U.S. GOVERNMENT PUBLISHING OFFICE

56–278 PDF WASHINGTON : 2024

THE ANNUAL REPORT OF THE FINANCIAL 

STABILITY OVERSIGHT COUNCIL 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED EIGHTEENTH CONGRESS 

SECOND SESSION 

FEBRUARY 6, 2024 

Printed for the use of the Committee on Financial Services 

Serial No. 118–73 

( 
(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

PATRICK MCHENRY, North Carolina, Chairman 

FRANK D. LUCAS, Oklahoma 

PETE SESSIONS, Texas 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

ROGER WILLIAMS, Texas 

FRENCH HILL, Arkansas, Vice Chairman 

TOM EMMER, Minnesota 

BARRY LOUDERMILK, Georgia 

ALEXANDER X. MOONEY, West Virginia 

WARREN DAVIDSON, Ohio 

JOHN ROSE, Tennessee 

BRYAN STEIL, Wisconsin 

WILLIAM TIMMONS, South Carolina 

RALPH NORMAN, South Carolina 

DAN MEUSER, Pennsylvania 

SCOTT FITZGERALD, Wisconsin 

ANDREW GARBARINO, New York 

YOUNG KIM, California 

BYRON DONALDS, Florida 

MIKE FLOOD, Nebraska 

MIKE LAWLER, New York 

ZACH NUNN, Iowa 

MONICA DE LA CRUZ, Texas 

ERIN HOUCHIN, Indiana 

ANDY OGLES, Tennessee 

MAXINE WATERS, California, Ranking 

Member 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DAVID SCOTT, Georgia 

STEPHEN F. LYNCH, Massachusetts 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

JIM A. HIMES, Connecticut 

BILL FOSTER, Illinois 

JOYCE BEATTY, Ohio 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

SEAN CASTEN, Illinois 

AYANNA PRESSLEY, Massachusetts 

STEVEN HORSFORD, Nevada 

RASHIDA TLAIB, Michigan 

RITCHIE TORRES, New York 

SYLVIA GARCIA, Texas 

NIKEMA WILLIAMS, Georgia 

WILEY NICKEL, North Carolina 

BRITTANY PETTERSEN, Colorado 

MATT HOFFMANN, Staff Director 
(III) 

C O N T E N T S 

Page 

Hearing held on: 

February 6, 2024 .............................................................................................. 1 

Appendix: 

February 6, 2024 .............................................................................................. 53 

WITNESSES 

TUESDAY, FEBRUARY 6, 2024 

Yellen, Hon. Janet L., Secretary, United States Department of the Treasury, 

and Chair, Financial Stability Oversight Council (FSOC) ............................... 5 

APPENDIX 

Prepared statements: 

Yellen, Hon. Janet L. ....................................................................................... 54 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Horsford, Hon. Steven: 

McKinsey & Company impact report, ‘‘Diversity Matters Even More,’’ 

dated December 5, 2023 ............................................................................... 57 

Yellen, Hon. Janet L.: 

Written responses to questions for the record from Chairman McHenry .... 68 

Written responses to questions for the record from Representative Barr ... 71 

Written responses to questions for the record from Representative 

Casten ............................................................................................................ 89 

Written responses to questions for the record from Representative Fitzgerald ............................................................................................................. 87 

Written responses to questions for the record from Representative 

Gottheimer ..................................................................................................... 90 

Written responses to questions for the record from Representative Hill .... 92 

Written responses to questions for the record from Representative 

Lawler ............................................................................................................ 108 

Written responses to questions for the record from Representative Sherman ................................................................................................................ 105 

Written responses to questions for the record from Representative Wagner .................................................................................................................. 101 

Written responses to questions for the record from Representative 

Nikema Williams .......................................................................................... 84 

(1) 

THE ANNUAL REPORT OF THE FINANCIAL 

STABILITY OVERSIGHT COUNCIL 

Tuesday, February 6, 2024 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The committee met, pursuant to notice, at 10:08 a.m., in room 

2128, Rayburn House Office Building, Hon. Patrick McHenry 

[chairman of the committee] presiding. 

Members present: Representatives McHenry, Lucas, Sessions, 

Posey, Luetkemeyer, Huizenga, Wagner, Barr, Williams of Texas, 

Hill, Loudermilk, Mooney, Davidson, Rose, Steil, Timmons, Norman, Meuser, Fitzgerald, Kim, Flood, Lawler, Nunn, De La Cruz, 

Houchin, Ogles; Waters, Velazquez, Sherman, Scott, Lynch, 

Cleaver, Himes, Foster, Beatty, Vargas, Gottheimer, Gonzalez, 

Casten, Pressley, Horsford, Tlaib, Torres, Garcia, Williams of Georgia, Nickel, and Pettersen. 

Chairman MCHENRY. 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 Report of the Financial 

Stability Oversight Council.’’ 

I will note at the outset that this hearing has a hard stop at 1:00 

p.m., and thank you, Secretary Yellen, for being here. 

I will now recognize myself for 4 minutes to give an opening 

statement. 

Thank you, Secretary Yellen, for being here today in your capacity as Chair of the Financial Stability Oversight Council (FSOC). 

FSOC’s purpose is straightforward: to identify risks that could impact our financial stability; to promote market discipline by eliminating expectations of bailouts; and to respond to emerging threats. 

FSOC’s name pretty much sums up its mission, and yet, under the 

current leadership, we have seen FSOC expand its regulatory reach 

to fit the Administration’s political priorities. That is unfortunate, 

and, unfortunately, FSOC appears to be a part of the same troubling trend as President Biden’s other financial regulators. 

When you are distracted by shiny partisan objects, you take your 

eye off the ball. For example, aside from a stale mention of interest 

rate risks in 2022 in the annual FSOC report of that year, the 

FSOC did nothing to identify the emerging instability that set off 

the March 2023 banking sector turbulence, and indicators produced 

by FSOC’s research arm, the Office of Financial Research (OFR), 

showed no signs of emerging risks even as the risk was indeed 
2 

emerging. Secretary Yellen, we remember the panic Americans experienced in March. I commend you for your willingness to engage 

in stabilizing the markets. I think your credibility lent a lot of effort to the Administration, and at that time, we worked together 

to quell concerns and provide a levelheaded response in an uncertain time. 

The goal was to do no harm and to regain stability without injecting politics, and I think we achieved that, a goal that President 

Biden clearly did not share when he took advantage of the situation to blame Republicans for what was a widely bipartisan regulatory reform law enacted a few years ago. In real time, many 

members of this committee stood behind regulators’ emerging actions with the expectation that we and the public would receive a 

full accounting of the decisions made that week. 

But now, nearly a year later, we do not still know the full story, 

as FSOC and other Administration officials have been less than 

transparent. To be clear, this does nothing to calm the nerves of 

an already-skittish consumer, and with issues still plaguing some 

regional banks, it is irresponsible for this Administration and your 

fellow regulators to continue to stonewall. 

While Republicans have worked to get the answers the American 

people deserve, FSOC has been busy making changes to enable it 

to serve as a roving regulator, something architects of the DoddFrank Act vigorously promised FSOC would not be. This includes 

relaxing the criteria used to designate nonbank financial companies 

as systemically important and putting them under Federal Reserve 

regulation. This proposal is based on the premise that our financial 

system would be best served with more oversight and control by 

the Federal Reserve, even beyond banks. 

It is important to note that the gross incompetence of Federal 

Reserve and FDIC supervision is what led to the bank failures in 

March. However, prudential regulation is grounded in mitigating 

the specific risk that bank activity poses. These regulations are not 

necessarily appropriate for institutions that may engage in different activities and, therefore, pose different risks. Given the significant consequences associated with the systemic risk designation, Congress did not intend for this designation to be politicized 

nor weaponized. This move, taken with the apparent failure to 

identify and respond to emerging risks, calls into question the effectiveness of the Financial Stability Oversight Council. 

Secretary Yellen, I would encourage you and your fellow Federal 

regulators to get back to the work with which you have been 

tasked. We have already experienced what happens when you take 

your eye off the ball and get engaged in politics. The American people should not have to suffer through that again. I yield back. 

I now recognize the ranking member, Ms. Waters, for 4 minutes. 

Ms. WATERS. Thank you, Mr. Chairman. Treasury Secretary 

Yellen and President’s Biden economic team have been hard at 

work to turn the tide on the disastrous economy that the twice-impeached, 4-times-criminally-indicted former President left us. The 

numbers show their hard work is paying off. In 2023, the unemployment rate remained below 4 percent, and the economy created 

a whopping 2.7 million new jobs, more than any year of the Trump 

Administration. Inflation has fallen to the pre-pandemic level of 2 
3 

percent over the last 6 months, 16 million small businesses have 

been created, and twice as many Black households now own a business. Workers’ wages and wealth are higher now than before the 

pandemic began, with income of nearly 4 percent last year after adjusting for inflation. To top it off, consumers’ confidence is returning to our nation’s economy, and they are shopping and traveling 

again. 

There is currently more work to do to address the housing affordability crisis, but the Biden Administration has masterfully guided 

the United States to the fastest economic rebound from the pandemic of any wealthy country in the world. Of course, this progress 

would not be possible if it were not for Secretary Yellen’s strong 

leadership and that of President Biden’s banking regulators, who 

decisively prevented harm to our financial system after the failures 

of Silicon Valley Bank, Signature Bank, and First Republic Bank. 

Make no mistake, the seeds of that banking crisis were planted by 

Mr. Trump and his bank regulators’ deregulation of regional banks. 

Less than a year later, it is a shame that Republicans have 

teamed up with Wall Street to spread misinformation and to try 

and block efforts to strengthen capital. At our nation’s biggest 

banks. Wall Street is peddling lies about what the needed capital 

reforms will do, going as far as taking out expensive TV and social 

media ads, and even setting up a website to purportedly educate 

the public, except it is filled with misleading claims. What they 

don’t want you to know is that the only people who benefit from 

lower capital requirements are the wealthy bank executives. Less 

capital means consumers are left more vulnerable, especially in a 

downturn, while bank executives take home bigger bonuses each 

year. 

Lower capital requirements also mean that taxpayers are more 

likely to be called on to bail these banks out when they run into 

trouble. Let’s be clear: Research overwhelmingly shows that wellcapitalized banks lend more than other banks in good times and in 

bad. I am sure the Secretary will set the record straight about how 

these capital reforms will ensure first-time homebuyers, small business owners, and communities of color looking to build wealth can 

better access credit, and prevent future bank crises. 

Finally, I want to applaud the Financial Stability Oversight 

Council for updating its designation procedures to ensure the 

Council can use all of its tools to protect our economy. I also applaud the Council for continuing the work Committee Democrats 

started by guarding us against risk from artificial intelligence (AI), 

cryptocurrencies, and climate change. I am so proud to see Secretary Yellen here today. Thank you for all that you have done in 

your leadership, and I look forward to today’s hearing. I yield back 

the balance of my time. 

Chairman MCHENRY. I will now recognize the Chair of our Financial Institutions and Monetary Policy Subcommittee, Mr. Barr, 

for 1 minute. 

Mr. BARR. Secretary Yellen, the three statutory purposes of the 

Financial Stability Oversight Council and the Dodd-Frank Act are 

to identify stability risks, promote market discipline by eliminating 

bailout expectations, and respond to emerging stability threats. 

Last March, FSOC did not identify a systemic risk as it emerged, 
4 

did not promote market discipline as 100 percent of large uninsured deposits were bailed out, and did nothing to respond to the 

emerging stability threat. Nothing would have been different if 

FSOC had never been created. 

FSOC has not fulfilled its statutory purposes. Instead, it is an 

unaccountable, roving regulator, ensnaring private firms into the 

regulatory net using new designation processes that remove analytical discipline. We are left with an FSOC used to pressure nominally-independent financial regulators into whatever policy objectives the Biden Administration wants to push into the regulatory 

framework without legislative authority. 

The current FSOC is poised to operate as a partisan body and 

a rogue regulator, which is not what is statutorily intended in 

Dodd-Frank, or maybe it was intended to act that way, and we 

don’t like it. We look forward to your testimony today. I yield back. 

Chairman MCHENRY. The gentleman yields back. We will now go 

to the ranking member of our Financial Institutions and Monetary 

Policy Subcommittee, Mr. Foster, for 1 minute. 

Mr. FOSTER. Thank you, Chairman McHenry. Secretary Yellen, 

thank you for joining us today and for your leadership of the Treasury Department. 

Since the Dodd-Frank Act created FSOC in 2010, it has been a 

vital forum for U.S. financial regulators to share information regarding systemic risks to our economy. FSOC’s comprehensive view 

of the financial system is critical because systemic risks rarely develop in ways that fall entirely within the jurisdiction of a single 

agency. 

This year also marks the first time that artificial intelligence (AI) 

has been listed as a vulnerability in FSOC’s annual report, and I 

am happy to have seen the steps that financial regulators have 

started to take to address AI-related risks since President Biden’s 

Executive Order on AI was issued last fall. While AI presents many 

opportunities to make our financial system stronger, deepfake impersonations have the potential to supercharge financial fraud and 

cybersecurity risk by making it harder to identify the real identity 

of the person on the other end of a call, a video, or an internet connection. 

The response to emerging issues like these should not take place 

in a silo, and I am happy to see FSOC recognize the importance 

of holistically addressing these and other emerging risks. Thank 

you, and I yield back. 

Chairman MCHENRY. The gentleman yields back. Today, we welcome the testimony of the Honorable Janet Yellen, Secretary of the 

Department of the Treasury. I will not go into her full bio, but suffice it to say she has held every significant economic post in our 

government. We welcome your testimony today, and thank you for 

being here. You will be recognized for 5 minutes. And without objection, your written statement will be made a part of the record. 

You are now recognized for 5 minutes. Thank you. 
5 

STATEMENT OF THE HONORABLE JANET L. YELLEN, SECRETARY, UNITED STATES DEPARTMENT OF THE TREASURY, 

AND CHAIR, FINANCIAL STABILITY OVERSIGHT COUNCIL 

(FSOC) 

Secretary YELLEN. Thank you. Chairman McHenry, Ranking 

Member Waters, and members of the committee, thank you for inviting me to testify. 

Over the past 3 years, the Biden Administration has driven an 

historic recovery. GDP growth is strong, and inflation has declined 

significantly. We have also achieved a healthy labor market. The 

prime age labor force participation rate is up by over 2 percentage 

points from January 2021. The unemployment rate remains below 

4 percent, continuing the longest streak in 50 years. Real wages 

have increased. Household median wealth has, too, by 37 percent 

between 2019 and 2022. That is the largest 3-year increase on 

record. Families are now putting their additional income and accumulated savings back into the economy. 

Our continued economic strength depends on a solid and resilient 

U.S. financial system. Throughout 2023, the Financial Stability 

Oversight Council monitored a wide range of risks, including risks 

stemming from the commercial and residential real estate sectors 

and from global geopolitical conflicts and technological developments. 

When two regional banks failed last March, we acted quickly to 

prevent contagion to banks with similar vulnerabilities and to 

maintain confidence in the banking system. The Council also increased transparency this year, issuing an analytic framework that, 

for the first time, provides the public with in-depth information on 

how it monitors, assesses, and responds to potential financial risks. 

Let me now highlight five areas of ongoing work that are further 

detailed in the Council’s 2023 annual report. First, the Council is 

focused on risks from the banking sector and from nonbank financial institutions. It supports member agencies’ plans to review 

whether capital measures appropriately reflect a banking institution’s ability to absorb losses, improve resolvability at large, complex, or interconnected banks, and address vulnerabilities from uninsured deposit levels and depositor composition. Nonbank institutions are an important source of capital in financial markets but 

also pose potential risk to the financial system, including risks related to liquidity mismatch and leverage. Securities and Exchange 

Commission initiatives focused on hedge funds, money market 

funds, and other investment funds are an important step forward 

here. 

Second, the Council is focused on member agencies’ enhancing 

assessment efforts and increasing coordination around climate-related financial stability risks from increasingly severe and frequent 

climate-related events. Financial regulators should also continue to 

promote disclosures that allow investors and financial institutions 

to consider these risks to their investment in lending decisions. 

Third, a key focus has been bolstering protections against cybersecurity risks. The Council promotes sharing timely and actionable 

cybersecurity information, including through ongoing partnerships 

between State and Federal agencies and the private sector. 
6 

Fourth, the Council is closely monitoring the increasing use of 

artificial intelligence in financial services, which brings potential 

benefits, such as reducing costs and improving efficiencies and potential risks, like cyber and model risk. Financial institutions, regulators, and market participants should continue deepening their 

expertise and monitoring capacity in this area. 

Fifth, the Council is focused on digital assets and related risks, 

such as from runs on crypto asset platforms and stablecoins, potential vulnerabilities from crypto asset price volatility, and the proliferation of platforms acting outside of or out of compliance with 

applicable laws and regulations. Applicable rules and regulation 

should be enforced, and Congress should pass legislation to provide 

for the regulation of stablecoins and of the spot market for crypto 

assets that are not securities. We look forward to continuing to engage with Congress on this. 

With this overview, I look forward to answering your questions 

on these and other areas. 

[The prepared statement of Secretary Yellen can be found on 

page 54 of the appendix.] 

Chairman MCHENRY. Thank you, Secretary Yellen. I will now 

recognize myself for 5 minutes for questions. 

Let’s begin with your last point on the regulation of the spot 

market for digital assets. This committee has produced two bipartisan bills—one on stablecoins, one on market structure—to regulate the spot market of digital assets and provide this clarity between the Commodity Futures Trading Commission (CFTC) and 

the SEC. You testified that FSOC’s view is that we need Federal 

law and law changes on the spot market. Can you tell us why? Can 

you describe why that is FSOC’s belief? 

