    [Senate Hearing 117-337]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 117-337

                NOMINATIONS OF LAEL BRAINARD AND SANDRA THOMPSON

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

                                    HEARING

                                   BEFORE THE

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

                        ONE HUNDRED SEVENTEENTH CONGRESS

                                 SECOND SESSION

                                       ON

                                NOMINATIONS OF:

    LAEL BRAINARD, OF THE DISTRICT OF COLUMBIA, TO BE VICE CHAIRMAN OF THE
                BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
                                   __________

      SANDRA THOMPSON, OF MARYLAND, TO BE DIRECTOR OF THE FEDERAL HOUSING
                                 FINANCE AGENCY
                                   __________

                                JANUARY 13, 2022
                                   __________

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

                      [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

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

                                  ___________

                        U.S. GOVERNMENT PUBLISHING OFFICE

    48-297 PDF                 WASHINGTON : 2022

                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                         SHERROD BROWN, Ohio, Chairman

    JACK REED, Rhode Island              PATRICK J. TOOMEY, Pennsylvania
    ROBERT MENENDEZ, New Jersey          RICHARD C. SHELBY, Alabama
    JON TESTER, Montana                  MIKE CRAPO, Idaho
    MARK R. WARNER, Virginia             TIM SCOTT, South Carolina
    ELIZABETH WARREN, Massachusetts      MIKE ROUNDS, South Dakota
    CHRIS VAN HOLLEN, Maryland           THOM TILLIS, North Carolina
    CATHERINE CORTEZ MASTO, Nevada       JOHN KENNEDY, Louisiana
    TINA SMITH, Minnesota                BILL HAGERTY, Tennessee
    KYRSTEN SINEMA, Arizona              CYNTHIA LUMMIS, Wyoming
    JON OSSOFF, Georgia                  JERRY MORAN, Kansas
    RAPHAEL WARNOCK, Georgia             KEVIN CRAMER, North Dakota
                                         STEVE DAINES, Montana

                         Laura Swanson, Staff Director

                     Brad Grantz, Republican Staff Director

                           Elisha Tuku, Chief Counsel

                     Dan Sullivan, Republican Chief Counsel

                          Cameron Ricker, Chief Clerk

                          Shelvin Simmons, IT Director

                            Pat Lally, Hearing Clerk

                                      (ii)

                                C O N T E N T S

                                  ----------

                           THURSDAY, JANUARY 13, 2022

                                                                       Page
    Opening statement of Chairman Brown..............................     1
            Prepared statement.......................................    45

    Opening statements, comments, or prepared statements of:
        Senator Toomey...............................................     3
            Prepared statement.......................................    46

                                    NOMINEES

    Lael Brainard, of the District of Columbia, to be Vice Chairman
      of the Board of Governors of the Federal Reserve System........     6
        Prepared statement...........................................    48
        Biographical sketch of nominee...............................    49
        Responses to written questions of:
            Chairman Brown...........................................    83
            Senator Toomey...........................................    86
            Senator Menendez.........................................   105
            Senator Warnock..........................................   106
            Senator Rounds...........................................   111
            Senator Tillis...........................................   112
            Senator Daines...........................................   113
    Sandra Thompson, of Maryland, to be Director of the Federal
      Housing Finance Agency.........................................     7
        Prepared statement...........................................    67
        Biographical sketch of nominee...............................    68
        Responses to written questions of:
            Chairman Brown...........................................   114
            Senator Toomey...........................................   116
            Senator Menendez.........................................   134
            Senator Sinema...........................................   135
            Senator Warnock..........................................   137
            Senator Scott............................................   139
            Senator Tillis...........................................   142
            Senator Hagerty..........................................   145
            Senator Daines...........................................   145

                  Additional Material Supplied for the Record

    Letter submitted in support of nominee Lael Brainard.............   152

                                     (iii)

                NOMINATIONS OF LAEL BRAINARD AND SANDRA THOMPSON

                                  ----------

                           THURSDAY, JANUARY 13, 2022

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 10 a.m., via Webex and in room 106,
    Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of
    the Committee, presiding.

              OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

        Chairman Brown. The Senate Committee on Banking, Housing,
    and Urban Affairs will come to order.
        Today's hearing again is a hybrid format. Our witnesses are
    in person, as we see, but Members have the option to appear
    both in person or virtually.
        We consider the nominations of two highly qualified
    nominees today, Dr. Lael Brainard to be Vice Chair of the Board
    of Governors of the Federal Reserve System, and Acting Director
    Sandra Thompson to be Director of the Federal Housing Finance
    Agency.
        It is amazing what a difference a year makes. We have today
    safe and effective vaccines that are saving lives and getting
    people back to work--207 million Americans are now fully
    vaccinated.
        Our economy has weathered the storm and rebounded. In 2021,
    we added a record 6.4 million new jobs, more than any year
    since 1939.
        And it is not just the jobs numbers. It is the quality of
    those jobs. Workers are demanding raises and they are finally
    getting them. They are changing jobs at record rates because
    people finally have some options.
        The past year has illustrated how our economy works best,
    when it works for everyone. Not just Wall Street. Not just the
    top 1 percent. Everyone. Whether you punch a clock or swipe a
    badge, whether you earn a salary or make tips. Whether you are
    raising children or caring for an aging parent. No matter who
    you are, where you live, or what kind of work you do.
        Economic growth will not mean much if it does not reach all
    workers--families in Steubenville and Scranton and communities
    of all sizes, all over the country.
        The President has nominated Dr. Brainard and Acting
    Director Thompson to important roles in our Government and our
    economy, to put those workers and their families at the center
    of our Government and the center of our economy, to deliver
    results that actually improve their lives.
        Dr. Brainard is a leading economist who understands that a
    strong economy is one where workers have power. She is
    committed to a worker-centered monetary policy that boosts
    employment and lifts wages, something that every member of the
    Fed's rate-setting committee has reaffirmed. She has led the
    way in modernizing and strengthening the Community Reinvestment
    Act, something that Senator Warner has been particularly
    interested in, a landmark civil rights law passed to begin to
    undo the shameful legacy of redlining and lending
    discrimination, and spur investment in all neighborhoods and
    communities.
        Through her leadership, the Fed listened to the people
    whose lives and livelihoods are affected--civil rights leaders,
    affordable housing advocates, local officials, and banks of all
    sizes. She brought everyone to the table and she is working to
    ensure banks meet the needs of all our communities. During this
    pandemic, she has served as a steady hand, working shoulder to
    shoulder with Chair Powell to stabilize our economy and steer
    the country out of our abyss.
        Dr. Brainard has a distinguished record of bipartisan
    service in Government. She joined the Fed in 2014. From 2009 to
    2013, she was Under Secretary for International Affairs at the
    Department of Treasury. She worked in the first Bush
    administration as a staff economist at the Council of Economic
    Advisers and as deputy national economic adviser in the Clinton
    administration. She was a professor at the Massachusetts
    Institute of Technology.
        As Vice Chair, she will be tasked with supporting efforts--
    efforts that are already underway--to empower workers and
    refocus our economy on Main Street, and make sure that all
    Americans have good jobs with growing paychecks and an
    affordable cost of living.
        That also means supporting efforts to close the racial
    wealth and income gaps that have barely shrunk in decades. As
    the Fed has noted, quote, ``The average Black and Hispanic or
    Latino households earn about half as much as the average White
    household and own only about 15 to 20 percent as much net
    wealth.'' As one of our colleagues once said, when we all do
    better, we all do better.
        With Governor Brainard as Vice Chair of the Fed, Americans
    will have someone who understands that workers--not
    corporations, not Wall Street--that workers create economic
    growth. Her commitment to the success of all Americans, from
    all walks of life and every region of the country, is clear in
    all the work she has done throughout her distinguished career.
        Acting Director Thompson has a similarly long and
    distinguished career in public service. In her time as Acting
    Director, she has taken meaningful steps to put renters,
    homeowners, and families first.
        Over the past 6 months, Acting Director Thompson has
    directed the GSEs to strengthen their plans to preserve
    affordable housing and support manufactured housing and housing
    in rural areas; she has expanded opportunities for middle class
    and low-income homeowners to save money on their mortgages
    through refinancing; and she has increased the focus on fair
    housing at the GSEs.
        I can think of no other nominee as qualified to work to
    make homes more available and affordable for families
    throughout the country while strengthening the financial
    standing of the GSEs.
        More than two dozen consumer advocates, civil rights
    organizations, and housing advocates have all written to this
    Committee supporting her.
        Before being designated as Acting Director in June 2021,
    she served for 8 years as the Deputy Director for the Division
    of Mission and Goals at FHFA. There she led an office
    responsible for the mission activities of the GSEs and housing
    and regulatory policy under directors of both parties to ensure
    the safety and soundness of Fannie Mae, Freddie Mac, and the
    Federal Home Loan Banks.
        Prior to joining FHFA, she spent 18 years at the FDIC,
    where she worked for seven different chairpersons from each of
    the political parties, and in senior-level positions, including
    Director of the Division of Supervision and Consumer Protection
    and the Director of the Division of Risk Management and
    Supervision, helping to stabilize our Nation's banks.
        Earlier in her career, she served at the Resolution Trust
    Corporation, cleaning up and restoring faith in our financial
    system after the savings and loan crisis. In a nutshell, you
    can see how qualified she is.
        She will be in a position at FHFA to tackle some of the
    most pressing issues facing homeowners and renters to ensure
    the stability of our housing finance system. Whether you are
    looking to rent or to buy, housing had become too expensive and
    too hard to find long before the pandemic began.
        More than 50 years after passage of the Fair Housing Act,
    people of color are far more likely to be denied a mortgage,
    far less likely to own their own home, far more likely to pay
    more in rent than they could afford. And in just the past week,
    tragic fires in the Ranking Member's home State and in the
    Bronx have reminded us of how far we need to go to ensure that
    everyone has safe, affordable places to live.
        FHFA has an important role to play in addressing these
    challenges, and Acting Director Thompson has distinguished
    herself as the person we need to lead this critical work.
        These nominees, each of them understands the challenges our
    economy faces. They understand the people who make our economy
    work, like so many of this President's nominees. It is notable
    that as we recover from a pandemic that laid bare just how hard
    women especially work--at paid jobs in the labor market and at
    unpaid jobs taking care of their families--we have two women
    poised to take leading roles in our recovery.
        I want to thank both nominees for their exceptional and
    their lengthy years of commitment to public service.
        Ranking Member Toomey.

             OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY

        Senator Toomey. Thank you, Mr. Chairman. Governor Brainard
    and Ms. Thompson, welcome. You both have very extensive
    experience in your respective fields, and I commend you both
    for your commitment to public service.
        Governor Brainard has been nominated to serve as Fed Vice
    Chair. The Fed has been granted significant independence to
    isolate it from political influence. However, Congress has
    given the Fed very narrowly defined monetary and regulatory
    missions.
        First, the Fed has been tasked with conducting monetary
    policy to promote stable prices and maximum employment. But the
    Fed's recent actions have failed to maintain price stability.
        Last year, Governor Brainard repeatedly insisted that
    inflation was transitory. We have now had 9 consecutive months
    where inflation has been more than two times the Fed's 2
    percent target. That makes it pretty clear that inflation is
    not transitory. Yesterday's CPI release of 7 percent, the
    highest in 40 years, confirms that further.
        Inflation is a tax that is eroding Americans' paychecks
    every day. Even though wages are growing, inflation is growing
    faster, and that is causing workers to fall further and further
    behind.
        I appreciate that the Fed has pivoted toward normalizing
    monetary policy to tackle inflation, but the Fed also needs to
    learn from its mistakes, and I think that begins with the Fed's
    new monetary policy framework, of which Governor Brainard was
    an author and an outspoken advocate. The framework really
    subordinated the Fed's price stability mandate to try and
    maximize employment by allowing inflation to run hot.
        Under this approach, the Fed looked beyond employment as a
    whole to consider whether employment was, quote, ``broad based
    and inclusive,'' end quote. What this meant was the Fed would
    sacrifice stable prices to see if it could achieve higher
    employment gains in certain demographic groups.
        As Governor Brainard explained last year, the Fed should
    look at employment numbers on a, quote, ``disaggregated
    basis,'' end quote, and use monetary policy to narrow
    employment gaps between different, quote, ``racial and ethnic
    groups,'' end quote. This framework risks keeping in place an
    inflation tax on all Americans while the Fed decided which
    subgroups of people should have faster job growth than others.
        One of the problems is that monetary policy can never
    equalize employment rates amongst different groups. In the end,
    the Fed would run the risk of failing on both fronts of its
    dual mandate because you need stable prices in order to achieve
    a strong economy and maximum employment. Given this fact, the
    Fed should reevaluate its new framework.
        The Fed also has the mission of monitoring the safety and
    soundness of certain major financial institutions. Under
    Chairman Powell, the Fed enacted modest, sensible reforms that
    reduced regulatory burdens and helped spur economic growth. But
    Governor Brainard was the sole dissenter over 20 times on
    regulatory matters, an unprecedented number at the Fed.
        For example, she argued that the Fed's reforms of capital,
    liquidity, and stress tests for smaller, less complex banks
    would, quote, ``weaken the safeguards at the core of the
    system,'' end quote. Yet though the economy nearly collapsed at
    the start of the pandemic, the banking system emerged
    exceptionally well-capitalized and served as a source of
    strength for the economy, demonstrating the sensibility of
    these reforms.
        In addition to opposing these reforms, Governor Brainard
    has urged the Fed to take an activist role on global warming,
    which is beyond the Fed's expertise and mission. According to
    the New York Times, she has, and I quote, ``endorsed the use of
    supervisory guidance, the Fed's recommendations to banks, to
    encourage financial institutions to curb their exposures,'' end
    quote.
        I am particularly concerned that she has advocated for the
    Fed to shape environmental policy through so-called climate
    scenario analysis. Not only does the Fed lack expertise in
    environmental matters, but there is no reason to believe that
    global warming poses a systemic risk to the financial system.
        As I have noted before, we have not found a single bank
    that has failed in the modern era due to a severe weather
    event. There is a ``transition risk'' for banks associated with
    global warming, but that is political and regulatory in nature.
    It is the risk that unelected bureaucrats will attempt to
    impair the value of energy-related assets by cutting off credit
    to the energy sector.
        This is not about whether climate change is a significant
    threat to our society. It is about the fact that climate
    policymaking requires tradeoffs between costs and benefits. And
    these are inherently political decisions, which is why they
    belong firmly in the domain of officials who are elected and
    directly accountable to voters.
        Now turning to Ms. Thompson, she has been nominated to
    serve as the Director of the FHFA, where she has had a busy 6
    months as Acting Director. In that time, she has proposed
    reductions in capital requirements for Fannie Mae and Freddie
    Mac, suspended restrictions on the GSEs' acquisitions of high-
    risk loans, required the GSEs to develop plans to further what
    Democrats call, quote, ``racial equity,'' end quote, but it
    just really looks like affirmative action in the housing space,
    and increased the GSEs' affordable housing goals.
    Unfortunately, she has not prioritized ending the GSEs'
    conservatorships.
        I am concerned the Administration is seeking to use FHFA
    and the GSEs to take on more risk for taxpayers and expand
    affirmative action into housing. That makes Ms. Thompson's
    nomination, notwithstanding her extensive experience, a
    referendum on the Administration's radical housing policy.
        This policy contemplates more mortgages for higher-risk
    borrowers, repurposing the GSE as instrumentalities of social
    policy, and a disappointing embrace of the failed GSE model. In
    a break from decades of bipartisan housing finance reform
    efforts, this Administration is using the power of the GSEs'
    conservatorships to command and control a huge swath of the
    American economy. And we are now asked to ratify this radical
    housing policy, and to take ownership of the bailouts and
    foreclosures that I am afraid are likely to follow. Especially
    given where we might be in the housing cycle, we should be
    reluctant to do so.
        Mr. Chairman, I look forward to hearing from today's
    nominees.
        Chairman Brown. Thank you, Senator Toomey.
        Would the witnesses please rise and raise your right hands.
        Do you swear or affirm that the testimony you are about to
    give is the truth, the whole truth, and nothing but the truth,
    so help you God?
        Ms. Brainard. I do.
        Ms. Thompson. I do.
        Chairman Brown. Do you agree to appear and testify before
    any duly confirmed committee of the U.S. Senate?
        Ms. Brainard. I do.
        Ms. Thompson. I do.
        Chairman Brown. Please be seated. Thank you.
        Governor Brainard and Acting Director Thompson, welcome to
    the Committee. If you would like to introduce family members or
    friends in your testimony I invite you to do that, at the
    beginning or whenever you want to.
        Governor Brainard, please begin.

    STATEMENT OF LAEL BRAINARD, OF THE DISTRICT OF COLUMBIA, TO BE
    VICE CHAIRMAN OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE
                                 SYSTEM

        Ms. Brainard. Chairman Brown, Ranking Member Toomey, and
    other Members of the Committee, thank you for this opportunity
    to appear before you. I am greatly honored to be nominated by
    President Biden to serve as Vice Chair of the Board of
    Governors of the Federal Reserve, and I am delighted to be here
    alongside Acting Director Thompson. If confirmed to this
    position, I look forward to continuing to work with Members of
    this Committee.
        We are seeing the strongest rebound in growth and decline
    in unemployment of any recovery in the last five decades. Over
    the past year, unemployment has fallen by 2.8 percentage
    points, and growth is estimated to be around 5.5 percent,
    according to a variety of private forecasts.
        But inflation is too high, and working people around the
    country are concerned about how far their paychecks will go.
    Our monetary policy is focused on getting inflation back down
    to 2 percent while sustaining a recovery that includes
    everyone. This is our most important task.
        When the pandemic struck in 2020, I worked closely
    alongside Chair Powell, Secretary Mnuchin, and many others,
    with the support of Congress, to calm financial market turmoil
    and save American jobs and businesses. When markets stabilized,
    I worked to responsibly wind down the emergency facilities that
    were established, and today the economy is making welcome
    progress, but the pandemic continues to pose challenges. Our
    priority is to protect the gains we have made and support the
    recovery.
        Since 2014, as a member of the Federal Open Market
    Committee, I have supported monetary policy that is responsive
    to economic conditions as they evolve. Our approach helped
    sustain the longest recovery on record with low inflation and
    millions of jobs.
        More broadly, I have worked to safeguard and grow our
    economy during the Administrations of five Presidents from both
    parties. I have worked on the U.S. policy response to every
    major financial crisis over three decades. In some foreign
    countries, I saw up close how high inflation hurts workers and
    families, especially the most vulnerable.
        I am committed to pursuing the Federal Reserve's
    congressionally mandated goals of price stability and maximum
    employment and to maintaining the strength and resilience of
    our financial markets. I am committed to the independent and
    nonpartisan status of the Federal Reserve.
        If confirmed, I look forward to supporting Chair Powell in
    carrying out the responsibilities assigned to the Federal
    Reserve and in fostering transparent communication and
    accountability to you and the American people, more broadly. I
    will bring a considered and independent voice to our
    deliberations, drawing on insights from working people,
    businesses, financial institutions, and communities, large and
    small, across the country.
        Before closing, I want to thank my husband, Kurt, my
    daughters, Caelan, Ciara, and Chloe, for their steadfast
    support of my work. And I would like to commend the outstanding
    efforts of the many individuals across the Federal Reserve
    System who work so hard every day to serve the American public.
        Senators, I thank you for your consideration and I look
    forward to answering your questions. Thank you.
        Chairman Brown. Thank you, Dr. Brainard.
        Acting Director Thompson.

