[Senate Hearing 116-171]
[From the U.S. Government Publishing Office]


                                                      S. Hrg. 116-171


           NOMINATIONS OF JUDY SHELTON AND CHRISTOPHER WALLER

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

                                HEARING

                               BEFORE THE

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

                     ONE HUNDRED SIXTEENTH CONGRESS

                             SECOND SESSION

                                   ON

                            NOMINATIONS OF:

 JUDY SHELTON, OF CALIFORNIA, TO BE A MEMBER OF THE BOARD OF GOVERNORS 
                     OF THE FEDERAL RESERVE SYSTEM

                               __________

   CHRISTOPHER WALLER, OF MINNESOTA, TO BE A MEMBER OF THE BOARD OF 
                GOVERNORS OF THE FEDERAL RESERVE SYSTEM

                               __________

                           FEBRUARY 13, 2020

                               __________

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


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                Available at: https: //www.govinfo.gov /

                               __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
40-240 PDF                  WASHINGTON : 2020                     
          
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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      JACK REED, Rhode Island
TIM SCOTT, South Carolina            ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska                  JON TESTER, Montana
TOM COTTON, Arkansas                 MARK R. WARNER, Virginia
MIKE ROUNDS, South Dakota            ELIZABETH WARREN, Massachusetts
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada
MARTHA MCSALLY, Arizona              DOUG JONES, Alabama
JERRY MORAN, Kansas                  TINA SMITH, Minnesota
KEVIN CRAMER, North Dakota           KYRSTEN SINEMA, Arizona

                     Gregg Richard, Staff Director

                Laura Swanson, Democratic Staff Director

                        Catherine Fuchs, Counsel

                Brandon Beall, Professional Staff Member

                 Elisha Tuku, Democratic Chief Counsel

           Corey Frayer, Democratic Professional Staff Member

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                    Charles J. Moffat, Hearing Clerk

                          Jim Crowell, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                      THURSDAY, FEBRUARY 13, 2020

                                                                   Page

Opening statement of Chairman Crapo..............................     1
    Prepared statement...........................................    37

Opening statements, comments, or prepared statements of:
    Senator Brown................................................     2
        Prepared statement.......................................    38

                                NOMINEES

Judy Shelton, of California, to be a Member of the Board of 
  Governors of the Federal Reserve System........................     5
    Prepared statement...........................................    39
    Biographical sketch of nominee...............................    41
    Responses to written questions of:
        Senator Brown............................................    70
        Senator Sasse............................................    78
        Senator Rounds...........................................    82
        Senator Reed.............................................    84
        Senator Menendez.........................................    88
        Senator Tester...........................................    89
        Senator Warren...........................................    94
        Senator Schatz...........................................   102
        Senator Cortez Masto.....................................   105
        Senator Sinema...........................................   114
Christopher Waller, of Minnesota, to be a Member of the Board of 
  Governors of the Federal Reserve System........................     6
    Prepared statement...........................................    53
    Biographical sketch of nominee...............................    54
    Responses to written questions of:
        Senator Brown............................................   115
        Senator Sasse............................................   117
        Senator Tillis...........................................   118
        Senator Reed.............................................   122
        Senator Tester...........................................   124
        Senator Warren...........................................   126
        Senator Schatz...........................................   134
        Senator Cortez Masto.....................................   134
        Senator Sinema...........................................   142

              Additional Material Supplied for the Record

Letter from the Project on Government Oversight..................   143
``The War on Judy Shelton'', by the Editorial Board, Wall Street 
  Journal, 2/12/2020.............................................   145
Letter of Support for nominee Christopher Waller.................   148
``Banking and Government: An Unholy Alliance'', Judy Shelton, 
  Cato Journal...................................................   152
``North America Doesn't Need Borders'', by Judy Shelton, Wall 
  Street Journal, 8/29/2000......................................   157
``Trump Fed Pick Missed Almost Half of Board Meetings'', Paul 
  Kiernan, Wall Street Journal, 7/15/2019........................   160

                                 (iii)

 
           NOMINATIONS OF JUDY SHELTON AND CHRISTOPHER WALLER

                              ----------                              


                      THURSDAY, FEBRUARY 13, 2020

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 9:02 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. This hearing will come to order.
    This morning we will consider the nominations of the 
Honorable Judy Shelton to be a member of the Board of Governors 
of the Federal Reserve System and Dr. Christopher Waller to be 
a member of the Board of Governors of the Federal Reserve 
System. Welcome, and congratulations to each of you for your 
nominations.
    I see friends and family in the room today, and I welcome 
them as well.
    We are fortunate to have these two highly qualified 
nominees appearing today. These positions are critical to 
ensuring a safe, sound, and vibrant financial system and a 
healthy, growing economy.
    The Federal Reserve was created by Congress as the Nation's 
central bank to promote a stable economy and a safer, more 
flexible financial system.
    Among the Federal Reserve's responsibilities is conducting 
the Nation's monetary policy with the mandate of promoting 
maximum employment, stable prices, and moderate long-term 
interest rates.
    In addition to its monetary policy role, it oversees a 
significant portion of the banking sector, including large, 
regional, and community banks, as well as certain nonbanks, and 
aims to foster a safe and efficient payment and settlement 
system.
    With this in mind, it is important that we nominate and 
confirm well qualified candidates with different perspectives 
to the positions of Governors to ensure robust debate and more 
effective decisions.
    Before turning to Dr. Shelton and Dr. Waller, I am entering 
into the record a letter from over 100 economists supporting 
the nomination of Dr. Waller and also an article from the Wall 
Street Journal supporting Dr. Shelton titled, ``The War on Judy 
Shelton''.
    Dr. Shelton most recently served as the Executive Director 
for the European Bank for Reconstruction and Development and 
was confirmed by voice vote in the Senate in 2018.
    Dr. Shelton's experience working for nonprofits and 
academic institutions forged her deep knowledge of democracy, 
economic theory, and monetary policy that will broaden and 
diversify the Fed's perspective.
    Dr. Waller has served as the Research Director at the 
Federal Reserve Bank of St. Louis for the last 11 years and 
aided the president of the St. Louis Fed in analyzing the 
economy and recommending U.S. monetary actions.
    His research on monetary theory and the microfoundations of 
money and payment systems will be valuable, as we are seeing a 
rise in cryptocurrencies and digital currency in this country 
and abroad.
    I am confident that Dr. Shelton and Dr. Waller will bring 
strong leadership to the Federal Reserve System.
    As Governors at the Federal Reserve, Dr. Shelton and Dr. 
Waller will play key roles in carrying out the Fed's regulatory 
and supervisory activities consistent with the law, while also 
playing an important role in striking the balance between 
tailored regulations and supervision and safety and soundness.
    I appreciate the positive meetings I had with each of you 
leading to today's hearing. I look forward to continuing a 
robust discussion on the following topics:
    The importance of right-sizing regulations and tailoring 
the supervisory framework to support a vibrant, growing economy 
while also ensuring a safe and sound financial system;
    Assessing market-based fixes to maintain stability in money 
markets;
    The development of central bank digital currencies and 
other technological innovations in the financial space, which 
we also discussed with Chairman Powell yesterday;
    And continuing to encourage the Federal Reserve to submit 
all rules to Congress under the Congressional Review Act, as 
well as to submit all significant guidance for purposes of the 
Congressional Review Act.
    I look forward to working with Dr. Shelton and Dr. Waller 
on these and other areas where the Fed and Congress can act to 
further reduce unnecessary burdens and promote economic growth.
    Congratulations again on your nominations, and I thank you 
and your families for your willingness to serve.
    Senator Brown.

           OPENING STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Mr. Chairman. Welcome, and thank 
you for beginning this hearing earlier because a vote is 
coming.
    Ms. Shelton and Mr. Waller, I would like to extend my 
greetings to you, your family, and your friends who have joined 
you. Welcome.
    Fed independence matters. We know economies with 
independent central banks have less price volatility, fewer 
bank panics, and more stable economies.
    One of the nominees, though, today before us does not 
believe in an independent Fed and has spent her entire career 
advocating for policies that would make our economy more 
volatile, give families and businesses even more to worry about 
in an uncertain world.
    The point of the independent Federal Reserve is to be a 
steady, guiding hand--to worry about the big picture of the 
economy so hardworking families do not have to.
    But for Ms. Shelton, these are not hazards to avoid. They 
are the goal. We all understand that on economic issues there 
are conservatives and liberals, and most people fall somewhere 
in the middle on that continuum. But Ms. Shelton is not a 
conservative. She is far outside the mainstream. She is off the 
ideological spectrum.
    For three decades, Ms. Shelton has been a prominent 
advocate for returning to the gold standard.
    In making the case for Ms. Shelton's nomination, her friend 
James Grant wrote in the Wall Street Journal that, ``[w]ith the 
nomination of Judy Shelton to the Fed, the discussion has 
tilted to gold. Gold is money, or a legacy form of money, Ms. 
Shelton contends, and the gold standard is a reputable, even 
superior, form of monetary organization.''
    People can agree to disagree on certain issues, but we do 
not get our own facts, and the facts are clear. If we as a 
Nation had followed Ms. Shelton's advice and had not advanced 
beyond the gold standard nearly a half century ago, our Nation 
would have bounced from boom to bust, without the monetary 
tools necessary to pull us out of recessions.
    Depressions would have been deeper and longer; millions of 
working families would have suffered even more, for no reason, 
and for certainly inexplicable reasons to them.
    That is not the end of the story. In multiple writings, Ms. 
Shelton clearly voiced her opposition to FDIC deposit 
insurance--the insurance that everyone takes for granted that 
has been part of our culture and our economy for so many years, 
the insurance, most importantly, that protects the savings of 
hardworking Americans. In other words, she thinks that if a 
bank fails--and we all remember far too vividly 10, 12 years 
ago, when they did indeed fail--then all the families whose 
savings and paychecks are stored in that bank should just lose 
all their money.
    Passing Federal deposit insurance was one of President 
Roosevelt's first acts during the Great Depression for a 
reason. That guarantee--that your money is safe in the bank--is 
the bedrock of our modern economy.
    This is not some intellectual exercise about moral hazard. 
This is the real world. I dare anyone to explain to working 
families in Idaho or Pennsylvania or Alabama or Louisiana or 
Minnesota or New Jersey or Rhode Island, I dare anyone to 
explain to working families that experienced bank closures in 
the Great Recession or the savings and loan crisis that FDIC 
insurance is ``a hugely distorting factor.''
    But with Ms. Shelton, it does not stop there.
    The money in your wallet is backed by the full faith and 
credit of the U.S. Government. Yet Ms. Shelton advocated for 
doing away with the dollar and replacing it with a common 
currency for North America. I am serious.
    To make NAFTA more effective, she mused that the dollar 
could be replaced with a common currency for North America 
called the ``Amero.''
    At other times she has called for the creation of a 
generic, global currency, backed by gold.
    That kind of globalist--probably no better word than that--
that kind of globalist ideology does not belong anywhere near 
our fiscal and monetary policy. The American dollar is the 
world's reserve currency; it should stay that way. We want it 
that way. We agree that it should be that way, and we are proud 
of it.
    The bottom line is Ms. Shelton has too many alarming ideas 
and has flip-flopped on too many important issues to be 
confirmed for this job.
    We know she will say exactly what the President wants her 
to say--further threatening the independence of the Fed.
    She was an interest rate hawk, until President Trump wanted 
lower rates. She opposed tariffs on China before she was for 
them.
    And based upon what I and other Committee Members heard in 
meetings with her, it appears that Ms. Shelton has changed 
pretty much all of her positions--on everything from the gold 
standard, to Bretton Woods, to a steadfast opposition to FDIC 
insurance.
    That is not the steadying hand required at the Fed.
    Eleven years into this recovery, more than ever the Fed 
needs to be independent and careful--not reactive to every 
tweet coming out of the White House.
    A vote for Ms. Shelton is a vote against Fed independence 
and our Nation's reputation as a financial bulwark for the 
whole world.
    Our other nominee to the Board, Mr. Waller is an economist 
whose work has been subject to peer review and whose analysis 
has helped direct the research path undertaken by the St. Louis 
Fed. I look forward to hearing more about how he will hold Wall 
Street accountable if he is confirmed.
    Last, Mr. Chairman, I want to note that there should have 
been a third chair at this table. We are not exactly sure why, 
but Ms. Jessie Liu was supposed to be considered by this 
Committee today. Her nomination was withdrawn 36 hours ago, 
although the Treasury Secretary told me publicly yesterday he 
knew for 2 days, so I do not think the Chair of this Committee 
and I know I did not know as Ranking Member.
    The position she was nominated for is responsible for 
overseeing our country's work preventing terrorist and drug 
cartel financing and enforcing economic sanctions. Now that her 
nomination has been withdrawn, that position will remain empty. 
Once again, to protect himself, the President of the United 
States put our national security at risk.
    Thank you, Mr. Chairman.
    Chairman Crapo. Senator Brown, thank you.
    I will now administer the oath. Would you both please rise 
and raise your right hand? 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?
    Ms. Shelton. I do.
    Mr. Waller. I do.
    Chairman Crapo. And do you agree to appear and testify 
before any duly constituted Committee of the Senate?
    Ms. Shelton. I do.
    Mr. Waller. I do.
    Chairman Crapo. Thank you. You may be seated.
    Your written statements will be made a part of the record 
in their entirety. And before you begin your statements, I 
invite you to introduce your family in attendance. Thank you. 
And you may start, Ms. Shelton.

STATEMENT OF JUDY SHELTON, OF CALIFORNIA, TO BE A MEMBER OF THE 
        BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

    Ms. Shelton. Chairman Crapo, Ranking Member Brown, and 
Members of the Committee, thank you for the 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 I am grateful to this Committee 
for considering me for the position.
    I am also deeply grateful for the support of my husband of 
42 years, Gil, who is here today along with our son, Gibb. And 
I want to give special thanks to my mother, Janette Potter, and 
the healthy contingent of family members seated behind me: John 
and Sharman, Jim and Kristy, Rick and Suzi. They all flew out 
from California yesterday to be here today with me. It means a 
lot.
    For nearly four decades, going back to my years as a 
doctoral student at the University of Utah, I have focused on 
the impact of monetary policy on economic performance. My 
studies encompass current financial and economic conditions as 
well as historical antecedents tracing back to our 
Constitution. One thing is very clear: The power to regulate 
the value of U.S. money is granted to Congress.
    Congress created the Federal Reserve as an independent 
agency and through the Federal Reserve Reform Act of 1977 
charged it with the mandate to promote maximum employment, 
stable prices, and moderate long-term interest rates. Our 
central bank has been entrusted with considerable power to 
carry out its responsibilities. Along with the political 
independence and operational autonomy granted to the Federal 
Reserve comes an obligation to be wholly accountable both to 
Congress and to the public.
    If confirmed, my priority will be to support monetary 
policy that facilitates productive economic growth while also 
ensuring the soundness and stability of the U.S. financial 
system. In exercising the Federal Reserve's regulatory 
oversight, I will support policies that are effective, 
efficient, and appropriately tailored to financial 
institutions, allowing them to better serve their customers and 
communities in ways consistent with maintaining a safe 
financial system.
    I am well prepared to conscientiously fulfill the duties of 
the position for which I have been nominated based on my 
background and experience. The first college course I ever 
taught was ``Money and Banking''. As a research scholar at the 
Hoover Institution at Stanford University, I analyzed the 
relationship between monetary policy and economic 
sustainability in the context of geopolitical competition. My 
first book accurately predicted the collapse of the Soviet 
Union; my second book examined the impact of currency movements 
on trade.
    I have testified numerous times as an expert witness before 
congressional committees in both the House and Senate. As U.S. 
Executive Director of the European Bank for Reconstruction and 
Development, I demonstrated strong leadership to achieve high-
priority objectives in accordance with U.S. strategic 
interests. Combining academic perspective with real-world 
insights, I hope to contribute intellectual diversity as a 
Governor and would work collegially to promote sound money and 
sound finances.
    In closing, I wish to emphasize my commitment to honor the 
constitutional authority of Congress to regulate the value of 
U.S. money. By fulfilling the statutory mandate Congress has 
assigned to the Federal Reserve, we ensure that America's money 
remains the world's most respected currency and its most 
trusted standard of value.
    Thank you again for the privilege of appearing before you 
today. I look forward to your questions.
    Chairman Crapo. Thank you.
    Dr. Waller.

 STATEMENT OF CHRISTOPHER WALLER, OF MINNESOTA, TO BE A MEMBER 
    OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

