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[applause] >> thank you for coming for today's ceremony. please come back it the department of justice and join us. [applause] so what

is the misunderstanding here? what do they have from here and why do you think we need until until -- waiting until 2016 is a mistake? >> there off easily a range of

opinions both in the market and among committee members at this time on what the perp or it stance of the policies is likely to be later this year and next year but importantly, when the people right down there docs and the sep there are making forecasts about what unfolding data is likely to show but the participants will all be prescod there views will evolve with the unfolding data. for all of us, the appropriate policy decision is going to be data dependent and all of us will be looking at incoming data and our opinions about the appropriate timing of normalization are likely to shift as we look at how the data

is false. differences in the procreate assessments and the appropriate stance of policy in addition to reflecting different views in the outlook there are a set of risks that all of us need to weigh in judging the appropriate time for the beginning of normalization. on the one hand, waiting too long to begin normalization can risk significantly overshooting our inflation objective given the lags in the operation of monetary policy and on the other hand beginning to early good risk derailing a recovery that we have worked very very long time to try to achieve so we are trying to assess those risks. but i want to emphasize some too

much attention is placed on the timing of the first increase in the federal funds rate and what should matter to market participants is the entire trajectory the entire expected trajectory at a policy and again while our actual policy decisions will have to evolve in light of what really does happen in the economy, the committee as you can see by the sep projections currently anticipate that conditions will evolve in the economy in a manner that will make it appropriate to raise the federal funds rate gradually over time. >> manager i wonder if you might characterize the progress made towards fulfilling the criteria. are you somewhat more confident, not confident at all that you are moving towards 2%? has there have been a lot of improvement in the labor

markets, some improvement in how should we judge when those two criteria have been fulfilled? >> well it's a judgment that the committee will have to make and has -- as i said previously and i they said in a statement it will depend on a wide range of data and not on any simple indicators so i can't provide you and it would be wrong for me to provide a roadmap for something as simple as if the unemployment rate continues to axe the labor market will look improved enough for us to begin to raise policy. obviously we have to look at the pace of job creation. we have to look at what's happening to labor force participation to part-time employment for economic reasons two job openings, to the pace of inflation and other indicators

and the state of the labor market. i did say that we agreed that labor market slack has diminished to some extent in the intervening period and clearly over a longer span of time over the last several years obviously we have made considerable progress in moving toward our goal of maximum employment. so in spite of the fact that there is some progress on that front, the committee wants to see some further progress before feeling that will be appropriate to raise rates. on inflation again, there has been some progress in the sense energy prices appear to have stabilized. now inflation is going to overall inflation is likely to run at a low level for a substantial period of time. the big declines in energy

prices came toward the end of last year and the beginning of this year and you are not going to wash out of the inflation data until late this year, but the fact that energy prices have stabilized means that the pressure from outsourced is diminishing. in addition the dollar appears to have largely stabilized and with respect to core inflation that has been running under our 2% objective but declining import prices have been reducing that pressure. i believe as the market continues to improve and as our confidence in that forecast rises, at least for me my confidence will also rise but inflation will move back towards 2%. i expect that over time to put pressure on core inflation. ..

>> throughout the time the fed indicated they would rise to the measured pace command that turned out to be 17 meetings with 25 basis.increase is at least meeting. as i empathize previously we have absolutely -- we absolutely do not expect to follow a mechanical 25 basis points meeting 25 basis points every of the. no plan to follow any type of mechanical approach to evaluate incoming conditions and move in the manner that we regard as appropriate. you know, know, conceivably i think with the benefit of hindsight it might've been better to raise rates more

rapidly or more during the 2,004 to six cycle. i'm not certain. you asked about the fed of the shelbyville. the shelbyville has a title that addresses a number of issues pertaining to the fed i suppose i would ask what exactly is the problem. high priority on being accountable and transparent central bank. i think that if you compared the transparency of monetary policy decisions and the federal reserve with other central banks we are one of the most transparent central banks in terms of the information that we provide to the public in a variety

of ways. to my mind the fed is accountable command we work well as an institution. i'm not certain what the problem is that needs to be addressed. >> thank you very much. first question to do with the balance sheet and tightening monetary policy. he suggested the short rates should be height some way from the low bound for the fed continues. i wonder if you could give a little bit more clarity on how the fed intends to approach the issue of ending reinvestment on the balance sheet. what you see any argument for a tapering to smooth the profile? the 2nd question is really

on this.gradually. he used this term today. gradual on its way to becoming official guidance something we should start to expect to see popping up an official fomc statements in the future? >> let me start with the balance sheet and a reimbursement policy the issue the normalization statement giving principles of normalizing policy. but we said at that time is that we expected to reduce or cease reinvestment at sometime after we hit the process of normalizing policy federal funds rate. the rate. the timing of that would depend on economic and financial conditions. in the committee has really not made any further decisions about how it's

going to go about doing that expressing his own personal.of view but this is a matter that the committee has not yet decided but seek you asked about gradual. in a sense we already have a statement the flow of the market committee statement says the committee currently anticipates that even after employment and inflation are near mandate consistent levels economic conditions may for some time warrant keeping the target federal funds rate below levels the committee views is normal in the long run.

