[Senate Hearing 115-241]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 115-241


  NOMINATIONS OF JELENA McWILLIAMS, MARVIN GOODFRIEND, AND THOMAS E. 
                                WORKMAN

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

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                                   ON

                          THE NOMINATIONS OF:

 Jelena McWilliams, of Ohio, to be Chairperson and a Member, Board of 
            Directors, Federal Deposit Insurance Corporation

                               __________

Marvin Goodfriend, of Pennsylvania, to be a Member, Board of Governors 
                     of the Federal Reserve System

                               __________

  Thomas E. Workman, of New York, to be a Member, Financial Stability 
                           Oversight Council

                               __________

                            JANUARY 23, 2018

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs
                                
                                
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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
BOB CORKER, Tennessee                JACK REED, Rhode Island
PATRICK J. TOOMEY, Pennsylvania      ROBERT MENENDEZ, New Jersey
DEAN HELLER, Nevada                  JON TESTER, Montana
TIM SCOTT, South Carolina            MARK R. WARNER, Virginia
BEN SASSE, Nebraska                  ELIZABETH WARREN, Massachusetts
TOM COTTON, Arkansas                 HEIDI HEITKAMP, North Dakota
MIKE ROUNDS, South Dakota            JOE DONNELLY, Indiana
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada
JERRY MORAN, Kansas                  DOUG JONES, Alabama

                     Gregg Richard, Staff Director

                 Mark Powden, Democratic Staff Director

                      Elad Roisman, Chief Counsel

                Brandon Beall, Professional Staff Member

                 Elisha Tuku, Democratic Chief Counsel

          Amanda Fischer, Democratic Professional Staff Member

           Corey Frayer, Democratic Professional Staff Member

                       Dawn Ratliff, Chief Clerk

                      Cameron Ricker, Deputy Clerk

                     James Guiliano, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                       TUESDAY, JANUARY 23, 2018

                                                                   Page

Opening statement of Chairman Crapo..............................     1
    Prepared statement...........................................    35

Opening statements, comments, or prepared statements of:
    Senator Brown................................................     2

                                NOMINEES

Jelena McWilliams, of Ohio, to be Chairperson and a Member, Board 
  of Directors, Federal Deposit Insurance Corporation............     4
    Prepared statement...........................................    35
    Biographical sketch of nominee...............................    37
    Responses to written questions of:
        Senator Brown............................................    85
        Senator Scott............................................    89
        Senator Rounds...........................................    89
        Senator Menendez.........................................    90
        Senator Schatz...........................................    90
        Senator Cortez Masto.....................................    92
Marvin Goodfriend, Ph.D., of Pennsylvania, to be a Member, Board 
  of Governors of the Federal Reserve System.....................     5
    Prepared statement...........................................    44
    Biographical sketch of nominee...............................    45
    Responses to written questions of:
        Senator Brown............................................    96
        Senator Menendez.........................................    98
        Senator Warner...........................................    99
        Senator Schatz...........................................   101
        Senator Cortez Masto.....................................   102
Thomas E. Workman, of New York, to be a Member, Financial 
  Stability Oversight Council....................................     6
    Prepared statement...........................................    74
    Biographical sketch of nominee...............................    75
    Responses to written questions of:
        Senator Brown............................................   105
        Senator Scott............................................   107
        Senator Warner...........................................   107
        Senator Schatz...........................................   107
        Senator Cortez Masto.....................................   108

              Additional Material Supplied for the Record

Letters submitted in support of the nomination of Jelena 
  McWilliams.....................................................   111
Letters submitted in support of the nomination of Marvin 
  Goodfriend.....................................................   115
Letters submitted in support of the nomination of Thomas E. 
  Workman........................................................   120

                                 (iii)

 
  NOMINATIONS OF JELENA McWILLIAMS, MARVIN GOODFRIEND, AND THOMAS E. 
                                WORKMAN

                              ----------                              


                       TUESDAY, JANUARY 23, 2018

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:05 a.m. in room SD-538, Dirksen 
Senate Office Building, Hon. Mike Crapo, Chairman of the 
Committee, presiding.

            OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

    Chairman Crapo. This hearing will come to order.
    This morning we will consider the nominations of Ms. Jelena 
McWilliams to be the Chairperson of the Federal Deposit 
Insurance Corporation; Dr. Marvin Goodfriend to be a Member of 
the Board of Governors of the Federal Reserve System; and Mr. 
Thomas Workman to be a Member of the Financial Stability 
Oversight Council.
    Welcome to all of you and congratulations to you on your 
nominations.
    I see friends and family sitting behind you, and I welcome 
them here as well today.
    We are fortunate to have three highly qualified individuals 
to consider for these positions, which are critical to ensuring 
a safe, sound, and vibrant financial system and a healthy, 
growing economy.
    I am particularly excited that one of these nominees, Ms. 
McWilliams, is a former staffer of mine, and is no stranger to 
the Members of this Committee who have been on this Committee 
over the past several years. Ms. McWilliams did outstanding 
work while she was at the Committee, and I am fully confident 
she will bring the same diligence, work ethic, and intellect to 
the FDIC that she showed here.
    In addition to working at the Committee, Ms. McWilliams 
also worked as an attorney at the Federal Reserve during the 
financial crisis, and she currently is the Chief Legal Officer, 
Corporate Secretary, and Executive Vice President of Fifth 
Third Bank.
    These varied experiences have provided her with the 
particular background and expertise needed to run the FDIC. As 
head of the FDIC, Ms. McWilliams would be in charge of 
administering the Deposit Insurance Fund. Additionally, in its 
role as a prudential regulator, the FDIC plays a critical role 
in ensuring the safety and soundness of the financial system 
while also promoting economic growth.
    Dr. Goodfriend also has an impressive background, having 
worked at the Federal Reserve Bank of Richmond for close to 30 
years. He has written extensively about monetary and regulatory 
policy, and he testified before this Committee in 2016.
    The Fed is currently in the midst of normalizing monetary 
policy by winding down its balance sheet and raising interest 
rates after years at the zero lower bound.
    With respect to regulatory policy, the Federal Reserve is 
reviewing many of the rules put in place following the crisis. 
If confirmed, I look forward to working with Dr. Goodfriend on 
further regulatory and monetary policy improvements.
    Finally, we will consider Mr. Workman to serve as the 
independent insurance expert on the Financial Stability 
Oversight Council. The Council is charged with identifying 
risks and responding to emerging threats to financial 
stability, which has significant implications for both banks 
and nonbank financial companies.
    Mr. Workman will be well equipped and is well equipped to 
fill the insurance expert role, bringing over four decades of 
practical insurance industry experience, including serving as 
the head of a major New York State insurance trade group, 
representing over 70 life insurance companies.
    During my meeting with Mr. Workman, I was encouraged by his 
commitment to independence and his desire to facilitate better 
collaboration between regulators and with regulated entities.
    At this time, I ask unanimous consent to enter into the 
record 17 letters endorsing the witnesses. Without objection, 
so ordered.
    Chairman Crapo. Congratulations again on your nominations 
and thank you and your families for your willingness to serve.
    Senator Brown.

               STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Mr. Chairman, for convening this 
hearing. Thanks to the three nominees. I had interesting 
discussions with each of you. Thank you. Thanks for your 
willingness to serve the public. Thank you to your families for 
being willing to support you during this.
    Ten years ago, in January 2008, Bank of America announced 
it would buy Countrywide, which at the height of the bubble was 
financing one out of every five mortgages in America.
    At that time Wall Street thought it was a rare business 
opportunity. But it only took Countrywide a few months to go 
from a darling of bank analysts to an anchor around the 
Nation's largest bank and a threat to our economy. Though 
consumer advocates knew that Countrywide was peddling predatory 
loans, Wall Street and regulators all failed to see how a large 
regional mortgage lender could pose a threat to a $1.7 trillion 
bank and to the wider financial system.
    That is why we passed Wall Street Reform--to hold watchdogs 
and large banks to a higher standard, especially when things 
appear to be rosy.
    Now, 10 years later, the crisis has faded from memory. Bank 
profits are back to record levels. Big tax cuts, especially for 
large financial institutions, are on the way. But at the same 
time, though the same consumer advocates that warned us about 
Countrywide are cautioning us not to roll back the rules, too 
many policymakers have forgotten the lessons of the last crash. 
I talk often in this Committee about the collective amnesia we 
have about what happened a decade ago.
    But Ohioans have not forgotten. While banks got bailed out 
and executives made off with golden parachutes, families at 
kitchen tables in Cleveland, in Mr. Workman's Columbus, in Ms. 
McWilliams' Cincinnati, families at kitchen table across Ohio, 
were left with impossible choices: Should we pay our mortgage 
or our medical bills? Should we buy our prescription drugs or 
make our car payment?
    Ms. McWilliams, if confirmed, you will be in a key position 
to ensure that this never happens again. You will follow in the 
footsteps of two dedicated public servants--Marty Gruenberg, a 
Democrat; Sheila Bair, a Republican--who led the FDIC through 
the most challenging period since the Great Depression. You 
know that. I hope you take their counsel. I hope you listen to 
their counsel and take it seriously.
    You will be charged with stewardship of our Nation's 
community banking system. We know that when Wall Street creates 
a crisis, small banks are dragged down with a sinking economy. 
During the last crisis, we lost community banks across Ohio--in 
Lakeview, in Cleveland, in Milford, and Parma and West Chester. 
This Committee has heard a number of times my recalling the 
year 2007 in the ZIP Code where I live, 44105, in Cleveland, 
Ohio, the first half of that year there were more foreclosures 
than any other ZIP Code in America. At the same time financial 
crises are a large part of why there are so many fewer 
community banks serving small businesses and families today 
then there were 30 years ago.
    Dr. Goodfriend, I appreciated our amiable conversation in 
my office, but I am troubled by your long-held views on our 
Nation's monetary and regulatory policies. You have questioned 
the Fed's mandate to fight unemployment. You have suggested a 
regressive tax on the cash in workers' wallets. You have 
endorsed legislation that would gut the CFPB and undermine the 
institution for which you work.
    I am worried that, if confirmed, you would not defend the 
independence of our central bank. You seem to be more concerned 
with threats of inflation than you are with people losing jobs 
and livelihoods.
    Mr. Workman, thank you for your service and your long 
career in Ohio and your service to our country. Many people 
back home expressed their appreciation for your qualifications. 
You made quite an impact when you were in Ohio. I am interested 
in learning about how you would shift to this new watchdog 
role, how you will protect our economy when FSOC is dismantling 
our post-crisis reforms. Look at the Treasury reports coming 
out of Secretary Mnuchin's office, all about deregulation. From 
deregulating AIG, whose toxic credit default swaps amplified 
the crisis, to dropping its effort to regulate MetLife, I am 
concerned that FSOC is abandoning its mission in only 12 months 
of the Trump administration. Hardly clearing the swamp, the 
White House looks more like a retreat for Goldman Sachs 
executives.
    Much like the run-up to the 2008 crisis, Wall Street 
profits and household debts are at record highs, and 
corporations and the wealthy are enjoying windfall tax cuts. 
Meanwhile, working families have not seen a real raise in 15 
years. As policymakers, I expect each of you to resist the 
collective, all too present amnesia that has settled in across 
Washington, DC. I expect you to use your positions to make the 
economy work better for American families.
    Thank you.
    Chairman Crapo. Thank you, Senator Brown.
    At this point we will administer the oath. Would each of 
you please rise and raise your right hands? Do you swear or 
affirm that the testimony you are about to give is the truth, 
the whole truth, and nothing but the truth, so help you God?
    Ms. McWilliams. I do.
    Mr. Goodfriend. I do.
    Mr. Workman. I do.
    Chairman Crapo. And do you agree to appear and testify 
before any duly constituted Committee of the Senate?
    Ms. McWilliams. I do.
    Mr. Goodfriend. I do.
    Mr. Workman. I do.
    Chairman Crapo. Thank you. You may be seated.
    Your written statements will be made a part of the record 
in its entirety, and as I always do, I encourage you to 
remember to follow the clock. We have allocated each of you 5 
minutes. We would like you to stick to that for your oral 
presentation so we have plenty of time for questions from the 
Senators.
    And, with that, Ms. McWilliams, you may proceed.

STATEMENT OF JELENA McWILLIAMS, OF OHIO, TO BE CHAIRPERSON AND 
    A MEMBER, BOARD OF DIRECTORS, FEDERAL DEPOSIT INSURANCE 
                          CORPORATION

    Ms. McWilliams. Thank you, Senator. Chairman Crapo, Ranking 
Member Brown, Members of the Committee, as a former staff 
member, it is my privilege to appear before you today. I am 
truly honored and humbled to be the President's nominee to lead 
the Federal Deposit Insurance Corporation. I am grateful to the 
President for this nomination and grateful to Senators Crapo, 
Shelby, and Olympia Snowe for the opportunity to serve our 
country. I am forever indebted to these public servants for 
their trust and confidence.
    I am also grateful to my family; they are sitting behind me 
today: my father, Obrad Obrenic, a World War II veteran who 
taught me that nothing can substitute personal integrity and 
hard work; my mother, Branka, who taught me that I can do 
anything I aspire to do; my daughter, Maya, whose humility 
reminds me every day to be a better person; and my brother, 
Nenad, a beekeeper and a great father. Without them, I would 
not be here today.
    My father was born in 1925 in impoverished Montenegro. He 
was born in a kingdom, fought fascism and Nazism in his youth, 
survived communism and socialism in adulthood, and is now 
finally living out his golden years in a democracy. It was his 
difficult
journey that was pivotal in my decision to leave the former
Yugoslavia for a system built upon the rule of law. In 1991, on 
my 18th birthday, with $500, I left the former Yugoslavia and 
arrived in the United States. Appearing before you 26 \1/2\ 
years later is nothing short of an American Dream.
    The FDIC is an independent agency created by the act of 
Congress to maintain financial stability and public trust by 
insuring deposits; examining, regulating, and resolving 
financial institutions; and managing receiverships.
    I believe that my background and professional experience 
have prepared me well for this challenge ahead. I currently 
serve as the Chief Legal Officer, Executive Vice President, and 
Corporate Secretary of Fifth Third Bancorp in Cincinnati, Ohio. 
I serve on the bank's executive committee and advise the senior 
management and the board of directors on legal, compliance, and 
regulatory matters. In addition, I oversee a staff of over 70 
attorneys and support staff.
    Prior to joining Fifth Third, I had the honor and the 
privilege to serve on this Committee under then-Chairman Shelby 
and Chairman Crapo in various capacities, most recently as 
Chief Counsel and Deputy Staff Director. My experiences on this 
Committee and as a staff attorney at the Federal Reserve Board 
of Governors have prepared me uniquely for the challenge ahead, 
to lead the FDIC in its mission, to protect the financial 
stability of the United States, while making sure that consumer 
products are available to a broad swath of consumers, focusing 
on consumer protection, and making sure that the Deposit 
Insurance Fund is equally protected.
    Also, having served as a corporate officer of a regulated 
entity, I have a 360-degree view of our regulatory system and 
the entities that regulate it. If confirmed, I am confident 
that I can execute the FDIC's mission effectively.
    One of the side effects of the civil war that broke apart 
the former Yugoslavia was a total collapse of its financial 
system. My parents' meager savings were wiped out overnight 
when a local bank closed its doors. Yugoslavia did not have 
deposit insurance, and as a result, my then-68-year-old father 
went to work as a day laborer. I can assure you that the FDIC's 
mission resonates profoundly with me on a personal level, and 
if confirmed, I will not take this mission or my duties 
lightly.
    Thank you.
    Chairman Crapo. Thank you.
    Dr. Goodfriend.

STATEMENT OF MARVIN GOODFRIEND, Ph.D., OF PENNSYLVANIA, TO BE A 
    MEMBER, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

    Mr. Goodfriend. Chairman Crapo, Ranking Member Brown, and 
Members of the Committee, thank you for the opportunity to 
appear before you today. I am honored to have been nominated by 
President Trump to serve as a Member of the Board of Governors 
of the Federal Reserve System. None of this would have been 
possible without the support of my best friend and wife, 
Marsha, who is sitting behind me, and without the support of my 
sister Miriam, who is watching at home. I would also like to 
recognize my parents for developing in me at an early age a 
keen interest in public policy.
    As the Nation's central bank, the Federal Reserve has many 
responsibilities that are at the foundation of our economic 
prosperity and well-being. Guided by the goals of maximum 
sustainable employment, price stability, and financial 
stability, and with lessons from its past, the Federal Reserve 
must be alert to future challenges.
    I have spent my 40-year career as an economist focused on 
central banking in general and the Federal Reserve in 
particular. The Federal Reserve Bank of Richmond had been my 
primary place of employment for more than 25 years when, in 
2005, I joined the faculty of Carnegie Mellon University in 
Pittsburgh. I have written about and contributed to the policy 
debate from both ``inside'' and ``outside'' the Fed. If 
confirmed, I look forward to putting my knowledge and 
judgment--developed as both an academic and practitioner--to 
work as a Governor and to contributing my voice and experience 
to addressing current policy issues. I intend to draw on my 
academic and professional experience to promote policies that 
would further increase transparency and accountability at the 
Fed.
    My years at the Federal Reserve Bank of Richmond gave me a 
deep appreciation of the role of a regional Reserve banks in 
the Federal Reserve System. The regional system encourages 
diverse perspectives and innovative thinking. As a Member of 
the Board of Governors, I would look forward to hearing and 
considering this diversity of views in making policy.
    I have also gained policy experience at other Government 
and central banking institutions. These experiences ranged from 
being a staff economist for the Council of Economic Advisers in 
the Reagan administration, to serving in central bank advisory 
roles, and participating in external reviews of several central 
banks abroad.
    My publications use monetary theory, central bank practice, 
and Federal Reserve history to investigate policy issues. I 
have enjoyed my past 12 years teaching courses in monetary 
policy, money and banking, and international trade and finance 
at Carnegie Mellon's Tepper School of Business.
    I would like to thank the Committee for the opportunity to 
appear before you today and for considering my nomination. If 
confirmed, I look forward to working with you in the years 
ahead. I would be pleased to answer any questions you have.
    Thank you.
    Chairman Crapo. Thank you.
    Mr. Workman.

