Transcripts For CSPAN Key Capitol Hill Hearings 20160217 : c

>> the road to the white house began in iowa, the caucuses which date back to 1972 and then we move to new hampshire, the quintessential first in the nation primary which has a long and rich history, and now we really begin to test the candidates and their message. we miss out to south carolina, the first seven primary and then to the party caucuses in nevada for the democrats and the republicans. more than likely, we will see a number of candidates probably drop out of the race, so the field with a narrow, and that we move into early march. super tuesday, the start of winner take all primaries, which means that the delegate count will be critical. as it watch the delegate count continue for the candidates, with a better sense of this message is resonating, and to us on the path to the nomination. president obama held a news conference and was asked about the supreme court vacancy left by the death of justice scalia. the 2015 present shall campaign and the ongoing conflict in syria, the president hosted leaders of southeast asian countries in rancho mirage, california. president obama: we agree to a number of key principles. including to the principal that this group will be essential to the asia-pacific. when asean speaks with a clear, unified voice, it can help advance opportunity in human dignity, not only for the 600 million people across asean, but for the people across the asia-pacific and the world. i am pleased that here at this summit, asean's strong voice allowed us to make progress on multiple fronts. first, we agreed to more together to encourage entrepreneurship and innovation at the heart of modern economies. we had an excellent discussion with a number of pioneering business leaders who reiterated , trade and investment, rule of law, transparency, protection of intellectual property, efficient customs, modern infrastructure, e-commerce and the flow of information, support for small and medium-sized businesses, and, perhaps more importantly, investments in people. investments in strong schools to help educate the next generation. around the table, there was widespread recognition that this is the path asean need to continue on. if they do, it will create even more opportunities for trade and investment between the u.s. and asean countries. i affirmed our strong support for the asean community. and pledge the united states will continue to be a partner in the efforts to integrate economies and reduce areas to trade and investment. i am also announcing a new initiative, u.s.-asean connects, a network of hubs across the region to increase engagement and connect more of our entrepreneurs and businesses with each other. we're also doing more to help aspiring innovators in the region learn english, the international language of business. i reiterated that the transpacific partnership, which includes four asean members, can set stronger rules for trade throughout the asia-pacific. to that end, we have launched a new effort to help all asean countries understand the key effort of tpp and understand what can lead to them joining. second, with regards to security, the united states and asean are reforming our strong commitment to a regional order, where international rules and norms, and the rights of all nations, large or small, are upheld. we discussed tangible steps in the south china sea to reduce tensions, including a halt to new construction and militarization in disputed areas. freedom of navigation must be upheld and lawful commerce must not be impeded. i reiterated that the united states will continue to fly, sail, and operate wherever international law allows and we will continue to support other countries to do the same. we will work with our partners to strengthen their maritime capabilities and we discussed how any disputes in the region must be resolved peacefully through legal means, such as the upcoming arbitration ruling under the u.n. convention, which the parties are obligated to respect and abide by. third, i made it clear that the united states will continue to work with those across southeast asia. who are working to advance the rule of law, with governance accountable institutions, and , the universal human rights of all people. we continue to encourage a return to civilian rule in thailand. we will sustain our engagement with the people of myanmar as a new president is elected and they were to implement the cease-fire agreement and move forward with national reconciliation. across the region, we will continue to stand with citizens in civil society and support their freedom of speech, assembly, and the press. no one should be detained simply for speaking their mind. it only stymies progress and makes it harder for countries to truly thrive and prosper. finally, the united states and asean are doing more to deal with transnational threats together. i offered our assistance to help countries better leverage interval data to prevent the flow of foreign terrorist fighters. we agreed that working to implement the paris climate change agreement will be critical, and it will enable them to move ahead to new and affordable clean energy. as we pursue our sustainable development goals we are , announcing a new competition, and innovation challenge, to encourage students across asean to develop new ideas to boost agriculture. were moving ahead with our global health security agenda, to prevent future epidemics, and i pledged additional u.s. assistance to help asean combat the horror of human trafficking. up, i believe the summit has put the u.s.-asean partnership on a new trajectory that will lead us to new heights in the decades ahead. america's foreign-policy with the pacific, as well as southeast asia, will continue to be a priority of my presidency. i look forward to visiting vietnam for the first time in may, and look forward to being the first u.s. president to visit laos when it hosts the summit in september. i am confident that whoever the next president will be, they will build on the foundation that we have laid, because there is strong, sustained bipartisan support for american engagement in the asia-pacific region. through our young southeast asian leaders initiative, our investment in young people, and their business success and civil society, and grassroots leaders across the region, i believe will further bind us in , partnership and friendship for years to come. with that, let me take a few questions. i will start with darlene of the associated press. where is she? there she is. >> my question is about the supreme court. president obama: i'm shocked. [laughter] >> what recourse do you have it leader mcconnell blocks a vote on your supreme court nominee? do you think that if you choose someone moderate enough, that republicans will change course and schedule a vote? as you consider that choice and the to nominee, what qualities are important to you and is diversity among them? thank you. president obama: first of all, i want to reiterate my heartfelt condolences to the scalia family. obviously, justice scalia and i had different political orientations, and probably would have disagreed on the outcome of certain cases, but there is no doubt that he was a giant on the supreme court. he helps to shape the legal landscape. he was, by all accounts, a good friends, and loved his family deeply. it's important, before we rush into the politics of this, to take stock of someone who made enormous contributions to the united states, and we are grateful not only for his service, but for his family service. the constitution is pretty clear about what is supposed to happen now. when there is a vacancy on the supreme court, the president of the united states nominates someone. the senate is to consider that nomination. either they disapprove of that nominee or that nominee is validated to the supreme court. historically, this has not been viewed as a question. there's no unwritten law that says it can only be done on off years. that is not in the constitutional text. i'm amused when i hear people who claim to be strict interpreters of the constitution suddenly reading into it a whole series of provisions that are not there. there's more than enough time for the senate to consider, in a thoughtful way, the record of a nominee that i present, and to make a decision. with respect to our process, we will do the same thing we did with respect to justice kagan's nomination and justice sotomayor 's nomination. we will find someone who was an outstanding legal mind, who cares deeply about our democracy and rule of law. there will not be any particular position or particular issue that determines whether or not i nominate them, but i am going to present somebody who indisputably is qualified for the seat and any fair-minded person, even somebody who disagrees with my politics, would say would serve with honor and integrity on the court. part of the problem that we have here is we have almost gotten accustomed to how obstructionist the senate has become when it comes to nominations. i've got 14 nominations that has been pending that were unanimously approved by the judiciary committee. republicans and democrats on the judiciary committee all agree that they were well qualified for the position. and yet we can't get a vote on those individuals. so in some way, this argument is just an extension of what we have seen in the senate generally, and not just on judicial nominees. the basic function of government requires that the president of the united states, in his or her duties, has a team of people, cabinet secretaries, assistant secretaries, that can carry out the basic functions of government. it requires that we appoint judges so they can carry out their functions in the separate branch of government. the fact that we have almost grown accustomed to a situation that is almost unprecedented, where every nomination is contested, everything is blocked, regardless of how qualified the person is, even when there is no ideological objection to them, certainly where there are no disqualifying actions by the nominee. the fact that it is that hard, that we are even discussing this, is, i think, a measure of how unfortunately the rancor in washington has prevented us from getting work done. this would be a good moment for us to rise above that. i understand the stakes. i understand the pressure that republican senators are undoubtedly under. the fact of the matter is the , issue here is that the court is now divided on many issues. this will be a deciding vote, and there are a lot of republican senators who will be under a lot of pressure from various special interests and constituencies and many voters to not let any nominee go through, no matter who i nominate. but that is not how the system is supposed to work. it is not how our democracy is supposed to work. i intend to nominate in due time a very well-qualified candidate. if we are