tell me what metrics you are looking at to make these judgments as you go along. >> well, the committee indicated that the path of purchases is not on a preset course. and all along at each of our meetings where we had to decide whether or not to cut the pace of purchases or to stop that or even to increase purchases, we've asked ourselves two questions. is the labor market continuing to improve, and do we remain confidence that going forward it will continue to do so? and do we see evidence that inflation is moving and will continue to move back to our 2% objective over time? and at every one of our meetings since last december when we started to taper the pace of

purchases, we've asked those questions and the answer has been yes, we think inflation stabilized, and we'll gradually move up, and yes, we think the labor market will continue to improve and we have cut and we use the term measured pace or $10 billion a meeting. now our forecast is that for the next -- that we will continue to see those conditions. i think the evidence we are seeing is consistent with that. if we continue to see progress in the labor market, as i expect, and inflation stabilizing or moving up to toward 2%, we would continue on the course we are in. as i mentioned, purchases would cease after october, but if there would be some very significant change in the outlook we see between now and

october, so that we lost confidence that the labor market will improve, for some reason, or that inflation would move back up to 2%, then we would have to rethink that plan. that is the plan. >> excuse me. let me ask you a question. i'm running out of time here, about the labor market. because i think this is a very, very concerning issue for the economy and for the country. the proportion of americans in the labor force is now less than 63%. we haven't seen those numbers since jimmy carter was president many, many years. i don't know if that's you or me, but it's annoying. we haven't seen those kinds of numbers since jimmy carter was president. the fed has said that you'll look at the labor market.

you just reiterated that in your testimony. originally it seemed like the benchmark you were trying to achieve was 6.5%. it's now 6.1%, but to me that doesn't tell the story. the fact that our unemployment rate is at 6.1% doesn't reflect the reality people are taking part-time work, whether that's obamacare or another reason, we could debate for a long time. tell me what you're looking for when you constantly refer to the labor market. are you looking for fuller participation, more full-time employment? what are you trying to achieve? i ask you to be brief because i am out of time. >> briefly, labor force participation certainly moved down. part of that, i believe, is an aging population and

demographic. but when we see diminished labor force participation among prime age men and women that suggests something that is not just demographic, and so my personal view is that a portion of the decline in labor force participation we've seen is a kind of hidden slack or unemployment. it may be if that's correct that as the labor market strengthens that labor force participation will remain flat, instead of the demographic trend continuing to pull it down. that as people who have been discouraged come back into the labor force and start looking at getting jobs, we will see labor force participation rate flatten out and the unemployment rate may not come down as quickly as it has been. but we'll need to look at that.

that's a hypothesis. what we said about 6.5%, as long as inflation was not a concern, we would not think about raising the federal funds rate, we would not raise it until unemployment declined below 6.5%. 6.1% is not our target either. participants in the fomc are asked what they think a so-called number employment or normal longer run unemployment rate is. in the monetary policy report, we've distributed in june, they thought this was 5.2% to 5.5%.

of course we don't know and we are looking at all the things you mentioned in judging the labor force, judging the labor market, not just unemployment rate but a broad range of indicators, including voluntary part-time employment, as you mentioned. and a broader metrics concerning the labor market. >> thank you, madame chair. >> senator menendez. >> thank you. you were quoted saying while the economy is improving, the head winds are still there even when the head winds have diminished to the point where the economy is finally back on track and it's where we want it to be, it's still going to require an unusually accommodative monetary policy. that was your statement. that seems pretty consistent with the concern of prominent economists outside of the fed. that current economic conditions and fiscal policy are producing an environment that requires lower than normal interest rates to generate economic growth and

create jobs. can you explain to me what you mean about the need for, quote, unusually accommodative monetary policy? and do you agree with the views being discussed by many that larry somers and others about lower than normal interest rates and the dangers of tightening too soon? >> so, i do agree with the view that there are substantial head winds facing the economy. one example would be that we see in surveys of households that their expectations about their future finances and growth in their real incomes are exceptionally depressed. i think that's a factor that is depressing spending. we see in the housing market where we had some progress but

it now looks like it's stalled. a lack of credit availability for anyone who has anything other than a pristine credit rating, i think, remains a factor. and that's in many complicated ways, a legacy of what we have lived through. i think there are -- and fiscal policy has been a factor, in my view, holding back the recovery. and that's what monetary policy has had to counteract. that's in part why we have needed such an accommodative monetary policy for so long. the economy is making progress. i do believe it's making progress, and eventually if we continue, a day will come when i think it will be appropriate to begin to raise our target for the federal funds rate, but to the extent that even when the economy gets back on track, it doesn't mean these head winds will have completely disappeared.

in addition to that productivity growth is rather low. at least that may not be a permanent state of affairs, but it's certainly something that we have seen in the aftermath. we've seen it during most of the recovery. that's a factor that i think is suppressing business investment and will work for some time to hold interest rates down. these concerns and these factors are related to what economists are discussing, including secular stagnation. the committee, when it thinks about what is normal in the longer run, the committee is recently slightly reduced on their estimates of what will be normal in the longer run. the median view on that is now something around 3.75%, but we don't really know. it's the same factors that are

making the committee feel that will be appropriate to raise rates only gradually. there's some of the same factors that figure in the secular. >> let me ask beyond what the fed is doing. are there fiscal policy steps congress can take to improve the situation and reduce head winds against growth? for example, we have interest rates at near historic lows and construction employment is still below the pre-crisis levels. for example, wouldn't it be time to invest in repairing our nation's transportation and other infrastructure as a way to help against such head winds? >> as i said, fiscal policy for a number of years has been a drag on growth. we can translate that into a factor that has necessitated lower than normal interest rates to get the economy moving back on track. of course, it's a judgment for

congress what the appropriate priorities are, but i would certainly say that fiscal policy has been unusually tight for a period like we've lived through. >> i understand you don't want to dictate what congress' priorities are, but if congress were to say investing in significantly robust, transportation infrastructure and other similar projects, would that be something that would help against the head winds? >> certainly, it would be a counter to those head winds, yes. >> thank you, mr. chairman. thank you for holding this particular hearing. chairman, thank you for being here. i apologize, i haven't been here for all of the questioning. the ranking member and myself are running back and forth to the energy committee talking about fire suppression. you get a lot of credit and blame. i'm not blaming you for the fires out west, all right? we can take that question off the table. i know you do take a lot of

blame. i just want to thank you for taking time. you said in your opening remarks that the recovery is not complete from the great recession. we've had a lot of lively debates in this committee over soundness and safety, we had a hearing last week on high frequency trading. some are claiming markets are perhaps rigged. if you talked to individuals in 2008 and told them we are going to go five years through a great recession and you'll see the stock market go from 6500 to 17,000, not too many people would have believed that. the question is, books are being written about this, individuals are going as far as to claim the markets are rigged. i want to get your feelings. do you believe the stock markets are rigged? >> well, i think there are a number of concerns that have been outlined about high

frequency trading, and i believe it was in june mary jo white, the chair of the s.e.c. gave a very important and very detailed discussion of high frequency trading, outlining where she saw problems and what potential solutions might be to those problems. >> the quantitative easing, do you believe the unintended consequences of qe-1, 2 and 3 with all the bond buying, that it's forcing people into the stock markets creating this bubble? >> i think an environment of low interest rates in general, which have been promoted by our, both our keeping the federal funds rate at zero and additional by our purchases, low rates do have

an incentive to push individuals to look for yield, to reach for yield. that is both a good thing and a bad thing. on the one hand, we need healthy risk taking in order to spur a recovery. and low interest rates, i think, have had a positive effect on helping the recovery, but of course we have to be careful about looking for situations where low rates may be incenting behavior that can be dangerous to financial stability. i particularly outlined in my remarks an area like leverage lending where we are seeing a marked deterioration in underwriting standards. it looks like it may be part of a reach for yielding. we are trying to deal with that through supervisory, through

supervisory means. the kind of broad-based increase in leverage in the economy and maturity transformation and credit growth that one tends to see in this situation where there are intense financial stability risks, i don't think we see those things. at this point, they are more isolated and not broad based in general, at least in my asse assessme assessment. thank you, i want to go back to senator johanns' question about quantitative easing. do you see when the federal reserve stops the bond buying program? >> as i indicated in my opening remarks, if things continue on the current course, and as the committee expects, the purchases would cease after october meeting.

