[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT OF THE FINANCIAL
STABILITY OVERSIGHT COUNCIL
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
DECEMBER 8, 2015
__________
Printed for the use of the Committee on Financial Services
Serial No. 114-65
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HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking
Vice Chairman Member
PETER T. KING, New York CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California
SCOTT GARRETT, New Jersey GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico RUBEN HINOJOSA, Texas
BILL POSEY, Florida WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK, STEPHEN F. LYNCH, Massachusetts
Pennsylvania DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin KEITH ELLISON, Minnesota
ROBERT HURT, Virginia ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina BILL FOSTER, Illinois
RANDY HULTGREN, Illinois DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania DENNY HECK, Washington
LUKE MESSER, Indiana JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
TOM EMMER, Minnesota
Shannon McGahn, Staff Director
James H. Clinger, Chief Counsel
C O N T E N T S
----------
Page
Hearing held on:
December 8, 2015............................................. 1
Appendix:
December 8, 2015............................................. 83
WITNESSES
Tuesday, December 8, 2015
Cordray, Hon. Richard, Director, Consumer Financial Protection
Bureau......................................................... 10
Curry, Hon. Thomas J., Comptroller of the Currency, Office of the
Comptroller of the Currency.................................... 11
Gruenberg, Hon. Martin J., Chairman, Federal Deposit Insurance
Corporation.................................................... 9
Massad, Hon. Timothy G., Chairman, Commodity Futures Trading
Commission..................................................... 6
Matz, Hon. Debbie, Chairwoman, National Credit Union
Administration................................................. 7
Watt, Hon. Melvin L., Director, Federal Housing Finance Agency... 8
White, Hon. Mary Jo, Chair, U.S. Securities and Exchange
Commission..................................................... 5
Woodall, Hon. S. Roy, Jr., independent member with insurance
expertise, Financial Stability Oversight Council............... 7
APPENDIX
Prepared statements:
Cordray, Hon. Richard........................................ 84
Curry, Hon. Thomas J......................................... 86
Gruenberg, Hon. Martin J..................................... 94
Massad, Hon. Timothy G....................................... 109
Matz, Hon. Debbie............................................ 113
Watt, Hon. Melvin L.......................................... 123
White, Hon. Mary Jo.......................................... 125
Woodall, Hon. S. Roy, Jr..................................... 131
Additional Material Submitted for the Record
Murphy, Hon. Patrick:
Written responses to questions for the record submitted to
Hon. Richard Cordray....................................... 137
Written responses to questions for the record submitted to
Hon. Thomas J. Curry....................................... 140
Written responses to questions for the record submitted to
Hon. Melvin L. Watt........................................ 141
OVERSIGHT OF THE FINANCIAL
STABILITY OVERSIGHT COUNCIL
----------
Tuesday, December 8, 2015
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:04 a.m., in
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling
[chairman of the committee] presiding.
Members present: Representatives Hensarling, Royce, Lucas,
Garrett, Neugebauer, Pearce, Posey, Fitzpatrick, Westmoreland,
Luetkemeyer, Huizenga, Duffy, Stivers, Fincher, Stutzman,
Mulvaney, Hultgren, Ross, Pittenger, Wagner, Barr, Rothfus,
Messer, Schweikert, Guinta, Tipton, Williams, Poliquin, Love,
Hill, Emmer; Waters, Maloney, Velazquez, Sherman, Meeks,
Hinojosa, Clay, Lynch, Scott, Green, Cleaver, Ellison, Himes,
Carney, Foster, Murphy, Sinema, Beatty, Heck, and Vargas.
Chairman Hensarling. The Committee on Financial Services
will come to order. Without objection, the Chair is authorized
to declare a recess of the committee at any time.
Today's hearing is entitled, ``Oversight of the Financial
Stability Oversight Council.'' Today, we have 8 of its 10
voting members as witnesses. Secretary Lew testified, according
to statute, earlier in the year, and Chair Yellen has
regrettably declined to give testimony today.
I now recognize myself for 3 minutes to give an opening
statement. Financial regulators possessed every regulatory
power to prevent the 2008 financial crisis, but failed to do
so. Yet, Washington rewarded them with vast new sweeping powers
over our lives and our economy. Nowhere is that more evident
than in the Dodd-Frank Act's Financial Stability Oversight
Council (FSOC), whose members, again, save two, sit before us
today.
FSOC is clearly one of the most powerful Federal entities
ever to exist. Unfortunately, it is also one of the least
transparent and least accountable.
First, the Council's power is concentrated in the hands of
one political party, the one that happens to control the White
House. All but one of its members is the presidentially-
appointed head of an agency, but interestingly the agencies
themselves are not members, thus denying bipartisan
representation. This structure clearly injects partisan
politics into the regulatory process. It erodes agency
independence and harms accountability.
Furthermore, FSOC's budget is not subject to congressional
approval, removing yet another check and balance to its immense
power. FSOC has earned bipartisan condemnation for its lack of
transparency. Two-thirds of its proceedings are conducted in
private. Minutes of those meetings are devoid of any useful
substantive information on what was discussed.
Dennis Kelleher, the CEO of the left-leaning Better
Markets, has said, ``FSOC's proceedings make the Politburo look
open by comparison. At the few open meetings they had, they
snap their fingers and it is over. They are all scripted. They
treat their information as if it were state secrets.''
Of all the Council's activities, none generates more
controversy than its designation of non-bank financial
institutions as systemically important financial institutions,
or SIFIs, by acronym.
Designation anoints institutions as too-big-to-fail,
meaning today's SIFI designations are tomorrow's taxpayer-
funded bailouts. Designation also ominously grants the Federal
Reserve near de facto management authority over such
institutions, thus allowing huge swathes of the economy to
potentially be controlled by the Federal Government.
Members of the Council can merely raise the prospect of a
SIFI designation and thereby eliminate entrepreneurial risk-
taking, innovation, and growth from our economy. As a result,
Americans may find themselves paying more to insure their homes
and families. Investors who relied on mutual funds to save for
their children's education or their own retirement will find
they have earned less.
In addition to SIFI designations, FSOC is charged with
identifying emerging threats to our financial stability, but
refuses to look in the mirror. In its latest annual report, it
conspicuously omits any references to specific government
policies or agencies as helping to cause the systemic risk it
identifies: ``Greater risk-taking across the financial system
is encouraged by an historically low yield environment,'' the
Council reports. Yet, the Council refuses to identify the
obvious source of this apparent risk: the Fed's unprecedented
loose monetary policy.
The Council warns of reduced liquidity in the capital bond
markets, yet never acknowledges that Dodd-Frank's Volcker Rule
and other regulations have drastically reduced liquidity. The
Council lists risk-taking in large, complex interconnected
financial institutions as a threat, yet again, it fails to
mention that Dodd-Frank amplifies the threat by empowering the
Council to designate certain firms as too-big-to-fail.
FSOC typifies not only the shadow regulatory system, but
also the unfair Washington system that Americans have come to
fear and loathe: powerful government administrators; secretive
government meetings; arbitrary rules; and unchecked power to
punish. Thus, oversight and reform is paramount.
I yield back.
The Chair now recognizes the gentleman from New Jersey, the
chairman of our Capital Markets Subcommittee, Mr. Garrett, for
1 minute.
Mr. Garrett. I thank the chairman. And I thank all of our
witnesses for being here today.
I guess all of our witnesses have gotten to know each other
pretty well, because you meet regularly in closed-door sessions
where the public is not allowed, to basically discuss how to
fundamentally change the U.S. economy.
So I thought I would just take this minute to introduce
ourselves to you. We are the U.S. Congress. We were created by
Article I of the U.S. Constitution. We are the ones who are
actually elected representatives of the American public. And we
are the ones who send you all those pesky letters that you all
routinely ignore.
And I know you are probably confused by this setting, that
the public is here, that there are TV cameras here, so this is
probably unusual for you. But this is what we do. We are open
to the American public. We are transparent. And we are before
the American public.
So, if there is one thing that you take away today, it
should be that in the way you run your hearings, and the way
you conduct yourselves, you need to become more like us: more
transparent and more open to the American public. You need to
adopt these policies so you are no longer working behind closed
doors and in secret.
With that, I yield back.
Chairman Hensarling. The Chair now recognizes the ranking
member for 5 minutes.
Ms. Waters. Thank you, Mr. Chairman. And thank you to the
distinguished members of the Council for joining us for this
hearing.
We gather today to examine the activities of the Financial
Stability Oversight Council, or FSOC, which, since the passage
of the Dodd-Frank Act, has fulfilled its mandate to monitor and
respond to the types of systemic risks that nearly brought our
economy to its knees in 2008.
This important work cuts across every corner of our
banking, capital markets, housing, and insurance sectors. Which
is why Congress specifically designed the Council to draw on
all of the expertise of the witnesses here before us today.
Unfortunately, many of my colleagues on the other side of
the aisle seem to have caught a convenient case of amnesia
about this important mandate.
Indeed, it was only 7 short years ago that our economy lost
nearly $16 trillion in household wealth, $13 trillion in
economic growth, and 9 million jobs.
In large part, this was because our regulators were too
often caught in silos not communicating with one another and
not considering gaps between their agencies or
interconnectedness within the financial sector. Even worse, we
saw too many cases where regulators were captured by the very
entities they were meant to police.
Many of these lessons appear to be forgotten, as we have
seen with recent markups, as well as attempts to laden
government funding bills with poison pill riders. Some
opponents of Dodd-Frank are far too focused on dismantling Wall
Street reform by attacking core elements like the FSOC and the
Consumer Financial Protection Bureau.
These attempts to roll back Dodd-Frank started the minute
this reform was signed into law, and make no mistake, these
attempts continue today, even as our economy has experienced a
remarkable rebound with 6 to 9 straight months of positive job
numbers, GDP growth, and a housing market where sustainable
access to credit continues to expand, all of which are signs
pointing to the sort of stability and growth that the law was
designed to promote.
FSOC has contributed to this growth and stability by
convening the 10 component regulatory agencies for periodic
information-sharing about emerging risk and reporting on those
risks to the public. Further, the Council has now designated
four institutions for enhanced supervision by the Federal
Reserve. This designation will ensure that companies like AIG
never again are able to engage in risky, unregulated activity
that could threaten the entire global economy.
And far from the talking points of some members on the
opposite side of the aisle, this enhanced oversight is now
causing some large non-bank financial companies to consider
whether simplifying their structures and breaking themselves up
might provide better value to their shareholders.
I am also encouraged that the money market fund industry is
now less susceptible to bank lack runs as a result of the
pressure the FSOC brought to overcome gridlock at the
Securities and Exchange Commission.
Finally, I appreciate that the Council has made an effort
to conduct this work in a manner that is responsive to feedback
from Congress and outside stakeholders. For example, with this
announcement in February, the FSOC took the step of voluntarily
agreeing to certain due process and transparency measures that
will further serve to improve their operations. This type of
dialogue and openness to feedback should be applauded.
As we hear from the voting members of the Council today, I
will be interested to learn more about their interagency
collaboration and their work to address emerging threats.
Again, this work is central to preventing the types of
contagion and risk that nearly crashed Main Street just 7 years
ago.
Thank you, Mr. Chairman, and I yield back the balance of my
time.
Chairman Hensarling. The Chair now recognizes the gentleman
from Missouri, Mr. Luetkemeyer, chairman of our Housing and
Insurance Subcommittee, for 1 minute.
Mr. Luetkemeyer. Thank you, Mr. Chairman. An inefficient
secretive regulatory structure that does not reflect the
reality of the U.S. financial system can have real economic
consequences for businesses and the American people. This is
particularly true of the banks that have been deemed to be
SIFIs, not based on risk posed to the U.S. financial system,
but purely on arbitrary asset size.