following basic precedent, then that nominee will be presented before the committees. the vote will be taken. ultimately they will be , confirmed. justice kennedy, when he was nominated by ronald reagan, in ronald reagan's last year in office, a vote was taken, and there were a whole lot of democrats who i'm sure did not agree with justice kennedy on his position in a variety of issues. but they did the right thing. they confirmed him. and if they voted against him, they certainly didn't mount a filibuster to block a vote from even coming up. this is the supreme court, the highest court in the land. it's the one court where we would expect elected officials to rise above day-to-day politics. this will be the opportunity for senators to do their job. your job doesn't stop until you are voted out, or until your term expires. i intend to do my job between now and january 20, 2017. i expect them to do their job, as well. all right. let's see who we got. jeff mason? >> thank you, mr. president. following up on that, should we interpret your comments just now that you are likely to choose a moderate nominee? president obama: no. >> [laughter] >> ok. president obama: i don't know where you found that. you shouldn't assume anything other than that they will be well-qualified. >> following up? would you consider a recess appointment if you're nominee is not granted a hearing? president obama: i think that we have more than enough time to go through regular order, regular processes. i intend to nominate somebody, to present them to the american people, to present them to the senate. i expect them to hold hearings. i expect there to be a vote. >> no recess? and lastly how do you respond to , republican criticism that your position is undercut by the fact that you and other members of your administration who were in the senate at the time, try to filibuster judge alito in 2006? president obama: i think what is fair to say is that how judicial nominations have evolved over time is not historically the fault of any single party. this has become one more extension of politics. and there are times where folks are in the senate and thinking -- will this causing -- will this cause me problems in the primary? will this cause me problems with supporters of mine? it takes strategic decisions, i understand that. but what is also true is justice alito is on the bench right now. i think that historically, if , you look at it, regardless of what votes particular senators have taken, there has been a basic consensus and understanding that supreme court's different. -- differ. each caucus may decide who is going to vote, where, and what, but basically, you let the vote come up and you make sure that a well-qualified candidate is able to join the bench, even if you don't particularly agree with them. my expectation is that the same should happen here. now, this will be a test, one more test of whether or not norms rules, basic fairplay can function at all in washington these days. but i do want to point out, this is not just the supreme court. we have consistently seen a breakdown in the basic functions of government because the senate will not confirm well-qualified nominees, even when they are voted out of committee, which means that they are voted by both parties without objection. we still have problems. because there's a certain , mindset that says we're just going to grind the system down. if we don't like the president, then we're just not going to let him make any appointments. we're going to make it tougher for the administration to do their basic job. we're going to make sure that ambassadors aren't seated, even though these are critical countries that may have an effect on international relations. we will make sure that judges aren't confirmed, despite the fact that justice roberts himself pointed out there's emergencies and courts around the country because there are , not enough judges and too many cases and the system is breaking down. this has become a habit. it gets worse and worse each year. it's not something that i have spent a huge amount of time talking about, because frankly the american people on average are more interested in gas prices and wages and issues that touch on their day-to-day lives in more direct ways, so it doesn't get a lot of political attention. but this is the supreme court. it's going to get some attention. we have to ask ourselves a fundamental question -- are we able to still make this democracy work the way it is , supposed to, the way our founders envisioned it? i would challenge anyone who purports to be adhering to the original intent of the founders, anybody who believes in the constitution, coming up with a plausible rationale as to why they would not even have a hearing for a nominee made in accordance with the constitution by the president of the united states. with a year left in office. pretty hard to find that in the constitution. you gotten at least, you have gotten four now jeff. , >> thank you, mr. president. two different topics, first on syria. last year, when president putin was about to enter into syria, you said he was doing so for a position of weakness, and that he would only get himself involved in a quagmire. now with that about to follow, -- with aleppo about to fall it , seems like president putin is getting one of his goals, to bolster assad and take out the rebels which the u.s. is ,backing. how do you respond to critics who say you have been up talked by putin, and what is your plan if it does fall? do you plan to step of military action to help the rebels in syria, who you have said are key to taking on isis? secondly, i wanted to ask you about 2016 -- president obama: this is a lot of questions. you asked me a big question -- how about i answer that one? all right. >> [laughter] president obama: first of all, if you look back at the transcripts, what i said was that russia has been propping up assad this entire time. the fact that putin finally had to send his own troops and his own aircrafts and invest this massive military operation was not a testament to great strength, it was a testament to the weakness of assad's position. if somebody is strong, then you don't have to send in your army to prop up your ally. they have legitimacy in their country and they are able to manage it themselves, and you have good relations with them. you send in your army when the horse you are backing isn't effective. and that is exactly what has happened. now, what i said was that russia would involve itself in a quagmire. absolutely, it will. if there's anybody who thinks that somehow the fighting ends because russia and the regime has made some initial advances, about three quarters of the country is still under control of folks other than assad. that is not stopping anytime soon. i say that, by the way, with no pleasure. this is not a contest between me and putin. the question is how can we stop the suffering, stabilize the region, stop this massive out-migration of refugees, who are having such a terrible time. end the violence, stop the bombing of schools and hospitals and innocent civilians, stop creating a safe haven for isis, and there's nothing that has happened over the last several weeks that points to those issues being solved. that is what i mean by a quagmire. putin may think that he is prepared to invest in a permanent occupation of syria with russian military. that is going to be pretty costly. that is going to be a big piece of business. if you look at the state of the russian economy, that's probably not the best thing for russia. what would be smarter would be for russia to work with the united states and other parties in the international community to try and broker some sort of political transition. john kerry, working with his russian counterpart, has, on paper, said there will be a cessation of hostilities in a few days. this will test whether or not that is possible. it is hard to do, because there has been a lot of bloodshed. if russia continues indiscriminate bombing of the sort we have been seeing, i think it is fair to say you will not see any take-out by the opposition. and yes, russia is a major military. obviously, a bunch of rebels are not going to be able to compete with the hardware of the second-most powerful military in the world. but that doesn't solve the problem of actually stabilizing syria. the only way to do that is to bring about some sort of political transition. we will see what happens over the next several days. and we will continue to work with our partners who are focused on defeating isis to also see how we can work together to try and bring about a more lasting political solution than aerial bombardment of schools and hospitals. but it's hard. i'm under no illusions here that this is going to be easy. a country has been shattered. because assad was willing to shatter it. and has repeatedly missed opportunities to try and arrive at a political transition. and russia has been party to that entire process. and the real question we should be asking is what is it that russia thinks it gains if it gets a country that has been completely destroyed as an ally? it now has to perpetually spend billions of dollars to prop up. that's not that great a prize. unfortunately, the problem is it has spillover effect. that has it impacting everybody. that is a we have to focus on. one thing i wanted to add this , has not distracted us from continuing to focus on isil. we continue to press that hard in iraq and syria. that will not stop. if we can get a political transition in syria that allows us to coordinate more effectively with not just russia but other countries in the region to focus on the folks who pose the greatest direct threat to the united states. all right? andrew beatty. >> thank you, mr. president. i wanted to ask you first of all whether you think that military intervention will be necessary in libya to dislodge the islamic state. as an extension of that, do you think that by the end of your presidency, the islamic state will still have geographical strongholds throughout the middle east? and i can't resist asking -- how was the stadium course? what did you shoot? [laughter] president obama: uh -- the last, for nongolfers, is a reference to pga west. very nice course. very difficult. my score is classified. >> [laughter] president obama: uh, with respect to libya, i had been cleared from the outset that we will go after isis wherever it appears, the same way we went after al qaeda wherever they appeared. the testament to the fact that we are doing that already is that we took out one of isis's most prominent leaders in libya. we will continue to take actions where we got a clear operation and a clear target in mind. we're working with our other coalition partners to make sure that as we see opportunities to prevent isis from digging in, we take them. at the same time, we're working diligently with the united nations to try