telecom industry. the dish network talks required t-mobile u.s. -- they have stalled over concerns related to the valuation and structure. this story coming from bloomberg news. this calls into question whether any transaction could get done this year or at all. they will soon be turning their attention to a spectrum auction for next year, in which they would either be bidding on wireless airwaves as one company or competing within that auction. that big headline is that dish etwork talks require t-mobile from deutsche telekom have stalled. alix: thank you so much. matt: you are alix steel. alix: and you are matt miller. matt: we did not introduce ourselves. let's go live to janet yellen. she is taking questions.

changing risk-- management practices, in some cases in a more conservative direction. you have seen an increase in all girls make -- in algorithmic and high-frequency trading, leading to changes in market trading practices. in addition, in the corporate bond market, there have been increased reporting requirements that may be reducing the desired sizes of trades. and i think all of these factors could potentially account for what is going on, that we have not really yet been able to figure out what the contribution of each is. while in is that, normal times most measures of liquidity seem to be roughly unchanged, there is a concern

that in stress situations, that may be. >> but in any market, you need risk and you need liquidity, do you not? you do not have a market without it, do you? janet: we do need liquidity in markets. changes in a crisis. it was leveraged, even highly leveraged banks that were exposed to providing liquidity and vulnerable if liquidity were to be reduced. and now it seems like more of that risk has moved to a leveraged, low leveraged investors, and that may be a safer situation. so there are two sides to this. >> in the area of reducing

systemic risk, which we are all interest it in, do you believe that having fewer systemically risky on a to institutions would be a good thing? -- financial institutions would be a good thing? janet: arguably, yes. >> should banks have regulation like the fed, should they be encouraged to reduce systemic risk everywhere they can? janet: we're certainly trying to incentivese a set of that will reduce the systemic risk of firms. hi oh -- higher capital requirements. we plan to impose capital surcharges on the most systemic firms and other regulations that will diminish the risks and create incentives for their footprints to be reduced in ways that will reduce their systemic

risk to the financial system. >> thank you. icontinue to be concerned, as know you are, that the economic recovery is not taking hold for all americans, notably a large numbers of women and communities of color. i know that confirmation bias can be a problem in investing, and it might exist on capitol hill, too. of evidence of underemployment, unemployment, virtually no evidence of and lots of sources of headwinds for our economy. what are the risks of tightening monetary policy to soon? rates are increased, what would be the impact of the gradual rate increase for working americans? there are risks to the recovery of tightening too soon, and we have been

highly focused on those risks. that is an important reason why as low asft reits they are for as long as they have been, over six years. they have been at effectively zero. we had a recovery that has in low to take hold. growth has been slower than in most u.s. recoveries following a severe financial crisis. we have clearly made progress. i agree with you that there remain groups struggling in the labor market. and as we try to show in the monetary policy report, the standard unemployment rate that we look at, 5.3%, may somewhat understate the real degree of slack that exist in the labor market. we want to see continued

improvement in the labor market, and we want to do nothing that would threaten that. on the other hand, the labor market is getting demonstrably closer, in my view, by almost any metric to a more normal state. and the degree of monetary accommodation has been sufficient over a long period of time to generate pretty significant approve meant in the labor market. as the headwinds that are holding the economy diminished, and i believe they are diminishing, i think it does become appropriate to begin -- not talking about tightening monetary policy. i think we're talking about slightly diminishing the very high degree of accommodation that we have in place. of course, i would not want to do so in a way or at a pace that would threaten continued progress in the labor markets.

at the same time, inflation is very low. while we have indicated that the good share of that is for reasons we believe will be transitory and we expect inflation -- headline inflation to rise much closer to core levels, that is another reason why we can be patient in removing accommodation. ut i think it is also important there are risks on both sides, just as we do not want to tighten too soon to threaten the recovery or to jeopardize the return of inflation back toward the 2% target, we also want to be careful not to tighten too late. because if we do that, arguably, we could overshoot both of our goals and be faced with a situation where we would then need to tighten monetary policy in a very sharp way that could be disruptive.

