Refinitiv Newscasts - Yellen testifies in Senate hearing 1

Great Elm

22/03/2023 23:10

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Source: Reuters

Description: Treasury Secretary Janet Yellen testifies before Senate
Appropriation Committee's Financial Services and General Government
Subcommittee.
Short Link: https://refini.tv/405CoNe

Video Transcript:

>> Not something that should ever be held hostage to score cheap political
points at the expense of working people in this country. Not getting that done
would be catastrophic for our economy. So I hope we can do this in a
straightforward, bipartisan way, as we have many times under both Republican
and Democratic leadership. So again, thank you for being here today. And I
just want to say, I'm going to be very closely paying attention to the work on
the issues raised by the Silicon Valley Bank and Signature Bank and I expect
that you will keep us updated on this as we move along. >> Yes, of course, I'd
be glad to. >> Thank you. In terms of questions. Last year, I was able to pass
a sweeping Bipartisan Retirement Bill and Secure 2.0 Act that will increase
family's financial resiliency and help more families save for a dignified
retirement and make it easier for businesses to offer retirement plans. Can
you tell us what resources treasury will need to implement all of secures
directives in a timely manner? >> Yes. There are some resources the treasury
will need and they're included in the 2024 budget. My understanding is that
the bureau fiscal services, will need about $10 million to complete their
effort to digitize savings bonds. The office of tax policy, will need about
$1.5 million to hire additional OTP office of tax policy staff to write the
regulations and rules. And IRS will be faced with implementation of many of
the features of this and there's money included in the budget. I believe an
additional 10.5 million for IT funds and in additional roughly $5.5 million.
And this would go from Fiscal 23 through 27 for additional lawyers in the
chief counsel staff. >> Thanks for that summary and I'll be following that
very carefully as we put this bill together. As I mentioned, I do expect from
you a detailed plan about how the IRS is intending to use the IRA money.
Without that, we're hearing all conflated things. About 87,000 people in an
army thing. Tell us when we're going to see that plan so we can see the
detail. >> In a matter of weeks. I have seen a draft of the plan. It's not
final, but you should see it very shortly. >> We need to see that because it
is really important for our taxpayers to be able to call the IRS and get a
response. It is really important for us to be able to have the new technology
we need, but we need to see your spend plans, so we have a real concrete plan.
>> You will see that. >> And finally, I know President Biden's 24 budget is
rightly called a blue color blueprint to rebuild America. And that blueprint
would not only help families with lower health care costs but also invest in
quality childcare. Ensure giant corporations and billionaires pay their fair
share a lot more. But I wanted to ask you, do you think that the president's
budget would increase inflation or put us on a path to fiscal ruinous? Some of
our colleagues have suggested. >> No, I don't. It does invest in America, in
our people in our economy in ways that will make it more productive. But it
proposes ways to pay for that. And in fact, over 10 years, it involves deficit
reduction amounting to $3 trillion. So it puts us on a more secure and prudent
fiscal path. Many of the investments that are proposed could be viewed as
expanding supply. Senator Haggerty mentioned the importance of supply and
inflation. So matter of supply and demand and the supply side of our economy
is important. We know that private investment capital formation matters and
that's what traditional supply-side economics has always focused on. I've
coined the term modern supply-side economics. I believe the supply side of the
economy is important, but there are other investments that are also critical
and that's what's included in this budget. Funding for education, human
capital, investing in people, investing in children in child care, early
childhood education, enabling more people to work, investing in research and
development that improve our technology and productivity. So there are very
significant investments in our economy that will expand its capacity and
ability to supply goods and services. >> Thank you very much. Thank you, Mr.
Chairman. >> Thank you. Madam Chair, and now we'll turn to the ranking member
of the full Committee, Senator Collins. >> Thank you very much, Mr. Chairman.
It's great to be here with you and the ranking member and appreciate it.
Secretary Yellen, I want to talk with you about the consequences of the
decision that was made by treasury and consultation with the Federal Reserve
and the FDIC to use the systemic risk exception in the Federal Deposit
Insurance Act to ensure all of the deposits of Silicon Valley Bank. Last
Wednesday, the new CEO of this bank held a conference call for concerned
clients. And he urged them to return all of their deposits to the bank. And
here's what he said on that call and I'm going to quote it. "There is no safer
place in the US banking system to put your deposits", I'm very troubled by
that comment because it invites deposit flows from well-managed, prudently
invested community banks to a bank that was poorly managed, that took
excessive risks. And it seems to me by guaranteeing all of the deposits that
you're creating a situation where they are immune from losses, drawn in
deposits from well-managed banks in a way that puts the well-managed community
bank at a competitive disadvantage. I guess my question to you is, how is this
fair? >> Look, we invoke this systemic risk exception because Silicon Valley
Bank had experienced a calamitous run, a run that was so enormous that it
overwhelmed the liquidity of this bank, its ability to arrange liquidity. And
it created the potential for fear about the safety of uninsured depositors in
many other banks. And a failure to protect those who were uninsured depositors
in this bank at the time it was put into receivership would have led to fears
by uninsured depositors at many other banks who really have no easy way of
knowing what the status of their banks are and whether or not their funds are
at risk. It risked contagion throughout the banking system. We invoke this
exception in order to try to contain the contagion that seemed to all of us to
be inherent in these uninsured depositors being wiped out or severely
haircarded. So it wasn't a question of protecting that bank or that group of
uninsured depositors, but rather the implications for the broader banking
system because of the contagion potential. >> I want to switch to related but