On the non-bank side, designations are part of the
regulatory system that has become synonymous with the
overzealous enforcement climate so prevalent today. In vital
power, the FSOC should alarm all Americans, judging by what we
know of the staff hours spent on non-bank analysis, which we
will get into shortly in the question-and-answer period.
It is clear to me that these designations, and the lack of
a clear path for de-designation, is a Federal Reserve-driven
effort to expand government's power and influence.
It is time to force more transparency, to require pragmatic
regulation, and to curb the growing regulatory scene crippling
our institutions and their customers. With that, Mr. Chairman,
I yield back.
Chairman Hensarling. The gentleman yields back.
We will now turn to our panel. Today, we welcome the
testimony of the Honorable Mary Jo White, Chair of the
Securities and Exchange Commission; the Honorable Timothy
Massad, Chairman of the Commodities Futures Trading Commission;
the Honorable Roy Woodall, Jr., the FSOC's independent member
with insurance experience; the Honorable Debbie Matz,
Chairwoman of the National Credit Union Administration; and an
especially warm welcome to our former colleague, the Honorable
Mel Watt, Director of the Federal Housing Finance Agency; the
Honorable Martin Gruenberg, Chairman of the Federal Deposit
Insurance Corporation; the Honorable Richard Cordray, Director
of the Consumer Financial Protection Bureau; and last but not
least, the Honorable Thomas Curry, the Comptroller of the
Currency.
Since all of our witnesses have previously testified before
Congress, I believe they need no further introduction. Without
objection, your written statements will be made a part of the
record by agreement with the ranking member. Each of you will
be recognized for 3 minutes to give an oral presentation of
your testimony.
Chair White, you are now recognized.
STATEMENT OF THE HONORABLE MARY JO WHITE, CHAIR, U.S.
SECURITIES AND EXCHANGE COMMISSION
Ms. White. Thank you. Chairman Hensarling, Ranking Member
Waters, and members of the committee, thank you for inviting me
to testify regarding the Financial Stability Oversight Council.
As you know, the Dodd-Frank Act established the Council to
provide comprehensive monitoring of the stability of our
Nation's financial system. It also provides a formal forum for
coordination among the various financial regulators, assisting
in bringing about the kind of collaborative sharing of
information and concerns that is very important to safeguarding
the U.S. financial system.
As one of two capital market regulators on the Council, the
perspective that I and the SEC staff bring to the Council is
important. In particular, the SEC's historical tripartite
mission of protecting investors, maintaining fair, orderly and
efficient markets, and facilitating capital formation
necessarily gives the SEC unique insight into many areas on
which the Council is focused, such as the potential financial
stability risks of asset management activities and products,
the ongoing changes to market structure, and the role of
central counter-parties.
SEC engagement with the Council on these issues helps to
ensure that relevant expertise is brought to bear on these
important subjects. With respect to designations of any non-
bank financial companies as systemically important, it is
important to be data-driven and to conduct rigorous analysis
throughout the process.
The Council is also focused on enhancing its process and
the transparency of its functions, which I consider to be quite
important. Toward that end, as the ranking member indicated, in
February of this year the Council unanimously adopted changes
to the designation process, including increased and earlier
engagement with companies under review, increased public
transparency concerning the designation factors, and an
opportunity for designated firms to meet with Council staff in
connection with the annual review of their designations.
I look forward to our continued study of possible further
enhancements and agree with the observation that the Council is
a relatively new organization and should continuously study
ways to optimize its functioning.
Thank you again for the opportunity to testify today. I
would be pleased to answer your questions.
[The prepared statement of Chair White can be found on page
125 of the appendix.]
Chairman Hensarling. Chairman Massad, you are now
recognized.
STATEMENT OF THE HONORABLE TIMOTHY G. MASSAD, CHAIRMAN,
COMMODITY FUTURES TRADING COMMISSION
Mr. Massad. Thank you, Chairman Hensarling, Ranking Member
Waters, and members of the committee. I appreciate the
invitation to testify today.
The CFTC oversees the U.S. derivatives markets, and
although most Americans do not participate in these markets,
they are vital to our economy, affecting the prices we all pay
for food, energy, and other goods and services. For these
markets to work well, sensible regulation is essential. We
learned that lesson in 2008 when a lack of oversight led to a
buildup of excessive swap risk that contributed to the worst
global financial crisis since the Great Depression.
My perspective as a member of the FSOC is shaped by my
responsibilities as CFTC Chairman, and today I would like to
highlight a few of the CFTC's priorities that are particularly
relevant to the FSOC.
First is the implementation of a regulatory framework for
over-the-counter swaps where we have made great progress, and a
number of financial regulators have responsibilities in this
area, and the FSOC provides a useful way to communicate.
The second area is making sure clearinghouses are strong
and resilient. While we are the primary supervisor of
clearinghouses in the derivatives markets, we work together
with the Federal Reserve, the FDIC, and the SEC on these
important issues. The CFTC has taken many actions to strengthen
clearinghouse resilience, but there is more work to do in this
area.
Another priority of the FSOC and the CFTC is strong,
resilient markets. Following the volatility in the Treasury
market on October 15th of last year, the FSOC served as a forum
to share information. Shortly after the events, CFTC staff
provided a preliminary analysis of what happened in the futures
markets to the Council, and subsequently, we worked with other
FSOC members to prepare a detailed report analyzing what
happened.
Together, we continue to look at these issues pertaining to
the evolution and oversight of these markets.
In addition, cyber-security is one of our agency's top
priorities and one of the greatest risks to our financial
system today. And here again, the FSOC plays an important role
in facilitating cooperation.
Another area of focus for the CFTC that is important to
FSOC is the oversight of benchmarks. Integrity is critical and
has been a priority in our enforcement efforts.
One of the most valuable functions of the FSOC is simply to
bring together the agencies and regulators responsible for
oversight of our financial institutions and markets. I believe
doing so better positions us to identify and address potential
threats to financial stability and better serve the American
people.
Thank you, and I look forward to your questions.
[The prepared statement of Chairman Massad can be found on
page 109 of the appendix.]
Chairman Hensarling. Mr. Woodall, you are now recognized.
STATEMENT OF THE HONORABLE S. ROY WOODALL, JR., INDEPENDENT
MEMBER WITH INSURANCE EXPERTISE, FINANCIAL STABILITY OVERSIGHT
COUNCIL
Mr. Woodall. Thank you, Mr. Chairman, Ranking Member
Waters, and members of the committee for inviting me to appear
before you today.
Mr. Chairman, you have asked that we be succinct in our
oral testimony this morning. The committee received my written
testimony last Friday morning, and in view of your request, I
do not feel it is necessary for me to expound on it in detail.
But in short, as the committee examines ways to improve the
structure and the operations of the Council, my written
testimony discussion falls into three broad categories.
First, the background and legislative history of the
independent member position in Dodd-Frank. Second, the lack of
explicit statutory duties and authorities pertaining to the
position, other than just being a member of the Council and the
difficulties that has presented from being only ``three lines
in the statute.'' The first line creates the position. The
second one sets the 6-year term. And the third one sets salary.
That is all that is in Dodd-Frank about my position.
Finally, the third section of my written testimony tries to
go into my willingness to work with Congress on how the role
and authorities of the position can be clarified to strengthen
the independence of the position in order for the holder of
this position to be more effective in contributing to the work
of the Council.
Thank you. I am happy to answer any questions.
[The prepared statement of Mr. Woodall can be found on page
131 of the appendix.]
Chairman Hensarling. Chairwoman Matz, you are now
recognized for your testimony.
STATEMENT OF THE HONORABLE DEBBIE MATZ, CHAIRWOMAN, NATIONAL
CREDIT UNION ADMINISTRATION
Ms. Matz. Thank you, Chairman Hensarling, Ranking Member
Waters, and members of the committee. I appreciate the
opportunity to discuss the Financial Stability Oversight
Council.
Congress established the Council in response to the 2008-
2009 financial crisis. The crisis made clear that financial
markets cannot quickly absorb the collapse of very large,
interconnected companies.
FSOC's primary goal is to prevent system-wide financial
crises. The Council's multi-agency structure also ensures that
a diverse array of views on emerging risks in each financial
sector is considered when making decisions.
From the beginning, the Council has recognized the
importance of transparency and public participation. The
Council committed to publicly disseminating timely information
about decisions, while balancing the need to protect
proprietary information and avoid unduly moving markets. Public
feedback has also helped FSOC clarify procedures, enhance
analysis, and improve decision-making. As an FSOC principal, I
am committed to continuing such improvements.
Each Council member brings to the table a unique
perspective informed by our areas of expertise and experiences.
As a Federal financial regulator for almost 10 years, I lead an
agency that now supervises and insures more than 6,000
institutions with assets exceeding $1.1 trillion.
Financial institutions of every size must carefully manage
assets and liabilities. In fact, major elements of FSOC's
designation of a systemically important institution include the
composition of the balance sheet, off balance sheet exposure,
and interconnectedness with the entire financial services
sector.
FSOC has moved deliberately in creating its process for
identifying non-bank financial companies. In response to public
comments and congressional feedback, the Council has also
invited company participation earlier in the process.
Another important aspect of FSOC's work is its annual
report. The 2015 report called for heightened risk management
and supervisory attention in areas such as cybersecurity and
reaching for yield.
In conclusion, FSOC has promoted collaboration across
financial regulators, established rules and procedures which
reflect public input, identified systemically important
institutions, and furthered public awareness of threats to our
financial system.
Going forward, the Council must continue to evolve, provide
transparency, and remain flexible when considering new issues.
I look forward to your questions.
[The prepared statement of Chairwoman Matz can be found on
page 113 of the appendix.]
Chairman Hensarling. Director Watt, you are now recognized
for your testimony.
STATEMENT OF THE HONORABLE MELVIN L. WATT, DIRECTOR, FEDERAL
HOUSING FINANCE AGENCY
Mr. Watt. Chairman Hensarling, Ranking Member Waters, and
members of the committee, thank you for the opportunity to
testify today about the Financial Stability Oversight Council.
And to be back before this committee, on which I served for 21
years.
As an independent regulator, FHFA is responsible for the
supervision, regulation, and housing mission oversight of
Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System.
In addition, since 2008 FHFA has served as conservator of
Fannie Mae and Freddie Mac. FHFA's housing market expertise
contributes to FSOC's ability to understand and better assess
broad systemic risk.
As I recall, ensuring that FHFA contributed this kind of
expertise to FSOC was especially important to Congress, both
because housing represents a significant part of our economy,
and because the most recent severe disruption that our economy
experienced resulted from business entities and others making
unsafe and unsound housing and housing finance decisions.
Through FHFA's active participation in all FSOC committees,
FHFA engages with other FSOC members to share information,
evaluate policy matters, and conduct risk assessments of
business entities and markets in which they operate. FHFA also
participates with other members of FSOC in making assessments
of whether to designate non-bank financial companies for
supervision by the Federal Reserve.
If so designated, these companies are required to meet
enhanced prudential standards. This is a significant and
important FSOC function, and it is one that all FSOC members,
including myself, take very seriously. These decisions are made
only after extensive engagement with the company, a thorough
analysis of the facts, and careful deliberations.
Going forward, I look forward to continuing to engage with
fellow FSOC members to meet our duties and responsibilities in
a manner that fosters transparency, is fair and analytical, and
contributes to appropriate risk management and risk reduction.
I will limit my comments to these statements, and I look
forward to answering your questions today.
