can't you let them get out there without having to clear it all the back down here so i have reporters knocking it on doors on tv? >> we can, congress machimancon. >> so you know, i was supposed to retire on november 1. i put in my retirement about a year ago. i was asked to stay. i told the under secretary i would stay as long as he needed me and had confidence in my ability to do the job. i will give you the word, i will give them more rein. i wants them to engage with the press and engage with their local legislators. >> i appreciate that. i do know mr. waller. i think it would be in the va's best interesting with transparency and veterans trust. this is a senior executive giving the authority to talk to people and reassure them. i appreciate that offer and i yield back.

>> thank you very much. >> thank you for calling this hearing, mr. chairman, and trying to get to the bottom of some of these questions. i appreciate the line of questions. i want to follow up, i believe mr. pummill made a statement to the extent -- i think you said it was virtually impossible to fire a gs employee? could you clarify and explain that a little more from your experience? >> in my experience -- it's not very much. i've been with the va for five years. the civil servants -- i believe this is federal government wide -- have incredible protections and safeguards so the process of taking care of a problem employee takes an incredible amount of documentation and oversight and time and energy and taxpayer dollars and normally ends with

somebody outside of our organization coming back and saying you missed a step, reinstate the person with back pay or -- i personally find it very, very hard and impossible to navigate through. >> so it is virtually impossible in your opinion. >> that's my opinion, yes, congressman. >> what about senior executive service and -- how would you describe that process of removing employees that are nots doing their job? >> i've learned a lot about it -- the new process in the last couple of weeks. i think it's going to work. i think it's the right decision. i am -- i had told chairman miller and senator blumenthal at a meeting they did, town hall with us a while back, that i felt that should be government wide, not just one department inside the federal government. i don't think that's quite fair. puts a lot of pressure on us.

but i understand that this is the veterans committee and not the whole federal government. but i have a concern with that. >> i appreciate that. we tend to hear that from the ig's office. it's rare, a va employee will give us a little more insight like you have so i appreciate your honesty as well and compared to a couple -- soon to be former employees, what the status will be on the other two ladies. certainly disappointed they weren't willing to share their experience. we're trying to improve this agency. before you did testify, did you have any conversations about superiors above you about what you would say at this particular hearing? >> the only conversation i had was with both the secretary and def sec. they told me to be honest, to tell the truth to this committee, and they both told me to please relate to this committee that they're absolutely committed to turning the culture of the va around, to

holding people accountable, and to making it veteran centric. the def sec said to say that he's responsible for posing all misconduct and to assure this committee he's moving forward with all deliberate speed. >> who made the decision to not testify and require us to issue a subpoena for you to come and the other folks? >> i wish i knew, congressman. >> so you aren't free -- well, who made the choice for you? >> i was informed through a very complex chain of command that in order to ensure the due process of the individuals involved in this case, that it was inappropriate for us to testify at that time and that the def sec had offered -- >> who told you could is not testify then? >> i don't know. that's probably a couple people.

>> let me get this straight. i'm a little confused. somebody told you couldn't testify ten days ago and you don't know who that was? >> i know who it was. >> who was it? >> it would be -- one of the ladies that works in our oyla department inside of vba. so she's pretty low level who would be talking to ocla who would be talking to the legal. there's a whole -- so i don't want to put it on her. it clearly wasn't her decision either. she just came and said, hey, look, you guys are not going to be able to do this. of course i received chairman miller's subpoena on an airplane on my way top atlanta which i immediately e-mailed that i would be present. >> yeah, absolutely. that's called a subpoena. but i was just trying to understand who was telling you -- if we're going to try to clear this up -- sounds to me it is not just two poor performing employees that were clearly

gaming the system. we're talking about folks that -- above you that said, no, we don't want you to come and tell us the truth too soon. >> congressman, i don't believe anybody was gaming the system. i believe that they were honestly trying to make sure under the new accountability act that they didn't screw it up, that they got the proposed punishments out, that they did the right things, and they were -- i think -- i hate to say "think" here, but i don't believe that they wanted us to start testifying and saying things that would mess up to process because this is the first time we've used this process. >> well, yeah. you're talking about the response to our invitation to testify and the refusal of five employees to do that unless a subpoena was issued. but you do agree that with the conclusion of the ig's report that they were gaming the system, those two employees? >> the only report i have seen is the public report. i have not seen any of the

actual testimony. none of that has been released -- >> do you agree with the ig's report? >> i have complete confidence in the secretary and def sec. they've looked at everything, and if they believe that they've do done the right things, i back them up 100%. >> thank you, mr. chairman. yield back. >> mr. o'rourke. >> i compensation in order to make --

they already volunteered for that move to philadelphia and to st. paul. do i have it basically right? >> basically, yes. >> so mr. pummill, do you disagree with any of that? >> i don't disagree with that, but i have not seen any of the evidence. >> okay. one aspect of this that seems to be in disagreement tonight is whether mr. mckendrick was forced out of philadelphia to l.a. do you disagree with the ig's conclusion that that seems to be the case? maybe forced out is the wrong word but was pressured to move from a position where he wanted to stay, his family was there, his kids were there, he's quoted as saying i wasn't jumping up and down to do this. do you disagree that he was pressured out by miss rubins? >> i would have to see both of their testimonies to the ig before i could make that determination. >> i'm asking because you said that you have punished police rubins and miss graves -- >> the def sec has punished

them. >> for what are they being punished? >> i don't know. >> you don't know. >> no. this committee has actually seen more evidence than i have. i've only seen one report and that's not evidence. i haven't even seen my own testimony to the ig. nothing has been released to me. so i'm coming in here seeing the public report and having -- i absolutely have confidence that the secretary and dep sec have proposed punishment and whatever that punishment is, i assume that that punishment is appropriate -- >> you don't know what the punishment is for and we don't know what the punishment is. safe to say that the criminal referrals that have been made are connected to what i just described? >> we have made a criminal referral. the department of justice has not decided at this point

whether they will accept it for prosecution. if they do not, then it moves to the department to take their administrative action which is what mr. pummill is talking about with deputy secretary sloan and mcdonald. >> you made 12 recommendations in your report and the va agreed with all 12 of them. some of them had a deadline of saturday, october 31st, and you mentioned that for two of them, for administrative action against miss rubins and against poli miss graves that the va has fulfilled that and is going through due process. what about expensed paid to miss graves and miss rubins? have you sent them a bill to recoup that money? >> i have not sent them a bill, congressman. >> has the va sent them a bill? >> i don't know. >> that was supposed to happen by october 31st. do you know if that's been fulfilled?

>> the va as far as i know has weigh all the evidence and determine the extent to which either individual would have to pay back funds. we put the full amount of the cost of miss rubins and miss graves into recommendations 9 and 11 so that since we believe they misused their position, we were trying to make the government whole. the decision will have to be with the department as they weigh all the evidence to determine the appropriateness. because for the $274,000, miss rubins did not receive all of that money. some of it goes to the avo program to buy the house. she received approximately $33,000. >> but due to her actions, if we believe what is presented before us, the taxpayer is out that amount. >> yes. i believe the government needs to be made whole since we drew the conclusion that miss rubins and miss graves misused their

position. >> mr. pummill, we have a very ambitious goal and deadline for reducing the backlog of claims. i first want to commend you, the two gentleman who are seated with you and everyone who's worked on this to make extraordinary gains towards reducing wait times. has this debacle and the under secretary for if the vba stepping down, has that in any way impeded our progress towards achieving that goal? >> yes, it has. >> can you explain? >> it has, because when anybody's that's been in the military knows when you remove a commander, there is an impact on the organization. to pretend there wasn't an impact would just -- it's silly. there was an impact. from was a downturn in claims for about four, five days after people got passed, hey, our under secretary's gone, for whatever reason. i can tell you we're back on track, they picked it back up again. as of last wednesday, they were

hitting over 5,000 claims a day. >> with the chairman's indulgence, can you tell us now or when will you be able to tell us what the reset goal and deadline will be? >> we will -- by the end of the calendar year around christmas time we're still going to be between 70,000 to 80,000 claims in what we consider the backlog which is over 125 days. but as far as getting to a zero, we will never get to a zero. there will always be veterans that, because of the complexity of their cases, say a veteran exposed to nuclear radiation, something like that, that you just can't do in 125 days. but we are committed to get that number down as low as possible. i personally think, okay, we spent all this time getting down to 125 days improving our quality, but none of that means anything if the veterans done trust us, if they don't believe us, if they don't believe our numbers. how do we gain trust and

confidence not just of the american people but of veterans, vsos and this committee. we got to gain that. we got to get that trust so we can show you guys that here's the number of days we got, we're using the taxpayer dollars to the best of our ability and we're going in the right direction to take care of veterans. >> thank you, mr. chairman. >> dr. abraham, you're recognized. >> thank you, mr. chairman. mr. pummill, colonel, i'll goio you first. you've said some elegant statements tonight about accountability. congressman walsh certainly brought the issue up. what this all boils down to in my opinion from our veterans is the lack of accountability and the lack of trust within the va system. so just personally i find it incredulous that we have to subpoena witnesses to testify when they are asked to do so. going back to a direct question.

you said there was a lady that told you that you could not -- will you or will you not reveal that name? >> christina detucci. just a clerk. >> that's fine. we don't want to bring her into the morass. i just want to make sure that we have an open dialogue and that there are no even innuendos of trying to hide or protect. i will ask each of you three -- i realize you have done outstanding work and we appreciate your service to the country and to the va system. but how many of you have personally been interviewed or questions by federal agents on this ig report?

