ms. rivlin reports on the positive perfomance of the us economy and the policies needed to sustain growth in the future testimony of the vice chairman of the board of governors of the us federal reserve system, ms. alice m. rivlin, before the committee on banking and financial services of the us house of representatives on 23 / 7 / 97. i would like to begin by expressing my appreciation to the committee for holding this hearing to solicit a wide range of views on appropriate monetary policy at this extremely favorable moment in our economic history. all too often congressional hearings are called when something bad is happening. in a deteriorating situation, congress finds it necessary to survey the damage, assess responsibility and call for better policies in the future. at the moment, however, the economy as a whole is functioning amazingly well. employment is high and rising, unemployment is low, incomes are increasing, profits are high, the federal budget deficit is plummeting, state and local finances are increasingly strong, and inflation is benign. the overriding economic objective - - shared by all participants in the economy - - is to keep the good news flowing. we all want the economy to grow at its highest sustainable rate, to keep unemployment and inflation low, and above all, to avoid recession as long as possible. thoughtful people, at the federal reserve and elsewhere, have somewhat different views about why the economy is doing so well and how best to keep it going. your invitation to share those views is timely, constructive and welcome. i would like briefly to discuss three questions : 1. 2. 3. why is the economy performing so well - - and, in particular, why do we have so little inflation with such low unemployment? why is it so important, especially right now, to keep the economy growing at its highest sustainable rate and to avoid recession? what policies - - monetary and other economic policies - - are most likely to keep economic performance high and sustained? why is the economy doing so well? most economists are frankly surprised that the economy has been able to grow fast enough to push unemployment rates below 5 percent without generating accelerating inflation. until recently, most students of the economy thought that unemployment rates below 5. 5 - 6. 0 percent ( estimates differed ) for an appreciable period would lead to rising labor costs that would be passed on in higher prices and start a self - perpetuating wage - price spiral that would be hard to reverse. true, unemployment had been lower

in doing so it should be clear that this is not a special arrangement for china – rather it is part of a broader policy. branches of foreign banks ( both non - eea and eea ) have a large presence here in the uk. currently, they account for around one third of total uk resident banking assets. supervision of branches has therefore always been an important issue for the uk authorities. in the runup to the launch of the pra, in april, we set out our approach to supervising subsidiaries and branches from overseas, and in this context the announcement on china is not a surprise. bis central bankers ’ speeches let me read to you the relevant three paragraphs from our approach document published in april : “ for uk branches of non - eea firms, the pra ’ s authorisation applies to the whole firm. at the point at which a non - eea branch seeks initial authorisation in the united kingdom, the pra, will, as a first step, form a judgement on the adequacy of the home regulator, including its ability and willingness to share confidential information. where it considers the home supervisor not to have a regime broadly equivalent to that of the united kingdom, the pra will refuse authorisation of the branch. it may instead decide to authorise a stand - alone subsidiary, in which case it may limit the interlinkages with the rest of the group or ring - fence the subsidiary ( for example if it considers the home supervisor not to deliver effective consolidated supervision ). in assessing a non - eea firm against the threshold conditions, the pra may also have regard to the opinion of an overseas regulator in a country in which the firm carries on regulated activities. in considering how much weight to attach to such opinions, the pra must have regard to the nature and scope of the supervision exercised by the overseas regulator. ” “ for existing uk branches of non - eea firms where the home regime is not considered to be equivalent, the pra ’ s supervisory work is aimed at mitigating the risks of non - equivalence in the relevant areas. its supervision focuses on issues such as the financial strength of the whole firm, including the adequacy of its liquidity and the resolution plan for the firm ( collaborating with the special resolution unit and home authorities to develop such plans in colleges or crisis management groups as applicable ), taking into account the importance of the firm to the pra ’ s objective. ” “ for uk branches of