[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

                  
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                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.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                 ______
                                 
                 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.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        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.
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