[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]





 
                 FEDERAL RESERVE DISTRICTS: GOVERNANCE,
                 MONETARY POLICY, AND ECONOMIC PERFORMANCE

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

                                HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON MONETARY

                            POLICY AND TRADE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 7, 2016

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 114-99
                           
                           
                           
                           
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
SCOTT GARRETT, New Jersey            GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas              MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico            RUBEN HINOJOSA, Texas
BILL POSEY, Florida                  WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK,              STEPHEN F. LYNCH, Massachusetts
    Pennsylvania                     DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia        AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri         EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan              GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin             KEITH ELLISON, Minnesota
ROBERT HURT, Virginia                ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio                  JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee       JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina        BILL FOSTER, Illinois
RANDY HULTGREN, Illinois             DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida              PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina     JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri                 KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky                  JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania       DENNY HECK, Washington
LUKE MESSER, Indiana                 JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
TOM EMMER, Minnesota

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
               Subcommittee on Monetary Policy and Trade

                   BILL HUIZENGA, Michigan, Chairman

MICK MULVANEY, South Carolina, Vice  GWEN MOORE, Wisconsin, Ranking 
    Chairman                             Member
FRANK D. LUCAS, Oklahoma             BILL FOSTER, Illinois
STEVAN PEARCE, New Mexico            ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia        JAMES A. HIMES, Connecticut
MARLIN A. STUTZMAN, Indiana          JOHN C. CARNEY, Jr., Delaware
ROBERT PITTENGER, North Carolina     TERRI A. SEWELL, Alabama
LUKE MESSER, Indiana                 PATRICK MURPHY, Florida
DAVID SCHWEIKERT, Arizona            DANIEL T. KILDEE, Michigan
FRANK GUINTA, New Hampshire          DENNY HECK, Washington
MIA LOVE, Utah
TOM EMMER, Minnesota

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    September 7, 2016............................................     1
Appendix:
    September 7, 2016............................................    41

                               WITNESSES
                      Wednesday, September 7, 2016

George, Esther L., President and Chief Executive Officer, Federal 
  Reserve Bank of Kansas City....................................     6
Jones, Robert G., Chairman and Chief Executive Officer, Old 
  National Bancorp...............................................     8
Lacker, Jeffrey M., President and Chief Executive Officer, 
  Federal Reserve Bank of Richmond...............................     4
Spriggs, Hon. William E., Chief Economist, AFL-CIO, and 
  Professor, Department of Economics, Howard University..........     9

                                APPENDIX

Prepared statements:
    George, Esther L.............................................    42
    Jones, Robert G..............................................    75
    Lacker, Jeffrey M............................................    78
    Spriggs, Hon. William E......................................   106


                       FEDERAL RESERVE DISTRICTS:



                      GOVERNANCE, MONETARY POLICY,



                        AND ECONOMIC PERFORMANCE

                              ----------                              


                      Wednesday, September 7, 2016

             U.S. House of Representatives,
                           Subcommittee on Monetary
                                  Policy and Trade,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:04 a.m., in 
room 2128, Rayburn House Office Building, Hon. Bill Huizenga 
[chairman of the subcommittee] presiding.
    Members present: Representatives Huizenga, Mulvaney, Lucas, 
Pearce, Stutzman, Pittenger, Messer, Schweikert, Guinta, Love, 
Emmer; Moore, Foster, Perlmutter, Himes, Sewell, Murphy, 
Kildee, and Heck.
    Ex officio present: Representatives Hensarling and Waters.
    Chairman Huizenga. The Subcommittee on Monetary Policy and 
Trade will come to order. Without objection, the Chair is 
authorized to declare a recess of the subcommittee at any time.
    Today's hearing is entitled, ``Federal Reserve Districts: 
Governance, Monetary Policy, and Economic Performance.''
    I will now recognize myself for 5 minutes to give an 
opening statement.
    Economic performance couldn't be stronger, especially in 
light of the deep hole that President Obama inherited. Well, 
that is the story that you are going to hear from my colleagues 
on the other side of the aisle, and they have been telling it 
for years, but the facts clearly contradict this situation.
    The fact of the matter is that we are mired in the slowest 
recovery since at least World War II.
    Historically, our Nation's economy has grown at a 3 percent 
clip. The Obama Administration now pretends that a new normal 
of 2 percent counts as a success. Small on its face, the 
difference between 3 and 2 percent is 50 percent.
    Unfortunately, economic opportunities are now disappearing 
even faster. And while my friends on the other side have been 
crowing about this recovery for years, Republicans have been 
calling out for what it really is: completely unacceptable 
situation.
    But today it will be different in at least one important 
respect. Our colleagues on the other side of the aisle will 
finally join us in acknowledging that our economy is 
underperforming. And together we will examine the important 
role that the Federal Reserve's districts play in expanding 
economic opportunity--a role that is, unfortunately, under 
heavy attack.
    This attack has been brewing beneath the surface for 
several years.
    In late July, the Democrat Party finally made their true 
objective clear. The party platform adopted at the convention 
in Philadelphia promises to increase opportunity for all. 
Instead, it has taken aim at the very foundation of 
opportunity, in my opinion--that is the governance of monetary 
policy and the subject of today's hearing.
    Democrats have constantly resisted reforms that would 
modernize the Federal Reserve, bringing much-needed 
transparency to what most Americans consider an impossibly 
opaque institution. While such reforms promise increased 
accountability, Democrats falsely claim that a better 
disciplined, more predictable, and clearly communicated 
monetary policy with Congress and the public would somehow 
jeopardize the Fed's independence.
    Reforms such as these included in the FORM Act and the 
Draft Financial Choice Act would help insulate the Fed from any 
opportunity-killing political pressures. However, my friends on 
the other side of the aisle would like to double down on what 
Dodd-Frank started, co-opting the Federal Reserve district 
banks by subjecting them to the same politics that has kicked 
economic opportunity to the sidelines in the name of re-
inflating asset prices. Their platform promises to press the 
pedal to the metal in a drag race to printing money for the 
politics of those in office.
    They now have launched a hostile takeover of the Federal 
Reserve itself.
    And I will note that this is a dual-edged sword that some 
might benefit now and will rue the day if this were to go 
through later.
    Real economic opportunity cannot return until Washington 
puts an end to the pretense of knowledge. We cannot promote 
economic opportunity for all through a monetary policy that 
targets assets that benefit only some. Oracles from the Eccles 
Building have been promising to do so for a decade, but where 
are the results?
    I am as fed up as anybody. We are fed up as anybody.
    Where is the promised opportunity? How could the Fed have 
created trillions upon trillions of dollars from thin air in 
the name of buying questionable assets that they have left us 
with with not only the slowest economic recovery in our 
lifetimes, but increased inequality to boot?
    I know that a better way is available, one that reverses 
the increased centralization of monetary policy in Washington's 
politicized Board of Governors and restores the historic role 
of district banks as a critical source of local economic 
information and an institutional source of support for sound 
monetary policy.
    I believe my House-passed FORM Act and the Financial 
Services Committee CHOICE Act offer a much better way. Instead 
of doubling down on Dodd-Frank, these legislative solutions 
bring monetary policy out of the political shadows and into the 
sunlight of market accountability, and strengthen monetary 
policy independence by restoring the voice of the district bank 
presidents on monetary policy matters while subjecting 
regulatory and supervisory services to congressional 
appropriations and oversight, where they properly belong.
    I look forward to hearing from our witnesses today.
    And the Chair now recognizes the ranking member of the 
subcommittee, the gentlelady from Wisconsin, Ms. Moore, for 5 
minutes for an opening statement.
    Ms. Moore. Thank you and good morning, Mr. Chairman.
    And good morning to my colleagues and to this distinguished 
panel.
    I so look forward to the tremendous assets that we have 
here in front of us, Mr. Chairman. And I especially welcome the 
Honorable Spriggs, who is a very well-educated gentleman from 
the University of Wisconsin-Madison.
    I think that your perspectives are going to be extremely 
valuable and we thank you for giving us the time here.
    The Federal Reserve, as the central bank of the United 
States, plays an extremely important role in our financial 
markets and economy, and I think we have seen this post our 
recession.
    It is also very misunderstood. So I actually think that it 
may be helpful to have had this hearing to discuss the Federal 
Reserve and the Federal Reserve System.
    I will have to admit to you, Mr. Chairman, that I was 
initially extremely suspicious of this hearing, due to some 
proposals that I think would disastrously inject partisan 
politics into monetary policy. And we have heard some of them.
    So I think it is interesting, Mr. Chairman, you talked 
about not wanting to inject politics into the Federal Reserve, 
since we have heard these cries to audit the Feds, and 
balancing the transportation budget with Federal Reserve 
monies, and just your statement today wanting to bring the 
Federal Reserve into more of congressional compliance.
    But short of undermining the independence of the Fed with 
policy audits or appropriating the budget, I have been open, 
Mr. Chairman, to you and others about improving the diversity 
of thought at the Fed.
    The Fed was created and established to be independent, and 
I think that independence has fueled a lot of these 
misconceptions and misgivings about the Fed. And I think that 
we ought to and should explore smart reforms that balance 
maintaining the Fed's independence but that also bolsters 
public confidence and faith in the Fed.
    We have made some tweaks in Dodd-Frank, including having 
the GAO study--conduct a study and make recommendations on 
reform. And I think that that is appropriate. And I think the 
GAO recommendations are a good place to start any conversation 
on reform. And I also signed onto a letter with some of my 
Democratic colleagues encouraging the Fed to seek greater 
diversity.
    And with that, I yield back the balance of my time and I 
look forward to this hearing, Mr. Chairman. Thank you.
    Chairman Huizenga. The gentlelady yields back. Thank you 
for that.
    Today, we welcome the testimony of Esther George, president 
and chief executive officer of the Federal Reserve Bank of 
Kansas City.
    And I know you are coming off of a busy August, with the 
Jackson Hole conclave that was put together. And I know that 
you met with a number of folks who are represented here today 
in the audience.
    Jeffrey Lacker, president and chief executive officer of 
the Federal Reserve Bank of Richmond.
    Robert Jones, chairman and chief executive officer of Old 
National Bancorp, and former Board director for the Federal 
Reserve Bank of St. Louis.
    Mr. William Spriggs, chief economist for the AFL-CIO, and 
professor, Department of Economics at Howard University.
    Chairman Huizenga. Yes, Dr. Spriggs.
    Each of you will be recognized for 5 minutes to give an 
oral presentation of your testimony. And without objection, 
each of your written statements will be made a part of the 
record.
    Dr. Lacker, you are now recognized for 5 minutes.

