[Senate Hearing 115-306]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 115-306


         NOMINATIONS OF RICHARD CLARIDA AND MICHELLE W. BOWMAN

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

                                 HEARING

                               BEFORE THE

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

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                                   ON

                          THE NOMINATIONS OF:

  Richard Clarida, of Connecticut, to be a Member and Vice Chairman, 
            Board of Governors of the Federal Reserve System

                               __________

 Michelle W. Bowman, of Kansas, to be a Member, Board of Governors of 
                       The Federal Reserve System

                               __________

                              MAY 15, 2018

                               __________

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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
BOB CORKER, Tennessee                JACK REED, Rhode Island
PATRICK J. TOOMEY, Pennsylvania      ROBERT MENENDEZ, New Jersey
DEAN HELLER, Nevada                  JON TESTER, Montana
TIM SCOTT, South Carolina            MARK R. WARNER, Virginia
BEN SASSE, Nebraska                  ELIZABETH WARREN, Massachusetts
TOM COTTON, Arkansas                 HEIDI HEITKAMP, North Dakota
MIKE ROUNDS, South Dakota            JOE DONNELLY, Indiana
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada
JERRY MORAN, Kansas                  DOUG JONES, Alabama

                     Gregg Richard, Staff Director

                 Mark Powden, Democratic Staff Director

                      Elad Roisman, Chief Counsel

                      Joe Carapiet, Senior Counsel

                      Travis Hill, Senior Counsel

                 Elisha Tuku, Democratic Chief Counsel

            Laura Swanson, Democratic Deputy Staff Director

          Amanda Fischer, Democratic Professional Staff Member

                       Dawn Ratliff, Chief Clerk

                      Cameron Ricker, Deputy Clerk

                     James Guiliano, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                         TUESDAY, MAY 15, 2018

                                                                   Page

Opening statement of Chairman Crapo..............................     1

Opening statements, comments, or prepared statements of:
    Senator Brown................................................     2

                                NOMINEES

Richard Clarida, of Connecticut, to be a Member and Vice 
  Chairman, Board of Governors of the Federal Reserve System.....     4
    Prepared statement...........................................    27
    Biographical sketch of nominee...............................    28
    Responses to written questions of:
        Senator Brown............................................    57
        Senator Reed.............................................    63
        Senator Menendez.........................................    64
        Senator Warner...........................................    67
        Senator Warren...........................................    70
        Senator Cortez Masto.....................................    73
Michelle W. Bowman, of Kansas, to be a Member, Board of Governors 
  of the Federal Reserve System..................................     5
    Prepared statement...........................................    50
    Biographical sketch of nominee...............................    51
    Responses to written questions of:
        Senator Brown............................................    83
        Senator Reed.............................................    91
        Senator Menendez.........................................    92
        Senator Warner...........................................    95
        Senator Warren...........................................    97
        Senator Cortez Masto.....................................   100

              Additional Material Supplied for the Record

List of Federal Reserve Enforcement Actions from January 2015-May 
  2018 submitted by Richard Clarida and Michelle W. Bowman.......   116
Joint letter submitted in support of the nomination of Richard 
  Clarida........................................................   122
ICBA letter submitted in support of the nomination of Michelle W. 
  Bowman.........................................................   124
Excerpt from the December 2012 FDIC Study submitted by Senator 
  Brown..........................................................   126

                                 (iii)

 
         NOMINATIONS OF RICHARD CLARIDA AND MICHELLE W. BOWMAN

                              ----------                              


                         TUESDAY, MAY 15, 2018

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:17 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Mike Crapo, Chairman of the 
Committee, presiding.

            OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

    Chairman Crapo. The hearing will come to order.
    This morning we will consider the nominations of the 
Honorable Richard Clarida to be a Member and Vice Chairman of 
the Board of Governors of the Federal Reserve System, and 
Commissioner Michelle Bowman to be a Member of the Board of 
Governors of the Federal Reserve System.
    Welcome and congratulations to each of you for your 
nominations to these positions. I see friends and family 
sitting with you, and I welcome them here as well. You are 
certainly welcome to introduce them.
    We are fortunate to have two highly qualified nominees 
appearing today. These positions are critical to ensuring safe, 
sound, and vibrant financial systems and a healthy, growing 
economy.
    Dr. Clarida currently serves as managing director and 
global strategic advisor at PIMCO, a position he has held since 
2006.
    Previously, he served as Assistant Secretary of the 
Treasury for Economic Policy from 2002 to 2003 and as a senior 
staff economist with the Council of Economic Advisers from 1986 
to 1987.
    In his academic career, he was an assistant professor at 
Yale University from 1983 to 1988 and has served as a professor 
of economics at Columbia University in various capacities since 
1988.
    If confirmed, Dr. Clarida will serve as the Federal 
Reserve's Vice Chairman and will play an important role in 
monetary policy normalization.
    Dr. Clarida has written extensively about monetary policy, 
and I look forward to hearing more about his views. Such 
expertise will be especially important as the Fed continues to 
wind down its balance sheet and raise interest rates after 
years at the zero lower bound.
    Commissioner Bowman is currently the State Bank 
Commissioner of Kansas, a position she has held since February 
2017. Previously, Commissioner Bowman worked as a Vice 
President at Farmers & Drovers Bank, a community bank with $175 
million in assets, from 2010 through 2017.
    She has also served in a number of Government roles, 
including as a staffer in both the Senate and House and in 
various roles at the Department of Homeland Security.
    With past experience as a community banker and as a bank 
regulator, Commissioner Bowman is well equipped to fill the 
Federal Reserve Board role reserved for someone with community 
banking experience.
    Rightsizing our regulation for community banks has been a 
critical goal of mine as Chairman. Earlier this year, the 
Senate passed Senate bill 2155, a bipartisan bill focused on 
providing regulatory relief for community banks.
    If confirmed, Commissioner Bowman will play a key role in 
implementing the bill, if it is signed into law. In addition, 
the Federal Reserve continues to review many of the rules put 
in place following the crisis.
    If confirmed, I look forward to working with Dr. Clarida 
and Commissioner Bowman on further regulatory and monetary 
policy improvements. Congratulations again on your nominations 
and thank you and your families for your willingness to serve.
    Senator Brown.

               STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Mr. Chairman. I want to 
congratulate the two of you and welcome your families to the 
Committee. Thank you for your willingness to serve our country
    In the last Congress, two of President Obama's nominees to 
serve as Members of the Federal Reserve Board of Governors were 
denied even consideration by this Committee. Mr. Allan Landon, 
a Republican, was nominated in January 2015. He waited for 2 
years for a hearing--a hearing he never got. Ms. Kathryn 
Dominguez waited nearly as long--a year and half. Again, 
nothing. It sounds a lot like what the Republicans did on a 
Supreme Court nominee.
    As a result, President Trump will be able to nominate six 
of the seven members to the Board of Governors of the Federal 
Reserve. His first picks, Chair Powell and Vice Chair Quarles, 
have already been confirmed; Mr. Goodfriend has had his 
hearing.
    Today's nominees, the Honorable Richard Clarida and 
Commissioner Michelle Bowman, bring relevant experience to the 
Federal Reserve Board. Dr. Clarida, who is nominated to serve 
as Vice Chair of the Board, has spent his career studying 
monetary policy.
    As we enter our ninth year of the recovery since the Great 
Recession, even though job growth in the last couple years has 
not been quite what it was, with the Fed funds rate still below 
2 percent and inflation finally nearing the Fed's target, 
expertise in that area is critical.
    Ms. Bowman has been nominated to serve in the role reserved 
for an individual with experience working in or supervising 
community banks. She has done both.
    But experience is only useful if you have learned the right 
lessons from it. So despite the nominees' experience, I am 
concerned. We have seen the Treasury's recommendations urging 
that
we ``tailor'' and ``recalibrate'' the financial protections put 
in place after the crisis. It sound a lot like Wall Street's 
wish list.
    We have heard the Fed's Vice Chair of Supervision's plans 
for bank rules. We have seen actions with the Fed's recent 
capital and leverage proposals, spoken out in opposition by 
Sheila Bair and Tom Hoenig, two prominent Republican 
regulators. We see they decrease the amount of capital required 
by the biggest banks by $121 billion. So we have banks with 
some of the most--the highest profitability rates in their 
history. We have a huge tax cut bestowed on the financial 
services industry. We have legislation that has passed the 
Senate and will likely soon pass the House, rolling back even 
more rules and regulations for banks. It just never seems to be 
enough for them.
    It matters more than ever, because of that, who will be 
voting on proposals to weaken bank rules. The Fed, the OCC, the 
Office of Thrift Supervision, and other watchdogs spent the 
decade--``watchdogs,'' I use that term loosely--leading up to 
the crisis weakening bank rules and failing to protect 
communities.
    In the first half of 2007, my ZIP Code in Cleveland--
44105--had more foreclosures than any other ZIP Code in the 
United States.
    Factories closed; neighborhoods and towns emptied out. The 
population in Slavic Village where I live dropped 27 percent, 
down to 20,000 people. At the same time the subprime lending 
industry swept in.
    As early as 2000, the Cuyahoga County Treasurer and other 
local officials went to the Federal Reserve asking them to take 
action against subprime lenders preying on homeowners. As early 
as 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007.
    The Fed did nothing.
    Dr. Clarida, you have said that the financial crisis 
resulted from serious failures by regulators of securities 
markets and banks to adequately understand and supervise 
markets. I appreciated your comments in my office and the 
vigilance which I hope you show.
    The financial crisis followed a decade of deregulation of 
the financial industry, and now too many people who informed 
the policies before the crisis are back.
    Dr. Clarida admitted we got it wrong.
    Ms. Bowman knows firsthand how bank failures impact 
communities across the country: 462 failures starting in 2008, 
including bank failures in your home State and Senator Moran's 
home State of Kansas. Employment in Kansas is only 1.5 percent 
higher than at the pre-crisis peak 10 years ago.
    I wish others in the Administration and Congress would 
remember the devastating impacts of the financial crisis.
    As I consider the nominations for each of you, I am not 
just looking to what expertise you bring to these positions. 
You do that. I want to know that you remember the people behind 
the numbers. I am looking at how you will approach the numerous 
issues considered by the Board: monetary policy, small bank 
regulation with which you are so familiar, Ms. Bowman, but also 
big bank regulation and supervision, enforcement actions, and, 
most importantly, whether you will push back on policies that 
weaken financial stability. Do not just rely on Vice Chair 
Quarles, who is Director of Supervision. Study it. Push back on 
him when he is wrong. Push back on him when he deregulates 
beyond what he should, which already seems imminent.
    Thank you.
    Chairman Crapo. Thank you.
    At this point we will administer the oath. Will the 
nominees please rise and raise your right hands? Do you swear 
or affirm that the testimony you are about to give is the 
truth, the whole truth, and nothing but the truth, so help you 
God?
    Mr. Clarida. I do.
    Ms. Bowman. I do.
    Chairman Crapo. And do you agree to appear and testify 
before any duly constituted Committee of the Senate?
    Mr. Clarida. I do.
    Ms. Bowman. I do.
    Chairman Crapo. Thank you. You may sit down.
    I will advise the witnesses that your written statements 
will be made a part of the record in its entirety. As you can 
see, we have got a clock there. We ask you to try to keep your 
presentations to 5 minutes, if possible, so we will have time 
for questions from the Senators. And, Dr. Clarida, you may 
proceed first.

 STATEMENT OF RICHARD CLARIDA, OF CONNECTICUT, TO BE A MEMBER 
 AND VICE CHAIRMAN, BOARD OF GOVERNORS OF THE FEDERAL RESERVE 
                             SYSTEM

    Mr. Clarida. Thank you very much. Chairman Crapo, Ranking 
Member Brown, and Members of the Committee, thank you for the 
opportunity to appear before you today. I am grateful for the 
Committee's consideration for the important positions for which 
I have been nominated. I am also honored to have been nominated 
by the President to be Vice Chair of the Federal Reserve Board 
of Governors and a Member of the Board of Governors.
    I am grateful for the support of my family who is with me 
here today: my wife of 29 years, Polly Barry, and my sons 
Matthew and Russell.
    The Federal Reserve has been charged by the Congress with a 
dual mandate responsibility of maximum employment and price 
stability. I fully support both pillars of this dual mandate 
and, if I am confirmed, will support a balanced approach to 
achieving these important objectives.
    The Federal Reserve also plays a central role in ensuring 
the safety, soundness, and stability of our financial system. 
If I am confirmed, I will support policies that are effective, 
efficient, and appropriately tailored; but I will also want to 
preserve the important gains in resiliency and stability of our 
financial system that have resulted from the significant 
improvements and reforms put in place since the financial 
crisis.
    I believe I am well qualified for the positions for which I 
have been nominated. In my published work, I have developed, 
along with others, a framework for monetary policy analysis 
that has been widely cited at the Fed and central banks around 
the world. Although I have served most of my career in 
academia, I have had two opportunities to serve in economic 
policy positions in the Federal Government, in the executive 
branch: as a senior staff economist with Council of Economic 
Advisers in 1986 and 1987; and as Assistant Secretary of the 
Treasury for Economic Policy between 2002 and 2003. These 
experiences taught me the importance of doing economic analysis 
that is practical, that is relevant, and that gives insights 
into the way that economic policy impacts the lives of real 
Americans.
    I have also had an opportunity to advise investment firms 
on economics and strategy, and I think these experiences have 
given me some insights into the interplay between 
macroeconomics and financial markets.
    The Federal Reserve has an enormous responsibility to 
achieve the objectives assigned to it by the Congress, to 
communicate the rationale for these policies, and to explain 
how the policies will achieve the goals assigned. If I am 
confirmed, I look forward to working with Chair Powell and my 
other colleagues to satisfy the assignments given to the 
Federal Reserve and, importantly, to foster the transparent 
communication and accountability that is so important for the 
Fed's independent and nonpartisan status.
    Thank you again for the privilege of appearing before you 
today, and I look forward to answering your questions.
    Chairman Crapo. Thank you, Dr. Clarida.
    Commissioner Bowman.

  STATEMENT OF MICHELLE W. BOWMAN, OF KANSAS, TO BE A MEMBER, 
        BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