[The prepared statement of Director Watt can be found on
page 123 of the appendix.]
Chairman Hensarling. Chairman Gruenberg, you are now
recognized.
STATEMENT OF THE HONORABLE MARTIN J. GRUENBERG, CHAIRMAN,
FEDERAL DEPOSIT INSURANCE CORPORATION
Mr. Gruenberg. Chairman Hensarling, Ranking Member Waters,
and members of the committee, thank you for the opportunity to
testify today on the work of the Financial Stability Oversight
Council. The financial crisis that began in 2007 exposed a
number of serious vulnerabilities in the U.S. financial system.
While some risks affecting individual products and
institutions have been recognized, neither the financial
markets nor the regulatory community was able to see the whole
picture. The FSOC was established in 2010 by the Dodd-Frank Act
to address this gap in the regulatory framework. Its key
functions are to facilitate information sharing among its
member agencies, to identify and respond to emerging risks to
financial stability, and to promote market discipline.
The FSOC is also responsible for designating non-bank
systemically important financial institutions for heightened
supervision by the Federal Reserve. We now have the benefit of
five FSOC annual reports, which together outline the key
systemic risks facing the financial system and how they have
evolved over time.
The first report, published in 2011, described a still
fragile financial system recovering slowly from the deepest
financial crisis since the Depression. In contrast, the most
recent report describes a more stable but still recovering
economy, and broad-based improvement in most financial markets
and market participants.
Three areas of risk which the FSOC has been following
closely and which are of particular consequence to the FDIC are
interest rate risk, credit risk, and cyber-security, which are
expanded upon in my written statement.
As previously noted, the Dodd-Frank Act also authorizes the
FSOC to designate a non-bank financial company if the FSOC
determines that material financial distress at the company or
the nature, scope, size, scale, concentration,
interconnectednees or mix of activities of the company could
pose a threat to the financial stability of the United States.
FSOC policies and procedures were crafted to ensure an
exchange of information throughout the designation process. As
the process has evolved, opportunities for additional
transparency both within the operations and the designation
process were identified by the FSOC and in comments by external
parties. As a result, the FSOC undertook several initiatives
over the past year-and-a-half to improve both transparency and
engagement with financial companies. These steps are outlined
in my written statement.
Mr. Chairman, that concludes my oral statement, and I will
be glad to respond to questions.
[The prepared statement of Chairman Gruenberg can be found
on page 94 of the appendix.]
Chairman Hensarling. Director Cordray, you are now
recognized for your testimony.
STATEMENT OF THE HONORABLE RICHARD CORDRAY, DIRECTOR, CONSUMER
FINANCIAL PROTECTION BUREAU
Mr. Cordray. Thank you, Chairman Hensarling, Ranking Member
Waters, and members of the committee for the opportunity to
testify today. I am glad to work with you and with my
colleagues on the Council to strengthen our financial system.
As we are all aware, just a few years ago disruptions in
the housing market preceded a financial crisis that caused
significant damage to our people and our economy. The ensuing
deep recession caused millions of Americans to lose their jobs,
and millions of families to lose their homes, as the ranking
member noted. Many saw their retirement savings diminished as
Americans lost trillions of dollars in household wealth.
Severe deficiencies in the loans supporting mortgage-backed
securities in particular created shocks that upended the
financial system.
In the aftermath of the crisis, Congress passed financial
reform legislation to address the problems that led to the
crisis and help ensure they would not happen again. Among the
steps taken were the creation of the Financial Stability
Oversight Council and the Consumer Financial Protection Bureau
(CFPB).
The creation of the FSOC provides for the first time a
means of comprehensively monitoring the stability of our
Nation's financial system. Prior to the crisis, the U.S.
financial regulatory framework focused more on individual
institutions and individual markets in isolation from one
another. No one regulatory body was responsible for monitoring
and addressing overall risk to financial stability, which too
often involved different types of financial firms operating in
complex and intertwined ways across multiple markets.
The potential for supervisory and regulatory gaps were
viewed as creating blind spots in important parts of the
financial system. After the crisis, Congress recognized the
need for a mechanism to bring financial regulators together to
monitor the financial system, share information and expertise,
and coordinate the regulatory efforts to respond effectively to
emerging threats to financial stability.
One approach that Congress specified to address these
issues was to designate certain financial institutions and
financial market utilities as systemically important to the
stability of the U.S. financial system for the purpose of
applying enhanced prudential standards and supervision.
As you know, the FSOC includes the Consumer Bureau, which
is the first Federal agency solely focused on protecting
consumers in the financial marketplace. Products such as
mortgages and credit cards are involved in some of the most
important financial transactions in people's lives. These
products are often funded through complex financial markets and
they may constitute the underlying assets for more complex and
highly levered securities.
As the crisis made clear, financial stability, market
discipline, and consumer protections are closely interrelated.
Part of the mission of the Consumer Bureau, therefore, is to
help ensure that the recent economic meltdown is not repeated.
The practices that led to the financial crisis are inconsistent
with principles of fairness, transparency, and competitiveness
in markets.
We are exercising the authority Congress gave us to ensure
balanced oversight and prevent harmful practices in consumer
financial markets. When honest and innovative businesses can
succeed on the merits, fair competition drives growth and
progress and the entire financial system rests on stronger and
sturdier foundations.
As the Director of the Consumer Bureau, I look forward to
continuing to fulfill Congress' vision for our agency in my
role in the FSOC. That is what we are here today working
together to do. Thank you again for the opportunity to testify,
and I look forward to your questions.
[The prepared statement of Director Cordray can be found on
page 84 of the appendix.]
Chairman Hensarling. And Comptroller Curry, you are now
recognized for your testimony.
STATEMENT OF THE HONORABLE THOMAS J. CURRY, COMPTROLLER OF THE
CURRENCY, OFFICE OF THE COMPTROLLER OF THE CURRENCY
Mr. Curry. Chairman Hensarling, Ranking Member Waters, and
members of the committee, thank you for this opportunity to
provide the views of the OCC on the functions and operations of
the FSOC.
The OCC charters, regulates, and supervises national banks
and Federal savings associations. These banks range from small
community banks to multitrillion dollar institutions that are
among the world's largest financial companies. Together, they
hold nearly $11 trillion in assets, or just over two-thirds of
the industry's total.
The OCC's mission is to ensure that these banks operate in
a safe and sound manner, provide fair access to financial
services, treat customers fairly, and comply with applicable
laws and regulations. As the only Federal financial regulator
with prudential regulation as its primary focus, the OCC has
specialized knowledge about the safe and sound operations of
banks.
In 2010, as part of the Dodd-Frank Act, Congress
established the FSOC to identify, monitor, and respond to
systemic risk. The Council brings together its member agencies
to fulfill this critical mission. Through its committees and
staff, the FSOC provides a formal, structured process for
communicating, coordinating and responding to emerging market,
industry, and regulatory developments as well as to unforeseen
events.
As one of the FSOC's 10 voting members, the OCC brings
considerable expertise to the Council. Our examiners monitor
several areas of financial risk in the banking sector every
day, including credit, liquidity, interest rate, and
operational risk. These are among the risks that the FSOC
reviews in its evaluation of systemic risks with respect to
non-bank financial companies and financial market utilities.
Similarly, as many of the institutions we supervise are
engaged in asset management activities, the OCC's expertise in
this area is also quite robust. Since its establishment, the
Council has demonstrated a sustained commitment to working
collaboratively to fulfill its statutory mission.
Council members and their staffs have developed strong
working relationships and the Council provides a constructive
forum to hold candid conversations, share confidential market
sensitive information, and ask the tough questions that help
make the U.S. financial system safer.
The Council has also made positive strides in enhancing its
transparency both to the general public and to the companies
under consideration for designation. Dodd-Frank provides the
FSOC with important duties and responsibilities to promote the
stability of the U.S. financial system. The issues that the
Council confronts in carrying out these duties are by their
nature complex and far-reaching.
My written testimony includes additional information about
the specific mandates Congress has given the FSOC and a
discussion of some of the important actions the Council has
undertaken recently. For our part, the OCC is strongly
committed to helping the Council achieve its mission.
Again, thank you for the opportunity to appear today, and I
would be happy to answer any questions.
[The prepared statement of Comptroller Curry can be found
on page 86 of the appendix.]
Chairman Hensarling. The Chair now recognizes himself for 5
minutes for questions.
By a show of hands, how many of you have any professional
experience in the private insurance industry? Please raise your
hand. I see two, Mr. Woodall and Ms. White. Let the record
reflect that.
How many of you have had experience in regulating insurance
companies? By a show of hands, please raise your hand. Let the
record reflect that only Mr. Woodall raised his hand.
Mr. Woodall, as FSOC's independent member having insurance
experience, you dissented in both the MetLife and Prudential
SIFI designation. In your dissent to the designation of
MetLife, you wrote, ``It confounds me that much of the Council
and staff continue to misunderstand and mischaracterize the
insurance regulatory framework.'' You went on to say that
FSOC's analysis ``relies on implausible, contrived scenarios as
well as failures to appreciate fundamental aspects of insurance
and annuity products and, importantly, State insurance
regulation and the framework of the McCarran-Ferguson Act.'' Do
you still stand by those comments?
Mr. Woodall. Yes, I do, Mr. Chairman. And if I could
expound just a little bit, the basis of all of that, to put it
in perspective, is that I was pointing out that under the
statute, there are two determination standards under which the
Council comes up with its idea that a company is a SIFI, and
the first one is the only one that has been used so far, which
is if there is material financial distress at that individual
company which could be a threat to the entire U.S. financial
system.
The other is activities, are there activities that could be
a threat? My push has been to get the second standard of
activities to be used across sectors so we can get at the very
things that are causing this systemic risk. If we have a
situation where if we have a company that is a SIFI, and it
knows that it is doing an activity that is systemically risky,
it can sell that activity to somebody that is not a SIFI and
then, essentially, we have lost them. They are there, but the
systemic risk could still be in the system.
Chairman Hensarling. Mr. Woodall, what are the implications
of designating a traditional insurance company as a SIFI, since
they are under State-based regulations? Will we have a
duplicate regulatory system? Do you believe those costs could
be imposed upon policyholders and insurance company investors?
In other words, what is the harm in designating a
traditional insurance company as a SIFI?
Mr. Woodall. I think there is a harm that it could come to
higher prices because they have higher regulatory costs. Also,
with a higher regulatory cost, their products have to be priced
higher, as I said, and that costs more.
It puts them in an unlevel playing field with the people
and the companies that are not designated SIFIs.
Chairman Hensarling. Chairwoman Matz, prior to voting to
designate Prudential as a SIFI, did you make inquiries, or
request any type of economic analysis on what this designation
could mean to insurance policyholders? Was that part of your
decision-making process?
Ms. Matz. No, it was not.
Chairman Hensarling. It was not. Do you believe it should
have been?
Ms. Matz. That was not the mandate that we had. The mandate
is to determine if material distress at a non-financial
institution could pose a threat to the stability of the United
States.
Chairman Hensarling. Under Section 113(a)(2) of Dodd-Frank,
there are 11 different factors you are to consider in making
your designation. With respect to the Prudential decision, to
what extent did the leverage of the company play a role in your
decision to designate it a SIFI?
Ms. Matz. It was the combination. We were briefed
extensively on the financial--
Chairman Hensarling. I'm sorry. Briefed by whom?
Ms. Matz. Briefed by the FSOC staff and the NCUA staff that
works with them, that participates with them--
Chairman Hensarling. So does the NCUA staff have expertise
in insurance company leverage? What was the specific leverage
of Prudential that caused you concern?
