[Senate Hearing 113-450]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 113-450
 
   NOMINATIONS OF: STANLEY FISCHER, JEROME H. POWELL, LAEL BRAINARD, 
            GUSTAVO VELASQUEZ AGUILAR, AND J. MARK MCWATTERS

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                                   ON

                            NOMINATIONS OF:

   Stanley Fischer, to be a Member and Vice Chairman of the Board of 
                Governors of the Federal Reserve System

                               __________

   Jerome H. Powell, to be a Member of the Board of Governors of the 
                         Federal Reserve System

                               __________

Lael Brainard, to be a Member of the Board of Governors of the Federal 
                             Reserve System

                               __________

    Gustavo Velasquez Aguilar, to be an Assistant Secretary of the 
              Department of Housing and Urban Development

                               __________

    J. Mark McWatters, to be a Member of the National Credit Union 
                          Administration Board

                               __________

                             MARCH 13, 2014

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York         RICHARD C. SHELBY, Alabama
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia             PATRICK J. TOOMEY, Pennsylvania
JEFF MERKLEY, Oregon                 MARK KIRK, Illinois
KAY HAGAN, North Carolina            JERRY MORAN, Kansas
JOE MANCHIN III, West Virginia       TOM COBURN, Oklahoma
ELIZABETH WARREN, Massachusetts      DEAN HELLER, Nevada
HEIDI HEITKAMP, North Dakota

                       Charles Yi, Staff Director

                Gregg Richard, Republican Staff Director

                  Laura Swanson, Deputy Staff Director

              Brian Filipowich, Professional Staff Member

                      Krishna Patel, FDIC Detailee

                  Greg Dean, Republican Chief Counsel

              Jelena McWilliams, Republican Senior Counsel

             Mike Lee, Republican Professional Staff Member

                       Dawn Ratliff, Chief Clerk

                       Taylor Reed, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                        THURSDAY, MARCH 13, 2014

                                                                   Page

Opening statement of Chairman Johnson............................     1

Opening statements, comments, or prepared statements of:
    Senator Crapo................................................     2
    Senator Corker...............................................     3

                                NOMINEES

Stanley Fischer, to be a Member and Vice Chairman of the Board of 
  Governors of the Federal Reserve System........................     5
    Prepared statement...........................................    29
    Biographical sketch of nominee...............................    30
    Responses to written questions of:
        Senator Crapo............................................    86
        Senator Reed.............................................    88
        Senator Warren...........................................    88
        Senator Kirk.............................................    93
        Senator Moran............................................    94
Jerome H. Powell, to be a Member of the Board of Governors of the 
  Federal Reserve System.........................................     6
    Prepared statement...........................................    48
    Biographical sketch of nominee...............................    49
    Responses to written questions of:
        Senator Crapo............................................    95
        Senator Reed.............................................    97
        Senator Warren...........................................    98
        Senator Kirk.............................................   105
        Senator Moran............................................   106
Lael Brainard, to be a Member of the Board of Governors of the 
  Federal Reserve System.........................................     8
    Prepared statement...........................................    54
    Biographical sketch of nominee...............................    55
    Responses to written questions of:
        Senator Crapo............................................   107
        Senator Reed.............................................   108
        Senator Warren...........................................   109
        Senator Kirk.............................................   114
        Senator Moran............................................   115
Gustavo Velasquez Aguilar, to be an Assistant Secretary of the 
  Department of Housing and Urban Development....................     9
    Prepared statement...........................................    64
    Biographical sketch of nominee...............................    65
    Responses to written questions of:
        Senator Crapo............................................   115
J. Mark McWatters, to be a Member of the National Credit Union 
  Administration Board...........................................    10
    Prepared statement...........................................    73
    Biographical sketch of nominee...............................    75
    Responses to written questions of:
        Senator Crapo............................................   116

                                 (iii)


                            NOMINATIONS OF:

                            STANLEY FISCHER,

   TO BE A MEMBER AND VICE CHAIRMAN OF THE BOARD OF GOVERNORS OF THE 
                        FEDERAL RESERVE SYSTEM;

                           JEROME H. POWELL,

TO BE A MEMBER OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM;

                             LAEL BRAINARD,

TO BE A MEMBER OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM;

                       GUSTAVO VELASQUEZ AGUILAR,

  TO BE AN ASSISTANT SECRETARY OF THE DEPARTMENT OF HOUSING AND URBAN 
                              DEVELOPMENT;

                           J. MARK MCWATTERS,

    TO BE A MEMBER OF THE NATIONAL CREDIT UNION ADMINISTRATION BOARD

                              ----------                              


                        THURSDAY, MARCH 13, 2014

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:03 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Tim Johnson, Chairman of the 
Committee, presiding.

           OPENING STATEMENT OF CHAIRMAN TIM JOHNSON

    Chairman Johnson. I call this hearing to order.
    Before we begin this morning, I want to say a few words 
about Housing Finance Reform. First, I want to thank Ranking 
Member Crapo. He has been a great partner throughout this 
process, and I am very pleased we were able to announce our 
agreement Tuesday.
    Second, I want to thank all of the cosponsors of Corker-
Warner. A lot of work went into their effort, and it provided a 
good base for the Committee's negotiations. I also want to 
thank the other Members of this Committee who provided 
invaluable input during this process. Last, I look forward to 
working with all of my colleagues on the Committee in the 
coming weeks as we work to move the best possible bill out of 
the Committee.
    Today we consider five nominations: Dr. Stanley Fischer to 
be a Member and Vice Chairman of the Fed Board of Governors; 
The Honorable Jerome H. Powell and the Honorable Lael Brainard, 
to be Members of the Fed Board of Governors; Mr. Gustavo 
Velasquez Aguilar, to be an Assistant Secretary of the 
Department of Housing and Urban Development; and Mr. J. Mark 
McWatters, to be a Member of the National Credit Union 
Administration Board.
    The Federal Reserve Board currently has important tasks at 
hand, including completing the implementation of Wall Street 
Reform; establishing policies to improve financial stability, 
reduce systemic risk, and end too-big-to-fail; and providing 
monetary policy to grow our economy and improve employment.
    It is important the Board has thoughtful leaders who will 
not apply a one-size-fits-all approach with its rules on 
community banks, traditional insurance companies, and asset 
managers. It is critical that we have a full Board, with 
diverse viewpoints, and ready to respond to economic challenges 
that may arise.
    Dr. Fischer, Mr. Powell, and Dr. Brainard are all very 
well-qualified to serve as Fed Board Governors. Mr. Velasquez 
served from 2007 through 2013 as the Director of the District 
of Columbia Office of Human Rights, and he will bring on-the-
ground experience to the role of Assistant Secretary for Fair 
Housing and Equal Opportunity to ensure all Americans have 
equal access to housing.
    Last, Mr. McWatters has been nominated to fill an expired 
seat on the NCUA Board. The National Credit Union 
Administration plays a vital role in overseeing credit unions 
in communities across this country. I believe Mr. McWatters 
will hit the ground running, with an eagerness to learn more 
about these important community financial institutions. It is 
my hope we can act quickly on all five of these nominations.
    I now turn to Ranking Member Crapo for his opening 
statement.

                STATEMENT OF SENATOR MIKE CRAPO

    Senator Crapo. Thank you, Mr. Chairman, and I join in your 
introductory comments about housing finance reform, and 
particularly I appreciate the relationship we have and the 
opportunity we have had to work together on this. I also want 
to thank our colleagues, Bob Corker and Mark Warner and those 
who have worked with them to help us lay the foundation for 
this effort.
    Frankly, each Member of this Committee has been very 
involved in working with us and I think that should be 
acknowledged as we move forward. I also welcome each of our 
nominees today.
    At today's hearing, we will hear from nominees to the 
Federal Reserve Board, the Department of Housing and Urban 
Development, and the National Credit Union Administration 
Board, as the Chairman has already indicated.
    During Dr. Yellen's nomination hearing to chair the Federal 
Reserve, I noted that the turnover at the Board caused by the 
departures of Chairman Bernanke and Governors Raskin and Duke 
needed to be dealt with. I emphasized then that their 
replacements must bring balanced views about the direction of 
monetary and regulatory policy from the Fed.
    The nominees before us come from academia, from 
policymaking, and finance at both the international and 
domestic levels. Dr. Stanley Fischer is a noted economist, most 
recently serving as the head of the Bank of Israel. Lael 
Brainard and Jay Powell both have previously been confirmed by 
the Senate. Dr. Brainard served as the Under Secretary of the 
Treasury for International Affairs, and Jay Powell has served 
on the Fed Board of Governors since May of 2012.
    I look forward to learning more about these nominees' 
position and the normalization of monetary policy, as well as 
the continued implementation of Dodd-Frank. In addition to the 
seats they will fill, there will be one remaining opening at 
the Board. I am hopeful that community bank experience with a 
priority will be utilized in establishing the qualifications 
for this last position.
    Today we will also consider nominations to the National 
Credit Union Administration and the Department of Housing and 
Urban Development. Credit unions play an important role in our 
financial system in our leaders and our relationship-based 
lending in our communities. I look forward to hearing from Mr. 
McWatters about his priorities at NCUA and the opportunities 
and challenges facing the credit union industry.
    Mr. Velasquez brings experience in economic development and 
housing policy, having worked in the D.C. Government as 
Director of the District of Columbia's Office of Latino 
Affairs. HUD's use of the disparate impact theory, which can 
bring enforcement actions for discrimination even without any 
direct discriminatory intent, has increased in recent years and 
is a concern of mine.
    It is important that each of these nominees here today 
understand the impact of their decision on our broader economy. 
I look forward to the thoughts of the nominees on how we can 
properly balance these rules with the need to keep our markets 
competitive in the global economy. Thank you, Mr. Chairman, for 
holding this hearing. I look forward to it.
    Chairman Johnson. Thank you, Senator Crapo. Would any other 
Senators like to make an opening statement?
    Senator Corker. I am not going to make an opening statement 
because I do not like for any of us to do that, other than the 
two of you, but I am going to say something. OK?
    Chairman Johnson. Go ahead.

                STATEMENT OF SENATOR BOB CORKER

    Senator Corker. I had the opportunity to meet with our 
three Fed nominees and spend an extensive amount of time and I 
am not going to stay here to ask them questions and I am glad 
we were able to get the other two nominees in today. What I 
want to say, though, is I want to thank the two of you and the 
staff members on both sides of the aisle because housing 
finance is really a complex topic. I think all of us have 
figured that out.
    I really think that we have an opportunity on this 
Committee to pass something that actually matters and to do it 
in an environment when it would be difficult to pass a 
resolution thanking mothers for what they do. And yet, I think 
we may well do that because of the efforts that you and your 
staffs and many Members on this Committee have put forward.
    So I thank you and I look forward to working with you and 
hope that we can get it not only through the Senate, but the 
House and into law. So thank you both very, very much.
    Chairman Johnson. Thank you. I want to remind my colleagues 
that the record will be open for the next 7 days for opening 
statements and any other materials you would like to submit.
    I will now introduce the nominees. Dr. Stanley Fischer is 
currently a distinguished fellow at the Council on Foreign 
Relations. He was head of the Bank of Israel from 2005 to 2013. 
Prior to his service at the Bank of Israel, Dr. Fischer held 
positions as Vice Chairman of Citigroup and the First Deputy 
Managing Director of the International Monetary Fund.
    Before the IMF, Dr. Fischer was a professor and head of the 
Department of Economics at MIT where he taught some of the most 
preeminent economists of our time, including former Federal 
Reserve Chairman Ben Bernanke, former Treasury Secretary Larry 
Summers, and President of the European Central Bank, Mario 
Draghi.
    Mr. Jerome H. Powell became a member of the Federal Reserve 
Board of Governors in 2012. Prior to his appointment to the 
Board, Mr. Powell was a visiting scholar at the Bipartisan 
Policy Center where he focused on Federal and State fiscal 
issues.
    From 1997 through 2005, Mr. Powell was a partner at the 
Carlyle Group. Mr. Powell also served as an Assistant Secretary 
and as Under Secretary of the Treasury under President George 
H.W. Bush.
    Dr. Lael Brainard served as Under Secretary for 
International Affairs at the Treasury from 2010 to 2013. Dr. 
Brainard previously served as Deputy Director of the National 
Economic Council and as the U.S. Sherpa to the G8. Dr. Brainard 
also served as Vice President of the Brookings Institution and 
was associate professor of applied economics at MIT Sloan 
School of Management.
    Mr. Gustavo Velasquez Aguilar is currently the Executive 
Director of the Latino Economic Development Center in 
Washington, DC. Previously he served for 6 years as Director of 
the District of Columbia Office of Human Rights. He was also 
previously the Director of the Office of Latino Affairs in 
Washington, DC.
    Mr. Mark McWatters currently serves as Assistant Dean for 
Graduate Programs at Southern Methodist University's Dedman 
School of Law. Mr. McWatters served as a member of the Troubled 
Asset Relief Program Congressional Oversight Panel. Previously 
he practiced for more than two decades as a domestic and cross-
border tax merger acquisition and corporate finance attorney. 
In addition, he served as a judicial clerk to the Honorable 
Walter Ely of the U.S. 9th Circuit Court of Appeals.
    We will now swear in the nominees. Will the nominees please 
rise and raise your right hand? Do you swear or affirm that the 
testimony that you are about to give is the truth, the whole 
truth, and nothing but the truth, so help you God?
    Mr. Fischer. I do.
    Mr. Powell. I do.
    Ms. Brainard. I do.
    Mr. Velasquez Aguilar. I do.
    Mr. McWatters. I do.
    Chairman Johnson. Do you agree to appear and testify before 
any duly constituted Committee of the Senate?
    Mr. Fischer. I do.
    Mr. Powell. I do.
    Ms. Brainard. I do.
    Mr. Velasquez Aguilar. I do.
    Mr. McWatters. I do.
    Chairman Johnson. Please be seated. Each of your written 
statements will be made part of the record. Before you begin 
your statement, I invite each of you to introduce your family 
and friends in attendance. Dr. Fischer, please begin.

STATEMENT OF STANLEY FISCHER, TO BE A MEMBER AND VICE CHAIRMAN 
    OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

    Mr. Fischer. Thank you very much, Chairman Johnson. I am 
very happy to have my wife, Rhoda, of 48 years sitting here 
behind me, and a friend from high school in Zimbabwe, now an 
American citizen, Tony Abrams [phonetic], also sitting behind 
me. Shall I make my statement now, Senator?
    Chairman Johnson. Yes. Please proceed.
    Mr. Fischer. Chairman Johnson, Ranking Member Crapo, and 
Members of the Committee, thank you for this opportunity to 
appear before you. I am greatly honored to be nominated by 
President Obama to serve as a member and Vice Chair of the 
Board of Governors of the Federal Reserve System, and I look 
forward, if confirmed, to working with this Committee in the 
coming months and years.
    In recent years, the Federal Reserve has made significant 
progress toward achieving its Congressionally mandated goals of 
maximum employment and price stability. Nonetheless, normalcy 
has not been restored. At 6.7 percent, the unemployment rate 
remains too high, and the rate of inflation has been, and is 
expected to remain, somewhat below the Federal Reserve's target 
of 2 percent.
    At present, achievement of both maximum employment and 
price stability requires the continuation of an expansionary 
monetary policy, even though the degree of expansion is being 
gradually and cautiously cut back as the Fed reduces its 
monthly purchases of longer-term Treasury securities and agency 
mortgage-backed securities.
    I would like to add that in their efforts to achieve 
aggregate goals, policy makers should never forget the human 
beings who are unemployed, nor the damage that high inflation 
wreaks on the economy, and thus on the lives of so many people.
    The financial collapse that intensified in the last months 
of 2008 and early 2009 threatened, in the view of some central 
bankers, including this one, to result in a recession even 
deeper than the Great Recession we experienced. The Federal 
Reserve's policies in dealing with the financial collapse were 
courageous and effective.
    Nevertheless, we must do everything we can to prevent the 
need for such extreme measures ever again. Among the lessons of 
the financial crisis are the necessity of dealing with the too-
big-to-fail-problem, and the necessity of greatly strengthening 
the resilience of the entire financial system.
    The Dodd-Frank Act put in place a framework that should 
make it possible to advance these goals. The United States has 
moved rapidly to put a series of important measures into 
effect. Among them are the significant increase in capital 
requirements and the introduction of countercyclical capital 
buffers for banks; the introduction of a liquidity ratio; the 
sophisticated use of stress tests, the importance of which 
becomes ever clearer; enhanced resolution authority and the 
single point of entry in dealing with SIFIs; living wills; and 
the creation of the Financial Stability Oversight Council, the 
FSOC.
    At the international level, the establishment of the 
Financial Stability Board, whose membership includes the 
countries of the G20 and a few other financial centers, 
provides an important mechanism for strengthening international 
coordination of financial regulation.
    While we have undoubtedly made important progress in 
strengthening the financial system, we must also recognize that 
maintenance of the robustness and stability of the financial 
system cannot be attained without strong regulation and 
supervision.
    Financial systems evolve, and while financial crises have 
many similarities, they are not identical. The Fed must remain 
ever-vigilant in supervising and regulating the financial 
institutions and markets for which it has been assigned 
responsibility, and it should be no less vigilant in its 
surveillance of the stability and resilience of the financial 
system as a whole.
    The Great Recession has driven home the lesson that the Fed 
has not only to fulfill its dual mandate, but also to 
contribute its part to the maintenance of the stability of the 
financial system. Almost always, these goals are complementary. 
But each of them must be an explicit focus of Fed policy.
    In all the situations with which the Fed will have to 
contend in pursuing its goals, it will be called upon to make 
wise decisions, which draw on the experience and the analytic 
skills of the staff and of the members of the Federal Reserve 
Board and the Federal Open Market Committee. I hope that, if 
confirmed, I will be able to assist Chair Yellen and my future 
colleagues in making those critical decisions, and so to 
contribute to the well-being of the citizens of the United 
States.
    Senators, I thank you for this opportunity to appear before 
you today and for considering my nomination. I would be pleased 
to respond to any questions.
    Chairman Johnson. Thank you. Mr. Powell, please proceed.

 STATEMENT OF JEROME H. POWELL, TO BE A MEMBER OF THE BOARD OF 
            GOVERNORS OF THE FEDERAL RESERVE SYSTEM

    Mr. Powell. Thank you, Mr. Chairman. Let me say that I am 
joined here today by my wife, Elissa, and my brother, Matt, in 
from California.
    Chairman Johnson, Senator Crapo, and Members of the 
Committee, I am honored and grateful to President Obama for the 
privilege of appearing before this Committee today as a nominee 
to the Federal Reserve Board. I have served as a member of the 
Board since May 2012. If I am confirmed to the new term for 
which I am now nominated, I will continue to work to the best 
of my abilities to carry out the responsibilities of this 
office.
    Over the past 2 years, I have been deeply involved in the 
work of the Board and of the Federal Open Market Committee. 
Important challenges lie ahead, and I am eager to play my part 
in meeting them.
    Before joining the Board, I spent close to 30 years working 
in the financial markets as an attorney, an investment banker, 
and an investor, and I believe that my practical experience of 
the private sector and the financial markets provides a 
valuable perspective in the work of the Board and the FOMC.
    I also served as Assistant Secretary and Under Secretary of 
the Treasury for Finance from 1990 to 1993. Throughout that 
period, I worked closely with this Committee, and appeared in 
this room many times as a witness in hearings and markups. More 
recently, I testified before this Committee on anti-money 
laundering and the Bank Secrecy Act in March of 2013.
    The early 1990s, the time of my earlier service, were 
turbulent years for the economy and the markets. We faced the 
savings and loan crisis and the resulting bailout; a severe 
credit crunch, with some businesses and households unable to 
get credit on reasonable terms; the insolvency of the FDIC's 
Bank Insurance Fund; and the failure or near failure of several 
large financial institutions, which squarely presented the 
problem of too big to fail.
    I was deeply involved in addressing these crises and in the 
major legislation that followed, including, in particularly, 
the Federal Deposit Insurance Improvement Act, or FDICIA. I 
also led the Administration's efforts to address a very 
troubling episode involving market manipulation and the 
submission of false bids in Treasury auctions by employees of 
the investment firm Salomon Brothers, and that scandal resulted 
in the Government Securities Reform Act of 1992, as well as 
extensive revisions to the Treasury's auction rules.
    Today, our economy continues to recover from the effects of 
the global financial crisis, unevenly and at a frustratingly 
slow pace. The task for monetary policy will be to provide 
continued support as long as necessary, and to return policy to 
a normal stance over time without sparking inflation or 
financial instability. This will require a careful balancing, 
as there are risks from removing monetary policy accommodation 
too soon as well as too late.
    The regulation and supervision of financial institutions 
and markets are as important as anything the Federal Reserve 
does. This is a time to continue to address the weaknesses that 
were exposed during the crisis and set the stage for another 
long period of prosperity. Working with fellow regulators in 
the United States and around the world, the Federal Reserve is 
engaged in a once-in-a-generation renovation of the financial 
architecture.
    There is much work to be done, both in the implementation 
of Congress's decisions and in finalizing and implementing 
international accords, like Basel III. At the heart of these 
broad reforms is the project of ending the practice of 
protecting creditors and sometimes equity holders of large 
global financial institutions in extremis, or too big to fail.
    There has been significant progress, but more work is left 
to do. Realizing this objective will take time and persistence. 
I am eager to play a part in that. Thank you again for holding 
this hearing today. I will be pleased to answer your questions.
    Chairman Johnson. Thank you. Dr. Brainard, please proceed.

