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tv   Key Capitol Hill Hearings  CSPAN  September 8, 2016 12:00am-2:01am EDT

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inclusive, transparent and accountable approach to governance? and what other things might we do to accelerate that process?
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scientists take a look at the
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black markets of cybercriminals. this sunday night on q&a, david kaye johnston discusses the making of donald trump, which takes a look at the presidential nominee. >> i met donald. i immediately recognized, brian, he speaks barnum. he is selling tickets to the fiji mermaid and the amazing two-headed woman. because he was the dominant force in atlantic city, i started asking about him. and his competitors, including steve wynn and people who work for him and some big gamblers all said to me donald doesn't know anything about the casino business. >> sunday night at 8:00 eastern and pacific on c-span's q&a. now a regional federal reserve bank officials on efforts to further reduce unemployment, expand growth, and improve the economy's overall health. this hearing of the house
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financial services subcommittee is about two hours. the committee will come to order. and without objection, the chair is authorized to declare a recess at any time in the committee -- i'm sorry, of the committee at any time. this hearing is entitled "federal reserve districts: governance, monetary policy and economic performance." i will now recognize myself for five minutes to give an opening statement. economic performance couldn't be
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stronger, especially in light of the deep hole that president obama inherited. well, that's the story you're going to hear from my colleagues on the other side of the aisle, and they've been telling it for years. but the fax clearly contradict this situation. the fact of the matter is we are mired in the slowest recovery since at least world war ii. historically, our nation's economy has grown at a 3% clip. the obama administration now pretends that a new normal of 2% counts as a success. small on its face, the difference between 3% and 2% is 50%. unfortunately, economic opportunities are now disappearing even faster. and while my friends on the other side have been crowing about this recovery for years, republicans have been calling out for what it really is, completely unacceptable situation. but today it will be different in at least one important respect. our colleagues on the other side of the aisle will finally join news acknowledging that our economy is underperforming. and together we will examine the important role that the federal reserve's districts play in
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expanding economic opportunity, a role that unfortunately is under heavy attack. this attack has been brewing beneath the surface for several years. in late july, the democratic party finally made their true objective clear. the party platform adopted in philadelphia promises to increase opportunity for all. instead, it has taken aim at the very foundation of opportunity in my opinion that is the governance and monetary policy and the subject of today's hearing. democrats have constantly resisted reforms that would modernize the federal reserve, bringing much needed transparency to what most americans consider an impossibly opaque institution. while such reforms promise increase of accountability, democrats falsely claim that a better disciplined, more predictable and clearly communicated monetary policy with congress and the public would somehow jeopardize the fed's independence. reforms such as these included in the for matt and the draft financial choice act would help insulate the fed from any opportunity killing political precious. however, my friends on the other side of the aisle would like to
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double down on what frank/dodd started. it has kicked opportunity to the sidelines in the name of reinflating asset prices. their platform promises to press the pedal to the metal in a drag race to printing money for the politics of those in office. they now have launched a hostile takeover of the federal reserve itself. and i'll note that this is a dual edged sword that some might benefit now. real economic opportunity cannot return until washington puts an end to the pretensive knowledge. well cannot promote economic policy for all that targets assets that benefit only some. oracles from the eckles building have been promising to do so for a decade, but where are the results? i'm as fed up as anybody. we are fed up as anybody. where is the promised opportunity? how could the fed have created trillions upon trillions of dollars from thin air in the name of buying questionable
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assets that they have left us with not only the slowest economic recovery in our lifetimes, but increased inequality to boot? i know that a better way is available, one that reverses the increased centralization of monetary policy in washington's politicized board of governors and an institutional source of support for sound monetary policy. i believe my house passed and the financial choices committee act offer a much better way. instead of doubling down on dodd/frank, they bring it out of the political shadows and into the sunlight of and strength monetary independence by restoring the voice of the bank district presidents on monetary policy matters while subjecting regulatory and supervisory services to oversight where they properly belong. i look forward to hearing from our witnesses today. and the chair now recognizes the
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ranking member of the subcommitt subcommittee, the gentle lady from wisconsin for five minutes for an opening statement. >> thank you and good morning, mr. chairman. and good morning to my colleagues and to this distinguished panel. i so look forward to the tremendous assets that we have here in front of us, mr. chairman. and i especially welcome the honorable spriggs, who is a very well educated gentleman from the university of wisconsin madison. i think that your perspectives are going to be extremely valuable. and we thank you for giving us the time here. the federal reserve is the central bank of the united states. plays an extremely important role in our financial markets and economy. i think we have seen this post our recession. it's also very misunderstood. so i actually think that it might be helpful to have had this hearing to discuss the
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federal reserve and the federal reserve system. i'll have to admit to you, mr. chairman, that i was initially extremely suspicious of this hearing due to some proposals that i think would disastrously inject partisan politics into monetary policy. and we've heard some of them. i think it's interesting, mr. chairman, you talked about, you know, not wanting to inject politics into the federal reserve since we've heard these cries to audit the feds and balancing the transportation budget with federal reserve monies, and just your statement today, wanting to bring the federal reserve into more of congressional compliance. but short of undermining the independence of the fed with policy audits or appropriating the budget, i have been open, mr. chairman, to you and others about improving the diversity of thought at the fed.