>> if they cease, my question today would be, would you ever see the restarting of quantitative easing? once it ends, do you believe this is now the new normal the federal government buys these bonds or would you commit to saying the quantitative easing has come and gone and we've seen the last of it? >> it really depends on what the economy does. the economic outlook is very uncertain. i hope we're on a solid course of recovery and that it will continue and not encounter some serious setback. i wouldn't take it off the table forever as a tool the federal reserve might need to some day in some circumstances use again, but my hope is we're on a path of recovery and monetary policy will, over time, normalize, that our purchases will end, eventually our balance sheet will begin to shrink back toward more normal size.

and when the time is right, that short-term interest rates will begin to move above their current very, very low levels, too. >> dr. yellen, thank you. >> senator brown. >> thank you, mr. chairman. madame chair, thank you for being here. these hearings so often focus when the fed will change its policies so financial markets will rally and wall street lenders can make money. too often we forget about the human side of these issues. as federal reserve chair, you worked to put a face on economic numbers. we're appreciative of that. last february you talked about the toll on unemployed workers being simply terrible and mental and physical health on their workers, on their marriages and on their children. it seems too many people around here still view unemployed workers as lazy, shipless people who do not really want to work, so we simply don't extend programs like unemployment insurance. talk for a minute or two about

the psychological effects unemployment has on workers, why the psychology is so important and why it should matter to all of us, even a senator who goes to work in a suit every day and speaks with an upper class accent. >> well, i think when workers lose jobs they depend on for their livelihoods experience a special psychological trauma, and especially when the unemployment is a long duration has it has been for many individuals who find themselves unemployed now. first of all, there is a very significant loss in lifetime income. many studies have documented for workers who experience job loss when unemployment is as high as it has been and they find it

difficult to get another job. of course, there's the fear that goes with that of how will i support my family? how will i take care of my children? i gave a speech in chicago in february and talked to a number of unemployed workers and heard personal stories about individuals who were supporting children and concerned that because in some cases they could only find part-time low-paying jobs that they couldn't continue to support their children adequately. there are a number of studies. when i use those words, that it takes such a toll on families and children and psychologically that's based on a number of studies that have documented that, that there are health costs to workers who lose their

jobs. that in terms of the progress of their children, there are losses to their children when a parent loses a job for a significant amount of time. in terms of the odds of divorce and break-up of family, that is obviously present, too. for people the jobs are often their identities. when an individual can't find a job for a prolonged period of time, who am i and what is my role and how do i contribute to my community and to my family become real psychological toll. i think anyone who ever talked to people experiencing significant unemployment realizes what the psychological toll is and the ways it affects their well being and that of their community. >> thank you for realizing that's an important part of your job, to forcefully speak out about the human side, the human cost of economic policies.

too many meshes look at washington's response to the financial crisis and feel nothing's changed. after all the four largest banks are 25% larger than they were in 2007. federal reserve vice chair said last week what about breaking up the large financial institutions? there is no simply actively breaking up the largest banks would be a very complex task with uncertain pay-off. it's troubling to me that the largest banks are so complex. one of our nation's top regulators can't understand these institutions, particularly since he worked at one of them. dr. fisher liked your views expressed in 2009 that break up the banks is more of a slogan. governor torillo's views, he

praised a plan i worked on with the senator from delaware. my question is, do you agree with vice chair fisher or do you believe with governor torillo? >> i think one of the things vice chair fisher said that i certainly agree with with is that systemic risk in the financial system is not purely a question of too big to fail institutions. we shouldn't lull ourselves into thinking if we deal with ways to resolve or diminish the role of those institutions that systemic risk is not still a real phenomenon that we have to worry about. during the great depression when we had a financial crisis, it was mainly a large number of small banks that were affected,

and then we saw runs on the banking system that had the potential to, and did cause a collapse of credit in the economy. so i think he pointed out and i agree that we have to worry about more than the too big to fail firms, and we could have systemic risk if a large number of smaller institutions are hit for some reason. it is certainly, i agree with my colleague governor tirullo, we are committed with trying to deal with too big to fail. we have put into place numerous steps and have more in the works th that, reduce their odds of

failure if they do fail, it's important to be able to resolve these firms. on one hand there will be much lower odds that a systemic firm would fail. should that occur, we'll have better tools to deal with it. throughout living will prospect and other aspects of our supervision, we are trying to give these firms a feedback object ways in which they can alter their structure in order to resolve their ability. >> the living will processes for these 11 large firms, the issue of complex that we can't address the issues of complexity. thank you, madame chair. >> thank you, madame chair for

joining us yet again. i think you know from our previous conversations, i've long been of the view that the risks associated with this unprecedented policy experiment outweigh the meager benefits. i disclose that upfront. i want to understand better a different aspect of this. that is a movement towards normalization which arguably is under way now, necessarily depends on the projections that the fed makes. you discussed some of those projections, inflation, unemployment, gdp projections. what concerns me is that these things are hard to project. the fed doesn't have a great track record projecting these things. i don't think the fed anticipated, for instance, the extent to which a decline in the work force participation would drive unemployment rates lower. i have a little graph i know you can't see from where you are, i would ask it be included in the

record. simply depicts the fed's projection of gdp one year out and then compares that to where gdp actually was. it's been pretty terribly wrong for ten years. it seems as though there is a systemic bias with a more optimistic outlook than what has actually come to pass. so my question is, to what extent, how introspective is the fed being about their own limitations in making projections which ultimately are driving a movement in the direction of normalization? maybe more precisely, do fed members incorporate into your own decision-making process the fact that these projections haven't been so good? that's not to say you're unique getting these projections wrong. i understand how difficult they are. but don't they argue for a more conservative approach and a quicker move to normalization

since you know that very frequently these projections have been wrong? >> i certainly agree that projecting future economic activity is very difficult business. rgdp projections have been for a number of years, too optimistic. i would say our projections about the labor market and unemployment, as well as inflation have come closer to the mark. so gdp stands out as someplace where our projections have been systemically off. of course, we have to gear monetary policy to what actually occurs in the economy, and not just what we expect will happen in the future to the economy. our forward guidance, for example, is very explicit in saying that the time of

normalization of policy, the time at which we would begin to raise the federal funds rate above this zero to 0.25% raise which will depend on actual progress we can see that is not a forecast, and our expectations about future progress in achieving both of those goals. so we are looking at what happens in the economy, and when we're wrong, we take that into account. as we see ourselves coming closer to our goals or failing to achieve our goals, that's real live data that we respond to and adjust our policy accordingly. i think that must be a feature of monetary policy is that it adjusts to actually unfolding events and not just what we expected. >> thank you.

one other question. you know there is often a lot of discussion about the fed following some kind of well defined rule. obviously, many central banks do that. the fed itself has done it in the past. what is your reaction to the idea that the fed would be able to design its own rule, but it would be an objective data-driven rule, the fed would be required to disclose the rule, and the fed would be allowed to deviate from the rule, but it would have to come to congress and explain when and why it was doing so? what are your thoughts on an arrangement of that nature? >> well, no central bank in the world follows mechanical mathematical rule. i think it would be a terrible mistake to ask the federal reserve to specify a mathematical rule. >> we've got central banks that peg their currency. that is a well-defined rule. >> well a currency board. >> or having a gold standard is a well defined rule.

>> okay. if that's what you mean by a rule of gold standard, currency board, yes, that has happened. but given the goals that congress has assigned to us with respect to inflation and employment, i'm not aware of any, for example, inflation targeting country of which there are many that has a mathematical rule. nevertheless, it makes perfect sense to behave in a relatively systemic way. in looking, when you have objectives, asking the question, how far are you from achieving those objectives, and how fast do you expect progress to be made in determining whether or not exactly how much accommodate is needed. a number of different factors come into play at different times if we were following a specific mathematical rule, i really think performance in this

recovery would have been dreadful. most of the rules we would have used, first of all, we couldn't have followed in the depths of the down turn. they would have called for negative interest rates. if we had tightened monetary policy as some of those rules would have called forgiven the head winds we face, the recovery would not be as far advanced as it is. there are special factors and structural changes that need to be taken into account that would make me very disinclined to follow a mathematical rule. but i think it is important a central bank behave in a systemic and predictable way and to explain what it's doing and how it sees itself as likely to respond to future economic developments as they unfold. and that is precisely what we are trying to do with our forward guidance.

