the building. unlikely she will express additional opinions on the economic outlook or near-term monetary policy. if she does, the town should be consistent of the post-september press conference meeting. -- the town. we will bring you the remarks live when she begins. i am in for mark barton. today, the most influential 2016 summit across and hong kong.n, erik schatzker is hosting a panel on the future of investing in the european union post brexit. director.ng you can watch the panel and all of the top voices throughout the day on the bloomberg or streaming at bloomberg.com.

don't miss our interview on the show with andrew wilson. income also. we do have headlines from the prepared testimony of chair yelling. she says she's does not discuss economic outlook or rate policy, but in terms of fixed income, she writes the fed must stay vigilant of new risk to financial stability. the banks are considerably stronger since the crisis and to carefully monitor the impact of any rule changes. examinations have found regional banks to be well-capitalized. we are expecting her to field questions about the reasons why

there have not been a supervisor vice chair of pointed by the obama administration and what might happen going forward in that regard. we are about 30 minutes into the trading day in the u.s. julie: so julie: is a very small rally underway in u.s. stocks. i should really call it little changed. a little higher as we go into janet yellen testimony. energy shares are the best within the s&p 500. it has been this with saw affect for oil over the past week as we have gotten a different ahead of -- headline and now the latest is that saudi arabia and iran willingness to come to an agreement on production target. as we watch oil prices, we should note that we have seen oil move more in tandem with

stocks. we have a chart of the correlation between oil and stocks. the two.p you see rising.the green around 0.5. certainly not 1-1 correlation but trending higher. stephen angel is still open to a deal between the two. those stocks rising. as we await listening to janet yellen, i want to check on the 10 year yield as well. making an attempt at rising today, and then went back down. it has fallen in six of the past seven sessions. about 90 minutes to the close of trading here in europe.

taking a look at where equities are right now. extending gains of more than 1% right now. almost erasing the monthly loss. this is a equity benchmark. looking at how different industry groups are performing, green across the wheel. of.rials leading the gains consumer discretionary up 1.5% and financials of one point or percent. the stoxx 600 up for the first time in four days. largely down to one stock and together yet. that is deutsche bank. this is the stock intraday, rebounding from the record low .t hit earlier in the week monday it agreed to sell the u.k. insurance unit in the ceo ruled out a capital increase.

we are seeing the shares rally today. i want to show you what is happening. this goes all the way back to 2000. basically the number of auctions on deutsche bank's has served to a record. traders taking a lot of interest in this. we are covering janet yellen's testimony before the house financial services committee. this on supervision and regulation. opening the hearing. we did get the prepared comments that chair yellen will make in a few moments. she will say things like the big u.s. banks are considerably crisis -- stronger since the crisis. first, we want to get a check of the bloomberg first word news >>. >>global leaders will attend the paris. of israel's -- of he died early today. he held all of the top civilian

spots over a six-year time. he won the nobel peace prize for his stork visa accord with the palestinians. president obama will attend the services in israel, so well the prince of israel. turkey has now arrested 32,000 people since the failed coup in july according to the turkish justice minister. demanding the u.s. extradite muslims cleric who it blames for the attempted takeover. a dutch-led investigation has implemented russia and shooting down a malaysian jetliner over the ukraine a few years ago. this was used to shut -- two down the plane that was brought in from russia at the request of russian-backed rebels. all 298 people on board the plane died.

in indonesia, officials searching for several hundred tourists. feet,umn reach 6500 delaying flights from the international airport. volcanoes inive indonesia. in the u.s., the senate expected to override president obama's veto. this would allow saudi arabia to be sued for the above -- involvement in the 9/11 attacks. years, than seven congress has not overrode one of president obama's vetoes. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. vonnie: now back to capitol hill where janet yellen is about to

testify on bank supervision and regulation. she may also have to defend the decision not to raise rates last week. there is maxine waters speaking. testiticized the stress and said the fed is at the the for -- perfect guests with us. he served previously in the bush white house. thank you for joining us. the fed is at the complication of too big to fail. it might be at the center of that, but is that a criticism? >> dodd-frank put the fed there but they do double down on too big to fail. we need a change in regulatory policy. i definitely agree with the congressman on this.