    Mr. Waller. Chairman Crapo, Ranking Member Brown, and 
Members of the Committee, thank you for the opportunity to 
appear before you today. I am honored to have been nominated by 
the President for this prestigious position and grateful to the 
Committee for its consideration of my nomination. I would be 
humbled to be able to serve my country in this capacity.
    I am also thankful for the support of my family members who 
are here with me today: my loving wife, Laurie; my three 
children, Sarah, Maggie, and Sam; and my mother, Ann, who has 
been my hero throughout my life.
    For the last 11 years, I have served as the Director of 
Research at the Federal Reserve Bank of St. Louis. During that 
time, I have attended over 60 Federal Open Market Committee 
meetings, and I have served as the main policy advisor to my 
bank president. As a result of this experience, I fully 
understand and support the dual mandate of the Federal Reserve. 
I also understand and appreciate the Federal Reserve's role in 
pursing policies to ensure a safe and stable financial system. 
If I am confirmed, I will continue to advocate for policies 
that achieve our dual mandate and maintain financial stability.
    I believe that my background and experience makes me 
uniquely qualified to fulfill the responsibilities of a Federal 
Reserve Governor. In my decade-long experience as a senior 
Reserve Bank official, I was deeply involved in policy issues 
confronting the Federal Reserve. But in my role, I also spent a 
substantial amount of time talking to members of our community 
about how monetary policy affected their lives and their 
businesses. That public input affected how I thought about 
policy and its consequences. I also learned how valuable it was 
to communicate clearly to the public what our policies were and 
why we were pursuing them.
    In addition to my experience as a Federal Reserve official, 
I was an academic for over 25 years, and I did a substantial 
amount of research on monetary theory, monetary policy, and 
central bank design. I have written extensively on the 
importance of central bank independence for the conduct of 
monetary policy. My research also focused on how the central 
bank can be made accountable to the electorate without giving 
up its independence. In particular, I studied the importance of 
the nomination and confirmation process in achieving central 
bank accountability.
    The Federal Reserve has been given tremendous 
responsibility by Congress to use its policies to improve the 
lives of the citizenry. Congress has also given the Federal 
Reserve tremendous freedom to pursue those policies as needed. 
But in return, it must be accountable to the public for its 
actions and be able to explain what those policies are and why 
they are being pursued. If I am confirmed, I pledge to work 
with my colleagues to implement policies that help us meet our 
dual mandate. I also pledge to be accountable for those actions 
and to be transparent as to why those actions were taken.
    Thank you again for the privilege to appear before you 
today, and I look forward to your questions.
    Chairman Crapo. Thank you very much, and I will begin the 
questioning with a couple of questions for each of you to 
answer. You do not need to give long answers to these as long 
as it is the right answer.
    [Laughter.]
    Chairman Crapo. First, do you agree with the importance of 
right-sizing regulations and tailoring the supervisory 
framework to support a vibrant, growing economy while also 
ensuring a safe and sound financial system?
    Ms. Shelton. Yes, I do, Mr. Chairman.
    Mr. Waller. Yes, I do as well.
    Chairman Crapo. Thank you.
    Senator Brown. That was the right answer.
    Chairman Crapo. That was the right answer.
    Do you agree that it is important to encourage the Federal 
Reserve to submit all rules to Congress under the Congressional 
Review Act as well as to submit all significant guidance for 
purposes of the CRA?
    Ms. Shelton. Absolutely.
    Mr. Waller. Yes, I do.
    Chairman Crapo. All right. Thank you.
    Again, this is for both of you, and you can give a longer 
answer to this one. The Federal Reserve independence is 
critical to enacting monetary policy and for addressing long-
term economic objectives. I know I and I think every single 
member of this Committee and Member of the Senate wants to 
assure that the Federal Reserve is independent. There is strong 
bipartisan support for maintaining Fed independence. What are 
your perspectives on the Federal Reserve maintaining its 
independence? Ms. Shelton, you may start.
    Ms. Shelton. Thank you very much for the question, Mr. 
Chairman. I believe that the independence of the Federal 
Reserve is a vital aspect of its credibility with the public. 
Congress has granted tremendous powers to the Federal Reserve, 
and citizens have to be assured that monetary authorities will 
be relying on their own best judgment and their own analytical 
capabilities in making their decisions, not subject to 
political pressure.
    Chairman Crapo. Dr. Waller.
    Mr. Waller. I have lived and breathed central bank 
independence for 35 years, both in my academic career and in my 
job as a Federal Reserve official. It is absolutely critical to 
do the right policies to get the best economic performance and 
to look at the data to determine how you want to set policy as 
opposed to partisan influences.
    Chairman Crapo. Thank you. And then this question is--I am 
going to ask both of you to answer it, but I want to start with 
Dr. Shelton. Dr. Shelton, some have tried to characterize your 
support for the gold standard as outside the mainstream thought 
and disqualifying for this position. What exactly are your 
views on monetary policy and the gold standard?
    Ms. Shelton. I would not advocate going back to a prior 
historical monetary arrangement. I think it is really important 
to acknowledge that the power to regulate the value of U.S. 
money is given to Congress by our Constitution, and Congress 
has created the Federal Reserve as an independent agency and 
given it its monetary mandate. That is a framework under which 
I will make decisions, if confirmed as a member of the Board of 
Governors. I have looked at historical systems going back to 
the beginning of our country because I think you can gain 
valuable insights by comparing economic performance under one 
set of monetary rules versus another. But money only moves 
forward, and we see it evolving faster than ever these days. 
And so I only use it to give perspective on money.
    Chairman Crapo. Thank you. And I would like your views on 
this, too, Dr. Waller.
    Mr. Waller. First, I have studied monetary theory for the 
last 20 years, have studied both asset-based monetary systems 
as well as fiat monetary system which we currently have. The 
fiat monetary system is pretty much what we have around the 
world. It works well as long as it is well managed by the 
central bank. There is no need to have the inefficiency of 
tying things to a metallic standard or any other real asset if 
needed.
    Chairman Crapo. All right. Thank you.
    Senator Brown.
    Senator Brown. Thanks, Mr. Chairman.
    I want to talk about Fed independence in a slightly 
different way from the Chairman. I appreciate his questions.
    Mr. Waller, I will start with you. Do you think that 
Chairman Powell has done a good job making independent 
decisions regardless of what the President tweets at him?
    Mr. Waller. I think Chairman Powell has been very 
professional in his job in carrying out policy as best he can 
and building a consensus on the Committee.
    Senator Brown. I will ask you the exact same question, Ms. 
Shelton. Do you think Chair Powell has done a good job making 
independent decisions regardless of what the President tweets 
at him?
    Ms. Shelton. Thank you, Ranking Member Brown. I think Chair 
Powell and every member of the Federal Open Market Committee is 
sufficiently self-possessed to rely on their own judgment. I do 
not think any of them are influenced by political pressure.
    Senator Brown. So is it OK that the President of the United 
States tweets at them and calls--the President who appointed 
him tweets at him and calls his names and said he is not doing 
good things for the economy, that is just OK?
    Ms. Shelton. Well, I do not censor what other people say, 
but I do believe that every American, every Member of Congress, 
and even the President has the right to criticize our Federal 
Reserve.
    Senator Brown. Based on what the President says about Chair 
Powell, Ms. Shelton, it looks like the Fed--and you could watch 
this and we all in this Committee and both parties are Fed 
watchers to a degree. You could watch these attacks by the 
President on his Chairman, our Chairman now. It looks like the 
President and the Federal Reserve are not working well 
together. Do you think the Chairman is doing a bad job 
accommodating the President's wishes?
    Ms. Shelton. I do not think it is the job of the Federal 
Reserve to accommodate political agendas. What I am saying is 
that the Fed operates independently, as it should, working for 
the best interests of the Nation.
    Senator Brown. Understanding that will be your answer to 
the next question, but go with me a little bit here. What do 
you think about the President's criticisms of Chairman Powell.
    Ms. Shelton. As I said----
    Senator Brown. Is the President right? Is Chairman Powell 
right?
    Ms. Shelton. As I said, I am not censoring what other 
people----
    Senator Brown. I am not asking you to censor. I am just 
saying we have something we have never seen in American history 
where the President of the United States consistently attacks 
his own nominee whom many of us, myself included, up here voted 
for, trying to get him to do different things on economic 
policy. What do you think about what the President--not 
censoring him, but what do you think about the President's 
advice to Chairman Powell and what he tells him to do?
    Ms. Shelton. I think what we have seen historically is some 
Fed Chairmen have felt they were being pressured behind the 
scenes. In some ways, it is refreshing if that is out in the 
open. And as I say, everyone--certainly business journalists 
dissect every word that is uttered by a Federal Reserve 
official, and it is available, all the information. Anyone can 
make a comment at any time.
    Senator Brown. Mr. Waller, I think that the Chairman of the 
Federal Reserve has done a pretty good job remaining 
independent. When he was here yesterday--he testified 
yesterday--Senator Kennedy and Senator Rounds and Chair Crapo 
and Senator Tester, and I am leaving out a couple, all 
emphasized, emphatically emphasized, certainly complimented the 
Chairman on his independence, but emphasized how important 
independence is.
    Do you pledge to be independent regardless of what 
President Trump tells you to do?
    Mr. Waller. Thank you, Senator Brown. I pledge to do what 
is best for the economy in terms of how we read the data and 
what is best to do to achieve our dual mandate. That is how I 
view the job, and that is what I intend to do.
    Senator Brown. Ms. Shelton, do you pledge to be independent 
in your decision making regardless of what the President tells 
you to do?
    Ms. Shelton. I pledge to be independent in my decision 
making, and, frankly, no one tells me what to do.
    Senator Brown. My last comment and question, Mr. Chairman.
    Ms. Shelton, going back three decades, you have written 
extensively some 95 articles and books, including several op-
eds in the last couple of years. Can you explain to the 
Committee why you have published in Cato or in the Wall Street 
Journal time and again praise for one set of provocative 
beliefs, like the U.S. should revert to the gold standard, that 
low interest rates steal from investors, that the Fed is an 
interloper in the marketplace and should be abolished, now when 
you come before Congress you claim you are firmly in the 
mainstream of economic thought? I am troubled with that. You 
have a paper trail for 30 years. You seem to be the new Judy 
Shelton, not the old Judy Shelton. What are we to make of that?
    Ms. Shelton. Senator, I think I have been intellectually 
consistent since I wrote a book in 1994 called Money Meltdown: 
Restoring Order to the Global Currency System. I do not claim 
to be in the mainstream of economists, but I do not think that 
is necessarily a virtue.
    Senator Brown. You are not an economist for one thing, 
right?
    Ms. Shelton. I am an economist, sir.
    Senator Brown. I thought your Ph.D. was in something else.
    Ms. Shelton. My Ph.D. from the University of Utah was 
administered through the Finance Department as majoring in 
international finance and economics, but it is a business 
administration degree through their school, yes.
    Senator Brown. OK.
    Chairman Crapo. Senator Shelby.
    Senator Shelby. Thank you, Mr. Chairman.
    I think, Dr. Waller and Dr. Shelton, both of you have 
extensive experience and you are academically qualified. I have 
no problem with that.
    Dr. Shelton, I am troubled by some of your writings and 
some of the articles that you--well, that others have written 
about your writings and some of the stands, and this is a good 
time to air them out, I suppose.
    I think the question to me--and I have been on this 
Committee a long time, and we have Senator Brown. We are more 
than Fed watchers. We are tasked with the Senate to evaluate 
all of you before you are confirmed or not confirmed.
    Some people say, Dr. Shelton, that you are basically an 
outlier, that you are not mainstream, you do not have 
mainstream views in the economy. Most people think--not 
everybody--that the role of the Federal Reserve, as stated by 
law, is price stability and full employment. Those are goals 
that we try to reach.
    When you are nominated to the Federal Reserve and confirmed 
by the Senate, generally it is for a long term, probably the 
longest term that we have, up to 14 years, I believe. So our 
views, I believe, should be mainstream.
    If people deem--and a lot of people have--that you are an 
outlier, not a mainstream player, if you were on the Fed, how 
would you work with the other members? Could you work with them 
on the goal of price stability and full employment? Or would 
you be really an outlier?
    Ms. Shelton. Thank you, Senator Shelby. I would look very 
much forward to working with my colleagues at the Federal 
Reserve. I have great respect for their capabilities and for 
their judgment. I think I would bring my own perspective, but I 
think the intellectual diversity strengthens the discussion and 
would be welcomed. So that is what I would hope to bring, but 
certainly with the goal of working with the people who are 
there as together we would try to formulate monetary policy 
most conducive to productive economic growth.
    Senator Shelby. You know, you have talked about it and 
other people have written about the gold standard. If we had 
all the gold in the world, all of it has been mined and all the 
jewelry and storage, it would not be worth, I believe, anything 
what our economies are worth, what the GDP of this country is 
worth or the GDP of the European Union or China or Japan and so 
forth. Would that basically be true?
    Ms. Shelton. That is true.
    Senator Shelby. So when you talk about the gold standard, 
that obviously was coming--the gold standard came in the old 
economy when we had a barter economy, statistical, didn't we, 
in a sense? Is that fair?
    Ms. Shelton. We have had a barter economy, yeah.
    Senator Shelby. We have progressed beyond that and it is 
the confidence of the Nation and the people and the economy 
backing all of the wealth behind it. Is that what we deem 
valuable today?
    Ms. Shelton. Definitely.
    Senator Shelby. So talk to us a little bit about your views 
on the gold standard, which we have given up long ago, and the 
other people in the world? I do not know anybody who is relying 
on it now. Do you still believe that is important? And why? 
Where are you?
    Ms. Shelton. Thank you, Senator Shelby. Well, first, I 
totally agree with your assessment. You never go back with 
money. It keeps moving forward into the future. And I am 
surprised that people attempt to say they must have some 
thought about me advocating a gold standard, and I suppose they 
are talking about the classical international gold standard. I 
would just point out that there is about $1.8 trillion in 
outstanding Federal Reserve notes. That is just the currency. 
Most of it is held outside the country.
    If you looked at the market value of the U.S. Government's 
total holdings of gold, it would be less than even a quarter of 
that amount, and that is just the most basic form of money. So 
I am not really sure what anyone----
    Senator Shelby. That is a commodity, isn't it?
    Ms. Shelton. It is a commodity. It has a historical use as 
a monetary surrogate. But it is mixed use today. So as I have 
said, it is useful to look at something that worked from 1870 
to 1913 when the U.S. was a participant in the classical gold 
standard. It is worth it to look at the Bretton Woods gold 
exchange standard where the U.S. was the anchor from 1944 to 
1971. But that was 50 years ago when we had any kind of a 
monetary role for gold. We certainly have to just be looking 
toward the future.
    Senator Shelby. Have you advocated a return to the Bretton 
Woods program?
    Ms. Shelton. What I have said about the Bretton Woods 
agreement is that it did establish a level monetary playing 
field in terms of exchange rates.
    Senator Shelby. That is when the world was in disarray 
right after the--about the time the Second World War ended.
    Ms. Shelton. Precisely, and a lot of Nations still 
struggling. The war was not over when Bretton Woods was being 
put together by the United States. We are thinking, ``Is this 
going to be worth it to win?'' Because if we are going back to 
what we had in the 1930s, when you had competitive devaluation, 
you had retaliatory tariffs, and that created a downward spiral 
in international trade, that is not worth fighting for. So the 
United States actually set up the Bretton Woods agreement to 
give hope that there would be a better future and that 
investment would flow to its highest use around the world, and 
that people would not use competitive depreciation to undermine 
the principles of free trade.
    Senator Shelby. Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman.
    Dr. Shelton, you are being considered for a very important 
position today. Can you think of a ``more stimulating 
challenge'' than serving on the Fed?
    Ms. Shelton. A more stimulating challenge?
    Senator Menendez. Than serving on the Fed.
    Ms. Shelton. It seems to me that would be the ultimate for 
someone who has studied monetary policy and economic 
performance.
    Senator Menendez. Can you think of a ``more meaningful 
responsibility'' than serving on the Fed?
    Ms. Shelton. I think it is a gravely responsible position.
    Senator Menendez. And can you think of a more important 
role than ``safeguarding our Nation's vital interests and 
deeply rooted values'' by serving on the Fed?
    Ms. Shelton. No, Senator Menendez.
    Senator Menendez. Those are serious words about serious 
responsibilities that will impact every American. But I 
question whether you fully understand the gravity of those 
words.
    Just 2 years ago, you appeared before the Senate
    Foreign Relations Committee on which I am the Ranking 
Member for your nomination as the U.S. Executive Director of 
the European Bank for Reconstruction and Development. In your 
testimony before the Committee, you said, ``Given my background 
in analyzing the strategic implications of global financial 
developments and my strong commitment to democracy, I cannot 
imagine a more stimulating challenge, a more meaningful 
responsibility than to take the role of safeguarding our 
Nation's vital interests and deeply rooted values at the 
EBRD.'' I agreed with you then.
    Yet during your brief tenure, which you withdrew from 
prematurely, you missed 11 of 26 Board meetings. You were the 
U.S. representative to the Bank. You were in a Senate-confirmed 
position, but you made it just to slightly over half of the 
Board's meetings.
    Dr. Shelton, would you give someone a promotion if they 
missed almost half the most important proceedings that they 
were assigned to?
    Ms. Shelton. Thank you for the question, Senator Menendez. 
It is a matter of public record that actually my attendance was 
closer to 70 percent. But let me explain something about the 
way a multilateral----
    Senator Menendez. You dispute the numbers I just----
    Ms. Shelton. Absolutely, I do.
    Senator Menendez. ----of how many you missed?
    Ms. Shelton. Not only that, but there is a perfect 
correlation, which I would like to explain. When I was not 
there, I was in Washington meeting with the people to whom I 
reported at the Treasury Department. I was conferring with my 
interagency colleagues----
    Senator Menendez. That is why we have telephones. As a 
matter of fact, Ambassadors are given telephones. They are 
given ways to communicate so they do not leave their posts. It 
is unique that each of the meetings you missed, you claim that 
you were in D.C., but you needed to be at the Bank voting on 
behalf of the United States in these all-important issues.
    You know, I just cannot imagine that the Foreign Relations 
Committee would give an ambassador a higher position if they 
were not there nearly half the time that they were supposed to 
be. So if you are confirmed, do you expect to serve your full 
term on the Fed?
    Ms. Shelton. I do.
    Senator Menendez. You do. Well, that is what you told the 
Foreign Relations Committee when you were confirmed as the 
Director of the EBRD, and here you are. So I fail to understand 
how I can take that answer seriously. Showing up is a basic 
requirement of a job, and if any of us missed half of our 
votes, half of our hearings, I do not think our constituents 
would send us back.
    Let me ask you this on a different topic. If we did not 
have the Federal deposit insurance, do you think consumers 
would trust a small, unknown financial institution with their 
money, or would they turn to bigger institutions with better 
name recognition?
    Ms. Shelton. Senator Menendez, I totally support Federal 
deposit insurance. We have had it since 1933. I think it is 
essential to reassuring depositors that they can safely put 
their money into American banks.
    This idea that I am somehow against deposit insurance, I 
tried to find out where that even came from. The only reference 
I could find to me even commenting on deposit insurance goes 
back 25 years where, in the course of explaining the theory of 
moral hazard, I said that if there is Government insurance, in 
theory a bank might engage in riskier financial behavior 
seeking profits because they would be protected by the 
Government insurance. And I feel strongly----
    Senator Menendez. Well, we had a lot of that which led us 
to the Great Recession, not because of financial insurance, but 
at the end of the day, one of your writings suggested that the 
deposit insurance increases risk in our financial system. But 
now you are telling us you support deposit insurance.
    So I am concerned how do we--have you ever told the 
President of your views that North America needs no borders?
    Ms. Shelton. No, and if you are referring to something I 
wrote in 2000, I would be happy to explain the context of this 
rumor. I was talking nothing to do with----
    Senator Menendez. It is not a rumor. It is what you wrote.
    Ms. Shelton. Well, it was nothing to do with immigration. 
In 2000, as I am sure you are aware, for the first time in 70 
years, Mexico elected a President who had not been a member of 
the ruling party. And Vicente Fox was saying that he recognized 
Mexico was experiencing a collapse in its currency every 6 
years coinciding with their electoral cycle. He wanted to be 
something new, and he wanted to bring Mexico's finances into 
order, balance the budget, align their regulatory approach to 
banking to something closer to what we have in the United 
States. And I thought that should be encouraged. I think we 
want a prosperous, stable economy on our border. And I also 
feel that it is only fair for Mexicans to have a chance to be 
successful in their own country. So that is what that article 
was about.
    Senator Menendez. I am happy to submit for the record, Mr. 
Chairman, some articles that speak quite differently to the 
view you just expressed on this and some of the other things I 
have raised with you, and we will let the members decide in 
their judgment.
    Thank you.
    Chairman Crapo. Thank you.
    Senator Toomey.
    Senator Toomey. Thank you, Mr. Chairman. And thank you to 
both the nominees for being here today and for the discussion 
we had in my office separately earlier this week.
    Let me just say for the record I think that using a price 
rule that might include precious metals is an intellectually 
defensible approach to monetary policy, just for the record.
    Senator Kennedy. Is or isn't?
    Senator Toomey. Is a defensible approach.
    Dr. Shelton, I understand that you have long advocated for 
a stable international monetary system, stability in exchange 
rates, and I doubt there would be any disagreement that that is 
certainly preferable to the alternative. The concern I have is 
that we do not get to control other countries' monetary 
behavior. We do not have a vote on what they do. And I am 
concerned about the extent to which you advocate for our 
monetary policy to be influenced and reactive to the foreign 
exchange behavior of other countries.
    So in August of 2019, in a Wall Street Journal article, an 
interview that you gave on CNBC was characterized--it said, 
``Ms. Shelton said in an interview on CNBC Thursday that 
central banks in Europe, China, and Japan are all devaluing 
their currencies against the dollar through monetary policy. 
When asked if the U.S. should follow suit, she said yes.'' 
Looking at the interview, it does look like that is an accurate 
characterization to me.
    In July of 2019, you wrote in a Wall Street Journal piece, 
and I quote, ``When the United States' trading partners engage 
in currency manipulation, it is not competing--it is cheating. 
That is why it is vital to weigh the implications of U.S. 
monetary policy on the dollar's exchange rate value against 
other currencies.''
    In September of last year, in a Wall Street Journal op-ed, 
you clarified your view that the Fed should fight this alleged 
cheating. You said, and I quote: ``In an era of worldwide 
currency exchange, America's central bank should not ignore the 
effects of movements spurred by other major central banks. With 
no consistent free trade principles governing global monetary 
policy, the Fed must take proactive steps to ensure that the 
U.S. can compete successfully.''
    So I guess my direct question, after reading these things 
that you have said and written, is: Is it your view that if a 
major American trading partner were to significantly devalue 
its currency intentionally, aren't you saying that the U.S. 
should match that devaluation and the Fed should play a role in 
achieving that devaluation?
    Ms. Shelton. Well, thank you, Senator Toomey, for the 
question and also for our discussion the other day, which I 
thought was very substantive. And I agree with what you were 
saying, that monetary policy executed by the Federal Reserve is 
directed at achieving our domestic economic objectives, and 
they have been outlined very clearly by Congress.
    I have said that among the factors that we need to 
consider, if I were to become a member of the Board of 
Governors, is the political context of the global economy and 
global finance. And I think we have to be aware of what other 
central banks are doing. Last year, 49 central banks lowered 
their interest rate, which caused their currencies to 
depreciate relative to the dollar, and it was not until July 
that our Federal Reserve decided likewise to lower a quarter 
point, as they did the next meeting and the next----
    Senator Toomey. Yeah, so I know I only have 5 minutes, and 
we are down to 1. My question is--and I think the only rational 
conclusion one can come to from reading what you have written 
and what you have said is that you believe the Fed should 
actively seek to devalue our currency if other countries are 
doing that. And I think that is a very, very dangerous path to 
go down. This beggar thy neighbor mutual currency devaluation 
is not in our interest, and it is not in the mandate of the Fed 
to pursue it. I do not think it is achievable. You have got 
multiple currencies. Which ones would you be watching? Would it 
be the euro or the yuan? They could be moving in different 
directions. And a Fed that has famously been unable to achieve 
its inflation target for lo these many years, why we should 
think that the Fed by changing monetary policy is going to be 
able to achieve some currency target I think is very, very 
unlikely.
    So I just want to stress I think this is a dangerous path 
to go down, and the recent body of your work certainly seems to 
be advocating for that intervention.
    Ms. Shelton. If I may, Senator?
    Senator Toomey. Sure.
    Ms. Shelton. It would be anathema to me to suggest that we 
devalue our money to gain a trade advantage. What I am saying 
is within the context of the framework for deciding monetary 
policy, we also have to look at the impact on employment and on 
stable prices. And if other central banks engage in those 
unfair practices, it can affect employment, especially our 
manufacturers who have to compete----
    Senator Toomey. But we can observe that from domestic data. 
We do not have to reference foreign exchange rates to determine 
whether there is an adverse problem with employment in the U.S.
    Sorry, Mr. Chairman.
    Chairman Crapo. Senator Tester.
    Senator Tester. Thank you, Mr. Chairman. I want to thank 
you and the Ranking Member for having this hearing.
    I want to thank both of you for being here in front of the 
Committee and for your willingness to serve on the Fed.
    I am going to start with you, Ms. Shelton. Do you think it 
is a good idea to sell our public lands?
    Ms. Shelton. I am sorry?
    Senator Tester. Do you think it is a good idea to sell off 
our public lands?
    Ms. Shelton. To sell off public lands? Senator Tester, 
honestly I have never considered that, and I do not have any 
opinion.
    Senator Tester. OK. In a 2009 book that you wrote, you said 
for the purpose of balancing our budget, we should consider--
and I paraphrase--selling the Postal Service, Amtrak, and 
Federal lands.
    Ms. Shelton. I do not recall taking that position. It is 
not something I am strongly advocating.
    Senator Tester. Well, it is an important issue. Where do 
you live?
    Ms. Shelton. I live in Fredericksburg, Virginia.
    Senator Tester. OK. So they probably do not have a lot of 
Federal lands in Fredericksburg, Virginia. In Montana, we do 
have a lot of public lands. And if we have got people out there 
in positions of power that are in the position of making sure 
that unemployment is maximized, as we do in the Fed, and we 
have people that have written about selling off things like the 
Postal Service and Amtrak and our Federal land holdings, that 
is a problem. Would you see it as a problem?
    Ms. Shelton. I understand what you said, that that would be 
a problem for the local economy or the area that you are 
speaking of, but----
    Senator Tester. But not generally for the country?
    Ms. Shelton. Well, I think it is always disconcerting to 
change employment or make some transition away----
    Senator Tester. Well, I think it is also important to note 
that these public lands drive an economy in Montana, and 
Montana has only got a million people, a little over a million 
people, but it is about $7 billion to our economy in Montana. 
So somebody who would advocate this would have pretty 
significant impacts on the 72,000 people who work in the 
outdoor industry in Montana.
    Ms. Shelton. I believe, Senator Tester, that that is a 
decision up to Congress. It would have nothing to do with the 
Federal Reserve.
    Senator Tester. You are right, but it does have impacts on 
people that are in positions of power, and I will tell you, as 
has been pointed out with previous questioners, the Federal 
Reserve is a position of power.
    One of the things that I like in folks is consistency, and 
I want to quote you, something that you wrote very recently, 6 
months ago, because you have said today--and correct me if I am 
wrong--that you are for independence of the Fed.
    Ms. Shelton. Absolutely.
    Senator Tester. Six months ago, in a Wall Street Journal 
op-ed you wrote, and I will quote this directly: ``It would be 
in keeping with the historical mandate if the Fed were to 
pursue a more coordinated relationship with both Congress and 
the President.''
    If that is not shipping the independence of the Fed out the 
door, tell me what it is.
    Ms. Shelton. Senator Tester, that article was explaining 
the legislation that has shaped the role of the Federal 
Reserve, especially with regard to its accountability. I was 
quoting from the 1978 Humphrey-Hawkins Act, which was passed by 
Congress a year after the Federal Reserve Reform Act. And what 
I was explaining is that that legislative language actually 
sets out six economic objectives for the country, and then it 
says, ``Attainment of these objectives should be facilitated by 
improved coordination among the President, the Congress, and 
the Board of Governors of the Federal Reserve.''
    Senator Tester. And in my opinion----
    Ms. Shelton. That is in the law. I did not write that.
    Senator Tester. Well, I am telling you that if you believe 
that we need to pursue a more coordinated relationship with 
both Congress and the President, but I think these questions 
about the President's tweeting and potential of me having 
influence on the Fed, which I do not think should be correct, 
is real.
    Ms. Shelton. Honestly, it surprised me to read that in the 
language----
    Senator Tester. But you wrote it.
    Ms. Shelton. ----of the legislation. It surprised me to 
read it, and then I merely revealed that, and I have been 
subsequently surprised that it is attributed to me rather than 
to Congress who wrote it.
    Senator Tester. Because you wrote it. You wrote it in a 
September Wall Street----
    Ms. Shelton. I was quoting from the legislation.
    Senator Tester. ----Journal article. OK. Let us go a 
different direction. The gold standard, also in the Wall Street 
Journal, let us return to the gold standard, and you hoped that 
Vice President Pence would hasten a return to the gold 
standard. You talked about a new Bretton Woods to be held in 
Mar-a-Lago. If that is not advocating for a return to the gold 
standard, I mean, what is?
    Ms. Shelton. Well, I would differentiate that the Bretton 
Woods agreement was a gold exchange standard when only the 
United States as the anchor had any kind of convertibility 
responsibilities. What I was suggesting there is that having a 
stable, international, level monetary playing field is very 
supportive of free trade, consistent with the principles of 
comparative advantage and mutual benefit----
    Senator Tester. Dr. Shelton, I really appreciate your 
willingness to serve. I do. But I am going to tell you 
something. When I read things and they say the things as 
directly as you said them--which I appreciate, by the way--and 
then you come in here and, by the way, can try to justify them, 
the dog does not hunt. I am just telling you, it does not. You 
have a lifetime of writings, and not once are there things in 
there that would indicate anything other than what I pointed 
out in this Committee meeting, whether it is the sale of public 
lands, whether it is the sale of the Postal Service, whether it 
is the gold standard, whether it is independence of the Fed.
    Thank you, Mr. Chairman.
    Chairman Crapo. Senator Rounds.
    Senator Rounds. Thank you, Mr. Chairman.
    First of all, welcome to the Committee. I would like to go 
back just a little bit. We had the opportunity to have Chairman 
Powell in front of us yesterday, and I would like to just 
remind my colleagues of what Chairman Powell said yesterday 
about what we called ``groupthink.'' Chairman Powell agreed 
with me that groupthink is unhealthy, and he said, ``I am 
strongly inclined to think that you need to hear all sides of a 
case.'' And to that end, Dr. Waller and Dr. Shelton, I think 
both of you would provide the Board with a fresh perspective, 
and I think that is healthy.
    I did want to have the opportunity to maybe delve into just 
a couple of separate items, and I am going to begin with Dr. 
Waller. I think you have been neglected here a little bit, and 
I would like to talk about--you are from the St. Louis Fed. Can 
you talk a little bit about what the differences are between 
what you see in the Upper Midwest with regard to the ag economy 
versus what we find in a lot of the rest of the economy, which 
has really been significant in terms of its growth, and yet the 
ag economy has been very slow and perhaps in large part because 
they have been on the tip of the spear of the trade 
negotiations that have been going on.
    Can you share a little bit about what you have seen in your 
previous work?
    Mr. Waller. Yeah, thank you, Senator. So as I mentioned in 
my opening statement, a large part of my job at the St. Louis 
Fed is to talk to the members of our community, bankers, 
business people, and we have a big ag action. In fact, our 
district is the largest soybean producer in the United States. 
So, clearly, the trade wars with China had a huge impact on our 
ag sector, and we hear that all the time when we go out and 
talk.
    We are hoping that some of the deals that have been signed 
will reverse this and there will not be a persistent decline in 
farm income. Also hopefully this will put some support under 
land prices, which have been drifting down for the last 5 
years, which potentially could create some problems for rural 
and ag banks if that continues. We are keeping an eye on that. 
But we are hoping that some of the trade uncertainty with China 
will sort of alleviate this pressure.
    Senator Rounds. Thank you.
    Dr. Shelton, they have made it very clear that they think 
that you come from a unique perspective with regard to your 
discussions in an academic sense with regard to the gold 
standard. They have suggested or at least some of your critics 
have suggested that you would not be independent.
    I have looked at some of your writings. It would appear to 
me that you have taken almost a devil's advocate approach in 
some cases. I think the Chairman of the Fed, Chairman Powell, 
has made it clear that he looks for differing points of view. 
And yet at the same time, I think each time we ask you 
questions, we lead the question a little bit.
    I would like to give you just a few minutes--and I have got 
1 minute and 53 seconds left, but would you take some time here 
and just explain what your thought is with regard to the gold 
standard and perhaps a little bit about what you see your role 
as a member of the Board with regard to both being a team 
member, but also being an independent member as well. In South 
Dakota, we value that independent point of view, and we think 
it is important. I would like you to share your thoughts 
without being led into any question.
    Ms. Shelton. Thank you. I appreciate that, Senator Rounds. 
I keep going back to the fact that the power to regulate the 
value of U.S. money is granted by our Constitution to Congress. 
It is in Article I, Section 8. And in the very same sentence, 
Congress is given the power to define official weights and 
measures for our country, because money was meant to be a 
measure, to be a standard of value. And I think that money has 
to work the same for everyone in the economy. And it is 
important that it serve that purpose as a reliable measure so 
that people can plan their lives.
    I do not see how you can have a free market economy if 
people cannot rely on the most vital tool that makes markets 
work. It is through money that we transmit market signals, and 
you need clarity of those signals or supply and demand can 
figure out what is the optimal solution.
    So I think that the importance of feeling responsible in 
discussions at the Federal Reserve is a responsibility to 
remember that the money has to work for everyone, and that in a 
sense it is a moral contract between the Government and the 
citizens.
    Senator Rounds. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Smith.
    Senator Smith. Thank you, Mr. Chair and Ranking Member 
Brown. And thanks to both of you for being here and for your 
willingness to serve, and welcome to your families also.
    As you can see, many of us on the Committee have great 
interest and concerns about the independence of the Fed, so I 
want to just pursue this a little bit.
    Dr. Waller, you believe that the Fed was designed to be an 
independent institution, yes?
    Mr. Waller. Yes, I do.
    Senator Smith. And do you think that independence is an 
important feature of what allows the Fed to work?
    Mr. Waller. Yes, I do. The structure of the Fed, this 
process, everything is designed to give the Fed the 
responsibility to conduct monetary policy as it sees fit, 
according to achieving the goals that Congress has laid out for 
us. So Congress gives us the goals; then they give us the 
freedom to do what we think is best to meet those goals.
    Senator Smith. Because the opposite of an independent Fed 
is a Fed that is politicized, a Fed that would allow sort of 
the short-term interests of a political leader to trump what is 
in the best interests of Americans and the American economy in 
the long run. That is really the choice: independence of the 
Fed or politicization of the Fed.
    So what would be your judgment of a statement like this--
this is a quote--noting that ``do not see any reference to 
independence in the legislation that has defined the role of 
the Federal Reserve for the United States,'' or think it is 
healthy that, again, ``criticism from the White House of the 
Fed is out in the open.'' What do you think of that, Dr. 
Waller?
    Mr. Waller. Well, the institutional design of the central 
bank is what gives us its independence, the combination of 
having politically confirmed Board members plus regional Fed 
presidents who are not political appointees provides a check on 
the political aspect. The overlapping long terms of office give 
you some protection in the sense of being able to think in the 
long run for the good of the country and how you develop 
policies. The fact that we do not make policy by one person, 
that it is actually a group that has to make that decision, 
requires some degree of consensus on how you develop policy. 
That is the tough job of the Chairman.
    Senator Smith. But the fact that, in this statement, there 
is not reference to independence in the legislation that 
defined the role of the Federal Reserve of the United States, 
do you think that that means that there is not independence?
    Mr. Waller. No. Like I said, as far as I view it, it is the 
institutional design that is what gives you your independence.
    Senator Smith. So, Dr. Shelton, let me ask you the same 
initial question. Do you believe in the independence?
    Ms. Shelton. Absolutely, Senator Smith.
    Senator Smith. So if that is the case, what did you mean 
when you told a UBS executive in an interview 4 months ago that 
you ``do not see any reference to independence in the 
legislation that has defined the role of the Federal Reserve 
for the United States''? What did you mean by that statement?
    Ms. Shelton. In researching the language of the 1977 
Federal Reserve Reform Act and in the Humphrey-Hawkins 
legislation, I was searching for exactly that, to make this 
statement. As I say, I was surprised it is not asserted more 
clearly. But as Dr. Waller was saying, the operational autonomy 
of the Federal Reserve assures its independence over and above 
its political independence, which is guaranteed by having 
members who think for themselves, as I believe every member of 
the Federal Open Market Committee does. And, I mean, the only 
one who can reverse an interest rate decision of the Federal 
Reserve are the members of the FOMC themselves, as they did 
last year.
    Senator Smith. So you also said that you think that it is 
healthy that ``criticism from the White House of the Fed is out 
in the open.'' So do you think it is healthy for the President 
to criticize the Fed?
    Ms. Shelton. Well, as I have said, I think in the past some 
Federal Reserve officials have suggested they were quietly 
pressured, so at least it is transparent. But I have also said 
I do not censor what someone else says, and I believe everyone 
has the right to criticize the Federal Reserve, including the 
President, including every Member of Congress, and every 
citizen.
    Senator Smith. But isn't what the President is doing here, 
isn't this an attempt to influence the Fed, which wouldn't that 
suggest that the President does not believe in the independence 
of the Fed because he is, in fact, attempting to use his 
significant power in order to influence the Fed? Doesn't that 
mean that he does not himself believe in the independence of 
the Fed?
    Ms. Shelton. I do not think people in that position of 
responsibility as someone serving on the Fed is easily 
intimidated. I think that is what you are looking for, is 
people who think for themselves. And that is why I appreciate 
this Committee judging nominees for exactly that 
characteristic. So I do not think that anyone on the FOMC is 
affected by political pressure.
    Senator Smith. Well, you know, my view is this is clearly 
the President attempting to undermine the independence of the 
Fed, and this is an issue that I am very concerned about. I 
know I am out of time, Mr. Chair, but thank you very much.
    Chairman Crapo. Thank you.
    Senator Kennedy.
    Senator Kennedy. Dr. Shelton, I want you to assume a couple 
of facts for me. Assume that you are queen for a day and you 
are running the Federal Reserve and you have unfettered 
discretion. Assume that economic circumstances in the United 
States and the world are the same as they are right now, except 
the bottom has fallen out of consumer confidence and spending, 
unemployment has jumped from 3.5 percent to 6.5 percent in a 
very short period of time, and we are in a recession. How would 
you get us out?
    Ms. Shelton. Well, thank you for the question.
    Senator Kennedy. You are welcome.
    Ms. Shelton. It is hard to imagine that situation, but the 
first----
    Senator Kennedy. Assume it is true, and tell me, if you 
could, because they only give us 5 minutes, how you would get 
us out.
    Ms. Shelton. It would not be up to me, even if I were queen 
or Chairman. That is the importance of----
    Senator Kennedy. Well, let us assume for a second----
    Ms. Shelton. ----having the discussion.
    Senator Kennedy. You are using my time, Doc. Please assume 
what I just told you and you are running the Federal Reserve 
and you do not have to answer to anybody. What would you do? I 
think you understand the question.
    Ms. Shelton. I would go to the mandate, and I would talk 
with the other members of the FOMC about the appropriate 
monetary policy to help restore----
    Senator Kennedy. What is the appropriate monetary policy? 
What would you do? You do not have to talk to anybody. What 
would you do? How are you going to get us out of the recession?
    Ms. Shelton. Well, the problem we have now is we are very 
close to zero on interest rates.
    Senator Kennedy. Yes, ma'am. What would you do to get us 
out of the recession?
    Ms. Shelton. I think we are down to the other tools that 
the Federal Reserve has.
    Senator Kennedy. Would you lower interest rates?
    Ms. Shelton. I would never go negative. I mean, I am averse 
to that idea. And so the alternative is----
    Senator Kennedy. I am sorry. I am not trying to be rude, 
but----
    Ms. Shelton. ----quantitative easing.
    Senator Kennedy. ----they just give us 5 minutes. Would you 
take them to zero?
    Ms. Shelton. At the maximum, and I do not like to say you 
would eliminate courses of action, but I would be very 
reluctant to go below that. The Fed can always engage in 
purchases of assets----
    Senator Kennedy. So you would take them to zero, but you 
would not go negative?
    Ms. Shelton. I think it undermines the financial structure.
    Senator Kennedy. You would go to quantitative easing?
    Ms. Shelton. Very reluctantly, but I think first I would 
make it clear that there are limits to monetary policy. At some 
point you really cannot stimulate growth. I would call for 
fiscal----
    Senator Kennedy. Yes, ma'am. Again, I am sorry to 
interrupt, but you would go to quantitative easing.
    Ms. Shelton. That is your only alternative. If you think 
that----
    Senator Kennedy. What volume would you use? Now, we have 
gone from 3\1/2\ to 6\1/2\ interest rate, bottom fallen out of 
consumer confidence. How much are you going to buy a month?
    Ms. Shelton. Well, every round of QE has been less 
effective than the prior rounds.
    Senator Kennedy. I understand. How much are you going to 
buy a month?
    Ms. Shelton. I would probably look at what the most recent 
one was, so we are looking at approximately $80 billion a 
month.
    Senator Kennedy. OK. Do you think Congress ought to start--
well, we are already deficit spending. We are already like a 
problem gambler chasing his losses. But would you recommend 
fiscal stimulus and that we have a stimulus package?
    Ms. Shelton. Obviously, that is up to Congress, not the 
Federal Reserve.
    Senator Kennedy. I understand. I am asking your 
recommendation. I get that.
    Ms. Shelton. Well, there might be incentives----
    Senator Kennedy. Would you recommend that we go to a 
stimulus package?
    Ms. Shelton. It depends what it is. If it is just spending 
more or projects that are not shovel ready, I do not think that 
is good. But if you can restore business confidence and 
encourage business capital investment through tax reform, that 
could be helpful.
    Senator Kennedy. OK. So you think we should just increase 
deficit spending?
    Ms. Shelton. I do not like deficits, but----
    Senator Kennedy. I understand. I am just asking what you 
would do.
    Ms. Shelton. In an emergency situation, I think the most 
important thing is to restore that consumer and business 
confidence.
    Senator Kennedy. I get that. Would you recommend that we 
deficit spend dramatically?
    Ms. Shelton. Reluctantly, if it appears that there is 
stimulus potential in doing so, but that would be----
    Senator Kennedy. That is a yes?
    Ms. Shelton. ----Congress' decision.
    Senator Kennedy. That is a yes?
    Ms. Shelton. If you are down to the wire.
    Senator Kennedy. OK. I have got 38 seconds. Dr. Waller, 
could you answer my question? What would you do?
    Mr. Waller. Yeah, this would be the standard monetary 
policy toolkit. You would cut interest rates probably as low as 
you could to zero. Step two, you would typically use forward 
guidance, which was trying to signal to the markets how long 
you intend to keep interest rates low.
    Senator Kennedy. You would try and talk them down.
    Mr. Waller. Try and talk them down. I would agree you would 
need some fiscal support since we are constrained by the lower 
bound, because I personally would not want to go negative----
    Senator Kennedy. Would you do quantitative easing?
    Mr. Waller. Quantitative easing would be a possibility if 
you wanted to try to lower longer-term----
    Senator Kennedy. How much?
    Mr. Waller. That would be a quantitative measure. I do not 
know----
    Senator Kennedy. What does your gut tell you?
    Mr. Waller. My gut tell me?
    Senator Kennedy. Yeah. We have gone from 3\1/2\ to 6\1/2\. 
I am talking fast, Mr. Chairman.
    Chairman Crapo. You are out of time.
    Senator Kennedy. I am going to land this plane.
    [Laughter.]
    Mr. Waller. I will throw out a number: 500 million.
    Senator Kennedy. 500 hundred million, thank you. Thank you.
    Chairman Crapo. Thank you.
    Senator Cortez Masto.
    Senator Cortez Masto. Thank you. I appreciated the line of 
questioning. It was really enlightening.
    So, Dr. Shelton, let me ask you this: In July of 2015, you 
presented at the Cato University, and at that event, in 
response to a question, you said, and I quote: ``I do not trust 
Government statistics on GDP growth or on inflation.'' So what 
specifically about those statistics do you distrust?
    Ms. Shelton. I think it is a challenge to look at, 
particularly with regard to inflation, the variety of indices. 
We are mostly familiar with the Consumer Price Index. The Fed 
uses the Personal Consumption Expenditures Index. I am not sure 
that either really captures the impact of technological 
innovation; that is, a basket of goods priced at a certain 
level today might be delivering a lot more in terms of services 
than, say, a telephone from 20 years ago. And so I am not 
saying I distrust. I am just saying that it is difficult to 
measure consistently through time Consumer Price Indices and 
use that as the main tool for making monetary policy.
    Senator Cortez Masto. Are there other Government statistics 
that you feel the same way about?
    Ms. Shelton. I am not sure what ones I would suggest.
    Senator Cortez Masto. Let me ask you this: There has been a 
lot of talk about the gold standard in your previous writings 
and your position on eliminating the Federal deposit insurance. 
I was looking at your book, Money Meltdown, that you wrote in 
1994, and really the last paragraph on the section that talks 
about gold convertibility, you basically state that eliminating 
the Federal deposit insurance would restore the essential 
character of banking as a vehicle for channeling financial 
capital into productive investments while striving to meet the 
risk and timing preferences of depositors.
    So if you were appointed to the Federal Reserve, would you 
still consider that as an opportunity or an option to focus on 
and advocate for the elimination of the Federal deposit 
insurance?
    Ms. Shelton. Senator, no. I think that having deposit 
insurance is essential to maintain trust in the American 
banking sector, and I was merely using an example to explain 
moral hazard by suggesting that in the presence of Government 
insurance, the owners of the bank, a failing bank, may be 
motivated to engage in more risky behavior than they would in 
the absence of Government insurance. And I think it is 
important that the owners of the bank bear the brunt of the 
cost of paying for failure rather than having the Government 
step in.
    Senator Cortez Masto. OK. Along with my colleagues, I am 
concerned--and let me just say this, because you have a history 
of writings, and you should be proud of them. They are your 
writings, they are your belief, and based on your background 
and experience. But when you come before us for this position, 
it seems like you are taking a 180-degree position on all of 
this just to be appointed to this position. So how do we trust 
that whether you are before us today and who you are today 
versus your writings in the past, who are we getting that is 
going to be on the Federal Reserve?
    And one final thing. You said you are from Fredericksburg, 
Virginia, but you are going to be representing California on 
the Federal Reserve. Explain that to me.
    Ms. Shelton. I believe that issue you mentioned there at 
the end is decided by other people. I am not involved with 
that. But my understanding is that all the Governors are 
assigned effectively to a district and that my correlation with 
the San Francisco district bank is quite strong. I was born and 
raised in California. My family behind me can verify that. And 
I went to school in California, in Oregon, my graduate work in 
Utah, all States within the San Francisco district. My husband 
and I own homes in Utah and California. My first position after 
receiving my doctorate was at the Hoover Institution in San 
Francisco--or in Palo Alto, very near to San Francisco. So I 
have a very strong affiliation with California and feel close 
to that area.
    Senator Cortez Masto. Thank you. So who are we getting? Who 
are we getting on the Board: the woman who wrote extensively 
and should be proud of it, or the woman who sits before us 
today and is countering everything that she has said in the 
past? Help me with that.
    Ms. Shelton. Senator, you are getting the authentic Judy 
Shelton. I feel I have been intellectually consistent 
throughout my career, always focusing on monetary policy that 
is conducive to productive economic growth.
    Senator Cortez Masto. OK. Thank you.
    Chairman Crapo. Senator Cotton.
    Senator Cotton. Thank you, Mr. Chairman. Thank you both. I 
know there has been a lot of talk about gold today. There is an 
old saying, ``Worth its weight in gold,'' which goes back to 
the fact that early coins actually were weighed. That is why 
peso means ``weight'' and the British pound is called the 
``pound,'' and lira means ``pound,'' which has the same Latin 
root word as Libra, the digital currency that Facebook and 
others have proposed as well, which brings me to my point that 
I want to talk about with Ms. Shelton, the need for digital 
currency to maintain the dollar's primacy in the world. These 
examples are just a few of how throughout history currencies 
have always had the same properties, whether they are liquid, 
they are stable, they are stores of values, they eliminate 
inefficiencies of bartering, and whether or not we need to add 
a new property to our currency, namely, that it be digital.
    To be clear, I am not talking here about cryptocurrencies 
or anything like that. I am talking about a central bank 
digital currency because that is exactly the direction that 
China intends to go with the digital yuan.
    China, like a lot of fragile developing economies, you 
might say, needs digital currencies primarily internally 
because they do not have the kind of institutions that we have, 
whether that institution is the dollar, whether that 
institution is the Federal Reserve, or simply the rule of law 
and rights of property and contract.
    For the United States, we need the digital currency a 
little bit less, I would argue, internally but, rather, to help 
preserve the primacy of the dollar worldwide, so, for instance, 
China has wide-scale use of digital payment systems inside of 
China. But they hope to use the digital yuan worldwide to 
replace the dollar as the reserve currency, with all of the 
economic benefits that that brings to the United States, and 
especially the security benefit it brings to enforce sanctions. 
So just to use an example, China buys a lot of agricultural 
products from Argentina. They do not contract those and 
transact in pesos or in yuan but in dollars, which, again, 
gives us great leverage in enforcing our sanctions worldwide.
    If we do not move to add digitization to the dollar as a 
feature of those timeless historical properties of currency, I 
worry a lot that a digital yuan could ultimately replace the 
reserve currency, just as we replaced the pound in the last 
century.
    So, Ms. Shelton, could you talk to us a little bit about 
what you on the Federal Reserve Board and what the Federal 
Reserve as a whole can do to help protect the dollar's reserve 
currency, and especially address the need to have digitization 
as a potential property of the dollar?
    Ms. Shelton. Thank you, Senator Cotton. I think that is an 
extremely important discussion, and I agree with your 
assessment. I think we are compelled to think about that. The 
dollar is the most important instrument of soft power that we 
have around the world. And, yes, it is the dominant reserve 
currency. But we cannot rest on our laurels in that regard 
because, as you suggested, rival Nations are working very 
diligently to have an alternative to the dollar. And while they 
cannot beat us as a currency, they can add features, because 
there is a demand for digital access to banking services, to 
payments, and I think it is very important that we get ahead of 
the curve to ensure that the dollar offers, continues to offer 
the best currency in the world, the most respected, the most 
utilized, and we need FinTech innovation to keep us going in 
the right direction and to be a leader instead of passively 
observing what other countries might do.
    Senator Cotton. And, again, to reiterate, I am speaking 
primarily about the primacy of the dollar worldwide, not 
domestic purposes. Governor Brainard gave what I thought was a 
pretty good speech last week about central bank digital 
currencies. She cited some of the reasons why developing 
economies need it, such as, you know, high degrees of cash use 
and weak financial institutions and underdeveloped payment 
systems and a risk of inflation in domestic currencies. You 
know, we do not face those nearly to the same degree. What I am 
talking about is the need to have a dollar that is competitive 
in world markets, that has--it has earned its position over the 
last century, which is why we replaced the pound, and it has 
maintained that position against competitors like, say, the 
euro and still to this day the yuan. I do not want to see a day 
when we wake up and have a Sputnik moment with our currency in 
which we are no longer the world's reserve currency.
    My time has expired. Thank you both for your willingness to 
serve.
    Chairman Crapo. Thank you.
    Senator Jones.
    Senator Jones. Thank you, Mr. Chairman. Thank you both for 
being here today. Dr. Waller, thank you for your work. I 
appreciate it. I know you have not had as many questions. We 
have not had the chance to meet, but I appreciate that. I do 
want to direct my questioning to Dr. Shelton.
    Dr. Shelton, in 2011 there was a guy named Bernard von 
NotHaus. He is the creator of a fictional currency called the 
``Liberty Dollar''. He was convicted by a North Carolina 
Federal jury by making, possessing, and selling $60 million 
worth of his own precious metal-backed currency. The U.S. Mint 
had actually had to issue a warning about this because he was 
putting on this--they had to issue a warning that it was not 
legal tender even though it was marked with dollar signs, the 
word ``dollar,'' ``U.S.A.'' and said ``Trust in God'' instead 
of ``In God We Trust.'' The prosecutor from North Carolina in 
that case called him--accused him of domestic terrorism. He had 
written in his book that he denied 9/11 had happened and 
compared it to those people who think that Lee Harvey Oswald 
did not kill President Kennedy.
    I would call this guy an ``outlier.'' My colleague Senator 
Shelby had talked about outliers, completely out of the 
mainstream with regard to things. But in a 2012 interview, you 
called this guy the ``Rosa Parks of monetary policy.''
    Now, I got to tell you, I am a native Alabamian. Rosa Parks 
has got a statue in the United States Capitol. She had, in one 
act of courage, defied the Jim Crow laws and tried to bring 
down the walls of oppression that kept a race of people from 
voting and for basic human and civil rights. And this guy seems 
to be issuing defiance on a Federal Government policy, monetary 
policy, and you have praised that, you said, because he is 
challenging what the Federal Government has done with regard to 
carrying out its constitutional responsibility to maintain the 
value of U.S. currency. At the Cato Institute, when he praised 
you, you said to him, ``I very much admire your boldness and 
audacity. I think you are really challenging the Fed in a way I 
respect.''
    What am I missing? If that is not out of the mainstream of 
America, of history, I do not know what is. So tell me what I 
am missing when you think a guy like this needs to be 
compared--and what he is trying to do to the monetary policy in 
the United States, how that compares to the courage of someone 
like Rosa Parks?
    Ms. Shelton. Well, Senator Jones, the last thing that I 
would ever do is demean the courage of Rosa Parks.
    Senator Jones. Well, you did. You do realize that, don't 
you? I mean, you did by doing that.
    Ms. Shelton. I apologize for the comparison. I truly do.
    The gentleman you are referring to, he did an audacious 
thing. I would never condone violating----
    Senator Jones. Did you admire what he did with the Liberty 
Dollar and $60 million and being convicted of Federal crimes in 
North Carolina? Do you admire that, Ms. Shelton?
    Ms. Shelton. I believe that he was testing the idea that 
the Constitution in Article I, Section 10, says that States can 
only use gold and silver as legal tender.
    Senator Jones. So within the Federal Reserve, is that 
something you want to test? I mean, you are going to be within 
this, if you get confirmed. Is that something that you want to 
test? Are you now taking that admiration to inside the walls of 
the Federal Reserve? Is that what we are to think?
    Ms. Shelton. No, Senator. And as I have said a number of 
times this morning, it is important to acknowledge that the 
power to regulate the value of U.S. money is granted to 
Congress by the Constitution, not to the Fed. Congress created 
the Federal Reserve as an independent agency and gave it a 
monetary mandate to promote maximum employment, stable prices, 
and moderate long-term interest rates. And that is the 
framework under which I would make decisions if confirmed.
    Senator Jones. You have indicated at one point that you 
thought that we might want to go to a standard like the euro, 
creating something for North America, a currency called the 
``Amero.'' Do you still believe that? Is that a good policy?
    Ms. Shelton. Well, Senator, sometimes I am asked to think 
out of the box and look at future scenarios.
    Senator Jones. I am just asking you a quick question. I 
have got 30 seconds. Is that a good policy or not?
    Ms. Shelton. I just want to clarify. I am not pursuing that 
as an initiative, but I do think that when the currencies of 
our major trading partners depreciate against the dollar, it 
changes the terms of trade even after they have been carefully 
negotiated.
    Senator Jones. Well, Dr. Shelton, I have got to be honest 
with you. I have heard the questions and answers, and I have 
heard several Senators here question what you have written in 
the past with what you are saying today. It reminds me of a 
comment that my old boss, Senator Heflin, who I sit in his seat 
now, talked about a number of people having a ``confirmation 
conversion.'' But I think you said it best, that what we will 
get is the authentic Judy Shelton, and that is what bothers me 
tremendously. But thank you, Mr. Chairman.
    Chairman Crapo. Senator Tillis.
    Senator Tillis. Thank you, Mr. Chairman. Thank you both for 
being here. Congratulations to the family. I am sure that you 
are proud. And to the Shelton family, your heart rate will 
reduce about 10 or 20 beats a minute in about 30 minutes.
    Look, I want to go back. I had not planned on going through 
this. I watched most of the hearing in my office before I came 
down here, and I have heard a lot of people quoting your 
writings. I want to lay something out and then get you to 
respond to it. I want to make sure that people understand the 
difference. They are using quotes that you wrote that were 
actually quotations from other writings.
    For example, I think in one article that I believe was used 
by Senator Tester and referenced by others, public law says 
Full Employment and Balanced Growth Act of 1978. In that public 
law, it says, ``The attainment of these objectives should be 
facilitated by setting explicit short-term, medium-term 
economic goals and improve coordination among the President, 
the Congress, and the Board of Governors of the Federal 
Reserve.'' That is what you were quoting, right?
    Ms. Shelton. Exactly, Senator.
    Senator Tillis. And that was the basis for them thinking 
that you were asserting--the other Judy Shelton was asserting 
something else in your words. But, in fact, those were not your 
words, right?
    Ms. Shelton. I was quoting.
    Senator Tillis. And, in fact, they are the words of 
Congress.
    I also want to go back--when we talk about independence--I 
find it remarkable, actually, on this Committee we are talking 
about--Chairman Powell was here yesterday, and we are talking 
about undue political influence on the Fed. That is what we do 
every day when we bring the Fed up before this Committee. We 
are trying to assert our political influence. And I do not 
think the President is any more or less entitled to do that. 
And I do not think any other President has failed to do it, 
whether they do it publicly or privately.
    You made a point about, at least in this case, it is 
transparent. That is one thing you can say about the President 
and his communication style. But I think we are fooling 
ourselves if we think any President has not tried to have a 
discussion about their view of where you need to go.
    But can you all cite either example--Mr. Waller, I am going 
to give you a chance to talk because you have been given a good 
pass, and then maybe with Dr. Shelton. But, Dr. Waller, give me 
an example where you have seen political pressure ultimately 
drive a political decision on the part of the Fed?
    Mr. Waller. Well, there has been a long history of what 
used to be called ``bashing and coercion'' from the 
Administration on the Fed.
    Senator Tillis. Yeah, it is what we do.
    Mr. Waller. So this has a long history. The question is----
    Senator Tillis. But what I am saying, in an example where 
that political pressure--because we are all talking about this 
fear, uncertainty, and doubt of the Fed being politicized. I am 
just trying to give an example where that political pressure 
actually drove the Fed to make a decision that was not founded 
in the dual mandate.
    Mr. Waller. So the classic example in monetary history is 
Richard Nixon and Arthur Burns. Nixon put a tremendous amount 
of pressure on Burns to keep interest rates low to help with 
his reelection, which apparently Burns followed through with. 
That is the best-known example I have.
    Senator Tillis. I will tell you that sometimes I see maybe 
political influence work in reverse. I am sure both of you are 
aware of former Governor Dudley's comments about making things 
go south so President Trump cannot get reelected. Do you all 
think that is inappropriate? I hope so.
    Mr. Waller. I thought it was totally inappropriate, 
speaking for the Fed.
    Senator Tillis. Dr. Shelton.
    Ms. Shelton. Most certainly.
    Senator Tillis. All right. Now I want to talk about--we 
also talked about independence. I agree with what everybody 
said on both sides of the aisle about Fed independence from 
undue political pressure. What I have got a real problem with 
and a couple of examples right now is the Fed asserting its 
independence from oversight or asserting its independence from 
the Administrative Procedures Act. Chairman Powell yesterday, 
in response to a question I had about LISCC and the GAO's 
assessment about that not having been appropriately 
promulgated, concerns me because I get that you need to be 
independent, but you have to be answerable to the laws that 
other regulatory agencies are answerable to.
    I am not going to ask you to respond to this question now 
because I am going to finish on time, but the General Counsel 
in the middle of June last year, in response to the GAO's 
assessment that the LISCC guidance had really risen to a rule 
and should have been promulgated in that manner, said that ``we 
are assessing whether or not our guidance is accountable to the 
GAO.'' That is an absolutely unacceptable answer. And for 
anybody here, you all know this, Chairman Powell can give a 
comment in an oversight hearing or make a speech, and it could 
have a ripple effect rising to a level of a rule. And to sit 
here and say, well, guidance is not really rulemaking, it is 
not material to the examination process, defies any knowledge I 
have of how examinations go on and what goes on in those 
confidential meetings.
    So I am going to submit for the record roughly the same 
question I asked Chairman Powell yesterday, and I would like 
your response.
    Thank you all and congratulations.
    Chairman Crapo. Thank you.
    Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman. I thank both 
of you for being here.
    Ms. Shelton, I am sure you have been covering or watching 
some of the articles that have been coming out with respect to 
your record years ago compared to now. And there does seem to 
be a pattern of total flip-flopping. If you look at the period 
of time when Bernanke and Yellen were the heads of the Federal 
Reserve, you criticized them for--let us see--cheap money, fake 
economy. You were a deficit hawk. You wanted tight money then. 
In 2011, you criticized the Federal Reserve for weakening the 
dollar to improve our exports in order to improve our economy 
back home.
    The only pattern that I see here is a political one, not an 
economic one. And I think that is what concerns a lot of people 
because we want somebody on the Federal Reserve who is going to 
look at the economic facts and draw conclusions from those, not 
the political facts. And so I want to also ask you in that 
regard about the positions you have taken on the deficits and 
debt, and I have actually had concerns myself over the years 
about deficits and debt. But here is what you wrote back in 
2009, which, of course, was still during the economic downturn, 
and so the economy was hurting. Obviously, economic stabilizers 
kicked into effect.
    But you wrote in the Wall Street Journal, ``Unending fiscal 
deficits, unconscionable accumulations of Government debt, 
these are trends that are shaping America's future.'' And you 
go on to predict that ``there will be flight from the dollar, 
our Nation's money is being severely compromised, and it is 
going to be gloom and doom.''
    None of those predictions proved to be true, did they?
    Ms. Shelton. I think it was a very unhappy period in the 
wake of the 2008 crisis that was devastating across the 
country. And we engaged with the Federal Reserve seeking 
monetary stimulus and extreme measures, going to near zero 
interest rates and massive purchases of Government assets.
    Senator Van Hollen. Right. And I think I heard an exchange 
earlier with Senator Kennedy where you said that if we had that 
kind of economic downturn, you would look at using all those 
tools. Is that correct?
    Ms. Shelton. Yes, at the----
    Senator Van Hollen. But you were very critical--I mean, the 
record is pretty clear. You criticized them strongly for taking 
emergency provisions back then. You said the increase in the 
national debt was ``unconscionable,'' even though, as you know, 
when you have economic downturns, your GDP goes down and your 
economic stabilizers go into effect, so there is more money 
spent on things like Medicaid.
    But I guess my question is: Was it unconscionable for 
President Trump to add $2 trillion to that already 
unconscionable debt in passing the tax cut? Which has actually 
now taken projected debt to GDP to much higher levels than what 
you predicted, and our annual deficits, the last year of the 
Obama administration, the deficit was 3.2 percent of GDP. In 
2019, it is 4.6 percent of GDP.
    So my question is: In order to be consistent, did those 
policies supported by the President, are they unconscionable 
when it comes to our deficits and debt?
    Ms. Shelton. Senator Van Hollen, if I may take us back to 
2009 to compare my consistency. The immediate fiscal response 
was an $800 billion package of Government spending that 
ultimately turned out not to have as stimulative an effect as 
we might have hoped, and there was talk of projects that were 
not shovel ready. We went to these extreme monetary measures 
likewise trying to stimulate in the wake of this meltdown. 
There is a cost to that. For the years from 2009----
    Senator Van Hollen. I am sorry. You are just not answering 
my question. It was a pretty simple question. Look, look. We 
can all--you know, people are entitled to their own opinions 
but not the facts. The Congressional Budget Office's analysis 
of the fiscal stimulus disputes exactly what you just said. And 
my question to you was: Is it unconscionable to increase the 
debt over the next 10 years by $2 trillion? If it was already 
at unconscionable levels back in 2009, is it unconscionable to 
add another $2 trillion to an already unconscionable debt? Yes 
or no.
    Ms. Shelton. I think we should always strive to reduce the 
deficit because it does put a burden on future generations.
    Senator Van Hollen. See, this is the problem. The problem 
is you have got a lot of writings, strong writings, of a very 
political nature. And now your responses today are totally 
inconsistent with the positions you have taken in the past. The 
only thing that has changed is who is in the White House.
    Thank you, Mr. Chairman.
    Chairman Crapo. Senator Warner.
    Senator Warner. You are down to the last one. Let me thank 
both of you for the meetings that we had, and I enjoyed our 
conversations with both of you.
    I do hope, Dr. Shelton, in terms of our conversation about 
our common ties to Virginia and where we both live and the fact 
that you were nominated from Virginia to the European Bank for 
Reconstruction, that you are not changing that status as well 
in terms of how the Administration has put you forward this 
time.
    I know we talked about your Wall Street Journal editorial, 
and I went back and read it because, again, I think you put 
forward some views I do not necessarily agree with, but you put 
them forward clearly. The one thing you keep coming back to is 
Humphrey-Hawkins, and Senator Tillis raised it as well. The 
thing you did at least mention in the article, but I do not 
think you have mentioned in your commentary to most of the 
questions, at least that I have heard, is that, you know, 
Humphrey-Hawkins expired in 2020.
    Ms. Shelton. That is true.
    Senator Warner. It is no longer the law of the land. I am 
not sure that is still a fair notion. And, you know, I was 
going to also raise the questions Senator Van Hollen raised. 
Again, we talked about this issue in my office.
    I feel very strongly around debt and deficit, and, again, 
let me be clear. I do not think either political party has much 
legitimacy on the issue anymore. But I do think there is very 
much a change in consistency in your view under what was 
happening under Obama, where a group of us in both parties 
tried to bring down the debt and deficit, to the chagrin of 
folks on both sides of the aisle, that suddenly got blessed 
under President Trump. And I know you have already addressed 
it, but it is of real concern to me. I do not doubt your 
integrity, but I question your consistency on this.
    I want to go to another piece. In your writings, you said 
that it would be appropriate and constructive for the Fed to 
consider international monetary stability and interest rate 
decisions in an era of worldwide currency exchange. The 
question I feel--and I agree with many in both parties again, 
currency manipulation is a bad thing. But I do not think 
currency manipulation falls within the gambit of the Fed's 
responsibility. Do you want to speak to that?
    Ms. Shelton. It does not fall under the Fed's 
responsibility. Any other prior monetary arrangement had to be 
approved by Congress. I am just pointing out that in that 
Humphrey-Hawkins legislation, an improved trade balance and 
improved global competitiveness are among the six objectives 
that are referred to as being in the national interest where it 
calls for more coordination, the legislation does.
    I do want to point out that in the article that you were 
referring to, I specifically say that Humphrey-Hawkins expired 
in the year----
    Senator Warner. I know you did, but I feel like in many of 
the conversations and some of your answers you have cited that 
without that full explanation, and I feel pretty strongly on 
your change on the debt and deficit issue. I have concerns 
about the Fed in terms of playing a role in currency 
manipulation. I think it is outside its gambit. And I want to 
also reference one of my colleague's points. I do not fully 
agree that every President and every Member of Congress is 
always trying to overly influence the Fed. I think the Fed 
independence--I think, Dr. Waller, your comment about President 
Nixon and Chairman Burns was a dead-on accurate one, and I 
think it has enormous blowback. And I guess one of the 
challenges that I am grappling with, Dr. Shelton, with your 
nomination is, you know, I think you have had a series of views 
that go beyond the dual mandate. I commend you, frankly, for 
some of the creative sets of views you have, and some of them I 
agree with, some I disagree with.
    The challenge right now that I think is unprecedented is we 
have a President that goes so far beyond the norms of trying to 
unduly influence all independent parts of our Government, the 
Fed's independence being something that we generally share 
complete commonality with. And when your views in some of your 
writings, my takeaway is, frankly, would reinforce that effort 
to kind of more politically manipulate the Fed or go beyond the 
dual mandate. And with this level of influence that President 
Trump is willing to influence on every action, and I think, 
again, unprecedented in terms of his attacks on Chairman 
Powell, it raises grave concerns.
    But I very much appreciate you both being willing to--and I 
appreciate both of our conversations, and, again, Dr. Shelton, 
I did enjoy our conversation yesterday.
    Ms. Shelton. I did, too.
    Senator Warner. I appreciate the chance to raise those 
final views. Thank you, Mr. Chairman.
    Chairman Crapo. Thank you. And to our nominees, although 
Senator Warner thought he was last, Senator Brown would like to 
have another couple of questions. So I have told him he will 
have a couple of minutes. So does Senator Shelby.
    Senator Shelby. One minute for me.
    Chairman Crapo. Also, Senator Kennedy and Senator Warner, 
if you want to--I am not encouraging it--I will give you 
another couple minutes.
    Senator Warner. You are not encouraging more questions from 
Senator Kennedy and me?
    Chairman Crapo. I will tell you the vote started 10 minutes 
ago, so we do not have much time. Senator Brown.
    Senator Kennedy. They will not shut it down as long as 
Senator Shelby is here.
    [Laughter.]
    Chairman Crapo. As long as we are here.
    Senator Brown. I thought we did not have much time here, 
Mr. Chairman.
    Mr. Waller, given Ms. Shelton's answers on monetary policy 
and her 30 years of writing on the gold standard, would you 
recommend we confirm her to the Fed?
    Mr. Waller. Senator, that is your decision, not mine.
    Senator Brown. I figured that would be your answer. Let me 
ask it a different way. You are at the St. Louis Fed, right?
    Mr. Waller. Correct.
    Senator Brown. If you were interviewing for your Research 
Department, would you hire her?
    Mr. Waller. I have a very different Research Department in 
terms of the type of academic research we do. Judy has been 
much more in the public light in terms of her research. My 
department is all publishing for academic journals, that----
    Senator Brown. If someone brought her body of work and 
writing to you, would you hire her or him?
    Mr. Waller. Like I said, what her outlets are compared to 
what we expect our staff, they are just two different outlets 
for your research.
    Senator Brown. Mr. Chairman, just a last statement. The 
takeaway is that we do not know who we are nominating to the 
Federal Reserve. Ms. Shelton has disavowed 40 years of her 
writing, as so many on this panel have shown, to say what she 
needs to say to be confirmed. It is not just my colleagues on 
the Democratic side of the aisle who are concerned. I heard 
Senator Shelby's concerns. I have heard Senator Toomey's. I 
have heard others. But conservatives outside of this body are 
concerned. American Enterprise Institute Desmond Lachman urged 
the Senate to reject Ms. Shelton's nomination. He wrote, 
``Normally, a person would be in favor of either an easing 
monetary policy to stimulate the economy or a hard monetary 
policy to exert discipline on the Government. Either way one 
would not expect her to hold both views at the same time, yet 
Ms. Shelton does exactly that.''
    AEI's Ramesh Ponnuru wrote, ``Shelton's prescription for 
monetary policy has changed so dramatically, and her rationale 
for it makes so little sense as to make her appointment to the 
Fed a gamble. Does she believe what she is now saying, or is 
she just saying what Trump wants to hear?'' This is from AEI.
    If the latter, then the Fed--that the Fed, when she 
referred to the rigid opposition to inflation at any cost that 
has marked most of her career, or would she stick with whatever 
Trump wants?
    Thank you, Mr. Chairman.
    Chairman Crapo. That was a little bit too long of a 
question.
    [Laughter.]
    Senator Brown. That was an answer.
    Chairman Crapo. Senator Shelby.
    Senator Shelby. I will change the subject just a little bit 
but still in economics. For years, economists, as you both 
know, adhered to the Phillips curve, which describes an inverse 
relationship between inflation rates and unemployment rates. 
This was mentioned earlier today. Typically, lower unemployment 
has generally produced higher inflation--this is in the past, I 
guess--and vice versa. In recent years, as unemployment has 
decreased, inflation rates have remained low, thank God.
    What are your thoughts on the current relationship between 
unemployment and inflation? And how has the relationship 
between the two changed over time? Is there a new equation 
here? Dr. Waller?
    Mr. Waller. Well, I will make two comments. First of all, 
if you were to go to any Ph.D. program in economics today and 
you were taught the fundamental model of unemployment, there is 
no inflation in that model. So even at that level of graduate 
training, nobody talks about inflation and determining the 
level of unemployment.
    The second point----
    Senator Shelby. But when you think of price stability, you 
have got to be thinking the specter of inflation somewhere.
    Mr. Waller. Correct. So that was where I was going with my 
second point, which was that one of the things we have learned 
on monetary policy research is that if you have a central bank 
who is very committed to, say, a 2-percent inflation target and 
that is very credible, that their actions will keep inflation 
near that target, then inflation never really moves off that 
target no matter what happens with the unemployment rate. So 
the relationship looks like it has completely broken down, but 
it is because a central bank has so much credibility in its 
inflation target that nobody deviates from it.
    Senator Shelby. But if inflation stays low, does that 
give--as Senator Kennedy I think got into the question, would 
that give the Fed a tool in case of a crisis?
    Mr. Waller. I think what it does is it gives us a different 
way to think about how to raise interest rates, and that is, I 
think, what----
    Senator Shelby. But that would be a tool, would it not? A 
tool or option.
    Mr. Waller. Correct, right. So your credibility is 
everything for a central bank.
    Senator Shelby. Everything.
    Mr. Waller. That is it. I think you laid it out. It is the 
confidence in our currency. It is the confidence in our 
institution. If you lose that, you are done.
    Senator Shelby. Confidence in the economy of the Nation.
    Mr. Waller. Correct.
    Senator Shelby. In the Nation itself, right?
    Mr. Waller. Correct.
    Senator Shelby. Dr. Shelton.
    Ms. Shelton. Senator Shelby, I think that is one of the 
most profound developments that has happened, particularly in 
the last 3 years, the change in thinking and the realization at 
the Federal Reserve, which is steeped in the Phillips curve 
tradeoff mentality, that you can have low inflation and low 
unemployment at the same time. In fact, it is a perfect stable 
foundation for productive economic growth, and that is when you 
start to see not just the GDP increase but the increases in 
productivity which then justify gains in wages, and the 
increased output is such that you do not get inflation. So I 
think this is very important for the future monetary policy.
    Senator Shelby. So low unemployment and stable prices, low 
inflation, that is the two mandates of the Fed itself. Is that 
correct?
    Mr. Waller. Correct.
    Ms. Shelton. Yes.
    Senator Shelby. OK. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. All right. Thank you. And I will take the 
last word--oh, did you have a question?
    Senator Kennedy. A quick one.
    Chairman Crapo. I will not do it now, then.
    Senator Kennedy. Thirty seconds. Why did we have a meltdown 
in the repo market?
    Mr. Waller. That is going to take longer than 30 seconds.
    Senator Kennedy. Give us the CliffsNotes version.
    Mr. Waller. In a sense, as the Fed was draining reserves, 
we thought there were plenty of reserves, but it clearly was 
not distributed correctly. And then the puzzle that we are 
trying to figure out is why didn't these reserves flow from 
some banks to those that needed it, and that is something we 
have been studying and trying to understand.
    Senator Kennedy. Doctor.
    Ms. Shelton. I think that it is partially a regulatory 
issue in the sense that excess reserves have almost become 
mandatory. They are eight times higher than required reserves, 
and I think that the stated liquidity preferences of bank 
examiners makes banks feel that they need to keep that ready 
cash, and they were reluctant even to chase a 10\1/2\ percent 
overnight repo rate.
    Senator Kennedy. I am done.
    Chairman Crapo. All right. Thank you.
    I would just like to make a final comment. We all knew that 
this was going to be a very aggressive hearing today, 
particularly with regard to you, Dr. Shelton. I think you have 
been very solid in explaining and defending your writings and 
your positions. And, by the way, the reason that I introduced 
into the record in my opening statement an article from the 
Wall Street Journal entitled ``The War on Judy Shelton'' was 
just to help make the point that this is an orchestrated, 
calculated effort. I think you have done very well today, and I 
just wanted to tell you that you have explained, I think very 
capably, the positions that you take and the rationale for 
them. And I just want to appreciate the fact that you have gone 
through that, and----
    Senator Brown. Mr. Chairman, if you are going to enter into 
the record the Wall Street Journal article, I would like to 
enter the National Review article.
    Chairman Crapo. Well, you just quoted it, so it can be in 
the record.
    Senator Brown. Thank you.
    Chairman Crapo. And with that we are done, and we are on 
our way to our vote. Thank you very much for being here.
    Ms. Shelton. Thank you, Mr. Chairman.
    Mr. Waller. Thank you.
    [Whereupon, at 10:52 a.m., the hearing was adjourned.]
    [Prepared statements, biographical sketches of nominees, 
responses to written questions, and additional material 
supplied for the record follow:]
               PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
    This morning, we will consider the nominations of the Honorable 
Judy Shelton to be a Member of the Board of Governors of the Federal 
Reserve System and Dr. Christopher Waller to be a Member of the Board 
of Governors of the Federal Reserve System.
    Welcome, and congratulations on your nominations to these important 
positions.
    I see friends and family sitting behind you, and I welcome them as 
well.
    We are fortunate to have these two highly qualified nominees 
appearing today.
    These positions are critical to ensuring a safe, sound, and vibrant 
financial system, and a healthy, growing economy.
    The Federal Reserve was created by Congress as the Nation's central 
bank to promote a stable economy, and a safer, more flexible financial 
system.
    Among the Federal Reserve's responsibilities is conducting the 
Nation's monetary policy with the mandate of promoting maximum 
employment, stable prices, and moderate long-term interest rates.
    In addition to its monetary policy role, it oversees a significant 
portion of the banking sector, including large, regional and community 
banks, as well as certain nonbanks, and aims to foster a safe and 
efficient payment and settlement system.
    With this in mind, it is important that we nominate and confirm 
well-qualified candidates with different perspectives to the positions 
of Governors to ensure robust debate and more effective decisions.
    Before turning to Dr. Shelton and Dr. Waller, I am entering into 
the record a letter from over one hundred economists supporting the 
nomination of Dr. Waller, and also an article from the Wall Street 
Journal supporting Dr. Shelton, titled, ``The War on Judy Shelton''.
    Dr. Shelton most recently served as the Executive Director for the 
European Bank for Reconstruction and Development and was confirmed by 
voice vote in the Senate in 2018.
    Dr. Shelton's experience working for nonprofits and academic 
institutions forged her deep knowledge of democracy, economic theory 
and monetary policy that will broaden and diversify the Fed's 
perspective.
    Dr. Waller has served as the Research Director at the Federal 
Reserve Bank of Saint Louis for the last 11 years, and aided the 
President of the Saint Louis Fed in analyzing the economy and 
recommending U.S. monetary actions.
    His research on monetary theory and the microfoundations of money 
and payment systems will be valuable, as we are seeing a rise in 
cryptocurrencies and digital currency in this country and abroad.
    I am confident that Dr. Shelton and Dr. Waller will bring strong 
leadership to the Federal Reserve System.
    As Governors at the Federal Reserve, Dr. Shelton and Dr. Waller 
will play key roles in carrying out the Fed's regulatory and 
supervisory activities consistent with the law, while also playing an 
important role in striking the balance between tailored regulations and 
supervision, and safety and soundness.
    I appreciate the positive meetings I had with each of you leading 
up to today's hearing, and I look forward to continuing a robust 
discussion on the following topics:

    The importance of right-sizing regulations and tailoring 
        the supervisory framework to support a vibrant, growing economy 
        while also ensuring a safe and sound financial system;

    Assessing market-based fixes to maintain stability in money 
        markets; and

    The development of central bank digital currencies and 
        other technological innovations in the financial space, which 
        we also discussed with Chairman Powell yesterday; and

    Continuing to encourage the Federal Reserve to submit all 
        rules to Congress under the Congressional Review Act, as well 
        as submit all significant guidance for purposes of the 
        Congressional Review Act.

    I look forward to working with Dr. Shelton and Dr. Waller on these 
and other areas where the Fed and Congress can act to further reduce 
unnecessary burdens and promote economic growth.
    Congratulations again on your nominations, and I thank you and your 
families for your willingness to serve.
              PREPARED STATEMENT OF SENATOR SHERROD BROWN
    Ms. Shelton and Mr. Waller, I would like to extend my greetings to 
you, your friends, and family here today. Welcome.
    Fed independence matters. We know economies with independent 
central banks have less price volatility, fewer bank panics, and more 
stable economies.
    But one of the nominees before us today doesn't believe in an 
independent Fed, and has spent her entire career advocating for 
policies that would make our economy more volatile, and give families 
and businesses even more too worry about in an uncertain world.
    The point of the independent Federal Reserve is to be a steady, 
guiding hand--to worry about the big picture of the economy, so 
hardworking families don't have to.
    But for Ms. Shelton, these aren't hazards to avoid--they are the 
goal. We all understand that on economic issues there are conservatives 
and liberals, and most people fall somewhere in the middle on that 
continuum. But Ms. Shelton is not a conservative--she's far outside the 
mainstream. She's off the ideological spectrum.
    For three decades, Ms. Shelton has been a prominent advocate for 
returning to the gold standard.
    In making the case for Ms. Shelton's nomination, her friend James 
Grant wrote in the Wall Street Journal that, ``[w]ith the nomination of 
Judy Shelton to the Federal Reserve Board, the discussion has tilted to 
gold. Gold is money, or a legacy form of money, Ms. Shelton contends, 
and the gold standard is a reputable, even superior, form of monetary 
organization.''
    People can agree to disagree on certain issues--but we don't get 
our own facts, and the facts are clear. If we as a Nation had followed 
Ms. Shelton's advice and had not advanced beyond the gold standard 
nearly a half century ago, our Nation would have bounced from boom to 
bust, without the monetary tools necessary to pull us out of 
recessions.
    Depressions would have been deeper and longer, and millions of 
working families would have suffered even more, for no reason.
    And that is not the end of the story. In multiple writings, Ms. 
Shelton clearly voiced her opposition to FDIC deposit insurance--the 
insurance that protects the savings of hard-working Americans. In other 
words, she thinks that if a bank fails--and we all remember from 2008, 
they do indeed fail--then all the families whose savings and paychecks 
are stored in that bank should just lose all their money.
    Passing Federal deposit insurance was one of FDR's first acts 
during the Great Depression for a reason. That guarantee--that your 
money is safe in the bank--is at the bedrock of our modern economy.
    This is not some intellectual exercise about moral hazard. This is 
the real world. I dare anyone to explain to working families in Georgia 
or Iowa or Nevada or any community that experienced bank closures in 
the Great Recession or the Savings and Loan crisis that the FDIC 
insurance is ``a hugely distorting factor.''
    But with Ms. Shelton, it doesn't stop there.
    The money in your wallet is backed by the Full Faith and Credit of 
the United States Government. Yet, Ms. Shelton advocated for doing away 
with the dollar and replacing it with a common currency for North 
America. I'm serious.
    To make NAFTA more effective, she mused the dollar could be 
replaced with a common currency for North America called the ``Amero.''
    At other times she has called for the creation of a generic, global 
currency, backed by gold.
    That kind of globalist ideology doesn't belong anywhere near our 
fiscal and monetary policy. The American dollar is the world's reserve 
currency and it should stay that way.
    The bottom line is, Ms. Shelton has too many alarming ideas and has 
flip-flopped on too many important issues to be confirmed for this job.
    And we know she will say exactly what the President wants her to 
say--further threatening the independence of the Fed.
    She was an interest rate hawk, until President Trump wanted lower 
rates. She opposed tariffs on China, before she was for them.
    And based upon what I and other Committee Members heard in meetings 
with her, it appears that Ms. Shelton has changed all of her 
positions--on everything from the Gold Standard, to Bretton Woods, to a 
steadfast opposition to FDIC insurance.
    That's not the steadying hand required at the Fed.
    Eleven years into this recovery, now more than ever, the Fed needs 
to be independent and careful--not reactive to every whim of the 
President.
    A vote for Shelton is a vote against Fed independence and our 
Nation's reputation as a financial bulwark.
    Our other nominee to the Board of Governors, Mr. Waller is an 
economist whose work has been subject to peer review and whose analysis 
has helped direct the research path undertaken by the St. Louis Fed.
    I look forward to learning more about how he will hold Wall Street 
accountable if he is confirmed.
    Last, I want to note that Ms. Jessie Liu was also supposed to be 
considered by this Committee today until her nomination was withdrawn 
36 hours ago.
    The positon Ms. Liu was nominated for is responsible for overseeing 
our country's work preventing terrorist and drug cartel financing and 
enforcing economic sanctions. Now that her nomination has been 
withdrawn, that position will remain empty. Once again, to protect 
himself, the President is putting our national security at risk.
    Thank you, Mr. Chairman.
                                 ______
                                 
                   PREPARED STATEMENT OF JUDY SHELTON
 To Be a Member of the Board of Governors of the Federal Reserve System
                           February 13, 2020
    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 I am grateful to this 
Committee for considering me for the position.
    I am also deeply grateful for the support of my husband of 42 
years, Gil, who is here today along with our son, Gibb. And I want to 
give special thanks to my mother, Janette Potter, and the healthy 
contingent of family members seated behind me: John and Sharman, Jim 
and Kristy, Rick and Suzi. They all flew out from California yesterday 
to be here with me today. It means a lot.
    For nearly four decades, going back to my years as a doctoral 
student at the University of Utah, I have focused on the impact of 
monetary policy on economic performance. My studies encompass current 
financial and economic conditions as well as historical antecedents 
tracing back to our Constitution. One thing is very clear: The power to 
regulate the value of U.S. money is granted to Congress.
    Congress created the Federal Reserve as an independent agency and 
through the Federal Reserve Reform Act of 1977 charged it with the 
mandate to promote maximum employment, stable prices, and moderate 
long-term interest rates. Our central bank has been entrusted with 
considerable power to carry out its responsibilities. Along with the 
political independence and operational autonomy granted to the Federal 
Reserve comes an obligation to be wholly accountable both to Congress 
and to the public.
    If confirmed, my priority will be to support monetary policy that 
facilitates productive economic growth while also ensuring the 
soundness and stability of the U.S. financial system. In exercising the 
Federal Reserve's regulatory oversight, I will support policies that 
are effective, efficient, and appropriately tailored to financial 
institutions--allowing them to better serve their customers and 
communities in ways consistent with maintaining a safe financial 
system.
    I am well-prepared to conscientiously fulfill the duties of the 
position for which I have been nominated based on my background and 
experience. The first university course I ever taught was: ``Money and 
Banking''. As a research scholar at the Hoover Institution at Stanford 
University, I analyzed the relationship between monetary policy and 
economic sustainability in the context of geopolitical competition. My 
first book accurately predicted the collapse of the Soviet Union; my 
second book examined the impact of currency movements on trade.
    I have testified numerous times as an expert witness before 
congressional committees in both the House and Senate. As U.S. 
Executive Director of the European Bank for Reconstruction and 
Development, I demonstrated strong leadership to achieve high-priority 
objectives in accordance with U.S. strategic interests. Combining 
academic perspective with real-world insights, I hope to contribute 
intellectual diversity as a Governor and would work collegially to 
promote sound money and sound finances.
    In closing, I wish to emphasize my commitment to honor the 
constitutional authority of Congress to regulate the value of U.S. 
money. By fulfilling the statutory mandate Congress has assigned to the 
Federal Reserve, we ensure that America's money remains the world's 
most respected currency and its most trusted standard of value.
    Thank you again for the privilege of appearing before you today. I 
look forward to your questions.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                PREPARED STATEMENT OF CHRISTOPHER WALLER
 To Be a Member of the Board of Governors of the Federal Reserve System
                           February 13, 2020
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
thank you for the opportunity to appear before you today. I am honored 
to have been nominated by the President for this prestigious position 
and grateful to the Committee for its consideration of my nomination. I 
would be humbled to be able to serve my country in this capacity.
    I am thankful for the support from my family members who are here 
with me today--my loving wife Laurie, my three children, Sarah, Maggie, 
and Sam, and my mother Ann who has been my hero throughout my life.
    For the last 11 years, I have served as the Director of Research at 
the Federal Reserve Bank of St. Louis. During that time, I have 
attended over 60 Federal Open Market Committee meetings and served as 
the main policy advisor to my bank president. As a result of this 
experience, I fully understand and support the dual mandate of the 
Federal Reserve. I also understand and appreciate the Federal Reserve's 
role in pursing policies to ensure a safe and stable financial system. 
If I am confirmed, I will continue to advocate for policies that 
achieve our dual mandate and maintain financial stability.
    I believe that my background and experience makes me uniquely 
qualified to fulfill the responsibilities of a Federal Reserve 
Governor. In my decade-long experience as a senior Reserve Bank 
official, I was deeply involved in policy issues confronting the 
Federal Reserve. But in my role, I also spent a substantial amount of 
time talking to members of our community about how monetary policy 
affected their lives and businesses. That public input affected how I 
thought about policy and its consequences. I also learned how valuable 
it was to communicate clearly to the public what our policies were and 
why we were pursuing them.
    In addition to my experience as a Federal Reserve official, I was 
an academic for over 25 years and did a substantial amount of research 
on monetary theory, monetary policy, and central bank design. I have 
written extensively on the importance of central bank independence for 
the conduct of monetary policy. My research also focused on how the 
central bank can be made accountable to the electorate without giving 
up its independence. In particular, I studied the importance of the 
nomination and confirmation process in achieving central bank 
accountability.
    The Federal Reserve has been given tremendous responsibility by 
Congress to use its policies to improve the lives of the citizenry. 
Congress has also given the Federal Reserve tremendous freedom to 
pursue those policies as needed. But in return, it must be accountable 
to the public for its actions and be able to explain what those 
policies are and why they are being pursued. If I am confirmed, I 
pledge to work with my colleagues to implement policies that help us 
meet our dual mandate. I also pledge to be accountable for those 
actions and to be transparent as to why those actions were taken.
    Thank you again for the privilege to appear before you today, and I 
look forward to your questions.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
                       FROM JUDY SHELTON

Q.1. In how many of your publications and books have you 
advocated for a return to the gold standard, or a gold-based 
monetary standard?
    What is your most recent publication advocating for the 
gold standard?

