indicated, and to exit out of certain risky activities. we see some of that happening. even if some would say that banks are bigger today than they were before the final crises, that probably may be true from a simplistic public i -- perspective but not a complete and accurate picture because not only have banks exited riskier businesses they also boosted the capital and liquidity buffers which increases the side of their balance sheets but makes them safer and sounder institutions. so this is a complicated step which is true. and then yet we still have wells fargo, which causes to us have great concerns at to where we need to go next. we all have questions with him. greahere's been some progress but also unintended consequences, and i want to shift to that now just to -- it is well documented that one of the unintended consequences of banks derisking has been that

banks are get out of certain communities and countries and they are also denying services to millions of lower income americans, not because the risk is too high, but simply because the profit margin are not considered high enough. there have been serious consequences on vital correspondent bank relationships that are critical to bier flows also. another major property in several communities here, including in a district like mine, is that banks are closing branches. in fact economists from the federal reserve bank of new york released a report entitled "banking debit." branches closing and soft information. showing that u.s. banks have shut nearly 5,000 branches since the financial crisis as a result. residents of low income neighborhoods have become somewhat more likely to live in a banking desert. that is why i have called to

revamp the community reinvest amount act in a letter mailed to banking regulators and cosigned by some of my colleagues. but chair yellen, it's obvious that cr is it not working as it was meant to work when it was pass oh 40 years ago. strongly believe that part of the solution'ses in enabling greater collaboration betweenf large banks and cdfis, including minority institution so is the institutions can take over assets and branches before they've close and more importantly preserve banking services in low income communities of color. so, the comptroller and i are in constant dialogue on this and ii would love to get your thoughts on this matter.lor. >> i am concerned about banking services in low-income communities and we are working with minority depository

institutioned to provide support to them in enhancing the very important and valuable role that they play in ensuring the provision of services to these communities. >> you believe that we should -- oh ho 40 years there was one view of banking and cra was put in 0 to make sure you had institutions and you believe there's ways we can revitalize or revamp cra to deal with the institutions and what is taking place today so these communities are not neglected and then become part of banking deserts? >> well, we are having to look at cra and the agencies who have put out additional gyppeddans in recent years that is meant to address -- additional guidance in recent years that has meant to address review and we'll look at what further guidance might be appropriate. >> dime of the gentleman has

expired. i the chair now recognizes the gentleman from wisconsin, mr. duffy, chairman of the oversight and investigations subcommittee. >> madam chair, look. obviously looking back to 2008, the crisis had a huge impact across the country and many of the families we represent. and i would argue that this massive dodd-frank bill was passed in a time of fear, where people were concerned about the future of our country and the future of their family, and a 2,300 page bill was passed before the dust had insetledded and we had a full analogies whats caused the crisis. we were told by our friends across the aisle, who i would e argue opened-under their cabinets, the file cabinets and dumped in every wish bag issue

that they had for probably decade. but they made a promise to the american people that when they passed that bill they would be ending too big to fail because people were concerned not just about the economy but the fact the tax pair -- their money was going to bail out large financial institutions. do you agree now, almost a decade on, that we have ended too big to fail? >> well, think we have taken very significant steps -- >> , no. that's not my question. we were promised that we would end too big to fail. wasn't here. they would end too big to fail. so i think the american people have a right to know what you think, had we ended too big to fail, yes or no? >> so, as i said, i think too big to fail is lessigant problem now than it was before. >> you're saying it's still a problem. we haven't eve radicated the threat, have we?

too big to fail still exists, yes. >> i think we've made very, very important and meaningful strides -- >> madam chair, these are simple questions. >> don't think it's a black or white thing.ng >> i can tell you congressman duffy we have ended too big to fail. america is better off with dodd-frank and the fact i'm the chair of the fed, or, frankly, no, we haven't end too big to fail health made progress but have not ended it. >> we have done a great deal toe make it possible for a systemic institution to resolve successfully -- >> i'm going to talk -- t >> -- accomplishing mutt are much better -- >> if game together clear the smock. you're saying we made progress but have not ended too big to fail and i think you're in safe zone because elizabeth warren even admit wed have not ended too big to fail. they admit we

have not end toad big to fail. so my question for us is a 2,30i page bill, giving and you other potential regulators significant authority, that had a huge impact on the financial sector and our economy.or if we haven't ended too big to fail, is it a failure of dodd-frank or is it a failure of the fed. >> i'm sorry. i'm not willing to describe it as a failure because --- >> we haven't ended too big to fail. >> i'm sorry. we have method great progress in trying to achieve that and is it not a black or white issue. >> when guy home and say this was a devastating crisis, had a huge impact on your family, we're ten years on. hat a 2,000 page you. ant get a loan you were credit union or community bank and chairman yellen said we have made progress. >> we have a system that is much safer and sounder.

it is much more resilient. has much more capital. mir much more liquidity and better also certainly not perfect -- >> i wholeheartedly disagree on many issues with elizabeth warren at least she is truthful on that.ss larry summers said that capital information is at least superficially inconsistent withr the view that banks are far safer today than they were before the crisis and some support for the notion that risks have actually increased. larry summers. you disagree. >> i do. i disagree significant live with that conclusion because it is based on the notion that markets properly evaluated the risks in banking organizations before the crisis, noel nothing could be further from the truth. >> i'll give you one clothe, in 1788 james mass madeson worried

that laws war be so volume now and cannot be read or so incoherent they cannot be understood. a 900 page voelker rule, and you can't tell me with all that rules and regulations you haven't eradicated the threat of too big to time. >> time of the gentleman has expired. this chair now recognizes the gentleman from massachusetts. >> thank you, mr. chair. thank you, madam chair for being here again.. just want to clarify a few things some of my colleagues --e i'm not aware of anybody who doesn't want to amend dodd-frank, including me. want to amend it. just don't want to gut it. good amendments, thoughtful amendments, all for them. gunfighting it? totally against.ra and that's pretty much the only bill wet have been offered. bills that would dish. >> will the gentleman yield? >> not right now, no, but thank you. a too big to fail? too big to fail? i agree.he we should do more on it. n that's why i offered the bill to

bring back glass-steagall. all my colleagues are welcome to join the bill. that it why offered hr888 that the community bankers support. all my colleagues are welcome to join the bill and that's why i joined my colleague on the other side, mr. garrett, -- now, mys god, ifover not paying attention when garrett and i can agree, on hr2625, that directly relates to the fed's ability to bail out banks. i all my colleagues are welcome to join that bill as well. know miss yellen wouldn't like bill and i appreciate that. but doesn't kill you, just squeezes harder. there are bills that are out there to do more. all you do is read them and join us. if garrett and i can do it, you sure as hell can find a way to do it. don't get used to me and garrett working together either but that's a different issue. ms. yellen.it.

let's assume for the sake of discussion we had a large bank, big -- one you're keeping a very close eye on. that over the last five years, has had 16 enforce actions against them.as including one from the fed. let's assume the bank had a fed fine of $85 million. and in that agreement, the consent agreement they signed with you they said, or you said, internal controls are not adequate to detect and prevent when certain of its sales personnel in order to meet sales performances and received incentive compensation altered or falsified documents that inflated borrowers incomes to qualify the borrowers for loans they would not have otherwise been qualified to receive.e. that was 2011. hypothetical, of course.

and since that time we have had 15 other violations across the board with pretty much every alphabet agency you can find, doj, cfbb, occ, fha, ftc, ncua and pretty much every state in the nation. totaling 10, almost $11 billion in fines. those actions including defrauding student loans.to mortgage holders, credit unions, identity protection, kickbacks, insider trading, defrauding freddie and fannie. worker health issues, drum senating against african-americans and hispanics. defrauding investors, foreclosure abuses and on and on and on. and then just this year, earlier, when you rejected their living will, your letter cited

concerns about quality control, senior management oversight, accuracy, the consistency of financial and other information reported, even though the firm's leadership steering committee had input to the plan. and now we have the same bank, same bank, just defrauded 2-1/2 million of its own customers. its own customers. i'm sorry, a million and a half. don't you think it's time the fed does something? how long does this stuff go on before you get outraged and take action? >> well, as you pointed out we have done something. the action that you described in 2011 -- >> you know that an $85 million to this fine is laughable. you know that. know you know that. it's a lot of money to me and everybody know but is to thank bay they'd $23 billion last

year. god bless them. very successful bank.o in $85 million bank is barely a footnote in their annual report and you know that. >> well, as you point out, many regulators have been involved in -- >> i'm going to have my fun with them task. it's just your turn today. >> so we're in the case of this institution, we're the supervisor of the holding company. we have already instituted a review of all of the largest banking organizations because w are very concerned with all of the compliance problems and violation office laws dish jew know they're laughing at you. they're laughing at you. >> tee time of the a gentleman from mas has expired. the chair now recognizes the gentleman from new hampshire. >> thank you, mr. chairman. chair yellen, to your right.

