Janet Yellen (AP photo/J. Scott Applewhite)

Janet Yellen, the new Federal Open Market Committee chair, said today that returns on bonds are low mainly because borrowers’ demand is weak.

“There is an excess of savings relative to the demand for the savings for investment purposes, Yellen told lawmakers at a hearing on monetary policy organized by the House Financial Services Committee.

Yellen also talked about her views on insurance company regulation and said she would do what she can to promote efforts to prepare for the effects of the aging of the U.S. population on Medicaid, Medicare and Social Security.

Yellen succeeded Ben Bernanke as FOMC chair Feb. 1.

She takes over at a time when low interest rates are hitting life insurers’ long-term care insurance, long-term disability insurance and annuity operations hard.

No one at the hearing talked about the effects of low rates on life insurers, but Rep. Shelley Moore Capito, R-W.Va., told Yellen that low rates are hurting the older residents in her district who are trying to save for retirement, or already living off of retirement savings.

“Certainly, a low interest rate environment is a tough one for retirees,” Yellen told her.

But retirees may also have investment portfolios or working-age children who benefit from low rates, and rates will rise when the economy improves, Yellen said.

Another lawmaker, Rep. Steve Pearce, R-N.M., said retirees in his district suffer both from low interest rates and from restrictions regulators have put on lenders’ ability to finance the purchase of manufactured homes.

Pearce said he sees “a de facto war on the poor coming from Washington.”

“It is very important to address [policies'] impact on credit availability,” Yellen said.

Rep. George Miller, R-Calif., asked Yellen when she would work to keep “bankcentric rules” from hurting the insurers that are now subject to federal oversight as a result of owning savings and loan holding companies or getting the “systemically important financial institution” (SIFI) designation.

“We understand that the risk profiles of insurance companies really are materially different,” Yellen said. 

Yellen repeated assurances she made during a confirmation hearing in November that she and fellow regulators recognize that insurers are different from banks.

Earlier, Yellen said, she and colleagues recognized that difference by putting off applying bank capital rules to non-bank SIFIs and to savings institutions with significant insurance operations.

“Supervision should be tailored to the unique features of any entity that we regulate,” Yellen said.

Like Bernanke, Yellen said the Collins amendment — Section 171 of the Dodd-Frank Wall Street Reform and Consumer Protection Act — limits what regulators can do by requiring that the minimum risk-based leverage and capital requirements for insurers be at least as high as the requirements for banks.

Rep. Ed Royce, R-Calif., urged Yellen to do even more than Bernanke and Bernanke’s predecessor, Alan Greenspan, to talk about the need for entitlement program reform.

Yellen acknowledged that letting program spending grow unchecked could lead to government spending crowding out productive private investment.

“This has to be addressed,” Royce said. 

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