Secretary YELLEN. There are many areas with respect to digital 

assets where we do have clear regulatory authority, but we have 

identified some gaps where, for consumer investor protection and 

to address financial stability risk, it would be very useful for Congress to take action to fill those gaps. The CFTC, for example, 

doesn’t have supervisory or regulatory authority with respect to 

spot markets in commodities like Bitcoin, so that is a regulatory 

gap. 

Furthermore, stablecoins pose risk to the financial system that 

both FSOC and the President’s Working Group on Financial Markets have identified as potentially becoming significant over time, 

and we would very much welcome an effort by Congress to create 

a regulatory framework that would be appropriate to address those 

risks. 

Chairman MCHENRY. Stablecoins are now being regulated by the 

States. New York has a very resilient regime. Are you suggesting 

something like the New York regime would be applicable to fix this 

problem? 

Secretary YELLEN. FSOC believes that it is critical for there to 

be a Federal regulatory floor that would apply to all States and 

that a Federal regulator should have the ability to decide if a 

stablecoin issuer should be barred from issuing such an asset. 

Chairman MCHENRY. Okay. 

Secretary YELLEN. Also, we believe that because wallets are a 

critical part of the stablecoin ecosystem, and we have seen many 
7 

instances in which there have been significant losses, that it is critical to enact regulatory protections for holders of wallets. 

Chairman MCHENRY. Back to the spot market, though, in your 

report, you state clearly that we need to change the law in order 

for us to have proper regulation of the digital asset spot market. 

Is that correct? 

Secretary YELLEN. Yes, that is a recommendation. 

Chairman MCHENRY. Okay. Let’s go to the broader set, not the 

emerging issues, but in November, FSOC issued its final guidance 

on nonbank designation. Are there firms that FSOC has identified 

that are being analyzed right now for designation? 

Secretary YELLEN. I don’t think it is appropriate for me to talk 

about individual firms. We have certainly not reached a stage at 

which the Council has taken any action or received recommendations with respect to designation. We did put out, as you know, revised guidance pertaining to nonbank designations, and we published an analytic framework, but we wanted to make sure that our 

entire toolkit that Congress gave to FSOC is usable. There are 

many tools in that toolkit, and the analytic framework recognizes 

that designation is only one of those tools. It is not in any sense 

the preferred tool. It really depends on the specifics of the financial 

stability risk. 

Chairman MCHENRY. What many of us have highlighted is the 

fact that that is such an opaque process that it leads to greater instability, and greater uncertainty in the marketplace. 

Let me finish with this: the overall economy. Fed Chair Powell 

was interviewed this past weekend on 60 Minutes, and he said that 

the American people have a right to be unhappy. The cost of food 

is dramatically up under your tenure as Treasury Secretary in this 

Administration. What do you say to the American people, who are 

unhappy with paying more for the basics of life? 

Secretary YELLEN. Households have been struggling through the 

pandemic with many burdens, including a higher cost of food and 

some increases in gas prices. We have had several years, a couple 

of years of high inflation, and it is a top priority of this Administration to bring inflation down and to use the tools we have to reduce 

the burdens on hardworking households. We have certainly used it 

with respect to healthcare costs, limiting insurance premiums for 

healthcare, and the copays for insulin. 

Chairman MCHENRY. My time has expired. Thank you for your 

testimony. I yield to the ranking member, Ms. Waters. 

Ms. WATERS. Thank you again, Mr. Chairman. Secretary Yellen, 

I again want to applaud your excellent work and that of the Federal Reserve and the FDIC to quickly act last spring to contain the 

damage from the sudden failures of Silicon Valley Bank in my 

State, Signature Bank, and First Republic Bank that could have 

spiraled out of control into a costly financial crisis, a recession and 

corresponding layoffs, foreclosures, and lost savings for millions of 

people. 

Of course, some of us warned about Trump’s deregulation efforts, 

and S. 2155, a Republican bill that Trump’s regulators used to reduce capital and other requirements for regional banks like SVB. 

In fact, it allowed Silicon Valley Bank to opt out of maintaining 

nearly 2 percent more capital for their book of securities that had 
8 

a large amount of unrealized losses when the Federal Government 

raised interest rates. When SVB was forced to sell those securities 

at a steep loss, it alarmed customers, resulting in the fastest bank 

run in United States history. 

Since then, Republicans have tried to claim that capital had 

nothing to do with the bank failures, but their own witness, Margaret Tahyar from Davis Polk, testified that SVB’s capital shortcoming was a problem, and she supported efforts to fix it. I am so 

happy our Federal banking regulators have issued proposals to fix 

this issue and otherwise strengthen capital requirements for the 

largest banks. The Financial Stability Oversight Council urged regulators to finalize these bank capital rules in its annual report. 

Would you briefly try and explain to Members why the bank capital proposal is so important for financial stability? 

Secretary YELLEN. It is really critically important to the safety 

and stability of our entire financial system for there to be strong 

standards of capital, liquidity, and risk management for banks, especially for the largest banks, and the banking regulators have proposed new rules to address these risks and to implement an international agreement on Basel III. I would say the proposals are out 

for comment, and it is really up to the banking regulators to decide 

on the appropriate specifics. 

Ms. WATERS. Thank you, Madam Secretary. Unfortunately, I 

want you to know that the megabanks are working overtime to try 

and kill the bank capital proposal, claiming, among other things, 

that it will limit their ability to make loans to communities of color 

that they already rarely serve and routinely have discriminated 

against over the years. Capital is not something that is locked 

away, but, rather, it is a source of funds that banks can redeploy. 

In fact, research shows that better-capitalized banks actually lend 

more, not less, to consumers in both good times and bad. 

Secretary Yellen, will lending come to a halt if regulators implement their capital proposal? Did you hear similar industry attacks 

when you were at the Fed helping implement the Dodd-Frank postcrisis reforms? 

Secretary YELLEN. I think what we found during that time was 

that implementing strong capital, liquidity, and risk management 

rules led to a stronger banking system that was better able to meet 

the needs of borrowers throughout the country, and I think we saw 

the benefit of that when the pandemic struck. While there were 

many financial stability risks that did materialize, the banking system was strong and able to meet the credit needs of the country’s 

businesses and households. 

Ms. WATERS. Secretary Yellen, do you recall the weekend that all 

of the regulators and so many people were involved in after the 

failure of Silicon Valley Bank, to try and save this country from experiencing a bank run that could have actually crippled our banking system? Do you recall the work that went into that, 24 hours 

a day for 3 days, so that when we woke up on Monday morning, 

we were safe rather than going back to what happened in 2008. Do 

you remember that? 

Secretary YELLEN. I will never forget it. I was involved in it, and 

we did everything we could to put together a package of measures 

that would stop what could have become a run on the banking sys-
9 

tem to the huge detriment of our economy and to hardworking 

Americans and businesses. 

Ms. WATERS. And, again, if there had been adequate capital at 

Silicon Valley Bank, we could have aborted what took place in the 

way that it did. 

Secretary YELLEN. There was an issue with their management of 

interest rate risk, which had produced mark-to-market losses on 

long-duration assets that they held, and that was coupled with very 

heavy reliance on uninsured deposits that were concentrated 

among a group of tech firms that were active on social media. We 

saw a run that was the largest and fastest of anything anyone has 

ever witnessed in this country. 

Ms. WATERS. Thank you very much. 

Chairman MCHENRY. The gentlewoman’s time—— 

Ms. WATERS. Do you support a 2-percent increase in capital for 

all of the biggest banks? 

Secretary YELLEN. I am going to let the banking regulators decide what the—— 

Chairman MCHENRY. The gentlelady’s time has expired. 

Ms. WATERS. Thank you. I yield back. 

Chairman MCHENRY. I will now go to the Vice Chair of the committee, Mr. Hill, for 5 minutes. 

Mr. HILL. Thank you, Mr. Chairman. Madam Secretary, it is nice 

to have you back here. We are grateful to have your expertise. The 

last time we were together, we talked about the subject that Chairman McHenry brought up, which is FSOC’s recommendations on 

stablecoins and the spot market, and I was very pleased to hear 

your testimony on that, reiterating that Congress does need to take 

action there, and I am proud to have worked with the Chair and 

my Democratic colleagues on bipartisan bills to do precisely that. 

With that said, Madam Secretary, as Chair of FSOC, what have 

you done to encourage the SEC and the CFTC to work together in 

these areas to make these bills stronger, and cooperate together to 

make our work here in Congress go more smoothly? Have you had 

a meeting with the Chairman of the SEC about stablecoins and the 

digital assets regulatory framework? 

Secretary YELLEN. The President’s Working Group on Financial 

Markets produced a report—— 

Mr. HILL. Yes, ma’am, we have read that report thoroughly. I am 

talking about in recent months, since June and July of last year. 

For example, when we marked up this bill in July, have you 

worked with Chairman Benham or Chairman Gensler on this legislation? Have you talked to them about it? 

Secretary YELLEN. I have talked to them often over the last couple of years about stablecoins, and I am not sure if I have talked 

with them over the last couple of months on this topic, but we have 

had many, many conversations. 

Mr. HILL. Another area where I think Chairman Gensler has 

stumbled is his proposal on custody, which the bank regulators, 

like the Comptroller of the Currency and the Federal Reserve, don’t 

support. Many of us on this committee are concerned about that. 

Do you support the SEC’s rule on custody as proposed? 
10 

Secretary YELLEN. We have had some concerns about how it 

would impact banks, and that is something I have discussed with 

the Chairman. 

Mr. HILL. Thank you, Madam Secretary. Let me turn to Consumer Financial Protection Bureau (CFPB) Director Chopra suggesting that FSOC use, for the first time ever, Title VIII authority 

to address payment clearing and settlement activities. For example, he has proposed considering designating certain nonbank payment platforms as systemically important. Do you support that? 

Secretary YELLEN. We have not taken a position on that. What 

I have said is that I think it is important for Congress to address 

this issue. We have made recommendations, and we think that is, 

by far, the preferred approach, and I have not looked into other alternatives. We stand ready to work on a bipartisan basis with you 

to take this on. 

Mr. HILL. Thank you. Would you agree with the Director that 

peer-to-peer (P2P) payment activity, or nonbank peer-to-peer payments, represent financial stability risks to the financial system 

overall—Zelle, Venmo, do you think peer-to-peer payment systems 

present a financial stability risk to the system? 

Secretary YELLEN. I don’t believe that is something that FSOC 

has highlighted, and I don’t—— 

Mr. HILL. I want you to reflect on that. I’d be happy to have your 

views in writing on that, but I think some FSOC members may not 

be viewing the designation of a nonbank activity as really a last 

resort, that we have regulatory systems and other rules to handle 

that, and I think this is a particular case. 

For example, do you think the Fed, having been the Chair there, 

has sufficient expertise, knowledge, and supervisory authority to 

deal with companies in different industries, like asset managers or 

cloud providers or big tech companies, if they were to be designated 

under that sort of an idea? 

Secretary YELLEN. I do want to make clear that there is nothing 

about FSOC’s approach that places designation as a preferred approach. There are many tools and only certain situations in which 

it would be appropriate. Congress designated in Dodd-Frank that 

if a company’s material distress poses severe threats to financial 

stability, the Fed should be the regulator. And I certainly remember from my time there when several insurance companies had designated that the Fed build substantial expertise to—— 

Mr. HILL. Thank you, Madam Secretary. I yield back. 

Secretary YELLEN. ——iron that out. 

Chairman MCHENRY. The gentleman yields back. We will now go 

to the gentleman from California, Mr. Sherman, for 5 minutes. 

Mr. SHERMAN. You play an important role on foreign policy. I 

hope, in dealing with the International Monetary Fund (IMF), you 

make it clear that our support for Pakistan’s request is focused on 

the fairness of their elections and on human rights and democracy 

in Pakistan in general. I hope you will do everything possible to 

make sure that any change at the IMF does not give Iran additional Special Drawing Rights (SDRs) or allow them to use their 

existing Special Drawing Rights to turn into currency that they can 

use. And finally, I hope that we see sanctions against the individual human rights watches identified with the Amhara regional 
11 

forces in Northern Ethiopia, and that you will focus on Eritrea’s 

terrorizing of the Tigray Region of Ethiopia. 

On taxation, I want to commend you on the Direct File Program, 

but you can go a step further. Senator Warren and I have focused 

on the 36 countries where they send you a pre-populated return, 

and you can just click, ‘‘yes,’’ or you can change it, and, of course, 

it is voluntary. You don’t have to look at it at all, and I look forward to the day when the vast majority of taxpayers can just click, 

‘‘yes,’’ or maybe add the name of a newborn child and be done with 

their tax return. 

On crypto, you were instructed by the Infrastructure Investment 

and Jobs Act to have the rules in force for the 2023 tax season. 

They are not in force, so you are behind on rules designed to enforce taxation on crypto transactions. 

But I want to focus your attention on the capital gains allowance. 

We provide, at very great cost to our Treasury, an incentive for investors to invest in stocks, chiefly real estate, because we want to 

build our economy, and there are arguments as to whether it is 

very effective or only slightly effective, but the reason for the capital gains allowance is to encourage investment that builds an 

economy. Can you think of a reason why we would, at a cost to the 

U.S. Government, incentivize people to invest in the Chinese economy? Why do we provide a capital gains allowance for investing in 

Chinese stock? Is there any reason you can think of? 

Secretary YELLEN. In general, we have made a decision that capital gains should be treated similarly and only taxed when they are 

realized, and—— 

Mr. SHERMAN. I am not talking about realization. You sell a Chinese stock at a profit. You pay a lower tax on that than your assistant pays on his or her earned income. Now, that is to encourage 

you to invest in the stock. Is there a national purpose in encouraging Americans to invest in Chinese equities that you are aware 

of, because I am not aware of any. 

Secretary YELLEN. In general, I think the view has been that 

both inward and outward investment are economically beneficial. 

There certainly can be cases—— 

Mr. SHERMAN. I want to move on to another issue. 

Secretary YELLEN. There can be cases—— 

Mr. SHERMAN. Encouraging the building of the Chinese economy 

is not thought by most Members of Congress to be a good use of 

Federal funds. 

On bank regulation, there is no easy answer. If our standards 

are too low, we could see the need for bailouts, as we did in 2008, 

which not only shakes the economy, it shakes the social fabric of 

our society. But if those standards are too high, we lose economic 

growth and we move money away from banks, which do an inadequate job of lending to small businesses in our districts, over to 

Wall Street, where they don’t even, for the most part, pretend to 

do the job of investing in small businesses in our districts. 

We have the possible designation of systemically important financial institutions (SIFIs). When I was here and we crafted that 

definition, the thinking was that some companies have such liabilities that if they go bankrupt, it would destroy the whole economy. 

Is there a reason why you are focused on identifying entities as 
12 

SIFIs that don’t have substantial liabilities, such as mutual funds 

and money managers? 

Secretary YELLEN. I’m sorry. We are certainly focused on the entire financial system. FSOC is not only focused on banks. 

Mr. SHERMAN. Right, but why would you designate an entity that 

doesn’t have substantial liabilities? 

Secretary YELLEN. We would only designate an entity if FSOC 

determined that its material distress would pose a severe threat to 

the financial stability of the United States. 

Mr. SHERMAN. Thank you very much. 

Mr. BARR. [presiding]. The gentleman from Oklahoma, Mr. 

Lucas, is recognized. 

Mr. LUCAS. Thank you, Mr. Chairman, and Secretary Yellen, 

thank you for testifying today. During our discussion when you 

were here last before the committee, the Basel Endgame proposal 

had not been officially proposed by the banking regulators, and 

since then, over the past 6 months, there has been a robust response to the overwhelmingly negative consequences of the proposal. I am concerned that the Basel Endgame will undermine 

many of the steps taken by Congress to strengthen the financial 

system and support the economy. 

One example I have focused on is the impact on derivative end 

users. Back in 2010, I sat on the Dodd-Frank conference committee 

where there was bipartisan support to not disadvantage end users 

like farmers, ranchers, and small businesses. This has a long history of broad bipartisan support. Unfortunately, both of the proposals from the Federal Reserve will drive up the cost of hedging 

for end users and undermine the longstanding work done by Congress and this committee, and this is just one example of how the 

Fed’s proposal moves us in the wrong direction. 

Secretary Yellen, at some point in the months ahead, the banking regulators will vote on a final rule. When we last discussed 

Basel Endgame, you said that Treasury would have the opportunity to provide feedback on this proposal. Given Treasury’s mission, which is to maintain a strong economy and promote economic 

growth, has Treasury provided feedback to the Fed, number one, 

and number two, are you confident that the proposal will not undermine the resilience of the U.S. capital markets that are so critical to the economy? 

Secretary YELLEN. I am not aware that Treasury has provided 

any formal feedback to the Fed on the Basel regulations. As you 

know, they have received many comments expressing concern 

about a number of different proposals that were embodied in the 

Basel III package, and I know that all of the banking agencies that 

publish are considering how to respond to those comments and concerns in trying to craft a final rule. 

Mr. LUCAS. Are you concerned that the proposal will undermine 

the resilience of the U.S. capital markets? 

Secretary YELLEN. I am not going to take a position on the details of the rule. I would just say, again, that I believe that there 

should be strong capital and liquidity standards to ensure that 

these institutions operate in a safe and sound manner, but it is up 

to the banking agencies to evaluate the specifics. 
13 

Mr. LUCAS. So, it is fair to say that whatever concerns might be 

at Treasury don’t rise to the point of providing feedback. Okay. Another aspect of the Basel Endgame is the impact on the U.S. Treasury market. Consumers, businesses, governments, and the global 

financial system depend on a well-functioning U.S. Treasury market, and of course, a healthy market for U.S. Treasuries is essential 

for U.S. Government operations. However, the proposal from the 

Fed could cause banks to pull back from the market-making activities in the Treasury’s futures markets, which would raise costs for 

market participants. At the same time, just this past December, 

the Securities and Exchange Commission (SEC) finalized a rule 

that would increase central clearing for Treasury markets along 

with other reforms. So, you have the increased cost coming from 

the Federal Reserve, and you have the significant market structure 

reforms coming from the Securities and Exchange Commission, all 

impacting the U.S. Treasury market at the same time. I just worry 

that this could create a huge problem. 

