Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Scholar Source Context
Document identity
localId
54978309
label
Yellen, Janet [2]
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
54978309
sourceUrl
contentType
document
title
Yellen, Janet [2]
citationUrl
collections
Records of the Office of the Counsel to the President (Clinton Administration)
Stacy Reynolds' Files
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
54978309
levelOfDescription
fileUnit
otherTitles
42-t-7422586-20130723F-005-003-2016
[Yellen]
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
mediaId
40ab630c577e806c
ocrText
FOIA Number: 2013-0723-F
FOIA
MARKER
This is not a textual record. This is used as an
administrative marker by the William J. Clinton
Presidential Library Staff.
Collection/Record Group:
Clinton Presidential Records
Subgroup/Office of Origin:
Counsel Office
Series/Staff Member:
Stacy Reynolds
Subseries:
OA/ID Number:
9722
FolderID:
Folder Title:
Yellen, Janet [2]
Stack:
Row:
Section:
Shelf:
Position:
S
115
6
1
2
PAGE
2
1ST STORY of Level 1 printed in FULL format.
Copyright 1996 Star Tribune
Star Tribune
December 1, 1996, Metro Edition
SECTION: News; Pg. 27A
LENGTH: 2227 words
HEADLINE: turning TAIL;
Making pregnancy optional, new technology lets men feel they're off the hook
BYLINE: George Akerlof; Janet Yellen
BODY:
In 1970 a permanent cure to poverty in America seemed on the horizon. Federal
poverty warriors appeared to be gaining ground, and decisions by state courts
regarding abortion and by state legislatures regarding the availability of
contraception seemed to be giving poor families the tools to control the number
and the timing of their children.
The dream of eliminating poverty, however, has remained unfulfilled. Not
only have U.S. poverty rates stayed stubbornly constant over the intervening 25
years; poor families have seen their lot worsen as huge increases in
single-parent families, more and more headed by unmarried mothers, have led to
the feminization of poverty.
Since 1970, out-of-wedlock birth rates have soared. In 1965, 24 percent of
black infants and 3.1 percent of white infants were born to single mothers. By
1990 the rates were 64 percent for black infants, 18 percent for whites. Every
year 1 million more children are born into fatherless families. If we have
learned any policy lesson well over the past 25 years, it is that for children
living in single-parent homes, the odds of living in poverty are great. The
policy implications of the increase in out-of-wedlock births are staggering.
Searching for a reason
Efforts by social scientists to explain the rise in out-of-wedlock births
have so far been unconvincing, though several theories have a wide popular
following. One argument that appeals to conservatives attributes the increase to
overly generous federal welfare benefits. But welfare benefits could not have
played a major role in the rise of out-of-wedlock births because benefits rose
sharply in the 1960s and then fell in the 1970s and 1980s, when out-of-wedlock
births rose most.
Another popular explanation is that single parenthood has increased since
the late 1960s because of the change in attitudes toward sexual behavior. But so
far social scientists have been unable to explain exactly how that change came
about or to estimate in any convincing way its quantitative impact. In recent
work we have been able to provide both.
PAGE
3
Star Tribune, December 1, 1996
Beyond the shotgun
In the late 1960s and very early 1970s, before Roe VS. Wade, many major
states, including New York and California, liberalized their abortion laws. At
about the same time it became easier for unmarried people to get contraceptives.
This sudden increase in the availability of both abortion and contraception - we
call it a reproductive technology shock - is deeply implicated in the increase
in out-of-wedlock births.
Although many observers expected liberalized abortion and contraception to
lead to fewer out-of-wedlock births, the opposite happened - because of the
erosion in the custom of shotgun marriages.
Until the early 1970s, shotgun marriage was the norm in premarital sexual
relations. The custom was succinctly stated by one San Francisco resident in the
late 1960s: If a girl gets pregnant, you marry her.
Since 1969, however, the tradition of shotgun marriage has seriously eroded.
For whites, in particular, the shotgun marriage rate began its decline at almost
the same time as the reproductive technology shock. And the decline in shotgun
marriages has contributed heavily to the rise in the out-of-wedlock birth rate
for both white and black women. In fact, about 75 percent of the increase in the
white out-of-wedlock first-birth rate, and about 60 percent of the black
increase, between 1965 and 1990 is directly attributable to the decline in
shotgun marriages. If the shotgun marriage rate had remained steady from 1965 to
1990, white out-of-wedlock births would have risen only 25 percent as much as
they have. Black out-of-wedlock births would have increased only 40 percent as
much.
What links liberalized contraception and abortion with the declining shotgun
marriage rate? Before 1970, the stigma of unwed motherhood was SO great that few
women were willing to bear children outside of marriage. The only circumstance
that would cause women to engage in sexual activity was a promise of marriage in
the event of pregnancy.
Men were willing to make (and keep) that promise, for they knew that in
leaving one woman they would be unlikely to find another who would not make the
same demand. Even women who would be willing to bear children out of wedlock
could demand a promise of marriage in the event of pregnancy.
The increased availability of contraception and abortion made shotgun
weddings a thing of the past. Women who were willing to get an abortion or who
reliably used contraception no longer found it necessary to condition sexual
relations on a promise of marriage in the event of pregnancy. But women who
wanted children, who objected to abortion for moral or religious reasons, or who
were unreliable in their use of contraception found themselves pressured to
participate in premarital sex without being able to exact a promise of marriage
in case of pregnancy. These women feared, correctly, that if they refused sexual
relations, they risked losing their partners.
Advances in reproductive technology eroded the custom of shotgun marriage in
another way. Before the sexual revolution, women had less freedom, but men were
expected to assume responsibility for their welfare. Today women are more free
to choose - but men have afforded themselves the comparable option.
PAGE
4
Star Tribune, December 1, 1996
If she is not willing to have an abortion or use contraception, the man can
reason, why should I sacrifice myself and get married? By making the birth of
the child the physical choice of the mother, the sexual revolution has made
marriage and child support a social choice of the father.
Many men have changed their attitudes regarding the responsibility for
unplanned pregnancies. As one contributor to the Internet wrote recently to the
Dads Rights Newsgroup, "Since the decision to have the child is solely up to the
mother, I don't see how both parents have responsibility to that child."
That attitude, of course, makes it far less likely that the man will offer
marriage as a solution to a couple's pregnancy quandary, leaving the mother
either to raise the child or to give it up for adoption.
Before the 1970s, unmarried mothers kept few of their babies. Today they put
only a few up for adoption because the stigma of unwed motherhood has declined.
The transformation in attitudes was captured by the New York Times in 1993: In
the old days of the 1960s, '50s and '40s, pregnant teenagers were pariahs,
banished from schools and ostracized by their peers, or they scurried out of
town to give birth in secret. Today they are supported and embraced in their
decision to give birth, keep their babies, continue their education and
participate in school activities.
Since out-of-wedlock childbearing no longer results in social ostracism,
literally and figuratively, there is no longer a need to marry at the point of
the shotgun.
Theory and facts
How well do the data fit the theory?
In 1970 there were about 400,000 out-of-wedlock births out of 3.7 million
total births. In 1990 there were 1.2 million out-of-wedlock births out of 4
million total. From the late 1960s to the late 1980s, the number of births per
unmarried woman roughly doubled for whites, but fell by 5 to 10 percent for
blacks. The fraction of unmarried women rose about 30 percent for whites, about
40 percent for blacks. The fertility rates for married women of both races
declined rapidly (also, of course, contributing to the rise in the
out-of-wedlock birth ratio).
If the increased abortions and use of contraceptives caused the rise in
out-of-wedlock births, the increase would have to have been very large relative
to the number of those births and to the number of unmarried women. And that was
indeed the case. The use of birth control pills at first intercourse by
unmarried women jumped from 6 percent to 15 percent in just a few years, a
change that suggests that a much larger fraction of all sexually active
unmarried women began using the pill. The number of abortions to unmarried women
grew from roughly 100,000 a year in the late 1960s (compared with some 322,000
out-of-wedlock births) to more than 1.2 million (compared with 715,000
out-of-wedlock births) in the early 1980s. Thus the data do support the theory.
Indeed, the technology shock theory explains not only the increase in the
out-of-wedlock birth rate, but also related changes in family structure and
PAGE
5
Star Tribune, December 1, 1996
sexual practice, such as the sharp decline in the number of children put up for
adoption. The peak year for adoptions in the United States was 1970, the year of
the technology shock. Over the next five years the number of agency adoptions
was halved from 86,000 to 43,000. In 1969, mothers of out-of-wedlock children
who had not married after three years kept only 28 percent of those children. In
1984, that rate was 56 percent; by the late 1980s it was 66 percent.
Unlike the other statistics we have mentioned, the shotgun marriage rate
itself underwent only gradual change following the early 1970s. Why did it not
change as dramatically as the others? For two reasons. The first is that shotgun
marriage was an accepted social convention and, as such, it changed slowly. It
took time for men to recognize that they did not have to promise marriage in the
event of a pregnancy in exchange for sexual relations. It may also have taken
time for women to perceive the increased willingness of men to leave them if
they demanded marriage. As new expectations formed, social norms readjusted, and
the shotgun marriage rate began its long decline.
In addition, the decreasing stigma of out-of-wedlock childbirth reinforced
the technology-driven causes for the decline in shotgun marriage and increased
retention of out-of-wedlock children. With premarital sex the rule, rather than
the exception, an out-of-wedlock childbirth gradually ceased to be a sign that
society's sexual taboos had been violated. The reduction in stigma also helps
explain why women who would once have put their baby up for adoption chose to
keep it instead.
One final puzzle requires explanation. The black shotgun marriage ratio
began to fall earlier than the white ratio and shows no significant change in
trend around 1970. How do we account for that apparent anomaly?
Here federal welfare benefits may play a role. For women whose earnings are
so low that they are potentially eligible for welfare, an increase in welfare
benefits has the same effect on out-of-wedlock births as a decline in the stigma
to bearing a child out of wedlock. The difference in welfare eligibility between
whites and blacks and the patterns of change in benefits rising in the 1960s and
falling thereafter may then explain why the decline in the black shotgun
marriage ratio began earlier than that for whites. Because blacks on average
have lower incomes than whites, they are more affected by changes in welfare
benefits. As a result, the rise in welfare benefits in the 1960s may have had
only a small impact on the white shotgun rate but resulted in a significant
decrease in the black shotgun marriage rate.
Policy considerations
Although doubt will always remain about the ultimate cause for something as
diffuse as a change in social custom, the technology shock theory does fit the
facts. The new reproductive technology was adopted quickly and on a massive
scale. It is therefore plausible that it could have accounted for a comparably
large change in marital and fertility patterns. The timing of the changes also
seems, at least crudely, to fit the theory.
From a policy perspective, attempts to turn the technology clock back by
denying women access to abortion and contraception is probably not possible.
Even if it were, it would almost surely be counterproductive. In addition to
PAGE
6
Star Tribune, December 1, 1996
probably reducing the well-being of women who use the technology, such measures
could lead to yet greater poverty. With sexual abstinence rare and the stigma of
out-of-wedlock motherhood small, denying women access to abortion and
contraception would probably increase the number of children born out of wedlock
and reared in impoverished single-parent families. On the contrary, efforts
should be made to ensure that women can use the new technologies if they choose
to do SO.