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the fed was created and established to be independent. and i think that independence has fuelled a lot of these misconception and misgivings about the fed. and i think that we ought to and should explore smart reforms that balance maintaining the fed's independence, but it also bolsters public confidence and faith in the fed. we've made some tweaks in dodd/frank, including have the gao study conduct a study and make recommendations on reform. and i think that that's appropriate. and i think the gao recommendations are a good place to start any conversation on reform. and i also signed on to a letter with some of my democratic colleagues, encouraging the fed to seek greater diversity. and with that, i yield back the
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balance of my time. and i look forward to this hearing, mr. chairman. thank you. >> the gentle lady yields back. thank you for that. today we welcome the testimony of esther george, president and chief executive officer of the federal reserve bank of kansas city. i know you're coming off a busy august with the jackson hole conclave that was put together. and i know that you met with a number of folks that are represented here today in the office, or in the audience. jeffrey lacquer, president and chief executive officer of the federal reserve bank of richmond. robert jones, bob jones, chairman and chief executive officer of old national bake corp., former board director for the federal reserve bank of st. louis. and mr. william spriggs, professor of economics at howard university. apparently he missed putting in the wisconsin part, ranking member. but i think that was undergrad. >> this is dr. spriggs. >> yes, dr. spriggs. each of you will be recognized for five minutes to give an oral
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presentation of your testimony without objection. each of your written statements will be part of the record. and with that, ms. george, we will recognize -- i'm sorry, we're going to go right in order, i guess. different from my sheet. but dr. lacquer, we're going to have you go first. and you're now recognized for five minutes. >> thank you. good morning, chairman huizenga, ranking member moore, and chairman hensarling. i'm honored to speak to the subcommittee about the governance structure of the fed's regional reserve banks. to understand the fed structure, it's essential to understood the fed's purpose. prior to the founding of the fed, the banking system was often unable to adjust the supply of monetary assets flexibly enough in response to the changing needs of commerce. the fed was founded to furnish an elastic currency, in the words in the preamble to the federal reserve act. clearing houses, bank-owned cooperatives in larger cities played an important role in how periodic crises were resolved
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before the fed, including the issuance of currency substitutes. but clearing houses were widely viewed as favoring the interests of large banks. but with note issue powers and universal eligibility for membership the aim being to improve on the role of clearing houses in a way that served broader public interests. a plan for a centralized institution was rejected out of concern about excessive wall street influence at the expense of diverse regional influence. proposals for a government-controlled central bank were rejected as well for fear the federal government would use control of the money supply to resort to inflationary deficit finance. at the same time, a measure of public oversight was viewed as essential, so the act included a federal reserve board whose leaders were politically appointed. thus the final federal reserve act reflected a balance of competing considerations, a federated set of institutions to provide for representation of a
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diverse range of geographic and commercial interests with a hybrid public/private governance structure to provide for public oversight but contain potential misuse of monetary authority. the structure of the federal reserve is still effective in my view because the considerations the founders wrestled with are all relevant today. the federated structures benefitted policy making by ensuring the diversity of perspectives on policy and economic conditions are brought to the table. reserve banks historically have shown intellectual leadership on topics that initially went against the grain of mainstream thinking, but later become broadly accepted. and reserve bank presidents have a record of challenging conventional views. in addition, the federated structure has promoted broad regional engagement of the institution across the country, deepening the fed's understanding of the diverse economic challenges facing american communities. to be sure, our country's understanding of diversity has expanded since 1913. and it is in keeping with the
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spirit of our founding the federal reserve has taken the importance of diversity seriously, as we have sought to ensure broad representation of views in the formulation of monetary policy, including those associated with disadvantaged communities. i believe our record in this regard, like that of many other organizations in the united states shows a combination of substantial progress and areas where more can be done. in addition to bringing diverse viewpoints to bear, the fed's public/privacy governance helps the policy focus on longer term objectives. at time there is a temptation to provide excessive economic stimulus in the short-run and leave the subsequent inflationary costs for future policymakers to deal with. evidence from around the world, along with our own history in the united states amply demonstrates the temptation of shortsighted monetary policisis a bipartisan vulnerability, just as the fed's founders feared. for central banks, this implies that meeting-to-meeting monetary
