Full text of Nominations of Lael Brainard and Sandra Thompson : Hearing Before the Committee on Banking, Housing, and Urban Affairs, United States Senate, One Hundred Seventeenth Congress, Second Session, January 13, 2022

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S. HRG. 117–337

NOMINATIONS OF LAEL BRAINARD AND SANDRA
THOMPSON

HEARING
BEFORE THE

COMMITTEE ON
BANKING, HOUSING, AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
ON
NOMINATIONS OF:
LAEL BRAINARD, OF THE DISTRICT OF COLUMBIA, TO BE VICE CHAIRMAN
OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

SANDRA THOMPSON, OF MARYLAND, TO BE DIRECTOR OF THE FEDERAL
HOUSING FINANCE AGENCY

JANUARY 13, 2022

Printed for the use of the Committee on Banking, Housing, and Urban Affairs

(
Available at: https: //www.govinfo.gov /

U.S. GOVERNMENT PUBLISHING OFFICE
48–297 PDF

WASHINGTON

:

2022

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island
PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey
RICHARD C. SHELBY, Alabama
JON TESTER, Montana
MIKE CRAPO, Idaho
MARK R. WARNER, Virginia
TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts
MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland
THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada
JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota
BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona
CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia
JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia
KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
LAURA SWANSON, Staff Director
BRAD GRANTZ, Republican Staff Director
ELISHA TUKU, Chief Counsel
DAN SULLIVAN, Republican Chief Counsel
CAMERON RICKER, Chief Clerk
SHELVIN SIMMONS, IT Director
PAT LALLY, Hearing Clerk
(II)

C O N T E N T S

THURSDAY, JANUARY 13, 2022
Page

Opening statement of Chairman Brown ................................................................
Prepared statement ...................................................................................
Opening statements, comments, or prepared statements of:
Senator Toomey ................................................................................................
Prepared statement ...................................................................................

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NOMINEES
Lael Brainard, of the District of Columbia, to be Vice Chairman of the
Board of Governors of the Federal Reserve System ..........................................
Prepared statement ..........................................................................................
Biographical sketch of nominee .......................................................................
Responses to written questions of:
Chairman Brown .......................................................................................
Senator Toomey .........................................................................................
Senator Menendez .....................................................................................
Senator Warnock .......................................................................................
Senator Rounds .........................................................................................
Senator Tillis .............................................................................................
Senator Daines ..........................................................................................
Sandra Thompson, of Maryland, to be Director of the Federal Housing Finance Agency ........................................................................................................
Prepared statement ..........................................................................................
Biographical sketch of nominee .......................................................................
Responses to written questions of:
Chairman Brown .......................................................................................
Senator Toomey .........................................................................................
Senator Menendez .....................................................................................
Senator Sinema .........................................................................................
Senator Warnock .......................................................................................
Senator Scott .............................................................................................
Senator Tillis .............................................................................................
Senator Hagerty ........................................................................................
Senator Daines ..........................................................................................
ADDITIONAL MATERIAL SUPPLIED

FOR THE

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RECORD

Letter submitted in support of nominee Lael Brainard .......................................
(III)

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NOMINATIONS OF LAEL BRAINARD AND
SANDRA THOMPSON
THURSDAY, JANUARY 13, 2022

U.S. SENATE,
URBAN AFFAIRS,
Washington, DC.
The Committee met at 10 a.m., via Webex and in room 106,
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of
the Committee, presiding.
COMMITTEE

ON

BANKING, HOUSING,

AND

OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

Chairman BROWN. The Senate Committee on Banking, Housing,
and Urban Affairs will come to order.
Today’s hearing again is a hybrid format. Our witnesses are in
person, as we see, but Members have the option to appear both in
person or virtually.
We consider the nominations of two highly qualified nominees
today, Dr. Lael Brainard to be Vice Chair of the Board of Governors of the Federal Reserve System, and Acting Director Sandra
Thompson to be Director of the Federal Housing Finance Agency.
It is amazing what a difference a year makes. We have today
safe and effective vaccines that are saving lives and getting people
back to work—207 million Americans are now fully vaccinated.
Our economy has weathered the storm and rebounded. In 2021,
we added a record 6.4 million new jobs, more than any year since
1939.
And it is not just the jobs numbers. It is the quality of those jobs.
Workers are demanding raises and they are finally getting them.
They are changing jobs at record rates because people finally have
some options.
The past year has illustrated how our economy works best, when
it works for everyone. Not just Wall Street. Not just the top 1 percent. Everyone. Whether you punch a clock or swipe a badge,
whether you earn a salary or make tips. Whether you are raising
children or caring for an aging parent. No matter who you are,
where you live, or what kind of work you do.
Economic growth will not mean much if it does not reach all
workers—families in Steubenville and Scranton and communities
of all sizes, all over the country.
The President has nominated Dr. Brainard and Acting Director
Thompson to important roles in our Government and our economy,
to put those workers and their families at the center of our Government and the center of our economy, to deliver results that actually
improve their lives.
(1)

2
Dr. Brainard is a leading economist who understands that a
strong economy is one where workers have power. She is committed to a worker-centered monetary policy that boosts employment and lifts wages, something that every member of the Fed’s
rate-setting committee has reaffirmed. She has led the way in modernizing and strengthening the Community Reinvestment Act,
something that Senator Warner has been particularly interested in,
a landmark civil rights law passed to begin to undo the shameful
legacy of redlining and lending discrimination, and spur investment in all neighborhoods and communities.
Through her leadership, the Fed listened to the people whose
lives and livelihoods are affected—civil rights leaders, affordable
housing advocates, local officials, and banks of all sizes. She
brought everyone to the table and she is working to ensure banks
meet the needs of all our communities. During this pandemic, she
has served as a steady hand, working shoulder to shoulder with
Chair Powell to stabilize our economy and steer the country out of
our abyss.
Dr. Brainard has a distinguished record of bipartisan service in
Government. She joined the Fed in 2014. From 2009 to 2013, she
was Under Secretary for International Affairs at the Department
of Treasury. She worked in the first Bush administration as a staff
economist at the Council of Economic Advisers and as deputy national economic adviser in the Clinton administration. She was a
professor at the Massachusetts Institute of Technology.
As Vice Chair, she will be tasked with supporting efforts—efforts
that are already underway—to empower workers and refocus our
economy on Main Street, and make sure that all Americans have
good jobs with growing paychecks and an affordable cost of living.
That also means supporting efforts to close the racial wealth and
income gaps that have barely shrunk in decades. As the Fed has
noted, quote, ‘‘The average Black and Hispanic or Latino households earn about half as much as the average White household and
own only about 15 to 20 percent as much net wealth.’’ As one of
our colleagues once said, when we all do better, we all do better.
With Governor Brainard as Vice Chair of the Fed, Americans will
have someone who understands that workers—not corporations,
not Wall Street—that workers create economic growth. Her commitment to the success of all Americans, from all walks of life and
every region of the country, is clear in all the work she has done
throughout her distinguished career.
Acting Director Thompson has a similarly long and distinguished
career in public service. In her time as Acting Director, she has
taken meaningful steps to put renters, homeowners, and families
first.
Over the past 6 months, Acting Director Thompson has directed
the GSEs to strengthen their plans to preserve affordable housing
and support manufactured housing and housing in rural areas; she
has expanded opportunities for middle class and low-income homeowners to save money on their mortgages through refinancing; and
she has increased the focus on fair housing at the GSEs.
I can think of no other nominee as qualified to work to make
homes more available and affordable for families throughout the
country while strengthening the financial standing of the GSEs.

3
More than two dozen consumer advocates, civil rights organizations, and housing advocates have all written to this Committee
supporting her.
Before being designated as Acting Director in June 2021, she
served for 8 years as the Deputy Director for the Division of Mission and Goals at FHFA. There she led an office responsible for the
mission activities of the GSEs and housing and regulatory policy
under directors of both parties to ensure the safety and soundness
of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.
Prior to joining FHFA, she spent 18 years at the FDIC, where
she worked for seven different chairpersons from each of the political parties, and in senior-level positions, including Director of the
Division of Supervision and Consumer Protection and the Director
of the Division of Risk Management and Supervision, helping to
stabilize our Nation’s banks.
Earlier in her career, she served at the Resolution Trust Corporation, cleaning up and restoring faith in our financial system
after the savings and loan crisis. In a nutshell, you can see how
qualified she is.
She will be in a position at FHFA to tackle some of the most
pressing issues facing homeowners and renters to ensure the stability of our housing finance system. Whether you are looking to
rent or to buy, housing had become too expensive and too hard to
find long before the pandemic began.
More than 50 years after passage of the Fair Housing Act, people
of color are far more likely to be denied a mortgage, far less likely
to own their own home, far more likely to pay more in rent than
they could afford. And in just the past week, tragic fires in the
Ranking Member’s home State and in the Bronx have reminded us
of how far we need to go to ensure that everyone has safe, affordable places to live.
FHFA has an important role to play in addressing these challenges, and Acting Director Thompson has distinguished herself as
the person we need to lead this critical work.
These nominees, each of them understands the challenges our
economy faces. They understand the people who make our economy
work, like so many of this President’s nominees. It is notable that
as we recover from a pandemic that laid bare just how hard women
especially work—at paid jobs in the labor market and at unpaid
jobs taking care of their families—we have two women poised to
take leading roles in our recovery.
I want to thank both nominees for their exceptional and their
lengthy years of commitment to public service.
Ranking Member Toomey.
OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY

Senator TOOMEY. Thank you, Mr. Chairman. Governor Brainard
and Ms. Thompson, welcome. You both have very extensive experience in your respective fields, and I commend you both for your
commitment to public service.
Governor Brainard has been nominated to serve as Fed Vice
Chair. The Fed has been granted significant independence to isolate it from political influence. However, Congress has given the
Fed very narrowly defined monetary and regulatory missions.

4
First, the Fed has been tasked with conducting monetary policy
to promote stable prices and maximum employment. But the Fed’s
recent actions have failed to maintain price stability.
Last year, Governor Brainard repeatedly insisted that inflation
was transitory. We have now had 9 consecutive months where inflation has been more than two times the Fed’s 2 percent target.
That makes it pretty clear that inflation is not transitory. Yesterday’s CPI release of 7 percent, the highest in 40 years, confirms
that further.
Inflation is a tax that is eroding Americans’ paychecks every day.
Even though wages are growing, inflation is growing faster, and
that is causing workers to fall further and further behind.
I appreciate that the Fed has pivoted toward normalizing monetary policy to tackle inflation, but the Fed also needs to learn from
its mistakes, and I think that begins with the Fed’s new monetary
policy framework, of which Governor Brainard was an author and
an outspoken advocate. The framework really subordinated the
Fed’s price stability mandate to try and maximize employment by
allowing inflation to run hot.
Under this approach, the Fed looked beyond employment as a
whole to consider whether employment was, quote, ‘‘broad based
and inclusive,’’ end quote. What this meant was the Fed would sacrifice stable prices to see if it could achieve higher employment
gains in certain demographic groups.
As Governor Brainard explained last year, the Fed should look
at employment numbers on a, quote, ‘‘disaggregated basis,’’ end
quote, and use monetary policy to narrow employment gaps between different, quote, ‘‘racial and ethnic groups,’’ end quote. This
framework risks keeping in place an inflation tax on all Americans
while the Fed decided which subgroups of people should have faster job growth than others.
One of the problems is that monetary policy can never equalize
employment rates amongst different groups. In the end, the Fed
would run the risk of failing on both fronts of its dual mandate because you need stable prices in order to achieve a strong economy
and maximum employment. Given this fact, the Fed should reevaluate its new framework.
The Fed also has the mission of monitoring the safety and soundness of certain major financial institutions. Under Chairman Powell, the Fed enacted modest, sensible reforms that reduced regulatory burdens and helped spur economic growth. But Governor
Brainard was the sole dissenter over 20 times on regulatory matters, an unprecedented number at the Fed.
For example, she argued that the Fed’s reforms of capital, liquidity, and stress tests for smaller, less complex banks would, quote,
‘‘weaken the safeguards at the core of the system,’’ end quote. Yet
though the economy nearly collapsed at the start of the pandemic,
the banking system emerged exceptionally well-capitalized and
served as a source of strength for the economy, demonstrating the
sensibility of these reforms.
In addition to opposing these reforms, Governor Brainard has
urged the Fed to take an activist role on global warming, which is
beyond the Fed’s expertise and mission. According to the New York
Times, she has, and I quote, ‘‘endorsed the use of supervisory guid-

5
ance, the Fed’s recommendations to banks, to encourage financial
institutions to curb their exposures,’’ end quote.
I am particularly concerned that she has advocated for the Fed
to shape environmental policy through so-called climate scenario
analysis. Not only does the Fed lack expertise in environmental
matters, but there is no reason to believe that global warming
poses a systemic risk to the financial system.
As I have noted before, we have not found a single bank that has
failed in the modern era due to a severe weather event. There is
a ‘‘transition risk’’ for banks associated with global warming, but
that is political and regulatory in nature. It is the risk that
unelected bureaucrats will attempt to impair the value of energyrelated assets by cutting off credit to the energy sector.
This is not about whether climate change is a significant threat
to our society. It is about the fact that climate policymaking requires tradeoffs between costs and benefits. And these are inherently political decisions, which is why they belong firmly in the domain of officials who are elected and directly accountable to voters.
Now turning to Ms. Thompson, she has been nominated to serve
as the Director of the FHFA, where she has had a busy 6 months
as Acting Director. In that time, she has proposed reductions in
capital requirements for Fannie Mae and Freddie Mac, suspended
restrictions on the GSEs’ acquisitions of high-risk loans, required
the GSEs to develop plans to further what Democrats call, quote,
‘‘racial equity,’’ end quote, but it just really looks like affirmative
action in the housing space, and increased the GSEs’ affordable
housing goals. Unfortunately, she has not prioritized ending the
GSEs’ conservatorships.
I am concerned the Administration is seeking to use FHFA and
the GSEs to take on more risk for taxpayers and expand affirmative action into housing. That makes Ms. Thompson’s nomination,
notwithstanding her extensive experience, a referendum on the Administration’s radical housing policy.
This policy contemplates more mortgages for higher-risk borrowers, repurposing the GSE as instrumentalities of social policy,
and a disappointing embrace of the failed GSE model. In a break
from decades of bipartisan housing finance reform efforts, this Administration is using the power of the GSEs’ conservatorships to
command and control a huge swath of the American economy. And
we are now asked to ratify this radical housing policy, and to take
ownership of the bailouts and foreclosures that I am afraid are
likely to follow. Especially given where we might be in the housing
cycle, we should be reluctant to do so.
Mr. Chairman, I look forward to hearing from today’s nominees.
Chairman BROWN. Thank you, Senator Toomey.
Would the witnesses 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. BRAINARD. I do.
Ms. THOMPSON. I do.
Chairman BROWN. Do you agree to appear and testify before any
duly confirmed committee of the U.S. Senate?
Ms. BRAINARD. I do.

6
Ms. THOMPSON. I do.
Chairman BROWN. Please be seated. Thank you.
Governor Brainard and Acting Director Thompson, welcome to
the Committee. If you would like to introduce family members or
friends in your testimony I invite you to do that, at the beginning
or whenever you want to.
Governor Brainard, please begin.
STATEMENT OF LAEL BRAINARD, OF THE DISTRICT OF COLUMBIA, TO BE VICE CHAIRMAN OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Ms. BRAINARD. Chairman Brown, Ranking Member Toomey, and
other Members of the Committee, thank you for this opportunity to
appear before you. I am greatly honored to be nominated by President Biden to serve as Vice Chair of the Board of Governors of the
Federal Reserve, and I am delighted to be here alongside Acting
Director Thompson. If confirmed to this position, I look forward to
continuing to work with Members of this Committee.
We are seeing the strongest rebound in growth and decline in unemployment of any recovery in the last five decades. Over the past
year, unemployment has fallen by 2.8 percentage points, and
growth is estimated to be around 5.5 percent, according to a variety
of private forecasts.
But inflation is too high, and working people around the country
are concerned about how far their paychecks will go. Our monetary
policy is focused on getting inflation back down to 2 percent while
sustaining a recovery that includes everyone. This is our most important task.
When the pandemic struck in 2020, I worked closely alongside
Chair Powell, Secretary Mnuchin, and many others, with the support of Congress, to calm financial market turmoil and save American jobs and businesses. When markets stabilized, I worked to responsibly wind down the emergency facilities that were established, and today the economy is making welcome progress, but the
pandemic continues to pose challenges. Our priority is to protect
the gains we have made and support the recovery.
Since 2014, as a member of the Federal Open Market Committee,
I have supported monetary policy that is responsive to economic
conditions as they evolve. Our approach helped sustain the longest
recovery on record with low inflation and millions of jobs.
More broadly, I have worked to safeguard and grow our economy
during the Administrations of five Presidents from both parties. I
have worked on the U.S. policy response to every major financial
crisis over three decades. In some foreign countries, I saw up close
how high inflation hurts workers and families, especially the most
vulnerable.
I am committed to pursuing the Federal Reserve’s congressionally mandated goals of price stability and maximum employment
and to maintaining the strength and resilience of our financial
markets. I am committed to the independent and nonpartisan status of the Federal Reserve.
If confirmed, I look forward to supporting Chair Powell in carrying out the responsibilities assigned to the Federal Reserve and
in fostering transparent communication and accountability to you

7
and the American people, more broadly. I will bring a considered
and independent voice to our deliberations, drawing on insights
from working people, businesses, financial institutions, and communities, large and small, across the country.
Before closing, I want to thank my husband, Kurt, my daughters,
Caelan, Ciara, and Chloe, for their steadfast support of my work.
And I would like to commend the outstanding efforts of the many
individuals across the Federal Reserve System who work so hard
every day to serve the American public.
Senators, I thank you for your consideration and I look forward
to answering your questions. Thank you.
Chairman BROWN. Thank you, Dr. Brainard.
Acting Director Thompson.
STATEMENT OF SANDRA THOMPSON, OF MARYLAND, TO BE
DIRECTOR OF THE FEDERAL HOUSING FINANCE AGENCY

Ms. THOMPSON. Chairman Brown, Ranking Member Toomey, and
Members of the Committee. I first want to thank President Biden
for nominating me to serve as the Director of the Federal Housing
Finance Agency (FHFA). It is the greatest honor of my career to
appear before you today.
Thank you to the Senators and the staff members with whom I
have met in advance of this hearing. If I am fortunate enough to
be confirmed, I look forward to working with all of you on the important issues at FHFA.
I would like to introduce my sons, Jarrett and Aaron, who are
here with me today, and I would like to recognize and thank my
parents, Herman and Helen Lathan. While due to COVID considerations they are not able to be here in person, the fact that my parents are still alive to witness today’s hearing is very meaningful to
me.
I was born and raised on the South Side of Chicago to my extraordinary parents, who came to Chicago from Mississippi as part
of the Great Migration. My parents and family, along with the Chicago Public School system, and my beloved Howard University
right here in Washington, taught me hard work, dedication, determination, and perseverance. I would like to specifically recognize
the schools in Chicago that helped me succeed: McDade Elementary School, Gillespie Junior High School, and Lindblom Technical
High School, all on the South Side.
My nomination for Director of the FHFA is a great privilege. I
recognize that it is rare for a career public servant to have the opportunity to lead a Federal agency, and, as the first African-American woman nominated for this position I appreciate the opportunity to demonstrate my expertise, good judgment, and leadership
in this position.
I am proud of the work we have done at FHFA in my 8 years
there. The agency plays a vital role in both promoting access to
mortgage credit nationwide and protecting the safety and soundness of the housing finance system through our supervision of
Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System.
Throughout my 40-year career, with experience in mortgage markets and financial regulation at multiple agencies, I have seen

8
what it takes to lead a Federal agency and be effective in that role.
In my work at FDIC and FHFA, I have demonstrated leadership,
management ability, and an understanding of the secondary mortgage markets and industry, a fair and balanced perspective, and a
strong belief in the importance of the safety and soundness of
America’s financial institutions.
During my time in Federal financial institution regulation I have
witnessed and worked to end several financial crises. These crises
exposed some truths in housing finance. When I served as the
FDIC’s head of supervision and consumer protection throughout
the 2008 financial crisis, I witnessed firsthand the consequences of
irresponsible lending when hundreds of banks across the country
were closed and a record number of homes went into foreclosure.
I saw how the borrowers who received unsustainable loans and
predatory loan products were devastated in the downturn, and historically underserved and disadvantaged communities were hit especially hard. Years of progress in closing the home ownership and
wealth gaps were erased as a result. In fact, today the Black–White
home ownership gap is wider than it was in the 1960s, when lending discrimination that was based on race was still legal.
As a financial regulator, I have long believed that safety and
soundness and access to credit are not mutually exclusive. Broad,
fair access, and the stability of financial institutions work together
as pillars of the Nation’s housing finance system. Indeed, sustainable access to credit requires sustainable lending standards.
FHFA will continue to promote sustainable and equitable access
to credit in a safe and sound manner. We will responsibly focus our
efforts on the safety and soundness mission Congress gave to the
FHFA and on the mission that Congress gave the housing GSEs
under our supervision, providing liquidity across the Nation and especially supporting underserved markets like rural and tribal
areas, manufactured housing, and preserving affordable housing. If
confirmed, it would be an honor for me to serve as the FHFA Director, and I will continue to be fair, balanced, and transparent.
Thank you for the opportunity to testify before you today, and I
am happy to answer any of your questions.
Chairman BROWN. Thank you, Acting Director. I appreciate both
of you came in under your 5 minutes, and I ask you to continue
to be. Rarely do people do that, that are witnesses. I ask you to
continue to be brief.
I have two questions for each of you, so as briefly as you can.
Governor Brainard, I will start with you. Thank you for your work
during the pandemic. The Fed took extraordinary action, as we
know, to support the economy. Some of my colleagues seem to have
forgotten what a critical state our economy was in when the pandemic first hit. Workers and small businesses in this country certainly have not forgotten.
Why were those actions necessary, and did you support all of
them, Governor?
Ms. BRAINARD. Thanks for asking the question. So I worked day
in and day out, alongside Secretary Mnuchin at Treasury, Chair
Powell, Vice Chair Quarles, and other colleagues to stand up the
necessary facilities to calm financial markets. As you no doubt recall, our financial markets were in turmoil as they absorbed the

9
news of the pandemic. A lot of workplaces had to shut down because of the risk of infection before vaccines were available, and
millions of Americans overnight were placed on layoff. And we really risked losing small businesses around the country. We risked
losing medium-sized businesses and the tens of millions of Americans that those businesses employed.
And so I think due to the very important actions that Congress
took we worked closely with Treasury to make sure that there was
financing available for small banks and CDFIs and MDIs to get
loans to small businesses in communities around the country. We
worked to make sure that Main Street financing was available. We
made sure to ensure that financial market turmoil was calmed, and
we provided a lot of support to the economy.
And here we are, 2 years later, and we have regained all of that
massive loss of GDP. We have businesses that are thriving around
the country. People are back to work. So I was proud to work on
that alongside all of my colleagues. I did not disagree with any of
the actions that we took. In fact, I strongly supported them and
worked hard to make them work.
Chairman BROWN. Thank you, Governor.
Acting Director, you know better than almost anyone how critical
it is that financial institutions have appropriate capital to be transparent about their risk. What have you done so far, and what more
needs to be done to make sure GSEs have the capital they need
to continue providing access to housing in good and bad times?
Ms. THOMPSON. Thank you for the question, Senator. I firmly believe in the safety and soundness of the housing GSEs, Fannie Mae
and Freddie Mac specifically. They have just been allowed to build
capital and retain earnings, and we think that that is very important.
One of the steps that we have taken is to encourage the use of
the credit risk transfer program which, as you well know, Fannie
Mae and Freddie Mac are the largest holders of mortgage credit
risk in the United States, I daresay the world. And one of the
things that we like to do is facilitate moving that credit risk off the
backs of the taxpayers and into the hands of the private sector.
And we believe that some of the changes that we have made to the
capital rule will help facilitate the credit risk transfer program and
move credit risk away from the GSEs and the taxpayers and into
the hands of private investors.
Chairman BROWN. Thank you, Acting Director.
Dr. Brainard, second question for you. For the first time in decades workers are starting to see a bit more power in our economy—
record job gains, record wage increases. We need to continue that
progress to catch up to all the costs that have been rising for decades. You will work closely with Chair Powell, if you are both confirmed, and oversee the Fed’s monetary policy.
How does the Fed’s monetary policy framework allow us to ensure we have stable prices and an economy where all workers have
a good job and reap the benefits of economic growth?
Ms. BRAINARD. So our monetary policy framework puts stable
prices and maximum employment on an equal footing, and I think
we are taking actions on the monetary policy front that I have confidence will be brining inflation down while continuing to allow the

10
labor market to return to full strength over time. So we are going
to achieve that maximum sustainable employment while we bring
inflation down to 2 percent.
Chairman BROWN. Thank you, Governor Brainard.
Last question, Acting Director Thompson. GSEs have reported
about 4 percent of their new mortgages over the past 2 years went
to Black borrowers and fewer than 11 percent went to Latino borrowers. For refinanced loans the shares are even lower. Compare
that to FHA, which most recently reported that 17 percent of loans
went to Black borrowers, and more than 25 percent to Latino borrowers.
What should GSEs do to make sure that they are serving borrowers of color equally?
Ms. THOMPSON. Thank you for the question, Senator. Certainly
we believe that every American ought to have sustainable and affordable housing and also places to live if they are renters.
With regard to the Black ownership gap, one of the things that
we have done is we have asked the enterprises to come up with
some equitable housing plans, and they are supposed to focus on
and identify barriers that underserved communities, particularly in
communities of color, have as it relates to getting a mortgage. They
are supposed to identify barriers and then come up with specific
plans to execute the requirements that they have developed.
We also have a focus, as you well know, on all underserved communities, whether they are rural or tribal and other areas around
the country. But we think that these housing equity plans will go
a long way to help minority home ownerships in underserved communities across the country have access to mortgage credit.
Chairman BROWN. Thank you, Acting Director. Senator Toomey.
Senator TOOMEY. Thank you, Mr. Chairman. Governor Brainard,
thanks again for your continued willingness to continue in public
service. I know this is not always easy.
I was encouraged to hear you say that you are committed to the
independent and nonpartisan status of the Federal Reserve. It is
very important that Fed decisions on monetary and regulatory policy are entirely free from political interference.
So I think this is a simple yes or no question. Will you commit
to considering yourself independent from the White House, regardless of which party occupies it?
Ms. BRAINARD. Yes.
Senator TOOMEY. Thank you. And will you commit to make your
decisions without regard to political or electoral consequences?
Ms. BRAINARD. Yes.
Senator TOOMEY. Thank you. So I think you have acknowledged
the importance of the independence of the Fed, how crucial that is
for maintaining the trust and confidence of the American people.
In light of that, I wonder if you could tell me how you view the
coup by three men, including one who is serving on a term that expired 3 years ago, that forced out Jelena McWilliams, a well-respected regulator, from the once independent FDIC.
Ms. BRAINARD. So I cannot speak to the FDIC. I can tell you that
I have enjoyed working with Jelena, continue to work with her,
Jelena McWilliams, Chair McWilliams, on issues such as Community Reinvestment Act.

11
We have a very different institution and it is a very collegial institution. It is nonpartisan. And I can tell you a little bit about how
I work in that institution, just to give you a sense.
Senator TOOMEY. Well, I am very limited on time here so let me
just say, I know you commented on Jelena McWilliams, and I appreciate that, and I do understand you to have had a good working
relationship with her. But I would suggest then and ask you to reflect on what happened there, and I think it is relevant.
The Fed, as you know, is also a multimember agency. It has
prided itself on operating free from political interference and following norms of governance for many years. That used to describe
the FDIC, and unfortunately it does not anymore, and there are
people on the left and in this Administration who want the Fed to
become more political, to become advocates for the causes and
agenda that they support. And I have warned, and I am concerned
that the Fed’s dalliance with those issues, totally irrelevant to the
dual mandate, will undermine the Fed’s credibility and threaten its
independence, and I think that is very important.
Let me move on to climate risk. As you know, the Fed has consistently stated that there are two categories of climate-related financial risk. The first is physical risks and the second is transition
risks. Now the actual data shows that physical risk, that is actual
severe weather events, do not threaten financial stability. This
week, Chairman Powell said the possibility of financial stability
disruptions from physical risks, quote, ‘‘doesn’t seem likely in the
near term,’’ end quote. Well that is obvious. There was a recent report from the New York Fed that backs this up. According to the
report, weather disasters from the last quarter century had insignificant or small effects on U.S. banks’ performance.
So do you acknowledge that the likelihood of weather events
leading to systemic risk during your term as Fed Governor is virtually zero, based on historical data?
Ms. BRAINARD. So to be honest, I think it is very important for
us just to understand potential implications of tail risks. Tail risks
are risks that have very, very low probability of happening but
have extreme damage. And, of course, I would not have expected
us to need to study pandemics 5 years ago either, and yet a lot of
our policymaking over the last 2 years has been really under the
cloud of a very complicated set of economic conditions and financial
risks associated with a natural event.
So, you know, it is our job just to be very attentive to potential
risks to the financial system.
Senator TOOMEY. So here is my concern, and I am certainly not
alone in this. The actual evidence shows that there is no real physical risk. The transition risk, though, is real, and Chairman Powell
explained the source of that. The source of transition risk is really
Government policy. And this is what is concerning. There are lots
of risks out there. There could be a trade war with China. There
could be geopolitical turmoil coming from a Russian invasion of
Ukraine. We could have the Government engage in shutdowns
again in response to a pandemic, for instance.
Actually, I would argue each of those poses a greater risk to the
financial system than some sort of climate event, which has never
resulted in the failure of a major bank. But you have not advocated

12
doing stress tests around those other risks. The only one I know
of that you have advocated is stress tests for the less likely risk,
which is the climate-related risk. And the concern that many of us
have is that this whole construct, unique to climate risk, even
though it is really not a threat certainly in the foreseeable future
to the financial system, it is all about a precursor for using the regulatory power of the Fed to direct capital away from politically
disfavored industries.
So Sarah Bloom Raskin is, by some accounts, might be President
Biden’s next nominee to be the Vice Chair for Supervision. Now she
has been explicit on this point, and she has argued regarding the
implementation of the CARES Act that the Fed, and I quote,
‘‘should not be directing money to further entrench the carbon
economy,’’ end quote. So she is explicitly advocated that the Fed allocate capital by denying it to this disfavored sector.
And my question is, do you agree with Ms. Raskin that the Fed
should play that role?
Ms. BRAINARD. So let me just respond to your question, Senator.
Thanks for asking. I have not suggested that we should do stress
tests for climate. Stress tests are very specific. They are related to
the capital planning of large financial institutions. We do actually
include geoeconomics risks in those stress tests, so we have included things like Brexit in our stress tests. But I certainly have
not stated that we should do climate stress tests.
In terms of supervisory guidance, what we tend to do is ask large
institutions, in particular, ‘‘Do you have a good risk management
framework for assessing all of your material risks?’’ We would not
tell banks which sectors to lend to or which sectors to not lend to,
but we do want to make sure that they are measuring, monitoring,
and managing their material risks, and many large financial institutions——
Senator TOOMEY. So then just to be clear then, you disagree with
Ms. Raskin on this point.
Ms. BRAINARD. So I honestly have not studied her positions, and
I would simply say I can speak to what we do in our supervisory
guidance. And, you know, it is pretty meat and potatoes. It is very
well known to the large institutions and really not that different
from what they are doing today.
The one thing I would also just want to clarify is I do not think
that is appropriate for small institutions. I think small institutions
do not have as big a footprint. I think, you know, they will decide
what their risks are. But I am really more focused on the large institutions, who themselves come in to tell us that they would like
to have more consistent expectations in this area across jurisdictions.
Senator TOOMEY. I have run out of time.
Chairman BROWN. Thank you, Senator Toomey.
Senator Menendez, of New Jersey, is recognized.
Senator MENENDEZ. Thank you. Governor Brainard, let me first
thank you for your leadership on reforming the Community Reinvestment Act rule over the past several years. In the middle of
2020, when the Trump administration was ramming a flawed rule
to the OCC, civil rights advocates, banks, and other affected parties
looked to you as a serious voice in the room, and if confirmed, I

13
have no doubt that you will continue in that spirit. As we approach
Dr. King’s birthday commemoration this coming week I think about
this as one of the essential elements of a move toward a more just
society.
So let me first ask, during the past few years, as you were engaging in that work, what did you hear from minority-led organizations about the CRA changes needed to further incentivize investments in minority communities who were disproportionately impacted during the pandemic?
Ms. BRAINARD. Well thank you for your question, and yes, I was
very pleased that the Board unanimously put out an Advanced Notice of Proposed Rulemaking that I think, you know, really does
provide a nice foundation for community groups and banks to give
us feedback on what would be some good modernization measures.
So what we hear still from many communities around the country is that they still do not have similar access to credit. There are
still barriers in terms of getting that access. They really like having bank branches in their neighborhoods, but particularly in rural
areas that is not always the case. And they want to be able to have
more interaction with financial institutions. They want minority
depository institutions and community development financial institutions, which do tend to be very good at serving those underserved
communities, to be strengthened. And they just really care deeply
about the Community Reinvestment Act, as do many banks.
Senator MENENDEZ. So would you commit to making it a top priority to work with the other regulators to issue a strong, new rule
in a timely fashion?
Ms. BRAINARD. I will certainly support that effort at the Board
and with the other regulators, yes.
Senator MENENDEZ. OK. I appreciate that because minority communities are hurting right now, and this needs to be a priority. The
pandemic has brought to light how severe the lack of credit and investment dollars problems are for minority small business owners,
and I think it is past time for our regulators to work together and
issue updated and effective CRA rule, so I look forward to your
leadership.
Ms. Thompson, New Jersey is what I call a blue-chip State, a
State that spurs innovation and drives the Nation’s economy. According to U.S. News and World Report, New Jersey has the second-best public school system in the country and the highest per
capita income in the country. In other words, we do a great job of
educating our kids and giving them the ability to reach their potential. That is just not because New Jerseyans are smarter than their
fellow Americans, but it is because we invest in our people.
So this is a State that is part of a region that generates 20 percent of GDP for the entire Nation, so we make money for the Federal treasury. But as we met yesterday, and I appreciated our visit,
I explained how many New Jersey homeowners are being hit with
a one-two punch of rising flood insurance rates, unfair cap on State
and local tax deduction, the oldest deduction in the Federal Internal Revenue Code, and thanks to the Trump tax bill, which we are
fighting to reverse both of those bad policies.
But I want to make sure that as Director of the FHFA you are
sensitive to the concerns of homeowners, not just in New Jersey

14
but other high-cost States. Yes, we want to be fiscally responsible
to the entities, the GSAs that are under your purview, but we cannot simply do it on the backs of those that are actually generating
revenue for the Federal treasury. Can you comment on that?
Ms. THOMPSON. Sure, Senator, and thank you for the question.
Certainly we care very much about the high-cost loans. As you
know, last year we had a historic increase in home prices, and that
hit States that have high-cost areas probably harder than most.
One of the actions that we undertook was to increase the fees for
some of the higher-balance loans, and that may unduly impact a
number of counties across the country. I think most of the country
is not impacted, but there are about 121 counties across the country that are.
Having said that, we do recognize that there is a difference between buying a home in New Jersey versus buying a home in
Aiken, South Carolina. And we have excluded from this fee firsttime home buyers with area median incomes less than 100 percent,
and we have also excluded our affordable products so that there is
no fee associated with first-time home buyers who live in high-cost
areas.
But we know that there is a huge affordability issue, especially
with first-time home buyers, and we did not want to exacerbate
that problem.
Senator MENENDEZ. Thank you. Finally, Governor Brainard, the
Fed has a serious diversity problem, something I keep pressing. I
had it with Chairman Powell and I am compelled to raise it with
you as well. If you are confirmed, what steps are you going to take
to improve minority representation, particularly Latino representation, which is among the worst of the diversity that exists at the
Federal Reserve?
Ms. BRAINARD. Well thank you for your question. So I think the
Federal Reserve was actually founded on a recognition of the importance of bringing a diversity of perspectives to the table. That
is why we have 12 reserve banks all across the country and we
have branches in communities all across the country. So we have
regional diversity, we have always valued sectoral diversity. It is
very important to have different kinds of backgrounds.
But we really have lagged on racial and ethnic diversity. We are
seeing some very important changes that we have worked very
hard on at the reserve banks in terms of the boards of directors.
If you look there at Latino representation it has gone up threefold
just in the last 4 years, and so now we have about 25 percent of
our Class C directors are Latino. We have about a third that are
Black, and we have now more than half who are minorities of one
sort or another. So we have made progress there.
But in terms of actual leadership positions we have only ever
had one Black President. We have never had a Latino President.
And so, you know, that remains a very high priority. Many of those
boards have spent a great deal of time making sure that we have
more diverse pools of candidates and that our procedures in hiring
are as good as best practices everywhere. And why? Because we
know, as those who wrote the Federal Reserve Act knew, is that
having more diverse perspectives at the table, diversity of every
type, leads to less group think and better outcomes.

