The Annual Report of the Financial Stability Oversight Council

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Hybrid hearing titled The Annual Report of the Financial Stability Oversight Council, before the Committee on Financial Services of the U.S. House of Representatives, dated May 12, 2022. The listed witness is Janet L. Yellen, Secretary of the U.S. Department of the Treasury and Chairperson of the Financial Stability Oversight Council (FSOC). Chairwoman Waters opens by discussing the 2008 financial crisis, the creation of FSOC under the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the treatment of climate change as a systemic risk. The contents also list an appendix with a prepared statement and written responses to questions from several Representatives.

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Issuer: Congressional materials
Document type: Congressional Hearing
Case: Chrg Chrg 117Hhrg47651 Chrg 117Hhrg47651

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“The Annual Report of the Financial Stability Oversight Council.” Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/chrg-chrg-117hhrg47651-chrg-117hhrg47651/, SHA-256 36322239e1a2e5b7a5b3760fc6ea9e2cfb19840c5057da214a50f5111f30a8c9.

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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

(

U.S. GOVERNMENT PUBLISHING OFFICE
47–651 PDF WASHINGTON : 2022

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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York PATRICK MCHENRY, North Carolina,
NYDIA M. VELÁZQUEZ, 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
JESÚS ‘‘CHUY’’ GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts

CHARLA OUERTATANI, Staff Director

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CONTENTS

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

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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 [chair-
woman 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, Gar-
cia of Texas, Williams of Georgia, Auchincloss; McHenry, Lucas,
Posey, Luetkemeyer, Huizenga, Wagner, Barr, Williams of Texas,
Hill, Emmer, Zeldin, Loudermilk, Mooney, Davidson, Kustoff, Hol-
lingsworth, 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 tes-
tifying today on the annual report of the Financial Stability Over-
sight Council, or FSOC.
Before the 2008 financial crisis, no governmental body was so ir-
responsible 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 tril-
lion in household wealth. In response, Congress passed the Dodd-
Frank Wall Street Reform and Consumer Protection Act of 2020
(1)

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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 sys-
tem, including subjecting massive insurance companies, like AIG,
to stricter oversight. Unfortunately, the Trump Administration un-
dermined FSOC by cutting staff, conducting fewer and shorter
meetings, and removing regulatory safeguards on risky mega finan-
cial 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 re-
store FSOC’s ability to guard against the threat of systemically im-
portant financial institutions.
Big Tech, crypto, and so-called shadow banks are causing signifi-
cant and fast changes in our economy, so FSOC must remain vigi-
lant in its ever-changing environment. Maintaining a strong econ-
omy has been a key goal of my committee, particularly for commu-
nities 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 emer-
gency rental assistance. And I am proud that by June, Treasury es-
timates 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 in-
creases, prices remain high. Housing now accounts for a core part
of inflation. It is clear that we must do more to increase our na-
tion’s supply of affordable housing. This is why I drafted and con-
tinue to advocate for the historic housing provisions of the Build
Back Better Act.
Finally, our economy can only be strong if everyone can partici-
pate, 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 gen-
tleman 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

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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 fail-
ing 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 inven-
tories, 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 some-
thing, 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 sta-
ble when it doesn’t have backing by something real and of sub-
stance. 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.

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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 Sec-
retary, 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 cli-
mate 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 ques-
tion—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, Sec-
retary of the Department of the Treasury, and Chair of the Finan-
cial 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, SEC-
RETARY, 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

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topics in the report and provide an update on the Council’s activi-
ties since the report’s publication.
First, the report discusses vulnerabilities in the non-banked fi-
nancial sector, which were highlighted by the turmoil in financial
markets in March 2020. While the Dodd-Frank Act reforms in-
creased the resiliency of the U.S. financial system, the market tur-
moil 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 re-
establishing its Hedge Fund Working Group to develop an inter-
agency risk monitoring system and to propose options to mitigate
identified risks. And earlier this year, the Council issued a state-
ment to express support for the Securities and Exchange Commis-
sion’s efforts to reform money market funds, and their work to con-
sider potential reforms of open-end funds. The Council is also work-
ing 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 bilat-
eral 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 in-
stitutions better understand their climate-related financial risks. In
its October 2021 report on climate-related financial risk, the Coun-
cil outlined how climate change can be a source of shocks to the
financial system and can increase risks to financial stability. To ad-
dress 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 Finan-
cial Risk Committee, which will serve as a coordinating body for
the Council to share information, facilitate the development of com-
mon approaches and standards, and foster communication across
FSOC members. In addition, the Council is establishing the Cli-
mate-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 effi-
ciencies. However, digital assets may pose risk to the financial sys-
tem, and increased and coordinated regulatory attention is nec-