     STATEMENT OF SANDRA THOMPSON, OF MARYLAND, TO BE DIRECTOR OF
                   THE FEDERAL HOUSING FINANCE AGENCY

        Ms. Thompson. Chairman Brown, Ranking Member Toomey, and
    Members of the Committee. I first want to thank President Biden
    for nominating me to serve as the Director of the Federal
    Housing Finance Agency (FHFA). It is the greatest honor of my
    career to appear before you today.
        Thank you to the Senators and the staff members with whom I
    have met in advance of this hearing. If I am fortunate enough
    to be confirmed, I look forward to working with all of you on
    the important issues at FHFA.
        I would like to introduce my sons, Jarrett and Aaron, who
    are here with me today, and I would like to recognize and thank
    my parents, Herman and Helen Lathan. While due to COVID
    considerations they are not able to be here in person, the fact
    that my parents are still alive to witness today's hearing is
    very meaningful to me.
        I was born and raised on the South Side of Chicago to my
    extraordinary parents, who came to Chicago from Mississippi as
    part of the Great Migration. My parents and family, along with
    the Chicago Public School system, and my beloved Howard
    University right here in Washington, taught me hard work,
    dedication, determination, and perseverance. I would like to
    specifically recognize the schools in Chicago that helped me
    succeed: McDade Elementary School, Gillespie Junior High
    School, and Lindblom Technical High School, all on the South
    Side.
        My nomination for Director of the FHFA is a great
    privilege. I recognize that it is rare for a career public
    servant to have the opportunity to lead a Federal agency, and,
    as the first African-American woman nominated for this position
    I appreciate the opportunity to demonstrate my expertise, good
    judgment, and leadership in this position.
        I am proud of the work we have done at FHFA in my 8 years
    there. The agency plays a vital role in both promoting access
    to mortgage credit nationwide and protecting the safety and
    soundness of the housing finance system through our supervision
    of Fannie Mae, Freddie Mac, and the Federal Home Loan Bank
    System.
        Throughout my 40-year career, with experience in mortgage
    markets and financial regulation at multiple agencies, I have
    seen what it takes to lead a Federal agency and be effective in
    that role. In my work at FDIC and FHFA, I have demonstrated
    leadership, management ability, and an understanding of the
    secondary mortgage markets and industry, a fair and balanced
    perspective, and a strong belief in the importance of the
    safety and soundness of America's financial institutions.
        During my time in Federal financial institution regulation
    I have witnessed and worked to end several financial crises.
    These crises exposed some truths in housing finance. When I
    served as the FDIC's head of supervision and consumer
    protection throughout the 2008 financial crisis, I witnessed
    firsthand the consequences of irresponsible lending when
    hundreds of banks across the country were closed and a record
    number of homes went into foreclosure. I saw how the borrowers
    who received unsustainable loans and predatory loan products
    were devastated in the downturn, and historically underserved
    and disadvantaged communities were hit especially hard. Years
    of progress in closing the home ownership and wealth gaps were
    erased as a result. In fact, today the Black-White home
    ownership gap is wider than it was in the 1960s, when lending
    discrimination that was based on race was still legal.
        As a financial regulator, I have long believed that safety
    and soundness and access to credit are not mutually exclusive.
    Broad, fair access, and the stability of financial institutions
    work together as pillars of the Nation's housing finance
    system. Indeed, sustainable access to credit requires
    sustainable lending standards.
        FHFA will continue to promote sustainable and equitable
    access to credit in a safe and sound manner. We will
    responsibly focus our efforts on the safety and soundness
    mission Congress gave to the FHFA and on the mission that
    Congress gave the housing GSEs under our supervision, providing
    liquidity across the Nation and especially supporting
    underserved markets like rural and tribal areas, manufactured
    housing, and preserving affordable housing. If confirmed, it
    would be an honor for me to serve as the FHFA Director, and I
    will continue to be fair, balanced, and transparent.
        Thank you for the opportunity to testify before you today,
    and I am happy to answer any of your questions.
        Chairman Brown. Thank you, Acting Director. I appreciate
    both of you came in under your 5 minutes, and I ask you to
    continue to be. Rarely do people do that, that are witnesses. I
    ask you to continue to be brief.
        I have two questions for each of you, so as briefly as you
    can. Governor Brainard, I will start with you. Thank you for
    your work during the pandemic. The Fed took extraordinary
    action, as we know, to support the economy. Some of my
    colleagues seem to have forgotten what a critical state our
    economy was in when the pandemic first hit. Workers and small
    businesses in this country certainly have not forgotten.
        Why were those actions necessary, and did you support all
    of them, Governor?
        Ms. Brainard. Thanks for asking the question. So I worked
    day in and day out, alongside Secretary Mnuchin at Treasury,
    Chair Powell, Vice Chair Quarles, and other colleagues to stand
    up the necessary facilities to calm financial markets. As you
    no doubt recall, our financial markets were in turmoil as they
    absorbed the news of the pandemic. A lot of workplaces had to
    shut down because of the risk of infection before vaccines were
    available, and millions of Americans overnight were placed on
    layoff. And we really risked losing small businesses around the
    country. We risked losing medium-sized businesses and the tens
    of millions of Americans that those businesses employed.
        And so I think due to the very important actions that
    Congress took we worked closely with Treasury to make sure that
    there was financing available for small banks and CDFIs and
    MDIs to get loans to small businesses in communities around the
    country. We worked to make sure that Main Street financing was
    available. We made sure to ensure that financial market turmoil
    was calmed, and we provided a lot of support to the economy.
        And here we are, 2 years later, and we have regained all of
    that massive loss of GDP. We have businesses that are thriving
    around the country. People are back to work. So I was proud to
    work on that alongside all of my colleagues. I did not disagree
    with any of the actions that we took. In fact, I strongly
    supported them and worked hard to make them work.
        Chairman Brown. Thank you, Governor.
        Acting Director, you know better than almost anyone how
    critical it is that financial institutions have appropriate
    capital to be transparent about their risk. What have you done
    so far, and what more needs to be done to make sure GSEs have
    the capital they need to continue providing access to housing
    in good and bad times?
        Ms. Thompson. Thank you for the question, Senator. I firmly
    believe in the safety and soundness of the housing GSEs, Fannie
    Mae and Freddie Mac specifically. They have just been allowed
    to build capital and retain earnings, and we think that that is
    very important.
        One of the steps that we have taken is to encourage the use
    of the credit risk transfer program which, as you well know,
    Fannie Mae and Freddie Mac are the largest holders of mortgage
    credit risk in the United States, I daresay the world. And one
    of the things that we like to do is facilitate moving that
    credit risk off the backs of the taxpayers and into the hands
    of the private sector. And we believe that some of the changes
    that we have made to the capital rule will help facilitate the
    credit risk transfer program and move credit risk away from the
    GSEs and the taxpayers and into the hands of private investors.
        Chairman Brown. Thank you, Acting Director.
        Dr. Brainard, second question for you. For the first time
    in decades workers are starting to see a bit more power in our
    economy--record job gains, record wage increases. We need to
    continue that progress to catch up to all the costs that have
    been rising for decades. You will work closely with Chair
    Powell, if you are both confirmed, and oversee the Fed's
    monetary policy.
        How does the Fed's monetary policy framework allow us to
    ensure we have stable prices and an economy where all workers
    have a good job and reap the benefits of economic growth?
        Ms. Brainard. So our monetary policy framework puts stable
    prices and maximum employment on an equal footing, and I think
    we are taking actions on the monetary policy front that I have
    confidence will be brining inflation down while continuing to
    allow the labor market to return to full strength over time. So
    we are going to achieve that maximum sustainable employment
    while we bring inflation down to 2 percent.
        Chairman Brown. Thank you, Governor Brainard.
        Last question, Acting Director Thompson. GSEs have reported
    about 4 percent of their new mortgages over the past 2 years
    went to Black borrowers and fewer than 11 percent went to
    Latino borrowers. For refinanced loans the shares are even
    lower. Compare that to FHA, which most recently reported that
    17 percent of loans went to Black borrowers, and more than 25
    percent to Latino borrowers.
        What should GSEs do to make sure that they are serving
    borrowers of color equally?
        Ms. Thompson. Thank you for the question, Senator.
    Certainly we believe that every American ought to have
    sustainable and affordable housing and also places to live if
    they are renters.
        With regard to the Black ownership gap, one of the things
    that we have done is we have asked the enterprises to come up
    with some equitable housing plans, and they are supposed to
    focus on and identify barriers that underserved communities,
    particularly in communities of color, have as it relates to
    getting a mortgage. They are supposed to identify barriers and
    then come up with specific plans to execute the requirements
    that they have developed.
        We also have a focus, as you well know, on all underserved
    communities, whether they are rural or tribal and other areas
    around the country. But we think that these housing equity
    plans will go a long way to help minority home ownerships in
    underserved communities across the country have access to
    mortgage credit.
        Chairman Brown. Thank you, Acting Director. Senator Toomey.
        Senator Toomey. Thank you, Mr. Chairman. Governor Brainard,
    thanks again for your continued willingness to continue in
    public service. I know this is not always easy.
        I was encouraged to hear you say that you are committed to
    the independent and nonpartisan status of the Federal Reserve.
    It is very important that Fed decisions on monetary and
    regulatory policy are entirely free from political
    interference.
        So I think this is a simple yes or no question. Will you
    commit to considering yourself independent from the White
    House, regardless of which party occupies it?
        Ms. Brainard. Yes.
        Senator Toomey. Thank you. And will you commit to make your
    decisions without regard to political or electoral
    consequences?
        Ms. Brainard. Yes.
        Senator Toomey. Thank you. So I think you have acknowledged
    the importance of the independence of the Fed, how crucial that
    is for maintaining the trust and confidence of the American
    people. In light of that, I wonder if you could tell me how you
    view the coup by three men, including one who is serving on a
    term that expired 3 years ago, that forced out Jelena
    McWilliams, a well-respected regulator, from the once
    independent FDIC.
        Ms. Brainard. So I cannot speak to the FDIC. I can tell you
    that I have enjoyed working with Jelena, continue to work with
    her, Jelena McWilliams, Chair McWilliams, on issues such as
    Community Reinvestment Act.
        We have a very different institution and it is a very
    collegial institution. It is nonpartisan. And I can tell you a
    little bit about how I work in that institution, just to give
    you a sense.
        Senator Toomey. Well, I am very limited on time here so let
    me just say, I know you commented on Jelena McWilliams, and I
    appreciate that, and I do understand you to have had a good
    working relationship with her. But I would suggest then and ask
    you to reflect on what happened there, and I think it is
    relevant.
        The Fed, as you know, is also a multimember agency. It has
    prided itself on operating free from political interference and
    following norms of governance for many years. That used to
    describe the FDIC, and unfortunately it does not anymore, and
    there are people on the left and in this Administration who
    want the Fed to become more political, to become advocates for
    the causes and agenda that they support. And I have warned, and
    I am concerned that the Fed's dalliance with those issues,
    totally irrelevant to the dual mandate, will undermine the
    Fed's credibility and threaten its independence, and I think
    that is very important.
        Let me move on to climate risk. As you know, the Fed has
    consistently stated that there are two categories of climate-
    related financial risk. The first is physical risks and the
    second is transition risks. Now the actual data shows that
    physical risk, that is actual severe weather events, do not
    threaten financial stability. This week, Chairman Powell said
    the possibility of financial stability disruptions from
    physical risks, quote, ``doesn't seem likely in the near
    term,'' end quote. Well that is obvious. There was a recent
    report from the New York Fed that backs this up. According to
    the report, weather disasters from the last quarter century had
    insignificant or small effects on U.S. banks' performance.
        So do you acknowledge that the likelihood of weather events
    leading to systemic risk during your term as Fed Governor is
    virtually zero, based on historical data?
        Ms. Brainard. So to be honest, I think it is very important
    for us just to understand potential implications of tail risks.
    Tail risks are risks that have very, very low probability of
    happening but have extreme damage. And, of course, I would not
    have expected us to need to study pandemics 5 years ago either,
    and yet a lot of our policymaking over the last 2 years has
    been really under the cloud of a very complicated set of
    economic conditions and financial risks associated with a
    natural event.
        So, you know, it is our job just to be very attentive to
    potential risks to the financial system.
        Senator Toomey. So here is my concern, and I am certainly
    not alone in this. The actual evidence shows that there is no
    real physical risk. The transition risk, though, is real, and
    Chairman Powell explained the source of that. The source of
    transition risk is really Government policy. And this is what
    is concerning. There are lots of risks out there. There could
    be a trade war with China. There could be geopolitical turmoil
    coming from a Russian invasion of Ukraine. We could have the
    Government engage in shutdowns again in response to a pandemic,
    for instance.
        Actually, I would argue each of those poses a greater risk
    to the financial system than some sort of climate event, which
    has never resulted in the failure of a major bank. But you have
    not advocated doing stress tests around those other risks. The
    only one I know of that you have advocated is stress tests for
    the less likely risk, which is the climate-related risk. And
    the concern that many of us have is that this whole construct,
    unique to climate risk, even though it is really not a threat
    certainly in the foreseeable future to the financial system, it
    is all about a precursor for using the regulatory power of the
    Fed to direct capital away from politically disfavored
    industries.
        So Sarah Bloom Raskin is, by some accounts, might be
    President Biden's next nominee to be the Vice Chair for
    Supervision. Now she has been explicit on this point, and she
    has argued regarding the implementation of the CARES Act that
    the Fed, and I quote, ``should not be directing money to
    further entrench the carbon economy,'' end quote. So she is
    explicitly advocated that the Fed allocate capital by denying
    it to this disfavored sector.
        And my question is, do you agree with Ms. Raskin that the
    Fed should play that role?
        Ms. Brainard. So let me just respond to your question,
    Senator. Thanks for asking. I have not suggested that we should
    do stress tests for climate. Stress tests are very specific.
    They are related to the capital planning of large financial
    institutions. We do actually include geoeconomics risks in
    those stress tests, so we have included things like Brexit in
    our stress tests. But I certainly have not stated that we
    should do climate stress tests.
        In terms of supervisory guidance, what we tend to do is ask
    large institutions, in particular, ``Do you have a good risk
    management framework for assessing all of your material
    risks?'' We would not tell banks which sectors to lend to or
    which sectors to not lend to, but we do want to make sure that
    they are measuring, monitoring, and managing their material
    risks, and many large financial institutions----
        Senator Toomey. So then just to be clear then, you disagree
    with Ms. Raskin on this point.
        Ms. Brainard. So I honestly have not studied her positions,
    and I would simply say I can speak to what we do in our
    supervisory guidance. And, you know, it is pretty meat and
    potatoes. It is very well known to the large institutions and
    really not that different from what they are doing today.
        The one thing I would also just want to clarify is I do not
    think that is appropriate for small institutions. I think small
    institutions do not have as big a footprint. I think, you know,
    they will decide what their risks are. But I am really more
    focused on the large institutions, who themselves come in to
    tell us that they would like to have more consistent
    expectations in this area across jurisdictions.
        Senator Toomey. I have run out of time.
        Chairman Brown. Thank you, Senator Toomey.
        Senator Menendez, of New Jersey, is recognized.
        Senator Menendez. Thank you. Governor Brainard, let me
    first thank you for your leadership on reforming the Community
    Reinvestment Act rule over the past several years. In the
    middle of 2020, when the Trump administration was ramming a
    flawed rule to the OCC, civil rights advocates, banks, and
    other affected parties looked to you as a serious voice in the
    room, and if confirmed, I have no doubt that you will continue
    in that spirit. As we approach Dr. King's birthday
    commemoration this coming week I think about this as one of the
    essential elements of a move toward a more just society.
        So let me first ask, during the past few years, as you were
    engaging in that work, what did you hear from minority-led
    organizations about the CRA changes needed to further
    incentivize investments in minority communities who were
    disproportionately impacted during the pandemic?
        Ms. Brainard. Well thank you for your question, and yes, I
    was very pleased that the Board unanimously put out an Advanced
    Notice of Proposed Rulemaking that I think, you know, really
    does provide a nice foundation for community groups and banks
    to give us feedback on what would be some good modernization
    measures.
        So what we hear still from many communities around the
    country is that they still do not have similar access to
    credit. There are still barriers in terms of getting that
    access. They really like having bank branches in their
    neighborhoods, but particularly in rural areas that is not
    always the case. And they want to be able to have more
    interaction with financial institutions. They want minority
    depository institutions and community development financial
    institutions, which do tend to be very good at serving those
    underserved communities, to be strengthened. And they just
    really care deeply about the Community Reinvestment Act, as do
    many banks.
        Senator Menendez. So would you commit to making it a top
    priority to work with the other regulators to issue a strong,
    new rule in a timely fashion?
        Ms. Brainard. I will certainly support that effort at the
    Board and with the other regulators, yes.
        Senator Menendez. OK. I appreciate that because minority
    communities are hurting right now, and this needs to be a
    priority. The pandemic has brought to light how severe the lack
    of credit and investment dollars problems are for minority
    small business owners, and I think it is past time for our
    regulators to work together and issue updated and effective CRA
    rule, so I look forward to your leadership.
        Ms. Thompson, New Jersey is what I call a blue-chip State,
    a State that spurs innovation and drives the Nation's economy.
    According to U.S. News and World Report, New Jersey has the
    second-best public school system in the country and the highest
    per capita income in the country. In other words, we do a great
    job of educating our kids and giving them the ability to reach
    their potential. That is just not because New Jerseyans are
    smarter than their fellow Americans, but it is because we
    invest in our people.
        So this is a State that is part of a region that generates
    20 percent of GDP for the entire Nation, so we make money for
    the Federal treasury. But as we met yesterday, and I
    appreciated our visit, I explained how many New Jersey
    homeowners are being hit with a one-two punch of rising flood
    insurance rates, unfair cap on State and local tax deduction,
    the oldest deduction in the Federal Internal Revenue Code, and
    thanks to the Trump tax bill, which we are fighting to reverse
    both of those bad policies.
        But I want to make sure that as Director of the FHFA you
    are sensitive to the concerns of homeowners, not just in New
    Jersey but other high-cost States. Yes, we want to be fiscally
    responsible to the entities, the GSAs that are under your
    purview, but we cannot simply do it on the backs of those that
    are actually generating revenue for the Federal treasury. Can
    you comment on that?
        Ms. Thompson. Sure, Senator, and thank you for the
    question. Certainly we care very much about the high-cost
    loans. As you know, last year we had a historic increase in
    home prices, and that hit States that have high-cost areas
    probably harder than most. One of the actions that we undertook
    was to increase the fees for some of the higher-balance loans,
    and that may unduly impact a number of counties across the
    country. I think most of the country is not impacted, but there
    are about 121 counties across the country that are.
        Having said that, we do recognize that there is a
    difference between buying a home in New Jersey versus buying a
    home in Aiken, South Carolina. And we have excluded from this
    fee first-time home buyers with area median incomes less than
    100 percent, and we have also excluded our affordable products
    so that there is no fee associated with first-time home buyers
    who live in high-cost areas.
        But we know that there is a huge affordability issue,
    especially with first-time home buyers, and we did not want to
    exacerbate that problem.
        Senator Menendez. Thank you. Finally, Governor Brainard,
    the Fed has a serious diversity problem, something I keep
    pressing. I had it with Chairman Powell and I am compelled to
    raise it with you as well. If you are confirmed, what steps are
    you going to take to improve minority representation,
    particularly Latino representation, which is among the worst of
    the diversity that exists at the Federal Reserve?
        Ms. Brainard. Well thank you for your question. So I think
    the Federal Reserve was actually founded on a recognition of
    the importance of bringing a diversity of perspectives to the
    table. That is why we have 12 reserve banks all across the
    country and we have branches in communities all across the
    country. So we have regional diversity, we have always valued
    sectoral diversity. It is very important to have different
    kinds of backgrounds.
        But we really have lagged on racial and ethnic diversity.
    We are seeing some very important changes that we have worked
    very hard on at the reserve banks in terms of the boards of
    directors. If you look there at Latino representation it has
    gone up threefold just in the last 4 years, and so now we have
    about 25 percent of our Class C directors are Latino. We have
    about a third that are Black, and we have now more than half
    who are minorities of one sort or another. So we have made
    progress there.
        But in terms of actual leadership positions we have only
    ever had one Black President. We have never had a Latino
    President. And so, you know, that remains a very high priority.
    Many of those boards have spent a great deal of time making
    sure that we have more diverse pools of candidates and that our
    procedures in hiring are as good as best practices everywhere.
    And why? Because we know, as those who wrote the Federal
    Reserve Act knew, is that having more diverse perspectives at
    the table, diversity of every type, leads to less group think
    and better outcomes.
        Senator Menendez. Thank you, Mr. Chairman.
        Chairman Brown. Thank you, Senator Menendez.
        Senator Rounds, of South Dakota, is recognized.
        Senator Rounds. Thank you, Mr. Chairman. Let me begin by
    saying thank you to both of you for your continued
    participation in public service.
        Ms. Thompson, in September, the FHFA, under your
    leadership, proposed a capital framework which offers a
    stronger incentive for the GSEs to create credit risk transfer,
    or CRT, relative to the current capital regime. I think you
    began and you visited a little bit about that with the Chairman
    of the Committee here.
        I would like to explore that a little bit more, because I
    believe that this is a legitimate tool, and I am just curious,
    can you share with me briefly your philosophy on the CRT and
    how you might utilize it further, if confirmed?
        Ms. Thompson. Sure. Thank you for the question, Senator. I
    firmly believe that the credit risk transfer program is very
    important for the enterprises. As I mentioned earlier, Fannie
    and Freddie are the largest holders of mortgage credit risk in
    the world, and right now Fannie and Freddie, they are able to
    retain capital but they are not able to--they do not have
    enough capital to withstand a severe event.
        And so if something really, really bad happens, the event
    will have to be paid for, once again, by the taxpayers, and it
    is important for us to continue to encourage the credit risk
    transfer program so that the taxpayers are not on the hook for
    any extreme events and that private investors have to engage in
    the credit risk decisions.
        We just believe that it is critical for the enterprises,
    especially while they are undercapitalized, to continue to
    transfer credit risk away from the taxpayers and into the hands
    of private investors.
        Senator Rounds. Thank you.
        Governor Brainard, first of all thank you for the meeting
    the other evening in my office. I most certainly appreciated
    our conversation. I think a number of the concerns that our
    Ranking Member has shared with you, you have had an opportunity
    to respond.
        I am curious specifically on an item that you and I spoke
    on very briefly but I would like to have a conversation here as
    well, and I made a similar request like this to Chairman Powell
    on Tuesday. I believe the adjustments to the supplementary
    leverage ratio, or the SLR, are necessary in order to account
    for the large influx of cash that has become challenging for
    banks to manage. Would you be willing to work with my office to
    look at ways to address the liquidity issues through the
    calculation of the SLR?
        Ms. Brainard. Yeah, well thank you, Senator, and I
    certainly share that view that because of the need to respond
    to the pandemic there are a lot more reserves in the system.
    And I supported the removal of the reserves from the leverage
    ratio for custodial banks, and I think it makes good sense to
    look for ways, while keeping capital strong, to find a way to
    adjust that supplemental leverage ratio because of the much
    larger amount of reserves in the system.
        Senator Rounds. Thank you.
        Ms. Brainard. I do commit to working with you.
        Senator Rounds. Thank you. Also, let's talk a little bit
    about inflation. This is critical. We are at 7 percent right
    now. The stated goal is 2 percent. We have 5 percentage
    points--critical. I think in our discussion with Chairman
    Powell he made it pretty clear that the Fed could manage the
    demand side, and I think you would agree with that. Demand is
    where you work at, not necessarily on the supply side. Fair
    enough?
        Ms. Brainard. Absolutely. I think over the medium term
    inflation is a monetary phenomenon, and we have tools that
    operate on the demand side.
        Senator Rounds. OK. In order to move that back, and I know
    that you have made it very clear that this is a critical
    priority, how much of the inflationary trends that we see today
    do you think you can actually manage with demand side policy
    only?
        Ms. Brainard. So I think, you know, we have a set of tools.
    They are very effective and we will use them to bring inflation
    back down. Sector to sector, there are microeconomic market
    structure, other issues at work, supply disruptions at work.
    That is not where our tools are effective. That lies elsewhere.
    But we are committed to using the tools that we have to deal
    with inflation, which is fundamentally a monetary phenomenon.
        Senator Rounds. What I am trying to get at, and this is not
    a gotcha question. My question really is, with inflation where
    it is at we know it is both supply side and it is demand side.
    But clearly there have been discussions, and clearly you have
    research done as to how much of the inflationary trends that we
    have are attributable to demand side policy. Can you share with
    us what you believe the percentage, or at least the amount of
    inflation would be attributable to demand side?
        And the reason why I ask is because if you overreach or if
    you do not do enough you are never going to get it down, but at
    the same time with supply side--and we both recognize that you
    cannot do much about supply side, and this is critical--the
    price of gasoline is going up because we have got restrictions
    on the availability of new gasoline being put into the system
    and high demand for gas. But simply telling a consumer that the
    price has gone up and so we are going to make it more
    restrictive for you to buy it, they are still going to buy gas
    because they have got to get to work.
        So in this particular case, as we look at food prices going
    up and we look at gasoline going up, the price of rents is
    going to be going up, the price of housing is going up, how
    much of that interest on inflation do you have the
    responsibility, or should you be looking at in terms of the
    demand side of the equation?
        Chairman Brown. Governor, be as brief as you can in your
    answer, please. Thanks.
        Ms. Brainard. Well, I will certainly, just looking at
    prices at the pump, prices at the grocery store, that is
    clearly hurting Americans all over the country. That is about a
    quarter of the very high inflation that we see. So I think you
    are certainly right to focus in on those areas as particularly
    difficult and very rooted in supply side constraints.
        Senator Rounds. Thank you, Mr. Chairman.
        Chairman Brown. Thank you, Senator Rounds.
        Senator Tester, from Montana, is recognized from his
    office.
        Senator Tester. Well thank you, Chairman Brown, and I want
    to thank Director Thompson and Governor Brainard for being here
    today.
        You know, Director Thompson, you said something in your
    opening statement that is something we need to pay attention to
    and that is the ownership gap today is wider than it was in the
    1960s when discrimination was legal. This is a question for
    you, but then if Governor Brainard wants to add to this I would
    certainly like to hear her opinion too.
        But what can you do about closing that ownership gap in the
    position that you are going to be hopefully confirmed for?
        Ms. Thompson. Thank you for the question, Senator. Access
    to credit is really important especially in underserved
    communities generally. And I mentioned earlier that we have
    asked the enterprises to develop equitable housing plans that
    focus on some of the inequities that have taken place. They are
    supposed to identify barriers for underserved communities,
    particularly Black and Brown communities, to engage in home
    ownership. And we are looking over those plans now, and some of
    them focus on education and making sure that opportunities are
    available for people to understand what the home ownership
    process is, how it works, what it does, and then if there are
    other issues, like appraisals that come into play in terms of
    bias that may or may not exist.
        And we want to make sure that the enterprises are focused
    on identifying barriers and focusing on coming up with plans to
    address and identify those barriers, to really close the home
    ownership gap. Because as you know, Senator, a home is the
    greatest asset that most people own, and we believe that home
    ownership will go a long way toward closing the racial equity
    gap.
        Senator Tester. Governor Brainard, would you like to
    respond to that same question? What can you do in the position
    that you are going in for to solve this ownership gap?
        Ms. Brainard. Thanks for the question, Senator. So we are
    well aware of that home ownership gap. We collect those
    statistics, and it is has been very, very stubborn.
        We do work with banks, trying to provide help and
    incentives under the Community Reinvestment Act to increase the
    supply of affordable housing, workplace housing. We know there
    are shortages in all of the communities represented by Members
    of this Committee. I have visited many of them.
        And in particular we have community development financial
    institutions who are very good at using LIHTC subsidies and
    other subsidies together with bank financing, and that is
    really where the Community Reinvestment Act comes in, to expand
    the supply. We are looking also at naturally occurring
    affordable housing. That is one of the questions we asked in
    the CRA. Native CDFIs, for instance, are very good at working
    on very particular issues affecting tribal nations. So getting
    incentives for banks to partner with those institutions can
    help on the margins.
        Senator Tester. Thank you for that. I would also that--you
    know this; I think you both know this--there is an incredible
    supply problem out there across this country, which has caused
    housing prices to go up. If you have any ideas, any
    recommendations, about what Congress can do to help solve this
    problem I would certainly love to hear them. I know the Build
    Back Better proposal that may or not be going anywhere at this
    moment in time had some housing initiatives in it, but I think
    could have been positive if they were passed in the way that I
    saw them, to solving some of the supply problems.
        Governor Brainard, I want to continue with you for a
    second. You and Chairman Powell have clearly worked pretty well
    on a partnership during your time together at the Fed, and I
    know this will continue. I gave Powell the opportunity to share
    his view earlier this week and I want to give you the same.
        I remember very clearly the pressure that President Trump
    put on the Fed for his own political gain, not the well-being
    of the economy, and I am grateful for you and your colleagues'
    commitment to the independence that you maintained in the Fed
    through that intensive pressure. So can you tell me briefly why
    is this independence so very important?
        Ms. Brainard. Well I think it is a long-established
    tradition at the Federal Reserve, and, you know, it is
    certainly important to be able to set monetary policy in a way
    that is closely related to the goals that Congress set for us,
    and we need to make judgments in the Committee free from
    political pressures, and that is what we have been able to do
    under the independence of the Fed, and it is important to keep
    doing that. I will certainly continue to support Chair Powell
    in that.
        Senator Tester. Thank you both.
        Chairman Brown. Thank you, Senator Tester.
        Senator Kennedy, from Louisiana, is recognized.
        Senator Kennedy. Thank you, Mr. Chairman. Governor,
    Director, congratulations on your nominations.
        Governor, I realize at the Federal Reserve that you have a
    big staff that advises you on inflation. And based on their
    track record my guess is they also advised people to buy condos
    in Las Vegas in 2007. But you do not have to accept their
    advice. So with respect to your predictions on inflation, how
    did you get it so wrong?
        Ms. Brainard. Well, Senator, thank you for----
        Senator Kennedy. Could you move closer to the mic for me?
        Ms. Brainard. Yes, of course. Thank you for your question,
    Senator.
        Senator Kennedy. You are welcome.
        Ms. Brainard. So I think, you know, nobody got the pandemic
    right. The pandemic is unprecedented.
        Senator Kennedy. But I am asking you about inflation.
        Ms. Brainard. Yeah. So I think as forecasters, private
    forecasters, certainly the forecasters, the SEP, the whole
    Committee, we thought that perhaps we would see a more rapid
    resolution of the pandemic and the supply demand mismatches, in
    particular cars----
        Senator Kennedy. Excuse me for interrupting----
        Ms. Brainard. ----energy----
        Senator Kennedy. ----but I do not have much time. Are you
    saying that inflation as caused by the pandemic?
        Ms. Brainard. So we certainly have seen the perpetuation,
    for instance, of the Delta variant leading to----
        Senator Kennedy. Excuse me. But are you saying that
    inflation is caused by the pandemic?
        Ms. Brainard. I certainly think the supply demand
    imbalances that have been the biggest contributors to the very
    high inflation we have seen are directly attributable to supply
    chain issues, distortions in demand.
        Senator Kennedy. But here is what troubles me about that. I
    will agree that inflation is spreading, but I do not see people
    going around coughing inflation on each other. And I understand
    supply chains matter, but so does the demand side, and so does
    too much money chasing too few goods. And I do not think, and I
    do not think any fair-minded person thinks that inflation is
    solely the result of the pandemic.
        Let me move on. Do you think that Federal regulatory
    authorities should use their considerable power, not just the
    Federal Reserve but Federal regulatory authorities, do you
    think they should use their considerable power to discourage
    private banks from lending money to oil and gas companies?
        Ms. Brainard. No.
        Senator Kennedy. Ma'am?
        Ms. Brainard. No.
        Senator Kennedy. OK. Do you think that those Federal
    regulatory authorities should use their power to discourage
    private banks from lending money to gun manufacturers and
    dealers?
        Ms. Brainard. It is not our job. We do not tell banks what
    sectors to lend to. We just ask them to risk manage and we make
    sure they have good processes----
        Senator Kennedy. Well, I agree with you and I thank you for
    that. Will you issue a statement to that effect, if you are
    confirmed?
        Ms. Brainard. Well I certainly have made that statement,
    will continue to make that----
        Senator Kennedy. Yes, ma'am, but would you issue a separate
    statement saying, ``I want to make it clear, for what it is
    worth, to all of my colleagues in Government, I do not think
    that you should use your power to discourage private banks from
    lending money to oil and gas companies and to gun
    manufacturers''? Will you do that?
        Ms. Brainard. Well I will not tell other regulators what to
    do but I will be happy to talk about what we do at the Federal
    Reserve, what our statutory authorities require us to do.
        Senator Kennedy. OK. I am going to follow up with you on
    that. OK?
        Ms. Brainard. Senator.
        Senator Kennedy. I take that as a yes, and I am looking
    forward to that statement.
        Director--gosh, this is America's debt. I am not going to
    have time to ask you about it because I want to ask Director
    Thompson a quick question. I mean, yes, Director Thompson.
    Madam Director, are you familiar with President Biden's Risk
    Rating 2.0 pricing scheme for the National Flood Insurance
    Program?
        Ms. Thompson. Sir, I am not familiar with the details of
    that program.
        Senator Kennedy. Well I need you to take a look at it. You
    talked about affordability. President Biden is about to make
    housing for at least 5 million Americans unaffordable, by
    raising their flood insurance from $1,000 a year to $5,000 and
    $6,000 a year, and you are going to have a problem.
        Real quickly, Governor, do you think--we have got four big
    banks. They have market share between 30 percent and 50
    percent. In the greatest economy in all of human history they
    are not really banks; they are countries. Do you think power,
    economic power is too concentrated in those four banks?
        Ms. Brainard. Well I certainly think that from a financial
    stability point of view, when you have very, very large
    institutions that are systemic, you need to have very, very big
    capital buffers and liquidity buffers and risk management,
    because it would be very, very difficult to resolve those banks
    in a moment of financial stress.
        Senator Kennedy. OK. Thank you, Mr. Chairman. You have been
    very, very kind with your time.
        Chairman Brown. Thank you, Senator Kennedy.
        Senator Kennedy. My office will work with you on that
    statement about oil and gas and gun manufacturers.
        Ms. Brainard. Thank you, Senator.
        Senator Kennedy. OK?
        Chairman Brown. Senator Warner, from Virginia, is
    recognized.
        Senator Warner. Thank you, Mr. Chairman. I want to first of
    all take a moment. I know normally in the Banking Committee we
    do not introduce our witnesses, but I want to take a moment to
    add to your comments about Dr. Brainard. I have known Lael and
    her family for more than 20 years. I think she has done a great
    job on the Federal Reserve. She has been the representative
    from the Federal Reserve Bank of Richmond's Fifth Federal
    Reserve District. She cares deeply, and as you indicated in
    your opening statement about working families, she is ready to
    roll up her sleeves to take on the challenges that our economy
    faces.
        And I think a prime example of that is what happened during
    the last year of the Trump administration, when we got hit with
    COVID, and candidly, if that Administration had responded
    quicker we might not be in as deep a hole as we were. But she
    worked the Fed. She and Chairman Powell worked very closely
    with Secretary Mnuchin, and I think in many ways prevented what
    would have been an economic catastrophe. So I very much look
    forward to supporting her.
        I would say, to my good friend from Louisiana, that when we
    were passing unprecedented amounts of money to put that capital
    into American families' pockets I did not hear anybody complain
    about inflation. I think the first $3 trillion, $2.2 trillion
    was 100 to nothing [inaudible]. I think the next couple
    trillion was 96. I will give Senator Kennedy credit on that.
    But the vast majority of us on both teams said that was the
    right thing to do, and I think history will treat it as the
    right thing to do. And I hope that that moves aggressively on
    dealing what it can do on monetary policy.
        But I would say, and I wish we had all been a little more
    prescient about the challenge of inflation, and we know when
    gas prices go up, but if we were looking at the indicators, and
    if we were looking at the indicator, for example, that
    President Trump always used as his best weathervane--when he
    stuck his finger in the air and said, ``How is the economy
    doing?''--he would look at the stock market. Well, inflation
    hit the 7 percent number the other day. What did the market do?
    It went up. So again, I am not saying that the market makers
    are smarter than us Senators, but the markets weighed in on
    this.
        If we look back, as well, to like the early '80s or late
    '70s, when we saw the kind of inflationary pressures, when
    inflation, I think, hit 7 percent, 7, 8 percent, before it went
    up even higher, interest rates were about 16 percent. They went
    higher than that, but they were at 16 percent. Right now
    interest rates, for 30-year mortgage are about 3 percent. So
    the market, at least--and boy, oh boy, I bet Dr. Brainard and I
    bet Jay Powell, wish they had never heard of the word
    ``transitory,'' because we are going to probably continue to
    fry them on using that term.
        But I would say that the market indicators--the market,
    interest rates, and candidly, the fact that most of us, on both
    sides, were all in on making the investments to deal with
    COVID--I want inflation to go down, and I do think we will
    start to see movement down. And incrementally, if you look at
    the rise and you look at slow declines, but I do hope the Fed
    will act.
        I do want to raise one issue, and again I want to come back
    and compliment my friend, the Senator from Louisiana, and my
    friend, the Senator from North Carolina, because one of the
    things that I think we did that was really bold, along with
    help from all the folks on this side of the aisle, was we said
    we need to get more capital out to disadvantaged communities
    during COVID. I think, Director Thompson, I want to commend
    her. I may not get to my question on her but I want to thank
    her and the fact around I am not going to get the GSE reform
    but I commend you for saying you are still open to that and the
    fact that in-housing finance reform, I know how challenging
    that area can be, as somebody who worked with my friend, Bob
    Corker, or GSE reform and still has got the scars to prove it.
    The fact that you have got the bankers and the civil rights
    community supporting you, I look forward to supporting you as
    well.
        But I do want to get my one question in, which is, one of
    the things that we came up with, actually working with
    Secretary Mnuchin, was trying to put more capital into minority
    depository institutions and CDFIs. And again, I want to thank
    my Republican friends for helping on that. We put about $12
    billion out, and we are almost going to double the amount of
    tier one capital in that sector, that, by definition, lends to
    low- and moderate-income individuals, more than 60 percent.
        And Director Brainard, if you could just weigh in on what
    other things we can do, because there are certain things. There
    are private capital that wants to go into these institutions
    but cannot because they are afraid of the change of control
    rules. Will you commit to work with me, and others on this
    Committee, on a bipartisan way, to make sure that this piece of
    our financial sector, CDFIs and MDIs, get the kind of
    regulatory relief and capital they need to continue to perform
    critical, critical services?
        Ms. Brainard. Yes, we will, Senator.
        Senator Warner. That was a pretty quick answer. Thank you,
    Mr. Chairman.
        Chairman Brown. Both witnesses are good at quick answers.
        Senator Tillis, from North Carolina, who always stays
    within his 5 minutes.
        Senator Tillis. Thank you, Mr. Chairman. I do, and I will.
    Congratulations to both of you on your nominations. It should
    be a proud moment.
        Ms. Brainard, consensus has long been a top priority of the
    Fed Board as it works on an apolitical and largely unified
    front on monetary policy and regulatory decisions. If
    confirmed, you are going to be elevated to the position as Vice
    Chair. So with this in mind, would you believe the elevation of
    your role to Vice Chair provides you with any special power or
    authority to set Board agenda items?
        Ms. Brainard. No. Quite the reverse. The Vice Chair role
    traditionally is a role that supports the Chair in the
    formulation of monetary policy and achieving consensus at the
    FOMC, communicating that, and I look forward, if confirmed, to
    taking on those responsibilities.
        Senator Tillis. That is good to hear. I agree.
        In your time on the Board you have been called the Fed's
    great dissenter. Your initial dissent in 2018 was the first
    time in over 6 years that a Governor has issued a dissent. You
    have since set a new precedent with more than 20 dissents, none
    of which, I believe, were joined by another Fed Governor.
        The Fed is meant to be a collaborative institution. I think
    we all know that. Governors have to convince other members of
    the benefits of proposed changes or reforms. So given the
    longstanding precedent consensus had on Board activities prior
    to your term, as Vice Chair would you push for policy changes
    you know lack Board consensus?
        Ms. Brainard. No. I always work really hard. In fact, I
    have put forward a number of rules that did achieve consensus.
    It is always my preference. I dissented rarely. I always
    supported implementation of the law, especially of S.2155.
    There were some provisions that I particularly liked in that,
    and I have said that publicly.
        You know, I only dissented on areas where I thought they
    went to the resilience of the largest institutions, because of
    the potential financial stability implications, and only in
    areas that were outside the implementation of the law and
    really in the judgment of the Board. And when I did I always
    worked with Vice Chair Quarles, Chair Powell to let them know
    what concerns I had, you know, to see if we could arrive at an
    agreement. I would always give them my statements ahead of
    time, to let them correct me if I got something wrong and to
    rebut it.
        So, you know, I always tried to be extremely collegial. I
    did not relish dissenting at all and only did it in a few cases
    that were around those core issues around the largest
    institutions.
        Senator Tillis. I want to get on your political activity. I
    think that you may have said that your behavior would be
    different going forward. We know that you gave a max
    contribution to the Presidential campaign for Hillary Clinton
    in 2016. And I think that is probably the only Fed Governor
    that has done that in nearly 22 years. I know of some who were
    politically active but after they were confirmed as Governor
    they eliminated their political activities.
        So why did you think donating to the Clinton campaign
    outweighed the importance of maintaining Fed's independence?
        Ms. Brainard. I actually did that in consultation with our
    ethics officer. Of course, we, you know----
        Senator Tillis. Did they make it clear that that had not
    occurred in quite some time?
        Ms. Brainard. No, unfortunately. You know, it is rare. It
    has occurred. It is certainly not something I have done since
    then. You know, I do not think the appearances issue, you know,
    is a good one for the Fed, so I have not done it. But yes, it
    is clearly permissible, not something that I would have done
    had I been there longer and understood that that was not
    customary.
        Senator Tillis. Thank you.
        Ms. Thompson, could you provide more clarity about the
    prospect of FHFA eventually releasing Fannie Mae and Freddie
    Mac from conservatorship? Is there an anticipated timeframe,
    and are you concerned about any negative market impacts?
        Ms. Thompson. Senator, that is a great question. Certainly
    we would defer to Congress on the exit from conservatorship for
    the GSEs. But in the meantime there are a number of things that
    we are doing. The enterprises are building capital. We are
    encouraging the credit risk transfer program, and we are
    establishing pricing. So we are also supervising them in a safe
    and sound manner and making sure that they meet their mission
    so that whenever they exit from conservatorship they will be
    ready.
        I would also mention that there are a number of
    stakeholders that would likely need to be involved and engaged
    in a discussion before that ever happened. the Treasury
    certainly, as the majority owner of the GSEs, and we certainly
    want to make sure that the taxpayers are adequately
    compensated. We would probably have conversations with the Fed
    and also the Justice Department on outstanding litigation. So
    just a number of steps that would have to take place before the
    enterprises would be able to exit conservatorship, and they
    would have to meet their capital targets, which are quite vast.
        Senator Tillis. Thank you. Again, congratulations.
        Thank you, Mr. Chair.
        Chairman Brown. Thank you, Senator Tillis.
        Senator Warren, from Massachusetts, is recognized.
        Senator Warren. Thank you, Mr. Chairman, and
    congratulations, Governor Brainard, and congratulations, Ms.
    Thompson, on your nominations.
        So I would like to talk a little bit about inflation and
    about the Fed's tools to deal with it.
        Governor Brainard, let's start at the beginning. If the
    economy is overheated, what is the Fed's primary tool to cool
    it off?
        Ms. Brainard. The Federal funds rate.
        Senator Warren. Yeah, so increasing interest rates, in
    other words.
        But what if inflation is caused by kinks in the supply
    chain? Prices jump because the supply chain is just not
    functioning. Does the Fed have a tool to deal with that?
        Ms. Brainard. No. We have a tool that operates on the
    demand side, which is the Federal funds rate.
        Senator Warren. OK. In other words interest rate adjustment
    is your tool, and it does not work on things like supply chain
    kinks.
        When Chair Powell was here on Tuesday we discussed how
    market concentration can lead to increasing prices. While
    consumers are facing higher inflation, profit margins for
    corporations have surged to their highest levels in 70 years.
        Now inflation has not gone up because, one day,
    corporations woke up and said, ``Hey, today we are going to be
    greedy.'' No. Inflation has gone up at this moment because of
    the way that prices are passed on in a more concentrated
    market.
        In a highly competitive market, when costs go up businesses
    pass those costs along to their customers, but they cannot
    expand their profit margins because other competitors are just
    going to beat them down on prices. But in a very concentrated
    industry, one with only a few competitors, a dominant
    corporation can use the excuse of inflation for passing along
    rising costs and then add in an extra bonus for themselves to
    increase their profit margins. As Chair Powell put it on
    Tuesday, those firms are, quote, ``raising prices because they
    can.''
        So, Governor Brainard, would you agree that increased
    market concentration has allowed some corporations to profit
    off pandemic disruptions by raising prices on consumer beyond
    the increased costs that the corporations have to deal with?
        Ms. Brainard. Well certainly a lot of economic research
    would suggest that in concentrated industries individual
    producers have more pricing power, so that kind of dynamic is
    certainly possible.
        Senator Warren. OK. So I know that the Fed has a role in
    approving bank mergers, but with respect to broader
    concentration, throughout the rest of the economy, does the Fed
    have the tools to deal with increased concentration there?
        Ms. Brainard. No.
        Senator Warren. No. And that is really the point here.
    Dealing with inflation requires the Fed to act if the problem
    is an overheated economy, but dealing with rising consumer
    prices also involves the FTC, the Department of Justice in
    breaking up monopolies and investigating crooked price-fixing
    schemes that also increase costs for hard-working families. And
    that is why it is so important that the Biden administration is
    taking action to fight corporate power by enforcing antitrust
    laws and boosting competition.
        Now, Governor Brainard, do you think that the steps that
    the Administration is taking to address market competition and
    price fixing have a role to play in helping families that are
    facing rising prices?
        Ms. Brainard. Well I certainly think that, you know, we are
    hearing from working families around the country about
    inflation, and some of it is in areas where we are seeing those
    kinds of supply dynamics. But again, you know, we do have a
    powerful tool and we are going to use it to bring inflation
    down over time.
        Senator Warren. Good. And look, I understand that, but
    price stability is a core part of the Fed's mandate, and I know
    you care about that. And I just want to make sure that we keep
    our eye on all of the things that affect prices for consumers.
    Today's price increases have many causes, and I hope that the
    Fed treads carefully in using its tools to help lower prices
    for American families. I am glad to see that the Administration
    is using all the tools that it has to bring down prices over a
    longer arc. That is our collective job, and I appreciate your
    help in this and your thoughtful comments here.
        Thank you, and again congratulations to both of you. I am
    sorry, Ms. Thompson, that I did not get to questions with you,
    but I am looking forward to supporting both of you. Thank you.
        Thank you, Mr. Chairman.
        Chairman Brown. Thank you, Senator Warren.
        Senator Hagerty, from Tennessee, is recognized.
        Senator Hagerty. Thank you, Chairman Brown, Ranking Member
    Toomey, for holding this important hearing, and I would like to
    congratulate our nominees, Governor Brainard, Acting Director
    Thompson. Congratulations on your nominations today. It is good
    to be with you and I appreciate your time.
        Before we start I would just like to highlight the fact
    that we are in an unprecedented time. Governor Brainard and I
    talked about this yesterday. But if you look at the consumer
    price index that was released for this month, December over the
    prior December, we are at a high that has not been seen in
    almost four decades. The median age in America is 38 years old,
    when you think about it. The average American has never seen
    inflation at this level. So I want to underscore the fact and
    appreciate the confidence you reflected, Governor Brainard, in
    your ability to deal with this very carefully as we try to
    undertake the challenge and get price stability back under
    control.
        For both of you I have a housekeeping question to ask
    before we get started, for both Governor Brainard and Acting
    Director Thompson. As a matter of housekeeping, have either of
    you ever, currently or in the past, embellished any part of
    your resume, your background, your publications, or any other
    aspect of your accomplishments? Just a yes or no answer would
    suffice.
        Ms. Brainard. No.
        Ms. Thompson. No.
        Senator Hagerty. I expected that to be the case. Thank you.
        Governor Brainard, I would like to turn to you. Again, I
    appreciated the conversation that we had yesterday. And one of
    the topics that we discussed is also one that I raised with
    Chairman Powell on Tuesday, when he and I discussed, and that
    is regarding the actions of CFPB Director Rohit Chopra and
    interim FDIC Director Martin Gruenberg, in their attempt to
    force out the FDIC Chairman before her term expired. This
    destruction, both of institutional norms and historical
    precedent, undermines the independence and the integrity of our
    financial regulators, and I want to ensure that a similar
    situation does not occur at the Fed.
        So my question, Governor Brainard, is slightly different
    from that you answered with Senator Tillis. Do you believe that
    the Fed Chair has the ultimate discretion to set the Fed's
    regulatory agenda?
        Ms. Brainard. It is certainly the case that the Vice Chair
    for Supervision and the Chair work together. But yes, the Chair
    determines what goes to the Board for votes.
        Senator Hagerty. Thank you. I appreciated your answer
    yesterday and thank you for being clear today.
        Acting Director Thompson, I would like to turn to you about
    the stewardship of the FHFA, if I might. As Director of the
    FHFA, you are meant to carry out the law, not to be a
    policymaker. The Housing and Economic Recovery Act does not
    permit indefinite conservatorships. By definition, no
    conservatorship is meant to be permanent.
        So my question to you is will you commit to do everything
    in your power to fulfilling your statutory mandate to end the
    conservatorships?
        Ms. Thompson. Senator, that is a great question, and
    certainly no one ever expected the enterprises or any financial
    institution to be in conservatorship for 13 years, and
    certainly we believe that Congress has a role and we will be
    working to help in any way that we can to facilitate any
    questions that you have. But we think that this is something
    that Congress needs to work on as well.
        Senator Hagerty. Well, is there any point in the law that
    says that Congress must approve an exit conservatorship?
        Ms. Thompson. I do not know that they must approve an exit
    from conservatorship, but there are a number of issues that
    Congress will have to address, specifically if the enterprises
    exit conservatorship will the companies be private? Will they
    be public? What form will they be in? There are just a host of
    issues that would have to be considered, that Congress must
    weigh in on. But certainly FHFA can get the enterprises ready.
        Senator Hagerty. Well, Acting Director, if you are
    concerned that the HERA Act does not provide adequate clarity I
    hope that you will get back to me and my team as quickly as
    possible with the areas that you see inadequacy in the
    legislation, because my expectation is that the legislation is
    clear and that an exit is called for.
        I want to get to another point, though, and that has to do
    with the recent reductions in GSE capital requirements and how
    you see that reduction fit with the mission of working toward
    exiting conservatorship.