15
Senator MENENDEZ. Thank you, Mr. Chairman.
Chairman BROWN. Thank you, Senator Menendez.
Senator Rounds, of South Dakota, is recognized.
Senator ROUNDS. Thank you, Mr. Chairman. Let me begin by
saying thank you to both of you for your continued participation in
public service.
Ms. Thompson, in September, the FHFA, under your leadership,
proposed a capital framework which offers a stronger incentive for
the GSEs to create credit risk transfer, or CRT, relative to the current capital regime. I think you began and you visited a little bit
about that with the Chairman of the Committee here.
I would like to explore that a little bit more, because I believe
that this is a legitimate tool, and I am just curious, can you share
with me briefly your philosophy on the CRT and how you might
utilize it further, if confirmed?
Ms. THOMPSON. Sure. Thank you for the question, Senator. I
firmly believe that the credit risk transfer program is very important for the enterprises. As I mentioned earlier, Fannie and
Freddie are the largest holders of mortgage credit risk in the world,
and right now Fannie and Freddie, they are able to retain capital
but they are not able to—they do not have enough capital to withstand a severe event.
And so if something really, really bad happens, the event will
have to be paid for, once again, by the taxpayers, and it is important for us to continue to encourage the credit risk transfer program so that the taxpayers are not on the hook for any extreme
events and that private investors have to engage in the credit risk
decisions.
We just believe that it is critical for the enterprises, especially
while they are undercapitalized, to continue to transfer credit risk
away from the taxpayers and into the hands of private investors.
Senator ROUNDS. Thank you.
Governor Brainard, first of all thank you for the meeting the
other evening in my office. I most certainly appreciated our conversation. I think a number of the concerns that our Ranking Member has shared with you, you have had an opportunity to respond.
I am curious specifically on an item that you and I spoke on very
briefly but I would like to have a conversation here as well, and
I made a similar request like this to Chairman Powell on Tuesday.
I believe the adjustments to the supplementary leverage ratio, or
the SLR, are necessary in order to account for the large influx of
cash that has become challenging for banks to manage. Would you
be willing to work with my office to look at ways to address the
liquidity issues through the calculation of the SLR?
Ms. BRAINARD. Yeah, well thank you, Senator, and I certainly
share that view that because of the need to respond to the pandemic there are a lot more reserves in the system. And I supported
the removal of the reserves from the leverage ratio for custodial
banks, and I think it makes good sense to look for ways, while
keeping capital strong, to find a way to adjust that supplemental
leverage ratio because of the much larger amount of reserves in the
system.
Senator ROUNDS. Thank you.
Ms. BRAINARD. I do commit to working with you.

16
Senator ROUNDS. Thank you. Also, let’s talk a little bit about inflation. This is critical. We are at 7 percent right now. The stated
goal is 2 percent. We have 5 percentage points—critical. I think in
our discussion with Chairman Powell he made it pretty clear that
the Fed could manage the demand side, and I think you would
agree with that. Demand is where you work at, not necessarily on
the supply side. Fair enough?
Ms. BRAINARD. Absolutely. I think over the medium term inflation is a monetary phenomenon, and we have tools that operate on
the demand side.
Senator ROUNDS. OK. In order to move that back, and I know
that you have made it very clear that this is a critical priority, how
much of the inflationary trends that we see today do you think you
can actually manage with demand side policy only?
Ms. BRAINARD. So I think, you know, we have a set of tools. They
are very effective and we will use them to bring inflation back
down. Sector to sector, there are microeconomic market structure,
other issues at work, supply disruptions at work. That is not where
our tools are effective. That lies elsewhere. But we are committed
to using the tools that we have to deal with inflation, which is fundamentally a monetary phenomenon.
Senator ROUNDS. What I am trying to get at, and this is not a
gotcha question. My question really is, with inflation where it is at
we know it is both supply side and it is demand side. But clearly
there have been discussions, and clearly you have research done as
to how much of the inflationary trends that we have are attributable to demand side policy. Can you share with us what you believe the percentage, or at least the amount of inflation would be
attributable to demand side?
And the reason why I ask is because if you overreach or if you
do not do enough you are never going to get it down, but at the
same time with supply side—and we both recognize that you cannot do much about supply side, and this is critical—the price of
gasoline is going up because we have got restrictions on the availability of new gasoline being put into the system and high demand
for gas. But simply telling a consumer that the price has gone up
and so we are going to make it more restrictive for you to buy it,
they are still going to buy gas because they have got to get to work.
So in this particular case, as we look at food prices going up and
we look at gasoline going up, the price of rents is going to be going
up, the price of housing is going up, how much of that interest on
inflation do you have the responsibility, or should you be looking
at in terms of the demand side of the equation?
Chairman BROWN. Governor, be as brief as you can in your answer, please. Thanks.
Ms. BRAINARD. Well, I will certainly, just looking at prices at the
pump, prices at the grocery store, that is clearly hurting Americans
all over the country. That is about a quarter of the very high inflation that we see. So I think you are certainly right to focus in on
those areas as particularly difficult and very rooted in supply side
constraints.
Senator ROUNDS. Thank you, Mr. Chairman.
Chairman BROWN. Thank you, Senator Rounds.
Senator Tester, from Montana, is recognized from his office.

17
Senator TESTER. Well thank you, Chairman Brown, and I want
to thank Director Thompson and Governor Brainard for being here
today.
You know, Director Thompson, you said something in your opening statement that is something we need to pay attention to and
that is the ownership gap today is wider than it was in the 1960s
when discrimination was legal. This is a question for you, but then
if Governor Brainard wants to add to this I would certainly like to
hear her opinion too.
But what can you do about closing that ownership gap in the position that you are going to be hopefully confirmed for?
Ms. THOMPSON. Thank you for the question, Senator. Access to
credit is really important especially in underserved communities
generally. And I mentioned earlier that we have asked the enterprises to develop equitable housing plans that focus on some of the
inequities that have taken place. They are supposed to identify barriers for underserved communities, particularly Black and Brown
communities, to engage in home ownership. And we are looking
over those plans now, and some of them focus on education and
making sure that opportunities are available for people to understand what the home ownership process is, how it works, what it
does, and then if there are other issues, like appraisals that come
into play in terms of bias that may or may not exist.
And we want to make sure that the enterprises are focused on
identifying barriers and focusing on coming up with plans to address and identify those barriers, to really close the home ownership gap. Because as you know, Senator, a home is the greatest
asset that most people own, and we believe that home ownership
will go a long way toward closing the racial equity gap.
Senator TESTER. Governor Brainard, would you like to respond
to that same question? What can you do in the position that you
are going in for to solve this ownership gap?
Ms. BRAINARD. Thanks for the question, Senator. So we are well
aware of that home ownership gap. We collect those statistics, and
it is has been very, very stubborn.
We do work with banks, trying to provide help and incentives
under the Community Reinvestment Act to increase the supply of
affordable housing, workplace housing. We know there are shortages in all of the communities represented by Members of this
Committee. I have visited many of them.
And in particular we have community development financial institutions who are very good at using LIHTC subsidies and other
subsidies together with bank financing, and that is really where
the Community Reinvestment Act comes in, to expand the supply.
We are looking also at naturally occurring affordable housing. That
is one of the questions we asked in the CRA. Native CDFIs, for instance, are very good at working on very particular issues affecting
tribal nations. So getting incentives for banks to partner with those
institutions can help on the margins.
Senator TESTER. Thank you for that. I would also that—you
know this; I think you both know this—there is an incredible supply problem out there across this country, which has caused housing prices to go up. If you have any ideas, any recommendations,
about what Congress can do to help solve this problem I would cer-

18
tainly love to hear them. I know the Build Back Better proposal
that may or not be going anywhere at this moment in time had
some housing initiatives in it, but I think could have been positive
if they were passed in the way that I saw them, to solving some
of the supply problems.
Governor Brainard, I want to continue with you for a second.
You and Chairman Powell have clearly worked pretty well on a
partnership during your time together at the Fed, and I know this
will continue. I gave Powell the opportunity to share his view earlier this week and I want to give you the same.
I remember very clearly the pressure that President Trump put
on the Fed for his own political gain, not the well-being of the economy, and I am grateful for you and your colleagues’ commitment
to the independence that you maintained in the Fed through that
intensive pressure. So can you tell me briefly why is this independence so very important?
Ms. BRAINARD. Well I think it is a long-established tradition at
the Federal Reserve, and, you know, it is certainly important to be
able to set monetary policy in a way that is closely related to the
goals that Congress set for us, and we need to make judgments in
the Committee free from political pressures, and that is what we
have been able to do under the independence of the Fed, and it is
important to keep doing that. I will certainly continue to support
Chair Powell in that.
Senator TESTER. Thank you both.
Chairman BROWN. Thank you, Senator Tester.
Senator Kennedy, from Louisiana, is recognized.
Senator KENNEDY. Thank you, Mr. Chairman. Governor, Director, congratulations on your nominations.
Governor, I realize at the Federal Reserve that you have a big
staff that advises you on inflation. And based on their track record
my guess is they also advised people to buy condos in Las Vegas
in 2007. But you do not have to accept their advice. So with respect
to your predictions on inflation, how did you get it so wrong?
Ms. BRAINARD. Well, Senator, thank you for——
Senator KENNEDY. Could you move closer to the mic for me?
Ms. BRAINARD. Yes, of course. Thank you for your question, Senator.
Senator KENNEDY. You are welcome.
Ms. BRAINARD. So I think, you know, nobody got the pandemic
right. The pandemic is unprecedented.
Senator KENNEDY. But I am asking you about inflation.
Ms. BRAINARD. Yeah. So I think as forecasters, private forecasters, certainly the forecasters, the SEP, the whole Committee,
we thought that perhaps we would see a more rapid resolution of
the pandemic and the supply demand mismatches, in particular
cars——
Senator KENNEDY. Excuse me for interrupting——
Ms. BRAINARD. ——energy——
Senator KENNEDY. ——but I do not have much time. Are you
saying that inflation as caused by the pandemic?
Ms. BRAINARD. So we certainly have seen the perpetuation, for
instance, of the Delta variant leading to——

19
Senator KENNEDY. Excuse me. But are you saying that inflation
is caused by the pandemic?
Ms. BRAINARD. I certainly think the supply demand imbalances
that have been the biggest contributors to the very high inflation
we have seen are directly attributable to supply chain issues, distortions in demand.
Senator KENNEDY. But here is what troubles me about that. I
will agree that inflation is spreading, but I do not see people going
around coughing inflation on each other. And I understand supply
chains matter, but so does the demand side, and so does too much
money chasing too few goods. And I do not think, and I do not
think any fair-minded person thinks that inflation is solely the result of the pandemic.
Let me move on. Do you think that Federal regulatory authorities should use their considerable power, not just the Federal Reserve but Federal regulatory authorities, do you think they should
use their considerable power to discourage private banks from lending money to oil and gas companies?
Ms. BRAINARD. No.
Senator KENNEDY. Ma’am?
Ms. BRAINARD. No.
Senator KENNEDY. OK. Do you think that those Federal regulatory authorities should use their power to discourage private
banks from lending money to gun manufacturers and dealers?
Ms. BRAINARD. It is not our job. We do not tell banks what sectors to lend to. We just ask them to risk manage and we make sure
they have good processes——
Senator KENNEDY. Well, I agree with you and I thank you for
that. Will you issue a statement to that effect, if you are confirmed?
Ms. BRAINARD. Well I certainly have made that statement, will
continue to make that——
Senator KENNEDY. Yes, ma’am, but would you issue a separate
statement saying, ‘‘I want to make it clear, for what it is worth,
to all of my colleagues in Government, I do not think that you
should use your power to discourage private banks from lending
money to oil and gas companies and to gun manufacturers’’? Will
you do that?
Ms. BRAINARD. Well I will not tell other regulators what to do
but I will be happy to talk about what we do at the Federal Reserve, what our statutory authorities require us to do.
Senator KENNEDY. OK. I am going to follow up with you on that.
OK?
Ms. BRAINARD. Senator.
Senator KENNEDY. I take that as a yes, and I am looking forward
to that statement.
Director—gosh, this is America’s debt. I am not going to have
time to ask you about it because I want to ask Director Thompson
a quick question. I mean, yes, Director Thompson. Madam Director,
are you familiar with President Biden’s Risk Rating 2.0 pricing
scheme for the National Flood Insurance Program?
Ms. THOMPSON. Sir, I am not familiar with the details of that
program.

20
Senator KENNEDY. Well I need you to take a look at it. You
talked about affordability. President Biden is about to make housing for at least 5 million Americans unaffordable, by raising their
flood insurance from $1,000 a year to $5,000 and $6,000 a year,
and you are going to have a problem.
Real quickly, Governor, do you think—we have got four big
banks. They have market share between 30 percent and 50 percent. In the greatest economy in all of human history they are not
really banks; they are countries. Do you think power, economic
power is too concentrated in those four banks?
Ms. BRAINARD. Well I certainly think that from a financial stability point of view, when you have very, very large institutions
that are systemic, you need to have very, very big capital buffers
and liquidity buffers and risk management, because it would be
very, very difficult to resolve those banks in a moment of financial
stress.
Senator KENNEDY. OK. Thank you, Mr. Chairman. You have
been very, very kind with your time.
Chairman BROWN. Thank you, Senator Kennedy.
Senator KENNEDY. My office will work with you on that statement about oil and gas and gun manufacturers.
Ms. BRAINARD. Thank you, Senator.
Senator KENNEDY. OK?
Chairman BROWN. Senator Warner, from Virginia, is recognized.
Senator WARNER. Thank you, Mr. Chairman. I want to first of
all take a moment. I know normally in the Banking Committee we
do not introduce our witnesses, but I want to take a moment to add
to your comments about Dr. Brainard. I have known Lael and her
family for more than 20 years. I think she has done a great job on
the Federal Reserve. She has been the representative from the Federal Reserve Bank of Richmond’s Fifth Federal Reserve District.
She cares deeply, and as you indicated in your opening statement
about working families, she is ready to roll up her sleeves to take
on the challenges that our economy faces.
And I think a prime example of that is what happened during
the last year of the Trump administration, when we got hit with
COVID, and candidly, if that Administration had responded
quicker we might not be in as deep a hole as we were. But she
worked the Fed. She and Chairman Powell worked very closely
with Secretary Mnuchin, and I think in many ways prevented what
would have been an economic catastrophe. So I very much look forward to supporting her.
I would say, to my good friend from Louisiana, that when we
were passing unprecedented amounts of money to put that capital
into American families’ pockets I did not hear anybody complain
about inflation. I think the first $3 trillion, $2.2 trillion was 100
to nothing [inaudible]. I think the next couple trillion was 96. I will
give Senator Kennedy credit on that. But the vast majority of us
on both teams said that was the right thing to do, and I think history will treat it as the right thing to do. And I hope that that
moves aggressively on dealing what it can do on monetary policy.
But I would say, and I wish we had all been a little more prescient about the challenge of inflation, and we know when gas
prices go up, but if we were looking at the indicators, and if we

21
were looking at the indicator, for example, that President Trump
always used as his best weathervane—when he stuck his finger in
the air and said, ‘‘How is the economy doing?’’—he would look at
the stock market. Well, inflation hit the 7 percent number the
other day. What did the market do? It went up. So again, I am not
saying that the market makers are smarter than us Senators, but
the markets weighed in on this.
If we look back, as well, to like the early ’80s or late ’70s, when
we saw the kind of inflationary pressures, when inflation, I think,
hit 7 percent, 7, 8 percent, before it went up even higher, interest
rates were about 16 percent. They went higher than that, but they
were at 16 percent. Right now interest rates, for 30-year mortgage
are about 3 percent. So the market, at least—and boy, oh boy, I bet
Dr. Brainard and I bet Jay Powell, wish they had never heard of
the word ‘‘transitory,’’ because we are going to probably continue to
fry them on using that term.
But I would say that the market indicators—the market, interest
rates, and candidly, the fact that most of us, on both sides, were
all in on making the investments to deal with COVID—I want inflation to go down, and I do think we will start to see movement
down. And incrementally, if you look at the rise and you look at
slow declines, but I do hope the Fed will act.
I do want to raise one issue, and again I want to come back and
compliment my friend, the Senator from Louisiana, and my friend,
the Senator from North Carolina, because one of the things that I
think we did that was really bold, along with help from all the
folks on this side of the aisle, was we said we need to get more capital out to disadvantaged communities during COVID. I think, Director Thompson, I want to commend her. I may not get to my
question on her but I want to thank her and the fact around I am
not going to get the GSE reform but I commend you for saying you
are still open to that and the fact that in-housing finance reform,
I know how challenging that area can be, as somebody who worked
with my friend, Bob Corker, or GSE reform and still has got the
scars to prove it. The fact that you have got the bankers and the
civil rights community supporting you, I look forward to supporting
you as well.
But I do want to get my one question in, which is, one of the
things that we came up with, actually working with Secretary
Mnuchin, was trying to put more capital into minority depository
institutions and CDFIs. And again, I want to thank my Republican
friends for helping on that. We put about $12 billion out, and we
are almost going to double the amount of tier one capital in that
sector, that, by definition, lends to low- and moderate-income individuals, more than 60 percent.
And Director Brainard, if you could just weigh in on what other
things we can do, because there are certain things. There are private capital that wants to go into these institutions but cannot because they are afraid of the change of control rules. Will you commit to work with me, and others on this Committee, on a bipartisan way, to make sure that this piece of our financial sector,
CDFIs and MDIs, get the kind of regulatory relief and capital they
need to continue to perform critical, critical services?
Ms. BRAINARD. Yes, we will, Senator.

22
Senator WARNER. That was a pretty quick answer. Thank you,
Mr. Chairman.
Chairman BROWN. Both witnesses are good at quick answers.
Senator Tillis, from North Carolina, who always stays within his
5 minutes.
Senator TILLIS. Thank you, Mr. Chairman. I do, and I will. Congratulations to both of you on your nominations. It should be a
proud moment.
Ms. Brainard, consensus has long been a top priority of the Fed
Board as it works on an apolitical and largely unified front on monetary policy and regulatory decisions. If confirmed, you are going
to be elevated to the position as Vice Chair. So with this in mind,
would you believe the elevation of your role to Vice Chair provides
you with any special power or authority to set Board agenda items?
Ms. BRAINARD. No. Quite the reverse. The Vice Chair role traditionally is a role that supports the Chair in the formulation of monetary policy and achieving consensus at the FOMC, communicating
that, and I look forward, if confirmed, to taking on those responsibilities.
Senator TILLIS. That is good to hear. I agree.
In your time on the Board you have been called the Fed’s great
dissenter. Your initial dissent in 2018 was the first time in over 6
years that a Governor has issued a dissent. You have since set a
new precedent with more than 20 dissents, none of which, I believe, were joined by another Fed Governor.
The Fed is meant to be a collaborative institution. I think we all
know that. Governors have to convince other members of the benefits of proposed changes or reforms. So given the longstanding
precedent consensus had on Board activities prior to your term, as
Vice Chair would you push for policy changes you know lack Board
consensus?
Ms. BRAINARD. No. I always work really hard. In fact, I have put
forward a number of rules that did achieve consensus. It is always
my preference. I dissented rarely. I always supported implementation of the law, especially of S.2155. There were some provisions
that I particularly liked in that, and I have said that publicly.
You know, I only dissented on areas where I thought they went
to the resilience of the largest institutions, because of the potential
financial stability implications, and only in areas that were outside
the implementation of the law and really in the judgment of the
Board. And when I did I always worked with Vice Chair Quarles,
Chair Powell to let them know what concerns I had, you know, to
see if we could arrive at an agreement. I would always give them
my statements ahead of time, to let them correct me if I got something wrong and to rebut it.
So, you know, I always tried to be extremely collegial. I did not
relish dissenting at all and only did it in a few cases that were
around those core issues around the largest institutions.
Senator TILLIS. I want to get on your political activity. I think
that you may have said that your behavior would be different going
forward. We know that you gave a max contribution to the Presidential campaign for Hillary Clinton in 2016. And I think that is
probably the only Fed Governor that has done that in nearly 22
years. I know of some who were politically active but after they

23
were confirmed as Governor they eliminated their political activities.
So why did you think donating to the Clinton campaign outweighed the importance of maintaining Fed’s independence?
Ms. BRAINARD. I actually did that in consultation with our ethics
officer. Of course, we, you know——
Senator TILLIS. Did they make it clear that that had not occurred
in quite some time?
Ms. BRAINARD. No, unfortunately. You know, it is rare. It has occurred. It is certainly not something I have done since then. You
know, I do not think the appearances issue, you know, is a good
one for the Fed, so I have not done it. But yes, it is clearly permissible, not something that I would have done had I been there
longer and understood that that was not customary.
Senator TILLIS. Thank you.
Ms. Thompson, could you provide more clarity about the prospect
of FHFA eventually releasing Fannie Mae and Freddie Mac from
conservatorship? Is there an anticipated timeframe, and are you
concerned about any negative market impacts?
Ms. THOMPSON. Senator, that is a great question. Certainly we
would defer to Congress on the exit from conservatorship for the
GSEs. But in the meantime there are a number of things that we
are doing. The enterprises are building capital. We are encouraging
the credit risk transfer program, and we are establishing pricing.
So we are also supervising them in a safe and sound manner and
making sure that they meet their mission so that whenever they
exit from conservatorship they will be ready.
I would also mention that there are a number of stakeholders
that would likely need to be involved and engaged in a discussion
before that ever happened. the Treasury certainly, as the majority
owner of the GSEs, and we certainly want to make sure that the
taxpayers are adequately compensated. We would probably have
conversations with the Fed and also the Justice Department on
outstanding litigation. So just a number of steps that would have
to take place before the enterprises would be able to exit conservatorship, and they would have to meet their capital targets,
which are quite vast.
Senator TILLIS. Thank you. Again, congratulations.
Thank you, Mr. Chair.
Chairman BROWN. Thank you, Senator Tillis.
Senator Warren, from Massachusetts, is recognized.
Senator WARREN. Thank you, Mr. Chairman, and congratulations, Governor Brainard, and congratulations, Ms. Thompson, on
your nominations.
So I would like to talk a little bit about inflation and about the
Fed’s tools to deal with it.
Governor Brainard, let’s start at the beginning. If the economy
is overheated, what is the Fed’s primary tool to cool it off?
Ms. BRAINARD. The Federal funds rate.
Senator WARREN. Yeah, so increasing interest rates, in other
words.
But what if inflation is caused by kinks in the supply chain?
Prices jump because the supply chain is just not functioning. Does
the Fed have a tool to deal with that?

24
Ms. BRAINARD. No. We have a tool that operates on the demand
side, which is the Federal funds rate.
Senator WARREN. OK. In other words interest rate adjustment is
your tool, and it does not work on things like supply chain kinks.
When Chair Powell was here on Tuesday we discussed how market concentration can lead to increasing prices. While consumers
are facing higher inflation, profit margins for corporations have
surged to their highest levels in 70 years.
Now inflation has not gone up because, one day, corporations
woke up and said, ‘‘Hey, today we are going to be greedy.’’ No. Inflation has gone up at this moment because of the way that prices
are passed on in a more concentrated market.
In a highly competitive market, when costs go up businesses pass
those costs along to their customers, but they cannot expand their
profit margins because other competitors are just going to beat
them down on prices. But in a very concentrated industry, one with
only a few competitors, a dominant corporation can use the excuse
of inflation for passing along rising costs and then add in an extra
bonus for themselves to increase their profit margins. As Chair
Powell put it on Tuesday, those firms are, quote, ‘‘raising prices because they can.’’
So, Governor Brainard, would you agree that increased market
concentration has allowed some corporations to profit off pandemic
disruptions by raising prices on consumer beyond the increased
costs that the corporations have to deal with?
Ms. BRAINARD. Well certainly a lot of economic research would
suggest that in concentrated industries individual producers have
more pricing power, so that kind of dynamic is certainly possible.
Senator WARREN. OK. So I know that the Fed has a role in approving bank mergers, but with respect to broader concentration,
throughout the rest of the economy, does the Fed have the tools to
deal with increased concentration there?
Ms. BRAINARD. No.
Senator WARREN. No. And that is really the point here. Dealing
with inflation requires the Fed to act if the problem is an overheated economy, but dealing with rising consumer prices also involves the FTC, the Department of Justice in breaking up monopolies and investigating crooked price-fixing schemes that also increase costs for hard-working families. And that is why it is so important that the Biden administration is taking action to fight corporate power by enforcing antitrust laws and boosting competition.
Now, Governor Brainard, do you think that the steps that the
Administration is taking to address market competition and price
fixing have a role to play in helping families that are facing rising
prices?
Ms. BRAINARD. Well I certainly think that, you know, we are
hearing from working families around the country about inflation,
and some of it is in areas where we are seeing those kinds of supply dynamics. But again, you know, we do have a powerful tool and
we are going to use it to bring inflation down over time.
Senator WARREN. Good. And look, I understand that, but price
stability is a core part of the Fed’s mandate, and I know you care
about that. And I just want to make sure that we keep our eye on
all of the things that affect prices for consumers. Today’s price in-

25
creases have many causes, and I hope that the Fed treads carefully
in using its tools to help lower prices for American families. I am
glad to see that the Administration is using all the tools that it has
to bring down prices over a longer arc. That is our collective job,
and I appreciate your help in this and your thoughtful comments
here.
Thank you, and again congratulations to both of you. I am sorry,
Ms. Thompson, that I did not get to questions with you, but I am
looking forward to supporting both of you. Thank you.
Thank you, Mr. Chairman.
Chairman BROWN. Thank you, Senator Warren.
Senator Hagerty, from Tennessee, is recognized.
Senator HAGERTY. Thank you, Chairman Brown, Ranking Member Toomey, for holding this important hearing, and I would like
to congratulate our nominees, Governor Brainard, Acting Director
Thompson. Congratulations on your nominations today. It is good
to be with you and I appreciate your time.
Before we start I would just like to highlight the fact that we are
in an unprecedented time. Governor Brainard and I talked about
this yesterday. But if you look at the consumer price index that
was released for this month, December over the prior December,
we are at a high that has not been seen in almost four decades.
The median age in America is 38 years old, when you think about
it. The average American has never seen inflation at this level. So
I want to underscore the fact and appreciate the confidence you reflected, Governor Brainard, in your ability to deal with this very
carefully as we try to undertake the challenge and get price stability back under control.
For both of you I have a housekeeping question to ask before we
get started, for both Governor Brainard and Acting Director
Thompson. As a matter of housekeeping, have either of you ever,
currently or in the past, embellished any part of your resume, your
background, your publications, or any other aspect of your accomplishments? Just a yes or no answer would suffice.
Ms. BRAINARD. No.
Ms. THOMPSON. No.
Senator HAGERTY. I expected that to be the case. Thank you.
Governor Brainard, I would like to turn to you. Again, I appreciated the conversation that we had yesterday. And one of the topics that we discussed is also one that I raised with Chairman Powell on Tuesday, when he and I discussed, and that is regarding the
actions of CFPB Director Rohit Chopra and interim FDIC Director
Martin Gruenberg, in their attempt to force out the FDIC Chairman before her term expired. This destruction, both of institutional
norms and historical precedent, undermines the independence and
the integrity of our financial regulators, and I want to ensure that
a similar situation does not occur at the Fed.
So my question, Governor Brainard, is slightly different from
that you answered with Senator Tillis. Do you believe that the Fed
Chair has the ultimate discretion to set the Fed’s regulatory agenda?
Ms. BRAINARD. It is certainly the case that the Vice Chair for Supervision and the Chair work together. But yes, the Chair determines what goes to the Board for votes.

26
Senator HAGERTY. Thank you. I appreciated your answer yesterday and thank you for being clear today.
Acting Director Thompson, I would like to turn to you about the
stewardship of the FHFA, if I might. As Director of the FHFA, you
are meant to carry out the law, not to be a policymaker. The Housing and Economic Recovery Act does not permit indefinite
conservatorships. By definition, no conservatorship is meant to be
permanent.
So my question to you is will you commit to do everything in
your power to fulfilling your statutory mandate to end the
conservatorships?
Ms. THOMPSON. Senator, that is a great question, and certainly
no one ever expected the enterprises or any financial institution to
be in conservatorship for 13 years, and certainly we believe that
Congress has a role and we will be working to help in any way that
we can to facilitate any questions that you have. But we think that
this is something that Congress needs to work on as well.
Senator HAGERTY. Well, is there any point in the law that says
that Congress must approve an exit conservatorship?
Ms. THOMPSON. I do not know that they must approve an exit
from conservatorship, but there are a number of issues that Congress will have to address, specifically if the enterprises exit conservatorship will the companies be private? Will they be public?
What form will they be in? There are just a host of issues that
would have to be considered, that Congress must weigh in on. But
certainly FHFA can get the enterprises ready.
Senator HAGERTY. Well, Acting Director, if you are concerned
that the HERA Act does not provide adequate clarity I hope that
you will get back to me and my team as quickly as possible with
the areas that you see inadequacy in the legislation, because my
expectation is that the legislation is clear and that an exit is called
for.
I want to get to another point, though, and that has to do with
the recent reductions in GSE capital requirements and how you see
that reduction fit with the mission of working toward exiting conservatorship.
Ms. THOMPSON. It is a great question, Senator, and I can assure
you, I firmly believe in safety and soundness of the GSEs, and that
would be really backed by the capital requirements. I made two
minor changes to the capital rule that was finalized at the end of
December 2020, and those changes were really designed to promote
the utilization of the credit risk transfer program, and again, the
credit risk transfer program transfers mortgage credit risk from
the enterprises to the private sector.
We also made a change to not the leverage requirement but the
leverage buffer so that the buffer would not be static. It would be
more dynamic. And I believe the banking regulators are also looking at the supplementary leverage ratio on the banking side as
well.
The changes that I made, just for context, before the crisis the
required capital for the enterprises was about $55 billion. Right
now, even with the proposed changes that I have recommended,
the required capital is about $300 billion, which is over five times
what it was before the enterprises went into conservatorship.

27
Senator HAGERTY. I just think we need to be careful in this regard, because in my home State of Tennessee housing prices are
up 20 percent. That is the case across the board, and again, back
to your overarching objective of getting these out of conservatorship, I applaud a careful balancing act, an independent perspective
on that as well, and I look forward to very conservative management there.
Chairman BROWN. Thank you, Senator Hagerty.
Senator Van Hollen, of Maryland, is recognized.
Senator VAN HOLLEN. Thank you, Mr. Chairman. Congratulations to both of your on your nominations. You are both eminently
qualified for the positions you have been nominated to, and I look
forward to supporting your nominations.
Dr. Brainard, let me thank you for your leadership in getting the
Fed to adopt a real-time payment system through FedNow. As you
know, people living paycheck to paycheck are spending billions of
dollars in overdraft fees or payday loans because of the lack of a
real-time payment system, and they are bearing the costs of this
inefficiency in our system.
So I have a very simple question. Are we on target for launching
FedNow next year?
Ms. BRAINARD. We are on target, and as you say it is something
that many community banks, other payments providers, and community groups are very supportive of, and I think larger banks are
very supportive now as well.
Senator VAN HOLLEN. Good. No, I am glad that more and more
people are supporting the effort.
As Chairman Powell acknowledge in his testimony before this
Committee on Tuesday, because of the American Rescue Plan we
have been able to lower unemployment in the country way ahead
of projections. At the 3.9 percent unemployment levels we saw in
December, that was a full year hitting that target, a full year before what the Fed had projected, and 4 years before what the Congressional Budget Office said projected. So that is the good news.
On the other hand, we see disparities behind that number. Black
American unemployment is at 7.1 percent, and while long-term unemployment has been cut in half over the past year we still have
about two million Americans who are long-term unemployed, looking for work and not finding it for over 27 weeks. So how will these
facts factor into your analysis in considering whether we have
achieved one of the main Fed goals of full employment?
Ms. BRAINARD. Well as you noted, unemployment has come down
very rapidly, which is very welcome, but we still have between 3.5
and 5 million fewer jobs than we would have in the absence of the
pandemic, and some of those re going to come back more slowly.
So as we look at labor force participation we just really have not
seen the improvements there. It is between 1.5 percentage points
looking at the total labor force, 1.1 percentage points looking at the
prime-age labor force behind where it was prepandemic. So that
unemployment rate is higher when you take into account nonparticipation.
Where are those people? Well, we see very big concentration of
missing jobs in leisure and hospitality, despite a lot of openings. I
think, you know, you have a lot of parents there of young children,

28
when we look at the data, who still cannot quite go back because
you have got school closures, and particularly for young children
still very, very limited childcare options, and of course that hits
Black and Brown parents more, in terms of those statistics. And
also concerns about the virus, some sectoral reallocation.
So we are going to see that participation cycle lag the unemployment cycle, but I have really strong confidence that we are going
to see that improve more slowly over coming quarters and years.
Senator VAN HOLLEN. Thank you, Dr. Brainard. As you know,
when we look at those figures, over 7 percent for Black American
employment, those are people who are looking for jobs and unable
to find them. On top of that, we have the issue of people who are
not looking for various reasons, and many of us are pushing very
hard to pass legislation to dramatically lower the cost of childcare
for those families.
Ms. Thompson, thank you for your current stewardship at FHFA,
and as you know, and we have been back and forth on this, one
of the major household costs faced by moderate- and low-income
families are their energy costs. In fact, for low-income households
the share of their budget on energy is three times higher than for
higher-income households. And if we can make energy efficiency
improvements we can cut those bills by 35 percent.
I wrote to you last August about this issue, urging you to take
actions to encourage more loans for energy efficiency. Thank you
for the actions you took in October. Can you just elaborate a little
bit on the importance of this issue and whether there are other
measures we can take to reduce these costs for households?
Ms. THOMPSON. So thank you for the opportunity, Senator. We
believe that the energy standards have come a very long way since
the enterprises started engaging and ensuring that the affordable
housing units, in particular, on the multifamily side, had these energy efficiencies.
We are encouraging the enterprises to, especially in the low-income and affordable space, make sure that the loans that they purchase have a component of energy efficiencies, and I do believe that
they give discounts for purchasing those loans.
Senator VAN HOLLEN. I continue to work with you on that and
other aspects of affordable housing. Thank you, Mr. Chairman.
Chairman BROWN. Thank you, Senator Van Hollen.
Senator Lummis, from Wyoming, is recognized.
Senator LUMMIS. Thank you, Mr. Chairman, and congratulations
on your nominations, both of you. Acting Director Thompson, we
have not met. I hope we will have an opportunity to do so in the
near future. Governor Brainard, thank you very much for the time
you have spent with me and the conversations we have had in the
past year. I appreciate that very much.
Governor Brainard, my questions are for you. As we have discussed, Wyoming is the largest exporting State of energy in the Nation, and that is because of our small population. We do not consume very much of the energy we produce. We export it. It is critically important to our economy and to our job base and to American energy independence.

29
Do you believe the Federal Reserve has the authority, either
through rules or guidance, to broadly curtail community banks’ investments in oil, coal, or gas exploration?
Ms. BRAINARD. No. No, Senator.
Senator LUMMIS. Thank you. Do you understand the regulatory
burden that incorporating climate risk into bank regulation may
have on community banks in Wyoming?
Ms. BRAINARD. I do, and I do not favor asking community banks
to put in place those kinds of risk management. I think to the extent that supervisory guidance is appropriate, it is really appropriate for the large banks that have a big imprint, not for small
banks. We do not want to burden community banks, in particular.
Senator LUMMIS. Thank you very much. Community banks in my
State are the backbone of banking, again because of our very small
population, so thank you so much.
As you know, I have a keen interest in Wyoming’s special purpose depository institution’s applications, and is it a fair characterization to state that the Federal Reserve is currently making
progress on the important legal and supervisory issues surrounding
the Wyoming special purpose depository institution?
Ms. BRAINARD. Yes, I think that is an accurate characterization,
Senator.
Senator LUMMIS. Thank you. Tell me why you believe responsible
financial innovation is important to both monetary policy and bank
regulation.
Ms. BRAINARD. Well we are seeing quite a bit of innovation associated with technology. Consumers now have access to their ability
to make transactions using their mobile phones. These kinds of
things, I think, are very important. They are going to continue to
evolve. The financial sector has been a very dynamic sector. I think
it will continue to be, and we just want to make sure that that is
done within the existing guardrails so that like activities are regulated in a like manner, consumers are protected, and that is really
our focus on responsible innovation.
Senator LUMMIS. Do you believe it is important that innovative
financial technologies, like digital assets and distributed ledgers, be
inside the regulatory perimeter?
Ms. BRAINARD. Yeah, I do believe that, again, you know, the
focus should be on like activities, like risks being treated in a like
manner, and, of course, our existing regulatory structure was designed for different kinds of charters and institutions, and so that
needs to be evolved. And of course we welcome Congress taking a
very important role in updating that statutory framework.
Senator LUMMIS. OK. China has produced a digital yuan, a central bank digital currency, but it seems to be available to the retail
customer, allowing the Communist Party of China to surveil the
uses of its central bank digital currency. As the Fed and the Congress considers a central bank digital dollar, do you believe it
should be available to the retail customer, or should the Fed CBDC
be available only as it is now, to the banking industry?
Ms. BRAINARD. Well this question about digital currency is a big
question, and we really are looking to Congress, in the first instance, and the Administration to give us guidance in this area. We
want to make sure that we do the requisite research on policy and

30
technology so we are in a position to move forward if Congress decides it is important to be able to compete with China in this regard. Of course, privacy protections are very important in any kind
of approach that might be taken.
Senator LUMMIS. Thank you very much. Again, congratulations
to you both on your nominations.
Mr. Chairman, I yield back.
Chairman BROWN. Thank you, Senator Lummis.
Senator Smith, from Minnesota, is recognized.
Senator SMITH. Thank you, Mr. Chair and Ranking Member, and
welcome to both of you. It is wonderful to have a chance to see you
in person after our virtual meetings, and I want to thank you so
much for your willingness to serve our country.
Ms. Thompson, I am going to start with you. As I said when we
spoke on the phone, it warms my heart to see a career public servant have the opportunity to, and for us to have the opportunity, of
you leading this agency, so thank you so much.
I want to follow up on a question that Senator Brown started
with, touching on issues of gaps in home ownership, and in Minnesota we have much to be proud of. We also face significant challenges around racial equity, which is essentially the proposition
that prosperity in our State should be equally shared. And the reality is that in the Minneapolis metro area, as you may know, the
home ownership rate for White families is one of the highest in the
country, about 70 percent, while home ownership for Black families
is closer to barely 20 percent. This is the largest gap in the whole
country.
And I might just note that this is the legacy of old Federal policies that contributed to this, in addition to old redlining. University
of Minnesota has done a fascinating study which tracks specifically
that legacy in home values. Today you still see the legacy of disparities in home values because of this.
So Director Thompson, could you just talk to us, if you are confirmed, which I hope you will be, how you see the work that we
have to do ahead to address this home ownership gap which contributes directly, of course, to wealth inequality that we face in our
country?
Ms. THOMPSON. Thank you for the question, Senator, and there
is quite a bit of work that needs to be done in that area. We do
believe that qualified borrowers ought to be able to, if they can, afford a home mortgage loan.
One of the things that has taken place at Fannie Mae, in particular, is many potential homeowners are now renters, and when
you are looking at credit scores one of the things that the traditional credit score does not take into consideration would be rent
payments. And typically a rent payment or a mortgage payment is
the largest payment that most people have for their households.
And so Fannie Mae has taken the step to incorporate 12 months
of positive rental payment into their credit scoring so that the typical requirement of something being a debt as opposed to an expense, which is what a rental payment is, is now taken into consideration in a positive way, to help improve the credit scoring process.