different topics. But to me, it creates a situation where you're rewarding
very wealthy depositors and you're creating the need for a special assessment
that's going to be imposed on those well-managed community banks that didn't
take those risks. And from what the bankers I've talked to tell me, the
majority of their depositors fall under the $250,000 limit, while at Silicon
Valley Bank, the opposite was true. But let me follow up on a point that
Senator Haggerty made. He asked you about the level of FDIC Insurance. I
remember in 2008 when it was raised from 100,000-250,000 during that financial
crisis. Now, some of our colleagues, including Senator Elizabeth Warren, has
recommended that we raise it to two million or even up to 10 million. Do you
agree with that? >> What I'm focused on right now is trying to stabilize the
banking system. And I know our banking system to be sound, and I think right
now we need to focus on improving the confidence of the public that we do have
a sound banking system. And we can debate in the days ahead with or not
250,000 is the right level for deposit insurance or whether that system should
be changed in some way. I'm not going to weigh in on it. I believe there's
plenty of time to have reasoned discussions about that. For now, I want to use
the tools that we do have at our disposal to improve confidence and make sure
that banks that are faced with deposit outflows have adequate access to
liquidity. The steps that the federal reserve took in the aftermath of that
bank failure to make liquidity more broadly available to support deposits,
that's an important step with the steps that we took as well. >> Let me very
quickly switch to a different issue. You said in your statement that the IRS
is answering a million more calls than last year. That sounds good. But the
fact is that the Inspector General for tax administration calculates their own
color response figure based on the data they collect from the IRS. And for
this filing season through March 4th, the inspector general calculates that
the IRS has only responded to 52% of calls. And that if you add together both
automated calls and calls answered by an IRS customer service representative,
that the number of calls that are answered declines to even more. Totally, 29%
of the calls are answered by an IRS customer service representatives. So I
hope we will follow up and try to get to the bottom of that. I can tell you
based on the casework in my offices in Maine, and I have six offices, that
they are having an extremely difficult time getting answers from the IRS. >>
Senator, I would be glad to look into that. I'm not aware of the report that
you just mentioned. We've been tracking on a weekly basis. The IRS is
performance during this tax season and it has been running between 80% and
90%. That's very different number than you mentioned. And I would be glad, I
will ask my staff to try to reconcile that discrepancy. But I personally
promised that this tax season. So I don't know if you're talking about the
entire year or since the tax season? >> Tax season through March 4th and its
report by the inspector general for tax administration. >> I will look into
that because I've been told it's average is 85% in line with the promise that
I personally made. >> Thank you. >> Thank you, Senator Heinrich. >> Thank you,
Chairman. Welcome, Madam Secretary. We've had some discussion here on the
deficit and I thought it might be helpful if you could remind us of the
relative role of the Trump tax cuts in creating the current structural
deficit. >> The Trump tax cuts added hugely to the deficit, as I recall, it
was something like $2 trillion over 10 years. And so that is a major
contributor to the deficits that we have. >> Pivoting quickly to the banking
situation. As chair designate the Joint Economic Committee, I was very pleased
that the administration acted quickly to ensure that small banks and
depositors don't take the brunt of the Silicon Valley Bank failure. But I also
suspect that this is a disaster that could have been prevented. When Congress
voted to roll back key regulatory provisions back in 2018. I was also vice
chair of the GEC at the time. And I warned that weakening these rules put the
health of the banking system at risk. And in fact, they've released a report,
a JC report that named SVB. SVB financial groups specifically as one of the
banks that would face nearly none of the enhanced regulations originally put
in place in the Dodd-Frank legislation. How can regulators show up competence
and stability in this asset class of banks? And do they need additional tools
in order to improve the stability throughout the entire financial system? >>
So I absolutely think that it's appropriate to conduct a very thorough review
of what factors were responsible for the failure of these banks. And it is
true that there was legislation that we can bank regulation and there were
also regulatory decisions by the federal reserve and other banking agencies.
There's also a question of supervision and how that's conducted. I was pleased
to see that vice chair for supervision, the Fed's vice-chair for supervision,
Michael Barr is undertaking and we'll report by May on an investigation of
what's involved and certainly, we should be reconsidering what we need to
assure up-regulation to prevent this. This was a very unusual set of
circumstances that Silicon Valley Bank faced. >> It appears that they had
significant interest rate risk that they were subject to and an exceptionally
high over 90% of their deposits were uninsured. >> That number is well outside
of the norm. >> So in that sense, this was an unusual bank, but I think it's
appropriate to review all of that. >> Do you have any thoughts at all on the
nature of, this is basic layer first digital bank run in a way that the way
that the fire spread. >> Yes. >> How should we be thinking about that in the
role of providing proper oversight and de-risking these financial institutions
going forward, given that that is very much the world we live in now? >> So
this was an overwhelmingly rapid run on a bank. To the best of my knowledge,
we've never seen deposits flee at the pace that they did from Silicon Valley
Bank. Now many of the depositors were startup tech firms that work with
venture capitalists, that also bank. And there was, as you say, an Internet
essentially shouting fire in a movie theatre. And perhaps it's the case that
now in the world we live in that, although this was a small community with a
disproportionate share of Silicon Valley Bank's deposits, this thing may more
readily happen now. And it means that in general, when we do liquidity stress
tests on banks, or think about liquidity requirements, perhaps some of the
assumptions that go into modeling the pace at which deposits might flee, maybe
some of those need to be updated and rethought, but this is a new phenomenon.
