, what works and what lessons can be learned that might be of use to communities trying to deal with entrenched poverty. Thank you. The time of the gentle lady has expired. The chair recognizes the chairman of the housing and the insurance subcommittee. M thank you. We talked about the sheer volume of the rules coming out of the Federal Reserve. Layer of regulation after layer of regulation. Its impacting everyone whether its Small Community in move and now we have the involvement by the fed. As my colleague has indicated. I hope that you work with this body with regards to those rules, fed officials have made statements to the effect that the benefits of merchants outweigh the risks yet we seem intent on finding a solution. That concerns me greatly. I can assure you we have a number of written questions for you to respond to with regards to that issue. Today i want to discuss some the specific designation stuff that mr. Trujillo mentioned this past week. And it should be designated on risk, not size. Mr. Lew said we need to look at the other factors other than size and that seems to be your position as well now. With regards to that, can you tell me what administrative costs im sorry . What would be the costs of removing the c car requirements of being a with the stress test . We im not talking about what is the cost that you whats the savings that youre going to have or is there a cost to designate, a cost to administratively remove is there a cost in terms of dollars and cents that we spend . Yeah. Does the fed have to is the cost does it cost you something to administratively remove the c car does it cost us to implement and run the tests im asking you to remove the requirement does it cost you money . Does it cost us money to remove the requirement it does not. The c car requirement does it cost you money to do that . No, but i think it would be a cost in terms of safety and soundness. I think im talking about the fed. Does it cost you money to remove the c car requirement . You said no. Thats what thats the answer to my question. Well, any cost also that we incur in carrying out c car in the stress testing is passed on to those institutions who pay for the cost of their supervision. Okay. Last february, the office of Financial Research conducted analysis of systemic performance of 33 u. S. Bank Companies Based on basically the tenets of my bill, hr 1309. Can you tell me what you think the costs would be for f sok to designate to what . For f sok to redesignate these institutions if theyre no longersive if is. You have to look at the things and if the bill if it shows that the institutions are not sifis you have to redesignate if they are. Is there a cost to that . Well, yes, i think its clear that these institutions can you give me a figure . No, i cannot give you a figure. Okay. Can you give me a ballpark, 100 bucks, 1,000 bucks . 10 million i cant give you an estimate. Well, the problem is that the f sok staff which includes the Federal Reserve informed the cbo that the potential redesignation of the banks that are over 50 billion in assets would have administrative costs of over 50 million. Do you think thats reasonable . I have no idea. Do you know how you staff arrived that figure . This is the f sok staff. No, they did it in part of the Federal Reserve, your staff came up with the figure. I have not reviewed how they came up with that figure. Okay. So if we write you a letter you can give us a response that . Ill try to do that. Very quickly, you made a comment a minute ago with regards to what you have done for Community Banks to help them with the regulatory problems. Inundation of rules and regulations. Can you give us similar examples examples of what we have done . Yeah. We have changed the small bank holding policy to raise the threshold for capital regulation i think we did that in congress if im not mistaken though. You did. We raised we put that into effect. We have well, im glad to know that you implemented our law. Thank you very much. The time of the gentleman has expired. The chair now recognizes the gentleman from california, mr. Sherman. Madam chair, good move or nonmove earlier this month at the fomc. Now some in politics on monday will say that our economy is in such terrible shape that those who make economic policies are obviously incompetent. Then on wednesday theyll say its urgent we raise the Interest Rates because the economy will overheat and Economic Growth may get out of hand. Only in this room can you juxtapose those two positions. We need to allow Small Business loans. I have been told be many bankers if theres a 2 or 3 risk that the business will go under, they cant make the loan. Jamie diamond said he couldnt find qualified Small Business borrowers under that bill and then he sent his london and it was eaten by a whale. It would help our economy of this country if banks were able to make prime plus three, prime plus four loans to businesses that have a little risk and of course provide a reasonable reserve. Instead, im told that if you dont qualify for prime plus two, you leave the office. I join the chair in saying that its a good idea to tailor your regulations and i would say that the more sifis you designate the less significantly youll regulate them. Its the its the hugest institutions that are really Systemic Risks. But madam chair, i want to address the elephant in the room or maybe i should say the stage coach. Ill remind you that the f sok has the ability to break up the biggest banks and for that i have said that before in this room. People said you must have animus to the true global sifis. No, i study microbiology, the protozoa reaches a certain size and it divides. You think the smartest minds on wall street could as we. Too big to fail is too big to exist lets look at the elements of that. Too big to fail is too big not to bail. Thats why we bailed them out in 2008. Too big to fail is too big to jail. Thats why eric holder said he cant indict certain executives and institutions because it would have too big of an effect on the economy. Too big to fail is too big is too big to compete with. Thats why some study say they get 80 basis points off of the cost of capital and might be less because of the expectation of those providing the capital if they get in trouble well bail them out. But wells fargo has identified two additional reasons to break the institutions up. Because you they created a system with a where they hired good americans and turned 5,300 into felons. Two million felonies they failed to monitor the system when they saw that some individuals had created phony accounts. They fired 1,000 of them and didnt change the system and didnt fire the executives that created the system that created the first 1,000 felons until they had 5,300 felons. Now from a democratic side, too big to fail is too big to manage. From the republican side, too big to regulate. Whether the fault is the regulators who cant regulate it, too big to fail is too big to exist so my question for you will you seriously consider using your authority as i think youre required to review and consider using your authority, will you at least seriously consider breaking up wells fargo . Well, we will hold the largest organizations to exceptionally high standards of Risk Management, internal controls, Consumer Protection. We expect but if you broke wells fargo up then instead of trying to hold them up to the high standards people could choose, you know, which Financial Institution to go with. They wouldnt pose the Systemic Risk. By saying that youll hold the giant institutions up to giant standards, something you havent been able to do 2 million times, 2 million phony accounts so youre going to continue to do a great job of regulating the too big to fail because you wont break them up . Well, we believe it is possible even though its extremely challenging for organizations to comply with the law 2 million phony accounts not detected by the regulators. Break them up. Time of the gentleman has expired. The chair recognizes the gentleman from mr. Michigan, mr. Why zinga. Thank you, mr. Chairman. Madam chair, i appreciate you being here. But quite honestly no offense, i wish you werent. We need to have the vice chair of supervision to be here. This is something that the administration has refused to position a position that the administration has refused to appoint for six years now. You know governor trujillo has performed the position from the board of supervision, but not in the position and quite honestly by refusing to fill this position i believe that the president has deprived congress and the American People an opportunity to hold the fed accountable through the semiannual meetings. And this is the requirement of dodd frank. Some believe its a holy script that cant be changed in any way but they conveniently refuse the other areas. Do you believe there should be a nomination to fill this position . We would certainly welcome a nominati nomination. Have you brought that with up secretary lew in your weekly lunches . Its a have you brought it up . Youre having to be here in in somebody elses stead. Have you brought it up with secretary lew or anybody else . I wont discuss what i have discussed or havent with the secretary. As i say its an Administration Responsibility and we would certainly welcome a nomination. I guess well continue to hold you responsible for that obligation which is something you shouldnt be held for. But thats your decision. Im going to go on, but do you believe that any and all rule making regarding regulatory or supervisory or supervision should be suspended until this vice chair is actually named . No, because i think the board of governors is charged with supervision and putting in place regulations and were carrying who do we hold responsible . And carrying that old. Who do we hold responsible then . Im responsible and my colleagues are responsible. As long as youre willing to fulfill that obligation congress assigned that responsibility and i share in that responsibility with my colleagues. Okay. I need this is going fast so i need to move on. I want to talk about Monetary Policy versus regulatory and supervisory roles. The fact is that in my oversight act, the reform act and the choice act by extension we are trying to bring some separation to your function as Monetary Policymakers as well as your regulatory and supervisory roles. Former senator and Banking Committee chairman chris dodd as well as chairman frank at the time had advanced legislation or advanced the notion that those ought to be separate duties and that your regulatory and supervisory roles ought to be put on budget. Im curious, were they wrong in that assessment . Well, congress decided to so you would welcome then having that separation and putting your regulatory and supervisory roles under budget and with review just like everybody else, every other regulator versus the separation of your Monetary Policy duties . Well, the banking agencies do not have their budgets mandated by congress. Theyre covered by collections from the industry. I would very much worry that we would lack the flexibility under congressional appropriations to ramp up our supervision at times when it appears we have an alphabet soup of the other regulators that are there as well. So it seems to me you want your cake and eat it too. You want to have this super duper regulatory role where, you know, its fed uber all on this stuff but dont subject what the other regulators go through. That just seems that rarely do i say that i agree with barney frank but i believe that chairman frank at the time had this right and that there is that separate role. My last issue as were quickly closing out here. Some have believed that dodd frank cannot be changed in any way shape or form you