31
So we think there are a lot of little things around the edges, looking at, you know, nontraditional credit scores, and not using them
as sole factors but as additional factors in really providing access,
sustainable access to credit and to home ownership.
Senator SMITH. I look forward to working with you on these
things. I think you are pointing out how we have sort of old, systemic ways of doing things that end up having the discriminatory
impact, and if we look at them we can change them and then start
to change the path, create a much better path for people in this
country, which is why we are here. So thank you.
Dr. Brainard, you and I had a chance to talk about a variety of
things when we spoke on the phone the other day. Many of my colleagues have also just raised some of the questions that you and
I were discussing around full employment and the disparities in
employment amongst Black families versus some White families in
this country. And I want to just drill down on a bit of what Senator
Van Hollen was asking about. As you pointed out, the Fed has limited tools in this category. But could you just tell me, if we were
to see interest rates increase, would impact would we anticipate
that having on employment, particularly as we try to look at getting broad-based employment?
Ms. BRAINARD. Well certainly today we see an economy that has
grown about 5.5 percent over the last year, and we have seen those
broad unemployment numbers coming down really quickly, so there
is a lot of underlying momentum in the economy.
And so, you know, as we go forward on our plans to end asset
purchases, to begin to raise interest rates at some time beyond
that, to shrinking the balance sheet, I think we will do it in a wellcommunicated way, a transparent way, to allow markets to react
in a measured way to it.
You know, I believe we will be able to see inflation coming back
down to target while the employment picture continues to clear.
There are some short-term constraints there that I think are limiting people from coming back into the labor market. As those are
lifted I think we will have continued gains on employment.
Senator SMITH. Thank you. I am out of time. I just want to take
a moment to say that one of the biggest constraints, as you and I
have talked about, is that people do not have any access to affordable childcare, and so they are left not being able to work, even
though they want to. That is one of the things that we would address in the Build Back Better Act, which I hope we pass.
Thank you. Thank you, Mr. Chairman.
Chairman BROWN. Thank you, Senator Smith.
Senator Crapo is recognized from his office.
Senator CRAPO. Thank you, Mr. Chairman, and let me start out
with you, Director Thompson. First of all, I very much appreciated
our visit last Tuesday. I just have one quick question for you,
which we discussed then, housing finance reform, which, as you
know, is a top priority of mine. And it has been my view that Congress must find a pathway forward to resolve the conservatorship
of our GSEs and do so expeditiously.
In that context I applaud Ranking Member Toomey for releasing
his housing finance reform principles last March, which reflect
many of the goals that I outlined when I was addressing this issue

32
as the Chairman of the Committee. These principles include establishing stronger levels of taxpayer protection, preserving the 30year fixed-rate mortgage, increasing competition among mortgage
guarantors, ensuring a level playing field for lenders of all sizes,
and promoting access to affordable housing.
And my question to you is, if confirmed as the FHFA director,
would you be willing to support legislation that is consistent with
these principles?
Ms. THOMPSON. Absolutely, Senator. Thank you.
Senator CRAPO. Thank you. Nice, brief answer, and the right answer. I appreciate it.
Let me move on to you, Governor Brainard. Again, welcome to
you too. I appreciated our visit the other day as well. The first
question I have for you is on inflation, which you have already
talked about today, but I, like all of us here, are concerned about
December’s 7 percent rise in consumer prices and today’s record
high producer price inflation reading of 9.7 percent. These high and
persistent inflation numbers are, I think, the greatest threat to our
economic recovery and household budget. And now it’s clearly [inaudible] more Federal deficit spending or taxing.
The question I have for you on this is, if I understood you earlier
in your testimony you said that you were confident that we were
going to get back to the 2 percent rate. The question I have is how
quickly do you see that happening? Is that something that could be
done in months, or are we talking years, or what is the timeframe
you expect to see us face in trying to get control brought back to
about a 2 percent target?
Ms. BRAINARD. Well thank you, Senator, for your question. So I
certainly also am very concerned about the high level of inflation,
and we are committed at the Federal Reserve to bringing it back
down to target, and we are taking a number of actions. We have
already decided to end asset purchases in the first quarter. You
have seen that the Committee has projected several hikes over the
course of the year. Of course we, you know, will be in a position
to do that I think as soon as asset purchases are terminated, and
we will simply have to see what the data requires over the course
of the year. And, you know, we started to discuss shrinking our
balance sheet.
In terms of the projections on inflation I think it will remain
high throughout the first two quarters. Certainly in the Committee’s projections you saw it coming down closer to 2.5 percent by
the end of the year. But I think we should also take these projections, you know, with a fair amount of caution, and we will obviously try to bring it down, you know, as quickly as we can but consistent with a sustained and strong recovery.
Senator CRAPO. All right, thank you. And I realize it is hard to
predict these kinds of things but I appreciate your projections.
Last question, and you have been asked about this also. Senator
Toomey talked to you about the pressure to choke off credit to traditional energy companies, and I know Senator Kennedy talked
about the same thing. And I understood your answers to that. I
personally believe that choking off credit to industries viewed as
unfavorable or politically unacceptable and controlling the allocation of capital is not a new concept. You will recall Operation

33
Choke Point from the Obama administration years, and I certainly
hope that President Biden will consider this as he nominates those
who deal with regulatory policy at the Fed.
You have already indicated you do not believe that the Federal
Reserve should act in a way to try to choke off credit to traditional
energy companies. My question, though is, if policies such as those
Senator Toomey were talking about you are utilized in our stress
testing processes, does that not, in and of itself, select specific types
of industries if they are going to be selected in that way and subject them to the potential for increased capital requirements or
some other type of regulatory burden that would not be there had
they not been in that particular business?
Ms. BRAINARD. Yeah. So I think about supervisory guidance as
simply asking institutions, large institutions, to be measuring,
monitoring, and managing their risk. This is what we ask them to
do across the board. So I do not think it has a particular sectoral
cast to it.
And similarly on scenario analysis, you know, if I think about
concentrations of areas where, you know, wildfires are becoming
more frequent, or flooding is becoming more frequent, if insurers
are pulling back from covering those properties our scenario analysis would simply allow us to see where are those risks building
up and are there certain counterparties that are very exposed in
terms of covering those risks, and might they be subject to shock
that could amplify financial instability throughout our system?
So that is how I think about climate scenario analysis. It is quite
different than the stress tests that banks have undergone under
the traditional capital planning framework.
Senator CRAPO. All right. Thank you.
Chairman BROWN. Thank you, Senator Crapo.
Senator Reed, from Rhode Island, is recognized.
Senator REED. Thank you very much, Mr. Chairman. First let me
commend the President for his nomination. Governor Brainard,
congratulations on your elevation to Vice Chair, and also Ms.
Thompson, congratulations for nomination as permanent Director
of the FHFA.
You all touched upon, in response to previous questions, the critical role of housing in our economy, and I know Ms. Thompson has
already talked about some steps she would take going forward to
help expand the supply. But one of the interesting things is this
ties in also to the inflation problem we are seeing right now. I believe, Governor Brainard, that 30 percent of the consumer price
index is based on housing prices. As a result, if we do not get a
handle on housing we will not get an effective handle on inflation.
And with that in mind, raising interest rates, will that help us?
Hurt us? Will it make it more affordable for working families to get
good housing?
Ms. BRAINARD. So I think the question about workforce housing
and affordable housing, to the extent that we look at it at the Federal Reserve, is really very much a supply side question. You know,
we do meet regularly with the home builders, and, you know, they
have been telling us, even before the pandemic, that shortage of
lots is an acute problem. So we went into the pandemic with a
shortage of affordable and workforce housing, and of course the

34
pandemic has exacerbated materials delays and skilled tradesman
availability. So all of those things, I think, on the supply side are
exacerbating these issues.
Our tools are very limited on the supply side. You know, we have
some incentive under the Community Reinvestment Act, and we
are trying to improve the credit that we give there for naturally occurring affordable housing as well as shoring up those really important institutions that use housing subsidies in partnership with
banks. But our tools are limited on the supply side.
Senator REED. Thank you. Governor Brainard, are you aware of
an announcement made yesterday that Bank of England is incorporating climate as part of their stress testing for all their institutions?
Ms. BRAINARD. So I have not studied their most recent statement
there, no.
Senator REED. But I would presume that their major motivation
is the economic impact, not on anything else, or least—is that your
view?
Ms. BRAINARD. So when we have talked to counterparts, regulators in other countries such as the Bank of England and the Europeans, Canadians, Australians, and others, there are certainly
taking on board just the financial risks associated with climate
change and trying to incorporate that into their supervisory frameworks.
Senator REED. And we have already seen some aspects of the financial industry, particularly insurers, incur significant losses, particularly in California and wildfires, so there is definitely an economic effect that is being generated, I think with more frequency,
by climate. Is that your sense?
Ms. BRAINARD. Well I think the statistics that I saw recently
were about $630 billion worth of damages over the last 5 years
from severe weather, and that is a historic high, and of course we
all see it in our home areas.
Senator REED. One of the other aspects of inflation, which is one
of the most obvious ones, is at the gas pump, and that is something—again, that is really beyond the specific control of any agency in the United States Government because basically pricing is set
by a cartel. But what struck me is that the production is not even
up to the levels that they have set for themselves. So do you have
any insights on what is going on in that market?
Ms. BRAINARD. So we do not have a lot of insights. Our Dallas
Reserve Bank tends to be, you know, closely studying trends there.
It is certainly true that about a quarter of consumer inflation over
the last year has come from food and energy, but really disproportionately from energy. Those prices at the pumps are hurting working Americans across the country.
Senator REED. Thank you. And a quick question, Ms. Thompson.
One of the things we have seen recently is a trend for private equity to buy up lots of homes—they have the resources to do that—
and take them out of the purchase market and put them into their
rental market, and in some cases with the ability to dictate higher
prices. Is there anything you can do at your agency to look at that?
Ms. THOMPSON. Sure. Thank you for the question, Senator, and
we are taking a look at the private equity participation in a couple

35
of different areas, in the manufactured housing communities where
we are very insistent that they have protections, and Fannie and
Freddie will not purchase loans unless there are protections for the
communities, the owners, and the renters.
We are also looking at our REO inventory, between Fannie and
Freddie there are probably 9,000 properties. But we have established this first-look program that allows owner-occupants and nonprofits to have the very first look at all the REO properties that
are available. And we have increased the number of days from 30
to 45.
And we have been looking at the nonperforming loan sales as
well, and what we require is that any buyer has to go through a
waterfall where they have to offer borrowers in these pools loan
modification. And some of these borrowers have been delinquent 3
or 4 years, but they still have to offer these borrowers loan modifications.
We have also asked the enterprises to structure smaller pools so
that nonprofits can start buying and working with these loans.
Senator REED. Thank you, and I apologize for running over, Mr.
Chairman.
Chairman BROWN. Thank you, Senator Reed.
Senator Cramer, from North Dakota, is recognized.
Senator CRAMER. Thank you, Mr. Chairman, Ranking Member
Toomey. Thank you both and congratulations to both of you on
your nominations. And Governor Brainard, thank you for the discussion yesterday. I enjoyed it very much. I found it interesting. I
liked most of your answers, quite honestly, so now I am going to
try to reconcile them a little bit after yesterday’s meeting.
And given today’s conversation you have been quite consistent,
particularly in the last couple you referenced, in response to climate scenario analysis as opposed to climate stress tests, the example you used yesterday and that is fire. So if you have a forest fire
situation and there are insurers backing out, that represents a
risk.
But you used that in response to a climate question, not a fire
question. I think it was Senator Reed’s question that you referenced the record weather events.
I want to be really definitive about this issue, maybe as definitive as you were with me yesterday. Are you in sync with Chairman Powell’s position, and he stated it a couple of times a couple
of days ago. You watched that. Would you say you are pretty well
in sync with his analysis, or his assessment of climate and where
it belongs in your mandates?
Ms. BRAINARD. Yes, Senator. Thanks for the question. Yes, I am.
Senator CRAMER. So he said that to the degree it fits within your
mandates, climate is one of many factors, basically, and he said important but a very narrow one. So how is it that you get so much
more—now I am asking you to analyze yourself, or your supporters—but I am trying to reconcile why so many of our friends
on the other side of the aisle think you are wonderful on climate
but they are not going to support Chairman Powell for some of the
same reasons. And I am just wondering, how can I reconcile that
in my mind? I am not asking you to be my psychologist necessarily,
but do you have any thoughts or theories on why that might be?

36
Ms. BRAINARD. You know, we do operate within our statutory
mandates, and we talk a lot about what those are and what those
mean. So I think, generally speaking, those are the guardrails that
we operate within. You know, I do try to be aware of emerging
risks generally. You know, I thought it was important to develop
research in the area of digital finance, for instance, several years
ago. So I am looking out over the horizon sometimes, and perhaps,
you know, talk more about the research. But we are very in sync
in terms of what we actually think our responsibilities as an institution are.
Senator CRAMER. I want just—just a little bit of opining on the
recent question Senator Reed asked you on the supply side and
particularly gasoline, fuel. You rightly recognized that that represents probably a quarter of the inflation. And, by the way, it is
going up as fast as inflation, the rest of inflation, if not faster, as
you probably know.
I, of course, come from a State that is now producing about
400,000 barrels of oil less than it did before. It has a lot of capacity
for more. The Bakken is cash starved, quite honestly, and some of
that is because of the signals that they are getting banks, and
banks are getting from others, that investing in oil production is
persona non grata.
Now, the demand is going up. The supply is being held down by
both rhetoric and policy. Most of it is not your policies but it is the
President’s. And I worry that, frankly, we want to transfer our climate guilt by suggesting that we should not produce so much in
the United States while global demand goes up and our adversaries, who are not nearly as environmentally friendly as we are,
produce.
Does that matter, do you think, in these climate scenarios, that
we may very well be hurting our own economy and our own production and our own job creation while transferring both the opportunity and the guilt to another polluting country?
Ms. BRAINARD. So, you know, the question that you are raising
is a very big one that I do not study in terms of energy policy. Generally I would just say that, you know, when we do supervise institutions to see that they are managing their material risks it is
pretty pedestrian stuff. It is, ‘‘Do you have a risk management committee? Is that risk management committee well informed? Do you
have the right data? Do you have the right models? Do you have
the right controls?’’ You know, it is really not specific in any way
to particular to, you know, borrowers or sectors.
So, you know, I understand the concern that you are raising, but
our supervisory guidance is very much around making sure those
guardrails are there.
Senator CRAMER. Thank you. Thank you, Mr. Chairman.
Chairman BROWN. Thank you, Senator Cramer.
Senator Cortez Masto, from Nevada, is recognized from her office.
Senator CORTEZ MASTO. Mr. Chairman, Ranking Member, thank
you very much. Welcome to both of the nominees and thank you
for your service, and thank you for your commitment to serve, moving forward.

37
Let me start with Acting Director Thompson of the Federal
Housing Finance Agency. Thank you so much for taking the time
to talk with me earlier about this particular issue. As you well
know, and we have discussed this, the third GSEs regulated by the
Federal Housing Finance Agency are the Federal Home Loan
Banks. In our discussion I noted that my office’s research discovered that the Federal Home Loan Bank that serves Nevada has
long neglected investments in our State, and as you well know, this
has been an issue for me.
So my question, Director Thompson, is will you commit to working with my office to ensure that the Federal Home Loan Bank of
San Francisco improves on its record of investment in Nevada?
Ms. THOMPSON. That is a great question, Senator, and thank you
for bringing this issue to my attention. It is my expectation that
the Federal Home Loan Banks would serve each State within their
districts, and I would mention to you that the Home Loan Bank of
San Francisco did change the scoring mechanism so that Nevada
is able to get their portion of an affordable housing program. But
there should not be a case where there is a State that does not get
a portion of the affordable housing program from the banks.
Senator CORTEZ MASTO. That is right. Thank you. And I know
they have made that change, and that was at my request. They
have been working with me, and I appreciate that, but I know
there is a role for you to play as the director. And in that role I
also know that in reviewing each Federal Home Loan Bank’s community lending plans only one included investments in Native
American communities.
So my next question is will you ensure that the community lending plans are reviewed and appropriate to the needs of their communities?
Ms. THOMPSON. Yes. Thanks again, Senator, for the question. So
as I committed to you, I will have conversations with all of the
bank presidents and the community investment officers that reside
in each of the Federal Home Loan Banks to talk to them about filling the specific needs in their respective communities. There
should not be a case where there is a tribal community that is not
being recognized in the community lending plans for the Federal
Home Loan Banks, and we are going to have those conversations
and that will not be the case.
Senator CORTEZ MASTO. Thank you. And Director, just one final
thing, beyond the affordable housing programs and other voluntary
programs. Thank you for your commitment there. I am curious, do
you have any other priorities with respect to the oversight over the
Federal Home Loan Banks?
Ms. THOMPSON. Sure. Yes. So we are looking at, right now, after
the—well, I should say the Federal Home Loan Banks play a huge
role in the financial system, and during the pandemic they certainly were very much utilized. But the advances right now are relatively low, and so we are looking at ways to just oversee the home
loan banks and make sure that the advances and the earnings are
appropriate. So I have got my supervisory team working very closely with the home loan banks to make sure that they are supervised
in a safe and sound manner.

38
Senator CORTEZ MASTO. Great. Thank you. I look forward to
working with you as well as we move through this process.
Governor Brainard, let me go back to you as well, and thank you
again, as always, for speaking with me. It is a pleasure to welcome
you back to the Committee. I know, in your decades-long career in
public service that you represented our interests on an international stage. I also know, over the last few years, that Chair
Powell also has entrusted you to work closely with former Secretary of Treasury Mnuchin and other appointees under the former
Administration in setting up the Federal Reserve’s response to the
COVID–19 pandemic.
Clearly you have played a critical role at the Federal Reserve,
and I also know the committees you chair for. And so, very briefly
because my time is running out, can you tell me how you work
with the other Board members, the regional bank presidents, and
other agency heads to not only respond to the pandemic and other
monetary policy but also bank regulatory challenges as well?
Ms. BRAINARD. Well, you know, we were as surprised, I think, as
everybody by the just incredible turmoil we saw in the Treasury
markets. I have never seen anything like that, and so we needed
to respond very quickly. And I think, you know, we just worked
seamlessly across the regulatory agencies. We did need to relax
some bank safeguards to make sure that they could continue lending, to make sure that their existing loans would not be considered
impaired, and we stood up facilities very quickly, and we also, once
the turmoil passed, we were very quick to wind them down.
And I think, generally speaking, we are in a much better place
today. As a result we have many Americans have jobs and, you
know, balance sheets that are much healthier, and many more
businesses are thriving today because of the efforts you did here in
Congress and the efforts that we did to carry out those programs
you asked us to undertake.
Senator CORTEZ MASTO. Thank you. Thank you both again. Mr.
Chair, thank you.
Chairman BROWN. Thank you, Senator Cortez Masto.
Senator Daines, from Montana, is recognized.
Senator DAINES. Chairman, thank you. Welcome, Governor
Brainard. We had quite the CPI report yesterday, inflation rising
at the fastest pace in four decades. It takes me back to when I
graduated from high school.
In Montana and other mountain States annual inflation is actually 8.6 percent, which is significantly higher than the national average of 7 percent. Needless to say, I think this report adds to the
continuing string of bad news for Montanans and Americans. On
a year-over-year basis, real average weekly earnings declined by
2.4 percent.
I have heard many of my colleagues on the other side of the aisle
say that inflation is nearing a peak. I distinctly remember being
right here, not long ago, challenging this notion that inflation was
transitory. We heard from very smart people who were sitting right
where you are, rejecting that notion, and we were forcefully pushing back and saying we do not think so.
Now, granted, forecasts are forecasts. You do not always get
them right.

39
I hope that inflation is nearing its peak, but I did not see anything in this recent report that provides any sort of confidence that
inflating is fading in a meaningful way. In fact, to the contrary,
peeling it back, with what is going on right now in China with the
zero-COVID policy from Xi Jinping, I think the supply chain disruptions will only increase.
I met with Montana grain growers just an hour ago. They told
me that one of the trucking companies that they depend on just
fired 14 employees because of the vax mandate. They cannot get
fertilizer back and forth across the Canadian border. Fertilizer
prices have doubled. This is a huge issue right now for farmers, not
talked about enough, but one more contributing factor to the inflationary forces currently in this economy.
Chairman Powell told the Committee on Tuesday that high inflation is a, quote, ‘‘severe threat to the labor market.’’ I agree with
that and I hope you do as well, Governor Brainard.
Turning to my questions, I would like to follow up on Ranking
Member Toomey’s points regarding climate-related financial risks.
Over the past year you have delivered a number of speeches suggesting that the Fed may take a more active role in environmental
policy. Specifically, you announced that the Fed is, quote, ‘‘developing scenario analysis to model the possible financial risks associated with climate change,’’ end quote.
However, the Fed lacks both the experience and the expertise in
environmental matters. Further, actual climate researchers have
found that current climate models cannot be used to provide financially meaningful information. This raises the troubling prospect
for many of us here today that the Fed’s work in this area is politically motivated rather than based on actual data or expertise. And
I say that respectfully as a chemical engineer by degree.
My question for you, Governor Brainard, on what basis do you
believe the Fed is positioned to shape environmental policy, given
its lack of experience and expertise in this area?
Ms. BRAINARD. Well thank you very much for your questions.
First on inflation, I could not agree with you more. It is very higher, and we have a responsibility to bring inflation down. We are
orienting monetary policy to do that. We have accelerated the tapering of asset purchase so that we can be in a position to move
on increasing the Federal funds rate, and we have projected several
increases this year and also talked about having the balance sheet
starting to shrink sometime thereafter. So we are very focused on
that, as Chair Powell said.
With regard to the issues surrounding climate, we do not do environmental policy at the Federal Reserve. As you say, it is not our
expertise. What we do have responsibility for is making sure that
supervised institutions are properly risk managing, and we do have
some sort of responsibility for understanding potential financial
stability implications, of a host of different kinds of things, and
that is where scenario analysis comes in. You know, we do not have
any expertise in disease and pandemics, but certainly it turned out
that the pandemic had enormous financial stability consequences.
So it is just incumbent on us to be doing research to understand
how shocks could affect our financial system, and that could include severe weather events and other aspects——

40
Senator DAINES. And speaking of shocks, I think we all remember the War of Yom Kippur. I mean, some of us are old enough to
remember what happened back in 1973, when we were dependent
on the Middle East for oil, and the shocking effect that had when
oil prices quadrupled, and the inflationary effects, and in 1981, seeing 18.6 percent 30-year fixed mortgages. It was devastating for so
many Americans, including farmers and ranchers and folks working hard every day to make ends meet.
And speaking of politically motivated, with my distinguished colleague here from North Dakota sitting next to me, when we
watched this President, with one stroke of a pen, stop the Keystone
XL pipeline, which actually reduces carbon emissions because it is
the most environmentally sound, minimal amount of carbon emissions way to transport oil versus using rail cars or trucks. Count
us all in here as skeptics that there has not been political motivation, and I hope that you will guard the Fed, and I hope you will
ensure that they stick with their dual mandates.
So I asked this question to Chairman Powell this week, and I
would like to ask it to you as well. Do you think that rolling blackouts—and I had just come from a hearing before I came to this
hearing on Tuesday, when Powell was here, where we literally had
folks talking about breaching dams in this country. These are radical ideas. Do you think that rolling blackouts due to a lack of stable baseload power poses a more tangible, near-term threat to the
stability of the financial system?
Ms. BRAINARD. We try to take into account a whole host of different risks to the system, so we are trying always to kind of look
out over the horizon and take into account a whole host of risks,
including from abroad. So we do try to do that. We are not very
successful always, but we certainly try.
Senator DAINES. Yeah, well thank you, and again, my final comment here. On the one hand we have our colleagues who are sending the strongest message possible that we should stop production
of oil, natural gas, coal, even breaching dams in some cases here.
You cannot have it both ways, what this would do with energy
prices, what it is going to do to this economy and inflation. That
is why this car is spinning out of control right now on the highway.
And the Fed has its role, but I am just very concerned about the
policies coming from this Administration that are having severe,
creating severe harms now for the American people. And we are
seeing it at the gas pump. We are seeing it with inflation in this
economy. Thank you.
Chairman BROWN. Senator Ossoff, from Georgia, is recognized
from his office.
Senator OSSOFF. Thank you, Mr. Chairman. Thank you to our
nominees.
What tools would you have at your disposal, at the Federal Housing Finance Agency? What tools might Congress be able to
strengthen or offer to the agency to increase the supply of housing
in communities where there is an acute housing shortage and a
housing affordability crisis? Do you agree that increasing supply,
adding units, adding density is key to resolving the crisis of affordable housing?

41
And, you know, when I look around the State of Georgia, speak
with community leaders, look at the housing market, 48 percent of
folks in the city of Augusta say that affordable housing is a very
high need. Georgia has lost 11,000 affordable housing units
through the qualified contract exception, the low-income housing
tax credit, in recent decades. In Atlanta, in Rome, in Savannah, in
Albany, in rural communities, the rents and the prices of homes
are increasing at an alarming rate.
So the question is what tools will you have at the agency to increase housing supply, and do you believe increasing housing supply is essential? And finally, will you work with me and community
leaders in those cities and communities across the State of Georgia
to identify solutions particular to the needs of my State to help
bring more housing supply online, add units, and help folks afford
homes?
Ms. THOMPSON. It is a great question, Senator, and absolutely,
supply is a major, major issue in housing, and the supply issue
really is exacerbated with respect to affordable housing.
We certainly are an indirect—we do not have any direct influence on supply, but one of the things that we have done is through
the Federal Home Loan Bank’s affordable housing program they
are able to contribute to affordable projects around the country,
and we have also increased the enterprises’ allotment for low-income housing tax credit, and we increased their allotment to help
with the affordable housing supply and affordable housing preservation.
We are really focused on working with our regulated entities to
do whatever we can in this space. We also have allowed the enterprises to purchase manufactured housing, and we also have allowed them to purchase these accessory dwelling units. But in
many cases there are local zoning ordinances that get in the way
of some of the affordable houses that could be built or the types of
affordable housing.
But we are very much committed to working with you and all
members of this Congress to try to do what we can to address this
issue.
Senator OSSOFF. Thank you, Ms. Thompson. My time is limited
but just briefly I mentioned Atlanta, Albany, August, Columbus,
Savannah. This is a serious issue in communities across the State.
Will you commit to working with my office, elected officials, community leaders, in those communities and others to identify specific
solutions, work collaboratively to bring down the cost of housing,
to bring down rents, and add more housing supply in those communities?
Ms. THOMPSON. Absolutely, Senator.
Senator OSSOFF. Thank you, Ms. Thompson.
Dr. Brainard, congratulations on your nomination for this position. I would like to ask you a question about the prevalence of retail investing and stock trading in the leadership at the Federal
Reserve. I want commend Chairman Brown for his leadership, offering legislation to address this.
Is there a cultural problem? Is there widespread stock trading
potentially on the basis of proprietary or nonpublic information

42
with the expectation of upcoming policy announcements at any
level in the Federal Reserve, in your opinion?
Ms. BRAINARD. I do not believe there is, but I think we have all
been surprised and dismayed by some of the financial disclosures.
Senator OSSOFF. Dr. Brainard, will you help to ensure that the
Fed complies with any lawful requests or commands for records,
documents, or information pertaining to stock trading by current or
former Federal Reserve officials, should Congress wish to review
those trades and their propriety?
Ms. BRAINARD. Yes.
Senator OSSOFF. Thank you, Dr. Brainard, and a policy question
for you. What is your view of the distributional effects of quantitative easing, over the long run, the relative benefit to employment against the exacerbation of inequality by driving up asset
prices in a way that may favor those who hold equities, hold assets,
own homes as liquidity is added to financial markets? Have you
conducted any research? Has the Fed conducted any research? Can
you provide that research to the Committee, and what is your personal view?
Ms. BRAINARD. I know there is some research on this. It is not
clear-cut. It tends to be the case that during recessions wealth inequality diminishes and then it tends to increase during recoveries.
You know, we use quantitative easing only when we have run out
of room on the interest rate, and the alternative of allowing unemployment rates to skyrocket would be very, very bad, I think, for
working Americans who really rely primarily on their jobs for income.
So we stay very focused on that dual mandate and try to protect
employment in downturns, to the greatest extent possible, using
whatever tools we have.
Senator OSSOFF. Thank you, Dr. Brainard. My time is up. I will
send you some additional questions for the record and look forward
to your responses. Congratulations again to you both for your nominations.
I yield back, Mr. Chairman.
Chairman BROWN. Thank you. Senator Toomey has some closing
questions and remarks, as do I, and we will wrap up.
Senator TOOMEY. Thank you, Mr. Chairman. I first want to respond quickly to our colleague from Massachusetts who seemed to
be suggesting that inflation is the result of greedy companies in
highly concentrated industries. In fact, I do not think the data supports the contention. I do not think that is well correlated, that is
to say the rate of inflation and the extent to which an industry is
consolidated. And, in fact, one that I can think of that might be
among the least concentrated industries that I know of, the retail
sale of used cars, is one that has experienced one of the highest
rates of inflation, 37 percent over the last year.
I also want to respond to Governor Brainard’s statement that the
climate scenario analysis that she has been advocating is not a
stress test. It seems to me that is little more than a semantic difference. Of course, the whole purpose is to test whether banks are
prepared to address perceived risks associated with climate change,
and then if the Fed determines they are not to promulgate new

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regulatory requirements. That sounds exactly like stress testing,
whether or not you call it by a different name.
And I am not alone in that view. The New York Times, not exactly a conservative paper, said the same thing when it reported
on a speech that Dr. Brainard gave last October about climate scenario analysis at the Fed’s annual stress testing conference. The
Times wrote, and I quote, ‘‘Ms. Brainard said the Fed was developing climate-related scenarios for use in bank safety checkups,
which are often called stress tests,’’ end quote.
The concern is there are many categories of risks to banks and
the financial system that nobody is advocating a separate scenario
analysis for, but there is an advocacy for the scenario analysis for
even lower risk, lower probability risk problems in the climate
space. The fact is the transition risk associated with climate
change is a political risk, and the danger is this becomes a selffulling prophecy. And the Fed says do a scenario analysis, and the
scenario you need to analyze is the scenario in which we impose
new regulations on you that are problematic for your portfolio.
Finally let me just turn to Ms. Thompson. You and I may have
a different understanding of the HERA statute and other statutes,
because it is my view that HERA clearly does authorize the FHFA
to take the GSEs out of conservatorship. So can you tell me specifically, is there something that is lacking in legislation that you
think is required for you to move in that direction?
Ms. THOMPSON. Sure. Thank you for the question, Senator. So it
is my belief that the enterprises—actually, FHFA is going to have
to have a conversation with Treasury.
Senator TOOMEY. I agree with that.
Ms. THOMPSON. At the end state of the enterprises is something
that Congress would have to legislate. So if the enterprises reach
their capital requirements that we have established we certainly
would be having conversations with lots of different stakeholders.
But the end state, if Congress wants the enterprises to come out
as is, then that is, I think, doable within the statute, but if there
is another outcome, if they wanted to be a utility or if they want
other charters, those are things that Congress is going to have to
determine.
Senator TOOMEY. Well sure, if we wanted to change the existing
statutes and exchange existing charters then we would have to
pass legislation to do so. But my point is, that is not the only option available. Would you commit to going as far as you legally can
in moving in the direction of coming out of the conservatorship?
Ms. THOMPSON. Senator, that is a great question, and I will commit to positioning the enterprises and working with the Congress
to do whatever is necessary to move them out of conservatorship
in a responsible and timely way. Now we would certainly be wanting to work with Congress and other stakeholders on this issue.
Senator TOOMEY. Well I appreciate that and I look forward to
working with you toward that very end.
Thank you, Mr. Chairman.
Chairman BROWN. Thank you, Senator Toomey.
A few comments. A few closing comments. Thank you both, by
the way, for being here. For a moment about GSE reforms, something where I hope we can reach consensus in this Committee.

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Many of my colleagues have talked about the importance of that,
of housing finance reform. Before the pandemic, as you know, Acting Director, we had a series of hearings on GSE reform. Consensus was emerging on what the system should look like. Like I
would like to put out a list of priorities where I think we can reach
agreement, and there will be some differences of agree, I am sure,
between and among all of us.
One, protecting access to affordable, 30-year, fixed-rate mortgages; providing a catastrophic Government guarantee; structuring
loan guarantees like public utilities; providing a regulated rate of
return; serving the broad national markets; serving lenders of all
types and sizes equitably; maintaining a duty to serve all markets,
all borrowers; maintaining affordable housing goals and metrics;
expanding investments in affordable housing; and maintaining the
GSEs’ successful multifamily business models and ensure continued or better access for financing of affordable rental housing.
These reforms would create a safe and sound system that meets
the needs of renters and homeowners across the country.
I am certainly happy to engage with the Ranking Member and
others on the Committee of both parties and getting, as we spoke
on the phone, getting the kind of technical assistance that you are
so good at, Acting Director, to provide to us.
I would also make one comment that Chair Powell raised the
same distinction on Tuesday as Governor Brainard today on climate stress tests and climate stress scenarios.
Thank you. It was a full and productive discussion. I applaud the
Biden administration for the nomination of these two eminently
qualified women to these vitally important positions in our Government. I look forward to supporting the nominations of each of you.
I urge my colleagues on both sides to join me.
For Senators who wish to submit questions, these questions are
due at noon on Tuesday, the 18th of January. To the nominees, we
need your responses by Friday, January 24th.
Thank you for your testimony and appearing today. The Committee is adjourned.
[Whereupon, at 10:52 a.m., the hearing was adjourned.]
[Prepared statements, biographical sketches of nominees, responses to written questions, and additional material supplied for
the record follow:]

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PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
It’s amazing what a difference a year makes.
Today, we have safe and effective vaccines that are saving lives and getting people back to work. 207 million Americans are now fully vaccinated.
And our economy has weathered the storm and rebounded. In 2021, we added a
record 6.4 million new jobs—more than any year since 1939.
And it isn’t just the jobs numbers—it’s the quality of those jobs. Workers are demanding raises, and they’re finally getting them. They’re changing jobs at record
rates, because people finally have some options.
The past year has illustrated how our economy works best—when it works for everyone.
Not just Wall Street. Not just the top 1 percent. Everyone.
Whether you punch a clock or swipe a badge, earn a salary or make tips. Whether
you’re raising children, or caring for an aging parent.
No matter who you are, where you live, or what kind of work you do.
Economic growth won’t mean much if it doesn’t reach all workers—families in
Steubenville and Scranton and communities of all sizes, all over the country.
The President has nominated Dr. Brainard and Acting Director Thompson to important roles in our Government and our economy to put those workers and their
families at the center of our Government and the center of our economy—to deliver
results that actually improve their lives.
Dr. Brainard is a leading economist who understands that a strong economy is
one where workers have power.
She is committed to a worker-centered monetary policy that boosts employment
and lifts wages—something that every member of the Fed’s rate setting committee
has reaffirmed.
She has led the way in modernizing and strengthening the Community Reinvestment Act—a landmark civil rights law passed to begin to undo the shameful legacy
of redlining and lending discrimination, and spur investment in all neighborhoods
and communities.
Through her leadership, the Fed listened to the people whose lives and livelihoods
are affected—civil rights leaders, affordable housing advocates, local officials, and
banks of all sizes. She brought everyone to the table and is working to ensure banks
meet the needs of all our communities.
And during this pandemic, she has served as a steady hand—working shoulder
to shoulder with Chair Powell to stabilize our economy and steer the country out
of the abyss.
Dr. Brainard has a distinguished record of bipartisan service in Government and
academia. She joined the Federal Reserve in 2014. From 2009 to 2013, she served
as Under Secretary for International Affairs at the Department of Treasury. There,
she played an instrumental role in helping support the country’s recovery from the
global financial crisis.
She has served in Administrations of both parties, serving as a staff economist
at the Council of Economic Advisers during the George H.W. Bush administration
and as deputy national economic adviser in the Clinton administration. She was a
professor of applied economics at the Massachusetts Institute of Technology.
As Vice Chair, she will be tasked with supporting efforts—efforts that are already
underway—to empower workers and refocus our economy on Main Street, and make
sure that all Americans have good jobs with growing paychecks and an affordable
cost of living.
That also means supporting efforts to close the racial wealth and income gaps
that have barely shrunk in decades. As the Fed has noted, ‘‘the average Black and
Hispanic or Latino households earn about half as much as the average White household and own only about 15 to 20 percent as much net wealth.’’
When we all do better, we all do better.
With Governor Brainard as Vice Chair of the Fed, Americans will have someone
who understands that workers—not corporations, not Wall Street—create economic
growth. Her commitment to the success of all Americans—from all walks of life and
every region of the country—is clear in all the work she’s done, throughout her distinguished career.
Acting Director Thompson has a similarly long and distinguished career in public
service.
In her time as Acting Director, Ms. Thompson has taken meaningful steps to put
renters, homeowners, and families first.
Over the past 6 months, Ms. Thompson has:
• Directed the GSEs to strengthen their plans to preserve affordable housing and
support manufactured housing and housing in rural areas;

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• Expanded opportunities for middle class and low-income homeowners to save
money on their mortgages through refinancing; and
• Increased the focus on fair housing at the GSEs.
I can think of no other nominee as qualified to work to make homes more available and affordable for families throughout the country while strengthening the financial standing of the GSEs.
More than two dozen consumer advocates, civil rights organizations, and housing
advocates have all written to this Committee supporting her.
Before being designated as Acting Director in June 2021, Ms. Thompson served
for 8 years as the Deputy Director for the Division of Mission and Goals at FHFA.
There, she led an office responsible for the mission activities of the GSEs and
housing and regulatory policy under both Republican and Democratic Directors—ensuring the safety and soundness of Fannie Mae, Freddie Mac, and the Federal
Home Loan Banks.
Prior to joining FHFA, she spent 18 years at the Federal Deposit Insurance Corporation, or FDIC. At the FDIC, where she worked for seven different chairpersons
from both political parties—and in senior-level positions, including Director of the
Division of Supervision and Consumer Protection and Director of the Division of
Risk Management and Supervision, helping to stabilize our Nation’s banks.
Earlier in her career, she served at the Resolution Trust Corporation, cleaning up
and restoring faith in our financial system after the Savings and Loan Crisis.
At FHFA, she will be in a position to tackle some of the most pressing issues facing homeowners and renters, and to ensure the stability of our housing finance system.
Whether you’re looking to rent or to buy, housing had become too expensive and
too hard to find long before the pandemic began.
More than 50 years after passage of the Fair Housing Act, people of color are far
more likely to be denied for a mortgage, are far less likely to own their own home,
and are far more likely to pay more in rent than they could afford.
And in just the past week, tragic fires in Philadelphia and the Bronx have reminded us of how far we need to go to ensure that everyone has a safe, affordable
home.
FHFA has an important role to play in addressing each of these challenges, and
Acting Director Thompson has distinguished herself as the person we need to lead
this critical work.
Both of these nominees understand the challenges our economy faces. They understand the people who make our economy work, like so many of this President’s
nominees.
It’s notable that as we recover from a pandemic that laid bare just how hard
women work—at paid jobs in the labor market, and at unpaid jobs taking care of
their families—we have two women poised to take leading roles in our recovery.
I want to thank both nominees for their many years of exceptional public service
and their willingness to continue to serve our country.

PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
Thank you, Mr. Chairman.
Governor Brainard and Ms. Thompson, welcome. You both have very extensive experience in your respective fields. And I commend you for your commitment to public service.
Governor Brainard has been nominated to serve as Fed Vice Chair. The Fed’s
been granted significant independence to isolate it from political influence. However,
Congress has given the Fed very narrowly defined monetary and regulatory missions.
First, the Fed’s been tasked with conducting monetary policy to promote stable
prices and maximum employment. But the Fed’s recent actions have failed to maintain price stability.
Last year, Governor Brainard repeatedly insisted that inflation was transitory.
We have now had 9 consecutive months where inflation has been more than two
times the Fed’s 2 percent target. That makes it pretty clear that inflation is not
transitory. Yesterday’s CPI release of 7.0 percent—the highest in 40 years—confirms that.
Inflation is a tax that is eroding Americans’ paychecks every day. Even though
wages are growing, inflation is growing faster and causing workers to fall further
and further behind.

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I appreciate that the Fed has pivoted towards normalizing monetary policy to
tackle inflation. But the Fed must also learn from its mistakes.
That begins with the Fed’s new monetary policy framework, of which Governor
Brainard was an author and an outspoken advocate. The framework subordinated
the Fed’s price stability mandate to try and maximize employment by allowing inflation to run hot.
Under it, the Fed looked beyond employment as a whole to consider whether employment was ‘‘broad based and inclusive.’’ What this meant was the Fed would sacrifice stable prices to see if it could achieve higher employment gains in certain demographic groups.
As Governor Brainard explained last year, the Fed should look at employment
numbers on a ‘‘disaggregated basis’’ and use monetary policy to narrow employment
gaps between different ‘‘racial and ethnic groups.’’ This framework would keep in
place an inflation tax on all Americans while the Fed decided which sub-groups of
people should have faster job growth over others.
The problem is monetary policy can never equalize employment rates amongst different groups. In the end, the Fed would run the risk of failing on both fronts of
its dual mandate because you need stable prices to achieve a strong economy and
maximum employment. Given this, the Fed should reevaluate its new framework.
The Fed also has the mission of monitoring the safety and soundness of certain
financial institutions. Under Chairman Powell, the Fed enacted modest, sensible reforms that reduced regulatory burdens and helped spur economic growth. But Governor Brainard was the sole dissenter over 20 times on regulatory matters, an unprecedented number at the Fed.
For example, she argued that the Fed’s reforms of capital, liquidity, and stress
tests for smaller, less complex banks would ‘‘weaken the safeguards at the core of
the system.’’ Yet, even though the economy nearly collapsed at the start of the pandemic, the banking system emerged exceptionally well-capitalized and served as a
source of strength for the economy, demonstrating the sensibility of these reforms.
In addition to opposing these reforms, Governor Brainard has urged the Fed to
take an activist role on global warming, which is beyond the Fed’s expertise and
mission. According to the New York Times, she has ‘‘endorsed the use of supervisory
guidance—the Fed’s recommendations to banks—to encourage financial institutions
to curb their exposures.’’
I’m particularly concerned that she has advocated for the Fed to shape environmental policy through so-called climate scenario analysis. Not only does the Fed
lack expertise in environmental matters, but there is no reason to believe that global warming poses a systemic risk to the financial system.
As I have noted before, we haven’t found a single bank that has failed in the modern era due to a severe weather event. There is a ‘‘transition risk’’ for banks associated with global warming, but it’s political and regulatory in nature. It’s the risk
that unelected bureaucrats will attempt to impair the value of energy-related assets
by cutting-off credit to energy companies.
This isn’t about whether climate change is a significant threat to our society. It’s
about the fact that climate policymaking requires tradeoffs between costs and benefits. These are inherently political decisions, which is why they belong firmly in the
domain of officials who are elected and directly accountable to voters.
Now turning to Ms. Thompson. She has been nominated to serve as the Director
of the FHFA, where she has had a busy six months as Acting Director.
In that time, she has proposed reductions in capital requirements for Fannie Mae
and Freddie Mac, suspended restrictions on the GSEs’ acquisitions of high-risk
loans, required the GSEs to develop plans to further what Democrats call ‘‘racial
equity,’’ but what is really just affirmative action in the housing space, and increased the GSEs’ affordable housing goals. Unfortunately, she hasn’t prioritized
ending the GSEs’ conservatorships.
I’m concerned the Administration is seeking to use FHFA and the GSEs to take
on more risk for taxpayers and expand affirmative action into housing. That makes
Ms. Thompson’s nomination—notwithstanding her extensive experience—a referendum on the Administration’s radical housing policy.
This policy contemplates more mortgages for higher risk borrowers, repurposing
the GSE as instrumentalities of social policy, and a disappointing embrace of the
failed GSE model. In a break from decades of bipartisan housing finance reform efforts, this Administration is using the power of the GSEs’ conservatorships to command and control a huge swath of the economy.
We are now asked to ratify this radical housing policy, and to take ownership of
the bailouts and foreclosures that will likely follow. Especially given where we
might be in the housing cycle, we should be reluctant to do so.
Mr. Chairman, I look forward to hearing from today’s nominees.

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PREPARED STATEMENT OF LAEL BRAINARD
TO BE VICE CHAIRMAN OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE
SYSTEM
JANUARY 13, 2022
Chairman Brown, Ranking Member Toomey, and other Members of the Committee, thank you for this opportunity to appear before you. I am greatly honored
to be nominated by President Biden to serve as Vice Chair of the Board of Governors of the Federal Reserve System. If confirmed to this position, I look forward
to continuing to work with Members of this Committee.
We are seeing the strongest rebound in growth and decline in unemployment of
any recovery in the past five decades. Over the past year, unemployment has fallen
by 2.8 percentage points, and growth is estimated to be around 51⁄2 percent, according to a variety of private forecasts.
But inflation is too high, and working people around the country are concerned
about how far their paychecks will go. Our monetary policy is focused on getting
inflation back down to 2 percent while sustaining a recovery that includes everyone.
This is our most important task.
When the pandemic struck in 2020, I worked closely alongside Chair Powell and
Secretary Mnuchin and many others, with the support of Congress, to calm financial
market turmoil and save American jobs and businesses. When markets stabilized,
I worked to responsibly wind down the emergency facilities we established. Today
the economy is making welcome progress, but the pandemic continues to pose challenges. Our priority is to protect the gains we have made and support a full recovery.
Since 2014, as a member of the Federal Open Market Committee, I have supported monetary policy that is responsive to evolving economic conditions. Our approach helped sustain the longest recovery on record with low inflation and millions
of jobs.
More broadly, I have worked to safeguard and grow our economy during the Administrations of five Presidents from both parties. I have worked on the U.S. policy
response to every major financial crisis over three decades. I served at the Department of the Treasury as part of the team responsible for supporting America’s recovery from the Global Financial Crisis and responding to the euro-area financial crisis.
I served at the White House as part of the team helping to safeguard the American
economy from the Asian financial crisis as well as financial crises in Mexico, Brazil,
and Russia. In some foreign countries, I saw up close how high inflation hurts workers and families, especially the most vulnerable.
I am committed to pursuing the Federal Reserve’s congressionally mandated goals
of price stability and maximum employment and to maintaining the strength and
resilience of our financial system. I am committed to the independent and nonpartisan status of the Federal Reserve.
If confirmed, I look forward to supporting Chair Powell in carrying out the responsibilities assigned to the Federal Reserve and in fostering transparent communication and accountability to you and the American people. I will bring a considered
and independent voice to our deliberations, drawing on insights from working people, businesses, financial institutions, and communities—large and small—across
the country. I will support policies that are in the interests of the American people
and based on the law and careful analysis of the evidence.
Before closing, I want to thank my husband and daughters for their steadfast support of my work. And I would like to commend the outstanding efforts of the individuals across the Federal Reserve System who work so hard every day to serve the
American public.
Senators, I thank you for this opportunity to appear before you and for considering my nomination. I would be pleased to respond to any questions.

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PREPARED STATEMENT OF SANDRA THOMPSON
TO BE DIRECTOR OF THE FEDERAL HOUSING FINANCE AGENCY
JANUARY 13, 2022
Chairman Brown, Ranking Member Toomey, and Members of the Committee. I
first want to thank President Biden for nominating me to serve as the Director of
the Federal Housing Finance Agency (FHFA), it is the greatest honor of my career
to appear before you today.
Thank you to the Senators and the staff members with whom I have met in advance of this hearing. If I am fortunate enough to be confirmed, I look forward to
meeting with and working with all of you on the important issues at the FHFA.
I would like to introduce my sons, Jarrett and Aaron Nobles, who are here with
me today. And I would like to recognize and thank my parents, Herman and Helen
Lathan. While due to COVID considerations they are not able to be here in person,
the fact that my parents are still alive to witness today’s hearing is very meaningful
to me. I was born and raised on the South Side of Chicago to my extraordinary parents who came to Chicago from Mississippi as part of the Great Migration. My parents and family, along with the Chicago Public School system, and my beloved Howard University right here in Washington, DC, taught me hard work, determination,
commitment, and perseverance. I would like to specifically recognize the schools I
attended that helped me succeed: McDade Elementary School, Gillespie Jr. High
School, and Lindblom Technical High School, all on the South Side.
My nomination for Director of the FHFA is a great privilege. I recognize that it
is rare for a career public servant to have the opportunity to lead a Federal agency,
and, as the first African-American woman nominated for this position, I appreciate
the opportunity to demonstrate my expertise, good judgement, and leadership in
this position.
I am proud of the work we have done at FHFA in my 8 years there. The Agency
plays a vital role in both promoting access to mortgage credit nationwide and protecting the safety and soundness of the housing finance system through our supervision of Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System
(housing GSEs).
Throughout my 40-year career, with experience in mortgage markets and Federal
financial regulation at multiple agencies, I have seen what it takes to lead a Federal
agency and be effective in that role. In my work at FDIC and FHFA, I have demonstrated leadership, management ability, an understanding of the secondary mortgage markets and industry, a fair and balanced perspective, and a strong belief in
the importance of the safety and soundness of America’s financial institutions.
During my time in Federal financial institution regulation, I have witnessed and
worked to end several financial crises. These crises exposed some truths in housing
finance. When I served as the FDIC’s head of supervision and consumer protection
throughout the 2008 financial crisis, I witnessed firsthand the consequences of irresponsible lending when hundreds of banks across the country were closed and a
record number of homes went into foreclosure.
I saw how the borrowers who received unsustainable loans and predatory loan
products were devastated in the downturn. And historically underserved and disadvantaged communities were hit especially hard. Years of progress in closing the
home ownership and wealth gaps were erased as a result. In fact, today the Black–
White home ownership gap is wider than it was in the 1960s, when lending discrimination based on race was still legal. As a financial regulator, I have long believed that safety and soundness and access to credit are not mutually exclusive.
Broad, fair access, and the stability of financial institutions work together as pillars
of the Nation’s housing finance system. Indeed, sustainable access to credit requires
sustainable lending standards. FHFA will continue to promote sustainable and equitable access to credit in a safe and sound manner. We will responsibly focus our
efforts on the safety and soundness mission Congress gave to FHFA and on the mission that Congress gave the housing GSEs under our supervision—providing liquidity across the Nation and especially supporting underserved markets like rural and
tribal areas, manufactured housing, and preserving affordable housing. If confirmed,
it would be an honor for me to serve as the FHFA Director, and I will continue to
be fair, balanced, and transparent. Thank you for the opportunity to testify before
you today. I am happy to answer any of your questions.

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RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM LAEL BRAINARD

Q.1. Where have you excelled in past positions in attracting, hiring, and promoting people of color in positions in your organization? Where might there be room for improvement?
A.1. Research suggests, and my own experiences have shown, that
having greater diversity at the table—diversity of every type—
leads to less groupthink and better outcomes. I have made increasing diversity and inclusion a priority in my career, including focusing on hiring and promoting people of color. And I have benefited,
as have the organizations for which I have worked, from the views
of people of different backgrounds.
From the time of my service at the Department of Treasury
(Treasury), I have been pleased to see the diverse and highly qualified team that worked with me at Treasury excelling and making
important contributions as they have advanced.
In my tenure at the Board of Governors (Board), I have worked
to ensure that Reserve Bank boards increasingly reflect the communities that they serve. Our Class C directors, who are selected
by the Board, are noticeably more diverse than they were 5 years
ago. Minority representation among Class C directors has increased
by 31 percentage points over the past 5 years. Currently nearly
two-thirds of Class C directors are minorities. At present, more
than half of Class C directors are women, 33 percent of whom are
minorities. The leadership of Reserve Bank boards is also highly diverse. Among the 24 Reserve Bank Chairs and Deputy Chairs, 20
are diverse in terms of race or ethnicity and/or gender. Of course,
there remains substantial room for improvement. To promote
transparency and accountability, information on gender, racial and
ethnic, and sectoral characteristics of the Boards of directors is
posted on the Board’s website and updated annually.
Among the many benefits of having a diverse board is that the
Class B and C directors, those selected to represent the public, lead
the process to appoint presidents and other senior Reserve Bank
leaders. Over the past several years, the professional, gender, and
racial diversity of first vice presidents and chief operating officers
of the Reserve Banks has increased. But further progress is necessary. In over 100 years, there has been one Black Reserve Bank
president, two Asian American presidents and no Latino president.
We have invested considerably in adopting best practices in outreach and engagement to identify slates of highly qualified candidates that are more diverse as well as in ensuring more diverse
interview panels. I work with the Board’s Director of the Office of
Minority and Women Inclusion (OMWI), the Chief Human Capital
Officer, the Chief Operating Officer, and the Directors of the
Board’s divisions to hire, retain, and promote a diverse staff. This
is a priority for the Board’s Executive Committee. I meet regularly
with the OMWI Director to review progress and to understand
challenges and how we are addressing them. As hiring decisions
are made, I check to make sure the OMWI has been involved to
ensure implementation of best practices.
We have been increasing our outreach in order to increase diversity of Board economists, by building relationships with students
and schools at all levels to introduce them to the Federal Reserve,

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through involvement in minority recruitment events, partnering
with the American Economic Association and Howard University,
and recruiting economists with more varied research specializations. I have personally participated in a variety of recruiting
events, including the Conference for the 2017 Summer Training
and Scholarship Program sponsored by the American Economic Association and the National Science Foundation, the Sadie T.M.
Alexander Conference for Economics, and the Board’s Exploring
Careers in Economics program.
If confirmed, I will continue to work with my colleagues at the
Board and with senior leaders throughout the System to make further improvement.
Q.2. What specific measures will you use to evaluate the success
of the Federal Reserve in understanding and addressing the needs
of Black, Indigenous, and people of color (BIPOC)? And, will you
work with the Chair and Board to keep Congress apprised, as appropriate, on the progress being made on these measures?
A.2. If confirmed, I will work with the Chair and Board to keep
Congress apprised, as appropriate, on the progress being made on
these issues.
I will work to ensure the Federal Reserve carries out its statutory responsibilities with regard to understanding and addressing
the needs of Black, Indigenous, and people of color (BIPOC). The
Federal Reserve has tools and responsibilities with regard to monetary policy, as well as supervision and regulation, which make important contributions to prosperity that is widely shared among all
groups.
By pursuing our statutory mandate, the Federal Reserve’s monetary policy actions promote maximum employment and price stability—two foundations that improve economic outcomes for all
Americans—with those who have historically been left behind
standing the best chance of prospering in a strong, stable economy
with good job opportunities and low inflation.
The lengthy expansion that was brought to a close by the pandemic showed the immense benefits that a strong labor market
with low inflation can provide to all communities, and especially to
low- and moderate-income (LMI) communities and communities of
color. But the COVID–19 crisis exacerbated racial disparities as
minority workers and small businesses experienced disproportionate harm. The pandemic is a reminder that these communities
are the most vulnerable to economic downturns and also that the
Federal Reserve has powerful tools to help support a strong recovery that includes everyone. Currently we are seeing the strongest
recovery in five decades with strong growth and the creation of millions of jobs, but inflation is too high. Monetary policy is focused
on getting inflation down to target, which is important for working
people from all communities who are concerned about how far their
paychecks will go, while sustaining a recovery that includes everyone.
In support of its statutory responsibilities, the Federal Reserve
staff undertake important data collections on consumer and small
business finances and the economic wellbeing of households broken
out by wealth and income as well as race and ethnicity. If con-

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firmed, I will support this work, which provides an important window into how well our policies are achieving their goals.
The Federal Reserve also has important supervisory and regulatory responsibilities that promote fair and equal access to credit
and financial services.
The Community Reinvestment Act (CRA) is an essential regulation and supervisory tool to promote access to credit investment in
LMI communities. I have worked to strengthen CRA regulations
and evaluations to increase the effectiveness, transparency and accountability in how banks are rated on their affirmative obligation
to meet the investment, credit and banking services needs of their
local communities, including through improved access to home
mortgage, small business, and student lending for LMI households
and communities. The CRA evaluations are public and are taken
into consideration in the review of banks’ applications for merger
and acquisitions. Currently, staff at the Board, Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of
the Currency (OCC) are working together to propose for public
comment revisions to the regulations that implement CRA.
Further, the Federal Reserve examines banks for compliance and
helps enforce the Fair Housing Act and the Equal Credit Opportunity Act. In implementing our statutory responsibilities, the Federal Reserve works to make sure that the State member banks we
examine have credit policies and practices in place that are fair
and do not prevent any creditworthy consumer from getting access
to credit, do not result in discrimination in the pricing of credit, or
redline neighborhoods based on their racial and ethnic composition.
If examiners identify a pattern or practice of illegal discrimination
on any of the prohibited factors defined in the laws, staff cite it and
refer the case to the Department of Justice for further enforcement.
To further support access to economic opportunity for people of
all levels of wealth and income, the Federal Reserve has a longstanding program to promote the viability of minority depository
institutions (MDIs), which are mission-oriented and dedicated to
serving the banking and credit needs of minority consumers and
communities. As the COVID–19 pandemic made clear, mission-oriented lenders, such as MDIs, Women’s Depository Institutions
(WDIs), and community-development financial institutions are important actors in serving the financial needs of minority customers
and small businesses, as well as providing development resources
to invest in minority communities. We found that during the crisis
these institutions were highly effective at getting the smallest business loans to the business borrowers that are hardest to reach.
Through the Federal Reserve System’s ‘‘Partnership for Progress’’
(PFP) program, we provide technical assistance and training in collaboration with the FDIC and OCC to help MDI leaders overcome
the challenges inherent in providing banking services to low- and
moderate income and minority communities and consumers. To further support financial institutions dedicated to serving harder to
reach market segments, we expanded our PFP program to include
WDIs.
Q.3. What is your plan for creating an inclusive working environment for employees within your office?

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A.3. An inclusive environment welcomes and values different views
and experiences. It is one in which people feel comfortable to speak
up—especially when offering views contrary to those of colleagues
and of leadership. It provides everyone an opportunity to make an
impact and improves decision making and outcomes. To inform my
own decision-making process, I seek out input from a wide range
of sources. And I make clear that I benefit from hearing different
views.
Generally, I think it is critical to remain engaged with staff and
create opportunities for dialogue. I make it a priority to participate
in division town halls and events sponsored by employee resource
groups. This provides me an opportunity to get to know more of the
Board’s employees, better understand their individual contributions, hear the challenges they are facing as well as what they
think is working well and where there is room for improvement. It
also provides staff an opportunity to raise concerns with me directly, increasing transparency and accountability.
As noted above, I work closely with the Director of the Board’s
OMWI, Human Capital Officer, Chief Operating Officer, and our
division directors to hire, retain, and promote a diverse staff. We
have made this a priority for the Executive Committee. I meet regularly with the OMWI Director to discuss progress on priorities
and to understand challenges and how we are addressing them. As
hiring decisions are made, I also consult with her to ensure conformance with best practices. In a culture and environment where
employees feel supported and valued. To hold ourselves accountable
for advancing diversity and inclusion, we have introduced the practice of Diversity and Inclusion Scorecards.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
FROM LAEL BRAINARD

Q.1. At your nomination hearing, Senator Tillis asked you about
the fact that you donated the maximum allowable individual
amount—$2,700—to Hillary Clinton’s 2016 Presidential campaign
while you were a sitting Fed Governor. In your response to Senator
Tillis’ question you asserted that other Fed Governors have made
political donations while they were serving on the Fed Board of
Governors. You said: ‘‘it is rare, it has occurred.’’ Who are the other
Fed Governors that have made political donations while they were
serving on the Fed Board of Governors, when did they make these
donations, what were the amounts of their donations, and what are
the names of the recipients of these donations?
A.1. As I noted, I consulted with an ethics official who informed me
such donations are permissible, but I came to recognize the concerns regarding appearances, and for those reasons I have not
made nor will I make any other donations while a member of the
Board of Governors of the Federal Reserve System (Board). Regarding members of the Federal Reserve more broadly, I am not aware
of a comprehensive list; however, I understand that publicly available sources reference donations made by other Federal Reserve officials over time.
Q.2. In a 2019 testimony to the House Financial Services Committee, Rep. Roger Williams asked if you were a capitalist or a so-

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cialist. By his count, it is a question he has asked nominees over
20 times before. All others—including your cowitness at the hearing—have said capitalist. You refused to answer the question, saying you don’t ‘‘think about in those terms.’’ The question is not
complicated or abnormal. Both capitalism and socialism are long
traditions in the history of economic thought. In the early 20th century, many influential economists—including Abba Lerner and
Oskar Lange—advocated for Government-run economies. They
sought to ‘‘rationalize’’ economic production, replacing markets with
centralized planning to improve economic efficiency. Notably, Paul
Samuelson praised the economic performance of the Soviet Union—
right up until it collapsed. Some continue to advocate for socializing industries, including socialized banking via the Federal Reserve.
Are you a capitalist or are you a socialist?
A.2. Capitalist.
Q.3. Please describe your role in updating the Federal Reserve’s
Guidance on System Community Development (CD) Function and
CD Program Expectations in or around 2017.
Did you help draft the 2017 S–Letter on the Fed’s CD Function
(S–2668)?
A.3. I was the Chair of the Committee on Consumer and Community Affairs in 2017. In that capacity, I provided feedback to Board
staff on the System letter (S–Letter) they drafted (S–2668). Other
Board members also had an opportunity to provide such feedback.
Board members voted unanimously to approve S–2668 in December
2017. Governor Bowman took over as Chair of the Committee on
Consumer and Community Affairs in 2018.
Q.4. Who else was involved in drafting this S–letter (S–2668)?
A.4. Board staff were involved in drafting S–2668, which is an internal operating document providing guidance to the Federal Reserve Banks on implementation of their community development
functions. The letter sought to update the guidance to reflect existing practice to improve consistency across the Federal Reserve System in support of the statutory mandates of the Board, including
supervisory and regulatory mandates for the Community Reinvestment Act (CRA).
Q.5. Why did the Fed Board decide it was necessary to update the
Federal Reserve’s Guidance on System CD Function and CD Program Expectations in or around 2017?
When was this determination made, and who was involved in
making this determination?
A.5. Given the time that had passed since the last issuance of the
Community Development S–Letter (S–2473) in 1984, there was
broad agreement among Board members and members of the Conference of Presidents that it was prudent to update the S–Letter
to better reflect existing practice. Board members voted unanimously to approve the update to the S–Letter in December 2017.
Q.6. What changes did S–2668 make to the Fed Board’s prior guidance the Community Development/Community Affairs function?

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A.6. The 2017 letter (S–2668) updates S–2473, which was originally issued in 1984. The letter acknowledges that community development is a core business function of the Federal Reserve and
describes how that function aligns with the Board’s purposes and
functions. Specifically, S–2668 sets expectations regarding (i) analysis and dissemination of information regarding local financial
needs and effective approaches for attracting and deploying capital
in support of the Federal Reserve’s CRA mandate; (ii) conducting
applied research and collecting data on local economic conditions
and on effective strategies for improving them; and (iii) soliciting
diverse views on issues affecting the economy and financial markets in support of the Federal Reserve’s financial stability, supervisory, and regulatory responsibilities.
Q.7. S–2688 superseded prior Fed Board guidance set orth in S–
2442 (1981) and S–2473 (February 24, 1984). In order to put S–
2668 in context, please provide copies of S–2442 and S–2473.
A.7. I understand that Board staff have been coordinating with
your staff on this request.
Q.8. Did you or any other Federal Reserve Governor (including the
Chair) have any meeting(s) (or any other form of communication)
that discussed updating or broadening the Community Development Function with anyone in the White House prior to the 2017
release of S–2668?
If so, where was the meeting held and who was in attendance?
What was the meeting about?
A.8. S–2668 is internal guidance to help facilitate the Federal Reserve’s implementation of its CRA responsibilities. The Board of
Governors approved S–2668 by a unanimous vote. I did not consult
with anyone in the White House on this matter.
Q.9. Did you or any other Federal Reserve Governor (including the
Chair) have any meeting(s) focused on updating or broadening the
Community Development Function with any outside groups prior to
the 2017 release of S–2668?
If so, where was the meeting held and who was in attendance?
What was the meeting about?
A.9. I did not have any meetings to discuss S–2668 with any outside groups prior to the Board’s transmittal of the letter to the Federal Reserve Banks.
Q.10. In December 2021, the 12-month CPI inflation rate was +7.0
percent.
How much of this inflation can be attributed to the Fed’s interest
rate policy?
How much of this inflation can be attributed to the Fed’s $4.6
trillion of asset purchases in 2020 and 2021?
How much of this inflation can be attributed to supply chain disruptions?
How much of this inflation can be attributed to other factors and
what are they, if any?
A.10. As you note, inflation is too high, which hurts working people
and families, especially the most vulnerable. It is difficult to undertake a precise quantitative decomposition of the effects that the
various factors you mention are having on consumer price inflation,

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in part because we lack direct information on the way that supply
disruptions are contributing to firms’ costs, and how those costs are
being passed through to prices. The evidence that households, businesses, and market participants appear to expect that the current
high inflation readings will subside over time and that the Federal
Reserve will meet its longer-term price stability goal of 2 percent
PCE price inflation provides some evidence that the bulk of the recent increase in inflation is attributable to these pandemic-related
factors.
The Federal Reserve’s interest rate policy actions and asset purchases in response to the COVID–19 shock, combined with rapid
and sizeable fiscal support, helped to calm financial turmoil, save
American jobs and businesses, and support a strong recovery. One
way to get at the question about isolating the contribution of aggregate demand from other contributors is to compare inflation at
similar levels of unemployment before and after the pandemic. At
3.9 percent, the current level of the unemployment rate is somewhat higher than the 3.5 percent rate that was achieved on the eve
of the pandemic, when inflation was running around 2 percent,
which suggests that the contribution of aggregate demand—and
hence of monetary policy per se—to the recent increase in inflation
has probably not been large.
The recent high rates of consumer price inflation other than food
and energy mostly stem from an extraordinary and sustained shift
in the composition of consumer spending away from in-person services and towards durable goods, combined with supply-related constraints in those same sectors, resulting from multiple waves of
COVID–19. U.S. consumers shifted spending toward goods—particularly durable goods—and away from in-person services due to
the pandemic. At the same time, the availability of some of those
same goods that are in high demand has been curtailed by supply
chain disruptions here and especially abroad, as well as shipping
constraints—due to COVID-related or weather—related disruptions. At the same time, labor shortages in many industries have
exacerbated the restricted supply of both goods and services in
some sectors. These labor shortages are themselves partly attributable to the effects of the pandemic, as caregiving needs and ongoing fears of the virus have weighed on labor force participation.
Q.11. Economists often describe quantitative easing (QE) as working through a ‘‘term premium effect.’’ QE pushes down long-term
yields by reducing the supply of Treasury debt and mortgage
bonds.
To the best of your understanding, how much do the Fed’s portfolio holdings reduce the current 10-year Treasury yield? If uncertain, provide a plausible range.
What models or analyses inform your estimate of the Fed portfolio’s TPE?
A.11. The effect of quantitative easing (QE) on financial conditions
and the macroeconomy is the subject of active academic research,
and a number of different channels have been identified in that literature. The mechanism by which QE affects the macroeconomy is
generally through longer-term interest rates, which are affected by
the expected path of the policy rate and by term premiums. QE can

90
actually affect both of those components of longer-term yields. QE
can affect the expected path of the policy rate through a signaling
channel if the public perceives the Federal Open Market Committee’s (FOMC) actions or communications about the balance sheet to
imply a different future path of the policy rate than they were currently expecting. QE can directly affect term premiums in part
through a duration-risk channel by changing the total amount of
duration risk available to be held by private investors.
There is a wide range of estimates of how much asset holdings
affect the 10-year yield through a term-premium effect. One study 1
that used data from early in the asset purchase program in 2008–
2009 after the onset of the global financial crisis found effects that
are equivalent to a 0.15 percentage point effect from net purchases
that were equal to 10 percent of GDP, while another study 2 found
the equivalent of a 2.4 percentage point effect for the same amount
of net purchases using different methods and a different sample period. These are just two of the studies collected in Gagnon (2016), 3
which compares the estimates from a number of papers in a consistent manner and illustrates the wide range of estimates found
in the literature. Importantly, many things affect term premiums
and the effect of an identical amount of additional purchases is
likely to be different in different macroeconomic conditions, or
under different shapes or slopes of the yield curve.
The range of estimates reinforces the uncertainty around the precise magnitude of the term premium effects of these purchases.
While I retain a healthy level of humility about the precision of the
balance sheet tool, there is good evidence that in both of the recent
periods in which our policy rate reached its effective lower bound,
asset purchases helped generate accommodative financial conditions in line with our statutory objectives of achieving price stability and maximum employment.
Q.12. Traditional monetarist analysis suggests a different transmission mechanism for QE: the money supply. QE increases the
amount of reserves in the banking system. A greater level of reserves earning a near-zero return drags down return on equity,
incenting banks to increase lending. Lending boosts bank deposits,
and therefore the money supply. In turn, all else equal, the greater
money supply increases aggregate demand—and in the long run,
prices.
Do you believe this mechanism is important for explaining the
transmission of monetary policy? Please explain your view and
share any relevant research.
Or if you do not yet have an informed view, will you commit to
studying it further and briefing me and my staff?
A.12. Traditional monetarist models emphasize the connection between reserves and bank deposits. In such models, when banks
have excess reserves that are not earning interest, they reallocate
1 Christensen, Jens, and Glenn Rudebusch. 2016. ‘‘Modeling Yields at the Zero Lower Bound:
Are Shadow Rates the Solution?’’ Advances in Econometrics 35: 75–125.
2 D’Amico, Stefania, and Thomas King. 2013. ‘‘Flow and Stock Effects of Large-Scale Treasury
Purchases: Evidence on the Importance of Local Supply’’. Journal of Financial Economics 108,
no. 2: 425–48.
3 Gagnon, Joseph (2016), ‘‘Quantitative Easing: An Underappreciated Success’’, Peterson Institute for International Economics, Policy Brief, April.

91
these funds into interest-bearing activities like loans and investments. This activity in turn creates deposits held by the public, and
these deposits form part of measures of the money supply like M2.
This ‘‘money multiplier’’ paradigm—in which the growth of reserves
corresponds more or less directly with the growth of the money
supply as measured by M2—does not appear to have been a very
accurate description of the relationship between bank reserves and
the money supply in recent decades. This likely reflects the fact
that the modern financial landscape contains elements not traditionally included in money-multiplier-style models, including interest on reserves and a binding lower bound on short-term interest
rates.
In recent decades financial innovation has loosened the historical
linkage between the M2 monetary aggregate and economic variables like nominal GDP, real GDP, and inflation. As I noted in my
testimony, it remains the case that inflation is fundamentally a
monetary phenomenon. But M2 has diminished in usefulness as an
indicator of monetary policy and, consequently, and monetary aggregates have not figured prominently in the FOMC’s monetary
policy deliberations for some time.
Q.13. FOMC participants have reevaluated their views on the appropriate path of policy in light of recent inflation. In the December
2021 Summary of Economic Projections, the median FOMC participant projected three rate hikes in 2022, up from one rate hike. All
participants see inflation slowing. However, three rate hikes would
only raise overnight rates to between 0.75 percent and 1.00 percent. In real terms, interest rates would still be sharply negative.
While these projections are not a committee forecast, these numbers suggest that participants generally believe that inflation will
fall despite real interest rates remaining in negative territory.
How can the Fed curtail inflation while real interest rates remain negative?
Does this imply that the neutral interest rate is now negative,
and so a less negative rate can be contractionary?
A.13. A mix of supply and demand factors are responsible for the
level of inflation that we are currently experiencing. Our monetary
policy tools work on the demand side, and are not effective at addressing supply constraints. An important component of my expectation that inflation will slow even as rates remain below their
longer-run level is the expectation that supply constraints will ease
during 2022. As constraints ease and supply increases in the affected sectors, inflation in these sectors should decelerate even if
the level of demand remains the same. This is the case for new and
used motor vehicles, where semiconductor supply constraints have
been significant, and inflation has been unusually high over the
past year. In addition to these supply-driven effects, the steps we
have taken recently to bring net asset purchases to a close, as well
as the projection you referenced for multiple increases in the policy
rate this year, will tighten the stance of monetary policy and slow
aggregate demand, also slowing inflation.
Importantly, demand and inflation are influenced not just by the
present setting of monetary policy vis-a-vis the neutral interest
rate, but also by expectations regarding future monetary policy.