Secretary Yellen, how have you engaged the SEC and the Fed to 

evaluate the cumulative impact of the proposals, and how can we 

be sure that there will be no significant market disruptions? ‘‘Turbulence’’ may be a better word for it. 

Secretary YELLEN. We have formed an interagency working 

group that includes all of those agencies and Treasury and the New 

York Fed to focus on the resilience and operation of the Treasury 

market. It is critically important to us that the Treasury market 

is well-functioning, deeply liquid, and can enable the dollar to be 

the most secure asset of any in the world, and they are looking at 

specifics, including improved disclosure. They have taken the view 

that increased central clearing can make the Treasury market 

more resilient, and they are considering many factors. 

Mr. BARR. The gentleman’s time has expired. 

Mr. LUCAS. My time has expired but not my concerns. 

Mr. BARR. Thank you. The gentleman from Georgia, Mr. Scott, 

is recognized. 

Mr. SCOTT. Secretary Yellen, in its 2023 annual report, FSOC 

identified several market vulnerabilities related to commercial real 

estate lending. FSOC specifically identified significant concentrations in the commercial real estate for many of our regional and 

community banks as a risk to our entire banking system, which 

means our entire economy, and I want to ask you your thoughts 

on that. 

And you went a little bit further in that report: ‘‘The 

vulnerabilities to the regional and community banks are negative 

trends in the office market and an erosion in high multifamily 

property values.’’ Now, Secretary Yellen, we are talking about the 

backbone. These communities and regional banks are the backbone 

of our banking system for most of the American people. 

So my question to you is, given that the commercial real estate 

loans are the largest loan category for half of U.S. banks, and that 

one-quarter have commercial real estate loan portfolios that are 

significantly larger relative to their capital reserves, Secretary 

Yellen, should we not be concerned that a spillover effect could lead 

to banks lending less to other very important sectors of the economy, like our American people? 
14 

Secretary YELLEN. Thank you for that question. Commercial real 

estate is an area that FSOC focused on in its annual report, and 

it is something that the Financial Stability Oversight Council addresses in its meetings on a regular basis because, as you mentioned, many, especially smaller and regional banks, have concentrations of commercial real estate lending. I think office properties in some cities are of special concern because vacancy rates 

have increased, and there have been declines in property value. 

Mr. SCOTT. Yes, and my time is slipping by, but I have to ask 

your opinion on something that is very, very important to me, and 

that is the implementation of this Basel III Endgame proposal. As 

you know, the largest banks would be required to hold more capital 

for their actual risk taking, and I remain deeply concerned that 

this will further diminish the credit capacities and weaken the economic conditions of our American people. Tell me your thoughts on 

this Basel Endgame business? 

Secretary YELLEN. The banking agencies, I know, have received 

many comments that have expressed this concern, and the heads 

of those agencies, the financial regulators, have expressed a commitment—— 

Mr. SCOTT. I have such respect for you and your economic genius 

and prowess in the financial system, and I think the majority of 

our committee is very much against it. How do you feel about it? 

Are you with us on this? This will be terrible for our economy. 

Secretary YELLEN. I think it is important to ensure that credit 

availability is not significantly diminished, and—— 

Mr. SCOTT. But do you support this Endgame business with 

Basel? 

Secretary YELLEN. I do believe it is important to have a strong 

banking system with adequate—— 

Mr. SCOTT. I really wanted a, ‘‘yes’’ or, ‘‘no.’’ 

Secretary YELLEN. ——capital. 

Mr. BARR. The gentleman’s time has expired. The gentleman 

from Texas, Mr. Sessions, is now recognized. 

Mr. SESSIONS. Mr. Chairman, thank you very much. Madam Secretary, welcome back. You are here today to discuss this annual report of 2023 from FSOC, and I want to refer to, if you have someone there giving you notes, page 10 of the report. But I’d like to 

start with, on February 16, 2022, then-Chairman of the Budget 

Committee, John Yarmuth, said in a well-understood statement, 

‘‘Congress need not worry about rising borrowing costs because we 

can print all the money we need.’’ The national debt at that time 

was $30 trillion, it is now $34 trillion, and the national debt will 

triple, just a projection, from $475 billion in 2022 to $1.4 trillion 

in 2032. 

At what point does this become a problem? I say this because 

your own report says on page 10, ‘‘Higher interest rates and slowing economic growth—they correspond to each other—have increased nonfinancial corporate credit risk. If credit quality significantly worsens, a potential wave of debt defaults could lead us to 

large redemptions at investment funds with significant liquidity 

mismatches and, in turn, disrupt bond market functions. Moreover, 

such defaults may have a cascading effect across broader financial 

markets.’’ 
15 

Madam Secretary, tell me about what Chairman John Yarmuth, 

a Democrat from Kentucky, said, and tell me your viewpoint. 

Secretary YELLEN. Well, let me make sure. Your question was 

about the Federal debt, was it not? 

Mr. SESSIONS. Of course, it is. That’s what John Yarmuth was 

talking about. 

Secretary YELLEN. Yes. 

Mr. SESSIONS. The Chairman of the Budget Committee. 

Secretary YELLEN. I think it is critically important that the U.S. 

be on a fiscally-sustainable path, and President Biden has put forward a series of budget proposals, most recently—— 

Mr. SESSIONS. Spending proposals. 

Secretary YELLEN. No, and also tax proposals and investment 

proposals that would, I believe, guarantee that we are on a fiscallysustainable path. 

Mr. SESSIONS. Does that mean ever attempting to balance any 

one particular year over the next 50 years? 

Secretary YELLEN. I don’t think the budget needs to be balanced 

to be on a fiscally—— 

Mr. SESSIONS. This is what I wanted to get at. Your tendency is 

to say, as Mr. Yarmuth did, that Congress need not worry about 

rising borrowing costs. As you know, Treasury and the Fed are 

going to have to go to the marketplace and pay an extra large 

amount of money because of the risk that our debt now poses to 

the United States. And they are paying record amounts for Treasury, which takes money that is in banks, local banks, out of local 

banks that provide small business loans, housing loans, that provide agricultural loans, that do all of these things. It is moving, 

shifting the marketplace literally $10 trillion from where it had 

been in stability now to the Fed. 

Secretary YELLEN. I believe that—— 

Mr. SESSIONS. And we are paying for that. 

Secretary YELLEN. I agree with you that we need to be on a fiscally-sustainable path, and it is critical to reduce deficits in order 

to ensure that is the case. And that is why President Biden’s budget for 2024 proposed an additional $2.5 trillion of deficit reduction, 

coupled with investments in our economy, that are critical to ensure that we grow and collect tax revenues that are—— 

Mr. SESSIONS. Thank you, Madam Secretary. I would tell you 

that putting 10 million new illegal people in this country, and living in Central Texas, seeing the Federal Government let all these 

people in, give them free ticket rides, cellphones, go to the city of 

their choice, live in housing to knock children out of their own 

school, protect them at Chicago International Airport, doing all 

these things is not wise management of our resources. Madam Secretary, I want to thank you for being here. And Mr. Chairman, I 

yield back. 

Mr. BARR. I thank the gentleman, and the gentlewoman from 

New York, Ms. Velazquez, is now recognized. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. Secretary Yellen, 

welcome to the committee, and thank you for being here. I just 

want to say that I have great respect for my friend and colleague, 

Mr. Scott, but he does not speak for all members on this side of 

the aisle on the Basel III proposal. I, for one, support stronger cap-
16 

ital requirements at our largest institutions, and I want the record 

to reflect that. 

Ms. WATERS. Thank you. 

Ms. VELAZQUEZ. Ms. Yellen, the FSOC’s annual report identifies 

property insurance, which is becoming prohibitively expensive or 

inaccessible for homeowners and developers, as an increasing risk 

to financial stability. This is becoming a more pervasive issue in 

my community, particularly when it comes to affordable housing. 

How is FIO working with the National Association of Insurance 

Commissioners (NAIC) insurance carriers and State regulators to 

analyze this increasingly-important issue? 

Secretary YELLEN. Thank you for that question. We are very focused on rising insurance costs in particular areas of the country 

and the risks that it poses to homeowners, to banks, and to financial stability. FIO has been working to improve our understanding 

of the ways in which climate change is impacting the availability 

and cost of insurance coverage, and in early January, the Office of 

Management and Budget (OMB) approved a data collection effort 

by FIO that would be at the ZIP Code level to collect granular data 

to evaluate what is happening to insurance premiums and availability across the country. FIO looks to work with the NAIC, which 

is engaging in a similar effort to reduce the burden associated with 

this data collection, and that collaboration is ongoing. 

Ms. VELAZQUEZ. And how is FIO working to ensure that it is not 

duplicating efforts already conducted by the NAIC or State regulators? 

Secretary YELLEN. There is a collaboration. The focus and need 

for data is slightly different for NAIC and FIO, but I think there 

is a good chance that they will be able to collaborate and go out 

with a single collection in order to collaborate and reduce burdens 

on insurance companies. 

Ms. VELAZQUEZ. And has the Council or FIO had any conversations with HUD on how these insurance premiums are impacting 

the operation of its affordable housing programs? 

Secretary YELLEN. I believe that FIO and the Council have had 

discussions. I know they have had discussions with other agencies. 

I am not positive. I assume HUD would be in them, but I’d have 

to verify that. 

Ms. VELAZQUEZ. I will encourage your Department to really talk 

to HUD because we cannot address the affordability crisis that we 

have in housing in this nation without tackling the issue of the cost 

of insurance in our country. 

Secretary YELLEN. Absolutely. 

Ms. VELAZQUEZ. Last February, the Treasury Department published a White Paper that identified several challenges in the financial services sectors’ growing reliance on third-party cloud service providers. In response, an executive steering committee was 

launched by FSOC. How has the executive steering committee 

worked with the big three service providers and the member agencies to reduce identified challenges? 

Secretary YELLEN. The executive steering group has been very 

active on this issue. They have formed, I believe, nine different 

public-private workstreams. Each one is looking at a specific gap 

that was identified in the report that was issued last February, and 
17 

they are trying to understand, also, what authorities the existing 

regulatory agencies have and how they have been using them, and 

they will release recommendations later this year. 

Ms. VELAZQUEZ. Thank you. 

Mr. BARR. The gentlelady’s time has expired. The gentleman 

from Missouri, Mr. Luetkemeyer, who is also the Chair of our Subcommittee on National Security, is now recognized. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. Welcome, Secretary Yellen. It’s good to see you today. As Vice Chair of the 

House Small Business Committee, it is disappointing that you still, 

almost 3 years from your statutory requirement to show up at a 

Small Business Committee hearing and give a report on the Paycheck Protection Program (PPP), have not done that. It is kind of 

amazing that you and your Administration continue to pick and 

choose which laws you want to obey, and which ones you want to 

ignore, so I’m very disappointed. 

My first question, though, deals with the World Bank. I had a 

conversation last week with the president of the World Bank, and 

he was talking about the need to increase capital. Unfortunately, 

that same board continues to give China preferential treatment 

and allows the world’s second-largest economy to be considered a 

developing nation. My question to you is, will you commit to making a capital increase conditional on graduating China from World 

Bank assistance and not allowing Beijing’s voting power, increasing 

the voting power, at the institution? 

Secretary YELLEN. Let me first say we are not looking for a capital increase at this time for the World Bank. We do believe—— 

Mr. LUETKEMEYER. I am not saying you did. They are looking to 

do that, so my comment is, let’s not do that unless you can get 

China, who wants to also increase their share, in a corner and not 

allow them to continue to be a country that gets assistance from 

the World Bank when they have the second-largest economy in the 

world, and then allow them to increase their voting. 

Secretary YELLEN. Let me say we are strongly opposed to the 

World Bank lending to China. We have pushed the World Bank 

and other MDBs to reduce and eliminate their lending volume to 

China. 

Mr. LUETKEMEYER. Okay. Well, my comment is we have to work 

harder. We have to make sure they don’t have access to that Bank. 

It is very important. 

You made a comment a minute ago that I really appreciate from 

the standpoint of the concern I have with AI. It is a wonderful 

technology, hopefully it can do wonderful things, but it can also be 

used for some bad stuff. As we saw with Silicon Valley Bank, social 

media, and the 24-hour news cycle, suddenly, within 10 hours, had 

$42 billion run out of the bank as a result of a tweet and social 

media following that around. AI could do the very same thing, and 

I am concerned about that and have some bills to address that. I 

haven’t gotten a hearing on them yet, but hopefully that will happen soon. 

Along those lines, though, you talked about FSOC’s role in these 

three banks and how you were able to help resolve the situation. 

My question to you is, what has FSOC done to fix the situation 

with these banks that are upside down with their interest rates? 
18 

Their business models are off. They should be regulated differently. 

They should be forced to change how they are operating. Are you 

doing that? 

Secretary YELLEN. The responsibility for supervision of these 

banks and regulation rests with the banking agency. 

Mr. LUETKEMEYER. I agree with that, Madam Secretary. The 

problem is you, as the Chair overseeing the Comptroller, also have 

the ability to go in and change these business models. Are you 

doing that with the national banks that you oversee? 

Secretary YELLEN. The Office of the Comptroller of the Currency 

(OCC) is an independent agency within Treasury. The FSOC is trying to understand and discusses the extent to which—— 

Mr. LUETKEMEYER. Madam Secretary, FSOC has a tremendous 

amount of control over this. They can dictate how these things are 

done—— 

Secretary YELLEN. That is not—— 

Mr. LUETKEMEYER. ——how regulatory attitudes are toward situations. My question is, are you taking an active role in trying to 

get the banking models that are upside down and beyond the 

norm—are you getting them back in order? 

Secretary YELLEN. I would say that the supervision of interest 

rate risk and liquidity risk is a responsibility of the banking agencies, and—— 

Mr. LUETKEMEYER. I agree, but you oversee the banking agencies. 

Secretary YELLEN. We do not—— 

Mr. LUETKEMEYER. I am hoping that you have some directions to 

those agencies to—— 

Secretary YELLEN. We do not oversee the agencies. We identify 

risks and sometimes make recommendations to agencies about actions that they should take. 

Mr. LUETKEMEYER. With all due respect, that is—— 

Secretary YELLEN. And they do have frameworks for managing 

liquidity—— 

Mr. LUETKEMEYER. Okay. I have one more—— 

Secretary YELLEN. ——capital interest rate risk, and—— 

Mr. LUETKEMEYER. ——question to ask you here very quickly. 

Last week, Chair McHenry, Mr. Jordan, Mr. Huizenga, and I sent 

a letter to Financial Crimes Enforcement Network (FinCEN) Director Gacki highlighting how FinCEN, an agency created to promote 

our national security, was using its authorities to target law-abiding citizens with countervailing political views. These allegations 

are reminiscent of the Obama Administration’s Operation Choke 

Point that I spent years investigating as the Chair of our Financial 

Institutions Subcommittee. I am just very concerned about that. 

We are going to have Director Gacki here very soon, and we are 

going to ask her about her involvement with you and your response 

to that. 

Mr. BARR. The gentleman’s time has expired. The Secretary is directed to respond to that question in writing, if she could. 

Secretary YELLEN. Yes, I will. 

Mr. BARR. Thank you. 

Mr. BARR. The gentleman from Missouri, Mr. Cleaver, is now recognized. 
19 

Mr. CLEAVER. Thank you, Mr. Chairman. Madam Secretary, 

thank you for being here today. I want to follow up on my friend 

and colleague, Mr. Scott’s, earlier question. I think he started out 

in this direction, and then was running out of time and went in another direction. 

In my community, in Kansas City, Missouri, there is a great deal 

of concern, and I would imagine around the whole country, that 

even though the pandemic is not taking all of the lives that it was 

taking a couple of years ago, its impact is still here, particularly 

on the economic level. I think of that Trepp Company analysis of 

commercial real estate, and they issued a frightening report that 

there is about $448 billion worth of loans that matured last year, 

$270 billion of which were from banks, and we have some people 

breaking leases, and we have others trying to renegotiate leases. 

In my estimation, we have a problem with our commercial real 

estate, and I think that is where Mr. Scott was going, that it could 

impact other components of the economy. Do you have a concern 

about where commercial real estate is and may continue to go? 

Secretary YELLEN. Yes, I do have a concern about commercial 

real estate. We discuss it in the FSOC annual report, and FSOC 

has been quite focused on it. The banking supervisors have also 

been focused on commercial real estate and are working closely 

with the banks they supervise to discuss ways to manage and work 

with borrowers who have problems. They are, in some cases, working to make sure that loan loss reserves are built up to cover 

losses, that dividend policies are appropriate, and that liquidity is 

adequate. The higher interest rate environment and, in some cases, 

particularly in the case of office buildings, shifts in work patterns 

due to the pandemic, coupled with many commercial real estate 

loans coming due and needing to be refinanced in a context where 

vacancy rates in some cities are quite high, is going to put a lot 

of stress on the owners of these properties. And the banking agencies are very focused on helping the banks manage these situations. 

Mr. CLEAVER. So, you are concerned but not distressed? 

Secretary YELLEN. Yes, I am concerned. I believe it is manageable, although there may be some institutions that are quite 

stressed by this problem. 

Mr. CLEAVER. Thank you. Madam Secretary, are you familiar 

with Larry Kudlow, the former Director of the National Economic 

Council? 

Secretary YELLEN. Sure. 