  STATEMENT OF LAEL BRAINARD, TO BE A MEMBER OF THE BOARD OF 
            GOVERNORS OF THE FEDERAL RESERVE SYSTEM

    Ms. Brainard. Chairman Johnson, Ranking Member Crapo, 
distinguished Members of the Committee, I appreciate the 
opportunity to be here with you today. It is an honor to be 
nominated by President Obama to serve on the Federal Reserve 
Board, particularly under Chairman Yellen's leadership.
    I am very grateful to my husband and my three delightful 
daughters for supporting my return to public service after a 
wonderful but too brief time at home, and I am happy to be 
joined here this morning by my husband, Kurt, and by my 
daughter, Ciara, who is representing her two sisters very ably.
    I cannot think of a more important moment for the work of 
the Federal Reserve. If confirmed, you can be sure I will be 
intensely focused on safeguarding the Fed's hard won 
credibility in preserving price stability, while supporting its 
indispensable role in helping Americans get back to work, and 
strengthening its work in ensuring a safe and sound financial 
system.
    The Federal Reserve has a critically important and 
appropriately delimited role in addressing the challenges we 
face as a Nation in the wake of a deeply damaging financial 
crisis. It will need to carefully calibrate the tools of 
monetary policy to ensure an appropriate pace of normalization, 
while supporting the fragile recovery in our job market and 
ensuring inflation expectations remain well anchored.
    The Federal Reserve will need to continue robust 
implementation of financial reform and enhanced supervision to 
ensure that no financial institution is too big to fail, and to 
discourage the massive leverage and opaque risk taking that 
contributed to the financial crisis. At the same time, it is 
critical that the Fed protect the savings of retirees and sound 
access to credit for consumers, small businesses, students, and 
families seeking to own their own homes.
    For me, service on the Federal Reserve would be a very 
natural progression, building on work that I have done 
previously at the Treasury Department, the White House, in 
academia, and in the private sector. It would enable me to 
continue my life's work of promoting an economy that delivers 
opportunity for hard working Americans while safeguarding 
financial stability.
    It is an honor to be considered for this position. If 
confirmed, I would look forward to working with Members of this 
Committee to advance our shared goal of making sure our 
financial system works for all Americans. Thank you.
    Chairman Johnson. Thank you. Mr. Velasquez, please proceed.

  STATEMENT OF GUSTAVO VELASQUEZ AGUILAR, TO BE AN ASSISTANT 
  SECRETARY OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Mr. Velasquez Aguilar. Thank you. Good morning, Chairman 
Johnson, Ranking Member Crapo, and Members of the Committee. I 
would like to start by introducing my wife, Emily, and my two 
boys, Sebastian, who is seven, and Javier, who is four. They 
were promised two candies if they behaved well. I am beginning 
to hear Javier in the background, so I will make that three 
now. I am grateful for their love and support which means 
everything to me.
    I am honored to appear before you today as you consider my 
nomination as Assistant Secretary for the U.S. Department of 
Housing and Urban Development's Office of Fair Housing and 
Equal Opportunity. I came to this country in my mid-20s, have 
proudly become a citizen, and have devoted the last 15 years of 
my life to public service.
    My career has been marked by the pursuit of justice and the 
defense of civil and human rights for people from all walks of 
life. I am committed to promoting equal opportunity and 
combating discrimination, and believe that becoming Assistant 
Secretary for Fair Housing would be a tremendous opportunity to 
continue to fulfill that commitment.
    My qualifications to become Assistant Secretary are based 
on my record as a leader, bringing people together to resolve 
complex public challenges; my experience in and knowledge of 
the field of nondiscrimination laws, regulations, and 
enforcement, including fair housing, and my management 
abilities, particularly with respect to streamlining the 
investigation of discrimination claims for careful analysis and 
expeditious resolution.
    Most of all, I want to highlight my experience in finding 
every possible way to inform the public about their rights 
under the law. In my previous positions, I have demonstrated 
expertise in working with Federal civil rights laws, 
regulations and programs, including Title VIII of the Civil 
Rights Act of 1968, and many other Federal and local 
antidiscrimination laws in employment, education, public 
accommodation, and publicly funded services and programs.
    I served from 2007 through October 2013 as Director of the 
District of Columbia Office of Human Rights. In this capacity, 
I have been ultimately responsible for the investigation and 
disposition of thousands of discrimination cases filed by 
individuals and organizations.
    I have also been responsible for helping establish or 
modify rules and guidelines to investigate and adjudicate 
employment and housing discrimination complaints under one of 
the most comprehensive nondiscrimination statutes in the 
country, the D.C. Human Rights Act of 1977. In doing so, I have 
studied and applied Federal laws and regulations from HUD and 
other agencies for consistency in the enforcement of civil 
rights in the District.
    Because D.C.'s nondiscrimination law is substantially 
equivalent to the Fair Housing Act, for many years the D.C. 
Office of Human Rights has been cross-filing and investigating 
cases with HUD under Federal law. This has required me to 
understand and apply the rules and guidelines emanating from 
HUD's Office of Fair Housing and Equal Opportunity for the 
proper investigation and disposition of Title VIII complaints.
    With respect to management, in addition to many years as a 
not-for-profit executive manager, I have provided leadership 
and management in Government for two State-level agencies: The 
D.C. Office of Latino Affairs and the D.C. Office of Human 
Rights. As Director of the Office of Latino Affairs, I was 
responsible for designing and implementing policies and 
programs for the economic and social advancement of the Latino 
community.
    At the Office of Human Rights, I led a successful agency of 
talented professionals working on combating discrimination in 
the Nation's capital. I am proud of the many accomplishments 
that my team of investigators, mediators, attorneys, and 
administrative law judges achieved under my leadership, whether 
in enforcement or raising awareness of the wide range of 
protections that people living and working in D.C. enjoy.
    Mr. Chairman, Ranking Member Crapo, and Members of the 
Committee, I am honored by the President's nomination, the 
confidence of Secretary Donovan, and the opportunity to appear 
before you today. If confirmed, I look forward to working 
tirelessly on promoting fair housing and equal opportunity 
across the Nation and in cooperation with Members of this 
Committee. Thank you for your consideration of my nomination 
and I look forward to your questions.
    Chairman Johnson. Thank you. Mr. McWatters, please proceed.

