>> and the federal funds market, of course, is an overnight market. >> another question -- i know i only have a minute. you talked about the situation in greece and what should stay there should stay there. one of the concerns about it not staying there is the fact you have an open swap line, not just necessarily with greece but with europe. can you comment briefly as to why we should not be concerned as far as the potential for contagious if things do not stay in greece and if thing dozen not stay in europe that swap line may be negatively impacted as the asset values drop over there? >> well, first of all, the swap plan has very zifrdistinct bene. >> i understand those. >> on the cost side, we have -- it's a very safe proposition. first, our counter parties at the ecb, it's not banks. it's not greece. it's the european central bank itself which is well capitalized. it has behind it 17 countries. the swaps are also

collateralized by euros. and in addition, the contracts are such that they pay us back in dollars in interest rates determine in advance. we have no exchange rate risk and we believe we have no credit risk. >> the time of the gentleman has expired. the chair now recognizes the gentleman from georgia, mr. scott, for five minutes. >> thank you, mr. chairman. welcome, chairman bernanke. i'm over here. very good to have you. let me commend you and the fed. i think it's very important for us to recognize the achievement and progress we are making with economic recovery. i think it's in no small measure to your monetary policy and accommodation and creating credit facilities and certainly insuring liquidity for bow rowerrow -- borrowers. we're averaging 200,000 new jobs each month now. we're not bleeding jobs. we're adding them.

dow jones is still cracking around 13,000. we've come a long way. but we're not out of the woods. i do, as it is important for us to recognize that your contribution in helping us wade through some very troubled waters. let me just ask you about the stringent standards that you are required under dodd/frank and under section 165 of dodd/frank. you were given that the opportunity to differentiate among companies on an individual basis or by category, taking into consideration the capital structure, riskiness and complexity. and, of course, congress put this provision in because we expected that you will differentiate between the largest and most complex bank holding companies and those with more traditional activities who also exceed the $50 billion level in assets. can you tell us have you yet

established at least conceptually the different categories or tiers of risk subcategories and associated enhance safeguards including specifically with regard to capital that will exist for the bank holding companies that have access larger than $50 billion? >> as you know, that's section 165, 166 of dodd-frank. we put that out for comment. we're still receiving comment on that. and we've also made public our discussions on the basul capital rules. both of those call for gray date the application to banks. with the highest application to the largest most complex banks. and then obviously less going down. so that will be true both in terms of soup advisory effort and in terms of capital, as you know, the basul three includes a capital surcharge. and that will be determined by a formula which i believe we have

provided or at least some v version of it that will put the highest surcharge at the only very top most complex banks and then we'll be gray dated down essentially to zero once you get to large but less complex banks. so the per capita surcharge and extent of the supervisory oversight is gray dated according to size and complexity. >> let me just turn for a moment to the voelker rule as well. and its implication regarding what is happening around the world. let me just add, too, i think your policy of the fire wall to kind of keep us going on in greece in greece. but let me just ask you how spain doing? is this fire wall -- i think spain's situation is probably the next most egregious. is this fire wall doing a good job from getting a spread there? >> well, generally the fire

walls which are european funding to stand as a backstop in case there is contagious. more needs to be done there. and the europeans, i'm sure, will be looking at that and trying to strengthen the fire walls. so i think there is more to be done there. but spain on one hand -- well, spain, i think, has done -- is doing better. they've made progress in terms of their fiscal consolidation. they're taking actions to strengthen their banking system. and their cost of credit has gone down probably in part because of fundamentals but also in part because of the ecb's long term refinancing operations. >> now let me ask you very quickly about the voelker rule. i'm curious as to why you believe it's appropriate to extend the jurisdiction of the united states throughout the world in this regard. it seems to me that we should at a minimum wait to see what other countries are doing in this regard so that we do not put the

united states capital markets or u.s. investors at risk. are other countries to your knowledge planning to adopt the voelker rule? >> not to my knowledge, no. we're not extending jurisdiction outside the country except in so far as that american based banks will have to follow the rule in their worldwide operations. but we're not obviously not going to require european banks operating in europe to obey the rule. >> but our bank who's are operating will? >> yes. >> time of the gentleman is expired. the chair now recognizes the chairman of the oversight investigation subcommittee, the gentleman from texas for five minutes. >> thank you, mr. chairman. chairman bernanke, good to have you back again. one of the things that the g-8 central banks have expanded their balance sheets. if you convert the currencies to

dollars to about $15 trillion over the last two years. what do you see looking forward? how much more expansion in these balance sheets in these central banks do you see? and what could be some of the consequences of that? >> well, i don't know what expansion may or may not be. the japanese, for example, have, again, begun some asset purchases. the ecb has put out again this morning about a half a trillionutrillion u eur euros. i think some is sterilized. these central banks is dealing in a similar way. it is not unusual. they're trying to find ways to provide more accommodation in a situation where interest rates are close to zero. and so standard cutting the basis of the federal funds rate by 25 basis points doesn't work. all of the central banks in