We haven't seen this before and we need to be thinking. >> I think it's an
important question, it's the world we live in today. Some House Republicans
recently introduced a bill that would force treasury to prioritize covering
debt held by foreign debt holders like the Chinese government before financing
Department of Defense. The VA really every federal funding priority outside of
Social Security and Medicare. You've referred to this plan as default by
another name and I pointed out that it's really not logistically feasible for
treasury to prioritize payments given how treasury operates. What do you think
of this plan to prioritize things like foreign investments over current and
former service members and other obligations that we have as federal
government? >> Well, we have a set of bills that come due and it's our
obligation and my obligation as treasury secretary to see that those bills are
paid and not some of the bills and to decide which bills are more important
than other bills. Simply to pay the bills for programs and spending the
Congress as authorized. That's why I say prioritization is default by another
name, not paying any of our bills is default. And when you think about the
pain that it would cause to Social Security recipients, to food stamp
recipients, you name it, to vendors who supplied surfaces, to the government
and have their own payrolls to meet, to be told they're not going to be paid,
the government isn't going to honor those bills, that's a default. And rating
agencies, particularly Fitch, has already clearly indicated that a failure to
pay all of the government's bills when they're due would certainly compromise
our credit rating. So this is never been tried, it's been rejected by old past
treasury secretaries. And I would say our payment systems are simply setup to
pay all the government's bills when they come due. They're not set up to
divide payments into different types as a general matter. And to be able to
say, yes, this, this, this, and this we're paying in these other things, we're
holding back. For many agencies, payments of all types are all mixed together
in ways that couldn't be disentangled. >> Thank you, Chairman. >> Thank you,
Senator Heinrich. Senator Kennedy. >> Thank you, Mr. Chairman. Welcome, Madam
Secretary. Madam secretary, isn't it a fact that the President's proposed
budget for next fiscal year is $1/2 trillion more than this fiscal year? >> On
the spending side? >> Yes. It's what a budget is. >> Yeah. It is about $400
billion. >> It's about $500 billion more, right? >> It's about what? >> $500
billion more, right? >> About that. >> Isn't it a fact that since 2019 until
today, I'm not including the extra $500 billion that y'all want to spend,
since 2019 through today, US population has increased 1.8% and the federal
government's budget is up 55%. Isn't that a fact? >> Well, we had a pandemic.
>> Isn't that a fact though? Am I not right? >> I don't know those numbers. >>
You don't know, you've never looked at that? >> I don't have those numbers in
my head. I would not disputing them. >> Okay. Isn't it a fact that the
President's proposed budget proposes $4.7 trillion in new taxes? >> It does
propose significant additional taxes, yes. >> 4.7 trillion? >> Something like
that, yes. >> Okay. You talked about reducing deficit, isn't it a fact that
under President Biden's proposed budget that gross debt will rise from $32.7
trillion at the close of this year to $51 trillion by 2033? >> I'm sorry, what
number did you give me. >> The President's proposed budget will increase gross
debt from $33 trillion at the close of this year to $51 trillion in 2033.
Isn't that correct? >> Well, debt held by the public which is? >> No ma'am
that's gross debt and is that a fact? >> That's probably a fact. >> So you
haven't reduced the deficit, have you? >> The debt and deficits are reduced.
>> How can you go from $33 trillion to $51 trillion and call that a reduction
in the deficit? >> Because that's the calculation for which you need a
baseline. And then you compare the budget and the deficits in debt in the
budget with a baseline in which none of the changes either in revenues or in
spending that are proposed in the budget. >> Here's my baseline at the end of
this year, we project people a lot smarter than me, probably not than you but
smarter than me. Say that gross debt is 33 trillion and they say if the
president's budget is implemented by 2033, it'll be $51 trillion. Isn't that a
fact? >> If the president's budget is not implemented and none of the changes
are made, it will be worse than that. And so the President's budget has
improved the fiscal outlook relative to what we would have without the
President's proposals. >> Even though it raises gross debt from $33 trillion
to $51 trillion, you say that's an improvement? >> It is an improvement
because it raises taxes by more. >> That includes taxes? In what world is that
an improvement other than Washington and Long Isand? >> It's an improvement in
that the revenue increases far exceed proposed investments. >> Let me ask you
this, isn't it a fact that in January of 2019, the Federal Reserve issued a
warning to Silicon Valley Bank over its risk management systems? >> I have no
idea. I'm not responsible in any way. >> But you're charge in the banking
bailouts and the crisis, right? >> I am not involved in banking supervision
and I don't have access to any information about the supervision of Silicon
Valley Bank. >> You haven't looked to see whether or not the Fed issued a
warning what four years ago to the bank over its risk management systems? >>
That's not public information. >> Surely it's in Wall Street Journal. >> Well,
it may be in the Wall Street Journal, but it's not public information and it's
not information I have access to. >> Well, I'll give you a copy of this
article. >> I've read the article. >> The Fed issued a matter requiring
attention. And it said your risk management practices are terrible and you
need to improve them. >> That is what the article says. >> Isn't it a fact
that months before SVB went under that the bank disclosed that it's
mark-to-market value of its bonds was $16 billion less than their balance
sheet value? >> They did make such a statement. >> Did the people at the
Federal Reserve just not read it? >> I'm not at the Federal Reserve. >> I
know. >> I was at the Federal Reserve. >> The Treasury and you're in charge of
the banking crisis. >> I am not in charge of the supervision of the bank. >> I
may ask you this Senator Hollen talked about the 2018 amendments to the
Dodd-Frank Act. Isn't it a fact now SVB was not stress tested in 2022, 34
banks were. Here's the Fed's report. Isn't it a fact that if SVB had been
stress tested, it would have passed? >> Stress tests look at capital of a
bank. >> Yes, ma'am under the stress test, isn't it a fact that SVB would have
passed? >> I don't know why it wasn't stress tested. >> You need to look into
that Madam Secretary. >> This is not my job. This is the Federal Reserve's
job. >> Isn't under the fact that when the Federal Reserve stress tested it in
2022, it only stress tested credit risk and didn't stress test duration risk?
Isn't that a fact. >> I believe the stress tests in general partially address
and take account of interest rate. >> No, ma'am. I've read it. Here it is,
bigger than Dallas. >> Well, to the extent that there are assets held in an
unavailable for sale portfolio that would suffer losses due to changing
interest rates. That would be captured in the banks capital. >> No, ma'am.