STATEMENT OF J. MARK McWATTERS, TO BE A MEMBER OF THE NATIONAL 
               CREDIT UNION ADMINISTRATION BOARD

    Mr. McWatters. Chairman Johnson, Ranking Member Crapo, and 
Members of the Committee, thank you for the opportunity to 
appear before you today as an NCUA Board nominee. My wife, 
Denise, and our two teenage sons, Clark and Parker, were unable 
to join me today, but they are watching over the Internet. My 
sons were intrigued by the prospect of a televised job 
interview and reassured that such approach is rarely adopted by 
other employers.
    In particular, I wish to thank Denise for her tireless and 
enthusiastic support in this endeavor, and many other 
endeavors, over the past 30 years. Truer words I have never 
spoken. I am especially grateful for Minority Leader 
McConnell's recommendation of me to the President for this 
position.
    It is an honor and a privilege to be nominated to the NCUA 
Board, and if confirmed, I will do everything within my power 
to fulfill the trust placed in me by the U.S. Senate. NCUA 
plays a critical role as a regulator and insurer to protect the 
hard-earned savings of more than 96 million Americans. If 
confirmed, I will work diligently to ensure the continued 
integrity and safety and soundness of our Nation's $1 trillion 
credit union industry in an ever-evolving marketplace.
    On my qualifications, I currently serve as the Assistant 
Dean for Graduate Programs and as a professor of practice at 
the Southern Methodist University Dedman School of Law. As a 
teacher, I have found that my students often benefit from the 
vigorous discussion of judicial holdings and problem sets. 
Although we may initially approach an issue from divergent 
perspectives, the process of debating a challenging matter in a 
transparent and analytical, yet collegial, manner often 
produces common ground and a workable consensus.
    Previously, I practiced law for more than 20 years, most of 
that as a partner focusing on tax, corporate finance, level. My 
private sector experience with three well-known international 
law firms covered tax law, corporate finance, and mergers and 
acquisitions.
    My Government experience includes clerking for the U.S. 
Ninth Circuit Court of Appeals in Los Angeles and briefly 
serving as counsel to Congressman Jeb Hensarling. I also served 
on the TARP Congressional Oversight Panel.
    While working alongside Senator Elizabeth Warren on the 
TARP panel, I sought to balance and respect different 
perspectives, and reach consensus based upon overarching 
principles, just like I now practice in the classroom. 
Ultimately, my colleagues and I worked to produce an accurate, 
nonpartisan analysis of the TARP and the financial crisis. I am 
pleased that of the 15 reports the panel issued during my 
tenure, 14 were unanimous.
    If confirmed, I will bring the same approach to my work at 
NCUA. In legal practice, I have often found that the 
fundamental issues create the most opportunity for concern. For 
example, does a proposed tax structure have economic substance 
and business purpose?
    Likewise, in assessing the risks inherent within financial 
institutions, I have learned that the root causes of seemingly 
intractable problems are often embedded not in the esoteric, 
but in the commonplace.
    For example, do financial institutions have the capital, 
liquidity, and risk mitigation programs necessary to operate in 
an adverse economic environment? In answering questions like 
this one, regulators need to apply the law with impartiality 
and look at the larger picture. They need to think both 
tactically and strategically considering not just the desired 
outcome, but potential unintended consequences.
    As such, my focus as a regulator will remain straight-
forward: Do not neglect the fundamentals of capital, liquidity, 
and transparency, and always remember that the greatest threat 
to the financial system may reside where you least expect it: 
Hidden within plain view. In life, I have often found that and 
also learned about the need to earn trust and to never forget 
that real people are affected by decisions.
    If confirmed, I will bring an open mind and a risk-based, 
market-oriented, targeted and transparent regulatory 
perspective to address the increasingly complex issues facing 
credit unions. I will also aim to balance competing viewpoints, 
to maintain the safety and soundness of the credit union 
system, safeguard the Share Insurance Fund, and protect 
taxpayers and credit union members from losses.
    Thank you again for the opportunity to appear. I am pleased 
to answer any questions you may have.
    Chairman Johnson. Thank you for your testimony. We will now 
begin asking questions of our nominees. Will the clerk please 
put 5 minutes on the clock for each Member?
    Dr. Fischer, some suggest that community banks be subject 
to a different degree of regulation than larger banks. Do you 
support a chaired approach to regulation?
    Mr. Fischer. Senator, I grew up in a very small, rural area 
where there was one bank, and I know how important it is that 
those banks survive, particularly in a farming community. I do 
not think there should be a uniformity of regulation. I believe 
that the small banks do not have to fulfill all the 
requirements that are imposed on the large banks, but that the 
regulators have to do that in a sensible manner. Thank you.
    Chairman Johnson. Governor Powell, resolving global firms 
across borders can be a challenge, but it is a key part to 
ending too big to fail. What are the next steps to improving 
cross-border resolution?
    Mr. Powell. Thank you, Mr. Chairman. I will start by saying 
that I am absolutely committed to ending too big to fail. I 
think it is fundamental, under our system, that private sector 
businesses can prosper or fail, as the case may be, and that it 
is not something that Government, as a general rule, needs to 
be involved in, in either process.
    That said, the business of resolving global financial 
institutions is a challenging project and there is work going 
on here in the United States and all around the world on that. 
I think here in the United States we have done as much or more 
as any Nation, and I would point to stronger capital and 
liquidity requirements.
    These big institutions have to pass severely adverse stress 
tests, which shows that they can continue to perform their 
function even in the event of a significant thing like the 
financial crisis.
    And then the third thing I would point out is that the FDIC 
has developed a single point of entry approach to resolution. 
Very promising. It is getting a lot of support from our major 
trading partners around the world. So that is all positive. 
There is a great deal left to do here that we are working on. I 
would point to just a couple of things.
    First, the senior debt requirement that we are imposing on 
the largest banks to assure that there is loss-absorbing 
capital in the case they do fail. Second, we are looking at a 
proposal of some kind to deter the excessive use of short-term 
wholesale financing. That was a real vulnerability in the 
crisis. And then finally, we are about to propose a capital 
surcharge on the largest firms.
    The global challenges are, as your question states, very, 
very difficult and the work there is also going on. I guess I 
would go back to 2011 when the Nations of the world came 
together at the Financial Stability Board to agree on the key 
attributes of resolution mechanisms. It is a long list. I will 
not go through all of that, but a couple of elements I would 
point to.
    First, and this is common with our own system, large 
institutions are to be required to have living wills so that we 
are looking carefully at how to resolve them now in good times, 
in reasonable times, so that we are not trying to figure this 
out at the last minute, as we were during the financial crisis. 
We are actually ready for this.
    Another critical aspect of it would be our own law provides 
for a temporary stay so that derivative counterparties cannot 
foreclose or accelerate against collateral and terminate 
contracts in the event an institution enters resolution. That 
is critical to avoid the creation of a run on an institution 
which can spread to the whole system.
    Other Nations do not mainly have that, but it is part of 
the road map that they will and they are working on that. There 
are many other elements. I will not even think about going into 
them, but let me just summarize by saying there is a great deal 
of work going on around the world, a lot left to do, and I am 
eager to play a part.
    Chairman Johnson. Dr. Brainard, an important component of 
bank regulation and financial stability is the ability to 
coordinate with our foreign counterparts on rules. If confirmed 
as a Governor, what experience will you bring to the Fed in 
this area, and how would you work to strengthen global 
coordination for financial rules?
    Ms. Brainard. Thank you, Chairman Johnson. I think that in 
this world of very global financial markets, it is critical to 
have a very high degree of coordination among the largest 
financial centers in order to ensure the safety and soundness 
of our own system.
    When I was at Treasury, one of my responsibilities was to 
work with the G20 and with the Financial Stability Board with 
counterparts, regulators, central bankers, finance officials 
around the world to try to get other countries to follow our 
lead.
    I will say that the work that was done by this Committee in 
Dodd-Frank put us out in a leadership position and gave us a 
strong place to start, and we have had some successes bringing 
the rest of the world, Europe and Asia, along with us.
    If you look at capital, for instance, we moved very quickly 
to push for high capital standards for simple leverage to 
augment them for a capital surcharge as well as a liquidity 
framework, and we have had substantial, though not complete, 
progress in persuading our counterparts around the world to put 
those things in place.
    But I think as Governor Powell was saying earlier, the one 
area where we really are going to have to push very hard, and 
if I were confirmed this would be a high priority, is to make 
sure that other major financial jurisdictions have the capacity 
and the will to resolve their largest institutions and they 
have legal systems in place to do so. That piece is still a 
work in progress.
    That is one of the reasons, I think, that our proposed 
foreign banking organization rules are so important, to make 
sure that our regulators have the capacity here to resolve 
those institutions, even as resolution frameworks are moving in 
the right direction overseas. Thank you.
    Chairman Johnson. Senator Crapo.
    Senator Crapo. Thank you, Mr. Chairman. I have a number of 
questions and I know I am not going to get to go through them 
all during the hearing, and so although I am going to ask each 
of the individual nominees for the Federal Reserve a question, 
I am also going to ask the other nominees who do not get asked 
that question to respond to it later. So I just alert you to 
that.
    The first one, I will start with you, Mr. Fischer, is, a 
recent paper presented at the U.S. Monetary Policy Forum 
suggests the possibility that the current monetary stimulus may 
involve a, quote, tradeoff between more stimulus today at the 
expense of a more challenging and disruptive policy exit in the 
future.
    Do you agree with that? And if you see that there will be 
challenges or dangers in the exit from our current monetary 
policy, could you tell us what you believe those are and 
whether you believe we can make an exit in a manner that is not 
disruptive to our economy?
    Mr. Fischer. Thank you, Senator. I think the exit is the 
beginning, or has begun. The extent of the purchases of the 
Fed, the monthly amount that is being purchased, is being 
reduced and conditions for the continuation of that have been 
described. Could that, theoretically, be disruptive?
    Well, you don't have to look at theory. There was the May 
response, which I must confess I did not think I fully 
understood why the markets reacted as if it was a surprise. It 
had been talked about for a long time. But when the actual 
tapering began, it had a much more stable impact and that seems 
to be continuing.
    What I take comfort from, in sort of thinking of all the 
possibilities, is that the Fed, in 2008, 2009, undertook many 
complicated programs. As far as I know, there were no technical 
failures in any of those programs, and that is a good 
precedent. Although the Fed is relying more, on the reactions 
of the market and those you have to adjust to if they are not 
what you expected, Senator.
    Senator Crapo. Thank you very much. And, Dr. Brainard, I am 
going to go to you next. You mentioned the Dodd-Frank 
legislation in your testimony. I worry that the aggregate 
impact of the rules of implementing Dodd-Frank will be immense 
and that we actually could push some financial companies into 
basically a regulatory death by 1,000 cuts if we are not 
careful about the evaluation of cost-benefit in terms of the 
regulations that are imposed as we move forward.
    If you are confirmed to the Board of Governors, how do 
you--first of all, would you agree that there is this risk? And 
second, how would you intend to monitor the cumulative 
regulatory burden that we are putting on America's financial 
sector?
    Ms. Brainard. Well, Senator, I think the process of 
reforming, fundamentally reforming our financial system is a 
work in progress. The reforms that were put in place under 
Dodd-Frank were extraordinarily important, very important to 
make sure that our largest institutions ran with less leverage, 
managed their liquidity much more carefully, held a lot more 
capital to absorb losses, changed their business models, and 
are fully resolvable without any taxpayer involvement.
    So I think the pieces of the regulatory reform that are 
being put in place are each extremely important, but as you 
say, it is very important for us to be mindful over time of the 
aggregate impact and how business models change and make sure 
that credit is flowing to small businesses, to homeowners, to 
students.
    So if confirmed, I would want to be very vigilant, 
understanding the cumulative impact of these rules, making sure 
that we are meeting the safety and soundness goals that were 
set out for us in that legislation, but I presume there will be 
adjustments, the need for adjustments as we go, and obviously 
we would expect to work closely with this Committee as we 
monitor and tweak the framework.
    Senator Crapo. Thank you very much. And, Dr. Powell, I am 
going to ask you the same question that the Chairman asked Mr. 
Fischer with regard to community banks. The regulatory 
framework that emerged out of Dodd-Frank has made it 
increasingly difficult for community banks, and according to 
some reports, one-quarter of the small banks are now 
contemplating mergers because they simply cannot survive the 
regulatory environment.
    Would you agree that we need to address this by being 
flexible in the kinds of standards we apply to the smaller 
banks as opposed to the larger banks?
    Mr. Powell. I would agree. Let me say that I believe that 
community banks--and I have personal experience with community 
banks providing a special kind of service in local communities 
that the large national banks are not really set up to 
provide--it is not a better world as community banks are going 
out of business. It is a better world with community banks in 
business. So I think they are very important in our 
communities, including my own community.
    So in terms of regulation, most of what we have tried to do 
since Dodd-Frank passed is aimed at the larger banks, but there 
is a tendency for regulation to run to the smaller banks as 
well.
    And so, you know, we try very hard to manage that, and we 
have a special council now at the Fed that former Governor Duke 
was instrumental in setting up called the Community Depository 
Institutions Advisory Council. We meet with them regularly to 
hear their concerns. We have also got a special subcommittee of 
the Board that looks at every regulation and its effect on 
community and regional banks.
    So we are focused on this. It is separately the case that 
the community banking model is under pressure from national 
products, you know, product by product, mortgages and all those 
sorts of things, and car loans, have become nationalized. We do 
not want to add any pressure to that at all. We want to not be 
part of what is putting pressure on community banks if 
possible.
    Senator Crapo. Thank you.
    Chairman Johnson. Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman. Appreciate all 
of our nominees here. Mr. Velasquez, I want to discuss an issue 
with you of high importance to the people in my State, 
particularly as a result of the challenge that they have faced 
by Hurricane Sandy.
    In a challenging set of circumstances, some of the people 
in our States have been faced with greater challenges because 
of the way in which information has been distributed and 
decisions have been made, which have resulted in the minority 
community, from a series of independent reviews, not receiving 
fair access to recovery programs.
    For example, the State's Spanish language Web site 
contained incorrect application instructions and missing 
deadlines, and it was not corrected until after the deadline to 
apply and/or appeal. I have also seen reports showing 
disproportionately higher rejection rates for African Americans 
and Latinos. And even if I work under the assumption that there 
is no intentional discrimination, a disparate impact would be a 
cause for concern.
    Now, my understanding is that the position for which you 
have been nominated is responsible for investigating these 
claims and ensuring fair and equitable treatment for all 
individuals. Yesterday I had a hearing that I conducted of the 
Subcommittee. Secretary Donovan mentioned that HUD is currently 
investigating a complaint that has been filed relating to these 
matters. I know you cannot speak to that.
    But what I want to know is, if you are confirmed, will you 
make this a priority and keep our office updated about the 
results?
    Mr. Velasquez Aguilar. Senator, you have my word that if 
confirmed as Assistant Secretary for Fair Housing and Equal 
Opportunity, I will review these matters. I will work with you 
and members of your staff to follow up accordingly and provide 
you prompt information.
    Senator Menendez. OK. Because it is simply--people who lost 
their homes and are challenged to pay their taxes like 
everybody else, but maybe linguistically challenged should have 
the same opportunity as anyone else, and it is unfair when 
information that was provided on the main Web site as it 
relates to Sandy recovery was missing on a Spanish language Web 
site and was not corrected, even after it was brought to his 
attention, until much later and rates of rejection were higher.
    And when we had 80 percent of those individuals who 
appealed their decisions, the rejection ended up being right, 
they won their appeals, but Latinos did not know about the 
right to appeal, then something is fundamentally wrong. And so, 
I hope you will follow that.
    I would like to ask this question to Dr. Fischer, Secretary 
Brainard, and Governor Powell. A great deal has been written 
and said about the theory of so-called expansionary austerity 
being tried by some of the countries in Europe.
    The idea was that countries experiencing a serious economic 
downturn after the financial crisis and who saw their budgets 
fall into deficit and their borrowing costs rise as a 
consequence of the downturn could best move forward by 
implementing deep fiscal cuts and monetary tightening, with the 
hope that this would somehow stimulate economic growth by 
encouraging investor confidence.
    From my perspective sitting on the Foreign Relations 
Committee, the way it played out has been quite the opposite. 
Fiscal cuts during an economic downturn caused by weak demand 
have further weakened these countries' economies, imposed great 
human cost in the form of high unemployment, and even canceling 
out some of the budgetary savings because of the weaker 
economy.
    So I would like to ask you all, what lessons do you think 
we should draw from these countries' experiences, and have 
recent experience such as these, or conversely, the enhanced 
stimulus efforts underway in Japan, informed or influenced your 
approach to monetary policy?
    Mr. Fischer. Thank you for the question, Senator. The very 
clear lesson that one draws from experience in Europe, previous 
experience elsewhere, there was in the 1980s a theory that a 
contractionary fiscal policy could be expansionary, and there 
were two countries where it seemed to happen. They were Ireland 
and Denmark. And what produced that, in large part, was a big 
devaluation in response to the fiscal action.
    Well, that was not present in Europe. It cannot be present 
in the monetary union. So it was not relevant to Europe. That 
was the theory on which, and the experience on which it was 
being built. I think the recent experience, and also experience 
in Asia in the 1990s, suggests that the immediate impact of 
fiscal austerity is to reduce output.
    Now, you may not be able to avoid that if your budget is a 
total mess and you cannot raise money. You may have to do that. 
But if you do not have to do it, then it is a negative effect.
    Senator Menendez. Could I hear from our other two?
    Mr. Powell. Sure. So, Senator, I would say sometimes 
Nations need to engage in fiscal austerity and that is a 
judgment not for Fed nominees, but for the legislature. No one 
should expect that it will result in short-term growth. It will 
not be expansionary, as Dr. Fischer pointed out.
    The cases where it did were cases in which there was 
currency devaluation. And also importantly, the ability of 
monetary policy to respond. Where a central bank is already at 
the zero lower bound, there is no real ability to respond. 
There is no reason to think that fiscal austerity would bring 
growth in the sort of short and medium term.
    Ms. Brainard. Senator, I think what we can see clearly from 
the case of Europe is that expansionary austerity is a 
contradiction and does not work. I think we have been fortunate 
here in the U.S. to have appropriate support for demand coming 
off of a very damaging financial crisis during a period where 
the private sector was deleveraging.
    In my previous work at Treasury, I worked very hard to work 
with my European colleagues to persuade them that it was very 
important to avoid some of the terrible human costs of very 
high unemployment, to provide more support for demand. And, of 
course, it was very important for us here to have a strong 
partner in Europe.
    So going forward, I think we should continue to hope that 
Europe provides support for the recovery so that we have a 
strong both economic and strategic partner in Europe.
    Senator Menendez. Thank you, Mr. Chairman.
    Chairman Johnson. Senator Brown.
    Senator Brown. Thank you, Mr. Chairman. Congratulations to 
all of you on your nominations. I am going to direct my 
questions to Fed nominees. I will have questions in writing to 
Mr. Velasquez and Mr. McWatters. Thank you for joining us, too.
    A recent study of the Federal Open Market Committee 
transcripts from 2000, 2007, found that committee members' 
collective background in macroeconomics seemed to cause them to 
miss connections between subprime lending and the exotic 
financial instruments with which the American public became all 
too familiar during the worst--during 2007, 2008, and 2009.
    The transcripts of the 2008--recent released transcripts of 
the 2008 FOMC meetings showed that the September meeting, which 
was detailed and was outlined in great deal in a number of 
newspapers, on the eve of the Lehman bankruptcy, that FOMC 
members mentioned inflation 129 times and recession 5 times.
    I am concerned that a lack of diverse views on the FOMC 
could affect its ability to serve all Americans. Dr. Fischer, 
Ms. Brainard, you are the two nominees that will join, I 
presume, the Fed. What perspective do you bring that actually 
will matter and benefit the real economy and matter to families 
in Cleveland and Mansfield, Ohio? Dr. Fischer.
    Mr. Fischer. Senator, I do have an academic background, so 
I have to accept that. I think it is useful. But in terms of 
background for this job, I have been a central banker for 8 
years. I did work through--as Governor of the Bank of Israel, I 
was Governor during the global crisis. You could not be in that 
crisis without being aware of the impact of financial problems 
on growth and of the absolute need to maintain employment.
    Israel was lucky, or whatever, that it did not have a 
financial crisis, and so when we reduced interest rates, the 
banks could lend more and they did and Israel escaped the main 
burden of the crisis. That is the background.
    But, Senator, in addition, I think anybody who has studied, 
and particularly who studied this crisis, knows the cost of 
unemployment, understands that slow growth is not an 
abstraction. Slow growth is people not finding jobs. Slow 
growth is problems for families in meeting even their food 
bill. And if one does not understand that, one cannot seriously 
be a policy maker. I think I understand that, Senator.
    Senator Brown. Thank you. Ms. Brainard.
    Ms. Brainard. Senator, I have worked all my professional 
career on making sure that Americans have economic opportunity. 
I have worked extensively at the White House, most recently at 
Treasury, on guarding against financial crises, responding to 
financial crises and the terrible human cost that financial 
crises bring.
    And, of course, I have worked quite a lot on making sure 
that Americans in manufacturing in places like Ohio are able to 
compete in the global economy and are able to borrow to send 
their kids to college, to borrow to buy homes, to protect their 
savings.
    So this has been really my life's work and the Fed is a 
critically important place now, probably one of the most 
important places in terms of making sure Americans get back to 
work, the slack in the economy is overcome, and credit flows to 
those who are going to create jobs and create opportunity in 
the future.
    Senator Brown. Thank you. I have one other question and 
this is to all three Fed nominees, including Mr. Powell. Basel 
has proposed capital surcharges on SIFIs in a range of 1 to 2.5 
percent over the Basel III standards. When she was Vice Chair 
of the Federal Reserve, now Federal Reserve Chair Yellen said 
she agreed with Governors Stein and Tarullo that these capital 
surcharges should be higher.
    She said higher capital charges would help, and I quote, 
the future Chair of the Fed, end quote, offsetting any 
remaining too-big-to-fail subsidies and forcing full 
internalization of the social cost of a SIFI failure. Since 
then, the Fed has proposed a leverage ratio of 5 percent, as 
you know, but no announcement has been made about these 
surcharges.
    My question to the three of you: Do you agree with Chair 
Yellen that a too-big-to-fail subsidy exists, and as a member 
of the Board of Governors, would you agree with Chair Yellen 
and Governors Tarullo and Stein that the SIFI capital 
surcharges should be higher? Mr. Powell, you want to start? 
Then Ms. Brainard, then Dr. Fischer.
    Mr. Powell. Thank you, Senator. So in terms of the subsidy, 
most of the studies--all of the studies show some kind of a 
subsidy. It is in a broad range. It is very hard to be precise. 
You cannot really hold all else equal. But for purposes of this 
answer, let us assume--and I do assume--that there is one.
    Senator Brown. And that it is significantly high, 50 basis 
points or more.
    Mr. Powell. You know, without the exercise, it is hard to 
have any confidence in these numbers. You have got to compare a 
huge bank to a small bank and they are very different 
businesses. It is just a hard thing. But I will assume it is 
real.
    Your real question then is, are the surcharges high enough? 
And I would agree that they probably leave more to be done, and 
in fact, there are ways to get at that.
    For example, one of the things we are looking at is the 
short-term wholesale funding aspect of these large 
institutions, and one of the ways to get at that--no one has 
decided yet--but one of the ways to get at that is through some 
kind of a capital surcharge based on exposure to short-term 
wholesale funding. So we are not done yet with the capital 
process.
    Senator Brown. OK. Ms. Brainard.
    Ms. Brainard. Senator, I think it is very important that 
market participants understand that there can be no institution 
that is too big to fail. There are a lot of reforms that are 
underway that I think are important in addressing the 
perception on the previous reality of too big to fail and we 
need to think about them all together, the risk-based capital 
framework, the simple leverage ratio, liquidity requirements, 
stress tests extremely important in that overall framework, the 
orderly liquidation authority, and in particular, a single 
point of entry model, along with recovery and resolution 
planning, and as has been stated earlier, there are still rules 
to come on the amount of senior debt that needs to be held by 
these institutions, as well as short-term wholesale funding.
    So I think going forward, at least in my case, I would want 
to be very attentive to whether that is sufficient and be open-
minded about taking additional measures which could include 
higher capital charges on the largest institutions, and I think 
we will have to be very attentive to that and be willing to do 
more if a too-big-to-fail perception remains in the market.
    Senator Brown. I cannot tell if you think that Chair Yellen 
is right or wrong in her statement.
    Ms. Brainard. Senator, I think what I would need to know is 
the overall impact of those changes together, and again, there 
may well be a role for even higher capital surcharges on the 
largest institutions. So there certainly may well be a role for 
that. But I do not know that. At this juncture, I would need to 
study that much more carefully. It is a very detailed analysis 
that I do not have access to that information right now.
    Senator Brown. Dr. Fischer.
    Mr. Fischer. Senator, I fundamentally agree with what my 
colleagues have said, my potential future colleagues. Excuse 
me. I would emphasize the bailable bond financing is another 
element that can help deal with too big to fail. And this is a 
work that is going to take a bit of time to figure out 
precisely whether enough has been done.
    You will certainly get some guidance from what happens to 
estimates of the premium that the larger banks benefit from. 
The markets really have not had time to understand how the 
future system is going to work. So I think we are going to just 
have to keep following that premium and see what estimates of 
it look like as we move ahead, taking into account the 
reservations that Governor Powell has just expressed, which are 
valid, about that measure. But it is the best measure we have 
probably.
    Chairman Johnson. Senator Reed.
    Senator Reed. Thank you very much, Mr. Chairman, and thank 
you all for your willingness to serve, your current service, 
Governor Powell. Dr. Fischer, let me ask you a question, and 
this is from your perspective as not a member of the Fed, but 
as one of the most respected experts in financial institutions 
and policy.
    We are engaged in a current debate of whether we should 
apply banklike capital standards developed in Dodd-Frank with 
the assumption that they apply to bank holding companies to 
some very large insurance companies which may be classified as 
systemically important, and therefore, fall within this 
characterization.
    Just in terms of the nature of an insurance company and the 
nature of a bank, are these identical or virtually identical 
standards appropriate or should they be a variation?
    Mr. Fischer. Senator, they are clearly not identical 
activities and there are differences in how they run their 
portfolios with the insurance companies trying to match the 
liabilities, rather than fundamentally being based on maturity 
transformation, which banks are.
    And so, it is a different business and I think the capital 
requirements should take those differences into account.
    Senator Reed. The issue here, and it is not an 
insubstantial one, is whether or not the Federal Reserve has 
the authority through rules and regulations to do that. 
Without, I believe, and I will ask the Governor, a formal 
opinion, they decline, saying they do not have that.
    But I think practically speaking, I concur with your answer 
and if we can reach that point, if the Fed can reach that point 
through their discretion, their rules and regulations for their 
application, that would probably be the most timely, I am sure, 
and perhaps the best solution. I do not know if you have a 
comment on that.
    Mr. Fischer. Well, Senator, I certainly had not. A lot of 
Senators I have spoken to expressed that view. I have also seen 
that there was a proposal last week to actually change the 
legislation and then not have to deal with the Fed's legal 
advisors, who are very good at their job.
    Senator Reed. I know they are very good at their jobs, but 
having been a lawyer once, I think sometimes if you know the 
answer ahead of time, you can find a way to get there.
    Governor, you are serving right now and I do not want to 
put you in a disadvantaged position, but this issue of the 
regulatory discretion and the ability to do that is central to 
this whole issue. I assume you agree with Dr. Fischer about 
there are different balance sheets. How do we get to the point 
where we recognize this in practice?
    Mr. Powell. Senator, I absolutely agree that the insurance 
business, the traditional insurance business is very different 
from the banking business and that businesses that all the big 
banks are engaged in certainly in so many ways. And so, ideally 
capital requirements would reflect that.
    I have not practiced law. It has been 30 years, I think, 
since I practiced law, but I can still read and I have read the 
Collins' Amendment very carefully, and I so far look in vain 
for flexibility. But, you know, I continue to try to look in 
it. Again, this is not really my call. This is the call of the 
professional lawyers at the Fed.
    Senator Reed. Well, again, I think your--this is a serious 
issue because it is not so clear-cut, I think, in terms of the 
language. Obviously there are opinions that people have 
rendered outside the Fed that says there is flexibility. And 
just sort of recalling over the years, I have at least got the 
impression that when the Fed wants to do something, they can 
find some very good lawyers on the staff to give them 
imprimatur to do that.
    Secretary Brainard, do you have a comment on this issue?
    Ms. Brainard. Senator, only to say that it is very clear 
that the insurance business model is very different, that the 
capital standards that were designed for banks are not well-
designed for insurance companies for the traditional insurance 
business. I think it is very important for the Fed to find a 
way forward so that they can tailor their supervision.
    As to whether the statute prohibits that or not, I do not 
have a well-informed view, but obviously, if confirmed, would 
want to work very hard to be able to tailor.
    Senator Reed. Thank you very much. Just a final point, and 
it reflects on the comments that my colleague, Senator Brown, 
said about, you know, the damage that slow growth does to real 
people. There is another side to this, another current debate 
about giving them unemployment benefits, which have lapsed.
    So, Dr. Fischer, from your standpoint as someone who has 
sort of been through these crises, can you comment upon the 
value of unemployment benefits, not only to individuals, but 
also my understanding is that they provide economic stimulus, 
that they provide sort of a payback greater than the dollars 
that we put in. So not only helping people, they also stimulate 
demand to the economy. Is that a fair estimate?
    Mr. Fischer. Senator, this is not my area of expertise, so 
I do not know the depths of the most serious parts of the 
research, but there are two effects. One is the aggregate 
demand effect, sort of the helping people who just cannot find 
a job to live somewhat decently. And then there is the 
incentive effect which exists. You can see it when it is 
lengthened. When it is shortened, people tend to go back to 
work.
    I think during a period in which jobs are much more 
difficult than usual to find, they should be lengthened, as 
they have been.
    Senator Reed. So that in this climate where there are three 
applicants for every job, I think--if I can assume--what trumps 
it is the aggregate demand and assisting people who are in very 
difficult circumstances rather than the disincentive argument? 
Is that fair?
    Mr. Fischer. Senator, I think that is a judgment which is 
not the Federal Reserve Board's to make.
    Senator Reed. OK. Well, it is obviously what I have made. I 
am just looking for a little encouragement. If Governor Powell 
or the Secretary want to comment?
    Mr. Powell. I cannot improve on that. Obviously, we all 
know. We have friends and relatives who have suffered from, 
particularly, long-term unemployment, and the damage to 
people's lives is dramatic. I think there are the two 
offsetting effects, but it is just not an issue that, you know, 
that we as unelected people have a public opinion on.
    Senator Reed. Well----
    Ms. Brainard. Senator, the nature of our job market, I 
think, should be a huge concern of all of us. If you look even 
at not just at the unemployment rate, but if you look at the 
participation rate; if you look at the percentage of people who 
are working part-time, involuntarily, who would like full-time 
jobs; if you look at the percentage of the unemployed who are 
long-term unemployed, it is obvious that our job market is much 
weaker than it should be at this point in the recovery. That 
should very much color the analysis, the traditional analysis, 
of what role unemployment insurance plays in the system and in 
supporting demand.
    Senator Reed. Thank you very much. Thank you.
    Chairman Johnson. Senator Warren.
    Senator Warren. Thank you, Mr. Chairman. First I would like 
to welcome my former colleague, Mark McWatters. I worked 
closely with Mark on TARP oversight and he was always smart, 
thoughtful, and principled, and I strongly support his 
nomination to the Credit Union Board.
    Dr. Fischer, after you were nominated, we met and discussed 
too big to fail, the fact that the big banks are growing bigger 
every day, and whether cutting their size would help reduce 
overall risk in the economic system. Now, I am concerned that 
the megabanks not only have the capacity to tilt the financial 
system, but that they also have the capacity to tilt the 
political system.
    You know, we have learned that as big banks get bigger and 
bigger, their lobbying power and influence in Washington also 
tend to grow. That means big banks can often delay, water down, 
or even kill important regulations. So size can have ripple 
effects everywhere, and for that reason, I think it is a 
mistake to talk about size without considering how it affects 
the ability of Government to enforce meaningful regulation.
    A century ago when Teddy Roosevelt and other progressives 
worked to break up the giant trusts, this was a big concern, 
not just the economic impact of size, but the political impact 
that came with size as well. So, Dr. Fischer, you have a great 
deal of experience as an observer and as a participant in the 
financial system. Is this a point that you have thought about? 
And do you think it is possible for large Wall Street banks to 
amass too much political power?
    Mr. Fischer. Senator, thank you. I went back from our 
meeting and thought about this issue and it sort of rang some 
bells in me. I did go and look at the speech I thought I had 
given at the Jackson Hole conference in 2009. I discovered the 
following, which does not answer your question, but it is on 
the same point.
    It says, Even for the largest economies, there is a case 
for discouraging financial institutions from growing 
excessively. While it is clear that there are economies of 
scale in commercial banking up to a certain point, it is less 
clear that these economies of scale continue at the very 
largest banks, and it is even less clear that there are serious 
economies of scope in the financial sector; that is, there is 
little evidence that the financial supermarket view by which 
the end of Glass-Steagall was justified, leads to more 
efficient and cheaper provision of financial services.
    So I did not have to go into the political side of the 
issue. As a citizen, I think this possibility you raise is one 
which seems natural. When I went off to be Governor of the Bank 
of Israel, a friend gave me a copy of later Justice Brandeis' 
book, Other People's Money, and there was a powerful, very 
powerful attack before he became a justice.
    Senator Warren. Well, we have much to continue to talk 
about. But, Dr. Fischer, let me ask this question a different 
way. You know, many big banks are well-represented in 
Washington, but the connection between Citigroup and Democratic 
administrations really sticks out.
    Three of the last four Democratic Treasury Secretaries have 
Citigroup ties. The fourth was offered but turned down the CEO 
position at Citigroup. Former Directors of the National 
Economic Council and the Office of Management and Budget at the 
White House, and our current U.S. Trade Representative also 
have Citigroup ties. You once served as President of Citigroup 
International and are now in line to be number two at the 
Federal Reserve.
    Now, I know that Citigroup has some very smart people and I 
know that private sector experience can be very important in 
Government service. When I set up the new consumer agency, I 
hired many people from the private sector. But I also think it 
is dangerous if our Government falls under the grip of a tight-
knit group connected to one institution.
    Former colleagues get access through calls and meeting. 
Economic policy can be dominated by group-think. Other 
qualified and innovative people can be crowded out of top 
Government positions. So the question I want to ask you, Dr. 
Fischer, are you concerned about the revolving door between 
recent Democratic administrations and Citigroup, either in 
terms of policy or in terms of just public perception, or do 
you think there is nothing here to see?
    Mr. Fischer. Well, there is obviously something to be 
worried about, but I think we would look at the other side of 
this. In my case, my 3 years at Citigroup were the most 
important element in my education. It enabled me to be an 
effective supervisor of banks, which is one of my duties as 
Governor of the Bank of Israel.
    Without that experience, I would have come to it largely 
with an academic background without ever having seen the inside 
of a bank, or furthermore, without ever having worked in the 
private sector.
    Senator Warren. Dr. Fischer----
    Mr. Fischer. I thought that that experience was extremely 
valuable. When my people who worked with me would explain to me 
the theory of what was determining the exchange rate, I could 
explain to them, Guys, I have seen what determines the actions 
of the guys who operate in the foreign exchange markets. It is 
not what you are talking about.
    Senator Warren. Dr. Fischer, because we are over time, I 
just want to be sure that we are drawing in on the same point. 
The point I was trying to make is not whether or not private 
industry experience is important. I would readily acknowledge 
that. As I said, I hired people when I was setting up the 
Consumer Financial Protection Bureau, and having private 
industry experience was one very important qualification.
    The question I was asking about is the tight connection 
between the same institution and the Government and whether or 
not we need more diversity in that.
    Mr. Fischer. I think diversity is always worthwhile. It is 
true that I worked at the same institution as some of the 
people now in Government. We were not colleagues at the time. 
They were not there. I was there earlier. I left in 2005 after 
3 years on the job and I know the people, I respect them, but 
there are people from other institutions whom I also know and 
respect very much, and I do not see that as a particular 
problem, at least in my case.
    Senator Warren. Thank you very much. I appreciate it. I 
appreciate your service. I do think it is important that we 
continue to talk about size and how it not only can tilt the 
economic system, but also the political system and how this 
works. Thank you, Mr. Chairman.
    Chairman Johnson. Senator Schumer.
    Senator Schumer. Well, thank you, Mr. Chairman. First I 
want to say there are times when we are asked to consider 
nominees that are leading thinkers in their field. Other times 
when a nominee has a wealth of experience. It is rare you get 
the two together, and I think you are just that person.
    You are one of the most brilliant people in terms of how a 
central bank should run. Your experience in Israel shows it. 
And you have also been somebody who has very broad experience. 
Diversity is good between people, but it is also good within 
someone. You have spent 3 years in the private sector and 
decades in the public sector at the IMF, at the World Bank, and 
as head of the Bank of Israel.
    My view would seem to be that your 3 years in the private 
sector--we talked about this--made you a better central banker 
because you understood how the private sector would act. All 
too often, we have regulators who do not understand how the 
private sector acts and the private sector runs rings around 
them. So experience itself should, at 3 years at Citibank, I 
think should be an asset rather than a liability if you use 
that to understand how to regulate institutions that you are 
asked to regulate. I think you will, knowing you.
    So I think--I think you would great at this. You have been 
a great voice on monetary policy. You have been one of the most 
respected economists of your generation. You have served as a 
leader on the national and international stage. You have had 
broad experience in the public sector, private sector, and 
academia, a great intellect, and you have had a strong moral 
compass. And not to mention, Mr. Chairman, he is a New Yorker, 
maybe the greatest qualification of them all.
    So here is my question, first question, and this was the 
greatest challenge that our central bankers faced in the last 
decade which was the collapse in 2008. I was there. And I think 
the steady hand of Ben Bernanke was amazing, and that will be 
the number one thing that goes down about Chairman Bernanke in 
history, and that is what he was able to do and convince the 
political side to do to save our country from a massive 
depression.
    I was one of the 10 or 12 legislators sitting at that table 
and I can tell you that. So my experience is this--my question 
is this: In 2008 and 2009, the Israeli economy was able to 
mainly avoid the global financial crisis, and this was in large 
part a result of your decisions as Governor of the Central Bank 
to do things quickly like cutting interest rates, reducing the 
value of the shekel.
    As you look at the U.S. economy today, what advice would 
you offer to Chair Yellen as to how the Fed can better foster 
economic growth across the country? That is our number one 
problem, in my opinion. It is not inflation at the moment. It 
is the lack of middle class income growth. It is the lack of 
good-paying jobs. It is the basic stagnation of the economy, 
which may tarnish, for the first time, or to have a better 
word, glow much less brightly the American dream.
    That lady in the harbor that I represent basically says if 
you work hard, you are going to be doing better 10 years from 
now than you are doing today. That is how the average person 
would put the American dream. Nothing fancy, nothing 
highfalutin. What advice can you give us, will you give Chair 
Yellen about how we are going to get better economic growth, 
and what monetary policy decisions can help make that happen? I 
understand we are the main people who ought to do that on the 
fiscal side, but we are a bit paralyzed.
    Mr. Fischer. Thank you. Thank you very much indeed, 
Senator. I am very proud to be a New Yorker, but I have to work 
on my accent, I understand.
    Senator Schumer. You sound to me like you are from 
Brooklyn.
    [Laughter.]
    Mr. Fischer. I think the Fed, in terms of what it has under 
its control, which is fundamentally monetary policy and now 
supervisory policy to a greater extent, what it has going for 
it that many central banks do not have is a dual mandate. The 
Fed is charged with trying to achieve maximum employment as 
well as maintain price stability, which is defined as 2 percent 
inflation.
    I think the mixture that we are seeing coming out of the 
Fed now is approximately appropriate. There will be questions 
about the speed of tapering and so forth. But in terms of the 
instruments it controls, keeping an eye on the financial system 
and making sure that it does not get into a crisis of this sort 
again, and maintaining incentives to growth, which is what low 
interest rates do, are appropriate at this time.
    It then becomes harder when interest rates eventually will 
start rising, as they have to, and one will then start talking 
about tradeoffs between inflation and unemployment. We are not 
there yet. We can focus on unemployment and that is what we, 
the United States, need to do.
    Senator Schumer. One final question, with the indulgence of 
the Chair. Just elaborate, because I asked you about this. You 
said to me that your experience at Citibank for the 3 years you 
were there in your long career helped you be a much better 
central banker. And you are one of the few. There are 
probably--you could count on two hands the number of people who 
have your experience in the world dealing with crises.
    Just tell me, just elaborate for the Committee and for the 
public how you think it was an asset and made you a better 
central banker, both in terms of the economy, but also in terms 
of regulating banks.
    Mr. Fischer. Well, Senator, I answered this a little bit in 
answering Senator Warren's questions. The basic issue is what 
do you think you are seeing out there. Do you understand when 
the markets are behaving one way or the other, and particularly 
when what happened in the Israeli case.
    I happened to be getting the New York Times, as well as the 
Israeli papers. They were more worried about the aftermath of 
Lehman. The headlines were blacker and more difficult in the 
Israeli press than they were in the United States. And a panic 
descended and we knew it. We knew what the banking system's 
shape was. It had no relationship to what actually happened.
    And the fact that you could have the confidence based on 
what you saw and go out and speak to people and avoid the sort 
of tricks that journalists play--Governor, can you guarantee us 
that there will never be a bank failure? That sort of thing. 
You have to give people confidence without exaggerating.
    Senator Schumer. Right. One final question. You had 
mentioned to me that in one instance you had to, as head of the 
Israel bank, Bank of Israel, go after one of the major 
financial families in Israel for wrongdoing and one of them 
ended up spending time in jail. Could you just tell people 
about that? I know you do not--well, you may not want to talk 
about that. I do not know.
    Mr. Fischer. Well, that incident happened. It was not 
pleasant and it happened in the middle of a global crisis, 
which made it very delicate. It involved the chairman of one of 
the very big banks. We reached the conclusion, based on 
evidence we had, that he should not continue as chairman of 
that bank. It was very difficult to get him out, but we did 
eventually. This is one person who was tough. We dealt with it 
appropriately. He was later convicted of a variety of crimes.
    Senator Schumer. I just bring it up because I think it 
shows that you will go after people who violate the law, do the 
wrong thing, et cetera. Thank you, Mr. Chairman.
    Chairman Johnson. Mr. McWatters, what opportunities and 
challenges do you see for credit unions in the current 
environment?
    Mr. McWatters. I think the greatest opportunity for credit 
unions is to continue what they are doing now. With 96 million 
Americans in credit unions, they are growing, their loan base 
is growing, and the like. One opportunity is particularly for 
low-income credit unions to expand their mandate to those 
Americans who are underbanked and unbanked. There is 
opportunity there. Those folks need financial services. They 
need financial services at a reasonable rate, and I think there 
is opportunity there.
    Challenges. I think the principal challenge is to look to 
the future and anticipate the next systemic shock or the next 
shock to the financial system. This applies to credit unions 
and also to banks. If you roll the clock back 6 years, 7 years, 
the talk about the overconcentration of mortgage-backed 
securities on the books of financial institutions, the too-big-
to-fail end of large corporate credit unions, was virtually 
nonexistent.
    If you look at the transcripts of the Fed tapes from 2008, 
there is very little, if any, discussion about this. It was 
there. It was hiding in plain sight. Loans were clearly 
inappropriately underwritten. There was an overconcentration of 
mortgage-backed securities. This led to the huge financial 
crisis that we are still suffering through.
    That is the greatest challenge: to look into the future. 
But you have to be careful with that. If you are always crying 
wolf, you will be considered a flake, so you need to exercise 
judgment carefully and judiciously.
    Another challenge to credit unions, I think, is the 
regulation of small credit unions, perhaps the overregulation 
of small credit unions. NCUA has made some progress in this 
area. I think more work though, needs to be done. If I am 
confirmed to this position, it is a scenario I want to look 
into. I want to talk to credit unions. I want to talk to the 
NCUA. I want to reach an independent analysis myself as to 
whether or not small credit unions are overregulated or not.
    Other issues which have come up, risk-based capital has 
been proposed for credit unions. Risk-based capital, 
philosophically makes sense to me, that if you have riskier 
assets on your books, you should carry greater amounts of 
capital. But the devil is in the details. So if I am confirmed 
to this position, again, this is something I would very much 
want to look into. Thank you.
    Chairman Johnson. Mr. Velasquez, as the Director of the 
District of Columbia Office of Human Rights, you work with 
HUD's Office of Fair Housing and Equal Opportunity. How will 
your experience as a local partner of HUD inform your 
activities as Assistant Secretary for FHEO?
    Mr. Velasquez Aguilar. Thank you, Mr. Chairman. I believe 
that if confirmed, my experience as a strong local partner of 
the Office of FHEO will be both extremely relevant and useful. 
Working across the Nation's capital on the ground with 
communities, with neighborhoods, with industry groups, with 
different fair housing groups, I believe, especially at the 
local level, is a unique opportunity and a unique experience 
that will relate very well to this national role, if confirmed.
    Because the D.C. Human Rights Act, one of the most robust 
nondiscrimination laws in the country, is substantially 
equivalent to the Fair Housing Act, we have worked together on 
a number of initiatives and programs. First and foremost, the 
investigation of complaints filed by District residents under 
Federal law, but we have also done a number of other proactive 
initiatives, including paired match testing across the city in 
the rental market, the analysis of mortgage lending data, 
training for industry groups at the local level, and very, very 
importantly, educational campaigns and awareness campaigns to 
continue to raise the knowledge of District residents about 
what are their rights under the Fair Housing Act and other 
civil rights laws nationally.
    Chairman Johnson. I thank all the nominees for your 
testimony and for your willingness to serve our Nation. I ask 
all Members to submit questions for the record by COB Thursday, 
March 20. To the nominees, please submit your answers to the 
written questions as soon as possible so that we can move your 
nomination forward in a timely manner.
    This hearing is adjourned.
    [Whereupon, at 11:40 a.m., the hearing was adjourned.]
    [Prepared statements, biographical sketches of nominees, 
and responses to written questions supplied for the record 
follow:]
                 PREPARED STATEMENT OF STANLEY FISCHER
   To be a Member and Vice Chairman of the Board of Governors of the 
                         Federal Reserve System
                             March 13, 2014
    Chairman Johnson, Ranking Member Crapo, and Members of the 
Committee, thank you for this opportunity to appear before you. I am 
greatly honored to have been nominated by President Obama to serve as a 
member and Vice Chair of the Board of Governors of the Federal Reserve 
System and I look forward, if confirmed, to working with this Committee 
in the coming months and years.
    In recent years the Federal Reserve has made significant progress 
toward achieving its Congressionally mandated goals of maximum 
employment and price stability. Nonetheless, normalcy has not been 
restored. At 6.7 percent, the unemployment rate remains too high, and 
the rate of inflation has been, and is expected to remain, somewhat 
below the Federal Reserve's target of 2 percent. At present, 
achievement of both maximum employment and price stability requires the 
continuation of an expansionary monetary policy--even though the degree 
of expansion is being gradually and cautiously cut back as the Fed 
reduces its monthly purchases of longer-term Treasury securities and 
agency mortgage-backed securities.
    I would like to add that in their efforts to achieve aggregate 
goals, policy makers should never forget the human beings who are 
unemployed, nor the damage that high inflation wreaks on the economy 
and thus on the lives of so many people.
    The financial collapse that intensified in the last months of 2008 
and early 2009 threatened, in the view of some central bankers, 
including this one, to result in a recession even deeper than the Great 
Recession we experienced. The Federal Reserve's policies in dealing 
with the financial collapse were courageous and effective. Nonetheless, 
we must do everything we can to prevent the need for such extreme 
measures ever again. Among the lessons of the financial crisis are the 
necessity of dealing with the ``too-big-to-fail'' problem, and the 
necessity of greatly strengthening the resilience of the entire 
financial system. The Dodd-Frank Act put in place a framework that 
should make it possible to advance these goals, and the United States 
has moved rapidly to put a series of important measures into effect. 
Among them are: the significant increase in capital requirements and 
the introduction of countercyclical capital buffers for banks; the 
sophisticated use of stress tests, the importance of which becomes ever 
clearer; enhanced resolution authority and the single point of entry in 
dealing with SIFIs; living wills; and the creation of the Financial 
Stability Oversight Council (FSOC). At the international level, the 
establishment of the Financial Stability Board (FSB), whose membership 
includes the countries of the G20 and a few other financial centers, 
provides an important mechanism for strengthening international 
coordination of financial regulation.
    While we have undoubtedly made important progress in strengthening 
the financial system, we must also recognize that maintenance of the 
robustness and stability of the financial system cannot be attained 
without strong regulation and supervision. Financial systems evolve, 
and while financial crises have many similarities, they are not 
identical. The Fed must remain ever-vigilant in supervising and 
regulating the financial institutions and markets for which it has been 
assigned responsibility, and it should be no less vigilant in its 
surveillance of the stability and resilience of the financial system as 
a whole.
    The Great Recession has driven home the lesson that the Fed has not 
only to fulfill its dual mandate, but also to contribute its part to 
the maintenance of the stability of the financial system. Almost 
always, these goals are complementary. But each of them must be an 
explicit focus of Fed policy. In all the situations with which the Fed 
will have to contend in pursuing its goals, it will be called upon to 
make wise decisions, which draw on the experience and the analytic 
skills of the staff and of the members of the Federal Reserve Board and 
the Federal Open Market Committee. I hope that, if confirmed, I will be 
able to assist Chair Yellen and my future colleagues in making those 
critical decisions, and so to contribute to the well-being of the 
citizens of the United States.
    Senators, Thank you for the opportunity to appear before you today 
and for considering my nomination. I would be pleased to respond to any 
questions.




