GPS: Janet Yellen on banks "too big to fail": " I certainly share President Kashkari's concern with too big to fail. I feel more positive on the progress that we've made."
April 10th, 2016
11:44 AM ET

GPS: Janet Yellen on banks "too big to fail": " I certainly share President Kashkari's concern with too big to fail. I feel more positive on the progress that we've made."

Please credit any usage to “CNN’s FAREED ZAKARIA GPS”

The following transcript is of an interview by Fareed Zakaria with U.S. Federal Reserve Chair Janet Yellen, and past chairs: Ben Bernanke (2006 – 2014); Alan Greenspan (1987-2006); Paul Volcker (1979-1987) at the International House in New York City on April 7 to discuss banks “too big to fail”, federal chair responsibilities and more.

MANDATORY CREDIT for reference and usage: “CNN’s Fareed Zakaria GPS”
Contacts: Jennifer Dargan: jennifer.dargan@turner.com ; 202.515.2950 or Brooke Lorenz- Brooke.Lorenz@turner.com 202.515.2918

 

VIDEO HIGHLIGHTS

Taking on the "too big to fail"

Bearing the responsibilities of Fed Chair

 

TEXT HIGHLIGHTS

 

Janet Yellen (Federal Reserve Chair 2014-present) do today's big banks need to broken up?: [ZAKARIA] One of the regional Fed chairs, Neel Kashkari, made a speech very recently in which he said the big banks need to be broken up. Do they? [YELLEN] Well, we have been very focused since the financial crisis and Dodd - the Dodd-Frank Act has directed us to pay attention and try to put in place policies that will deal with too big to fail. So we certainly - I certainly share President Kashkari's concern with too big to fail. I feel more positive on the progress that we've made.  First of all, we have put in place policies through supervision and regulation that has greatly enhanced the safety and soundness of the banking system. And so we have more capital, higher quality capital, more liquidity. We do rigorous stress tests in our supervision. So, I think the odds of failure of large financial institutions is lower.

 

Ben Bernanke (Federal Reserve Chair 2006-2014) on monetary policy being buffeted by partisan politics: [ZAKARIA] Ben Bernanke, when you adopted your extraordinary measures to save the American economy through this global recession and crisis, you faced a lot of people from what was in a sense your own party - you were appointed by a Republican president - and you had Republican congressmen, Republican senators. You had the Republican governor of Texas saying that you were engaging in treason. How’d that make you feel? [BEN BERNANKE] It didn't make me happy.I - we - you know, I - you described the job as powerful. I think more of the responsibility side. And we had very huge responsibilities, all of us, in different contexts and different events to try to use the power of the Federal Reserve, along with our colleagues and the staff - it's a wonderful institution. There's not a single person or organization. There are a lot of people working together.

But we had, you know, tremendous responsibilities to try to - to try to address these terrible risks. And I think it's a good thing that within - within reason, that the Federal Reserve does have some independence and some room to operate so that, you know, that left the critics the ability just to say what they wanted to say, but we could do what we needed, at least within – as long as we could maintain, you know, the broad support. And that was our - that was our strategy.

So, you know, didn't take the job for, you know, for adulation. And certainly if I had, it wouldn't have worked. But, you know, it - there's really no alternative to doing what has to be done in your best judgment to try to address whatever problem you see.

 

FULL INTERVIEW TRANSCRIPT

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

FAREED ZAKARIA, HOST, CNN GPS: On Thursday evening, I participated in an extraordinary event - a conversation with all of the living chairs of the Federal Reserve, current and former: Paul Volcker, Alan Greenspan, Ben Bernanke, and, of course, Janet Yellen.

 

The group was gathered by International House, a residence and program house in New York City founded to turn today's scholars into the next global leaders. It's a great organization. I sit on its board, and I was honored to moderate such an important discussion.

 

First up, my conversation with the current chair of the Federal Reserve, Janet Yellen.

 

Many believe that Ms. Yellen is the second most powerful person in America, second only to the President. She rarely sits down for an interview, so listen in.

 

///

 

ZAKARIA: Let me ask you to start. You look at the economy very carefully. Are we in an economic bubble? Is the economy as perilous as some people on the political campaign trail are suggesting?