That's not there. I've read it. >> Senator Kennedy, I've allowed the secretary
stray over answers that were asked before the time went out, but not a series
of questions after the time went out but sure. >> Again, I understand Mr.
Chairman. >> Thank you Senator Kennedy. I worked together with Senator Kennedy
on lots of things. We've got a good working relationship. I am pleased to have
done it. We have some disagreements and some of these questions have prompted
me just to ask you some follow-up on some of these issues. I just want to
underscore the point you made that the President's budget, President Biden's
budget, reduces the deficit over the next 10 years by three trillion dollars
relative to if we did nothing. Is that right? >> That is correct. That's what
I think I said in answer to Senator Kennedy. We need a baseline then you look
at the budget and you compare deficits and debt in the two scenarios. And in
that sense, there's a three trillion dollars reduction in deficits relative to
the status. >> If the Congress packed up it's bags and left, which may be some
lots of people would want us to do and the President took no other action. The
reality is 10 years from now, the deficit would be three trillion dollars
higher than it is today? >> Yes. >> And isn't it a fact that one-quarter of
the total accumulated national debt was incurred during the four years of the
Trump administration? >> Yes. >> Isn't it a fact that during the four years of
the Trump administration, congress passed the debt ceiling increase three
times without a lot of drama? >> Yes. >> And Senator Heinrich asked you some
questions about the proposal coming out of a house republicans for some debt
prioritization. And you made very clear that that's just a fault by another
name, right? >> Yes. It's not paying our bills. >> And isn't it true that back
in 2011, I'm having this is. >> Yes. >> Flashback on steroids. We were just
getting close to that waterfall on the debt ceiling, labs, centers and poor to
lower the rating of US. >> And that's why I've asked Congress to raise the
debt ceiling expeditiously. We don't want to get to the XD and push this
because damage can occur and we could be downgraded if Congress looks like
it's not willing to do. >> I really hope Madam Secretary, that we won't do
that. I do welcome the a vigorous debate with my colleagues on the budget
issues. Whether you make spending cuts, whether you make revenue increases,
people can have a healthy disagreement on that front. But that also does raise
the issue of the IRS budget and the $80 billion that was provided with the IRA
for a number of functions. One of them being, to allow the IRS to collect
revenues that are already due and owing and not paid. Now I have a couple of
questions regarding that Madam Secretary. One is you have directed the IRS and
the Treasury Department that you will not increase audits above any historical
level with respect to small businesses or taxpayers under $400,000, right? >>
I issued a in-order to that effect. I have told the IRS that they must not
increase the audit rates on either individuals or small businesses earning
under $400,000. >> Yeah. And maybe I think it was Jesse James who said , why
do you rob banks? He says that's where the money is. Where the money is and
collected taxes is in very wealthy folks who are not paying their taxes on
time, right? >> That's right. It's wealthy individuals, complex partnerships,
corporations where there's particularly unreported income,. >> And I know that
the administration and the IRS have calculated hundreds of billions of dollars
of lost income annually from this tax gap. But the CBO has a more conservative
number, but it has a number nevertheless, from the enactment of the inflation
Reduction Act. And it also calculated that the first act, I think it was the
first act of the house under new leadership of speaker McCarthy when they
repealed the inflation Reduction Act. According to CBO, that would increase
the deficit relative to where we are today by $114 billion, right? >> Yes. The
money that we spent on, you appropriate to the IRS, whether it's the
discretionary budget or the additional long-term mandatory investment in the
IRS. This is money that brings in net, more tax revenues. In that sense, it's
not really costly, it generates more money for the taxpayer by enabling the
IRS to collect the taxes that are owed than you're spending in appropriations
on the agency. >> Right. So I hope in the coming weeks we can have a sober
conversation up here about the budget and deficits. Because it's one thing for
our house colleagues to say they care about the debt ceiling and deficit. And
another thing for their very first action to increase the federal budget
deficit by over $114 billion over the next ten years. >> Mr. Chairman, can I
ask a personal? >> Let me just ask my last question, but I'm happy to
entertain a question if my other colleagues are willing. So Madam Secretary,
in terms of the IRS funding, in addition to trying to collect taxes from
wealthy tax cheats, we have seen an improvement in IRS performance when it
comes to answering constituents calls. Is that not correct? >> That is
certainly the reports that I have gotten that the response rate is 80-90% of
his texts. >> And we're going to look at center columns, raise some important
questions. It has definitely improved whether it's improved to that extent,
according to the Inspector General, will have to take a look at that. But I do
think that making sure that folks who especially very wealthy folks pay their
taxes on time is important. And I'm just going to in closing here, refer you
to a letter that a group of ascent on March 20th, myself, Senator Warren and
others regarding abuses of trusts that allow very wealthy individuals,
billionaires to pass on lots of money without any taxation. They have very
high priced lawyers, which in our view are skirting the law, certainly the
intent of the law, and we're asking you to take a look at that. Will you do
that? >> Yes. We actually have some proposals in the Green Book to clamp down
on that type of abuse. And we'd be glad to discuss further things we can do to
prevent that kind of abuse. >> Got it. Senator Kennedy it's up to Senator
Haggerty, but I'm happy to. >> Well, I just wanted to ask a question, not a
comment. I mean my colleague here had a chance to answer and ask any
questions. But we have a chance to follow up as well with the secretary? >>
Sure. Everyone's we're doing another round. We have seven minutes each.
Absolutely. Senator Bozeman. >> Thanks for the pep talk. Thank you, Madam
Secretary for being here and I'd like to ask some questions that my community
banks in Arkansas concerned about. It's important to remember that Silicon
Valley Bank and signature bank took on unique risks. And we're materially
different from most US banks, especially rural community banks, are safe and
sound in light of those unique risk profiles. Understanding that you aren't
the FDIC chair when determining whether to invoke the systemic risk exception
what specific data points, metrics, and factors do regulators focus on? >>
Well, we were very focused on the potential for the failure of these banks and
losses to uninsured depositors in the banks, to trigger runs on other banks.