said on page 14, a number of times there ought to be the adjustments. Have you spoken to the senators or other reps who disagree you and say that we cannot touch dodd frank . Very brief answer, please. We have said that those would be desirable changes. I hope youre expressing that to the members. The time has expired. The chair recognizes the gentleman from new york, mr. Meeks. Thank you. Its a pleasure to welcome you back to this committee. And thank you for staying with who you are. Being nonpartisan and independent. Despite there being some especially in the president ial politics in which were currently engaged in, your decisions are based upon a partisan way. In fact, i think that its good when you are criticized from both the left and the right and from everyone that probably means youre doing the right job because youre not focused on one on either side. And we on this committee reinforce the banking supervisory powers in dodd frank because there was a need to heighten the regulatory framework. I think thats clear from what took place back in 08. The good news is that we are seeing banks taking bolder steps to reduce risks as you have indicated and to exit out of certain risky activities. We do see some of that happening. Even if some would say that banks are bigger today than they were before the financial crisis, that probably may be true from a simplistic perspective. But its not a complete and accurate picture because not only have the banks exited because of risk, but boosted their capital and liquidity buffers which increases the size of the Balance Sheet and making them a safer and sounder institution. Yet we still have wells fargo. Which, you know, causes us to have great concerns as to what and where we need to go next. We have questions with that. So theres been some progress. But then theres also unintended consequences and i want to shift to that now just because it is well documented that one of those unintended consequences of banks derisking, theyre getting out of certain communities and countries and theyre also denying services to millions of lower income americans, not because the risk is too high, but simply because the Profit Margins are not considered high enough. There have been serious consequences on vital Correspondent Banking relationships that are critical to international flows also. But another major problem happening in several communities here including in a district like mine, banks are closing branches. In fact, economists from the Federal Reserve bank of new york released a report last month entitled banking deserts, Bank Closings and showing that the banks have shut nearly 5,000 branches since the financial crisis, as a result of low income neighborhoods have become somewhat more likely to live in a banking desert. Thats why i have called to revamp the Community Reinvestment act. It was mailed to a number of banking regulators and cosigned by 40 of my colleagues. Its obvious that cra is not working as it was meant to work when it was passed 40 years ago, i had this discussion with occ tom curry and i believe that part of the solution resides in enabling greater collaboration between large banks and cdifs including minority deposit institutions and they can take over the assets before they close and preserve the Banking Services in low income communities of color. So the controlling on the constant dialogue on this i would love to get your thoughts on this matter. Well, i am concerned about Banking Services in low income communities and we are working with minority depository institutions to provide support to them in enhancing the very important and valuable role they play in ensuring the provision of services to these communities. So, do you believe that we i mean, 40 years ago there was one thought of you, banking and cra was put in so that we could make sure that you had institutions, and you believe there are ways that we can revitalize or revamp cra to deal with the institutions and whats taking place today so that these communities are not neglected and then become part of banking deserts . Well, we are having a look at cra and the agencies whove put out Additional Guidance in recent years thats meant to address issues that have arisen and we will continue to look at what further guidance might be appropriate. Time of the gentleman has expired. The chair now recognizes the gentleman from wisconsin, mr. Duffy, chairman of the oversight committee. Madam chair, welcome. Obviously looking back to 2008, the crisis had a huge impact not just on the Financial Service sector but across our country and on many of the families that we represent. And i would argue that this massive dodd frank bill was passed in a time of fear, where people were concerned about the future of our country and their family. A 200page bill was passed before the dust had even settled and we had a full analysis on what caused the crisis. And we were told by our friends across the aisle who i would argue opened up their cabinets, the file cabinets and dumped in every wish bag issue that they had for probably a decade, but they made a promise to the American People that when they passed that bill they would be ending too big to fail. Because people were concerned not just about the economy, but the fact that the taxpayer, their money was going to bail out large Financial Institutions. Do you agree now almost a decade on that we have ended too big to fail . Well, i think we have taken very significant steps toward no, no. Thats not my question. We were promised that we would end too big to fail. I wasnt here. That they would end too big to fail. So i think the American People have a right to know what you think. Have we ended too big to fail . Yes or no . So as i said, i think i think too big to fail is a less significant problem now than it was before. I so youre saying its still a problem . We havent eradicated the threat, have we . Too big to fail still exists, yes . I think we have made very, very and meaningful strides for ending it. Madam chair, these are simple questions. Im sorry, i dont think its a black or white thing. I can tell you congressman duffy we have ended too big to fail. America is better off with dodd frank and the act in that im the chair of the fed, or frankly, no we havent. We havent ended too big to fail. We have made progress. But we havent ended it. We have done a great deal to make it possible for a systemic institution to resolve successfully. Im going to take the odds of accomplishing that are much better. I think what youre if im going to clear the smoke youre saying we made progress but we havent ended too big to fail and i think youre in the safe zone because Elizabeth Warren even admitting we havent ended too big to fail. My friends across the aisle will admit clearly in hearings here we havent ended too big to fail. My question for you is a 2,300 page bill giving you and other regulators significant authority that has had a huge impact on the Financial Sector and on our economy, if we havent ended too big to fail, is it a failure of dodd frank or on the fed . Im sorry, im not willing to describe it as a failure. We havent ended too big to fail. No, we have made great progress in trying to achieve that and it is not a black or white issue. Does that answer does that answer work for my constituents . When i said, this was a devastating crisis, it had a huge impact on your family. Were ten years on, we had a 2,300 page bill, you cant get a loan from your credit union or from your Community Bank and chairman yellen said, weve made progress. So we have a system that is much safer and sounder. It is much more resilient and it has much more capital, much more liquidity. And better although not perfect i wholeheartedly disagree on many issues with Elizabeth Warren but at least shes truthful on that. Larry sommers said that capital information is at least superficially inconsistent with the view that banks are far safer today than they were before the crisis and some support for the notion that risks have actually increased. Do you disagree with him . I disagree significantly with that conclusion. Because it is based on the notion that markets properly evaluated the risks in banking organizations before the crisis. Im going to give you one quote. In 1788 James Madison worried that laws may become so voluminous they cannot be read or so incoherent that they cannot be understood. 2,300 pages in dodd frank and a 900 page of volcker rule, you cant tell me with all the rule and regulation that you havent eradicated the threat of too big to fail. Time of the gentleman has expired. The chair recognizes the gentleman from massachusetts mr. Capuano. Thank you, mr. Chair. Thank you, madam chair, for being here again. I want to clarify a few things. Im not aware of anybody who doesnt want to amend dodd frank including me. I want to amend it. I just dont want to gut it. Good amendments, thoughtful amendments, im all for them. Getting it totally against. Thats pretty much the only bills we have been offered. It would will the gentleman yield . Not right now, but thank you. Too big to fail, too big to fail . I agree we should do more on it. Thats why i offered the bill to bring back glass steagall, all my colleagues are welcome to join that bill. Thats why i offered hr 888 that the Community Bankers support. All my colleagues are welcome to join that bill. Thats why i join my colleague on the other side, mr. Garrett. Now my god if youre not paying attention when garrett and i can agree on hr 2625, that directly relates to the feds ability to bail out banks. All my colleagues are welcome to join that bill as well. I know ms. Yellen wouldnt like that big and i appreciate that. It doesnt kill you but squeezes a lot harder. There are bills that are out there to do more. All you can do is read them and join us. If garrett and i can do it, you sure as hell can find a way to do it. Dont get used to me and garrett working together either but threes a different issue. Ms. Yellen, lets assume for the sake of discussion we had a large bank, one youre keeping a close eye on. But over the last five years has had 16 enforcements actions against them. Including one from the fed. Lets assume the bank had a fed fine of 85 million. And in that agreement the consent agreement they signed with you they said, well, you said, internal controls are not adequate to protect instances when certain of its salesperson nell in order to meet Sales Performance standards to receive incentive information altered or falsified the documents to qualify those borrowers for loans they couldnt receive. This is 2011. This is hypothetical of course. Since that time we have had 15 other violations across the board with pretty much every Alphabet Agency you can find. Doj, cfib, occ, fha, s. E. C. , and pretty much every state in the nation. Totaling 10, almost 11 billion in fines. Those actions included defrauding student loans. Mortgage holders, credit unions. Identity perception. Kick back, defrauding freddie, defrauding fannie. Worker health issues, discriminating against africanamericans and hispanics, foreclosure abuses, on and on and on. And then just this year, earlier when you rejected their living will, your letter cited concerns about quality control, Senior Management oversight, accuracy, the consistency of financial and other information reported. Even though the firms Leadership Steering Committee had input to the plan. And now we have a same bank, same bank. Just defrauded 2 1 2 million of its own customers. Its own customers. Im sorry. A million and a half. Dont you think its time the fed does something . How long does this stuff go on before you get outraged and take action . Well, as you pointed out, we have done something. The action that you described in 2011 you know that an 85 million fine to this bank is laughable. You know that. I know you know that. Its a lot of money to me and everybody i know, but to this bank they made 23 billion last year. 85 million bank, barely a footnote in their annual report and you know that. Well, as you pointed out, many regulators have been involved in im going to have my fun with them too. Its just your turn today. So were in the case of this institution were the supervisor of the holding company. We have already instituted a review of all the largest banking organizations because we are very concerned with all of the compliance problems and violations of laws you know theyre laughing at you. The time for the gentleman from massachusetts has expired. The chair recognizes the gentleman from New Hampshire. Thank you, mr. Chairman. Chair yellen, to your right. Thank you. Thank you for being here today. I want to talk a little bit about Community Banks. You and i know the importance and the role they play in our financial ecosystem. My state of New Hampshire is a resilient state, 1. 