Ms. Matz. No. The determination wasn't based on the
insurance activities. It was based on the financial activities
of the company and how they are interwoven with other--
Chairman Hensarling. And specifically, which activities
were interwoven that concerned you?
Ms. Matz. It was their derivatives position, the extent of
their leverage. Their--
Chairman Hensarling. But I asked you about the leverage.
Ms. Matz. The securities lending. Their debt position. The
extent of the difficulty to resolve them if there was financial
distress. So, it was not one factor.
Chairman Hensarling. The Chair's time has expired. The
Chair recognizes the ranking member for 5 minutes.
Ms. Waters. Thank you very much, Mr. Chairman.
Let me first go to Mr. Woodall. Is AIG designated as a
SIFI, Mr. Woodall?
Mr. Woodall. Yes.
Ms. Waters. Should it be?
Mr. Woodall. At the time when they were designated, we were
coming right out of the financial crisis. The first two
designations were AIG and JECC, companies which had had some
problems during the crisis.
Ms. Waters. Some problems? Big problems.
Mr. Woodall. Big problems.
Ms. Waters. Okay. So, it should be designated a SIFI?
Mr. Woodall. At that time.
Ms. Waters. At this time?
Mr. Woodall. It is not half the company now that it was
then.
Ms. Waters. At this time? At this time, should it be a
SIFI?
Mr. Woodall. Right.
Ms. Waters. Let me just go on to Mr. Gruenberg on another
matter. In the Dodd-Frank Act, Congress recognized that our
banking regulators failed to engage in regulatory oversight of
large banks leading up to the crisis.
As such, we put in place enhanced prudential standards that
set forth the basic requirements for a bank to be well-run--
capital resolution; risk management; and liquidity, among other
factors--at the same time the deliberative process in Congress
led to an exemption from these requirements for banks below $50
billion in assets.
Congress also directed the Fed to tailor certain
regulations for large regional banks based on size, as well as
provided the Fed with the option to exempt certain banks above
$50 billion from certain requirements. Both in committee and
through potential riders to funding bills, Congress is now
contemplating legislative proposals that would undo this
important work.
These proposals would, instead, rely on the Financial
Stability Oversight Council to affirmatively designate banks
for enhanced prudential standards for all but the very largest
global mega-banks.
Chairman Gruenberg, do you think that such proposals would
be ill-advised? What did the 2008 financial crisis teach us
about how the failure of one or more large regional banks could
harm our financial system? And in terms of bank resolution,
which failure during crisis era was the most costly for the
FDIC's deposit insurance fund?
Mr. Gruenberg. To answer the question you raised at the
end, the most costly failure to the FDIC during the crisis was
the failure of IndyMac, which was a thrift institution with
assets of about $30 billion that ultimately cost the deposit
insurance fund over $12 billion, which is the most significant
loss during this crisis, and I believe in the history of the
FDIC.
And it does show the importance of having a prudential
framework for larger institutions relating to capital and
liquidity and other standards, and to respond to the first part
of your question, as a general matter, I think the framework in
place is a reasonable one. It generally gives discretion to the
agencies to tailor the prudential standards to the size and
complexity of the institution. And I generally think that is an
appropriate approach.
Ms. Waters. Let me just ask you this, so it can be
reiterated. Has the Federal Reserve begun tailoring enhanced
prudential standards for banks above $50 billion with increased
stringency based on bank size? Would you just kind of continue
on that?
Mr. Gruenberg. Yes, Congresswoman. I believe--I wouldn't
want to speak for the Fed. But just as an observer, I believe
the Fed has done that, generally focused the enhanced
prudential standards on the larger institutions above $250
billion, and has tailored standards for those below.
Ms. Waters. All right. Can more be done in this regard
without reopening Dodd-Frank to potentially negative
consequences?
Mr. Gruenberg. Yes. I do think that as we progress in this
process, this is a focus for all of the agencies to ensure our
regulations are appropriate to the size and complexity of the
institutions.
Ms. Waters. So, basically what you are telling us is there
has been no resistance to FSOC taking a close look at what can
be done and using its discretion to make sure that they not
only honor Dodd-Frank but they have the flexibility to make
modifications where necessary?
Mr. Gruenberg. I agree with that, Congresswoman.
Ms. Waters. Thank you. Mr. Chairman, I yield back.
Chairman Hensarling. The gentlelady yields back. The Chair
now recognizes the gentleman from New Jersey, Mr. Garrett,
chairman of our Capital Markets Subcommittee.
Mr. Garrett. Thanks, Mr. Chairman. I have been looking
through the minutes, Mr. Chairman--if you can call them that--
that FSOC published. And one of the things I notice is who
actually shows up, and who can attend FSOC meetings. It seems
that certain people, like that Governor, who is not a member of
FSOC, is able to attend, and attends various meetings of FSOC,
while Commissioners of the various boards and Commissions do
not attend.
It seems that there is a--well, not a very clear criteria
as to who can and cannot attend. In September, according to
minutes, the FSOC held with about 20 or so invited guests from
various agencies. And again, yes--yet again, the Commissioners
of various agencies are not on those lists.
So, I am going to take a page out of Al Green's methodology
here and ask for a show of hands. All of you who are on the
panel today, who are part of an organization that has either a
commission or a board, can you raise your hand, so we know what
we are talking--because not everybody up there has a commission
or a board, right?
Okay, so, for those who raised your hand, do you trust your
Commissioners or your board members as their ability to keep
things confidential? So, I would say, do the members who just
raised their hand trust their board members?
Maybe I should flip it the other way. Is there any member
here who does not trust their board members or their
Commissioners? They can't keep things secret?
Okay. So, if that is the case, let me run--Chairman Massad,
if any of the members of your Commission wanted to come to you
and ask to attend an FSOC meeting, and you trust them, can they
come to an FSOC meeting?
Mr. Massad. Thank you, Congressman, for the question.
I don't think that is the structure provided for in the
law.
Mr. Garrett. Would you personally object to them being
there?
Mr. Massad. I think it is important for the FSOC to follow
the--
Mr. Garrett. I don't know that there is anything in the
FSOC rules that--is there anything specifically in the
requirements that says they cannot attend but other guests can
attend?
Mr. Massad. I would have to get back to you on that,
Congressman.
Mr. Garrett. You allowed 20 other guests to be there in
September, and I guess that was okay. Did you know at that time
whether or not they were allowed to be there?
Let me go to Chair White, since he doesn't know. Would you
object if one of your Commissioners wanted to attend an FSOC
meeting personally? Would you have a problem with that?
Ms. White. The protocol is for the Chairman to pick one
person, typically a staff person, to accompany them. That is
the structure of FSOC.
Mr. Garrett. Right. I understand what the structure is. I
understand that you have been--the whole entire board has been
precluding openness and transparency. What I am trying to find
out is for all of you who have just raised your hand, who said
you trust your board or commission with secrecy, is there
anyone who would say that they cannot attend? Well, good.
Can I have a commitment, then, from all of those people who
just said they would not object, that you will work to, for the
next meeting, allow your board and Commissioners? Anyone here--
please raise your hand if you will not encourage your chairman
to allow them to attend the next board meeting.
So, let the record reflect two people. Mr. Gruenberg, you
will not--
Ms. White. Can you repeat that?
Mr. Garrett. --recommend to the chairman that your
Commissioners be able to attend?
Ms. White. I would follow--
Mr. Garrett. No, let me just go there. You didn't raise
your hand. Do you not trust your members? Are they not able to
keep things secret? I just want to be clear on that.
Mr. Gruenberg. I certainly do, Congressman. Just a couple
of points, if I may.
Mr. Garrett. Sure.
Mr. Gruenberg. From the FDIC, as it happens as a matter of
statue, three of the members of our board are statutory members
of the FSOC. So a majority of our board are represented. And I
certainly have the greatest trust in our other Directors. I
would note that I share with our other Directors all of the
information available to the FSOC.
Mr. Garrett. But you have no problem with Dan Tarullo's
attending quite frequently. So it is something about your board
that you don't trust them is what I am taking from this.
Mr. Gruenberg. No, sir.
Mr. Garrett. So why do you object to them being there?
Mr. Gruenberg. I think it is a matter of the--it is a
matter for the entire FSOC, it is a matter of functionality in
terms of the number of--
Mr. Garrett. So in September, there were 20-some. That was
not an issue of functionality, but for your own board members--
I am taking the perception here that either you don't trust
your people or that you are doing something in secret. So which
one is that, Mr. Gruenberg? Do you not trust your people or you
are trying to do something in secret?
Mr. Gruenberg. Neither, Congressman. For what it is worth--
Mr. Garrett. Then, you haven't given us an answer.
Chair White, will you recommend to the Chair, will the rest
of you now--the rest of the panel who raised their hand, will
you recommend to the chairman that these people--that meetings
be open to the rest of the Commission?
Ms. White. I will follow the congressional structure. I
think that is something--
Mr. Garrett. There is nothing in the congressional
structure. That has already been pointed out, so will you make
that recommendation?
Ms. White. I would discuss it with my fellow members of
FSOC and the Chairman. Discuss it with them, as I have done
before.
Mr. Garrett. Will anyone here make that recommendation,
positive recommendation? So, let the record reflect that no one
who has come before us today will make a recommendation; they
want to continue to keep their meetings secret.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from New York, Ms.
Velazquez.
Ms. Velazquez. Thank you, Mr. Chairman. Mr. Cordray, the
CFPB's core mission is consumer protection, which may not seem
linked to systemic risk. However, I don't think that is the
case.
Can you elaborate on what role consumer financial
protection plays in the stability of our economy and how your
agencies work and help inform FSOC?
Mr. Cordray. Thank you, Congresswoman. First of all,
Congress set the structure of the Council and determined which
agencies should be represented there. And it is a broad cross-
section of the Federal financial regulators.
In the case of the Consumer Bureau in particular, it is
worth noting that the financial crisis that gave rise to the
Council was caused, everybody agrees, by irregularities in the
mortgage and housing markets.
People disagree somewhat as to the chain of events that led
to this, but a meltdown in the housing and mortgage markets was
transmitted by various channels throughout the economy and
threatened the stability of the financial system.
The very first issue that was raised at the first meeting,
which is before I joined the FSOC--I was not yet the Director
of the Consumer Bureau--was mortgage servicing and
foreclosures. There were briefings on those at the first
several meetings. Those are issues that are very central to the
work that has been done in the early years by the Consumer
Financial Protection Bureau.
All of us on the Council are charged by law with examining
the economic system for emerging threats to financial
stability, which we do. The annual report has been a very good
and transparent and thorough account of the Council's thinking
about both present and emerging threats and is our best attempt
to monitor and report on what we see in the financial system at
that time.
There were various issues that each member of the Council
and each entity that they represent is more or less expert in.
And we share that expertise with one another to try to arrive
at a broader, more comprehensive view of the financial system
than each of us could do alone.
Ms. Velazquez. Thank you.
Mr. Gruenberg, we have heard from opponents of the SIFI
process that there is insufficient opportunity to engage with
the Council after designation. Do SIFI-designated firms have
opportunities to meet with FSOC staff to review their status?
Mr. Gruenberg. Yes, Congresswoman. As you know, as a
statutory matter, the Council is required to re-evaluate a
designation annually.
Ms. Velazquez. Thank you. I yield back.
Chairman Hensarling. The gentlelady yields back. The Chair
now recognizes the gentleman from Texas, Mr. Neugebauer,
chairman of our Financial Institutions Subcommittee.
Mr. Neugebauer. Thank you, Mr. Chairman.