my own preference would be to be in ato proceed to tighten prudent and gradual manner. there are many reasons why to be able to do that. so i agree that there are certainly risks to the recovery and to the labor market of tightening to soon, but there are risks on the other side, as well. we are trying to balance those. >> thank you. some people have suggested recently that american workers need to be willing to work longer hours. i do not think many americans work fewer hours by choice. obviously, unless, of course, there are health issues or childcare limitations or other responsibilities. i think most, release many americans, working part-time would like to work full-time. the slack in the labor market seems to indicate we still have a ways to go. discuss with is your concern about the number of workers who

are only working part-time but would like to be more in the labor force, if you would. janet: yes, we haven't unusually large share of the labor force -- we have an unusually large share of the labor force, i believe around 4.5%, that report themselves working part-time for economic reasons. that means they would like to be working more hours than they are able to work. measures, a measure of the unemployment rate that we normally look at, referred to as the u3 measure, that is 5.3%. but broader measures capture that part-time for economic reasons, a measure like u6. we have a picture in the monetary policy report, and we show how high that is. and we show that, although, of course, it is always higher than the narrower concept of

unemployment, it is very much higher than you would expect historically, given the narrower measure of unemployment. to my mind, this really suggest that our standard unemployment rate does understate the degree of slack we still have in the labor market. senator corker. senator corker: thank you, mr. chairman. madame chairman, thank you for being here. i spent a lot of time with you when you are getting ready to be affirmed and enjoyed that. i appreciated talking about views on monetary policy. this is not a pejorative statement, but i know as you are coming in, you were claimed to be the first "dove" coming in as the head of the federal reserve. i know you support all the rate hikes, on the other hand, that took place. so i want to make sure everybody under dance that.

: thank you. senator corker: but we did talk a lot about this moment in time we are in, and it seems that many are getting -- let me put it this way -- the impression, many who are spending their daily lives dealing with the stock market, is that the fed has become very affected by the market swings, and much of that may actually be driving monetary policy, not just the stats. this is the first -- i guess we have had two other times in monitored history -- modern history where we have had negative interest rate them at least times i am aware of. 2002 to 2004.nd this long amount of time we have had negative interest rates, yet, it seems the fed continues stats butot just the it's very affected by the

markets and worried about disruptions in the stock market. i wonder if you might address that? janet: i would push back against the notion that we're going to be affected the ups and downs of the stock market. we are certainly very focused on the fundamentals and the economic statistics that describe where the economy is. .nd intents of the labor market those are the two goals assigned to us by congress. and a lot of different kinds of economic information go into the forecast that drive decision-making, forecast about where the labor market and inflation will be moving. ,ut financial conditions broadly, and i am not talking about the stock market here uniquely but a wide range of financial variables that i would

say go into assessing financial foritions, the ease households and businesses of borrowing that affect their spending patterns, whether consumer spending or investment or our ability, our competitive position in the global economy that affects our ability to export, and the competitiveness of import-competing goods. the state of financial conditions, broadly speaking, is one variable that does affect our forecast of the economy. so we cannot completely ignore what is happening in the markets to housing prices, equity prices, to longer-term interest rates, to credit spreads that influence borrowing costs, to the exchange rate that affects the competitiveness of u.s. goods and services -- all those

factors feed into financial conditions and are relevant to forecasting the economy. so it is one element of our evaluation, but i do not think we pay undue attention to it and i do not think we should. senator corker: i agree. thank you. the living will process is something that the ranking member alluded to, to dodd-frank, and senator warren and myself were assigned to work on those particular areas, title i and title two. senator shelby offered an amendment on the floor that passed by 95 votes to make it even stronger, if i remember correctly, are at least offered it to some degree, but suddenly major it became law. we have had some questions about as they havells come up with a was a little bit of concern, at least on my part, that there was a little regulatory capture taking place that, really, these living wills