Mr. CLEAVER. Three days ago, he conceded that his prediction of 

a recession was wrong and admitted that the U.S. economy is doing 

much better than expected under President Joe Biden, and he said 

that on Fox News. He offered a mea culpa because if you look at 

some of his comments previous to that, everything was horrible. Do 

you agree with Mr. Kudlow that the U.S. economy is headed in the 

right direction? 

Secretary YELLEN. I absolutely believe it is headed in the right 

direction. Our growth is extremely strong. The labor market is at 

least as strong as it was prior to the pandemic. It has been 50 

years since we have had a string of unemployment rates this long, 
20 

under 4 percent, and job creation remains utterly robust. More people are participating in the labor market—— 

Mr. BARR. The gentleman’s time has expired. 

Secretary YELLEN. And inflation is way down. 

Mr. BARR. The gentleman’s time has expired. The gentleman 

from Michigan, Mr. Huizenga, who is also the Chair of our Oversight and Investigations Subcommittee, is now recognized. 

Mr. HUIZENGA. Thank you, Mr. Chairman, and I will just note 

to my friend from Missouri that when the government is throwing 

that much money into the economy, yes, it has been propped up. 

I will also note it is so strong that the Federal Reserve cannot 

lower interest rates with unexpected job growth in those areas, so 

we are seeing inflation continue. 

Secretary Yellen, I want to very briefly touch on this—I think I 

wrote down a quote of yours, that you are not going to take a position on the details of the rule. I am talking about Basel III. Mr. 

Lucas responded, ‘‘So any concerns don’t rise to the level of feedback.’’ Mr. Scott brought it up. A number of us have brought it up, 

on both sides of the aisle. So who are you giving your thoughts to 

on Basel III, because clearly, with your background—Federal Reserve, FSOC, Treasury—you must have thoughts about Basel III. 

You are not willing to share them with us, but who are you sharing 

those thoughts with? 

Secretary YELLEN. I meet on a regular basis with all of the heads 

of supervisory agencies, including the OCC, the FDIC—— 

Mr. HUIZENGA. Okay. And the President, I would assume, too? 

You are sharing that with the President, your thoughts? 

Secretary YELLEN. I haven’t had a meeting with the President on 

this specific topic. 

Mr. HUIZENGA. Then, I am left to assume that we are just to be 

left in the dark until things get sorted out, correct? 

Secretary YELLEN. They have put out a notice of proposed rulemaking. They are evaluating—— 

Mr. HUIZENGA. I know that, but you have had a number of people on both sides of the aisle asking your opinion, your learned, 

educated, experienced opinion about it, and you have refused to 

offer any of those insights to us. So, I can’t come to any conclusion 

other than you are sharing those insights with others, but you are 

not willing to share them with Congress, which is your choice. I 

think it is a bad choice, but that is your choice. 

I want to very quickly take you down a path, and I am trying 

to be an equal opportunity questioner on this because I just asked 

Secretary Fudge this not that long ago. With the disaster at the 

FDIC under Marty Gruenberg’s leadership and the culture—I am 

sure you saw the article that all of us saw in November regarding 

the unacceptable behaviors that have been happening there—I am 

concerned how it might impact their mission and, most importantly, how it can potentially spill over into the safety and soundness of our financial system. Following those revelations at the 

FDIC, did you take any steps at Treasury to make sure that Treasury isn’t suffering from some of that same culture. 

Secretary YELLEN. We have a rigorous process for reporting an 

investigation of—— 
21 

Mr. HUIZENGA. Okay. Nothing new necessarily, and I am not trying to be accusatory. I am not saying that there is a culture problem under your leadership. I am just curious if that prompted you 

to respond, and since the FDIC is part of FSOC as well, there are 

multiple times that you would have interacted. 

Secretary YELLEN. I am not aware of any such allegations at 

Treasury. 

Mr. HUIZENGA. Okay. I am not either. That is not what I am saying. I just wanted to be clear. I am asking everybody, when they 

saw the culture problems at the FDIC, did that prompt anybody to 

change behavior or double down on making sure that whistleblowers are protected and those kinds of things. 

Secretary YELLEN. We certainly believe in whistleblower protections and having in place systems that guard against the kind of 

thing that is alleged. 

Mr. HUIZENGA. Good. I will accept that answer. I have a minuteand-a-half left here and I want to shift topics to the CFRAC Committee that was established almost a year-and-a-half ago, the Climate-related Financial Risk Advisory Committee under FSOC. It 

looks like, according to the website, they have met twice: March 

7th of 2023 and July 18th. Your report devotes a lot of time to the 

potential impacts of climate change. In fact, you say that is one of 

the things the Council is focused on: Member agencies enhancing 

assessment efforts and increasing coordination around climate-related financial stability risks. That is in your written testimony. 

Has there been a problem? Has there been a lack of cooperation or 

coordination? 

Secretary YELLEN. No, I think CFRAC is—— 

Mr. HUIZENGA. Then, why are you having to enhance those assessment efforts? 

Secretary YELLEN. All of the agencies are increasingly focused on 

understanding the risks relating to climate change. 

Mr. HUIZENGA. Okay. 

Secretary YELLEN. And it is appropriate for them to work together to exchange information. 

Mr. HUIZENGA. Okay. In my closing seconds here, are there any 

CFRAC meetings that have not been listed on the website? 

Secretary YELLEN. Not to the best of my knowledge. 

Mr. HUIZENGA. Could you check on that and please get back to 

me? 

Secretary YELLEN. Certainly. 

Mr. HUIZENGA. And I guess I will finish with this. I am sure you 

are aware that the SEC has been working on their climate rule for 

2 years. Do they consult or do they just jam the rest of FSOC like 

they have been jamming those whom they are trying to regulate? 

Mr. BARR. The gentleman’s time has expired. 

Secretary YELLEN. The SEC’s rule, I am supportive of their requiring disclosure on—— 

Mr. BARR. Any additional comments can be submitted for the 

record. 

Mr. HUIZENGA. Thank you, Mr. Chairman. 

Mr. BARR. Thank you. 

The gentlewoman from Ohio, Mrs. Beatty, is now recognized. 
22 

Mrs. BEATTY. Thank you, Mr. Chairman, and Ranking Member 

Waters. Secretary Yellen, thank you so much for being here today 

testifying, and, also, I want to take this moment to thank you for 

clearly outlining for us risk factors, but then identifying the five 

areas that you are working on with the risk factors and for being 

very transparent about that, and also for the work that you do to 

keep our financial system safe and secure. 

I would like to start with climate-related financial risk. The 

FSOC report identifies climate change as an emerging and rising 

threat to the United States’ financial stability. I, too, am concerned 

about this threat, especially considering the fact that low-income 

and minority households are more likely to face greater climate 

risk. Can you explain why these communities are at greater risk 

and how failing to address climate risk can exacerbate certain disparities that are already at risk, such as housing values and the 

costs associated with homeownership in some communities? 

Secretary YELLEN. I believe there is a large body of research 

which shows that low-income communities are more exposed to 

some of the physical impacts of climate change and that they may 

be less able to afford protections, whether it is for their home or 

insurance, that are necessary to guard against it, so it is a severe 

risk to low-income communities. 

Mrs. BEATTY. Thank you. Let me turn now to FSOC’s guidance 

on the designation of nonbanks as systemically important. First of 

all, let me thank you for your leadership in issuing this guidance. 

As we see increasingly large roles that nonbanks are playing in the 

financial system, it is clear that any strategy to protect financial 

stability must also cover nonbanks. Nevertheless, there have been 

some concerns about due process for nonbanks that are designated 

as systemically important. FSOC’s guidance emphasizes that the 

nonbank designation process will entail engagement with both the 

company and its current financial regulator, if it has one. 

Can you describe what other due process protections exist for the 

company, for example, the ability to request a hearing, meetings 

with FSOC staff, or the need for a two-thirds vote for destination 

in annual FSOC reevaluations? 

Secretary YELLEN. I think you just listed the protections the company would be provided with, with a great deal of information from 

FSOC. If it completed stage one and entered stage two, it would 

have the opportunity to provide any information that it thought 

was eligible, the right to a hearing, and, as you said, designation 

requires a two-thirds vote, including the vote of the Chair. 

Mrs. BEATTY. And lastly, when I was the Chair of our Diversity 

and Inclusion (DEI) Subcommittee, and you would come before the 

subcommittee—I think it is important, again, for me to thank 

you—you always had some of the highest numbers, or you admitted 

what you were doing and working on it. 

Secretary YELLEN. Thank you. 

Mrs. BEATTY. In light of all that is happening across this country, including in financial institutions, I am concerned about the effect that DEI rollbacks at financial institutions will have on our financial stability and on access to financial services in low-income 

or marginalized communities. I don’t know if you have any com-
23 

ments or are you concerned when we are still struggling in America to make it look like America? 

Secretary YELLEN. Certainly. Let me say the Biden Administration, Treasury, and other agencies I am aware of, we have a robust 

and committed agenda to promote diversity in all of the work we 

do, not only in terms of our hiring, but in terms of all of the programs. For example, at Treasury, we have undertaken research 

that you are probably well aware of which shows that low-income 

individuals, African Americans, are disadvantaged by the way the 

earned income tax credit has been. So, we are trying root out—— 

Mr. BARR. The gentlelady’s time has expired. 

Mrs. BEATTY. Thank you, Mr. Chairman. 

Thank you, Secretary Yellen. 

Mr. BARR. The gentlelady from Missouri, Mrs. Wagner, who is 

also the Chair of our Subcommittee on Capital Markets, is now recognized. 

Mrs. WAGNER. Thank you, Mr. Chairman. Secretary Yellen, as 

Treasury Secretary, you championed requirements that any deposit 

flows into Americans’ bank accounts totaling as little as $600 are 

to be reported to the IRS. Increasingly, we are hearing that the 

Federal Government is suggesting that banks search private financial transactions using highly-partisan political terms, or check to 

see if customers made purchases that could be associated with 

legal sales of firearms or even religious texts. My question is this: 

Has Treasury, including FinCEN or Federal banking agencies like 

the Fed, the FDIC, or the OCC, instructed financial institutions to 

search Americans’ legal transactions in attempts to surveil their 

purchases? 

Secretary YELLEN. We received a letter from you, I believe, on 

this topic, and we intend to investigate fully and to respond. 

Mrs. WAGNER. Have you instructed banks, financial institutions, 

to provide this information? 

Secretary YELLEN. FinCEN’s job is to work with financial institutions to make sure they instruct—— 

Mrs. WAGNER. Are they instructing, ma’am, financial institutions 

to search Americans’ legal transactions in attempts to surveil their 

purchases? 

Secretary YELLEN. I promise a thorough look into everything that 

has occurred—— 

Mrs. WAGNER. Well, this is really concerning, and I would hope 

that you get to it just as quickly as possible, Secretary Yellen, I am 

going to give this a shot, too, since we all have, on both sides of 

the aisle. The Financial Stability Oversight Council, which you 

chair, Madam Secretary, you chair FSOC—— 

Secretary YELLEN. I am aware of that. 

Mrs. WAGNER. In 2023, FSOC put out their annual report plainly 

stating that, ‘‘The U.S. banking system remains resilient overall,’’ 

and, ‘‘U.S. banks continue to have sound levels of regulatory capital.’’ Do you still stand by these statements, ma’am? 

Secretary YELLEN. As an overall statement, I do. 

Mrs. WAGNER. Then, what is the need for the proposed massive 

increases in regulatory capital requirements from the Fed, the 

FDIC, and the OCC? 
24 

Secretary YELLEN. They have proposed regulations to enhance 

the safety and soundness of—— 

Mrs. WAGNER. But you just said that the safety and soundness 

is there. It is resilient. They are well-capitalized. It is clear, and 

as a Chair, your report. 

Secretary YELLEN. There are risks that their guidance suggests 

could be handled better than it has been. 

Mrs. WAGNER. Okay. Let me move on. Secretary Yellen, in a 

2019 letter to Secretary Mnuchin, and in 2021 testimony to the 

Senate Banking Committee, you said that, ‘‘Activities-based regulation is the appropriate approach for asset management.’’ Given the 

FSOC’s recent guidance regarding the designation of nonbank financial institutions as systemically important, do you still stand by 

those public statements? 

Secretary YELLEN. I am not sure that I made such a sweeping 

statement as you read. 

Mrs. WAGNER. I have it right here. It is a letter. I would like to 

submit it for the record, please. This is your letter with those 

words, ma’am. 

Mr. BARR. Without objection, it is so ordered. 

Mrs. WAGNER. So, I would tell you to go back to your 2019 letter, 

and then again to your Senate Banking testimony in 2020. 

Secretary YELLEN. 2019, did you say? 

Mrs. WAGNER. In 2019, in a letter to Secretary Mnuchin, and in 

2021, in your testimony to the Senate Banking Committee, you 

said, ‘‘Activities-based regulation is the appropriate approach for 

asset management.’’ I want to know why FSOC is saying that designations of nonbank financial institutions are systemically important. Clearly, others don’t think so. What do you believe FSOC did 

wrong that led to the courts vacating the MetLife designation in 

2016, ma’am? 

Secretary YELLEN. Look, there is no preferred approach to how 

to handle a financial stability risk that has been identified. In some 

cases, and perhaps this is what I was referring to, if that is an accurate quote, we—— 

Mrs. WAGNER. It is. 

Secretary YELLEN. ——are, for example, concerned about risks 

associated with money market funds. We have been—— 

Mrs. WAGNER. Are you doing a cost-benefit analysis, anything? 

Secretary YELLEN. Excuse me. We have been concerned about 

the pressures on open-end bond funds that can be forced to sell 

less-liquid assets. These are industry-wide practices that are—— 

Mrs. WAGNER. A court has already vacated you once, ma’am. 

Secretary YELLEN. ——addressed with an activity-based approach. 

Mrs. WAGNER. Mr. Chairman, I yield back. 

Secretary YELLEN. The SEC—— 

Mr. BARR. The Secretary may respond in writing with the remainder of the answer. 

The gentlelady’s time has expired. The gentleman from Massachusetts, Mr. Lynch, is now recognized. 

Mr. LYNCH. Thank you, Mr. Chairman. Madam Secretary, would 

you like additional time to express your thoughts there? You were 
25 

sort of cut off. Rather than adding them in writing, would you like 

some time to respond? 

Secretary YELLEN. Yes, if I could just—— 

Mr. LYNCH. Or we could move on, it’s your choice. 

Secretary YELLEN. Thank you. If I could finish the thought. 

Mr. LYNCH. That would be great, yes. 

Secretary YELLEN. Sometimes, activity-based regulation is the 

appropriate approach when there is an industry-wide practice of 

concern, as, for example, as the situation has been, in the situation 

with money market funds or with open-end bond funds. However, 

sometimes the risks have to do with a particular institution. For 

example, the largest U.S. banking organizations recognize that 

their failure could result in a threat to financial stability. The same 

could be true of a nonbank institution, and in that case, designation is appropriate, but the appropriate form of response by FSOC 

depends entirely on the specifics of a situation and the threat. And 

I thank the gentleman for his time. 

Mrs. WAGNER. And I thank the gentleman for his time. 

Mr. LYNCH. Reclaiming my time, that makes perfect sense, 

Madam Secretary. Recently, FSOC identified the use of artificial 

intelligence in financial services as an emerging vulnerability in 

the U.S. financial system, and not very long after that, Chairman 

McHenry and Ranking Member Waters created a bipartisan working group on artificial intelligence, and I have the good fortune of 

being the top Democrat on that working group. 

I have some concerns. There are some opportunities, I think, to 

use artificial intelligence in a thoughtful way. I think about the 

work that FinCEN does in trying to analyze suspicious activity reports (SARs) and currency transaction reports (CTRs), and how 

they might analyze those. But I think there is also a risk on the 

explainability end of some of these algorithms that are being used, 

and also the fact that many smaller firms, rather than developing 

their own data sets and developing their own artificial intelligence, 

are just simply buying them. And I am not quite sure that they 

have the expertise or the personnel to make sure that technology 

is used in a compliant way with existing financial regulation and 

laws. Do you have a sense of whether we have the capacity in the 

industry to onboard much of this artificial intelligence that vendors 

are offering to financial firms? 

Secretary YELLEN. We are concerned. This year, FSOC identified 

the use of AI in the financial sector as a potential financial stability risk, and at the moment, we are trying to understand what 

the risks are, some of them are related to, as you said, 

explainability when models are used and generate outputs. I believe the CFPB has been clear that financial institutions, when 

they take credit actions, have to explain to the customer what the 

reason is and not to be able to say, well, an AI system generated 

this result. But there are a whole variety of risks to customers, to 

cyber, and we are trying to build our expertise and work with the 

financial sector to address these risks. 

Mr. LYNCH. At least from Treasury’s position, do you accept the 

fact that when a financial firm acquires AI, that AI company, that 

vendor, is now a covered entity under financial services laws? Is 

that accepted, or is that still in dispute? 
26 

Secretary YELLEN. I am not sure. I need to get back to you on 

that. 

Mr. LYNCH. Okay. 

Secretary YELLEN. But certainly, when it comes to third-party 

providers, the banking regulators, for example, do have authority 

to make sure that—— 

Mr. BARR. The gentleman’s time has expired. 

Secretary YELLEN. ——are being—— 

Mr. BARR. The gentleman’s time has expired. 

Mr. LYNCH. Thank you, Madam Secretary. 

Mr. BARR. I now recognize myself for 5 minutes. Madam Secretary, you tout a historic recovery, a healthy labor market, and 

economic strength, and Larry Kudlow’s name was invoked earlier 

in this hearing, the former Trump White House Economic Advisor. 

I know Larry Kudlow, and, yes, he acknowledged that we are not 

in a recession right now, and I wouldn’t presume to speak for Larry 

Kudlow, but I do think he would agree with me that asking Americans to feel good about Bidenomics is like asking them to smile 

during a root canal. The discomfort is just too hard to ignore. 