and get a government in place in libya. that is that a problem. the tragedy of libya over the last several years is libya has a relatively small population and a lot of oil wealth and could be really successful. they are divided by tribal lines and ethnic lines, power plays. there is now a recognition on the part of a broad middle among their political leadership that it makes sense to unify so that there is some semblance of the state there, but extremes on either side are still making it difficult for that state to cohere. if we can get that done, that will be enormously helpful, because our strong preference, as has always been the case, is to train libya to fight. the good news in libya is that they don't like outsiders coming in and telling them what to do. there's a whole bunch of constituencies who are hardened fighters and don't ascribe to isis or their perverted ideology. but they have to be organized and can't be fighting each other. that is probably as important as anything we will be doing in libya over the coming months. charlie? >> thank you, mr. president. the democratic race to replace you has gotten pretty heated lately. you have hillary clinton saying -- at least casting herself as the rightful heir to your legacy, and the one who will be the keeper of your legacy, while also saying that bernie sanders has been disloyal to you. is she right? president obama: well -- that's the great thing about primaries, everyone is trying to differentiate themselves, when in fact bernie and hillary agree on a lot of stuff and disagree pretty much across the board with everything the republicans stand for. so my hope is that we can let the primary voters and caucus-goers have their say for a while, and let's see how this thing plays itself out. i know hillary better than i know bernie, because she served in my administration, and she was an outstanding secretary of state. i suspect that, on certain issues, she agrees with me more than bernie does. on the other hand, there may be a couple issues where bernie agrees with me more. i don't know, i haven't studied their positions that closely. here's what i have confidence in. that democratic voters believe in certain principles. they believe in equal opportunity. they believe in making sure that every kid in this country gets a fair shot. they believe in making sure that economic growth is broad-based and everybody benefits from it, and if you work hard you are not in poverty. they believe in preserving a strong safety net through programs like social security and medicare. they believe in a foreign policy that is not reckless, that is tough and protects the american people but doesn't shoot before it aims. they believe in climate change. they think science matters. they think it is important for us to have some basic regulations, to keep our air and water clean, to make sure that banks aren't engaging in excesses that could cause a we saw in 2007-2008. there's a broad convergence of interest around those issues. i think what you are seeing among democrats right now is a difference in tactics, tried to figure out -- trying to figure out, how do you get things done? how do you operate in a political environment that's become so polarized? how do you deal with the power of special interests, and how do you deal with a republican party right now that has moved so far to the right that it is often hard to find common ground? that's, i think, the debate that is taking place right now. it is a healthy debate. ultimately, i will probably have an opinion on it, based on a candidate of hope and change and a president who has some nicks and cuts and bruises over getting things done. over the last seven years. but for now i think it is , important for democratic voters to express themselves and for the candidates to be run through the paces. the thing i can say unequivocally is that i am not unhappy i'm not on the ballot. [laughter] ron allen, nbc. >> i want to continue the 2016 questions. on the republican side, a lot of your guests were probably very intrigued by the fact that there is a candidate who is calling for a ban on muslims and significant segments of the population. president obama: intrigued is an interesting way of putting it. >> that's one of my five questions. [laughter] president obama: ron, let's stick to two. >> in the past, you have explain that anger and resentment is not the cure to economic responsibility -- how much responsibility do you except for the reservoir of feeling in the country that is propelling that candidate? a couple weeks ago, you said donald trump were not win the presidency. do you now think you will not win the nomination? and what about rubio and cruz? president obama: uh, i think foreign observers are troubled by some of the rhetoric that has been taking place in these republican primaries and republican debates. i don't think it is restricted, by the way, to mr. trump. i find it interesting that everyone is focused on trump, primarily because he says in more interesting ways what the other candidates are saying as well. he may up the ante in anti-muslim sentiment, but if you look at what other republican candidates have said, that's pretty troubling, too. he may express strong anti-immigration sentiment, but you heard that from the other candidates as well. you have got a candidate who sponsored a bill that i supported to finally solve immigration problems, and he is running away from it as fast as he can. they're all denying climate change. i think that is troubling to the international community. since the science is unequivocal. and, the other countries around the world, they kind of count on being on theates side of science. and reason. and common sense. that if the know united states does not act on big problems in smart ways, nobody will. but this is not just mr. trump. look at the statements that are being made by the other candidates. there is not a single candidate in the republican primary that thinks that we should do anything about climate change. that thinks that it is serious. that is a problem, the rest of the world looks at that and says, how can that be? i will leave it to you to speculate on how this whole race is going to go. i continue to believe that mr. turnbull not be president. and the reason is, because i have a lot of faith in the american people. and i think that they recognize that being president is a serious job. hosting a talk show. or reality show. it is not promotion. it is not marketing. it is hard. and a lot of people count on is getting it right. and it is not a matter of pandering and doing whatever will get you in the news on a given day, and sometimes, it requires you making hard decisions even when people do not like it. and doing things that are unpopular. and standing up for people who are vulnerable, but do not have some powerful political constituency. and it requires being able to work with leaders around the reflects they that importance of the office. and gives people confidence that you know the facts. and you know their names. and you know where they are on a map. and you know something about their history. and you not just going to play to the crowd back home. because, they have their own crowds back home. and you're trying to solve problems. so, during primaries people vent and they express themselves and it seemed like entertainment, and often times it is reported just like entertainment, but, as you get closer, the reality has a way of intruding. who ihese are the folks have faith in. because, they ultimately, are going to say, whoever is standing where i'm standing right now, has the nuclear codes with them, and can order firefight,s into a and you have to make sure that the banking system does not collapse. and, is often responsible for not just the united states of america, but, 20 other countries that are having big problems or are falling apart in a going to be looking for us to do something. the american people are pretty sensible. and i think that they will make a sensible choice in the end. all right? thank you everybody. thank you. [applause] >> the republicans have carolina primary on saturday, and we will have more road to the white house coverage tomorrow on c-span. donald trump campaigns and water broke, south carolina, and that is live at 5:00 p.m. eastern. we go to where florida senator marco rubio is holding a town hall meeting, afterwards we take your phone calls, that begins at 6:00 eastern. this weekend, disease and cities tour hosted by our charter communications cable partners, takes you to greenville, south carolina. to export the city's history and literary culture. on the tv, -- 1939,1939, september of in europe when to work, our allies, primarily england and france, look to two washington, d.c., for the materials that they needed. washington, d.c., looked down to the textile capital of the world and all of a sudden, government contracts came funneling into this area, asking the mills here to begin producing for the war efforts, initially for our allies, and then of course, when the united states, as well, join the war. >> imac in history tv. >> we are standing right here, this was a pretty nasty spot. it is hard to believe now, looking at it, one of the best parks in the country, but this really was a very depressed, nasty place. it is a great story of how a community can get behind a park, and start to appreciate and cherish its river and waterfall, again. >> watch the c-span city stories saturday at noon eastern, on c-span twos book tv. and sunday afternoon at 2:00 on american history tv on c-span3. the c-span city store, working with our cable affiliates, and visiting cities across the country. next, the former head of the treasury department's troubled asset relief program, or tarp, talks about the 2008 financial crisis. he is another the president of the federal reserve bank of indianapolis -- many of us, says that he believes it is time to end too big to fail banks. he was part of a discussion hosted by the brookings institution. >> good morning, thank you all for coming. i am director of the center on fiscal and monetary policy. once upon a time, when people talk about fiscal and monetary "financial phrase stability" was either not mentioned or if it was mentioned, it was somebody else's job. way,we learned the hard during the global financial crisis and the great recession that global financial stability is a really important public good, and it like it or not, the federal reserve has some responsibility for at least minimizing the risk of financial instability. i'm very pleased this morning to welcome the new president of the minneapolis -- to talk about the subject. he has more experience in this than the ordinary person on the street. started as ahe mechanical engineer and ended up at goldman sachs. heleft goldman sachs because talked his way into a job at the treasury with hank paulson. he ended up running the tarp, the troubled asset relief program. made him famous by being on tv defending it. because that was not enough fun, he went to pimco to start and equity fund there. pimco, as you know is one of those places where you were and how people get together well to make money. that, you and for governor of california against jerry brown. jerry brown one, case you were wondering. 