that is a mouthful, long sentence, but i but i think the spirit of essence is consistent with my use of the word gradual and consistent with what you see in the summary of economic projection. participants are projecting. obviously a lot of uncertainty, but they are projecting increases in average around 100 basis points per year. that's not a promise. conditional on the economic forecast. this forecast naval group to be wrong. wrong. but at this time the assessment that participants have was the economy suggested in the the appropriate base of normalization to keep the economy on track to meet our objectives will be gradual in that sense.

>> mdm. chair, if i could just giving you discussions of the past two days with your colleagues the improvements you have seen seen, do you think it's likely we will see a rate increase? become the imf recently this month to hold off on raising rates. your colleague mentioned specifically the risk. the rate hike to triggered -- trigger market stability consequences they go well beyond the us borders. i you factoring in the international context to your decision-making? what is -- was it appropriate to make those

kind of decisions? >> your 1st question was about a rate increase this year. you know, again the committee tries to give an indication about how economic conditions will unfold the best predictions about what the appropriate policy will be in light of those expectations" the most participants are anticipating the rate increase this year we will be appropriate. now, that assumes as you can see that they are expecting a pickup in growth in the 2nd half of this year and further improvement in labor markets. we will all be making decisions as it depends on the actual data -- database in the months ahead.

certainly we could see data and months ahead that we will justify the expectations that you see in the so-called ipod. the important.is no decision has been made by the community but with the right timing is the increase. it will depend on unfolding data in the months ahead. certainly an increase this year is possible. we can certainly see data that would justify that. in terms of the imf guidance believe the imf plays a useful role by undertaking reviews of the economic policies of all of its members. obviously there is a range of opinion among outside observers and market participants as well as

among the community's participants as you can see in the sep about how economic conditions are likely to unfold and consequently the. timing of an initial rate hike. i think we all agree the policies should be data dependent the committee is always doing its best to assess the implications of incoming data. we have had incoming data since then. again, i want to emphasize and i think the imf would agree with this that the importance of the timing was the 1st decision to raise rates, something that should not be overblown whether it september or december on march. what matters is the entire path of rates.

as i've said the committee anticipates economic conditions that will call from a gradual evolution. with respect to international spillovers this is something that we have been long attentive to. obviously we have to put in place a policy that is appropriate to revolving conditions in the us economy we can't promise that there will not be volatility when we make a decision to raise rates. what we can do is to do our very best to communicate clearly about our policy and our expectations to avoid any type of needless misunderstanding of our policy that could create volatility in the market potential spillover to

emerging markets. a a been doing my best to make a pledge. >> he just talked about the fact that you can't promise that will be volatility in the market. there seem to be two schools of thought. the fed learned from the mistakes made an entry and told graph is so well. more pessimistic school five seems to be that when you do start raising rates there below for so long that it will make the taper tantrum seem mild. >> i think our experience it's hard to have great confidence in predicting what the market reaction the

i don't think the committee anticipated its decision would cause the taper tantrum. all i can say is that uncertainty in the markets at this.doesn't appear to be unusually high. we can only do what is in our power to attempt to minimize maintenance volatility could have repercussions more generally that is to attempt to communicate as clearly as we can about our policy decisions, but there will depend on and what were looking at. we will be responding to incoming data. we tried to make that clear. i think it's i think it's clear that the market is also responding to incoming data command you can see

that and daily market reactions. of course none of us quite forecast what incoming data will be. >> your latest economic projections show that you expect the employment rate to fall more slowly this year. could you talk about what has changed in your assessment? >> so, we are -- productivity growth has been -- is a factor that affects the pace of improvement in labor market. productivity growth has been extremely slow for the last couple of years. i think in part the pace of

improvement is the labor market that will project and reflect the notion that there is likely to be some pickup in the pace of productivity growth. obviously that's something that is quite uncertain and is conceivable for the productivity growth. at this time it's something i hope we won't see it as it has negative implications. in addition there are other margins that don't show up at the unemployment rate labor force participation that appears to be depressed to some extent because of cyclical weakness. the fact that labor force participation rate has remained stable for the last year or so and there's

there's an underlying downward trend suggesting some slack is being taken up by improved or diminished cyclical impact. i expect that to continue and would expect to see some improvement in the degree of part-time employment. >> to your.on the needing more decisive evidence in order to initiate the 1st break i am how how close do you feel the economy is to full capacity? given that employer costs and monthly wages are out of place what is the risk, how is the wrist changing for inflation the strength quicker than you are