>> are you expecting anything testimony? are you expecting any question to be directed about that? >> i think it is possible. i think it is possible on macro economic policy. the fed has drawn itself in to the regulatory vortex and will have to answer to congress on it. >> what about the decision the fed took last week? what is your view in which the speed should be -- the speed of which they should be raising rates? >> i think the fed has signaled beforeected rate hike the end of the year. .he problem facing the economy

we had a divided open-market federal committee policy last week. there are certain and balances in the system. where do you stand on that? are there and balances in the the early action after the crisis were very positive. the continued altra accommodative stance, why are we on life support? that is a real question the fed has to answer. the fed says we have to bring .he labor participation rate up i expect the fed to continue to get questioning on this unless it normalizes policy. abouthave heard a lot this.

are the banks overregulated or just regulated enough? >> i do not think it is a matter of over or under but whether it is the right type of regulation. when people point to low interest rates, the rate is very high. dodd-frank is squeezing out credit that could be available to a lot of sectors of the economy. we have not made the system safer with dodd-frank if that was the goal. i think the volga ruble -- volck er rule was not part of the problem. we want to fix -- if we want to fix the banking system, we have to have higher capital and more transparency. this is the kind of ring the congressman was talking about. -- kind of thing.

vonnie: in the context of the banks not being in any type of crisis, what about the european banks? seeings like we are around 10ank trading euros. selling off an asset. >> there is a real question about european banks and capitalization. american banks rebuilt the capital. at least it happened. it is happening much more slowly interrupt. this will surface in the lack of credit for small and medium-sized businesses. pay?o should some countries make taxpayer shoulder the burden. right now germany not saying they're preparing a bailout but there could be something going on behind the scenes. >> i think there are a lot of

things you can do. there are capital injections. you have to have a vibrant banking system to have a vibrant economy. how you make sure banks do not get into this again? more transparency is important. the subject of stress tests came up. that is one way of doing it. we are hearing more about both presidential candidates plans. do you hear anything from either of the candidates? i would imagine you are more focused on donald trump. that might lead to a healthier banking system given that you they are getting ahead. >> i do think we need to talk about innovation growth. aboutive mr. trump credit talking about regulatory reform and tax reform.

to the extent mrs. quinn as talked about it, it has been in the wrong direction. it is hard to sort it all out. vonnie: i want to mention janet yellen has begun her official testimony. the banking regulatory. dealing with tough questions. the proposal donald trump has reform, theax corporate code, but we have not heard anything specific or really that different we have heard in previous testimony. >> on tax reform regulatory reform and energy reform, he has been very specific. you could quibble about some of the mass. the business reform, broadening the base and making america an

attractive place to invest. the trade stuff i am not on board with but hacks is an, i think it is quite specific. vonnie: how do you tell a voter what to do if you are not convinced? >> i never tell a voter what to do. pieces of this are on the right playing field. i will save the biggest domestic policy question facing the country should be whether we can improve growth. the movement toward protectionism. are there parts of that that you would consider healthy or is it i think theea? >> questions being asked are important. there are people who have lost, and we need to do more to

address the needs of the people. there are also issues with where theal property u.s. could do better. either side has been particularly good on this. >> if donald trump were to be elected, would we be going down the path of brexit? >> the honest answer is i do not know. i doubt it. congress has to be involved in this. any area in which donald trump would have a republican congress that may have a different view. what is needed is a policy that people who have been left behind. i think it is possible, but i do not see it had close him. vonnie: already in the business cycle. >> sadly we are in a very

sluggish growth cycle. we need to radically change people's expert patients. thank you for joining us on this great day. janet yellen's testifying before the house financial services committee. stressellen: while the testing system has been successful since it was first introduced between 2009, the crisis introduce the need to reevaluate the effectiveness of their tools. as my written testimony indicates in more detail and my inleague governor discussed a speech earlier this week, we are now considering making several changes to stress testing methodology and process.

