[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]




 
                   THE ANNUAL REPORT OF THE FINANCIAL


                      STABILITY OVERSIGHT COUNCIL

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

                             HYBRID HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 12, 2022

                               __________

       Printed for the use of the Committee on Financial Services
       

                           Serial No. 117-84
                           
                           
                           
                           
 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]         
 
 
 
 
 
                         ______                       
 
 
              U.S. GOVERNMENT PUBLISHING OFFICE 
47-651PDF           WASHINGTON : 2022 
                           
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York           BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            ANN WAGNER, Missouri
ED PERLMUTTER, Colorado              ANDY BARR, Kentucky
JIM A. HIMES, Connecticut            ROGER WILLIAMS, Texas
BILL FOSTER, Illinois                FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio                   TOM EMMER, Minnesota
JUAN VARGAS, California              LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey          BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas              ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida                   WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam            TED BUDD, North Carolina
CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
RITCHIE TORRES, New York             JOHN ROSE, Tennessee
STEPHEN F. LYNCH, Massachusetts      BRYAN STEIL, Wisconsin
ALMA ADAMS, North Carolina           LANCE GOODEN, Texas
RASHIDA TLAIB, Michigan              WILLIAM TIMMONS, South Carolina
MADELEINE DEAN, Pennsylvania         VAN TAYLOR, Texas
ALEXANDRIA OCASIO-CORTEZ, New York   PETE SESSIONS, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts

                   Charla Ouertatani, Staff Director
                   
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 12, 2022.................................................     1
Appendix:
    May 12, 2022.................................................    45

                               WITNESSES
                         Thursday, May 12, 2022

Yellen, Hon. Janet L., Secretary, U.S. Department of the 
  Treasury, and Chairperson, Financial Stability Oversight 
  Council (FSOC).................................................     4

                                APPENDIX

Prepared statements:
    Yellen, Hon. Janet L.........................................    46

              Additional Material Submitted for the Record

Adams. Hon. Alma:
    Various articles regarding Charlotte's housing crisis........    50
Garcia, Hon. Sylvia:
    Article from The Washington Post, ``Federal watchdog opens 
      `review' of Tex. use of covid aid on border crackdown,'' 
      dated May 9, 2022..........................................   165
Yellen, Hon. Janet L.:
    Written responses to questions from Representative Gottheimer   168
    Written responses to questions from Representative 
      Hollingsworth..............................................   174
    Written responses to questions from Representative Posey.....   172
    Written responses to questions from Representative Timmons...   176
    Written responses to questions from Representative Nikema 
      Williams...................................................   170
    Written responses to questions from Representative Roger 
      Williams...................................................   173


                   THE ANNUAL REPORT OF THE FINANCIAL

                      STABILITY OVERSIGHT COUNCIL

                              ----------                              


                         Thursday, May 12, 2022

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:02 a.m., in 
room 2128, Rayburn House Office Building, Hon. Maxine Waters 
[chairwoman of the committee] presiding.
    Members present: Representatives Waters, Sherman, Green, 
Perlmutter, Himes, Beatty, Vargas, Gottheimer, Gonzalez of 
Texas, Casten, Torres, Lynch, Adams, Tlaib, Dean, Garcia of 
Illinois, Garcia of Texas, Williams of Georgia, Auchincloss; 
McHenry, Lucas, Posey, Luetkemeyer, Huizenga, Wagner, Barr, 
Williams of Texas, Hill, Emmer, Zeldin, Loudermilk, Mooney, 
Davidson, Kustoff, Hollingsworth, Gonzalez of Ohio, Rose, 
Steil, Timmons, Taylor, and Sessions.
    Chairwoman Waters. The Financial Services Committee will 
come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time.
    I would like to start by letting our Members know that 
although we had previously had an agreement with Secretary 
Yellen to have a hard stop of 1:30 p.m. for this hearing, which 
is consistent with committee precedent, she has since informed 
us that she has a meeting at the White House that she needs to 
get to, so the hard stop will now be at 12:30. Democratic 
Members who were unable to ask their questions of Secretary 
Yellen at the last hearing that she testified at will get 
priority today in the question order, and I hope that we can 
get to everyone, even with the truncated hard stop for today's 
hearing.
    Today's hearing is entitled, ``The Annual Report of the 
Financial Stability Oversight Council.'' I now recognize myself 
for 4 minutes to give an opening statement.
    Good morning, and welcome, Secretary Yellen. Thank you for 
testifying today on the annual report of the Financial 
Stability Oversight Council, or FSOC.
    Before the 2008 financial crisis, no governmental body was 
so irresponsible in identifying and mitigating systemic risk 
across our financial system. As a result, our economy was 
unprepared for a near collapse of the financial system, which 
resulted in 8 million foreclosures, 9 million people 
unemployed, and the loss of $19 trillion in household wealth. 
In response, Congress passed the Dodd-Frank Wall Street Reform 
and Consumer Protection Act of 2020 and established FSOC to 
identify emerging vulnerabilities and mitigate threats to our 
financial stability. And for a few years, FSOC took important 
steps to address turmoil in our financial system, including 
subjecting massive insurance companies, like AIG, to stricter 
oversight. Unfortunately, the Trump Administration undermined 
FSOC by cutting staff, conducting fewer and shorter meetings, 
and removing regulatory safeguards on risky mega financial 
institutions. The good news is that Secretary Yellen and FSOC 
are taking steps to repair the damage that was done by Trump 
and to focus on clear threats to our economy, including finally 
labeling climate change as a systemic risk. I urge the 
Secretary to also restore FSOC's ability to guard against the 
threat of systemically important financial institutions.
    Big Tech, crypto, and so-called shadow banks are causing 
significant and fast changes in our economy, so FSOC must 
remain vigilant in its ever-changing environment. Maintaining a 
strong economy has been a key goal of my committee, 
particularly for communities of color. The 2008 foreclosure 
crisis was caused by banks steering borrowers, who were 
disproportionately people of color, into predatory mortgage 
products. History almost repeated itself during the pandemic as 
millions of families almost lost their homes to evictions 
through no fault of their own. I am proud to have fought hard 
with my colleagues to secure $46.6 billion in emergency rental 
assistance. And I am proud that by June, Treasury estimates 
that States and localities will have successfully spent or 
obligated all of those funds, all across America.
    But the housing market needs more support. Home prices rose 
nearly 19 percent in 2021, and despite the recent interest rate 
increases, prices remain high. Housing now accounts for a core 
part of inflation. It is clear that we must do more to increase 
our nation's supply of affordable housing. This is why I 
drafted and continue to advocate for the historic housing 
provisions of the Build Back Better Act.
    Finally, our economy can only be strong if everyone can 
participate, and that includes America's women. The Supreme 
Court's forthcoming decision to overturn Roe v. Wade would 
threaten the financial security of women and our nation's 
economic stability. I applaud Secretary Yellen's leadership 
thus far and look forward to her testimony.
    I now recognize the ranking member of the committee, the 
gentleman from North Carolina, Mr. McHenry, for 5 minutes.
    Mr. McHenry. Madam Chairwoman, let me begin by saying, 
welcome back. We are glad you recovered and recovered so well. 
We're glad to have you back in health and to welcome you back, 
and also grateful that our vice ranking member is healthy as 
well. We know that COVID is still very real, but I'm very 
grateful that both of my friends on either side of me are 
healthy. And, Secretary Yellen, welcome, and thank you for 
being here.
    The Financial Stability Oversight Council, or FSOC, is 
charged with identifying and responding to emerging risk to our 
financial system. That was the design of it. FSOC does not and 
should not impose partisan policies. Today, Secretary Yellen, I 
think we should be focused on the challenges posed by Russia's 
invasion and the consequences to the global economy, the impact 
that China's lockdowns and economic issues will have on the 
financial system in the broader economy, the importance of 
protecting the financial system from bad actors and foreign 
adversaries, including cyber threats, and the performance of 
domestic financial markets over the last several years. That 
should be the FSOC's agenda, but it isn't the FSOC's agenda.
    It seems that FSOC has become an arm of the 
Administration's policy agenda rather than an objective body 
evaluating real risk to the financial system. In fact, much of 
what the FSOC has proposed to examine and what the Democrats 
will discuss today is part of the left's political agenda.
    Secretary Yellen, the economy is at a crossroads. A 
Democrat-led Washington, Democrat regulators, and Democrat 
policies are failing the American people. In the first quarter, 
our economy shrank. The GDP came in at a negative 1.4 percent. 
Democrat policies have helped fuel a surge of imports and a 
decline in business inventories, both of which detract and 
reduce the economy. Adding to the problem is a record 11 
million jobs available, yet workers are still on the sidelines 
because inflated wages are eroding the ability of the private 
sector to hire employees to match production demands.
    The root of the problem is out-of-control Democrat 
spending, which has created persistent inflation. In fact, just 
yesterday, the Bureau of Labor Statistics announced that 
inflation rose again in April. It is now 8.3 percent over the 
past year, remaining near a 40-year high. Inflation is killing 
American consumers' household budgets. Wages are not keeping up 
with inflation and the rising cost of things that families buy. 
Instead of addressing the issue of rising prices and what 
problems that is creating for the economy and American 
families' financial well-being, Democrats will focus elsewhere. 
Deep down, they know that their spending spree is hurting 
America, but pulling back all that free money isn't popular, 
and the midterms are looming, so they don't want to do that.
    You would think that my colleagues across the aisle would 
take this moment and reflect on their agenda and its 
effectiveness or lack of effectiveness. Instead, they are 
doubling down and using the FSOC to advance their radical 
policies. So if you don't like something, well, let's just have 
the FSOC label it as risky and regulate it away. And before you 
know it, progressive policies will force lending decisions in 
favor of those customers who are activists that progressives 
support, while law-abiding American businesses will be forced 
to close to appease the radical left.
    Let's turn now, though, to an issue that is of consequence 
to the stability of our economy. Let's turn to digital assets 
and stablecoins for a moment. This week, we have seen dramatic 
volatility within a particular algorithmic stablecoin. And by 
its nature, it is not stable when it doesn't have backing by 
something real and of substance. I want to be clear that not 
all stablecoins and not all digital assets are the same. The 
example this week is a clear sign to the broader world that 
that is true. Not all of these assets are the same, nor should 
they be regulated the same. And, in fact, we have no regulatory 
sphere or recognition of digital assets. We don't have a 
Federal regulatory regime for stablecoins, and we need it, and 
I think there is bipartisan understanding of that.
    At the beginning of last year, I made clear to this 
committee that we need to come together to establish a clear 
regulatory framework for stablecoins in the broader digital 
asset ecosystem. It is time for Congress to act on these 
important markets and provide stability. It is very important 
in the short term and long term, and these technologies deserve 
time to be understood before they are labeled as risks.
    Madam Chairwoman, thank you, and I yield back.
    Chairwoman Waters. Thank you very much, Ranking Member 
McHenry.
    I now recognize the gentleman from Colorado, Mr. 
Perlmutter, who is also the Chair of our Subcommittee on 
Consumer Protection and Financial Institutions, for 1 minute.
    Mr. Perlmutter. Thank you, Madam Chairwoman. Madam 
Secretary, it's good to see you. I want to highlight one of the 
issues raised in the Financial Stability Oversight Council's 
annual report.
    Colorado continues to see increased climate-related risk in 
the form of more wildfires. In December, the Marshall Fire 
burned nearly 1,100 homes, businesses, and other structures, 
making it the most destructive fire in Colorado history in 
terms of property destroyed. The cost to rebuild our 
communities is daunting, and nearly every homeowner was 
underinsured. When it comes to climate risk, you can already 
see the effect on the insurance market in the State of 
Colorado. On Monday, I held a telephone town hall with almost 
7,000 people on the line. We conducted a poll question--how 
concerned are you about wildfire risk on a scale of 1 to 5--and 
every single respondent answered with the highest level of 
concern. We must ensure that our financial system serves as a 
source of strength as we seek to address climate change.
    And with that, I yield back.
    Chairwoman Waters. Thank you very much. I want to welcome 
today's distinguished witness, the Honorable Janet Yellen, 
Secretary of the Department of the Treasury, and Chair of the 
Financial Stability Oversight Council.
    You will have 5 minutes to summarize your testimony. You 
should be able to see a timer that will indicate how much time 
you have left. I would ask you to be mindful of the timer and 
quickly wrap up your testimony.
    And without objection, your written statement will be made 
a part of the record.
    Secretary Yellen, you are now recognized for 5 minutes to 
present your testimony.