    Ms. Bowman. Good morning, Chairman Crapo, Ranking Member 
Brown, and Members of the Committee. Thank you for this 
opportunity to appear before you today. I am deeply honored 
that the President has nominated me to serve as a Member of the 
Board of Governors of the Federal Reserve System. Because 
community banking is a vital and ongoing part of my family's 
legacy, I am also humbled that, if I am confirmed, I will be 
holding the position designated for someone with community 
banking experience.
    I am also grateful to my family and my husband's family for 
their continued support and belief in me. My husband, Wes, our 
children Jack and Audrey, my sister Maggie, who is a school 
teacher in Kansas City, Missouri, and my parents, Jan and Hank 
White, are with me today. My father, Hank, is a fourth-
generation banker. He is a farmer and a rancher, a Vietnam 
veteran, and a retired U.S. Air Force officer. My mother, Jan, 
is a great inspiration. She taught me that with hard work, 
anything is possible. My in-laws, John and Sherry Bowman, and 
Sherry's 91-year-old mother, Mary Hopkins, could not be here 
with us today, but they are watching from Everest, Kansas.
    My family and I have been in community banking for 
generations. In 1882, my great-great-grandfather, W.H. White, 
helped to charter the Farmers & Drovers Bank. The bank was 
named for the customers it served then and continues to serve 
today: the farmers and ranchers of the Flint Hills of Kansas. 
Today the fourth and fifth generation of my family continue 
this long tradition of service through the bank and through 
active participation in the community and through volunteer 
work in our community of 2,300 people. I know firsthand that 
community banks are a vital part of the backbone of small, 
rural, agricultural towns, and they play a
critical role in providing access to credit and fostering 
economic activity in communities across our country. Without 
these institutions, many communities and many of our citizens 
will see their economic opportunities suffer significantly.
    I joined my family's bank in 2010, and I learned the 
business from the front line to the back office. My most 
challenging role was as compliance officer--working with our 
small team to implement many of the post-crisis regulations. 
Although the crisis revealed weaknesses in the U.S. financial 
system that needed to be addressed, I have witnessed firsthand 
how the regulatory environment created in the aftermath of the 
crisis has disadvantaged community banks. And if confirmed, I 
will bring this perspective to my work at the Board to ensure 
that rules preserve the resiliency of the financial system, but 
that they are appropriately tailored to the size, complexity, 
and risk of an institution.
    As a community banker, it was my job to support local 
businesses and consumers. This experience has given me a 
personal and deep understanding of how the Federal Reserve's 
goals of fostering maximum employment and stable prices 
directly affect the financial system and the broader economy. 
The dual mandate is critically important to our economy, to our 
businesses, to our families, and our communities. If I am 
confirmed, I will be very focused on how we can do the best job 
possible to fulfill that mandate.
    I currently serve as the Kansas State Bank Commissioner, 
and our office oversees hundreds of State-chartered banks, 
trust companies, money transmitters, and other nondepository 
financial service institutions. Our mission is both proactive 
oversight and protection of the consumers our financial 
institutions serve. As commissioner, I am accountable to the 
people of Kansas. And as I carry out my regulatory mission, my 
goal is to treat every consumer and every institution fairly, 
respectfully, and with open communication.
    I believe the experiences I have described qualify me for 
this important role, and if confirmed by the Senate, I will be 
committed to accountability, transparency, and clear 
communication in all of my responsibilities at the Federal 
Reserve.
    Thank you for the honor of this hearing, and I look forward 
to answering the Committee's questions.
    Chairman Crapo. Thank you very much, Commissioner Bowman.
    I will proceed with the first questioning. My first 
question is really to both of you, so I would like you each to 
respond to this. There has been a lot of discussion here in the 
Senate and, frankly, here today about the concept of tailoring 
and whether--some view tailoring as rolling back regulations 
that should be in place. Others views tailoring as getting the 
correct requirements of regulation focused properly on the risk 
that is presented by individual financial institutions.
    I would just like to have your perspective on both of 
those. I think it is very clear that one way to improve 
economic growth is by addressing areas where financial 
regulations can be improved. Financial regulations should 
promote a vibrant, growing economy, but should still ensure a 
safe and sound financial institution. And I personally believe 
that those two objectives can be achieved. I would simply like 
your perspectives on that. Dr. Clarida, would you go first?
    Mr. Clarida. Well, thank you, Mr. Chairman. And, yes, I 
would agree very much with that sentiment. I think that 
tailoring and efficiency are goals, but within the context of 
preserving the important improvements in the financial 
stability and soundness in our financial system. And certainly 
were I to be confirmed, that would be my focus on any 
particular matter that I would vote on as a member, namely, to 
seek out efficiencies and tailoring to specifics as best as 
possible, but not putting the system at risk in an unnecessary 
way.
    Chairman Crapo. Thank you.
    Commissioner Bowman?
    Ms. Bowman. Chairman Crapo, a great deal of work has gone 
into improving the levels of both capital, liquidity, the 
stress testing that has been put in place, and also the 
resolvability of institutions has improved greatly since the 
crisis. I think when we are talking about appropriateness of 
regulation and applying it to different institutions in our 
financial system, we need to be very aware of the complexity, 
the size, and the risk of those institutions as we are looking 
to ensure the safety and soundness of our financial system.
    I believe it is appropriate to consider those 
characteristics within the context of safety and soundness and 
looking to apply the most appropriate level of regulation to 
each institution.
    Chairman Crapo. Well, I appreciate your answers, and to 
basically just summarize what I heard, we all agree that the 
primary objective of our regulatory system should be to assure 
the safety and soundness of our financial institutions in this 
country. Within that standard there can be a level of 
regulation, depending on the size, complexity, business model, 
and financial risk that is posed by an individual financial 
institution.
    I probably just have time for one more question, and so I 
am going to ask that of you, Dr. Clarida, and this goes not to 
regulation but to basically economic policy. The Fed recently 
began the process of shrinking its balance sheet, which 
currently sits above $4 trillion. In a speech last year, 
Chairman Powell cited long-run estimates of the appropriate 
size of the balance sheet as about $2.4 to $2.9 trillion by 
2022. I would just like your opinion on these factors. What 
factors do you expect to focus on in determining the pace and 
ultimate scope of the balance sheet reduction?
    Mr. Clarida. Thank you, Mr. Chairman. Let me begin by 
saying that certainly I think the Fed does need a smaller 
balance sheet, and so I am very much in support of the efforts 
commenced last year to begin to shrink that balance sheet. The 
ultimate destination for the balance sheet should be a lot 
smaller than it is today. I am aware of Chairman Powell's 
comments on that.
    One factor determining the size of the balance sheet is the 
amount of currency in circulation, and that number is growing. 
So the Fed will have a larger balance sheet, I imagine, at the 
end of this process, whenever it ends, than it did before the 
crisis.
    I would look forward, if I am confirmed, to working with my 
colleagues to assess the appropriate metrics for determining 
when to stop to shrink the balance sheet. So I think the 
numbers that the Chair has mentioned, that Chair Powell has 
mentioned, makes sense to me, but I have not studied it deeply 
and would look forward to talking with my colleagues about 
that, if confirmed.
    Chairman Crapo. Thank you very much.
    Senator Brown.
    Senator Brown. Thank you, Mr. Chairman.
    A question for both of you. I will start with you, 
Commissioner Bowman. Do you believe the Federal Reserve is 
intended to be independent from the President of the United 
States?
    Ms. Bowman. Absolutely.
    Senator Brown. Dr. Clarida?
    Mr. Clarida. Absolutely. It is essential.
    Senator Brown. Thank you. My understanding is that, 
Commissioner Bowman, you did not meet with the President and, 
Dr. Clarida, you did before the nomination?
    Mr. Clarida. I did meet with the President, yes.
    Senator Brown. Ms. Bowman, you did not?
    Ms. Bowman. Correct.
    Senator Brown. OK. When you were interviewed by the 
President, Dr. Clarida, did he say anything that gives the 
impression that he did not view the central bank as 
independent?
    Mr. Clarida. Absolutely not, and let me just state 
definitively that I had a number of meetings over several 
months with a number of officials, including the President, and 
in no meeting and at no time did I ever have any reason to 
question the independence of the Federal Reserve. Absolutely 
not.
    Senator Brown. OK. Thank you.
    Ms. Bowman, I appreciated the story of your family and the 
bank, and I must admit maybe I should have listened more to 
Senator Moran. I did not know what a drover was until I saw 
the----
    [Laughter.]
    Senator Brown. It is not a word, not a thing that we do in 
Ohio, but the farmers and drovers, so I like that. Your 
family's bank is profitable. It serves its community. It has 
maintained a Tier 1 leverage ratio of well over 20 percent, 
which is five times the required ratio, to my understanding 
throughout your time working there. Do you agree that banks 
with higher capital levels tend to lend more, not less, through 
the ups and downs of the business cycle?
    Ms. Bowman. Senator, I agree that capital is a very 
important part of the stability of our financial system, and 
capital is one of the ways that banks have credit available or 
funds available to loan to their communities or to their loan 
customers. It is a very important part of the system. One of 
many of the four pillars that have been strengthened since the 
crisis is capital, and liquidity as well. Both of those are 
important parts of the----
    Senator Brown. And you--sorry to interrupt. You have been 
able to serve your community well, your bank--you were not 
there during all this time, I understand. With those higher 
capital levels, you were able to serve the community well in 
good times and bad times, correct?
    Ms. Bowman. That is my understanding, yes, correct.
    Senator Brown. OK. The Fed last month proposed weakening 
the required leverage rules for the very largest banks, which 
already many experts think are too low at 5 percent. My 
question to both of you, and I will start with you, Ms. Bowman: 
Will you commit to oppose any Federal proposal that weakens 
leverage rules for the largest banks?
    Ms. Bowman. Senator, I think it is important to understand 
the details of all of those proposals so that should I be 
asked, and if I am confirmed, to participate in discussions 
regarding those proposals, that I am fully informed, that I 
have the opportunity to speak with my colleagues, and that I 
can vote in a way that I feel is appropriate.
    Senator Brown. Thank you for that. I did not expect 
anything less--or anything more indirect. If you come to the 
conclusion after talking to Supervision Chair Quarles, Vice 
Chair Quarles, whatever, and you analyze this and you believe 
in your mind that these weakened leverage rules--weakening the 
required leverage rules, you would oppose it?
    Ms. Bowman. Senator, I would certainly express my opinion 
and ask questions so that I would be----
    Senator Brown. But if your conclusion was, yes, these rules 
would weaken required leverage rules, would that mean you would 
oppose it?
    Ms. Bowman. I would feel free to vote as I felt 
appropriate, and if that were how I felt, I would certainly do 
so.
    Senator Brown. Dr. Clarida, would you like to comment on 
the same question?
    Mr. Clarida. Just briefly, just to say that, as I mentioned 
in my opening statement, a priority of mine in any 
consideration on any item I would vote on in this area would be 
I would need to be assured that are preserved the substantial 
gains in safety and soundness and resiliency that we have in 
place. So I would look at it on a case-by-case basis, and I 
agree with the prior comment.
    Senator Brown. That is a bit of a surprise answer from you, 
Dr. Clarida. In 2010, you wrote, ``Financial history suggests 
`never again' eventually becomes `this time it is different.' 
`This time it is different' eventually sets the stage for the 
next financial crisis.''
    Based on that, you give the same answer?
    Mr. Clarida. My answer would simply be, as I mentioned, I 
would want to preserve what we have in place. I would look on 
it, if confirmed, on a case-by-case basis. But I would 
certainly hope that I would never fall victim to the ``this 
time it is different'' with regards to the financial crisis 
because it was enormously costly to the economy, to individual 
communities, and certainly that is not a lesson that I will 
forget.
    Senator Brown. Well, thank you. I am concerned that we 
have--well, I am concerned when we have a very aggressive Vice 
Chair of Supervision now at the Fed who has had a history of 
supporting deregulation, in some cases ignoring signs of--well, 
suffering perhaps, as many on this Committee do, from 
collective amnesia about what happened a decade ago. We have 
regulators in this Government who were in the Government before 
and did not see it coming. In fact, many contributed in their 
vigor and their aggressiveness--their vigor and interest in 
deregulating. And I am very concerned with the collective 
amnesia, with the regulators in place in other agencies and at 
the Fed, who want to deregulate. I am very concerned about the 
strength and aggressiveness of the two of you in pushing back. 
I will leave it at that, and I will remind you of your comments 
later perhaps.
    Chairman Crapo. Senator Scott.
    Senator Scott. Thank you, Chairman.
    To the panel, thank you both for being here and thank you 
for your willingness to serve. Commissioner Bowman, I would 
like to say to your family, especially to your father, thank 
you for your service as an Air Force officer, a banker, a 
farmer. I guess in the tradition of Kansas, he is just a real 
Renaissance man. I am not quite sure what your kids do to have 
to be punished here by sitting through a Banking hearing.
    [Laughter.]
    Senator Scott. I apologize on behalf of this topic for your 
kids, but I do want to make a couple of points.
    The unemployment rate is at 3.9 percent. Wages have 
increased over the last year by 2.9 percent, the highest 
increase since 2009. Our economy is growing pretty quickly, 2.9 
percent the last quarter of 2017, 2.3 percent the first quarter 
of this year. With tax reform I would imagine that we can 
anticipate 3 percent or higher growth in our economy.
    Despite all the positive indicators, the market had several 
days of volatility, typically around the swearing-in of 
Chairman Powell. If I look back at the recent past, the Federal 
Reserve has cited stock market volatility as a reason not to 
raise interest rates. The Fed backed down so many times that 
this seemed to become learned behavior. Stock market volatility 
meant no interest rate hikes.
    I will ask both of you: Is the stock market a pillar of 
monetary policy? And would stock market volatility deter you 
from plans to raise interest rates?
    Mr. Clarida. I guess let me begin by saying, Senator Scott, 
thank you for that question. First of all, to me stock market 
volatility is not a pillar of monetary policy in and of itself. 
I would not think it would be a factor. Sometimes stock market 
volatility is associated with other developments that you do 
pay attention to.
    Senator Scott. Yes.
    Mr. Clarida. But stock market volatility alone, absolutely 
not, as far as I am concerned.
    Senator Scott. Thank you. Commissioner?
    Ms. Bowman. I would agree with Dr. Clarida that this should 
perhaps be one of the several factors that should be 
considered, but not in and of itself as a guiding factor.
    Senator Scott. I am glad to hear your answer is basically. 
Congress says to seek maximum employment and stable prices, no 
more, no less. I have highlighted in the past what people often 
seem to forget about low interest rates. It has a negative 
impact on savers and particularly seniors on a fixed income. So 
when interest rates go from 4 percent to 3 percent, if you have 
a $1 million nest egg, that is a $10,000 swing in what you are 
able to live off of. So it is really important to me, but let 
me move to a different topic.
    I sold insurance for my professional life. I have said it 
many times that our State-based system of insurance regulation 
is the best in the world. The President's executive order on 
financial
regulation favors a deferential approach by the Fed to working 
with primary financial regulators, and when it comes to 
insurance, that means State-based insurance regulators.
    How will you integrate State-based insurance regulators 
into your work? Both of you, please.
    Ms. Bowman. Well, I would be happy to take that. As the 
Kansas State Bank Commissioner, it is very important from where 
I sit now to be able to have a dialogue about those issues that 
impact State-chartered institutions or institutions that are 
regulated at the State level. I believe that it is important to 
continue that dialogue between the Federal and the State level, 
and my understanding is that there is a mechanism for that to 
continue, and that would be something that I would believe 
would be important to continue.
    Senator Scott. I am running out of time, so I want to ask 
you a different question. Thank you for your answer.
    I favor an activities-based approach to nonbank SIFI 
designations and more clarity around what gets you designated 
and what gets you de-designated. What are your thoughts?
    Mr. Clarida. Well, Senator, obviously SIFI designation is a 
part of the process that is now in place. I believe that is 
handled at the level of the Stability Oversight Council. It is 
not a subject that I myself have studied. If I were confirmed, 
I would certainly look forward to learning more about it. But, 
in general, as a proposition I think an activities-based 
approach makes a lot of sense. But beyond that, I have not 
really studied the issue.
    Senator Scott. OK. Thank you. Let me add a little to the 
question. Oftentimes an insurance company may have a small bank 
presence under their umbrella.
    Mr. Clarida. Right.
    Senator Scott. If we treat that entire insurance company as 
if it were a bank, we are only increasing the cost to every 
single policyholder, even though a sliver of the overall 
picture of that insurance company has anything to do with a 
bank. So if you punish an insurance company by treating it like 
a bank, you are actually not punishing the insurance company. 
You are punishing the policyholders of the insurance company. 
So having a delineation between nonbank presence as it relates 
to SIFI designation is an incredibly important part that I hope 
you will take some time and learn more about.
    Thank you both for your answers and congratulations and 
condolences for being chosen.
    Chairman Crapo. Thank you.
    Senator Reed.
    Senator Reed. Well, thank you very much, Mr. Chairman. Let 
me begin, as Senator Scott did, by commending and thanking the 
families for being here. And, Mr. White, thank you very much 
for your service in Vietnam and the Air Force. And, Mr. 
Clarida, your family, a great sacrifice. They could be relaxing 
in Westerly, Rhode Island, right now.
    Mr. Clarida. Absolutely.
    Senator Reed. I appreciate the sacrifice.
    We all are pleased that the unemployment rate is 3.9 
percent, but behind that number is a labor participation rate 
that is falling. And there are perhaps many factors, but one is 
the continuing
innovation, automation of jobs, et cetera, and, you know, there 
is at least a theoretical possibility that several years from 
now we could have a very low unemployment rate but a huge 
number of people without jobs.
    I will start with you, Dr. Clarida. In terms of your 
mandate to maintain full employment in this new technological 
era, how do you factor in job loss? How do you emphasize 
training and adaptation? Because my sense is that many of these 
individuals are mid-career who have worked very hard, have 
skills--but those skills are no longer marketable in many 
cases? So let me begin with that general question, and then Ms. 
Bowman.
    Mr. Clarida. Well, Senator Reed, you are absolutely right. 
The economy is changing. The unemployment rate of 3.9 percent, 
as you say, is welcome, but behind that one number is a very, 
very complex picture. Technology, as you mentioned, is changing 
rapidly. It creates winners, it creates losers.
    I believe with regards to monetary policy, if I were to be 
confirmed, I would not focus solely on the unemployment rate 
but on broader measures of the labor market, including labor 
force participation. My sense is that with regards to 
technology and education in mid-career, the policies that could 
best address those challenges are probably policies for the 
Congress and the executive branch to consider. I think the Fed 
can do its part by responsibly trying to achieve maximum 
employment for the economy as a whole.
    Senator Reed. So there is a fiscal component of this which 
requires investment in training and job transition and a host 
of other things.
    Mr. Clarida. And I believe that is what the research does 
say.
    Senator Reed. Thank you.
    Commissioner, your comments?
    Ms. Bowman. Senator, I would frankly rely on my experience 
in my community. When I returned to Kansas in 2010, we 
recognized that there were many people unemployed as a result 
of the financial crisis. There were many partnerships that were 
developed with training schools, vocational and community 
colleges that assisted in the development of skills that could 
be used within perhaps a new industry or a new technology that 
they might be able to utilize.
    In my view, while it is very important in the context of 
monetary policy and maximum employment, it is also very 
important for communities to understand the needs of their 
workers and of their businesses so that they can work to 
address those things at a local level. That would be one thing 
that I think is a very critical part of trying to address that.
    I do not believe that the Fed has tools that are in its 
toolbox to be able to address those particular issues, and as 
Dr. Clarida said, it would be something that Congress would 
likely need to enact some sort of law that could address those 
kinds of things. But I have great faith in our communities to 
recognize the challenges that they face and try to address 
those.
    Senator Reed. Thank you. One aspect that just seems to be 
ubiquitous is the cybersecurity threats to every aspect of our 
life, and we have been trying to encourage the Securities and 
Exchange Commission to take what I think is a very modest step, 
which is to require someone on a public company's board to have 
either knowledge of cybersecurity or have some other mechanism, 
just simply informational to the shareholders. The bank holding 
companies are particularly, as you both recognize, targets of 
this type of disruption effect.
    Can you take or should you take action as a supervisor of 
the bank holding companies to make sure that they have at every 
level, and particularly--the biggest ones I assume have it; it 
is the smaller bank holding companies--have someone or some 
capacity for cybersecurity on an active basis? My time has 
expired, so this might be just a yes or a no.
    Mr. Clarida. I agree that cybersecurity is a very 
significant threat to the economy and obviously the financial 
system. If I am confirmed, I would look forward to 
understanding what actions the Fed currently takes in that 
area, but I agree it is absolutely critical.
    Senator Reed. Thank you, Doctor. Ma'am?
    Ms. Bowman. I would absolutely agree with the threat of 
cybersecurity and the importance of having some expertise 
within an institution to be able to address those risks.
    Senator Reed. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Tillis.
    Senator Tillis. Thank you, Mr. Chairman. Thank you both for 
being here, and thank you for the time in the office last week.
    When we talk about deregulation around here, I think that 
some people will kind of position the question as we are going 
to deregulate and we are going to expose ourselves to the 
underlying risk that that regulation was intended to resolve. 
It does not seem to me that that would be the way that you 
would go about taking a look at rightsizing and deregulating. 
Let me give you an example of a few things I would like for you 
to expand on.
    One is the regulatory reform bill that we got bipartisan 
support out of this Committee, S. 2155. Could you characterize 
how you think that is--or take a position one way or the other 
how you think that is the right kind of method for going and 
trying to find regulations that fit the activities the size and 
scale of the institutions to which the regulations would be 
applied? And we will start with you, Commissioner.
    Ms. Bowman. Senator Tillis, I appreciate that question. At 
the State level, I oversee banks that range in size from $7 
million in assets with three employees to $3.2 billion in 
assets. All of those qualify by the Federal standard as 
community banks. It is important to be able to understand the 
burden on a staff of three to 
implement the same regulations that apply to much larger 
institutions.
    Senator Tillis. So about one-third of that bank is probably 
in regulatory compliance, right?
    Ms. Bowman. Probably 100 percent of the time.
    Senator Tillis. Yes, OK. And then, Dr. Clarida, we talked 
about international standards like Basel III.
    Mr. Clarida. Right.
    Senator Tillis. So you see these standards that are being 
formulated. I worked in an accounting firm. I am not an 
accountant, but I worked in an accounting firm, and we were 
very much engaged in that. So you create maybe these 
international standards, and then we have those suggestions 
come into our rulemaking process, and then suddenly you have 
got a lot of community banks that suddenly find out that they 
have Basel III regulatory requirements.
    Is that a good thing? Or what should we be doing 
differently as we are being instructed by emerging 
international standards and making sure that, on the one hand, 
we provide regulatory relief through the bill like S. 2155, but 
on the other hand, we come on the back end and just layer on 
another set of regulations that may not make sense for the 
nature of the institution targeted?
    Mr. Clarida. Well, Senator, yes, as I understand, the Fed 
does participate in these international discussions, but 
ultimately any rulemaking has to go through a process with 
comment and affirmative votes of the members. And so certainly 
the situation you describe would be a situation that I would be 
concerned about.
    So, again, if I am confirmed for this position, I will look 
at each of those on a case-by-case basis, but would certainly 
want to respect and really pay attention to the comments and 
the feedback that the Fed would be getting on any such proposed 
rulemaking.
    Senator Tillis. Thank you. By the way, I appreciate the 
answers to the questions by the Ranking Member about your 
independence. I saw President Erdogan from Turkey on Bloomberg 
this morning who was talking about he needs to be the ultimate 
person deciding some monetary policy or interest rates in 
Turkey. And I think if you see the Turkish currency right now, 
maybe the markets do not necessarily agree with that. So I 
appreciate you all continuing to be independent on that scale. 
I think that is a very vital role that you play.
    I do want to associate myself with comments by Senator 
Scott on insurance savings and loan holding companies. That is 
an area that we are working on legislation on a bipartisan 
basis to, again--we are not talking about going to no 
regulation. We are talking about really taking a look at the 
nature of the business activities in these institutions and 
making sure that we have lean regulations that manage the risk 
but do not actually put certain financial institutions out of 
business. For anyone to look at the banking sector in North 
Carolina and see that we have half as many community banks 
today as we had pre-crisis and suggest that the regulatory 
overreach of Dodd-Frank was not a contributing factor, I would 
love to see how they could present a case otherwise. Do you 
agree with that?
    Ms. Bowman. I think there are many things that contribute 
to the reason why we have had either mergers, acquisitions, or 
failures. I would say that regulatory burden is part of that.
    Senator Tillis. And some of the mergers and acquisitions 
are a survival decision: I can no longer be a three-person bank 
with the regulatory construct of a large regional bank or a 
national bank. So some of it was a natural part of the 
ecosystem being consumed; as banks get larger, you buy their 
portfolio, and you build it in. But some of it is just purely a 
survival decision. I cannot imagine that half the community 
banks in North Carolina would be gone purely because they were 
good acquisition targets. And I think we have to look at that 
so that we have a thriving pyramid, an ecosystem, financial 
ecosystem that today I do not think we really have.
    Thank you all and congratulations to the family, and I look 
forward to supporting your confirmation.
    Mr. Clarida. Thank you.
    Ms. Bowman. Thank you.
    Chairman Crapo. Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman. Congratulations 
to both of you on your nominations.
    I want to follow up on Senator Brown's questions and make 
sure we are clear on the question of independence. Mr. Clarida, 
in your meetings with President Trump, did he ask you how you 
would vote on proposed increases to the Federal funds rate?
    Mr. Clarida. Absolutely not.
    Senator Menendez. Good. Did the President indicate a 
preference one way or the other for how you should approach 
decisions on whether to increase the Federal funds rate?
    Mr. Clarida. Absolutely not.
    Senator Menendez. Good. Now, for both of you, we are tasked 
with examining your qualifications for 14-year terms, terms 
that will outlast this Administration and the next. So it is 
critical--Senator Tester says, ``Most of us.''
    [Laughter.]
    Senator Menendez. So it is critical that your decisions--I 
hope not for you, Jon. So it is critical that your decisions be 
guided by the Federal Reserve's dual mandate and remain 
independent of any political pressure or interference from the 
Administration, this one or any other.
    Will each of you commit today that, if confirmed, you will 
ignore any political pressure or interference, whether it is 
direct or indirect, from the President or any other member of 
the Administration in your decisionmaking?
    Ms. Bowman. Senator, I would just say that the Fed makes 
decisions based on sound economic policies and judgments, and 
politics has no place in that.
    Senator Menendez. So the answer is yes?
    Ms. Bowman. Yes.
    Mr. Clarida. The answer is absolutely yes.
    Senator Menendez. Thank you. We have made significant 
progress from the darkest days of the recession, but in many 
ways our economic recovery continues to be uneven. Today we are 
looking at an economy with 3.9 percent unemployment but still 
very sluggish wage growth. As corporations have reaped billions 
of dollars in benefits from the new tax law, hardworking 
families are still waiting to see their paychecks rise.
    In a tight labor market, workers, I think, should be able 
to transform corporate profits as part of it into higher pay, 
but any acceleration in wages seems to be accruing only to 
high-paid executives and managers.
    This question is to both of you. Do you agree that the 
achievement of full employment should be associated with strong 
and broad-based wage growth for average workers, not just 
senior executives and managers?
    Mr. Clarida. I will begin with that, Senator Menendez. 
Absolutely, that is something that we would like to see 
associated with full employment. It is the case in recent 
decades that there has been more dispersion between, you know, 
workers in different categories, and there are a number of 
factors that impact that. I think the Fed's focus--if I am 
confirmed, I think the Fed's focus should be on getting that 
unemployment rate at a level that is on average consistent with 
a healthy labor market, but acknowledge that there are factors 
at work that are impacting different workers in different ways.
    Senator Menendez. I am not quite sure--what about wage 
growth?
    Mr. Clarida. Wage growth will be a function of the growth 
of the economy. It will be a function of productivity, of 
technology. There are a number of factors. I think what the Fed 
can do, Senator, on wage growth is to keep the economy as close 
as it can to that full employment mandate that Congress has 
given it.
    Senator Menendez. Commissioner?
    Ms. Bowman. Senator, wage growth is a very important issue, 
and I think that as the economy improves, it is important that 
all benefit from the economic conditions. It is a factor that 
should be considered and looked at within the context of full 
employment or maximum employment, which is one of the mandates 
that Congress has given the Fed. It is something that I think 
is very important, and I would be happy to speak with you 
further about that if that is an issue that, should I be 
confirmed----
    Senator Menendez. Well, I appreciate your answers. I think 
a tight labor market, forcing employers to offer higher and 
more competitive wages normally, that is not what we are 
seeing. As a matter of fact, wages are up about 2.6 percent 
annually, which is only slightly higher than the rate at which 
they have been rising for the better part of 3 years. So that 
says to me something about the recovery, and the recovery for 
average Americans not being realized.
    Last, the Administration is planning to offer a proposal to 
make changes to the Community Reinvestment Act with 97 percent 
of banks receiving satisfactory or outstanding ratings, yet 
African American and Latino families continue to be 
disproportionately denied mortgage loans, even when controlling 
for income, loan amount, location. It seems to me that in that 
respect we have a problem. But I have real concerns that the 
new proposals will lead to weakened enforcement by regulators 
and a discounted importance of physical bank branches.
    This is for both of you. Do you agree with Federal Reserve 
Governor Brainard that it is important to retain a focus on 
place as the Fed contemplates CRA changes? In essence, do you 
agree that in some low-income and hard-to-reach communities, 
physical branches are sometimes the only way to meet local 
credit needs?
    Ms. Bowman. Senator, if you do not mind, I would be very 
happy to start with that. I think in any case discrimination is 
absolutely unacceptable, whether that is based on race, 
religion, any of those characteristics. It is important, as we 
are looking at reviewing the Community Reinvestment Act, that 
we keep in mind how the country has evolved since the time that 
that Act was enacted in 1979. There are many changes to the 
industry, to how our communities are shaped and how they look 
now, but it is very important that we continue to understand 
the needs of the community from all parts of the community and 
that they are addressed appropriately.
    Senator Menendez. Mr. Clarida?
    Mr. Clarida. Senator Menendez, I would just simply say the 
Community Reinvestment Act has been on the books for 40 years. 
It would be a very high priority of mine, if confirmed, to make 
sure that it is enforced. And, obviously, if there are 
discussions for improving or bringing it up to date, I would be 
open-minded to that. But the essential mission of the Act I 
think needs to be respected.
    Senator Menendez. Well, let me close by just simply saying, 
40 years later, African American families and Latino families 
are still disproportionately discriminated against, and so 
something is wrong. And I look forward to seeing how you would 
respond to that discrimination.
    Thank you, Mr. Chairman.
    Chairman Crapo. Senator Toomey.
    Senator Toomey. Thank you, Mr. Chairman. And 
congratulations to our two nominees. Let me start with Dr. 
Clarida.
    Dr. Clarida, it is my view that the Fed contributed to the 
financial crisis by virtue of monetary policy in the years 
preceding it, specifically very low interest rates for an 
extended period of time, including negative real interest 
rates, that coincided, not coincidentally but coincided 
chronologically, with a housing boom that really turned into a 
bubble, the bursting of which, of course, was one of the 
essential features of the crisis.
    Do you agree with the view that the Fed probably 
contributed to the financial crisis in this fashion?
    Mr. Clarida. Senator, I enjoyed our conversation in your 
office on this and other topics very much. I fully agree that 
monetary policy was one part. I think it is tough--I think 
other factors were also at play, so it is difficult to parse 
particular quantities of contribution. But, yes, monetary 
policy did play a part.
    Senator Toomey. Commissioner Bowman, what is your view on 
that same question?
    Ms. Bowman. I would agree with Dr. Clarida that monetary 
policy did play a part.
    Senator Toomey. Well, I think that is a really, really 
important thing to keep in mind. I think we need to learn the 
lessons of the mistakes that have been made. I agree it is 
difficult to quantify exactly what portion of the crisis 
originated in this fashion, but it was part of it.
    I think from our discussion, Dr. Clarida, my understanding 
is you support the idea of continuing the normalization of 
interest rates.
    Mr. Clarida. Absolutely.
    Senator Toomey. And that that you believe is important, and 
I agree. I guess the question I would like to explore a little 
bit is: Given the unprecedented behavior of the Fed in recent 
years, what is normal? You know, what is the new normal, if 
there is a new normal? And one of the things specifically I 
would like your thoughts on is the extraordinary quantitative 
easing exercises. The Fed went for almost 100 years without 
engaging in anything of the sort, and then we had these 
repeated rounds of massive buying of fixed-income instruments, 
including in 2013 when our economy was growing at over 2 
percent, unemployment was coming down, the inflation rate was 
just below 2 percent. So there was no crisis. There was no 
recession even. And yet we launched another $85 billion-a-month 
bond-buying program, which included mortgage-backed securities.
    So is it your view that during a period like we had in 2013 
it would be normal for the Fed to engage in a massive-scale 
bond-buying program?
    Mr. Clarida. Perhaps I can begin on that, Senator. My 
general feeling and what I have written and said about QE is 
that there are benefits and costs, and initially I would have 
argued and did at the time think that it made sense in the 
depths of the period in 2008 for the Fed to pursue that option, 
acknowledging that it had not been tried before. But at least 
in my memory, the U.S. had not been essential at zero rates 
before. But I do believe that the benefits of QE diminished as 
more and more rounds were added and that the cost of QE went 
up. I do not know how, frankly, sir, I would have voted if I 
had been on the Fed at that time, but I am very sympathetic to 
your view that any discussion and thinking about QE would have 
to take a serious look at the cost as well as the benefit.
    Senator Toomey. And would you consider non-Treasury 
instruments like mortgage-backed securities in a separate 
category? In other words, do you acknowledge that when the Fed 
gets into selecting which category of non-Treasury securities, 
it is really allocating credit?
    Mr. Clarida. Yes, absolutely, my preference certainly right 
now going into this would be for the Fed to end up with a 
Treasury-only portfolio. I do agree that the Fed began to buy 
the mortgages under duress at a challenging time for the 
economy. But as a general proposition, my preference would be 
to have the Fed's balance sheet as much as possible in Treasury 
securities.
    Senator Toomey. And, Ms. Bowman, would you like to share 
your views on the kinds of securities that the Fed should be 
buying?
    Ms. Bowman. Senator, I agree with Dr. Clarida's comments 
about the discussion that you were having previously. Having 
not been a part of the decisionmaking process, I view the Fed 
from a prospective perspective at this point. I agree that 
normalizing the balance sheet is a good idea and that that is 
the appropriate path forward. And my understanding is as that 
happens, the balance of Treasurys versus other types of assets 
will be more normalized, and that would be something that I 
think would be a good idea.
    Senator Toomey. I see I have run out of time. Thank you, 
Mr. Chairman.
    Chairman Crapo. Thank you, Senator Toomey.
    Senator Tester.
    Senator Tester. Thank you, Mr. Chairman. I also want to 
congratulate both of you on your nominations. I appreciate your 
being here and appreciate your willingness to serve. You have 
been very succinct with your answers, and I hope you can do 
that with me, too, because this one you can take all my time 
and I do not want you to.
    I will start with you, Commissioner Bowman. I come from a 
rural State. You have been a community banker in a past life in 
a rural State. How would you advocate for rural America? And 
where do you believe the biggest disconnect is?
    Ms. Bowman. Senator Tester, I appreciate your perspective 
being from a rural community, and I certainly also appreciate 
the partnership that I know that you share with your State 
commissioner and learning more about their efforts at the State 
level with your banking industry.
    I think it is important to understand that since the crisis 
there have been 1,500 mergers that have occurred within that 
community banking space across the country.
    Senator Tester. Yes.
    Ms. Bowman. And last year alone, there were just over 250. 
Kansas experienced 16 of those in our State, and when you have 
just over 200 to supervise and oversee, that is a pretty 
significant decline.
    I think it is important that we understand the pain points 
for those community banks, understand the importance of safety 
and soundness within those institutions, but also recognize 
that in some cases the regulatory framework could be more 
tailored to appropriately supervise the risk. Their activity 
basis, their complexity, and also their asset size is 
critically important in my view with respect to that.
    Senator Tester. Mr. Clarida, Connecticut is a more urban 
State. Do you have anything to add to her comments? Do you 
agree with what she said?
    Mr. Clarida. I completely agree. I will only say, Senator, 
that I grew up in downstate Illinois in a coal mining town with 
8,000 people, proud graduate of the University of Illinois. So 
I understand how those communities can be impacted.
    Senator Tester. OK. Recently, the Federal Reserve imposed 
growth restrictions on Wells Fargo in response to some 
abhorrent treatment of their customers and lack of internal 
controls. Would you assure me that you will not support 
releasing them from these growth restrictions until they 
significantly change the way they do business?
    Mr. Clarida. Perhaps I can begin. First, let me say that 
just based upon the news accounts, which, of course, is all I 
have to go on, the activities of Wells Fargo in this domain are 
egregious and unacceptable, and I was as shocked as anyone to 
read about it in the newspaper. If I am confirmed and this 
matter came before me, as it looks like it would, I would 
certainly individually want to be absolutely convinced that 
appropriate steps had been taken and could be verified.
    Senator Tester. OK. Commissioner?
    Ms. Bowman. I would concur with Dr. Clarida's comments. The 
actions of Wells Fargo were absolutely inappropriate, and I 
would certainly want to make sure that any concerns are 
addressed by the bank prior to any discussion.
    Senator Tester. OK. Thank you both.
    I want to talk a little bit about housing finance right 
now. Basically, do you guys believe there should be a 
Government guarantee for a 30-year fixed-rate note?
    Ms. Bowman. Senator, in my view as a community banker, it 
is important that our community members have access to 30-year 
fixed-rate notes.
    Senator Tester. OK.
    Ms. Bowman. Those are very important loan vehicles or 
mortgage vehicles. Without some kind of guarantee, banks cannot 
withstand that 30-year interest rate risk.
    Senator Tester. That is correct.
    Ms. Bowman. So, in my view, it would be very important to 
maintain that access to credit.
    Senator Tester. Dr. Clarida?
    Mr. Clarida. I would simply say the 30-year fixed-rate 
mortgage has served this country well for many, many decades, 
and I would imagine that going forward it is going to be a 
crucial part of the system.
    Senator Tester. Do you support it?
    Mr. Clarida. That is the status quo. I certainly support 
it.
    Senator Tester. OK, good. The GSEs are in conservatorship. 
Do you believe that is having any negative impact on the 
economy?
    Mr. Clarida. Senator, the GSEs have been in conservatorship 
since 2008. I am not an expert on housing finance, but 
obviously for the housing agencies to be in this State is 
probably not desirable. I am not an expert on housing finance, 
but----
    Senator Tester. That is all right. That is good.
    Commissioner?
    Ms. Bowman. I would agree with Dr. Clarida.
    Senator Tester. OK. Thank you all. I have got some other 
questions for the record that we will present to you, but I 
appreciate your answers not only to me but to previous 
questioners, too.
    Senator Tester. Thank you for being here.
    Mr. Clarida. Thank you.
    Ms. Bowman. Thank you.
    Chairman Crapo. Thank you.
    Senator Moran.
    Senator Moran. Chairman, thank you very much. Ranking 
Member, nice to know that we have educated you on the word 
``drovers.'' And I look forward to you listening to me more 
often than you sometimes do.
    [Laughter.]
    Senator Moran. Let me welcome both of our nominees here 
today. Doctor and Commissioner, thank you for joining us. 
Congratulations on your nomination.
    For as long as I have been a Member of the U.S. Senate and 
a Member of the Banking Committee, I have had conversations 
with individuals who have sat in the seats that you now sit in 
after they have been confirmed, mostly about the overregulation 
or community or what I call ``relationship banks.'' Our 
financial institutions in rural America are very special and 
important. For as long as I have been in Congress, I have been 
explaining to my colleagues that, where I come from, economic 
development is often whether or not there is a grocery store in 
town. That is something that many in Congress do not 
understand, and certainly many within an Administration would 
find, of course, there is a grocery store.
    I think these two things are related. What I have concluded 
over a period of time is that if we are going to have a grocery 
store in town, it is dependent upon a financial institution 
that understands the needs of their community and is not overly 
regulated in a way in which they cannot make a loan to a 
business that may not on paper be as financially capable as a 
regulation may require.
    This recently hit home with me again. In our State of 
Kansas, we had fires across a significant portion of 
grasslands, particularly in southwest and western Kansas and 
the ranching community of Ashland. The county is Comanche; the 
county seat is a town of 900 people. That is the biggest town 
in the county. And 80 percent of the ground was burned, and 
most of the cattle died in that as a result.
    What hit home with me is that those bankers responded to a 
crisis for those ranchers. The ranchers, with the death of 
their cattle, had no collateral. But the bankers continued to 
make loans, working capital, a line of credit was kept open to 
keep the ranchers in business.
    We are in the process, in the House in particular but soon 
in the Senate, to debate a farm bill. We often talk about the 
farm bill as being a safety net for agricultural producers. It 
is. But so is our community or relationship bankers. In the 
absence of the ability to access credit in difficult times, 
either as a result of a fire or low commodity prices, both of 
which we are having in Kansas today, it is our bankers who keep 
our farmers in business. It is our bankers who keep our 
ranchers raising cattle and earning a living.
    And so this is an important day for me, particularly with 
the Commissioner. You, Doctor, and I are going to have a 
conversation later today, and I will pursue this in further 
detail. But I know that Ms. Bowman understands the 
circumstances that it is not just a Kansas issue but it is 
across the country in rural America, and why this is so 
different or what I expect to be so different from, I hope, 
both of you is that every time I have had a conversation about 
the overregulation of a community bank--a bank, incidentally, 
that if it was insolvent, would cause no problems for the 
country, although significant challenges for the stockholders 
and the community--I get what I would describe as mostly lip 
service. The Federal Reserve or the FDIC or the Comptroller of 
the Currency will tell me, ``Well, we have an advisory 
committee, we take seriously our community banks,'' and yet it 
seems to me that there is an attitude among many of our 
regulators that it would be simpler to regulate a lot fewer 
financial institutions than the number we have today. And, 
unfortunately, we are on that path, but that is not the 
solution to the future of the places that I represent.
    So I would give you the opportunity, Commissioner and 
Doctor, to tell me again how you see the role of regulators, 
FDIC in your regulatory capacity, in regard to financial 
institutions that, in my view, if we are not careful, become 
products--their lending practices become a product of a 
computer program that spews out whether the answer is yes or no 
as compared to the relationship they have with the lenders, 
sometimes for generations. What you see in Ashland is a 
community bank owned by generations of a bank family lending to 
a set of people who are long-time generational ranchers. And 
the issue here for me is what can you do to convince me that, 
once you are a member of the Federal Reserve, you will advocate 
in a way different than just the idea that we are going to 
appoint an advisory committee to make certain we do not have 
overreach?
    Let me make a final conclusion before my 14 seconds 
concludes. I am at a stage in life, Ms. Bowman, in which I know 
the previous generation. I now know people's parents better 
than I know, in this case, you and I pay tribute to your Mom 
and Dad who are here and to the effect, the consequence that 
their lives have had in the community of Council Grove and 
Morris County and the surrounding area in the Flint Hills. The 
joy of being a community banker today is a lot less than it 
used to be. The idea of the satisfaction that comes with a job 
is diminished, but your parents and your family have made a 
tremendous difference in a community in Kansas. And as a result 
of their profession, Council Grove and the surrounding 
communities of Dwight and all the places that you and I know 
have a brighter future as a result of the work of your Mom and 
Dad. And I am very grateful to them, and from what I know about 
you, I would tell them thank you for raising a great daughter 
as well.
    Chairman Crapo. Thank you, Senator Moran.
    Senator Moran. Apparently, you do not have to respond.
    [Laughter.]
    Chairman Crapo. Senator Warren.
    Senator Warren. Thank you, Mr. Chairman. And welcome to our 
nominees and to your families.
    Dr. Clarida, your views on monetary policy are well known, 
but another critical part of your job at the Fed will be 
helping regulate the big banks. So I want to get to your views 
on bank regulation.
    Do you agree that inadequate regulation of banks helped 
lead to the 2008 financial crisis?
    Mr. Clarida. I do.
    Senator Warren. Yeah. So after the crisis, under former Fed 
Chair Janet Yellen, the Fed imposed new rules on big banks 
relating to capital, stress tests, liquidity, among other 
things. Do you believe that those rules helped make the 
financial system safer?
    Mr. Clarida. I do.
    Senator Warren. Good. So as you know, Randal Quarles is now 
the new Fed Vice Chair for Supervision, the person who will be 
responsible for the Fed's regulatory approach toward the 
biggest banks. He recently put out a new proposal on capital 
standards, and by his own admission, when he testified here a 
few weeks ago, his proposal would reduce capital requirements 
for every big bank in the country, and that is why both the 
FDIC and Fed Governor Brainard opposed this plan.
    So given your agreement that the new rules have made the 
financial system safer, are you concerned that the Fed is 
looking to reverse course and lower capital standards for the 
biggest banks?
    Mr. Clarida. Well, Senator, let me say that, as I mentioned 
in my opening statement, I do think there are opportunities to 
tailor regulations appropriately. But an equal priority is 
preserving the substantial gains and resiliency and stability 
of our financial system. And on any matter that would come 
before me as a member to vote on, I would want to be assured 
that we are not trading off that improved resiliency and 
stability in that particular matter.
    I cannot comment on this matter because I have not studied 
it. I believe it is out for comment right now.
    Senator Warren. I am sorry. You are being--this is a 
hearing about your becoming Federal Reserve Board Chair, and 
you have not read this proposal that would take a significant 
step that, by Mr. Quarles' own admission, would reduce capital 
standards for the largest banks? You have not read it, and you 
are telling me you do not have an opinion about it?
    Mr. Clarida. Senator, I am aware of it in broad ways. I 
have not studied it in detail, and it is my understanding that 
before any final decision on that, there would need to be 
another vote on the matter once the comments are back.
    Senator Warren. Well, I actually am having a hard time 
understanding how you can sit here, how we evaluate you as a 
Fed Reserve Member if you cannot tell us how you feel about 
reducing capital standards for the largest financial 
institutions.
    I tell you what. Let me try this another way. Most experts 
agree that too-big-to-fail is still a problem, and meanwhile 
the biggest banks are making huge profits and are among the 
biggest beneficiaries of the Republican tax bill. These banks 
are now spending billions of dollars each quarter in stock 
buybacks. So why on Earth would this be the time to reduce 
capital standards for these too-big-to-fail banks?
    Mr. Clarida. Again, Senator, I take the thrust of your 
observation, and I think that if I am confirmed for this 
position, I would certainly come to the issue with an open 
mind. But as I mentioned, my priority would not be to sacrifice 
any of the gains that we have achieved with the existing 
policy----
    Senator Warren. Can you just give me any reason why you 
think it would be appropriate to reduce capital standards for 
giant financial institutions that are spending billions of 
dollars right now in stock buybacks?
    Mr. Clarida. Senator, as I understand it, part of the 
rationale for the proposal is some of the incentives in the way 
that it is existing, that is implemented. But, again, beyond 
that I would look forward to studying it, and I agree that it 
would be important not to give up any of the gains in 
resiliency and stability we have achieved.
    Senator Warren. I will take that as, no, you cannot come up 
with a reason, but you are not telling me you will commit to 
keeping capital standards high.
    Let me ask one more question. Can you identify a single Fed 
rule on capital, on liquidity, on stress tests, or Board Member 
obligations, risk management, anything else, that you think 
should be made stronger than it is right now?
    Mr. Clarida. Well, Senator Warren, I think in the area of 
stress testing, I think it is vital. I think it is a crucial 
part of our system right now, and it is my understanding that 
the stress test exercises do take into account the loss of a 
particular institution in stress scenarios. And if those stress 
scenarios were to be more damaging, then the capital standards 
would be raised as a function of the stress.
    Senator Warren. I am sorry. So are you saying that you 
think the rule on stress tests should be made tougher?
    Mr. Clarida. No. I am saying that the stress scenarios that 
are----
    Senator Warren. OK, but--I am sorry. Let me just be clear 
what my question was.
    Mr. Clarida. Yes.
    Senator Warren. There is a whole range of regulatory 
issues: capital standards, stress tests, obligations of Board 
Members. I am asking if you think there is a single regulation 
that the Fed now has in place that ought to be made tougher.
    Mr. Clarida. And I do not have one for you today.
    Senator Warren. You do not have one. Look, Dr. Clarida, for 
a long time leaders at the Fed seemed to think that the only 
thing they needed to worry about was monetary policy. But as we 
learned in the 2008 crash, an equally important part of the 
Fed's job is regulating the giant banks. The defining economic 
event of the last 50 years was the 2008 financial crisis, and 
as Alan Greenspan later admitted, it was brought about in part 
because the Fed did not do its job on regulation.
    I am concerned about your lack of background on regulatory 
issues, and I am concerned about your unwillingness today to 
support strong capital standards for big banks. So I will be 
following up with written questions.
    Senator Warren. Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Cortez Masto.
    Senator Cortez Masto. Thank you. Welcome to your family 
members. Thank you both. It was a pleasure to meet both of you. 
Thank you for taking the time.
    I have only got 5 minutes, so let me get through this with 
your indulgence, and let me associate myself with my colleague 
from Massachusetts and her line of questioning and Dr. Clarida. 
So let me ask you this: I come from Nevada. The foreclosure 
crisis, we were ground zero for the foreclosure crisis. What 
have you learned from that foreclosure crisis? And how will you 
ensure we avoid another crisis?
    Mr. Clarida. Well, certainly I think we have all learned 
that we do not want to go back to the world of 2006 and 2007. 
And as I have mentioned----
    Senator Cortez Masto. Can you give me specifics? I think we 
would all agree with that, but specifically--you are going to 
be in a key position, so specifically can you talk about what 
you have learned and how you will apply what you have learned 
to your new position that you are being nominated to?
    Mr. Clarida. Well, some specifics would obviously be higher 
capital, stress testing at the banks, liquidity, but more 
broadly in our financial system better understanding and better 
accounting for the different parts of the system, including, I 
think, moving certain transactions on to exchanges and 
clearing. Those are all important steps forward, I think.
    Senator Cortez Masto. OK. Thank you.
    Ms. Bowman, I am going to associate myself with Senator 
Menendez's questioning. When you are the last one to ask
questions, the questions usually have been answered. But this 
is another one that is just as important, I think, for many of 
us, the Community Reinvestment Act exams. I understand--and 
Senator Menendez stated this--that 98 percent of the banks pass 
the CRA exams with a satisfactory rating. Ninety-eight percent. 
So what would it have taken for your bank to earn an 
outstanding score or any bank to earn an outstanding score 
based on your understanding?
    Ms. Bowman. Senator, that is an excellent question. I think 
those are discussions that I have on a community banking level 
frequently. I think part of the review that I mentioned with 
Senator Menendez was that the goalposts seem a bit unclear. I 
think many of the banks, if not most of the banks that I am 
aware of and familiar with, with respect to their Community 
Reinvestment Act activities or activities that benefit that 
process, there is not clarity for them in and an understanding 
of the types of investments that they make, whether they are 
extending credit, whether they are making other investments in 
their communities if those types of activities can qualify for 
the CRA. I think that would be something I would be very 
interested to speak with you about further regarding looking at 
those types of--how the rule is now and perhaps how communities 
exist now and how the investments of banks can be improved with 
respect to that.
    Senator Cortez Masto. Thank you, and I appreciate your 
candor, because the goalposts are unclear, and I guess that 
goes back to the concerns of what factors do you think would be 
helpful in determining whether small businesses, communities of 
color, and low-income areas are truly receiving the support 
that the law intended. I guess that is our challenge, and that 
is what we are looking to you to help us identify that so we 
can make sure that they are getting the help and the support 
they need.
    Ms. Bowman. Senator, on that topic in particular, at our 
bank, when I was the community banker, we worked very closely 
with our small business customers to help them understand how a 
business plan should be formed, how they can qualify for 
different types of credits, and how they can present to a 
banker in a way that would assist with their approval process 
with respect to their business plan. That is something that I 
think community banks in particular are quite good at to help 
educate their communities about the best ways to make 
investments.
    Senator Cortez Masto. Thank you. And then I have only got a 
few seconds left. Can you talk about the Consumer Financial 
Protection Bureau and the importance of it and your interaction 
with it in this new position? And I will start with you, Dr. 
Clarida.
    Mr. Clarida. The Consumer Financial Protection Bureau, of 
course, is part of the landscape now. As I understand it, a 
number of the responsibilities were transferred over to the 
CFPB in the Dodd-Frank legislation, and that is obviously an 
important part of the way that the country oversees consumer 
protection, which is an important goal.
    Senator Cortez Masto. Ms. Bowman?
    Ms. Bowman. I believe that the CFPB, Consumer Financial 
Protection Bureau, is currently the agency that is responsible 
for
assisting in the protection of consumers, and it promulgates
regulations that impact their ability to do that and the rest 
of the prudential regulators and their ability to protect 
consumers in different ways. It is important that there is open 
communication and working together to ensure consistency in the 
application of those regulations and enforcement of those.
    Senator Cortez Masto. Thank you. I appreciate it.
    Chairman Crapo. Senator Brown had a request.
    Senator Brown. Thank you. Mr. Chairman, in light of 
comments from Senator Tillis and others, I have two charts I am 
going to--one brief study and one chart about community banks 
and the number of them. This chart--and I know you cannot 
really see it, but this just shows the number of U.S. community 
banks as it has declined since 1981, and this sport right here 
in when Dodd-Frank was enacted. So the decline, there is no way 
to ascribe Dodd-Frank as accelerating the decline of community 
banks, decline meaning either sell, merge, or go out of 
business, or sell to another bank.
    So it is pretty clear that Dodd-Frank did not cause the 
demise of community banks. That is a greatest hit in this 
Committee from a lot of my colleagues saying, well, it is all 
because of Dodd-Frank that community banks have gone out of 
business.
    So, Mr. Chairman, I would just ask unanimous consent to put 
this brief study and the charts into the record.
    Chairman Crapo. Without objection, so ordered.
    Senator Brown. Thank you.
    Chairman Crapo. And with that, that concludes the 
questioning and the hearing. I again thank both of you for 
participating at our hearing today, and thank you for your 
willingness to serve the country.
    For Senators, all follow-on questions need to be submitted 
by Tuesday, May 22nd. And for our witnesses, responses to those 
questions are due by the following Tuesday morning, May 29th. 
So please respond quickly to the questions you receive.
    With that, the hearing is adjourned.
    [Whereupon, at 11:40 a.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
                 PREPARED STATEMENT OF RICHARD CLARIDA
  To Be a Member and Vice Chairman, Board of Governors of the Federal 
                             Reserve System
                              May 15, 2018
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
thank you for this opportunity to appear before you today. I am honored 
that the President has nominated me to serve as a Member of the Board 
of Governors of the Federal Reserve System and as the Board's Vice 
Chairman, and I am grateful to have the privilege of the Committee's 
consideration for these positions. I am also very grateful to have the 
support of my family who is with me here today--my wife of 29 years, 
Polly Barry, and my two sons, Matthew and Russell.
    The Federal Reserve has been charged by the Congress with a mandate 
to attain maximum employment and stable prices. I fully support both 
pillars of this dual mandate and pledge to the Committee that if I am 
confirmed by the Senate, I will support monetary policies that take a 
balanced approach to achieving these important objectives. The Federal 
Reserve also plays a central role in our Government's efforts to ensure 
the safety and soundness and stability of the U.S. financial system as 
it provides credit between households and businesses. If I am 
confirmed, my priority will be to support policies that are effective, 
efficient, and appropriately tailored and that preserve the far greater 
resiliency and stability of the financial system that has been achieved 
as a result of the significant reforms that have been put in place 
since the financial crisis.
    I believe I am well qualified to fulfill the responsibilities of 
the positions for which I have been nominated. In my published 
research, I have studied the formulation and communication of monetary 
policies and developed, along with others, a framework for monetary 
policy analysis that has been widely cited and used by monetary 
policymakers and their staffs around the world. Although I have spent 
most of my career in academia, I have had two opportunities to serve in 
economic policy positions in the executive branch of the U.S. 
Government--first, as a senior staff economist with Council of Economic 
Advisers from 1986 to 1987 and second, as assistant Treasury secretary 
for economic policy from 2002 to 2003. These experiences were 
invaluable in providing me a perspective that places a premium on doing 
economic analysis that is practical, robust, and relevant to better 
understanding how economic policy affects individual Americans and 
their communities. Over the years, I have also advised asset management 
firms on economics and strategy, with a particular focus on global 
monetary policy, and this experience has given me a deeper 
understanding of the interactions between macroeconomic developments 
and financial markets.
    The Federal Reserve has an enormous responsibility to achieve the 
mandates given to it by the Congress, to communicate the rationale for 
its decisions, and to explain how its policies will enable it to meet 
these objectives. If I am confirmed, I pledge to work closely with 
Chairman Powell and my future colleagues to put in place policies that 
best fulfill its obligation to meet the mandates that the Congress has 
assigned to the Federal Reserve and to foster the transparent 
communication and accountability that is so vital to preserving the 
Federal Reserve's independent and nonpartisan status.
    Thank you again for the privilege to appear before you today and I 
look forward to your questions.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                PREPARED STATEMENT OF MICHELLE W. BOWMAN
    To Be a Member, Board of Governors of the Federal Reserve System
                              May 15, 2018
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
thank you for this opportunity to appear before you today. I am deeply 
honored the President has nominated me to serve as a Member of the 
Board of Governors of the Federal Reserve System. Because community 
banking is a vital and ongoing part of my family's legacy, I am also 
humbled that, if confirmed, I will be holding the position designated 
for someone with community banking experience.
    I am also grateful to my family and my husband's family for their 
continued support and belief in me. My husband, Wes, our children Jack 
and Audrey, my sister Maggie, a school teacher in Kansas City, 
Missouri, and my parents, Jan and Hank White, are here with me today. 
My father, Hank, is a fourth generation banker, Vietnam veteran, and 
retired U.S. Air Force officer. My mother, Jan, is a great inspiration. 
She taught me that with hard work, anything is possible. My in-laws, 
John and Sherry Bowman and Sherry's 91-year old mother Mary Hopkins, 
could not be here with us today, but they are watching from home in 
Everest, Kansas.
    My family and I have been in community banking for generations. In 
1882, my great great grandfather, W.H. White, helped to charter the 
Farmers & Drovers Bank. The bank was named for the customers it served 
then and continues to serve today--the farmers and ranchers of the 
Flint Hills of Kansas. Today, the fourth and fifth generation of my 
family continue this long tradition of service through the bank and 
through active participation and volunteer work in our rural community 
of 2,300 people. I know firsthand that community banks are a vital part 
of the backbone of small, rural, agricultural towns and play a critical 
role in providing access to credit and fostering economic activity in 
communities across our country. Without these institutions, many 
communities and many of our citizens will see their economic 
opportunities suffer significantly.
    I joined my family's bank in 2010, and I learned the business from 
the front line to the back office. My most challenging role was as 
compliance officer--working with our small team to implement many of 
the new post-crisis regulations. Although the crisis revealed 
weaknesses in the U.S. financial system that needed to be addressed, I 
have witnessed firsthand how the regulatory environment created in the 
aftermath of the crisis has disadvantaged community banks. If 
confirmed, I will bring this perspective to my work at the Board to 
ensure that rules preserve the resiliency of the financial system, but 
are appropriately tailored to the size, complexity, and risk of an 
institution.
    As a community banker, it was my job to support local businesses 
and consumers. This experience has given me a personal and deep 
understanding of how the Federal Reserve's goals of fostering maximum 
employment and stable prices directly affect the financial system and 
the broader economy. The dual mandate is critically important to our 
economy, businesses, families, and communities. If I am confirmed, I 
will be very focused on how we can do the best job possible to fulfill 
that mandate.
    I currently serve as the Kansas State Bank Commissioner and our 
office oversees hundreds of State-chartered banks, trusts companies, 
money transmitters, and other nondepository financial service 
institutions. Our mission is both proactive oversight and protection of 
the consumers our financial institutions serve. As commissioner, I am 
accountable to the people of Kansas. And as I carry out my regulatory 
mission, my goal is to treat every consumer and institution fairly, 
respectfully, and with open communication.
    I believe the experiences I have described qualify me for this 
important role. If confirmed by the Senate, I will be committed to 
accountability, transparency, and clear communication in all of my 
responsibilities at the Federal Reserve. Thank you for the honor of 
this hearing, and I look forward to answering the Committee's 
questions.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

 RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN FROM RICHARD 
                            CLARIDA

Q.1. What is your view on what caused the 2008 financial 
crisis? What responsibility does the Federal Reserve share in 
terms of failures in regulatory and supervisory policy?

A.1. Put simply, by 2007 the U.S. financial system was highly 
fragile. A buildup of leverage and maturity transformation in 
the years leading up to the crisis left the U.S. and global 
economy vulnerable to negative surprises. When the downturn in 
the U.S. housing market occurred, these vulnerabilities 
amplified the effects of the initial shocks and the result was 
the financial crisis.
    The crisis revealed shortcomings and failures at private 
institutions, in the overall regulatory framework, and in the 
actions of specific agencies, including the Federal Reserve.
    In response to the crisis, the Federal Reserve increased 
its regulatory and supervisory scrutiny of the largest 
financial institutions, for example, putting in place a 
comprehensive stress-testing regime. In my view, this response 
has, broadly speaking, increased the resilience of the system.
    The new regulatory regime for large banks ensures that the 
largest institutions are sufficiently strong to continue to 
function effectively as intermediaries even in periods of 
substantial financial stress. Capital is critical to ensuring 
resiliency, as are the availability of high-quality liquid 
assets, appropriate management of risks, and the presence of a 
plan for resolution in case needed. Progress has been made in 
all of these areas, and newer tools like the stress testing 
regime and the countercyclical capital buffer should also 
contribute to the resiliency of the system going forward.

Q.2. How did large bank and investment bank leverage contribute 
to the 2008 financial crisis?

A.2. The buildup of leverage to excessive levels was a key 
contributor to the spread of the financial crisis. In the run 
up to the crisis, the firms that experienced the worst problems 
also had some of the highest leverage ratios. And when the 
problems at Bear Stearns were resolved through its acquisition 
by JPMorgan, market participants turned their attention to 
other firms with similarly high levels of leverage.
    However, leverage at large financial institutions alone was 
not responsible for the 2008 financial crisis. When the housing 
market turned down and housing-related assets fell in value, a 
series of vulnerabilities amplified the effects of that shock, 
including the reliance on short-term wholesale funding at large 
financial institutions. Some of these institutions faced runs 
by investors and had to sharply cut back their activities in 
support of the real economy. And, more broadly, the financial 
system was highly interconnected in opaque and surprising ways.

Q.3. How would you characterize current risk-weighted and 
leverage capital levels for the largest U.S. banks--too low, 
too high, or the correct amount?

A.3. It is critical to the safety and soundness of the largest 
U.S. banks and to the broader U.S. financial system and economy 
that these firms are well capitalized. Since the financial 
crisis, the U.S. banking agencies have significantly 
strengthened regulatory capital requirements for large banking 
firms, which has made them much more resilient and able to 
continue lending even when under financial stress.
    If confirmed, I look forward to examining this question 
more closely and consulting with my colleagues. Absent critical 
supervisory information, it would be premature for me to judge 
the precise appropriate capital levels. However, given its 
importance, I am very encouraged by the steps that I have 
observed the Federal Reserve has taken.

Q.4. As you know, the Federal Reserve recently proposed 
reducing leverage requirements for the eight biggest U.S. 
global systemically important banks (G-SIBs).\1\ In discussing 
the impact of its proposal, the Federal Reserve noted that it 
would reduce the amount of tier 1 capital required across the 
lead insured depository institution (IDI) subsidiaries of the 
G-SIBs by approximately $121 billion.
---------------------------------------------------------------------------
    \1\ https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20180411a.htm.

Q.4.a. Could a reduction in IDI capital pose any risks to 
---------------------------------------------------------------------------
depositors, taxpayers, or financial stability? Why or why not?

A.4.a. In setting capital requirements, there is a risk that 
leverage ratios may become too binding. When a leverage ratio 
becomes a binding constraint, it can create incentives for 
firms to increase their investments in higher-risk, higher-
return assets and, conversely, reduce their participation in 
lower-risk activities.

Q.4.b. What is your view on raising the enhanced prudential 
standards threshold pursuant to Dodd-Frank section 165 from $50 
billion to $250 billion in total consolidated assets, as 
contemplated in S. 2155?

A.4.b. I support increased tailoring of regulation and 
supervision. I believe that it was prudent for the Congress to 
raise the $50 billion asset threshold for larger bank holding 
companies in order to limit the scope of enhanced prudential 
standards. In general, regulation and supervision should 
continue to be tailored to the size, systemic footprint, and 
risk profiles of institutions, and my understanding of the 
Economic Growth, Regulatory Relief, and Consumer Protection Act 
is that while it adjusts the $50 billion threshold, it still 
allows the Federal Reserve to subject a firm with a higher risk 
profile to more rigorous regulation.

Q.4.c. Federal Reserve Vice Chair Quarles has said that the 
Volcker Rule ``is an example of a complex regulation that is 
not working well.''\2\ Do you agree or disagree? Why?
---------------------------------------------------------------------------
    \2\ https://www.reuters.com/article/us-usa-fed-quarles/u-s-
considering-material-changes-to-volcker-rule-feds-quarlesidUSKBN1GH2U8.

A.4.c. I think it makes sense to explore whether or not the 
Volcker Rule can be implemented in a simpler, less burdensome 
---------------------------------------------------------------------------
way while still achieving the objectives of the statute.

Q.4.d. What is your view of the Community Reinvestment Act? 
Does it need to be altered or modernized by the Federal 
Reserve? If so, what changes do you support?

A.4.d. The Community Reinvestment Act (CRA) has been a part of 
banking regulation for 40 years. It would be a very high 
priority of mine, if confirmed, to make sure that it is 
enforced.
    I support the CRA's goal of encouraging banks to meet their 
affirmative obligation to serve their entire community, and in 
particular, the credit needs of low- and moderate-income 
communities. Doing so benefits low- and moderate-income 
communities and helps them to thrive by providing opportunities 
for community members, for example, to buy and improve their 
homes and to start and expand small businesses.
    If confirmed, I would be open-minded to discussions for 
improving or bringing the CRA up to date, but the essential 
mission of the act needs to be respected.

Q.5. On May 23, the FDIC released their Quarterly Banking 
Profile. It shows that that bank profits increased 28 percent 
over the last year, and even more for community banks.

Q.5.a. Do you think it is sound policy to reduce capital 
requirements for banks that have profit levels this high?

A.5.a. The financial crisis demonstrated the importance of a 
financial system that has sufficient capital to absorb losses 
and allow banks to continue lending in an economic downturn. 
Stronger and higher-quality regulatory capital requirements for 
U.S. banking firms have therefore been an essential post-crisis 
reform. However, I believe the banking agencies should continue 
to examine whether the requirements remain effective over time 
and adjust the capital framework as appropriate while 
preserving the essential gains in resiliency and stability of 
our financial system that have resulted from the reforms put in 
place since the financial crisis.

Q.5.b. If confirmed, you will be a member of the Federal Open 
Market Committee. What experience will you bring to this role? 
Are there any changes in how monetary policy is currently 
conducted that you will advocate for?

A.5.b. In my 35-year professional career, I have achieved 
recognition among academics, policymakers, and financial market 
participants as an expert on the economics of monetary policy. 
My
academic work on monetary policy as a professor of economics 
and international affairs since 1988 at Columbia University 
(and before that at Yale University) has been frequently cited, 
and the framework for a more effective monetary policy 
developed in these papers has been widely consulted by 
economists at the Federal Reserve and as well as at other major 
central banks around the world. In this regard, since 2007 I 
have served as a member of the Deutsche Bundesbank Academic 
Research Council and have been chairman of this group since 
2012. In 2009-2010, I served as an external member of the 
Norges Bank monetary policy review committee, and since 2012 
have served on the Academic Advisory Board of the Hong Kong 
Monetary Authority's Institute for Monetary Research. Earlier 
in my career--from 1991 to 1992 and again between 1995 and 
1997--I was a consultant at the economic research department of 
the Federal Reserve Bank of New York as part of a group of 
academic experts that included Ben Bernanke and future Nobel 
laureate Christopher Sims. And in 1999, I served as a 
consultant to Paul Volcker and the Group of 30 and contributed 
to their Project on Exchange Rate Regimes.
    I have been an active member of the National Bureau of 
Economic Research (NBER) since 1983, and since 2004 have served 
as a co-organizer of the NBER's annual International Seminar on 
Macroeconomics, which is typically hosted by a central bank in 
Europe. I am also a regular participant in the annual Hoover 
Institution Conference on Monetary Policy, and, last summer, 
delivered a keynote address at the Bank for International 
Settlements Annual Research Conference.
    Although I have spent most of my career in academia, I have 
had two opportunities to serve in economic policy positions in 
the executive branch of the U.S. Government: first, as a Senior 
Staff Economist with Council of Economic Advisers from 1986 to 
1987 and second, as Assistant Treasury Secretary for Economic 
Policy from 2002 to 2003. These experiences were invaluable in 
providing me a perspective that places a premium on doing 
economic analysis that is practical, robust, and relevant to 
better understanding how economic policy impacts individual 
American and their communities.
    Since 2006, I have had the opportunity to advise Pacific 
Investment Management on global economics and strategy, with a 
particular focus on global monetary policy. While I myself do 
not manage portfolios, I have worked with the firm's investment 
committee to help them interpret and assess global economic and 
monetary policy trends. I believe this experience has given me 
an appreciation for the interaction between macroeconomic 
developments and financial markets that I would not otherwise 
have obtained.
    The Federal Reserve's monetary policy decisions are guided 
by its statutory mandate to promote maximum employment and 
price stability. Over the past few years, the Federal Open 
Market Committee (FOMC) has been gradually reducing monetary 
policy accommodation. Last year, it raised the target range for 
the Federal funds rate by \3/4\ percentage point, and in 
October it initiated a balance sheet normalization program to 
gradually reduce its securities holdings. These steps to 
normalize the stance of monetary policy are welcome, as they 
reflect the economy's recovery from the financial crisis and 
recession, the durability of the economic expansion, and the 
Committee's confidence that inflation will return to 2 percent 
on a sustained basis. If confirmed, I look forward to working 
with my colleagues on the FOMC to continue to promote maximum 
employment and price stability.