>> i consider an ig investigator to be a federal agent, if that's what you're asking me. regarding this report, they interviewed me twice on the record and i believe one other time we had extensive dialogue which continued through e-mail. >> colonel? >> congressman, just the ig. >> same here, just the ig. >> thank you, gentlemen. mr. pummill, let's go back to the baltimore application process. i think we were told as a committee there were 131 applicants that applied to that job. were any of them interviewed or questioned as far as their ability to take this job? >> i don't know, congressman. >> mr. mckendrick, were you aware that miss rue dbins had family in philadelphia? >> i was, congressman. >> do you think that influenced her decision to move you to los angeles to -- for her to be closer to her family? again, it is an opinion. >> i don't have an opinion as to what she may have speculated.

but i also believe it was not her decision to move me to los angeles. it was the chief of staff. >> and did you read the report? >> yes. >> you understand the implication of the possible misuse of her position to move into that position and possibly move you to l.a.? >> i do. and i am the individual who was involved in all the different steps with multiple area directors, with miss rubins as the office of field operations, deputy to under secretary, as well as the chief of staff and others that i talked to and learned more about the west coast. i didn't see it the same way that the ig saw it. >> we understand the cost kf living, as you alluded to, is much higher in the l.a. area. what was your reimbursement for your moving expenses? >> i believe they're listed in the ig report. >> do you know those figures yourself? >> i was given a relocation

incentive. >> do you know that figure, sir? >> $2,0$20,000? >> my relocation was $40,000. >> no more questions, mr. chairman. >> mr. pummill, who at the va is responsible for approving of the $2 $288,000 for miss rubins and the $129,000 for miss graves? >> the chief of staff of the va is the approval authority for the scs moving incentives and avo. i don't think that they would approve an exact number. that depends on the appraisals of the house and all that kind of -- i don't think they would know that in advance. >> aside from the ig investigation that we've been talking about all night, what investigations -- other investigations may have gone on

internally within the va? >> i'm sorry. -- >> other than the inspector is general's investigation that was done as a result of this committee requesting it, what other kind of investigation has been initiated internally? >> whenever a case like this comes up, we initiate what's called an. a ib which is an internal investigation that we attempt to do in va. but since the new secretary's arrived he set up an office of accountability where he's brought in a team, and if it involves a senior executive anywhere in va they take that investigation from us now and they handle it to make sure that it's done fairly and equitably throughout it the va. >> when was that investigation initiated? >> i don't know if there was one in this instance. i'd have to take that for the record and find out. >> do you know if there was an

investigation initiated internally? >> i do know that the evidence was turned over to the department to be reviewed by general counsel and the office of accountability and review. and that they were doing that review. >> do you know -- mido you have any information about anyone else being the target of an investigation other than miss rubins and miss graves? >> i believe that there is at least one other example of potential misuse with a recruitment bonus and relocation, but it is in vha and that's being handled separately. >> any reason why there isn't anyone being the target of an investigation for signing off on these exorbitant numbers?

>> i don't think the investigation was limited to the individuals that got the payouts. i think everybody under the entire chain of command is under investigation. >> to what level? >> all the way up to the under secretary. that was in the ig -- i believe, yes. >> there may be another investigation that was done internally that you don't know about? >> i don't believe there was. i just think the office of accountability looks at it, the ig looks at it. of course they've turned it over to the justice department but that's all i'm aware of right now. mr. palmer, you said earlier it's your opinion that the va should be accountable to congress. correct? >> we should be accountable to american people, veterans, congress, everybody. we're going to spend taxpayer dollars to take care of veterans, we have to be

accountab accountable. >> miss rubins, miss graves, they're the target of these investigations but it was signed off on by the chief of staff. what kind of accountability is being provided other than it the target of your investigation? it goes up to the top of the va. >> congressman, i don't believe that the avo program or the amounts of the avo program are really under investigation. i think this is danny pummill speaking. i think the investigation is whether or not people colluded to have people remove from positions so they could take positions. this avo program is a government program that's used for scss and gss throughout the government. the prices that we paid are not exorbitant. they're price tlaz as that are l over. i personally think it's too much, that we shouldn't be spending that kind of money in the federal government, but this is a legal, legitimate program that's available to everybody in

the federal government. >> but mr. pummill, going one step further beyond the money, you saw mr. waller did an excellent job in the same call. correct? >> yes. >> miss graves is coming from a setting where it was underperforming. >> right. >> so doesn't it seem like -- there are a lot of different examples this committee hears about where if it's not broken, break it. and if it is broken, then cover it up. i mean this committee has heard hospital construction costs several hundred million dollars over budget and we're being told here that they're operating off an artificial budget. one colleague asked when she was going to get a timeline of when she was going to get a timeline. of there actually be a budget. here we're on another issue and miss graves and miss rubins are clearly the target of an investigation, but there's no evidence anyone else whatsoever is being pursued. is miss graves still in charge at st. paul?

>> yes, she is. >> okay. so i would just offer that that accountability to congress, that accountability to the american public, has not yet been provided. your testimony was not provided to the chairman as he requested. that's why you're only here because of a subpoena and that accountability is still desperately in need. that's why we're meeting tonight and i appreciate the chairman for having this really important hearing. i yield back. >> mr. costello. mr. wa on page 21, mr. halliday, miss rubins -- third one down -- and miss graves had e-mail correspondents regarding mr. mckendrick. okay, boss, looks like i'm coming home. have you talked with him about

dates? miss rubins responded remember, i can't be in the middle of his move so you may want to check with willie. mr. clark was vba's western area director. first question here is how does mr. clark as a western area director sort of become, if you know, the person to which the maneuvering for miss rubins to get the job, how did he become such a central figure there? did miss rubins -- was that of miss rubins' making or did someone else assign him to that position? >> i believe that was based on his position as the western area director. when i look at that, i believe miss rubins, once she identified to general hickey she wanted the philadelphia position, she needed to recuse herself from everything. >> but the western area includes philadelphia? >> no.

that's the eastern area. >> right. but we're talking about philadelphia. >> he was -- you're talking about mckendrick going out to l.a. in the western area. >> i misread this to be -- this is actually not misrubins -- miss rubins -- okay, i see. okay. here's my follow-up question to that though is, mr. clark's involvement -- i believe he was a central figure in actually charging the aib in philadelphia. did you look into that at all? terms of the -- the charging letter for philadelphia obviously did not include miss rubins unseemliness. did did you evaluate that any further in terms of being any further relationship between miss rubins and mr. clark? >> no. as far as mr. clark's role with

the aib in philadelphia, we did not do any. that is a management function for va to determine the extent of any culpability of starve based on the evidence we provided over. the ig's role would be to give our report sufficient time and corrective action sufficient time to take hold and go in and look at the recommendations and do the follow-up to say are the conditions corrected. so it's a little bit different. >> mr. mckendrick, did you have an opportunity to review the ig report and even more specifically the recommendations made by miss rubins at philadelphia? do you recall? there were about 35 recommendations that she then followed up and said 32 out of the 35 were corrected or addressed? >> i am aware of the report. i did review the report on

philadelphia. >> do you have any opinion on the report? >> no. i don't know the facts as i was no there at the time the ig went there and i'm not there today so i don't know what miss rubins did about all those issues. i had to strug the with the initial aspect of how the ig did an investigative process in philadelphia and didn't ask me a question. >> that's what i was getting at. yeah. did you find the ig report or did you find any of miss rubins' statements about the condition of the philadelphia regional office to be too far reaching, too critical, inaccurate? >> no. i found them and the parts that i could associate with from having been there not knowing what miss rubins had done what i left particularly, they were accurate with some of the struggles we had. what i take exception to is the other side of the coin. all the good work and the other things we were working on and