  STATEMENT OF THE HONORABLE JANET L. YELLEN, SECRETARY, U.S. 
  DEPARTMENT OF THE TREASURY, AND CHAIR, FINANCIAL STABILITY 
                    OVERSIGHT COUNCIL (FSOC)

    Secretary Yellen. Thank you, Chairwoman Waters, Ranking 
Member McHenry, and members of the committee. I am pleased to 
speak with you today about the Financial Stability Oversight 
Council's 2021 annual report. The report is a collaborative 
effort for Council member agencies. It is a vehicle for 
providing Congress and the public with the Council's collective 
assessment of potential risks to U.S. financial stability. And 
today, I will highlight a few topics in the report and provide 
an update on the Council's activities since the report's 
publication.
    First, the report discusses vulnerabilities in the non-
banked financial sector, which were highlighted by the turmoil 
in financial markets in March 2020. While the Dodd-Frank Act 
reforms increased the resiliency of the U.S. financial system, 
the market turmoil in March 2020 demonstrated that the 
liquidity mismatch and use of leverage by some non-bank 
financial institutions can make them vulnerable to acute 
financial stresses, and these stresses can be transmitted and 
amplified to the broader financial system.
    The Council has taken steps to examine these risks, 
including reestablishing its Hedge Fund Working Group to 
develop an interagency risk monitoring system and to propose 
options to mitigate identified risks. And earlier this year, 
the Council issued a statement to express support for the 
Securities and Exchange Commission's efforts to reform money 
market funds, and their work to consider potential reforms of 
open-end funds. The Council is also working to support 
improving the resilience of the Treasury market and is 
coordinating with the Inter-Agency Working Group on Treasury 
Market Surveillance. Potential steps to be taken include 
improving data quality and availability, evaluating expanded 
central clearing, and enhancing trading venue transparency and 
oversight.
    The SEC has proposed certain reforms to enhance 
transparency and oversight over alternative trading systems to 
trade government securities. The SEC has also proposed updating 
the definition of a government securities dealer to include 
market participants that play an increasingly significant 
liquidity-providing role in overall trading and market 
activity. Additionally, the Office of Financial Research is 
working to fill identified data gaps for uncleared bilateral 
repurchase agreements through a pilot data collection, which 
should improve visibility into a major source of financing for 
non-banked financial institutions and Treasury markets.
    Additionally, the Council is working to ensure that 
financial institutions better understand their climate-related 
financial risks. In its October 2021 report on climate-related 
financial risk, the Council outlined how climate change can be 
a source of shocks to the financial system and can increase 
risks to financial stability. To address these risks, the 
Council recommended that regulators build their capacity and 
expand their efforts to address climate-related risks, improve 
the availability of data, enhance and standardize disclosures, 
and assess and mitigate risks to financial stability.
    The Council has also formed its staff-level Climate-related 
Financial Risk Committee, which will serve as a coordinating 
body for the Council to share information, facilitate the 
development of common approaches and standards, and foster 
communication across FSOC members. In addition, the Council is 
establishing the Climate-related Financial Risk Advisory 
Committee. This advisory body, which will include a broad array 
of external stakeholders, will help the Council gather 
information and analysis on climate-related financial risks.
    With respect to digital assets, new products and 
technologies may present opportunities to promote innovation 
and increase efficiencies. However, digital assets may pose 
risk to the financial system, and increased and coordinated 
regulatory attention is necessary. On March 9th, President 
Biden signed an Executive Order calling for a comprehensive 
approach to digital asset policy, and the Council is drafting a 
report that will identify financial stability risks and 
regulatory gaps. I look forward to working with you on the 
issues and opportunities posed by digital assets, and we are 
also eager to work with you to ensure that payment-stablecoins 
and their arrangements are subject to a Federal prudential 
framework on a consistent and comprehensive basis.
    Finally, there is the potential for continued volatility 
and unevenness of global growth as countries continue to 
grapple with the pandemic. Russia's unprovoked invasion of 
Ukraine has further increased economic uncertainty. The U.S. 
financial system has continued to function in an orderly 
matter, although valuations of some assets remain high compared 
with historical values. We stand firmly with the people of 
Ukraine and have implemented an unprecedented sweep of 
sanctions on Russia that have been implemented by financial 
institutions. On February 28th, I convened the Council in the 
wake of the invasion, and we will continue to monitor 
developments and coordinate actions as the risk and threats 
evolve.
    The Council's report also discusses other potential 
emerging threats and vulnerabilities that the Council continues 
to monitor, including short-term wholesale funding markets, 
central counterparties, alternative reference rates, 
cybersecurity corporate credit markets, and real estate 
markets. The Council remains committed to its mission of 
identifying and responding to risks to U.S. financial 
stability, and I look forward to working with this committee to 
promote a more robust and resilient financial system.
    Thank you.
    [The prepared statement of Secretary Yellen can be found on 
page 46 of the appendix.]
    Chairwoman Waters. Thank you very much, Secretary Yellen.
    I now recognize myself for 5 minutes.
    Secretary Yellen, according to a recent study by the Gates 
Foundation, family planning increases a woman's earnings and 
control over their own assets. As you know, we recently became 
aware of an imminent decision regarding the landmark case of 
Roe v. Wade. Arguably the most important decision regarding a 
woman's economic sovereignty is in jeopardy. A study from the 
University of California-San Francisco found that women who 
were unable to get an abortion were more likely to have more 
debt and to suffer crippling financial events, like eviction or 
bankruptcy.
    Secretary Yellen, how might the Supreme Court's reversal of 
Roe v. Wade impact our nation's financial stability and the 
economic opportunities available to women?
    Secretary Yellen. Thank you for that question, Madam 
Chairwoman. I believe that decades of research have established 
that there is a causal link between access to abortion and the 
quality of women's lives. It affects their education, their 
earnings, their careers, and the subsequent life outcomes of 
their children, and I believe that overturning Roe would 
prevent large numbers of women from managing their reproductive 
lives, particularly many low-income and financially-vulnerable 
individuals. The inability to access abortion would have a 
profound impact on their personal and economic lives. There 
have been studies which show that denying women access to 
abortion increases their odds of living in poverty or their 
need for public assistance. And in the recent Supreme Court 
case, there was a group of economists who submitted an amicus 
brief which summarizes the economic research that establishes 
the relationship between legalization of abortion, birth rates, 
women's educational attainment, and job opportunities, which 
found very significant impacts.
    Chairwoman Waters. Thank you very much. Secretary Yellen, 
in FSOC's most recent annual report, FSOC noted that financial 
innovation has the potential to bring benefits to the public, 
but it can also create new risk. The report noted that many 
digital assets are speculative and volatile, creating risks 
related to illicit finance, cybersecurity, and privacy. 
Further, the report noted that stablecoins, in particular, may 
pose systemic risk if the stablecoin is not adequately backed 
and there is a run on that stablecoin by investors, resulting 
in a fire sale of reserve assets and similar runs on other 
stablecoins. While I appreciate that the President's Working 
Group has called on Congress to pass legislation focused on 
stablecoins, we are exploring various ideas. FSOC has tools at 
its disposal to address some of the systemic risk concerns 
relating to digital assets. What is FSOC doing with its 
existing authorities to ensure that cryptocurrencies, including 
stablecoins, do not pose a threat to our financial system?
    Secretary Yellen. The Financial Stability Oversight Council 
has been tasked by President Biden in an Executive Order to 
ensure responsible development of digital assets. It calls for 
a number of reports by Treasury, but FSOC is charged with 
producing a report that looks at financial stability risks 
particularly, and we are working very hard on that. It will 
address the risks that these assets pose. The Treasury report 
will address many of the risks that you identified in your 
question. But on the issue of stablecoins, which is a kind of 
digital asset that is intended to have a one-to-one 
relationship with the dollar, the President's Working Group on 
Financial Markets regarded it as, frankly, urgent to push ahead 
to write a report making recommendations to Congress. We have 
called for Congress--and I would hope this would be a 
bipartisan effort--to produce a comprehensive framework for the 
regulation of these assets.
    There are potentially useful innovations that could make 
the payment system faster and more efficient, but we really 
need a regulatory framework to guard against the risks. And 
just this week, in the last couple of days, we have had a real-
life demonstration of the risks. A so-called algorithmic 
stablecoin, known as a Terra, broke the buck. And this morning 
and yesterday, the largest stablecoin, Tether, also briefly 
broke the buck.
    Chairwoman Waters. Thank you very much.
    The gentleman from North Carolina, Mr. McHenry, who is the 
ranking member of the committee, is now recognized for 5 
minutes.
    Mr. McHenry. Let's continue with that theme. We saw one 
stablecoin is purported to be backed with assets that broke the 
buck, and we have one algorithmic stablecoin that broke the 
buck. Do you make a distinction between an asset-backed 
stablecoin and an algorithmic stablecoin?
    Secretary Yellen. Of course, there are significant 
differences between these two.
    Mr. McHenry. Yes. I welcome the President's Working Group 
report that your group put forward to Congress and to the 
public about recognizing stablecoins. And I think it is 
important that we have a Federal framework and Federal law 
around something which purports to be a U.S. dollar. That is a 
proper remit for the Federal Reserve and for Treasury. Your 
opinions matter significantly as we legislate here. And as I 
said in my opening statement, I called for us to get on with 
this question a year-and-a-half ago, and so I welcome the 
report, and I think we should get to work here. But along those 
lines, in your mind, how does limiting stablecoin issuances to 
only banks promote innovation?
    Secretary Yellen. I think that creating a framework which 
is appropriate to the risks that stablecoins present really 
provides the kind of certainty about the regulatory environment 
that issuers of stablecoins need to thrive and to innovate. In 
our discussions with the industry, one of the complaints that 
we typically heard was that there is regulatory uncertainty, 
and if we were to establish, if Congress were to establish a 
framework, it would make it easier for the issuers of these 
assets to know what the regulatory environment would be.
    Mr. McHenry. The President's Working Group contemplates 
that these would be issued only by banks. Is that your view, 
and if these are risky assets, why does putting them in a bank 
de-risk them?
    Secretary Yellen. One of the key financial stability risks 
associated with stablecoins is that they can experience runs, 
and we have seen that--
    Mr. McHenry. But if they are one-to-one backed, as the 
President's Working Group says, with high-quality liquid 
assets, high-quality bank assets, in essence, you don't have 
runs if you have one-to-one backing with cash equivalents.
    Secretary Yellen. We have money market funds, and money 
market funds are very similar in many ways to stablecoins, and 
they have been a source of instability in the financial system.
    Mr. McHenry. And there has been 42 years of regulatory 
fights over money markets. What we are trying to do here is 
make this a very straightforward stable product.
    Secretary Yellen. And that is what bank regulation has 
accomplished, I believe, in the United States.
    Mr. McHenry. But Dodd-Frank was about de-risking the big 
banks, and now the President's Working Group contemplates that 
we are going to add more risk to these institutions. So my 
question is, is it a viable path for us to have a one-to-one 
backing here of a stablecoin and not have it be domiciled 
within a bank?
    Secretary Yellen. The President's Working Group 
contemplated different alternatives and unanimously recommended 
the establishment of a bank framework for recognizing 
stablecoins.
    Mr. McHenry. A bank framework.
    Secretary Yellen. It is a flexible framework. It involves 
appropriate capital and liquidity requirements, which I think 
are important, and is a framework in which payment system risks 
can be addressed. I think this is something that we would be--
    Mr. McHenry. Yes, and we welcome that.
    Secretary Yellen. --working on, on a bipartisan basis to 
discuss alternatives and evaluate them as something that I 
think would be very worthwhile. And I would urge this committee 
to engage, and we would be very glad to work with you.
    Mr. McHenry. We welcome that. Now, one larger question 
here, because we are talking about the Financial Stability 
Oversight Council and the view. Inflation is raging. We have 
growth that is stagnant right now with the latest numbers and 
rising gas prices. What is your Administration doing to take on 
these challenges the American people are feeling and what my 
constituents are talking to me about?
    Secretary Yellen. Clearly, inflation is a very substantial 
issue, and I agree with the President's assessment that it is 
really the number-one economic issue that faces the 
Administration and the nation. It is having a substantial 
adverse impact on many vulnerable households, and we are laser-
focused on addressing inflation. As you know, the Federal 
Reserve plays an important role. They are charged with price 
stability and full employment, and I would say, first and 
foremost, it is the Fed's responsibility, and we support an 
independent Fed making the judgements that they think are 
appropriate.
    For our own part, the Administration is taking a wide range 
of steps to do what we can to address inflation, and that 
ranges from things like releases from the Strategic Petroleum 
Reserves that are substantial, that are intended to bring down 
energy prices, and working on supply chain issues that are 
contributing.
    Chairwoman Waters. Thank you very much. The gentleman from 
Connecticut, Mr. Himes, who is also the Chair of our 
Subcommittee on National Security, International Development 
and Monetary Policy, is now recognized for 5 minutes.
    Mr. Himes. Thank you, Madam Chairwoman, and thank you, 
Madam Secretary, for being with us. I want to continue this 
conversation on stablecoins because, obviously, the activity 
and the volatility of the last couple of weeks has been 
interesting and concerning to watch. But since this is the 
first time we have had you here since we have had really a 
pretty substantial and robust recovery from the economic 
devastation of COVID, I do want to take just 30 seconds to 
reflect on Dodd-Frank and what it meant.
    I am in the minority of panel members who were here when 
that legislation was crafted, and I very much remember how it 
was sort of the ugly stepchild legislation coming out of 2009. 
We were assured by my Republican friends that it was going to 
end capital markets in this country, liquidity was going to dry 
up, credit availability was going to be gone, and the entire 
capital market of the United States was going to migrate to 
Europe and Asia. Of course, none of that happened. The banks 
are much more profitable and larger today than they were at the 
time. We have seen innovation.
    To be fair, on the other side of the aisle, there were 
people who were concerned that at the first sign of trouble, 
the financial sector was going to crumble. That didn't happen 
either. In fact, we just went through the mother of all stress 
tests. We saw economic stress unlike what we saw back in 2007 
and 2008, and what didn't happen? The sector did not come down. 
I just wanted to take a minute to offer an encomium to the hard 
work that was done back when Dodd-Frank was being crafted.