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policy decision immediate to be insulated from short-term political pressures driven by electoral consideration. but independence with regard to the choice of monetary policy interest rate settings must be paired with strong economic ability. accountability rests on transparent communications which help congress and the public evaluate the fed's performance against its mandate. the fed's public /private structure supports monetary policy independence by ensuring a measure of apolitical leadership. the reserve bank's autonomous balance sheets protected appropriation status and independent capital stocks all play a role as wells by limiting high frequency interference that might diminish instrument independence. the presence of bankers on reserve bank boards is said to represent a conflict of interest, but strict rules limit bankers' roles. they simply have no avenue through which they can influence supervisory matters. moreover, best practice for any
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board is to seek members with expertise relevant to the board's activities. the fed's large payment processing operations make the original rationale for having bankers serve on reserve bank boards still valid in my view. in addition, bankers are particularly well positioned to report on positions in their footprints. in conclusion, while some claim that the federal reserve's governance structure is a historical anachronism, the continued relevance of the trade-offs of the federal reserve act argues for the continued utility of this finally balanced arrangements that they crafted. thank you. >> thank you, dr. lacquer. with that, ms. george, you are recognized for five minutes as well. >> chairman hensarling and huizenga, ranking members more and members of this committee, thank you for the act to share my view on the roles of the role of federal reserve banks as part of the federal system. because the federal reserve is an institution that makes institutions of consequence to the broad public, a discussion
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of these matters is worthwhile. the changes are to be considered, the public should understand not only the congressional intent for its current design, but also the strong safeguards that assure its accountability. central banks are unique institutions. they have important responsibilities for a nation's financial system and economy. congress as it contemplated a >> you need public structure, and it's designed to provide a system of checks and balances.
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challenges have -- not unlake they have today. in the end our country has remained confident in this decentralized government structure. criticism of the quasi-private nature of the regional reserve banks was anticipated from the start. indeed, the federal reserve act leaves no unchecked power in reserve banks. politically appointed members of the most important governance aspects of the research banks. they appoint the chair and deputy chair of a reserve banks board. they vote to approve the selection of the bank's president as well as its chief operating officer, and they approve the reserve bank's budget and salaries. the board of governors also meets with each bank's chair and deputy chair annually to review the bank's performance, and that of its president. the reserve bank's operations are vee viewed as well as an outside independent auditor. notwithstanding the strong
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public oversight some question the role of commercial banks within the fed's structure. here, too, important safeguards exist. supervision and regulation of the fellow reserve's member banks is a statutory responsibility of the congressionally confirmed board of governors. bankers who serve on reserve bank boards are prohibited by law from participating in the selection of the bank president and no director can participate in bank supervisory matters. finally, they are all expected to adhere to high ethalconduct and avoid actions that might discredit the reputation of the system. the capital stock serves as the foundation for the decentralized structure allowing for separate corporate entities. private citizens from diverse backgrounds and from the largest to the smallest communities have input into national economic
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policy. strong and varied independent perspectives, more easily emerge to engage in difficult monetary policy discussions. the central bank has provided insulation from short-term political pressures. altering this public-private structure in favor of a fully public construct diminishes these defining characteristics in my view. pressure can be exerted on a unpopular decision judged to be in the long run best interest of the economy. the 1984 speech he noted the important role of the structure of the federal reserve system in supporting the central bank's decision making -- it's designed
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to insure the judgment, the continui continuity, and professionalism in staff, a close contact with economic developments and opinion throughout our great land and a large degree of insulation and concerns. to that end, i extend a personal invitation for any of you to visit the fellow reserve bank of kansas city to see what a regional federal reserve bank provides in support of the central bank's objectives for economic stability. thank you. i look forward to taking your questions. >> mr. jones, you are recognized for five minutes. >> thank you. chairman and ranking member moore, good morning. it is my honor to speak with the distinguished members of this committee today about the role of commercial bankers on our reserve bank boards. it is my belief that it is critically important the bankers continue to serve in this capacity. i sit before you as the chairman and ceo of old national bank