60-40. but he be quite a name for himself as a republican candidate who actually cared about people who make less than $3 million a year. he is the new president of the minneapolis fed, the minneapolis fed have a long tradition of thinking about financial stability and banking. you'll meet later, gary stern, who is the president of the minneapolis fed for more than two decades. and in 2004, with ron feldman, wrote a book called "too big to fail." which looks pretty good at the time and looks even better from hindsight. i write is say that it was published by the brookings press. and also, i would like to welcome bruce mcclory, a former president of the minneapolis fed, and a former president of brookings. the gentleman will speak for a bit and then be joined by gary stern and don cohen, my colleague and the former vice chair of the fed. i am sorry that the weather has prevented both betsy duque and another person from getting here. it turns out is easier to get here for minneapolis than from points out. here he is. >> thank you, david, for the kind introduction. it is great to be here and thank you to the hutchinson center for hosting us here today. thank you all for coming out. i know that there is some tough weather, washington has been hit a lot. i appreciate you bringing elements. and artist in which fellow panelists, gary stern, don cohen, chairman bernanke, and bruce. thank you all for being here. i want to remind everybody that the views and exposing today are my own and i not speaking on behalf of the federal open market committee or the bird of governors which sets regulatory and supervision policy on behalf of the federal reserve system. today, i will offer my assessment of the current status and outlook for ending the problem of too big to fail banks. problem from the perspective of a policymaker who is on the front line, responding to the financial crisis in 2008. when congress moved quickly to pass the dodd frank act, in 2010, i strongly supported the need for financial reform. but, i wanted to see the act implemented, before i drew firm conclusions about whether or not it solved too big to fail. in the last six years, my colleagues across the federal reserve system have worked diligently, under the reform framework that congress established, and are fully utilizing the available tools under the act to address too big to fail. while significant progress has been made to strengthen the financial system, i believe that the act did not go far enough. i believe that the biggest banks are still too big to fail, and continue to pose an ongoing, large risk to our economy. passed that we better understand the causes of the crisis and yet, it is still fresh in our memories. now, is the right time for congress to consider going further than dodd frank, with bold, transformational solutions to solve this problem once and for all. of federal reserve bank minneapolis is launching a major initiative to develop an actionable plan to end too big to fail. and we will deliver our plan to the public by the end of the year. ultimately, congress must decide whether such a transformational restructuring of our financial system is justified, in order to mitigate the ongoing risks posed by large banks. although too big to fail banks were not the sole cause of the recent financial crisis and the great recession, there is no question that their presence at the center of our financial system contributed significantly to the magnitude of the crisis, and to the extensive damage inflicted across the economy. given the scale of job losses, home foreclosures, lost his savings, and cost to taxpayers, regulators and main street of great with elected leaders that we must solve the too big to fail problem. we know that markets make mistakes. that is unavoidable and an innovative economy. but these mistakes cannot be allowed to endanger the rest of the country. when roughly 1000 savings and loans failed in the late 1980's, there was no risk of an economic collapse. when the technology bubble burst in 2000, it was very painful for silicon valley and for technology investors, but it did not pose a systemic risk to our economy. large banks must similarly be able to make mistakes, even very big mistakes, without requiring taxpayer bailouts and without triggering widespread economic damage. that must be our goal. legislators and regulators have worked hard to address the too big to fail problem. my colleagues in the federal reserve system, working closely with other financial regulators, have implemented important tools and regulations that are making the financial system stronger. regulators have forced large banks to hold more capital, and have deeper, more resilient sources of liquidity. our stress test, check with the most systemically important institution, can withstand a serious shock to the economy. in some cases, institutions have responded to these higher regulatory requirements by reducing certain activities. considerable progress has been made and these are steps in the right direction. but regulators know that despite these best efforts, banks will still sometimes make mistakes and run into trouble. to ensure that banks can fail without requiring massive taxpayer bailouts, regulators are using the living will review process to try to address the hurdles that make large banks so hard to resolve. they are establishing a resolution approach intended to give regulators the ability to restructure large banks without massive spillovers, and they have for those requiring large banks to issue debt that would help recapitalize the firm if necessary. all of these measures are sensible. policymakers are committed to seeing this important efforts through. the question is, should we be satisfied with this approach, or should we do more? the lessons i learned during the 2008 financial crisis, strongly influenced my assessment of new regulatory measures to address the too big to fail problem. i learned in the crisis that determining which firms are systemically important, which are too big to fail, depends on economic and financial conditions. in a strong, stable economy, the failure of a given bank might not be systemic. the economy and financial firms and markets might be able to withstand a shock from such a failure without much harm to other institutions, or to families and businesses. that in a weak economy, with skittish markets, policymakers will be very worried about such a bank failure. after all, that failure might trigger contagion to other banks and causing widespread downturn. thus, although the size of an institution, its connections to other institutions, and its importance to the plumbing of the financial system, are all relevant in determining whether or not it is too big to fail. there is no simple formula that defines what is systemic. i wish there were. it requires judgment from policy to assess conditions of the time. i know this is unsatisfactory to many people, but it is the truth today. perhaps, one day we will have better tools to make this determination analytically. a second lesson for me from the 2008 crisis is that almost by definition, we will not see the next crisis coming. and it will not look like what we might be expecting. recognizing an imbalance in the economy, market participants would likely take action to protect themselves. when i first went to the treasury in 2006, treasury secretary henry paulson directed his staff to work with financial regulators at the federal reserve and at the securities and exchange commission, to look for what might trigger the next crisis. experience, we were due for a crisis because markets had been stable for several years. oflook at a number scenarios, including a large bank, an individual large bank running into trouble. or a hedge funds, suffering large losses. among other scenarios. we do not consider a nationwide housing downturn. we do not see it, it seems obvious now, but we do not see it and we were looking. we must assume that other policy makers in the future will not see future crises coming either. from the crisis is that the externalities of large bank failures can be massive. i am not talking about just a fiscal cost of bailouts, even with the 2008 bailouts, the cost of society from the financial crisis in terms of lost jobs, lost income, and lost wealth, were staggering. many trillions of dollars and devastation for millions of families. failures of large financial institutions as massively asymmetric risks to society that policymakers must consider. we had a choice in 2008. spend taxpayer money to stabilize large banks, or don't. and potentially, trigger many trillions of additional cost to society. a very crude analogy is that of a nuclear reactor. the cost to society of letting a reactor meltdown is astronomical. given that cost, governments will do whatever they can to stabilize the reactor before they lose control. regulatory reforms since the crisis have focus both on making bank safer, so they are less likely to fail, and on grading tools to resolve troubled banks by imposing losses on accreditors without destabilizing the economy. based on lessons from the recent crisis, i evaluate these restructuring tools asking the whatwing questions -- policymakers responding to a future crisis actually use them? and how likely are they to be effective? to answer these questions, i consider to scenarios, first, an individual large bank runs into trouble while the economy and financial system are otherwise sound and strong. and number two, one or more large banks running into trouble, while there is broader weakness and risk in the global economy. my assessment of these tools under the first to, the healthy economy scenario, is that they do have the potential to deal with the failure of an individual, large financial institution without requiring a bailout, or triggering widespread economic damage. but, we don't of that for certain, and the work on these tools is incomplete and slow-moving. for example, the reviews of the largest banks living wills, find that they have significant shortcomings. with the government requiring the banks to try once again, to make themselves able to fail without massive fallout. until this work is complete, which could be years from now, we must acknowledge the largest banks are still too big to fail. and even then, we will not know how effective these tools will be until we have actually use them. unfortunately, i am far more skeptical that these tools will be useful to policymakers in the second scenario of a stressed economic environment. given the massive