Transcripts For CSPAN2 Federal Reserve Chair Janet Yellen Testifies On Oversight Operations 20160929

Accountable. This hearing is about three hours. [ room noise ]. The committee will come to order. Without objection, the chair is authorized to declare a recess in the committee at any time. This hearing is entitled semiannual testimony on the Federal Reserve supervision and regulation of Financial System. I now recognize myself for three minutes to give an opening statement. As we all know the dodd frank act vastly increased the powers of the fed way beyond has traditional Monetary Policy responsibilities. The act has made the fed omnipotent but cannot make it omniscient. No act can. Through the exercise of socalled heightened prudential standards the fed can control the largest Financial Institutions in our economy. Former fed governor kevin warsh recently wrote Central Bank Power is permissible in a democracy only when its scope limited, its track record strong and accountable assured. None of that do we observe today. Where his feds omnipotents has taken us . The big banks are bigger, Economic Growth lags and theres scant evidence our economy is more stable. Two new fed expanded authorities granted under dodd frank are controversial and problematic. Secrecy surrounding the stress test make it almost impossible to measure the fed Regulatory Oversight or integrity of the test findings. As a columbia professor says, its hard to believe the current structure are stress test could occur in a country like the United States which prizes the rule of law, protection of Property Rights and adherence to due process. Dodd franks living wills grant the fdic and fed unbridled and on reviewable discretion under a standardless process that relies entirely upon the personal discretion of washington regulators. The fed stands at the center of dodd franks codification of too big to fail. It occupies the board rooms of the largest Financial Institutions in our nation and decides how they can deploy their capital sending a clear signal that washington will bail them out if they get in trouble. Despite claims by the fed is tailors regulations to fit the size of Financial Institutions, we know small banks are suffering disproportionately under washingtons thumb. As we lose on average one Community Financial institution per day, consumers lose options to help them achieve financial independence, Small Businesses news opportunities to grow jobs, and the big banks just keep getting bigger. There is a better way. Former fed chair Alan Greenspan said lawmakers and regulators give an elevated Capital Buffers need to be far less concerned about the quality of the banks loans and portfolios since any losses would be absorbed by shareholders not taxpayers. This would enage the dodd frank act to be shelved, ending its potential to distort the market. A current fdic vice chair has said u. S. Banks engaged in core banking activities and operating with reasonable levels of capital should not incur the same Regulatory Burden as those that do not. Former fdic share sheila bair has also expressed support for higher capital levels in place of Regulatory Risk weighting. Feed the doesnt know whats risky. The fdic doesnt know whats risky. Didnt we learn anything from the crisicrisis, unquote. Its. Endorsed by renowned exists nati nationwide including three nobel prize winners. Financial choice act fosters Economic Growth for all, Bank Bailouts for none and ensures the fed is accountable and remained focused on good mlt Monetary Policy. The chair now recognizes the Ranking Member for five minutes. Thank you for holding this hearing and thank you chair yellen for making yourself available to testify today. Just a few weeks ago we passed the ninth anniversary of the Lehman Brothers failure leading up to 2008. Much of the risk in our Banking System went entirely unchecked by regulators. Failure to quickly address fraud and mismanagement resulted in the loss of more than 8 million jobs as unemployment topped 10 . 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 overhaul of our Financial 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 safeguarding the Financial System but also set minimum standards to ensure that regulators didnt lose sight of emerging risk again. The dodd frank act has required regulators to increase capital and liquidity standards, reduce interconnection in the Financial Markets and more closely scrutinize large Financial Firms Risk Management. However, theres much work left to be done. As we have seen from the enormous failure of a Risk Management at wells fargo, its important to remind the committee and the public why these reforms were necessary in the first place. Fraudulent Retail Banking practices may not in and of themselves pose Systemic Risk but they surely indicate mismanagement that could be catastrophic and riskier and more complex divisions of a Bank Holding Company. Supervisors and Law Enforcement must continue to hold both institutions and individuals accountable. Chair yellen, i know you will 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. Chair yellen, i am eager to hear about the feds progress in implementing wall street reform and how the boards supervision practices have evolved over the last several years, specifically, i am interested in hear more about how the fed is using the flexibility embedded in dodd frank to tailor regulations appropriate to the sizes and risk of different types of banks. Todd frank also provided the fed in consultation with the Financial Stability Oversight Council with new responsibility to regulate the activities of systemically risky nonbanks, entities such as the Insurance Company aig whose near failure imposed dire systemic consequences on our economy just eight years ago. Since the passage of dodd frank, congress has given the Federal Reserve Additional Authority in setting capital standards for Insurance Firms subject to enhance supervision. Look forward to hearing about the boards progress on regulating insurers. Yet just a few weeks ago, in this committee, the republicans pushed a bill that would severely undermine efforts by the fed to regulate the Financial System. The chairmans misguided legislation would repeal the Financial Stability Oversight Councils ability to designate nonbanks for enhanced supervision by the fed creating a huge swath of unmonitored risk in our Financial System. The legislation would also replace carefully considered limits on banking activities with nothing but an insufficient 10 equity cushion encouraging the reckless and risky behavior that nearly destroyed our economy in 2008. Moreover, as we in congress consider another funding resolution, we must be mindful of continued attempts to defund regulators work implementing dodd frank. For the first time, Economic Data indicates that the middle class is benefiting from the recovery. Failure to heed the lessons of the past will put that progress in jeopardy. Thank you, mr. Chairman, and i yield back the balance of my time. Chair now recognizes the gentleman from texas, the chairman of our Financial Institutions subcommittee, for two minutes. Thank you, mr. Chairman. Todays hearing is fundamental to understanding developments in the prudential supervision and regulation of our Financial Institutions. The role of vice chair of supervisions serves as the stas torly designated official to oversee supervision. In 2010, paul volcker, champion of the volcker rheum noted the reaction of this might turn out to be one of the most important things in here, meaning the dodd frank. It focuses the responsibility on one person. Yet president obama has failed to nominate anyone to fill this important position. A position that sets prudential regulatory responsibility and sets the United States in International Banking forums like the Financial Stability board. I remain concerned that governor dan tirillo continues to exercise these authorities outside the construct and mandated oversight of congress. I hope to understand the regulatory actions taken by the Federal Reserve. For example, how does the posture on reducing Bank Leverage interact with its recent recommendations to repeal the Merchant Banking authority. What type of risk is the fed trying to mitigate in capital proposal for commodities activity . Similarly, what wourld the impact be in a physical commodity activity decreases or stops. And finally, does the Federal Reserve recognize the exposure reducing characteristics of segregated margin and does it plan to reevaluate its position in the leverage ratio rule given recent Basil Committee discussions. Its incumbent upon her to do so in the president ial inaction. With that, mr. Chairman, this is my last time to be in this committee with chair yellen. Ill thank the chair for making herself available to us. And thanks again for her service in her capacity. With that, i yield back. Gentleman yields back. Today we welcome the testimony of the honorable janet yellen. Chair yellen has previously testified before our committee on a number of occasions. I believe she needs no further introduction. Without objection, chair yellen, your written statement will be made part of the record. You are recognized for five minutes to give an oral presentation of your testimony. Thank you. Thank you. Chairman hensarling, Ranking Member waters and other members of the committee, i appreciate the opportunity to testify this morning on the Federal Reserves regulation and supervision of responsible institutions. One of the Federal Reserves fundamental goals is to make sure that our regulatory and Supervisory Program is tailored to the risk the different Financial Institutions pose to the system as a whole. As we saw in 2007 and 2008, the failure of systemically important Financial Institutions can destabilize the Financial System and undermine the real economy. The largest, most complicated firms must, therefore, be subject to prudential standards that are more stringent than the standards that apply to other firms. Small and mediumsized banking organizations whose failure would generally pose much less risk to the system should be subject to standards that are materially less stringent. The Federal Reserve has made substantial progress in building a regulatory and Supervisory Program that is consistent with these principles. We have implemented key standards designed to limit the Financial Stability risks posed by the largest, most complex banking firms. We continue to work on some remaining standards and to assess the adequacy of this package of measures. With respect to small and medium sized banks, we must build on the steps we have already taken to ensure that they do not face undue Regulatory Burdens. Looking forward, we must continue to monitor for the emergence of new risks, since the lesson from the crisis is that Financial Stability threats change over time. The Federal Reserves postcrisis efforts to strengthen its regulation and supervision of large banks focused on promoting the safety and soundness of these firms. And on limiting the adverse effects that their distress or failure could have on the Financial System in the broader economy. Weve aimed to increase the resiliency of the largest banking organizations by establishing a broad set of enhanced prudential standards, including capital liquidity requirements for large domestic and foreign banking organizations. And weve aimed to make large Financial Institutions more resolvable through, for example, the living wills process and our proposed longterm debt requirements. The introduction of capital stress testing for large banking organizations has been one of our signature regulatory and supervisory innovations since the financial crisis. As events during the financial crisis demonstrated, Capital Buffers that seem adequate in a benign environment may turn out to be far less than adequate during periods of stress. For this reason, the Federal Reserve conducts supervisory stress tests each year on banking organizations with 50 billion or more in total assets to determine whether they have sufficient capital to continue operations through periods of economic stress and market turbulence. And whether the Capital Planning frameworks are adequate to their risk profiles. The expectation embodied in our stress Testing Program that large banking organizations should maintain sufficient Capital Buffers to withstand a period of significant stress promotes the resilience of those firms and of the Financial System more generally. While our stress Testing Program has been successful since it was first introduced in 2009, the crisis reinforced the need for regulators and supervisors to continually revisit the effectiveness of their tools and adjust as needed over time. As my written testimony indicates in more detail and as my colleague discussed in his speech earlier this week, we are now considering making several changes to our stress testing methodology and process. A leading idea thats emerged from a substantive review of our comprehensive capital Analysis Review or ccar program is to integrate ccar with our regulatory capital framework, thus effectively included surcharges in the stress test. We are also considering making certain changes to the stress test assumptions used in ccar. In addition, were considering exempting from the qualitative portions of ccar any Bank Holding Company that has less than 250 billion in total assets and that does not have Significant International or nonbank activity. As well as reducing the amount of data these firms are required to submit for stress testing purposes. On this and other changes to ccar that were considering, we will, of course, Seek Public Input before moving to adopt them. I know that Community Banks play a vital role in many ever your districts. Among the lessons of my years of experience at the Federal Reserve, have reinforced that when it comes to Bank Regulation and supervision, one size does not fit all. To effectively promote safety and soundness and to ensure that institutions comply with applicable Consumer Protection laws, without creating undue Regulatory Burden, rules and supervisory approaches should be tailored to different types of institutions such as Community Banks. The Federal Reserve has already done a considerable amount to reduce Regulatory Burden on Community Banking organizations. But were looking for additional opportunities, including potential simplifications of the regulatory capital framework for Community Banks. In conclusion, our postcrisis approach to regulation and supervision is both forward looking and tailored to the level of risk that firms pose to Financial Stability in the broader economy. Standards for the largest most complex banking organizations are now significantly more stringent than the standards for small and medium sized banks, which is appropriate given the impact that the failure or distress of those firms could have on the economy. As ive discussed, we anticipate taking additional actions in