                 PREPARED STATEMENT OF JEROME H. POWELL
 To be a Member of the Board of Governors of the Federal Reserve System
                             March 13, 2014
    Chairman Johnson, Senator Crapo, and Members of the Committee, I am 
honored and grateful to President Obama for the privilege of appearing 
before this Committee today as a nominee to the Federal Reserve Board. 
I have served as a member of the Board since May 2012. If I am 
confirmed to the new term for which I am nominated, I will continue to 
work to the best of my abilities to carry out the responsibilities of 
this office.
    Over the past 2 years, I have been deeply involved in the work of 
the Board and of the Federal Open Market Committee. Important 
challenges lie ahead, and I am eager to play my part in meeting them.
    Before joining the Board, I spent close to 30 years working in the 
financial markets as an attorney, as an investment banker, and as an 
investor. I believe that my practical experience of the private sector 
and the financial markets provides a valuable perspective in the work 
of the Board and the FOMC.
    I also served as Assistant Secretary and then Under Secretary of 
the Treasury for Finance from 1990 to 1993. Throughout that period, I 
worked closely with this Committee, and appeared in this room many 
times as a witness in hearings and markups. More recently, I testified 
before this Committee on anti-money laundering and the Bank Secrecy Act 
on March 7, 2013.
    The early 1990s were turbulent years for our economy and the 
markets. We faced the savings and loan crisis and the resulting 
bailout; a severe credit crunch, with some businesses and households 
unable to get credit on reasonable terms; the insolvency of the FDIC's 
Bank Insurance Fund; and the failure and near failure of several large 
financial institutions, which presented squarely the problem of too big 
to fail.
    I was deeply involved in addressing these crises and in the major 
legislation that followed, including the Federal Deposit Insurance 
Improvement Act of 1991 (FDICIA). I also led the Administration's 
efforts to address a very troubling episode involving market 
manipulation and the submission of false bids in Treasury auctions by 
employees of the investment firm Salomon Brothers. This scandal 
resulted in the Government Securities Reform Act of 1992, as well as 
revisions to Treasury's auction rules.
    Today, our economy continues to recover from the effects of the 
global financial crisis, unevenly and at a frustratingly slow pace. The 
task for monetary policy will be to provide continued support as long 
as necessary, and to return policy to a normal stance over time without 
sparking inflation or financial instability. This will require a 
careful balancing, as there are risks from removing monetary 
accommodation too soon as well as too late.
    The regulation and supervision of financial institutions and 
markets are as important as anything the Federal Reserve does. This is 
a time to continue to address the weaknesses that were exposed during 
the crisis and set the stage for another long period of prosperity. 
Working with fellow regulators in the United States and around the 
world, the Federal Reserve is engaged in a once-in-a-generation 
renovation of the financial regulatory architecture. There is much work 
to be done, both in the implementation of decisions Congress has made 
and in finalizing and implementing international accords, such as Basel 
III.
    At the heart of these broad reforms is the project of ending the 
practice of protecting creditors and sometimes equity holders of large 
global financial institutions in extremis--too big to fail. There has 
been significant progress, but more work is left to do. Realizing this 
objective will take time and persistence. I am eager to play a part in 
that.
    Thank you again for holding this hearing today. I would be pleased 
to answer your questions.



                  PREPARED STATEMENT OF LAEL BRAINARD
 To be a Member of the Board of Governors of the Federal Reserve System
                             March 13, 2014
    Chairman Johnson, Ranking Member Crapo, distinguished Members of 
the Committee, I appreciate the opportunity to be here with you today.
    It is an honor to be nominated by President Obama to serve on the 
Federal Reserve Board and particularly under Chairman Yellen's 
leadership. I want to express gratitude to my husband and my 3 dynamic 
daughters for supporting my return to public service after a wonderful 
but too brief time at home.
    I cannot think of a more important moment for the work of the 
Federal Reserve in promoting price stability and maximum employment 
alongside financial stability. If confirmed, you can be sure I will be 
intensely focused on safeguarding the Fed's hard won credibility in 
preserving price stability, while supporting its indispensable role in 
getting Americans back to work, and strengthening its role in ensuring 
a safe and sound financial system.
    The Federal Reserve has a critically important and appropriately 
delimited role in addressing the challenges we face as a Nation in the 
wake of a deeply damaging financial crisis. It will need to carefully 
calibrate the tools of monetary policy to ensure an appropriate pace of 
normalization, while supporting the fragile recovery in our job market 
and ensuring inflation expectations remain well anchored. The Federal 
Reserve will need to continue robust implementation of financial reform 
and enhanced supervision to ensure that no financial institution is too 
big to fail and to discourage the massive leverage and opaque risk 
taking that contributed to the financial crisis, while protecting the 
savings of retirees and sound access to credit for consumers, small 
businesses, students, and households seeking to own their own home.
    For me, service on the Federal Reserve would be a very natural 
progression, building on my more than 6 years of experience formulating 
economic policy at the White House National Economic Council and 
Council of Economic Advisers, and my nearly 5 years of recent 
experience in financial diplomacy at the Treasury, as well as my 
earlier work in the private sector and academia focused on U.S. 
competitiveness in key industries. It would enable me to continue my 
life's work of promoting an economy that delivers opportunity for hard 
working Americans while safeguarding financial stability.
    It is an honor to be considered for this position. If confirmed, I 
would look forward to working with Members of this Committee to advance 
our shared goal of making sure our financial system works for all 
Americans.




            PREPARED STATEMENT OF GUSTAVO VELASQUEZ AGUILAR
  To be an Assistant Secretary of the Department of Housing and Urban 
                              Development
                             March 13, 2014
    Chairman Johnson, Ranking Member Crapo, and Members of the 
Committee, I am honored to appear before you today as you consider my 
nomination as Assistant Secretary for the U.S. Department of Housing 
and Urban Development's Office of Fair Housing and Equal Opportunity 
(FHEO). I would like to start by introducing my wife Emily and my two 
sons, Sebastian and Javier, who are with me here today. I am grateful 
for their love and support, which means everything to me.
    I came to this country in my mid-20s, have proudly become a 
citizen, and have devoted the last 15 years of my life to public 
service. My career has been marked by the pursuit of justice and the 
defense of civil and human rights for people from all walks of life. I 
am committed to promoting equal opportunity and combating 
discrimination, and believe that becoming Assistant Secretary for Fair 
Housing and Equal Opportunity would be a tremendous opportunity to 
continue to fulfill that commitment. My qualifications to become 
Assistant Secretary are based on my record as a leader, bringing people 
together to resolve complex public challenges; my experience in and 
knowledge of the field of nondiscrimination laws, regulations, and 
enforcement, including fair housing; and my management abilities, 
particularly with respect to streamlining the investigation of 
discrimination claims for careful analysis and expeditious resolution. 
Most of all, I want to highlight my experience in finding every 
possible way to inform the public about their rights under the law.
    In my previous positions, I have demonstrated expertise in working 
with Federal civil rights laws, regulations and programs, including 
Title VIII of the Civil Rights Act of 1968 (Fair Housing Act), and many 
other Federal and local antidiscrimination laws in employment, 
education, public accommodation, and publicly funded services and 
programs.
    I served from 2007 through October 2013 as Director of the District 
of Columbia Office of Human Rights. In this capacity, I have been 
ultimately responsible for the investigation and disposition of 
thousands of discrimination cases filed by individuals and 
organizations. I have also been responsible for helping establish or 
modify rules and guidelines to investigate and adjudicate employment 
and housing discrimination complaints under one of the most 
comprehensive nondiscrimination statutes in the country--the D.C. Human 
Rights Act of 1977. In doing so, I have studied and applied Federal 
laws and regulations, from HUD and other agencies, for consistency in 
the enforcement of civil rights in the District.
    Because D.C.'s nondiscrimination law is substantially equivalent to 
the Fair Housing Act, for many years the D.C. Office of Human Rights 
has been cross-filing and investigating cases with HUD under Federal 
law. This has required me to understand and apply the rules and 
guidelines emanating from HUD's Office of Fair Housing and Equal 
Opportunity for the proper investigation and disposition of Title VIII 
complaints.
    With respect to management, in addition to many years as a not-for-
profit executive manager, I have provided leadership and management in 
Government for two State-level agencies: the D.C. Office of Latino 
Affairs, and the D.C. Office of Human Rights.
    As Director of the Office of Latino Affairs, I was responsible for 
designing and advancing policies and programs for the economic and 
social advancement of the Latino community.
    At the Office of Human Rights, I led a successful agency of 
talented professionals working on combating discrimination in the 
Nation's capital. I am proud of the many accomplishments that my team 
of investigators, mediators, attorneys, and administrative law judges 
achieved under my leadership, whether in enforcement or raising 
awareness of the wide range of protections that people living and 
working in D.C. enjoy.
    Mr. Chairman, Ranking Member Crapo, and Members of the Committee, I 
am honored by the President's nomination, the confidence of Secretary 
Donovan, and the opportunity to appear before you today. If confirmed, 
I look forward to working tirelessly on promoting fair housing and 
equal opportunity across the Nation and in cooperation with Members of 
this Committee. Thank you for your consideration of my nomination. I 
look forward to your questions.