thank you. thank you for being here today. i want to talk a little bit about community banks. you and i know the importance and role they play in our financial ecosystem. h my state of new hampshire is a small state, yet a resilient state. 1.3 million people and hey have very close relationships with our community banks. we've got 10 federally charteret banks, 16 state chartered banks and ten out of state charter banks. so it's not a significant number but they are very important and critical to consumers. but due to the severe regulations that community banks in my state are subject to, they are now limiting products and loans and services to their customers and my constituents. when community banks should be focused on providing access to credit for consumers, their

focus and attention on meeting compliance with the boardsome regulatory requirements seems to take the priority of their time. i get reports from my community bankers on a regular basis that they can spend up to 25% of their and resources on compliance, and this has been increasing as a result of the growth in the regulatory requirements that continue to be placed on them. so, my first question would be, do you believe that there is a disproportionate impact of regulatory compliance on community financialgulato institutions, institutions that are smaller, that service customers in new hampshire? >> so, we want to do everything welcome to reduce -- we can to reduce burdens on communityy banks and recognize they're lab you'ring under a significant set of regulatory burdens.

wore going through the process and looking at a number of concrete ways in which we can reduce that burden, and we have taken a number of steps on our own to reduce the frequency and intrusiveness of exams to make more risk focused to do more work, not on the premises of the bank to try to reduce burden. you asked if the burdens had fallen disproportionately on community banks. the fact that they're smaller means that these burdens can be significant relative to their budgets, but the most restrictive requirements have been focused on the larger their institutions, particularly these usg that are subject to much more stringent -- you think there's a dispromotion nat

effect on smaller banks. >> there's quite a bit of research taking place. in fact we have a conference that is taking place at the moment that is looking at thoseg burdens, but -- >> the reason i asked -- >> -- but they are significant burdens for vary small bank, with certain fixed costs involved in doing this. >> the reason i'm asking this we have had two mergers in the last six months in the the state of new hampshire and my fear is that's going to continue. so i hope that you could identify very specifically and very quickly before the end of the year areas where we can reduce that regulatory burden. new hampshire bankers are going to be coming to washington tomorrow to meet on this very tt subject. they're very interested it. because our economy requires and reryes on them. the different point i want too bring up in your writtenonomy testimony you recommended that congress consider carving out community banks from the volcker

rule and the dodd-frank act's incentive based compensation rule us. regarding your recommendation that community banks be carved out of the volcker rule would you agree in concept that an approach worthy of consideratioe would exempt the role kerr rule no banking institution that dot not engage in the activities the volcker rule intends to regulate and keep those institutions -- subject to the volcker rule. >> we have said the thought smaller institutions should be exempt and the exact definition i would have to look at. would have to look at more carefully. >> you also talked earlier about the 80,000 jobs per month this economy is generating. can you tell me -- you said the labor par tis rate is changing. can you tell me what percentage of the labor participation raith is -- is right now? >> below 62%?

>> i don't believe. so let me -- >> it's currently 6 2.8%. >> time. >> my time has expired but i don't think that has changed over the next several months. >> time of the gentleman has expired. the chair now recognizes the gentleman from texas. >> thank you, chairman. and ranking member waters for for convening this hearing. welcome, chair yellen and please accept my sincere gratitude for your leadership at the fed. commend you in acting in the absence of a vice chair of supervision for regulation of bank holding companies and knopu bank financial institutions.

i'm interested the safety some stability of our financial a institutions continues to strengthen even in the face of global market unpredictability and other emerging threats. we can attribute continued growth and stronger and moret resilient economy through your o leadership and the protectionsnu afforded by dodd-frank act. my first question, chair yellen in your opinion do financial regulators currently have the discretion through need to correctly tailor regularlier to and supervisory standards or should we in congress take action? >> i think by and large we do have the scope we need tailor regulations, with point eda fewo areas where we have limitations. the volcker rule is one and the

incentive compensation rules are another where we can do some tail loring but not as much at we would like. congress did act to address our -- the restrictions we faced in the area of insurance inn designing an appropriate set of capital standards for insurance centered savings and loan holding companies, and we appreciate that and have used it to propose a set of capital standards for those companies that we think is appropriate. so, there are some areas where we have needed congress' enbut s bay and large we have a good deal of scope to tailor. >> you need to know i continue to hear from banks of all sizes in my congressional district that their burdened by regulations and costly stress tests. several changes to the yearly

stress test known as the comprehendingsive capital analysis and review were announced on monday. can you tell us what changes are being made to this review process and how that is expected to help community banks that are not internationally active, nor participating in risky nonbank activities, and also, there are regulatory relief -- are isa better. there was in "the wall street journal" an article that talked about trying to have some regional bank systems given some -- if they are from 200 bundle in assets or less, being given some relief. >> yes. >> talk about that for me. >> at the moment, banks over $50 billion have been part of our so-called ccar comprehensive

capital stress testing and the -- would exempt from the qualitative parts of that process, bankholding companies,p under $250 billion, that do not have significant foreign activities or significant nonbanking activities. so, the list complex of those or banking organizations, they would need to conduct quantitative stress test and we would conduct that, but the remainder of the capital evaluation, the qualitative part they would no longer be subject to. >> i'm also wanting to address the problems that in wall street and some of the investors, especially working families

investing anywhere the 401(k)s, how are china's economic troubles affecting the united states economy and that he largest foreign holder of u.s. treasuries with over 1 trillion in reserves is the federal concerned that the recent selling of large number of treasuries by china could negatively affect the u.s.ed dollar? >> well, china's economy has been slowing from decades of very rapid growth. that something to be expected, given all the progress they've head and at the desirability of transforming their economy to a more consumer based economy. by and large, that process is proceeding and it's a good one from the standpoint of the united states but it's very challenging, and earlier in the year, and last year, there were

disruptions in markets relate teed their currency. their approach to managing their exchange rate, the sole treasury's mainly to supportna their currency which was under downward pressure and in recent months think market is mump calmer -- >> the time of the gentleman -- >> -- proven better. >> the time from the chairman from texas has expired. the chairman recognizes the gentleman from oklahoma, mr. lucas. >> thank you, mr. chairman, and thank you, chair yellen, for being here. share look with my colleagues, concern over a proposed rule that the federal released on friday increasing the costs for financial companies to engage with their clients in physical commodity markets. as a member of this committee, and a former chairman of the house agriculture committee, i

have worked with a number of end users of issues sorted we reform and regs layings within the derivative markets and we haveih discussed on vary various occasions recording my district and the importance of stable commodity markets to my district. over the past few years i've heard from a number of commodity end users.their concerns on this issue, and i, too am concerned about the impact this will have on our businesses and municipalities and their ability to participate in commodity markets. b while we should'm consider risk to safety and soundness in our financial system it appears this rule seeks to discourage a company's participation in these activities through capital requirements rather than through an actual effort to target and mitigate risk within the system. in crafting this proposal, guess my questions would be the following: in crafting this proposal did the fed examine

historic loss damage for banks in -- as well as how losses in this business related to losses in other parts of the bank's business.s >> we did take a very careful look at the nature of banks' involvement in these areas, and considered the risks that activity entails and it is important to recognize that financial holding companies would still under those proposals be permitted to engage in physical commodities trading with end users that is not something that would change. what this proposal does is put in place additional risk-based tappal requirements for activities that involve commodities for which federal or state law would impose