 STATEMENT OF JEFFREY M. LACKER, PRESIDENT AND CHIEF EXECUTIVE 
           OFFICER, FEDERAL RESERVE BANK OF RICHMOND

    Mr. Lacker. Thank you.
    Good morning, Chairman Huizenga, Ranking Member Moore, and 
Chairman Hensarling. I am honored to speak to the subcommittee 
about the governance structure of the Fed's regional reserve 
banks.
    To understand the Fed's structure it is essential to 
understand the Fed's purpose. Prior to the founding of the Fed, 
the banking system was often unable to adjust the supply of 
monetary assets flexibly enough in response to the changing 
needs of commerce. The Fed was founded to furnish an elastic 
currency, in the words of the preamble to the Federal Reserve 
Act.
    Clearinghouses, bank-owned cooperatives in larger cities, 
played an important role in how periodic crises were resolved 
before the Fed, including the issuance of currency substitutes. 
But clearinghouses were widely viewed as favoring the interests 
of large money-center banks.
    Reserve banks were modeled after clearinghouses, but with 
note-issue powers and universal eligibility for membership, the 
aim being to improve upon the role of clearinghouses in a way 
that served broader public interests.
    A plan for a centralized institution was rejected out of 
concern about excessive Wall Street influence at the expense of 
diverse regional interests. Proposals for a government-
controlled central bank were rejected as well, for fear the 
Federal Government would use control of the money supply to 
resort to inflationary deficit finance.
    At the same time, a measure of public oversight was viewed 
as essential, consistent with Progressive Era thinking. And so 
the act included a Federal Reserve Board whose leaders were 
politically appointed.
    Thus, the final Federal Reserve Act reflected a balance of 
competing considerations: a federated set of institutions to 
provide for representation of a diverse range of geographic and 
commercial interests with a hybrid public-private governance 
structure to provide for public oversight but contain potential 
misuse of monetary authority.
    The governance structure of the Federal Reserve is still 
effective, in my view, because the considerations the founders 
wrestled with are all relevant today.
    The federated structure has benefited policymaking by 
ensuring that a diversity of perspectives on policy and 
economic conditions are brought to the table. Reserve banks 
historically have shown intellectual leadership on topics that 
initially went against the grain of mainstream thinking but 
later became broadly accepted. And Reserve bank presidents have 
a record of challenging conventional views.
    In addition, the federated structure has promoted broad 
regional engagement of the institution across the country, 
deepening the Fed's understanding of the diverse economic 
challenges facing American communities.
    To be sure, our country's understanding of diversity has 
expanded since 1913. And it is in keeping with the spirit of 
our founding that the Federal Reserve has taken the importance 
of diversity seriously as we have sought to ensure broad 
representation of views in the formulation of monetary policy, 
including those associated with disadvantaged communities. I 
believe our record in this regard, like that of many other 
organizations in the United States, shows a combination of 
substantial progress and areas where more can be done.
    In addition to bringing diverse viewpoints to bear, the 
Fed's public-private governance helps our policymaking focus on 
longer-term objectives.
    At times there is a temptation to provide excessive 
economic stimulus in the short run, and leave the subsequent 
inflationary costs for future policymakers to deal with. 
Evidence from around the world, along with our own history in 
the United States, amply demonstrates that the temptation of 
shortsighted monetary policies is a bipartisan vulnerability, 
just as the Fed's founders feared.
    For central banks, this implies that meeting-to-meeting 
monetary policy decisions need to be insulated from short-term 
political pressures driven by electoral considerations.
    But independence with regard to the choice of monetary 
policy interest rate settings must be paired with strong 
accountability for the economic results of policymaking over 
time. And accountability rests on transparent communications, 
which help Congress and the public evaluate the Fed's 
performance against its mandate.
    The Fed's public-private structure supports monetary policy 
independence by ensuring a measure of apolitical leadership. 
The reserve banks' autonomous balance sheets, protected 
appropriation status, and independent capital stocks all play a 
role as well by limiting high-frequency interference that might 
diminish instrument independence.
    The presence of bankers on reserve bank Boards is said to 
represent a conflict of interest since reserve bank staff 
supervise banks. But strict rules limit bankers' roles; they 
simply have no avenue through which they can influence 
supervisory matters.
    Moreover, best practice for any Board is to seek members 
with expertise relevant to the organization's activities.
    The Fed's large payment processing operations, for example, 
make the original rationale for having bankers serve on reserve 
bank Boards still valid, in my view. And in addition, bankers 
are particularly well-positioned to report on economic 
conditions in their footprints.
    In conclusion, while some claim that the Federal Reserve's 
governance structure is a historical anachronism, the continued 
relevance of the trade-offs taken into account by the authors 
of the Federal Reserve Act argues for the continued utility of 
this finely balanced arrangement that they crafted.
    Thank you.
    [The prepared statement of Dr. Lacker can be found on page 
78 of the appendix.]
    Chairman Huizenga. Thank you, Dr. Lacker.
    Ms. George, you are recognized for 5 minutes as well.

 STATEMENT OF ESTHER L. GEORGE, PRESIDENT AND CHIEF EXECUTIVE 
          OFFICER, FEDERAL RESERVE BANK OF KANSAS CITY

    Ms. George. Chairmen Hensarling and Huizenga, Ranking 
Member Moore, and members of the subcommittee, thank you for 
this opportunity to share my views on the role of regional 
Federal reserve banks as part of the Federal Reserve System.
    Because the Federal Reserve is an institution that makes 
decisions of consequence to the broad public, a discussion of 
these matters is worthwhile. If changes are to be considered, 
the public should understand not only the congressional intent 
for its current design, but also the strong safeguards that 
assure its accountability.
    Central banks are unique institutions. They have important 
responsibilities for a Nation's financial system and economy.
    Congress, as it contemplated a central bank for the United 
States more than 100 years ago, took note of central bank 
models for the United States from other countries while keeping 
in mind two earlier attempts at central banking in the United 
States. Ultimately, it opted for a different approach--one that 
recognized the public's distrust of concentrated power and 
greater confidence in decentralized institutions.
    The Federal Reserve's unique public-private structure 
reflects these strongly held views and is designed to provide a 
system of checks and balances.
    Challenges to this public-private design have surfaced 
throughout the Federal Reserve's history, not unlike they have 
today. But in the end, our country has remained most confident 
in this decentralized governance structure.
    Criticism of the quasi-private nature of the regional 
reserve banks was anticipated from the start. Indeed, the 
Federal Reserve Act leaves no unchecked power in reserve banks.
    The politically appointed members of the Board of Governors 
have oversight authority of the most important governance 
aspects of reserve banks. For example, they appoint the Chair 
and deputy Chair of a reserve bank's Board, they vote to 
approve the selection of the bank's president as well as its 
chief operating officer, and they approve the reserve bank's 
budget and salaries.
    The Board of Governors also meets with each bank's Chair 
and deputy Chair annually to review the bank's performance and 
that of its president.
    Finally, the reserve bank's operations are reviewed by the 
Board of Governors as well as an outside independent auditor.
    Notwithstanding this strong public oversight, some question 
the role of commercial banks within the Fed's structure. Here, 
too, important safeguards exist.
    The supervision and regulation of the Federal Reserve's 
member banks is a statutory responsibility of the 
congressionally confirmed Board of Governors.
    Bankers who serve on reserve bank Boards are prohibited by 
law from participating in the selection of the bank president, 
and no director can participate in bank supervisory matters. 
Finally, all directors are required to adhere to high ethical 
standards of conduct and avoid actions that might impair the 
effectiveness of the Federal Reserve's operations or in any way 
discredit the reputation of the system.
    The capital stock supplied by these member banks serves as 
the foundation for the decentralized structure, allowing for 
separate corporate entities. Through the regional reserve 
banks, private citizens from diverse backgrounds and from the 
largest to the smallest communities have input into national 
economic policy. Strong and varied independent perspectives 
more easily emerge to engage in difficult monetary policy 
discussions, and the central bank is provided insulation from 
short-term political pressures.
    Altering this public-private structure in favor of a fully 
public construct diminishes these defining characteristics, in 
my view. It also risks putting more distance between Main 
Street and the Nation's central bank.
    Former Fed Chairman Paul Volcker understood this well. He 
experienced firsthand how public pressure can be exerted on a 
central bank when it must make unpopular decisions that he and 
the FOMC judged to be in the long-run best interests of the 
economy.
    In a 1984 speech he noted the important role of the 
structure of the Federal Reserve System in supporting the 
central bank's decision-making. And he said, ``It was all quite 
deliberately done by men of political imagination, designed to 
assure a certain independence of judgment, a continuity in 
professionalism in staff, a close contact with economic 
developments and opinion throughout our great land, and a large 
degree of insulation from partisan or passing political 
concerns.''
    To that end, I extend a personal invitation for any of you 
to visit the Federal Reserve Bank of Kansas City to see what a 
regional Federal Reserve bank provides in support of the 
central bank's objectives for economic stability.
    Thank you. I look forward to taking your questions.
    [The prepared statement of Ms. George can be found on page 
42 of the appendix.]
    Chairman Huizenga. Thank you, Ms. George.
    Mr. Jones, you are now recognized for 5 minutes.

  STATEMENT OF ROBERT G. JONES, CHAIRMAN AND CHIEF EXECUTIVE 
                 OFFICER, OLD NATIONAL BANCORP

    Mr. Jones. Great. Thank you.
    Chairman Huizenga and Ranking Member Moore, good morning. 
It is my honor to speak with the distinguished members of this 
committee today about the role of community bankers on our 
reserve bank Boards.
    In my belief, it is critically important that bankers 
continue to serve in this capacity.
    I sit before you as the chairman and CEO of Old National 
Bancorp, a 182-year-old community bank headquartered in 
Evansville, Indiana, serving Indiana, southwest Michigan, 
Wisconsin, and Kentucky. I am also a proud former Board 
director of the Federal Reserve Bank of St. Louis as well as a 
former member of the Federal Advisory Committee of the Federal 
Reserve Board.
    I would like to begin my remarks by touching on a 
partnership that has changed the lives for the better. At its 
center are two individuals: Roslyn Jackson, a former substance 
abuse counselor in western Kentucky penal system; and Ben 
Joergens, Old National Bancorp's financial empowerment officer.
    With insights and guidance from Roslyn, Ben designed a 
financial education program that provides nonviolent offenders 
in our region with the tools to gain financial independence 
once they have completed their debt to society. Launched in 
2014, this program led the American Bankers Association to 
recognize Ben with its George Bailey Distinguished Service 
Award.
    More importantly, it has led the nearly 2,000 individuals 
out of a cycle of despair and dependence that was fueled by 
their inability to manage their finances. One graduate of the 
program summed it up this way: ``I learned that you can always 
cleanup the wreckage of your past and take control of your 
destiny.''
    This is just one illustration of the many ways that banks 
big and small work to strengthen the communities that we serve.
    Old National is a fairly typical community bank. With $14.4 
billion in assets, we are literally headquartered on Main 
Street in Evansville, Indiana. Our clients are small and mid-
size business owners, farmers, young families, retirees, labor 
and community leaders. Each year we invest millions in support 
of community causes, and our nearly 3,000 associates are known 
for their volunteerism, having donated more than 100,000 
volunteer hours in 2015.
    In 2016 our company was named to the Ethisphere Institute's 
World's Most Ethical Companies list for this fifth consecutive 
year. And recently the American Bankers Association named us as 
one the best banks to work for in the country.
    The strong connection that banks like ours enjoys with 
their communities we serve gives us a unique and valuable 
perspective. Not only do bankers serve as community catalysts, 
we are on the front lines every day assisting our clients, who 
represent a broad cross-section of industries and 
neighborhoods.
    Over time we gain vital instincts to how they view the 
economy and how those views shape their decision-making.
    Conversely, the bankers who sit on the Nation's reserve 
Boards gain incredibly valuable information that they can take 
back to their communities. I experienced this reciprocal 
relationship firsthand during my tenure.
    Fueled by the knowledge I gained from my Board experience, 
Old National spearheaded the creation of the first Bank On 
program in the Midwest back in 2009.
    In the nearly 8 years since we adopted this program we have 
added another 16 programs in our footprint, helping the 
unbanked and underbanked individuals take greater control of 
their finances.
    Again, all this dates back to the knowledge I gained 
serving under Federal Reserve. In my time as a director, I and 
other bankers on our Board not only brought valuable insights 
from our communities into our discussions, we frequently 
reached out to a diverse set of community leaders to gather 
specific feedback that help drive policy decisions.
    Over time these trusted voices from Main Street began 
seeking us out to offer their views on issues of the day. These 
candid regional perspectives were invaluable to our discussions 
on the drivers of our local economies. That is why I feel so 
strongly that bankers are a vital asset.
    I recognize the concerns that have surfaced over whether 
bank directors might somehow attempt to control or manipulate 
decisions for the betterment of their own institutions. While 
no system is perfect, I do believe this issue is effectively 
addressed through the current policies and procedures of the 
Federal Reserve System.
    As this committee knows, the banking industry is highly 
regulated and bankers fully understand the consequences if we 
violate these regulations. These same consequences apply to the 
regulations and policies that govern the Federal Reserve 
System. The existing governance model is strong and I applaud 
the controls currently in place.
    I can assure you that during my tenure I never felt that my 
integrity or ethical center were in any way challenged or 
compromised.
    As banker, our role in the Federal Reserve Board is 
limited, yet crucial. We serve as managers, budgeters, 
auditors, and strategic planners. And we supply a vibrant and 
important regional voice on issues that affect small and 
medium-sized towns all across our great Nation.
    I encourage this committee to retain this vital link to the 
views, perceptions, and attitudes of mainstream America.
    Thank you for your time.
    [The prepared statement of Mr. Jones can be found on page 
75 of the appendix.]
    Chairman Huizenga. Thank you, Mr. Jones.
    With that, the Honorable William Spriggs is recognized for 
5 minutes.