Americans continue to suffer from the effects of 40-year high inflation experienced throughout the Biden term so far, including lingering high prices. And the Administration may wish to tout inflation numbers coming down, but, Madam Secretary, you are an 

economist, and as you know, inflation, which is the rate of increase 

in prices, should not be confused with the overall level of prices. 

And prices have continued to rise even as the rate of inflation has 

fallen since the Fed began an aggressive program of monetary 

tightening and since House Republicans put a stop to Washington’s 

spending spree. 

As a result, today, even with the decline in the rate of price in- creases, a family of four is paying $15,000 more per year just to 

purchase the same goods and services compared to the day President Biden took office. Yet, the Administration’s plan to fix inflation caused by too much spending is even more spending. That is 

why the Inflation Reduction Act is perhaps the most misnamed legislation in American history, but this is a supply/demand mismatch. Too much spending created excess demand. Climate obsession constrained the supply of energy. But now, the Administration 

and the Fed are proposing to constrain the supply of credit, which 

will exacerbate inflation through this Basel III Endgame, precisely 

when corporate and commercial real estate borrowers will need to 

refinance at higher rates. 

Secretary Yellen, I want to ask you about Basel III. The heterogeneity and business model diversity within the banking sector distributes and diffuses risk across the system and, I believe, contributes to systemwide financial stability. The Basel III Endgame proposal would de facto repeal regulatory tailoring, subjecting Category 3 and 4 regional banks to one-size-fits-all standards that currently apply to G-SIBs, eliminate the use of internal risk models, 

and transition the industry and regulators toward a standardized 

framework, reducing business model diversity, and push financial 

intermediation and lending outside of the bank regulatory perimeter. The banking industry will get smaller and more concentrated 

as a result. How does any of this reduce systemic risk? 
27 

Secretary YELLEN. Having strong capital and liquidity and resolution standards, I believe, does diminish systemic risk, and I think 

we have seen a clear example of this in the ability of the banking 

system to weather the pandemic. 

Mr. BARR. Yes, ma’am, and reclaiming my time. 

Secretary YELLEN. But there are—— 

Mr. BARR. Quickly, reclaiming my time, you have said many 

times that our banking system is currently well-capitalized. Do you 

agree that a less-diverse banking system, a barbell banking system, banks under $100 billion not directly affected by this proposal 

and Wall Street too-big-to-fail fail banks but no regional banks because of the forced consolidation this would provide, and less-diverse business models that this proposal will produce—do you believe that strengthens financial stability or undermines stability? 

Secretary YELLEN. I think we benefit from having a diverse 

banking system with institutions that meet different needs of different firms—— 

Mr. BARR. I agree. 

Secretary YELLEN. ——and different households. 

Mr. BARR. And, Secretary—— 

Secretary YELLEN. Banking agencies have received extensive 

comments on all of these issues, and—— 

Mr. BARR. I know, and just reclaiming my time because I only 

have a minute left, I agree with you that diversity and heterogeneity in the banking system and diverse business models actually diffuses risk, and FSOC should consider that as they consider 

Basel III Endgame. 

So to my final question, continuing with this topic of consolidation, which I believe Basel III would accelerate, the OCC’s recent 

proposal on mergers and acquisitions would ban mergers for nationally-chartered banks, even if it is a transaction for a smaller 

community development financial institution (CDFI) or adding essential technology expertise. Even the smallest banks would face 

new scrutiny and prolonged delays of mergers that could threaten 

their viability. The OCC’s proposal will increase the likelihood of 

costly and disorderly bank failures and decrease competition for GSIBs. Secretary Yellen, won’t this proposal increase systemic risk 

and reduce banking services? 

Secretary YELLEN. I’m sorry. I think this is a question for the 

Acting Comptroller of the Currency rather than—— 

Mr. BARR. My time has expired, but I think it is an FSOC issue, 

the fact that you would not have orderly consolidation and resultant bank failures. That is a systemic risk issue for you, Madam 

Secretary. 

With that, my time has expired, and the gentleman from California, Mr. Vargas, is now recognized. 

Mr. VARGAS. Thank you very much, Mr. Chairman. Thank you 

very much, Madam Secretary, for being here. I appreciate it very 

much. I am going to try a couple of questions here. First question, 

a trivia question, who was the last Republican President who ran 

a budget surplus? 

Secretary YELLEN. I can’t think of one, but—— 

Mr. VARGAS. Think hard, because I don’t remember, but every 

time I hear—— 
28 

Secretary YELLEN. I certainly remember that Bill Clinton did. 

Mr. VARGAS. Oh, Bill Clinton. Was he a Republican? 

Secretary YELLEN. I don’t believe so. 

Mr. VARGAS. I don’t believe so, either. Yes, it is interesting that 

every time you get up here, you hear these guys on the other side 

start touting their fiscal responsibility, and yet, every time they 

have a President, they either jack up the deficit, ruin the surplus, 

or destroy the economy, and then we come in and we fix it, and 

then they are upset, and once again, they become fiscal hawks. I 

do have something I have to get off my chest, though, about you, 

and that is, I think you are probably the smartest person who 

comes and testifies before us, and I think most people would agree 

with that. 

Secretary YELLEN. Thank you. 

Mr. VARGAS. And yet, every time you used to come and they used 

to beat you up on inflation, you never put it in the context of what 

was happening in Europe and the rest of the world. You would simply try to explain inflation within our own country, and it used to 

drive me nuts, because we are doing better than the rest of the 

world. 

Secretary YELLEN. We are. 

Mr. VARGAS. You never said that, and I was too far down the 

totem pole here to ever be able to get to ask you that question. 

Secretary YELLEN. If you look at the United States vis-a-vis other 

advanced countries, we have by far the strongest growth. Inflation 

has fallen more in the United States than in any of these other advanced countries, with the exception of Japan that has a different 

set of issues. And importantly, real wages, inflation-adjusted 

wages—I believe we are the only country that, since the pandemic, 

has seen those increase. And I think, according to our calculations, 

if you compare today with 2019 before the pandemic, the typical 

American household has enjoyed wage increases large enough that 

the median worker is able to buy the same basket of goods as in 

2019 with $1,400 left over to spend or save. So, we have gotten 

ahead in the United States. It has been an equitable recovery, and 

includes even the strongest gains for low-income people. 

Mr. VARGAS. I agree with all that, and I wish you would have 

said it before, because it always used to annoy the heck out of me 

because you would lead with your chin. Again, I think you are the 

smartest person here, and maybe the good thing is that you are not 

political, and that is why I think you would lead right into their 

questions, which were political questions. They were really sophist, 

if you study the Bible. They were really asking you questions to try 

to do a, ‘‘gotcha,’’ and it always used to annoy the heck out of me 

that you never explained it this way. I am glad you did today. 

I do want to talk about climate. That is the issue that has also 

driven me mad these last 2 decades. I have been preaching this for 

a long time, saying we have to do something about it. I did work 

in the insurance industry for a while, and whenever you had a big 

event, we called a cat or catastrophe, and you numbered them by 

a year, catastrophe: 5-year, 15-year, 20-year, 25-year, 50-year or 

100-year. We just had what they would call a thousand-year in San 

Diego, and now we are having what we call a hundred-year event 

again in San Diego. There are no longer cats of 100 years. They 
29 

are happening all the time, and it is the weather. This is a real 

risk. 

Secretary YELLEN. Absolutely. It is clear that is exactly what we 

are seeing, and vulnerable parts of the country, whether it is California or Florida, in some cases in New York, or Louisiana, we are 

getting priced out of insurance. Either the rates are becoming 

unaffordable or insurance companies don’t want to bear the risk, 

can’t reinsure adequately and are pulling out. 

Mr. VARGAS. There is a line in insurance—— 

Secretary YELLEN. And it is causing tremendous problems. 

Mr. VARGAS. ——Madam Secretary, that you should know. There 

is never a bad risk, only a bad price, and when they take a look 

at this and they see what it is going to cost them, these actuaries, 

they are soulless people. They sit in a room and they find out what 

it is going to cost them, and they are not in the business of losing 

money. And they look at Florida, they look at these places and say, 

we are not going to lose money. That is why they don’t want to insure there. 

Secretary YELLEN. Absolutely. 

Mr. VARGAS. They are soulless people. I am not saying they are 

bad people. They just don’t have a soul. 

[laughter] 

Secretary YELLEN. They don’t understand insurance. 

Mr. VARGAS. My time is up. Again, I thank you very much. 

Chairman MCHENRY. Okay. There is bipartisan laughter at actuary humor. We will now go to the Chair of the House Small Business Committee, Mr. Williams of Texas. 

Mr. WILLIAMS OF TEXAS. Thank you very much. I am a car dealer, not an insurance guy, so let me put that out there. 

The crisis at our southern border has spiraled out of control, and 

the Biden Administration has done little to nothing to secure the 

border and keep Americans safe. This increase in illegal immigration raises concerns on how the increase in migrants coming down 

across the border is impacting our financial network and opening 

the door to financial crimes. Money laundering, drug and human 

trafficking, and financial fraud will continue to plague our communities if nothing is done. 

I recently introduced the Evaluating Financial Impacts of Illegal 

Immigration Act, which requires FSOC to include illegal immigration risk, an emerging threat to our financial system, in their annual report and provide recommendations to mitigate these risks. 

Our States and cities are not equipped to deal with the influx of 

millions of migrants who put a significant strain on our public resources. We must hold government agencies accountable to report 

on how illegal immigration impacts Main Street and the larger financial system. 

So, Secretary Yellen, this will be easy. Just yes or no, do you 

agree that illegal immigration is a potential threat to our financial 

system? Yes or no? 

Secretary YELLEN. I can’t answer it just yes or no. You have 

pointed out some risks that are associated with immigration, and 

whether or not that is a threat to our financial stability is a complicated determination. 

Mr. WILLIAMS OF TEXAS. So, you would say, yes? 
30 

Secretary YELLEN. I would not say, yes. 

Mr. WILLIAMS OF TEXAS. You would say, no. 

Secretary YELLEN. I say it requires further analysis. 

Mr. WILLIAMS OF TEXAS. Okay. As I previously mentioned, we 

have seen the strain that illegal immigration has and will continue 

to have on our public resources. Therefore, I think it is necessary 

to see how far these impacts reach, and I request that you use your 

power as the Chair of the Financial Stability Oversight Council to 

investigate this emerging risk, okay? 

Over the last year, our nation’s Federal banking agencies have 

been bombarding our financial system with excessive regulations 

and dangerous proposals like Basel III Endgame, which will dramatically affect the banking community and have other broad impacts on Americans’ ability to access reliable credit. These increases in costs will make it harder for Americans to obtain a loan. 

Whether they want to start their own business, expand current 

business operations, or buy their own home, small businesses and 

everyday Americans rely heavily on loans and credit lines from 

banks of all sizes to access the capital they need to do so. 

Multiple regulators, including Chairman Powell, have come before this committee and testified that our banking system is already well-capitalized and resilient, and FSOC’s 2023 annual report stated that banks continue to have sound levels of regulatory 

capital. So, Madam Secretary, if FSOC and Federal banking regulators have repeatedly identified the U.S. banking system as capitalized and resilient, then what is the need for the proposed massive increases in regulatory capital called for in the Basel III 

Endgame proposal? And also, how can we ensure proposals are 

good public policy when they lack a rigorous cost-benefit analysis? 

Secretary YELLEN. I believe that the banking agencies, in putting 

out their rule, have pretty clearly articulated what their concerns 

are with the way in which operations risk and market risk are 

handled, and some of the ways in which internal models are used 

to evaluate credit risk. And I know they have received many comments, and we will take those seriously in coming up with a revised final rule proposal. 

Mr. WILLIAMS OF TEXAS. In the time that I have remaining, in 

2023, FSOC listed climate change as a vulnerability to our financial system. Under the Biden Administration, financial regulators 

are calling for climate policies to be included in banking regulations, which extends the Federal banking system beyond its intended purpose and threatens the agencies’ long-term independence. This sets a dangerous precedent that could lead to overall polarization of our financial system. Quickly, Secretary Yellen, is 

FSOC exploring nature-related financial risks, and will they urge 

Federal banking agencies to issue guidance to financial institutions 

on how to manage purported nature-related financial risks? 

Secretary YELLEN. The banking agencies are evaluating what the 

impact of climate change is on the institutions they regulate and 

working with them to make sure that they are adequately evaluating the risks that climate change pose, and those are important 

supervisory activities that bear on safety and soundness. 

Mr. WILLIAMS OF TEXAS. Okay. Mr. Chairman, I yield back. 
31 

Chairman MCHENRY. The gentleman yields back. The gentleman 

from Illinois, Mr. Foster, the ranking member of our Financial Institutions Subcommittee, is recognized for 5 minutes. 

Mr. FOSTER. Secretary Yellen, as I discussed in my opening remarks, I am happy to see FSOC identify artificial intelligence as 

an area of concern for the financial system. While there are clearly 

benefits of certain applications of AI in areas like customer service, 

credit underwriting, and certain forms of fraud detection, I am worried that we are heading for a disaster when it comes to generative 

AI and deepfakes. Just last week, a finance worker at a multinational firm was tricked into paying $25 million to scammers following a multi-person video conference call with whom they 

thought were their colleagues, but were, in fact, deep fake AI impersonations. Not only did the scammers simulate the voice and 

likeness of the chief financial officer, they simulated several of the 

employees’ colleagues at the same time. 

Now, I believe that the clearest and cleanest solution to this 

issue would be to have a simple but reliable form of digital ID built 

in the United States, built off of the Transportation Security Administration’s (TSA’s) Real ID system, and based on National Institute of Standards and Technology (NIST) technical standards that 

are already built into all modern cellphones, then, U.S. citizens 

could use this to prove they are who they say they are online and 

verify their identity remotely. Several States are rolling out these 

Mobile IDs for things like keeping children off porn websites, and 

several European and Asian nations have already taken steps to 

offer their citizens this form of digital ID backed up by secure device and biometrics. The EU is moving rapidly towards a standard, 

and they are using it from the start to be useful to verifying financial transactions. 

First question, are you aware of the steps that other nations are 

taking not only to offer a digital ID but to make it usable for 

verifying financial transactions, and do you believe it would be a 

useful component in preventing deepfake AI impersonations here 

in the United States? 

Secretary YELLEN. I think you are making a very valuable suggestion. I know that FSOC and Treasury are engaging on this issue 

with financial institutions. Our staff are planning to issue a report 

on AI-specific cybersecurity and fraud risks. I believe they plan to 

issue that by the end of March. I have not seen the work myself 

that they are doing on this report or what recommendations they 

will come up with, but I know they will be doing follow-up work 

with the financial sector, and I think you have made a very good 

suggestion. 

Mr. FOSTER. Yes. Many financial firms I talked to just told me 

that a reliable form of digital ID would really simplify the AntiMoney Laundering/Know Your Customer (AML/KYC) process, and 

make it faster, cheaper, and more reliable when they have to confirm the identity of customers. And you also mentioned the difficulty with having this spread out in many agencies. For example, 

the TSA and the Homeland Security Committee in Congress sort 

of are in charge of the mobile ID, the Real ID system. On the other 

hand, it is FinCEN and Treasury that would supervise its use for 

financial transactions. The actual technical standards are done by 
32 

NIST, which is the oversight of the Science Committee. So, we have 

at least three congressional committees that are all siloing this 

whole thing. 

Is there encouragement that you need to get FinCEN, TSA, and 

NIST to all work together to deliver a product that can eliminate 

deep fake impersonations in financial transactions at least? 

Secretary YELLEN. My suggestion would be that my staff contact 

you and work with you on the specifics of this and give you some 

specific information on exactly what our thinking is on this. I am 

not knowledgeable enough to—— 

Mr. FOSTER. If you find you need any specific encouragement 

from Congress, I think there will be bipartisan support for that, 

really, on all the—— 

Secretary YELLEN. Of course, this is a significant risk, and it 

is—— 

Mr. FOSTER. Okay. Now, in my last 42 seconds here, last January, I introduced the Strengthening Cybersecurity for the Financial 

Sector Act that would give the National Credit Union Administration (NCUA) and the Federal Housing Finance Authority (FHFA) 

the authority to oversee third-party vendors that are employed by 

the entities under their purview. Other prudential regulators already have this authority. However, NCUA’s and FHFA’s authority 

was allowed to expire, and this left a dangerous gap that leaves 

consumers and our system at financial risk. In fact, last November, 

a cybersecurity breach of third-party service providers disrupted 

the operations of 60 credit unions across 40 States. Can you explain why this authority is important and the kind of risk that this 

lack of authority presents to the financial system? 

Secretary YELLEN. It is critical to oversee these providers, and 

FSOC has recommended that the NCUA and the FHFA be given 

these authorities. We appreciate your legislation and would be glad 

to work with you on it. 

Chairman MCHENRY. We will now recognize the gentleman from 

Georgia, Mr. Loudermilk, for 5 minutes. 

Mr. LOUDERMILK. Thank you, Mr. Chairman, and Madam Secretary, thank you for being with us. It’s good to see you again. 

I want to start off by asking you about the nonvoting State Insurance Commissioner seat on FSOC. While I support the longstanding idea of State-based insurance regulation, I recognize that 

the insurance industry is critical to the overall stability of our financial system. Nearly every aspect of our financial system is represented by its primary regulator on FSOC with a voting seat, but 

without a voting seat for State Insurance Commissioners, the 

Council is missing the direct input from the primary regulators of 

the industry. My question is, do you agree that we should have 

State insurance regulators with a voting seat, and if not, why? 

Secretary YELLEN. I absolutely agree with you that the insurance 

sector is critical and needs to be represented. I would note that 

there is a voting member of the Council who is an independent 

member with insurance expertise. That person is confirmed to that 

position, and in addition, there is a State Insurance Commissioner, 

a nonvoting member, but someone who serves a 2-year term designated by the National Association of Insurance Commissioners 

(NAIC). So, there is a good deal of understanding of the insurance 
33 

industry represented on FSOC, and I think that is totally appropriate. 