3 Million People and yet we have Close Relationships with our Community Banks. We have got ten federally chartered banks, we have 16 state chartered banks and we have ten out of state charter banks so its not a significant number. But theyre very important and critical to consumers. But due to the severe regulations that Community Banks in my state are subject to, they are now limiting products and loans and services to their customers and my constituents. When Community Banks should be focused on providing access to credit for consumers, their focus and attention on meeting compliance with the burdensome regulatory requirements seems to take the priority of their time. I get reports from my Community Bankers on a regular basis that they can spend up to 25 of their time and resources on compliance. And this has been increasing as a result of the growth in the regulatory requirements that continue to be placed on them. So my first question would be do you believe that theres a disproportionate impact of Regulatory Compliance on community Financial Institutions . Institutions that are smaller that Service Customers in New Hampshire . So we want to do everything we can do reduce burdens on Community Banks and recognize that they are laboring under a significant set of Regulatory Burdens. Were going through the appropriate process and looking at a number of concrete ways in which we can reduce that burden and we have taken a number of steps on our own to reduce the frequency and intrusiveness of exams to make its more risk focused, to do more work, not only the premises of the bank to try to reduce burden. You asked if the burdens had fallen disproportionately on Community Banks. Right. The fact that theyre smaller means that these burdens can be significant relative to their budgets, but the most restrictive requirements have been focused on the larger institutions, particularly the usg sivs that have a but you think theres a disproportionate impact on Smaller Banks, Community Banks . Theres quite a bit of research thats taking place. In fact, we have a conference thats taking place at the moment thats looking at those burdens. But well, the reason i asked that but theyre significant burdens for a very small bank and a certain fixed cost involved in doing that the reason im asking that we have had two mergers in the last six months in the state of New Hampshire. And my fear is that thats going to continue. So i hope that you could identify very specifically and very quickly before the end of the year areas where we can reduce that Regulatory Burden. New hampshire bankers are coming to washington tomorrow to meet on that very subject. Theyre very interested in it. Because our economy requires and relies on them. A different point i want to bring up in your written testimony you recommended that congress consider carving out Community Banks from the volcker rule and the incentive based compensation role. Would you agree in concept that an approach worthy of consideration would be to exempt the volcker rule, those Banking Institutions that dot no engage in the activities that the volcker rule seeks to but subject to the volcker rule . We have said that we thought smaller institutions should be exempt and at the exact definition i would have to look at. I would have to look at more carefully. Okay. You also talked earlier about the 80,000 jobs per month that this economy is generating. Can you tell me and you said the Labor Participation rate is changing. Can you tell me what the Labor Participation rate is right now . What 6 is it below 62 . No, i dont believe so. Let me have a look. Its currently 62. 8 . Okay. The time my time is expired but i dont think thats changed over the last couple of months. It hasnt changed the time of the gentleman has expired. The chair recognizes the chairman mr. Texas. Thank you, chairman and Ranking Member watters for convening this hearing. Welcome, chair yellen. Please accept my sincere gratitude for your leadership at the fed. I commend for you for acting in the absence of a vice chair of supervision of regulation of Bank Holding Companies and nonbank institutions. Confidence in the system continues to strengthen even in the face of Global Market unpredictability and other emerging threats. We can attribute continued growth and stronger and more resilient economy to your leadership and the protections afforded by dodd frank act. My first question, chair yellen, is in your opinion, do our financial regulators currently have the discretion they need to correctly tailor regulatory and supervisory standards or should we in Congress Take action . Well, i think by and large we do have the scope we need to tailor these regulations. We have pointed out a few areas where we have limitations. The volcker rule is one and the incentive compensation rules are another where we can do some tailoring, but not as much as wed like. Congress did act to look at the areas of insurance in designing an appropriate set of capital standards for insurance centered savings and loan Holding Companies and we have used it to propose a set of capital standards for the companies that we think is appropriate. So there are some areas where we have needed congresss help, but by and large we have a good deal of scope to tailor as we see appropriate. I continue to hear from banks of all sizes in my Congressional District that theyre burdened by regulations and costly stress tests. Several changes to the yearly stress test known as the comprehensive analysis and review were announced on monday. Can you tell us what changes are being made to this review process and how that is expected to help Community Banks that are not internationally active nor participating in risky nonbank activities and also there are regulatory relief rather, there was in the wall street journal an article that talked about trying to have some Regional Bank systems given s e some if they are from 200 billion in assets or less, being given some relief. Yes. Can you talk about that for me. So at the moment banks over 50 billion have been part of our socalled c car and testing regimes and the proposal we put out on monday that govern trujillo described would exempt from the qualitative parts of that process Bank Holding Companies under 250 billion that do not have significant foreign activities or significant nonbanking activities. So the less complex of those banking organizations it would need to conduct the quantitative stress test and we would conduct that. But the remainder of the capital evaluation, the qualitative part they would no longer be subject to. Im also wanting to address the problems that in wall street and some of the investors especially working families investing in their 401 k s, how are chinas economic troubles affecting the United States economy and has the largest foreign holder of u. S. Treasuries with over 1 trillion in reserve, is the Federal Reserve concerned that recent selling of large quantities of treasuries by china could significantly and negatively affect the u. S. Dollar . Well, chinas economy has been slowing from decades of very rapid growth. Thats something to be expected, given all the progress they have made and the desirability of transforming their economy to a more consumer based economy. By and large, that process is proceeding and its a good one from the standpoint of the United States, but its very challenging. And earlier in the year in last year there were disruptions in markets related to their currency. Their approach to managing their exchange rate. They sold treasuries mainly to support their currency which was under downward pressure and in recent months i think markets have been much calmer. I think the time of the gentleman from texas the time of the gentleman from texas has expired. The chair recognizes the gentleman from oklahoma, mr. Lucas. Thank you, mr. Chairman and thank you, mr. Yellen. I share with my colleagues concern over the proposed rule that the fed release on friday increasing the cost of Financial Companies to engage with their clients in financial Commodity Markets. As a member of this committee and a former member of the House Agriculture Committee i have worked with end users on the derivative markets. You and i have diskulsed the nature of my district, the district of oklahoma, and the importance of stable Commodity Markets to my district. Over the past few years, i have heard from the number of commodity end users about their concerns on this issue. I too am concerned about the impact this will have on the businesses and municipalities and their ability to participate in Commodity Markets. While we should continue to address risk of soundness in our Financial System, it looks like this rule seeks to discourage through Capital Requirements, rather than through an actual effort to target and mitigate risk within the system. In crafting this proposal, i guess my questions would be the following. In crafting this proposal, did the fed examine historic loss data for banks engaged in physical commodity activities as well as how losses in this business related to losses in other parts of the banks business . We did take a very careful look at the nature of banks involvement in these areas and considered the risks that that activity entails. And it is important to recognize that financial Holding Companies would still under these proposals be permitted to engage in physical commodities trading with end users. Thats not something that would change what this proposal does is put in place additional risk based Capital Requirements for activities that involve commodities for which federal or state law would impose liabilities if the commodity were released into the environment. So were worried about environmental risk. Chairman, if you could provide with us the information on how you made those determinations, what the historic perspective was, how its actually affected businesses, i think i and the rest of the committee would appreciate what the Historic Foundation was. It also appears youre weighing risk weighing to 300 for those companies that engage in this business which will of course make it much more expensive for all of the companies. Can you provide the committee with the analysis used to arrive at the 300 as an appropriate amount . How did you get there . We will get back to you on some details. I would simply note, chair, again, i commented earlier you and i have discussed this on many occasions. My district is agriculture and energy. Wheat and cattle, were pork, were cotton and oil and gas, electricity more and more every day generated by wind power. Having the tools to be able to hedge our products, having more participants in the markets give us we believe a much better