 

JANET YELLEN, CHAIR, FEDERAL RESERVE: So I would say the U.S. economy has made tremendous progress in recovering from the damage from the financial crisis. Slowly but surely, the labor market is healing. For well over a year, we've averaged about 225,000 jobs a month.  The unemployment rate now stands at 5 percent. So we're coming close to our assigned congressional goal of maximum employment.

 

Inflation - which my colleagues here, Paul and Alan, spent much of their time as chair bringing inflation down from unacceptably high levels. For a number of years now, inflation has been running under our two percent goal and we're focused on moving it up to two percent. But we think that it's partly transitory influences, namely, declining oil prices and the strong dollar that are responsible for pulling inflation below the two percent level we think is most desirable.

 

So, although interest rates are low and that it's something that can encourage reach for yield behavior, I certainly wouldn't describe this as a bubble economy.

 

We have relatively weak global growth, but the U.S. economy has been doing well and domestic strength has been propelling us forward in spite of the fact that we're suffering drag from the global economy.

 

ZAKARIA: In December, you raised rates. Many people, including Larry Summers, Paul Krugman, Martin Wolf, very distinguished economic commentators and economists, felt it was a mistake. In retrospect, was it a mistake?

 

YELLEN: Well, I certainly don't regard it as a mistake. We set out two criteria to boost the funds rate that led to the December decision. One was we wanted to see substantial progress in the labor market, and we felt that had been satisfied.

 

And we also, recognizing that inflation was running below our two percent objective, wanted to feel reasonably confident that inflation would move up over the medium term back to two percent. And we all felt, I think, that those conditions were satisfied in December and justified taking a step.

 

But we have tried to make very clear, there's not a preset course of rate increases. We will watch very carefully what is happening in the economy and adjust policies appropriate.

 

So we took one step. Now the U.S. economy has continued to progress in a satisfactory way. We have continued to see good job performance, some evidence of inflation moving up. So that was our expectation when we raised rates in December.

 

We indicated that we thought the path of rate increases would be gradual, and that remains our best guess and expectation - that if the economy continues on the path it's on of recovery, that further rate increases will be justified, but for a variety of reasons, particularly a set of headwinds that are the legacy of the financial crisis that we suffered and weak global growth and the strong dollar that has gone with that, that the level of rates that - it’s sometimes called the neutral rate, the - a level of short-term rates that would neither be particularly stimulating the economy or holding it back.

 

ZAKARIA: One of the regional Fed chairs, Neel Kashkari, made a speech very recently in which he said the big banks need to be broken up. Do they?

 

YELLEN: Well, we have been very focused since the financial crisis and Dodd - the Dodd-Frank Act has directed us to pay attention and try to put in place policies that will deal with too big to fail.

 

So we certainly - I certainly share President Kashkari's concern with too big to fail. I feel more positive on the progress that we've made.

 

First of all, we have put in place policies through supervision and regulation that has greatly enhanced the safety and soundness of the banking system. And so we have more capital, higher quality capital, more liquidity. We do rigorous stress tests in our supervision.

 

So I think the odds of failure of large financial institutions is lower.

 

///

 

ZAKARIA: Next on GPS, we'll get into some of the more human aspects with the rest of the Fed Chairs - Bernanke, Greenspan, Volcker - on the politics and the psychology of being chairman of the Federal Reserve.

 

 

[COMMERCIAL BREAK]

 

ZAKARIA: Back now to more of the extraordinary gathering I moderated this week: all four living current and former chairs of the Federal Reserve Board of Governors.

 

Joining me on stage in New York were the current chair Janet Yellen, her predecessor Ben Bernanke, and Paul Volcker, who served from 1979 to ‘87. Alan Greenspan, who led the fed for almost 20 years, joined the group from a D.C. studio.

 

Listen in to some of the highlights.

 

///

 

ZAKARIA: Alan Greenspan, when you were running the Federal Reserve, people would sometimes describe your performance there as “God on a good day.” I think Senator John McCain said that his strategy to succeed you was to have a dummy made up of Alan Greenspan and put him in the Federal Reserve chair, like “Weekend at Bernie’s,” that movie. On Wall Street, they would celebrate your birthday with, you know, with cakes and things like that.