were way lacking in substance. yet, maybe the fed really was not, you know, putting the pressure on these organizations to deliver, as they should. i had a good meeting this week and my. tarullo, understanding is the substance of these living wills -- i know you all send out tickets regarding what has happened. i think they are much better than they have been. it is pretty clear that these living wills have to be able to resolve an institution under bankruptcy. i wonder if you might speak to that for a moment? janet: i agree with you. we worked closely with the fdic in this last round a year ago to set out the clear set of want toions for what we see in the current round of submissions. we have worked closely with the fdic and the banking organizations to make sure that they have been very clear about what we expect in this round of

submissions. we have instructed them to enhance their disclosure in the public part of the documents that they produce. and it looks like preliminary reads suggest they have made progress there. we are going to be evaluating them in the coming months. we indicated that if we continued to see shortcomings in the living wills, that we will use our authority to determine that these resolution plans do not meet. frag requirements for her that is where we stand, and that is what we're going to do -- these resolution plans do not requirementsnk here that is where we stand, and that is what we're going to do. >> thank you for your service to our country. i appreciate your work. as you know and has been said many times, the fed's jewel

mandate directed to pursue maximum employment and table prices. how the fed chooses to balance these goals as a significant consequences for the quality of life of millions of americans. element, our labor market is improving, but most americans deal like they have a lot of catching up to do from the deep hole the financial crisis but as and. they do not yield their personal circumstances are reason at all, and they feel in arm's challenges. meanwhile, inflation continues to run well below target, as it has for and asked ended -- an it soed period of time to it would be a mistake, in my view, for the fed to focus away from job spirit with interest rate snares the row, the fed has essentially no room for error if it tightens to soon. if it tightens to late, i think the risks are much lower.

then the vet has plenty of ammunition to keep -- then the fed has plenty of ammunition to give it anchored. in order to avoid choking off economic growth prematurely, will the fed waits to raise interest rates until after it inds of actual inflation, rather than based on some intangible fear of future inflation which may or may not ever actually materialize? janet: senator, i agree with your characterization of the risks that if there is a negative shock to the economy with interest rates pinned at zero, we do not have great scope to respond while loosening policy further. the possible shock, of course we can tighten monetary policy. we have the tools and not to do that. that is a consideration that has been weighing on our

decision-making for quite some has led us, in part, to hold interest rates at these very low levels for as long as we have. wethat has been a factor have been taking into account, and it partly it's lanes the policy that we have been following -- it partly explains the policy we have been following. forward-looking. on the other side, there are risks from waiting too long to act, as well. we have to balance those risks. you asked me if we would likely raise rates before inflation has risen substantially, and there i would point you to section three of the report that we gave to you, where we show each

or acipant's forecast summary of their forecast for and for policy. as i mentioned in my testimony, as of ourcipants, thatmeeting, envision economic developments will proceed in a way progressive this year that would, in their view from most all of them, make it appropriate to begin the process of normalizing policy sometime this year. if you look at their inflation forecasts, at the end of the year on a year-over-year aces, most participants envision that total inflation will be running a little bit under 1%. so that is well below our 2% objective. and they envision core inflation

, that is for the year as a whole at the end of 2015, as running in the neighborhood of 1.3%, 1.4% could you can see in the projections that they are envisioning it being appropriate to begin tightening holocene policy withtening inflation below our objective. what we have said is we want to have reasonable confidence before we tighten, that inflation over the medium-term will move back to 2%. what is going on here is that we think that there are transitory marked to, namely the klein in oil prices and -- the marked decline in oil prices and the strengthening of the dollar. the underlying inflation, even with core inflation, that no import -- low import prices and declining import prices are a transitory factor holding that

down. as we see the labor market improved and these transitory influences washed out, we believe that inflation will move back to 2%. so if we have the confidence, the committee would be likely to begin enforcing inflation to go back up to the target. what's normally in my experience here, i would have interrupted you a long time ago. i lost, expired my time. but because your response was so interesting and i am trying to grasp where your policy view is from it, i let it go and let me make one, very briefly, comment. i listened to you intently. , i think itpective is much less of a problem that inflation may run high a little bit. i would not say significant inflation. but run high or a little bit, for a short amount of time, and