the near term to further tailor our regulatory and supervisory framework. Yet even as we finalize the major elements of postcrisis reform, our work is not complete. We must carefully monitor the impact of the regulatory changes we have made and remain vigilant regarding the potential emergence of new risks to Financial Stability. We must stand ready to adjust our regulatory approach where changes are warranted. The work we do to ensure the Financial System remains strong and stable is designed to protect and support the real economy that sustains the businesses and jobs on which american households rely. Thank you, chair. The chair now recognizes himself for five minutes for questions. First, chair yellen, please know that i was encouraged by many aspects of your testimony. I believe there is hopeful growing bipartisan consensus that we need more tailoring of regulations. And particularly on page 13 of our testimony, your recommendation that congress consider carving out Community Banks from the volcker rule and instead of composition limits in section 956. I was also encouraged by your announcement today, what we heard from governor turullo concerning ccars qualitative review exemption. I think that is wise and a very small step in the right direction. Chair yellen, before we get to the application of heightened prodential standards, i want to take a step back to how we do the Selection Process in the first place. As a member of fsoc, as you probably know, dodd frank demands there are 11 different factors to be considered in the sifi Selection Process. Lever amg off Balance Sheet exposures. The cifi designation, do you weigh each of these 11 factors equally . Ure you talking about the nonfshl Financial Firms . Yes. The fsoc has designated . Yes. In the case of those firms as required, the fsoc prepares an analysis i know, but my question is of the 11 statutory factors you must consider, do you consider each one equally or, for example, is leverage more important to Systemic Risk than factor for important, source of credit and liquidity . When it comes down to looking at an actual firm, the question that fsoc has to consider taking those factors into account is special to that firm. So its individual to the firm . Its individual. The question is that i guess where im going with this what would be the systemic impact on 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 11 criteria can be combined. The statute says you shall consider these but can i safely assume that you and other members cannot process 2,048 different combinations of these 11 different criteria . What the analysis presented to fsoc does is look at the specifics of the Balance Sheet and exposures of an individual firm under consideration and analyzes how those factors would come into play and impact Financial Stability. I guess my point, chair yellen, its hard not to conclude that ultimately this becomes a very discretionary process among members of fsoc. Lets now move to the living wills and ccar process. So 11 banking organizations submitted rather voluminous living wills in 2014 and the gao found that the fed and the fdic had not reviewed those submissions. I understand many of these submissions are thousands of pages long, with respect to living wills. Ive had at least one testimony that the ccar reports are tens of thousands of pages long. Ive 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 you dont . You can safely assume that many people at the fed read these reports, and does somebody really read a 42,000page report cover to cover . And know what to do with it . Our staff and the fdic staff do. And i think its fair to say that all of the governors reviewed i find that very difficult to believe. But the gao has said thatneys li these living wills can cost up to 105 million. The average Small Business is capitalized with 30,000. So de facto, youre take away the opportunity to capitalize 3,500 Small Businesses with a living will that may or may not be read that may or may not be useful. Do you consider the cost of this process as you 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 bear the burden of a failure of a large firm. And i would tell you that the full board of governors met on the order of 12 times. We had around 12 board meetings to consider in great detail all the key aspects of the living wills of each of these firms. My time is expired. The chair recognizes the Ranking Member for five minutes. Thank you very much, mr. Chairman. As you know, the reforms 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 provide the Federal Reserve with broad discretion to adjust the rules based on your evaluations of bank risk. I cannot count the number of republican deregulatory bills that are passed the house floor which were not serious enough to even be considered in the republicancontrolled senate. However, i know that i, as well as other democrats on this committee, have worked very constructively with you to identify areas of improvement and use your discretion to tailor regulations when necessary. Governor turullos announcement regarding reforms to the stress Testing Process are a recent example of that cooperation. And i think you just said in your testimony that you were taking 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 for the institutions over 50 billion. One is a quantitative stress test to see what the impact in the severely adverse scenario would be on the firms capital position. And we expect to continue subjecting all of the firms over 50 billion to that quantitative part of the stress test. But there is also a qualitative part relating to a firms Capital Planning process. And that is something that currently all of the firms above 50 billion are subjected, to and we are proposing eliminating that and reducing some of the reporting requirements associated 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 think that our normal supervisory process where we look at the kapts planning processes of these is adequate and that many of these firms are meeting our expectations. And this issa i significant burden we think we can relieve these firms of. Idd like to thank you for paying attention to the concerns addressed by members of this committee. And id like to thank you for recognizing that not only do we have concerns but these concerns that can be addressed if wed work with you rather than coming up with all of this legislation that really interferes with your ability to exercise the authority that you have. Im very appreciative of that. Let me go on to the next question. Chair yellen, ive been closely following the progress of the living wills at the largest banks over the last five years, and i must say that ive not been encouraged by that progress. In april of this year, you and the fdic finally took the important step of officially declaring five living wills as noncredible. Jpmorgan chase, bank of america, bank of new york melon, state bank and wells fargo. These banks are required to submit their wills to you in the next week. These banks have had five years to identify and address problems within their organizations. If any of their living wills is still insufficient in october, will you use your Additional Authority under the dodd frank act to quickly and severely reduce the risk these banks present to our economy . We certainly do stand ready to use the authority that we have to impose higher capital and other standards on these firms if they have not corrected the deficiencies that weve identified. Weve been very specific with the five firms in indicating what the deficiencies are. We have released to the public the letters that detail those deficiencies. We will carefully and quickly review the submissions that are due by october 1st to see if those deficiencies have been remedied. But i would say more broadly for all of the firms, the fdic and the board identified a range of shortcomings, things that we did not think rose to the level of deficiencies but nevertheless are things that we want to see corrected. And we will be reviewing the next round of submissions due in 2017 to see if theyve been corrected or not. And its conceivable that if theres been no progress, those things could later rise to the devil of deficiencies. Thank you very much. I yield back. The chair now recognizes the gentleman from texas, the chairman of the Financial Institutions subcommittee. Thank you, mr. Chairman. Chair yellen, this month, the fed and fcc put out its required report on Bank Investment activities required under section 620 of the dodd rank. It raises several concerns with physical commodity. Last week the fed issued a notice of proposed rule making where it would impose significant Capital Requirements on covered fiscal commodity activities that would prohibit many of these activities in the documents, that federalized on the term environmental catastrophic risk or catastrophic risk. How does the fed define that risk, and how does the fed measure it . Well, the fed has been motivated in this rule making by looking at the enormous environmental consequences of things like oil spills, the bp disaster and the kinds of consequence consequences those can cause financially for firms and also reputationally. And we concerned and have done a rule making on fiscal commodity activities as you indicated that attempt to address the risks that we think exist in that area and have recommended to Congress Repeal of the Merchant Banking authority for essentially the same set of reasons. When youre analyzing risk and you look at past activities to determine, do i hedge my risk against that, the question is, what past environmental catastrophes have posed a problem for Financial Holding companies. Can you point to something that, gosh if that happens again, theres a problem. I cant think of an event that happened that impacted those Financial Holding companies. Well, under the Merchant Banking authority but this is a different there are two different authorities. The Merchant Banking and them being able to hold the commodities. I want to specifically talk about the commodities. We look at whats permissible and see that there could be environmental risks associated with it. Its not a question of just going back through history to see what has happened in the past. Its forward looking concern that the permissible activities could pose risks. Im a little afraid that were just trying to think of things that could happen and then trying to make all of these Financial Institutions somehow pay a punitive penalty in either capital regulation for events that may not have happened and may never happen again. I want to then turn to the surcharge and stress. As a tax on Capital Market activities. Can you kind of name the components thats make up the surcharge and what activities tend to increase the score . There are a set of factors that are considered in determining the gsub surcharge, including things like interconnectedness and reliance on shortterm wholesale funding. Factors that would increase the likely systemic repercussions of the failure of the firm. And as you said, the gcib surcharges can be thought of as taxes imposed on these firms that serve two purposes. First, they by insisting that firms hold more capital to address the risks that their failure could impose on society, on the broader economy, they ought to be less liable to fail in holding more capital accomplishes that. And it may create an incentive for these firms to center their activities in so when you look at that, for example, complexity is one of those. And that, i think, talks about the size of the banks assets involved in Market Making and interconnectiveness components, dealer to dealer trading hoe ii hear hedging ae i for hedgin making. And trading similar to the intercorrectedness. When you look at all of those things youre penalizing those entities for, its making markets in the Capital Markets. The message to the banks right now is just get out of the capp little markets because the regulators are making it veryrea punitive to be in those. The chair now recognizes the gentle lady from new york. I believe that the performance so far has been non patterson and has proven that she is more than capable those difficult waters and guiding it back to robust Economic Growth. Im disturbed by anyone in a recent debate or anywhere that they are acting politically. Nothing could be further from the truth. I like to think you to thehe service for our country. Ary you said last week at the meeting that one of the reasons they did raise rates that come back into the labor force is suggested to you that the economy and i quote have a little bit more room to run roo but you also said that if things stay on the current course you expect one increasese in Interest Rate before the end of the year. Of sore loses us. Do you think they expected to start falling again soon. Do you think that the economy has a little bit more more room to run but not much room to run. Exactly what did you mean. For this entire year job creation has been running at a pace of about 180,000 jobs per month. Er its a little bit less then we saw in 2015 but nevertheless well above the pace of job creation. Giving trends in the labor force. I had been pleasantly survive surprised to see that the Unemployment Rate hasnt hasnt over that time. Because people have been drawn back into the labor force and with inflation running below 2 were not really seen meaningful upward pressure and we havent seen the Unemployment Rate fall. But mullen Monetary Policy is accommodative continued job creation at that pace. It would keep cause of the economy to overheat and would push the Unemployment Rate down to lower levels but now low so is accommodative. We want to make sure that the expansion is one in the good performance of the job market is sustainable over the medium term if we allow the economy to overheat we could be faced with having to raise Interest Rates more rapidly than we would want which could jeopardize that good state of affairs that we have come close to achieving so we expect to see the Unemployment Rate fall further we expect to see solid job growthrther. Continue. But we do need if things continue on their current course to gradually remove the accommodations that are there. Grad its probably not that much our estimate of how much i accommodation there is has come down over time as economists have reconsidered what is a neutral stance policy but there isid accommodation and while there is no fixed timetable for removing it many of my colleagues indicated in the recent project projections that they would see it is appropriate to make a move to take a step in that direction. If things continue on the current path and no significant new risks arise. I would like to ask you r about the stress test also. That the fed the fed should t put the scenarios out for formal notice and comment and interested parties who factor they can tweak the scenarios every year to account for new market developments is one of the main reasons