expecting? >> the committee estimates that the longer run normal level of the unemployment rate is 5052. 5.5 percent. we have an unemployment rate that is still exceeding the committees best attempts to estimate what is normal unemployment rate for this economy and, as i mentioned, there appear to be unusually large elements of slack over and above that in the form of depressed labor force participation and part-time work for economic reasons. so i think it's fair to say that most members most participants in the community will judge at most would not judge us to be a maximum employment which

wage increases are still running a local level there have been some tentative signs with wage growth picking up. we have seen an increase in the growth rate of the employment cost index in the mild uptick in the growth of average hourly earnings. tentative signs of stronger wage growth. it's not yet definitive but that is a hopeful sign. still however inflation not only headlines the core inflation still running of the community's objective. i think we need to see additional strength in the labor market and the economy moving somewhat closer the capacity the output gap shrinking in order to have

confidence inflation will move back up. >> thank you. >> thank you. both rent and house prices have been rising rapidly recently squeezing americans on both sides. how comfortable are you with this and does it impact on policy? >> well, i mean, the increase in house prices is restoring wealth of many households who have that is the major asset. it is an important part of the wealth of american household.

households that are underwater, those house price increases are improving the financial condition. the housing was affordable for those who look to buy. the low level of mortgage rates remains quite affordable. credit availability remains quite constrained. finds it difficult at this.to qualify for a mortgage command i think we i think we're seeing quite a bit of reluctance given the job market given the history of young people. wanted by homes.

the demand for multifamily housing moving out. >> i have a question. [inaudible question] >> unfortunately greece and its creditors are faced with difficult consequential decisions at this.and in the days ahead. my hope is that they would continue to work together to

find a solution. obviously european leaders place great value on preserving european monetary economic and political integration. the people have made clear is important to them to remain in the euro area. in the event that there is not agreement i see the potential for disruption that could affect the european economic, global financial markets. i i would say that the united states has limited direct exposure to greece to the extent they are impacts

that would undoubtedly be spillovers. >> i like to come back to the topic of consumer spending. some wondering, do you think there has been a meaningful shift and one that will persist in the behavior households respect spending and saving more would you be more inclined to look at the retail sales figures. >> in recent weeks we have received data that suggests that consumer spending is

growing up moderate pace. car sales, for example, were very strong part of it probably represents payback per week sales training where months. nevertheless the great car sales has been strong in recent readings are retail sales improving the pace of consumer spending. questions about just how much impact we've seen lower energy prices and consumer spending. the decline in oil prices translates into an

improvement in household income on average is something like $700 per household and i'm not convinced yet but the data that we have seen the kind of response to that that i would ultimately expect. i i think it's hard to know at this.whether or not that reflects a cautious consumer that is in your dad to savings and worked on borrowing. import survey evidence suggests that consumers are not yet confident. the consumers of seen a decline in the need to spend pretty. something that will be permanent. permanent. it may be a transitory change and not yet be responding. the jury is out. we have seen some pickup in household spending.

>> foxbusiness. wanted to shift over. there is nothing in the federal reserve act or any other federal statute that would permit the federal reserve bank to take over from private corporation and when it's businesses if the government were the owner if that is precisely what the federal reserve bank of new york did in the judgment on the site replacement for aig chief executive officer in taking control of the business operations. did the fed break the law in assisting aig? and if this decision is upheld on appeal how does that affect the fed toolbox? affect its ability to help trouble in the future financial?

would it make that kind of assistance illegal? >> the federal reserve strongly believes the actions with respect aig 2,008 were legal, proper, and effective. it believes that they were necessary given the threat for credit to households and businesses in the economy. and it believes -- we believe that the terms of that intervention were tough and appropriately so in order to protect taxpayers

from the risks that those rescue presented. now, i should emphasize that .-dot frank changed of 133 authority and said that the federal reserve may not a future crisis intervene to attempt to address the issues. the same time it gave the government a set of new tools that could use in a situation like the aig situation only to try to resolve such a situation has poses systemic risks. at this.the federal reserve under dodd frank can continue if necessary in some future crisis to engage

in broad-based programs similar to the program we had in effect the programs we had in effect in 2008 to provide support for the issue credit cards throughout the economy. support the issuance of commercial paper. at this time will work with the department of justice to decide on the steps. >> madam chair, so much discussion about rising racing to focus on the potential negatives.

the unintended benefits. so many years of miserly returns that many may maybe anticipating in a positive way things the return. >> to my mind the most important positive recovering from the trauma of the financial crisis and then many different place. hopefully many households and businesses hear from

some almost every day or suffering from low rates this obviously has been one of the adverse consequences we are charged from congress price stability. that's what we've been doing. every household including favors.