that hasng idea emerged from the comprehensive capital analysis program is to integrate with our regulatory framework. includingtively surcharges in the stress test. we are also considering making certain changes to the stress test assumptions using this. we are considering exempting them the qualitative portions any bank holding company that has less than $250 in total assets and does not have significant international or bank activity. reducing the amount of data these firms are required to submit for purposes. we are -- on these that we are considering, we will of course input before moving

to adopt them. i know that community banks play a vital role in many of your districts. among my years of experience at the federal reserve have reinforced when it comes to bank regulation and supervision, one size does not fit all. to effectively promote safety and soundness and ensure institutions comply with applicable consumer protection laws. reinforced when it comes to bank regulation and supervision, one size does not fit be tailored to different types of institutions such as community banks. reducing the burden on community banking organizations -- organizations. we are looking for simplifications of the forlatory framework

community banks. in conclusion, our post crisis approach to regulation is both forward-looking and tailored to the level of risk that firms pose to financial stability in the broader economy. standards of the largest and organizations are now significantly more stringent --n the standards for mall small and medium-sized banks, which is appropriate, given the the stressailure or of those firms could have on the economy. as i discussed, we will take further actions to further tailor regulatory and supervisory framework. even as we finalize the post framework 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 emergent of new risk for

financial stability. --must and worthy to address to adjust our regulatory approach. the work we do to ensure the financial system remains strong and stable is designed to support the real economy and sustains his misses and jobs on which americans households rely. -- businesses and jobs on which americans households rely. note that i was encouraged by many aspects of our testimony. on page 13 of your testimony, outrecommendation carving the focal -- volcker rule and was also encouraged by your

today concerning the qualitative review exemption. i think that is wise and a very small step in the right direction. before we get to the application of credential standards, i want to take a step back for how we do the process in the first place. as a member of fsock, dodd-frank demands there are 11 different factors in the process. when the designation process, do you weigh each of these factors equally? yellen: are you talking

about the financial firms that have been designated? yes. >> we prepare an analysis. mike question of the 11 statutory factors, do you consider eat equally, or is leverage more important than factor for?-- factor four? yellen: when it mike question n to looking at a firm, taking those into account is special to the firm. it is individual. the question is -- what would be the systemic impact on the u.s. on the stressem of that particular firm. >> with 11 different factors that leads combined

to 2048 different ways in which the 11 criteria can be combined, this to those you shall consider sayuse, but can i safely that you and other members cannot process 238 different combination of these criteria? is yellen: what this does 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 in fact financial stability. >> it is hard not to conclude this becomes a very discretionary process among members. now moving to this process. organizationsing

submitted 11 living wills and fell -- found gla they had not reviewed this submission. i understand many of these are long.nds i found at least one testimony the reports are tens of thousands of pages long. does anyone at the fed actually read the reports, and can i safely assume you do not? cherry yellen: you can assume many read these reports. >> does anyone read 1000 page report and know what to do with it? it is safe to say

all of the governors reviewed. >> i find that difficult to believe. up toving wills can cost $175 million. estimates it is capitalize with $30,000. so you are taking away the onertunity to capitalize hundred 75 small businesses with a living will that may or not be useful. youou consider these as consider these. chair yellen: we consider eliminating too big to fail part of dodd-frank so the american taxpayers will not be forced to bear the burden of the failure of a large firm. i will tell you the full board of governors met on the order of

12 times. we had 12 board meetings to consider in great detail all of the aspects of the living wills of each of these firms. recognizes thew ranking member for five minutes. >> thank you very much. , the forms we have passed to make the financial system are constantly under attack. many accuse us of one size fits regulation. to dog frank has provided adjust the rules based on your evaluation of risk. i cannot count the number of times this has passed the house floor that were not serious even considered in

the republican-controlled senate. i know that i as well as other democrats have worked very constructively to identify areas of can -- of improvement. reload announcement are a recent example of that corporation. said you were taking a look at banks with 200 -- less than 250 billion dollars in assets and were considering some changes, provided they were not in trading international. would you tell us what that is about again? yellen: there are two portions of the stress testing program for institutions over $2

billion. one is a quantitative stress impact toe what the see what the adverse scenario would be on the capital decision. ofcontinue to subject all the firms to the quantitative part of the stress test. part is also a qualitative four the capital planning process. that is something that all of the firms subject to. we are proposing eliminating some of theucing reporting requirements with stress testing for the banks under 250 billion.