while i buy a would might would say they were useful. Just very briefly we wantou to make sure that the scenarios are based on timely information and address the most significant risks we see we had put out for comment both the principles and information about how we construct the scenarios so they have quite a good idea of what they can expect in terms of a scenario that they willll face up but all of the details we dont put out for comments. We now recognize the gentleman from new jersey. Week last lessig is a big meeting they decided to do what to continue the Monetary Policy. T that the position is all data driven and thats where some of the questions were before. Ad let me just give you two or three headlines. Is the fed clinically by bias. Look at the decisions as the election nears. Its been put off until after the election. The fed is not subject to p undue political pressure but perception is reality. Whethe they believe that the independence is nothing more than a myth. Both with the Obama Administration and with higher ups in the democratic party. I brought this up a year agoem and let me run through some of those things. Rai you have weekly lunches with political and partisan heads over at the department of treasury. There is in fact revolving door between the board of governors. Just weeks before the president had to go before the voters in the cadet your record in speech and inequality. But became a Major Political theme just weeks before the last election. There is little doubt about last weeks meeting that potential implications for the departments into the elections. They contributed a maximum outut to the Hillary Clinton campaign. And she did so while she was a sitting member of the fedry board. Stating that the they are angling for a top job. Some basic questions knowing thats all other on the out there on the table. Because of the appearance of conflict have they ever offered to recruit use herself from voting at the fm oc. R like all of us there subject to the restrictions. Ct has she offered to recuse herself . . Asked it does not prohibit political contribution its a basic question. Have they ever offered to cues haveelf the answer is no. Have you ever ask her to recuse herself because of our close involvement with the campaign and makingre contributions. Shes acting in a way that is permitted by the rules each subjof us has to decide that. She has never offered to recuse herself to your knowledge had they been in contact with the Clinton Administration regarding a potential drop in a future administration. That i have absolutely no awareness of that. Is a your not familiar withep those immediate reports. I see politics being brought to bear ive never seen that on the part of any of my colleagues. Hat on if you learn that you had have communications as far as trying to get a job with that change your opinion as to whether she should be asked to recuse herself . I dont think that there is a conflict of interest there. Lif can they be in direct negotiations with the Political Campaign that some of conflict as far as youre concerned . We do have if theyre having contact see that as a conflict. I like to have an answer. Is that a conflict. Will you be asking whether they are engaged in such activity. The time has expired. We now recognize the general lady from new york. Puerto rico is facing historic crisis. 46 percent of the population three times that of the u. S. Mainland. Employment stands at approximately 1 million. In the meantime the u. S. Economy has gained almost 10 million jobs in the same timeframe on top of thehe challenges they are struggling a blackout swept the island. When the mainland faced that from 20072009. Do you believe that this legislation was helpful with an economic recovery for the u. S. I do think they face very Serious Problems as you have described. You they been building for a long time and they face very significant challenges i think the framework that Congress Passed provide tools that may enable the commonwealth to revert. To restructure debt should make it possible to put into place a fiscal adjustment that will be less uncertain and hopefully with stronger spending. It will take time for the control board to do its work. Its really very difficult at this time. My question to you is how can we Spare Investment in puerto rico. How can we not wait for thew control board. The most productive workforce is leaving the island. They are facing Serious Problems with the Healthcare System is broken. Do you believe the stimulus plan would have effect on the islands economy like we did here in 2008, 2009. This is something im not an expert on. What the appropriate programs are. In Puerto Puerto rico to deal with its a longstanding i think that is squarely a matter for congress and administration to consider. Squ think you for that answer. We cannot forget that puerto rico is a part of the United States. That we have a responsibility. And moral obligation in some of the important issues that they are facing. Do they launch the research and advocacy initiative. In the implication. What are they hoping to learn from this initiative and how are they hoping his findingsth. Will further the economic inequality discussion. In i dont see it as a political plot i see it as a contribution in terms of promoting Economic Growthrms among those who have been left behind. The high level of poverty should be a concern to all americans. In this initiative is really focused on trying to understand what some of the key factors are. Into looking at practice to see based on real realworld experience they are attempting to address poverty and what works and what lessons and it can be learned that it might be of use for communities trying to deal with entrenched poverty. We recognize the gentleman from missouri. Mr. We spoke a lot about the sheer volume of rules. Its rule after rule and thats really impactingf Financial Institutions across the country. Ll now we have the Merchant Banking and commodities by the fed. T they have made statements to the effect that the benefits outweigh the potential risks. A it concerns me greatly and i intend to have a number of questions written for you to respond to with regard to that issue. I wanted to discuss some stuff e that they announced this past week. I think its important. It should be designated based on risk not just on size. That is an important thing. We need to look at other factors other than size. With regards to that. Can you tell me what costso p will be incurred to remove the requirement. Can you tell me what the cost by the fed would be. Ove we believe that they are very important way or is a cost they are going to. Or is there a cost to designate administratively remove the requirement. Nd as the cost something to remove the c car. Cc does it cost us to implement it and run at the test. Am asking you if you remove the requirement of the costas you money. It does not. It would be a cost in terms of safety and soundness. They carry out that. Its passed on to those institutions to pay for the cost of the supervision. Thirtythree u. S. A bank only companies. Based on the tenets of my bell. Given that all of this work has been done can you tell me what you think the cost would be for them to re designate a Financial Institution. To redesignate these institutions if they are no longer there. According to the bill. E t have a bill that says you have to look at these things and if the bill shows that they are not there they have to d designate them and then re designate them. Is there a cost to that. To can you give me a figure can you give me a ball park. You i cannot give you an estimate. The staff includes the Federal Reserve informed us that the redesignation there over 50 billion would have a cost of 60 million. Of i honestly dont know i have not looked at it. Ion wit i have not reviewed having to come up with that figure. Very quickly, you made the comment with regard what you have done for Community Banks. Wit can you give me several examples of what we have done. We change the Holding Company policy statement to raise it for capital regulation. We put that into effect. The chair now recognizes the gentleman from california. Pired. Good move or non move not move earlier this month now, some in politics on monday in will say that our economy is in such terrible shape that those who make economic policies are obviously incompetent then they will come back on wednesday and say its urgent that we raise Interest Rates because our economy may overheat. At only in this room can you do that. We need to allow a Small Business loans if there is a 2 that a business will go under they cant make the loan. Jamie diamond was sitting towards where we were now. So he sent has money to london where i was eaten by a whale. Te if banks were able to make prime plus three loans to businesses that have a little risk. Instead im told if you dont qualify you leave the office. I would say that the more that you designate as the hugest institution that i really risks. S. They have the authority to break up the biggest bank. They said you must of have that to the true global. They reach a certain size and then it divides. That is healthy, thats normal. The smartest minds on wall street could as well. Lets look at the elements of that. Too big to fail is too big not to bail. Thats why we bail them out in 2008. Thats why he cannot indict certain executives of institutions because if he did it would have too big of an ecfect on the economy. Its too big to compete with. They get 80 basis points off provcost of capital. Because of the expectation of those providing the capital that if they get in trouble we will bail them out. But they had identified two additional reasons to break these institutions up. They created a system with a hired Good American and turned 5300 of them into pellets. When they saw that some individuals have created phony accounts they fired a thousand of them and then didnt change the system and didnt fire the executives. Now from a democratic assize i think its too big to manage. Ive heard too big to togulate. Whether it is that regulators that cant do it my question to you is will you seriously consider using your authority as i think you are required to do what you seriously consider a taking up wells fargo. We will hold the largest organizations to high standards of Risk Management internal controls Consumer Protection we expect that. If you broke them up instead of trying to hold them up to those really high standards by saying you can hold the giant institutions up to standards something youve not been able to do your can continue to dong we believe its possible even though it is extremely challenging for organizations to comply. Break them up. The time has expired. Thank you mister chairman. Air. We need to have the vice chair of supervision to be here. It has essentially fulfilled the function as position but he is not in this position by refusing to fulfill this put position the president has deprived congress. This is a requirement. Some of my friends believe that. It can be changed or altered in any way. They refuse some of those other areas. Do you believe there should be a nomination to fill this mission. We would certainly welcome a nomination. Ve there have you brought that up with secretary lou. A youre having to be here as someone elses step. T im not going to discuss that with the secretary. Its of administrationss responsibility. And we would welcome a nomination i guess we will continue to hold you responsible do you believe that any and all rulemaking regarding regulatory or supervisory should be suspended until the vice chair is actually named. Until the board of board of governors is charged with supervision we are carrying caring that out. As youre congress has signed the board of governors that responsibility. I am share in that responsibility. I want to talk about Monetary Policy the fact is in my reform. We are trying to bring some separation to your function as Monetary Policy makers as well as your regulatory and supervisory roles. Chris dodd as well as chairman frank at the time had advanced the notion that those ought to be separate duties in that your regulatory roles ought to be put on budget. Were they wrong and that assessment . Congress decided would you had welcomed having that separation. And with review just like everybody else. Versus the separation of the Monetary Policy. They dont have their budgets mandated by congress. Es. Theyre covered by collections from the industry i would very much worry that we would lack the flexibility to ramp up our supervision at times. Supervision we have an alphabet soup of all these other regulators as well. You want to have your regulatory role where it is like that but its not willing to object yourselves to what the other regulators go through rol it just seems rarely do i say that i agree with barney frank. I believe he have this right. There is that separate role. My last issue is where quickly closing out here. Some have believed that dodd frank cannot be changed. You said on page 14 there ought to be these adjustments had you spoken to these a senators who disagree with you and say we cannot touch that. Dia we have said that those would be desirable changes. We now recognize the gentleman from new york. Let me just say on thes onset i also think you was saying with who you are and be in nonpartisan and independent despite there being some especially in the politics is trying to say your decisions are based upon a partisan way i think its good when youre criticized from both the left in the right that probably means youre doing the right job because youre not focused on either side. We enforce the banking powerssus in dodd frank because there was clearly a need to heighten our banking needs. I think thats clear from what took place back in 2008. The good news is that we are seeing banks taking bolder steps to reduce risks and to exit out of a certain risky activities. We do see some of that a happening. Exit they are bigger today than they were before the financial crisis that may be true from a simplistic perspective brings exited. They have also boosted their theiral and liquidity buffers which increases the size of their Balance Sheet but it makes them safer and soundertys institutions. I yet we still have wells fargo which causes us to have a great concerns as to what and where we need to go next. Go nextas been some progress then theres also consequences d i want to shift to that because its well documented that one of those unintended consequences of banks de risking is that they are getting out of certain communities and countries there also denying services to c millions of lower income americans not because the risk is too high but because risk because the Profit Margins are not considered high enough. They are critical to International Financial flows also. Theres including in a district like mine is that banks are closing m branches in fact economists that released a report last month entitled showing that u. S. Banks shut nearly 5,000 branches since the financial crisis as a result. Residents have become more likely to live in a banking desert. Ive called to revamp the Community Reinvestment act and cosigned by 40 of my colleagues. It is obvious that cra is not working as it was meant to work when i was past 40 years ago. Ive have this discussion with several part of the solution resides in enabling greater collaboration including minority deposit institutions so that these institutions can take over assets and branches before they close and they can preserve those relationships. We are in constant dialogue on this and i would love to get your thoughts on this matter. I am concerned about Banking Services we are working with minority depository institutions to provide support to them in enhancing the very invaluable roles that they play in ensuring that provision. Do you believe, that we should have do you believe there is ways that we can revamp cra. It was taken place today and said that these communities are not neglected and then become part of banking desert . We are having to look at and the agencies who put Additional Guidance out Additional Guidance in recent years is meant to address issues that have risen and we will continue to look at what further guidance might be appropriate. The time has expired. They recognize the gentleman from wisconsin mister duffy. Chairman of our oversight committee. Welcome. Rman of obviously looking back to 2008 the crisis have a huge impact not just on the Financial Service sector but a huge impact across our country and many of the families that we represent. I would argue that the massive bill is passed in a time of fear where people were concerned about the future of our country in and the future of their family. Our country a bill was passed before the dust had even settled and we have a full analysis on what caused the crisis. We were told by her friends who opened up their cabinetsause and dumped in every wish bag issue that they have for probably a decade. But they made a promise to the American People that when they passed that bill they would be the factoo big to fail. 