                PREPARED STATEMENT OF J. MARK MCWATTERS
    To be a Member of the National Credit Union Administration Board
                             March 13, 2014
    Chairman Johnson, Senator Crapo, and Members of the Committee, 
thank you very much for the opportunity to appear before you today as a 
nominee for the National Credit Union Administration Board.
    My wife, Denise, and our two teenage sons, Clark and Parker, were 
unable to join me today, but they are watching over the Internet. My 
sons were intrigued by the prospect of a televised job interview and 
were reassured that such an approach is rarely adopted by other 
employers. In particular, I wish to thank Denise for her enthusiastic 
and tireless support in this endeavor and over the last 30 years.
    It is an honor and a privilege to be nominated to the NCUA Board, 
and if confirmed, I will do everything within my power to fulfill the 
trust placed in me by the President and the U.S. Senate. I'm especially 
grateful for Minority Leader Mitch McConnell's recommendation of me to 
the President for this position.
    Through my education and work, I have developed a broad knowledge 
of the financial services industry and an understanding of the heavy 
responsibilities of regulators. NCUA plays a critical role as a 
regulator and insurer to protect the hard-earned savings of more than 
96 million Americans in an industry with more than $1 trillion in 
assets. If confirmed, I will work diligently to ensure the continued 
integrity and safety and soundness of our Nation's credit union system 
in an ever-evolving marketplace.
    On my qualifications, I currently serve Southern Methodist 
University in three roles: as the Assistant Dean for Graduate Programs, 
as a Professor of Practice at the Dedman School of Law, and as an 
Adjunct Professor at the Cox School of Business. As a teacher, I have 
found that my students and I often benefit from the vigorous discussion 
of judicial holdings and problem sets. Although we may initially 
approach an issue from divergent perspectives, the process of debating 
a challenging matter in a transparent and analytical, yet collegial, 
manner often produces common ground and a workable consensus.
    I also currently serve as an uncompensated member of two public 
entities. Since March 2012, I have served on the Governing Board of the 
Texas Department of Housing and Community Affairs, which assists in the 
financing of approximately $1 billion of affordable housing units per 
year. Since September 2012, I have also served on the Advisory 
Committee of the Texas Emerging Technology Fund, a $400 million-plus 
State venture capital and job creation fund. My work with both bodies 
focuses primarily on the oversight of taxpayer-funded resources and, if 
confirmed, should directly translate to my responsibilities on the NCUA 
Board.
    Previously, I practiced law for more than 20 years, most of that at 
the partner level. My private sector experience with three well-known 
international law firms covered tax law, corporate finance, and 
domestic and cross-border mergers and acquisitions. I also served as 
the tax and merger and acquisition counsel to a cross-border investment 
firm.
    Additionally, I have Government experience, clerking for a judge on 
the U.S. Ninth Circuit Court of Appeals in Los Angeles and briefly 
serving as counsel to Congressman Jeb Hensarling. From this latter 
position, I was appointed to serve on the Troubled Asset Relief Program 
Congressional Oversight Panel. In this role, I was privileged to work 
alongside someone who now serves on this Committee, Senator Elizabeth 
Warren.
    While on the TARP Congressional Oversight Panel, I sought to 
balance and respect different perspectives, and reach consensus based 
upon a set of overarching principles, just like I now practice in the 
classroom. Ultimately, my colleagues and I worked to produce an 
accurate, nonpartisan analysis of the TARP and the financial crisis.
    I'm pleased that of the 15 reports the panel issued in my tenure, 
14 were unanimous. We achieved this result by working together in an 
open and respectful manner, with the goal of finding a common ground 
and working cooperatively through any differences. If confirmed by the 
Senate, I will bring this same approach to my work with my NCUA Board 
colleagues, NCUA staff, State regulators, and external stakeholders.
    In my legal practice, I have often found that the fundamental 
issues create the most opportunity for concern. For example, does a 
proposed transaction generate sufficient cash flow? Does a tax 
structure have economic substance and business purpose?
    Likewise, in assessing the risks inherent within financial 
institutions, I have learned that it's the basic issues that lead to 
the difficult questions. For example, do financial institutions have 
the capital, liquidity and risk mitigation programs necessary to 
operate in an unexpectedly adverse economic environment? And are their 
financial statements transparent and understandable, so that it's 
possible to assess their business strategies and contingent 
liabilities?
    In answering these questions, lawyers and regulators need to take a 
step back and apply the law with impartiality and look at the larger 
picture. They also need to think both tactically and strategically, 
always considering not just the desired outcome, but potential 
unintended consequences.
    I am convinced that regulators should remain mindful that the root 
causes of seemingly intractable problems are often embedded not in the 
esoteric, but in the commonplace. As such, my focus as a regulator will 
remain straightforward: Don't neglect the fundamentals of capital, 
liquidity, and transparency, and always remember that the greatest 
threat to a financial system may reside where you least expect it--
hidden within plain view.
    Additionally, my experiences in the private and public sectors have 
taught me valuable lessons on leadership and responsibility, including 
the importance of: finding common ground, paying attention to the 
fundamentals, earning trust, and never forgetting that real people are 
affected by your decisions. As a result, these experiences have 
provided a solid foundation and comprehensive skill set for evaluating 
the important policy issues now facing the NCUA Board.
    If confirmed, I will bring my 30-plus years of legal experience, 
accounting training, general understanding of the broader financial 
markets, an open mind, and a risk-based, market-oriented, targeted and 
transparent regulatory perspective to address the increasingly complex 
and sophisticated issues facing credit unions. Even more so, I will aim 
to balance competing viewpoints while maintaining the safety and 
soundness of the credit union system, safeguarding the Share Insurance 
Fund, enforcing consumer protection rules, and protecting taxpayers and 
credit union members from losses.
    Thank you for the opportunity to appear here today, and for this 
opportunity to again serve my country. I am happy to answer any 
questions you may have.



        RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAPO
                      FROM STANLEY FISCHER

Q.1. The regulatory framework that emerged out of Dodd-Frank 
has made it increasingly difficult for community banks. 
According to some reports, one-quarter of small banks are 
contemplating mergers because they can no longer survive. How 
will you work to minimize the regulatory burden being placed on 
community banks?

A.1. By beginning to taper the rate of its purchases of 
Treasury securities and agency-backed mortgage based 
securities, the Fed has already begun the process of returning 
to a more normal monetary policy, one that will rely on the 
short-term interest rate as its main instrument. But it is 
likely to take well over a year until the interest rate is 
first increased, since it is expected to remain at its current 
level for a considerable period even after the Fed ends 
quantitative easing.
    The Fed has been developing tools for use during the period 
of transition to a more normal monetary policy, particularly 
the interest rate on reserves, a term deposit facility, and the 
use of reverse repos. These instruments should enable the Fed 
to maintain a close link between the rate paid on reserve 
balances and market rates.
    Thus, the Fed will have the tools to manage the short-term 
interest rate. However, during the period of transition, the 
markets are likely to be very sensitive to expectations about 
the timing of the first increase in the Fed interest rate. The 
Fed will thus have to be very precise in its market guidance--
while accepting that market reactions are sometimes unexpected.

Q.2. I worry that the aggregate impact of the rules 
implementing Dodd-Frank will be immense. For some financial 
companies it will result in a regulatory death-by-a-thousand-
cuts, with significant impact for the economy at large. If 
confirmed to the Board of Governors, how will each of you 
intend to monitor the cumulative regulatory burden on entities 
affected by the Fed's rulemakings?

A.2. I fully agree with the underlying premise of the question, 
namely that the overall burden of the banking regulations 
imposed in the last 5 years, and particularly since the passage 
of DFA, may impose significant costs on banks, especially 
smaller banks. I understand that the Fed considers the costs 
and benefits of every rule that it issues--and also is working 
with other regulators to try to make sure that smaller banks 
are not faced with the same regulatory burdens as the lager 
banks.
    If confirmed, I will certainly be attentive to the costs 
and benefits of Fed rules and regulations, and their burden--
especially on smaller institutions.

Q.3. As part of its QE purchases, the Fed has accumulated a 
significant percentage of all new Federal mortgage-backed 
security issuances. The large nature of the Fed's purchases 
appear to be a deterrence to private capital from coming back 
into the market and issuing new mortgage-backed securities. 
What effect does the Fed's role as the dominant buyer or 
mortgage-backed securities have on the market?

A.3. The Fed's purchases of Government-backed mortgage-backed 
securities (MBS) should have had the effect of driving down the 
interest rate on MBS, thus encouraging some private investors 
to buy closely related assets, including privately backed MBS, 
whose interest rates would have been less affected by the Fed's 
MBS purchases.
    The FOMC has said that it is unlikely that it would sell 
agency mortgage-backed securities as part of the normalization 
of the balance sheet, except perhaps in the long run in order 
to reduce or eliminate residual holdings in the process of 
going back to holding a smaller portfolio composed largely or 
entirely of Treasury securities. Rather it will allow the MBS 
to mature and thus run off its holdings gradually so as to 
reduce market pressures that could result from the process of 
reducing its stock of MBS. As the Fed reduces its holdings of 
Government-backed MBS, interest rates on these securities are 
likely to rise, encouraging those who had moved to adjacent 
markets to return to the Government-backed MBS market.

Q.4. For the size of the balance sheet and the quantity of 
assets that the Fed has accumulated, there seems to have been 
only a limited effect on businesses willingness to hire. Please 
discuss about whether QE policy and implementation has been 
effective in reducing employment, and how you view the 
importance of fiscal and regulatory reform in growing our 
economy.

A.4. Research suggests that QE has lowered longer-term yields 
and eased broader financial conditions, and has also lowered 
mortgage rates. The market's response last spring to the FOMC's 
discussion of tapering suggests that the QE policies have had a 
significant effect on market interest rates--which in turn 
should have had a significant effect on investment, including 
in the housing market, and thus also on economic activity, 
employment, and unemployment. But direct estimates of the size 
of the effect of QE on employment and unemployment are not 
precise.
    In principle, fiscal and regulatory reform can have an 
important impact on economic growth, but the impact would of 
course depend on the details of the reform measures.

Q.5. The New York Fed's report on household debt shows that one 
area we see an increase in individuals taking on significant 
amount of student loan debt. In addition, the Kansas City Fed 
recently held a conference on this same topic. In recent years, 
the vast majority of these loans are obtained by students 
through Federal programs. The relative ease of access to these 
Federal loans is encouraging students to take out significant 
amounts of loans. Should we be concerned about students 
acquiring this significant amount of debt? How will this affect 
the future of our Nation's economy?

A.5. The volume of student loans outstanding now exceeds $1.2 
trillion, and the 2-year cohort default rate on Federal student 
loans has increased from 6.7 percent in 2007, to 10 percent in 
2011, which is the latest available data point.
    Given the rise in the unemployment rate between 2007 and 
2011, some of the increase in the default rate is likely to be 
due to the difficulty of finding jobs in 2011, and the default 
rate may already have started declining. Further, the return to 
college education does not seem to have declined 
significantly--so there remains good reason to continue to 
encourage investment in college education.
    Nonetheless the very large outstanding stock of loans gives 
cause for concern and careful monitoring of the situation.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                      FROM STANLEY FISCHER

Q.1. Several experts and witnesses have stated in comment 
letters, legal memoranda, and testimony that the Federal 
Reserve has broad flexibility in the way it develops and 
applies minimum capital standards under Section 171 of the 
Dodd-Frank Act known as the Collins Amendment--for insurance 
companies and other nonbank financial companies supervised by 
the Federal Reserve. If and when you are confirmed and 
confronted with this issue, can we have your assurance that you 
will consider and evaluate the total mix of information 
available on this issue, including these legal memoranda and 
other views that were shared with the Subcommittee on Financial 
Institutions and Consumer Protection at its hearing on March 
11, 2014?

A.1. Yes, if confirmed, I will consider and evaluate the total 
mix of information available on this issue, including relevant 
materials that have been shared with the Banking Committee this 
year.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                      FROM STANLEY FISCHER

Q.1. Each of you testified that there is still work to be done 
to end Too Big to Fail. Do you think that ending Too Big to 
Fail should be the Board of Governors of the Federal Reserve 
System's (Fed) top regulatory priority?

A.1. Ending TBTF has been and must continue to be a key 
objective of the Federal Reserve. More generally, a key 
objective of financial sector regulation and supervision by the 
Fed and other supervisory agencies must be to end TBTF, in the 
sense that in future crises, the resolution of financial 
institutions should be possible without any direct cost to the 
public sector. Not less important is the need to prevent future 
crises, through the implementation of changes in laws and 
regulations, like the Dodd-Frank Act, which provide tougher and 
higher capital requirements for banks, a binding liquidity 
ratio, the use of countercyclical capital buffers, better risk 
management, the increasingly sophisticated use of stress tests, 
more appropriate remuneration schemes, more effective corporate 
governance, and improved and usable resolution mechanisms, 
along with moving transactions in derivatives to organized 
exchanges, and dealing with the shadow banking system.

Q.2. Do you think that regulators must ultimately reduce the 
size of the largest financial institutions to end Too Big to 
Fail? Do you believe it will be possible through other 
regulatory approaches--such as resolution authority--to 
convince the markets that the Government will truly let a 
massive institution fail?

A.2. The Fed and other regulators should do everything they can 
to address the TBTF problem. As mentioned in answering your 
first question, many measures have already been put in place to 
reduce the likelihood of the failure of large financial 
institutions. Other measures are intended specifically to deal 
with the largest financial institutions, including the 10 
percent deposit cap and the DFA 10-percent liability cap on 
bank holding company acquisitions. In addition, the Fed is 
required to consider the effect on financial stability of 
proposed acquisitions by large banking organizations, and in 
this context and others, regulators must consider all factors, 
including size, in assessing financial stability and other 
risks.
    The importance of measures making large (and other) banks 
more resolvable should not be underestimated. Both the living 
will process and the ``single point of entry'' resolution 
strategy for bank holding companies are significant 
developments. Nonetheless, because the post-Great Recession 
financial system is still a work in progress, and because the 
private sector tries to innovate around regulations, we need to 
bear in mind the possibility that further measures and new 
approaches to the TBTF problem may be needed over the course of 
time.

Q.3. At a Banking subcommittee hearing this January, I asked 
four economists--Luigi Zingales from the University of Chicago, 
Simon Johnson from the MIT Sloan School of Management, Harvey 
Rosenblum from the Southern Methodist University, and Allan H. 
Meltzer of the Tepper School of Business--whether the Dodd-
Frank Act would end Too Big to Fail when it was fully 
implemented. They each said it would not. Do you agree? If so, 
what kind of additional authority do you think the Fed needs to 
ensure that Too Big to Fail is ended? If not, what gives you 
confidence that Dodd-Frank, once fully implemented, will 
successfully address Too Big to Fail?

A.3. It is clear that real progress has been made in dealing 
with the TBTF problem, in the sense that in future crises, the 
resolution of bankrupt financial institutions should be 
possible without any direct cost to the public sector. That is 
made more likely by the provision in DFA that allows the costs 
of the failure of a bank or banks to be paid by means of a 
charge levied on the solvent banks. Further, we should be 
continuing work to strengthen the financial system by reducing 
the probability of failures of individual banks, and of 
systemic failures. While ending TBTF should be a key objective 
of the Fed, we need to realize that that is a goal that we must 
always strive to achieve, even though, we cannot foresee future 
developments in the financial system with sufficient clarity to 
be certain that we have fully eliminated TBTF--indeed, anyone 
who ever believes that TBTF has been totally eliminated is less 
likely to supervise the financial system with the caution and 
vigilance that is required.

Q.4. Congressman Cummings and I sent a letter to Chair Yellen 
in February urging her to revise the Fed's delegation rules so 
that the Fed's Board would have to vote on any settlement that 
included at least $1 million in payments, or that banned an 
individual from banking or required new management. At a 
hearing last month, Chair Yellen testified that it was 
``completely appropriate for the Board to be fully involved in 
important decisions,'' and that she ``fully intend[ed]'' to 
make sure the Board would be more involved going forward. Do 
you agree in principle with Chair Yellen's testimony and will 
you support her efforts to require Board members to vote on 
major settlement agreements?

A.4. Chair Yellen has stated that she agrees with the view that 
the Federal Reserve Board should be actively involved in all 
important enforcement decisions. I share that view and if 
confirmed will work with the Chair to translate it into 
practice.

Q.5. Last February, the Fed and the Office of the Comptroller 
of the Currency entered into what they touted as a $9.3 billion 
settlement with mortgage servicers accused of illegal 
foreclosure practices. In their joint press release 
accompanying the settlement, the agencies claimed they had 
secured $5.7 billion in relief for homeowners in the form of 
``credits'' for what the agencies described as ``assistance to 
borrowers such as loan modifications and forgiveness of 
deficiency judgments.'' The press release did not disclose that 
the manner in which the credits were calculated could allow the 
servicers to pay only a small fraction of that $5.7 billion, 
potentially reducing the direct relief to injured borrowers by 
billions of dollars.
    Senator Coburn and I recently introduced the Truth in 
Settlements Act, which would require agencies to publicly 
disclose all the key details of their major settlement 
agreements--including the method of calculating any credits. Of 
course, agencies are not required to wait for congressional 
action to adopt such basic transparency measures. Do you think 
the Fed should voluntarily adopt the disclosure provisions of 
the Truth in Settlements Act?

A.5. The Fed is currently required by law to disclose publicly 
all written agreements enforceable by it against regulated 
entities and individuals, and any final orders in 
administrative enforcement proceedings--a law that applies also 
to consent agreements with regulated entities and individuals. 
I agree with Chair Yellen that the Fed should continue to look 
for ways to be more transparent and, if confirmed, will work 
with her to that end.

Q.6. For the last five years, the Fed has kept interest rates 
extremely low and has used asset purchases to drive rates down 
even further. Yet the unemployment rate still remains higher 
than the Fed's target for full employment. In such situations 
where the Fed is struggling to fulfill its full employment 
mandate using monetary policy alone--should the Fed consider 
using its regulatory authority to attempt to boost job growth?

A.6. The fundamental goals of the Fed's regulatory and 
supervisory responsibilities are to ensure the safety and 
soundness of regulated firms and to ensure financial stability. 
Nonetheless, its supervisory and regulatory measures may have 
macroeconomic consequences, which need to be taken into account 
when making the relevant decisions. Some of the changes made in 
implementing DFA, for example countercyclical capital buffers, 
automatically take the macroeconomic situation into account. In 
seeking to increase growth, it would be desirable for the Fed 
to focus on its monetary policy tools and more broad-based 
regulatory measures such as countercyclical capital buffers.

Q.7. Section 165(d) of the Dodd-Frank Act requires the Fed and 
the Federal Deposit Insurance Corporation (FDIC) to ensure that 
large financial institutions can be resolved in an orderly 
fashion using the conventional bankruptcy process. These 
institutions are required to submit ``living wills'' that 
describe how such a conventional resolution could occur. If the 
Fed and the FDIC find that those plans lack credibility, they 
may require the financial institution to divest subsidiaries, 
hold increased capital, reduce leverage, or take other steps to 
shrink or simplify the institution. To date, over 100 
institutions have submitted living wills, and the Fed and the 
FDIC have not rejected a single plan as lacking credibility.
    What gives you confidence that our largest financial 
institutions could currently be resolved through a conventional 
bankruptcy procedure? What criteria would you use to determine 
whether a resolution plan is ``credible'' for the purposes of 
Section 165(d)? Are you willing to take the actions identified 
in Section 165(d)(5) of Dodd-Frank--including mandating 
divestiture of subsidiaries--if you believe a resolution plan 
lacks credibility?

A.7. The requirement that large financial firms prepare living 
wills is designed to ensure that both the firms and the 
regulators have examined what would need to be done if a bank 
were to go bankrupt, and are prepared to undertake those 
actions. They also provide information on the order of 
precedence of creditor claims, make it clear that bondholders 
will be bailed in if necessary, and should show that the firm 
could be resolved without needing injections of public money.
    At this stage I do not have enough information to be able 
to judge whether the living wills meet these criteria. I 
understand that the Fed and the FDIC are currently reviewing 
the 2013 plans, and may jointly determine that a plan is not 
credible, nor would facilitate an orderly resolution of the 
company. I do not know how this process is being implemented. 
If confirmed, I would seek to become fully informed on the 
adequacy of the plans, in accordance with the process now under 
way between the Fed and the FDIC.
    If confirmed, I would be willing to support taking any 
actions that are compliant with the law and that are necessary 
to meet the goal of reducing risks to the stability of the 
financial system.

Q.8. As a fraction of GDP, the financial sector today is about 
twice as large as it was in the 1970s. Despite this growth in 
size, researchers have found that the sector is less efficient 
than it once was in allocating credit for the real economy. Do 
you believe that there are effectively ``reverse economies of 
scale,'' such that financial institutions can grow so large 
that they become less efficient at performing their primary 
function of allocating credit?

A.8. There is no question that the share of the financial 
sector in GDP has grown significantly since the 1970s. During 
that period there has been a great deal of financial 
innovation. Not all the innovations have increased the 
efficiency of the financial sector in allocating capital--as 
was evident in the degree of complexity in many derivative 
contracts in the run-up to the financial crisis. The new 
regulatory system being put in place at present, which seeks to 
end TBTF by in effect aligning the private returns to financial 
activities with their social returns, may well lead to a 
decline in the size of the sector relative to GDP.
    During the same period, there has been an increase in 
concentration within the banking sector, with the large banks 
growing relatively larger. Research on whether there are 
economies of scale in banking has not yet reached a definitive 
conclusion. In this area too, changes in regulations 
(particularly the measures designed to end TBTF) that in effect 
seek to align private returns in banking with social returns 
may have important effects on the size of the largest firms, 
and perhaps on the size of the banking system.

Q.9. Last year, the Financial Stability Board (FSB) directed 
the International Association of Insurance Supervisors (IAIS) 
to propose global qualitative capital standards by 2016 for 
``internationally active insurance groups'' (IAIGs)--a category 
that includes U.S.-based insurance companies that have not been 
designated as systemically important financial institutions. 
Ostensibly, the three U.S. representatives to the FSB--the Fed, 
the Securities Exchange Commission, and the Treasury 
Department--supported the FSB's directive to the IAIS.
    U.S. insurance regulation is primarily State-based and 
relies on State guaranty funds, whereas European insurance 
regulation is primarily based on capital standards and does not 
rely on guaranty funds. Given this difference in regulatory 
approach, do you think it is appropriate for U.S.-based IAIGs 
to be subject to a single, global capital standard for their 
U.S. operations?

A.9. The international capital standard for insurance companies 
being developed by the IAIS is designed to achieve greater 
comparability of capital requirements of internationally active 
insurance groups (IAIGs) across jurisdictions. The capital 
standard relates to the insurance group, and not to individual 
institutions within the group. It is designed to provide for a 
more level playing field for firms across countries, and to 
enhance supervisory cooperation and coordination among national 
supervisors. The international standard would supplement but 
not replace insurance risk-based capital standards at U.S. 
domiciled insurance legal entities within the overall firm. In 
fact, neither the IAIS nor the FSB has the authority to 
implement requirements in any jurisdictions.

Q.10. What do you see as the proper role of the General 
Counsel's office in both the Fed's rulemaking process and its 
supervisory and enforcement processes? Does it go beyond the 
duties that are specifically delegated to the General Counsel's 
office in 12 CFR 265.6?