STATEMENT OF THE HONORABLE WILLIAM E. SPRIGGS, CHIEF ECONOMIST, 
    AFL-CIO, AND PROFESSOR, DEPARTMENT OF ECONOMICS, HOWARD 
                           UNIVERSITY

    Mr. Spriggs. Good morning, and thank you, Chair Huizenga 
and Ranking Member Gwen Moore, for this invitation to speak 
today.
    I want to start with a clear statement that I don't 
disagree with the current set of policies that the Fed is 
pursuing. In fact, we are in uncharted waters when it comes to 
this recovery because, unlike in the past, the Fed has not had 
the help of fiscal policy to stimulate the economy. On all 
previous occasions when we have had downturns Congress has held 
up its half of the Humphrey-Hawkins Act--to fully address full 
employment.
    When we look at the deficit spending under President Reagan 
and the deficits that were run up under President George W. 
Bush we see the Congress clearly understood the need to act and 
to respond to the downturn. So this is unprecedented for the 
Fed to have to act on its own, and I would think, as was the 
case with Chairman Volcker, it has led to a lot of public 
criticism that is very hard for the Fed. And but for its 
independence, Chair Yellen could not be steering us in these 
uncharted waters.
    I also want to say that it is fully possible--possible--
under the current standards to have regional bank presidents 
who are quite open to public participation and truly do think 
that they have to represent and listen to all the voices from 
their region.
    You have President George here on the panel, who has let 
the doors of her bank open, has left the doors of her bank to 
engage her community and to talk to all the citizens in her 
region and hear from those who are affected by Fed policy, and 
to respect their voices. So it is possible.
    I want to give my statements with regard to your theme, 
which is policy outcomes, and to look back because, of course, 
we cannot ignore the Great Recession and what led up to it. So 
that is going to be the tone of what I would like to speak 
about.
    You see the chart that is up now? This shows the record of 
inflation pre-1978. You already heard about Chairman Volcker 
and his war on inflation; and then post-1984, what economists 
call the Great Moderation.
    And when you see the chart you can clearly see that 
inflation averaged a much higher level before 1984; since 1984 
inflation has run at a significantly lower amount. But more 
importantly, the variance in inflation has greatly reduced. So 
there is great stability that has occurred in terms of price 
stability.
    You can see the green line shows current average inflation 
post-1984. The red line shows inflation in the period before.
    The next slide, however, shows you the performance of the 
labor market. And here you see a clear difference.
    Before 1978 the average monthly unemployment rate in the 
United States was 5.1 percent. During the Great Moderation it 
has been 6.1 percent. That 1 percentage point difference means 
a lot. In the Great Moderation only 25 percent of the time have 
American workers been below 5.1 percent.
    This lack of voice on the part of workers affects the way 
that the Fed looks at things. And it is not guaranteed into the 
system.
    Class B members often do have influence. The current 
president of the Philadelphia bank was a class B member, 
chaired the search committee, stepped down from the search 
committee and then became president of the bank. There are at 
least 12 instances in which class B members chosen by the banks 
have ended up being class C members--those who then govern the 
regional banks.
    The voices of others needs to be put into the mix so that 
we can have, guaranteed, the voice of everyone.
    When the banks were established in 1914 we had a much 
different banking system. Today the level of concentration in 
our banking system is at record high levels and that means that 
we can't think that the regional banks really represent 
regional views. We need to have a way to assure that that will 
be the case.
    [The prepared statement of Mr. Spriggs can be found on page 
106 of the appendix.]
    Chairman Huizenga. Thank you. I appreciate that testimony.
    The Chair now recognizes himself for 5 minutes.
    And I would like to point out next week marks the eighth 
anniversary of Lehman Brothers' collapse. Prominent scholars 
who studied the financial crisis point to a monetary policy 
that was too loose for too long as a significant contributor.
    Scholars have also shown that the unique institutional 
structure of district banks can guard against such policy 
mistakes. That is, district presidents tend to be more 
concerned about overly accommodative policy than are their 
politically appointed colleagues on the Board of Governors, 
while this tendency has been criticized by advocates for 
extending what is already the greatest monetary accommodation 
in American history, under the theory that doing so will 
increase wages and employment at lower income levels.
    Research also suggests that we need to do just the 
opposite. For example, Dr. Christina Romer, a Berkeley 
economics professor and the first person to Chair President 
Obama's Council of Economic Advisors, observed that, 
``Compassionate monetary policy is sound monetary policy.'' 
Monetary policy that aims at low inflation and stable aggregate 
demand is the most likely to ``permanently improve conditions 
for the poor.''
    President George, do you agree with President Obama's first 
CEA Chair that sound monetary policy is most likely to 
permanently improve conditions for the poor? And I am going to 
asking everybody for just a yes or no.
    Ms. George. Yes.
    Chairman Huizenga. Yes.
    How about you, Mr. Spriggs--Honorable Spriggs? Do you 
agree?
    Mr. Spriggs. I think that sound monetary policy includes 
making sure that the wages of workers rise with productivity, 
that we are at full employment so that the Nation can have the 
highest level productivity possible.
    Chairman Huizenga. Is that a yes or a no?
    Mr. Spriggs. That is my definition of sound monetary 
policy.
    Chairman Huizenga. Okay.
    How about you Dr. Lacker?
    Mr. Lacker. I agree with Christina Romer's sentence.
    Chairman Huizenga. Okay.
    Mr. Jones?
    Mr. Jones. I agree, yes.
    Chairman Huizenga. Okay.
    I do too, and it seems to me that we share a common 
interest, which is the widening wage gap--the 
underrepresentation that has occurred for those in low and 
moderate income who have not seen their wages in increase.
    We all know, and if you have watched my subcommittee at all 
or watched me in committee I have said this many many many many 
times, Wall Street is doing just fine. I am concerned about 
Main Street and what is going on. And you literally, Mr. Jones, 
are at the corner of Main Street in Evanston, Indiana.
    This is something that we have to tackle. And I think that 
there really is something that the right and the left share, 
which is a suspicious view of the Federal Reserve and want to 
make sure that there is a proper check on the Federal Reserve. 
I believe these district bank presidents do that.
    I also want to do a quick--quickly ask, do you agree that 
the Federal Reserve district presidents bring important 
regional and local knowledge to the FOMC deliberations?
    And, Dr. Lacker and Ms. George, if you don't mind touching 
on that briefly? You are at the table.
    Mr. Lacker. Yes I do. It is an intense focus of every 
regional reserve bank to understand economic conditions in 
their district in way that complements the national economic 
statistics and is more granular and more thoughtful than the 
statistics that the national level can reveal, so yes.
    Chairman Huizenga. Ms. George?
    Ms. George. And the transcripts show that a significant 
portion of the discussion about the economy does come from 
talking about regional aspects of the national economy.
    Chairman Huizenga. Actually, I have had my own little 
experience in that.
    My family is involved in construction in Michigan. I own a 
small third-generation sand and gravel operation. Family has 
been involved in construction for decades. And that when I went 
to visit the president of the Chicago Reserve Bank the first 15 
minutes of that was an interview of me--what was happening in 
the local economy in West Michigan.
    Given those changes in populations and demographics, does 
the current rotation of who votes in each FOMC meeting fully 
leverage the benefits of that regional and local perspectives 
that can bring to monetary policy?
    Again, Ms. George, why don't we start with you?
    Ms. George. Certainly,
    So the importance of those regional connections come 
through access that we have in those district lines through our 
branch offices, through our Boards of directors on those branch 
offices. And so I think the country has been covered in terms 
of--despite demographic changes that span--that each regional 
reserve bank takes seriously, which is to make sure they 
understand, within the confines of their district, how that 
economy is performing.
    Chairman Huizenga. Dr. Lacker, I will let you have the--
    Mr. Lacker. Yes, I think you asked about voting rotation, 
as well.
    So all the participants in a meeting, whether they voter or 
not, have a voice and do bring their characterization of 
regional economic conditions to the discussion, and it is part 
of the discussion. Where voting comes into play is just where 
is the center of gravity of the committee and where does the 
Chair finds it useful to find a consensus?
    The current rotation was crafted decades ago and altering 
it would alter the--sort of the balance of forces within the 
committee. And I will leave it at that.
    Chairman Huizenga. My time has expired, but I will just end 
quickly and I will have a light gavel with my ranking member, 
as well.
    That is one of the reasons why I felt it important to 
include in the FORM Act provisions that would bring a more 
balanced set of district-level views into the FOMC voting 
process. And we have had such a weighted view towards New York 
and that permanent seat, I wanted to make sure all those voices 
are being heard.
    So with that, my time has expired.
    And I recognize the ranking member for 5 minutes.
    Ms. Moore. Thank you so much Mr. Chairman.
    And I do want to thank you all for your testimony.
    I think I heard correctly from all of you that you think 
that the independence of the Fed is really critical toward your 
being able to do your jobs. Did I hear correctly from all of 
you?
    Ms. George. Yes.
    Ms. Moore. Yes. So you all agree on that.
    That being said, I guess I am concerned about--I guess I 
want to hear from each of you of what you think of the 
importance of having a more diverse representation on the 
Federal Reserve Board. Do you think or do you not think that 
that would interfere with independence or would that enhance 
the decision-making process?
    I was on a letter with about 100 lawmakers, which asked the 
Federal Reserve to look at greater diversities, so I guess I 
would like to hear from each of you just very briefly about 
whether or not you think that efforts to diversify the Board 
would interfere with independence.
    Mr. Lacker. So we take diversity very seriously. I know 
that that is a commonplace cliche almost.
    But diversity, as I noted in my statement, is built into 
the structure of the system. And the idea bringing diversities 
to the table, the value of diverse perspectives in 
strengthening a decision-making process, is something that 
predates the concerns of this decade or the previous decade in 
diversity of access to economic resources and opportunities.
    We have been focusing on at the Board--our Board of 
directors level diversity for several decades now. And I know 
that we and others have had minority representation, women 
representation on their Boards going back several decades. It 
is something that is a regular part of the discussion and 
regularly reported on within the system.
    Ms. Moore. Thank you, Dr. Lacker. I want to give others a 
chance to answer this question, as well.
    Mr. Spriggs. I would say that a problem with having it 
owned by banks is, regrettably, the Board of directors looked 
like banks. So they look like the executives of banks: 83 
percent of the directors are white; 75 percent are men. These 
are people who look like bank directors. They are trained and 
they talk like bank directors.
    So it is not necessarily a capture in the usual sense of 
regulatory capture, but clearly in a cultural capture.
    Ms. Moore. Gotcha.
    Mr. Spriggs. In the transcripts that you see going up to 
the crisis, even regional bank presidents who were in regions 
where the epicenter of the subprime crisis hit hardest had no 
comments about what was going on in terms of the effect of the 
subprime crisis on the African-American and Latino community--
    Ms. Moore. With that--
    Mr. Spriggs. --or an understanding of it--
    Ms. Moore. Dr. Spriggs, my time is limited so let me take 
you here: There is often a lot of resistance to the bank doing 
their dual mandate to look at unemployment. And unemployment in 
the African-American community--African-Americans are not 
experiencing the recovery as other communities are.
    So what do you think about reforms that might--or 
activities of the bank--that focus on reducing unemployment, 
especially among African-Americans? Is that something that 
would interfere with the other mandate to control inflation?
    Mr. Spriggs. The mandate of the bank actually comes from 
the Humphrey-Hawkins Act and the clear mandate is full 
employment. Full employment benefits everyone, and that means 
full employment for everyone.
    Actually, African-Americans employment-to-population ratio 
has been rising faster than for anyone else. It has gone up 10 
percent. The problem is that often the Fed ignores the 
importance--
    Ms. Moore. Exactly.
    Mr. Spriggs. --of that trend continuing and often thinks 
that it can stop recoveries before full employment is actually 
reached.
    When full employment comes we know that workers are better 
allocated, we get the efficiencies of the labor market at full 
employment, and discrimination falls. Currently, that is what 
is taking place. Currently, the gap in the unemployment 
experience of better-educated African-Americans to less-
educated whites is closing, and that is because the labor 
market is beginning to heal.
    But it is not at full employment. Wages are not rise with 
productivity. We do not see quit rates to show that workers are 
being reallocated, and we do not see the level discrimination 
dropping.
    Ms. Moore. And do you think reformation of the Board and, 
moving from class D to C or some sort of programming would 
enable--would inform the Board about the importance of focusing 
on the full employment part of their mandate if we were to 
diversify the Fed more?
    Mr. Spriggs. Yes, because finally the worker's voice would 
be at the table and the worker's voice from communities that 
really are hurt the most would be at the table.
    In 2010, when the African-American unemployment rate was 
always above 15 percent, no one mentioned in the transcripts 
anything about the African-American unemployment rate at the 
FOMC.
    Ms. Moore. All right.
    Thank you for your indulgences, Mr. Chairman. I yield back.
    Chairman Huizenga. The gentlelady yields back.
    With that, the Chair recognizes the vice chairman of the 
subcommittee, Mr. Mulvaney of South Carolina, for 5 minutes.
    Mr. Mulvaney. I thank the chairman.
    I am going to try and talk about three apparently different 
