800,000 jobs a month, unemployment topping 10%, home foreclosures displacing millions of families and entire industries on the brink of collapse. congress responded to this devastation by passing 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 debt would never happen again. recognizing that the federal reserve failed to apply appropriate credential standards to large banks, congress directed the fed to impose enhance 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 her 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, size and other factors. the fed should use this authority. likewise, dodd-frank provided the fed with new responsibility to collectively regulate the activities of systemically risky nonbank entities such assurance companies, aig, whose near failure imposed 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 that on these new responsibilities. and let me also express my deep concern about legislation that

would severely undermine efforts by the fed to regulate banks and nonbanks. with regard to banks, the legislation would hamstring the fed's 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 council's ability to identify supervisory gaps, designate nonbank firms for enhanced regulation and ensure that the fed is regulating them on a comprehensive consolidated basis. finally, as we just have passed 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.

among our law enforcement, we must hold individuals and institutions accountable, something that ben bernanke in his recent book said we did not adequately do. and here in congress, we must be mindful of attempts to defund dodd-frank. the american economy has made substantial progress from the depths of crisis, but that progress will be threatened if we do not protect these reforms. i yield back the balance of my time. >> the chair now recognizes the gentleman from texas, chairman of the our financial institutions subcommittee forks two minutes. >> thank you, mr. chairman. good morning. today marks the first time that someone has testified under the authorities imposed. yet today the person testifying

was not appointed or confirmed to that position. i remain baffled that the president has failed to put forth a single name to serve in this important role. i fear it is largely because the federal reserve governor who serves as chairman of the internal committee on banking supervision can already exercise many of the authorities and de facto capacity free from meaningful checks and balances. the nerve in addition to its monetary policy operation regulates and supervises financial institutions many of them are some of the largest in the world. over the past few years, we have seen significant rule making driven in large part by the federal reserve that have significantly altered the bank capital structures and artificially manipulated the liquidity. annual stress testing under the from any meaningful oversight. further the federal reserve places an integral role in the

forms where international banking supervision and regulation standards are implemented. together these important operations deserve much of our needed attention and oversight. today i hope chair yellen will address some of the more intricate points of bank regulation and supervision specifically i look forward to f gaining a better understanding of how she sees each major capital and liquidity rule making working together. additionally, i look forward to learning how the federal reserve analyzes the market implications of institutional regulations. we have already seen unintended consequences in the bond market where volatility concerns have been raised because of institutional regulations. finally i look forward to her thoughts on how to make ccar more transparent and address how regulation factors is prior sized under the stress environment. thank you mr. chairman. i look forward to this important hearing.

>> today we welcome the testimony of the honorable janet yellen. chair yellen has previously testified before our committee, so i believe she needs no further introduction. without objection, chair yellen, your written statement will be made part of the record. you're now recognized for five minutes to give an oral presentation of your testimony. thank you for being here. i think you need to hit the microphone there, chair. >> chairman hensarling, ranking member waters and other members of the committee, i appreciate the opportunity to testify on the federal reserve's regulation and supervision of financial institutions. one of our most fundamental goals is to promote a financial system that is 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 law so is 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 shear vulnerabilities across firms where the systemic consequences of the distress or failure of the largest most 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. as my written testimony describes in more detail, we have introduced a series of requirements that the largest and most complex banking organizations that reduce the risk to the system and our economy that could result from their failure or distress. in addition we now supervise on a coordinated forward looking basis. at the same time, we've been careful to make more measured changes. in our approach to regulating

and supervising firms at the other end of the spectrum. we're committed to ensuring that the supervision of smaller institutions is tailored to the business model and activities of individual 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 that community banks play in their communities and the economic support they produce across the country, we recognize that supervision of community banks must be balanced and measured. the regulatory reforms we've adopted since the crisis address the risks posed by large financial institutions in two ways.

first reforms reduce the probability that large financial institutions will fail, 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 aim of our post crisis reforms has been to limit the systemic damage that would result in a large financial institution were to fail. again, my written testimony provides more detail, but i wish 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 firm department insurance cooperation 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 code. second, the board just last week proposed a rule secretary long term debt and total loss absorbing capacity requirements through the very largest banks in the united states. with the new requirements, about losses were to 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 staff expertise.

we put this new approach into operation with the creation of the large institution supervision coordinating committee, or liscc, which is charged with the supervision of the firms that pose elevated risk to u.s. financial stability the liscc program combines supervisory work that examines 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 ensures that large u.s. bank holding companies have rigorous forward looking capital planning processes and have sufficient levels of capital to operate through times of stress.