price situation if we restrict access to the markets by others, theres a great concern we will suffer and of course ultimately the consumer will suffer too. One last thought or maybe a comment. Id like to reinforce one more time with you, chair, of my interest and concerns regarding how basil 3 treats derivatives and their committee. Recent reports are not encouraging for the end users in my district and the clearing infrastructure that has long supported the hedging needs. In this complicated world we live in, we need more tools not fewer. We need more Cost Effective tools, not more expensive tools. As in the case with basil 3, help protect us from the consequences if it gets out of hand. With that mr. Chairman, i guess i yield back. Gentleman yields back. The chair now recognizes gentleman from massachusetts, mr. Lynch. Thank you, mr. Chairman. And madam chair, thank you for being here. Really appreciate it. I want to go back to mr. Capuanos questions around the wells fargo scandal. Now i do understand that theres been a small fine paid by wells fargo, but in light of what they did here, 2 million fraudulent accounts. I know they fired 5,000 lower level employees. Theres been a little bit of claw back by the bank itself, but in terms of your role, you are the primary regulator for the bank for wells fargo holding company, right . Were the primary regulator for the holding company, but these abuses occurred in the bank. I understand. And the controller of the currency and the cfpb have authority and theyre the ones who brought these actions. We werent i give them great credit for that as well. I think the l. A. Los angeles authority was involved as well. Is there anything you can do, looking at what happened here, this was widespread. This was a disgrace really what happened. 2 million fraudulent accounts and the low level employees who were fired didnt just think this up themselves. They obviously had incentives that were put in place and any ideas from your standpoint as to what might be done as a regulation or as legislation to prevent this from happening again . Well, the yoler the currency and the cfpb have demanded in their actions that remedies be put in place. We are now initiated a broadbased review for all of the largest banking organizations of their compliance regimes and governance okay. Let me ask you. This is huge, huge again. Again, 2 million fraudulent accounts. Can you think of any circumstances where a bank might be required to admit guilt . There was no admission of guilt here. At all. By the ceo or the bank itself. There was no admission of guilt. I mean, if it didnt happen here, how can we even imagine ever that a bank might be required to take responsibility for what theyre doing . I think by doing this, you know, by continually letting the banks off the hook and nobody has to admit guilt, you actually build a perverse incentive for this to happen. It blows my mind theyre get away with this, with a slap on the wrist fine. The ceo said it was only 5,000 employees. We have 100,000 employees and 5,000 did this. Sort of blowing it out. Just well, it is i think it is very important that Senior Management be held accountable and that when there are individuals identifiable individuals who have been involved in wrongdoing yeah, i know theyre all lawyered up. But i think theres value in just getting after them. Just getting after them. I dont care if you get a conviction north, just get after them. Make their life hell. Thats we have to create a disincentive in this system at some point for the ceos to do the wrong thing. They completely you know, they completely ignored any of these safety and soundness and just basic responsibilities here. Id like to see somebody held accountable for that at some point. Let me ask you, its a very clubby environment, the banks. I would be amazed if this practice were just limited to wells fargo. I think its probably the practice of a lot of banks. A lot of cross pollination going on. Are we looking at any of that other other big banks doing that same thing . Yes, we are. The cfpb is in all the largest banks and we have undertaken we are undertaking a look, comprehensively not only in the consumer area, but compliance generally. Because there have been a very disturbing pattern of violations. They occurred in the mortgage area, Foreign Exchange trading. In many different areas, sanctions, violations. Libor and we are taking a comprehensive look at the biggest banks. Thank you. 17 seconds. I want to say in closing, what a wonderful job the occ and especially cfpb did on this. This is why theyre there. I seldom hear great things about the cfpb. They did an amazing job here. This is a huge, huge win for the cfpb and it redoubles my faith in that agency. Thank you. I yield back. The time of the gentleman has expired. The chair now recognizes the gentleman from california, mr. Royce, chairman of the House Foreign Affairs committee. Thank you, mr. Chairman. Thank you, chair yellen. Good to see you today. I had a question, a bit to follow up on mr. Guintas point, about the unprecedented consolidation that we have seen in community Financial Institutions where there are fewer and fewer of them. And these smaller institutions have fewer assets over which to spread their evergrowing compliance costs. So they often seek those economies then through mergers and thats what leads to this conundrum now of a situation where weve got fewer banks today. Than we did during the great depression. And are you worried about the consequences of consolidation and, you know, for communities and for our economies . Eventually for with just a few institutions having so much. Well, i do think its essential that we have a vibrant set of Community Banks serving americas communities. They play a very special role in our Financial System and its important that they remain healthy. Reducing Regulatory Burden is important. It is something that we will seek to foster using every available tool that we have. Community banks face an a challenging environment, though, for reasons that go beyond regulation. The low level of Interest Rates and flat yield curve and slow pace of growth in the economy are also factors that are making it difficult for them to thrive. But they are tremendously important at the role they play for american households and businesses and we will certainly do everything that we can to relieve burdens on them. And some of that is driven by Monetary Policy, some of that is driven by fiscal policy. So thats another way in which theyre adversely impacted by decisions made in washington. So it seems to me at the heart of the consolidation, as you say, are these well, its really an avalanche of rules that have forced small institutions to hire extra staff. Thats the situation. The economy is in scale for them. With that in mind, you said earlier youre looking for concrete ways to reduce Regulatory Burdens on Community Banks and you gave us some very specific recommendations on Merchant Banking and km ining as activities in the section 620 report that you released. Can you promise to send up specific regulation as it relates to regulatory relief for Community Banks . If we could ask that of you. And then for now ive got some questions on the report we received because its part of the section 620 report. Did you study the effect that a repeal of Merchant Banking authorities and the loss of 27 billion in capital would have on small and Midcap Companies and are you confident if we act on those recommendations that are in that report there will be alternative sources of capital for Portfolio Companies . Thats one question i wanted to ask. And another is based on your answer to my colleague earlier, is it correct to conclude that the recommendations for legislation in the report are based not on historical risks, theyre based on, i guess, a projection of the possibility of potential future risks . And the reasons i ask those questions is because as we look back at the financial crisis, theres no evidence that Merchant Banking and commodity activities were part of the crisis. What was at the heart of the crisis was a concentration of risk in bad home loans and securities tied to those loans. So are you concerned that youre limited the diversification of risk and thus adding to the concentration, the harder we make it on these banks the more concentrated the risk in the big Investment Banks. And the larger institutions and that could have a very negative impact on safety and soundness and that was what i was going to ask you. So our evaluation was with respect to equity, the private Venture Capital would be alternative sources and that the Merchant Banking contribution here is not very large that it would not have a significant negative effect of course banks would still be able to provide a wide range of lending and other Financial Services to customers that would include startup firms, Technology Firms and others and they would have the ability to continue making investments in Financial Firms. The time of the gentleman from california has expired the. Chair now recognizes the gentleman from georgia, mr. Scott. Thank you, ms. Yellen, its wonderful having you back again. Every time you come we talk about an issue thats dear to my heart and thats the overwhelming Unemployment Rate facing young africanamerican men. Last time we talked you said your Monetary Policy was a blunt instrument and you asked congress to target this. Well i took your direction and i am a cosponsor that i introduced to two pieces of legislation that i hope you will say a kind word for because if you and knowing your dual duty in inflation as well as unemployment, if you say a word of support you can help pass these two pieces of legislation. Now the first is to deal with our crumbling infrastructure. What we want do do on this first bill is to address and develop jobs and on the job training, Apprenticeship Program targeting africanamerican young men are. 18 to 39 are the hardest hit for unemployment. Nationally at 38 and in some of our inner cities at over 50 as you well know is in the news everyday that our africanamerican communities are facing so we want to set that up. It will come rpd the secretary of labor who will coordinate these programs. It will work with the labor unions like the ibew, the plumbers and pipe fitters, iron workers, steel workers, all of those unions who will be helping to build our crumbling infrastructure. And we will bring these Training Programs and job programs and let me just say they will be in High Technology areas because you cant do all this without computer coding, computer systems. The technical aspects that are so desperately needed. Very important for us to get those in there and get that Program Start ed. The second one has to do with the education component. As you know every year, every five years we have to reinvest in our what we call land grant universities. Those 1890s and 1860s that were set up after the civil war. Schools are Tuskegee University in a alabama. Florida a m, all of those well, we want to create a new area, now they can only spend the money in education, research and extensi extension. We want scholarships to get these kids in there. The big jobs are opening in agriculture business. Its the food we eat, the clothes we wear. Now energy, high finance with derivatives and all of that. So we want to do that, give each of these schools one Million Dollar which is they can spread over that fiveyear period for scholarships. Now these bills are bipartisan. We have some excellent cosponsor, folks like kevin cramer of north dakota, marsha fudge of ohio, brad ashford of nebraska, mia love of utah, alma adams of North Carolina, gwen graham of florida, now Pete Sessions who is our House Rules Committee chairman, all a r