Mr. Chairman, and members of the Committee, I am pleased to have the opportunity to appear here today as you consider my nomination to serve as a member of the Board of Governors of the Federal Reserve System. I look forward to serving in this position. If the Committee and the full Senate approve my nomination, I promise to work with the other members of the Board, and with this Committee, to carry out the objectives that the Congress has established for the Federal Reserve.
I am honored that President Bush has nominated me to the Board. This brings me back to where I started my professional career. When I was in graduate school at Northwestern University, I received a fellowship from the Federal Reserve Bank of Chicago that enabled me to conduct research at the Bank to complete my doctoral dissertation.
The decisions of the Federal Reserve affect the economic well-being of every American consumer and business. The Federal Reserve has responsibilities for establishing monetary policy and assuring the safety and soundness of the banking and payments systems. I believe my background in these areas qualifies me to serve on the Federal Reserve Board.
I hold an M.A. and Ph.D. in economics from Northwestern University, and taught economics for seven years. My first professional position after graduate school was with the Federal Reserve Bank of St. Louis. There, and at the Chicago Federal Reserve Bank, I gained valuable experience in issues regarding bank mergers and acquisitions, regional economics, and monetary policy.
I have spent twenty-one years with First Tennessee National Corporation, a large, nationwide diversified financial services institution, headquartered in Memphis, Tennessee. My experience has primarily been in the areas of finance, risk management, and audit, which has given me an appreciation of the day-to-day workings of the financial system and the issues relevant to implementing regulations.
I approach this nomination understanding the responsibilities that the Federal Reserve has to create the monetary policy environment that will support full employment and maximum sustainable economic growth. Based on my experience over the years, I believe that this can only be accomplished by restraining inflation. Inflation increases the cost of capital to businesses and thereby reduces the amount of long-term investment, which in turn reduces economic growth and job creation. High inflation expectations increase
long-term interest rates which reduces the ability of households to buy homes, finance their children’s education, and provide the means to their families that improve their standard of living.
While the primary focus of monetary policy is to contain inflation, the Federal Reserve must also be constantly aware of the rate of economic growth and the level of unemployment. The American economy benefited from more rapid productivity growth in the 1990s, which permitted the economy to enjoy faster growth and lower rates of unemployment without triggering significant inflation. Economic growth has slowed since late last year and has been adversely affected by recent tragic events. This led to actions to lower short-term interest rates to strengthen the economy.
When unusual events occur, such as those on September 11, the Federal Reserve has the additional responsibilities of providing liquidity and assuring the smooth functioning of the payments system. By stepping in promptly to ensure that banking and payments systems continued to function, and to provide sufficient liquidity to keep transactions moving as smoothly as possible, the Federal Reserve helped to keep short-run disruptions to a minimum. In the aftermath of the September 11 events, bankers throughout the country were able to support the transaction and credit demands of their customers due to the effective and prompt response of the Federal Reserve.
We are in a time of changing technology, competitive factors and business practices that affect the financial system. Recent innovations in financial instruments, such as derivatives, and securitizations of loans, have changed the way that risks and liquidity move among financial market participants. With laws like Gramm-Leach-Bliley, the distinctions among products and services offered by commercial banks, investment banks, insurance carriers, and non-financial firms are diminishing. The Fed must respond appropriately to these forces to keep markets competitive and efficient, while balancing the need to protect the safety and soundness of the banking system.
Financial institutions now have more tools to manage the credit, market and operating risks they face. This has important implications for the way the safety and soundness of our financial institutions should be measured and monitored. The Federal Reserve and other bank and financial institution regulators will have to modify regulations to encourage the beneficial aspects of these new innovations and risk mitigation tools without significantly increasing systemic risks to financial markets. This requires that the staff of the Fed continue to develop their knowledge base to effectively monitor the financial institutions for which it has oversight.
Finally, the Federal Reserve must also provide regulations and oversight of the manner in which financial services are provided to ensure that the varying needs of consumers, businesses, and communities are met in a fair and efficient manner. The Federal Reserve should encourage the appropriate mix of regulation, customer disclosures, and improved financial literacy so that consumers and businesses can more fully benefit from innovations in technology and financial services.
In conclusion, I approach my nomination as a member of the Board of Governors of the Federal Reserve with an understanding of the broad responsibilities the position requires. I would like to thank the Committee for considering my nomination, and if I am confirmed, I look forward to working on these policy issues with members of this Committee and other committees of Congress. I will be happy to answer any questions you may have.
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