A.1. My writings have included references to prior 
international monetary arrangements going back through U.S. 
history because I believe we can gain valuable insights by 
comparing economic growth performance under one set of monetary 
rules versus another. The United States was on the classical 
international gold standard from 1870 to 1913 and served as the 
anchor for the Bretton Woods gold exchange standard from 1944 
to 1971. Economic growth and free trade flourished under the 
gold standard, which established a level international monetary 
playing field while preserving the national sovereignty of 
participating Nations; proponents of the classical 
international gold standard include Alan Greenspan, a former 
Federal Reserve Board Chairman. \1\
---------------------------------------------------------------------------
     \1\ ``Why Do We Need a Central Bank?'' Interview with Alan 
Greenspan on Fox Business with David Asman, October 2007 https://
youtu.be/R8fubw5lz6g.
---------------------------------------------------------------------------
    The Bretton Woods system restored exchange-rate stability 
among allied Nations at the close of World War II as an 
alternative to returning to the beggar-thy-neighbor era of the 
1930s when Nations depreciated their currencies to gain an 
unfair trade advantage, a syndrome that led to economic 
disaster. Proponents of a new Bretton Woods-type arrangement 
(with or without any reference to gold) include the late Paul 
Volcker, also a former Board Chairman. \2\
---------------------------------------------------------------------------
     \2\ ``Paul Volcker: Back to the Woods?'' Seth Lipsky, Wall Street 
Journal, June 11, 2014.
---------------------------------------------------------------------------
    Congress created the Federal Reserve as an independent 
agency and through the Federal Reserve Reform Act of 1977 
charged it with the mandate to promote maximum employment, 
stable prices, and moderate long-term interest rates. That is 
the framework under which I will make monetary policy decisions 
if confirmed as a member of the Board of Governors.

Q.2. Of the publications you have written since your 
dissertation, how many were subject to peer review?

A.2. My article entitled ``Equal Access and Miller's 
Equilibrium'' was subject to peer review prior to being 
published in the Journal of Financial and Quantitative 
Analysis, Vol. 16 Issue 4 (November 1981). It received the 1981 
Trefftzs Award for Outstanding Scholarly Achievement from the 
Western Finance Association. Six other peer-reviewed articles 
have been published in the Cato Journal.

Q.3. In a 2011 article about ending the Federal Reserve, you 
said, ``I think it would be extremely positive, but the initial 
effect would be so bold as to be alarming.'' In a 2014 speech 
you said, ``It's so comfortable to be among those seeking an 
alternative to central banking, which increasingly seems like 
central planning.'' Do you think the Federal Reserve should 
exist?
    If not, please explain your position.
    If so, why did you make the aforementioned statements?

A.3. Congress has chosen to exercise its power to regulate the 
value of U.S. money through an independent agency, the Federal 
Reserve, and has given it a statutory mandate to promote 
maximum employment, price stability, and moderate long-term 
interest rates. The Fed pursues these goals through its 
monetary policy decisions, which are aimed at contracting or 
expanding monetary aggregates by directly influencing the 
Federal funds rate. The Federal Reserve is clearly authorized 
to exist in compliance with the will of Congress.

Q.4. You have written extensively about your support for 
efforts to abolish legal tender laws, including a 2009 op-ed in 
the Wall Street Journal where you said ``Let's give the Fed 
some competition. Abolish legal tender laws and see whose money 
people trust.'' Will you continue to advocate for that position 
as a Fed governor?

A.4. It would not be my role or responsibility as a member of 
the Board of Governors of the Federal Reserve System to 
determine U.S. currency policy. As I specifically explained in 
my opening statement at the nomination hearing before the 
Senate Banking Committee on February 13, 2020, the power to 
regulate the value of U.S. money is granted to Congress by our 
Constitution (Article I, Section 8). Congress created the 
Federal Reserve as an independent agency with the mandate to 
promote maximum employment, price stability, and moderate long-
term interest rates. That is the framework under which I will 
make monetary policy decisions if confirmed as a member of the 
Board of Governors.

Q.5. Please explain your support for abolishing legal tender 
laws including your involvement in and support for efforts to 
have the Commonwealth of Virginia consider the creation of its 
own currency.

A.5. I served as a member of the Governor's Joint Advisory 
Board of Economists for the Commonwealth of Virginia from 2010 
to 2015. I was asked in 2013 by a long-serving member of the 
Virginia House of Delegates to provide expertise regarding a 
bill he wished to sponsor calling for a back-up currency in 
case the Federal Reserve System suffered a major breakdown or 
cyberattack--a concern in the wake of attacks on several 
American banking institutions by the Iranian Government. The 
idea was to create a ``Plan B'' metallic-based currency, so 
Virginians would still be able to conduct commerce in the event 
of such a breakdown. The proposed alternative currency was 
deemed consistent with the Article I, Section 10 provision of 
the Constitution, which limits the powers of the States by 
prohibiting them from entering into treaties with foreign 
Nations or other actions reserved to the President with the 
approval of two-thirds of the U.S. Senate, or from making 
``anything but gold and silver coin a tender in payment of 
debts.'' The legislation (H.J. 590) sought ``to study the 
feasibility of a monetary unit based on a metallic standard, in 
keeping with constitutional precepts and our Nation's founding 
principles, to facilitate commerce in the event of a major 
breakdown of the Federal Reserve System or disruption of 
financial services.'' It was supported by the Speaker of the 
House and was approved by the Virginia House of Delegates 
before being turned down in the Senate.

Q.6. Is this still your opinion? If so, please explain your 
position.

A.6. Federal Reserve notes comprise more than 99 percent of all 
U.S. currency in circulation; the remainder includes United 
States notes, national bank notes, and silver certificates, all 
of which remain legal tender. I might note that legislators in 
a dozen States have pursued or passed legislation of some sort 
to facilitate authorizing payments through metallic-linked 
currencies. Texas lawmakers in 2015 approved building the 
country's first State-backed gold depository; this past 
November, the citizens of Texas voted to approve an amendment 
to the State constitution (Texas Proposition 9) to allow the 
legislature to exempt precious metals held in a precious metal 
depository from ad valorem taxation, i.e., property taxation. 
Approval of Proposition 9 enacted House Bill 2859 (H.B. 2859), 
the legislation exempting precious metal held in precious metal 
depositories from property taxation, with precious metals 
defined as including gold, silver, and other such metals 
``customarily formed into bullion or specie.''

Q.7. If it is not, why did you make the aforementioned 
statements?
    Do you think Facebook should be allowed to develop its own 
currency for use in the United States?

A.7. The Libra concept is certainly an intriguing idea with the 
potential to support entrepreneurial endeavor through enhanced 
access to capital. It could provide a widely used medium of 
exchange and meaningful unit of account, facilitating trade and 
investment decisions. Libra represents a viable means for 
advancing technological improvements in payments capabilities 
that would improve efficiencies for consumers while also 
reducing costs. The ubiquity of smart phones is changing the 
way consumers make payments and access financial services. 
Developing the technologies that increase the availability of 
innovative services is critical to our global competitiveness. 
Consumers are interested in possibilities for transferring 
funds almost instantaneously; new digital currencies facilitate 
such payments and will likely find increasing demand throughout 
the private sector.
    It is too early to tell, though, whether Libra itself would 
prove good for the United States regarding dollar primacy 
issues--not to mention oft-cited concerns about data privacy 
and operational resilience. In my view, much depends on how the 
Libra founders choose to roll out their vision, which is summed 
up as ``a stable global cryptocurrency built on a secure 
network.'' \3\ It is not clear whether Libra will be 
``primarily based on American dollars'', as Facebook CEO Mark 
Zuckerberg stated at a House Financial Services hearing in 
October 2019, \4\ or instead might involve a currency board 
arrangement with a basket of fiat currencies as the underlying 
security, perhaps reflecting the Special Drawing Right 
valuation utilized by the International Monetary Fund. The SDR 
functions as a unit of account for the IMF and is not a 
currency per se but rather its valuation is based on the 
weighted daily market values for a basket of key international 
currencies. The SDR basket currently consists of the following 
five currencies: U.S. dollar (41.73 percent), the euro (30.93 
percent), Chinese yuan (10.92 percent), Japanese yen (8.33 
percent), and British pound (8.09 percent). The currencies 
selected for the SDR basket are reviewed by the IMF every 5 
years; it is notable that the IMF decided to include the 
Chinese yuan (or renminbi) effective October 1, 2016. I would 
not wish to elevate China's currency for settling cross-border 
transactions by amalgamizing it with the U.S. dollar to benefit 
from the popularity and well-established reputation of American 
money as a global reserve currency.
---------------------------------------------------------------------------
     \3\ ``Libra Is for the World: Simple, Inclusive, Global'', https:/
/libra.org/en-US/vision/.
     \4\ ``An Examination of Facebook and Its Impact on the Financial 
Services and Housing Sectors'', Hearing before the U.S. House Committee 
on Financial Services, October 23, 2019, https://
financialservices.house.gov/calendar/eventsingle.aspx?EventID-404487.
---------------------------------------------------------------------------
    Moreover, Facebook clearly has privacy risks, both 
nationally and globally, that must be addressed. The company's 
German unit was fined 51,000 euros ($55,000) in February 2020 
for failing to name a data protection officer for its local 
office. This was seen as a relatively light punishment and did 
not affect the parent company, but it was nevertheless meant to 
serve as a clear warning that data protection authority must be 
taken seriously under the European Union's new privacy rules. 
The law took effect in May 2018 and sets strict rules for how 
companies handle personal data. The biggest privacy risks arise 
from the fact that Facebook amasses much more personal data 
than many users realize.

Q.8. You have called for the creation of a new global monetary 
authority--the universal gold reserve bank--that would 
supersede currency markets and limit the Federal Reserve's 
influence on U.S. monetary policy.
    Is this still your position?
    How would the creation of a global monetary authority 
benefit the United States?

A.8. I have been asked at times throughout my career to think 
creatively about possible future scenarios involving the 
evolution of money--to ``brainstorm''--for purposes of 
encouraging people to consider new approaches and come up with 
their own. I believe it is important to think ``out of the 
box'' in order to go beyond groupthink in facing future 
monetary challenges. But I know the difference between theory 
and reality; I presume others do as well. If confirmed, I will 
work within the established monetary framework for determining 
appropriate interest-rate policies in accordance with the Fed's 
statutory mandate to promote maximum employment, stable prices, 
and moderate long-term interest rates.

Q.9. You have stated that ``[t]he existence of Federal deposit 
insurance schemes that serve to insulate bank management from 
the discipline required to properly manage deposited resources 
against investment assets undermines the integrity of the 
banking industry in the United States by steering it in the 
direction of excessively risky loan portfolios . . . .''
    Do you still believe FDIC insurance undermines the 
integrity of the banking system in the United States?
    Do you believe the existence of FDIC insurance contributed 
to the financial crisis in 2007-08, and if so, how?
    In your estimation, how many of the roughly 6,000 community 
banking institutions across the United States would be viable 
without a deposit guarantee?

A.9. I do not support eliminating deposit insurance. In my book 
Money Meltdown, published in 1994, I commented on deposit 
insurance in the context of explaining the concept of ``moral 
hazard'' and wrote the following: ``Banks must be responsible 
for upholding the value of the monetary obligations they issue 
on the basis of held reserves or viable, well-managed loan 
portfolios. The existence of Federal deposit insurance schemes 
that serve to insulate bank management from the discipline 
required to properly manage deposited resources against 
investment assets undermines the integrity of the banking 
industry in the United States by steering it in the direction 
of excessively risky loan portfolios (as taxpayers, not the 
equity holders of the bank, bear a substantial part of the cost 
of fiduciary mismanagement).'' I fully understand that banks 
pay fees for deposit insurance provided by the Federal Deposit 
Insurance Corporation, an independent Government agency 
established in 1933 to maintain public confidence and stability 
in the U.S. financial system; this is an essential mission, one 
I strongly support. I was simply emphasizing the importance of 
prudent capital and management standards being in place for 
banking institutions as the first bulwark against potential 
losses, rather than relying on Government-provided deposit 
insurance.

Q.10. Larry Kudlow says that the White House nominated you 
because you don't believe that growth leads to inflation.
    In your view, what causes inflation?

A.10. Too much money chasing too few goods.

Q.11. You have said that we should have 0 percent inflation. If 
you were confirmed to the Board, what would you do to implement 
that policy?

A.11. In conducting the Nation's monetary policy, the Federal 
Reserve seeks to influence money and credit conditions in the 
economy in pursuit of maximum employment and stable prices. The 
first goal is defined by the Federal Reserve as having been 
achieved when all Americans that want to work are gainfully 
employed. The second goal was defined by former Fed Chairman 
Alan Greenspan in July 1996 as ``that state in which expected 
changes in the general price level do not effectively alter 
business and household decisions.'' \5\ Since January 2012, the 
Federal Open Market Committee has judged that inflation at the 
rate of 2 percent (as measured by the annual change in the 
price index for personal consumption expenditures, or PCE) is 
most consistent over the longer run with the Federal Reserve's 
statutory mandate regarding price stability. In accordance with 
that definition, the Federal Reserve should raise interest 
rates if inflation were to persistently exceed 2 percent--with 
the caveat that the inflation goal is now defined as a 
``symmetric 2 percent objective'' as mentioned by Chair Powell 
in his most recent semiannual monetary policy report to the 
Congress. \6\ Employing a symmetric approach means the Federal 
Reserve would tolerate inflation running modestly above or 
below the 2 percent target.
---------------------------------------------------------------------------
     \5\ See transcript for Meeting of the Federal Open Market 
Committee, July 2-3, 1996. https://www.federalreserve.go/monetarpolicy/
files/FOMC19960703meeting.pdf.
     \6\ Semiannual Monetary Policy Report to the Congress, Statement 
by Chair Jerome H. Powell before the Committee on Financial Services, 
U.S. House of Representatives, Washington, D.C., February 11, 2020.

Q.12. At what points in history has the United States had 0 
percent inflation or deflation, and what has been the result of 
---------------------------------------------------------------------------
that economic environment?

A.12. Episodes of high inflation are recurrent in U.S. history. 
Prior to the founding of the Federal Reserve in 1913, high-
inflation episodes were followed by prolonged periods of 
deflation, bringing prices back to their original levels. In 
the postwar period, inflation instead returned to positive 
levels, making increases in the price level permanent rather 
than transitory. A 2011 paper entitled ``Reform of the 
International Monetary and Financial System'', published by the 
Bank of England, analyzed the performance of the gold standard 
(1870-1913) and the Bretton Woods gold-exchange system (1948-
72) relative to current monetary practices. \7\ The report 
concludes that today's system has performed poorly relative to 
prior monetary regimes, ``with the key failure being the 
system's inability to maintain financial stability and minimize 
the incidence of disruptive sudden changes in global capital 
flows.'' Trade and investment flows are distorted as the 
world's major central banks engage in subtle exchange-rate 
competition. The 2015 Economic Report of the President 
highlights the growth in middle-class incomes during the 
Bretton Woods system of fixed exchange rates, describing the 
period from 1948 to 1973 as the ``Age of Shared Growth''--
characterized by accelerating labor productivity, falling 
income inequality, and increased workforce participation. \8\ 
Notable historical years of deflation occurred from 1930 to 
1932, reflecting a market crash, Smoot-Hawley tariffs, Dust 
Bowl conditions, and tax hikes under President Hoover. \9\ In 
1939, U.S. inflation was 0.0 percent, correlating with an 8.0 
percent expansion and ending of the Dust Bowl era. \10\ No 
other instances of zero inflation in the United States occur 
during the period from 1929 to the present, but we do see a 
very low 0.4 percent inflation rate for 1955 correlated with a 
7.1 percent expansion and a 0.1 percent inflation rate in 2008 
correlated with the financial crisis. \11\
---------------------------------------------------------------------------
     \7\ Oliver Bush, Katie Farrant, and Michelle Wright, ``Reform of 
the International Monetary and Financial System'', Financial Stability 
Paper No. 13--December 2011 (London, Bank of England, 2011).
     \8\ ``Economic Report of the President'', transmitted to the 
Congress together with The Annual Report of the Council of Economic 
Advisers, February 2015, p. 31.
     \9\ ``U.S. Inflation Rate by Year from 1929 to 2022'', Kimberly 
Amadeo, The Balance, January 29, 2020.
     \10\ Ibid.
     \11\ Ibid.

Q.13. What are the merits of looking at Average Hourly Earnings 
---------------------------------------------------------------------------
vs. the Employment Cost Index?

A.13. I am not sufficiently knowledgeable about the relative 
merits and shortcomings of these two wage gauges to give an 
informed response.

Q.14. You have recommended a global common currency. You wrote 
in the Wall Street Journal, ``If the goal is to have a global 
common market, how can we ignore the parallel need for a common 
unit of account, a global form of money?'' An article in 
China's People's Daily quoted a Chinese economist as saying 
``that the world urgently needs to create a diversified 
currency and financial system and fair and just financial order 
that is not dependent on the United States.'' Your response to 
that piece was ``Let's do exactly that.''
    What would be the benefit to the United States of creating 
a financial order that is not dependent on the United States?

A.14. I believe the United States needs to be at the forefront 
of international finance and to ensure the primacy of the U.S. 
dollar as the world's foremost reserve currency throughout the 
world. According to the International Monetary Fund, the dollar 
makes up 62 percent of all known central bank foreign exchange 
reserves as of the third quarter of 2019; \12\ it is involved 
in 90 percent of foreign exchange trading. \13\ The global 
ubiquity of the U.S. dollar as a medium of exchange and 
international monetary standard functions as an effective form 
of soft power--an important element of our Nation's ability to 
project geopolitical influence.
---------------------------------------------------------------------------
     \12\ ``Currency Composition of Official Foreign Exchange Reserves 
(COFER)'', International Monetary Fund, http://data.imf.org/?sk-
E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4.
     \13\ International Standards Organization List, XE, ``ISO 4217 
Currency Codes'', https://www.xe.com/iso4217.php, cited in ``Why the 
U.S. Dollar Is the Global Currency'', Kimberly Amadeo, The Balance, 
December 13, 2019.

Q.15. You have a demonstrated belief in ``sound money.'' At a 
2010 event you quoted Deuteronomy's admonition about ``weights 
and measures'' to make the case against stimulative policies at 
the Fed.
    How do those same passages from Deuteronomy support your 
current advocacy for lowering interest rates to stimulate the 
economy?

A.15. I believe you are citing a passage that relates to usury 
rather than the point I was making about the importance of 
maintaining accurate and honest weights and measures. As I 
mentioned during the nomination hearing before the Senate 
Banking Committee on February 13, 2020, the power granted to 
Congress by our Constitution (Article I, Section 8) to regulate 
the value of U.S. money appears in the same sentence that 
grants to Congress the power to ``fix the standard of weights 
and measures.''

Q.16. Deuteronomy 23:19 states ``Do not charge your brother 
interest on money, food, or any other type of loan.'' Do you 
believe the bible supports a Government prohibition on charging 
consumers interest for credit cards, mortgages, student loans, 
car loans, or any other type of credit?

A.16. No.

Q.17. Given your mistrust for Government statistics, you stated 
in 2015, how do we know that inflation is at around 2 percent 
instead of 8 percent? What nongovernmental metrics did you rely 
upon in making that determination? Do you believe current 
Government statistics about inflation? If you do believe 
current Government inflation statistics, what has changed in 
how the Government calculates inflation to give you this new-
found trust?

A.17. I do not recall ever uttering the phrase you attribute to 
me above: ``How do we know that inflation is at around 2 
percent instead of 8 percent?'' and thus cannot cite metrics 
from governmental or nongovernmental sources regarding that 
assertion. In general, I learned early in my career that it is 
necessary to verify the accuracy of economic statistics before 
making recommendations based on data that might later prove 
invalid. I believe this is a prudent approach for both scholars 
and policymakers. Inflation numbers are widely known for having 
difficulties in measuring the increased value of a 
representative consumer basket due to technological innovation. 
The deflator used to measure nominal versus real growth is 
likewise tricky to apply in Government budgeting forecasts as 
well as for inflation-linked securities such as Treasury 
Inflation-Protected Securities (TIPS) bonds.

Q.18. In his testimony before the Senate Banking Committee on 
February 12, 2020, Chair Powell appeared before the Committee 
on Banking, Housing and Urban Affairs as part of his 
statutorily required semiannual report to Congress on the Fed's 
dual mandate of price stability and full employment, 
established by the Federal Reserve Reform Act of 1977.
    You told Bloomberg earlier this year that you are ``highly 
skeptical'' of the Fed's mandated goals and ``don't know [that 
getting to maximum employment] is really the Fed's job.''
    Do you believe that the Federal Reserve is statutorily 
required to promote maximum employment? If not, why not? If so, 
what did you mean by your comments above?

A.18. Congress created the Federal Reserve as an independent 
agency and charged it through the 1977 Federal Reserve Reform 
Act with the mandate to promote maximum employment, stable 
prices, and moderate long-term interest rates. According to the 
Federal Reserve's own assessment, as acknowledged in the FAQs 
on its own website: ``The maximum level of employment is 
largely determined by nonmonetary factors that affect the 
structure and dynamics of the job market.'' Still, with regard 
to using monetary policy to influence employment, the Fed's 
ability to lower interest rates makes it cheaper for firms to 
purchase plant and equipment--which, in turn, tends to spur 
hiring and boost production.

Q.19. When the Senate was considering S. 2155, the bank 
deregulation bill, Chair Powell said that deregulating U.S. 
regional banks wouldn't mean deregulating foreign banks. But 
the Fed's October rule did just that and the Fed justified 
weakening the protections at foreign banks by stating that the 
law requires that you treat foreign banks equivalent to 
domestic banks. The rule referred to it as ``equality of 
competitive opportunity.''
    Do you agree with this analysis?
    Do you think that the October rule weakened safety and 
soundness or financial stability?

A.19. I think it is important that I have a thorough 
understanding of the details in considering changes in rules 
associated with S. 2155 As a nominee, I am unable to weigh in 
knowledgeably on this issue--but I can assure you, if 
confirmed, that I will pay close attention to discussions on 
this important matter once I am better informed.

Q.20. In July 2019 when asked about leveraged loans, Chairman 
Powell stated that ``the issue is that the risk isn't in the 
banks'' and that the leveraged loan market was ``in a good 
place.'' Several days ago, the Fed announced that leveraged 
lending risks would be incorporated into bank stress tests.
    Do you think the Chairman was correct to say that banks 
were not exposed to leveraged lending risks in July?
    If risks were not ``in the banks'' in July, what has 
changed in leveraged loan markets since then that require 
incorporation of this risk into bank stress tests?

A.20. As a nominee, I do not have access to the analytics and 
proprietary information to offer an opinion on the assessment 
of Chairman Powell.

Q.21. The United States has long maintained the separation of 
banking and commerce. However, some financial holding companies 
continue to engage in physical commodities activities. 
Technology firms have also expressed interest in receiving 
Industrial Loan Company (ILC) charters in order to gain the 
benefits of low-cost funding by being a bank without having to 
divest commercial activities as required by the Bank Holding 
Company Act.
    Do you believe the separation of banking and commerce is an 
important to the stability of the United States financial 
system?
    Do you believe that financial holding companies should 
continue to be allowed to engage in physical commodities 
activities?
    Do you think recognition of ILC charters is in keeping with 
the separation of banking and commerce?

A.21. This is an important and ongoing discussion about whether 
nonfinancial firms can establish banking units. It seems 
particularly topical regarding the ``separation of banking and 
commerce'' as providing justification for keeping tech 
companies out of financial services. If confirmed, I will focus 
intently on this issue because I believe we are compelled to 
think about the ramifications of FinTech and evolution of 
digital currencies.

Q.22. In January 2012, a nonprofit called The Gold Standard Now 
publicly announced your appointment as a Senior Advisor. Our 
Committee's questionnaire requires nominees to list all of 
their past and present affiliations. Why did you omit this from 
your Committee questionnaire?

A.22. Aside from responding to an email request at the time the 
organization was founded and to show my respect for Lewis E. 
Lehrman, who was appointed by Treasury Secretary Donald Regan 
to serve on the ``Commission on the Role of Gold in the 
Domestic and International Monetary Systems'' convened under 
President Reagan in 1981, I have had no contact with The Gold 
Standard Now.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SASSE
                       FROM JUDY SHELTON

Q.1. Ms. Shelton, in your testimony before the Senate Banking 
Committee, you mention that ``Congress created the Federal 
Reserve as an independent agency'' and to be ``wholly 
accountable both to Congress and the public'', yet in a Q&A 
session last year you said that ``I don't see any reference to 
independence in the legislation that has defined the role of 
the Federal Reserve for the United States'' and that the same 
legislation that defined the role of the Federal Reserve 
demands that the Fed ``work hand in hand with Congress and the 
President to meet certain strategic economic goals for the 
United States''.
    Are these not contradictory statements? Can you please 
explain your statements?

A.1. I sincerely regret that the comment I made regarding the 
independence of the Federal Reserve has been taken to mean that 
I do not acknowledge the reality and the importance of the 
Fed's independence; in fact, I believe it is a vital aspect of 
our central bank's monetary policy decision-making process, its 
operational autonomy, and its credibility with the public. In 
the interview you reference, I was discussing a review I had 
recently undertaken of the precise legislative language of the 
Federal Reserve Reform Act of 1977 and the Full Employment and 
Balanced Growth Act of 1978, also known as the Humphrey-Hawkins 
Act. Both laws, taken together, have shaped the Federal 
Reserve's role as an instrument of policy, though I note that 
the Humphrey-Hawkins Act expired in 2000. It was somewhat 
surprising to me to discover that the word ``independent'' or 
``independence'' cannot be found in either bill; that is what I 
meant in saying that ``I don't see any reference to 
`independence' in the legislation that has defined the role of 
the Federal Reserve for the United States.'' The actuality of 
the Fed's independence from both the executive and legislative 
branches is ensured through the unique characteristics granted 
to it by Congress, such as its (1) significantly longer length 
of terms for members than those of most agencies, staggered 
over multiple Administrations and Congresses, and (2) its own 
funding mechanism that makes the Fed independent from 
congressional appropriations. In my testimony during the 
nomination hearing before the Committee, I stated on several 
occasions that Congress created the Federal Reserve as an 
independent agency and charged it with the mandate to promote 
maximum, employment, stable prices, and moderate long-term 
interest rates.

Q.2. If confirmed, would you support Federal Reserve 
independence?

A.2. Yes, I would.

Q.3. Could you clarify on how the Federal Reserve should 
contribute to U.S. competitiveness on trade?

A.3. It is not within the Federal Reserve's specific mandate, 
nor is it the Fed's responsibility, to target U.S. 
competitiveness on trade. The United States enhances its 
competitiveness when its domestic economy is strong and 
vibrant. To the extent that the Fed's monetary policy decisions 
help to promote maximum employment and stable prices--resulting 
in economic and financial conditions that foster productive 
growth and innovation--it contributes importantly to U.S. 
competitiveness on trade.

Q.4. What is your philosophy on free trade and, if confirmed, 
how would this impact your term on the Federal Reserve Board?

A.4. I am a strong believer in free trade. My philosophy is 
based on comparative advantage and reflects an ``Adam Smith'' 
approach; I believe that having access to the international 
marketplace expands opportunity and prospects for prosperity 
around the world to the benefit of all participants. But, I 
also believe other Nations should reduce trade barriers. 
Recognizing that trade policy is not the responsibility of the 
Federal Reserve, my views would not impact my decisions as a 
member of the Board of Governors, should I be confirmed.

Q.5. What economic or financial sectors benefit from free trade 
and what, if any, sectors are hurt by free trade?

A.5. When free trade is conducted in accordance with free-
market mechanisms, I believe all economic and financial sectors 
stand to benefit. And again, foreign Nations should reduce 
trade barriers to maximize economic growth worldwide. In our 
free economy, America's dominance in technology and our 
Nation's ability to achieve greater productivity through 
innovation can help counter perceived price advantages offered 
by competitors by delivering higher-value goods with greater 
market appeal. U.S. financial firms can likewise benefit from 
free trade if they are not prevented from entering new markets 
overseas through nontariff barriers or other obstacles.

Q.6. In the Federal Reserve study released in December 2019, 
the Fed said that while,

        U.S. import tariffs may protect some U.S.-based 
        manufacturers from import competition in the domestic 
        market . . . on the other hand U.S. tariffs have also 
        been imposed on intermediate inputs, and the associated 
        increase in costs may hurt U.S. manufacturer's 
        competitiveness in producing for both the export and 
        domestic markets . . . U.S. trade partners have imposed 
        retaliatory tariffs on U.S. exports of certain goods, 
        which could again put U.S. firms at a disadvantage in 
        those markets.

    With this context, do you believe that tariffs are an 
effective method to improving U.S. competitiveness?

A.6. Tariffs are inconsistent with free trade--as are nontariff 
barriers, subsidies, and other obstacles that prevent genuine 
competition. Competitiveness should reflect the strength, 
quality, and value of goods/services being offered in the 
international marketplace. Again, all Nations should reduce 
trade barriers.

Q.7. In a CNBC interview in July 2019 you answered that the 
U.S. should follow suit with the central banks in Europe, 
China, and Japan who were devaluing their currencies against 
the dollar. I share the concerns that several of my colleagues 
who raised this concern over your suggestion that the U.S. 
should devalue its currency to compete with other countries. 
The Federal Reserve's mandate does not include this ``beggar-
thy-neighbor'' economic policy.
    If confirmed, would you advocate for the devaluation of 
U.S. currency?

A.7. No, I would not advocate for the devaluation of U.S. 
currency. As I stated during the nomination hearing before the 
Committee: ``It would be anathema to me to suggest that we 
devalue our money to gain a trade advantage.'' My public 
comments have been directed at criticizing what other Nations 
sometimes appear to be doing under the guise of conducting 
monetary policy stimulus--though I take very seriously and 
concur with the statement made by Senator Toomey during that 
same hearing: ``We don't get to control other countries' 
monetary behavior.'' He is correct. If a major American trading 
partner were to significantly devalue its currency 
intentionally, it should not precipitate a beggar-thy-neighbor 
currency response from the United States, and certainly, the 
Federal Reserve should not play a role in achieving a 
devaluation. Exchange-rate policy is within the province of the 
Treasury Department, not the Fed. Moreover, recent trade 
agreements between the United States and its major trade 
partners have included specific chapters dealing with currency 
matters; they target this issue in the context of negotiated 
trade commitments to ``avoid manipulating exchange rates in 
order to prevent effective balance of payment adjustment or to 
gain an unfair competitive advantage.''

Q.8. What policies, if any, would you recommend the Federal 
Reserve pursue to ensure that the U.S. is able to remain 
competitive against other countries who devalue their currency?

A.8. It is not prescribed within the mandate of the Federal 
Reserve that it should pursue policies to ensure that the U.S. 
is able to remain competitive against other countries who 
devalue their currency. Therefore, if confirmed, it would not 
be appropriate for me to seek to pursue such a purpose through 
monetary policy. It is only appropriate for members of the 
Federal Open Market Committee to consider how best to promote 
maximum employment, stable prices, and moderate long-term 
interest rates as national economic objectives assigned by 
Congress. Success in achieving these statutory directives helps 
to ensure that the U.S. remains competitive in the global 
marketplace.

Q.9. What risks do you believe that cybersecurity concerns pose 
to the U.S. financial system?

A.9. While I have been made aware of past incursions and 
cyberattacks on U.S. financial institutions--notably, 
distributed-denial-of-service attacks emanating from Iran's 
Government on major financial sector firms such as JPMorgan 
Chase, Wells Fargo, and American Express from 2011 to 2013--
this area is not one in which I have sufficient expertise to 
provide an informed answer. At the same time, I recognize that 
this is clearly a matter of critical importance: I am concerned 
about the national security implications of our financial 
institutions and the susceptibility of the U.S. economy to 
offensive operations carried out by our adversaries in 
cyberspace.

Q.10. How do you believe the Federal Reserve should address 
these concerns?

A.10. Please see my answer above. Suffice to say, I would wish 
to be keenly involved in discussions at the Fed aimed at 
securing the operational resilience of Federal Reserve System 
functions as vital infrastructure for protecting our Nation's 
security and the well-being of its citizens. We need to also 
prioritize data protection and individual privacy concerns as 
we guard against such hostile intrusions and threats aimed at 
our Nation's central bank.

Q.11. How do you believe that the Federal Reserve could improve 
transparency and communication with the public?

A.11. I believe that the listening tour conducted by the Fed--
its series of Fed Listens events first announced in November 
2018--has proven enlightening and helpful in terms of 
underscoring the importance of two-way communications with the 
public. Going back to the writings of Thomas Jefferson, who 
penned his ``Notes on the Establishment of a Money Unit, and of 
a Coinage for the United States'' in 1784, a founding concept 
for U.S. money was that it should be (1) convenient to use, (2) 
easy to understand, and (3) accepted with confidence as having 
recognized value. Perhaps to its surprise, the Fed learned that 
members of the public are skeptical that inflation is deemed 
too low by monetary authorities. Other insights gained included 
recommendations to keep monetary conditions conducive to more 
hiring of workers--that some communities were still not 
experiencing sufficiently broad participation opportunities. To 
me, this indicates support for monetary policy aimed at 
supporting productive economic growth and invalidates the 
notion of a Phillips curve trade-off between maximum employment 
and stable prices. As I stated in my testimony before the 
Committee, paraphrasing: I think that is one of the most 
profound developments that has happened in recent years--the 
change in thinking and the realization at the Federal Reserve 
that you can have low inflation and low unemployment at the 
same time. In fact, it's the perfect stable foundation for 
faster growth, leading to higher wages and productivity without 
inflation. So I think this is very important for future 
monetary policy.

Q.12. Do you believe that the Federal Reserve needs to improve 
its transparency?

A.12. The Federal Reserve needs to be transparent because its 
monetary policy decisions affect job creation, upward mobility 
for workers, and equitable prosperity. I believe the Federal 
Reserve can remain insulated from political pressures in making 
its decisions regarding interest rates while also providing 
transcripts of discussions on a timely basis. Current levels of 
transparency appear satisfactory.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
                       FROM JUDY SHELTON

Q.1. I appreciated the conversation we had recently in my 
office, particularly as it related to digital currencies. 
Unfortunately, I didn't get a chance to discuss your views on 
digital currencies during your confirmation hearing. To that 
end, I was hoping you could elaborate on the following 
questions:
    What place should digital currencies have in our economy?

A.1. The increasing use of smart phones is changing the way 
consumers make payments and access financial services. 
Developing the technologies that increase the availability of 
innovative services is critical to our global competitiveness. 
Consumers are interested in possibilities for transferring 
funds almost instantaneously; new digital currencies facilitate 
such payments and will likely find increasing demand throughout 
the private sector.

Q.2. Is it important for the United States to be at the 
forefront of innovation in digital currencies?

A.2. I believe the United States needs to be at the forefront 
of innovation in digital currencies, not only to provide 
leading-edge financial technology to American consumers who 
utilize our Nation's currency in their daily lives to access 
banking services and make payments, but also to ensure the 
primacy of the U.S. dollar as the world's foremost reserve 
currency throughout the world. According to the International 
Monetary Fund, the dollar makes up 62 percent of all known 
central bank foreign exchange reserves as of the third quarter 
of 2019; \1\ it is involved in 90 percent of foreign exchange 
trading. \2\ The global presence of the U.S. dollar as a medium 
of exchange and international monetary standard functions as an 
effective form of soft power--an important element of our 
Nation's ability to project geopolitical influence.
---------------------------------------------------------------------------
     \1\ ``Currency Composition of Official Foreign Exchange Reserves 
(COFER)'', International Monetary Fund, http://data.imf.org/?sk-
E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4.
     \2\ International Standards Organization List, XE, ``ISO 4217 
Currency Codes'', https://www.xe.com/iso4217.php, cited in ``Why the 
U.S. Dollar Is the Global Currency'', Kimberly Amadeo, The Balance, 
December 13, 2019.

---------------------------------------------------------------------------
Q.3. Are digital currencies like Libra a good idea?