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Monetary policy influences broader financial conditions, through
short- and longer-term interest rates, as well as through their effects on other asset prices and the broad value of the dollar.
Longer-term interest rates, which are affected by both the expected
path of the policy rate and the size of the balance sheet, are particularly important. As expectations about the future of the policy
rate and the balance sheet shift, so too will broader financial conditions, with attendant macroeconomic effects.
Q.14. In the past, you have spoken about the important role of fiscal policy in supporting monetary policy when the Fed is constrained by the zero lower bound. As I understand your view, fiscal
policy can support aggregate demand when the Fed’s primary tool
(the overnight interest rate) is constrained. As you said in an October 2020 speech, ‘‘Further targeted fiscal support will be needed
alongside accommodative monetary policy to turn this K-shaped recovery into a broad-based and inclusive recovery.’’[1] We have now
seen the troubling result of that support: tremendous inflation. And
rather than fix our long-term budget issues, my Democrat colleagues want to continue deficit spending. Others have proposed
radical changes to the Fed’s framework for monetary policy, such
as allowing for negative nominal interest rates, or purchasing corporate bonds and equities. None of these radical proposals address
the root issue: the neutral interest rate has fallen close to zero.
[1] ‘‘Achieving a Broad-Based and Inclusive Recovery’’ (October 21,
2020), available at https://www.federalreserve.gov/newsevents/
speech/brainard20201021a.htm.
Do you agree that the potential growth rate is closely connected
to the neutral rate?
All else equal, for each percentage point increase in the potential
growth rate, how much would the neutral rate increase? If uncertain, provide a plausible range.
In your view, what is the current neutral rate? If the neutral
rate were to rise, at what level would the zero lower bound no
longer be a salient concern for monetary policy?
What models or analysis informs your estimate of the neutral
rate, as well as the relationship between the neutral rate and the
potential growth rate?
A.14. Yes, the potential growth rate of the economy and the neutral rate are closely connected and appear to share some important
drivers. That said, research results are mixed on the overall
strength of the relationship, and estimating the neutral rate is
challenging—a situation reflected in a wide range of reported values.
Recent research 4 shows that demographic factors are likely important drivers of both the potential growth rate and the neutral
rate. That paper shows that demographic factors can account for a
little more than a 1 percentage point decline in the equilibrium
real interest rate since 1980, a magnitude comparable to the roughly 11⁄4 percentage point decline in trend real GDP growth over the
same period. This empirical finding indicating nearly 1-for-1 movements in trend growth and the neutral rate mirrors the 1-for-1 con4 Gagnon, Etienne, Benjamin K. Johannsen, and David Lopez-Salido. 2021. ‘‘Understanding
the New Normal: The Role of Demographics’’. IMF Economic Review 69 (2):357–90.

93
nection between potential output growth and the neutral rate in
the frequently cited model, 5 which made the 1-for-1 relationship
between the two variables a feature of the estimates. Other researchers 6 come to different conclusions, namely that the empirical
correlations between longer-run average GDP growth and longerrun average real interest rates in both U.S. and international data
are not as strong as would be suggested by the strength of the connections between the two series in theoretical models. In sum,
there are structural factors, such as demographics, that are likely
important drivers of both potential output growth and the neutral
rate—but this relationship is more complicated than can be captured by simple models. An increase in potential output growth is
very likely to result in an increase in the neutral rate, but the relationship is unlikely to be one-to-one.
A variety of evidence suggests the neutral rate it has materially
declined in recent decades. In the December Summary of Economic
Projections (SEP), the median longer-run level of the nominal Federal funds rate was 2.5 percent, while the median longer-run inflation expectation was 2 percent, which would imply a real neutral
rate of 0.5 percent. The level of uncertainty around that estimate
is significant.
It is difficult to say with certainty how much the neutral rate
would have to rise in order for the effective lower bound to cease
being a salient monetary policy concern. In prior decades, the policy rate was cut by 4.5 to 5 percentage points in an average recession—2 percentage points above the SEP median longer-run level
of the nominal Federal funds rate.
Q.15. Since 2020, the Fed has purchased about $4.6 trillion of
bonds.
With the benefit of hindsight, do you agree that the Fed’s QE
program went on for too long?
A.15. Consistent with the Federal Reserve’s statutory responsibilities for achieving price stability and maximum employment, the
FOMC’s purchases of longer-term Treasury securities and of agency
mortgage-backed securities were an important tool in the Federal
Reserve’s response to the pandemic. A significant fraction, $2.4 trillion of the $4.6 trillion you cite above, were purchased during the
3-month window from mid-March to mid-June 2020, at the height
of the financial turmoil related to the onset of the pandemic. These
purchases were intended to restore orderly financial market functioning in the early stages of the pandemic, thereby supporting the
flow of credit to households and businesses and saving American
jobs and businesses.
Subsequently, the Federal Reserve’s asset purchases provided
necessary monetary accommodation consistent with our statutory
responsibilities for price stability and maximum employment during a time when the Federal funds rate was at its effective lower
bound. As such, they helped reduce the severity of the 2020 recession and supported the strongest recovery we have seen in five dec5 Thomas Laubach, John C. Williams; ‘‘Measuring the Natural Rate of Interest’’. The Review
of Economics and Statistics 2003; 85 (4):1063–1070.
6 Hamilton, James D., Ethan S. Harris, Jan Hatzius, and Kenneth D. West. 2016. ‘‘The Equilibrium Real Funds Rate: Past, Present, and Future’’. IMF Economic Review 64 (4):660–707.

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ades. In December 2020, the FOMC established outcome-based
guidance indicating that asset purchases would continue at their
existing pace until substantial further progress toward our statutory goals of maximum employment and price stability had been
met. In the fall of 2021, the benefits of using outcome-based guidance became clear, as the goal of substantial further progress was
achieved earlier than expected. The FOMC signaled following the
September 2021 meeting that the substantial further progress
threshold would soon be achieved, announced the tapering of purchases in November 2021, and accelerated the pace of the taper in
December 2021 such that net purchases will end in March 2022.
The FOMC’s decisions regarding asset purchases have been
taken in support of the dual mandate and in a way that has been
transparently tied to economic outcomes on the labor market and
inflation.
Q.16. Going forward, would you support the Fed announcing a specific horizon for its average inflation targeting?
A.16. Following a lengthy and considered process informed by research and outreach, the FOMC unanimously adopted a monetary
policy framework. It includes a flexible average inflation targeting
(flexible AIT) strategy that seeks to achieve inflation that averages
2 percent over time in order to ensure that longer-term inflation
expectations are well anchored at 2 percent.
The FOMC deliberated on whether to adopt a specific horizon for
its flexible AIT strategy and consulted a variety of research on this
topic. A formal average inflation targeting (AIT) rule, under which
the time horizon would be specified numerically is appealing in
theory. But ultimately the FOMC determined that the drawbacks
would likely outweigh the benefits in practice. As the FOMC noted
in the Statement on Longer-Run Goals and Monetary Policy Strategy, the strategy aims to conduct policy in a way that anchors inflation expectations at 2 percent. The appropriate adjustment of
monetary policy to achieve this goal will depend on a wide range
of factors that could vary materially over time, depending on the
economic circumstances, which could not be fully captured by a
simple arithmetic formula pertaining to average inflation over a
fixed time horizon. The FOMC concluded that a flexible AIT strategy is better matched to the highly uncertain and dynamic context
in which policymaking takes place, and it is likely to be superior
to mechanical AIT in terms of ease of communication and implementation, as well as in terms of the associated economic outcomes.
Of course, the FOMC may revise its views in the future, in light
of subsequent experience and research, which will also inform the
evolution of my own views.
Q.17. At a Financial Stability Oversight Council (FSOC) meeting
in 2021, Treasury Secretary Yellen expressed potential systemic
concerns resulting from ‘‘liquidity risks’’ associated with open-end
mutual funds and money market funds. It is concerning that this
will be used to justify an overreaching regulatory regime for both
products.
Do you believe that money market funds should be eliminated as
an investment vehicle?

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A.17. No. The incentives for investors in prime and tax-exempt
money market funds to run to redeem their shares in moments of
crisis contributed to waves of large redemptions in 2008 and 2020,
which placed enough stress on the broader financial system to necessitate emergency actions to backstop financial markets. Such
vulnerabilities can be addressed by the appropriate regulatory authority putting in place requirements to mitigate the
vulnerabilities so that money market funds can continue to play an
important role in the financial system. The Securities and Exchange Commission (SEC) has regulatory authority over money
market funds.
Q.18. Do you support retaining the viability of open-end mutual
funds as an investment vehicle?
A.18. Yes. Both the global financial crisis and the experience in
2020 demonstrated there can be vulnerabilities related to maturity
and liquidity transformation. Such vulnerabilities can be addressed
by the appropriate regulatory authority. The SEC has regulatory
authority over such funds.
Q.19. If confirmed, will you respect the SEC’s jurisdiction to regulate money market funds?
A.19. Yes.
Q.20. Do you believe that the in-kind redemption mechanism for
exchange-traded funds (ETFs) presents different liquidity concerns
than cash redemptions from traditional mutual funds? If you believe there is a difference, please explain how that affects your
views on how to regulate ETFs.
A.20. I agree that in-kind redemption, in which securities are delivered to the redeeming party, creates less incentive for investors to
run when compared with cash redemption. I defer to the SEC on
the appropriate regulation of exchange-traded funds (ETFs).
Q.21. On July 12, 2016, former Federal Reserve Governor Daniel
Tarullo described the term ‘‘shadow banking’’ as evoking a ‘‘sense
of something hidden, furtive even’’ in a speech.
Do you believe this term should apply to open-end mutual funds
registered with the SEC?
A.21. To the best of my knowledge, open-end mutual funds are registered with the SEC, and data on such funds is available.
Q.22. In 2018, the House of Representatives voted 406–4 in favor
of the JOBS and Investor Confidence Act. Section 1501 of that legislation would have replaced the Dodd–Frank Act’s stress test requirement applicable to SEC- and CFTC-regulated entities with an
authorization to adopt rules requiring periodic analyses of financial
condition, including available liquidity, of such entities under adverse economic conditions.
Do you support this modification that the JOBS and Investor
Confidence Act would have made?
A.22. I defer to Congress regarding the creation of mandates, and
I would defer to the respective judgements of the Commodity Futures Trading Commission and SEC regarding how they interpret
their Congressional mandates. Under the Dodd–Frank Wall Street
Reform and Consumer Protection Act (Dodd–Frank Act), the Fed-

96
eral Reserve implements a stress-testing regime for the largest and
most systemically important banking institutions, and I believe
this regime continues to support a well-capitalized banking system
and that it contributed to that system’s ability to weather the financial turmoil at the outset of the pandemic. Reflecting our experience with stress testing and our responsibilities under the Dodd–
Frank Act, we also have engaged in collaborative efforts among
regulators—both
domestic
and
international—to
develop
macroprudential stress testing for systemically important central
counterparties.
Q.23. I am concerned about the FSOC’s designations of Systemically Important Financial Institutions (SIFIs). A SIFI designation
is troubling in part because it creates moral hazard: it formalizes
an institution’s ‘‘too big to fail’’ status and creates the expectation
that the taxpayers will bail out a SIFI that falls into financial distress. Also troubling is FSOC’s history of exercising its SIFI designation powers. Under the Obama administration, FSOC made
overreaching SIFI designations of nonbanks in a nontransparent
manner and without providing a clear path for dedesignation.
In 2019, FSOC issued a policy that made several improvements
to the nonbank designation process. These included emphasizing
that designation is a last resort, requiring cost-benefit analysis and
an assessment not only of the impact of a risk but also the likelihood that it will be realized, as well as creating both
predesignation and postdesignation ‘‘off-ramps’’ to help firms and
regulators avoid or reverse SIFI designation by mitigating systemic
risks.
Will you commit that, if confirmed, you will support ensuring
that FSOC:
• Continues to treat SIFI designation as a last resort;
• Maintains a transparent process for SIFI designation;
• Conducts robust cost-benefit analysis for all designations; and
• Provides institutions with the opportunity to avoid designation
and, if designated, a path to reverse such designation?
A.23. Under the Dodd–Frank Act, Chair Powell is a member of the
Financial Stability Oversight Council (FSOC), and I have not participated in the FSOC’s deliberations regarding systemically important financial institution (SIFI) designation.
Q.24. Under what conditions, if any, would you support the FSOC
or the Financial Stability Board (FSB) designating mutual funds,
ETFs, and money market funds as nonbank SIFIs?
A.24. As noted above, I have no role in FSOC designation. Regarding the Financial Stability Board (FSB), FSB outcomes are not
binding on U.S. regulatory agencies, and the FSB does not engage
in designating mutual funds, ETFs, and money market funds as
nonbank SIFIs.
Q.25. Asset managers provide investment advice to clients. They do
not bear the risk of investments made by their clients because
asset managers do not own those assets.
Should asset managers be designated by the FSOC or the FSB
as nonbank SIFIs? If so, under what conditions?

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A.25. As noted above, I do not have a role in FSOC designation,
and the FSB does not engage in designating asset managers as
nonbank SIFIs.
Q.26. Over the past few years, there have been several disruptions
in the U.S. Treasury market (both cash and futures), which is generally considered to be the deepest and most liquid market in the
world.
Some Treasury market observers have expressed concerns about
regulatory fragmentation, with responsibilities divided between five
or more agencies. Others have called for specific regulatory reforms, including (1) mandatory central clearing, (2) amendments to
bank capital rules, and (3) additional data collection.
Do you believe that the current regulatory framework for oversight of the Treasury market is adequate? If not, what changes do
you believe should be made?
A.26. The Treasury market is one of the most important and liquid
securities markets in the world. Businesses and investors treat
Treasury securities as risk free assets that can be converted into
cash at a moment’s notice to meet liquidity demands. This higher
level of liquidity has been an important property of Treasury markets for decades. However, as you note, several disruptions have occurred in the Treasury market in recent years during which the
level of transactional liquidity has declined, sometimes precipitously. The Federal Reserve has been partnering with the U.S. Department of the Treasury and other regulatory agencies in the
Interagency Working Group to examine the data to ascertain why
Treasury market liquidity has been fragile at moments of stress,
and to consider potential reforms that may help to increase Treasury market resilience in moments of stress.
Your list above represents some of the more commonly discussed
reform measures. As was noted in the November 2021 report from
the IAWG on Recent Disruptions and Potential Reforms in the U.S.
Treasury Market, there is a lot of analysis yet to be done. The potential benefits and costs of expanded central clearing and other
steps to facilitate all-to-all trading vary across market segments.
Segments also differ in the mechanisms available for market participants to access the central counterparty and in the data available to the authorities. The benefits, costs, and feasibility of expanded clearing can depend on these differences between market
segments.
It is important to note that the Federal Reserve does not have
regulatory authorities over markets and trading venues, which is
more often the purview of the SEC. For instance, the SEC’s recent
proposals extend the operational access, disclosure, and regulatory
oversight provisions of Regulation ATS and the system integrity
provisions of Regulation SCI to Treasury-market trading venues.
The Federal Reserve has taken a more active role in improving
and increasing data collection within Treasury markets. The Board
approved a final rule requiring depository institutions who reach
certain thresholds of trading activity in Treasury and Agency debt
and mortgage-backed securities transactions to report those transactions through the Financial Industry Regulatory Authority’s
TRACE reporting system. That requirement is scheduled to go into

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effect on September 1, 2022. The Federal Reserve has previously
worked closely with the Office of Financial Research on its collection of centrally cleared Treasury repo market data, and we are
supportive of collecting similar data for the noncentrally cleared
segment of this market.
Q.27. On September 25, 2020, the FSOC released a statement on
its activities-based review of the secondary mortgage market.
FSOC’s statement affirmed the overall quantity and quality of the
regulatory capital required by the Federal Housing Finance Agency’s (FHFA) June 30, 2020, proposed rule to establish a new regulatory capital framework for Fannie Mae and Freddie Mac (each,
a GSE).[2] Specifically, FSOC stated that ‘‘risk-based capital requirements and leverage ratio requirements that are materially
less than those contemplated by the proposed rule would likely not
adequately mitigate the potential stability risk posed by the Enterprises.’’[3] FSOC also concluded ‘‘it is possible that additional capital could be required for the Enterprises to remain viable concerns
in the event of a severely adverse stress.’’ (emphasis added).[4]
FSOC also committed to ‘‘continue to monitor . . . FHFA’s implementation of the regulatory framework to ensure potential risks to
financial stability are adequately addressed.’’ On December 17,
2020, FHFA finalized a regulatory capital framework for the GSEs
that included leverage ratio requirements that were identical to
those in the proposed rule.[5]
[2] 85 FR 39,274.
[3]
https://home.treasury.gov/system/files/261/Financial-Stability-Oversight-Councils-Statement-on-Secondary-Mortgage-MarketActivities.pdf
[4] Id.
[5] 85 FR 82,150.
FHFA has since proposed reducing the regulatory capital required by both the risk-based capital requirements and the leverage capital requirements of FHFA’s final rule.[6]
[6] 86 FR 53,230.
In light of FSOC’s commitment to monitor FHFA’s implementation of the GSEs’ regulatory framework, which includes the regulatory capital framework, did FHFA solicit input from the Board of
Governors of the Federal Reserve System (the Fed) before proposing to reduce the aforementioned capital requirements? If yes,
please provide a copy of those comments.
Did the FHFA ask the Fed whether the proposed amendments to
the GSEs’ regulatory capital framework would adequately address
potential risks to financial stability? If yes, please provide a copy
of the Fed’s response on this question.
Has the Fed otherwise reviewed the proposed amendments to the
GSEs’ regulatory capital framework?
A.27. By the Dodd–Frank Act, Chair Powell is a member of the
FSOC. I have not been involved in this issue.
Q.28. FHFA’s proposed amendments include a proposed reduction
in the prescribed leverage buffer amount (PLBA). If finalized as
proposed, the amendments would reduce each GSE’s PLBA by twothirds (from 1.5 percent of adjusted total assets to approximately
0.5 percent) and its PLBA-adjusted leverage capital requirements

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by one-quarter (from 4.0 percent of adjusted total assets to approximately 3.0 percent).
As a participant in FSOC’s secondary market review, would
FHFA’s proposed amendments, if finalized, result in ‘‘leverage ratio
requirements that are materially less than those contemplated by
[June 30, 2020] proposed rule’’?[7]
[7] 86 FR 53,230.
A.28. By the Dodd–Frank Act, Chair Powell is a member of the
FSOC. I have not been involved in this issue.
Q.29. FSOC stated that ‘‘a meaningful leverage ratio requirement
that is a credible backstop to the risk-based requirements would
address potential risks to financial stability by ensuring that the
capital requirements are consistent with historical loss experiences
during severe stresses while mitigating model, measurement, and
related risks with a simple, transparent measure of risk.’’ Taking
into account the 20 percent risk weight floor on mortgage exposures (1.6 percent of the exposure amount), the floor on the stress
capital buffer (0.75 percent of adjusted total assets), and the current sizing of each GSE’s stability capital buffer (1.0 percent and
0.7 percent of adjusted total assets for Fannie Mae and Freddie
Mac, respectively), it appears exceedingly unlikely that a GSE’s
risk-based capital requirement could ever be less than the proposed
leverage capital requirements of 3.0 percent and 2.9 percent for
Fannie Mae and Freddie Mac, respectively, even if a substantial
portion of a GSE’s mortgage exposures were subject to the risk
weight floor.
As a participant in FSOC’s secondary market review, and in light
of the apparently very remote prospect that the GSEs’ risk-based
capital requirements could ever be less than the proposed leverage
capital requirements, would the proposed amendments to the
PLBA result in ‘‘a meaningful leverage ratio requirement’’ and
would the proposed leverage capital requirements be ‘‘a credible
backstop to the risk-based requirements’’ within the meaning of
FSOC’s statement?
A.29. By the Dodd–Frank Act, Chair Powell is a member of the
FSOC. I have not been involved in this issue.
Q.30. As part of its rationale for the proposed amendments to the
PLBA, FHFA noted that ‘‘Basel III standards require systemically
important banks to hold a tier 1 capital leverage ratio buffer in excess of a 3 percent leverage requirement equal to 50 percent of a
GSIB’s higher loss-absorbency risk-based requirements.’’ FHFA
also stated that it intended to amend the PLBA ‘‘in a manner similar to the U.S. banking regulators’ proposal to set the eSLR buffer
to one-half of the GSIB surcharge’’ and that ‘‘a dynamic PLBA that
is tied to the stability capital buffer would further align the [Enterprise Regulatory Capital Framework] with Basel III standards.’’
Related to this, former Fed Vice Chair for Supervision Quarles recently said ‘‘[w]ith respect to the enhanced supplementary leverage
ratio (eSLR) that applies to U.S. global systemically important
banks (GSIBs), the best way to address this problem is the approach endorsed by the Basel Committee: recalibrating the fixed 2percent eSLR buffer requirement to equal 50 percent of the appli-

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cable GSIB capital surcharge, with corresponding recalibration at
the bank level.’’[8]
[8] Governor Randal K. Quarles, ‘‘Between the Hither and the Farther Shore: Thoughts on Unfinished Business’’ (Dec. 2, 2021), available
at
www.federalreserve.gov/newsevents/speech/
quarles20211202a.htm.
Importantly, a GSIB’s eSLR buffer requirement is a percent of
risk-weighted assets, while a GSE’s stability capital buffer requirement is a percent of adjusted total assets. If the intent were to
align FHFA’s approach to the PLBA with the Basel Committee’s
approach to the eSLR buffer, would each GSE’s stability capital
buffer requirement first need to be converted to an equivalent that
is expressed as a percent of risk-weighted assets (e.g., by dividing
the stability capital buffer requirement by the average risk weight
of the GSE’s assets (currently around 33 percent))?
A.30. The Government-sponsored enterprises (GSEs) are an integral part of our housing finance system; therefore, it is essential
that they are fully capitalized and subject to appropriate microand macroprudential standards to ensure they do not pose a threat
to financial stability. Congress has charged the Federal Housing
Finance Agency with oversight of the GSEs, and therefore, they are
best placed to make relevant regulatory and supervisory decisions.
Q.31. You have stated that climate scenario analysis is ‘‘distinct
from our traditional regulatory stress tests at banks.’’[9] Given the
short, nine-quarter time horizon of the Federal Reserve’s stress
tests, it would be inappropriate to use this exercise to assess climate-related risk. I am concerned, however, that certain Federal
Reserve officials are advocating for incorporating climate scenarios
into the stress tests. For example, last year the Federal Reserve
Bank of New York (FRBNY) published a staff report on climate
stress testing,[10] which would seem to conflict with your statement at the hearing that the Fed was not considering stress tests.
Do you wish to acknowledge that the Fed is in fact working on climate stress testing options?
[9]
https://www.federalreserve.gov/newsevents/speech/
brainard20210218a.htm
[10] https://www.newyorkfed.org/medialibrary/media/research/
staff-reports/sr977.pdf
A.31. I am not familiar with the staff paper you reference above.
The Federal Reserve System has a number of working paper series
and the papers in these series are independent research by Federal
Reserve staff, sometimes with outside coauthors. Papers in these
series do not represent official positions of the Federal Reserve System and these papers are required to carry a disclaimer identifying
that fact.
Climate scenario analysis is designed to model the possible financial risks associated with climate change and to assess the resilience of individual financial institutions and the financial system
to these risks. It is a useful tool to assess the links between climate-related risks and economic and financial outcomes, which is
distinct from the Federal Reserve’s regulatory stress-testing regime. Climate scenario analysis and the regulatory stress tests
serve different objectives and seek to measure risks over different

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time horizons. Climate scenario analysis is typically exploratory in
nature, longer-term, and considers plausible but novel combinations of risks that are associated with substantial uncertainty. The
analysis would be used to identify and scale risks across a range
of plausible scenarios and would not be tied to regulatory capital
decisions or specific supervisory or regulatory outcomes. Regulatory
stress tests, by contrast, are used to assess capital adequacy relative to specific shocks in the short-term and have consequences for
capital and supervisory ratings.
Q.32. I am concerned that a recent Federal Reserve Bank of New
York (FRBNY) staff report on climate stress testing[11] is predicated on numerous extreme and implausible assumptions, including a 50 percent drop in the return on a ‘‘stranded asset portfolio,’’
which is comprised predominantly of coal exposures and a short position in the S&P 500, over a 6-month period. The parameters of
this paper raise concerns that it was intentionally constructed to
overstate the climate-related risk of in-scope banks. If the Federal
Reserve continues to study climate-related risk, do you commit that
research informing policy decisions will be subject to public comment to ensure its accuracy and objectivity?
[11] https://www.newyorkfed.org/medialibrary/media/research/
staff-reports/sr977.pdf
A.32. As I indicated in response to Question 25, I have not read
the staff paper you reference above. I view the Federal Reserve’s
responsibilities related to assessing climate-related risks through
the lens of our prudential and financial stability statutory responsibilities. From a prudential perspective, the focus is on evaluating
whether large supervised institutions operate in a safe and sound
manner and manage all material risks, including those related to
climate change. From a financial stability perspective, the focus is
on identifying, assessing, and addressing climate-related risks to financial stability, such as climate-related financial shocks and financial system vulnerabilities.
Q.33. In a recent speech, Acting Comptroller of the Currency Michael Hsu stated that ‘‘[a] carbon tax can be thought of as the transition risk equivalent of the ‘severely adverse’ scenario in
CCAR.’’[12]
[12]
https://www.occ.gov/news-issuances/speeches/2021/pubspeech-2021-116.pdf
As the Federal Reserve develops its approach to climate scenario
analysis, would it be appropriate for that scenario analysis to include assumptions about future actions by Congress?
If yes, please explain how the Federal Reserve would forecast the
future actions of Congress?
Would it be appropriate for the Federal Reserve to consider potential future Congressional action in the context of climate scenario analysis but not in other areas of its supervision?
Would it be appropriate for the Federal Reserve to consider the
pending expiration of numerous tax subsidies to green energy
sources as part of its climate scenario modeling/stress tests?
A.33. Climate-related financial risks may have implications for the
safety and soundness of financial institutions and the stability of
the financial sector more broadly. Our role is to ensure supervised

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institutions, and the financial system, are resilient to material
risks, including those related to climate change.
At the Federal Reserve, we are carefully considering the potential implications of such risks for financial institutions and the financial system, with scenario analysis as a potential key analytical
tool for that purpose. Through scenario analysis exercises, we can
explore plausible, but novel, combinations of risks that are associated with substantial uncertainty and begin to dimension their potential effects on different asset classes, regions, and sectors. This
tool can help us assess the financial system for vulnerabilities related to climate change and deepen our understanding of the interconnections between the climate, the economy, and the financial
sector.
Climate scenario analysis exercises can consider a range of potential outcomes. Physical risk scenarios could, for example, include assumptions around the frequency and severity of severe
weather events, the impact of sea level rise on coastal communities,
or the availability or affordability of insurance. Transition risk scenarios could, for example, include assumptions related to an abrupt
repricing of certain assets triggered by shifts in policy, investor
sentiment, or technological innovation.
The fields of economics and risk management have a long history
of estimating the potential effects of policy changes on variables
such as economic growth and financial market outcomes. Incorporating the effects of potential public policy changes in this type
of scenario analysis exercise is not a forecast about what will happen, but rather a tool to assess the resilience of our financial system to a range of outcomes and to promote prudent risk management across these potential outcomes.
Q.34. If the Fed receives authorization from Congress for the creation of a central bank digital currency (CBDC), the Fed will still
have to make many crucial decisions regarding its design and implementation.
The ability to freely transact without transaction level Government monitoring should be a core component of any U.S. CBDC.
How important do you think individual privacy protections are in
the design of a CBDC? What privacy measures do you think should
be included in its design?
There is absolutely nothing in the history, experience, expertise,
or capabilities of the Fed that lend the Fed to being a retail bank.
Do you think that the Fed should provide direct retail accounts for
use with a CBDC, or for any other purpose?
If existing law were to change and the Fed was given the option
by Congress to allow for retail accounts, do you believe the Fed
should make them available?
If the Fed were to issue retail accounts to individuals, what could
be some of the negative consequences to existing private financial
institutions that serve the American public?
A.34. Individual privacy protections are critical in the design of any
central bank digital currency (CBDC). It is important that any potential CBDC safeguard the privacy of households’ payments transactions, a principle which was highlighted in the Board’s recently
published discussion paper on CBDC. Similarly, it is also funda-

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mental that any potential CBDC prevent and trace illicit activity,
which requires the digital verification of identities. To help us better understand possible ways to achieve both aims effectively, we
are soliciting ideas from a wide range of stakeholders through our
discussion paper.
It is the purview of Congress to determine whether it should authorize the Federal Reserve to offer retail accounts directly to consumers. To help us better understand the perspectives of a broad
range of stakeholders with regard to CBDC, the Federal Reserve
recently issued a discussion paper on CBDC. The paper notes that
initial analysis suggests that a potential U.S. CBDC, if one were
created, would best serve the needs of the United States by being
privacy-protected, intermediated, widely transferable, and identity
verified.
Q.35. Stablecoins offer tremendous potential benefits, including
greater payment speed, lower costs, expanded access to the payment system, and programmability. I was disappointed that the recent President’s Working Group (PWG) report on stablecoins failed
to highlight these potential benefits and recommended a regulatory
response that would limit innovation. Some would even go further,
subjecting all stablecoins to securities regulation, or prohibiting
their issuance if the Government were to issue its own digital currency that was pegged to the value of the dollar.
Is there anything in the creation of a CBDC that ought to preclude well-regulated, privately issued stablecoins from coexisting
with a CBDC?
A.35. No. Any potential CBDC should be viewed as a way to expand payment options available to the public, rather than restrict
them. There is good reason to expect that multiple types of digital
payments will coexist, much like the variety of payment options
today. As you note, the key is that privately issued stablecoins be
well-regulated.
Q.36. Most stablecoins are pegged to the U.S. dollar, and many are
used in international markets. Could stablecoins contribute to the
dollar’s use internationally?
A.36. Yes. This would depend on a variety of factors.
Q.37. Over the past year, there has been an increasing backlog of
bank merger applications pending Fed review. In recent months,
some have come to believe that a de facto moratorium on bank
mergers and acquisitions was in place at the Fed. As this Committee has seen in another area under its jurisdiction, namely, the
Committee on Foreign Investment in the United States (CFIUS)
process, an informal moratorium could be put in place by regularly
sending requests for additional information to applicants and
claiming that the application is not yet complete.
Are you aware of any formal or informal effort at the Fed to
delay the resolution of bank merger applications?
Do you believe that the Fed’s current merger approval process
provides clear instructions to applicants such that they can reasonably expect to submit a complete application without multiple
rounds of revisions and additional questions?

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Will you commit not to deliberately delay the bank merger application process, and to hold your staff accountable for doing the
same?
Will you commit to consider each application on its individual
merits?
A.37. I am not aware of any effort of this nature. Congress provided a statutory timeframe in which to process bank merger applications, and I have supported and will continue to support matters
moving to the Board in a timely manner.
As part of the evaluation process, the Board gathers information
necessary to form a complete record. Applicants are given clear and
detailed instructions regarding what is required, and the staff may
need to request additional information or ask for clarification from
applicants. In order to make an informed decision, it is essential
to have all relevant information.
Congress specified a framework to evaluate merger and acquisition applications comprised of a variety of factors that we carefully
evaluate—competition and future prospects, financial and managerial resources, convenience and needs of communities to be served,
Community Reinvestment Act performance, Bank Secrecy Act/AntiMoney Laundering compliance, and financial stability. For each application, I consider the specific record on those factors, and I commit to continuing that practice.
Q.38. Congress established a set of requirements for the Fed review of bank merger applications under the Bank Holding Company Act (BHCA) by establishing specific factors for consideration.
The statute does not give the agency discretion to depart from
them.[13] Further, BHCA sets a 91-day deadline for the Fed to approve or disapprove of the application after the record is complete.[14] To ensure the Fed cannot ignore this deadline, Congress
structured the law to automatically grant any merger application
the Fed fails to act on within that timeframe.[15] An express or de
facto moratorium would appear to directly contravene the law.
[13] See, Bank Holding Company Act, 12 U.S.C. §1842(c)(1).
[14] Id. §1842(b)(1).
[15] Id. §1842(b)(1).
Will you commit to review complete bank merger applications expeditiously, as required by law?
Will you commit not to deliberately delay the bank merger application process, and to hold your staff accountable for doing the
same?
Will you commit to consider each application on its individual
merits?
A.38. Yes. As stated in my response to Question 30, I commit to
reviewing matters expeditiously and on their individual merits, and
I will continue to support matters moving swiftly to the Board.
Q.39. Please describe with particularity the process by which you
answered these questions for the record, including identifying who
assisted you in answering these questions along with a brief description of their assistance.
A.39. As is my standard practice, I have engaged with Board staff
to receive their input in compiling these responses. The responses
to these questions and the views expressed are mine.

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RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM LAEL BRAINARD

Q.1. While there has been some progress in diversifying the Class
C Directors chosen by the Fed, the Class B Directors elected by
member banks remain predominantly White, male, and representative of banks and large businesses.
What specific steps would you take to help further diversify the
Boards of Directors at the Federal Reserve Banks?
A.1. The Federal Reserve should reflect the communities we serve.
The Federal Reserve was founded on a recognition of the importance of bringing a diversity of perspectives to the table. That is
reflected in the twelve Reserve Banks, and their branches, located
in different regions across the country. We have not yet achieved
that standard on other dimensions. Research suggests that having
more diverse perspectives at the table—diversity of every type—
leads to less groupthink and better outcomes.
I have worked to increase diversity among the Federal Reserve
System’s boards of directors. Our Class C directors are materially
more diverse than they were 5 years ago. Minority representation
among Class C directors has increased by 31 percentage points,
and currently nearly two-thirds of Class C directors are minorities
(22 percent of which are Hispanic/Latino). Currently, more than
half of Class C directors are women, 33 percent of whom are minorities.
The leadership of Reserve Bank boards is also highly diverse.
Currently 20 of the 24 Reserve Bank Chairs and Deputy Chairs are
diverse in terms of race or ethnicity and/or gender.
As you reference in your question, Class B directors are nominated and elected by the member banks in their respective District,
as are Class A directors. Although progress has also been made
among Class B directors, it is important to make further progress.
The current recruitment processes focus on outreach; tapping directors’ professional networks to recruit in specific sectors;
leveraging relationships with members of the Federal Reserve
Board’s and the Reserve Banks’ numerous advisory councils; and
engaging with community and business contacts to identify potential sources of candidates for director positions. We continue to look
for ways to broaden our outreach efforts. I am committed to working with senior Reserve Bank leaders to build upon these practices
in order to identify more diverse pools of candidates for director positions.
Q.2. One idea I believe could help is to bring greater transparency
and public participation into the selection process. This would provide additional legitimacy to the Banks and promote Fed leadership that actually represents the public it oversees.
Would you support a venue for genuine public participation in
the Class B and C Director selection processes?
A.2. I support genuine public engagement on the Class B and C director selection processes. As I noted in my response to question
#1, the current recruitment processes for director positions involve
building relationships and connecting with members of the public.
Senior Federal Reserve System staff engage community, business,
and labor leaders through a variety of outreach and engagement fo-

106
rums to expose members of the public to the Federal Reserve and
its mission and to solicit their input on best practices and gaps in
recruiting for director positions.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
FROM LAEL BRAINARD

Q.1. How does the financial stability of lower income individuals
factor into your view of the Fed’s dual mandate?
A.1. The Federal Reserve promotes maximum employment and
price stability—its dual-mandate goals—and in doing so it directly
and positively affects the financial health of lower income individuals. For all but the top 5 percent of the income distributions, wage
income makes up around 60 to 80 percent of total income for working-age households (see, Feiverson et al., 2020, pp. 9 to 11). 1 As
such, the Federal Reserve’s policy actions to promote maximum
employment also support household wage income and, in turn, the
financial health of lower income households. In this regard the
Federal Reserve’s broad and inclusive definition of its maximum
employment goal is especially important. This goal means that we
do not just look at the headline unemployment rate, or any highlevel aggregate, when setting policy, but rather we monitor a wide
range of labor market indicators to assess whether progress toward
maximum employment is broad and inclusive. Our policies to promote price stability also foster lower-income individuals’ financial
health. High inflation takes a toll on families, especially those with
lower incomes who are burdened by the higher costs of essentials
like food, housing, and transportation.
To better understand how the Federal Reserve’s policy actions affect the financial health of households—including lower income
households—the Federal Reserve has made a number of enhancements to its data collections and to its community outreach efforts.
Enhancements to our data collections in recent years include the
development and publication of new surveys—such as, the Distributional Financial Accounts, which reports quarterly estimates
of wealth, assets, and debt by race and ethnicity, and the Survey
of Household Economics and Decisionmaking (SHED), which reports on the economic well-being of American households, including
among racial and ethnic groups—and the enhancement of existing
surveys—such as the Survey of Consumer Finances (SCF), which
in this year’s survey will include improved measures of racial disparities. Enhancements to community outreach have most notably
included the launch of Fed Listens, which began in 2019 as a series
of events undertaken as part of our framework review and which
we have been continued since then. Fed Listens events, which take
place around the country and engage with a wide range of individuals and groups—employee groups and union members, small business owners, residents of low- and moderate-income (LMI) communities, workforce development, organizations and community col1 Laura Feiveson, Nils Goernemann, Julie Hotchkiss, Karel Mertens, and Jae Sim (2020),
‘‘Distributional Considerations for Monetary Policy Strategy’’, Finance and Economics Discussion
Series 2020–073 (Washington: Board of Governors of the Federal Reserve System). The analysis
in this paper was prepared as background for the Federal Open Market Committee’s discussions
at its December 2019 meeting on distributional considerations for monetary policy.