Finally, if the technology shock theory does explain the rise in single
motherhood, cuts in welfare as currently proposed would only further harm the
victims. Such cuts would have little impact on the number of children born out
of wedlock while impoverishing those already on welfare yet further. Instead,
policy measures to make fathers pay to support their out-of-wedlock children
would not only directly contribute to the well-being of children, but also tax
men for fathering such children, thereby offsetting at least partially the
change in terms between fathers and mothers.
- George Akerlof and Janet Yellen, a husband-wife team of economists, are on
leave from the University of California at Berkeley. Yellen is on the Board of
Governors of the Federal Reserve System. Akerlof is a senior fellow at the
Brookings Institution in Washington, D.C. They wrote this for the Brookings
Review.
GRAPHIC: Illustration
LANGUAGE: ENGLISH
LOAD-DATE: December 3, 1996
PAGE
49
34TH STORY of Level 1 printed in FULL format.
Copyright 1995 The Chronicle Publishing Co.
The San Francisco Chronicle
DECEMBER 25, 1995, MONDAY, FINAL EDITION
SECTION: BUSINESS; Pg. D3; LETTERS TO BUSINESSEXTRA
LENGTH: 620 words
HEADLINE: LETTERS TO BUSINESSEXTRA
BODY:
WHAT'S LEARNING CO.
ACTUALLY WORTH?
Editor -- I'm not embarrassed to admit I never got A's in my economic
courses. That is why I can ask, with equal lack of embarrassment, the following:
How can a company, such as Learning Co., highlighted on Friday, November 28, be
worth $ 606 million when its only asset is seemingly the 240 people who work
there?
What's to prevent them from cashing in their stock, walking to an empty
building next door, doing the same thing they were the day before and again
amassing another stock portfolio worth $ 606 million? George Fulford
Mill Valley
Editor's Response: Good question, although Learning Co. shareholders have 30
days before they can exercise their options.
UNDERAGE ENFORCEMENT
WOULD GO A LONG WAY
Editor -- How is it that nowhere in your piece on college boozing
(BusinessExtra, December 11) did you mention the fact (so far as I know still
true) that all 50 states prohibit those under 21 from drinking?
Surely strict enforcement of those laws would go a long way toward solving
the problem of alcohol abuse among college kids.
If the bars, restaurants and stores knew they'd be busted and face huge
penalties; if the colleges made drunkenness a suspendable offense for both
students and Greek organizations; if the abusers knew they'd face jail time,
fines and the aforementioned suspensions, I bet the problem would disappear
fast.
Is this yet another example of folks preferring to spend money on studies
instead of simply using the mechanisms already in place? Serena Bardell
San Francisco
PAGE
50
The San Francisco Chronicle, DECEMBER 25, 1995
FED IS CLUELESS
ABOUT ITS POLICIES
The interview with Federal Reserve Board member Janet Yellen,
(BusinessExtra, December 11) underscored how clueless the Federal Reserve is
when it comes to the impact of their policies on the average American worker.
Yellen states, ''All sectors of the economy seem quite healthy.
This analysis is in direct conflict with Secretary of Labor Robert Reich's
recent complaint that the average worker has derived little financial benefit
from the current economic recovery.
It has been well-documented in the news media that the salary benefits of the
recovery have been going to the greedy corporate executives who believe it is in
the national interest to send manufacturing jobs overseas and or merge their
companies through leveraged buyouts or hostile takeovers.
Yellen believes, absurdly, that everything is just great for the average
American household.
She states, 'household wealth has also gone up enormously. We've had a
trillion dollars in new stock market wealth in 1995.
''Of course, you also have to look at who's getting the wealth.
' 'We know less than we'd like to about that. Janet, read the research by
Kevin Phillips.
Phillips has shown that 50 percent of the stocks and bonds in the United
States are owned by the richest 1 percent of the population.
Phillips' figures are considered conservative by many people.
These figures are a strong clue that stock market wealth isn't accruing for
most members of the middle class.
Populist Senator Ernest Hollings recently stated that Federal Reserve Board
Chairman Alan Greenspan works for Wall Street, period.
Janet Yellen's economic views put her firmly in Greenspan's corner.
Tragically, for the declining middle class of America, the Fed's love affair
with Wall Street is not about to end. Craig Thunem
Pacifica
Address all correspondence to Letters to BusinessExtra, San Francisco
Chronicle, 901 Mission Street, San Francisco, Calif. 94103. Include your name,
address and phone number. Anonymous letters will not be published. We reserve
the right to edit letters for clarity.
LANGUAGE: ENGLISH
PAGE 51
The San Francisco Chronicle, DECEMBER 25, 1995
LOAD-DATE: December 25, 1995
PAGE
52
35TH STORY of Level 1 printed in FULL format.
Copyright 1995 The Chronicle Publishing Co.
The San Francisco Chronicle
DECEMBER 4, 1995, MONDAY, FINAL EDITION
SECTION: BUSINESS; Pg. B1; OM ECONOMICS
LENGTH: 1229 words
HEADLINE: Breaking The Male Bastion
BYLINE: JONATHAN MARSHALL
BODY:
Though hardly a household name, Berkeley economist Janet Yellen is one of
the nation's most powerful women.
Currently on leave from the University of California's Haas School of
Business, Yellen is one of seven members of the Federal Reserve System's Board
of Governors, where she helps steer the U.S. economy.
Yellen was appointed last year by President Clinton to fill a term ending
Jan. 31, 2008. She is one of only two women in that traditionally male bastion
of economic power. The other is Susan Phillips, a former professor of finance at
the University of Iowa.
As a former teacher at Harvard University, the London School of Economics and
the Haas School -- and as a former international economist on the Fed's research
staff in the late 1970s -- Yellen is highly regarded by financial experts and
academic colleagues. Her major research interests include unemployment, trade
balances and economic reform in Eastern Europe.
The 49-year-old Yellen is married to another eminent economist, George
Akerlof, whom she met in the late 1970s when both worked at the Fed. Akerlof
works at both UC Berkeley and the Brookings Institution in Washington, D.C.
Yellen agreed to talk about her views on the economy and Fed policy.
Q. We are now well into the fourth year of the current economic expansion.
How long do you think it will last?
A. It's unusual to have an expansion that lasts as long as the one we've had,
but I don't see any fundamental reason it can't continue. All sectors seem quite
healthy. Profit margins are healthy and we've had impressive productivity
increases. Over the past year we successfully subdued the economy enough that
we'd have sustainable growth. We've kept things on an even keel by tightening
monetary policy the right way at the right time. We've been looking for a soft
landing, where growth would subside to a sustainable rate so inflation wouldn't
pick up. One never wants to declare victory, but things look pretty good.
Q. Household debt levels are rising fast and so are credit card
delinquencies. Is there reason for concern that consumers are getting
overextended?
PAGE
53
The San Francisco Chronicle, DECEMBER 4, 1995
A. It does concern me. Debt has been growing very fast relative to income.
On the other hand, household wealth has also gone up enormously. We've had a
trillion dollars in new stock market wealth just in 1995. Of course, you also
have to look at who's taking on debt and who's getting the wealth. We know less
than we'd like to about that. We've expressed concern in speeches to banks about
credit standards, and instructed banks examiners to carefully examine credit
standards and talk with banks about risks. On balance we feel most banks have
strong capital positions.
Q. Short-term interest rates are currently running well above their long-run
average. Is the Fed holding the monetary reins too tight?
A. Historical averages shouldn't be taken too seriously. The ''appropriate''
level of rates depends on what's happening in the economy. The economy is pretty
strong right now; it's hard to say monetary policy is restricting it much. But
if fiscal policy turned more restrictive, we might loosen.
Financial markets have been pleasantly surprised that inflation hasn't picked
up. A year ago the markets were more pessimistic about inflation. But we've had
a year of stable inflation and labor has been less aggressive in bargaining. Now
the markets have a well-justified level of trust that Fed intends to keep a lid
on inflation.
Q. A lot of economists argue that beyond some point -- often said to be
around 6 percent -- unemployment can't fall without reigniting inflation. Are
we running such a risk with the jobless rate now running around 5.5 percent?
A. The jury is out on that. I've been surprised by the moderate behavior of
compensation growth given the level of unemployment. Inflation itself has come
down less than it might have, because of widening profit margins. To me this
means there is room for inflation to decline further.
Q. Is there any evidence, as some analysts claim, that the economy has become
less sensitive to Fed policies?
A. The economy remains quite sensitive to interest rates. Just in the last
year and a half you could see that in operation. The Fed decided to tighten the
monetary reins in an attempt to brake the economy, to slow what would have been
unsustainable growth in demand. We certainly saw an impact on residential
investment, autos and consumer durables. The results are sometimes
unpredictable, but in the end, monetary policy still works.
Q. What guides you in setting policy: measures of money, interest rates,
employment data or other factors?
A. I look at everything. I try to understand what's operating on supply and
demand. On the supply side, I look at indicators like capacity utilization and
employment. On the demand side, I look at retail sales, orders for durable and
capital goods, trends in government spending, trade data and residential
investment. We have a staff with many Ph.D. economists who have their fingertips
on quantitative relationships, plus we have large-scale simulation models of the
economy. Another great strength of the Fed is collecting anecdotal information.
All of the regional Fed banks report what they see going on around them, in
their industries and labor markets.
PAGE
54
The San Francisco Chronicle, DECEMBER 4, 1995
Q. Does the Fed ever get pressure from the White House or Treasury?
A. There's been no pressure at all. This administration has had a policy of
never commenting on what the Fed does. Q. We've been seeing a rash of mergers in
the banking industry. Do you think this trend will continue?
A. Yes. In the United States we've had a somewhat artificial structure of
banking based on laws against geographic expansion. As we get rid of those, it's
natural to see consolidation take place. What's emerging are regional or even
national banks. Part of their goal is to spread risks geographically, so banks
are not so sensitive to economic developments in one part of the country.
We've been studying mergers for a long time, trying to figure out if they are
necessary to achieve efficiencies through economies of scale. The answer is that
economies are limited. Most research suggests efficiency can be obtained at the
$ 100 million (in assets) level. Beyond that there's not much evidence of gain.
Q. Are banks in relative decline as other financial competitors grab market
share?
A. If you look at holdings of assets, banks' share is declining. But when you
look at profitability and fee-based business, they are extremely competitive.
U.S. banks are very important in the derivatives business, but that doesn't show
up as assets. Also loan guarantees don't show up as an asset but you earn a fee.
If you securitize a loan or mortgage, it generates fees. So profitability has
been quite good.
Q. Should banks be allowed to get into insurance and securities underwriting,
or will that make oversight and regulation too difficult?
A. We have to worry about the safety and soundness of banks because they have
deposit insurance, a government guarantee. But if securities underwriting is in
a separate subsidiary of a bank holding company, it's certainly an appropriate
activity for banks. I think the same argument holds for insurance. In theory,
more competition benefits consumers.
GRAPHIC: PHOTO, Yellen
LANGUAGE: ENGLISH
LOAD-DATE: December 4, 1995
MAIL-IT REQUESTED: DECEMBER 8, 1996
104PH6
CLIENT: YELLEN
LIBRARY: PEOPLE
FILE: BIOS
YOUR SEARCH REQUEST AT THE TIME THIS MAIL-IT WAS REQUESTED:
JANET PRE/2 YELLEN AND YELLEN
NUMBER OF REFERENCES FOUND WITH YOUR REQUEST THROUGH:
LEVEL 1...
2
LEVEL
1 PRINTED
DISPLAY FORMAT: FULL
SEND TO: BURGESS, W. GREG
WHO - GEN. COUNSEL
725 17TH ST. N.W.