liabilities if the commodity were released into the environment. so, we're worried about view. ie risk. >> you could provide us with the information how you made those departments what the historic perspective was, hough it's actually affected didn't businesses i think we we appreciate what the historic foundation was. also appears you're raising risk, weighing to 300 percent for companies engaged in this business which will make it much more expensive for all of these companies. did you also provide the committee with the analysis that was used to rave at this 300% as an appropriate amount? how did you get there? >> we will get back you on some details. >> i would simply note, chair, again, i commented earlier, we have discuss evidence this on main occasions. my district its agriculture and energy. we are wheat and cattle, pork, cotton, we're oil and gas, we're electricity, more and more every

day general rated by wind power. having the tools to be able to hedge our products, having more participants in the markets, give us, we believe, a much better price situation if rerespect our tools to protect ourselves, if we respect access to market biz others. there's a great concern we will suffer and ultimately the consumer who benefits will suffer, too. my last comment or maybe a comment -- i'd like too reinforce one more time with you chair, my interest and concerns regarding how -- treats derivative customer and their yu margins. neuer understand forks continue tut recent record are not encouraging for the end users in my district and the clearing infrastructure that has long supported their hedging needs in this complicated world we live in we need more tools, not fewer. we need more cost effective

tools, not more expensive tools. as in the case of -- help protect us from those kind of consequences if it gets out of hand. and with that i yield back. >> the chair now recognizes the gentleman from massachusetts, mr. lynch. >> thank you, mr. chairman. madam chair, thank you for being here. appreciate it. want to go back to mr. capuano's questions about the wells fargor scandal. now i do understand that there's been a small fine paid by wells fargo but in light of what they did here, two million fraudulent accounts and fired 5,000 lower level employees. ... fired 5,000 lower level employees. there's been a little bit of claw back by the bank itself. but in terms of your role, you are the primary regulator for

the bank for wells fargo holding company, right? >> we're the primary regulator for the holding company but these abuses have authority and they are the ones who brought these actions-- >> i give them great credit for that as well as i think the los angeles authority was involved as well. is there anything you can do? looking out what happened this is widespread. it's a disgrace really what happened, 2 million fraudulent accounts and the low-level employees fired didn't just think this up themselves, they obviously had incentives put in place. any ideas from your standpoint as to what might be done as a regulation or as legislation to prevent this from happening again?, >> well, the controller, currency and cf pb who demanded in their actions the revenues be

put in place, we are now initiating broad-based review for all of the largest banking organizations of their compliance regimes. >> this is a huge huge thing again again, 2 million fraudulent accounts. can you think of any circumstances where a bank might be required to admit guilt? m there was no admission of guilt here at all by the ceo or the bank itself, no admission of guilt. i mean, if it didn't happen here , how can we even imagine ever that a bank might be required to take responsibility and i think by doing this and continuing to let the banks off the hook and no one has to admit guilt, you actually build a perverse incentive for the stuff to happen. it blows my mind that they are getting away with this and

getting a little slap on the wrist fine and the ceo the other day said well, it was only 50000 employees and we have a hundred thousand employees and only 5000 did this and sort of just blowing it off. >> i think it is very important that senior management is held accountable and that when there are individuals, identifiable individuals who have been involved in wrongdoing that-- >> they are all the weird up, but i think just get after them. i don't care if there is a conviction or not, just getft after them and make their life hell. we have to create a disincentivt in the system at some points for the ceos to do the wrong thing. they completely, you know, they completely ignored any of the safety and soundness and basic responsibilities here and i would like to see someone held

accountable for that at some point. it's a very club environment, the banks, and i would be amazed if this practice were just limited to wells fargo. i think it's probably the practice at a lot of banks with a lot of cross polymerization going on. people work at one bank then go to another bank are we looking at any other big banks doing this? >> yes, we are. the cf pb is in all of the largest banks and we have undertake it-- we are undertaking a look, comprehensively, not only in the consumer area, but compliance generally because there have been very disturbing patterns of violations that occur in the mortgage area, foreign exchange trading and in many differenturd areas, sanction violations and we are taking the comprehensive

look at the biggest banks. >> inc. you. i just want to sing closing, what a wonderful job the occ and especially cfpb did on this. this is why they are there and i seldom hear great things about cfpb, but they did an amazing job.very huge win for cfpb and re- doubles my faith in that agency. thank you. >> the chair recognizes the gentleman from california, mr. worries. >> thank you, mr. chairman. i had a question, may be a bit to follow-up on that point about the unprecedented consolidation that we have seen in community financial institutions where there are fewer and fewer of them and these smaller institutions have fewer assets over which to spread their ever

growing compliance costs. which so, they often seek those economies been through mergers and that's what leads to this conundrum now of a situation where we have fewer banks today. are you worried about consequences of consolidation for communities and for our economies and eventually for over leverage because you end up with a few big institutions. >> i do think it is essential that we have vibrant set of community banks serving americans, communities. they play a very special role in our financial system and it's important that they remain healthy, reducing regulatory burden is important.hat it is something that we will

seek to foster using every available tool we have. community banks facing challenging environment for reasons cycle beyond regulation. at the low level of interest rates and flat yield curve and slow pace of growth in the economy are also factors that are making it difficult for them to thrive. but, they are tremendously important at the roles they play for american households and businesses and we will certainly do everything that we can to-- >> some of that is true, so that's another way in which ther are adversely impacted by decisions made in washington.ec so, it seems to me at the heart

of the consolidation, as he say are these-- well, it's really an avalanche of rules that have forced small institutions to hire extra staff. that's the situation of economy of scale for them and with that in mind you said earlier you are looking for concrete ways to reduce regulatory burdens on community banks and you gave us very specific recommendations on merchant banking and commodities activity in section 620 report that you release. can you promise to send up specific legislative ideas as it relates to rogatory relief for committee banks? >> also, for now i have some questions on the report we received because as part of section 620 report, did you study the effect that a repeal of merchant banking authorities and the loss of 27 billion in capital would have on small and

mid-cap companies and are you confident that if we act on those recommendations that are in that report that there will be alternative sources of capital for portfolio companies? based on your answer to my colleague earlier, is it correct to conclude that the recommendations for legislatione report are based, not on historical risk. they are based on, i guess, a projection of the possibility of potential future risks and the reason i asked those questionss is because as we look back at the financial crisis there is no evidence that merchant bankingna and commodity activities were part of the crisis. what was at the heart of the crisis was a concentration of risk in bad home loans and securities tied to those loans. so, as you limit activities of

these community banks, are you concerned that you are limiting the diversification of risk and thus adding to the concentration the harder we made on these banks the more concentrated the risk in the big investment banks or the larger institutions and that could have a very negative impact on safety and soundness and that's what i want to ask you. >> so, our evaluation was with respect to alternative sources of equity financing the private equity venture capital would be on the-- alternative sources and that the merchant banking contribution here is not very large. it would not have a significant negative effect. of course, banks would still be able to provide a wide range of lending, advisory and othervi

financial services to customers that would include startup firms, technology firms and others. they would have the ability to continue making advancements in financial firms. >> the time of the gentleman from california has expired and the chernow recognizes the gem and from. >> thank you. wonderful having you back again. we talk about an issue that is dear to my heart and that's the overwhelming unemployment rate facing young african-american men. last time you talked you said you urge congress to introduce legislation to target this. well, i took your direction and i and my cosponsors had introduced two pieces of legislation that i certainly hope you will say a kind word for because if you and knowing your dual duty as both inflation

as well as unemployment, if you say a word of support you can help us pass these two pieces of legislation. the first one is to deal with our infrastructure. t that is coming. that is a big, big, big issue. what we wanted to do in thistu first bill is to address and develop a job in on-the-jobe jobining and apprenticeship program targeting orphic-- african-american young men ages 18 to 39. 18 to 39, they are the hardest hit for unemployment nationally at 30% and in some of our inner cities at over 50% as you well know. it's in the news every day of the back condition that many of our african-american communities are facing. so, we want to set that up. it will come under the secretary label who will coordinate these programs. 50

it will work with the labor unions like ibw, plumbers and pipefitters and ironworkers, steelworkers, all of those unions who will help to build our crumbling infrastructure and we will bring these trade programs and job programs and let me just say they will be in high-technology areas because you can't love this without computer coding, computer systems, technical aspects that are so desperately needed. very important for us to get those in their and get that program started the second one has to do with the advocation components. as you know, every year every five years we have to reinvest in what we call our land-grant universities, those 1890s and 1860s that were set up after the civil war. schools like tuskegee universit in alabama. florida a&m, all those.