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essary. 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 frame-
work on a consistent and comprehensive basis.
Finally, there is the potential for continued volatility and un-
evenness of global growth as countries continue to grapple with the
pandemic. Russia’s unprovoked invasion of Ukraine has further in-
creased economic uncertainty. The U.S. financial system has con-
tinued 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 un-
precedented sweep of sanctions on Russia that have been imple-
mented by financial institutions. On February 28th, I convened the
Council in the wake of the invasion, and we will continue to mon-
itor 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 counter-
parties, 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. finan-
cial 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 Foun-
dation, 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 eco-
nomic 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 crip-
pling 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 op-
portunities available to women?
Secretary YELLEN. Thank you for that question, Madam Chair-
woman. 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 ca-
reers, and the subsequent life outcomes of their children, and I be-
lieve that overturning Roe would prevent large numbers of women
from managing their reproductive lives, particularly many low-in-
come and financially-vulnerable individuals. The inability to access
abortion would have a profound impact on their personal and eco-

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nomic 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 ami-
cus brief which summarizes the economic research that establishes
the relationship between legalization of abortion, birth rates, wom-
en’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 inno-
vation 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, cy-
bersecurity, and privacy. Further, the report noted that stablecoins,
in particular, may pose systemic risk if the stablecoin is not ade-
quately 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 as-
sets. 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 work-
ing 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 rela-
tionship with the dollar, the President’s Working Group on Finan-
cial 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 as-
sets.
There are potentially useful innovations that could make the
payment system faster and more efficient, but we really need a reg-
ulatory 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?

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Secretary YELLEN. Of course, there are significant differences be-
tween these two.
Mr. MCHENRY. Yes. I welcome the President’s Working Group re-
port 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 signifi-
cantly 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 environ-
ment 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 associ-
ated 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 Presi-
dent’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 accom-
plished, 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 establish-
ment of a bank framework for recognizing stablecoins.
Mr. MCHENRY. A bank framework.
Secretary YELLEN. It is a flexible framework. It involves appro-
priate capital and liquidity requirements, which I think are impor-
tant, and is a framework in which payment system risks can be ad-
dressed. I think this is something that we would be—

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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 vulner-
able 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 sup-
port 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 Sub-
committee 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 con-
versation on stablecoins because, obviously, the activity and the
volatility of the last couple of weeks has been interesting and con-
cerning to watch. But since this is the first time we have had you
here since we have had really a pretty substantial and robust re-
covery 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 as-
sured by my Republican friends that it was going to end capital
markets in this country, liquidity was going to dry up, credit avail-
ability 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

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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 vola-
tility 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 de-
veloping 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 sys-
temic 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 Exec-
utive 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, be-
cause 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 talk-
ing about systemic risk, so let me just ask you, again, being a vet-
eran 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 tril-
lion? 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 gen-
eral 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 con-
cerns because it could have, depending on how it is designed, a

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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 govern-
ment spending, trillions of taxpayer dollars, is not a root cause of
the rising prices that my constituents in Missouri’s 2nd Congres-
sional 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 exception-
ally 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 econ-
omy 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 quar-
ter. 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 de-
mand.
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 Ad-
ministration 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 pe-
troleum needs when there really is an emergency. What are you
doing specifically?

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Secretary YELLEN. The release from the Strategic Petroleum Re-
serve 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 Pe-
troleum Reserve, ma’am?
Secretary YELLEN. We are trying to unblock supply chains that
have become very clogged. We have put in place changes, for exam-
ple, at the ports of Los Angles and Long Beach that have substan-
tially 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 Massa-
chusetts, 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 compari-
son 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 recog-

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nized the stability in the greenback, and all of those script cur-
rencies 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 sur-
vive the emergence of a CBDC issued by the Fed?
Secretary YELLEN. I think you have described the risks associ-
ated 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 deal-
ing 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 di-
rectly 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 appre-
ciate 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 avail-
able 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 regu-
latory authority here.