i would note that capital at the eight largest banks alone has more than doubled since 2008. an increase of almost $500 billion. our approaches are aimed at helping these firms remain strong. while more work remains to be done, i hope you will take away from our testimony just how much has changed. our supervisory approach is more comprehensive and forward looking while also tailored to fit the level of oversight of the scope of the institution and the risks it poses and the federal reserve is committed to remaining vigilant of the financial institutions that serve our economy. thank you. i would be pleased to respond to your questions. >> the chair yields himself five minutes for questions. the first couple questions 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.1@ç is that true? >> i'm not sure if that's true. it is not -- >> so you're 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'd have to get back to you. >> if it did occur, what legal authority would you cite for having employees of the fed invite themselves into corporate board rooms? >> 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're unaware of any fed officials attending these board meetings this is not a policy? >> i don't have details -- >> we'd appreciate it if you could look into this and get back to the committee on this matter. we've also heard from individuals with respect to the stress tests which we have had both public dialogue and private conversation. many of us on this committee

consider that to be 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've 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 tests not to speak to members of congress? >> i strongly doubt that that is 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 con -- >> you're willing to direct your employees to ensure that that dialogue can take place? >> i will certainly look in to that. >> with respect to the stress tests and again great concern about how opaque and nontransparent these affairs are, 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 in 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 of the framework we use and information on the models that we -- >> i guess, chair yellen, detail may be in the eye of the beholders but members of congress still don't understand this. age in -- and in our dialog with banks organizations, they still don't understand the test either. in the remaining time i have, one last question. again with respect to these tests, so the stress tests really have become in many respects 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 basal 2 did in telling banks that they essentially had to reserve little or no capital against sovereign debt and mortgage backed securities? think greek bonds and freddie and fannie. how can that lower systemic risk if we only have one centralized view of risk and it may be wrong? >> well, i guess i would dispute a 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 organization and to develop a robust capital planning process which is what we evaluate in our ccar. >> 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 have. >> i recognize 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 colleague, 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 large bank holding companies. they're focused on traditional banking activities. we've also heard that the annual filing is cumbersome for the banks and not hopeful to the supervisory process. so i have no indication that they have been told not to talk to us. they talk to us plenty. we're listening. at the same time, congress is considering legislation that would do severe damage to the new standards that it has implemented and their ability to identify and respond to risks in the future.

so can you discuss why hr 1309, a bill debated by this committee yesterday, which addresses this topic would be severely damaging to the fed's ability to respond to systemic risk on an agile and comprehensive basis? and will the federal reserve commit on the two issues i cited earlier ccar stress tests and living wills? >> your microphone, please. >> sorry. i am concerned very much about a process as i would rather 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 a great deal of 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 particularly for smaller -- to apply to smaller firms. we have indicated that 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 are 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're not using your tailoring 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 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 dodd frank gives to you. you're using it.

and you welcome any questions. so thank you very much. >> the chair recognizes the chairman of our institution subcommittee for five minutes. >> it seems that there are many new regulations trying to drive at the same thing and it's hard to see how they're coordinated. for example just in one broad area, capital, we have tlac, the gsib surcharge, the normal basal regime. as well as the annual stress test known as ccar. can you walk me through what they address? mike tone -- microphone please. >> we do see these rules as sitting together.

most of the requirements you mentioned are imposed on the eight largest 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 to 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 in a impose additional high quality capital standards on the eight u.s. 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 supplementary leverage ratio, enhanced ratio, is a backup tool that works in a coordinated way, this has long been the case with risked based capital charges. so we see those working together. the stress test that we impose on these institutions are very robust forward looking approach to assessing 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, the 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 in spite of all of the resilience that 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 one that comes to mind here, at what point does the ccar process override all of 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 that 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 of

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 say, we want that firm to make sure that they have adequate capital to survive a severe stress. and the investigation test and ccar process is making sure that they have government 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 each entity is different,

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 entity may go under will be different. and so do you need all these others if the final test is the -- 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. >> time for the gentleman has expired. the chair now recognizes the gentle lady from new york. >> chair yellen, i'll get to questions about regulation in a moment. but first 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 sides to starting to raise rates while inflation is still below target is that it could end up hurting the fragile economic recovery. fed governor recently said raising rates too early could end up, and i quote, prematurely taking away the support that has been so critical to the economy's vitality. so my question is, do you think the risks of raising rates in december, which will very likely be before inflation reaches the fed's 2% target outwou 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 down side risks had diminished related to global economic and financial developments. i see underutilization of labor resources as having diminished significantly since earlier in the year, although recently we've 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 that an important reason for that related to declines in energy prices and the prices of nonenergy imports. and 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 economy 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, 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 evolve 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. when my colleague mentions that

inflation is low, 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%. 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's a great deal of focus on the initial move. it's been a long time interest rates have been at zero. markets and the public should be thinking about the entire path of policy rates over time and the committees expectation is that will be a very gradual path and, of course, depend very much