A.3. The Libra concept is certainly an intriguing idea with the 
potential to support entrepreneurial endeavor through enhanced 
access to capital. It could provide a (1) widely used medium of 
exchange and (2) meaningful unit of account, facilitating trade 
and investment decisions while fulfilling important monetary 
functions. Libra represents a viable means for advancing 
technological improvements in payments capabilities that would 
increase efficiencies for consumers while also reducing costs. 
It is too early to tell, though, whether Libra itself would 
prove good for the United States regarding dollar primacy 
issues mentioned above (not to mention oft-cited concerns about 
data privacy and operational resilience). In my view, much 
depends on how the Libra founders choose to roll out their 
vision, which is summed up as ``a stable global cryptocurrency 
built on a secure network.'' \3\ It is not clear whether Libra 
will be ``primarily based on American dollars'', as Facebook 
CEO Mark Zuckerberg stated at a House Financial Services 
hearing in October 2019, \4\ or might rather involve a currency 
board arrangement with a basket of fiat currencies as the 
underlying security, perhaps reflecting the Special Drawing 
Right valuation utilized by the International Monetary Fund. 
The SDR functions as a unit of account for the IMF and is not a 
currency per se but rather its valuation is based on the 
weighted daily market values for a basket of key international 
currencies. The SDR basket currently consists of the following 
five currencies: U.S. dollar (41.73 percent), the euro (30.93 
percent), Chinese yuan (10.92 percent), Japanese yen (8.33 
percent), and British pound (8.09 percent). The currencies 
selected for the SDR basket are reviewed by the IMF every five 
years; it is notable that the IMF decided to include the 
Chinese yuan (or renminbi) effective October 1, 2016.
---------------------------------------------------------------------------
     \3\ ``Libra Is for the World: Simple, Inclusive, Global'', https:/
/libra.org/en-US/vision/.
     \4\ ``An Examination of Facebook and Its Impact on the Financial 
Services and Housing Sectors'', Hearing before the U.S. House Committee 
on Financial Services, October 23, 2019, https://
financialservices.house.gov/calendar/eventsingle.aspx?EventID-404487.

Q.4. Should the Federal Reserve consider creating its own 
---------------------------------------------------------------------------
digital currency?

A.4. This is likewise an interesting notion but one fraught 
with concerns because of the tremendously dominant position of 
the Federal Reserve and its potential to stultify creative 
FinTech approaches at a time when the United States should be 
demonstrating leadership in this field. Money evolves forward--
and America should not be a passive observer as other Nations 
move aggressively to steer the course of these critical 
developments. It is vital that the Federal Reserve seek to get 
ahead of the curve in exploring the ramifications of digital 
technology in determining the future path of money; the U.S. 
dollar is the most respected currency in the world, but this 
does not mean we can afford to rest on our laurels. Stablecoins 
represent a step beyond earlier attempts to provide a digital 
currency, such as Bitcoin, and seem more aligned with laudable 
goals such as maintaining a stable value--which then enables 
them to provide a dependable store of value, the third primary 
function of money. Libra is presenting itself as a platform 
that would work in tandem with the regulatory authority and 
supervisory oversight of the Federal Reserve; on the other 
hand, it might readily find itself in a position to challenge 
the Fed by providing an alternative currency not tied to an 
issuer such as a central bank. Is there an opening that might 
be explored for working with Facebook or other digital currency 
providers in cooperation with our Federal Reserve? If not, 
would currency challengers such as Facebook's Libra somehow be 
prevented from proceeding with offering their product to the 
public? These are the compelling questions that need to be 
addressed. My instinct is to avoid empowering central banks yet 
further, perhaps enabling them to impose negative returns on 
holders of cash through their domination of payments 
transactions and control over monetary policy. At the same 
time, I wish to see the dollar not only maintain but even 
enhance its attractiveness as a monetary standard serving the 
interests of market participants in the realms of both commerce 
and investment. If we can reconcile the need to harness the 
potential of digital currencies to empower individuals by 
granting more direct access to financial intermediation 
services--without undermining the potency of monetary policy or 
weakening confidence in the U.S. dollar as a reflection of our 
stable financial system overseen by the Fed--we can lift both 
the ingenuity and integrity of America's money to new heights.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                       FROM JUDY SHELTON

Q.1. What do you think of Facebook's attempt to create its own 
digital currency, Libra?

A.1. The Libra concept is certainly an intriguing idea with the 
potential to support entrepreneurial endeavor through enhanced 
access to capital. It could provide a widely used medium of 
exchange and meaningful unit of account, facilitating trade and 
investment decisions. Libra represents a viable means for 
advancing technological improvements in payments capabilities 
that would improve efficiencies for consumers while also 
reducing costs.

Q.2. Do you support or oppose Libra?

A.2. The ubiquity of smart phones is changing the way consumers 
make payments and access financial services. Developing the 
technologies that increase the availability of innovative 
services is critical to our global competitiveness. Consumers 
are interested in possibilities for transferring funds almost 
instantaneously; new digital currencies facilitate such 
payments and will likely find increasing demand throughout the 
private sector. It is too early to tell, though, whether Libra 
itself would prove good for the United States regarding dollar 
primacy issues not to mention oft-cited concerns about data 
privacy and operational resilience. In my view, much depends on 
how the Libra founders choose to roll out their vision, which 
is summed up as ``a stable global cryptocurrency built on a 
secure network.'' \1\
---------------------------------------------------------------------------
     \1\ ``Libra Is for the World: Simple, Inclusive, Global'', https:/
/libra.org/en-US/vision/.

---------------------------------------------------------------------------
Q.3. Why specifically do you support or oppose?

A.3. It is not clear whether Libra will be ``primarily based on 
American dollars'', as Facebook CEO Mark Zuckerberg stated at a 
House Financial Services hearing in October 2019, \2\ or 
instead might involve a currency board arrangement with a 
basket of fiat currencies as the underlying security, perhaps 
reflecting the Special Drawing Right valuation utilized by the 
International Monetary Fund. The SDR functions as a unit of 
account for the IMF and is not a currency per se but rather its 
valuation is based on the weighted daily market values for a 
basket of key international currencies. The SDR basket 
currently consists of the following five currencies: U.S. 
dollar (41.73 percent), the euro (30.93 percent), Chinese yuan 
(10.92 percent), Japanese yen (8.33 percent), and British pound 
(8.09 percent). The currencies selected for the SDR basket are 
reviewed by the IMF every 5 years; it is notable that the IMF 
decided to include the Chinese yuan (or renminbi) effective 
October 1, 2016. I would not wish to elevate China's currency 
for settling cross-border transactions by amalgamizing it with 
the U.S. dollar to benefit from the popularity and well-
established reputation of American money as a global reserve 
currency.
---------------------------------------------------------------------------
     \2\ ``An Examination of Facebook and Its Impact on the Financial 
Services and Housing Sectors'', Hearing before the U.S. House Committee 
on Financial Services, October 23, 2019, https://
financialservices.house.gov/calendar/eventsingle.aspx?EventID-404487.

Q.4. Do you have any concerns that consumer privacy would be 
further compromised if Facebook is successful in launching 
Libra? If yes, what do you see as the biggest privacy risks 
---------------------------------------------------------------------------
associated with Libra, both nationally and globally?

A.4. Facebook clearly has privacy issues that must be 
addressed. The company's German unit was fined 51,000 euros 
($55,000) in February 2020 for failing to name a data 
protection officer for its local office. This was seen as a 
relatively light punishment and did not affect the parent 
company, but it was nevertheless meant to serve as a clear 
warning that data protection authority must be taken seriously 
under the European Union's new privacy rules. The law took 
effect in May 2018 and sets strict rules for how companies 
handle personal data. The biggest privacy risks arise from the 
fact that Facebook amasses much more personal data than many 
users realize.

Q.5. If another currency, including a digital currency, were to 
displace the U.S. dollar as the world's reserve currency, what 
impact would that have on the United States and our economy?

A.5. I believe the United States needs to be at the forefront 
of innovation in digital currencies, not only to provide 
leading-edge financial technology to American consumers who 
utilize our Nation's currency in their daily lives to access 
banking services and make payments but also to ensure the 
primacy of the U.S. dollar as the world's foremost reserve 
currency throughout the world. According to the International 
Monetary Fund, the dollar makes up 62 percent of all known 
central bank foreign exchange reserves as of the third quarter 
of 2019; \3\ it is involved in 90 percent of foreign exchange 
trading. \4\ The global position of the U.S. dollar as a common 
medium of exchange and reliable monetary standard functions as 
an effective form of soft power--an important element of our 
Nation's ability to project geopolitical influence.
---------------------------------------------------------------------------
     \3\ ``Currency Composition of Official Foreign Exchange Reserves 
(COFER)'', International Monetary Fund, http://data.imf.org/?sk-
E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4.
     \4\ International Standards Organization List, XE, ``ISO 4217 
Currency Codes'', https://www.xe.com/iso4217.php, cited in ``Why the 
U.S. Dollar Is the Global Currency'', Kimberly Amadeo, The Balance, 
December 13, 2019.

Q.6. If confirmed, what will you do to ensure that the U.S. 
---------------------------------------------------------------------------
dollar remains the world's reserve currency?

A.6. One option is to consider whether to establish a central 
bank digital currency issued by the United States. This is an 
interesting possibility but one fraught with concerns because 
of the tremendously dominant position of the Federal Reserve 
within our financial system. We need to consider whether the 
Fed's institutional involvement from a favored position, 
clearly occupying the inside track on money transfers, would 
have the effect of stultifying creative FinTech approaches at a 
time when the United States should be demonstrating leadership 
in this field. Money evolves forward--and America should not be 
a passive observer as other Nations move aggressively to steer 
the course of these critical developments. It is vital that the 
Federal Reserve seek to get ahead of the curve in exploring the 
ramifications of digital technology in determining the future 
path of money; the U.S. dollar is the most respected currency 
in the world, but this does not mean we can afford to rest on 
our laurels. Stablecoins represent a step beyond earlier 
attempts to provide a digital currency, such as Bitcoin, and 
seem more aligned with laudable goals such as maintaining a 
stable value--which then enables them to provide a dependable 
store of value, the third primary function of money. Libra is 
presenting itself as a platform that would work in tandem with 
the regulatory authority and supervisory oversight of the 
Federal Reserve at present. But if permitted to move ahead, it 
might readily find itself in a position to challenge the Fed by 
providing an alternative currency not tied to central bank 
issuance. Is there an opening that might be explored for 
working with Facebook or other digital currency providers in 
cooperation with our Federal Reserve? If not, would these 
currency challengers somehow be prevented from proceeding with 
offering their product to the public? These are the questions 
that present themselves as imperatives that must be addressed 
in the fast-moving world of FinTech.

Q.7. Given your ever changing economic views and your 
questioning of the independence of the Federal Reserve, what 
can you say to this Committee to convince us that you would, if 
confirmed, act independently and free from political influence 
in conducting your duties as a Federal Reserve Governor?

A.7. I believe the independence of our Nation's central bank is 
a fundamental aspect of its credibility with the public. 
Congress has granted tremendous powers to the Federal Reserve--
not only to formulate monetary policy but also in exercising 
regulatory authority over banking institutions. Citizens need 
to know they can trust monetary authorities to do the right 
thing without regard to political pressure. I am known as an 
independent thinker; my career testifies to the fact that I 
draw my own conclusions rather than automatically accepting the 
consensus view as evidenced by my work in evaluating the true 
economic condition of the former Soviet Union. If confirmed, I 
will rely on my own analytical capabilities and judgement in 
making decisions as a member of the Board of Governors.

Q.8. Please identify three economic policies supported by the 
Trump administration with which you disagree, and please 
explain with specificity why you disagree.

A.8. Given my respect for maintaining the political 
independence of the Federal Reserve, and noting that I am a 
nominee to serve on the Board of Governors of that institution, 
it would be inappropriate for me to condemn or condone specific 
political or economic policies supported by the current 
Administration.

Q.9. According to the Washington Post, you wrote in your book, 
Money Meltdown, ``Eliminating Federal deposit insurance would 
restore the essential character of banking as a vehicle for 
channeling financial capital into productive investments while 
striving to meet the risk and timing preferences of depositors. 
Government should not intervene in that private business 
activity.'' Do you stand by this statement? If so, why? If not, 
why not?

A.9. I do not support eliminating deposit insurance. In my book 
Money Meltdown, published in 1994, I commented on deposit 
insurance in the context of explaining the concept of ``moral 
hazard'' and wrote the following: ``Banks must be responsible 
for upholding the value of the monetary obligations they issue 
on the basis of held reserves or viable, well-managed loan 
portfolios. The existence of Federal deposit insurance schemes 
that serve to insulate bank management from the discipline 
required to properly manage deposited resources against 
investment assets undermines the integrity of the banking 
industry in the United States by steering it in the direction 
of excessively risky loan portfolios (as taxpayers, not the 
equity holders of the bank, bear a substantial part of the cost 
of fiduciary mismanagement).'' I fully understand that banks 
pay fees for deposit insurance provided by the Federal Deposit 
Insurance Corporation, an independent Government agency 
established to maintain public confidence and stability in the 
U.S. financial system; this is an essential mission, one I 
strongly support. I was simply emphasizing the importance of 
prudent capital and management standards being in place for 
banking institutions as the first bulwark against potential 
losses, rather than relying on Government-provided deposit 
insurance.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
               SENATOR MENENDEZ FROM JUDY SHELTON

Q.1. Dr. Shelton, in your 1993 article ``Banking and 
Government--An Unholy Alliance'' published in the Cato Journal, 
you wrote, ``Now into this fairly straightforward relationship 
among depositors and borrowers, with bankers in the middle 
bringing the parties together and channeling the money into 
those projects that offer maximum return with minimum risk, we 
introduce a hugely distorting factor--Federal deposit 
insurance.'' Also in that article you wrote, ``The unholy 
alliance that exists between Government and the banking 
industry is well-known . . . The alliance boils down to this: 
The presence of Government-provided deposit insurance opens the 
door for Government surveillance and regulation of banking 
operations and management. Such a Faustian arrangement 
engenders tremendous conflicts of interest and invites 
governmental abuse of power.''
    Since publishing that article, have you in any of your 
public writings explained why you ``totally support Federal 
deposit insurance'' as you said in your hearing? If so, please 
list those writings.

A.1. I do not support eliminating deposit insurance. In the 
1993 article you reference, as well as in my book Money 
Meltdown, published in 1994, I commented on deposit insurance 
in the context of explaining the concept of ``moral hazard'' 
and wrote the following: ``Banks must be responsible for 
upholding the value of the monetary obligations they issue on 
the basis of held reserves or viable, well-managed loan 
portfolios. The existence of Federal deposit insurance schemes 
that serve to insulate bank management from the discipline 
required to properly manage deposited resources against 
investment assets undermines the integrity of the banking 
industry in the United States by steering it in the direction 
of excessively risky loan portfolios (as taxpayers, not the 
equity holders of the bank, bear a substantial part of the cost 
of fiduciary mismanagement).'' I fully understand that banks 
pay fees for deposit insurance provided by the Federal Deposit 
Insurance Corporation, an independent Government agency 
established in 1933 to maintain public confidence and stability 
in the U.S. financial system; this is an essential mission, one 
I strongly support. I was simply emphasizing the importance of 
prudent capital and management standards being in place for 
banking institutions as the first bulwark against potential 
losses, rather than relying on Government-provided deposit 
insurance.

Q.2. Dr. Shelton, in your 2009 Wall Street Journal article 
``Capitalism Needs a Sound-Money Foundation'', you stated that 
the U.S. should ``abolish legal tender laws and see whose money 
people trust.'' Additionally, according to the Virginian Pilot 
article ``Virginia alternative currency plan moves forward,'' 
you supported efforts in Virginia to ``study whether Virginia 
should adopt an alternative currency to replace the dollar.''
    Do you believe the U.S. should abolish legal tender laws 
and allow individuals, State, and local governments to issue 
alternatives to Federal Reserve notes?

A.2. I served as a member of the Governor's Joint Advisory 
Board of Economists for the Commonwealth of Virginia from 2010 
to 2015. I was asked in 2013 by a long-serving member of the 
Virginia House of Delegates to provide expertise regarding a 
bill he wished to sponsor calling for a backup currency in case 
the Federal Reserve System suffered a major breakdown or 
cyberattack--a concern in the wake of attacks on several 
American banking institutions by the Iranian Government. The 
idea was to create a ``Plan B'' metallic-based currency, so 
Virginians would still be able to conduct commerce in the event 
of such a breakdown. The proposed alternative currency was 
deemed consistent with the Article I, Section 10 provision of 
the Constitution, which limits the powers of the States by 
prohibiting them from entering into treaties with foreign 
Nations or other actions reserved to the President with the 
approval of two-thirds of the U.S. Senate, or from making 
``anything but gold and silver coin a tender in payment of 
debts.'' The legislation (H.J. 590) sought ``to study the 
feasibility of a monetary unit based on a metallic standard, in 
keeping with constitutional precepts and our Nation's founding 
principles, to facilitate commerce in the event of a major 
breakdown of the Federal Reserve System or disruption of 
financial services.'' It was supported by the Speaker of the 
House and was approved by the Virginia House of Delegates 
before being turned down in the Senate.

Q.3. Since publishing this article, have you in any of your 
public writings expressed your support for Federal Reserve 
notes as the sole national currency? If so, please list those 
writings.

A.3. Federal Reserve notes comprise more than 99 percent of all 
U.S. currency in circulation; the remainder includes United 
States notes, national bank notes, and silver certificates, all 
of which remain legal tender. I might note that legislators in 
a dozen States have pursued or passed legislation of some sort 
to facilitate authorizing payments through metallic-linked 
currencies. Texas lawmakers in 2015 approved building the 
country's first State-backed gold depository; this past 
November, the citizens of Texas voted to approve an amendment 
to the State constitution (Texas Proposition 9) to allow the 
legislature to exempt precious metals held in a precious metal 
depository from ad valorem taxation, i.e., property taxation. 
Approval of Proposition 9 enacted House Bill 2859 (H.B. 2859), 
the legislation exempting precious metal held in precious metal 
depositories from property taxation, with precious metals 
defined as including gold, silver, and other such metals 
``customarily formed into bullion or specie.''
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TESTER
                       FROM JUDY SHELTON

Q.1. Affordable Housing--Montana, and many areas of the 
country, face challenges of housing availability, 
affordability, and aging housing stock. As you know, this is a 
significant issue for rural as well as urban areas and is one 
of the largest barriers to success nationally. In Montana, lack 
of workforce housing is one of the greatest inhibitors of 
economic development.
    What can be done to increase workforce housing and 
encourage more affordable housing to be built?

A.1. As Federal Reserve Chairman Jerome H. Powell has 
testified, part of the problem is a shortage of skilled labor-
electricians, plumbers, carpenters--even at higher pay levels. 
Training new workers with the skills to perform these tasks 
would help alleviate the current lack of workers with the 
expertise for building needed housing; perhaps community 
colleges could be helpful in this regard. Additionally, delays 
in receiving the necessary permits to build houses could be 
reduced by local officials to allow construction sites to move 
forward on their projects.

Q.2. What do you see as the largest barrier to affordable 
housing, particularly in rural areas?

A.2. As stated above, I believe that regulatory obstacles and 
red tape involving zoning, codes, fees, and permits--compounded 
by the lack of skilled labor for housing construction--pose 
significant barriers to affordable housing, particularly in 
rural areas where community colleges or trade schools might not 
be available for potential workers to receive specialized 
training for housing construction.

Q.3. What role does the Fed have in supporting housing? Where 
is there room for additional efforts?

A.3. Since the Federal Reserve's mandate includes the directive 
to promote maximum employment, it can use monetary policy to 
keep interest rates sufficiently low to encourage housing 
starts. The current record low rates of unemployment in the 
United States also tend to bring about wage gains, which should 
attract new workers to the field and motivate them to improve 
construction skills, thus alleviating the current shortage of 
labor supply for building new housing--especially low-cost/
affordable housing.

Q.4. Agriculture Lending--I have been hearing for the last year 
or more from community bankers in Montana that examiners seem 
more concerned lately when that their institution may be overly 
concentrated in ag. This is a hard issue for rural 
communities--we don't want to further jeopardize these farmers 
who are already fighting to survive against trade wars, 
changing weather, and difficult growing seasons, but we cannot 
let these challenges take community banks down with them. 
Access to banks in these rural areas is critical to 
communities, and we've already seen too many close.
    I'm focused on making sure that we support our farmers and 
ranchers and their families through the current challenges 
facing the agriculture sector, while continuing to prioritize 
the safety and soundness of our community financial 
institutions.
    What are the risks to these banks as farmers are 
increasingly overleveraged and continue to struggle with the 
repercussions of these ongoing trade wars, extreme weather 
happening more and more frequently because of our changing 
climate, and persistently low commodity prices?
    Does this pose a threat to rural America?

A.4. Community banks have long been a lifeline to farmers due 
to long-standing relations of trust between borrower and 
lender, sometimes going back generations. Farming is a cyclical 
business with a vulnerability to unforeseen events--including 
weather, as you mention. At the same time, farming is also 
capital intensive, as tractors and combines and harvesters 
require a major financial investment on the part of the farmer, 
even as the capacity to pay off loans remains vulnerable to 
conditions beyond the control of the borrower. It is important 
to allow community banks to focus on lending without 
unnecessary regulatory burdens that do not consider the 
specific characteristics of a financial institution; this is 
particularly critical for rural areas of America.

Q.5. What can and should we be doing in these communities?

A.5. Beyond the limited role of monetary policy in helping to 
promote conditions conducive to productive economic growth--and 
farming is perhaps the strongest example of employment geared 
to the ``real'' economy--there is little the Federal Reserve 
can do with regard to confronting the specific challenges for 
rural communities. However, Congress might consider ways to 
improve access to education and training at the local level; 
additionally, the availability of broadband across rural 
regions could improve access to the Internet and online courses 
for improving job skills.

Q.6. From a banking perspective, are you concerned about how 
this will effect community banks across rural America?

A.6. As stated in my prior responses, I am concerned about 
regulatory and compliance issues that may have the effect of 
making it difficult for community banks to provide needed 
services to farmers and other borrowers in rural areas.

Q.7. Community Reinvestment Act--The CRA is a critical tool in 
expanding access to financial services and credit access to 
low- and moderate-income and underserved communities throughout 
our country, including in rural America.
    What issues will be most important to you as the Fed 
considers updates to the CRA?

A.7. As a nominee, I am not yet sufficiently familiar with the 
details of potential updates to the Community Reinvestment Act 
to provide an informed response. I have not been involved in 
deliberations among the Office of the Comptroller of the 
Currency, the Federal Deposit Insurance Corporation, and the 
Federal Reserve regarding the CRA; my understanding is that 
public comments are being received, but I have not reviewed 
those comments.

Q.8. How will you ensure that changes you consider remain 
consistent with the original purpose of this Civil Rights-era 
law to bringing financial services and credit access to low- 
and moderate-income and underserved communities throughout our 
country?

A.8. I strongly support the fundamental goals of the CRA, which 
was enacted in 1977, while also acknowledging that its 
parameters need to be updated to reflect changes in the way 
banks operate and provide services today--particularly in 
providing access to credit for lower-income communities.

Q.9. How will you assess the potential impact on rural America?

A.9. It is important to avoid the imposition of regulatory and 
compliance measures that may have the effect of making it 
difficult for community banks to provide needed services to 
farmers and other borrowers in rural areas.

Q.10. Are you concerned that the Fed may move separately from 
the OCC and FDIC?
    Why or why not?

A.10. It does seem to me, for purposes of ensuring regulatory 
clarity, that a common approach among the three agencies would 
be optimal.

Q.11. Banking Hemp--The 2018 Farm Bill removed hemp from the 
list of schedule I controlled substances, however regulators 
and Federal agencies have been slow in making changes to 
reflect this.
    How can the Fed improve certainty for financial 
institutions providing services to this legal business?

A.11. As a nominee, I do not have familiarity with the details 
on this, but I understand from the Federal Reserve's website 
that they published guidance on this issue (``Providing 
Financial Services to Customers Engaged in Hemp-Related 
Businesses'') as an example of how the Fed can improve 
certainty for financial institutions providing services to 
hemp-related businesses. The document states: ``For hemp-
related customers, banks are expected to follow standard SAR 
(Suspicious Activity Report) procedures, and file a SAR if 
indicia of suspicious activity warrants.''

Q.12. What oversight will be necessary from the Fed?

A.12. I would expect that the Federal Reserve will continue to 
monitor the issue.

Q.13. Economic Tools, Debt and Deficits--Both the Fed, through 
lower rates, and Congress, through increased spending and 
increased debt, have been taking actions to boost the economy 
during a long stretch of growth. I'm concerned that if we 
approach a downturn our options for how to address that will be 
limited by our actions during this decade of expansion.
    What tools does the Fed have left to react to an economic 
downturn?

A.13. The Fed's traditional monetary policy tools are open 
market operations, adjusting the discount rate and/or adjusting 
the reserve requirement. Currently, it primarily utilizes its 
authority to provide an administered rate in paying interest on 
excess reserves (IOER) to move the basic interest rate in 
pursuit of meeting its statutory mandate. Additional tools in 
recent years include quantitative easing (QE), i.e., large 
purchases of financial assets, as well as providing forward 
guidance regarding the future path of interest rates. There are 
limits regarding the stimulus effect these measures might 
provide given that we are already near the lower bound on 
interest rates and the Fed's balance sheet is heading back 
toward historically high levels after having stalled to decline 
in accordance with the Fed's desire to ``normalize'' its 
holdings.

Q.14. The debt is more than $23 Trillion--at what point do you 
get concerned about that?
    Is this sustainable?

A.14. Increasing Federal debt could hamper the ability of 
Congress to support the economy in a downturn as policymakers 
may feel restrained from using fiscal policy to provide 
economic stimulus. While U.S. national debt does not pose any 
immediate threat, and demand for U.S. Treasury obligations 
remains high, the cost of servicing growing levels of public 
debt infringes on the amount of Federal revenues available to 
be used to address other spending priorities.

Q.15. Trade--One of my concerns about how we could end up in an 
economic downturn is our trade policy over the past 2-plus 
years.
    What are your current views on free trade?

A.15. I am a strong believer in free trade. My philosophy is 
based on comparative advantage and reflects an ``Adam Smith'' 
approach; I believe that having access to the international 
marketplace expands opportunity and prospects for prosperity 
around the world to the benefit of all participants. When free 
trade is conducted in accordance with free-market mechanisms, I 
believe all economic and financial sectors stand to benefit--
acknowledging that some less-developed countries have 
substantially lower labor costs than those in the United 
States, which can hurt U.S. workers in certain sectors such as 
manufacturing. America's dominance in technology and our 
Nation's ability to achieve greater productivity through 
innovation can help counter perceived price advantages offered 
by competitors by delivering higher-value goods with greater 
market appeal. U.S. financial firms can likewise benefit from 
free trade if they are not prevented from entering new markets 
overseas through nontariff barriers or other obstacles. 
Recognizing that trade policy is not the responsibility of the 
Federal Reserve, my views would not impact my decisions as a 
member of the Board of Governors, should I be confirmed.

Q.16. Federal Reserve Independence--We briefly touched on this 
during my questions in the Committee hearing, but I would like 
you to expand on your position.
    What are your views on the independence of the Federal 
Reserve?

A.16. I believe the independence of the Fed is a vital aspect 
of our central bank's monetary policy decision-making process, 
its operational autonomy, and its credibility with the public. 
In my testimony during the nomination hearing before the 
Committee, I stated on several occasions that Congress created 
the Federal Reserve as an independent agency and charged it 
with the mandate to promote maximum, employment, stable prices, 
and moderate long-term interest rates.

Q.17. How do you define independence from Congress and the 
President in this context?

A.17. The actuality of the Fed's independence from both the 
executive and legislative branches is ensured through the 
unique characteristics granted to it by Congress, notably (1) 
its significantly longer length of terms for members than those 
of most agencies, staggered over multiple Administrations and 
Congresses, and (2) its own funding mechanism that makes the 
Fed independent from congressional appropriations.

Q.18. Gold Standard--I think there's a reason that so many of 
my colleagues--on both sides of the aisle, across the 
ideological spectrum--agree that returning to the Gold Standard 
would have a really detrimental impact on regular people, like 
the folks from Montana that I represent--there's even some 
evidence that back when we were on the Gold Standard farmers 
were especially disadvantaged.
    What impact do you believe going back to the Gold Standard 
would have on our economy?

A.18. My writings have included references to prior 
international monetary arrangements going back through U.S. 
history because I believe we can gain valuable insights by 
comparing economic growth performance under one set of monetary 
rules versus another. The United States was on the classical 
international gold standard from 1870 to 1913 and served as the 
anchor for the Bretton Woods gold exchange standard from 1944 
to 1971. Economic growth and free trade flourished under the 
gold standard, which established a level international monetary 
playing field while preserving the national sovereignty of 
participating Nations; proponents of the classical 
international gold standard include former Federal Reserve 
Chairman Alan Greenspan. The Bretton Woods system restored 
exchange-rate stability among allied Nations at the close of 
World War II as an alternative to returning to the beggar-thy-
neighbor era of the 1930s when Nations depreciated their 
currencies to gain an unfair trade advantage, a syndrome that 
led to economic disaster. Proponents of a new Bretton Woods-
type arrangement (with or without any reference to gold) 
include the late Paul Volcker, also a former Fed chairman. \1\ 
Congress created the Federal Reserve as an independent agency 
and through the Federal Reserve Reform Act of 1977 charged it 
with the mandate to promote maximum employment, stable prices, 
and moderate long-term interest rates. That is the framework 
under which I will make monetary policy decisions if confirmed 
as a member of the Board of Governors.
---------------------------------------------------------------------------
     \1\ ``Paul Volcker: Back to the Woods?'' Seth Lipsky, Wall Street 
Journal, June 11, 2014.
---------------------------------------------------------------------------
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                       FROM JUDY SHELTON

Q.1. Monetary Policy--In 2018, the Fed began a review of the 
strategy, tools, and communications it uses to conduct monetary 
policy. \1\ If confirmed, you will be responsible, along with 
the other Board members, for evaluating the results of this 
review and determining if changes are appropriate.
---------------------------------------------------------------------------
     \1\ Board of Governors of the Federal Reserve System, ``Review of 
Monetary Policy Strategy, Tools, and Communications'', June 25, 2019, 
https://www.federalreserve.gov/monetarypolicy/review-of-monetary-
policy-strategy-tools-and-communications.htm.
---------------------------------------------------------------------------
    Describe the implications of the apparent decline in the 
neutral rate of interest for future recessions and economic 
downturns.

A.1. First, deciding what constitutes a neutral rate is ``more 
of an art than a science,'' as Robert Kaplan, president of the 
Federal Reserve Bank of Dallas, noted in an October 2018 essay. 
If the neutral rate has indeed declined, then the parameter for 
measuring whether monetary policy is accommodative, neutral, or 
restrictive, must likewise be adjusted downward.

Q.2. Do you believe the Fed's current monetary policy tools 
will be sufficient to alleviate an economic downturn?

A.2. The Fed's traditional monetary policy tools are open 
market operations, adjusting the discount rate and/or adjusting 
the reserve requirement. Currently, it primarily utilizes its 
authority to provide an administered rate in paying interest on 
excess reserves (IOER) to move the basic interest rate in 
pursuit of meeting its statutory mandate. Additional tools in 
recent years include quantitative easing (QE), i.e., massive 
purchases of financial assets, as well as providing forward 
guidance regarding the future path of interest rates. There are 
limits on how stimulative these measures might prove given that 
we are already near the lower bound on interest rates and the 
Fed's balance sheet is heading back toward historically high 
levels after having stalled to decline in accordance with the 
Fed's desire to ``normalize'' its holdings.

Q.3. What role do you believe fiscal policy will need to play 
in the next downturn?

A.3. To the extent fiscal policy supports productive economic 
growth, most likely by encouraging business capital investment, 
it can prove helpful.

Q.4. In response to prior economic downturns, policymakers have 
used a number of different fiscal policy tools as part of 
stimulus packages including tax cuts, investments 
infrastructure and emerging technologies and transfers to State 
governments. Which fiscal policy tools do you believe would be 
most effective?

A.4. Potentially, all those measures could be effective.

Q.5. Under what circumstances would you support additional 
spending in response to a recession even if it adds to the 
deficit?

A.5. Expenditures for infrastructure would be most promising in 
terms of justifying additional Government spending in response 
to a recession.

Q.6. President Trump has repeatedly advocated for negative 
interest rates, arguing that they would boost economic growth. 
\2\ Do you agree? Describe the implications of negative 
interest rates.
---------------------------------------------------------------------------
     \2\ NBC News, ``Trump Keeps Pushing `Negative' Interest Rates. 
What Would That Mean for Your Wallet?'' Ben Popken, September 23, 2019, 
https://www.nbcnews.com/business/consumer/trump-keeps-pushing-negative-
interest-rates-what-would-mean-your-n1056546.

A.6. My view on negative rates is that they are an anomaly, a 
deviation from normal financial investment patterns that 
compensate people for putting their money at risk over time. I 
believe they have been largely engineered by the monetary 
policies of central banks--primarily the European Central 
Bank--and are proving relatively ineffective in stimulating 
productive economic growth. It is understandable that any 
Nation with substantial amounts of public debt outstanding 
would welcome the opportunity to be paid for borrowing. Given 
our own Nation's economic performance relative to other major 
Nations, one would think the United States should have access 
to the least-cost borrowing options in global financial 
markets. But our Federal Reserve has indicated a general 
reluctance to go below the zero boundary on interest rates, and 
---------------------------------------------------------------------------
my own view concurs with that disinclination.

Q.7. Former Fed Chair Bernanke has argued that the decline in 
the rate may be partly due to structural factors such as 
demographic and technological change. \3\ Do you agree?
---------------------------------------------------------------------------
     \3\ The Brookings Institution, ``The New Tools of Monetary 
Policy'', Ben Bernanke, January 4, 2020, https://www.brookings.edu/
blog/ben-bernanke/2020/01/04/the-new-tools-of-monetary-policy/.

A.7. I lean more toward Robert Kaplan's perspective (please see 
citation in my response to Question 1) regarding the 
``inherently imprecise and uncertain nature of estimating what 
---------------------------------------------------------------------------
constitutes `neutral'.''

Q.8. If so, should the Fed proactively thinking about the 
trends in these structural factors and how they could impact 
the effectiveness of monetary policy in the future?

A.8. I would avoid prejudging what future actions affecting the 
stance of monetary policy should be predicated on an assumed 
metric that poses such analytical challenges to being 
accurately estimated.

Q.9. In response to developments in overnight lending markets 
in September 2019, the Fed began conducting repo operations to 
``stabilize money markets and provide reserves to keep the 
Federal funds rate within its target range.'' \4\
---------------------------------------------------------------------------
     \4\ Board of Governors of the Federal Reserve System, ``Monetary 
Policy Report'', February 7, 2020, https://www.federalreserve.gov/
monetarypolicy/files/20200207_mprfullreport.pdf.
---------------------------------------------------------------------------
    Some have pointed to the repo market concentration, with 
the largest banks being almost exclusively responsible for 
engaging in transactions with the Fed and lending that money 
out. \5\ Can you describe the implications of the concentration 
levels of the current repo market structure and how the 
concentration of participants may have impacted the Fed's 
recent interventions?
---------------------------------------------------------------------------
     \5\ Wall Street Journal, ``Big Banks Loom Over Fed Repo Efforts'', 
Daniel Kruger, September 26, 2019, https://www.wsj.com/articles/big-
banks-loom-over-fed-repo-efforts-11569490202.

A.9. Total reserves held in depository accounts at the Fed are 
predominantly held by the very largest banks, with the five 
largest banks holding more than 90 percent of total reserves. 
\6\ This impacts the Fed's ability to recirculate through the 
financial system the money it lends into the repo market.
---------------------------------------------------------------------------
     \6\ Wall Street Journal, ``Big Banks Loom Over Fed Repo Efforts'', 
Daniel Kruger, September 26, 2019.