A.10. The role of the Legal Division is to provide legal advice 
and services to the Board, including with regard to the Board's 
supervisory and regulatory responsibilities and authority. The 
Board is permitted to delegate certain functions--except those 
relating to rulemaking and those pertaining mainly to monetary 
and credit policies--to Board members and employees. Any Board 
member may require the full Board to review any matter 
delegated to staff or to the reserve banks.

Q.11. In your view, did deregulation cause the 2008 financial 
crisis?

A.11. There were many factors that caused the financial crisis, 
including the rapid pace of innovation in the financial system 
as a whole, inadequate risk supervision in the private sector, 
an inadequate and outdated regulatory system, and inadequate 
supervision among regulators.

Q.12. The Senate Permanent Subcommittee on Investigations 
recently released a report detailing Credit Suisse's role in 
aiding thousands of Americans evade their U.S. tax obligations. 
Credit Suisse and the Swiss Government have not been 
cooperating with the Department of Justice's investigation. Do 
you think it is appropriate for the Fed to use any of its 
regulatory or enforcement authority under the circumstances?

A.12. The Fed has the authority to impose conditions and 
penalties on foreign banks and their U.S. operations, to ensure 
the safety and soundness of their operations and compliance 
with U.S. law. I understand it has taken action in this context 
in the past, and will no doubt do so in the future when 
appropriate. With regard to Credit Suisse, the investigation by 
the Department of Justice is now under way and it would not be 
appropriate to comment on the matter, which is related to a 
single firm.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR KIRK
                      FROM STANLEY FISCHER

Q.1. Capital Rules for Insurance Companies: While many of us 
believe that the Dodd-Frank Act already gives the Federal 
Reserve the authority to distinguish between insurance 
companies and banks when promulgating capital standards under 
the Collins Amendment, the Federal Reserve has made statements 
publicly that it does not believe it has the statutory 
authority to do so. Therefore, a number of senators on this 
Committee introduced legislation, S.1369 to codify and clarify 
that the Federal Reserve can and should make distinctions 
between insurance companies and banks when setting capital 
standards. Is it your interpretation that this authority 
currently exists?

A.1. The Collins Amendment requires that the Fed Board 
establish consolidated minimum risk-based and leverage 
requirements for depository holding companies and nonbank 
financial institutions (NBFIs) designated by the FSOC that are 
not less than the generally applicable risk-based capital 
requirements that apply to insured depository institutions. If 
confirmed, I will work with the other governors and the staff 
of the Fed to craft a regulatory capital regime for insurance 
companies and other NBFIs that is appropriate for the risk 
profile of the companies that is consistent with the Collins 
Amendment.

Q.2. This ability for distinction should also transfer to the 
Fed's ability to distinguish between insurance companies and 
banks for purposes of accounting practices. I have at least two 
insurance companies in my State that are supervised by the Fed 
as savings and loan holding companies. These companies are not 
publicly traded and do not prepare financial statements in 
accordance with GAAP--but rather, in accordance with GAAP-based 
insurance accounting known as Statutory Accounting Principles 
(SAP). Every person I consult tells me that SAP is the most 
effective and prudential way to supervise the finances of an 
insurance company. It is my understanding that the Federal 
Reserve may want to force these insurance companies that have 
used SAP reporting for many decades to spend hundreds of 
millions of dollars preparing GAAP statements--primarily 
because the Fed is comfortable with GAAP and understands it 
since it's what banks use. Is this is true? If it is true, is 
it simply because the Fed is so accustomed to bank regulation 
and not insurance regulation that it simply wants to make 
things easier for itself? Do you agree with this one-size-fits-
all approach to regulation? Can you provide a cost benefit 
analysis to this as it seems to not add any additional 
supervisory value and only adds astronomic costs to these 
companies?

A.2. The Federal regulatory framework for depository 
institution holding companies, including regulatory and 
supervisory tools being developed under DFA, includes the goal 
of promoting the safety and soundness of the consolidated 
holding company. I recognize that any accounting change would 
be difficult and costly for affected insurance companies. I 
understand that the Fed has delayed the capital rulemaking for 
these companies in order to study these issues in more detail, 
including the costs and benefits of moving to GAAP accounting 
by insurance companies that do not currently use GAAP. You may 
be sure that, if confirmed, I will keep in mind the concerns 
you have raised as these rules are finalized.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
                      FROM STANLEY FISCHER

Q.1. A growing concern that many of my colleagues and I are 
following involves the Financial Stability Board's (FSB) 
possible effort to impose European insurance capital standards 
on the U.S. insurance industry, specifically companies that are 
designated as ``internationally active.''
    In my opinion, Dodd-Frank is clear that if an insurer is 
not designated as a SIFI or is not a savings and loan holding 
company that the insurer would continue to be subject to the 
risk-based capital standards per individual State regulation.
    Imposing foreign insurance standards on ``internationally 
active'' American companies appears to be a significant 
departure from the appropriate, traditional State regulation 
these companies were previously subject to.
    Some of the Federal Reserve nominees may have past 
experience with this specific issue in prior governmental 
roles. Please provide your views on whether or not you feel 
that foreign capital standards are appropriate for 
``internationally active insurance companies'' and whether that 
foreign regulatory framework should preempt individual States' 
rights to oversee this industry.

A.1. The international capital standard for insurance companies 
being developed by the FSB and the IAIS (International 
Association of Insurance Supervisors) is designed to achieve 
greater comparability of capital requirements of 
internationally active insurance groups (IAIGs) across 
jurisdictions. The capital standard relates to the insurance 
group, and not to individual institutions within the group. It 
is designed to provide for a more level playing field for firms 
across countries, and to enhance supervisory cooperation and 
coordination among national supervisors. The standard would 
supplement--but not replace--insurance risk-based capital 
standards at U.S. domiciled insurance legal entities within the 
overall firm. In fact, neither the IAIS nor the FSB has the 
authority to implement requirements in any jurisdictions, and 
implementation in the U.S. would have to be consistent with 
U.S. law and comply with the administrative rulemaking process.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAPO
                     FROM JEROME H. POWELL

Q.1. A recent paper presented at the U.S. Monetary Policy Forum 
suggests the possibility that current monetary stimulus may 
involve a ``tradeoff between more stimulus today at the expense 
of a more challenging and disruptive policy exit in the 
future.'' How concerned are each of you about the exit from all 
this monetary stimulus of the past several years?

A.1. As the recovery continues, the Federal Reserve will move 
over time to return monetary policy to a more normal stance. 
The pace and timing of this process will depend on developments 
in the economy--particularly, further progress in reducing 
unemployment, and inflation moving back toward the FOMC's 2 
percent longer-range target for inflation--as well as financial 
market developments. After such a long period of highly 
accommodative policy, it is important that the FOMC be as 
predictable and transparent as possible about the path of 
policy. In all likelihood, the process of normalization will 
take several years.
    The Federal Reserve and the FOMC have a growing range of 
tools to manage the normalization process. The FOMC has 
indicated that interest rates will be the main tool used to 
tighten policy when economic and financial conditions warrant 
such a change. The FOMC has also indicated that most Committee 
participants do not anticipate sales of mortgage-backed 
securities during the normalization process.
    Increasing the interest rate paid on reserve balances that 
depository institutions hold at the Federal Reserve Banks is 
also likely to be an important tool for raising the Federal 
funds rate when doing so becomes appropriate. In addition, the 
FOMC has been testing a number of additional tools, including a 
term deposit facility, term reverse repurchase agreements, and 
an overnight fixed-rate reverse repurchase agreements, in order 
to strengthen the link between the rate paid on reserve 
balances and market rates. I am confident that the Federal 
Reserve has the tools it needs to exit over time from its 
highly accommodative stance of policy. While the process of 
exiting may not always be a smooth one, I believe that it will 
be manageable.
Q.2. I worry that the aggregate impact of the rules 
implementing Dodd-Frank will be immense. For some financial 
companies it will result in a regulatory death-by-a-thousand-
cuts, with significant impact for the economy at large. If 
confirmed to the Board of Governors, how will each of you 
intend to monitor the cumulative regulatory burden on entities 
affected by the Fed's rulemakings?

A.2. I agree that regulators should be careful to consider the 
cumulative regulatory burden on entities of regulations. The 
Federal Reserve considers the costs and benefits of every rule 
that it issues. The Federal Reserve seeks to minimize burden 
and the impact on the economy of regulations it issues while 
faithfully implementing the requirements of each statutory 
mandate. The Federal Reserve looks to present its proposed 
regulations as a package of integrated changes wherever 
possible to ensure that banking institutions have a good 
opportunity to evaluate the impact of the changes collectively. 
The Federal Reserve also includes explanations in the preambles 
to proposed regulations of the interaction between the proposal 
and other regulations.
    Many of the regulations that are being put in place are 
targeted at the large banks. The Federal Reserve is working 
with other regulators to help ensure that its rules are 
properly calibrated so that smaller institutions are not faced 
with the same burdens as large institutions. If confirmed, I 
will be attentive to the costs and benefits of Federal Reserve 
rulemakings.
Q.3. As part of its QE purchases, the Fed has accumulated a 
significant percentage of all new Federal mortgage-backed 
security issuances. The large nature of the Fed's purchases 
appear to be a deterrence to private capital from coming back 
into the market and issuing new mortgage-backed securities. 
What effect does the Fed's role as the dominant buyer or 
mortgage-backed securities have on the market?

A.3. The FOMC's MBS purchases have held mortgage rates lower 
than they otherwise would have been, which has supported the 
housing sector and the broader recovery. MBS purchases have 
also reduced other interest rates. As the Federal Reserve 
gradually reduces the pace of its MBS purchases, private 
capital should return and take up any slack. The fact that 
mortgage and MBS rates have been broadly stable since the FOMC 
began to reduce MBS purchases suggests that this is occurring 
in the market today.
    QE affects the prices of MBS and other assets through a 
portfolio rebalancing channel and has decisively lowered MBS 
yields and mortgage rates. These interest rate effects have 
spillovers to other assets and corporate bond rates, which are 
also pushed down by QE. However, the extent of these effects 
varies depending on the economic and policy environment.
    Thus, the Federal Reserve's purchases of Government-backed 
MBS should have pushed investors out of Government-backed MBS 
and encouraged them to seek higher returns by investing in 
other assets, including privately backed MBS (e.g., MBS backed 
by jumbo mortgages that are above the conforming loan limit).
    Enactment of GSE reform legislation would also support MBS 
activity and the housing market by reducing uncertainty about 
the structure of housing finance in the United States.
Q.4. For the size of the balance sheet and the quantity of 
assets that the Fed has accumulated, there seems to have been 
only a limited effect on businesses willingness to hire. Please 
discuss about whether QE policy and implementation has been 
effective in reducing employment, and how you view the 
importance of fiscal and regulatory reform in growing our 
economy.

A.4. The evidence suggests to me that QE has meaningfully 
lowered interest rates and raised asset prices. It is likely 
that lower rates and higher asset prices have provided 
meaningful support for the economy, through channels that are 
reasonably well understood. Since we cannot know how the 
economy would have performed under a different policy, it is 
not possible to estimate these effects with high certainty.
    That said, since the current asset purchase program began 
in September 2012, growth in payroll employment has been higher 
and declines in unemployment have been greater than many FOMC 
members expected at that time. Since September 2012, 
unemployment has declined from 8.1 percent to 6.7 percent, and 
approximately 3 million payroll jobs have been added.
    While monetary policy is a useful tool in achieving stable 
prices and full employment, it is not generally thought to 
affect the potential of the economy in the long run. Fiscal and 
regulatory policies are more powerful tools that can have such 
effects. Surveys suggest that uncertainty about fiscal and 
regulatory policy may have raised uncertainty among business 
decision makers and caused them to hold back from hiring and 
investment. It is critical that all aspects of our economic 
policy support growth, including fiscal, regulatory and 
monetary policy.

Q.5. The New York Fed's report on household debt shows that one 
area we see an increase in individuals taking on significant 
amount of student loan debt. In addition, the Kansas City Fed 
recently held a conference on this same topic. In recent years, 
the vast majority of these loans are obtained by students 
through Federal programs. The relative ease of access to these 
Federal loans is encouraging students to take out significant 
amounts of loans. Should we be concerned about students 
acquiring this significant amount of debt? How will this affect 
the future of our Nation's economy?

A.5. Since 2007, outstanding student loan debt has more than 
doubled from about $550 billion to over $1.2 trillion. The main 
reasons for the rapid expansion of student loan debt are the 
increase in tuition and fees and an increase in college 
enrollment. An increasing share of borrowers (at least through 
2011) has found it difficult to meet their student loan 
repayment obligations. The 2-year cohort default rate on 
Federal student loans has increased from 6.7 percent in 2007 to 
10 percent in 2011--the latest data point available. However, 
the wage premium of college graduates over high school 
graduates has stayed substantial. In addition recent 
improvements in labor market conditions should put downward 
pressure on student loan default rates.
    This is an important issue that should be carefully 
monitored going forward.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                     FROM JEROME H. POWELL

Q.1. Several experts and witnesses have stated in comment 
letters, legal memoranda, and testimony that the Federal 
Reserve has broad flexibility in the way it develops and 
applies minimum capital standards under Section 171 of the 
Dodd-Frank Act known as the Collins Amendment--for insurance 
companies and other nonbank financial companies supervised by 
the Federal Reserve. If and when you are confirmed and 
confronted with this issue, can we have your assurance that you 
will consider and evaluate the total mix of information 
available on this issue, including these legal memoranda and 
other views that were shared with the Subcommittee on Financial 
Institutions and Consumer Protection at its hearing on March 
11, 2014?

A.1. The Collins amendment requires that the Board establish 
consolidated minimum risk-based and leverage requirements for 
depository institution holding companies and nonbank financial 
companies designated by the FSOC that are no less than the 
generally applicable risk-based capital and leverage 
requirements that apply to insured depository institutions. If 
confirmed, I will continue to work with the other Governors and 
the staff of the Federal Reserve to craft a regulatory capital 
regime for insurance companies and other nonbank financial 
companies that is strong but appropriate for the risk profile 
of the companies consistent with the Collins Amendment. In so 
doing, I will consider and evaluate all available information 
on this issue, including materials that were shared with the 
Subcommittee earlier this year.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                     FROM JEROME H. POWELL

Q.1. Each of you testified that there is still work to be done 
to end Too Big to Fail. Do you think that ending Too Big to 
Fail should be the Board of Governors of the Federal Reserve 
System's (Fed) top regulatory priority?

A.1. As I mentioned in my testimony before the Committee, I 
believe that ending Too Big to Fail (TBTF) is at the heart of 
the postfinancial crisis reform program. We need a strong 
financial system that can play its critical role in supporting 
economic activity by providing credit to businesses and 
households, without exposing taxpayers to losses or creating 
incentives for excessive risk taking. Ending TBTF is a 
necessary step in ensuring financial stability.
    Ending TBTF is and will continue to be a core objective of 
the Federal Reserve, in coordination with the other U.S. bank 
regulatory agencies, the SEC, the CFTC, and international 
regulatory agencies. Regulators around the world have made 
significant progress on this front--including the Basel 3 
capital and liquidity rules for large, global banks; capital 
surcharges for the most systemically important banking firms; 
and new statutory resolution regimes to handle the failure of 
systemically important financial firms. But we also realize 
that much work remains to be done to end TBTF. I am committed 
to continuing this critical effort.

Q.2. Do you think that regulators must ultimately reduce the 
size of the largest financial institutions to end Too Big to 
Fail? Do you believe it will be possible through other 
regulatory approaches--such as resolution authority--to 
convince the markets that the Government will truly let a 
massive institution fail?

A.2. I am committed to ending TBTF. I believe that regulatory 
reforms around the world since the financial crisis have 
produced significant progress to that end. If those reforms 
ultimately prove inadequate, then additional measures should be 
considered.
    In the past few years, the Federal Reserve and other 
regulators have taken important actions to reduce the 
likelihood of a failure of a systemically important 
institution. Such actions include:

    Basel III capital rules, plus proposed 
        supplementary leverage ratio and planned SIFI risk-
        based capital surcharges.

    Stress tests of large U.S. banking firms

    Basel III liquidity rules

    Improvements in supervision of firms

    Derivatives transparency, central clearing, and 
        margining

    In addition, regulatory checks are in place that aim to 
curb the expansion of the largest financial firms. These 
include the 10-percent deposit cap and DFA 10-percent liability 
cap on BHC acquisitions, as well as the Federal Reserve's 
consideration of the effect on financial stability of proposed 
acquisitions by large banking organizations.
    Further, regulators are taking many steps to make 
systemically important financial firms more resolvable--through 
the living wills process and the development of the FDIC's 
preferred ``single point of entry'' resolution strategy. And 
the Federal Reserve is working with the FDIC on a minimum long-
term debt requirement that would promote the resolvability of 
the largest, most complex U.S. banking firms.
    While meaningful progress has been made, more work needs to 
be done, and I am committed to finishing the job. Over time, 
these efforts and continued use of regulatory and supervisory 
tools should contribute to greater market confidence that these 
institutions are less likely to fail and resolvable without 
systemic impact if they do fail.

Q.3. At a Banking subcommittee hearing this January, I asked 
four economists--Luigi Zingales from the University of Chicago, 
Simon Johnson from the MIT Sloan School of Management, Harvey 
Rosenblum from the Southern Methodist University, and Allan H. 
Meltzer of the Tepper School of Business--whether the Dodd-
Frank Act would end Too Big to Fail when it was fully 
implemented. They each said it would not. Do you agree? If so, 
what kind of additional authority do you think the Fed needs to 
ensure that Too Big to Fail is ended? If not, what gives you 
confidence that Dodd-Frank, once fully implemented, will 
successfully address Too Big to Fail?

A.3. As discussed in the prior response, the Federal Reserve 
and the global regulatory community have made significant 
progress towards eliminating TBTF in the past few years by 
reducing the probability of failure of large financial firms 
and reducing the damage to the system if a large financial firm 
were to fail. The rating agencies and other market participants 
have recognized that progress. More work remains to be done to 
eliminate TBTF, including work to fully implement the 
provisions of the Dodd-Frank Act, and we are committed to 
completing that work as expeditiously as possible.
    If the statutory implementation and regulatory reform work 
in train proves to be insufficient to solve the TBTF problem, 
we should be willing to look at the costs and benefits of 
additional approaches.

Q.4. Congressman Cummings and I sent a letter to Chair Yellen 
in February urging her to revise the Fed's delegation rules so 
that the Fed's Board would have to vote on any settlement that 
included at least $1 million in payments, or that banned an 
individual from banking or required new management. At a 
hearing last month, Chair Yellen testified that it was 
``completely appropriate for the Board to be fully involved in 
important decisions,'' and that she ``fully intend[ed]'' to 
make sure the Board would be more involved going forward. Do 
you agree in principle with Chair Yellen's testimony and will 
you support her efforts to require Board members to vote on 
major settlement agreements?

A.4. I support the principle that members of the Board should 
be involved in important enforcement decisions and will work 
with Chair Yellen on future steps for carrying out that 
principle.

Q.5. Last February, the Fed and the Office of the Comptroller 
of the Currency entered into what they touted as a $9.3 billion 
settlement with mortgage servicers accused of illegal 
foreclosure practices. In their joint press release 
accompanying the settlement, the agencies claimed they had 
secured $5.7 billion in relief for homeowners in the form of 
``credits'' for what the agencies described as ``assistance to 
borrowers such as loan modifications and forgiveness of 
deficiency judgments.'' The press release did not disclose that 
the manner in which the credits were calculated could allow the 
servicers to pay only a small fraction of that $5.7 billion, 
potentially reducing the direct relief to injured borrowers by 
billions of dollars.
    Senator Coburn and I recently introduced the Truth in 
Settlements Act, which would require agencies to publicly 
disclose all the key details of their major settlement 
agreements--including the method of calculating any credits. Of 
course, agencies are not required to wait for congressional 
action to adopt such basic transparency measures. Do you think 
the Fed should voluntarily adopt the disclosure provisions of 
the Truth in Settlements Act?

A.5. The Federal Reserve is required by law to publicly 
disclose any written agreement that is enforceable by the 
agency against a regulated entity or individual and any final 
order in any administrative enforcement proceeding. This 
requirement applies to enforcement actions entered into by 
consent with the regulated institution or individual.
    Accordingly, the amended consent orders that implemented 
the payment agreement with the mortgage servicers relating to 
illegal foreclosure practices were publicly disclosed by the 
Federal Reserve in February 2013 as attachments to the press 
release that announced the issuance of those actions. The 
publicly disclosed amended consent orders contain all of the 
enforceable provisions governing the payment agreement, 
including the methodology under which the servicers would 
obtain credit for specific foreclosure assistance activities in 
connection with the servicers' obligations under the amended 
consent order to provide such activities.

Q.6. For the last 5 years, the Fed has kept interest rates 
extremely low and has used asset purchases to drive rates down 
even further. Yet the unemployment rate still remains higher 
than the Fed's target for full employment. In such situations 
where the Fed is struggling to fulfill its full employment 
mandate using monetary policy alone--should the Fed consider 
using its regulatory authority to attempt to boost job growth?

A.6. The Federal Reserve carries out its responsibilities to 
regulate and supervise financial firms so as to help ensure the 
safety and soundness of regulated firms and to help protect 
financial stability. In doing so, the Federal Reserve adopts a 
macro- as well as microprudential perspective, which means, 
among other things, that it takes into account the potential 
systemic consequences of financial distress as well as the 
safety and soundness of individual firms.
    Relaxing its supervision of regulated financial firms in an 
effort to support economic growth would risk greater economic 
volatility in the future, and could ultimately result in worse 
economic performance over time. That said, the Federal Reserve 
monitors its regulatory actions for signs that its supervision 
may inadvertently reduce credit availability and thereby 
restrain economic growth.