Mr. LOUDERMILK. Do you not feel that it would be better representing of the primary regulators of the insurance industry if the 

nonvoting member from the State Insurance Commission was actually a voting member? 

Secretary YELLEN. I don’t have a position on this. Congress set 

up FSOC in this manner, and what I can tell you is that all of the 

members, voting and nonvoting, contribute importantly to the work 

of FSOC. I have really never seen an issue that I have dealt with 

where the voting status of a person who is part of FSOC would 

have made a critical difference. 

Mr. LOUDERMILK. So it would be fair to say that if Congress did 

seek to change this, you would not oppose it? 

Secretary YELLEN. I would look at the specifics, but I would 

agree that we do need to have insurance expertise and I would be 

happy to look at something specific that you are considering. 

Mr. LOUDERMILK. Okay. Well, thank you. Earlier, you were 

asked about the Federal Insurance Office’s (FIO’s) plan to collect 

6 years’ worth of granular data on climate-related financial risk. 

FIO expects hundreds of property and casualty insurers across the 

country to assume the burden of compiling this data. You asserted 

that FIO looks to work with State insurance regulators as required 

in the Dodd-Frank Act, but FIO claims that the data they had initially requested was, ‘‘not available or could not be attained in a 

timely manner from State regulators.’’ Secretary Yellen, how did 

FIO define, ‘‘timely manner,’’ for the purposes of collecting this 

data? 

Secretary YELLEN. My understanding is that the NAIC intends 

to conduct its own survey and recognizes the desirability of collecting this more granular data, and given that both FIO and NAIC 

want to collect this data, there clearly exists opportunities to collaborate. I believe they are certainly trying to do that. 

Mr. LOUDERMILK. I guess I am a little bit confused, because they 

defined that they needed the data within 30 days of the request. 

Now, you are talking a significant amount of data, but they were 

obscure as to what they needed the data for, so why did FIO anticipate needing this data within 30 days? You are asking these insurance questions that are very detailed and giving folks 30 days to 

respond, and it was kind of obscure in the question. I am just wondering why such a short time frame? 

Secretary YELLEN. Okay. I must admit I don’t understand if that 

is the time frame, or what the logic was, and maybe I can get back 

to you on that. 

Mr. LOUDERMILK. With the remaining time I have left, in your 

view, was FIO’s limited effort of trying to obtain this data within 

the short time frame and then claiming that they weren’t able to 

get it actually consistent with the Dodd-Frank requirement to coordinate with State regulators, not just ask them, can you get this 

data, and they say, we really don’t have time, and then say, we 

couldn’t get it. To me, it seems like working with them is coming 

up with a reasonable plan to get the information they need and to 

be clear as to why. 
34 

Secretary YELLEN. I believe they intend to do so, and it is appropriate. 

Mr. LOUDERMILK. Thank you. I yield back. 

Chairman MCHENRY. The gentleman from New Jersey, Mr. 

Gottheimer, is recognized for 5 minutes. 

Mr. GOTTHEIMER. Thank you, Mr. Chairman, and Ranking Member Waters. Hello, Secretary Yellen. Thank you for being here. 

Secretary Yellen, are you aware that from 2014 to 2019, 200 

American colleges and universities illegally withheld and failed to 

report information on $13 billion in undisclosed contributions from 

foreign and authoritarian regimes? 

Secretary YELLEN. I don’t believe I am. I’m sorry. What happened? The college, something about colleges? 

Mr. GOTTHEIMER. Colleges receiving and didn’t report funding 

from foreign and authoritarian regimes. I have sent you a letter, 

which I will make sure you get a copy of, urging Treasury to coordinate with the Department of Justice and Department of Education 

to investigate these American colleges and determine whether any 

of the foreign and authoritarian regimes contributed to the funding 

of antisemitic protest groups on our college and university campuses. And I will also enter the letter into the record, if that is 

okay, Mr. Chairman. 

Chairman MCHENRY. Without objection, it is so ordered. 

Mr. GOTTHEIMER. And, again, thank you for reading it, and if you 

can get back and determine whether there are financial connections between those foreign entities making large donations to our 

institutions of higher learning and the outside funding of 

antisemitic protests on campuses, I would be grateful. 

Secretary YELLEN. We will respond to your letter, and try to do 

it in a timely way. 

Mr. GOTTHEIMER. Thank you. Madam Secretary, the last time 

you were in front of this committee in June, you agreed with me 

that the State and Local Tax (SALT) deduction has had a disparate 

impact on different States, including New Jersey, where I am from. 

You have also committed to finding a fair solution for the misguided limit that leaves double taxation on many of my constituents, especially middle-class, hardworking families. There may be 

a potential vote on SALT legislation as early as next week. The bill 

would double the SALT deduction for married couples in 2023 from 

$10,000 to $20,000. Do you believe, following on the question when 

I saw you last time, that this legislation will help ease the disparate impact of SALT on married couples in New Jersey? 

Secretary YELLEN. I agree that SALT has had a disproportionate 

impact on different States. There are also fiscal implications. The 

legislation that you discuss, I haven’t had a chance to examine, and 

it is really up to the White House and the President to decide 

whether or not to be supportive of this. 

Mr. GOTTHEIMER. My concern from a Treasury perspective, is the 

IRS preparing for such a change, should the bill be enacted, because they would have to move pretty quickly. 

Secretary YELLEN. This would be for 2023? 

Mr. GOTTHEIMER. Yes. 

Secretary YELLEN. I would have to look into it. 
35 

Mr. GOTTHEIMER. Okay. If you can get back to me on that, I 

would be grateful. We know that Hamas relies on support from the 

Iranian regime, the leading state sponsor of terror. As Iran deepens 

its ties to China and Russia, we are reminded that they cannot be 

trusted and must be held accountable. Iran is directly or through 

their terrorist proxies, including Hamas, Hezbollah, and the Palestinian Islamic Jihad, killed hundreds of Americans, attacked our 

bases and our allies in the region. Treasury has implemented several rounds of sanctions on Hamas in Iran in the aftermath of October 7th. Madam Secretary, do you believe that the U.S. should 

impose sanctions on China because of its ties to Iran? 

Secretary YELLEN. I’m sorry, on China because of its ties to Iran? 

Mr. GOTTHEIMER. Yes. 

Secretary YELLEN. That is really a question for the State Department and the interagency, and I am not aware that that has been 

considered. I don’t have a position to offer you on that. 

Mr. GOTTHEIMER. Okay, because I am concerned that Treasury 

hasn’t enforced Iran oil sanctions, especially sanctions targeting 

China and its dozens of teapot refineries that are responsible for 

practically 100 percent of Chinese oil imports from Iran. 

Secretary YELLEN. Look, what I can tell you is that the Treasury 

Department and the Office of Foreign Assets Control (OFAC) are 

doing everything that they possibly can to crack down on illegal 

Iranian shipments of oil, and we have recently had actions in that 

regard and, I believe, seizures of illicit material as well. 

Mr. GOTTHEIMER. Thank you. I know Treasury’s OFAC publishes 

a list of individuals and companies owned, controlled by, or acting 

on behalf of individual groups and entities such as terrorists. Their 

assets are blocked, and U.S. persons are generally prohibited from 

dealing with them. In recent weeks, it has been reported widely 

that United Nations Relief and Works Agency (UNRA) employees 

have engaged in terror activities and materially supported Hamas 

in the massacre and in other depraved atrocities committed against 

Israel. Is Treasury considering terrorism designations for UNRA 

employees who have been found to be materially supporting Hamas 

or engaging in terror activities themselves? 

Secretary YELLEN. We have engaged, as you mentioned, in numerous actions against Hamas and a wide range of supporters. 

Mr. GOTTHEIMER. While the U.S. gives millions of dollars to 

UNRA every year, the organization doesn’t screen for known terrorists and terror affiliations the way U.S. agencies like USAID 

would do. Do you believe that, at a minimum, U.N. agencies that 

receive U.S. aid should at least vet employees against U.S. terrorism lists? 

Secretary YELLEN. I don’t know the details. I am happy to look 

into that. That certainly seems reasonable. 

Mr. GOTTHEIMER. Thank you, Madam Secretary. I will follow up 

with your office. Thank you so much. 

Chairman MCHENRY. The gentleman from Ohio, Mr. Davidson, is 

now recognized for 5 minutes. 

Mr. DAVIDSON. Thank you, Mr. Chairman. Madam Secretary, 

thank you for being here today, and I just want to highlight a couple of the activities of FSOC. For the last 2 years, FSOC has made 

digital assets one of its top priorities. Do you believe that it is ap-
36 

propriate for FSOC to list digital assets among its top priorities, 

given the relative size of the market? 

Secretary YELLEN. The market is relatively small, and I believe 

the annual report states that, and the connections are not enormous to the banking system, although rule involvement in digital 

assets did play some role in the banking problems we had last 

March, particularly with respect to Signature Bank and to 

Silvergate Bank, so there are concerns along those lines. 

Mr. DAVIDSON. And that is—— 

Secretary YELLEN. But there is the potential for, for example, 

stablecoins that we have made recommendations to Congress, require regulation. They could—— 

Chairman MCHENRY. The gentleman will suspend. If the Secretary will suspend. If you could please exit the dais, Members. 

Thank you. We can continue. Thank you. 

Secretary YELLEN. There is no appropriate regulatory framework 

for stablecoins. 

Mr. DAVIDSON. We have certainly been working on that. It would 

be great to get it across the finish line. 

Secretary YELLEN. I appreciate that, and we have tried to work 

on a bipartisan basis with the committee to see legislation enacted. 

Mr. DAVIDSON. So, the concern would be that there is some systemic risk to the market because of the introduction of digital assets, and you referenced Silvergate. They didn’t pose a systemic 

risk to the market. In fact, they wound down in a very orderly 

fashion with no risk to the market. That’s not true of Silicon Valley 

Bank, but that was interest rate risk, not digital assets. Signature, 

on the other hand, there was an FSOC meeting on Saturday, and 

on Sunday, the assets of Signature Bank were seized, and former 

Congressman Barney Frank, whose portrait hangs right there, a 

former Chair of this committee, said that it was because they were 

banking crypto, not because they were insolvent. So it kind of highlights, is there a coordinated effort because there is a disfavored industry, like digital assets, or is there a coordinated effort because 

there is actually systemic risk? 

Secretary YELLEN. FSOC has recommended to Congress that 

stablecoins require a regulatory framework. No stablecoin at this 

point may yet have achieved the scale that would pose a systemic 

risk, but certainly that could happen if a stablecoin were widely 

used for payments. And you have the classic run risk that is associated with that if the stablecoin proceeds are not invested in a secure and utterly safe manner. 

Mr. DAVIDSON. Well, this is the case. 

Secretary YELLEN. And we have seen this happen with similar 

types of, it is essentially a banking type of—— 

Mr. DAVIDSON. It is not fractional reserve banking, and those 

banks are regulated. Stablecoins certify that they have $1 of government-backed securities for every $1 of tokens issued. 

Secretary YELLEN. They don’t always certify that. 

Mr. DAVIDSON. No. The three that are regulated in the United 

States by the New York Department of Financial Services, or four 

actually, do certify that, and they are State-regulated. The one that 

doesn’t, that the Treasury Department and others seem unwilling 

to address by providing clarity in our market, don’t certify that. 
37 

Tether is a time bomb, and it is offshore, and it is the only thin 

functional, frankly. Everyone is moving offshore because we can’t 

agree to regulate our own markets, and, frankly, there are people 

who really would love to regulate the market. There just always 

seems to be an excuse not to. 

I would like to change topics here briefly to the GovernmentSponsored Enterprises (GSEs). There was a report that was due to 

Congress on September 30 of 2021, so quite a while ago that report 

was due, as to what is the plan to end the conservatorship, which 

has gone on longer than Britney Spears’ conservatorship went on 

at this point. So, it would be great to get the plan, whether we 

agree or not, but could you commit to give us the plan? 

Secretary YELLEN. That was a promise made by the previous Administration, and it is—— 

Mr. DAVIDSON. It is a statutory requirement, Madam Secretary. 

Secretary YELLEN. And we are committed to working with Congress to clarify what a reasonable strategy is for the GSEs. 

Mr. DAVIDSON. Whatever the plan, it is already the law to give 

us the plan. I yield back. 

Chairman MCHENRY. The gentleman’s time has expired. We will 

now go to Mr. Casten of Illinois for 5 minutes. 

Mr. CASTEN. Thank you, Chairman McHenry. It’s a pleasure to 

see you, Madam Secretary. I want to touch on a couple of things, 

but first, I don’t know if you had a chance, and it doesn’t matter 

if you read it or not, but there was a Congressional Budget Office 

(CBO) report that came out on January 18th about demographic 

trends in the United States that has been rattling in my head for 

a while, and I think it was 2 weeks ago, but it said, among other 

things, that net immigration, which some of my colleagues have 

mentioned, is running twice as high as was expected, and that the 

population of folks immigrating to the United States is 

unsurprisingly, overwhelmingly of working age, 25 to 54. I think 

that is the sort of demographic trend that keeps Tucker Carlson 

awake at night, that our population is aging and we are a country 

that is getting more diverse. 

But what I am wondering is f you could speak to the conversation with Mr. Vargas. We talked about the fact that this economy 

is doing things that economies aren’t normally supposed to do. 

Gross domestic product (GDP) is rising, we keep creating jobs, unemployment rates keep falling, and how much of that is directly attributable to the fact that our workforce is growing so much faster 

than we anticipated? 

Secretary YELLEN. Part of it is due to the fact that labor force 

participation has increased. 

Mr. CASTEN. I don’t mean just the participation rate, though— 

the actual number of workers. 

Secretary YELLEN. Yes. Partly, it is immigration, but it is also we 

are seeing a big pickup in adult labor force participation in the 

aftermath of the pandemic. Some of it is the availability of jobs, 

which has been amazing, and some of it is the ability to work, at 

least partially, from home, may be drawing people into the labor 

force who otherwise wouldn’t do so. 

Mr. CASTEN. Okay. 
38 

Secretary YELLEN. But that is one way in which we continue. 

Just in the last 3 months, we have an average of 290,000 jobs a 

month being created, which is quite remarkable. 

Mr. CASTEN. Yes. I think about a comment that Jay Powell 

made, I think a year ago, that the growing workforce, not just 

workforce participation, was helping to rebalance the economy. I 

think his words were that it was tilted too much in the favor of 

workers. I know some workers who might disagree, but nonetheless. 

Secretary YELLEN. Yes. 

Mr. CASTEN. You had mentioned in your discussion with Mr. 

Vargas that our growth on all of these metrics, from GDP, to job 

creation, to recovery from COVID is outpacing all of our other 

peers. You mentioned Japan being an exception that famously is 

not as open to immigration as some other countries. 

Secretary YELLEN. That is true. 

Mr. CASTEN. And maybe it is too soon to say this, but can you 

speak to what the United States has done that has led to our 

outperformance relative to other industrialized economies since 

COVID? 

Secretary YELLEN. We have supported the economy in difficult 

times, and, particularly, the households and workers who were 

most affected through programs, including the American Rescue 

Program, that made sure we didn’t have permanent scarring of individuals who lost their jobs and remained out of work, and may 

be discouraged and, essentially, scarred to the point where they 

can’t participate in the workforce. We made sure people had a roof 

over their heads and food on the table, helped them take care of 

their children, provided emergency rental assistance, and then put 

in place a series of programs as the economy, as people got back 

to work, that are investing in people. The bipartisan infrastructure 

program, the CHIPS and Science Act, and the Inflation Reduction 

Act are stimulating a tremendous amount of investment and the 

creation of good jobs, especially in parts of the country that haven’t 

seen opportunity for a long time. 

Mr. CASTEN. I think we have a lot, on this side of the dais and 

in your office, a lot to be proud of, of what we did to go through, 

and maybe we can follow up offline. When so much of the growth 

in the working-age population is from the foreign-born population, 

and when so much of the conversation over here on the Hill is 

using immigration as a political football, I want to make sure we 

don’t cut off our nose to spite our face and understand how that 

contributes. 

Secretary YELLEN. I agree. I think it has been a plus. 

Mr. CASTEN. I see that I am out of time. I had wanted to follow 

up with you on the FIO and climate risk, but I will follow up with 

you offline on that one. Thank you. I yield back. 

Secretary YELLEN. Thank you. 

Chairman MCHENRY. The gentleman from Tennessee, Mr. Rose, 

is recognized for 5 minutes. 

Mr. ROSE. Thank you, Chairman McHenry, and Ranking Member 

Waters, for holding this hearing, and thank you, Secretary Yellen, 

for taking the time to be with us today. 
39 

Secretary Yellen, I have been following news of insurers pulling 

out of States like California, and as a former State official myself, 

I am confident that the culprit is a terrible State-based regulatory 

environment. Given the focus of this Administration and the Treasury Department on the solvency of the financial system and our financial institutions, what would be the impact of insurers underwriting the risk of their policies at levels that are lower than 

actuarily sound? 

Secretary YELLEN. They would tend to lose money over time and 

it is not commercially viable for them to do that—— 

Mr. ROSE. Thank you. 

Secretary YELLEN. ——without some other government support. 

Mr. ROSE. I completely agree, and what would happen to the fiscal stability and solvency of insurers who were forced to issue policies at rates that do not reflect the risk they cover? 

Secretary YELLEN. They would be financially challenged in the 

event that a risk event materializes. 

Mr. ROSE. Thank you. I completely agree with that. Thinking 

back a couple of years ago, actually go back to the fall of 2021, as 

you will remember, some of us on this committee were concerned 

about the overly-aggressive spending of the Federal Government. 

