[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
THE ANNUAL TESTIMONY OF THE SECRETARY
OF THE TREASURY ON THE STATE OF THE
INTERNATIONAL FINANCIAL SYSTEM
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
JUNE 13, 2023
__________
Printed for the use of the Committee on Financial Services
Serial No. 118-30
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
_____
U.S. GOVERNMENT PUBLISHING OFFICE
53-178 PDF WASHINGTON : 2024
HOUSE COMMITTEE ON FINANCIAL SERVICES
PATRICK McHENRY, North Carolina, Chairman
FRANK D. LUCAS, Oklahoma MAXINE WATERS, California, Ranking
PETE SESSIONS, Texas Member
BILL POSEY, Florida NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri BRAD SHERMAN, California
BILL HUIZENGA, Michigan GREGORY W. MEEKS, New York
ANN WAGNER, Missouri DAVID SCOTT, Georgia
ANDY BARR, Kentucky STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas AL GREEN, Texas
FRENCH HILL, Arkansas, Vice EMANUEL CLEAVER, Missouri
Chairman JIM A. HIMES, Connecticut
TOM EMMER, Minnesota BILL FOSTER, Illinois
BARRY LOUDERMILK, Georgia JOYCE BEATTY, Ohio
ALEXANDER X. MOONEY, West Virginia JUAN VARGAS, California
WARREN DAVIDSON, Ohio JOSH GOTTHEIMER, New Jersey
JOHN ROSE, Tennessee VICENTE GONZALEZ, Texas
BRYAN STEIL, Wisconsin SEAN CASTEN, Illinois
WILLIAM TIMMONS, South Carolina AYANNA PRESSLEY, Massachusetts
RALPH NORMAN, South Carolina STEVEN HORSFORD, Nevada
DAN MEUSER, Pennsylvania RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin RITCHIE TORRES, New York
ANDREW GARBARINO, New York SYLVIA GARCIA, Texas
YOUNG KIM, California NIKEMA WILLIAMS, Georgia
BYRON DONALDS, Florida WILEY NICKEL, North Carolina
MIKE FLOOD, Nebraska BRITTANY PETTERSEN, Colorado
MIKE LAWLER, New York
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee
Matt Hoffmann, Staff Director
C O N T E N T S
----------
Page
Hearing held on:
June 13, 2023................................................ 1
Appendix:
June 13, 2023................................................ 53
WITNESSES
Tuesday, June 13, 2023
Yellen, Hon. Janet L., Secretary, U.S. Department of the Treasury 4
APPENDIX
Prepared statements:
Yellen, Hon. Janet L......................................... 54
Additional Material Submitted for the Record
Yellen, Hon. Janet L.:
Written responses to questions for the record from Chairman
McHenry.................................................... 57
Written responses to questions for the record from
Representative Barr........................................ 121
Written responses to questions for the record from
Representative Davidson.................................... 104
Written responses to questions for the record from
Representative Donalds..................................... 106
Written responses to questions for the record from
Representative Fitzgerald.................................. 113
Written responses to questions for the record from
Representative Garbarino................................... 101
Written responses to questions for the record from
Representative Mooney...................................... 123
Written responses to questions for the record from
Representative Nickel...................................... 116
Written responses to questions for the record from
Representative Nunn........................................ 119
Written responses to questions for the record from
Representative Waters...................................... 89
THE ANNUAL TESTIMONY OF THE
SECRETARY OF THE TREASURY
ON THE STATE OF THE
INTERNATIONAL FINANCIAL SYSTEM
----------
Tuesday, June 13, 2023
U.S. House of Representatives,
Committee on Financial Services
Washington, D.C.
The committee met, pursuant to notice, at 10:07 a.m., in
room 2128, Rayburn House Office Building, Hon. French Hill
[vice chairman of the committee] presiding.
Members present: Representatives Lucas, Sessions, Posey,
Luetkemeyer, Huizenga, Wagner, Barr, Williams of Texas, Hill,
Emmer, Loudermilk, Mooney, Davidson, Rose, Steil, Timmons,
Norman, Meuser, Fitzgerald, Garbarino, Kim, Donalds, Flood,
Lawler, Nunn, De La Cruz, Houchin, Ogles; Waters, Velazquez,
Sherman, Meeks, Scott, Lynch, Green, Cleaver, Himes, Foster,
Beatty, Vargas, Gottheimer, Gonzalez, Pressley, Horsford,
Tlaib, Torres, Garcia, Williams of Georgia, Nickel, and
Pettersen.
Mr. Hill. [presiding]. The Financial Services Committee
will come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
Today's hearing is entitled, ``The Annual Testimony of the
Secretary of the Treasury on the State of the International
Financial System.''
I will note at the outset of this hearing that we have a
hard stop, as a courtesy to the Secretary, at 1:00 this
afternoon, and we will strictly observe it.
Now, I will recognize myself for 4 minutes to give an
opening statement.
Welcome, Secretary Yellen. I appreciate you being here
today. Today's hearing is about the state of the international
financial institutions, but I do want to take a minute and talk
about the debt ceiling crisis that we narrowly avoided. First,
we are all glad that this is behind us. No one wanted a
default, no Legislative Branch official, and no Executive
Branch official. Your statement says that waiting until the
last minute hurts American credibility. I agree.
Madam Secretary, this could have been dealt with by the
President and Speaker Pelosi last year in the previous
Congress, or the President could have engaged sooner with
Speaker McCarthy when they met on February 1st, but
nonetheless, President Biden signed into law an effective
compromise. That said, there is a lot of frustration,
particularly about the lack of transparency of when the
Treasury Department expected the debt ceiling to be breached,
otherwise known colloquially as the, ``X-date.''
At the end of February, Chairman McHenry wrote to you
requesting information on your projections and calculations.
Simple enough. The response was lacking, to put it mildly. This
committee and Congress as a whole did not hear from you again
until May 1st, after the House passed the Limit, Save, Grow
Act. Two different X-dates, June 1st and June 5th, were
subsequently released, with zero explanation, and zero
transparency. We all have to have confidence in the fiscal
analysis of our government.
Now, I would like to turn back and focus on the issue of
the day: international financial institutions (IFIs). Let's
start where we agree, with the nomination of World Bank
President Ajay Banga. Mr. Banga is a serious, competent leader
who has the capacity to right the ship at the World Bank and
continue the improvements and leadership from the former
President, Mr. Malpass. The World Bank and the International
Monetary Fund (IMF) should be laser-focused on eliminating
poverty and helping countries overcome crises. But
unfortunately, the international financial institutions seem to
think about everything except economic growth. They have fallen
into a bottomless word salad of empty rhetoric that serves
Western NGOs, not the interest of developing countries.
No wonder China has become the world's largest official
creditor, even though its lending terms are often more
burdensome than those of the international financial
institutions. Africa is a helpful case study. Your recent
response to our letter regarding energy was helpful. We are
grateful for that letter, but Treasury is opposing virtually
all fossil fuel and nuclear projects in the multilateral
development banks (MDBs) even though half the continent of
Africa doesn't have access to electricity. How does this make
sense? Who is eager to build infrastructure there? China.
Meanwhile, the IMF has completely failed to bring that
China into compliance with international norms. The Fund must
get serious about standing up to the Chinese government if it
takes its mission, long term, seriously. If the Fund keeps
letting Beijing drag out restructuring talks with borrowers,
there won't be much of a case for additional IMF resources at
the end of this year. There is no doubt that China poses a
generational threat to our national interest, but as long as we
remain committed to our values, the U.S. will compete and
outcompete the Chinese Communist Party (CCP). I look forward to
your testimony, and I yield back.
The Chair now recognizes the ranking member of the
committee, the gentlewoman from California, Ms. Waters, for 4
minutes for an opening statement.
Ms. Waters. Thank you very much. Good morning. I would like
to welcome Secretary Yellen before our committee today.
I want to first start out by noting that after the failures
of Silicon Valley Bank, Signature Bank, and First Republic
Bank, it was the leadership and swift action taken by Secretary
Yellen and our banking regulators that prevented a banking
crisis, protected our economy, and ensured that depositors in
the United States remained safe. That is not all. After months
of Republican brinkmanship over our nation's debt, Secretary
Yellen did a masterful job of blocking out lies coming from
extreme MAGA Republicans by keeping Congress appropriately
updated with the latest estimate of the X-date and ensuring our
bills were paid on time. It is this level of leadership that
Secretary Yellen has also demonstrated on the world stage.
Right now, climate change, global pandemics, and food
scarcity pose major threats to the global economy. And after
years of hostility and ignorance by officials appointed by the
prior Administration, Secretary Yellen is helping to restore
the image of the United States all around the world and among
our allies by pushing the World Bank, IMF, and other
multilateral institutions to take serious action to tackle the
existential threats before they get worse.
Not only that, but under Secretary Yellen's leadership, the
United States continues to impose severe sanctions against
Russia, has increased financial resources for countries in need
by authorizing additional IMF special drawing rights, and is
promoting a strong and vibrant domestic economy by implementing
transformational pieces of legislation, like the American
Rescue Plan, the Infrastructure Investment and Jobs Act, and
the Inflation Reduction Act.
Republicans, on the other hand, are failing to lead. They
are actively denying that climate change exists, dismantling
the government's ability to respond to pandemics, cutting off
food aid to struggling countries, blocking their own
legislation in the House, and threatening to drive our global
economy off a cliff. It is telling that on the same day that we
are hearing about the Secretary's and Treasury's efforts to
bolster the global economy, Republicans will also bend over
backwards to defend the twice-impeached and indicted former
President Trump, who has been arraigned for allegedly stealing
and sharing some of the nation's closely-guarded secrets and
willfully undermining efforts to protect those secrets.
The contrast between Democrats and Republicans is clear.
After nearly tanking the economy, Republican infighting has
ground the House Floor to a halt. Make no mistake, their
extreme MAGA agenda is not extreme enough, but they are
extremists. Thankfully, under Democratic leadership, the United
States is stronger than ever. We now have 28 consecutive months
of strong growth, and during President Biden's tenure, created
a record 13 million jobs, all while cutting inflation by more
than half, compared to last summer, based on the latest
Consumer Price Index. Index numbers released this morning show
further progress is expected in the months to come.
The Biden Administration and Democrats have shown what
happens when you deliver legislation that puts working families
first. I look forward to today's testimony, and I yield back.
Mr. Hill. The gentlewoman yields back. The Chair now
recognizes the gentleman from Missouri, Mr. Luetkemeyer, who is
also the Chair of our Subcommittee on National Security,
Illicit Finance, and International Financial Institutions, for
1 minute.
Mr. Luetkemeyer. Thank you, Mr. Chairman. Good morning,
Secretary Yellen.
The international financial institutions (IFIs) were
established to address economic challenges in distressed
countries and cultivate economic growth around the world.
However, it is becoming clear that these organizations are
neither capable of nor interested in meeting these goals. The
World Bank's unrealistic and harmful green agenda is preventing
some of the poorest nations from obtaining the cheapest and
most-reliable energy sources, such as nuclear and natural gas.
Ironically, the world's largest polluter, China, continues to
receive sweetheart deals from the IFIs that no other wealthy
nation is allowed to receive. The country with the world's
second-largest economy continues to receive more than a billion
dollars per year from the World Bank, and China remains one of
the bank's largest debtors. Sadly, but not surprisingly, it is
our money that is largely paying for these horrible policies.
So, Chair Yellen, I look forward to hearing your ideas to stop
them. With that, Mr. Chairman, I yield back.
Mr. Hill. The gentleman yields back. The Chair recognizes
the ranking member of our Subcommittee on National Security,
Illicit Finance, and International Financial Institutions, Mrs.
Beatty of Ohio, for 1 minute.
Mrs. Beatty. Thank you, Mr. Chairman, and ranking members,
for holding this hearing.
Madam Secretary, I would like to thank you and the Biden-
Harris Administration for your leadership in preserving the
strength and power of the United States on the global stage. It
was under your leadership, your guidance, and, most
importantly, your advice, that we avoided a bank crisis. We
imposed economic measures in support of Ukraine, averted a
disastrous default, and promoted a strong and resilient
domestic economy. Further, we have preserved our status in the
global economy through your voice and vote at the IMF, the
World Bank, and other IFIs, a task that is increasingly
critical as we see foreign adversaries seek to replace us in
Africa, in the Caribbean, and around the world. Having traveled
to the Caribbean with Ranking Member Waters, particularly the
Bahamas and Barbados, I have seen firsthand the destructive
nature of Chinese relationships, and I recognize our
significance.
Thank you, Madam Secretary, for your leadership. I look
forward to your testimony.
Mr. Hill. The gentlewoman yields back.
Today, we welcome the testimony of the Honorable Janet
Yellen, the Secretary of the Treasury. Secretary Yellen, we
thank you for taking the time to be here.
You will be recognized for 5 minutes to give an oral
presentation of your testimony. And without objection, your
written statement will be made a part of the record.
Secretary Yellen, you are now recognized for 5 minutes.
STATEMENT OF THE HONORABLE JANET L. YELLEN,
SECRETARY, U.S. DEPARTMENT OF THE TREASURY
Secretary Yellen. Thank you, Mr. Chairman, and Ranking
Member Waters. Thank you for your invitation to testify before
this committee today in my capacity as Chair of the National
Advisory Council on International Monetary and Financial
Policies. I am looking forward to discussing Treasury's
oversight of the international financial institutions (IFIs).
The past few years have demonstrated the importance of
these institutions as part of our broader economic and foreign
policy toolkit. Since 2020, global shocks, such as the pandemic
and Russia's illegal war against Ukraine, have had significant
impacts on American families and businesses. In the face of
these shocks, the international financial institutions advance
U.S. national interests by fostering a more-resilient global
economy. They enable us to mobilize swift responses to mitigate
global risks to the U.S. economic outlook. And they help drive
U.S. economic growth by expanding global demand for American
products and services. That is why there has always been a
robust bipartisan consensus around strengthening America's
leadership at these global institutions.
Over the past year, these institutions have continued to
make smart and cost-effective investments to meet urgent needs.
They leverage our dollars to mobilize additional funding from
our partners and the private sector. For example, the IMF
approved a landmark $15 billion economic program for Ukraine
earlier this year. This program, combined with direct budget
support provided by the United States and our partners, will
help Ukraine's immediate financing needs. It will also underpin
its government's good governance and anti-corruption reform
efforts. The World Bank and other multilateral development
banks have also provided essential support to Ukraine, which
includes facilitating the responsible and accountable
disbursement of funds to help stabilize its economy.
Our leadership at these institutions is one of our core
ways of engaging with emerging markets and developing
countries. The IFIs provide real resources to tackle the
challenges the world faces, from weathering economic storms to
spurring long-term economic development. In 2022 alone, the
development banks provided over $150 billion in funding to
developing countries.
These institutions reflect American values. Assistance from
the IFIs comes with strong requirements for governance,
accountability, and debt sustainability. It serves as an
important counterweight to nontransparent, unsustainable
lending from others like China. As an example, the multilateral
development banks are a leading source of financing to close
the infrastructure gap in developing countries. These
infrastructure projects adhere to robust technical and other
standards that are aimed at achieving sustainable and inclusive
growth in our partner communities.
The United States is not a passive shareholder. We actively
shape the priorities of these institutions, as a leading
shareholder in nearly all of them. A major project over the
past few months has been to evolve the World Bank to better
deliver against global challenges as part of its poverty
reduction and development mission. We have already introduced
reforms that will stretch the World Bank's balance sheet to
unlock as much as $50 billion in additional lending capacity
over the next decade. And we have made preliminary updates to
its mission and operations. I am looking forward to working
with the new World Bank President, Ajay Banga, to build further
momentum for our evolution initiative.
Looking ahead, the Biden Administration seeks to bolster
U.S. leadership in these institutions. To that end, we request
authorization to renew our participation in the IMF's New
Arrangements to Borrow, a critical backstop to IMF resources.
We also seek authorization to lend to two key IMF trust funds:
the Poverty Reduction and Growth Trust; and the Resilience and
Sustainability Trust. These actions will help the IMF address
economic crises, with a particular emphasis on supporting
vulnerable developing countries amid heightened risks. We would
also like to boost our involvement in IDB Invest and the
African Development Fund. These investments will bolster our
engagement in these regions at a time of geopolitical
competition.
I want to end by discussing the debt limit. I am relieved
that with the President's leadership, Congress took action to
address the debt limit in time. But while we were able to avoid
default, the United States once again came dangerously close to
the line. This cannot be normalized as the way we do business
in Washington. Waiting until the last minute hurts our global
leadership and credibility on the world stage. We are a nation
that keeps our word and pays our bills. We should never give
anyone any reason to think otherwise. Thank you.
[The prepared statement of Secretary Yellen can be found on
page 54 of the appendix.]