things and see if I can weave them together, if you would give 
me a second to try and do that.
    I heard each of the three of you who have been presidents 
of the regional feds talk about the importance of knowing your 
district. I admire and respect that and believe that you are 
doing that. In fact, I have talked to Dr. Lacker about the 
district he lives in and he and I share, and I know that he is 
doing that.
    And then I weigh that against my personal experience. I can 
never forget being at a homebuilder's conference in California 
in 2006 or 2007, and the keynote speaker one night at dinner 
was some high-ranking member of the San Francisco Fed. It was 
not Janet Yellen at the time.
    And the subject of his speech that night was that it was 
the studied opinion of the San Francisco Fed, after having done 
intensive research, that on a national basis the homebuilding 
business would never go into recession again, that the 
restrictions on supply of new housing was such at the local 
level that we would never see a housing recession again in the 
country.
    So I weigh your efforts to try and know your district with 
just the human weaknesses of being wrong from time to time and 
occasionally being wrong on a monumental scale.
    Secondly, I would draw to each of the panelists' attention 
not only a recent article in the Economist magazine, but a 
scholarly piece of work that was referenced in there. I wish I 
could read the names. I think it is Professors Cieslak, Morse, 
and Vissing-Jorgensen--one from Duke and two from Cal-Berkeley.
    It goes into a very interesting analysis of what market 
returns have been in the weeks after the private FOMC meetings, 
that if you invested a dollar in the stock markets in the week 
after the meetings your return on that dollar over the--since 
1994 would be about 12 times--1,200 percent--versus almost zero 
if you had weighed it in on every other week, the obvious 
application being, as the article mentions, that the--and I 
will read from the article very briefly--that the scholars 
speculate that there is a causal connection, selective 
disclosure, which they say is unfair.
    Those who attend the meetings have informal contact with 
the media, consultancies, and financial firms, and eventually 
the content of those meetings makes its way into the stock 
market.
    Again, I would commend the study to you folks and be 
curious to know your opinion about it at another time.
    It reminded me, by the way, that there is an investigation 
going on into the leak involving a company, Medley Global 
Advisors, from several years that is still ongoing, where we 
know information was leaked out of the FOMC meetings.
    Again two things not apparently similar, but I am trying to 
get there.
    Lastly, Dr. Lacker, you mentioned in your testimony 
something that we have talked about in this committee several 
times, which is--and I will read from it now--at times there is 
temptation to provide excessive economic stimulus in the short 
run and leave the subsequent inflationary cost for future 
policymakers to deal with.
    Evidence from around the world along with our own history 
amply demonstrates a temptation of shortsighted monetary 
policies is a bipartisan vulnerability, just as the Fed's 
founders feared.
    For central banks this implies that meeting-to-meeting 
monetary policy decisions need to be insulated from short-term 
political pressures driven by electoral consideration.
    And certainly my party is experiencing that now. We have a 
Fed chairman who was appointed by someone of another party, 
different political philosophy than we then we share. And my 
guess is my Democrat colleagues may in the future sometime 
share that same concern if a Republican nominee holds that 
chair.
    What do these three things have in common? It seems like 
the current system makes it very difficult--that our record of 
predicting the future at the Fed is fairly poor.
    It also seems that there is a risk of market distortions 
just from us doing things. The scholarly piece doesn't suggest 
that there is any nefarious activity; it is just a casual 
connections.
    Lastly, you have the risk of political pressure from either 
side on the Fed. Why? Because they are people and they are 
appointed by other people, and there are human tendencies here.
    So my question to all of you is this: Doesn't a rules-based 
approach to monetary policy lessen the possible distortions to 
each of those weaknesses? Doesn't it take away and make it less 
important if we make big mistakes in terms of our 
predictability? Doesn't it lessen the likelihood that 
information is selectively distributed to the market so that 
some people can benefit and others do not? And doesn't it 
lessen the likelihood of political pressure?
    Doesn't a rules-based system, whether you are conservative, 
liberal, Republican, Democrat, solve a lot of the problems that 
we face at the Fed?
    I will asked Dr. Lacker and then Mr. Spriggs.
    Mr. Lacker. Sure. We consult rules very regularly. I think 
having a sense of the pattern of past behavior of your own 
institution that gave rise to good outcomes is an important 
benchmark, and I gave a speech about this last Friday.
    I would caution on--I draw the parallel between the search 
for the right rule and the San Francisco Fed study you cited, 
which was clearly obviously well-meaning. They believed their 
results sincerely, but there was some measure of uncertainty to 
the conclusion they drew, nd I think you would have to attach 
some measure of uncertainty to what you chose as the optimal 
rule.
    And for that reason I think it is useful to sort of back 
away from a rule, consult it as a guide to good policy, but not 
follow it mechanically or slavishly. But I do think it is 
important to give prominent attention to rules that encapsulate 
good past behavior in our conduct of monetary policy, and we do 
that.
    Mr. Mulvaney. Professor Spriggs?
    Mr. Spriggs. I am sympathetic to your point. However, the 
Fed has limited tools to influence the economy. The problem is 
that many of the problems are more complex and can have 
counterbalancing effects. So I don't think in all situations 
you would want them to adhere to the rule. The rule, in fact, 
may be not the best policy.
    For farmers right now the problem is an oversupply of 
commodities and this hurts them. The value of the dollar hurts 
our manufacturing sector.
    So there are many things that are moving at the same time, 
and I think you wouldn't want a rule that would bind the Fed in 
dealing with how those different--
    Mr. Mulvaney. I thank you, gentlemen.
    I thank the chairman for the indulgence.
    It sounds like the two gentlemen may not be that far apart, 
but I appreciate the time.
    Chairman Huizenga. Thank you.
    The Chair will note again, I have a light gavel. But 4-
minute-and-40-second questions might not leave a whole lot of 
time for answers.
    Ms. Moore. It took him a long time to ask the question. Let 
me defend my colleague.
    Chairman Huizenga. With that, the Chair recognizes Mr. 
Foster of Illinois, for 5 minutes.
    Mr. Foster. Thank you Mr. Chairman.
    And thank you, to our witnesses here.
    It seems to me that a big part of the diversity challenges 
of the Fed System are driven by the fact that the geographical 
regions of the Fed districts are very far from representative 
of today's population distribution or, in fact, the GDP 
distribution, or however you might assign the regions.
    This, to my mind, is a huge problem in the distribution of 
legislative power in our country. Just the fact that the Senate 
is grossly unrepresentative of the actual population 
distribution of the States results in about $.5 trillion per 
year wealth transfer from the high-population States, which are 
underrepresented in the Senate, to the low-population States, 
which are overrepresented in their power in the Senate, and the 
huge economic distortion to our country that costs us a lot. I 
know it costs my home state of Illinois about $40 billion a 
year and is the primary driver of our fiscal difficulties.
    So I was wondering what your reaction would be to a 
proposal, which has been floated from time to time, to 
periodically redistrict the Fed System perhaps once a century, 
and with enough decades of the time that you would actually 
have time to plan and it wouldn't be disruptive?
    How big a problem do you think the male distribution of 
political power inside the Fed is to its current operation? And 
do you think it would net out positively to redistrict the Fed 
every century or so?
    Ms. George. I don't think that we are handicapped by the 
current district lines, notwithstanding the changes in 
demographics that you have described over the last 100 years. 
And the reason I say that is because each region, regardless of 
how its boundary is defined, is focused through its operations 
on making sure that it understands every part of that region.
    And so the Federal Reserve works carefully--as we do in 
Kansas City--to make sure that all parts of that region are not 
only represented, but we understand the economic issues there.
    Mr. Foster. That would be true with or without 
redistricting. That is a separate issue than presumably if you 
redistricted things every district would represent the 
interests of whoever--whatever people and banks were in its 
district.
    Ms. George. I agree.
    Mr. Spriggs. And I would offer that it appears that way, 
but over time some of the district lines have been redrawn. So 
Detroit once was represented by Cleveland and now Detroit is 
with Chicago, as the whole state of Michigan is. So fine-
tuning--
    Mr. Foster. At present I think there is still something 
like a factor of six difference in the number of people in 
different Fed districts, which is a big number.
    Mr. Spriggs. Yes, but I think more important would be an 
assurance that the people of the district actually were 
represented. The issue now is that the banks are represented.
    So I think an issue is, how can we make sure that the 
people themselves are represented? How do we make sure that an 
actual farmer in Illinois is represented, not some giant 
agricultural chairman of some huge corporation? How do we make 
sure that the workers on the south side of Chicago are 
represented? Because these policies affect them and their voice 
needs to be integral to it.
    Currently this is at the whim of the banking community 
whether those voices really factor into the decision-making 
because those people aren't on their Board--aren't on the 
Boards of the regional banks.
    Mr. Foster. Yes. I was very struck by a study paper from I 
think one of the Federal Reserve study groups talking about 
fiscal hawks and doves. And if you look at the course of a 
cyclical downturn and the choice that the Fed faces of 
maintaining constant inflation or constant employment, that if 
you focus on constant employment it has real distributional 
advantages to those at the bottom. And conversely, if you 
choose to optimize the other way.
    And so I think this is a fundamental reason--fundamental 
argument for diversity, that there are real distributional 
effects because of the intrinsic trade-offs that the Fed has to 
make.
    Just a final comment or a question on rules-based system. 
If you did go to a rules-based system it seems like the sort of 
rule you would need to realistically represent our--today's 
economy would include GDP growth in China and every major 
country in the world as a fundamental input to that. So you are 
not talking about a simple Taylor Rule; you are talking about a 
very involved macroeconomic model, which I take it exists, but 
really sort of hard to specify in legislation.
    Wondering if you had comments on that complexity trade-off?
    Mr. Lacker. Sure. In the models we have that capture 
economic--the economic economy--economic activity pretty well, 
implementing a Taylor Rule gets very close to the optimal rule 
that would be dependent on a broader range of things. So, it is 
an empirical matter whether that is true or not, but in the 
models we have it looks as if the Taylor rule does--gets you 
fairly close.
    Mr. Foster. Prior to the Taylor Rule there was another 
economist whose name I forget who actually had a more complete 
and general version of the Taylor Rule that obviously, because 
it had more parameters, did a better job. It is not an argument 
that started with the Taylor Rule.
    Mr. Lacker. Right.
    Mr. Foster. Okay.
    Well, I will be a rarity and only be a little bit over time 
here and yield back.
    Chairman Huizenga. Thank you, Mr. Foster. I appreciate 
that.
    The Chair recognizes Mr. Lucas of Oklahoma for 5 minutes.
    Mr. Lucas. Thank you, Mr. Chairman.
    And for my time, since I am a resident of the Kansas City 
Fed, I would like to turn to President George.
    And my colleague just a moment ago, with his observations 
about realigning the districts, touches on a subject that to 
you as a historian as well as a CEO know goes back not just the 
beginning of the Fed but to the very beginning of this 
country--about where the concentration of capital should be and 
control over the economy and how that capital flows.
    From the very beginning the great battle was should the 
money centers--New York, Chicago--should they be the dominant 
force? I suspect that is why my predecessors in this Congress a 
century ago demanded the 12 districts and the lines be laid out 
the way they were, to protect the entire country from a 
handful.
    Now, that said, this is an issue that is not just 
theoretical; it is a real subject. In 2009, when I was the 
ranking member of another committee with jurisdiction over the 
derivatives markets, in a meeting one night a senior 
Administration official brought up the topic of realigning Feds 
as we were preparing to launch in the Dodd-Frank.
    Taking the 12 districts, did we need that many? Shouldn't 
the districts reflect the economic strength of a particular 
region? Now, rather quickly both Republicans and Democrats, 
House and Senate members in that meeting, made it clear to the 
senior official that that was not a topic that was acceptable 
at the time of the Congress.
    But even as recently as 2009 it was a subject of real 
debate, apparently at the highest levels of the Administration.
    Now, that said, from my perspective I like not only the 12 
Feds, but I like the sub-Feds. I like the groups in our 
district in Denver and Oklahoma City and in Omaha who act as 
consultants, advisors. Could you expand for a moment on the 
involvement in those communities within the Kansas City Fed, 
President George, how they add to the process?
    Ms. George. So the branch offices for each of the head 
offices play very important roles. And in the case of the 
Kansas City Fed, I rely heavily on the input from those branch 
Boards--for example, in the state of Oklahoma to help me 
understand what is happening in energy markets, and our Omaha 
Board to understand what is happening in agriculture.
    And the diversity of input that comes onto those Boards 
serves us well in the head office. So that sort of regional 
input is essential, in my view, to make sure that all parts of 
that district are well-understood.
    The regional economists who head each of those offices are 
out in those communities engaging on a daily basis with those 
that affect that economy and are affected by it. So that 
structure has served us well.
    Mr. Lucas. So even though you don't clear checks anymore 
and those regional banks aren't big currency repositories and 
you don't grind up wore-out paper money they still serve a 