on this bill. So a fine word from you would be very, very helpful and im going ask my assistant if he may give you would you take those to them right now, tanner, so you could have those. All im asking im not asking you to use a blunt instrument, im asking you to use your golden voice and if you speak and say a kind word, it will help us get these bills passed. And not only will the Africanamerican Community thank you, but all of america. White people, everybody. We all know these that these black men with the highest Unemployment Rate of 18 to 39 are also the childproducing ages. This goes directly at helping us deal with that family breakdown structure. So we thank you. Now madam secretary i want to ask you one other thing. You have an opportunity to do something very significant because i understand that your fed Regional Bank president in my hometown of Atlanta Dennis lock hahart is retiring. We never had an africanamerican regional fed president. Im asking you, take this opportunity to make history. We have many excellently qualified africanamericans who could do this. Finally i want to applaud you and Frank Terrill low for what youre doing with continuing to work with this flexibility. Thank you. The time of the gentleman has expired. The chair recognizes the gentleman from new mexico, mr. Pierce. Thank you, mr. Chairman. Thank you chairman yellen for being here i want to catch up now that the gentlelady from new york mentioned the problems in puerto rico. If you were to summarize those in a phrase, basically whats the root of the problem there . I think deepseeded structural problems pertaining to puerto ricos fundamental Economic Situation that have given rise and exacerbated fiscal problems. Now when im looking back through the 2008 crisis i notice that your Balance Sheet jumped from about 900 billion to 2. 2 or Something Like that. What was the reason your Balance Sheet jumped during this period of time . Primarily because we engaged in a program of purchasing longterm assets, both u. S. Treasury securities and you got assets from the banks who were having problems and kind of stabilized the banks so you built no. We didnt buy assets from the bank banks. Bought assets from fanny or something, you had mortgagebacked securities that youre purchasing that might have been toxic. Well, i dont know that they were toxic. They were put in receivership by u. S. Government. Okay, all right, thats fine. Now we were treated to mr. Lew testifying to us a couple days ago and he identified in his testimony that hes require as the head of the fsoc committee to respond to emerging threats to u. S. Financial stability. Now i pointed out to him that one of the doves on low Interest Rates came without a statement on the 21st in the wall street journal saying i think we need to rethink theres a cost theres a cost to full employment, basically so and hes talking about bubbling prices that might be caused by easy money so my question to mr. Lew is, have the two of you ever talked that maybe one of the emerging threats to Financial Stability might be the easy money policy. Yall havent had a discussion or you have . We discuss threats and monitor them closely. If hes going to identify it, he ought to identify the easy money policy. Thats not coming from me thats coming from the guy most often on the side of easy money. President rosengrin has singled out commercial real estate as an area hes concerned with. He says that easy money policies could be getting markets get out of hand. That sounds broader than reits. Easy money policies could be letting markets get out of hand. Well, there is the possibility that in a world of very low Interest Rates that invests or will search for yield and take on additional risks and were very much aware of that and so weve got a difference of opinion among board members. But then you get something that says were going to stay out of the bond market completely because its hard to price the assets. Because what . Veer tu, the largest etrader signaling his company will stay away from securities because the underlying assets are hard to trade citing the volatility of the trades, the inability to trade heads the positions. What is he talking about . Corporate bonds or what . In my opinion maybe the bond market overall and so it looks like things arent quite as stable. Maybe there are underlying problems, maybe there are bubble prices and remember that the Housing Market began as a bubble problem stimulated by government policy. And so to have everybody sort of looking the other way and saying everything is good. And then i look at your asset, you typically increase i just the fact that your Balance Sheet is now up to 4 trillion, so youve almost doubled in the last four or five years so youre contending to buy something. And then i look at the debt so puerto rico has got a 76 roughly 76 debt to gdp ratio and ours is 11. Im sorry, but i think somebody ought to be talking about stability of the Financial Market in the United States because it looks desperately unstable. Thank you, mr. Chairman, i appreciate your indulgence. The time of the gentleman has expired. The chair recognizes the gentleman from texas mr. Green, Ranking Member of our oversight investigation subcommittee. Thank you, mr. Chairman. Thank you, also, Ranking Member. Madam chair, thank you for being here today. I believe history will be kind to you as well as to chairman bernanke. What you did was extraordinary in a time of great crisis. I dont believe that those who look through the vista of time will see these as unkind, unfair, unwanted or improve things. I think they will judge you well and you will be treated very well by history im going to do my best to stay away from wells fargo but its difficult. Simply because the 185 million in penalties is according to some standards about three days of profits so this becomes a line item under the cost of doing business. First let me do this. Let me just discuss with you the whole notion of too big to fail. Madam chair, theres a bit of double speak taking place. When people speak of too big to fail, they mean there will never be another bank that will fail as opposed to, what i believe most people understand the case to be, not have a bank thats so big that when it fails it creates misery throughout the economic order. Thats what were talking about. It can fail, well put it out of its misery without it creating economic misery. Thats what too big to fail is all about. Thats what dodd frank does. We havent finished dodd frank yet, but too big to fail is addressed in dodd frank and its addressed in a very profound way, the livings will that helps us to understand how to put these big institutions out of their misery. Dodd frank allows us to separate them if we need to and eviscerate them if necessary. So too big to fail is all about winding down these big aigs of the World Without them taking the economic order with them. Id like to make a point if i may before you respond. To the question of Community Banks, madam chair, the big banks have hijacked the kmerm Community Bank. Theyve hijacked this term. You and i understand that most banks in this country are under a billion dollar, most of them. Probably 89 about. Under a billion dollars. Well, the big banks have concluded that you can be a 50 billion bank, a 100 billion bank and still be a Community Bank. Therein lies the problem because when we make efforts to help the Community Bank which are Smaller Banks, the big banks step in and they want all of the benefits that we would accord the Smaller Banks, the real Community Banks, a bit more double speak, the real Community Banks, they want those benefits. I applaud you for what youre looking at. Ive read your statement and you want to do something about this. An 18month examination cycle. There are people in congress who would like to help Community Banks but we cannot do it at the risk of bringing in the big Institution Institutions who would benefit to the detriment of what weve been trying to do in dodd frank. So so im sharing these thoughts with you because i honestly believe that you have some great insight into these things. But my question has to do with something else. Heres my question. Given what weve done with the qe and all of the tools youve utilized, how important is it for us to have some investments in infrastructure. Both president ial candidates have talked about it. How important is it for us to invest in infrastructure or maybe i should put it another way, would infrastructure investme investments helpful in promoting sound Economic Growth . I welcome your answer. My perspective is that weve had very disappointing case of growth in the u. S. And productivity in growth in output per worker has been exceptionally slow, half percent per year for the last five years, maybe twice that over the last decade. But low in historical terms and thats critical to Living Standards and investments of all so sorts, i think, are essential to raise growth and promote improved Living Standards for americans in the years to come. Time of the gentleman has expired. The chair now recognizes the gentleman from South Carolina, mr. Mulvaney. Chair yellen, i have a couple questions consistent with the hearing, almost all are regulatory but mr. Inaugurate bauer handed me one thats Monetary Policy so i want to ask one brief questions about that. Theres been attention the last few months about the resent decision by the bank of japan to start purchasing equities and my question is simple. Is the United States Federal Reserve looking at the possibility of adding the purchase of equities to its tool box as it looks at Monetary Policy . Well, the Federal Reserve is not permitted to purchase equities. We can only purchase u. S. Treasuries and agency securities. I did mention in a speech in jackson hole, though where i discussed longer term issues and difficulties we could have in providing Monetary Policy. Accommodation may be somewhere in the future down the line that this is the kind of thing that Congress Might consider but if you were to do so, its not something that the Federal Reserve is asking for and there are it would take a change in the law to do that, is what youre saying . It would take a change in the law and it would be cost to fake into account. Appreciate that, thank you for straightening that out. Earlier mr. Lucas asked you about the proposed changes on the ways that you want to regulate commodities trading. My question is simple, why do you want to do this . Were worried about the risk that some form of kplod teacomm activities pose. But the truth is thats never happened yet, has it . That risk has never been incured . No one trading in the commodities markets has been sued for an environmental exxon valdez didnt get sued, the b. P. Oil spill didnt end up with a commodities trader being sue sod theres never been that occurrence of that risk being occurred. It doesnt broadly prohibit commodities trading. We can say for the day whether or not 1200 ratios prohibit, but the fact of the matter is youre trying to regulate a risk that has never actually been n the real world been incur bid a commodities trader. Is that correct . Well, we have had huge environmental accidents that have created enormous liability and we do have a couple banking organizations that congress has grandfathered broad rights to engage in commodities storage and distribution and those risks exist. You could make the argument that there are other risks that banks incur that are more tangible and perhaps more likely than an environmental disaster leading to a claim against them based upon commodities trading. It is and no offense intended to my colleagues from the new york city area its risky for banks to be in new york, right . Its a target for terrorism. Theyve actually