    Let me turn, though, back to this really interesting 
conversation. Some people estimate that there has been as much 
as $1 trillion in value lost in a variety of different 
stablecoins and other coins, other cryptocurrencies. I feel the 
pain of those who lost money, but this is also an education for 
people who thought that Bitcoin grew to the sky. I am not sure 
there is any regulation we can pass that is quite as much of an 
education for investors as seeing what volatility and risk look 
like.
    My question, Madam Secretary, and what does worry me as a 
veteran of Dodd-Frank, is at what point do we see systemic risk 
developing in this sector, and what does that look like? I 
don't think that at $2 trillion in market cap, we are talking 
about systemic risk, but I could be wrong. Where do you see the 
possibility for systemic risk developing in the broader 
cryptocurrency realm?
    Secretary Yellen. Thank you. The Financial Stability 
Oversight Council is analyzing right now, in response to the 
President's Executive Order, potential financial stability 
risks from digital assets writ large. But we have already 
issued a report, the President's Working Group, which is a 
subset of the FSOC unstable coins, because although I can't say 
that they have reached the scale right now where there are 
financial stability concerns, and we are seeing Terra having 
broken the buck and Tether under some pressure as well, which 
is the largest one. I wouldn't characterize it at this scale as 
a real threat to financial stability, but they are growing very 
rapidly, and they present the same kind of risks that we have 
known for centuries in connection with bank runs. There are 
assets that purport to guarantee conversion at will to the 
dollar on a one-for-one basis, and--
    Mr. Himes. Let me interrupt you. Thank you. I was looking 
for validation that at $2 trillion in overall market cap, we 
are not talking about systemic risk, so let me just ask you, 
again, being a veteran of the meltdown of 2008 and Dodd-Frank, 
I get very, very itchy around systemic risk. And actually, of 
course, that market cap has decreased dramatically in the last 
couple of months. At what point should this committee get 
focused on the possibility of systemic risk? Are we talking $5 
trillion in market cap, $10 trillion? At what point should the 
red flag start to rise?
    Secretary Yellen. I can't give you a numerical cutoff, but 
what I do see is that the use of digital assets is rising very 
rapidly, that they present the same kinds of run risks and 
other risks, payment system risks, and, really, we need a 
comprehensive framework so that there are no gaps in the 
regulation.
    Mr. Himes. Agreed. Thank you. I want to leave you 30 
seconds. I have been doing a lot of work on a central bank 
digital currency, which, as you know, the Federal Reserve has 
opined on in a general way. In my remaining time, a central 
bank digital currency, inasmuch as it was a liability--the 
Federal Reserve would do away with a lot of the concerns that 
we are talking about here with stablecoins, correct?
    Secretary Yellen. I agree with that. That is the reason to 
want to have the central bank digital currency, but there are 
also concerns because it could have, depending on how it is 
designed, a very significant impact on the structure of 
financial intermediation. So, there are some tradeoffs here. We 
will address this in the Treasury report that we will be 
issuing.
    Mr. Himes. Thank you. Thank you very much.
    Chairwoman Waters. Excuse me. Members, I am going to ask 
you to keep your questions within your 5 minutes, and I am 
going to ask the Secretary, based on the fact that you have to 
get out of here, and I am trying to accommodate all of our 
Members--
    Secretary Yellen. Thank you.
    Chairwoman Waters. --who were not accommodated before, 
let's keep within the 5 minutes. Thank you very much.
    The gentlewoman from Missouri, Mrs. Wagner, is now 
recognized for 5 minutes.
    Mrs. Wagner. Thank you, Madam Chairwoman. Secretary Yellen, 
thank you for joining us today.
    During a public address on Tuesday, President Biden 
attempted to once again blame record high inflation on the 
pandemic and on Putin. Secretary Yellen, is it still your 
belief that excessive government spending, trillions of 
taxpayer dollars, is not a root cause of the rising prices that 
my constituents in Missouri's 2nd Congressional District are 
seeing every single day on gas, goods, groceries, and I could 
go on and on? Is it not a root cause?
    Secretary Yellen. There are many contributors to the 
exceptionally high inflation that we are experiencing, and 
certainly--
    Mrs. Wagner. Is excessive government spending a root cause?
    Secretary Yellen. Look, we had substantial programs to 
address what I believe was the most significant risk we faced 
as an economy at the time. Unemployment was extremely high.
    Mrs. Wagner. It has now spun us into an inflation that is 
at a 40-year high, and goods and services that are not 
affordable in any way, shape, or form. We have literally had 
CPI down for one quarter. God help us if it is down for a 
second one; it would toss us into a recession. Supply chain 
issues. I could go on and on. We have spent trillions and 
trillions of dollars, and the Fed has been too late to get here 
to help. Is the excessive spending a root cause?
    Secretary Yellen. Look, inflation is a matter of demand and 
supply, and it is certainly true--
    Mrs. Wagner. Okay. Let me--
    Secretary Yellen. --that government programs supported 
demand.
    Mrs. Wagner. Let me just reclaim my time.
    Secretary Yellen. But the pandemic--
    Mrs. Wagner. Let me just reclaim my time here, please, and 
we will move on since you won't answer the question. The 
ranking member also asked about inflation and asked what you 
and the Administration are doing about it, and you assured us 
it is all hands on deck and you are doing all sorts of things. 
You identified that, in fact, there is a problem with 
inflation, but what are you doing? What are you and the 
President specifically doing? All you said was you were 
releasing oil from the Strategic Petroleum Reserve, which does 
nothing to help and actually jeopardizes our future petroleum 
needs when there really is an emergency. What are you doing 
specifically?
    Secretary Yellen. The release from the Strategic Petroleum 
Reserve has served to hold down oil prices--
    Mrs. Wagner. No, it hasn't.
    Secretary Yellen. I'm sorry, but it has.
    Mrs. Wagner. It is $4.50 a gallon, and diesel is well over 
$5. It is a drop in the bucket. What are you doing 
specifically? You said it is all hands on deck.
    Secretary Yellen. Russia's unprovoked attack on Ukraine has 
had a substantial impact on global energy and crude markets.
    Mrs. Wagner. Oh, for heaven's sakes. We have been at this 
for 16 months, Madam Secretary. With all due respect, I can't 
disagree more. You won't even admit that the root cause of this 
is the spending and spending and spending. The Fed just got on 
the job last month in terms of raising interest rates by 50 
basis points, and they will do it again next month and perhaps 
the month after, and the month after that. We are in a spiral. 
The moms in my district can't find baby formula, okay? They 
can't afford to fill up their cars with gas.
    Secretary Yellen. We have to--
    Mrs. Wagner. This is a serious situation, and making--
    Secretary Yellen. Well--
    Mrs. Wagner. What else are you doing besides the Strategic 
Petroleum Reserve, ma'am?
    Secretary Yellen. We are trying to unblock supply chains 
that have become very clogged. We have put in place changes, 
for example, at the ports of Los Angles and Long Beach that 
have substantially diminished backlogs there that have been 
raising prices and taken steps to--
    Mrs. Wagner. How about energy independence? Let's open up 
Keystone. Let's get some of these oil and natural gas leases 
through so we can be once again energy-independent, not only 
take care of our own energy supply and needs, but also maybe 
provide that to Europe so they are not so dependent upon 
Russia, and Iran, and other dictators. There are so many 
things, ma'am, that we should be doing. And the problem with 
unclogging the ports is that now they are paying $4.50 to $6 to 
move that diesel to St. Louis, Missouri, in the middle of the 
United States. It is untenable, it is unacceptable, and it is 
unbelievable to me that we can't even get the Secretary of the 
Treasury to admit that overspending by this Administration is 
the root cause.
    I yield back, sadly.
    Chairwoman Waters. Thank you. The gentleman from 
Massachusetts, Mr. Lynch, who is also the Chair of our Task 
Force on Financial Technology, is now recognized for 5 minutes.
    Mr. Lynch. Thank you, Madam Chairwoman. Madam Secretary, 
thank you for being here. We really appreciate all of your good 
work.
    I want to follow up on Mr. Himes' question, and I know he 
ran out of time sort of at the end, but I can't help but make a 
comparison to what we are seeing in the stablecoin area with an 
earlier part of our history when individual companies--coal 
companies, railroads, lumber companies--were issuing their own 
script. And what happened with all those privately-issued 
currencies was that when the greenback came out, consumers and 
businesses recognized the stability in the greenback, and all 
of those script currencies went away. Some of them were banned 
by the Fair Labor Standards Act and other pieces of 
legislation, but some went out due to disuse. Right now, there 
are 200 stablecoins in circulation. What are your expectations 
that 200 stablecoins are going to survive the emergence of a 
CBDC issued by the Fed?
    Secretary Yellen. I think you have described the risks 
associated with the proliferation of private stablecoins 
extremely well, and I agree with it. And I think a benefit of 
issuing a central bank digital currency would be that it might 
diminish the proliferation of these stablecoins, but it depends 
on the design of exactly how the central bank digital currency 
is introduced. There are a variety of design choices there, and 
there are issues around that. Privacy is an issue if a central 
bank were to issue it directly to consumers in order to protect 
against illicit finance, against account CFT/AML-type 
considerations.
    Mr. Lynch. Right.
    Secretary Yellen. There would be privacy concerns for the 
Fed amassing that data. An alternative that would seem more 
likely to me would be relying on financial institutions to play 
a role in dealing with customers. All of that would affect 
stablecoins, but there could continue to be stablecoins that 
coexist with the central bank digital currency. They may offer 
some benefits in terms of faster, more efficient, and cheaper 
payments. I think we should be open to innovation, but it is an 
argument for a CBDC.
    Mr. Lynch. I agree. The one aspect that you alluded to was 
the disintermediation of the commercial banks. If the Fed was 
going directly to the consumer, we don't need commercial banks, 
and they wouldn't have a role here.
    Secretary Yellen. It could draw a lot of funding away from 
the banking sector--
    Mr. Lynch. Right.
    Secretary Yellen. --if it is a very attractive asset.
    Mr. Lynch. Right.
    Secretary Yellen. And, this is something under 
consideration in many countries around the world.
    Mr. Lynch. I do want to go on to one other thing, and I 
appreciate the thoroughness of your answer. One of the things I 
worry about is that many of these stablecoins being issued are 
issued with nothing more than a White Paper, and trying to go 
through that, even with an engineering degree, is extremely 
difficult. And I go back to the mission of your Agency and of 
FSOC, and the asymmetry between the issuer of the stablecoin 
and the customer. Is there not some way that the regulators can 
intervene to make sure that at least when they issue a 
currency, there is some basis of judgment on the part of an 
educated consumer on the viability of that individual 
instrument?
    Secretary Yellen. We would like to see a comprehensive 
Federal regulatory framework which could ensure that 
information is available and there is a regulatory framework 
that would be in place. I really urge bipartisan action on 
this. At present, there are some agencies that have some 
authorities here. I don't want to opine on whether or not, say, 
the CFTC and the SEC may have some regulatory authority here.
    Mr. Lynch. Okay.
    Secretary Yellen. We would like to see a comprehensive 
framework.
    Mr. Lynch. So would I. I just want to say that I am aware 
that the Boston Federal Reserve is working with MIT on that 
Hamilton Project, which is also one of the--
    Secretary Yellen. Yes, on the technical--it would be a long 
time before it could be introduced in that work.
    Mr. Lynch. I yield back, Madam Chairwoman. Thank you.
    Chairwoman Waters. The gentleman from Texas, Mr. Sessions, 
is now recognized for 5 minutes.
    Mr. Sessions. Madam Chairwoman, thank you very much. And 
Madam Secretary, thank you for taking time to come up to us on 
the Hill. You are going to be my reality up at this committee, 
and the reality is, the way I see it is things are not working. 
I will go back to President Clinton, who admitted before a 
Joint Session of Congress that the era of Big Government is 
over. President Clinton came in, tried to do exactly these same 
things, and then found out it didn't work. President Obama 
stated it is just not working in the way that we wanted. And I 
would say to you, and it is a question, is the economy and the 
success of an economy an art or a science?
    Secretary Yellen. It is an art and a science, but I would 
say to you that from the point of view of the ability of our 
economy to produce goods and services and promote the well-
being of Americans requires--
    Mr. Sessions. Then that is your science, because you 
understand education, you can see what is good in education, 
and you can see when somebody is headed for trouble. What you 
are talking about art to me is politics, and today this 
committee and you began going into art, not science. You went 
into abortion. You went into stablecoin rather than the general 
market, rather than the things which you are responsible for, 
which is science, which is policy, which is those things that 
make sense and are well-worn ways in a free enterprise system. 
I think that what you have to do is have a dose of reality, 
Madam Secretary. You are bound to have somebody in this Council 
who can offer some advice that what we are doing, going back to 
President Obama, and President Clinton, is not working. What 
works is getting people in a free enterprise system to go to 
work.
    OPM has yet, if you look at their website, to give 
instructions for the government workers to go back to work. If 
you do not have the government working and you are leading the 
way, how can you expect others to go to work? Now, it is true, 
I am from Texas, and in Texas, we are working. We are doing 
those things. We had an equal amount of COVID issues and 
problems as the rest of the United States. But my point would 
be that I think in your own opportunity to look at the San 
Francisco Fed, they directly pointed to the $1.9 trillion 
rescue plan as causing inflation. I openly say it, and I will 
say it again. I think this Administration, I think this 
Congress is making friends with inflation. I think they are 
doing the things that caused it, and that it is a science, but 
it is being treated as an art. Please defend that issue 
yourself.
    Secretary Yellen. I think that the American Rescue Plan 
(ARP) played a hugely important role in putting people back to 
work and ensuring that people throughout the pandemic were able 
to keep roofs over their heads and food on the table. And think 
about the set of problems we do not have because of the ARP. We 
do not have starving families and children.
    Mr. Sessions. How many jobs are available in the market 
today that are unfilled?
    Secretary Yellen. We have an extremely strong job market, 
and we owe that to the ARP. If you remember the recovery from 
the--
    Mr. Sessions. But the question is, how many jobs are going 
begging, and your statement seems to imply--
    Secretary Yellen. We have a huge--
    Mr. Sessions. --that jobs aren't available, and so the 
government has to do it. The government has to pay the money 
because people need it. How about jobs? How about free 
enterprise? How about people paying into the Treasury as 
opposed to taking out a loan? This is that art versus science 
that I am talking about, and I would suggest that you invite a 
couple members of the committee who are on this side to come 
meet with the Council if they can't hear this. They need to 
face reality. President Clinton had it right. The era of Big 
Government was supposed to be over. President Obama: It is just 
working the way we thought. This is a science not an art. I 
thank you for being here. I am available to meet with them 
also, and I yield back my time.
    Chairwoman Waters. Thank you very much, and this committee 
is not making friends with inflation.
    The gentleman from New York, Mr. Torres, is now recognized 
for 5 minutes.
