the deficit has as a percentage of what the interest rate applies to that will be much larger. >> a very busy job and things you can do and your great regrets is you don't have time to hang out with accountants. you haven't focused on the proposal to basically forced the capitalization of all leases. and the balance sheet and america's businesses, adding them to julian dollars of assets and liabilities, you would think that would balance out. it destroys the debt ratios, violates borrow wing covenants. it is estimated this will cost anywhere from 190,000 jobs up to

millions of jobs as corp.s try to cut back and regain their debt to equity ratio. and refused to sign long-term leases. and without an anchor tenant with long-term lease, you can't build a project. i won't ask a question except to take a look at this and perhaps even it will affect your economic projections on the downside and then in your role as the bank regulator, realize there are going to be hundreds of thousands of companies who for no fault of their own are in violation of the covenants they sign with their banks and the pressure will be from your bureaucrats to call those loans

because they are in violation. perhaps both looking up at the macro economic side and bank regulatory side can focus on that. you say that savings exceed the band for investment capital. i disagree with you a little bit on that. exceeds effected demand. we are here, i will deal with small businesses. they can't necessarily knock on your door. they will not on our door whether we want them to or not. american small businesses can't get bank loans. part of the problem is bank executives. no one ever got a huge bonus for making a quarter million dollar loan. they all want to invest in the whale and they like the whale

until the whale 8 all the money in london. another part of the problem is the bank regulators. i hear from bankers if we invest in sovereign debt. if we invest in zimbabwe, said we won't get by the bank regulators as much as if we make loans to people whose character we know, who did with our bank for years who are part of the community. these loans shouldn't necessarily be made prime. 100 of these businesses going under and not every restaurant is the good restaurant. what can you do so that banks i'm making prime plus 5, prime plus 7 loans and only having modest increases in the demand for capital and the pressure to stop investing in highflying securities and make local loans. we need jimmy stewart back again. >> i think it is important for

banks to make loans in their communities and in our role thanks to bank supervisors, we have tried to to be very cognizant of the possibility that overzealous supervision could diminish the willingness of banks to make loans to creditworthy borrowers. >> that may be your policy at the top, but down at the field level that is not what it is. >> this has been an important issue we have been aware of for a number of years and we have worked carefully with our supervisors to make sure they are not taking on policies that would discourage lending to small businesses. >> you are going to have to work much harder to get your bureaucrats online on that and the proof of it is banks don't

make prime plus 5 loans. one last thing. dodd-frank gave you and the other systemic regulators the authority to break up those who are too big to fail. any chance you will use that authority? >> a program that is designed to deal with too big to fail. it is the dodd-frank program and we are actively completing our work there. i am very hopeful that that is going to effectively deal with it. we will monitor as we go forward if more needs to be done. >> the time of the gentleman has excited. the chair now declares the five minute recess. [inaudible conversations] >> the committee will come to order. the chair recognizes the

gentleman from georgia, mr. westmoreland for five minutes. >> thank you, madam chair for being here. we have heard from the other side that the president's policy of not having any ill effect on the economy. yet chair yellen, we just recently have all seen a report from the cbo that the obamacare affordable care act is estimated to cause 2.5 million jobs over the next decade. do you believe regulation or overregulation has an impact on our economic growth and in job creation? >> chair yellen, i don't think your microphone is on. can you see if it is on? . closer. >> apologize. certainly regulation has an impact on the economy, on

economic growth and there are many economic studies that have tried to document what it is. in the case of the affordable care act, cbo has done important analysis and probably will continue to look at it. the impact of the act is likely to be complex. they are still attempting to figure out what all the different channels are by which the economy, we will look at that and look at their assessment going forward. >> we had to pass it to find out what was in it and now that is all coming together. has the fed done any estimate on how many jobs the implementation

of the dodd-frank cumulative affect of the obama administration's regulatory policies are expected to cost the economy or is it the fed not interested in that question because we feel dodd-frank is going to have just as much impact on the job market as would be affordable care act is. >> we live with significant financial crisis that has taken a huge toll on but economy including creating a period with very high unemployment and most of the studies that have been done, for example, fossil -- the basel committee, the united states participated in these assessments. this is only one piece of

dodd-frank, but in deciding to raise capital standards on financial institutions, try to assess what would be the net affect on the economy and there may be some impact in terms of raising the cost of capital, the overall impact that these studies fallon is that reducing the odds of a financial crisis would be the most important benefit and when we see what a negative effect at has on jobs for such a prolonged period of time to my mind the regulatory agenda of trying to strengthen the financial system which we are trying to put into place to make it resilience and reduce systemic risk will bring important long-term benefits to the economy. >> when you say long-term what

we talking about? we always hear long-term. what is long term? when does long term start? because we have been supposedly in a recovery now for period of time and we keep hearing that dodd-frank and these other things that have gone in will have long-term pluses. when does long-term start? is four years not long term? when are we valuing on kicking in? 5 years, 10 years, 20 years? >> it is kicking in in the sense we are building a more resilient financial system and substantially mitigating the odds of another financial crisis that will take this kind of toll on households in the economy. >> one other question quickly. do you feel there is enough separation between the federal reserve and this administration and the fact that i know you meet with the secretary of the

treasury once a week, once a month. >> it has been the tradition nice thing to meet almost once a week. there are many overlapping areas of interest between the federal reserve and the treasury that i think makes it desirable to have ongoing communication. >> the time of the gentleman has expired. >> conducting monetary policy. the chair recognizes the gentleman from new york for five minutes. >> is with great pleasure that i welcome news this morning, your historic ascension to the position speaks volumes for our nation and continued progress our nation is making in the inclusion of women and minorities positions of leadership and will be another source of inspiration for young women like my three daughters especially those that are looking for careers in the

finance and banking industry. let me say i am pleased to have a job not because you are woman that you are the right person for the job and you have done it the old-fashioned way. you acted. >> thank you. appreciate that. >> the ranking member touched on this, this thing about the wealth gap, when you look at the 95% of the income gain since the recovery have gone to the top 1%. there has always been a big question between the relationship between main street and wall street and for me it is difficult sitting on this committee to explain wall street to main street when you have this kind of inequality. today for example on average, the african-american households is 20 times less than a white

hold house will. the income median is at $110,000 vs $6,000 for blacks and $7,000 for hispanics largely because most people's wealth is in their homes and when you have the crises most people were scared in minority communities, they lost a large part of the wealth when it was closing, now a has gone to tremendous levels. given that we know that there was no loans staring into these communities that cause this kind of disparity in wealth is there anything that the fed can do that will help middle class in general but even more specifically these individuals who were impacted at a great extent because of the inequality of what was going on in the system and something we can do to help them get back on their feet? >> i think the most important thing to do, which has been absolutely our focus, is to

promote a stronger recovery, these same households that were hit so hard by what happened in the housing sector and by the supplying debacle, we want to see those households get jobs so that they can rebuild wealth and have the income that they need to support their families. >> the problem we are having is many have referred to this recovery as a jobless recovery and when you look at technology today and you see that technology, a lot of business folks saying it for efficiency, and thereby lot of jobs that would have gone to people are losing some of the common person, look at new york city. if you were that age 80 ands have replaced payables come all these jobs that used to the manual labor now are replaced

because of technology. i am a big believer in international trade because that should create jobs. my question to you is can we identify the jobs that will be created so that we can pinpoint where shall we should be planning in the visuals to get the jobs that a going to be created and not just randomly creating jobs but creating jobs and we can go back into the community and train people specifically for the jobs we feel will be created as a result? >> a strong free economy will create jobs in virtually every sector of the economy, but a longer-term trend ties in with concerns that you have expressed, is a growing skills gap, growing wage inequality between more and less educated workers, technological trends that reduced what used to be an