incured that particular risk in the past. Well, we have certainly not decided that. Could you decide that banks are too dangerous to be in new york city . In theory . I dont know. Im not sure. I would suggest you probably could. Dpoukd this, if you say were going to require you to change your rules because of this risk we perceive you might incur, even though youve never incured this risk before, that that same line of reasoning could be applied to something as esoteric as terrorism. Well, what we do require is that banks have robust Business Continuity plans and that they have backup authorities. So for example that when things affected new york there were backup sites. Thank you. My last line of questioning has to do somewhere something entirely different which is crypto currencies. You spoke at an International Conference in june, i think there were 90 central bankers, the imf, and you talked specifically about block chain and i wonder if if you want to talk about the feds commitment to a light regulatory touch and speak to whether or not you yourself at the fed are looking at implementing Block Chain Technology in your operations. Were not looking ourselves at implementing it but we are studying a whole set of fintech innovations and the ways in which block chain is being considered for use by banks and nonbanks, it could have very significant implications for the Payment System and for the conduct of business. We want to foster innovation. I think innovation using these to bes could be extremely helpful and bring benefits to society. Were trying to innovate these but at the same time Consumer Protection will be something thats important but were not doing rule writing in the setting where were trying to understand the ways in which these innovations are shaping the financial the time of the gentleman from South Carolina has expired. The chair recognizes the gentleman from delaware, mr. Carney. Thank you, mr. Chairman, and thank you chair yellen for coming in today to answer some of our questions. I have just a couple myself, hopefully ill be able to get to them. The first under the volcker rule, dodd frank allowed an additional period of time for groups to divest of illiquid assets and the fed acknowledged they would need to make adjustments to the timeline which currently ends july, 2016. These investments, i think there was a question earlier, about the commodities, largely commodities, physical investments which are difficult to sell. Illiquid by definition. I join 11 other members, democrats and republicans on the committee on a may letter to you asking you to provide your definition of illiquid asset and provide clarity so theyre not forced in a fire sale situation which could help Pension Funds and others that are holders of these. So youve extended the time i understand to july of 2017. But a further guidance and decision hasnt been made. We did get a letter yesterday where you said the Federal Reserve board in july indicated it would consider applications by firms for extension of the period to conform with these Illiquid Fund investments. Could you expand on that . Is that a casebycase basis . You come out with a more general rule to provide greater certainty for these institutions . I think we are trying to establish some guidelines that would provide greater certainty. Were looking at that very carefully. I cant give you details, but we recognize theres a significant issue there and well try to provide clarity. Yeah, that would be great, just to provide some guidance so that they can you know, theyre going to have to otherwise start setting these asset, unwinding them really soon. We understand that. Thats great. So i read through your testimony and i was pleased to see some of the things that were done and weve had some discussion about this with respect to modifying regulations. I guess see car in particular for smaller Banking Institutions. Do you have a sense as to what the complaint we all hear from the Smaller Banks is that these regulations require they incur additional costs, mostly staff that they have to bring on. Do you have any sense whether this will enable the banks to reduce their costs of Regulatory Compliance . I think this changed to sicar should be meaningful for the banking organizations and make it less onerous process for them. At the end of the day the question is whether or not theyll be able to reduce their staff thats dedicated to that function right now. I talked to banks in my statement and they said look, this is additional cost, i said help me understand and they obviously went through individuals that are were highed to address compliance. So i cant give you an estimate of what the resource implications will be they will be required to conduct the quantitative portion of the stress test but we are looking at ways for those smaller institutions to reduce data reporting burdens as well. Thats great. We appreciate your efforts in that respect. Last question is really kind of pretty general but youve been through this and have provided in your testimony, we talked about what happened in 2008 the last time. What worries you Going Forward . Do you get worried with the current Institutional Banking framework as well . Theres been some discussion in terms of too big to fail. I do think weve made progress within the regulated banking sector. I think its safer and i think we have begun to deal with too big to fail. We have addressed some things in the shadow banking sect thoor are of concern as well. Money market fund reform is Going Forward. Areas of concern like the Triparty Repo market. Thats become safer. But i worry about the migration of activities into less regulated parts or unregulated parts of the Financial System and new threats that may be differents than the ones we have addressed in the past like cyber threats, of course we have tremendous concern. Thank you, madam chair, keep up the good work. Thank you. The time of the gentleman has expired. The chair recognizes the gentleman from florida, mr. Ross. Chair yellen, thank you very much for being here. I want to talk to you specifically about sifi designations. I know that fsoc has the opportunity to designate sifis and the Financial Stability board does it with gsifis. When the fsb does that, if they were to suggest that there was an institution that was globally significantly important, does that permeate or otherwise affect or influence the designation as a sifi for fsoc . No, fsoc has its own specific guidelines . Guidelines and does its own reviews. Lets talk about the guidelines. I know theyre statutorily nut there but fsoc has had a tendency to deviate from those, havent they . To do what . To deviate. Lets look at the met life decision. The met life decision exposed something weve been concerned about for quite some time and thats the deviation from regulatory requirements that, for example, fsoc consider the actual losses of which if a nonbank Financial Institution two go under. And then the met life decision i think the court found that that wasnt done and that particular decision is one of the reasons theyre overturning that designation is because there was no assessment of cost. No assessment of losses that would have been sustained had met life experienced the financial trouble. Is that correct . Is that your understanding . Well, fsoc did a detailed study of what the potential consequences but they didnt calculate the losses. So they basically went at this very capriciously. And what concerns me about this, and thats probably what the court said, too, what concerns me about this well, i was involved in the process and i dont think it was capricious at all. I understand that, chair yellen, which is why you would look to those who have the expernice a particular field to rely upon making these decision and roy wood kwlul is the only member of fsoc who has an insurance background is the only one who voted to not designate met life. I think hes getting a little recognition from the court but why did you ignore his recommendation with his background, insurance commissioner, understanding of the requirements, a different set of risk than bank and other Financial Institutions have to have. It just seems like it wasnt well, there was a very Detailed Analysis done of the risk that met lifes failure could pose to the u. S. Financial system. Much of that analysis has been made available and is on the fsoc web site and theres never been a run on an insurance company. Lets face it, they have a 30year Risk Assessment as opposed to a bank that has day to day, minute to minute and i guess that and i think this is what were finding out from the met life decision is that we have to address these nonbank Financial Institutions in a whole different way than we address the banking industry. For example, would you not agree that if were trying to pro vent too big to fail, that we keep these institutions solvent, that we have some kind of key tier ya where they can be assessed, corrected and then be able to not be designate fwd theyd if following a process or procedure that prevents them from being assessed as a sifi . Well, only a few firms have been designated. But they dont know theyre designated until, what, stage three . They find out earlier than that that they are but theres no off ramp for them is what im suggesting. Well, there is obviously an off ramp. Ge capital is well, they sold out. That basically said were going to get rid of this because we dont want to have the regulatory control to interrupt our book of business. That wasnt an off ramp. That was a divestiture. If they change their business mod dmel a way thel in a way th significantly alters the risks to the u. S. Financial system, that is an off ramp that is fsoc reconsiders every year whether or not designations remain appropriate. Its an annual review process and if a firm wants to understanding what they were designated make significant changes it reduces the risk they pose to the u. S. Financial system they can. Would it be in the best interest of the u. S. Financial system to put them on notice as soon as possible so that correction can be made to keep them from having to be even considered as a sifi . Well, i think that the firms understand wham it is about their activities that cause them to be designated . Thank you. The time of the gentleman has expired. The chair now recognizes the gentlelady from ohio, ms. Beatty. Thank you chair yellen for being here today. I have a few things but first let me say thank you for clearing up what we can do and cant do under the hatch act. When my colleague from new jersey was asking about Federal Reserve governor Bray National guard in that. I was going to say i imagine in your position you get a lot of people who want to have lunch with you or come and meet with you because of your scholarship and brillbrilliance. I remember this is the rayburn room and could barely get in there when someone announced that you were there. Highpowered people, more security in that room and people just wanted to pick your brain and hear from you so let me personally say to you im glad that people in high places want to come and learn about what we do. Also i probably and you cannot or nod, could probably safely assume that no one has pressured you from the white house or with president obama to hold interest steady. To have some political influe e influence. But it reminds me of 1972 during the Richard Nixon administration when burns was in your position and if you go back and play those nixon tapes, he succumbed to doing that because pressure was put on him by republicans that he was meeting with to have an effect on that upcoming election and im pretty sure you have not been asked to do that by our president or president ial candidate. I have certainly never been pressured