 STATEMENT OF THOMAS E. WORKMAN, OF NEW YORK, TO BE A MEMBER, 
             FINANCIAL STABILITY OVERSIGHT COUNCIL

    Mr. Workman. Chairman Crapo, Ranking Member Brown, and 
Members of the Committee, it is my honor to appear before you 
today. I am grateful to be President Trump's nominee for 
Independent Member with Insurance Expertise of the Financial 
Stability Oversight Council, and I thank you and your staffs 
for helping me prepare for this hearing.
    First, I would like to introduce my wife, Pam, who is here 
behind me, and our son, Chris, who is also here today. Pam, my 
forever friend and life partner of 52 years, is a professional 
artist who paints still lives and portraits of strangers. She 
is a lifetime mother and educator as well. Our son, Chris, is a 
partner at MSD Capital and a U.S. Army veteran who served as a 
tank platoon leader in the First Armored Division. His wife, 
Catherine, is a developmental pediatrician and neonatologist. 
They have two children and live in New York City. Our daughter, 
Sarah, is the mother of four. She is a lawyer and the founder 
and leader of Post-Partum Society of Florida helping mothers 
suffering with post-partum depression. Her husband, Mark, is a 
facial plastic surgeon, and they live in Sarasota.
    I would also like to recognize Roy Woodall, the current 
Independent Member of FSOC, right behind me here--he is also a 
former Kentucky insurance commissioner--and our good friend, 
Lee Covington, a former Ohio insurance director.
    I grew up in north-central Ohio, 2 miles from the Leesville 
Rural School that I attended. My father had a small Chevrolet 
dealership, and my mother worked as a mother, secretary, and 
bookkeeper. My sister, Elaine, and I both graduated from The 
Ohio State University. And after law school there, I served 
nearly 4 years as a captain in the U.S. Army Judge Advocate 
General's Corps. Then I returned to Columbus to practice law at 
Bricker & Eckler, the firm founded by John W. Bricker from 
Ohio. He was a three-term Governor and two-term United States 
Senator. With my office next to his for many years----
    Senator Brown. If I could interrupt, the Vice Presidential 
nominee in 1944, causing the only time Ohio did not vote for 
the winner in the 1944 Presidential election.
    [Laughter.]
    Senator Brown. Sorry to interrupt. I would never interrupt 
a witness in the middle, but I had to.
    Mr. Workman. Thank you, Senator. That is very helpful. I 
thought about adding that, but, you know, there is a limitation 
on time.
    Chairman Crapo. We will give you a few extra seconds.
    [Laughter.]
    Mr. Workman. OK, good. Thank you so much.
    With my office next to his for many years, I am certain 
that he would be delighted that I am before you today.
    The first question I was asked at the firm was: Would you 
do some insurance work? I spent the next 26 years doing 
insurance regulatory, legislative, and business-related work 
including many areas--formation of companies, licensing, 
admission, sale, acquisition, rehabilitation, liquidation, 
reserving, State taxation, agent licensing, governance, 
underwriting, claims, admitted and non-admitted assets, and 
more. I also represented the Association of Ohio Life Insurance 
Companies and developed the firm's insurance law practice.
    I served on the Board of the Ohio Farmers Insurance Company 
for 24 years. Formed in 1848, it is a leading Midwestern, 
multi-line property/casualty insurance company. I chaired the 
Governance & Nominating Committee, served on the Compensation 
Committee, and twice served on the committee to select a CEO.
    In 1999, I was recruited to become President and CEO of the 
Life Insurance Council of New York. For the next 17 years, I 
was
involved in nearly all regulatory and legislative issues 
related to life insurers in New York State and, to a large 
degree, nationally.
    With 43 years of working with insurers, regulators, and 
legislators in New York, Ohio, and other States, I have, in 
effect, prepared to be the FSOC Independent Member with 
Insurance Expertise all my life. I know insurance and how vital 
it is to families and businesses and to our economy. I have 
great respect for insurers and the regulators and legislators 
who wrestle with insurance issues. They all share the same 
objectives: to assure promises are kept and customers are 
treated fairly.
    The purposes of FSOC are to identify risks to the stability 
of the U.S. economy, to promote market discipline, and to 
respond to emerging threats. The Independent Member exists to 
make sure someone with substantial insurance knowledge takes 
part in FSOC deliberations affecting insurers and insureds. I 
am grateful for the support of Roy Woodall, and I aspire to 
perform this duty as masterfully as he has.
    I am also grateful to report that yesterday the officers of 
the National Association of Insurance Commissioners authorized 
me to tell you that they believe I am a well-qualified 
candidate for this position, and they look forward to working 
with me.
    I would greatly appreciate this opportunity. If confirmed, 
I would be dedicated to the highest level of honorable public 
service. Thank you, Mr. Chairman, Ranking Member Brown, and 
Members of the Committee. I look forward to answering any 
questions you may have.
    Chairman Crapo. Thank you, Mr. Workman.
    I will start the questioning, and first I would like to go 
to you, Ms. McWilliams. Improving economic growth has been one 
of the key priorities for Congress over the past year, and one 
way to improve economic growth is by addressing areas where 
financial regulations can be improved. Financial regulations 
should promote a
vibrant, growing economy while still assuring a safe and sound
financial system. If confirmed, what will be some of your key 
priorities?
    Ms. McWilliams. Thank you, Senator, for that question. If 
confirmed, I would like to focus on the regulatory burden on 
community banks. There has been a tremendous trend in 
consolidation of the community banking sector over the past 
three decades, and especially since the financial crisis. I 
would like to also focus on de novo charters for community 
banks. The only way to aid in the formation of the community 
banking sector and its expansion is to create more banks. From 
2000 to 2008, the FDIC has chartered a number of FDIC-insured 
de novo banks, and since 2009, there have been only eight. That 
is a problem because we lost hundreds and thousands over the 
last 30 years.
    Additionally, I would like to focus on the cybersecurity 
issues and how they impact the banking sector in general, and 
especially community banks. And I would also like to take a 
look at how some of the international regulatory framework, 
like Basel regulations, affect community banking sector.
    Chairman Crapo. Thank you very much.
    Dr. Goodfriend, what are some of the ways to improve the 
transparency, accountability, and communications at the Federal 
Reserve?
    Mr. Goodfriend. Thank you for the question. There are three 
ways in which I think transparency could be improved. One of 
them would be--and we can talk about this in more detail--
around the stress tests. The second one would be around a 
reference rule which we might consider. And the third would be 
around what I call the boundaries and clarification of 
resolution policy.
    Chairman Crapo. Well, thank you. And if we have time, we 
will get into that. But we are limited to 5 minutes up here 
ourselves, so I want to move on to Mr. Workman.
    In your opening statement, Mr. Workman, you stated, ``The 
Independent Member exists to make sure someone with substantial
insurance knowledge takes part in FSOC deliberations affecting 
insurers and insureds.'' Can you discuss in more detail how you 
envision your role on FSOC and what type of expertise you bring 
to the Council?
    Mr. Workman. Mr. Chairman, I would begin by just saying 
that the first duty in my view is in this role to be 
independent, to be truly independent, and also in that role to 
be working diligently for the public interest. My only interest 
would be the public interest. Having 40 years of experience in 
insurance, I can put that to work in the interest of Americans.
    As far as steps that I would like to take, I believe that 
there is a continuing need for more transparency in the 
process. I recognize that much of the activity of FSOC cannot 
be public. It has to be kept private. However, I think more 
knowledge among regulators and among the insureds and insurers 
is helpful.
    Also, I believe more engagement with the primary 
regulators--and in America, we are talking about State 
insurance regulators--more collaboration with them and with the 
entities that are under consideration, and also I think 
attention to particularly in the area of designations, 
considering a cost-benefit analysis.
    And then, last, what occurs is I think an overarching 
interest in promoting a level playing field in the marketplace.
    Chairman Crapo. Well, thank you, and I will finish with 
you, Mr. Workman. I have got about 30 seconds left. But as you 
know, FSOC has designated four nonbank financial companies as 
systemically important financial institutions and subsequently 
voted to rescind designations on two of those companies. In 
November, the Treasury Department published a report with a 
series of recommendations to improve the designation process.
    What are your thoughts on the current designation process 
for nonbank SIFIs? And I apologize, you are going to need to do 
that in about 15 or 20 seconds.
    Mr. Workman. Sure. Mr. Chairman, I think the key point I 
would make is that the Treasury put forth the concept of 
considering an activities-based or an industry-based approach, 
looking at products and activities. That is something that the 
IAIS is also doing. I think that is an area that does deserve 
consideration.
    Chairman Crapo. Senator Brown.
    Senator Brown. Thank you, Mr. Chairman.
    Mr. Goodfriend, you have previously dismissed financial 
regulations saying, ``The only way that consumers' households 
can be protected against finance, against purchasing consumer 
products, against anything in the market is by being demanding 
shoppers. The whole philosophy of regulation,'' still your 
words, ``seems to be that the Government can protect consumers 
from themselves. I think that is wrong. If we turn that around, 
that would do a lot to move us in another direction from the 
European Socialist model that the Government needs to be our 
protectors.''
    So I guess you are saying we should let demanding shoppers 
decide which banks are sound and which are the next 
Countrywide. So does that mean you think that the job Ms. 
McWilliams, the agency she has been nominated to is just a bad 
idea, should not exist?
    Mr. Goodfriend. Let me start again with what I think about 
these matters. I think protection of consumers is incredibly 
important, not only for consumers but for the market economy. 
And what I meant in that context was that regulation, to the 
extent that it focuses on firms, which is a good thing to 
create standards and----
    Senator Brown. Well, I am not going to let you filibuster 
this. I am sorry but--and you can tell me your whole 
philosophy. But I am reading your words, and you are saying 
that consumers should be demanding shoppers. So does that mean 
that the FDIC is simply not necessary because consumers should 
figure out which of these banks are about to go under?
    Mr. Goodfriend. Absolutely not. Consumers need to be 
informed. And the other half of regulation is informing 
consumers about the products that they are choosing between. 
That was the point that I was making in that comment. And 
consumers----
    Senator Brown. OK, well, do you think--I am sorry. Do you 
think that we are on a path to the European Socialist model in 
this country?
    Mr. Goodfriend. No, I do not.
    Senator Brown. OK. Because it sounds like you might sort of 
think that. Maybe this nomination has illuminated some things.
    If we gut regulations and consumers are supposed to use 
their purchasing power to demand safer financial products, 
shouldn't we prohibit mandatory arbitration agreements that 
deny consumers their day in court?
    Mr. Goodfriend. So, if confirmed, as a Governor I will look 
into that matter. It is not something that I have thought 
about.
    Senator Brown. OK. In 2011, you told the Wall Street 
Journal that, ``Inflation scares are likely to recur and become 
more severe.'' You remember, amnesia around here aside, just 2 
years earlier when President Obama took office we were losing 
800,000 jobs a month. It began to turn around with the auto 
rescue in 2010. We have had month after month, consecutive 
months, and through this first year of the Trump administration 
of economic growth. So that was the state of the economy. So 
keep that in mind when you said--and I know you have studied 
the risks and drivers of inflation. But you stated also many 
times you believe the Fed would be better off with a single 
mandated focused just on inflation rather than a dual mandate, 
which includes full employment. In a May 2012 interview, you 
called the idea of getting the unemployment rate, then at 8.1 
percent, to below 7 percent a ``Herculean task that could lead 
to rising inflation that would be disastrous to the economy.'' 
At the end of 2017, unemployment was 4.1 percent. The inflation 
rate remains below 2 percent.
    Why were you so wrong so many times?
    Mr. Goodfriend. Senator, throughout this period of the last 
10 years, I have been commenting on monetary policy. I am not 
going to--the essence of the Federal Reserve's position to 
stimulate the economy was based on years of generated 
credibility for anchoring long-run inflation. That credibility 
was critically important in order for the Federal Reserve to 
keep stimulus in place for the last few years without 
generating inflation until we brought the unemployment rate 
down to something in the vicinity of----
    Senator Brown. So would they have done so well if they had 
listened to your warnings that we should not have a dual 
mandate, we should only focus on inflation? Would this economy 
be in this good a shape if they had listened to Marvin 
Goodfriend during this period?
    Mr. Goodfriend. The questions that I was answering were 
academic. The dual mandate is large--is very well--it works 
because the two goals of low unemployment and low inflation are 
complementary, and that is exactly what was the case in the 
last----
    Senator Brown. That is what you say now, but you say they 
were academic. You were in an academic setting. But now you are 
in a policymaking setting if you are confirmed, and you still 
seem to hold this view--or do you reject that view that there 
should not be a dual mandate? Will you say to us absolutely 
there should be a dual mandate with equal emphasis on inflation 
and unemployment?
    Mr. Goodfriend. I absolutely agree to that. In fact, I talk 
about inflation because the key to getting the unemployment 
rate down over the past 40 years in the United States has been 
credibility for low long-run inflation, and that again is why 
we were able to keep stimulus in place for the last 5 years, 10 
years.
    Senator Brown. OK. Last question. Discussing inequality, 
you said you need to at all times talk about what is good for 
the country as a whole. You cannot worry about how to help 
people who have less unless you try to make the pie as big as 
possible. It is a fairly easy question for me to answer about 
basic indifference or unconcern about addressing inequality. We 
know the recent tax cuts, 81 percent of the recent tax cuts go 
to the wealthiest 1 percent in this country. Doesn't your view 
have the potential to make inequality worse?
    Mr. Goodfriend. Senator, I do not believe the things that I 
say about monetary policy have bearing on income inequality. 
What the Federal Reserve wants to do is to create the lowest 
unemployment rate that is consistent with price stability. That 
is what our tools are designed to do, and that is what I would 
do if confirmed as a Governor.
    Senator Brown. Thank you, Mr. Chairman.
    Chairman Crapo. Senator Shelby.
    Senator Shelby. Thank you. Mr. Chairman, I think all three 
of these nominees are eminently qualified by their experience 
and education and everything. Of course, we both know and a lot 
of us know more than a little bit about Ms. McWilliams, who 
served ably, honorably, in this Committee. Welcome back.
    Ms. McWilliams. Thank you.
    Senator Shelby. I also congratulate on your nomination 
because you are going to take a big pay cut. All of you will.
    Ms. McWilliams. I am used to it, Senator. Thank you.
    [Laughter.]
    Senator Shelby. She worked for us, both of us, so your 
money was not forthcoming. I can tell you that.
    I have long been an advocate, as, Ms. McWilliams, you know, 
of cost-benefit analysis--Senator Crapo got into that a minute 
ago--for all Government rulemaking and regulations. Right now 
we are focused on the financial regulation authority. How 
important is cost-benefit analysis in the decisions that come 
before the FDIC? I am going to pose this to all three nominees. 
Ms. McWilliams?
    Ms. McWilliams. Thank you, Senator, for that question, and 
thank you for your words.
    I believe the cost-benefit analysis is crucial for an 
agency, and here is why. While I was at the Federal Reserve, we 
worked on consumer protection regulations, and if we did not do 
an appropriate cost-benefit analysis, we would not know how a 
consumer would in the end be affected by the regulation. And I 
was taught at that point in time that consumer credit is like a 
balloon. If you squeeze it here, it will come out there. And 
before you squeeze it, you better know who is going to pay for 
it, how it is going to come out, and are you comfortable with 
the outcome. So I do believe that proper cost-benefit analysis 
benefits the consumer as well as the ability of the financial 
institutions to provide the lowest-cost products and services 
to their base.
    Senator Shelby. Dr. Goodfriend, the Federal Reserve, as you 
well know, we have been talking about cost stability and full 
employment, stability of the monetary system and full 
employment. But the Federal Reserve is also a huge bank 
regulator. What about your view on cost-benefit analysis? 
Should it be done? And should it be done right? And should it 
be transparent, too?
    Mr. Goodfriend. Absolutely, I think cost-benefit analysis 
is important to decide which regulations to be put in place, 
which are deserving, which are not. I think the--my impression 
is that the Federal Reserve has moved in this direction, and if 
I am confirmed as Governor, I would help it move in this 
direction even further.
    Senator Shelby. Mr. Workman, your work will be a little 
different from theirs, but in some ways overlap. What about 
cost-benefit analysis?
    Mr. Workman. Yes, Senator, that is, I think, a critically 
important element of the analysis that I would want to make, 
and hopefully the Council would as well.
    Senator Shelby. Dr. Goodfriend, we talked about this a 
little earlier. Could you elaborate before the Committee today 
how the modern economy may have changed the way global 
indicators are viewed? And could you describe your views on the 
Federal Reserve's objective regarding price stability?
    Mr. Workman. Yeah, you know, the global economy has become 
much more integrated over the last 10, 20 years, and many 
people think that that may impact the Fed's ability to 
stabilize the U.S. economy. My view is that that is not really 
the case. We have what we call a ``flexible exchange rate 
system,'' which I believe gives the Federal Reserve the 
independence to act on domestic issues irrespective of 
globalization, at least for monetary policy and price 
stability.
    Senator Shelby. Mr. Workman, I am trying to move on because 
I have just got a few more seconds in my time, but do you agree 
with me that banks are one entity, insurance companies are 
another, their structure is different, their role is different, 
their obligations are different and so forth?
    Mr. Workman. Yes, Senator, they are functionally different. 
They have a lot of similarities, of course. However, the 
significant difference is the duration of the risk. For 
example, a life insurance company could have 40 years, 50 years 
of bearing risk, and it is not as able to be subject to a run 
much like a depository bank would.
    Senator Shelby. Should that all be taken into account when 
you are making a designation?
    Mr. Workman. Senator, indeed, and I think that is part of 
the role that I would need to play.
    Senator Shelby. You will be playing.
    Mr. Workman. Yes.
    Senator Shelby. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman.
    Dr. Goodfriend, during a hearing last May, you called the 
Federal Reserve's dual mandate ``incoherent,'' and you 
suggested eliminating the full employment mandate. You said 
that, ``Whether or not unemployment is 1 percent or 20 percent 
over a sustained period of time is largely due to factors 
outside of monetary policy control.''
    However, in a speech last June, Governor Powell said, ``The 
problems that some commentators predicted have not come to 
pass. Accommodative policy did not generate high inflation or 
expensive credit growth; rather, it helped restore full 
employment and return inflation closer to the 2 percent goal.''
    So do you disagree with Governor Powell's assessment?
    Mr. Goodfriend. No, I do not.
    Senator Menendez. And so then your analysis was incorrect 
then?
    Mr. Goodfriend. No. I would like to say that I regret the 
word ``incoherent.'' What I was talking about was in the long 
run it is inconsistent for the Federal Reserve to control both 
employment and inflation. The Federal Reserve has agreed, most 
central bank economists agree that over the long run central 
banks can control only inflation. But that is not a statement 
against the dual mandated. Again, what I believe is true is it 
is critically important to anchor long-run inflation in order 
to get the capacity for monetary stimulus to drive the 
unemployment rate down to the natural rate or to the vicinity 
of full employment.
    Senator Menendez. But let me just take--let me follow up on 
Senator Brown's questions about your Bloomberg quote when you 
said: ``It is really doubtful whether or not the Fed can 
achieve 7 percent unemployment. Even if the Fed did succeed, it 
would give rise to a rising inflation rate in the next few 
years, which would be disastrous for the economy.'' However, 
today--that is your quote. I am taking it straight from 
Bloomberg. However, today unemployment is 4.1 percent, 
inflation is still running below 2 percent, despite the fact 
that the Fed waited more than 3 years after that interview to 
increase rates.
    So knowing what we know today, do you honestly still think 
the Fed should have followed your advice in 2012 and raised 
rates before inflation neared its target?
    Mr. Goodfriend. No, I do not. But those statements are out 
of context. What I was warning about was in the past the Fed 
has had trouble getting unemployment down, and the reason was 
we had zero interest, and we had lost the stimulative power, 
the ordinarily stimulative power of monetary policy. My point 
was in the context of that conversation, and I----
    Senator Menendez. Can you point out any--you know, with all 
due respect--and I am sure academically there is no question 
that you are a very bright person. But how am I not to hear 
everything you have said in the past and then what you are 
saying today as a confirmation conversion about the dual 
mandate obligation of----
    Mr. Goodfriend. Again, it is not my--what I am saying is 
that the history and thinking about monetary policy has said if 
we want to get unemployment down to the natural rate to the 
vicinity of full employment, we as central banks need to 
stabilize long-run inflation but----
    Senator Menendez. Can you give me----
    Mr. Goodfriend. That is all I am saying.
    Senator Menendez. Can you give me anything, show me, direct 
me to anything that you have said in the past that suggests 
that you support and affirm the dual mandate of the Federal 
Reserve?
    Mr. Goodfriend. I can show you some publications in which 
the point of my work was to say we--our goal is to get 
unemployment down to the natural rate, and, therefore, I am 
supportive of a long-run inflation target. I have worked on 
that for decades. It has proven to be the case that that has 
worked in the last decade, and I will stand by that. Whether or 
not I have talked about the dual mandate, I totally support it. 
In fact, the reason for stabilizing inflation over the long run 
is exactly to make the economy operate at full employment.
    Senator Menendez. All right. Let me turn to Ms. McWilliams. 
The Administration is actively searching for ways to diminish 
banks' responsibilities to serve those very communities through 
undermining the Community Reinvestment Act, something that many 
of us strongly support. Shouldn't the Administration be focused 
on strengthening, not weakening, a tool that ensures banks are 
held accountable for serving low- and moderate-income 
communities? And what assurances can you give us that the FDIC 
under your leadership will guarantee banks are meeting the home 
mortgage, small business, and other credit needs of low- and 
moderate-income communities?
    Ms. McWilliams. Senator, thank you for that question. The 
Community Reinvestment Act is the law of the land, and it is 
the duty of the Federal Deposit Insurance Corporation to follow 
the law of the land. The unbanked and underbanked communities 
are a vital part of our economy, and I can tell you for a fact 
that a number of banks are seeking opportunities to bank those 
communities not only for the purposes of the CRA, but also 
because they need to expand their customer base, and that is 
the organic way to grow the company.
    I can also assure you on a personal level, as somebody who 
was a part of the low- and moderate-income community, that the 
mission of the CRA resonates profoundly with me on a personal 
level as well, and I can give you my commitment that I will 
ensure that the FDIC fully executes the mandate of the CRA.
    Senator Menendez. Thank you for that.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Toomey.
    Senator Toomey. Thanks, Mr. Chairman.
    Dr. Goodfriend, would you agree with the characterization 
that a stable currency--in our case, obviously the dollar--a 
long-term stability in the currency is a very, very important 
condition for maximizing employment?
    Mr. Goodfriend. Absolutely.
    Senator Toomey. And, therefore, if you had a sustained 
policy where you deviated from that stability, for whatever 
reason, even if it were for a good intention like maybe 
lowering the unemployment rate, but if in the process you 
undermined the stability of the dollar, wouldn't it actually be 
counterproductive for employment?
    Mr. Goodfriend. I do believe that that is true.
    Senator Toomey. The last time in the United States that we 
had an extended period of very high inflation I believe was the 
1970s and early 1980s. What was the unemployment rate like 
during that period?
    Mr. Goodfriend. On average, 2 or 3 percentage points higher 
than it has been since price stability.
    Senator Toomey. Yeah, so I think it is an important point 
that we should all keep in mind. Price stability is a necessary 
condition for maximizing employment.
    With respect to the recent history of the Fed's behavior, 
you know, I have been concerned about what the Fed has done, 
the completely unprecedented history of the monetary policy, 
including monetizing the debt of our Government, which I think 
is a fair characterization, increasing our balance sheet to 
over $4 trillion. And it is true, there has been no recent huge 
run-up in inflation, but can anybody say with certainty that we 
are not right now living with some asset prices that could be 
vulnerable? Sovereign debt prices are pretty hard to explain, 
actually. Equity prices are extremely high, some real estate 
markets. Can you be certain that there are no bubbles out 
there?
    Mr. Goodfriend. No, and what I hope to do, if I am 
confirmed as Governor, is worry about exactly this kind of 
issue and to try to do the best I can to guide interest rate 
policy on the basis of incoming data, to balance the goals of 
sustainable maximum employment, which is kind of where we are, 
keeping inflation low, and also worrying about financial 
stability because that is an equally complementary part of the 
Fed's mandate.
    Senator Toomey. And I would also like to suggest one other 
consideration, which is just that it strikes me as a dangerous 
idea for the central bank to be purchasing assets like 
mortgage-backed securities, which end up being an allocation-
of-credit decision, which should be left to the market and not 
to the central bank, in my view.
    Mr. Goodfriend. I agree with that, and the Fed, to my 
understanding, has a policy of aiming to get its balance sheet 
back to what we call ``all Treasurys.''
    Senator Toomey. All right. Thank you.
    Ms. McWilliams, thanks for taking the time to have a chat 
recently. I enjoyed our discussion in my office. I wanted to 
follow up on the issue that you raised regarding de novo banks.
    Ms. McWilliams. Yes.
    Senator Toomey. As we discussed briefly, it used to be 
routine in America that 100 or more community banks would be 
launched every year, and it struck me as a wonderful mechanism 
to bring credit to growing communities wherever it was needed. 
But as you pointed out, for something like the last 9 or 10 
years, I think we have averaged about 1 per year as opposed to 
over 100 per year.
    Now, some have suggested that is just because interest 
rates have been low, and I will concede that that may have 
contributed to discouraging new startups. But I am also 
convinced, as someone who has a community banking background, 
that the regulatory burden has also contributed to the lack of 
new banks.
    Is that your view? And do you have any specific ideas on 
how we might be able to relieve that burden, keeping in mind 
that these institutions are not systemically important even to 
their community, much less the country?
    Ms. McWilliams. Senator, thank you for that question, and 
thank you for our discussion as well. I absolutely agree with 
you that the de novo charter banking has been an issue that has 
been on my mind for a long time because we need to replenish 
the banks that closed down because of various circumstances.
    I do believe that the regulatory burden plays a key 
component in the consolidation of the community banking 
industry, and if confirmed, that is something that I would like 
to take a look at. Especially, I would like to take a look at 
the capital and liquidity requirements on community banks and 
understand how the Basel framework applies to those banks. A 
number of Basel requirements are not applicable to community 
banks, but, nonetheless, while I served on this Committee, I 
have heard from a significant number of community banks that 
the Basel requirements do apply to them; even if it is not by 
regulation, it is by a trickle-down effect.
    So I can commit to you that it is something that I will 
willingly and gladly take a look at and take under 
consideration if confirmed as Chair.
    Senator Toomey. Thank you very much.
    Mr. Chairman, thank you, and I would just observe I think 
we have three terrific nominees here.
    Chairman Crapo. Thank you, and I agree.
    Senator Tester.
    Senator Tester. Thank you, Mr. Chairman.
    The first question is for you, Ms. McWilliams. The FDIC 
completes the EGRPRA process last year. A portion of that 
review talked about synchronization and streamlining, and I 
believe it is key that regulators do work together to make sure 
that regulations are not duplicative. It is a major complaint 
that I have heard from my community banks.
    As FDIC head, what would you do to ensure that the 
examination process is modernized and that duplication is 
eliminated as much as possible?
    Ms. McWilliams. Thank you, Senator Tester, for that 
question. The FDIC Chair also sits on the Federal Financial 
Institutions Examination Council, which is a great venue to be 
able to streamline banking examination, both in terms of the 
relaxation of duplicative requirements by different agencies 
and to provide uniformity in how prudential banking regulators 
approach examination and regulation of banks. We need to have 
uniformity. The Federal Deposit Insurance Corporation has the 
largest number of community banks under its primary supervision 
among the three regulators, but the Federal Reserve, if I 
recall correctly, has about 800 and the OCC has a significant 
number as well. So it is crucial that they have uniform 
standards that are applicable across all three banking 
regulators.
    Senator Tester. And I have got it, and you are right. And 
so as FDIC, you would be encouraging communication. How would 
you do that?
    Ms. McWilliams. Well, I would want to take a look at what 
has been done at the FFIEC in terms of uniformity and 
standardization of the examination process and regulatory 
approach to community banks, as well as have the FDIC, if 
necessary, go through the interagency working group to better 
understand what can the agencies do.
    Senator Tester. So you would commit to reducing duplication 
where you can without harming safety and soundness of 
financial----
    Ms. McWilliams. Absolutely, Senator.
    Senator Tester. OK. Mr. Workman, this was addressed a 
little bit earlier about transparency with the FSOC. The FSOC 
underwent a number of changes last Congress. Those included 
notifying companies when they moved between stages, making 
public the calculation for Stage 1 evaluation, providing more 
information to companies as they go through the annual review. 
I assume that you agree with those changes?
    Mr. Workman. Mr. Chairman, those sound very good. I am not 
absolutely certain of each one, but they sound like they are 
certainly consistent with my view, yes.
    Senator Tester. So once you get into this position, 
assuming you will be confirmed, and you look at these changes 
and you think they are positive, do you think it would be 
necessary to codify the changes?
    Mr. Workman. Mr. Chairman and Senator, that is sort of 
slipping into the area of policy and congressional 
responsibility, so----
    Senator Tester. You are right. You are not going to do it. 
We would do it. But assuming they work, I mean assuming you 
think they are good--I do not want to put any words in your 
mouth, but assuming that they are a step in the right 
direction, because I think the process does need to be as 
transparent as possible, your support for codifying those laws 
could make a difference.
    Mr. Workman. Senator, it is something I would certainly 
give serious consideration to.
    Senator Tester. All right. There has been much discussion 
on on-ramp and off-ramp for companies as they go through the 
FSOC process. Would you share your thoughts with me on that, if 
you think it is a good idea to have on-ramps and off-ramps, and 
where you would apply them?
    Mr. Workman. Yes, Senator, I do believe that, in fact, this 
has been articulated in a recent report of Treasury on 
designations and the deliberations of FSOC. And I think it is 
important for entities that are being considered for 
designation and those entities that are already designated, 
that they have the opportunity to understand exactly what the 
Council is thinking and have good collaboration and engagement.
    Senator Tester. Thank you for that.
    Dr. Goodfriend, I will just keep this question very, very 
simple, and it is an easy one. Do you believe that we need a 
Government guarantee and the continuing existence of a 30-year 
fixed-rate mortgage for housing purposes?
    Mr. Goodfriend. I think the 30-year mortgage is a very 
popular and useful instrument. I do not believe it needs a 
Government guarantee. Banks should be regulated and the economy 
should be stabilized in a way that these mortgages work.
    Senator Tester. Do you think banks would put a 30-year 
mortgage out without a Government guarantee?
    Mr. Goodfriend. To the extent that we have in place 
Government guarantees, if you want to call it that way, it is 
something that the Congress needs to decide. A Government 
guarantee is not a matter for the Federal Reserve. So I am 
happy with that at this point.
    Senator Tester. OK. Thank you.
    Thank you, Mr. Chairman.
    Senator Brown. [Presiding.] Senator Heller.
    Senator Heller. Thank you, Mr. Chairman, and I appreciate 
our list of panelists. I appreciate you being here, and I am 
very grateful to your families for lending you to this process. 
And I do want to tell the Chairman how pleased I am that we 
have such a highly qualified group of panelists with us today.
    There was no State that got hit harder--and I have said 
that numerous times here on this Committee--during the economic 
meltdown than the State of Nevada, both in housing and in 
banking. We had at one point 60 percent of all the homes in 
Nevada underwater, and we lost half of our community banks in 
our State.
    Fortunately, that has bounced back. Our underwater is 10, 
15 percent, and yet we still do not see a growth of community 
banks in our State.
    There has been a massive consolidation of banking in the 
State, and it has led and coincided to the fact that Nevada is 
probably one of the most underbanked or unbanked States in the 
country.
    That brings me to you, Ms. McWilliams, and we talked about 
this in our offices about ILCs. The industrial loan companies 
have played an important role in the State of Nevada. I think 
there has been a real lack of leadership under the FDIC under 
previous leadership. I am hoping that under your watch that 
will change.
    Give me your thoughts on ILCs and the expansion of them.
    Ms. McWilliams. Thank you, Senator, for that question. If I 
can first tell you that I used to live in Stockton, California, 
which, during the foreclosure crisis, when 1 in 33 homes were 
foreclosed in the United States, had about 1 in 11, so I fully 
understand the impact of the crisis and the foreclosures in the 
State of Nevada.
    With respect to the ILCs, the law of the land is that the 
ILCs exist. It is a statutory mandate. And the job of the FDIC 
is to give each ILC application due consideration and, if 
appropriate, proceed with the approval.
    I do not know how much work has been done on the ILCs in 
the last few years. I assume not a lot because I have not seen 
any new charters. I have a list of the ILC chartered 
institutions, and if confirmed, I am happy to work with your 
office to understand where the holdup has been in the approval 
process.
    Senator Heller. And I appreciate that. Do you share the 
same viewpoint of former Chairman of the FDIC that ILCs pose no 
greater safety or soundness risk than any other charter type?
    Ms. McWilliams. I do.
    Senator Heller. OK. And will you encourage new applications 
for ILC charter?
    Ms. McWilliams. I will certainly make sure that the FDIC 
moves swiftly in due consideration, and if that encourages more 
applicants to send the applications in, then I guess my answer 
is yes.
    Senator Heller. If an ILC meets FDIC standards, will you 
support the approval of that ILC charter?
    Ms. McWilliams. If it means the ILC standards as currently 
set up by the FDIC, I believe there should be no obstacles in 
the application program.
    Senator Heller. Thank you. Moving to community banks, you 
talked about regulations. Senator Toomey proposed to you what 
you would do to make necessary changes to allow and to help 
support and encouraging the chartering of these community 
banks. And you also talked a little bit about Basel 
requirements.
    What would you do to stop the consolidation, the 
consolidations that have been occurring amongst these small- 
and mid-sized banks?
    Ms. McWilliams. Senator, I am actually quite concerned 
about the consolidation, especially in rural counties. 
Currently, out of 1,049 rural counties in the United States, 
625 do not have a locally chartered community bank. And I 
believe that 35 counties do not have a single banking presence, 
which is quite concerning because you have small businesses and 
consumers who have to drive 20, 30, 40 miles to the nearby 
county to get small dollar bills and other banking services. So 
it is something I would like to take a look at.
    In terms of what specifically I would do, I would like to 
take a look at how the FDIC has structured the regulatory 
framework around capital and liquidity requirements for small 
banks. Some of the requirements, I believe, are not applicable, 
and I would like to revisit them within the statutory mandates 
currently set up. One example I can give you is the Volcker 
Rule. Community banks do not do proprietary trading. 
Nonetheless, they have to do compliance, which, for a bank of 
the size of my current employer, is quite comprehensive. I can 
only imagine for a bank that has $500 million in assets and two 
or three people in the compliance department, it is probably 
nearly impossible to do an appropriate amount of work to 
respond to the regulatory burden. So that is something I would 
like to focus on.
    Senator Heller. Ms. McWilliams, thank you, and to our 
panelists, again, sorry I did not get to ask questions, but I 
want to thank you again for being here and for showing your 
support.
    Mr. Chairman, thank you. My time has run out.
    Senator Brown. Senator Warren.
    Senator Warren. Thank you, Mr. Chairman. And thank you to 
each of our nominees for being here and for your willingness to 
serve.
    Dr. Goodfriend, as you know, the Fed has a dual mandate to 
maximize employment while keeping inflation in check. And if 
you are confirmed as a Fed Governor, then one of your main 
responsibilities will be to set interest rates that satisfy 
that dual
mandate, which means you are going to need to make accurate 
projections about inflation. So I think it is time to take a 
look at your track record on how you have done making inflation 
projections in the past.
    In July 2011, you told the Wall Street Journal that the Fed 
should not be reluctant to ``move interest rates up 
preemptively against inflation at this stage in the business 
cycle.''
    You also said, ``The Fed needs to restore positive real 
short-term interest rates fairly soon.'' That was 2011. 
``Otherwise, higher trend inflation and inflation scares will 
force the Fed in the future to more than reverse any short-run 
gains in employment that it might otherwise achieve in the 
present.''
    Now, we are almost 7 years past that statement. Meanwhile, 
real short-term interest rates are still negative, and 
inflation is undershooting the Fed's 2-percent target. So do 
you agree that you got that projection wrong?
    Mr. Goodfriend. Absolutely.
    Senator Warren. OK. That is good. Let us take a look at 
another one. Senator Menendez raised this, but I think it is 
worth repeating. In May 2012, you said:

        Even if the Fed did succeed in the Herculean task for getting 
        the unemployment rate down to 7 percent, we could never be sure 
        that the unemployment rate was below what we call the `natural 
        rate,' in which case it would give rise to a rising inflation 
        rate in the next few years, which would be disastrous for the 
        economy.

    Now, as you know, the Fed did succeed in getting the 
unemployment rate below 7 percent, and in the 5-plus years 
since you made that statement, the unemployment rate has 
steadily fallen, and now it is about 4 percent. Meanwhile, 
inflation remains below the Fed's 2-percent target.
    So I did not hear a clear answer in response to Senator 
Menendez, so let me just ask it directly. You got that one 
wrong, too, right?
    Mr. Goodfriend. Let me remember the context. The context 
was, I think, for this comment that I was saying if you look at 
only the unemployment rate and not the inflation rate, you 
could make a mistake. But as long as the inflation rate was 
low, I would be in favor of maintaining monetary stimulus.
    Senator Warren. Well, but you actually said just the 
opposite in the past, and you have talked about preemptively 
raising interest rates. You know, I am concerned about this 
because these wrong predictions are not outliers for you. They 
have been part of your overall approach to monetary policy, 
which effectively ignores the Fed's full employment mandate and 
instead focuses solely on speculative concerns about inflation. 
This matters because focusing only on inflation does enormous 
harm to the economy and to working families.
    You know, you were talking about raising interest rates 
back in 2011 when the unemployment rate was 9 percent. A year 
later you worried about the Fed letting unemployment drop below 
7 percent. You know, the difference between that 9 percent 
unemployment rate or that 7 percent unemployment rate, the 4 
percent unemployment rate we have got now is millions and 
millions of jobs, millions of families that have those jobs and 
are out there working and able to support themselves and their 
families.
    I think based on the kind of judgment that you have 
demonstrated, American families are very lucky that you were 
not on the Fed Board over the past several years, and I think 
it would be a mistake to put you on the Fed Board now.
    Thank you, Mr. Chairman.
    Senator Brown. Senator Kennedy.
    Senator Kennedy. Thank you, Mr. Chairman. Congratulations 
to all three of you.
    Would any of you disagree with the assertion that we are 
excessively regulating community banks, defined as banks of $10 
billion or less of assets? Would any of you disagree with that 
assertion?
    Ms. McWilliams. No, Senator.
    Mr. Goodfriend. Not at all.
    Senator Kennedy. OK. Dr. Goodfriend, do you believe at this 
moment in time we have financial institutions in America that 
are too big to fail?
    Mr. Goodfriend. I hope not, and I think given the progress 
we have made----
    Senator Kennedy. Well, I hope not, too, but do you believe 
they exist?
    Mr. Goodfriend. No, I really do not.
    Senator Kennedy. OK. What do you think would happen or 
should happen if, God forbid, JPMorgan Chase knocked on 
Secretary Mnuchin's door this afternoon and said, ``We are 
about to go under, and I need money, I need liquidity''? What 
do you think would be Government's proper role? And what do you 
think should be Government's proper role?
    Mr. Goodfriend. Let me say, Senator, that I think the 
issue--you have put your finger on a critical issue, and I 
would hope that the procedures that we put in place where you 
would try to go for bankruptcy first and then only to come to 
the Government with some kind of orderly liquidation have been 
clarified, and the boundaries of responsibility have been put 
in place already----
    Senator Kennedy. Do you think they have been?
    Mr. Goodfriend. Frankly, I think there is reason to go look 
again and make sure that they are in the right place. This is 
such an important issue----
    Senator Kennedy. I am trying to understand. Not to 
interrupt, but do you think they are in the right place?
    Mr. Goodfriend. You know, I have not looked at the details 
of the proposal, of the clarity, of boundaries, but should I be 
confirmed as Governor, this would be one of the issues that I 
would like to make sure we are in the right place, because 
without clarity, without boundaries, we do not have 
accountability, and that is how we got the Great Recession.
    Senator Kennedy. OK. Do you believe in quantitative easing?
    Mr. Goodfriend. Well, it depends when and where it was 
used. In the crisis----
    Senator Kennedy. Well, let me put it this way. Do you think 
the quantitative easing pursued by the Fed over the last few 
years, in light of the Great Recession of 2008, was 
appropriate?
    Mr. Goodfriend. I think so-called QE1 and 2, that was 
during the crisis, and given that we had not had the clarity 
beforehand that I just spoke of, I think it was OK to do that 
to save the system. QE3 was not an emergency, and it was more 
or less used as a routine tool for stabilization. I think that 
was not called for.
    Senator Kennedy. OK. Why is inflation so low?
    Mr. Goodfriend. It takes some time to talk about that, but 
basically----
    Senator Kennedy. How about 30 seconds?
    [Laughter.]
    Mr. Goodfriend. You know, I think it is a puzzle, first of 
all, around the world, so I would not be here and be able to 
give you the answer. But one reason is that the central banks 
around the world have put in place a credibility for rising 
inflation that has cutoff the inflation tail, if you will, and 
plus central banks with policy that is near zero interest have 
lost some of the punch of monetary policy in that direction. So 
that would be my short answer.
    Senator Kennedy. If the Federal Reserve did nothing, where 
do you think inflation in the United States would be a year 
from now?
    Mr. Goodfriend. My view is that inflation is slowly rising, 
the Fed is more or less on the right path going forward, and I 
have every reason to think that we could get to 2 percent, 
which is the target, in a year or so.
    Senator Kennedy. OK. If you were--I am trying to understand 
your overall philosophy. If you were advising Prime Minister 
Abe about how to revive the Japanese economy, what would you 
tell him?
    Mr. Goodfriend. I have been supportive of Japanese efforts 
to keep monetary stimulus in place until the inflation rate has 
risen to their target, which is around 2. And, in fact, I have 
been an adviser for the Bank of Japan for years and years.
    Senator Kennedy. Have you?
    Mr. Goodfriend. And basically on that side of that 
argument. So, you know, they need to do that.
    Senator Kennedy. Did you advise the Bank of Japan on the 
quantitative easing?
    Mr. Goodfriend. I did not advise the bank, but I was an 
honorary adviser to the Bank of Japan.
    Senator Kennedy. OK. And you think they are on the right 
track there, or you disagree with their approach?
    Mr. Goodfriend. No, I think they--you know, in the 
circumstance they need to stimulate the economy, get the 
inflation rate up, and they have been doing well, and now 
employment is doing much better than before.
    Senator Kennedy. OK. Thank you for that.
    Ms. McWilliams, what role, if any, do you think the FDIC 
has in helping us establish a National Flood Insurance Program 
that looks like somebody put it together on purpose?
    Ms. McWilliams. Senator, the National Flood Program is a 
creature of Congress. It is not to the agencies to decide what 
is appropriate or not. It is for Congress to decide and for 
agencies to implement----
    Senator Kennedy. Right, but I am asking your opinion. Let 
me be more specific. Many of our financial institutions do a 
great job enforcing the requirement of flood insurance. Some do 
not. And when some get caught, they just get a minor fine, 
which sends the signal--if you believe in the deterrence 
paradigm of compliance, which sends the signal that it is 
cheaper just to ignore the rule. What do you think we can do 
about that, if anything?
    Ms. McWilliams. Well, I believe the banks should be 
supervised appropriately, and if the flood insurance is not 
required on certain loans, I think that is a problem----
    Senator Kennedy. What if it is required?
    Ms. McWilliams.----if they are in a flood zone.
    Senator Kennedy. What if it is required and some aspects of 
the financial system are not enforcing the requirement? What, 
if anything, should the FDIC do?
    Ms. McWilliams. It should regulate those banks 
appropriately, which is to find them in disobedience of the 
regulatory requirements.
    Senator Kennedy. OK. Mr. Workman, why do you think--Senator 
Toomey made this point. Why do you think over the last, let us 
say, 9 or 10 years--am I over, Mr. Chairman?
    [Laughter.]
    Chairman Crapo. [Presiding.] Only by 2 \1/2\ minutes.
    Senator Kennedy. I am sorry.
    Senator Brown. Senator Kennedy, I would not dare cut you 
off during your discussion of flood insurance.
    Senator Kennedy. I looked at my--I apologize. I was looking 
at----
    Chairman Crapo. I was going to hand this down the aisle 
there.
    [Laughter.]
    Senator Brown. Mr. Chairman, when he talks about flood 
insurance, he does not know when to stop.
    Senator Kennedy. Please, my apologies. I really did not 
mean to--it was going up instead of down.
    [Laughter.]
    Chairman Crapo. It was not up to 5 yes, was it?
    Senator Kennedy. I am sorry.
    Chairman Crapo. Thank you, Senator.
    Senator Cortez Masto.
    Senator Kennedy. I was having fun.
    Senator Cortez Masto. Thank you. Welcome to all of you. 
Thank you for your willingness to serve. Welcome to your 
families. It is great to see you all here.
    I only have 5 minutes, so I am going to get right into it, 
and I am going to start with Mr. Goodfriend. In your writings 
you recommend taxing currency by placing magnetic strips on 
dollar bills. You argue that in order to keep bills in 
circulation, the Government should tax people who hold money in 
a disaster kit or safe deposit box. If you are appointed to a 
14-year term on the Federal Reserve, will you seek to tax 
people who choose to maintain a cash reserve?
    Mr. Goodfriend. Absolutely not.
    Senator Cortez Masto. Do you want to explain your 
discussion?
    Mr. Goodfriend. Briefly, yes. I wrote a paper in 1999 for a 
Federal Reserve System conference which was asked what happens 
if interest rates go to zero and what could the Federal Reserve 
do. And in that paper there are two ways the Federal Reserve 
could have gone. It could do quantitative easing. That was the 
first place that was put out. Or it could make interest rates 
negative. That would also be an option. I did not propose that. 
That was an academic paper showing what could be done, and that 
was forward-looking in the sense that the world went to zero 
rates and negative rates in some----
    Senator Cortez Masto. If you had the opportunity to tax 
people based on your policy discussion, would you do so?
    Mr. Goodfriend. No. I do not support--that is not a 
proposal. It was an emergency measure we considered just as a 
matter of first thinking on these things before anybody had 
ever imagined anything would happen like that.
    Senator Cortez Masto. OK. In 2014, the Federal Reserve 
published research refuting that Freddie Mac and Fannie Mae's 
affordable housing goals played no role in the crisis. After 
the financial crisis, analysis by staff of the Fed's Board of 
Governors found that, and I quote, ``The available evidence to 
date does not lend support to the argument that the Community 
Reinvestment Act is a root cause of the subprime crisis.''
    It appears you disagree with the Fed's conclusion. Is that 
true?
    Mr. Goodfriend. No, I do not--I think----
    Senator Cortez Masto. Do you agree with the Fed's 
conclusion?
    Mr. Goodfriend. I am not--I have not--if you can repeat the 
question, because I----
    Senator Cortez Masto. Sure. The Federal Reserve published 
research refuting that Freddie Mac and Fannie Mae's affordable 
housing goals played no role in the crisis.
    Mr. Goodfriend. It is not a subject that I have had much 
professional expertise on, so I would rather not comment.
    Senator Cortez Masto. OK. Thank you.
    Mr. Workman, the November report from the Treasury 
Department essentially called for abandoning nonbank SIFI 
designations, and the Treasury's General Counsel said that the 
FSOC would
reduce such oversight. Do you think nonbank SIFI designations 
should be tossed out as a tool?
    Mr. Workman. Senator, I have looked at the Treasury report, 
and among the areas of recommendation, one is going to, as I 
mentioned earlier, an activities-based approach. But, in 
addition, there is a line of thought that I think still stands 
in that recommendation, and I am reading it as someone who has 
been studying it of late. But, essentially, it indicates that 
FSOC ought to first look at the marketplace, look at what the 
concerns may be, and then go to the primary regulators, which 
in the case of insurance are the State insurance regulators.
    Senator Cortez Masto. Right, and for that reason--I am 
sorry to cut you off. I only have so much time. But you talk 
about an activities-based approach, but is the FSOC really 
prepared to force other Federal regulators to adopt those 
rules?
    Mr. Workman. Senator, I am not sure. I do not know about 
that.
    Senator Cortez Masto. Because isn't it true that FSOC would 
really have little power to constrain risky activities in the 
insurance industry since it is regulated at the State level?
    Mr. Workman. Well, certainly the State insurance regulators 
are expressly considered to be primary regulators for purposes 
of FSOC actions.
    Senator Cortez Masto. OK. Thank you.
    Ms. McWilliams, what will you do as head of the FDIC to 
encourage sustainable home ownership for Latinos, African 
Americans, and millennials whose access continues to lag?
    Ms. McWilliams. Senator, thank you for that question. As I 
mentioned, I lived in the State of California where the Latino 
community in particular is almost as prevalent as it is in the 
State of Nevada. I do believe that the agency's duties are to 
ensure that banking products are available to everybody. The 
question that I would like to tackle is: How much have the 
agencies done to encourage home ownership and what is the 
appropriate role for the FDIC to partake in that? And if 
confirmed and I realize that something has not been done, I am 
happy to bring you the initiatives and technical assistance 
should you choose to pursue other venues.
    Senator Cortez Masto. Thank you. I appreciate that. Thank 
you all for answering my questions.
    I notice my time is up. Thank you.
    Chairman Crapo. Thank you, and thanks for getting us back 
on track.
    Senator Tillis.
    Senator Tillis. Thank you, Mr. Chair. I will keep all my 
questions----
    Chairman Crapo. You only have 3 minutes.
    Senator Tillis.----to Senator Kennedy's standard.
    Chairman Crapo. Just kidding.
    [Laughter.]
    Senator Tillis. Mr. Goodfriend, it is ironic that somebody 
whose last name is Goodfriend is getting so many unfriendly 
questions, but I have a question for you, and it is really just 
can you give me your thoughts on what you think is more 
corrosive on the middle class--low growth or low inflation?
    Mr. Goodfriend. Low growth is probably the more corrosive 
in the sense that growth enables a lot of things to get done. 
People can live their lives. The country can do more. And low 
inflation, unless it is too low, is, I do not think, anywhere 
near as corrosive.
    Senator Tillis. Thank you.
    Ms. McWilliams, I have got a hypothetical situation. You 
mentioned, I think, in response to Senator Toomey's questions 
that community banks or smaller banks are not subject to the 
Volcker Rule if they do not do proprietary trading?
    Ms. McWilliams. They are subject, but they should not be 
because they do not engage in proprietary trading.
    Senator Tillis. Well, let me give you a hypothetical 
situation. Let us say that there is a bank out there that wants 
to go green, and it is going to take a little while for them to 
get there. And so in the process of coming up with a viable 
strategy for a community bank, they all of a sudden get 
involved in a business activity which makes perfect sense for 
them to go green, but it actually make them wade into something 
that falls under Volcker. Can you give me maybe a scenario 
where we talk about the--I am trying to also interpret that in 
terms of the regulatory cost impacts on smaller institutions.
    Ms. McWilliams. Certainly, Senator. I am actually aware of 
financial institutions that are trying to go ``green'' and made 
a commitment on being fully ``green'' by a certain period in 
time. They would change the light bulbs, windows, et cetera, 
but they may have hundreds plus or just five branches, and 
getting branches to the point of a ``green'' standard is a 
costly and a multi-year effort. So some of the banks have 
engaged in purchasing ``green'' credits, basically renewable 
energy purchase agreements, and in order for a bank to actually 
engage in that discussion, it needs to do an appropriate 
Volcker compliance analysis. I am aware of a bank that had to 
comprise a committee of 22 people and have multiple meetings on 
whether the purchase of ``green'' energy, the renewable energy 
contract, would in fact, trigger proprietary trading under 
Volcker, which I believe undermines the purpose of the act.
    Senator Tillis. Yeah, and I think it undermines the 
objective of the industry trying to go green. To me, it is a 
good working example of why we need to right-size regulations 
and remove some of these impediments that simply do not make 
any sense. So thank you for that.
    Also, on the cost-benefit analysis, has there been--when we 
talk about cost-benefit--and I think the Chair and Senator 
Shelby asked the question--I do not think we really do a good 
job of explaining at the atomic level, the consumer level, the 
price that they are paying for regulations. I was just using--
there was one example that was in the Wall Street Journal 
earlier this week that one of the major banks is now going to 
not allow free checking for certain accounts that fall below a 
certain level. In some ways I have got to believe that has been 
stimulated by pressure on the cost of doing operations. They 
have got to find revenues somewhere. They have a fiduciary 
responsibility to their investors to try and provide a return 
on their equity.
    Has there been much work done at that atomic level to say 
when you implement these additional regulations, which may go 
further than you need to, beyond the right size of a 
regulation, the real individual impacts, do we ever do cost-
benefit analysis at an atomic level, and should we?
    Ms. McWilliams. Senator, I believe that we should. How much 
has been done is difficult for me to ascertain because a lot of 
that work is behind the scenes. So what you would see in the 
Federal Register in terms of the proposed rulemaking or the 
final rulemaking is just the tip of the iceberg. I know for a 
fact when I was at the Federal Reserve we struggled at times to 
ascertain how a certain regulation would impact consumers, but 
it is a task that should be undertaken anyway. The regulators 
should not shrink from their responsibilities, because it is an 
easy thing to do. I believe that they need to engage on a deep 
level, to understand who is going to pay for this, how it is 
going to affect the communities, and are we willing to live 
with the consequences.
    Senator Tillis. Thank you.
    Mr. Workman, I did not have an opportunity to meet with you 
in my office. I do know that you met with my staff, and I know 
it was a productive meeting. And you have answered a lot of the 
questions that I have had for you, so I will not ask them 
again. We are working on a bill, particularly around Fed 
supervision, about savings and loan holding companies and 
getting them right-sized. I look forward, after you are 
confirmed, to working with you and have you in my office. I 
want to congratulate all three of you. You are outstanding 
nominees. I look forward to supporting your nomination, and 
congratulations to your family and friends. This should be a 
very proud moment for you.
    Ms. McWilliams. Thank you.
    Mr. Goodfriend. Thank you.
    Mr. Workman. Thank you.
    Senator Tillis. Thank you, Mr. Chair.
    Chairman Crapo. Thank you.
    Senator Jones.
    Senator Jones. Mr. Chairman, thank you very much, and thank 
you for the nominees to be here. Congratulations to you and 
your families. Ms. McWilliams, I am especially appreciative of 
you being here with your role with my colleague Senator Shelby 
and your work with him. I know that you probably also learned a 
lot about something else very dear to Senator Shelby's heart, 
but I am going to resist the urge to give you a pop quiz about 
University of Alabama football.
    [Laughter.]
    Ms. McWilliams. Thank you.
    Senator Jones. I do appreciate your comments and your 
answers to previous questions about community banks in 
underserved areas. That was an issue, and I appreciate your 
answers to that very much.
    So let me move to Dr. Goodfriend. I would like to go back 
briefly to comments you alluded to earlier and some earlier 
comments in 2010 where you referred to consumer protection as a 
false premise and essentially said that consumers should be 
left to police themselves. I agree with you that consumers need 
to take personal responsibility, but I also think there are 
some kind of bad actors out there.
    The Federal Reserve has a Division of Consumer and 
Community Affairs, known as DCCA. In reading from the mission 
statement from DCCA, it says, ``It is to support the board's 
efforts to implement Federal laws intended to protect and 
inform consumers in credit and other financial service 
transactions, ensuring that consumers receive comprehensive 
information and fair treatment and promoting economic 
development and community lending in historically underserved 
areas.'' And I will tell you, Dr. Goodfriend, Alabama has a lot 
of those underserved areas.
    So my question is: If you are confirmed by the Senate, 
would you continue to support the DCCA's efforts to not only 
inform but to protect consumers? And would you recommend any 
changes to the Division's mission?
    Mr. Goodfriend. I would absolutely support that mission. I 
think consumers need to have regulation on the product side, 
and they need to be informed. These are two halves of making 
consumers protected, and I absolutely support the Federal 
Reserve's mission.