>> thank you. >> thank you, chairman yellen for the work you've done. i think in previous sessions we had, i think you agreed the fsoc and fed have authority to develop industry guidelines and metrics rather than forcing insurers or asset manager firms into a regulatory mold. that is still your position, i assume? >> i believe with respect to designation that each unique company that's under consideration needs to be carefully evaluated in detail. >> thank you. in the past, some of us on this committee raised concerns that the fsoc seems to have a lack of transparency and the sifi session nation pr designation process.

can you tell me why the process should not be transparent, if you think it should not be transparent? >> well, i think that it should be transparent what it is that the fsoc is considering and looking for and trying to evaluate when it looks, evaluates any particular firm. and i believe the fsoc has made it clear that they are trying to identify entities that are responsible for systemic risk to the financial system, and the metrics that it looks to to evaluate that. but this great deal of confidential firm-specific information that comes into play in evaluating a particular firm that i don't think should be in the public domain, unless it is actually designated in which case it has been brought into public domain. >> you do believe the metric

should be transparent? >> the criteria used to establish, to designate should be clear. >> do you believe they are now? >> i believe they are reasonably clear. >> okay. >> because there's some -- there's some, and i'm one of them that believe the process has not been transparent at all. what i would ask of you because i believe you think it should be. i agree with you. the information that is specific to a company doesn't need to be transparent, but i believe the metrics they are using so we know what they are looking for so quite frankly, everybody knows what they are looking for when it comes to designation is important. >> right. i believe they've indicated on what kinds of things they are taking into account. >> about six months ago when you were before this committee, we talked about clarifying the end user exemption from the margin

included in the dodd-frank given minimal risk they posed in the overall market. you and former chairman bernanke all indicated comfort with exempting end users from the costly margin requirements. is this still true today? do you still feel this way? >> yes. >> good. >> you indicated the rule would be out by the end of the year, the end user rule just wonder if you're still on schedule? >> i think that is correct, that we are. >> a few more head nods. thank you. that is very good. i want to talk a little bit about the assessment.

when you are looking about the assessment of incoming information, when it comes to the economy and fed funds, labor market is one of them, gdp is one of them. i would assume housing is one of them. what are some other indicators you're looking at? >> we are trying to assess the likely path of the labor market and employment and inflation which are the two goals congress told us to focus on. in trying to make those assessments. we have to look at a huge range of data. housing, consumer spending, what's happening in the global economy what do we expect will happen to our exports and imports? all of that figures into what will growth be in the economy, then in turn matters like productivity growth will affect

how that translates into progress in the labor market. with respect to inflation, of course, we are looking at many different metrics. >> of all those things you listed, which is of the most concern? >> of all those different metrics? >> yes. talking about the inputs you consider within the economy, what is of the most concern? >> at this moment what is of the most concern? >> yes. >> essentially the committee having looked at all these different factors holds the view we will enjoy moderate growth the next year and next couple of years and the labor market will improve, and so while we are concerned that housing is a sector where we expect to see better recovery, we are not.

we are not many knowledgeable enough to know whether it will hold back recovery. appreciate your work and your interest. you gave a speech recently on the importance of macr macro-prudential cools. the fed is taking the stance regulatory tools such as increase requirements, margining, central clearing, requirements for derivatives will improve. we are now taking the approach they are going to happen and we are going to deal with them.

is that an accurate statement? >> i think the steps you indicated to strengthen the financial system do two things. they diminish the odds that bubbles will develop. for example, these rules diminish the chance that leverage will build up as an economy strengthens. we've taken steps and will take further steps to diminish the likely buildup in leverage in the economy. >> you would agree zero interest rate policy is tending to make people reach for yield now, and is an impetuous toward bubble creation and certain asset classes? >> it can be. that's why we are watching very carefully. >> is there any one particular air yaur worrying about right now in terms of asset bubbles? >> i mentioned leverage lending and corporate debt markets,

especially lower rated companies. i think we are seeing deterioration in lending standards. we are attentive to risks that can develop that banks or others may be taking on interest rate risk. if interest rates, when interest rates ultimately begin to rise, that if firms or individuals have taken risks and aren't adequately prepared to deal with them, that can cause distress. among the institutions that we supervise we are certainly looking at management of interest rate risk. we are using stress testing in this latest round. we had specific scenarios designed to look at how large

banking organizations would fare if interest rates were to increase rapidly. and we're focused on how firms are managing their own interest rate risk. i think there are some risks in a low interest rate environment. i indicated that and we're aware of them, but i think the improvements we have put in place in terms of rig ulgs both d regulation both diminishes the odds risk will develop. if there is an asset bubble and it bursts, we are not going to be able to catch every asset bubble or everything that develops. >> i guess that goes to my core question. rather than have a policy that causes bubbles to create, why wouldn't we have a policy that doesn't cause that, one? and number two, it just seems to

me now that we're kind of locked in this zero interest rate phenomenon, and one of the consequences of that is reaching for yield and now we're going to try to tenuate the response to the zero interest rate rather than change the policy so we don't have the bubbles in the first place. >> so we have to recognize also that we're dealing with a real problem. the reason we have low interest rates is to deal with the very real problem, namely the economy is operating significantly short of its potential. employment is suppressed well below its maximum sustainable level, and inflation is running below our objectives. that's why we are holding interest rates low. were we to significantly raise interest rates to deal with the set of concerns that you

indicated, we should expect even worse performance on those important goals that congress has established for the federal reserve. and if we were to weaken the economy, it's not even clear that we would be mitigating financial stability risks overall because -- >> we're in the trap. >> there are considerations in both directions. so we need to be very attentive to the financial stability risks. as i've indicated, if they were to become extreme and other tools were not available or were not successful, i wouldn't take monetary policy off the table as a tool to be used. but we should by no means think it would be costless because it could be very costly in terms of achieving other very important objectives. and a weak economy creates its

own sets of financial stability risks. so it's not even clear that on balance we would be promoting financial stability. so this isn't a simple matter. there are complex trade-offs involved here. >> mr. chairman, i have additional questions for the record. >> yeah. >> thank you. >> the chair notes we have five members and less than 20 minutes remaining to vote. senator warner. >> thank you, mr. chairman. thank you, chairman yellen for your good work. i'll try to make my questions quick and make one front end comment. as someone who advocated very strongly during dodd-frank that nonbanks could be sifis. i share senator tester's concerns about the transparencies. we've got to get it right. my concern for the nonbank sifi designation there is still a great question on transparency

whether it is size or product component, and the more clarity we can get on this, the better. the two questions i want to get at, one is an issue that's not been raised yet. some of us on this side of the aisle have grave concerns around student debt. $1.1 trillion, greater than credit card debt. i personally believe it is retarding recovery in the housing industry, retarding the growth of entrepreneurs, some of us proposed refinancing proposals. we looked at income-based repayment plans. there is a bipartisan opportunity out there that would allow an employer to take a portion of an employee's salary and apply it directly to the student debt, pretax, the same way we allow for tuition. but is this a subject that at the fed you've looked at and want to make a comment on in

terms of this rising potential bubble in student debt and its affect on the economy? >> we are certainly looking at it and the growth in student debt has been dramatic. i think there has been some work that documents that it is probably having an effect on the ability of young people to purchase homes. it certainly is a burden for those individuals that they'll be carrying through their lives. on the other hand, education is extremely important, and making available the financing that's necessary in this economy for individuals to acquire an education is of the first order of importance. i would be concerned, of course, that some of the decisions that students are making, they may not fully understand the burdens

that they're assuming and how they will affect their lives. second of all, they may not be always accurately evaluating what the pay-offs are to the training that they're taking on, especially when there is inadequate information about the performance of the schools or programs that they're enrolled in, what are the job finding and income prospects? >> we have bipartisan legislation. we ought to have a user-friendly website for housing. a zillow-type site for students. know before you go is the approach we have. i would point out we've seen student debt quadruple from $200 billion to well north of $240 billion in 2003 to $2.1 billion roughly now. i would urge you and even the fsoc level to look at this. if you've got additional

suggestions, i want to use my last moment to get in a question i asked before. i want to prod you one more time. that's on excess reserves. when we were last before you, you gave the same answer chairman bernanke gave and the concern if you got rid of some of these excess reserves, which you are currently paying 25 basis points and the excess reserves that have gone from $2.4 trillion close to $2.6 trillion, the european central bank has a negative ten basis points on their policy towards these excess reserves. i realize your concerns that the effect it might have on money market fund but with money market fund rates already so low, i still don't understand why reexamining this policy might push financial institutions to actually be willing to do more lending rather than to house these funds at the fed. >> i mean, it's a very

legitimate question and it's something we have considered and debated. there have been mixed views in the committee on the desirability of doing that. we've been quite concerned about what it might mean given the structure of our money markets. >> money market funds are already pretty low. >> yeah. >> my hope would be you continue that debate. at least this member believes this could be something that could be stimulated in the economy and get these banks taking this capital away from the fed and actually into the economy. thank you, madam chair. >> senator murkily. >> thank you, mr. chair. thank you for your testimony today. i'll try to be crisp in these questions given the time. insurance advocates have expressed concerns new regulations might be forth coming by national standard influenced by nations that do

not have our state guarantee system and believe this may result in new capital requirements that are unnecessary and inappropriate for the structure of the industry in our nation. is there any thoughts you might have to share on that particular topic? >> so i would simply say that the federal reserve is participating now in an international association of insurance supervisors discussing for internationally active insurance firms what might be appropriate capital standards for groups. you know, for essentially consolidated capital requirements for not legal entity insurance firms that are regulated by the states but the consolidated holding companies.