externalities on main street, a large bank failures, in terms of lost jobs, lost income, and lost wealth, no rational policymaker would risk restructuring large firms and imposing large losses on creditors and counterparties using the new tools in a risky environment. let alone, it crisis environment likely experienced in 2008. they will be forced to bailout failing institutions as we were. we were even forced to support large bank mergers, which helps stabilize the immediate crisis, but that we knew would make too big to fail worse in the long term. the risk to the u.s. economy and the american people were simply too great, not to do whatever we could to prevent the financial collapse. i believe that we need to complete the important work that my colleagues are doing so that at a minimum, we are as compared as we can be to deal with an individual, large bank failure. but, given vietnam's cost that would be associated with another financial crisis, and the lack of certainty about whether these new tools of the effective in dealing with one, i believe he must seriously consider bolder, transformational options. reserveer federal policymakers have noticed the potential benefits of considering more transformational measures. i believe we must begin this work now and give serious consideration to a range of , raking upcluding the large banks into smaller, less connected, less important entities, turning large banks into public utilities by forcing them to hold so much capital that they virtually cannot fail. with regulation at a nuclear power plant. taxi leverage throughout the financial system to reduce systemic risk, wherever they live. now, options such as these have been mentioned before. but, in my view, policymakers have not yet and legislators have not yet seriously consider the need to implement them in the near term. they are -- transformational. they have worked hard to throw out endless objections to fundamental change. in the immediate aftermath of the financial crisis when the dodd frank act was passed, the economic outlook was perhaps too uncertain to take old action -- bold action. but the economy is stronger now, and it is time to move past parochial interests. the risks of not doing so are two great. too great. many of the arguments against adoption of transformational solutions are that they societal benefits of financial benefit -- giants somehow justify the exposure to another financial crisis. i find these arguments unpersuasive. finance lobbyists argue that multinational -- multinational corporations do business in many countries and therefore need multiple banks. but they also managed thousands of suppliers all around the world. can't they manage a few more banking relationships? many argue large banks benefit society by treating economies of scale -- scope and scale. no doubt this is true. mustost benefit analyses weigh the cost also. i don't see the benefit of large banks outweighing economic collapse. some argue if we limit banks in size our scopes, they will be a disadvantage relative to banks and other countries with looser regulations. if other countries want to take extreme risks, we cannot stop them. but the united states should do what is right for our economy, and establish one set of rules for those who want to do business here. given the complexity of this issue, any bold plan will be imperfect, and there will be unanswered questions at skeptical experts can point to. how can we precisely define which are systemic and dangerous and need to change? how can our plan at advantage doing, as the financial system evolves over decades? strictly -- what if strict you were regulating some friends pushes risk on other firms? how will the new rules impact families and businesses' abilities to make important investments, and what will that mean for employment and economic growth? experts also correctly point out there is always a possibility that an economic shock that hit us in the future that is so large, or so different from anything we have considered, that it overwhelms all of our efforts. in that scenario, only the balance sheet of the federal government would be strong enough to stabilize the financial system as was required in 2008. these are all important considerations, and there are many more. we must work to address them. but if we are serious about solving too big to fail, we cannot let them paralyze us. any plan we come up with will be imperfect. those potential shortcomings must be weighed against the actual risk and costs we know exist today. perfect cannot be the standard we need before we act. left underwe will be incrementalism, and the risk we will someday face another crisis without having done all we could to protect our economy and the american people. as david said, the federal reserve bank of minneapolis has been at the forefront of understanding the risks and challenges posed by large banks for a long time. this goes back to the 1970's, with work on too big to fail beginning in the 1990's. as david noted, one of my colleagues, ron feldman, and one of my predecessors, authored the original book on this topic, arguing in 2004, three years before the crisis -- that policy makers would not stick to their no bailout measures. they were right. work,ng on this important the federal reserve bank of minneapolis is launching a major initiative to consider transformational options, and develop an actionable plan to develop too big to fail. starting in spring we will hold a series of symposiums to explore options from experts around the country. we will also invite leaders from policy and regulatory institutions, and yes, the financial sector, to offer their views and test one another's assumptions. we will consider the likely benefits, costs, risks, and information -- implementation challenges. we will invite the media and lifestream them so the public can follow along and learn with us. symposiums, we will publish a series of policy briefs summarizing our takeaways on each issues so that all can provide feedback and it can begin now. a websitetablished where anyone can share their ideas on solving too big to fail. if you are a researcher, if you work in the financial sector, if you have a good idea for solving this, wherever you are, share it with us at minneapolis fed.org. we will use this to inform our plan to end too big to fail, which we will reach by year end for legislators, policymakers and the public to consider. congress created the federal reserve system to help prevent financial crises from inflicting widespread damage to the u.s. economy, doing everything we can to address systemic risks from large banks will the an important step to vessel that. seven years after the crisis, i believe it is time to move forward and and too big to fail -- end too big to fail. thank you very much. [applause] mr. wessel: thank you very much. you certainly, starting your tenure as president, you give us something to think about. it will take you a long time to learn how to get a speech when no one understands what you are saying. [laughter] i want to start by asking a question, and then turned to gary and don. to dodd frank act begins, promote the financial stability of the united states by approving -- improving accountability and transparency, too and too big to fail, to protect the american taxpayer, to protect consumers from abusive financial practices, and other purposes. your argument basically is we did not go far enough. mr. kashkari: that is correct. a lot of dodd frank has done good, and the financial system is stronger, but i do not think we have gone far enough. mr. wessel: so the boston fed gave a speech the other day. he said, we have reduced the probability of failure, and also we have reduced the cost of failure by enforcing the banks to have more capital and have more that they can e-mail him before the taxpayers. do you disagree with those? mr. kashkari: i agree with the first that we reduced the large banks running into failure. is not justuble it the bailout. it is inflicted across society. think about an analogy, the nuclear reactor. the fukushima disaster. they built a wall so high. the question is, is the wall high enough? second, how devastating is it to society if the reactor floods? i don't think the second point we had dealt with that adequately. mr. wessel: ok. what do you think, do you agree? no.kohn: i certainly share the objective of ending too big to fail that is allowing any large financial institution to fail, with minimal damage on the financial system and economy, you absolutely have to do that. that is part of a market system. you have to be ready not only to reduce profits but to fail. -- youring that you are shareholders and creditors have to be ready to lose money. we share a goal. you start from the premise, as you answered, that we have not done enough. i guess i am not sure. it is possible, but i would like to hear more of your arguments about why the authorities want to use the new tools they were given. one of the lessons was one reason that we had to intervene i say we because we were on the same team trying to save the system -- because we did not have enough tools.the system was fragile . regime, the resolution title ii of dodd frank. you apparently don't think that is going to work, and you don't think people, are the authorities will use it. the congress has attempted to certainly while off the things off the authorities -- wall the things that the authorities did to save the banks before. i don't know why those won't work. i assume the authorities would have to go back to congress for another tarp. i think it will be several generations before that is possible. this thing better work. -- i think the authorities will use the new resolution. resolution'sew regime, once it is fully in place, probably will work. the probably is big, but i think there is a lot of baling in the bailing and that creditors, capitalizing the systemically important start -- parts, i would like to hear why you would think that would not be sufficient in the next crisis. if there is more than one institution threatened at the same time. i don't know. there is a lot of stuff being done, but i think it stands a good chance. before you say let's break up the big banks, use government to intervene in the private sector major,y that's pretty which is taking a private entity and breaking it into different pieces. i think you have to convince me what has been put in place won't work. i think i largely agree with don. i think the key in the current legislation to effectively dealing with too big to fail is the process. i'm comforted by the fact that none of those proposals have been improved yet, because i think they are very difficult to do well. if they had been approved, i would be suspicious that they work with adequate quality, and they wouldn't be effective. i think it is a big mistake to dismiss that or -- personal, they are mandated by congress, and the