Q.10. If the Fed were to adopt a standing repo facility, as it 
has been considering even before the market disruption in 
September, \7\ what factors should the Fed use to determine 
which counterparties would be eligible?
---------------------------------------------------------------------------
     \7\ Board of Governors of the Federal Reserve System, ``Minutes of 
the Federal Open Market Committee'', June 18-19, 2019, https://
www.federalreserve.gov/monetarypolicy/fomcminutes20190619.htm.

A.10. The Fed has relied on primary dealers, comprised of 24 
banks or securities dealers, to act as intermediaries for the 
Fed with other investors and financial firms. While I do not 
have access to the information needed to answer with greater 
precision, it seems to me that concentration in the repo market 
needs to be addressed by considering how to distribute more 
widely through the financial system the money made available 
---------------------------------------------------------------------------
through the Fed's participation.

Q.11. Financial Stability--In previous questions regarding the 
Fed's response to climate change, Chairman Powell claimed that 
the Fed uses ``its authorities and tools to prepare financial 
institutions for severe weather events.'' \8\ At the same time, 
science has clearly demonstrated that extreme weather events 
are becoming increasingly common as a result of climate change. 
\9\
---------------------------------------------------------------------------
     \8\ Letter from Federal Reserve Chairman Jerome H. Powell to 
Senator Elizabeth Warren, April 18, 2019.
     \9\ National Oceanic and Atmospheric Administration, ``Report: 
Climate Change Is Making Specific Weather Events More Extreme'', 
December 9, 2019, https://www.noaa.gov/news/report-climate-change-is-
making-specific-weather-events-more-extreme.
---------------------------------------------------------------------------
    To the extent that these weather events continue becoming 
more common and having a greater impact on the business cycle 
itself, do you believe that it would be appropriate for the Fed 
to more explicitly consider the risks associated with climate 
change in its decision making?

A.11. Only with regard to preparing for potential economic 
risks linked to weather events, such as fires or flooding, as 
the Fed already does as part of its planning for the 
consequences of natural disasters.

Q.12. Do you believe it would be appropriate for the Fed to 
hire economists that specialize in climate economics to address 
these changes? Should the Fed hire natural scientists to inform 
economic models?

A.12. The relevant data is widely available and could readily 
be accessed and incorporated into economic and financial 
projections formulated by its existing research staff.

Q.13. Do you support the Fed officially joining the Network for 
Greening the Financial System (NGFS)? If not, why not?

A.13. While a number of other central banks--led by the Bank of 
France, Bank of England, and People's Bank of China--are 
calling for measures to spur green finance and better risk 
assessments of climate change effects, I do not think the U.S. 
Federal Reserve should be involved in this initiative unless 
Congress specifically directs our central bank to do so and 
amends its statutory mandate accordingly.

Q.14. The most recent report from Shared National Credit (SNC) 
Review program conducted jointly by the Fed, Federal Deposit 
Insurance Corporation (FDIC), and Office of the Comptroller of 
the Currency (OCC), stated that ``credit risk associated with 
leveraged lending remains elevated'' and ``lenders have fewer 
protections and risks have increased in leveraged loan terms 
through the current long period of economic expansion since the 
last recession.'' \10\
---------------------------------------------------------------------------
     \10\ Board of Governors of the Federal Reserve System, Federal 
Deposit Insurance Corporation, Office of the Comptroller of the 
Currency, Board of Governors of the Federal Reserve System Federal 
Deposit Insurance Corporation Office of the Comptroller of the 
Currency, ``Shared National Credit Program: 1st and 3rd Quarter 2019 
Reviews'', https://www.federalreserve.gov/newsevents/pressreleases/
files/bcreg20200131a1.pdf.
---------------------------------------------------------------------------
    Please explain how you believe the Fed should evaluate and 
monitor the credit-risk management practices of a financial 
institution to ensure that these procedures, some of which are 
untested, will be sufficient during an economic downturn.

A.14. The Fed should continue to evaluate and monitor the 
credit-risk management practices of all financial institutions 
over which it has regulatory oversight to ensure that 
procedures will be sufficient during an economic downturn.

Q.15. Do you believe that the Interagency Guidance on Leveraged 
Lending \11\ issued in 2013 is sufficient to address the risks 
associated with leveraged lending, particularly with respect to 
the growth of nonbank lenders?
---------------------------------------------------------------------------
     \11\ Federal Reserve Board of Governors, Federal Deposit Insurance 
Corporation, Office of the Comptroller of the Currency, ``Interagency 
Guidance on Leveraged Lending'', March 21, 2013, https://
www.federalreserve.gov/supervisionreg/srletters/sr1303a1.pdf.
---------------------------------------------------------------------------
    Do you believe these loans made by nonbanks currently pose 
a risk to financial stability? If not, please explain why and 
under what circumstances the Fed should begin to judge them a 
threat to financial stability.
    Many of these nonbank lenders fall into a regulatory gap. 
What tools does the Federal Government have to mitigate the 
risks from the growth of leveraged lending and the 
deterioration of the terms of those loans?

A.15. I would need to look more closely at the source you 
referenced to offer an informed opinion, noting that I agree 
with the document's assertion: ``In particular, financial 
institutions should ensure they do not unnecessarily heighten 
risks by originating poorly underwritten loans.''

Q.16. Private equity firms often finance acquisitions through 
highly leveraged loans. According to the private equity 
industry, firms acquired in these acquisitions now employ 8.8 
million workers. In an economic downturn, what would you expect 
to happen to employment in these firms?

A.16. In an economic downturn, employment in general is likely 
to decrease--perhaps more so in industries directly tied to the 
performance of financial investments.

Q.17. Regulation--The OCC and FDIC made the decision to heed to 
the concerns of the Fed with respect to their plan to modify 
the Community Reinvestment Act (CRA) and issued a new proposed 
rule on the law jointly enforced by the three agencies without 
the Fed last December. \12\ On January 8, 2020, Governor 
Brainard released her own alternative plan to modernize the 
CRA. \13\
---------------------------------------------------------------------------
     \12\ Comptroller of the Currency and Federal Deposit Insurance 
Corporation, Federal Register Notice, ``Community Reinvestment Act 
Regulations'', January 09, 2020, https://www.federalregister.gov/
documents/2020/01/09/2019-27940/community-reinvestment-act-regulations.
     \13\ Board of Governors of the Federal Reserve System, 
``Strengthening the Community Reinvestment Act by Staying True to Its 
Core Purpose'', Governor Lael Brainard, January 08, 2020, https://
www.federalreserve.gov/newsevents/speech/brainard20200108a.htm.
---------------------------------------------------------------------------
    Would you have voted to join the OCC and FDIC proposal? If 
not, what aspects to you disagree with? If so, please explain 
why you believe it is right approach.

A.17. I am only generally familiar with the proposal put 
forward by the OCC and FDIC; given that the process is ongoing 
and I do not have access to the analytics involving nonpublic 
data, nor have I reviewed the myriad public comments relating 
to this effort, I cannot provide an informed answer.

Q.18. Much of the criticism of the other agencies' plan focuses 
on the lack of analysis demonstrating the economic impact of 
the changes. However, according to Governor Brainard, the Fed 
has conducted some analysis with relevant data and would like 
to publish that data so the public can provide feedback.
    Do you believe it is important for any new metrics included 
in a new CRA plan are grounded in data?

A.18. Please see my answer above.

Q.19. Do you believe that it is important for the public to 
have ample time to examine these data to provide input and 
ensure that reforming this critical civil rights law is done 
correctly?

A.19. I believe the process should be carried out in accordance 
with predetermined timelines for making appropriate decisions.

Q.20. Do you believe there are consequences of having two 
separate CRA regimes for institutions with different 
regulators? If so, what are these consequences?

A.20. It seems to me, for purposes of ensuring regulatory 
clarity, that a common approach among the three agencies would 
be optimal.

Q.21. On January 30, 2020, the Fed finalized a rule to 
determine ``when a company controls a bank or a bank controls a 
company.'' \14\
---------------------------------------------------------------------------
     \14\ Board of Governors of the Federal Reserve System, ``Federal 
Reserve Finalizes Rule To Simplify and Increase the Transparency of the 
Board's Rules for Determining Control of a Banking Organization'', 
January 30, 2020, https://www.federalreserve.gov/newsevents/
pressreleases/bcreg20200130a.htm.
---------------------------------------------------------------------------
    Reporting has indicated that the rule could allow private 
equity funds to control a greater portion of a bank's equity 
and thereby allow private equity investors to influence the 
operations of banks. \15\ Given the various risks associated 
with the private equity business model and documented research 
that demonstrates that private equity investments in financial 
companies can increase the risk profile of those companies, 
\16\ do you believe that this rule increases the level of risk 
in the financial sector?
---------------------------------------------------------------------------
     \15\ New York Times, ``The Fed Wants To Loosen Rules Around Big 
Banks and Venture Capital'', Jeanna Smialek and Emily Flitter, January 
30, 2020, https://www.nytimes.com/2020/01/30/business/economy/volcker-
rule-banks-venture-capital.html.
     \16\ Harvard University, ``Private Equity Ownership, Risk-Taking, 
and Performance in the Life and Annuities Industry'', Divya Kirti and 
Natasha R. Sarin, April 2, 2018, https://scholar.harvard.edu/nsarin/
publications/private-equity-ownership-risk-taking-and-performance-life-
and-annuities-industry.

A.21. I believe the change is aimed at simplifying and 
increasing the transparency of the Board's rules for 
---------------------------------------------------------------------------
determining control of a banking organization.

Q.22. In her statement, Governor Brainard suggested that it 
will be important to ``monitor the ownership structures of 
banking organizations in light of this control framework and 
industry trends'' and ``how the control framework interacts 
with other regulations that involve ownership thresholds.'' 
\17\
---------------------------------------------------------------------------
     \17\ Board of Governors of the Federal Reserve System, ``Statement 
by Governor Lael Brainard'', January 30, 2020, https://
www.federalreserve.gov/newsevents/pressreleases/brainard-statement-
20200130a.htm.
---------------------------------------------------------------------------
    Do you agree with Governor Brainard?
    If so, please describe how the Fed should monitor these 
ownership structures and how the Fed will determine if there is 
a financial stability risk associated with a banking 
organization's ownership structure?

A.22. As a nominee, I am not sufficiently familiar with the 
details of this matter to take a position on the Fed's efforts 
to clarify existing rules for determining if a company has 
control over a banking organization under the Bank Holding 
Company Act and the Home Owners' Loan Act. My understanding is 
that the final rule takes effect April 1; if confirmed, I will 
be interested to learn how the Fed proposes to monitor 
ownership structures and what factors it will consider in 
determining how the control framework interacts with other 
regulations involving ownership thresholds with regard to 
assessing any potential financial stability risk.

Q.23. Supervision--In Wells Fargo's Q4 2019 Earnings Call, 
newly appointed CEO Charlie Scharf acknowledged the bank's many 
misdeeds, claiming ``we made some terrible mistakes and have 
not effectively addressed our shortcomings.'' \18\
---------------------------------------------------------------------------
     \18\ Bloomberg, ``Q4 2019 Earnings Call'', Wells Fargo, January 
14, 2020.
---------------------------------------------------------------------------
    These comments suggest that Wells Fargo has not made 
substantial progress in remedying the issues at hand. In a 
written response to me in 2018, Chairman Powell stated that the 
terms of the Fed's current Consent Order require that ``the 
firm must make significant progress in remedying its oversight 
and compliance and operational risk management deficiencies 
before relief from the asset growth restriction would be 
forthcoming.'' \19\ Chairman Powell has committed to me that 
the Board of Governors would have a formal vote before the 
Fed's asset cap on the bank could be lifted. Under what 
circumstances would you vote to lift the asset cap?
---------------------------------------------------------------------------
     \19\ Letter from Federal Reserve Chairman Jerome H. Powell to 
Senator Elizabeth Warren, May 10, 2018, https://www.warren.senate.gov/
download/20180510-powell-response-re-wells-fargo.

A.23. Clearly, I would need to be familiar with the relevant 
information, to which I currently have no access as a nominee, 
to be in a decision to weigh in with an opinion as to whether 
the firm had made ``significant progress in remedying its 
oversight and compliance and operation risk management 
---------------------------------------------------------------------------
deficiencies.''

Q.24. In a recent speech, Fed Vice Chair for Supervision Randal 
Quarles suggested that Fed bank supervisors use of MRAs should 
be limited, and that they should only be permitted to 
institutions ``to violations of law, violations of regulation, 
and material safety and soundness issues'' \20\--a severe 
narrowing of Fed's authority.
---------------------------------------------------------------------------
     \20\ Federal Reserve Vice Chair for Supervision Randal K. Quarles, 
``Spontaneity and Order: Transparency, Accountability, and Fairness in 
Bank Supervision'', January 17, 2020, https://www.federalreserve.gov/
newsevents/speech/quarles20200117a.htm.
---------------------------------------------------------------------------
    Do you agree that the Fed should alter the process, 
standards, and requirements under which MRAs and/or MRIAs are 
issued? If so, why?
    Do you believe there should be a formal notice and comment 
process so that outside experts and consumer advocates can 
review and comment on any proposal?
    The 2013 guidance in the communication of supervisory 
findings states, that standardization of the terms MRAs or 
MRIAs ``facilitates the Federal Reserve's national systems of 
record for information related to examination and inspection 
issues'' and ``enables the Federal Reserve to access 
information about supervisory issues and remediation efforts 
and aids in the identification of systemic and programmatic 
challenges facing banking organizations supervised by the 
Federal Reserve.'' \21\ If, as proposed, certain supervisory 
findings will no longer be categorized as MRAs, do you believe 
this could impact the Fed's ability to access this information?
---------------------------------------------------------------------------
     \21\ Federal Reserve Board of Governors, ``Supervisory 
Considerations for the Communication of Supervisory Findings'', https:/
/www.federalreserve.gov/supervisionreg/srletters/sr1313a1.pdf.
---------------------------------------------------------------------------
    Do you believe that it is possible for a bank examination 
to uncover an issue with a financial institution that could 
pose a threat to safety and soundness but does not represent a 
legal violation? Please describe some examples.
    The impact of any proposed changes to MRAs is largely 
dependent on the definition of ``material safety and 
soundness.'' How do you believe the Fed should determine this 
decision?

A.24. The determination regarding the issuance of MRAs and/or 
MRIAs is based on a process that involves standards and imposes 
requirements based on considerations involving specific 
institutions. As a nominee with no access to detailed 
information concerning the process nor familiarity with how it 
is conducted and applied at the supervisory level, it is not an 
appropriate question for me to address herein.

Q.25. Clarifications Regarding Your Responses to My Letter--I 
appreciate your response to my letter by the requested date of 
February 13, 2020.
    However, many of your responses require further 
clarification:
    In response to my question regarding your documented 
opposition to the concept of deposit insurance, you claimed 
that you were merely ``emphasizing the importance of prudent 
capital and management standards being in place for banking 
institutions as the first bulwark against potential losses.''
    Do you support the current set of prudential standards and 
capital requirements?
    Do you believe that there are any requirements that should 
be strengthened? If so, which ones? Which requirements and to 
what levels?
    Do you believe that there are any requirements that should 
be further weakened or tailored? Which requirements and to what 
levels?
    Do you believe that the current overall level of capital in 
the financial sector is the appropriate amount? If not, why 
not?

A.25. As a nominee, I am not yet familiar with ``the current 
set of prudential standards and capital requirements'' 
currently in place for banking institutions. It would be 
imprudent for me to express support or lack of support for such 
standards and requirements.

Q.26. In your response, you also claimed that ``multiple 
factors caused the 2008 financial crisis, including errors in 
monetary and regulatory policies, which were further 
exacerbated by lack of transparency in assessing subprime 
lending and specific risk characteristics of mortgage-backed 
securities products.''
    What were the errors in regulatory policy that you believe 
contributed the 2008 financial crisis?

A.26. The fact that the Federal Reserve did not predict the 
seizing up of credit markets that precipitated the 2008 crisis 
suggests to me that its regulatory policy for adjudging 
systemic financial risk was inadequate.

Q.27. What were the errors in monetary policy that you believe 
contributed the 2008 financial crisis?

A.27. Perpetual inflation lures people into thinking that the 
value of the real estate they purchase can only go up.

Q.28. Please clarify what you meant by ``lack of 
transparency.'' Do you believe that there is currently a lack 
of transparency in some of the structures used in the financial 
sector today, such as collateralized loan obligations?

A.28. I support increased transparency on financial instruments 
in general so that all parties involved are fully aware of the 
risk-reward parameters of the underlying security as well as 
its derivative instruments.

Q.29. You also stated that ``the most concerning aspect 
regarding the 2008 financial crisis is the Federal Reserve's 
lack of prescience in recognizing what was happening in credit 
markets, along with its failure to foresee the implications for 
global financial stability.''
    What do you believe will cause the next recession? Do you 
believe that the levels of consumer debt are cause for concern?

A.29. U.S. household debt came in high in the fourth quarter of 
last year, as outstanding balances on mortgages, student loans, 
auto loans and credit cards have climbed. However, debt 
payments as a percentage of disposable income are generally 
flat due to low interest rates--which suggests that most 
Americans are living within their means.

Q.30. You also talked about the danger of groupthink on the Fed 
Board. What perspectives do you believe are missing from the 
Board? What decisions would you have made differently?

A.30. I would pay more attention to market-determined rates of 
interest outside of the direct influence of the Federal 
Reserve's policies--in terms of regulation as well as through 
monetary policy decisions executed by means of administered 
rates, i.e., by paying interest on excess reserves.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCHATZ
                       FROM JUDY SHELTON

Q.1. In a Wall Street Journal opinion piece in 2009, you blamed 
the Federal Reserve for the financial crisis, blaming it for 
keeping interest rates too low for too long and increasing the 
money supply by too much. You also questioned, ``why do we need 
a central bank?''
    Do you think we need a central bank?

A.1. So long as Congress chooses to exercise its power to 
regulate the value of U.S. money through an independent agency 
in accordance with a statutory mandate to promote maximum 
employment, price stability, and moderate long-term interest 
rates--and that agency, the Federal Reserve, chooses to pursue 
these goals through monetary policy decisions aimed at 
contracting or expanding monetary aggregates by directing 
influencing interest rates--that agency is clearly authorized 
to exist in compliance with the will of Congress.

Q.2. Do you think the Federal Reserve has kept interest rates 
too low since 2009?

A.2. The extreme monetary policies conducted by the Federal 
Reserve in the wake of the 2008 financial crisis, such as 
imposing near-zero interest rates and engaging in massive 
purchases of financial assets, impose great costs on certain 
segments of the population. Savers have been punished by the 
low rates, through no fault of their own, affecting plans for 
paying tuition or planning for retirement. The Government's 
intervention in credit markets through its agency, the Federal 
Reserve, has caused price distortions that skew returns to 
those most able to participate in financial markets and fueled 
speculation in markets for derivatives and other sophisticated 
instruments. Were the costs of such actions by the Fed 
justified by economic growth that benefited Americans in 
general? I would point out that GDP growth from 2009 through 
2016 averaged 1.6 percent--indeed, the precise growth number 
for 2016 was 1.6 percent. During those same years, unemployment 
averaged 7.2 percent. Congress implemented major structural 
changes in subsequent years that have changed assessments of 
``secular stagnation'' into substantially positive outlooks for 
U.S. economic performance. The rate of GDP growth from 2017 
through 2019 has averaged 2.5 percent, more than 50 percent 
higher than the prior period. The rate of unemployment is 
currently half the average rate during the earlier period. 
Something clearly changed, precipitating higher business 
confidence and consumer confidence--and we are seeing increased 
productivity, increased wage gains, and decreasing income 
inequality as a result. All of which suggests that having the 
right monetary policy in place is a necessary but not 
sufficient condition for promoting productive economic growth.

Q.3. Do you still think the Federal Reserve is to blame for the 
financial crisis?

A.3. I believe multiple factors caused the 2008 financial 
crisis, including errors in monetary and regulatory policies, 
which were further exacerbated by lack of transparency in 
assessing subprime lending and specific risk characteristics of 
mortgage-backed securities products. I do not think it is fair 
to typecast bankers in general as villains; I do not think it 
is appropriate to infantilize borrowers in general as victims. 
In my view, the most concerning aspect regarding the 2008 
financial crisis is the Federal Reserve's lack of prescience in 
recognizing what was happening in credit markets, along with 
its failure to foresee the implications for global financial 
stability. No other Government institution had more influence 
over the creation of money and credit in the lead up to the 
devastating 2008 meltdown than our own Nation's central bank.

Q.4. At the hearing, you backed away from your writings 
advocating for the gold standard and a return to the Bretton 
Woods system. You are now claiming that you were not advocating 
for a return to the gold standard (despite clear statements to 
the contrary), \1\ but instead that you simply support global 
monetary stability. Even taking your new stance at face value, 
it is hard to understand what you are recommending other than 
returning to an asset-backed currency rather than fiat 
currency.
---------------------------------------------------------------------------
     \1\ Judy Shelton, ``Global Monetary Turmoil Is Hurting Economic 
Growth'', The Hill, February 25, 2016, (``[I]t Would Certainly Make 
Sense To Consider Using Gold as a Neutral Reference Point.'') 
(available at: https://thehill.com/blogs/pundits-blog/finance/270690-
global-monetary-turmoil-is-hurting-economic-growth).
---------------------------------------------------------------------------
    Please explain your current position on the gold standard 
and whether you think it would be sound policy for the United 
States to return to a system similar to the Bretton Woods 
system.
    If you believe it is sound policy, please explain what 
asset or assets should serve as the reference?

A.4. My writings have included references to prior 
international monetary arrangements going back through U.S. 
history because I believe we can gain valuable insights by 
comparing economic growth performance under one set of monetary 
rules versus another. The United States was on the classical 
international gold standard from 1870 to 1913 and served as the 
anchor for the Bretton Woods gold exchange standard from 1944 
to 1971. Economic growth and free trade flourished under the 
gold standard, which established a level international monetary 
playing field while preserving the national sovereignty of 
participating Nations; proponents of the classical 
international gold standard include former Federal Reserve 
Chairman Alan Greenspan. The Bretton Woods system restored 
exchange-rate stability among allied Nations at the close of 
World War II as an alternative to returning to the beggar-thy-
neighbor era of the 1930s when Nations depreciated their 
currencies to gain an unfair trade advantage, a syndrome that 
led to economic disaster. Proponents of a new Bretton Woods-
type arrangement (with or without any reference to gold) 
include the late Paul Volcker, also a former Fed chairman. \2\ 
Congress created the Federal Reserve as an independent agency 
and through the Federal Reserve Reform Act of 1977 charged it 
with the mandate to promote maximum employment, stable prices, 
and moderate long-term interest rates. That is the framework 
under which I will make monetary policy decisions if confirmed 
as a member of the Board of Governors.
---------------------------------------------------------------------------
     \2\ ``Paul Volcker: Back to the Woods?'' Seth Lipsky, Wall Street 
Journal, June 11, 2014.

Q.5. If you no longer think it is sound policy, what are you 
---------------------------------------------------------------------------
now recommending for U.S. currency policy?

A.5. It would not be my role or responsibility as a member of 
the Board of Governors of the Federal Reserve System to 
determine U.S. currency policy. As I specifically explained in 
my opening statement at the nomination hearing before the 
Senate Banking Committee on February 13, 2020, the power to 
regulate the value of U.S. money is granted to Congress by our 
Constitution (Article I, Section 8). Congress created the 
Federal Reserve as an independent agency with the mandate to 
promote maximum employment, price stability, and moderate long-
term interest rates.

Q.6. In a recent speech at the San Francisco Fed's conference 
on the economics of climate change, Fed Governor Lael Brainard 
stated: ``Climate risks are projected to have profound effects 
on the U.S. economy and financial system. To fulfill our core 
responsibilities, it will be important for the Federal Reserve 
to study the implications of climate change for the economy and 
the financial system and to adapt our work accordingly.''
    Do you agree with Governor Brainard that climate-related 
risks fall squarely within the Fed's mandate?

A.6. The Fed's mandate from Congress is to promote maximum 
employment, stable prices, and moderate long-term interest 
rates. To the extent climate change exerts negative effects on 
the U.S. economy and financial system that impact the Fed's 
ability to achieve its statutory mandate--such as causing 
higher unemployment or threatening price stability--it becomes 
an appropriate consideration for our Nation's central bank in 
formulating monetary policy. But I am wary of the Fed 
overstepping its responsibilities; while climate change is 
clearly an important policy matter for many Americans, I 
believe it is best addressed by citizens and their elected 
representatives. If Congress wishes to amend its directive to 
the Federal Reserve to include specific responsibilities 
related to climate change that will of course become the new 
statutory mandate.

Q.7. Fed Chair Jay Powell recently stated that the Fed would 
likely join the Network for Greening the Financial System 
(NGFS), a group of over 50 foreign central banks and financial 
regulators committed to analyzing and mitigating the financial 
stability risks of climate change.
    As a Fed Governor, would you support joining the NGFS?

A.7. While a number of other central banks--led by the Bank of 
France, Bank of England, and People's Bank of China--are 
calling for measures to spur green finance and better risk 
assessments of climate change effects, I do not think the U.S. 
Federal Reserve should be involved in this initiative unless 
Congress specifically directs our central bank to do so and 
amends its statutory mandate accordingly.

Q.8. Are you willing to deploy the Fed's research, supervisory, 
and regulatory tools to mitigate the risks that climate change 
poses to the financial system?

A.8. As Federal Reserve Chair Jerome H. Powell stated in a 
letter to Senator Elizabeth Warren dated April 18, 2019, the 
Fed uses ``its authorities and tools to prepare financial 
institutions for severe weather events.'' I would therefore 
note that the Fed does prepare for potential economic risks 
linked to weather events, such as fires or flooding, as part of 
its planning for the financial consequences of natural 
disasters.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
             SENATOR CORTEZ MASTO FROM JUDY SHELTON

Q.1. I understand you wrote critiques of deposit insurance 
years ago. When have you published articles or given speeches 
supporting the deposit insurance fund? Please note your 
published work supporting the deposit insurance fund?

A.1. I do not support eliminating deposit insurance. In a 1993 
article published in the Cato Journal, as well as in my book 
Money Meltdown, published in 1994, I commented on deposit 
insurance in the context of explaining the concept of ``moral 
hazard'' and wrote the following: ``Banks must be responsible 
for upholding the value of the monetary obligations they issue 
on the basis of held reserves or viable, well-managed loan 
portfolios. The existence of Federal deposit insurance schemes 
that serve to insulate bank management from the discipline 
required to properly manage deposited resources against 
investment assets undermines the integrity of the banking 
industry in the United States by steering it in the direction 
of excessively risky loan portfolios (as taxpayers, not the 
equity holders of the bank, bear a substantial part of the cost 
of fiduciary mismanagement).'' I fully understand that banks 
pay fees for deposit insurance provided by the Federal Deposit 
Insurance Corporation, an independent Government agency 
established in 1933 to maintain public confidence and stability 
in the U.S. financial system; this is an essential mission, one 
I strongly support. I was simply emphasizing the importance of 
prudent capital and management standards being in place for 
banking institutions as the first bulwark against potential 
losses, rather than relying on Government-provided deposit 
insurance. Please note my clarifying remarks regarding this 
matter in the transcript from the nomination hearing before the 
Senate Banking Committee on February 13, 2020.

Q.2. You have previously suggested a single North American 
currency, the ``Amero.''
    Do you still support a single North American currency?
    What do you think the economic impact of a single North 
American currency would be?
    What do you think the impact of a single global currency 
would be?

A.2. I testified on April 22, 1999, as an expert witness before 
the Senate Banking Committee regarding the ``Use of U.S. Dollar 
as Official Currency in Emerging-Market Countries'' to explain 
that some countries may have interest in ``dollarizing'' to 
avoid the consequences of exchange-rate volatility; other 
witnesses at that hearing included former Federal Reserve 
chairman Alan Greenspan and former Treasury Secretary Lawrence 
Summers. Clearly, the dominance of the dollar as a global 
reserve currency means other countries would be aligning their 
own currencies with the dollar--not vice versa. Any potential 
benefits of trade partner countries deciding to do so would 
likely include more stable financial and trade relations with 
the United States; from the perspective of the United States, 
ensuring that the currencies of trade partners cannot 
depreciate against the dollar would be a way to prevent 
competitive depreciation as an unfair trade tactic.

Q.3. Do you believe the U.S. dollar should continue to be the 
international reserve currency?

A.3. Yes.

Q.4. Do you trust research put out by the Federal Reserve 
System?

A.4. The Federal Reserve System is a highly reputable source 
for supplying research information. I approach all data with a 
strong sense of wanting to test its veracity to ensure that 
recommendations based on that data are valid.

Q.5. During your hearing, there were multiple discussions on 
the independence of the Federal Reserve from political 
influence.
    Do you think the Federal Reserve should host events at 
properties owned or affiliated with members of the 
Administration, the Vice President, or the President?

A.5. I believe you are asking this question in the context of a 
commentary published in the Financial Times in September 2016 
wherein I was pointing out the impact of currency movements on 
trade and the role of central banks. The reference stated: ``No 
one anticipates that a Bretton Woods-style conference will soon 
take place at Mar-a-Lago, the exclusive Trump resort in 
Florida.'' Since the Bretton Woods system was hammered out in 
1944 at a resort hotel in Bretton Woods, New Hampshire, my 
reference to Mar-a-Lago was meant as a metaphor for a similar 
effort, even as I acknowledged that such an initiative was 
unlikely to be undertaken in the near future.

Q.6. Have you had conversations with anyone in the White House 
about serving as Chair of the Federal Reserve?

A.6. No.

Q.7. As the nominee representing the San Francisco District, 
please identify the priorities for the western region. If 
confirmed, what are your goals to serve the western region?

A.7. My priorities for the western region will align with the 
statutory mandate given by Congress to the Federal Reserve with 
respect to promoting maximum employment, stable prices, and 
moderate long-term interest rates. In formulating monetary 
policy, it benefits both the western region and the entire 
Nation when interest rate decisions are consistent with 
endeavoring to achieve those economic objectives. In terms of 
geographic representation, it is the 12 Federal Reserve Bank 
presidents who are the operating arms of the Federal Reserve 
System within their districts; pursuant to the Federal Reserve 
Act, each of the 12 Reserve Banks is separately incorporated 
and has a nine-member localized board of directors. Members of 
the Board of Governors are nominated by the President of the 
United Sates and confirmed in their positions by the U.S. 
Senate; they are meant to ensure the democratic legitimacy of 
the Federal Reserve in the sense that they represent the 
Nation's financial, agricultural, industrial, and commercial 
interests as a whole.

Q.8. Community Reinvestment Act--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?
    If a 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?
    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. Please identify where, if at all, you feel CRA guidelines 
for small banks are unclear.

A.8. As a nominee, I am not sufficiently familiar with the 
details to take a position. I have not been involved in 
deliberations among the Office of the Comptroller of the 
Currency, the Federal Deposit Insurance Corporation, and the 
Federal Reserve regarding the Community Reinvestment Act; my 
understanding is that public comments are being received, which 
I have not reviewed. I do strongly support the fundamental 
goals of the CRA, which was enacted in 1977, while also 
acknowledging that its parameters need to be updated to reflect 
changes in the way banks operate and provide services today--
particularly in providing access to credit for lower-income 
communities.

Q.9. Many Democratic, Republican and Independent current and 
former regulatory officials raise 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 share the concerns about heightened risk raised by 
your predecessors? Please elaborate on your answer.

A.9. I think it is important that I have a thorough 
understanding of the details of any such proposals regarding 
capital standards, as well as access to the relevant analytical 
information, so that I can weigh in knowledgeably on 
discussions regarding this important topic. I can assure you 
that I would want to preserve the substantial gains in safety 
and soundness and improved resiliency of the banking sector as 
part of any regulatory reform effort.

Q.10. What more can be done to shrink the gap between African 
American and 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.10. By fulfilling its mandate to promote maximum employment 
and stable prices, the Federal Reserve helps to establish 
conditions that benefit those seeking employment. By 
formulating monetary policy conducive to productive economic 
growth, and by encouraging business capital investment through 
low interest rates, the Fed facilitates increased productivity; 
this tends to lead to higher wages based on increased economic 
output, which in turn helps to reduce income inequality across 
society as a whole.

Q.11. Do you support proposals to tax currency kept outside of 
circulation?
    If this policy were implemented, what impact would it have 
on savers and low income depositors?

A.11. I am not familiar with any such proposal--and cannot 
imagine any justification for taxing Federal Reserve Notes in 
the private possession of holders.

Q.12. 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.
    Do you support any changes to the current capital 
requirements for financial institutions? Please elaborate on 
your answer.

A.12. In general, I believe that regulations should be tailored 
to the specific characteristics of individual financial 
institutions based on asset size, complexity, business model, 
and financial risk.

Q.13. What is your understanding of the historical evidence 
surrounding the relationship between monetary policy and asset 
bubbles?

A.13. It is not appropriate for Federal Reserve officials to 
comment on the price of assets that are determined through 
markets. The Fed's responsibility is to promote price stability 
by formulating monetary policy to properly calibrate the money 
supply to the money and credit needs of the economy.

Q.14. Besides monetary policy, what other tools are available 
to temper asset bubbles?

A.14. Citing my answer above, it is not appropriate for Fed 
officials to ``jawbone'' down the market-determined prices of 
assets.

Q.15. 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.15. According to the Federal Reserve's own assessment, as 
acknowledged in the FAQs on its own website: ``The maximum 
level of employment is largely determined by nonmonetary 
factors that affect the structure and dynamics of the job 
market.'' But regarding using monetary policy to influence 
employment, the Fed's ability to lower interest rates makes it 
cheaper for firms to finance purchases of physical assets for 
purposes of expanding output capabilities--property, plant, and 
equipment--which, in turn, spurs hiring and boosts production.

Q.16. 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.
    Please comment on whether the Fed's policies in recent 
years have actually supported the Fed's price stability 
mandate.

A.16. The inflation rate is well within the 2 percent target 
established by the Federal Reserve in January 2012.

Q.17. What does the latest research tell us about the 
effectiveness of the Fed's large-scale asset purchases?

A.17. Successive rounds of quantitative easing by the Federal 
Reserve between 2008 and 2014 provided increasingly less 
stimulus for the economy.

Q.18. 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.18. The extreme monetary policies conducted by the Federal 
Reserve in the wake of the 2008 financial crisis, such as 
imposing near-zero interest rates and engaging in massive 
purchases of financial assets, impose great costs on certain 
segments of the population. Savers have been punished by the 
low rates, through no fault of their own, affecting plans for 
paying tuition or planning for retirement. The Government's 
intervention in credit markets through its agency, the Federal 
Reserve, has caused price distortions that skew returns to 
those most able to participate in financial markets and fueled 
speculation in markets for derivatives and other sophisticated 
instruments. Were the costs of such actions by the Fed 
justified by economic growth that benefited Americans in 
general? I would point out that GDP growth from 2009 through 
2016 averaged 1.6 percent--indeed, the precise growth number 
for 2016 was 1.6 percent. During those same years, unemployment 
averaged 7.2 percent. Congress implemented major structural 
changes in subsequent years that have changed assessments of 
``secular stagnation'' into substantially positive outlooks for 
U.S. economic performance. The rate of GDP growth from 2017 
through 2019 has averaged 2.5 percent, more than 50 percent 
higher than the prior period. The rate of unemployment is 
currently half the average rate during the earlier period. 
Something clearly changed, precipitating higher business 
confidence and consumer confidence--and we are seeing increased 
productivity, increased wage gains, and decreasing income 
inequality as a result. Labor productivity is a measure of 
economic performance comparing output (amount of goods and 
services produced) with number of hours worked to produce those 
goods and services. The productivity of American workers 
increased in 2019 at the fastest annual pace in 9 years, 
registering a 1.4 percent increase in the fourth quarter. Firms 
increased the amount of goods and services produced by 2.5 
percent in the final three months of 2019; the number of hours 
workers spent on the job rose by 1.1 percent. As workers become 
more productive, wages tend to increase because higher 
productivity boosts profits. Also, with greater output per hour 
worked, inflation tends to stay in check. All of which suggests 
that having the right monetary policy in place is a necessary 
but not sufficient condition for promoting productive economic 
growth.