    Mr. Torres. Thank you, Madam Chairwoman. Madam Treasury 
Secretary, a few months ago I asked the Chair of the Federal 
Reserve about the risk of stagflation, and since then, in the 
first quarter of 2021, the economy shrank by 1.4 percent, and 
last month, inflation rose by 8.3 percent. Given these two 
developments, how high, in your view, is the risk of 
stagflation?
    Secretary Yellen. I'm sorry. Could you repeat that? I 
didn't--
    Mr. Torres. How high, in your view, is the risk of 
stagflation?
    Secretary Yellen. We clearly have high inflation, and the 
Federal Reserve has a critical role to play in bringing that 
down. They are in the process, using their own independent 
judgment, of tightening monetary policy to do so, and the 
Administration is doing what we can to also address supply 
chain issues and other contributors to inflation. We have a 
really good, strong labor market. We have household balance 
sheets that are in good shape. We have companies that, 
although, as we note in our annual report, have a lot of debt, 
the interest costs on that debt, it is very able to service it, 
and we have a very strong banking sector. And all of those 
things suggest that the Fed has a path to bring down inflation 
without causing a recession, and I know it will be their 
objective to try to accomplish that.
    Mr. Torres. I have a question about improper payments. The 
rate of improper payments in the Federal Government has risen 
to levels never seen before. According to OMB, the improper 
payment rate for unemployment insurance in Fiscal Year 2021 
rose to 8.7 percent, and there have been reports that the 
percentage could be even higher in June of 2021. Axios had an 
alarming headline, ``Half of the Pandemic Employment Money 
Might Have Been Stolen.'' I know the Treasury has the Payment 
Integrity Center of Excellence. Does the Center have the 
authorities, capabilities, and funding it needs to confront the 
growing crisis of improper payments?
    Secretary Yellen. I think that different agencies have 
different authorities in terms of looking into that and trying 
to address improper payments. Some of that authority for some 
programs resides with the Treasury, and we are doing everything 
that we can to make sure that the payments that we are making 
under the programs that are our responsibilities are not 
characterized by fraud. We have inspectors general, and fraud 
prevention programs, and controls in place to address--
    Mr. Torres. I just want to quickly interject. The Payment 
Integrity Center of Excellence, is its authority restricted to 
the Treasury or is it government-wide?
    Secretary Yellen. I believe a number of different agencies 
and, of course, DOJ plays an important role there as well.
    Mr. Torres. The supply chain disruptions have been so 
severe that parents are desperately searching for baby formula, 
which is in dangerously short supply. As you know, some parents 
have had to travel long distances to purchase baby formula. 
Other parents have had to ration formula, water it down, and 
still others have fallen victim to price gouging or panic 
buying, and according to The New York Times, the out-of-stock 
rate for baby formula has risen to 43 percent, up 10 percent 
from just a month ago. What can be done in the short term to 
alleviate the shortage of baby formula?
    Secretary Yellen. I wish I had a good answer for you, but 
what I can promise you is that the Administration is carefully 
looking into this and will certainly do what they can to 
address what is a very disturbing finding that you described.
    Mr. Torres. A quick question about stablecoin. Suppose for 
a moment there is a stablecoin issuer whose reserves are 
verifiably backed by the dollar on a one-to-one basis, and 
whose reserves can be immediately redeemed for a dollar on a 
one-to-one basis. If the stablecoin issuer has no 
fractionalization of reserves and has no lending, it would seem 
to me that the stablecoin issuer is operating differently from 
a bank and, therefore, should be regulated differently from a 
bank. Is that a fair assessment, or what is your view on that?
    Secretary Yellen. Certainly, there are differences, and 
different banks operate differently and present different 
risks.
    Mr. Torres. But a bank, by definition, has fractional 
reserves and a lending function, which are lacking in the case 
of stablecoin issuers.
    Secretary Yellen. That suggests that a slightly different 
model should apply in regulating them. A bank framework has the 
possibility of flexibility to address the differences.
    Chairwoman Waters. Thank you very much. The gentleman from 
Florida, Mr. Posey, is now recognized for 5 minutes.
    Mr. Posey. Thank you, Chairwoman Waters.
    With the Federal Reserve embarking upon their fight against 
inflation it appears we are entering a period of increasing 
interest rates. How much will a 1, 2, or 3 percentage point 
increase in our interest rates end up increasing the interest 
on the national debt and what actions are you planning to take 
in that regard?
    Secretary Yellen. At the moment, the real interest on the 
national debt over the last couple of years has been negative 
because nominal interest rates have been so low. In our own 
projections of the interest burden of the debt in the years 
ahead, we have assumed that interest rates would not stay at 
that low level, and we have projected increases. Even so, you 
can see that in our mid-session review, and we will be 
producing another mid-session review, where we will update our 
forecast interest rate path.
    The real interest burden of the debt remains below 2 
percent, which is a level that many economists regard as safe 
and consistent with solid government finances.
    Mr. Posey. Last October, the Financial Stability Oversight 
Council issued a report on climate change. The consistent 
position came through that the FSOC wants to rely on scenario 
analyses to assess climate risk. I believe we must also 
recognize that regulators and forecasters oftentimes make 
errors as well.
    Will your scenarios provide for assessing the potential 
adverse impacts of regulatory decisions if they turn out to be 
ill-advised or based on overly-pessimistic climate scenarios?
    Secretary Yellen. I think it is important for financial 
institutions to be prepared to have adequate capital liquidity 
to address a variety of risks and shocks that can hit the 
economy. No one ever expected a pandemic, but the Dodd-Frank 
rules that were put in place ensured the resilience of the 
financial sector, of the banking sector to be able to survive 
shocks and meet the credit needs of the economy.
    And similarly with climate change, we do not know exactly 
how things will transpire, but we want to make sure that with 
adverse scenarios remaining possible, that banks operate in a 
way that is safe and sound.
    Scenarios are widely used around the world in evaluating 
the vulnerability of banking organizations to the risk from 
climate change, and we are learning from what other regulators 
do, and regulators of banking organizations are looking to such 
scenarios to evaluate the range of risks that we could face.
    Mr. Posey. Could you tell us who some of these foreign 
regulator experts are that we are relying on, that we are 
learning from?
    Secretary Yellen. I would say the Bank of England is the 
most advanced in devising scenarios and using them to evaluate 
the safety and soundness of their banking organizations, and 
there is a network of central banks that have worked on 
designing scenario analysis for use of this sort, and this is 
certainly a resource to us in the United States as we work on a 
system for regulators to evaluate these risks.
    Mr. Posey. I see my time is about up, Madam Chairwoman, so 
I will yield back.
    Chairwoman Waters. Thank you very much. The gentleman from 
Texas, Mr. Gonzalez, is now recognized for 5 minutes.
    Mr. Gonzalez of Texas. Thank you, Madam Chairwoman, and 
thank you, Madam Secretary, for being here to testify before 
us. I have, actually, a follow-up to some of the issues that 
you just addressed. The devastating war in Ukraine and the 
ensuing energy crisis in Europe have severely impacted economic 
productivity echoing throughout the global economy. One of the 
ways to fight against this would to be expand exports of our 
liquefied natural gas (LNG) here in the United States. However, 
the United States is at an effective export capacity, meaning 
additional pipeline infrastructure and export terminals would 
have to be built to expand the volume of LNG exports to our 
allies in Europe and around the world.
    The private sector faces challenges accessing capital to 
invest in these projects, due in part to the regulatory 
landscape that we have today that keeps investors away. How 
does the FSOC's October 2021 report weigh this challenge and 
potential risk to the global financial system?
    Secretary Yellen. The issue that you are pointing to with 
the necessity of helping our European allies, particularly, 
reduce their dependence on Russia for a supply of natural gas 
is a critically-important priority, and I know the Department 
of Energy and the White House are looking at what we need to do 
in the United States to facilitate that. I am not an expert on 
the details about terminals, but I would be glad to get back to 
you on that.
    This is not really, I would say, a financial stability risk 
that the FSOC has looked into or addressed in its report. It is 
certainly an important economic issue.
    With respect to the war in Ukraine, the Financial Stability 
Oversight Council and the staffs of the agencies involved meet 
on a regular basis to attempt to identify spillovers to the 
financial system that are of concern. Frankly, the financial 
system has functioned very well in the face of this unexpected 
shock. But the issue that you mentioned is very important.
    Mr. Gonzalez of Texas. Yes, it is a concern, because today 
it is Europe, and maybe another part of the world at some point 
in the future, and I think we should be prepared for something 
like that.
    Secretary Yellen. Yes, sure.
    Mr. Gonzalez of Texas. Thank you, and I yield back.
    Chairwoman Waters. Thank you very much.
    The gentleman from Missouri, Mr. Luetkemeyer, is now 
recognized for 5 minutes.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman. Good morning, 
Secretary Yellen.
    Secretary Yellen, Director Chopra of the Consumer Financial 
Protection Bureau (CFPB) is a member of FSOC, is he not?
    Secretary Yellen. Yes, he is.
    Mr. Luetkemeyer. He has recently recommending removing 
deposit insurance from financial institutions as an enforcement 
action. In his proposal, Director Chopra specifically named 
financial institutions that have 27 percent of the U.S. 
deposits combined, and he proposed that these institutions 
should have harsher enforcement actions placed upon them, such 
as revoking their FDIC insurance or placing them into 
receivership.
    Do you agree with removing deposit insurance as an 
enforcement action against depository institutions?
    Secretary Yellen. I'm sorry. I have not had a chance to 
review his comments or proposals on this. I would say that 
deposit insurance plays a critical role in the banking system 
and it is something that has promoted financial stability.
    Mr. Luetkemeyer. From that comment, I would assume that you 
believe that deposit insurance is important to financial 
stability in the United States.
    Secretary Yellen. I agree with that.
    Mr. Luetkemeyer. Okay.
    Secretary Yellen. I am not knowledgeable about the details 
of his proposal.
    Mr. Luetkemeyer. So if you are concerned, if you believe 
that the FDIC insurance is a key factor in continuing to have 
stability in the banking area, especially when you have these 
big banks just talking about perhaps a quarter of all U.S. 
deposits not being insured, that would affect the stability of 
the economy. And you sit on FSOC and he sits on FSOC, the 
entity which is for looking at financial stability risks, as 
you just stated a minute ago.
    Do you think Mr. Chopra is a worthwhile member to have on 
there, and should some actions be taken against him for making 
a statement like that, that could endanger the stability of 
financial markets?
    Secretary Yellen. Look, I am not prepared to weigh in on 
his proposals. I do not know the details of it. I agree with 
you that deposit insurance is important. But it not automatic 
that every institution is granted deposit insurance. That is 
something that the FDIC reviews how banks are operating and 
whether or not they--
    Mr. Luetkemeyer. Madam Secretary.
    Secretary Yellen. --deserve to have deposit insurance.
    Mr. Luetkemeyer. Madam Secretary, when you have a member of 
FSOC make that sort of inflammatory remark that could affect 
the stability of the financial markets by saying these 
institutions could have the FDIC insurance taken away from 
them, that sent shockwaves from my position about what is going 
on. To me, it is unacceptable. If I was in your position as the 
head of FSOC, I would certainly have a little discussion with 
Mr. Chopra and say, ``You cannot go out here and make those 
kinds of wild accusations, and you cannot have those kinds of 
enforcement actions that would destabilize the markets.''
    But we will write you a letter and hope you respond to that 
with regards to this situation, because I think it is paramount 
that the Council be sure that they have members on there who 
understand that their remarks could be inflammatory in a 
situation like this. So, I thank you for that.
    Next, on December 27, 2020, Congress passed the 
Consolidated Appropriations Act of 2021, which funded the 
government and also included additional stimulus related to the 
pandemic, including another round of Paycheck Protection 
Program (PPP) loans. Title III of that section established the 
second round of PPP, and that Section 321 was entitled, 
``Oversight.'' And it states that not later than the date that 
is 120 days after the date of enactment of this Act, the 
Administrator and the Secretary of the Treasury--that is you--
shall testify before the Committee on Small Business and 
Entrepreneurship of the Senate and the Committee on Small 
Business of the House of Representatives regarding 
implementation of this Act and amendments made by this Act.
    That means you were due, Madam Secretary, to appear before 
the House Small Business Committee 381 days ago, and you still 
have not shown up. I have sent you letters about this testimony 
in May of 2021, June of 2021, July of 2021, and March of 2022, 
and still have not received a response.
    As someone who is head of FSOC, and someone who looks at 
the stability of our economy, and someone who should want to 
lend the support and stop some inflammatory discussions and 
actions and allay fears, your lack of being able to appear 
before us is very concerning. Do you any plans whatsoever to 
appear before our committee, Madam Secretary, the Small 
Business Committee?
    Secretary Yellen. I appreciate very much the role that 
Congress plays in oversight, and I come regularly to the Hill 
and to this committee to testify. In the situation you are 
referring to, Congress has expressly authorized me to delegate 
duties and powers of the Secretary to another officer or 
employee, and that includes the Deputy Secretary. And he has 
offered to testify multiple times in front of the Small 
Business Committee. I hope that you will agree to allow him to 
come and do so.
    Chairwoman Waters. The gentlewoman from North Carolina, Ms. 
Adams, is now recognized for 5 minutes.
    Ms. Adams. Thank you. Thank you, Madam Chairwoman, and Mr. 
Ranking Member, for hosting the hearing today. Secretary 
Yellen, it's good to see you again. Thank you for being here.
    Madam Secretary, FSOC's annual report notes the significant 
increase in home prices between 2016 and 2019, that the average 
annual increase was only 6 percent, but from March 2021 to 
March 2022, home prices rose 22 percent. Would you very briefly 
agree that the rapid increase in housing and rental costs 
presents a significant problem for those who are already home-
insecure? Would you agree to that?
    Secretary Yellen. Yes, I definitely agree. I think the 
supply of housing, particularly affordable housing, in this 
country is a huge problem. We have had low construction really, 
ever since 2008, and I believe we have a huge shortage of 
affordable housing in this country. Of course, rising home 
prices and rental prices are an enormous issue.
    Ms. Adams. Yes, ma'am. In my district of Charlotte-
Mecklenburg, private equity firms have been snapping up single-
family homes and converting them to rental properties. Last 
week, the Charlotte Observer, our local paper of record, 
reported in their Security for Sale series that in North 
Carolina, institutional investors have purchased over 40,000 
homes in the past decade. The UNC Urban Institute reported that 
over 10,000 of those are in Mecklenburg County and that the 
average value of those properties is only two-thirds of the 
average single-family home, which means that private equity 
firms are squeezing the less-affluent out of the home-buying 
market but depleting the supply.