Chairwoman Matz, there has been a lot of discussion about
what it means for a bank to be systemically important. And as
you know, in February the Office of Financial Research (OFR)
released a report where they examined the systemic risk
indicators. They used the indicators that had been developed by
the Basel Committee and they applied those to some of the
largest banks and holding companies.
And what was kind of an interesting finding is that the
report concluded that the least systemic US GSIB was several
times more systemically--more systemic than the other major
U.S. banks, the regional banks. Yet, all of those institutions
fall under the requirement for enhanced prudential standards
based on their asset size. And so are you familiar with that
report?
Ms. Matz. I'm sorry. I have not seen that report.
Mr. Neugebauer. You have not seen that report?
Ms. Matz. No.
Mr. Neugebauer. One of the requirements is--or, I guess,
main functions of the OFR is to furnish the committee with the
information to hopefully help them make better determinations.
And so I would hope that you would avail yourself of that
report.
But would you agree that setting up certain standards to
measure companies is appropriate? If you haven't seen the
report, basically they took the Basel standards and they took
five of them and applied them to those companies. Do you think
that is a good way to approach that?
Ms. Matz. We have stayed away from creating bright lines
and instead look at whether material distress at a company
could pose a threat to the financial stability of the United
States. And since each company has different business plans,
different business models, we have not drawn a bright line or
been very rigid about what the standard is. It is looking at
the entire company and then making a determination after very
deliberate consideration.
Mr. Neugebauer. Director Watt, have you seen the OFR
report?
Mr. Watt. I have not seen the report that you are referring
to.
Mr. Neugebauer. Well, let me--since you haven't read the
report, I guess I will go to another line of questions. Section
113 of Dodd-Frank requires FSOC voting members to consider at
least 11 factors before designating a non-bank financial
company for heightened Federal supervision including leverage,
off-balance sheet exposures, scope, size, and scale.
I will start with you, Chairwoman Matz. Do you think it is
appropriate to use 11 different factors in the determination of
whether a non-bank company is systemically important?
Ms. Matz. Yes.
Mr. Neugebauer. Director Watt, would you agree with that?
Mr. Watt. Yes. We are not second-guessing the statute. We
didn't write the statute, but I think all of them are--well,
actually, I was involved in writing the statute.
[laughter]
But I am not in a position to second-guess it now. I voted
for it. Right.
Mr. Neugebauer. I think the point I am trying to make here
is that it is a little puzzling to me that it is appropriate
for non-bank entities to be subject to standards. And I think,
in fact, Director Watt, you said you are committed to an
analytical process.
And so, I think the interesting thing is, is we subject
these non-bank SIFIs to 11 different factors. Yet, we only
subject banks to one factor, and that is size. If this is going
to be an analytical process, shouldn't we establish factors for
analyzing banks in a way of analyzing whether or not they are
systemically risky?
Mr. Watt. I think these are really the same factors that
any of us would take into account. It may not be specified in a
statute for individual banks. But one of the primary problems
during the meltdown was there was no supervision, and no method
to get at non-bank entities, because they didn't have--they
weren't answering to anybody.
Mr. Neugebauer. Yes. I am not talking about non-banks. We
have talked about what--
Mr. Watt. I thought that is what this was designed--
specifically what this talks about.
Mr. Neugebauer. I guess the question is, we are subjecting
banks, based on their size; we don't even consider the other
factors. So, shouldn't we be considering a litany of factors to
determine whether these banks should be subject to enhanced
prudential standards?
Mr. Watt. I think it would probably be more appropriate for
Mr. Curry and Mr. Gruenberg to answer that. I don't regulate
banks. But I would think that they take into account all of
these considerations.
Mr. Neugebauer. But you do sit on FSOC, isn't that correct?
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Texas, Mr.
Hinojosa.
Mr. Hinojosa. Thank you, Chairman Hensarling and Ranking
Member Waters, for holding this important hearing. I also wish
to thank our distinguished panelists for testifying today, and
for the dedication to ensuring the safety and soundness of our
financial system through their participation on the Financial
Stability Oversight Council.
As a senior member of this committee, I applaud the
Council's progress to date, and I look forward to hearing from
our panelists on the Council's priorities moving forward.
Two particular lessons learned from the crisis come to mind
today. First, it is absolutely essential to have a bird's-eye
view of our financial system, in order to identify and prevent
systemic risks from destabilizing our entire economy. In
crafting the Dodd-Frank Act, we in Congress recognized this
fact and created the Financial Oversight Stability Council, an
entity comprised of our banking, insurance market, and housing
regulators who are tasked with ensuring the financial stability
of the system as a whole.
Secondly, we should not just assume that the markets will
take care of themselves. Instead, we must support and empower
our regulators to be able to act when needed. We should be
looking to strengthen our financial system and the safeguards
we incorporated after lessons learned from the last crisis,
rather than berating our regulators and attempting to restrict
their ability to act by tying them up in bureaucratic knots.
My first question is for Mary Jo White. A much criticized
report from the Office of Financial Research (OFR) discussed
the risk that the asset management industry posed to the United
States financial system. The critics argued that the asset
management industry poses absolutely no risk to our financial
system.
However, haven't the Council's actions, including the
publication of the report by the OFR, spurred the SEC to take
action with respect to money market funds?
Ms. White. The answer is that the SEC independently
proceeded. I am aware, obviously, of the preliminary
recommendation of the FSOC. But the SEC proceeded independently
to reform the structure, in some ways, of money market funds.
Mr. Hinojosa. Can you elaborate on how the SEC was spurred
by the FSOC and how these actions were making our markets and
investors safer?
Ms. White. The SEC proceeded independently of the FSOC
recommendation.
The SEC has been studying it for some time, certainly since
I have been there as Chair, and proceeded totally
independently. It was an important thing to do. To allude back
to your first comment, though, I think it is very important
from a bird's-eye view, that big picture view be provided by
all the financial regulators who sit on FSOC.
Mr. Hinojosa. Thank you. Next question, to the Comptroller
of the Currency, Mr. Thomas Curry. Some critics have criticized
Dodd-Frank's FSOC structure for allowing some of your agencies
to have voting rights non-bank systemically important financial
institution designations made by the FSOC.
Are you comfortable with the deliberative materials
received from the Council staff? And do these materials
adequately prepare you to make informed decisions?
Mr. Curry. Thank you, Congressman. There is an extensive
amount of material presented to me as a member of the FSOC in
connection with any designation. And there is actually a fairly
elaborate process of three stages by which that information is
developed.
Stage one is from publicly available information or from
contacts with supervisors. Stage two, which gives notice to and
engages an institution under consideration the opportunity to
engage with the Council staff and our designation committee.
And then finally, stage three, where there is extensive
communication and development of analysis and records for the
Council's consideration.
Mr. Hinojosa. Thank you. Mr. Cordray, when assessing
systemic risk for our financial system, has the FSOC taken a
look at aggregate depth levels from various areas of the
economy?
Mr. Cordray. We have. And I believe we should.
Mr. Hinojosa. Do you think the current amount of debt in
the aggregate poses a risk to our economy? And why or why not?
Mr. Cordray. I think everybody could have their own
personal point of view on that. I think one of the factors that
the FSOC has looked at, in terms of thinking about systemic
risk, is both debt and leveraging of levels of investment.
And therefore how much risk could be transmitted through
the system, if there were adverse developments to the extent to
which capital is deployed. And so, I do think that is an
appropriate factor in looking at the kind of issues raised
before the Council.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Missouri, Mr.
Luetkemeyer, chairman of our Housing and Insurance
Subcommittee.
Mr. Luetkemeyer. Thank you, Mr. Chairman. We have put up a
chart, I don't know if everyone can see it or not; I know we
can see it pretty well on the back. And it is on the side, I am
not sure we can get there.
But I would like to follow up on the chairman's comments
and questions while we go, with regards to non-bank
designations. And what I am concerned about is perhaps Fed-
driven decisions on some of these designations. And if you look
at the bottom part of the chart there, you can see that the
National Credit Union Administration in 2012 and 2013 had two
members that they dedicated to or who had done some analysis
with regard to non-bank designations.
And in 2014, we have none. Ms. Matz, are you an expert on
insurance analysis? Okay, so we have--
Ms. Matz. No.
Mr. Luetkemeyer. You are not an expert. And we have no one
at your agency who is designated to do analysis. And this
information--you can't read the fine print there, you can in
the back of the room. This analysis, by the way, comes from
data given by your agency to the GAO, if I am not mistaken,
which is in this report right here.
Ms. Matz. I don't think that is correct, though.
Mr. Luetkemeyer. Sorry, Ms. Matz. That is information you
gave to the GAO when requested. And so, my concern is the
Federal Reserve has 25 people designated to make this analysis.
You have zero.
Ms. Matz. That is not correct.
Mr. Luetkemeyer. That is not correct?
Ms. Matz. It has been stated. I don't know where they got
that information from, but it--
Mr. Luetkemeyer. They got it from you.
Ms. Matz. It is not from me personally. It is not--
Mr. Luetkemeyer. It is written on the bottom of the sheet.
It says that the information came from each member agency and
represents individuals involved in the analytical work. So--
Ms. Matz. It is not correct. We still have--
Mr. Luetkemeyer. How many do you have, then?
Ms. Matz. We have two people.
Mr. Luetkemeyer. Two people. Okay. Are they experts in
insurance?
Ms. Matz. They are not experts in insurance.
Mr. Luetkemeyer. They are not experts in insurance. So, how
can we make an educated analysis whenever you are making
designations with regards to non-bank designations, which
involve insurance companies? How do you make that
determination, then?
Ms. Matz. It is not the insurance part of the business that
results in a designation. It is in the financial services part
of the business, and how intertwined it is.
Mr. Luetkemeyer. So, the insurance part of the business is
not important with regards to the designation of a SIFI?
Ms. Matz. No. It is not. It is the financial services part
of the business--
Mr. Luetkemeyer. The financial services part of the
business is the only part that you look at?
Ms. Matz. Yes.
Mr. Luetkemeyer. Wow. Okay.
Mr. Cordray, you sort of struck out all across-the-board
there as well. Are you an insurance expert, sir?
Mr. Cordray. I am not an insurance expert.
Mr. Luetkemeyer. Is this number incorrect, as Ms. Matz
indicated hers was?
Mr. Cordray. I am not exactly sure what analysis was used
to get to that number. But the reality is that each of us has
deputies who work together on the FSOC on the analysis. Then, I
am briefed on the analysis and have a chance to review the
materials--
Mr. Luetkemeyer. Well--
Mr. Cordray. --extensive materials--
Mr. Luetkemeyer. --you are saying--
Mr. Cordray. --submitted by Congress--
Mr. Luetkemeyer. --this number is incorrect as well, even
though this is information your agency gave to the GAO?
Mr. Cordray. I am saying that the slice on it here I think
is not reflective of the full work done at the FSOC.
Nonetheless, I am not an insurance expert. But other
members of the Council are not banking experts. Certain members
of the Council are not investment experts. It is all of us
together--
Mr. Luetkemeyer. Mr. Cordray--
Mr. Cordray. --who work together.
Mr. Luetkemeyer. This goes to the heart of the matter here.
You are sitting on a board that makes a decision on the
designation of whether something is systemically important or
not. And if you don't have the personal expertise, you need to
have somebody on your staff, because otherwise it is not an
independent vote that you are casting.
It is a vote based on how the Federal Reserve or some other
member of this board is telling you it should be done. And that
is not the way the system should work.
Mr. Cordray. I don't think that is correct. First, there is
FSOC staff. There is staff of the member agencies contributed
who work together. And then there is our own analysis.