107
leges, retirees, and others—provide an opportunity to hear about
how monetary policy affects peoples’ daily lives and livelihoods and
we view the stories that we hear from these events to be a highly
useful input into our policy monetary deliberations.
A better understanding of how our monetary policy actions affect
different socioeconomic groups also helps us to better conduct monetary policy in order to fulfill our dual mandate. For example,
Feiverson, et al. (2020), showed that the costs of recessions to the
society would be larger once we consider the differences across
households’ abilities to access credit; as a result, monetary policy
strategies aiming to stabilize inflation over longer time horizons,
along lines similar to what we adopted under the updated Statement on Longer-Run Goals and Monetary Policy Strategy, would be
more successful at reducing the frequency of recessions and the severity of unemployment-rate increases during recessions.
Q.2. When considering raising interest rates to curb inflation, how
does the effect of raising interest rates on low income borrowers
factor your decision?
A.2. Low-income households benefit from conditions of maximum
employment and low inflation, which is what our monetary policy
is designed to achieve. The U.S. economic expansion that preceded
the pandemic was historically unprecedented in its length. The
length of the expansion benefited low-income Americans by providing a continuous increase in job opportunities and growing levels of employment in a low inflation environment. An important
principle suggested both by economic theory and by the economic
experience of the United States and other countries is that long expansions are facilitated by price stability and stable longer-term inflation expectations. Against this background, changes that the
Federal Open Market Committee (FOMC) makes to its target range
for the Federal funds rate—including rate increases when it judges
these to be appropriate—are designed to put in place a monetary
policy stance most consistent with achieving and sustaining our
dual mandate of maximum employment and price stability. Our decisions take place in the context of our new monetary policy framework, which recognizes that maximum employment is a broad and
inclusive goal, encompassing low-income workers and those traditionally on the margin of the labor force. For the reasons I indicated above, achieving our maximum-employment goal on an ongoing basis requires creating conditions consistent with long, noninflationary expansions.
Q.3. If confirmed, what steps will you take ensure that the Federal
Reserve works for people of all levels of wealth and income?
A.3. If confirmed, I will work to ensure the Federal Reserve carries
out its statutory responsibilities with regard to people around the
country at all levels of wealth and income. The Federal Reserve
has tools and responsibilities with regard to monetary policy on the
one hand, as well as supervision and regulation. Both make important contributions to widely shared prosperity.
By pursuing our statutory mandate, the Federal Reserve’s monetary policy actions promote maximum employment and price stability—two foundations that improve economic outcomes for all
Americans. Those who have historically been left behind stand the

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best chance of prospering in a strong, stable economy with plentiful
job opportunities and low inflation.
The lengthy expansion that was brought to a close by the pandemic showed the immense benefits that a strong labor market
with low inflation can provide to all communities, and especially to
LMI communities. The pandemic is a reminder that LMI communities are the most vulnerable to economic downturns and also that
the Federal Reserve has powerful tools to help support a strong recovery.
Currently we are seeing the strongest recovery in five decades
with strong growth and the creation of millions of jobs, but inflation is too high. Monetary policy is focused on getting inflation
down to target, which is important for working people who are concerned about how far their paychecks will go, while sustaining a
recovery that includes everyone.
The Federal Reserve staff undertake important data collections
on consumer and small business finances and the economic
wellbeing of households broken out by wealth and income. If confirmed, I will support this work, which provides an important window into how well our policies are achieving their goals.
The Federal Reserve also has important supervisory and regulatory responsibilities that promote fair and equal access to credit
and financial services.
The Community Reinvestment Act (CRA) is an essential regulation and supervisory tool to promote access to credit investment in
LMI communities. I have worked to strengthen CRA regulations
and evaluations to increase the effectiveness, transparency and accountability in how banks are rated on their affirmative obligation
to meet the investment, credit, and banking services needs of their
local communities, including through improved access to home
mortgage, small business, and student lending for LMI households
and communities. The CRA evaluations are public and are taken
into consideration in the review of banks’ applications for merger
and acquisitions. Currently, staff at the Board, Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of
the Currency (OCC) are working together to propose for public
comment revisions to the regulations that implement CRA.
Further, the Federal Reserve examines banks for compliance and
helps enforce the Fair Housing Act and the Equal Credit Opportunity Act. In implementing our statutory responsibilities, the Federal Reserve works to make sure that the State member banks we
examine have credit policies and practices in place that are fair
and do not prevent any creditworthy consumer from getting access
to credit, do not result in discrimination in the pricing of credit, or
redline neighborhoods based on their racial and ethnic composition.
If examiners identify a pattern or practice of illegal discrimination
on any of the prohibited factors defined in the laws, staff cite it and
refer the case to the Department of Justice for further enforcement.
To further support access to economic opportunity for people of
all levels of wealth and income, the Federal Reserve has a longstanding program to promote the viability of minority depository
institutions (MDIs), which are mission-oriented and dedicated to
serving the banking and credit needs of minority consumers and
communities. Through the Federal Reserve System’s Partnership

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for Progress (PFP) program, we provide technical assistance and
training in collaboration with the FDIC and OCC to help MDI leaders overcome the challenges inherent in providing banking services
to LMI and minority communities and consumers. To further support financial institutions dedicated to serving harder to reach
market segments, we expanded our PFP program to include Women’s Depository Institutions (WDIs).
Q.4. How have the principles of economic inclusion changed the
way you approach your job and the way you work to achieve the
Fed’s dual mandate since first joining the Board?
A.4. Working at the Federal Reserve, I am mindful that the history
of the institution and its policy mandates were themselves shaped
by the principles of economic inclusion, and it is important to
broaden the application of these foundational values. Since its creation, the Federal Reserve has always seen value in, and benefited
from, regional and sectoral diversity. That’s why we have 12 Reserve Banks all across the country and we have branches in communities spread throughout each of the 12 districts. I see these different points of view represented each time we meet at the FOMC
and when I visit Reserve Banks, and these perspectives are invaluable. Just as it is important to reflect the communities we serve in
their regional and sectoral diversity, it is important to do so with
respect to racial, ethnic, and gender diversity.
In addition, the call to pursue both price stability and maximum
employment, our dual mandate, has its roots in the principle of economic inclusion. The 1977 introduction of the mandate was spearheaded by Senator Hubert Humphrey and Representative Augustus Hawkins. Representative Hawkins was a prominent advocate of
full employment, emphasizing its importance not only for providing
a job to every American seeking work, but also for reducing poverty, inequality, discrimination, and crime and improving the quality of life of all people. Representative Hawkins emphasized that
‘‘without genuine full employment it would be impossible to eliminate racial discrimination in the provision of job opportunities.’’ 2
The Humphrey–Hawkins Act itself noted that ‘‘ . . . full employment would greatly contribute to the elimination of discrimination
based upon sex, age, race, color, religion, national origin, handicap,
or other improper factors.’’ 3
The stories we heard at Fed Listens events during the review of
our monetary policy framework would have sounded very familiar
to Representative Hawkins, and they provided FOMC members
with specific examples from communities around the country consistent with what we were seeing in the research. 4 Having reached
multidecade lows in aggregate measures of unemployment, we
were told by a number of community and labor representatives
that improving labor market conditions were only beginning to
2 Augustus F. Hawkins (1975), ‘‘Full Employment To Meet America’s Needs’’, Challenge, vol.
18 (November/December), pp. 20–28.
3 The complete original language of the act (quoted text in section 2B (4)) is available through
FRASER on the Federal Reserve Bank of St. Louis website at https://fraser.stlouisfed.org/title/
full-employment-balanced-growth-act-humphrey-hawkins-act-1034.
4 See, for example Stephanie R. Aaronson, Mary C. Daly, William L. Wascher, and David W.
Wilcox (2019), ‘‘Okun Revisited: Who Benefits Most from a Strong Economy?’’

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reach their communities. 5 Changes that we made to the monetary
policy framework as a result of the review brought our longer-run
goals and strategy into alignment with key longer-run changes in
the economy. Those changes also recognized that a shortfalls approach to a broad and inclusive definition of maximum employment
gave us the best chance to achieve full employment that includes
everyone.
Finally, I would note as I did in my hearing that these principles
of economic inclusion apply to both sides of our mandate. Inflation
is too high and working people around the country are concerned
about how far their paychecks will go. Our monetary policy is focused on getting inflation back down to 2 percent while sustaining
a recovery that includes everyone. This is our most important task.
Q.5. What actions have you taken to increase staff diversity at the
Fed during your time as member of the board of governors and, if
confirmed, what are the staff diversity goals you would support as
vice-chair?
A.5. I have made increasing diversity and inclusion a priority in
my career, and I have benefited, as have the organizations for
which I have worked, from the views of people of different backgrounds. Research suggests, and my own experiences have shown,
that having more diverse perspectives at the table—diversity of
every type—leads to less groupthink and better outcomes.
I work closely with the Director of the Board’s Office of Minority
and Women Inclusion (OMWI), Chief Human Capital Officer, Chief
Operating Officer, and division directors to hire, retain, and promote a diverse staff. We have made this a priority for the Executive Committee. I meet regularly with the OMWI Director to discuss progress on priorities and to understand challenges and how
we are addressing them. As hiring decisions are made, I also consult with her to ensure conformance with best practices. In order
to attract a diverse group of high talented individuals, we need to
ensure that the Board is a place that people want to work and that
means focusing on everything from recruitment strategies, to ensuring we have competitive compensation and benefits, robust opportunities for advancement, and a culture and environment were
employees feel supported and valued.
The Board is undertaking efforts to increase the diversity of our
economists by building relationships with students and schools at
all levels to introduce them to the Federal Reserve, through involvement in minority recruitment events, partnering with the
American Economic Association and Howard University, and recruiting economists with more varied research specializations. I
have personally participated in a variety of such student recruiting
events, including the Conference for the 2017 Summer Training
and Scholarship Program sponsored by the American Economic Association and the National Science Foundation, the Sadie T.M.
Alexander Conference for Economics, and the Board’s Exploring
Careers in Economics program.
Generally, I think it is critical to remain engaged with staff and
create opportunities for dialogue. I make it a priority to participate
5 See, Board of Governors of the Federal Reserve System (2020), ‘‘Fed Listens: Perspectives
From the Public’’.

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in division town halls and events sponsored by employee resource
groups. This provides me an opportunity to get to know more of the
Board’s employees, better understand their individual contributions, hear the challenges they are facing, as well as what they
think is working well and where there is room for improvement. It
also provides staff an opportunity to raise concerns with me directly, increasing transparency and accountability.
Q.6. To what extent would you credit the upward pressure on pricing that Americans are experiencing to actions taken by businesses
that leave them less resilient to shocks, such as offshoring, market
consolidation, and just-in-time manufacturing, and how do these
supply-side constraints factor into the demand-side levers the Federal Reserve has at their disposal?
A.6. It is certainly the case that supply chain disruptions associated with the pandemic have contributed to today’s high inflation.
In particular, supply chain bottlenecks associated with semiconductor production in Asia have led to vehicle production bottlenecks
in the U.S. that have made an outsized contribution to inflation
over the past year. Similarly, foreign port shutdowns in response
to COVID–19 have contributed to a substantial increase in shipping costs and shipping delays.
That said, the Federal Reserve has powerful tools that influence
overall demand in the economy. The Federal Reserve is positioning
monetary policy to ensure that high inflation does not become entrenched, consistent with our dual mandate goals.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
FROM LAEL BRAINARD

Q.1. The National Association of Insurance Commissioners completed its work on the Group Capital Calculation (GCC) and the
Federal Reserve has adopted its building block approach (BBA). As
you know, the International Association of Insurance Supervisors
(IAIS) is proceeding with its monitoring period of the international
capital standards (ICS), but its comparability analysis of the aggregation method has been delayed. Building on the work of the GCC
and BBA, the aggregation method is an equivalent implementation
of a group capital rule for large, internationally active insurers in
the United States. To date, Team USA has advocated in favor of
the IAIS treating the aggregation method as comparable. The U.S.
system of State-based insurance regulation is the gold standard
when it comes to protecting our insurance markets and insurance
consumers in South Dakota and across the country. I believe it is
imperative that Team USA get this right and forcefully advocate
on behalf of this system.
As Vice-Chair, will you work with the States and the Federal Insurance Office to continue to advocate for the aggregation method
to be deemed comparable to the ICS?
A.1. Yes. I will support this position (respecting that the Vice Chair
for Supervision has the lead on this issue). The Federal Reserve
Board (Board) continues to work alongside its U.S. partners to advocate for the Aggregation Method to be deemed an outcome-equivalent approach for implementation of the International Capital

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Standards (ICS). The short delay experienced in developing the criteria that will be used to assess comparability is not expected to
impact the plan to complete the assessment prior to the end of the
monitoring period. As currently constructed, the ICS would not be
appropriate as a capital rule for U.S. internationally active insurance groups. Accordingly, the Board, the Federal Insurance Office,
State representatives, and the National Association of Insurance
Commissioners, as well as other interested jurisdictions, have
worked to develop the Aggregation Method, which is comparable to
the ICS and therefore an equivalent implementation of a group
capital rule for internationally active insurers in the U.S.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
FROM LAEL BRAINARD

Q.1. You have consistently dissented near unanimous Fed decisions
to roll back financial regulations, including a recent dissent in June
2020, when the Fed considered changes to the Volcker Rule. Your
dissents included 12 in 2020 alone. Our economy is reeling under
the Administration’s failed economic policies, inflation remains at
historic highs and consumers are struggling to pay for basic necessities for their families. Banks have consistently led the way
throughout this crisis, injecting trillions of dollars into the economy, lending to consumers and small businesses while holding high
levels of capital. They’ve been part of the solution, not the source
of the crisis; not to mention they were evidently well capitalized in
2020. What was your basis for objecting to these common sense
regulatory reforms if, as we saw, they clearly didn’t negatively impact financial stability?
A.1. For S.2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act, I supported the implementation of all statutory provisions. I was pleased to support the exemption of community banks from many Dodd–Frank Wall Street Reform and Consumer Protection Act provisions, including the Volcker Rule. I was
pleased to support a lower leverage ratio for community banks. I
also supported the exclusion of reserves from the leverage ratio for
custody banks.
During the rulemaking process, there may be several votes on
the same issue—from an advance notice of proposed rulemaking to
a final rule—so there are just a handful of core issues on which I
dissented. S.2155 retained the requirement for automatic application of enhanced prudential standards for banks with $250 billion
or more in assets and did not make any changes specifically with
regard to foreign banking organizations. I dissented on those
changes that went beyond the provisions of S.2155 to reduce capital, liquidity, stress testing, and resolution planning requirements
on domestic banks above $250 billion and to reduce requirements
for large foreign banking organizations. I did not see compelling
legal changes or analysis to justify these changes at a time when
large banks enjoyed robust profits and were the most competitive
in the world. Indeed, the strong capital and liquidity buffers that
had been built at the large banks in the years following the Global
Financial Crisis were important contributors to their financial resilience during the COVID–19 market turmoil.

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In those instances, I always worked with Vice Chair Quarles and
Chair Powell in a collegial manner to make them aware of my concerns in advance.
Q.2. What is your view of the right regulatory framework for banks
and do you have a view on how less regulated nonbank fintechs,
offering retail banking services should be regulated by the Fed?
A.2. Banks of all sizes play a critical role in our economy—providing credit to households and businesses and serving as financial
intermediaries. Given this important role, it is essential that they
operate in a safe and sound manner and can be resolved without
posing risks to the system.
It is vital that banks have adequate capital and liquidity buffers
as well as systems to identify, monitor, and manage material risks
that are commensurate with the risks posed by the institution.
Community banks do not pose the same risks as larger, more complex firms, so I am supportive of appropriate relief for community
banks.
With regard to nonbank fintechs, as well as financial innovation
more broadly, the Federal Reserve is focused on responsible innovation and consumer protection, with a guiding principle that like activity with like risks should be subject to like regulation regardless
of the legal entity. The Federal Reserve Board’s regulatory and supervisory authority is generally limited to activities conducted by
depository institution holding companies, State member banks, and
their nonbank affiliates. I would welcome the Congress updating
the statutory framework as financial innovation continues to
evolve.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR DAINES
FROM LAEL BRAINARD

Q.1. In a May 2021 speech, you seemed to signal support for using
a Central Bank Digital Currency (CBDC) as a pathway to creating
retail bank accounts at the Federal Reserve. I asked Chairman
Powell about this topic in February of last year—specifically,
whether the Fed was equipped to service individual retail and commercial accounts. His reply was: ‘‘No, and of course we are not permitted under current law, and that has never been our role and it’s
really not been the role of other major central banks. It would be
a quite dramatic change in our role in the economy, and one that
I think should require very careful thought.’’
Putting aside that the Federal Reserve would need approval from
Congress to engage in retail banking, do you believe the Federal
Reserve is equipped to service individual retail and commercial accounts? Do you believe it would be wise for the Federal Reserve to
enter into this space?
A.1. The Federal Reserve recently issued a discussion paper on
central bank digital currency (CBDC). The paper notes that initial
analysis suggests that a potential U.S. CBDC, if one were created,
would best serve the needs of the United States by being intermediated in addition to being privacy-protected, widely transferable, and identity verified. I look forward to receiving public comment on such an approach.

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Q.2. You mentioned during the hearing that the Federal Reserve
attempts to track both domestic and international factors that may
impact inflation and the economy. Could you further detail the extent to which the Federal Reserve is tracking how China’s zeroCOVID policy could impact the health of global supply chains?
A.2. The Federal Reserve is closely tracking potential disruptions
to global supply chains and is very focused on potential risks stemming from China’s zero-COVID policy. Incoming data from manufacturing surveys continue to suggest that global supply-chain bottlenecks are elevated, with firms facing long delivery times and citing labor shortages as a factor preventing them from operating at
full capacity. Auto production has been hit especially hard, with
semiconductor shortages emanating from Asia still hampering output. Notwithstanding some improvement recently, ports in the
United States remain highly congested as record volumes of traded
goods are being transported.
Although both the supply of semiconductors and congestion in
the global shipping networks have seen modest improvements of
late, they remain vulnerable to further disruption. In particular,
the Omicron variant of COVID–19 is now hitting Asia, with a renewed risk of disruption to labor supply in Asian factories and Chinese ports.
Given China’s importance to global supply chains and its continuation of ‘‘zero-tolerance’’ policies, a ramping up of very stringent and widespread lockdowns in China is a key downside risk for
supply chains. A number of cities and provinces have implemented
public health restrictions. The city of Xi’an, which has been under
lockdown for weeks, is an important supplier of memory chips
(processing roughly one-tenth of the world’s supply) to several multinational companies. Similarly, the key port of Ningbo was partially closed again around the turn of the year. If lockdowns become more widespread across China, particularly in the industrial
port cities along the coast, disruptions in global supply chains could
be exacerbated and prolonged.
RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM SANDRA THOMPSON

Q.1. Where have you excelled in past positions in attracting, hiring, and promoting people of color in positions in your organization? Where might there be room for improvement?
A.1. Over the last 2 years, we have continued our success in attracting and hiring people of color. Minorities comprised 46.1 percent and 52.6 percent of our total hires in 2020 and 2021, respectively. These percentages reflect success across all occupational
groups and grade levels. We are proud of this upward trend and
will continue to make this a focal point of our recruitment and outreach efforts.
We have also had success retaining and promoting employees of
color within FHFA. Between 2020 and 2021, the Agency saw a 9
percent reduction in the percentage of people of color and an 11
percent reduction in the percentage of women of color who left
FHFA. More than 50 percent of promotions went to people of color

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in 2020 and 2021, and the percentage of promotions representing
women of color increased by 7 percent between 2020 and 2021.
Like other Federal agencies, we have experienced challenges in
hiring people of color into economist positions. We will continue our
outreach to minority organizations and use both our entry-level
Economists Program and our hiring of college students and recent
graduates to expose underrepresented groups to the economist opportunities at the Federal Housing Finance Agency (FHFA).
Q.2. What specific measures will you use to evaluate the success
of the Federal Housing Finance Agency in understanding and addressing the needs of Black, Indigenous, and people of color
(BIPOC)? And, will you work to keep Congress apprised, as appropriate, on the progress being made on these measures?
A.2. FHFA monitors fair lending data and risks presented by the
activities of Fannie Mae and Freddie Mac (the Enterprises). We recently released data on Enterprise loan purchases and Enterprise
automated underwriting system approvals by race and ethnicity,
which will assist us in identifying whether the Enterprises’ programs and products address the need of BIPOC borrowers (https://
www.fhfa.gov/DataTools/Downloads/Pages/Fair-LendingData.aspx).
We plan to expand on this public data release, including as part
of the implementation and evaluation of the Enterprises’ Equitable
Housing Finance Plans, to keep the public informed about how our
regulated entities are doing in serving BIPOC borrowers.
FHFA is also an active member of the Property Appraisal and
Valuation Equity (PAVE) task force, cochaired by the Department
of Housing and Urban Development’s Secretary Fudge and Ambassador Rice. The PAVE task force seeks to root out discrimination
in the appraisal and homebuying process and includes subcommittees for data, education, enforcement, and policy. To date, FHFA
has executed data sharing agreements and provided historical appraisal data to our interagency partners in support of interagency
efforts to research and examine the issue of property valuation bias
and support enforcement and compliance with fair lending laws.
We are committed to working with Congress and keeping you informed about these efforts.
Q.3. What is your plan for creating an inclusive working environment for employees within your office?
A.3. FHFA works to maintain an inclusive working environment
and has leveraged diversity to develop an equitable and high-performing culture as we pursue our mission. The data in our response to the question above demonstrates our success in recruiting, hiring, promoting, and retaining a diverse workforce. The release of a new Agency Equal Employment Opportunity (EEO) Policy Statement in August 2021 outlined an Agency-wide commitment requiring accountability from all FHFA staff in order to have
a workplace where employees can reach their potential in a safe
environment based on mutual respect and the freedom to exercise
their civil rights. FHFA also requires, as part of its performance
evaluation process, that executives and senior-level managers demonstrate support for the Agency’s diversity and inclusion initia-

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tives, as well as application of and compliance with applicable EEO
laws and regulations.
Q.4. Do you believe that our housing finance system must protect
broad access to affordable 30-year fixed-rate mortgages; serve the
broad, national market equitably; serve lenders of all types and
sizes equitably; preserve a competitive primary mortgage market;
maintain a duty to serve all markets and all borrowers, including
through affordable housing metrics; expand investment in affordable housing; and ensure continued or better access for financing
of affordable rental housing?
A.4. Yes, I believe those principles are inherent in the current
structure of the housing finance system, and I support those principles in any future secondary mortgage market structure that
Congress may create. Furthermore, as Acting Director of FHFA
and, if confirmed, Director of FHFA, I intend to follow these principles as I carry out my responsibilities ensuring the safety and
soundness of Fannie Mae, Freddie Mac, and the Federal Home
Loan Banks (housing GSEs or regulated entities) and their ability
to accomplish their mission.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
FROM SANDRA THOMPSON

Q.1. Congressional Oversight—Please provide your philosophy on
how the Federal Housing Finance Agency (FHFA) will approach
and respond to Congressional information requests (both for documentary information and oral testimony), if you are confirmed.
A.1. If confirmed, I will ensure that FHFA continues to respond to
Congressional information requests in a timely and transparent
manner, in accordance with applicable law and regulation.
Q.2. If confirmed, do you intend to respond to information requests
differently depending on who is making the Congressional information request (whether it’s the chair of the Congressional committee,
the Ranking Member, or another member of Congress)? Please answer ‘‘yes’’ or ‘‘no.’’ If your answer is ‘‘yes,’’ please explain.
A.2. If confirmed, I will work to respond to Congressional information requests in a timely, consistent manner regardless of the requestor, in accordance with applicable law and regulation.
Q.3. Will you commit that, if confirmed, you will timely respond to
and fully comply with all information requests from me? Please answer ‘‘yes’’ or ‘‘no.’’ If your answer is ‘‘no,’’ please explain.
A.3. If confirmed, I will respond in a timely manner to Congressional information requests, in accordance with applicable law and
regulation.
Q.4. Will you commit that, if confirmed, you will make yourself and
any other FHFA employee expeditiously available to provide oral
testimony (including but not limited to briefings, hearings, and
transcribed interviews) to the Committee on any matter within its
jurisdiction, upon the request of either the Chairman or Ranking
Member? Please answer ‘‘yes’’ or ‘‘no.’’ If your answer is ‘‘no,’’ please
explain why.

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A.4. If confirmed, I will make myself and FHFA staff available to
provide oral testimony, in accordance with applicable law and regulation.
Q.5. Do you believe that FHFA may assert any privileges or other
legal justifications to withhold information (whether records or oral
testimony) from Congress? Please answer ‘‘yes’’ or ‘‘no.’’
A.5. FHFA strives to be open and transparent with Congress and
the public. The Agency, like other bank financial regulators takes
seriously its responsibility to protect from disclosure certain information concerning its supervisory and regulatory activities. FHFA
commits to assert applicable and valid privileges or other legal justifications, including the examination privilege it shares with sister
regulatory agencies, only when necessary and justified after a factspecific analysis. Should this situation arise, I will work with the
appropriate Agency officials and provide responses consistent with
applicable law.
Q.6. If you answered ‘‘yes’’ to the preceding question, please list
every such privilege or other legal justification and provide the
legal basis for why you believe FHFA may use such privilege or
legal justification to withhold information from Congress.
A.6. FHFA strives to be open and transparent with Congress and
the public. The Agency, like other bank financial regulators takes
seriously its responsibility to protect from disclosure certain information concerning its supervisory and regulatory activities. FHFA
commits to assert applicable and valid privileges or other legal justifications, including the examination privilege it shares with sister
regulatory agencies, only when necessary and justified after a factspecific analysis. Should this situation arise, I will work with the
appropriate Agency officials and provide responses consistent with
applicable law.
Q.7. In an effort to be open and transparent with Congress and the
public, will you commit not to assert any such privilege or legal justification against Congress that you listed above? If not, why not?
If so, please identify all such privileges or legal justifications that
you will commit to not assert against Congress.
A.7. FHFA strives to be open and transparent with Congress and
the public. The Agency, like other bank financial regulators takes
seriously its responsibility to protect from disclosure certain information concerning its supervisory and regulatory activities. FHFA
commits to assert applicable and valid privileges or other legal justifications, including the examination privilege it shares with sister
regulatory agencies, only when necessary and justified after a factspecific analysis. Should this situation arise, I will work with the
appropriate Agency officials and provide responses consistent with
applicable law.
Q.8. Proposed Amendments to the Enterprise Regulatory Capital
Framework (ERCF); Financial Stability Oversight Council (FSOC)
Review—On September 25, 2020, FSOC released a statement on its
activities-based review of the secondary mortgage market (the
FSOC statement). The FSOC statement affirmed the overall quantity and quality of the regulatory capital required by the Federal
Housing Finance Agency’s (FHFA) June 30, 2020 proposed rule to

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establish a new regulatory capital framework for Fannie Mae and
Freddie Mac (each, an Enterprise). 1 Specifically, FSOC stated that
‘‘risk-based capital requirements and leverage ratio requirements
that are materially less than those contemplated by the proposed
rule would likely not adequately mitigate the potential stability
risk posed by the Enterprises.’’ FSOC also concluded ‘‘it is possible
that additional capital could be required for the Enterprises to remain viable concerns in the event of a severely adverse stress.’’ 2
(emphasis added) FSOC also committed to ‘‘continue to monitor
. . . FHFA’s implementation of the regulatory framework to ensure
potential risks to financial stability are adequately addressed.’’ On
December 17, 2020, FHFA released a rule finalizing the ERCF (the
final capital rule) that included leverage capital requirements that
were identical to those in the proposed rule. 3
A.8. N/A.
Q.9. Do you accept each of the findings and recommendations made
by FSOC in the FSOC statement? If not, please identify each finding or recommendation with which you disagree and your rationale
for the disagreement.
A.9. I generally agree with the findings in the FSOC statement.
However, similar to approaches followed by other financial regulators, FHFA intends to periodically review the final capital rule
and adjust various elements as necessary to ensure the safety and
soundness of the Enterprises. In the 2021 proposed rule, FHFA
proposed selective refinements to the leverage buffer and riskbased capital treatment of CRT, while leaving the leverage ratio requirement unchanged.
Q.10. In particular, do you accept FSOC’s finding that ‘‘risk-based
capital requirements and leverage ratio requirements that are materially less than those contemplated by the proposed rule would
likely not adequately mitigate the potential stability risk posed by
the Enterprises’’?
A.10. I generally agree with FSOC’s findings regarding the quantity of required capital at the Enterprises. In the 2021 proposed
rule, FHFA proposed selective refinements to the leverage buffer
and risk-based capital treatment of CRT, while leaving the leverage ratio requirement unchanged.
Q.11. Do you accept FSOC’s finding that ‘‘[t]he alignment of market participants’ credit risk capital requirements across similar
credit risk exposures would mitigate risk to financial stability by
minimizing market structure distortions’’?
A.11. I generally agree with FSOC’s findings. In light of the business models and mission of its regulated entities, FHFA issued its
final capital rule to create a going-concern regulatory capital standard to ensure that each Enterprise operates in a safe and sound
manner and is positioned to fulfill its statutory mission to provide
stability, liquidity, and ongoing assistance to the secondary mortgage market across the economic cycle.
1 85

FR 39,274.

2 Id.
3 85

FR 82,150.

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Q.12. Do you accept FSOC’s recommendation that ‘‘FHFA and
other regulatory agencies . . . coordinate and take other appropriate action to avoid market distortions that could increase risks
to financial stability by generally taking consistent approaches to
the capital requirements and other regulation of similar risks
across market participants, consistent with the business models
and missions of their regulated entities’’?
A.12. I generally agree that there should be coordination between
FHFA and other regulatory agencies to avoid market distortions.
FHFA, as the primary regulator for Fannie Mae and Freddie Mac,
utilizes the same principles and approaches as other regulatory
agencies to ensure that Enterprise capital requirements are appropriate for the risks the Enterprises retain, consistent with the business models and missions of the Enterprises.
Q.13. FHFA has proposed amendments (the proposed ERCF
amendments) that would reduce the regulatory capital required by
both the risk-based capital requirements and the leverage capital
requirements set forth in the final capital rule. 4 In light of FSOC’s
commitment to monitor FHFA’s implementation of the Enterprises’
regulatory framework, which includes the regulatory capital framework, did FHFA solicit input from the Board of Governors of the
Federal Reserve System (the Fed) regarding whether the proposed
ERCF amendments would adequately address potential risks to financial stability? Has the Fed otherwise reviewed the proposed
ERCF amendments?
A.13. Federal Reserve officials have publicly identified binding leverage capital requirements under the Supplementary Leverage
Ratio (SLR) framework as an issue that must be addressed so that
banks’ incentives are not skewed to seek more risk and increase
risk-taking. FHFA agrees with this guiding principle for the Enterprises under the Enterprise Regulatory Capital Framework
(ERCF).
Q.14. What were the Fed’s comments or other input on the proposed ERCF amendments?
A.14. Federal Reserve officials have publicly identified binding leverage capital requirements under the SLR framework as an issue
that must be addressed so that banks’ incentives are not skewed
to seek more risk and increase risk-taking. FHFA agrees with this
guiding principle for the Enterprises under the ERCF.
Q.15. Do you intend to ask FSOC as a council to review the proposed ERFC amendments?
A.15. FSOC as a council does not routinely review its members’
rulemakings.
Q.16. Proposed Amendments to Capital Treatment of Credit Risk
Transfers (CRT)—The preamble to the proposed ERCF amendments states that FHFA ‘‘believes that the current CRT risk weight
floor may not achieve the proper balance between permitting CRT
and safety and soundness.’’ Do you believe it is appropriate for
FHFA to foster or otherwise permit CRT at the expense of safety
and soundness? If not, what do you intend with respect to the prop4 86

FR 53,230.

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er balance to be achieved between permitting CRT and safety and
soundness?
A.16. Fannie Mae and Freddie Mac are the largest holders of mortgage credit risk in the United States. One of FHFA’s priorities is
to facilitate moving that credit risk into the hands of the private
sector and away from the Enterprises and taxpayers. We believe
that the changes that we have proposed to the capital rule will
help facilitate the credit risk transfer program and ensure that taxpayers are not at greater risk.
Q.17. The proposed ERCF amendments contemplate a 5 percent
risk weight floor on retained CRT exposures. The U.S. banking regulators impose a 20 percent risk weight floor on similar retained
securitization exposures. Do you think the gap between these similar credit risk exposures is consistent with FSOC’s recommendation
that ‘‘FHFA and other regulatory agencies . . . coordinate and take
other appropriate action to avoid market distortions that could increase risks to financial stability by generally taking consistent approaches to the capital requirements and other regulation of similar risks across market participants’’?
A.17. Fannie Mae and Freddie Mac are the largest holders of mortgage credit risk in the United States. One of FHFA’s priorities is
to facilitate moving that credit risk into the hands of the private
sector and away from the Enterprises and taxpayers. We believe
that the changes that we have proposed to the capital rule will
help facilitate the credit risk transfer program and ensure that taxpayers are not at greater risk.
Q.18. The preamble to the proposed ERCF amendments offers no
evidence that the ERCF’s current 10 percent risk weight floor is excessive relative to the risk on retained CRT exposures. FHFA’s primary argument is instead that the floor ‘‘reduces an Enterprise’s
incentives to engage in CRT.’’
Do you think there is evidence that the 10 percent risk weight
floor is excessive relative to the risk on retained CRT exposures?
If so, what is that evidence?
A.18. We believe that CRT contributes to the safety and soundness
of the Enterprises and that disincentivizing CRT can contribute to
increased risk for them and taxpayers. Fannie Mae and Freddie
Mac are the largest holders of mortgage credit risk in the United
States. One of FHFA’s priorities is to facilitate moving that credit
risk into the hands of the private sector and away from the Enterprises and taxpayers. We believe that the refinements that we have
proposed to the capital rule will help facilitate the credit risk transfer program and ensure that taxpayers are not at greater risk.
Q.19. In coming to a view of the question above, what is your assessment of banking organizations’ 2008 financial crisis experience
with securitizations as discussed in footnote 46 of the final capital
rule and footnote 74 of the proposal of the ERCF, each of which
sets forth the Federal banking regulators’ view that the 2008 turmoil in the financial markets demonstrated the extent to which the
credit risk exposure of the sponsoring banking organization to such
securitization structures (and their related assets) had in fact been

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greater than the agencies estimated, and more associated with noncontractual considerations than the agencies had expected?
A.19. When I served as the FDIC’s head of supervision and consumer protection throughout the 2008 financial crisis, I witnessed
firsthand the consequences of irresponsible lending when hundreds
of banks across the country were closed and a record number of
homes went into foreclosure. As a financial regulator, I have long
believed that safety and soundness and access to credit are not mutually exclusive. FHFA will continue to promote sustainable and
equitable access to credit in a safe and sound manner, and ensure
that the Enterprises are managing and, as appropriate, transferring their credit risk to avoid any repeat of the 2008 financial crisis.
Q.20. In the spring of 2020, counterparties to some of the GSEs’
so-called ‘‘fixed severity’’ CRT launched a vigorous campaign to persuade FHFA not to require each GSE to transfer to the
counterparty losses for which the counterparty was, by contract,
otherwise obligated. Historically, FHFA has not always transferred
losses as permitted by CRT instruments. As FHFA’s Deputy Director for Housing Mission and Goals with responsibility for those
fixed severity CRT, how have these experiences impacted your assessment of the risks with respect to the effectiveness of each Enterprise’s CRT in actually transferring credit risk?
A.20. ‘‘Fixed severity’’ CRT transactions were among the first
issued by the Enterprises as they developed and refined their offerings. The Enterprises no longer execute the ‘‘fixed severity’’ CRTs,
and these transactions represent a relatively small and diminishing segment of the Enterprises’ single-family CRT programs. In
the spring of 2020, FHFA instructed the Enterprises to abide by
the terms of the contracts in the ‘‘fixed severity’’ CRTs, and no adjustment was made.
Q.21. If confirmed as FHFA Director, so long as you remain conservator for an Enterprise, can you commit that each counterparty to
a CRT will incur losses to the fullest extent permitted by law and
the terms of the applicable CRT?
A.21. CRT transactions have governing documents, and FHFA’s
goal is to ensure that the Enterprises and counterparties adhere to
the terms established in those documents.
Q.22. How much has each Enterprise paid in underwriting fees on
CRT since the launch of the Enterprise’s CRT program?
A.22. Please refer to the CRTs’ governing documents for any and
all dealer fees. For example, the initial purchaser fees for each of
the Fannie Mae Connecticut Avenue Securities (CAS) CRT transactions are publicly available in the respective Offering Memorandum located on the Enterprise’s website. The initial purchaser
fees for each of the Freddie Mac Structured Agency Credit Risk
(STACR) CRT transactions are publicly available in the respective
Private Placement Memorandum located on the Enterprise’s
website.
Q.23. Proposed Amendments to Leverage Capital Requirements—
The proposed ERCF amendments include a proposed reduction in
the prescribed leverage buffer amount (PLBA). If finalized as pro-

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posed, the PLBA amendments would reduce each Enterprise’s
PLBA by two-thirds (from 1.5 percent of adjusted total assets to approximately 0.5 percent) and its PLBA-adjusted leverage capital requirements by one-quarter (from 4.0 percent of adjusted total assets to approximately 3.0 percent).
The FSOC statement stated that ‘‘a meaningful leverage ratio requirement that is a credible backstop to the risk-based requirements would address potential risks to financial stability by ensuring that the capital requirements are consistent with historical loss
experiences during severe stresses while mitigating model, measurement, and related risks with a simple, transparent measure of
risk.’’ Taking into account the 20 percent risk weight floor on mortgage exposures (1.6 percent of the exposure amount), the floor on
the stress capital buffer (0.75 percent of adjusted total assets), and
the current sizing of each Enterprise’s stability capital buffer (1.0
percent and 0.7 percent of adjusted total assets for Fannie Mae and
Freddie Mac, respectively), it appears exceedingly unlikely that an
Enterprise’s risk-based capital requirement could ever be less than
the proposed leverage capital requirements of 3.0 percent and 2.9
percent for Fannie Mae and Freddie Mac, respectively, even if a
substantial portion of an Enterprise’s mortgage exposures were
subject to the risk weight floor.
In light of the apparently very remote prospect that an Enterprise’s risk-based capital requirement could ever be less than the
proposed leverage capital requirements, would the PLBA amendment result in ‘‘a meaningful leverage ratio requirement’’ and
would the proposed leverage capital requirements be ‘‘a credible
backstop to the risk-based requirements’’ within the meaning of the
FSOC statement?
A.23. There are a variety of circumstances and scenarios that may
lead to leverage capital requirements being binding in the future.
FHFA expects that the Tier 1 capital floor created by the leverage
ratio requirement plus leverage buffer will be in place as a credible
backstop to the risk-based capital requirements throughout the economic cycle.
Q.24. As part of its rationale for the proposed ERCF amendments
to the PLBA, FHFA noted that ‘‘Basel III standards require systemically important banks to hold a tier 1 capital leverage ratio
buffer in excess of a 3 percent leverage requirement equal to 50
percent of a GSIB’s higher loss-absorbency risk-based requirements.’’ FHFA also stated that it intended to amend the PLBA ‘‘in
a manner similar to the U.S. banking regulators’ proposal to set
the eSLR buffer to one-half of the GSIB surcharge’’ and that ‘‘a dynamic PLBA that is tied to the stability capital buffer would further align the [ERCF] with Basel III standards.’’ Related to this,
former Fed Vice Chair for Supervision Quarles recently said ‘‘[w]ith
respect to the enhanced supplementary leverage ratio (eSLR) that
applies to U.S. global systemically important banks (GSIBs), the
best way to address this problem is the approach endorsed by the
Basel Committee: recalibrating the fixed 2-percent eSLR buffer re-

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quirement to equal 50 percent of the applicable GSIB capital surcharge, with corresponding recalibration at the bank level.’’ 5
Importantly, a GSIB’s eSLR buffer requirement is a percent of
risk-weighted assets, while an Enterprise’s stability capital buffer
requirement is a percent of adjusted total assets. If the intent were
to align FHFA’s approach to the PLBA with the Basel Committee’s
approach to the eSLR buffer, would each Enterprise’s stability capital buffer requirement first need to be converted to an equivalent
that is expressed as a percent of risk-weighted assets (e.g., by dividing the stability capital buffer requirement by the average risk
weight of the Enterprise’s assets (currently around 33 percent))?
A.24. While the ERCF’s Stability Capital Buffer and the GSIB surcharge in the bank framework similarly attempt to quantify the
amount of systemic risk posed by the Enterprises and GSIBs, respectively, they are not identical. The Enterprises and the other financial institutions have different business models. There are significant structural differences between the two buffers in both derivation and application.
Q.25. How do you reconcile FHFA’s statements that its proposed
ERCF amendments to PLBA are ‘‘similar to the U.S. banking regulators’ proposal to set the eSLR buffer to one-half of the GSIB surcharge’’ and that ‘‘a dynamic PLBA that is tied to the stability capital buffer would further align the [Enterprise Regulatory Capital
Framework] with Basel III standards’’ with the very significant gap
between FHFA’s proposed PLBAs (0.5 percent and 0.4 percent for
Fannie Mae and Freddie Mac, respectively) and the PLBAs that
would result under the Basel Committee’s approach (roughly 1.63
percent and 1.05 percent for Fannie Mae and Freddie Mac, respectively)? 6
A.25. While the ERCF’s Stability Capital Buffer and the GSIB surcharge in the bank framework similarly attempt to quantify the
amount of systemic risk posed by the Enterprises and GSIBs, respectively, they are not identical. The Enterprises and the other financial institutions have different business models. There are significant structural differences between the two buffers in both derivation and application.
Q.26. Do you think that a roughly 113 basis point difference between the PLBAs for Fannie Mae under FHFA and the Basel Committee’s approaches—which amounts to more than $45 billion as of
5 Governor Randal K. Quarles, ‘‘Between the Hither and the Farther Shore: Thoughts on Unfinished Business’’ (Dec. 2, 2021), available at www.federalreserve.gov/newsevents/speech/
quarles20211202a.htm.
6 According to the fact sheet accompanying FHFA’s proposed amendments, Fannie and
Freddie would have had a PLBA under the proposed amendments of, respectively, 0.53 percent
and 0.35 percent of adjusted total assets as of March 31, 2021. That implies a stability capital
buffer, expressed as a percent of adjusted total assets, of 1.06 percent and 0.70 percent of adjusted total assets for Fannie and Freddie, respectively. Those stability capital buffers can be
converted to an equivalent ratio expressed as a percent of risk-weighted assets by dividing each
by the Enterprise’s average risk weight. While FHFA has not disclosed the average risk weight
for each Enterprise as of March 31, 2021, the data in the fact sheet accompanying the 2020
final rule suggests an average risk weight (risk weighted assets divided by adjusted total assets)
for Fannie Mae and Freddie Mac of respectively 33 percent and 32 percent, as of September
30, 2020. Using those average risk weights, the stability capital buffer of Fannie Mae and
Freddie Mac was, respectively, 3.27 percent and 2.10 percent of risk-weighted assets as of March
31, 2021. Dividing those by two would result in a PLBA of 1.63 percent and 1.05 percent, and
a PLBA-adjusted leverage capital requirement of 4.1 percent and 3.5 percent, for Fannie Mae
and Freddie Mac, respectively.