        Ms. Thompson. It is a great question, Senator, and I can
    assure you, I firmly believe in safety and soundness of the
    GSEs, and that would be really backed by the capital
    requirements. I made two minor changes to the capital rule that
    was finalized at the end of December 2020, and those changes
    were really designed to promote the utilization of the credit
    risk transfer program, and again, the credit risk transfer
    program transfers mortgage credit risk from the enterprises to
    the private sector.
        We also made a change to not the leverage requirement but
    the leverage buffer so that the buffer would not be static. It
    would be more dynamic. And I believe the banking regulators are
    also looking at the supplementary leverage ratio on the banking
    side as well.
        The changes that I made, just for context, before the
    crisis the required capital for the enterprises was about $55
    billion. Right now, even with the proposed changes that I have
    recommended, the required capital is about $300 billion, which
    is over five times what it was before the enterprises went into
    conservatorship.
        Senator Hagerty. I just think we need to be careful in this
    regard, because in my home State of Tennessee housing prices
    are up 20 percent. That is the case across the board, and
    again, back to your overarching objective of getting these out
    of conservatorship, I applaud a careful balancing act, an
    independent perspective on that as well, and I look forward to
    very conservative management there.
        Chairman Brown. Thank you, Senator Hagerty.
        Senator Van Hollen, of Maryland, is recognized.
        Senator Van Hollen. Thank you, Mr. Chairman.
    Congratulations to both of your on your nominations. You are
    both eminently qualified for the positions you have been
    nominated to, and I look forward to supporting your
    nominations.
        Dr. Brainard, let me thank you for your leadership in
    getting the Fed to adopt a real-time payment system through
    FedNow. As you know, people living paycheck to paycheck are
    spending billions of dollars in overdraft fees or payday loans
    because of the lack of a real-time payment system, and they are
    bearing the costs of this inefficiency in our system.
        So I have a very simple question. Are we on target for
    launching FedNow next year?
        Ms. Brainard. We are on target, and as you say it is
    something that many community banks, other payments providers,
    and community groups are very supportive of, and I think larger
    banks are very supportive now as well.
        Senator Van Hollen. Good. No, I am glad that more and more
    people are supporting the effort.
        As Chairman Powell acknowledge in his testimony before this
    Committee on Tuesday, because of the American Rescue Plan we
    have been able to lower unemployment in the country way ahead
    of projections. At the 3.9 percent unemployment levels we saw
    in December, that was a full year hitting that target, a full
    year before what the Fed had projected, and 4 years before what
    the Congressional Budget Office said projected. So that is the
    good news.
        On the other hand, we see disparities behind that number.
    Black American unemployment is at 7.1 percent, and while long-
    term unemployment has been cut in half over the past year we
    still have about two million Americans who are long-term
    unemployed, looking for work and not finding it for over 27
    weeks. So how will these facts factor into your analysis in
    considering whether we have achieved one of the main Fed goals
    of full employment?
        Ms. Brainard. Well as you noted, unemployment has come down
    very rapidly, which is very welcome, but we still have between
    3.5 and 5 million fewer jobs than we would have in the absence
    of the pandemic, and some of those re going to come back more
    slowly. So as we look at labor force participation we just
    really have not seen the improvements there. It is between 1.5
    percentage points looking at the total labor force, 1.1
    percentage points looking at the prime-age labor force behind
    where it was prepandemic. So that unemployment rate is higher
    when you take into account nonparticipation.
        Where are those people? Well, we see very big concentration
    of missing jobs in leisure and hospitality, despite a lot of
    openings. I think, you know, you have a lot of parents there of
    young children, when we look at the data, who still cannot
    quite go back because you have got school closures, and
    particularly for young children still very, very limited
    childcare options, and of course that hits Black and Brown
    parents more, in terms of those statistics. And also concerns
    about the virus, some sectoral reallocation.
        So we are going to see that participation cycle lag the
    unemployment cycle, but I have really strong confidence that we
    are going to see that improve more slowly over coming quarters
    and years.
        Senator Van Hollen. Thank you, Dr. Brainard. As you know,
    when we look at those figures, over 7 percent for Black
    American employment, those are people who are looking for jobs
    and unable to find them. On top of that, we have the issue of
    people who are not looking for various reasons, and many of us
    are pushing very hard to pass legislation to dramatically lower
    the cost of childcare for those families.
        Ms. Thompson, thank you for your current stewardship at
    FHFA, and as you know, and we have been back and forth on this,
    one of the major household costs faced by moderate- and low-
    income families are their energy costs. In fact, for low-income
    households the share of their budget on energy is three times
    higher than for higher-income households. And if we can make
    energy efficiency improvements we can cut those bills by 35
    percent.
        I wrote to you last August about this issue, urging you to
    take actions to encourage more loans for energy efficiency.
    Thank you for the actions you took in October. Can you just
    elaborate a little bit on the importance of this issue and
    whether there are other measures we can take to reduce these
    costs for households?
        Ms. Thompson. So thank you for the opportunity, Senator. We
    believe that the energy standards have come a very long way
    since the enterprises started engaging and ensuring that the
    affordable housing units, in particular, on the multifamily
    side, had these energy efficiencies.
        We are encouraging the enterprises to, especially in the
    low-income and affordable space, make sure that the loans that
    they purchase have a component of energy efficiencies, and I do
    believe that they give discounts for purchasing those loans.
        Senator Van Hollen. I continue to work with you on that and
    other aspects of affordable housing. Thank you, Mr. Chairman.
        Chairman Brown. Thank you, Senator Van Hollen.
        Senator Lummis, from Wyoming, is recognized.
        Senator Lummis. Thank you, Mr. Chairman, and
    congratulations on your nominations, both of you. Acting
    Director Thompson, we have not met. I hope we will have an
    opportunity to do so in the near future. Governor Brainard,
    thank you very much for the time you have spent with me and the
    conversations we have had in the past year. I appreciate that
    very much.
        Governor Brainard, my questions are for you. As we have
    discussed, Wyoming is the largest exporting State of energy in
    the Nation, and that is because of our small population. We do
    not consume very much of the energy we produce. We export it.
    It is critically important to our economy and to our job base
    and to American energy independence.
        Do you believe the Federal Reserve has the authority,
    either through rules or guidance, to broadly curtail community
    banks' investments in oil, coal, or gas exploration?
        Ms. Brainard. No. No, Senator.
        Senator Lummis. Thank you. Do you understand the regulatory
    burden that incorporating climate risk into bank regulation may
    have on community banks in Wyoming?
        Ms. Brainard. I do, and I do not favor asking community
    banks to put in place those kinds of risk management. I think
    to the extent that supervisory guidance is appropriate, it is
    really appropriate for the large banks that have a big imprint,
    not for small banks. We do not want to burden community banks,
    in particular.
        Senator Lummis. Thank you very much. Community banks in my
    State are the backbone of banking, again because of our very
    small population, so thank you so much.
        As you know, I have a keen interest in Wyoming's special
    purpose depository institution's applications, and is it a fair
    characterization to state that the Federal Reserve is currently
    making progress on the important legal and supervisory issues
    surrounding the Wyoming special purpose depository institution?
        Ms. Brainard. Yes, I think that is an accurate
    characterization, Senator.
        Senator Lummis. Thank you. Tell me why you believe
    responsible financial innovation is important to both monetary
    policy and bank regulation.
        Ms. Brainard. Well we are seeing quite a bit of innovation
    associated with technology. Consumers now have access to their
    ability to make transactions using their mobile phones. These
    kinds of things, I think, are very important. They are going to
    continue to evolve. The financial sector has been a very
    dynamic sector. I think it will continue to be, and we just
    want to make sure that that is done within the existing
    guardrails so that like activities are regulated in a like
    manner, consumers are protected, and that is really our focus
    on responsible innovation.
        Senator Lummis. Do you believe it is important that
    innovative financial technologies, like digital assets and
    distributed ledgers, be inside the regulatory perimeter?
        Ms. Brainard. Yeah, I do believe that, again, you know, the
    focus should be on like activities, like risks being treated in
    a like manner, and, of course, our existing regulatory
    structure was designed for different kinds of charters and
    institutions, and so that needs to be evolved. And of course we
    welcome Congress taking a very important role in updating that
    statutory framework.
        Senator Lummis. OK. China has produced a digital yuan, a
    central bank digital currency, but it seems to be available to
    the retail customer, allowing the Communist Party of China to
    surveil the uses of its central bank digital currency. As the
    Fed and the Congress considers a central bank digital dollar,
    do you believe it should be available to the retail customer,
    or should the Fed CBDC be available only as it is now, to the
    banking industry?
        Ms. Brainard. Well this question about digital currency is
    a big question, and we really are looking to Congress, in the
    first instance, and the Administration to give us guidance in
    this area. We want to make sure that we do the requisite
    research on policy and technology so we are in a position to
    move forward if Congress decides it is important to be able to
    compete with China in this regard. Of course, privacy
    protections are very important in any kind of approach that
    might be taken.
        Senator Lummis. Thank you very much. Again, congratulations
    to you both on your nominations.
        Mr. Chairman, I yield back.
        Chairman Brown. Thank you, Senator Lummis.
        Senator Smith, from Minnesota, is recognized.
        Senator Smith. Thank you, Mr. Chair and Ranking Member, and
    welcome to both of you. It is wonderful to have a chance to see
    you in person after our virtual meetings, and I want to thank
    you so much for your willingness to serve our country.
        Ms. Thompson, I am going to start with you. As I said when
    we spoke on the phone, it warms my heart to see a career public
    servant have the opportunity to, and for us to have the
    opportunity, of you leading this agency, so thank you so much.
        I want to follow up on a question that Senator Brown
    started with, touching on issues of gaps in home ownership, and
    in Minnesota we have much to be proud of. We also face
    significant challenges around racial equity, which is
    essentially the proposition that prosperity in our State should
    be equally shared. And the reality is that in the Minneapolis
    metro area, as you may know, the home ownership rate for White
    families is one of the highest in the country, about 70
    percent, while home ownership for Black families is closer to
    barely 20 percent. This is the largest gap in the whole
    country.
        And I might just note that this is the legacy of old
    Federal policies that contributed to this, in addition to old
    redlining. University of Minnesota has done a fascinating study
    which tracks specifically that legacy in home values. Today you
    still see the legacy of disparities in home values because of
    this.
        So Director Thompson, could you just talk to us, if you are
    confirmed, which I hope you will be, how you see the work that
    we have to do ahead to address this home ownership gap which
    contributes directly, of course, to wealth inequality that we
    face in our country?
        Ms. Thompson. Thank you for the question, Senator, and
    there is quite a bit of work that needs to be done in that
    area. We do believe that qualified borrowers ought to be able
    to, if they can, afford a home mortgage loan.
        One of the things that has taken place at Fannie Mae, in
    particular, is many potential homeowners are now renters, and
    when you are looking at credit scores one of the things that
    the traditional credit score does not take into consideration
    would be rent payments. And typically a rent payment or a
    mortgage payment is the largest payment that most people have
    for their households.
        And so Fannie Mae has taken the step to incorporate 12
    months of positive rental payment into their credit scoring so
    that the typical requirement of something being a debt as
    opposed to an expense, which is what a rental payment is, is
    now taken into consideration in a positive way, to help improve
    the credit scoring process.
        So we think there are a lot of little things around the
    edges, looking at, you know, nontraditional credit scores, and
    not using them as sole factors but as additional factors in
    really providing access, sustainable access to credit and to
    home ownership.
        Senator Smith. I look forward to working with you on these
    things. I think you are pointing out how we have sort of old,
    systemic ways of doing things that end up having the
    discriminatory impact, and if we look at them we can change
    them and then start to change the path, create a much better
    path for people in this country, which is why we are here. So
    thank you.
        Dr. Brainard, you and I had a chance to talk about a
    variety of things when we spoke on the phone the other day.
    Many of my colleagues have also just raised some of the
    questions that you and I were discussing around full employment
    and the disparities in employment amongst Black families versus
    some White families in this country. And I want to just drill
    down on a bit of what Senator Van Hollen was asking about. As
    you pointed out, the Fed has limited tools in this category.
    But could you just tell me, if we were to see interest rates
    increase, would impact would we anticipate that having on
    employment, particularly as we try to look at getting broad-
    based employment?
        Ms. Brainard. Well certainly today we see an economy that
    has grown about 5.5 percent over the last year, and we have
    seen those broad unemployment numbers coming down really
    quickly, so there is a lot of underlying momentum in the
    economy.
        And so, you know, as we go forward on our plans to end
    asset purchases, to begin to raise interest rates at some time
    beyond that, to shrinking the balance sheet, I think we will do
    it in a well-communicated way, a transparent way, to allow
    markets to react in a measured way to it.
        You know, I believe we will be able to see inflation coming
    back down to target while the employment picture continues to
    clear. There are some short-term constraints there that I think
    are limiting people from coming back into the labor market. As
    those are lifted I think we will have continued gains on
    employment.
        Senator Smith. Thank you. I am out of time. I just want to
    take a moment to say that one of the biggest constraints, as
    you and I have talked about, is that people do not have any
    access to affordable childcare, and so they are left not being
    able to work, even though they want to. That is one of the
    things that we would address in the Build Back Better Act,
    which I hope we pass.
        Thank you. Thank you, Mr. Chairman.
        Chairman Brown. Thank you, Senator Smith.
        Senator Crapo is recognized from his office.
        Senator Crapo. Thank you, Mr. Chairman, and let me start
    out with you, Director Thompson. First of all, I very much
    appreciated our visit last Tuesday. I just have one quick
    question for you, which we discussed then, housing finance
    reform, which, as you know, is a top priority of mine. And it
    has been my view that Congress must find a pathway forward to
    resolve the conservatorship of our GSEs and do so
    expeditiously.
        In that context I applaud Ranking Member Toomey for
    releasing his housing finance reform principles last March,
    which reflect many of the goals that I outlined when I was
    addressing this issue as the Chairman of the Committee. These
    principles include establishing stronger levels of taxpayer
    protection, preserving the 30-year fixed-rate mortgage,
    increasing competition among mortgage guarantors, ensuring a
    level playing field for lenders of all sizes, and promoting
    access to affordable housing.
        And my question to you is, if confirmed as the FHFA
    director, would you be willing to support legislation that is
    consistent with these principles?
        Ms. Thompson. Absolutely, Senator. Thank you.
        Senator Crapo. Thank you. Nice, brief answer, and the right
    answer. I appreciate it.
        Let me move on to you, Governor Brainard. Again, welcome to
    you too. I appreciated our visit the other day as well. The
    first question I have for you is on inflation, which you have
    already talked about today, but I, like all of us here, are
    concerned about December's 7 percent rise in consumer prices
    and today's record high producer price inflation reading of 9.7
    percent. These high and persistent inflation numbers are, I
    think, the greatest threat to our economic recovery and
    household budget. And now it's clearly [inaudible] more Federal
    deficit spending or taxing.
        The question I have for you on this is, if I understood you
    earlier in your testimony you said that you were confident that
    we were going to get back to the 2 percent rate. The question I
    have is how quickly do you see that happening? Is that
    something that could be done in months, or are we talking
    years, or what is the timeframe you expect to see us face in
    trying to get control brought back to about a 2 percent target?
        Ms. Brainard. Well thank you, Senator, for your question.
    So I certainly also am very concerned about the high level of
    inflation, and we are committed at the Federal Reserve to
    bringing it back down to target, and we are taking a number of
    actions. We have already decided to end asset purchases in the
    first quarter. You have seen that the Committee has projected
    several hikes over the course of the year. Of course we, you
    know, will be in a position to do that I think as soon as asset
    purchases are terminated, and we will simply have to see what
    the data requires over the course of the year. And, you know,
    we started to discuss shrinking our balance sheet.
        In terms of the projections on inflation I think it will
    remain high throughout the first two quarters. Certainly in the
    Committee's projections you saw it coming down closer to 2.5
    percent by the end of the year. But I think we should also take
    these projections, you know, with a fair amount of caution, and
    we will obviously try to bring it down, you know, as quickly as
    we can but consistent with a sustained and strong recovery.
        Senator Crapo. All right, thank you. And I realize it is
    hard to predict these kinds of things but I appreciate your
    projections.
        Last question, and you have been asked about this also.
    Senator Toomey talked to you about the pressure to choke off
    credit to traditional energy companies, and I know Senator
    Kennedy talked about the same thing. And I understood your
    answers to that. I personally believe that choking off credit
    to industries viewed as unfavorable or politically unacceptable
    and controlling the allocation of capital is not a new concept.
    You will recall Operation Choke Point from the Obama
    administration years, and I certainly hope that President Biden
    will consider this as he nominates those who deal with
    regulatory policy at the Fed.
        You have already indicated you do not believe that the
    Federal Reserve should act in a way to try to choke off credit
    to traditional energy companies. My question, though is, if
    policies such as those Senator Toomey were talking about you
    are utilized in our stress testing processes, does that not, in
    and of itself, select specific types of industries if they are
    going to be selected in that way and subject them to the
    potential for increased capital requirements or some other type
    of regulatory burden that would not be there had they not been
    in that particular business?
        Ms. Brainard. Yeah. So I think about supervisory guidance
    as simply asking institutions, large institutions, to be
    measuring, monitoring, and managing their risk. This is what we
    ask them to do across the board. So I do not think it has a
    particular sectoral cast to it.
        And similarly on scenario analysis, you know, if I think
    about concentrations of areas where, you know, wildfires are
    becoming more frequent, or flooding is becoming more frequent,
    if insurers are pulling back from covering those properties our
    scenario analysis would simply allow us to see where are those
    risks building up and are there certain counterparties that are
    very exposed in terms of covering those risks, and might they
    be subject to shock that could amplify financial instability
    throughout our system?
        So that is how I think about climate scenario analysis. It
    is quite different than the stress tests that banks have
    undergone under the traditional capital planning framework.
        Senator Crapo. All right. Thank you.
        Chairman Brown. Thank you, Senator Crapo.
        Senator Reed, from Rhode Island, is recognized.
        Senator Reed. Thank you very much, Mr. Chairman. First let
    me commend the President for his nomination. Governor Brainard,
    congratulations on your elevation to Vice Chair, and also Ms.
    Thompson, congratulations for nomination as permanent Director
    of the FHFA.
        You all touched upon, in response to previous questions,
    the critical role of housing in our economy, and I know Ms.
    Thompson has already talked about some steps she would take
    going forward to help expand the supply. But one of the
    interesting things is this ties in also to the inflation
    problem we are seeing right now. I believe, Governor Brainard,
    that 30 percent of the consumer price index is based on housing
    prices. As a result, if we do not get a handle on housing we
    will not get an effective handle on inflation.
        And with that in mind, raising interest rates, will that
    help us? Hurt us? Will it make it more affordable for working
    families to get good housing?
        Ms. Brainard. So I think the question about workforce
    housing and affordable housing, to the extent that we look at
    it at the Federal Reserve, is really very much a supply side
    question. You know, we do meet regularly with the home
    builders, and, you know, they have been telling us, even before
    the pandemic, that shortage of lots is an acute problem. So we
    went into the pandemic with a shortage of affordable and
    workforce housing, and of course the pandemic has exacerbated
    materials delays and skilled tradesman availability. So all of
    those things, I think, on the supply side are exacerbating
    these issues.
        Our tools are very limited on the supply side. You know, we
    have some incentive under the Community Reinvestment Act, and
    we are trying to improve the credit that we give there for
    naturally occurring affordable housing as well as shoring up
    those really important institutions that use housing subsidies
    in partnership with banks. But our tools are limited on the
    supply side.
        Senator Reed. Thank you. Governor Brainard, are you aware
    of an announcement made yesterday that Bank of England is
    incorporating climate as part of their stress testing for all
    their institutions?
        Ms. Brainard. So I have not studied their most recent
    statement there, no.
        Senator Reed. But I would presume that their major
    motivation is the economic impact, not on anything else, or
    least--is that your view?
        Ms. Brainard. So when we have talked to counterparts,
    regulators in other countries such as the Bank of England and
    the Europeans, Canadians, Australians, and others, there are
    certainly taking on board just the financial risks associated
    with climate change and trying to incorporate that into their
    supervisory frameworks.
        Senator Reed. And we have already seen some aspects of the
    financial industry, particularly insurers, incur significant
    losses, particularly in California and wildfires, so there is
    definitely an economic effect that is being generated, I think
    with more frequency, by climate. Is that your sense?
        Ms. Brainard. Well I think the statistics that I saw
    recently were about $630 billion worth of damages over the last
    5 years from severe weather, and that is a historic high, and
    of course we all see it in our home areas.
        Senator Reed. One of the other aspects of inflation, which
    is one of the most obvious ones, is at the gas pump, and that
    is something--again, that is really beyond the specific control
    of any agency in the United States Government because basically
    pricing is set by a cartel. But what struck me is that the
    production is not even up to the levels that they have set for
    themselves. So do you have any insights on what is going on in
    that market?
        Ms. Brainard. So we do not have a lot of insights. Our
    Dallas Reserve Bank tends to be, you know, closely studying
    trends there. It is certainly true that about a quarter of
    consumer inflation over the last year has come from food and
    energy, but really disproportionately from energy. Those prices
    at the pumps are hurting working Americans across the country.
        Senator Reed. Thank you. And a quick question, Ms.
    Thompson. One of the things we have seen recently is a trend
    for private equity to buy up lots of homes--they have the
    resources to do that--and take them out of the purchase market
    and put them into their rental market, and in some cases with
    the ability to dictate higher prices. Is there anything you can
    do at your agency to look at that?
        Ms. Thompson. Sure. Thank you for the question, Senator,
    and we are taking a look at the private equity participation in
    a couple of different areas, in the manufactured housing
    communities where we are very insistent that they have
    protections, and Fannie and Freddie will not purchase loans
    unless there are protections for the communities, the owners,
    and the renters.
        We are also looking at our REO inventory, between Fannie
    and Freddie there are probably 9,000 properties. But we have
    established this first-look program that allows owner-occupants
    and nonprofits to have the very first look at all the REO
    properties that are available. And we have increased the number
    of days from 30 to 45.
        And we have been looking at the nonperforming loan sales as
    well, and what we require is that any buyer has to go through a
    waterfall where they have to offer borrowers in these pools
    loan modification. And some of these borrowers have been
    delinquent 3 or 4 years, but they still have to offer these
    borrowers loan modifications.
        We have also asked the enterprises to structure smaller
    pools so that nonprofits can start buying and working with
    these loans.
        Senator Reed. Thank you, and I apologize for running over,
    Mr. Chairman.
        Chairman Brown. Thank you, Senator Reed.
        Senator Cramer, from North Dakota, is recognized.
        Senator Cramer. Thank you, Mr. Chairman, Ranking Member
    Toomey. Thank you both and congratulations to both of you on
    your nominations. And Governor Brainard, thank you for the
    discussion yesterday. I enjoyed it very much. I found it
    interesting. I liked most of your answers, quite honestly, so
    now I am going to try to reconcile them a little bit after
    yesterday's meeting.
        And given today's conversation you have been quite
    consistent, particularly in the last couple you referenced, in
    response to climate scenario analysis as opposed to climate
    stress tests, the example you used yesterday and that is fire.
    So if you have a forest fire situation and there are insurers
    backing out, that represents a risk.
        But you used that in response to a climate question, not a
    fire question. I think it was Senator Reed's question that you
    referenced the record weather events.
        I want to be really definitive about this issue, maybe as
    definitive as you were with me yesterday. Are you in sync with
    Chairman Powell's position, and he stated it a couple of times
    a couple of days ago. You watched that. Would you say you are
    pretty well in sync with his analysis, or his assessment of
    climate and where it belongs in your mandates?
        Ms. Brainard. Yes, Senator. Thanks for the question. Yes, I
    am.
        Senator Cramer. So he said that to the degree it fits
    within your mandates, climate is one of many factors,
    basically, and he said important but a very narrow one. So how
    is it that you get so much more--now I am asking you to analyze
    yourself, or your supporters--but I am trying to reconcile why
    so many of our friends on the other side of the aisle think you
    are wonderful on climate but they are not going to support
    Chairman Powell for some of the same reasons. And I am just
    wondering, how can I reconcile that in my mind? I am not asking
    you to be my psychologist necessarily, but do you have any
    thoughts or theories on why that might be?
        Ms. Brainard. You know, we do operate within our statutory
    mandates, and we talk a lot about what those are and what those
    mean. So I think, generally speaking, those are the guardrails
    that we operate within. You know, I do try to be aware of
    emerging risks generally. You know, I thought it was important
    to develop research in the area of digital finance, for
    instance, several years ago. So I am looking out over the
    horizon sometimes, and perhaps, you know, talk more about the
    research. But we are very in sync in terms of what we actually
    think our responsibilities as an institution are.
        Senator Cramer. I want just--just a little bit of opining
    on the recent question Senator Reed asked you on the supply
    side and particularly gasoline, fuel. You rightly recognized
    that that represents probably a quarter of the inflation. And,
    by the way, it is going up as fast as inflation, the rest of
    inflation, if not faster, as you probably know.
        I, of course, come from a State that is now producing about
    400,000 barrels of oil less than it did before. It has a lot of
    capacity for more. The Bakken is cash starved, quite honestly,
    and some of that is because of the signals that they are
    getting banks, and banks are getting from others, that
    investing in oil production is persona non grata.
        Now, the demand is going up. The supply is being held down
    by both rhetoric and policy. Most of it is not your policies
    but it is the President's. And I worry that, frankly, we want
    to transfer our climate guilt by suggesting that we should not
    produce so much in the United States while global demand goes
    up and our adversaries, who are not nearly as environmentally
    friendly as we are, produce.
        Does that matter, do you think, in these climate scenarios,
    that we may very well be hurting our own economy and our own
    production and our own job creation while transferring both the
    opportunity and the guilt to another polluting country?
        Ms. Brainard. So, you know, the question that you are
    raising is a very big one that I do not study in terms of
    energy policy. Generally I would just say that, you know, when
    we do supervise institutions to see that they are managing
    their material risks it is pretty pedestrian stuff. It is, ``Do
    you have a risk management committee? Is that risk management
    committee well informed? Do you have the right data? Do you
    have the right models? Do you have the right controls?'' You
    know, it is really not specific in any way to particular to,
    you know, borrowers or sectors.
        So, you know, I understand the concern that you are
    raising, but our supervisory guidance is very much around
    making sure those guardrails are there.
        Senator Cramer. Thank you. Thank you, Mr. Chairman.
        Chairman Brown. Thank you, Senator Cramer.
        Senator Cortez Masto, from Nevada, is recognized from her
    office.
        Senator Cortez Masto. Mr. Chairman, Ranking Member, thank
    you very much. Welcome to both of the nominees and thank you
    for your service, and thank you for your commitment to serve,
    moving forward.
        Let me start with Acting Director Thompson of the Federal
    Housing Finance Agency. Thank you so much for taking the time
    to talk with me earlier about this particular issue. As you
    well know, and we have discussed this, the third GSEs regulated
    by the Federal Housing Finance Agency are the Federal Home Loan
    Banks. In our discussion I noted that my office's research
    discovered that the Federal Home Loan Bank that serves Nevada
    has long neglected investments in our State, and as you well
    know, this has been an issue for me.
        So my question, Director Thompson, is will you commit to
    working with my office to ensure that the Federal Home Loan
    Bank of San Francisco improves on its record of investment in
    Nevada?
        Ms. Thompson. That is a great question, Senator, and thank
    you for bringing this issue to my attention. It is my
    expectation that the Federal Home Loan Banks would serve each
    State within their districts, and I would mention to you that
    the Home Loan Bank of San Francisco did change the scoring
    mechanism so that Nevada is able to get their portion of an
    affordable housing program. But there should not be a case
    where there is a State that does not get a portion of the
    affordable housing program from the banks.
        Senator Cortez Masto. That is right. Thank you. And I know
    they have made that change, and that was at my request. They
    have been working with me, and I appreciate that, but I know
    there is a role for you to play as the director. And in that
    role I also know that in reviewing each Federal Home Loan
    Bank's community lending plans only one included investments in
    Native American communities.
        So my next question is will you ensure that the community
    lending plans are reviewed and appropriate to the needs of
    their communities?
        Ms. Thompson. Yes. Thanks again, Senator, for the question.
    So as I committed to you, I will have conversations with all of
    the bank presidents and the community investment officers that
    reside in each of the Federal Home Loan Banks to talk to them
    about filling the specific needs in their respective
    communities. There should not be a case where there is a tribal
    community that is not being recognized in the community lending
    plans for the Federal Home Loan Banks, and we are going to have
    those conversations and that will not be the case.
        Senator Cortez Masto. Thank you. And Director, just one
    final thing, beyond the affordable housing programs and other
    voluntary programs. Thank you for your commitment there. I am
    curious, do you have any other priorities with respect to the
    oversight over the Federal Home Loan Banks?
        Ms. Thompson. Sure. Yes. So we are looking at, right now,
    after the--well, I should say the Federal Home Loan Banks play
    a huge role in the financial system, and during the pandemic
    they certainly were very much utilized. But the advances right
    now are relatively low, and so we are looking at ways to just
    oversee the home loan banks and make sure that the advances and
    the earnings are appropriate. So I have got my supervisory team
    working very closely with the home loan banks to make sure that
    they are supervised in a safe and sound manner.
        Senator Cortez Masto. Great. Thank you. I look forward to
    working with you as well as we move through this process.
        Governor Brainard, let me go back to you as well, and thank
    you again, as always, for speaking with me. It is a pleasure to
    welcome you back to the Committee. I know, in your decades-long
    career in public service that you represented our interests on
    an international stage. I also know, over the last few years,
    that Chair Powell also has entrusted you to work closely with
    former Secretary of Treasury Mnuchin and other appointees under
    the former Administration in setting up the Federal Reserve's
    response to the COVID-19 pandemic.
        Clearly you have played a critical role at the Federal
    Reserve, and I also know the committees you chair for. And so,
    very briefly because my time is running out, can you tell me
    how you work with the other Board members, the regional bank
    presidents, and other agency heads to not only respond to the
    pandemic and other monetary policy but also bank regulatory
    challenges as well?
        Ms. Brainard. Well, you know, we were as surprised, I
    think, as everybody by the just incredible turmoil we saw in
    the Treasury markets. I have never seen anything like that, and
    so we needed to respond very quickly. And I think, you know, we
    just worked seamlessly across the regulatory agencies. We did
    need to relax some bank safeguards to make sure that they could
    continue lending, to make sure that their existing loans would
    not be considered impaired, and we stood up facilities very
    quickly, and we also, once the turmoil passed, we were very
    quick to wind them down.
        And I think, generally speaking, we are in a much better
    place today. As a result we have many Americans have jobs and,
    you know, balance sheets that are much healthier, and many more
    businesses are thriving today because of the efforts you did
    here in Congress and the efforts that we did to carry out those
    programs you asked us to undertake.
        Senator Cortez Masto. Thank you. Thank you both again. Mr.
    Chair, thank you.
        Chairman Brown. Thank you, Senator Cortez Masto.
        Senator Daines, from Montana, is recognized.
        Senator Daines. Chairman, thank you. Welcome, Governor
    Brainard. We had quite the CPI report yesterday, inflation
    rising at the fastest pace in four decades. It takes me back to
    when I graduated from high school.
        In Montana and other mountain States annual inflation is
    actually 8.6 percent, which is significantly higher than the
    national average of 7 percent. Needless to say, I think this
    report adds to the continuing string of bad news for Montanans
    and Americans. On a year-over-year basis, real average weekly
    earnings declined by 2.4 percent.
        I have heard many of my colleagues on the other side of the
    aisle say that inflation is nearing a peak. I distinctly
    remember being right here, not long ago, challenging this
    notion that inflation was transitory. We heard from very smart
    people who were sitting right where you are, rejecting that
    notion, and we were forcefully pushing back and saying we do
    not think so.
        Now, granted, forecasts are forecasts. You do not always
    get them right.
        I hope that inflation is nearing its peak, but I did not
    see anything in this recent report that provides any sort of
    confidence that inflating is fading in a meaningful way. In
    fact, to the contrary, peeling it back, with what is going on
    right now in China with the zero-COVID policy from Xi Jinping,
    I think the supply chain disruptions will only increase.
        I met with Montana grain growers just an hour ago. They
    told me that one of the trucking companies that they depend on
    just fired 14 employees because of the vax mandate. They cannot
    get fertilizer back and forth across the Canadian border.
    Fertilizer prices have doubled. This is a huge issue right now
    for farmers, not talked about enough, but one more contributing
    factor to the inflationary forces currently in this economy.
        Chairman Powell told the Committee on Tuesday that high
    inflation is a, quote, ``severe threat to the labor market.'' I
    agree with that and I hope you do as well, Governor Brainard.
        Turning to my questions, I would like to follow up on
    Ranking Member Toomey's points regarding climate-related
    financial risks. Over the past year you have delivered a number
    of speeches suggesting that the Fed may take a more active role
    in environmental policy. Specifically, you announced that the
    Fed is, quote, ``developing scenario analysis to model the
    possible financial risks associated with climate change,'' end
    quote.
        However, the Fed lacks both the experience and the
    expertise in environmental matters. Further, actual climate
    researchers have found that current climate models cannot be
    used to provide financially meaningful information. This raises
    the troubling prospect for many of us here today that the Fed's
    work in this area is politically motivated rather than based on
    actual data or expertise. And I say that respectfully as a
    chemical engineer by degree.
        My question for you, Governor Brainard, on what basis do
    you believe the Fed is positioned to shape environmental
    policy, given its lack of experience and expertise in this
    area?
        Ms. Brainard. Well thank you very much for your questions.
    First on inflation, I could not agree with you more. It is very
    higher, and we have a responsibility to bring inflation down.
    We are orienting monetary policy to do that. We have
    accelerated the tapering of asset purchase so that we can be in
    a position to move on increasing the Federal funds rate, and we
    have projected several increases this year and also talked
    about having the balance sheet starting to shrink sometime
    thereafter. So we are very focused on that, as Chair Powell
    said.
        With regard to the issues surrounding climate, we do not do
    environmental policy at the Federal Reserve. As you say, it is
    not our expertise. What we do have responsibility for is making
    sure that supervised institutions are properly risk managing,
    and we do have some sort of responsibility for understanding
    potential financial stability implications, of a host of
    different kinds of things, and that is where scenario analysis
    comes in. You know, we do not have any expertise in disease and
    pandemics, but certainly it turned out that the pandemic had
    enormous financial stability consequences.
        So it is just incumbent on us to be doing research to
    understand how shocks could affect our financial system, and
    that could include severe weather events and other aspects----
        Senator Daines. And speaking of shocks, I think we all
    remember the War of Yom Kippur. I mean, some of us are old
    enough to remember what happened back in 1973, when we were
    dependent on the Middle East for oil, and the shocking effect
    that had when oil prices quadrupled, and the inflationary
    effects, and in 1981, seeing 18.6 percent 30-year fixed
    mortgages. It was devastating for so many Americans, including
    farmers and ranchers and folks working hard every day to make
    ends meet.
        And speaking of politically motivated, with my
    distinguished colleague here from North Dakota sitting next to
    me, when we watched this President, with one stroke of a pen,
    stop the Keystone XL pipeline, which actually reduces carbon
    emissions because it is the most environmentally sound, minimal
    amount of carbon emissions way to transport oil versus using
    rail cars or trucks. Count us all in here as skeptics that
    there has not been political motivation, and I hope that you
    will guard the Fed, and I hope you will ensure that they stick
    with their dual mandates.
        So I asked this question to Chairman Powell this week, and
    I would like to ask it to you as well. Do you think that
    rolling blackouts--and I had just come from a hearing before I
    came to this hearing on Tuesday, when Powell was here, where we
    literally had folks talking about breaching dams in this
    country. These are radical ideas. Do you think that rolling
    blackouts due to a lack of stable baseload power poses a more
    tangible, near-term threat to the stability of the financial
    system?
        Ms. Brainard. We try to take into account a whole host of
    different risks to the system, so we are trying always to kind
    of look out over the horizon and take into account a whole host
    of risks, including from abroad. So we do try to do that. We
    are not very successful always, but we certainly try.
        Senator Daines. Yeah, well thank you, and again, my final
    comment here. On the one hand we have our colleagues who are
    sending the strongest message possible that we should stop
    production of oil, natural gas, coal, even breaching dams in
    some cases here. You cannot have it both ways, what this would
    do with energy prices, what it is going to do to this economy
    and inflation. That is why this car is spinning out of control
    right now on the highway. And the Fed has its role, but I am
    just very concerned about the policies coming from this
    Administration that are having severe, creating severe harms
    now for the American people. And we are seeing it at the gas
    pump. We are seeing it with inflation in this economy. Thank
    you.
        Chairman Brown. Senator Ossoff, from Georgia, is recognized
    from his office.
        Senator Ossoff. Thank you, Mr. Chairman. Thank you to our
    nominees.
        What tools would you have at your disposal, at the Federal
    Housing Finance Agency? What tools might Congress be able to
    strengthen or offer to the agency to increase the supply of
    housing in communities where there is an acute housing shortage
    and a housing affordability crisis? Do you agree that
    increasing supply, adding units, adding density is key to
    resolving the crisis of affordable housing?
        And, you know, when I look around the State of Georgia,
    speak with community leaders, look at the housing market, 48
    percent of folks in the city of Augusta say that affordable
    housing is a very high need. Georgia has lost 11,000 affordable
    housing units through the qualified contract exception, the
    low-income housing tax credit, in recent decades. In Atlanta,
    in Rome, in Savannah, in Albany, in rural communities, the
    rents and the prices of homes are increasing at an alarming
    rate.
        So the question is what tools will you have at the agency
    to increase housing supply, and do you believe increasing
    housing supply is essential? And finally, will you work with me
    and community leaders in those cities and communities across
    the State of Georgia to identify solutions particular to the
    needs of my State to help bring more housing supply online, add
    units, and help folks afford homes?
        Ms. Thompson. It is a great question, Senator, and
    absolutely, supply is a major, major issue in housing, and the
    supply issue really is exacerbated with respect to affordable
    housing.
        We certainly are an indirect--we do not have any direct
    influence on supply, but one of the things that we have done is
    through the Federal Home Loan Bank's affordable housing program
    they are able to contribute to affordable projects around the
    country, and we have also increased the enterprises' allotment
    for low-income housing tax credit, and we increased their
    allotment to help with the affordable housing supply and
    affordable housing preservation.
        We are really focused on working with our regulated
    entities to do whatever we can in this space. We also have
    allowed the enterprises to purchase manufactured housing, and
    we also have allowed them to purchase these accessory dwelling
    units. But in many cases there are local zoning ordinances that
    get in the way of some of the affordable houses that could be
    built or the types of affordable housing.
        But we are very much committed to working with you and all
    members of this Congress to try to do what we can to address
    this issue.
        Senator Ossoff. Thank you, Ms. Thompson. My time is limited
    but just briefly I mentioned Atlanta, Albany, August, Columbus,
    Savannah. This is a serious issue in communities across the
    State. Will you commit to working with my office, elected
    officials, community leaders, in those communities and others
    to identify specific solutions, work collaboratively to bring
    down the cost of housing, to bring down rents, and add more
    housing supply in those communities?
        Ms. Thompson. Absolutely, Senator.
        Senator Ossoff. Thank you, Ms. Thompson.
        Dr. Brainard, congratulations on your nomination for this
    position. I would like to ask you a question about the
    prevalence of retail investing and stock trading in the
    leadership at the Federal Reserve. I want commend Chairman
    Brown for his leadership, offering legislation to address this.
        Is there a cultural problem? Is there widespread stock
    trading potentially on the basis of proprietary or nonpublic
    information with the expectation of upcoming policy
    announcements at any level in the Federal Reserve, in your
    opinion?
        Ms. Brainard. I do not believe there is, but I think we
    have all been surprised and dismayed by some of the financial
    disclosures.
        Senator Ossoff. Dr. Brainard, will you help to ensure that
    the Fed complies with any lawful requests or commands for
    records, documents, or information pertaining to stock trading
    by current or former Federal Reserve officials, should Congress
    wish to review those trades and their propriety?
        Ms. Brainard. Yes.
        Senator Ossoff. Thank you, Dr. Brainard, and a policy
    question for you. What is your view of the distributional
    effects of quantitative easing, over the long run, the relative
    benefit to employment against the exacerbation of inequality by
    driving up asset prices in a way that may favor those who hold
    equities, hold assets, own homes as liquidity is added to
    financial markets? Have you conducted any research? Has the Fed
    conducted any research? Can you provide that research to the
    Committee, and what is your personal view?
        Ms. Brainard. I know there is some research on this. It is
    not clear-cut. It tends to be the case that during recessions
    wealth inequality diminishes and then it tends to increase
    during recoveries. You know, we use quantitative easing only
    when we have run out of room on the interest rate, and the
    alternative of allowing unemployment rates to skyrocket would
    be very, very bad, I think, for working Americans who really
    rely primarily on their jobs for income.
        So we stay very focused on that dual mandate and try to
    protect employment in downturns, to the greatest extent
    possible, using whatever tools we have.
        Senator Ossoff. Thank you, Dr. Brainard. My time is up. I
    will send you some additional questions for the record and look
    forward to your responses. Congratulations again to you both
    for your nominations.
        I yield back, Mr. Chairman.
        Chairman Brown. Thank you. Senator Toomey has some closing
    questions and remarks, as do I, and we will wrap up.
        Senator Toomey. Thank you, Mr. Chairman. I first want to
    respond quickly to our colleague from Massachusetts who seemed
    to be suggesting that inflation is the result of greedy
    companies in highly concentrated industries. In fact, I do not
    think the data supports the contention. I do not think that is
    well correlated, that is to say the rate of inflation and the
    extent to which an industry is consolidated. And, in fact, one
    that I can think of that might be among the least concentrated
    industries that I know of, the retail sale of used cars, is one
    that has experienced one of the highest rates of inflation, 37
    percent over the last year.
        I also want to respond to Governor Brainard's statement
    that the climate scenario analysis that she has been advocating
    is not a stress test. It seems to me that is little more than a
    semantic difference. Of course, the whole purpose is to test
    whether banks are prepared to address perceived risks
    associated with climate change, and then if the Fed determines
    they are not to promulgate new regulatory requirements. That
    sounds exactly like stress testing, whether or not you call it
    by a different name.
        And I am not alone in that view. The New York Times, not
    exactly a conservative paper, said the same thing when it
    reported on a speech that Dr. Brainard gave last October about
    climate scenario analysis at the Fed's annual stress testing
    conference. The Times wrote, and I quote, ``Ms. Brainard said
    the Fed was developing climate-related scenarios for use in
    bank safety checkups, which are often called stress tests,''
    end quote.
        The concern is there are many categories of risks to banks
    and the financial system that nobody is advocating a separate
    scenario analysis for, but there is an advocacy for the
    scenario analysis for even lower risk, lower probability risk
    problems in the climate space. The fact is the transition risk
    associated with climate change is a political risk, and the
    danger is this becomes a self-fulling prophecy. And the Fed
    says do a scenario analysis, and the scenario you need to
    analyze is the scenario in which we impose new regulations on
    you that are problematic for your portfolio.
        Finally let me just turn to Ms. Thompson. You and I may
    have a different understanding of the HERA statute and other
    statutes, because it is my view that HERA clearly does
    authorize the FHFA to take the GSEs out of conservatorship. So
    can you tell me specifically, is there something that is
    lacking in legislation that you think is required for you to
    move in that direction?
        Ms. Thompson. Sure. Thank you for the question, Senator. So
    it is my belief that the enterprises--actually, FHFA is going
    to have to have a conversation with Treasury.
        Senator Toomey. I agree with that.
        Ms. Thompson. At the end state of the enterprises is
    something that Congress would have to legislate. So if the
    enterprises reach their capital requirements that we have
    established we certainly would be having conversations with
    lots of different stakeholders. But the end state, if Congress
    wants the enterprises to come out as is, then that is, I think,
    doable within the statute, but if there is another outcome, if
    they wanted to be a utility or if they want other charters,
    those are things that Congress is going to have to determine.
        Senator Toomey. Well sure, if we wanted to change the
    existing statutes and exchange existing charters then we would
    have to pass legislation to do so. But my point is, that is not
    the only option available. Would you commit to going as far as
    you legally can in moving in the direction of coming out of the
    conservatorship?
        Ms. Thompson. Senator, that is a great question, and I will
    commit to positioning the enterprises and working with the
    Congress to do whatever is necessary to move them out of
    conservatorship in a responsible and timely way. Now we would
    certainly be wanting to work with Congress and other
    stakeholders on this issue.
        Senator Toomey. Well I appreciate that and I look forward
    to working with you toward that very end.
        Thank you, Mr. Chairman.
        Chairman Brown. Thank you, Senator Toomey.
        A few comments. A few closing comments. Thank you both, by
    the way, for being here. For a moment about GSE reforms,
    something where I hope we can reach consensus in this
    Committee.
        Many of my colleagues have talked about the importance of
    that, of housing finance reform. Before the pandemic, as you
    know, Acting Director, we had a series of hearings on GSE
    reform. Consensus was emerging on what the system should look
    like. Like I would like to put out a list of priorities where I
    think we can reach agreement, and there will be some
    differences of agree, I am sure, between and among all of us.
        One, protecting access to affordable, 30-year, fixed-rate
    mortgages; providing a catastrophic Government guarantee;
    structuring loan guarantees like public utilities; providing a
    regulated rate of return; serving the broad national markets;
    serving lenders of all types and sizes equitably; maintaining a
    duty to serve all markets, all borrowers; maintaining
    affordable housing goals and metrics; expanding investments in
    affordable housing; and maintaining the GSEs' successful
    multifamily business models and ensure continued or better
    access for financing of affordable rental housing.
        These reforms would create a safe and sound system that
    meets the needs of renters and homeowners across the country.
        I am certainly happy to engage with the Ranking Member and
    others on the Committee of both parties and getting, as we
    spoke on the phone, getting the kind of technical assistance
    that you are so good at, Acting Director, to provide to us.
        I would also make one comment that Chair Powell raised the
    same distinction on Tuesday as Governor Brainard today on
    climate stress tests and climate stress scenarios.
        Thank you. It was a full and productive discussion. I
    applaud the Biden administration for the nomination of these
    two eminently qualified women to these vitally important
    positions in our Government. I look forward to supporting the
    nominations of each of you. I urge my colleagues on both sides
    to join me.
        For Senators who wish to submit questions, these questions
    are due at noon on Tuesday, the 18th of January. To the
    nominees, we need your responses by Friday, January 24th.
        Thank you for your testimony and appearing today. The
    Committee is adjourned.
        [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 SHERROD BROWN
        It's amazing what a difference a year makes.
        Today, we have safe and effective vaccines that are saving lives
    and getting people back to work. 207 million Americans are now fully
    vaccinated.
        And our economy has weathered the storm and rebounded. In 2021, we
    added a record 6.4 million new jobs--more than any year since 1939.
        And it isn't just the jobs numbers--it's the quality of those jobs.
    Workers are demanding raises, and they're finally getting them. They're
    changing jobs at record rates, because people finally have some
    options.
        The past year has illustrated how our economy works best--when it
    works for everyone.
        Not just Wall Street. Not just the top 1 percent. Everyone.
        Whether you punch a clock or swipe a badge, earn a salary or make
    tips. Whether you're raising children, or caring for an aging parent.
        No matter who you are, where you live, or what kind of work you do.
        Economic growth won't mean much if it doesn't reach all workers--
    families in Steubenville and Scranton and communities of all sizes, all
    over the country.
        The President has nominated Dr. Brainard and Acting Director
    Thompson to important roles in our Government and our economy to put
    those workers and their families at the center of our Government and
    the center of our economy--to deliver results that actually improve
    their lives.
        Dr. Brainard is a leading economist who understands that a strong
    economy is one where workers have power.
        She is committed to a worker-centered monetary policy that boosts
    employment and lifts wages--something that every member of the Fed's
    rate setting committee has reaffirmed.
        She has led the way in modernizing and strengthening the Community
    Reinvestment Act--a landmark civil rights law passed to begin to undo
    the shameful legacy of redlining and lending discrimination, and spur
    investment in all neighborhoods and communities.
        Through her leadership, the Fed listened to the people whose lives
    and livelihoods are affected--civil rights leaders, affordable housing
    advocates, local officials, and banks of all sizes. She brought
    everyone to the table and is working to ensure banks meet the needs of
    all our communities.
        And during this pandemic, she has served as a steady hand--working
    shoulder to shoulder with Chair Powell to stabilize our economy and
    steer the country out of the abyss.
        Dr. Brainard has a distinguished record of bipartisan service in
    Government and academia. She joined the Federal Reserve in 2014. From
    2009 to 2013, she served as Under Secretary for International Affairs
    at the Department of Treasury. There, she played an instrumental role
    in helping support the country's recovery from the global financial
    crisis.
        She has served in Administrations of both parties, serving as a
    staff economist at the Council of Economic Advisers during the George
    H.W. Bush administration and as deputy national economic adviser in the
    Clinton administration. She was a professor of applied economics at the
    Massachusetts Institute of Technology.
        As Vice Chair, she will be tasked with supporting efforts--efforts
    that are already underway--to empower workers and refocus our economy
    on Main Street, and make sure that all Americans have good jobs with
    growing paychecks and an affordable cost of living.
        That also means supporting efforts to close the racial wealth and
    income gaps that have barely shrunk in decades. As the Fed has noted,
    ``the average Black and Hispanic or Latino households earn about half
    as much as the average White household and own only about 15 to 20
    percent as much net wealth.''
        When we all do better, we all do better.
        With Governor Brainard as Vice Chair of the Fed, Americans will
    have someone who understands that workers--not corporations, not Wall
    Street--create economic growth. Her commitment to the success of all
    Americans--from all walks of life and every region of the country--is
    clear in all the work she's done, throughout her distinguished career.
        Acting Director Thompson has a similarly long and distinguished
    career in public service.
        In her time as Acting Director, Ms. Thompson has taken meaningful
    steps to put renters, homeowners, and families first.
        Over the past 6 months, Ms. Thompson has:

        Directed the GSEs to strengthen their plans to preserve
            affordable housing and support manufactured housing and housing
            in rural areas;

        Expanded opportunities for middle class and low-income
            homeowners to save money on their mortgages through
            refinancing; and

        Increased the focus on fair housing at the GSEs.

        I can think of no other nominee as qualified to work to make homes
    more available and affordable for families throughout the country while
    strengthening the financial standing of the GSEs.
        More than two dozen consumer advocates, civil rights organizations,
    and housing advocates have all written to this Committee supporting
    her.
        Before being designated as Acting Director in June 2021, Ms.
    Thompson served for 8 years as the Deputy Director for the Division of
    Mission and Goals at FHFA.
        There, she led an office responsible for the mission activities of
    the GSEs and housing and regulatory policy under both Republican and
    Democratic Directors--ensuring the safety and soundness of Fannie Mae,
    Freddie Mac, and the Federal Home Loan Banks.
        Prior to joining FHFA, she spent 18 years at the Federal Deposit
    Insurance Corporation, or FDIC. At the FDIC, where she worked for seven
    different chairpersons from both political parties--and in senior-level
    positions, including Director of the Division of Supervision and
    Consumer Protection and Director of the Division of Risk Management and
    Supervision, helping to stabilize our Nation's banks.
        Earlier in her career, she served at the Resolution Trust
    Corporation, cleaning up and restoring faith in our financial system
    after the Savings and Loan Crisis.
        At FHFA, she will be in a position to tackle some of the most
    pressing issues facing homeowners and renters, and to ensure the
    stability of our housing finance system.
        Whether you're looking to rent or to buy, housing had become too
    expensive and too hard to find long before the pandemic began.
        More than 50 years after passage of the Fair Housing Act, people of
    color are far more likely to be denied for a mortgage, are far less
    likely to own their own home, and are far more likely to pay more in
    rent than they could afford.
        And in just the past week, tragic fires in Philadelphia and the
    Bronx have reminded us of how far we need to go to ensure that everyone
    has a safe, affordable home.
        FHFA has an important role to play in addressing each of these
    challenges, and Acting Director Thompson has distinguished herself as
    the person we need to lead this critical work.
        Both of these nominees understand the challenges our economy faces.
    They understand the people who make our economy work, like so many of
    this President's nominees.
        It's notable that as we recover from a pandemic that laid bare just
    how hard women work--at paid jobs in the labor market, and at unpaid
    jobs taking care of their families--we have two women poised to take
    leading roles in our recovery.
        I want to thank both nominees for their many years of exceptional
    public service and their willingness to continue to serve our country.
                                     ______

                PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
        Thank you, Mr. Chairman.
        Governor Brainard and Ms. Thompson, welcome. You both have very
    extensive experience in your respective fields. And I commend you for
    your commitment to public service.
        Governor Brainard has been nominated to serve as Fed Vice Chair.
    The Fed's been granted significant independence to isolate it from
    political influence. However, Congress has given the Fed very narrowly
    defined monetary and regulatory missions.
        First, the Fed's been tasked with conducting monetary policy to
    promote stable prices and maximum employment. But the Fed's recent
    actions have failed to maintain price stability.
        Last year, Governor Brainard repeatedly insisted that inflation was
    transitory. We have now had 9 consecutive months where inflation has
    been more than two times the Fed's 2 percent target. That makes it
    pretty clear that inflation is not transitory. Yesterday's CPI release
    of 7.0 percent--the highest in 40 years--confirms that.
        Inflation is a tax that is eroding Americans' paychecks every day.
    Even though wages are growing, inflation is growing faster and causing
    workers to fall further and further behind.
        I appreciate that the Fed has pivoted towards normalizing monetary
    policy to tackle inflation. But the Fed must also learn from its
    mistakes.
        That begins with the Fed's new monetary policy framework, of which
    Governor Brainard was an author and an outspoken advocate. The
    framework subordinated the Fed's price stability mandate to try and
    maximize employment by allowing inflation to run hot.
        Under it, the Fed looked beyond employment as a whole to consider
    whether employment was ``broad based and inclusive.'' What this meant
    was the Fed would sacrifice stable prices to see if it could achieve
    higher employment gains in certain demographic groups.
        As Governor Brainard explained last year, the Fed should look at
    employment numbers on a ``disaggregated basis'' and use monetary policy
    to narrow employment gaps between different ``racial and ethnic
    groups.'' This framework would keep in place an inflation tax on all
    Americans while the Fed decided which sub-groups of people should have
    faster job growth over others.
        The problem is monetary policy can never equalize employment rates
    amongst different groups. In the end, the Fed would run the risk of
    failing on both fronts of its dual mandate because you need stable
    prices to achieve a strong economy and maximum employment. Given this,
    the Fed should reevaluate its new framework.
        The Fed also has the mission of monitoring the safety and soundness
    of certain financial institutions. Under Chairman Powell, the Fed
    enacted modest, sensible reforms that reduced regulatory burdens and
    helped spur economic growth. But Governor Brainard was the sole
    dissenter over 20 times on regulatory matters, an unprecedented number
    at the Fed.
        For example, she argued that the Fed's reforms of capital,
    liquidity, and stress tests for smaller, less complex banks would
    ``weaken the safeguards at the core of the system.'' Yet, even though
    the economy nearly collapsed at the start of the pandemic, the banking
    system emerged exceptionally well-capitalized and served as a source of
    strength for the economy, demonstrating the sensibility of these
    reforms.
        In addition to opposing these reforms, Governor Brainard has urged
    the Fed to take an activist role on global warming, which is beyond the
    Fed's expertise and mission. According to the New York Times, she has
    ``endorsed the use of supervisory guidance--the Fed's recommendations
    to banks--to encourage financial institutions to curb their
    exposures.''
        I'm particularly concerned that she has advocated for the Fed to
    shape environmental policy through so-called climate scenario analysis.
    Not only does the Fed lack expertise in environmental matters, but
    there is no reason to believe that global warming poses a systemic risk
    to the financial system.
        As I have noted before, we haven't found a single bank that has
    failed in the modern era due to a severe weather event. There is a
    ``transition risk'' for banks associated with global warming, but it's
    political and regulatory in nature. It's the risk that unelected
    bureaucrats will attempt to impair the value of energy-related assets
    by cutting-off credit to energy companies.
        This isn't about whether climate change is a significant threat to
    our society. It's about the fact that climate policymaking requires
    tradeoffs between costs and benefits. These are inherently political
    decisions, which is why they belong firmly in the domain of officials
    who are elected and directly accountable to voters.
        Now turning to Ms. Thompson. She has been nominated to serve as the
    Director of the FHFA, where she has had a busy six months as Acting
    Director.
        In that time, she has proposed reductions in capital requirements
    for Fannie Mae and Freddie Mac, suspended restrictions on the GSEs'
    acquisitions of high-risk loans, required the GSEs to develop plans to
    further what Democrats call ``racial equity,'' but what is really just
    affirmative action in the housing space, and increased the GSEs'
    affordable housing goals. Unfortunately, she hasn't prioritized ending
    the GSEs' conservatorships.
        I'm concerned the Administration is seeking to use FHFA and the
    GSEs to take on more risk for taxpayers and expand affirmative action
    into housing. That makes Ms. Thompson's nomination--notwithstanding her
    extensive experience--a referendum on the Administration's radical
    housing policy.
        This policy contemplates more mortgages for higher risk borrowers,
    repurposing the GSE as instrumentalities of social policy, and a
    disappointing embrace of the failed GSE model. In a break from decades
    of bipartisan housing finance reform efforts, this Administration is
    using the power of the GSEs' conservatorships to command and control a
    huge swath of the economy.
        We are now asked to ratify this radical housing policy, and to take
    ownership of the bailouts and foreclosures that will likely follow.
    Especially given where we might be in the housing cycle, we should be
    reluctant to do so.
        Mr. Chairman, I look forward to hearing from today's nominees.
                                     ______

                      PREPARED STATEMENT OF LAEL BRAINARD
     To Be Vice Chairman of the Board of Governors of the Federal Reserve
                                     System
                                January 13, 2022
        Chairman Brown, Ranking Member Toomey, and other Members of the
    Committee, thank you for this opportunity to appear before you. I am
    greatly honored to be nominated by President Biden to serve as Vice
    Chair of the Board of Governors of the Federal Reserve System. If
    confirmed to this position, I look forward to continuing to work with
    Members of this Committee.
        We are seeing the strongest rebound in growth and decline in
    unemployment of any recovery in the past five decades. Over the past
    year, unemployment has fallen by 2.8 percentage points, and growth is
    estimated to be around 5\1/2\ percent, according to a variety of
    private forecasts.
        But inflation is too high, and working people around the country
    are concerned about how far their paychecks will go. Our monetary
    policy is focused on getting inflation back down to 2 percent while
    sustaining a recovery that includes everyone. This is our most
    important task.
        When the pandemic struck in 2020, I worked closely alongside Chair
    Powell and Secretary Mnuchin and many others, with the support of
    Congress, to calm financial market turmoil and save American jobs and
    businesses. When markets stabilized, I worked to responsibly wind down
    the emergency facilities we established. Today the economy is making
    welcome progress, but the pandemic continues to pose challenges. Our
    priority is to protect the gains we have made and support a full
    recovery.
        Since 2014, as a member of the Federal Open Market Committee, I
    have supported monetary policy that is responsive to evolving economic
    conditions. Our approach helped sustain the longest recovery on record
    with low inflation and millions of jobs.
        More broadly, I have worked to safeguard and grow our economy
    during the Administrations of five Presidents from both parties. I have
    worked on the U.S. policy response to every major financial crisis over
    three decades. I served at the Department of the Treasury as part of
    the team responsible for supporting America's recovery from the Global
    Financial Crisis and responding to the euro-area financial crisis. I
    served at the White House as part of the team helping to safeguard the
    American economy from the Asian financial crisis as well as financial
    crises in Mexico, Brazil, and Russia. In some foreign countries, I saw
    up close how high inflation hurts workers and families, especially the
    most vulnerable.
        I am committed to pursuing the Federal Reserve's congressionally
    mandated goals of price stability and maximum employment and to
    maintaining the strength and resilience of our financial system. I am
    committed to the independent and nonpartisan status of the Federal
    Reserve.
        If confirmed, I look forward to supporting Chair Powell in carrying
    out the responsibilities assigned to the Federal Reserve and in
    fostering transparent communication and accountability to you and the
    American people. I will bring a considered and independent voice to our
    deliberations, drawing on insights from working people, businesses,
    financial institutions, and communities--large and small--across the
    country. I will support policies that are in the interests of the
    American people and based on the law and careful analysis of the
    evidence.
        Before closing, I want to thank my husband and daughters for their
    steadfast support of my work. And I would like to commend the
    outstanding efforts of the individuals across the Federal Reserve
    System who work so hard every day to serve the American public.
        Senators, I thank you for this opportunity to appear before you and
    for considering my nomination. I would be pleased to respond to any
    questions.

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                                     ______

                     PREPARED STATEMENT OF SANDRA THOMPSON
              To Be Director of the Federal Housing Finance Agency
                                January 13, 2022
        Chairman Brown, Ranking Member Toomey, and Members of the
    Committee. I first want to thank President Biden for nominating me to
    serve as the Director of the Federal Housing Finance Agency (FHFA), it
    is the greatest honor of my career to appear before you today.
        Thank you to the Senators and the staff members with whom I have
    met in advance of this hearing. If I am fortunate enough to be
    confirmed, I look forward to meeting with and working with all of you
    on the important issues at the FHFA.
        I would like to introduce my sons, Jarrett and Aaron Nobles, who
    are here with me today. And I would like to recognize and thank my
    parents, Herman and Helen Lathan. While due to COVID considerations
    they are not able to be here in person, the fact that my parents are
    still alive to witness today's hearing is very meaningful to me. I was
    born and raised on the South Side of Chicago to my extraordinary
    parents who came to Chicago from Mississippi as part of the Great
    Migration. My parents and family, along with the Chicago Public School
    system, and my beloved Howard University right here in Washington, DC,
    taught me hard work, determination, commitment, and perseverance. I
    would like to specifically recognize the schools I attended that helped
    me succeed: McDade Elementary School, Gillespie Jr. High School, and
    Lindblom Technical High School, all on the South Side.
        My nomination for Director of the FHFA is a great privilege. I
    recognize that it is rare for a career public servant to have the
    opportunity to lead a Federal agency, and, as the first African-
    American woman nominated for this position, I appreciate the
    opportunity to demonstrate my expertise, good judgement, and leadership
    in this position.
        I am proud of the work we have done at FHFA in my 8 years there.
    The Agency plays a vital role in both promoting access to mortgage
    credit nationwide and protecting the safety and soundness of the
    housing finance system through our supervision of Fannie Mae, Freddie
    Mac, and the Federal Home Loan Bank System (housing GSEs).
        Throughout my 40-year career, with experience in mortgage markets
    and Federal financial regulation at multiple agencies, I have seen what
    it takes to lead a Federal agency and be effective in that role. In my
    work at FDIC and FHFA, I have demonstrated leadership, management
    ability, an understanding of the secondary mortgage markets and
    industry, a fair and balanced perspective, and a strong belief in the
    importance of the safety and soundness of America's financial
    institutions.
        During my time in Federal financial institution regulation, I have
    witnessed and worked to end several financial crises. These crises
    exposed some truths in housing finance. When I served as the FDIC's
    head of supervision and consumer protection throughout the 2008
    financial crisis, I witnessed firsthand the consequences of
    irresponsible lending when hundreds of banks across the country were
    closed and a record number of homes went into foreclosure.
        I saw how the borrowers who received unsustainable loans and
    predatory loan products were devastated in the downturn. And
    historically underserved and disadvantaged communities were hit
    especially hard. Years of progress in closing the home ownership and
    wealth gaps were erased as a result. In fact, today the Black-White
    home ownership gap is wider than it was in the 1960s, when lending
    discrimination based on race was still legal. As a financial regulator,
    I have long believed that safety and soundness and access to credit are
    not mutually exclusive. Broad, fair access, and the stability of
    financial institutions work together as pillars of the Nation's housing
    finance system. Indeed, sustainable access to credit requires
    sustainable lending standards. FHFA will continue to promote
    sustainable and equitable access to credit in a safe and sound manner.
    We will responsibly focus our efforts on the safety and soundness
    mission Congress gave to FHFA and on the mission that Congress gave the
    housing GSEs under our supervision--providing liquidity across the
    Nation and especially supporting underserved markets like rural and
    tribal areas, manufactured housing, and preserving affordable housing.
    If confirmed, it would be an honor for me to serve as the FHFA
    Director, and I will continue to be fair, balanced, and transparent.
    Thank you for the opportunity to testify before you today. I am happy
    to answer any of your questions.

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            RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
                           FROM LAEL BRAINARD

    Q.1. Where have you excelled in past positions in attracting,
    hiring, and promoting people of color in positions in your
    organization? Where might there be room for improvement?

    A.1. Research suggests, and my own experiences have shown, that
    having greater diversity at the table--diversity of every
    type--leads to less groupthink and better outcomes. I have made
    increasing diversity and inclusion a priority in my career,
    including focusing on hiring and promoting people of color. And
    I have benefited, as have the organizations for which I have
    worked, from the views of people of different backgrounds.
        From the time of my service at the Department of Treasury
    (Treasury), I have been pleased to see the diverse and highly
    qualified team that worked with me at Treasury excelling and
    making important contributions as they have advanced.
        In my tenure at the Board of Governors (Board), I have
    worked to ensure that Reserve Bank boards increasingly reflect
    the communities that they serve. Our Class C directors, who are
    selected by the Board, are noticeably more diverse than they
    were 5 years ago. Minority representation among Class C
    directors has increased by 31 percentage points over the past 5
    years. Currently nearly two-thirds of Class C directors are
    minorities. At present, more than half of Class C directors are
    women, 33 percent of whom are minorities. The leadership of
    Reserve Bank boards is also highly diverse. Among the 24
    Reserve Bank Chairs and Deputy Chairs, 20 are diverse in terms
    of race or ethnicity and/or gender. Of course, there remains
    substantial room for improvement. To promote transparency and
    accountability, information on gender, racial and ethnic, and
    sectoral characteristics of the Boards of directors is posted
    on the Board's website and updated annually.
        Among the many benefits of having a diverse board is that
    the Class B and C directors, those selected to represent the
    public, lead the process to appoint presidents and other senior
    Reserve Bank leaders. Over the past several years, the
    professional, gender, and racial diversity of first vice
    presidents and chief operating officers of the Reserve Banks
    has increased. But further progress is necessary. In over 100
    years, there has been one Black Reserve Bank president, two
    Asian American presidents and no Latino president. We have
    invested considerably in adopting best practices in outreach
    and engagement to identify slates of highly qualified
    candidates that are more diverse as well as in ensuring more
    diverse interview panels. I work with the Board's Director of
    the Office of Minority and Women Inclusion (OMWI), the Chief
    Human Capital Officer, the Chief Operating Officer, and the
    Directors of the Board's divisions to hire, retain, and promote
    a diverse staff. This is a priority for the Board's Executive
    Committee. I meet regularly with the OMWI Director to review
    progress and to understand challenges and how we are addressing
    them. As hiring decisions are made, I check to make sure the
    OMWI has been involved to ensure implementation of best
    practices.
        We have been increasing our outreach in order to increase
    diversity of Board economists, by building relationships with
    students and schools at all levels to introduce them to the
    Federal Reserve, through involvement in minority recruitment
    events, partnering with the American Economic Association and
    Howard University, and recruiting economists with more varied
    research specializations. I have personally participated in a
    variety of recruiting events, including the Conference for the
    2017 Summer Training and Scholarship Program sponsored by the
    American Economic Association and the National Science
    Foundation, the Sadie T.M. Alexander Conference for Economics,
    and the Board's Exploring Careers in Economics program.
        If confirmed, I will continue to work with my colleagues at
    the Board and with senior leaders throughout the System to make
    further improvement.

    Q.2. What specific measures will you use to evaluate the
    success of the Federal Reserve in understanding and addressing
    the needs of Black, Indigenous, and people of color (BIPOC)?
    And, will you work with the Chair and Board to keep Congress
    apprised, as appropriate, on the progress being made on these
    measures?

    A.2. If confirmed, I will work with the Chair and Board to keep
    Congress apprised, as appropriate, on the progress being made
    on these issues.
        I will work to ensure the Federal Reserve carries out its
    statutory responsibilities with regard to understanding and
    addressing the needs of Black, Indigenous, and people of color
    (BIPOC). The Federal Reserve has tools and responsibilities
    with regard to monetary policy, as well as supervision and
    regulation, which make important contributions to prosperity
    that is widely shared among all groups.
        By pursuing our statutory mandate, the Federal Reserve's
    monetary policy actions promote maximum employment and price
    stability--two foundations that improve economic outcomes for
    all Americans--with those who have historically been left
    behind standing the best chance of prospering in a strong,
    stable economy with good job opportunities and low inflation.
        The lengthy expansion that was brought to a close by the
    pandemic showed the immense benefits that a strong labor market
    with low inflation can provide to all communities, and
    especially to low- and moderate-income (LMI) communities and
    communities of color. But the COVID-19 crisis exacerbated
    racial disparities as minority workers and small businesses
    experienced disproportionate harm. The pandemic is a reminder
    that these communities are the most vulnerable to economic
    downturns and also that the Federal Reserve has powerful tools
    to help support a strong recovery that includes everyone.
    Currently we are seeing the strongest recovery in five decades
    with strong growth and the creation of millions of jobs, but
    inflation is too high. Monetary policy is focused on getting
    inflation down to target, which is important for working people
    from all communities who are concerned about how far their
    paychecks will go, while sustaining a recovery that includes
    everyone.
        In support of its statutory responsibilities, the Federal
    Reserve staff undertake important data collections on consumer
    and small business finances and the economic wellbeing of
    households broken out by wealth and income as well as race and
    ethnicity. If confirmed, I will support this work, which
    provides an important window into how well our policies are
    achieving their goals.
        The Federal Reserve also has important supervisory and
    regulatory responsibilities that promote fair and equal access
    to credit and financial services.
        The Community Reinvestment Act (CRA) is an essential
    regulation and supervisory tool to promote access to credit
    investment in LMI communities. I have worked to strengthen CRA
    regulations and evaluations to increase the effectiveness,
    transparency and accountability in how banks are rated on their
    affirmative obligation to meet the investment, credit and
    banking services needs of their local communities, including
    through improved access to home mortgage, small business, and
    student lending for LMI households and communities. The CRA
    evaluations are public and are taken into consideration in the
    review of banks' applications for merger and acquisitions.
    Currently, staff at the Board, Federal Deposit Insurance
    Corporation (FDIC) and the Office of the Comptroller of the
    Currency (OCC) are working together to propose for public
    comment revisions to the regulations that implement CRA.
        Further, the Federal Reserve examines banks for compliance
    and helps enforce the Fair Housing Act and the Equal Credit
    Opportunity Act. In implementing our statutory
    responsibilities, the Federal Reserve works to make sure that
    the State member banks we examine have credit policies and
    practices in place that are fair and do not prevent any
    creditworthy consumer from getting access to credit, do not
    result in discrimination in the pricing of credit, or redline
    neighborhoods based on their racial and ethnic composition. If
    examiners identify a pattern or practice of illegal
    discrimination on any of the prohibited factors defined in the
    laws, staff cite it and refer the case to the Department of
    Justice for further enforcement.
        To further support access to economic opportunity for
    people of all levels of wealth and income, the Federal Reserve
    has a long-standing program to promote the viability of
    minority depository institutions (MDIs), which are mission-
    oriented and dedicated to serving the banking and credit needs
    of minority consumers and communities. As the COVID-19 pandemic
    made clear, mission-oriented lenders, such as MDIs, Women's
    Depository Institutions (WDIs), and community-development
    financial institutions are important actors in serving the
    financial needs of minority customers and small businesses, as
    well as providing development resources to invest in minority
    communities. We found that during the crisis these institutions
    were highly effective at getting the smallest business loans to
    the business borrowers that are hardest to reach. Through the
    Federal Reserve System's ``Partnership for Progress'' (PFP)
    program, we provide technical assistance and training in
    collaboration with the FDIC and OCC to help MDI leaders
    overcome the challenges inherent in providing banking services
    to low- and moderate income and minority communities and
    consumers. To further support financial institutions dedicated
    to serving harder to reach market segments, we expanded our PFP
    program to include WDIs.

    Q.3. What is your plan for creating an inclusive working
    environment for employees within your office?

    A.3. An inclusive environment welcomes and values different
    views and experiences. It is one in which people feel
    comfortable to speak up--especially when offering views
    contrary to those of colleagues and of leadership. It provides
    everyone an opportunity to make an impact and improves decision
    making and outcomes. To inform my own decision-making process,
    I seek out input from a wide range of sources. And I make clear
    that I benefit from hearing different views.
        Generally, I think it is critical to remain engaged with
    staff and create opportunities for dialogue. I make it a
    priority to participate in division town halls and events
    sponsored by employee resource groups. This provides me an
    opportunity to get to know more of the Board's employees,
    better understand their individual contributions, hear the
    challenges they are facing as well as what they think is
    working well and where there is room for improvement. It also
    provides staff an opportunity to raise concerns with me
    directly, increasing transparency and accountability.
        As noted above, I work closely with the Director of the
    Board's OMWI, Human Capital Officer, Chief Operating Officer,
    and our division directors to hire, retain, and promote a
    diverse staff. We have made this a priority for the Executive
    Committee. I meet regularly with the OMWI Director to discuss
    progress on priorities and to understand challenges and how we
    are addressing them. As hiring decisions are made, I also
    consult with her to ensure conformance with best practices. In
    a culture and environment where employees feel supported and
    valued. To hold ourselves accountable for advancing diversity
    and inclusion, we have introduced the practice of Diversity and
    Inclusion Scorecards.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
                           FROM LAEL BRAINARD

    Q.1. At your nomination hearing, Senator Tillis asked you about
    the fact that you donated the maximum allowable individual
    amount--$2,700--to Hillary Clinton's 2016 Presidential campaign
    while you were a sitting Fed Governor. In your response to
    Senator Tillis' question you asserted that other Fed Governors
    have made political donations while they were serving on the
    Fed Board of Governors. You said: ``it is rare, it has
    occurred.'' Who are the other Fed Governors that have made
    political donations while they were serving on the Fed Board of
    Governors, when did they make these donations, what were the
    amounts of their donations, and what are the names of the
    recipients of these donations?

    A.1. As I noted, I consulted with an ethics official who
    informed me such donations are permissible, but I came to
    recognize the concerns regarding appearances, and for those
    reasons I have not made nor will I make any other donations
    while a member of the Board of Governors of the Federal Reserve
    System (Board). Regarding members of the Federal Reserve more
    broadly, I am not aware of a comprehensive list; however, I
    understand that publicly available sources reference donations
    made by other Federal Reserve officials over time.

    Q.2. In a 2019 testimony to the House Financial Services
    Committee, Rep. Roger Williams asked if you were a capitalist
    or a socialist. By his count, it is a question he has asked
    nominees over 20 times before. All others--including your
    cowitness at the hearing--have said capitalist. You refused to
    answer the question, saying you don't ``think about in those
    terms.'' The question is not complicated or abnormal. Both
    capitalism and socialism are long traditions in the history of
    economic thought. In the early 20th century, many influential
    economists--including Abba Lerner and Oskar Lange--advocated
    for Government-run economies. They sought to ``rationalize''
    economic production, replacing markets with centralized
    planning to improve economic efficiency. Notably, Paul
    Samuelson praised the economic performance of the Soviet
    Union--right up until it collapsed. Some continue to advocate
    for socializing industries, including socialized banking via
    the Federal Reserve.
        Are you a capitalist or are you a socialist?

    A.2. Capitalist.

    Q.3. Please describe your role in updating the Federal
    Reserve's Guidance on System Community Development (CD)
    Function and CD Program Expectations in or around 2017.
        Did you help draft the 2017 S-Letter on the Fed's CD
    Function (S-2668)?

    A.3. I was the Chair of the Committee on Consumer and Community
    Affairs in 2017. In that capacity, I provided feedback to Board
    staff on the System letter (S-Letter) they drafted (S-2668).
    Other Board members also had an opportunity to provide such
    feedback. Board members voted unanimously to approve S-2668 in
    December 2017. Governor Bowman took over as Chair of the
    Committee on Consumer and Community Affairs in 2018.

    Q.4. Who else was involved in drafting this S-letter (S-2668)?

    A.4. Board staff were involved in drafting S-2668, which is an
    internal operating document providing guidance to the Federal
    Reserve Banks on implementation of their community development
    functions. The letter sought to update the guidance to reflect
    existing practice to improve consistency across the Federal
    Reserve System in support of the statutory mandates of the
    Board, including supervisory and regulatory mandates for the
    Community Reinvestment Act (CRA).

    Q.5. Why did the Fed Board decide it was necessary to update
    the Federal Reserve's Guidance on System CD Function and CD
    Program Expectations in or around 2017?
        When was this determination made, and who was involved in
    making this determination?

    A.5. Given the time that had passed since the last issuance of
    the Community Development S-Letter (S-2473) in 1984, there was
    broad agreement among Board members and members of the
    Conference of Presidents that it was prudent to update the S-
    Letter to better reflect existing practice. Board members voted
    unanimously to approve the update to the S-Letter in December
    2017.

    Q.6. What changes did S-2668 make to the Fed Board's prior
    guidance the Community Development/Community Affairs function?

    A.6. The 2017 letter (S-2668) updates S-2473, which was
    originally issued in 1984. The letter acknowledges that
    community development is a core business function of the
    Federal Reserve and describes how that function aligns with the
    Board's purposes and functions. Specifically, S-2668 sets
    expectations regarding (i) analysis and dissemination of
    information regarding local financial needs and effective
    approaches for attracting and deploying capital in support of
    the Federal Reserve's CRA mandate; (ii) conducting applied
    research and collecting data on local economic conditions and
    on effective strategies for improving them; and (iii)
    soliciting diverse views on issues affecting the economy and
    financial markets in support of the Federal Reserve's financial
    stability, supervisory, and regulatory responsibilities.

    Q.7. S-2688 superseded prior Fed Board guidance set orth in S-
    2442 (1981) and S-2473 (February 24, 1984). In order to put S-
    2668 in context, please provide copies of S-2442 and S-2473.

    A.7. I understand that Board staff have been coordinating with
    your staff on this request.

    Q.8. Did you or any other Federal Reserve Governor (including
    the Chair) have any meeting(s) (or any other form of
    communication) that discussed updating or broadening the
    Community Development Function with anyone in the White House
    prior to the 2017 release of S-2668?
        If so, where was the meeting held and who was in
    attendance?
        What was the meeting about?

    A.8. S-2668 is internal guidance to help facilitate the Federal
    Reserve's implementation of its CRA responsibilities. The Board
    of Governors approved S-2668 by a unanimous vote. I did not
    consult with anyone in the White House on this matter.

    Q.9. Did you or any other Federal Reserve Governor (including
    the Chair) have any meeting(s) focused on updating or
    broadening the Community Development Function with any outside
    groups prior to the 2017 release of S-2668?
        If so, where was the meeting held and who was in
    attendance?
        What was the meeting about?

    A.9. I did not have any meetings to discuss S-2668 with any
    outside groups prior to the Board's transmittal of the letter
    to the Federal Reserve Banks.

    Q.10. In December 2021, the 12-month CPI inflation rate was
    +7.0 percent.
        How much of this inflation can be attributed to the Fed's
    interest rate policy?
        How much of this inflation can be attributed to the Fed's
    $4.6 trillion of asset purchases in 2020 and 2021?
        How much of this inflation can be attributed to supply
    chain disruptions?
        How much of this inflation can be attributed to other
    factors and what are they, if any?

    A.10. As you note, inflation is too high, which hurts working
    people and families, especially the most vulnerable. It is
    difficult to undertake a precise quantitative decomposition of
    the effects that the various factors you mention are having on
    consumer price inflation, in part because we lack direct
    information on the way that supply disruptions are contributing
    to firms' costs, and how those costs are being passed through
    to prices. The evidence that households, businesses, and market
    participants appear to expect that the current high inflation
    readings will subside over time and that the Federal Reserve
    will meet its longer-term price stability goal of 2 percent PCE
    price inflation provides some evidence that the bulk of the
    recent increase in inflation is attributable to these pandemic-
    related factors.
        The Federal Reserve's interest rate policy actions and
    asset purchases in response to the COVID-19 shock, combined
    with rapid and sizeable fiscal support, helped to calm
    financial turmoil, save American jobs and businesses, and
    support a strong recovery. One way to get at the question about
    isolating the contribution of aggregate demand from other
    contributors is to compare inflation at similar levels of
    unemployment before and after the pandemic. At 3.9 percent, the
    current level of the unemployment rate is somewhat higher than
    the 3.5 percent rate that was achieved on the eve of the
    pandemic, when inflation was running around 2 percent, which
    suggests that the contribution of aggregate demand--and hence
    of monetary policy per se--to the recent increase in inflation
    has probably not been large.
        The recent high rates of consumer price inflation other
    than food and energy mostly stem from an extraordinary and
    sustained shift in the composition of consumer spending away
    from in-person services and towards durable goods, combined
    with supply-related constraints in those same sectors,
    resulting from multiple waves of COVID-19. U.S. consumers
    shifted spending toward goods--particularly durable goods--and
    away from in-person services due to the pandemic. At the same
    time, the availability of some of those same goods that are in
    high demand has been curtailed by supply chain disruptions here
    and especially abroad, as well as shipping constraints--due to
    COVID-related or weather--related disruptions. At the same
    time, labor shortages in many industries have exacerbated the
    restricted supply of both goods and services in some sectors.
    These labor shortages are themselves partly attributable to the
    effects of the pandemic, as caregiving needs and ongoing fears
    of the virus have weighed on labor force participation.

    Q.11. Economists often describe quantitative easing (QE) as
    working through a ``term premium effect.'' QE pushes down long-
    term yields by reducing the supply of Treasury debt and
    mortgage bonds.
        To the best of your understanding, how much do the Fed's
    portfolio holdings reduce the current 10-year Treasury yield?
    If uncertain, provide a plausible range.
        What models or analyses inform your estimate of the Fed
    portfolio's TPE?

    A.11. The effect of quantitative easing (QE) on financial
    conditions and the macroeconomy is the subject of active
    academic research, and a number of different channels have been
    identified in that literature. The mechanism by which QE
    affects the macroeconomy is generally through longer-term
    interest rates, which are affected by the expected path of the
    policy rate and by term premiums. QE can actually affect both
    of those components of longer-term yields. QE can affect the
    expected path of the policy rate through a signaling channel if
    the public perceives the Federal Open Market Committee's (FOMC)
    actions or communications about the balance sheet to imply a
    different future path of the policy rate than they were
    currently expecting. QE can directly affect term premiums in
    part through a duration-risk channel by changing the total
    amount of duration risk available to be held by private
    investors.
        There is a wide range of estimates of how much asset
    holdings affect the 10-year yield through a term-premium
    effect. One study \1\ that used data from early in the asset
    purchase program in 2008-2009 after the onset of the global
    financial crisis found effects that are equivalent to a 0.15
    percentage point effect from net purchases that were equal to
    10 percent of GDP, while another study \2\ found the equivalent
    of a 2.4 percentage point effect for the same amount of net
    purchases using different methods and a different sample
    period. These are just two of the studies collected in Gagnon
    (2016), \3\ which compares the estimates from a number of
    papers in a consistent manner and illustrates the wide range of
    estimates found in the literature. Importantly, many things
    affect term premiums and the effect of an identical amount of
    additional purchases is likely to be different in different
    macroeconomic conditions, or under different shapes or slopes
    of the yield curve.
    ---------------------------------------------------------------------------
         \1\ Christensen, Jens, and Glenn Rudebusch. 2016. ``Modeling
    Yields at the Zero Lower Bound: Are Shadow Rates the Solution?''
    Advances in Econometrics 35: 75-125.
         \2\ D'Amico, Stefania, and Thomas King. 2013. ``Flow and Stock
    Effects of Large-Scale Treasury Purchases: Evidence on the Importance
    of Local Supply''. Journal of Financial Economics 108, no. 2: 425-48.
         \3\ Gagnon, Joseph (2016), ``Quantitative Easing: An
    Underappreciated Success'', Peterson Institute for International
    Economics, Policy Brief, April.
    ---------------------------------------------------------------------------
        The range of estimates reinforces the uncertainty around
    the precise magnitude of the term premium effects of these
    purchases. While I retain a healthy level of humility about the
    precision of the balance sheet tool, there is good evidence
    that in both of the recent periods in which our policy rate
    reached its effective lower bound, asset purchases helped
    generate accommodative financial conditions in line with our
    statutory objectives of achieving price stability and maximum
    employment.

    Q.12. Traditional monetarist analysis suggests a different
    transmission mechanism for QE: the money supply. QE increases
    the amount of reserves in the banking system. A greater level
    of reserves earning a near-zero return drags down return on
    equity, incenting banks to increase lending. Lending boosts
    bank deposits, and therefore the money supply. In turn, all
    else equal, the greater money supply increases aggregate
    demand--and in the long run, prices.
        Do you believe this mechanism is important for explaining
    the transmission of monetary policy? Please explain your view
    and share any relevant research.
        Or if you do not yet have an informed view, will you commit
    to studying it further and briefing me and my staff?

    A.12. Traditional monetarist models emphasize the connection
    between reserves and bank deposits. In such models, when banks
    have excess reserves that are not earning interest, they
    reallocate these funds into interest-bearing activities like
    loans and investments. This activity in turn creates deposits
    held by the public, and these deposits form part of measures of
    the money supply like M2. This ``money multiplier'' paradigm--
    in which the growth of reserves corresponds more or less
    directly with the growth of the money supply as measured by
    M2--does not appear to have been a very accurate description of
    the relationship between bank reserves and the money supply in
    recent decades. This likely reflects the fact that the modern
    financial landscape contains elements not traditionally
    included in money-multiplier-style models, including interest
    on reserves and a binding lower bound on short-term interest
    rates.
        In recent decades financial innovation has loosened the
    historical linkage between the M2 monetary aggregate and
    economic variables like nominal GDP, real GDP, and inflation.
    As I noted in my testimony, it remains the case that inflation
    is fundamentally a monetary phenomenon. But M2 has diminished
    in usefulness as an indicator of monetary policy and,
    consequently, and monetary aggregates have not figured
    prominently in the FOMC's monetary policy deliberations for
    some time.

    Q.13. FOMC participants have reevaluated their views on the
    appropriate path of policy in light of recent inflation. In the
    December 2021 Summary of Economic Projections, the median FOMC
    participant projected three rate hikes in 2022, up from one
    rate hike. All participants see inflation slowing. However,
    three rate hikes would only raise overnight rates to between
    0.75 percent and 1.00 percent. In real terms, interest rates
    would still be sharply negative. While these projections are
    not a committee forecast, these numbers suggest that
    participants generally believe that inflation will fall despite
    real interest rates remaining in negative territory.
        How can the Fed curtail inflation while real interest rates
    remain negative?
        Does this imply that the neutral interest rate is now
    negative, and so a less negative rate can be contractionary?

    A.13. A mix of supply and demand factors are responsible for
    the level of inflation that we are currently experiencing. Our
    monetary policy tools work on the demand side, and are not
    effective at addressing supply constraints. An important
    component of my expectation that inflation will slow even as
    rates remain below their longer-run level is the expectation
    that supply constraints will ease during 2022. As constraints
    ease and supply increases in the affected sectors, inflation in
    these sectors should decelerate even if the level of demand
    remains the same. This is the case for new and used motor
    vehicles, where semiconductor supply constraints have been
    significant, and inflation has been unusually high over the
    past year. In addition to these supply-driven effects, the
    steps we have taken recently to bring net asset purchases to a
    close, as well as the projection you referenced for multiple
    increases in the policy rate this year, will tighten the stance
    of monetary policy and slow aggregate demand, also slowing
    inflation.
        Importantly, demand and inflation are influenced not just
    by the present setting of monetary policy vis-a-vis the neutral
    interest rate, but also by expectations regarding future
    monetary policy. Monetary policy influences broader financial
    conditions, through short- and longer-term interest rates, as
    well as through their effects on other asset prices and the
    broad value of the dollar. Longer-term interest rates, which
    are affected by both the expected path of the policy rate and
    the size of the balance sheet, are particularly important. As
    expectations about the future of the policy rate and the
    balance sheet shift, so too will broader financial conditions,
    with attendant macroeconomic effects.

    Q.14. In the past, you have spoken about the important role of
    fiscal policy in supporting monetary policy when the Fed is
    constrained by the zero lower bound. As I understand your view,
    fiscal policy can support aggregate demand when the Fed's
    primary tool (the overnight interest rate) is constrained. As
    you said in an October 2020 speech, ``Further targeted fiscal
    support will be needed alongside accommodative monetary policy
    to turn this K-shaped recovery into a broad-based and inclusive
    recovery.''[1] We have now seen the troubling result of that
    support: tremendous inflation. And rather than fix our long-
    term budget issues, my Democrat colleagues want to continue
    deficit spending. Others have proposed radical changes to the
    Fed's framework for monetary policy, such as allowing for
    negative nominal interest rates, or purchasing corporate bonds
    and equities. None of these radical proposals address the root
    issue: the neutral interest rate has fallen close to zero.
    [1] ``Achieving a Broad-Based and Inclusive Recovery'' (October
    21, 2020), available at https://www.federalreserve.gov/
    newsevents/speech/brainard20201021a.htm.
        Do you agree that the potential growth rate is closely
    connected to the neutral rate?
        All else equal, for each percentage point increase in the
    potential growth rate, how much would the neutral rate
    increase? If uncertain, provide a plausible range.
        In your view, what is the current neutral rate? If the
    neutral rate were to rise, at what level would the zero lower
    bound no longer be a salient concern for monetary policy?
        What models or analysis informs your estimate of the
    neutral rate, as well as the relationship between the neutral
    rate and the potential growth rate?