doing. that's what i struggled to find in the ig report is that fairness which is listed in their standards that they have to be equitable. >> equitable in what respect? >> in the ig's standards, it looks for a wholesome communication between the ig and we work with the ig and they're there to help make us better and to identify things that we need to work on. but there's room to tell the good story of the things that we did do, the collaborative efforts that were done there, the way we redid some of the organization -- >> you're directing your consternation more at ig than miss rubins is what i'm gathering. >> i think miss rubins was a great leader. she did great work. >> i obviously represent a district right near there. some of my verterans go there. the concern i have -- today we read about the number of va employees on paid leave -- is it's a stain on the credibility of any improvements that have been made at the philadelphia

regional office. when you have the director -- and i think mr. o'rourke summarized what the conclusions are about her -- about what miss rubins did. and it is very, very difficult i think for those who use the facility and are looking for improvements to be able to say, i believe that all that has happened, all that good reform has been made when you have the person there who distorted all that do what she did. one last question, if i can, for mr. pummill. all ses positions appear to have been critical needs. critical needs standard is the standard that you need in order to use the relocation program. is that correct? >> it is correct that that's the standard you're supposed to use. all of the ro ses, ro directors,

56 ros that are secs are critical needs because they're so important. i absolutely admit we got to do a better job. that's why everything's on hold and we're re-looking at the entire process. >> i yield back. >> would you like to respond to mr. mckendrick's statement. >> yes. at philadelphia bureau we received over 200 allegations of problems with dealing with data manipulation, tinkering with the numbers, poor performance, mismanagement. what the team did to be balanced to look at that was we could not look at all 200 of these allegations. we took all the critical processes that we found inthat would lead to an efficient operation and we evaluated those. i don't believe we needed to speak to mr. mckenrick. i think we need to look at the underlying processes, the data there, because it was very

difficult to determine, did someone have an agenda and want us to come to some conclusion? we did much more work than we had to do to make sure we got the message right. the philadelphia branch had problems in its management center, its compensation service center. are everywhere we looked we had problems. so i do take some offense with saying that i needed to talk to mr. mckenrick who was no longer there while the va team was there. . the te the team entered the philadelphia office and by that time mr. mckenrick was probably already in l.a. i think looking at the evidence, looking at the process and doing interviews of all the people that are doing the work in the trenches was more than enough to provide an accurate picture of

the philadelphia varo. >> i just want to say that this committee went to philadelphia and we had a hearing there and in fact the hearing that we had on that issue, veterans came to this committee and they wanted us to know that it was more than one side. obviously it was problems in philadelphia, and of course it was problems in philadelphia for a very long time. but i agree that we should have interviewed you and also pointed out the strength and weaknesses that existed in philadelphia. i yield back. >> thank you. the ranking member, it was a closed door meeting with employees. it was not a full hearing of this committee. >> thank you, mr. chairman. my question is for mr. waller.

as the current director of the baltimore ro, what have been your employees' reactions to secretary hickey's position that it the baltimore ro director's job would "suck the last ounce of blood" out of whomever took that job? the source is the ig report, page 23, box four. >> i will tell you, congresswoman, that our employees at the baltimore regional office, many of them are extremely dedicated to service. upon hearing the former under secretary's comments, there were a few that took it very, very disappointing. and that was certainly part of my conversation during a town hall upon returning back to the office to speak to the entire

staff and let them know that this information or information that was being shared would not define who they were as employees dedicated to serving veterans and they needed to know that i was there to help lead them through this time of challenge and change as we move forward. >> thank you. mr. pummill, in your interview with the ig, you were quoted as saying that it may be time to come to congress and say maybe it's time not to have an ro in every state. can you explain that, please? >> yes, i can. i think we've come to the time with our automation and systems that we have where there needs

to be a location in every state, maybe not one location but multiple locations where veterans can go to like a kiosk or store front or something where they can go and have a cup of coffee, get a glass of juice, say how about my benefits, where can i get medical care? i'm having a problem with my claim and those kind of things. but generally the claims can be donnie where in the united states. and if we were to centralize them and bring them into different locations we could put experts on different types of claims to do a better josh with those claims. we're not there yet. that's a little bit out of conte context, my statement, because we still don't have enough automation where i would be comfortable not having claims representatives in every state representing the people in that state. but i think we're getting closer to that point where we need to start looking at what's the best bang for the taxpayers, how do we best use this national treasure to support veterans and it may not be that we have a

claims office, a large claims office in every state. that's something we seriously have to look at. >> thank you, mr. chairman. i yield back. >> thank you. i have a list of questions that i would have liked to ask miss rubins, miss graves, if they were here. and one of those is that the concerns that i have was this question and i want to get this on record. is there anything you would like to say to apologize to the american veterans and taxpayers in regards to your alleged behavior that is outlined in this report? but unfortunately, well within their legal rights, they took the fifth. colonel pummill, you have said

that we've got to -- and i agree, we've got to do something to bring back the va and bring back the trust. but you were a colonel. and you had superiors you had to answer to. and if an underling of yours kept coming up and giving either false information or refused to give information, then you would be put in a situation that you would have to answer to your superiors. my superiors are the american taxpayers and the people of the 12th district. and since i've been on this committee, we have requested and then had to subpoena information. we have requested and had to subpoena now people to come before us who should automatically come. but yet you agree -- a while

ago, you made the statement you felt you should have probably come but you had to answer to your superiors. is that correct? or you were advised not to come. >> i was advised not to come. >> you were advised not to come. >>y he. >> do you see why the american people . >> do you see why the american peopley. >> do you see why the american peoplee. >> do you see why the american peoples. >> do you see why the american people, first off, feel like they're being lied to? and one of our other members said that you're gaming the system. it's public perception that thaels t that's the case with the va. i've got a va right in my district and one on the edge of my district and i believe that the majority of the people there are trying to provide the best possible service they can for our veterans. but let me also tell you that the american people don't trust the administration and many people who are really out to serb th serve themselves and rather than

those veterans. can you give me the answer i'm supposed to give to them, those people that ask me how do we straighten the va out? >> congressman, i can't disagree with anything you've said. all my friends are veterans. my brothers are all veterans and every time i come home they want to take me out behind the woodshed and beat me up because of how they perceive the va as. i could tell you, vba, we got a whole bunch of people that are dedicated, care about their job. they've been in mandatory overtime for the last two years. they're doing the right things. but as i told chairman miller before, that doesn't matter if the perception of the american people and the veterans is that we're not honest, we're not doing our job. i feel more confident now than any time i've been with the va in the last five years that under the leadership of secretary mcdonald and deputy secretary gibson that we're going in the right direction, they're committing to holding people accountable. i don't want to play games.

i want to take care of veterans. i don't want to say i'm not going to come to this subpoena or i got to come to this stuff. i want to do the right thing. somehow we got to figure that out. i know my boss is agreeing. we have to stop this. we have to move forward. we have to take care of veterans. we're a bureaucracy. we're always going to make mistakes. we're never going to be perfect. anybody that says we're perfect, that is not true. but how do we do best with the resources that we've got to take care of veterans? >> one thing, let me tell you, that i think you should do. is when this committee -- because we are supposed to be the voice of the people -- ask you for information, come forthright and quickly and give us the information necessary. we're not out to destroy you, we're here to help because we believe the job you do is a very good job that should be done for the betterment of our veterans. we want to help you do that. but we can't do it if we're

alwa always, let's keep that from them, let's hide that from them. that's so the advice i would like to give you this evening. thank you, mr. chairman. i yield back. >> mr. kaufman. >> thank you, mr. chairman. mrs. halliday, this incentive package -- not incentive, but i guess compensation to cover moving expenses, is that relegated to the veterans administration or is that civil service wide within with the federal government? >> it's gsa contract that's available to all federal agencies that choose to use it. >> it just seems to me when i look at the va, where there's corruption, it's almost like there's always -- where there's corruption, there's money. and that incents that behave.