regulators have to approve them once they are acceptable. it doesn't require any additional legislation. it doesn't require getting into political battles about who bought to do what you're it. -- ought to do what. in place, they are designed to limit spillovers from a problem that one or more major financial institutions, so that the contagion effects on the overall economy are manageable. that is what they are designed to do. therefore, you don't need the government to intervene. the jury is out. --is not obvious that this that the proposals, once in place, will be adequate. but i don't think there's any reason to start with the presumption they want to be. after all, regulators are on the hook to get this right. think that is absolutely critical. i think there is a lot of promise there. i think the jury is out. if it is put in place appropriately, and if it is communicated to the public appropriately, in particular to uninsured creditors and shareholders, then you should get different pricing in the marketplace of risk-taking, and institutions going forward credibleou have a plan. i think there is a lot of potential. in there still playing policy game, that is where i would start, and that is where i would put my emphasis mr. neel, you don't think the jury is out here at what makes you so sure the system will not work? mr. kashkari: it comes back to what contagion is. imagine you are in a stressed economic environment, and several big banks are under stress at the same time. and you are a creditor of one of those banks. that bank owes you money. , another bank that looks just like your bank all of a sudden, their debt was converted to equity. their bondholders are not happy, and the last thing they want is the equity of that bank. they want their money back. if you are a bondholder of another institution that looks like the first one, what are you going to do? get out, if at all possible. the contagion risk is the thing that was so devilishly hard to --l with in the last crisis i'm not suggesting we will come up with a plan that will solve every economic scenario, every shock, no matter how big. but look at the environment we're in today. there is stress and increased volatility. bankshares, especially in europe, have come under trouble. donald, remember when you were there, did you think in 2008 if you had the ability to say, we are going to haircut on holders from one bank, you would have pulled the trigger? i don't think so. mr. kohn: i think if the system had it in place a number of years before, and on had been issued with the explicit promise that they would be haircut under these circumstances, i think we certainly would have tried at first -- it first, and then the bonds become equity, so the rest of the organization is much safer. baling in long-term creditors protect the short term creditors. that is where the danger was. i think if there are ways of doing that, i think the market is beginning to believe this. look at what is happening in europe and the prices of those. the turmoil that nearly is referencing in banking markets in the last couple of weeks, the risk premiums on bank bonds, and the prices of these convertible bonds have really been affected. it feels like the market believes the authorities will at least to some of this, the creditors to increase the equity of the banks. speech, we, and your are not all the way there. the living will process needs to work out.the total loss absorbing capital , how much of the credit should be out there that can be converted, is it high enough to protect the taxpayers, are there systems in place at the fdic, the bank of england, the european central bank, to wind down these institutions and put them in receivership in a safe way -- those are works in progress. mr. kashkari: let me ask a follow-up. context ofconceptual the act. why be cute about it? why not just raise capital requirements? why not just make it equity? i look back in 2008, the big banks issued the structured investment vehicle's. they ended up having a reputational obligation to build those out. it became irrelevant. it became what customers expected. how do you deal with that? do you think even more capital on the big banks is a good idea? mr. stern: i don't find that by itself to be obviously sufficient. it doesn't take advantage of other improvements we can make. i wouldn't put all my eggs in just one basket. i think there are a number of things that can be done. we have already talked about some of them. another thing we have not talked about, and i'm sure this will people, inne to some bankers aree senior willing to push back and or pressure.ulatory they're much less likely to do so when they are getting it from the boards of directors. i think that is an avenue that has been underutilized to date. i think there is something that can and should be done there. for example, you use to have an independent chairman, the ceo of the institution should not also be chair of the board of directors. you should have a fair number of independent directors. you should probably have a term limit for directors so they don't get captured by managers. etc., etc.. this is all corporate governance stuff. but is what in my judgment ought to be done, because it has the potential to improve the situation at relatively low cost. i would go down that path as well. neel's path, in remarks, he talked about parochial interest. those are obvious in a lot of places, one of which is battles among regulators. paul has been working on this for decades. i'm tempted to say i will exaggerate the situation a little bit, because i don't mean it, but our current regulatory structure with the fed and the occ and fdic, and i can go on and on, it is inefficient. it is not as effective as it could be, and it is indefensible. why don't we fix it/ ? we could come up with three or four reasons why we don't. will it top too big to fail? no. will it help? yes. does it illustrate her appeal issues of the difficulty of dealing with them? yes. how do we know the problem is solved? what indicator would tell you we have pretty much gone far enough to deal with too big to fail? mr. kashkari: one-way, and this is a hard thing to know for sure -- i want to reemphasize that we could never eliminate all risk. there's always a risk that a shop comes that is large. mr. wessel: you are saying we have not eliminated enough. mr. kashkari: as i was preparing for this, i was reading, and i think the fukushima reactor is a decent one. mr. wessel: i'm sure the banks appreciate that. i'm sure they appreciate the whole discussion. they were saying, there has been a tidal wave this large in the last 1000 years. there has been evidence of one. i'm not saying we have to prepare for a shock that comes one every thousand years, but we just had a big shock. we had 180 years ago ended great depression -- in the great depression. those are two big shocks. its ambitious, but i would like to go for it, even if we can't get to it. mr. wessel: how will we know? we have seen rating agencies, beginning to believe that the governments will not bail out the banks. we are doing stress tests. if we make the stress test scenario more severe, how will you know when we have gone far enough? mr. kashkari: i wish i had a precise answer. this is the nature of risk. another analogy that i'm sure the banks will love, is think about airport security. we are always evolving airport security over the last terrorist threat. we take our shoes off when we go through the x-ray machine. does it make us any safer? no, because the next attack will look different. it requires judgment. i'm sharing with you based on my experience, in 2008, looking at what we don't with, i don't really we are doing enough. remember thegy, general who ran the first gulf war? i saw this interview where he said, preparing for war is like planning and orchestra. you have all the instruments i need to, everyone knows -- finely tuned, everyone knows their parts. and then a madman goes up and starts chasing him around with a machete. that's what he said were was like. all of these things in place are whenble, but what happens something hits us unlike anything we have seen? we should be honest with the american people and say, this could happen again. we are doing things, sensible measures in the right directions, but we want to be honest that it could happen again. mr. kohn: we have all been expressing doubt, and what i think he has is thought-provoking -- we have all been expressing doubt, and what he is saying is thought-provoking, but at least it provides a sense of urgency for dealing with the issue. we are six years past dodd frank. it doesn't strike me as entirely acceptable that we are still working on the details of all of this. i know what the reasons are, i know what the stated reasons are. but if there was a real sense of urgency here, i think we would be further along. mr. wessel: i should remind people, we have some questions in a bit. the colleagues in minneapolis are monitoring twitter. you can ask questions that way. so congress that it does not want more bailouts. congress has limited the ability of the federal reserve to do what it did in 2008. it has given the fdic, for better or worse, powers. crunch,saying that in a the fed lawyers and treasury lawyers are so good they will find a way to evade the rules that congress set up? weare you suggesting that will be once again in the middle of the night, chair of the fed, going to congress on bended 2.0? saying i need tarp mr. kashkari: i know many of my fed colleagues has said this, the idea, we all hate forest fires so let's take that houses away from firefighters -- that is not the solution. used were crucial to stabilizing the economy. that is not the right solution. the right solution is to take action and make sure that the system is stronger, and to take bold action now in advance. when i ran for office, i used to joke that the first thing i would do as governor was banned traffic. it is easy to make a ban this,on, we the there can be no bailouts. that is not how the world works. today, we need to be honest about what risks we face. mr. wessel: do we have anything to learn from how other countries are handling the situation? mr. kashkari: i would be interested in donald's views, since he is involved in the u.k. my assessment is they seem more comfortable having major risks in their economies. their banking sector in many cases, their percentage of gdp is larger than our percentage of gdp. i think of that -- this list has required much more capital from their banks. the british, after they got done nationalizing all the banks, have talked about restricting what the banks can do. mr. wessel: don is on the financial committee, because the british think you can learn from foreigners, which does not deemed to be an american tradition. [laughter] mr. kohn: in the u.k., we have increased capital requirements, including in the process