Mr. Hill. I thank the Secretary for her testimony, and I
will now turn to Member questions. I recognize myself for 5
minutes for questions.
Madam Secretary, I read with interest the G7 statement on
Ukraine from your meeting in Hiroshima last month, which
reiterated a commitment to stand against Russia's illegal war
in Ukraine. G7 leaders called on Russia to pay for the damages
and long-term reconstruction costs of Ukraine, and while the
U.S. has made major contributions thus far, I agree that
ultimately, Russia should bear that responsibility. That is why
I am working on a bill called the Ukraine Reconstruction Act,
which would ensure that the United States has the authority it
needs to take title of Russian sovereign assets and transfer
them to an international escrow fund to pay for war damages.
This would be fully in line with international norms,
conventions, and precedent, and also be done in coordination
with our allies in Europe and elsewhere. It is also in line
with both the G7 and the United Nations, which call for the
establishment of, ``an international mechanism for reparation
for damage, loss, and injury,'' and pointed out Russia's frozen
sovereign assets held in central banks around the world. I want
to thank the Treasury for their technical assistance, and
particularly the engagement of your Deputy Secretary. Do you
agree that this is the right approach and that legislation of
this nature is necessary?
Secretary Yellen. Let me start by thanking you for your
engagement on this important issue. From the outset of Russia's
illegal invasion of Ukraine, we have taken decisive steps of
immobilizing Russian central bank reserves, and working
alongside our allies and partners, we have immobilized jointly
about $300 billion worth of reserves. As you noted, we are
committed with the G7 to ensuring that these assets remain
immobilized until there is a resolution of the conflict in
which Russia pays for the damage it has caused.
And we are working with allies and partners also in the G7
on the so-called REPO Task Force on this issue. Now, however,
it is the case that most of the assets, Russia's sovereign
assets, are not in the United States, and for that reason, it
is critical that any next steps we take be done via careful
consultation with allies and partners in a coordinated
approach. We are engaging in those discussions. We are working
first to more accurately map exactly where these assets are,
and we are examining a number of options, including some that
we may be able to take under existing authorities. But we do
look forward to working with you and other Members of Congress
on this important issue.
Mr. Hill. I think that is important. Thank you for that,
and I do think you are right in that each of the respective
legal systems among the G7 nations and allied nations need
companion-type legislation. Thank you for that. You chair the
Financial Stability Oversight Council (FSOC), and as Chair, I
assume it is fair to say that any report FSOC puts out, you put
eyes on and have taken a look at, is that true?
Secretary Yellen. That is fair.
Mr. Hill. Last October, FSOC released a report called,
``Report on Digital Asset Financial Stability Risks and
Regulation.'' And it says, ``Digital asset businesses do not
have a consistent or comprehensive regulatory framework and can
take advantage of gaps in the regulatory system and engage in
regulatory arbitrage.'' We couldn't agree more, many of us on
both sides of the aisle. And I think FTX just showed just as
long as these entities are outside the United States and
outside some sort of a framework, Americans will continue to be
at risk until we establish a regulatory framework, protecting
investors and innovators, and also Web3 distributed ledger
innovation in our country.
The FSOC report recommended that Congress pass legislation
to provide regulators authority over spot markets for digital
assets, as well as legislation to give regulators more
authority to have visibility into supervised digital asset
companies. We are working on that here in Congress. Are those
recommendations from last fall or late summer's FSOC report
still the recommendations of FSOC? That is still the view of
FSOC?
Secretary Yellen. Yes, that remains the view of FSOC that
there are some gaps, like spot markets for crypto assets, that
are not securities. We would like to see a regulatory framework
over those markets. And there are gaps in regulations, I would
point out, specifically stablecoins. And I do believe that we
need a comprehensive Federal prudential framework and I would
be pleased to work with you, with Congress, to see if we can
develop such a framework.
Mr. Hill. Thank you, Madam Secretary. My time has expired.
The ranking member of the committee, the gentlewoman from
California, Ms. Waters, is recognized for 5 minutes.
Ms. Waters. Thank you very much. Secretary Yellen, I would
like at some point in time to really talk about Haiti and the
lack of attention, I think, from anywhere, in dealing with that
crisis there. But I know that it is important for them and
civil society to get together to plan a vote and get into
government. And there is not a lot that a multilateral can do,
the World Bank, IMF, et cetera, but I would like you to keep an
eye on it so that as soon as we can get government
reestablished, et cetera, that the funding that is going to be
necessary will have our support. So having said that, we will
talk about Haiti at another time.
Secretary Yellen. Okay.
Ms. Waters. I am working and will continue to work to see
that civil society is involved in getting something done.
Let me just turn to a recent announcement by the PGA, that
the PGA Tour may be purchased by LIV Golf, which is owned and
controlled by Saudi officials, including the Saudi Crown
Prince. As Chair of the Committee on Foreign Investment in the
United States (CFIUS), you know that in assisting the President
in overseeing the national security risk of foreign direct
investments in the U.S. economy, the committee is permitted to
consider, ``whether any foreign person engaging in a covered
transaction with a United States business has a history of
complying with United States laws and regulations.'' That is a
quote. I believe that this consideration is a substantially
lower bar than the serious crimes committed by the Saudi
Arabian government and its officials.
Saudi Arabia has a regressive, repressive government known
for chilling dissent, jailing dissidents, and draconian
punishments. The Crown Prince himself has been implicated by
our own intelligence community in the brutal kidnapping,
torture, murder, and dismemberment of an American resident,
Washington Post journalist, Jamal Khashoggi.
Further, as shared by 9/11 Families United, the families of
the victims of the terrorist attacks on September 11, 2001, in
response to the news of the merger said, ``The Kingdom spent
billions of dollars before 9/11 to fund terrorism, spread their
vitriolic hatred of Americans, and financed al-Qaeda and the
murder of our loved ones.'' The same 9/11 families are still
waiting for justice in their lawsuit against the Saudis, as the
Saudi government obstructs court processes and obscures the
truth, dragging out the families' suffering and restitution for
over 2 decades.
Can you share what scrutiny this particular deal between
LIV Golf and the PGA Tour may receive? Is CFIUS looking into
their investments by the Saudi sovereign wealth fund, in
general, given its historic and continued failure to comply
with U.S. law and regulation?
Secretary Yellen. What I can say is that CFIUS is a very
important part of Treasury's national security mission, and the
committee is very well-positioned to review transactions that
do involve national security concerns. Regrettably, because
there are very strict rules of confidentiality, I am not in a
position to be able to comment on any specific matter or
potential case, but certainly, where there are national
security concerns, CFIUS is in the position and does review
transactions.
Ms. Waters. I thank you for that clarification. In essence,
what I have heard is you cannot comment on what is going on
now, but there is a possibility because they have the
responsibility to review these kinds of transactions----
Secretary Yellen. That is correct.
Ms. Waters. ----to determine whether or not it is in our
best interest or whether our security is somehow compromised
because of the transaction. And I thank you for that, because I
do believe that, and I hope that CFIUS will take it up. Thank
you very much, and I yield back.
Mr. Barr. The gentlelady yields back. The gentleman from
Oklahoma, Mr. Lucas, is now recognized for 5 minutes.
Mr. Lucas. Thank you, Mr. Chairman. The United States has
some of the best capital markets in the world and they are
critical to the strength of our economy. During the last
several challenging years, our capital markets were essential
in facilitating capital and managing risks for U.S. businesses,
investors, and even the government. While we don't yet have the
details of the Basel III proposal coming from the Fed, Vice
Chair Barr has indicated it will impact the capital market
activities of large U.S. institutions. I am concerned about
adding punitive capital charges to U.S. banks as
counterproductive to promoting liquidity and efficient markets.
This will come at the same time the SEC is engaged in dramatic
and transformational market structure changes at an
unprecedented rate.
Since Treasury's mission is to maintain a strong economy
and promote economic growth and stability, are you confident
that these policy changes will not undermine the resilience of
the U.S. capital markets that support the economy, Madam
Secretary?
Secretary Yellen. I certainly agree with the goal that you
mentioned of maintaining strong capital markets. I am not
really in a position to comment on these regulations. I don't
believe they have been released yet, and I haven't been fully
briefed, but we will certainly review them carefully, and think
about the implications that forthcoming changes could have to
the functioning of our capital markets, and particularly for
the Treasury market where we have a particular responsibility.
Mr. Lucas. Just to reiterate, it is concerning that U.S.
banks will have to implement both significant market structure
changes, including to and affecting the U.S. Treasury markets,
and increased capital requirements associated with market
activities. I will ask this: Are the Fed and the SEC
coordinating with Treasury on the economic analysis necessary
to understand potential consequences to both markets and end
users, and will you commit to this analysis?
Secretary Yellen. I believe this is likely to be a Fed set
of regulations and proposals. The Treasury is not involved in
reviewing those, but I am assuming that the Federal Reserve
would, possibly jointly with the FDIC, put out a notice of
proposed rulemaking, and that we would certainly have the
opportunity to discuss----
Mr. Lucas. You see where my concern is. The potential
impact is so dramatic. If the entities that are engaged in
these various elements of dramatic change aren't cross-
referencing their actions, there is the possibility of
unintended consequences, and that concerns me.
Question number two, in the European Union, the Corporate
Sustainability Reporting Directive (CSRD) went into effect in
January of this year. The CSRD will require companies to
disclose a host of far-reaching ESG information. These
requirements will also apply to non-EU companies that have a
significant EU presence, which could have a substantial impact
on industries here at home, for example, the agriculture
sector. Companies that do business in Europe are navigating
through how to comply with these disclosures related to climate
change, Scope 3 emissions, water usage, biodiversity, and
ecosystem data.
Secretary Yellen, does the Treasury have an estimate of how
many U.S. companies will be impacted by the CSRD and the
difficulty these companies could face?
Secretary Yellen. I don't have such an estimate, but let me
say that while we are supportive of the high-level aims of the
Corporate Sustainability Due Diligence Directive (CSDDD), we
are concerned that it has extraterritorial scope and potential
for unintended negative consequences for U.S. firms. This is
something that we are discussing with the European Union, and
we will certainly make our concerns known.
Mr. Lucas. I just have to note for the record that it is
important that we do not allow Europe to become the standard
setters for the United States. U.S. regulators should be
diligent in protecting U.S. interests and in defending U.S.
sovereignty. That is your job and mine, Secretary.
Secretary Yellen. I agree. I think that some of the
requirements could affect the global activities of U.S. firms
where there is no clear nexus to the EU, and that certainly
concerns us.
Mr. Lucas. Because Brussels seems to be playing for keeps
on everything that involves economics. With that, I yield back,
Mr. Chairman.
Mr. Barr. The gentleman yields back. The gentlewoman from
New York, Ms. Velazquez, is now recognized for 5 minutes.
Ms. Velazquez. Thank you, Mr. Chairman, and Ranking Member
Waters.
Secretary Yellen, in July 2021, the IMF's Board of
Directors found that climate change is an existential threat
that poses critical macroeconomic and financial policy
challenges that will confront all of its members in the decades
to come. How is the Treasury Department working to integrate
the macroeconomic effects of climate change into the IMF's core
activities?
Secretary Yellen. We are concerned about integrating it
into both the IMF's work, but also, and perhaps more
importantly, the work of the multilateral development banks.
The multilateral development banks, we think, need to evolve
the work that they do to move from focusing purely on country-
specific challenges that affect poverty to responding better to
global challenges, including climate change and pandemics, as
well as fragility and conflict. And we have spearheaded a
process to evolve the work, mission, operating modes, and
strategies of the World Bank, starting with the World Bank to
be able to better address these challenges. This is something
in which the new President of the World Bank will be deeply
involved.
And the IMF addressing climate change is not the core
mission, but they are certainly involved in evaluating climate
changes that impact a country and its possible macroeconomic
stability.
Ms. Velazquez. Thank you. Secretary Yellen, I have been
concerned about the rapid speed at which Silicon Valley Bank
grew in size and complexity, and I am considering legislation
on the issue. The Fed's review of the bank's failure notes a
similar concern. As Chair of the FSOC, does this concern you as
well?
Secretary Yellen. It certainly did concern me, the set of
banking problems that were touched off by the failure of this
bank, and the Fed produced quite quickly a report on its
supervision of Silicon Valley Bank that did point to
deficiencies. After all, this was a very rapidly-growing bank,
and it had a unique structure that potentially made it
vulnerable to runs. So, that is a matter that is appropriate
for the banking supervisors to address.
Ms. Velazquez. Thank you. As Chair of the FSOC, do you
believe regulators have all the tools necessary to ensure that
as a bank grows in size and complexity, particularly over a
short period of time, heightened regulatory and supervisory
standards are able to be quickly applied?
Secretary Yellen. I believe that the bank regulators do
have the authority to put in place effective regulations and
supervision to address these issues. Some of the supervisory
standards were relaxed, and we think it is appropriate, the
President thinks it is appropriate, and I think the Federal
Reserve thinks it is appropriate to revisit some of the
changes, and also to shore up bank supervision.
Ms. Velazquez. I, too, believe it is appropriate. Thank you
for that answer. Community development financial institutions
(CDFIs) are critical to our low- and moderate-income (LMI) and
underserved communities. Recently, I have heard concerns from
CDFIs about a new certification proposal from the CDFI Fund
that can make it difficult for CDFIs to lend in the communities
they serve, and would undermine the ability of CDFIs to
effectively inject funds into communities that desperately need
support. Are you aware of the proposal from the CDFI Fund?
Secretary Yellen. I am aware that there is a plan to update
the CDFI certification process, which is something that hasn't
been reviewed for about 25 years, and the potential importance
of the CDFI designation.
Mr. Barr. Madam Secretary, the gentlelady's time has
expired. You can answer the rest for the record.
The gentleman from Texas, Mr. Sessions, is now recognized.
Mr. Sessions. Mr. Chairman, thank you very much. Madam
Secretary, thank you for being with us today. Your presence
here allows us to not only engage with you on your thinking,
but also helps us articulate policy that we believe in.
Madam Secretary, almost effective with President Biden
taking office, the Fed began loaning the United States
Government about $120 billion a month, and then tapering about
a year later took place where that was reduced to about $105
billion. Could you please tell me the current amount of money
that the Fed is putting into the United States economy for
which we take out loans?
Secretary Yellen. This is really a question for Chair
Powell rather than myself, but the Fed's----
Mr. Sessions. No, that is a question for anybody who is on
top of the financial interests of the United States, because
today we are talking about the state of international finance
systems. And if the entire world sees where America cannot even
stand on its own two feet without taking a loan out that we pay
interest on, and the Secretary of the Treasury won't even
answer the question----
Secretary Yellen. I'm sorry. I will answer the question.
Mr. Sessions. Thank you.
Secretary Yellen. The Fed is engaging in what is sometimes
called quantitative tightening, which is a reversal of its
long-term Treasury and mortgage-backed security purchases. It
is now reducing its holdings by redeeming principle as it comes
due and reducing its holdings over time of these assets. And it
is something that they deemed appropriate as part of a monetary
policy that is aimed at having a more normal-sized Fed
portfolio and it is part of their strategy to address
inflation.
Mr. Sessions. I just heard you address one side of the
equation. If you could please answer my question, how much
money does the Fed put into our economy that we take out a loan
for, not how we change out those loans and change them based
upon the interest rate? How much money does the Fed put into
our economy every month to prop it up?
Secretary Yellen. I'm sorry. I am not sure I know what you
mean by money the Fed puts into the economy.
Mr. Sessions. So, the Fed does not loan the Federal
Government any new money that we take interest out on, is that
your testimony?
Secretary Yellen. The Fed provides reserves to the banking
system and in doing so, purchases Treasury assets and mortgage-
backed securities guaranteed by Fannie Mae and Freddie Mac, and
it does that to serve a monetary policy purpose.
Mr. Sessions. Madam Secretary, I believe you are entitled
to your own opinion, this Administration is, that when the
United States of America takes out loans that we receive from
the Fed that we pay interest on, it is a message to the world
that we cannot stand on our own two feet with our own vibrant
economy. And it sends a huge message that either we cannot
manage our own spending habits or that we are allowing our own
people to stay at home and not to produce and grow our economy.
This economy that we have, I think that we have seen
produced a doubling in the amount of money that came into the
Treasury from about $2.1 trillion in 2010, to about $4.9
trillion in 2021 or 2022. We doubled the amount of money that
comes into the Treasury. Your testimony today is that you are
suggesting that we are not taking out any loans from the Fed
that we would pay interest for, and I appreciate your time
before this committee today. Mr. Chairman, I yield back.
Mr. Barr. The gentleman yields back. The gentleman from
California, Mr. Sherman, is now recognized.