that this thing is so plussed up and it needs to be reined in, this notion that someone could legitimately -- now what we're arguing here is it wasn't legit plat because of the fact that they forced somebody out of a current position. but nobody's arguing that this $274,000 -- really, around $274,000 met the standard, the criteria. which is outrageous. which is incredibly outrageous. so no wonder why people are doing what they're doing. we had discussed earlier that the relocation allowance for the most senior officer in the united states military is $4,514.29. that's for a four-star flag officer. having been in the united states marine corps, that would be the

commandant of the united states marine corps. so we give these outsized incentives or compensation packages that are just outrageous. and then we wonder why there's not corruption tied to people forced to move out of their current position so they can move in and collect these incredible amounts of money. it's just like in the employment wait time scandal. was money. was the fact that -- you could earn a cash bonus by bringing down the wait times. they just figured it out, within this corrupt system called the veterans administration that they could simply move veterans on to these secret wait lists and deny them health care and make it look like they were bringing the wait list down, the

appointment wait time list down and get those cash incentives. you know, mr. pummill, you were a colonel in the united states military. let me tell you with be in the military, good people are promoted, bad people are demoted. and the only cash incentives are there are part of retention pay. but when you're -- when we recognize good behavior, people are promoted. in the va system, we're throwing hundreds of millions of dollars a year in these cash bonuses, creating this corrupt system. this bureaucratically incompetent corrupt system. let me tell you, there are good people in the veterans administration that fundamentally believe in what they're doing and want to do a good job. and oftentimes those are the people that come forward with

these incredible problems and they make those problems public and they bring them to us. and they are the people that are retaliated against. by the leadership of the veterans administration. and i just think it is extraordinary. and i don't see the leadership from the white house and i don't see the leadership from this current secretary. he is merely a place holder. merely a place holder. everything's just trying to be swept under the carpet. it's only when the problems get so bad that there's public awareness that action is reluctantly taken. we luck ta reluctantly taken. in the situation in coll, a hospital with over $1 billion in cost overruns, nobody's been disciplined for it. nobody's been disciplined for it. unbelievably extraordinary. if these things happened in the united states military, you know that people would be court-martialed. you know that people would be

relieved. because in the military your job is not a property right. and thank god. thank god the united states military does not hold the values of leadership of the va. if we can say one good thing tonight, that americans can feel safe in that knowledge and now we've got to clean up the va. but the president has to care. the secretary has to care. and i don't see that. mr. chairman, i yield back. >> thank you. i'm going to yield to miss brown for some final questions, then i'll close. miss brown. >> thank you. first of all, i agree that the president, the secretary and the congress got to care. it's a teamest. it's one team, one fight, and i want to start by thanking all of you all for your service and your commitment. mr. pummill, i have a couple of quick questions for you but i do want to make one little

statement to you. as you decide to centralize the benefit office, don't touch florida. it's always done and to the right. and i know that that service is in st. pete. we worked for years to get it straightened out and i can tell you that we would be interested in -- i don't care what you do about the rest of the country but don't touch florida! because we have so many veterans and we have finally getting the benefit office on track in florida. now, you was interrupted when you was beginning to give your thoughts on the number of benefits that you all offer. and someone said, well, we don't care, that we had problems with 14. but you were saying we served how many. can you finish your thoughts on that area? i want to give you a chance to tell your side of what we're doing, because there is some good things that we're doing. we just need to be doing more.

>> yes, congresswoman. first of all, would never be my decision to shut down any offices. i could never make that call. i just gave my opinion. >> yes, sir. i understand. but your opinion carries weight. >> just to put it in a nutshell, we did claims for 1.4 million veterans this year. that's more than we've ever done before. that's good, but we still need to do better. we are paying more money to more veterans faster with higher quality than we ever have before, but now we got to show the american people that our numbers are real and that there's honesty and truth behind those numbers. we have an incredible workforce at the va that work really, really hard. we try hard to get the right people in the right place to do the right jobs. i really believe -- i absolutely understood the comments about

the military and how we work in the military. i believe that the secretary and the dep sec have the best interest of va and veterans at heart. they want change. they want accountability. of th. they want accountability. i'll push that. as long as i'm in this position, it could be a day, it could be a year, i don't know. i'll stay until they don't need me. you have my commitment that i will hold the people in vba accountable and i will be accountable to this committee. >> what were your accounts to the two gentlemen to your right and to your left. you think you have the best people in the positions for those two complicated offices? >> yes, congresswoman. a lot of people will say you took antoine out of minnesota -- >> nice place. >> he was doing a good job there. >> yes. the reason we took him out is he was doing a wonderful job.

he got the effort squared away, he took care of the veterans there, he got the union under control, he got the local community working. they all respect him highly. everything was going so well there, we knew we could put somebody else in, they could take care of it, we'll make sure it doesn't drop, and now i'm taking antoine's expertise and put him somewhere else i need that has been a hole for years. he's so good, and i'm going to use him to raise the position. max is very good. he comes across as a leader the way he talks. we needed a leader in l.a. he's a leader. he's changing things in l.a. in a couple more years, whoever takes my place will be trying to move max someplace else because they have a leadership problem. >> i can tell that. i had one quick question for you, max. you mentioned that it was 23 or so that you did not agree with

the report? do we have a copy of that, or is that something that -- i know i haven't seen it. >> ma'am, it was the interim report that the ig put out, and i'm challenged in that most reports come to us with a draft and we go through it and we lay out what we saw, what they saw, what happened on the ground. that didn't happen here. it was released to the press or congress first, and we itemized 24 discrepancies. some were opinions that they thought this, we thought that, but we didn't have a chance to air that internally. i want that relationship with the ig, i want to work with them and make it better for us, and i want the truth to come out and for it to be accurate and all of va to say, this is what it is, this is how we're getting at it and this is where we're going with it. >> one last statement or question. you mentioned that -- and i want to figure out how we move forward and make it better, and part of the problem is that

constant discussion of the appraisal value offered of avo. that is not a va program. that is a program that comes from committee transportation. so it's an agencywide program. and if we need to change it, then we need to change it not just for va but for all of the 13 agencies. and i'm sorry that when you all moved military people that you all just give them $4,000. they are being cheated. because clearly, if you got to sell your home and you got to relocate, it is a problem. but, of course, i think that the way that this program is set up, we really do need to take a look at it, because it seems as if they're paying too much, they're getting two appraisals. i understand california is different from minnesota, maybe -- nothing personal -- but

we definitely need to look at the program and see how we can correct it or put some -- yes, sir, you wanted to respond to that? >> i think one of the things we're not talking about here is the scs get their salary, then there's what we call pay for performance. i'm all about pay for performance. i studied it in graduate school and that's the way to go in keeping the lines clear that true performance determines any bonus. but the military gets locality, they get adjustments based on -- california is more expensive than idaho or wherever you're at. the scs corps in america does not get that. you get your base salary, period. >> so those are all of the facts that we need to consider, and i really think that part of the problem that you all have hiring in the va and relocating in the va has something to do with the salaries, and, of course, have something to do with congress

and how we dumb down and don't talk about the good things that you all do. they are problems, we know that. but there are problems in every agency. there are problems in the congress and we just have to do the army motto. one team, one fight, and we're all fighting for the veterans. with that, mr. chairman, i yield back the balance of my time. >> thank you very much, ms. brown. mr. pummell, just to clarify for the record, the avo program, is it suspended or is it canceled? >> it's suspended. >> because thats not t's not th direction i actually got. >> i believe it's suspended. i can check. i'll call your office first thing tomorrow morning. i believe it's suspended until it's completely -- they look at everything, they check everything out and they find whether or not we can use it and use it the proper way before they do anything with it. >> mr. mckendrick, i want to go

back and confirm. is it your testimony you never contacted the secretary's office in any way to express a desire to get back to philadelphia or to the east coast? >> that is correct. by the secretary's office, i do need to clarify that i did have a process with the chief of staff who is in the secretary's office, and i did respond to his letter with my preferences, and he did respond with a reassignment. >> but after the reassignment, you've never asked to come back. >> i did not. >> you have not. okay. >> i am committed to where i am, chairman. >> and i can understand that. i think it's very apparent from your testimony tonight that you will go where you're told to go. i appreciate the diligence with which you approach your job, mr. waller, the exact same thing, to be sent to an office where an undersecretary would say that the lifeblood would be sucked out of you if you went there.

you know, that's a testimony in itself, that you would be willing to go there. and again, we thank you both. mr. waller, as i understand it, it's your testimony that you did feel pressured to make the move to baltimore; is that correct? >> that is correct, chairman. >> and mr. mckendrick, it's been a little difficult tonight. you keep bringing up the directed move, but you basically were glad to go to l.a. >> i'm glad to do this mission, chairman. if it was alaska, i'd be there. it's a commission. i thank my children for being part of that selfless service. that's army corps values. >> i think if you were given any mission, you would take that mission; is that not correct? >> chairman, if you were talking about a job here in the house, i'd think twice.