And we looked at things like deposit outflows from other banks. Anecdotal
reports that we heard. I will say that many mid-sized banks expressed great
concern that they have uninsured deposits. Often these are local businesses
that can't operate within the insured deposit limits. And these banks felt,
seeing many uninsured depositors having the view, the only place you're safe
is in the largest banks. Many of these banks felt very skittish about their
potential to suffer runs as well. And I've heard this in many banking contacts
that my staff and I have had in recent days that there is concern. We can see
that banks across the country are shoring up their liquidity. They are very
worried about contagion from the troubles of Silicon Valley Bank and Signature
bank. And the steps that we took were designed to improve the confidence of
all depositors that they're safe in banks. And depositors often don't know
about what the specific situation is. Their bank, whether it's a mid-sized
bank or a community bank and if they're, they become worried, they can pick up
their deposits and go someplace they think is safer. And we did not want to
see contagious runs that could have impacted many banks, including community
banks. >> While Silicon Valley and Signatures, uninsured deposits will be paid
for by the Deposit Insurance Fund, banks will replenish the fund via special
assessment. In reality, those costs will pass down to customers via higher
banking cost. And I'm concerned that our Kansan's will have to subsidize
Silicon Valley Bank and Signature bank's deposits and maybe others that come
forward. What specific legal authority exists for treasury, FDIC and, or the
Fed to exclude certain banks from being charged the special assessment. And
will the community banks get charged that special assessment? >> I don't know
what the rules are around that precisely. I think the FDIC may have some
ability to determine which banks are charged. I believe it's up to the FDIC to
make that determination. >> And again, absent Congress passing a new law, what
specific authority does Treasury, FDIC and, or the Fed have to guarantee even
temporarily, all uninsured deposits of open banks? >> Well, the FDIC, if it
wished to put a program in place like the TAG program that I think was
instituted in 2008 that requires congressional approval. >> Very good. Thank
you. Turning to a different issue, can you provide a timeline for when
Treasury and/or IRS will write any further rule makings, guidance or notices
regarding the inflation reduction X direct pay provisions relating to tax
exempt entities? >> Are you referring referring to the IRA? >> Yes, ma'am. >>
We have many rulemakings we are required to do to implement the features of
the IRA. And we are frankly working 24/7 to get them done as rapidly as we
can. I can't give you an exact date, but I can tell you that we're working on
it very hard ware, full tilt. These are some rather complex rules and we're
working very hard to get them out. >> Good. Thank you. The CDFI Fund is in the
process of finalizing changes to its CDFI certification application. What
analysis has treasury done to understand the impact that the application
changes will have on currently certified CDFIs? How will the changes impact
recipients of ACIP funds? Also will depository institutions to be less likely
to meet the certification requirements under the new standards. And if so,
what impact will that have on the phone's ability to support investment and
access to capital and underserved communities? >> So I really need to get back
to you on that. I'm not knowledgeable about the details of the change that
you're referring to. Certainly, the CDFI Fund is trying to get money into the
hands of CDFIs to lend in underserved communities and certainly not to make it
harder and my staff will get back to yours if that's okay. >> Yes, ma'am. >>
On the details of the question you asked. >> Well, thank you very much. Thank
you, Mr. Chairman. >> Thank you, Senator Bozeman. Senator Haggerty. >> Thank
you, Chair. Just a couple of follow-up questions. One, I'd like to follow up
on point that Senator Kennedy touched on Secretary Yellen. And that has to do
with the crisis that we just experienced with a banking community here. And as
the mantra of Washington seems to be never let a good crisis go to waste.
There have been calls now that there need to be re-regulation that the
tapering I was not here when this was passed, but that the tapering Senator
Kennedy mentioned back in 2018 S2255, that was meant to take the one-size fits
all regulation and try to, in some way make that better fit the market. That
that is the reason for the failures that we've seen. What we've seen is a
failure of management. As I mentioned earlier, you've got to management that
was asleep at the wheel and out to lunch, they left their Chief Risk Officer
position, stay open for eight months up to the failure. I'm not aware of
anything in S2255 that would have fix that problem. Are you Madam Secretary?
>> Look, we need to do a thorough review of what happened in the case of these
bank failures, and I'm not prepared to weigh in on precisely what the causes
were at this point. >> I will weigh in a little bit further then if you
accommodate me. There was also a failure at the San Francisco Fed in terms of
the oversight that they should have been providing. Again, they were getting
detailed liquidity reports, I believe on a monthly basis about what was
happening in Silicon Valley Bank. Yet they didn't seem to identify the problem
nor did they address it in time. And I think that the most disappointing
failure of all is what happened during the weekend that the auction should
have taken place. And rumors were rampant about slowness of the process,
whether people were being encouraged or dissuaded from bidding. And at the end
of the day, my understanding from FDIC official was that they did have a
bidder but they were not able to conclude the auction. We would be in a far
better place right now had the FDIC concluded that auction. We were talking
about a new buyer of the bank, and we were in a position at this point to have
contained the loss to, again, this example, Silicon Valley Bank, as opposed to
finding ourselves in a position where we have a much broader situation. Where
there's a precedent has been set now that again, make many people in America
wonder whether every deposit in America has been in some way agreed to be
backstopped or guaranteed. You have articulated the decision process that you
would go through on a case-by-case basis. But I think again, as I mentioned
earlier, the bankers in my home state of Tennessee are very concerned whether
they would be included or not. And there's a lot of uncertainty that we're
going to have to get to the bottom of there. From that point though I'd like
to turn to another issue, Secretary. And that has to do with the President's
budget. The new budget lays out another 2.5 trillion of spending increases and
go into the treasury Green Brook book that you just mentioned a few minutes
earlier. Another 4.7 trillion of tax increases as well. Those tax increases,
in my view, as you look at the Greenbook, will have a lot more complications.