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 had ended too big to fail. I think weve taken very significant steps we werey promised that we would end too big to fail that they would end it. Big i think the American People have a right to know what you think heavily and that, too big to fail . No as i said it is a less significant problem now that it was before. We havent eradicated the threat had we i think weve made important and meaningful strides these are simple questions. Ngful i dont think its a black or white thing. Nk its weve ended it. And the fact that im the chair of the fed or frankly know we havent we have done a great deal to make it possible e for his systemic institutions to be resolved successfully. If im going to clear the smoke youre saying we made progress but we had ended too big to fail and i think youre in a safe some because Elizabeth Warren even admits we had ended too big to fail. To they will admit clearly that we had ended it. My question for you as a 200300 page bill giving you and other regulators significant authority that have a huge impact on the Financial Sector on our economy if we had ended it is it a failure of Dodd Frank Orr is it a failure of the fed. Im not willing we have n made great progress in trying to achieve that and its not a black or white issue. H when i go home and say this was a devastating crisis and a huge impact on your family we have a huge bill and we cant get a loan or from your Community Bank and she said weve made progress we have system that is much safer and sounder. It has much more capital and much more liquidity although certainly not perfect. At least she is truthful on that one. Larry summers im sure you read his peace said to her surprise capital information is 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 i disagree significantly with that conclusion. It is based on the notion that l they properly evaluated the risks ill give you one quote. James madison that laws could not be read. Or so incoherent that they cannot be understood. 33,000 new regulatory restrictions. And you cant tell me with all of that rule and regulation that you havent eradicated the threat of too big to fail. The chair now recognizes the chair for massachusetts. I just want to clarify atacht few things. Im not aware of anyone whoor doesnt want to amend dodd frank. I just dont want to got it. Good amendments totally against getting it. Thats pretty much the only bills. Gentleman y too big to fail. I agree we should do more on it. Thats why i offered the bill to bring back that. Thats why i offered hr 888 that the Community Bank supports. All my colleagues are welcome to join in that bill. And thats why i joined my colleague on the other side Mister Garrett if youre not paying attention when gear and i can agree on hr 2625 it ton let directly relates to the ability to bail out banks. All of my colleagues are welcome to join that bill as well. It doesnt kill you it just squeezes a little harder. M there are bills that are out there to do more. I have to do is read them andha join us. If gear and i can do it you can find a way to do it. Dont get you set used to mean garrett working together but thats a different issue. Don lets assume for the sake of discussion that we have a large bank one youre keeping a very close eye on an over the last five years has had 16 Enforcement Actions against them including one from the fed. Lets assume the bank have a fine of 85 million and in the agreement they said internal controls are not adequate to detect instances when certain of the failed personnel. Income documents. Comp to qualify those borrowers they would not had been qualified to receive. Hypothetically of course. And since that time weve had 15 other violations across the board with pretty much every Alphabet Agency you can find. And pretty much every state in the nation. Totaling ten almost 11 billion dollars in fines. Those actions included defrauded student loans. Mortgage holders. Health issues discriminated that. An and then just this year earlier when we rejected the livingwell your letter cited concerns about Quality Control seen the management oversight. Even though it head in part to the plan. Committee and now have the same bank. To have million of its own customers with its own customers. Omers. That you they think its time the fed does something how long does a stuff go on before you get outraged and take action. As you pointed out we have done is something the action that you described in 2011 and 85 milliondollar fine is laughable. Its a lot of money to me and everybody i know but to this bank they made 23 billion last year. And 85 milliondollar bank is barely a foot note. As you pointed out many regulators have been involved in this. Were in the case of this institution we are the supervisor of the Holding Company we have already instituted a review of all oflr the largest banking organizations because we are very concerned. Of time has expired. Gentleman the chair now recognizes the gentleman from new hampshire. Ir thank you for being here today you and i know the importance in the role that they play in our echo system. Role 1. 3million people and we have se very Close Relationships with our Community Banks. Weve ten and state charter breaks. It is very important and critical to consumers. But due to the severe regulations their limited products of loans and services to their customers and my limitituents. When they should be focused on providing access through focus s the burden it seems to take the priority of their time. And get reports for 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 of the regulatory requirements that continue to be placed on them. My first question would be do you believe that there is a disk proportion impact of Regulatory Compliance on community Financial Institutions. Cus we want to do everything that we cant. L we are going through the process and looking at a number of concrete ways in which we can reduce that w burden weve taken a number of steps to make it risk forecasts and the premise of the bank to try to reduce the burden , you ask if the burden had fallen. They can be significant. The most restrictive requirements had been focused on the larger institutions particularly those that are subject to much more stringent. There is quite a bit of research thats taking place. We have a conference thats taking place at the moment its looking at those burdens except they are significant burdens. Weve had two mergers in the last six months in the state of new hampshire. In my fear is that skinny continue. I hope you could identify. Specifically before the end of the year areas where we can reduce that Regulatory Burden. Ory they are very interested in it. Our economy requires and relies on them. A different point i want to bring up. He recommends that they can do that. And the incentive based conversation roles. Would you agree in concept that an approach would be to exempt that. In a material way we fought smaller institutions. T and the exact definition i would have to look at. Bout what percentage of the rate is right now. Lets have a look. I dont think that has changed. The chair now recognizes it. For convening this. Welcome. Please accept my sincere gratitude. Mmend you f for the bank Holding Companies. Even in the face of Global Markets unpredictability and other emerging threats we can attribute contributor growth and stronger and more resilient economy to your leadership in the production protection afforded. My first question in your opinion to our financial regulators currently had the destruction they need to tailor regulatory and supervisory standards or should we in Congress Take action . Should i think by and large we do have the scope we need to tailor these regulations we had pointed out a few areas we have limitations. The rules of the other. We can do some tailing ul tailoring but not as much. Like. With the restrictions were face. Designing an appropriate set of capital standards for insurance centered savings and loan Holding Companies. And we appreciate that and used it to impose a set of standards for those companies that we think are appropriate and theres some areas where we needed congresss help but by and large we have a good deal of scope as we see appropriate. You need to know that i continue to hear from banks of all sizes in my Congressional District that theyre burdened by regulations and costly stress tests. Several hangs to the year hi stress test known as the comprehensive capital analysis and review were announced on monday. Can you tell us what changes were plead guilty 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 it was in the wall street journal an article that talks about trying to have some Regional Bank systems given some relief. Yes. Thank you about that for me. Over 50 billion have been part of our socalled comprehensive capital and stress testing regimes and the consist parts of that process. Bank Holding Companies under 250 billion. That do not have significant foreign activities or significant nonbanking activities, so the list con flicks of those banking organizations. They would need to conduct quantitative stress tests. And we workability that. But remainedder of capital valuation, the qualitative part they would no longer be subject to. I want to address thepa problems with wall street and some of the investors, especially working families an investing in their 401 k s. How are chinas economic troubles affecting the United States economy. As largest foreign holder of u. S. Treasurys with one trillion in reserves is the Federal Reserve concerned that recent selling of large quantities of treasurys by china could negatively affect the u. S. Dollar . Y chinas economy has beenn slowing from decades of very rapid growth. Thats something to be expected given all of the progress they have made and desirability of transforming their economy to a more consumerbased economy. By and large that process is proceeding and it is a good one from the standpoint of the United States but it is very challenging. As and earlier in the year, last year, there were disruptions in markets related to their currency. Their approach to managing their exchange rate. They sold treasurys mainly tond support their currency which was under downward pressure. And i in recent months the markets have been much calmer. The time from the gentleman, the time from the gentleman from texas has expired. The chair recognizing the gentleman from oklahoma, mr. Lucas. Thank you, mr. Chairman. Thank you, chair yellen for being here. I share along with my colleagues, mr. Gnawing bauer and mr. Leutkemeyer share concern about the proposed rule the fed released on friday costs of clients to participate in physical Commodity Markets. Member of this committee, former chair of the house agriculture committee, i worked with number of endusers and reform with regulation of derivatives markets. You and i discussed nature of my district, the district ofke oklahoma and the importance of stable Commodity Markets to my district. Over the past few years, i have heard from a number of commodity endusers about their concerns on this issue. Im too concerned about impact on businesses and municipalities and ability to participate in Commodity Markets. Risk it appears this rule seeks to discourage a companys participation that these activities through Capital Requirements rather than through an actual effort to target and e mitigate risk within the system. In crafting this proposal ian guess my best would be the following. G. In crafting this proposal, did the fed examine historic loss data for banks engaged in physical commodities activities as well as how how losses in this businessrelated 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 Still under these proposals be permitted to engage in physical commodities trading with endusers. That is not something that would change what this proposal does. It puts in place additional riskbased Capital Requirements for activities that involvel 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 us with the information how you made those determinations, what the historic perspective was, how it actually affected businesses i think i and rest of the committee would appreciate whatt the Historic Foundation was. It also appears youre raising risk weighing to 300 for companies that engage in this business which will of course maybe it much more expensive for all of these companies. Could you also provide theng committee with the analysis that was used to arrive at this 300 as an appropriate amount . How did you get there . We will get back to you on some details. And i would simply note, chair, again i commented earlier, you and i discussed this on many occasions, my district is agriculture and energy. Were wheat and cattle. Were pork. Were cotton. Were oil and gas. Were 