Q.7. Section 165(d) of the Dodd-Frank Act requires the Fed and 
the Federal Deposit Insurance Corporation (FDIC) to ensure that 
large financial institutions can be resolved in an orderly 
fashion using the conventional bankruptcy process. These 
institutions are required to submit ``living wills'' that 
describe how such a conventional resolution could occur. If the 
Fed and the FDIC find that those plans lack credibility, they 
may require the financial institution to divest subsidiaries, 
hold increased capital, reduce leverage, or take other steps to 
shrink or simplify the institution. To date, over 100 
institutions have submitted living wills, and the Fed and the 
FDIC have not rejected a single plan as lacking credibility.
    What gives you confidence that our largest financial 
institutions could currently be resolved through a conventional 
bankruptcy procedure? What criteria would you use to determine 
whether a resolution plan is ``credible'' for the purposes of 
Section 165(d)? Are you willing to take the actions identified 
in Section 165(d)(5) of Dodd-Frank--including mandating 
divestiture of subsidiaries--if you believe a resolution plan 
lacks credibility?

A.7. One of the most important goals of the Dodd-Frank Act and 
the regulatory community after the crisis is to end ``too-big-
to fail.'' The perception of ``too-big-to-fail'' is greatly 
mitigated when market participants understand that losses from 
the failure of a major financial firm would fall exclusively on 
shareholders and creditors. The ``living wills'' provision of 
the Dodd-Frank Act helps guide institutions and regulators to 
improve the resolvability in bankruptcy of large financial 
institutions.
    The staff of the Federal Reserve and FDIC are reviewing and 
assessing the plans filed by the large financial firms under 
Section 165(d) of the Dodd-Frank Act. At this time, no decision 
has been reached by the Board regarding the adequacy of the 
plans for facilitating the resolution of the firms in 
bankruptcy. If confirmed, I expect to explore the adequacy of 
the plans and whether improvements should be made in the plans 
and/or the bankruptcy code to ensure that no firm is too big to 
fail.
    Section 165(d)(5) of the Dodd-Frank Act permits the Board 
and FDIC to take action if a resolution plan is determined to 
not be credible and the institution does not correct the plan 
within a certain period of time. I would be willing to support 
any actions appropriate to ensure compliance with the law and 
mitigate risks to the financial stability of the United States.

Q.8. As a fraction of GDP, the financial sector today is about 
twice as large as it was in the 1970s. Despite this growth in 
size, researchers have found that the sector is less efficient 
than it once was in allocating credit for the real economy. Do 
you believe that there are effectively ``reverse economies of 
scale,'' such that financial institutions can grow so large 
that they become less efficient at performing their primary 
function of allocating credit?

A.8. Many fundamental changes have occurred in the financial 
sector and the broader economy since the 1970s. Without a 
doubt, one important development is the increased concentration 
in the financial services industry. There is not a consensus 
among researchers that increased concentration has a direct 
effect on the efficiency of credit allocation, either adverse 
or otherwise. However, increased concentration in the financial 
sector has raised a number of other pressing public policy 
issues, notably the concern that some institutions have grown 
``too big to fail.''

Q.9. Last year, the Financial Stability Board (FSB) directed 
the International Association of Insurance Supervisors (IAIS) 
to propose global qualitative capital standards by 2016 for 
``internationally active insurance groups'' (IAIGs)--a category 
that includes U.S.-based insurance companies that have not been 
designated as systemically important financial institutions. 
Ostensibly, the three U.S. representatives to the FSB--the Fed, 
the Securities Exchange Commission, and the Treasury 
Department--supported the FSB's directive to the IAIS.
    As a member of the Fed at the time of the FSB's directive 
to the IAIS, did you agree with the Fed's decision to support 
(or at a minimum, not oppose) the directive?

A.9. Yes. In its July 2013 press release announcing the policy 
measures that would apply to the designated global systemically 
important insurers (GSIIs), the IAIS also stated that it 
considered a sound capital and supervisory framework for the 
global insurance sector more broadly to be essential for 
supporting financial stability and that it planned to develop a 
comprehensive, groupwide supervisory and regulatory framework 
for internationally active insurance groups (IAIGs), including 
a capital standard (ICS). The business of insurance has become 
increasingly global in the past few decades. The decision of 
the IAIS to develop an ICS for IAIGs reflects that trend and 
has a parallel in the development of capital standards for 
internationally active banks by the Basel Committee on Banking 
Supervision.
    The FSB endorsed these proposed measures by the IAIS. That 
endorsement was consistent with the mission of the FSB to 
coordinate at the international level the work of national 
financial authorities and international standard setting 
bodies, including the IAIS, and to develop and promote the 
implementation of effective regulatory, supervisory and other 
financial sector policies in the interest of financial 
stability. State insurance supervisors, the National 
Association of Insurance Commissioners, the Federal Insurance 
Office, and more recently, the Federal Reserve, are members of 
the IAIS.

Q.10. U.S. insurance regulation is primarily State-based and 
relies on State guaranty funds, whereas European insurance 
regulation is primarily based on capital standards and does not 
rely on guaranty funds. Given this difference in regulatory 
approach, do you think it is appropriate for U.S.-based IAIGs 
to be subject to single, global capital standard for their U.S. 
operations?

A.10. A goal of the international capital standard (ICS) being 
developed by the IAIS is to achieve greater comparability of 
the capital requirements of IAIGs across jurisdictions at the 
groupwide level. This should promote financial stability, 
provide a more level playing field for firms and enhance 
supervisory cooperation and coordination by increasing the 
understanding among groupwide and host supervisors. It should 
also lead to greater confidence being placed on the groupwide 
supervisor's analysis by host supervisors. The standards under 
development by the IAIS are not contemplated to replace 
existing insurance risk-based capital standards at U.S. 
domiciled insurance legal entities within the broader firm. Any 
IAIS capital standard would supplement existing legal entity 
risk-based capital requirements by evaluating the financial 
activities of the firm overall rather than by individual legal 
entity.
    It is important to note that neither the FSB, nor the IAIS, 
has the ability to implement requirements in any jurisdiction. 
Implementation in the United States would have to be consistent 
with U.S. law and comply with the administrative rulemaking 
process.
    It is also important to note that the Basel Committee on 
Banking Supervision has been promulgating capital requirements 
for internationally active banks since the 1980s. The U.S. 
Federal banking agencies, which are members of the Basel 
Committee, have long contributed to and supported the work of 
the Committee to develop common baseline prudential standards 
for global banks.

Q.11. What do you see as the proper role of the General 
Counsel's office in both the Fed's rulemaking process and its 
supervisory and enforcement processes? Does it go beyond the 
duties that are specifically delegated to the General Counsel's 
office in 12 CFR 265.6?

A.11. The role of the Legal Division is to provide legal advice 
and services to the Board to meet it responsibilities in all 
aspects of its statutory duties, including the Board's bank 
supervisory and regulatory responsibilities and authority. The 
Legal Division also is responsible for drafting regulations and 
assisting the Board in analyzing legislation and drafting 
statutory changes affecting the Board and its work. The Legal 
Division provides legal support for the Board's role in 
developing and implementing monetary policy, employing its 
financial stability tools; and all aspects of the Board's 
operations, including the Board's procurement and personnel 
functions, ethics, and information disclosure. In addition, the 
Legal Division represents the Board in litigation in Federal 
and State court, and pursues enforcement actions against 
individuals and companies over which the Board has supervisory 
authority.
    Section 11(k) of the Federal Reserve Act permits the Board 
to delegate to Board members and employees functions other than 
those relating to rulemaking or pertaining principally to 
monetary and credit policies. 12 CFR 265.6 lists various 
authorities the Board had delegated to its staff and to the 
Reserve Banks. Importantly, the Board retains ultimate 
responsibility for all authorities it has delegated, and 
provided in section 265.3 that any single Board member may, on 
the member's own initiative, require the full Board to review a 
matter delegated to staff or the Reserve Banks.

Q.12. In your view, did deregulation cause the 2008 financial 
crisis?

A.12. The argument that deregulation caused the financial 
crisis may well hold some truth. I believe that the more 
fundamental explanation is that the pace of innovation and 
change in the financial sector led over time to a situation 
where the existing regulatory regimes were inadequate.
    Beginning in the 1970s and accelerating in the 1980s, many 
traditional forms of credit intermediation as practiced by 
commercial banks were supplemented and in some cases displaced 
by securities-based financing models, with mortgage 
securitizations and money market funds being only the most 
important examples. During the same period, banks and broker 
dealers were increasingly organized on a global basis, with 
multiple legal entities in various jurisdictions. These 
developments brought considerable benefits, but ultimately 
allowed a systemic crisis that imposed enormous costs on the 
broader economy in 2008.
    In my view, most of these key developments were not spawned 
directly by deregulation; rather, they reflect the failure of 
regulatory regimes to keep up with the pace of innovation. A 
number of the provisions of Dodd-Frank have been crafted to 
recognize this reality, and provide policy makers tools that 
will be sufficiently flexible over time to address new and 
emerging concerns as institutions and market practices evolve.

Q.13. The Senate Permanent Subcommittee on Investigations 
recently released a report detailing Credit Suisse's role in 
aiding thousands of Americans evade their U.S. tax obligations. 
Credit Suisse and the Swiss Government have not been 
cooperating with the Department of Justice's investigation. Do 
you think it is appropriate for the Fed to use any of its 
regulatory or enforcement authority under the circumstances?

A.13. Authority to enforce compliance with U.S. law is by law 
administered by a number of Federal agencies. For example, the 
Department of Justice is responsible for criminal prosecutions. 
The Federal Reserve has authority to take specific types of 
regulatory and enforcement actions against foreign banks and 
their U.S. operations to ensure safe and sound operations and 
compliance with U.S. law. These actions can include informal 
direction to institutions as well as formal actions such as 
cease and desist orders, civil money penalties, or, in serious 
cases, termination of U.S. officers. We consider use of this 
enforcement authority in appropriate circumstances within the 
limits imposed by law, and believe that firms of all sizes, 
including the largest financial firms, must be held accountable 
for failure to comply with the law.
    With regard to Credit Suisse, I understand that firm is 
under investigation by the Department of Justice. It would not 
be appropriate to comment on an ongoing investigation or 
potential supervisory actions related to a specific firm.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR KIRK
                     FROM JEROME H. POWELL

Q.1. Capital Rules for Insurance Companies: While many of us 
believe that the Dodd-Frank Act already gives the Federal 
Reserve the authority to distinguish between insurance 
companies and banks when promulgating capital standards under 
the Collins Amendment, the Federal Reserve has made statements 
publicly that it does not believe it has the statutory 
authority to do so. Therefore, a number of senators on this 
Committee introduced legislation, S.1369 to codify and clarify 
that the Federal Reserve can and should make distinctions 
between insurance companies and banks when setting capital 
standards. Is it your interpretation that this authority 
currently exists?

A.1. The Collins amendment requires that the Board establish 
consolidated minimum risk-based and leverage requirements for 
depository institution holding companies and nonbank financial 
companies designated by the FSOC that are no less than the 
generally applicable risk-based capital and leverage 
requirements that apply to insured depository institutions. If 
confirmed, I will continue to work with the other governors and 
the staff of the Federal Reserve to craft a regulatory capital 
regime for insurance companies and other nonbank financial 
companies that is strong but appropriate for the risk profile 
of the companies consistent with the Collins Amendment.

Q.2. This ability for distinction should also transfer to the 
Fed's ability to distinguish between insurance companies and 
banks for purposes of accounting practices. I have at least two 
insurance companies in my State that are supervised by the Fed 
as savings and loan holding companies. These companies are not 
publicly traded and do not prepare financial statements in 
accordance with GAAP--but rather, in accordance with GAAP-based 
insurance accounting known as Statutory Accounting Principles 
(SAP). Every person I consult tells me that SAP is the most 
effective and prudential way to supervise the finances of an 
insurance company. It is my understanding that the Federal 
Reserve may want to force these insurance companies that have 
used SAP reporting for many decades to spend hundreds of 
millions of dollars preparing GAAP statements--primarily 
because the Fed is comfortable with GAAP and understands it 
since it's what banks use. Is this is true? If it is true, is 
it simply because the Fed is so accustomed to bank regulation 
and not insurance regulation that it simply wants to make 
things easier for itself? Do you agree with this one-size-fits-
all approach to regulation? Can you provide a cost benefit 
analysis to this as it seems to not add any additional 
supervisory value and only adds astronomic costs to these 
companies?

A.2. One of the key differences between SAP and GAAP accounting 
is the financial reporting of subsidiaries; SAP does not allow 
for consolidation accounting. SAP accounting is prescribed by 
the National Association of Insurance Commissioners and is used 
by State insurance regulators to evaluate the financial 
condition and solvency of domestic insurance subsidiaries. The 
Federal regulatory framework for depository institution holding 
companies, including regulatory and supervisory tools being 
developed and implemented under DFA, is based on protecting 
financial stability, protecting the safety and soundness of the 
consolidated holding company, and protecting the Federal 
deposit insurance fund. I recognize the unique characteristics 
of insurance companies and understand the concerns raised by 
insurance companies that do not currently use GAAP for 
financial reporting. The Fed delayed the capital rulemaking for 
these entities in order to further study these issues, 
including the associated costs and benefits of requiring use of 
GAAP by insurance entities that do not use GAAP currently.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
                     FROM JEROME H. POWELL

Q.1. A growing concern that many of my colleagues and I are 
following involves the Financial Stability Board's (FSB) 
possible effort to impose European insurance capital standards 
on the U.S. insurance industry, specifically companies that are 
designated as ``internationally active.''
    In my opinion, Dodd-Frank is clear that if an insurer is 
not designated as a SIFI or is not a savings and loan holding 
company that the insurer would continue to be subject to the 
risk-based capital standards per individual State regulation.
    Imposing foreign insurance standards on ``internationally 
active'' American companies appears to be a significant 
departure from the appropriate, traditional State regulation 
these companies were previously subject to.
    Some of the Federal Reserve nominees may have past 
experience with this specific issue in prior governmental 
roles. Please provide your views on whether or not you feel 
that foreign capital standards are appropriate for 
``internationally active insurance companies'' and whether that 
foreign regulatory framework should preempt individual States' 
rights to oversee this industry.

A.1. A goal of the international capital standard (ICS) being 
developed by the International Association of Insurance 
Supervisors (IAIS) is to achieve greater comparability of the 
capital requirements of internationally active insurance groups 
(IAIGs) across jurisdictions at the groupwide level. This 
should promote financial stability, provide a more level 
playing field for firms and enhance supervisory cooperation and 
coordination by increasing the understanding among groupwide 
and host supervisors. It should also lead to greater confidence 
being placed on the groupwide supervisor's analysis by host 
supervisors. The standards under development by the IAIS are 
not contemplated to replace existing insurance risk-based 
capital standards at U.S. domiciled insurance legal entities 
within the broader firm. Any IAIS capital standard would 
supplement existing legal entity risk-based capital 
requirements by evaluating the financial activities of the firm 
overall rather than by individual legal entity.
    It is important to note that neither the FSB, nor the IAIS, 
has the ability to implement requirements in any jurisdiction. 
Implementation in the United States would have to be consistent 
with U.S. law and comply with the administrative rulemaking 
process.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAPO
                       FROM LAEL BRAINARD

Q.1. A recent paper presented at the U.S. Monetary Policy Forum 
suggests the possibility that current monetary stimulus may 
involve a ``tradeoff between more stimulus today at the expense 
of a more challenging and disruptive policy exit in the 
future.'' How concerned are each of you about the exit from all 
this monetary stimulus of the past several years?

A.1. On balance, the accommodative stance of monetary policy 
undertaken by the Federal Reserve has been critically important 
in the face of extraordinarily challenging circumstances to 
achieving price stability and improving labor market conditions 
consistent with the dual mandate. At the same time, it is 
important to be attentive to risks such as excessive leverage 
building in certain markets. As the recovery gains momentum and 
monetary policy normalizes, the Federal Reserve has indicated 
that it will rely centrally on interest rates and does not 
anticipate sales of mortgage-backed securities. In that regard, 
the Federal Reserve appears to have the necessary tools to exit 
at an appropriate pace. The interest rate paid on reserve 
balances held by depository institutions at the Federal Reserve 
Banks is likely to be an important tool for raising the Federal 
fund rate, and the Federal Reserve has been testing additional 
tools to strengthen the link between the rate paid on reserve 
balances and market rates, including a term deposit facility, 
term reverse repurchase agreements, and overnight fixed-rate 
reverse repurchase agreements.

Q.2. I worry that the aggregate impact of the rules 
implementing Dodd-Frank will be immense. For some financial 
companies it will result in a regulatory death-by-a-thousand-
cuts, with significant impact for the economy at large. If 
confirmed to the Board of Governors, how will each of you 
intend to monitor the cumulative regulatory burden on entities 
affected by the Fed's rulemakings?

A.2. While there is a compelling rationale for the individual 
components of Dodd-Frank, implementation is a work in progress, 
and it is important to assess the cumulative impact as 
implementation progresses. In particular, it is important that 
regulation and supervision be appropriately tailored so that an 
undue regulatory burden is not imposed on smaller, less complex 
institutions. If confirmed, I will be attentive to the 
cumulative impact of Federal Reserve rulemakings and seek to 
ensure they do not impose an undue burden on smaller, less 
complex institutions.

Q.3. As part of its QE purchases, the Fed has accumulated a 
significant percentage of all new Federal mortgage-backed 
security issuances. The large nature of the Fed's purchases 
appear to be a deterrence to private capital from coming back 
into the market and issuing new mortgage-backed securities. 
What effect does the Fed's role as the dominant buyer or 
mortgage-backed securities have on the market?

A.3. The Federal Reserve's Large Scale Asset Purchase programs 
have helped promote the dual objectives of price stability and 
full employment. Researchers have documented a direct effect 
from Fed purchases of Government mortgage-backed securities 
(MBS) on lowering yields in the Government MBS market and thus 
mortgage rates for homebuyers. There is also a spillover effect 
on other asset markets, such as corporate bonds and private 
MBS, as investors reallocate their investment portfolios. 
Uncertainty regarding possible housing finance reforms is also 
likely influencing private capital investment in the MBS 
market, which should be resolved once legislation is enacted.

Q.4. For the size of the balance sheet and the quantity of 
assets that the Fed has accumulated, there seems to have been 
only a limited effect on businesses willingness to hire. Please 
discuss about whether QE policy and implementation has been 
effective in reducing employment, and how you view the 
importance of fiscal and regulatory reform in growing our 
economy.

A.4. Although it is difficult to precisely quantify the effects 
of the Federal Reserve's Large Scale Asset Purchase programs in 
supporting employment, it appears they have helped promote the 
dual objectives of price stability and full employment. A 
number of researchers have identified direct and measurable 
impacts in terms of lower mortgage rates. Some researchers also 
identify indirect effects in lowering corporate bond rates and 
on other asset markets. The reduction in the cost of longer 
term credit for families and businesses in turn has positive 
effects on the housing market and job market, although the 
magnitude is harder to measure precisely.

Q.5. The New York Fed's report on household debt shows that one 
area we see an increase in individuals taking on significant 
amount of student loan debt. In addition, the Kansas City Fed 
recently held a conference on this same topic. In recent years, 
the vast majority of these loans are obtained by students 
through Federal programs. The relative ease of access to these 
Federal loans is encouraging students to take out significant 
amounts of loans. Should we be concerned about students 
acquiring this significant amount of debt? How will this affect 
the future of our Nation's economy?

A.5. The rapid increase in student debt warrants careful 
analysis and monitoring. The increase in outstanding student 
loan debt from about $550 billion in 2007 to over $1.2 trillion 
today reflects increases in tuition and fees and increased 
college enrollment. Over that time, the wage premium associated 
with college graduation over wages earned by high school 
graduates has remained substantial, suggesting a college 
education remains a sound investment for many. On the other 
hand, there has been a notable increase in default rates on 
Federal student loans through 2011, the latest available data, 
which is a concern.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                       FROM LAEL BRAINARD

Q.1. Several experts and witnesses have stated in comment 
letters, legal memoranda, and testimony that the Federal 
Reserve has broad flexibility in the way it develops and 
applies minimum capital standards under Section 171 of the 
Dodd-Frank Act known as the Collins Amendment--for insurance 
companies and other nonbank financial companies supervised by 
the Federal Reserve. If and when you are confirmed and 
confronted with this issue, can we have your assurance that you 
will consider and evaluate the total mix of information 
available on this issue, including these legal memoranda and 
other views that were shared with the Subcommittee on Financial 
Institutions and Consumer Protection at its hearing on March 
11, 2014?

A.1. I recognize that the business models and balance sheets of 
traditional insurance companies and banks differ in important 
respects and that supervision should be appropriately tailored. 
If confirmed, I will consider and evaluate the total mix of 
information available regarding the responsibilities and 
flexibility of the Federal Reserve in implementing minimum 
capital standards for the insurance companies and nonbank 
financial companies under its supervision according to the 
requirements of the Collins Amendment (Section 171).
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                       FROM LAEL BRAINARD

Q.1. Each of you testified that there is still work to be done 
to end Too Big to Fail. Do you think that ending Too Big to 
Fail should be the Board of Governors of the Federal Reserve 
System's (Fed) top regulatory priority?

A.1. Ending Too Big to Fail should be a top regulatory priority 
of the Federal Reserve Board of Governors. Important work is 
underway that should create a significant penalty to size and 
complexity while ensuring all financial institutions are 
resolvable without threatening financial stability. These 
critical reforms include significant strengthening of the 
leverage ratio, liquidity rules, and capital surcharges for the 
largest institutions on top of the Basel III capital rules, 
which should significantly raise capital buffers to absorb 
losses, undergirded by rigorous stress tests. The 
implementation of Orderly Liquidation Authority, along with the 
Single Point of Entry approach to resolution, holds out the 
prospect of making the largest firms resolvable, and the 
regulators have new authority on firm structure and size 
through their oversight over the resolution and recovery plans 
of the large institutions. Anticipated rules on wholesale 
funding and minimum requirements on long-term debt should also 
provide important checks on Too Big to Fail. The Volcker Rule's 
prohibition against proprietary trading and new rules on 
clearing, trading, and reporting of derivatives transactions 
are also significant. Nonetheless, additional steps may be 
necessary to fully achieve this critical regulatory priority.

Q.2. Do you think that regulators must ultimately reduce the 
size of the largest financial institutions to end Too Big to 
Fail? Do you believe it will be possible through other 
regulatory approaches--such as resolution authority--to 
convince the markets that the Government will truly let a 
massive institution fail?