Q.5.c. Since the crisis, do you think the Federal Open Market 
Committee has been on the right course by gradually increasing 
interest rates?

A.5.c. I believe that the gradual increases that the FOMC has 
made since December 2015 in the target range for the Federal 
funds rate have been consistent with its statutory mandate to 
promote maximum employment and price stability. Over the past 
few years, the FOMC has been gradually reducing monetary policy 
accommodation, reflecting the improvement in the U.S. economy. 
During 2017, it raised the target range for the Federal funds 
rate by \3/4\ percentage point, and in October 2017, it 
initiated a balance sheet normalization program that is 
gradually reducing the Federal Reserve's securities holdings.
    As I noted previously, these steps to normalize the stance 
of monetary policy are welcome developments, as they are 
responses to the U.S. economy's recovery from the financial 
crisis and recession, the sustained nature of the economic 
expansion, and the FOMC's confidence that inflation will return 
to 2 percent on a sustained basis. In addition, as decisions on 
the pace of policy firming have reflected the FOMC's assessment 
of incoming data and the outlook for the economy, recent years' 
monetary policy developments have underlined the fact that 
monetary policy is not on a preset course; rather, it is data 
dependent and is chosen to promote outcomes for the U.S. 
economy most consistent with the statutory goals of maximum 
employment and price stability. If confirmed, I look forward to 
working with FOMC colleagues on shaping policy decisions in 
pursuit of these goals.

Q.6. As you know, the Federal Reserve currently uses a variety 
of monetary policy rules, including the Taylor rule, in its 
analysis and monetary policy decisionmaking, but does not rely 
solely on rules to determine interest rate adjustments.

Q.6.a. Do you agree with the Federal Reserve's current 
approach, or will you advocate that the Fed use a single rule?

A.6.a. I understand that the simplicity of monetary policy 
rules has some appeal. But the economy is very complex.
    Conducting monetary policy based on simple formulas has a 
long tradition in the research literature on monetary policy. 
But economic models are, of necessity, always simplifications 
of reality, and we need to ask ourselves whether adhering to 
any simple rule--even if it worked well in an economic mode--
would in practice mean that we were implementing the monetary 
policy that was most consistent with meeting our statutory 
objectives.
    No simple policy rule can capture the full range of 
considerations that the FOMC must take into consideration when 
making monetary policy decisions. For example, policymakers 
must consider not just the current levels of economic 
variable--which are the variables that appear in many simple 
policy rule--but also the expected future paths of such 
variables. In addition, we need to take account of possible 
risks surrounding those paths and whether the costs associated 
with particular economic outcomes could be especially high.
    We also need to take account of unobservable structural 
factors that may affect the economy. For example, factors that 
may persistently lower the level of the neutral Federal funds 
rate or that may affect the longer-run normal level of the 
unemployment rate. In contrast, simple monetary policy rules 
often embed the assumption that these longer-run levels of the 
real interest rate or the unemployment rate are fixed.
    In sum, policy rules' prescriptions can be useful inputs in 
the FOMC's policy deliberations, but they are not an adequate 
or satisfactory substitute for FOMC decisions on monetary 
policy based on a wide range of information.

Q.6.b. While the unemployment rate continues to fall, the labor 
force participation rate remains at about its lowest level in 
40 years. What do you think is contributing to this?

A.6.b. Although we have seen solid job growth this year and 
further declines in the unemployment rate, the labor force 
participation rate is still quite low by historical standards. 
Much of this is due to the movement of the large baby boom 
cohort into ages when participation rates tend to fall sharply 
as workers retire. That said, the labor force participation 
rate for prime-age workers--especially men--has also not 
rebounded to pre-recession levels. A recent survey paper by 
Katherine Abraham and Melissa Kearney\3\ attributes much of the 
longer-run decline in participation among prime-age men to 
factors such as technical change and globalization. However, I 
also think that this group could represent an additional margin 
of slack in the sense that some of them could be enticed to 
reenter the labor force as the demand for labor continues to 
strengthen.
---------------------------------------------------------------------------
    \3\ http://www.nber.org/papers/w24333.

Q.6.c. Do think the opioid addiction epidemic is related to the 
---------------------------------------------------------------------------
decline in labor force participation among prime-age workers?

A.6.c. Yes I do. Economists Anne Case and Angus Deaton \4\ have 
carefully documented the rise in ``deaths of despair'' in the 
United States, to which the opioid epidemic has contributed. In 
addition, Alan Krueger's research \5\ on the decline in labor 
force participation among adult men suggests that the 
proportion of adult men taking pain medication has risen 
sharply over the past two decades and is one reason for the 
decline in labor force participation among this population. 
More generally, opioid addiction has adversely affected both 
the health and economic situation of many individuals and their 
families and is an important issue that needs to be addressed 
by policymakers.
---------------------------------------------------------------------------
    \4\ http://www.princeton.edu/accase/downloads/
Mortality_and_Morbidity_in_21st_
Century_Case-Deaton-BPEA=published.pdf.
    \5\ https://www.brookings.edu/wp-content/uploads/2018/02/
kruegertextfa17bpea.pdf.

Q.6.d. Over the past 40 years the link between productivity and 
wage increases has eroded. More and more, productivity gains 
aren't shared with workers. Why do you think wage growth has 
not kept pace with productivity growth? Is there anything the 
Fed can do to increase wages? Can the Federal Reserve, through 
monetary policy or regulatory policy, do more for individuals 
and communities that have not experienced the benefits from the 
---------------------------------------------------------------------------
economic recovery?

A.6.d. It is the case in recent decades that there has been 
more dispersion between workers in different categories and 
that some workers have fallen behind. There is no consensus on 
the primary reason for this divergence, but economists tend to 
attribute this to a number of factors, including globalization, 
technological change, and a need to better equip workers with 
the skills needed in today's labor market.
    In the aggregate, wage growth is a function of the strength 
of the economy and the growth in productivity. I think the 
Federal Reserve can best promote faster wage growth by focusing 
on its full employment mandate--that is, by getting the 
unemployment rate to a level that is, on average, consistent 
with a healthy labor market, but acknowledging that there are 
factors at work that are impacting different workers in 
different ways.

Q.6.e. If confirmed, how will you advocate for increased 
diversity in the Federal Reserve System?

A.6.e. Diversity is a critical aspect of all successful 
organizations, and it is important to have a diverse workforce 
at all levels of an organization. I believe that better 
decisions are made, including in the policy space, when there 
are individuals with a broad range of backgrounds and 
perspectives engaged in the process.
    If confirmed, I will have the opportunity to meet and speak 
with individuals and groups throughout the Federal Reserve 
System, the financial and banking sectors, and regional and 
community organizations. I will use those opportunities to 
advocate for career opportunities at the Federal Reserve Board 
(Board) and the System for individuals with diverse 
backgrounds, experience, and perspectives. And I plan to 
actively support Board and Federal Reserve Bank (Reserve Bank) 
initiatives to identify and recruit individuals with diverse 
backgrounds and perspectives for careers at the Board and the 
Reserve Banks. Of course, I also recognize that attracting 
diverse talent is only the first step. To meet our objectives, 
we need to create an environment where all will thrive and 
contribute.

Q.6.f. Federal Reserve Board of Governors nominee Marvin 
Goodfriend, has recommended that the ``central bank put in 
place systems to raise the cost of storing money by imposing a 
carry tax on its monetary liabilities.'' Do you believe that 
there should be a currency tax, or that there are financial 
conditions that would call for a currency tax?

A.6.f. I am very skeptical that the real-world effects of a tax 
on currency could justify imposing such a tax.
                                ------                                


  RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED FROM RICHARD 
                            CLARIDA

Q.1. The Federal Reserve is one of the agencies authorized to 
enforce the Military Lending Act (MLA), which is a bipartisan 
law enacted in 2006 that sets a hard cap of 36 percent interest 
for most loans to servicemembers and their families. On July 
22, 2015, the Department of Defense finalized MLA rules that 
closed prior loopholes that allowed unscrupulous lenders to 
prey upon service-
members and their families.

Q.1.a. Do you support these stronger MLA rules? If confirmed, 
will you ensure that the MLA is vigorously enforced?

A.1.a. In enacting the Military Lending Act (MLA), Congress 
directed the Department of Defense to issue implementing 
regulations after consulting with the Federal Reserve and other 
agencies. I understand that Federal Reserve staff has worked 
with Defense Department staff to carry out that mandate and, if 
confirmed, I will support that effort and the Federal Reserve's 
full enforcement of the MLA at the institutions it supervises.

Q.1.b. If changes are made to the Community Reinvestment Act 
that lead to financial institutions, including those that have 
an
online presence, to take deposits from communities but actually 
make less of an effort to reinvest in these same communities, 
would you consider that to be a good or bad outcome?

A.1.b. The Community Reinvestment Act (CRA) was enacted to 
ensure that banks help meet the credit needs of the communities 
where they are chartered to do business. It is important that 
credit flow to consumers and businesses in all communities, 
including in low- and moderate-income areas, consistent with 
safe and sound lending to meet their credit needs and further 
economic development and financial inclusion. Any revisions to 
CRA that expand the area within which a bank's CRA performance 
is evaluated should ensure that the new areas are consistent 
with the original intent of the law.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM RICHARD 
                            CLARIDA

Q.1. How many times did you meet with President Trump prior to 
being selected as a nominee to the Federal Reserve?

A.1. I met with President Trump one time.

Q.2. In that/those meeting(s), did President Trump ask how you 
would vote on proposed increases to the Federal funds rate?

A.2. The President did not ask how I would vote on proposed 
increases to the Federal funds rate.

Q.3. Did the President indicate a preference, one way or the 
other, for how you should approach decisions on whether to 
increase the Federal funds rate?

A.3. The President did not indicate a preference for how I 
should approach decisions on whether to increase the Federal 
funds rate.

Q.4. After meeting with the President, do you believe he 
understands the value of an independent central bank? If yes, 
what did he say to give you that indication?

A.4. In addition to my meeting with the President, I had a 
number of meetings over several months with a number of 
officials in the Administration. In no meeting and at no time 
did I ever have any cause for concern that anyone I met with 
questioned the independence of the Federal Reserve to conduct 
monetary policy that would best achieve the mandates assigned 
to it by the Congress.

Q.5. Will you commit that if confirmed, you will ignore any 
political pressure or interference, whether it be direct or 
indirect from the President or any other member of the 
Administration?

A.5. I have no reason to expect any political pressure or 
interference, but I fully commit that if confirmed I would 
completely ignore any political pressure or interference, 
whether it be direct or indirect from any member of the 
Administration.

Q.6. Do you agree that the achievement of full employment 
should be associated with strong and broad-based wage growth 
for average workers, not just senior executives and managers?

A.6. Absolutely, that is something that we would like to see 
associated with full employment. It is the case in recent 
decades that there has been more dispersion between workers in 
different
categories and that some workers have fallen behind. There is 
no consensus on the primary reason for this divergence, but 
economists tend to attribute this to a number of factors, 
including globalization, technological change, and a need to 
better equip workers with the skills needed in today's labor 
market.
    I think the Federal Reserve can best promote faster wage 
growth by focusing on its full employment mandate--that is, by 
getting the unemployment rate to a level that is, on average, 
consistent with a healthy labor market, but acknowledging that 
there are factors at work that are impacting different workers 
in different ways and encouraging policymakers to address those 
inequities.

Q.7. Why isn't this tight labor market forcing employers to 
offer higher and more competitive wages?

A.7. It is true that measures of nominal wage growth have been 
increasing more slowly recently than during the strong labor 
markets of the mid-2000s or late 1990s. While many factors may 
be contributing to the relatively slow growth in wages, the 
most important factor is likely the slowdown in productivity 
growth over the past decade or so. Indeed, over the past couple 
of years (and over the past decade), productivity growth 
averaged 1 percent per year, well below the average rate of 2 
\1/4\ percent since 1950. When productivity growth is lower, 
employers cannot afford to increase wages by as much as 
otherwise. Price inflation has also been slower over the past 2 
years than the tight labor market of 2006-2007. As a result, 
real wage growth, which is what matters for workers' welfare, 
has not slowed as much as nominal wages. Even though current 
wage growth is lower than previously, most measures of 
aggregate wages have increased gradually as the labor market 
has tightened, suggesting that the tighter labor market is 
pushing up wages. If the labor market tightens further, I would 
expect wage growth to rise as well, all else held constant.

Q.8. To what extent has workers' decreased leverage to 
negotiate with their employers impacted their ability to demand 
higher wages?

A.8. It is difficult to assess how much decreased negotiating 
leverage has affected workers' ability to demand higher wages. 
Workers' leverage has increased as the labor market has 
tightened, producing higher wages and greater employment and 
employer-provided training. Although wage growth is lower 
currently than in previous periods of strong labor demand--
which would be consistent with decreased negotiating leverage--
several other factors are also likely holding down wages. 
Productivity growth, which is ultimately responsible for the 
increase in real wages over time, has been quite slow in recent 
years, as has inflation which influences the rate of nominal 
wage growth. It's possible that changes in technology may have 
decreased worker negotiating leverage by, for example, 
increasing employers' ability to monitor workers and automate 
jobs, and by making it easier for employers to shift production 
to different locations. But it is difficult to distinguish the 
effect of any change in workers' negotiating leverage from the 
influence of other factors.

Q.9. Do you agree with Federal Reserve Governor Brainard that 
it is important to retain a focus on place as the Federal 
Reserve contemplates changes to the Community Reinvestment Act? 
Do you agree that in some low-income and hard to reach 
communities, physical branches are sometimes the only way to 
meet local credit needs?

A.9. Governor Brainard has stated that the time is right to 
revise the Community Reinvestment Act (CRA) regulations and, in 
particular, expand the area in which a bank's CRA activities 
are evaluated. She also emphasized the importance of retaining 
a core focus on place. In her statement, she cited research 
that demonstrates that branches are an important vehicle for 
reaching small business customers and low-income consumers.
    I agree with her assessment that the agencies should be 
thoughtful about how to make the area where CRA activity is 
evaluated more meaningful to both banks and low- and moderate-
income communities.

Q.10. Do you agree that robust enforcement against 
discriminatory or unfair and deceptive lending practices must 
work hand-in-hand with any revisions to the Community 
Reinvestment Act?

A.10. Discriminatory and other illegal credit practices are 
inconsistent with helping to meet community credit needs and, 
as such, have a negative effect on a bank's CRA performance. I 
understand that the Federal Reserve takes evidence of 
discrimination into account when assigning CRA ratings as 
prescribed in the CRA regulations. It is important to retain 
the connection between CRA, fair lending, and laws protecting 
against other illegal credit practices to ensure that consumers 
have fair access to credit. I would support examinations that 
are data-driven, as much as possible, to examine for compliance 
with fair lending laws and regulations.

Q.11. A Treasury Department report issued in April recommends 
that the Federal Reserve adopt the OCC's new policy allowing 
banks with failing CRA ratings to merge or expand so long as 
they can demonstrate a potential benefit.
    Do you think the Federal Reserve should adopt this policy?

A.11. The applications process serves as a means of enforcing 
CRA, which requires that the appropriate Federal supervisory 
agency consider a depository institution's record of helping to 
meet the credit needs of its local communities and to take that 
record and public comments into account in evaluating 
applications for deposit-taking facilities, such as for 
mergers, acquisitions, and branches.
    I understand that the Office of the Comptroller of the 
Currency (OCC) issued guidance last November on how it will 
assess CRA ratings in the context of its review of a banking 
application, which varies from the Federal Reserve's 
guidance.\1\ If confirmed, I would want to understand better 
how the agencies' respective guidance differ and ensure that 
there is clarity and transparency so that banks can comply, and 
applications can be evaluated in a manner that is consistent 
with the congressional intent of enforcing the CRA.
---------------------------------------------------------------------------
    \1\ OCC, Policy and Procedures Manual, ``Impact of CRA Ratings on 
Licensing Applications'', PPM 6300-2, November 8, 2017, 
www.occ.treas.gov/publications/publications-by-type/other-publications-
reports/ppms/ppm-6300-2.pdf.

Q.12. Prior to the financial crisis, regulators treated assets 
like subprime mortgage-backed securities as ``low risk,'' which 
allowed big banks to load up on risky assets without the 
necessary capital backing. When the crisis hit, the Nation's 
biggest banks didn't have the capital to withstand the losses.
    Do you agree that regulators and banks misperceived risks 
before the last crisis, and assigned low ratings to assets that 
were actually toxic?

A.12. The financial crisis demonstrated the importance of a 
financial system that has sufficient capital to absorb losses 
and allow banks to continue lending in an economic downturn. 
Since the crisis, the U.S. banking agencies have appropriately 
strengthened and improved the quality of the regulatory capital 
requirements for U.S. banking firms.

Q.13. Last month, the Fed and the OCC proposed a rule that 
would weaken the enhanced supplementary leverage ratio, a 
requirement that the Nation's biggest banks hold enough capital 
to support lending and absorb losses in a downturn. Those banks 
are required to meet leverage ratios at the holding company 
level and at the depository institution level--where the 
deposits are backed by taxpayers. According to the FDIC, this 
proposal would result in the departure of more than $120 
billion in capital--capital that our regulators unanimously 
deemed necessary after the financial crisis to ensure our 
Nation's largest banks can withstand losses. Federal Reserve 
Governor Brainard voted against this proposal--the first 
dissent in the history of Board votes it keeps on its website 
(315 votes total)--and the FDIC declined to join the proposal, 
a significant departure from other postcrisis rulemaking, even 
though the Fed and FDIC jointly established this rule after the 
crisis.
    Are you at all concerned that without the backstop of an 
adequate leverage ratio for the Nation's eight biggest banks, 
banks will once again load up on so-called ``low risk'' assets, 
and place taxpayers at risk of future bailouts?

A.13. In setting capital requirements, there is a risk that 
leverage ratios may become too binding. When a leverage ratio 
becomes a binding constraint, it can create incentives for 
firms to increase their investments in higher-risk, higher-
return assets and, conversely, reduce their participation in 
lower-risk activities. My understanding of the enhanced 
supplementary leverage ratio proposal is that it was aimed at 
striking an appropriate balance between leverage and risk-based 
capital requirements. If I was to be confirmed, I would look 
forward to better understanding the analysis underpinning the 
proposal and the public comments that were received in 
response.
                                ------                                


 RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER FROM RICHARD 
                            CLARIDA

Q.1. I believe strongly in the importance of the Fed's 
independence. Recent comments from another Fed candidate (and 
former Fed Governor)--Kevin Warsh--suggest that President Trump 
has been anything but shy in revealing his preference for a low 
interest rate environment.

Q.1.a. Has the President--or anyone in the Administration--
impressed upon you their beliefs on how you should vote on 
matters of monetary policy?

A.1.a. No. I had a number of meetings over several months with 
a number of officials in the Administration including the 
President. In no meeting and at no time did anyone impress upon 
me their belief on how I should vote on matters of monetary 
policy.

Q.1.b. Do you commit to safeguarding the independence of our 
central bank?

A.1.b. Yes. I have no reason to expect any political pressure 
or interference that would challenge the independence of our 
central bank, but I fully commit that if confirmed I would 
completely ignore any political pressure or interference, 
whether it be direct or indirect from any member of the 
Administration.

Q.1.c. What do believe is the biggest threat to financial 
stability at the moment?

A.1.c. An important lesson of the global financial crisis was 
the need for greater vigilance in monitoring the financial 
system. This includes looking at asset valuations, leverage, 
liquidity and maturity transformation, and the complexity of 
the financial system. Understanding the key vulnerabilities in 
the system is a necessary step in order to pursue effective 
policies to ensure the health of our financial system should 
vulnerabilities increase.
    Given that we have enjoyed many years of solid growth amid 
a stable financial system, in my view complacency is a 
particular threat. Failure to remain vigilant even as the 
financial system evolves and grows risks the possibility that 
the reforms put in place since the crisis will lose their 
effectiveness.

Q.1.d. Do you believe that Title II's Orderly Liquidation 
Authority is an important tool available at the Fed's disposal 
during a crisis? Would you vote to use the Authority if 
bankruptcy was not an appropriate method for resolving a 
systemic financial institution?

A.1.d. Bankruptcy should be the preferred resolution framework 
for a failing financial firm. Companies, counterparties, the 
markets, and investors understand the rules and procedures 
under the Bankruptcy Code. Nevertheless, Title II's Orderly 
Liquidation Authority provides an important backstop resolution 
framework for extraordinary situations.
    Every failure of a systemic financial firm is different, 
and I would consider the facts and circumstances on a case-by-
case basis in deciding whether to vote in favor of recommending 
that the Treasury Secretary use Title II's Orderly Liquidation 
Authority. One aspect of Title II that would factor into my 
analysis is that Title II does not allow for Government capital 
injections and requires that taxpayers suffer no losses from 
the resolution.

Q.1.e. Do you think current bank risk-based capital levels are 
too high, too low, or about right? How about the leverage 
ratio?

A.1.e. Maintaining the safety and soundness of the largest U.S. 
banks is fundamental to maintaining the stability of the U.S.
financial system and the broader economy. To be safe and sound 
financial institutions, these firms must be well capitalized. 
The U.S. banking agencies have substantially strengthened 
regulatory capital requirements for large banking firms, 
improving the quality and increasing the amount of capital in 
the banking system.
    High-quality common equity tier 1 capital (CET1) is 
important because it is available under all circumstances to 
absorb losses. Since the financial crisis, U.S. banks have been 
required to meet new higher minimum requirements for CET1 to 
ensure a solid base of protection against losses. U.S. banks 
also have been required to meet a new capital conservation 
buffer on top of the minimum to preserve flexibility to make 
capital distributions. For the U.S. global systemically 
important banks (G-SIBs), the Federal Reserve has imposed an 
additional capital surcharge designed to reduce the threat that 
a failure of any of these firms would pose to financial 
stability. (Commonly referred to as the G-SIB surcharge.) Large 
U.S. banking firms have roughly doubled their capital positions 
from before the crisis to today.
    If confirmed, I look forward to examining this question 
more closely and consulting with my colleagues. Absent critical 
supervisory information, it would be premature for me to judge 
the precise appropriate capital levels. However, given its 
importance, I am very encouraged by the steps that I have 
observed the Federal Reserve has taken.

Q.2. As you may know in S. 2155, we contemplate raising the 
enhanced prudential standards from $50 billion to $250 billion, 
with an 18 month-delayed effectiveness to give the Fed time to 
do a rulemaking and decide whether it should apply any of the 
enhanced prudential standards to banks between $100 billion and 
$250 billion.
    What do you see as the most important enhanced prudential 
standards for these mid-size banks?

A.2. Throughout our banking regulatory system, we should 
continue to protect the core tenets of regulatory reform--
capital, stress testing, liquidity, resolution planning, and 
orderly liquidation authority. One important post-crisis reform 
maintained for banks of that size by S. 2155 is periodic stress 
testing.
    The Federal Reserve further helps ensure the capital 
adequacy of our largest banking firms through the annual stress 
testing and Comprehensive Capital Analysis Review (CCAR) 
exercises, which consider the losses these firms would suffer 
under adverse economic scenarios on a forward-looking basis. In 
doing so, these programs help determine firms' capital needs 
when they will be needed most--in a serious economic downturn.
    As we move away from the crisis and as banks continue to 
add risk to their balance sheets, the stress testing and CCAR 
programs will be critical to ensuring that banks are doing so 
in a manner that does not jeopardize their safety and soundness 
or the stability of the U.S. financial system.

Q.3. The urban-rural economic divide is an area of particular 
interest for me and an area where I've done a lot of work. I 
believe that someone shouldn't be forced to leave their 
community to find a good paying job. As we've seen in the Great 
Recession and the
recovery that's followed, the impacts of these macroeconomic 
trends are not universal and, in this case, have often been 
felt more harshly in rural areas.

    What do you believe to be the driving forces behind 
        the decline of rural America? Is this trend the result 
        of globalization and technological change?

    Do you believe these trends are irreversible?

A.3. Research has shown that employment growth relative to 
population has been slower in rural areas in recent years than 
in large cities, and several important measures of well-being 
in rural areas have declined dramatically over recent decades. 
While important research is being done to better understand 
these disturbing trends, no firm conclusions regarding the 
underlying causes have yet emerged. Research does suggest that 
globalization and technological change have adversely affected 
the wages and employment of lower-educated workers, many of 
whom reside in rural areas. There is also some research that 
suggests that the increased availability of opioid drugs has 
also adversely affected employment and welfare in rural areas.
                                ------                                


 RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN FROM RICHARD 
                            CLARIDA

Q.1. Now that you have had more time to examine the Fed's 
recent proposal on changes to capital standards, do you support 
the proposal as currently written? If so, why do you think it 
is appropriate to reduce capital requirements for the country's 
largest banks at this time? If not, what changes would you need 
to see to the proposal before supporting it?

A.1. We need a resilient, well-capitalized financial system 
that is strong enough to withstand even severe shocks and 
support economic growth by lending through the economic cycle. 
Since the crisis, the U.S. banking agencies have substantially 
strengthened regulatory capital requirements for large banking 
firms, improving the quality and increasing the amount of 
capital in the banking system. It would be important to me not 
to give up any of the gains in resiliency and stability that 
have been achieved since the crisis.
    Risk-based and leverage capital requirements work best 
together when leverage capital requirements generally serve as 
a backstop to risk-based capital requirements. In cases where 
the leverage ratio becomes a binding constraint, it can create 
incentives for banking organizations to reduce their 
participation in lower-risk, lower-return business activity, 
such as repo financing, central clearing services for market 
participants, and taking custody deposits, notwithstanding 
client demand for those services.
    I understand that the Federal Reserve's enhanced 
supplementary leverage ratio (eSLR) proposal is designed to 
maintain the eSLR standards as a meaningful constraint on 
leverage while ensuring a more appropriate complementary 
relationship between global systemically important banks' (G-
SIBs) risk-based and leverage-based capital requirements, and 
to help ensure that the leverage-based capital requirements 
generally serve as a backstop to risk-based capital 
requirements. If confirmed, I would look forward to reviewing 
the comments that the Federal Reserve receives on the proposal.

Q.2. Do you believe that any U.S. banks are Too Big to Fail?

    If so, what can and should the Fed do to address 
        this problem?

    If not, what evidence supports your conclusion?

A.2. I believe that the post-crisis regulatory reforms and 
stronger supervision have resulted in a great deal of progress 
being made in strengthening the financial system and making 
large firms better able to absorb losses. Having said that, it 
is important for financial supervisors to remain vigilant to 
ensure that the financial system continues to remain resilient 
as economic conditions and market practices evolve.

Q.3. Section 402 of S. 2155, which recently passed the Senate 
and allows banks ``predominantly engaged in custody, 
safekeeping, and asset servicing activities'' to have less 
capital.
    Do you believe that language applies to JPMorgan Chase and 
Citigroup? Would that analysis hold if those two banks created 
intermediate holding companies to house their custody services?

A.3. Section 402 of the Economic Growth, Regulatory Relief, and 
Consumer Protection Act provides leverage ratio relief to firms 
that qualify as ``custodial banks'' with respect to reserves 
held at certain central banks. The bill defines a custodial 
bank as any depository institution holding company that is 
predominantly engaged in custody, safekeeping and asset 
servicing activities (and any subsidiary depository institution 
of such a holding company). The Federal Reserve Board (Board) 
and the other Federal banking agencies have authority to issue 
regulations implementing this section. By its terms, the bill 
does not appear to apply to diversified holding companies, such 
as JPMorgan Chase or Citigroup, because their custodial 
operations constitute a relatively small percentage of their 
overall businesses.
    The Board applies regulatory capital requirements to bank 
holding companies on a consolidated basis. Under this approach, 
the top-tier bank holding company is required to aggregate all 
its activities and the assets of its subsidiaries. As a result, 
simply inserting an intermediate holding company would not 
affect the activities or assets of the consolidated banking 
organization or the analysis of whether the consolidated 
organization was considered to be predominantly engaged in 
custody, safekeeping, and asset servicing activities. This 
result would apply to an intermediate holding company that 
controlled the custody services of the banking organization as 
well as to any other intermediate holding company in the 
structure. An intermediate holding company therefore would not 
affect the capital requirements of the consolidated banking 
organization.