    Madam Chairwoman, I would like to, without objection, 
submit the articles that I mentioned for the record, including 
two others that touch on Charlotte's housing crisis, from The 
New York Times and The Washington Post.
    Chairwoman Waters. Without objection, it is so ordered.
    Ms. Adams. Thank you.
    Secretary Yellen, can you describe why it might be 
dangerous for the housing market at large for private equity 
firms to purchase and convert homes at the lower end of the 
price range spectrum?
    Secretary Yellen. I would simply say that we have a 
shortage of housing and it is critically important that we do 
everything in our power to increase the supply of housing. We 
have to use the tools that we have. The President's Build Back 
Better plan would have dedicated $150 billion to housing, 
including making major investments in public housing and 
homebuyer assistance. But we certainly have to use all of the 
tools that are available to us now to address the housing 
crisis.
    Ms. Adams. Thank you. We should have passed the President's 
Build Back Better agenda. It would have dedicated $150 billion 
to housing, including making major investments. I am proud to 
have worked with Senator Collins and Representative Rouzer to 
introduce our bipartisan, bicameral LIFELINE Act, which would 
allow cities and States to use a lot of the fiscal relief funds 
to help with housing development. So, I encourage all of my 
colleagues sitting here today to co-sponsor that legislation.
    Madam Secretary, with the time we have left, would you tell 
me how important it is to maintain a robust supply of 
affordable housing during this time?
    Secretary Yellen. I think it is critically important. We 
are seeing huge shortages in affordable housing, especially in 
high-priced areas of the country, and I think we need to do 
everything we can to address the shortage. I think that States 
and localities also have in place restrictions, zoning 
restrictions that make it difficult to build affordable 
housing, so I think action at that level is also important.
    You mentioned fiscal relief funds, and we have certainly 
urged State and local governments to use these funds to expand 
affordable housing. It was an important issue in the pandemic.
    Ms. Adams. Great. Thank you, Madam Secretary, for being 
here. And Madam Chairwoman, I yield back.
    Chairwoman Waters. Thank you very much.
    The gentleman from Michigan, Mr. Huizenga, is now 
recognized for 5 minutes.
    Mr. Huizenga. Thank you, Madam Chairwoman.
    Secretary Yellen, I wanted to call you, ``Chair Yellen.'' 
You are still sort of Chair Yellen to me. That was how we 
interacted for many years. But Secretary Yellen, just last 
month when you were here, we talked a little bit--and I know 
this is a little off-topic from FSOC, but we talked about 
Iranian sanctions. And there had been a report in The 
Washington Post about Iran demanding that they be taken off of 
some of the designations as foreign terrorist lists.
    You had said at the time that--and I have the transcript 
from that interaction right here--``I am not deeply involved in 
the detail of these negotiations.'' My question then, was, 
``Have you or anyone else at Treasury been directed to reduce 
Iranian sanctions enforcement so as not to interfere with those 
Vienna talks?'' You replied, ``We have not changed our 
sanctions on Iran.'' I said, ``That was not my question. Have 
you been instructed to or requested to do anything?'' You said, 
``There has been no change in the Administration policy, to the 
best of my knowledge.''
    What I am really concerned about, I guess, is the Secretary 
of the Treasury not being read-in on those. Treasury is the 
main source of sanctions. Is that still the case? Are you read-
in on these negotiations or not?
    Secretary Yellen. Treasury is regularly updated about the 
negotiations.
    Mr. Huizenga. And you personally?
    Secretary Yellen. I have been periodically updated on this 
situation with the Iranians.
    Mr. Huizenga. Then, I guess I will go back to my original 
question. Have you or anyone else at Treasury been instructed 
to back off on any of those sanctions, vis-a-vis Treasury 
sanctions on Iran?
    Secretary Yellen. No, not to my knowledge.
    Mr. Huizenga. Okay. That is the kind of thing that makes us 
very nervous, when you say, ``Not to my knowledge.'' So, will 
you please go and investigate that, and I would like to find 
out so that we can have assurances that Treasury, with your 
knowledge or against your knowledge, has not been instructed by 
this White House to back off on those sanctions?
    Secretary Yellen. Nothing has changed with respect to 
Iranian sanctions.
    Mr. Huizenga. Okay. I still request that.
    Here is the other question I wanted to really get at, FSOC 
and its functions, talking about digital assets. Recently, the 
SEC released a Staff Accounting Bulletin Number 121 related to 
custody of digital assets for its platform user. Given FSOC's 
focus on digital assets, was there any coordination with other 
members, agencies, in those efforts from the SEC?
    Secretary Yellen. I am not deeply knowledgeable about this 
regulation. I need to look into it and get back to you.
    Mr. Huizenga. I guess, if you would, that would be 
extremely helpful. This is a sweet spot for this committee. The 
SEC, in my opinion, should not be issuing one-off staff 
bulletins and guidance on digital assets instead of following 
the proper rulemaking process and coordinating with other 
agencies. It seems to me as Chair of FSOC, that is a vital part 
as we are dealing with these digital assets.
    I have a minute and 40--
    Secretary Yellen. The SEC and the CFTC certainly have 
authorities--not comprehensive authorities over digital assets 
but they certainly do have authorities and can act on their own 
within those.
    Mr. Huizenga. And I guess I want to know whether there is 
coordination within the agencies of FSOC. So, we can continue 
that.
    In my last minute here, I want to talk a little bit about 
the effects of spending on the economy, and I know Mrs. Wagner 
from Missouri was talking about that, and ironically she is at 
a press conference right now dealing with the lack of baby 
formula and the inflationary prices and the supply chain there.
    Let us just put it this way. Spending plus easy money 
equals inflation, and that seems to be playing out. And I am 
curious if you would prognosticate here a little bit on soft 
landing versus hard landing versus very hard landing--what are 
your expectations of what is going to be happening in the 
economy?
    Secretary Yellen. Inflation is a serious concern. Look, we 
are not the only country experiencing inflation. Most advanced 
countries--
    Mr. Huizenga. But no other country is at this level.
    Secretary Yellen. But it does show that there are factors 
beyond spending in the United States that are critical to 
inflation. We are seeing, because of the pandemic, supply chain 
problems develop--
    Mr. Huizenga. In my last 5 seconds, Fed Chair Powell agreed 
with this: about 20 percent of inflation is due to energy; 20 
percent to labor; 20 percent to supply chain; and 40 percent to 
monetary policy and spending.
    I yield back.
    Chairwoman Waters. The gentlewoman from Pennsylvania, Ms. 
Dean, is now recognized for 5 minutes.
    Ms. Dean. Good morning, Secretary Yellen. I am delighted 
that you are here again before us. Thank you, Madam Chairwoman, 
for recognizing me. And I thank you for not minimizing the 
risks and the realities of inflation and what it means to all 
of our constituents. Clearly, the Fed has its work cut out for 
it, and is stepping up to do just that.
    At the same time, I want to make sure we balance the 
conversation about the overall health of the economy. We can 
all beat the drum about inflation because it is painful, but 
let us talk about the underlying health of the economy 
following a pandemic and a global economic closure.
    Unemployment has fallen to 3.6 percent, down from a 
pandemic high of nearly 15 percent in April of 2020. If you 
compare that to 2008, the financial crisis, unemployment peaked 
at about 10 percent in 2009, and did not fall to below 4 
percent for nearly a decade.
    Secretary Yellen, can you speak to how different this 
recovery has been compared to the recovery from the financial 
crisis? How have the steps taken by Congress, including the 
American Rescue Plan--which you have spoken about several times 
today, and my constituents appreciate--contributed to this 
extraordinary recovery?
    Secretary Yellen. I appreciate you making this point. It is 
a critically important one. The American Rescue Plan deserves 
substantial credit for the fact that the unemployment rate is 
very low, that Americans have confidence in the job market. We 
are seeing the quit rate rise to levels we have never seen in 
the United States, and what that means is that individuals are 
seeing huge opportunities in the job market. They are receiving 
outside offers that let people move to better jobs and advance 
in the jobs that they have and see wage increases.
    The eviction rate in the United States is below pre-
pandemic levels. We had a year last year in which child poverty 
dropped very substantially. For Americans, on average, their 
household balance sheets are very strong. That is, in part, 
because of the support provided by the American Rescue Plan, 
and businesses are doing well. While some built up debt during 
the pandemic, they are now finding it possible to pay it down.
    We have a good, strong labor market. I spent that decade 
following the financial crisis at the Fed, and I can tell you 
how concerned we were that using every tool at our disposal, it 
still took a decade to recover. And I can also tell you that 
when President Biden was elected, the projections as to where 
the economy might go were dire.
    Ms. Dean. Exactly.
    Secretary Yellen. The CBO projected high unemployment. The 
American Rescue Plan addressed that. And the strong state of 
our labor market and of household balance sheets, this is the 
dog that has not barked in the night. That is the credit that 
goes to the American Rescue Plan. Of course, we have to address 
inflation.
    Ms. Dean. I thank you for your legacy of dealing with these 
issues and recognizing what the American Rescue Plan has done. 
I had a father thank me for the American Rescue Plan because he 
and his wife have two little children, and what it did in terms 
of the child tax credit was meaningful to them. Sadly, not a 
single Republican could bring himself or herself to vote for 
the American Rescue Plan, and sadly, while we made a big 
difference on child poverty and hunger, by not renewing the 
increased child tax credit, of course, we send those families 
back into poverty.
    Just quickly, in the time I have left, when you were last 
here you talked about the Russian economy reeling as a result 
of the sanctions. Can you give us an update?
    Secretary Yellen. It is absolutely reeling. By their own 
estimation, the Russian economy looks set to contract at least 
10 percent or more this year, inflation is expected to reach 
double-digit levels, perhaps 20 percent, and there is an 
enormous, because of our sanctions, shortage of goods and 
services that Russia needs to replenish the munitions that it 
is using in the war. Its high technology and defense industries 
will be damaged for decades to come.
    Ms. Dean. I yield back, and I thank you.
    Chairwoman Waters. The gentleman from Kentucky, Mr. Barr, 
is now recognized for 5 minutes.
    Mr. Barr. Thank you. Madam Secretary, I want to focus on 
your 2021 report on climate-related financial risk. I have 
expressed in this committee before that it is implausible, if 
not far-fetched, to suggest that climate change, a phenomenon 
that occurs over decades, could somehow suddenly overwhelm the 
banking system, the insurance sector, or the reinsurance 
sector.
    What evidence has FSOC found that banks, lenders, or 
insurers have ever mispriced weather risks so substantially 
that it would result in systemic risk?
    Secretary Yellen. It is not just a matter of weather risks, 
which are clearly rising in severity and could have a 
significant impact on banking organizations, but there are also 
so-called transition risks that--
    Mr. Barr. So regulatory risks, risks that the government 
could redirect capital away from fossil energy and increase 
inflation. Is that what you are referring to, transition risks?
    Secretary Yellen. It is an existential threat with respect 
to climate change, leaving our children and grandchildren with 
a planet that is all but uninhabitable--
    Mr. Barr. Let's drill down on that--reclaiming my time. In 
FSOC's report on climate-related financial risk, did FSOC 
consider the risk of overinvestment in novel, unproven, and 
highly risky, speculative green assets, and then the risk of 
diverting investment away from stable, proven, and low-risk 
brown assets?
    Secretary Yellen. The FSOC and individual regulators are 
not telling banks what they should or should not do.
    Mr. Barr. I think FSOC should consider overinvestment in 
risky assets. In FSOC's consideration of climate-related 
financial risk, did FSOC consider the substantial risk that has 
actually now materialized, that overregulation of the fossil 
energy sector, ending Keystone, blocking lease sales on Federal 
lands, constraining supply of energy, has actually undermined 
financial stability, specifically historic inflation and $4.37-
a-gallon gas?
    Secretary Yellen. I think we owe that to the failure of our 
domestic industry to ramp up production to--
    Mr. Barr. I do not think that is what they said. They say 
they cannot get approval, and when they cannot ship through the 
Keystone Pipeline, and when they cannot access capital because 
of ESG disclosure mandates, that is why we have a shortage of 
energy.
    Did FSOC consider that the SEC's ESG disclosure proposal, 
designed to redirect capital away from fossil energy, will 
increase the cost of energy, creating a greater risk to 
economic stability?
    Secretary Yellen. Look, investors with over $100 trillion 
worth of assets have said that in order to properly evaluate 
investments, they need disclosures about the risks that 
individual firms have with respect to climate, and regulators 
all around the world are acting to--
    Mr. Barr. I understand that but--
    Secretary Yellen. --provide that information.
    Mr. Barr. --will you commit to engaging Chairman Gensler in 
FSOC to assess the risk to our energy markets and exacerbating 
the inflation crisis posed by politicizing the allocation of 
capital through ESG regulation, and will the FSOC consider the 
risk of steering investors toward green or ESG firms that could 
make them riskier, not safer, by inflating their asset values?
    Secretary Yellen. I think you should note that the largest 
banks in the United States and around the world voluntarily 
joined an alliance this past year to commit--
    Mr. Barr. I know what they did.
    Secretary Yellen. --to reporting their portfolios--
    Mr. Barr. I am asking you about--
    Secretary Yellen. --and that is not--
    Mr. Barr. --financial risk.
    Secretary Yellen. --the reason--
    Mr. Barr. I am asking you, Madam Secretary, about your job 
as Chair of the FSOC to evaluate all financial risks. And I 
want to know whether you acknowledge that stocks in many ESG-
related ETFs and investments trade at elevated priced earnings, 
ratios, and multiples because investment returns are sacrificed 
for non-pecuniary factors. Are you evaluating that risk to the 
financial system, because returns are sacrificed?
    Secretary Yellen. We do look at asset valuation and 
recognize that significant shifts in them can be a risk to 
financial stability.
    Mr. Barr. Finally, will you commit to never, as long as you 
are the Treasury Secretary and Chair of FSOC, to allow a single 
minute of time, during any meeting of FSOC, to be devoted to 
the topic of abortion?
    Secretary Yellen. Abortion is not a topic--
    Mr. Barr. Thank you.
    Secretary Yellen. --that FSOC has looked at or that I--
    Mr. Barr. I think the fact that there is a focus away from 
actual financial stability risks and towards things like 
abortion and meteorology means that we have our eye off the 
ball at FSOC. And I yield back.
    Secretary Yellen. FSOC has nothing to do with abortion.
    Chairwoman Waters. The gentlewoman from Michigan, Ms. 
Tlaib, is now recognized for 5 minutes.
    Ms. Tlaib. Thank you for being here, Madam Secretary.
    I want to talk about something that is really important to 
my district, but I want to start with a few questions. When 
defining financial stability risks from a climate crisis, do 
you think we should be defining the risk as only government 
policy change that would happen only with, potentially, that is 
the only way that would create disruption? Do you think the 
government policy is the only form of transition risk regarding 
the climate crisis?
    Secretary Yellen. The underlying risk is that we have a 
process of climate change taking place which threatens the 
viability of life on Earth and poses enormous risks to our 
children and our grandchildren. I believe this risk is becoming 