WASHINGTON DISTRICT OF COLUMBIA 20503
00852
PAGE
1
LEVEL 1 - 1 OF 2 REFERENCES
Copyright 1995 Reed Reference Publishing, a division of Reed Elsevier Inc.
All Rights Reserved.
The Complete Marquis Who's Who (TM) Biographies
LAST-UPDATE: June 27, 1995
Janet Louise Yellen
SOURCE: Who's Who in America, 50th Edition
LENGTH: 373 words
PERSONAL INFORMATION
*
daughter of Julius and Anna Ruth (Blumenthal) Y.; married to George Arthur
Akerlof, July 8, 1978; 1 child, Robert Joseph.
GENDER: Female
BIRTH-DATE: August 13, 1946
BIRTHPLACE: Bklyn.
ADDRESS: Home: 3201 Leland St, Chevy Chase, MD, 20815, Office: Bd Govs of FRS,
20th and Constitution Ave, Washington, DC, 20551
CAREER INFORMATION
OCCUPATION: 9393,2853 government official, economics educator
CAREER: rsch. fellow MIT, Cambridge, 1974; cons. Congl. Budget Office, 1975-76,
mem. panel econ. advisers, 1993-; rsch. affiliate Yale U., New Haven, 1976; mem.
adv. panel in econs. NSF, 1977-78, 91-92; mem. Brookings Panel on Econ.
Activity, 1987-88, 90-91, sr. adviser, 1989-; Yrjo Jahnsson Found. lectr. on
macroecon. theory, Helsinki, 1977-78; mem. Coun. on Fgn. Rels., 1976-81.
POSITIONS HELD: asst. prof. econs., Harvard U., Cambridge, Mass., 1971-76;
lectr., London Sch. Econs. and Polit. Sci., Washington, 1978-80; asst. prof.
econs. Sch. Bus. Adminstrn.,, U. Calif., Berkeley, 1980-82; assoc. prof., U.
Calif., Berkeley, 1982-85; prof. Haas Sch. Bus., U. Calif., Berkeley, 1985-;
Bernard T. Rocca Jr. prof. internat. bus. and trade, U. Calif., Berkeley,
1992-; cons. div. internat. fin.,, Bd. Govs. of FRS, Washington, 1974-75;
economist trade and fin. studies sect., Bd. Govs. of FRS, Washington, 1977-78;
mem., Bd. Govs. of FRS, Washington, 1994-
EDUCATIONAL INFORMATION
*
BA in Econs. summa cum laude, Brown U., 1967; PhD, Yale U., 1971
OTHER INFORMATION
*
CREATIVE WORKS: Author: (monograph) (with Arrow and Shavell) The Limits of the
Market in Resource Allocation, 1977; assoc. editor Jour. Econ. Perspectives,
1987-91; contbr. articles to profl. jours.
AWARDS: Hon. Woodrow Wilson fellow, 1967, grad. fellow NSF, 1967- 71, Guggenheim
fellow, 1986-87; grantee NSF, 1975-77, 90-94.
PAGE
2
The Complete Marquis Who's Who (TM) Biographies June 27, 1995
MEMBERSHIPS: Mem. Am. Econ. Assn. (adv. com. to Pres. 1986-87, nominating com.
1988-90), Phi Beta Kappa.
LANGUAGE: English
LOAD-DATE: August 29, 1996
PAGE
3
LEVEL 1 - 2 OF 2 REFERENCES
Copyright 1995 R.R. Bowker (R), Reed Elsevier, Inc.
Who's Who in American Politics
September, 1995
Janet L Yellen
PARTY: None
ADDRESS: Fed Reserve Syst, 20th & C St NW Washington DC 20551
PERSONAL: FEMALE Brooklyn, NY; Aug 13, 1946
LENGTH: 53 words
BIOGRAPHY:
EDUCATION: Brown Univ, grad (summa cum laude), 67; Yale Univ, PhD (econ), 71
Professional Positions: Asst prof, Harvard Univ, 71-76; lectr, London Sch
Econ, 78-80; instr, Haas Sch Bus, Univ Calif, Berkeley, 80 to present, Bernard T
Rocca, Jr prof int bus & trade, formerly
OFFICES-HELD: Economist, Bd Gov, Fed Res Bd, 77-78; mem, Panel Econ Advisers,
Cong Budget Off, formerly; sr adv, Brookings Panel Econ Activity, formerly; mem,
Bd Gov, Fed Res Syst, 94 to present
LANGUAGE: ENGLISH
LOAD-DATE: September 26, 1995
****
****
*
4 PAGES
63 LINES
JOB
89360
104PH6
*
*
11:22 A.M. STARTED
11:22 A.M. ENDED
12/08/96
*
****
****
*
EEEEE
N N
DDDD
*
*
E
N N
D D
*
*
E
NN N
D D
*
*
EEE
N N N
D D
*
*
E
N NN
D D
*
*
E
N N
D D
*
*
EEEEE
N N
DDDD
*
SEND TO: BURGESS, W. GREG
WHO - GEN. COUNSEL
725 17TH ST. N.W.
WASHINGTON, DISTRICT OF COLUMBIA 20503
PAGE
27
11TH STORY of Level 1 printed in FULL format.
Copyright 1996 The Washington Post
The Washington Post
July 08, 1996, Monday, Final Edition
SECTION: A SECTION; Pg. A01
LENGTH: 2355 words
HEADLINE: At the Fed, a Power Struggle Over Information
BYLINE: John M. Berry, Washington Post Staff Writer
BODY:
Early this year a tremor shook the Federal Reserve Board's headquarters on
Constitution Avenue: All four of the Fed's then-governors met with Chairman Alan
Greenspan to insist that they be told what he and the staff were doing about a
wide range of international economic matters, including contacts with foreign
central banks.
The four board members were not complaining about policy. Rather, they were
frustrated that no one was keeping them adequately informed about the staff's
activities, including discussions with the Treasury Department and research on
international financial issues. Two of the four also grumbled later about being
excluded from the staff's preparation of domestic economic forecasts.
Such complaints almost never surface at the central bank. Powerful chairmen
have run the show for at least the last half century, with the staff as their
strong right arm.
Each governor, as board members are called, has one vote on policy matters,
as does the chairman. But traditionally the chairman speaks for the institution
and opposition to his view is not a small matter.
Historically, the lines of power at the Fed have been SO clear that some
years ago a departing senior staff member said he never had an interest in
becoming a board member; it would have reduced his influence over the Fed's
policies if he did, he said.
The role of the staff in Fed policymaking, and in particular its closeness to
the chairman, has been a contentious issue at the central bank headquarters for
years.
One reason is the sheer amount of power the Fed exercises over the U.S.
economy; another is the institution's inherently cumbersome decision-making
machinery.
Since the late 1970s the Fed has been the U.S. economy's balance wheel,
adjusting interest rates up and down to squeeze out inflation while maintaining
healthy growth. Inflation and unemployment now are at low levels, with no end to
the expansion in sight.
The three top economic policy staff members, known as "the barons," prepare
-- without participation by the board members -- the informational building
blocks from which the Fed's policymakers shape their interest-rate decisions.
PAGE
28
The Washington Post, July 08, 1996
Edwin M. "Ted" Truman, director of the division of international finance, is
the most senior of the trio. Michael J. Prell, director of the division of
research and statistics, and Donald L. Kohn, director of the division of
monetary affairs, have been equals since 1987. At that time, then-Fed Chairman
Paul Volcker was afraid one would leave, so he reorganized the staff to promote
both.
The barons serve at the pleasure of the chairman, while the six members of
the Fed Board and the chairman are appointed by the president, with the approval
of the Senate. To allow the seven to exercise their power without regard to
short-term political concerns, the terms are for 14 years. The chairmanship
carries a four-year term.
In interest-rate decisions, there is another set of players as well -- the
presidents of the 12 regional Federal Reserve banks. The presidents, chosen by
their respective boards of directors with the approval of the Fed Board in
Washington, join the board in meetings of the Federal Open Market Committee. The
committee, which meets eight times a year, most recently last week, sets targets
for overnight interest rates on the basis of votes of the seven board members
and a rotating group of five presidents.
To some within and outside the Fed, the power of the staff represents a
challenge to the authority of the board members.
At a Senate Banking Committee hearing in March on whether to confirm
Greenspan to a third term, Sen. Paul Sarbanes (D-Md.), who frequently spars with
the chairman over both monetary policy and how the central bank is run, asked:
"What do you say to the
observation that the Fed and the Board of
Governors are staff-dominated, particularly as it may affect the members of the
board, as opposed to the chairman?"
Greenspan replied: "[W]hile it may appear that I take action unilaterally
with the staff, that is never done without consultation with each individual
member of the Federal Reserve Board, because all of the authority of the Federal
Reserve Board is within the board members themselves. I, as chief executive
officer, have one statutory authority: I run the meetings."
A Staff Without Peer
As economists and managers, the barons are highly regarded, even by the
complaining governors, as among the most able in government. Late last month at
his swearing-in ceremony, Greenspan called them an "exceptional staff
which has no peer within the American government."
The barons each were paid $ 170,700 last year. Though those salaries are
unusually high for federal employees, several Fed officials and some analysts
with private financial firms said that each of the barons could earn much more
money than that outside government. Greenspan's salary, meanwhile, is $ 133,600,
one notch below that of a Cabinet official.
The four governors who complained -- Edward W. Kelley Jr., Lawrence B.
Lindsey, Susan M. Phillips and Janet L. Yellen -- said in interviews that they
did not intend to challenge Greenspan's authority or the barons' expertise; they
just wanted to be informed.
PAGE
29
The Washington Post, July 08, 1996
"The criticism I have relates to the position the governors are left in,"
said one governor, who requested anonymity. "Information flowing through the
barons to the governors is scanty. These are not people who work for me. They do
not think their jobs are to inform."
But the governors eventually got their information.
Greenspan saw to it that Truman put the entire board in his loop. Since they
lodged their complaint, information on international matters has flooded into
the governors' offices.
Truman, 55, who received a PhD in economics from Yale University, has been in
his job since 1977. He has an explosive temper, which he has unleashed in
negotiations with foreign officials and sometimes on the Treasury Department.
"For an economist," said Jack Beebe, research director at the San Francisco
Federal Reserve Bank, "he is an emotional man."
Truman has been, as he puts it, "on the circuit a long time" and knows senior
officials in all the world's major central banks. "I can always pick up the
phone and call someone, and vice versa," Truman said.
His knowledge and experience in international financial crises are so highly
regarded by Greenspan that if there is an international meeting or issue that
either the chairman or the vice chairman cannot deal with, Truman rather than a
governor usually gets the assignment.
That role for Truman was underscored early this year. President Clinton was
considering whether to nominate Greenspan for a third term and how to fill the
vice chairmanship and another vacancy on the board. One name on the short list
for the latter spot was Peter Kenen, an international economist at Princeton
University.
Kenen, seeking to ensure that he would be able to use his international
expertise if Clinton chose him, went to see Greenspan to ask. The answer was no.
"I was told that the representational role of the board in international
matters were his and the vice chairman's and Ted's," Kenen said. "I could not
expect to attend many international meetings on behalf of the board."
Furthermore, he was told, the "close coordination" of international economic
policy with the Treasury would be handled by the chairman and Truman.
"There were no hard feelings on either side, but I was taken aback by the
reaction
[and] I felt what I could contribute was not getting due weight,"
Kenen said.