on the actual performance of the economy. >> time of the gentle lady has expired. the chair recognizes the lman from new jersey. >> thank you chairman and the chair. we heard the other day about the benefits that came out of dodd frank and all the work the fed is doing overall. i want to go back and look deeper on that individually and cumulatively. back in 1994, congress passed a law. as you are familiar, that applies to federal agencies, including the fed that says you shall consider the cause and burdens it would place on depoz tours and look at the cost and benefits. we do hear about the benefits. i ask this question to the governor, have you done those individual cost benefit economic analysis and i didn't really get

a clear answer from him whatsoever. briefly, in a sentence, do you believe that act applies to the fed and then, as such, you are 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 and rules. >> you do an actual -- did you do an actual cost benefit analysis on tlac? >> we did do an actual cost benefit on tlac. >> do we have a copy of that? >> it is described in the proposal we issued last week. so, in some cases, we have done a cost benefit analysis. >> some cases and others cases

you do not? >> often, what we are doing is putting into effect a rule that congress has directed us to write to implement changes that in congress' view is beneficial. >> you are doing the rule -- >> the question becomes, when congress has directed us to write a rule that it's judged to be beneficial. what is the least -- >> let me stop you there, if i may. the regal act doesn't say you can pick and choose when to do a cost benefit. shall, not may, it sounds as though you are doing it in some cases but not other cases, which may explain why the governor couldn't give me a clear answer.

let me move on to the other issue. the broader issue is, has anybody done an analysis of all the costs and cumulative of dodd frank. his answer was no. secretary liu we asked the question, it was no, but if congress wants to do it, we can do it. have you done a cumulative cost benefit analysis on the regulations if they go through and the burdens? >> i think the answer, for the kind of analysis you have in mind is probably no. but, we are carefully monitoring the effects of these rules. >> let me ask you this. if you have not done, i appreciate your candor on that, if you have not done a cost benefit analysis cumulatively, yesterday, mr. himes from connecticut said they came out with a report. there's nothing in the report that shows the regulatory burdens is a cause of the negative effect on the economy. i went through here, there's a

dozen different factors they came up with. he's right. the regulatory burdens is not listed as a factor. now i understand exactly why. you just told us, the fed never even did a cost benefit analysis. if you haven't looked at it, of course it's not going to be in your summery as one of the impacts because you are not even studying it. i guess this report is useless, isn't it? if you are not going to study the problem, then we don't know what the problem is. >> 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. >> the cost of that crisis, to households and businesses, the u.s. economy was enormous. >> is this a benefit to us if you are not going to do the basic analysis? >> we have done basic analysis. when we put in the capital rules

and liquidity requirements -- >> excuse me, i appreciate that but you told us what everyone else told us you have not done an individual analysis or cumulative analysis. if you haven't done the study into the records, your analysis is what's effecting the economy is basically useless. >> time of the gentleman has expired. the chair recognizes the gentleman from california, mr. sherman. >> let me give you advice in the other direction. there are a host of titles and provisions in dodd frank and other laws that you carry out. the fact that they come to you in a political package called dodd frank or other package is of great interest to politicians. those are different titles. just because a provision was in dodd frank, doesn't link it with another provision or delink it

with provisions passed earlier or later. i hope in carrying out your responsibilities, you would look functionally to give advice on how to improve derivatives regulations 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. we get to spend another day with you. this is a great personal joy to me. from your standpoint, you get to spend another day with our chairman who is the most prominent american named jeb who does not use an exclamation point to spell his name. there are real benefits from that. i want to focus on interest rates. you came here in july. i spent my five minutes laying out reasons why you should not then increase interest rates.

my most gullible friends believe i was successful in persuading you and hence that is why interest rates have not gone up. i have gullible friends. but i want to keep doing it. as i argued then, back in the summer, god's plan is not for things to rise in the autumn. as a matter of 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 and so if you want to be good with the almighty, you might want to delay until may. i know there are a bunch of things you are aware of. many economists say we shouldn't move forward now. the imf has been candid. we have deflation nar risks.

we have a bad growth report. you are aware of it, but you probably won't estimate it as highly as i will because of my occupation. don't underestimate the ability of politicians in europe and the united states to screw things up. i mentioned last time you were here the psychological advantage to retirees of nominal interest rates of 4% to 5% so they can live on their retirement savings without a nominal invasion of principle. that psychological benefit is not in the gdp statistics. reduce them because they are not going to psychologists and spending money which would be part of the gdp, but it does enhance and finally, as i pointed out to you and i want to talk to you privately about how they are coming up with 2 trillion dollar change 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 where you have a zigzag policy and you will face criticism from that by people i know. 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 raising 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. that whole path matters. that is gradual. >> the time of the gentleman has expired. the chair recognizes the gentleman from missouri. >> thank you, mr. chairman. it's interesting to listen to the gentleman from california. he's an interesting guy but i have never heard god's plan for the seasons correlated with 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.

