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Loretta J. Mester 1455 E. 6th Street

President & Chief Executive Officer Cleveland, OH 44114

+1 216-579-2103


Representative Patrick T. McHenry

Chief Deputy Whip
Vice Chairman, Committee on Financial Services
2334 Rayburn House Office Building
Washington, DC 20515
phone: 202-225-2576

December 7, 2017

Dear Representative McHenry:

Thank you for your letter of December 4, 2017, regarding a working paper and commentary on the peer-
to-peer (P2P) lending market that were posted to and subsequently removed from the Federal Reserve
Bank of Clevelands website.1 I want you to know that we did not take the unusual step of removing the
postings lightly and that I take the concerns you expressed in your letter very seriously.

Economists at the Federal Reserve Bank of Cleveland undertake research on a number of topics of
interest to the general public, industry, researchers, and policymakers. While this research does not
represent the official views of the institution, we strive to produce objective research that informs the
public about important economic issues and that meets very high standards in terms of the quality of
analysis and exposition. While our Research Department has a review and editorial process in place to
help ensure that these standards are met, unfortunately, our internal review of this matter indicates that, in
this case, some of those procedures were not followed. Moreover, this occurrence makes it very clear that
those procedures need to be strengthened. We are committed to doing that, and we are already taking
steps to improve oversight. To that end, we are strengthening the guidance provided to all authors about
our publication standards, including the importance of carefully considering the body of extant literature,
of not overstating conclusions, and of fully understanding the scope and limitations of the data used in
any study. We are also putting in place procedures to ensure more comprehensive and consistent
oversight of publications throughout the entire publication process, and we are clarifying what the Bank
expects from those who are responsible for reviewing papers before they are published, including our
economists, editors, and public information specialists.

The timing of the researchs release on November 9, 2017 was not influenced by the legislative calendar,
in general, or the markup of H.R. 3299, the Protecting Consumers Access to Credit Act, in particular.
The publication schedule for our research and analysis takes into account the communications blackout
surrounding Federal Open Market Committee meetings, the availability of the researchs authors to
answer incoming questions upon publication, and the availability of the staff members who support the
publication process. The release date for the P2P research was driven by these factors.

Y. Demyanyk, E. Loutskina, and D. Kolliner, The Taste of Peer-to-Peer Loans, WP 17-18, and Three Myths
About Peer-to-Peer Loans, Economic Commentary, November 9, 2017.

When serious questions were raised about the study and we realized that our review process had not
operated as intended, we decided to remove this research from the website, at the same time posting an
explanation of the reasons for the removal. The authors had hoped to be able to resolve the uncertainty
about their data set and appropriately revise the paper and its conclusions. However, the authors are now
reconsidering whether that is possible given that the data set used in the research appears to include a
more expansive set of loans than just those issued by P2P lenders.

I very much regret that this incident occurred. We are committed to improving our processes to ensure
that we provide the public with objective research and analysis of the highest quality. I hope that you
consider the actions we are taking as responsive to your concerns and I hope that we will be able to
discuss this further at your convenience.


Loretta J. Mester

cc: Ellis Tallman, FRB Cleveland

Lisa Vidacs, FRB Cleveland
Marilyn Wimp, FRB Cleveland
Ericka Thoms, FRB Cleveland