February 27, 2014

Chair Yellen Says Fed Will Alter Major Enforcement Decisions Procedures, Supports More Settlements Transparency

Comments Made in Response to Questioning from Sen. Warren at Banking Hearing

Washington, DC - At a Banking Committee hearing today, United States Senator Elizabeth Warren questioned Federal Reserve (Fed) Chair Janet Yellen about the Fed Board's involvement in critical enforcement decisions, the transparency of the Fed's settlements with financial institutions, and 'Too Big To Fail.'

"Back at your confirmation hearing, you said you thought the Fed's supervisory and regulatory responsibilities were as important as the monetary policy responsibilities, and I agree," said Senator Warren. "But I think current Fed practices don't reflect those values... Congressman Cummings and I sent a letter to you recommending that the Fed change its rules so that the Board would have to vote before any major settlement. Do you support such a change?" 

Chair Yellen responded, "Senator, I think that you have raised very important questions about this and I do think it's appropriate for us to make changes and I fully expect that we will... it is completely appropriate for the Board to be fully involved in important decisions, and I fully intend to make sure that we are." In the letter sent to Chair Yellen two weeks ago, Senator Warren and Congressman Cummings noted that the Board has only voted on eleven of the nearly one thousand settlements it has reached.

Senator Warren also discussed the Truth in Settlements Act, bipartisan legislation introduced with Senator Tom Coburn (R-OK) that would require greater transparency in government settlements - a principle Chair Yellen said she endorses. "The Fed doesn't have to wait for Congress to do that, you could voluntarily adopt that public disclosure now. Will you do that?" Chair Yellen stated, "I agree with you, it's important for us to disclose more and to disclose as much as we can, and we'll look at that very carefully and try to provide more information." Senator Warren continued, "this is really important because this is about accountability. We want to be able to hold our financial institutions accountable but it also means accountability for our regulatory institutions." 

Senator Warren and Chair Yellen also discussed 'Too Big To Fail.' "Since the financial crisis in 2008, the five largest financial institutions are 38 percent larger than they were back then. So my question is, what evidence would you need to see before you could declare with confidence that 'Too Big To Fail' has ended?" asked Senator Warren, "So long as the markets believe that 'Too Big To Fail' has not ended - and they demonstrate that by reducing capital costs for the banks that are perceived to be those that the government would rescue - do we still have a 'Too Big To Fail' problem?"

To see a video of the full exchange, click here.