what we want to create is a new area and now they can only spend the money in education, researcy and extension. we want scholarships. to get these young kids in their. the big jobs are opening in agriculture business. it's the food we eat, the close we wear, now energy and high finance and all that. so, we what to do that give each of these schools $1 million, which they can spread over a five-year period four scholarships. now, these bills are i partisan. we have excellent cosponsors, folks like kevin cramer of north dakota, martha five job ohio, the love of utah, on adams of north carolina, when graham ofth florida and now pete sessions who was our house rules committee chairman all are on this bill, so a fine word from you would be very helpful and

i'm going to ask my assistant if he made-- would you take those o to them right now, tanner, so you can have those. all i'm asking, i'm not asking you to use a blunt instrument. i'm asking you to use your: voice and if you speak and say a kind word it will help us get these bills passed and not only with african-american community thank you, but all of america, white people, everyone. we all know that these young black men with the highest unemployment rate of 18 to 39 are also the child producing ages. rate o this goes directly helping us deal with that family breakdown structure. secretary, want to ask you one other thing.g. you have an opportunity to do yomething very significant

because i understand that your said regional bank president in my hometown of atlanta, dennis lockhart, is retiring. we have never had an african-american regional fed presidents. i'm asking you, take this opportunity to make history. qu have many excellent qualified african-americans who could do this and finally, i want to applaud you and frank tarullo for what you are doing with the test and committing to working with this flexibility. thank you. >> time has expired in the chair recognizes the gentleman from new mexico, mr. pierce. >> thank you, mr. chairman. thank you chairman gallon for being here. the gentle lady from new york mentioned travels of puerto rico and if you are meant to

summarize those in a phrase basically was the root of the problem there? >> i think deep-seated structural problems pertaining to puerto rico's fundamental economic situation of given rise and exact for-- exasperated problems. >> now, when i'm looking back through your 2008 crisis i notice your balance sheet jumped from about 900 billion to 2.2 or something like that. what was the reason your balance sheet .-dot-- jumped during the period of time? >> primarily because we engaged in a program up producing p long-term assets, both us treasury securities-- >> securities from the banks québec no, we did it by assets from the banks.

>> assets from someone, mortgage-backed securities you a are purchasing? >> welcome i don't don't know that they were toxic. they were, you know, putting receivership and-- >> the general perception is that they were toxic. we were treated to mr. lu testifying a couple of days ago and he identified in his testimony that he is required of the committee to identify and respond to emerging threats to us financial stability. now, i pointed out to him that one of the low interest rates, mr. rosen grand came out with a statement on the 21st in the "wall street journal" saying i think we need to rethink that there is a cost to full employment, basically. cos

and he's talking about bubbling prices that might because by easy money and so my question to mr. lu is have the two of you ever talked and maybe one of the emerging threats of financial stability might be the easy thney policy.. have you all had a discussion? >> we do discuss threats to a financial stability. >> about your e-zine money policy? have you specifically talked about that?alked if he's going to identify that he ought to identify the easy money policy. that's not coming from the. that's coming from the guy that is most often on the side of easy money. >> he is singled out commercial real estate as an area that he is concerned with and-- >> he says the easy money policy could be letting markets get out of hand.et out @sounds broader than reit.

easy money policies could be letting markets get out of hand. now,-- >> there is the possibility that in a world of low interest rates that investors will search for yield and take on additional risk and we are very much awaree of that and-- >> so, we have a difference of opinions among board members, but then you get something that says they will stay out of the bond market completely becauseom it's hard to price the assets.tn the largest e*trade or signaling that his company will stay away from many securities because of the underlying assets are hard to trade citing the volatility of trade or inability to sell. >> what is he talking about, corporate bonds are what?r >> in my opinion, may be the bond market overall and so it just looks like that things are not quite as stable.

may be, there are underlying problems were bubble prices and remember that the housing market began as a bubble problem. stimulated by government policy. so, to have everyone sort of looking the other way and saying everything is good and then i look at your asset, you typically-- just the fact that your balance sheet is gone from 4 trillion, so you have almost doubled in the last four or five years and you continue to buy something and generally if then markets-- and then i look at the debt, so puerto rico has a 70-- roughly 76% debt to gdp ratio and ours is one to one. i'm sorry, but i think someone not to be talking about stability of the financial markets in the united states because it looks desperately

unstable. thank you, mr. chairman. >> the chair recognizes the gentleman from texas. >> thank you, mr. chairman. thank you also, ranking member. madam chair, thank you for being here today. i believe history will be kind to you as well as to chairman biernacki. what you did was extraordinary in a time of great crisis and i just don't believe those who look back-- those who look through time i don't believe that they will see these as unkind, unfair, unwanted or imprudent things i think they will judge you well and that you will be treated very well the history. just a few things. i'm going to do my best to stay away from wells fargo. i must tell you, it is difficult. simply because for one reason and i may just mention this one.

$185 million in penalties, is according to some standards about three days of profits, so this becomes a line item under the cost of doing business. that's hard. i have some other things, but first let me just discuss with you the whole notion of too big to fail. madam chair, there's a bit of o doublespeak taking place because a good many people, when they speak of too big to fail, they mean that there will never be another bank that will fail as opposed to what i believe most people understand the case to be , not have a bank that is so big that when it fails it creates misery throughout the economic order. that's what we are talking about. it can fail. we will put it out of its misery without it creating economic misery. that's what to big to fail is all about.ig is

that's what dodd frank does. we haven't finished .-dot frank yet, but too big to fail is addressed and dodd frank and addressed in a profound way.an the living wills, that helps usi understand how to put these big institutions out of their misery. dodd frank allows us to separato them if we need to and eviscerate them if necessary, so too big to fail is all about winding down these big aig's the world without them taking the economic order with them. i would like to make a point, if i may, before you respond to the question of committed to banks. madam chair, the big banks have hijacked the term community bank. they have hijacked the term. you and i understand that most banks in this country are under a billion dollars, most of them, probably 89%. under a billion dollars. well, the big banks havell concluded that you can be a 50

billion-dollar bank, 100 billion-dollar bank and still be a community bank. there in lies the problembillion because when we make efforts to help the community bank, which l are smaller banks the big banks stepping and they won all the benefits that we would accord the smaller banks, the realnd community bank a bit more doublespeak, the real communityt bank and they want those benefits. i applaud you for what you're looking at. i have read your statement andit you wanted to do something aboui this. 18 month examination cycle there are people in congress who would like to help community banks, but we cannot do it at the riskl of bringing in the big institutions who would benefit from it to the detriment of what we have been trying to do an dodd frank, so i am sharing these thoughts with you becausei i honestly believe that you have some great insight into these things.

but, my question has to do some thing else given what we have done with the qe and all of the tools that you have utilized, how important is it for us to have some investment of infrastructure? both presidential candidates have talked about it. interest rates are exceedingly not-- low at this time. exc how important is it for us to invest in up a structure or maybe another way, would infrastructure investments be helpful in promoting sound economic growth? i welcome your answer. >> well, i guess my perspective is that we have had very disappointing pace of growth in the us economy and productivity growth and output per worker has been exceptionally slow, half percent per year for the last five years, maybe twice that

over the last decade with low and historical terms. it's critical to living standards and investments of all sorts. i think it is essential to raise growth and promote improved living standards for americans in the years to come. >> time of the gentleman has expired and the chair recognizes the gentleman from south theolina. >> chair yelling, i have a couple of questions, almost all rig a tory, i will ask when brief question about monetary.e. the recent decision about the bank of japan to purchase equities. is the united states looking at a possibility of adding the purchase equities to its toolbox of monetary policy clinic the federal reserve is not permitted to purchase equities. we can only purchase us

treasuries and agency securities i did mention in the speech in jackson, although where i discussed longer-term issues and difficulties we have in providing adequate monetary policy accommodation baby somewhere in the future demo line that this is the kind of thing that congress might consider, but if you were to do so it's not something that the federal reserve is asking for. >> it would take a change in the law? >> it would take a change in the law. >> earlier, you are asked abouto the proposed changes on the ways that you want to regulate commodities trading and why are you trying to do this? >> because we are worried about the risks that some forms of

commodities activities pose to banking organizations. >> i heard that and that example about a barb at all hazards and so forth, but the truth is that has never happened yet, has it? that risk is never been it occurred, no trading has ever n been sued for environmental-- exxon valdez did not end up in the commodities trade gettingg sued, bp oil spill did not get sued, so there has actually been that occurrence. >> broadly prohibited commodities trading. is focused on activities where there are significant in barbell hazards. >> the fact of the matter is you are trying to regulate a risk 1 that has never actually in the real world been occurred. >> we have had huge environmenth of accidents that have created enormous liability and we do have a couple of banking

organizations that congress has grandfathered broad rights to engage in commodity storage and distribution and those risks certainly exist. >> you could make the argument that there are other risks that they think her that are morecey tangible and perhaps more likels than on environmental disaster leading to a claim against them based upon commodity trading.ed it is risky for banks to be in new york. it's a target for terrorism and they have incurred that the tick of the wrist in the past. did the federal reserve decide they cannot do business in new york city? >> now. >> could you? >> i don't know. are not sure.