 

Did that go to your head?

 

[LAUGHTER]

 

ALAN GREENSPAN, FORMER CHAIR, FEDERAL RESERVE: No, but it sure enough embarrassed me. I very much appreciated that.

 

[LAUGHTER]

 

GREENSPAN: I got past the embarrassment very easily.

 

ZAKARIA: Paul Volcker, you had a slightly different situation. You were hung in effigy when you raised interest rates the people thought that you had singlehandedly plunged the American economy into a recession.

 

How difficult was it to deal with that?

 

PAUL VOLCKER, FORMER CHAIR, FEDERAL RESERVE: [UNINTELLIGIBLE] They were cheering me…

 

ZAKARIA: You thought they were cheering you?

 

[LAUGHTER]

 

VOLCKER: Look, to answer your basic question, what was it like to be a chairman with all this authority - you’ve got a board; you’ve got a public; you've got reserve bank presidents. So quite a few - you can't quite exactly do what you want without a lot of people being encouraged to agree with you. And some of them sometimes disagree.

 

So it's not quite so absolute as you suggest.

 

But look, I always get asked this question about the farmers circulating the Federal Reserve and so forth. We wouldn't have survived if there wasn't a lot of public support. People thought there was a big problem, and they didn't know all the answers. But people were unhappy with malaise and inflation rate going up, you know, a couple of percent every quarter.

 

And they were unhappy. And I think they gave us some rope to hang ourselves.

 

[LAUGHTER]

 

VOLCKER: If they felt we were doing something, they were going to be patient for a while.

 

ZAKARIA: Did you - did you feel - did you feel like - because inflation was very high. You raised rates to break the back of inflation. Did you feel - did you worry that you'd run out of time, that the public would lose patience?

 

VOLCKER: Yes, well, you know, you’d worry. We had a longer period than I would have anticipated. Yeah - did I worry? I worried all the time.

 

[LAUGHTER]

 

VOLCKER: [UNINTELLIGLE] on the floor - the Federal Reserve office has a - you know, it shows where I was walking down it all the time. Is it still there?

 

[LAUGHTER]

 

ZAKARIA: Ben Bernanke, when you adopted your extraordinary measures to save the American economy through this global recession and crisis, you faced a lot of people from what was in a sense your own party - you were appointed by a Republican president - and you had Republican congressmen, Republican senators. You had the Republican governor of Texas saying that you were engaging in treason. How’d that make you feel?

 

BEN BERNANKE, FORMER CHAIR, FEDERAL RESERVE: It didn't make me happy.

 

I - we - you know, I - you described the job as powerful. I think more of the responsibility side. And we had very huge responsibilities, all of us, in different contexts and different events to try to use the power of the Federal Reserve, along with our colleagues and the staff - it's a wonderful institution. There's not a single person or organization. There are a lot of people working together.

 

But we had, you know, tremendous responsibilities to try to - to try to address these terrible risks. And I think it's a good thing that within - within reason, that the Federal Reserve does have some independence and some room to operate so that, you know, that left the critics the ability just to say what they wanted to say, but we could do what we needed, at least within - as long as we could maintain, you know, the broad support. And that was our - that was our strategy.

 

So, you know, didn't take the job for, you know, for adulation. And certainly if I had, it wouldn't have worked. But, you know, it - there's really no alternative to doing what has to be done in your best judgment to try to address whatever problem you see.

 

ZAKARIA: And then there's the issue of communication. How do you communicate the views –you want to be - you want to communicate, but at the same time you want to leave things - you want to give yourself room to maneuver.

 

So Alan Greenspan, I recall once in a Senate hearing, I think it was, the senator said, “I think I heard you say clearly,” and you interrupted him and said, “If I said it clearly, Senator, I must have misspoken.”

 

Did you - were you try - were you trying to be deliberately incomprehensible at times?

 

GREENSPAN: I thought I had succeeded marvelously.

 

[LAUGHTER]

###END INTERVIEW###

 

 

 

 

 


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