We already got an over complicated tax code. I think this promises to
over-complicate it further. The most recent estimate that I've seen shows that
individuals and corporations spend 6.5 billion hours on tax filing and
reporting already. And it's hard to imagine a system as complicated and as
bureaucratic as it already is, getting more simple with the addition of
another 4.7 trillion of new taxes. And my question to you, and you may need to
get back to me on this is, how many more forms are instructions are going to
be required from the IRS to the American public to address this? How many more
hours will be required to fill out new forms and new new overhead to address
this massive new tax increase? >> Well, I can't give you an estimate at this
point of the number of errors or forms. But if Congress would consider
seriously the proposals, we would be able to make estimates of those things.
>> I will certainly consider it seriously, but it's clear to me that it's not
going to get any less complicated is going to be more complicated considerably
by the way, it's moving. And I've just finished with this. I'm very concerned
again that the green book calls for more than $100 billion and targeted tax
increases on fossil fuels. And talking about it, further increases on fossil
fuels further complicating that business at a time when our economic security,
international security are in such a grave situation, I think it really
doubles down on the weaponization of our tax code against industries that are
out of disfavor by this administration and it weakens us as a nation. Anything
that would lower investment in energy production right now weaken our national
security, so it's a grave of concern. >> I would say that fossil fuels have
benefited from many special texts features that really are tax expenditures.
They have benefited from that for decades. And at a time when we need to make
a shift over time to clean energy, to be spending money to subsidize fossil
fuels through the tax code is something that doesn't seem to our
administration to be appropriate. >> Anything that increases the cost of
producing energy right now at a point we've had massive inflation in energy
costs and we're at a point right now where we cannot fulfill our obligations
to our allies. It's putting our nation at a point of weaker economic security,
weaker national security. I think we should not be doing that. Thank you,
Madam Secretary. Appreciate you being here. Mr. Chairman, thank you. >> Thank
you, Senator Haggerty. And I'm going to turn it over to Senator Kennedy. Just
one piece of business before that. If I run out before Senator Kennedy
finished asking his questions, I just want scouts, honor. You'll stay within
the time limit. Number 1, I know you well, thank you, my friend. And Number 2,
in case I can't get back. Let me just say Madam Secretary, thank you for
appearing before the subcommittee and members will have one week to submit
questions for the record due on March 29th. And we would appreciate if your
office could respond to those questions as soon as possible. Again, I will be
here unless I get called away to get my questions up in another hearing. Thank
you, Madam Secretary. Senator Kennedy. >> Thank you, Senator. >> Scouts honor,
Mr. Chairman. Madam Secretary, I thought I understood your proposed budget. I
don't want to walk you through it again. Here's another fact that the
President's proposed budget increases spending by half $1 trillion over the
current budget. >> There is an increase in 24/23 by about that much in
outlays. >> Isn't it a fact that the president's budget proposes new taxes of
$4.7 trillion? >> That's probably right, yes. >> I'm talking about gross debt
now, not debt held by the public. Isn't it a fact that under the president's
proposed budget, gross debt would go from $32.7 trillion at the close of this
year to $50.7 trillion by 2033? >> Did subject to statutory limitation, yes,
would go as you said. >> So the president's budget would increase our debt by
$18 trillion? >> Which is $3 trillion less, than it would increase without the
proposals, in the president's budget. >> So what the President saying is,
these are my words, not his. Because of his budget, we're going to have three
heart attacks and a stroke instead of four heart attacks and a stroke. >>
Well, I would not agree that we're going to have three heart attacks and a
stroke because we have a very large economy. And well, the numbers that you
cite are very big numbers. The size of our economy is also extremely large.
And I think a better metric for assessing what the impact of the budget is on
our economy and whether or not, it's manageable, is the real net interest
payments that we have to make relative to the size of our economy. And those
real net interest payments run throughout the 10 years of the budget at around
or under 1% of GDP, which is historically normal. So debt is increasing, the
size of the economy is increasing, interest rates are moving back toward more
normal levels after a period of many years in which they are exceptionally
low. And yet overall, what you see in this budget is real net interest on the
debt stabilizing at about 1% of GDP, which is a manageable and historically
normal number. >> So $51 trillion of debt up from 33 trillion doesn't bother
you? >> I think the path this is set out in the president's budget, is
fiscally sustainable. >> How much debt is too much? Tell me that. >> Well, I
just gave you the metric that I think is best for assessing fiscal
sustainability. >> Let me ask it in simpler terms, I didn't follow you there.
What debt as a percentage of our GDP is too much? >> It depends on what
interest rates are. And real interest rates have been extremely low. This
budget and previous budgets have projected that they would move up toward more
normal levels over time, but certainly not the levels that we saw several
decades ago, and we can't judge. >> Could you just answer my question, Madam
secretary? What percentage of debt of our GDP is too much? >> Well, this
budget has debt held by the public, moving up to around 109% of GDP. >> And
that's not too much in your opinion? >> Historically it's a high level, but on
the other hand, real interest rates have moved down substantially in recent
decades. And so higher levels of debt to GDP are sustainable with lower real
interest rates. And on balances, I said the interest burden of the debt is at
a level that is quite reasonable in historic terms. >> Madam secretary, you
are a Keynesian? >> Well, I don't quite know what you mean by that, but I've
certainly-. >> Do believe it's acceptable indeed, it's admirable for
government when you're in a slow period of recession or boarding and recession
to stimulate the economy by borrowing money and spending? >> It certainly can
be, I certainly different-. >> That's what I mean by Keynesian. Do you see all
that? >> Well, there are different tools that can be used to stimulate an
economy that's in a downturn. Monetary policy is an alternative tool. >> But
let me go back to my question. Keynes said that when you're in a recession,
you can borrow money and spend it, government can to stimulate the economy and
gets you out of the recession. >> Well, I'm not going to make a blanket
statement that I agree with that. >> Well, let me ask you if you agree with
this. A lot of people who say they're Keynesians and based on what I've read
of your writings, you are a Keynesian. They forget the second part of what
Keynes said. He said, after you get out of the recession, you pay the money
back. Did you not? >> I don't recall that he said that. >> He said it. I'll
show you that one too. >> Show that to me. >> I promised the chairman I
wouldn't go over, and I want to yield back two seconds. >> Thank you, Senator
Kennedy. And I'm hoping that you would agree that all economists would agree
that it's a bad idea to default on our debt as we still try to figure out how
to deal with these budget issues. And I look forward to a conversation. This
has been a good I think good discussion for all. Thank you to the members.