'sill -- until the fed response to it takes a factor than alternative is cutting off much-needed job growth and income growth. i will submit my second question for the record. janet: we want to see inflation move up to 2% to it we would not be pleased to see it linger indefinitely below 2%. >> thank you. chairman.ou, mr. madam chair, recently, the senate banking committee held a hearing that examined the role of financial stability bordering u.s. regulatory framework. a lot of concern was expressed about international decision-making on regulation overtaking u.s. decision-making. you would agree that it is important for the united states to set its own insurance capital and other regulatory standards before agreeing to any such standards internationally?

well, we are working on u.s. standards. nothing applies to u.s. firms until we have gone through a formal rulemaking process or process with orders in the united states. so no international discussion or agreement applies to u.s. they are consistent with u.s. law and we had gone through a full-blown rulemaking process. but discussions are taking place internationally at appropriate standards. i think it is very important that we weigh in on those discussions so that the standards that other countries adopt work for our markets and for our firms and that we end up

with a playing field that is competitive for our own firms to compete in. so we participate in those international discussions but with an understanding that nothing applies to u.s. firms until we have gone through a full rulemaking process here. >> thank you. i would like to follow-up a little bit on what the chairman was visiting with earlier. systemicrd to reducing risk. do you support giving designated firms a specific roadmap for de- designation, like an offramp or an approach that would allow certify?asically de janet: i think firms should have the ability to decertify. every year, designations are

reviewed to make sure they remain appropriate. that is an annual procedure. very detailedn information and interact a great deal during the process of designation. they understand very clearly what it is about their business model and strategy to be designated and so it is not a mystery to those firms what about their's is activities is responsible for designation. i do not think it is appropriate for the regulators to try to run these businesses, to try to micromanage what these firms that do. i do not think there is any single appropriate offramp. we should not be telling them

exactly do the following list of things. they understand what they need to do to change their profile in a way that would change the evaluation. and if they were seriously contemplating making those kinds of substantial changes, i am sure there would be many withtunities to interact staff to gain some perspective on whether or not the kinds of changes they worth inking of wood significantly change their systemic footprint. >> thank you. one last question. as in know, madam chair, when you talk, the markets clearly listen. as you work with the federal reserve's open markets committee, you look at a balanced approach, looking at several goals per view have clearly defined that your goal is a 2% inflation rate. what about when we talk about

maximum employment? where do we go, and what do you layout? what do firms need to expect from the committee? what is your goal in terms of the maximum employment? janet: as we say in our statement of longer run goals and monetary policy strategies, there is something different about the two goals. we have a goal for inflation, 2%, and maximum employment. can choose or determine what it's inflation target should be. we chose 2%. we are in good company. that is what most enhanced central banks have chosen. maximum employment is different. we cannot just decide what we want that to be in the long run. we think there is some normal longer run rate of unemployment or level of maximum employment

that is consistent with stable inflation. for us, it is not something we can say that we would like it to be this or we would like it to be that. it is something we are trying to determine. if you change over time, it is not easy to know exactly what is possible given technology and thegraphics and the way institutions of the labor market function. so we are trying to estimate it, not determine it. but participants in the committee are asked every three months when they submit their forecast to write down their own current views on the unemployment rate that corresponds to what they regard as normal more consistent with maximum employment, and most members of our committee were participants clearly regard that as an

unemployment rate in the neighborhood of 5.2% to 5.3%. that is something that can change over time and has changed. >> thank you. >> thank you. senator donnelly. donnelly: madam chair, i know you share my concerns with income inequality and wage stagnation. in your testimony you said although there are tentative signs that it has picked up, it continues to be relatively subdued. as the economy improves, how do you expect middle-class wages to show substantial improvement? what are you looking at? chair yellen: we looked at several different measures of wage growth. three aggregate measures that we look at are the employment cost index, hourly compensation, and average hourly earnings. they do not always tell exactly