clearer from what all of us see happening around us every day, 
and if that is not the case for some people, it will become 
clear in the decades ahead and there will be adjustments and 
they can contribute--
    Ms. Tlaib. I am with you, and this is why I am asking. In 
defining financial stability risks from a climate crisis--
during the Senate confirmation for Federal Reserve Chair 
Powell, he defined transition risk as government policy change 
that happens, which could potentially create disruption. But 
what about rapid changes in technology or major shifts in 
consumer consumption? Right now, are we considering the supply 
chain impact due to rising sea levels or other climate-related 
effects?
    Secretary Yellen. I would agree with your statement that 
these risks do not have to relate to government relation. They 
could certainly relate to technological changes--
    Ms. Tlaib. I am so glad to hear you say that.
    Secretary Yellen. --or rapid shifts in consumer preferences 
or other sources.
    Ms. Tlaib. It is a huge economic risk, and we really need 
to be looking at it.
    G20 financial institutions currently have nearly $22 
trillion of exposure to carbon-intensive sectors, and last year 
the world's largest financial institutions, Madam Secretary, 
pumped $742 billion into the fossil fuel industry. Secretary 
Yellen, we actually saw more fossil fuel financing last year 
than we did in 2015, the year the Paris Agreement was signed. 
We are going in the wrong direction.
    As the world's largest financial institutions continue to 
grow their positions in carbon-intensive markets, will this 
make our global transition from fossil fuels to clean energy 
slower and more dangerous to our economy?
    Secretary Yellen. I guess what I see is that the world's 
largest institutions recognize the importance of shifting their 
lending in ways that will help us, the globe, the U.S. and 
other countries, achieve net zero by 2050, and are voluntarily 
making--
    Ms. Tlaib. They are saying that but they are not doing it, 
Secretary.
    Secretary Yellen. I think it is important for groups to 
monitor those financial institutions and see that they--
    Ms. Tlaib. I really think we need to--in FSOC's report on 
risks posed by climate change last year, the Council outlined 
several recommendations as first steps in addressing the 
climate crisis, including increased scenario analysis, and 
climate risk disclosures, and I applaud the report. I think 
their recommendations were very clear.
    However, I am really perplexed because as you were talking 
about that, many of these financial institutions that are 
financing fossil fuel projects have continued to say this thing 
about net zero, public comments, and pledge to align with the 
Paris Agreement but they are not. They are completely 
contradictive.
    Secretary Yellen, you saw the record flooding, everything. 
How will better risk modeling and climate disclosures change 
the behavior of these financial institutions?
    Secretary Yellen. It will allow their supervisors to form a 
clearer view of the risks that these institutions are taking 
and then ensure that they are managing them properly, and it 
will help the institutions themselves better appreciate the 
risks that they are undertaking. They are probably not doing 
that kind of analysis now, and want to promote that 
understanding.
    Ms. Tlaib. Yes, and just to be clear, I am for that, but I 
think the result needs to be actual reduction, and to really 
look at this in a very clear way. I do not think we are in line 
with what Chairman Powell is talking about, and the fact that a 
lot of other countries are looking at this as a risk very 
clearly, an economic risk, I think is very telling.
    Thank you, Madam Chairwoman.
    Chairwoman Waters. Thank you. The gentleman from Texas, Mr. 
Williams, is now recognized for 5 minutes.
    Mr. Williams of Texas. Thank you, Madam Chairwoman. Madam 
Secretary, thank you for being here.
    I am a small business owner back in Texas, not, ``was,'' 
but, ``am.'' And I meet with families, businesses, ranchers, 
and car dealers in my district all the time, and inflation is 
one of the first things they bring up. And yesterday, CPI data 
showed this phenomenon is not slowing down. Year over year, 
gasoline is up 43 percent--you know these numbers--electricity 
up 11, meat, fish, and eggs up 14 percent, and even used cars 
are up 22 percent.
    You are one of the top voices in the Administration 
claiming inflation was transitory. Well, that has obviously 
proven to be extremely wrong. And yesterday, the Wall Street 
Editorial Board chided the President for lying to the American 
people and blaming everything except for his own party's 
policies as a contributing factor to these price increases.
    Just a simple question. Keep it short. Very simple. Will 
you admit that government spending is a contributing factor to 
inflation?
    Secretary Yellen. There are many factors that are 
responsible for inflation. You can see inflation at 
unacceptable levels in all advanced countries around the world.
    Mr. Williams of Texas. I know. We have talked about that--
to get my time back--but we are just saying government spending 
is a big cause, isn't it?
    Secretary Yellen. We supported spending, it contributed to 
demand, and it had a very favorable effect on most Americans' 
well-being. We do have to deal with inflation.
    Mr. Williams of Texas. Okay. The energy sector is an 
important industry in my home State of Texas, and I keep 
hearing from this Administration that it is the private 
sector's fault that they are not producing more and have not 
invested in any new capabilities to expand production. And 
quite frankly, that is an insult. This is such a ridiculous 
excuse to once again deflect blame away from their own 
misguided policy decisions that are having a material impact on 
American lives. It is just deflect all the time.
    As a business owner, as a current business owner, certainty 
is key before you deploy capital. Since President Biden's first 
day in office, he made it abundantly clear that he is going to 
be hostile towards this energy industry, and a few of these 
actions were immediately canceling the Keystone Pipeline permit 
when he came into office, and instituting a leasing moratorium 
for onshore and offshore energy production, while threatening 
to raise royalty rates, and pushing his climate agenda through 
financial regulators to make people think twice before 
providing financing.
    Just today, this morning, the Interior Department cancelled 
a 1-million-acre oil and gas lease in Alaska that could have 
brought some relief to the American people when we are sky-high 
in gas prices.
    Madam Secretary, why would any domestic energy company want 
to invest in new production capabilities when all this 
Administration does is project uncertainty, they want to raise 
taxes, they want to raise regulations, and they are just 
frankly hostile, just mean and hostile towards this industry. 
Why would anybody want to come here?
    Secretary Yellen. I think when the pandemic struck, and gas 
prices fell, a lot of oil companies and energy companies in the 
United States suffered hard times and losses, and it was 
natural for them to diminish production and reduce investments 
in drilling. They probably did not expect such a rapid recovery 
as we saw from the pandemic, and as demand increased, it drove 
oil prices up.
    I think this gives a good deal of impetus to domestic 
energy companies to raise production in the short term. Over 
the longer term, climate change remains critical, and I think 
what we have seen happen with energy prices rising because of 
Russia's invasion of Ukraine, it tells us that we need to move 
to renewable energy sources where our supplies and well-being 
and prices are not so vulnerable--
    Mr. Williams of Texas. I might have a better idea. Maybe 
incentivize the private sector and let the private sector 
compete and help drive prices down. The government never gets 
that done. The government creates the problems that we are in 
today. So, I would say you might want to try incentivizing 
these people.
    In closing, as a result of foreign tax credit regulations 
finalized by Treasury late last year, income and withholding 
taxes that have been credible for decades are no longer 
eligible for foreign tax credits. This could have an effect, 
again, of incentivizing U.S.-based companies to move more of 
their operations overseas.
    Quickly, are you willing to reopen this rulemaking to 
ensure that American businesses are not being put at a 
competitive disadvantage, so they do not leave and cost us more 
jobs? Because this is America, the greatest country in the 
world. Would you be willing to do that?
    Secretary Yellen. I'm sorry. What rulemaking are you 
referring to?
    Mr. Williams of Texas. Okay, my time is up. Thank you.
    Chairwoman Waters. Thank you. The gentleman from Illinois, 
Mr. Garcia, is now recognized for 5 minutes.
    [Pause.]
    Chairwoman Waters. Mr. Garcia? Are you unmuted? We will 
wait for Mr. Garcia.
    Meanwhile, the gentlewoman from Texas, Ms. Garcia, who is 
also the Vice Chair of our Subcommittee on Diversity and 
Inclusion, is now recognized for 5 minutes.
    Ms. Garcia of Texas. Thank you, Chairwoman Waters, and 
thank you, Secretary Yellen, for joining us again today with 
this important annual report.
    First, I would like to applaud you, Madam Secretary, for 
the Treasury's handling of the financial stresses we have 
experienced recently. COVID-19 has caused much social and 
financial hardships to our community. Putin's unprovoked 
invasion of Ukraine has only exacerbated these problems. I 
commend Treasury's implementation of historic multilateral 
sanctions against Russia, punishing them economically, and 
isolating them politically.
    You, this Congress, and the President have constructed a 
broad and effective international coalition. We hear good news 
of others that may be joining. Now, we must continue this 
effort to maintain and expand help to Ukraine and turn up the 
pressure on Putin. Congress' oversight counsel through this is 
really, really important. This stability allows Americans to 
trust their that hard-earned paychecks will be safe from 
predatory bad actors.
    I want to focus today on a couple of things that have 
perhaps been talked about, and just to be clear, government 
spending is not the only factor in inflation, is it not?
    Secretary Yellen. There are supply chain bottlenecks. Look 
at what is happening in China. The lockdowns that they are 
using to handle the pandemic are disrupting supplies to our 
economy. The war in Ukraine that Russia has launched is 
impacting food prices. We have seen more than a doubling of 
wheat prices. Not only is that impacting American food prices, 
it is threatening starvation in many parts of the world where 
there is already food insecurity. It is affecting energy. None 
of this has anything to do with government spending.
    Ms. Garcia of Texas. Right. In fact, the food shortage may 
cause a bigger crisis than even the gas shortage, I understand.
    Secretary Yellen. The food crisis is terribly worrisome. 
With respect to wheat, both Russia and Ukraine are tremendously 
important sources of exports, the bread baskets of the world. 
And at the moment, Ukraine is really unable to ship wheat out 
of the country. That is part of why wheat prices have risen so 
much. There have also been droughts in many parts of the world, 
and we are terribly concerned and are very focused on rising 
food prices, and the impact that will have in many parts of the 
world, including Africa.
    Ms. Garcia of Texas. I want to focus on a couple of things 
that have already been said, but just probe a little more. In 
response to a question from one of my colleagues, you mentioned 
the decrease in child poverty as a result of the child tax 
credit and some of the steps that Congress has taken to help 
the average working family.
    Do you know exactly what percent of reduction has resulted 
from all of the investment in the child tax credit?
    Secretary Yellen. I do not have the exact figure but I do 
know it was a substantial reduction in child poverty.
    Ms. Garcia of Texas. I thought I heard 40 percent.
    Secretary Yellen. That is the type of number I have in 
mind, but I can get back to you. It was a very substantial 
impact.
    Ms. Garcia of Texas. Right. And I know that you received a 
letter from some Texas Democrats asking your Inspector General 
to look at what our governor is doing with perhaps misuse of 
some of the--
    [Audio malfunction.]
    Ms. Garcia of Texas. Madam Chairwoman, I paused. Can I get 
some of my seconds back?
    But we sent care packages. We sent COVID dollars. We sent 
them the dollars we sent them to recover from their loss of 
revenues during the pandemic. And there is concern that some 
States did not use the dollars as Congress intended. In fact, a 
Washington Post article recently, I think it was last week or 
yesterday, said that from refurbishing prisons to constructing 
new golf courses, one State, Arizona, even used the money to 
discourage schools from requiring students to wear masks, 
prompting the Treasury Department to threaten to claw back the 
aid.
    What are we doing to claw back the aid? I know we sent a 
letter, several Members from Texas, concerned about our 
governor using those dollars for what he calls Operation Lone 
Star, which is his attempt to control the border.
    Secretary Yellen. We have clear guidelines in place about 
permitted uses of that money and not permitted uses, and we are 
monitoring and have a reporting system that will let us review 
how States and localities are using that money. And I promise 
you that if the funds are used in ways that are inappropriate, 
we will claw it back.
    Ms. Garcia of Texas. You will claw it back. And how much 
time do you think that would take? I know what our governor is 
doing, but I did not realize, until this article, that this was 
happening in many other States.
    Chairwoman Waters. The gentlewoman's time has expired.
    Ms. Garcia of Texas. Madam Chairwoman, before you leave me, 
I ask for unanimous consent to submit for the record an article 
from The Washington Post, ``Federal watchdog opens `review' of 
Tex. use of covid aid on border crackdown.''
    Chairwoman Waters. Without objection, it is so ordered.
    Ms. Garcia of Texas. Thank you.
    Chairwoman Waters. The gentleman from Arkansas, Mr. Hill, 
is now recognized for 5 minutes.
    Mr. Hill. Thank you, Chairwoman Waters. And Madam 
Secretary, it is so great to have you back before the 
committee, and thanks for being responsive to our questions, 
and thanks for the incredibly challenging times you are in, in 
trying to guide our financial response to Ukraine's tragedy of 
being invaded by Putin.
    I want to start there, quickly, because I was looking back 
at the FSOC meetings--and I am actually going to talk about 
FSOC--and FSOC has met nine times since you have been confirmed 
at the Treasury, and in only two of those meetings did you talk 
about cyber concerns to our financial institutions. One of 
those was just because of the invasion. And, of course, we have 
been briefed up here on the cyber risks potentially posed by 
Russia.
    In contrast, the FSOC spent a lot of time on climate. So my 
question to you is, do you think that cybersecurity incidents 
due to the Russia conflict are a risk to the financial system 
here in the United States?
    Secretary Yellen. Cybersecurity is one of the key threats 
to the financial sector, and FSOC has consistently identified 
it, including in this report, as a serious concern. The 
Treasury also has responsibilities in this regard and is very 
focused on, especially with the Russia-Ukraine situation, we 
are working very closely with financial institutions to make 
sure that they have the information--
    [Audio interruption.]
    Mr. Hill. I tell you, those robocalls are a real problem in 
our political--
    Chairwoman Waters. Sorry for the interruption. We will make 
up for the time. Go right ahead.
    Mr. Hill. No worries. Thank you, Madam Chairwoman.
    Let me stop you there just a for a second and say, since 
you, in those nine FSOC meetings, you talked in seven of them 
about climate change, and in only two about cyber, would you 
say that at this time, in war, the global war in Ukraine--
    Secretary Yellen. We have an ongoing and robust program to 
deal with cybersecurity--
    Mr. Hill. Ma'am, ma'am--
    Secretary Yellen. --and have long recognized it is a 
critical threat.
    Climate change is something new that the Council has not 
previously addressed, and the reason we have discussed it in so 
many meetings is because it is a new initiative, it is a 
complicated one, it is one that requires agencies to work 
together, and it is a substantial, long-term threat. Both 
things are important. One is not more important than the other.
    Mr. Hill. But you would say that cyber resiliency right now 
is a much more critical concern to the financial sector than 
long-term talking and planning and thinking about climate 
change, yes or no?
    Secretary Yellen. Climate change is a substantial long-term 
threat and cybersecurity is a long- and a short-term threat we 
are very focused on.