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. G if we restrict tools to protect ourselves, if we restrict access to markets by others there is a great concern we will suffer and ultimately the consumer that will benefit from the supply will suffer too. One last thought or maybe a comment, and id like to reinforce one more time with you, chair, of my interest and concerns regarding how basal iii treats derivative customers andy i understand the negotiations continue but recent reports are no encouraging for endusers in my district and clearing infrastructure long supported their hedging needs. In this complicated world we live in, i guess what im sayind we need more tools, not fewer. We need nor Cost Effective tools, not more expensive toolso in the case of basal iii help protect us from those kind of consequences if it gets out of hand. With that, mr. Chairman, i guess i yield back. Gentleman yields backs. The chair recognizes the gentleman from massachusetts, mr. Lynch. Thank you, mr. Chairman, madam chairman. Stuart thank you for being here, i appreciate it. I want to go back to mr. Capuanos questions around the wells fargo scandal. I understand there is a small fine paid by wells fargo but in light of what they did here, two million fraudulent accounts, and only fired five you thousand lower level employees, there has been a little bit of clawback by the bank itself, in terms of the role youre primary regulator for wells fargo Holding Company, right . Were primary regulator for the Holding Company but these i abuses occurred in the bank. I understand. The comptroller of the currency and cfpb have authority. They are the ones who brought these actions. We werent involved. I give great credit for that as well as l. A. , los angeles authority was involved as well. I is there anything that you can do, looking what happened here, this is widespread. S this is a disgrace really, what happened. . Two 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. Any ideas from your standpoint as what might be done as a regulation or as legislation to prevent this from from happening again . Comptroller of the currency and the cfpb have demanded in their actions that remedies be put in place. We now have initiated a broad based review for all the largest banging organizations of their compliance regimes. Let me ask you. This is huge, huge thing. Two 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, continually letting banks off the hook, nobody has to admit i t guilt, you actually built a perverse incentive for this stuff to happen. I just, it blows my mind that theyre getting away with this and paying a little slap on the wrist fine, not bothersome. And ceo the other day said, welm it was only 5000 employees. We have 100,000 employees and 5000 did this. Just blowing it off. I think it is very important that Senior Management be heldo accountable and when there are individuals identifiable individuals who have been involved in wrongdoing i know theyre all lawyered up. Ti i think there is value getting after them. Just getting after them. I dont care if you get a conviction or not, just get after them. T make their life hell. That is, we got to createe disincentive in this system at some point for the ceos to do the wrong thing. They completely, you know, they completely ignored any of the safety and soundness and just basic responsibilities here. I would like to see somebody held accountable for that at some point. Let me ask you, it is a very acc clubby environment, the banks. I would be amazed if this practice were just limited to wells fargo. I think it is probably the practice at a lot of banks. There is a lot of crosspollinization going on. People work for one bank. Go to work for another bank. Are we looking at any other big banks doing this type of thing . Yes, we are. The cfpb is over the largest banks. We have undertaken, we are undertaking a look, comprehensively, not only in the consumer area but compliance generally because there have been very disturbing pattern of violations. They occurred in the mortgage area, in Foreign Exchange trading. Many different areas. Sanctions violations, libor and were taking a comprehensive look at the biggest banks. All right. As thank you. 15 seconds. I want to say in closing what a wonderful job the occ and especially cfpb did on this. This is why they are there. I very seldom hear great things about the cfpb. They did an amazing job here. This is huge, huge win for the cfpb, redoubles my faith in that agency. Thank you. I yield back. Time of the gentleman has expired. The chair recognizes they 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 to follow up on mr. Guintas point about the unprecedented consolidation that weve seen in community Financial Institutions wherere there are fewer and fewer of them and these smaller, these smaller institutions have fewerf 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 situation where weve got fewer banks today than we did during the great depression. And are you worried about the consequences of consolidation for communities and for our economies and eventually for overleverage as you end up withc a now big institutions have so much ll i think it is essential we a have 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, it is important, it is something it that we will seek to foster using every available tool that we have. Community banks face an 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 we will certainly do everything that we can relief burdens on them. Yes. Some of that is driven by Monetary Policy some of that is driven by fiscal policy. So that is another way theyre adversely impacted by decisions made in washington. So, seems to me it is at the heart of the consolidation as you say are these, really an avalanche of rules that have forced small institutions to hire extra staff. That is the situation, the economies of scale for them. With that in mind, you said earlier that youre looking for concrete ways to reduce Regulatory Burden on Community Banks. Youre looking at Community Banking and commoditieseg activities in the section 6209 report that you released. Can you promise to send up specific legislative ideas as it relates to regulatory relief for Community Banks . If we could ask that of you. For now, ive got some questions on the report we received because as part of the section 620 report, did you study the effect that a repeal of Merchant Banking authorities and loss of 2billion in capital would have on small and Midcap Companies . And are you confident that if we act on those recommendations in that report there will be alternative sources of capital o for Portfolio Companies . That is 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 the projection of possibility of potential future risks . And the reason i ask those questions because as we look back at the finance aol crisis, there is 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 as you limit activities of these Community Banks, are you concerned that you are limiting the diversification of rick, and thus adding to the concentration . The harder we make it on these banks the more concentrated the risk in the big investment banks, or larger institutions. And that could have a very negative impact on safety and soundness. That was what i was going to ask you. So our evaluation was with respect to alternative sources of Equity Financing that privatt equity venturecapital would be alternative sources and 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 ofd lending advisory, and other w 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,or mr. Scott. Thank you. Chair yellen, wonderful having you back again. Every time you come we talk about issue overwhelming Unemployment Rate facing africanamerican men. Last time you talked you said your Monetary Policy was a blunt instrument and you urged congress to introduce legislation to target this. I took your direction and i am, my cosponsors introduced two pieces of legislation. That i certainly hope you will say a kind word for. Because if you, knowing your dual duty as both inflation as well as unemployment, if you say a word of support here you can help us pass these two pieces of legislation. Now the first one is to deal with our crumbling infrastructure. That is coming. That is a big, big, big, issue. What we want to do on this first bill is to address and develop a jobs and onthejob training, Apprenticeship Program targetind africanamerican young men ages 18 to 39. 18 to 39 they 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 every day of the condition that many of our africanamerican communities are facing. We want to set that up. It will come under the secretary of labor who will coordinate the programs. It will work with the labor unions like the ibw, plumbers, w pipe fitters, iron workers, steelworkers, all of those unions helping to build our crumbling infrastructure. We will bring the training programs, job programs, and say they are in High Technology areas because you cant do all of this without computer coding, computer systems, technical aspects that are so desperately needed. Very important for us to get those in there and get those started. Second one has to do with the education component. Every year, every five years, we have to reinvest in our, what we call land grant universities those 1890s, 1860s, set up after civil war. Schools like tuskegee in alabama, prayer very view in texas, florida a m. We want to create a new area. They can only spend money in education and research and extension. We want scholarships to get the kids in there. The food we eat, energy and high finance and remedies and all of that. So we want to do that. Give each of these schools one Million Dollars which they can spread over that fiveyear period for scholarships. Now these bills are bipartisan. We have some excellent cosponsors. Folks like kevin cramer of north dakota, marcia fudge of ohio, brad ashford of nebraska. Mia love of utah, alma adams of North Carolina, gwen graham of florida. Now pete sessions, House Rules Committee chairman are all on the bill. A fine word from you would be very, very helpful. I will ask my assistant, would you take those to them right now, tanner, so you can have those. All im asking, 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. Not only will the africanamerican thank you, but all of america, white people and everybody. We all know the young black men highest Unemployment Rate of 18 to 39. Are also childproducing ages. A this helps us to deal with the family breakdown structure. Now we thank you for that. Madam secretary, i want to ask you one other thing. Re you have an opportunity to do something very significantsk because i understand that your fed Regional Bank president in my hometown of atlanta, dennis lockhart, is retiring. We never had an African American regional fed president. Im asking you, take this opportunity to make history. We have many excellent qualified africanamericans who could do this. Finally i want to applaud you and frank torillo. Doing with the stress tests working with flexibility. Thank you. H 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. Want to catch up that the gentlelady from new york talk about the problems in new y puerto rico. Sum up in a word what is the root of the problem there . Deepseeded structural problems pertaining to puerto ricos fundamental Economic Situation that given rise of exacerbated fiscal problems. Thanks. Looking back through the 2008 crisis. I notice that your Balance Sheet jumped from 900 billion to 2. 2, Something Like that. What was the reason your Balance Sheet jumped during that period of time . Primary because we engaged in a program of purchasing, longterm assets, u. S. Treasurys, securities. Got assets from the banks who were having problems and kind o stablizeed banks that built no, we didnt buy assets from the banks. What about assets from maybe fannie or somebody . You bought mbs, right . You had mortgagebacked securities that you were purchasing might have been toxic . I dont know that they were toxic, they were, they were put in receivership by the u. S. Government. The general perception they were toxic. Okay. All right. Thats fine. The we were treated to mr. Lew testifying to us a couple daysing a and he testified in his testimony that he is required as head of the fsoc committee to identify andmo respond to emerging threats to u. S. Financial stability. Now i pointed out to him that one of the doves on low Interest Rates, mr. Rosengren, came out with a statement on the 21st in the wall street journal saying that i think we need to rethink that there is a cost to full employment basically. Thera so. He is talking about bubbling prices that might be caused by easy money. My question to mr. Lew, have you two of you ever talked that maybe one of, one of the emerging threats to Financial Stability might be the easy money policy . Have yall had a discussion or you have . We do discuss threats to Financial Stability about youred money policy. Have you specifically talked about that . If he is going so identify it, he ought to identify the easy money policy. That is not coming from me, most often from the guy on the side of easy money. President rosengren singled out commercial real estate as an area he is concerned with and he says that easy money policies could be letting market get out of hand that sounds a little bit broader than reits. Easy money policies could be letting markets get out of hand. Now there is the possibility that in a world of very low Interest Rates that investor will search for additional risks. Were very much aware of that. Okay. We got a difference of opinion among board members. Then you get Something Like says well stay out of the bond market completely because it is hard to price the assets . What . Vera 2, the largest etrader, saying his companies will stay away from the many securities because underlying assets are hard to trade, inability to hedge the positions . What is he talking about . Corporate bonds or what . In my opinion maybe the bond market overall. And so, it just looks like that things arent quite as stable. Maybe there are underlying problems. Maybe there are bubble prices. Remember that the housing mark t began as a bubble problem stimulated by government sy. To have everybody sort of looking the other way saying everything is good, then i look at your, at your asset, youd typically increase, i just looked to the fact that your Balance Sheet is up to 4 trillion. So you almost doubled in the four or five years. So youre continuing to buy something. Generally if the market then i look at the debt. So puerto rico has got a roughlg 76 debttogdp ratio and ours is onetoone. Somebody ought to be talking about stability of the Financial Market in the United States because it looks desperately unstable. Thank you, mr. Chairman. Appreciate your indulgence. Time. Gentleman has expired. The chair recognizes the gentleman from texas, Ranking Member of our