of increasing them on the globally systemic, globally important banking institutions. if anything, the fact that the banks are a much bigger proportion of in the u.k. than the u.s. makes the u.k. more intent on dealing with this. the second thing that has happened is ring fencing. they said the independent commission on banking, which was convened by parliament for five years ago after the crisis, said one way of dealing with this too big to fail issue is, let's take the parts of the bank there really systemically important, the ones that take the process and make loans to consumers and runl businesses, payments through, let's ring fenced them. let's take them apart, make them separate institutions within a bank holding company, and hold them to higher capital requirements. that is in the process of being implemented. i would note that is kind of like the u.s. system. we have bank holding companies, depositories separate from the investment banks, and the federal reserve board has put higher leverage requirements on the depositories then on the holding company. there are considerable similarities. i think the other thing that the british are doing is taking this resolution thing very seriously. also, weg wills, and own a financial policy committee are considering how much of this total loss absorbing capital is required. we are trying to run cost benefit analysis about, to your , and weow much equity came out with a number for equity. we thought, balance the cost of benefits, and then put that on top of it. basically, the british are doing the same things that are sayening here, but i would if anything, they are more concerned about this then maybe the u.s. should be, given how big the banking sector is. mr. wessel: you correctly observed that the cost of another financial crisis is enormous. therefore, the benefit to avoiding one has to be pretty big. one hears quite a bit these days that one reason the u.s. economy is not doing better is because we have made the banks too risk-averse, that the s that gary stern is causing used, -- is hurting us. are you -- do you think they are outweighed by the risk? mr. kashkari: i'm very sensitive to the fact that small banks and community banks are being caught up in the regulatory net that is focused on largest banks. if we took more aggressive actions to make the large banks perhaps we could relieve some of the burden across the system and free up some of the community banks and regulations so it is easier to lend to families and small businesses. i take that seriously and i think we can address that as part of the solution. i would like to pick up a point that gary made. gary's point about fragmentation organization of the regulatory structure. i used to think that we kind of live with it, and people were -- i don't anymore. i think it is a very serious problem. one reason it has taken so long the dodd frank rules to be put in place is it requires cooperation among all these agencies, and they each have a slightly different perspective. finally, i think the organization, one a way in which the u.k. is organized differently from the u.s., is the financial policy committee. there is a committee, a little bit like a sock -- fsoc, but doesn't have 10 agencies sitting around the table, focused entirely on the systemic risk and the resilience of the u.k. financial system to a tidal wave. to a serious tail event. we have been given the tools, including in residential real estate, which are not really here in the u.s., and capital, liquidity to do this. whether we will be successful over time, only time will tell. but i do think the u.k. is much better organized to keep the system safer than the u.s. with warring agencies. many don't have an explicit financial stability mandate. mr. wessel: do you take seriously the claims of the banks and others that all this regulation and the cacophony from regulators is hurting the economy? mr. stern: only partially at best, for a couple of reasons. does not make a lot of sense to me to include community banks, and banks that are clearly not systemically important in the same abella. -- umbrella. that is a waste of resources in a lot of ways, and we are smart enough to fix that. after every recession, a reaction from the regulators, which is to tighten things in the financial services industry. that is always followed by concerns that many in some now credit is not available. and then people get over it, and life goes on. we have seen that before. i think we are seeing that again. i think the best way -- they are not mutually exclusive, but the best way to understand what is happening to the u.s. economy in the wake of the financial crisis --they wrote a book. have a sense of historical researchers, across time. the message of the book is economic recovery following serious crisis turn out to be disappointing and substandard, etc. not wholly independent of what policymakers do, but largely independent, and it is the hangover of the financial crisis. if i were trying to understand the performance of the u.s. economy in the last six or seven years, that is where i would start. mr. wessel: one final question before we turn to the audience. that is about the politics of making a speech like this now. there are line senior speech that i can imagine bernie sanders or elizabeth warren saying. it is not what one expects from a goldman sachs republican who is responsible for ripping off the taxpayers during tarp. [laughter] i'm curious, what is going through your mind? what led you to decide a couple months into the job that you wanted to lay in the sandbox and be this provocative? mr. kashkari: i was interesting in -- interested in joining the minneapolis fed cut that wanted to take on the biggest economic and financial challenges we had in the country. i did not know what they would be. when i got there i found a lot of expertise on too big to fail, and large banks and regulation. when i talked to my expert colleagues about my concerns -- when i wrote about this, i gave a speech at the chicago fed in 2011. after. bank was passed, i said -- after dodd frank was passed, do.id, we have more work to those were my ideas. as i got into the bank, i started turkey to the experts, and i realized there are still big risks. one of the fed submissions is financial stability -- fed's missions is financial stability. i wrote the first draft of this in december before i even had started at the bank, and i wanted to get my colleagues reaction to it. here we are. mr. wessel: let's take questions. i have a microphone and i want people to stand up as they say a question. tell us who you are. why don't we start over here. >> hello, thank you very much. regardingke to ask the relation between debt and deflation. [indiscernible] from $150 trillion, is it a new environment where we are seeing inflation in many thisries, do you think will be a challenge for the financial sector? mr. wessel: so you are asking, if we are in a time of falling prices and deflation, does that make the debt problem even worse? mr. kashkari: there's no question if we were in deflation. that's part of the problem. it makes the debt overhang so much worse, because the debt grows in real terms. that is why i think central banks around the world are committed to, achieving their inflation targets in the fed's case, it is the 2% target. all you call for is more study, academics will always be in favor. let me see if you agree with this. there are a lot of people who think interest rates up to be managed in part to avoid financial instability. it strikes me that decision to move arbitrary policy in ways that are inc. stint with the near-term -- inconsistent with the near-term inflation mandates is a very big cost, that people are undertaking because they are worried about implications of buildup.d up. -- debt would you agree, that structural changes better potential hly monetary policy? mr. kashkari: absolutely. some of my colleagues ran a scenario, imagine if there was a dry bubble, what tools with a use? they found themselves very limited to try to deflate the bubble, which is a very difficult thing to do because you cannot target it. if we can make the financial system stronger on its own, you are releasing burdens on monetary process. some people argue we have too many mandates, instead of just an inflation mandate. mandate.ve a dual sometimes they are in conflict. i agree. >> sometimes i worry about the mean policy that could against buildups of imbalances in the financial system, because i think it would put more pressure. i prefer to do that before monetary policy, but i think another response to your concerns would be to do something about the regulatory theem build up, capabilities in the u.s., and organize them better. for better or for worse, i don't necessarily agree with that. one of the last things i wrote when i was at the minneapolis fed was trying to raise the monetaryshould you use policy to deflate asset price bubbles, recognizing that identifying a bubble is not the easiest thing in the world. 's quitet don uncomfortable is that, but it is a cross benefit. the cost of the financial crisis and looking back at it, it seems to me it was worth asking the question, should monetary policy have a more restrictive? crisis?to the the cost of the crisis turned out to be so great. i don't think you can just dismiss that. there may be better ways of addressing it, although frankly, i have yet to hear a clear definition of what macro prudential regulation is, much less how effective it might be. i don't think you can just costss it, because the benefit and the last financial crisis -- i think it is not that it should be dismissed, but it is not a good place to be if that is our first option. it would involve raising interest rates so much in order to birthday bubble, that we would rather have other -- two burst a bubble, that we would have other ways to do it. mr. stern: i'm also saying we don't know how much it would take to raise interest rates. one of my former colleagues were sitting here. is, ak they would say, it surprise increase in interest rates would have a big effect. the fed has worked very hard at transparency, and helping market participants understand what is coming, and if possible, when it is coming. but that is not the only policy. let's have the cards on the table. mr. wessel: i think there is a question in the back. >> thank you, sir. i really like the metaphors you use, nuclear reactor and i are . i have to ask a question about where we still are since 2008. do you leave the economy is still on my support, because we are still having to keep interest rates low, and we are still having money being pumped into the system? do you believe that is still the case, or do you think it will be changing soon? mr. wessel: let's take another one, over here. it took four years for real estate prices to drop by a third, because there were so much time and thought we were