>> i. just a follow-up. if not this meeting soon what kind of insurance is can you give. i have e-mails today. what kind of assurance can you give? >> i can't give an ironclad promise. it clear that we anticipate that the economy will grow the labor market will improve inflation will move back up to 2 percent receive

is appropriate to raise rates. as you can see the largest number of participants anticipate those conditions should be in place later this year. they can be surprises we anticipate that something that will be appropriate. >> said some additional light efficiently how important our financial conditions to the base of the fed tightening cycle.

>> with respect. overnight reverse repos we communicated in our minutes, the committee has an intention to make sure they are available overnight. i left off to ensure that we have a smooth liftoff. however, it is our expectation and plan that fairly quickly after liftoff we will reduce the level of the overnight facility. with respect to market reaction we always in

evaluating the economic outlook have to take account of financial conditions what is the level of long-term interest rates or the value of the dollar in assessing the economic outlook. to the extent that there are market reactions and market movements whether they are in reaction to decisions of hours or in reaction to other events, foreign events unfolding economic conditions we we will always take those in the account. >> good to see you. you mentioned the dollar stabilized.

since mid-march is given up a good bit of its gains last summer. summer. to what extent do you think that there will be an ongoing drag from the dollar taking into account this dollar retreat. overall how important is the dollar exchange rate monetary policy these days relative to the past? >> we still are hosting an appreciable increase in the value of the dollar vis-à-vis most of our trading partners including emerging markets. it is a significant appreciation of the dollar. we have seen that it has had a negative effect a negative effect on net exports and so served as something of a drag on the economy and probably that drag is going to continue for some time to

come. it is a factor affecting the outlook. in addition on import prices continue to fall serving to push down core inflation. eventually i expect that impact. it is a factor affecting the outlook. that said we obviously have no target for the dollar. we take movements as one of many factors affecting the outlook and in spite of the appreciation of the dollar the committee obviously thinks that the economy is likely to do well enough to likely call for some tightening. >> i.

last month sen. elizabeth senator elizabeth born in the pleasure coming soon to a letter to the gal as the human inquiry into fed another regulator implementation of the community reinvestment act. the concern being that cra has implemented now is not giving communities like in baltimore or other places enough access to basic banking services. to these kinds of services? >> we take cra very seriously. we evaluate for those banks that we supervise. we have a set of guidelines

and a very conscientious and attempting to evaluate cra performance something that we certainly take into account in assessing applications that we received from mergers and have very active programs to try to bring together community groups with banking organizations to try to provide them with information about how they can assess community needs and best address them. them. but we are looking at cra continue to look to see whether there are ways in which implementation could be improved. >> thank you very much. obama

sundays at 8:00 p.m. eastern on american history tv.

>> the committee will come to order. this hearing is for the purpose of receiving the annual testimony of the chairperson of the financial stability oversight council. i now recognize myself for five minutes to give an opening statement. when democrats 1st past the dodd frank act they claim the financial stability oversight council is one of the scoundrels. f sock would now be able to clearly identify risks such an take action before emerging threats metastasized into another and another crisis. a fatal flaw was always a failure of dodd frank supporters to recognize that among the greatest threats including those of the very agency heads that sit on the council.

fc -- fs oc oc simply refuses to look in the mirror conspicuously omitting references. a greater risk-taking across the financial system is encouraged me at the council refuses to identify this risk. the council warns of increase liquidity it never acknowledges that have drastically reduced liquidity failing to mention dodd frank amplifies the threat then that requires

the profound threat recently identified by the federal reserve bank of richmond. 's. hard-working taxpayers are now on the hook for a a staggering 60 percent of the liabilities of the entire us financial system's. the council turns a blind eye the other threats barely receiving a mention and it gets worse, unsustainable national debt, 18 trillion counting perhaps one of the greatest existential threats that we face. more debt incurred under this administration that our nations 1st 200 years totally ignored. this is beyond negligent beyond egregious and dangerous and defensive. the growing permission is any meaningful reference to economic growth or lack of

it. along with obama care dodd frank is at the center of the ministrations economic policies. as we approach the 5th anniversary. >> he disclosed weakest recovery in the postwar era and economic recovery that is created for .1 million fewer jobs has provided $6,175 less income for every citizen compared to the average postwar recovery. again, compared to the average we see an economic recovery that is left 4.6 million fellow citizens mired in poverty. apparently can find no link between economic growth and stability on the side of the atlantic. also nowhere to be found in

the council report is that the opposed to our stability, growth, and personal freedoms posed by the erosion of the rule of law. our president seemingly never tires of admonishing us is that he has a pan am phone. regrettably never seems to have handy a copy of the constitution. as americans become less governed by the rule of law and more governed by the whims of washington the unaccountable and unelected