We were concerned about early signs and signals of inflation, and 

in a hearing at that point, I asked you if you had concerns about 

the national debt. And as I recall, and I am paraphrasing your 

words, but you expressed the view that the interest payments as 

a percent of GDP were particularly low and that maybe that was 

a more reasonable way to measure the Federal debt. Shortly after 

that, I asked the Fed Chair whether he would commit to keeping 

interest rates at near zero so as to make sure that the cost of financing the burgeoning Federal debt remained low. He answered 

correctly that he would not, in my view, and he has not. The Fed 

has not kept rates low. 

Fast forward a couple of years, and we find the cost of financing 

the Federal debt ballooning. The Congressional Budget Office has 

recently stated that the higher interest rates could lead to the government’s net interest payments spiking to 6.7 percent of GDP and 

beyond, and, of course, current estimates this year is that net interest may exceed $800 billion, just a stone’s throw away from exceeding the cost of national defense. I wonder, in light of these 

changes, has your assessment of how we measure the capacity of 

this country to finance and to continue to incur additional debt 

changed? 

Secretary YELLEN. I still believe that real net interest is an appropriate metric for judging the path to decide whether or not a fiscal path is sustainable. Real net interest in, I believe, the most recent Biden Administration document, the mid-session review, I believe that it remained over the 20-year window, given the proposals 

in that budget, at around 1 percent, which is historically normal, 

but the budget included $2.5 trillion of deficit reduction that Congress hasn’t acted on. Now, that is a low level and with higher interest rates. 

We have always projected that interest rates would rise from extremely-low levels to more normal levels, but if the interest rate 

path moves up, that does imply, of course, higher real net interest. 
40 

Mr. ROSE. Pardon me. In the interest of time, if we assume that 

rates remain at historic long-term norms, which would be at or 

above the current levels, is the current fiscal situation sustainable? 

Secretary YELLEN. It depends on the actions that we take, 

and—— 

Mr. ROSE. So, new debt would be difficult to support—— 

Secretary YELLEN. ——we are preparing a—— 

Mr. ROSE. ——at these interest—— 

Secretary YELLEN. We are preparing a budget for the next fiscal 

year that will contain proposals to make sure we are on a fiscallysustainable path. 

Mr. ROSE. I am deeply concerned about it. I fear we are nearing 

a tipping point where this country cannot sustain the fiscal levels 

that we see now and cannot service our debt and continue to honor 

obligations to the American people. Thank you for being here, and 

I yield back. 

Chairman MCHENRY. The gentleman from New York, Mr. Torres, 

is recognized for 5 minutes. 

Mr. TORRES. Thank you. Madam Secretary, I have concerns 

about the signs of volatility at the New York Community Bank. 

The New York Community Bank is the largest multifamily portfolio lender in New York City, with more than $37 billion in multifamily loans. By way of contrast, Signature Bank had far less, $15 

billion in multifamily loans, so a crisis at New York Community 

Bank would not only destabilize the banking system, it would destabilize the largest multifamily housing market in the United 

States. Do you share these concerns, and how closely are you monitoring the situation at New York Community Bank? 

Secretary YELLEN. We are in touch with supervisors, and we are 

monitoring current banking stresses carefully. I don’t want to comment on the situation of an individual bank, but commercial real 

estate is an area that we have long been aware could create financial stability risks or losses in the banking system, and this is 

something that requires careful supervisory attention. 

Mr. TORRES. Is it fair to say, as U.S. Treasury Secretary, that 

you are prepared to do whatever is necessary to prevent a second 

wave of bank failures? 

Secretary YELLEN. I don’t want to get ahead of where we should 

be given what is happening, and I don’t want to comment on the 

individual situation here, but as Treasury Secretary, I would work 

with the banking supervisors to make sure that we addressed anything that looked like it could create systemic risk. 

Mr. TORRES. There has been considerable reporting about the 

rise of private credit. I am wondering if we are seeing in the American financial system the paradox of more regulation having the 

unintended consequence of causing less regulation. Specifically, to 

what extent has the intensive regulation of banking in America led 

to the emergence of a largely deregulated shadow banking system? 

Secretary YELLEN. That naturally happens when one carves out 

an area to regulate, that there is an attempt to move activity outside that regulatory system, and perhaps private credit is an example of that. 

Mr. TORRES. If that is true, to what extent will Basel III accelerate that trend? 
41 

Secretary YELLEN. It is conceivable that it could, but it is important, and FSOC, in part, exists to make sure that we are looking 

not only at banks, but—— 

Mr. TORRES. Are we managing risk or are we transferring risk? 

Secretary YELLEN. We are making sure that there is adequate 

regulation to address risks that could have spillovers that threaten 

economic performance in the entire financial system. 

Mr. TORRES. The PricewaterhouseCoopers (PwC) report proposes 

something resembling banking regulation for stablecoin issuers. 

Unlike a bank, a stablecoin issuer has no lending and no fractional 

reserves, so if a stablecoin issuer operates differently from a bank, 

why not regulate it differently from a bank? 

Secretary YELLEN. Perhaps, it should be regulated differently 

from a bank, but nevertheless, it is necessary to regulate the risks 

to make sure that the deposits are channeled into safe assets. Perhaps, the capital standard should be different and other features 

of its regulation should be appropriate and different. It is something more like a narrow bank, but it should be regulated because 

it inherently has run risk very similar to banking organizations. 

Mr. TORRES. The single greatest powder keg in the world is the 

Taiwan Strait, where a People’s Republic of China (PRC) invasion 

of Taiwan or a blockade could conceivably cause the gravest global 

catastrophe since World War II. According to Bloomberg Economics, the cost of a war over Taiwan would cost $10 trillion, 10 percent of global GDP. It would exceed the cost of the global financial 

crisis and the global pandemic. Does the Treasury Department conduct economic and financial simulations or war games to determine 

the impacts of a possible conflict and determine what actions that 

we as a country should take in advance to mitigate those impacts? 

Secretary YELLEN. The National Security Council and the interagency—I don’t want to detail steps that they have taken, but certainly the risks from the Taiwan Strait have commanded their attention and preparation. 

Mr. TORRES. Thank you. 

Chairman MCHENRY. Before we continue, we have approximately 

25 minutes remaining. There is a clock for both Members and for 

the Secretary. We have a hard stop at 1:00 p.m., and we intend to 

honor that within a minute or two or three or so. So with that, the 

gentleman from South Carolina, Mr. Timmons, is now recognized 

for 5 minutes. 

Mr. TIMMONS. Thank you, Mr. Chairman, and thank you, Secretary Yellen, for being here today. 

You have stated that FSOC believes a congressionally-approved 

regulatory structure would help improve the digital asset sector. 

This year’s FSOC report also outlines several vulnerabilities in the 

digital asset sector, including the lack of consumer protection. Does 

the current lack of regulatory structure make it harder for consumers to tell the difference between quality products and crypto 

scams, and how do you believe regulatory clarity will help mitigate 

risk to the consumer? 

Secretary YELLEN. I believe there are some risks to the consumer. We haven’t made recommendations to Congress about 

those. I am not sure. I think the CFPB and other agencies—the 
42 

SEC has some regulatory authorities in this space that they can 

use. 

Mr. TIMMONS. But it seems that there is some confusion, and 

there is a lack of clarity. Do you believe that if Congress were to 

act, it would improve consumer protections? 

Secretary YELLEN. I really need to know more about the specifics. 

Mr. TIMMONS. Okay. The FSOC report repeatedly states the 

health and resiliency of our banking sector, yet our Federal regulators have arguably proposed the largest increase in capital requirements since Dodd-Frank. My colleague, Vice Chair Barr, has 

already hit on concerns related to Basel III. However, the regulators have also introduced several other proposals, such as the 

long-term debt proposal and resolution planning requirements. 

Given such vast proposals, there must be a potential for negative 

impacts on our financial systems and their ability to operate in a 

safe and resilient manner, so my question is this: Has FSOC reviewed the long-term debt proposal as well as the numerous proposals the banking regulators have put forward? 

Secretary YELLEN. FSOC does not engage in regular reviews of 

banking regulations that are within the authority of the banking 

regulators. They are charged with achieving safety and soundness 

and putting appropriate rules in place, and FSOC, of course, is supportive of those general efforts but not involved in a review of 

agency proposals. 

Mr. TIMMONS. I think the agency proposals are missing the mark 

across-the-board, but we will move on to China. This Administration seems to be so focused on regulating the American economy 

out of existence in the name of climate change, yet it is completely 

turning a blind eye to clear and present dangers presented by the 

Chinese Communist Party (CCP). In fact, the FSOC report mentions the word, ‘‘climate,’’ 136 times, which is close to 10 times 

more than China. Additionally, two subsections of the report are 

dedicated to climate risk. You failed to mention China in your testimony while citing climate risk as the second-highest priority issue 

for FSOC. On top of all that, this past summer, you visited China 

in yet another signal of this Administration’s meager approach towards our communist adversaries. 

I just feel like we are asleep at the wheel with the biggest risk 

to the system barreling toward us. It is unfathomable to think that 

we are allowing the CCP to expand its footprint in our financial 

sector. Whether it is allowing CCP-backed broker-dealers to operate in the U.S., allowing federally-registered agents to be based in 

mainland China, or simply encouraging broad foreign investments, 

we are empowering the same country that seeks to undermine us 

at almost every step of the way. Imagine the security risks or 

threats that could be developed utilizing American financial data 

or trading trends. It is a national security concern that could undermine the stability of our financial sector, and it is not being 

talked about enough, and your report is only further evidence of 

this. 

My colleague across the aisle just mentioned the impact of China 

invading Taiwan—$10 trillion, a huge hit to the global economy— 

and I just think that this is a concern that we need to take seriously. And if we are going to be talking about climate risk, China 
43 

is the number-one polluter on this planet by far, and we need to 

hold them accountable if we are going to tell our economy that it 

needs to take precautions as well because at the end of the day, 

we need to be competitive in the global economy. And by adding 

additional layers of regulation onto U.S. businesses, it impedes 

their ability to impact in the global economy. And with that, Mr. 

Chairman, I going to yield back. Thank you. 

Chairman MCHENRY. The gentleman yields back. We now go to 

the gentlewoman from Massachusetts, Ms. Pressley, for 5 minutes. 

Ms. PRESSLEY. Thank you for joining us, Secretary Yellen. On 

August 23rd of last year, I sent letters to the CEOs of the five largest banks in the United States: JPMorgan Chase, Bank of America, 

U.S. Bank, Wells Fargo, and Citi. I sought detailed information on 

the status of the pledges they announced in response to the global 

movement for Black Lives in 2020 following the murder of George 

Floyd. Collectively, the five banks pledged more than $32.5 billion 

towards investing in racial equity. Although the racial wealth gap 

is over $10 trillion, it was encouraging to see the banks take this 

step. 

For generations, there has been the intentional refusal of mortgages to Black residents, the systemic denial of loans to Black entrepreneurs, and the wholesale redlining of Black neighborhoods. I 

truly believe that the banking industry has long contributed to the 

problem and must now work toward a solution. When I told this 

to the CEOs and requested an audit, I received a response from 

each of the five banks. 

For months, my team poured over hundreds of documents. It is 

clear that the banks have made progress in fulfilling their racial 

equity promises in many areas. Unfortunately, there has been little 

to no progress in the category of institutional policy changes. This 

category is focused on the internal policies of a bank, not just the 

external investments. It includes things like eliminating overdraft 

fees, expanding language access, opening physical branches in 

Black communities, and promoting Black people to the highest 

leadership levels of the bank. Our final analysis is that steps have 

been taken, but not enough. We need long-term change, not just 

one-time investments, to root out racial injustice in the banking industry. 

Secretary Yellen, when financial institutions perpetuate and benefit from racism, discrimination, and the exploitation of Black communities, they exacerbate systemic risk in our financial system. 

The FSOC Analytic Framework for Financial Stability Risk, published last November, pointed out that risk to low-income, minority, and underserved communities can become serious enough to 

pose a threat to financial stability. For example, in the 2007 to 

2009 financial crisis, we saw how decades of redlining made Black 

communities more vulnerable targets for subprime mortgages. 

In light of this, and I hope this is a simple yes-or-no answer, Secretary Yellen, do you agree that racism and racial inequity is a 

threat to the financial system? 

Secretary YELLEN. It could be, and it is one of the factors that 

Dodd-Frank told us to take into account in considering designations. 
44 

Ms. PRESSLEY. I will take that as a, yes. Very good. And to follow 

up on that, what steps is FSOC taking to monitor and mitigate the 

threat that racist practices and policies perpetuated by banks can 

pose to the financial system? 

Secretary YELLEN. Individual supervisors of banks are responsible for ensuring, for example, that Community Reinvestment Act 

(CRA) requirements are met by banks, and the CFPB has authority 

to make sure that our fair lending and other laws are obeyed. 

Ms. PRESSLEY. Okay. As I close here, Chair McHenry, in previous 

Congresses, this committee held hearings with the largest financial 

institutions in order to allow Members to directly ask them questions on the record. This, of course, is in recognition of the banks’ 

outsized role in our economy and our congressional responsibility 

for proper oversight for the American public. Mr. Chairman, will 

you convene a hearing with the CEOs of the largest banks? 

Chairman MCHENRY. Will the gentlelady restate her question? 

Ms. PRESSLEY. Yes. I wanted to ask if you would follow the esteemed tradition and efforts of Ranking Member Waters and do a 

hearing with the largest banks so that we could ask them questions on the record and conduct proper oversight, given the outsized role they play in the economy. 

Chairman MCHENRY. It was the Chair’s decision that it was easier just to watch the Senate do that hearing rather than to hear the 

second day of the same testimony. So, that is why the Chair did 

not do that this year. 

Ms. PRESSLEY. Okay. Well, that is my time. Thank you, and I 

yield back. 

Chairman MCHENRY. The gentlelady yields back. We will now go 

to the gentleman from Wisconsin, Mr. Steil, for 5 minutes. 

Mr. STEIL. Thank you very much, Mr. Chairman. And thank you 

for being here, Secretary Yellen. 

Over the course of the next year, it is estimated that about $10 

trillion in U.S. debt will be reissued, most likely at a higher interest rate. Have you calculated the financial impact that reissuing 

that $10 trillion at a higher interest rate would be? 

Secretary YELLEN. I don’t have a number for you at my fingertips, but—— 

Mr. STEIL. But you do model that, I assume, at the Treasury, the 

implications that would have? 

Secretary YELLEN. Yes, and I think the Office of Management 

and Budget (OMB) does, and it would be part of the projections 

that would be included in the budget. 

Mr. STEIL. And the United States reissues in the neighborhood 

of $10 trillion in debt. Do you have concerns at all about the ability 

to find buyers for that debt? 

Secretary YELLEN. We have very deep, robust markets and very 

robust demand for our debt. 

Mr. STEIL. So, you do not have concerns about a weakening demand with the volume of issuance of $10 trillion at this time? 

Secretary YELLEN. We take steps to make sure that we issue in 

a way that is predictable and orderly and keep the markets well 

informed about our plans, and we have had great success in issuing 

our debt and maintaining liquidity in a deep Treasury market. 
45 

Mr. STEIL. But $10 trillion would be the largest issuance of debt 

the United States has ever seen in a given year by a significant 

amount. Is that accurate? 

Secretary YELLEN. I believe so. 

Mr. STEIL. I appreciate your comments. I would hope that you 

keep us abreast if you have any concerns as it relates to the demand on the issuance of debt at the volume that the United States 

is doing, then the carry costs associated with higher interest rates 

as this new debt is issued. 

Let me shift gears. I am concerned about U.S. enforcement of 

sanctions with Iran. Not only is it the number of sanctions that are 

in place, but it is also our ability to actually enforce those sanctions 

and take action upon them. That can actually alter the behavior of 

countries, and, in particular, in this case, Iran. I am uniquely concerned about the lack of enforcement as it relates to oil sanctions 

with Iran, and as we look at the target of Iranian oil revenues, has 

Treasury sanctioned any of the Chinese entities purchasing Iranian 

oil products, and if so, how many? 

Secretary YELLEN. I am not aware that we have, but we have 

certainly tried to stop those oil shipments by sanctioning shippers 

and others involved with them. 

Mr. STEIL. You sanctioned some. Should we be looking at the ultimate purchaser of the oil, which in many cases is China? You 

said you haven’t implemented any sanctions vis-a-vis China, which 

is obviously one of the largest buyers of Iranian oil. Is that something of concern? 

Secretary YELLEN. I will need to get back to you on that. 

Mr. STEIL. I would love to have you follow up. I have grave concerns about the amount of money flowing into Iran, and, in particular, we have—— 

Secretary YELLEN. We certainly do. 

Mr. STEIL. Right. I appreciate you sharing that concern. I think 

we look at the sanctions that have been put in place by the United 

States, but it is truly the enforcement of those sanctions, in large 

part at Treasury under your leadership, that is so essential to be 

able to change the behavior of Iran, which continues to threaten 

U.S. troops in the region as well as our ally, Israel. Treasury officials are in China this week, and reports indicate that you are considering a visit later this year. Would you be willing to raise this 

issue with Chinese officials, either through people who currently 

work at Treasury or through yourself if you choose to make a visit 

to China? 

Secretary YELLEN. I will discuss it with people at Treasury. 

Mr. STEIL. Would you be willing to discuss it with your Chinese 

counterparts? 

Secretary YELLEN. I want to understand the issue and concerns 

around it before I make any such promise. 

Mr. STEIL. That’s fair. I would appreciate you looking into that, 

because I think it is something that is absolutely worthy of your 

time, and you have been vested great power by Congress with the 

ability to enforce a lot of these sanctions, and our ability to deter 

Iran from their continued funding of terrorism is really dependent 

on the action of Treasury under your leadership. How would you 
46 

respond to concerns that China should not receive a high-level visit 

if it is purchasing oil from Iran? 