nothing that happens in that context -- it's similar to our participation in the basil committee. we're, you know, looking to put in place appropriate standards here in the united states and nothing decided in that international group has any force if the united states unless we propose rule, put them out for comment, and finalize them. i think it's helpful to get the perspectives of others and to the extent possible an appropriate internationally level playing field. >> thank you. i'm going to jump into the next point, which i wanted to double down on student loan question. because i feel like there's a huge amount of emerging information about the delay in home acquisition. this is certainly a drag in itself on our economy as well as an impact on the quality of life of our young folks. but it also has a significant

extended effect through the decades to come because of the slow pace of wealth aggregation for families if they do not engage in homeownership earlier on. and it's actually shocking to see a reversal of a key statistic in which folks who are 25 to 30 who have gone to college are now less likely to own a home than folks who didn't go to college. so i want to -- this issue really goes to the heart of the american dream because the cost of college is not only affecting those who went in to have this debt, but it's affecting the aspirations of our children in high school who are starting to get advice particularly in blue-collar communities like the one i live in that maybe you shouldn't risk carrying this mountain of debt in a context of such high uncertainty over jobs that might be able to have a monthly wage that could make those payments. >> i agree with you that when you look at the numbers on student debt, it has to be a significant concern for just the

reasons you gave. >> thank you. i'll look forward to any work that the fed is doing in this area to understand the better the impacts on the economy. i want to turn to the financial reform rule making process. i know you've expressed concern with the frustratingly slow pace of some of the rule making. we've still got quite a long list from dodd frank four years later that hasn't been completed on securitization of the issues that senator levin was so forceful in bringing forward during dodd frank. security based swaps, compensation structures and so forth. how do -- do we have kind of a crisis of confidence in our ability to make the rule-making system function? when we have in a law a goal for a rule and sometimes it's a year, sometimes it's two years and we just can't seem to get the rules completed and maybe even end up in never, neverland,

appropriately named, because it seems like we're never going to get to final rules. is this a change from two decades ago? what do we do about it? >> i mean, i know it's been frustratingly slow. it's complicated, and we want to take the time to get it right. we're involved in a lot of rule makings that involve multiple agencies with different perspectives, and we're also trying to coordinate with other countries to move forward together so we maintain in many areas a level playing field. and this is immensely time consuming work. i understand your frustration. i guess i see a bunch of rules in the pipeline that i hope will be completed in the not-too-distant future. the liquidity coverage ratio, qrm, other things that we can

expect to come out of the pipeline, and i see a further agenda of rules that i really hope we will make a great deal of progress on this year. so to me the glass is more half full than half empty, and i actually believe we have made substantial progress and will continue to push forward. >> thank you. >> senator hagan. >> thank you, mr. chairman. and chairman yellen, thank you for your service and for being here today. i wanted to follow up on a letter that i sent to the federal reserve, the occ and the fdic. it's regarding the liquidity coverage ratio standard. i've heard from a number of -- i've heard a number of concerns from communities in north carolina about the exclusion of the municipal securities from the high quality liquid assets designation. in particular, i'm concerned that this exclusion of the

municipal securities could restrict the ability of state and local governments to raise the capital that they need to finance these public investments in schools and hospitals and roads, airport, and all the other infrastructure systems. and these projects are really the cornerstone of the u.s. economy. what is the justification for excludeing these knmunicipal securities, which other types of debt, including foreign sovereign debt, are covered? it seems like a strange outcome to me for the debt of some foreign countries to be treated more favorably than the aaa-rated debt of states like north carolina. >> so let me say, this is a proposal we've put out for comment, and we'll look very carefully at the comments we receive on this and other topics. the rationale for excludeing them is that we're expecting

firms to hold truly high-quality liquid assets, and the liquidity of municipal bonds is substantially lower than any of the assets that are included on that list. so the absence of liquid markets where those securities are traded was reason for excludeing them, but we will be looking very carefully at comments before we come out with a final proposal. >> well, i ask that you consider the impact that this exclusion could have on infrastructure investments and in the ability of the states and local governments to actually manage their debt. >> we will look at those comments. >> thank you. and i also wanted to follow up on senator merkley's question concerning the new global standards for the insurance entities. i believe it's important that the insurance companies be protected and the state model for regulating the insurance also be respected. and as a member of the financial stability board and a participant in these meetings,

can you explain in a little bit more detail what the federal reserve is doing to ensure that any international regulations do not harm these companies and respect the state-based model of the insurance regulation. >> well, we're working very closely, and the state regulators are participating in these international discussions as well. nothing that's under consideration would affect the way in which legal entity insurance companies are regulated with respect to capital by the states. so we're looking at a separate set of capital requirements that would apply to the consolidated organization. again nothing that happens in this international forum has any affect on american firms until we have incorporated them into

regulations which go out for comment and are ultimately finalized. >> thank you. thank you, mr. chairman. >> senator warren. >> thank you, mr. chairman. and thank you, chair yellen, for being here today. you know, one of the tools that congress has given the fed to combat too big to fail, section 165 of dodd frank, this is the section that requires large financial institutions to submit plans each year describing how they could be liquidated in a rapid and orderly fashion without bringing down the entire economy or needing a taxpayer bailout. now, the fed and the fdic must review these plans, and if they don't buy that the plan would actually result in the rabbit and orderly liquidation of the company, then they must order the company to submit a new plan. and here's the key part. as part of the order to submit a new plan, the fed and the fdic

can require the company to simplify its structure or sell off some of its assets. in other words, break up the bank so that it could be more easily liquidated and not pose a risk to the economy. so let's consider what happened during the lehman brothers' bankruptcy in 2008. that's the one that sparked the financial crisis, nearly melted down the economy, and triggered the bailout by the taxpayers. the court proceedings took three years. clearly not rapid or orderly. but lehman was tiny compared to today's biggest banks. when it failed, lehman had $639 billion in assets. today jpmorgan has nearly $2.5 trillion in assets. that's four times as big as lehman was when it failed.

lehman had 209 registered subsidiaries when it failed. jpmorgan -- i really almost couldn't believe this when i read it. jpmorgan today has 3,391 subsidiaries. that's more than 15 times the number of subsidiaries that lehman had when it failed. three years to resolve lehman. now, jpmorgan has filed resolution plans in each of the last three years, and the fed hasn't rejected any of them as not credible. given our recent experience with the bankruptcy of lehman brothers, can you honestly say that jpmorgan could be resolved in a rapid and orderly fashion as described in its plans with no threats to the economy and no need for a taxpayer bailout? >> so the living will process, as i understand it, is something

that's intended to be iterative in the sense that the firms submit plans and will receive feedback from the regulators on whether or not we think the fed and the fdic regard these plans as sufficient to enable resolution under the bankruptcy code. we have given feedback on the first round of plans that were submitted and are working actually to, at this point, to give feedback on the second round of plans. in fact, the firms have now submitted a third round of plans -- >> i'm sorry, chairman. i'm just a little bit confused. jpmorgan submitted a round of plans in 2012, and my understanding is that neither the fed nor the fdic said that those plans were not credible.

it then submitted plans in 2013, and neither the fed nor the fdic said they were not credible. and it has submitted plans in 2014. so i'm not quite sure on whether you're saying the plans are not credible and you're continuing to talk with them and asking them to change their plans. is that the case? >> well, we're working to give these firms feedback on their second round of submissions. and i think what we need to do is to give them a road map for where we see obstacles to orderly resolution under the bankruptcy code and to give them an opportunity to address those obstacles. >> i appreciate that you're doing that, but the statute, it seems to me, is pretty clear here. that it's mandatory these plans be submitted each year and that each year you determine whether or not the plans are credible.