we think in the normal supervisory process is adequate. meeting thesearm expectations. -- many ofignificant these are meeting the expectations. lex i would like to thank you for paying attention to the concerns of the committee, and i would like to thank you for recognizing not only do we have concerns, but those that we can address if we would work with you rather than coming up with the regulation that interferes with your ability to exercise the authority that you have. i have been closely following the progress of the living wills at the banks over the past five

years, and i have not been encouraged by that process. you finally took the important step of officially declaring i living wills as of non-credible, j.p. morgan chase, inc. of america, bank of new york mellon , and wells fargo. -- bank of new york mellon, bank. they have had five years to identify and address problems within their organization. will you use your additional authority to quickly and severely to present to the economy? >> we certainly do stand ready impose capital on these firms if they have not

identified the deficiencies we have identified. we have been very firm in indicating what the deficiencies are. released the letters that details the deficiencies. we will quickly review the submissions due by october 1. i would say by all of these , identify short coming that we did not think rose to the level of deficiency, and other things that we want to see corrected and will be reviewing to next round of submissions see if they have been connected or not. could rise to the level of deficiencies. time has now expired.

we now recognize the gentleman from texas. >> the fed along with the occ and fdic put out a reports on bank investment activities. the federation has several concerns with physical commodity activity. authority last week the fed interest -- issued a letter of proposed rulemaking. this would effectively prohibit many of these activities. the documents focused on the term of catastrophic risk. how does the fed defined that risk, and houses that commiserate? >> the fed has been motivated in the rulemaking by looking at the

indoor miss environmental oilequences for things like spill, the bp disaster and other things and the other consequences of those things can cause financially for firms and also reputational he. done aconcerned and have rulemaking on fiscal commodity activities. that attempt to identify the risk we think identifies and identified the congress repeal of the merchant banking -- forty for us essentially the same set of reasons. >> when you are analyzing risk and you look at past activities, the question is, what passed environmental catastrophes have

posed a problem for financial holding companies. can you point to this to say if that happens again, we have a ? >> under the merchant banking authority. i want to specifically talk about commodities. >> we look at what is permissible and look that there could be environmental risks associated. it is not a case of going back through history to see what has happened in the past. there is a forward-looking concern that this could pose risk. >> i am looking at events that

may not have happens where may not happen. i want to turn to the stress test. some commentators have said the surcharge effectively works as attack on market activities. can you name the components that make up the surcharge and what activities tend to increase the score? factors are a set of that determine the surcharge. interconnectedness and reliance on short-term funding factors. this would increase the likely increase the failure of the firm. as you said, the surcharges can be thought of as taxes imposed

on the firms that serve two purposes. they holdy insist more capital. the failure that the risk could impose on the society of the broader economy and should be less likely to fail in holding more capital accomplishes that. it may create an incentive to restructure fit -- restructure facilities. those.lexity is one of interconnectedness component, primarily dealer to dealer trading assets and market making activity and then cross jurisdiction component and trading similar to the factor.nectedness

when you look at all of those things you are penalizing the entities for, it is making capital markets. i think what many of us are outerned about is just get of the capital markets area, because regulators are making it very punitive to be in those cities. >> time of the gentleman has expired. .e now recognize miss maloney member of the ranking market capital committee. >> i believe the chair yellen performance so far has the nonpartisan, admirable, and has proven she was more than capable of navigating these difficult waters. guiding the economies back to robust and economic growth. i am disturbed by anyone in a

recent debate or anywhere to suggest that chair yellen is somehow acting politically. nothing could be further from the truth. i would like to thank you for the service to your country over your long career in government. to begin with monetary policy before we get to regulation. you said last week at the fomc reasonsthat one of the the said did not race rates is because more people had come withoutthe labor force the unemployment rate going down. you theggested to economy had more room to run. also, if things they on the current course, you increase

interest rates before the end of the year. does that mean you expect it to start falling again soon. does that mean you think the economy has a little bit more room to run but not that much more room to run. what does that mean? >> for this job creation has in running at it -- a pace of 180,000 jobs or month. bit less thanle we saw in 2016 but well above the pace of job creation that is trends ine given the the labor force. was only surprised

to see the unemployment rate has not fallen. people have been drawn back to the labor force. means with inflation running below 2%, we're not seeing meaningful of four pressure on inflation and have not seen the unemployment rate fall but monetary policy is accommodated. eventually job creation at that toe would cause the economy overheat and would cause it down. monetary policy is accommodated. the good performance of the job markets is sustainable over medium-term if we allow the economy to overheat, we could be with having to raise interest rates more rapidly than we would want, which could

conceivably jeopardize the state of affairs that we have come achieving. we expect to see job growth continue. removeeed to gradually the accommodation. that much.bly not has come down over time as economists have reconsidered what is a neutral stance of policy. there is accommodation. while there is no fixed manyable for removing it, of my colleagues indicated they would see it appropriate to move the step in that direction.