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corp., a 182-year-old community bank head quartered in evansville, indiana, serving indiana, southwest michigan, wisconsin, and kentucky. i'm also a proud former board director of the federal reserve bank of st. louis as well as a former member of the federal advisory committee of the federal reserve board. i would like to begin my remarks by touching on a partnership that has changed the lives for the better. at its center are two individuals, rosalynn jackson, a former substance abuse counsellor in western kentucky penal system, and ben engineeringens, old national bank corp.'s empowerment officer. with insights and guidance from rosalynn, ben designed a financial education program that provides non-violent offenders in our region with the tools to gain financial independence once they've completed their debt to society. launched in 2014 this program led the american bankers association to recognize ben with its george bailey
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distinguished service award. more importantly, it has led to nearly 2,000 individuals out of a cycle of despair and independence and was fuelled by their inability to manage their finances. one graduate of the program summed it up this way. i learned that you can always clean up the wreckage of your past and take control of your destiny. this is just one illustration of the many ways that banks, big and small, work to strengthen the communities that we serve. old national is a fairly typical community bank. with $14.4 billion in assets, we are literally head quartered on main street in evansville, indiana. our clients are small and mid-size business owners. farmers, young families, retireees, labor ters and community leaders. each year we invest millions in support of community causes. in our nearly 3,000 associates are known for their volunteerism. having donated more than 100,000 volunteer hours in 2015.
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in 2016 our company was named to the institute's world's most ethical companies list for the fifth consecutive year and recently the american banker named us as one of the best banks to work for in the country. the strong connection that banks like ours enjoys with their communities we serve gives us a unique and valuable perspective. not only do bankers serve as community catalysts, we are on the front lines every day assisting our clients who represent a broad cross-section of industries and neighborhoods. over time we gained vital instincts to how they view the economy and how those views shape their decision making. the bankers who sit on the board gain incredibly valuable information that they can take back to their communities. i experience this reciprocal relationship firsthand during my tenure. fueled by the knowledge i gained from my board experience old national spearheaded the creation of the first bank on
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program in the midwest back in 2009. we've added another 16 programs helping the unbanked and under-banked individuals take better control of their finances. again, all this dates back to the knowledge i gained serving on the federal reserve. my time as a director i and other bankers on our board not only brought valuable insights from our communities into our discussions, we frequently reached out to a diverse set of community leaders to gather specific feedback that helped drive policy decisions. over time these trusted voices from main street began seeking us out to offer their views on issues of the day. these candid regional perspectives were invaluable to our discussions on the drivers of our local economies. that is why i feel so strongly that bankers are our vital asset. i recognize the concerns that have been surfaced over whether bank directors might somehow attempt to control our
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manipulate decisions for the betterment of their own institutions. while no system is perfect, i do believe this has effectively addressed during the current policies and procedures of the federal reserve system. as this committee knows, the banking industry is highly regulated and bankers fully understand the consequences if we violate these regulations. the same consequences apply to regulations and policies that govern the federal reserve system. the existing governance model is strong, and i applaud the controls currently in place. i can assure you that during my tenure i never felt that my integrity or ethical set were in any way challenged or compromised. as banker, our role in the term reserve board is limited, yet crucial. we serve as managers, budgeters, auditors, and strategic planners. we supply a vibrant and important regional voice on issues that affect small and medium size towns all across our great nation. i encourage this committee to retain this vital link to the views, perceptions, and
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attitudes of main street america. thank you for your time. >> thank you, mr. jones. with that the honorable william sprigs is recognized for five minutes. >> make sure to hit your mike. >> sorry. >> there you go. >> good morning, and thank you, chair and ranking member moore for this chance to speak today. i want to start with a clear statement that up like in the past, the fed has not had the help of fiscal policy to stimulate the economy. on all previous occasions when we've had downturns, congress has held up its half of the humphrey hawkins act to fully
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address full employment. with when we look at the deficit spending under president reagan and the deficits that were run up under president george w. bush, we see that congress clearly understood the need to act and respond to the downturn. this is unprecedented for the fed to have to act on its own, and i would think as was the case with chairman volcker it that has led to a lot of public criticism. that is very hard for the fed. but for its independence, chair yellin could not be steering this in these unchartered waters. i also want to say that it is fully possible, possible, under the current standards to have regional bank presidents who are quite open to public participation and truly do think that they have to represent and listen to all the voices from their region.