and i guess the question i'm asking is, have they ever gotten to a plan that you can say with a straight face is credible? >> well, i've understood this to be a process. these are extremely complex documents for these firms to produce. our second round of submissions we're looking at plans that run into tens of thousands of pages. and i -- i think what was intended is that this determination you're talking about, about whether or not they're credible, do they -- the question is, do they facilitate an orderly resolution? and i think we need to give these firms feedback. >> i'll stop there because we're running out of time. but i have to say, chair yellen, i think the language in the statute is pretty clear. that you are required, the fed

is required to call it every year on whether these institutions have a credible plan. and i remind you, there are very effective tools that you have available to you that you can use if those plans are not credible. including forcing these financial institutions to simplify their structure or forcing them to liquidate some of their assets. in other words, break them up. and i just want to say one more thing about this process. the plans are designed not just to be reviewed by the fed and the fdic, but also to bring some kind of confidence to the marketplace and to the american taxpayer that, in fact, there really is a plan for doing something if one of these banks starts to implode. you said that these plans run to the tens of thousands of pages. all i can say is that what's been released to the public is 35 pages long. that's about one page for every

hundred subsidiaries that have to be dealt with. i think that the plans that have been released by these companies have not been something that the public can look at and say, yeah, i see they've got a plan to get through this. so i hope you would urge greater transparency by these large financial institutions that are required to submit these plans, and i hope the fed will be making a call on whether or not the fed under its statutory responsibility sees these plans as credible for resolving these financial institutions if they hit financial trouble. thank you. thank you, mr. chairman. >> chair yellen, i would like to thank you for your testimony. this hearing is adjourned. >> thank you, mr. chairman.

as this hearing comes to a close, the ap reporting federal reserve chair janet yellen saying the economic recovery is not yet complete, and for that reason, the fed intends to keep providing significant support to boost growth and improve labor market conditions. she says if conditions continue to improve more quickly than anticipated, the fed could raise its key short-term interest rate sooner than currently projected. but she said weaker conditions will mean a longer period of low rates. by the way, you can watch fed chair yellen's testimony today to the senate banking committee any time. it's available online at c-span.org and the c-span video library. coming up later today here on c-span3, a hearing on cyber crime and the efforts of the government to provide industry to stop these criminal activities, including computer networks. the justice department's assistant attorney general for

the criminal decision and an fbi cyber crime specialist will join feshls from microsoft. live coverage begins at 2:30 eastern here on c-span3. with live coverage of the u.s. house on c-span and the senate on c-span2, here on c-span3, we complement that coverage by showing you the most relevant congressional hearings and public affairs events. then on weekends, c-span3 is the home to american history tv with programs that tell our nation's story, including six unique series. the civil war's 150th anniversary, visiting battlefields and key events. american artifacts, touring museums and historic sites to discover what artifacts reveal. history bookshelf, with the best-known american history writers. the presidency, looking at the policies and legacies of our nation's commanders in chief. lectures in history with top college professors delving into america's past. and our new series reel america, featuring archival government

and educational films from the '30s through the '70s. c-span3, funded by your local cable or satellite provider. watch us in hd, like us on facebook, and follow us on twitter. the epa's deputy administrator testified before the house science committee last week on a new proposed rule you should the clean water act. he answered questions on the scope of the epa's authority under the proposed rule that would redefine waters impacting the scope of federal jurisdiction. >> the committee on science space and technology will come to order. welcome to today's hearing entitled navigating the clean water act, is water wet? recognize myself in opening

statement age then the ranking member for hers. a year ago this committee issued its first subpoena in over two decades because the epa refused to make public the data it claims justifies its costly air regulations. the epa admitted in many cases it didn't have the data it uses to support its billion dollar mandates. now once again they have avoided open debate and its rush to implement the president's radical agenda. the epa wrote its new waters of the u.s. rule without even waiting for the expert advice of the agency's own science advisory board. the science advisory board exists to give expected advice to the epa and congress. the job of these experts is to review the underlying science. not only did the epa publish its rule before the board had an opportunity to review the report, but when this committee sent official questions to the board as this review began, the epa stepped in to prevent the experts from responding. the obama administration continues to undermine

scientific inquiry in order to fast track its partisan agenda. even though clean water act jurisdiction is a legal question, the refusal to wait for the science undercuts the opportunity for informed policy decisions. the epa's rule is so vague that it does little more than extend an open invitation to trial lawyers and government drones. meanwhile, they've offered empty assurances and ended with a disclaimer saying its statements are not binding. the american people are tired of an administration that makes promises with its fingers crossed behind its back. the epa does not provide real clarity about what is or isn't water. instead, the agency gives itself extraordinary power to pick and choose on a case-by-case basis. in fact, the proposed rule is 370 pages. but never defines water. the streams they claim to regulate aren't always wet. the epa states these places often only become wet in rain events and in some cases are so tiny or temporary they don't

even appear on maps. the agency's website says, "they could be a drizzle of snow melt that runs down a mountainside crease, a small spring-fed pond or a depression in the ground that fills with water after every rain and overflows into the creek below." the practical implications of this new rule are troubling for private property owners. how do we even know when and where these tiny drizzles of water might appear? americans deserve to know what is punishable so they can live without fear of arbitrary persecutions. take a look at a map from the epa's draft report and this is on the screen to either side of us.

the image shows tributaries in red and larger streams in blue that the epa could consider claiming in the western part of the u.s. epa. before they invade they should tell us what they're doing. it was about water and not land but the epa's rewriting of the law is a terrifying expansion of federal control over the lands owned by the american people. the epa is on a regulation rampage and this new water rule proves it. now, that concludes my remarks and the gentlemen woman from oregon is recognized for her opening statements. >> thank you very much, chairman smith, for holding this morning's hearing to discuss the rule proposed by the army corps and the epa to define the term waters of the united states in the clean water act.

i'd also like to welcome deputy administrator mr. perciasepe. access to clean water is essential to economic growth. a study by the world health organization found every dollar invested in water and sanitation yields economic benefits of between 7 and $12. most are lucky to turn on a tap and have water to drink. rough, this is not the case everywhere. although it's difficult to put a specific figure on the value of water to the united states economy, studies have then that clean water is a prerequisite for nearly every industry from agriculture to manufacturing to commercial fisheries to tourism. with 3.5 million miles of rivers and streams more than 100 million acres of wetlands and almost 40 million acres of in the united states, managing the availability and quality of this finite resource can be a

challenge. and though it may be a challenge, it is one that we must accept. as we will no doubt hear today, excuse me, the streams, lakes and wetlands offer wide variety of benefits to her constituents. for example, wetlands can reduce the possibility of flooding by storing excess water after heavy rain, they can also be a source of water during times of drought. wetlands and streams improve water quality by trapping sediments and filtering out pollutants and serve as a critical habitat for fish and other aquatic life increasing diversity. according to the epa, more than

100 stakeholders from state and local governments to industry and agricultural associations to environmental groups have all asked the epa and the army corps to provide clarity. what waters are and are not within the jurisdiction of the clean water act and that's mr. chairman why i'm glad we're having this hearing today to discuss the need for that clarity. and although i know that not all of these organizations are supportive of the proposed rule, the goal of the agencies is to provide all interested parties with the clarity that they need and deserve. mr. chairman, some of my constituents have expressed concern about the potential impact of the proposed rule while others have expressed strong support for the rule. i welcome the opportunity provided by today's hearing to learn more about the details of the proposed rule. i know that the comment period is going on until october. and this gives us an opportunity to clarify some of the misinformation circulating were the proposal and provide an opportunity to let the public know about the intent of clarifying what clean waters are within the clean water act. clr.