able to build paper on paper, and it created a huge worldwide economic crisis. the banks proved they could do it again in six months, where they were lending aggressively to the oil patch, at $100 a barrel. six months later, oil dropped 75%. because they did not have enough time to build that into a huge worldwide thing where there was paper builds on paper, and so on, it seems like the crisis is not quite the equivalent. about the only thing we have seen out of congress is that they took/fund helpedhe fed had that stabilize the last time around, they took the money and used it for the highway bill instead. i'm wondering how important do you think losing that emergency tool may prove to be. mr. wessel: one more, the gentleman here. i speak as a laymen. on the street, we still believe better.banks will be dr. frank is still fighting the frank is stilld fighting the last war. mr. wessel: maybe you can help clarify this. does the fed have the financial capacity to deal with the crisis. if one occur -- if one occurs? not characterize the fed's capital as a slush fund. the capital itself did not really play at role in any of fed did.s that the that't agree that taking was a great idea or a good way to finance highways. there are better ways to do that. i don't think that by itself doesn't affect the fed's ability loansother things, make in particular, in a crisis. i think congress has constrained that, particularly loans to nonbanking institutions. they have to get permission from secretary of the treasury, there is a lot of emphasis on security, and a lot of that i worry about the restrictions already on the fed's ability to take loans, and it has nothing to do with the highway bill. mr. wessel: neel, do you think tois correct characterize the u.s. economy on life support? mr. kashkari: no, i think we have come a long way and the economy is stronger. if you look at the statement in january -- mr. wessel: did you say anything? mr. kashkari: i did. the economic outlook is for moderate economic growth. -- is the reality ends up at the outlook, i think we will be heading in a better direction. mr. wessel: over here. >> thank you, very much. a lot of interesting points here. i'm going to go one step further. i think the regulatory agency has failed us miserably in the last crisis. do you believe they have been rehabilitated enough to get us there another one? is, are we over engineering these regulations? it seems to me that maybe people should have looked up the on their computer models -- beyond their computer models and actually see what was going on on the ground. prices went up, wages were flat, mortgage rates, nobody questioning that. maybe we have to inject more common sense than regulation into the equation. mr. wessel: the gentleman behind you. >> thank you, i am from the japanese embassy. the transformation options are necessary, if they include also breaking up banks. i think the dodd frank act already gave regulators authority to break up larger in case they are insufficient. think further legislation is necessary, and could you explain the measures? you are saying regulators already have authority to write up that brings, are you suggesting -- break up big banks? mr. kashkari: my view is to do anything transformational, we would need new legislation. i agree the authorities have the ability within a living will , toework, the fdic and fed target individual institutions. but my personal opinion, i don't think the intention of congress with. frank was meant to be a tool for transformation of the financial sector. it is absolutely appropriate and necessary for congress to weigh in on and take an active role in deciding what did transformation looks like, rather than leave -- using one little tool and using it across the whole system. mr. wessel: we have some questions from twitter. one theme being talked about is the difference in treatment between the large banks in the small banks. isn't therehat, still contagion risk among small banks if a number, if many of them are involved, have those risks weighed against the risk by the large banks? mr. kashkari: when you look at the savings-and-loan crisis, you have a thousand small loan sales. i was devastating for communities. that was a bad thing. but there was no broader risk of economic contagion or broader collapse. if we can get the financial system -- system where we can take on major shocks with out requiring -- without triggering downturn, that could be our goal. >> there was a recession, and the recession was prolonged, and d by the was dampe credit restrictions that occurred after that. so i guess, if you took a big bank that was systemically important, and broke it up into eight smaller banks, but each had the same balance sheet, and the same strategy, you wouldn't be doing anything. mr. kashkari: agreed. if you break it up and there is no change in behavior or model, but when you have corporate governance with different ceos and boards, with different geographies, i will probably not be the situation we will end up in. i'm not saying breaking up the banks is one of this -- is ily the solution, it is one of the solutions. not persuaded that even a large number of community banks would pose a systemic risk to the settlement -- financial system. community banks sometimes like to invoke that for liberal playing field considerations, but i don't find it convincing. mr. wessel: the woman in the brown? full disclosure, i was one of those regulators along time ago, not in the most recent crisis, but i was certainly involved in the new england commercial real estate crisis. mr. wessel: which regulators? >> the occ. i think one of the things that needs to be addressed is banks failed for two reasons, liquidity and capital. capital is assets minus liabilities. when you -- in terms of systemic risk, when you have assets that are concentrated, you have systemic risk, whether that it across a variety of small institutions or concentrated amongst large institutions. i think one of the things you have not addressed, you mentioned it and kind of sleep slid through it, was if we look in the united states, you don't have to look at it globally. but the thing is, our economy has changed. we are in a much more fluid, much more local economy than ever before. i wonder what would be the implications, if we make a regulations, if we look and say, let's make them smaller, or more controlled through taxing them or requiring massive amounts of capital requirement, wouldn't that funding move overseas anyway, and therefore wouldn't --t create the extra negative externalities you are talking about before? understand your concern. my focus is, we have to control what we can control. in it ideal way, everyone would share regulations and there would be perfect harmony. but we have to control what we can. we have to make changes in the u.s. to make the u.s. financial system sound, let's have one set of rules, so if foreign global banks want to do business here, they have to follow the rules. i expect small and midsize banks in the u.s. to grow and fill some of the boys may be created -- voids that may be created. the other thing is, we have to implement it gradually over time. i expect the sector to evolve and adjust to fill whatever gaps may be created. thank you. the chairman talk about the possible interaction and interference of monetary policy in macro prudential management. i'm hoping you can discuss using waste in which the most recent innovation helps or hinders financial institutions. mr. kashkari: i will refer back to chair yellen's testimony. i think it is something the board of governors and fed loan says they have the authority to use if necessary, but the current outlook is for moderate largely growth, and increasing interest rates with inflation going back up over the medium turn to our target -- term to our target. i would leave it at that. >> i don't think it is necessarily the ability to regulate. interestingly, the federal reserve board is stressing the banks against negative treasury bill rates, anyhow. in the most recent stress test, the one they will be doing this year, they are asking the banks to tell them how their capital would be affected if interest rates went into negative territory. >> part of the selloff we have -- [inaudible] i'm not just asking the economic question, but clearly in imposing negative interest rates to whatever degree on banks, affects the ability to operate. i'm curious whether, from a regulatory perspective, that helps or hinders or has no impact. mr. kashkari: i would say, i think these are things that are looked at very carefully. those are factors that would be considered as the committee moves forward. you used the term transformational change because of the risk -- >> used the term transformational change because of the risk. and then you go on to list others as potential transformational change. as soon as you -- my thought is, as soon as you mentioned breaking up the big banks, nobody hears anything else, and writes off the whole idea. therefore, some of the other ideas that you mentioned, and that have been mentioned by your co-panelists, -- like corporate governance change, and regulatory consolidation, these are transformational in their own ways, and they do not conjure up the ghost of trust busting. mr. kashkari: i appreciate your comment. there is a lot of wisdom in what you said. that is why i want to emphasize that we are not announcing a solution. we are announcing a process to bring together experts. there are a lot of bold transformational ideas already out there from experts across the country. in my view, that we have not given them consideration they deserve.i'm trying to bring them together to give those options series consideration, and then figure out what the best combination may be. mr. wessel: man in the orange shirt. >> i wonder if the panel agrees capitalism is dependent on economic growth, for suitability as the basis for the economic system. if we are in for a prolonged period of economic stagnation or even negative territory, my capitalism be replaced by a system that isn't dependent on you three -- usory? >> most of the models used by central banks in decisions assume little things. is time varying and [indiscernible] that --ssumption [indiscernible] does monetary policy have a role? mr. wessel: what risk are you talking about? >> the risk assumed to be endogenous. >>'s agility figure monetary policy you think of them being and dutch in this -- endogenous? >> both come i think the risk premium depends on the risk appetite. that might be affected by things outside of monetary policy like global and political risk. at the same time, i think the monetary authorities recognize that what they do and how they ,re perceived to be operating and what the future brings, and whether they can convince people it is a good teacher does have an effect.

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