    A.14. Yes, the potential growth rate of the economy and the
    neutral rate are closely connected and appear to share some
    important drivers. That said, research results are mixed on the
    overall strength of the relationship, and estimating the
    neutral rate is challenging--a situation reflected in a wide
    range of reported values.
        Recent research \4\ shows that demographic factors are
    likely important drivers of both the potential growth rate and
    the neutral rate. That paper shows that demographic factors can
    account for a little more than a 1 percentage point decline in
    the equilibrium real interest rate since 1980, a magnitude
    comparable to the roughly 1\1/4\ percentage point decline in
    trend real GDP growth over the same period. This empirical
    finding indicating nearly 1-for-1 movements in trend growth and
    the neutral rate mirrors the 1-for-1 connection between
    potential output growth and the neutral rate in the frequently
    cited model, \5\ which made the 1-for-1 relationship between
    the two variables a feature of the estimates. Other researchers
    \6\ come to different conclusions, namely that the empirical
    correlations between longer-run average GDP growth and longer-
    run average real interest rates in both U.S. and international
    data are not as strong as would be suggested by the strength of
    the connections between the two series in theoretical models.
    In sum, there are structural factors, such as demographics,
    that are likely important drivers of both potential output
    growth and the neutral rate--but this relationship is more
    complicated than can be captured by simple models. An increase
    in potential output growth is very likely to result in an
    increase in the neutral rate, but the relationship is unlikely
    to be one-to-one.
    ---------------------------------------------------------------------------
         \4\ Gagnon, Etienne, Benjamin K. Johannsen, and David Lopez-
    Salido. 2021. ``Understanding the New Normal: The Role of
    Demographics''. IMF Economic Review 69 (2):357-90.
         \5\ Thomas Laubach, John C. Williams; ``Measuring the Natural Rate
    of Interest''. The Review of Economics and Statistics 2003; 85
    (4):1063-1070.
         \6\ Hamilton, James D., Ethan S. Harris, Jan Hatzius, and Kenneth
    D. West. 2016. ``The Equilibrium Real Funds Rate: Past, Present, and
    Future''. IMF Economic Review 64 (4):660-707.
    ---------------------------------------------------------------------------
        A variety of evidence suggests the neutral rate it has
    materially declined in recent decades. In the December Summary
    of Economic Projections (SEP), the median longer-run level of
    the nominal Federal funds rate was 2.5 percent, while the
    median longer-run inflation expectation was 2 percent, which
    would imply a real neutral rate of 0.5 percent. The level of
    uncertainty around that estimate is significant.
        It is difficult to say with certainty how much the neutral
    rate would have to rise in order for the effective lower bound
    to cease being a salient monetary policy concern. In prior
    decades, the policy rate was cut by 4.5 to 5 percentage points
    in an average recession--2 percentage points above the SEP
    median longer-run level of the nominal Federal funds rate.

    Q.15. Since 2020, the Fed has purchased about $4.6 trillion of
    bonds.
        With the benefit of hindsight, do you agree that the Fed's
    QE program went on for too long?

    A.15. Consistent with the Federal Reserve's statutory
    responsibilities for achieving price stability and maximum
    employment, the FOMC's purchases of longer-term Treasury
    securities and of agency mortgage-backed securities were an
    important tool in the Federal Reserve's response to the
    pandemic. A significant fraction, $2.4 trillion of the $4.6
    trillion you cite above, were purchased during the 3-month
    window from mid-March to mid-June 2020, at the height of the
    financial turmoil related to the onset of the pandemic. These
    purchases were intended to restore orderly financial market
    functioning in the early stages of the pandemic, thereby
    supporting the flow of credit to households and businesses and
    saving American jobs and businesses.
        Subsequently, the Federal Reserve's asset purchases
    provided necessary monetary accommodation consistent with our
    statutory responsibilities for price stability and maximum
    employment during a time when the Federal funds rate was at its
    effective lower bound. As such, they helped reduce the severity
    of the 2020 recession and supported the strongest recovery we
    have seen in five decades. In December 2020, the FOMC
    established outcome-based guidance indicating that asset
    purchases would continue at their existing pace until
    substantial further progress toward our statutory goals of
    maximum employment and price stability had been met. In the
    fall of 2021, the benefits of using outcome-based guidance
    became clear, as the goal of substantial further progress was
    achieved earlier than expected. The FOMC signaled following the
    September 2021 meeting that the substantial further progress
    threshold would soon be achieved, announced the tapering of
    purchases in November 2021, and accelerated the pace of the
    taper in December 2021 such that net purchases will end in
    March 2022.
        The FOMC's decisions regarding asset purchases have been
    taken in support of the dual mandate and in a way that has been
    transparently tied to economic outcomes on the labor market and
    inflation.

    Q.16. Going forward, would you support the Fed announcing a
    specific horizon for its average inflation targeting?

    A.16. Following a lengthy and considered process informed by
    research and outreach, the FOMC unanimously adopted a monetary
    policy framework. It includes a flexible average inflation
    targeting (flexible AIT) strategy that seeks to achieve
    inflation that averages 2 percent over time in order to ensure
    that longer-term inflation expectations are well anchored at 2
    percent.
        The FOMC deliberated on whether to adopt a specific horizon
    for its flexible AIT strategy and consulted a variety of
    research on this topic. A formal average inflation targeting
    (AIT) rule, under which the time horizon would be specified
    numerically is appealing in theory. But ultimately the FOMC
    determined that the drawbacks would likely outweigh the
    benefits in practice. As the FOMC noted in the Statement on
    Longer-Run Goals and Monetary Policy Strategy, the strategy
    aims to conduct policy in a way that anchors inflation
    expectations at 2 percent. The appropriate adjustment of
    monetary policy to achieve this goal will depend on a wide
    range of factors that could vary materially over time,
    depending on the economic circumstances, which could not be
    fully captured by a simple arithmetic formula pertaining to
    average inflation over a fixed time horizon. The FOMC concluded
    that a flexible AIT strategy is better matched to the highly
    uncertain and dynamic context in which policymaking takes
    place, and it is likely to be superior to mechanical AIT in
    terms of ease of communication and implementation, as well as
    in terms of the associated economic outcomes. Of course, the
    FOMC may revise its views in the future, in light of subsequent
    experience and research, which will also inform the evolution
    of my own views.

    Q.17. At a Financial Stability Oversight Council (FSOC) meeting
    in 2021, Treasury Secretary Yellen expressed potential systemic
    concerns resulting from ``liquidity risks'' associated with
    open-end mutual funds and money market funds. It is concerning
    that this will be used to justify an overreaching regulatory
    regime for both products.
        Do you believe that money market funds should be eliminated
    as an investment vehicle?

    A.17. No. The incentives for investors in prime and tax-exempt
    money market funds to run to redeem their shares in moments of
    crisis contributed to waves of large redemptions in 2008 and
    2020, which placed enough stress on the broader financial
    system to necessitate emergency actions to backstop financial
    markets. Such vulnerabilities can be addressed by the
    appropriate regulatory authority putting in place requirements
    to mitigate the vulnerabilities so that money market funds can
    continue to play an important role in the financial system. The
    Securities and Exchange Commission (SEC) has regulatory
    authority over money market funds.

    Q.18. Do you support retaining the viability of open-end mutual
    funds as an investment vehicle?

    A.18. Yes. Both the global financial crisis and the experience
    in 2020 demonstrated there can be vulnerabilities related to
    maturity and liquidity transformation. Such vulnerabilities can
    be addressed by the appropriate regulatory authority. The SEC
    has regulatory authority over such funds.

    Q.19. If confirmed, will you respect the SEC's jurisdiction to
    regulate money market funds?

    A.19. Yes.

    Q.20. Do you believe that the in-kind redemption mechanism for
    exchange-traded funds (ETFs) presents different liquidity
    concerns than cash redemptions from traditional mutual funds?
    If you believe there is a difference, please explain how that
    affects your views on how to regulate ETFs.

    A.20. I agree that in-kind redemption, in which securities are
    delivered to the redeeming party, creates less incentive for
    investors to run when compared with cash redemption. I defer to
    the SEC on the appropriate regulation of exchange-traded funds
    (ETFs).

    Q.21. On July 12, 2016, former Federal Reserve Governor Daniel
    Tarullo described the term ``shadow banking'' as evoking a
    ``sense of something hidden, furtive even'' in a speech.
        Do you believe this term should apply to open-end mutual
    funds registered with the SEC?

    A.21. To the best of my knowledge, open-end mutual funds are
    registered with the SEC, and data on such funds is available.

    Q.22. In 2018, the House of Representatives voted 406-4 in
    favor of the JOBS and Investor Confidence Act. Section 1501 of
    that legislation would have replaced the Dodd-Frank Act's
    stress test requirement applicable to SEC- and CFTC-regulated
    entities with an authorization to adopt rules requiring
    periodic analyses of financial condition, including available
    liquidity, of such entities under adverse economic conditions.
        Do you support this modification that the JOBS and Investor
    Confidence Act would have made?

    A.22. I defer to Congress regarding the creation of mandates,
    and I would defer to the respective judgements of the Commodity
    Futures Trading Commission and SEC regarding how they interpret
    their Congressional mandates. Under the Dodd-Frank Wall Street
    Reform and Consumer Protection Act (Dodd-Frank Act), the
    Federal Reserve implements a stress-testing regime for the
    largest and most systemically important banking institutions,
    and I believe this regime continues to support a well-
    capitalized banking system and that it contributed to that
    system's ability to weather the financial turmoil at the outset
    of the pandemic. Reflecting our experience with stress testing
    and our responsibilities under the Dodd-Frank Act, we also have
    engaged in collaborative efforts among regulators--both
    domestic and international--to develop macroprudential stress
    testing for systemically important central counterparties.

    Q.23. I am concerned about the FSOC's designations of
    Systemically Important Financial Institutions (SIFIs). A SIFI
    designation is troubling in part because it creates moral
    hazard: it formalizes an institution's ``too big to fail''
    status and creates the expectation that the taxpayers will bail
    out a SIFI that falls into financial distress. Also troubling
    is FSOC's history of exercising its SIFI designation powers.
    Under the Obama administration, FSOC made overreaching SIFI
    designations of nonbanks in a nontransparent manner and without
    providing a clear path for dedesignation.
        In 2019, FSOC issued a policy that made several
    improvements to the nonbank designation process. These included
    emphasizing that designation is a last resort, requiring cost-
    benefit analysis and an assessment not only of the impact of a
    risk but also the likelihood that it will be realized, as well
    as creating both predesignation and postdesignation ``off-
    ramps'' to help firms and regulators avoid or reverse SIFI
    designation by mitigating systemic risks.
        Will you commit that, if confirmed, you will support
    ensuring that FSOC:

        Continues to treat SIFI designation as a last
            resort;

        Maintains a transparent process for SIFI
            designation;

        Conducts robust cost-benefit analysis for all
            designations; and

        Provides institutions with the opportunity to avoid
            designation and, if designated, a path to reverse such
            designation?

    A.23. Under the Dodd-Frank Act, Chair Powell is a member of the
    Financial Stability Oversight Council (FSOC), and I have not
    participated in the FSOC's deliberations regarding systemically
    important financial institution (SIFI) designation.

    Q.24. Under what conditions, if any, would you support the FSOC
    or the Financial Stability Board (FSB) designating mutual
    funds, ETFs, and money market funds as nonbank SIFIs?

    A.24. As noted above, I have no role in FSOC designation.
    Regarding the Financial Stability Board (FSB), FSB outcomes are
    not binding on U.S. regulatory agencies, and the FSB does not
    engage in designating mutual funds, ETFs, and money market
    funds as nonbank SIFIs.

    Q.25. Asset managers provide investment advice to clients. They
    do not bear the risk of investments made by their clients
    because asset managers do not own those assets.
        Should asset managers be designated by the FSOC or the FSB
    as nonbank SIFIs? If so, under what conditions?

    A.25. As noted above, I do not have a role in FSOC designation,
    and the FSB does not engage in designating asset managers as
    nonbank SIFIs.

    Q.26. Over the past few years, there have been several
    disruptions in the U.S. Treasury market (both cash and
    futures), which is generally considered to be the deepest and
    most liquid market in the world.
        Some Treasury market observers have expressed concerns
    about regulatory fragmentation, with responsibilities divided
    between five or more agencies. Others have called for specific
    regulatory reforms, including (1) mandatory central clearing,
    (2) amendments to bank capital rules, and (3) additional data
    collection.
        Do you believe that the current regulatory framework for
    oversight of the Treasury market is adequate? If not, what
    changes do you believe should be made?

    A.26. The Treasury market is one of the most important and
    liquid securities markets in the world. Businesses and
    investors treat Treasury securities as risk free assets that
    can be converted into cash at a moment's notice to meet
    liquidity demands. This higher level of liquidity has been an
    important property of Treasury markets for decades. However, as
    you note, several disruptions have occurred in the Treasury
    market in recent years during which the level of transactional
    liquidity has declined, sometimes precipitously. The Federal
    Reserve has been partnering with the U.S. Department of the
    Treasury and other regulatory agencies in the Interagency
    Working Group to examine the data to ascertain why Treasury
    market liquidity has been fragile at moments of stress, and to
    consider potential reforms that may help to increase Treasury
    market resilience in moments of stress.
        Your list above represents some of the more commonly
    discussed reform measures. As was noted in the November 2021
    report from the IAWG on Recent Disruptions and Potential
    Reforms in the U.S. Treasury Market, there is a lot of analysis
    yet to be done. The potential benefits and costs of expanded
    central clearing and other steps to facilitate all-to-all
    trading vary across market segments. Segments also differ in
    the mechanisms available for market participants to access the
    central counterparty and in the data available to the
    authorities. The benefits, costs, and feasibility of expanded
    clearing can depend on these differences between market
    segments.
        It is important to note that the Federal Reserve does not
    have regulatory authorities over markets and trading venues,
    which is more often the purview of the SEC. For instance, the
    SEC's recent proposals extend the operational access,
    disclosure, and regulatory oversight provisions of Regulation
    ATS and the system integrity provisions of Regulation SCI to
    Treasury-market trading venues.
        The Federal Reserve has taken a more active role in
    improving and increasing data collection within Treasury
    markets. The Board approved a final rule requiring depository
    institutions who reach certain thresholds of trading activity
    in Treasury and Agency debt and mortgage-backed securities
    transactions to report those transactions through the Financial
    Industry Regulatory Authority's TRACE reporting system. That
    requirement is scheduled to go into effect on September 1,
    2022. The Federal Reserve has previously worked closely with
    the Office of Financial Research on its collection of centrally
    cleared Treasury repo market data, and we are supportive of
    collecting similar data for the noncentrally cleared segment of
    this market.

    Q.27. On September 25, 2020, the FSOC released a statement on
    its activities-based review of the secondary mortgage market.
    FSOC's statement affirmed the overall quantity and quality of
    the regulatory capital required by the Federal Housing Finance
    Agency's (FHFA) June 30, 2020, proposed rule to establish a new
    regulatory capital framework for Fannie Mae and Freddie Mac
    (each, a GSE).[2] Specifically, FSOC stated that ``risk-based
    capital requirements and leverage ratio requirements that are
    materially less than those contemplated by the proposed rule
    would likely not adequately mitigate the potential stability
    risk posed by the Enterprises.''[3] FSOC also concluded ``it is
    possible that additional capital could be required for the
    Enterprises to remain viable concerns in the event of a
    severely adverse stress.'' (emphasis added).[4] FSOC also
    committed to ``continue to monitor . . . FHFA's implementation
    of the regulatory framework to ensure potential risks to
    financial stability are adequately addressed.'' On December 17,
    2020, FHFA finalized a regulatory capital framework for the
    GSEs that included leverage ratio requirements that were
    identical to those in the proposed rule.[5]
    [2] 85 FR 39,274.
    [3] https://home.treasury.gov/system/files/261/Financial-
    Stability-Oversight-Councils-Statement-on-Secondary-Mortgage-
    Market-Activities.pdf
    [4] Id.
    [5] 85 FR 82,150.
        FHFA has since proposed reducing the regulatory capital
    required by both the risk-based capital requirements and the
    leverage capital requirements of FHFA's final rule.[6]
    [6] 86 FR 53,230.
        In light of FSOC's commitment to monitor FHFA's
    implementation of the GSEs' regulatory framework, which
    includes the regulatory capital framework, did FHFA solicit
    input from the Board of Governors of the Federal Reserve System
    (the Fed) before proposing to reduce the aforementioned capital
    requirements? If yes, please provide a copy of those comments.
        Did the FHFA ask the Fed whether the proposed amendments to
    the GSEs' regulatory capital framework would adequately address
    potential risks to financial stability? If yes, please provide
    a copy of the Fed's response on this question.
        Has the Fed otherwise reviewed the proposed amendments to
    the GSEs' regulatory capital framework?

    A.27. By the Dodd-Frank Act, Chair Powell is a member of the
    FSOC. I have not been involved in this issue.

    Q.28. FHFA's proposed amendments include a proposed reduction
    in the prescribed leverage buffer amount (PLBA). If finalized
    as proposed, the amendments would reduce each GSE's PLBA by
    two-thirds (from 1.5 percent of adjusted total assets to
    approximately 0.5 percent) and its PLBA-adjusted leverage
    capital requirements by one-quarter (from 4.0 percent of
    adjusted total assets to approximately 3.0 percent).
        As a participant in FSOC's secondary market review, would
    FHFA's proposed amendments, if finalized, result in ``leverage
    ratio requirements that are materially less than those
    contemplated by [June 30, 2020] proposed rule''?[7]
    [7] 86 FR 53,230.

    A.28. By the Dodd-Frank Act, Chair Powell is a member of the
    FSOC. I have not been involved in this issue.

    Q.29. FSOC stated that ``a meaningful leverage ratio
    requirement that is a credible backstop to the risk-based
    requirements would address potential risks to financial
    stability by ensuring that the capital requirements are
    consistent with historical loss experiences during severe
    stresses while mitigating model, measurement, and related risks
    with a simple, transparent measure of risk.'' Taking into
    account the 20 percent risk weight floor on mortgage exposures
    (1.6 percent of the exposure amount), the floor on the stress
    capital buffer (0.75 percent of adjusted total assets), and the
    current sizing of each GSE's stability capital buffer (1.0
    percent and 0.7 percent of adjusted total assets for Fannie Mae
    and Freddie Mac, respectively), it appears exceedingly unlikely
    that a GSE's risk-based capital requirement could ever be less
    than the proposed leverage capital requirements of 3.0 percent
    and 2.9 percent for Fannie Mae and Freddie Mac, respectively,
    even if a substantial portion of a GSE's mortgage exposures
    were subject to the risk weight floor.
        As a participant in FSOC's secondary market review, and in
    light of the apparently very remote prospect that the GSEs'
    risk-based capital requirements could ever be less than the
    proposed leverage capital requirements, would the proposed
    amendments to the PLBA result in ``a meaningful leverage ratio
    requirement'' and would the proposed leverage capital
    requirements be ``a credible backstop to the risk-based
    requirements'' within the meaning of FSOC's statement?

    A.29. By the Dodd-Frank Act, Chair Powell is a member of the
    FSOC. I have not been involved in this issue.

    Q.30. As part of its rationale for the proposed amendments to
    the PLBA, FHFA noted that ``Basel III standards require
    systemically important banks to hold a tier 1 capital leverage
    ratio buffer in excess of a 3 percent leverage requirement
    equal to 50 percent of a GSIB's higher loss-absorbency risk-
    based requirements.'' FHFA also stated that it intended to
    amend the PLBA ``in a manner similar to the U.S. banking
    regulators' proposal to set the eSLR buffer to one-half of the
    GSIB surcharge'' and that ``a dynamic PLBA that is tied to the
    stability capital buffer would further align the [Enterprise
    Regulatory Capital Framework] with Basel III standards.''
    Related to this, former Fed Vice Chair for Supervision Quarles
    recently said ``[w]ith respect to the enhanced supplementary
    leverage ratio (eSLR) that applies to U.S. global systemically
    important banks (GSIBs), the best way to address this problem
    is the approach endorsed by the Basel Committee: recalibrating
    the fixed 2-percent eSLR buffer requirement to equal 50 percent
    of the applicable GSIB capital surcharge, with corresponding
    recalibration at the bank level.''[8]
    [8] Governor Randal K. Quarles, ``Between the Hither and the
    Farther Shore: Thoughts on Unfinished Business'' (Dec. 2,
    2021), available at www.federalreserve.gov/newsevents/speech/
    quarles20211202a.htm.
        Importantly, a GSIB's eSLR buffer requirement is a percent
    of risk-weighted assets, while a GSE's stability capital buffer
    requirement is a percent of adjusted total assets. If the
    intent were to align FHFA's approach to the PLBA with the Basel
    Committee's approach to the eSLR buffer, would each GSE's
    stability capital buffer requirement first need to be converted
    to an equivalent that is expressed as a percent of risk-
    weighted assets (e.g., by dividing the stability capital buffer
    requirement by the average risk weight of the GSE's assets
    (currently around 33 percent))?

    A.30. The Government-sponsored enterprises (GSEs) are an
    integral part of our housing finance system; therefore, it is
    essential that they are fully capitalized and subject to
    appropriate micro- and macroprudential standards to ensure they
    do not pose a threat to financial stability. Congress has
    charged the Federal Housing Finance Agency with oversight of
    the GSEs, and therefore, they are best placed to make relevant
    regulatory and supervisory decisions.

    Q.31. You have stated that climate scenario analysis is
    ``distinct from our traditional regulatory stress tests at
    banks.''[9] Given the short, nine-quarter time horizon of the
    Federal Reserve's stress tests, it would be inappropriate to
    use this exercise to assess climate-related risk. I am
    concerned, however, that certain Federal Reserve officials are
    advocating for incorporating climate scenarios into the stress
    tests. For example, last year the Federal Reserve Bank of New
    York (FRBNY) published a staff report on climate stress
    testing,[10] which would seem to conflict with your statement
    at the hearing that the Fed was not considering stress tests.
    Do you wish to acknowledge that the Fed is in fact working on
    climate stress testing options?
    [9] https://www.federalreserve.gov/newsevents/speech/
    brainard20210218a.htm
    [10] https://www.newyorkfed.org/medialibrary/media/research/
    staff-reports/sr977.pdf

    A.31. I am not familiar with the staff paper you reference
    above. The Federal Reserve System has a number of working paper
    series and the papers in these series are independent research
    by Federal Reserve staff, sometimes with outside coauthors.
    Papers in these series do not represent official positions of
    the Federal Reserve System and these papers are required to
    carry a disclaimer identifying that fact.
        Climate scenario analysis is designed to model the possible
    financial risks associated with climate change and to assess
    the resilience of individual financial institutions and the
    financial system to these risks. It is a useful tool to assess
    the links between climate-related risks and economic and
    financial outcomes, which is distinct from the Federal
    Reserve's regulatory stress-testing regime. Climate scenario
    analysis and the regulatory stress tests serve different
    objectives and seek to measure risks over different time
    horizons. Climate scenario analysis is typically exploratory in
    nature, longer-term, and considers plausible but novel
    combinations of risks that are associated with substantial
    uncertainty. The analysis would be used to identify and scale
    risks across a range of plausible scenarios and would not be
    tied to regulatory capital decisions or specific supervisory or
    regulatory outcomes. Regulatory stress tests, by contrast, are
    used to assess capital adequacy relative to specific shocks in
    the short-term and have consequences for capital and
    supervisory ratings.

    Q.32. I am concerned that a recent Federal Reserve Bank of New
    York (FRBNY) staff report on climate stress testing[11] is
    predicated on numerous extreme and implausible assumptions,
    including a 50 percent drop in the return on a ``stranded asset
    portfolio,'' which is comprised predominantly of coal exposures
    and a short position in the S&P 500, over a 6-month period. The
    parameters of this paper raise concerns that it was
    intentionally constructed to overstate the climate-related risk
    of in-scope banks. If the Federal Reserve continues to study
    climate-related risk, do you commit that research informing
    policy decisions will be subject to public comment to ensure
    its accuracy and objectivity?
    [11] https://www.newyorkfed.org/medialibrary/media/research/
    staff-reports/sr977.pdf

    A.32. As I indicated in response to Question 25, I have not
    read the staff paper you reference above. I view the Federal
    Reserve's responsibilities related to assessing climate-related
    risks through the lens of our prudential and financial
    stability statutory responsibilities. From a prudential
    perspective, the focus is on evaluating whether large
    supervised institutions operate in a safe and sound manner and
    manage all material risks, including those related to climate
    change. From a financial stability perspective, the focus is on
    identifying, assessing, and addressing climate-related risks to
    financial stability, such as climate-related financial shocks
    and financial system vulnerabilities.

    Q.33. In a recent speech, Acting Comptroller of the Currency
    Michael Hsu stated that ``[a] carbon tax can be thought of as
    the transition risk equivalent of the `severely adverse'
    scenario in CCAR.''[12]
    [12] https://www.occ.gov/news-issuances/speeches/2021/pub-
    speech-2021-116.pdf
        As the Federal Reserve develops its approach to climate
    scenario analysis, would it be appropriate for that scenario
    analysis to include assumptions about future actions by
    Congress?
        If yes, please explain how the Federal Reserve would
    forecast the future actions of Congress?
        Would it be appropriate for the Federal Reserve to consider
    potential future Congressional action in the context of climate
    scenario analysis but not in other areas of its supervision?
        Would it be appropriate for the Federal Reserve to consider
    the pending expiration of numerous tax subsidies to green
    energy sources as part of its climate scenario modeling/stress
    tests?

    A.33. Climate-related financial risks may have implications for
    the safety and soundness of financial institutions and the
    stability of the financial sector more broadly. Our role is to
    ensure supervised institutions, and the financial system, are
    resilient to material risks, including those related to climate
    change.
        At the Federal Reserve, we are carefully considering the
    potential implications of such risks for financial institutions
    and the financial system, with scenario analysis as a potential
    key analytical tool for that purpose. Through scenario analysis
    exercises, we can explore plausible, but novel, combinations of
    risks that are associated with substantial uncertainty and
    begin to dimension their potential effects on different asset
    classes, regions, and sectors. This tool can help us assess the
    financial system for vulnerabilities related to climate change
    and deepen our understanding of the interconnections between
    the climate, the economy, and the financial sector.
        Climate scenario analysis exercises can consider a range of
    potential outcomes. Physical risk scenarios could, for example,
    include assumptions around the frequency and severity of severe
    weather events, the impact of sea level rise on coastal
    communities, or the availability or affordability of insurance.
    Transition risk scenarios could, for example, include
    assumptions related to an abrupt repricing of certain assets
    triggered by shifts in policy, investor sentiment, or
    technological innovation.
        The fields of economics and risk management have a long
    history of estimating the potential effects of policy changes
    on variables such as economic growth and financial market
    outcomes. Incorporating the effects of potential public policy
    changes in this type of scenario analysis exercise is not a
    forecast about what will happen, but rather a tool to assess
    the resilience of our financial system to a range of outcomes
    and to promote prudent risk management across these potential
    outcomes.

    Q.34. If the Fed receives authorization from Congress for the
    creation of a central bank digital currency (CBDC), the Fed
    will still have to make many crucial decisions regarding its
    design and implementation.
        The ability to freely transact without transaction level
    Government monitoring should be a core component of any U.S.
    CBDC. How important do you think individual privacy protections
    are in the design of a CBDC? What privacy measures do you think
    should be included in its design?
        There is absolutely nothing in the history, experience,
    expertise, or capabilities of the Fed that lend the Fed to
    being a retail bank. Do you think that the Fed should provide
    direct retail accounts for use with a CBDC, or for any other
    purpose?
        If existing law were to change and the Fed was given the
    option by Congress to allow for retail accounts, do you believe
    the Fed should make them available?
        If the Fed were to issue retail accounts to individuals,
    what could be some of the negative consequences to existing
    private financial institutions that serve the American public?

    A.34. Individual privacy protections are critical in the design
    of any central bank digital currency (CBDC). It is important
    that any potential CBDC safeguard the privacy of households'
    payments transactions, a principle which was highlighted in the
    Board's recently published discussion paper on CBDC. Similarly,
    it is also fundamental that any potential CBDC prevent and
    trace illicit activity, which requires the digital verification
    of identities. To help us better understand possible ways to
    achieve both aims effectively, we are soliciting ideas from a
    wide range of stakeholders through our discussion paper.
        It is the purview of Congress to determine whether it
    should authorize the Federal Reserve to offer retail accounts
    directly to consumers. To help us better understand the
    perspectives of a broad range of stakeholders with regard to
    CBDC, the Federal Reserve recently issued a discussion paper on
    CBDC. The paper notes that initial analysis suggests that a
    potential U.S. CBDC, if one were created, would best serve the
    needs of the United States by being privacy-protected,
    intermediated, widely transferable, and identity verified.

    Q.35. Stablecoins offer tremendous potential benefits,
    including greater payment speed, lower costs, expanded access
    to the payment system, and programmability. I was disappointed
    that the recent President's Working Group (PWG) report on
    stablecoins failed to highlight these potential benefits and
    recommended a regulatory response that would limit innovation.
    Some would even go further, subjecting all stablecoins to
    securities regulation, or prohibiting their issuance if the
    Government were to issue its own digital currency that was
    pegged to the value of the dollar.
        Is there anything in the creation of a CBDC that ought to
    preclude well-regulated, privately issued stablecoins from
    coexisting with a CBDC?

    A.35. No. Any potential CBDC should be viewed as a way to
    expand payment options available to the public, rather than
    restrict them. There is good reason to expect that multiple
    types of digital payments will coexist, much like the variety
    of payment options today. As you note, the key is that
    privately issued stablecoins be well-regulated.

    Q.36. Most stablecoins are pegged to the U.S. dollar, and many
    are used in international markets. Could stablecoins contribute
    to the dollar's use internationally?

    A.36. Yes. This would depend on a variety of factors.

    Q.37. Over the past year, there has been an increasing backlog
    of bank merger applications pending Fed review. In recent
    months, some have come to believe that a de facto moratorium on
    bank mergers and acquisitions was in place at the Fed. As this
    Committee has seen in another area under its jurisdiction,
    namely, the Committee on Foreign Investment in the United
    States (CFIUS) process, an informal moratorium could be put in
    place by regularly sending requests for additional information
    to applicants and claiming that the application is not yet
    complete.
        Are you aware of any formal or informal effort at the Fed
    to delay the resolution of bank merger applications?
        Do you believe that the Fed's current merger approval
    process provides clear instructions to applicants such that
    they can reasonably expect to submit a complete application
    without multiple rounds of revisions and additional questions?
        Will you commit not to deliberately delay the bank merger
    application process, and to hold your staff accountable for
    doing the same?
        Will you commit to consider each application on its
    individual merits?

    A.37. I am not aware of any effort of this nature. Congress
    provided a statutory timeframe in which to process bank merger
    applications, and I have supported and will continue to support
    matters moving to the Board in a timely manner.
        As part of the evaluation process, the Board gathers
    information necessary to form a complete record. Applicants are
    given clear and detailed instructions regarding what is
    required, and the staff may need to request additional
    information or ask for clarification from applicants. In order
    to make an informed decision, it is essential to have all
    relevant information.
        Congress specified a framework to evaluate merger and
    acquisition applications comprised of a variety of factors that
    we carefully evaluate--competition and future prospects,
    financial and managerial resources, convenience and needs of
    communities to be served, Community Reinvestment Act
    performance, Bank Secrecy Act/Anti-Money Laundering compliance,
    and financial stability. For each application, I consider the
    specific record on those factors, and I commit to continuing
    that practice.

    Q.38. Congress established a set of requirements for the Fed
    review of bank merger applications under the Bank Holding
    Company Act (BHCA) by establishing specific factors for
    consideration. The statute does not give the agency discretion
    to depart from them.[13] Further, BHCA sets a 91-day deadline
    for the Fed to approve or disapprove of the application after
    the record is complete.[14] To ensure the Fed cannot ignore
    this deadline, Congress structured the law to automatically
    grant any merger application the Fed fails to act on within
    that timeframe.[15] An express or de facto moratorium would
    appear to directly contravene the law.
    [13] See, Bank Holding Company Act, 12 U.S.C. 1842(c)(1).
    [14] Id. 1842(b)(1).
    [15] Id. 1842(b)(1).
        Will you commit to review complete bank merger applications
    expeditiously, as required by law?
        Will you commit not to deliberately delay the bank merger
    application process, and to hold your staff accountable for
    doing the same?
        Will you commit to consider each application on its
    individual merits?

    A.38. Yes. As stated in my response to Question 30, I commit to
    reviewing matters expeditiously and on their individual merits,
    and I will continue to support matters moving swiftly to the
    Board.

    Q.39. Please describe with particularity the process by which
    you answered these questions for the record, including
    identifying who assisted you in answering these questions along
    with a brief description of their assistance.

    A.39. As is my standard practice, I have engaged with Board
    staff to receive their input in compiling these responses. The
    responses to these questions and the views expressed are mine.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
                  SENATOR MENENDEZ FROM LAEL BRAINARD

    Q.1. While there has been some progress in diversifying the
    Class C Directors chosen by the Fed, the Class B Directors
    elected by member banks remain predominantly White, male, and
    representative of banks and large businesses.
        What specific steps would you take to help further
    diversify the Boards of Directors at the Federal Reserve Banks?

    A.1. The Federal Reserve should reflect the communities we
    serve. The Federal Reserve was founded on a recognition of the
    importance of bringing a diversity of perspectives to the
    table. That is reflected in the twelve Reserve Banks, and their
    branches, located in different regions across the country. We
    have not yet achieved that standard on other dimensions.
    Research suggests that having more diverse perspectives at the
    table--diversity of every type--leads to less groupthink and
    better outcomes.
        I have worked to increase diversity among the Federal
    Reserve System's boards of directors. Our Class C directors are
    materially more diverse than they were 5 years ago. Minority
    representation among Class C directors has increased by 31
    percentage points, and currently nearly two-thirds of Class C
    directors are minorities (22 percent of which are Hispanic/
    Latino). Currently, more than half of Class C directors are
    women, 33 percent of whom are minorities.
        The leadership of Reserve Bank boards is also highly
    diverse. Currently 20 of the 24 Reserve Bank Chairs and Deputy
    Chairs are diverse in terms of race or ethnicity and/or gender.
        As you reference in your question, Class B directors are
    nominated and elected by the member banks in their respective
    District, as are Class A directors. Although progress has also
    been made among Class B directors, it is important to make
    further progress.
        The current recruitment processes focus on outreach;
    tapping directors' professional networks to recruit in specific
    sectors; leveraging relationships with members of the Federal
    Reserve Board's and the Reserve Banks' numerous advisory
    councils; and engaging with community and business contacts to
    identify potential sources of candidates for director
    positions. We continue to look for ways to broaden our outreach
    efforts. I am committed to working with senior Reserve Bank
    leaders to build upon these practices in order to identify more
    diverse pools of candidates for director positions.

    Q.2. One idea I believe could help is to bring greater
    transparency and public participation into the selection
    process. This would provide additional legitimacy to the Banks
    and promote Fed leadership that actually represents the public
    it oversees.
        Would you support a venue for genuine public participation
    in the Class B and C Director selection processes?

    A.2. I support genuine public engagement on the Class B and C
    director selection processes. As I noted in my response to
    question #1, the current recruitment processes for director
    positions involve building relationships and connecting with
    members of the public. Senior Federal Reserve System staff
    engage community, business, and labor leaders through a variety
    of outreach and engagement forums to expose members of the
    public to the Federal Reserve and its mission and to solicit
    their input on best practices and gaps in recruiting for
    director positions.
                                    ------

           RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
                           FROM LAEL BRAINARD

    Q.1. How does the financial stability of lower income
    individuals factor into your view of the Fed's dual mandate?

    A.1. The Federal Reserve promotes maximum employment and price
    stability--its dual-mandate goals--and in doing so it directly
    and positively affects the financial health of lower income
    individuals. For all but the top 5 percent of the income
    distributions, wage income makes up around 60 to 80 percent of
    total income for working-age households (see, Feiverson et al.,
    2020, pp. 9 to 11). \1\ As such, the Federal Reserve's policy
    actions to promote maximum employment also support household
    wage income and, in turn, the financial health of lower income
    households. In this regard the Federal Reserve's broad and
    inclusive definition of its maximum employment goal is
    especially important. This goal means that we do not just look
    at the headline unemployment rate, or any high-level aggregate,
    when setting policy, but rather we monitor a wide range of
    labor market indicators to assess whether progress toward
    maximum employment is broad and inclusive. Our policies to
    promote price stability also foster lower-income individuals'
    financial health. High inflation takes a toll on families,
    especially those with lower incomes who are burdened by the
    higher costs of essentials like food, housing, and
    transportation.
    ---------------------------------------------------------------------------
         \1\ Laura Feiveson, Nils Goernemann, Julie Hotchkiss, Karel
    Mertens, and Jae Sim (2020), ``Distributional Considerations for
    Monetary Policy Strategy'', Finance and Economics Discussion Series
    2020-073 (Washington: Board of Governors of the Federal Reserve
    System). The analysis in this paper was prepared as background for the
    Federal Open Market Committee's discussions at its December 2019
    meeting on distributional considerations for monetary policy.
    ---------------------------------------------------------------------------
        To better understand how the Federal Reserve's policy
    actions affect the financial health of households--including
    lower income households--the Federal Reserve has made a number
    of enhancements to its data collections and to its community
    outreach efforts. Enhancements to our data collections in
    recent years include the development and publication of new
    surveys--such as, the Distributional Financial Accounts, which
    reports quarterly estimates of wealth, assets, and debt by race
    and ethnicity, and the Survey of Household Economics and
    Decisionmaking (SHED), which reports on the economic well-being
    of American households, including among racial and ethnic
    groups--and the enhancement of existing surveys--such as the
    Survey of Consumer Finances (SCF), which in this year's survey
    will include improved measures of racial disparities.
    Enhancements to community outreach have most notably included
    the launch of Fed Listens, which began in 2019 as a series of
    events undertaken as part of our framework review and which we
    have been continued since then. Fed Listens events, which take
    place around the country and engage with a wide range of
    individuals and groups--employee groups and union members,
    small business owners, residents of low- and moderate-income
    (LMI) communities, workforce development, organizations and
    community colleges, retirees, and others--provide an
    opportunity to hear about how monetary policy affects peoples'
    daily lives and livelihoods and we view the stories that we
    hear from these events to be a highly useful input into our
    policy monetary deliberations.
        A better understanding of how our monetary policy actions
    affect different socioeconomic groups also helps us to better
    conduct monetary policy in order to fulfill our dual mandate.
    For example, Feiverson, et al. (2020), showed that the costs of
    recessions to the society would be larger once we consider the
    differences across households' abilities to access credit; as a
    result, monetary policy strategies aiming to stabilize
    inflation over longer time horizons, along lines similar to
    what we adopted under the updated Statement on Longer-Run Goals
    and Monetary Policy Strategy, would be more successful at
    reducing the frequency of recessions and the severity of
    unemployment-rate increases during recessions.

    Q.2. When considering raising interest rates to curb inflation,
    how does the effect of raising interest rates on low income
    borrowers factor your decision?

    A.2. Low-income households benefit from conditions of maximum
    employment and low inflation, which is what our monetary policy
    is designed to achieve. The U.S. economic expansion that
    preceded the pandemic was historically unprecedented in its
    length. The length of the expansion benefited low-income
    Americans by providing a continuous increase in job
    opportunities and growing levels of employment in a low
    inflation environment. An important principle suggested both by
    economic theory and by the economic experience of the United
    States and other countries is that long expansions are
    facilitated by price stability and stable longer-term inflation
    expectations. Against this background, changes that the Federal
    Open Market Committee (FOMC) makes to its target range for the
    Federal funds rate--including rate increases when it judges
    these to be appropriate--are designed to put in place a
    monetary policy stance most consistent with achieving and
    sustaining our dual mandate of maximum employment and price
    stability. Our decisions take place in the context of our new
    monetary policy framework, which recognizes that maximum
    employment is a broad and inclusive goal, encompassing low-
    income workers and those traditionally on the margin of the
    labor force. For the reasons I indicated above, achieving our
    maximum-employment goal on an ongoing basis requires creating
    conditions consistent with long, noninflationary expansions.