question have similar tools to the ones we have including the ability to pay interest on reserves, ability to sell assets, and the ability to sterilize their balance sheets so that i think we all have adequate tools to withdraw that accommodation and to shrink the balance sheets at the appropriate time. so, you know, i think these are -- this is currently where the best approach, the best available approach is to provide additional financial accommodation in a world where rates are close to zero and we can't obviously go below zero. >> so keep printing, basically? >> you know, i know there's been some debate about, you know, use of the word printing. it is, in fact, the case that amount of currency in circulation is not been affected by any of these policies. what has happened is the amount of electronic reserves held by the banks at the federal reserve has gone up by a great deal. but they're sitting there. they're not doing much. mr. garret raised the question whether they should be doing

more in some sense. so far we have not seen any indication that they proved inflationary. >> another question. does the federal reserve hold gold? >> no. >> so you don't hold any gold? >> i don't think so. maybe a little bit. do we have gold? looking at my colleagues there, i don't think so. >> somebody asked me to ask you that question. so -- i'm told we have gold certificates. >> gold certificates. and what do we do with those? >> they're part of our reserves. >> and can you furnish me with how much that is? we will. but what i do know is that the great bulk of u.s. gold is held by the treasury not by the fed. >> okay, thank you. so we've been trying to track cumulative effective the dodd/frank bill. it has about 400 rulemaking requirements in it. some of them you're required to

comply with. and recently we reached a milestone i think of 400. we put out about 140 of the rules. and so we still -- so about a third of the way through there. it was alarming to find that basically the regulators themselves published it would take about 22 million man hours per year to comply with the first 140 regulations. and so that means we're two-thirds of the way. and so we're obviously headed to a lot of compliance hours. it was interesting to also note that only took 20 million man hours to build the panama canal. i think that most everybody would agree that 20 million man hours spent building the panama canal created more economic opportunity than in $22 million man hours complying with regulations. are you concerned? i mean, that this level of regulation and this kind of burdens that we're putting on

the markets and the market participants, is that healthy? >> congressman, i do think it's important to point out what we're trying to prevent. we had a terrific financial crisis that has cost this country enormous amounts of money and created enormous amounts of hardship. and it's certainly worth some costs to try to make sure that doesn't happen again. yes, those regulations are costly. but speaking for the fed, we've taken a lot of steps to try to minimize the costs including bunching, grouping rules together in packages so we can look at the interactions among them. doing a lot of cost benefit analysis, having long transition periods and so on. so we need to do what needs to be done to prevent another crisis, certainly. and, of course, people can differ on how much needs to be done. but we're trying as best we can to carry out the statutory obligations that congress gave us at the lowest cost to the

industry. >> my time has expired. >> the chair now recognizes another gentleman from texas mr. green, for five minutes. >> thank you, mr. chairman. and i thank you, mr. chairman, for being here today. we greatly appreciate your attendance. and you always share a great information with us. mr. chairman, fsoc, has that been a benefit? do you find it beneficial to meet with the other prudential regulators? you could just elaborate for a moment on this, please? >> yes. it has been beneficial. there are ten voting members. and we've been meeting on a reasonably frequent basis. as i mentioned earlier, virtually every principle is there at every meeting. so we really -- the leadership is really there to talk. it's had two other benefits.

one is that we have extensive staff interaction. so there is staff interaction going on between meetings. that has been very useful. and in addition, there has always been a certain amount of interagency cooperation coordination, you know, and joint rules and so on. i think that has really picked up and improved and been helped by the fact that we're working together in this fsoc context. i think it's been helpful. >> is it fair to say you did not have a similar circumstance prior to dodd/frank, a similar meeting arrangement comparable to what fsoc provides? >> well not exactly. we did have the president's working group which involves some of the agencies. and we did have a lot of bilateral discussions. we didn't have a single place where all the regulators got together to discuss possible threats to the economy. >> and are these meetings well coordinated and do they take

place at specific times such that this has become a part of your agenda? >> well, the meetings are -- there is not a specific date. but they're set up by the treasury, sometimes it's hard to schedule. we want all the folks to be there. but we've been meeting more frequently than quarterly. and, again, the meetings are quite substantive. they have a private session where we discuss matters, you know, among ourselves and then there is a public session as well. >> one additional question on this. with fsoc, are you better positioned to deal with systemic risk than you were prior to fsoc? >> i believe so. because it allows us to take a broader perspective. each individual agency, for example, will can make a presentation to everybody and we'll be informed about what the sec is doing and money market mutual funds or insurance people are doing on insurance issues. >> let's talk for just a moment