oversight investigations and subcommittee. Thank you, mr. Chairman. Thank you, Ranking Member. Madam chair, thank you for being here today. I believe history will be kind to you as well as chairman bernanke. What you did was extraordinary in a time of great crisis. And i just dont believe those who look back, those who look through the vista of time, i dont believe they will see these as unkind, unfair, unwatered or imprudent things. I think they will judge you well, and you will be treated very well by history. Now, just a few things. Im going to do my best to stay away from wells fargo. I must tell you, its difficult. Simply because for one reason, if i may just mention this one. The 185 million in penaltyies is, according to some standards about three days of profits. This become as line item under the cost of doing business. It was hard. I have some other things, but first, let me do this. Let me just discuss with you, whole notion of too big to failj madam chair, there is a bit of n doublespeak taking place because a good many people, when they speak of too big to fail, they mean there will never be another bank that will fail. Thats what were talking about. It can fail. Well put it out of its misery without it creating economic misery. That is what too big to fail is all about. That is what doddfrank does. We havent finished doddfrank yet. Were still implementing aspects of it. But too big to fail is addressed in doddfrank and addressed in very profound way. Living wills helps us to understand how to put the big institutions out of their misery. Doddfrank allows us to separate them if we need to and eviscerate them if necessary. Too big to fail is all about winding down these big aigs of the World Without them taking the economic order with them. Like to make a point if i may before we respond to the question of Community Banks, if i may. Madam chair, the big banks have hijacked the term Community Bank. They have hijacked this early t you and i understand most banks in this country are under a billion dollars, most of them, probably 89 thereabouts. Under a billion dollars. Well the big banks have concluded that you can be a 50 billiondollar bank, 100 billiondollar bank and still be a Community Bank. Therein lies the problem. When we make efforts to help the Community Bank which are Smaller Banks, the big banks step in anf they want all of the benefits that we would accord the Smaller Banks, the real Community Banks, a bit more doublespeak, the real Community Banks, they want those benefits. I applaud you for what youre looking at. I have read your statement. And you want to do something about this. 18 month examination sigh cycle. There are people in Congress Want to help Community Banks. We cant do it at the risk of bringing in the big institutions who would benefit from it to the detriment what weve been trying to do in doddfrank. 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 withth something else. Heres my question. Given what weve done with qe, and all of the tools that you have utilized, how important is it for us to have some G Investments in infrastructure . Both president ial candidates have talked about it. Interest rates exceedingly low at this time. How important is it for us to invest in infrastructure . Who are maybe i should put it another way. Would Infrastructure Investments be helpful in promoting sound Economic Growth . I welcome your answer . Well, i guess my perspective is that weve had very disappointing pace of growth in the u. S. Economy and productivity growth, growth and output per worker has been exceptionally slow. A half a percent per year forr the last five years, maybe twice that over the last decade. But low and historical terms. And. Thats critical to Living Standards and investments of all sorts. I think our essential to raised growth and i will proved Living Standards for americans in years to come. Time of the gentleman has expired. The chair now recognizes the gentleman from South Carolina,tc mr. Mulvaney. Madam chair, i have a couple questions with the hearing. Ouple mr. Neugebauer, there has been a bank of japan to start purchasing equities. My question to you is fairly simple is the United States Federal Reserve looking to the possibility of adding purchase of equity sos its tool box as it looks at Monetary Policy . The Federal Reserve is not permitted to purchase equities. We can only purchase u. S. Treasurys and agency securities. I did mention in the speech in jackson hole though where i discussed longer term issues and difficulties we could have in providing adequate Monetary Policy, accommodation may be somewhere in the future down the line that this is the kind of thing that Congress Might consider. This is not something the Federal Reserve is asking for. Would take a change in law to do that . It would take a change in the law. Lets move on to thet regulatory question. I appreciate that thank you for straightening that you out. Earlier mr. Neugebauer and leutkemeyer talked abouted changing rules of commodities trading. My question is very simple, why are you doing this . Were worried about the forms of some commodities activities to banking organization. I heard you explain that, environmental hazards. The truth that has never happened yet, has it . That risk has not been incurred . No trading in the commodities markets has been sued for environmental exxon valdez didnt end up commodities trader getting sued . Bp oil spill did not end up commodities trader being sued. S there has never been risk of occurrence occurred . It doesnt broadly prohibit commodities trading. It is focused on activities where there are significant environmental hazards. We can save for another day 1200 ratios prohibit, but the fact. Matter youre trying to regulate a risk that has never actually in the real world been incurred by a commodities trader is that correct . O well, we have had huge environmental accidents that have created enormous liability and we do have a couple of banking organizations thatt congress has grandfathered broad right to engage commodities storage and distribution and those risks certainly exist. You could make the argument that there are other risks that banks incur that are actually more tangible and perhaps more likely than an environmental disaster leading to a claim against them based on commodities trading. It is and no offense intended ta any of my colleagues from new york city, it is risky for banks to be in new york, right . It is target for terrorism. They have actually incurred that particular risk in the past. Would the Federal Reserve decide in order to make banks safer they couldnt do business in new york city . Er no, we certainly not decided that. S could you . , in theory . I dont know. Not sure. I would suggest you probably could. If you could do this, look well require you to change your rules because of this risk we perceive you might incur, even though you never incurred this risk before, that same line of reasoning could be applied to something as esoteric ig what we do require is that probation have robust Business Continuity plans and that they have backup authorities. So, to, when we had Hurricane Sandy that greatly affected new york, that there are backup system. My last question has to do something entirely different. Crypto currencies. You spoke in International Conference in june, there wereif 90 central bankers in the imf and you talked specifically about block chain. I wonder if you take the opportunity to talk about the feds commitment to lightf regulatory touch and whether yol yourself at the fed are looking to implement block chain technologies into your operations . Were not looking at ourselves implementing it but we are studying a whole set of thin Tech Innovations and the ways in which chain is being considered for use by banks an nonbanks. It could have very significant implications for Payment System and the for the conduct of business. We want to foster innovation. I think innovation using these technologies could be extremely helpful and bring benefits to society. At this point were simply trying to understand the nature of these innovations. At the same time, Consumer Protection will also be something that is important but, were not doing rulewriting in this setting where were trying to understand the ways in which these innovations are shaping, shaping the financial time. Gentleman from South Carolina has expired. The chair now recognizes the gentleman from delaware, mr. Carney. Thank you, mr. Chairman. Thank you chair yellen, for coming in today to anticipates some of our questions. I have just a couple myself. Hopefully i will be able to get to them. The first. Under the volcker rule doddfrank allowed an additional period of time for banks to divest illiquid assets and the fed has acknowledged they willll need to make adjustments to the timeline which currently ends july 2016. These investments, i think there was a question earlier about the commodities, are largely commodities, physical investments which are difficult to sell, illiquid by definition. I join the 11 other members, democrats and republicans on the committee, on a may letter to you asking you to refine your definition of illiquid asset and provide clarity on the timeline for institutions so theyre not forced in a firesale situation which actually could help Pension Funds and others who are holders of these. So you have extended the time. I understand july of 2017. We got a letter yesterday, Federal Reserve board will consider applications of firms to extend the period for the Illiquid Fund investors. Could you expand on that . Casebycase basis you come out with more general rule to provide more certainty . Were trying to establish some guidelines that would provide greater certainty. Y. Were looking at that very carefully. I cant give you details but we recognize there is a significant issue there. Oo well try to provide clarity. That would be great just to provide some guidance so, they will have to otherwise start selling these assets, unwinding them. We understand that. Thats great. T. So i read through your testimony and i was pleased to see some of the things that were done weve had discussion about this with respect to modifying regulations. Ccar particularly for smaller banking institutions. Do you have a sense as to the complaint we all hear from the Smaller Banks is that these regulations require they incur c additional costs, mostly with staff they have to bring on. Do you have any sense as to whether this will enable the banks to reduce their costs of Regulatory Compliance . I think this change to c car should be quite meaningful for the baking organization and make it significantly less onerous process for them. I may guess at end of the day the question is whether or not they will actually be able to, you know, reduce their staff that is dedicated to function right now . I talked to local banks in my area, in my state, other places, and asked them when they said,al look this is additional costs. I said, help me understand. And they obviously went through individuals that are, were hired to address compliance. So i cant give you an estimate of sure. What the resource implications will be. They will still be required to conduct the quantitative portions of the stress tests 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 is pretty general. Youve been through this, andre have provided in your testimony your supervisory activities. We all talk about what happened in 2008, the last time. What worries you Going Forward . Do you think about Going Forward with respect to the current Institutional Banking frameworks as well . There has been some discussion of that, in terms of too big to fail. But what are the concerns that you have looking ahead . So, i do think that we have made progress within the regulated Banking Sector. I think its safer, and i think we have begun to deal with too big to fail and made progress there. I think we have addressed some things in the shadow Banking Sector that are of concern as well. Money market fund reform is Going Forward. Areas of concern like the Triparty Repo market. Think that i has become safer you but i do worry about theas migration of activities into less regulated parts or unregulated parts. Outside of banking of the Financial System. And new threats that may be different from ones weve addressed in the past like Cyber Threats are of course of tremendous concern. You thank you, madam chair. Keep up the good work. Thank you. The time of the gentleman has expired. The chair now recognizes the gentleman from florida, mr. Ross. Thank you, mr. Chairman. Chair yellen, thank you very much for being here. I want to talk to you specifically about sifi designations and i know that fsoc has the opportunity to designate sifis and Financial Stability board does it with gsifis. If they suggest that institution globally significantly important, does that permeate or otherwise affect or influence thing ignition as a sifi or an fsoc . No, fsoc has its own specific guidelines . Guidelines and does its own reviews. Lets talk about those guidelines. I know they were brought up earlier and they are statutorily put in there but fsoc has had a tendency to deviate from those,p hasnt it . Do what. Deviate. Metlife decision deviation from regulatory requirements that, that for example, fsoc consider the actual losses of which if a nonbank Financial Institution were to go under . And in the metlife decision, i think the court found that that wasnt done. I think in fact the court in that particular decision that one. T reasons theyre overturning that designation there was no assessment of cost or losses, im sorry, no assessment of losses that would have been sustained had metlife 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. That is one of the reasons. They basically went at this very capriciously. And what concerns me about this, and i think that is pretty much what the court said too, whatt concerns me about this i was involved in the process and i dont think it was capricious as all. I understand that, chairce yellen, you look at those with expertise in particular field ta rely on making these decisions. Roy woodall, only member of fsoc who has insurance background was only one voted not to designate metlife. That was ignored. I think he is getting a littlell bit of recognition from the court. Why did you ignore his recognition, his backgrounds insurance commissioner, h different set of requirements, different set of risks and other Bank Financial steins uggs have to have . Em seems like it wasnt well there was a very detaill analysis done of the risks that metlifes failure could pose to the u. S. Financial system. Much of that analysis has beeno made available and is on the fsoc website. Never been a run on Insurance Company. I have mean lets face it. They have a 30year Risk Assessment there as opposed to a bank that has daytoday, minute to minute. I guess, i think this is whats were finding out from theas metlife decision, is that