    Q.3. If confirmed, what steps will you take ensure that the
    Federal Reserve works for people of all levels of wealth and
    income?

    A.3. If confirmed, I will work to ensure the Federal Reserve
    carries out its statutory responsibilities with regard to
    people around the country at all levels of wealth and income.
    The Federal Reserve has tools and responsibilities with regard
    to monetary policy on the one hand, as well as supervision and
    regulation. Both make important contributions to widely shared
    prosperity.
        By pursuing our statutory mandate, the Federal Reserve's
    monetary policy actions promote maximum employment and price
    stability--two foundations that improve economic outcomes for
    all Americans. Those who have historically been left behind
    stand the best chance of prospering in a strong, stable economy
    with plentiful job opportunities and low inflation.
        The lengthy expansion that was brought to a close by the
    pandemic showed the immense benefits that a strong labor market
    with low inflation can provide to all communities, and
    especially to LMI communities. The pandemic is a reminder that
    LMI communities are the most vulnerable to economic downturns
    and also that the Federal Reserve has powerful tools to help
    support a strong recovery.
        Currently we are seeing the strongest recovery in five
    decades with strong growth and the creation of millions of
    jobs, but inflation is too high. Monetary policy is focused on
    getting inflation down to target, which is important for
    working people who are concerned about how far their paychecks
    will go, while sustaining a recovery that includes everyone.
        The Federal Reserve staff undertake important data
    collections on consumer and small business finances and the
    economic wellbeing of households broken out by wealth and
    income. If confirmed, I will support this work, which provides
    an important window into how well our policies are achieving
    their goals.
        The Federal Reserve also has important supervisory and
    regulatory responsibilities that promote fair and equal access
    to credit and financial services.
        The Community Reinvestment Act (CRA) is an essential
    regulation and supervisory tool to promote access to credit
    investment in LMI communities. I have worked to strengthen CRA
    regulations and evaluations to increase the effectiveness,
    transparency and accountability in how banks are rated on their
    affirmative obligation to meet the investment, credit, and
    banking services needs of their local communities, including
    through improved access to home mortgage, small business, and
    student lending for LMI households and communities. The CRA
    evaluations are public and are taken into consideration in the
    review of banks' applications for merger and acquisitions.
    Currently, staff at the Board, Federal Deposit Insurance
    Corporation (FDIC) and the Office of the Comptroller of the
    Currency (OCC) are working together to propose for public
    comment revisions to the regulations that implement CRA.
        Further, the Federal Reserve examines banks for compliance
    and helps enforce the Fair Housing Act and the Equal Credit
    Opportunity Act. In implementing our statutory
    responsibilities, the Federal Reserve works to make sure that
    the State member banks we examine have credit policies and
    practices in place that are fair and do not prevent any
    creditworthy consumer from getting access to credit, do not
    result in discrimination in the pricing of credit, or redline
    neighborhoods based on their racial and ethnic composition. If
    examiners identify a pattern or practice of illegal
    discrimination on any of the prohibited factors defined in the
    laws, staff cite it and refer the case to the Department of
    Justice for further enforcement.
        To further support access to economic opportunity for
    people of all levels of wealth and income, the Federal Reserve
    has a long-standing program to promote the viability of
    minority depository institutions (MDIs), which are mission-
    oriented and dedicated to serving the banking and credit needs
    of minority consumers and communities. Through the Federal
    Reserve System's Partnership for Progress (PFP) program, we
    provide technical assistance and training in collaboration with
    the FDIC and OCC to help MDI leaders overcome the challenges
    inherent in providing banking services to LMI and minority
    communities and consumers. To further support financial
    institutions dedicated to serving harder to reach market
    segments, we expanded our PFP program to include Women's
    Depository Institutions (WDIs).

    Q.4. How have the principles of economic inclusion changed the
    way you approach your job and the way you work to achieve the
    Fed's dual mandate since first joining the Board?

    A.4. Working at the Federal Reserve, I am mindful that the
    history of the institution and its policy mandates were
    themselves shaped by the principles of economic inclusion, and
    it is important to broaden the application of these
    foundational values. Since its creation, the Federal Reserve
    has always seen value in, and benefited from, regional and
    sectoral diversity. That's why we have 12 Reserve Banks all
    across the country and we have branches in communities spread
    throughout each of the 12 districts. I see these different
    points of view represented each time we meet at the FOMC and
    when I visit Reserve Banks, and these perspectives are
    invaluable. Just as it is important to reflect the communities
    we serve in their regional and sectoral diversity, it is
    important to do so with respect to racial, ethnic, and gender
    diversity.
        In addition, the call to pursue both price stability and
    maximum employment, our dual mandate, has its roots in the
    principle of economic inclusion. The 1977 introduction of the
    mandate was spearheaded by Senator Hubert Humphrey and
    Representative Augustus Hawkins. Representative Hawkins was a
    prominent advocate of full employment, emphasizing its
    importance not only for providing a job to every American
    seeking work, but also for reducing poverty, inequality,
    discrimination, and crime and improving the quality of life of
    all people. Representative Hawkins emphasized that ``without
    genuine full employment it would be impossible to eliminate
    racial discrimination in the provision of job opportunities.''
    \2\ The Humphrey-Hawkins Act itself noted that `` . . . full
    employment would greatly contribute to the elimination of
    discrimination based upon sex, age, race, color, religion,
    national origin, handicap, or other improper factors.'' \3\
    ---------------------------------------------------------------------------
         \2\ Augustus F. Hawkins (1975), ``Full Employment To Meet
    America's Needs'', Challenge, vol. 18 (November/December), pp. 20-28.
         \3\ The complete original language of the act (quoted text in
    section 2B (4)) is available through FRASER on the Federal Reserve Bank
    of St. Louis website at https://fraser.stlouisfed.org/title/full-
    employment-balanced-growth-act-humphrey-hawkins-act-1034.
    ---------------------------------------------------------------------------
        The stories we heard at Fed Listens events during the
    review of our monetary policy framework would have sounded very
    familiar to Representative Hawkins, and they provided FOMC
    members with specific examples from communities around the
    country consistent with what we were seeing in the research.
    \4\ Having reached multidecade lows in aggregate measures of
    unemployment, we were told by a number of community and labor
    representatives that improving labor market conditions were
    only beginning to reach their communities. \5\ Changes that we
    made to the monetary policy framework as a result of the review
    brought our longer-run goals and strategy into alignment with
    key longer-run changes in the economy. Those changes also
    recognized that a shortfalls approach to a broad and inclusive
    definition of maximum employment gave us the best chance to
    achieve full employment that includes everyone.
    ---------------------------------------------------------------------------
         \4\ See, for example Stephanie R. Aaronson, Mary C. Daly, William
    L. Wascher, and David W. Wilcox (2019), ``Okun Revisited: Who Benefits
    Most from a Strong Economy?''
         \5\ See, Board of Governors of the Federal Reserve System (2020),
    ``Fed Listens: Perspectives From the Public''.
    ---------------------------------------------------------------------------
        Finally, I would note as I did in my hearing that these
    principles of economic inclusion apply to both sides of our
    mandate. Inflation is too high and working people around the
    country are concerned about how far their paychecks will go.
    Our monetary policy is focused on getting inflation back down
    to 2 percent while sustaining a recovery that includes
    everyone. This is our most important task.

    Q.5. What actions have you taken to increase staff diversity at
    the Fed during your time as member of the board of governors
    and, if confirmed, what are the staff diversity goals you would
    support as vice-chair?

    A.5. I have made increasing diversity and inclusion a priority
    in my career, and I have benefited, as have the organizations
    for which I have worked, from the views of people of different
    backgrounds. Research suggests, and my own experiences have
    shown, that having more diverse perspectives at the table--
    diversity of every type--leads to less groupthink and better
    outcomes.
        I work closely with the Director of the Board's Office of
    Minority and Women Inclusion (OMWI), Chief Human Capital
    Officer, Chief Operating Officer, and division directors to
    hire, retain, and promote a diverse staff. We have made this a
    priority for the Executive Committee. I meet regularly with the
    OMWI Director to discuss progress on priorities and to
    understand challenges and how we are addressing them. As hiring
    decisions are made, I also consult with her to ensure
    conformance with best practices. In order to attract a diverse
    group of high talented individuals, we need to ensure that the
    Board is a place that people want to work and that means
    focusing on everything from recruitment strategies, to ensuring
    we have competitive compensation and benefits, robust
    opportunities for advancement, and a culture and environment
    were employees feel supported and valued.
        The Board is undertaking efforts to increase the diversity
    of our economists by building relationships with students and
    schools at all levels to introduce them to the Federal Reserve,
    through involvement in minority recruitment events, partnering
    with the American Economic Association and Howard University,
    and recruiting economists with more varied research
    specializations. I have personally participated in a variety of
    such student recruiting events, including the Conference for
    the 2017 Summer Training and Scholarship Program sponsored by
    the American Economic Association and the National Science
    Foundation, the Sadie T.M. Alexander Conference for Economics,
    and the Board's Exploring Careers in Economics program.
        Generally, I think it is critical to remain engaged with
    staff and create opportunities for dialogue. I make it a
    priority to participate in division town halls and events
    sponsored by employee resource groups. This provides me an
    opportunity to get to know more of the Board's employees,
    better understand their individual contributions, hear the
    challenges they are facing, as well as what they think is
    working well and where there is room for improvement. It also
    provides staff an opportunity to raise concerns with me
    directly, increasing transparency and accountability.

    Q.6. To what extent would you credit the upward pressure on
    pricing that Americans are experiencing to actions taken by
    businesses that leave them less resilient to shocks, such as
    offshoring, market consolidation, and just-in-time
    manufacturing, and how do these supply-side constraints factor
    into the demand-side levers the Federal Reserve has at their
    disposal?

    A.6. It is certainly the case that supply chain disruptions
    associated with the pandemic have contributed to today's high
    inflation. In particular, supply chain bottlenecks associated
    with semiconductor production in Asia have led to vehicle
    production bottlenecks in the U.S. that have made an outsized
    contribution to inflation over the past year. Similarly,
    foreign port shutdowns in response to COVID-19 have contributed
    to a substantial increase in shipping costs and shipping
    delays.
        That said, the Federal Reserve has powerful tools that
    influence overall demand in the economy. The Federal Reserve is
    positioning monetary policy to ensure that high inflation does
    not become entrenched, consistent with our dual mandate goals.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
                           FROM LAEL BRAINARD

    Q.1. The National Association of Insurance Commissioners
    completed its work on the Group Capital Calculation (GCC) and
    the Federal Reserve has adopted its building block approach
    (BBA). As you know, the International Association of Insurance
    Supervisors (IAIS) is proceeding with its monitoring period of
    the international capital standards (ICS), but its
    comparability analysis of the aggregation method has been
    delayed. Building on the work of the GCC and BBA, the
    aggregation method is an equivalent implementation of a group
    capital rule for large, internationally active insurers in the
    United States. To date, Team USA has advocated in favor of the
    IAIS treating the aggregation method as comparable. The U.S.
    system of State-based insurance regulation is the gold standard
    when it comes to protecting our insurance markets and insurance
    consumers in South Dakota and across the country. I believe it
    is imperative that Team USA get this right and forcefully
    advocate on behalf of this system.
        As Vice-Chair, will you work with the States and the
    Federal Insurance Office to continue to advocate for the
    aggregation method to be deemed comparable to the ICS?

    A.1. Yes. I will support this position (respecting that the
    Vice Chair for Supervision has the lead on this issue). The
    Federal Reserve Board (Board) continues to work alongside its
    U.S. partners to advocate for the Aggregation Method to be
    deemed an outcome-equivalent approach for implementation of the
    International Capital Standards (ICS). The short delay
    experienced in developing the criteria that will be used to
    assess comparability is not expected to impact the plan to
    complete the assessment prior to the end of the monitoring
    period. As currently constructed, the ICS would not be
    appropriate as a capital rule for U.S. internationally active
    insurance groups. Accordingly, the Board, the Federal Insurance
    Office, State representatives, and the National Association of
    Insurance Commissioners, as well as other interested
    jurisdictions, have worked to develop the Aggregation Method,
    which is comparable to the ICS and therefore an equivalent
    implementation of a group capital rule for internationally
    active insurers in the U.S.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
                           FROM LAEL BRAINARD

    Q.1. You have consistently dissented near unanimous Fed
    decisions to roll back financial regulations, including a
    recent dissent in June 2020, when the Fed considered changes to
    the Volcker Rule. Your dissents included 12 in 2020 alone. Our
    economy is reeling under the Administration's failed economic
    policies, inflation remains at historic highs and consumers are
    struggling to pay for basic necessities for their families.
    Banks have consistently led the way throughout this crisis,
    injecting trillions of dollars into the economy, lending to
    consumers and small businesses while holding high levels of
    capital. They've been part of the solution, not the source of
    the crisis; not to mention they were evidently well capitalized
    in 2020. What was your basis for objecting to these common
    sense regulatory reforms if, as we saw, they clearly didn't
    negatively impact financial stability?

    A.1. For S.2155, the Economic Growth, Regulatory Relief, and
    Consumer Protection Act, I supported the implementation of all
    statutory provisions. I was pleased to support the exemption of
    community banks from many Dodd-Frank Wall Street Reform and
    Consumer Protection Act provisions, including the Volcker Rule.
    I was pleased to support a lower leverage ratio for community
    banks. I also supported the exclusion of reserves from the
    leverage ratio for custody banks.
        During the rulemaking process, there may be several votes
    on the same issue--from an advance notice of proposed
    rulemaking to a final rule--so there are just a handful of core
    issues on which I dissented. S.2155 retained the requirement
    for automatic application of enhanced prudential standards for
    banks with $250 billion or more in assets and did not make any
    changes specifically with regard to foreign banking
    organizations. I dissented on those changes that went beyond
    the provisions of S.2155 to reduce capital, liquidity, stress
    testing, and resolution planning requirements on domestic banks
    above $250 billion and to reduce requirements for large foreign
    banking organizations. I did not see compelling legal changes
    or analysis to justify these changes at a time when large banks
    enjoyed robust profits and were the most competitive in the
    world. Indeed, the strong capital and liquidity buffers that
    had been built at the large banks in the years following the
    Global Financial Crisis were important contributors to their
    financial resilience during the COVID-19 market turmoil.
        In those instances, I always worked with Vice Chair Quarles
    and Chair Powell in a collegial manner to make them aware of my
    concerns in advance.

    Q.2. What is your view of the right regulatory framework for
    banks and do you have a view on how less regulated nonbank
    fintechs, offering retail banking services should be regulated
    by the Fed?

    A.2. Banks of all sizes play a critical role in our economy--
    providing credit to households and businesses and serving as
    financial intermediaries. Given this important role, it is
    essential that they operate in a safe and sound manner and can
    be resolved without posing risks to the system.
        It is vital that banks have adequate capital and liquidity
    buffers as well as systems to identify, monitor, and manage
    material risks that are commensurate with the risks posed by
    the institution. Community banks do not pose the same risks as
    larger, more complex firms, so I am supportive of appropriate
    relief for community banks.
        With regard to nonbank fintechs, as well as financial
    innovation more broadly, the Federal Reserve is focused on
    responsible innovation and consumer protection, with a guiding
    principle that like activity with like risks should be subject
    to like regulation regardless of the legal entity. The Federal
    Reserve Board's regulatory and supervisory authority is
    generally limited to activities conducted by depository
    institution holding companies, State member banks, and their
    nonbank affiliates. I would welcome the Congress updating the
    statutory framework as financial innovation continues to
    evolve.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR DAINES
                           FROM LAEL BRAINARD

    Q.1. In a May 2021 speech, you seemed to signal support for
    using a Central Bank Digital Currency (CBDC) as a pathway to
    creating retail bank accounts at the Federal Reserve. I asked
    Chairman Powell about this topic in February of last year--
    specifically, whether the Fed was equipped to service
    individual retail and commercial accounts. His reply was: ``No,
    and of course we are not permitted under current law, and that
    has never been our role and it's really not been the role of
    other major central banks. It would be a quite dramatic change
    in our role in the economy, and one that I think should require
    very careful thought.''
        Putting aside that the Federal Reserve would need approval
    from Congress to engage in retail banking, do you believe the
    Federal Reserve is equipped to service individual retail and
    commercial accounts? Do you believe it would be wise for the
    Federal Reserve to enter into this space?

    A.1. The Federal Reserve recently issued a discussion paper on
    central bank digital currency (CBDC). The paper notes that
    initial analysis suggests that a potential U.S. CBDC, if one
    were created, would best serve the needs of the United States
    by being intermediated in addition to being privacy-protected,
    widely transferable, and identity verified. I look forward to
    receiving public comment on such an approach.

    Q.2. You mentioned during the hearing that the Federal Reserve
    attempts to track both domestic and international factors that
    may impact inflation and the economy. Could you further detail
    the extent to which the Federal Reserve is tracking how China's
    zero-COVID policy could impact the health of global supply
    chains?

    A.2. The Federal Reserve is closely tracking potential
    disruptions to global supply chains and is very focused on
    potential risks stemming from China's zero-COVID policy.
    Incoming data from manufacturing surveys continue to suggest
    that global supply-chain bottlenecks are elevated, with firms
    facing long delivery times and citing labor shortages as a
    factor preventing them from operating at full capacity. Auto
    production has been hit especially hard, with semiconductor
    shortages emanating from Asia still hampering output.
    Notwithstanding some improvement recently, ports in the United
    States remain highly congested as record volumes of traded
    goods are being transported.
        Although both the supply of semiconductors and congestion
    in the global shipping networks have seen modest improvements
    of late, they remain vulnerable to further disruption. In
    particular, the Omicron variant of COVID-19 is now hitting
    Asia, with a renewed risk of disruption to labor supply in
    Asian factories and Chinese ports.
        Given China's importance to global supply chains and its
    continuation of ``zero-tolerance'' policies, a ramping up of
    very stringent and widespread lockdowns in China is a key
    downside risk for supply chains. A number of cities and
    provinces have implemented public health restrictions. The city
    of Xi'an, which has been under lockdown for weeks, is an
    important supplier of memory chips (processing roughly one-
    tenth of the world's supply) to several multinational
    companies. Similarly, the key port of Ningbo was partially
    closed again around the turn of the year. If lockdowns become
    more widespread across China, particularly in the industrial
    port cities along the coast, disruptions in global supply
    chains could be exacerbated and prolonged.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
                          FROM SANDRA THOMPSON

    Q.1. Where have you excelled in past positions in attracting,
    hiring, and promoting people of color in positions in your
    organization? Where might there be room for improvement?

    A.1. Over the last 2 years, we have continued our success in
    attracting and hiring people of color. Minorities comprised
    46.1 percent and 52.6 percent of our total hires in 2020 and
    2021, respectively. These percentages reflect success across
    all occupational groups and grade levels. We are proud of this
    upward trend and will continue to make this a focal point of
    our recruitment and outreach efforts.
        We have also had success retaining and promoting employees
    of color within FHFA. Between 2020 and 2021, the Agency saw a 9
    percent reduction in the percentage of people of color and an
    11 percent reduction in the percentage of women of color who
    left FHFA. More than 50 percent of promotions went to people of
    color in 2020 and 2021, and the percentage of promotions
    representing women of color increased by 7 percent between 2020
    and 2021.
        Like other Federal agencies, we have experienced challenges
    in hiring people of color into economist positions. We will
    continue our outreach to minority organizations and use both
    our entry-level Economists Program and our hiring of college
    students and recent graduates to expose underrepresented groups
    to the economist opportunities at the Federal Housing Finance
    Agency (FHFA).

    Q.2. What specific measures will you use to evaluate the
    success of the Federal Housing Finance Agency in understanding
    and addressing the needs of Black, Indigenous, and people of
    color (BIPOC)? And, will you work to keep Congress apprised, as
    appropriate, on the progress being made on these measures?

    A.2. FHFA monitors fair lending data and risks presented by the
    activities of Fannie Mae and Freddie Mac (the Enterprises). We
    recently released data on Enterprise loan purchases and
    Enterprise automated underwriting system approvals by race and
    ethnicity, which will assist us in identifying whether the
    Enterprises' programs and products address the need of BIPOC
    borrowers (https://www.fhfa.gov/DataTools/Downloads/Pages/Fair-
    Lending-Data.aspx).
        We plan to expand on this public data release, including as
    part of the implementation and evaluation of the Enterprises'
    Equitable Housing Finance Plans, to keep the public informed
    about how our regulated entities are doing in serving BIPOC
    borrowers.
        FHFA is also an active member of the Property Appraisal and
    Valuation Equity (PAVE) task force, cochaired by the Department
    of Housing and Urban Development's Secretary Fudge and
    Ambassador Rice. The PAVE task force seeks to root out
    discrimination in the appraisal and homebuying process and
    includes subcommittees for data, education, enforcement, and
    policy. To date, FHFA has executed data sharing agreements and
    provided historical appraisal data to our interagency partners
    in support of interagency efforts to research and examine the
    issue of property valuation bias and support enforcement and
    compliance with fair lending laws.
        We are committed to working with Congress and keeping you
    informed about these efforts.

    Q.3. What is your plan for creating an inclusive working
    environment for employees within your office?

    A.3. FHFA works to maintain an inclusive working environment
    and has leveraged diversity to develop an equitable and high-
    performing culture as we pursue our mission. The data in our
    response to the question above demonstrates our success in
    recruiting, hiring, promoting, and retaining a diverse
    workforce. The release of a new Agency Equal Employment
    Opportunity (EEO) Policy Statement in August 2021 outlined an
    Agency-wide commitment requiring accountability from all FHFA
    staff in order to have a workplace where employees can reach
    their potential in a safe environment based on mutual respect
    and the freedom to exercise their civil rights. FHFA also
    requires, as part of its performance evaluation process, that
    executives and senior-level managers demonstrate support for
    the Agency's diversity and inclusion initiatives, as well as
    application of and compliance with applicable EEO laws and
    regulations.

    Q.4. Do you believe that our housing finance system must
    protect broad access to affordable 30-year fixed-rate
    mortgages; serve the broad, national market equitably; serve
    lenders of all types and sizes equitably; preserve a
    competitive primary mortgage market; maintain a duty to serve
    all markets and all borrowers, including through affordable
    housing metrics; expand investment in affordable housing; and
    ensure continued or better access for financing of affordable
    rental housing?

    A.4. Yes, I believe those principles are inherent in the
    current structure of the housing finance system, and I support
    those principles in any future secondary mortgage market
    structure that Congress may create. Furthermore, as Acting
    Director of FHFA and, if confirmed, Director of FHFA, I intend
    to follow these principles as I carry out my responsibilities
    ensuring the safety and soundness of Fannie Mae, Freddie Mac,
    and the Federal Home Loan Banks (housing GSEs or regulated
    entities) and their ability to accomplish their mission.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
                          FROM SANDRA THOMPSON

    Q.1. Congressional Oversight--Please provide your philosophy on
    how the Federal Housing Finance Agency (FHFA) will approach and
    respond to Congressional information requests (both for
    documentary information and oral testimony), if you are
    confirmed.

    A.1. If confirmed, I will ensure that FHFA continues to respond
    to Congressional information requests in a timely and
    transparent manner, in accordance with applicable law and
    regulation.

    Q.2. If confirmed, do you intend to respond to information
    requests differently depending on who is making the
    Congressional information request (whether it's the chair of
    the Congressional committee, the Ranking Member, or another
    member of Congress)? Please answer ``yes'' or ``no.'' If your
    answer is ``yes,'' please explain.

    A.2. If confirmed, I will work to respond to Congressional
    information requests in a timely, consistent manner regardless
    of the requestor, in accordance with applicable law and
    regulation.

    Q.3. Will you commit that, if confirmed, you will timely
    respond to and fully comply with all information requests from
    me? Please answer ``yes'' or ``no.'' If your answer is ``no,''
    please explain.

    A.3. If confirmed, I will respond in a timely manner to
    Congressional information requests, in accordance with
    applicable law and regulation.

    Q.4. Will you commit that, if confirmed, you will make yourself
    and any other FHFA employee expeditiously available to provide
    oral testimony (including but not limited to briefings,
    hearings, and transcribed interviews) to the Committee on any
    matter within its jurisdiction, upon the request of either the
    Chairman or Ranking Member? Please answer ``yes'' or ``no.'' If
    your answer is ``no,'' please explain why.

    A.4. If confirmed, I will make myself and FHFA staff available
    to provide oral testimony, in accordance with applicable law
    and regulation.

    Q.5. Do you believe that FHFA may assert any privileges or
    other legal justifications to withhold information (whether
    records or oral testimony) from Congress? Please answer ``yes''
    or ``no.''

    A.5. FHFA strives to be open and transparent with Congress and
    the public. The Agency, like other bank financial regulators
    takes seriously its responsibility to protect from disclosure
    certain information concerning its supervisory and regulatory
    activities. FHFA commits to assert applicable and valid
    privileges or other legal justifications, including the
    examination privilege it shares with sister regulatory
    agencies, only when necessary and justified after a fact-
    specific analysis. Should this situation arise, I will work
    with the appropriate Agency officials and provide responses
    consistent with applicable law.

    Q.6. If you answered ``yes'' to the preceding question, please
    list every such privilege or other legal justification and
    provide the legal basis for why you believe FHFA may use such
    privilege or legal justification to withhold information from
    Congress.

    A.6. FHFA strives to be open and transparent with Congress and
    the public. The Agency, like other bank financial regulators
    takes seriously its responsibility to protect from disclosure
    certain information concerning its supervisory and regulatory
    activities. FHFA commits to assert applicable and valid
    privileges or other legal justifications, including the
    examination privilege it shares with sister regulatory
    agencies, only when necessary and justified after a fact-
    specific analysis. Should this situation arise, I will work
    with the appropriate Agency officials and provide responses
    consistent with applicable law.

    Q.7. In an effort to be open and transparent with Congress and
    the public, will you commit not to assert any such privilege or
    legal justification against Congress that you listed above? If
    not, why not? If so, please identify all such privileges or
    legal justifications that you will commit to not assert against
    Congress.

    A.7. FHFA strives to be open and transparent with Congress and
    the public. The Agency, like other bank financial regulators
    takes seriously its responsibility to protect from disclosure
    certain information concerning its supervisory and regulatory
    activities. FHFA commits to assert applicable and valid
    privileges or other legal justifications, including the
    examination privilege it shares with sister regulatory
    agencies, only when necessary and justified after a fact-
    specific analysis. Should this situation arise, I will work
    with the appropriate Agency officials and provide responses
    consistent with applicable law.

    Q.8. Proposed Amendments to the Enterprise Regulatory Capital
    Framework (ERCF); Financial Stability Oversight Council (FSOC)
    Review--On September 25, 2020, FSOC released a statement on its
    activities-based review of the secondary mortgage market (the
    FSOC statement). The FSOC statement affirmed the overall
    quantity and quality of the regulatory capital required by the
    Federal Housing Finance Agency's (FHFA) June 30, 2020 proposed
    rule to establish a new regulatory capital framework for Fannie
    Mae and Freddie Mac (each, an Enterprise). \1\ Specifically,
    FSOC stated that ``risk-based capital requirements and leverage
    ratio requirements that are materially less than those
    contemplated by the proposed rule would likely not adequately
    mitigate the potential stability risk posed by the
    Enterprises.'' FSOC also concluded ``it is possible that
    additional capital could be required for the Enterprises to
    remain viable concerns in the event of a severely adverse
    stress.'' \2\ (emphasis added) FSOC also committed to
    ``continue to monitor . . . FHFA's implementation of the
    regulatory framework to ensure potential risks to financial
    stability are adequately addressed.'' On December 17, 2020,
    FHFA released a rule finalizing the ERCF (the final capital
    rule) that included leverage capital requirements that were
    identical to those in the proposed rule. \3\
    ---------------------------------------------------------------------------
         \1\ 85 FR 39,274.
         \2\ Id.
         \3\ 85 FR 82,150.

    ---------------------------------------------------------------------------
    A.8. N/A.

    Q.9. Do you accept each of the findings and recommendations
    made by FSOC in the FSOC statement? If not, please identify
    each finding or recommendation with which you disagree and your
    rationale for the disagreement.

    A.9. I generally agree with the findings in the FSOC statement.
    However, similar to approaches followed by other financial
    regulators, FHFA intends to periodically review the final
    capital rule and adjust various elements as necessary to ensure
    the safety and soundness of the Enterprises. In the 2021
    proposed rule, FHFA proposed selective refinements to the
    leverage buffer and risk-based capital treatment of CRT, while
    leaving the leverage ratio requirement unchanged.

    Q.10. In particular, do you accept FSOC's finding that ``risk-
    based capital requirements and leverage ratio requirements that
    are materially less than those contemplated by the proposed
    rule would likely not adequately mitigate the potential
    stability risk posed by the Enterprises''?

    A.10. I generally agree with FSOC's findings regarding the
    quantity of required capital at the Enterprises. In the 2021
    proposed rule, FHFA proposed selective refinements to the
    leverage buffer and risk-based capital treatment of CRT, while
    leaving the leverage ratio requirement unchanged.

    Q.11. Do you accept FSOC's finding that ``[t]he alignment of
    market participants' credit risk capital requirements across
    similar credit risk exposures would mitigate risk to financial
    stability by minimizing market structure distortions''?

    A.11. I generally agree with FSOC's findings. In light of the
    business models and mission of its regulated entities, FHFA
    issued its final capital rule to create a going-concern
    regulatory capital standard to ensure that each Enterprise
    operates in a safe and sound manner and is positioned to
    fulfill its statutory mission to provide stability, liquidity,
    and ongoing assistance to the secondary mortgage market across
    the economic cycle.

    Q.12. Do you accept FSOC's recommendation that ``FHFA and other
    regulatory agencies . . . coordinate and take other appropriate
    action to avoid market distortions that could increase risks to
    financial stability by generally taking consistent approaches
    to the capital requirements and other regulation of similar
    risks across market participants, consistent with the business
    models and missions of their regulated entities''?

    A.12. I generally agree that there should be coordination
    between FHFA and other regulatory agencies to avoid market
    distortions. FHFA, as the primary regulator for Fannie Mae and
    Freddie Mac, utilizes the same principles and approaches as
    other regulatory agencies to ensure that Enterprise capital
    requirements are appropriate for the risks the Enterprises
    retain, consistent with the business models and missions of the
    Enterprises.

    Q.13. FHFA has proposed amendments (the proposed ERCF
    amendments) that would reduce the regulatory capital required
    by both the risk-based capital requirements and the leverage
    capital requirements set forth in the final capital rule. \4\
    In light of FSOC's commitment to monitor FHFA's implementation
    of the Enterprises' regulatory framework, which includes the
    regulatory capital framework, did FHFA solicit input from the
    Board of Governors of the Federal Reserve System (the Fed)
    regarding whether the proposed ERCF amendments would adequately
    address potential risks to financial stability? Has the Fed
    otherwise reviewed the proposed ERCF amendments?
    ---------------------------------------------------------------------------
         \4\ 86 FR 53,230.

    A.13. Federal Reserve officials have publicly identified
    binding leverage capital requirements under the Supplementary
    Leverage Ratio (SLR) framework as an issue that must be
    addressed so that banks' incentives are not skewed to seek more
    risk and increase risk-taking. FHFA agrees with this guiding
    principle for the Enterprises under the Enterprise Regulatory
    ---------------------------------------------------------------------------
    Capital Framework (ERCF).

    Q.14. What were the Fed's comments or other input on the
    proposed ERCF amendments?

    A.14. Federal Reserve officials have publicly identified
    binding leverage capital requirements under the SLR framework
    as an issue that must be addressed so that banks' incentives
    are not skewed to seek more risk and increase risk-taking. FHFA
    agrees with this guiding principle for the Enterprises under
    the ERCF.

    Q.15. Do you intend to ask FSOC as a council to review the
    proposed ERFC amendments?

    A.15. FSOC as a council does not routinely review its members'
    rulemakings.

    Q.16. Proposed Amendments to Capital Treatment of Credit Risk
    Transfers (CRT)--The preamble to the proposed ERCF amendments
    states that FHFA ``believes that the current CRT risk weight
    floor may not achieve the proper balance between permitting CRT
    and safety and soundness.'' Do you believe it is appropriate
    for FHFA to foster or otherwise permit CRT at the expense of
    safety and soundness? If not, what do you intend with respect
    to the proper balance to be achieved between permitting CRT and
    safety and soundness?

    A.16. Fannie Mae and Freddie Mac are the largest holders of
    mortgage credit risk in the United States. One of FHFA's
    priorities is to facilitate moving that credit risk into the
    hands of the private sector and away from the Enterprises and
    taxpayers. We believe that the changes that we have proposed to
    the capital rule will help facilitate the credit risk transfer
    program and ensure that taxpayers are not at greater risk.

    Q.17. The proposed ERCF amendments contemplate a 5 percent risk
    weight floor on retained CRT exposures. The U.S. banking
    regulators impose a 20 percent risk weight floor on similar
    retained securitization exposures. Do you think the gap between
    these similar credit risk exposures is consistent with FSOC's
    recommendation that ``FHFA and other regulatory agencies . . .
    coordinate and take other appropriate action to avoid market
    distortions that could increase risks to financial stability by
    generally taking consistent approaches to the capital
    requirements and other regulation of similar risks across
    market participants''?

    A.17. Fannie Mae and Freddie Mac are the largest holders of
    mortgage credit risk in the United States. One of FHFA's
    priorities is to facilitate moving that credit risk into the
    hands of the private sector and away from the Enterprises and
    taxpayers. We believe that the changes that we have proposed to
    the capital rule will help facilitate the credit risk transfer
    program and ensure that taxpayers are not at greater risk.

    Q.18. The preamble to the proposed ERCF amendments offers no
    evidence that the ERCF's current 10 percent risk weight floor
    is excessive relative to the risk on retained CRT exposures.
    FHFA's primary argument is instead that the floor ``reduces an
    Enterprise's incentives to engage in CRT.''
        Do you think there is evidence that the 10 percent risk
    weight floor is excessive relative to the risk on retained CRT
    exposures?
        If so, what is that evidence?

    A.18. We believe that CRT contributes to the safety and
    soundness of the Enterprises and that disincentivizing CRT can
    contribute to increased risk for them and taxpayers. Fannie Mae
    and Freddie Mac are the largest holders of mortgage credit risk
    in the United States. One of FHFA's priorities is to facilitate
    moving that credit risk into the hands of the private sector
    and away from the Enterprises and taxpayers. We believe that
    the refinements that we have proposed to the capital rule will
    help facilitate the credit risk transfer program and ensure
    that taxpayers are not at greater risk.

    Q.19. In coming to a view of the question above, what is your
    assessment of banking organizations' 2008 financial crisis
    experience with securitizations as discussed in footnote 46 of
    the final capital rule and footnote 74 of the proposal of the
    ERCF, each of which sets forth the Federal banking regulators'
    view that the 2008 turmoil in the financial markets
    demonstrated the extent to which the credit risk exposure of
    the sponsoring banking organization to such securitization
    structures (and their related assets) had in fact been greater
    than the agencies estimated, and more associated with
    noncontractual considerations than the agencies had expected?

    A.19. When I served as the FDIC's head of supervision and
    consumer protection throughout the 2008 financial crisis, I
    witnessed firsthand the consequences of irresponsible lending
    when hundreds of banks across the country were closed and a
    record number of homes went into foreclosure. As a financial
    regulator, I have long believed that safety and soundness and
    access to credit are not mutually exclusive. FHFA will continue
    to promote sustainable and equitable access to credit in a safe
    and sound manner, and ensure that the Enterprises are managing
    and, as appropriate, transferring their credit risk to avoid
    any repeat of the 2008 financial crisis.

    Q.20. In the spring of 2020, counterparties to some of the
    GSEs' so-called ``fixed severity'' CRT launched a vigorous
    campaign to persuade FHFA not to require each GSE to transfer
    to the counterparty losses for which the counterparty was, by
    contract, otherwise obligated. Historically, FHFA has not
    always transferred losses as permitted by CRT instruments. As
    FHFA's Deputy Director for Housing Mission and Goals with
    responsibility for those fixed severity CRT, how have these
    experiences impacted your assessment of the risks with respect
    to the effectiveness of each Enterprise's CRT in actually
    transferring credit risk?

    A.20. ``Fixed severity'' CRT transactions were among the first
    issued by the Enterprises as they developed and refined their
    offerings. The Enterprises no longer execute the ``fixed
    severity'' CRTs, and these transactions represent a relatively
    small and diminishing segment of the Enterprises' single-family
    CRT programs. In the spring of 2020, FHFA instructed the
    Enterprises to abide by the terms of the contracts in the
    ``fixed severity'' CRTs, and no adjustment was made.

    Q.21. If confirmed as FHFA Director, so long as you remain
    conservator for an Enterprise, can you commit that each
    counterparty to a CRT will incur losses to the fullest extent
    permitted by law and the terms of the applicable CRT?

    A.21. CRT transactions have governing documents, and FHFA's
    goal is to ensure that the Enterprises and counterparties
    adhere to the terms established in those documents.

    Q.22. How much has each Enterprise paid in underwriting fees on
    CRT since the launch of the Enterprise's CRT program?

    A.22. Please refer to the CRTs' governing documents for any and
    all dealer fees. For example, the initial purchaser fees for
    each of the Fannie Mae Connecticut Avenue Securities (CAS) CRT
    transactions are publicly available in the respective Offering
    Memorandum located on the Enterprise's website. The initial
    purchaser fees for each of the Freddie Mac Structured Agency
    Credit Risk (STACR) CRT transactions are publicly available in
    the respective Private Placement Memorandum located on the
    Enterprise's website.

    Q.23. Proposed Amendments to Leverage Capital Requirements--The
    proposed ERCF amendments include a proposed reduction in the
    prescribed leverage buffer amount (PLBA). If finalized as
    proposed, the PLBA amendments would reduce each Enterprise's
    PLBA by two-thirds (from 1.5 percent of adjusted total assets
    to approximately 0.5 percent) and its PLBA-adjusted leverage
    capital requirements by one-quarter (from 4.0 percent of
    adjusted total assets to approximately 3.0 percent).
        The FSOC statement stated that ``a meaningful leverage
    ratio requirement that is a credible backstop to the risk-based
    requirements would address potential risks to financial
    stability by ensuring that the capital requirements are
    consistent with historical loss experiences during severe
    stresses while mitigating model, measurement, and related risks
    with a simple, transparent measure of risk.'' Taking into
    account the 20 percent risk weight floor on mortgage exposures
    (1.6 percent of the exposure amount), the floor on the stress
    capital buffer (0.75 percent of adjusted total assets), and the
    current sizing of each Enterprise's stability capital buffer
    (1.0 percent and 0.7 percent of adjusted total assets for
    Fannie Mae and Freddie Mac, respectively), it appears
    exceedingly unlikely that an Enterprise's risk-based capital
    requirement could ever be less than the proposed leverage
    capital requirements of 3.0 percent and 2.9 percent for Fannie
    Mae and Freddie Mac, respectively, even if a substantial
    portion of an Enterprise's mortgage exposures were subject to
    the risk weight floor.
        In light of the apparently very remote prospect that an
    Enterprise's risk-based capital requirement could ever be less
    than the proposed leverage capital requirements, would the PLBA
    amendment result in ``a meaningful leverage ratio requirement''
    and would the proposed leverage capital requirements be ``a
    credible backstop to the risk-based requirements'' within the
    meaning of the FSOC statement?

    A.23. There are a variety of circumstances and scenarios that
    may lead to leverage capital requirements being binding in the
    future. FHFA expects that the Tier 1 capital floor created by
    the leverage ratio requirement plus leverage buffer will be in
    place as a credible backstop to the risk-based capital
    requirements throughout the economic cycle.