>> i would suggest that you could. if you can say we will require b you to change or rules that is because of this risk you might incur at the same line of reasoning could be applied-- >> what we do require is that banks have robust business continuity plans and that they have back up authority, so for example when we had hurrican sandy that briefly affected new york that there were backup guidance. >> crypto currencies, you spoke at an international conference in june, think they were 90 central bankers and you talkti specifically about this and i wonder if you want to take this opportunity to talk about thet fed's commitment to a light great literary touch and if you are going to implement block technology. >> we are not looking ourselves to implement it, but we are

studying a whole set of innovations in the ways in which block chain is being considered for use by banks and non- banks. it could have very significant implications for the payment system and for the conduct of business. we want to foster innovation. i think innovation using these technologies could be extreme helpful and bring benefits to society. at this point, we are civilly trying to understand the nature of these innovations. at the same time consumer protection will also be something that is important, but we are not doing it rule writing in this setting where we are trying to understand the ways ie which these innovations are shaping the financial-- >> the time of the german from south carolina has expired and the chair recognizes that senator from delaware. >> thank you, mr. chairman.

thank you chair, for coming in today to answer some questions. under the rule of dodd frank it was allowed to have an additional period of time for groups to do depressed liquid assets and the fed has acknowledged that they will need to make adjustments to the timeline which ends july, 2016.o these investments, think there was a question earlier about the commodities, physicalth investments, which are difficult to sell and liquid by definition i joined 11 other members on the committee on a may, letter to you asking you to refine your definition of liquid asset and provide clarity for the timeline for institutions so they are not forced in a fire sale situation, which actually could help

pension funds and others that are holders of these, so you have extended the time i understand to july of 2017. further guidance-- we did get a letter yesterday where you said the federal reserve board in july, indicated with application by firm for extension of the period to conform with these liquid fund investments. could you expand on that?could is that a case-by-case basis you come out with a more general rule to provide greater certainty? >> i think we are trying to establish guidelines that would provide greater certainty. we are looking at that carefully. i can't give you details, but we recognize there is a significant issue there and we will try to provide clarity. >> that would be great to provide guidance. they will have to otherwise start selling these. >> we understand. >> great.

i read through your testimony and i was pleased to see some of the things that were done and we have that discussion with respect to modifying regulations. relations for smaller banking institutions. do you have a sense-- the complaint we all hear from the smaller banks is that these regulations require-- and kurt laseak additional costs with the step after bring on or do you have any senses as to whether this will enable the banks to reduce their costs. >> i think that this should be quite meaningful for the banking organization. it will be affected and make a significant less onerous process for them. >> at the end of the day, the question is whether or not they will actually be able to reduce their staff. the

i have talked to local banks in my area in my state and other places and ask them when theyea said this is additional cause i said help me understand and they obviously want through individuals that are hired to address compliance. >> i can give you an estimate of what the resource implications will be. they will still be required to conduct the quantitativeat apportions of the stress test, but we are looking at ways for those smaller situations to reduce data reporting burdens as well. >> great and we appreciate your efforts in that respect. last question is pretty general, but you have been through this and have provided in your testimony your supervisory activities. we all talk about what happened in 2008, but what worries you as

you go forward? with respect to the current institutional banking framework as well and there has been discussion of that in terms of t two big to fail, but what are the concerns you have looking ahead?oo >> so, i do think we have made progress within the regulated banking sector. i think it's safer and i think we have begun to deal with too big to fail and made progress their. i think we've addressed some things in that shadow banking sector that are of concern as well. money market fund reform is going forward. areas of concern like the tri- party market. i think that has become safer, but i do worry about the migration of activities into less regulated parts were unregulated parts of the financial system and new threatk

that may be different than the ones we have addressed in the past like cyber threats and they are of course a tremendous concern. >> think you. keep up the good work. >> the chair now recognizes the gentleman from florida, mr. ross. >> thank you, mr. chairman. i want to talk to you about specific designations and i know that you've had the opportunity to designate in the financial stability board does it. when the-- if they were tos suggest that there was an institutionally globally significantly important, does that permeate or otherwise affect or influence theim designation? >> designa >> no, it has its owns specific guidelines and does its own reviews.wn

>> let's talk about those guidelines because i know they were brought up earlier, but really they had that attend-- tendency to deviate. >> do what? >> deviate to the metlife decision.decision, i think it propose something we have been concerned about for quite some time and that is the deviation from regulatory s s requirements that, for example, fsoc consider the actual losses of which is a non-bank financial institution or to go under and in the metlife decision i think the court found that it wasn't done. in fact, i think the court in that decision said that one of the reasons they are overturning the designation is because there was no assessment of costs or losses come i'm sorry.. no assessment of losses that would have been sustained had that life experienced financial trouble. is that correct? is that your understanding? >> fsoc did a detailed study of

what the potential consequences-- >> but, they did not calculate the losses and basically went out this capriciously and what concerns me out this and i think that is probably premature the court said also-- >> i was involved in the process and i don't think it was capricious at all. >> which is why you would look to those with expertise in a particular field to rely upon making these decisions and rory, who is the only member of fsoc who has an interest background is the only one who voted to not designate metlife and yet that was ignored. i think it's getting a bit of recognition from the core, but why did you ignore his recommendation with hise. background of insurance commissioner and understanding requirements? it just seems-- >> there was a very detailed analysis done of the risk thatth

that life failure could pose to the us financial system, much oi that analysis has been made available and is on the fsocsy website. >> there has never been a run on an insurance company. let's face it. let's bank has day today, minute to minute and i guess that-- and i think this is what we are finding out from the metlife decision is that we had to address these non-bank financial institutions in a different way than we address the banking industry. we do not agree that if we are trying to prevent too big to fail, that we keep thesese institutions solvent that we have some kind of criteria where if they can be assessed corrected and then be able to not be designated if they are following a process or procedure that prevents them from beinged assessed. >> only a few firms happen designated.

>> but, they do not know they are designated and how they are in wet, stage three? >> they find out earlier than that. u >> there is no offramp for them. >> there is obviously a offramp, ge capital. f >> they sold out and basically said we are going to get rid of this because we don't want thate regulatory control to disrupt our business. that was not an off ramp picked that was a domestic sure. >> if they change their business model anyway that alters theod risk they pose to the us financial system that is an off ramp. fsoc reconsiders every year whether or not designations remain appropriate. it's an annual review process and if a firm wants to understanding why they were designated, makes significant collegiate-- changes and reduce the risk they pose to the us financial system they can--