Kenen did not withdraw his name, but he told the White House he was a lot
less interested than he had been. The issue became moot when Clinton chose White
House budget director Alice M. Rivlin as vice chairman. She was nominated from
the Philadelphia Federal Reserve district, which includes Princeton, and there
can be only one board member from a district. Truman defended the current
arrangement, saying, "One problem in the international area is that many of the
issues involve negotiations with the Treasury, and it is very hard to have the
board as a whole negotiate with the Treasury. The chairman has to have staff
work for those negotiations.'
PAGE
30
The Washington Post, July 08, 1996
Knowledge Is Power
There are some equally difficult issues swirling about the staff and its role
that involve domestic considerations
For example, then-Fed Vice Chairman Alan Blinder, who left at the end of his
term in January to return to teaching at Princeton University, was plain about
his unhappiness over the staff's role. Blinder was particularly upset over
Prell's refusal to allow him to sit in when details of the staff's economic
forecast are thrashed out. "There's an old admonition that we remember from
grade school arithmetic: show your work," Blinder said in an interview before he
left. "There's a staff reluctance to do that
I have pursued this, but it's
been like knocking your head against the wall.' Several other Fed governors have
left the board in recent years taking shots at the power of the staff, including
Wayne Angell, John P. LaWare and Martha Seger. Even former Fed governor Lyle
Gramley, who once was a senior member of the Fed staff, has remarked, "The staff
does not seem to think it important, nor even desirable, for governors other
than the chairman to be well-informed on sensitive international matters."
In reality, however, many of the complaints about Truman, Prell and Kohn may
be indirect complaints about the primacy of Greenspan. None of the Fed governors
would say as much, but all lavishly praise the three senior staffers, which
suggests the true focus of their complaints lies elsewhere.
The barons have outranked some of the board members at earlier points in
their careers. While Truman was an associate professor at Yale University, he
was a member of a faculty committee that conducted an oral examination of
Yellen before she began her dissertation, and later he hired her to work on his
division's staff.
When Phillips first met Prell after being appointed governor, she reminded
him that he had once interviewed her for a job. "He had a look of horror on his
face and asked, 'Did we offer you a job?' Well, they had," Phillips said with a
laugh.
Lindsey praised the barons in extravagant terms echoed by the other
governors. "I think that the staff is a national treasure. Each in his own way
is exceptional," he said.
Difficult Relationships
The new flow of international information has helped smooth the waters, but
the sometimes difficult relationship between the governors and the barons
remains, as even the barons agree. Prell, 51, is an intense, bearded man who
can be irascible and abrupt but also pleasant, colleagues said. He holds
undergraduate, master's and PhD degrees from the University of California at
Berkeley and oversees his own staff of about 275, most of whom are professional
economists.
His division's principal responsibility is analyzing and forecasting where
the economy is headed. The staff forecast is formally updated in the Green Book,
which goes to the Fed Board and to the 12 Federal Reserve Bank presidents before
the meetings of the Federal Open Market Committee.
PAGE
31
The Washington Post, July 08, 1996
It was the closed-door preparation of the Green Book that so raised Blinder's
ire. Yellen also expressed a strong desire to sit in on Prell's forecasting
meetings.
Prell explained that he said no to both because he believes that all of the
Fed officials with a say in setting policy must be assured that the Green Book
forecast is the independent work of the staff. If board members began to sit in,
Prell said, other officials could not be sure that the forecast had not been
subtly shaped to lend support to a particular policy view.
Agree to Disagree
Significantly, Greenspan has never sought to participate in the staff
meetings that eventually produce the Green Book forecast, presumably because he
shares Prell's desire that policymakers discuss the forecast only after it is
completed.
Lindsey, Yellen and Phillips all said they would like to know about what
might happen if some of the key assumptions behind the forecast turn out to be
wrong.
"I regard my role now as throwing up questions about why may we not have one
of these alternative scenarios," Lindsey said.
Kohn's division produces the Blue Book. It gives the Federal Open Market
Committee an analysis of financial markets and the likely impact of three
interest-rate policy choices: raising them, lowering them, or leaving them
unchanged.
Kohn stressed that neither the Green Book forecast nor the Blue Book's
explanation of monetary policy alternatives ever limits what the FOMC
policymakers can decide to do. The Green Book only "sets a standard" for
discussion, he said.
The committee doesn't always agree with the staff conclusions. One governor
said that Greenspan often disagrees with portions of the Green Book's outlook.
And the 12 presidents come to the table with independent forecasts crafted with
the aid of their own bank research staffs.
Kohn, 53, who earned a PhD from the University of Michigan, is the most
easygoing of the barons and the only one likely to drop in on a governor to chat
about a puzzling issue, several officials said.
He is the board's liaison with the New York Federal Reserve Bank, which
almost daily buys or sells U.S. government securities to keep overnight interest
rates close to the target set by the FOMC. Each business day at 11 a.m. Kohn
participates in a conference call with officials at the New York Fed to decide
how best to intervene to keep rates on track.
A new challenge to the staff could come with the arrival of Rivlin and
Laurence H. Meyer, a St. Louis economist who has won awards for the accuracy of
his forecasts.
Meyer may be able to read the economy's tea leaves as well as Greenspan or
Prell, and Rivlin has run both the Congressional Budget Office and the Office
PAGE 32
The Washington Post, July 08, 1996
of Management and Budget. Neither is likely to be very happy if they find
themselves very far out of the loop.
GRAPHIC: Photo; Illustration, The Washington Post, WHO'S WHO AT THE FED? The
power wielded by Federal Reserve staff members has at times unsettled members of
the Board of Governors. Alan Greenspan, Chairman SENIOR STAFF: "THE BARONS"
Edwin M. Truman Michael J. Prell Donald L. Kohn BOARD OF GOVERNORS Alice M.
Rivlin, Vice chairman Edward W. Kelley Lawrence B. Lindsey Laurence H. Meyer
Susan M. Phillips Janet L. Yellen ALAN GREENSPAN
LANGUAGE: ENGLISH
LOAD-DATE: July 08, 1996
PAGE 33
14TH STORY of Level 1 printed in FULL format.
Copyright 1996 Investor's Business Daily, Inc.
Investor's Business Daily
April 24, 1996
SECTION: Guest Editorial; Pg. A2
LENGTH: 816 words
HEADLINE: The Fed: Mission Impossible?
BYLINE: By VICTOR CANTO
BODY:
The Humphrey-Hawkins Act tells the Federal Reserve to aim for 'maximum
employment, stable prices and moderate long-term interest rates. Sen. Connie
Mack wants to change the law to give the Fed just one goal - price stability.
Growth-hungry investors should think twice before opposing him.
The Florida Republican heads Congress' Joint Economic Committee. But one of
his critics also holds a high position. Indeed, Fed Governor Janet Yellen's
comments suggest she thinks she and her fellow central bankers are smarter than
the market. In her view, the central bank should have a say in running the
economy.
'Monetary policy is needed, and has succeeded, in smoothing the ups and
downs of the business cycle, she told Congress, 'mitigating economic
fluctuations and stabilizing output and employment in the U.S. economy.
But the Fed isn't equipped to grow the economy, much less smooth its ups and
downs. Nor can it stabilize output or change employment in the long run.
The central bank has just one real tool -its influence over the money supply.
It can use this to try to control the quantity of money, or to try to control
the value of the currency.
The first was the Fed's method of choice in the '70s. It led to the disaster
of 'stagflation. The Fed has used the second method with some success in
recent years, though even now it is continually changing its own target figures.
The Fed can affect inflation. Period.
Well, that's not entirely true. The Fed can affect economic growth -
negatively. If the central bank were to boost the money supply much beyond
demand, the markets would convulse - and growth would stall. An excess of money
causes inflation. That pushes people into higher tax brackets and destroys
incentives to work and produce. The result: slower growth.
The upper bound of economic growth, for the most part, is limited not by
monetary policy but by fiscal policy. And that is not set by the Fed, but by
Congress and the president.
PAGE
34
Investor's Business Daily, April 24, 1996
Mack's proposal just recognizes this basic fact, and tells the Fed to focus
on a task it actually has the tools to accomplish.
You can understand why Yellen wants the Fed to have other goals: They give
the governors a reason for being. If the bank's sole duty is to monitor
inflation, a computer could do the job relatively well. Just program it to
reduce the supply of money if inflation increases, and increase the money supply
if deflation looms.
Now, Mack doesn't want to replace the Fed with a computer, but existing
econometric models could do the trick. One that has received a lot of attention
comes from John Taylor of Stanford University.
Such ''price rule'' models have existed for years. The most famous of all is
the gold standard, and it worked fairly well. Prices did swing from year to year
when the dollar was gold-backed, but they were stable over the long run, because
they swung around a fairly constant center.
Yellen believes these models can only be an aid, not a hard-and-fast rule to
replace the governors' judgment. She argues that if, say, the stock markets
crash, the Fed should be able to move to increase liquidity, as it did in 1987.
She's right - in part. Even following a price rule, the Fed needs to be able
to cushion economic shocks, too. But it doesn't have to threaten price stability
to do SO. It has other useful levers, such as rules on what cash reserves banks
must maintain, to steer institutions through rocky straits.
And reacting to a market shock is a long way from the Keynesian
''fine-tuning'' that Yellen claims the Fed can achieve. A market crash is both
a clear signal and an event in and of itself. A bigger-than-expected jobs
number, by contrast, may be caused by any number of factors - including bad
data. The markets now often move on such releases not because of what the data
say about the economy, but because of how the Fed might react to them.
The Fed governors should have the leeway to act when the market tells them
to. We should not ask them to manage the entire economy. No one can know enough
to do that.
It's an ominous sign when central bankers lay claim to such abilities.
Yellen's belief that she and her colleagues can outdo the market in maximizing
output or employment suggests that Fed policy could take a frightening turn in
the years to come.
Neither Yellen nor the Fed has taken an official position on the Mack bill.
But when a Fed governor believes she should be ''directed to pursue multiple
objectives simultaneously,' we must worry that the Fed may soon wander off its
price rule. Cover your wallet and keep an eye on the inflation numbers - they
may be rising soon.
Victor Canto is a principal in Laffer, Canto & Associates, a San Diego-based
economic consulting firm.
PAGE 35
Investor's Business Daily, April 24, 1996
LANGUAGE: ENGLISH
LOAD-DATE: April 24, 1996
PAGE
36
15TH STORY of Level 1 printed in FULL format.
Copyright 1996 News World Communications, Inc.
The Washington Times
April 11, 1996, Thursday, Final Edition
SECTION: Part A; COMMENTARY; Pg. A15
LENGTH: 1001 words
HEADLINE: Fine-tune pressures within the Fed?
BYLINE: H. Erich Heinemann
BODY:
Interest rates rose this winter, mostly on the theory that a rebound in the
economy will prevent the Federal Reserve from easing policy.
Wall Street's twenty-something bond traders - those self-appointed "masters
of the universe" - have it backward. Nations with the lowest long-term rates
have the tightest monetary policies.
Fed policy has been tight for more than two years, and in response business
activity has slowed substantially. In this setting, higher rates are likely to
be self-limiting. Sales of autos and homes, which improved during the first
quarter because of lower rates last fall, will probably resume their downward
slide. Business people have already decided to curtail their investments in new
plant and equipment in 1996. Increased financing costs would put an additional
damper on their plans.
Rather, the force behind the rise in rates may be a concern that the
Clinton contingent on the Fed -vice chairman Alice Rivlin and members Janet
Yellen and Laurence Meyer - may push the central bank to "fine-tune" the
economy. Fine-tuning refers to attempts to pump up the money supply to achieve
short-run gains in employment.