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Mr. LYNCH. Okay.
Secretary YELLEN. We would like to see a comprehensive frame-
work.
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 Ameri-
cans 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 some-
body 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 sys-
tem 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 ex-
pect 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 op-
portunity 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

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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 beg-
ging, and your statement seems to imply—
Secretary YELLEN. We have a huge—
Mr. SESSIONS. —that jobs aren’t available, and so the govern-
ment 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 Re-
serve about the risk of stagflation, and since then, in the first quar-
ter 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 Fed-
eral Reserve has a critical role to play in bringing that down. They
are in the process, using their own independent judgment, of tight-
ening monetary policy to do so, and the Administration is doing
what we can to also address supply chain issues and other contrib-
utors 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

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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 im-
proper 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 pro-
grams 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 Integ-
rity 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 dif-
ferently 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 possi-
bility 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 in-
flation it appears we are entering a period of increasing interest
rates. How much will a 1, 2, or 3 percentage point increase in our

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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 na-
tional 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 as-
sumed that interest rates would not stay at that low level, and we
have projected increases. Even so, you can see that in our mid-ses-
sion 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 con-
sistent with solid government finances.
Mr. POSEY. Last October, the Financial Stability Oversight Coun-
cil 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 institu-
tions 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 ad-
dressed. The devastating war in Ukraine and the ensuing energy

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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 infrastruc-
ture and export terminals would have to be built to expand the vol-
ume 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 fi-
nancial 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-im-
portant 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 Over-
sight Council and the staffs of the agencies involved meet on a reg-
ular 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 recog-
nized 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 de-
posit insurance from financial institutions as an enforcement ac-
tion. 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 en-
forcement 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 insur-

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ance 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 in-
sured, 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 de-
posit insurance is important. But it not automatic that every insti-
tution 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 an-
other round of Paycheck Protection Program (PPP) loans. Title III
of that section established the second round of PPP, and that Sec-
tion 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 Entrepre-
neurship 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.

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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 con-
cerning. Do you any plans whatsoever to appear before our com-
mittee, 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 com-
mittee to testify. In the situation you are referring to, Congress has
expressly authorized me to delegate duties and powers of the Sec-
retary 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 in-
crease in home prices between 2016 and 2019, that the average an-
nual 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 sig-
nificant 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 pur-
chased over 40,000 homes in the past decade. The UNC Urban In-
stitute 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.

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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 in-
vestments in public housing and homebuyer assistance. But we cer-
tainly 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 intro-
duce 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 hous-
ing during this time?
Secretary YELLEN. I think it is critically important. We are see-
ing 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 im-
portant.
You mentioned fiscal relief funds, and we have certainly urged
State and local governments to use these funds to expand afford-
able 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 enforce-
ment 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 any-
thing?’’ You said, ‘‘There has been no change in the Administration
policy, to the best of my knowledge.’’

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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 nego-
tiations.
Mr. HUIZENGA. And you personally?
Secretary YELLEN. I have been periodically updated on this situa-
tion with the Iranians.
Mr. HUIZENGA. Then, I guess I will go back to my original ques-
tion. 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 re-
leased 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 reg-
ulation. 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 as-
sets.
I have a minute and 40—
Secretary YELLEN. The SEC and the CFTC certainly have au-
thorities—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 co-
ordination within the agencies of FSOC. So, we can continue that.
In my last minute here, I want to talk a little bit about the ef-
fects 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 in-
flation, 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?

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Secretary YELLEN. Inflation is a serious concern. Look, we are
not the only country experiencing inflation. Most advanced coun-
tries—
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 constitu-
ents. 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 conversa-
tion 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 glob-
al 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 per-
cent in 2009, and did not fall to below 4 percent for nearly a dec-
ade.
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 recov-
ery?
Secretary YELLEN. I appreciate you making this point. It is a
critically important one. The American Rescue Plan deserves sub-
stantial 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 opportuni-
ties 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 lev-
els. 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 pro-
vided by the American Rescue Plan, and businesses are doing well.
While some built up debt during the pandemic, they are now find-
ing it possible to pay it down.
We have a good, strong labor market. I spent that decade fol-
lowing the financial crisis at the Fed, and I can tell you how con-

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cerned 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 Re-
publican 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 sanc-
tions. Can you give us an update?
Secretary YELLEN. It is absolutely reeling. By their own esti-
mation, the Russian economy looks set to contract at least 10 per-
cent 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 tech-
nology 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 dec-
ades, 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 re-
sult 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 cli-
mate 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,

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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 mate-
rialized, that overregulation of the fossil energy sector, ending Key-
stone, blocking lease sales on Federal lands, constraining supply of
energy, has actually undermined financial stability, specifically his-
toric inflation and $4.37-a-gallon gas?
Secretary YELLEN. I think we owe that to the failure of our do-
mestic 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 Key-
stone Pipeline, and when they cannot access capital because of
ESG disclosure mandates, that is why we have a shortage of en-
ergy.
Did FSOC consider that the SEC’s ESG disclosure proposal, de-
signed 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 al-
liance 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-pe-
cuniary factors. Are you evaluating that risk to the financial sys-
tem, 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

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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 mete-
orology 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 grand-
children. 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 defin-
ing financial stability risks from a climate crisis—during the Sen-
ate confirmation for Federal Reserve Chair Powell, he defined tran-
sition 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 cer-
tainly 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 larg-
est 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?