>> i would like to ask you about the stress test. some people have argued they would like to put the economic scenarios for the stress tests out for formal notice and comment for the public. of course the fact that the fed can tweak those every year to the development is one of the main reasons why they are useful. quickly.espond to that >> very briefly we want to make sure those scenarios are based on timely information and

sickness -- and just most significant risk that we see. we have put out the principle for underlying the stress test and information for how we construct the scenarios. >> the time of the gentlelady from new york has asked by her. we recognize mr. garrett, chairman of the capital market section. as you know, last week there was the big fomc meeting, and surprised, the fed decided to continue the extra mary monetary policy. i know you have taken the position that are all purely data driven. withhas nothing to do politics. less and less old really do believe that.

yellen helps, clinton dodge a bullet from the l.a. times, is the fed politically biased? market watch, a fed rate hike and other important decisions being put off until after the election. you have told the committee and the public on countless occasions the fed is not subject to undo political pressure. as the saying goes, perception is reality. the public increasingly believes the fed independence is nothing more than a myth. and the fed has a cozy relationship with the obama administration and higher ups in the democratic party. you personally have weekly lunch

with the department heads at the department of treasury. there is a revolving door between the treasury appointees and the board of governors. chairman bernanke made a decision just literally weeks before the president had to go before the voters in 2012. looking at your view on income inequality, which became a major theme for the administration and gave it just weeks before the last election. let me give you the most recent. there is little doubt that potential implications for the markets, and was reported earlier that the fed governor contributed a maximum amount to the hillary clinton campaign. she did so while she was a sitting member of the fed board. that was numerous reports

the governor was aiming for a top job with the clinton administration. basic questions. because of the apparent of and impropriety, has the governor ever offered to recuse herself from voting? chair yellen: governor brain are like all of us is subject to the restrictions. >> have you ever asked the governor. >> this does not prohibit political contributions. >> we see the appearance of the complex so it is a basic question. the question is have you ever asked the governor to recuse herself a cup of her close involvement with the campaign contributions? >> she

is acting in a way that is permitted by the rules. each one of us has to decide for ourselves. the answer is you have never asked her to recuse herself. do you acknowledge she has been in contact with the clinton aware of that?u >> i have no awareness of that. >> there have been published media reports talking about that. >> what is important to me is in the collective decision-making i see politics being brought to bear in reasoning of that. i have never seen that on the part of any of my colleagues. >> you have learned she has had communications with clinton as far as trying to get a job, would that change your opinion

as to whether she should ask to recuse herself? i do not think there is a conflict of interest there. >> a federal governor can be looking for a future job and that is not a conflict as far as havere concerned? >> we do -- not tohat a conflict or ask for a job or not while they are a signaling -- sitting governor i would like to have an answer. conflict? if it is a conflict, would you ask the governor's whether they are >> the in such activity? chairman is not yielding the time the gentleman has requested. chair yellen: i would have to consult my counsel. i am not aware that is a

conflict. hashe time of the german expired. he now recognized the gentlelady from new york. >> puerto rico is facing a historic crisis. 40% of the population lives below the poverty line. employment in puerto rico stands nearlymillion, down 1000. in the main time the u.s. economy has gained almost 10 million jobs in the same timeframe. the island is struggling with violence. last week a blackout struck the island. the u.s. faced severe challenges from 2007 and 2009, congress passed and the president wind sweeping legislation, the american

recovery and reinvestment act. do you believe this legislation was helpful in fostering an economic recovery for the u.s.? allen: i do think -- chair yellen: i do think puerto rico faces severe economic challenges. they have been building for a long time, and the commonwealth faces very significant challenges. toolsk framework provides that maybe enables the commonwealth to revert worst-case scenarios, the debt toto restructure make it possible to put in place a fiscal adjustments that is less uncertain and hopefully smaller test to government spending.