    Q.24. As part of its rationale for the proposed ERCF amendments
    to the PLBA, FHFA noted that ``Basel III standards require
    systemically important banks to hold a tier 1 capital leverage
    ratio buffer in excess of a 3 percent leverage requirement
    equal to 50 percent of a GSIB's higher loss-absorbency risk-
    based requirements.'' FHFA also stated that it intended to
    amend the PLBA ``in a manner similar to the U.S. banking
    regulators' proposal to set the eSLR buffer to one-half of the
    GSIB surcharge'' and that ``a dynamic PLBA that is tied to the
    stability capital buffer would further align the [ERCF] with
    Basel III standards.'' Related to this, former Fed Vice Chair
    for Supervision Quarles recently said ``[w]ith respect to the
    enhanced supplementary leverage ratio (eSLR) that applies to
    U.S. global systemically important banks (GSIBs), the best way
    to address this problem is the approach endorsed by the Basel
    Committee: recalibrating the fixed 2-percent eSLR buffer
    requirement to equal 50 percent of the applicable GSIB capital
    surcharge, with corresponding recalibration at the bank
    level.'' \5\
    ---------------------------------------------------------------------------
         \5\ Governor Randal K. Quarles, ``Between the Hither and the
    Farther Shore: Thoughts on Unfinished Business'' (Dec. 2, 2021),
    available at www.federalreserve.gov/newsevents/speech/
    quarles20211202a.htm.
    ---------------------------------------------------------------------------
        Importantly, a GSIB's eSLR buffer requirement is a percent
    of risk-weighted assets, while an Enterprise's stability
    capital buffer requirement is a percent of adjusted total
    assets. If the intent were to align FHFA's approach to the PLBA
    with the Basel Committee's approach to the eSLR buffer, would
    each Enterprise's stability capital buffer requirement first
    need to be converted to an equivalent that is expressed as a
    percent of risk-weighted assets (e.g., by dividing the
    stability capital buffer requirement by the average risk weight
    of the Enterprise's assets (currently around 33 percent))?

    A.24. While the ERCF's Stability Capital Buffer and the GSIB
    surcharge in the bank framework similarly attempt to quantify
    the amount of systemic risk posed by the Enterprises and GSIBs,
    respectively, they are not identical. The Enterprises and the
    other financial institutions have different business models.
    There are significant structural differences between the two
    buffers in both derivation and application.

    Q.25. How do you reconcile FHFA's statements that its proposed
    ERCF amendments to PLBA are ``similar to the U.S. banking
    regulators' proposal to set the eSLR buffer to one-half of the
    GSIB surcharge'' and that ``a dynamic PLBA that is tied to the
    stability capital buffer would further align the [Enterprise
    Regulatory Capital Framework] with Basel III standards'' with
    the very significant gap between FHFA's proposed PLBAs (0.5
    percent and 0.4 percent for Fannie Mae and Freddie Mac,
    respectively) and the PLBAs that would result under the Basel
    Committee's approach (roughly 1.63 percent and 1.05 percent for
    Fannie Mae and Freddie Mac, respectively)? \6\
    ---------------------------------------------------------------------------
         \6\ According to the fact sheet accompanying FHFA's proposed
    amendments, Fannie and Freddie would have had a PLBA under the proposed
    amendments of, respectively, 0.53 percent and 0.35 percent of adjusted
    total assets as of March 31, 2021. That implies a stability capital
    buffer, expressed as a percent of adjusted total assets, of 1.06
    percent and 0.70 percent of adjusted total assets for Fannie and
    Freddie, respectively. Those stability capital buffers can be converted
    to an equivalent ratio expressed as a percent of risk-weighted assets
    by dividing each by the Enterprise's average risk weight. While FHFA
    has not disclosed the average risk weight for each Enterprise as of
    March 31, 2021, the data in the fact sheet accompanying the 2020 final
    rule suggests an average risk weight (risk weighted assets divided by
    adjusted total assets) for Fannie Mae and Freddie Mac of respectively
    33 percent and 32 percent, as of September 30, 2020. Using those
    average risk weights, the stability capital buffer of Fannie Mae and
    Freddie Mac was, respectively, 3.27 percent and 2.10 percent of risk-
    weighted assets as of March 31, 2021. Dividing those by two would
    result in a PLBA of 1.63 percent and 1.05 percent, and a PLBA-adjusted
    leverage capital requirement of 4.1 percent and 3.5 percent, for Fannie
    Mae and Freddie Mac, respectively.

    A.25. While the ERCF's Stability Capital Buffer and the GSIB
    surcharge in the bank framework similarly attempt to quantify
    the amount of systemic risk posed by the Enterprises and GSIBs,
    respectively, they are not identical. The Enterprises and the
    other financial institutions have different business models.
    There are significant structural differences between the two
    ---------------------------------------------------------------------------
    buffers in both derivation and application.

    Q.26. Do you think that a roughly 113 basis point difference
    between the PLBAs for Fannie Mae under FHFA and the Basel
    Committee's approaches--which amounts to more than $45 billion
    as of September 30, 2021--is inconsistent with FHFA's
    statements that the proposed ERCF amendments to the PLBA are
    ``similar to the U.S. banking regulators' proposal'' or
    ``align[ed] . . . with Basel III standards''?

    A.26. While the ERCF's Stability Capital Buffer and the GSIB
    surcharge in the bank framework similarly attempt to quantify
    the amount of systemic risk posed by the Enterprises and GSIBs,
    respectively, they are not identical. The Enterprises and the
    other financial institutions have different business models.
    There are significant structural differences between the two
    buffers in both derivation and application.

    Q.27. The preamble to the proposed ERCF stated that FHFA ``is
    proposing a recalibration of the PLBA because a leverage ratio
    that exceeds risk-based capital requirements throughout the
    economic cycle could lead to undesirable outcomes at the
    Enterprises . . . .'' (emphasis added) It matters whether the
    leverage capital requirement is binding throughout the economic
    cycle (potentially a problem) or instead a backstop that is
    binding occasionally (which is entirely the intent). Notably,
    the leverage capital requirements for Fannie Mae are not
    currently binding, even after a long period of house price
    appreciation that, among other causes, has resulted in more
    than half of its single-family mortgage exposures being subject
    to the 20 percent risk weight floor. What evidence did you
    consider that the ERCF's leverage capital requirements actually
    would exceed the risk-based capital requirements ``throughout
    the economic cycle''?

    A.27. There are a variety of circumstances and scenarios that
    may lead to leverage capital requirements becoming the binding
    constraint in the future. FHFA expects that the Tier 1 capital
    floor created by the leverage ratio requirement plus leverage
    buffer will be in place as a credible backstop to the risk-
    based capital requirements throughout the economic cycle.

    Q.28. The preamble to the proposed ERCF amendment did not
    explain the flaws in the methodology originally used to
    calibrate the PLBA. As described in the preamble to the final
    capital rule, ``[t]he 1.5 percent PLBA is calibrated to ensure
    that the PCCBA and PLBA have an effective complementary
    relationship such that each is independently meaningful.'' FHFA
    observed that: [T]he relative sizing of the PLBA is generally
    consistent with the relative sizing of similar buffers under
    the U.S. banking framework. A 1.5 percent PLBA for the
    Enterprises is 37.5 percent of the 4.0 percent PLBA-adjusted
    leverage ratio requirement to avoid payout restrictions. The
    2.0 percent supplementary leverage ratio requirement of the
    U.S. banking framework is 40 percent of the 5.0 percent buffer-
    adjusted leverage ratio requirement to avoid payout
    restrictions. (emphasis added)

    A.28. FHFA also considered, among other things, that the PLBA-
    adjusted leverage capital requirements were consistent with the
    Enterprises' historical loss experiences during the 2008
    financial crisis (approximately 4.8 percent of adjusted total
    assets as of December 31, 2007) and that the Federal Home Loan
    Banks are subject to a 4 percent leverage capital requirement.

    Q.29. What flaws, if any, do you see in the methodology
    originally used to calibrate the PLBA?

    A.29. FHFA identified certain aspects of the ERCF that might
    incentivize risk-taking and disincentivize the Enterprises from
    distributing credit risk to private investors, which could
    result in taxpayers bearing excessive undue risk for as long as
    the Enterprises are in conservatorships and excessive risk to
    the housing finance market both during and after
    conservatorships. One such contributing aspect of the ERCF was
    the fixed leverage buffer. FHFA's proposed refinements to the
    capital rule sought comment on an adjustment to the buffer.

    Q.30. Minimum Credit Risk Capital Requirements--Question 4 of
    the proposed ERCF amendments asks ``[i]n light of the proposed
    changes to the PLBA and CRT securitization framework, is the
    prudential risk weight floor of 20 percent on single-family and
    multifamily mortgage exposures appropriately calibrated.''
    However, the preamble to the proposed ERCF amendments provides
    no discussion of the critical role played by this floor in
    ensuring that each Enterprise is appropriately capitalized. The
    preamble also provides no discussion of the safety and
    soundness risks, risks to financial stability, or other
    implications posed by a potential reduction in the risk weight
    floor on mortgage exposures. Will you commit to not change the
    20 percent risk weight floor on mortgage exposures without full
    notice and opportunity to comment on the specific change,
    including a detailed preamble discussion of the implications of
    that change?

    A.30. FHFA follows the Administrative Procedures Act and
    provided a 60-day comment period for the notice of proposed
    rulemaking with refinements to the capital rule and received 89
    comments from stakeholders. As Acting Director and, if
    confirmed, Director, I will continue to follow the
    Administrative Procedure Act for all rulemakings, including
    requirements for public comment periods.

    Q.31. The smallest possible risk weight on a mortgage exposure
    is 50 percent under the U.S. banking framework and 20 percent
    under the Basel Committee's framework (and then only for
    certain low-risk mortgage exposures with an original loan-to-
    value ratio less than 50 percent). Do you think a reduction in
    the 20 percent risk weight floor on mortgage exposures would be
    consistent with FSOC's recommendation that ``FHFA and other
    regulatory agencies . . . coordinate and take other appropriate
    action to avoid market distortions that could increase risks to
    financial stability by generally taking consistent approaches
    to the capital requirements and other regulation of similar
    risks across market participants''?

    A.31. I generally agree that there should be coordination
    between FHFA and other regulatory agencies to avoid market
    distortions. FHFA, as the primary regulator for Fannie Mae and
    Freddie Mac, utilizes the same principles and approaches as
    other regulatory agencies to ensure that capital requirements
    are appropriate for the risks the Enterprises retain,
    consistent with the business models and missions of the
    Enterprises.

    Q.32. What percent of each Enterprise's single-family mortgage
    exposures currently would have a smaller risk weight in the
    absence of the 20 percent risk weight floor? What percent of
    each Enterprise's multifamily mortgage exposures currently
    would have a smaller risk weight in the absence of the 20
    percent risk weight floor? Will you commit to providing
    periodic public disclosures as to the percent of each
    Enterprise's single-family and multifamily mortgage exposures
    that are subject to the 20 percent risk weight floor?

    A.32. The requested detailed level of disclosure in your
    request is generally not required of other financial
    institutions, and this information is nonpublic at this time.
    FHFA would be happy to discuss with you or your staff
    separately on this topic.

    Q.33. Do you agree that a reduction in the 20 percent risk
    weight floor on mortgage exposures would increase the
    procyclicality of the ERCF's risk-based capital requirements?

    A.33. FHFA addressed the potential procyclicality in the ERCF
    risk-based capital requirement in the final capital rule.
    Potential procyclicality is primarily mitigated by the
    countercyclical adjustment, which is specifically designed to
    offset the benefit of house price appreciation in environments
    of high house price growth. FHFA has not proposed any changes
    to the countercyclical adjustment since the ERCF was finalized
    in 2020.

    Q.34. General ERCF Topics--Do you disagree with any of the
    below statements in the preamble to the final capital rule that
    finalized the ERCF? If so, with which of these statements do
    you disagree and why?

        ``[E]ach Enterprise should be capitalized not only
            to absorb losses as they are incurred in a severely
            adverse stress, but also so that the Enterprise would
            have sufficient regulatory capital after that stress to
            continue to be regarded as a viable going concern by
            creditors and other counterparties.''

        ``The differences between the business models,
            statutory mandates, and risk profiles of the
            Enterprises and banking organizations, however, should
            not preclude the proposed rule's comparison of the
            credit risk capital requirement of a large U.S. banking
            organization for a specific mortgage exposure to the
            credit risk capital requirement of an Enterprise for a
            similar mortgage exposure.''

        ``The monoline nature of the Enterprises' mortgage-
            focused businesses suggests that the concentration risk
            of an Enterprise is generally greater than that of a
            diversified banking organization with a similar amount
            of mortgage credit risk. That heightened concentration
            risk would tend to suggest that greater credit risk
            capital requirements, relative to banking
            organizations, could be appropriate for the Enterprises
            for similar exposures, all else equal.''

        ``FHFA continues to believe that the regulatory
            capital framework should not assume extraordinary
            Government support, whether under the [Preferred Stock
            Purchase Agreements] or otherwise. A central tenet of
            the reforms following the 2008 financial crisis is that
            the postcrisis regulatory framework should prevent
            future taxpayer rescues of financial institutions.
            Expectations of Government support increase risk to the
            Enterprises' safety and soundness and the stability of
            the national housing finance markets by undermining
            market discipline and encouraging excessive risk
            taking. Other regulatory capital frameworks generally
            would not treat a line of credit or similar
            arrangement, even one with a governmental actor, as a
            form of regulatory capital.''

        ``The now apparent shortcomings of OFHEO's and the
            Enterprises' precrisis credit models, and other well-
            known failures of analytical models to accurately
            predict risk, reinforce the need for a meaningful
            degree of regulatory caution regarding any modeled
            estimate of risk.''

    A.34. FHFA identified certain aspects of the ERCF that might
    incentivize risk-taking and disincentivize the Enterprises from
    distributing credit risk to private investors. This could
    result in taxpayers bearing excessive undue risk for as long as
    the Enterprises are in conservatorships and excessive risk to
    the housing finance market both during and after
    conservatorships. Contributing aspects of this potential
    outcome were the fixed leverage buffer and the risk-based
    capital requirements for CRT.

    Q.35. Did FHFA staff meet or otherwise consult with either
    Enterprise on the proposed ERCF amendments before those were
    published in the Federal Register? Did either Enterprise play
    any role in the drafting or development of the proposed ERCF
    amendments?

    A.35. Neither Enterprise played a role in drafting or
    developing the proposed ERCF amendments.

    Q.36. Resolution Framework--In May 2021, FHFA finalized a rule
    that requires each Enterprise to develop a plan to facilitate
    its rapid and orderly resolution in the event FHFA is appointed
    receiver. \7\ These resolution plans are intended to, among
    other things, ``foster[ ] market discipline by making clear
    that no extraordinary Government support will be available to
    indemnify investors against losses or fund the resolution of an
    Enterprise.'' \8\ Specifically, ``[i]n developing a resolution
    plan, each Enterprise shall: . . . [n]ot assume the provision
    or continuation of extraordinary support by the United States
    to the Enterprise to prevent either its becoming in danger of
    default or in default (including, in particular, support
    obtained or negotiated on behalf of the Enterprise by FHFA in
    its capacity as supervisor, conservator, or receiver of the
    Enterprise, including the Senior Preferred Stock Purchase
    Agreements entered into by FHFA and the U.S. Department of the
    Treasury on September 7, 2008, and any amendments thereto).''
    \9\ Related to this, Treasury's Housing Reform Plan released in
    September 2019 recommended that ``[a] credible resolution
    framework can ensure that shareholders and unsecured creditors
    bear losses, thereby protecting taxpayers against bailouts,
    enhancing market discipline, and mitigating moral hazard and
    systemic risk.''
    ---------------------------------------------------------------------------
         \7\ 86 FR 23,577 (May 4, 2021).
         \8\ Id. at 23,580.
         \9\ 12 CFR 1242.5(b)(2).
    ---------------------------------------------------------------------------
        Do you agree with, or otherwise have any plans to change,
    the requirement that ``each Enterprise shall: . . . [n]ot
    assume the provision or continuation of extraordinary support
    by the United States to the Enterprise to prevent either its
    becoming in danger of default or in default (including . . .
    the Senior Preferred Stock Purchase Agreements entered into by
    FHFA and the U.S. Department of the Treasury on September 7,
    2008, and any amendments thereto)''?

    A.36. FHFA has no current plans to modify the regulation on
    resolution planning. The Agency expects that credible
    resolution plan submissions will include, at a minimum, the
    scenario described in the rule where extraordinary Government
    support is unavailable.

    Q.37. Given FHFA's policy that, notwithstanding the Preferred
    Stock Purchase Agreements, unsecured creditors of each
    Enterprise should be at risk of loss upon an insolvency event
    affecting the Enterprise, do you think the Securities and
    Exchange Commission's regulations governing money market mutual
    funds, registration requirements, or other market activity
    should continue to give the Enterprises special treatment
    (e.g., by treating them as Government securities for certain
    purposes)?

    A.37. The Preferred Stock Purchase Agreements provide certain
    benefits to unsecured creditors of the Enterprises. FHFA defers
    to the Securities Exchange Commission (SEC) on matters
    associated with the application of SEC regulations and remains
    open to consultation with SEC staff on Enterprise-related
    matters.

    Q.38. Exit From Conservatorship--At your nomination hearing,
    you answered in response to a question from Senator Hagerty
    that there are a number of issues that Congress will have to
    address before the Enterprises may exit conservatorship. Please
    itemize these issues that Congress must address in your view
    and any other Congressional actions that you view as a
    precondition to an Enterprise's exit from conservatorship. With
    respect to each of these preconditions, what specific
    provisions of statute authorize FHFA to indefinitely continue
    an Enterprise's conservatorship pending Congress satisfying the
    precondition? Please provide any relevant legal analysis that
    inform your views on this question.

    A.38. There is no statutory provision in the Safety and
    Soundness Act that specifically addresses exit from
    conservatorship; however, there are several open questions that
    only Congress can address on the future structure and
    functioning of the secondary mortgage market. Key questions
    include whether the Enterprises should be subject to public-
    utility-like regulation of pricing and returns, whether
    additional GSEs would be chartered to compete with Fannie Mae
    and Freddie Mac, and any potential changes to the Enterprises'
    charters which are established in statute. Congress may also
    want to address the Enterprises ownership structure, the issue
    of an explicit guarantee or continuing support of the Treasury,
    and other areas where FHFA has identified it lacks similar
    authority to that of the other financial regulators, including
    third-party examination authority.
        As I mentioned during the hearing, there are related issues
    that other parties would need to be involved in working
    through, such as how the Senior Preferred Stock Purchase
    Agreements are resolved to ensure that taxpayers are repaid for
    their investment. In the absence of Congressional action, the
    Enterprises must be managed under current law, including
    building capital to meet the existing capital requirements
    before any exit from the conservatorships.

    Q.39. FHFA's resolution authorities are modeled on, and
    substantially similar to, the resolution authorities of the
    Federal Deposit Insurance Corporation (FDIC). You previously
    worked in the FDIC's Division of Resolutions and Receiverships
    and had a long career at the FDIC. Are you aware of any
    conservatorship or receivership in which the FDIC deferred to
    Congress on the resolution of a failed insured depository
    institution or otherwise conditioned the completion of that
    conservatorship or receivership on action by Congress? If so,
    please identify the FDIC conservatorship or receivership and
    the circumstances relating to it.

    A.39. The FDIC has not to my knowledge deferred to Congress on
    the resolution of a failed insured depository institution or
    otherwise conditioned the completion of a conservatorship or
    receivership on action by Congress. However, the Enterprises
    differ from FDIC-insured institutions in that they operate with
    congressionally granted charters, have different public policy
    mandates, and currently operate with the explicit backing of
    the U.S. Treasury.

    Q.40. FHFA previously retained Houlihan Lokey as its financial
    advisor for purposes of developing a roadmap for each
    Enterprise's exit from conservatorship. Is Houlihan Lokey still
    retained by FHFA as a financial advisor for these purposes?

    A.40. FHFA continues to retain advisors to help FHFA assess the
    financial positions of the Enterprises.

    Q.41. Do you agree with the statement in the final capital rule
    finalizing the ERCF that ``[p]ending legislation, FHFA, as
    conservator of each Enterprise, is required by statute to act
    `for the purpose of reorganizing, rehabilitating, or winding up
    the affairs of [the Enterprise].' That definite and limited
    statutory purpose does not authorize an indefinite
    conservatorship.''?

    A.41. There is no statutory provision in the Safety and
    Soundness Act that specifically addresses exit from
    conservatorship. There is also no statutory provision that
    specifically either mandates or forbids indefinite
    conservatorship. As noted in the question, the conservator or
    receiver may be appointed ``for the purpose of reorganizing,
    rehabilitating, or winding up the affairs of a regulated
    entity.'' In addition, the statute authorizes FHFA as
    conservator to ``take such action as may be (i) necessary to
    put the regulated entity in a sound and solvent condition; and
    (ii) appropriate to carry on the business of the regulated
    entity and preserve and conserve the assets and property of the
    regulated entity.'' From these provisions, it is reasonable to
    infer that FHFA may release the Enterprises from
    conservatorship when they are rehabilitated and are again in
    sound and solvent condition. Achieving that state requires that
    they achieve safe and sound capital levels, which in turn
    requires a restructuring of the Treasury's current equity
    position in the Enterprises. Treasury's equity position does
    not count as either ``core capital'' under the statute or Tier
    1 or Tier 2 capital under FHFA's recently adopted capital
    regulation, which is based on the Basel capital regime for
    banks.

    Q.42. Housing Finance Reform--At your nomination hearing,
    Senator Crapo asked you whether you would be willing to support
    legislation that calls for ``increasing competition among
    mortgage guarantors.'' In its recent annual reports to
    Congress, FHFA has recommended that Congress provide FHFA with
    chartering authority similar to that of other Federal financial
    regulators like the Office of the Comptroller of the Currency.
    Do you support Congress authorizing FHFA to charter competitors
    to the Enterprises?

    A.42. Only Congress can grant the authority to charter
    competitors to the Enterprises, and I defer to Congress on the
    future structure of the secondary housing market. I would note
    that there are competing ideas circulating about the
    appropriate future structure, from multiple, privately held
    guarantors, to the Enterprises as utilities, to merging these
    two companies into one Government agency. I am open to all
    options at this time. I am not opposed to competition, as long
    as the organization(s) can meet the same mission and safety and
    soundness requirements as the Enterprises, including FHFA
    oversight and regulation. FHFA will provide technical
    assistance to Congress pursuing any structure they choose.
        There are certain things that FHFA can address in reforming
    the Enterprises without Congressional action, and we have done
    so by building capital, transferring risk, strengthening
    underwriting, and reviewing pricing and credit policies. It is
    my priority and my responsibility to continue to focus on the
    mission and safety and soundness of the Enterprises until such
    time as Congress enacts housing finance reform legislation.

    Q.43. Do you believe the duopoly market structure increases the
    systemic importance of each GSE, fosters a market perception
    that the Federal Government will not permit the GSE to default
    on its financial obligations, undermines market discipline over
    its risk taking, and thereby fosters excessive risk taking by
    the GSE and exposes taxpayers to risk of future bailouts?

    A.43. Fannie Mae and Freddie Mac are a critical part of the
    secondary mortgage market infrastructure. FHFA currently has
    the authority to ensure that the Enterprises meet stringent
    capital requirements and other regulatory standards, and we set
    those standards with this level of importance in mind. I defer
    to Congress on the future structure of the secondary housing
    market and whether there should be more than two GSEs with
    these responsibilities.

    Q.44. Equitable Housing Finance Plans--On which specific
    statutory authorities (with cites to specific statutory
    clauses) has FHFA relied in requiring each Enterprise to
    develop an Equitable Housing Finance Plan? Please provide any
    legal analysis that inform your views on this question.

    A.44. Congress established FHFA to regulate the Enterprises to
    ensure that the purposes of the Federal Housing Enterprises
    Financial Safety and Soundness Act of 1992 (Safety and
    Soundness Act), the Enterprises' statutory charters, and any
    other applicable law are carried out. \10\ In doing so,
    Congress recognized that the Enterprises have important public
    purposes reflected in their statutory charters, and that they
    need to be managed safely and soundly so that they continue to
    accomplish their public missions. \11\ FHFA is also currently
    conservator of the Enterprises. \12\
    ---------------------------------------------------------------------------
         \10\ 12 U.S.C. 4511(b)(1) and (2).
         \11\ 12 U.S.C. 4501(1) (Enterprises and Federal Home Loan Banks
    have important public missions), (2) (their continued ability to
    accomplish their public missions is important, and effective regulation
    is needed to reduce risk of failure), and (7) (Enterprises have
    affirmative obligation to facilitate financing of affordable housing
    for low- and moderate-income families consistent with their public
    purposes, while maintaining a strong financial condition and a
    reasonable economic return).
         \12\ https://www.fhfa.gov/Media/PublicAffairs/Pages/Statement-of-
    FHFA-Director-James-B-Lockhart-at-News-Conference-Annnouncing-
    Conservatorship-of-Fannie-Mae-and-Freddie-Mac.aspx; 12 U.S.C. 4617(b)
    (powers and duties of the conservator).
    ---------------------------------------------------------------------------
        With respect to the public purposes of the Enterprises, a
    number of statutory and regulatory authorities that apply to
    FHFA and the Enterprises speak to the need to advance equity
    for homebuyers, homeowners, and tenants in the housing market.
    \13\ The Equitable Housing Finance Plan framework that FHFA has
    adopted as conservator is a tool for the Enterprises to
    undertake sustainable and meaningful actions to advance equity
    in the housing markets, while ensuring safety and soundness.
    ---------------------------------------------------------------------------
         \13\ These include providing ongoing assistance to the secondary
    market for residential mortgages, including mortgages on housing for
    low- and moderate-income families involving a reasonable economic
    return that may be less than the return earned on other activities, and
    promoting access to mortgage credit in central cities, rural areas, and
    underserved areas. 12 U.S.C. 1716(3) and (4) (Fannie Mae charter
    purposes); 12 U.S.C. 1451 note (b)(3) and (4) (Freddie Mac charter
    purposes). They also include Enterprise affordable Housing Goals, see
    12 U.S.C. 4561(a), 4562, and 4563; 12 CFR part 1282, subpart B, and
    Enterprise Duty to Serve affordable housing needs of certain
    underserved markets, see 12 U.S.C. 4565; 12 CFR part 1282, subpart C.
    In addition, the Enterprises are required to report annually to
    Congress on, among other things, assessments of their underwriting
    standards and business practices that affect their purchases of
    mortgages from low- and moderate-income families, and revisions to
    their standards and practices that promote affordable housing or fair
    lending. 12 U.S.C. 1723a(n)(2)(G) (Fannie Mae charter), 1456(f)(2)(G)
    (Freddie Mac charter).
    ---------------------------------------------------------------------------
        FHFA's principal duties include ensuring that the
    Enterprises operate consistent with safety and soundness and
    with the public interest. \14\ FHFA and the Enterprises also
    have statutory and other commitments related to the selection
    of equitable solutions for borrowers and tenants in the housing
    market. The Enterprises' Charter Acts, for example, provide
    that one of the Enterprises' purposes is to promote access to
    mortgage credit throughout the Nation (including central
    cities, rural areas, and underserved areas). \15\ The Charter
    Acts require the Enterprises, as part of their annual housing
    reports, to assess their underwriting standards, policies, and
    business practices that affect low- and moderate-income
    families or cause racial disparities, along with any revisions
    to these standards, policies, or practices that promote
    affordable housing or fair lending. \16\
    ---------------------------------------------------------------------------
         \14\ 12 U.S.C. 4513(a)(1)(B)(i), (v).
         \15\ 12 U.S.C. 1716(4) (Fannie Mae charter); 1451(b)(4) (Freddie
    Mac charter).
         \16\ 12 U.S.C. 1723a(n)(2)(G), 1456(f)(2)(G).
    ---------------------------------------------------------------------------
        The Housing Goals and Duty to Serve requirements are
    critical elements for ensuring that the Enterprises fulfill
    their mission and charters and serve low- and moderate-income
    families and underserved populations. \17\ The Safety and
    Soundness Act provides that, in meeting these requirements, the
    Enterprises are required to take affirmative steps to assist
    primary lenders to make housing credit available in areas with
    concentrations of low-income and minority families. \18\ The
    Equitable Housing Finance Plans will serve as a supplement to
    existing FHFA and Enterprise requirements, programs, and plans,
    and are designed to ensure a continued focus on housing equity
    that is aligned with other critical objectives including safety
    and soundness and other mission activities.
    ---------------------------------------------------------------------------
         \17\ 12 U.S.C. 4561(a) (FHFA to establish annual housing goals by
    regulation), 4562 (establishment of required categories of single-
    family housing goals), and 4563 (establishment of required multifamily
    affordable housing goals); 12 U.S.C. 4565 (Enterprise duty to
    facilitate secondary mortgage market for very low-, low-, and moderate-
    income families in certain underserved markets).
         \18\ 12 U.S.C. 4565(b)(3)(A).
    ---------------------------------------------------------------------------
        Under the Fair Housing Act, all Federal agencies having
    regulatory or supervisory authority over financial
    institutions, including FHFA, are required to administer their
    programs and activities relating to housing and urban
    development in a manner that affirmatively furthers the
    purposes of the Fair Housing Act, which includes providing for
    fair housing throughout the United States. \19\
    ---------------------------------------------------------------------------
         \19\ 42 U.S.C. 3608(d); 42 U.S.C. 3601 et seq.

    Q.45. Please describe with specificity any virtual, telephonic,
    in-person, or other meetings or contacts you had with
    representatives of the President, the Department of the
    Treasury, or any other executive departments that relate to
    FHFA's requirement that each Enterprise develop an Equitable
    ---------------------------------------------------------------------------
    Housing Finance Plan.

    A.45. During my 8 years at FHFA, I have discussed issues
    relevant to the mortgage market, the GSEs' financial condition
    and the Enterprises' conservatorships, and other relevant
    activities and issues with various offices and divisions of the
    executive branch. FHFA held a discussion with HUD in August
    2021 to get their feedback on the Equitable Housing Finance
    Plan and briefed the Federal Financial Institution Examination
    Council (FFIEC) Joint Fair Lending Task Force in November 2021.
    The Joint Fair Lending Task Force includes representatives from
    the Federal Deposit Insurance Corporation, the Consumer
    Financial Protection Bureau, the Office of the Comptroller of
    the Currency, the Federal Reserve Board, the National Credit
    Union Agency, the Federal Trade Commission, the Department of
    Justice, HUD, and FHFA.

    Q.46. Servicer Eligibility Requirements--FHFA previously
    proposed increased net worth and liquidity requirements for GSE
    servicers. The last FHFA Director determined to repropose those
    requirements to incorporate the lessons learned from the spring
    2020 stress.
        Do you intend to repropose net worth and liquidity
    requirements for GSE servicers?
        What is the timing for that reproposal?

    A.46. FHFA is currently revisiting the seller/servicer
    eligibility standards and expects to post revised standards for
    public comment shortly.

    Q.47. GSE Mission and Footprint--Freddie Mac's charter act
    provides that ``[t]he volume of the [Enterprise's] lending
    activities and the establishment of its loan ratios, interest
    rates, maturities, and charges or fees in its secondary market
    operations under this paragraph, shall be determined by the
    [Enterprise] from time to time; and such determinations shall
    be consistent with the objectives that the lending activities
    shall be conducted on such terms as will reasonably prevent
    excessive use of the [Enterprise's] facilities, . . . .'' \20\
    (emphasis added) Similarly, Fannie Mae's charter act also
    provides that ``such determinations should be consistent with
    the objectives that such purchases and sales should be effected
    only at such prices and on such terms as will reasonably
    prevent excessive use of the [Enterprise]'s facilities.'' \21\
    ---------------------------------------------------------------------------
         \20\ 12 U.S.C. 1454(a)(5).
         \21\ 12 U.S.C. 1719(a)(1).
    ---------------------------------------------------------------------------
        How do you construe the scope of each of these requirements
    that each Enterprise shall ``reasonable prevent excessive use
    of the [Enterprise's] facilities''?
        What steps are you taking to ensure that FHFA reasonably
    prevents excessive use of an Enterprise's facilities?

    A.47. The charter act provisions referred to above were enacted
    prior to the prudential supervisory regime established by the
    Safety and Soundness Act in 1992 and 2008. The Fannie Mae
    charter act provisions were enacted in the 1950s at a time when
    Congress intended that Fannie Mae transition from public to
    private ownership and wanted to ensure that its business
    activities were sufficiently disciplined that the company could
    attract private capital. The comparable provision in the
    Freddie Mac Act was enacted in 1970 at Freddie Mac's creation,
    when Freddie Mac was initially owned by the Federal Home Loan
    Banks. Since then, the very general mandate in the ``excessive
    use'' provisions has been followed by much more specific and
    robust supervisory tools, such as the Safety and Soundness
    Act's capital requirements, its Prompt Corrective Action
    regime, FHFA's Prudential Management and Operations Standards,
    and the enforcement tools available to combat unsafe and
    unsound practices. In light of these more robust tools, the
    ``excessive use'' provisions have never been defined,
    interpreted, or applied by FHFA or its predecessor agencies. In
    conservatorship, the objectives of those provisions are
    furthered by FHFA's recently adopted Enterprise Regulatory
    Capital Framework, its proposed capital planning rule, and its
    mandate to the Enterprises upon entering conservatorship that
    they manage to positive shareholders' equity while returning to
    long-term profitability, and more recently that they meet
    various minimum return-on-equity thresholds for their business
    segments.

    Q.48. Independence of Regulatory Agency--The U.S. Supreme Court
    has recently held that the Director of FHFA may be removed by
    the President without cause and at any time. Notwithstanding
    these recent developments, will you commit to not exceed the
    authorities of FHFA (including the limitations inherent in the
    charter act of each Enterprise) even if directed by the
    President to the contrary?

    A.48. It is my intention to follow the law, including the
    Housing and Economic Recovery Act of 2008, the Enterprises'
    charter acts, and any other applicable law.

    Q.49. Did you have any virtual, telephonic, in-person, or other
    contact with representatives of the President, the Department
    of the Treasury, or any other executive department before the
    Supreme Court's decision in Collins v. Mnuchin? If so, did any
    of those conversations or other contacts relate to the
    leadership of FHFA following the potential removal of former
    Director Calabria?

    A.49. During my 8 years at FHFA, I have discussed issues
    relevant to the mortgage market, the GSE's financial condition,
    the Enterprises' conservatorships, and other relevant
    activities and issues with various offices and divisions of the
    executive branch. President Biden designated me as Acting
    Director of FHFA after Dr. Calabria was released from the
    Director position on June 23, 2021.

    Q.50. Answering Questions for the Record--Please describe with
    particularity the process by which you answered these questions
    for the record, including identifying who assisted you in
    answering these questions along with a brief description of
    their assistance.

    A.50. These responses were developed at my direction and with
    drafting assistance from FHFA employees in several FHFA
    Divisions and Offices, based on the subject matter. I have
    reviewed and approved all of the responses, and any views
    expressed in these responses are my own.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
                 SENATOR MENENDEZ FROM SANDRA THOMPSON

    Q.1. Nearly 5 percent of households are considered limited
    English proficient. In 2017 FHFA agreed to include a question
    on the uniform mortgage application for borrowers to indicate
    their preferred language, but that requirement was removed by
    our last FHFA Director.
        If confirmed, will you make it a priority to ensure that
    non-English speaking families can communicate with their
    lenders in their preferred language?

    A.1. Mortgages are one of the largest investments that many
    Americans make and one of most complex financial transactions.
    I feel strongly that it is important to have clear
    communication between lenders and borrowers, and servicers and
    borrowers. In my experience during the last financial crisis,
    communication between servicers and borrowers in particular was
    critical to ensuring that homeowners retained their homes.
        Collecting language preference information would only
    improve that communication. However, collecting this data was
    not a part of the recent changes to the uniform residential
    lending application (URLA) implemented in March 2021. FHFA has
    developed a supplemental form for lenders that includes
    questions on language preference. Currently the form is
    optional to lenders to provide to borrowers, and it is the
    borrower's choice to provide the information on the form to the
    lender. There are also no channels established that would
    ensure that a lender who originates the loan would share
    language preference information with a servicer, or that the
    data on language preference would be submitted to the
    Enterprises.
        We are currently addressing this issue and plan to start a
    workstream to ensure that the data is collected and used
    appropriately. I commit to update you and your staff as we make
    progress on this initiative.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                          FROM SANDRA THOMPSON

    Q.1. As Arizona begins to recover from the earlier stages of
    the COVID-19 pandemic, many hardworking families who were
    affected financially are beginning to get back on their feet.
    Many were able to remain in their homes due to temporary
    eviction moratorium and mortgage forbearance measures that have
    since expired. What do you see the FHFA's role being in the
    coming months as we recover from earlier waves of the pandemic
    and in light of the widespread effects of the Omicron variant?
    If confirmed, how will you utilize your role to advance housing
    security and affordability as we face emerging challenges from
    this variant?

    A.1. Should I be confirmed as FHFA Director, my goal would be
    to move the ball forward to advance safe, decent, affordable
    rental opportunities and responsible mortgage lending. The
    pandemic has impacted many aspects of the housing market,
    including the significant increase in house prices. House price
    growth was nearly 18 percent nationwide for the third quarter
    of 2021, and there are a number of reasons for it, including
    supply chain issues and local zoning restrictions. While this
    improves the value of assets that the Enterprises own, dramatic
    price growth challenges affordability, especially for first
    time homebuyers, who are not able to afford home ownership. I
    believe that it is possible for the Enterprises to do more to
    assist potential homebuyers in underserved populations in a
    sustainable, safe way and, if confirmed as Director, I intend
    to focus the housing GSEs on their mission.
        During the pandemic, one of the Agency's priorities was to
    ensure that homeowners and renters would not be forced out of
    their homes. As Acting Director of FHFA I announced changes
    last year to help protect homeowners and renters living with
    the ongoing uncertainty of the COVID-19 pandemic. This included
    expanding the use of interest rate reductions and term
    extensions for loan modifications for homeowners with a COVID-
    19-related hardship and extending the availability of COVID-19
    forbearance for multifamily properties backed by an Enterprise.
    Renters in these properties are protected from eviction while
    the loan is in forbearance. FHFA will continue to monitor this
    evolving situation and adjust policies when warranted to help
    families remain in their homes.

    Q.2. Last year Arizona's housing market saw drastic increases
    in prices for both buyers and renters, with demand for housing
    in the Phoenix metropolitan area in particular far higher than
    the available supply of housing. If confirmed, how will you
    utilize your role as FHFA director to promote the stability of
    housing prices and the availability of housing in Arizona?

    A.2. Although there are several issues related to the supply of
    housing that fall outside of FHFA's jurisdiction, I agree that
    it is a critical issue that needs to be addressed. One
    particular action we have recently taken to facilitate
    increased supply of affordable rental housing is increasing the
    Enterprises' Low-Income Housing Tax Credit (LIHTC) investment
    caps to $850 million per Enterprise annually. The Enterprises
    are also working on revising their Duty to Serve underserved
    markets plans which are expected later this year. FHFA will
    continue to focus on and look at ways we can encourage Fannie
    Mae, Freddie Mac, and the Federal Home Loan Banks to support
    efforts to address our Nation's lack of affordable housing.

    Q.3. Critical risk transfers (CRTs) are a tool that can be used
    for reducing economic risk for taxpayers as a result of lending
    in the housing market. CRT programs allow Government-sponsored
    enterprises to manage and reduce risk, particularly during
    times of severe economic stress. What benefits and challenges
    do you see from the use of CRT for risk management? What do you
    see the FHFA's role being in restoring the economics around
    CRTs moving forward?