But again, to focus only on the insurance company potential
designations is only a partial picture. There are bank
designations. There are other financial company designations.
There are investor area designations. Everybody has relative
expertise in some areas--
Mr. Luetkemeyer. Okay--
Mr. Cordray. --and less in others.
Mr. Luetkemeyer. I am running out of time here.
Mr. Massad, you have zero people all the way across-the-
board. Is that incorrect as well?
Mr. Massad. I think your chart runs through July of 2014.
Mr. Luetkemeyer. Right.
Mr. Massad. I took office in June.
Mr. Luetkemeyer. Okay.
Mr. Massad. Shortly after that--
Mr. Luetkemeyer. Okay.
Mr. Massad. --I had my staff involved in the designation
that was--
Mr. Luetkemeyer. So now you do have some people involved in
this designation?
Mr. Massad. A few of them--
Mr. Luetkemeyer. How many?
Mr. Massad. --of our staff--
Mr. Luetkemeyer. One, two, ten?
Mr. Massad. It depends on the issue, sir. We are a small
agency. We are very limited in our resources. No one is fully
dedicated to these issues. But certainly I try to get people
involved as necessary--
Mr. Luetkemeyer. Okay. One more quick comment before I am
out of time here.
With regards to the SEC, Ms. White, your numbers are zero,
two and now twelve. And in your testimony you indicate or you
say that it is important that it be data-driven and conduct
rigorous analysis throughout the process.
How can you do rigorous analysis when back in 2013, you
made the designation true with 2 people, and now you have 12
people? Was that a stumble back then and you realized you
didn't have adequate staff? Or what was the problem back then?
Ms. White. I can only speak to the time since I have been
there, which is--
Mr. Luetkemeyer. You were there at the time this was done.
Ms. White. But I didn't participate in the designation. I
would have to drill down a little bit on those figures.
But what we do at the SEC, I think my written testimony
reflects this, is--and again, it is not full-time people
devoted to FSOC work streams. But who we need in particular
areas are called upon to assist me and analyze--
Mr. Luetkemeyer. The concern is still there that we are not
doing our job of doing analysis--
Chairman Hensarling. Time.
Mr. Luetkemeyer. --and letting the Fed--
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes another gentleman from Missouri,
Mr. Clay, ranking member of our Financial Institutions
Subcommittee.
Mr. Clay. Thank you, Mr. Chairman.
And I thank all of the witnesses for attending today.
Some have criticized the FSOC's designation process as
being opaque. The GAO also made several recommendations to the
FSOC to improve its transparency.
To your knowledge, how has the FSOC addressed the
recommendations of the GAO? Would you also describe how the
FSOC changed its process with the February 2015 supplemental
procedures announcement? Anyone on the panel can answer. There
are so many to choose from. Ms. White maybe?
Ms. White. In terms of the GAO-specific recommendations, I
think those were responded to by the Secretary of the Treasury
as the chairman of FSOC, not agreeing or disagreeing with the
recommendations.
But I do think that the, what I will call the process and
transparency changes made by FSOC in 2015 address a number of
those concerns in terms of both transparency, and clearer
information to companies as to when they can interact, when
they are being analyzed in stage two.
There was a lot of back and forth before those changes, but
I think a number of those changes are responsive to those
recommendations.
Mr. Clay. Can you--oh, yes, sir? Go right ahead.
Mr. Gruenberg. Just to respond to your question,
Congressman, I think the focus of the Federal procedures was to
try to enhance engagement and transparency for the stage two
process. So it provided notice to the firm that it could
advance from stage one to stage two, an opportunity for the
firm to engage with the FSOC staff.
It requested the public information that the FSOC was using
as part of that stage two review, as well as notice if a firm
is not advanced from stage two to stage three. And if a firm is
advanced from stage two to stage three, it would be notified of
that and then a set of procedures for engagement with stage
three.
So it was an effort to provide both greater insight for the
firm in terms of notice and greater opportunity to engage with
the FSOC.
Mr. Cordray. Could I simply add something? To me, this
exemplifies vigorous congressional oversight.
The Congress and this committee have had comments on
transparency at the FSOC. We have listened to those. The GAO
did a report with comments. We have listened to those.
It is a new body. It is still just a few years old.
Transparency is developing and evolving as we go, and I believe
has been responsive to a lot of the concerns raised here.
Mr. Clay. Thank you.
And what changes have you made to the annual and 5-year
designation review processes to ensure more due process rights
are available to companies? Mr. Gruenberg?
Mr. Gruenberg. Yes. I think the procedures make clear that
as part of the annual evaluation process, a company can submit
information, engage with the staff in terms of the information
being presented, and get feedback in regard to the process. And
the procedures provide an assurance of a hearing with the FSOC
at least every 5 years.
Mr. Clay. General Electric has announced that it would shed
most of its financial assets which operated out of GE Capital.
In making the announcement, GE noted that the company will work
closely with its regulators and the staff of FSOC to take the
actions necessary to designate GE Capital as a systemically
important financial institution.
Further, the CEO of GE noted that, ``We have a constructive
relationship with our regulators and will continue to work with
them as we go through this process.''
Can you describe how FSOC will go about working with GE?
Anyone? Yes, sir?
Mr. Curry. There is an ongoing dialogue with the company as
to what its plans are, what its strategic or structural changes
are. And that will continue at an annual review or sooner. A
decision will be made once those plans have been actually
executed.
Mr. Clay. I see. Thank you very much.
And Mr. Chairman, I yield back the balance of my time.
Chairman Hensarling. The gentleman yields back.
The Chair now recognizes the gentleman from Michigan, Mr.
Huizenga, chairman of our Monetary Policy and Trade
Subcommittee.
Mr. Huizenga. Thank you, Mr. Chairman.
I apologize that I had to step out. I have had some
visiting constituents and wanted to make sure that I understood
where my fellow Subcommittee Chair was headed. And I think we
are kind of on the same path and direction.
I do want to, at some point, Mr. Woodall, get back to your
written testimony, which I found very fascinating, and I have a
couple of questions there.
But I would like to also see a show of hands. Who here
believes that Congress has the right to understand how FSOC
makes its determination decisions? So if you believe that
Congress should--okay. The record will reflect that all of you
believe that is an important part.
I would like to get a sense of what materials FSOC members
reviewed before making final determinations. And are there
memoranda, other materials prepared by FSOC staff that you rely
on to make your decisions?
Who here is willing to share that? If you would give me a
show of hands, if you would raise your hand, who is willing to
share that with us?
[laughter]
Nobody? Okay. Let me repeat the first question, I guess.
Mr. Massad. Congressman? Can I make a comment?
Mr. Huizenga. Sure, Mr. Massad.
Mr. Massad. I think Congress is entitled generally to
whatever information it wants. I would want to simply check
with staff in particular to make sure we are abiding by our
obligations to keep non-public information confidential.
Mr. Huizenga. Sure.
Mr. Massad. But certainly, Congress is entitled to get
whatever information it wants.
Mr. Huizenga. Okay. And maybe that is not even public
meeting. Maybe that is a private meeting being able to share
that.
So, Mr. Gruenberg?
Mr. Gruenberg. Congressman, I think the analogy here is one
of our regulatory agencies considering action with regard to a
particular institution. That is what FSOC is doing.
Mr. Huizenga. Sure.
Mr. Gruenberg. So, two points. One, if we are dealing with
confidential, supervisory information which would probably be
an applicable standard here in the FSOC. That is generally not
shared. Although upon congressional request, as we have in
other instances, Congress gets the information it requests.
Mr. Huizenga. That sometimes takes longer than the
timeframe, if you haven't noticed around here.
Mr. Gruenberg. I do understand. I think that would sort of
be the--
Mr. Huizenga. So you believe that Congress has the right to
review FSOC's deliberative materials.
Mr. Gruenberg. I think Congress has the right to request.
Mr. Huizenga. Those are two very different things. Okay.
Mr. Gruenberg. I think if you accept the premise we are
dealing with confidential supervisory--
Mr. Huizenga. Sure. And if we can do that and whether there
are certain things that--what I don't want are redacted sheets
that look like they are blacked out all the way. What I am
looking for is a venue then for us to be able to review to
understand. Because frankly, I think if you hear a lot of
questioning on both sides of the aisle, we simply do not
understand.
Mr. Woodall?
Mr. Woodall. I think there is one confidential memorandum
that has been made public. The confidential basis in the
Metropolitan Life case. It is my understanding has been filed
in the court and is a public record.
Mr. Huizenga. Okay.
Mr. Watt?
Mr. Watt. I want to be clear that the reason I would not
raise my hand is because I would not make a unilateral
decision. This is a collaborative body. FSOC, if we got
together, would turn over whatever would appropriately be
turned over to Congress. And I think I would be a supporter of
that being a robust turn over of information. But I certainly
wouldn't make even a unilateral decision.
Mr. Huizenga. You have sat on this side of the microphone
and know that sometimes it takes far too long to get responses.
Mr. Watt. But that is not a justification for an individual
member of a collaborative body to make a unilateral decision to
turn over confidential information.
Mr. Huizenga. I fully understand. So, I would love to have
it. But you all just raised your hands. And since you are the
voting members, you all said we have a right to this. So, let's
come up with a collaborative way of finding out how we are
going to do that.
Mr. Woodall, quickly, I was fascinated in your written
testimony about how you had been prevented from ``being in the
room'' with international insurance policymakers.
A number of us did a trip to Switzerland back about 2
months ago. They seemed genuinely surprised that Congress was
not up to speed on exactly what team USA is saying and doing in
that room.
And also I would--as we were indicating, many of us, both
sides of the aisle again, that were on this strip, supportive
of your involvement in that. They seemed genuinely perplexed
that someone with insurance expertise was not being allowed to
be a part of that process. So quickly, if you could comment?
Mr. Woodall. In international things, you work by consensus
as you have been told. The consensus within the team USA, you
have three U.S. people, representatives at the IEIS.
Mr. Huizenga. And you said that you had been supported by
two of those for being in the room.
Mr. Woodall. Right.
Mr. Huizenga. The third who is not supportive is?
Mr. Woodall. It is Treasury right now.
Mr. Huizenga. Treasury?
Mr. Woodall. Without that consensus, and they are taking
the position--and I want to be fair about this. They are taking
the position that the statute gives me no such authority, that
I have no duties or responsibilities designated in the statute
at all.
Chairman Hensarling. The time of the gentleman has expired.
Mr. Huizenga. I look forward to remedying this.
Chairman Hensarling. The Chair now recognizes the
gentlelady from New York, Mrs. Maloney, ranking member of our
Capital Markets Subcommittee.
Mrs. Maloney. I thank the chairman and the ranking member
for calling this important hearing. And this is actually the
most people I have ever seen at that desk at any hearing or
reviewed in the history at a hearing. And it is a very
important topic. I am glad to see my former colleague, Mel
Watt. Welcome back.
My question is, when the FSOC is analyzing whether a
company is systemically important, it doesn't measure whether
the failure of the company would destabilize the system in
normal times. Instead, it measures whether the company would
destabilize the system in a period of stress in the financial
industry.
And I have two questions for the panel related to this.
First, why did the FSOC choose that standard? It seems that
this standard could certainly play a key role in determining
whether or not a company is systemically important.
And secondly, what historical precedence does the FSOC
review in making these evaluations in a period of stress in the
financial community? Do you look at the 2008 financial crisis,
the Asian financial crisis of 1997 and 1998? What do you look
at as precedent when you study these crises?
And I would like to start with Chairman Gruenberg. SEC
Chair White, and Comptroller Curry, and the thoughts from the
panel on these two questions. Thank you.