the same story. i think we have seen a meaningful pickup over the last in the the growth employment cost index, but less movement in the other two measures, so there are early indications, or conflicting indications there. the levels of increased are still relatively low and in real, or inflation-adjusted terms, compensation, or wages, are increasing with productivity. senator donnelly: what do you expect to see in the next year? chair yellen: i would expect to see a pickup in -- i would not say middle-class wages, but aggregate wages in the economy. i would expect to see further upward movement. inre they can go depends part on productivity growth. for example, if productivity

growth -- there is uncertainty about what it is -- but if it 1.5%running at a rate of with a 2% inflation, we would expect to see wage growth. senator donnelly: and i guess the key to that would be there would be a correlation between productivity growth and a growth in wages. chair yellen: there tends to be butlong periods of time, not over shorter periods, and we have been through period a -- through a period where wage has grown less rapidly than productivity. evidence of some remaining flat in the labor market. so, my forecast is that we will see some pickup in wage growth, but it is important to remember --ir has been increasing

that there has been increasing wage inequality in the united states over a long period of time. certainly going back to the mid- islate-19 70's and that factors the federal reserve does not have tools to combat -- or where looking at as an overall job market that is functioning, in some sense, well, but we seem bigake gaps -- -- we see gaps, increasing gaps between the wages or compensation of more skills or less skilled workers, and that has been holding down middle-class wage growth for a long time for other reasons. youtor donnelly: let me ask about a different subject. i voted for dodd frank because i wanted to see safety and stability in the system.

it wasn't a desire to load it up with regulations, but a desire to make sure we have 60 and security. -- safety and security. what we have seen is a growing shadow bank, which brings on the concerns. since shadow banking entities are not subject to the same regulatory oversight, how concerned should we be with his potential risk involved here, because that is what we are trying to drive at in the first place with dodd frank, to eliminate the systemic risk. chair yellen: i think you have put your finger on a very important phenomena in, -- phenomena and we were well aware when we put these regulations in dodd frank that were ever you draw the regulatory parameters, they will be a tendency for activity to migrate beyond it to what we call the shadow banking system, so we clearly need to be very vigilant about monitoring

risks that are migrating to that system, and certainly, in the federal reserve, we have usually wrapped up our attention to shadow banking systems. fsoc is focused on shadow banking, and the financial stability board has a large program devoted to shadow banking. we are thinking about regulations like minimum margin requirements that would apply not only to banking organizations, but more broadly, that might address some potential risks in the shadow banking system. of course, we have seen some heightened attention to risks are the sec in money market funds, which was an important

piece of the shadow banking system, where risk developed leading to the crisis. you are absolutely right. absolutely right to focus on that, and we are attempting to address those risks as best we can. donnelly: thank you, madam chair, mr. chairman. >> senator scott. scott: as i travel across america, people express concerns about america leading from behind, whether they are the failure of red lines in syria, or more recently in south carolina, has the sense that the nation is tentative and comfortable taking keys from foreign actors rather than occupying our traditional role as leader of the world. now, i am certainly not suggesting that you are somehow in charge of military policy or

middle east diplomacy, but you are in charge of regulatory policies for some of our countries most successful businesses and sometimes it seems to me that u.s. regulators are leading from behind, especially when it comes to involvement with international bodies like the financial stability board of the international association of insurance supervisors. example, is designated at 50 shortly after the fsb did. we saw something similar happen with capital buffer for money market mutual funds. they seem to take their cues from the s -- fsb. madam chair, now that the fed is writing a capital for insurance companies, i would encourage you of breaking -- to break from the traditional meeting from behind by developing a standard that first works for domestic

insurance companies, rather than letting international standard-setting bodies like the ones i mentioned already right rules and export them back to our country. i would always encourage you -- also encourage you in your capacity to take that lead in promoting activity-based regulations of insurers as a group reconsiders methodology later this year. it appears that the governor has committed the fed to an activity-based approach for asset managers. heave not heard him say would do the same for insurers. can you commit today that the fed will take the lead and follow these two courses of action, both on insurance company capital standards, and activity-based regulation? i think senator rollins was starting down this role -- road when he asked his question. it seems to me the european

creditors are concerned about creditor protections. we at home are concerned about policyholders. is different capital philosophies. i would like a commitment to use our domestic approach and export it as opposed to importing the philosophical disposition on capital standards based on credit or protections. so, i guess all i can really say is that we are playing an active role internationally in insurance, which is why we join the iis. .- iai s it is why we are participating jointly with the federal insurance office and the state insurance commissioners. we are collaborating with -- to think through what is an appropriate system of capital and liquidity standards for globally active firms.