in any way by the administrati administration. The administration, my experience has been greatly respects the feds independence to make decisions in accord with our congressional mandate. Thank you so much, mr. Chairman, i just wanted to make sure we got that entered that my colleague from new jersey brought up because he was thinking about what republicans had done in the past but let me move on and say i, too, join that letter that hundreds of members of congress sent to you and let me just say thank you for that Quick Response people in your positions will come in and repeatedly we have to hear about the letters that were written and how typically democrats dont respond. Not only did you respond, it wasnt a form letter. You actually acknowledged the concerns we had about minorities, specifically africanamericans and women and mr. Chairman she actually gave us not one but three sessions of what we could do to meet this challenge. So i wanted to personally thank you because ive been very hard on you and all the other federal Organization Organizations to make sure we have more women and minorities working in your organization. But let me just say. This i would like to discuss the diversity of the 12 reserve Regional Banks around the country. Especially as it relates to the president s of those organizations. Recently there was an article that points out that we had no africanamerican president s. Weve had zero latino president s out of 134. My staff and i were reminded of the rooney rule. I dont know if you get that sports analogy or not but let me just say to you and my colleagues im going to have something called the beatty rule where we would like to start with federal organizations like yours and simply say that as you look at these positions you actually identify and at least interview one person who is a minority. So congresswoman, i am very focused on the diversity in the Federal Reserve. Weve made progress but we need to do better. I have created a work stream at the board to think about all of the different ways in which we can promote diversity in the work that we do. At the level of president ial appointment appointments. I hope we can see greater diversity in the fomc and in the search process we require the banks to accept seek public input, we make sure that we at the board ensure there is a Broad National search that every attempt is made to assure that qualified candidates are considered. The time of the gentlelady from ohio has expired. The chair now recognizes the gentleman from North Carolina, mr. Pittinger. Chair yellen, in his speech on monday the governor notes improvements in the resolvability of gsibs in recent years. He states that adjustments in all aspects of the program should be made as conditions and practices evolve. Well, the fed has passed several rules. For example, margin requirements, a rule prohibiting derivatives, closeouts and therefore a run in single counterparty credit limits. In light of that, will you be recalibrating the surcharge before you include in the gsibs minimums . We will put out a proposal, were likely to improve a proposal that would would affect the treatment of gsib surcharges in our stress testing reseem. Were not reconsidering it at this time the calculation of those surcharges but as governor terrill low explained we have created an integrated system for incorporating those surcharges in our riskbased requirements and integrating the losses we identify in the stress test as part of the riskbased capital regime. To clarify the gsib surcharge, should it be recalibrated . Im sure it interacts with other Bank Regulations. I dont see a reason why it should be recalibrated at this time. Okay. Following up on the questioning regarding statutory factors. Are you aware of any firmly grounded research that measured how each of the 11 statutory factors that require your considerations contributes to Systemic Risk . Those are a set of factors that generally do contribute to Systemic Risk. What research do you have that measured how each of the 11 contributed . Did you have research that related to that . What helped you determine that . Well, there are various factors that well, its demanded that each factor be consider sod yes or no, please tell us, are you aware of any such research for any of these factors . That quantifies its importance . Yes. Can you state with clarity of the research firmly grounded research that was attributed to establishing these factors . Well, there are lots of Research Papers on this topic but i would not say ones that quantify the impact of each factofact fact factor. Madam chair, as you flows been controversy over the settlement with the dispute of iran regarding the transfer of the 1. 7 billion in currency to tehran. I know the fed helped facilitate this through the transfer pursuant to a letter sent by secretary lew to bill dudley at the new york fed. I dont care to get into that but i would like to address the issue that the administration told members of this committee yesterday that iran needed the bank notes to help support the value of the iranian rial. Youre an expert in International Monetary flows. Id like that ask you if theres any reason you can imagine why iran having several pallets of euros and swing francs would help support the rial better than having it in new york or the netherlands. I dont have an opinion about that ch that. We have no involvement beyond following instructions that they give us with respect to payments. You dont have an opinion on that. I dont have an opinion. Wouldnt it be more difficult and more expensive to try to support a countrys currency with pallets of cash . Especially if they were inside a country still largely outside the normal Financial System . Im sorry. This is something i havent looked bat. I ask this because some people believe the real reasons iran wanted the cash was so that it could be used to enable acts of terrorism and the committee has had a difficult time getting the administration to explain why they didnt wire the settlement money as they had on previous other payments. Im sorry, thats something youre going to have to address to treasury. Chair yellen, weve dwelt the insurance factor some. Will the fed First Consult with the insurers prior mamary w my time is passed . The time of the gentleman from North Carolina has expired. Due to the chairs chair yellens departure time, the chair anticipates clearing ms. Moore, mr. Ellison and mr. Heck on the democrat side, ms. Wagner, mr. Barr and mr. Rothfuss on the republican side. The gentlelady from wisconsin is now recognized. Thank you so much, mr. Chairman, and thank you chair honorable chair yellen for joining us here today. I have a lot of questions so im going to move through them very quickly. Youve had a lot of questions and concerned here today about why youve maintained Interest Rates so low when youre going to raise them and the inevitability of having to do that but theres a growing chorus of community folk and workers who have have challenged the fed. They say you have spent so much time worrying about inflation and being less concerned about labor Market Participation of vulnerable populations, people like to brag about the recovery of our economy but africanamerican labor Market Participation is still fledgling. So i wanted you to give an opportunity to sort of explain to us what other tools you may have in your tool kit and how youre not ignoring that problem. Well, the state of the economy and the labor market matters enormously to africanamericans and disadvantages groups and its very clear that as the labor market improvements, africanamericans see outsized gains and thiss where we are now, that they are seeing those gains, which is not to say they dont have much higher Unemployment Rates and they remain obviously significant forms of disadvantage but theyre clearly are gains taking place for africanamericans as the labor market is how does that fit in with your decisions to raise Interest Rates . So congress has charged us with pursuing maximum employment and price stability and weve been very voe cussed on our employment mandate and remain so, we are pursuing a policy that will result in further strengthening of the labor market and thats a very good thing. We also have to keep our eye on inflation and inflation is running under our 2 objective. That gives us some head room and some running room to remain focused on the employment side of our objective but we have to keep both things in mind and are keeping both things in mind because we do have a 2 inflation objective. Chairwoman yellen, i want to ask you something that perhaps i havent asked you before. We i was here when we put dodd frank together and we put in place the volcker rule and i spent a lot of time studying the efficacy of that and yet we continue to hear calls to reinstate glass steagall. Could you just share with us briefly about the importance of the volcker rule and the limitations or the importance of reinstalling glass seeing the until you think thats the case. Well, the volcker rule does prohibit proprietary trading and the agencies that are charged with enforcing it are supervising to make sure that Market Making can continue, weve discussed liquidity in markets and making sure that these firms can continue to make markets is important but it does preclude proprietary trading. And glass steagall on the other hand does not allow them to make markets . What would a glass steagall look like in 2016 . I guess what a glass steeling would require would be the separation of commercial banking and Investment Banking and require restructuring of companies that now have substantial Investment Bank subsidiaries. Is that a practical thing that we should look at . Well, people have different views on this. Were trying to make sure that this can these combination cans operate in a safe and sound manner i would say that thats not what was really responsible, at least in my opinion, for the financial crisis. In fact, most of the some of the most Serious Problems took place in standalone Investment Banks like lehman and bear stearns that werent part of Bank Holding Companies at all. And now theyre subject to consolidated supervision which is organizebly a safer system. Okay. And i have 10 seconds left. Im wondering. These you have a proposal to meet loss of absorbi ining capa and longterm debt requirements set for sorry about that. The time of the gentlelady has expired. The chair now recognizes the gentlelady from missouri, ms. Wagner. Thank you, mr. Chairman. Welcome, chair yellen. As i know youre aware, the eu late last year issued a call for evidence to help provide data and feedback for a cumulative review of all of the postfinancial crisis regulations that have been issued in the past eight years. When asked whether the u. S. Should implement a similar review, governor you are the rouleau pushed back on the idea. Giving that governor turrelo has not been appointed vice chairman for supervision, what are your thoughts on the u. S. Doing such a review, chair yellen . I think we want to come to the end of implementing them and targeting reviews of different aspects of the work that we have done, back appropriate over time as governor tarullo mentioned, we have undertaken a comprehensive review of our stress Testing Program. Weve consulted with the organizations that are affected by it with outside academics. Weve looked at its costs and burdens carefully and we are going to be recommending and already have to some extent changes that we think are appropriate in light of those reviews and over time my guess is that other areas will deserve reconsideration. Maam, what are your whats your timing on some of the recommendations youll be making regarding some of the reviews youve already taken. We already