including the financial stability oversight council which operates largely out of public view yet his decisions of the potential to profoundly altered lives and livelihoods of every american's powerful government administrators publisher. when it comes to systemic risk washington is a large part of the problem. now recognize the ranking member for five minutes. >> thank you, mr. chairman, back. today we received the annual report of the financial stability oversight council as required by law. this year marks the 5th anniversary of the enactment

of the dodd frank wall street reform and consumer protection act. hard to act. hard to believe's and was five years ago we were coming to grips with the magnitude of the financial crisis which cost the greatest loss of wealth in a generation. all told the financial crisis cost our nation more than $13 trillion in economic growth and 16 trillion in household wealth, not to mention the devastation of an unemployment rate tough a 10%. in the lead up to the gross is nobody in the private sector or in government is looking at the stability of our financial system. nobody have a responsibility to deal with emerging threats before they cause damage to our economy. that is why we created the financial stability oversight council as part of dodd frank.

looking in every aspect of our financial system command it serves as an advanced warning system to identify and address systemic risk posed by large complex companies, products, and activities before they threaten the economy. the council has insured for the 1st time that our financial regulators are working collaboratively to identify and respond to emerging threats to financial stability's. with the announcement outlining enhanced engagement opportunities for public input they have double their efforts to engage with the industry and congress in a transparent. in this 2015 annual report the f sock knitters substantial progress to protect americans from another crisis and indeed if

taken important steps to prevent if discovering oversight gaps in our financial system by designating complex interconnected and reforming key markets like asset-backed securities and money market mutual funds. however, five years after dodd frank became law's mouth was in college earning fighting the battles of the past. the financial system would magically unlock growth in the market would suddenly police itself. they continue to ignore the lessons of the last verses by doing all that they can to undermine

fsc. focusing merely on the college of the other side of the aisle. aisle. congress' ability to focus on the knew, emerging threats to financial stability identified in the 2015 annual report. like the consumer financial protection bureau fs oc has become a a leading component of republican deregulatory agenda's. finally waste countless hours working to undermine engines of job growth in america competitiveness with the export import bank they make it possible to shut down and just five legislative days. whether to renew a proven job creator republicans are wasting their time and countless document requests and inquiries from an obvious effort to undercut ability to protect homeowners consumers, and the american economy. so welcome and thank you for

your resilience in the face of efforts to stop the council's important work. i would forward to your insights. i hope to learn more about what fs oc is currently going to monitor's for risk and promote financial stability. additional details i we will be interested to hear whether republicans believe fs oc should take any action to address systemic risk or simply wait for another crisis. crisis. thank you and i yield back the balance of my time. >> the gentle lady yields. today today we welcome the testimony of the honorable jacqueline. testify before community on previous occasions. welcome. we're happy to have you back

without objection your written statement will be made a part of the record. you are now recognized for five minutes to give an oral presentation. >> thank you for having me today and for this opportunity to testify. i would like to begin by recognizing we are a few short weeks away from the five-week anniversary of the enactment of wall street reform the creation of the council. as we approach this milestone it is clear that have made this more safer and resign. wall street reform has been protections in place. small small businesses that need access to credit and working men and women trying to save for children's education, down payment on a home with her retirement. wall street reform is worked

five years ago the council was created to be a a forum for the entire financial regulatory community to come together to identify and respond to potential threats today the council is doing exactly what congress decided to do for asking the tough questions that will make a financial system safe are the shining a light on emerging threats before they can involving the next financial crisis. moreover the council's moreover the councils member agencies were collaboratively leverage the expertise. the council has also established track record of conducting work and open-minded and deliberate manner. the council asks hard questions. before discussing this year's report i want to emphasize what you general report is important.

provides transparency about the council's work. each report covers a range of issues based on extensive data-driven analysis. current risks and emerging threats along with recommendations for specific actions to mitigate risks. the findings the findings and recommendations set down a marker for action and a roadmap to your head providing congress and the public a way to hold the council accountable for making progress. the report highlights the councils recent work and demonstrators continued commitment to openness and good governance. for example this year's report highlights highlights a series of initiatives including enhancements to the councils transparency policy supplemental guidance and ongoing engagement with the public focusing on 11

key areas many of which have been reported. these include the potential incentives for greater risk-taking, the need for continued progress in the continued reliance on short-term wholesale funding. for each of these areas the report highlights were progress has been made's and where more needs to be done. the financial sector has been a leader of other industries adapting cyber security measures and still we have seen several incidents affect the largest prize substitutions and community banks or form the bedrock of the financial system.