    Mr. Hill. Let me change subjects and talk about the reverse 
repurchase market that your former organization, the Federal 
Reserve, runs. Over the last couple of years, we have about 
$1.9 trillion in an overnight repurchase agreement, showing 
just how much liquidity is out in our system that is not being 
able to be used. It cannot be used for productive lending 
purposes. The banks have effectively too much stimulus from 
fiscal contributions to the economy as well as the laxity of 
our monetary policy recently.
    Do you think that the reverse repurchase agreement balance 
is a challenge to financial stability as we go through a 
tightening phase at the Federal Reserve?
    Secretary Yellen. I really do not want to comment on issues 
that are in the domain of the Fed. It is the Fed's program and 
I am going to refrain from commenting on it. But I will say 
that FSOC is concerned about the functioning of the Treasury 
market. We have had episodes in which liquidity has dried up, 
and we are working very hard coordinating with the interagency 
Treasury working group to look at reforms, to make sure this 
critically important market for the United States and the globe 
functions well, and has the liquidity that it needs.
    Mr. Hill. Good. I would invite you to look very closely at 
what Gary Gensler has said about the primary dealer market and 
urge him to be very cautious about injecting any uncertainty in 
our primarily Treasury dealers at this time of tough conditions 
as we tighten and want to maintain that liquidity.
    Thank you, Madam Chairwoman, and I yield back.
    Chairwoman Waters. Thank you very much. The gentleman from 
Massachusetts, Mr. Auchincloss, who is also the Vice Chair of 
the committee, is now recognized for 5 minutes.
    Mr. Auchincloss. Thank you, Madam Chairwoman. Madam 
Secretary, welcome.
    I would like to discuss in these 5 minutes what more the 
United States Treasury can do to defeat Russia in Ukraine. The 
central bank sanctions crafted by you and Deputy Secretary 
Adeyemo have been the brass knuckles of NATO's one-two punch of 
sanctions on Russia, plus support for Ukraine. They were 
unexpected, they hurt bad, and you and the Deputy Secretary 
deserve a lot of credit for crafting those.
    Secretary Yellen. Thank you.
    Mr. Auchincloss. I am concerned, though, that Russia's 
continued exportation of almost eight million barrels per day 
of oil continues to fund their barbaric war machine. The United 
States and Canada, as you obviously know, have barred Russian 
oil. The European Union is trying to, but Hungary is exercising 
a veto on that effort.
    First, what carrots and sticks do we have to compel Hungary 
to support an EU blockade of Russian oil?
    Secretary Yellen. We are working very closely with our 
European allies. I am actually traveling to Europe next week 
and will have discussions with them. Most of them were in 
Washington--
    Mr. Auchincloss. With Hungary, in particular, though.
    Secretary Yellen. Ah, with Hungary. I have not had 
conversations with Hungary. My NSC colleagues may have. The 
European Union, the European Commission is working with all of 
its members to--
    Mr. Auchincloss. All of the members agree except for 
Hungary. This is a monumental step, and I would encourage you 
and the Administration to do your utmost to use carrots and 
sticks with Hungary to get them on board here with the European 
Union's approach. And that is because if the EU does blockade 
Russian oil, that could force Russia to redirect up to 5 
million barrels out of their 8 million total every day, and 
they cannot. It seems very unlikely that they could actually 
redirect that 5 million barrels per day going to Europe. Only 
China and India have enough demand to even take it, and neither 
seems willing to concentrate their supplier risk to that 
degree, especially with the potential of secondary sanctions. 
And furthermore, there is not even the pipeline or the shipping 
capacity, really, to redirect that full 5 million, even if 
there were a demand from China or India.
    In short, what that means to me is that if and when Europe 
does join our blockade--and again, I encourage you to do 
everything you can to get Hungary and the EU on board--the West 
is going to have a tremendous amount of leverage over Russian 
oil production, more than I think we appreciate right now. 
Keeping 5 million barrels a day in the ground in Russia is 
going to be devastating to its oil production. They cannot do 
it. They cannot do it for their upstream services. They cannot 
do it for maintaining their oilfields.
    Have you examined any potential effort with our NATO allies 
to take advantage of that leverage that we would have?
    Secretary Yellen. We have had many, many discussions with 
them about energy and Russian oil. Let me just say, our 
objective since day one has been to have as large a negative 
impact as we possibly can on Russia, while, to the best of our 
ability, protecting the rest of the world. And when it comes to 
oil and energy and shutting it in, we do have to remember that 
shutting in that Russian oil is likely to boost global energy 
prices, which can have a very damaging effect and is, in the 
rest of the world and also can counterintuitively, perhaps, 
raise Russia's revenue in spite of the fact that it is 
producing less oil
    Mr. Auchincloss. To that point, Madam Secretary--
    Secretary Yellen. At the same time we are working with 
them, we are also considering possible things we could do that 
would lower Russia's oil revenues while protecting the rest of 
us.
    Mr. Auchincloss. And I think we may be thinking of the same 
lines of effort here, but would those other things that you 
could do include a special payments authority where we could be 
with our NATO allies actually purchasing Russian oil but only 
remitting to Russia the cost of production, $20 to $25 per 
barrel, but taking the excess, which would normally go to the 
Kremlin as taxes, and instead directing that towards Ukrainian 
reparations? This has been proposed by experts. I am sure you 
are looking at it. And would you be willing, and your Deputy 
Secretary, maybe, in particular, be willing to engage with me 
on what that might look like and to what degree you have been 
planning for it?
    Secretary Yellen. We would be glad to engage with you on 
that, and that is the kind of alternative that we have been 
examining and discussing with our allies.
    Mr. Auchincloss. I appreciate that. In my final 20 seconds, 
Secretary, have we explored sanctions on oilfield services 
providers who enable Russian oil production upstream of the 
actual distribution of that oil? Those companies have escaped 
sanctions, and they provided much-needed technical expertise 
that Russia has not developed organically.
    Secretary Yellen. The withdrawal of foreign oil companies 
from Russia is really hurting their ability to extract oil now 
and in the future. And we have put in place some sanctions--
    Mr. Green. [presiding]. Madam Secretary, the gentleman's 
time has expired. You may submit your response for the record.
    Madam Secretary, welcome again, and thank you for your many 
years of public service. The gentleman from Minnesota, Mr. 
Emmer, is now recognized for 5 minutes.
    Mr. Emmer. Thank you, Mr. Chairman, and thank you, Madam 
Secretary, for appearing before the committee today.
    The Democrat-created Financial Stability Oversight Council, 
better known as the FSOC, as you have been referring to it, has 
found itself in a unique regulatory position recently. 
Secretary Yellen, as the Chair of the FSOC, you know better 
than anyone that the FSOC operates independently and it is not 
directed by an Administration to make and implement policy 
decisions.
    Historically, Madam Secretary, does the FSOC take direction 
from the White House on activities and institutions in which to 
investigate, and if appropriate, designate those activities or 
institutions as systemic risks?
    Secretary Yellen. The FSOC, as you said, is a group of 
independent regulators--
    Mr. Emmer. My question is a yes-or-no question. Does the 
FSOC take direction from the White House?
    Secretary Yellen. No, it does not.
    Mr. Emmer. Thank you. That is what I thought. The FSOC 
exists to independently identify emerging threats to our 
financial stability and align regulatory frameworks around 
those risks.
    Secretary Yellen, by Executive Order, you convened the 
President's Working Group on Financial Markets in July of 2021, 
and you played a key role in the delivery of its November 2021 
stablecoin report. The report recommends that Congress enact 
legislation to limit stablecoin issuance to insured depository 
institutions, banks. For the record, this is a recommendation 
that does not have consensus in Congress, not even amongst 
committee Democrats.
    The report also states that in the absence of urgent 
congressional action to enact this legislative recommendation, 
the FSOC should step in to designate various stablecoin 
activities as systemic risks, which would jump-start 
Administration-wide regulatory rulemaking.
    Secretary Yellen, has the FSOC officially designated 
digital asset or stablecoin activities as systemic risks?
    Secretary Yellen. No, it has not done so.
    Mr. Emmer. Thank you. Digital asset and stablecoin 
activities have not been officially designated as systemic 
risks from the FSOC. Do you believe the FSOC should take action 
if Congress does not urgently enact comprehensive crypto 
legislation?
    Secretary Yellen. We would very much like to see Congress 
adopt a coherent--
    Mr. Emmer. I will ask it again--
    Secretary Yellen. --framework--
    Mr. Emmer. I am asking you--
    Secretary Yellen. --something we would look at.
    Mr. Emmer. ho convenes the FSOC, do you believe that the 
FSOC should take action if Congress does not urgently enact 
comprehensive crypto legislation?
    Secretary Yellen. It is something that I think FSOC should 
look at--
    Mr. Emmer. So, the answer is yes?
    Secretary Yellen. I do not know that it is appropriate but 
it is something that bears examination.
    Mr. Emmer. Thank you. You previously explained to us that 
the FSOC operates independently and does not take direction 
from the White House on labeling systemic risks. However, it 
seems pretty clear that absent urgent action by Congress, the 
FSOC, under your leadership, is perhaps prepared--even though 
you said that may not be appropriate, in your words--to 
designate certain stablecoin activities as systemically risky 
in response to the White House's digital asset agenda.
    Now as everyone in this room is aware, Madam Secretary, 
legislating takes time, and there is nothing more dangerous to 
innovation and opportunity than when the Federal Government 
rushes to legislate, or regulate, for that matter. The Biden 
Administration knows this as well as any of us, but the 
President's Working Group and President Biden's crypto 
Executive Order still threaten to ignite the FSOC if Congress 
does not do what the Biden Administration requests.
    Secretary Yellen. The President--
    Mr. Emmer. Put simply, Madam Secretary, the Administration 
intends to weaponize the FSOC to circumvent Congress and the 
American people on digital asset policy.
    Secretary Yellen. I'm sorry--
    Mr. Emmer. This recent history of activity demonstrates to 
me that the FSOC is no longer independent of partisan pressures 
and should be brought under congressional appropriations 
supervision so elected officials can make sure the voices of 
the voters are represented in the decisions of the FSOC. And 
for that reason I introduced the FSOC Reform Act, which brings 
the FSOC under congressional oversight and increases the 
transparency of the Council. The future of crypto Web3 and the 
ownership economy cannot and must not be dictated by any entity 
that is supposed to be independent but instead takes its cues 
from a political agenda.
    Thank you, and I yield--
    Secretary Yellen. I'm sorry. The FSOC is--
    Mr. Emmer. --back the balance of my time.
    Mr. Green. The gentleman yields back. The Chair now 
recognizes the gentleman from Illinois, Mr. Garcia, for 5 
minutes.
    Mr. Garcia of Illinois. Thank you, Mr. Chairman. I made it 
in the nick of time. Good afternoon, Secretary Yellen. Thank 
you for being here. And thank you, Mr. Chairman, for hosting 
this important hearing.
    Secretary Yellen, you were the Chair of the Federal Reserve 
in 2016, when FSOC finalized a study examining State and 
Federal banking laws that could have a negative effect on the 
safety and the soundness of the financial system. One of the 
recommendations that the Federal Reserve made in that report 
was to close a loophole known as the industrial loan company, 
or ILC, loophole. The ILC loophole allows commercial companies 
to operate banks that are not regulated like banks, and it has 
caused financial stability problems in the past. As the Fed 
wrote in that report to FSOC, ``It must also be noted that the 
companies that failed the required assistance at the outset of 
the 2008 financial crisis included a number of companies that 
owned and controlled ILCs.''
    Secretary Yellen, my question is this: In light of the 
financial stability risks that we are discussing today, 
including digital assets, shadow banks, and Big Tech entering 
the financial services space, do you still agree with the past 
recommendation by the Fed to close the ILC loophole?
    Secretary Yellen. It is an issue I have not looked at 
recently, but I have no reason to think that my view would 
change on this. The Fed felt, at the time that report was 
written, that there are great dangers in connection with ILCs, 
and has long been opposed to mixing banking and commerce, for 
reasons I think, if anything, are probably stronger now rather 
than weaker than they were then. And I continue to believe that 
it is likely to be appropriate.
    Mr. Garcia of Illinois. Thank you, Secretary, and as I 
mentioned before, the ILC loophole allows commercial and 
technology firms like Amazon, Facebook, and Walmart to acquire 
a full-service, FDIC-insured bank. Can you share why it is 
important to maintain that separation of banking and commerce, 
and please describe what systemic risks can come from allowing 
non-financial companies, such as tech companies, to enter the 
banking service space?
    Secretary Yellen. There are a number of reasons why this 
seems to be dangerous. One reason that the Fed always worried 
about is that when a commercial company owns a bank, credit 
decisions can be influenced by issues other than banking and 
safety and soundness considerations, because of incentives that 
come from the other part of the business, the commercial part 
of the business.
    In addition, this tends to diminish competition and to 
promote monopoly and market power, and that is probably more 
important than it ever was before. And if a sufficiently large 
commercial company were to become dominant in the payment 
system, I think there could certainly be financial stability 
risks.
    Mr. Garcia of Illinois. Thank you for that, Secretary.
    Another question. I introduced the Bank Merger Review 
Modernization Act of 2021, to ensure that bank mergers are in 
the public interest by clarifying and strengthening the public 
interest aspect of the merger review and require regulators to 
use a quantifiable metric to evaluate systemic risk. Do you 
support that bill?
    Secretary Yellen. I would be glad to take a look at the 
details and work with you on it. I think that is an important 
area.
    Mr. Garcia of Illinois. Okay. Thank you. And are there 
other reforms that Congress can enact into law that would 
promote competition and financial stability in consideration of 
bank mergers?
    Secretary Yellen. I will take a look at it. I certainly 
believe it is important to have competition in banking and 
appropriate regulation there.
    Mr. Garcia of Illinois. And if I could just switch gears, 
very quickly, since my time is running out, today, FSOC can 
only make non-binding recommendations to financial regulators 
to take actions to address systemically risky activities. The 
Systemic Risk Mitigation Act, which I have previously 
introduced, would give FSOC rulemaking authority to better 
address systemically risky activities. Would you support giving 
FSOC that authority?
    Secretary Yellen. It is an area that I think is certainly 
worth looking at, and I would like to have the opportunity to 
work with you on that.
    Mr. Garcia of Illinois. Thank you, Madam Secretary. I yield 
back.
    Mr. Green. The gentleman's time has expired. The Chair now 
recognizes Mr. Loudermilk for 5 minutes.
    Mr. Loudermilk. Thank you, Mr. Chairman. Secretary Yellen, 
welcome. Thank you for being here.
    I want to start off a little bit on some of the issues that 
Mr. Hill started off with, talking about cybersecurity. 
Personally, I was alarmed to see the FDIC's Chief Innovation 
Officer's resignation in February. He had lamented that the 
FDIC has outdated technology and has a tendency to resist 
change. I believe that type of culture will not help the 
financial regulatory agencies stay ahead of cyber threats, and 
as someone who spent most of his work in the private industry 