Madam Secretary, thank you, and the hearing is adjourned. Well, Madam
Secretary, senator Manchin has just arrived. As I said earlier, Madam
Secretary, I'm going to have to depart. My other colleagues here may have to
apart. >> I'll watch you. >> Thank you, Senator Kennedy. But Senator Manchin
you got seven minutes and you'll close out the hearing. Thank you. >> Thank
you so much. I'm so sorry to hold everybody. I'm so sorry. I'm glad you
stayed. >> You got the same here if you need to go too. >> Madam Secretary, I
know we have an awful lot to talk about and you've been so kind in sharings,
give me some of your time and a meeting with you. But I think on the record, I
like to have a few things that we can talk about on the record and make sure
that we do. First of all, with all this going on, I know there's lot of talk
about the bank in the senate. And I think it was Senator Haggerty was talking
about over the 250. I've been talking to few of our colleagues and we were
just wondering if it's, and you said you haven't gotten to that point yet. So
let's say 90% of my West Virginia deposits are under 250. And now they're
going to pay a little bit higher premiums, I guess, or higher bank fees or
somebody's going to pay that as a bank absorbing that, or would it be passed
on to the consumer? >> Well, it's not obvious would be passed on to the
consumer as suppose it could be, but may also be absorbed by the, it's a
special onetime-. >> I got you. >> Assessment. >> If we're assuming that could
happen and maybe it could be the consumers. They understand the bankers, I had
all the community bankers in. What they believe would be unfair, they said,
listen, we're in good shape so we move money around. So if we have a depositor
has $1 million, this one banker says, I'll call three of my friends and say,
can I move 250 to you and 250 to you? We do that all the time to make sure
everyone's covered. That's my response, he said, that's my responsibility,
which made all the sense in the world. So I know there's a lot of tools that
we already have that sometimes just bad banking practices. They all come to
the conclusion they felt the San Francisco feds did not do their job. They
thought they were lax and basically what they should have enforced was eight
months without a risk manager at the bank SVB that they knew about. Is that
factual? >> Senator Manchin, I'm not involved. It's the federal reserve in
California that are involved in the supervision of that bank. I'm not
involved, I've read some newspaper stories about this. But this is not in the
public domain, and I don't know. >> For the record, I think you did the right
thing. We all made your decision on taking care of depositors, but not the
bank bailout and not the shareholders and all that. And I think there's a
callback, as you understand, there's legislation for callback? >> Yes. >>
Because we think that there was nefarious acts by those responsible to protect
themselves and the heck with our depositors and all the other people who've
fallen prey to this. So we're hoping that you all can look at that and maybe
give us your bless. >> Yes, certainly we will, absolutely. >> In an hour to 50
above, I was just going to ask you this. From 250 and above to me that
reasonability would be if I need to keep about $2 million in the bank because
of payroll and inventory reasons, and I know I've only secured it, I got 250.
I got 1,000,750 at stake. >> Shouldn't I be able to buy or pay a little higher
bank fee to get protection up to the amount with a cut maybe at 10? We've been
talking, some senators have been talking back-and-forth. Could the FDIC and I
think they said it would take legislation? >> Would take legislation. >> I
don't think we should do it without you all involved showing us how to
structure that. But if I could go back to my bank or is it says for those
businesses you might have in even rural areas that have to keep large amounts
of cash because they need that, now that they know that they're exposed, they
would be the first ones to move to the bigger banks. >> That's exactly right.
>> So they're worried about that? And they said If you could offer some type
of an insurance policy that they would pay for, so the 250,000, 80-90% in
rural areas aren't going to be saddled with accommodating somebody that needs
that type of protection. >> I think often, the uninsured depositors,
especially in community banks, are local businesses that have payroll and
can't manage with just within the insured. >> Does that type of evaluation
make sense to you? >> I think this is very worthwhile for you and your
colleagues to be discussing what's appropriate here, and we would be more than
willing to work with you to think this through. It's worthwhile. For the
moment, we're trying to stabilize the situation using the tools at our
disposal. >> These are questions that are asked by reasonable people in the
business. >> Of course. >> And they're just saying, if you're going to do
something rather than just now saying, they think if you set a present now
that they're expecting the Feds to bail everybody out. And I don't think
that's what our intentions are. >> I don't think that that's going to be
needed. But we don't want to see contagious bank runs and loss in confidence
in our banking system. Especially when the banking system is overall for the
United States very sound. >> This subcommittee, hopefully, we'll have Mr.
Jerome Powell with the Feds telling us basically what they've been able to do
since the CBB has happened as far as to enforce the oversight by the San
Francisco Reserve and all the different reserves we have around the country if
they're looking at their more troubled areas, if you will. >> It's been
announced that vice chair for supervision, Michael Barr, will do a thorough
review of the supervision of this bank. >> I know this is in your belly wake.