A.2. It is critically important to convince the markets that no 
institution can be too big to fail. The cumulative impact of 
the significant reforms that are underway or in the rulewriting 
phase should create a significant penalty to both size and 
complexity while ensuring all financial institutions are 
resolvable without threatening financial stability. Orderly 
liquidation authority, together with regulators' oversight over 
the resolution and recovery plans of the largest institutions, 
provides significant new powers to ensure that large, complex 
firms are fully resolvable. Nonetheless, additional steps may 
be necessary to fully achieve this critical regulatory 
priority.

Q.3. At a Banking subcommittee hearing this January, I asked 
four economists--Luigi Zingales from the University of Chicago, 
Simon Johnson from the MIT Sloan School of Management, Harvey 
Rosenblum from the Southern Methodist University, and Allan H. 
Meltzer of the Tepper School of Business--whether the Dodd-
Frank Act would end Too Big to Fail when it was fully 
implemented. They each said it would not. Do you agree? If so, 
what kind of additional authority do you think the Fed needs to 
ensure that Too Big to Fail is ended? If not, what gives you 
confidence that Dodd-Frank, once fully implemented, will 
successfully address Too Big to Fail?

A.3. Cumulatively, the reforms that are underway and those that 
are in the rulewriting process or earlier stages should make 
significant progress in penalizing size and complexity and in 
ensuring the orderly resolvability of even the largest and most 
complex firms. Nonetheless, additional steps may be necessary 
to fully achieve this critical regulatory priority.

Q.4. Congressman Cummings and I sent a letter to Chair Yellen 
in February urging her to revise the Fed's delegation rules so 
that the Fed's Board would have to vote on any settlement that 
included at least $1 million in payments, or that banned an 
individual from banking or required new management. At a 
hearing last month, Chair Yellen testified that it was 
``completely appropriate for the Board to be fully involved in 
important decisions,'' and that she ``fully intend[ed]'' to 
make sure the Board would be more involved going forward. Do 
you agree in principle with Chair Yellen's testimony and will 
you support her efforts to require Board members to vote on 
major settlement agreements?

A.4. I agree with Chair Yellen's principle that members of the 
Board should be involved in important enforcement decisions and 
will work with her on future steps for carrying out that 
principle.

Q.5. Last February, the Fed and the Office of the Comptroller 
of the Currency entered into what they touted as a $9.3 billion 
settlement with mortgage servicers accused of illegal 
foreclosure practices. In their joint press release 
accompanying the settlement, the agencies claimed they had 
secured $5.7 billion in relief for homeowners in the form of 
``credits'' for what the agencies described as ``assistance to 
borrowers such as loan modifications and forgiveness of 
deficiency judgments.'' The press release did not disclose that 
the manner in which the credits were calculated could allow the 
servicers to pay only a small fraction of that $5.7 billion, 
potentially reducing the direct relief to injured borrowers by 
billions of dollars.
    Senator Coburn and I recently introduced the Truth in 
Settlements Act, which would require agencies to publicly 
disclose all the key details of their major settlement 
agreements--including the method of calculating any credits. Of 
course, agencies are not required to wait for congressional 
action to adopt such basic transparency measures. Do you think 
the Fed should voluntarily adopt the disclosure provisions of 
the Truth in Settlements Act?

A.5. Transparency of this nature is important. I have been 
informed that the Federal Reserve is required by law to make 
public disclosure of any written agreement enforceable by the 
Federal Reserve against a regulated entity or individual and 
any final order in any administrative enforcement proceeding, 
including enforcement actions entered into by consent with the 
regulated institution or individual and including the 
underlying methodologies or calculations. I would continue to 
support and build upon such transparency measures.

Q.6. For the last 5 years, the Fed has kept interest rates 
extremely low and has used asset purchases to drive rates down 
even further. Yet the unemployment rate still remains higher 
than the Fed's target for full employment. In such situations 
where the Fed is struggling to fulfill its full employment 
mandate using monetary policy alone--should the Fed consider 
using its regulatory authority to attempt to boost job growth?

A.6. The Federal Reserve should continue to support sound 
growth of credit, particularly to households and small 
businesses, whose activities are so critical to achieving 
maximum employment, consistent with the dual mandate. The 
Federal Reserve should also vigorously regulate and supervise 
financial firms to ensure their safety and soundness and to 
ensure financial stability more broadly. The Federal Reserve 
should be on the lookout to address circumstances in which its 
supervision activities might inadvertently and unnecessarily 
restrain healthy growth in credit.

Q.7. Section 165(d) of the Dodd-Frank Act requires the Fed and 
the Federal Deposit Insurance Corporation (FDIC) to ensure that 
large financial institutions can be resolved in an orderly 
fashion using the conventional bankruptcy process. These 
institutions are required to submit ``living wills'' that 
describe how such a conventional resolution could occur. If the 
Fed and the FDIC find that those plans lack credibility, they 
may require the financial institution to divest subsidiaries, 
hold increased capital, reduce leverage, or take other steps to 
shrink or simplify the institution. To date, over 100 
institutions have submitted living wills, and the Fed and the 
FDIC have not rejected a single plan as lacking credibility.
    What gives you confidence that our largest financial 
institutions could currently be resolved through a conventional 
bankruptcy procedure?

A.7. The authority given to the Fed and the FDIC to oversee the 
resolution and recovery plans submitted by large financial 
institutions and, if necessary, to require additional changes 
to structure or size to ensure full orderly resolvability of 
these institutions is a critical part of the overall reforms to 
ensure no institution is too big to fail. Since the process of 
implementation is far from complete, it is too early to be 
confident that our largest institutions could currently be 
resolved through a conventional bankruptcy procedure.

Q.8. What criteria would you use to determine whether a 
resolution plan is ``credible'' for the purposes of Section 
165(d)?

A.8. My understanding is that the Federal Reserve and the FDIC 
are currently in the process of reviewing the 2013 resolution 
plans, which are required to include each institution's 
strategic analysis and descriptions of the corporate governance 
relating to resolution planning, interconnections and 
interdependencies, organizational structure, and management 
information systems, in addition to supervisory and regulatory 
information. If confirmed, I would expect to review whether the 
resolution plans are credible in facilitating orderly 
resolution of the company under the bankruptcy code.

Q.9. Are you willing to take the actions identified in Section 
165(d)(5) of Dodd-Frank--including mandating divestiture of 
subsidiaries--if you believe a resolution plan lacks 
credibility?

A.9. If a resolution plan is determined to lack credibility, 
and the institution does not take corrective action in a timely 
manner, I would support taking the actions necessary to ensure 
compliance with the law and mitigate risks to the financial 
stability of the United States.

Q.10. As a fraction of GDP, the financial sector today is about 
twice as large as it was in the 1970s. Despite this growth in 
size, researchers have found that the sector is less efficient 
than it once was in allocating credit for the real economy. Do 
you believe that there are effectively ``reverse economies of 
scale,'' such that financial institutions can grow so large 
that they become less efficient at performing their primary 
function of allocating credit?

A.10. The research regarding economies or diseconomies of scale 
in the financial sector and the efficiency of credit allocation 
is mixed. What is clear and unambiguous from the crisis, 
however, is that no financial institution can be too big to 
fail.

Q.11. Last year, the Financial Stability Board (FSB) directed 
the International Association of Insurance Supervisors (IAIS) 
to propose global qualitative capital standards by 2016 for 
``internationally active insurance groups'' (IAIGs)--a category 
that includes U.S.--based insurance companies that have not 
been designated as systemically important financial 
institutions. Ostensibly, the three U.S. representatives to the 
FSB--the Fed, the Securities Exchange Commission, and the 
Treasury Department--supported the FSB's directive to the IAIS.
    U.S. insurance regulation is primarily State-based and 
relies on State guaranty funds, whereas European insurance 
regulation is primarily based on capital standards and does not 
rely on guaranty funds. Given this difference in regulatory 
approach, do you think it is appropriate for U.S.-based IAIGs 
to be subject to a single, global capital standard for their 
U.S. operations?

A.11. The qualitative standards under development by the IAIS 
would in no way replace existing insurance risk-based capital 
standards at U.S. domiciled insurance legal entities. The 
development of any IAIS qualitative capital standard would be 
complementary to existing legal entity risk-based capital 
requirements by evaluating the financial activities of the firm 
overall rather than by individual legal entity. That said, U.S. 
based IAIGs would continue to be subject to U.S. laws and 
regulations. Neither the FSB, nor the IAIS, has authority to 
implement requirements in the United States or any 
jurisdiction.
    I support the broad objective of the IAIS to achieve 
greater comparability of capital requirements of IAIGs at the 
groupwide level in order to promote financial stability, ensure 
against regulatory arbitrage, provide a more level playing 
field, and enhance host supervisors' confidence in the 
groupwide supervisor's analysis. U.S. interests and approaches 
should be well reflected in the work of the IAIS given strong 
representation of U.S. insurance authorities as members of the 
IAIS, including State insurance supervisors, the National 
Association of Insurance Commissioners, the Federal Insurance 
Office, and the Federal Reserve.

Q.12. What do you see as the proper role of the General 
Counsel's office in both the Fed's rulemaking process and its 
supervisory and enforcement processes? Does it go beyond the 
duties that are specifically delegated to the General Counsel's 
office in 12 CFR 265.6?

A.12. It is my understanding that the role of the General 
Counsel's office is to provide legal advice and services to the 
Board in meeting its statutory duties, including the Board's 
bank supervisory and regulatory responsibilities and authority. 
In that regard, the General Counsel's office is responsible for 
drafting regulations and assisting the Board in analyzing 
legislation.
    I understand that the Federal Reserve Act permits the Board 
to delegate to Board members and employees functions other than 
those relating to rulemaking or pertaining principally to 
monetary and credit policies. It is also my understanding that 
the various authorities the Board had delegated to its staff 
and to the Reserve Banks are listed in the Federal Register, 
and the proper role of the General Counsel's office does not 
extend beyond these important responsibilities to the Board.

Q.13. In your view, did deregulation cause the 2008 financial 
crisis?

A.13. Failures of regulation and supervision were important 
contributors to the extraordinarily destructive financial 
crisis, which led to deep and protracted damage to American 
families, workers, and small businesses, and regulatory reform 
has to be at the center of our efforts to prevent crises of 
this magnitude occurring again.

Q.14. The Senate Permanent Subcommittee on Investigations 
recently released a report detailing Credit Suisse's role in 
aiding thousands of Americans evade their U.S. tax obligations. 
Credit Suisse and the Swiss Government have not been 
cooperating with the Department of Justice's investigation. Do 
you think it is appropriate for the Fed to use any of its 
regulatory or enforcement authority under the circumstances?

A.14. I understand that Credit Suisse is under investigation by 
the Department of Justice, and it would not be appropriate to 
comment on an ongoing investigation or potential supervisory 
actions related to a specific firm under these circumstances. 
More broadly, no institution is above the law, and, if 
confirmed, I would support the Federal Reserve actively working 
with other enforcement agencies to ensure full compliance with 
U.S. law.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR KIRK
                       FROM LAEL BRAINARD

Q.1. Capital Rules for Insurance Companies: While many of us 
believe that the Dodd-Frank Act already gives the Federal 
Reserve the authority to distinguish between insurance 
companies and banks when promulgating capital standards under 
the Collins Amendment, the Federal Reserve has made statements 
publicly that it does not believe it has the statutory 
authority to do so. Therefore, a number of senators on this 
Committee introduced legislation, S.1369 to codify and clarify 
that the Federal Reserve can and should make distinctions 
between insurance companies and banks when setting capital 
standards. Is it your interpretation that this authority 
currently exists?

A.1. I recognize that the business models and balance sheets of 
traditional insurance companies and banks differ in important 
respects and that supervision should be appropriately tailored. 
If confirmed, I will consider and evaluate the total mix of 
information available regarding the responsibilities and 
flexibility of the Federal Reserve in implementing minimum 
capital standards for the insurance companies and nonbank 
financial companies under its supervision according to the 
requirements of the Collins Amendment (Section 171).

Q.2. This ability for distinction should also transfer to the 
Fed's ability to distinguish between insurance companies and 
banks for purposes of accounting practices. I have at least two 
insurance companies in my State that are supervised by the Fed 
as savings and loan holding companies. These companies are not 
publicly traded and do not prepare financial statements in 
accordance with GAAP--but rather, in accordance with GAAP-based 
insurance accounting known as Statutory Accounting Principles 
(SAP). Every person I consult tells me that SAP is the most 
effective and prudential way to supervise the finances of an 
insurance company. It is my understanding that the Federal 
Reserve may want to force these insurance companies that have 
used SAP reporting for many decades to spend hundreds of 
millions of dollars preparing GAAP statements--primarily 
because the Fed is comfortable with GAAP and understands it 
since it's what banks use. Is this is true? If it is true, is 
it simply b/c the Fed is so accustomed to bank regulation and 
not insurance regulation that it simply wants to make things 
easier for itself? Do you agree with this one-size-fits-all 
approach to regulation? Can you provide a cost benefit analysis 
to this as it seems to not add any additional supervisory value 
and only adds astronomic costs to these companies?

A.2. I recognize the distinct characteristics of insurance 
companies and understand the concerns raised by insurance 
companies that have long used SAP accounting for financial 
reporting. My understanding is that the Federal Reserve delayed 
the capital rulemaking for these entities in order to further 
study these issues, including the associated costs and benefits 
of requiring use of GAAP by insurance entities that have long 
used SAP and not GAAP. If confirmed, I will be sure that the 
costs and benefits are appropriately considered as the Federal 
Reserve promulgates a final rule on this issue.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
                       FROM LAEL BRAINARD

Q.1. A growing concern that many of my colleagues and I are 
following involves the Financial Stability Board's (FSB) 
possible effort to impose European insurance capital standards 
on the U.S. insurance industry, specifically companies that are 
designated as ``internationally active.''
    In my opinion, Dodd-Frank is clear that if an insurer is 
not designated as a SIFI or is not a savings and loan holding 
company that the insurer would continue to be subject to the 
risk-based capital standards per individual State regulation.
    Imposing foreign insurance standards on ``internationally 
active'' American companies appears to be a significant 
departure from the appropriate, traditional State regulation 
these companies were previously subject to.
    Some of the Federal Reserve nominees may have past 
experience with this specific issue in prior governmental 
roles. Please provide your views on whether or not you feel 
that foreign capital standards are appropriate for 
``internationally active insurance companies'' and whether that 
foreign regulatory framework should preempt individual States' 
rights to oversee this industry.

A.1. The qualitative standards under development by the IAIS 
would in no way replace existing insurance risk-based capital 
standards at U.S. domiciled insurance legal entities. The 
development of any IAIS qualitative capital standard would be 
complementary to existing legal entity risk-based capital 
requirements by evaluating the financial activities of the firm 
overall rather than by individual legal entity. That said, U.S. 
based IAIGs would continue to be subject to U.S. laws and 
regulations. Neither the IAIS nor the FSB has authority to 
implement requirements in the United States or any 
jurisdiction.
    I support the broad objective of the IAIS to achieve 
greater comparability of capital requirements of IAIGs at the 
groupwide level in order to promote financial stability, ensure 
against regulatory arbitrage, provide a more level playing 
field for firms, and enhance the confidence in the groupwide 
supervisor's analysis on the part if host supervisors. U.S. 
interests and approaches should be well reflected in the work 
of the IAIS given strong representation of U.S. insurance 
authorities as members of the IAIS, including State insurance 
supervisors, the National Association of Insurance 
Commissioners, the Federal Insurance Office, and the Federal 
Reserve.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAPO
                 FROM GUSTAVO VELASQUEZ AGUILAR

Q.1. In recent years, several Federal regulatory agencies have 
increased significantly the use of ``disparate impact'' 
enforcement actions in their oversight of the housing and 
financial sectors. Disparate impact enforcement actions have 
been brought even in the absence of direct discriminatory 
evidence or discriminatory motive. In your opinion, when should 
disparate impact enforcement actions and cases be brought when 
there is no evidence of direct discriminatory evidence or 
discriminatory motive exist? Should a Federal agency be 
required to share any economic analysis conducted upon which 
such action has been based? If not, then how should these 
analyses be verified?

A.1. If confirmed as Assistant Secretary, my commitment is to 
follow the law and all applicable HUD administrative 
procedures. HUD's Office of Fair Housing and Equal Opportunity 
(FHEO) receives complaints of discrimination from individuals 
and organizations. FHEO may also initiate a case based on 
evidence it obtains regarding possible discrimination. In every 
case, HUD conducts a full and fair investigation and throughout 
the investigation provides the parties with sufficient 
information on the claims and defenses, which may include 
economic analyses, to allow them to rebut any evidence. Given 
that the facts of every case are different, decisions about 
what legal theory to pursue in litigation cannot me made in the 
abstract. If confirmed, I would consult with the Office of 
General Counsel at HUD when making such determinations. I 
understand that with respect to disparate impact in particular, 
there are currently two pending lawsuits challenging the final 
HUD rule on implementation of the Federal Fair Housing Act's 
Discriminatory Effects Standard. If confirmed, I will obey the 
final ruling of the courts on this issue.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAPO
                     FROM J. MARK MCWATTERS

Q.1. Streamlining outdated and burdensome regulations is 
crucial to providing regulatory relief to small financial 
institutions, including credit unions, and it is one of my top 
priorities. The annual Gramm-Leach-Bliley privacy notice is one 
such burden that is costly for credit unions. Would you briefly 
outline other regulatory burdens that credit unions face, and 
tell us how you would minimize regulatory burdens for credit 
unions, if confirmed?

A.1. Federally insured credit unions currently face real 
pressures resulting from regulatory burdens, market 
competition, and members' demands. In 2013, we continued to see 
the number of federally insured credit unions contract, in 
large part because of these pressures.
    I also recognize that smaller credit unions are often the 
only provider of much-needed financial services in rural, 
innercity and low-income communities. I want to help these 
institutions remain viable. If confirmed, I will make prudent 
regulatory relief, consistent with safety and soundness, one of 
my top priorities. As such, I will question the need for each 
regulation the NCUA Board considers and seek to provide 
regulatory relief where possible.
    Last year, the NCUA Board raised the definition of a small 
credit union from $10 million and under to $50 million and 
under. The change excluded more credit unions from NCUA's 
regulations, like the risk-based capital rule and the 
requirement for adopting interest rate risk policies. The 
change also made these small credit unions eligible for 
assistance from NCUA's Office of Small Credit Union 
Initiatives. The NCUA Board must now use the new threshold to 
consider whether to exempt small credit unions from each 
proposed and final rule. This change was a step in the right 
direction, but we cannot stop there.
    NCUA is the only financial services regulator that conducts 
a rolling 3-year review of all regulations issued by the 
agency. If confirmed, I will work to ensure more credit unions 
are aware of this process and use it to advocate for regulatory 
relief. For those rules that NCUA enforces but does not write, 
I would urge the agency to work with other regulators like the 
Consumer Financial Protection Bureau to cut unnecessary 
burdens.
    However, I'd be careful in making any changes so as to not 
increase the risk to the Government-backed Share Insurance Fund 
and potentially the American taxpayer. As with all things, this 
task will require balance. If confirmed I will bring an open 
mind, and a risk-based, market-oriented, targeted and 
transparent regulatory perspective to address the increasingly 
complex and sophisticated issues facing credit unions.

Q.2. When trying to maintain a healthy capital ratio, credit 
unions must comply with a rigid capital definition established 
in the Federal Credit Union Act. Specifically, credit unions 
can't access supplemental capital and must instead solely rely 
on retained earnings as a percentage of total assets. What is 
your position on the ability of a credit union to access 
supplemental capital and consider that in its capital ratio?

A.2. Capital is one of the fundamentals that I want to focus on 
at NCUA. During the recent financial crisis, financial 
institutions with greater capital did much better than those 
with less capital.
    Currently, about a third of credit unions are able to 
accept supplemental capital if the majority of their members 
qualify as low-income households. The Federal Credit Union Act 
states that credit unions have a mission to meet the credit and 
savings needs of consumers, especially people of modest means, 
and the ability to receive supplemental capital provides an 
incentive for credit unions to seek and maintain the 
designation.
    That said, most credit unions currently only have one way 
to raise capital--through retained earnings. Without access to 
other ways to raise capital, credit unions are more exposed to 
risk when the economy falters. I know NCUA has expressed 
support for legislation to permit qualified credit unions to 
accept supplemental capital.
    As a policy issue, increasing the availability of capital 
for a financial institution is generally a positive in my view. 
Supplemental capital would achieve this objective, but there 
are also costs associated with obtaining it. Increasing access 
to supplemental capital could also result in a reduction in the 
advantages for credit unions to seek and maintain the low-
income designation. Because this is a statutory issue, Congress 
ultimately would need to act on allowing supplemental capital 
for more credit unions before NCUA could issue regulations to 
expand its availability. If confirmed, I would work to 
implement any such law in accordance with the requirements set 
by Congress.

Q.3. Credit unions have been hit especially hard by recent data 
breaches at retailers. Card replacement costs, fraud 
monitoring, and reputation risks hit small institutions the 
hardest. What are some of your priorities for addressing data 
security and card technology issues in the credit union 
industry?

A.3. Data security and cyber-fraud are key risks that all 
financial institutions face, including credit unions. For 
smaller financial institutions to remain viable, they need to 
offer their members access to credit cards, debit cards, online 
banking, and mobile products. As we see every day in the news, 
the risks involved in offering these products are only growing 
by increasingly sophisticated criminals who tap into networks 
to steal money and personal information.
    I believe NCUA could do more to help protect credit unions 
from these threats, especially small, low-income and rural 
institutions. I know the agency has issued collaborative grants 
from the Community Development Revolving Loan Fund to low-
income credit unions to encourage them to cooperate with other 
credit unions on key issues. I believe the issue of data 
security and card technology could be one area for NCUA to 
explore using such grants. In addition, I believe NCUA should 
become more active in identifying and notifying credit unions 
of potential cyber-threats. I also believe we need to have 
clear rules about which parties should pay and how much in the 
event of security breaches and cyber-crimes. If confirmed, I 
will make this issue one of my priorities.