important class of good, high-paying wage jobs. those jobs are being competed away because of technological change and to some extent shifts in global competition. i think every economy is that i know believes that we need to address that skill gap in order to make sure we reduce inequality. >> anything but fed can do to help? >> we can try to promote stronger demand, stronger job market generally, we have seen that lower income individuals have been disproportionately harmed by the downturn as the economy recovers, by no means saying this is a panacea, not by any stretch of the imagination or inequality but i think we

will see gains broadly shared through the economy. >> the chair now recognizess gentleman from north carolina, mr. mchenry, the chair of the subcommittee. >> congratulations on your appointment and being an important mark in history as well. i have a question. in 2010 you spoke that banks may be required in their debt stack, in their capital, to use a convertible instrument in good times has the debt nature and in bad times converts to equity. you said they may be required to do this. is your intention to use this instrument? >> when i gave the speech at that time i was broadly considering a possible regulation, so shifts in the focus of supervision that might

be helpful. there still is this focus on something like that. to improve the result ability of a large banking organization, something that the federal reserve and other regulators are contemplating, is a requirement that bank holding companies hold a sufficient amount of long-term debt. it would play a role similar to the capital instruments you have described. >> you mentioned that in your opening statement, this requirement of long-term debt. would it be your intention to have this contingent convertible capital as a part of that long-term debt requirement? >> it bears this type of debt would bear some similarities. it is not exactly the same but there is some similarity to

contention in that it is a source of gone concern value that would be in an organization got in trouble, would serve to recapitalize it, some class of debt and give proper incentives to monitor risktaking the. >> are you broadly favorable towards contingent convertible. >> there are number of issues associated with that kind of debt, what would trigger and so forth but it remains an interesting possibility. >> interesting possibility. that is a fair admission from chair of the federal reserve. i take that as somewhat favorable if i may. i was reading yesterday in the financial times we had this discussion about lovell cruel and exemption the volcker rule

provides for sovereign debt, corporate debt in the united states and i read in the financial times, the head of bank supervisory in the european union, she said they are going in a different direction in the e.u. and in light of their recent crises with sovereign-one of the biggest lessons in the current crisis is there is no risk free assets. they are not risk free assets. we now have to react. in essence the e.u. is going a different direction when it comes to sovereign debt than we are. in the united states. how would you react to that? >> i believe the exemption for u.s. debt markets was built into dodd-frank, that was explicit in

dodd-frank. >> what is your reaction? we are policymakers, we could remedy that if you think it is a flaw. >> we have tried to write a rule that is consistent with dodd-frank, legislative. >> would you look favorably upon us saying that sovereign debt should not be exempt or should be comparable to corporate debt. >> that is something i would have to look at more carefully. >> do you look more carefully at this other matter when you wrote the volcker rule? >> we put into effect the allowance is that congress included in dodd-frank to exempts treasury securities. >> that is treasury securities, sovereign debt was excluded from

the volcker rule. written in the language of dodd-frank, exclusion of u.s. sovereign debt, not the exclusion of other sovereign debt. i call this a lack of enthusiasm from you. >> time of the gentleman has expired. the chair recognizes the gentleman from massachusetts for five minutes. >> thank you for being with us today. a couple areas i would like to pursue. in your confirmation hearing you made a comment addressing too big to fail as the most important goal of compost crisis period which on some levels agree, we did address a fair amount of it. i accept what ben bernanke said which is reality is perception and perception is we haven't done enough so we have to do more so i am wondering if you have any thoughts on how to do that particularly with relation

to reinstituting some form of glass-steagall reinstituting some sort of market-driven attempt to reduce the size of some of these too big to fail programs. >> we have a broad agenda intended to address too big to fail and we are putting it into effect and we have made meaningful progress. >> it would be worth it considering reinstituting some form of glass-steagall? >> if we continue on the path we are on of completing the dodd-frank rulemaking beyond that of putting in place a rule that would enable resolution through orderly liquidation by requiring -- >> you think we won't need it? >> we have to keep watching whether or not we have succeeded

in addressing this but i believe -- >> i would ask you all to take a look at h r 2266, a market driven attempt to reduce the size of some of these institutions and talking and editorial i read an american banker, basically my opinion calling a new phrase, too big to jail. it was about the concern that not enough of these people who foisted their inappropriate activities until too late paid a penalty on a personal basis, the biggest corporations simply write a check to stay out of jail free because it is not even their money. it is corporate money. when i read it in american banker it puts a big underscore to me. do you have any concerns about the lack of personal accountability, the largest institutions that they participated in, before 2008 and after 2008 as well.

>> i do have concerns about those activities and the federal reserve cooperates with the department of justice as when they take actions that are criminal in nature. the federal reserve's focus is on safety and soundness. we are supervisors -- >> isn't the safety and soundness of the entire economy based on trust and good activity? my concern is if people are not held personally accountable, when they write corporate checks, not personal checks to just push away their ill-gotten gains, and they get to keep that money and continue on and get raises and bonuses from those institutions the moral hazards as to the next guy the people you have to regulate it is okay, don't worry about it. do anything you want and all we

have to do is the corporation, not you, will pay a few hundred million dollars of shareholder money, not your money, you don't have concern with that with the federal reserve by not having, not you but by not having other entities holding the personal accounts that will make your job tougher going forward? >> i agree with you that there certainly should be accountability within these organizations. >> i appreciate that. last point, want to talk about fannie and freddie. i personally always wanted to amend and reform them but i also thought was wrong, fannie and freddie is pretty much paid back the money they have borrowed from the taxpayer. they are close to it and on their way. and yet at the moment they have not been allowed by our own laws to pay one penny towards payment of that principal. there are lawsuits going on as i am sure you are aware. do you think it is fair or wise or equitable to keep any entity

in a bankruptcy state once they paid back their debt? >> i think with respect to g s es i think it is important for congress to put in place a new system to address reform. we still have a system that has systemic risk. government funding remains critical to the mortgage sector and to really get housing back on its feet it is important for congress to put in place a new system and explicitly what the government should be in watching the housing sector. >> the time of the gentleman has expired. the chair recognizeds the chairman of the capital market subcommittee from new jersey.

>> congratulations, welcome to the committee. thank you, i understand the rules here that you are waving a little bit and staying longer. and we do very much appreciate that. i want to step aside from the monetary discussions some people have made. the supervision role, under dodd-frank, has expanded greatly. let me just begin, reference a letter, a report in november of 2011, dodd-frank regulation, and analysis.

fed reserve general counsel responded to a letter, scott alvarez and james lyon responding with the fed response was, consider appropriate ways to incorporate these recommendations and to rulemaking procedure. go even further to seek to file the spirit of benefit of cost requirements, cost-benefit analysis of the first question is what progress are you making? two years ago the letter was written. what progress are you making on completing and complying with more than the spirit of cost-benefit analysis and rulemaking. >> the federal reserve reports analyzing the cost and benefits of rules that it puts into effect and we have done a great deal of that. an example i could give you is in connection with our basel iii

capital rulemaking we participated a extensive cost-benefit analysis with other regulators. >> would you say you are satisfied, we had no indication a cost-benefit analysis was done and i asked the governor where is because we have not seen it so two years later something as important as that was not done do you believe it was done? >> what is important in the case of volcker is dodd-frank required the federal reserve in essence the decision about the costs and benefits of putting those restrictions in place that were decided by congress taking account of the likely cost and benefits would be and our job has been to implement it. we can certainly take into account, issued a proposed rule received a wide range, thousands of comments. >> my time is limited.

i would incurred a true cost benefit analysis is one where i could say please submit to the record that submitted to congress which in any one's destination was not done in volcker. the president has not appointed anyone to feel the position of supervisory division. would you say at the governor is effectively holding that position until that is completed, until the appointment is made. >> we operate at the board to a committee system, usually have three governors and a chair and governor to rouleau --turullo takes the lead. dollars are involved and responsible. >> would you committed to have

the governor, and and testify on federal rulesmaking since he seems to be filling that role to the president makes -- >> he has done a great deal of testifying on the stock picks. >> just on that topic? i am asking for a commitment that we can have him back in that role testified before the committee at rulemaking. >> i don't want to commit as to what he is going to do. >> that is what i was -- >> a role in testifying on these topics. >> sure. with regard to international agreements you negotiate, you probably have seen some ideas floating out there that market participants should have a better ability to chime in or comment on them prior to the process of making those agreements. will you commit to date to making allowing for market participants to engage in that process when you make this international agreements?