I know that the White House is currently working with the EU on limited trade
agreement that will allow them to become eligible for the first half of the EV
credits. What we're concerned about is I know that the EU and I'm fine, I said
I don't have a problem with our allies. What I have a problem with is going to
countries that we don't have what we would call a secure supply chain. So when
we wrote the bill, as you and I have spoken about this before we wrote it with
free trade agreements. For us to have a free trade agreement, we knew that
there had to be more of a confidence that we're going to have pretty good
supply chain and not be held hostage. Some of these other countries where an
awful lot of the minerals come from are not in the EU. If you're trying to
expand that, if the White House tries to expand that beyond, we're back in
that critical situation where we have unreliable supply chains. Or the
China's, the Russia's, the Iran's, the North Koreans, all the different people
who have nefarious activities that sometimes use unscrupulous tactics. They
hold all those people hostages. And they've already had a pretty good stake in
it. I can assure you that was not the intent of how we wrote the bill. >>
Senator Manchin, I understand that the intent of the bill is that we should
have secure supply chains and any agreements that we would look at, and of
course, we would consult closely with you and with congress would be meant to
make sure that we are securing our supply chains as the legislation as is
going. >> We might respectfully at times agree to disagree on some things, but
unless you've been kind enough had to sit down and work with me and I
appreciate that. And we want to keep that going. I think we've furnished you
with the concerns we had with production, sourcing critical minerals, and
processing versus the manufacturing, and why we think there's a difference
there, and why we think it's imperative we keep that difference. And if we
don't keep that difference, then basically this material that they're
consuming part of the processing, which goes into the manufacturing portion,
does not go into the processing at all. Processing is taking the rocks or the
raw materials, raw minerals, and processing them into a form, then goes into
them. >> Use it though. >> That's the differences and we think that's very
clear and more hopefully that before you all come out with rule and all that,
we have more input in that or we're on the same page because that one causes a
lot of problems. >> So I believe we're on the same page. We're working very
hard on the rule and I've said that we will get this rule out by the end of
March. We're certainly trying to meet that deadline. And I've been consulting
with you and your staff broadly to understand. >> One final question since I
haven't put the clock on myself right now, but I'm watching the very go, don't
don't tell on me. One final question. Knowing what we have and how critical
the financial situation of being just what the bank thing, just that one
thing, what it did to our psychic, if you will, could have unraveled so many
things with the SVB now that started, when you don't have a financial house in
order right now, I'd venture to say, what would you recommend that we evaluate
and how we operate our government and our finances of our government right
now? So we're looking at all these other things, I hear about stress testing,
and all the things that goes on to evaluate, are they in a critical position
or not? What do you think we could do to look at how we operate here? And I
want to be very clear. The way the both sides, democrats and republicans are
approaching the debt ceiling, there's not one person as far as out of 100
senators that I truly in their heart believe that we should not hold anything
hostage about paying our debts or missing that or going into default, I really
believe that my heart. With that, I do not believe it's unreasonable for my
friends and colleagues on the republican side to say, can we sit down? Now, if
they're going to say, I will not vote to raise the debt ceiling unless you
pass this, this and this, I would not agree, that's a wrong approach. Would we
sat down and we can agree that we should be looking at these portions of our
debt and how we've accumulated so much debt so fast. We know what we did with
COVID. Take COVID out of the picture. We know how the rest of it, or do we
know how the rest of it accumulated in such a short period of time, especially
since 2001? But when you look at 2013 last ten years, it's been unbelievable
and the projections from OBM doesn't quit. So scares the baby Jesus out of me
and all the trust funds. I'm hopefully we can come to an agreement. And if
you-all would be receptive to considering, should we come to an agreement that
we can basically look at all of these things and within a 90 day period, come
back with some recommendations and get a vote either up or down. We're not
holding anything hostage, we're voting to pay our bills. And all we've agreed
on is we're going to put a bipartisan, a bicameral group together to look at
trust funds and look at the different things that are very vulnerable. The
same as you do with a bank when you send your examiners in. >> Senator
Manchin, I believe being on a fiscally sustainable course is critical for our
nation. And we should sit down and have a very reasoned discussion about
what's necessary to accomplish that. The president has offered to have
discussions, but not with the sword of damocles of if we don't agree, we are
going to not pay your bills and have financial and economic chaos. >> If I was
capable of bringing some people together on both sides and says, listen, let's
sit down and talk about what we think, that we can basically come and look at
over a three-month period to come back with a guaranteed vote on the floor, if
we make recommendations, you don't have to vote for it, and they think it
might be too toxic. I don't care what you think. Let's look and see how we get
our finances in order because we're not right now. And knowing what happened
to the bank, you should put all of this in a concern, could that happen to our
country? >> Well, we should be stress testing our fiscal just as we stress
test banks. We should be looking at what we think will happen in a best case
and what happens in alternative, better than worst scenarios. >> But I've been
here for 12 years, Madam Secretary, and I've not heard that happen or anyone
approach me with that. So I'm glad that you've said that and I think that
you're right on. Well, I want you to know I won't participate and will not
participate anybody holding anybody hostage. I will vote for the debt ceiling.
But I would vote with the understanding that at least we can have a
conversation with a guaranteed vote 90 days on changes we think need to be
made. And I think that's a reasonable approach. So hopefully you can talk to
the White House and I'll be talking to them too and seeing if they would agree
to something such as that. >> I know the president is open to discussions on
this topic. >> Well, with that, sometimes it pays to be late. I'm so sorry to
keep you this. But let me just say, I want to thank you, Madam Secretary and
your staff for being so accommodating and forthright with us and coming before
and appearing before the subcommittee. Our members will have one week to
submit questions for the record which are due March of 29th. I would
appreciate if your office can respond to those questions as soon as possible.
Subcommittee meeting will be adjourned on that. >> Thank you. >> Thank you