clean water act. i yield back my time. >> let me put in several letters we received from the texas and southwest cattle raisers association, the texas winery, texas association of business and the texas farm bureau. and let me now intro deuce our only witness today, and he is mr. bob preciasepe. he was appointed by president obama in 2009. mr. percia sepe served as a top epa official under bill clinton who appointed him as the top water official and senior official responsible for air quality across the u.s. prior to being named to his current position, he was chief operating officer at the national autobahn society and included secretary of environment for the state of maryland. mr. perciasepe, we welcome you today and look forward to your

comments and please proceed. >> thank you, mr. chairman. and madam ranking member i really appreciate the introductions and the opportunity to be here today. i believe, as i think everyone else does, that americans want clean and safe water for ourselves, for our economy, for our environment, and for the future uses that we will need. and as we're talking about today, epa and the u.s. army corps of engineers are undertaking a process to clarify the scope and improve regulations that have been in place for 30 years. the existing regulations have been on the books for 30 years

and the proposed rule provides family, manufacturers, farmers, recreation -- outdoor recreation, energy producers with clean water. the written testimony that i submitted will provide more details about the proposed rule including the agency's goals to respond to requests of stakeholders across the country and make the process of identifying waters protected under the clean water act easier to understand, more predictable and consistent with the law and recent supreme court decisions. we believe this rule-making will minimize the delays and costs and improve predictability, clarity, consistency for everyone who may or may not need a clean water act permit. it's important to note that this is identifying of where we will regulate the discharge of pollutant, not what we regulate what's going on on the land.

i will focus my opening remarks here on trying to address some of the disinformation regarding potential effects of this rulemaking and i'm concerned that that -- that information that is incorrect is having the effect of distracting a real public and national debate and discussion that needs to take place on the legal policy and scientific underpinnings of how we run the clean water act and the protections for clean water in the country. the agencies are continuing to meet with americans across the country including farmers, the administrator gene mcor think in missouri meeting with farmers today. energy companies, small businesses, local governments, sportsman, developers and others to get their comments, remember, this is a proposal. to answer their questions about this rule. we are hearing from the public directly, personally and how to improve the rule. but some of the misinformation is something that we have to cut through and i'm hoping we'll have some chance to do that

today. i've heard personally, for example, on when we're out talking to folks this regular regulation will make dry washes that carry water only once a thousand years protected under the clean water act and make land or floodplains subject to clean water act jurisdiction. i can say categorically none of those statements are true. many in contrast there are some key examples of what the proposed rule does and does not do. and adherence with the supreme court, it would reduce the scope of waters protected under the clean water act compared to the existing regulations it replaces and would not assert jurisdiction over any type of waters not previously protected over the last 40 years. the rule does not apply to lands. whole floodplains, backyards, wet spots or puddles. it will increase transparency consistency and predictability in making jurisdictional rules and reduce delays. it represents the best peer review science about the

functions and values of the nation's waters. and the agency and this is important to your opening comments, mr. chairman. the agency will not finalize this rule until our science advisory board is complete with its review of both the rule itself and the science documents that support it. it will reduce clean water act jurisdiction over ditches compared to the previous 2008 guidance. the rule would maintain all existing clean water act exemptions and exclusions. in addition we are trying to clarify agricultural conservation practices which we do not want to inhibit that are conducted in waters that do not require a permit under the clean water act. so we've got a proposed rule not a final rule and currently taking comment on the proposal and expect tremendous and are getting tremendous public response from a broad range of interests and working actively to meet with a wide range of stakeholders. this outreach has been

tremendously helpful and is helping us understand the concerns and discussing effective solutions that will need to improvements in the final regulation. we're going to continue working hard listening more effectively and to understand the issues better. additional aly in preparation, the epa was able to review and consider more than a thousand peer review scientific papers and other data and the epa's office of research and development prepared a draft peer review of these scientific documents and the nature of connectivity and the effects of tributaries and wetlands on downstream waters. this report informed the agency's development of the proposed rule and following earlier external peer review the report is currently undergoing peer review led by the epa science advisory board. we expect that the s.a.b. will complete its review later in the calendar year but we will not finalize this rule until they complete their review of that document and have their comments available to us to finalize the rule.

let me conclude by emphasizing my strong plaintiff that what's good for the environment and clean water is good for ranchers, manufacturers, home builders and small businesses and we look forward to working with all stakeholders and the public to reflect this important goal when we get to that point. thank you for this opportunity to comment. i apologize for running over. i just looked at the clock. >> we weren't going to hold to you that let me direct my first question in regard to the map t looks like what the epa proposes is regulating 99% of these western states whether those areas in some cases are wet or dry. do you agree -- i mean this is a map from your preliminary report. do you agree with what the map

says and that it would cover about 99% of those western states? wetlands. >> this is similar to what the current regulations would be covering and what that map is showing is the full drainage areas, not the actual water. >> that's my point but your regulations could cover those areas that are the drainage areas not just the actual water and that's why so much of that map is either red or blue. >> the regulations, keep in mind this is just where the jurisdiction is. you would be affect fundamental you wanted to discharge pollution into the waters. >> right. >> that might be in those red area. >> but the epa could, if it wanted to, regulate the area that is colored red and blue in this map? >> we would not regulate the land in those arias.

the water that is in those areas that has stream bank, that has a bed, normal high water mark, those would be the places that would be covered, not the land. >> rite. to the extent that the water traversed the land then that land itself would be impacted by the regular laces, would they not? >> the water, the water tributaries, the bodies of water that are in those areas would be subject to regulation if you discharge pollution into them. it would not be the farm fields. it would not be the backyards. it would not be the area, the land areas, it would be the discharge of pollutants into the waters in those areas. >> a quick example. to the extent that there was a runoff from a stream or from even one of those puddles, rain puddles that i referred to, then you would be able to regulate that area, would you not? >> i'm -- could -- we are

proposing in this rule that tributaries to navigable waters and also in the supreme court decision that have a significant effect on the downstream navigable waters would if you wanted to discharge pollutants into those or fill them in, you would have to have a permit under the clean water act. >> suppose we're not talking about pollutants. suppose we're talking about rain runoff or that drizzle in your report where you might have areas only wet after it rained, those areas would be covered whether or not they're pollutants involved or not. >> the stream would be covered,

not the land area. the stream -- you wouldn't be able to discharge into the stream and if -- and including streams that are intermittent. >> correct. that might be dry today. >> might be dry someplace. >> might be wet another time and that in my opinion is at least what gets into the lapd and goes beyond the water. if you're talking about dry streambeds that is land, that is not water and i think that concerns a lot of farmers and ranchers and lapd owners. >> i understand that and we're certainly talking to a lot of them about those concerns, but we've tried to define which of those would be covered or that you would have to get a permit if you filled them or discharged pollution into them if they have the characteristics that water flows in it enough times that it creates a bed and a bank an an ordinary high water mark and that is a hydrologic science kind of determination. >> going back to my main point once again you all had the authority to regulate in many cases dry land, in many cases intermittent streams that would cover most of that area covered by the red and blue which again

i think is about 99% of the western states, but let me go to the states -- i understand you have maps of each individual state that are in greater detail than the map that's on the board and that was in your preliminary report. can we get access to those state maps that are more detailed? >> if we -- i'm not aware of how detailed the maps we have, but, again, i want to be really clear here. we -- all that red area is not going to be regulated by the clean water act. they would only be the water bodies that are or the tributaries that are in those areas. i don't know how many times i -- i don't know what else to say about that mr. chairman because i really do understand the concern but i want you to understand. >> is this map accurate, though. >> they're regulated under the current regular laces. >> you had the authority to regulate. it just hasn't been regulated before and i think you're getting ready to expandz your authority in a far greater way than in the past. >> no, we're not.

>> nothing beyond the current regulations. are you true about that. >> i am. >> okay. we'll hold you to that. and i understand that the epa does have these state maps in more detail so if you have them you'll get them to us. >> i will -- >> my last question goes to the science advisory board. >> yes, sir. >> you heard me mention that in my opening statement. they by law provide advice to the epa and provide advice to congress. we submitted several questions to the science advisory board intercepted by the epa and the science advisory board was not allowed to answer our questions. that's not the way i read the law. we don't have to get the epa's permission for the science advisory board to give us answers to your questions. why did the epa intercept our questions and why was the science advisory board prevented from answering your questions? >> well, let me say a couple of things about that. first of all, our intent is to make sure -- we want this committee and other committees,

the jurisdiction to benefit from the advice of that body. >> the law doesn't allow to you screen the science advisory board's answers or to intercept our questions the way i read the law. >> the members of science advisory board are volunteers, and they volunteer to provide their scientific advice and expertise to the american public through the government. and volunteering they become special what's called in the hr system special federal employees and so they are actually employees in that regard, although they're volunteers. and we feel that -- >> do you think -- >> there kneads to be a process -- >> do you think -- do you disagree with the law that says we can get answers direct fry from the science advisory board and do you think the law says we can intercept our questions and prevent them from giving you answers. >> we have given all your questions -- they have those -- >> but you haven't allowed them to answer your questions. >> what we're trying to work out and i think we're making really good progress is how you take federal employees, federal

employees and have a defined -- so they understand what the process is on how they would go about -- >> i think that's a pretty paternalistic almost more so attitude to say you have to dell the employees what to do or educate them. they're experts in their own right. we have a complete and fundamental disagreement on that. i think it was totally inappropriate for the epa to prevent the board from 'ing our questions. you apparently disagree with that but that to me is the law. that concludes my questions and the gentle woman is recognized. >> thank you for being here and your abilities bringing your expertise to discuss this issue so i have several questions. first i wanted to confirm something you said in your testimony. you said under the proposed rule the current exemptions are maintained. is that correct? >> yes, that is correct.