    Senator Jones. And the DCCA mission as written, you would 
not make any changes to that to lessen anything?
    Mr. Goodfriend. Well, if confirmed as a Governor, I would 
like to look into this, because I think it is so important that 
we maintain confidence in consumers, confidence in the market 
system. The ability to make that system work absolutely depends 
on consumers feeling confident in the way as demanding 
customers and feel safe in markets. That is absolutely a goal 
that I would support.
    Senator Jones. OK. Fair enough. I also have seen comments 
that seem to be a little bit conflicting in the past, Dr. 
Goodfriend, in which at one point you had talked about that you 
seemed to advocate for a very independent, activist Fed that 
should push back against Congress, but in recent years you seem 
to have pushed back for less independence of the Fed, including 
Congress appropriating the Fed's budget.
    In my view, independence is important, especially in our 
current economic and political climate. So can you give me your 
view now, how important is the Fed to be an independent body?
    Mr. Goodfriend. Absolutely, the Fed needs to be absolutely 
independent of politics so we can do monetary policy, financial 
regulation, and in order to support the dual mandate. That is 
something I completely believe in, and I have said so many 
times in many papers in the past.
    Senator Jones. Do you still favor Congress appropriating 
the budget for the Fed?
    Mr. Goodfriend. I do not favor that.
    Senator Jones. OK. Have you ever favored that?
    Mr. Goodfriend. No.
    Senator Jones. OK. Maybe I am mistaken.
    That is, I think, all the questions I have, Mr. Chairman. 
Thank you. Thank you to each of the nominees. I appreciate your 
being here.
    Chairman Crapo. Thank you, Senator.
    Senator Cotton.
    Senator Cotton. Thank you all to the nominees for your 
appearance. Congratulations on your nomination. Congratulations 
to your families as well.
    Ms. McWilliams, the FDIC recently proposed a new rule for 
high volatility, acquisition, development, and construction 
loans, also known as HVADC. That would replace the current rule 
on high volatility commercial real estate loans. I am concerned 
that the proposed rule would remove contributed equity 
exemptions for future acquisition, development, and 
construction loans and would instead treat them all virtually 
the same in terms of the risk assessment, and it strikes me, 
therefore, that the regulators would be ignoring the proactive 
steps that lenders are taking to in essence get a bigger 
downpayment, to put it in layman's terms, to reduce risk and, 
therefore, increase safety and soundness.
    The House has already acted on this measure. The House 
Financial Services Committee passed a bill 59-1. It passed the 
House chamber by a voice vote. I suspect the Senate will soon. 
Could you commit that you will take a look at this issue and 
perhaps hit the pause button until the Congress has a chance to 
review it this year.
    Ms. McWilliams. Senator, thank you for that question. Since 
the rule is at the proposed rulemaking stage, I am not sure 
when, if I am so fortunate to be confirmed, I would be able to 
take a look at the rule to understand what work the FDIC has 
done behind the scenes. But if it does happen that I am 
confirmed before the rule is finalized, I would certainly like 
to know what the staff at the FDIC has done. As you know, the 
rules are subject to the Administrative Procedures Act, so 
there is a notice and comment period during which the FDIC 
rulemaking process will be informed based on comments from 
various stakeholders and affected entities, including consumers 
and users of this type of credit.
    So I can assure you that, if I get confirmed in time, I 
would like to take a look at those comment letters as well and 
understand what is going on.
    Senator Cotton. Good. Thank you, because there is both a 
process point and a substantive point. The process is if 
Congress does finally get its act together and take legislative 
action on this, I do not think we would want to go through the 
whole rigmarole of notice and comment rulemaking with a final 
rule that will simply modified or overturned, therefore the 
substance of the point I made about not, you know, discouraging 
lenders from entering into these loans with, you know, high 
equity contributions by making them be treated in the same 
fashion in terms of the risk assessment.
    Second topic. FDIC obviously plays a large role in the 
supervision and enforcement of the Bank Secrecy Act and anti-
money-laundering regulations. That is a topic that this 
Committee has increasingly scrutinized over the last month. How 
right now would you assess the division of responsibility for 
anti-money-laundering regulations and the Bank Secrecy Act 
compliance between the FDIC, FinCEN, other regulators, and 
financial institutions?
    Ms. McWilliams. So the BSA and AML regulations are 
promulgated by FinCEN in conjunction with their regulatory 
agencies. It is the job of the regulatory agencies--in this 
case, the FDIC--to examine and ensure compliance with both BSA 
and AML. So the
actual work gets done at the FDIC level while the rulemakings 
and the requirements get set up in a multi-agency effort.
    Senator Cotton. Are you open to reviewing those processes 
and trying to find ways that we can both still be strict and 
prevent, you know, intelligence officers, terrorists, drug 
runners, deadbeat ex-husbands from manipulating our banking 
system, but at the same time reducing the costs that we are 
imposing on gigantic and tiny institutions alike?
    Ms. McWilliams. Senator, absolutely. And I can tell you 
from my current experience, banks are required to file a 
suspicious activity report, or SAR, every time there is a 
dollar threshold or they suspect a certain activity is taking 
place. I think this is making it more difficult under the 
current regime for the regulatory bodies to examine effectively 
and efficient for SARs compliance and AML and BSA violations 
when you have as many SARs filed as we do under the current 
framework. So I would like to take a look if it is possible to 
streamline while maintaining safety and soundness of the 
system.
    Senator Cotton. Good. Thank you.
    Ms. McWilliams. Thank you.
    Senator Cotton. Mr. Workman, the FSOC's process to 
designate systemically important financial institutions has 
been a topic of conversation here to include about nonbanks. I 
would like to ask, at a philosophical level, given the 
criticism the FSOC has received about the opacity of that 
process, do you think the criteria by which the FSOC makes 
these judgments should be more like a posted speed limit, 
encouraging people to stay on whichever side of the line they 
want to be, or a speed trap, hiding in the trees to catch 
someone once they cross unstated criteria?
    Mr. Workman. Senator, I like the posted speed limit.
    Senator Cotton. I do like the posted speed limit as well. I 
think it is consistent with the rule of law and a well-
functioning market-based economy.
    My time has exactly expired.
    Chairman Crapo. Good timing.
    Senator Reed.
    Senator Reed. Well, thank you, Mr. Chairman. And welcome to 
the witnesses, and I apologize for my tardiness. Senator Cotton 
and I were at a classified hearing on the nuclear posture 
review, so nice to be out here with you all.
    Let me ask a question to each one, beginning with Ms. 
McWilliams. Cybersecurity is becoming increasingly critical to 
every aspect of American life, and so in your different roles--
FDIC, Federal Reserve, and FSOC--can you give a brief statement 
about what you think you can do and should do immediately with 
respect to cybersecurity?
    Ms. McWilliams. Thank you for that question, Senator. I can 
tell you for a fact now that I work for a regulated entity that 
it is one of the foremost issues on the mind of the governing 
body at the bank as well as the board of directors. I believe 
that the regulator's job is to provide a blueprint for how 
banks are supposed to handle cybersecurity breaches in terms of 
notifications and just give a sense to the public and to 
Congress what regulated entities are supposed to do if there is 
a cyber breach.
    I understand that in 2016 there was an Advanced Notice of 
Proposed Rulemaking by the Federal Reserve, OCC, and FDIC 
seeking comments and input on how the cybersecurity framework 
should be structured, and I would like to follow up, if 
confirmed, to understand what kind of comments have been 
received and what the FDIC can do.
    Senator Reed. Thank you.
    Dr. Goodfriend.
    Mr. Goodfriend. I completely agree. This is a very 
important issue, and I will do what I can, if confirmed, to 
lend my support and whatever expertise I can to this.
    Senator Reed. One of the things that we have done, several 
my colleagues and I have legislation that would require a 
simple disclosure in publicly reporting companies that they 
either have someone on the board or they have made arrangements 
to deal with the issue of cybersecurity so that it is an 
action-forcing device for every company. Does that make sense 
to you?
    Mr. Goodfriend. As a principle, it makes sense to me.
    Senator Reed. Thank you. And, Mr. Workman, please?
    Mr. Workman. Yes. Senator, certainly cybersecurity is a 
critically important element in the insurance world. I would 
just observe two actions that have been taken, one by the New 
York Department of Financial Services. I am sure you are well 
aware of that. But they acted early, put together a proposal, 
took it to the NAIC, and it to a very large degree influenced 
the NAIC action just this past year. The New York reg. is 
nearing completion of implementation, and the States now have a 
model from the NAIC. So I think much has been done, but never 
enough.
    Senator Reed. Thank you very much. And the Rhode Island 
superintendent of insurance supports our approach, too, so they 
are very bright in Rhode Island. I cannot explain it, but they 
are.
    Turning quickly, Dr. Goodfriend--when Governor Powell was 
here, he testified in response to my questions about the 
orderly
liquidation authority, and he said that his preferred option is 
bankruptcy. However, he indicated there may come a time when 
bankruptcy is not going to work in a very stressful situation 
that really threatens the economic health of the country, just 
like what happened in 2007, 2008, and 2009. In that case we 
would really need a backup in the form of something like 
orderly liquidation authority. What is your view of the orderly 
liquidation authority?
    Mr. Goodfriend. I agree with Governor Powell's statement, 
and I think this is a very important matter. It deserves, I 
think, reconsideration given how important it was that there 
was lack of clarity and boundaries when we had the last crisis. 
This is so important that I think it deserves another look-see, 
and if I am confirmed as Governor, I would certainly make this 
a priority.
    Senator Reed. We have an orderly liquidation authority in 
place, so the look would be to----
    Mr. Goodfriend. To make sure that it would work in 
practice. I have not seen it in detail. I think there is plenty 
of opportunity to kind of model this thing in various ways and 
check whether there is clarity. There are boundaries that make 
accountability for all the actors that would get involved in 
this orderly liquidation
authority to think through scenarios in which that would work. 
And this is so important, again, that I think it deserves 
another look.
    Senator Reed. And the look would be, as I presume from your 
comments, to ensure it works in practice, not that it be 
abandoned or ignored?
    Mr. Goodfriend. Right. I have no predilections one way or 
the other, but I do believe, knowing what I know about the 
subject in general, these things are complicated. And I think 
we have not gotten to the end of the line yet on where we want 
to be.
    Senator Reed. Thank you very much. Thank you all.
    Ms. McWilliams. Thank you.
    Chairman Crapo. Thank you, Senator Reed, and we are going 
to have a short second round. I am going to yield my 5 minutes 
and turn to Senator Shelby.
    Senator Shelby. Thank you.
    I want to follow up just for a minute on the area that 
Senator Tillis was going to earlier, cost-benefit analysis, 
explaining what regulation costs, what are the benefits for it 
to the consumer, because we are all consumers. I agree with 
him; I do not believe that has been explained. Oftentimes the 
regulators--you all would be regulators--come up with 
regulations, and we say, ``Gosh, they make no sense,'' or at 
least some of us, maybe we are laymen and we do not know. But 
how do we actually develop the methodology, which is 
important--Dr. Goodfriend, you understand this well. The 
methodology is important in arriving at something.
    Mr. Goodfriend. That is right.
    Senator Shelby. And what are you trying to do? You are 
trying to arrive at the truth. How can we help consumers make 
good choices? We know we cannot do everything. How can we put 
cost on a regulation that increases the cost of doing business 
and it ultimately falls on them?
    Mr. Goodfriend. In terms of principles, I agree completely 
with your description of the issues. There has been a tendency 
in some quarters to think--well, first of all, I should say I 
think consumer protection is critical, so to me it is a 
question of where we want to put the emphasis. We want to 
balance, we want to put some of it on the firms, but we also, I 
think, need to really focus better than my sense is on consumer 
knowledge, educating consumers, because that would mean that 
consumers could be in charge of their own lives. And really the 
only way to prevent a consumer from really being exploited is 
to put them in the driver's seat, make sure that they are aware 
of what products are doing, and that is where I would be in 
principle. My sense is that we have been doing some of that at 
the Fed, but I think there is scope for doing more of that.
    Senator Shelby. Ms. McWilliams, do you have any comments on 
that?
    Ms. McWilliams. Senator, I can give you my commitment that, 
if confirmed, the cost-benefit analysis is something I would 
like to take a close look at while at the FDIC. As somebody who 
worked on regulations and had to take into account in some 
rulemakings thousands and thousands of comment letters, it is 
crucial that we understand how our regulations are going to 
impact consumers
before we promulgate them. So, yes, you have my commitment that 
I will take a look at that.
    Senator Shelby. Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Brown.
    Senator Brown. Thank you, and I will make this as brief as 
I can.
    Mr. Workman, again, welcome. Based on the $50 billion bank 
threshold in the Wall Street Reform Act, the FSOC uses a $50 
billion threshold as a factor to determine if a shadow bank 
could cause systemic risk, as you know. If the Chairman's bank 
deregulation bill is enacted, would you recommend that FSOC 
also raise its threshold fivefold to the $250 billion that the 
Chairman is suggesting?
    Mr. Workman. Senator, I can just say that is treading into 
an area I have not yet adequately learned about, so I cannot 
really speak on that issue.
    Senator Brown. OK. Thank you for your candor. There is a 
reasonable chance that you will be asked to at some point.
    Mr. Workman. Yes, indeed.
    Senator Brown. You understand that, OK.
    Ms. McWilliams, it was an honor to speak to you, and I look 
forward to meeting your Cincinnati family in a few minutes 
after we are done.
    Ms. McWilliams. Thank you.
    Senator Brown. Vice Chair Quarles last week promised to the 
largest banks that the Fed would soon weaken leverage rules. 
Reportedly, this is despite resistance from FDIC. The 
Chairman's bank deregulation bill would undercut the leverage 
ratio for some of the Nation's largest banks. Democratic, 
Republican, and Independent FDIC officials--Chair Gruenberg, 
Chair Bair, Vice Chair Hoenig--have all warned about 
undermining capital standards that, like leverage limits, harm 
financial stability. If confirmed, will you protect the Deposit 
Insurance Fund by continuing the FDIC's opposition to weakening 
leverage rules for the largest banks?
    Ms. McWilliams. Senator, thank you for that question. If 
confirmed, it is going to be my mandate and my duty to protect 
the DIF. I would like to take a look at the leverage rules. As 
you know, the Federal Deposit Insurance Corporation does not 
have large banks as its primary supervisory entities. The 
largest bank in the FDIC portfolio does not rise to the 
advanced approaches level currently set at $250 billion. The 
leverage rules for smaller banks should look a little bit 
different than the rules for the largest participants. I can 
assure you that I would like to take a look at that and make 
sure they are applicably and appropriately calibrated for the 
size, scope, and risk of the bank.
    Senator Brown. Would you agree that a central cause of the 
2008 crisis was too much leverage at the largest banks and a 
failure of risk-weighted capital standards?
    Ms. McWilliams. Senator, I do not know that I can agree 
with that statement wholly. I would want to understand the 
context in which it is made.
    Senator Brown. Well, the context was what happened a decade 
ago. Was a central cause of the 2008 crisis too much leverage 
at the largest banks?
    Ms. McWilliams. The FDIC just recently issued a report on 
the crisis, and its outcome, and I have to tell you I have not 
gotten through the entire report fully in preparation for the 
hearing, but I am happy to circle back on that question with 
you when I am done.
    Senator Brown. The Minnesota Fed recently recommended a 
leverage ratio of 15 percent to protect Americans from future 
bailouts. Dr. Goodfriend had said he does not think there are 
banks that are too big to fail. Some here think that, some do 
not. I just want to urge you to look into the fact that 
weakening the leverage ratio for the largest banks can be 
problematic. Our job here collectively is to protect the safety 
and soundness of our banking institutions--I am not accusing 
you for sure--but not to protect the largest banks and not to 
enhance the profitability of America's largest banks.
    Thank you to the three of you.
    Chairman Crapo. Thank you, and that concludes the 
questioning and the hearing with the exception of final 
announcements.
    Before I do that, though, I want to thank all of you again 
for coming and participating today and for being willing to 
serve your country. And, again, I extend thanks to your 
families for supporting you and helping you to be able to do 
that.
    For all Senators, follow-on questions need to be submitted 
by Tuesday, January 30th. And for our witnesses, responses to 
those questions are due by the following Monday morning, 
February 5th. So please respond quickly when you receive 
questions.
    With that, this hearing is adjourned.
    [Whereupon, at 11:52 a.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
               PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
                            January 23, 2018
    This morning, we will consider the nominations of Ms. Jelena 
McWilliams to be Chairperson of the Federal Deposit Insurance 
Corporation; Dr. Marvin Goodfriend to be a Member of the Board of 
Governors of the Federal Reserve System; and Mr. Thomas Workman to be a 
Member of the Financial Stability Oversight Council.
    Welcome to all of you and congratulations on your nominations to 
these important offices.
    I see friends and family sitting behind you and I welcome them here 
today, as well.
    We are fortunate to have three highly-qualified individuals to 
consider for these positions, which are critical to ensuring a safe, 
sound, and vibrant financial system and a healthy, growing economy.
    I am particularly excited that one of these nominees, Ms. 
McWilliams, is a former staffer of mine, and is no stranger to Members 
who have been on this Committee over the past several years.
    Ms. McWilliams did outstanding work while she was at the Committee, 
and I am fully confident she will bring the same diligence, work ethic, 
and intellect to the FDIC that she showed here.
    In addition to working at the Committee, Ms. McWilliams also worked 
as an attorney at the Federal Reserve during the financial crisis, and 
she currently is the Chief Legal Officer, Corporate Secretary, and 
Executive Vice President of Fifth Third Bank.
    These varied experiences have provided her with the particular 
background and expertise needed to run the FDIC.
    As head of the FDIC, Ms. McWilliams would be in charge of 
administering the Deposit Insurance Fund.
    Additionally, in its role as a prudential regulator, the FDIC plays 
a critical role in ensuring the safety and soundness of the financial 
system, while also promoting economic growth.
    Dr. Goodfriend also has an impressive background, having worked at 
the Federal Reserve Bank of Richmond for close to 30 years.
    He has written extensively about monetary and regulatory policy, 
and he testified before this Committee in 2016.
    His appointment comes at a critical time for the Federal Reserve.
    The Fed is currently in the midst of normalizing monetary policy by 
winding down its balance sheet and raising interest rates after years 
at the zero lower bound.
    With respect to regulatory policy, the Federal Reserve is reviewing 
many of the rules put in place following the crisis.
    If confirmed, I look forward to working with Dr. Goodfriend on 
further regulatory and monetary policy improvements.
    Finally, we will consider Mr. Workman to serve as the independent 
insurance expert on the Financial Stability Oversight Council.
    The Council is charged with identifying risks and responding to 
emerging threats to financial stability, which has significant 
implications for both banks and nonbank financial companies.
    Mr. Workman is well-equipped to fill the insurance expert role, 
bringing over four decades of practical insurance-industry experience, 
including serving as the head of a major New York State insurance trade 
group, representing over 70 life insurance companies.
    During my meeting with Mr. Workman, I was encouraged by his 
commitment to independence and desire to facilitate better 
collaboration between regulators and with regulated entities.
    At this time, I ask unanimous consent to enter into the record 14 
letters endorsing the witnesses. Without objection, so ordered.
    Congratulations again on your nominations and thank you and your 
families for your willingness to serve.
                                 ______
                                 