Mr. Sherman. Madam Secretary, we deal with investor
protection in this committee. The SEC is looking at swing
pricing rules dealing with mutual funds that will undermine
investor protection. And the word is out that it is the FSOC,
that yourself and the Fed that somehow believe and are pushing
the SEC to have these regulations to prevent a precipitous
sell-off in U.S. securities should there be a crisis.
I am not going to ask you a question at this point, but I
would hope that you would reexamine your position there because
telling the American people there is a crisis, and we don't
want you to sell your stocks, but we are going to impose a
penalty on you for selling your mutual funds, is one way to get
them running toward the exit, so it is bad investor protection.
It is bad systemic regulation. I do hope that you will leave it
to the SEC what they do on swing pricing.
Your testimony talked about the IMF. Pakistan is engaged in
negotiations right now. This is a unique opportunity to help
the people of Pakistan but also a unique opportunity to focus
on human rights, democracy, and timely elections in Pakistan,
and I hope that the U.S. voice is being used there to push
Pakistan toward democracy and human rights. Iran has special
drawing rights at the IMF, and I wonder how we as a Congress
can reauthorize the IMF and leave that untouched? The IMF may
ultimately have to decide if they want American participation
or if they want Iran to have special drawing rights.
In March of 2023, this year, Secretary Blinken identified
that the Amhara regional forces in northern Ethiopia were
engaged in ethnic cleansing and war crimes. The Human Rights
Watch has identified two particular individuals who are
responsible for those war crimes, and I hope that the Treasury
will look at sanctioning those two individuals.
Believe it or not, I have a question. We have a capital
gains allowance that costs us tens of billions of dollars. That
is justified as encouraging people to make investments that
help the economy grow, and maybe that makes sense unless the
economy you are growing is China. Can you think of a reason why
we use the tax system to subsidize U.S. investment in Chinese
companies?
Secretary Yellen. Sorry. In what way do we subsidize----
Mr. Sherman. If you work hard and earn money, you pay the
full ordinary income tax rate, but if instead you invest in
Huawei and the price goes up and you make the same amount of
money, you pay a much lower rate. And if you die while holding
that, you get a step up in basis, and you pay no tax at all.
So, the full panoply of investment incentives built into our
Tax Code is there for China. Is there a reason why we are
incentivizing investments in Chinese stocks?
Secretary Yellen. We have policies about every tax capital
gains on assets and----
Mr. Sherman. Can you think of why we provide these
subsidies, apply these to Chinese stocks, except that we got
lazy and we wrote them up for all stocks, and we forgot China?
Secretary Yellen. This is the policy that we have for all
assets, including Chinese assets----
Mr. Sherman. I look forward to working with you to come up
with a policy that makes some foreign policy sense.
Finally, the Chair talked about crypto and said we need a
regulatory scheme. I want to say we have a regulatory scheme.
We have the securities laws. Thank God, Chair Gensler is
enforcing them, but we also have recently adopted tax laws
dealing with crypto. The Inflation Reduction Act said you have
to report on Form 1099. In December of last year, Treasury
announced that crypto brokers, however, wouldn't have to report
until final regulations were issued. These final regulations
have been approved by the Office of Management and Budget
(OMB), but remain unissued.
Mr. Lynch and I sent you a letter just recently. The SEC
has proved they are not afraid of the crypto bros. I know you
are not afraid of the crypto bros. I hope the IRS is not afraid
of them. When are we going to see these regulations so that if
you make a profit on selling your crypto, you at least have to
pay taxes on it?
Secretary Yellen. We will get back to you on that shortly.
Mr. Sherman. Thank you.
Mr. Barr. The gentleman's time has expired. The gentleman
from Florida, Mr. Posey, is now recognized.
Mr. Posey. Thank you, Mr. Chairman. Madam Secretary, given
the trajectory of the Russian oil revenues, has the
Administration's sanction on oil from Russia been a failure?
Secretary Yellen. We have taken important actions. Of
course, the United States is sanctioned. We are not allowed to
purchase Russian oil, and by and large, the G7 is not
purchasing Russian oil. And we have taken very important steps
to reduce the revenue that Russia is able to earn from its oil
production and sales by placing a price cap on sales of Russian
oil that make use of any G7 service, including insurance or
shipping. But we also want to make sure that the global oil
market remains well-supplied so that oil prices don't spike as
a consequence of Russia's inability to sell any of their oil.
Russia's revenue----
Mr. Posey. Why is Russia's revenue going up?
Secretary Yellen. Russia's revenue has been roughly halved
over the last year. Russian authorities have indicated that the
price cap that we have placed on Russian oil has had a very
serious negative impact on them, reducing their revenues. Their
budget has gone from large surplus to deficit, and they have
had to change the way in which they tax their oil companies to
derive revenue from oil sales, something that is harming their
long-run ability to invest in the oil industry. I think our
policy there has been quite successful.
Mr. Posey. Okay. Why hasn't the Administration acted
progressively to impose sanctions on China for their apparent
human rights violations, such as those experienced by the
Uyghurs?
Secretary Yellen. We have put in place sanctions for human
rights violations and continue to examine further sanctions
that we can levy.
Mr. Posey. The President vetoed my Congressional Review Act
resolution aimed at stopping the Commerce Department's solar
panel rule that allows China's solar panels to evade our
tariffs by permitting them through third-world nations. Why do
you support giving the Chinese the exemption?
Secretary Yellen. What we do with Treasury is we focus on
sanctions on Xinjiang for human rights abuses, and I am not
familiar with the Commerce Department's thinking on this issue.
Mr. Posey. So, you weren't consulted on it at all? You have
no clue about what is going on?
Secretary Yellen. I haven't been involved in that aspect of
policy toward China.
Mr. Posey. Okay. You said you aim to do something about
human rights violations, and you just seem totally unconcerned
about this.
Secretary Yellen. I am concerned about human rights
violations. I think that a core principle of U.S. policy
towards China is that we will not do business with China in
cases where there are human rights violations, and we have put
in place meaningful sanctions.
Mr. Posey. Yes. Do you have any idea why he vetoed the
legislation that would put the slave labor at a disadvantage
instead of an advantage over American products?
Secretary Yellen. Sorry. I am not familiar with the
legislation in detail.
Mr. Posey. What is the Biden Administration's strategy to
use our participation in international financial institutions
to address and mitigate the threats posed by China to our
financial and economic well-being and to the geopolitical
stability?
Secretary Yellen. We have taken the position that the
multilateral development banks, particularly the World Bank,
should graduate China and cease lending to China. And we are
working very hard to try to get China to meet its
responsibilities when it comes to debt restructuring and debt
relief, and we have had some success in those efforts. China
has played a constructive role in Ghana and Sri Lanka, but
there are other countries like Zambia----
Mr. Barr. The gentleman's time has expired, and the
Secretary can answer the rest for the record.
The gentleman from New York, Mr. Meeks, is now recognized.
Mr. Meeks. Thank you. Madam Secretary, I want to thank you
for your tireless efforts to ensure that the U.S. financial
system remains strong, from your role in helping us to avoid a
catastrophic default, to containing spillover from the recent
bank failures, to ensuring that the United States remains a
global leader through our international policies and
partnerships. And I know, very much so, that we are fortunate
to have you at the helm.
I am not in favor of sanctioning everything and everybody,
but I do believe we need to be judicious in picking sanction
targets. But there are a couple of energy companies in
different parts of the world that are crucial sources of funds
of despotic regimes, and I keenly focus on Rosatom, Russia's
state nuclear company.
Not only is it a major source of funds for the Putin regime
and one of the only unsanctioned Russian energy companies, but
they have also been playing a major role in causing a nuclear
disaster at Zaporizhzhia Nuclear Plant in Ukraine. And I really
believe that this company needs to be fully sanctioned to keep
funds from Putin's army, and to support our friends in Ukraine,
and I have drafted legislation to that end. So, I would
appreciate your thoughts on Rosatom, and further, I would
invite you to speak about your leadership in coordinating and
leading the international support effort of Ukraine and the
importance of our continued support.
Secretary Yellen. I believe strongly, and President Biden
has said and I have said that we stand with Ukraine, and we
will do so for as long as it takes. And we are using our
sanctions authority and our export controls and other
authorities that we have to do all we can to support Ukraine in
its fight against what has been a brutal invasion. I am afraid
that I can't comment specifically on Rosatom, but I would say
that we have taken steps to designate a number of subsidiaries
of that firm to degrade the firm's activities in some key areas
and with designated officials from the company as recently as
February.
Let me just say that we continue to take further sanctions
actions as we can justify and in situations where we think we
are able to mitigate unanticipated or unwanted consequences.
And while I can't preview specific sanctions, actions that we
are going to take, we continue to take sanctions actions to
degrade Russia's defense and industrial sectors.
Mr. Meeks. Thank you. Let me jump to another question that
I would like to address, and that is debt relief for the
developing world. On the one hand, many countries owe funds to
the World Bank and other international financial institutions,
but on the other hand, they often owe even more in OPEC loans
to China. I believe it is crucial that the United States: one,
provide necessary debt relief to stave off hunger and abject
poverty in countries in Africa and South Asia; and two, make
sure that debt relief from global institutions is not used to
pay off debts to China. Can you talk about the Administration's
approach to this dilemma?
Secretary Yellen. We are very concerned about the large and
growing number of countries that require debt relief in order
to restart economic growth, and these countries come to the IMF
in order to obtain help, put in place structural reforms, and
gain funding. And to qualify for those programs, they have to
have a sustainable debt trajectory, and we have devised the so-
called Common Framework to help firms manage their debt
situations and to restructure debt.
And we are disturbed that relatively few countries have
signed up for Common Framework debt treatments, and among those
that have, some have waited years and not been successful in
being able to bring all the creditors to the table to
restructure debt. Zambia is a country that I am particularly
concerned about and have recently revisited. It has a
government that really wishes to restart growth and to be able
to borrow to invest to promote economic growth, and it can't do
so without that, and China is not coming to the table. We are
working very hard to change----
Mr. Barr. The gentleman's time has expired.
The gentleman from Missouri, Mr. Luetkemeyer, is now
recognized.
Mr. Luetkemeyer. Thank you, Mr. Chairman, and thank you,
Secretary Yellen, for being here today. Statutorily, you are
required to be here before the Financial Services Committee to
talk about the international financial system. And we
appreciate your willingness to do that. I wish you would be as
attentive to what you are supposed to be doing with the House
Small Business Committee as well. It has been well over 2 years
since you were supposed to statutorily have been there, and
subsequent visits have not been taken place either, so I hope
you will attend to your statutory duties in that committee as
well.
One of the things that I am concerned about--and that we
have talked about a little bit here with a few of my colleagues
this morning--is sanctions, and how it all is structured with
China. And I asked this question the last time you were here
with regards to the possible invasion of Taiwan. We learned
when Russia invaded Ukraine that we didn't really have a plan
put together on how to put a group of sanctions together on
different entities, whether it be oligarchies or the country
itself, and we ended up, sort of after the fact, getting up to
speed and getting it done. I asked you the last time you were
here if you were putting together a plan with regard to China
and its possible invasion of Taiwan. At that time, I got no
response, indicating to me that there was no plan. Since then,
has the Treasury worked with the Commerce Department or anybody
else to begin to put together a plan should China invade
Taiwan?
Secretary Yellen. The National Security Council works with
the interagency to make sure that it is in a position to
address threats to our national security. And I am not in a
position to be able to provide any details at all about what
the response would be to hypothetical events pertaining to
Taiwan. But I will say that this is something we work with
other agencies on to make sure that the United States is----
Mr. Luetkemeyer. Okay. I understand you can't tell me
anything more than just a, yes. That is what I want to hear.
Thank you.
You have addressed a little bit about this next question
with regards to China having access to the World Bank. It is
kind of interesting that they have the second-largest economy
in the world, and yet in order to be able to qualify for the
loans, you have to be a low- or moderate- income country. I
assume you would agree that they are not a low- or moderate-
income country?
Secretary Yellen. Certainly, I don't think that they should
qualify for World Bank loans.
Mr. Luetkemeyer. Okay. I had a discussion today with the
President of the World Bank, and I discussed this issue with
him, how and why China continues to have access to this and why
we can't stop this from happening. You indicated in your
earlier discussion with some of our Members here that you are
working to try and stop that. Can you tell me exactly what you
are doing to stop that?
Secretary Yellen. We will not support or vote in favor of
any World Bank lending to China, so we use our voting to oppose
it, and we have certainly worked to convince other countries in
the World Bank to cease funding. And while it is a very small
part now with the World Bank's activities, we believe it just
is----
Mr. Luetkemeyer. So basically, my understanding is we
participated in about 17 percent of the total and China is
roughly 2 percent, or something like that?
Secretary Yellen. I believe it is much lower than that, but
I can get you a number.
Mr. Luetkemeyer. Okay. It is significantly different in
amounts of participation, yet they have access to it, and
because of our overwhelming participation, the amount that we
have in there, we have an outsized voice on that board. Is that
correct?
Secretary Yellen. We do. We have significant----
Mr. Luetkemeyer. So, we need to be exerting our opposition
on the board to put China back in its place, and that is what
we are going to try and do, correct?
Secretary Yellen. Yes.
Mr. Luetkemeyer. Okay. A minute ago, you said that you are
seeking authorization to participate in some other
international financial institutions. You need to be
reauthorized every year. Is that correct?
Secretary Yellen. I guess what I said is we would like
permission to continue participating in the new arrangements to
borrow, and we also seek permission to lend up to $21 billion
to 2 IMF funds, the Poverty Reduction and Growth Trust and the
Resilience----
Mr. Luetkemeyer. Madam Secretary, if we are going to be
loaning money to these foreign financial institutions, the kind
of money you are talking about, do you not believe that we need
to have more control over them to make sure that entities such
as China don't have access to them?
Secretary Yellen. We have substantial control over them. We
have made sure that in the structure of these funds, they
cannot lend to China. The Poverty Reduction and Growth Trust--
--
Mr. Barr. The gentleman's time has expired.
Secretary Yellen. ----is only for very low-income
countries.
Mr. Barr. The Secretary can answer for the record.
Mr. Luetkemeyer. Thank you.
Mr. Barr. The gentleman from Georgia, Mr. Scott, is now
recognized.
Mr. Scott. Thank you very much. Secretary Yellen, I am very
worried about China, and I want to ask you something: Should we
consider prohibitions for U.S. private equity investment in
private sector firms which have ties to the Chinese military
and the Chinese state surveillance apparatus?
Now, you are very much aware of the reports that China is
trying to establish a military base with operations in Cuba,
just 90 miles from our shores. What is your assessment of this?
Are you taking this as seriously as I am, and what do you
propose we should do for any private equity firm that would
have connections with their military or surveillance operation?
This is very serious. I mentioned this in an earlier session we
had when we failed to shoot down that surveillance balloon, and
I said then that this was a mistake by the Biden
Administration. It was a mistake because it showed weakness to
China, and it showed uncertainty to our own friends.
So, what do we do about this situation? What is your
assessment about this threat, and should we not prohibit any
investment to any of these Chinese companies that have
connections and are involved with China's military and
surveillance apparatus?
Secretary Yellen. We are looking at potential restrictions
on outbound investment that could pertain to private equity
firms that invest in Chinese firms with connections to their
military. And we are worried about potential national security
risks that could come----
Mr. Scott. Let me ask you this, what is your assessment of
it? I have great respect for you. You have been our Treasury
Secretary for two terms, and I have worked with you and I
respect your broad intelligence on foreign matters. How
seriously are you taking this effort to put military
surveillance 90 miles from our shores?
Secretary Yellen. We are concerned about China's role in
the Caribbean and in Latin America more generally.
Mr. Scott. But Secretary, I want to know you feel. Do you
feel like I feel, that this is a serious attack on the United
States? Now, if you remember, about 50 years ago they tried to
do something similar, but John Fitzgerald Kennedy acted
promptly. What are we going to do?
Secretary Yellen. I don't have an answer for you on what we
are going to do, but certainly, protecting our national
security is a core concern. And with respect to China, we are
carrying that out, in a broad range of ways, from export
controls to entity lists, to, in some cases, sanctions, and
potentially restrictions on outbound investment.
Mr. Scott. Do you feel that this may be a primary move that
would precede their intentions over in Taiwan?
Secretary Yellen. I really can't comment on that.
Mr. Scott. Okay. Thank you, Secretary.
Mrs. Wagner. [presiding]. The gentleman's time has expired.
The gentleman from Michigan, Mr. Huizenga, is recognized for 5
minutes.
Mr. Huizenga. Thank you, Madam Chairwoman, and Secretary
Yellen, it's good to see you again. I am going to touch on a
couple of things quickly. I wanted to make sure I heard
correctly your answer to an earlier question. The PGA and LIV
agreement is something that Treasury is planning to look at; I
know you are not going to get into specifics of it, but is it
something that is going to be subject to CFIUS review?