Q.4. Banks today reported record profits--up 27.5 percent from 
the first quarter of last year. The economy is nearly a decade 
into a long expansionary period.
    Why is a reduction in capital requirements necessary or 
appropriate at this time?

A.4. We need a resilient, well-capitalized financial system 
that is strong enough to withstand even severe shocks and 
support
economic growth by lending through the economic cycle. To that 
end, the U.S. banking agencies have substantially strengthened 
regulatory capital requirements for U.S. banking firms, 
improving the quality and increasing the amount of capital in 
the banking system. At the same time, it is important to 
monitor the capital rules on an ongoing basis, to determine 
whether the framework is effectively measuring and addressing 
risk and working as intended, and to adjust the framework as 
needed.
    Reforms proposed by the Federal Reserve suggest that the 
enhanced supplementary leverage ratio standards may be 
currently calibrated too high, creating potential incentives 
for firms to disengage from certain low-risk, low-return 
financial activities that are beneficial for the economy. 
Modest recalibration may reduce these negative incentives while 
not materially changing overall large bank capital 
requirements. As mentioned previously, if confirmed, I look 
forward to reviewing the comments received on reform proposals.

Q.5. Fed Chair Powell recently announced that the Fed's Board 
of Governors would vote on whether to relieve Wells Fargo from 
the growth restriction the Fed imposed on it pursuant to its 
February 2018 consent order.

Q.5.a. What kind of changes at Wells Fargo would you need to 
see before voting to lift the growth restriction?

A.5.a. First, let me say that just based upon the news 
accounts, the activities of Wells Fargo in this domain are 
egregious and unacceptable, and I was as shocked as anyone to 
read about it in the newspaper. If I am confirmed and this 
matter came before me, I would certainly individually want to 
be absolutely convinced that appropriate steps had been taken 
and could be verified. My understanding is that the firm must 
fully comply with the terms of the Consent Order, which 
requires a number of improvements to be made to the firm's 
governance and risk management practices. If confirmed, I would 
only vote to lift the asset cap if the required improvements 
are implemented to the satisfaction of the Federal Reserve.

Q.5.b. Do you believe the Fed should place more emphasis on 
finding diverse leaders for the regional banks?

A.5.b. Like many others, I was excited to see the appointment 
of Raphael Bostic in 2017 as the first African American Reserve 
Bank president and, more recently, the appointment of Andre 
Anderson as the first African American First Vice President. 
Andre's appointment to this senor leadership role was 
particularly satisfying as I understand that he rose through 
the ranks at the Federal Reserve, beginning at the Birmingham 
Branch where he was hired to process municipal bonds.
    Despite these recent appointments, I know that the senior 
leadership of the Board, and indeed the System, agree that 
there is a lot more work to be done to move the System toward 
its objective of benefiting fully from a diverse workforce and 
leadership. I and I know my potential future colleagues on the 
Board as well, view this as critical first and foremost because 
it allows the best possible job to be done in meeting the 
responsibilities enumerated for the System in the Federal 
Reserve Act.
    If I am confirmed, I will arrive on the job eager to engage 
with my colleagues across the System on this important issue. I 
fully understand that the Federal Reserve Act assigns primary 
responsibility for selecting senior leadership at the Reserve 
Banks to their Class B and Class C directors. But the Act also 
gives the Board of Governors the responsibility to approve such 
appointments, and I intend to take that role seriously, 
including by doing everything that I can to use my position to 
help attract more diverse leaders to the System like Raphael 
and Andre.

Q.5.c. If so, how do you recommend changing the current hiring 
process so that it produces more diverse leaders?

A.5.c. Diversity is a critical aspect of all successful 
organizations. In my experience, and in agreement with Chairman 
Powell's sentiments, we make better decisions when we have a 
wide range of backgrounds and voices around the table.
    There is value in having a diverse workforce at all levels 
of an organization. I am committed to achieving further 
progress, and to better understanding the challenges to 
improving and promoting diversity of ideas and backgrounds.
    My understanding is that while different Reserve Banks 
tried different approaches, diversity has been a point of 
emphasis in all recent searches. Specific efforts of which I am 
aware include advance engagement with community groups and 
hiring of national search firms with specific expertise in 
diversity. If confirmed I look forward to encouraging the 
continuation of these efforts and I also commit to look for 
additional proven approaches to further expand the Federal 
Reserve's efforts.

Q.6. The Fed is apparently participating in an interagency 
effort to reform regulations implementing the Community 
Reinvestment Act. In April, the Treasury Department sent a memo 
to the Fed, the OCC, and the FDIC recommending several rule 
changes.

Q.6.a. Do you disagree with any of the Treasury 
recommendations?

A.6.a. I understand that Treasury's recommendations were based 
on the Department's outreach effort and the summary sent to the 
agencies includes helpful insights. If confirmed, I look 
forward to reviewing the recommendations in more detail and 
supporting efforts to ensure that the agencies work together to 
find ways to improve both effectiveness and transparency in 
Community Reinvestment Act (CRA) supervision.

Q.6.b. What are your priorities for CRA reform?

A.6.b. If confirmed, I would work to better understand the 
calls from banks, community development organizations and 
others for making CRA evaluations more consistent and 
transparent. As well as for calls to revise the CRA in a way 
that encourages more lending and investment in underserved 
areas.
                                ------                                


  RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM 
                        RICHARD CLARIDA

Community Reinvestment Act

Q.1.a. Should CRA be expanded to all nonbanks? Some assert that 
in today's financial landscape, CRA compliance should be 
expanded to all nonbanks, including credit unions, fintechs, 
mortgage companies, investment, and others.

A.1.a. The Community Reinvestment Act (CRA) has been a part of 
banking regulation for 40 years. It would be a very high 
priority of mine, if confirmed, to make sure that it is 
enforced.
    I support the CRA's goal of encouraging banks to meet their 
affirmative obligation to serve their entire community, and in 
particular, the credit needs of low- and moderate-income 
communities. Doing so benefits low- and moderate-income 
communities and helps them to thrive by providing opportunities 
for community members, for example, to buy and improve their 
homes and to start and expand small businesses.
    If confirmed, I would be open-minded to discussions for 
improving or bringing the CRA up to date, but the essential 
mission of the act needs to be respected.

Q.1.b. Do you support a full scope review for CRA exams? Do you 
think geographical assessment areas should define CRA 
accountability both where the majority of branch lending and 
the majority of nonbranch lending occurs?

A.1.b. It is important that the agencies with rule writing 
authority for CRA (the Federal Reserve, the Federal Deposit 
Insurance Corporation, and the Office of the Comptroller of the 
Currency) evaluate ways to provide a meaningful evaluation of a 
bank's CRA activities in all of the communities it serves. I 
understand that the agencies are considering ways to make the 
area in which CRA performance is evaluated more reflective of 
current banking practices, and I support that effort.

Q.1.c. If a fair lending exam detects a violation after a bank 
has been graded for its CRA exam, do you think the bank should 
receive a retroactive downgrade?

A.1.c. Discriminatory and other illegal credit practices are 
inconsistent with helping to meet community credit needs. I can 
understand why regulators would want to take into account 
banks' records in fair lending when evaluating their 
performance in the spirit of community reinvestment. What would 
seem to be important is that there is clarity in the 
application and the implications of the ratings on a bank's 
supervisory record, particularly if the timing of the 
examinations are different.

Q.2. Many Democratic, Republican and Independent current and 
former regulatory officials raising concerns about the bank 
deregulation bill range from former Fed Chair Paul Volcker, 
former Fed Governor and Deputy Treasury Secretary Sarah Bloom 
Raskin, former FDIC Chair Sheila Bair, former Counselor to the 
Treasury Secretary Antonio Weiss, and former Deputy Governor of 
the Bank of England Paul Tucker. These former banking 
regulators either State that a $250 billion bank threshold is 
too high to protect
financial stability or that we should not weaken the leverage 
rules for the largest banks, or both.
    Do you think anything in S. 2155 puts the financial system 
at risk? Do you share the concerns raised by your predecessors? 
If so, why? If not, why not?

A.2. Regulation and supervision should continue to be tailored 
to firms' size, systemic footprint, and risk profiles. I 
believe that it was prudent for the Congress to raise the $50 
billion asset threshold for larger bank holding companies in 
order to limit the scope of enhanced prudential standards. As I 
understand the Economic Growth, Regulatory Relief, and Consumer 
Protection Act, it adjusts thresholds but still allows the 
Federal Reserve to subject a firm with a higher risk profile to 
more rigorous regulation.

Q.3. There are a number of places in S. 2155 that would require 
the Federal Reserve to conduct additional cost-benefit analysis 
in order to regulate big banks.
    Mr. Clarida, you have said that the Federal Reserve 
underestimated the human costs of the financial crisis prior to 
2008? What have you learned from your previous analytic 
mistakes? How will you ensure you will not repeat those 
previous errors?

A.3. The financial crisis and its effect on the economy clearly 
harmed millions of Americans who lost their jobs, their homes, 
their savings, access to credit, etc. The crisis served as a 
cautionary tale about the critical importance of a resilient 
financial system that supports economic growth and meets the 
credit needs of businesses and consumers. I believe this 
experience underpinned much of the post-crisis regulatory 
agenda, and if I were to be confirmed, I would certainly keep 
the importance of financial stability firmly in mind as a 
policymaker.

Q.4. Chair Yellen was the first chair in Federal Reserve 
history to share data with this Committee about racial economic 
disparities during her semi-annual testimony. When she 
presented that data, she touted significant progress, and 
indeed, black unemployment fell from 11.8 percent at the 
beginning of her term to the current historically low figure of 
6.9 percent.
    What do you attribute this trend to? Do you think the 
attention that Janet Yellen paid to this issue and the policies 
of the Federal Reserve deserve credit for the progress that has 
been made?

A.4. The unemployment rate of African Americans has 
historically been more cyclical than the unemployment rate for 
the economy as a whole. It deteriorates more when the economy 
goes into a recession and improves more during expansions. 
Thus, the current historically low level of the African 
American unemployment rate is a function of the long economic 
expansion our country is currently experiencing. The efforts of 
the Federal Open Market Committee (FOMC) to achieve its dual 
mandate have likely contributed to the strong overall 
macroeconomic performance, although many other factors have 
also contributed. With respect to the attention paid by former 
Chair Janet Yellen and the FOMC in recent years to racial 
economic disparities, I would say that understanding the 
heterogeneity in how different groups in the economy fare can 
help to improve our understanding of the economy as a whole. 
That said, the tools available to monetary policymakers are not 
designed to ameliorate long-standing economic disparities.

Q.5. At that same testimony where Janet Yellen presented 
information about racial economic disparities, she said, quote 
``it is troubling that unemployment rates for these minority 
groups remain higher than for the Nation overall, and that the 
annual income of the median African American household is still 
well below the median income of other U.S. households.''
    Though African American unemployment is lower today, Chair 
Yellen's point remains true. Do you think the recent progress 
is sufficient? What more can be done to ensure that 
unemployment among African Americans is equal to white 
unemployment? In addition to increasing employment rates for 
African Americans, what can the Fed do to increase wages and 
wealth for African Americans and Latinos?

A.5. I have been heartened to see that, as you note, the steady 
macroeconomic performance of recent years has measurably 
improved employment and income among African American 
households. That said, I believe more progress could be made. 
However, the tools that the Federal Reserve has at its disposal 
are not designed for ameliorating long-standing economic 
disparities. The main way in which the Federal Reserve can 
contribute is by promoting a healthy and stable economy, which 
will provide economic opportunity for a broad range of 
households. Moreover, to the extent allowed by law, the Federal 
Reserve can also use its regulatory and supervisory role to 
ensure that African Americans have equal access to credit and 
the financial system so as to promote their economic well-
being. In addition, the Federal Reserve produces a variety of 
datasets and research that can help inform our understanding of 
the economy and policies that could be undertaken by those 
outside of the Federal Reserve System to help close the gap 
between African Americans and other U.S. households.

Q.6. Marvin Goodfriend, another nominee to the Federal Reserve 
Board of Governors has urged the Federal Reserve to incent 
spending by placing a tax on currency.\1\
---------------------------------------------------------------------------
    \1\ Goodfriend, Marvin. ``The Case for Unencumbering Interest Rate 
Policy at the Zero Bound.'' Carnegie Mellon University. September 15, 
2015. Available at: https://www.kansascityfed.org//media/files/
publicat/sympos/2016/econsymposium-goodfriend-paper.pdf.

Q.6.a. Do you support Mr. Goodfriend's proposal to tax currency 
---------------------------------------------------------------------------
kept outside of circulation?

A.6.a. I am very skeptical that a tax on currency could be 
justified as a tool of monetary policy.

Q.6.b. If Mr. Goodfriend's proposal were to be implemented, can 
you estimate what the impact would be on savers and low-income 
depositors?

A.6.b. I do not have such an estimate, as I have not undertaken 
research on this topic.

Q.7. The Consumer Financial Protection Bureau has endured new 
leadership that is hostile to its mission. A number of 
enforcement actions aimed at helping people receive redress 
from fraud or overcharges has been stopped.

Q.7.a. If the Consumer Financial Protection Bureau's leadership 
refuses to ask for adequate funding or takes steps that you 
think are harmful to people or our economy, will you let Senate 
Banking Committee Members know? If so, how? If not, why not?

A.7.a. I understand that the Federal Reserve Board (Board) 
plays a consultative role in Consumer Financial Protection 
Bureau (CFPB) rulemakings and coordinates in the examinations 
as appropriate, but does not have any oversight of the CFPB 
organizational or structural design, nor of CFPB enforcement 
priorities.
    If confirmed, I would support efforts to collaborate with 
the CFPB, while supporting the Federal Reserve's efforts to 
continue to carry out supervisory and enforcement 
responsibilities for the financial institutions, and for the 
laws and regulations under its authority to comply with all 
applicable Federal consumer protection laws and regulations.

Q.7.b. The Federal Reserve retains supervision and enforcement 
authority for financial institutions below $10 billion in 
assets. Please provide a list of public enforcement actions 
taken toward any Fed-regulated institutions in the past 3 
years. Please note any fines or penalties assessed. Please note 
if you agree or disagree with these enforcement actions.

A.7.b. Although I cannot comment on the specific circumstances 
of actions the Federal Reserve has taken in the past, I believe 
bank supervisors have a responsibility to ensure that the 
institutions subject to supervision operate safely and soundly 
and that they comply with applicable statutes and regulations, 
and furthermore, that the Federal Reserve should use its formal 
enforcement authority to achieve these objectives where 
appropriate. A list of public enforcement actions taken against 
institutions regulated by the Federal Reserve in the past 3 
years, including any civil money penalties assessed against the 
institution, is provided in Appendix A to this request.

Q.8. Some current Federal Reserve leaders support reducing 
banks' capital requirements. This concerns me as capital 
requirements have been a key tool in restoring the safety of 
the financial system since the crisis. Ensuring modest leverage 
ratios prevents banks from lending out more than they can 
afford to, and especially keeps them away from riskier assets 
like the ones that fueled the crisis.
    For this reason, Democrats and Republicans in the House and 
Senate, as well as FDIC Vice Chair (and former Kansas City Fed 
President) Thomas Hoenig all support higher capital 
requirements, not lower ones. Do you support any changes to the 
current capital requirements for financial institutions? If so, 
please describe.

A.8. The financial crisis demonstrated the importance of a 
financial system that has sufficient capital to absorb losses 
and allow banks to continue lending in an economic downturn. 
Since the crisis, the U.S. banking agencies have strengthened 
and improved the quality of the regulatory capital requirements 
for U.S. banking firms. However, I believe the banking agencies 
should continue to examine whether the requirements remain 
effective over time and adjust the framework as appropriate 
while preserving the essential gains in resiliency and 
stability of our financial system that have resulted from the 
reforms put in place since the financial crisis.

Q.9.a. In recent years, Federal Reserve policymakers have 
warned that we should raise interest rates to counter asset 
bubbles destabilizing the financial system. Board of Governor 
Nominee Marvin Goodfriend has suggested replacing liquidity 
coverage ratios and a host of other regulations with tighter 
monetary policy.\2\
---------------------------------------------------------------------------
    \2\ Senate Committee on Banking, Housing, and Urban Affairs, June 
7, 2016, Hearing. Available at: https://www.gpo.gov/fdsys/pkg/CHRG-
114shrg21603/pdf/CHRG-114shrg21603.pdf.
---------------------------------------------------------------------------
    Do you believe that the blunt tool of monetary policy can 
be a substitute for sound financial protections? What is your 
understanding of the historical evidence surrounding the 
relationship between monetary policy and asset bubbles?

A.9.a. Monetary policy, which is already tasked with the goals 
of price stability and full employment, should not be 
considered a substitute for strong financial and supervisory 
standards. Such standards are critical for ensuring stability 
of the U.S. financial system. The excessive leverage and 
maturity transformation in place in 2007 left the economy 
vulnerable to a deterioration in the housing market and an 
increase in investor concerns regarding the solvency and 
liquidity of large, interconnected financial institutions.
    Reforms since that time, enacted by Congress and 
implemented by the appropriate agencies, have raised loss-
absorbing capacity within the financial sector and reduced the 
susceptibility of the financial system to destabilizing runs.
    Of course, gaps exist in financial regulation, and some 
institutions, like hedge funds and many finance companies, 
largely fall outside of the prudential regulatory perimeter. 
Therefore, changes in interest rates could at times be 
appropriate as a supplementary tool to address threats to full 
employment and price stability emanating from widespread 
imbalances or buildups of risk in areas where more-targeted 
tools are
inadequate or nonexistent.
    Asset-price swings owe to many factors, and monetary policy 
has not generally been a prime factor in historical episodes 
involving large increases in asset prices. Run-ups in asset 
prices that are not supported by economic fundamentals usually 
involve an increased tolerance for risk or a decreased 
perception of risk.

Q.9.b. Besides monetary policy, what other tools are available 
to temper asset bubbles?

A.9.b. It is always difficult to judge whether the price of an 
asset has reached an unsustainable level, particularly in real 
time. That said, it is important for the appropriate 
authorities, including the Federal Reserve, to monitor asset 
price developments and to consider whether, for example, 
unusually rapid increases in asset prices are leading to 
vulnerabilities that could jeopardize the efficient functioning 
of the financial system, price stability, or full employment.
    The difficulties associated with detecting asset bubbles as 
they emerge highlight the need for strong and appropriately 
tailored regulatory and supervisory standards at all times. 
Negative shocks, including asset price declines, the sudden 
failure of a major financial institution and so forth are 
always possible. The core capital and liquidity regulations and 
supervisory policies adopted by the Federal Reserve, including 
stricter standards for the most systemic firms, are, in my 
view, consistent with a view that the system should be 
resilient to such shocks.

Q.10. In the years since the financial meltdown, the Federal 
Reserve has played a key role in putting our economy back on 
stable footing and setting the conditions for more robust 
growth. Still, there have been bills introduced that would 
eliminate the Fed's full employment mandate on the basis that, 
according to the bill's findings ``at best, the Federal Reserve 
may temporarily increase the level of employment through 
monetary policy.''
    Can you elaborate on how the Fed influences employment in 
the short-run, and discuss whether failure to use monetary 
policy effectively in the face of severe downturns could do 
permanent damage to the level of unemployment in the economy?

A.10. In the short run, the Federal Reserve influences 
employment by adjusting its target range for the Federal funds 
rate and by influencing the expected future path of short-term 
interest rates through its forward guidance. These monetary 
policy actions affect the interest rates that many households 
confront when deciding whether to borrow and spend, and that 
businesses face when making their investment plans. Additional 
spending by households and businesses will, in turn, cause 
businesses to hire more workers to meet the higher demand for 
their products and services. In this way, monetary policy can 
be used to combat recessions and reduce the associated rise in 
unemployment.

Q.11. Critics of quantitative easing have argued that it is 
incompatible with the Fed's price stability mandate; however in 
discussing quantitative easing the Fed has consistently noted 
that the program is designed to promote a stronger pace of 
economic growth and to ensure that inflation, over time, is at 
levels consistent with the Fed's mandate.

Q.11.a. Can you comment on how the Fed's policies in recent 
years have actually supported the Fed's price stability 
mandate?

A.11.a. Faced with the most severe financial crisis since the 
Great Depression, the FOMC cut short-term interest rates to 
zero by the end of 2008. In order to address the economic 
downturn and stem disinflationary pressures, the Federal 
Reserve also turned to nontraditional tools such as asset 
purchases and forward guidance, as means of providing the 
additional accommodation. These policies put downward pressure 
on longer-term interest rates and helped to make financial 
conditions more accommodative, encouraging and supporting the 
economic recovery. By providing a cushion for aggregate demand 
during the recession and supporting spending during the 
recovery, the Federal Reserve's monetary policy measures helped 
to keep inflation close to 2 percent. In particular, in part 
because aggregate demand was supported by monetary policy, the 
U.S. economy avoided the severe downward pressure on the price 
level that occurred during the Great Depression, which in turn 
prevented inflation expectations from falling sharply below 2 
percent.

Q.11.b. What does the latest research tell us about the 
effectiveness of the Fed's large scale asset purchases?

A.11.b. Estimates of the effects of large-scale asset purchases 
vary across studies, but most suggest that asset purchases put 
downward pressure on term premiums and resulted in lower 
longer-term interest rates than would otherwise have been the 
case. Lower long-term interest rates, in turn, helped to 
support asset prices more broadly and to bolster spending on 
goods and services by households and businesses. That said, 
there are costs as well as benefits to large-scale asset 
purchases and certainly today I support the Federal Reserve's 
program to shrink its balance sheet.

Q.11.c. Is there any evidence that the Fed's asset-purchase 
program, which sought to support the economy by lowering long-
term interest rates, has been a drag on U.S. productivity as 
some Republicans have suggested? Is there any evidence that the 
program has created a ``false economy'' as Trump has asserted?

A.11.c. I am not aware of research suggesting that the Federal 
Reserve's policies have contributed to the sluggish pace of 
productivity growth observed over recent years. Studies 
focusing on the slowdown in U.S. productivity growth point to 
various developments such as weak capital spending in the wake 
of the financial crisis, a slower pace of technological 
advance, a decline business dynamism, and a deterioration in 
workforce skills as factors contributing to recent productivity 
trends.

Q.11.d. How would the economy have likely fared in terms of 
unemployment, GDP, wage growth, etc., had the Fed chosen not to 
pursue its asset purchase program?

A.11.d. The Federal Reserve conducts monetary policy to promote 
maximum employment and stable prices. Various research studies 
by academic and central bank economists suggest that the 
Federal Reserve's asset purchase programs helped to make 
financial conditions more accommodative, support economic 
recovery, strengthen labor market conditions, and foster price 
stability.\3\
---------------------------------------------------------------------------
    \3\ See, for example, Eric M. Engen, Thomas Laubach, and David 
Reifschneider (2015), ``The Macroeconomic Effects of the Federal 
Reserve's Unconventional Monetary Policies,'' Finance and Economics 
Discussion Series 2015-005, Washington: Board of Governors of the 
Federal Reserve System, February, http://dx.doi.org/10.17016/
FEDS.2015.005.

Q.11.e. Is there any evidence that the Fed's stimulus program 
has paved the way for the next global meltdown, as Trump 
---------------------------------------------------------------------------
claimed?

A.11.e. While there are many sources of risk and uncertainty in 
the global economy, the Federal Reserve's conduct of monetary 
policy has contributed to an improved global economic outlook 
by supporting the U.S. economic expansion and maintaining low 
and stable inflation.

Q.11.f. How does the Fed's balance sheet as a percentage of GDP 
compare with the balance sheets of the next largest economies? 
Do these countries have a dual mandate similar to the Fed?

A.11.f. The size of the Federal Reserve's balance sheet 
relative to nominal GDP currently stands at about 23 percent. 
Last October, the FOMC initiated its plan to normalize the size 
of the Federal Reserve's balance sheet. Under that plan, the 
size of the Federal Reserve's balance sheet will decline 
gradually over coming years. With nominal GDP expected to rise 
over that time, the size of the Federal Reserve's balance sheet 
relative to nominal GDP will likely decline appreciably.
    The size of the Federal Reserve's balance sheet as a 
percent of GDP is smaller than those of many other major 
foreign central banks. The size of the central bank balance 
sheets relative to nominal GDP for the United Kingdom, the euro 
area, Japan, and Switzerland are, very roughly, about 28, 40, 
100, and 120 percent, respectively.
    All of these central banks employed large-scale asset 
purchase programs to address the implications of the financial 
crisis in their countries. All of these central banks operate 
with a single mandate to pursue price stability. However, in 
many cases, this mandate is treated as medium-term objective, 
and other goals, including output and employment stabilization 
and financial stability, are cited to justify deviations from 
price stability in the short run.

Q.12. It is my understanding that major central banks around 
the world maintain and have drawn on their authority to 
purchase a wide range of assets including corporate bonds, 
commercial paper, real estate investment trusts, and equities 
among other assets.

Q.12.a. Given the broad authorities available to other central 
banks, rather than shrink the Fed's tool kit, do you think 
Congress should consider expanding it?

A.12.a. As I indicated above, I believe the FOMC's existing 
monetary policy toolkit--notably including forward guidance and 
balance sheet policies--has served the Nation well and has 
supported the U.S. economy in the wake of the financial crisis. 
Currently, I do not see compelling reasons why the toolkit 
needs to be expanded, but I do believe that the experience of 
the past decade suggests the value of preserving the existing 
toolkit.

Q.12.b. For example, with an expanded authority, could the Fed 
play a useful role in supporting municipal finance, student 
loan financing or other types of consumer credit during periods 
where each of these sectors experienced heightened distress? 
Would you support or oppose such expansion of the Fed's 
authority?

A.12.b. The Federal Reserve conducts monetary policy to promote 
its statutory goals of maximum employment and stable prices. 
The Congress has granted the Federal Reserve authority to 
purchase and sell certain types of assets in pursuit of these 
goals. In general, the range of assets the Federal Reserve is 
authorized to purchase is limited to very high quality assets 
with minimal credit risk such as Treasury and agency 
securities.
    The Federal Reserve's purchases of Treasury and agency 
securities during the crisis were effective in making financial 
conditions more accommodative and helping to support economic 
recovery and stem disinflationary pressures.
    Limiting the Federal Reserve's authorities to a narrow 
range of very high-quality assets helps to insulate the Federal 
Reserve from political pressures that could undercut the 
effective conduct of monetary policy and result in poor 
macroeconomic outcomes. That theme was highlighted in the joint 
statement issued by the Treasury and the Federal Reserve in 
2009 on ``The Federal Reserve's Role in Preserving Financial 
and Monetary Stability.''
    That document noted that, ``Actions taken by the Federal 
Reserve should also aim to improve financial or credit 
conditions broadly, not to allocate credit to narrowly defined 
sectors or classes of borrowers. Government decisions to 
influence the allocation of credit are the province of the 
fiscal authorities.''
    Other central banks have the authority to purchase a broad 
range of assets, and have utilized these authorities in 
responding to the financial crisis. The Congress could consider 
expanding the Federal Reserve's asset purchase authorities if 
it wished. In doing so, the Congress would need to weigh the 
possible benefits of expanded purchase authorities for the 
Federal Reserve as a tool for addressing economic weakness 
versus the possible costs associated with exposing the Federal 
Reserve to heightened political pressures and involving the 
Federal Reserve in decisions involving significant credit 
allocation.
    My own view is that the Federal Reserve's current 
authorities for purchasing assets have served the country well, 
and I do not see a compelling reason to expand those 
authorities.

Q.12.c. As the Fed begins to shrink its balance sheet, what are 
some of the negative impacts that Senate Banking Committee 
Members should monitor? What concerns--if any--do you have 
about shrinking the balance sheet? What will you do to monitor 
the process of maturing securities to avoid a negative impact 
on the economy?