Mr. Gruenberg. Thank you, Congresswoman. I think the view
was that would--the impact, the failure the firm would have in
a stressed environment would be the most realistic scenario to
try to assess this systemic consequence of the firm. And I
think it was very much a product, certainly of the 2008 crisis
experience.
And I think we looked to the experience in other crises in
trying to make these assessments. But I think that was the
threshold judgment.
Ms. White. If I could pick up there, I would agree with
that analysis that the Council's guidance announced how it
would be approaching that. It would be analyzing in a period of
stress which would only make sense given what your purpose was
in terms of judging--in trying to prevent significant negative
impacts on the financial system.
Things that work in times of non-stress, don't work so well
in times of stress. In terms of what is looked to, it is not
just limited to how things operated in the 2008 period, but
certainly that is typically part of the analysis, but you look
to other scenarios, stress scenarios, as well.
Mrs. Maloney. Comptroller Curry? And then, Director Watt?
Mr. Curry. Congresswoman Maloney, I agree with my
colleagues. I think in order to assess, especially the
interconnected aspects of the financial system, you have to
assume that it is in a period of stress. I also think there is
some textural support within the statutory standard to take
that approach.
And in terms of what we would look to for the range of
historical experience, I think the 2008 crisis certainly stands
out in terms of its significance, its breadth, and what I think
people never would have assumed would be the underlying source
of it or the spark, the housing crisis. And I think that would
be our approach.
Mrs. Maloney. Okay.
Mr. Watt. I was just going to refer you to the specific
wording of the statute which says that we--the Council
determines that material financial distress at the non-bank
financial company, that is the standard that is set up in the
statute.
So, it is an appropriate standard, I think. But, again, we
are not trying to second-guess the statutory provision that was
written by Congress. We are following the statute, not second-
guessing it.
Mrs. Maloney. I would like to ask Chair White, as you know,
there has been a great, great deal of discussion this year
about how the FSOC could improve its SIFI designation. One of
the suggestions I kept hearing, and probably you heard also,
was that the FSOC should tell companies what actions they
needed to take in order to avoid being designated as a SIFI.
And this sort of struck me as a dubious idea. Because do we
really want the FSOC to be making these kind of core business
decisions for private companies? And in my opinion, the FSOC
should identify the systemic risk. And then the company should
figure out the best way to restructure its business to
eliminate the risk.
And when the Council adopted changes to the designation
process in February, you decided not to include this
suggestion.
Can you elaborate on why the Council wanted to maintain
this distinction? And do you think it is important for the FSOC
not to use the designation process as a way to tell companies
how they should be run?
Ms. White. Speaking for myself, I largely agree with your
assessment. I don't think FSOC should be telling companies how
to structure their business. I do think maximum transparency,
as we were discussing earlier, is obviously something that we
care about at FSOC and is important to do.
But very often, also, most often, I think the designations
are not going to be based on one or two or three metrics but
rather a business model. So it is a very complex undertaking,
as well. But I don't think FSOC ought to be telling companies
how to run or structure their business.
Mrs. Maloney. My time has expired. Thank you very much.
Chairman Hensarling. The Chair now recognizes the gentleman
from Wisconsin, Mr. Duffy, chairman of our Oversight and
Investigations Subcommittee.
Mr. Duffy. Thank you, Mr. Chairman. Just to reiterate, I
believe when Chairman Hensarling asked the panel who had
insurance experience, if I recall, it was Mr. Woodall and Chair
White. Is that correct?
And if I asked the panel to point out the one insurance
expert of all the witnesses today, who would you point to?
Yes, Chair White?
Ms. White. Mr. Woodall.
Mr. Duffy. Thank you. I would probably agree with you,
Chair White.
Ms. White. I overstated my expertise.
Mr. Duffy. Does it concern the panel that the one person
with insurance expertise is the one individual who dissented in
the designation of Prudential and MetLife? Or, Chair Matz, as
you say, that really doesn't matter because we are not looking
at the insurance side, we are looking at the financial services
side?
Ms. Matz. I think that is correct. And, it should be noted
that the head of the Federal Insurance Office did support the
designation and also has considerable experience in the
insurance industry.
Mr. Duffy. Did they vote on FSOC?
Ms. Matz. No.
Mr. Duffy. No, that is right. So Mr. Woodall, who does
vote, was the one dissenter--
Ms. Matz. That is correct.
Mr. Duffy. Who is the one with insurance expertise, which
is concerning.
Does the panel--I think the panel has all agreed on the
oversight front that Congress is entitled to do oversight over
FSOC. Is that correct? You all agree with that?
Our committee, under the signature of the chairman and
every single subcommittee chairman, sent a letter to Jack Lew
asking for 13 different points of information from FSOC.
There was partial compliance with a couple of those. Does
the panel disagree that if we have already gone through a
designation process, that Congress is not entitled to non-
public information?
You guys don't disagree with that, do you? Why aren't we
getting this information? Why aren't FSOC members complying
with our request?
It is concerning for our panel. If you are concerned about
the questions that you get today about the transparency of
FSOC, it is because the elected members of this body don't have
timely compliance or any compliance from Mr. Lew or any of you.
Can--would you--if there has already been a designation, if
we are asking questions about AIG, Prudential or GE, I can--you
can make the argument that with MetLife there is litigation, so
we don't want to give you that.
You might say that. I won't agree with that, but fair
enough. AIG, Prudential and GE, will you comply with our
requests about the analysis that went into the designation
process? The memos, the correspondence, all that information?
Everyone here, will you comply with that request?
Raise your hand if you will comply with the request to
provide us that documentation.
I have no takers. So, why not? Mr. Gruenberg, why not?
Mr. Gruenberg. Congressman, if I may say, you raise a fair
question. I think I probably want to go back and look at the
request. It seems to me the line here is when you are dealing
with confidential supervisory information or dealing with the
three companies you referenced. They are open institutions. So
you have to strike a balance there--
Mr. Duffy. Chairman Gruenberg, listen. Do you know that
there was a recent attack, some alleged by ISIS, in San
Bernardino?
Mr. Gruenberg. Yes.
Mr. Duffy. You are aware of that, correct? Do you know that
this body gets intelligence briefings from the FBI in regard to
ISIS and terrorist attacks?
Now, I would argue that American lives are in danger from
these radical extremists. Does anyone argue on this panel think
that anyone's life is in danger from the work that you do on
the FSOC?
Mr. Gruenberg. No.
Mr. Duffy. Raise your hand. Is anyone's life in danger? And
so we can get FBI briefings but you won't give us briefings on
the analysis that has gone into designation of certain
companies in America?
Mr. Massad, will you explain that to me? Why am I entitled
to briefings on ISIS and not on FSOC designation?
Mr. Massad. Well, sir, I can only speak to the FSOC issues.
I am not familiar with the intelligence side. But I would say
that as a general matter, I think, certainly transparency and
accountability is important--
Mr. Duffy. No, no. Explain why I get ISIS FBI briefings and
you can't send me information on designation.
Mr. Massad. I do think there are issues that we have to
think about in terms of the non-public nature of certain
information--
Mr. Duffy. No, no. The FBI sends me non-public information,
as well.
Mr. Massad. I respect that, sir.
Mr. Duffy. Are you making decisions that affect someone's
life?
Mr. Massad. No.
Mr. Duffy. Is ISIS affecting people's lives?
Mr. Massad. Yes.
Mr. Duffy. I would think that is far more serious. And the
information that we are entrusted with is far more serious than
the information you have and aren't complying with.
Mr. Massad. I do think--
Mr. Duffy. One quick question. The Bank of England sent a
letter to FSOC asking questions about why Berkshire Hathaway is
not being considered as a SIFI. Some have argued they have
political clout in this town. I think Barack Obama said he is a
great friend.
Is there a political analysis and connectivity with people
in power that go into the determination of designation on FSOC?
Quick answer, maybe, Mr. Chairman?
Mr. Watt. Not from me.
Mr. Duffy. Anyone?
No. I yield back.
Chairman Hensarling. The Chair now recognizes the gentleman
from California, Mr. Sherman.
Mr. Sherman. Thank you.
Folks, I do think that your decisions are life and death.
You will never meet the people. But if we have another 2008,
every one of our districts will have higher divorce rates,
higher unemployment rates, and higher drug use rates. And we
will never be able to go to a particular funeral the way you
can in San Bernardino and say, this is what happened. But there
are thousands of Americans who would be alive today if we
didn't have the 2008 meltdown.
So your work is every bit as important as those who are
focused on terrorism.
Ms. White, we have the Financial Stability Board. We don't
have--well, we have one of its members here. But it doesn't
answer to the American people. How can we be sure that they
don't push us to an activities-based approach on asset managers
or anything else, that the decisions that are made that affect
the American people will reflect the decisions made by those
answerable to the U.S. Government? And that it won't be just a
matter of, well, we went to the meeting, everybody else kind of
wanted to go in this direction.
I have seen this--people talk about terrorism. We made
loans from the World Bank to IMF and I was told, we would never
let that happen, it is all consensus. Then they came back and
said, sorry, we got outvoted.
So how do I know that to get along we are not going to go
along with policies that don't reflect the U.S. decision-
making?
Ms. White. As you point out, the Treasury, and the Fed, and
the SEC, actually sit on the Steering Committee of the FSB, and
have since 2009, when it was established very importantly to
look over potential risks to financial stability globally.
But whatever comes out of the FSB in terms of
recommendations or suggested standards is not binding on the
United States and certainly with respect to where there is
overlap, for example in the designations that have been talked
so much about. We act independently of the FSB. There are
separate processes.
Mr. Sherman. Thank you.
There is all this focus on whether an organization--an
entity has a lot of assets. Lehman Brothers didn't go under
because it had too many assets. It went under because it had
too many liabilities in contingent liabilities.
Ms. White, when you analyze whether an entity should be
designated as a SIFI, do you look at the size of their assets,
the size of their balance sheet liabilities, or the size of
their off-balance sheet--contingent liabilities, including
credit default swaps?
Ms. White. All of the above and then a host of other
factors, too. So that you can--
Mr. Sherman. I would hope that you would focus on
liabilities rather than assets. No one ever went under
because--
Ms. White. Understood.
Mr. Sherman. --they had too many assets. But in looking at
contingent liabilities, Mr. Woodall, I hope that we would not
count those contingent liabilities of regulated insurance
companies, because the State regulation of insurance companies
seems to have weathered the storm.
Would we designate a company as a SIFI just because they
had a lot of assets and liabilities if all the assets and
liabilities we are looking on were part of State regulated
insurance companies where the State regulators determined they
had adequate reserves?
Mr. Woodall. Yes, Congressman. One of the factors is the
regulatory scrutiny that the company goes through. And
obviously, we do have to look at not only assets and liability
but the matching of the assets and liabilities. And in
insurance companies, those liabilities are long-term
liabilities. They are not like liabilities of a bank that could
disappear if everyone came in and withdrew their account.
Mr. Sherman. Dodd-Frank calls for an annual review of
designations. Do you have a way for a company--do we have a
good process to allow companies to be de-designated,
particularly if they have reduced their risk profile?
Ms. White?
Ms. White. I think there is a good process. You always want
to keep looking at possibly enhancing it. But essentially, at
least annually, the Council has to look at that.
It was also made clear that the companies can engage with
the staff on those issues. And then every 5 years, under some
of the new procedures, they are entitled to a full hearing.
Mr. Sherman. I hope that you will refine that process
further. I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Oklahoma, Mr.
Lucas.