they have become rubber stamped with the board. it's my understanding they made the designation for globals, without ex-ten sieve a nal sis from companies other than what was publicly available. my question is, is that the case? if you did not receive intervention, how did you reach the conclusion and oppose the risk to the 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 and staff prepared very

details 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 fsbs information and try to analyze that. >> we have detailed information from the companies? >> you got outside information? >> absolutely. part of the designation process in stage three of the designation process, there have been details 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 interesting that the one individual on fsoc that has information background is the one who said no, we don't need to designate yet they went ahead and did it. can you enlighten us why that did occur? why did the folks that were not experts think we need it and the expert said no, we don't? >> we have a great deal of expertise on the fsoc and the staff who look at this. what i can assure you of is very detailed analysis was done, firm specific analysis 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. they are going to court to resolve the situation. if they could have responded, certainly there would be an ongoing discussion. they would have agreed with the

analysis or your designation. >> 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 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 designation for banks. in the bill, we have guidelines

that actually you use, the fed uses in their own analysis just recently and the bb & 2rks. i was concerned with the way the question went and the discussion went with regards to the guidelines 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 -- >> 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. >> on the previous testimony, you agree those are important

criteria and you supported the bill. i thank you for that. >> the time of the gentleman expired. 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. >> some may spell it right. >> madam chair, thank you for being here. 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 956b of the dodd-frank act that requires others that take action

relative to executive 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 imbodied in that pay. >> but that's not the regulation that's bnl called for by law. it's been very challenging. there are many agencies involved in trying to come up with this conversation. >> what's the hold up? 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 or 365 days. but, if it's not you, tell me who it is. if it's the fcc, first of all, i

wouldn't be shocked and second of all, maybe that's a fair thing. have you done what you need to do to get this regulation, required by law, simply to allow us to know the incentive that is are involved and to prohibit inappropriate things that helped lead to the 2008 debacle. have you done your job? >> we have tried to work with other agencies. >> i love when chairs don't give answers. i think fed has done a good job. i'm not complaining about the fed, but this one is long overdue. each regulator that comes before me, i'm going to ask. i don't say do a specific item, i don't care how much they make. i care that the insentives are appropriately made so that the american taxpayer doesn't get put on the hook again for

something that was a problem, that everyone agrees is a problem and shoulden ea ebe eas fix. >> i agree with your assessment, it was an important problem, it is essential to address it. as i said, in our supervision, we have addressed it and we do feel we have seen very meaningful changes. >> i want the regulation that was required by law. >> i understand that. >> that's what i want. i want the regulation done so that the american people will feel comfortable. two other items since my time is running out. one, i want to talk basically, i'm not pushing yet, but looking forward to the results of the next iteration of living wills. back a few years ago when we had them, they were called not credible. the living will provision in dodd-frank was important to many of us. we think it's a way to void, too big to fail. we think it's a way for the institutions to say, don't

worry, we can take care of ourselves, we don't need help. when they are all called not credible, it's a problem. you are in the process now. do you have any idea what the time frame might be when you are into the second chance? >> so, last year the board working jointly with the fdic sent very detailed evaluations of the living wills to the firms and directed the firms to take action to improve their resolvability that were quite specific and quite detailed. >> time frame? >> we have received those plans. we are evaluating them jointly with the fdic and we will be making decisions in the coming months. >> time of the gentleman has expired. the chair recognizes the gentleman from michigan. chairman of monetary policy sub committee. >> thank you, mr. chairman. i'm happy, chair yellen to rescue you from the hostile questioning of my democrat

friend over there. don't take it personally, he's like that with everybody. but, i do actually want to kind of follow on on something that he had point of interest and frustration for a number of us. having to do with the speed or lack thereof where there's been some very specific things that were laid out for the fed to do and specifically i want to talk about section 13.3, the fed, dodd-frank required them as soon as practical. that was five years ago. there have not been final rules implemented to what federal, fed reserve restrictions you, yourself, were going to put and

guidelines as far as utilizing 13.3. so, i'm very concerned that that is taken that long. when is that that the fed is going to issue those final rules? >> we expect to issue the final rule by the end of this month. >> by the end of this month. ne that is, will the rules address the concerns that senator warren, the chairman and others have put forward regarding whether your earlier proposal leaves the door open to future wall street bailouts? >> let me just say that we regard our emergency lending powers as very crucial powers. it's very important that, god forbid there should be a future financial crisis, we hope that won't occur. but if there is, that's why the federal