we have a strong interest in doing that, and it is important for us to have our voices heard in that process. so, i do not think it is accurate to say we are sitting back and not trying to play a leadership role. i think we are. givenically, we have been increased flexibility the fix to 62 design and -- design and taylor a set of insurance regulations, capital standards and rethink our approach for our institutions. carefully tailor them to the unique characteristics of arms that we supervise and we are taking the time, and with those firms, to make sure -- interacting with those firms to make sure we understand what an insurance-centric,

well-tailored, set of capital standards would look like. senator scott: i think at the end of the day the regulatory speak can sound academic, but what it boils down to is the price americans will pay for their retirement, and one of the things we're trying to do is make sure that price goes down and not all as we find ourselves, -- not up, as we find ourselves in international vendors as it closed -- as opposed to taking others. to see you, chair jan. i want to follow up on senator corker and his question. dodd frank requires big institutions to submit living wills and a plan for how to be liquidated in a rapid and orderly fashion without bringing down the economy or needing a taxpayer bailout.

by law the fed and the fdic are to determine if these are credible or not, and if they are not credible, they can be ordered to simplify structures or sell off assets. last august, the fed and the f eic identified significant problems with the living will submitted by 11 of the biggest eggs in the country. the fdic determined that these living wills were not credible, but the fed did not. if the, the fed said banks did not "take immediate action to improve their resolve ability and reflect those improvements in "their new rick nash living will -- improvements" in their new living wills. i know you have not completed reviewing the living wills, but i want to make sure we're clear on this point -- will the fed

find living wills not credible if the bank has not fixed each of the problems that the agencies identified last august? chair yellen: we are certainly prepared to make those determinations. work jointly with the fdic, as we have been doing to analyze the living wills and the whether or not feel that the responses to the directions that we gave to these firms are satisfactory that theyd if we find are not, we are certainly prepared to say that they are not credible. senator warren: good. i'm glad to do that. -- issues the agent agencies asian agencies asked the bank to reflect is stability.

j.p. morgan chase has over 3000 stabilities -- subsidiaries. it will take a lot of work to establish a rational structure the permits j.p. morgan to be resolved quickly as required by law. the fed will find j.p. morgan's living will not credible and the wills of the other banks not credible if they have not taken concrete steps to significantly simplify structures and are not sleek enough to be resolved quickly? well, we have given them those directions, and we will evaluate that. i would simply say that the regulatory reports that we thesee indicate that firms, since 2009, have reduced the number of legal entities in their structures by approximately 1/5.

warren: you will note the number i gave you is from not -- not from 2009. it is over 3000 subsidiaries, at latest copy that i have seen. clear-- i just want to be that you are willing to say not credible if they do not meet the couldstandards, that they quickly be resolved and that includes how complex the structure is. chair yellen: well, agreed that they need to be less complex and we have given them that direction, but i'm not sure we can determine exactly by how complex they are by discounting the number of legal -- senator warren: fair enough. chair yellen: they are not all equal, set of four very narrow purposes on our not really material parts of our -- you know, one represents serious impediments to resolving the firm. i do not want to determine this

by count of legal entities. warren: count by itself -- i understand that, but we do remember that the statute says rapid and orderly liquidation, and that spoke to the question of complexity. i raise this because the living wills are one of the primary tools the fed has to make sure taxpayers will not be on the hook when one of these giant banks fail. it is clear that the fed uses this authority to make the financial system safety. -- safer. question ask one other -- in dodd frank congress directed the fed to impose tougher rules on banks with more than $50 billion in assets, covering roughly 40 of the biggest banks in the country, the 65ne half of 1% of banks we have in the bank. together, this one half of 1%