>> nobody is offering you a job in the house, sir. you need to stay right where you are in l.a. ms. holiday, i appreciate what the ig does. we've been crosswise before. the ig, and interestingly enough, mr. mckendrick brought up a very interesting dichotomy where the va office of inspector general goes back and forth and negotiates with the va as to the final report. i don't understand how that process evolved, but obviously it has over the years, so i guess that's why it's very easy once the report comes out, the department signs off about all the recommendations because they already knew what the recommendations were going to be before they got the copy of the report. i will say i appreciate the area now where you put into the report suggestions that had been made by the va. i think it's important if you accept them or you don't accept them. i think that discussion is very

important for us to have. again, this hearing tonight was only held because people would not come to testify at the hearing that we held two weeks ago. i do not believe that mr. waller or mr. mckendrick, you would have not come had somebody said "don't come." i think you would have been here. and we had to subpoena you in order to get you to come here. mr. pummill, you obviously were subpoenaed because miss hickey left her position, and i suspect that we may invite her to appear before us at a later date. but with that, if there are no further questions, we are now in recess.

next the chair of the federal reserve, janet yellen, testifying on the economy. then homeland security secretary jeh johnson talking about u.s. immigration policy. and later, the congressional internet caucus taking a look at internet privacy and personal data protection. the chair of the federal reserve, janet yellen, testified on the u.s. economy and monetary policy appearing before the house financial services committee on wednesday for about three hours.

the committee will come to order. without objection the chair is authorized to suggest a recess for the committee at any time. this is the annual testimony on the federal reserves supervision and regulation of the financial system. i now recognize myself for three minutes to give an opening statement. the dodd/frank act requires the federal reserves vice chair of supervision to testify before our committee twice a year regarding the supervision and regulation of financial institutions. regrettably, five years after the passage of dodd/frank, no such person exists. president obama has been unwilling or unable to follow the law in a point at vice chair. we can no longer wait for the president to do his job so we can be allowed to do ours. thus chairman yellen appears before us today in substitution.

as we know, dodd/frank rewarded the federal reserve with broad, new, sweeping regulatory powers despite its contributions to the last financial crisis. under the dodd/frank, the fed can now functionally control every major corner of the financial services sector of our economy, separate and apart from its traditional monetary policy authority. su disturbingly, the fed does so that is neither transparent or obvious to the authority. they are not able to shield their regulatory activities by improperly cloaking them behind its traditional monetary policy independence. what is clear is despite the largest monetary stimulus in our nation's history, in seven years of near sfwlezero interest rate middle income families are not getting ahead and are falling

further behind. gdp growth is coming in at an anemic 75%. our economy has limped along at about half the post-war average. that means every man, woman and child is a thousand dollars poorer than they should be, and millions could be fully employed when they are not. capital that could fuel robust economic growth instead remains sidelined due to a regulatory tsunami, much of it dictated by dodd/frank and promulgated by the federal reserve. thus, serious questions must be asked. why isn't the fed subject to statutory costs benefit analysis? why has the fed yet to find any connection between its volcker rule or any other rule in the precipitous drop in bond market liquidity? why does the fed cough kabucke

drama where banks punish? with its all encompassing new regulatory authority under dodd/frank is a dangerous mix. it is a threat to economic growth not to mention the principles of due process, checks and balances and the rule of law. if we're not careful, our central bankers will soon become our central planners. fortunately, the house will soon have the opportunity to reform the fed and make it more transparent with the federal oversight reform and modernization act offered by our colleague mr. hai zinga and approved by this committee. i now yield five minutes to the ranking member for an opening statement. >> thank you, mr. chairman, for holding this hearing and thanks to federal reserve chair yellen for making herself available to testify. the 2008 financial crisis inflicted staggering damage to

our economy. within the months before president obama took office, shedding more than 800,000 jobs a month, home foreclosures displacing millions of families, and entire industries on the brink of collapse. congress responded to this devastation bypassing the most comprehensive overhaul of our financial system since the great depression, the dodd-frank wall street reform and consumer protection act. the act entrusted significant responsibility to the federal reserve and directed the fed to improve its supervisory program so that another crisis of such scope and depth would never happen again. recognizing that the federal reserve failed to apply appropriate prudential standards to large banks, congress directed the fed to impose enhanced requirements for capital, liquidity, resolution planning and other factors to ensure that no large bank or group of banks could again

endanger our economy. i'm eager to hear from chair yellen on the progress of these reforms along with a description of how the fed is using the flexibility embedded in dodd-frank to tailor regulations appropriate to the sizes and risks of different types of banks. congress specifically permitted the fed to differentiate among companies on an individual basis or by category, considering their capital structure, riskiness, complexity, financial activities, size and other factors. the fed could use this authority. likewise, the dodd-frank provided the fed with new responsibility to collectively regulate the activities of systemically risking banks' entities such as insurance company, aig, systemic consequences on our economy just seven years ago. i very much would like to hear from chair yellen about how the fed has bolstered its expertise to take on these new

responsibilities. let me also express my deep concern about legislation this committee considered during a mark-up this week that would severely undermine efforts by the fed to regulate both banks and non-banks. with regard to banks, the legislation would hamstring the feds' ability to regulate all but the largest globally active banks, ignoring how the failure of many large, interconnected regional banks could have dire consequences for our economy. similarly other legislation would undermine the financial stability oversight counsel's ability to identify supervisory gaps, designate non-bank firms for enhanced prudential regulation, and ensure the fed is regulating them on a comprehensive, consolidated basis. finally, as we just surpassed the five-year anniversary of dodd-frank, i think it is important to remind the committee and the public of the need to be ever vigilant of the

threat of another crisis. among our supervisors we must guard against complacency and regulatory capture. among our law enforcement, we must hold institutions and individuals accountable, something former chairman ben bernanke, in his recent book, said we did not adequately do. here in congress we must be mindful of attempts to defund and defame dodd-frank. the american economy has made substantial progress since the depths of the crisis. but that progress will be threatened if we do not protect these reforms both in statue and in practice. so thank you, mr. chairman, and i yield back the balance of my time. >> the lady yields back. the chairman now recognizes the gentleman from texas, mr. nogenbau, rerks, chairman of our financial subcommittee, for two minutes. >> today marks the first time since the passage of dodd-frank that someone from the federal reserve has testified under the

statutorily created vice chair of supervision. yet today the person testifying was not appointed or confirmed for that position. i remain baffled the president has failed to put forth a single name for this role. i feel it's in part that dan tarillo, who serves as chairman of the internal banking supervision, can already exercise many of the authorities and in a defacto capacity, free from any checks and balances. the federal reserve, in addition to its monetary policy regulation, operates many financial institutions, some of them the largest in the world. we have seen decisions driven largely by the federal reserve that artificially manipulated the liquidity. under stress testing, the process is likely the most important thing the bank must do this year remains completely

free from any oversight. internet banking and standards are aggravated and implemented. these are operations and deserve much of our needed attention and oversight. today i hope chairman yellen will address some of the more intricate points of banking regulation and supervision. specifically i hope to get a better understanding of how she sees each capital and rule making committee working together. i hope to see how the market manipulates institutional regulations. we've already seen the bond market where volatility has remained in the liquidity coverage ratio. finally, i hope to hear her reports of how to make ccar more transparent. she must also talk about how the regulatory standards are

prioritized in the ccar environment. i look forward to this particular hearing. >> today we welcome the testimony of chairwoman janet yellen. chair yellen has previously testified at our committee before, so i believe she needs no introduction. ms. yellen, your statement will be made a part of the record. you are allowed five minutes to give us an oral testimony. thank you for being here. i think you need to hit the microphone there. >> chairman henserling and other members of the committee, i appreciate the chance to testify on the regulation and supervision of financial institutions. one of the firm's fundamental goals is to promote a financial system that's strong, resilient and able to serve a healthy and growing economy. we work to ensure the safety and soundness of the firms we

supervise and also to ensure that they comply with applicable consumer protection laws so that they may, even when faced with stressful financial conditions, continue serving customers, businesses and communities. this morning i'd like to discuss how we have transformed our regulatory and supervisory approach in the wake of the financial crisis. before the crisis, our primary goal was to ensure the safety and soundness of individual financial institutions. a key shortcoming of that approach was that we did not focus sufficiently on shared vulnerabilities across firms where the systemic vulnerability of the largest complex firms. in the fall of 2008, the failure or near failure of several of

these firms, many of which we did not supervise at the time, sparked a panic that engulfed the financial system and much of the economy. today we aim to regulate and supervise financial firms in a manner that promotes the stability of the financial system as a whole. this has led to a comprehensive change in our oversight of large financial institutions. as my written testimony describes in more detail, we have introduced a series of requirements for the largest and most complex banking organizations that reduced the risk to the system in our economy that could result from their failure or distress. in addition, we now supervise financial institutions on a more coordinated, forward-looking basis. at the same time, we've been careful to make more measured