A.12.c. I believe that the FOMC's gradual approach regarding 
the removal of policy accommodation has supported the economy's 
continued expansion, the ongoing strengthening of the labor 
market, and a likely return to 2 percent inflation on a 
sustained basis.
    As part of this gradual approach, the FOMC initiated its 
balance sheet program last October. This program will reduce 
the Federal Reserve's securities holdings in a gradual and 
predictable manner. The program has gone smoothly so far and 
has not given rise to any unduly large reaction of financial 
markets.
    The FOMC has indicated that, consistent with the data 
dependence of monetary policy, it could change the details of 
its plans in light of economic and financial developments. If 
confirmed, I will be monitoring developments very carefully 
along with Board and FOMC colleagues for any signs that the 
normalization of the Federal Reserve's balance sheet is 
contributing to strains in the financial system.
    In addition, if confirmed, I will advocate continued clear 
communication by the FOMC about its longer-term plans regarding 
the Federal Reserve's balance sheet.
    With regard to the liabilities side of its balance sheet, 
the FOMC has stated that it anticipates a reduction in the 
quantity of reserve balances, over time, to a level appreciably 
below that seen in recent years but larger than that prevailing 
before the financial crisis. Federal Reserve officials have 
indicated the aggregate level of Federal Reserve liabilities 
will reflect the public's demand for currency, the banking 
system's demand for reserve balances, and the Committee's 
decisions about how to implement monetary policy most 
efficiently and effectively in the future. These statements by 
the FOMC and the Federal Reserve about the ultimate 
policymaking framework strike me as appropriate and correct.
    I support the FOMC's position that, in the longer-run, it 
intends to hold no more securities than it will need to 
implement monetary policy efficiently and effectively. I 
believe that the Committee's expectation that the Federal 
Reserve's balance sheet will consist
primarily of Treasury securities is appropriate and is 
consistent with effective and efficient monetary policy 
implementation.
                                ------                                


 RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN FROM MICHELLE 
                           W. BOWMAN

Q.1. What is your view on what caused the 2008 financial 
crisis? What responsibility does the Federal Reserve share in 
terms of failures in regulatory and supervisory policy?

A.1. A buildup of leverage and maturity transformation in the 
years leading up to the crisis left the U.S. and global economy 
vulnerable to shocks. When the housing market turned down, the 
effects of that shock were amplified as leverage was wound down 
and funding patterns shifted.The result was what we all 
painfully experienced as the financial crisis.
    Since then, post-crisis reforms have been designed to 
reduce the likelihood and severity of future financial crises. 
These efforts have been aimed at shoring up issues in the 
private sector, in regulation, and in the mandates and tools of 
the various regulatory agencies, including the Federal Reserve.
    The Federal Reserve's response to the crisis included 
boosting the resilience of the financial system through 
stronger capital, liquidity, and other prudential requirements 
for large banking firms. Capital is critical to ensuring 
resiliency, as are the availability of high-quality liquid 
assets, appropriate management of risks, and the presence of a 
plan for resolution in case it is needed. Progress has been 
made in all of these areas, and newer tools like the stress 
testing regime and the countercyclical capital buffer should 
also contribute to the resiliency of the financial system going 
forward. I believe these actions have, broadly speaking, 
increased the resilience of the financial system.

Q.2. How did large bank and investment bank leverage contribute 
to the 2008 financial crisis?

A.2. The increase in leverage, along with the rise of other 
vulnerabilities, contributed to the negative effects that were 
felt when the housing market turned down sharply in the United 
States. As the crisis unfolded in the Spring of 2008, markets 
were focused on the firms that had the highest leverage ratios, 
and it was one of the factors that led to investors putting 
more pressure on some firms than others.
    It would be a mistake, however, to focus only on leverage. 
Maturity transformation, for example, also played a critical 
role, as did other vulnerabilities. Many firms relied on short-
term wholesale funding that they then used to purchase longer-
term assets. When that funding dried up, firms had difficulty 
finding new financing for those assets. As a result, assets 
were sold, and the effects were felt throughout the financial 
system and in the real economy.

Q.3. How would you characterize current risk-weighted and 
leverage capital levels for the largest U.S. banks--too low, 
too high, or the correct amount?

A.3. Maintaining the safety and soundness of the largest U.S. 
banks is fundamental to maintaining the stability of the U.S. 
financial system and the broader economy. To be safe and sound
financial institutions, these firms must be well-capitalized. 
The U.S. banking agencies have substantially strengthened 
regulatory capital requirements for large banking firms, 
improving the quality and increasing the amount of capital in 
the banking system. Indeed, large U.S. banking firms have 
roughly doubled their capital positions from before the crisis 
to today, making them significantly more resilient, as well as 
able to support lending and financial intermediation in times 
of financial stress. If confirmed, I look forward to looking 
more closely at this question and consulting with my 
colleagues.

Q.4. As you know, the Federal Reserve recently proposed 
reducing leverage requirements for the eight biggest U.S. 
global systemically important banks (G-SIBs).\1\ In discussing 
the impact of its proposal, the Federal Reserve noted that it 
would reduce the amount of tier 1 capital required across the 
lead insured depository institution (IDI) subsidiaries of the 
G-SIBs by approximately $121 billion.
---------------------------------------------------------------------------
    \1\ https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20180411a.htm.

Q.4.a. Could a reduction in IDI capital pose any risks to 
---------------------------------------------------------------------------
depositors, taxpayers, or financial stability? Why or why not?

A.4.a. While capital is good for absorbing losses, the manner 
in which capital requirements are determined can have important 
consequences. If a leverage ratio becomes a binding constraint, 
it can create incentives for banking organizations to reduce 
their participation in lower-risk, lower return business 
activity, such as repo financing, central clearing services for 
market participants, and taking custody deposits, 
notwithstanding client demand for those services. Similarly, it 
can create incentives for firms to increase their participation 
in higher-risk, higher-return activities.

Q.4.b. What is your view on raising the enhanced prudential 
standards threshold pursuant to Dodd-Frank section 165 from $50 
billion to $250 billion in total consolidated assets, as 
contemplated in S. 2155?

A.4.b. I agree that regulation and supervision should be 
tailored in a manner that allows the financial system to more 
efficiently support the real economy. The Federal Reserve has 
been working for many years to tailor regulation and 
supervision to the size, systemic footprint, and risk profile 
of individual institutions. Recognizing the levels and types of 
risk of the different institutions in the financial system 
improves the quality and efficiency of regulation, but I 
believe more tailoring can and should be done.
    It is reasonable for Congress to raise the $50 billion 
asset threshold to limit the scope of the enhanced prudential 
standards to larger bank holding companies. My understanding is 
that the Economic Growth, Regulatory Relief, and Consumer 
Protection Act (Act) preserves the ability of the Federal 
Reserve to reach below the new $250 billion line, if warranted, 
to subject a firm to more stringent regulation. In general, the 
Act preserves the Federal Reserve's ability to adequately 
monitor and regulate systemic risk of banking firms as well as 
its ability to regulate banking firms for safety and soundness 
objectives.

Q.4.c. Federal Reserve Vice Chair Quarles has said that the 
Volcker Rule ``is an example of a complex regulation that is 
not working well.''\2\ Do you agree or disagree? Why?
---------------------------------------------------------------------------
    \2\ https://www.reuters.com/article/us-usa-fed-quarles/u-s-
considering-material-changes-to-volcker-rule-feds-quarlesidUSKBN1GH2U8.

A.4.c. While Congress recently enacted legislation excluding 
smaller firms from the Volcker Rule, there is still room for 
the Federal Reserve and the other responsible agencies to 
tailor and reduce regulatory requirements to more efficiently 
implement the policy objectives of the statute in a manner 
consistent with the safety and soundness of the banking system. 
It is worthwhile for the agencies to consider further tailoring 
the implementing rule as it applies to firms that do not engage 
in a large amount of trading activity, and to simplify the 
requirements for satisfying exemptions for permitted activities 
such as hedging, market making, and underwriting. These changes 
would provide clarity to banking organizations and help them 
more efficiently provide market liquidity and facilitate 
---------------------------------------------------------------------------
capital formation.

Q.4.d. What is your view of the Community Reinvestment Act? 
Does it need to be altered or modernized by the Federal 
Reserve? If so, what changes do you support?

A.4.d. The Community Reinvestment Act's (CRA) goal of 
encouraging banks to meet their obligation to serve their 
entire community, including in low- and moderate-income 
communities is critically important. All communities, 
particularly low- and moderate-income communities, thrive when 
they have access to credit on fair terms that increase 
opportunities for investing in homes, starting businesses, and 
education.
    I believe that the current CRA supervisory and regulatory 
framework could be improved based on feedback from industry and
community stakeholders, and that it is time to review the CRA 
regulations to ensure they are effective in achieving the 
important objectives set by Congress. In particular, the 
regulation's definition of ``assessment area,'' should be 
revised to reflect significant changes in the banking landscape 
since CRA was enacted and the current CRA regulations were 
adopted.
    Technology and other industry advancements have enabled 
banks to serve consumers in areas far from their physical 
branches. As such, it is sensible for the agencies to consider 
expanding the assessment area definition to reflect the local 
communities that banks serve through delivery systems other 
than branches.
    I believe that additional input and analysis on this matter 
will be needed to determine how best to define such assessment 
areas and how to evaluate performance in those areas.

Q.5. On May 23, the FDIC released their Quarterly Banking 
Profile. It shows that that bank profits increased 28 percent 
over the last year, and even more for community banks.

Q.5.a. Do you think it is sound policy to reduce capital 
requirements for banks that have profit levels this high?

A.5.a. We need a resilient, well-capitalized financial system 
that is strong enough to withstand even severe shocks and 
support
economic growth by lending through the economic cycle. To that 
end, the U.S. banking agencies have substantially strengthened 
regulatory capital requirements for U.S. banking firms, 
improving the quality and increasing the amount of capital in 
the banking system. At the same time, it is important to 
monitor the capital rules on an ongoing basis, to determine 
whether the framework is effectively measuring and addressing 
risk and working as intended, and to adjust the framework as 
needed.

Q.5.b. If confirmed, you will be a member of the Federal Open 
Market Committee. What experience will you bring to this role? 
Are there any changes in how monetary policy is currently 
conducted that you will advocate for?

A.5.b. The Federal Reserve's mandate to promote maximum 
employment and stable prices is critically important to our 
economy, to businesses, families and communities, and if I am 
confirmed, I will be very focused on how we can do the best job 
possible to fulfill that mandate.
    My views on employment and the labor market have certainly 
been shaped by the experience of the last 10 to 15 years. We've 
seen the Nation go from high levels of employment and solid 
wage growth into a very deep recession. In the crisis, it was 
clear that many people who were able to work lost their jobs 
and could not find work, and businesses that had the capacity 
to produce and grow could not find a market for their goods and 
services. And when you have a huge gap between what the economy 
can do and what it is currently doing, I believe that is where 
policymakers like the Federal Reserve can take appropriate 
action, sometimes quite strong action, and help the economy get 
back to a more normal level of employment and output.
    Of course, as I have seen in my career as a community 
banker and as a regulator, the labor market, in a large, 
diverse economy like ours, is quite complicated and there are 
many factors to consider in measuring its health. For example, 
who is available to work and what can they do? I have worked 
with businesses that have trouble hiring, because there may be 
a shortage of highly skilled workers. In some communities in my 
home State, there are demographic changes--an aging workforce, 
for example--that affects how much businesses can hire. My 
family's bank lends to many consumers, and often we have seen 
that a strong job market will bring people back into the 
workforce and that is a good thing. And, of course, when there 
is strong demand for workers and the economy is growing, we see 
wages begin to grow. A strong economy supports strong wage 
growth.
    Given the complexity involved in looking at the labor 
market, common sense tells me to be careful in assuming there 
is a precisely right level of employment that we can be very 
confident in saying is the right level for all economic 
conditions. In general, my approach as a community banker and 
regulator has been to take a look at all the best evidence and 
analysis you can find, listen hard to many different views, and 
then make your best judgment. And that is how I will approach 
evaluating the health of the labor market, should I be 
confirmed.
    Stable prices and the level of overall inflation is a 
critical part of the dual mandate and, should I be confirmed, I 
will be focused on achieving this important goal. When 
inflation gets too high or too low, or is too volatile, that 
hurts everyone--consumers, businesses, and communities--because 
making economic decisions and planning for the future becomes 
more and more difficult.
    I think one of the most important things the Federal 
Reserve can do is make sure that the expectations that people 
have for where inflation is heading remain stable. As a banker, 
I never wanted people to be put in a position where they were 
coming into my bank and showing me a business plan where they 
were just unable to predict what price they would be paying for 
a very broad range of important goods and services a year or 
two from now. Of course, some prices will always be going up 
while others will be going down. That is just how markets work. 
What is important is that the general level of prices remains 
fairly predictable. When people borrow money or make plans, it 
is important that they feel confident that their future incomes 
will support that debt and those plans. I want people focusing 
on making good business decisions, not spending their time 
guessing about inflation. So keeping inflation and inflation 
expectations stable is very important to me.
    I also think we have learned that inflation can be too low. 
If demand is weak for a prolonged period of time, businesses 
cannot sell goods, they lower prices further, lay people off, 
keep wages down. And we have seen that is a tough cycle to 
break free from. For the Federal Reserve, when you get interest 
rates very low, it is hard to create additional incentives for 
borrowing and investing. It is tough to go below zero. As a 
policymaker, I would want to make sure we keep inflation at an 
appropriate level, so we reduce our risk of getting back to the 
so called Zero Lower Bound.
    Finally, let me just say that there is a great deal of 
complexity that goes into understanding why the general level 
of prices change. For example, Kansas produces a lot of oil and 
natural gas, so I am well aware of how swings in the supply and 
demand for commodities can shape prices. But it is not always 
clear how businesses and consumers set their expectations for 
inflation. Productivity and technological change affect prices 
too. This is an important area for more research, and I look 
forward to learning more about these topics, if I am confirmed.

Q.5.c. Since the crisis, do you think the Federal Open Market 
Committee has been on the right course by gradually increasing 
interest rates?

A.5.c. I believe the Federal Open Market Committee's (FOMC) 
monetary policy decisions should be guided strictly by its 
responsibilities under current law to promote maximum 
employment and price stability. The FOMC has been raising its 
target for the Federal funds rate since December 2015 and 
reducing the size of its holdings of Treasury securities and 
mortgage-backed securities since October of 2017. The FOMC's 
gradual approach to reducing monetary accommodation in this way 
has been instrumental in supporting the economic recovery and a 
return of inflation to the FOMC's 2 percent objective. The FOMC 
has also stressed and I also believe that it is appropriate 
that monetary policy is not on a preset course. Instead, it is 
data dependent and chosen to best achieve the objectives set 
forth by Congress. If confirmed, I would look forward to 
working with other members of the FOMC to further promote the 
attainment of the FOMC's statutory goals.

Q.6. As you know, the Federal Reserve currently uses a variety 
of monetary policy rules, including the Taylor rule, in its 
analysis and monetary policy decisionmaking, but does not rely 
solely on rules to determine interest rate adjustments.

Q.6.a. Do you agree with the Federal Reserve's current 
approach, or will you advocate that the Fed use a single rule?

A.6.a. The economy is very complex, and monetary policy is 
determined in an environment in which a multitude of indicators 
and conditions must be taken into account. Simple rules, by 
definition, cannot accommodate such a wide variety of 
considerations. For example, simple rules generally do not 
accommodate variation in the expectations of investors and 
consumers, risks to the economic outlook, or deep economic 
conditions such as productivity growth that may be time 
varying. All that said, simple monetary policy rules do have 
some appeal because they capture some key elements of 
appropriate policy, and I believe that it is useful for 
policymakers to routinely consult the recommendations from a 
variety of benchmark rules. I also believe it can be useful for 
the FOMC to explain to Congress and the public the differences 
between its policies and those prescribed by simple rules, and 
the reasons for those differences.

Q.6.b. While the unemployment rate continues to fall, the labor 
force participation rate remains at about its lowest level in 
40 years. What do you think is contributing to this?

A.6.b. The labor market remains strong. Job gains have been 
solid, on average, in recent months, and the unemployment rate 
has fallen to 3.9 percent, the lowest level in many years. As 
you note, however, the labor force participation rate is still 
quite low by historical standards. To some extent, the downward 
trend in the overall participation rate reflects demographic 
forces, most prominently increased retirements among members of 
the large baby boom generation. However, the labor force 
participation rate for prime-age workers is also below its 
level prior to the financial crisis, although it has risen more 
recently in response to the tight labor market. Longer-term 
trends in globalization and automation have likely contributed 
to the decline in prime-age participation over time, but my 
hope and expectation is that a strong labor market will 
continue to pull many of these workers back into the labor 
force.

Q.6.c. Do think the opioid addiction epidemic is related to the 
decline in labor force participation among prime-age workers?

A.6.c. The opioid epidemic is a very serious crisis that has 
had severe consequences for the affected individuals and their 
families. In addition, the opioid epidemic undoubtedly has had 
adverse effects on the economy. For example, I think the 
evidence shows that opioid addiction adversely affects an 
individual's ability to participate effectively in the labor 
market and thus has contributed to the decline in labor force 
participation among prime-age workers. Of course, causality may 
go the other way as well, with a lack of job opportunities, 
particularly in rural areas, contributing to both withdrawal 
from the labor force and increased opioid abuse.

Q.6.d. Over the past 40 years the link between productivity and 
wage increases has eroded. More and more, productivity gains 
aren't shared with workers. Why do you think wage growth has 
not kept pace with productivity growth? Is there anything the 
Fed can do to increase wages? Can the Federal Reserve, through 
monetary policy or regulatory policy, do more for individuals 
and communities that have not experienced the benefits from the 
economic recovery?

A.6.d. Wage growth is a very important issue, and while it is 
encouraging that wages seem to be rising a little faster than a 
few years ago, I would like to see stronger wage growth. In 
addition, I think that, as the economy improves, it is 
important that a wide range of individuals and communities 
benefit from a strong labor market. However, monetary policy is 
a blunt tool that is not well equipped to affect specific 
sectors of the economy. Rather, the Federal Reserve can best 
help individuals and communities by focusing on achieving its 
dual mandate of full employment and stable inflation.

Q.6.e. If confirmed, how will you advocate for increased 
diversity in the Federal Reserve System?

A.6.e. There is great value in having a diverse workforce at 
all levels of an organization. Diversity, including diversity 
of thought, perspective, and experience, is an important 
attribute of all successful organizations. Better decisions are 
made when we have a wide range of backgrounds and voices to 
draw from.
    I am committed to achieving further progress, and to better 
understanding the challenges to improving and promoting 
diversity of ideas and backgrounds at the Federal Reserve Board 
(Board) and the Federal Reserve Banks (Reserve Banks), 
including in the senior leadership ranks. My position will 
provide opportunities to meet and speak with individuals and 
groups throughout the System, the financial community, and 
regional and community organizations.
    Those opportunities will enable me to express strong 
support for the System's initiatives to encourage individuals 
with diverse cultural, academic, and professional backgrounds 
to consider positions with the Federal Reserve. I will also 
welcome the opportunity to work with Board and System groups to 
enhance programs and initiatives to identify and recruit 
individuals with diverse backgrounds and perspectives for 
careers at the Board and the Reserve Banks, as well as to 
create an environment where all will be successful.

Q.6.f. Federal Reserve Board of Governors nominee Marvin 
Goodfriend, has recommended that the ``central bank put in 
place systems to raise the cost of storing money by imposing a 
carry tax on its monetary liabilities.'' Do you believe that 
there should be a currency tax, or that there are financial 
conditions that would call for a currency tax?

A.6.f. The United States dollar enjoys a well-earned status as 
a store of value and a reliable means of exchange both 
domestically and across the world. Any new policy that could 
undermine the confidence that is placed in the dollar should be 
thought through very carefully and undertaken only after a 
great deal of study. Fortunately, the United States economy is 
strong and inflation is close to 2 percent, so there is no need 
to consider such a policy. Moreover, the Federal Reserve's main 
monetary policy tools have helped to meet the goals set forth 
for the Federal Reserve by statute.

Q.6.g. Please provide a complete list of The Bowman Group's 
clients.

A.6.g. The Bowman Group provided consulting services to the 
following entities in the United Kingdom and European Union 
between 2004 and 2009: UK Industry and Parliament Trust; Titan 
Corporation, UK LTD; Conservative Shadow Homeland Security 
Spokesman Patrick Mercer, MP (Homeland Security Advisory 
Panel); DKE Aerospace; Conservative Friends of America; and 
Localis.

Q.6.h. Please describe in detail greater than you provided in 
your Office of Government Ethics letter how you will comply 
with the Federal Reserve Act requirement that you cannot hold 
stock in any bank, banking institution, or trust company?

A.6.h. I will divest shares of bank stock currently held in my 
name in accordance with the ethics agreement following 
confirmation. In addition, following confirmation, in 
accordance with the ethics agreement, the two trusts containing 
bank stock will be rewritten with advice of counsel according 
to a provision in Missouri trust law that provides for 
``decanting''--or rewriting--the trusts to exclude me and my 
heirs as beneficiaries of the trusts. While serving as a member 
of the Board, I will not acquire any stock in a bank, banking 
institution, or trust company.

Q.6.i. If confirmed, do you intend to serve for the entirety of 
your term?

A.6.i. Should I be confirmed, I intend to serve the entirety of 
the term.

Q.6.j. After your term as a member of the Federal Reserve Board 
of Governors, do you have any plans to resume employment or 
serve on the Board of your family's bank?

A.6.j. At this time, I do not intend to, nor have I been asked 
to, return to employment or board service at my family's bank.

Q.7. This is the first time this Committee has considered a
nominee to fill the position on the Fed Board ``with experience 
working in or supervising community banks having less than 
$10,000,000,000 in total assets.''

Q.7.a. If confirmed, do you believe it is your role to advocate 
for the community banking industry?

A.7.a. The Federal Reserve seeks to foster a strong and stable 
financial system that serves banking needs in a fair and 
transparent manner. I believe that this objective can best be 
achieved when we have a diversified and competitive banking 
industry that includes a healthy community bank segment. My 
experience as a banker and State supervisor has shown me the 
vital role community banks play in providing credit and 
services to small businesses and communities both large and 
small. Consequently, I believe it is
important to support the community bank model and avoid 
imposing regulatory burdens that are unnecessary to ensure 
their safe, sound, and fair operation.

Q.7.b. If confirmed, what would you like to achieve for 
community banks?

A.7.b. I am strongly committed to working to tailor the 
regulation and supervision of community banks in a manner that 
ensures their safety and soundness but is appropriate to their 
size and simplicity. I am particularly interested in working on 
simplifying capital rules for these banks and reducing the 
burden of their regulatory reporting requirements. As a 
community banker and State bank supervisor, I have seen small 
banks struggle with the burdens imposed by regulation. If 
confirmed, I want to ensure that the Federal Reserve Board 
fully considers the perspectives and challenges faced by these 
banks when it formulates and implements its regulations.

Q.7.c. Can you clarify your answer to Senator Scott on whether 
or not you believe the stock market is a pillar of monetary 
policy?

A.7.c. Current law requires the Federal Reserve's monetary 
policy decisions to be guided by its obligation to promote 
maximum employment and price stability. Many factors must be 
considered as inputs into monetary policy decisionmaking, and 
the financial conditions facing business and households, 
including stock market performance, are often relevant aspects 
of the outlook for macroeconomic performance. However, the FOMC 
should not take into account stock market performance for any 
purpose outside of what is necessary to achieve its goals as 
established by Congress. Fortunately, the United States economy 
is strong and inflation is close to 2 percent, and financial 
market conditions currently appear sufficiently accommodative 
to further support macroeconomic performance.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED FROM MICHELLE W. 
                             BOWMAN

Q.1. The Federal Reserve is one of the agencies authorized to 
enforce the Military Lending Act (MLA), which is a bipartisan 
law enacted in 2006 that sets a hard cap of 36 percent interest 
for most loans to servicemembers and their families. On July 
22, 2015, the Department of Defense finalized MLA rules that 
closed prior loopholes that allowed unscrupulous lenders to 
prey upon service-
members and their families.

Q.1.a. Do you support these stronger MLA rules? If confirmed, 
will you ensure that the MLA is vigorously enforced?

A.1.a. The Military Lending Act (MLA) provides special consumer 
protections for service members and their dependents. In 
enacting the MLA, the Congress directed the Department of 
Defense to issue implementing regulations after consulting with 
the Federal Reserve and other agencies. I understand that 
Federal Reserve staff has worked with Department of Defense 
staff to carry out that mandate and, if confirmed, I will 
support that effort as well as the Federal Reserve's full 
enforcement of the MLA at the institutions it supervises.

Q.1.b. If changes are made to the Community Reinvestment Act 
that lead to financial institutions, including those that have 
an online presence, to take deposits from communities but 
actually make less of an effort to reinvest in these same 
communities, would you consider that to be a good or bad 
outcome?

A.1.b. The Community Reinvestment Act (CRA) was enacted to 
ensure that banks help meet the credit needs of the communities 
where they are chartered to do business.
    As a community banker and bank commissioner, it is my 
interest to see credit flowing to consumers and businesses in 
all communities consistent with safe and sound lending--
including in low- and moderate-income areas--to further 
economic development and financial inclusion.
    I believe that any revisions to CRA that expand the area 
within which a bank's CRA performance is evaluated should 
ensure that the new areas are consistent with the original 
intent of the law, and that changes would include clear 
guidance to banks so that they are able to comply.
                                ------                                


    RESPONSES TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM 
                       MICHELLE W. BOWMAN

Q.1. Will you commit that if confirmed, you will ignore any 
political pressure or interference, whether it be direct or 
indirect from the President or any other member of the 
Administration?

A.1. Yes.

Q.2. Do you agree that the achievement of full employment 
should be associated with strong and broad-based wage growth 
for average workers, not just senior executives and managers?

A.2. The labor market remains strong. Job gains have been 
solid, on average, in recent months, and the unemployment rate 
has fallen to 3.9 percent, the lowest level in many years. 
However, wage growth is also a very important issue, and while 
it is encouraging that wages seem to be rising a little faster 
than a few years ago, I would like to see stronger wage growth. 
In addition, I think that, as the economy improves, it is 
important that a wide range of individuals and communities 
benefit from a strong labor market. The Federal Reserve can 
best help a broad range of workers by focusing on achieving its 
dual mandate of full employment and stable inflation.

Q.3. Why isn't this tight labor market forcing employers to 
offer higher and more competitive wages?

A.3. Even though wage growth has been slow relative to previous 
decades, most measures of aggregate wages have increased 
gradually over the past few years as the labor market has 
tightened. Moreover, we have seen some indications that workers 
are benefiting from a tighter labor market in ways other than 
higher wages. Firms appear to be searching out workers whom 
they might have previously passed over and seem to be more 
willing to offer training to workers whose skills need to be 
improved. I expect these trends to continue and expect workers 
to reap greater benefits from the strong labor market.

Q.4. To what extent has workers' decreased leverage to 
negotiate with their employers impacted their ability to demand 
higher wages?

A.4. Over much of the recovery, many workers had very little 
negotiating leverage with employers because labor was abundant, 
but jobs were not. This has changed in recent years, and there 
are signs that negotiating leverage for at least some workers 
has increased. Some firms are exerting considerably greater 
effort to find and sign workers, which gives sought-after 
employees some negotiating leverage. Looking back over a longer 
time period, it could be that changes in technology, or other 
factors, may have decreased worker negotiating leverage by, for 
example, increasing employers' ability to monitor workers, 
automate tasks or shift production to different locations. But 
it is difficult to know how much such longer-term developments 
have affected negotiating leverage and wages.

Q.5. Do you agree with Federal Reserve Governor Brainard that 
it is important to retain a focus on place as the Federal 
Reserve contemplates changes to the Community Reinvestment Act? 
Do you agree that in some low-income and hard to reach 
communities, physical branches are sometimes the only way to 
meet local credit needs?

A.5. In Governor Brainard's recent remarks on Community 
Reinvestment Act (CRA) modernization, she stated that the time 
is ``ripe for a refresh to make it even more relevant to 
today's challenges.'' In particular, she focused on finding a 
way to expand the area in which a bank's CRA activities are 
evaluated, in addition to the importance of retaining a core 
focus on location.
    In her statement, she cited research that demonstrates that 
branches are an important vehicle for reaching small business 
customers and low-income consumers.
    I agree with her assessment that the agencies should focus 
on how to make the area where CRA activity is evaluated more 
meaningful to both banks and low- and moderate-income 
communities.

Q.6. Do you agree that robust enforcement against 
discriminatory or unfair and deceptive lending practices must 
work hand-in-hand with any revisions to the Community 
Reinvestment Act?