Q.19. 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.19. As stated above, it is not sufficient to lower interest 
rates to stimulate economic growth in the absence of structural 
reforms that facilitate business capital investment and provide 
regulatory relief where appropriate--economic policy 
initiatives that have a positive impact on business confidence 
and consumer demand.

Q.20. Is there any evidence that the Fed's stimulus program has 
paved the way for the next global meltdown, as Trump claimed?

A.20. Whether or when there will be a future global financial 
crisis is unknowable; whether its causes can be traced to the 
Fed's stimulus program is also unknowable. As I previously 
stated (Question 13): It is not appropriate for Federal Reserve 
officials to comment on the price of assets that are determined 
through markets. The Fed's responsibility is to promote price 
stability by formulating monetary policy to properly calibrate 
the money supply to the money and credit needs of the economy.

Q.21. 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.21. The balance sheet of the European Central Bank is roughly 
4.7 trillion euros, which is around 41 percent of the eurozone 
GDP. The balance sheet of the Fed is roughly $4.2 trillion, 
which is around 20 percent of GDP for the United States. The 
mandate for the ECB is to maintain price stability within the 
eurozone.

Q.22. 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.
    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.22. No.

Q.23. 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?

A.23. I believe it is inappropriate for the Federal Reserve to 
allocate credit flows for the purposes you cite above.

Q.24. Would you support or oppose such expansion of the Fed's 
authority?

A.24. I would oppose such expansion of the Fed's authority.

Q.25. 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.25. It does not appear that the Fed currently intends to 
shrink its balance sheet, given its stated preference for an 
``ample reserves'' environment.

Q.26. As you know, the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Public Law 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.
    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.
    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)?
    Mortgage Servicing Rules under Regulation X and Z are 
designed to protect homebuyers from high-cost loans. Servicers 
with fewer than 5,000 mortgage loans are exempted from some of 
these rules. What changes do you recommend to Regulations X 
and/or Z?
    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?
    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?
    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?
    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.26. As previously stated, I think it is important that I have 
a thorough understanding of the details of any such proposals 
regarding capital standards, as well as access to the relevant 
analytical information, so that I can weigh in knowledgeably on 
discussions regarding this important topic. I can assure you 
that I would want to preserve the substantial gains in safety 
and soundness and improved resiliency of the banking sector as 
part of any regulatory reform effort.

Q.27. Do you have recommendations for changes to the Bank 
Secrecy or Anti- Money Laundering rules? If so, please 
describe?

A.27. As a nominee, I am not sufficiently familiar with the 
details of potential changes to the Bank Secrecy or Anti- Money 
Laundering rules to make recommendations.

Q.28. I am very concerned about climate-related financial 
risks. The most recent National Climate Assessment said the 
U.S. Southwest could lose $23 billion per year in regionwide 
wages as a result of extreme heat. Since you joined the Federal 
Reserve Board, what have you done to prepare community banks 
for long-term shifts in climate patterns, like increasing 
extreme heat and more severe and more frequent storms?

A.28. I have not joined the Federal Reserve Board. I am 
currently a nominee to serve as a member of the Board of 
Governors of the Federal Reserve System.

Q.29. Are community banks changing how they operate to consider 
these threats to the ability of their customers to repay loans?

A.29. As a nominee, I do not have access to that information.

Q.30. Are there changes to insurance policies banks should 
consider?

A.30. As a nominee, I am not sufficiently familiar with the 
details to be able to propose changes to insurance policies 
that banks should consider.

Q.31. Some have advocated that central banks use their balance 
sheet to support the transition to a low-carbon economy, for 
example, by buying low-carbon corporate bonds. Do you think 
Congress should consider changing the law to support ``green'' 
quantitative easing as an option for the Fed?

A.31. By ``changing the law'', I presume you mean changing the 
mandate of the Federal Reserve from its current directive to 
promote maximum employment, stable prices, and moderate long-
term interest rates. This would be a significant alteration 
from the 1977 Federal Reserve Reform Act and would potentially 
direct the Fed to allocate credit to a particular set of 
recipients; I believe Congress should be wary of taking such a 
step but that decision is clearly up to Congress.

Q.32. Which other Central Banks allow green quantitative 
easing? Do you believe those models could translate to the 
American financial system and economy?

A.32. My understanding is that the Bank of England is carrying 
out work to include climate change considerations as part of 
its macroeconomic analysis and in making its financial 
decisions. Benoit Coeure, a member of the Executive Board of 
the European Central Bank, stated in a November 2018 speech: 
``The ECB, acting within its mandate, can--and should--actively 
support the transition to a low-carbon economy, in two ways: 
first, by helping to define the rules of the game and, second, 
by acting accordingly, without prejudice to price stability.''

Q.33. In the Fed's Supervisory Report released November, there 
was a section on merger and acquisition risks. The banking law 
passed last year changed the asset threshold for a small bank 
holding company from $1 billion to $3 billion. It also reduced 
capital requirements and other rules for banks above $50 
billion. We have seen more bank mergers since the law passed. 
Do you expect to see more bank mergers this year and next year 
than in previous years? How much of merger activity is due to 
changes from S. 2155 and other regulatory actions?

A.33. As a nominee, I was not involved in the preparation of 
that report.

Q.34. What are the risks from mergers and acquisitions?

A.34. My understanding is that the Federal Reserve rigorously 
reviews potential risks associated with bank merger proposals. 
Risks may include lowering the availability and increasing the 
cost of credit for borrowers. It is also conceivable that the 
collapse of a merged banking institution might pose elevated 
risks to financial stability. But some bank mergers may 
increase efficiencies without harming consumers or endangering 
financial stability.

Q.35. Beyond the impacts on the customer, what are the risks to 
communities when banks merge? Are you concerned about a loss of 
branches? Types of products? Jobs?

A.35. As a nominee, I do not have access to the necessary 
analytical data to measure these potential impacts. If 
confirmed as a member of the Board of Governors, I would focus 
on such questions regarding customer impact and risks to 
communities from bank mergers and acquisitions.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                       FROM JUDY SHELTON

Q.1. Under what circumstances should the Federal Reserve raise 
interest rates?

A.1. In conducting the Nation's monetary policy, the Federal 
Reserve seeks to influence money and credit conditions in the 
economy in pursuit of maximum employment and stable prices. The 
first goal is defined by the Federal Reserve as having been 
achieved when all Americans that want to work are gainfully 
employed. The second goal was defined by former Fed Chairman 
Alan Greenspan in July 1996 as ``that state in which expected 
changes in the general price level do not effectively alter 
business and household decisions.'' Since January 2012, the 
Federal Open Market Committee has judged that inflation at the 
rate of 2 percent (as measured by the annual change in the 
price index for personal consumption expenditures, or PCE) is 
most consistent over the longer run with the Federal Reserve's 
statutory mandate regarding price stability. In accordance with 
that definition, the Federal Reserve should raise interest 
rates if inflation were to persistently exceed 2 percent--with 
the caveat that the inflation goal is now defined as a 
``symmetric 2 percent objective'' as mentioned by Chair Powell 
in his most recent semiannual monetary policy report to the 
Congress. Employing a symmetric approach means the Federal 
Reserve would tolerate inflation running modestly above or 
below the 2 percent target.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
                    FROM CHRISTOPHER WALLER

Q.1. Of the 72 publications you have written since your 
dissertation, how many of them opined about the merits of a 
return to the gold standard or a gold-based monetary standard?

A.1. None.

Q.2. During your tenure at the St. Louis Fed, how many papers, 
blog posts, or conferences has your staff written or hosted 
that opine on the merits of a return to the gold standard or a 
gold-based monetary standard?

A.2. I am not aware of any.

Q.3. Of the 72 publications you have written, since your 
dissertation, how many were subject to peer review?

A.3. 57.

Q.4. What are the merits of looking at Average Hourly Earnings 
vs. the Employment Cost Index?

A.4. Average hourly earnings ignores benefits and other forms 
of employee compensation. The ECI considers all forms of 
compensation. Economists typically want to know what the total 
compensation is since it measures the true cost of a unit of 
labor.

Q.5. Do you believe the U.S. should maintain sovereignty over 
its currency?

A.5. If by this question you mean to ask whether the U.S. 
should have sovereignty over the U.S. dollar, then yes. If it 
means all other currencies should be banned, then no--let the 
market determine which currency to use. As of now, the U.S. has 
no law that I am aware of that prevents the use of any other 
currencies as a medium of exchange. Nevertheless, no one in the 
U.S. uses other currencies--the preeminence of the U.S. dollar 
is a voluntary outcome. Now, having multiple currencies is not 
efficient and having them creates unneeded exchange rate risk. 
We observed this in the U.S. in the early 1800s when banks 
could issue their own currencies. This is also why the world 
prefers to have a reserve currency, which at present is the 
U.S. dollar.

Q.6. When the Senate was considering S. 2155, the bank 
deregulation bill, Chair Powell said that deregulating U.S. 
regional banks wouldn't mean deregulating foreign banks. But 
the Fed's October rule did just that and the Fed justified 
weakening the protections at foreign banks by stating that the 
law requires that you treat foreign banks equivalent to 
domestic banks. The rule referred to it as ``equality of 
competitive opportunity.''
    Do you agree with this analysis?

A.6. I think the traditional international bank regulatory 
policies of national treatment and equality of competitive 
opportunity are sensible. Accordingly, I generally support 
regulating the U.S. operations of foreign banks in a similar 
manner as U.S. bank holding companies of similar size and risk 
profile. Since foreign banks generally have shrunk in size 
since the financial crisis to the point where their U.S. 
presences are of similar size as U.S. regional banks, I believe 
regulating the U.S. operations of foreign banks in the same 
manner as large U.S. regional banks makes logical sense.

Q.7. Do you think that the October rule weakened safety and 
soundness or financial stability?

A.7. No, I do not.

Q.8. In July 2019 when asked about leveraged loans, Chairman 
Powell stated ``The issue is that the risk isn't in the banks'' 
and that the leveraged loan market was ``in a good place.'' 
Several days ago, the Fed announced that leveraged lending 
risks would be incorporated into bank stress tests.
    Do you think the Chairman was correct to say that banks 
were not exposed to leveraged lending risks in July?

A.8. My understanding is that large banks participate in the 
leveraged lending market in a variety of important ways. Among 
other roles, banks underwrite many of the loans, find buyers 
for the loans to be sold or syndicated, and finance portions of 
the deal in a ``pipeline'' as terms are being settled. That 
said, public information suggests that the great majority of 
the credit risk associated with leveraged loans are outside the 
banking system.
    I believe it is important that the Board meet its 
obligation to ensure that the banks it supervises are operated 
in a safe and sound manner.

Q.9. If risks were not ``in the banks'' in July, what has 
changed in leveraged loan markets since then that require 
incorporation of this risk into bank stress tests?

A.9. I did not participate in the Board's deliberations about 
the scenarios for CCAR 2020. However, my understanding is that 
the scenarios usually feature a high degree of stress on 
business exposures.

Q.10. The United States has long maintained the separation of 
banking and commerce. However, some financial holding companies 
continue to engage in physical commodities activities. 
Technology firms have also expressed interest in receiving 
Industrial Loan Company (ILC) charters in order to gain the 
benefits of low-cost funding by being a bank without having to 
divest commercial activities as required by the Bank Holding 
Company Act.
    Do you believe the separation of banking and commerce is 
important to the stability of the United States financial 
system?

A.10. I do.

Q.11. Do you believe that financial holding companies should 
continue to be allowed to engage in physical commodities 
activities?

A.11. In general, I am fine with financial holding companies 
being able to engage in limited physical commodity activities 
as long as bank capital and liquidity requirements reflect the 
risk of these activities.

Q.12. Do you think recognition of ILC charters is in keeping 
with the separation of banking and commerce?

A.12. The Federal Reserve does not supervise or regulate ILCs 
or their holding companies. Congress generally has assigned the 
responsibility of oversight of ILCs to the chartering States 
and the FDIC. Any changes to this structure would be up to 
Congress.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SASSE
                    FROM CHRISTOPHER WALLER

Q.1. It is my understanding that very few banks have opened 
since the passage of Dodd-Frank, and we are seeing more banks 
merging.
    Why do you think this is happening?

A.1. Bank consolidation has been happening since the 1990s when 
Congress eliminated branching restrictions. Since then the 
number of banks has fallen from around 15,000 to under 6,000. 
So prior to the 1990s, we had too many banks due to State law 
branching limitations that forced the creation of banks in 
order to serve customers. Since then, it has been a natural 
process of shrinking the number of banks and consolidating into 
more geographically diversified financial institutions that can 
also achieve economies of scale. In the last decade, we have 
seen some acceleration of bank consolidation, which I believe 
is due to two factors: (1) FinTech/mobile banking and (2) 
regulatory burden.

Q.2. Are you concerned by the consolidation of the banking 
sector?

A.2. I am not except in the cases where consolidation or 
closures lead to excessive concentration in local banking 
markets or banking ``deserts''. The hope is that mobile banking 
offsets this but there will always be activities that require 
face-to-face interactions and that will be missing in these 
areas.

Q.3. What would be your suggestions to the Federal Reserve on 
how to encourage the opening of new banks?

A.3. The entry of new banks is likely to take the form of 
virtual banks, which are internet based and essentially 
borderless. Physical locations of brick and mortar banks would 
have to be in areas that are devoid of banking services. In 
both of these situations, it is not clear to me what the Fed 
can do to encourage bank entry, as the Fed does not charter 
banks. However, if confirmed, I would work to ensure that undue 
regulatory burden from Fed policies is not discouraging new 
bank formation.

Q.4. What risks do you believe that cybersecurity concerns pose 
to the U.S. financial system?

A.4. Cybersecurity risk is serious and growing especially the 
threat from State actors. Theft is always a concern with banks 
but disruptions in the payment system are one of my biggest 
concerns. I also worry about banks being taken hostage via 
malware that takes control of their databases and account 
information.

Q.5. How do you believe the Federal Reserve should address 
these concerns?

A.5. The Fed addresses these concerns through its supervisory 
function. In my current role, I have not been involved in 
supervision, but if confirmed, cybersecurity would be a 
priority for me.

Q.6. How do you believe that the Federal Reserve could improve 
transparency and communication with the public?

A.6. In my 35 years in the economics profession studying 
monetary policy, the increase in transparency in the Federal 
Reserve and central banks around the world has been astounding. 
We have gone from the Bank of England view of ``Never 
apologize, never explain'' to press conferences after every 
meeting for every major central bank. I believe that Chairman 
Powell's decision to have a press conference after every FOMC 
meeting was a very important step.
    Transparency in supervision and regulation is also an 
important consideration. By nature, the supervisory function 
has tended to maintain the confidentiality of certain 
information for a variety of important reasons. If confirmed, I 
would be happy to work with you to consider additional ways for 
the Fed to increase transparency related to its supervisory and 
regulatory responsibilities.

Q.7. Do you believe that the Federal Reserve needs to improve 
its transparency?

A.7. As I mention above, Federal Reserve transparency has 
increased dramatically with regards to monetary policy but 
there may be ways to improve transparency on the regulatory and 
supervision part of its responsibilities.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
                    FROM CHRISTOPHER WALLER

Q.1. On October 9, 2019, the President signed Executive Order 
13892--``Promoting the Rule of Law through Transparency and 
Fairness in Civil Administrative Enforcement and 
Adjudication''.
    Section 6 of the Executive order states that, `` . . . 
before an agency takes any action with respect to a particular 
person that has legal consequence for that person, including by 
issuing to such a person a no-action letter, notice of 
noncompliance, or other similar notice, the agency must afford 
that person an opportunity to be heard, in person or in 
writing, regarding the agency's proposed legal and factual 
determinations. The agency must respond in writing and 
articulate the basis for its action.''
    This Executive order would clearly cover much of what the 
Federal Reserve (Fed) does by way of Supervision and Regulation 
letters (SRs), MOUs, and other means of agency enforcement 
actions. As such:
    Can you provide me with assurance that if you are a member 
of the Board you will fully comply with this critical due-
process requirement?

A.1. I am not an administrative lawyer, so I cannot offer an 
opinion on the details of how this Executive order applies to 
the Fed. But due process is clearly a top legal principle in 
this country, and I will always adopt that as my default 
position in any decision I make.

Q.2. Can you please describe, in detail, the process and 
timetable that you plan to implement to ensure these due 
process rights are in place for regulated parties, especially 
those who may be facing ``legal consequences'' as a result of 
an enforcement action, as required under Executive Order 13892?

A.2. I am not an administrative lawyer, so I cannot offer an 
opinion on the details of how this Executive order would apply.

Q.3. Do you believe that neither the Government Accountability 
Office (GAO) or the Office of Management and Budget (OMB) have 
the final word on Congressional Review Act (CRA) 
interpretation? If yes, who does have ``final word'' on whether 
the Fed has to abide by the CRA?

A.3. I am not an administrative lawyer, so I simply cannot 
answer questions of this type without more background 
knowledge. However, if confirmed, I will be firmly committed to 
meeting all of our obligations under the law.

Q.4. As you know, the GAO has ruled (October 22) that the 
foundational SR letters that set up the Large Institutional 
Supervision Coordinating Committee (LISCC) are in fact rules 
and not guidance. These guidance documents have not been 
submitted to Congress.
    Is the Fed legally required to stand down LISCC?

A.4. I am not a lawyer, so I cannot give an informed opinion on 
this. However, if confirmed, I would support the Fed having a 
clearer and public rule about which banking firms are in the 
LISCC portfolio.

Q.5. If not, please explain your understanding of the CRA and 
if the Fed must follow this law.

A.5. I believe the Fed must follow the law, and CRA is the law 
of the land.

Q.6. Which other laws does the Fed have the ability to decide 
whether to comply with?

A.6. In principle, the Fed has to comply with all laws of the 
land. I see no exceptions to this.

Q.7. On October 19, 2019, the General Counsel of the Fed 
submitted a letter to the GAO stating the agency is ``still 
assessing'' whether they need to comply with the CRA. Do you 
agree with this assessment?

A.7. Again, I am not a lawyer, so I cannot give an informed 
opinion on this.

Q.8. If a joint agency Administrative Procedures Act (APA) rule 
is advanced by other Federal regulatory agencies that proposes 
to formalize the governance and applicability of informal 
guidance, will you support and vote for this rule?

A.8. I am sympathetic to this for significant guidance that is 
broad based.

Q.9. Do you believe that informal Matters Requiring Attention 
(MRAs) are enforceable?

A.9. I believe that guidance is much like advice--it is given 
with the intent to improve one's position and well-being. 
However, if one chooses to ignore that advice then there should 
be no direct consequences for not following the advice.

Q.10. Traditionally, the Fed has not been subject to audit, for 
fear of the audit undermining the independence of its monetary 
policy function. There appears to be no similar justification 
with respect to a business run by the Fed in competition with 
the private sector, and where budgets need to be reviewed for 
compliance with the Monetary Control Act. Assuming the Fed 
proceeds with its ``public options for payments'', would you 
relax your traditional opposition to Fed audits if all monetary 
policy functions were exempt?

A.10. The Board of Governors is audited by the GAO and its 
financial statements are audited by an external auditor every 
year. The Board is audited by the Office of Inspector General. 
All of the Reserve Banks are audited by both internal audit 
functions and external auditors. I support having these audits.

Q.11. The Monetary Control Act requires the Fed to establish a 
fee schedule for Reserve Bank payment services that are based 
on the basis of all direct and indirect costs actually incurred 
in providing the priced services, including imputed costs 
(including taxes) that would be incurred by a private-sector 
provider.
    If you are confirmed, will you immediately release to the 
public how much it would cost to build such a system, and 
operate it annually?

A.11. As I understand it, the FedNow project is getting 
underway and the architecture for this payment system is just 
now being determined. Once details are firm in terms of the 
estimated costs and operating costs, I will support releasing 
this information to the public.

Q.12. If you are confirmed how would the Fed fund the initial 
outlay--for example, would you increase prices on your existing 
payments system products to fund it?

A.12. I do not know the details of how the project will be 
funded. However, I believe the Fed may be able to finance this 
project without increasing prices on existing payment services 
if it so chooses.

Q.13. Would these outlays reduce Fed remittances to the 
Treasury in the years they are made?

A.13. In the short-term, I believe so. Remittances would then 
rise in out years when cost recovery is underway.

Q.14. Can you commit that before incurring any start-up costs, 
you would have in place a business plan that envisioned pricing 
consistent with the Monetary Control Act, and share that plan 
with this Committee prior to any decision to move ahead?

A.14. Once firm design and operation plans are place, the costs 
should be able to be determined. If confirmed, I would be happy 
to work with the Banking Committee on this issue.

Q.15. My understanding is that with regard to the existing ACH 
services provided by the Fed, small banks are charged more than 
large banks. The discount is used in order to attract the 
greater volume provided by the large banks. Will you commit, 
and construct your business plan on the assumption that the Fed 
will never do volume discount pricing for any real-time payment 
service?

A.15. I am not able to make that commitment without more 
information on the cost and pricing plans that are currently 
being studied. However, I do believe there is a strong case to 
be made for uniform pricing.

Q.16. Is part of the Fed plan to require the largest banks to 
join the Fed System--in effect, outlawing a private sector 
option?

A.16. Not that I am aware of.

Q.17. If not, please explain (and include in your business plan 
an explanation of) how the Fed could price in compliance with 
the Monetary Control Act when its system does not process the 
volume of any of the large banks.

A.17. Again, I do not have the relevant information at this 
point to give an informed opinion. I do believe that under the 
current ACH system the largest banks use the Fed's ACH system 
voluntarily for a nontrivial percentage of their transactions.

Q.18. What would pricing have to look like in order to recoup 
start-up and operating costs if only small banks, representing 
a fraction of total volume, were participating in the Fed 
system?

A.18. I do not have the information at present to make this 
calculation.

Q.19. How many Fed employees (at the Board and the Reserve 
Banks) are employed to operate the ACH network?

A.19. I do not know.

Q.20. How many employees do you roughly estimate would be 
employed to operate a real-time network?

A.20. I do not know.

Q.21. Would Reserve Banks need to add staff or would they be 
transitioned from ACH (as the move towards real-time could lead 
to fewer employees devoted to ACH)?

A.21. ACH is a batch processing system where payment dates and 
times are known well in advance, such as payroll. How private 
firms would adjust their strategies from batch processing to 
access real time payments, I do not know. If demand for ACH 
services falls, then it seems obvious that labor would be 
reallocated from ACH to RTGS.

Q.22. If the Fed offers real-time payments, why should it 
continue to also be the regulator of the payments system?

A.22. The Fed has been in the payments business since its 
founding and has also regulated banks since its founding. Fed 
ACH and TCH EPN, as well as Fedwire and CHIPS, operate side by 
side now and the Fed, or other bank regulatory agencies, 
regulate the banks running The Clearing House. To the best of 
my knowledge, I am not aware that the regulator/payment system 
competitor structure has ever been a problem. So I would have 
to know what issues, that are unique to RTGS, have arisen that 
now make this an issue.

Q.23. Should that responsibility be conferred to another agency 
who could more dispassionately assess the Fed's compliance with 
the provisions of the Monetary Control Act and all other 
applicable laws?

A.23. The Fed has dealt with cost recovery with check clearing 
since 1980. Due to the expense of processing paper checks, the 
Fed has greatly reduced costs by moving to a virtually all-
electronic check service in order to meet the cost recovery 
requirements of the Monetary Control Act. So the Fed has a 
history of complying with the law and making its operations 
more efficient in order to do so. Furthermore, it is my 
understanding that the payments system is run by the Reserve 
Banks who have external private auditors who determine whether 
or not the Fed is in compliance. If confirmed, I would be 
strongly committed to complying with the Monetary Control Act. 
Between independent audits and the Inspector General, I believe 
the Fed is well positioned to meet its obligations, but I would 
be glad to work with you on further improving oversight.

Q.24. In January 2015, the Fed stated in its Strategies for 
Improving the U.S. Payment System that they ``would not 
consider expanding its service provider role unless it 
determines that doing so is necessary to bring about 
significant improvements to the payment system and that actions 
of the private sector alone will likely not achieve the desired 
outcomes for speed, efficiency, and safety in a timely 
manner.'' While you have stated that no final decisions have 
been made, the request for comments issued clearly states that 
the Fed is in fact considering expanding its role, despite the 
significant improvements made by the private sector. In the 
future, how can you expect the private sector to respond to the 
Fed's calls for innovation, when the Fed fails to hold itself 
to its commitments?

A.24. The request for comments was put out and based on those 
comments the existing Governors on the Board of Governors made 
a decision to move forward with FedNow by a 4-1 vote. I was not 
part of this decision process. Consequently, I have no 
information to assess what criteria were used for this 
decision. However, I am aware of the concern raised by some 
that the Fed acted in an unpredictable and unfair manner. If 
confirmed, I would work to ensure that the Fed is transparent, 
consistent, and fair in implementing all of its policies.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                    FROM CHRISTOPHER WALLER

Q.1. What do you think of Facebook's attempt to create its own 
digital currency, Libra?

A.1. I have studied monetary theory for the last 20 years and I 
have studied the use of privately supplied currency backed by 
interest bearing assets (such as an index fund tied to the S&P 
500). I published a paper on this in 2014 long before Libra was 
introduced. Such a system clearly can work. However, it faces 
all of the issues that banks face including money laundering, 
tax evasion, privacy concerns, etc. It also subjects holders of 
Libra to standard exchange rate risks that the typical Facebook 
user is not accustomed to bearing. Since Libra would be 
``borderless'' due to Facebook's 2 billion global users, it 
creates international regulatory issues that we have not 
confronted before.
    For citizens of oppressive regimes or unstable monetary 
systems, Libra could be great as a cheap and stable means to 
make payments. Within the U.S., it is not clear it would have 
such an advantage over traditional retail banking.

Q.2. Do you support or oppose Libra?

A.2. Because Libra is still in development and is still 
evolving, I have not yet reached a conclusion on its merits. I 
am a bit agnostic on this. Financial innovation, such as Libra, 
could open up avenues for global retail payments that no one 
(except monetary theorists) would have imagined 10 years ago. 
At the same time, Libra presents many serious challenges, 
including those discussed above. In particular, having Facebook 
running such a system is concerning given its history of using 
private information for its commercial advantage.

Q.3. Why specifically do you support or oppose?

A.3. See previous answer.

Q.4. Do you have any concerns that consumer privacy would be 
further compromised if Facebook is successful in launching 
Libra? If yes, what do you see as the biggest privacy risks 
associated with Libra, both nationally and globally?

A.4. I do have concerns. Like others, I dislike the details of 
my private life being used by a firm or distributed without my 
knowledge to other firms. My concern is that Facebook would 
have very detailed knowledge of all of my spending and use this 
information in ways that are not in my best interest. Banks 
currently have this information via my bank account and credit 
card information, but they are limited in how they can sell 
that information to third parties.
    Cybersecurity is even more of a concern with Libra. All 
banks have to worry about account information being, stolen but 
the sheer breadth of Libra makes this a concern of greater 
magnitude.

Q.5. If another currency, including a digital currency, were to 
displace the U.S. dollar as the world's reserve currency, what 
impact would that have on the United States and our economy?

A.5. The first impact would be in terms of financing costs of 
the U.S. Government. Since the dollar is the reserve currency, 
U.S. Treasuries command a premium price as reserve assets. This 
lowers the cost of financing our debt. Being a reserve currency 
also affects seigniorage revenues via the use of U.S. currency 
around the world. Finally, since the dollar is the reserve 
currency, foreign firms price their goods in terms of dollars 
when trading with the U.S., which helps insulate the U.S. 
economy from movements in the dollar exchange rate.

Q.6. If confirmed, what will you do to ensure that the U.S. 
dollar remains the world's reserve currency?

A.6. The U.S. dollar is the world's reserve currency because 
the rest of the world has confidence that its value will be 
stable and it will be generally accepted around the world. The 
dollar's value will be stable so long as we keep inflation low 
and maintain a sound financial system. If confirmed, low 
inflation and financial stability would be guiding principles 
in my decision making.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TESTER
                    FROM CHRISTOPHER WALLER

Q.1. Affordable Housing--Montana, and many areas of the 
country, face challenges of housing availability, 
affordability, and aging housing stock. As you know, this is a 
significant issue for rural as well as urban areas and is one 
of the largest barriers to success nationally. In Montana, lack 
of workforce housing is one of the greatest inhibitors of 
economic development.
    What can be done to increase workforce housing and 
encourage more affordable housing to be built?
    What do you see as the largest barrier to affordable 
housing, particularly in rural areas?

A.1. In many urban areas, land availability is the source of 
supply constraints on affordable housing. This is not the case 
in rural areas. In urban areas, there are enough flows of 
families in and out of urban areas that it is profitable to 
build houses and easy to resell. This is more difficult in 
rural areas where flows in and out of small towns are 
relatively low. It is risky to build and buy a house if you 
think it will be hard to sell it down the road. In short, 
housing is a more ``liquid'' asset in urban areas than in rural 
areas. As a result, anything that can be done to make rural 
housing more liquid should increase the value of housing and 
entice builders and lenders to step in and provide affordable 
housing.

Q.2. What role does the Fed have in supporting housing? Where 
is there room for additional efforts?

A.2. The best thing the Fed can do is to keep inflation low and 
stable. This will allow longer-term rates such as 15- and 30-
year mortgage rates to be low. This keeps the interest expense 
down for homeowners.

Q.3. Agriculture Lending--I have been hearing for the last year 
or more from community bankers in Montana that examiners seem 
more concerned lately when that their institution may be overly 
concentrated in ag. This is a hard issue for rural 
communities--we don't want to further jeopardize these farmers 
who are already fighting to survive against trade wars, 
changing weather, and difficult growing seasons, but we cannot 
let these challenges take community banks down with them. 
Access to banks in these rural areas is critical to 
communities, and we've already seen too many close.
    I'm focused on making sure that we support our farmers and 
ranchers and their families through the current challenges 
facing the agriculture sector, while continuing to prioritize 
the safety and soundness of our community financial 
institutions.
    What are the risks to these banks as farmers are 
increasingly overleveraged and continue to struggle with the 
repercussions of these ongoing trade wars, extreme weather 
happening more and more frequently because of our changing 
climate, and persistently low commodity prices?

A.3. It is obviously critical that the banks diversify their 
lending as much as possible. Weather events and trade wars are 
hopefully short duration events that can be smoothed over 
across time. Persistently low commodity prices are another 
issue. If they are so low that farming that product is not 
financially viable over the long run, then banks may make the 
difficult decision not to lend against the expected revenue 
streams from those crops. That will be a painful outcome for 
these communities that Congress is best equipped to address.

Q.4. Does this pose a threat to rural America?

A.4. I believe so.

Q.5. What can and should we be doing in these communities?

A.5. This is not my area of expertise so I do not feel I can 
give an informed response.

Q.6. From a banking perspective, are you concerned about how 
this will effect community banks across rural America?

A.6. Yes, I am. Community banks are more than just banks in 
rural areas; they are THE financial lifeline for many 
communities.

Q.7. Community Reinvestment Act--The CRA is a critical tool in 
expanding access to financial services and credit access to 
low- and moderate-income and underserved communities throughout 
our country, including in rural America.
    What issues will be most important to you as the Fed 
considers updates to the CRA?

A.7. CRA is the law of the land and I am committed to enforcing 
the law. CRA was designed in a time where banking borders were 
well defined. However, in the modern mobile banking age, 
banking has become borderless. Therefore, the critical 
challenge, as I see it, is making CRA relevant and 
implementable in an era of borderless banking.

Q.8. How will you ensure that changes you consider remain 
consistent with the original purpose of this Civil Rights-era 
law to bringing financial services and credit access to low- 
and moderate-income and underserved communities throughout our 
country?

A.8. This is a challenging issue and there are very different 
views on how this can be done. I have not spent enough time on 
this issue to have formed clear views on it but intend to do 
so.

Q.9. How will you assess the potential impact on rural America?

A.9. As I understand the proposed changes of the OCC and FDIC 
to the CRA, I do not believe small community banks will be 
affected significantly. Because they are an important source of 
bank funding in rural areas, I suspect the changes will have a 
limited impact on rural America. However, appropriate CRA 
reform could encourage larger banks to invest more in rural 
America.

Q.10. Are you concerned that the Fed may move separately from 
the OCC and FDIC? Why or why not?

A.10. I am concerned. Having different standards on CRA 
compliance is not optimal. The three regulators ideally should 
work together as much as possible with the goal of coming 
together on a common set of changes.

Q.11. Banking Hemp--The 2018 Farm Bill removed hemp from the 
list of schedule I controlled substances, however regulators 
and Federal agencies have been slow in making changes to 
reflect this.
    How can the Fed improve certainty for financial 
institutions providing services to this legal business?
    What oversight will be necessary from the Fed?

A.11. I understand that the Fed and the other Federal banking 
agencies recently issued guidance to help improve certainty 
around the ability of banks to provide services to hemp-related 
businesses. If confirmed, I will monitor the effects of that 
guidance to determine if additional action is necessary.

Q.12. Economic Tools, Debt and Deficits--Both the Fed, through 
lower rates, and Congress, through increased spending and 
increased debt, have been taking actions to boost the economy 
during a long stretch of growth. I'm concerned that if we 
approach a downturn our options for how to address that will be 
limited by our actions during this decade of expansion.
    What tools does the Fed have left to react to an economic 
downturn?

A.12. I believe that the Fed has sufficient tools to deal with 
an economic downturn. Despite a very low neutral rate, the Fed 
has other tools to deploy should it drive the policy rate to 
zero. Those tools are: (1) forward guidance, (2) quantitative 
easing, (3) yield curve control and, one I am not fond of, (4) 
negative nominal interest rates.

Q.13. The debt is more than $23 trillion--at what point do you 
get concerned about that? Is this sustainable?

A.13. Standard economic analysis shows that as long as the debt 
grows at the same rate as nominal GDP (or less), the burden of 
the debt will not increase. So if the real economy grows at 2 
percent and inflation stays around 2 percent, then nominal GDP 
will grow at 4 percent. This means that the debt can grow at 4 
percent without increasing the burden of the debt. If the debt 
grows faster than this and that growth does not appear to be 
temporary, then I would be very concerned.

Q.14. Trade--One of my concerns about how we could end up in an 
economic downturn is our trade policy over the past 2-plus 
years.
    What are your current views on free trade?

A.14. I am a mainstream economist and years of economic theory 
has shown that free trade is the best outcome for society. 
There are only a few exceptions where tariffs are optimal.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                    FROM CHRISTOPHER WALLER

Q.1. Monetary Policy--In 2018, the Fed began a review of the 
strategy, tools, and communications it uses to conduct monetary 
policy. \1\ If confirmed, you will be responsible, along with 
the other Board members, for evaluating the results of this 
review and determining if changes are appropriate.
---------------------------------------------------------------------------
     \1\ Board of Governors of the Federal Reserve System, ``Review of 
Monetary Policy Strategy, Tools, and Communications'', June 25, 2019, 
https://www.federalreserve.gov/monetarypolicy/review-of-monetary-
policy-strategy-tools-and-communications.htm.
---------------------------------------------------------------------------
    Describe the implications of the apparent decline in the 
neutral rate of interest for future recessions and economic 
downturns.
    Do you believe the Fed's current monetary policy tools will 
be sufficient to alleviate an economic downturn?