strengthen best practices. i commend the committee for focusing and we look forward to working with congress. this year's report identified several new potential risks which the council and member agencies will monitor. the council will pay heightened attention to ongoing regulatory efforts will bolster the resiliency of central counterparties season three. the market structure across asset classes and market function efficiently. the council recommends continued vigilance and the extent of the impact of market function. promoting financial stability and protecting the american public for the next financial crisis should be a

common objective that we all support. yet opponents continue to advocate rolling back these protections including the ability of the council and member agencies to respond to future threats to financial stability. as the council for report demonstrates threats to financial stability the marketplace.

we simply cannot let our guard down. i want to thank the other members of the council and all our staff involved. as we approach the anniversary we will continue to work with this committee to continue addressing these threats and promoting the strength and stability of the us financial system. thank you, and i would forward to answering any questions. >> the chair now yields himself five minutes for questions. i alluded to it in my opening statement, but by chance are you familiar with the bailout from a report of the richmond fed? >> i have seen it. i'm not sure which one you are holding. >> am sorry? >> have seen it, but i'm not familiar. >> you have reviewed the document? >> unfamiliar with it. >> your familiar with the fact that it indicates there have been increasingly implicit guarantees of the crisis. >> i understand that that is the amount that is on a peace of paper. it's. >> do you have any reason to challenge that? >> look, if you look at the experience we have had we have seen -- >> i'm just asking -- >> i have not looked at that peace of paper i can give you my response. >> let me quote from the report. $26 billion according to the richmond

fed in explicit and implicit federal backstop the. one of the final conclusions of the report is that it is essential to restore market discipline and achieving financial stability to shrink this federal safety net. >> i net. >> i don't want to comment on a report i have not read. do you believe it is important to achieving financial stability to shrink the size of the government federal safety net? do you believe that the extent of the federal safety

net's should be shot? for reform in the area of gse. >> can i take that as he is? >> you don't have to look at the report. >> the agencies themselves. we can also agree that of the ten voting members i'm

not read the entire report. identify emerging threats to financial stability. can you.to any page airport they identify a policy will? we can't find it. >> we identified the threat. many have a connection to federal policy. >> you also have the mandate to make recommendations. how you make a recommendation if you can't cite a source? >> it is not my view that the regulation is a significant risk.

>> increasing evidence that we are suffering greatly liquidity in a corporate bond market. this report cites it. we know that the midmarket companies poured cash. the our jobs and economic growth. many many economists believe this will be the source of the next financial crisis. somehow the thin red can connect this on illiquidity to the vocal. sec commissioner randel your cftc commissioner the treasury larry summers' enthusiasm for keeping it institution safe.

the last testimony you found no evidence that the bonds to -- revocable contribute abundant liquidity. >> very complicated. he spend a lot of time thinking about it. >> is it not? >> i do not believe there is a relationship. [inaudible conversations] >> may i i address this issue? i think it's important.

>> to be that be happy to have a secretary answer the question. >> we're seeing naturally a lot of volatility. the high-level or electronic trading that changes the structure of markets. [inaudible conversations] >> i did not say. for conjuring factor.

>> there was a desire a desire for certain things that are high risk's. i don't think necessarily a bad thing. >> thank you very much. >> the thing i would add there has been a lot of focus on the issue.

a little on telling of the story what happened there was no breakdown there is no liquidity crisis. there was a moment in time when those a lot of off risks sentiment because of events going on in the world. a huge amount of electronic trading going on to my there was a blip in the market that obviously is very much worthy of our attention. what people took from that incorrectly was the notion that somehow that was an event that was caused by will.

it wasn't. >> thank you. one of the largest and most frequent criticisms about my republican colleagues have lodged against the financial stability oversight council is what they deem to be a lack of transparency with respect to systemically important financial institution. while i think many of the criticisms are merely attempts to hamstring the council under the guise of oversight i appreciate both you and your staff have redouble your efforts to engage with congress and non-bank institutions. would you describe what changes fs oc made? and please describe how we balance the need for transparency against t market and supervisory

information. >> we made a number of changes. they give a great deal of notice and transparency to the process of partisan review. i want to underscore that there was a lot of back and forth. this is not as radical change is it may sound but it is more formal and something that has led to a good deal of recognition that the system is more transparent. the review process by necessity involves reviewing highly confidential business documents that are commercially sensitive.

under law they have to protect the documents and information. we try our best in the context of that constraint which is a reasonable constraint shared by supervisors of the institutions to be transparent with the public in the community at the same time. the changes we have made have helped, but we remain open to suggestion on how to always improve the process. >> last month the chairman of the full committee and five chairman of the subcommittee sent a lengthy and onerous request for documents regarding the designation process which contained at least 13 different subparts. it is my understanding more than a week ago you responded to that document request with an offer for review of 1,400 pages of confidential business and bank supervisory information since you responded my staff

has begun to review those materials. to your knowledge as the majority avail themselves of that opportunity? would you consider the production of such sensitive and voluminous documents to be consistent with the council's desire to be transparent? >> we did make an offer. we appreciate that your staff has begun reviewing it. it. i am not aware that the majority has reviewed it. that is the right way to make clear the commitment to transparency while protecting sensitive confidential information. >> would you please allow the sec. to answer questions and given the courtesy of not badgering him? this is complicated subject matter command he deserves the right to be able to respond.