With the presidential election just seven months away, pressure to speed up
the economy is intense. However, schemes to fine-tune the business cycle fail
and leave the country with a nasty brew of more inflation and fewer jobs. Even
the threat of fine tuning could put more upward pressure on rates than a
temporary bulge in business.
Ms. Yellen paid lip service recently to the conventional wisdom that stable
prices should be the Fed's main goal. "There is no long-run tradeoff," she
said, "between unemployment and inflation." But in a slap at Sen. Connie Mack,
the Florida Republican who chairs Congress' Joint Economic Committee, she added
it would be "wrong-minded" to conclude that controlling inflation should be the
Fed's only goal.
Mr. Mack has introduced legislation to give the Fed a mandate for zero
inflation. Despite the "temptation to use the Fed to fine-tune the economy," he
said, "this kind of monetary manipulation has failed time and again.
Ultimately, printing money can do nothing but affect prices. Using monetary
policy to accomplish other goals courts disaster."
PAGE
37
The Washington Times, April 11, 1996
Gov. Yellen rejected this view. "I do not concede that uncertainties of
economic forecasts and long variable policy lags necessarily doom our best
efforts to failure. The record indicates that within limits 'tuning' works,
even if it's not fine."
This is not an academic matter. Together with Gov. Lawrence Lindsey, Ms.
Yellen dissented from the Fed's monetary targets for 1996. According to the
minutes of the policy session on Jan. 30, the two "preferred somewhat higher
(growth) ranges for M-2 and M-3.
They believed the (Federal Open Market)
Committee could readily explain that such an adjustment to the ranges did not
represent a lessened commitment to its price stability goal or an increased
emphasis on the monetary aggregates in policy formulation."
At his Senate confirmation last week, Mr. Meyer gave his priorities for the
Fed: price stability, full employment and economic growth. Stable prices come
first, he said, because they are "the singular goal for monetary policy in the
long run.
There is no long-run tradeoff between unemployment and
inflation." At the same time, Mr. Meyer asserted that the "Phillips Curve" has
the "best predictive power on inflation."
British economist A.W. Phillips found that in England from 1851 to 1957
there was an inverse relation between unemployment and the change in money
wages. Economists have generalized that finding to justify efforts to trade
higher inflation for more jobs. While such a link may have existed in Britain
in the 19th century, it is not true of the U.S. economy at the end of the 20th.
As Mr. Mack observed, trading inflation for employment is a Faustian bargain,
where everybody loses.
The modern American version of the Phillips Curve is the idea that it works
for short periods but not for long ones. This is the basis of Ms. Yellen's
statement that "there is no conflict whatever between pursuing price stability
as the primary long-run goal while simultaneously operating to help stabilize
the economy's real economic performance." Her fatal flaw is that there is no way
for anyone to know where the short run ends and the long run begins.
Meanwhile, Fed policy-makers must grapple with serious problems of their own
making. During 1991, '92 and '93, monetary policy was very easy. Total bank
reserves, the raw material for the money supply, rose at an annual rate of
almost 14 percent. Since the first quarter of 1994, the Fed's official measure
of reserves has dropped an average of about 4 percent. Rapid growth of "retail
sweep accounts" - a complex technique that results in a reduction in reserve
totals - makes these data appear weaker than they really are. Even so, money is
still tight.
The rapid swing from ease to restraint naturally set off shock waves in
financial markets and the economy. In 1994, concern about possible future
inflation dominated the market, and interest rates rose sharply. Now the worry
is that money is too tight and the risk of recession is rising. In calling for
a more generous money target for 1996, Mr. Lindsey, who does not share Ms.
Yellen's fascination with fine tuning, was apparently reacting to these latter
concerns.
The Fed will have to walk a tightrope in months leading up to the election.
Policy-makers must back away from excessive restraint, which would only lead to
recession. They must avoid a new round of experiments with fine-tuning, which
PAGE 38
The Washington Times, April 11, 1996
would surely backfire. It won't be easy.
H. Erich Heinemann is chief economist of Heinemann Economic Research, a
division of Brimberg & Co., institutional brokers in New York.
LANGUAGE: ENGLISH
LOAD-DATE: April 11, 1996
PAGE
41
17TH STORY of Level 1 printed in FULL format.
Copyright 1996 The Washington Post
The Washington Post
March 26, 1996, Tuesday, Final Edition
SECTION: FINANCIAL; Pg. C01
LENGTH: 751 words
HEADLINE: Fed's Goals to Be at Issue At Confirmation Hearings
BYLINE: John M. Berry, Washington Post Staff Writer
BODY:
Against a background of low unemployment, low inflation and an economic
expansion entering its sixth year, Federal Reserve Chairman Alan Greenspan and
two other Fed nominees are expected to breeze through confirmation hearings
today.
But if there is little suspense about Fed policy in the short run, the
nominees -- White House budget director Alice M. Rivlin for vice chairman and
St. Louis economist Laurence B. Meyer to fill another vacancy on the Fed board
--- likely will be questioned closely about their views on what the central
bank's long-term goals should be.
Banking Committee Republicans, including Sen. Connie Mack of Florida, want to
make price stability the Fed's sole long-term goal, and Mack has introduced
legislation to that effect.
In contrast, some committee Democrats, including Sen. Paul S. Sarbanes of
Maryland, argue that the Fed's current legal mandate to pursue "maximum
employment, stable prices and moderate long-term interest rates" should not be
changed to eliminate the focus on jobs.
Greenspan has testified repeatedly that he believes the Fed's primary goal
should be price stability and he has indicated general support for Mack's bill.
Rivlin and Meyer have not made public their views on the issue.
Like the chairman, several other Fed officials also have indicated they would
prefer having a singular legal mandate to keep inflation low and would be
prepared to have their performance judged on that basis.
As William J. McDonough, president of the New York Federal Reserve Bank, said
in a speech last week, "The benefit of a declared inflation goal is that it puts
the focus of public oversight where it belongs -- on how well the central bank
is doing its job -- and settles the issue of what that job should be.
"I am increasingly convinced that in a democracy, a central bank can maintain
price stability over the intermediate and long term only when it has public
support for the necessary policy. Numerical goals for monetary policy may help a
credible monetary authority maintain and build upon that support," McDonough
said.
The Fed bank president suggested that the Fed should have an inflation target
in a 0.5 percent to 2 percent range, because price experts say official
PAGE
42
The Washington Post, March 26, 1996
inflation indexes overstate changes in the cost of living by that much. The
target should be in the "upper end" of the range to make sure Fed policy could
not cause a destructive decline in prices, he said.
But not all Fed policymakers agree about having an inflation target. For
instance, former vice chairman Alan S. Blinder, who resigned in January to
return to teaching at Princeton University, was outspoken in his opposition to
eliminating the mandate to maximize employment. And earlier this month,
Clinton's only other appointee on the Fed board, Janet L. Yellen, also publicly
opposed such a change.
In a speech here to the National Association of Business Economists, Yellen
said she agreed that "the appropriate primary long-term goal for the Federal
Reserve should be price stability," but she quickly added that "it does not
follow that the Fed should focus exclusively on inflation."
"In my view, monetary policy is needed, and has succeeded, in smoothing the
ups and downs of the business cycle -- mitigating economic fluctuations and
stabilizing output and employment in the U.S. economy.
Stabilization of
output and employment is a second appropriate goal for the Federal Reserve,"
Yellen said.
Mack's bill, which would let the Fed set its own inflation target and decide
how long it would need to achieve it, is ambiguous on whether the central bank
should take other factors, such as unemployment, into account in setting policy
once the target has been achieved.
Nevertheless, Yellen expressed concern that a future Fed might be too
single-minded if the law is changed. "A quantitative target solely for inflation
could undercut adequate attention to real variables [such as unemployment] in
the short run," she cautioned.
The confirmation hearings for Rivlin and Meyer will begin while the Fed's top
policymaking group, the Federal Open Market Committee, is meeting to consider
whether to make a change in short-term interest rates. Greenspan, who was
appointed by Clinton to a third, four-year term at the helm of the central bank,
will appear before the Senate committee shortly after noon. Before he testifies,
the Fed will announce whether the FOMC chose to make a change in rates, but
analysts expect none.
GRAPHIC: Photo, ALAN GREENSPAN JANET L. YELLEN (Photo ran in an earlier edition)
LANGUAGE: ENGLISH
LOAD-DATE: March 26, 1996
PAGE
43
19TH STORY of Level 1 printed in FULL format.
Copyright 1996 Investor's Business Daily, Inc.
Investor's Business Daily
March 14, 1996
SECTION: The Economy Briefs One; Pg. B1
LENGTH: 521 words
HEADLINE: Population Growth Slows
BODY:
America's population growth will slow to the lowest rate since the Great
Depression as the nation ages in next half-century. New Census Bureau estimates
call for a nation of 400 million people by 2050, but predict the lowest growth
rate since the 1930s. The nation's median age of 34.1 in 1995 was a record high.
But it is expected to climb to 35.7 by 2000 and 38.7 by 2035, according to the
report, ''Population Projections of the United States. 'Report: Fewer Workers,
More Retirees ComingThe Census report said that as the baby-boom generation
ages, leaving fewer people in the prime childbearing years, the country's growth
rate will slow. Between 1995 and 2000, annual growth is expected to be 0.88%.
But this will slow to 0.63% annually between 2040 and 2050. The so-called
dependency ratio, the number of people under age 18 and over 65 compared to
those of working age, was 63.7 in 1995. It will grow to 68.2 in 2020, and 79.9
by 2050.U.S. Policy Toward China Gets A Boost From RubinTreasury Secretary
Robert Rubin defended the Clinton administration's policy of engagement with
China, saying it helped both countries. (China) is going to be largest economy
in the world one day,' Rubin said. "We need to foster a policy of
engagement Rubin is set to meet with China's finance minister in Japan this
weekend to discuss trade issues. The U.S.' deficit with China jumped last year
by 15% to $ 33.8 billion, second only to the U.S. shortfall with Japan.
Lindsey: Fed 'Pushing' The Envelope Of GrowthFed Gov. Lawrence Lindsey said the
drop in unemployment to 5.5% means the Fed is properly ''pushing the envelope''
of growth without triggering higher inflation. ''I think that's the right thing
to do,' he said. ''We believe in maximum sustained growth without inflation, so
what we want to do is keep the economy as revved as possible while feeling out
there as best we can for signs of inflation. Overall, though, Lindsey said
U.S. is likely to post 'below average'' growth this year while avoiding a
recession. Yellen - Fed Shouldn't Just Focus On InflationThe Federal Reserve
shouldn't be limited solely to fighting inflation as some Republican legislators
advocate, Fed Gov. Janet L. Yellen said. She said she opposes proposals in
Congress to limit the Fed solely to fighting inflation. 'Monetary policy is
needed, and has succeeded, in smoothing the ups and downs of the business cycle,
mitigating economic fluctuations and stabilizing output and employment in the
U.S. economy,'' Yellen said. Jobs And Output Should Be Fed Targets: YellenYellen
added that a boom and bust economy, with people uncertain they can hold a job,
diminish welfare, impede business and household planning and create
uncertainty which is harmful to investment. She said, ''Stabilization of
output and employment is a second appropriate goal for the Federal Reserve,
after its No. 1 priority of containing inflation. That clashes with Fed Chairman
Alan Greenspan's view that the Fed's sole goal should be to keep prices stable.