approaches to firms on the other end of the spectrum. we're committed to ensuring that the supervision of smaller institutions is tailored to the business model of larger institutions. in supervising community banks, we're refining our risk-focused approach which aims to target examination resources to higher risk areas of each bank's operations and to ensure that banks maintain risk management capabilities appropriate to their size and complexity. given the important role the banks play in their communities and the economic support they provide across the country, we recognize that supervision of community banks must be balanced and measured. the regulatory forms we've adopted throughout the crisis impose risks of large financial

institutions in two ways. first, our reforms reduce the probability that large financial institutions will fail by requiring those institutions to make themselves more resilient to stress. however, we recognize we cannot eliminate the possibility of a large institution's failure. therefore, a second goal of our post-crisis reforms was to eliminate a systemic end that would result if a financial institution were to fail. again, my statement provides more detail, but i would like to highlight for you two examples of how we're addressing this too big to fail challenge. first, to limit the systemic effect of a large institution's failure, the board and the federal deposit insurance corporation have adopted a resolution plan rule that

requires large banking organizations to show how they could be resolved in an orderly manner under the bankruptcy c e code. second, the board just last week proposed a role setting long-term debt and total loss absorbing capacity requirements for the very largest banks in the united states. with the new requirements, if losses were to wipe out a firm's capital and push a firm into resolution, a sufficient amount of long-term, unsecured debt would provide a mechanism for absorbing losses and recapitalizing the firm without generating contagion across the financial system and damaging the economy. in addition to strengthening the regulation of the largest, most complex financial institutions, we have also transformed our supervision of these firms. our work is now more forward looking and multi-disciplinary,

drawing on a wide range of expertise. we put together this operation with the creation of the large institution supervision coordinating committee, or liscc, which is charged with supervision of the firms that pose elevated risks to u.s. financial stability. the liscc program complements traditional, specific supervisory work with horizontal programs that examine the same firms at the same time on the same set of issues in order to promote better monitoring of trends and consistency of assessments across firms. for example, our comprehensive capital analysis and review, or ccar, ensure that large bank holding companies, including the liscc firms, have rigorous,

forward capital planning processes and limited forms of capital to operate during times of stress. i would note that capital at the u.s. banks alone have more than doubled since 2008, an increase of almost $500 billion. our new regulatory and supervisory approaches are aimed at helping ensure these firms remain strong. while more work remains to be done, i hope you will take away from my testimony just how much has changed. our supervisory approach is more comprehensive and forward-looking while also tailored to fit the level of oversight to the scope of the institution and the risks it poses, and the federal reserve is committed to remaining vigilant as a regulator and supervisor of the financial instituti institutions that serve our economy. thank you. i would be pleased to respond to your questions.

>> the chair now yields himself five minutes for questions. chairman yellen, the first question i have deals with the concern, has the fed crossed the line from being regulator to manager? we've had a number of individuals come to our committee to tell us that fed officials have regularly attended corporate board meetings of the systemically important financial institutions under the fed's purview. is that true? >> so i'm not sure if that's true. it is not -- >> so you are unaware of any fed officials attending board meetings -- >> it's conceivable that that might have occurred. i'm not saying that it did not occur. i don't -- i would have to get back to you with -- >> if it did occur, what legal authority would you cite for having employees of the fed invite themselves into corporate

boardrooms? >> i don't know what the circumstances are in question, but i can, for example, tell you that when i was president of the san francisco fed that i occasionally would attend a portion of a board meeting of one of the firms that we supervised to make a presentation to the board about our supervisory findings and the emphasis -- >> but you are unaware of any fed officials attending these board meetings? you have no personal knowledge of this, and this is not a policy with the fed? >> i really don't have details about what fed officials -- >> we would appreciate it if you could look into this, chair yellen, and get back to the committee on this matter. we've also heard from individuals with respect to the stress tests of which we've had public dialogue and private conversation.

many of us on this committee considers that to be, again, a rather opaque process. and so this committee has a number of questions. we've also asked members of the employees of the financial institutions who have been on the receiving end of these stress tests, we have been informed by numerous individuals that they have been told by the fed not to speak to members of congress about the stress tests. do you have any knowledge of this matter? >> i have no knowledge of that. >> is it the policy of the federal reserve to instruct members of banks subject to the stress test not to speak to members of congress? >> i strongly doubt that that's our policy. >> you are unaware of that being a policy. would you object to these people speaking to members of congress? can you let it be known to your employees that they should not be telling private citizens not to speak to members of congress

about stress tests? >> private citizens can interact with members of congress. >> you're willing to direct your employees to ensure that that dialogue can take place? >> i will certainly look into that. >> with respect to the stress test, and again, great concern about how opaque and non-transparent these affairs are, i guess the first question i would have is, we don't doubt that you have many serious employees, very smart, regulatory staff who handle these matters, but we still don't know much about this. how is the market -- how are market participants supposed to be convinced that we have less systemic risk when they have no insight into these tests since members of congress have little to no insight into these tests? how are we supposed to reaffirm market confidence? >> so we do a great deal, in my

opinion, to explain the methodologies that we employ. we've published overviews of the methodologies that we use, and we update those every year. they include detailed information about the scenarios, the analytic framework that we use and information on the models. >> i guess the information must be in the eye of the beholder, because members of congress still don't understand this, and in our dialogue with banking organizations, they still don't understand the test, either. in my remaining time, i have one last question. again, with respect to these tests. the stress tests have really become, in many respects, your main tool, your main supervisory tool for the large banks. but my concern is, if you have one centralized view of risk and you're imposing that view on our

large banking organizations, to some extent isn't that exactly what ssell 2 did in telling banks they had to reserve little to no capital, think bonds fannie and freddie, how can that lower financial risk since we only have one view of financial risk and it may be wrong? >> i guess i would dispute the idea that we have one centralized view of risk. the purpose of this exercise is to help the firms develop their own analytic capability to model the impact of various stresses on their organizations, and to develop a robust capital planning process, which is what we evaluate in our ccar exercise -- >> chair yellen, i wish we could conclude the same thing, but we have insufficient information about your stress test to be able to come to the same

conclusion that you make. i'm over my time. the chair now recognizes the ranking member for five minutes. >> thank you very much. i'm pleased to see you, chair yellen. and unlike the chairman, along with many of my colleagues, we've heard from regional banks about the comprehensive capital analysis and review, or ccar stress tests. and they have complained that they're not sufficiently calibrated to the unique profile of larger holding bank companies. they focus on specific banking activities. we've also heard that the filing of living wills is cumbersome for banks and not easy for the fed process. i've not heard that they're told not to talk to us. they talk plenty and we're listening. congress is considering legislation that would do severe damage to the new standards the fed has implemented and their ability to identify and respond to risk in the future.

so can you discuss why hr1309, a bill debated by this committee yesterday which addresses this topic would be severely damaging to the feds' ability to respond to systemic risk on an agile and comprehensive basis? secondly, will the federal reserve commit to doing further tail tailoring using existing authority of the dodd-frank act, specifically on two issues a submitted earlier, ccar stress tests and living wills? >> i am concerned very much about a process that would require, as i understand 1309, would require the board to use a statutorily defined set of factors or make findings based

on factors to decide whether or not to subject firms to higher prudential standards. i would see such a process as inhibiting our ability to take timely and necessary supervisory actions to address a firm's risk. we do do a great deal of ta tailoring of our supervisory approach to make sure that it is appropriate to the size, complexity and systemic risks posed by a particular firm. we're committed to doing that, and we are looking at further ways in which we can tailor our supervisory approach, in particular the ccar process that we were discussing. we have some ideas about how we might tailor it to particularly

apply to smaller firms. we have indicated there are some constraints on our ability to tailor our supervisory approach for the smaller firms subject to the 165 requirements, in particular dodd-frank requires that we administer stress tests and receive resolution plans. our experience thus far is that the safety and soundness value of those requirements for the smaller of those firms probably is not sufficient to justify the costs imposed on them, and so we would value for the firms on the smaller end of the spectrum being able to relieve them of those requirements. but i do want to make clear that

we do tailor our supervisory approach according to the complexity of the firm and they're committed to doing that. >> i'm so pleased to hear that, because what we heard constantly yesterday was that you do not. that somehow they kept talking about one size fits all and that you are not using your ta tailorring authority, so thank you for explaining that to us, and we are absolutely supportive of your being able to do that. we think it makes good sense, and perhaps what we need to do is work with your staff a little bit more to understand whatever restraints there are involved in tail tailoring and whatever authority that you have and flexibility that you have. but thank you for clearing that up. that's very important. you know you have the authority, you understand that dodd-frank gives it to you, you use it, and