put out earlier this week a proposal that would exempt the institutions that are under 250 billion and dont engage in significant foreigner or nonbanking activities to be exempt from the qualitative part of our ccar review so thats already out and other aspects of the proposal should go out shortly. If i could continue. Give than many foreign Bank Regulators such as those in europe and japan and others on the Basil Committee are pushing back against some of the capital rule proposals from the u. S. Wouldnt it make sense for the us to conduct such of a kind of comprehensive, ill say, review as they are doing in the eu, particularly since u. S. Regularly gold plates their regulation s beyond what basel calls for . Well, we have carefully looked at whats appropriate as we have undertaken these capital regulations. Some cost benefit analysis has been done and in the case of the gsib surcharges there was careful analysis done of the levels at which they should be set and i dont think its time now for a comprehensive rethink. You talked about stress tests and let me get to that, governor tarullo specifically said a u. S. Call for evidence would be difficult to conduct in that it would require a very big model that would require a lot of assumptions, how is this any different, chair yellen, from the feds trest stesz which also incorporate a lot of kind of macro assumptions . Well in the case of the capital regulations and other aspects what were mainly talking about is is reducing the probability and severity of a financial crisis and one of the reasons that it becomes difficult to do the type of analysis that youre discussing is that financial crises fortunately are few and far between. And there is no clear rigorous way to establish what is the probability and how does a particular regulation affect the probability of what is a tail risk . In my remaining short time here, its been eight years, eight years, chair yellen and certainly the eu is calling vigorously, as are other countries, for a call for evidence and review. Shouldnt the fed at least attempt to understand the cumulative effects its rules are having on the economy . What are the other ways the fed monitors the impact its regulations are having on growth . Well, we are carefully monitoring how our regulations are working and by and large my con seclusion that we have a safer and sounder Banking System. Time of the gentlelady has expired. The chair now recognizes the gentleman from minnesota, mr. Ellison. I want to thank the chair and the Ranking Member. Chair yellen thank you for your great service, i definitely appreciate it and, you know, im of the opinion that the criticism some of the criticism that you have to endure from certain quarters is really really is short height issed considering that the ability for i mean that the federal the congress has certain responsibilities to provide fiscal stimulus as well and i think we have not done i. I think weve failed upon it and all we ever talk about around here is how we can cut budgets as opposed to do things that i think grow the economy. Anyway, thats just my opinion. Ill leave that to the leave that on the side. Its quite clear that wells fargo miss used employment incentives setting up an unattainable cross selling goal, eight is great. Its a terrible practice. Section 956 of dodd frank directed the Federal Reserve as well as other regulators to finalize compensation rules for Financial Institutions such that those rules dont encourage material losses or inappropriate risk risks those rules are supposed to be completed nine month that was attack. Can you give us an update of when well see those rules. The regular went out for comment. Comments have been received on received. I believe the staffs of the agencies are working through those now. I very much hope we can final size this rule. It has been a very long time. I will do everything i can for the Federal Reserve to be ready to act on this as soon as possible. And recognizing the sensitivity of this whole situation, one of the things thats occurred to me is that the ceo, chair of wells fargo is pretty well compensated. The number i found was like 19 million. Hes not losing his job, apparently not yet. We did see about 5300 people who were let go. I make no comment on whether they should have been let go or deserve to be. When you set up a situation where youre incentivizing moving accounts the way they were and some of the demands put on them, you can kind of see how it could happen. I guess my question to you is, how can line level workers be held accountable to the degree they clearly have been and yet nobody in middle or upper management seems to be taking responsibility for it. They havent lost their jobs. I mean, can you give us some insight as to how mostly fair our banking Management Practices are being practiced so that only the people at the bottom end of the food chain end up bearing responsibility. Senior management has a responsibility and its essential they be held accountable. Compensation schemes that, for example, are based solely on volume are prohibited under the rule that the six agencies have proposed. But even prior to the adoption of that, the banking agencies put out in 2010 or 2011 supervisory guidance on a situation that had the same expectation. The board of directors should be reviewing compensation schemes and performance plans throughout the organization at all levels to make sure that they dont result in compliance failures and ill treatment, they have to be consistent with fair treatment of customers and consider risks. This is an executivation and it will be formalized in a rule hopefully when the six agencies are able to finalize that. But Senior Executives are responsible, and they are responsible for setting up Risk Management schemes in their organization that would be detecting such problems. They have a strong internal audit function that would be reviewing and detecting compliance problems and these problems would not only be acted on by Senior Management but escalated to the board of directors that has an important responsibility here. Thank you. So i really appreciate your answer because i agree with it. My good friend from wisconsin, congressman asking you to respond to an opinion piece by larry sumner. I got the feeling you might wan to elaborate more on what he asked you. Would you like to take 20 or so seconds to stretch out on your answer a little bit . Yes. Thank you for that. So finds measures of riskiness, bank debt havent diminished since the financial crisis. Two reasons, he finds that, one, prior to the crisis clearly Market Participants underestimated risk. Second, were dealing with too big to fail. And investors can no longer expect that they will be shielded from risks if things go wrong. The time thank you. I yield back. Recognizes gentleman from kentucky. Thank you, mr. Chairman. Chairman yellen, i want to touch first on Monetary Policy and shift over to the Federal Reserve distribution and Financial System. Briefly on Monetary Policy, in your press conference last week, you stated recent pick up in Economic Growth and continued progress in labor market have strengthened federal funds rate, conditions in the labor market are strengthening and we expect that to continue. And the headline on bloombergs website from covering this hearing, this very hearing, is that yellen sees solid job growth. In response to my colleague, i think i heard you say the labor force Participation Rate has not moved. Of course we all know Economic Growth is weak, bureau of Economic Analysis reports gdp output in the First Quarter of this year. In the Second Quarter of this year only 1. 1 in productivity, which is a real important indicator of Economic Growth is in retreat. Its been decreasing by half a percent over the last four quarters. So the question is on Monetary Policy, how does your comments about Economic Growth and progress in the labor Market Square with these stubborn facts. Well, Economic Growth has been very slow, and thats extremely disappointing. Productivity growth in particular has been really very, very low. As you mentioned in recent years negative, which is a very depressing finding. In that sense, the economy is not doing well. But we are creating a lot of jobs. The Unemployment Rate has declined to the neighborhood of what most of us would consider to be full employment. Theres a very significant downward pressure on Labor Force Participation thats coming from the aging of the population. Lets say if i can interject there, aging of the population one factor. Coming down not for a good reason by wrong reason namely theres a frustrated workforce out there completely giving up looking for work. Let me talk about some of the causes of the drag on the economy. Obviously you all have a role conducting Monetary Policy. One of the dual mandate functions is maximum employment. Thats an objective of the Federal Reserve. Also supervision regulating Banking Institutions to ensure safety and soundness is another important mission. What im worried about and what might explain some of the drag in the economy, a Regulatory Overreach can be at crosspurposes with your Interest Rate policies and the lefthand may not know what the right is doing. Let me give you an example of what im talking about. In the post dodd frank world, Financial Firms supervised by multiple agencies more than ever before. Federal reserve occ, s. E. C. , cftc, cfpb, fsok. Performing examinations, twros rule makings approach of market regulators conflicts with safe and sound regulators which can conflict with Consumer Protection regulator. On supervision substance of examinations overlap but time tables dont so Data Collection among financial regulators done ta duplicative. Not only undue on Financial Firms, gap in economy or gaps in supervision. When you look at wells fargo and the scandal that you see there and Consumer Fraud that went unpunished for five years based on the time line weve seen and primary Consumer Protection agency coming in on the tail end of that. Again, according to the time line weve seen. Do you acknowledge the lack of regulatory coordination and inefficiency will ab problem. Secondly, what do you think about proposals to consolidate or at least reduce the number of financial regulators to reduce regulato regulatory incompetence, conflict, or at least consolidate examinations and Data Collection efforts between and among regulators. We have a complicated regulatory system, theres no doubt about it. We recognize that the issues youre discussing can create a great deal of burden. For our part we work very closely with the controller, with the fdic and also with the cfpb. In my remaining time, and i dont have much time, on the Merchant Banking role before finalized youll provide us with analysis of the type of cost this can impose on companies . It was a recommendation to congress and not a rule. The time of the gentleman has expired. The chair wishes to expire all members the chair intends to recognize the gentleman from washington and the gentleman from pennsylvania and then adjourn the hearing. The gentleman from washington now recognized. Thank you, mr. Chairman. Thank you for being here. Were obviously moving towards a healthier economy. Were not quite there yet. That notwithstanding, i think its kind of useful to look any farther ahead to the next economic cycle. That is why i read with interest the committee projected the fed funds rated will top out at 2 3 4 to 3 . That doesnt give you a lot of room to deal with the next recession. As i am fond of saying neither god nor anyone else outlawed the business cycle. We will have another recession. So my question is why dont you consider raising the inflation rate so you have more bullets in your most powerful weapon t