>> when we turn to putting rules into effect for the united states, which is what effect those firms we always have consultation and take comments in a rigorous process of evaluating comments. >> time of the gentleman has expired. the chair recognizes the gentleman from texas for five minutes. >> thank you, chair yellen for sharing your testimony and your time with us today. since the height of the 2008 financial crisis and the deep recession that followed it the u.s. economy has made significant progress as you and i know. the unemployment rate declined from a high of 10% in 2009 to the current rate of 6.6%. in the most recent quarter gdp grew at an annual rate of 2% and furthermore, despite some recent

volatility, equity markets have been substantial, have seen substantial gains with the s&p index and increasing by 30% last year, 2013. many economists and policymakers fear the nature of the recent recovery may indicate they use the economy as a major inflexion point where the ability of the private sector to create wealth is outstripping its ability to create jobs. i have seen that in the region i have seen in south texas. for most of the postwar period u.s. policymakers assumed growth and employment went hand-in-hand and the u.s. economy's performance had largely confirmed that assumption. but the structural revolution of the global economy and its effect on the u.s. economy could mean growth, employment in the u.s. are starting to diverge.

chair yellen, can you discuss with us why we appeared to be undergoing what many have referred to as a jobless recovery? would explain the disparity between fairly weak employment growth in recent months and the fact that equities and corporate earnings are at an all-time high? >> it certainly has been a slow recovery by the standards of u.s. history from downturns, but 7.8 million jobs have been created since the trough in employment at the beginning of 2010. and while we still have a ways to go in the job market, it is not by any means back to full strength. we are not back to maximum employment. there has been substantial job

creation. we have made progress, clearly we have further to go. we are trying to promote a faster recovery and a full recovery but i do see not only in terms of the number of jobs but across a broad range of labor market indicators i do think there is progress even though certainly there's a significant way to go. >> in past speeches you indicated a concern about rising inequality. many members of this committee are concerned, due to moral beliefs. additionally, many economists have expressed worries that will impact the recovery. do you believe rising inequality might affect the stability of the economy? >> i am very concerned. i share your concern about rising inequality. i think it is one of the most

important issues and one of the most disturbing trends facing the nation at the present time. there has been some discussion about the possibility that inequality is holding back the recovery because the gains have been so unequally distributed. i think we don't have certainty about that. but certainly rising inequality is partly a matter of a weak job market we are trying to address but there are deep and disturbing long-term structural trends, rising disparity between the wages earned by more and less skilled records, shifts in global competition that have diminished less educated people. >> i am very concerned about the

percentages of unemployment in our 18-29-year-olds not only in our country but other countries in europe. what can we do so that we can bring those rates down to a single digit? >> we are working hard. the purpose of monetary policy is to promote a longer recovery that will see young people who are in school come out into strong verge of markets that can affect their entire future career. people at the federal reserve, congress could consider helping as well. >> the chair recognizes the gentleman from california, mr. miller, for five minute. >> good to have you here today. congratulations, enjoy your

testimony. has been discussion regarding the results of banks and extended applied to insurance companies and i was pleased at the confirmation hearing you integrated insurance has unique features that make it different from banks and regulatory approach for insurance would be inappropriate and i think it would be devastating to apply the same percentage to insurance company. what you going to do to make certain insurance companies the subject to inappropriate banks subject to rules? >> we explicitly decided when we put in effect our capital rules to they fer their application to savings and loan holding companies with substantial insurance activities and to the other 50s that would designated we want to have a chance to study what an appropriate regime

would be recognizing important differences between the insurance business and banking. we understood the risk profiles of insurance companies really are materially different and we are trying our best to craft a set of capital liquidity standards that will be tailored to and appropriate to the risk profiles of insurance companies. we face constraints because the collins amendment requires us to establish consolidated minimum risk based leveraging capital requirements for these entities that are no lower than those that are applied to depository institutions with the net constraint we are working as best we can to taylor inappropriate regime. >> i am concerned me as a

designation and how the feds look at assets of banks versus assets of insurance companies. governor turullo said, quote, the liability structure of financial institutions about the effect of capital that it needs. it doesn't affect how risky a particular asset is, doesn't matter who holds it. my concern i would like you to take is banks the position insurance companies buy assets for the long-term. banks buy assets for short-term. to me there is bad difference in the way institutions holds assets, you will take that into consideration when you are reviewing the assets held by bankers insurance co.. last treasury office of financial research published a report on asset management, financial stability, the report

recognized asset managers as opposed to financial institutions act as an agent on behalf of their clients where investment gains and losses are solely appliance to not flow through to the asset manager. i am concerned the asset management firms may be designated under bank center regulations. it would be harmful to financial sector if that happened. geo agree with the steady asset management and banks are different? >> they are different. designation is something very important to any company and deserves very thorough review considering these entities. it will be appropriate to do very careful analysis of whether they do posed systemic risks. >> regulations on asset managers should be taken into account, fundamental difference between the business of the asset and management and banking. do you agree with that? >> i definitely believe our

supervision and regulation should be tailored to the unique features, the entity that we regulate. >> i would hope the fed in the future can try to make it to create an environment for insurance companies because there is considerable unease in the industry, and assets such as they might have a bank for courtesy of clients. and into the banks. it might be more clear, the position is very clear and read that clarity. they are not concerned in the future as far as it plays. >> the chair recognizes the gentleman from massachusetts. >> thank you, mr. chairman. madam chair, and i want to start

by welcoming you and congratulate new and i wish for your every success, for us a new position. and for our bank holding companies, for many years american law and regulatory framework, a healthy separation between banking and commerce to ensure soundness of banks, fair and equitable credit flows to economically beneficial activity, and concentration of power and wealth in the financial sector but over the last 15 years this wall between banking and commerce has begun to crumble with serious negative

consequences. in july of last year the global risk manager for miller course testified before the senate banking committee that the commodity activities of banks cost that company tens of millions of dollars, more than $10 billion fall aluminum bias globally in 2012. deutsche bank and barkley's, to the federal energy regulatory commission. more than $800 million in civil penalties in 2005 for manipulating and electricity and natural gas markets. and aluminum warehouses by goldman sacks that used to obscure of exchange rules to drop hefty fees and tangible benefit to the economy. if this shows there is a move

away to the additional business by banks into risky and potentially more lucrative but more dangerous activities to produce economic benefit when banks are chasing profits and exposing themselves to steep fines and swings in commodity prices. do you support pulling back and getting banks back into traditional banking, do you support restricting or prohibiting all together these expanded commodities by banks and what does the federal reserve plan to do to curb the abuses? >> we are thoroughly reviewing supervision in these areas. we recently put out an advanced notice of proposed rulemaking in

this area highlighting a number of issues we want to consider. we will carefully look at the permanence and i expected that it will be reviewing and perhaps likely making changes in these areas to address some of these concerns. i would say that the federal reserve's, the main focus in our supervision of these areas is to make sure that banks operate in the commodities, activities in a safe and sound manner. you referred in your remarks to allegations of market manipulation and i would point out that it is the responsibility of market regulators, the cftc, the sec and in some cases ferc to priscilla actions with respect to market manipulation.