Secretary YELLEN. We are—— 

Mr. STEIL. Do you think that should alter a decision by you or 

others from Treasury to engage and visit China? 

Secretary YELLEN. We have many differences with China and 

concerns about its behavior, but President Biden and President Xi 

agreed that we should talk to one another and create channels for 

exchanging information and sharing our concerns and discussing 

them. It is a way to stabilize our relationship, and my dialogues 

with my Chinese counterparts are intended to do that. I have very 

honestly and thoroughly in past engagements explained many 

issues that concern us about China’s economic behavior. 

Mr. STEIL. Thank you. I yield back. 

Chairman MCHENRY. The gentleman from Nevada, Mr. Horsford, 

is now recognized for 5 minutes. 

Mr. HORSFORD. Thank you to the chairman and to the ranking 

member. It’s good to see you, Secretary, and I appreciate you appearing here to discuss the recent report from the Financial Stability Oversight Council. It is a great opportunity to have you here 

today because since we last spoke about your leadership and how 

it was instrumental in successfully restoring stability to our banking sector, promoting economic growth far beyond expectations, and 

adding a staggering 225,000 jobs a month, 3.1 million total in 2023 

alone, the year covered by your report. 

Critically, there was not just growth in the number of jobs created, but the quality of the jobs is rising as well. Americans are 

finally seeing their incomes climb, and now not only is the level of 

real annual earnings higher than before the pandemic, but in 2023, 

the growth of real wages was faster than it was during the prepandemic trend. Everyday working families, those earning in the 

bottom 25th percentile of workers, saw the fastest expansion, with 

a 3.2-percent jump in their inflation-adjusted incomes. 

So, I want to commend you and the Treasury Department for 

your invaluable efforts in contributing to this strong growth as 

your efforts to mitigate the contagion of a bank run earlier in the 

year were largely successful. Importantly, the growth in real wages 

was also concentrated in communities that have historically fared 

poorly during times of economic recovery, with specific gains being 

made for Black and Hispanic workers, who saw their earnings 

grow 4 percent, and 2.4 percent, respectively. As you mentioned 

earlier this year to the Economic Club of Chicago, and according 

to the Treasury Department’s October Equitable Recovery report, 

this may have even been the most equitable recovery in recent history. 

Now, while I recognize that these gains were far better than forecasters predicted, I hope you will agree with me that there is still 

more work that needs to be done. While House Democrats and 

President Biden are working to ensure we all have a chance to succeed, recently we have seen an extreme conservative movement 

begin a new assault on the lending firms that aim to expand access 

to historically-underserved communities. 

Far broader and equally as sinister has been the rapid escalation 

in attacks on diversity, equity, and inclusion initiatives throughout 
47 

our economy in the wake of last June’s Supreme Court ruling on 

affirmative action. Given these actions against institutional efforts 

to address longstanding inequities, it is more important than ever 

that we speak up to protect Black and minority entrepreneurs and 

their access to the limited capital that is available to them in the 

first place. 

The organizers of the latest attacks are organized, and they are 

determined, as they work to undermine our efforts to make a more 

inclusive economy, but rest assured, we will be equally as resolute 

in our defense, and we will not be silent. The baseless attacks on 

these efforts harm everyone. Diversity, equity, and inclusion are a 

business imperative. In fact, I want to enter into the record a report from McKinsey & Company, entitled, ‘‘Diversity Matters Even 

More,’’ where they report that the companies with the most diversity in their management team in the top quartile have 39 percent 

better performance than those that are not diverse. 

Chairman MCHENRY. Without objection, it is so ordered. 

Mr. HORSFORD. Thank you. 

Secretary Yellen, as Treasury weighs key policy priorities, such 

as the Community Reinvestment Act, the Inflation Reduction Act, 

and CHIPS implementation, and other determinations, do you 

agree with the McKinsey report findings that companies and financial institutions that refuse to incorporate diversity, equity, and inclusion practices into their businesses perform worse than their 

peers and, thus, may be riskier? 

Secretary YELLEN. I am aware of the research that you cited, and 

it strikes me as being well done. So while I have not looked at this 

issue myself, I see very good reasons for the findings you mentioned. 

Mr. HORSFORD. Thank you. And do you believe that these renewed attacks on diversity, equity, and inclusion efforts may lead 

financial institutions to lower the availability of credit to low-income, minority, and underserved communities, and could these 

pullbacks increase systemic risk within those communities if those 

institutions are a main source of credit for those underserved populations? 

Secretary YELLEN. I think access to credit is critically important 

for these communities, and it would be a devastating thing to see 

a pullback. As you know, Treasury and the Biden Administration 

have been highly focused on adding, through many different programs, including CDFIs and the State Small Business Credit Initiative (SSBCI) program, access to capital in minority, low-income 

communities. 

Mr. HORSFORD. Thank you. And for that reason, Mr. Chairman, 

I join with my colleague and call on you to bring a hearing on this 

important issue. This is an attack that must be addressed, and this 

committee should be at the center of it. With that, I yield back. 

Chairman MCHENRY. The gentleman from Pennsylvania, Mr. 

Meuser, is recognized for 5 minutes. 

Mr. MEUSER. Thank you very much, Mr. Chairman. It’s great to 

see you, Secretary Yellen. A little while ago, you had an exchange 

with Mr. Casten about the employment numbers and unemployment numbers, and you stated, I believe, if I heard it right, that 

the situation of the number of illegal migrants coming into our 
48 

country—I believe you said it was a positive thing. Did I hear that 

right? 

Secretary YELLEN. Did you say illegal immigration? 

Mr. MEUSER. Yes. 

Secretary YELLEN. I didn’t speak to illegal immigration. 

Mr. MEUSER. Okay. Well, that is what he was referencing. He 

was referencing the level of migrants coming into the country, 

and—— 

Secretary YELLEN. I simply said that immigration that is added 

to our—— 

Mr. MEUSER. Because legal immigration is great. 

Secretary YELLEN. I am really—— 

Mr. MEUSER. Drugs, human trafficking—— 

Secretary YELLEN. ——not weighing in on that. 

Mr. MEUSER. Okay. Thank you, Secretary. The FSOC’s recent 

guidance on climate change, nonbank SIFI designations, and the 

Basel III Endgame proposal, have received wildly overwhelming 

criticism by the financial industry for being unclear, overly broad, 

all kinds of descriptions—creates confusion, not being data-based, 

and we have had conversations with Vice Chair Barr and many 

others, Chairman Powell related to this, so that is certainly nothing new. Yet, the regulators are not conducting cost-benefit analyses for each rule they implement. 

The guidance on nonbank SIFI designations, climate change, and 

the Fed’s Basel III Endgame omits any cost-benefit analysis. So, 

Secretary, why do you believe any business subject to nonbank 

SIFI designation should not receive a cost-benefit analysis to determine the effects on the business? 

Secretary YELLEN. FSOC was given by Congress the ability to 

designate a nonbank whose material distress would pose a risk to 

the financial system, and, most clearly, FSOC did not require a 

cost-benefit analysis in association with that, something that they 

could have done and chose not to do. And there are very good reasons not to do it because what we are talking about in terms of the 

benefits of designation is a reduced chance of a financial crisis, and 

to try to quantify exactly what are the costs of a financial crisis is 

not a useful exercise. 

Mr. MEUSER. Okay. 

Secretary YELLEN. Even in the aftermath of financial crises we 

have experienced, like the 2008 crisis, people can’t agree what the 

cost of it was. 

Mr. MEUSER. Okay. Just because it is not in the rule, doesn’t 

mean it wouldn’t be worthwhile, and they could pursue it anyway 

to gain a more accurate finding and outcome, but let’s just talk 

about Basel III Endgame for a moment. No cost-benefit analysis, 

not much data to support it, small businesses across the country 

will suffer from it because there will be less lending taking place. 

Nobody can argue with that. Some people say it could be as much 

as 20 percent from the big banks, and then all kinds of pressure 

is put on the smaller banks where they will have, instead of 20 

small businesses coming to them, they will have a hundred because 

there is less funding and capital available from the large banks, yet 

some people argue those very basic, simple, fundamental points. 
49 

So I ask you, on Basel III, are you concerned about the overwhelming feedback regarding the problems and potential risk to 

our economy that the Basel III Endggame proposal will cause? 

Secretary YELLEN. The banking agencies put out this proposal. 

This is not something that I have been involved with, and they 

have received many comments and expressions of concern along the 

lines that you have just indicated, and it is their job under the Administrative Procedure Act (APA) to review those comments and to 

respond appropriately. 

Mr. MEUSER. Okay. 

Secretary YELLEN. My understanding is that they believe that 

changes in some of the proposals are going to be appropriate and 

necessary to address the commenters. 

Mr. MEUSER. Thank you, and as Secretary of the Treasury, and 

all of the things you have done in the past, is there a plan in place 

to help American business become more competitive besides spending in an excessive manner, which some argue creates an artificial 

growth initiative? 

Chairman MCHENRY. The gentleman’s time has expired. The 

Secretary can respond in writing for the record. 

We have one final questioner. In consultation with the Secretary’s team, she is game for it. It’s been a nice day of endurance 

here. With that, we will now recognize the gentleman from Wisconsin, Mr. Fitzgerald, for 5 minutes. 

Mr. FITZGERALD. Thank you. Madam Secretary, I am the last 

Member, I guess. 

When Fannie Mae and Freddie Mac were taken into conservatorship in 2008, Treasury received warrants that give it the right to 

buy common stock in each of the GSEs equal to 80 percent of the 

total outstanding shares, and those warrants expire on September 

7, 2028. In August of 2020, the Congressional Budget Office issued 

a report that estimated Treasury could receive the $190 billion for 

its senior preferred shares, in addition to $110 from exercising its 

warrants in the GSEs. FHFA Director Thompson said in a hearing 

last May that the two of you have not discussed these warrants. 

The conservatorship has gone on, I think you could agree, for probably too long now, and I am concerned that the conservatorship of 

the GSEs and the warrants could be used to further politicize the 

entities. Have you or your staff given any consideration to the 

monetization of Treasury’s warrants in the GSE? 

Secretary YELLEN. This is not a matter on which I am up to 

speed. I am not knowledgeable about this. I have a staff who 

spends a great deal of time thinking about it, but I have not had 

a discussion with them about this. I would appreciate it if I could 

get back to you on this matter. 

Mr. FITZGERALD. Absolutely. I appreciate it. Thank you. 

Secretary Yellen, last May, you said, ‘‘This might be an environment in which we are going to see more mergers, and that is something I think the regulators will be open to if it occurs.’’ But I think 

as a member of the committee, the perception out there is that regulators review kind of the proposed bank deals at a slow pace, and 

there is also a relatively high degree of uncertainty about the outcomes, both of which have kind of this chilling effect that we have 

had reported right here in the committee. So, given that regional 
50 

banks are subject to constant onsite supervision—we have heard 

from the bankers about this numerous times—can you think of any 

reason why it should take the Federal Reserve more than the 

statutorily-prescribed 90 days to decide if a merger is appropriate 

under the Bank Holding Company Act? 

Secretary YELLEN. I can just say, based on my own experience 

in the Fed, that often issues are raised in connection with the community performance of banks that need to be investigated, and 

these investigations can involve a lot of back and forth and be 

time-consuming. So, I share your frustration that it often took a 

good deal of time, but sometimes there are difficult issues that 

need work to respond to before a proposal can be presented to, in 

the Fed’s case, the Board. 

Mr. FITZGERALD. Very good. Thank you. Saudi Arabia pricing 

their barrels of oil in dollars has played a large role in the U.S. dollar building and maintaining its status as the global reserve currency. The Saudi minister of finance stated that they are open to 

trading oil and currencies other than dollars, and has held talks 

with China. I am not sure if you are aware of that. I am not asking 

you that question. Combined with the de-dollarization efforts by 

adversaries like China, Iran, and Russia to evade sanctions, the potential weakening of the dollar as a global reserve currency is concerning. What are some of the actions Congress can take to maintain the dominance of the dollar and ensure we can maintain effective sanctions? 

Secretary YELLEN. The dollar is valued as an asset because of the 

deep and liquid Treasury market that we have, the strength of the 

U.S. economy, the strength of our currency, and the fact that we 

keep inflation under control and it is a good investment. We have 

rule of law, we have open capital markets, and protecting these 

fundamental assets that give rise to the strength of the dollar is 

critical to its role. But the important role of the dollar also enables 

us to levy sanctions against countries that act against our interests, and by depriving them of access to the dollar financial system, 

we can really exercise some control over their behavior. And it 

should be understood to be natural that when we use sanctions, 

those who are sanctioned are incented to try to figure out 

workarounds. I have not seen anything that I believe poses a deep 

threat to the dollar, but those incentives exist, and our ability to 

sanction countries’ activities that threaten our national security, I 

think is very important. 

Chairman MCHENRY. The gentleman’s time has expired. 

Mr. FITZGERALD. Thank you. I yield back. 

Chairman MCHENRY. Secretary Yellen, I ask for your forgiveness. We are now 8 minutes past the time. In order to have partisan balance, Ms. Tlaib is here, and I think it would be appropriate if we can allow her to ask questions for 5 minutes. 

Secretary YELLEN. Mr. Chairman, I am certainly willing to do 

that. 

Chairman MCHENRY. We did start a few minutes late, so thank 

you for that, Secretary Yellen. We will go to Ms. Tlaib for the final 

set of questions for today, then we will adjourn immediately after. 

Ms. TLAIB. Thank you so much, Mr. Chairman. As you know, 

Secretary, nonbank financial companies like AIG and Lehman 
51 

Brothers played a large role in the 2008 financial crisis, and that 

crisis decimated the U.S. economy, causing millions of families to 

lose their jobs or homes or both. And I know in my district, including Wayne County, and broader Southeastern Michigan, we saw 

employment fall 51 percent for low- and moderate-income households. The median home value for low and moderate homes plummeted about 53 percent. 

Countless families, as you know, lost their homes to foreclosure. 

We had the worst tax foreclosure crisis in Wayne County. When 

the pandemic hit, another financial crisis emerged seemingly overnight, and, again, liquidity pressures on vulnerable and overleveraged shadow banks contributed to the market volatility. The risks 

posed by such companies have not been addressed. Today, nonbank 

financial intermediaries, I think they are called, broadly defined, 

are responsible for 60 percent of the credit provided to the U.S. 

economy. 

And so, Secretary Yellen, can you discuss the size of the so-called 

shadow banking sector and its interconnections with the traditional 

banking sector? 

Secretary YELLEN. The shadow banking sector is very large, and 

we are very focused on potential risks. I agree with your assessment that much of the damage, not all of it, but much of it during 

the financial crisis arose from this so-called shadow banking system, and in part, FSOC was created in order to try to address 

those risks, so it is very high on our agenda. We have a variety of 

tools to do so, and we have identified a number of areas that give 

us concern. 

Ms. TLAIB. Yes. 

Secretary YELLEN. Some of those were the areas, as you mentioned, in March of 2020, where we saw problems and there were 

open-end bond funds. 

Ms. TLAIB. But given the size of nonbanks, their interconnectedness, and the incentives they face, I greatly appreciate your leadership in establishing FSOC’s new guidance on the designation of 

nonbanks as systemically important. I completely agree. The question now turns to implementation, and implementation matters. 

Zero nonbanks are currently designated as systemically important. 

Do you believe that no nonbank financial institution is systemically 

important? 

Secretary YELLEN. Very often, the financial stability risks are not 

created by an institution, but rather, by market practices within a 

market. For example, money market funds have been a problem 

both recently and in the crisis, and to deal with those risks, it is 

not appropriate to just choose one or two large money market funds 

to designate. I don’t think designation is the right tool. I think an 

approach that regulates the practices in the industry is appropriate. 

Ms. TLAIB. What is—— 

Secretary YELLEN. The so-called activity-based approach, that is 

what the SEC has been pursuing in that space. Sometimes, it is 

appropriate to designate a firm when it creates risks, but in other 

situations—— 
52 

Ms. TLAIB. What I hear is the different regulatory environments 

that we are creating. What does it mean? What is regulatory, what 

is it, arbitrage? What does that mean? 

Secretary YELLEN. ‘‘Regulatory arbitrage’’ means that when one 

sector is regulated, that a kind of activity that becomes more expensive to conduct through that sector moves to a less-regulated 

part of the economy. 

Ms. TLAIB. Yes. 

Secretary YELLEN. But this isn’t always about individual firms. 

It is often about a group of firms or an industry—— 

Ms. TLAIB. Or maybe a culture. 

Secretary YELLEN. It might be a culture, but often, it is many 

firms and not just one or two firms that are responsible for the 

problems. 

Ms. TLAIB. Yes. And I just want FSOC, of course, it was important for you, and thank you for your leadership on that, but it has 

to fulfill its total responsibilities when it talks about protecting our 

residents, especially our low-income and underserved communities, 

from the systemic risk, as you know, and financial instability that 

results from the failure of the megabanks. Describe what specific 

actions—maybe you talked to some of my colleagues about this already—has FSOC really taken or plans to take in full responsibility in protecting those families. Again, I am looking at these and 

trying to learn about these process and the culture as I create it, 

I call it—— 

Chairman MCHENRY. The gentlelady’s time has expired, and if 

the Secretary could answer for the record in writing, that would be 

sufficient. 

Secretary YELLEN. Okay. I will answer for the record. 

Ms. TLAIB. Yes. I want to learn more. Thank you. 

Chairman MCHENRY. Thank you, Secretary Yellen, for your testimony today. 

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. 

I want to thank you again, Secretary Yellen, and please respond 

to these questions, if you would, no later than March 30, 2024. 

This hearing is adjourned. 

[Whereupon, at 1:14 p.m., the hearing was adjourned.] 
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A P P E N D I X 

February 6, 2024 
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