Secretary Yellen. Again, I am not allowed to talk about any
specific matter before CFIUS. There are very strict rules about
that, but to the extent that----
Mr. Huizenga. Okay. Let me clarify. Does it seem to fit the
general parameters of what CFIUS typically has reviewed?
Secretary Yellen. If there are national security risks,
then the answer is, yes. CFIUS looks at national security
risks.
Mr. Huizenga. Okay. And the definition of, ``national
security risk,'' is well-vetted and well-understood?
Secretary Yellen. I believe it is, yes.
Mr. Huizenga. Okay. I will leave it at that for right now.
I did want to touch quickly as well on the debt ceiling,
something you had brought up in the close of your testimony. It
was a June 1st deadline that you initially gave Congress and
everybody else to reach the borrowing authority, when you were
going to reach it. That then moved to the 5th, and others who
have been involved in Treasury speculated that it could have
been well beyond June 5th.
I am curious, was there actual analysis done by the
Treasury to determine this date, and what changed, or was this
artificially manufactured? In all fairness, you took Congress
to task about not taking this to the brink. And in all
fairness, the White House, and specifically the President,
ignored Speaker McCarthy for nearly 100 days after he said he
was going to have negotiations with him. So, it would just seem
to me that if the White House recognizes that it is not good
brinksmanship trying to apply that to Congress, why didn't the
President take your advice?
Secretary Yellen. I'm sorry. There is nothing political
whatsoever about the information and advice that I have given
to Congress about when our resources would be exhausted. In
early----
Mr. Huizenga. Do you have any insight as to why the
President didn't negotiate for 100 days?
Secretary Yellen. In early January, I indicated that we
felt confident our resources could last until the beginning of
June.
Mr. Huizenga. Okay. I am going to move on. Reclaiming my
time, I did read the statements. You had said June 1st or the
following weeks, which then tightened up, and that is fine.
That is not what we are here today about.
Secretary Yellen. It was consistent with that side----
Mr. Huizenga. Reclaiming my time on this, because I do want
to hit on the International Development Finance Corporation as
well, but I am also going to repeat something to you that I
have repeated to every other person from this Administration,
and frankly, the last Administration: Congressional oversight
is vital to the work that we do. I happen to chair our
Oversight and Investigations Subcommittee in this Congress, and
it is necessary to reiterate our constitutional requirement and
standing and obligation that we ask for and receive information
that is going to help us do that job.
This committee, and my subcommittee specifically, sent you
four requests to provide specific documents and information
with respect to the March 2023 bank failures, as well as
Treasury's role in the digital asset space. I know the ranking
member brought up the bank failure, so it seems to me fair
game. The first set of requests are important to help this
committee understand both Treasury and FSOC's role in the
bailout of both Silicon Valley Bank and Signature Bank, and
specifically the use of the systemic risk exception. To date,
we have received what I would generously call limited
information from your staff. For example, in response to our
March request, we received a copy of the FSOC meeting minutes
from March only after they were publicly published on
Treasury's website.
Frankly, we don't need your help. We have that, and
frankly, it is a waste of your time and whomever is reviewing
this and your staff's time, and, therefore, Madam Secretary, it
wastes our time. So, let us get beyond the games of sending
back and forth publicly-available information and actually get
to our constitutional oversight role. Will you provide and
commit to me to provide the underlying records of the published
meeting minutes, including draft minutes and notes from the
March 12th and March 24th FSOC meetings regarding the bank
failures? This is what we had been asking for.
Secretary Yellen. There are now minutes in the public
domain----
Mr. Huizenga. No, no. Yes, the minutes are in the public
domain, and you didn't send them until after they were
available to the public. I want to see the draft minutes----
Secretary Yellen. Yes, because they need to be approved by
the committee.
Mr. Huizenga. ----and the notes.
Mr. Barr. [presiding]. The gentleman's time has expired.
The gentleman from Massachusetts, Mr. Lynch, is now recognized.
Mr. Lynch. Thank you, Mr. Chairman. Welcome, Madam
Secretary, and may I say thank you for your wonderful
leadership and your service to our country.
Secretary Yellen. Thank you.
Mr. Lynch. I appreciate it. I want to revisit the aftermath
of the Silicon Valley Bank collapse and the exercise of the
exception that we allowed to be exercised instead of allowing
the least cost resolution practice to go into effect. I know
there are five requirements statutorily that must be considered
by you and the FDIC and the SEC, and there is a consultation
requirement with the President.
Secretary Yellen. That is right.
Mr. Lynch. But in the aftermath of all of that, some of
this is Monday morning quarterbacking, but there are some who
say that perhaps by exercising the risk exception--that we may
have been able to resolve this situation without exercising or
reverting to that exception. And look, this collapse happened
in a matter of 2 days.
Secretary Yellen. Yes.
Mr. Lynch. I asked the same question to Chair Gruenberg of
the FDIC when he was before the committee. Can you think of any
alternative in retrospect that might have existed other than
using the financial risk exception?
Secretary Yellen. All of us involved in making those
decisions were tremendously concerned that the failure of these
2 banks in a matter of 2 days created a huge risk of contagion
to banks throughout the country. There are a large fraction of
uninsured deposits at many banks, and we were concerned that
depositors would be terrified by these rapid and unanticipated
failures and that we would see contagion and runs on many
banks. And we felt that we needed to assure depositors broadly
that their deposits were safe, and this was a way of doing it,
and I believe it succeeded.
While First Republic later failed, we have not seen, I
believe, these actions. Plus, I believe the creation of a new
liquidity facility by the Federal Reserve stopped contagion and
stabilized our banking system, and it was a very dangerous
moment.
Mr. Lynch. Yes. The problem that I see is that the least
cost resolution preference was meant to lower the cost of
resolution.
Secretary Yellen. That is right.
Mr. Lynch. And it is hard for me to imagine a similar
situation ever arising where a systemic risk exception would
not apply, and I am just wondering if this exception has
swallowed the rule. Rather than going with a low-cost
resolution, we are going to fall into the same scenario over
and over again.
Secretary Yellen. I don't think it would fall into the same
situation over and over again. Hundreds of banks failed in the
aftermath of the global financial crisis. The FDIC resolved
most of them, and they used the least cost method of
resolution, so this is a very unusual situation where this
exception had to be invoked.
Mr. Lynch. Let me ask you----
Secretary Yellen. First Republic was resolved.
Mr. Lynch. Okay.
Secretary Yellen. And it was also done in a least cost
resolution.
Mr. Lynch. Okay. Well, my concerns still remain. Let me ask
you another question about JPMorgan Chase and their assumption
later on in a different process. Isn't it always the case that
the biggest banks will seem to be the sturdiest and the best
able to absorb another bank that is failing or in receivership?
Secretary Yellen. Not necessarily. Silicon Valley Bank and
Signature Bank merged into smaller banks not nearly that size,
but when the FDIC resolves a bank, it is required by law to
take the best offer.
Mr. Barr. The gentleman's time has expired.
Secretary Yellen. In this case, it was JPMorgan Chase.
Mr. Lynch. Thank you, Madam Secretary. I yield back.
Mr. Barr. The gentlewoman from Missouri, Mrs. Wagner, is
now recognized.
Mrs. Wagner. Thank you, Mr. Chairman. Secretary Yellen,
last month, the G7 leaders, of which the United States is one,
agreed in a joint statement on an economic approach to China
that would focus on de-risking and rebukes calls for decoupling
from China's economy. However, I have to say I think it is
appropriate and, in fact, essential that we decouple from
Chinese industries and entities that are actively participating
in unthinkable human rights abuses, including the Chinese
Communist Party's (CCP's) genocide of Uyghur Muslims. Please
tell me how Treasury plans to de-risk the U.S. economy from
this appalling tragedy?
Secretary Yellen. In the case of human rights violations in
Xinjiang, we have sanctions in place that prevent Americans
from doing business with entities that are involved in human
rights----
Mrs. Wagner. And that is how you are de-risking? You say
you have sanctions. I would like to see those sanctions and
what companies have been sanctioned for doing business with
China as they exploit the human rights of the Uyghur Muslims,
if you could provide that, please?
Secretary Yellen. We have sanctioned Chinese individuals
and entities for human rights abuses there and advised
businesses----
Mrs. Wagner. I would like to get a list of this, and I do
need to move on, with respect.
Secretary Yellen. Okay.
Mrs. Wagner. According to a recent Bloomberg report,
Chinese purchases of Iranian crude had jumped in March by 20
percent month-on-month, totaling 800,000 barrels imported a
day. In March, Iran said it is now exporting more oil today
than at any time since the 2018 re-imposition of sanctions.
Current law requires Treasury to target foreign financial
institutions that are involved in these sales. How many foreign
financial institutions have you sanctioned as a result of these
sales?
Secretary Yellen. We certainly are doing everything in our
power to----
Mrs. Wagner. That is not my question. How many foreign
financial institutions have you sanctioned as a result of these
sales and this huge 20-percent increase by Iran? If you could,
would you please provide me the answer, because this is
unconscionable, and I do not believe the Treasury is following
the law, and it is a law that requires Treasury to, in fact----
Secretary Yellen. We have an exceptionally tight sanctions
regime in place with respect to Iran.
Mrs. Wagner. Okay. I don't know what your plan is to
further tighten enforcement of these sanctions regimes against
Iran as the country continues to make alarming progress on
nuclear armament, but I am very interested in finding out.
Next, Secretary Yellen, it has long been U.S. policy to
support Taiwan's membership in international organizations
where statehood is not a prerequisite. The International
Monetary Fund has no conditions regarding statehood. The
Financial Services Committee unanimously passed legislation
supporting Taiwan's membership in the Fund earlier this year.
Taiwan already belongs to the World Trade Organization (WTO)
and the Asian Development Bank. If Taiwan sought membership at
the IMF, would Treasury support it?
Secretary Yellen. We would have to look at that. It is not
a member of the IMF, and I would have to----
Mrs. Wagner. We have unanimously passed that as a
committee. I would like your response to that question. This is
three times in a row now that I have asked for specifics that
you don't have the answers to, and it is unacceptable.
Following up on some of the questions from my friends on
the other side of the aisle, I want to ask you about the SEC's
sweeping proposal on mandatory swing pricing, hard close, and
liquidity risk management. Chair Gensler has said the proposal
is needed to combat dilution, but I have seen no evidence from
the SEC that dilution is a significant problem for mutual
funds. In fact, I have seen some commenters offer their own
economic analysis showing that dilution is minimal and far
surpassed by returns for long-term investors. If implemented,
the proposal would add significant costs and damages. I would
like to get your perspective on this misguided SEC proposal?
Secretary Yellen. It is a question you should be asking to
Chair Gensler and not to me.
Mrs. Wagner. I know, but I am asking you, and you can't
answer this question either.
Secretary Yellen. I'm sorry. I am going to answer the
question.
Mrs. Wagner. I am out of time, so you will have to answer
this question in writing too. That is four questions that you
will have to answer in writing.
Mr. Barr. I'm sorry. The gentlelady's time has expired, but
the Secretary can answer in writing for the record.
The gentleman from Texas, Mr. Green, is now recognized.
Mr. Green. Madam Secretary, you won't have to answer in
writing. I yield time to you to answer. You may answer now.
Secretary Yellen. On the last question?
Mr. Green. Yes, yes, yes. Answer now, please.
Secretary Yellen. Yes. The Financial Stability Oversight
Council has discussed risks in connection with open-end mutual
funds, particularly bond mutual funds, where there can
essentially be runs in situations where those who move first in
these open-end funds are able to get better pricing than those
who wait until later. And this creates a financial stability
risk similar to the kind of risk that exists with money market
mutual funds that has long been a subject of FSOC attention.
And the FSOC has not been involved in advising the SEC how
to address those risks, but swing pricing is a way to reduce or
eliminate first-mover advantage and to diminish the odds of
runs that can lead to fire sales of assets that can have
contagious effects throughout the financial system. We saw this
occur when the pandemic struck in March of 2020, and it was a
reason that the Federal Reserve created a facility to try to
stem those runs.
Mrs. Wagner. I thank my friend, Mr. Green.
Mr. Green. Thank you, Madam Chairwoman.
Mrs. Wagner. I thank my friend very much, and the Secretary
has used far too much of your time.
Mr. Green. I am going to have to continue with my time now.
Please forgive me.
Mrs. Wagner. Yes. Thank you very much.
Mr. Green. Unless the Chair is willing to accord me
additional time.
Mr. Barr. The gentleman has 3 minutes left.
Mr. Green. Thank you, Mr. Chairman. Madam Secretary, thank
you for your service to the country, and I also thank the
President. I believe you and the President, working together,
have done an outstanding job. I am not ashamed to say it. I am
not ashamed to associate myself with you or with the President.
Madam Secretary, in your written testimony, you indicate
that while we were able to avoid default, the United States
once again came dangerously close to the line. You indicate
further that this cannot be normalized. You are saying here
that waiting until the last minute hurts our global leadership
and credibility on the world stage. Could you in about 1 minute
give me some more information on how we are harmed on the world
stage by waiting until the last minute to deal with default of
credit?
Secretary Yellen. Yes. The United States has the world's
deepest and most-liquid capital markets, and U.S. Treasury
securities are the benchmark for pricing of virtually all
securities that are traded in financial markets, and the dollar
is, of course, the world's key reserve currency. And all of
that rests on an assumption or a belief that the United States
is committed to paying its bills when they come due, that we
are a creditor that deserves a AAA rating.
We lost that rating in 2011 when Congress went right up to
the wire in failing to raise the debt ceiling, and even in this
situation, one rating agency has put us on negative credit
watch. And this is something that threatens our position as a
global leader in financial markets, and it threatens the well-
being of American households that can see long-lasting
increases in their cost of borrowing that come from this. And
of course, if we actually did default on the debt, the
consequences would be catastrophic.
Mr. Green. Thank you. I have about 30 seconds left. Let me
say this. Pakistan is a case study on the effects of climate
change. As you know, Pakistan has suffered greatly from the
flood that took place beginning in June of 2022. I am going to
ask if you could use your good offices to help Pakistan? It
clearly is in dire need of some aid from the IMF and the World
Bank as well. This global warming is something that we may
deny, but Pakistan is still suffering. It emits about 1 percent
of the global greenhouse gases. We emit more than 10 percent,
yet Pakistan suffers. Please do what you can to help. I yield
back.
Mr. Barr. The gentleman's time has expired, but in the
interest of comity, because the gentleman yielded time for Mrs.
Wagner's answer, I will let the Secretary briefly respond to
the Pakistan question.
Mr. Green. Thank you, Mr. Chairman.
Secretary Yellen. We are supportive of the IMF's work in
Pakistan, and there is a program that is helping them deal with
the devastation from the floods and their pre-existing fiscal
and monetary problems, and we are certainly supportive of the
IMF's work there.
Mr. Barr. The gentleman's time has expired.
Mr. Green. Thank you.
Mr. Barr. I now recognize myself for 5 minutes. Madam
Secretary, in a March 12th interview on Face the Nation, you
said, ``The American banking system is really safe and well-
capitalized. It is resilient.'' In an April 14th interview on
CNN, you said, ``Our banking system is well-capitalized and
liquid.'' In a May 12th Bloomberg TV interview, you said,
``What I see is a banking system that overall is well-
capitalized.'' Do you still believe that the banking system is
well-capitalized?
Secretary Yellen. Overall, yes.
Mr. Barr. The prudential regulators, as you know, are
preparing sweeping changes to the bank capital framework, which
reportedly could raise required capital by 20 percent or more
in what you concede is an already well-capitalized system. Do
you support such a large, required capital increase which would
have effects immediately on the U.S. economy, sidelining
capital?
Secretary Yellen. I have not seen the details of the
proposals that the Fed is considering. We did agree with Basel
III and commit to enact those proposals, and I will have to
have a closer look at the Fed proposals.
Mr. Barr. I think you have answered my question already in
these interviews, that the banking system is already well-
capitalized. Whatever instability there may exist in the
banking system, I would ask Treasury to consider your already
well-informed view that the banking system is already well-
capitalized as you review the Fed's work.
Let me follow up on Mr. Luetkemeyer and Mr. Scott's line of
questioning on China. In addition to this committee, I also
serve on the House Select Committee on Strategic Competition
between the United States and the Chinese Communist Party. In
that capacity, I am concerned about Western capital flows and
U.S. investment in Chinese entities that threaten our national
security. U.S. holdings of Chinese equity and debt securities
have surged to over $1.2 trillion, which means scores of
millions of Americans could have a vested financial interest in
opposing any future sanctions or other penalties against China.