>> would you be in the best interest of the us financial system to put them on notice as soon of possible so correctionse can be made to keep them from being even considered? >> i think the firms understand what it is about their activities that causes them to be designated. >> thank you and i appreciate your testimony and yielded back. >> the chair now recognizes the gentle lady from ohio. >> thank you, mr. chairman. thank you ranking member and thank you chair yelling. >> let me say thank you for clearing up what we can do and cannot do under the hatch act where my colleague from new jersey was asking about federal reserve governor brain are and that, but also let me just say i imagine in your stored position that you get a lot of people who want to have lunch with you or

come and meet with you because of your scholarship in your brilliance. i can remember being in the rayburn room and could barely getting there with someone an announce that you are there. high towered people, more security in that room and people just wanted to pick your brain and hear from you, so let me personally say to you i am glad that people in high places want to come and learn about what we do.t we also and you cannot or not i could probably safely assume that no one has pressured you p from the white house, from president obama to hold interest study, to have some political influence, but it reminds p.m. 1972, during the richard nixon administration when burns within your position and if you go back

and you play those nixon tapes, he succumbed to doing that because pressure was put on him by republicans that she was meeting with to have on affect on the upcoming election. i'm pretty sure you have not been asked to do that by our president or presidential candidate.id >> i have certainly never been pressured in any way by the administration. the administration, my experience has been independence to make decisions in accord with our congressional mandate. >> thank you so much. mr. chairman, i just wanted to make sure we got that entered that while maybe my colleague from new jersey brought it up because he was thinking about up what to republicans had been the past, but let me move on and say i also joined that letter that hundreds of members of congress

sent to you and let me just say thank you for that quick response. so often people in your position will come in and repeatedly react to hear about the letters that were written and how typically democrats don't respond. not only did you respond it was not a form letter. you actually acknowledge the concerns we had about minorities, specifically african-americans and women and, mr. chairman, she actually gave us not once, but three suggestions of what we could do to meet this challenge, so i wanted to personally thank you because i have been very hard on you and all of the other federal organizations about working with minorities to improve the unemployment rate and to make sure that we have more women and minorities working in your organization. but, let me just say that i would like to discuss the diversity of the 12 reserve regional banks around the country, especially as it

relates to the presidents of those organizations. recently, there was an article that points out that we have, no, i can american president, zero latino presidents out of 134. so, what to make sure that we stay focused on that. i think we can do better than that. my staff and i were reminded of the rudy ruehl and i don't know if you get that sports analogy w or not, but let me just say to you and my colleagues that i s will have something that is called the beatty ruehl where we would like to start with federal organizations like yours instantly say that as you look at these positions you actuallyo identify and at least interviewt one person who is a minority. >> congresswoman, i am very focus on diversity and the federal reserve and it is a key

priority. we have made some progress, but we need to do better and i havee created a work stream at the board to think about all of the different ways in which we can promote diversity in the work that we do. at the level of presidential pardons, i would very much like to see, i very much hope that we can see greater diversity in the fomc and in the search process we require the banks to seek public input. we make sure that we at the board and sure there is a broad national search and that every attempt is made to assemble a diversified pool and that qualified candidates are considered and i really do hope-- >> the time of the gentle lady a

from ohio has expired and the chair recognizes the gentleman from north carolina. >> thank you, mr. chairman. good afternoon, chair yellen. in the speech on monday the governor noticed improvements. he states that adjustments in all aspects of the program should be made as conditions and practices evolve. the fed has passed several rules 22 is a lability.sed requirements with a rule prohibiting derivatives,s, closeouts and lehman like ron at single counterparty credit limits. in light of that, will you be recalibrating the surcharge before you consider including it in the pros stress minimums? >> we will put out a proposal that we are likely to approve a proposal that would affect the treatment of g's it's the surcharges.ff we are not reconsidering at this

time the calculation of those of surcharges, but as the governor explained, we have created an integrated system for incorporating those surcharges in our risk-based capital requirements and integrating thp losses we identify in the stress tests as part of the risk-based capital regime. >> to clarify, the g-sib surcharge, should be recalibrated imac i. >> it entering-- interacts with other bank regulation. >> i don't see a reason why it should be recalibrated at this time. >> following up on the chairman's question regarding statutory factors, are you aware of any firmly grounded research that measured how each of the 1u statutory factors that requires your consideration contributes

to six stomach risk to make those are a set of factors that generally contribute. >> what research do you have that measures how each of these 11 contributed? did you have research related to that? what help to determine that? >> well, i believe there is a wide body of research that looks at factors bearing on financial instability that identifies this factors is relevant. >> the legislative authority demands its factor be considered, so yes or no? please tell us are you aware of any such research breach of these factors?s? >> h quantifies its importance. >> yes, can you stay with clarity of the research attributed to these factors? >> there are lots of research papers on this topic, but i would not say once that quantify

not impact of each factor. >> madam chair, there has been controversy over the settlement of the dispute with iran regarding the transfer off $1.7 billion in currency to tehran.om and other felt help facilitate this through the transfer pursuant to a letter sent by secretary lu to build up in the new york fed.is that i don't care to get into that, but i would like to address the issue that the administration told members of this committee yesterday that iran needed the bank notes to support the value. your next for in international monetary currency flows, so i would like to ask you if there's any reason reason you can imagine why iran having several pallets of euros and swiss banks would help support better than having that account and say a new york bank? >> i don't have an opinion about

that. have we acted as fiscal agent of the treasury and have no involvement beyond following instructions there. >> you don't have an opinion on that? >> i don't have an opinion. >> wouldn't it be more difficult more expensive to try to support a country's currency with pallets of cash especially if they were inside a country still largely outside the normal financial system? >> it is just something i have not looked at. >> i ask because some people believe that the real reason iran wanted that cash was to be used to enable accept terrorismo and the committee has had a difficult time getting that ministration to explain why they didn't just wire or the money has they had in previous other payments. >> that is something you have to address to treasury. >> chair yellen, we have dealt with insurance factor.

will the fed first consult with insurers primary-- my time has passed. >> the time has expired. t due to the chairs-- chair yellen's departure time, the chair anticipates clearing.ore. the gentle lady from wisconsin is now recognized. >> thank you so much mr. chairman and thank you honorable chair yellen for joining us here today. i have a lot of questions, so i will move through them quickly. you have had a lot of questionst and concerns today about why you have maintained interest rates so low when you are going to

raise them and the inevitability of having to do that, but there is a growing course of community folk and workers who have challenged the fed. they say you've spent so much time worrying about inflation and being less concerned about labor market participation of vulnerable populations. people like to brag about the recovery of our economy, but african-american labor market participation is still fledgling you give an opportunity to sort of explained to us what other tools you may have in your toolkit and how you are not ignoring the problem. >> well, the state of the economy and the labor market may matters enormously to african-americans and disadvantaged groups and it's very clear that as the labor market improves african-americans see outsized

gains and that's where we are now that they are seeing those gains, which is not to say they don't have much higher unemployment rates and they remain obviously significance forms of disadvantage, but there clearly are games taking place for african-americans as the labor market-- >> how does that fit in with your decisions to raise interest rates? >> congress has charged us with pursuing maximum employment andr price stability and we have been very focused on our employment mandate and remain so. we are pursuing a policy that would result in further strengthening of the labor market and that's a very good thing we also have to keep our eye on inflation and inflation is running under our 2% objective that gives us had room and running room to remain focused on that employment side

of our objective, but we have to be keep both things in mind and are keeping both things in mind because we do have a 2% inflation objective. >> chair yellen, went to ask you something that perhaps i haven't before.o i was here when we put dodd-frank bill are and put in place the rule and i spent a lot of time studying that at the see of that and that we can sit-- we continue to hear calls to reinstate-- can you share with us briefly about the importance of the vocal rule and the limitations or the importance of reinstalling this if you think it's a case. >> the vocal rule does prohibit proprietary trade in the agencies charged with enforcing it are supervising to make sure that markets making can continue we have discussed liquidity and

markets and making sure that these firms can continue to make markets is important, but it does preclude proprietary training. >> and on the other hand it does not allow them to make markets-- what would it look like in 2016? >> i guess what a glass-steagall would require would be the separation of commercial banking and investment banking and require restructuring of companies that now have substantial investment bank subsidiaries. .. should look at? >> well, people have different views on this, we're trying to make sure that this can -- these combinations can operate in a safe and sound manner and would say that that's not what was

really responsible, at least, in my opinion for the financial crisis. in fact, most of the -- some of the most serious problems took place in stand alone inves >> now their subject to consolidated supervision which is arguably a safer system. >> and i have 10 seconds left. you have to proposal to meet lost absorbing capacity long-term requirements. >> yes. >> time potentially has expired. recognize ms. wagner. >> thank you, mr. chairman. open, chair yellen. as i know you are aware the eu late last year issued a call for evidence to help provide data and feedback for a cumulative