LANGUAGE: ENGLISH
PAGE 44
Investor's Business Daily, March 14, 1996
LOAD-DATE: March 14, 1996
PAGE
55
37TH STORY of Level 1 printed in FULL format.
Copyright 1995 Law & Business, Inc.
Banking Policy Report
November 6, 1995
SECTION: Volume 14, Number 21; Pg. 19
LENGTH: 614 words
HEADLINE: Regulators See Megamergers Preserving Competition
BODY:
The megamerger boom in the banking industry is unlikely to diminish
competition for banking services or be harmful to consumers, according to the
Federal Reserve Board and other regulatory agencies.
"The picture that emerges is that of a dynamic U.S. banking structure
adjusting itself to the removal of long-standing legal restrictions on
geographic expansion, technological change and greatly increased domestic and
international competition," said Federal Reserve Board Gov. Janet L. Yellen.
She testified with other regulators at a hearing October 17 before the House
Banking Subcommittee on Financial Institutions and Consumer Credit.
Subcommittee Chairwoman Marge Roukema (R-N.J.) called the hearing to
investigate reports that the megamerger boom would diminish consumer access to
basic banking services.
Natural Development
Yellen said the on-going trend toward consolidation in banking is the result
of natural and beneficial market forces. Moreover, she added, the Fed and other
regulatory agencies are determined, in the merger and acquisition approval
process, to preserve the benefits of competition for consumers of banking
services and to maintain the safety and soundness of the banking system.
"The recent wave of large mergers and merger announcements reflect to a large
degree a natural response to new opportunities for geographic expansion as legal
restraints are removed," she said. "The industry is moving away from a legally
fragmented banking structure toward a nationwide banking structure. Rapid
technological changes and global competition in corporate banking are almost
certainly a motivating factor for the very large banks."
Yellen's reassurance is noteworthy because the Fed is the primary federal
bank agency ruling on major bank consolidations, and its decisions are important
in formulating standards for bank expansion.
"It is certainly possible that some customers have been disadvantaged by some
mergers," she said. But "market developments and the removal of geographic
restrictions on banks have significantly lessened the chances for
anticompetitive effects."
Competition Endures
Yellen said the banking system has a built-in process of rejuvenation that
helps it sustain a healthy level of competition even in periods of fast-paced
consolidation.
PAGE 56
Banking Policy Report, November 6, 1995
"The increased pace of bank mergers since the early 1980s has greatly reduced
the number of U.S. banking organizations, and resulted in a substantially higher
nationwide concentration of banking assets at the 100 largest banks," she said.
"However, concentration in local banking markets, which is normally considered
most important for the analysis of possible competitive effects, has remained
virtually unchanged. In addition, there continues to be new bank entry, and
there is a continuing increase in the number of banking offices. This
illustrates that the U.S. banking structure is highly dynamic, and that sweeping
generalizations are extremely difficult to make."
Economies of Scale
So far the Fed has uncovered no evidence that the wave of bank mergers on
average have produced significant gains in efficiency, Yellen said, "However,"
she added, "in recent years, there appear to have been some cases of
improvements in efficiency, and our staff work does suggest the potential for
such savings if well-managed entities acquire and modify the operations of
highcost organizations."
Yellen urged Congress to remain calm about the unprecedented consolidation
now reshaping the U.S. banking industry. "Bank consolidation to date has not
reduced competition in any meaningful way," she said, "and we see no reason why
it should begin to do so."
LANGUAGE: ENGLISH
#056T951127SMARA01#
LOAD-DATE: November 24, 1995
PAGE
87
87TH STORY of Level 1 printed in FULL format.
Copyright 1995 American Banker, Inc.
The American Banker
March 2, 1995, Thursday
SECTION: WASHINGTON; Pg. 2
LENGTH: 248 words
HEADLINE: 2 Governors Dissent on CRA Grounds As Fed Approves Northern Trust Deal
BYLINE: By JARET SEIBERG
DATELINE: WASHINGTON
BODY:
In a highly unusual move, two Federal Reserve Board governors dissented on
Community Reinvestment Act grounds from the central bank's decision late
Wednesday to give Northern Trust Corp. of Chicago permission to acquire a
Florida institution.
Fed Vice Chairman Alan Blinder and Gov. Janet Yellen, both appointed by
President Bill Clinton, wrote in a two-page dissent that the central bank should
have delayed action on Northern Trust's bid for Beach One Financial Services
Inc. of Vero Beach, Fla.
Northern Trust, the parent of Chicago Bank, is under investigation by the
Justice Department for violating the fair-lending laws from 1992 to 1994.
"We believe it is wise to wait a short while for more pertinent information,"
the two wrote.
The two wrote that within the next few months the bank should be resolving
its dispute with the Justice Department and filing a Community Reinvestment Act
status report with the Fed.
"These two pieces of information, we believe, would put the board in a much
better position to make a determination," the two wrote.
The dissent elated community activists. "It is significant that the two
newest Fed governors are starting to express a view to the board, which is
something we have been waiting for," said Allen Fishbein, general counsel of the
Center for Community Change.
But banking analysts were more sedate. "It is an indication of sensitivity,"
said Karen Shaw, president of ISD/Shaw Inc. "But, the application has
progressed."
LANGUAGE: ENGLISH
LOAD-DATE: March 1, 1995
PAGE 88
93RD STORY of Level 1 printed in FULL format.
Copyright 1995 American Banker, Inc.
The American Banker
January 6, 1995, Friday
SECTION: WASHINGTON; Pg. 3
LENGTH: 1051 words
HEADLINE: Newest Fed Governor, After Five Months on Job, Says She's Liberal -
But Keeps Cards Close to Vest
BYLINE: By JARET SEIBERG
DATELINE: WASHINGTON
BODY:
Janet Yellen, the Federal Reserve Board's newest governor, is supposed to
come from a different tradition than her Republican- appointed colleagues.
Supporters have said she's one of President Bill Clinton's new Democrats -
liberal on social issues and conservative on economic ones.
But, in her first five months at the Fed, Ms. Yellen has remained quiet and
noncombative, declining to stake out controversial positions publicly.
In fact, she appears to have adopted many of the Fed's long-standing views on
regulatory issues.
Unlike fellow Clinton appointee Alan Blinder, who caused a stir early last
fall after discussing publicly the Fed's role in preventing unemployment, Ms.
Yellen has not made headlines.
Even on an issue the President has singled out as a priority - community
reinvestment reform - Ms. Yellen so far has not differed from her colleagues.
For example, the former University of California business professor voted in
September to give Barnett Banks permission to buy a Florida thrift, despite a
continuing Justice Department fair-lending probe.
"I'm somewhat disappointed that (Ms. Yellen and Mr. Blinder) have not sought
out new ground from some of the holdovers on the board, especially given the
public comments of some members of the board," said Allen Fishbein, general
counsel to the Center for Community Change.
Several board members, including Lawrence B. Lindsey, have questioned the
wisdom of parts of the Community Redevelopment Act reform package.
Ms. Yellen, in her first wide-ranging interview since taking office in
August, said the public should not misinterpret her silence on CRA issues.
"I consider myself a liberal," she said. "I am concerned about the cities. I
just think it is inappropriate to be staking out a position."
PAGE 89
The American Banker, January 6, 1995
She said she will speak out once she's considered the comments filed on the
most recent CRA revisions. Until then, she said she wants to keep an open mind.
She and the other governors, contrary to the belief of some CRA activists, do
not take CRA complaints lightly, she added.
"The board always takes CRA protests seriously," she said. "They are not
ignored."
Fed governors receive a confidential assessment of a bank's Home Mortgage
Disclosure Act data and an analysis of its CRA performance before voting on an
application, she said.
Community activists said it is too early to know where Ms. Yellen stands on
CRA.
"The jury is still out," said John Taylor, president of the National
Community Reinvestment Coalition.
He said Ms. Yellen has made several encouraging comments, telling community
activists that she believes CRA is an important part of the regulatory system.
Hopefully, those comments will turn into action, he said.
"The sense I got with her is that she clearly is trying to learn and do some
on-the-job training," Mr. Fishbein said. "That may explain why she's been
quiet."
But, he said he is surprised that Ms. Yellen has not defended CRA and
fair-lending issues when they have come up at Fed meetings.
Ms. Yellen also has adopted the board's consensus view on a host of other
issues, including regulatory consolidation, derivatives, Glass- Steagall Act
reform, and mutual fund sales.
For example, while the Clinton administration wanted to strip the Fed of some
of its bank regulatory powers, Ms. Yellen said these powers are vital to the
central bank's monetary policy mission.
"It is surprising how much you learn from the regulatory environment that is
helpful in monetary policy," she said.
For example, as the Fed has tightened the money supply, bankers have told her
that they are easing credit terms, effectively mooting the central bank's
interest rate hikes.
"Is that relevant to us on the monetary side?" she asked. "Absolutely."
On the derivatives front, Ms. Yellen echoed the view of several Fed governors
who have said regulators have a hard time accounting for risk.
"Risk can only be evaluated in the context of a bank's complete holdings,"
she said. "The problem is, how do you judge the risk of a portfolio? This is not
just a matter of sending in bean counters."
PAGE
90
The American Banker, January 6, 1995
Regulators also must determine how to respond to institutions that calculate
risk exposure differently, she said.
Ms. Yellen, agreeing with Fed Gov. Susan M. Phillips and others, said
additional legislation on derivatives is not needed because there is no evidence
yet that banks are abusing the complicated financial instruments.
Ms. Yellen also sticks to the Fed's consensus view on Glass-Steagall reform,
saying separately capitalized holding companies should be freed from the 10% cap
on their underwriting activities.
"I think I am reasonably comfortable with that," she said.
But, repeating Fed Chairman Alan Greenspan's view, a final resolution of
whether the cap stays or goes must be left to Congress, she said.
"I would not be comfortable seeing regulators adopt rules that effectively
repeal Glass-Steagall," she said.
Ms. Yellen adheres as well to the Fed's view on the sale of mutual funds and
other investments, saying she supports letting banks expand into new businesses
provided there are adequate safeguards.
Ms. Yellen stressed several times during the interview that she is just
learning about many of these regulatory issues, noting that she didn't encounter
these questions during her career as an economist.
That career began when the Yale University doctor of philosophy served as an
assistant professor of economics at Harvard from 1971 to 1976, before joining
the Fed as an international economist.
She left the central bank in 1978 to teach at the London School of Economics
before joining the faculty at Berkeley.
She found out she was in the running for the Fed post while vacationing in
Hawaii. She said it took Treasury Department officials a week to track her down.
"I was far from a phone and didn't tell anyone where I was going," she said
with a smile.
Less than a month later, the President formally nominated her, she said.
That Ms. Yellen's first major interview comes five months into her 14- year
term shouldn't surprise anyone, Emory University professor George J. Bentson
said. Most new governors avoid the spotlight, added Mr. Bentson, a member of the
Shadow Financial Regulatory Committee.
"That is pretty much the way they do it," he said.
GRAPHIC: Yellen, photo
LANGUAGE: ENGLISH
LOAD-DATE: January 5, 1995
PAGE
92
97TH STORY of Level 1 printed in FULL format.
The Associated Press
The materials in the AP file were compiled by The Associated Press. These
materials may not be republished without the express written consent of The
Associated Press.