purpose, correct, Madam President?
    Ms. George. Absolutely. The Federal Reserve has changed 
dramatically in its operations, but its commitment to those 
regions remained constant over that time.
    Mr. Lucas. Side question deviating just a little bit from 
the subject matter, but your district is manufacturing, of 
course; it is agriculture and energy.
    We seem to be under pressure these days in the Kansas City 
district in all three areas. How much concern do you have as an 
economist and as a banker with the circumstances right now in 
your district?
    Ms. George. So we have seen over the last 6 years, a clear 
shift in the economies of that region based on commodity price 
falls. So the drop in oil prices, the fall in agricultural 
product prices, and the strong dollar on our manufacturing have 
affected that region significantly.
    So today we do see more unemployment; we are seeing flatter 
growth, although some sectors are still growing. So those are 
important inputs as we look at that region relative to the 
performance of the national economy.
    Mr. Lucas. So it does matter having eyes and ears all of 
the country. Thank you, President George.
    I yield back, Mr. Chairman.
    Chairman Huizenga. The gentleman yields back.
    With that, the Chair recognizes Mr. Perlmutter of Colorado 
for 5 minutes.
    Mr. Perlmutter. Thank you.
    And, President George, you are going to get some questions 
from me too, although Mr. Lucas stole a few my questions.
    Let's just go back to basics. How many directors are there 
for each of the regional banks?
    Ms. George. There are nine directors.
    Mr. Perlmutter. Nine. And what are the basic requirements 
of those nine directors?
    Ms. George. The first requirement is integrity.
    And, of course, beyond that there are three bankers, there 
are three businesses, and there are three that are selected by 
the Board of Governors. So six of those nine represent labor, 
represent community, represent generally what is reflective of 
the region in that district as well as the three bankers on our 
Boards.
    And in the case of the Kansas City Fed, those three bankers 
are community banks. They are individuals who connect tightly 
with many aspects of meeting the credit needs of our region as 
well as community leaders that we have in our class B category 
and on our class C directors.
    Mr. Perlmutter. Okay. And this applies to all of the 
regional banks?
    Ms. George. The--
    Mr. Perlmutter. Nine directors for every one of the 
regional banks?
    Ms. George. Yes, yes.
    Mr. Perlmutter. And similar kind of criteria--I was looking 
and it seem like it was agricultural, industrial, commercial, 
and financial seem to be the basic core principles and noticed, 
looking at your website, you have these regional kind of Boards 
within your regional bank. So you have a head office, a Denver 
office, an Oklahoma City office, and an Omaha office.
    And Dr. Lacker used the terms, ``everybody is looking for 
diversity.'' So to the two of you I would say, ``Okay, what the 
heck does that mean to you?''
    I'll start with you, President George, and then to you, Dr. 
Lacker. What you mean by diversity?
    Ms. George. So diversity is built into an institution like 
the Federal Reserve, who is serving a broad public. And it is 
essential to the public's trust in this institution that the 
public sees themselves around those that are making decisions 
and have input to policy.
    Mr. Perlmutter. So do you mean--and this really applies to 
both of you--and, Mr. Jones and Mr. Spriggs, jump in if you 
wish--does diversity mean ethnic backgrounds? Does it mean 
level of income? Does it mean regional diversity? What does it 
mean?
    Ms. George. It means all of that.
    We will not be successful without having ethnic diversity 
on our Boards, without having the interest of labor represented 
on our Boards, as well as the multifaceted contributors to that 
economy, whether they are business, ag, energy. So we look 
broadly at all aspects of that.
    Mr. Perlmutter. All right. Dr. Lacker?
    Mr. Lacker. Yes. I agree with how President George 
characterized it.
    There are multiple dimensions on which when we are looking 
at rounding out a Board we look at. Ethnic diversity is 
certainly one of them, gender.
    But we are also looking at diversity within our region. Our 
region goes from South Carolina to Maryland out to West 
Virginia. Very diverse economies. We want representation from 
around the region.
    We want coverage across different industries. We want some 
representatives of someone in touch with consumers and consumer 
groups, labor. All of those perspectives are valuable to us and 
we try and balance that when putting together a slate.
    Mr. Perlmutter. Mr. Jones?
    Mr. Jones. If I could just add, I think that is one of the 
key roles that commercial bankers play towards diversity 
because diversity is race, it is religion, it is--but it is 
also neighborhoods, it is also communities.
    And if you think about the Bank On program that was 
started, it was really driven through the Fed to say, how do we 
better serve the underbanked and unbanked? And that is really 
the key role that bankers play because we have a moral 
obligation to ensure that all of our communities are served.
    And as we sit on the Fed Boards, our primary focus is to 
make sure those voices are heard. So as you prepare for 
meetings you talk to folks from the underbanked and the 
unbanked all away to the GM running Toyota, and you bring those 
voices to the Fed and say, ``Here is what we see and what is 
going on in our markets.''
    And that is what is so critical for us as a commercial 
banker because we are one of the few industries that see 
everything, and that is the value we bring--
    Mr. Perlmutter. Let me ask Mr. Spriggs the same thing.
    Mr. Spriggs. Regrettably, there are only three labor 
members among the 12 regional banks. So considering the 
importance of workers and workers as consumers, I don't think 
the current system gets us the kind of diversity that we need.
    In the entire history of the Fed, no--zero--African-
American or Latino as ever been chosen to be president of a 
regional bank. So I don't think the system is designed--it 
looks like bankers, it talks like bankers, it is people bankers 
are comfortable with.
    Mr. Perlmutter. Okay.
    Mr. Spriggs. But it doesn't have a built-in way to assure 
it.
    Currently, we do applaud the Fed for paying attention to 
this and trying to address it, but there--
    Mr. Perlmutter. All right. My time has expired. I got it, 
and I thank you for your answer.
    And I thank the panel for appearing today.
    Chairman Huizenga. The gentleman's time has expired.
    The Chair recognizes Mr. Schweikert of Arizona for 5 
minutes.
    Mr. Schweikert. Thank you, Mr. Chairman.
    This is one of those occasions that there is just so many 
things to ask and we will try to do this with a little caffeine 
in our soul and go quickly.
    Doctor, I want to make sure I got my head around something 
you said before. It was a comment of fiscal policy, meaning 
stuff we do here. And the overtone I was picking up saying, 
hey, you know, there is all this monetary liquidity out in the 
system but you guys on fiscal side, you need to put more cash 
into the system. Was I misunderstanding that? Because was it--
    Mr. Lacker. It was Dr. Spriggs.
    Mr. Schweikert. Dr. Spriggs.
    And my reason for that is even in this year we are going to 
push up close to $600 billion of deficit spending in a year 
where just a couple years ago our projections were, ``Hey, we 
are only to be about $245 billion to $265 billion this year.''
    So somewhere here we are deficit spending like crazy, which 
functionally is a type of liquidity in the system. We are 
borrowing money, putting out the door--plus the accommodative.
    Can you really make an argument that there is not enough 
liquidity put out in the society in a world with almost zero 
interest rates? Was I mishearing what you were saying here?
    Mr. Spriggs. No, you weren't mishearing, but it is not 
putting liquidity; it is actually putting demand into the 
system.
    Mr. Schweikert. Okay, so--
    Mr. Spriggs. So at the current rate that we are going we 
are not getting the level of investment that we should, and 
that is because we have not had our state and local governments 
in a position to take advantage of the current low interest 
rates. They have--
    Mr. Schweikert. So let's backup because--okay, demand in 
the system. Does demand in the system come from more--saying, 
``Let's go borrow more money and go build something,'' or does 
demand in the system ultimately come from the regulatory--the 
environment we have created here?
    And a good example would be when we look at some of our 
environmental rules, I can come to you with a way saying, ``You 
know if we crowd-sourced much of this data we could clean up 
the air, do it cheaper, do it faster.'' But instead we still 
engage in this regulatory model, which is a command and control 
put in paper and file cabinets, and say that is good 
environmental policy. It doesn't have anything to do with 
cleaning the air; it has to do with office buildings full of 
people shoving paper in file cabinets.
    Some of our labor policies--some of these things--if you 
wanted fiscal policy to increase demand, don't we need to be 
doing a series of things where we rationalize some of the crazy 
regs we are in--whether it be labor, whether environmental--all 
the way down to some the creative destruction aspects that 
actually create new lines of economic growth--that we have 
created barriers of entry?
    Is demand available out there not from a bastardized 
helicopter money, which all of those are sort of involved in, 
and actually it is a regulatory arbitrage that we need to move 
through?
    Mr. Spriggs. The demand is the drop in investment that we 
have seen, and it is not picking up in the private residential 
sector, and it is not picking up in the public sector.
    Mr. Schweikert. But how can you--
    Mr. Spriggs. So we know we are down in terms of pupil-
teacher ratios. We have let go hundreds of thousands of 
teachers--
    Mr. Schweikert. No, no, no, hold it--
    Mr. Spriggs. --and that investment is necessary both for 
our long-term--
    Chairman Huizenga. The gentleman from Arizona controls the 
time.
    Mr. Schweikert. Hold on for one second. That doesn't--in a 
line where I have gone a decade now with falls in productivity, 
how do you equate, just in those couple of statements of 
teacher-pupil ratios, with the fact of the matter is capital 
isn't moving into acquisition of things that make us more 
productive?
    Mr. Spriggs. Education does make us more productive. It is 
a foundation because workers have to be trained and have to be 
trainable. And so de-investing, as we have done, because our 
public sector had to live through not having the lender of last 
resort. They have downsized their operations to a smaller size.
    Mr. Schweikert. That is not even--
    Mr. Spriggs. And so we have to invest in our people. We 
have to invest into higher education, which we have de-invested 
in, and we have to invest in their K to 12.
    Mr. Schweikert. But that is not what the data actually 
says. The data says, ``Hey, embrace online learning, embrace 
apprenticeship programs, embrace these things.'' And yet, we 
have a regulatory barrier right now saying we can't do that 
because it is not collectivized, it is not unionized, it is not 
those things.
    I hope there is a second round because in many ways we have 
to be willing to tear down many of the very bureaucratic 
structures right now that have been built that actually stop 
the very thing you and I want to see, which is more demand, 
more productivity.
    And you can't say that I want to support the very 
institutional bureaucratic structures that have been there for 
years that are dysfunctional in a modern, data-driven--where 
this is the driver of the economy, not a mechanism that was 
designed in the 1930s.
    And with that I am way over time. Thank you, Mr. Chairman.
    Chairman Huizenga. The gentleman's time has expired.
    The Chair recognizes the gentleman from Washington, Mr. 
Heck, for 5 minutes.
    Mr. Heck. Thank you, Mr. Chairman.
    I also want to express my appreciation to the panel for 
your presence here today.
    I want to go back to briefly a line of questioning the Dr. 
Foster pursued, which was population maldistribution, and 
preface my remarks by calling up one of my favorite adages, 
namely the two most powerful forces on the face of the earth 
are compound interest and the status quo. And the latter point 
certainly seems to be at operation here.
    What I heard said in answer to the question of whether or 
not we ought to reexamine the population distribution among Fed 
districts was it would make a difference. Things are fine as 
is, i.e., let's not dink with the status quo.
    But I guess I want to pose a question in a slightly 
different way, which is does anybody on the panel genuinely 
believe that if you were starting from scratch to design the 
Federal Reserve system and you had any X number of Federal 
Reserve districts in mind--let's use an arbitrary number, 12--
would it look anything--can you honestly say it would look 
anything like it currently does?
    Ms. George. I think it is fair to say that if you were 
starting today it may not look like that. It may be that every 
state would want its own regional reserve bank and you would 
have more.
    Mr. Heck. Well--
    Ms. George. Your point I take, which is the world looks 
different today than it did 100 years ago.
    Mr. Heck. --103 years ago.
    And with all due respect, the largest Federal Reserve 
district now by population is more than six times larger than 
the smallest. And I dare say that its GDP is probably 10 times 
greater than that smallest one.
    I actually like what Mr. Jones said very much, which is 
diversity includes reflecting the neighborhoods and the 
communities. I don't know how you can achieve that without some 
semblance of a more balanced population distribution.
    Dr. Spriggs, I want to ask you about this underlying issue, 
the elephant in the room, if you will, the hawk-dove issue. It 
is my reading of history that if you look back over the last 25 
years the Fed has actually been involved in the achievement of 
its full employment goal exactly 60 months out of 25 years.
    They have generally had more tangible targets in that 
regard than on the inflation side, but I think it is fair to 
say that they have been more effective on the inflation side. I 
think it is, therefore, fair to say that they have been much 
more willing to put their foot on the brake on inflation than 
their foot on the gas pedal to achieve full employment, as 
evidenced by the data. Would you agree, sir?
    Mr. Spriggs. Yes, I would, and I--my third slide emphasizes 
one good product of full employment. A condition for wages to 
rise with productivity is we have to be at full employment so 
that we get the allocative efficiencies of the labor market so 
that workers quit low productivity firms and move to higher 
productivity firms. That really can only happen once we have 
full employment.
    We have other institutional factors that help to make that 
happen. But when you look at that third slide that I had you 
see that productivity continued to grow but wages don't.
    And when you don't have full employment you don't have the 
competitive forces that the labor market can bring to bear on 
making sure that we get as much out of workers but they also 
make something that reflects it. And so we all benefit.