about cutting our way to prosperity. is there a down side to cutting our way to prosperity? and i'm referencing to some extent cutting to the extent that we start to decrease the number of jobs. we're cutting jobs. we talk quite often about systemic risk. but -- well, actually stimulus providing a stimulus for the economy. and not wanting to provide too much stimulus. but can we also move to a point where we are cutting such that we are hurting the economy? >> well, i've expressed concern about what happens on january 1st which will be a major fiscal contraction. i think it would pose a risk to the recovery. but what i advocated is a two-point, two-part process, one of which is critically making sure we have a fiscally sustainable path going forward

in the medium to long term but that at the same time we pay attention to the recovery and make sure we don't snuff it out unintentionally. >> now, chairman frank, ranking member now, presented a chart from your monetary policy report. and this is number 30. and this chart really speaks volumes about what has happened and what is happening. if you consider zero terra firma or above water, obviously, we were going down fast, sinking. we were falling off a cliff. and now we are coming up. in fact, we're back above water on terra firma, not where we would like to be but we're clearly moving in the right direction. down is bad, then up is good. it's kind of simple to see where we are here if down is wrong, up

is right. if down is worse, up is better. i hate to use this technical terminology. some people may not quite comprehend all of what i'm saying. but i thank you for the chart. >> the time of the gentleman has expired. the chair now recognizes the gentleman from new mexico, mr. pierce, for five minutes. >> thank you, mr. chairman. thank you, mr. chairman. mr. garret was asking a little bit about the european exposure and you were pretty soundly and you're recommendation that the european banks are pretty sound. is that -- did i hear you correctly? you're saying that they have pretty stable -- >> no, i was talking about the european central bank. the european banking system is currently being asked by the european banking authority to

raise a good bit more capital. and, of course, their liquidity situation is being satisfied almost entirely by the european central bank rather than by private markets. >> sto that would explain. was a little confused about page four you continue to monitor the european xp europe european exposure of u.s. financial -- >> yes. >> how long have you been watching the exposure of u.s. firms to financial -- to the european financial -- >> the european situation was about -- came prominent about two years ago. so pretty much throughout that period. >> i guess my question is then about the new york fed that gave primary dealer status to mf global and so two years ago

would be somewhere in the time frame that they were making application, february of 2011 is when they got the application done. that's when it was given. and so this watching of exposure mf global had gone up by $4 billion during that very time period. why didn't new york fed catch this exposure if that's something y'all were concerned about? >> because we're regulating banks and we are looking at the banks exposure. mf global wasn't a bank and we weren't their regulator. >> they were taking a look at them. they had to take a look at them -- >> but only as a counter party. they met the criteria for size and capital and experience. >> but they were turned down several times before. >> i don't know. >> i can tell you. they were turned down several times before. >> they met the criteria when the new york fed game them the

status. it's been our goal not to restrict primary dealer status to just a few of dealer status to just a few of the larger institutions. we want to have a number of institutions there, and they met the standards to be a counter party to the new york fed. but, again, it's not the new york fed's responsibility to supervise them. >> okay. the -- you have some fairly significant words regarding what's downstream from us, if we continue the spending by the federal government. didn't you earlier in answer to a question -- in other words, if we keep going, it's going to get fairly significant. you used the terms that were almost catastrophic. >> there's a significant risk that if physical sustainability is not achieved, you know, within a reasonable period, that markets might decide it's never going to be achieved, and then we would face a crisis of

confidence. that's always a possibility. >> so this spending that we're doing is deficit spending. it's -- you would say it's borrowed money, except that no single country has the ability to loan $1 trillion, when we're running $200 billion, $300 billion deficits, china could lend us the money, but with a $6 trillion economy, china doesn't appear to be able to lend $1 trillion, not one sixth every year. so the federal reserve, by owning $1.2 trillion in u.s. treasuries, is really facilitating this spending, and it seems like you all have the capability to give some discipline into the institutions here in washington that don't have the discipline internally, even if it was only a 10% reduction, and say, we're not going to buy that many treasurers, not going to do that

much quantitative easing or whatever measure you're using. why don't y'all say no? >> because our mandate, given to us by congress, is try to achieve maximum employment and price stability. and that's what denser our interest rate. >> maximum permanent price stability. you've already said that we're facing very serious thing ifs we keep spending what we're spending. >> that's correct. that's why i'm here advocating to congress that congress take responsible action. >> well, you were independent and you're not indicating any discipline and disciplining us. thank you, mr. chairman. >> time of the gentleman is now expired. the chair now recognizes the gentleman from colorado, mr. perlmutter. >> thank you for being here and thank you for staying here for all this time. i usually get to ask questions with right at the end. and i appreciate your stamina, really, through this hearing and through a storm that none of us quite understood what was coming, and, you know, you can