A.6. Discrimination and other illegal credit practices are 
barriers to helping to meet community credit needs and, as 
such, are inconsistent with the CRA.
    I understand why the regulators take evidence of 
discrimination into account when assigning CRA ratings as 
prescribed in the CRA regulations.
    I believe that there is a connection between CRA, fair 
lending, and laws protecting against other illegal credit 
practices, and this connection should be clear to bankers 
trying to comply with laws designed to ensure that consumers 
and communities have fair access to credit.

Q.7. A Treasury Department report issued in April recommends 
that the Federal Reserve adopt the OCC's new policy allowing 
banks with failing CRA ratings to merge or expand so long as 
they can demonstrate a potential benefit.
    Do you think the Federal Reserve should adopt this policy?

A.7. One means of enforcing CRA is the bank applications 
process. An institution's most recent CRA record is a 
particularly important consideration in the applications 
process. In addition to wanting to serve their communities, 
banks know that CRA ratings are also important to their ability 
to grow and expand.
    I understand that the Office of the Comptroller of the 
Currency's (OCC) guidance on how it will assess CRA ratings in 
the context of its review of a banking application has recently 
changed and varies from the Federal Reserve's guidance. If 
confirmed to the Federal Reserve Board (Board), I would want to 
understand how the Federal Reserve guidance is applied and the 
nature of the differences between its guidance and the OCC's 
approach.
    Fundamentally, I believe that it is important to maintain 
the Congress' intent to use the CRA as a measure in evaluating 
banking applications, while ensuring that there is clarity and 
transparency for banks to understand how the guidance is 
applied.

Q.8. Prior to the financial crisis, regulators treated assets 
like subprime mortgage-backed securities as ``low risk,'' which 
allowed big banks to load up on risky assets without the 
necessary capital backing. When the crisis hit, the Nation's 
biggest banks didn't have the capital to withstand the losses.
    Do you agree that regulators and banks misperceived risks 
before the last crisis, and assigned low ratings to assets that 
were actually toxic?

A.8. The financial crisis highlighted deficiencies in both the 
quantity and quality of capital required by the banking 
agencies' regulatory capital rules. Since the crisis, U.S. 
banking agencies have substantially strengthened regulatory 
capital requirements for large banking firms. Maintaining the 
safety and soundness of the largest U.S. banks is fundamental 
to maintaining the stability of the U.S. financial system and 
the broader economy.

Q.9. Last month, the Fed and the OCC proposed a rule that would 
weaken the enhanced supplementary leverage ratio, a requirement 
that the Nation's biggest banks hold enough capital to support 
lending and absorb losses in a downturn. Those banks are 
required to meet leverage ratios at the holding company level 
and at the depository institution level--where the deposits are 
backed by taxpayers. According to the FDIC, this proposal would 
result in the departure of more than $120 billion in capital--
capital that our regulators unanimously deemed necessary after 
the financial crisis to ensure our Nation's largest banks can 
withstand losses. Federal Reserve Governor Brainard voted 
against this proposal--the first dissent in the history of 
Board votes it keeps on it's website (315 votes total)--and the 
FDIC declined to join the proposal, a significant departure 
from other postcrisis rulemaking, even though the Fed and FDIC 
jointly established this rule after the crisis.
    Are you at all concerned that without the backstop of an 
adequate leverage ratio for the Nation's eight biggest banks, 
banks will once again load up on so-called ``low risk'' assets, 
and place taxpayers at risk of future bailouts?

A.9. The supplementary leverage ratio is an important component 
of the regulatory capital framework. The enhanced supplementary 
leverage ratio standards applicable to U.S. global systemically 
important banks were intended to serve as an appropriate 
complement and strong backstop to these firms' risk-based 
capital requirements. It is important to get the relative 
calibration of the leverage and risk-based requirements right.
    Experience suggests that the enhanced supplementary 
leverage ratio standards are currently calibrated too high, 
creating potential incentives for firms to disengage from 
certain low-risk, low-return financial activities that are 
beneficial for the economy. Similarly, they potentially incent 
high-risk, high-return activities. Modest recalibration can 
reduce these negative incentives while not materially changing 
overall large bank holding companies' capital requirements.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER FROM MICHELLE 
                           W. BOWMAN

Q.1. I believe strongly in the importance of the Fed's 
independence. Recent comments from another Fed candidate (and 
former Fed Governor)--Kevin Warsh--suggest that President Trump 
has been anything but shy in revealing his preference for a low 
interest rate environment.

Q.1.a. Has the President--or anyone in the Administration--
impressed upon you their beliefs on how you should vote on 
matters of monetary policy?

A.1.a. I have had no communication with the President or 
members of the Administration seeking to influence my position 
or future vote, if confirmed, on monetary policy issues.

Q.1.b. Do you commit to safeguarding the independence of our 
central bank?

A.1.b. I believe that Congress wisely chose to insulate 
monetary policy decisions from short-term political influences. 
Insulation from short-term political pressures is crucially 
important for the effective conduct of monetary policy, the 
Federal Reserve is and must also remain accountable to the 
public. If confirmed, I will be committed to building on the 
Federal Reserve's tradition of transparency, openness, and 
accountability while maintaining the independence of the 
Federal Reserve in the conduct of monetary policy.

Q.1.c. What do believe is the biggest threat to financial 
stability at the moment?

A.1.c. We have enjoyed many years of economic growth since the 
recession that followed the financial crisis. The financial 
system has been relatively stable during that period. As a 
result, there is a tendency to forget the lessons that we have 
learned. When we forget, however, we make ourselves vulnerable 
again.
    A crucial lesson from the financial crisis is that we 
always need to be prepared. The reforms that have been 
implemented since the crisis have helped us to build a more 
resilient financial system. However, we cannot rest. We must be 
vigilant in monitoring the financial system, both the 
vulnerabilities that were important contributors to the 
financial crisis--like asset valuations, leverage, maturity 
transformation, and complexity--as well as new vulnerabilities 
that could emerge. Only with vigilance can we avoid the natural 
slide toward complacency that overtakes us as the distance 
between us and the crisis grows.

Q.1.d. Do you believe that Title II's Orderly Liquidation 
Authority is an important tool available at the Fed's disposal 
during a crisis? Would you vote to use the Authority if 
bankruptcy was not an appropriate method for resolving a 
systemic financial institution?

A.1.d. Bankruptcy should be the preferred resolution framework 
for a failing systemic financial firm, in the same way that it 
is the resolution framework for the holding companies of our 
Nation's community banks. However, as the Treasury noted in 
their report on Orderly Liquidation Authority and Bankruptcy 
Reform, it is important to have an emergency tool for use in 
extraordinary circumstances.
    I would need to know all of the facts and circumstances 
before deciding whether it was appropriate to vote in favor of 
recommending that the Treasury Secretary use Title II's Orderly 
Liquidation Authority in connection with a specific failure. 
One aspect of Title II that I would weigh is that it does not 
allow for Government capital injections and requires that 
taxpayers suffer no losses from the resolution.

Q.1.e. Do you think current bank risk-based capital levels are 
too high, too low, or about right? How about the leverage 
ratio?

A.1.e. Maintaining the safety and soundness of the largest U.S. 
banks is fundamental to maintaining the stability of the U.S. 
financial system and the broader economy. To be safe and sound 
financial institutions, these firms must be well-capitalized. 
The U.S. banking agencies have substantially strengthened 
regulatory capital requirements for large banking firms, 
improving the quality and increasing the amount of capital in 
the banking system. Indeed, large U.S. banking firms have 
roughly doubled their capital positions from before the crisis 
to today, making them significantly more resilient, as well as 
able to support lending and financial intermediation in times 
of financial stress.
    It is my understanding that reforms proposed by the Federal 
Reserve suggest that the enhanced supplementary leverage ratio 
standards may be currently calibrated too high, creating 
potential incentives for firms to disengage from certain low-
risk, low-return financial activities that are beneficial for 
the economy. Additionally, I understand that modest 
recalibration may reduce these negative incentives while not 
materially changing overall large bank capital requirements.

Q.2. As you may know in S. 2155, we contemplate raising the 
enhanced prudential standards from $50 billion to $250 billion, 
with an 18 month-delayed effectiveness to give the Fed time to 
do a rulemaking and decide whether it should apply any of the 
enhanced prudential standards to banks between $100 billion and 
$250 billion.
    What do you see as the most important enhanced prudential 
standards for these midsized banks?

A.2. I believe the bank regulatory framework should continue to 
protect the core tenets of regulatory reform--capital, stress 
testing, liquidity, resolution planning, and orderly 
liquidation authority. However, not all standards are 
appropriate for all banking organizations, and it is 
appropriate to tailor regulation and supervision to the size, 
systemic footprint, and risk profile of individual 
institutions. Recognizing the levels and types of risk of the 
different institutions in the system improves the quality and 
efficiency of regulation.
    Periodic supervisory stress testing is an important post-
crisis reform maintained for banks with assets between $100 
billion and $250 billion by the Economic Growth, Regulatory 
Relief, and Consumer Protection Act, and will help the Federal 
Reserve Board ensure that these firms are engaged in less 
burdensome but still robust, forward-looking capital 
assessments.

Q.3. The urban-rural economic divide is an area of particular 
interest for me and an area where I've done a lot of work. I 
believe that someone shouldn't be forced to leave their 
community to find a good paying job. As we've seen in the Great 
Recession and the recovery that's followed, the impacts of 
these macroeconomic trends are not universal and, in this case, 
have often been felt more harshly in rural areas.

    What do you believe to be the driving forces behind 
        the decline of rural America? Is this trend the result 
        of globalization and technological change?

    Do you believe these trends are irreversible?

A.3. I agree that the relatively poor labor market outcomes in 
rural areas in recent years is a big concern. Globalization and 
technological change may be playing a role, but determining the 
causes of these adverse trends is difficult. What's clearer to 
me is that these trends are reversible. Public policy can 
ameliorate, if not fully reverse, these trends by, for example, 
increasing infrastructure investment and promoting greater 
educational and job-training opportunities. Moreover, some 
current or future changes in technology can prove favorable to 
workers in rural areas by increasing their ability to work 
remotely, or by making it easier for production to be located 
in rural areas but still be connected to supply chains.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN FROM MICHELLE 
                           W. BOWMAN

Q.1. Do you believe that any U.S. banks are Too Big to Fail?

    If so, what can and should the Fed do to address 
        this problem?

    If not, what evidence supports your conclusion?

A.1. I believe substantial progress has been made in making the 
financial system more resilient, particularly as a result of 
stronger capital, liquidity, stress testing, and resolution 
planning requirements that were introduced in the wake of the 
financial crisis. Activities and risks in the financial sector 
evolve quickly, however, especially at the largest firms, so I 
also believe that regulators need to closely monitor risks to 
the financial system over time and act accordingly.

Q.2. Section 402 of S. 2155, which recently passed the Senate 
and allows banks ``predominantly engaged in custody, 
safekeeping, and asset servicing activities'' to have less 
capital.

Q.2.a. Do you believe that language applies to JPMorgan Chase 
and Citigroup?

A.2.a. Section 402 of the Economic Growth, Regulatory Relief, 
and Consumer Protection Act allows depository institution 
holding companies that qualify as ``custodial banks'' to 
exclude reserves
at certain central banks for purposes of leverage capital 
requirements. This section defines a custodial bank as any 
depository institution holding company that is predominantly 
engaged in custody, safekeeping and asset servicing activities 
(and any subsidiary
depository institution of such a holding company) and the 
banking agencies could issue regulations to implement these 
provisions. Diversified bank holding companies, such as 
JPMorgan Chase and Citigroup, have significant custodial 
operations but these operations are relatively small compared 
to the companies' overall operations. Therefore, these 
organizations would not appear to qualify as ``custodial 
banks.''

Q.2.b. Would that analysis hold if those two banks created 
intermediate holding companies to house their custody services?

A.2.b. The Federal Reserve Board's (Board) regulatory capital 
rules are based on financial consolidation. Consolidation 
combines the assets and activities of the top-tier company and 
its subsidiaries so that they can be viewed holistically. In my 
current understating, if a depository institution holding 
company reorganized all of its custodial services under an 
intermediate holding company but made no other changes, the 
assets and activities of the top-tier, consolidated depository 
institution holding company would not be affected. Housing the 
custody services under an intermediate holding company 
therefore would not affect whether a company received capital 
relief under section 402 of the Economic Growth, Regulatory 
Relief, and Consumer Protection Act.

Q.3. Banks today reported record profits--up 27.5 percent from 
the first quarter of last year. The economy is nearly a decade 
into a long expansionary period.

    Why is a reduction in capital requirements necessary or 
appropriate at this time?

A.3. It is clear that a resilient, well-capitalized financial 
system that is strong enough to withstand even severe shocks 
and support economic growth by lending through the economic 
cycle is needed. To that end, the U.S. banking agencies have 
acted to substantially strengthen regulatory capital 
requirements for U.S. banking firms, resulting in improved 
quality and an increase in our amount of capital in our banking 
system. At the same time, it is important to monitor the 
capital rules on an ongoing basis, to determine whether the 
framework is effectively measuring and addressing risk and 
working as intended, and to adjust the framework as needed.
    Reforms proposed by the Federal Reserve suggest that the 
enhanced supplementary leverage ratio standards may be 
currently calibrated too high, creating potential incentives 
for firms to disengage from certain low-risk, low-return 
financial activities that are beneficial for the economy. 
Modest recalibration may reduce these negative incentives while 
not materially changing overall large bank capital 
requirements.

Q.4. Fed Chair Powell recently announced that the Fed's Board 
of Governors would vote on whether to relieve Wells Fargo from 
the growth restriction the Fed imposed on it pursuant to its 
February 2018 consent order.

Q.4.a. What kind of changes at Wells Fargo would you need to 
see before voting to lift the growth restriction?

A.4.a. As specified in the Consent Order, the firm must adopt 
and implement the remediation plans the Consent Order requires 
to improve Wells Fargo's governance and risk management, 
including internal controls and testing of those controls, 
particularly for compliance and operational risk.
    I understand that the firm must also engage a third party 
to review the implementation of the plans and required 
improvements.
    And furthermore, that a number of improvements must be made 
to the firms' governance and risk management practices to be 
fully compliant with the terms of the Consent Order. If 
confirmed, with regard to lifting the asset cap imposed, I 
would only vote to do so if the required improvements are 
implemented to the satisfaction of the Board.

Q.4.b. Do you believe the Fed should place more emphasis on 
finding diverse leaders for the regional banks? If so, how do 
you recommend changing the current hiring process so that it 
produces more diverse leaders?

A.4.b. My impression is that the Federal Reserve System and its 
leadership has placed considerable emphasis on increasing the 
diversity of senior leadership, and with some significant 
successes. However, I think all also agree that more must still 
be done. If confirmed, I will join the Board with the intent to 
devote time and attention to understanding the full range of 
challenges in this space, and think creatively about how the 
Board in particular can engage more effectively in support of 
the shared goal of a more diverse senior leadership.
    In reviewing recent searches, I have observed that search 
committees have used a variety of new channels to solicit input 
on important attributes for the districts' presidents, as well 
as suggestions of specific individuals for consideration. They 
have also worked to make the process as transparent as 
possible. Outreach has occurred through social media--for 
example, webinars and YouTube videos--and also through more 
traditional efforts, such as meetings with key constituencies, 
including nonprofit and advocacy groups as well as the business 
community. All of this seems promising and important, and 
represents a foundation on which I hope we can continue to 
build.
    I believe the Federal Reserve is committed to making 
further progress and to better understanding the challenges to 
promoting and improving diversity of ideas and backgrounds. It 
has described this as an ongoing objective, and I assure you 
that diversity will remain a high-priority objective for the 
Federal Reserve, if I am confirmed.

Q.4.c. The Fed is apparently participating in an interagency 
effort to reform regulations implementing the Community 
Reinvestment Act. In April, the Treasury Department sent a memo 
to the Fed, the OCC, and the FDIC recommending several rule 
changes. Do you disagree with any of the Treasury 
recommendations?

A.4.c. I understand that the Treasury's recommendations were 
based on a broad outreach effort and the summary sent to the 
agencies includes helpful insights.
    As with any process, I believe that it is likely that some 
recommendations may be difficult to implement as a practical 
matter, such as the recommendation to standardize the 
examination schedules across the regulatory agencies.
    If confirmed, I would want to review the recommendations to 
see which would result in improving the effectiveness of the 
Community Reinvestment Act (CRA), while focusing on potential 
ways to relieve regulatory burden for community banks.
    I would like to see the agencies work together to find ways 
to accomplish both goals.

Q.4.d. What are your priorities for CRA reform?

A.4.d. There is a great deal of consensus among banks, 
community development organizations, and others regarding the 
need to make CRA evaluations more consistent and transparent.
    I also agree that CRA should be revised in a way that 
encourages more lending and investment in underserved areas.
    I believe these are good goals for the agencies to pursue 
and that any revisions to the CRA regulations need to balance 
the interests of both community and industry stakeholders.
                                ------                                


  RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM 
                       MICHELLE W. BOWMAN

Community Reinvestment Act

Q.1.a. Should CRA be expanded to all nonbanks? Some assert that 
in today's financial landscape, CRA compliance should be 
expanded to all nonbanks, including credit unions, fintechs, 
mortgage companies, investment, and others.

A.1.a. If confirmed, I assure you that I would be committed to 
using the authorities available to the Federal Reserve to 
identify and take action against discriminatory lending 
practices. However, as the scope of the Community Reinvestment 
Act (CRA) is mandated by statute, any expansion of its coverage 
to nondepository institutions would require a statutory change.

Q.1.b. Do you support a full scope review for CRA exams? Do you 
think geographical assessment areas should define CRA 
accountability both where the majority of branch lending and 
the majority of nonbranch lending occurs?

A.1.b. It is important that the agencies with rule writing 
authority for CRA (the Federal Reserve, Federal Deposit 
Insurance Corporation (FDIC), and the Office of the Comptroller 
of the Currency) evaluate ways to provide a meaningful 
evaluation of a bank's CRA activities in all of the communities 
it serves.
    My understanding is that the agencies are considering ways 
to make the area in which CRA performance is evaluated more 
reflective of current banking practices. I support that effort.

Q.1.c. If a fair lending exam detects a violation after a bank 
has been graded for its CRA exam, do you think the bank should 
receive a retroactive downgrade?

A.1.c. Discriminatory and other illegal credit practices hinder 
access to credit, which can limit opportunity in communities, 
and that is inconsistent with the spirit of the CRA.
    I believe that regulators do take fair lending matters into 
consideration when assigning CRA ratings, as prescribed in the 
CRA regulations.
    Given the importance of both the CRA and fair lending laws, 
I believe it is critical to ensure clarity in the rules and an 
understanding of compliance with those rules, and to ensure 
credit is flowing to consumers and businesses in all 
communities consistent with safe and sound lending, including 
in low- and moderate-income areas. Doing so, will help meet 
credit needs and further economic development and financial 
inclusion.

Q.2. Many Democratic, Republican, and Independent current and 
former regulatory officials raising concerns about the bank 
deregulation bill range from former Fed Chair Paul Volcker, 
former Fed Governor and Deputy Treasury Secretary Sarah Bloom 
Raskin, former FDIC Chair Sheila Bair, former Counselor to the 
Treasury Secretary Antonio Weiss, and former Deputy Governor of 
the Bank of England Paul Tucker. These former banking 
regulators either State that a $250 billion bank threshold is 
too high to protect financial stability or that we should not 
weaken the leverage rules for the largest banks, or both.
    Do you think anything in S. 2155 puts the financial system 
at risk? Do you share the concerns raised by your predecessors? 
If so, why? If not, why not?

A.2. I believe that regulation and supervision should be 
tailored in a manner that allows the financial system to more 
efficiently support the real economy. The Federal Reserve has 
been working for many years to tailor regulation and 
supervision to the size, systemic footprint, and risk profile 
of individual institutions. Recognizing the levels and types of 
risk of the different institutions in the system improves the 
quality and efficiency of regulation, but I believe more 
tailoring can and should be done.
    It is reasonable for Congress to raise the $50 billion 
asset threshold to limit the scope of the enhanced prudential 
standards to larger bank holding companies. My understanding is 
that the Economic Growth, Regulatory Relief, and Consumer 
Protection Act preserves the ability of the Federal Reserve to 
reach below the new $250 billion line, if warranted, to subject 
a firm to more stringent regulation. In general, the Act 
preserves the Federal Reserve's ability to adequately monitor 
and regulate systemic risk of banking firms as well as its 
ability to regulate banking firms for safety and soundness 
objectives.
    I also support the Act's exemption for community banks from 
the Volcker rule. Such a move provides relief for thousands of 
small institutions that face ongoing compliance costs simply to 
confirm that their activities and investments are indeed exempt 
from the statute. An exemption at this level is not likely to 
increase risk to the financial system.

Q.3. CRA regulations establish different CRA exams for banks 
with different asset levels. Small banks, those with less than 
$307 million in assets, have the most streamlined exam that 
consists of only a lending test. Intermediate small banks 
(ISB), those with assets of $307 million to $1.226 billion, 
have exams that consist of a lending test and a community 
development (CD) test. The CD test assesses the level of CD 
lending and investing for affordable housing, economic 
development, and community facilities. Large banks, those with 
assets above $1.2 billion, have the most complex exams which 
consist of a lending test, an investment test, and a service 
test.
    It is my understanding that your bank qualified as a small 
bank, so it had a streamlined exam focused on lending only. In 
your response to my question on what it would take for your 
bank to earn an outstanding rating instead of a satisfactory 
rating, you stated you found the exam guidelines unclear. 
Please identify where you feel CRA guidelines for small banks 
are unclear.\1\
---------------------------------------------------------------------------
    \1\ CRA Examination Procedures Overview: Available at: https://
www.ffiec.gov/cra/pdf/cra_exsmall.pdf.

A.3. In general, community bankers seek to serve their 
customers in ways that are safe and sound and within their 
institution's ability. I believe that community bankers, in 
spirit, would say they strive to be viewed as outstanding 
bankers by their customers and in their communities.
    The CRA examination procedures describe a variety of 
factors that are taken into account, such as the economies and 
opportunities that may exist in the markets that the bank 
operates in. Given that such conditions can vary between 
examinations, and that the regulations are not prescriptive, it 
can be difficult for banks to have certainty as to what factors 
may be viewed as more favorable and result in an 
``Outstanding'' rating.

Q.4. Chair Yellen was the first chair in Federal Reserve 
history to share data with this Committee about racial economic 
disparities during her semi-annual testimony. When she 
presented that data, she touted significant progress, and 
indeed, black unemployment fell from 11.8 percent at the 
beginning of her term to the current historically low figure of 
6.9 percent.
    What do you attribute this trend to? Do you think the 
attention that Janet Yellen paid to this issue and the policies 
of the Federal Reserve deserve credit for the progress that has 
been made?

A.4. With the aggregate unemployment rate near its lowest point 
since the 1970s, it is not surprising that the unemployment 
rate for African Americans is also close to its lowest point 
since then. Both figures reflect the long economic expansion 
our country has been enjoying. Although our macroeconomic 
performance cannot be attributed to any single factor, the 
efforts of the Federal Open Market Committee (FOMC) to achieve 
its dual mandate have likely been a contributing factor. 
Moreover, while monetary policy is blunt tool, which works by 
lifting the economy as a whole rather than by targeting the 
well-being of any single group in our society, the efforts of 
the Federal Reserve to pay attention to the diversity of our 
economy contributes to a better understanding of how it works 
for all Americans, which should help to improve policymaking.

Q.5. At that same testimony where Janet Yellen presented 
information about racial economic disparities, she said, quote 
``it is troubling that unemployment rates for these minority 
groups remain higher than for the Nation overall, and that the 
annual income of the median African American household is still 
well below the median income of other U.S. households.''
    Though African American unemployment is lower today, Chair 
Yellen's point remains true. Do you think the recent progress 
is sufficient? What more can be done to ensure that 
unemployment among African Americans is equal to white 
unemployment? In addition to increasing employment rates for 
African Americans, what can the Fed do to increase wages and 
wealth for African Americans and Latinos?

A.5. The economic disparities between African American 
households relative to other U.S. households, with respect to 
both unemployment and incomes, are long-standing, and I would 
like to see the gap close further. By promoting a strong stable 
economy, the Federal Reserve can create widespread economic 
opportunities that both reduce unemployment and boost incomes 
among all households. African-Americans have also had problems 
accessing credit and other financial resources on an equal 
footing, and the Federal Reserve can use its regulatory and 
supervisory role to make sure that financial institutions meet 
their obligations in this regard. However, the tools available 
to the Federal Reserve cannot address many of the longstanding 
challenges facing African American communities. These actions 
would require action by Congress and State and local 
governments.

Q.6. Marvin Goodfriend, another nominee to the Federal Reserve 
Board of Governors has urged the Federal Reserve to incent 
spending by placing a tax on currency.\2\
---------------------------------------------------------------------------
    \2\ Goodfriend, Marvin. ``The Case for Unencumbering Interest Rate 
Policy at the Zero Bound.'' Carnegie Mellon University. September 15, 
2015. Available at:https://www.kansascityfed.org//media/files/
publicat/sympos/2016/econsymposium-goodfriend-paper.pdf.

Q.6.a. Do you support Mr. Goodfriend's proposal to tax currency 
---------------------------------------------------------------------------
kept outside of circulation?

A.6.a. The United States dollar enjoys a well-earned status as 
a store of value and a reliable means of exchange both 
domestically and across the world. Any new policy that could 
undermine the confidence the world places in the dollar should 
be thought through very carefully and undertaken only after a 
great deal of study. Fortunately, the United States does not 
find itself in such a situation presently, as the U.S. economy 
is strong and inflation is close to 2 percent, so there is no 
need to contemplate such a tax.

Q.6.b. If Mr. Goodfriend's proposal were to be implemented, can 
you estimate what the impact would be on savers and low-income 
depositors?

A.6.b. The effects of a currency tax on savers and low-income 
depositors are certainly part of the myriad of potential 
consequences that would have to be investigated if this policy 
were to be considered. As stated above, I believe that any new 
policy that could undermine the confidence the world places in 
the dollar should be thought through very carefully and 
undertaken only after a great deal of study. Moreover, the 
United States is not in a position of needing to consider such 
a policy at present.

Q.7. The Consumer Financial Protection Bureau has endured new 
leadership that is hostile to its mission. A number of 
enforcement actions aimed at helping people receive redress 
from fraud or overcharges has been stopped.

Q.7.a. If the Consumer Financial Protection Bureau's leadership 
refuses to ask for adequate funding or takes steps that you 
think are harmful to people or our economy, will you let Senate 
Banking Committee Members know? If so, how? If not, why not?

A.7.a. My understanding is that the Consumer Financial 
Protection Bureau (CFPB) consults with the Federal Reserve 
Board (Board) in its rulemakings and coordinates in the 
examinations as appropriate, but the Board does not have 
oversight of the CFPB organizational or structural design.
    If confirmed to serve on the Board of Governors, I would 
fully support the Federal Reserve as it continues to carry out 
its supervisory and enforcement responsibilities to ensure that 
the banks it regulates are held accountable for compliance with 
all applicable Federal consumer protection laws and 
regulations.

Q.7.b. The Federal Reserve retains supervision and enforcement 
authority for financial institutions below $10 billion in 
assets. Please provide a list of public enforcement actions 
taken toward any Fed-regulated institutions in the past 3 
years. Please note any fines or penalties assessed. Please note 
if you agree or disagree with these enforcement actions.

A.7.b. Bank supervisors have a responsibility to ensure that 
the institutions subject to the Federal Reserve's supervision 
operate safely and soundly and that they comply with applicable 
statutes and regulations, and additionally, that the Federal 
Reserve should use its formal enforcement authority to achieve 
these objectives where appropriate. I cannot comment on the 
specific circumstances of actions the Federal Reserve has taken 
in the past. A list of public enforcement actions taken against 
institutions regulated by the Federal Reserve in the past 3 
years, including any civil money penalties assessed against the 
institution, is provided in Appendix A to this request.

Q.8. Some current Federal Reserve leaders support reducing 
banks' capital requirements. This concerns me as capital 
requirements have been a key tool in restoring the safety of 
the financial system since the crisis. Ensuring modest leverage 
ratios prevents banks from lending out more than they can 
afford to, and especially keeps them away from riskier assets 
like the ones that fueled the crisis.
    For this reason, Democrats and Republicans in the House and 
Senate, as well as FDIC Vice Chair (and former Kansas City Fed 
President) Thomas Hoenig all support higher capital 
requirements, not lower ones. Do you support any changes to the 
current capital requirements for financial institutions? If so, 
please describe.