you welcome any questions from this committee about how you use it and how you can't use it. so thank you very much. i yield back the balance of my time. >> the chair now recognizes the gentleman from texas, mr. noggenbauer, for five minutes. >> it seems there are all new different kinds of regulation and they're all trying to drive at the same thing. for an outsider, it's hard to see how they're coordinated. for example, in one broad area, we have the leverage ratio, the risk-weighted capital regime as well as the annual stress test known as ccar. can you walk me through how all of these capital rules fit together and what each are trying to address? >> microphone, please. >> yes. i mean, certainly. we do see these rules as fitting

together. most of the requirements that you just mentioned are imposed only on u.s. firms. we think, given the risks, that the failure of one of these firms would pose to the financial system that it's important that they be subject more stringent capital requirements, liquidity requirements and ability to survive a very stressed event, and we think the various things that you mentioned coordinate with one another. in particular, we have put in place so-called gsib surcharges that impose additional high capital standards on the gsibs, and it's based on our estimate

of the impact that the failure of one of those firms would have on the overall financial system. the supplementry leverage ratio, enhanced ratio, is a backup tool that works in a coordinated way. this has long been the case with the risk-based capital charges. and so we see those as working together. now, the stress test that we impose on these institutions are very robu a very robust, forward-looking approach to assess whether or not firms could survive a very adverse stress scenario and continue to serve the credit needs of the u.s. economy. and so these are coordinated approaches, these so-called tlac requirement that you mentioned, is a requirement that we think

is necessary so that if one of these firms were to fail, despite all the resilience we expect of it, that it would be possible as dodd-frank requires, to resolve that firm under bankruptcy or alternatively under orderly liquidation. >> so what kind of comes to mind here is at what point does the ccar process kind of override all the other requirements? i mean, i guess literally they could be in compliance with these other requirements, but they could fail their ccar. so is ccar driving the regulatory process or are these standards you're putting in place driving the regulatory process? >> well, i believe they're complementary, and i think that ccar is a particularly valuable process because what we expect these firms to do is not simply

to be able to meet some standard, a minimum capital standard, but what we want them to have in place is the internal ability to analyze the risks that face that unique organization and to have a rigorous capital planning process that that firm is using to make sure whatever our rules may say, we want that firm to make sure that they have adequate capital to survive a severe stress. and the stress test and ccar process are looking to make sure that they have governance and risk management standards in place that are designed for that organization and for the unique risk profiles that they are managing their risks in the way we would expect a systemic firm to be able to do. >> but -- i mean, each entity is

different, and so you're imposing many of these standards on all of them, i assume, somewhat on a consistent basis. but the ccar for one entity, the stress that that entity may go under because of their business model is going to be different. so do you need all these others if the final test is the big test here, the ccar? >> we believe it's a built-in suspenders approach and that they work together in a coordinated fashion. >> the time of the gentleman has expired. the chair now recognizes the gentlelady from new york, miss spilon spiloni. >> chair yellen, i'd like to ask one question on monetary policy. when you testified in july, you said in response to one of my questions that one of the advantages to raising rates a little bit earlier is that, and

i quote, we might have a more gradual path of rate increases, end quote. of course, one of the down side to starting to raise rates while inflation is still below target is that it could end up hurting the fragile economic recovery. fed governor banard recently said it could take away the support that is so critical to the economy's vitality. so my question is, do you think the risks of raising rates in december which most likely will be before inflation reaches the feds' 2% target outweigh the benefits? >> thank you for that question. so let me say that at this point, i see the u.s. economy as performing well.

domestic spending has been growing at a solid pace. our trade performance net exports is soft, but the committee judged in october that some of the downside risks had diminished relating to global economic and financial developments. i see underutilization of labor resources as having diminished significantly since earlier in the year, although recently we have seen some slowdown in the pace of job gains recently. so with that sort of backdrop in mind, and, of course, inflation, i should say, is as you mentioned, running considerably below our 2% objective. nevertheless, the committee judges the prices and the prices

of non-energy imports, that as those matters stabilize that inflation will move back up to our 2% target. so with that sort of economic backdrop in mind, the committee indicated in our most recent statement that we thought it could be appropriate to adjust rates at our next meeting. now, no decision at all has been made on that. and what it will depend on is the committee's assessment of the economic outlook at that time and that assessment will be informed by all of the data that we receive between now and then. so what the committee has been expecting is that the committee will continue to grow at a pace that is sufficient to generate further improvements in the labor market and to return

inflation to our 2% target over the medium term. and if the incoming information supports that expectation, then our statement indicates that december would be a live possibility, but importantly, that we have made no decision about it. now, it is -- you asked about the timing of such a move. the committee does feel that moving in a timely fashion, if the data and the outlook justify such a move, is a prudent thing to do because we will be able to move at a more gradual and measured pace. we fully expect that the economy will involve in such a way that we can move at a very gradual pace, and, of course, after we do so, we will be watching very

carefully with our expectations realized. so when my colleague, governor brainard, mentioned that inflation is slow, if we were to move, say, in december, it would be based on an expectation which, i believe, is justified that with an improving labor market and transitory factors fading that inflation will move up to 2%. but, of course, if we were to move, we would need to verify over time that expectation was being realized, and if not, adjust policy appropriately. i would also like to emphasize that i know there is a great deal of focus on the initial move. it's been a long time that interest rates have been at zero. but markets in the public should be thinking about the entire path of policy rates over time,

and the committee's expectation is that that will be a very gradual path and will depend very much on the actual performance of the economy. >> the time of the gentlelady has expired. the chair now recognizes the gentleman from new jersey, mr. garrett, chair of the market subcommittee. >> we heard the other day about all the benefits that came out of dodd-frank and all the work that the fed is doing overall. i want to go back and look a little bit deeper on that, both individually and a couple actively. back in 1994, congress passed a law called the regulatory improvement act. as you're probably familiar, that applies to all federal agencies including the fed that says, you shall consider the costs and burdens that any regulations would place on depository institutions, basically you have to look at the cost of regulations and also the benefits. now, we do hear about the benefits. i asked this question to

governor trulu, have you done this benefit economic analysis, and i didn't really get a very clearance from him whatsoever. very briefly, in a sentence, do you believe that the regal community development act applies to the fed, and as such, you're required to do a basic cost benefit analysis each time you do a regulation? that's a yes or no, i guess. >> we follow rules of the administrative procedures act and always request public comment on costs of our rules. >> so you do an -- did you do an actual cost benefit analysis, for example, on tlac? >> well, we did do an actual cost benefit on tlac. >> do we have a copy of that? >> and it is described in the proposal that we issued last week. so in some cases we have done a cost benefit analysis.

>> in some cases. in other cases you do not? >> well, very often what we're doing is putting into effect a rule that congress has directed us to write to implement changes that in congress' view will prove beneficial. >> you're doing the rule under the regal -- >> then the question becomes when congress has directed us to write a rule that it's judged to be beneficial, what is the least cost way of doing that? >> let me stop you there, if i may. the regal act doesn't say you can pick and choose as to when you do a cost benefit analysis, it says you shall -- so not may -- you shall consider and then it lays out those parameters. it sounds as though you're doing it in some cases but not doing it in other case, which may plain why governor trulu couldn't give me a good answer. let me move to the broader issue. since you're not doing it in all

cases, your predecessor ben bernanke has said, has anyone done these analyses accumulatively, and he said no. i'll throw that question out to you as well. have you done an a cumulative analysis on the burdens? >> i think the answer is probably no. we are carefully monitoring what the effects of these rules are. >> so let me ask you this. if you have not done -- and i appreciate your candor on that -- if you have not done a cost benefit analysis

accumatively, and there was a report that he said nothing shows the economy. there is about a dozen factors they came up with, and he's right. the regulatory burdens is not listed as a factor. but now i understand exactly why. because you just told us that fsoc and the fed never even did a cost benefit analysis cumatively. if you haven't looked at it, of course it's not a summary in your impacts because you're not even studying it. so i suppose this report is a little bit useless, isn't it, because if you're not going to study the problem, we don't know what the problem is, do we? >> i think it's important to take a step back here and recognize that we lived through a devastating financial crisis. >> i'll give you that. >> and the cost of that crisis to households, to businesses, the u.s. economy was enormous. >> is this summary of any benefit to us at all if you're

not going to do the basic analysis. >> we have done basic analysis. when we put in effect the capital rules and liquidity requirements, we have looked at the costs and -- >> i appreciate that. but you just told us what everyone else has told us, that you have not done an individual analysis and you've not done a cumulative analysis. if you haven't done the study, if you haven't done the records, then your analysis of what's protecting the economy is basically useless. >> time of the gentleman has expired. the chair now recognizes the gentleman from california, mr. sherman. >> let me give you some advice in the other direction. there are a host of titles and provisions in dodd-frank and there are a host of other laws that you carry out. the fact that they come to you in a political package called dodd-frank or they come in some other package is of great interest to politicians. but those are different titles. just because a provision was in dodd-frank doesn't link it with

another provision of dodd-frank or delink it from other provisions of laws that were passed earlier or later. so i would hope in carrying out your responsibilities, you would look functionally since the purpose is to give us advice how to improve derivatives regulation, how to improve a depository institution regulation, and leave it to the politicians to second-guess bills named for politicians. we do get one benefit from the fact that the vice chair for supervision has yet to take office, and that is that we get to spend another day with you. this is a great personal.