                PREPARED STATEMENT OF JELENA McWILLIAMS
  To Be Chairperson and a Member, Board of Directors, Federal Deposit 
                         Insurance Corporation
                            January 23, 2018
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
as a former staff member, it is my privilege to appear before you 
today. I am truly
honored and humbled to be nominated to lead the Federal Deposit 
Insurance Corporation (FDIC). I would like to thank the President for 
entrusting me with this
nomination, and Senators Crapo, Shelby and Olympia Snowe for giving me 
an opportunity to serve our country.
    I would also like to thank my father, Obrad Obrenic, a World War II 
veteran who taught me there is no substitute for personal integrity and 
hard work; my mother, Branka, who always believed in me; my brother, 
Nenad, a beekeeper and a great father; and my daughter, Maya 
McWilliams, whose humility reminds me every day to be a better person.
    My father was born in 1925 in impoverished Montenegro. He was born 
in a kingdom, fought fascism and Nazism in his youth, survived 
communism and socialism as an adult, and is now living out his golden 
years in democracy. His difficult journey was pivotal in my decision to 
leave the former Yugoslavia for a system built upon the rule of law. I 
arrived in the United States by myself on my 18th birthday with $500. 
Appearing before you 26 \1/2\ years later as the nominee to lead a 
historic Federal agency is nothing short of an American Dream.
    The FDIC is an independent agency created by the Congress to 
maintain financial stability and public confidence by insuring 
deposits; examining, supervising and resolving financial institutions; 
and managing receiverships.
    I believe that my background and professional experience have 
prepared me well for this challenge. I currently serve as the Chief 
Legal Officer, Corporate Secretary, and Executive Vice President of 
Fifth Third Bancorp, a regional bank headquartered in Cincinnati, Ohio. 
I serve on the bank's executive committee and advise the senior 
management and the Board of Directors on legal, compliance, and 
regulatory matters. I oversee over 70 attorneys and support staff.
    Prior to joining Fifth Third, I had the honor and privilege to 
serve on this Committee under Chairman Crapo's and former Chairman 
Shelby's leadership, most recently as Chief Counsel and Deputy Staff 
Director. My experiences on this Committee and as a staff attorney at 
the Federal Reserve Board of Governors have uniquely prepared me to 
oversee the FDIC and to coordinate its multi-agency initiatives in the 
United States and abroad.
    Also, having served as a corporate officer of a regulated entity, 
the totality of my experiences has afforded me a 360-degree view of our 
financial system and the institutions that regulate it. If confirmed, I 
am confident that I can effectively lead the FDIC in its mission to 
ensure the safety and soundness of insured depositories while balancing 
consumer protection and the need for available credit to grow the 
economy.
    One of the side effects of the civil war that broke apart the 
former Yugoslavia was a collapse of its financial system. My parents' 
meager savings disappeared overnight when a local bank closed its 
doors. Yugoslavia had no deposit insurance and my then 68-year old 
father returned to work as a day laborer. I can assure you that the 
core mission of the FDIC resonates profoundly with me and, if 
confirmed, I will not take its mission or my duties lightly. Thank you.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
                                 ______
                                 
                PREPARED STATEMENT OF MARVIN GOODFRIEND
    To Be a Member, Board of Governors of the Federal Reserve System
                            January 23, 2018
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
thank you for the opportunity to appear before you today. I am honored 
to have been nominated by President Trump to serve as a Member of the 
Board of Governors of the Federal Reserve System. None of this would 
have been possible without the support of my best friend and wife 
Marsha, who is sitting behind me, and without the support of my sister 
Miriam, who is watching at home. I would also like to recognize my 
parents' for developing in me at an early age a keen interest in public 
policy.
    As the Nation's central bank, the Federal Reserve has many 
responsibilities that are at the foundation of our economic prosperity 
and well-being. Guided by the goals of maximum sustainable employment, 
price stability, and financial stability, and with lessons from its 
past, the Federal Reserve must be alert to future challenges.
    I have spent my 40-year career as an economist focused on central 
banking in general and the Federal Reserve in particular. The Federal 
Reserve Bank of Richmond had been my primary place of employment for 
more than 25 years when, in 2005, I joined the faculty of Carnegie 
Mellon University in Pittsburgh. I've written about and contributed to 
the policy debate from both ``inside'' and ``outside'' the Fed. If 
confirmed, I look forward to putting my knowledge and judgment--
developed as both an academic and practitioner--to work as a Governor, 
and to contributing my voice and experience to addressing current 
policy issues. I intend to draw on my academic and professional 
experience to promote policies that would further increase transparency 
and accountability at the Federal Reserve.
    My years at the Federal Reserve Bank of Richmond gave me a deep 
appreciation of the role of the regional Reserve Banks in the Federal 
Reserve System. The regional system encourages diverse perspectives and 
innovative thinking. As a Member of the Board of Governors, I would 
look forward to hearing and considering this diversity of views in 
making policy.
    I have also gained policy experience at other Government and 
central banking institutions. These experiences ranged from being a 
staff economist for the Council of Economic Advisers in the Reagan 
administration, to serving in central bank advisory roles, and 
participating in external reviews for several central banks abroad.
    My publications use monetary theory, central bank practice, and 
Federal Reserve history to investigate policy issues. I've enjoyed my 
past 12 years teaching courses in monetary policy, money and banking, 
and international trade and finance at Carnegie Mellon's Tepper School 
of Business.
    I would like to thank the Committee for the opportunity to appear 
before you today and for considering my nomination. If confirmed, I 
look forward to working with you in the years ahead. I would be pleased 
to answer your questions.
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                PREPARED STATEMENT OF THOMAS E. WORKMAN
         To Be a Member, Financial Stability Oversight Council
                            January 23, 2018
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
it is my honor to appear before you today. I am grateful to be 
President Trump's nominee for Independent Member with Insurance 
Expertise of the Financial Stability Oversight Council, and I thank you 
and your staffs for helping me prepare for this hearing.
    First, I would like to introduce my wife, Pam, and our son, Chris, 
who are here today. Pam, my forever friend and life partner of 52 
years, is a professional artist who paints still lives and portraits of 
strangers. She is a lifetime mother and educator as well. Our son, 
Chris, is a partner at MSD Capital, and a U.S. Army veteran who served 
as a Tank Platoon Leader in the First Armored Division. His wife, 
Catherine, is a Developmental Pediatrician and Neonatologist. They have 
two children, and live in New York City. Our daughter, Sarah Checcone, 
is the mother of four. She is a lawyer and the founder and leader of 
Post-Partum Society of Florida helping mothers suffering with post-
partum depression. Her husband, Mark, is a Facial Plastics Surgeon, and 
they live in Sarasota.
    I would also like to recognize Roy Woodall, Independent Member of 
FSOC and former Kentucky Insurance Commissioner, and our good friend, 
Lee Covington, former Ohio Insurance Commissioner.
    I grew up in North Central Ohio--two miles from the Leesville Rural 
School that I attended. My father had a small Chevrolet dealership, and 
my mother worked as a mother, secretary, and bookkeeper. My sister, 
Elaine, and I both graduated from The Ohio State University. After law 
school there, I served nearly 4 years as a Captain in the U.S. Army 
Judge Advocate General's Corps. Then I returned to Columbus to practice 
law at Bricker & Eckler, the firm founded by John W. Bricker, the 
three-term Governor and two-term United States Senator from Ohio. With 
my office next to his for many years, I am sure he would be delighted 
that I am before you today.
    The first question I was asked at the firm was--would I do some 
insurance work? I spent the next 26 years doing insurance regulatory, 
legislative, and business-related work including formation, licensing, 
admission, sale, acquisition, rehabilitation, liquidation, reserving, 
State taxation, agent licensing, governance, underwriting, claims, 
admitted and non-admitted assets, and more. I also represented the 
Association of Ohio Life Insurance Companies, and developed the firm's 
insurance law practice.
    I served on the Board of the Ohio Farmers Insurance Company for 24 
years. Formed in 1848, it is a leading, midwestern, multi-line 
property/casualty insurance company. I chaired the Governance & 
Nominating Committee, served on the Compensation Committee, and twice 
served on the Committee to select a CEO.
    In 1999, I was recruited to become President & CEO of the Life 
Insurance Council of New York. For the next 17 years, I was involved in 
nearly all regulatory and legislative issues related to life insurers 
in New York State, and to a large degree, nationally.
    With 43 years of working with insurers, regulators and legislators 
in New York, Ohio, and other States, I have, in effect, prepared to be 
the FSOC Independent Member with Insurance Expertise all my life. I 
know insurance, and how vital it is to families and businesses and to 
our economy. I have great respect for insurers, and the regulators and 
legislators who wrestle with insurance issues. They share the same 
objectives--to assure promises are kept and customers are treated 
fairly.
    The purposes of FSOC are to identify risks to the stability of the 
U.S. economy, to promote market discipline, and to respond to emerging 
threats. The Independent Member exists to make sure someone with 
substantial insurance knowledge takes part in FSOC deliberations 
affecting insurers and insureds. I am grateful for the support of Roy 
Woodall and I aspire to perform this duty as masterfully as he has.
    I would greatly appreciate this opportunity. If confirmed, I would 
be dedicated to the highest level of honorable, public service.
    Thank you, Mr. Chairman, Ranking Member Brown, and Members of the 
Committee. I look forward to answering any questions you may have.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

  RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN FROM JELENA 
                           McWILLIAMS

Q.1. The FDIC has a responsibility to protect the Deposit 
Insurance Fund (DIF) and has continuous examination authority 
for insured depository institutions with more than $100 billion 
in assets. With that mandate and responsibility in mind, do you 
think that leverage requirements for banks with over $250 
billion in consolidated assets should be lowered in the future, 
versus current requirements? To revisit a question I posed at 
your nomination hearing, how did large bank and investment bank 
leverage contribute to the 2008 financial crisis?

A.1. At the hearing you asked whether I agree that ``a central 
cause of the 2008 crisis was too much leverage at the largest 
banks and a failure of risk-weighted capital standards.'' The 
2008 financial crisis traces its roots to a myriad of causes 
that created a chain of events which essentially led to the 
financial crisis. Bank leverage is certainly one of the factors 
that contributed to the crisis.\1\ The leverage requirements at 
banks with consolidated assets above $250 billion should not be 
viewed in a vacuum but in conjunction with capital and 
liquidity requirements, and other safety and soundness 
mechanisms already at the disposal of regulators.
---------------------------------------------------------------------------
    \1\ As noted in ``The Financial Crisis Inquiry Report: Final Report 
of the National Commission on the Causes of the Financial and Economic 
Crisis in the United States'' (i.e., ``The Commission concludes that 
the collapse of the housing bubble began the chain of events that led 
to the financial crisis. High leverage, inadequate capital, and short-
term funding made many financial institutions extraordinarily 
vulnerable to the downturn in the market in 2007.''). See p. 230 at 
https://www.gpo.gov/fdsys/pkg/GPO-FCIC/content-detail.html.
---------------------------------------------------------------------------
    If confirmed, I will monitor bank leverage and will work 
with the FDIC staff to understand what has been done in this 
area, what conclusions have been drawn by agency staff, what 
requirements are necessary to protect the safety and soundness 
of our financial system while reducing systemic risk, and learn 
what relevant knowledge can be gained through the public 
comment process.

Q.2. Last November, FDIC Chair Gruenberg cautioned that ``the 
seeds of banking crises are sown by the decisions banks and 
bank policymakers make when they have maximum confidence that 
the horizon is clear.''\2\ Bank profits are at a record high, 
the tax bill just put billions in the coffers of the financial 
services industry, and policymakers in Congress and in the 
Administration are again trying to relax the rules for the 
banking industry. Do you agree with Chair Gruenberg that crises 
are built by many small decisions made in good times?
---------------------------------------------------------------------------
    \2\ https://www.brookings.edu/wp-content/uploads/2017/11/
es_20171114_fdic_transcript.
pdf.