I appreciate your testimony that the Biden Administration
is working to finalize an Executive Order to restrict outbound
investments in China that threaten our national security, but
this is an area where I believe Congress needs to act. And to
that end, I have introduced the Chinese Military and
Surveillance Company Sanctions Act, which would direct the
Office of Foreign Assets Control (OFAC) to impose full blocking
SDN (Specially Designated Nationals and Blocked Persons List)
sanctions on Treasury-designated Chinese military industrial
complex companies, the Commerce Entity List, the Commerce
Military End User List, and the DOD Chinese Military Companies
List. Would you commit to pausing any outbound investment
Executive Order pending the Congress putting forward that
legislation so that Treasury can coordinate with the
congressional action?
Secretary Yellen. That is something that is up to the
President, and I can't make a commitment about it.
Mr. Barr. Thank you, Madam Secretary. And just for the
Administration's awareness, this committee, and the select
committee, and the House Foreign Affairs Committee, are working
collaboratively in a bipartisan way on an outbound investment
screening legislative package, and we would ask the
Administration to work with the Congress in coordinating
whatever Executive Order that you are working on with this
legislative proposal.
Secretary Yellen. I know that we have had conversations
with Congress, and we can pursue conversations and----
Mr. Barr. I look forward to working with you and Mr.
Yamamoto on this China and the Taiwan Strait scenario. In our
Select Committee work, we did a tabletop exercise in response
to sanctions against a Chinese scenario where there would be an
invasion of Taiwan. The scenario was that China, the second-
largest foreign creditor of U.S. Treasuries, would dump that
$859 billion in Treasury securities. How are you working with
our allies internationally and also the Federal Reserve to deal
with a situation where China would dump that volume of Treasury
securities overnight?
Secretary Yellen. We are not engaging in specific exercises
to address such a risk, but the National Security Council is
certainly concerned on an ongoing basis.
Mr. Barr. Madam Secretary, I would encourage Treasury to
make preparations and to be ready for that scenario and to work
with the Fed on that and our allies. Finally, a follow-up to
Mr. Lucas' question on the European Commission's Corporate
Sustainability Due Diligence Directive. I am glad that you
share our concern about the extraterritorial scope of that, but
can you discuss specific steps that Treasury is taking to
prevent this rule from applying to U.S.-based firms?
Secretary Yellen. We are certainly expressing our concerns
to the European Union and explaining our concerns.
Mr. Barr. My time has obviously expired. I will be in
Sweden with a bipartisan delegation this week, and we will
raise it as well there to the European Union.
With that, my time has expired, and the gentleman from
Missouri, Mr. Cleaver, is now recognized.
Mr. Cleaver. Thank you, Mr. Chairman. And thank you, Madam
Secretary, for being here. We have way too many acronyms in
Washington. It has just gone wild. We need to get a select
committee to deal with them because every time I think,
``GTOs,'' I think of my first car out of college, a green GTO
with a green vinyl top. Mr. Williams probably can speak to
that, being an auto dealer. It has nothing to do with the
purpose of this hearing. I just wanted to say it because I
mentioned my car.
But I do want to talk about Geographic Targeting Orders
(GTOs) because I am concerned for a variety of reasons, and
maybe the Financial Crimes Enforcement Network (FinCEN) has to
answer this question. But how were the covered areas selected
for implementation of the $300,000 threshold for cash payments?
Was there something about the 14 areas from the District of
Columbia to Miami Dade, Broward and Palm Beach? How did we come
to those areas?
Secretary Yellen. I'm sorry. You are talking about----
Mr. Cleaver. The Geographic Targeting Orders.
Secretary Yellen. For FinCEN?
Mr. Cleaver. Yes. We are talking about real estate
purchases.
Secretary Yellen. For real estate purchases. They proposed
a rule on real estate purchases that would enable us to have
better insight into areas where there may be illicit finance.
We think that is an area that is being used to channel illicit
funds.
Mr. Cleaver. I agree, but I am trying to find out why the
areas that have been selected, were selected, the 14 areas
where----
Secretary Yellen. Oh, I'm sorry. You are talking about
Geographic Targeting Orders, yes. There were, I think, 14 areas
that were selected, and I need to get back to you with the
logic of why those areas were selected.
Mr. Cleaver. Okay. And I am maybe even more concerned about
the areas that were not selected because it seems to me that if
we are dealing with these 14 areas, if I were a bad actor, I
would target another area.
Secretary Yellen. They have proposed a broader real estate
rule that would go beyond those geographic----
Mr. Cleaver. Universal?
Secretary Yellen. Yes.
Mr. Cleaver. Thank you very much. My other question about
that is, in 2021, FinCEN put forward an advance notice of a
proposal to consider how best to focus its regulatory attention
on residential and commercial real estate transactions. If you
have that information, I am interested in the timeline for the
rulemaking and whether Treasury is going to address both
residential and commercial real estate sectors in the same
rule?
Secretary Yellen. FinCEN is very actively working on those
rules, trying to get them out to make the database available.
And I can't give you exact timing on it, but it is a very high
priority item for FinCEN.
Mr. Cleaver. Thank you, Madam Secretary. Thank you for
being here today.
Mr. Barr. The gentleman yields back. The gentleman from
Texas, Mr. Williams, is recognized.
Mr. Williams of Texas. Thank you very much, and thank you
for being here today. Over the past few years, businesses
across the country have struggled to maintain necessary
inventory due to the global supply chain constraints. As a
small business owner and auto dealer, I have dealt with the
supply chain challenges firsthand. And making matters worse,
businesses using last in, first out, better known as the LIFO
inventory method, are facing significant recapture tax
liabilities due to the factories' inability to replace
inventory levels by the end of the year, which is out of our
control. We as small business owners can't control that, given
the current supply chain disruptions.
Treasury has the ability to alleviate this financial burden
on small businesses and provide relief through Section 473 of
the Internal Revenue Code. And this recapture tax, as we call
it, would allow business owners to spend funds on replacing
duplicated inventories. They wouldn't have to be laying people
off. They could invest in their employees and maintain business
operations instead of succumbing to unexpected tax burdens from
uncontrollable inventory shortfall that is totally beyond the
ability of the small business owner to control. I have been
working with my colleagues to pass the Supply Chain Disruptions
Relief Act, which is the legislative fix to provide the LIFO
tax relief.
Secretary Yellen, is Treasury really interested in helping
Main Street and helping people who have been laid off, who have
lost their jobs and can't pay their bills because of this? Are
you ready to help provide the LIFO tax relief that you can do
through Section 473, which is going to be relief for businesses
struggling with global supply chain disruptions that the small
business owner cannot control? It would be great if you could
jump in, which we think you have the ability to do and fix that
right now.
Secretary Yellen. I am aware of this issue, but I am not
able to give you a definitive response on this, and I will ask
our Office of Tax Analysis to----
Mr. Williams of Texas. Well, ask them to do that because it
is bipartisan. There are people in here who have all agreed
this needs to be done. This is not a partisan issue. It
literally is going to save Main Street. It is going to save
small businesses, and they will pay tax when they need to and
not pay tax when they don't need to. So, I would appreciate it
if you would check into that and maybe get back with us on
that.
Secretary Yellen. Yes, we will try to do that.
Mr. Williams of Texas. Thank you. I am also concerned with
FinCEN's proposed beneficial ownership rule that expands the
information required under the Corporate Transparency Act (CTA)
and the effect that these expanded requirements will have on
Main Street. The CTA was intended to ensure easy compliance for
businesses. However, this proposed rule goes beyond the simple
statute and lacks clarity on compliance guidelines. This will
impact 32 million small businesses that will be expected to
comply come 2024, and Acting Director Das has done little to
inform the businesses on the new responsibility of reporting.
When talking to business owners back in my district and,
frankly, all over the country, they have expressed their
frustration with insufficient information coming out of
Treasury on how to comply and file returns properly. And they
fear they will be held liable for noncompliance with the
Beneficial Ownership Information (BOI) rules.
Madam Secretary, what action is Treasury taking to educate
small businesses like mine in Texas on their upcoming
obligations to file beneficial ownership information with
FinCEN, and when can we expect FinCEN to lay out a clear plan
for engagement? We want to know the rules.
Secretary Yellen. FinCEN is working to finalize the rules
that are necessary to make this very important transformative
database available. And I understand that there are some
burdens on small businesses to comply with this, and we will
work with them to provide the information that is necessary for
them to comply.
Mr. Williams of Texas. That is important. Small businesses
want to comply. It is just like LIFO. We need to know the
rules. Let's get it fixed so we can move on, and in the short
time that I have left, I will cut my questioning a little bit
back. But fentanyl is coming across our borders at an alarming
rate, flooding our communities and killing thousands of
Americans each year and future generations. We know law
enforcement has found cartel members working directly with the
Chinese money laundering organizations to outsource cartel
operations and facilitate movement to the United States.
So quickly, Madam Secretary, can you expand on what
Treasury is doing to combat China and the role they play in
cartel financing? Is the Administration considering tougher
sanctions? It is killing future generations of our young
people.
Secretary Yellen. We have put in place some sanctions. We
are looking to try to discourage and sanction the provision of
the precursor chemicals that are critical to the manufacture
and sale of fentanyl. It creates a critical situation for us.
Mr. Barr. The gentleman's time has expired. The gentleman
from Connecticut, Mr. Himes, is recognized.
Mr. Himes. Thank you, Mr. Chairman, and thank you, Madam
Secretary, for being with us this morning.
Very quickly, I just want to say you mentioned the new
World Bank President, Ajay Banga, in your testimony. I am
delighted that you have done so, and the World Bank obviously
has had a turbulent recent past, and I think that Mr. Banga
offers an opportunity for a real reset. And I hope that you
will really double down on the government's interaction with
and encouragement to the World Bank to be what it should be
through Mr. Banga.
What I want to talk with you about, though, is China. It is
evident in this hearing and generally evident that the Congress
has whipped itself into a frenzy with respect to China. I think
this goes back to the Trump Administration when China was the
all-purpose scapegoat, along with immigrants, for all of the
nation's problems. And there are proposals to cut China off
from global capital markets, basically to devastate their
economy, and I understand the emotion. We obviously are
appalled by the Chinese treatment of the Uyghurs. We are
appalled by their stealing of our intellectual property. The
list goes on and on, but this is a moment that I think calls
for close statesmanship with respect to China.
We are trading more with China than ever before. We are
invested in China more than ever before. They own a trillion
dollars of our sovereign debt. I was pleased to see you--and I
am going to give you the remainder of my time to elaborate on
this--say in the context of the G7, ``My own view is this, that
is to say U.S. economic efforts with respect to China should be
national security focused, not focused at undermining, say,
China's economic competitiveness or ability to advance
economically.'' Madam Secretary, is it in the national or
economic security interest of the United States to impoverish
the Chinese people?
Secretary Yellen. No, I certainly do not think it is in our
interest to stifle the economic progress of the Chinese people.
China has succeeded in lifting hundreds of millions of people
out of poverty, and I think that is something that we should
applaud. We certainly do have legitimate concerns regarding
China, first and foremost, national security, where we
absolutely have to protect our national security interests and
not compromise on that. Human rights are critically important,
and I strongly believe the President believes in sanctioning
human rights abuses.
And beyond that, we have legitimate concerns with China's
behavior in some areas that are related to trade, where we
think----
Mr. Himes. No, absolutely. This institution gets that and I
sit on the Intelligence Committee, so I have a closer than
normal look at some of the just outrageous activities. But
again, I am just trying to find a----
Secretary Yellen. Yes. So----
Mr. Himes. I am trying to get out what you said, a policy
that is statesmanlike in its orientation, drawing on your
experience as an economist and not----
Secretary Yellen. Let me----
Mr. Himes. Yes. I'm sorry. Go ahead and finish.
Secretary Yellen. Let me focus on the positive then. I
think we gain and China gains from trade and investment that is
as open as possible, and it would be disastrous for us to
attempt to decouple from China. De-risk, yes. Decouple,
absolutely not.
Mr. Himes. What would be the effect on American consumers?
Let's just imagine that we cut the hundreds of billions of
dollars of trade that we have with China. If we cut that in
half or eliminated that trade, what would be the effect on the
American economy and American consumers?
Secretary Yellen. We benefit greatly from access to cheaper
products, a wide array of products and products, in some cases,
where China has a technological lead. And in turn, China
benefits from its purchases from us, and we benefit from our
ability to export from China. Our competition with China is a
healthy competition, just as in a domestic case where firms
compete with one another leads to faster innovation, faster
technological progress that benefits everybody concerned with
better and cheaper products over time, and this is a very
valuable interaction. And while we surely have concerns that
need to be addressed, decoupling would be a big mistake.
Mr. Himes. Thank you. I am almost out of time, so I just
want to add that I think that your concept of attacking the
national security side of this without damaging the economic
growth that comes from the two things is absolutely what we
need to do, and I hope you will work with us on that. And I
yield back.
Mr. Barr. The gentleman's time has expired. The gentleman
from Minnesota, Mr. Emmer, is recognized.
Mr. Emmer. Thank you very much, and I want to thank
Chairman McHenry for holding this important hearing today. And
I want to thank you, Madam Secretary, for your testimony this
morning.
The National Bureau of Economic Research (NBER) is the
official recession scorekeeper according to the White House.
Before the pandemic, the definition of a recession was pretty
easy: it was two consecutive quarters of economic contraction.
However, somewhere along the way in this new Biden
Administration, President Biden's tenure, the Administration
seems to have changed the definition of, ``recession,'' and the
National Bureau of Economic Research asserts that a recession
is now, ``a significant decline in economic activity that is
spread across the economy and lasts more than a few months.''
This has had a bit of a gaslighting effect on the American
people, so I would like to drill into it just a little bit.
Secretary Yellen, does the National Bureau of Economic
Research give any weight to real personal income when
determining if we are in a significant economic decline?
Secretary Yellen. They look at a wide array of statistics,
and the second definition that you gave of a broad contraction
that lasts more than several months, that is how the NBER----
Mr. Emmer. Reclaiming my time, the answer is, yes. Does the
National Bureau of Economic Research directly consider
inflation when determining if we are in a significant economic
decline?
Secretary Yellen. Inflation is not part of an economic
decline.
Mr. Emmer. Okay. The National Bureau of Economic Research,
while it doesn't directly consider inflation, inflation is
embedded into real income and spending variables that are
tracked. So, American families pay an average of $864 more per
month today than they did when this Administration started.
That is an extra $126 on food per month, an extra $159 on
shelter per month, an extra $123 on energy per month, just to
name a few. This is since the Biden Administration took office.
Unless Americans have gotten a 15.3-percent pay raise in the
last 2 years, they have effectively gotten a pay cut. Madam
Secretary, has the average American income increased 15.3
percent during the Biden Administration?
Secretary Yellen. We have the strongest job market and the
largest----
Mr. Emmer. Reclaiming my time, thank you, Madam Secretary,
the answer is easy: It is, no. Since President Biden took
office, the average real personal income has only increased 2.4
percent. That would have been the answer. So while it costs
nearly $900 more a month for American families to afford the
same quality of life that they had in 2019, Americans aren't
getting paid anywhere near that much more.
How is it then that the National Bureau of Economic
Research thinks it is appropriate to exclude inflation as a
primary factor when determining the state of our economy? It is
a rhetorical question, Madam Secretary, because we all know
that the bureaucracy cherry-picks the factors that yield the
most convincing numbers for whatever narrative they want to
assert, much like you were starting to deflect and say we have
the greatest whatever. Americans know better. This
Administration is telling Americans the economy is strong, but
Americans certainly feel like things are worse today than they
were before President Biden took office.
Secretary Yellen, I am asking these questions because
throughout 2021, you, along with several members responsible
for fiscal decision-making in this Administration, incredibly
asserted that inflation was, ``transitory,'' perpetuating a
fallacy that the government could keep spending money it didn't
have, and everything and everyone would be just fine. Well, it
is not fine. As a result of misrepresenting real economic
conditions, trillions of dollars were printed, injecting cash
into a shutdown system, which skyrocketed prices when we opened
back up.
Now, in order to tame runaway inflation, the Fed's only
tool is to rapidly raise interest rates. The Fed is on its 10th
consecutive rate hike, which increases unemployment, makes it
harder for Americans to find jobs, and makes it harder for
Americans to buy a home or a car. These decisions, which
unfortunately seem to be the only solution at this point, have
harmed low-income Americans and Americans living on a fixed
income the most. We should have never delayed implementation of
monetary policy this long under the fallacy that inflation is
transitory.
The Administration made a lot of decisions that crushed
Americans, and clearly, the fiscal decision-makers of this
Administration are only concerned with cherry-picking favorable
data for political purposes. It is time this administrative
state becomes serious and gives us an accurate depiction of the
economy and Americans suffering at the hands of an
unaccountable government rather than gaslighting their way out.
I yield back.
Mr. Barr. The gentleman yields back. The gentleman from
Illinois, Mr. Foster, is now recognized.