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September 30, 2021—is inconsistent with FHFA’s statements that
the proposed ERCF amendments to the PLBA are ‘‘similar to the
U.S. banking regulators’ proposal’’ or ‘‘align[ed] . . . with Basel III
standards’’?
A.26. While the ERCF’s Stability Capital Buffer and the GSIB surcharge in the bank framework similarly attempt to quantify the
amount of systemic risk posed by the Enterprises and GSIBs, respectively, they are not identical. The Enterprises and the other financial institutions have different business models. There are significant structural differences between the two buffers in both derivation and application.
Q.27. The preamble to the proposed ERCF stated that FHFA ‘‘is
proposing a recalibration of the PLBA because a leverage ratio that
exceeds risk-based capital requirements throughout the economic
cycle could lead to undesirable outcomes at the Enterprises . . . .’’
(emphasis added) It matters whether the leverage capital requirement is binding throughout the economic cycle (potentially a problem) or instead a backstop that is binding occasionally (which is entirely the intent). Notably, the leverage capital requirements for
Fannie Mae are not currently binding, even after a long period of
house price appreciation that, among other causes, has resulted in
more than half of its single-family mortgage exposures being subject to the 20 percent risk weight floor. What evidence did you consider that the ERCF’s leverage capital requirements actually would
exceed the risk-based capital requirements ‘‘throughout the economic cycle’’?
A.27. There are a variety of circumstances and scenarios that may
lead to leverage capital requirements becoming the binding constraint in the future. FHFA expects that the Tier 1 capital floor
created by the leverage ratio requirement plus leverage buffer will
be in place as a credible backstop to the risk-based capital requirements throughout the economic cycle.
Q.28. The preamble to the proposed ERCF amendment did not explain the flaws in the methodology originally used to calibrate the
PLBA. As described in the preamble to the final capital rule, ‘‘[t]he
1.5 percent PLBA is calibrated to ensure that the PCCBA and
PLBA have an effective complementary relationship such that each
is independently meaningful.’’ FHFA observed that: [T]he relative
sizing of the PLBA is generally consistent with the relative sizing
of similar buffers under the U.S. banking framework. A 1.5 percent
PLBA for the Enterprises is 37.5 percent of the 4.0 percent PLBAadjusted leverage ratio requirement to avoid payout restrictions.
The 2.0 percent supplementary leverage ratio requirement of the
U.S. banking framework is 40 percent of the 5.0 percent buffer-adjusted leverage ratio requirement to avoid payout restrictions. (emphasis added)
A.28. FHFA also considered, among other things, that the PLBAadjusted leverage capital requirements were consistent with the
Enterprises’ historical loss experiences during the 2008 financial
crisis (approximately 4.8 percent of adjusted total assets as of December 31, 2007) and that the Federal Home Loan Banks are subject to a 4 percent leverage capital requirement.

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Q.29. What flaws, if any, do you see in the methodology originally
used to calibrate the PLBA?
A.29. FHFA identified certain aspects of the ERCF that might
incentivize risk-taking and disincentivize the Enterprises from distributing credit risk to private investors, which could result in taxpayers bearing excessive undue risk for as long as the Enterprises
are in conservatorships and excessive risk to the housing finance
market both during and after conservatorships. One such contributing aspect of the ERCF was the fixed leverage buffer. FHFA’s
proposed refinements to the capital rule sought comment on an adjustment to the buffer.
Q.30. Minimum Credit Risk Capital Requirements—Question 4 of
the proposed ERCF amendments asks ‘‘[i]n light of the proposed
changes to the PLBA and CRT securitization framework, is the
prudential risk weight floor of 20 percent on single-family and multifamily mortgage exposures appropriately calibrated.’’ However,
the preamble to the proposed ERCF amendments provides no discussion of the critical role played by this floor in ensuring that each
Enterprise is appropriately capitalized. The preamble also provides
no discussion of the safety and soundness risks, risks to financial
stability, or other implications posed by a potential reduction in the
risk weight floor on mortgage exposures. Will you commit to not
change the 20 percent risk weight floor on mortgage exposures
without full notice and opportunity to comment on the specific
change, including a detailed preamble discussion of the implications of that change?
A.30. FHFA follows the Administrative Procedures Act and provided a 60-day comment period for the notice of proposed rulemaking with refinements to the capital rule and received 89 comments from stakeholders. As Acting Director and, if confirmed, Director, I will continue to follow the Administrative Procedure Act
for all rulemakings, including requirements for public comment periods.
Q.31. The smallest possible risk weight on a mortgage exposure is
50 percent under the U.S. banking framework and 20 percent
under the Basel Committee’s framework (and then only for certain
low-risk mortgage exposures with an original loan-to-value ratio
less than 50 percent). Do you think a reduction in the 20 percent
risk weight floor on mortgage exposures would be consistent with
FSOC’s recommendation that ‘‘FHFA and other regulatory agencies
. . . coordinate and take other appropriate action to avoid market
distortions that could increase risks to financial stability by generally taking consistent approaches to the capital requirements and
other regulation of similar risks across market participants’’?
A.31. I generally agree that there should be coordination between
FHFA and other regulatory agencies to avoid market distortions.
FHFA, as the primary regulator for Fannie Mae and Freddie Mac,
utilizes the same principles and approaches as other regulatory
agencies to ensure that capital requirements are appropriate for
the risks the Enterprises retain, consistent with the business models and missions of the Enterprises.

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Q.32. What percent of each Enterprise’s single-family mortgage exposures currently would have a smaller risk weight in the absence
of the 20 percent risk weight floor? What percent of each Enterprise’s multifamily mortgage exposures currently would have a
smaller risk weight in the absence of the 20 percent risk weight
floor? Will you commit to providing periodic public disclosures as
to the percent of each Enterprise’s single-family and multifamily
mortgage exposures that are subject to the 20 percent risk weight
floor?
A.32. The requested detailed level of disclosure in your request is
generally not required of other financial institutions, and this information is nonpublic at this time. FHFA would be happy to discuss
with you or your staff separately on this topic.
Q.33. Do you agree that a reduction in the 20 percent risk weight
floor on mortgage exposures would increase the procyclicality of the
ERCF’s risk-based capital requirements?
A.33. FHFA addressed the potential procyclicality in the ERCF
risk-based capital requirement in the final capital rule. Potential
procyclicality is primarily mitigated by the countercyclical adjustment, which is specifically designed to offset the benefit of house
price appreciation in environments of high house price growth.
FHFA has not proposed any changes to the countercyclical adjustment since the ERCF was finalized in 2020.
Q.34. General ERCF Topics—Do you disagree with any of the
below statements in the preamble to the final capital rule that finalized the ERCF? If so, with which of these statements do you disagree and why?
• ‘‘[E]ach Enterprise should be capitalized not only to absorb
losses as they are incurred in a severely adverse stress, but
also so that the Enterprise would have sufficient regulatory
capital after that stress to continue to be regarded as a viable
going concern by creditors and other counterparties.’’
• ‘‘The differences between the business models, statutory mandates, and risk profiles of the Enterprises and banking organizations, however, should not preclude the proposed rule’s comparison of the credit risk capital requirement of a large U.S.
banking organization for a specific mortgage exposure to the
credit risk capital requirement of an Enterprise for a similar
mortgage exposure.’’
• ‘‘The monoline nature of the Enterprises’ mortgage-focused
businesses suggests that the concentration risk of an Enterprise is generally greater than that of a diversified banking organization with a similar amount of mortgage credit risk. That
heightened concentration risk would tend to suggest that
greater credit risk capital requirements, relative to banking organizations, could be appropriate for the Enterprises for similar exposures, all else equal.’’
• ‘‘FHFA continues to believe that the regulatory capital framework should not assume extraordinary Government support,
whether under the [Preferred Stock Purchase Agreements] or
otherwise. A central tenet of the reforms following the 2008 financial crisis is that the postcrisis regulatory framework

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should prevent future taxpayer rescues of financial institutions. Expectations of Government support increase risk to the
Enterprises’ safety and soundness and the stability of the national housing finance markets by undermining market discipline and encouraging excessive risk taking. Other regulatory
capital frameworks generally would not treat a line of credit or
similar arrangement, even one with a governmental actor, as
a form of regulatory capital.’’
• ‘‘The now apparent shortcomings of OFHEO’s and the Enterprises’ precrisis credit models, and other well-known failures of
analytical models to accurately predict risk, reinforce the need
for a meaningful degree of regulatory caution regarding any
modeled estimate of risk.’’
A.34. FHFA identified certain aspects of the ERCF that might
incentivize risk-taking and disincentivize the Enterprises from distributing credit risk to private investors. This could result in taxpayers bearing excessive undue risk for as long as the Enterprises
are in conservatorships and excessive risk to the housing finance
market both during and after conservatorships. Contributing aspects of this potential outcome were the fixed leverage buffer and
the risk-based capital requirements for CRT.
Q.35. Did FHFA staff meet or otherwise consult with either Enterprise on the proposed ERCF amendments before those were published in the Federal Register? Did either Enterprise play any role
in the drafting or development of the proposed ERCF amendments?
A.35. Neither Enterprise played a role in drafting or developing the
proposed ERCF amendments.
Q.36. Resolution Framework—In May 2021, FHFA finalized a rule
that requires each Enterprise to develop a plan to facilitate its
rapid and orderly resolution in the event FHFA is appointed receiver. 7 These resolution plans are intended to, among other
things, ‘‘foster[ ] market discipline by making clear that no extraordinary Government support will be available to indemnify investors
against losses or fund the resolution of an Enterprise.’’ 8 Specifically, ‘‘[i]n developing a resolution plan, each Enterprise shall: . . .
[n]ot assume the provision or continuation of extraordinary support
by the United States to the Enterprise to prevent either its becoming in danger of default or in default (including, in particular, support obtained or negotiated on behalf of the Enterprise by FHFA
in its capacity as supervisor, conservator, or receiver of the Enterprise, including the Senior Preferred Stock Purchase Agreements
entered into by FHFA and the U.S. Department of the Treasury on
September 7, 2008, and any amendments thereto).’’ 9 Related to
this, Treasury’s Housing Reform Plan released in September 2019
recommended that ‘‘[a] credible resolution framework can ensure
that shareholders and unsecured creditors bear losses, thereby protecting taxpayers against bailouts, enhancing market discipline,
and mitigating moral hazard and systemic risk.’’
7 86
8 Id.
9 12

FR 23,577 (May 4, 2021).
at 23,580.
CFR 1242.5(b)(2).

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Do you agree with, or otherwise have any plans to change, the
requirement that ‘‘each Enterprise shall: . . . [n]ot assume the provision or continuation of extraordinary support by the United
States to the Enterprise to prevent either its becoming in danger
of default or in default (including . . . the Senior Preferred Stock
Purchase Agreements entered into by FHFA and the U.S. Department of the Treasury on September 7, 2008, and any amendments
thereto)’’?
A.36. FHFA has no current plans to modify the regulation on resolution planning. The Agency expects that credible resolution plan
submissions will include, at a minimum, the scenario described in
the rule where extraordinary Government support is unavailable.
Q.37. Given FHFA’s policy that, notwithstanding the Preferred
Stock Purchase Agreements, unsecured creditors of each Enterprise
should be at risk of loss upon an insolvency event affecting the Enterprise, do you think the Securities and Exchange Commission’s
regulations governing money market mutual funds, registration requirements, or other market activity should continue to give the
Enterprises special treatment (e.g., by treating them as Government securities for certain purposes)?
A.37. The Preferred Stock Purchase Agreements provide certain
benefits to unsecured creditors of the Enterprises. FHFA defers to
the Securities Exchange Commission (SEC) on matters associated
with the application of SEC regulations and remains open to consultation with SEC staff on Enterprise-related matters.
Q.38. Exit From Conservatorship—At your nomination hearing, you
answered in response to a question from Senator Hagerty that
there are a number of issues that Congress will have to address before the Enterprises may exit conservatorship. Please itemize these
issues that Congress must address in your view and any other Congressional actions that you view as a precondition to an Enterprise’s exit from conservatorship. With respect to each of these preconditions, what specific provisions of statute authorize FHFA to
indefinitely continue an Enterprise’s conservatorship pending Congress satisfying the precondition? Please provide any relevant legal
analysis that inform your views on this question.
A.38. There is no statutory provision in the Safety and Soundness
Act that specifically addresses exit from conservatorship; however,
there are several open questions that only Congress can address on
the future structure and functioning of the secondary mortgage
market. Key questions include whether the Enterprises should be
subject to public-utility-like regulation of pricing and returns,
whether additional GSEs would be chartered to compete with
Fannie Mae and Freddie Mac, and any potential changes to the Enterprises’ charters which are established in statute. Congress may
also want to address the Enterprises ownership structure, the issue
of an explicit guarantee or continuing support of the Treasury, and
other areas where FHFA has identified it lacks similar authority
to that of the other financial regulators, including third-party examination authority.
As I mentioned during the hearing, there are related issues that
other parties would need to be involved in working through, such
as how the Senior Preferred Stock Purchase Agreements are re-

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solved to ensure that taxpayers are repaid for their investment. In
the absence of Congressional action, the Enterprises must be managed under current law, including building capital to meet the existing capital requirements before any exit from the
conservatorships.
Q.39. FHFA’s resolution authorities are modeled on, and substantially similar to, the resolution authorities of the Federal Deposit
Insurance Corporation (FDIC). You previously worked in the
FDIC’s Division of Resolutions and Receiverships and had a long
career at the FDIC. Are you aware of any conservatorship or receivership in which the FDIC deferred to Congress on the resolution of a failed insured depository institution or otherwise conditioned the completion of that conservatorship or receivership on action by Congress? If so, please identify the FDIC conservatorship
or receivership and the circumstances relating to it.
A.39. The FDIC has not to my knowledge deferred to Congress on
the resolution of a failed insured depository institution or otherwise
conditioned the completion of a conservatorship or receivership on
action by Congress. However, the Enterprises differ from FDIC-insured institutions in that they operate with congressionally granted
charters, have different public policy mandates, and currently operate with the explicit backing of the U.S. Treasury.
Q.40. FHFA previously retained Houlihan Lokey as its financial
advisor for purposes of developing a roadmap for each Enterprise’s
exit from conservatorship. Is Houlihan Lokey still retained by
FHFA as a financial advisor for these purposes?
A.40. FHFA continues to retain advisors to help FHFA assess the
financial positions of the Enterprises.
Q.41. Do you agree with the statement in the final capital rule finalizing the ERCF that ‘‘[p]ending legislation, FHFA, as conservator of each Enterprise, is required by statute to act ‘for the purpose of reorganizing, rehabilitating, or winding up the affairs of
[the Enterprise].’ That definite and limited statutory purpose does
not authorize an indefinite conservatorship.’’?
A.41. There is no statutory provision in the Safety and Soundness
Act that specifically addresses exit from conservatorship. There is
also no statutory provision that specifically either mandates or forbids indefinite conservatorship. As noted in the question, the conservator or receiver may be appointed ‘‘for the purpose of reorganizing, rehabilitating, or winding up the affairs of a regulated entity.’’ In addition, the statute authorizes FHFA as conservator to
‘‘take such action as may be (i) necessary to put the regulated entity in a sound and solvent condition; and (ii) appropriate to carry
on the business of the regulated entity and preserve and conserve
the assets and property of the regulated entity.’’ From these provisions, it is reasonable to infer that FHFA may release the Enterprises from conservatorship when they are rehabilitated and are
again in sound and solvent condition. Achieving that state requires
that they achieve safe and sound capital levels, which in turn requires a restructuring of the Treasury’s current equity position in
the Enterprises. Treasury’s equity position does not count as either
‘‘core capital’’ under the statute or Tier 1 or Tier 2 capital under

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FHFA’s recently adopted capital regulation, which is based on the
Basel capital regime for banks.
Q.42. Housing Finance Reform—At your nomination hearing, Senator Crapo asked you whether you would be willing to support legislation that calls for ‘‘increasing competition among mortgage
guarantors.’’ In its recent annual reports to Congress, FHFA has
recommended that Congress provide FHFA with chartering authority similar to that of other Federal financial regulators like the Office of the Comptroller of the Currency. Do you support Congress
authorizing FHFA to charter competitors to the Enterprises?
A.42. Only Congress can grant the authority to charter competitors
to the Enterprises, and I defer to Congress on the future structure
of the secondary housing market. I would note that there are competing ideas circulating about the appropriate future structure,
from multiple, privately held guarantors, to the Enterprises as utilities, to merging these two companies into one Government agency.
I am open to all options at this time. I am not opposed to competition, as long as the organization(s) can meet the same mission and
safety and soundness requirements as the Enterprises, including
FHFA oversight and regulation. FHFA will provide technical assistance to Congress pursuing any structure they choose.
There are certain things that FHFA can address in reforming the
Enterprises without Congressional action, and we have done so by
building capital, transferring risk, strengthening underwriting, and
reviewing pricing and credit policies. It is my priority and my responsibility to continue to focus on the mission and safety and
soundness of the Enterprises until such time as Congress enacts
housing finance reform legislation.
Q.43. Do you believe the duopoly market structure increases the
systemic importance of each GSE, fosters a market perception that
the Federal Government will not permit the GSE to default on its
financial obligations, undermines market discipline over its risk
taking, and thereby fosters excessive risk taking by the GSE and
exposes taxpayers to risk of future bailouts?
A.43. Fannie Mae and Freddie Mac are a critical part of the secondary mortgage market infrastructure. FHFA currently has the
authority to ensure that the Enterprises meet stringent capital requirements and other regulatory standards, and we set those
standards with this level of importance in mind. I defer to Congress on the future structure of the secondary housing market and
whether there should be more than two GSEs with these responsibilities.
Q.44. Equitable Housing Finance Plans—On which specific statutory authorities (with cites to specific statutory clauses) has FHFA
relied in requiring each Enterprise to develop an Equitable Housing Finance Plan? Please provide any legal analysis that inform
your views on this question.
A.44. Congress established FHFA to regulate the Enterprises to ensure that the purposes of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (Safety and Soundness Act),
the Enterprises’ statutory charters, and any other applicable law

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are carried out. 10 In doing so, Congress recognized that the Enterprises have important public purposes reflected in their statutory
charters, and that they need to be managed safely and soundly so
that they continue to accomplish their public missions. 11 FHFA is
also currently conservator of the Enterprises. 12
With respect to the public purposes of the Enterprises, a number
of statutory and regulatory authorities that apply to FHFA and the
Enterprises speak to the need to advance equity for homebuyers,
homeowners, and tenants in the housing market. 13 The Equitable
Housing Finance Plan framework that FHFA has adopted as conservator is a tool for the Enterprises to undertake sustainable and
meaningful actions to advance equity in the housing markets,
while ensuring safety and soundness.
FHFA’s principal duties include ensuring that the Enterprises
operate consistent with safety and soundness and with the public
interest. 14 FHFA and the Enterprises also have statutory and
other commitments related to the selection of equitable solutions
for borrowers and tenants in the housing market. The Enterprises’
Charter Acts, for example, provide that one of the Enterprises’ purposes is to promote access to mortgage credit throughout the Nation (including central cities, rural areas, and underserved
areas). 15 The Charter Acts require the Enterprises, as part of their
annual housing reports, to assess their underwriting standards,
policies, and business practices that affect low- and moderate-income families or cause racial disparities, along with any revisions
to these standards, policies, or practices that promote affordable
housing or fair lending. 16
The Housing Goals and Duty to Serve requirements are critical
elements for ensuring that the Enterprises fulfill their mission and
charters and serve low- and moderate-income families and underserved populations. 17 The Safety and Soundness Act provides that,
10 12

U.S.C. 4511(b)(1) and (2).
U.S.C. 4501(1) (Enterprises and Federal Home Loan Banks have important public missions), (2) (their continued ability to accomplish their public missions is important, and effective
regulation is needed to reduce risk of failure), and (7) (Enterprises have affirmative obligation
to facilitate financing of affordable housing for low- and moderate-income families consistent
with their public purposes, while maintaining a strong financial condition and a reasonable economic return).
12 https://www.fhfa.gov/Media/PublicAffairs/Pages/Statement-of-FHFA-Director-James-BLockhart-at-News-Conference-Annnouncing-Conservatorship-of-Fannie-Mae-and-FreddieMac.aspx; 12 U.S.C. 4617(b) (powers and duties of the conservator).
13 These include providing ongoing assistance to the secondary market for residential mortgages, including mortgages on housing for low- and moderate-income families involving a reasonable economic return that may be less than the return earned on other activities, and promoting access to mortgage credit in central cities, rural areas, and underserved areas. 12 U.S.C.
1716(3) and (4) (Fannie Mae charter purposes); 12 U.S.C. 1451 note (b)(3) and (4) (Freddie Mac
charter purposes). They also include Enterprise affordable Housing Goals, see 12 U.S.C. 4561(a),
4562, and 4563; 12 CFR part 1282, subpart B, and Enterprise Duty to Serve affordable housing
needs of certain underserved markets, see 12 U.S.C. 4565; 12 CFR part 1282, subpart C. In addition, the Enterprises are required to report annually to Congress on, among other things, assessments of their underwriting standards and business practices that affect their purchases of
mortgages from low- and moderate-income families, and revisions to their standards and practices that promote affordable housing or fair lending. 12 U.S.C. 1723a(n)(2)(G) (Fannie Mae
charter), 1456(f)(2)(G) (Freddie Mac charter).
14 12 U.S.C. 4513(a)(1)(B)(i), (v).
15 12 U.S.C. 1716(4) (Fannie Mae charter); 1451(b)(4) (Freddie Mac charter).
16 12 U.S.C. 1723a(n)(2)(G), 1456(f)(2)(G).
17 12 U.S.C. 4561(a) (FHFA to establish annual housing goals by regulation), 4562 (establishment of required categories of single-family housing goals), and 4563 (establishment of required
multifamily affordable housing goals); 12 U.S.C. 4565 (Enterprise duty to facilitate secondary
Continued
11 12

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in meeting these requirements, the Enterprises are required to
take affirmative steps to assist primary lenders to make housing
credit available in areas with concentrations of low-income and minority families. 18 The Equitable Housing Finance Plans will serve
as a supplement to existing FHFA and Enterprise requirements,
programs, and plans, and are designed to ensure a continued focus
on housing equity that is aligned with other critical objectives including safety and soundness and other mission activities.
Under the Fair Housing Act, all Federal agencies having regulatory or supervisory authority over financial institutions, including
FHFA, are required to administer their programs and activities relating to housing and urban development in a manner that affirmatively furthers the purposes of the Fair Housing Act, which includes providing for fair housing throughout the United States. 19
Q.45. Please describe with specificity any virtual, telephonic, inperson, or other meetings or contacts you had with representatives
of the President, the Department of the Treasury, or any other executive departments that relate to FHFA’s requirement that each
Enterprise develop an Equitable Housing Finance Plan.
A.45. During my 8 years at FHFA, I have discussed issues relevant
to the mortgage market, the GSEs’ financial condition and the Enterprises’ conservatorships, and other relevant activities and issues
with various offices and divisions of the executive branch. FHFA
held a discussion with HUD in August 2021 to get their feedback
on the Equitable Housing Finance Plan and briefed the Federal Financial Institution Examination Council (FFIEC) Joint Fair Lending Task Force in November 2021. The Joint Fair Lending Task
Force includes representatives from the Federal Deposit Insurance
Corporation, the Consumer Financial Protection Bureau, the Office
of the Comptroller of the Currency, the Federal Reserve Board, the
National Credit Union Agency, the Federal Trade Commission, the
Department of Justice, HUD, and FHFA.
Q.46. Servicer Eligibility Requirements—FHFA previously proposed
increased net worth and liquidity requirements for GSE servicers.
The last FHFA Director determined to repropose those requirements to incorporate the lessons learned from the spring 2020
stress.
Do you intend to repropose net worth and liquidity requirements
for GSE servicers?
What is the timing for that reproposal?
A.46. FHFA is currently revisiting the seller/servicer eligibility
standards and expects to post revised standards for public comment shortly.
Q.47. GSE Mission and Footprint—Freddie Mac’s charter act provides that ‘‘[t]he volume of the [Enterprise’s] lending activities and
the establishment of its loan ratios, interest rates, maturities, and
charges or fees in its secondary market operations under this paragraph, shall be determined by the [Enterprise] from time to time;
mortgage market for very low-, low-, and moderate-income families in certain underserved markets).
18 12 U.S.C. 4565(b)(3)(A).
19 42 U.S.C. 3608(d); 42 U.S.C. 3601 et seq.

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and such determinations shall be consistent with the objectives that
the lending activities shall be conducted on such terms as will reasonably prevent excessive use of the [Enterprise’s] facilities, . . . .’’ 20
(emphasis added) Similarly, Fannie Mae’s charter act also provides
that ‘‘such determinations should be consistent with the objectives
that such purchases and sales should be effected only at such
prices and on such terms as will reasonably prevent excessive use
of the [Enterprise]’s facilities.’’ 21
How do you construe the scope of each of these requirements
that each Enterprise shall ‘‘reasonable prevent excessive use of the
[Enterprise’s] facilities’’?
What steps are you taking to ensure that FHFA reasonably prevents excessive use of an Enterprise’s facilities?
A.47. The charter act provisions referred to above were enacted
prior to the prudential supervisory regime established by the Safety and Soundness Act in 1992 and 2008. The Fannie Mae charter
act provisions were enacted in the 1950s at a time when Congress
intended that Fannie Mae transition from public to private ownership and wanted to ensure that its business activities were sufficiently disciplined that the company could attract private capital.
The comparable provision in the Freddie Mac Act was enacted in
1970 at Freddie Mac’s creation, when Freddie Mac was initially
owned by the Federal Home Loan Banks. Since then, the very general mandate in the ‘‘excessive use’’ provisions has been followed by
much more specific and robust supervisory tools, such as the Safety
and Soundness Act’s capital requirements, its Prompt Corrective
Action regime, FHFA’s Prudential Management and Operations
Standards, and the enforcement tools available to combat unsafe
and unsound practices. In light of these more robust tools, the ‘‘excessive use’’ provisions have never been defined, interpreted, or applied by FHFA or its predecessor agencies. In conservatorship, the
objectives of those provisions are furthered by FHFA’s recently
adopted Enterprise Regulatory Capital Framework, its proposed
capital planning rule, and its mandate to the Enterprises upon entering conservatorship that they manage to positive shareholders’
equity while returning to long-term profitability, and more recently
that they meet various minimum return-on-equity thresholds for
their business segments.
Q.48. Independence of Regulatory Agency—The U.S. Supreme
Court has recently held that the Director of FHFA may be removed
by the President without cause and at any time. Notwithstanding
these recent developments, will you commit to not exceed the authorities of FHFA (including the limitations inherent in the charter
act of each Enterprise) even if directed by the President to the contrary?
A.48. It is my intention to follow the law, including the Housing
and Economic Recovery Act of 2008, the Enterprises’ charter acts,
and any other applicable law.
Q.49. Did you have any virtual, telephonic, in-person, or other contact with representatives of the President, the Department of the
20 12
21 12

U.S.C. 1454(a)(5).
U.S.C. 1719(a)(1).

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Treasury, or any other executive department before the Supreme
Court’s decision in Collins v. Mnuchin? If so, did any of those conversations or other contacts relate to the leadership of FHFA following the potential removal of former Director Calabria?
A.49. During my 8 years at FHFA, I have discussed issues relevant
to the mortgage market, the GSE’s financial condition, the Enterprises’ conservatorships, and other relevant activities and issues
with various offices and divisions of the executive branch. President Biden designated me as Acting Director of FHFA after Dr.
Calabria was released from the Director position on June 23, 2021.
Q.50. Answering Questions for the Record—Please describe with
particularity the process by which you answered these questions
for the record, including identifying who assisted you in answering
these questions along with a brief description of their assistance.
A.50. These responses were developed at my direction and with
drafting assistance from FHFA employees in several FHFA Divisions and Offices, based on the subject matter. I have reviewed and
approved all of the responses, and any views expressed in these responses are my own.
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM SANDRA THOMPSON

Q.1. Nearly 5 percent of households are considered limited English
proficient. In 2017 FHFA agreed to include a question on the uniform mortgage application for borrowers to indicate their preferred
language, but that requirement was removed by our last FHFA Director.
If confirmed, will you make it a priority to ensure that nonEnglish speaking families can communicate with their lenders in
their preferred language?
A.1. Mortgages are one of the largest investments that many Americans make and one of most complex financial transactions. I feel
strongly that it is important to have clear communication between
lenders and borrowers, and servicers and borrowers. In my experience during the last financial crisis, communication between
servicers and borrowers in particular was critical to ensuring that
homeowners retained their homes.
Collecting language preference information would only improve
that communication. However, collecting this data was not a part
of the recent changes to the uniform residential lending application
(URLA) implemented in March 2021. FHFA has developed a supplemental form for lenders that includes questions on language
preference. Currently the form is optional to lenders to provide to
borrowers, and it is the borrower’s choice to provide the information on the form to the lender. There are also no channels established that would ensure that a lender who originates the loan
would share language preference information with a servicer, or
that the data on language preference would be submitted to the
Enterprises.
We are currently addressing this issue and plan to start a
workstream to ensure that the data is collected and used appro-

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priately. I commit to update you and your staff as we make
progress on this initiative.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM SANDRA THOMPSON

Q.1. As Arizona begins to recover from the earlier stages of the
COVID–19 pandemic, many hardworking families who were affected financially are beginning to get back on their feet. Many
were able to remain in their homes due to temporary eviction moratorium and mortgage forbearance measures that have since expired. What do you see the FHFA’s role being in the coming
months as we recover from earlier waves of the pandemic and in
light of the widespread effects of the Omicron variant? If confirmed, how will you utilize your role to advance housing security
and affordability as we face emerging challenges from this variant?
A.1. Should I be confirmed as FHFA Director, my goal would be
to move the ball forward to advance safe, decent, affordable rental
opportunities and responsible mortgage lending. The pandemic has
impacted many aspects of the housing market, including the significant increase in house prices. House price growth was nearly 18
percent nationwide for the third quarter of 2021, and there are a
number of reasons for it, including supply chain issues and local
zoning restrictions. While this improves the value of assets that the
Enterprises own, dramatic price growth challenges affordability, especially for first time homebuyers, who are not able to afford home
ownership. I believe that it is possible for the Enterprises to do
more to assist potential homebuyers in underserved populations in
a sustainable, safe way and, if confirmed as Director, I intend to
focus the housing GSEs on their mission.
During the pandemic, one of the Agency’s priorities was to ensure that homeowners and renters would not be forced out of their
homes. As Acting Director of FHFA I announced changes last year
to help protect homeowners and renters living with the ongoing uncertainty of the COVID–19 pandemic. This included expanding the
use of interest rate reductions and term extensions for loan modifications for homeowners with a COVID–19-related hardship and
extending the availability of COVID–19 forbearance for multifamily
properties backed by an Enterprise. Renters in these properties are
protected from eviction while the loan is in forbearance. FHFA will
continue to monitor this evolving situation and adjust policies
when warranted to help families remain in their homes.
Q.2. Last year Arizona’s housing market saw drastic increases in
prices for both buyers and renters, with demand for housing in the
Phoenix metropolitan area in particular far higher than the available supply of housing. If confirmed, how will you utilize your role
as FHFA director to promote the stability of housing prices and the
availability of housing in Arizona?
A.2. Although there are several issues related to the supply of
housing that fall outside of FHFA’s jurisdiction, I agree that it is
a critical issue that needs to be addressed. One particular action
we have recently taken to facilitate increased supply of affordable
rental housing is increasing the Enterprises’ Low-Income Housing

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Tax Credit (LIHTC) investment caps to $850 million per Enterprise
annually. The Enterprises are also working on revising their Duty
to Serve underserved markets plans which are expected later this
year. FHFA will continue to focus on and look at ways we can encourage Fannie Mae, Freddie Mac, and the Federal Home Loan
Banks to support efforts to address our Nation’s lack of affordable
housing.
Q.3. Critical risk transfers (CRTs) are a tool that can be used for
reducing economic risk for taxpayers as a result of lending in the
housing market. CRT programs allow Government-sponsored enterprises to manage and reduce risk, particularly during times of severe economic stress. What benefits and challenges do you see from
the use of CRT for risk management? What do you see the FHFA’s
role being in restoring the economics around CRTs moving forward?
A.3. Fannie Mae and Freddie Mac are the largest holders of mortgage credit risk in the country. CRT transactions transfer a meaningful amount of credit risk to a broad set of global investors,
which helps to protect the Enterprises and taxpayers from losses
in severely stressful economic scenarios. CRT is an important tool,
especially while the Enterprises are in conservatorships and are
building up their capital, to mitigate systemic risk to the housing
finance market due to the Enterprises’ size and monoline business
model. FHFA’s recent proposed changes to the capital rule will help
facilitate the credit risk transfer program and move mortgage credit risk into the hands of private investors and away from the Enterprises and taxpayers.
Q.4. The 2020 GSE capital rule finalized by the previous FHFA director disincentivized GSE issuance of CRTs. This rule has since
been modified. If confirmed, what additional changes to this rule
will you consider, if any?
A.4. I am committed to ensuring the safety and soundness of the
Enterprises, and the CRT program is an important tool for the Enterprises to manage their credit risk and protect taxpayers. In September 2021, FHFA proposed changes to the capital rule by refining the leverage buffer and the risk-based capital treatment of CRT
transactions. These amendments are intended to provide the Enterprises incentives to distribute credit risk to private investors
through CRT and away from taxpayers.
FHFA also introduced proposed amendments to ERCF’s required
public disclosures and for capital planning. These rules help protect
taxpayers by ensuring that the Enterprises properly assess their
risks and maintain the appropriate level of capital.
If confirmed, similar to other prudential regulators, I intend to
periodically review the final capital rule and adjust various elements as necessary to ensure the safety and soundness of the Enterprises.
Q.5. Home ownership is one of the primary ways in which individuals can build wealth and create greater futures for themselves
and their children. Many hardworking Arizona families cannot afford to pay the 20 percent downpayment required for a mortgage.