>> thank you. i want to start by discussing the issue of green infrastructure. city and county governments in my district have been replaced so-called gray infrastructure with green infrastructure including some day-lighting storm water pipes to create swales, and by construct wetlands and many can classify them as tributaries and thus define them as waters of the u.s. so assuming the epa wants to avoid the unintended consequences of encouraging green infrastructure, how can the proposed rule be clarified to support the continued development of green infrastructure such as these swales? >> our intent is certainly not to stop that. they're a great advocate of green infrastructure. we think it is a bona fide solution to some urban runoff and pollution issues we have. you know, if you have a storm

drain somewhere in your municipality o or county or town and discharge pollution in it and goes downstream, you would have to the discharge would have been regulated. we're not going to regulate in any different way a day-lighted storm drain or diversions of gutters into a tree pit which has vegetation in it that we want percolation of the groundwater to take place there. but these things that are not jurisdictional now would not be jurisdictional under this proposal. >> thank you for clarifying that and i happen to represent a district that's diverse so i don't just have urban areas but rural and agricultural areas so one concern i've heard about from my constituents in the agriculture industry is that the proposed rule may lead to the regulation of any activity on a farm that simply has the appearance of effecting a water of the united states even if that activity does not include a discharge or involve a potential pollutant so for some groups they're very concerned and want to express a concern about how

ditches will be regulated unthe proposal. ray number of groups oppose the inclusion of ditches under the definition of tributaries so could you please discuss how the epa might clarify this question for stakeholders who are concerned about the proposed rule leading to an increase for which farmers must seek permits. >> two parts. one is the water jurisdictional? and the second is, does the activity itself regardless of whether it's jurisdictional require any action under the clean water act. so the farmers of this country who are working very hard to produce the food that we all need, they have to think about both of those because if you can plant, plow, i think the sequence would be plow, plant or no till, and harvest crops today

on your land, this will not change any of that. those activities are exempt from clean water act permitting under the clean water act. under the law itself. one of the things that we're trying to expand on and be clear about are the conservation practices that many farmers also do during different times of the year and do it with hunting organizations like the ducks unlimited and others and we want to make sure that those activities are also, you know, best management practice that you would do to do conservation on your land because farmers are primary stewards of the land and want to make sure -- we can understand the plowing, planting and harvesting but also want to make sure those conservation practices are not inhibited. >> i just -- sorry to interrupt but i want to follow up, running out of time.

i want to talk about ditches and how they may be treated differently compared to current practice. ditches, it's a big, big issue in the district. so can you talk about whether they're exempt under the proposed rule. will farmers be able to maintain drainage and irrigation ditches without getting a clean water act permit and will local governments need additional permits to maintain roadside ditches so if you could clarify that, please. >> roadside ditches, ditches that are on upland areas designed to drain that water off an upland area, all of those we try to be really clear, they are not included in this jurisdiction as a jurisdictional water or feature even. when we talk about that we're probably talking about constructed activity. now, if you channelize a stream and make it look like a ditch but it's a channelized stream that's running all year long, that would require, but the

ditches that you -- that people are using to drain their farm fields or make sure water runs off more efficient lir off an industrial property or at the side of a road those are not jurisdiction and would not be jurisdiction under this proposal and we have tried to clarify that. now, if we didn't get that right i'm telling you what our intent is. if we didn't get to that right that's what we're hoping to get comment on. >> i yield back. >> thank you, miss bonamici. the gentlemen from north carolina, mr. cramer, for his questions. >> i'm from north dakota, but it's very close to north carolina. >> pardon me. >> first of all, i have received four letters this morning from four different bureaus in north dakota i'd like to admit to the record if that's okay. >> without objection they'll be made a part of the record. >> i need to get very clear

something that i heard -- i think i heard anyway during the chairman's questioning and let me ask you the question this way. do you believe that the law allows the epa to intercept -- to intercept this committee's questions to the advisory board and/or somehow regulate their answers back to us? do you believe that the law allows that? >> what i believe is that the committee's advisory board. processes and a.s.b.'s processes teed to be protected in the way there's a structured approach to how we act and we want to do that and we want to have these employees of the federal government to have a knowledge on how they would go about what the process they would go through, so i'm comfortable with just saying let's get that worked out. we're working hard to do that and i have high confidence we will. >> oh, okay. i can appreciate what you want and as you said, the chairman, how you feel. that's all fine stuff for social scientists but we're talking

about the letter of the law. do you believe the law allows you to intercept the questions from this committee to the science advisory board? i believe it does not. but -- >> we've provided all the correspondence you have given us to the science advisory board. >> i think the correspondence was to the science advisory board and that's the point. you have it, not the science advisory board or that -- >> they're employees. >> before it goes to them. all right. we're not going to get anywhere on that one. this -- the epa and the corps keep talking about the need for clarity. quite frankly the clarity you seek is more permission, not clarity. i think to me it's every bit as clear today as it's ever been what your jurisdiction is and more importantly what it is not. it seems you are speaking permission not clarity. as i read the rule, i don't see or the proposed rule i don't see

it being clear at all. one area that concerns me the most is other waters and definition of them. other waters is so open-ended as to create ambiguity not clarity in my view. can you explain why there need to be a category called other waters? >> the existing regulations that are on the books use a very general test that's oriented toward whether there's an effect on interstate commerce or a potential effect on interstate commerce which is not a science-based test, and it's not in adherence with what the supreme court laid out in their decisions in the last decade. so what we're trying to do and,

again, i'm totally open to the fact that we may not be achieving, you know, what we're in setting out to do here is take what the supreme court has said, you got to move away from this sort of general thing because under the existing regulation it's much more open-ended as to what a field technician might have an effect on interstate commerce not that a biologist is an expert on that matter, which you might agree with me on. what we're trying to do is get it back to a science-based -- science of hydrology so we have in most -- in most cases and i promise to get to the others in a minute, we tried to define normal hydrologic features that a good normal, you know, science-oriented field technician can figure out. there are other places that have those characteristics that have this other issue that has to be dealt with whether connected or not. each this is the other issue that the supreme court asked us to try to deal with. and so what we do in this -- under the current regulation

they're all case by case. under this one we're trying to define an approach that we would take whether it's a watershed approach or an ecological approach and ask for comment on that and we have to work, get to the point where we really understand how anything that has characteristics of being water like a standing water or a wetland and how we go about dealing with that as opposed to case by case. i'm with you. we need to define that better. we think we got to most of the stuff in this rule, but that one we're still asking questions on. >> okay. i guess this will be my final question, at least for now. the epa has stated it's consulted with the states. how is that coming along, or are lot of states jumping on board with this rule or how many of them support it? have you heard from any that have concerns about it? what's the status of the support of the states? >> so, a couple of things on that.

first of all, in our own supreme court filings back in the middle of the last decade, 35 states were amicus with us in the supreme court. currently about -- and i can provide this for the record -- >> that would be good. >> probably a number of individual states and a number -- most of the state organizations including the state association of ag directors and what -- have asked us to do a rule-making so we've -- we have a lot of states saying do a rule-making. a lot of states saying -- supporting us in front of the supreme court and now we have a proposal out there and a process going on with a number of those state organizations including the environmental council of the state, the state environmental commissioners, just last week i was in denver and met with the ag directors including from north dakota and the state environmental commissioners, getting their input is very informative to me according to the things i was just mentioning where i know we need to do more work so we will not get this

rule finalized before -- without having a defined process with our co-regulators, the states, between now and we have ample evidence beforehand of them asking us to do a rule making? >> doing a rulemaking and the outcome of it is two very different thing. >> i thank the gentleman from north dakota. the gentleman from california, mr. peters, is recognized for his questions. >> thank you, mr. chairman. thank you, mr. secretary, for being here. i want to cover two topics. first in general, we know that the proposed rule is estimated to cost between $162 million to $278 million for additional mitigation and pollution reduction facilities. it lists benefits including reducing flooding, filtering plus, providing wildlife habitats, supporting hunting and fishing and recharging ground water with estimated benefits at $388 million to $548 million annually. i wanted you to give us some sense of how those benefit numbers were calculated.