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you have president george here on the panel who has let the doors of her bank open, has left the doors of her bank to engage her community, and to talk to all the citizens in her region and hear from those who are affected by fed policy and to respect their voices. it is possible i want to give my statements with regard to your theme, which is policy outcomes and to look back because, of course, we cannot ignore the great recession and would led up to it. that's going to be the tone of what i would like to speak about. you see the chart that's up now. this shows the record of inflation pre-1978.
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post-1984 what economists call the great moderation. morntly, it's greatly reduced. there is great stability that has occurred in terms of price stability. you can see the green line shows current, average inflation, but 1984, the red line shows inflation and the period before. the next slide, however, shows you the performance of the labor market. here you see a clear difference. before 1978 the average monthly unemployment rate in the united states was 5.1 %. during the great moderation it's
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been 6.1%. that one percentage point difference means a lot. in the great moderation only 25% of the time of american workers have been below 5.1%. this lack of voice on the part of workers affects the way that the fed looks at things. it's not guaranteed into the system. class b members often do have influence. the current president of the philadelphia bank was a class b member, chaired the search committee stepped down from the search committee and then became president of the bank. there are at least 12 instances in which class b members chosen by the banks have ended up being class c members. those who then govern the regional banks. the voices of others need to be
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put into the mix so that we can have guaranteed the voice of everyone. when the banks were established in 1914, we had a much different banking system. today the level of concentration in our banking system is at record high levels. that means that we can't think that the regional banks really represent regional views. we need to have a way to insure that that will be the case. >> i appreciate that testimony. >> the chair now recognizes himself for five minutes. i like to point out next week marks the eighth anniversary of legalan brothers collapse. brom independent scholars who studied the financial crisis points to a monetary policy that was too loose for too long as a significant contributor. scholars have also shown that the unique structure of district
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banks can guard against such policy mistakes, that is district presidents tend to be more concerned about overly accommodative policy than are their politically appointed colleagues on the board of governors. while this tendency has been criticized by advocates for extending what is already the greatest -- under the theory that doing so will increase wages and employment in that lower income levels it. research also suggests that we need to do just the opposite. for example, dr. christina roamer, a berkeley economics professor and the first person to chair president obama's council of economic advisors observed that "compassionate monetary policy is sound monetary policy. monetary policy that ames at low inflation and stable aggregate demand is the most likely to "permanently improve conditions for the poor." "president george, do you agree with president obama's first chair, that sound monetary policy is the most likely to
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permanently improve conditions for the poor? i'm going to ask everybody for a yes or no. >> yes. >> yes. >> how about you, mr. sprigs -- honorable sprigs -- do you agree? >> i think the sound monetary monetary policy includes making sure that the wages of workers lies with productivity, that we are in full employment so that the nation can have the highest level of productivity possible. >> is that a yes or aano? >> that's my definition of sound monetary policy. >> i agree with ms. roamer. >> i do too. it seems to me that we share a common interest, which is the widening wage gap. the underrepresentation that has occurred for those in low and moderate income who have not
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seen their wages increase. we all know and if you have watched my subcommittee at all or watched me in committee, i have said this many, many, many times. wall street is doing just fine. i'm concerned about main street and bhaewhat's going on. mr. jones, you literally are at the corner of main street in indiana. >> we want to make sure that there's a proper check on the federal reserve. i believe the district bank presidents do that. i also want to do a quick -- a quick -- do you agree the federal reserve district presidents bring regional and local knowledge to the fomc deliberations? if you don't mind touching on that briefly. you're at the table. >> yes, i do.
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intense focus of every regional reserve bank to understand economic conditions in their district in a way that compliments the national economic statistics ask is more granule granular and thoughtfu than statistics reveal. >> the transcripts show that a significant portion of the discussion about the economy does come from talking about regional aspects of the national economy. >> i've had my own little experience in that my family is involved in construction in michigan. i own a small third generation sand and gravel operation. my family has been involved in construction for decades. when i went to visit the president of chicago reserve bank, first 15 minutes of that was an interview of me, what was happening in if the local economy in west michigan. given those changes in populations and demographics, does the

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