A.2. Financial crises trace their roots to a myriad of causes, 
including decisions made by regulators and financial 
institutions in good times and bad. Banks and financial 
institutions are currently well capitalized. However, the 
fundamental factor in preventing another crisis is a balanced 
approach to prudential regulation and safety and soundness, 
while ensuring that financial products and services are widely 
available. If confirmed, I will continue to maintain a strong 
---------------------------------------------------------------------------
FDIC by ensuring that banks operate in a safe and sound manner.

Q.3. Since 2013, the FDIC has had protections in place to 
prevent banks from offering abusive ``deposit advance 
products'' that are similar to payday loans. Keith Noreika, 
while at the OCC, rolled back those rules for banks regulated 
by the OCC. And OMB Director Mulvaney is undoing the CFPB's 
payday lending rules and ending enforcement actions against 
abusive lenders. Should banks be able to push people into short 
term loans with high fees? If confirmed, will the FDIC revisit 
its guidance to regulated entities regarding deposit advance 
products?

A.3. No customer should be ``pushed'' or forced into any 
financial product, regardless of whether it is short- or long-
term, high- or low-cost. If confirmed, I intend to review 
FDIC's regulations and guidance, including in the consumer 
protection area. It is worth noting that, as the primary 
regulator for consumer financial issues, the CFPB's rulemaking 
would be the controlling legal authority for oversight of these 
products.

Q.4. The single costliest failure for the DIF was a large 
regional bank--IndyMac. As you know, community banks end up 
picking up the tab with higher insurance premiums when these 
big regional banks go down. Under the Chairman Crapo's bill, S. 
2155, the Federal Reserve would decide which banks more than 
$100 billion but less than $250 billion in consolidated assets 
would still be subject to strict oversight under Dodd-Frank's 
Section 165 regime. Are you confident that you can trust the 
Federal Reserve to decide which banks with between $100 billion 
and $250 billion in consolidated assets are risky enough to 
warrant subjecting them to Section 165 of Dodd-Frank? Are you 
sure that the FDIC won't be on the hook for a large regional 
bank failure? Do you think the FDIC should have joint authority 
with the Federal Reserve under S. 2155 to decide who escapes 
stricter requirements?

A.4. Congress enacted section 165 as part of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (Dodd-Frank 
Act). At the time, Congress chose to vest with the Board of 
Governors of the Federal Reserve System (FRB) sole authority 
for applying enhanced prudential standards for bank holding 
companies (BHCs) with consolidated assets equal or greater than 
$50 billion in section 165.\3\ Congress granted similar 
authority to the FRB for nonbank financial companies supervised 
by the FRB and recommended for enhanced prudential standards by 
the Financial Stability Oversight Council (FSOC) under section 
115.
---------------------------------------------------------------------------
    \3\ According to the Senate Banking Committee Majority Staff Report 
accompanying Dodd-Frank Act: ``To narrow the focus of the Federal 
Reserve to its core functions, the bill strips it of its consumer 
protection functions, and its role in supervising a relatively small 
number of State banks, as well as smaller bank holding companies. 
However, the Committee was persuaded that because of the Federal 
Reserve's expertise and its other unique functions, it should play an 
expanded role in maintaining financial stability. Thus, Title III 
assigns the Federal Reserve the responsibility for the supervision of 
bank and thrift holding companies with assets over $50 billion. (Other 
aspects of the bill that address financial stability enhance the 
Federal Reserve's oversight of systemically important payment systems, 
direct the Federal Reserve to apply heightened prudential standards to 
large bank holding companies, and give the Federal Reserve supervisory 
responsibilities over designated nonbank financial companies.)'' See p. 
28 at https://www.congress.gov/111/crpt/srpt176/CRPT-111srpt176.pdf.
---------------------------------------------------------------------------
    In enacting the Dodd-Frank Act, Congress chose not to 
extend to the FDIC joint authority on enhanced prudential 
standards, outside of the recommendation process of the FSOC 
under section 115 and with respect to the resolution plans 
(i.e., if the FRB and the FDIC jointly determine that the 
resolution plan of a company is not credible and would not 
facilitate an orderly resolution under the bankruptcy code, 
such company would have to resubmit resolution plans to correct 
deficiencies). Congress entrusted the FRB with the formulation 
and imposition of enhanced prudential standards for banks with 
consolidated assets above $50 billion and certain nonbanks, and 
furthermore chose not to grant joint authority to the FDIC in 
this area. Should Congress choose to amend the law in this 
area, it will be my duty, if confirmed, to fulfil FDIC's 
statutory mandate, in its current form or however it may be 
revised.

Q.5. In response to Senator Toomey's comments at your 
nomination hearing, you said that ``regulatory burden plays a 
key component of the consolidation in the community banking 
industry.'' A 2014 study by Federal Reserve economists found 
that, ``even without any regulatory changes following the 
financial crisis, the weak economy and low interest rate 
environment would have caused 75 to 80 percent of the current 
decline in new charters.''\4\ Please describe the relative role 
played by interest rates, macroeconomic conditions, regulatory 
requirements and other factors in terms of the trend in 
community bank consolidation and the decline in de novo 
community bank charters.
---------------------------------------------------------------------------
    \4\ https://www.federalreserve.gov/econresdata/feds/2014/files/
2014113pap.pdf.

A.5. The 2014 Federal Reserve study largely focused on the 
impact historically low interest rates have had as a barrier to 
de novo bank entry. Indeed, the net interest margin is an 
important indicator for the entry of new bank applicants. 
Similarly, a robust economy is nearly equally a factor in the 
creation of new banks. However, these two factors alone would 
not explain the current lack of new bank applications given we 
have over 100 months of consecutive economic growth with 
interest rates steadily increasing above the historic post-
crisis lows.
    The Federal Reserve Bank of Richmond issued an economic 
brief in 2015 indicating that regulatory activity may play a 
role in declining new bank entry particularly if ``de novos are 
absent due to the low interest rate environment and weak 
economic recovery, then entry should increase as the economy 
improves and the Fed raises interest rates. If regulatory costs 
are the driving force behind low entry rates, then future entry 
will depend on how those costs change over time.'' Given we are 
now in a lengthy, sustained economic recovery with interest 
rates continuing to rise off historic lows, the continued lack 
of de novo applications would support the theory of regulation 
impacting the entry of new de novo bank applications.

Q.6. In response to a question from Senator Heller about 
whether you will encourage new applications for industrial loan 
companies (ILC), you said that you will ``make sure that the 
FDIC moves swiftly in due consideration'' of ILC applications, 
and that ``if that encourages more applicants to send the 
applications in, then I guess my answer is yes.'' In recent 
years, financial technology firms have rapidly expanded their 
presence and products in the financial system. This growth 
occurred largely after the financial crisis and the pre- and 
post-crisis moratoria on ILCs imposed by the FDIC and Congress. 
Some fintech companies are now seeking an ILC charter.

Q.6.a. What additional prudential and consumer protection 
requirements, if any, would you consider as part of the 
approval process of an ILC application from a fintech company?

A.6.a. ILCs are unique entities as State-chartered financial 
companies that are supervised by the FDIC and covered by the 
DIF. As the prudential regulator of ILCs, the FDIC currently 
applies significant prudential and consumer protections as part 
of the supervisory process to oversee safety and soundness. I 
would like to understand what work the FDIC staff has done in 
this area to date, specifically with respect to prudential and 
consumer protection requirement imposed on existing ILCs and 
what prudential and consumer protection issues should be 
addressed if the nature and scope of ILCs changes over time. If 
confirmed, I will continue to apply these supervisory 
authorities and examine whether changes are necessary to ensure 
the safety and soundness of ILCs on a going forward basis while 
maintaining the need for consumer protection.

Q.6.b. For purposes of compliance with the Community 
Reinvestment Act, would you review the lending activities of 
all affiliates and subsidiaries of a proposed fintech ILC's 
parent company, or just the activities of the ILC?

A.6.b. ILCs are subject to the Community Reinvestment Act which 
requires a review of the ILC and not all the affiliates or the 
subsidiaries of the parent. However, should the parent company 
undertake activities that call into question the safety and 
soundness of the ILC or its impact on the DIF, it could warrant 
a broader review by the FDIC outside of the CRA.

Q.6.c. Are you concerned that approving new ILC charters could 
weaken the separation between banking and commerce by allowing 
the intermingling of banking activities with nonbanking 
activities that are currently impermissible under other bank 
charters?

A.6.c. ILCs are uniquely structured compared to traditional 
bank charters and allow the parent company to undertake 
additional activities not traditionally authorized by BHCs or 
national associations. This has largely occurred because of the 
limited nature and number of ILCs. It is worth noting that ILCs 
are subject to the restrictions imposed on banks by the Volcker 
rule (i.e., the regulators did not exclude industrial companies 
with FDIC-insured depository institution subsidiaries). Should 
we experience a dramatic uptick in new ILC applications, due 
consideration would be necessary to determine why the increased 
volume of activity and whether additional safeguards are 
necessary to properly manage and minimize the risk posed.
                                ------                                


  RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT FROM JELENA 
                           McWILLIAMS

Q.1. Ms. McWilliams, here's a recent Wall Street Journal 
headline: ``As Black-Owned Banks Struggle, a Community Sounds 
the Alarm.'' Quote, ``Fewer banks serving low-income, minority 
groups could expand `financial deserts'--communities with few 
or no banking institutions.'' Tax reform included my 
legislation, the Investing in Opportunity Act, to encourage 
business formation in economically distressed communities. But 
these small business owners are going to need a hand every once 
in a while to meet payroll or stock inventory. That's why the 
disappearance of minority-owned banks is so concerning. These 
lenders are a part of their communities and know their 
customers well. A perfect example is South Carolina Community 
Bank in Columbia. Please answer the following with specificity:

Q.1.a. Are FDIC examiners attuned to the challenges facing 
these banks? What will you do as Chair to make sure?

A.1.a. At this time, since I have not been privy to FDIC 
examiners' work first-hand, I am unable to adequately respond 
to your questions whether FDIC examiners are attuned to these 
challenges. If confirmed, I will ensure that FDIC examiners 
fully understand and are prepared to appropriately address 
these challenges and look forward to working with your office 
on any technical assistance your office may seek on these 
issues.

Q.1.b. Will you commit to updating my office on the FDIC's 
dealings with South Carolina Community Bank?

A.1.b. Yes.
                                ------                                


 RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS FROM JELENA 
                           McWILLIAMS

Q.1. The regulation establishing what is considered a brokered 
deposit is now 26-years old, and is not cognizant of the way 
most Americans today open deposits with banking organizations. 
The treatment of a deposit as ``brokered'' under the regulation 
is consequential for banks.
    Would you be willing to re-examine the regulations 
involving brokered deposits in light of the structure of 
deposit markets today?

A.1. Yes.

Q.2. One of the most important strengths of the FDIC is the 
ability to maintain customers' access to their insured deposits 
in the event of the failure of their bank. A few years ago, the 
FDIC proposed changes to its approach to resolving banks with a 
large number of insured deposits accounts. In practice, 
however, there is concern that the implementation of the new 
rules are far more complicated than necessary.
    Would you be willing to take a fresh look at relevant 
regulations and corresponding implementation issues to see if 
they can be improved?

A.2. Yes.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM JELENA 
                           McWILLIAMS

Q.1.a. It's been more than 4 months since Hurricane Maria hit 
Puerto Rico, and a third of the island of Puerto Rico remains 
without power and nearly 10 percent of the island's residents 
still have no access to clean water. If that wasn't bad enough, 
the island is on the verge of a potential foreclosure crisis, 
with approximately one third of the island's homeowners behind 
on their mortgage payments.
    What steps can the FDIC take, pursuant to its safety and 
soundness responsibilities, to encourage banks to impose or 
extend a foreclosure moratorium and to extend or modify loan 
terms for borrowers in distress due to the Hurricane?

A.1.a. The FDIC has at its disposal a number of safety and 
soundness statutory mandates while most of its consumer 
protection authorities have transferred over to the CFPB 
pursuant to the Dodd-Frank Act. In addition, certain accounting 
rules govern how banks have to treat asset categories deemed 
nonperforming. While at this time I have not been privy to any 
internal work the FDIC might have done in this specific area, 
if confirmed, I will work with the FDIC staff to understand 
what options are available to the agency to assist borrowers in 
distress due to the Hurricane.

Q.1.b. Will you commit to examining every available option to 
ensure banks are assisting distressed borrowers in Puerto Rico?

A.1.b. Yes.

Q.2. Compensation practices at large financial firms prior to 
the crisis incentivized excessive risk-taking and created a 
business environment with no guard rails where banks played 
fast and loose with the savings and investments of hard-working 
families. Those same families paid the price when the crisis 
hit and they lost their homes to foreclosure and saw their 
savings wiped away in the blink of an eye.
    Congress passed a law requiring the financial regulators to 
prohibit payment practices that encourage inappropriate risk-
taking-understanding that this is a joint rulemaking, can I 
have your commitment that you will follow the law and work to 
finalize the Dodd-Frank Section 956 incentive-based 
compensation rulemaking?

A.2. The Dodd-Frank Act is the law of the land, and the FDIC 
should fulfill its statutory duties under that law whether in 
its current State or as may be amended by Congress. In my 
experience as a regulatory attorney at the Federal Reserve 
Board of Governors, joint rulemakings can take longer to 
prepare and finalize because multiple agencies with varied 
jurisdictions are involved. If confirmed, I will work to fulfil 
FDIC's statutory mandates.
                                ------                                


 RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCHATZ FROM JELENA 
                           McWILLIAMS

Q.1. A common refrain from this Administration is that 
financial regulations are overly costly and burdensome. In 
fact, the Federal Reserve has staffed a new office to conduct 
cost-benefit analyses. However, there is little evidence that 
financial regulations are a drag on the banking industry. On 
the contrary, the facts show that banks are thriving:

   LAccording to FDIC data, banks had record-breaking 
        profits in 2016 and the highest return on equity in 
        years. Data from 2017 shows banks may do even better 
        this year.

   LAcross the board, banks have increased their 
        dividends to shareholders by 17 percent.

   LCommunity banks' earnings have also been 
        increasing--they were up almost 10 percent this quarter 
        compared to last year.

   LHousehold credit, such as home loans, car loans, 
        credit cards, has surpassed prerecession highs.

   LAccording to the Fed, sluggish loan growth in the 
        commercial sector is due to a lack of demand.

Q.1.a. How do regulators account for the benefit of avoiding 
another financial crisis in a cost-benefit analysis?

A.1.a. Regulations are an essential component of our Federal 
regulatory framework for financial institutions. However, as 
many scholars have noted, regulations do pose a burden on 
financial institutions and the economy as a whole. Quite often, 
the regulators are faced with a difficult task to ascertain how 
much a particular regulation will cost the economy versus how 
likely it is to prevent a certain type of conduct, risk, or 
other action that could lead to a crisis. I believe that just 
because that task is difficult does not mean the regulators 
should shy away from it. The best way to ensure that 
regulations strike preventative balance while ensuring that 
financial products and services are available to consumers and 
businesses to grow the economy is by having the regulators 
engage in a meaningful, objective and empirical analysis. The 
balance between regulation and constraints on the economy is 
necessary and, if confirmed, I will work to ensure that proper 
balance is achieved and maintained.

Q.1.b. If banks are making record profits, and the cost of a 
financial crisis is enormous to the whole economy, do you think 
it is appropriate to leave Dodd-Frank financial regulations in 
place?

A.1.b. The proper balance between regulation and market 
economics is important and if confirmed, I will ensure the FDIC 
maintains such balance. The FDIC has a statutory mandate to 
promulgate rules and regulations pursuant to laws passed by 
Congress. The Dodd-Frank Wall Street Reform and Consumer 
Protection Act is the law of the land, and the FDIC should 
fulfill its statutory duties under that law whether in its 
current state or as may be amended by Congress.

Q.1.c. Shouldn't we view the costs of complying with financial 
regulations as banks internalizing the risk of a future 
financial crisis, rather than leaving that risk on taxpayers' 
shoulders?

A.1.c. Taxpayers should not bear the consequences of the 
failure or any financial institution, which is why the DIF is 
funded by financial institutions and shoulders the burdens of 
any failed institution. If confirmed, I will ensure the 
adequate oversight of FDIC-regulated institutions to protect 
the DIF from taxpayer funded bailouts.

Q.2. In 2009, the FDIC completed a pilot program on small 
dollar lending demonstrating that banks can profitably offer 
affordable small-dollar loans as an alternative to predatory 
payday loans.

Q.2.a. Do you think the FDIC should continue to provide 
guidance and support to help community banks offer affordable 
small-dollar loans?

A.2.a. The FDIC's pilot program predated the enactment of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act which 
transferred 17 consumer protection statutes to the CFPB while 
granting the CFPB additional authority in Title X of that act. 
Pursuant to the Dodd-Frank Act, banks with more than $10 
billion in assets have the CFPB as its primary regulator for 
consumer protection, whereas safety and soundness regulation 
continues to be performed by the prudential regulator. For 
banks with $10 billion or less in assets, the rulemaking, 
supervisory, and enforcement authorities for consumer 
protection are divided between the CFPB and the prudential 
regulators.
    If confirmed, I intend to review FDIC's regulations and 
guidance, including in the consumer protection area.

Q.2.b. If so, will you commit to working with my staff and me 
to expand the FDIC's work in this area?

A.2.b. Given the Dodd-Frank Act's consolidation and transfer of 
consumer protection statutes to the CFPB, I would have to defer 
to the CFPB for general matters of consumer regulation. The 
FDIC's work in this area should not contradict what has been 
done by the CFPB in order to ensure regulatory consistency and 
provide certainty to market participants and consumers alike. 
If confirmed, I stand ready to offer any technical assistance 
your office may seek on this and related consumer protection 
issues, recognizing the CFPB's role in this space.
                                ------                                


  RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM 
                       JELENA McWILLIAMS

Q.1. The Financial CHOICE Act, (H.R. 10), which passed the 
House on a partisan vote, would subject the Federal Deposit 
Insurance Corporation to the congressional appropriations 
process.
    In your view, how would relying on congressional 
appropriations impact the FDIC's ability to supervise 4,000 
financial banks?

A.1. The FDIC receives no congressional appropriations--it is 
funded by premiums that banks and thrift institutions pay for 
deposit insurance coverage and from earnings on investments in 
U.S. Treasury securities. The FDIC is not unique in this 
respect as other Federal financial regulators are afforded a 
unique position in the Federal budget and appropriations 
process by funding operations outside of the congressional 
appropriations process. This design has allowed the FDIC and 
other Federal financial regulators to operate independent from 
Congress.
    Adequate resources are necessary for the FDIC, and other 
financial regulators, to ensure appropriate staffing and 
operations. However, this independent financial status should 
be subject to strict oversight and accountability to ensure 
that operations utilize only as many funds as necessary to 
conduct the mission without waste, fraud, or abuse.
    I am not sure how the FDIC's operational status, including 
its supervisory and examination functions, would change if the 
law were passed to subject the FDIC to congressional 
appropriations. If confirmed, I would seek guidance from the 
FDIC staff on the impact of potential congressional 
appropriations on its operations, including supervisory 
functions.

Q.2. Financial institutions have had a great deal of good news 
recently. Financial institutions are making solid profits: $48 
billion in the 3rd Quarter of 2017--5 percent increase from the 
year earlier. Community banks reported $6 billion in net 
income. An increase of 9 percent from the previous year. They 
have higher net income. They are generating more loans. The 
number of unprofitable banks and `problem banks' continued to 
fall. However, there are still market gaps. The home ownership 
rate between whites (73 percent) and African Americans (41 
percent) is worse than it was when the Fair Housing Act was 
enacted in 1968. Only 47 percent of Latinos are homeowners.

Q.2.a. To follow up on our discussion during your confirmation 
hearing, please share some specific ideas for what will you do 
as head of the FDIC to encourage sustainable home ownership for 
Latinos, African Americans and millennials whose access 
continues to lag?

A.2.a. Home ownership continues to be a challenge in certain 
communities following the financial crisis, despite being one 
of the key metrics for financial stability and wealth 
generation. Regulators continue to utilize tools such as the 
CRA and fair lending laws to ensure that access to financial 
products and services is uniform. If confirmed, I would 
continue to utilize these tools to ensure uniform access to 
financial products and services, including home mortgages. 
However, all financial regulators should also continue to 
assess barriers to market entry for home ownership including a 
lack of affordable housing, regulatory requirements that can 
increase the cost of mortgages, the need for robust liquidity 
and capital requirements, and consumers' access to entry level 
products such as FHA and VA mortgages, among others.

Q.2.b. How will you ensure the 4,000 or so financial institutes 
regulated by the FDIC meet their Community Reinvestment Act 
obligations to provide loans and services in all communities in 
which they take deposits?

A.2.b. As I stated in the hearing, the Community Reinvestment 
Act (CRA) is the law of the land and it is the duty of the 
regulatory agencies tasked with its implementation to ensure 
full compliance with the law. The FDIC, like other prudential 
financial regulators, maintains a robust and effective CRA 
program as part of the supervisory process. If confirmed, I 
intend to ensure that all of the 4,000 plus institutions are 
operating safely and soundly while adequately serving their 
markets.