A.8. We need a resilient, well-capitalized financial system 
that is strong enough to withstand even severe shocks and 
support economic growth by lending through the economic cycle. 
To that end, the U.S. banking agencies have substantially 
strengthened regulatory capital requirements for U.S. banking 
firms, improving the quality and increasing the amount of 
capital in the banking system. At the same time, it is 
important to monitor the capital rules on an ongoing basis, to 
determine whether the framework is effectively measuring and 
addressing risk and working as intended, and to adjust the 
framework as needed.

Q.9.a. In recent years, Federal Reserve policymakers have 
warned that we should raise interest rates to counter asset 
bubbles destabilizing the financial system. Board of Governor 
Nominee Marvin Goodfriend has suggested replacing liquidity 
coverage ratios and a host of other regulations with tighter 
monetary policy.\3\
---------------------------------------------------------------------------
    \3\ Senate Committee on Banking, Housing, and Urban Affairs, June 
7, 2016, Hearing. Available at: https://www.gpo.gov/fdsys/pkg/CHRG-
114shrg21603/pdf/CHRG-114shrg21603.pdf.

    Do you believe that the blunt tool of monetary policy can 
be a substitute for sound financial protections? What is your 
understanding of the historical evidence surrounding the 
---------------------------------------------------------------------------
relationship between monetary policy and asset bubbles?

A.9.a. Monetary policy is the primary tool through which the 
Federal Reserve works to achieve the goals of price stability 
and full employment. To use that tool for other purposes could 
undermine its effectiveness for those goals, and thus monetary 
policy should not be considered a substitute for prudent 
financial and supervisory standards. As we learned in the 
crisis, the lack of such standards had significant consequence. 
The buildup of leverage and maturity transformation in the 
years leading up to the crisis left the U.S. and global economy 
vulnerable to shocks. When the housing market turned down, the 
effects of that shock were amplified as leverage was wound down 
and funding patterns shifted. The result was what we all 
painfully experienced as the financial crisis.
    Post-crisis reforms have raised loss-absorbing capacity 
within the financial sector and reduced the susceptibility of 
the financial
system to destabilizing runs. Of course, gaps exist in 
financial regulation, and therefore, changes in interest rates 
could at times be
appropriate as a supplementary tool to address threats to full 
employment and price stability emanating from widespread 
imbalances or buildups of risk in areas where more-targeted 
tools are
inadequate or nonexistent.
    Understanding movements in asset prices is very difficult, 
and there are many factors that contribute to their short- and 
long-term movements. Monetary policy has not generally been a 
prime factor in historical episodes involving large increases 
in asset prices.

Q.9.b. Besides monetary policy, what other tools are available 
to temper asset bubbles?

A.9.b. Making a determination about the appropriate value of an 
asset is extremely difficult. Many factors come into play in 
the
determination of both the short-term and long-term value. 
Instead of trying to determine every assets' appropriate value, 
it is important to monitor asset prices more broadly, along 
with the other crucial vulnerabilities that contribute to 
financial market difficulties, like leverage, maturity 
transformation, and interconnectedness. When shocks occur, it 
is those vulnerabilities that amplify the effects of the shocks 
and jeopardize the efficient functioning of the financial 
system, price stability, or full employment.
    Because determination of the appropriate level of asset 
prices is difficult, we need to be prepared at all times by 
ensuring the safety and soundness of our financial institutions 
and our financial system through prudent regulations and 
supervisory standards. We never know when a negative shock can 
occur, including asset price reversals. As a result, the 
prudent capital, liquidity, and other regulations and policies 
adopted by the Federal Reserve are critical for the protection 
of our financial system going forward.

Q.10. In the years since the financial meltdown, the Federal 
Reserve has played a key role in putting our economy back on 
stable footing and setting the conditions for more robust 
growth. Still, there have been bills introduced that would 
eliminate the Fed's full employment mandate on the basis that, 
according to the bill's findings ``at best, the Federal Reserve 
may temporarily increase the level of employment through 
monetary policy.''
    Can you elaborate on how the Fed influences employment in 
the short-run, and discuss whether failure to use monetary 
policy effectively in the face of severe downturns could do 
permanent damage to the level of unemployment in the economy?

A.10. In the short run, the Federal Reserve influences 
employment primarily through its effect on the financial 
conditions facing households and businesses. For example, lower 
interest rates promote household spending by reducing the cost 
of borrowing for big-ticket purchases such as houses and cars. 
Similarly, lower interest rates make it less costly for 
businesses to invest in new plants and equipment. This 
additional demand, in turn, leads to higher production, faster 
job growth, and rising household income and wealth. A failure 
to use monetary policy to effectively combat a severe downturn 
would risk persistently high unemployment and perhaps even risk 
falling into a harmful deflation where wages and prices 
actually fall.

Q.11. Critics of quantitative easing have argued that it is 
incompatible with the Fed's price stability mandate; however in 
discussing quantitative easing the Fed has consistently noted 
that the program is designed to promote a stronger pace of 
economic growth and to ensure that inflation, over time, is at 
levels consistent with the Fed's mandate.

Q.11.a. Can you comment on how the Fed's policies in recent 
years have actually supported the Fed's price stability 
mandate?

A.11.a. Faced with the most severe financial crisis since the 
Great Depression, the FOMC cut short-term interest rates to 
zero by the end of 2008. The Federal Reserve also turned to 
nontraditional tools such as asset purchases and forward 
guidance, as means of providing the additional accommodation. 
These policies put downward pressure on longer-term interest 
rates and helped to make
financial conditions more accommodative, encouraging and 
supporting the economic recovery. By providing a cushion for 
aggregate demand during the recession and supporting spending 
during the recovery, the Federal Reserve's monetary policy 
measures helped to keep inflation close to 2 percent. In 
particular, in part because aggregate demand was supported by 
monetary policy, the U.S. economy avoided the severe downward 
pressure on the price level that occurred during the Great 
Depression, which in turn prevented inflation expectations from 
falling sharply below 2 percent.

Q.11.b. What does the latest research tell us about the 
effectiveness of the Fed's large scale asset purchases?

A.11.b. It is difficult to say with certainty what the effects 
of large-scale asset purchases have been, but most studies find 
that the purchases put
downward pressure on long-term interest rates, which in turn 
lowered borrowing rates for businesses and consumers, and 
boosted stock prices. These effects served to bolster spending 
on goods and services by households and businesses, supporting 
the recovery.

Q.11.c. Is there any evidence that the Fed's asset-purchase 
program, which sought to support the economy by lowering long-
term interest rates, has been a drag on U.S. productivity as 
some Republicans have suggested? Is there any evidence that the 
program has created a ``false economy'' as Trump has asserted?

A.11.c. I find it unlikely that the Federal Reserve's policies 
have contributed to the sluggish pace of productivity growth 
observed over recent years. It is more likely that factors such 
as subdued spending on investment and research and development 
by businesses, as well as a reduction in the skills of the 
labor force resulting from the financial crisis and ensuing 
recession, have weighed on productivity.

Q.11.d. How would the economy have likely fared in terms of 
unemployment, GDP, wage growth, etc., had the Fed chosen not to 
pursue its asset purchase program?

A.11.d. The Federal Reserve conducts monetary policy to promote 
maximum employment and stable prices. Various research studies 
by academic and central bank economists suggest that the 
Federal Reserve's asset purchase programs helped to make 
financial conditions more accommodative, support economic 
recovery, strengthen labor market conditions, and foster price 
stability.\4\
---------------------------------------------------------------------------
    \4\ See, for example, Eric M. Engen, Thomas Laubach, and David 
Reifschneider (2015), ``The Macroeconomic Effects of the Federal 
Reserve's Unconventional Monetary Policies,'' Finance and Economics 
Discussion Series 2015-005, Washington: Board of Governors of the 
Federal Reserve System, February, http://dx.doi.org/10.17016/
FEDS.2015.005.

Q.11.e. Is there any evidence that the Fed's stimulus program 
has paved the way for the next global meltdown, as Trump 
---------------------------------------------------------------------------
claimed?

A.11.e. While there are many sources of risk and uncertainty in 
the global economy, I believe the Federal Reserve's conduct of 
monetary policy has contributed to an improved global economic 
outlook by supporting the U.S. economic expansion and 
maintaining low and stable inflation.

Q.11.f. How does the Fed's balance sheet as a percentage of GDP 
compare with the balance sheets of the next largest economies? 
Do these countries have a dual mandate similar to the Fed?

A.11.f. The size of the Federal Reserve's balance sheet 
relative to nominal GDP currently stands at about 23 percent. 
Last October, the FOMC initiated its plan to normalize the size 
of the Federal Reserve's balance sheet. Under that plan, the 
size of the Federal Reserve's balance sheet will decline 
gradually over coming years. With nominal GDP expected to rise 
over that time, the size of the Federal Reserve's balance sheet 
relative to nominal GDP will likely decline appreciably.
    The Federal Reserve's balance sheet as a percentage of GDP 
is smaller than those of most other major foreign central 
banks. The central bank balance sheets of the United Kingdom, 
the euro area, Japan, and Switzerland are about 28, 40, 100, 
and 120 percent of their nominal GDP, respectively. All of 
these central banks employed large-scale asset purchase 
programs to address the implications of the financial crisis in 
their countries.
    All of these central banks operate with a single mandate to 
pursue price stability. However, in many cases, this mandate is 
treated as medium-term objective, and other goals, including 
output and employment stabilization and financial stability, 
are cited to justify deviations from price stability in the 
short run.

Q.12. It is my understanding that major central banks around 
the world maintain and have drawn on their authority to 
purchase a wide range of assets including corporate bonds, 
commercial paper, real estate investment trusts, and equities 
among other assets.

Q.12.a. Given the broad authorities available to other central 
banks, rather than shrink the Fed's tool kit, do you think 
Congress should consider expanding it?

A.12.a. As mandated by Congress, the Federal Reserve conducts 
monetary policy to promote maximum employment and price 
stability. It is important that the Federal Reserve has the 
tools it needs to fulfill this mandate. The Federal Reserve's 
purchases of Treasury securities and agency securities in the 
wake of the financial crisis were designed to ease financial 
conditions and promote the recovery.
    The Federal Reserve is quite limited in the kinds of assets 
it can purchase, and those limits seem appropriate to me. 
Expanding the Federal Reserve's authority to allow it to 
purchase a broad range of securities could expose the Federal 
Reserve to pressures to influence the allocation of credit to 
particular sectors. Such pressures could threaten the Federal 
Reserve's independence, which is essential to allow the Federal 
Reserve to make decisions in the best interest of the Nation as 
a whole. Of course, it is up to Congress to determine the 
Federal Reserve's authorities.

Q.12.b. For example, with an expanded authority, could the Fed 
play a useful role in supporting municipal finance, student 
loan financing or other types of consumer credit during periods 
where each of these sectors experienced heightened distress?
    Would you support or oppose such expansion of the Fed's 
authority?

A.12.b. Please see response to question 12a.

Q.12.c. As the Fed begins to shrink its balance sheet, what are 
some of the negative impacts that Senate Banking Committee 
Members should monitor? What concerns--if any--do you have 
about shrinking the balance sheet? What will you do to monitor 
the process of maturing securities to avoid a negative impact 
on the economy?

A.12.c. I believe that the gradual approach to removing policy 
accommodation that the FOMC has been pursuing has supported the 
economic recovery and helped the Committee make progress toward 
its 2 percent inflation objective. The program has proceeded 
smoothly thus far with no outsized financial market movements. 
If confirmed, I would support a continuation of clear 
communication about the FOMC's plans to shrink the Federal 
Reserve's balance sheet. My understanding is that, in the 
longer-run, the Federal Reserve intends to hold no more 
securities than it will need to implement monetary policy 
efficiently and effectively. I also understand that the Federal 
Reserve expects its holdings will eventually consist primarily 
of Treasury securities. The FOMC has stressed and I believe it 
is appropriate that the shrinking of the balance sheet remains 
data dependent, and that it could change its plans if 
confronted with a substantial deterioration in the economic 
outlook.

Q.13. Ms. Bowman, in your testimony, you stated, ``the 
regulatory environment created in the aftermath of the crisis 
has disadvantaged community banks. If confirmed, I will bring 
this perspective to my work at the Board to ensure that rules 
preserve the resiliency of the financial system, but are 
appropriately tailored to the size, complexity, and risk of an 
institution.''
    As you know, the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (P.L. 111-203) rules are tailored so larger 
banks have higher standards than smaller banks. Of the 14 
``major'' rules issued by banking regulators pursuant to the 
Dodd-Frank Act, 13 either include an exemption for small banks 
or are tailored to reduce the cost for small banks to comply. 
Supervision and enforcement are also structured to pose less of 
a burden on smaller banks than they do on larger banks, such as 
by requiring less frequent bank examinations for certain small 
banks.

Q.13.a. Please explain which rules you think ``have 
disadvantaged community banks?'' Please explain which rules you 
think should be changed and how?

A.13.a. In my experience, both as a community banker and as the 
Kansas State Bank Commissioner, two aspects of bank regulation 
can be particularly problematic for community banks: complexity 
and a one-size-fits-all approach that does not sufficiently 
differentiate between large and small banks. I believe it is 
worth exploring whether some regulations can be made simpler 
while still achieving their prudential aims (the regulatory 
capital framework for community banks, for example, could 
perhaps be simplified). Likewise, I would support exempting 
small banks from regulations that address large-bank issues, 
such as the Volcker rule.

Q.13.b. Do you think community banks, those with less than $2 
billion in assets, should follow Federal consumer protection 
rules?

A.13.b. Decisions about the application of Federal consumer 
protection rules and compliance by particular institutions are 
for Congress to decide through law, and as implemented by the 
responsible rulewriting agency. In this case the rulewriting 
agency is the CFPB.
    That being said, I believe that consumer protection is 
important regardless of where a consumer chooses to bank or to 
seek credit or other financial products. I also believe there 
is agreement across the industry that one-size-fits-all 
regulation does not always work. Exemptions to rules are 
sometimes warranted, and asset size of financial institutions 
can be a factor used to make that determination.

Q.13.c. Do you think community banks should comply with the 
requirement that loans should be made to people who can repay 
them? This is called the ``know before you owe'' rule. 
Community banks are largely exempt from both mortgage 
origination and servicing rules because they are small 
creditors with less than $2 billion in assets or service fewer 
than 500 loans.

A.13.c. I feel strongly that we should not allow the risky 
underwriting standards used by many originators prior to the 
housing crisis to return. It is also important, however, that 
laws and rules do not needlessly prevent creditworthy borrowers 
from getting a mortgage.
    Decisions about which banks must comply with consumer 
financial service laws are up to Congress through statute or 
implementation of the statute by the CFPB, as the responsible 
rulewriting agency, through regulation.
    As Congress and the CFPB consider which banks should comply 
with particular underwriting rules, it is important to consider 
the impact of any rule on a community bank's ability to provide 
credit to reliable borrowers but whose creditworthiness may be 
difficult to capture in a broad, universally applied rule.

Q.13.d. Rules protecting people who send remittances apply to 
any financial institution that sends more than 100 remittances 
a year. Do you support changes to Regulation E/Electronic Fund 
Transfers? If so, how would you change this rule?

A.13.d. Under the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act), the CFPB has exclusive rule 
writing authority to implement most consumer laws, including 
the Electronic Fund Transfer Act provisions governing 
remittance transfers, which the Bureau implements through 
Regulation E.
    The CFPB, however, generally is required to consult with 
prudential regulators or other Federal agencies, including the 
Board, prior to proposing a rule and during the comment process 
regarding consistency with prudential, market, or systemic 
objectives administered by such agencies. (Sec. 1022(b) of the 
Dodd-Frank Act). If confirmed, I will work to ensure that the 
Board continues to fulfill its consultative role in Bureau 
rulemakings, including any rulemakings related to remittance 
transfers.

Q.13.e. Dodd-Frank limited compensation requirements for loan 
originators to prevent steering to high-cost loans. Only 
originators that make fewer than 10 loans in a 12-month period 
are exempt. Do you support changes to the Loan Originator 
Compensation Requirements (Regulation Z)?

A.13.e. Under the Dodd-Frank Act, the CFPB has exclusive rule 
writing authority to implement most consumer laws, including 
the compensation rules for loan originators issued under the 
Truth in Lending Act. The Dodd-Frank Act also provides that the 
CFPB's rules are not subject to approval or review by the 
Board.
    However, the Dodd-Frank Act also requires the CFPB to 
consult with prudential regulators, which includes the Board, 
before and during any rulemaking regarding the rules' 
consistency with prudential, market, or systemic objectives 
administered by the respective agency.
    If confirmed, I will work to ensure that the Board 
continues to fulfill its consultative role in connection with 
the CFPB's rulemakings, including any rulemaking related to the 
loan originator compensation rules.

Q.13.f. Mortgage Servicing Rules under Regulation X and Z are 
designed to protect home buyers from high-cost loans. Servicers 
with fewer than 5,000 mortgage loans are exempted from some of 
these rules. What changes do your recommend to Regulations X 
and/or Z?

A.13.f. The CFPB has exclusive rule writing authority to 
implement most consumer laws, including the mortgage servicing 
rules under Regulation X and Z. The Dodd-Frank Act also speaks 
to the autonomy of the CFPB's rulemaking authority by 
providing, for example, that no rule can be subject to approval 
or review by the Board. (Sec. 1012(c) of the Dodd-Frank Act). 
Therefore, changes to the mortgage servicing rules under 
Regulations X and/or Z are up to the CFPB to decide.
    The Dodd-Frank Act requires that the CFPB engage in an 
interagency consultation process during the proposed and final 
rulemaking process with all the prudential regulators.
    If the CFPB decided to amend the mortgage servicing rules, 
I would expect that Board staff would participate in the CFPB's 
process, and review rulemakings to identify principal areas of 
concern and potential effects with respect to credit 
availability, safety and soundness, regulatory burden, consumer 
protection and compliance supervision.

Q.13.g. Do you think banks that make more than 25 mortgage 
loans should share the loan and borrower characteristics 
through the Home Mortgage Disclosure Act database?

A.13.g. Decisions about what information banks should provide 
under the Home Mortgage Disclosure Act (HMDA) are up to 
Congress through statute or as implemented by the CFPB, as the 
responsible rulewriting agency, through its regulation.
    HMDA is a valuable public disclosure law, with the data 
reported being instrumental in enhancing supervisory and 
research efforts for more than 30 years.
    I am aware that an intent of the recently passed Economic 
Growth, Regulatory Relief, and Consumer Protection Act is to 
provide regulatory relief from the HMDA data collection and 
reporting requirements as expanded by the Dodd-Frank Act for 
certain banks that have a lower volume of loan origination. I 
am also aware that the CFPB plans to revisit its 2015 
rulemaking under HMDA to re-evaluate institutional and 
transactional coverage, as well as what data should be 
collected and reported under HMDA.
    As noted above, Congress requires the CFPB to engage in an 
interagency consultation process during the rulemaking process. 
If confirmed, I will work to ensure that the Board continues to 
fulfill its consultative role in connection with such 
rulemakings, including any rules under HMDA.

Q.13.h. Banks with assets under $50 billion are not required to 
comply with the liquidity coverage ratio. Do you think they 
should be? Why or why not?

A.13.h. Prudent liquidity management is important at all banks. 
Longstanding supervisory guidance emphasizes the importance of 
banks regularly monitoring their liquidity positions and 
maintaining sufficient levels of liquidity to meet anticipated 
and unexpected demands for funding. Supervisors monitor banks' 
liquidity levels using financial data provided by banks on 
quarterly Call Reports and review liquidity risk management 
practices in depth during bank examinations to ensure that 
banks are managing their liquidity in a safe and sound manner. 
In my experience, this supervisory approach has been effective 
for smaller banks. For larger, systemically important banks 
that have more complex funding profiles, the liquidity coverage 
ratio requirements are more important. In the case of these 
entities, the liquidity coverage ratio helps ensure that 
acceptable levels of liquidity are maintained in order to 
minimize the risk that a liquidity strain at one large bank 
causes broader disruptions to the financial system.
    I understand that the recently enacted Economic Growth, 
Regulatory Relief, and Consumer Protection Act provides 
additional discretion to the Federal Reserve to determine the 
appropriate supervisory tools to monitor liquidity in 
institutions with assets between $50 billion and $250 billion. 
If confirmed, I look forward to studying the liquidity coverage 
ratio and its effectiveness more closely and working with my 
Board colleagues to ensure that Federal Reserve supervision 
continues to promote effective liquidity risk management in all 
institutions under its supervision, regardless of their size or 
complexity.

Q.13.i. Banks with assets under $250 billion are not required 
to comply with regulatory capital rules. Do you think they 
should be? Why or why not?

A.13.i. Banks of all sizes must maintain adequate capital to 
ensure their safety and soundness. All banks are required to 
comply with regulatory capital rules. I believe it is 
appropriate that large banks are subject to more stringent 
capital requirements, reflecting their greater complexity and 
the greater risk they pose to the stability of the U.S. 
financial system.

Q.13.j. The Volcker rule which prohibits proprietary trading 
applies to all banks but has streamlined policies and 
procedures for banks with less than $10 billion in assets. Do 
you think banks under a certain size should be allowed to 
invest in hedge funds and private equity funds on their own 
behalf? Do you think the Volcker Rule should not apply to banks 
under a certain size?

A.13.j. Congress has recently spoken to this question by 
enacting legislation that excludes certain small banking 
organizations from the restrictions of the Volcker Rule. These 
firms do not have large trading operations in relation to their 
size. I believe that this reform will reduce regulatory burdens 
on community banks without causing harm to the financial system 
because these banks do not engage in the type of trading that 
the Volcker Rule was intended to restrict. Additionally, I 
believe that the regulatory regime that applies outside of the 
Volcker Rule is sufficient to protect the safety and soundness 
of community banks.

Q.13.k. Collateralized debt obligations backed by Trust 
Preferred Securities are restricted. Do you think banks under a 
certain size that hold CDO-TruPs should not have to comply with 
restrictions?

A.13.k. Interconnectedness in the banking system increases when 
banking organizations invest in other banking organization's 
capital securities, including through structured products. This 
interconnectedness heightens the likelihood that instability at 
one banking organization will spread to others, regardless of 
the size of the banking organizations involved.

Q.13.l. Debit card interchange fees and routing requirements do 
not apply to banks that have fewer than $10 billion in assets. 
Do you think banks under this size should comply with 
interchange fees and routing requirements?

A.13.l. I believe that it is a matter for Congress to decide 
what, if any, additional exemptions from these provisions 
should be provided.

Q.14. Let me ask you about other regulations that apply to 
banks but were not enacted by the Dodd-Frank Wall Street Reform 
and Consumer Protection Act.

Q.14.a. Do you think the ``primary duty'' of a bank's board of 
directors is ``to ensure the bank operates in a safe and sound 
manner''?
    I believe that an effective board of directors is integral 
to the continuing safety and soundness of a banking firm, 
including its compliance with laws and regulations. I 
understand that the Federal Reserve has proposed guidance on 
board effectiveness in part, and in recognition that the 
supervisory expectations in existing guidance did not 
consistently focus on the core responsibilities of boards. The 
proposed guidance would eliminate unnecessary or outdated 
expectations and encourage boards to devote more time and 
attention to their core responsibilities, which when exercised 
effectively, promote the safety and soundness of the firm.

Q.14.b. Do you have recommendations for changes to the Bank 
Secrecy or Anti-Money Laundering rules?

A.14.b. Banks are required to comply with the Bank Secrecy Act 
and Anti-Money Laundering (BSA/AML) laws and regulations in 
order to safeguard the U.S. financial system from the risks of 
money laundering and terrorist financing. In my time as a 
banker at Farmers & Drovers Bank in Kansas, and as the Kansas 
State Bank Commissioner, I know that banks take this 
responsibility seriously, but this compliance incurs 
significant costs and resources, especially for smaller banks.
    BSA/AML regulations are generally issued by the Department 
of Treasury's Financial Crimes Enforcement Network (FinCEN) or 
on an interagency basis, which means that most BSA/AML 
requirements are handled on an interagency basis. Further, I 
understand that the Federal Reserve participates in several 
groups designed specifically for BSA/AML issues. Notably, the 
Federal Reserve participates, along with other Federal banking 
agencies and the Conference of State Banking Supervisors, in 
the Federal Financial Institutions Examination Council (FFIEC) 
BSA/AML Working Group, which meets regularly to discuss various 
BSA/AML supervisory and policy matters. The Federal Reserve 
also participates in the BSA Advisory Group (BSAAG), which 
brings together Federal and State financial regulatory 
agencies, FinCEN, law enforcement and industry.
    I do not have any recommendations for changes to the BSA/
AML laws and regulations at this time; however, I support 
continuation of the Federal Reserve's interagency efforts to 
increase the efficiency, transparency, and effectiveness of the 
supervision and regulation of financial institutions, including 
those related to compliance with BSA/AML rules.

Q.15. In 2017, when you served as the Banking Commissioner of 
Kansas, George and Agatha Enns conspired with Plains State Bank 
employees to launder money. The Enns were sentenced to 3 years 
of probation and forfeited nearly $2 million in ill-gotten 
gains.

Q.15.a. What was the Enns' crimes? What was the role of the 
Kansas Banking Commission and your role personally in this 
investigation and lawsuit?

A.15.a. The Office of the State Bank Commissioner (OSBC) shares 
regulatory authority with Federal agencies in enforcing banking 
laws. The Department of Justice, in consultation with the FDIC, 
IRS and DEA, prosecuted George and Agatha Enns and certain 
employees of the Plains State Bank for crimes of conspiracy to 
commit money laundering, failing to file a Suspicious Activity 
Report, and money laundering that occurred from 2011 to 2014. 
The indictments were unsealed in April 2015. The Department of 
Justice did not consult with the OSBC in this matter, and no 
Kansas Bank Commissioner has played a role in this Federal 
criminal action. The charges alleging that the Plains State 
Bank employees failed to file SAR reports for activity 
conducted 2011-2014 were dropped in this case.

Q.15.b. Please describe other criminal and civil lawsuits that 
occurred during your tenure as Commissioner.

A.15.b. The OSBC is currently involved in an ongoing case filed 
in 2008 resulting from the actions of a previous Bank 
Commissioner as described below.

Columbian Financial Corporation v. Bowman, in her official capacity as 
        Bank Commissioner of Kansas, et al.

    Columbian Bank and Trust Company was a State-chartered bank 
regulated by the OSBC. On August 22, 2008, the then-Kansas Bank 
Commissioner declared the bank insolvent and appointed the FDIC 
as receiver due to a liquidity failure. Shortly thereafter, 
Columbian Financial Corporation, as the sole shareholder of 
Columbian Bank and Trust Company, began litigating the 
Declaration of Insolvency and Tender of Receivership in State 
and Federal courts. Most recently, Columbian Financial 
Corporation filed in the District Court of Kansas alleging 
violations of 42 U.S.C.  1983 by the Bank Commissioner of 
Kansas in the Commissioner's official capacity. Due to being 
appointed as the Bank Commissioner of Kansas, I was substituted 
as a defendant in this official capacity on September 18, 2017.
    In 2008, Columbian Financial Corporation alleged that the 
Bank Commissioner in his official capacity denied Columbian 
Bank and Trust Company and Columbian Financial Corporation due 
process by declaring the bank insolvent, seizing the bank's 
assets and not providing adequate constitutional protections 
and remedies before and after the declaration and seizure. The 
allegations contained in the suit arise from the actions of the 
former Bank Commissioner who made the decision to close the 
bank. On November 21, 2017, I, in my capacity as Bank 
Commissioner, filed a motion for
summary judgment and alterative motion for judgment on the
pleadings based on the doctrinal bars of res judicata and 
collateral estoppel alleging Columbian Financial Corporation 
had a full and fair opportunity to litigate these allegations 
in an administrative hearing and judicial review in the Kansas 
court system. On May 17, 2018, the District Court of Kansas 
granted the Commissioner's motion for summary judgment and 
dismissed the case finding the previous State proceedings did 
not fall below the minimum procedural requirements of the Due 
Process Clause. As of this writing, Columbian Financial 
Corporation has not filed an appeal.

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