in the IT business, I know how significant these threats are.
    Do you feel that the FSOC member agencies are open to 
innovation, and if so, what are you doing to foster that 
relationship or that willingness to bring in new technologies, 
especially for cybersecurity?
    Secretary Yellen. I absolutely believe that innovation is 
important. It is a benefit to the U.S. economy, and in the long 
run, it is probably the most significant source of growth and 
well-being, so we should want to promote innovation. But we 
need to have an appropriate regulatory framework so that the 
innovations produce net benefits to society and we make sure 
that they do not cause harm.
    Mr. Loudermilk. Thank you, and I see a lot of resistance to 
innovation, not only in regulatory agencies but even within 
Congress. The only way that you are going to stay secure is to 
stay ahead of the bad guy, and the bad guy is continually 
innovating and bringing in new technologies. And if we lag 
behind, we put the entire financial system at risk. We put 
every American citizen who participates in our financial system 
at risk. So, I highly encourage you to look at innovation as 
friend, not as a foe, but quite often, regulatory agencies take 
the other approach.
    Another topic. In your confirmation hearing last year, you 
said that designating non-bank companies as systemically 
important may not be the right approach to addressing risks in 
the financial system, and that an activities-based approach 
would be more appropriate. And I appreciate that.
    Do you still stand by those comments you made to the 
Senate?
    Secretary Yellen. Let me clarify. There are two different 
tools--designation and an activities-based approach--and I 
believe that in different circumstances, each can be 
appropriate. It should not be one or the other.
    Designation was meant for non-bank financial companies 
whose material distress or failure would cause material risk to 
the financial system. We are focused on non-bank. The FSOC is 
focused right now on non-bank financial risks coming from money 
market funds, from open-end mutual funds, and from hedge funds. 
But the approach that we think is appropriate is not 
designation. It is an activities-based approach.
    Mr. Loudermilk. Thank you.
    Secretary Yellen. And so, certainly that is an appropriate 
approach. I would not say, though, there could be circumstances 
in the future where designation is the right tool.
    Mr. Loudermilk. I do not mean to cut you off, but I am 
running short on time, and I have a couple other questions. 
Unfortunately, one of the bills included for discussion in this 
hearing ignores the very statement that you had made to the 
Senate. In 2018, when a strong bipartisan group of lawmakers 
reformed Dodd-Frank, we recognized that designating companies 
as systemically risk-based on an arbitrary threshold is 
unworkable. So, I hope my colleagues will remember those 
lessons.
    Moving on to another topic, one that Mr. Emmer touched on a 
little bit, which is the President's Working Group on Financial 
Markets and his recommendation that Congress pass legislation 
to apply bank regulatory regimes to stablecoins. As everyone 
understands, stablecoins are primarily used for trading crypto 
and payments, and there are many significant differences 
between stablecoin issuers and banks. For example, stablecoins 
are not used for lending, so it would not make sense to apply 
lending laws and regulations to stablecoins.
    Do you agree that it would not make sense to apply the full 
banking regulatory regime to stablecoins, and that a more 
nuanced approach would be appropriate should you do, as Mr. 
Emmer indicated, and regulate?
    Secretary Yellen. There are certainly--
    Mr. Green. The gentleman's time--excuse me, Madam 
Secretary--
    Secretary Yellen. --differences--
    Mr. Green. The gentleman's time has expired. I am going to 
ask that he submit the question for the record. We have many 
Members who are waiting, and we will now move on to the 
gentleman from California, Mr. Sherman, who is also the Chair 
of our Subcommittee on Investor Protection, Entrepreneurship, 
and Capital Markets. You are now recognized for 5 minutes.
    Mr. Sherman. Some of my Republican colleagues seem to 
believe we should be in an economic nirvana. That COVID killed 
a million Americans, of course, is no laughing matter, and it 
would have killed millions more if we had not taken action. 
They somehow believe that there was some way that we were going 
to get through COVID without any economic dislocation and that 
the American Rescue Plan was a giant mistake.
    Just for the record, wouldn't we have had millions more 
Americans in poverty, hunger, evictions, homelessness, and 
foreclosures had we not passed the American Rescue Plan?
    Secretary Yellen. Absolutely. We can thank the American 
Rescue Plan for the strong labor market we have now and the 
strong financial position of most households.
    Mr. Sherman. The greatest pandemic in history and economic 
nirvana have not gone together, coincidentally, in any country 
in the world. There was no perfect way to get through this.
    I want to thank you, Secretary Yellen, for all the help 
that Treasury provided in creating the Adjustable Interest Rate 
(LIBOR) Act. Congress, much of out character, perhaps, solved 
the problem a year and a half before the LIBOR hit the fan. It 
is now up to the Fed to write the regulations, and I hope you 
can inspire them to do so expeditiously because you have 
testified that the whole LIBOR issue is one of systemic risk. I 
see you nodding, so I assume you will be doing that.
    Secretary Yellen. I appreciate Congress passing that law. I 
think it is very helpful in dealing with legacy contracts.
    Mr. Sherman. Some of my colleagues have put forward the 
idea that gas prices are entirely a matter of U.S. oil 
production, and that somehow a speech saying that we have to 
move to a carbon-free future leads to higher prices in one 
country, the United States. And they somehow say that the Biden 
Administration has constrained oil production, and if it was 
not for low oil production, we would have low gas prices.
    Here are the facts. In 2021, America produced more oil than 
we did in 2020, the last year of the Trump Administration, and 
next year, we are going to produce more oil than we ever had in 
history. Unfortunately, oil is a worldwide commodity, and while 
we will produce more oil next year than at any time in history, 
we will not have the lowest oil prices at any time in history.
    If you open the dictionary to, ``oxymoron,'' it will say, 
``see stablecoin.'' The coin says it is stable; it is not 
stable. We have seen Terra drop from $18 billion of investment 
down to, I think a value today of about $1 billion, maybe a bit 
less. It is not Terra firma. It is Terra incognita. Tether is 
much larger.
    Tether has an $83 billion cap. It claims to be tied to the 
dollar. But I am told that they have not issued any audited 
financial statements, although they keep promising them, so I 
have no idea whether their statements of what reserves they 
have are accurate or not. But they apparently have invested 
substantially in Chinese commercial paper, which may or may not 
have value at various times, and they have invested in 
cryptocurrencies, which have lost over half their value in just 
the last few months. This does not look like my father's money 
market fund or my grandfather's bank. Their assets do not 
appear to be very liquid.
    What are the implications for our economy if Tether, which 
just broke the buck, goes all the way to Terra incognita?
    Secretary Yellen. I think you have just illustrated, and we 
have just had, over this last week with Terra and with Tether, 
an illustration of the risks associated with stablecoins, that 
there can be runs, and we have seen this historically with 
private monies. We invented a good regulatory framework, I 
think, for dealing with this--
    Mr. Sherman. I am going to try to--
    Secretary Yellen. --for a depository institution.
    Mr. Sherman. --sneak in one more concept. Through our tax 
system, we provide tens of billions of dollars of subsidies for 
those who have pensions and 401(k)s. We do so so that they will 
have a stable retirement and invest their money in operating 
companies that provide jobs. I would say--
    Mr. Green. The gentleman's time has expired. Please submit 
your question to the Secretary in writing.
    Mr. Sherman. --investments in cryptocurrencies do neither.
    Mr. Green. The Chair will now recognize the gentleman from 
Ohio, Mr. Davidson, for 5 minutes.
    Mr. Davidson. Thank you, Mr. Chairman. Madam Secretary, 
thank you for your time here today. I wish we all had a little 
more of it. But yesterday, when you were at the Senate Banking 
Committee, you stated that student loan forgiveness could be 
good for the economy, and that you will, ``support anything 
that President Biden decides as a part of his policy on the 
issue.'' Do you really believe that?
    Secretary Yellen. I'm sorry, on what issue?
    Mr. Davidson. Student loan forgiveness. Whatever Joe Biden 
says, you are good with?
    Secretary Yellen. I believe all I have said on student 
loans is that they can be extremely burdensome and make it 
difficult for individuals to begin to buy a house or to save 
for retirement.
    Mr. Davidson. Of course, all debt has that effect. The 
principle of compounding interest should be taught earlier and 
often. As a consequence of the Federal takeover of the student 
loan industry we are looking at, according to the Department of 
Education's estimate, over $400 billion at risk of default 
because students cannot repay them. There are complications in 
the program, and yet no one who talks about canceling student 
debt talks about stopping the problem, which is highly 
correlated to the Federal Government's takeover of it.
    I was just concerned by your response at the Senate Banking 
Committee, about student loan forgiveness, and kind of an 
unconditional support for whatever President Biden decides.
    Secretary Yellen. All I said is that the President is 
currently considering the options and trying to formulate his 
position on this matter.
    Mr. Davidson. Let us hope he sees the moral hazard of doing 
that. And frankly, the people best equipped to pay back loans 
sometimes would be the biggest beneficiaries, and so the 
biggest debts are borne by people who are overwhelmingly, 
thankfully, in a position to repay their loans.
    Secretary Yellen. Many are.
    Mr. Davidson. And lots of people have debts that could be 
forgiven and have big impacts on the economy and they did not 
have the same kind of challenges.
    That aside, we were just talking about the crypto markets, 
and obviously, everything in the news over the past couple of 
days is related to the markets being down, but overwhelmingly, 
crypto being down at an alarming rate. And just a bit ago you 
said, we are so concerned about runs on stablecoins and the 
hazard of stablecoins to the market. But my colleague, Mr. 
McHenry, started off by making it clear that algorithmic 
stablecoins have a different risk than a one-to-one fiat or a 
one-to-one commodity-backed, because there is not even 
fractional reserve banking there. There is 100 percent of the 
assets liquid and available.
    Would you like to qualify your distinction in terms of fear 
of a run?
    Secretary Yellen. It depends on the backing of a 
stablecoin. Terra is algorithmic and does not really have a 
backing as such. Tether is--
    Mr. Davidson. Tether is a time bomb and it operates 
completely outside U.S. markets. And it is maybe fair to say 
that they are more like a money market fund, but an unregulated 
one, because we do not really see the transparency in 
disclosures. But others are regulated, as New York Trust. Most 
of the stablecoins in the United States are well-regulated as 
New York Trust. Do you see those as the same kind of risk and 
the same regulatory approach?
    Secretary Yellen. I just think there needs to be a 
comprehensive and consistent regulatory approach for 
stablecoins because of the risks they can pose to the financial 
system. And I think that on a bipartisan basis, we ought to 
work together to make sure stablecoins that are introduced have 
such a regulatory framework.
    Mr. Davidson. Yes, I think you cannot treat algorithmic 
stablecoins the same as something that is--
    Secretary Yellen. We have not proposed to do that.
    Mr. Davidson. Okay. So, just common framework but not 
common for algorithmic.
    Secretary Yellen, I, and a number of Members wrote to you 
earlier about the Section 6050I provision, and it was a 
rulemaking for 8603 of the Infrastructure Act. And this was a 
requirement, a reporting requirement to the IRS on transactions 
in crypto that were supposed to mimic things that are cash 
transactions. So it is a very complicated ruling, and it is 
also not entirely technologically feasible for digital assets.
    Treasury issued some opinion about it. What is the process 
of the rulemaking right now?
    Secretary Yellen. I'm sorry. I am going to have to look 
into that and get back to you.
    Mr. Davidson. Thank you. My time has expired, and I yield 
back.
    Mr. Green. The gentleman's time has expired. I now 
recognize myself for 5 minutes.
    Madam Secretary, there are those who believe that if you do 
not vote for legislation, you have to denounce it as 
ineffective. The American Rescue Plan was effective 
legislation, and here is what my colleagues did not vote for. 
They did not vote to help those who were unemployed during a 
pandemic. They did not vote to save small businesses during a 
pandemic. They did not vote to provide vaccines and to 
distribute that vaccine to those who needed it during a 
pandemic. They did not vote to help children and schools during 
a pandemic. They did not vote for food for children during a 
pandemic. And they did not vote to provide for working families 
during a pandemic.
    They would call all of that inflation, but I believe that 
at some point the American people will understand that there 
were many of us who were trying to save the economy and prevent 
it from sliding into a deep, deep recession, and to help 
persons who are suffering during a pandemic.
    Madam Secretary, you have spoken quite well on this topic 
today. I do not want you to entirely repeat yourself, but there 
was a pandemic, and the American Rescue Plan was there to do 
what the government should do during a pandemic. Would you 
kindly give us additional thoughts on how the American Rescue 
Plan prevented us from sliding into a deep, deep recession or 
possibly something worse?
    Secretary Yellen. We saw unemployment rise after the 
pandemic struck to double-digit levels, something we had not 
seen in the United States in decades, and there was immerse 
suffering. The pandemic unfairly struck those low-income, 
minority workers, those least able to bear its consequences.
    Mr. Green. Who went to work every day, many of them, Madam 
Secretary, and risked their lives to make sure that there was 
food available for those of us who could stay at home and work 
from home, during a pandemic.
    Secretary Yellen. And we saw cars lining up in parking lots 
to get food at food banks.
    Mr. Green. And Madam Secretary, many of them, while in 
line, their cars ran out of gas during a pandemic. Please 
continue.
    Secretary Yellen. And we worried that many people would 
lose the roofs over their heads, and--
    Mr. Green. It kept people from being thrown out on the 
streets. That is what the American Rescue Plan did, during a 
pandemic. Please continue.
    Secretary Yellen. And we worried that children would suffer 
and experience homelessness or loss of access to education, 
that families and workers would be permanently scarred and 
never really be able to get their lives back on track. And we 
looked at forecasts--
    Mr. Green. Madam Secretary, let me just say this, because I 
am going to end this with my 5 minutes. But I want you to know 
this: I appreciate what you did. Pandemics are not things that 
you can predict, and we did not know what the actual solutions 
were. But we saved a lot of lives. We helped a lot of people 
who were suffering during a pandemic. And when we hear people 
say, ``Oh, you spent too much,'' well, we spent too much on 
unemployment during a pandemic. We spent too much to save small 
businesses during a pandemic. We spent too much to provide 
vaccines and to distribute that to people during a pandemic, to 
help schools and schoolchildren, to keep people from being 
thrown out on the street, to provide for childcare, as parents 
have to work. It was a pandemic, and it was more than inflation 
at risk. Lives were at risk and many were saved.
    I thank you for your service, Madam Secretary, and I yield 
back the balance of my time.
    And with that said, Madam Secretary, your testimony has 
been very valuable to us 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.
    The hearing is adjourned.
    [Whereupon, at 12:34 p.m., the hearing was adjourned.]

                            A P P E N D I X


                              May 12, 2022
                              
                              
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]