Q.3. Since 2013, the FDIC has had protections in place to 
prevent banks from offering abusive ``deposit advance 
products'' that are similar to payday loans. Keith Noreika, 
while at the OCC, rolled back those rules for banks regulated 
by the OCC. And OMB Director Mulvaney is undoing the CFPB's 
payday lending rules and ending enforcement actions against 
abusive lenders.
    What will you do to enable banks to provide lower-cost 
small dollar loans as alternatives to short-term high-fee 
payday loans?

A.3. If confirmed, I intend to review FDIC's regulations and 
guidance, including in the consumer protection area. It is 
worth noting that, as the primary regulator for consumer 
financial issues, the CFPB's rulemaking would be the 
controlling legal authority for oversight of these products.

Q.4. Last November, FDIC Chair Gruenberg cautioned that, ``the 
seeds of banking crises are sown by the decisions banks and 
bank policymakers make when they have maximum confidence that 
the horizon is clear.'' Bank profits are at a record high, the 
tax bill just put billions in the coffers of financial services 
firms, and policymakers in Congress and in the Administration 
are again pushing deregulation.
    Do you agree with Chair Gruenberg that crises are built by 
many small decisions made in good times?

A.4. Financial crises trace their roots to a myriad of causes, 
including decisions made by regulators and financial 
institutions in good times and bad. Banks and financial 
institutions are currently well capitalized. However, the 
fundamental factor in preventing another crisis is a balanced 
approach to prudential regulation and safety and soundness, 
while ensuring that financial products and services are widely 
available. If confirmed, I will continue to maintain a strong 
FDIC by ensuring that banks operated in a safe and sound 
manner.

Q.5. The FDIC's 2012 community banking study found that bigger 
banks grew faster than smaller banks over the last 30 years, in 
large part because Congress loosened rules and they were able 
to acquire smaller banks. In fact, the number of banks with 
more than $10 billion in assets grew eleven-fold since 1984. 
They now hold more than 80 percent of industry assets.
    Will loosening the rules for large regional banks encourage 
acquisitions that will lead to fewer community banks?

A.5. Industry consolidation continues to be a challenge, 
particularly among community banks. The Dodd-Frank Act and 
subsequent regulations have posed a significant implementation 
challenge for community and mid-sized banking institutions, 
particularly because they lack the size and the economies of 
scale compared to larger financial institutions that can spread 
the cost of compliance over a larger asset base. The key to 
address this incentive for size and the economies of scale is 
to properly calibrate and tailor regulations commensurate to 
the risk of the financial institution. By effectively tailoring 
regulation, the incentives to increase size (by merger or 
otherwise) and scale may be limited.

Q.6. The FDIC's 2012 community banking study noted that the 
worst periods for community bank failures were after periods of 
deregulation and lax oversight from regulators--the S&L crisis 
of the late '80s/early '90s, and the 2008 crisis. Congress and 
regulators are again proposing to pull-back on rules, 
supervision and enforcement.
    Are you concerned that another period of financial 
instability caused by deregulation could create yet another 
wave of community bank failures?

A.6. If confirmed, I will ensure the FDIC maintains a robust 
supervisory and examination process with emphasis on the safety 
and soundness of supervised institutions. A part of this 
mandate is to ensure that community banks can function and 
serve their community in safe and sound manner, while limiting 
the likelihood of their failure.

Q.7. Even as Congress and regulators are in the process of 
undoing Wall Street Reform, a whole host of rulemakings remain 
incomplete. For example, ``source of strength'' requirements to 
protect insured deposits and compensation rules to prevent 
excessive risk-taking.
    If confirmed, is the FDIC under your direction going to 
complete work on these rules?

A.7. If confirmed, I will ensure that the FDIC fulfills its 
statutory requirements and meet its statutory obligations to 
conduct necessary rulemakings.

Q.8. Fifth Third Bank spent $1.6 billion on stock buybacks in 
2017. By contrast, the bank announced that they'll spend around 
$23.6 million on employee raises and bonuses because of the tax 
bill. That's 68 times more spent on buybacks than workers.

Q.8.a. Do you think that stock buybacks are a good use of the 
windfall from the tax bill?

A.8.a. Fifth Third Bank, like other financial institutions 
subject to the Federal Reserve's Comprehensive Capital Analysis 
and Review (CCAR) process, is required by regulation to seek 
prior approval of any stock buyback and/or capital 
distribution. As such, the 2017 stock buybacks were approved by 
the Federal Reserve prior to the passage of the Tax Cuts and 
Jobs Act. Stock buybacks and shareholder distributions that 
occur in the normal course of business are necessary for the 
capital markets to operate efficiently.
    The tax reform legislation has allowed Fifth Third Bank to 
provide additional incentives to employees as part of a 
comprehensive compensation package to share benefits with the 
employees, their families, and the communities it serves. 
Moreover, even before the tax reform legislation, Fifth Third 
Bank has manifested its commitment to the communities it serves 
by committing to lend or invest $30 billion to low- and 
moderate-income (LMI) borrowers and in LMI communities over a 
5-year period from 2016 to 2020.

Q.8.b. Do you think that banks will meaningfully raise pay for 
workers or lower prices for consumers as a result of the tax 
bill?

A.8.b. As has been reported in the media, many banks and 
corporations are passing along some of those tax savings to 
employees and customers through a host of different methods as 
a direct result of the Tax Cuts and Jobs Act.

Q.8.c. Fifth Third has been profitable for a while--the bank 
made over $2 billion in profits over the last four quarters. 
Why did the bank choose now to raise its wages?

A.8.c. The Tax Cuts and Jobs Act provided a unique opportunity 
for Fifth Third to pass along some of those savings directly to 
bank employees.
                                ------                                


  RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN FROM MARVIN 
                           GOODFRIEND

Q.1. Asked by Senator Cortez Masto about your currency-tax 
proposal, you claimed that you ``didn't propose that,'' 
explaining that ``it was an academic paper showing what could 
be done.'' But in an August 2000 Federal Reserve Bank of 
Richmond paper, you wrote: ``I recommend that a central bank 
put in place systems to raise the cost of storing money by 
imposing a carry tax on its monetary liabilities.'' By offering 
a concrete policy recommendation, you engaged in more than an 
abstract academic exploration of ways to overcome the zero 
bound on interest rate policy. Do you still believe that this 
proposal is wise policy? Why or why not?

A.1. I have spent my 40-year career thinking, writing, and 
teaching about issues in the field of economics. On many 
occasions, I have been asked to consider theoretical issues in 
order to contribute to the robust debate among central bankers 
here in the United States and around the world. As an academic-
practitioner at the Federal Reserve Bank of Richmond, I 
presented an academic paper to a Federal Reserve conference in 
1999 to imagine monetary policy options that would be available 
should interest rates hit the zero interest bound. I discussed 
negative interest rate policy and quantitative easing. Indeed, 
economists have been studying various aspects of negative 
interest rates for most of the last century. And today, some 
major central banks abroad have implemented negative interest 
rate policy together with other policy initiatives, including 
quantitative easing. The current focus of U.S. monetary policy 
is on continuing the path of gradually removing accommodation 
as the labor market strengthens and there is continued progress 
toward the 2 percent inflation objective. If confirmed, I would 
be committed to working with my colleagues on the Federal Open 
Market Committee (FOMC) to promote the economic well-being of 
the United States by fostering maximum employment and stable 
prices.

Q.2. Asked by Senator Jones about your views on Fed 
independence, you stated that the Fed ``absolutely needs to be 
independent of politics,'' including with respect to ``monetary 
policy'' and ``financial regulation.'' Asked further whether 
you ``still favor Congress appropriating the budget for the 
Fed,'' you responded, ``I don't favor that.''
    But you are listed as a supporter \1\ of the Financial 
CHOICE Act of 2017,\2\ which includes several provisions that 
would decrease the Fed's independence. For example, section 365 
would bring the nonmonetary-related-functions of the Board of 
Governors into the
appropriations process; section 1001 would constrain the FOMC's 
monetary policy, including through a requirement that the FOMC 
explain to Congress any departure from the Taylor rule; section 
1008 would place additional restrictions on the Fed's section 
13(3) powers; and section 1010 would require a GAO ``audit'' of 
the Fed's monetary policy. Some of these proposals are similar 
to ideas you have advanced in your own writings. In a 2011 
``Shadow Open Market Committee'' paper, you advocated more 
forceful congressional oversight over the Fed, which included 
proposals similar to sections 1001 and 1008.
---------------------------------------------------------------------------
    \1\ https://financialservices.house.gov/news/
documentsingle.aspx?DocumentID=400837.
    \2\ https://www.congress.gov/bill/115th-congress/house-bill/10?r=1.
---------------------------------------------------------------------------
    Accordingly, I would like to clarify your views on Fed 
independence.

   LDo you support section 365 of the Financial CHOICE 
        Act?

   LDo you support sections 1001, 1008, and 1010 of the 
        Financial CHOICE Act? How would these provisions 
        enhance the Fed's independence? Also, how would you 
        envision these provisions working--in practice?

   LDo you stand by the proposals described in your 
        2011 Shadow Open Market Committee paper, 
        ``Congressional Oversight of the Federal Reserve''? How 
        would these provisions enhance the Fed's independence?

   LIf the Fed were faced with the imminent threat of 
        another financial crisis and it determined that the 
        purchase of non-Treasury assets was necessary to stop 
        that crisis or reduce its impact, could a delay in 
        obtaining congressional authorization worsen the 
        crisis?

A.2. The foundational concept of the legislation is that 
financial firms are given a choice to hold higher levels of 
capital in exchange for regulatory relief. That is a general 
principle that I support. Moreover, I strongly support efforts 
to further tailor regulations so that they are appropriate for 
the size, complexity, and risk of individual institutions, 
particularly community banks. If confirmed, I would work with 
Congress and my colleagues at the Federal Reserve Board (Board) 
and the other Federal banking agencies to ensure that the 
regulatory and supervisory frameworks promote sustainable 
credit availability and economic growth.
    Throughout my career, both within the Federal Reserve and 
in academia, I have been a strong supporter of the independence 
of the Federal Reserve. As I noted in my hearing, the Federal 
Reserve must remain insulated from political influences so that 
it can effectively conduct monetary policy in support of the 
dual mandate and promote a safe and sound financial system 
through its regulatory and supervisory responsibilities. 
Subjecting the Federal Reserve to appropriations would make the 
conduct of monetary policy and regulatory and supervisory 
policy vulnerable to political influence. At the same time, the 
Federal Reserve is accountable to the Congress and the American 
people. If confirmed, I would work with my colleagues on the 
Board and the FOMC to further enhance the transparency of the 
Federal Reserve.

Q.3. Asked by Senator Reed about your view of the Orderly 
Liquidation Authority (OLA), you testified that you ``agree 
with Governor Powell's statement.'' Governor Powell had stated: 
``There may come a time when a bankruptcy is not going to work 
in a very stressful situation that really threatens the 
economic health of the country just like what happened in 2007, 
2008, and 2009. And in that case we really will need a backup 
in the form of something like Orderly Liquidation Authority.'' 
But you elaborated that you believe the OLA ``deserves . . . 
reconsideration,'' referring to ``lack of clarity and 
boundaries'' during the last crisis. You further explained that 
it would be important to make sure the OLA ``works in 
practice,'' and check whether it has enough clarity and 
boundaries to ensure ``accountability.'' Asked further whether 
any further ``look'' would be to ensure that it works in 
practice rather than ``abandoned,'' you responded that you 
``have no predilections one way or the other.'' This comment, 
which implies that you do not have a view as to whether the OLA 
should exist, is inconsistent with your support of the 
Financial CHOICE Act of 2017, which would repeal the OLA. 
Accordingly, I would like to clarify your views on the OLA.

   LDo you believe that Congress should repeal the OLA? 
        Why or why not?

   LIf confirmed, would you support the use of the OLA 
        in a situation where bankruptcy is not a practicable 
        alternative? Why or why not?

   LHow would a bankruptcy-oriented resolution system 
        work in practice for large, systemically important 
        financial institutions?

   LHow would a large, systemically important financial 
        institution obtain debtor-in-possession financing from 
        the private markets in a bankruptcy-oriented resolution 
        system in time to stop a widespread financial crisis?

A.3. I agree with many experts in this area that bankruptcy 
should be the preferred route for resolving a failing financial 
company. However, a key lesson of the recent crisis was that 
the Government needed a better way to deal with the failure of 
a large financial firm, and in response, Congress created the 
Orderly Liquidation Authority (OLA). If confirmed, I would 
certainly consider whether the circumstances of any impending 
failure of a systemically important financial company warranted 
resolution under the current OLA rather than the Bankruptcy 
Code. As a matter of principle, clarity in the boundary of 
responsibilities around the resolution process is critically 
important; it must be in place beforehand, so that parties can 
be accountable for their role in a future crisis. I am aware 
that Members of Congress are examining this authority. If 
confirmed, I look forward to studying the issue and helping 
Congress in any way that I can.
                                ------                                


 RESPONSE TO WRITTEN QUESTION OF SENATOR MENENDEZ FROM MARVIN 
                           GOODFRIEND

Q.1. Compensation practices at large financial firms prior to 
the crisis incentivized excessive risk-taking and created a 
business environment with no guard rails where banks played 
fast and loose with the savings and investments of hard-working 
families. Those same families paid the price when the crisis 
hit and they lost their homes to foreclosure and saw their 
savings wiped away in the blink of an eye.
    Congress passed a law requiring the financial regulators to 
prohibit payment practices that encourage inappropriate risk-
taking-understanding that this is a joint rulemaking, can I 
have your commitment that you will follow the law and work to 
finalize the Dodd-Frank Section 956 incentive-based 
compensation rulemaking?

A.1. Incentive compensation is an important tool in successful 
management of financial institutions and is critical to 
attracting qualified employees and executives. However, 
improperly structured incentive-based compensation arrangements 
may encourage inappropriate risk-taking at financial 
institutions. If confirmed, I look forward to engaging with 
Federal Reserve Board members and staff to better understand 
the impact of incentive compensation practices on the safety 
and soundness of financial institutions.
                                ------                                


 RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER FROM MARVIN 
                           GOODFRIEND

Fed Balance Sheet
Q.1. The FOMC has begun to normalize the Fed balance sheet. At 
the same time, the European Central Bank has signaled that its 
support of the European government bond market will eventually 
decrease.

   LDo you think that the resulting material drop in 
        Fed demand for longer-dated Treasuries and agency debt, 
        when combined with the expectations of a significant 
        drop in European Central Bank demand for long-dated 
        European government debt securities due to ECB 
        tapering, will result in a global oversupply of long-
        dated Government paper that could significantly push up 
        U.S. bond rates?

   LHave you been able to quantify how much you think 
        long-end U.S. rates could move up if there is an 
        overlap in ECB and Fed balance sheet normalization?

   LAs a result, do you think there could be a 
        significant negative effect on U.S. mortgage rates? 
        Housing is an area of the economy that still has room 
        to grow compared to historic norms.

A.1. Last year, the Federal Reserve initiated a plan it 
described as normalizing the size of its balance sheet. Under 
the plan, the Federal Reserve stated that it would scale back 
the extent to which it reinvests principal payments on its 
existing securities holdings. As a result, the balance sheet 
will gradually decline over a period of several years. A number 
of studies have suggested that this process could put some 
modest upward pressure on longer-term rates over time. That 
said, many analysts have projected that longer-term interest 
rates, both here and abroad, will remain quite low for many 
years to come. If confirmed, analyzing and understanding the 
Federal Reserve's expectations of the effect of balance sheet 
normalization will be one of my first priorities. I would also 
look forward to working with you and continue to discuss any 
questions or concerns that you might have in this area.
Monetary Policy
Q.2. You have been an advocate for more rules-based approach to 
monetary policy and have criticized the Fed for increasing 
uncertainty in the markets.

Q.2.a. How do you think rules-based monetary policy, like the 
Taylor Rule, would have affected the U.S. economy over the last 
decade during and since the crisis?

A.2.a. Policy rules, such as the Taylor rule, provide a 
mechanical link between the setting of the Federal funds rate 
and a small number of economic variables, such as the inflation 
rate and an estimate of resource slack in the economy. Such 
rules embody several key principles of good monetary policy, 
and the Federal Open Market Committee (FOMC) routinely reviews 
policy recommendations from a variety of benchmark rules. Such 
policy rules have provided a useful ``focal point'' around 
which current policy actions can be compared and justified 
against historical circumstances, and in fact have served this 
purpose during the past decade. However, while policy rules can 
provide useful guidance, their use requires careful judgments 
about the measurement of their inputs and the many 
considerations that such rules do not take into account. If 
confirmed, I would look forward to working with my colleagues 
on the FOMC to promote policies that would further increase 
transparency and accountability at the Federal Reserve, by 
giving policy rules more prominence in its communications, 
including a more robust discussion of the use of rules to guide 
the conduct of monetary policy.

Q.2.b. What do you believe is the purpose of the Fed's dual 
mandate of targeting inflation and employment? Are you 
committed to targeting not just inflation but ensuring full 
employment level in the United States?

A.2.b. Congress set forth the mandate for monetary policy in 
the Federal Reserve Act, which directs the Federal Reserve to 
conduct monetary policy so as to promote maximum employment and 
stable prices. If confirmed, I would be fully committed to 
pursuing the goals that Congress has given to the Federal 
Reserve. Both objectives of the dual mandate are critical in 
promoting the economic well-being of the United States. 
Economic models have shown that monetary policy that is 
directed at minimizing deviations of employment from longer-run 
normal levels and inflation from a low target rate tends to be 
in the best interest of households and businesses over time. As 
noted in the FOMC's Statement of Longer-Run Goals and Monetary 
Policy Strategy, the Federal Reserve's statutory objectives are 
generally complementary. Recent history provides an example of 
how the Federal Reserve's commitment to anchoring long-run 
inflation and inflation expectations enables the Federal 
Reserve to maintain an accommodative policy until the 
unemployment rate can be brought down to the vicinity of full 
employment.

Q.2.c. Given that the U.S. economy is running above potential, 
would you expect any short-term stimulative effect of the tax 
proposals will contribute to inflation?

A.2.c. If confirmed, my role as a Member of the FOMC would be 
to fulfill the Federal Reserve's mandate of maximum employment 
and price stability. Fiscal policy can certainly affect the 
economic outlook that FOMC Members consider in setting monetary 
policy. However, it is one of many considerations. If 
confirmed, I would certainly be mindful of any factors, 
including fiscal policy, that might affect the economic 
outlook.

Q.2.d. Do you believe that the Dodd-Frank Title II Orderly 
Liquidation Authority should be preserved and used in 
circumstances in which bankruptcy is inadequate to address the 
failure of a large financial institution?

A.2.d. I agree with many experts in this area that bankruptcy 
should be the preferred route for resolving a failing financial 
company. However, a key lesson of the recent crisis was that 
the Government needed a better way to deal with the failure of 
a large
financial firm, and in response, Congress created the Orderly 
Liquidation Authority (OLA). If confirmed, I would certainly 
consider whether the circumstances of any impending failure of 
a systemically important financial company warranted resolution 
under the current OLA rather than the Bankruptcy Code. As a 
matter of principle, clarity in the boundary of 
responsibilities around the resolution process is critically 
important; it must be in place beforehand, so that parties can 
be accountable for their role in a future crisis. I am aware 
that Members of Congress are examining this authority. If 
confirmed, I look forward to studying the issue and helping 
Congress in any way that I can.
                                ------                                


 RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCHATZ FROM MARVIN 
                           GOODFRIEND

Q.1. A common refrain from this Administration is that 
financial regulations are overly costly and burdensome. In 
fact, the Federal Reserve has staffed a new office to conduct 
cost-benefit analyses. However, there is little evidence that 
financial regulations are a drag on the banking industry. On 
the contrary, the facts show that banks are thriving:

   LAccording to FDIC data, banks had record-breaking 
        profits in 2016 and the highest return on equity in 
        years. Data from 2017 shows banks may do even better 
        this year.

   LAcross the board, banks have increased their 
        dividends to shareholders by 17 percent.

   LCommunity banks' earnings have also been 
        increasing--they were up almost 10 percent this quarter 
        compared to last year.

   LHousehold credit, such as home loans, car loans, 
        credit cards, has surpassed prerecession highs.

   LAccording to the Fed, sluggish loan growth in the 
        commercial sector is due to a lack of demand.

Q.1.a. How should the Federal Reserve account for the benefit 
of avoiding another financial crisis in conducting cost-benefit 
analyses of financial regulation?

Q.1.b. If banks are making record profits and the cost of a 
financial crisis is enormous to the whole economy, do you think 
it is appropriate to leave Dodd-Frank financial regulations in 
place?

Q.1.c. Should we view the costs of complying with financial 
regulations as banks internalizing the risk of a future 
financial crisis, rather than leaving that risk on taxpayers' 
shoulders?