as i argued back in the summer, god's plan is not for things to rise in the autumn. in fact, that's why we call it fall. nor is it god's plan for things to rise in the winter through the snow. god's plan is that things rise in the spring, so if you want to be good with the almighty, you might want to delay until may. and i know there are a bunch of things you're aware of. many economists say we shouldn't move forward now, managing director of the imf has been fairly candid. we've got deflationary risk.

we just have a bad growth report. you're aware of it but you probably won't estimate it as highly as i will because of my occupation, but don't underestimate the ability of both u.s. and europe to screw things up. i mentioned last time the psychological advantage of retirees of nominal interest rates so they can live on their entire savings without much principal. that is not in the gdp statistics. as a matter of fact, you reduce the gdp statistics, but it does enhance. then finally, as i pointed out to you, and i do want to talk to you privately about this, fasb is coming up with this new $2 trillion change that will hurt construction to press the economy.

the other thing is if you act too soon and you decide, oops, we acted too soon, you get -- you put yourself in a position first where you have a zigzag second, if you then want to go in the other direction, you only have a quarter point to play with. if you hit the brakes too soon, you don't have gas. with that in mind, i'm concerned about the effect raising interest rates now would have on the real estate recovery and i would ask you what you would think the impact would be of raise zing interest rates on the housing recovery and would we squeeze credit worthy borrowers out of the housing market and create a negative feedback loop with prices going down? >> so you have made very large number of very good points and indicated many relevant

considerations that the committee is trying to weigh and balance and has been taking into account. with respect to the housing market, of course the level of mortgage rates is relevant to housing, but, we are very aware that, for example, a sharp rise in mortgage rates could have a very negative effect on housing. we do, however, have a recovering economy where employment is going up, income is going up, households are in better shape to form households. whether it's that they are moving into rental properties, the millenials seem to have a strong preference for later house purchases. but we do envision gradual recovery in the economy in the housing sector. let me come back to the point

that i made earlier, which is the committee anticipates a very gradual increase in interest rates. we are not envisioning that when we begin to raise rates we are going to be looking at a very steep path of interest rates that would cause the kind of harm you are worried about to the housing sector. so that whole path matters. that is a gradual path. >> the time of the gentleman has expired. the chair recognizes the gentleman from missouri. mr. luetkemeyer, chairman of the housing and insurance subcommittee. >> thank you, mr. chairman. it's interesting to listen to the gentleman from california. he's a very bright guy with lots of interesting correlations, but i've never heard god's plan for the seasons correlated to the fed's plan to raise interest rates. i enjoyed the discussion this morning, gentlemen. welcome, chair yellen. i want to talk about the

designation of insurers. i'm very concerned that fsoc and the fed have become the rubber stamp for the financial ability board. it's my understanding they made the designation for globals, that extensive analysis from companies other than what was publicly available. so my question is, is that the case? if you did not receive intervention from the company, how did you reach the conclusion that they posed a risk to the global system? >> well, congressman, in the case of the companies that were designated, in every case, there was an extremely detailed evaluation that was done and a summery of the evaluation is publicly available. it did involve interaction with the company. >> excuse me, did the analysis come from fsb or your own analysis? >> this was the analysis of the fsoc.

>> fsoc. >> the fsoc and its staff prepared very detailed assessments of what the consequences would be for the u.s. financial system of the failure of one of these firms. >> it's interesting. that's not the answer that we get from the insurance side of this, the company side of this. did you solicit any information from them or do you just take fsb's information and try to analyze that? >> we have detailed information from the companies. >> you've got outside information that is available? >> absolutely. part of the designation process in stage three of the designation process, there have been detailed interactions with the companies. they have provided information. they have had every opportunity to weigh in and to offer their views of -- >> if i could interrupt for a second. it's kind of interesting,

though, that the one individual on fsoc who has some insurance background is the one who said no, we don't need to designate them as systematically important. yet fsoc went ahead and did it. can you enlighten us why that would occur? why did the other folks that were not experts think we need to be designated where the expert said no, we don't? >> we have a great deal of expertise in insurance on the fsoc and among the staff who look at this. what i can assure you of is very detailed analysis was done, firm specific analysis of with the consequences of failure would be and the firms had ample opportunity to weigh in. and they very well understand what the logic was of why they were designated. >> all due respect, chair yellen, i'm not sure they have time to respond. because now they're going to court to try to resolve the situation. i think if they could have

responded to this, certainly there would have been an ongoing discussion that could have minimized this and they wouldn't be going to court. they would have agreed with the analysis or your designation. >> let me disagree. they have had a detailed opportunity to weigh in and in the case of one firm, i was only involved, myself, in the designation of one firm and that firm had an opportunity to meet with the entire fsoc. >> okay. well, i recently had the opportunity to meet with some of the international folks who designate it. it was very concerning the way they went about it. i think, to take their analysis without our own analysis is very concerning. >> we have absolutely not taken international analysis to substitute for our own. we have done our own analysis. >> i'll take you at your word. with regard to one other issue here, yesterday, we passed, this committee a bill to deal with a specific designation for banks.

in the bill, we have guidelines that actually you use, the fed uses in their own analysis just recently in the bb & t susquehanna merger. i was kind of concerned with the way the discussion went and the with the ranking member with regards to the guys on provided in our bill as being the only ones considered. i'm sure that you take those into consideration as well as other ones when you make that sort of decision, do you not? >> we take -- we try to tailor a supervisory program we think is appropriate given our full understanding of the risk characteristics. >> the ones detailed in my bill are significant ones you believe need to be used to provide the guidelines to make the designation. >> we look at those factors but we tailor an entire program that is specific.

>> i appreciate. on the previous testimony of this committee, you have agreed that those are important criteria and you're in support of the bill. so i thank you for that. >> time of the gentleman has expired. the chair recognizes the gentleman from massachusetts, mr. capuano. >> thank you. for the record, i want to clarify, some of us do an exclamation point after your name and as a matter of fact some of us use hashtags and a few other things that are in there, too. i just want to be clear. some may not but some do. >> as long as you spell it right. >> madam chair, thank you for being here again. as always, it's a pleasure to see you. i have a few questions and we are going to start on one that kind of has been a bit concerning to me. i think for the most part, most of us have been quiet about it. that's the requirements of section 956-b, 956-b of the dodd/frank act. it requires the fed and others

to take action relative pay for banks. i want to be clear, i do not care how much anyone in this country makes. how much is not my concern. the how is a concern. it is a concern in law because of the incentives that may be involved. some of us think those incentives has a lot to do with the 2008 problem, yet the law says 90 days. fine. okay, 90 days, 180 days, 360 days, it's now 2015. seven years! seven years! we do not have a regulation on this issue. i'm just wondering, could you tell me, when do you think we might have one? >> so if i might start by saying that from a supervisory perspective, many years ago, we put into effect guidelines pertaining to incentive compensation and our supervision is very attentive to aspects of

incentive compensation that could lead to excessive risk taking. it's not focused on the total overall level of pay, but the adverse incentives that could be embodied in that pay. >> but that's not the regulation that is called for by law. >> it's been very challenging. there are many agencies involved in trying to come up with this compensation rule. >> what's the holdup? how do we help? who do i have to kick to get this done? >> i can't -- i mean, i can't give you a good answer. >> have you done your job? >> well, as i say, we have been working with the institutions now for many years to -- >> yes, i know. the law says 90 days. at some point, regulators have to regulate. i'm not complaining it's 91 days i'm not complaining it's 365 days.