    The best policy--and the reason Congress passed the Full 
Employment Act in the 1940s and reemphasized it under the 
Humphrey-Hawkins Act--the best policy is for Americans to be at 
work. That means all Americans need to be at work.
    The workforce is greatly diversifying. In a few years the 
majority of new entrants to the labor market, beginning in--
beginning at 2021--
    Mr. Heck. Dr. Spriggs, I have 13 seconds.
    Mr. Spriggs. Yes, so--
    Mr. Heck. And I want to get another point in here--
    Mr. Spriggs. --will be workers of color. And so it is 
important that we--
    Mr. Heck. I still want to get another point in here, which 
is I think--and have said so on this committee at hearing after 
hearing--that it is time to reexamine how we measure full 
employment, that the continued use of the U-3 measure is 
inadequate in the wake of the Great Recession, that U-6, which 
takes into account part-time workers who want to be full-time 
and some more discouraged workers, is still stubbornly at just 
under 10 percent, and that if we are measuring achievement of 
our goal of full employment as we traditionally have in U-3 
then we are missing the boat and, in fact, not achieving what 
it is we should.
    And I appreciate the chair's indulgence very much. Thank 
you, sir.
    Chairman Huizenga. No problem.
    With that, the Chair recognizes the gentleman from New 
Mexico, Mr. Pearce, for 5 minutes.
    Mr. Pearce. Thank you, Mr. Chairman.
    Thanks, each of you, for being here today. Fascinating 
discussion.
    So I am going to follow up a little bit on what the 
gentleman from Washington was just talking about. You just got 
back from Jackson Hole, and if you are looking at the full 
employment mandate, what is the sense of all the members? Are 
they pretty satisfied with the 5 percent unemployment? Are they 
concerned?
    Mr. Jones, I will just take you out on--you got an opinion 
about how--what the outlook was about the employment--the full 
employment mandate?
    Mr. Jones. I can only speak to the regions that we serve. 
Again, Indiana--
    Mr. Pearce. You didn't go to Jackson Hole?
    Mr. Jones. No. I didn't get invited.
    Mr. Pearce. Anybody on the panel go to Jackson Hole?
    Ms. George. Yes.
    Mr. Spriggs. Yes.
    Mr. Lacker. Yes.
    Ms. George. So the focus of Jackson--
    Mr. Jones. So I was the only one that didn't get invited.
    Mr. Pearce. You didn't read the online comments or 
anything?
    Ms. George. The focus of Jackson Hole was on looking at 
monetary policy frameworks for the future across global central 
banks.
    The issue that you raise, though, is one that is routinely 
discussed at the FOMC meetings to understand how are the labor 
markets performing in the economy today, and judgments about 
how close we are to full employment--
    Mr. Pearce. So what is the judgment? Fairly close--5 
percent is okay?
    Ms. George. I believe we are at or near full employment.
    Mr. Pearce. Okay. So when you reverse that mirror then you 
look the other direction then we see a labor participation rate 
of 62.8 percent.
    So we are saying, in your words, we are near full 
employment, so 62.8 percent, which is back--you have to go back 
to the 1970s to get a labor force participation rate at that 
level. You and the Federal Reserve are saying that this is as 
good as it gets.
    That is alarming because I see the difficulty of spreading 
the cost of the government between fewer working participants, 
and it is alarming that this is as good as it is going to get.
    You put that up against the 1.1 percent rate of growth and 
then you get into the monetary policies.
    And so, Dr. Lacker, you mentioned in your more expanded 
paper that the Fed was created to furnish an elastic currency. 
And so when I go to my town halls my seniors tell me, ``We 
lived our life correctly. We paid for our house. We put money 
into secure investments. We saved. And now, then, you are 
making our savings worth nothing because we get nothing, and 
the value of our house is down to 50 percent what it was before 
2008. Your policies are killing us.''
    And so this this function of creating this elastic 
currency, as you are talking about--do you all ever sit behind 
closed doors and ask yourselves quietly what the hell are we 
doing this for?
    Mr. Lacker. That hasn't happened in my experience.
    Monetary policy is a blunt instrument. Its capacity to 
influence real economic activities is quite limited. I think it 
was true at our founding, I think it is true now. I think we 
are all painfully aware of that.
    When I look at the graph that Dr. Spriggs put up of the 
unemployment rate going back over the last 50 years, several of 
those recessions were not recessions we could have prevented 
but we were left to cope with. Some of those recessions we did 
cause.
    Mr. Pearce. Yes. I was asking more about the effect of the 
elastic currency on the lives of seniors especially, but on the 
lives of people in the poorer States. My district is one of the 
poorest in the Nation.
    Mr. Lacker. I understand.
    Mr. Pearce. So when the price of food goes up because of 
this elastic currency it hurts our constituents--my 
constituents--worse than any other. And I was just trying to 
get--I didn't want all the history. I just was trying to get, 
do you ever talk about the effects on the poor and the effects 
on the seniors of these policies? That was my question, if you 
want to try it again. I am running out of time so I really do 
want to ask one more--
    Mr. Lacker. I apologize.
    Mr. Pearce. The--
    Mr. Lacker. The answer is yes, we do, so.
    Mr. Pearce. Okay. Thank you.
    So the idea that you have information on local economies--I 
met with the Federal Reserve branch in El Paso just last week 
or the week before. They have the correct information.
    In other words, the thing that troubles most employers in 
our district is they cannot find workers who will show up for 
work. Yet, when I asked Janet Yellen personally about this she 
said she had no knowledge.
    So if the information is not going to be transmitted from 
those branches who are out there tracking the specific problems 
of the economy, what difference does this all make anyway?
    Ms. George. We do bring forward that information. And I 
think the anecdote that you described is one that I hear 
regularly in the region, and it gets to understanding what is 
it that monetary policy can affect and what are more structural 
issues that will require other sorts of policies to affect?
    The one you described, I would argue, is one that will have 
to have other remedies brought to it, as opposed to low 
interest rates.
    Mr. Pearce. Thank you. I see my time is exhausted. I 
appreciate the answers.
    Chairman Huizenga. The Chair now recognizes the ranking 
member of the full Financial Services Committee, Ms. Waters 
from California, for 5 minutes.
    Ms. Waters. Thank you very much.
    I would like to address a question to Dr. Spriggs.
    Dr. Spriggs, in your testimony you discuss how African-
Americans continue to suffer from overt employment 
discrimination. As concrete evidence of this fact you point to 
evidence that the unemployment experience for better-educated 
African-Americans is worse than the unemployment rates for 
less-educated whites.
    To what extent can and should the Fed take such 
discrimination into account as it sets monetary policy?
    Mr. Spriggs. First, thank you, as the ranking member of the 
full committee, for joining us.
    When we look before the Great Moderation the unemployment 
experience of blacks with more education looked like the 
unemployment experience of whites with more education. And 
there was a significant closing of the gap that occurred 
between the passage of the Civil Rights Act and as we came into 
the late 1970s, so much so that if you looked at young men who 
were college-educated there was virtually no difference between 
being black or white. And that gap was shrinking for other 
African-Americans with less education.
    Once we went into our high unemployment of the 1980s when 
the black unemployment rate never fell below 11 percent for the 
entire decade, that gap grew for all levels of education and 
has remained. And so that gap can close. We saw in the late 
1990s as we did push towards full employment and the Fed 
allowed the unemployment rate to the fall and did not 
intervene, despite a lot of people thinking that they needed to 
be more worried about inflation.
    By letting the labor market tighten we saw once again the 
power of competition in the labor market to reduce those 
disparities.
    So if we are at full employment--and the Humphrey-Hawkins 
Act clearly anticipated that market forces could address 
discrimination. It is one of the findings in the act itself. 
And you knew Congressman Hawkins as well as I did, and he meant 
full employment.
    His language, the preamble, talks about full employment, 
full opportunity for useful paid employment at fair rates of 
compensation. It is way down at the bottom that there is a 
sentence about reasonable price stability. These aren't on 
equal footing.
    The preamble of that act says full employment and then 
these other things should be considered. And full employment 
gets us a lower rate of discrimination.
    Ms. Waters. That is very interesting. Thank you.
    And I think that we on this committee who are concerned 
about full employment should pay attention and engage the 
bank--the Feds on this. And you are absolutely right. I knew 
Gus Hawkins and he was very serious about it.
    As a matter fact, when I was first elected to office here 
it was in the seat that he held. With reapportionment that has 
changed somewhat, but I have an appreciation for how you have 
helped us to understand what we need to encourage the Feds to 
also set some priorities for and take into consideration.
    But let me thank the Feds for something that may not mean a 
lot to a lot of folks--the recent meeting in Jackson Hole, 
where FYDP was invited to participate, was extremely 
significant and I have a great appreciation for that. Thank you 
so very much.
    With that, I yield back the balance of my time.
    Chairman Huizenga. The gentlelady yields back.
    The Chair recognizes the gentlelady from Utah, Mrs. Love, 
for 5 minutes.
    Mrs. Love. Thank you.
    I believe that the United States House of Representatives 
is the branch of government that is closest to people. And 
hearing the concerns on both sides of the aisle on the 
structure of the Federal Reserve System is a concern of mine, 
also.
    And if you couple that with the FOMC structure and the 
interests and the economic priorities of Americans, especially 
in western States like Utah, with the answers that have been 
given I am still not convinced that the western States are 
represented as well as the eastern States.
    So with that thought and knowing that concern, I don't 
think it is enough to just say, ``Well, we believe that it is 
working well,'' because you do have members on both sides of 
the aisle that are expressing concerns. And I happen to agree 
with those concerns that they are expressing.
    So I guess I would like to know what you think might be 
done to rebalance the Federal Reserve System to make sure that 
all Americans are equally representative--represented in 
monetary policy discussions?
    President--do I call you President George? Is that okay?
    Ms. George. So your question is an important one for the 
Federal Reserve. And as I have listened to this discussion I 
remain convinced it is a question of accountability and not of 
the structure of the Federal Reserve.
    So in the case of the western States, I happen to have a 
few of those in my region--Wyoming and Colorado, the northern 
part of New Mexico--we are intentional in picking up 
information. In fact, today you will see coming out of the 
beige book, which is released by the Federal Reserve, a sense 
of each region, which directly includes those kinds of--
    Mrs. Love. Okay, so I guess the question I am asking is 
that I know that you are convinced that it is working. But, 
like, the reason why I mentioned the House of Representatives 
being closest to people is that every single one of us are 
talking to our people. We are talking to our bankers, and they 
share those concerns also.
    So again, I know that you feel as if it is representative, 
but I am trying to look for different ideas where that 
thought--they may feel like they are being more represented. 
Yes?
    Mr. Lacker. So an important thing to keep in mind is that, 
although the Federal Reserve, as we have described, is deeply 
engaged in understanding the entire country, we have just one 
monetary policy for the whole country. The set of interest 
rates we set at the FOMC apply to--in financial markets and 
they set monetary conditions for the whole country.
    So while President George or President Williams from San 
Francisco or myself can go and explain what conditions are like 
in our district, it is still--as in this body, we have to make 
the case that it is good for the country as a whole, one policy 
change or another.
    So there is a matter of understanding and then there is a 
matter of what tools do we have?
    Now, here in this body you have tools that can address 
things in one particular district or another. We do not have 
that. We do not have a way to target monetary policy to a 
particular region.
    Mrs. Love. Okay. So if all else were equal, why--what 
difference would it make, then, if there were--not to say 
whether I agree or disagree with this--but if there were more 
representation on the western side then that shouldn't change 
things either then?
    Mr. Lacker. Well--
    Mrs. Love. If that is the argument that--
    Mr. Lacker. So in my view, the question was asked earlier, 
if we would--what our prediction would be fore how the 
districts would be drawn were they to be drawn again today, and 
I think it is a fair prediction that they would be different.
    Would we be worse or better off in terms of how the Fed 
engages? I think we would be about the same, and I think this 
goes to the way Esther George framed it, which is that the 
structure doesn't impede us. We would probably be as good as we 
are now, perhaps better. But it wouldn't make a big difference, 
in my mind, for the degree to which we are connected.
    Mrs. Love. Of course I end up with about 30 seconds.
    But, President Lacker, just to switch gears very quickly, 
you--in one of your speeches, Investing in People as Economic 
Growth Strategy, I just want you to give a brief description on 
why district bank presidents would be interested in workforce 
development and why that would be a good thing.
    Mr. Lacker. So when I look around my district Carolina is 
deeply affected by manufacturing and the like and what has gone 
on in the last couple of years. It is hard to think about 
economic conditions without thinking about workforce and labor 
markets.
    And when you think about how labor markets work and what 
kind of transformation the Carolinas have gone through, for 
example, it is hard not to think hard about skills, and then 
you are thinking about, well, how do people acquire skills? How 
does the changing demand for skills affect people's choices? 
What can we do to enhance the rapidity with which our labor 
force adapts to the changing mix of skills that our economy 
seems to need?
    Mrs. Love. I am out of time. Thank you.
    Chairman Huizenga. The gentlelady's time has expired.
    And speaking of the Carolinas, the Chair recognizes Mr. 
Pittenger of North Carolina for 5 minutes.
    Mr. Pittenger. Thank you, Mr. Chairman.