A.1.a.-c. I understand the Federal Reserve generally takes 
costs and benefits into consideration in developing its rules. 
I also understand that the Federal Reserve has established a 
unit to focus on cost-benefit analysis for significant 
rulemakings, which I believe will be a helpful step in the 
rulemaking process. In response to the financial crisis, over 
the past several years, a number of important changes to 
regulation and supervision have been put in place to improve 
the resiliency of financial firms and the banking system and to 
address the weaknesses that contributed to the crisis, as well 
as enhance the ability of financial firms to withstand economic 
downturns. As possible changes to the post-crisis structure of 
regulation and supervision are considered, I agree with the 
Federal Reserve's stated goals of better tailoring supervision 
and regulation to be more efficient while maintaining the 
resilience of the financial system. If confirmed, I look 
forward to working with my colleagues on the Federal Reserve 
Board in these efforts.
                                ------                                


  RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM 
                       MARVIN GOODFRIEND

The Financial Choice Act (H.R. 10)
Q.1. Your support for the Financial CHOICE Act of 2017, (H.R. 
10) concerns me. H.R. 10 repeals many of the Dodd-Frank 
protections surrounding systemically important financial 
institutions. The bill allow banks to elect a simple leverage 
ratio instead of risk-weighted capital requirements. It adds 
impediments to enforcement (in the name of ``due process 
rights'' which would allow banks to avoid accountability for 
fraud or deceptive practices. It repeals the Orderly 
Liquidation Authority in favor of less practical bankruptcy 
provisions. It requires congressional approval before any major 
financial regulation can take effect restricting the Fed's 
ability to respond nimbly to markets. Section 1001 would 
constrain the FOMC's monetary policy, including through a 
requirement that the FOMC explain any departure from the Taylor 
rule; and section 1008 would place additional restrictions on 
the Federal Reserve's section 13(3) powers. It converts the 
Consumer Financial Protection Bureau, Office of the Comptroller 
of the Currency, and the Federal Housing Finance Agency into 
bipartisan commissions more likely to slow actions, and 
requires the Fed to describe its monetary policy in a more 
detailed, rule-like manner.
    Which of those provisions do you support and why? Which do 
you oppose and why?

A.1. The foundational concept of the legislation is that 
financial films are given a choice to hold higher levels of 
capital in exchange for regulatory relief. That is a general 
principle that I support. Moreover, I support efforts to 
further tailor regulations so that they better take into 
account factors such as the size, complexity, and risk profile 
of individual institutions, particularly community banks. If 
confirmed, I would work with Congress and my colleagues at the 
Federal Reserve Board (Board) and the other Federal banking 
agencies to ensure that the regulatory and supervisory 
frameworks promote sustainable credit availability and economic 
growth as well the safety and soundness of supervised 
institutions.

Q.2. Despite your comments during the hearing supporting the 
dual mandate and your statement that you ``regret'' saying it 
was ``incoherent,'' you are well known for opposing the Federal 
Reserve's obligation to reduce unemployment. Extensive evidence 
strongly support the benefits of having our Nation's Central 
Bank place weight on both sides of its mandate--full employment 
and low inflation--resulted in lower unemployment, stronger 
wage growth, tighter labor markets, and reduced racial economic 
disparities.
    Please explain your current views regarding the Federal 
Reserve's full employment mandate. Please note your 
understanding of the civil rights history of the full 
employment mandate to create an economy where anyone who wants 
employment can find it.

A.2. Congress established the Federal Reserve more than a 
century ago to provide a safer and more flexible monetary and 
financial system. Nearly 40 years ago, Congress directed the 
Federal Reserve to conduct monetary policy to foster a dual 
mandate of maximizing employment and maintaining price 
stability. As you indicated, the maximum employment mandate 
means all people who want to work either have a job or are 
likely to find one fairly quickly. The goal of the price 
stability requirement is to keep inflation low and stable 
enough that it does not figure into households' and businesses' 
economic decisions. Both objectives of the dual mandate are 
critical in promoting the economic well-being of the United 
States. As noted in the Federal Open Market Committee's (FOMC) 
Statement of Longer-Run Goals and Monetary Policy Strategy, the 
maximum level of employment is not directly measurable and may 
change over time. However, maintaining full employment is 
important in promoting price stability over time and vice 
versa. If confirmed I would be fully committed to pursuing the 
goals that Congress has given to the Federal Reserve.

Q.3. In 2012, you told Bloomberg that ``it is really doubtful 
whether or not the Fed could achieve 7 percent [unemployment.] 
. . . Even if the Fed did succeed by Herculean task getting the 
unemployment rate down to 7 percent, we could never be sure 
whether that unemployment rate was below what we call the 
natural rate, in which case it would give rise to a rising 
inflation rate in the next few years, which would be disastrous 
for the economy.'' You made similar remarks to the Wall Street 
Journal in July of 2011 saying that the Federal Reserve should 
prioritize inflation over unemployment. During that time 
period, the unemployment rate in Nevada was 12.9 percent--the 
highest in the country. In your subsequent writings, you 
continue to urge Congress to eliminate the Federal Reserve's 
full employment mandate. For example, in July of 2011, you told 
the Wall Street Journal that the Federal Reserve should 
prioritize inflation over unemployment. In today's labor market 
with 4 percent unemployment, we are finally starting to see
improvements in the labor force participation rate, and the job 
market is finally starting to draw in less skilled workers. If 
the Fed had followed your guidance, they would have begun 
raising interest rates long before the recovery had a chance to 
reach these communities.
    Why were you so repeatedly wrong about the ability of the 
Federal Reserve to increase employment and manage inflation in 
the aftermath of the Financial Crisis?
    What have you learned from your miscalculation and how 
would you respond to future recessions based on your error? 
Specifically, what benefits do you see to a tight labor market?

A.3. I have been surprised by the absence of inflation in the 
years following the Great Recession. Economists are divided to 
this day about the explanation for persistently low inflation. 
I have taken this episode into account in my current thinking 
on monetary policy. As noted in the FOMC's Statement of Longer-
Run Goals and Monetary Policy Strategy, the Federal Reserve's 
statutory objectives are generally complementary. Recent 
history provides an
example of how the Federal Reserve's commitment to anchoring 
long-run inflation and inflation expectations enables the 
Federal
Reserve to maintain an accommodative policy until the 
unemployment rate is brought down to the vicinity of full 
employment. If I am confirmed to the Board, I will use that 
experience to help normalize monetary policy to maintain full 
employment and low inflation.

Q.4. Both House Financial Services Chair Jeb Hensarling and 
Ranking Member Maxine Waters have been critical of the Fed's 
use of interest on excess reserves. The Chairman referred to it 
as a ``subsidy'' to Wall Street, and the Ranking Member asked 
whether the Fed can raise interest rates without relying so 
heavily on ``paying the banks.'' Each time the Fed raises the 
Federal funds rate, it also raises the rate that it pays to 
commercial banks via interest on reserves. After several rate 
hikes last year, the total amount paid to banks in interest on 
reserves came to nearly $30 billion.
    You have suggested replacing the liquidity coverage ratio 
that was created by Dodd-Frank with heavier reliance on 
monetary policy, especially interest on excess reserves. Can 
you explain your position that we should eliminate the rule 
aimed at limiting risky
investment and instead pay banks larger and larger sums of 
risk-free money?

A.4. The payment of interest on reserves is a tool widely used 
by central banks around the world. The payment of interest on 
reserves encourages banks to hold reserves at the central bank, 
which facilitates payments and also enhances the liquidity of 
the banking system. And interest on excess reserves is the 
critical tool that has allowed the Federal Reserve to raise 
short-term interest rates before gradually shrinking the 
balance sheet.
    Stronger risk-based capital and liquidity regulations, 
together with the stress testing regime, help ensure that large 
U.S. banks are better positioned to continue lending through 
periods of economic shocks and market turbulence. If confirmed, 
I would look forward to further studying the interaction of 
liquidity regulations and monetary policy tools to ensure that 
we have the appropriate framework in place for protecting 
safety and soundness, while promoting credit availability and 
economic growth.

Q.5. During the hearing, you answered my question about your 
report to tax currency by placing magnetic strips on dollar 
bills. In the hearing, you explained that taxing currency was 
an idea you presented in 1999 at a Federal Reserve Conference 
and that you did not support such an idea. Yet, despite your 
dismissal, you have promoted variations of this proposal for 
nearly two decades, including a presentation promoted 
variations of this proposal for nearly 20 years. At an August 
2016 Economic Policy Summit in Jackson Hole, Wyoming, you 
presented ``The Case for Unencumbering Interest Rate Policy at 
the Zero Bound.'' When you updated the concept in 2015, you 
left out the magnetic strips but the concept that a dollar 
might not be worth a dollar remains the same.
    How would your proposal affect savers and low-income 
depositors? The national savings rate has fallen in the past 
year, would tax currency discourage low- and middle-income 
people from building up a nest egg?
    You've written that this proposal is essentially a way of 
achieving negative interest rates. Can you explain why you are 
a proponent of negative interest rates?

A.5. I have spent my 40-year career thinking, writing, and 
teaching about issues in the field of economics. On many 
occasions, I have been asked to consider theoretical issues in 
order to contribute to the robust debate among central bankers 
here in the United States and around the world. As an academic-
practitioner at the Federal Reserve Bank of Richmond, I 
presented an academic paper to a Federal Reserve conference in 
1999 to imagine monetary policy options that would be available 
should interest rates hit the zero interest bound. I discussed 
negative interest rate policy and quantitative easing. Indeed, 
economists have been studying various aspects of negative 
interest rates for most of the last century. And today, some 
major central banks abroad have implemented negative interest 
rate policy together with other policy initiatives, including 
quantitative easing. The current focus of U.S. monetary policy 
is on continuing the path of gradually removing accommodation 
as the labor market strengthens and there is continued progress 
toward the 2 percent inflation objective. If confirmed, I would 
be committed to working with my colleagues on the FOMC to 
promote the economic well-being of the United States by 
fostering maximum employment and stable prices.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN FROM THOMAS E. 
                            WORKMAN

Q.1. You've spent your distinguished career in the insurance 
industry. While that provides you with valuable expertise to 
bring to the FSOC, you don't have any experience as a 
regulator.
    Putting on a watchdog hat, are there any trends or 
practices in the insurance industry that you're concerned 
represent an emerging risk to financial stability?

A.1. If confirmed, I look forward to working with the other 
FSOC Members to identify emerging risks to financial stability, 
including any risks related to the insurance industry. FSOC's 
2017 annual report discussed potential risks arising from 
captive reinsurance, cybersecurity threats and the environment 
of low but rising interest rates, and I look forward to working 
with FSOC Members on those and other emerging risk issues.

Q.2. Asked by Senator Cortez Masto whether you think that 
nonbank SIFI designations should be ``tossed out as a tool,'' 
you mentioned activities-based regulation and suggested that 
FSOC ought to first ``go to the primary regulators,'' which in 
the case of insurance are State insurance regulators. Asked 
whether FSOC would have little power to constrain risky 
activities in the insurance industry since it's regulated at 
the State level, you further stated that ``insurance regulators 
are expressly considered to be primary regulators for purposes 
of FSOC actions.'' However, FSOC lacks the power to effectively 
constrain risky activities in the insurance industry through 
its activities-related powers. Under Section 120 Dodd-Frank, a 
primary financial regulatory agency need not implement FSOC-
recommended standards if it ``explain[s] in writing to the 
Council . . . why the agency has determined not to follow the 
recommendation of the Council.'' Additionally, an attempt by 
FSOC, a Federal agency, to compel a State authority to enforce 
Federal standards would raise constitutional concerns under the 
so-called ``anti-commandeering'' principle.\1\
---------------------------------------------------------------------------
    \1\ See New York v. United States, 488 U.S. 1041 (1992); Printz v. 
United States, 521 U.S. 898 (1997).
---------------------------------------------------------------------------
    Do you agree that there are both statutory and 
constitutional obstacles that would limit FSOC's power to force 
State insurance regulators to adopt activities-based standards? 
Why or why not? If so, do you believe that it is still 
important that FSOC consider designations of entities under 
Section 113 of Dodd-Frank? Why or why not?

A.2. FSOC has authority under Section 120 of the Dodd-Frank Act 
to make nonbinding recommendations to primary financial 
regulatory agencies, including State regulators. FSOC also has 
other tools to respond to emerging risks, including working 
collaboratively with regulators to address identified risks and 
designating individual nonbank financial companies whose 
distress or activities could threaten financial stability. If 
confirmed, I look forward to working with the other FSOC 
Members to identify how to best apply these tools to address 
risks identified by FSOC.

Q.3. The November Treasury Report on FSOC designations said 
that the FSOC shouldn't just consider whether a failure of a 
nonbank would be catastrophic when making a designation 
decision, but also should consider the ``likelihood'' of a 
firm's failure.\2\
---------------------------------------------------------------------------
    \2\ https://www.treasury.gov/press-center/press-releases/Documents/
PM-FSOC-Designations-Memo-11-17.pdf.
---------------------------------------------------------------------------
    How is the FSOC supposed to assess the likelihood of firm 
failing? Isn't the purpose of a designation to avoid a 
catastrophic failure, even if it's a remote event?

A.3. If confirmed, I look forward to working with the other 
FSOC Members to consider this and other recommendations made in 
Treasury's November 2017 Report on FSOC designations. It is 
worth noting that the Report ``recommends that the Council 
assess the likelihood of a firm's material financial distress 
as part of its determination whether designation would promote 
U.S. financial stability.''
                                ------                                


 RESPONSE TO WRITTEN QUESTION OF SENATOR SCOTT FROM THOMAS E. 
                            WORKMAN

Q.1. Mr. Workman, I enjoyed our discussion in my office. We 
both know that our Nation's system of risk management is 
critical for millions of Americans dealing with a crisis today 
or planning for a better tomorrow. When it looked like FSOC 
would lose its only insurance vote, I rang the alarm. Bank 
regulators shouldn't be making such consequential decisions 
about the business of insurance without someone like you in the 
room. While the heads of the Federal Reserve, NCUA, and OCC are 
very bright people, they have no insurance experience. Between 
the President's executive order last spring and Treasury's 
report last November, the Administration has been moving in the 
right direction on nonbank SIFI designations. Please answer the 
following with specificity:

   LWe've regulated insurance on the State level for 
        150 years. How will you involve State insurance 
        commissioners in your work?

   LWhat will your role be when it comes to insurance 
        regulation conversations at the international level?

A.1. If confirmed, I would work closely with State insurance 
commissioners, including the leadership of the National 
Association of Insurance Commissioners, and others engaged in 
conversations at the international level, such as at meetings 
of the International Association of Insurance Supervisors, to 
most effectively fulfill my responsibilities as the Independent 
Member with Insurance Expertise of the Council.
                                ------                                


 RESPONSE TO WRITTEN QUESTION OF SENATOR WARNER FROM THOMAS E. 
                            WORKMAN

Q.1. In September of last year, FSOC voted to remove Federal 
oversight of AIG, and in the last week the Government decided 
to drop its appeal in the MetLife case, effectively 
dedesignated MetLife.
    Did you agree with these decisions?

A.1. Though I did not have the benefit of taking part in the 
deliberations regarding designation or dedesignation of AIG or 
MetLife, it appears that FSOC has taken a rigorous analytical 
approach in its recent decisions with respect to nonbank 
financial companies. If confirmed, I look forward to working 
with FSOC Members in their analysis of nonbank financial 
companies going forward.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCHATZ FROM THOMAS E. 
                            WORKMAN

Q.1. Do you believe that when FSOC considers designating a 
nonbank financial institution as systemically important, it 
should take into consideration the burden of such a designation 
on the institution?

A.1. Regulatory requirements can impose substantial costs on 
companies. I believe it is appropriate for regulators to take 
actions only when the anticipated benefits exceed the costs.

Q.2. The burden of a SIFI designation on a nonbank institution 
is not one of the statutory considerations provided in the Wall 
Street Reform Act.
    What would be the statutory basis for FSOC to consider 
``burden'' in making SIFI designations?

A.2. I believe that regulators should be permitted to consider 
the costs and benefits of their actions. If confirmed, I look 
forward to working with the other FSOC Members to consider how 
best to implement FSOC's duties within the scope of its 
statutory authorities.
                                ------                                


  RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM 
                       THOMAS E. WORKMAN

Subjecting FSOC to Appropriations
Q.1. There have been a number of legislative proposals that 
would subject the Office of Financial Research, and thereby the 
Financial Stability Oversight Council, to the whims of the 
congressional appropriations process.
    In your view, what concerns do you have about requiring the 
systemic regular for the Nation's financial system to be 
subject to congressional appropriations? Would subjecting the 
FSOC to appropriations potentially impede the independence and 
the ability of the Council to function?

A.1. It is important for FSOC to conduct its work with an 
appropriate level of public transparency and congressional 
oversight, while enabling FSOC to perform its functions 
effectively and efficiently. It is also worth noting that 
funding through the appropriations process is similar to that 
which applies to other vital functions of the Federal 
Government.
Nonbank Designations: AIG and MetLife
Q.2. FDIC Chair Gruenberg in his dissenting vote on FSOC's 
determination that the giant insurance firm, AIG, was no longer 
to be classified as ``systemically important'' noted, ``nothing 
about the liquidity characteristics of AIG's liabilities and 
assets has changed to diminish the concerns originally raised 
by the FSOC.''
    Do you agree or disagree with FDIC Chairman Gruenberg?

A.2. Though I did not have the benefit of taking part in the 
deliberations regarding dedesignation of AIG, it appears that 
FSOC has taken a rigorous analytical approach to its recent 
determination decisions with respect to nonbank financial 
companies, and it has provided transparency about the views of 
individual members. AIG no longer engages in many of the risky 
activities that led to the firm's near-failure in the financial 
crisis, and it is half the size it was in 2008. If confirmed, I 
look forward to working with FSOC Members to conduct required 
analyses going forward, and assure the maximum transparency 
possible in doing so.

Q.3. During the Financial Crisis, AIG needed a $182 billion 
infusion from taxpayers. AIG has paid that back--plus $23 
billion in interest--yet it still poses risks if AIG failed 
again.
    What are the risks to investors, employees, partners and 
the economy if AIG could not fulfill promised insurance claims?

A.3. Insurance companies play a vital role in the U.S. 
financial system and also provide important services to their 
customers. Regulators should continue to work to protect 
insurance customers and to promote the stability of the 
financial system. Though I do not have firsthand knowledge of 
the deliberations regarding AIG, it appears FSOC determined 
that in its current form, AIG's potential distress does not 
present a substantial risk to U.S. financial stability.

Q.4. Former Federal Reserve Chairman Paul Volcker and Ben 
Bernanke criticized the decision to designate MetLife saying, 
``it could, under stress, affect the stability of financial 
markets more generally.'' According to publicly available 
documents, the FSOC found that MetLife--a huge company with 
more than $900 billion in assets, directly or indirectly 
guarantees the value of more than $100 billion of investments 
for large institutions. FSOC found that investors owned more 
than $130 billion in MetLife debt--of which only $18.6 billion 
was long-term debt--and that the firm also has 50 million 
insurance customers and $275 billion in account liabilities. 
FSOC realized that the magnitude of harm transmitted throughout 
the financial system arising from a fire-sale of MetLife assets 
would be greater than the harm caused by fire-sales at all but 
nine other firms in the Nation.
    What are the risks to investors, employees, partners, the 
financial markets and the economy if MetLife cannot fulfill 
promised insurance claims?

A.4. Insurance companies play a vital role in the U.S. 
financial system and also provide important services to their 
customers. Regulators should continue to work to protect 
insurance customers and to promote the stability of the 
financial system.

Q.5. Just because MetLife and AIG were de-designated does not 
mean they cannot be redesignated.
    What analysis would you consider to decide to re-designate 
MetLife or AIG or designate a new insurance firm as 
systemically important? At the hearing, you mentioned an 
activities-based approach as an option. Can you expand on what 
criteria you would consider? How would you collaborate with 
State regulators to get a full scope of activities within an 
insurance firm?

A.5. An activities-based or industry-wide approach should seek 
to identify activities of financial companies that are widely 
engaged in, or products that are broadly offered, and that may 
pose risks to the financial system. FSOC should work with State 
regulators to identify any such risks, analyze their scope, and 
to impose any appropriate remedy. Of course, the statutory 
authority to designate and the related determination standards 
remain in place as a last resort.
Emerging Trends in the Insurance Industry
Q.6. Mr. Workman, you have spent your career in the insurance 
industry. While that provides you with valuable expertise to 
bring to the FSOC, you don't have any experience as a 
regulator.
    Putting on a watchdog hat, are there any trends or 
practices in the insurance industry that you're concerned 
represent an emerging risk to financial stability?

A.6. If confirmed, I look forward to working with the other 
FSOC Members to identify emerging risks to financial stability, 
including any risks related to the insurance industry. FSOC's 
2017 annual report discussed potential risks arising from 
captive reinsurance, cybersecurity threats and the environment 
of low but rising interest rates, and I look forward to working 
with FSOC Members on those and other emerging risk issues.

Pension Risk Transfers
Q.7. Companies are increasingly closing out defined benefit 
plans and shifting pension risk to the insurance industry.
    Are you at all concerned about the volume of liabilities 
some of the largest life insurance companies are undertaking? 
Do you have any concerns about whether the State insurance 
guaranty fund system is capable of handling the failure of a 
large life insurance company with huge pension plan 
liabilities?
    Are these pension buyouts and associated risks something 
that the FSOC should look at?

A.7. Pensions play an important role in the U.S. financial 
system. If confirmed, I look forward to working with the other 
FSOC Members to identify emerging risks to financial stability, 
including any risks that may be related to the insurance 
industry.

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