i yield back the balance of my time. >> the time of the gentle lady has expired. >> i think the chair. i would be delighted answer your questions. >> back in march. lo lo and behold took your appearance here today before we get the answers. we get the answers. march, april, may command halfway through june. invading the answers and it's a pattern of yours and not getting a clear answer. such disdain for the american public that we have to bring you before this committee before you answer the question. you asked a question. is it a factor connect the

secretary cannot answer. do you do you were able to come up with a litany of other factors. those those were all factors. but then he said that regulation is not a factor. is that the final answer? >> what i said is complicated. >> complicated. i understand. you list of the other four factors. we want a simple question. there was no evidence of regulation being a factor. >> that's my understanding. >> is it your understanding going further and folklore is than the falcon is not a factor? >> i think the rule is very important protection. >> is a factor? >> is this one?

>> i listed the factors that are now. >> do you know whether this is a factor? >> i am unable to say. >> the other factors. that's the end of those questions. >> am in trying to demonstrated open-mindedness. not giving me a chance. [inaudible conversations] >> with regard to the fs oc i appreciate they have announced they have a process with regard to listing of the potential risks associated. is there such a process as far as i'm due process system in place that we are trying to get to? >> congressman, it's a different process. >> i understand that. >> there is no consequence to the designation. >> i understand that. >> it does not have the

powers. >> i understand. >> is there a process? >> there is an open process where stakeholders share views and governmental entities share their views but it is a different kind of process. process. i don't think the same kind of due process issues apply when you not designating a fine. >> it is not a due process. it is a different different process. >> you are comparing apples and oranges. there's an appropriate set of due process concerns. >> asserting its authority. sure you're familiar with that. previously looking at that issue. until they finalize we will you go to fsb and suggest they make no final determination?

>> the basic issue. >> and that asking the basic issue. >> i don't think they are at all identified's. >> i understand. [inaudible conversations] >> as a member of fsb were you told us repeatedly it is done on a consensus basis will you go back and try to get a consensus, you would ask them to stand down for now. >> will we are doing is trying to make sure there is a complete review. >> got you. i understand all of that. there are diplomatic command all the rest. will you use your capacity? >> i don't know the precise schedule. >> did not think that you did. >> i don't think that the fsb can time all of its

actions. >> i doubt that they can. can you assert your authority to try? >> this consensus process, understand what it's about. [inaudible conversations] [inaudible conversations] >> i would have to look at where we were and where they were and make a judgment. >> the time of the gentleman has expired. >> thank you. mr. secretary we have held a number of cyber security hearings to examine cyber attacks on consumers and businesses. many many witnesses stated a clear uniform set of rules to address this problem. can you elaborate on the proposal for a national plan to respond to cyber threats that you mentioned in your testimony? >> thank you.

this is a hugely important issue. there are exposures to cyber risks everywhere. everywhere. the financial sector has been a leader in taking it seriously. lifestyles are putting enormous resources and to trying to put systems in place that are effective. one of the things we have done is a government that is important, our national institute of standards has put out best practices and we have encouraged the private sector to use best practices. i i am encouraged of the financial regulators to have the same you. i think that we are at kind of a moment where it is not just a question of what is a firm do but you have to ask the policies that the firm has with regard to live we will do business with. a lot of the exposures come not directly of the farm

bill on a third-party connect to the firm. they don't just have to worry about what they are doing but if they have good standards and our goal to be to bring all those parties a high standard. i think it's premature to talk about having a single national standards it is mandatory. we put it out as a voluntary standard. many are in ago use the standard and is something we have to look at. >> cost is an issue. do you have any type of enter agency working relationship on this matter? >> we do work across agencies in many areas in particular there are connections between the utility sector and the financial sector. if your power goes out your going to face risk. i am not familiar with the fda program.

in the financial area one of the things we focus on is the need for smaller and financial institutions to be of the work together or through organizations so that they can pursue best practices together because the burden for any individual firms would be too high. as one of the reasons it is important to have legislation to make the collaboration between firms easier and less risky. we have been very much supporting the enactment of cyber legislation. even legislation. even pending the enactment we put out executive orders to try to pave the way. >> thank you. lending standards have decreased financial institutions try to find the current low interest rate environment. environment. loosely of credit market since the recession is beneficial for small businesses if interest rates

would arise what impact we will this have on the market and specifically on access to capitol? >> congresswoman, i think that there is at some time the trade-off between access to credit and risk-taking. we have raised concerns over the last couple of years that in some cases there may be an over adjustment where you look at the fica scores for home mortgages. the average is gone i. there are a there are a lot of not very risky potential borrowers were having access some of that requires a clarification of politics put in place. why am i answer your question like this? for a lot of small businesses the pathway to credit in part is to personal home-equity.