that.nderstand all of fiscal take time for the board to do its work. the fiscal situation in puerto rico is very difficult at this time. my question to you, how can we in puerto ricot and economic growth and not wait control board? the reality is people are leaving the island. the most productive workforce is leaving the island. they are facing serious problems with a health care system that is broken. my question to you, do you that this will have a similar effect on the economy like we did in 2008 and 2009? yellen: i am not an expert

on what the appropriate programs are for puerto rico to deal with the long-standing problems, and i think that is squarely a matter for congress and the administration to consider. >> thank you for that answer. we cannot forget puerto rico is part of the united states, and that we have a responsibility. we do not provide priority in the important issues they are facing. last friday the federal reserve philadelphia launched a research and advocacy initiative to examine the interaction between economic inequality in the u.s., and the implication for macro economic prosperity and growth.

what is the fed hoping to learn from this, and how is the fed hoping the findings will further the economic inequality discussion? i do not see it as a political plot. i see it as a contribution in terms of promoting economic growth among those who happen left the hind. chair yellen: i think the high level of inequality in the united states is a concern and should he and important concern to all americans and a concern that hopefully our nation will address. this initiative is really focused on trying to understand what the key factors are that are driving the outcomes, and looking at practice to see based on real-world experiences with programs that are attempting to address what works and what

lessons can be learned that may be of use to communities trying to deal with entrenched poverty. >> time of the gentlelady has expired. the chair recognizes chairman of the housing and income committee. >> thank you. we spoke a lot about the sheer volume of rules coming from the federal reserve. rule after rural, layer of regulation after layer of regulation, and that is really impacting financial institutions across the country. now we have the merchant banking and physical commodities involvement by the fed. as my colleague has indicated. i hope that you work with this body as a -- as regards to the rules. the benefits outweigh the potential risks, yet we seem to be intent on trying to find a solution where there is no problem.

that concerns me greatly, and i assure you we tend to have a the questionsain with regards to that issue. mr. 2 -- true low announced last week. itsuddenly now rest in nice should be designated based on risk, not just size. secretary lew is here and made the same comment, that we need to look at other factors other than size. that seems to be your position as well. can you tell me what administrative cost will be theuraged to remove requirement? can you tell me what the cost by the fed would be to remove the requirement? the stress test. believe stresse test -- >> i am not talking about whether you do or do not.

what is the savings that you will have or is there of cost to thegnate, to remove requirement. is there cost to do that. does it cost you something to administratively removed the ccar? yellen: does it cost us to implement and run the test? >> to remove the requirement, does it cost you money? cost usllen: does it money to remove the requirement? no. but i think it would be a cost in terms of safety and soundness. you said no. that is the answer to my question. incur in carrying

test is and the stress passed on to the institutions to pay for the cost of the supervision. analysis for 33 u.s. bank holding companies based on the tenets of my bill and given that all this work has been done, can you tell me what would be toe cost designate and redesignate a financial institution? to de-designate or redesignate these institutions if they are no longer substantial. i have a bill that says you have to look at these things, and if it shows the institutions are not sufficient, you have to redesignate them. is there a cost to that?

: yes, i think it is clear these institutions -- i cannot give you a figure. >> is it $10 million? the problem is the staff, that includes the federal reserve informed the cbo the potential over 50ation of banks billion in assets would have an administrative cost of $60 million. do you think that is reasonable echoed --reasonable? chair i y honestlyellen: don't know. i have not looked at it . yellen: i honestly don't know. i have not reviewed that figure. write a letter, you

would be willing to give us a response on that? you made a comment a minute ago with regards to what you're done with community chair yellen: examples of what we have done? >> yes. we changed the holding policy statement to raise the threshold -- >> i think we did that in congress, if i am not mistaken. chair yellen: we did, and we put that into effect. >> i am glad to know you implemented our law. they give very much. >> the time for the gentleman has expired. the chair recognizes the gentleman from california, mr. sherman. mr. sherman: madam, chair, good move, or non-move last month at the