December 7, 1994, Wednesday, BC cycle
SECTION: Business News
LENGTH: 1056 words
HEADLINE: Economists: Neighbors, Not Wardens, Hold Keys to Cutting Crime
BYLINE: By AMANDA BENNETT
BODY:
Three years ago, Minnie Green's Washington, D.C., neighborhood was thick with
drug dealers. "You couldn't walk the streets. They went from one side of the
street to the other. They didn't care, and it seemed the police wouldn't do
anything."
The neighbors organized. They patrolled at night and took down license-plate
numbers of cars cruising for drugs. Today, three major drug busts later, she
says children play safely in the streets: "People feel so free now."
Adds Alpha O. McPherson, president of another active Washington community
group: "If you want to save your community
you have to put the line in the
sand and organize to stop these bad folks."
That's just what economists George Akerlof and Janet Yellen think, too. The
professors of economics at the University of California at Berkeley, who are
husband and wife, have designed a complex economic model that they say shows
that neighborhood action holds the key to crime fighting.
"We are trying to emphasize the important role communities play - the idea
that there is a broader society that has input" into controlling crime, says Dr.
Yellen, who, since helping develop this theory, has become a governor of the
Federal Reserve Board.
Mainstream economists believe that crime is a rational economic choice:
Criminals choose crime when the benefits exceed the costs. When governments
increase the "cost" of crime by increasing the certainty of punishment, they
argue, crime will fall.
The Akerlof-Yellen model begins with the mainstream assumptions about the
criminals' choices. But it comes to a sharply different conclusion about
deterrence. A more effective way to increase the cost of crime, Drs. Akerlof and
Yellen say their model shows, is to cut a community's willingness to tolerate
it.
Up to a certain crime level, they argue, communities inadvertently cooperate
with criminals by looking the other way instead of reporting crime to the
police. "Up to that point, crime pays," they write in their paper applying their
model to gang behavior. Eventually, though, when crime gets too bad,
PAGE
93
The Associated Press, December 7, 1994
communities begin to cooperate with the police instead, and crime drops. They
call the line at which that switch takes place the "cooperation-noncooperation
boundary."
They find that crime seeks its own equilibrium in classic economic fashion as
criminals - rationally - try to keep their crime level high enough to give them
maximum profits but low enough not to trigger the community's ire. Crime can be
controlled if ways can be found to lower that cooperation threshold, the two
economists argue.
They maintain that after a certain point, more prison building may cause the
threshold to rise if the community perceives punishments to be too harsh. "I
would go pretty far in saying that people's perceptions of the fairness of the
justice system can have really big effects on the crime rate," says Mr. Akerlof.
"In our model, if people think that the legal system is not fair, then they stop
cooperating with the authorities and the crime rate is going to go way up."
Proponents of community activism say the economists' work provides rare
academic support for their efforts. "It's a radically different look" at crime,
says Roger Conner, executive director of American Alliance for Rights and
Responsibilities, a Washington-based group that, among other things, supports
neighborhood organizing against crime. "Their work, which is theoretical, and my
own work, which is on the streets and practical, are completely consistent."
For example, he says the model helps him understand why antidrug loitering
laws will work if the community welcomes them but will be counterproductive if
the community perceives them to be unfair and won't help police enforce them.
The role of the community in crime fighting received little economic
attention until the Akerlof-Yellen model. George Kelling, a professor at
Northeastern University and a fellow at Harvard's John F. Kennedy School of
Government who specializes in criminal justice, says economists have been much
more interested in crime's effect on the economy or crime's response to an
increase in the number of police officers.
Meanwhile, Prof. Kelling adds, there has been a polarization in the crime
debate: One side argues for police, penalties and prison space; the other
focuses on the root social causes of crime and supports education, job training
and drug rehabilitation.
Dr. Yellen says that she and Dr. Akerlof were looking for a way to bridge the
gap between the traditionally adversarial crime-fighting positions. "We were
trying to find some common ground," she says.
It won't be easy. Both sides find something to hate in the model. Intangibles
like cooperation thresholds are "just political guff," says Morgan Reynolds,
director of criminal-justice studies at the National Center for Policy Analysis,
a Dallas-based think tank. He says his research shows clearly that crime drops
as rates of imprisonment go up.
On the other side of the debate but taking issue with the model is Jerome
Miller, president of the National Center on Institutions and Alternatives in
Alexandria, Va., and a proponent of addressing the economic and social causes of
crime. He characterizes the assumptions behind the model as "a white man's
think-tank view of crime - the view that criminals are different from the rest
PAGE
94
The Associated Press, December 7, 1994
of the community. "
Still, both sides also find things to agree with. "If they are saying that
high rates of incarceration bring about not only diminishing returns but
negative returns I would heartily agree," says Mr. Miller. Meanwhile, John
Dilulio, a professor of politics and public affairs at Princeton University who
favors more imprisonment, says he thinks the Akerlof-Yellen model supports
increasing use of prisons.
Some say that the model's appeal lies precisely in its ability to offer
something to both sides. To be effective, community activism does require
sufficient police to back up citizens and swift penalties once offenders are
caught. At the same time, community vigilance is seen as a cheaper and more
humane way of deterring crime than raising prison terms.
"It's an argument that both sides ought to be able to buy," says Jeffrey
Roth, a senior fellow at the Urban Institute. "If you are committed to using
prisons, it works - and also if you aren't."
LANGUAGE: ENGLISH
LOAD-DATE: December 7, 1994
PAGE
2
1ST STORY of Level 2 printed in FULL format.
Copyright 1996 American Banker, Inc.
The American Banker
May 2, 1996, Thursday
SECTION: WASHINGTON; Pg. 2
LENGTH: 372 words
HEADLINE: Fed, FDIC Officials Dispute Dire Forecast For Small Business
BYLINE: By BILL McCONNELL
DATELINE: WASHINGTON
BODY:
Small-business lending will not be crimped by the banking industry's rapid
consolidation, regulators told lawmakers Wednesday.
"I am optimistic about the outlook for small-business credit," said Federal
Reserve Board Governor Janet Yellen at a hearing before the House Small Business
Committee.
Ms. Yellen disagreed with dire predictions for small-business lending made by
Fed economists in March. The economists showed bank lending to small business
declined 34% from 1989 to 1994, and warned it could drop another 32% during the
next five years. Ms. Yellen criticized those predictions as being based on
insufficient information.
In support of her upbeat forecast, she said the number of bank commercial
loans of $1 million or less increased more than 7% between June 1994 and June
1995.
Agreeing with the rosy forecast, Andrew C. Hove Jr., Federal Deposit
Insurance Corp. vice chairman, asserted that the decline in small-business
lending has already been reversed. "The strength of the banking industry over
the past three years has been accompanied by increased lending to small
businesses," he said.
Mr. Hove said the viability of community banks - the biggest source of
small-business loans - will not be threatened by consolidation. In three of the
last six years, banks with assets of less than $100 million enjoyed
above-average profits, he said.
Lawmakers were skeptical, however.
Rep. John LaFalce, D-N.Y., predicted the wave of mergers will greatly thin
the ranks of community banks willing to lend to small businesses. "Out-of-state
bank holding companies show lower rates of small-business lending than local
institutions," he said, citing the Fed report.
Troubled by Ms. Yellen's disagreement with the Fed economists, Small Business
Committee Chairwoman Jan Myers asked the central bank to prepare a more detailed
analysis of small-business lending.
PAGE
3
The American Banker, May 2, 1996
P. James Dowe Jr., president of Bangor Savings Bank in Maine, asked lawmakers
to double the limit on commercial lending by thrifts to 20% of assets. Frank A.
Suellentrop, chairman of the Community Bankers Association of Kansas, urged
Congress to pass pending regulatory relief bills, which would ease many consumer
protection and compliance rules.
GRAPHIC: Yellen, photo
LANGUAGE: ENGLISH
LOAD-DATE: May 1, 1996
PAGE
4
DATE: DECEMBER 8, 1996
CLIENT: YELLEN
LIBRARY: NEWS
FILE: CURNWS
YOUR SEARCH REQUEST IS:
JANET PRE/2 YELLEN AND HANNAH W/2 ROBERT L
NUMBER OF STORIES FOUND WITH YOUR REQUEST THROUGH:
LEVEL 1...
1
PAGE
9
7TH STORY of Level 1 printed in FULL format.
Copyright 1996 Faulkner and Gray, Inc.
Banking Strategies
(formerly The Magazine of Bank Management)
September, 1996 / October, 1996
SECTION: INTERVIEW; Pg. 55
LENGTH: 3005 words
HEADLINE: To the Limits of the Law
BYLINE: BY STEVE KLINKERMAN
HIGHLIGHT:
A Banking Strategies interview with Janet Yellen
BODY:
While the proposed Glass-Steagall reform legislation debated in Congress this
year would have fallen well short of true regulatory modernization, Federal
Reserve System officials still were quite encouraged by the prospect of a
reasoned expansion of banking powers and a reduction of burdensome regulations.
Under the bill proposed by Rep. James A. Leach (R-Iowa), chairman of the
House Banking Committee, banks would have gained the freedom to affiliate with
non-insurance financial companies such as brokerage firms. Certain laws forcing
banks to seek regulatory approval for all sorts of corporate decisions also
would have been eased.
What is more, the Fed stood to gain additional stature in the regulatory
community, along with a legislative validation of its view on how banking
companies should be organized and regulated. Rep. Leach supported the central
bank's contention that new and potentially more risky banking activities should
be housed in separate bank holding company subsidiaries, with the Fed acting as
the umbrella supervisor of the parent companies.
So from many perspectives, the legislation's defeat made life more difficult
for the Fed, both in its role as an advocate of progressive regulation, and as
the aspiring master architect of banking's future corporate and regulatory
structure.
While acknowledging that "proceeding from here is going to be a challenge,"
Janet L. Yellen says the Fed still hopes to gain ground in modernizing and
streamlining its regulatory practices. A member of the Board of Governors, she
also defends the apparent majority stance among Federal Reserve officials on
what constitutes banking's optimal corporate structure.
In an interview with Banking Strategies, Ms. Yellen says the Fed is
optimistic that more of banking's internal risk management procedures can be
incorporated into regulation, simplifying oversight and rewarding well-managed
banks with greater leeway in self-governance. And she has hopes of cutting some
of the red tape surrounding the applications and approvals process.
The economist joined the Board of Governors in August 1994, following a
14-year tenure at the University of California at Berkeley. She completed a
PAGE
10
Banking Strategies
doctorate in economics at Yale University in 1971.
While conceding that sequestering new activities in separate subsidiaries
drives up costs and probably slows over-all corporate responsiveness, Ms.
Yellen says loading up federally-insured depositories with myriad nontraditional
lines of business would give banks unfair competitive advantages while
compromising the risk profile of the Bank Insurance Fund.
Ms. Yellen also makes a case for significant Fed involvement in bank
regulation, and for the continued widespread availability of deposit insurance
-- even at the price of heavier regulation.
Banking Strategies: What are the major issues facing depository institutions?
Where can the Federal Reserve help, and where should it be involved?
Yellen: Depository institutions are facing competition from many kinds of
financial institutions operating in less-encumbering regulatory environments.
Banks have to gain stance in evolving market arenas if they are to maintain
their competitiveness.
For the Federal Reserve, that means we need to usher banks into new areas in
ways that are consistent with law and the dictates of safety and soundness, and
to support modernizing legislation. We were disappointed that the
Glass-Steagall reform bill wasn't passed. We feel there is a range of
activities banks could pursue that would broaden their ability to serve
customers in a way that would be perfectly consistent with safety and soundness.