we have to address nonbank Financial Institutions in a whole difficult way than we address the banking industry. For example, would you not agree if were trying to prevent too big to fail, that we keep theseg institutions solvent that, were have some kind of criteria where they can be assessed, corrected and then be able to not be designated if theyre following a process or procedure that prevent them from being assessed as a sifi . Well, only a few firms have been designated. But they dont know theyre designated until theyre in what, stage 3 . Ho they find out earlier than that that they are no offramp for them is what im suggesting . At there is obviously a offramp. Ge capital they sold out. That was an example. They basically said well get rid of this because we dont want to have regulatory control to interrupt our book of business. That wasnt an offramp. That was divestiture. If they changed their Business Model in a way that significantly alters the risks that they pose to the u. S. Financial system, that is an offramp. That is, fsoc reconsiders every year whether or not designations remain appropriate. It is an annual review process, and if a firm wants to understanding why they were designated, make significant changes, reduce the risk they pose to the u. S. Financial system, they can thank you. Wouldnt it be in the best interests of the u. S. Financial system to put them on notice as soon as possible so correction can be made to keep them from having to be even considered as a sifi . Well i think that the firms understand what it is about their activities that causes them to be designated. Thank you. And i appreciate your testimony. I yield back. Time of the gentleman has expired. The chair now recognizes the gentlelady from ohio, miss beatty. Thank you, mr. Chairman, thank you, Ranking Member and thank you, chair yellen for being here today. I just 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 brainard and that. Also let me just say i imagine in your historic position that you get a lot of people who want to have lunch with you or come y and meet with you because of your scholarship and your brilliance. I can remember being over in the rayburn room and could barelyf get in there when someone announced that you were there. High you powered 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 can nod or not, could probably pressured you from the white house or with president n obama to hold have that to have political influence. It reminds me of 1972 during the Richard Nixon administration when burns was in your position. If you go back and you 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 you upcoming election. And im pretty sure you have not been asked not to do that by our president or president ial candidate . I have certainly never beeny caessured in any way by the administration. The administration, my experience has been greatly respects the feds independence to make decisions in accordance with our congressional mandate. Mr. Chairman, i want to make sure we got that entered. Maybe my colleague of new jersey brought it up he was thinking about what republicans had done in the past. But let me move on and say i joined that letter that hundreds of members of congress sent to you, and let me say thank you for that quick response. So often 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. Talking about africanamericans and will, but mr. Chairman, she fav us not one, but threee suggestions what we could do to meet this challenge. So i have wanted to personally thank you because ive been very hard on you and all of the other federal organizations about working with minorities to improve the Unemployment Rate, and 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 theo president s of those organizations. Recently an article point out that we have had no africanamerican president s. Ns we have had zero latino president s out of 134. So i want to make sure we stay focused on that. I think we can do better than that. 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 that is 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 veryne focused on diversity in the Federal Reserve and it is a key priority to make progress and we need to do better. I have created a workstream 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 appointments, i would very much like to see, i very much hope that 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 insure there is a Broad National search that every attempt is made to assemble diversified pool. And that qualified candidates are considered. I do hope time from the gentlelady from ohio has expired. The chair now recognizes the gentleman from North Carolina, mr. Pittenger. Thank you, mr. Chairman. Good afternoon, chair yellen. Chair yellen in his speech on monday, governor torello no improvements of gsibs in recent years. Adjustments in all aspects of the program should be made as conditions and practices evolve. Well the fed has passed several rules pointing to resolvability. For example, marginalve. Requirements, a prohibiting derivatives, closeouts and laymanlike run and single counterparty credit limits. In light of that will be recalibrating the gsib surcharge before including in gsibs post stress minimums . Well, we put out a proposal where were likely to put out a proposal that would affect the treatment of gsib surcharges in our stress testing regime. Were not reconsidering at this time the calculation of those surcharges but as governor rellow explained governor torello explained, integrating the losses we identify in the stress tests as part of the risk based capital regime. Ss to clarify, the gsib surcharge, should it be recalibrated . To make sure it interacts with other Bank Regulations . Well i dont see a reason why it should be recalibrated at this time. Okay. Following up on chairman hensarlings questioning regarding the statutory factors, are you aware of any firmlygrounded research that measured you how each of the 11 statutory factors require your consideration contributes to the Systemic Risk . Those are a set of factors that generally do contribute systemic. What research 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 i believe there is a wide body of research that looks at factors bearing on financial instability that identifies those factors as relevant. The legislative authority demands each factor be thnsidered. De so yes, or no. Just please, tell us, are you aware of any such research for each of these factors . It quantifies its importance . Yes. Can you state with clarity, firmly grounded research that established these factors . There are lots of Research Papers on this topic. I would not say ones that quantify the impact of each factor. Madam chair, as you know there has been controversy over the settlement of the longstanding dispute with 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 comfort letter sent by secretary lew to billll dudley at new york fed. Dont care to really get into that but i would like to address the issue that the administration told members of this committee yesterday that iran needed those bank notes to help support the value of iranian real. Youre an expert in intersnags monetary currency flows. I would like to ask you if there is any reason you can imagine why iran having several pallets of your royce and swiss francs in the central bank of tehran would help support the real better than having on that value in account in new york fed or central bank or netherlands . I dont have an opinion about that. Were, we acted as fiscal agent of the treasury and have no involvement following instructions they give us with respect to payments . You dont have an opinion on that . I dont have an opinion. In wouldnt it be more difficult and more expensive to try to support a countrys currency with pallets of cash especially still inside a country outside the normal Financial System . That just something i havent looked at. I ask this some people believe that the real reason iran wanted cash so it could be used to enable acts of terrorism. The committee has had a difficult time getting the administration to explain why they didnt just wire the settlement money as they had made on previous other payments . Im sorry, that is something youre going to have to address to treasury. Chair yellen, so we have dealt with the insurance factor some. Will the fed First Consult with insurers primary wealth . My time has passed. Time of the gentleman from North Carolina has expired. Due to the chairs, chair yellens departure time, the chair anticipates clearing ms. Moore, mr. Ellenson on mr. Heck on democrat side. Mr. Wagner, mr. Barr and on republicanside. The gentlelady, from wisconsin, miss moore, Ranking Member of the monetary riff policy and subcommittee is recognized. An. 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 concerns here today about why you why youve maintained Interest Rates so low and when youre going to raise them and having to do that. Theres a growing course of community folk and workers who has challenged the fed and tool their. They say youve spent so much time worrying about inflation and being let concerned like people like to brag about the recovery. What other tools you may have in your tool kit and how youre not ignoring it is very clear that as labor markets improves, they can see outside gains and thats where we are now. They are seeing those gains which is not to say they dont have much higher Unemployment Rates and they remain significant forms of disadvantage, but there clearly are gains taking place for africanamericans as the labor g market how does that fit in with your decision to raise Interest Rates much mark. They have charged us with pursuing maximum employment and price stability. We have been very focused on our employment mandate and remain so. We are pursuing a policy that will result in further strengthening of the laborsuing market and thats a very good thing. We also have to keep our eye on inflation, and inflation is running under our 2 objectivesg that gives us some headroom and running room to remain focusede on the employment side of our objective. We have to keep both things in mind and are keeping both things in mind because we do have the 2 objective. Ask i will ask you something perhaps i havent asked you before. I was here when we put doddt a frank together, when we put in place a roll and i put a longnt time in studying the efficacy of that. Then we still have calls to r reinstate glass seal. Can you share with us the importance of that rule and the limitations or the importance of reinstalling glasssteagall if you think thats the case. It does prohibit proprietary trading in the agencies that are charged with enforcing it. They are supervising to make sure that Market Making can continue with liquidity in markets and making sure that these firms can continue to make markets, but it does include proprietary trading. Glasssteagall on the other hand does not allow them to make markets. What would the glasssteagall look like in 2016. I guess what it would require would be the separation of commercial banking andnd Investment Banking and require restructuring of companies that sid have substantial subsidiaries. Is that a practical thing that we should look at . People have different views on this. Youre trying to make sure that this can come of this combination can operate in the safe and sound manner. I would say that is not what was really responsible, at least least in my opinion for the financial crisis. In fact some of the most Serious Problems took place inth standalone investment banks like lehman and bank holdingnvestmen companies and now they are subject to consolidatedd supervision which is arguably a safer system. I have ten seconds left. Im wondering, you have a proposal for longterm debt requirements. The time has expired. We now recognize the gentle lady from missouri, ms. Wagner. E thank you and welcome chair yelling. 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 post financial crisis regulations that have been issued in the past eight years. When asked if the u. S. Should implement a similar review, they pushed back on the idea. Given that the governor has not been appointed vice chairman fom supervision, what are your thoughts on the u. S. Doing such a review . I think we are continuing to finalize these regulations and want to come to the end of implementing them and targeted review of different aspects of the work that we have donehe become appropriate over time. I mentioned in my testimony, we have undertaken a comprehensive review of our stress Testing Program. We have consulted with the organizations affected by it with outside academics, we have have looked at its cost andt 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. Over time, my guess is that other areas will deserveveis t reconsideration. What is your timing on some of the recommendations that you will be making regarding the reviews youve already taken. We arty put out earlier this week a proposal that was exempt the institutions that are under 250 billion dont engage in significant foreigner or nonbanking activities to be exempt from qualitative review. If i could continue, given that many foreign banks regulators such as in europe and japan and others on the Basil Committee are pushing back, would it make sense for the u. S. To conduct such a comprehensive review since they regularly gold plate what they call for . We have carefully looked at whats appropriate as we have undertaken these capital regulations. Some costbenefit analysis has been done. There was careful analysis done of levels and i dont think its time now for a comprehensive rethink. You talk about stress test, let me get to that. The governor specifically said a u. S. Call for evidence would be difficult to conduct and it would require a very big model that would require a lot of assumption. How is this any different from the fred feds stress test which also incorporates a lot of macro assumptions . F in the case of the capital regulations and other aspects, what we are mainly talking abouy 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 you are 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 regulation affect the probability. In my remaining short time, its been eight years, chair yelling, and certainly the eu is calling vigorously, as are other countries for a review. Ries cal shouldnt they at attempt to understand a cumulative effects its rules are having on the economy . What are the other ways that monitors the impact that theyre having on growth . We are carefully monitoring and by and large my conclusion is that we have a safer Banking System. The time has expired. We now recognize mr. Ellison. Thank you for your great service. I appreciate it. I am of the opinion that thehea, criticism that you have toth endure from certain quarters is shortsighted considering that the ability, the congress has certain responsibility to provide fiscal stimulus and i think we have not done it. I think we