holds more than $14 trillion in assets, about 95% of the banking assets. 40 banks, 95% of all the assets. the tougher scrutiny is designed to detect regulatory attention where serious risk is, in other words concentrate on these 40 banks rather than community banks and credit unions. there are the proposals recently about exempting many of these banks from tougher rules by raising the threshold to $100 billion, $250 billion, $500 billion. the are you i hear is that $50 billion banks do not pose systemic risks. we learned, or should have learned, in 2008 that in a crisis several banks can find themselves on the verge of failure at the same time. do you think it could pose a systemic threat if two or three banks with about $50 billion in

assets were on the verge of failure? chair yellen: well, when a significant number of firms is at the risk of failure, often it is because they have highly correlated positions. we always have to worry about that resulting in the drying up of credit to the economy, and, you know, during the great depression, most of the banks that failed were small. they were a lot smaller than $50 billion, or adjusted for that time. so, when many banks fail, we have to be concerned as well, and that is one reason why for all institutions, even for community banks, basel three regulatory capital requirements are higher. we want to see safety and soundness throughout the entire financial system, throughout the banking system, although the most systemic firms, as you pointed out, of course, need the greatest scrutiny.

senator warren: it is the top 40. i want to say there are two approaches, which every republican on this committee supported, raise the threshold to 500 million dollars, cut loose 30 or so the biggest banks in the country and hope for the best, and if it does not work out, the taxpayers can pick up the tab again. the other approaches to play it safe, keep the threshold where it is, and rely on the fed to tailor the rules to fit the risks posed by these different banks. that is the approach i supported since the american taxpayers are on the hook when -- supported. systemic and taxpayers are on the hook when the economy starts to implode, i suspect they would be in favor, too. >> nedim chair, some have proposed that we do not have any threshold, you have seen some of that, but if the regulators have the jobwer to do properly. senator crapo. senator crapo: thank you.

i want to follow up on the same question senator warren finished on. last september, i asked fed governor tarullo about raising the trigger from the $50 billion level, and in hearings we have heard that the asset threshold should be changed or raised because they are average very, includes banks that are not andemically important, produces only undesirable incentives. governor tarullo said several years of testing and assessment have given regulars a better understanding of the threshold. given the complexity around stress testing, he said regulators haven't felt that the additional safety and soundness benefits are really substantial enough to warrant the kinds of compliance and resource expenditures required of banks that are above $50 billion in assets, but well below the largest systemically important institutions. so, i guess, my question to you, which is sort of another way of

asking the same question that senator warren just asked, do you agree with governor tarullo's analysis -- that would be a benefit if congress changed the threshold and focused more on substantive evaluations of true risk rather than an arbitrary number? chair yellen: so, like governor tarullo, i would be open to a modest increase in the threshold and i guess the reason i would be open to it is, as he indicated and as you just stated, we do have some smaller institutions that under section do -- forquired to example, supervisory stress testing and resolution planning. for some of those institutions, it does look, from our experience, like the costs exceed the benefits. if there were to be a modest

increase in the threshold, i think what is essential is that the federal reserve retain the discretion to subject an institution that might fall below the new threshold to hire supervisory requirements. for example, that we would be performedsist that it supervisory stress testing if in our view the risk profile of that firm, in spite of its size, led us to believe that it had that made usrt think that it was appropriate -- that we possible might feel we would need that discretion. but at present, every firm over $50 billion has to do things like supervisory stress testing, and i think what we have found in some cases is that the burden

associated with that for many of those firms really exceeds the benefit to systemic stability, , asretaining the discretion supervisors require them to, to do that, if we thought it appropriate, that would be very important for me to support that. senator crapo: thank you. i appreciate your openness to increasing the threshold and focusing on the flex ability that we need. what i'm hearing you say -- we put this differently -- it seems to me a principle we should follow is that inks with similar risk profiles should not be subject to different migratory standards, and that applies on both sides of any arbitrary number which we might pick. what i think i heard you say was that the real issue is the risk profile and if the regulators should have the authority to a -- toion the risk profile evaluate the risk profile of financial institutions and