    President Lacker, thank you all for your attention and 
participation with us today.
    But, President Lacker, I would like to ask you in your 
testimony you spoke about the Federal banks and the 
representation they have supplied from various interests in 
diverse regions of the country. I happen to be from Charlotte. 
We are certainly in your district.
    Can you walk me through how the Fed, as a fully public 
institution, would affect the American public and the economy?
    Mr. Lacker. How we affect the American public and the 
economy?
    So it is paramount to keep inflation low and stable. I 
understand that maximum employment is part of our mandate, but 
keeping inflation low and stable is our best way of achieving 
that.
    The recessions of the 1970s and the early 1980s were 
deliberately engineered by the Fed, essentially, in response to 
spikes in inflation. We are very concerned about that when we 
are thinking about, are we at full employment? Is there a 
chance that we have gone beyond it? Is there a chance that we 
are approaching going beyond it?
    Because the risk of overstimulating the economy is the risk 
that inflation--expectations and inflation get out of control. 
It may be an unpopular notion these days, but if that were to 
happen it would be hard for us to calibrate a response without 
risking causing a recession. And I would point out that in 
recessions minority groups tend to do very badly.
    Mr. Pittenger. With that in mind, I guess I would ask you, 
with the Fed's extraordinary policy stance that has been in 
place now for a full decade, what--has it produced the robust 
economic growth that we have since--seen since post-World War 
II? That has been the norm in the country. Give me an 
explanation for why you believe that is true.
    And I will go down the line. I would like all your 
perspectives on that.
    Mr. Lacker. So there was a discussion of labor force 
participation earlier.
    The fraction of the working-age population that is looking 
for work or is employed has fallen. We are no longer 
benefitting, as we did in the second half of the 20th century, 
from the increasing engagement in women in the labor force.
    The rate of growth of productivity has fallen, as well. 
This is the byproduct of a confluence of forces, including 
capital formation. Neither of those is under the direct control 
of the Federal Reserve, I would point out.
    So while we can achieve price stability with low growth or 
high growth, we have limited ability to shift to a high-growth 
economy.
    Mr. Pittenger. President George?
    Ms. George. I would simply say that the Fed's accommodative 
policies I think have been important to the progress and the 
recovery.
    But I think to see where the economy is at this stage after 
this many years suggests that there are other economic policies 
that should be considered and come to bear on further progress 
that the economy needs.
    Mr. Pittenger. And could you elaborate on that, just 
specifically?
    Ms. George. So, for example, I absolutely agree with Dr. 
Spriggs. It will be important in the United States that any 
individual that is willing and wants to work is able to find a 
job.
    A healthy labor market will be important, but we must 
address issues that were raised earlier about businesses that 
aren't able to find the kind of workers they need, whether that 
comes from training, education, and other things.
    We should seriously look at all policies at our disposal to 
make sure that that workforce can continue to contribute to the 
economy.
    Mr. Pittenger. Mr. Jones?
    Mr. Jones. I would just elaborate on what President George 
said.
    The single biggest issues I hear from our clients is the 
inability to attract workers. I think, as Dr. Spriggs said, 
workforce development is critical. Full employment needs to go 
beyond what we normally realize full employment to be, and to 
do that, we need to have more workforce development and 
training programs to assist with the growth.
    Mr. Pittenger. I would like to ask you as well, do you 
agree that the Federal Reserve district presidents brings 
important regional and local knowledge to the FOMC 
deliberations?
    Mr. Jones. I absolutely do. As sitting 6 years in St. Louis 
and speaking for southern Indiana and western Kentucky, and 
listening to the voices from agriculture to community leaders 
to, as I said, the head of Toyota, I can tell you Dr. Bullard 
and his team took those input very seriously and passed it on. 
I think it is critical.
    We represent diversity. I understand the need for more 
diverse in terms of race and all, but we represent a diverse 
economy. And I have clients who sell on the corner of Main and 
High, and I have Toyota as a client. Those voices are all 
critical to the process.
    Mr. Pittenger. President Lacker, do you agree with that?
    Mr. Lacker. Yes, I do.
    Mr. Pittenger. Thank you. My time has expired. Thank you 
very much.
    Mr. Spriggs. Excuse me, Mr. Chair. I apologize. I do need 
to leave, and I am sorry that I won't be able to stay for the 
second round of questioning.
    Chairman Huizenga. Yes.
    Mr. Spriggs. But I do appreciate you extending me the 
invitation, and thank the ranking member, as well, for the 
invitation. And I apologize.
    Chairman Huizenga. Not a problem. And we appreciate you, 
Dr. Spriggs, sharing some time with us here today.
    We are hoping to do a quick second round, but first we 
still have a first-round questioner here, the gentleman from 
Indiana, Mr. Stutzman, who is recognized for 5 minutes.
    Mr. Stutzman. Thank you, Mr. Chairman. And I apologize for 
being a little late. I just came from a Budget Committee 
meeting.
    But it is good to see Mr. Jones, a fellow Hoosier, and 
would like to ask Mr. Jones a question.
    But first I would like to address President George. In a 
recent article you observed how Carter Glass, the House sponsor 
of the Federal Reserve Act and the legislations key author, 
explained the challenges of establishing the Federal Reserve 
System in a report to the 63rd Congress. Your article quotes 
Congressman Glass' observation that, ``In the United States, 
with its immense area, numerous natural divisions, still more 
competing divisions, and abundant outlets to foreign countries, 
there is no argument either of banking theory or expediency 
which dictates the creation of a single central banking 
institution, no matter how skillfully managed, how carefully 
controlled, or how patriotically conducted.''
    My question is this: Are observations like those of the 
Democratic leader Carter Glass--does the decentralization 
nature of our Federal Reserve System bring with it a 
considerable level of integrity under which we can conduct the 
most basic economic policies--monetary policy? Could you 
address--
    Ms. George. So I think from the start these issues were 
debated a long time in coming to the conclusion that a 
decentralized structure would best serve the country. I think 
that remains true today.
    And I think its value comes from drawing from many parts of 
the country--not just Washington, not just New York--in 
bringing those views to bear on something that is very 
important to the lives of every American, and that are 
decisions about money.
    Mr. Stutzman. I think that Mr. Jones can probably attest to 
this, what is going on in Indiana, because I see this 
frequently. I mean, I believe that our economy--it is pent up 
right now, and that it is ready to go but it needs certainty 
and it needs to know the rules. And if we don't get our 
monetary policy right, can our economy grow?
    Ms. George. So as I said earlier, I think monetary policy 
has played an important role, but it is not the only factor in 
what can stimulate an economy. And as I listen to voices in my 
region there are questions about other kinds of economic 
policies that come to bear on their decisions. So I would not 
want to overburden monetary policy as being the answer to all 
the issues that can be affecting our economy's performance 
today.
    Mr. Stutzman. Sure. And I agree with that, but we are 
focusing specifically here on decentralization or 
centralization. Again, sound monetary policy is really a 
foundation for an economy that is going to be strong.
    Mr. Jones, it is great to see you, and I know that your 
work in Indiana has been recognized not only in Indiana but 
across the country.
    Could you talk just a little bit--just for the benefit, I 
guess, of others. But in Indiana we have seen--Indiana is 
pretty strong. The economy is strong in Indiana.
    Can you talk maybe a little bit about the differences 
between some of the state regulation that is encouraging 
growth, but also I feel like there is this conflict with 
Washington policy where they are kind of butting heads against 
each other? And I think not only could Indiana be doing better, 
but the country as a whole could be doing better. Would you be 
willing to touch on that?
    Mr. Jones. I would.
    First, thank you for your service to Indiana, as well.
    I mentioned earlier workforce development is a critical 
issue we hear from our clients. The other issue we hear, and 
often, is regulation. And it is both current and pending 
regulation that is challenging businesses to know the roadmap 
to success.
    And you think about coal, which is critical to our state; 
you think about agriculture and some the changes in 
agriculture--and clearly, Congressman, you know that as well as 
anyone. But businesses need a clear path to success, and part 
of that is understand the regulatory environment they operate 
in.
    Access to capital is a critical element to all of our 
customers and our clients. So you think about just banking 
regulation--and I will make an observation--and you have seen 
Flat Tony. I spoke to our head of compliance yesterday, and 
getting ready for our first CFPB exam, which is going to be--is 
very, very important--we submitted 7.5 feet of paper. If you 
stack it from the ground up it is 7.5 feet.
    My head of compliance is five-foot-nine. I am sure there is 
a lot of good information in there, but it requires a lot of 
people to review who could be out giving access to capital.
    We are symbolic of other industries as well, whether it be 
coal, agriculture, manufacturing; regulation is a real 
challenge for clients.
    Mr. Stutzman. Mr. Chairman, I saw Flat Tony and he was 
about my height when I first visited him, but now he is much, 
much taller. It is unbelievable to see the amount of regulation 
that our institutions have to deal with, so--not only flat but 
he is tall now.
    Chairman Huizenga. All right. With that the gentleman's 
time has expired.
    We would like to quickly move into a brief round two of 
some questioning, if that is all right with our witnesses? And 
I will start by yielding myself 5 minutes.
    And, Mr. Jones, while you were chatting a little bit this 
struck me as we were talking about your business and what you 
do. Obviously we have had conversation, not just here but other 
places, that the Federal Reserve System is lacking diversity 
and not doing enough to serve their communities.
    I used to be a licensed realtor when I got out of school. 
And as I said, my family has been in construction and those 
kinds of things. And one of the fundamental cornerstones of my 
licensure as a realtor was to recognize that people aren't 
black, people aren't white, people aren't yellow, people aren't 
brown, people aren't red, people aren't any color other than 
green--meaning they can either afford it or they can't afford 
it.
    And that is how you had to treat customers. And that is how 
you had to deal with people. And it was an equitable way of 
looking at that.
    And it seems to me that there is a similar translation, 
that we need to make sure that there is an equal opportunity. 
And what I am really concerned about--and I just saw our 
friends--our FYDP friends just left, unfortunately. I would 
have loved for them to hear this.
    My goal is to make sure that we have an equality of 
opportunity for everybody no matter where they live, no matter 
what their income is. And we have seen time and time again that 
being thwarted, sometimes for maybe a good goal, but certainly 
the ways that it has gone about hasn't gotten it there.
    And I noticed in your testimony that your organization is 
remarkably diverse and heavily involved in various communities. 
And I know that you have a business to run, as well, as part of 
that.
    And so my question is, do feel a conflict between, say, 
reaching out to literally tens of thousands of people? I know 
you did--I think it was 900-plus sort of seminars on how to 
better manage financial affairs on one hand and making money 
and having an ongoing business with employees and for your 
investors on the other hand. Do you feel any conflict in that?
    Mr. Jones. Not at all. Just the opposite. It is good 
business.
    If you think about what we do as community bankers, our 
moral obligation is to strengthen our communities. And that 
means dealing from the underbanked and unbanked all away up to 
the large corporations.
    In doing so, we strengthen the markets that we serve. And 
there is no real conflict there because that is what a 
community banker does every day. There is 8,000 of us 
throughout the country that every day wake up and worry about 
what we can do to make this a better place for everyone. And 
those are the voices that we also bring to the Fed as we think 
about what we do as members of the Federal Reserve Board is to 
talk about all those voices.
    So clearly, Mr. Chairman, there is no conflict. It is just 
good business.
    Chairman Huizenga. And what I am very concerned about--
because I, too, like one of my colleagues, I can't remember who 
it was--as they sit down and talk to employers a couple of 
things that they expressed is they said, ``We have a hard time 
finding somebody who will show up every day be able to pass a 
drug test.''
    Those are those are two basic thresholds that they need to 
meet. And they say, you know what, we will take care of so much 
of the rest of it. We need to have people who will show up, and 
who can show up clean, and who are willing to work.
    And that is a struggle that we have had in Michigan. And I 
saw a chart earlier today, Michigan is doing different or 
better than other States in the region of Chicago.
    Interestingly enough, Illinois is the lowest performing and 
Michigan is the highest performing. I would say that it is not 
just about regulation and taxation; it is about the environment 
that has been created in. And we in Michigan know that we have 
very much attempted to create a accommodative, growth-oriented 
atmosphere, and Illinois has gone the opposite direction. That 
is why you see billBoards at that at the intersection of 
Illinois and Indiana saying, ``Welcome. We are in Michigan.''
    Mr. Jones. ``Illinnoyed'' is what it says. ``Move across 
the border.''
    Mr. Chairman, I would just say you just took the Hoosier 
handbook and just took it to Michigan. So it is--
    Chairman Huizenga. Yes. We did, because Indiana tried that 
on us for a number of years with those welcome home billBoards. 
But we--
    Mr. Jones. It worked for a while, too.
    Chairman Huizenga. It did work for a while. We got that 
turned around.
    But I want to make sure that we are moving forward on this, 
we are not losing sight of Main Street. And Wall Street is 
doing just fine.
    We have to make sure that this economic recovery, as slow 
and as long and as sluggish as it has been, reaches down and 
goes to all levels. And we are seeing that. Because of that 