we would of course cooperate in any investigation, but they do have primary responsibility but we are thoroughly reviewing our policies in this area. >> that is great to hear. one other quick question. section 956 of the dodd-frank wall street reform and consumer protection act requires the federal financial regulators issue a rule requiring big banks to disclose the incentive based compensation agreements for employees who can expose the banks to excess of losses. there is an article by gretchen morganson in the times a couple weeks ago. where are we on fat? you are in the rulemaking process. do you agree with that approach and where are we on that rulemaking process? >> we did put into effect supervisory guidance with respect to compensation in the

banking organizations that we supervise and have engage in horizontal reviews and i believe there have been improvements in the compensation, incentive compensation practices in the organizations we supervise in and we intend to be actively >> the time of the gentleman is expired. the chair recognized that the gentleman from california, chairman of the house foreign affairs committee. >> share yellen, congratulations, good to have you here, i was going to ask you about a speech you gave as president of the san francisco fed some years ago. as chairman of the federal reserve there, you made some observations, sort of a warning, a wake-up call to the situation as it relates to the federal budget deficits not being

sustainable. and your words were we begin to look at numbers that are truly staggering, frightening. you were talking about entitlements. you said i am concerned people take it as a given that they have social security and medicare and support from medicaid to pay for nursing home care and you explained then it was a% of gdp, about 2,006 that you gave that speech, 2005 may be. you said looking forward, the numbers showed that it would be doubled that, 16% of our entire gdp would pay for entitlements. now we are at 12 today. i was going to ask you about this because it is a very similar thing that we have heard after the federal reserve chairman ben bernanke retired he made some comments about this and alan greenspan and your thoughts today on this? >> i agree with my predecessors

that when you look at these long run trends it is that time we were looking over the next 30-40 years with been changed programs, aging population, and at that time health care costs that were rising more rapidly than the general price level, you would see a very substantial, i believe i said roughly doubling of the share of gdp would go to those three programs without revenues rising in tandem, and of course that is the key dynamic that underlies cbos long term budget projections that show the united states to be on an unsustainable budget bath. this is something we have known about for decades. >> this is a question i have. i am not sure everyone got the message. i heard the leader in the senate

say we have a generation before we have to deal with this. and i guess my question to you is if we don't deal with in the hall in order to bend this curve what will be the result for young americans coming into the workforce a generation from now? what will they face? >> the situation in which rising budget deficits begin to crowd out private investments and lead to an environment of interest rates. and private investment. >> economists agree with this weather there to the right of center they are warning us of the same consequences so the question i have is is there a way for you basically to sell the american public, i don't

believe the public understands the magnitude of it. there was an agreement that would address entitlement reform. how could you take your job as chair of the federal reserve and go out and explain the consequences of inaction in order to get washington moving and doing that right thing. >> my predecessors, alan greenspan and ben bernanke, have consistently testified that these long run budget trends -- highly problematic. >> it is not doing the trick. somehow we have to figure out a way to get you as chairwoman out among the public, to build support and maybe the support of former fed chairman saying today what you are saying to date in

order to galvanize the political action necessary because describing the consequences of inaction here isn't doing it. >> i believe this is essential for congress to address and i anticipate consistently sending this message that this is a critical issue. >> anything you can do to turn up the heat and get the facts out to the public on the consequences. people used to live to be 65. will be 85 and having two children instead of four this has to be addressed in terms of reforms. >> the time of the gentleman has expired. the chair recognizes mr. scott from georgia for five minute. >> i am over here. let me ask you. i need to ask you if you will be bold. we need bold leadership here. you got to do a mission, fighting stability, inflation,

employment, that part of the dual mission has always been like a stepchild for the fed. it has been like a second-class citizen. and we have a national crisis on unemployment. this is reading, the 6.6 figure is misleading. college graduates right now getting out of college, 22%. younger veterans, 24%. not to count young males that 30%. one third of all the work women have slid into poverty. we need you to be bold. we need you to take us not around the dock with the little boat. we need you to take us out where the big ships go on this issue and i want to ask you, will you do that? will you lift us up and make the employment part of your mandate on an equal plateau with

fighting inflation? >> congressman, i strongly support the federal reserve's dual mandate, price stability and maximum employment. i bet the committee to produce a statement concerning its longer-term policy strategies and goals that puts both of these on an equal footing and in terms of bold policy, with the economy seemingly stuck -- >> my time is short. i want a yes or no answer. >> yes. >> will you lift employment up? this nation is in trouble. we have 50-year-old men who are being laid off in desperate situations. we have jobs being shipped overseas. in other words what i am saying is we need more than just a zero

rate interest rate. your agency is the only one that has the mandate of dealing with unemployment. that is the dual mandate and it has never been with the level of importance that it should be. let me ask you this just to give you an idea. right now, did you know that legislation has been introduced in this congress to eliminate your employment mandate away from that? are you aware of that? >> yes i am. i strongly support the federal reserve's dual mandate. both parts of it, price stability -- employment mandate matter enormously to american households. it serves this country well. there is no conflict between most of the time and especially

now between pursuing both pieces of this. we have acted boldly in order to promote a stronger recovery. >> what do you say to congress? why would congress at this most critical time when the future of this country is at stake, this is a national crisis. the depth of unemployment. when you look at structurally. end here in this congress they are trying to take away a part of your dual mandate to eliminate your employment mandate at this critical time. what do you have to say to congress about that? >> i feel very strongly that the fed's dual mandate to focus on both employment and price stability is served this country well. we are committed to pursuing

both parts of that mandate and we are doing so. >> would you make a part of the fed's policy and objectives to fight this legislation, to speak out against this legislation. all i am saying here is you have a great opportunity here. this country needs leadership on fighting this unemployment, the structured unemployment, and every factor, it is a shame that our young people have this rate of unemployment. many are given up. they don't even tackle in the work force where they have given up and miss yellen, i am so proud of you, but i am going to be even more proud if you become that chairman of the fed to right the wrong and -- >> time of the gentleman has

expired. each recognizes the gentlelady from minnesota, ms. bachman for five minute. >> i want to thank and welcome to this committee the new chair of the federal reserve, extremely grateful for you being here and good luck on your service as head of the federal reserve. we want you to be successful. we asked our constituents, and a historic opportunity to have a new federal reserve share and we had a plethora of responses from constituents of questions but it was interesting that there was a commonality of the questions that came forth. ..t there was a commonality of the questions that came forth. one was really from our financial institutions and businesses. and the first was from individual constituents. so i would like to give you, first of all, the question that we received most from our individual constituents, and it was this. it was, you and other opponents of the audit the fed legislation have said that it threatens the

independence of the federal reserve. could you please point to a specific section of the bill that allows congress to interfere with the ability of the federal reserve to determine monetary policy? my constituents absolutely can't understand why the federal reserve would push back against having the federal reserve audited. >> so i strongly believe that the federal reserve should be audited. it should be open. it should be transparent. we are audited. we're audited by the gao in and the programs that we run. we have outside independent accounting firms that audit the fed. we publish our balance sheet weekly. all of this is completely appropriate. what i don't agree with and would strongly oppose is interfering with the independence of monetary policy by ringing political pressures

to bear on the committee's judgment about what is the appropriate way to implement monetary policy. we are given objectives by congress that's completely appropriate. we report to congress. you should hold us accountable and ask us to explain how our policies advance the goals that you have assigned to us, but if you pass a bill that wouldn't have the gao commentate documents -- come and take documents, second-guess every decision we make or permit them to do that within a short time of our making those decisions to bring political pressures to baer, congress wisely made the fed independent of the implementations of politics because it was understood that we sometimes have to make

difficult decisions that would be hard for the congress to make in the best long run interests of the country, and enabling us to make those decisions free of short-term political pressure is critical to maintaining our independence. >> thank you. and i hear what your responses. our former colleague, ron paul, who introduced the legislation to audit the fed, contained within the language of the bill, there is no section that deals with the giving congress the right to determine monetary policy. if the house and the senate were to pass the audit the fed legislation, if the president of the united states would pass that legislation, this is very strong bipartisan legislation, if that happened, would we hear from all of you at the federal reserve opposition to the bill that enjoyed very strong support from the american public?