A.1. I believe that the Fed has sufficient tools to deal with 
an economic downturn. Despite a very low neutral rate, the Fed 
has other tools to deploy should it drive the policy rate to 
zero. Those tools include: (1) forward guidance, (2) 
quantitative easing, (3) yield curve control and, one I am not 
fond of, (4) negative nominal interest rates.

Q.2. What role do you believe fiscal policy will need to play 
in the next downturn?
    In response to prior economic downturns, policymakers have 
used a number of different fiscal policy tools as part of 
stimulus packages including tax cuts, investments 
infrastructure and emerging technologies and transfers to State 
governments. Which fiscal policy tools do you believe would be 
most effective?

A.2. I am not a public finance economist, so I am not prepared 
to comment on which fiscal tools have the biggest impact per 
dollar spent. However, my general belief is that fiscal 
stimulus aimed at households is the most logical given that 
consumer spending accounts for nearly 70 percent of GDP.

Q.3. Under what circumstances would you support additional 
spending in response to a recession even if it adds to the 
deficit?

A.3. If the recession is a mild/moderate one, monetary policy 
may be sufficient to deal with the economic downturn. If it is 
a severe downturn, then Congress may need to consider fiscal 
policy to help stimulate the economy.

Q.4. President Trump has repeatedly advocated for negative 
interest rates, arguing that they would boost economic growth. 
\2\ Do you agree? Describe the implications of negative 
interest rates.
---------------------------------------------------------------------------
     \2\ NBC News, ``Trump Keeps Pushing `Negative' Interest Rates. 
What Would That Mean for Your Wallet?'' Ben Popken, September 23, 2019, 
https://www.nbcnews.com/business/consumer/trump-keeps-pushing-negative-
interest-rates-what-would-mean-your-n1056546.

A.4. I am skeptical of negative nominal interest rates. I view 
them as a last resort option. Imposing a negative interest rate 
on reserves is effectively a tax that has to be borne since 
reserves cannot leave the system (except if converted to 
currency). The incidence of the tax has to be borne by 
depositors in the form of lower deposit rates, or by borrowers 
in the form of higher loan rates or higher fees, or by the 
banks in the form of lower profits. I do not find the evidence 
---------------------------------------------------------------------------
from Europe or Japan to be supportive of using negative rates.

Q.5. Former Fed Chair Bernanke has argued that the decline in 
the rate may be partly due to structural factors such as 
demographic and technological change. \3\ Do you agree?
---------------------------------------------------------------------------
     \3\ The Brookings Institution, ``The New Tools of Monetary 
Policy'', Ben Bernanke, January 4, 2020, https://www.brookings.edu/
blog/ben-bernanke/2020/01/04/the-new-tools-of-monetary-policy/.

---------------------------------------------------------------------------
A.5. Yes I do.

Q.6. If so, should the Fed proactively thinking about the 
trends in these structural factors and how they could impact 
the effectiveness of monetary policy in the future?

A.6. A standard result in economic theory is that the real 
return on productive capital, in steady state, is driven by 
productivity growth, population growth and any `` liquidity 
premiums'' on assets. The first two are out of the control of 
the central bank. The latter is driven by a demand for safe 
liquid assets, which the central bank may have some influence 
over. A decline in the first two factors will tend to lower the 
neutral rate of interest. If the liquidity premium increases, 
this will also lower the neutral rate. All of these factors 
impact the effectiveness of monetary policy.

Q.7. In response to developments in overnight lending markets 
in September 2019, the Fed began conducting repo operations to 
``stabilize money markets and provide reserves to keep the 
Federal funds rate within its target range.'' \4\
---------------------------------------------------------------------------
     \4\ Board of Governors of the Federal Reserve System, ``Monetary 
Policy Report'', February 7, 2020, https://www.federalreserve.gov/
monetarypolicy/files/20200207_mprfullreport.pdf.
---------------------------------------------------------------------------
    Some have pointed to the repo market concentration, with 
the largest banks being almost exclusively responsible for 
engaging in transactions with the Fed and lending that money 
out. \5\ Can you describe the implications of the concentration 
levels of the current repo market structure and how the 
concentration of participants may have impacted the Fed's 
recent interventions?
---------------------------------------------------------------------------
     \5\ Wall Street Journal, ``Big Banks Loom Over Fed Repo Efforts'', 
Daniel Kruger, September 26, 2019, https://www.wsj.com/articles/big-
banks-loom-over-fed-repo-efforts-11569490202.

A.7. Prior to September 2019, the general belief was that $1.4 
trillion in reserves was ample enough to handle any 
fluctuations in demand for any subset of institutions. The 
volatility in September 2019 showed that reserves were not 
flowing in the manner they should have to reduce repo market 
volatility. The Fed is still trying to understand why these 
flows are not occurring. In the end, by raising the level of 
reserves in the system, enough liquidity was available to flow 
and smooth fluctuations in the Federal Funds rate, regardless 
---------------------------------------------------------------------------
of the concentration.

Q.8. If the Fed were to adopt a standing repo facility, as it 
has been considering even before the market disruption in 
September, \6\ what factors should the Fed use to determine 
which counterparties would be eligible?
---------------------------------------------------------------------------
     \6\ Board of Governors of the Federal Reserve System, ``Minutes of 
the Federal Open Market Committee'', June 18-19, 2019, https://
www.federalreserve.gov/monetarypolicy/fomcminutes20190619.htm.

A.8. I would consider broadening the range of counterparties to 
ensure that funds are flowing effectively through the financial 
system. Since a repo facility is a secured lending facility, 
the Fed faces little, if any, counterparty risk. Hence, a broad 
set of counterparties means more participants to arbitrage away 
interest differentials and the repo facility would cap 
---------------------------------------------------------------------------
fluctuations in the Federal funds rate.

Q.9. Financial Stability--In previous questions regarding the 
Fed's response to climate change, Chairman Powell claimed that 
the Fed uses ``its authorities and tools to prepare financial 
institutions for severe weather events.'' \7\ At the same time, 
science has clearly demonstrated that extreme weather events 
are becoming increasingly common as a result of climate change. 
\8\
---------------------------------------------------------------------------
     \7\ Letter from Federal Reserve Chairman Jerome H. Powell to 
Senator Elizabeth Warren, April 18, 2019.
     \8\ National Oceanic and Atmospheric Administration, ``Report: 
Climate Change Is Making Specific Weather Events More Extreme'', 
December 9, 2019, https://www.noaa.gov/news/report-climate-change-is-
making-specific-weather-events-more-extreme.
---------------------------------------------------------------------------
    To the extent that these weather events continue becoming 
more common and having a greater impact on the business cycle 
itself, do you believe that it would be appropriate for the Fed 
to more explicitly consider the risks associated with climate 
change in its decision making?

A.9. For monetary policy, the Fed's mandate is stable prices 
and maximum sustainable employment. If climate risks have an 
impact on these variables, the Fed should respond in kind. For 
its supervisory function, examiners will have to look at 
idiosyncratic risks confronting individual bank portfolios. For 
example, a bank with a real estate portfolio of assets along 
the coastline will have a different risk exposure than a bank 
in the Midwest with the same share of real estate assets in its 
portfolio.

Q.10. Do you believe it would be appropriate for the Fed to 
hire economists that specialize in climate economics to address 
these changes? Should the Fed hire natural scientists to inform 
economic models?

A.10. The Fed has economists who study a wide range of topics 
and climate change is an increasingly popular research topic. 
Concerning the Fed hiring natural scientists, I have often 
thought the opposite--natural scientist research teams should 
hire economists to work on their climate change models. Much 
could be learned from economists who do forecasting as part of 
their research and job. An example is the recent paper by Glenn 
Rudebusch at FRB SF who uses economic forecasting models to 
predict an ice-free Arctic and compares those predictions to 
climate change models.

Q.11. Do you support the Fed officially joining the Network for 
Greening the Financial System (NGFS)? If not, why not?

A.11. As Chair Powell has said, the Fed is talking with central 
banks about climate change issues and the Fed is monitoring 
what this group is doing. If the time comes that warrants the 
Fed joining NGFS in some capacity, I am open to doing so.

Q.12. The most recent report from Shared National Credit (SNC) 
Review program conducted jointly by the Fed, Federal Deposit 
Insurance Corporation (FDIC), and Office of the Comptroller of 
the Currency (OCC), stated that ``credit risk associated with 
leveraged lending remains elevated'' and ``lenders have fewer 
protections and risks have increased in leveraged loan terms 
through the current long period of economic expansion since the 
last recession.'' \9\
---------------------------------------------------------------------------
     \9\ Board of Governors of the Federal Reserve System, Federal 
Deposit Insurance Corporation, Office of the Comptroller of the 
Currency, Board of Governors of the Federal Reserve System Federal 
Deposit Insurance Corporation Office of the Comptroller of the 
Currency, ``Shared National Credit Program: 1st and 3rd Quarter 2019 
Reviews'', https://www.federalreserve.gov/newsevents/pressreleases/
files/bcreg20200131a1.pdf.
---------------------------------------------------------------------------
    Please explain how you believe the Fed should evaluate and 
monitor the credit-risk management practices of a financial 
institution to ensure that these procedures, some of which are 
untested, will be sufficient during an economic downturn.

A.12. I have been on the monetary policy side of the Fed during 
my career. Evaluating and monitoring credit risk is typically 
dealt with through the supervision side of the Fed so it is 
something I need to learn more about.

Q.13. Do you believe that the Interagency Guidance on Leveraged 
Lending \10\ issued in 2013 is sufficient to address the risks 
associated with leveraged lending, particularly with respect to 
the growth of nonbank lenders?
---------------------------------------------------------------------------
     \10\ Federal Reserve Board of Governors, Federal Deposit Insurance 
Corporation, Office of the Comptroller of the Currency, ``Interagency 
Guidance on Leveraged Lending'', March 21, 2013, https://
www.federalreserve.gov/supervisionreg/srletters/sr1303a1.pdf.
---------------------------------------------------------------------------
    Do you believe these loans made by nonbanks currently pose 
a risk to financial stability? If not, please explain why and 
under what circumstances the Fed should begin to judge them a 
threat to financial stability.

A.13. As long as the loans are not held on the books of 
regulated banks, I believe the threat to financial stability is 
limited. Should a group of private equity or hedge funds go 
under due to failures of leveraged firms, we should not 
intervene--they took a risk and should bear the consequences.

Q.14. Many of these nonbank lenders fall into a regulatory gap. 
What tools does the Federal Government have to mitigate the 
risks from the growth of leveraged lending and the 
deterioration of the terms of those loans?

A.14. Again, if these loans are not on the books of regulated 
banks, then I am generally not concerned as to whether or not 
losses are absorbed by the nonbanks who hold them.

Q.15. Private equity firms often finance acquisitions through 
highly leveraged loans. According to the private equity 
industry, firms acquired in these acquisitions now employ 8.8 
million workers. In an economic downturn, what would you expect 
to happen to employment in these firms?

A.15. In a downturn, firms tend to shed labor to reduce costs 
as demand/revenues fall. This happens whether they are publicly 
traded or privately held.

Q.16. Regulation--The OCC and FDIC made the decision to heed to 
the concerns of the Fed with respect to their plan to modify 
the Community Reinvestment Act (CRA) and issued a new proposed 
rule on the law jointly enforced by the three agencies without 
the Fed last December. \11\ On January 8, 2020, Governor 
Brainard released her own alternative plan to modernize the 
CRA. \12\
---------------------------------------------------------------------------
     \11\ Comptroller of the Currency and Federal Deposit Insurance 
Corporation, Federal Register Notice, ``Community Reinvestment Act 
Regulations'', January 09, 2020, https://www.federalregister.gov/
documents/2020/01/09/2019-27940/community-reinvestment-act-regulations.
     \12\ Board of Governors of the Federal Reserve System, 
``Strengthening the Community Reinvestment Act by Staying True to Its 
Core Purpose'', Governor Lael Brainard, January 08, 2020, https://
www.federalreserve.gov/newsevents/speech/brainard20200108a.htm.
---------------------------------------------------------------------------
    Would you have voted to join the OCC and FDIC proposal? If 
not, what aspects to you disagree with? If so, please explain 
why you believe it is right approach.

A.16. I have only limited knowledge and understanding as to how 
the proposed reforms will impact implementation of CRA. As I 
understand it, the OCC and FDIC proposal aims to be more rule 
based and less judgement based than the current evaluation 
process for CRA compliance. The OCC and FDIC proposal also aims 
at having simpler criteria for proving compliance. Finally, the 
OCC and FDIC proposal expands the boundaries as to where and 
what type of activities satisfy CRA compliance. In general, I 
find these principles compelling. But I am not intimately 
familiar with the details of the OCC and FDIC proposal, and 
cannot take a position at this time.

Q.17. Much of the criticism of the other agencies' plan focuses 
on the lack of analysis demonstrating the economic impact of 
the changes. However, according to Governor Brainard, the Fed 
has conducted some analysis with relevant data and would like 
to publish that data so the public can provide feedback.
    Do you believe it is important for any new metrics included 
in a new CRA plan are grounded in data?

A.17. As a research economist my instinct is to always want 
decisions grounded in data. That said, I have spent 25 years 
trying to develop metrics to evaluate economists research 
performance. I have learned that there are no perfect metrics 
and data can be structured to support or deny the validity of 
any metric. So in the end, one has to use data and judgement to 
choose metrics.

Q.18. Do you believe that it is important for the public to 
have ample time to examine these data to provide input and 
ensure that reforming this critical civil rights law is done 
correctly?

A.18. Public comment is a valuable component of rulemaking. CRA 
reform should be consistent with existing standards for 
comments.

Q.19. Do you believe there are consequences of having two 
separate CRA regimes for institutions with different 
regulators? If so, what are these consequences?

A.19. While I believe it would be preferable to have a 
consistent regime across all regulators, I do not have enough 
information on this issue to determine the specific 
consequences of having two regimes.

Q.20. On January 30, 2020, the Fed finalized a rule to 
determine ``when a company controls a bank or a bank controls a 
company.'' \13\
---------------------------------------------------------------------------
     \13\ Board of Governors of the Federal Reserve System, ``Federal 
Reserve Finalizes Rule To Simplify and Increase the Transparency of the 
Board's Rules for Determining Control of a Banking Organization'', 
January 30, 2020, https://www.federalreserve.gov/newsevents/
pressreleases/bcreg20200130a.htm.
---------------------------------------------------------------------------
    Reporting has indicated that the rule could allow private 
equity funds to control a greater portion of a bank's equity 
and thereby allow private equity investors to influence the 
operations of banks. \14\ Given the various risks associated 
with the private equity business model and documented research 
that demonstrates that private equity investments in financial 
companies can increase the risk profile of those companies, 
\15\ do you believe that this rule increases the level of risk 
in the financial sector?
---------------------------------------------------------------------------
     \14\ New York Times, ``The Fed Wants To Loosen Rules Around Big 
Banks and Venture Capital'', Jeanna Smialek and Emily Flitter, January 
30, 2020, https://www.nytimes.com/2020/01/30/business/economy/volcker-
rule-banksventure-capital.html.
     \15\ Harvard University, ``Private Equity Ownership, Risk-Taking, 
and Performance in the Life and Annuities Industry'', Divya Kirti and 
Natasha R. Sarin, April 2, 2018, https://scholar.harvard.edu/nsarin/
publications/private-equity-ownership-risk-taking-and-performance-life-
and-annuities-industry.

A.20. I did not participate in the rulemaking process, and as a 
monetary economist, I am not familiar with research examining 
the impact of private equity investments on banks' risk 
profiles. If confirmed, I would monitor the implementation of 
---------------------------------------------------------------------------
this rule to ensure no undue risk to the financial system.

Q.21. In her statement, Governor Brainard suggested that it 
will be important to ``monitor the ownership structures of 
banking organizations in light of this control framework and 
industry trends'' and ``how the control framework interacts 
with other regulations that involve ownership thresholds.'' 
\16\
---------------------------------------------------------------------------
     \16\ Board of Governors of the Federal Reserve System, ``Statement 
by Governor Lael Brainard'', January 30, 2020, https://
www.federalreserve.gov/newsevents/pressreleases/brainard-statement-
20200130a.htm.
---------------------------------------------------------------------------
    Do you agree with Governor Brainard?

A.21. I believe it is important to monitor the bank ownership 
structure in order to implement the regulatory framework 
appropriately.

Q.22. If so, please describe how the Fed should monitor these 
ownership structures and how the Fed will determine if there is 
a financial stability risk associated with a banking 
organization's ownership structure?

A.22. Again, I have no background knowledge on this issue, but 
I look forward to learning more.

Q.23. Supervision--In Wells Fargo's Q4 2019 Earnings Call, 
newly appointed CEO Charlie Scharf acknowledged the bank's many 
misdeeds, claiming ``we made some terrible mistakes and have 
not effectively addressed our shortcomings.'' \17\
---------------------------------------------------------------------------
     \17\ Bloomberg, ``Q4 2019 Earnings Call'', Wells Fargo, January 
14, 2020.
---------------------------------------------------------------------------
    These comments suggest that Wells Fargo has not made 
substantial progress in remedying the issues at hand. In a 
written response to me in 2018, Chairman Powell stated that the 
terms of the Fed's current Consent Order require that ``the 
firm must make significant progress in remedying its oversight 
and compliance and operational risk management deficiencies 
before relief from the asset growth restriction would be 
forthcoming.'' \18\ Chairman Powell has committed to me that 
the Board of Governors would have a formal vote before the 
Fed's asset cap on the bank could be lifted. Under what 
circumstances would you vote to lift the asset cap?
---------------------------------------------------------------------------
     \18\ Letter from Federal Reserve Chairman Jerome H. Powell to 
Senator Elizabeth Warren, May 10, 2018, https://www.warren.senate.gov/
download/20180510-powell-response-re-wells-fargo.

A.23. Because I do not have access to supervisory information, 
my knowledge of this issue is incomplete. I would only be 
willing to vote to lift the asset cap when Wells has remedied 
---------------------------------------------------------------------------
the identified deficiencies.

Q.24. In a recent speech, Fed Vice Chair for Supervision Randal 
Quarles suggested that Fed bank supervisors use of MRAs should 
be limited, and that they should only be permitted to 
institutions ``to violations of law, violations of regulation, 
and material safety and soundness issues'' \19\--a severe 
narrowing of Fed's authority.
---------------------------------------------------------------------------
     \19\ Federal Reserve Vice Chair for Supervision Randal K. Quarles, 
``Spontaneity and Order: Transparency, Accountability, and Fairness in 
Bank Supervision'', January 17, 2020, https://www.federalreserve.gov/
newsevents/speech/quarles20200117a.htm.
---------------------------------------------------------------------------
    Do you agree that the Fed should alter the process, 
standards, and requirements under which MRAs and/or MRIAs are 
issued? If so, why?

A.24. I am supportive of Vice Chair Quarles' idea to redefine 
the application of MRAs. As I understand it, MRAs cover a wide 
range of problems that banks have--some major and some minor. 
Prior to 2013 the Fed used ``supervisory recommendations'' to 
deal with minor safety and soundness issues. Vice Chair Quarles 
wants to reinstitute this category so that examiners have the 
ability to highlight a supervisory concern that is not at 
present of major concern but may rise to the level of an MRA.

Q.25. Do you believe there should be a formal notice and 
comment process so that outside experts and consumer advocates 
can review and comment on any proposal?

A.25. I am supportive of actions that comply with the 
Congressional Review Act and the Administrative Procedure Act.

Q.26. The 2013 guidance in the communication of supervisory 
findings states, that standardization of the terms MRAs or 
MRIAs ``facilitates the Federal Reserve's national systems of 
record for information related to examination and inspection 
issues'' and ``enables the Federal Reserve to access 
information about supervisory issues and remediation efforts 
and aids in the identification of systemic and programmatic 
challenges facing banking organizations supervised by the 
Federal Reserve.'' \20\ If, as proposed, certain supervisory 
findings will no longer be categorized as MRAs, do you believe 
this could impact the Fed's ability to access this information?
---------------------------------------------------------------------------
     \20\ Federal Reserve Board of Governors, ``Supervisory 
Considerations for the Communication of Supervisory Findings'', https:/
/www.federalreserve.gov/supervisionreg/srletters/sr1313a1.pdf.

A.26. While my knowledge of this process is limited, I believe 
Vice Chair Quarles' proposals would be useful and would not 
---------------------------------------------------------------------------
impair the Fed's supervisory information or framework.

Q.27. Do you believe that it is possible for a bank examination 
to uncover an issue with a financial institution that could 
pose a threat to safety and soundness but does not represent a 
legal violation? Please describe some examples.

A.27. I suppose anything is possible in this regard, but I 
cannot think of an example since I have limited knowledge and 
experience in the supervision process.

Q.28. The impact of any proposed changes to MRAs is largely 
dependent on the definition of ``material safety and 
soundness.'' How do you believe the Fed should determine this 
decision?

A.28. This is clearly an issue that has been addressed by 
supervision, regulation, and legal teams within the Fed and 
other regulatory bodies. I look forward to engaging with 
Federal Reserve staff on these issues, if confirmed.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCHATZ
                    FROM CHRISTOPHER WALLER

Q.1. In a recent speech at the San Francisco Fed's conference 
on the economics of climate change, Fed Governor Lael Brainard 
stated: ``Climate risks are projected to have profound effects 
on the U.S. economy and financial system. To fulfill our core 
responsibilities, it will be important for the Federal Reserve 
to study the implications of climate change for the economy and 
the financial system and to adapt our work accordingly.''
    Do you agree with Governor Brainard that climate-related 
risks fall squarely within the Fed's mandate?

A.1. The Fed's mandate is price stability and maximum 
sustainable employment. Climate risks potentially affect these 
two aggregate measures and that is how the Fed should respond 
to them. This is how the Fed responds to a variety of external 
factors--rather than responding directly to them, the Fed waits 
to see their impact on inflation and employment and responds 
accordingly.

Q.2. Fed Chair Jay Powell recently stated that the Fed would 
likely join the Network for Greening the Financial System 
(NGFS), a group of over 50 foreign central banks and financial 
regulators committed to analyzing and mitigating the financial 
stability risks of climate change.
    As a Fed Governor, would you support joining the NGFS?

A.2. As Chair Powell has said, the Fed is talking to these 
central banks and learning from them on climate risk. If the 
time comes that warrants the Fed joining NGFS in some capacity, 
I am open to doing so.

Q.3. Are you willing to deploy the Fed's research, supervisory, 
and regulatory tools to mitigate the risks that climate change 
poses to the financial system?

A.3. The Federal Reserve is already engaging in research on 
climate change and will continue to do so. On the supervision 
side, the Federal Reserve does work to make sure that banking 
firms manage all their risks appropriately.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
          SENATOR CORTEZ MASTO FROM CHRISTOPHER WALLER

Q.1. Do you support the continuation of the deposit insurance 
fund at the FDIC? Do you recommend any changes to the Fund?

A.1. Yes. No.

Q.2. Do you believe the U.S. dollar should be tied to the value 
of a commodity like gold? If so, please explain. If not, please 
explain.

A.2. No. Fiat currencies have been the norm since 1971 and when 
well managed have been associated with low inflation outcomes. 
Fiat currencies also give the monetary authority the ability to 
adjust the money supply as needed to engage in economic 
stabilization.

Q.3. Do you believe the Government has a role in ensuring banks 
are safe and secure?

A.3. Experience has shown that deposit insurance has worked 
well in preventing systemic bank runs, which have historically 
plagued the U.S. financial system. Banks pay for this insurance 
and also agree to subject themselves to regulatory oversight in 
order to mitigate unnecessary risks that would tip a bank into 
insolvency.

Q.4. Do you support having one currency to represent the United 
States, Canada, and Mexico? What do you think the impact of 
such a change would be?

A.4. I do not believe one currency is warranted for North 
America due to very different political and fiscal regimes in 
these countries. Although one currency would eliminate exchange 
rate risk, it would eliminate the use of monetary policy in 
each country to deal with idiosyncratic shocks to individual 
countries.

Q.5. Do you support a single global currency? What do you think 
the impact of such a change would be?

A.5. The use of a single currency has its advantages in the 
sense that it eliminates exchange rate risk and having to 
transact in a multitude of currencies, as was the case in the 
U.S. in the early 1800s. However, the use of a single currency 
across countries ties policymaker's hands to use their own 
currencies to deal with idiosyncratic shocks. We have seen this 
arise in Europe during the last decade.

Q.6. Do you believe the U.S. dollar should continue to be the 
international reserve currency?

A.6. The U.S. dollar is the world's reserve currency by choice. 
It is not forced on the world. The world uses the dollar 
because it has confidence that the Federal Reserve will follow 
policies that maintain the value of the dollar and the 
stability of the U.S. financial system, which is the best in 
the world. As long as we pursue policies that maintain 
confidence, the dollar will remain the reserve currency.

Q.7. Do you believe the Federal Reserve should develop its own 
digital currency?

A.7. I see no need for one at this time. Essentially all 
transactions in the U.S. and the world are already done 
digitally so I see no gain from introducing one.

Q.8. Do you trust the accuracy and reliability of Government 
statistics? If not, which ones do you doubt?

A.8. I do. All data series have issues but techniques exist for 
dealing with these issues. I do not believe the U.S. Government 
statistical agencies systematically distort data for political 
ends.

Q.9. During your hearing, there were multiple discussions on 
the independence of the Federal Reserve from political 
influence.
    Do you think the Federal Reserve should host events at 
properties owned or affiliated with members of the 
Administration, the Vice President, or the President?

A.9. No.

Q.10. Do you plan to make your decisions after consultation 
with anyone in the White House?

A.10. No.

Q.11. Have you had conversations with anyone in the White House 
about serving as Chair of the Federal Reserve?

A.11. No.

Q.12. Since January 2015, how many times have you stayed at 
properties owned or operated by President Trump or members of 
his family? Please provide location, dates of stay, and 
purpose.

A.12. None.

Q.13. Community Reinvestment Act--Do you support a full scope 
review for CRA exams?

A.13. I do believe that efforts to modernize the CRA are 
warranted. As banking as become borderless, implementing CRA 
has become more difficult.

Q.14. 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.14. I believe this is an outdated method for implementing CRA 
due to changes in branching regulations and technology. Any 
reforms of CRA implementation must take into account ongoing 
changes that will affect the future of banking, particularly 
movement towards a purely mobile system.

Q.15. If a 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.15. I think this is a matter of assessing who bears the 
burden of the initial mistake. I was a university professor for 
30 years, and if I found a mistake in my grading that should 
have lowered a test score, I never went back and lowered the 
grade. I viewed that as my mistake not the student's.
    So if the regulator makes a mistake on the CRA exam and 
then realizes it made a mistake, the punishment should not be 
retroactive. The initial examiner needs to be held accountable.

Q.16. 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. Please identify where, if at all, you feel CRA guidelines 
for small banks are unclear.

A.16. I do not have enough information on CRA exams to provide 
an informed answer.

Q.17. Many Democratic, Republican, and Independent current and 
former regulatory officials raise 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 share the concerns about heightened risk raised by 
your predecessors? Please elaborate on your answer.

A.17. In general, I do not believe that $250 billion is too 
high. The largest banks of concern are in the $1 to $3 trillion 
dollar range in terms of assets. A bank at $250 billion is not 
even in the top 10 of U.S. banks in terms of size. It is 
difficult to argue that banks just below this cap are 
systemically important.

Q.18. What more can be done to shrink the gap between African 
American and 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.18. The Fed has very blunt tools for affecting distributional 
effects across ethnic groups. The best the Fed can do is keep 
inflation low and stable and keep the economy on a stable 
growth path. As a result, unemployment rates of African 
Americans and Latinos will be as low as possible. Real wage 
growth is ultimately tied to the growth of labor productivity. 
This in turn is driven by education, skill acquisition, and 
capital investment. The Fed has no direct control over any of 
these factors.

Q.19. Do you support proposals to tax currency kept outside of 
circulation?

A.19. No.

Q.20. If this policy were implemented, what impact would it 
have on savers and low income depositors?

A.20. I do not have the information to provide analysis on this 
question.

Q.21. 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.
    Do you support any changes to the current capital 
requirements for financial institutions? Please elaborate on 
your answer.

A.21. I support the use of countercyclical capital 
macroprudential policies. The Fed currently has the power to 
use them but has not done so as of yet. Using this tool would 
imply lowering capital ratios during downturns to encourage 
bank lending. Fixing capital ratios and never adjusting them to 
macroeconomic conditions is not good policy.

Q.22. What is your understanding of the historical evidence 
surrounding the relationship between monetary policy and asset 
bubbles?

A.22. First it is difficult to identify an asset bubble ex ante 
(everyone is an expert ex post). So we would have to identify 
bubbles ex post, which to my mind I can think of two: the dot-
com bubble in the late 1990s and the housing bubble in the 
2000s. The dot-com bubble rose even though the Fed held the 
Federal Funds rate at 5 percent and was at 6 percent at the 
peak. The housing bubble started in 1996 and went up steadily 
even though the Fed Funds rate went up and down from 5 percent 
to 1 percent then back to 5 percent. So despite the popular 
rhetoric that the Fed ``kept rates too low for too long,'' the 
housing bubble was driven by something else.

Q.23. Besides monetary policy, what other tools are available 
to temper asset bubbles?

A.23. That depends on two things: (1) what asset and (2) 
identifying a bubble ex ante. Different assets would require 
different tools and as I mentioned above, identifying bubbles 
is extremely difficult.

Q.24. 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.24. By lowering interest rates, the Fed attempts to stimulate 
demand for interest sensitive goods like housing and durable 
goods (cars for example). Presumably, by increasing demand, 
firms would have to hire more labor to produce, distribute, and 
sell these products. Monetary policy tends to have short run 
effects on the economy, so it is doubtful that permanent damage 
to unemployment would be done by not engaging in appropriate 
stabilization policy.

Q.25. 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.
    Please comment on whether the Fed's policies in recent 
years have actually supported the Fed's price stability 
mandate.

A.25. The Fed has pursued policies that have kept prices stable 
and near its inflation target (actually below target). Thus, 
the Fed has been very close in terms of achieving its price 
stability mandate.

Q.26. What does the latest research tell us about the 
effectiveness of the Fed's large scale asset purchases?

A.26. Academic and Fed research on the effects of QE have shown 
that it had the expected effects on long-term yields. However, 
the magnitude of these effects appear to have softened as QE 
went on.

Q.27. 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.27. Productivity growth is driven by education, skills 
acquisition, technological innovation, and capital investment. 
The Fed has very little control over the first three, and the 
last one should benefit from low real interest rates.

Q.28. 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.28. This is a difficult counterfactual to answer. In general, 
macroeconomists would say that unemployment would have stayed 
higher for longer and GDP growth would have been lower. But to 
quantify those effects would require an economic model 
calibrated to the data in an appropriate manner.

Q.29. Is there any evidence that the Fed's stimulus program has 
paved the way for the next global meltdown, as Trump claimed?

A.29. Not that I am aware of.

Q.30. 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.30. The Fed's balance sheet peaked at around 25 percent of 
GDP and has now fallen to around 18 percent of GDP. While high 
by U.S. standards prior to the financial crisis, it is 
substantially smaller than that of Japan or Switzerland, 
neither of which has a dual mandate that I am aware of.

Q.31. 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.
    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.31. I have serious reservations about expanding the set of 
assets that the Fed can buy. This truly becomes a distortion in 
the markets when central banks start buying private assets.

Q.32. 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?

A.32. Congress is better equipped to finance these types of 
lending programs.

Q.33. Would you support or oppose such expansion of the Fed's 
authority?

A.33. I would oppose.

Q.34. 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.34. The Fed is monitoring the size of its balance sheet to 
ensure that there are ample reserves to allow the operation of 
a floor system. The disruptions in September 2019 suggest that 
the required level of reserves to run a floor system is higher 
than originally believed. Other than that, the reductions in 
the Fed's balance sheet does not appear to have had any 
negative economic effects.

Q.35. As you know, the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Public Law 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.
    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.35. I do not know the details on these lending rules to be 
able to give an informed opinion.

Q.36. 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.36. In general, I support regulations that allow low cost 
mortgage origination for households. However, I have not 
studied in depth the specific issue you cite, and therefore I 
do not have an opinion on changes to Regulation Z.

Q.37. Mortgage Servicing Rules under Regulation X and Z are 
designed to protect homebuyers 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.37. This is not an issue that I have studied in depth, and 
therefore I do not have a recommendation.

Q.38. 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.38. As an economist, I love data. However, I do not know the 
costs and benefits borne by the banks by providing this data.

Q.39. 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.39. No. I believe banks of this size can access the discount 
window if they need liquidity without too much stigma from 
borrowing from the Fed.

Q.40. 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.40. It is my understanding that all banks have capital 
requirements.

Q.41. 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.41. This is not an issue that I have studied, and therefore, 
I would have to learn more to form an opinion on the question.

Q.42. Do you have recommendations for changes to the Bank 
Secrecy or Anti- Money Laundering rules? If so, please 
describe?

A.42. I do not at this time.

Q.43. I am very concerned about climate-related financial 
risks. The most recent National Climate Assessment said the 
U.S. Southwest could lose $23 billion per year in regionwide 
wages as a result of extreme heat. Since you joined the Federal 
Reserve Board, what have you done to prepare community banks 
for long-term shifts in climate patterns, like increasing 
extreme heat and more severe and more frequent storms?
    Are community banks changing how they operate to consider 
these threats to the ability of their customers to repay loans?

A.43. I have not studied or worked on this topic, and therefore 
I do not have an opinion on this issue.

Q.44. Are there changes to insurance policies banks should 
consider?

A.44. I have not studied or worked on this topic, and therefore 
I do not have any suggestions for you to consider.

Q.45. Some have advocated that central banks use their balance 
sheet to support the transition to a low-carbon economy, for 
example, by buying low-carbon corporate bonds. Do you think 
Congress should consider changing the law to support ``green'' 
quantitative easing as an option for the Fed?

A.45. I believe that is a matter for Congress to decide.

Q.46. Which other Central Banks allow green quantitative 
easing? Do you believe those models could translate to the 
American financial system and economy?

A.46. I have not studied or worked on this topic, and therefore 
do not have an opinion to offer on this topic.

Q.47. In the Fed's Supervisory Report released November, there 
was a section on merger and acquisition risks. The banking law 
passed last year changed the asset threshold for a small bank 
holding company from $1 billion to $3 billion. It also reduced 
capital requirements and other rules for banks above $50 
billion. We have seen more bank mergers since the law passed. 
Do you expect to see more bank mergers this year and next year 
than in previous years? How much of merger activity is due to 
changes from S. 2155 and other regulatory actions?
    What are the risks from mergers and acquisitions?

A.47. Mergers and acquisitions in the banking industry have 
been going on for many decades. I am not aware that they have 
been growing at a faster or slower pace than in past decades. 
Bank mergers typically generate benefits of geographic 
diversity and economies of scale. I see little risk from 
allowing bank mergers and acquisitions that meet the current 
statutory requirements.

Q.48. Beyond the impacts on the customer, what are the risks to 
communities when banks merge? Are you concerned about a loss of 
branches? Types of products? Jobs?

A.48. Bank mergers are about eliminating inefficiencies and 
expanding deposit bases for lending. The world has moved from 
physical banking access to borderless banking. I personally 
have not stepped into a bank in over a year. This is the future 
of banking and payments. Structural transformations of this 
type always have winners and losers. I do feel for those caught 
in banking deserts but hopefully technology will alleviate the 
costs from losing physical access to banking services.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                    FROM CHRISTOPHER WALLER

Q.1. Under what circumstances should the Federal Reserve raise 
interest rates?

A.1. At present, the factor most likely to warrant an increase 
in the policy rate would be an increase in PCE inflation to 
over 2 percent along with signs of accelerating inflation 
growth. If there were substantial signs of financial stability, 
reflected across a spectrum of indicators, then this too could 
warrant an increase in the policy rate.
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