Mr. Foster. Thank you, Mr. Chairman. Madam Secretary, when
resolving failed banks, there can sometimes be a tension
between the lowest-cost resolution and the bipartisan desire to
discourage further bank consolidation into a smaller number of
very large banks. So my question is, is this an area where
further guidance from Congress might be useful, for example, by
providing some well-defined wiggle room on least cost
resolution, or are there more effective levers that we might
operate to discourage further bank consolidation?
Secretary Yellen. In general, the largest banks are not
allowed to seek mergers to get bigger, and there is broad based
recognition that having a diversity of banking organizations,
community banks, regional banks----
Mr. Foster. This problem occurs at all levels of bank size
as well, not just the adjacent----
Secretary Yellen. Very often, it is possible in failing
bank situations to resolve an institution without merging it
into the largest banks.
Mr. Foster. I am just wondering if there is some useful way
to sort of tilt the playing field on that, something anonymous
to the Buy American preferences, but not mandates that we put
into several contexts.
Secretary Yellen. It is something that we could look at.
[Cross talking.]
Mr. Foster. So, if you have time for a sort of thoughtful
response for the record on this, I would appreciate it.
Secretary Yellen. I will do that.
Mr. Foster. Okay. In regards to the debt limit, there has
been some uncertainty expressed as to how the exact language of
the debt limit law applies to the different forms of debt that
have historically been issued by the Treasury, in particular,
since the limit appears to only apply to the face value of
certain types of bonds. It has been suggested that the debt
issuance limit might not apply to, for example, interest-only
consols, or the interest stream of premium bonds, or the
separate auctions of the so-called strips of interest payments
that are currently traded in the secondary market.
In the run-up to this last crisis, our office made
inquiries of Treasury on this, and I understand you were busy.
We didn't get a response, but would it be possible to get a
definitive response to this question, because if this
represents a safety net against defaulting on our payments, we
want to know whether it is real?
Secretary Yellen. I will try to give you a response on
that.
Mr. Foster. Thank you.
Now, on Ukraine, you mentioned the importance of anti-
corruption reforms. And these will obviously become much more
important when the international community starts dispensing
hundreds of billions, if not trillions of dollars of
reconstruction assistance to Ukraine. And as you know, one of
the big issues with central bank digital currencies is their
potential traceability of transactions by the issuing entity.
But it seems to me there is a potential role for that
traceability in Ukraine assistance in providing the Ukraine
reconstruction assistance in traceable digital euros, or
digital dollars, or some kind of reconstruction accounts that
would remain traceable to identify corruption for a period of
time until the Ukraine reconstruction is completed and the
corruption has faded as a concern.
Secretary Yellen. It is an interesting suggestion. Ukraine
doesn't have a central bank digital currency. It is a major
enterprise to introduce such a thing. In the case of the United
States, we are looking at it, but it is something that can take
years. We are very focused on corruption, and traceability, and
accountability for funds that are transferred to Ukraine. Right
now, USAID is being handled through the World Bank. It has very
rigorous standards for verifiability and accountability----
Mr. Foster. But it is still a struggle. If you look at all
the money we attempted to inject into Afghanistan, and it just
disappeared in corruption.
Secretary Yellen. I honestly don't believe anything like
that is happening. The USAID has hired a U.S. accounting firm
to do independent checks and to review World Bank records. The
IMF program for Ukraine focuses heavily on corruption and
putting in safeguards and structural reforms to make sure that
corruption is----
Mr. Foster. Yes, I understand. It just seems like there may
be an acceptable bargain here that, yes, we will provide a
tremendous amount of assistance for those who are willing to go
back to Ukraine and rebuild the country. But the price for that
will be a heightened level of visibility to the international
community that has provided funds.
Secretary Yellen. I believe that is absolutely right that
certainly we demand accountability and with governance----
Mr. Barr. The gentleman's time has expired.
Secretary Yellen. ----on Ukraine's part.
Mr. Barr. The gentleman from Ohio, Mr. Davidson, is
recognized.
Mr. Davidson. I thank the chairman. And Secretary Yellen,
thanks for your testimony today.
Last month, it was announced that the Treasury Department
hired two economists to study the effects and unintended
consequences of sanctions. I think this is a welcome
development given the expanded use of sanctions since the
governing law passed in 1975 to create the Office of Foreign
Assets Control (OFAC). How do you anticipate these economists
will evaluate collateral damage that comes from sanctions? Do
you see any implications for the status of the dollar as a
world reserve currency, that payment system around the world,
kind of the rivals that are confronting macroeconomics today?
Secretary Yellen. We wanted to make sure that we do have
the experts who are consistently focused on analyzing the
potential economic impacts of sanctions since, when we impose
them, we always want to understand what the economic
ramifications of them will be.
Mr. Davidson. Do you think there is a real threat to the
payment system that we dominate today?
Secretary Yellen. The fact that the dollar is used as a
reserve currency and plays such a huge role in international
transactions does enable our sanctions to be much more
effective. And it is not surprising that countries that fear
they can be affected by our sanctions are looking for
alternatives to the dollar. It is something that we simply have
to expect.
But the dollar plays the role it does in the world
financial system for very good reasons that no other country is
able to replicate, including China. And that is, we have deep,
liquid, and open financial markets, a strong rule of law, and
an absence of capital controls that no country is able to
replicate. It will not be easy for any country to devise a way
to get around the dollar.
Mr. Davidson. Thank you. As the founder of the sound money
clock, yes, I certainly appreciate efforts to preserve the role
of the dollar as the reserve currency. And frankly, I am
concerned about the role of money being corrupted as a tool for
coercion and control rather than a means of exchange and a
store of value, and frankly, that seems at the heart of central
bank digital currencies. But it kind of transcends down to one
of the big developments globally where the United States
dominates capital markets. In terms of investment capital, in
the space of fintechs and cryptocurrencies, 75 percent to 90
percent of the liquidity is offshore.
And it seems like there is an effort to not trust American
citizens in this, which is, if you can't really stop it
altogether, you at least want to keep it account-based because
you can control third parties. You can use them as
intermediaries. That seems to be a feature to some of the
people's thinking.
Are you familiar that in December 2022, FinCEN issued a
request for comment on a potential rule that would ban self-
custody, which is essentially the ability for individuals to
own their own assets and have a permissionless payment system?
Secretary Yellen. I am not familiar with the details of
that rule, but certainly we are concerned about the use of
cryptocurrencies and digital assets for illicit----
Mr. Davidson. I think we are all concerned about illicit
activity, but the question is, are you trying to stop
individuals from having self-custody because it seemed like
that was an effort that was underway during the end of the Mr.
Mnuchin's time as Secretary. Is that something that hasn't
risen to your level of concern?
Secretary Yellen. I haven't had discussions about that.
Mr. Davidson. Thank you. And I would just say, as Chair of
our Housing and Insurance Subcommittee, I am a little bit
concerned about whether you consider the CDFI Fund to be a
regulatory agency? What is the role here for the CDFI Fund?
Secretary Yellen. It is not a regulatory agency. I know it
is in the process of reconsidering certifications for CDFIs,
but it is not a regulatory agency.
Mr. Davidson. Thanks for that point of clarification. And
as we look at the conservatorship of the Government-Sponsored
Enterprises (GSEs), one of the reports that is long overdue was
due in September of 2021. Is the Department's plan to get them
out of conservatorship? I will submit that question for the
record, but would you commit to responding to that in writing?
Secretary Yellen. We want to work with Congress to do that.
Mr. Barr. The gentleman's time has expired.
Mr. Davidson. Thank you.
Mr. Barr. And the Secretary can answer for the record.
The gentlewoman from Ohio, Mrs. Beatty, is now recognized.
Mrs. Beatty. Thank you. Madam Secretary, let me start with
this opening remark, since several of my colleagues on the
other side have criticized you for your handling of the debt
ceiling issue, and your calculations of the X-date. They have
also placed the blame on the Biden Administration for not
solving this problem, so let me be very clear. In my opinion,
my colleagues across the aisle, and no one else, dragged us to
the brink of default by using the debt ceiling as a weapon and
a political tool to further their political agenda. Even the
prospect of defaulting is harmful to the United States economy.
We heard other witnesses, experts tell us that defaulting would
be harmful. So, what they did jeopardized our role on the
political stage and created opportunities for China and other
foreign adversaries to weaken our power and influence. I want
to thank you, Madam Secretary, for consistently providing
apolitical advice to Congress because you did it, as you said,
for what was best for the United States of America.
Secretary Yellen. Thank you.
Mrs. Beatty. I wanted to be on the record saying that.
Secretary Yellen. Thank you.
Mrs. Beatty. As I am sure you are aware, the number of
countries paying a surcharge to the IMF has increased from 9 to
16, since 2020. And that figure is estimated to increase to 38
countries in the coming years. I have a bill that I am co-
sponsoring that will require an immediate review of surcharge
policies at the IMF, with the requirement that the surcharge
payments be suspended during the review process. Do you have
any thoughts on this? Is it worth taking a closer look at this
consequential policy, whether it is effective or whether there
are unintended harmful consequences?
Secretary Yellen. I really have to say that we are
supportive of the IMF's surcharge policy. It is part of their
risk mitigation framework. And what surcharges do is provide
incentives for borrowers with large outstanding balances to
repay their loans promptly, and that is in keeping with the
nature of IMF lending. For the poorest countries, there aren't
surcharges that apply through the poverty reduction in growth
trust window. And the surcharges allowed the IMF to build
precautionary balances, which protect all of the IMF members in
case there is nonrepayment. So, I will try to work with you and
understand the concerns, but I am not in favor of changing the
IMF's surcharge policy.
Mrs. Beatty. Okay. Thank you. I appreciate that. Now, I am
going to shift, but I think it is in relationship to the state
of the international financial system, since I believe our
money is international in many ways.
A couple of weeks ago, we had some international
dignitaries here from Canada, and one of the things that they
were most proud of was that they had a female on their $20
bill, and you know where I am going with this. In our hearing
last year, you indicated that you would do everything within
your power, in a very bipartisan way--over the last 3
congressional sessions, we have had people in your position
look at what we were going to do with the $20 bill. It came up
that it was going to be Harriet Tubman. We were all in
agreement on that, and so I have reintroduced my bill, the
Woman on the Twenty of 2023.
Here is what I am asking. I understand all of the security
and how we have to design the money, but could we not have a
bill that simply puts in place the likeness of Harriet Tubman?
Just that part. Then, you put it into the process that gets us
to 2027 when I will not be here, and that we could get this
moving. Any comments?
Secretary Yellen. I very much want to see Harriet Tubman on
the $20 bill, and I have promised, and I am doing everything I
possibly can to expedite that process. It essentially froze. We
lost 4 years during the previous Administration. When Secretary
Lew proposed this in 2014, the scheduled date was 2030. I know
that is a long time, but that is what it was----
Mr. Barr. The gentlelady's time has expired.
Secretary Yellen. ----but it is not----
Mrs. Beatty. Thank you. My time has expired.
Mr. Barr. The gentleman from Tennessee, Mr. Rose, is
recognized.
Mr. Rose. I want to thank Chairman McHenry and Ranking
Member Waters for holding the hearing, and thank you, Secretary
Yellen, for being with us today.
Secretary Yellen, on November 4th, the Community
Development Financial Institution's Fund (CDFI Fund) released a
new proposed CDFI certification application using the Paperwork
Reduction Act. Why did the CDFI Fund use the Paperwork
Reduction Act instead of the Administrative Procedure Act for
that change?
Secretary Yellen. I am not sure. I assume because the
Paperwork Reduction Act requires examination of forms.
Mr. Rose. And what I would note is that the Paperwork
Reduction Act was enacted to minimize the paperwork burden for
stakeholders. The CDFI Fund won't meet with interested parties
while the proposal is pending because of a blackout period. And
as I am sure you are aware, there is significant concern that
the change will make it very difficult and, in fact,
potentially exclude many current CDFIs from participation in
that program. Secretary Yellen, what is this statutory
justification for this blackout period?
Secretary Yellen. I can't tell you about the blackout
period, but I know that what the CDFI Fund is doing is
attempting to update a certification process that hasn't been
really reviewed in more than 25 years.
Mr. Rose. And that may be appropriate, but I think the
Administrative Procedure Act would be the more appropriate
pathway for that and certainly would allow the kind of comments
that I think the current proposed change really is screaming
out for.
Secretary Yellen, Jodie Harris has recently stepped down as
Director of the CDFI Fund. Given the mismanagement of the Fund,
someone with more expertise on the regulatory environment and
safety and soundness expectations inside the CDFI Fund would be
incredibly helpful. Could you speak to Treasury's perspective
on appointing a Director with meaningful experience with
insured depositories and consumer finance, and what other
considerations you think are important in finding the right
person to head up the Fund going forward?
Secretary Yellen. We will certainly do a thorough search.
The Director of the CDFI Fund is a career Senior Executive
Service (SES) position, and in filling that job, we are
governed by the Civil Service Reform Act. So, it has to be
based on merit, and there needs to be a competition with
multiple candidates considered.
Mr. Rose. Thank you. I just hope you understand the turmoil
that this has created among CDFIs across the country and the
attempted impact that it is having on communities that are
supposed to be being served by these important institutions.
I want to shift gears. On Tuesday, March 21st, you
suggested that deposits would be covered by Federal insurance,
``if smaller institutions suffered deposit runs that posed the
risk of contagion.'' In front of the Senate the next day, you
said you had not considered, ``blanket insurance or guarantees
of deposits.'' But a day later, before the House, you said the
Treasury, ``would be prepared to take additional actions if
warranted.'' Secretary Yellen, can you clarify Treasury's
position on any sort of expansion of deposit insurance?
Secretary Yellen. I'm sorry. I never intended to suggest
that we were proposing expanding deposit insurance. The FDIC
has issued a report, and over time, it might be an appropriate
topic to look at, but what I said was that I was prepared to
work with the regulators, the FDIC, and the Fed to take actions
similar to those we took in the case of Silicon Valley Bank and
Signature Bank to protect depositors when there was a risk of
systemic contagion of bank runs, and that those tools would be
available. And it could be the case that with a run on a
community bank, if we judge that it could trigger broader
systemic runs on other sound banks, it could also be
appropriate to use those same tools.
Mr. Rose. I will just say, as a board member of a community
bank, I hope you keep in mind how important our community banks
are to our rural communities and small communities across the
country. Thank you. Mr. Chairman, I yield back.
Mr. Barr. The gentleman's time has expired. The gentleman
from New Jersey, Mr. Gottheimer, is recognized.
Mr. Gottheimer. Thank you, Mr. Chairman. And thank you,
Madam Secretary.
This year, we have seen turmoil in the banking system, as
you have discussed. And I am concerned that our regulatory
response hasn't focused enough on our small, medium-sized, and
regional banks that provide important competition to our
banking system, and are obviously lifelines to American
families and small businesses in our communities. Madam
Secretary, do you believe that our response to recent failures
and our broader regulatory approach ensures the health of small
and medium-sized banks so we don't end up having a situation
where we only have a few large banks that are simply too-big-to
fail?
Secretary Yellen. I believe strongly that a diversified set
of financial institutions is best for America, and provides a
differentiated set of financial services that are appropriate
for different borrowers.
Mr. Gottheimer. Thank you. I am particularly concerned that
the current regulatory environment disadvantages some of the
small and medium-sized regional banks. Specifically, most
recently, with First Republic's receivership, I am concerned
that the largest banks were given preference in the bidding
process, thereby enabling the biggest banks to grow even
bigger. My understanding is that the FDIC kept certain regional
banks from even bidding on First Republic. Madam Secretary, do
you believe that well-situated small, medium-sized, and
regional banks should have the same opportunity to bid on
failing banks as their larger peers do?
Secretary Yellen. I believe that there should be a process
with multiple bidders. It is up to the FDIC to run that
process, and I know that there were multiple bidders in the
case of First Republic.
Mr. Gottheimer. But my understanding is that the regional
and medium-sized banks were left out, and many who were
interested weren't allowed to bid. Do you know about that?
Secretary Yellen. I am not sure that is the case. I believe
that there were multiple bidders, and they were not all large
banks.
Mr. Gottheimer. No one was excluded if they wanted to, in
your understanding, if they actually were interested in
bidding, that they weren't told, sorry, you can't bid?
Secretary Yellen. I can't give you every detail of what the
FDIC did in this case, but I do know that there were multiple
bidders, and that included some smaller banks, and certainly
some regional banks. The FDIC is required to accept the lowest-
cost bid. And it did that.
Mr. Gottheimer. Okay. Thanks. And I have heard a lot of
stories that banks were literally told, sorry, you can't even
apply, you can't even try to bid for this, so I will get back
to you if I learn more about that.