>> you would hear opposition to that bill because congress has for many, many years, for decades, exempted from gao audits our monetary policy decisions. and it's really critical that our monetary policy decision-making, not other aspects of federal reserve operations, remain free of gao audits. >> i think that's part of the reason where here in this hearing today because the american people are feeling less and less and power to biblical the federal reserve responsible and accountable. because they are seeing the federal reserve's balance sheet as click to a level never before seen in american history. and the people know that eventually they will be the ones called upon to meet the bills and payments that are accumulated by the federal reserve. what means do the american

people have to hold the federal reserve accountable? >> in hearings like this, it's entirely appropriate for you to demand accountability from me and for my colleagues. >> and that's. >> time of the template has expired. chair now recognizes the children from texas, mr. green, for five minutes. >> thank you, mr. chairman. i thank the ranking member as well. ms. yellen, if you look over this way. yes, over here, thank you. and welcome to the committee. >> thank you. >> i'm sure this will be one of many visits that you will have with us, and i look forward to continuing this relationship. we are in our genesis today but there's much we can do together. i want to ask, go into two areas. the first has to do with how much of the only crisis was cyclical -- the only crisis, because if you apply structural, cyclical remedies to a structural problem, you don't get the desired results.

have you been able to quantify the amount of it that was cyclical as opposed to structural? >> when you say that, we had serious problems in the financial sector of the economy, we are certainly trying to put in place changes that will make the financial system structurally sound or. but -- structurally sound or. but the crisis that was resulted from those witnesses produced a marked downturn in spending in the economy and raised unemployment, lord employment, and much of the shortfall was cyclical in the sense that it represents a shortfall of our economy producing well below what it is capable of.

and we've been trying through our own policies to boost spending in the economy to create jobs and get the economy back to operating closer at its potential, at its capacity. >> the theory of expansionary fiscal contraction is one that many of my colleagues have on into, and it is the notion that if you cut government spending, that will stimulate the private sector and create more jobs, more businesses will come into being. where do you stand on this theory of expansionary fiscal contraction? >> so, i think government, the stance of government in the economy and its role in the economy, in the long term influences growth. it influences capital formation.

dealing with budget deficits can have a favorable effect on economic growth in the long run. but in the short run, particularly in a weak economy, when government cut spending or raise his taxes, it almost invariably has the impact of lowering growth and raising unemployment. and i believe that's what's been going on. >> do you think we have reached a point where cutting a loan is not going to give us the desired results? >> well, my predecessor, chairman bernanke, routinely advised congress to address long-term budget deficit issues, thought it was critical, as i do, to the long run well being and functioning of this economy.

but to avoid cuts in spending or increases in taxation that would diminish the ability of the economy to recover. so there are ways of addressing long-term budget deficits and wouldn't weaken the recovery, and i share his view. >> thank you very much, mr. chairman. i yield back. >> gentleman yields back. that chair now recognizes the gentleman from new mexico, mr. pearce, for five minutes. >> thank you, mr. chairman. thank you, chair yellen, for being here. congratulations on your nomination. >> thank you. >> one of the articles refers to you as the champion of main street, and i think it's a senator brown of ohio says she will be a fed chair that gets out and sees the real economy more and talks to people. i had submitted a request for mr. bernanke to come to the district, and we would host a town hall together. i am still waiting on pins and needles for him to answer.

maybe i'm giving up that a total hope now, but i would read issue that invitation to you. >> thank you. much appreciated. i'll try to do that. >> well, i'll start waiting on pins and needles for you then, okay. and the reason that i would make that offer is that in this hearing room, there have been references by people sitting at the desk as the seniors being collateral damage. that the low interest rate is acceptable collateral damage. and i do like some of that sits on that side of the table to come out and explain it to the seniors that show up at my town hall meetings to say that we live our life correctly. we saved, we have paid for our homes, and now we are caught in policies that reduce our ability to live on our savings, and they are eating into our principal just trying to get by.

and that does not seem acceptable, because many don't have the capability to go back to work. in a previous testimony, somewhere you have said that there are other instruments available. but those instruments bring a high risk, and the last thing 85 year-old wants is more risk. they are just looking for that two or 3% coupon that does not exist anymore. that explanation to them of why they should understand that this is for the greater good, sort of runs a little bit them as they tried to pay for increasing cost of food and gasoline, which will show up in our inflation rates because we don't including anymore, but the price of both are squeezing the poor and the seniors more than anything else, giving us a de facto war on the poor coming from washington right now. that's probably the recurring theme that i see there.

now, i'd like to discuss just a little bit the logic, you said at one point that interest rates are lower because of too much savings. yet, you have a policy, the fed has a policy of paying interest on excess reserves which would be a de facto way of encouraging more savings. so any discussion ever come up in the fed why we're doing this, why are we paying this if we think there's too much savings? >> well, the fed is thing an extremely low rate on interest on reserves -- >> it's higher than zero though, because zero is what -- one quarter of 1% of what seniors are getting right now, so banks can make more than seniors. so again, they see the damage going to the rich, not to the poor. and again, i just repeat that there's sometimes the appearance of a war on the poor.

my district is also very low income. manufactured housing is a big deal. 50% of the homes in my district are manufactured housing, and yet they qm policies really made it very difficult for banks to lend on that. i suspect that your staff has made known to you that these pressures exist. have you all discuss that in any greater detail that we would need to look out for the people on the low end of the income spectrum? >> well, qm was a policy adopted by the consumer financial protection bureau. i think they are trying to address a set of practices that resulted in unsafe and unsound -- >> thank you. >> lending. but it is very important to monitor their impact on credit availability. >> one of the reasons we've been able to get by with a qe is that

we are the world's reserve currency. has the fed about any at all about what's going to happen when more nations are expressing discontent that we are printing money and that we are devaluing what they're holding? so we've seen countries trade with other currencies this past year. any thoughts about what happens if the world says you're not the world's reserve currency anymore? >> the dollar plays a critical role in the global economy, and it's the federal reserve's job to make sure that inflation remains under control so that the dollar remains a safe and sound currency and can continue to play that role. >> thank you. i have nothing further. i yield back. thank you. >> the gentleman's time has expired. the chair now recognizes the gentleman from missouri, mr. cleaver, for five minutes. >> madam chair, thank you for being here. i want to talk consumer,

spending and jobs. 5% of our population is doing about 35% of the consumer spending. and if you exclude food and energy, consumer spending would rise one, two, 3%, something in that area? >> with the distribution of spending, it's very unequal. >> yes. so my concern is, so how do we increase consumer spending, raise gdp, unless we are able to get a larger share of the population spending? and for them to spend, they need to have some form of income.

so what is the impact, or what would be predictable impact, if we had unemployment benefits and a number of other programs that we've backed away from in congress? >> well, with respect to unemployment benefits, they certainly were serving to support the spending of individuals who had long unemployment spells. and, you know, ending does will have some negative effects on spending in the economy, and on growth. >> because they will spend everything they receive. >> more or less, that's true. that's right.