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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, Sec-
retary.
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 rec-
ommendations as first steps in addressing the climate crisis, in-
cluding 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 behav-
ior of these financial institutions?
Secretary YELLEN. It will allow their supervisors to form a clear-
er view of the risks that these institutions are taking and then en-
sure that they are managing them properly, and it will help the in-
stitutions themselves better appreciate the risks that they are un-
dertaking. 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 Chair-
man Powell is talking about, and the fact that a lot of other coun-
tries 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 deal-
ers in my district all the time, and inflation is one of the first
things they bring up. And yesterday, CPI data showed this phe-
nomenon 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 in-
flation was transitory. Well, that has obviously proven to be ex-
tremely 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 fac-
tor to these price increases.

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Just a simple question. Keep it short. Very simple. Will you
admit that government spending is a contributing factor to infla-
tion?
Secretary YELLEN. There are many factors that are responsible
for inflation. You can see inflation at unacceptable levels in all ad-
vanced 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 de-
mand, 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 impor-
tant 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 capabili-
ties 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 im-
pact 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 im-
mediately 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 Admin-
istration 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 com-
panies 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

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29

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 cred-
its. 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 disadvan-
tage, 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 hard-
ships to our community. Putin’s unprovoked invasion of Ukraine
has only exacerbated these problems. I commend Treasury’s imple-
mentation of historic multilateral sanctions against Russia, pun-
ishing 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 govern-
ment spending.

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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 re-
spect to wheat, both Russia and Ukraine are tremendously impor-
tant 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 im-
pact 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 de-
crease 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 let-
ter 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 reve-
nues 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 re-
quiring students to wear masks, prompting the Treasury Depart-
ment 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 per-
mitted 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.

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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 Sec-
retary, it is so great to have you back before the committee, and
thanks for being responsive to our questions, and thanks for the in-
credibly challenging times you are in, in trying to guide our finan-
cial 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 ques-
tion 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 respon-
sibilities in this regard and is very focused on, especially with the
Russia-Ukraine situation, we are working very closely with finan-
cial institutions to make sure that they have the information—
[Audio interruption.]
Mr. HILL. I tell you, those robocalls are a real problem in our po-
litical—
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 cli-
mate 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 pre-
viously 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 sub-
stantial, 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?

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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 re-
purchase market that your former organization, the Federal Re-
serve, runs. Over the last couple of years, we have about $1.9 tril-
lion 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 ef-
fectively too much stimulus from fiscal contributions to the econ-
omy 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 im-
portant 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 pri-
marily 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 Sec-
retary, 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 contin-
ued exportation of almost eight million barrels per day of oil con-
tinues to fund their barbaric war machine. The United States and
Canada, as you obviously know, have barred Russian oil. The Euro-
pean 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 Euro-
pean 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.

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Secretary YELLEN. Ah, with Hungary. I have not had conversa-
tions with Hungary. My NSC colleagues may have. The European
Union, the European Commission is working with all of its mem-
bers to—
Mr. AUCHINCLOSS. All of the members agree except for Hungary.
This is a monumental step, and I would encourage you and the Ad-
ministration to do your utmost to use carrots and sticks with Hun-
gary to get them on board here with the European Union’s ap-
proach. 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 un-
likely 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 sup-
plier 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 bar-
rels 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 up-
stream 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 Rus-
sian 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 in-
stead 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?

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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, Sec-
retary, have we explored sanctions on oilfield services providers
who enable Russian oil production upstream of the actual distribu-
tion of that oil? Those companies have escaped sanctions, and they
provided much-needed technical expertise that Russia has not de-
veloped 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, bet-
ter 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 Adminis-
tration 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 in-
vestigate, and if appropriate, designate those activities or institu-
tions as systemic risks?
Secretary YELLEN. The FSOC, as you said, is a group of inde-
pendent 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 ex-
ists to independently identify emerging threats to our financial sta-
bility and align regulatory frameworks around those risks.
Secretary Yellen, by Executive Order, you convened the Presi-
dent’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 leg-
islation to limit stablecoin issuance to insured depository institu-
tions, 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 rule-
making.
Secretary Yellen, has the FSOC officially designated digital asset
or stablecoin activities as systemic risks?
Secretary YELLEN. No, it has not done so.