Shifting the focus to digital assets, following the
collapse of FTX last year, financial regulators have obviously
ramped up scrutiny of digital asset firms. In a recent
interview, you said that you, ``see some holes in the system
where additional regulation would be appropriate.'' Do you mind
elaborating a little bit on that statement? Where do you see
the holes? Where do you think additional clarity is needed for
digital assets, please?
Secretary Yellen. One hole pertains to the supervision of
spot markets, where digital assets are not regarded as
securities, so there needs to be regulatory authority there.
And then, I would say that stablecoins are a type of digital
asset that really requires a full-blown Federal regulatory
framework. I think this is an area where congressional
legislation is appropriate to create an appropriate prudential
framework.
Mr. Gottheimer. Thank you so much. When you spoke before
this committee last Congress, you agreed with me that the
State-level tax deduction cap has led to disparate treatment of
American taxpayers. I am concerned that the cap is pushing
Americans out of States like mine, New Jersey, as they seek
lower-tax States that are subsidized more heavily by the
Federal Government. The House Ways and Means Committee is
currently marking up tax legislation that noticeably does not
address the burdensome SALT cap. It leaves it out completely,
which I think is outrageous.
In your view, does the SALT cap favor States that are
heavily subsidized by the Federal Government and disrupt
America's decisions on where they choose to live? Have you seen
that at all in your work, and have you studied where finances
are moving around the country?
Secretary Yellen. It certainly does have a disparate impact
on different States. The Biden Administration has generally
taken the view that it is up to Congress to decide what to do
about that.
Mr. Gottheimer. So, you think it is probably a good idea
for us to be handling and addressing the SALT cap?
Secretary Yellen. That is the view that we have taken
recently.
Mr. Gottheimer. I have one last quick question I would like
to get in on the national debt. Obviously, higher interest
rates make our debt grow faster. What options is the Department
considering to address the fact that our country will be
spending more money to serve its national debt in the high-
interest-rate environment?
Secretary Yellen. President Biden proposed a full-blown
budget that contains substantial deficit reduction, $3 trillion
over 10 years at the same time it invests in America, and----
Mr. Meuser. [presiding]. The gentleman's time has expired.
Secretary Yellen. ----you raise this as part of that.
Mr. Gottheimer. Thank you, Secretary. And thank you, Mr.
Chairman.
Mr. Meuser. The gentleman from Wisconsin, Mr. Steil, is now
recognized for 5 minutes.
Mr. Steil. Secretary Yellen, thanks for being here today.
As we approached the debt ceiling, the Treasury delayed issuing
new U.S. Treasuries. Now that the debt ceiling has been
increased, there is significant discussion that the Treasury
may issue hundreds of billions, maybe a trillion dollars of new
Treasuries, in particular, in short order. Do you share the
concern that others do that this may alter the interest rates
the United States would receive on the issuance of those
Treasuries, and if so, what mitigating measures are you and the
Treasury taking to avoid additional costs on interest rates?
Secretary Yellen. It is our obligation to rebuild the
Treasury balance up to a safe and appropriate level. But we
have consulted widely with market participants about what the
best way is to minimize the cost to the Federal Government and
to avoid market disruption to the maximum extent possible. And
as we build our balance, we will certainly be careful to see if
there are impacts or market disruption.
Mr. Steil. And what are those techniques and measures you
are planning to implement to reduce volatility or increased
interest rates?
Secretary Yellen. We will be issuing a substantial quantity
of Treasury bills and cash management bills in the coming
months, and we will try to design those offerings to really be
most attractive to market participants.
Mr. Steil. Thank you. I am still really disappointed that
the Administration refused to negotiate with House Republicans
for as long as they did, forcing the Treasury into this
position rather than settling the debt ceiling debate much
sooner, which we could have done if the President didn't move
forward on his path of, ``my way or the highway'', refusing to
negotiate with Republicans in the House.
Let me shift gears, if I can. I want to dive in on the
Russia-Iran alliance that we are seeing taking place. Russia
and Iran have established a defense partnership, with Iran
supplying weapons to Russia, and reportedly potentially
developing a drone facility inside Russia. This has
implications beyond Ukraine. It has significant implications
across Europe and throughout the Middle East. Could you outline
some of the steps Treasury has taken in response to this
defense partnership, and do you believe that the measures have
been effective?
Secretary Yellen. We are certainly attempting to make sure
that our sanctions on Russia, when it comes to acquiring
military equipment, are not evaded. And we are looking very
carefully at ways in which evasion is taking place and
attempting to address it jointly with our partners.
Mr. Steil. But should anything be done specifically
regarding the Iran piece of this puzzle that has not been done
to date, or do you feel that the sanctions in place on Iran and
working with our partners are currently sufficient?
Secretary Yellen. We are constantly looking and
reevaluating our sanctions, especially when we see evasion,
too. We have the strongest regime of sanctions against Iran as
against virtually any country, and we are constantly looking to
strengthen them. It is not something that is forever fixed;
when we see evasion, we are looking to strengthen them.
Mr. Steil. Understood. It's a very dynamic environment, not
a static environment. I appreciate your attention to the
matter.
Secretary Yellen. Yes.
Mr. Steil. Let me shift gears pretty significantly here. We
have seen the European Union aggressively push regulatory
standards beyond their boundaries, impacting U.S. capital
markets and U.S.-based companies. I am concerned that if we
fail to push back, American businesses will find themselves
subject to European regulation. Are there EU regulations that
this Administration is planning to adopt or mirror, and have
you determined separately that these regulations coming from
the EU are in the best interest of the United States?
Secretary Yellen. We are looking very carefully at the EU's
Corporate Sustainability Directive, and we are concerned about
the impact that it could have on U.S. firms. We are consulting
with the EU and making it clear that we are concerned about the
Directive's extraterritorial scope.
Mr. Steil. I think we should be incredibly concerned. The
U.S. has about 4 percent of the world's population, but about
50 percent of the capital markets reside in the United States.
I am concerned that the European approach to regulation
actually negatively impacts their ability to be a leader in the
capital markets. Recognizing my time, I yield back.
Mr. Meuser. The gentleman yields back. The gentleman from
Texas, Mr. Gonzalez, is now recognized for 5 minutes.
Mr. Gonzalez. Thank you, Mr. Chairman, and Ranking Member
Waters. And thank you, Secretary Yellen, for being here with us
today. We really appreciate having this conversation.
I am going to continue on an issue that has been a concern
for this committee on both sides of the aisle. As you know,
adversaries like Russia, China, Iran, North Korea, and others
have been working to replace, and circumvent, and undermine the
U.S. dollar for decades now. But now we are also seeing calls
to reduce the dependence on the U.S. dollar from other corners
of the globe, including allies of ours like France, and maybe
India, and others more recently. From your perspective, what is
the biggest risk to the U.S. dollar? Is it global geopolitics,
or is it concerns here in the U.S. Capitol of U.S. politics not
being able to pass a debt limit, for example, this past week?
Secretary Yellen. I have previously and will again express
my concerns about the debt limit. The dollar is used widely as
a reserve asset because of the depth and liquidity of U.S.
capital markets, the safety of Treasury securities, and the
longstanding practice of the United States to honor its
obligations. And it is the commitment that we can be trusted to
pay our bills that is the foundation for our high credit rating
and for the dollar's role as a reserve currency. So when we
have episodes like the debt ceiling episode, that concerns me.
Of course, our sanctions are in part enabled by the important
role of the dollar and U.S. banks in the financial system. We
work whenever possible with other countries to jointly enact
sanctions----
Mr. Gonzalez. But if I may, should we be more concerned now
and slapping sanctions on countries around the world, and
taking that into consideration, and be more thoughtful as we
may be creating a paranoia around the world where people are
looking for other currencies to do transactions?
Secretary Yellen. It is true that when we impose sanctions,
countries that are afraid they can be the subject of those
sanctions are motivated to look for tools other than the dollar
to engage in transactions, so----
Mr. Gonzalez. But even our friends----
Secretary Yellen. ----it is something we have to accept. It
is much more difficult to find other tools to make payments,
other currencies, when we work jointly with partners.
Mr. Gonzalez. But we even have our friends like France also
looking for other currencies and pushing----
Secretary Yellen. France and some of our allies were not
happy when we pulled out of the Joint Comprehensive Plan of
Action (JCPOA) and imposed sanctions. But I would say there is
virtually no meaningful workaround for most countries for using
the dollar as a reserve currency.
Mr. Gonzalez. Very well. Earlier, you made some statements
about it being the most stable option with rule of law and
liquidity and all of that.
Secretary Yellen. Yes.
Mr. Gonzalez. But isn't it a fact that the use of the
dollar has diminished and gone down against competing
currencies over the years?
Secretary Yellen. There has been some increase in holdings
of other reserve assets, but that is something to be expected
in a growing world economy where there is a desire to
diversify. But we are still reliant----
Mr. Gonzalez. So, we should expect less use of the dollar,
is that what you are saying?
Secretary Yellen. We should expect, over time, gradually
increased share of other assets in reserve holdings of
countries. It is a natural desire to diversify, but the dollar
is far and away the dominant reserve asset.
Mr. Gonzalez. Okay. It is still a huge concern for us here
in Congress. And just changing gears briefly, under the new
minimum tax system, lawmakers permit companies to reduce their
taxable income by the amount of their depreciable deductions.
Companies in the most capital-intensive industries with a high
value of tangible property can claim these depreciation
deductions and use tax deferral to invest in their business.
This provision was included in the Inflation Reduction Act
to protect companies from the potential impact of book minimum
tax by not capitalizing investment. However, these deductions
are not accessible to oil and gas producers because their
capital expenditures are classified as intangible drilling
costs within the different section of the Tax Code. Due to this
designation, oil and gas producers are unfairly targeted. I
hope you can----
Mr. Meuser. The gentleman's time has expired.
Mr. Gonzalez. We are hugely concerned, and we would love
for you to be able to address this with our office.
Mr. Meuser. And the Secretary is welcome to submit that for
the record. Thank you.
The gentleman from South Carolina, Mr. Timmons, is now
recognized for 5 minutes.
Mr. Timmons. Thank you, Mr. Chairman. Secretary Yellen,
thank you for being here today. You and I have disagreed on the
best approach to address a number of challenges facing this
country. I am going to briefly highlight two areas where your
policy proposals ultimately were quite simply deemed bad for
the American people, but then I am going to end on an area
where I think we are going to find agreement.
First, you spent much of 2021 saying that inflation was
transitory and likely to abate once COVID-specific factors
subsided. These talking points were then parroted by various
officials in the Administration and Congress to justify
trillions more in additional spending. All the while, Larry
Summers, President Clinton's Treasury Secretary and Director of
President Obama's National Economic Council, aggressively
warned against such spending, warning it would further
exacerbate inflation. Then a year ago, almost to the day, you
were quoted saying that you failed to anticipate how long
elevated inflation would continue to plague American consumers.
Finally, on June 7th of this year, you said that you expected
inflation to subside over the next 2 years.
Simply put, you got it wrong in a number of places, and
that error in judgment caused immense damage to the American
people. It caused the cost of goods to soar, and salaries to be
reduced in relative value. It denied the American Dream of
homeownership, and just caused overall hardship in general. So,
I just want to point out that policies coming out of Washington
have very serious consequences, and it seems policymakers often
forget that.
Eighteen months ago, we had a back and forth, somewhat
heated, where I criticized your proposal to collect Americans'
bank account balances. I said it was not a serious policy
proposal and only designed as a way to let Democrats justify
spending more money we don't have. The Senate wisely sidelined
this proposal, and the American people are better off because
of it. Again, policies coming out of Washington have
consequences and we must be thoughtful in our policy proposals
and actions. They do have real consequences for the American
people.
Now, to an area where I think we are going to agree, and I
was pleasantly surprised that my colleague across the aisle,
Mr. Gonzalez, just brought it up. I am going to just pose a
question to you. It is fairly simple. Do you agree that it is
important for the dollar to remain the global reserve currency?
Is that a priority of yours?
Secretary Yellen. Yes, I think it is important for the
dollar to be the world's reserve currency.
Mr. Timmons. Thank you. I agree with you. Could you just
highlight why you feel that way? What are the factors that go
into that policy decision of yours?
Secretary Yellen. It is the safest and most sought-after
asset. The dollar as a reserve currency means that our interest
rates are the lowest of really any borrower around the globe,
and it lowers our cost to borrow.
Mr. Timmons. It makes it easier to trade. It makes it
easier to compete in the global economy. It builds our allies
abroad. If you agree that it is important to push this policy
forward and to maintain the dollar as a global reserve
currency, then why has President Biden nominated Jared
Bernstein to be the Chair of the United States Council of
Economic Advisers? He is on record in numerous op-eds stating
that we should actively take steps to remove the dollar as a
global reserve currency, that it is a burden and not a
privilege, and we should end the dollar as the global reserve
currency. Why would President Biden, whom I assume you work
very closely with on these issues, place someone in such a
position of trust and authority who disagrees with his own
Treasury Secretary?
Secretary Yellen. I am not going to speak to Jared
Bernstein's views on this particular issue.
Mr. Timmons. Your views are diametrically opposed, and he
disagrees with you. Just please make sure that you continue to
push to maintain the dollar as the global reserve currency.
Let's go back to debt. The debt-to-GDP ratio in April was
119 percent. I have serious concerns about our unsustainable
spending and that it will further erode our ability to maintain
the dollar as the global reserve currency. We saw that Greece
at 180-percent debt-to-GDP went into austerity measures and had
to get the EU to bail them out. Madam Secretary, nobody is
going to bail us out. The American people are not able to. So,
what do you think about our unsustainable spending, and is our
debt-to-GDP ratio a concern of yours as it relates to
maintaining the dollar as a reserve currency?
Secretary Yellen. It is critical that we remain on a
fiscally-sustainable course, and there are different----
Mr. Timmons. Remain? Did you say remain? We are not on a
fiscally-sustainable course, Madam Secretary.
Secretary Yellen. The President presented a budget with $3
trillion of deficit reduction over the next decade, and what I
regard as the most important metric----
Mr. Timmons. That is like shooting a bullet at a freight
train.
Mr. Meuser. The gentleman's time has expired.
Mr. Timmons. Thank you. I yield back.
Mr. Meuser. The gentleman yields back. The gentlewoman from
Massachusetts, Ms. Pressley, is now recognized for 5 minutes.
Ms. Pressley. Thank you so much. And thank you, Secretary
Yellen, for joining us today. I represent the Massachusetts 7th
Congressional District, which is vibrant, diverse, dynamic, and
unequalled. And I am sure my colleagues have grown tired of my
numerating these damning statistics, but imagine how tired
people are of actually living them.
In a 3-mile radius, from Cambridge to Roxbury, median
household income drops by $50,000. The Federal Reserve of
Boston put out a Color of Wealth report, which cites that the
average wealth for a Black Boston family is $8, whereas for a
White family, it is $250,000. So, I am going to use my time
with you to discuss an issue that it is paramount that we
tackle, it is a national problem, and that is the racial wealth
gap. The racial wealth gap in the United States is over $10
trillion. That is trillion with a, ``T,'' truly a shameful
reality for the American economy. Secretary Yellen, do you
agree that we have a colossal racial wealth gap in our country?
Secretary Yellen. Of course. You cited statistics that show
how significant that is, and President Biden is committed to
doing all that he possibly can.
Ms. Pressley. Thank you.
Secretary Yellen. And I am committed as well to take
meaningful steps.
Ms. Pressley. Thank you, and of course, we know that this
racial wealth gap didn't just appear out of nowhere. Black
Americans in this country have been systematically stripped of
our wealth. First, there were nearly 250 years of enslavement,
followed by a century of Jim Crow segregation, economic
exploitation, and State-sanctioned violence. And to this day,
Black Americans are still being excluded from and facing
barriers to public programs that promote homeownership and
higher education, along with facing discriminatory home
appraisals, and persistent redlining. Only bold,
transformative, precise economic policies can address the
impact of compounded racism and exploitation.
We are heading toward Juneteenth. I am grateful that it is
now a Federal holiday, but policy is my love language. I
believe we need Federal reparations to close the racial wealth
gap once and for all. Secretary Yellen, under your leadership,
you have established a Treasury Advisory Committee on Racial
Equity (TACRE), which truly represents a historic opportunity
to center racial justice in our economic agenda. Can you speak
to some top lines of the work of this committee?
Secretary Yellen. We formed TACRE as an advisory committee
to help us evaluate every area in which Treasury has
responsibility, where we need to recognize if discrimination
may take place. And we should be changing our policies to make
Treasury itself more diverse and more responsive to be able to
address structural racism and problems----
Ms. Pressley. Thank you, Secretary Yellen. I am running out
of time, and I am grateful for the work of the committee. I
look forward to learning more about that, but I, along with
Senator Cory Booker, have introduced the American Opportunity
Accounts Act. If passed into law, this would represent the most
ambitious Federal effort to directly address wealth inequality.