>> several people have talked about the structure of the unemployment here in the country. what do you think, i mean, 6.6 i guess is unemployment, and that's not necessarily good but it's better than what it's been. but i'm interested in real unemployment. they use six rate, what do you think it is? do have a good estimate? >> the u-6 rate includes discouraged workers. >> yes. >> and those on part-time. it's substantially pashtun it's substantially higher. >> more than double the -- >> it is close to 13, close to 13%. and that is a broader measure

of, you know, shortfall in our economy from what we would like to see. so, you know, certainly there are discouraged workers, those who are marginally attached. we have 5% of the workforce that's part-time, for economic reasons they're not able to find full-time work. and so that's a measure that is disproportionately elevated in comparison with the 6.6 per centers, or u-3 an opponent ray. >> so are their jobs available and people just will not take the jobs? >> well, i think there's a shortfall of jobs in hiring in the economy, the rate of hiring remains well below normal leve

levels. and there's a shortage of demand in the economy that propels this is his to see that their sales are rising sufficiently, that want to take on enough additional workers in order to lower unemployment back to a normal level. that's what we're trying to address. >> i drove down from the hotels in missouri, i'm from missouri, and -- to speak at an event. and on the way back i stopped at a chili's restaurant, and there were no waiters or waitresses coming over to the table. they had a little box on the table and to speak in the box to order your food, and then somebody will bring it out. and they give you a certain number of minutes before it is brought out. the point i'm making is, we are taking jobs away and then we're criticizing people for not taking the jobs that don't exist. thank you.

>> the chair wishes to alert all members, i intend to recognize two more members at which time the chair intends to call a 30 minute recess. that chair now recognizes the gentleman from florida, nestor posey, for five minutes. >> thank you, mr. chairman. i originally come and they do ask about the basel free, but the question by ms. bachmann i think deserve all of it more response. as you well know, dr. paul's legislation to offer the fed was the most cosponsorcosponsor ed bill in the 112th congress, very bipartisan. passed by an overwhelmingly bipartisan vote, and it did not talk about anything with the day-to-day management and decision-making of the fed. it was post-decision-making audits. and seeing we are all government and official agencies under our dominion are subject to audit,

it just seems very strange that the audit would object to having the logic behind their decisions and the many other of the litany of items you're exempted from being audited for, deem to be reasonable. >> so, i think if members of congress can pass the gao to come into the federal reserve shortly after meeting where we've made a difficult decision, and to perhaps reviewed transcripts and look at the debate that took place around a particular decision, very -- we released transcripts. we released minutes of our meetings, but to come in, review materials and say, no, we don't agree with the decision that was made at the last meeting, will stifle debate in meetings and bring to bear short-term

political pressures in the decision-making in the federal open market committee. and i do believe that independence of the federal reserve in making monetary policy means that we need some scope for deliberation and exercising our best judgment, and then explaining to congress and the public what the logic of that was. and the purpose, as i've understood it, as my appearing at hearing like this, is to give members of congress that opportunities -- >> i understand that. some of us believe in the old adage, trust but verify. and that's what an audit would do. and so would it be reasonable to assume you would not object to an audit if it was post-30 days or 60 days? is there a time limit when you would be totally unafraid to be audited in retrospect?

>> well, an audit is different than second-guessing policy judgments that were made speed is i'm not talking -- we do that as it is now. i mean, we don't agree with all the decisions you make now. i think that's clear from at least one side of the aisle, but i would just like to think that at some point the fed could be audited like all official federal agencies, much less one that is not a government agency but has the run of our entire economy. >> well, this is an extension that has been granted the federal reserve that's central to our independence. for decades by congress, and -- >> well, we've changed a lot of policies trying to make it more transparent and accountable. i would like to think the government gets less corrupt every day, not more corrupt. >> i don't believe that the federal reserve is in any way corrupt, and i believe that the confidence of markets in the

federal reserve and in our monetary policymaking would not be enhanced by that type of audit. >> by knowing -- by historically been able to audit things that every other agency subject to review for, but you should not be -- let me get over the basel iii. starting in 2015, basel iii likud recovery ratio -- enough liquid assets to cover net cash outflows for 30 days. the problem is that basel threes definition of high quality liquid assets includes the sovereign debt of vulnerable countries like portugal, ireland, italy, greece and spain. don't you think that's a will but like leading sheep to slaughter? >> well, we have designed a rule in the united states that would have stricter definitions, it's a minimum. >> so you think that that's not the same as rating agencies with

high risk mortgages as aaa's which triggered the 2008 crisis? >> one is for our banking organizations and we've proposed this in our rules to hold assets that can be quickly converted into cash. >> the gentleman's time has expired. the chair now recognizes the gentleman from colorado, where's his broncos cap, mr. perlmutter, for five minutes. >> thank you, mr. chair. and i wear my broncos cap next week. madam chair, thank you for your testimony today, and i had the pleasure to hear mr. bernanke for a number of times come testify at these very same hearings. you know, i really appreciated

three things about him. one, he is very smart, very steady, and not very exciting. and i want to thank -- and i want to say you're following in his footsteps. >> thank you. appreciate that. >> what i would like to talk to you about all of it is the fsoc. and what is happening just in terms of numbers of meetings, what generally are you concerned about bubbles? have you seen anything that, you know, would cause you some concern? we hear that student loans are awfully high and that may be a difficult, you know, issue coming up. so can you tell us a little bit about what you see the role of the fsoc at how often you on the? >> so, i have to say that i'm new to fsoc. i've only been in office 11 days and i've not attended fsoc meetings previously, but there will be one this week. fsoc does meet regularly.

the our deputies and staff who meet very frequently. clearly, a major focus is to address potential threats to financial stability, to identify those threats, and to assess those. this is something the federal reserve is very focused on your we have -- we have built for a substantial our capacity to assess threats to the financial system. we bring that expertise to fsoc. we also use it in thinking about monetary policy and in supervising the largest institutions. we recognize that in an environment of low interest rates like we've had in the united states now for quite some time, there may be an incentive to reach for yield, and that we do have the potential to develop asset bubbles, build up in

leverage or rapid credit growth or other threats to financial stability. so especially given that our monetary policy is so accommodative, we are highly focused on trying to identify those threats. we could potentially take them into account in monetary policy, but certainly in our supervision and regulation we would try to address those threats. broadly speaking, we haven't seen leveraged credit growth, asset prices build to the point where, generally, i would state that they were at worrisome levels. the stock market broadly has increased in value very substantially over the last year and, you know, our ability to detect bubbles is not perfect. but looking at a range of

traditional valuation measures doesn't suggest that asset prices, broadly speaking, are in bubble territory or outside of normal historical ranges. the are a few areas where we do have concerns, but nothing broadly speaking. so student loans, again, you mentioned the growth there has been very, very large, that mainly government-backed student loans rather than private, and i would say the concern there is this is a debt that will be with students for a very long time if they get into financial difficulties. that debt stays within. it's important that they be getting a good return for the borrowing that they are doing, and it's important that they understand what the burdens will be on them when they take out

those loans. of course, it's very important, education is critically important. we want to see that, but the burdens are very high and it's important that the education that students are getting pay a return and that they understand what it is they are getting for the debt that they are taking on. >> thank you. and then i'll just finish were i started. so, after bernanke, very smart, very steady, not very exciting. the markets must agree because the markets are up today so we appreciate your testimony. thank you for taking on this job. it's still a difficult economy out there even though it's getting better and we thank you for being at the helm. >> the gentleman's time has expired. the chair now declares the committee to be in recess for half an hour. >> a confirmation in for defense department nominees were