have failed on it and all we talk about is how we can cut budgets as opposed to do things that i think really grow the economy. Anyway, thats just my opinion. I will leave that on the side. Its quite clear that wells fargo misused, and they gets a terrible practice. We directed the federal resortrp reserve is as well as other regulators to incentivize for Financial Institution. Such that those rules dont encourage material losses. Ted nh can you give us a status update on when we can expect to see those rules . It went out for comment. Comments have been received and i believe this staffs at theand, agency are working through those now. It has been a long time and i will do everything that i can for the Federal Reserve to be ready to act on this as soon as possible. Recognizing the sensitivity of this whole situation, one of the things that occurred to me is that the ceo, the chair of wells fargo seems pretty well compensated. The number i found was like 19 million. Hes not losing his job, apparently not yet. We do see about 5300 people who were let go. Wh i make no comment on whether they shouldve been let go or whether they deserve to be, but when you set up a situation where you are incentivizing them and moving accounts the way that they were and some of the demands that were put on them, you can see how it could happen. My question to you is, how can line level workers be held accountable to the degree that they clearly have been and yet nobody and middle or upper management seems to be taking responsibility for it. They havent lost their jobs. Can you give us some insight as to how some of our management sf practices are being practiced so that only the people at the bottom end of the food chain and up bearing all the responsibility. Senior management has a responsibility and its essential that they be held accountable. Compensation schemes that, for example, are based solely on volume are precipitate under the environment that the six agencies have proposed, but even prior to the adoption of that, the baking agencies have put out, back in 2010 or 2011, supervisory guidance on compensation that had the same expectation, the board of directors should be reviewing compensation schemes and performance plans throughout the organization at all level to make sure that they dont resulting compliance failures and illtreatment, they have to be consistent with fair treatment of customers and consider risks and this is an expectation that will be formalized 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 that these problems would not only be acted on by Senior Management but escalated to the board of directors that has an important responsibility here. Ctors tha thank you. I really appreciate your answer because i agree with it. My good friend from wisconsin, congressman duffy was asking you to respond about an opinion piece by larry sommer. I got the sense that you might want to elaborate a little bit more on what he asked you. Would you like take the last seconds to stretch out on your answer a little bit . Thank you for that. They find measures of riskiness of bank debt havent diminished since the financial crisis. To reason he finds that one is that prior to the crisis, Market Participants underestimated risks and second, we are dealing with too big to fail and investors can no longer expect that they will be shielded from risk if things go wrong. The time has expired. Thank you yellen. We now recognize theh, gentleman from kentucky. Thank you. I want to touch first on ast Monetary Policy and shift over to the Federal Reserve supervision and regulation. Briefly on Monetary Policy, in your press conference last week, you stated the recent pickup in Economic Growth and continued progress in the labor market have strengthened for increase in the federal fund rates and you went on to say that conditions are strengthening and we expect that to continue and the headline on bloombergsnd website from covering this hearing, this very hearing was that yellen sees solid job growth, but in response, i thini i heard that the Labor Force Participation rate has not moved and of course we all know Economic Growth is weak, the bureau of Economic Analysis reports that gdp output and the First Quarter of this year was only. 8 . Rter of in the Second Quarter of thistei year only 1. 1 . Productivity which is a real important indicator of growth is in retreat. It has been decreasing by almost a half a percent over the last four quarters. The question is, on Monetary Policy, how does your comments about Economic Growth square with these stubborn facts . Economic growth has been ver slow and that is extremely disappointing. Productivity growth in particular has been really very, very low. As you mentioned, in recent years, its been negative which is a bit very depressing finding. In that sense, the economy is not doing well. The Unemployment Rate is declined to the neighborhood of what most of us would consider to be full employment and there is a very significant downward pressure on Labor Force Participation thats coming from the aging population. Lets just say, okay, if i can interject, aging of the population may be one factor. The other factor is that unemployment is coming down, not for good reason, but for a bad reason mainly that there is a frustrated workforce that has completely given up looking for work. Let me talk about some of the causes on the drag on the economy. Obviously you all have a role in conducting Monetary Policy and one of the dual mandate functions is maximum employment and thats an objective of the Federal Reserve but also supervision and regulating federal banking is another a important mission. What im worried about i may be what some of the dragon our economy is that a Regulatory Overreach can be a cross purposes with your interestrate policy 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 were supervised by multiple agencies. The Federal Reserve, the occ come the ncua, the fcc, the cfc, pb, these agencies are promulgated regulations and examinations and with respect to lawmaking, the approach of regulators can conflict with other regulators. On supervision, often the substance of examination overlap but the timetable dont and so Data Collection can be uncoordinated. This is not only a burden on Financial Firms that may be ade drag on our economy but it could lead to gaps in supervision. G when you look at wells fargo in the scandal that we have seen there and the consumer fraude that went unpunished for five years, the primary Consumer Protection agency is coming in on the tail end of that, according to the timeline we have seen, do you acknowledge that maybe the lack of regulatory coordination may be a problem and secondly what you think about proposals to consolidate or reduce the number of regulators, or at least consolidate it among regulators. We have a complicated regulatory system, theres no doubt about it and we recognize that the issues you are 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, on the cf merging Merchant Bankingg activity, will you commit to the role that you will provide us an analysis that the type of cost this could impose on companies . It was a recommendation to congress and not a rule. Time of the gentleman have expired. The chair wishes to remind all members that they recognize the gentleman from washington and pennsylvania and adjourned the hearing. The mr. Haack is now recognized. Thank you so very much for being here. We are obviously moving toward a healthier economy, were not quite there yet but that not withstanding i think is useful to look even further ahead to the next Economic Cycle and that is why i read with interest that the committee projected that the Feds Fund Rate will top out at two and three quarters or 3 . That doesnt give you a lot of room to deal with the next recession and as i am fond ofl saying, neither god nor anyonene else has out lied out outlawed the cycle. On we will have another recession. Why dont you consider raising the inflation rate so you have more bullets in your most powerful weapon to combat the next recession . This is something that researchers are looking at and are talking about and for the reasons that you gave, i think it isnt appropriate subject but rather for researching consideration if we remain in a low Interest Rate environment for a very long period of time. Its not something that they are actively considering, not at this time. Are you open to it . At the moment, i think its not a priority for us to consider that right now, but i would not say never, i think its appropriate for researcherr to consider the costs and benefits of it carefully, its not something we are actively looking at but i wouldnt say that its something we could never look at. We are focused on trying to achieve our 2 objective, we want to empathy emphasize that the 2 is not a ceiling, it ison the target where we would like to be that inflation can be below 2 at at different times. We dont expect to always be there. The basis of my question is you dont have enough bullets in your most important weapon. Are you not concerned at all . I am concerned and i gave a speech at jackson hole that addresses this issue. First of all, i think we may be required to use the same kinds of tools we used during the crisis in the event of a future downturn and i emphasized that, that those probably need to be permanent parts of our arsenal and beyond that, yes, it is important to do research on other things and i emphasized that congress should always i emphas what its role should. D. Thank you. Last time i asked you when does america get a raise. I want to go down this roadd again with you briefly. Obviously the economy is moving, although not they are in a healthy direction, car sales are up, home home sales are up. S Median Household Income was up fairly materially, but wage growth was still stuck at two and half percent. Wage growth was 4 . Chairman yelo chair yelling, when when does america get a raise . It has increased a little bit and i think as the recovery progresses, we will see somei more pickup in wages. Productivity growth is a very important determination of real wage growth or inflationadjusted wage growth if nominal wage growth were to pick up and inflation picked up then that wouldnt be a real wage increase. What we want to see is wagese going up without it involving inflation going up and ultimately, the size of those paycheck increases in the long run are driven by productivity growth. Productivity growth has been very low. I think that is one of the things that is holding down the improvement in Living Standards. We are seeing some signs of the pickup but ultimately if productivity growth doesnt picked up then faster nominal wage growth would just proved to be inflationary. Its a fundamental driver. Quickly, what would you define as full employment as measured by you six, currently stuck at about 9. 7. So i dont have a definition, its higher than it was beforere the crisis, even though it is down to normal levels and i think that signifies some remaining. Time has expired the chair now recognizes the gentleman from pennsylvania. Pe thank you chairman, i just want to check on one thing, following up on mr. Mulvaneys question. G i think you testified with respect to needing Legal Authority in the event that the fed wanted to purchase corporate equities. Is that right . I said we do not have. So okay. With the same holds true for Corporate Bonds rush mark. Yes, we cannot purchase Corporate Bonds. We can i to address some of the issues i raised in my letter to you this week. Im concerned about the level of emphasis that they have on this process. In a letter in 2015, the financement ministers made clear that governors had an ongoing commitment to implement policiea and full consistent and promptta implementation was essential. Some may dismiss this but they operate in the spirit of the words, they ensure that it has been designated for supervision. With that in mind, i want to asr a few specific questions aboutu the relationship decisionmaking. What is the role of the u. S. Members in considering whether to designate insurance companiet under that process . A number of agencies take part, the Federal Reserve andhe the treasury and the and engage in their work. Member countries commit to implement standards. What steps has the u. S. Taken to implement fsbs designation asco systemically important . None because the fsb designations have no impact in the United States and the United States has to go through its own role making process, the f stock analysis is completely separatep and focused on slightly Different Things and they are entirely separate processes. Did the Federal Reserve accept this. The Federal Reserve only joined the ia, ias ias that played a role here in 2013. To the best of my knowledge with their analysis for the basis of some of the original designation original designa we do participate in the fsb. In the process of this, what with the Federal Reserves position have been . I believe, i would have to check this out, but i believeou, the f stock designation of these firms occurred before the final designations by the fsb but ill have to look at that. Will want to follow up witho that because my understanding is that they designated them and then the other organization went to designate them. If you designated as globally significant, that would end up influencing that the company is going to be designated as important within the United States. Do you agree with that . As i said, the process is separate and i believe that that designation took place before the list was put out. Good, in that designation, that cannot be considered other risk related factor under section 115 of the dodd frank act . Could that be considered,tha. Could they designate an Insurance Company to could that be considered in other risk related factor under section 113. An not to the best of my knowledge. I yield back. Time of the gentleman has expired. I would like to thank our witness for her testimony. Without objection all members will have five legislative days in which to submit additionaln, written commission questions to the chair which will be forwarded to the witness for her response. I would ask our witness to please respond promptly as you are able. Without objections all members will have five legislative daysl in which to submit records for the hearing. This hearing stands adjourned [inaudible conversation] [inaudible conversation] our cspan campaign 2016 bus is traveling throughout new york this week asking voters which candidate do you support in this election and why. I am immediate ordinator at the college and it candidate that i support in the election is Hillary Clinton. I think she is the most qualified of the most suited for the election being she was secretary of state and also a senator in new york city and i just think she is the most qualified and she is the best for this decision. My name is john and i am a new york state senator from central new york