    A.3. Fannie Mae and Freddie Mac are the largest holders of
    mortgage credit risk in the country. CRT transactions transfer
    a meaningful amount of credit risk to a broad set of global
    investors, which helps to protect the Enterprises and taxpayers
    from losses in severely stressful economic scenarios. CRT is an
    important tool, especially while the Enterprises are in
    conservatorships and are building up their capital, to mitigate
    systemic risk to the housing finance market due to the
    Enterprises' size and monoline business model. FHFA's recent
    proposed changes to the capital rule will help facilitate the
    credit risk transfer program and move mortgage credit risk into
    the hands of private investors and away from the Enterprises
    and taxpayers.

    Q.4. The 2020 GSE capital rule finalized by the previous FHFA
    director disincentivized GSE issuance of CRTs. This rule has
    since been modified. If confirmed, what additional changes to
    this rule will you consider, if any?

    A.4. I am committed to ensuring the safety and soundness of the
    Enterprises, and the CRT program is an important tool for the
    Enterprises to manage their credit risk and protect taxpayers.
    In September 2021, FHFA proposed changes to the capital rule by
    refining the leverage buffer and the risk-based capital
    treatment of CRT transactions. These amendments are intended to
    provide the Enterprises incentives to distribute credit risk to
    private investors through CRT and away from taxpayers.
        FHFA also introduced proposed amendments to ERCF's required
    public disclosures and for capital planning. These rules help
    protect taxpayers by ensuring that the Enterprises properly
    assess their risks and maintain the appropriate level of
    capital.
        If confirmed, similar to other prudential regulators, I
    intend to periodically review the final capital rule and adjust
    various elements as necessary to ensure the safety and
    soundness of the Enterprises.

    Q.5. Home ownership is one of the primary ways in which
    individuals can build wealth and create greater futures for
    themselves and their children. Many hardworking Arizona
    families cannot afford to pay the 20 percent downpayment
    required for a mortgage. What role do you envision mortgage
    insurance will play in reducing costs for homebuyers?

    A.5. As the largest asset most people ever own, home ownership
    is part of the American dream and is key to building wealth and
    giving families opportunities to better their lives. Even
    though they have the ability to repay a mortgage, a significant
    downpayment can be out of reach for some borrowers. For loans
    with less than a 20 percent downpayment, borrowers can obtain
    mortgage insurance through their lenders to meet the
    Enterprises' requirements. The Enterprises' Charter Acts
    require credit enhancement for loans with loan-to-value (LTV)
    ratios greater than 80 percent.
        The Enterprises also have affordable programs (Fannie Mae's
    Home Ready and Freddie Mac's Home Possible) designed to make
    home ownership more affordable for lower income borrowers
    through lower mortgage insurance requirements and limitations
    on delivery fees.
        As FHFA Acting Director, and if confirmed as Director, my
    focus will be on ensuring access to affordable mortgage credit
    in a responsible, sustainable way.
                                    ------

           RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
                          FROM SANDRA THOMPSON

    Q.1. Please clarify how the Federal Housing Finance Agency and
    Property Appraisal and Valuation Equity interagency task force
    intend to address racial bias within property appraisal.

    A.1. FHFA is an active member of the Property Appraisal and
    Valuation Equity (PAVE) task force, cochaired by the Department
    of Housing and Urban Development's Secretary Fudge and
    Ambassador Rice. The PAVE task force seeks to root out
    discrimination in the appraisal and homebuying process and
    includes subcommittees for data, education, enforcement, and
    policy. To date, FHFA has executed data sharing agreements and
    provided historical appraisal data to our interagency partners
    in support of interagency efforts to research and examine the
    issue of property valuation bias and support enforcement and
    compliance with fair lending laws.

    Q.2. If confirmed, what steps will you take to address racial
    bias within property valuation?

    A.2. FHFA is committed to addressing racial bias in property
    valuation. As an initial step, FHFA recently provided
    additional public transparency into appraisals by publishing an
    Insights Blog post, ``Reducing Valuation Bias by Addressing
    Appraiser and Property Valuation Commentary'', highlighting
    appraiser commentary that raises fair lending risks. Also as
    part of this effort, Fannie Mae updated its appraisal policies
    addressing ``problematic'' phrases and code words that could
    indicate underlying bias and recently published two research
    papers on appraisal bias topics. Freddie Mac published
    preliminary research suggesting that 12.5 percent of homes
    appraised in Black communities were valued less than the
    contract price.
        In addition, as part of the ongoing appraisal modernization
    project, FHFA is committed to mitigating bias through exploring
    valuation alternatives and updating the Uniform Appraisal
    Dataset (UAD). FHFA also continues to engage interagency
    partners as part of the PAVE Taskforce and examine and address
    the root causes of racial bias in property valuation.

    Q.3. Do you support efforts to utilize technology to further
    innovate the mortgage experience in order to provide greater
    credit access to consumers?

    A.3. Responsible use of technology presents a number of
    opportunities for providing greater credit access to consumers
    by helping to overcome obstacles that may affect underserved
    populations. As an example, desktop appraisals leverage
    information already available to appraisers so they can
    complete property valuations quickly, leading to shorter
    closing times and other efficiency gains. Desktop appraisals
    can also help borrowers in rural communities more readily
    obtain appraisals by reducing the time it would take for the
    appraiser to travel distances to evaluate a property. After
    permitting and carefully monitoring the use of desktop
    appraisals as a temporary COVID-19 flexibility, FHFA recently
    announced that the Enterprises will be adopting policies
    permitting desktop appraisals in their Selling Guides. FHFA
    will continue to work with the Enterprises to explore other
    ways that careful, measured use of innovative technology can
    provide greater credit access or improved risk management.

    Q.4. What's your view on the role of AI and machine learnings
    in mortgage access, and how should Federal Housing Finance
    Agency approach these emerging technologies in its work?

    A.4. The use of artificial intelligence (AI) and machine
    learning (ML) among financial institutions is fairly new. The
    technology offers the potential to lower costs, expand access,
    and reduce the amount of time to originate and securitize
    mortgages. AI/ML tools and systems can be used to support a
    range of functions including customer engagement, risk
    analysis, credit decision making, fraud detection and
    information security. However, the use of AI/ML can expose
    consumers and financial institutions to heightened risks as
    well, so proper control and oversight of the technology is
    important.
        In response to the growing role of AI/ML over the past
    several years, FHFA will issue an Advisory Bulletin which
    provides risk management guidance to Fannie Mae, Freddie Mac,
    and the Common Securitization Platform. As FHFA evaluates the
    benefits and risks associated with the evolving role of
    technology within the mortgage industry, we identified the need
    for as set of AI/ML core ethical principles such as
    transparency and security to manage decision making and prevent
    algorithmic bias. These core principals are essential for the
    Enterprises to ensure consistency across different business
    activities and functions that interact with AI/ML to avoid
    potential adverse outcomes.
        Should I be confirmed, I intend to increase FHFA's
    capability to evaluate the use of AI/ML at all of its regulated
    entities to ensure responsible innovation, adoption, and use of
    AI/ML. FHFA will also continue to engage with other regulators
    and governmental entities to enhance understanding of AI/ML and
    ensure that guidance and supervisory expectations regarding AI/
    ML are clear and consistent.

    Q.5. If confirmed, what role will Federal Housing Finance
    Agency play as a regulator to ensure that any innovation
    related policy changes with regards to Government Sponsored
    Enterprises is equitable?

    A.5. I recognize that there is still much work to be done to
    make the housing finance system fairer for everyone--including
    Black and brown communities, rural areas, and persons living
    with disabilities. In September of 2021, I instructed the
    Enterprises to develop an annual Equitable Housing Finance Plan
    to identify and address barriers to sustainable housing
    opportunities. The Enterprises, consistent with safety and
    soundness, can responsibly undertake sustainable and meaningful
    actions to advance equity in the housing markets, while
    ensuring safety and soundness of the secondary housing market.
    These plans will include enhancements to the Enterprises
    current programs and products, consumer education initiatives
    for both renters and homeowners, and plans to leverage
    technology to improve sustainable underwriting. In addition,
    FHFA also will require the Enterprises to submit annual
    progress reports on the actions undertaken during the prior
    year to implement their plans. These plans will be published in
    the near future, and FHFA will continue to engage with
    stakeholders to identify areas of opportunity for the
    Enterprises to improve performance of its statutory mission.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
                          FROM SANDRA THOMPSON

    Q.1. Home ownership continues to become more and more
    unaffordable for the middle class, a trend worsened by the
    coronavirus pandemic. The Direct MI pilot programs, IMAGIN and
    EPMI, which significantly lower the cost of Mortgage Insurance
    for borrowers and decrease counterparty risk at the GSEs, have
    temporarily been put on hold.
        How can these Direct MI programs be more fully utilized
    going forward to lower mortgage insurance costs for consumers,
    increase counterparty diversification for the Enterprises and
    reduce MI pricing disparity between large and small lenders?

    A.1. The Integrated Mortgage Insurance (IMAGIN) pilot program
    was previously conducted by Freddie Mac to test an alternative
    form of mortgage insurance. Fannie Mae conducted a similar
    pilot know as Enterprise Paid Mortgage Insurance (EPMI). The
    pilots were designed to provide charter-required credit
    enhancement through reinsurers. Key elements addressed
    counterparty risk, diversification, collateralization for
    exposure, certainty of coverage and lower costs to consumers.
    As you may be aware, the pilot programs were allowed to expire
    in 2021. FHFA will look at all of the costs associated with
    purchasing a home and make responsible changes where
    appropriate.

    Q.2. Many first-time homebuyers, low-to-moderate income
    borrowers, and minority borrowers use mortgage insurance,
    either Private MI or Government MI via FHA, to obtain a
    mortgage if they don't have the required 20 percent downpayment
    as many don't today. These borrowers are usually affected by
    Loan Level Price Adjustments, or additional fees added by the
    GSEs that mortgage insurers already priced into the loan,
    increasing the cost to the borrower.
        Following your recent announcement on raising prices for
    higher cost and second homes, is the FHFA planning on also
    reducing the Loan Level Price Adjustment (LLPA) fees at the
    GSEs that affect some borrowers, primarily First-Time
    Homebuyers, by placing redundant fees on these loans?

    A.2. I want to ensure that all Americans who have the ability
    to repay and qualify are able to get an affordable loan, which
    is a particular challenge for first-time homebuyers and low-
    income borrowers. While FHFA recently adjusted loan level
    pricing adjustments (LLPAs) for higher cost mortgages and
    second homes, we also explicitly exempted from those changes
    both Enterprises' affordable programs, Home Ready and Home
    Possible, as well as first-time homebuyers with incomes at or
    below 100 percent of area median income. In fact, with this
    change, these first-time homebuyers will have lower LLPAs than
    before.
        This year, FHFA is also undertaking a holistic review of
    guarantee-fee pricing and all of its components, but no
    decisions have been made on any specific adjustments. However,
    going forward I would be happy to keep you and your office
    updated on our work in this area.

    Q.3. As you know, the ``Economic Growth, Regulatory Relief, and
    Consumer Protection Act'' (S.2155) that Congress passed and was
    signed into law in May of 2018 included language (Section 310)
    I authored and introduced with bipartisan cosponsors as the
    ``Credit Score Competition Act'' (S.1685). The provision
    required FHFA to establish standards and criteria for the
    validation and approval of credit scores that could be used by
    mortgage lenders intending to sell their mortgages to Fannie
    Mae or Freddie Mac. It's my understanding that FHFA and the
    GSEs have made significant progress in implementing the
    requirements of Section 310.
        Can you provide an update on how the implementation process
    is proceeding and when you anticipate there may, in fact, be
    true credit score competition in the mortgage lending space?

    A.3. I appreciate your efforts to ensure that the Enterprises
    are using up to date and accurate credit score models.
    Following the enactment of your legislation, FHFA published a
    rule on Validation and Approval of Credit Score Models,
    outlining the process as laid out in the law. The Enterprises
    have been proceeding through these steps, and currently the
    process is in its latter stages where the Enterprises conduct
    business assessments of the applicants' credit score models.
        Although I cannot opine on future competition in the credit
    score space, the Enterprise Business Assessment phase does
    require, among other components, an assessment of possible
    competitive effects from using a particular credit score model.
    The Enterprises' will submit their analysis for approval in the
    first quarter of 2022, and I expect FHFA to make a decision on
    updating the credit score by the end of the second quarter.

    Q.4. The Federal Home Loan Bank system has provided liquidity
    and stability for the residential mortgage markets and for
    community development for nearly 90 years.
        As the provision of financial services and particularly
    mortgage finance continues to evolve, do you anticipate the
    FHFA under your leadership will review access to the Federal
    Home Loan Bank System to meet this changing landscape?
        Will you provide to the Members of this Committee
    recommendations for modernizing the membership of the Federal
    Home Loan Bank System?

    A.4. The FHLBanks have an important role serving as a reliable
    source of liquidity for housing finance, community lending, and
    asset-liability management for their members in all market
    conditions. Because the FHLBank System provides advances when
    needed, the FHLBanks played critical roles in the last two
    economic crises, making advances to their members. Despite the
    decrease in advances since the end of March 2020, the FHLBank
    System is currently in a strong financial position and overall
    safe and sound condition.
        Congress established the eligibility for certain types of
    financial institutions to become members of FHLBanks in section
    4(a) of the FHLBank Act. In recent years, Congress expanded
    FHLBank membership eligibility to include nondepository CDFIs
    in 2008 and non-federally insured credit unions in 2015. FHFA
    also addressed membership eligibility issues related to
    insurance companies in a rulemaking in 2016, and the Agency
    continues to clarify expectations on potential member
    applications with the FHLBanks. We are reviewing the membership
    regulation to determine if further clarification is needed.
        FHFA stands ready to provide technical advice on any
    changes that Congress may wish to propose for changes to
    FHLBank membership. In my view, members of the FHLBanks should
    have a clear nexus to housing finance, contribute to the safety
    and soundness of the FHLBank System, support affordable housing
    and community investment needs of the FHLBank districts, have
    strong regulatory and supervisory oversight, and have reliable
    resolution regimes should they encounter difficulties.

    Q.5. Manufactured homes are the only form of unsubsidized
    affordable home ownership and can have a significant role in
    our affordable housing crisis. Yet, the Duty to Serve plans
    that were proposed by the GSEs in May for 2022 to 2024 actually
    reduce the number of manufactured home loans the GSEs intend to
    purchase. This is in complete opposition to purpose of the GSEs
    to facilitate access to affordable home ownership and the needs
    of the country.
        As Director, what are your plans for the GSEs' activities
    with respect to manufactured housing?
        I understand that FHFA is a member of a new White House
    Task Force on expanding access to manufactured housing
    financing. What do you envision as the desired outcomes for
    this task force? What do you see as FHFA's role with this group
    and how will you engage to ensure the task force is successful
    in expanding financing for manufactured homes as a significant
    resource of affordable housing?

    A.5. Duty to Serve has had a measurable impact on the
    manufactured housing market. Since its inception, the
    Enterprises have increased manufactured housing financed as
    real property and established consumer protections in financed
    communities that protect renters and owners of manufactured
    housing units from surprise increases in costs. Manufactured
    housing can represent an affordable housing option for some
    families and is one of the markets required in the Enterprises'
    Duty to Serve plans. Since Duty to Serve took effect in 2018,
    the Enterprises have purchased more than 82,000 eligible real
    property manufactured housing loans for a total of more than
    $11 billion in unpaid principal balance. FHFA has also worked
    with stakeholders and industry to develop tenant protections
    for manufactured homeowners and renters in Enterprise-financed
    manufactured housing communities. These protections are now
    required on all mortgage loans for these communities.
        I recently asked the Enterprises to revise their Duty to
    Serve plans for 2022-2024 to do more in these areas in a
    sustainable way. The plans should explain how the Enterprises
    are going to serve rural areas, focus on affordable housing
    preservation for renters and homeowners, and expand liquidity
    for the manufactured housing market all while maintaining
    strong safety and soundness and underwriting criteria.
        FHFA is participating on the White House Manufactured
    Housing Task Force along with nine other Federal agencies. We
    look forward to working across Government to support and
    enhance the availability of safe, affordable, and energy-
    efficient manufactured housing as an affordable housing option,
    and specifically, the availability and affordability of
    financing products and programs for this housing sector.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
                          FROM SANDRA THOMPSON

    Q.1. I understand that former Director Mark Calabria--and you
    as then a key Deputy--worked on and had come very close to
    finalizing a new rule governing the Products and Activities of
    the GSEs--Fannie and Freddie. Whether in conservatorship or
    down the road as entities exiting conservatorship, having
    strong governance over what products and activities the GSEs
    advance is very important for all participants in the vibrant
    housing economy. The GSEs have very specific congressional
    charters and a strong Products and Activities rule ensures that
    the entities do not exceed those permissible activities
    provided by the private markets.
        Can you assure me and this Committee that this rule will be
    a near term priority for FHFA?

    A.1. Establishing and implementing a process to ensure that any
    new product or activity of the Enterprises is analyzed and
    reviewed by FHFA is an important step to complete before the
    Enterprises can be released from conservatorship and presents
    numerous challenges and regulatory considerations. FHFA is
    diligently reviewing comments on the proposed rule and working
    through the complexity of the issues raised during the public
    comment period. As Acting Director and, if confirmed, as
    Director, I can assure you FHFA will continue its work on this
    issue.

    Q.2. Freddie Mac recently issued directives on manufactured
    housing projects which are in direct conflict with current law
    in several States. In some instances, uniform adoption of these
    standards would result in manufactured housing residents
    receiving weaker protections than they would under State law.
    This proposal by Freddie Mac was issued without warning,
    without a formal notice and comment period, and appears to
    reflect the priorities of activist housing organizations and
    progressive policymakers. Will you commit to ensuring that:
        (1) No additional steps are taken by either GSE without a
    formal process to receive stakeholder feedback
        (2) Any final proposal by either GSE is consistent with
    existing State law
        (3) Any approach in this space is motivated by what is best
    for the long-term health of the manufactured housing market and
    the U.S. taxpayers that support this activity, rather than any
    politically motivated organization?

    A.2. Manufactured housing is an important source of affordable
    housing, especially in rural communities, and is a statutorily
    required focus of the Enterprises' Duty to Serve. Owners and
    renters of manufactured housing who rent a pad in a community
    may face significant costs and difficulties in relocating their
    units if a manufactured housing community owner unexpectedly
    raises pad rents or cancels leases. Our analysis indicated that
    State laws providing tenant protections were not consistent
    across the country. In 2016, FHFA and the Enterprises developed
    a set of tenant protections for manufactured housing
    communities which FHFA included as part of the final rule
    implementing Duty to Serve. The Duty to Serve rule received
    significant public comment when it was proposed. FHFA also
    posts the Enterprises' draft Duty to Serve plans for public
    feedback and holds listening sessions on the Enterprises'
    plans. In 2021, FHFA held a public listening session
    specifically on manufactured housing, where we encouraged
    interested parties to provide feedback.
        The Agency included tenant pad lease protections in
    manufactured housing communities in the Duty to Serve
    regulation to encourage those communities to adopt tenant pad
    lease protections or to enhance existing pad lease protections.
    We believe that these protections help provide stability and
    encourage strong manufactured housing markets. It is important
    to note that these tenant protections are a minimum for
    Enterprise manufactured housing loans and do not preempt any
    State law that provides additional protections or higher
    standards.

    Q.3. During your confirmation hearing, in response to Sen.
    Reed, you said that FHFA is ``very insistent that [manufactured
    housing communities] have protections and Fannie and Freddie
    will not purchase loans unless there are protections for the
    communities, the owners and the renters.'' This comment seems
    to be inconsistent with FHFA's final rule on Duty to Serve,
    which encourages (rather than mandates) manufactured housing
    communities to adopt or enhance existing tenant pad lease
    protections and goes against the long-standing practice of the
    GSEs to encourage adoption through pricing incentives. Can you
    clarify FHFA's position on this issue?

    A.3. FHFA's final Duty to Serve regulation encourages (rather
    than mandates) the adoption of the tenant pad lease
    protections. In 2021, Fannie Mae and Freddie Mac each made the
    decision to only purchase manufactured housing community loans
    with tenant pad lease protections. FHFA agrees with and
    encourages this approach through Duty to Serve credit and
    through the treatment of manufactured housing community loans
    with tenant pad lease protections as mission-driven under the
    Conservatorship Scorecard multifamily volume cap (Appendix A).

    Q.4. In October 2020 your predecessor released for comment a
    proposed rule on ``Prior Approval for Enterprise Products''
    that would update the process for FHFA to review new activities
    at the GSEs. This is a critical element of GSE oversight to
    ensure that they comply with their congressional charters and
    do not expand into areas of the housing finance system served
    by private market participants. Given the comment period for
    this proposed rule closed more than a year ago, do you have any
    update on the timing for FHFA to issue a final rule?

    A.4. Establishing and implementing a process to ensure that any
    new product or activity of the Enterprises is analyzed and
    reviewed by FHFA is an important step to complete before the
    Enterprises can be released from conservatorship and presents
    numerous challenges and regulatory considerations. FHFA is
    diligently reviewing comments on the proposed rule and working
    through the complexity of the issues raised during the public
    comment period. As Acting Director and, if confirmed, as
    Director, I can assure you FHFA will continue its work on this
    issue.

    Q.5. Acting Director Thompson, I understand that former
    Director Mark Calabria--and you as then a key Deputy--worked on
    and had come very close to finalizing a new rule governing the
    Products and Activities of the GSEs--Fannie and Freddie.
    Whether in conservatorship or down the road as entities exiting
    conservatorship, having strong governance over what products
    and activities the GSEs advance is very important for all
    participants in the vibrant housing economy. The GSEs have very
    specific congressional charters and a strong Products and
    Activities rule ensures that the entities do not exceed those
    permissible activities provided by the private markets. Can you
    assure me and this Committee that this rule will be a near term
    priority for FHFA?

    A.5. Establishing and implementing a process to ensure that any
    new product or activity of the Enterprises is analyzed and
    reviewed by FHFA is an important step to complete before the
    Enterprises can be released from conservatorship and presents
    numerous challenges and regulatory considerations. FHFA is
    diligently reviewing comments on the proposed rule and working
    through the complexity of the issues raised during the public
    comment period. As Acting Director and, if confirmed, as
    Director, I can assure you FHFA will continue its work on this
    issue.
                                    ------

           RESPONSES TO WRITTEN QUESTIONS OF SENATOR HAGERTY
                          FROM SANDRA THOMPSON

    Q.1. In a Bloomberg Opinion piece from 2020, former Freddie Mac
    CEO, Don Layton details a specific action the FHFA can take to
    reduced home ownership costs for first-time homebuyers. Mr.
    Layton cites reducing the ``unnecessarily high cost of mortgage
    insurance'' as a way that can tangibly help this segment of the
    marketplace. He describes the significant built-in
    administrative costs in the current marketplace and how better
    utilizing a Direct MI program can tangibly reduce overall costs
    to the homebuyer. Mr. Layton also illustrates how diversifying
    the Enterprises counterparty base to further spread this risk
    will reduce risks to both Enterprises and the American
    taxpayers. Do you agree with Mr. Layton when he states, ``The
    FHFA should immediately take a clear proconsumer and
    procompetition stance by approving the pilot for full
    implementation, making inexpensive and more reliable mortgage
    insurance available to all borrowers who need it''?

    A.1. The article referenced alludes to the Integrated Mortgage
    Insurance (IMAGIN) pilot program that was previously conducted
    by Freddie Mac to test an alternative form of mortgage
    insurance. Fannie Mae conducted a similar pilot know as
    Enterprise Paid Mortgage Insurance (EPMI). The pilots were
    designed to provide charter-required credit enhancement through
    reinsurers. Key elements addressed counterparty risk,
    diversification, collateralization for exposure, certainty of
    coverage and lower costs to consumers. As you may be aware, the
    pilot programs were allowed to expire in 2021. FHFA will look
    at all of the costs associated with purchasing a home and make
    responsible changes where appropriate.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR DAINES
                          FROM SANDRA THOMPSON

    Q.1. You have stated that you will be transparent. Aside from
    mandated reports to Congress, what actions will you take?

    A.1. If confirmed as Director, I will ensure that FHFA conducts
    regular outreach to stakeholders, industry, and Congress,
    including your office, and the offices of our authorizing
    Committee members in both the Senate and the House of
    Representatives. I have also publicly committed to stakeholders
    and the industry that I will give them notice before the Agency
    implements any decisions that involve significant changes.
        FHFA will continue to provide regular updates to Congress
    on the Agency's rulemaking and other regulatory actions. I also
    commit that FHFA will make its subject matter experts available
    for briefings and consultations, and when appropriate, will
    assist in facilitating consultations with Fannie Mae, Freddie
    Mac, and the Federal Home Loan Banks.

    Q.2. Why is transparency important, and what methods are most
    effective at maintaining it?

    A.2. Transparency is a critical component of good governance.
    In over three decades of public service in financial services
    regulation, I've found that the most effective way of
    maintaining transparency and accountability is by adhering to
    strict legal and ethical standards. I believe that doing so is
    also the best way to serve the public's interest.
        I intend to continue FHFA's practice of soliciting public
    feedback on important decisions. In addition to following the
    Administrative Procedures Act providing for a public comment
    period for rulemaking, FHFA publishes Requests for Input that
    solicit public comment on potential policy decisions and
    initiatives, hosts listening sessions, and publishes detailed
    reports and descriptions of FHFA activities on the Agency's
    website.

    Q.3. Will you commit to striving to consistently allow notice
    and comment periods that are substantially longer than 30 days?

    A.3. Yes.

    Q.4. What are the FHFA's weaknesses and how do you intend to
    address them? Please share nuanced objectives versus
    overarching goals.

    A.4. FHFA faces a unique set of economic and environmental
    factors that could influence the Agency's success in achieving
    its mission. Before the pandemic took hold in 2020, the United
    States was already facing a shortage of affordable housing
    driven by the long-term decline in the construction of single-
    family homes. The share of newly built smaller homes, which are
    often more affordable for new or first-time homeowners, has
    been declining since the early 1980s and is now nearing a 50-
    year low. While house prices have been rising for the last
    decade, the number of existing single-family homes for sale has
    declined more than 30 percent.
        The lack of affordable housing has become an even greater
    challenge since the COVID-19 pandemic began when demand for
    housing soared. In 2020, the monthly supply of new residential
    homes sunk to historically low levels. Over the last year,
    mortgage interest rates and housing inventory have both
    remained low even as rapid house price growth continued. This
    diminishing housing affordability is an additional barrier that
    can affect equitable access to affordable home ownership and
    rental housing, especially for first-time and first-generation
    borrowers.
        Another challenge will be to ensure that external events do
    not negatively affect staff productivity and morale. FHFA staff
    have been exceptionally resilient over the past 2 years while
    addressing the economic impacts of the pandemic, leveraging
    lessons learned from prior crises to ensure that families, both
    homeowners and renters, were able to safely remain in their
    homes. As the country emerges from the pandemic, the Agency
    will continue to prioritize the safety of its workforce and
    infrastructure.
        In order to overcome any challenge, I believe it is
    critically important to listen to FHFA's stakeholders:
    Congress, other regulatory institutions, stakeholder
    organizations, and market participants. In doing so, FHFA will
    be able to develop a range of options to determine the most
    effective policy solutions.

    Q.5. Based on your 6 months experience as Acting Director
    please share your insights of employee morale at FHFA?

    A.5. During my tenure as Acting FHFA Director, I have been
    inspired by the dedication, selflessness, and resilience seen
    from FHFA employees. As we continue to navigate the uncertainty
    of the pandemic, I believe our employees' commitment to the
    mission is and has been unwavering. Employee morale, job
    satisfaction, and overall engagement are a significant focus
    for my leadership team and creating a culture of organizational
    effectiveness and work life balance is a top priority for me.
    During my tenure as Deputy Director for FHFA's Division of
    Housing Mission and Goals, I used results from the annual
    Federal Employee Viewpoint Survey (FEVS) to identify areas of
    focus for employee morale. I will continue to use the annual
    FEVS report as a resource for measuring employee morale and
    developing relevant action plans.

    Q.6. How do rural and frontier communities factor into your
    vision for FHFA?

    A.6. In my view, it is critically important that the housing
    GSEs support home ownership in rural areas. Often in rural
    areas the only lenders making loans are small community-based
    lenders, and we must ensure that those lenders have access to
    the secondary market on a level playing field with larger
    lenders. Rural areas have other unique challenges, like finding
    comparable appraisals and the complexity of lending on tribal
    reservations, and the GSEs must provide programs that help to
    address these challenges.
        One of the reasons that I have focused Fannie Mae and
    Freddie Mac on their statutory Duty to Serve underserved
    markets is the rural component required by Congress. Since the
    implementation of Duty to Serve, the Enterprises have more than
    doubled the number of rural single-family loans purchased,
    expanded outreach to rural partners, expanded multifamily
    liquidity in rural areas, and worked closely with the
    Department of Agriculture (USDA) to allow purchases of Sec. 515
    rural housing mortgages.
        Despite these accomplishments, I believe that the
    Enterprises can do more, in a safe and sound manner, to support
    rural housing. Accordingly, I have asked them to improve their
    Duty to Serve plans for 2022. In November 2021, to provide
    rural areas with access to additional financing, FHFA raised
    the Low-Income Housing Tax Credit (LIHTC) investment limit for
    the Enterprises to $850 million annually and required that half
    of that be for underserved areas like rural and tribal areas.
        The Federal Home Loan Banks (FHLBanks) also have a
    responsibility to support home ownership in rural areas.
    Nationwide, they are a source of residential loan liquidity for
    depository institutions and community-based lending
    organizations. In addition to the FHLBanks' core financing
    programs, their Affordable Housing Programs provide funding for
    property rehabilitation projects and home ownership in rural
    areas. However, I believe the FHLBanks can increase their
    support for rural areas in each State and take additional steps
    to assess housing issues in tribal areas in every district.

    Q.7. Please expound on your objectives for credit risk
    transfer. It is critical that taxpayers are not on the hook in
    the case of a severe market event.

    A.7. The Enterprises are currently the largest holder of
    mortgage credit risk in the United States. Credit risk transfer
    (CRT) transactions are a way to transfer a meaningful amount of
    mortgage credit risk to private investors in severely stressful
    economic scenarios, which helps to protect taxpayers from
    potentially large credit-related losses.
        I view the transfer of unexpected credit risk to a broad
    set of global investors as an important tool to reduce taxpayer
    exposure to the risks posed by the Enterprises and to mitigate
    systemic risk to the housing finance market caused by the size
    and monoline nature of the Enterprises' businesses. CRT is an
    effective mechanism for such a distribution of unexpected
    credit risk especially while the Enterprises are in
    conservatorships and have inadequate capital positions relative
    to their overall books of business.
        I am committed to strengthening the safety and soundness of
    the regulated entities and believe that the modest changes we
    have proposed to the Enterprises' capital rule will help
    facilitate the CRT program and move credit risk away from the
    Enterprises and the taxpayers and into the hands of private
    investors.

    Q.8. In December, a U.S. District Court ruled that trusts are
    ``covered persons'' under the Consumer Financial Protection
    Act. As you know, trillions of dollars worth of consumer debt
    is held in trust, a structure which is integral to our
    securitization markets, including the GSE mortgage-backed
    securities market.
        What is the impact of this court decision?
        Specifically, how will this decision impact the ability of
    the GSEs to issue MBS going forward? Please provide FHFA's
    expectations regarding any increased costs to the GSEs
    securitization process and whether those costs will ultimately
    be borne by U.S. homeowners.

    A.8. The case mentioned in the question, CFPB v. National
    Collegiate Master Student Loan Trust, has received a great deal
    of attention from participants in the securitization business,
    and is currently being appealed by the defendants. FHFA is
    actively monitoring the case. We do not expect it to have a
    significant effect on Enterprise securitizations or on
    investors in Enterprise mortgage-backed securities due to the
    distribution of compliance responsibilities among the various
    participants in Enterprise securitizations, the robustness of
    Enterprise servicing guides and contracts, and Enterprise
    monitoring of servicers.

    Q.9. Due to the current trade situation between China and the
    United States, the current tariffs are contributing to an
    increase of the cost of U.S. building materials, which is
    further exasperating the supply shortage in the housing market.
        What can be done to lessen the negative impact of the
    increasing costs of U.S. building materials, specifically in
    regards to the trade war with China?

    A.9. FHFA's legal authorities are limited to the regulation and
    supervision of the secondary mortgage market and its role as
    conservator of Fannie Mae and Freddie Mac. The Agency's
    authorities and activities are not related in any way to
    international trade policy or any tariffs imposed by the U.S.
    Government.

    Q.10. Do you have any plans to change the current FHFA plans
    for monitoring enterprises exiting Federal conservatorship?
        What are your general thoughts on ending Federal
    conservatorships over GSEs? What indicators (economic or
    otherwise) should we be monitoring?

    A.10. FHFA closely supervises the Enterprises and is focused on
    ensuring that the Enterprises build capital and improve their
    safety and soundness while in conservatorship. Adequate capital
    is a necessary precondition for the Enterprises to exit from
    conservatorship; however, this is not a calendar-driven event.
    FHFA has taken additional steps beyond building capital to
    ensure that upon their exit from conservatorship, we will not
    have a repeat of the issues that lead to the financial crisis.
    These steps include facilitating CRT transactions and improving
    the Enterprises' transparency. There is still much more work to
    be done to transfer risk, strengthen underwriting, and review
    pricing and credit policies.
        In order to end the conservatorships, it is essential that
    Congress determines both the role of the Enterprises and the
    secondary mortgage market's future structure. In addition, the
    Department of Treasury, which possesses a significant economic
    interest in the Enterprises, and other Federal agencies will
    need to resolve a series of outstanding issues as part of the
    process to end the conservatorships.

    Q.11. Last year, former FHFA Director Calabria warned that
    ``when housing markets experience a significant downturn,
    Fannie Mae and Freddie Mac will fail at their current capital
    levels''.
        If we experience a significant housing market downturn,
    would Fannie Mae and Freddie Mac have the ability to meet
    current obligations given their current capital levels?
        How might Fannie and Freddie increase capital if they were
    to be removed from conservatorship?

    A.11. Under FHFA's capital rule, the Enterprises would need
    approximately $300 billion of capital to meet their obligations
    in the case of a significant housing market downturn and to
    continue to support the housing market through the downturn.
    The Enterprises currently have a net worth of approximately $68
    billion. In conservatorship the Enterprises can only build
    capital through retaining earnings, and I expect them to
    continue to build their capital levels and utilize CRT to
    ensure that taxpayers are not at risk. Outside of
    conservatorship, the Enterprises would be able to build capital
    through both retaining earnings and raising capital from the
    capital markets.

    Q.12. Currently, the United States and Canada are in a trade
    dispute regarding softwood lumber, a common building material
    for homes. The U.S. Department of Commerce nearly doubled its
    duties on imported Canadian softwood lumber to 17.9 percent in
    November.
        What is your opinion on this current trade disagreement?

    A.12. FHFA's legal authorities are limited to the regulation
    and supervision of the secondary mortgage market and its role
    as conservator of Fannie Mae and Freddie Mac. The Agency's
    authorities and activities are not related in any way to
    international trade policy or any tariffs imposed by the U.S.
    Government.

    Q.13. One of the GSEs main functions is to support small
    lenders' access to capital markets they otherwise could not. On
    the single-family side, FHFA has made progress creating a level
    playing field. On the multifamily side, you've indicated there
    remains work to be done. The GSEs recently put out guidelines
    for small multifamily lenders but it appears that they don't
    provide clarity and objective standards for these lenders.
    Independent and smaller multifamily lenders are still being
    shut out from serving their American communities.
        As you noted in April of last year:
        FHFA has nothing against the big players, but their size
    means that they don't have to worry about accessing the capital
    markets. Small lenders, on the other hand, may be able to
    leverage local knowledge to best serve their communities. . . .
    FHFA's current Duty to Serve regulation includes recognition of
    the role small lenders can play in serving underserved markets.
    But that very locality can also make it harder for them to
    access capital markets.
        Can you give us an update on your efforts, and how you will
    define success in the multifamily lending side of the GSEs?

    A.13. FHFA highlighted the importance of access for small
    multifamily lenders by including it on the Enterprises' 2022
    Conservatorship Scorecard. As a financial regulator for more
    than 30 years, I have long been aware that smaller lenders have
    local knowledge and relationships and may more effectively
    serve underserved markets. The Enterprises will work with FHFA
    throughout 2022 to assess opportunities to increase access to
    Enterprise multifamily products for small and regional lenders.
    FHFA's primary goal is to make certain the Enterprises have
    qualified multifamily counterparties that can serve all markets
    in need.
        In early 2021, FHFA worked with the Enterprises to publish
    lender eligibility requirements on their public websites.
    Publishing more information on the Enterprises' lender
    eligibility requirements is an important first step to provide
    transparency and allow prospective lenders to easily understand
    the criteria to become an Enterprise seller/servicer. I
    recognize that more work is needed to ensure access for
    qualified lenders.

    Q.14. The FHFA annual performance and accountability report for
    2021 reflected new priorities for the upcoming year, including
    strengthening the safety and soundness of Fannie Mae, Freddie
    Mac, and the Federal Home Loan Banks to protect the housing
    finance system.
        Can you offer any details of how the FHFA plans to meet
    that new priority?
        What role as Director will you play in maintaining that
    priority?

    A.14. As Acting Director and, if confirmed, Director of FHFA, I
    will continue to use the authorities of the Director to
    maintain strong oversight of the Enterprises as both regulator
    and conservator. FHFA will continue to look at ways to
    strengthen the safety and soundness of its regulated entities,
    including by finalizing proposed enhancements to the
    Enterprises' regulatory framework and transferring a
    significant amount of credit risk from the Enterprises to
    private investors. In November 2021, FHFA published the 2022
    Conservatorship Scorecard for the Enterprises, which
    establishes milestones on which Enterprise leadership is
    assessed. I also intend to release a new FHFA Strategic Plan
    this year which will further detail some of these objectives.

    Q.15. According to the FHFA annual performance and
    accountability report for 2021, assessment teams from FHFA
    documented the actions that demonstrated compliance with
    significant laws and regulations. The assessment determined
    there were no material weaknesses that adversely affect the
    compliance with laws and regulations.
        Can you provide details of what that assessment entails,
    and how it ensures unbiased third party compliance
    verifiability?

    A.15. FHFA conducts its assessment of internal controls over
    the effectiveness and efficiency of its operations, reporting
    (other than financial reporting), and compliance with
    applicable laws and regulations in accordance with the Office
    of Management and Budget's (OMB) Circular A-123. FHFA's
    assessments for compliance with laws and regulations are
    reviewed by FHFA's Office of General Counsel, and the
    Government and Accountability Office conducts an audit of
    FHFA's financial statements including compliance with laws and
    regulations material to FHFA's financial statements.

    Q.16. You mentioned that 104 counties were affected by the
    increased rate of second-home mortgages disproportionately when
    compared to counties with an increased median income. What
    similarities do these counties have? Are any of these counties
    in MT?

    A.16. I would like to clarify that FHFA determined for 2022
    that 121 counties in the United States are in high cost areas
    and have conforming loan limits higher than the $647,200
    national baseline. None of the 56 counties in Montana are above
    the new national baseline. In fact, the new baseline limit is
    higher than the highest median county home value in Bozeman
    which reached $525,500 in 2021. Because of the rapid increase
    in house prices last year, the conforming loan limit
    significantly increased between 2021 and 2022 across the board.
    For the highest cost areas in the country, the maximum
    conforming loan limit is $970,800.
        The formula for calculating the loan limit is defined in
    the Housing and Economic Recovery Act, and FHFA does not have
    flexibility in setting it. FHFA has announced an adjustment in
    guarantee fees for ``high balance'' loans that are larger than
    the $647,200 conforming loan limit, up to $970,800, and for
    second home mortgages purchased by the Enterprises. We exempted
    from these adjustments the Enterprise affordable programs and
    first-time homebuyers with incomes at or below 100 percent the
    area median income. The exemption ensures that the Enterprises
    continue to provide strong support for affordable housing.
                  Additional Material Supplied for the Record
              LETTER SUBMITTED IN SUPPORT OF NOMINEE LAEL BRAINARD

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