scheduled for this morning but because of a snowstorm on the east coast has been canceled. so we will show you more of federal reserve chairman janet yellen's testimony before the house financial services committee on tuesday. .. take a leadership roll and exercise its authority to demonstrate significantly financial firms. we have not seen any transparency on how the process works. dug your confirmation hearing you committed to the senators that you would provide more transparency in this area. what have you done to make that process more transparent and will you commit to demanding that indication when they can do to ensure they will not be so designated? >> let me for say my first meeting is on thursday so i haven't been very involved at

this point. the f stock has come out with a set of criteria, metrics they are using when they consider designation. when they designated terms i think they provided, there web site is full of information on those firms and the analysis that was done in connection with designation. certainly if fsoc decides on additional criteria or uses other criteria for other metrics i think it is completely appropriate that they should be made public so that the public understands what the criteria are being used. in the next sense i will support

having fsoc provide the public with adequate analysis both of the criteria they are using for designation and the analysis that they have done that supports the decision to designate particular firms. i should say those firms have many opportunities to have hearings before fsoc is very important to them, designation and they are given extensive opportunities to appear before fsoc groups and question analysis. >> i want to talk about stress testing. you previously expressed your support for stress testing banks using extreme worst-case scenarios such as those in recession occurring decades ago which are highly unlikely to recur. would it also be appropriate to stress test the fed access strategy for q e to estimate the

exit strategy effect on the visibility to fulfil its mandate as well as the fed balance sheet? the upper range of interest on access reserves the fed might be required to pay and how increases in the federal funds rate might impact the relationship between interest payments on treasury obligations and the deficit. i am looking for a commitment to stress testing what is going on. >> we do extensive analysis of our balance sheet under alternative scenarios, their alternative interest-rate scenarios. and a staffer by the name of seth carpenter, came out in september. it shows for example what would happen if there were an increase

in interest rates for a couple hundred basis points higher than what markets which would be most likely. there was an important analysis and public domain. the ability, you referred to the ability to achieve the dual mandate, and to conduct monetary policy. >> one of my concerns, a distorting effect q e had on the bond market. have you considered the value of the securities held by the fed, what would happen in the event of an interest-rate spike? the securities held by the fed dropped by 2%. because of interest rates going up? >> that is what we have looked at. had a look at the carpenter

paper where the impact would be on our balance sheet and remittances. >> the chair recognizes the gentleman from ohio for five minutes. >> thank you, mr. chairman. thank you for being here. congratulations on your sort of record-breaking appointment to be the chair of the fed. i want to thank you for your time today. you have given us an extended amount of time. i want to thank you for your candor. your answers have been very honest and you haven't tried to pull any political punches. you just told it like it was and i appreciate that. i want to ask you a couple questions. what about the business of insurance. since the mccarran-ferguson act in the 1940s the states have regulated the business of insurance and the federal government has had a very limited role in insurance and

now that we have dodd-frank, in some big insurance companies, could be and are being designated as systemically important financial institutions they come under the fed's per view and because of the limited amount of insurance expertise at the fed it gives me some cause for concern and i guess i am curious, i want to make sure you don't impose bank centric capital standards on insurance company sifis because they had a different role. their investments are for a purpose, they focus on maturities based on their needs. i am really worried about the capital synergy might impose, and your timetable for making any ruling on insurance company capital standards might be and if you will work with industry experts and state based

regulators to get their input because they know the industry better than folks that the fed and i have a lot of respect for folks that the fed and your experiences in the financial market because of limited exposure on insurance i'm curious if you will work with state regulators and insurance experts to defer to their opinions including mr. mcgrady who is the federal office of insurance? >> we have consulted with others with greater insurance expertise and we are building our own expertise as appropriate, but we absolutely recognize that it is important to taylor rules to the specific and different business model of insurance companies, that are not the same as banking organizations. we recognize a number of special issues including the long-term nature of most insurance company volubility, the fact that they

have asset liability matching practices, risks associated with separate accounts and so forth. >> can you update me on what you think your time line will be or do you know yet? >> i am not certain. >> you can get back to me when you know. >> what our time line is. i do want to say that in spite of the fact that we understand you want to tailor an inappropriate regime there are limits to what we can do. e collins amendment requires us to withstand a bullish consolidated minimum risk based capital and leverage requirements to these holding companies that are no lower than those that import apply to insured depository institutions. >> i understand. i have a limited amount of time.

you referred earlier to employment and you're concerned that there are changes in employment going on. a lot of people have given up. unemployment stayed steady at 6.6% but i am worried you are using the wrong look at unemployment the traditional view because of the changes going on. and you look at you 6 for your view of what full employment is. underemployed and people who have given up. >> we're looking at u 6, the extent of part-time employment for economic reasons is unusually elevated. >> it is going to increase. i hope you will take a look at what is appropriate and considers that. i am running out of time but the last thing i want to ask you about is you may not be able to say this because you may not want to anybody to think you are trying to grab power but if we were going to redo regulatory framework, we had another chance to look at it wouldn't it make

sense whether it is the fed or somebody else to have one systemic regulator and functional regulation regardless of who you are, regulate based on what you do and one systemic regulators that we had six regulators in last week about the volcker rule and is very confusing where there could be contradictory things that different enforcers of the same rules say. don't you think that would be a better way to regulate? >> there were pros and cons in congress, we certainly have a complex system and i would agree that sometimes coordination is quite challenging. >> the time of the gentleman expired. the chair recognizes the gentleman from florida, mr. murphy for five minutes. >> thank you for your time. it has been a long day. the collapse of the housing bubble and results of the financial crisis devastated the global economy and cost american

$17 trillion worth of wealth. many assign the responsibility for low-interest rate and lack of capital leverage standards to the federal reserve and chairman alan greenspan. i do not believe the fed caused the crisis but its policies helped fuel the bubble. in june of 2009 you said higher short-term interest rates might have slowed the and sustainable increase in housing prices. with the benefit of hindsight would measures to slow the housing bubble have been appropriate? >> certainly the collapse of housing and the bubble were devastating and the heart of the financial crisis, so with the benefit of hindsight, policies to have addressed the factors that led to that bubble would certainly have been desirable. a major failure was in

regulation and in supervision and not just in monetary policy. going forward, i recognize and my colleagues do, and environmental blow interest rates can in send the development of bubbles and can't take monetary policy off the table as a tool to use to address it. is a blunt tool, macro provincial policies, many countries do things like impose limits on value ratios not because of safety and soundness of individual institutions, they see housing bubble form and want to protect the economy from it. supervision and regulation should play a role of more targeted policies. >> would you be willing and open to pushing for policy to prevent

another catastrophe if it means slowing or deflating and assets bubble and follow up to that. i use seeing any bubbles out there now? anything you are concerned about? >> nothing is more important than providing another financial crisis like the one we just lived through so it is immensely high priority to the federal reserve to do what we can to identify threats to financial stability. one approach we are putting in place for dodd-frank rulemaking is to fill the financial system that is much more resilient, the amount of capital and largest banking organization, doubled. that is important, but detecting threats to financial stability we are looking for those

threats. i would say my general assessment at this point is i can't see threats to financial stability that have built to the point of flashing orange or red. we don't see a broad base buildup for example in leverage, very rapid credit growth, asset prices generally do not appear to be out of line with traditional metrics but this is something we are looking at very carefully. >> a minute left. wall street reform doesn't interbank holding companies with bank assets above $50 billion and enhanced supervision. asset size alone the best way to measure a bank systematic reports? >> no. we have a whole variety of different metrics. we strive to differentiate within that category of 50 and