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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 com-
prehensive 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, legis-
lating takes time, and there is nothing more dangerous to innova-
tion 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 ig-
nite the FSOC if Congress does not do what the Biden Administra-
tion 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 rep-
resented in the decisions of the FSOC. And for that reason I intro-
duced the FSOC Reform Act, which brings the FSOC under con-
gressional 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 inde-
pendent 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 recog-
nizes the gentleman from Illinois, Mr. Garcia, for 5 minutes.

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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 impor-
tant 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 loop-
hole 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 as-
sistance at the outset of the 2008 financial crisis included a num-
ber 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 as-
sets, 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 men-
tioned before, the ILC loophole allows commercial and technology
firms like Amazon, Facebook, and Walmart to acquire a full-serv-
ice, FDIC-insured bank. Can you share why it is important to
maintain that separation of banking and commerce, and please de-
scribe 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 deci-
sions 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 com-
pany 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 Mod-
ernization Act of 2021, to ensure that bank mergers are in the pub-
lic interest by clarifying and strengthening the public interest as-
pect of the merger review and require regulators to use a quantifi-
able metric to evaluate systemic risk. Do you support that bill?

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37

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 com-
petition 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 regu-
lation 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 ac-
tions 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 innova-
tion, and if so, what are you doing to foster that relationship or
that willingness to bring in new technologies, especially for cyber-
security?
Secretary YELLEN. I absolutely believe that innovation is impor-
tant. 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 ap-
propriate 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 in-
novation, 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 en-
tire 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

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may not be the right approach to addressing risks in the financial
system, and that an activities-based approach would be more ap-
propriate. 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 finan-
cial 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 ap-
proach. 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 under-
stands, stablecoins are primarily used for trading crypto and pay-
ments, 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 indi-
cated, and regulate?
Secretary YELLEN. There are certainly—
Mr. GREEN. The gentleman’s time—excuse me, Madam Sec-
retary—
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 Mem-
bers who are waiting, and we will now move on to the gentleman
from California, Mr. Sherman, who is also the Chair of our Sub-
committee 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 be-

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39

lieve 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 Ameri-
cans in poverty, hunger, evictions, homelessness, and foreclosures
had we not passed the American Rescue Plan?
Secretary YELLEN. Absolutely. We can thank the American Res-
cue 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 con-
strained 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 illus-

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40

tration 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 Com-
mittee, 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 in-
dividuals 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 esti-
mate, 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 Govern-
ment’s takeover of it.
I was just concerned by your response at the Senate Banking
Committee, about student loan forgiveness, and kind of an uncondi-
tional 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 for-
given and have big impacts on the economy and they did not have
the same kind of challenges.

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41

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, be-
cause 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 com-
mon for algorithmic.
Secretary Yellen, I, and a number of Members wrote to you ear-
lier about the Section 6050I provision, and it was a rulemaking for
8603 of the Infrastructure Act. And this was a requirement, a re-
porting 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 fea-
sible 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 dur-

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42

ing a pandemic. They did not vote to help children and schools dur-
ing 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 slid-
ing into a deep, deep recession, and to help persons who are suf-
fering 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 pre-
vented us from sliding into a deep, deep recession or possibly some-
thing worse?
Secretary YELLEN. We saw unemployment rise after the pan-
demic 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 real-
ly be able to get their lives back on track. And we looked at fore-
casts—
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 suf-
fering 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 school-
children, 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.

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43

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 ques-
tions for this witness, which they may wish to submit in writing.
Without objection, the hearing record will remain open for 5 legis-
lative 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 mate-
rials to the Chair for inclusion in the record.
The hearing is adjourned.
[Whereupon, at 12:34 p.m., the hearing was adjourned.]

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APPENDIX

May 12, 2022

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File: CHRG_CHRG-117hhrg47651_CHRG-117hhrg47651.pdf
Size: 10,538,429 bytes
SHA-256: 36322239e1a2e5b7a5b3760fc6ea9e2cfb19840c5057da214a50f5111f30a8c9
Our copy: CHRG_CHRG-117hhrg47651_CHRG-117hhrg47651.pdf
Original: www.govinfo.gov