Proceeding from here is going to be a challenge.
Banking Strategies: You can only go SO far within the current legal
framework.
Yellen: That's right. We also supported the regulatory relief provisions
wrapped in the Glass-Steagall package. But we still are trying to go as far as
we can on our own. We are systematically reviewing every one of our
regulations, trying to see what we can do to reduce regulatory burdens.
Banking Strategies: What are the primary opportunities?
Yellen: We're studying ways to streamline the process of submitting
applications and obtaining approvals, particularly for banks that are
well-capitalized and -managed, and which have either satisfactory or outstanding
ratings for compliance with the Community Reinvestment Act.
Another priority is keeping current with progressive risk management
practices in the industry. We certainly see that risk management methods,
models and techniques are rapidly advancing. We want to understand these
practices and maintain an open mind about incorporating them into supervision
and regulation.
For example, we're about to publish final rules on the regulatory use of
internal bank models assessing trading risks. That's a novel approach. It
shows a willingness on the part of the regulators to work with the industry --
to gear our own capital standards and supervision to risk management techniques
banks themselves are using daily.
PAGE
11
Banking Strategies
We're not stopping at that. In the draft of our pre-commitment concept, on
which we currently are soliciting comment, we try to create incentives for banks
to figure out on their own how much capital they need to cover losses in trading
accounts. We would give banks the freedom to decide for themselves, based on
self-assessments of exposures and risk management capabilities.
Banking Strategies: Can this approach be expanded beyond its proposed initial
application?
Yellen: It is a question mark for other areas. One requisite of the
pre-commitment approach is an ability to evaluate the market value and
prospective performance of a portfolio, assessing gains and losses and the
variability of returns. Capital requirements are based on that analysis, and
banks commit themselves to maintaining capital levels specified by their own
models.
But in the case of loan portfolios, the assets can't be valued. And that's a
big difference. Loans are not like exchange-traded derivatives and tradable
securities, on which we can obtain market values every day. That impedes the
assessment of gains and losses and the variability of returns, and as such is an
obstacle. I'm not going to rule out the possibility that someone could figure
out how to extend the pre-commitment approach to illiquid loans, but at this
point I don't see how that could be done.
Banking Strategies: One issue in banking efficiency is corporate structure.
There is serious disagreement on whether trading and many other types of
cutting-edge financial services activities should be folded into the main bank,
or housed in separately capitalized subsidiaries.
There are those people who very strongly contend that housing high-risk
activities in separate subsidiaries doesn't enhance safety and soundness and
does pose a burden. On the other hand, there are those people who say separate
subsidiaries help protect depositories and prevent market disparities arising
when banks use deposits to fund high-risk units that compete with non-banks
having higher funding costs.
What's your take? What is the ideal corporate structure that assures safety
and soundness but at the same time assures maximum flexibility and economy of
operation for the banking industry?
Yellen: You've asked a very difficult question, and I don't think there's a
clear-cut answer to be had.
In terms of allowing banks to engage in new activities, it seems to me that
we ought to try to maintain a level playing field. I worry about the potential
competitive inequities that could arise if banks were permitted to carry new
activities under their depository charters. The advantages would include a
lowered cost of capital and the implied extension of the safety net to new and
potentially more risky activities.
To be sure, there's a consequence for efficiency and competitiveness when
activities are compartmentalized in separate subsidiaries. The holding company
structure can raise the cost of engaging in new activities and maybe prevent --
given the firewalls that we would envision -- some of the synergies that could
spring from a more tightly-integrated organization.
PAGE
12
Banking Strategies
The Federal Reserve is sensitive to this issue, and our position on separate
subsidiaries isn't totally rigid.
But under the holding company structure, there's less chance that banks will
take advantage of the safety net and become unfair competitors in new
activities. And there is greater insulation between depositories and
higher-risk affiliates.
Of course, all of us understand that a holding company in practice is a
single organization. If a separate subsidiary engages in risky activities and
gets in trouble, it is possible that detrimental public and market reactions
could spill over to the bank affiliate, even though it is a legally distinct
entity in sound condition. The affiliates are all part of the same entity.
They all have the same name on the door.
Banking Strategies: Confidence is confidence on both sides of the aisle. If
the public loses confidence in a banking affiliate
Yellen:
the mistrust can extend to the bank as well. We understand
that having new activities undertaken in separately capitalized subsidiaries of
holding companies doesn't completely insulate the bank. That is why we think
banking organizations also should have umbrella supervision.
Banking Strategies: Should this responsibility necessarily fall to the
Federal Reserve?
Yellen: Currently, the Fed is the umbrella supervisor of all bank holding
companies. I can envision reorganizing things so that responsibilities among
the various regulatory agencies are carved up in a different way, so I don't
want to make it sound like this is a unique and perfect arrangement and could
never, ever be different. But do I think there ought to be a supervisor, an
umbrella supervisor of holding companies? Yes, I do.
I also think it is very important that the Federal Reserve play a role in
bank supervision, even if that role varies somewhat from today's definition.
Bank supervision ties in with monetary policy. And it ties in with the ultimate
responsibility of the central bank, which is guaranteeing the stability,
liquidity and efficiency of the financial system. Every once in a while, the
Federal Reserve is called on to handle a systemic crisis. I don't believe we
could adequately perform that function without the hands-on expertise and
knowledge of the banking system that stems from the discharge of supervisory
responsibilities.
The other thing I would say is that we have a slightly different approach to
regulation than other agencies. Because we have responsibility for monetary
policy, we are constantly looking at the role of the banking system in
supporting economic growth. It's naturally our perspective that banks should
take risks.
Under an alternative regulatory mindset that says "I don't want any bank to
fail on my watch," you lose the perspective that it is the function of the
banking industry to assume and manage risks by making loans that facilitate
economic growth.
PAGE
13
Banking Strategies
When regulation is made too tough because of worries about bank failures, it
can have repercussions on the entire economy. We saw that in the credit crunch
of the early 1990s.
Banking Strategies: How do we arrange things so that the dispersion of
regulatory oversight and self-governance privileges matches the dispersion of
risk profiles in the banking industry, as opposed to the one-size-fits-all
approach that we often see?
Yellen: That's a really tough issue. Superficially, for example, a loan is a
loan is a loan. But a group of banks having nominally similar portfolios can
have sharply differing risk profiles. In an ideal world, they ought to hold
very different amounts of capital. But under our current system, capital
standards on a portfolio of triple-A bonds can be the same as for a portfolio of
junk bonds, because we aren't differentiating.
I think we're making small, gradual steps in the direction of prescribing
capital standards that do reflect varying gradations of risk, coming down hard
in terms of supervision for banks managing their affairs comparatively less
adroitly.
I'm not saying progress is universal, but look at the internal models on
trading risk. This is a good example of where we are going. We are trying to
gear what we do off what the banks themselves do, working with the banks' own
models. There are rewards for banking organizations that have good models and
manage things properly. There are penalties if your model is lousy.
Increasingly with respect to applications and approvals, well-capitalized and
-managed institutions will find the procedures they go through less burden-some.
For them, certain things will be automatic.
Generally speaking, I think it is important to reward good practices. But
it's not easy. It really isn't.
Banking Strategies: What's your general outlook for charter expansions and
modernizing legislation?
Yellen: Even though the Glass-Steagall reform package stalled, there seems to
be a general legislative consensus that things can be done to streamline
regulation and make it less burdensome. But even within the limits of what the
law currently says, we are making a great effort on our own to streamline
things. We'll go as far as we can.
A suggestion has been made that we reconsider our own regulations that limit
the proportion of revenues banks can derive from Section 20 subsidiaries
involved in underwriting, and we'll have to think about the possibilities there.
The Comptroller of the Currency has had considerable success in allowing
national banks to become involved in insurance and other activities.
Ultimately, Congress has an important role to play. I'd like to think that
when there are large chunks of things that are either utterly uncontroversial or
obviously constructive, that somehow or another, those proposals eventually will
become law.
PAGE
14
Banking Strategies
The last legislative push got wrapped up in some pretty contentious politics.
But if you ask me what is my forecast, I think all the forces are moving in the
same direction, and that is to expand bank powers SO long as safety and
soundness is not compromised. I don't know how the journey will work out
precisely.
Banking Strategies: There are those bankers, such as Norwest Corp. chairman
Richard Kovacevich, who are quite vocal in saying, "Why don't we scale back the
safety net, so that when it comes time for lawmakers to consider liberalizing
charters and streamlining regulation, they won't be hamstrung by the issue of
deposit insurance and the government's implicit backing of the banking system."
Yellen: My sense is that Dick's view is not the majority view. If banks were
offered a choice -- either keep things the way they are and get deposit
insurance and the regulations that go with it, or give up insured deposits and
get rid of a lot of the regulations -- I think most banks would keep things the
way they are.
I have the sense that most bankers feel deposit insurance is very important,
that the insured deposit is a valuable core product.
On top of that, you have a very difficult public policy question which has to
do with systemic risk and the stability of the financial system. Deposit
insurance was introduced both to protect individual depositors and to prevent
panics surrounding individual banks from spreading throughout the financial
system.
Would we be better off as a country giving that up? I don't think it is
obvious that we would be. We would have to think through very carefully what
implications the reduction or elimination of deposit insurance would have for
systemic risk. The Depression taught us a lesson. I'm not sure we should get
rid of a system that has served us well in terms of assuring the stability of
our financial system.
Banking Strategies: What are the most promising and important risk management
priorities in the banking industry?
Yellen: When you look at the large trading crises occurring over the past few
years, the Barings situation, the recent losses at Sumitomo, in virtually every
case the problem stemmed from improper internal controls. While some episodes
involved the use of sophisticated financial instruments and strategies, it was
the unsophisticated stuff -- lax controls, poor policies and procedures -- that
sparked trouble.
The lessons are simple yet powerful. You don't let the person doing the
trading keep the books. You establish risk limits, backed up by proper
oversight and controls and a robust organizational structure. It's not so much
having the team of rocket scientists building risk control models and making
sure you don't insert an error in line 9,022 of the program, it is controlling
people in the organization and guarding against the possibility that an errant
officer could incur and conceal $ 1 billion of trading losses.
My sense of the state of the practice is that it is very good. I feel the
industry has come a long way. I feel the supervisors have come a long way.
Increasingly, our emphasis is on the organization, making sure that the
PAGE 15
Banking Strategies
internal controls are there.
Beyond that, the technologies for measuring, monitoring and controlling risk
are also advancing. Not all institutions are using these tools, and they're not
all engaging in the riskiest and fanciest kinds of activities, but my goodness,
the technology in this area has evolved enormously.
Banking Strategies: Are you optimistic about the future of the banking
industry?
Yellen: Yes, I know there are concerns about increased competition from
nonbank financial organization. But it seems to me that a growing portion of
bank profitability comes from activities that don't show up on balance sheets.
In many fee-based products and services, American banks are highly competitive.
I understand that banks are anxious to get into new activities. But overall, I
think banking is doing quite well.
GRAPHIC: Photos 1 through 3, no caption, Photographs by Mike Mitchell
LANGUAGE: ENGLISH
PRINT DOC REQUESTED: DECEMBER 8, 1996
104PH6
35 DOCUMENTS PRINTED
106 PRINTED PAGES
SEND TO: BURGESS, W. GREG
WHO - GEN. COUNSEL
725 17TH ST. N.W.
WASHINGTON DISTRICT OF COLUMBIA 20503
00760