At birth, every child would receive $1,000 in a savings account
managed by the Treasury Department. Children from low-income
families would receive deposits every year. And once they reach
the age of 18, they can use the funds they have saved for
specific purchases, such as buying a home or pursuing higher
education. There is growing momentum around the country for our
Baby Bonds legislation from Massachusetts, California,
Connecticut, New York, and Washington, D.C. Do you agree that
the Treasury Department should further look into Baby Bonds as
a tool to address wealth inequality in our country?
Secretary Yellen. Certainly, this is a key priority of the
Biden Administration and not just a Treasury matter, but I
think it is a very constructive suggestion. As you know,
President Biden has proposed many policies that would be
complementary, including extending the child tax credit and
making sure that it is refundable, which did succeed in cutting
poverty by 50 percent.
Ms. Pressley. Absolutely. Thank you, Secretary Yellen. I do
see baby bonds as the kind of investments that will break
cycles of generational poverty and systemic economic oppression
and put us one step closer to closing the racial wealth gap.
Thank you.
Mr. Meuser. The gentlelady yields back. The gentleman from
South Carolina, Mr. Norman, is now recognized for 5 minutes.
Mr. Norman. Thank you for appearing here, Secretary Yellen.
Secretary Yellen, your statement that the President is working
on a path of cuts that will, I guess, get our economic house in
order--you said $3 trillion over the next decade?
Secretary Yellen. That is his budget that he presented.
Mr. Norman. Is that not like saying you are going to drain
the ocean a teardrop at a time? We are on tap where the
interest on the debt will exceed our military budget. How does
that square with his statement that he wanted a clean debt
ceiling?
Secretary Yellen. Short-term interest rates have gone up
substantially, but longer-term interest rates are lower. And
most economists and Fed officials believe that over the medium
term, real interest rates, which is what is important to our
debt burden, will decline----
Mr. Norman. Ma'am, this President is on tap to spend $4
trillion, and I find it astonishing that in your position, you
make that type of statement. Now, the debt limit X-date has
changed. It moved from June 1st to June 5th, and maybe to July,
and we had a President who was missing in action for over 100
days, and didn't want to negotiate. Was this a strategy to wrap
up the press to just move the date to----
Secretary Yellen. I want to insist that there was nothing
whatsoever about the advice I gave to Congress that was
political.
Mr. Norman. So, you didn't get with this Administration----
Secretary Yellen. I gave consistent----
Mr. Norman. I am reclaiming my time, Secretary Yellen. I am
trying to ask you a question. Did you not get with this
Administration to move the dates to wrap up the pressure that
the media was daily saying this country is going to----
Secretary Yellen. The very first----
Mr. Norman. Let me finish, and I will let you, hopefully,
get some time in if you will not filibuster. So, you didn't get
together with the President or the Administration to just move
dates? If it was really July or later, why didn't you just tell
us?
Secretary Yellen. The answer is an unambiguous, no, I did
nothing of the sort, and the very first letter that I sent to
Congress in early January indicated that early June was a time
that we were concerned our balance might not be sufficient.
Mr. Norman. Based on what?
Secretary Yellen. Based on our forecasts of spending and
revenues, we could see that early June was a matter of concern.
We waited until our tax revenues came in after the April 18th--
--
Mr. Norman. That was fluid, Secretary Yellen. That was
fluid. Yes, California, I think, had 51 counties that were
exempt from getting the tax revenues in. We wrote you two
letters to explain what your metrics were that you used to
determine that the country was going to run out of money and
not pay the----
Secretary Yellen. I'm sorry, but on June 2nd, the day after
Congress raised the debt ceiling, the Treasury balance declined
to $23 billion, which may sound like a lot of money, but it is
absolutely a completely----
Mr. Norman. You never responded to----
Secretary Yellen. ----insufficient effort----
Mr. Norman. Secretary Yellen, you never responded to the
two letters to give us the metrics of how you gave those dates
out.
Secretary Yellen. We published----
Mr. Norman. I am running out of time.
Secretary Yellen. I'm sorry, but we published----
Mr. Norman. Let me cover one other subject.
Secretary Yellen. ----daily statements to give----
Mr. Norman. I am reclaiming my time. Secretary Yellen, I am
reclaiming my time. You have mentioned several times about the
sanctions that this Administration is putting on Russia. Was
enabling the Nord Stream pipeline a sanction that this
Administration put on Russia, or did it enable Russia to get
the revenue that they have today?
Secretary Yellen. The Administration has long been opposed
to Nord Stream 2.
Mr. Norman. They are the ones that opened it up. President
Trump discontinued it. Are you saying that this Administration
did away with the enabling the Nord Stream pipeline to be
built?
Secretary Yellen. I believe that the President made clear
his opposition to the pipeline.
Mr. Norman. Then, why did it get put in use under this
Administration? It is being built now.
Secretary Yellen. Germany is----
Mr. Norman. So, nothing has changed from the Trump
Administration to the Biden Administration on enabling the Nord
Stream pipeline to be in existence, the remaining section to be
built? I am out of time, so if you would respond in writing, I
sure would appreciate it. Thank you so much.
Mr. Meuser. The gentleman yields back. The gentleman from
Nevada, Mr. Horsford, is now recognized for 5 minutes.
Mr. Horsford. Madam Secretary, would you like to answer the
final question so that the record is clear on your position
regarding the debt ceiling date?
Secretary Yellen. Regarding the debt ceiling date.
Mr. Horsford. Based on the questioning from the previous
colleague.
Secretary Yellen. Yes. My very first letter to Congress
indicated that we had confidence that we could pay the
government's bills until early June, but it highlighted that we
were concerned that we might not after early June. There was
considerable uncertainty about what our resources would be
months ahead. It was critical to see what incoming tax revenue
was.
Mr. Horsford. Thank you.
Secretary Yellen. Once we saw that, we realized that early
June was an even more serious problem than we indicated, and in
several letters, I highlighted that we felt our resources would
expire in early June, possibly as early as June 1st.
Mr. Horsford. Thank you.
Secretary Yellen. And our final letter indicated----
Mr. Horsford. I just wanted to give you an opportunity to
clear the record.
Secretary Yellen. ----June 5th, which is awfully close to
June 1st.
Mr. Horsford. Thank you. And to be clear, it was all
because of a self-inflicted manufactured debt limit crisis that
my Republican colleagues caused, which, had Democrats not
delivered the votes in the House, would have caused a default,
causing our economy to spiral out of control across the U.S.,
and globally, affecting millions of jobs.
At the same time, we also have heard from my colleagues,
who have demanded more fiscal austerity and a balanced budget
now without a second thought for their vigorous push for the
government to tighten its belt. Here we go again with another
round of ill-advised cuts to vital revenue. The House
Republican tax cuts scam will cost the United States taxpayers
upwards of $1.1 trillion. I find that outrageous. Again, as
they work towards deep cuts to essential programs like Social
Security and Medicare, their extreme idea of fiscal restraint
is another tax giveaway for big corporations across this
country.
House Democrats and President Biden have fought hard to
protect American workers and ensure we lead the clean energy
transition into the 21st Century. Yet, the House GOP is still
siding with their wealthy backers in the fossil fuel industry.
The folks in my district in Nevada deserve more investment in
our people, in our health, in our environment, and in our clean
energy economy. And yet, the recently introduced and misnamed,
Tax Cuts for Working Families Act, accomplishes none of these
priorities. That is why it should be called the, ``Republican
Tax Scam 2.0.''
Secretary Yellen, do you have any indications as to the
consequences of the proposed $1.1 trillion in lost tax revenue
and how that would stem from these proposed cuts?
Secretary Yellen. The ones that are now under
consideration?
Mr. Horsford. Correct.
Secretary Yellen. They would benefit wealthy individuals
and corporations and do nothing for working families, and----
Mr. Horsford. And is it paid for?
Secretary Yellen. No, it is not paid for, and it would----
Mr. Horsford. And that will add to the debt, correct?
Secretary Yellen. Of course. It would exacerbate the debt.
Mr. Horsford. And they will then have to pay interest on
the debt for tax cuts for the very wealthy while balancing the
budget on the backs of working people that I represent?
Secretary Yellen. Yes.
Mr. Horsford. Additionally, could you discuss the
macroeconomic cost associated with stripping away the recently
passed tax incentives for clean energy production and clean
energy vehicles with a specific focus on the harm to American
domestic manufacturing in the green technology sector?
Secretary Yellen. We have seen a renaissance in
manufacturing in the United States as a consequence of the
Inflation Reduction Act. There is tremendous investment that is
taking place in our clean energy economy. It is creating good
jobs all across the country, and not just on the coasts, but in
parts of the country that really have seen a decline in
manufacturing jobs. And it would have a very harmful effect.
Mr. Horsford. Thank you. All I will say in closing is the
American people are watching. They are very smart. They know
that the Republicans are not for fiscal austerity, not when
they are giving tax cuts to the very wealthy----
Mr. Meuser. The gentleman's time has expired.
Mr. Horsford. ----on the backs of working Americans.
Mr. Meuser. The Secretary has graciously agreed to stay so
that Representative Garcia and I may ask questions. We thank
you very much for that, Secretary Yellen. I now recognize
myself for 5 minutes. Thank you.
I want to go back to just uncover the CSDDD relatively
briefly because you have been asked about that a few times, the
Corporate Sustainability Due Diligence Directive coming out of
Europe, where U.S. businesses could be sued by the EU for
simply doing business with so-called high-impact companies such
as natural gas. And that is a really big concern of mine, as
well as coal.
Madam Secretary, coal, as you very well know, is essential
for the production of steel, and every company is producing
steel, particularly anthracite steel, which I have an abundance
of in my district. So if the EU were to pass something like
this, it could--and there are analyses on this--affect the
stock prices and the valuations and the business of over 63
percent of the S&P 500 and really set a precedent that Europe
can regulate the United States, and certainly, the EU is in
high demand for liquefied natural gas (LNG).
I am really asking you, as a Governor of the IMF, not just
the IMF, but in general in your role, are we pushing back
strongly on this? Are we doing an analysis? Are we really
taking this very seriously related to the CSDDD?
Secretary Yellen. I'm sorry. The CSDDE----
Mr. Meuser. The Corporate Sustainability Due Diligence
Directive.
Secretary Yellen. That is an EU initiative, and I have
indicated that we have concerns about it, that it can impact
our firms in ways that would have unintended consequences that
concern us.
Mr. Meuser. And you did indicate that, but doing just, say,
$150 million in business in Europe, if a company does a billion
dollars here, that regulation would be mandated for that
company as a whole.
Secretary Yellen. That is why we have concerns. I agree.
Mr. Meuser. Significant concerns, I would hope, Madam
Secretary. Are you doing a cost-benefit analysis of this, what
its effect would be? Is that part of your due diligence?
Secretary Yellen. I don't think we have to do a cost-
benefit analysis, but I think we do have to express our
concerns to the EU and try to see that they are addressed.
Mr. Meuser. Okay. I am hoping we can be kept updated on
this, Secretary Yellen, because again, this is a really serious
issue that I am not sure too many businesses are fully aware of
being regulated by the EU.
Secretary Yellen. It is not yet a final legislation.
Mr. Meuser. Right.
Secretary Yellen. It is a draft.
Mr. Meuser. Right. Okay.
Secretary Yellen. And it is hard to know exactly what its
impact will be on EU firms.
Mr. Meuser. Okay.
Secretary Yellen. But we advocate for it to be addressed by
the EU.
Mr. Meuser. Thank you. I do want to ask you this, more of a
broad question. Does the Treasury, your Department obviously,
the Fed, the White House, do you have conversations where you
look at the economy as a whole and say, look, with the Fed
stimulus, with this excessive spending, let's face it, that
took place, a slowdown of American energy, which had a lot to
do with the spiking of gasoline prices, which obviously
attributes to inflation, a rise of interest rates, which is
doing awful things that I want to talk about on the service to
our debt. But do you have the conversation and say, let's take
a holistic view here, and maybe we should have some pro-growth
initiatives?
Secretary Yellen. We certainly take a holistic view and
have many discussions of the outlook and what is appropriate.
And I will say that when President Biden was elected and the
American Rescue Plan was passed, the unemployment rate in the
United States was exceptionally high, and there was a real risk
that we would have a generation of Americans----
Mr. Meuser. Madam Secretary, I don't mean to interrupt, but
we had COVID, and we deliberately shut down the government, and
it is the same unemployment rate that we had in 2019, and yet,
there are still close to 2 million people not working. Madam
Secretary, it is not working. We have all this inflation. We
have debt as far as the eye can see.
And you know what is unbelievably alarming, Secretary, is
that in 2021, when the Biden Administration came in, service on
our debt was $275 billion. I am sure enough to tell you these
numbers. In 2022, it was $385 billion. This year, it is going
to be a staggering $660 billion. Next year, it is likely to be
higher than our defense, so it is not working. It seems to me
the growth strategy is to spend more. Is that considered a
growth strategy?
Secretary Yellen. Our growth strategy does involve
investing in America, and President Biden has put in place
proposals and legislation that does aid our growth.
Mr. Meuser. Thank you, Madam Secretary. My time has
expired. The gentlewoman from Texas, Ms. Garcia, is now
recognized for 5 minutes.
Ms. Garcia. Thank you, Mr. Chairman, and thank you,
Secretary Yellen, for joining us here again today. Secretary
Yellen, under your leadership and in collaboration with
President Biden, the Treasury Department has done excellent
work, promoting a strong and vibrant domestic economy and
assisting countries in need internationally. I want to thank
you for that.
I want to quickly just follow up on a couple of the
questions before I get to one of my own. You have consistently
said that it is important that the dollar remain strong and be
the currency of the world. I have been troubled by the number
of businesses, small retailers, even at airports and coffee
shops that are beginning to not even take the dollar anymore.
They don't take cash. There is a bigger reliance on credit
cards. What does that do to our economy and to the stature of
the dollar? If, in fact, cash is king and the dollar is the
emperor or the king, what does that do, and how are we doing
with the interest rates on credit cards and the transaction fee
charges? That is a lot of questions in one, but----
Secretary Yellen. We are still using the dollar as a
currency. It doesn't have to be physical currency. We want an
efficient payment system, and electronic payments are becoming
faster and cheaper, and we are still using the dollar even when
we make payments using plastic. But credit card fees do remain
very high, and it is important to foster innovations that will
improve and reduce the costs associated with making payments.
The Fed is bringing into operation a system called FedNow that
will make 24/7 real-time payments a reality in the United
States, and I hope that is a system that will promote cheaper
and faster and safer payments.
Ms. Garcia. Okay. Where are we on the development of the
digital dollar?
Secretary Yellen. The White House is running a task force
that includes the Federal Reserve and other agencies to look at
whether or not it is in the United States' interest to develop
a digital dollar, a central bank digital currency. It is a
complex situation where there are both benefits and costs, and
we continue that work, and hopefully, we will be able to
consult with Congress and recommend a way forward.
Ms. Garcia. Thank you. And I heard you say that there, was
it $3 trillion in cuts in the next decade in the President's
budget?
Secretary Yellen. Yes.
Ms. Garcia. And that will be the cuts in the deficit?
Secretary Yellen. Yes.
Ms. Garcia. And the number of jobs that have been created
under President Biden in just, what is it now, 28 months, is
about 13 million. So while there may be some Americans who are
unemployed, the reality is that there have been 13 million jobs
created in 28 months.
Secretary Yellen. And we have almost the lowest
unemployment rate in 50 years in this country. Now, inflation
is too high and needs to be brought down, and that is a top
priority, but the job market could hardly be stronger.
Ms. Garcia. Right. And I hear reports that the supply chain
issues, by and large, are getting resolved, that these are
getting back on track except for a few outliers. Would you
agree with that?
Secretary Yellen. Yes, and inflation has come down 5
percent from its high. So, while it is too high, it has still
moved down considerably.
Ms. Garcia. I actually will submit another question or two
for you in writing because I am running out of time. But again,
I just wanted to thank you for your leadership and your
steadfast commitment and passion in ensuring not only that the
dollar is always king, but that cash is king. Thank you so
much.
Secretary Yellen. Thank you very much.
Mr. Meuser. The gentlelady yields back.
We would like to thank Secretary Yellen very much for your
testimony and for your extended time.
The Chair notes that some Members may have additional
questions for this witness, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to this witness and to place her responses in the record. Also,
without objection, Members will have 5 legislative days to
submit extraneous materials to the Chair for inclusion in the
record.
Secretary Yellen, I ask you to please respond no later than
July 14, 2023.
For the second hearing, we will begin at 2 p.m. today, or
immediately following Floor votes, whichever occurs earlier.
This hearing is adjourned.
[Whereupon, at 1:11 p.m., the hearing was adjourned.]
A P P E N D I X
June 13, 2023
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