evaluate them correctly. but i hear you correctly? chair yellen: i think that is a fair summary. senator crapo: thank you. pastdy was published this february that uses a multifaceted approach to grading the systemic risk of each of the institutions subjected to section 165 of dodd frank. are you familiar with that study? chair yellen: not really. senator crapo: fair enough. i get asked by reporters and i have learned if i do not know about it to tell them, and i appreciate that. the point is this study showed different banks that are subject to the $50 billion -- who are on the upside of the $50 billion trigger have vastly different risk profiles. i guess the question i was going thesk you is whether validity -- whether this study has validity in showing there are vastly different risk profiles among the different banks that are among the $50 billion trigger. so, let me ask that question

without referencing the study. isn't it correct that there are different risk profiles in these banks that are above the $50 billion tree file -- profile? chair yellen: yes. some are essentially large community banks that are not especially risky, but on the other hand we have a couple of u.s. firms that are designated. there are a lot of above $50 billion, but they are certainly a lot smaller than u.s. firms, but have business models that make their activities systemically important, so firms of the same size can have very different risk profile and the appropriate supervision of those firms can be quite different. is not arapo: this question. i will conclude with his comment -- i think we would be much

better served on radio three system allow regulators to focus on risk and regulate to that, rather than forcing them to utilize arbitrary numbers. >>is thank you, senator -- thank you, senator crapo. : -- senator reid. : your position would be that a threshold is appropriate, but the discretion to look at different banks over the threshold differently is really what you think is the ideal? within limits we can tailor our supervision to the profiles of the firms. i guess i would be concerned if the threshold is raised. we are now seeing that banks that used to be above the threshold now fall below the new threshold. they are no longer automatically subject to a number of requirements.

senator reed: and they might engage in risky behaviors. chair yellen: and we might as supervisors want to say no, no, no, but those two firms need to continue doing that -- we know they are below the threshold, but we want to subject them to it anyhow because it is right for them. now, there might be many other firms that have now been relieved from what was a burden that is not appropriate for them. just to be clear, this issue of threshold is not, essentially to get below a threshold. to doou want to be able is follow risk even if it is below the threshold. chair yellen: that is right, but we have observed, for example, quite a number of firms that are, you know, just above the $50 billion threshold. we are really imposing some burdens on them that it is not clear the benefits exceed. there is ad:

functional value to having a threshold, however you want to characterize it, because if you do not you have to have a contest with each institutions about whether they fit in your criteria, whether they truly have risk, and you do not have the entree you need to basically make your evaluation. you have to for your way through the door, is that correct? chair yellen: that is correct, and i use the words "modest increase in the threshold." senator reed: thank you. my question is with the now ubiquitous issue of cyber security, it is two-tsonga -- the cyber security of the federal reserve, and perhaps more important, how effective you are in making sure your realtor institutions have protection because this is the issue of the moment and of the next decade or more -- millennium, maybe. you have been watching

fed chair janet yellen date two of her testimony before the senate. you can continue watching this on our live event channel at bloomberg.com/live. janet yellen has been talking about the risk of raising rates either too early or too late and talking about the need to be balanced. she has received questions about living wills for banks and other matters. just want to take a quick check of the market leading up to the closing bell. the nasdaq seems to be trading at a record on a closing basis. it looks that we will get there as we head toward the close. in terms of what the 10-year has has beeng as yellen speaking -- a little volatility here, but we have been seen the yields go lower. that does it for market day. stay tuned for "what you

alex: stocks rising,.4 of 1% of a all-time high. european equities rising, a seven-week low and the that's back closing at a record high. you the question is what's miss? key drivers to keep your eye when the report crosses in just a moment. alex: milk, how slumping diary prices in tiny faraway new zealand are causing big ripples worldwide and why it matters. joe: and the stock market reels from a $4 trillion rout and we learn whether markets have further to fall. alex: we begin with the stock market. we are closing at a record level here for the nasdaq. the s&p is closing right around the record high with virtually