>> well, we use a variety of methods in economic analysis to do that and one of the things we did for this economic analysis and getting a lot of comment on this, as well. is we looked at actual determinations or jurisdictional determinations that were being made by the corps of engineers in the field following the 2008 guidance and how they were making those determinations and would they be different under this proposal then we looked at that and we looked at studies that are available related to the values of different flood control approaches and wildlife habitat benefits, the benefits of hunting and fishing in the united states and we -- and we did the economic analysis around that the cost numbers are related to mitigation that might be required from permits for discharging fill or for the permitting processes themself.

>> no, we hear about the costs. we just want to get a sense of how you think the benefits are. we're sensitive that the balance sheets from which the costs are paid aren't always the balance sheets to which the benefits accrue. the other thing is i wanted to follow up. i did practice law for some time and worked on the clean water act, and i think i'm still the only former epa employee in congress, i suspect. so i may justs have a little bit too much dangerous knowledge. but, you know, what i guess i'm -- sensitive to the need to encourage kind of the right kind of drainage as a matter of infrastructure and to phrase her question differently, is there any jurisdictional distinction between a concrete drainage ditch which conveys to an undisputed navigable water of the united states on one hand and a swale that has in its own filtering, natural filtering

elements in it that might also lead to the same water. >> well, if it is a channelized stream with concrete or gabions or riprap and it runs, you know, with the proper perennial or intermittent characteristics, then it would be jurisdictional under this and if you wanted to discharge pollution into it you would have to get a permit. >> right. >> on the swale, it becomes a different matter. i mean, there are swales in farm fields that are not jurisdictional. there are, you know, drainage off of a commercial property that has to move the water efficiently. those are not going to be jurisdictional so it's hard to say specifically here.

>> is the fact that there's sort of a filtering built into it, does that make a difference in having to comply with the law? general matter swales are not going to be -- drainage swales are not going to be jurisdictional. that doesn't mean you can consider whether or not you're going to be discharging pollution into them. >> that's a good point that there might be -- one of the things we're talking about in theory in planning theory is now building drankage that has in itself -- that incorporates filtering. i think what miss bonamici's question was, if we don't encourage that we won't encourage it at the local level. >> we don't want to create

disincentives for green infrastructure or other drainage systems built at -- to help storm water management and particularly from a pollution control perspective. city -- in many respects when you have -- in your district in both ways, cities are beginning to learn from what farmers have been already doing, and i think this is an interesting time for that kind of storm water management work but we do not want to create impediments to that. >> i invite any of your lawyers who wanted to follow up with two pages on that to me, feel free to do so. >> we will follow up. >> thank you. mr. neugebauer. >> thank you, mr. chairman. thank you, administrator, for being here this morning. obviously this rule has caused, you know, quite a bit of controversy and particularly in a lot of uncertainty with my farmers and ranchers, i've received letters from both the farm bureau and local chamber of commerce in my district. i'm very concerned about the mixed signals they're hearing from when they read the

rule and what the administration is saying. i want to read this part. the proposed rule states that all waters in a floodplain are regulated unless specifically excluded. now, there are a limited number of exclusions for ponds that are used only for stock watering, irrigation, settling basins or rice growing but there aren't any exclusions, for example, of standing water in a field, rainwater, puddles, backwards, wet spots or ponds that have other uses. now, i know that administrator stoner has in her blog indicated that water in fields, ponds, rainwater are excluded from a regulation under this rule. and i think that's also repeated on the epa website. but i think what we keep hearing is when people hear what you're saying and then they go back and see what is written in that rule, they think that there's a conflict there.

can you show me in the rule where these areas that miss stoner and others are saying that are excluded because we're not finding them. >> we've heard this ourselves from a number of people. again, i was mentioning just previously that i've been personally talking to some ag commissioners and what they're hearing on the ground from both farmers and the associations, speaking to the soybean association this afternoon after i complete work with you all this morning. here is how it works, and here is how we need to work on making it clearer. the floodplain concept is to help identify whether or not it is adjacent to a navigable water so you get a floodplain from a traditionally navigable water, and you have water -- i'll come back -- in that floodplain area. we're saying that should be considered adjacent. the trick here is it's not any water in that floodplain.

obviously the floodplain will be flooded in the spring, lets say, if it's a typical floodplain. that doesn't make the floodplain itself jurisdictional. what it makes -- what we're proposing in the rule is that if there is a water, as otherwise defined, a stream with a bed, bank, and normal high watermark, or a wetland that has hydric soils, a puddle won't have that. you know, a wet field isn't going to -- is not jurisdictional under any circumstances. so for those that need that, like a rice field, we specifically exclude them. so i think our intent here is to use the concept of floodplain, which is a solid hydrologic concept of adjacentcy.

that doesn't mean everything is jurisdictional or any other activities so we need to do a better job of how to explain that, but that's the best i can do right here. >> for example, my district we have a lot of lakes. and while those lakes sometimes have water, sometimes they don't but they are not adjacent to other bodies of water that would meet the original intent of congress and that would be a navigable waterway. so i think -- one of the things hopefully during this comment period that you're hearing from these people but i think it is going to be important that the epa take a necessary step to make sure we clarify, you know, what is covered and what's not, because i think it's leaving a lot of uncertainty. i want to go back again to miss stoner.

she said permits will not be applied for the application of fertilizer to fields or surrounding ditches or seasonal streams. it says that the pesticide general permit only requires a permit when pesticides are applied directly to the water of the united states. but looking at the rule, i don't see how she can make such a broad statement. because the rule is pretty clear and says all in a floodplain and all seasonal streams are fairly regulated waters of the u.s. and so the application of fertilizer or pesticides would seem to apply here and require a permit. >> i'll just try to -- because this is something we need to work on. the floodplain is a geography, you know, it's under the science of fluvia geomology and using -- created as part of the hydrology of a river system and

stream system. we are using that characteristic to say if there's a water in that area, it could be deemed as being adjacent to the mainstream or traditionally navigable water, but it still has to be a water as defined in the rest of the regulation which is again a stream with a bank, a bed, a normal high water mark, a wetland that has high direct -- hydric soils and vegetation, so the chances are pretty high that those are not going to be farmed to begin with but if you have a field and you've been farming it before this rule, you're going to be able to keep farming it. if it does get wet, and if you're a farmer who is so inclined to spray fertilizers and pesticides on a wet field, which doesn't make it very effective, but you will not need

a permit to get -- to do that. you will not come under the general permit that is out there. you have to avoid spraying it directly on those other waters there. >> thank you for yielding back. miss kelly. >> thank you. i guess i wanted to follow up on what some other colleagues mentioned. there seems like there is so much misunderstanding and misinformation and rumors about what this new ruling would do and i just encourage you to do everything you can to work with the farmers, my district people always surprised when i say i have more farmland than city land, and i was with one of them yesterday and made me stop at different places and say that is going to be covered by the rule and they're very, very concerned so whatever can you do to make it clearer to all of us, i think that would be very helpful and go a long way. the other thing is, in its testimony before the house transportation and infrastructure committee last

month, the american farm bureau federation suggested that the exemption for agricultural storm water and irrigation return flows would be severely undermined by the proposed rule because the proposed rule that regulates as waters of the united states, the very ditches and drains that carry stormwater and irrigation water from farms, can you please comment on this statement and the impact of the proposed rule on the exemption for agricultural storm water and irrigation return flows? >> our intent is those remain exempt. we have not changed the exemptions. we're struggling to find out how people -- you know, to understand how people make that interpretation but whether it's playas, or whether it's agriculture drainage ditches, these are not jurisdictional. we believe we have not changed that. but we obviously have to make

that clearer or somehow convince the people who want to help continue the confusion, we can get them to be a little more focused on what we really need to do to fix the rule. >> sounds like communication is such a big issue. >> yeah. >> thank you. i yield back. >> thank you, miss kelly. mr. collins. >> thank you, mr. chairman. and i am going to be submitting for the record a letter dated may 1 that i sent to miss mccarthy and the honorable john mccue signed by a majority of the members of congress, over 230 members, republicans and democrats, simply asking this rule be withdrawn, withdrawn. now, obviously your administration denied that. i've only been in congress 18 months but i will say as i've heard you say again and again here, there is confusion.