above and the largest banking organizations. for example, the eight largest bank holding companies for higher capital requirements, supplementary leverage ratios, those things do not apply to the $50 billion banking organization. we are trying to to taylor regulations even with that 50 and above and certainly below what. >> touch briefly on your efforts to running the examination process did you are doing with smaller community banks to ensure they get the right information that you are not burdening from some community banks for your efforts. >> we have formed a new organization called community -- council of community banks, that we meet with four times a year

to understand their concerns and we have a special new committee of the board to focus on issues with community bank supervision. we are listening and trying to be sensitive and attentive to those concerns. >> the time of the gentleman has expired. the chair recognizes the gentleman from kentucky for five minutes. >> thank you, madam chair, congratulations on your appointment. again, thank you for your generosity of time, particularly for those of us at the end of the line of questioners. madam chair, you have stressed in your written and verbal testimony today the fed statutory mandate of maximum employment. should be objective of u.s. fiscal policy also be to maximize employment? >> fiscal policy has many different objectives. affects the economy in a whole

variety of different ways. i wouldn't have stated that that the main goal of fiscal policy but it is of goal that fiscal policy should take into account. >> last week as you know the congressional budget office has issued this report. that report projected that the president's health care law, obama care will reduce the size of the labor force by 2.5 million full-time equivalent workers over the next decade. that is about triple what the cbo a originally projected after the congress passed obamacare three years ago or four years ago. in commenting on that report the cbo director testified the act creates a disincentive for people to work and it does this against the backdrop where the labor force participation rate is already the lowest it has been in 35 years. the white house responded to

this bad news by claiming 2.5 million americans leaving the work force was actually a good thing, saying these people would no longer be, quote, trapped in a job. my question to you is pretty straight forward. is a shrinking work force a positive or a negative development for the economy? >> it has different effects. i don't think there's a simple answer to that question in the cbo analysis they focused on. this not being a matter of creating unemployment. but of people withdrawing from the labour force and there are good and bad aspects. >> let me ask the question this way. the statutory mandate of the fed to maximize employment. why would it be a complex question? why shouldn't be the goal of

u.s. fiscal policy be equally dedicated to maximizing employment and shouldn't this concern all of us? >> i think the cbo recognized when they produced this analysis that the effects of this act are extremely complex and while it has effects on labor supply the act may have all effects on the growth of health care costs, a number of different impact on the growth of the economy over time going in different directions. >> will a declining labor force, how will that impact deficits? >> i am not sure. >> let me move on to a different subject. as an economist at as fed chair as uss the fiscal health of the nation which is a more meaningful statistic, the total debt factor or the ratio of debt to gross domestic product and

why would you choose one or the other? >> i would look at the debt to gdp ratio both currently in its projected path over time under assumptions that current policies continue. i think you can't assess the data from the economy and how if you are looking at the death of a household you need to assess it to know what the household income is what is the unbearable or serviceable level of that given the income that households or the economy, what is important here is according to any projection particularly the cbos over a longer rise in the u.s. debt is unsustainable reluctant to gdp. >> appreciate your comments and your testimony. i introduce legislation that would replace the existing debt ceiling lot with a new debt ceiling that ties the debt to the new ceiling to declining

debt to gdp ratio. one final question. i often hear the argument that quantitative easing enables fiscal deficits by lowering the cost of borrowing by artificially fueling the market for u.s. treasurys. is very reason to be concerned that q e crosses the line from monetary to fiscal policy because it implicitly finances government? >> not in my opinion. i believe the fed is focused on its mandate that was given to it by congress, namely maximum sustainable employment and price stability and i think you should hold this accountable to meeting those goals. >> i yield back. >> the time of the gentleman has expired. the chair recognizes the gentlelady from ohio for five minutes. >> thank you mr. chairman and ranking member. let me say, madam chair, i join

my colleagues in congratulating you and also say it is quite an honor on this historic day for me to have an opportunity to pose questions to you. my first question is somewhat similar to congressman meeks and play as they talk about diversity in minority participation. certainly you and your staff will know in the 2013 g a o reported talked-about the decline of diversity representation but on a very good note when you look at what the dodd-frank did to create amwayh that will allow women and minorities to be more included not only in supplier development but also in policymaking. thanks to congresswomen waters she has allowed the opportunity to meet with amway directors

throughout the area. my question is as relates to that, how will you help to promote and to elevate amway with all of the division's? >> the divisions of the federal reserve? we have a very active program intended to promote diversity and bring in minority-owned businesses and win owned businesses as suppliers. we have incorporated supplier diversity language into all of our contracts. we now confirm to equal opportunity and employment, in contacting their inclusion of minorities in women in the workforce. we are engaged both at the board

and the federal reserve banks, a number of different programs to attract an increase in minority, employment of minority in women and we are tracking our success in the board at the officer level. we have increased staff i believe, the last year for which we have full data in 2012, there are seven new officer positions and six of them were minorities and female representation in the manager and officer ranks has also increased. we are taking many of the steps including affiliations with recruiting organizations with minority based in order to improve our net worth from which we can hire and we are trying to

understand what best practices are in this area and to move forward vigorously. >> let me try to quickly shift gears. new york confirmation hearing you indicated your agreement that insurance has unique features that make an different from banks and you agree at tailored regulatory approach would be appropriate. one of the things my constituents are asking is how could the federal reserve develop a timetable for rulemaking for insurance companies subject to federal reserve supervision and how would you ensure the federal reserve work with industry and other insurance experts to develop an insurance based capital framework? >> we have been working very hard to understand the special characteristics of insurance. we are purposely taking our time

to develop standards so they can be tailored to the needs of the industry. we are consulting with experts in the insurance industry in building our own expertise and we are committed to devising an appropriate regime, we apply to banks and recognize special features. i will say again, the collins amendment is constraining in terms of what we can do in terms of capital and liquidity requirements. >> let me just end by thanking you for being so generous with your time today and having such stellar answers. i am a big fan of when women succeed america succeeds and you are setting the light for women across the nation. thank you. >> the time of the gentlelady is not quite expired. but it has now. the chair recognizes the

gentleman from arkansas, mr. cotton. >> thank you very much for staying with us today and congratulations on your recent confirmation. the hearing with your predecessor, ben bernanke, my mother sent me an e-mail, my mother is a retired schoolteacher and my dad is a vietnam veteran. my mom said ben bernanke we would like some more interest on our savings. this is something i hear from my constituents lot in my role in my arkansas district, one of the largest planned retirement communities in the country, largely middle-income retirees who are prudently investing in things like cd and money market accounts and other fixed income at and falling behind because of the lower interest rates the last five or six years and feel it would be unwise to enlist in riskier assets suitable for younger people. i had questions about that. the best way to raise them is

through this video retired navy commander made expressing the same concerns. if we could roll the video. >> my name is janelle. i served in the navy from 1960-1983 with three combat tours to vietnam, 68, 69, 72, and the arab-israeli war, 73. and in civilian work i developed defense electronics systems for 25 years. now, semi retired, i use my experience to help other companies grow and supplement my retirement income. we have three children plus a foster daughter from vietnam and nine grandchildren. in retirement our financial obligations include ourselves as well as our son, 52, with down syndrome. living with us in arlington and our daughter and high school age granddaughter in another state. as our daughter lost her job and

apartment in 2007. i am still working at age 76 because our family savings were ravaged in the stock market collapses of 2000 and 2006. having recovered much of our losses from the previous week to downturns there is talk of another successive bear market as many big money investors have recently taken their profits. at age 76 is very stressful to into the fed's easy money policy. ..76 it is very stressful to endure the fed's easy money policies. our retirement savings will not be restored until i am age 83 assuming i can continue contributing to our retirement accounts. perhaps then i can retire. chair yellen, many seniors who are living on fixed incomes are suffering. when chairman bernanke was asked about