upward pressure we are seeing wages come up in Michigan. We are 
seeing some of that--some of those things restored, but not 
fast enough.
    Mr. Jones. Right.
    Chairman Huizenga. And ultimately that is about demand.
    I filibustered myself. My time is up. I was going to ask a 
quick question of the--of our bankers, but I appreciate your 
time.
    And with that, I will recognize the ranking member for 5 
minutes.
    Ms. Moore. Thank you so much, Mr. Chairman.
    And thank you all for agreeing to stick around for a little 
bit longer.
    And I, too, Mr. Chairman, am sorry that Mr.--Dr. Spriggs 
left and some of the other folks who were observing left.
    But having said that, I do want to engage the panel on some 
things that I heard Dr. Spriggs say, and he got a lot of 
pushback for this in the context of other things that I have 
heard here today.
    There has been a--we have put a lot of pressure on the Fed 
to grow our economy. There is a lot of criticism or praise on 
both sides of the aisle regarding your fixes--what you have 
done.
    But that being said--I am--I think it was Mr. Jones that 
said that you guys have a blunt instrument with monetary 
policy. I think it was Dr. Lacker responding to the gentlelady 
from Utah, saying that monetary policy has to fit for the whole 
country. We can't have a monetary policy for New York and then 
another one for Montana. So you are limited in terms of what 
you can do.
    That being said, I guess I am wondering what you think 
about the slow growth, the lack of a recovery in certain parts 
of the country among folks like African-Americans with regard 
to what, number one, what Congress is doing?
    We focus a lot on austerity and we believe that that has 
hurt growth. For example, there is a gap of $1.7 trillion in 
infrastructure spending, something that used to be bipartisan, 
and it is predicting that could put 20 million people to work 
if we were to do that versus giving tax cuts.
    And so I guess I am wondering--and Dr. Spriggs said that 
there is a lack of demand. So as we talk about regulation being 
too great, the debt being too great--he made the point that 70 
percent of our economy depends of people having money so they 
can spend it.
    I know in the African-American community they spend every 
dime that they get. So if shops are closing down an African-
American communities it is because they don't have any money.
    So I am wondering what you all think about what we do with 
regard to hurting growth this country. What is your opinion on 
sequester, and austerity, and cutting Pell Grants, and so on?
    And I will yield to maybe Dr. Lacker?
    Mr. Lacker. You have asked a difficult and troubling set of 
questions. You asked me to stray outside of the bounds of 
Federal Reserve policy.
    I can tell you, though, that we do think about that and it 
is hard not to in our country. Baltimore, for example--inner-
city Baltimore is part of my district--and in thinking about 
the events that have transpired there in the last couple of 
years it is hard not to think about why it is that African-
American communities have lagged so far behind despite the last 
50 years of efforts, despite the vast array of interventions we 
have made, despite the vast array of policy initiatives that 
have brought to bear on that.
    Dr. Spriggs is right that Federal Reserve policy can 
influence the broad sweep of demand in our country. But there 
is nothing we can do to guarantee where it is going to show up.
    Is it going to show up in Silicon Valley? Is it going to 
show up in the Carolinas? Is it going to show up in inner-city 
Baltimore?
    Ms. Moore. Just specifically, though, is the time to be 
doing austerity with slow growth?
    Mr. Lacker. I would think you would want to evaluate 
programs on their merits, not for what they add to total 
aggregate demand.
    Ms. Moore. Okay, just, a transportation bill or 
infrastructure bill that was adequate--do you think that that 
would help your efforts to--
    Mr. Lacker. I think you should evaluate a transportation 
bill based on what our transportation infrastructure needs, not 
on whether it adds--
    Ms. Moore. I think we have like 80,000 bridges that could 
collapse just like in Minnesota at any point.
    Mr. Lacker. That is a legitimate--
    Ms. Moore. It is not like we don't need--we don't have to 
go out and do a survey to see if we need to fix the roads and 
bridges.
    Mr. Lacker. That sounds like a legitimate reason. I have no 
reason to disagree with it.
    Ms. Moore. Would that or would that not spur our economy, 
Mr. Jones? You are chomping at the bit.
    Mr. Jones. Well, chomping at the bit is a strong thing.
    But clearly, creating jobs, creating demand will help all 
of our markets. And the economy is just not one subsection; the 
economy is a multitude of policies and procedures and inputs.
    One of the biggest one we see his confidence. And if we 
could get a consistent message that said, ``It is okay,'' then 
I think you will see more and more people respond to the 
economy. But it is awfully difficult when all the negativity 
that surrounds our economy creates challenges.
    Ms. Moore. Thank you.
    I yield back. Thank you for your indulgences, Mr. Chairman.
    Chairman Huizenga. You are welcome.
    With that, the Chair recognizes the gentleman from Arizona, 
Mr. Schweikert, for--
    Mr. Schweikert. Thank you, Mr. Chairman.
    And to my friend the ranking member, we partially agree 
here but it is--like on infrastructure, if the left would be 
willing to work with some of those who want to stack--adjust 
the capital stack and how you pay for it, there is a way to get 
there.
    As the discussion we had earlier with Mr. Stutzman, when 
you have seven feet tall of regulatory paperwork for a bank 
examination, how does that improve productivity in our society? 
Because functionally you have paperwork, it goes into file 
cabinets. So that is what they said earlier. That was the 
testimony just about 20 minutes ago.
    So for many of us we are fixated that we believe monetary 
policy probably has gone as far as it can and now it is our 
responsibility here, but we need to get creative, instead of 
just trying to do more of we are going to throw a bunch of cash 
at something. We see how well that crashed and burned in 2010 
and 2011, the years where we--all these models said this was 
going to happen and it didn't.
    So can I go off--this is just a different discussion. But, 
Ms. George, you are someone I wanted to sort of ask because--
walk me through first the services your Federal Reserve branch 
provides. Just sort of, from someone who was on one of the old 
check 21 committees and those things many years ago--yes, I am 
that old. Walk me through the services you provide.
    Ms. George. So the regional banks are involved in the 
payment system, and we still have--
    Mr. Schweikert. So payment--ACH?
    Ms. George. ACH. We are still clearing checks, believe it 
or not. We distribute cash to financial institutions in our 
region, and we are involved now in an effort to look at how to 
modernize the payment system by working with the private sector 
on how that might happen.
    Mr. Schweikert. Okay. So you already know where I am going.
    I see now, fascinating discussions coming out of Silicon 
Valley of using a distributive ledger model to basically--it is 
a functioning debit-credit ledger with sort of an airtight 
mechanics to move money and dramatically cut down the costs. 
Where if I am--let's use PayPal just because they are in my 
neighborhood or a substantial portion of them are--they have 
landed--what--a Utah industrial Bank to move money. They pick 
up those regulatory costs, where if I use a block chain, put it 
into a cryptic currency or whatever you want, some designation 
of value and clear it on this side, all of a sudden I have 
moved money for fractions of a penny. But that is outside your 
mechanics.
    From your discussion--because you have lots of really smart 
people around you--are you ready for what you and I would call 
the creative destruction that will help us bring dramatically 
more efficiencies in the movement of money, the distribution of 
those resources? And are you looking at these alternative 
transmission networks and how to lower the cost?
    Ms. George. So our responsibilities in this area are to 
make sure that the payment system is efficient, that it is 
accessible, and that it is safe.
    And so the nature of this technology holds some interesting 
promises, and as part of our work with the private sector to 
think about how this will affect the payment system going 
forward, we are very much engaged in learning from them and 
trying to see where this intersects.
    Mr. Schweikert. But you already know--we already have a 
handful of our large money center institutions--two of them--
that are actually already engaging in the movement of money 
using a distributive ledger.
    Ms. George. Yes.
    Mr. Schweikert. And why this is so important is for a lot 
of us who really care about economic vitality, but also 
optionality for things like millennials, is you are the Uber 
driver, and you decide you are going to put $0.50 into your 
retirement account or into your savings account every time you 
drive someone, and you hit--we just do a smart contract in the 
back so the payment hits, the $0.50 goes over.
    Except on some of the networks that just cost $.18, $0.27 
to move that $0.50. You cannot do the sort of micromanagement 
of small dollars.
    I need a network, a--I need a backbone that is dramatically 
less expensive--safe because this is soon going to be our 
banking institution.
    And my great fear is, as we have had the conversation of 
efficiencies in our society, productivity--I desperately hope 
that the Federal Reserve doesn't become one of the barriers to 
the adoption of the dramatically more efficient society that we 
desperately need for that productivity.
    And my fear is Silicon Valley is about to run around you 
and build optionality that says the Federal Reserve is my 
barrier not my partner.
    And with that, I am out of time. Thank you, Mr. Chairman.
    Chairman Huizenga. Thank you.
    And for our last question of the day we will go back to the 
gentleman from Indiana, Mr. Stutzman, for 5 minutes.
    Mr. Stutzman. Thanks again, Mr. Chairman.
    And thank you to all for your testimony and thoughts and 
advice today. It is really helpful. This is a--it has been a 
fascinating discussion and I--Ms. George, you made a comment 
about disturbing cash and things like that and then, of course, 
Mr. Schweikert holds up his smart phone. And I guess that is 
where I wanted to go, and I think it kind of falls under maybe 
governance? And maybe you could just--all of you could share 
with us--online banking, security, access?
    I just found products just recently that are extremely easy 
and almost feel like they are--they are very easy, which is 
nice, but the security of them--can we trust the technology 
that is coming along?
    And I know this has--I don't know if it has been talked 
about at all today, but if some of you could kind of address 
that and what is your role? And then, Mr. Jones, if you could 
talk--maybe you could lead off, Mr. Jones, about what you all 
are doing is a banking institution in online banking and how 
much of it is being done on smart phones?
    Websites are being adapted to fit smart phones because that 
is where most of the banking is being done. If you talk that; 
then, Ms. George and Dr. Lacker, if you could talk about what 
the Fed's role is in all that?
    Mr. Jones. Sure.
    Great question. And clearly as you think about our industry 
and the dramatic changes, fintech and mobile banking are going 
to be at the forefront over the next few years, if not already.
    Your question really revolves around cybersecurity. And I 
would offer, as a commercial banker, this is an area where 
great cooperation between our regulatory agencies and the 
commercial banks has made a significant difference.
    Both the Federal Reserve, and the OCC, and now the CFPB 
have come together, and we are working to make sure that those 
systems are safe and secure.
    Richmond, where Dr. Lacker is, is the head of I.T. for the 
Federal Reserve. And when I was the audit Chair in St. Louis we 
were able to experience the great controls they have in place. 
So take that knowledge of the commercial banks--8,000 
commercial banks can't work separately on things like 
cybersecurity. It takes a collaborative approach.
    And again, as I said, the ability for the Fed to convene 
commercial banks--the OCC the CFPB--to really combat that has 
made a significant difference. And it has made large, 
significant improvements for us.
    Ms. George. So there are rapid changes going on in our 
payment system, as you note.
    And the initiatives that we currently have underway is to 
carry on a tradition we have had for most of our history, and 
that is to work with the private sector as they come up with 
different ways to conduct payments to make sure at the end of 
the day safety, accessibility, and efficiency is part of that.
    And so the effort we have undertaken right now is in the 
process of looking at those issues around new technologies to 
see how that can be best managed on behalf of the public.
    Mr. Lacker. We do, as Mr. Jones noted, invest a tremendous 
amount of the Federal Reserve System to a secure our systems to 
make sure they are safe and effective, but that we keep up with 
the latest cybersecurity threats. And cooperation from agencies 
based around here in D.C. have been very important to that.
    For the banking system as a whole, we cooperate with 
sharing what we know and can share. And it certainly led us to 
focus on the extent to which the cyber risks are being managed 
effectively in the banking sector, as well. So it is a 
supervisory focus for the teams that oversee these large 
organizations and small, as well.
    So it is something we take seriously. It is an evolving 
landscape, and so it is one where we are going to have to 
continually keep keeping up, in essence.
    Mr. Stutzman. How do you do that? Do you hire teams of 
experts who know their industry that are on your side that are 
working together but also making sure that there are safeguards 
in place? Do you have to invest more down the road or are you 
already making an initial investment focusing on banking?
    Mr. Lacker. Our investments have increased substantially 
over the last 10 years in information security. And yes, talent 
is something we look at. The particular skill sets you need are 
highly valuable in the marketplace and we work very hard to 
find the skills that we need.
    Mr. Stutzman. Thank you, thank you. Anybody--I don't know--
any further comments? There is 20 seconds left if anybody wants 
to say anything.
    If not, I will yield back to the chairman.
    Chairman Huizenga. Gentleman yields back.
    And I would like to thank our witnesses for taking the time 
and coming. Deeply, deeply appreciated by all of us. I think I 
have had a number of colleagues as they have been going giving 
me thumbs up. And we thought this was a very informative, very 
helpful hearing as we are looking at what the future of this 
monetary system is and the effects of it.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    I ask the witnesses to please respond as promptly as you 
are able.
    And that with that, our hearing is adjourned.
    [Whereupon, at 12:10 p.m., the hearing was adjourned.]

                            A P P E N D I X



                           September 7, 2016
                           
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