always look back and say, and i look at, you know, casey stingal or yogi berra and say, look it up. well, we can look it up in this monetary report and we can see the storm. you can see where the cliffs were. you can see the drop in employment, you can see the drop in the gdp. and i think as we went through this storm, and there's still some showers to come. i mean, there's no question about that. but we came through this storm, and i just want to compliment you for being a pretty good captain. one of many, but a pretty good captain in all of this. so. but i do have a few questions. and mr. pierce just brought up something for me. i'd like -- i don't know if you have your report in front of you, but charts 23 and 24, 23 is federal receipts and expenditures, 1991 through 2011. chart 24, change in real government expenditures on consumption investment, 2005 through '11. so when i look at 23, i see a

continued reduction in revenue to the federal government and i see in part of those spikes, a huge spike in the fall of '08 and '09 as demand for federal services or services went up, gap being debt accumulated. would that be a fair statement? >> yes. >> okay. and then in 24, as opposed to saying, you know, there hasn't been any effort to rein in expenses, if i read chart 24 correctly, there has been a reduction, at least based on this chart, in federal expenditures. is that correct? >> well -- >> am i reading it right or wrong? >> yes, you're reading it correctly. that's really the phasing out of the stimulus in 2009. and also, states and localities have also been laying off workers and cutting back spending. >> all right. so let's talk about what's coming at the end of this year. now, if our goal is to pay down

the country's debt, there's two ways to do it. you have more revenue and you have less expense. as opposed to what we saw in chart 23, where we had less revenue and more expense. so if i'm not mistaken, you called it a fiscal cliff. i'm not sure i'd say that. it's the bush tax cuts expire, so revenue increases, and the sequestration or the budget cuts kick in. we can start paying down the debt. now, you've said that that may cause a major contraction. can you explain that? >> i don't think i used those words, exactly. but, um -- >> okay, so use your own words. i don't mean to put words in your mouth. >> i'll just cite as my authority the cbo, the congressional budget office has to make projections based on current law. so they assumed in their projections that the current law, the current expiration of the tax cuts and of the payroll

tax relief and of the sequestration all came into play in 2013, and they -- their economic projection based on that was for 1% growth and for unemployment to begin to the rise again. it's just the usual logic that if you cut spending sharply and you raise taxes, you're going to pull demand out of the my and it's going to hurt the recovery. now, again, it's very important to address these issues in the medium to long-term, but if it all hits the economy at one time, it would be very hard to adjust to that. >> so, i mean, i guess what you're saying is, we have these two things out there, and if we have the opportunity, both sides of the aisle, we ought to be a little more refined or targeted as we try to approach paying down the debt. at least, that's how i'm understanding your answer. >> you can get the same paydown, the same long-term benefits, but just a little more gradually, i think. >> i have a question on page two of the report. there's a statement, additionally, the ecb made a significant injection of euro

liquidity via its first three-year financing -- re-financing operation and central banks agreed to reduce the price of u.s. dollar liquidity based on swap lines with the federal reserve. what does that mean? >> so european banks are having trouble raising funds. >> right. >> they -- most of their funding is in euros, some of it is in dollars. on the euro side, the european central bank, which controls the supply of euros, has lent 1 trillion euros for three years to european banks on a collateralized basis. and that has greatly reduced the problems that european banks have in raising euro funding. the european central bank doesn't control dollars, the federal reserve controls dollars. in order to get dollars to the european banks, who use it in turn to make loans to u.s. citizens, among other things, the federal reserve has swapp p dollars for euros. we give the european central bank dollars, they give us euros. on their recognizance, they take the dollars and lend them for

shorter periods, not three years, less than three months, to european banks, thereby relieving them of their dollar funding problems. they pay us back with interest and so we don't lose anything. but it helps relieve the funding tensions for european banks. >> all right. thank you. time of the gentleman is expired. the gentleman from minnesota, mr. ellison, is recognized for the remaininti the gentleman needs to turn his microphone on. >> thank you, mr.mr. chairman bu for coming. i just want to know your views on what more do you think could beo help the housing market get back on track? let me just observe that about 60% of all the mortgages are

either owned backed by, you know, the gses and perhaps, you know, some people down, the ones we can write down, and yet they haven't been. and there's some resistance to that. is that a feasible solution? and if not, you know, what other ideas do you have regarding the housing market? because it seems like that is the one persistent thing that seems to be dragging the economy down. and it's not just construction jobs. i mean, it's just, you know, it's a loss of equity. it's a general prevailing sort of diminishment of demand, as i see it. let me hand it over to you. that's actually going to be my only question. >> as you may know, congressman, the federal reserve put out a white paper recently that had an analytical discussion of many options without makes recommendations. a whole range of issues,se