Hearing on Pending Nominations to the Federal Reserve Board

Chairman Sarbanes, Senator Gramm and Members of the Committee, I am pleased to appear before you as one of President Bush’s nominees to serve on the Board of Governors of the Federal Reserve System. I am honored that President Bush has nominated me to serve on the Board. If I am confirmed by the Senate, I look forward to fulfilling the important responsibilities of Board membership.

My background has prepared me well for my prospective service on the Board. The Board has responsibility for both the conduct of monetary policy in the United States and also for the supervision of bank holding companies, financial holding companies, state chartered banks that are members of the Federal Reserve System and U.S. offices of foreign banks. I have spent the past thirty-five years in the financial services industry in a variety of roles. After graduating from St. Olaf College in 1965 with a bachelor’s degree in Economics, I began my career in banking with First Bank System in Minnesota, which is now part of US Bancorp, a major regional bank holding company. In my four years with First Bank System, I spent two years in retail banking and two years in commercial lending. In 1971, I moved to Washington D.C. and served with former Congressman Bill Frenzel as his legislative assistant for banking while he was a member of the House Banking Committee. In 1976, I returned to the banking industry as President of the Security State Bank in Fergus Falls, Minnesota. Security State Bank was, and is, a community bank, which my father was instrumental in chartering in 1957. I served as President and CEO of that bank for twelve years.

With a combination of banking and Capitol Hill experiences, I became active in the American Bankers Association, and was elected President of the ABA in 1986. My ABA responsibilities involved the development and presentation of the industry perspective on public policy issues and, among other activities, brought me to testify before this committee on two previous occasions.

In 1988, our family sold its interest in Security State Bank and I returned to Washington D.C. as Partner with what is now Ernst & Young LLP. At Ernst & Young, I headed the Financial Services Industry Regulatory Consulting Group. In that capacity, I worked with a wide variety of financial services businesses including every type of charter supervised by the Federal Reserve System with the single exception of Edge Act Corporations. Our role was to assist financial institutions in anticipating, understanding and complying with laws and regulations. In addition, I consulted on a variety of strategic and managerial issues. Our clients included some of the largest financial institutions in the country.

After taking an early retirement from Ernst & Young, I was invited by then Senator Rod Grams to serve as the Staff Director of the Securities Subcommittee of the Senate Banking Committee. In that capacity, I worked with Subcommittee Chairman Grams, and the other members of this committee on a variety of securities and accounting industry oversight issues.

In summary, I have been part of the financial services industry as a practicing banker for sixteen years, a regulatory consultant for twelve years, and a Congressional staff member for five years, and was elected to the highest leadership position in the banking industry. This combination of experiences has allowed me the opportunity to understand the important issues challenging the financial services industry, its regulatory authorities, and the United States Congress. I look forward to bringing that experience to the Board of Governors.

Monetary policy is a critical Federal Reserve responsibility. The Federal Open Market Committee and the Board establish policy, which is implemented through the Federal Reserve Banks and ultimately through the banking system.

As a banker, I gained a hands-on familiarity with the tools used to implement monetary policy as the banks are, effectively, the counter parties to Federal Reserve decisions including: federal funds rate targets, discount rates for Federal Reserve Bank borrowing, and establishment of reserve requirements. My background has provided me an understanding of how monetary policy is implemented, and the impact these policy decisions have on individuals and businesses. Importantly, as a banker, I witnessed first hand the difficulties caused by both recession and high inflation in more volatile economic times. As a result of that experience, I fully support the mandate Congress has given the Federal Reserve System to pursue "maximum employment, stable prices, and moderate long term interest rates."

With the passage of the Gramm-Leach-Bliley Act of 1999, the Federal Reserve was accorded by Congress an expanded role in financial services supervision. That bill allowed financial institutions from banking, thrift, securities and insurance industries to affiliate in a newly authorized financial holding company. Though each of the financial services entities will continue to be regulated by its principal functional regulator, the Fed has been accorded the important role as umbrella regulator with overall regulatory coordinating responsibility. As a result, the Fed has effectively been given the oversight responsibility for monitoring the blending of financial industries at a time when these industries are being dramatically impacted by technological innovation and industry consolidation. That Act is now two years old, and is not yet fully implemented. Given my background, I look forward to being an active participant in this continuing effort.

The Board also has supervisory responsibility for the proper functioning of the payment system. As we were again reminded following the horror of September 11^th, the smooth and efficient functioning of our payment system is vital to this nation’s economic health. Dramatic improvements in technology continue to provide opportunities for greater efficiency but also raise new regulatory issues as the system continues to progress from paper based to an increasingly electronic system. I look forward to bringing my banking and consulting experiences to addressing these important issues.

Another important role of the Board is its responsibility to consumers. I have been particularly pleased to learn of the increasing role the Fed now plays in consumer education. Financial literacy is an important element in our citizens’ ability to fully experience the benefit of a free market economy. I look forward to being an active participant in this important area.

The Congress also has entrusted the Board with important consumer protection responsibilities. There are a number of regulatory issues currently awaiting Board action. Among these are proposed changes in the Home Ownership and Equity Protection Act (HOEPA) and the Truth In Lending Act (TILA) intended to crack down on predatory lending. Also, changes have been proposed concerning mortgage loan data collection under the Home Mortgage Disclosure Act (HMDA). The comment period for both has expired and the comments by interested parties are now under review. While I have a working familiarity with both proposals from my prior experience, I look forward to an opportunity to review the public comments and also the Federal Reserve staff analysis in order to fully acquaint myself with all the implications of these proposed rule changes.

Mr. Chairman, and members of this Committee, my goal as a prospective member of the Board is to utilize my banking industry background and my public policy experience to contribute to the important work of the Federal Reserve. It is my intent to help the Fed continue to provide a regulatory framework which will allow the banking industry to meet the evolving financial needs of its customers and continue as a critical source of strength for the economies of the United States and the world.

Thank you again for holding this hearing, and I look forward to your questions.

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