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What role do you envision mortgage insurance will play in reducing
costs for homebuyers?
A.5. As the largest asset most people ever own, home ownership is
part of the American dream and is key to building wealth and giving families opportunities to better their lives. Even though they
have the ability to repay a mortgage, a significant downpayment
can be out of reach for some borrowers. For loans with less than
a 20 percent downpayment, borrowers can obtain mortgage insurance through their lenders to meet the Enterprises’ requirements.
The Enterprises’ Charter Acts require credit enhancement for loans
with loan-to-value (LTV) ratios greater than 80 percent.
The Enterprises also have affordable programs (Fannie Mae’s
Home Ready and Freddie Mac’s Home Possible) designed to make
home ownership more affordable for lower income borrowers
through lower mortgage insurance requirements and limitations on
delivery fees.
As FHFA Acting Director, and if confirmed as Director, my focus
will be on ensuring access to affordable mortgage credit in a responsible, sustainable way.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
FROM SANDRA THOMPSON

Q.1. Please clarify how the Federal Housing Finance Agency and
Property Appraisal and Valuation Equity interagency task force intend to address racial bias within property appraisal.
A.1. FHFA is an active member of the Property Appraisal and
Valuation Equity (PAVE) task force, cochaired by the Department
of Housing and Urban Development’s Secretary Fudge and Ambassador Rice. The PAVE task force seeks to root out discrimination
in the appraisal and homebuying process and includes subcommittees for data, education, enforcement, and policy. To date, FHFA
has executed data sharing agreements and provided historical appraisal data to our interagency partners in support of interagency
efforts to research and examine the issue of property valuation bias
and support enforcement and compliance with fair lending laws.
Q.2. If confirmed, what steps will you take to address racial bias
within property valuation?
A.2. FHFA is committed to addressing racial bias in property valuation. As an initial step, FHFA recently provided additional public
transparency into appraisals by publishing an Insights Blog post,
‘‘Reducing Valuation Bias by Addressing Appraiser and Property
Valuation Commentary’’, highlighting appraiser commentary that
raises fair lending risks. Also as part of this effort, Fannie Mae updated its appraisal policies addressing ‘‘problematic’’ phrases and
code words that could indicate underlying bias and recently published two research papers on appraisal bias topics. Freddie Mac
published preliminary research suggesting that 12.5 percent of
homes appraised in Black communities were valued less than the
contract price.
In addition, as part of the ongoing appraisal modernization
project, FHFA is committed to mitigating bias through exploring
valuation alternatives and updating the Uniform Appraisal Dataset

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(UAD). FHFA also continues to engage interagency partners as
part of the PAVE Taskforce and examine and address the root
causes of racial bias in property valuation.
Q.3. Do you support efforts to utilize technology to further innovate
the mortgage experience in order to provide greater credit access
to consumers?
A.3. Responsible use of technology presents a number of opportunities for providing greater credit access to consumers by helping to
overcome obstacles that may affect underserved populations. As an
example, desktop appraisals leverage information already available
to appraisers so they can complete property valuations quickly,
leading to shorter closing times and other efficiency gains. Desktop
appraisals can also help borrowers in rural communities more
readily obtain appraisals by reducing the time it would take for the
appraiser to travel distances to evaluate a property. After permitting and carefully monitoring the use of desktop appraisals as a
temporary COVID–19 flexibility, FHFA recently announced that
the Enterprises will be adopting policies permitting desktop appraisals in their Selling Guides. FHFA will continue to work with
the Enterprises to explore other ways that careful, measured use
of innovative technology can provide greater credit access or improved risk management.
Q.4. What’s your view on the role of AI and machine learnings in
mortgage access, and how should Federal Housing Finance Agency
approach these emerging technologies in its work?
A.4. The use of artificial intelligence (AI) and machine learning
(ML) among financial institutions is fairly new. The technology offers the potential to lower costs, expand access, and reduce the
amount of time to originate and securitize mortgages. AI/ML tools
and systems can be used to support a range of functions including
customer engagement, risk analysis, credit decision making, fraud
detection and information security. However, the use of AI/ML can
expose consumers and financial institutions to heightened risks as
well, so proper control and oversight of the technology is important.
In response to the growing role of AI/ML over the past several
years, FHFA will issue an Advisory Bulletin which provides risk
management guidance to Fannie Mae, Freddie Mac, and the Common Securitization Platform. As FHFA evaluates the benefits and
risks associated with the evolving role of technology within the
mortgage industry, we identified the need for as set of AI/ML core
ethical principles such as transparency and security to manage decision making and prevent algorithmic bias. These core principals
are essential for the Enterprises to ensure consistency across different business activities and functions that interact with AI/ML to
avoid potential adverse outcomes.
Should I be confirmed, I intend to increase FHFA’s capability to
evaluate the use of AI/ML at all of its regulated entities to ensure
responsible innovation, adoption, and use of AI/ML. FHFA will also
continue to engage with other regulators and governmental entities
to enhance understanding of AI/ML and ensure that guidance and
supervisory expectations regarding AI/ML are clear and consistent.

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Q.5. If confirmed, what role will Federal Housing Finance Agency
play as a regulator to ensure that any innovation related policy
changes with regards to Government Sponsored Enterprises is equitable?
A.5. I recognize that there is still much work to be done to make
the housing finance system fairer for everyone—including Black
and brown communities, rural areas, and persons living with disabilities. In September of 2021, I instructed the Enterprises to develop an annual Equitable Housing Finance Plan to identify and
address barriers to sustainable housing opportunities. The Enterprises, consistent with safety and soundness, can responsibly undertake sustainable and meaningful actions to advance equity in
the housing markets, while ensuring safety and soundness of the
secondary housing market. These plans will include enhancements
to the Enterprises current programs and products, consumer education initiatives for both renters and homeowners, and plans to leverage technology to improve sustainable underwriting. In addition, FHFA also will require the Enterprises to submit annual
progress reports on the actions undertaken during the prior year
to implement their plans. These plans will be published in the near
future, and FHFA will continue to engage with stakeholders to
identify areas of opportunity for the Enterprises to improve performance of its statutory mission.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
FROM SANDRA THOMPSON

Q.1. Home ownership continues to become more and more
unaffordable for the middle class, a trend worsened by the
coronavirus pandemic. The Direct MI pilot programs, IMAGIN and
EPMI, which significantly lower the cost of Mortgage Insurance for
borrowers and decrease counterparty risk at the GSEs, have temporarily been put on hold.
How can these Direct MI programs be more fully utilized going
forward to lower mortgage insurance costs for consumers, increase
counterparty diversification for the Enterprises and reduce MI pricing disparity between large and small lenders?
A.1. The Integrated Mortgage Insurance (IMAGIN) pilot program
was previously conducted by Freddie Mac to test an alternative
form of mortgage insurance. Fannie Mae conducted a similar pilot
know as Enterprise Paid Mortgage Insurance (EPMI). The pilots
were designed to provide charter-required credit enhancement
through reinsurers. Key elements addressed counterparty risk, diversification, collateralization for exposure, certainty of coverage
and lower costs to consumers. As you may be aware, the pilot programs were allowed to expire in 2021. FHFA will look at all of the
costs associated with purchasing a home and make responsible
changes where appropriate.
Q.2. Many first-time homebuyers, low-to-moderate income borrowers, and minority borrowers use mortgage insurance, either Private MI or Government MI via FHA, to obtain a mortgage if they
don’t have the required 20 percent downpayment as many don’t
today. These borrowers are usually affected by Loan Level Price

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Adjustments, or additional fees added by the GSEs that mortgage
insurers already priced into the loan, increasing the cost to the borrower.
Following your recent announcement on raising prices for higher
cost and second homes, is the FHFA planning on also reducing the
Loan Level Price Adjustment (LLPA) fees at the GSEs that affect
some borrowers, primarily First-Time Homebuyers, by placing redundant fees on these loans?
A.2. I want to ensure that all Americans who have the ability to
repay and qualify are able to get an affordable loan, which is a particular challenge for first-time homebuyers and low-income borrowers. While FHFA recently adjusted loan level pricing adjustments (LLPAs) for higher cost mortgages and second homes, we
also explicitly exempted from those changes both Enterprises’ affordable programs, Home Ready and Home Possible, as well as
first-time homebuyers with incomes at or below 100 percent of area
median income. In fact, with this change, these first-time homebuyers will have lower LLPAs than before.
This year, FHFA is also undertaking a holistic review of guarantee-fee pricing and all of its components, but no decisions have
been made on any specific adjustments. However, going forward I
would be happy to keep you and your office updated on our work
in this area.
Q.3. As you know, the ‘‘Economic Growth, Regulatory Relief, and
Consumer Protection Act’’ (S.2155) that Congress passed and was
signed into law in May of 2018 included language (Section 310) I
authored and introduced with bipartisan cosponsors as the ‘‘Credit
Score Competition Act’’ (S.1685). The provision required FHFA to
establish standards and criteria for the validation and approval of
credit scores that could be used by mortgage lenders intending to
sell their mortgages to Fannie Mae or Freddie Mac. It’s my understanding that FHFA and the GSEs have made significant progress
in implementing the requirements of Section 310.
Can you provide an update on how the implementation process
is proceeding and when you anticipate there may, in fact, be true
credit score competition in the mortgage lending space?
A.3. I appreciate your efforts to ensure that the Enterprises are
using up to date and accurate credit score models. Following the
enactment of your legislation, FHFA published a rule on Validation
and Approval of Credit Score Models, outlining the process as laid
out in the law. The Enterprises have been proceeding through
these steps, and currently the process is in its latter stages where
the Enterprises conduct business assessments of the applicants’
credit score models.
Although I cannot opine on future competition in the credit score
space, the Enterprise Business Assessment phase does require,
among other components, an assessment of possible competitive effects from using a particular credit score model. The Enterprises’
will submit their analysis for approval in the first quarter of 2022,
and I expect FHFA to make a decision on updating the credit score
by the end of the second quarter.

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Q.4. The Federal Home Loan Bank system has provided liquidity
and stability for the residential mortgage markets and for community development for nearly 90 years.
As the provision of financial services and particularly mortgage
finance continues to evolve, do you anticipate the FHFA under your
leadership will review access to the Federal Home Loan Bank System to meet this changing landscape?
Will you provide to the Members of this Committee recommendations for modernizing the membership of the Federal Home Loan
Bank System?
A.4. The FHLBanks have an important role serving as a reliable
source of liquidity for housing finance, community lending, and
asset-liability management for their members in all market conditions. Because the FHLBank System provides advances when needed, the FHLBanks played critical roles in the last two economic crises, making advances to their members. Despite the decrease in advances since the end of March 2020, the FHLBank System is currently in a strong financial position and overall safe and sound condition.
Congress established the eligibility for certain types of financial
institutions to become members of FHLBanks in section 4(a) of the
FHLBank Act. In recent years, Congress expanded FHLBank membership eligibility to include nondepository CDFIs in 2008 and nonfederally insured credit unions in 2015. FHFA also addressed membership eligibility issues related to insurance companies in a rulemaking in 2016, and the Agency continues to clarify expectations
on potential member applications with the FHLBanks. We are reviewing the membership regulation to determine if further clarification is needed.
FHFA stands ready to provide technical advice on any changes
that Congress may wish to propose for changes to FHLBank membership. In my view, members of the FHLBanks should have a
clear nexus to housing finance, contribute to the safety and soundness of the FHLBank System, support affordable housing and community investment needs of the FHLBank districts, have strong
regulatory and supervisory oversight, and have reliable resolution
regimes should they encounter difficulties.
Q.5. Manufactured homes are the only form of unsubsidized affordable home ownership and can have a significant role in our affordable housing crisis. Yet, the Duty to Serve plans that were proposed by the GSEs in May for 2022 to 2024 actually reduce the
number of manufactured home loans the GSEs intend to purchase.
This is in complete opposition to purpose of the GSEs to facilitate
access to affordable home ownership and the needs of the country.
As Director, what are your plans for the GSEs’ activities with respect to manufactured housing?
I understand that FHFA is a member of a new White House
Task Force on expanding access to manufactured housing financing. What do you envision as the desired outcomes for this task
force? What do you see as FHFA’s role with this group and how
will you engage to ensure the task force is successful in expanding
financing for manufactured homes as a significant resource of affordable housing?

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A.5. Duty to Serve has had a measurable impact on the manufactured housing market. Since its inception, the Enterprises have increased manufactured housing financed as real property and established consumer protections in financed communities that protect
renters and owners of manufactured housing units from surprise
increases in costs. Manufactured housing can represent an affordable housing option for some families and is one of the markets required in the Enterprises’ Duty to Serve plans. Since Duty to Serve
took effect in 2018, the Enterprises have purchased more than
82,000 eligible real property manufactured housing loans for a total
of more than $11 billion in unpaid principal balance. FHFA has
also worked with stakeholders and industry to develop tenant protections for manufactured homeowners and renters in Enterprisefinanced manufactured housing communities. These protections are
now required on all mortgage loans for these communities.
I recently asked the Enterprises to revise their Duty to Serve
plans for 2022–2024 to do more in these areas in a sustainable
way. The plans should explain how the Enterprises are going to
serve rural areas, focus on affordable housing preservation for renters and homeowners, and expand liquidity for the manufactured
housing market all while maintaining strong safety and soundness
and underwriting criteria.
FHFA is participating on the White House Manufactured Housing Task Force along with nine other Federal agencies. We look forward to working across Government to support and enhance the
availability of safe, affordable, and energy-efficient manufactured
housing as an affordable housing option, and specifically, the availability and affordability of financing products and programs for this
housing sector.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
FROM SANDRA THOMPSON

Q.1. I understand that former Director Mark Calabria—and you as
then a key Deputy—worked on and had come very close to finalizing a new rule governing the Products and Activities of the
GSEs—Fannie and Freddie. Whether in conservatorship or down
the road as entities exiting conservatorship, having strong governance over what products and activities the GSEs advance is very
important for all participants in the vibrant housing economy. The
GSEs have very specific congressional charters and a strong Products and Activities rule ensures that the entities do not exceed
those permissible activities provided by the private markets.
Can you assure me and this Committee that this rule will be a
near term priority for FHFA?
A.1. Establishing and implementing a process to ensure that any
new product or activity of the Enterprises is analyzed and reviewed
by FHFA is an important step to complete before the Enterprises
can be released from conservatorship and presents numerous challenges and regulatory considerations. FHFA is diligently reviewing
comments on the proposed rule and working through the complexity of the issues raised during the public comment period. As
Acting Director and, if confirmed, as Director, I can assure you
FHFA will continue its work on this issue.

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Q.2. Freddie Mac recently issued directives on manufactured housing projects which are in direct conflict with current law in several
States. In some instances, uniform adoption of these standards
would result in manufactured housing residents receiving weaker
protections than they would under State law. This proposal by
Freddie Mac was issued without warning, without a formal notice
and comment period, and appears to reflect the priorities of activist
housing organizations and progressive policymakers. Will you commit to ensuring that:
(1) No additional steps are taken by either GSE without a formal
process to receive stakeholder feedback
(2) Any final proposal by either GSE is consistent with existing
State law
(3) Any approach in this space is motivated by what is best for
the long-term health of the manufactured housing market and the
U.S. taxpayers that support this activity, rather than any politically motivated organization?
A.2. Manufactured housing is an important source of affordable
housing, especially in rural communities, and is a statutorily required focus of the Enterprises’ Duty to Serve. Owners and renters
of manufactured housing who rent a pad in a community may face
significant costs and difficulties in relocating their units if a manufactured housing community owner unexpectedly raises pad rents
or cancels leases. Our analysis indicated that State laws providing
tenant protections were not consistent across the country. In 2016,
FHFA and the Enterprises developed a set of tenant protections for
manufactured housing communities which FHFA included as part
of the final rule implementing Duty to Serve. The Duty to Serve
rule received significant public comment when it was proposed.
FHFA also posts the Enterprises’ draft Duty to Serve plans for
public feedback and holds listening sessions on the Enterprises’
plans. In 2021, FHFA held a public listening session specifically on
manufactured housing, where we encouraged interested parties to
provide feedback.
The Agency included tenant pad lease protections in manufactured housing communities in the Duty to Serve regulation to encourage those communities to adopt tenant pad lease protections or
to enhance existing pad lease protections. We believe that these
protections help provide stability and encourage strong manufactured housing markets. It is important to note that these tenant
protections are a minimum for Enterprise manufactured housing
loans and do not preempt any State law that provides additional
protections or higher standards.
Q.3. During your confirmation hearing, in response to Sen. Reed,
you said that FHFA is ‘‘very insistent that [manufactured housing
communities] have protections and Fannie and Freddie will not
purchase loans unless there are protections for the communities,
the owners and the renters.’’ This comment seems to be inconsistent with FHFA’s final rule on Duty to Serve, which encourages
(rather than mandates) manufactured housing communities to
adopt or enhance existing tenant pad lease protections and goes
against the long-standing practice of the GSEs to encourage adop-

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tion through pricing incentives. Can you clarify FHFA’s position on
this issue?
A.3. FHFA’s final Duty to Serve regulation encourages (rather than
mandates) the adoption of the tenant pad lease protections. In
2021, Fannie Mae and Freddie Mac each made the decision to only
purchase manufactured housing community loans with tenant pad
lease protections. FHFA agrees with and encourages this approach
through Duty to Serve credit and through the treatment of manufactured housing community loans with tenant pad lease protections as mission-driven under the Conservatorship Scorecard multifamily volume cap (Appendix A).
Q.4. In October 2020 your predecessor released for comment a proposed rule on ‘‘Prior Approval for Enterprise Products’’ that would
update the process for FHFA to review new activities at the GSEs.
This is a critical element of GSE oversight to ensure that they comply with their congressional charters and do not expand into areas
of the housing finance system served by private market participants. Given the comment period for this proposed rule closed more
than a year ago, do you have any update on the timing for FHFA
to issue a final rule?
A.4. Establishing and implementing a process to ensure that any
new product or activity of the Enterprises is analyzed and reviewed
by FHFA is an important step to complete before the Enterprises
can be released from conservatorship and presents numerous challenges and regulatory considerations. FHFA is diligently reviewing
comments on the proposed rule and working through the complexity of the issues raised during the public comment period. As
Acting Director and, if confirmed, as Director, I can assure you
FHFA will continue its work on this issue.
Q.5. Acting Director Thompson, I understand that former Director
Mark Calabria—and you as then a key Deputy—worked on and
had come very close to finalizing a new rule governing the Products
and Activities of the GSEs—Fannie and Freddie. Whether in conservatorship or down the road as entities exiting conservatorship,
having strong governance over what products and activities the
GSEs advance is very important for all participants in the vibrant
housing economy. The GSEs have very specific congressional charters and a strong Products and Activities rule ensures that the entities do not exceed those permissible activities provided by the private markets. Can you assure me and this Committee that this
rule will be a near term priority for FHFA?
A.5. Establishing and implementing a process to ensure that any
new product or activity of the Enterprises is analyzed and reviewed
by FHFA is an important step to complete before the Enterprises
can be released from conservatorship and presents numerous challenges and regulatory considerations. FHFA is diligently reviewing
comments on the proposed rule and working through the complexity of the issues raised during the public comment period. As
Acting Director and, if confirmed, as Director, I can assure you
FHFA will continue its work on this issue.

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RESPONSES TO WRITTEN QUESTIONS OF SENATOR HAGERTY
FROM SANDRA THOMPSON

Q.1. In a Bloomberg Opinion piece from 2020, former Freddie Mac
CEO, Don Layton details a specific action the FHFA can take to
reduced home ownership costs for first-time homebuyers. Mr.
Layton cites reducing the ‘‘unnecessarily high cost of mortgage insurance’’ as a way that can tangibly help this segment of the marketplace. He describes the significant built-in administrative costs
in the current marketplace and how better utilizing a Direct MI
program can tangibly reduce overall costs to the homebuyer. Mr.
Layton also illustrates how diversifying the Enterprises
counterparty base to further spread this risk will reduce risks to
both Enterprises and the American taxpayers. Do you agree with
Mr. Layton when he states, ‘‘The FHFA should immediately take
a clear proconsumer and procompetition stance by approving the
pilot for full implementation, making inexpensive and more reliable
mortgage insurance available to all borrowers who need it’’?
A.1. The article referenced alludes to the Integrated Mortgage Insurance (IMAGIN) pilot program that was previously conducted by
Freddie Mac to test an alternative form of mortgage insurance.
Fannie Mae conducted a similar pilot know as Enterprise Paid
Mortgage Insurance (EPMI). The pilots were designed to provide
charter-required credit enhancement through reinsurers. Key elements addressed counterparty risk, diversification, collateralization
for exposure, certainty of coverage and lower costs to consumers.
As you may be aware, the pilot programs were allowed to expire
in 2021. FHFA will look at all of the costs associated with purchasing a home and make responsible changes where appropriate.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR DAINES
FROM SANDRA THOMPSON

Q.1. You have stated that you will be transparent. Aside from mandated reports to Congress, what actions will you take?
A.1. If confirmed as Director, I will ensure that FHFA conducts
regular outreach to stakeholders, industry, and Congress, including
your office, and the offices of our authorizing Committee members
in both the Senate and the House of Representatives. I have also
publicly committed to stakeholders and the industry that I will give
them notice before the Agency implements any decisions that involve significant changes.
FHFA will continue to provide regular updates to Congress on
the Agency’s rulemaking and other regulatory actions. I also commit that FHFA will make its subject matter experts available for
briefings and consultations, and when appropriate, will assist in facilitating consultations with Fannie Mae, Freddie Mac, and the
Federal Home Loan Banks.
Q.2. Why is transparency important, and what methods are most
effective at maintaining it?
A.2. Transparency is a critical component of good governance. In
over three decades of public service in financial services regulation,
I’ve found that the most effective way of maintaining transparency
and accountability is by adhering to strict legal and ethical stand-

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ards. I believe that doing so is also the best way to serve the
public’s interest.
I intend to continue FHFA’s practice of soliciting public feedback
on important decisions. In addition to following the Administrative
Procedures Act providing for a public comment period for rulemaking, FHFA publishes Requests for Input that solicit public comment on potential policy decisions and initiatives, hosts listening
sessions, and publishes detailed reports and descriptions of FHFA
activities on the Agency’s website.
Q.3. Will you commit to striving to consistently allow notice and
comment periods that are substantially longer than 30 days?
A.3. Yes.
Q.4. What are the FHFA’s weaknesses and how do you intend to
address them? Please share nuanced objectives versus overarching
goals.
A.4. FHFA faces a unique set of economic and environmental factors that could influence the Agency’s success in achieving its mission. Before the pandemic took hold in 2020, the United States was
already facing a shortage of affordable housing driven by the longterm decline in the construction of single-family homes. The share
of newly built smaller homes, which are often more affordable for
new or first-time homeowners, has been declining since the early
1980s and is now nearing a 50-year low. While house prices have
been rising for the last decade, the number of existing single-family
homes for sale has declined more than 30 percent.
The lack of affordable housing has become an even greater challenge since the COVID–19 pandemic began when demand for housing soared. In 2020, the monthly supply of new residential homes
sunk to historically low levels. Over the last year, mortgage interest rates and housing inventory have both remained low even as
rapid house price growth continued. This diminishing housing affordability is an additional barrier that can affect equitable access
to affordable home ownership and rental housing, especially for
first-time and first-generation borrowers.
Another challenge will be to ensure that external events do not
negatively affect staff productivity and morale. FHFA staff have
been exceptionally resilient over the past 2 years while addressing
the economic impacts of the pandemic, leveraging lessons learned
from prior crises to ensure that families, both homeowners and
renters, were able to safely remain in their homes. As the country
emerges from the pandemic, the Agency will continue to prioritize
the safety of its workforce and infrastructure.
In order to overcome any challenge, I believe it is critically important to listen to FHFA’s stakeholders: Congress, other regulatory institutions, stakeholder organizations, and market participants. In doing so, FHFA will be able to develop a range of options
to determine the most effective policy solutions.
Q.5. Based on your 6 months experience as Acting Director please
share your insights of employee morale at FHFA?
A.5. During my tenure as Acting FHFA Director, I have been inspired by the dedication, selflessness, and resilience seen from
FHFA employees. As we continue to navigate the uncertainty of

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the pandemic, I believe our employees’ commitment to the mission
is and has been unwavering. Employee morale, job satisfaction, and
overall engagement are a significant focus for my leadership team
and creating a culture of organizational effectiveness and work life
balance is a top priority for me. During my tenure as Deputy Director for FHFA’s Division of Housing Mission and Goals, I used results from the annual Federal Employee Viewpoint Survey (FEVS)
to identify areas of focus for employee morale. I will continue to use
the annual FEVS report as a resource for measuring employee morale and developing relevant action plans.
Q.6. How do rural and frontier communities factor into your vision
for FHFA?
A.6. In my view, it is critically important that the housing GSEs
support home ownership in rural areas. Often in rural areas the
only lenders making loans are small community-based lenders, and
we must ensure that those lenders have access to the secondary
market on a level playing field with larger lenders. Rural areas
have other unique challenges, like finding comparable appraisals
and the complexity of lending on tribal reservations, and the GSEs
must provide programs that help to address these challenges.
One of the reasons that I have focused Fannie Mae and Freddie
Mac on their statutory Duty to Serve underserved markets is the
rural component required by Congress. Since the implementation of
Duty to Serve, the Enterprises have more than doubled the number
of rural single-family loans purchased, expanded outreach to rural
partners, expanded multifamily liquidity in rural areas, and
worked closely with the Department of Agriculture (USDA) to allow
purchases of Sec. 515 rural housing mortgages.
Despite these accomplishments, I believe that the Enterprises
can do more, in a safe and sound manner, to support rural housing.
Accordingly, I have asked them to improve their Duty to Serve
plans for 2022. In November 2021, to provide rural areas with access to additional financing, FHFA raised the Low-Income Housing
Tax Credit (LIHTC) investment limit for the Enterprises to $850
million annually and required that half of that be for underserved
areas like rural and tribal areas.
The Federal Home Loan Banks (FHLBanks) also have a responsibility to support home ownership in rural areas. Nationwide, they
are a source of residential loan liquidity for depository institutions
and community-based lending organizations. In addition to the
FHLBanks’ core financing programs, their Affordable Housing Programs provide funding for property rehabilitation projects and
home ownership in rural areas. However, I believe the FHLBanks
can increase their support for rural areas in each State and take
additional steps to assess housing issues in tribal areas in every
district.
Q.7. Please expound on your objectives for credit risk transfer. It
is critical that taxpayers are not on the hook in the case of a severe
market event.
A.7. The Enterprises are currently the largest holder of mortgage
credit risk in the United States. Credit risk transfer (CRT) transactions are a way to transfer a meaningful amount of mortgage
credit risk to private investors in severely stressful economic sce-

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narios, which helps to protect taxpayers from potentially large
credit-related losses.
I view the transfer of unexpected credit risk to a broad set of
global investors as an important tool to reduce taxpayer exposure
to the risks posed by the Enterprises and to mitigate systemic risk
to the housing finance market caused by the size and monoline nature of the Enterprises’ businesses. CRT is an effective mechanism
for such a distribution of unexpected credit risk especially while
the Enterprises are in conservatorships and have inadequate capital positions relative to their overall books of business.
I am committed to strengthening the safety and soundness of the
regulated entities and believe that the modest changes we have
proposed to the Enterprises’ capital rule will help facilitate the
CRT program and move credit risk away from the Enterprises and
the taxpayers and into the hands of private investors.
Q.8. In December, a U.S. District Court ruled that trusts are ‘‘covered persons’’ under the Consumer Financial Protection Act. As you
know, trillions of dollars worth of consumer debt is held in trust,
a structure which is integral to our securitization markets, including the GSE mortgage-backed securities market.
What is the impact of this court decision?
Specifically, how will this decision impact the ability of the GSEs
to issue MBS going forward? Please provide FHFA’s expectations
regarding any increased costs to the GSEs securitization process
and whether those costs will ultimately be borne by U.S. homeowners.
A.8. The case mentioned in the question, CFPB v. National Collegiate Master Student Loan Trust, has received a great deal of attention from participants in the securitization business, and is currently being appealed by the defendants. FHFA is actively monitoring the case. We do not expect it to have a significant effect on
Enterprise securitizations or on investors in Enterprise mortgagebacked securities due to the distribution of compliance responsibilities among the various participants in Enterprise securitizations,
the robustness of Enterprise servicing guides and contracts, and
Enterprise monitoring of servicers.
Q.9. Due to the current trade situation between China and the
United States, the current tariffs are contributing to an increase of
the cost of U.S. building materials, which is further exasperating
the supply shortage in the housing market.
What can be done to lessen the negative impact of the increasing
costs of U.S. building materials, specifically in regards to the trade
war with China?
A.9. FHFA’s legal authorities are limited to the regulation and supervision of the secondary mortgage market and its role as conservator of Fannie Mae and Freddie Mac. The Agency’s authorities
and activities are not related in any way to international trade policy or any tariffs imposed by the U.S. Government.
Q.10. Do you have any plans to change the current FHFA plans
for monitoring enterprises exiting Federal conservatorship?

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What are your general thoughts on ending Federal
conservatorships over GSEs? What indicators (economic or otherwise) should we be monitoring?
A.10. FHFA closely supervises the Enterprises and is focused on
ensuring that the Enterprises build capital and improve their safety and soundness while in conservatorship. Adequate capital is a
necessary precondition for the Enterprises to exit from conservatorship; however, this is not a calendar-driven event. FHFA has taken
additional steps beyond building capital to ensure that upon their
exit from conservatorship, we will not have a repeat of the issues
that lead to the financial crisis. These steps include facilitating
CRT transactions and improving the Enterprises’ transparency.
There is still much more work to be done to transfer risk, strengthen underwriting, and review pricing and credit policies.
In order to end the conservatorships, it is essential that Congress
determines both the role of the Enterprises and the secondary
mortgage market’s future structure. In addition, the Department of
Treasury, which possesses a significant economic interest in the
Enterprises, and other Federal agencies will need to resolve a series of outstanding issues as part of the process to end the
conservatorships.
Q.11. Last year, former FHFA Director Calabria warned that
‘‘when housing markets experience a significant downturn, Fannie
Mae and Freddie Mac will fail at their current capital levels’’.
If we experience a significant housing market downturn, would
Fannie Mae and Freddie Mac have the ability to meet current obligations given their current capital levels?
How might Fannie and Freddie increase capital if they were to
be removed from conservatorship?
A.11. Under FHFA’s capital rule, the Enterprises would need approximately $300 billion of capital to meet their obligations in the
case of a significant housing market downturn and to continue to
support the housing market through the downturn. The Enterprises currently have a net worth of approximately $68 billion. In
conservatorship the Enterprises can only build capital through retaining earnings, and I expect them to continue to build their capital levels and utilize CRT to ensure that taxpayers are not at risk.
Outside of conservatorship, the Enterprises would be able to build
capital through both retaining earnings and raising capital from
the capital markets.
Q.12. Currently, the United States and Canada are in a trade dispute regarding softwood lumber, a common building material for
homes. The U.S. Department of Commerce nearly doubled its duties on imported Canadian softwood lumber to 17.9 percent in November.
What is your opinion on this current trade disagreement?
A.12. FHFA’s legal authorities are limited to the regulation and supervision of the secondary mortgage market and its role as conservator of Fannie Mae and Freddie Mac. The Agency’s authorities
and activities are not related in any way to international trade policy or any tariffs imposed by the U.S. Government.

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Q.13. One of the GSEs main functions is to support small lenders’
access to capital markets they otherwise could not. On the singlefamily side, FHFA has made progress creating a level playing field.
On the multifamily side, you’ve indicated there remains work to be
done. The GSEs recently put out guidelines for small multifamily
lenders but it appears that they don’t provide clarity and objective
standards for these lenders. Independent and smaller multifamily
lenders are still being shut out from serving their American communities.
As you noted in April of last year:
FHFA has nothing against the big players, but their size means
that they don’t have to worry about accessing the capital markets.
Small lenders, on the other hand, may be able to leverage local
knowledge to best serve their communities. . . . FHFA’s current
Duty to Serve regulation includes recognition of the role small
lenders can play in serving underserved markets. But that very locality can also make it harder for them to access capital markets.
Can you give us an update on your efforts, and how you will define success in the multifamily lending side of the GSEs?
A.13. FHFA highlighted the importance of access for small multifamily lenders by including it on the Enterprises’ 2022 Conservatorship Scorecard. As a financial regulator for more than 30
years, I have long been aware that smaller lenders have local
knowledge and relationships and may more effectively serve underserved markets. The Enterprises will work with FHFA throughout
2022 to assess opportunities to increase access to Enterprise multifamily products for small and regional lenders. FHFA’s primary
goal is to make certain the Enterprises have qualified multifamily
counterparties that can serve all markets in need.
In early 2021, FHFA worked with the Enterprises to publish
lender eligibility requirements on their public websites. Publishing
more information on the Enterprises’ lender eligibility requirements is an important first step to provide transparency and allow
prospective lenders to easily understand the criteria to become an
Enterprise seller/servicer. I recognize that more work is needed to
ensure access for qualified lenders.
Q.14. The FHFA annual performance and accountability report for
2021 reflected new priorities for the upcoming year, including
strengthening the safety and soundness of Fannie Mae, Freddie
Mac, and the Federal Home Loan Banks to protect the housing finance system.
Can you offer any details of how the FHFA plans to meet that
new priority?
What role as Director will you play in maintaining that priority?
A.14. As Acting Director and, if confirmed, Director of FHFA, I will
continue to use the authorities of the Director to maintain strong
oversight of the Enterprises as both regulator and conservator.
FHFA will continue to look at ways to strengthen the safety and
soundness of its regulated entities, including by finalizing proposed
enhancements to the Enterprises’ regulatory framework and transferring a significant amount of credit risk from the Enterprises to
private investors. In November 2021, FHFA published the 2022
Conservatorship Scorecard for the Enterprises, which establishes

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milestones on which Enterprise leadership is assessed. I also intend to release a new FHFA Strategic Plan this year which will
further detail some of these objectives.
Q.15. According to the FHFA annual performance and accountability report for 2021, assessment teams from FHFA documented
the actions that demonstrated compliance with significant laws and
regulations. The assessment determined there were no material
weaknesses that adversely affect the compliance with laws and regulations.
Can you provide details of what that assessment entails, and
how it ensures unbiased third party compliance verifiability?
A.15. FHFA conducts its assessment of internal controls over the
effectiveness and efficiency of its operations, reporting (other than
financial reporting), and compliance with applicable laws and regulations in accordance with the Office of Management and Budget’s
(OMB) Circular A–123. FHFA’s assessments for compliance with
laws and regulations are reviewed by FHFA’s Office of General
Counsel, and the Government and Accountability Office conducts
an audit of FHFA’s financial statements including compliance with
laws and regulations material to FHFA’s financial statements.
Q.16. You mentioned that 104 counties were affected by the increased rate of second-home mortgages disproportionately when
compared to counties with an increased median income. What similarities do these counties have? Are any of these counties in MT?
A.16. I would like to clarify that FHFA determined for 2022 that
121 counties in the United States are in high cost areas and have
conforming loan limits higher than the $647,200 national baseline.
None of the 56 counties in Montana are above the new national
baseline. In fact, the new baseline limit is higher than the highest
median county home value in Bozeman which reached $525,500 in
2021. Because of the rapid increase in house prices last year, the
conforming loan limit significantly increased between 2021 and
2022 across the board. For the highest cost areas in the country,
the maximum conforming loan limit is $970,800.
The formula for calculating the loan limit is defined in the Housing and Economic Recovery Act, and FHFA does not have flexibility
in setting it. FHFA has announced an adjustment in guarantee
fees for ‘‘high balance’’ loans that are larger than the $647,200 conforming loan limit, up to $970,800, and for second home mortgages
purchased by the Enterprises. We exempted from these adjustments the Enterprise affordable programs and first-time homebuyers with incomes at or below 100 percent the area median income. The exemption ensures that the Enterprises continue to provide strong support for affordable housing.

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ADDITIONAL MATERIAL SUPPLIED

FOR THE

RECORD

LETTER SUBMITTED IN SUPPORT OF NOMINEE LAEL BRAINARD