the two the two are related. we have done a lot to reach out to make a a credit available. we work with community banks and local wonders to encourage lending. i lending. i think it is an important question. i do think as we come out through the financial crisis and the time of calm are macroeconomic circumstances that is an important time for more lending activity to be appropriate. the question is not the financial institutions have no risk, do they take reasonable risks? >> thank you. >> the time is expired and the chair recognizes the gentleman from missouri for fun. >> thank you. good morning.

i was kind of taken aback by your report. this morning and the washington times it was report that cbo put out yesterday. i don't know if you've seen the article. >> i did not see the article. >> thank you. they make comments headlines, they warn of financial that spiral from that. the 1st line says rising federal that threatens to choke off economic growth beginning of death spiral that will sack revenue forcing government to borrow more. one of the things that your testimony here does, the 1st line 2nd paragraphs as the council was created to identify response to vulnerabilities and provide a mechanism for agencies to talk to each other and take collective responsibility for addressing potential threats. yet in your port i don't see any of that. am i missing something?

>> if you look at the risks to the economy in general spending and that we are in a much better position than we were six and a half years ago. we have reduced the deficit and in dollars historical quick break, and that very report makes clear over the next ten years where is the place. the thing in that report people are concerned about is the long-term and obviously -- >> that is not what it says here. it has worsened dramatically. >> i sever the next ten years. that report goes up for longer. >> just a little blip. lower part of the curving go back up again. >> look at where we were we were careening toward a treacherous place. destabilize did command it is improving. >> mr. secretary, if you

quote the president cannot we are not in a ditch yet. we're still trying to struggle, bumping along with an annual growth rate of 2%, 1%, something like that. the cbo, and the.i'm trying the cbo, and the.i'm trying to make, cbo points out that that is a problem for our economy and yet your report does nothing, says nothing about it command you are supposed to be an agency that.of these problems. my question is why did you not find out that that is a problem for our economy? >> our report appropriately looks at adjusted financial stability. >> you don't consider it a threat. >> if you look at where we are today versus six years ago the federal deficit has been brought under control for the next decade. we are at a time where we need to get the economy growing. i agree. growing.

i agree. our conversation should be what we can do to grow the economy. we can have an infrastructure program there's a lot we can do. i don't think right now that debt 2030 years from now is what is the our economy back >> i think he missed the boat, quite frankly. cbo points it out. out. we have dropped the ball. next question one of the concerns i i have as the chairman of the housing insurance committee we have a situation where we have designated insurance companies. one of the things that -- that's fine if you feel those that much risk. we have asked before to to give us the criteria on which you base your analysis command we have never gotten it. we have the undersecretary do a good job of giving us sweets. i think part of your job is to figure out how to do risk things. okay. you pointed out as a

problem. that is what is in your report. it talks about progressing potential threats to find ways to get back to financial stability. do we have criteria in place to do risk? >> you know, the analysis is laid out clearly in the record that is quite public. this is the question of how they exit. we exit. we have made clear that we will review regularly and you the status. we status. we have done that. changing the business model less risk.

>> my time is up. >> the time of the gentleman has expired. >> thank you. i want to go somewhere else. from what you were talking about how we are better off, i wish my colleagues have talked about the person command that cause us to have different problems. and someone else comes along while going to help you get out of his ditch that i didn't drive you in. you start pushing you start pushing them. you might not be going hundred miles an hour. maybe 50 but you are no longer in the ditch. yet you want to blame the person that is getting you out of the ditch instead of the one that put you in the ditch in the 1st place.

dealing with asset management i know i don't assume the risk. we should be concerned about this process. >> congressman, obviously asset management is god's we have been looking carefully for some time. there is not necessarily specific.

give your review. frankly the average of the process. i can't prejudge prejudge the answer that i can tell you it is important we complete the process that it be driven by fax and analysis. you might not know the answer. 2,072,008. all of them to logical analytic conclusions. i look forward to that process being completed.

>> on some levels were we have multibillion-dollar pension plans that have tried to benefit from a greater diversification of asset management by using more emerging and diverse asset management with generally smaller asset managers and minority and women who have selected investment strategies. i'm finding that these managers face barriers. the treasury or the treasury or fs oc looked in the diversification of managers. >> well, treasury secretary, i have looked at it. if you look at the performance there is not a huge difference. some are successful and some are not. some have good years. some have that hears