review of all of the post financial crisis regulations that have been issued in the past eight years. when asked whether the u.s. should implement a similar review governor pushback on the idea. given that he has not been appointed, chairman for supervision, what are your thoughts on the u.s. doing such a review, chair yellen? >> i think we are continuing to finalize these regulations, ande want to come to the end of implement in them, and targeted reviews of different aspects of the work that we've done become appropriate overtime. as governor carrillo mentioned, i mentioned in my testimony, we have undertaken a comprehensive review of our stress testingeviw program. we've consulted with the organizations that are affected

light it with outside academics we've looked at its costs and burdens carefully, and we're going to be recommending an award have to some extent changes that we think arend appropriate in light of those reviews. and overtime my guess is that other areas will deserve reconsideration. >> what you're timing on some of the recommendations will be making regarding some of the reviews you've already taken? >> we already put out earlier this week a proposal that would exempt the institutions that are under $250 billion don't engage in significant foreigner or nonbanking activities to be exempt from the qualitative part of our review. >> given that authority and

other aspects of the proposal should go speech if i could continue. even many foreign banks, regulators such as those in europe and japan and others on the also committee are pushing back against some of the capital rule proposals from the u.s. wouldn't it make sense for the u.s. to conduct such kind of a comprehensive i'll see review come as they're doing in the eu particularly since u.s. regularly gold plates regulations beyond what basel calls for? >> we have carefully looked at what's appropriate as we've undertaken these capitol a regulations. some cost-benefit analysis has been done, in the case of the thecharges there was careful analysis done of the levels of which should be set, and they don't think it's time now for a comprehensive thing.

>> you talk about stress test. living to do that. governor tarullo specifies that the u.s. call for evidence would be difficult to conduct and that it would require a very big model that would require a lot of assumptions. assuis this any different, chair yellen, from the feds stress test which also incorporate a lot of kind of medical feds assumptions? >> in the case of the capitol regulations and other aspects, what we're mainly talking about is reducing the probability and severity of a financial crisis. and one of the reasons it becomes difficult to do the type of analysis that you were b discussing is that financial crises, fortunately, are few and far between. and there is no clear rigorous way to establish what is the

probability and how does a particular regulation effectively probability of the risk. >> in my remain short time, it's been eight years, eight years, chair yellen him and certainly the eu is calling vigorously as our other countries for a calll for evidence and a review. shouldn't do that at least attempt to understand the cumulative effects its rules are having on the economy? what are the of the ways thatt fed monitoring, monitors the impact regulations are having on growth? >> we are carefully monitoring how our regulations are working, and by and large my conclusion is that we have to take -- >> time potentially has expired. africanist the children fromom minnesota, mr. ellison. >> thank the chair and rankingng member..ge

chair yellen, thank you for your great service. i appreciate it. i'm of the opinion that the criticism that you have to o endure from certain quarters is really, really a shortsighted considering the ability for, is mean, that congress has certain responsibilities to provide fiscal stimulus as well. i think we have not done. i think we really kind of failed on a. all we really talk about revenues that we can cut budgets as opposed to do things that they think really grow the economy. anyway, that's just my opinion. i only that, leave that on the site. it's quite clear that wells fargo this youth unemploymentsi. benefits. i think it's a terrible corporate practice.

section 956 of dodd-frank directed the federal reserve as well as other regulators to finalize incentive-based compensation was for financial institutions such that those rules don't encourage material losses or inappropriate risks. those rules were supposed be completed nine months after the passage of the act. can you give us a status update on when we can expect to see those rules? >> the proposals, the regulation would offer comment, comments have been received, and i believe the staffs of the agencies are working through those now. i very much hope that we can finalize this rule. it has been a very long time, and i will do everything that i can for the federal reserve to be ready to act on this as soon as possible. >> recognizing the sensitivity of this whole situation, one of

the things that occurred to me is that the ceo, the chair of wells fargo is i think pretty well compensated the number i found was like $19 million. she's not losing his job, apparently not yet. yet we still see the 5300 people who will go. i make no comment and whether they should have been let go or whether they be sure to be but when you set up a situation where you were incentivizing them moving accounts the wayheer that they were and some of the demands that report on them, you can kind of see how it could happen. i guess my question to you is, how can line level workers be held accountable to the degree that they clearly have been, and yet nobody in middle or upper management seems to be taking responsibility for it? i mean, they haven't lost their jobs. i mean, could you give us some insight as to of some of our banking management practices are

being practiced so that only the people at the bottom and of the food chain end up bearing all the responsibility? >> senior management has a responsibility, and it's essential that they be held accountable. compensation schemes that, for example, are based solely on volume are prohibited under the rule that the six agencies havee proposed, but even prior to the adoption of that, the banking agencies have put out back in 2010 or 2011 supervisory guidance on compensation that had the same expectation. the board of directors should be reviewing compensation schemes and performance plans throughout

the organization at all levels to make sure that they don't result in compliance failures and ill-treatment that they have to be consistent with their treatment of customers and consider risks.. disputes and expectation, and it will be formalized in a rule hopefully when the six agencies are able to finalize that. but senior executives are responsible and they are responsible for setting up riska management schemes in their organization that would be detecting such problems, thathe they have a strong internal audit function that would beprob reviewing and detecting compliance problems and that these problems would not only be acted on by senior management but escalated to the board of directors that has an important responsibility. m

>> thank you. and i really appreciate your answer because i agree with it. my good friend from wisconsin,eu congressman david, was asking to respond about an opinion piece by larry summer. i got the sense that you might have come to buy want to elaborate a little more on what he asked you. would like to take the last 20 or so seconds just to stretch out on your answer as of the? >> yes. so thank you for that. so he finds that measures of riskiness of bank debt habit diminished since the financial crisis. debt two reasons. he finds that, one, is that prior to the crisis clearly market participants prior underestimate risk. and second, we are giddy with too big to fail, and investors can no longer expect that they will be shielded from risks if things go wrong in their firm. >> the gentleman's time has expired.

>> i yield back. >> no recognize the gentleman from kentucky, mr. barr. >> chair yellen, our to touch first on monetary policy and ventured over to the federal reserve supervision and regulation of financial system. briefly on monetary policy in your press conference last week, you stated the recent pickup in economic growth and continued progress in the labor market strengthened the case for increase in the federal funds rate and then you went on to say conditions in the labor market are strengthening and we expecte that to continue, and the headline on bloomberg's website from covering this hearing, this very hearing, is that yellin sees solid job growth. but in response to my colleague, i think i heard you say that the labor force participation ratee has not moved and, of course, we all know the economic growth is weak, the viewer of economic analysis reports that gdb output in the first quarter of this year was only .8%, and the

second quarter this year only 1.1%. productivity which is a real important indicator of economic growth is in retreat. it's been decreasing by almost a half a percent over the last reported. reporters. so the question is on monetary policy, how does your comments about economic growth and progress in the labor market square with the stubborn facts? >> economic growth has been very slow, and that's extremely disappointing.low productivity growth, in particular, has been really very, very low. and as you mentioned, in recent years negative, which is a very depressing finding. and in that sense the economy is not doing well. but we are creating a lot of jobs.my the unemployment rate hashe declined to the neighborhood of

what most of us would consider to be full employment. and there is a very significant downward pressure on labor force participation that's coming from the aging of the population. >> okay, if i can interject, aging of the publishing may be one factor. the other factor is unemployment is coming down not for a good reason but for the wrong reason, namely that there's a frustrated workforce out there that's completely given up working -- looking forward. let me talk about some of the causes of the drag on thly economy.iv obviously you all have a role if conducting monetary policy, and one of the duel, the dual mandate functions is maxim employment the that an object of the federal reserve but also supervision and make a living banking institution future safety and soundness is another important mission. what i'm worried about and maybe what might explain some of the drag in our economy is thatri regulatory overreach can be a cross purposes with your

interest rate policies, and the left hand may not know what the right is doing. let me give you an example of what i'm talking about. in the post dodd-frank world, financial firms are supervised by multiple agencies, more than ever before. the federal reserve, the fdic, the sec, the cftc, the cfpb, fsoc. is a consider promulgating regulations, performing examinations. with respectable makings, the approach of market regular sometimes conflicts with the safety and soundness regulator's which in turn can conflict with consumer protection regulator. t and on supervision often the substance of examinations overlap but the timetables don't. and for data collection on most of financial regulation and big duplicate it and uncoordinated. so this is not only a burden on financial firms and undo burden that may be a drag on economy but also may lead to gaps in supervision. when you look at a fargo in the

scandal we've seen, and to consumer fraud that went unpunished for five years, based on the time when we've seen, and the primary consumer protection agency is coming in on the tail end of that, again according to the time when we've seen. accort do you acknowledge that maybe the lack of regulatoryse coordination and inefficiency may be a problem? secondly what you think about proposals to consolidate orderlies reduce the number of financial regulator to reduce regulatory incompetence, reduce duplication of conflict, or at least, at least consolidate examinations and data collection efforts between and among regulators? >> we have a complicatedle regulatory system, there's no h doubt about it, and would recognize that the issues you were discussing can create a great deal of burden. for our part we work very closely with the controller, with the fdic, and also with the

cfpb. >> and then the remaining time,r and i don't have much time on the merchant banking activities rule, will you commit that before the was finalized you will provide us with an analysis of the type of costs that this could impose on companies to? t >> it was a recommendation to congress and not a rule. >> the gentleman's time has expired. not the chair wishes to remind all>> members the chair intends to recognize the gentleman from washington and the gentleman from pennsylvania and thenth adjourned the hearing. the gentleman from washington, mr. peck, is that reaganites. >> chair yellen, thank you for f being you. we are moving toward a healthier economy. not quite there yet but that number since i think it's useful to look even further ahead to the next economic cycle. that is what i read with interest that the committee ejected last week that the fed funds were able to top out atl 2.75-3%.

that didn't give you a lot ofe room to do with the next recession. and as i am fond of saying, neither god nor anyone else has outlawed the business cycle. we will have another recession. so my question is, why don't you consider raising the inflation rates so that you have more bullets in your most powerful weapon to combat the next recession? >> this is something that researchers are looking at and are talking about, and for the reasons that you gave, i think it is an appropriate subject for research and for consideration if we remain in a low interest rate environment for a very lona time. it's not something that the fomc is actively considering. not at this time. >> are you open to it? >> at the moment, i think it's

not, it's not a priority for us to consider that right now, but i would not say never that it's not something, i think it's appropriate for researchers to consider the costs and benefits of the carefully. it's not something we're actively looking at, but i wouldn't say that it's something that we could ever look at, but we are focused on trying to achieve our 2% objected. we want to emphasize 2% is not e ceiling on the inflation rate. it's a target where we would like to be, that inflation can be above, below 2% at different times. we don't expect to always be there. d i think -- >> are you concerned, i mean,, the base of my question is you have enough bullets in your most powerful weapon. are you not concerned at all?

>> i am concerned. i gave a speech at jackson hole that addresses this issue. first of all i think that we may be required to use the same kinds of tools we used during the crisis in the event of a future downturn and emphasized that, that those probably need to be permanent part of our arsenal, and beyond that yes, for the things, it's important to do research on other things and i emphasize that congress should also consider what its role should be in the world. >> thank you. you. the last time you hear i asked you when does america get a raise? >> what?u >> when does america get a raise? i want to go down this road again with you briefly. obviously, the economy is moving, although not there in the other direction. our sales are up. median household income was up fairly materially, but wage

growth still stuck i think that about 2.5%.. even in the last, last weak recovery, wage growth was 4%. chair yellen and when does america get a raise? >> so it has increased a little bit and i think as the recovery progresses we will see some a pickup in wages. but productivity growth is ain very important determination of real wage growth or inflation adjusted wage growth. if nominal wage growth were to pick up and inflation picked up in tandem, that wouldn't be a real wage increase. to what we want to see is wages going up without it's involving inflation going up. and ultimately the size of thos paycheck increases in the long run are driven by productivity growth.. and productivity growth has been

very low. and i think that's one of the things that is holding down the improvement in living standards. so we are seeing some signs of a pickup, but ultimately if but u productivity growth doesn't pick up, in astronomical wage growth which has proved to be inflationary. so it's a fundamental driver. >> quickly, what would you define as full employment as measured by u-6? currently stuck at 9.7.qu >> so i don't have a definition. it's higher than it was before the crisis, even though you three is down to normal levels. i think that signifies some remaining -- >> the gentleman's time has expired. the chair recognizes thehe t gentleman from pennsylvania. >> thank you, chairman. i want to touch a month in following up on the question. i think you testified with

respect to needing legal authority that the fed want to purchase corporate equities, is that right speak with yes.o i said we do not have.e. >> so you would need additional. the with the same hold true for corporate bonds speak with yes, we cannot purchase corporate bonds. >> i want to address some issues i raised my letter to you earlier this week. i'm concerned about the level of influence the fsb as on fsoc. in a letter in february 2015 to the g20 finance ministers and central bank governors, the fsb chair made clear that never governors had quote ongoing, commitment to implement fsb's policies in that quote full consistent and prompt implementation was essential. some may dismiss this as-- was e inconsequential pros. evidence which is just fsoc operates in the spirit of mr. conyers which.

the fsb identified gs eyes have also been designated by fsoc offensive provisions. with that in my award to ask u.s. to the pacific ocean with b russia between fsb and fsoc decision-making. what is the role of the u.s.la members of the fsb and considering whether it is to use interest companies under the gsi i processed speak with a number of agencies take part in the fsb, the federal reserve, the treasury and the sec are all members of the fsb and engage in their work. >> under the fsb charter, member countries committee of the international financial standards. what steps has the u.s. taken to implement fsb's designation of the insurance companies, aig, prudential and metlife, as systemically important? >> well none because the fsb

designations have no impact in the united states, and the united states has to go through its own rulemaking process.e mag the fsoc analysis is completely separate and focus on slightly different things than the fsb analysis and they're entirely separate processes. >> did the federal reserve support the fsb's designation of prudential and metlife as gsiif' need for fsoc? >> the federal reserve only joined the district applicable in 2013, and to the best of my knowledge we didn't participate in their analysis were the basis for some of the original that designations. >> by the federal reserve does persist they put the fsb, yes? >> we may, we do participate in

the fsb. >> and in the process of the fsb designating the gsi eyes, what with the federal reserve's position have been? >> i believe that -- i have to check this out, but i believe that the fsoc designations to these terms occurred before the final designations by the fsb, but have to look at that. >> we want to follow up because my skin is the fsb designating and then fsoc within designated him. it seems integrated as a u.s. company as globally significant under the fsb regime, that that would end up influencing thatly the cubbies can be designated as systemically important within the united states. wouldn't you agree with that?

>> well as i said, the fsocte process is separate, and they believe that the fsoc designations took place before the list of gsi's distant gsiis was put out. >> could and fsb gsii designation be considered, quote, of the risk related factor under section 113 of the dodd-frank act? >> i'm sorry? >> could and fsb gsii designation, if the fsb designates insurance company as at gsii, could the definition be considered and other risk related factor under section 113 of the dodd-frank act? >> not to the best of my knowledge. >> i yield back, mr. chairman. >> the gentleman's time has expired. i would like to think our witness for her testimony today. without objection all members

will five legislative days within which to submit additional written questions for the witness to the chair which will be forwarded to the witness for our response per hour ask our witness please respond promptly as you are able. without objection all members will five legislative days within which is a bit extremist vitriol to the chair for inclusion in the record. this hearing stands adjourned. [inaudible conversations] [inaudible conversations]

[inaudible conversations] >> coming up live at 7 p.m. at the date of the u.s. presidential election. former house speaker newt gingrich and lower income debate former michigan governor jennifer granholm and former labor secretary robert reich. all a part of the munk debate from toronto the african-american history museum opened last weekend. the ceremony repairs tonight at eight on c-span with president obama and th the first lady, for president george w. bush and his wife laura, congressman john lewis, and others. >> leading up to tuesday's

debate between senator tim kaine and governor mike pence, we look at past vice presidential debates is saturday night at eight eastern on c-span started with a 1984 debate between george h. w. bush and geraldine ferraro. >> you can walk around saying things are great and that's what we will be hearing come within her that on those commercials for the past elements. i expect they expect american people to believe that. >> a deliberate 11.5% interest rates. they delivered what they called malaise o they delivered interet rates that were right off the charts. they delivered take-home pays, checks that were shrinking, and we delivered optimism. >> the 1980 debate with dan quayle and lloyd bentsen. >> i have far more experience than many others that sought the office of vice president of this country. i have as much experience in the congress as jack kennedy did win