Mr. Lucas. Thank you, Mr. Chairman. And since we have this
distinguished panel together, I would like to visit about my
concerns with the Basel III leverage ratio rule, as it is
applied to certain derivative clearing services and the impact
it will have on the ability of my constituents to hedge risks.
So first, I would turn, of course, to our derivatives
market regulators, Mr. Massad and Chair White. When market
participants utilize derivatives to manage their risk through
futures, options, and cleared swaps, they must find a member of
the clearinghouse willing to guarantee their transaction with
the clearinghouse.
How does the margin that a market participant posts to a
clearing member affect the clearing member's ultimate guarantee
exposure to the clearinghouse?
Mr. Massad. Thank you for the question, Congressman. I do
believe it does reduce that exposure. Let me say generally on
this issue that I support strong bank capital requirements and
I support the SLR generally. And the issue I have raised is
really a very narrow one.
I don't believe we should be excluding derivatives from the
SLR, but I do believe it is important to make sure we are
measuring the exposure accurately and I do believe that the
margin that is held by the CCP--in other words, margin
collected but then actually transferred to the CCP--that we
should think about that in terms of how we recognize the
exposure.
Mr. Lucas.Chair White?
Ms. White. I would just add that I think you should always
be judging the impacts such as you described, frankly, in a
variety of contexts and a variety of different rule contexts as
well.
Mr. Lucas. And I will now turn to our banking regulator
friends, Comptroller Curry, and Chairman Gruenberg. In many
instances, these clearinghouse members are banks subject to
Basel capital requirements which require them to hold capital
against the guarantee they provide on behalf of their clients.
Now we can all agree that banks have exposure in the event
their clients are unable to fulfill the obligations and banks
should hold capital against that exposure. But shouldn't that
measure of exposure accurately reflect the client's margin,
offsets the bank's exposure to the clearinghouse?
Mr. Curry. Congressman, I think the number one protection
in the clearinghouse context is really that the member bank be
strongly capitalized and be able to perform in adverse
circumstances.
So having strong capital ratios really is a fundamental
part of our regulatory structure and the safety and soundness
of the system, including the clearing of swaps.
I want to point out that a leverage ratio is not by
definition a risk-based measure. So by definition, it would be
inconsistent to import measures of exposure or risk as a
general matter.
Mr. Gruenberg. Congressman, I agree with Comptroller Curry.
I think the core issue here is, the margin is posted with the
CCP, but in addition, the CCP is asking the intermediary bank
for a guarantee. And the potential loss from the derivative
exposure could substantially exceed the margin that is posted
with the CCP.
That is why the guarantee is imposed and the capital is
really designed to protect the bank against the downside risk
from that derivative exposure.
Mr. Lucas. I would just simply note to my friends, if we
create a system that we require such capital requirements above
and beyond what would appear to be necessary, we will cause
financial institutions to not participate.
And the next time we have a Lehman Brothers or an FM Global
and a major failure and their clients need quickly to find a
new clearing number, a new place to cover their outstanding
positions of their margin, there may not be any sources.
Having been a member of this committee through the wonders
of 2008, when the worst-case scenario occurs, you have to be
totally prepared. I am just concerned with Basel, we are headed
in a direction that will limit my constituents' options,
thereby increasing their costs and reduce these risk-mitigating
tools. So I would just simply note that to all of you and ask
that you bear that in mind.
We are undergoing pressure back home now in Oklahoma in
both the agriculture and energy sectors. It is real pressure
and it is something that will take time to overcome. But these
tools have been and continue to be important. So let's not
allow Basel to cause unintended damage.
With that, Mr. Chairman, I yield back the balance of my
time.
Chairman Hensarling. The gentleman yields back. The Chair
now recognizes the gentleman from Massachusetts, Mr. Lynch.
Mr. Lynch. Thank you, Mr. Chairman. I want to thank the
witnesses for your willingness to help the committee with its
work today.
I have a question for Chairman Gruenberg. A number of the
members on this committee have been working with Vice Chair Tom
Hoenig on a proposal that would give some regulatory relief to
some of our small banks.
Now, we are looking at banks, community banks that are in
the traditional business of banking, taking deposits, making
loans to businesses and individuals. And the way this would
work, we have not accepted all of Vice Chairman Hoenig's
recommendations, but we have focused on a number of them which
would be to be eligible for regulatory relief, the financial
institution must hold no trading assets, no derivative
positions other than interest rate or foreign exchange, have a
limited notional value of all the bank derivative exposures or
otherwise, and maintain a ratio of gap equity to assets of
about 10 percent; no less than 10 percent, I'm sorry.
And in return for that, under this legislation, we would
give relief in this form. The compliant banks would be exempt
from Basel risk-based capital standards. The test, the stress
tests, in some cases, they would be exempt, in other cases, the
stress test would be every 18 months instead of every year, so
we are trying to reduce the cost there for compliance. And also
exemptions from submitting call reports and schedules.
Now, this actually goes back to Mr. Sherman's question
before where we are actually regulating activity, not
necessarily size. So if a bank is not engaged in risky
activity, we think--and they are doing the right thing--we
think they a ought to be entitled to relief. And this has been
a high-cost issue for the smaller banks.
I just wanted to get your sense on whether this is
something that you would be receptive to?
Mr. Gruenberg. Congressman, I am similarly sympathetic to
the concept, the core concept being that if a smaller
institution is very strongly capitalized on the leverage
ratio--that is the 10 percent that you referenced--and does it
engage in high-risk activities, it would be eligible to reduce
or compliance with risk-based capital standards. I think that
core concept really makes some sense and I think that is
certainly is an issue for Congress to consider.
And I think as part of our regulatory review process,
within the framework of our capital rules, that may be
something that we might be able to consider on a regulatory
basis.
Mr. Lynch. Okay. I do want to fixate on that word
``sympathy'' because I think a lot of our small banks are good
with the sympathy. They are looking for actual relief now.
Mr. Gruenberg. I am--let me say I am open to pursuing that
approach.
Mr. Lynch. All right. Mr. Cordray, do you have any worries
about that? Have you thought about that proposal? I don't want
to--you might be out of pocket on this issue, I am not sure.
Mr. Cordray. No. We have been--if you look at our mortgage
rules, we tiered the application of those rules on the
qualified mortgage, what we call the ability-to-repay rule. We
made special provisions for smaller creditors, and in fact,
they have increased their share of the mortgage market, credit
unions and community banks.
And frankly, it is appropriate, because if you look through
the financial crisis, the default rates on loans that were
issued by smaller creditors, particularly depository
institutions, had a much better--that is, lower rate of
default--than other mortgages made generally in the
marketplace.
So where we can take that into account and think about how
we can apply different provisions for different levels of risk,
I think that is entirely appropriate.
We will continue to do so.
Mr. Lynch. You hit right on a point that I didn't mention,
which is that in most cases where a bank is willing to keep
their FAT mortgage in their portfolio, it would be deemed a
qualifying mortgage because you are not issuing to sell it.
Mr. Cordray. We are comfortable with that, particularly for
smaller entities, but there were larger entities before the
crisis that kept mortgages on their balance sheet and blew up
the system, Washington Mutual, Countrywide, and others. So at
smaller levels, I am quite comfortable with that.
Mr. Lynch. All right, fair enough.
Thank you, Mr. Chairman. I will yield back.
Chairman Hensarling. The gentleman yields back. The Chair
now recognizes the gentleman from California, Mr. Royce,
chairman of the House Foreign Affairs Committee.
Mr. Royce. Thank you, Mr. Chairman. Last month, in a
hearing before the committee about due process issues with the
FSOC, Professor Jonathan Macey of Yale Law School stated that
with respect to the actions that the FSOC have already taken,
there is a significant danger of increasing rather than
decreasing systemic risk.
His point, as he explained, was that this was because the
FSOC is ignoring certain risk mitigation strategies and herding
entities into particular risk strategies, which decreases
diversification and then increases the systemic risk.
This could also happen indirectly with companies making
choices to merge, sharing in the cost of compliance and
creating greater economies of scale. We have seen this in the
banking sector, or more directly, with the implied or explicit
backing of the government, as in the case with the GSEs.
So I was going to ask Mr. Curry, do you view the potential
for regulators to create systemic risk as a problem, and what
actions have you taken to make sure that--and I will also ask
Chair Matz, that the FSOC's designations and enhanced
prudential standards of the Fed are not increasing systemic
risk, per the thesis that the Yale professor puts forward.
Mr. Curry. Congressman, the FSOC actually is looking at,
and this is referenced in our annual report, some of the
consequences of changes within the marketplace, including
regulatory changes. There are behaviors that have changed.
Institutions have either left or entered different types of
business, the impact of non-banks.
Those are all things that we have identified as emerging or
potential emerging risks that require further monitoring, and
if necessary, potential action down the road.
Mr. Royce. And Chair Matz, if you could just weigh in
there?
Ms. Matz. Thank you. More specifically, as the designation
is being considered, the company has an opportunity to present
any evidence to the staff, whether in person or in writing, and
so if they think that there might be information that would be
helpful in determining whether to designate, they have every
opportunity to make that information available to us.
Mr. Royce. And lastly, I will just ask Chair White, do you
agree that this is a problem? Would you like to weigh in on it?
Ms. White. I think it is certainly something that I think
we need to be constantly keeping in mind with all of our
regulations, what impacts they are having, what mitigators we
ought to be considering in addition.
Mr. Royce. Now I am trying to better understand how the
interaction on another subject here, between the Office of
Financial Research and FSOC members works. After criticism by
this committee in public on an OFR report regarding the asset
management industry, the FSOC sought public views on the
industry, and later issued a request or notice and comment on
asset management products and activities.
Separately, the SEC put out the OFR report for public
comment. Can I ask the panel, do any of you see a reason why
all OFR public reports should not be open to the public notice
and comment? Does anyone take exception to that concept?
For the record, Mr. Chairman, I would like to say that the
witnesses, for the record, saw no reason to continue the
practice of OFR not allowing for public comment on their
reports. That is the point I wanted to make. I think it is
important that they do so.
If I have time here, the FSOC has not designated any asset
managers as SIFIs, which is a step I support, as these firms
operate with little leverage, if any, and the risks they manage
are borne by those whose funds they invest.
But the FSOC is now apparently considering the industry
under activities base regulation, the second prong of Section
113 of the Dodd-Frank Act, rather than material financial
distress, the first prong.
My question is not about asset managers but rather how FSOC
came to this decision and why a similar process wasn't used
when designating insurance companies?
Mr. Woodall, is it fair for the FSOC to offer different
amounts of process to different industries, and why not take
the same amount of time and get it right?
Mr. Woodall. Congressman, I think that we have already
discussed the fact that in activities, which has been my main
goal in the insurance company, it is evolving now in the
Council. The Council is young, it is evolving, and I welcome
the idea of taking a pause and getting into looking at the
activities across the segment. I hope that they will do that
for the insurance industry.
Mr. Royce. Thank you, Mr. Chairman.
And thank you, Mr. Woodall.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Georgia, Mr. Scott.
Mr. Scott. Thank you very much, Mr. Chairman. Panel, I am
very concerned about the Department of Labor's fiduciary rule.
Let me explain why.
I have spent most of my adult life working hard in the area
of wealth building in the African-American community, and our
President is a wonderful person; he is a decent, good man. But
as an African-American, I am not sure that he has been properly
advised as to how devastating this Department of Labor ruling
will be on the African-American families in terms of wealth
building.
Now I say that as one who--I am a graduate of the Wharton
School of Finance, where I got my MBA. I went off and much of
my work has been in investment. I had an investment portfolio
in my own business that I started. As a result of that, they
put me on the board of directors, the executive board of
directors of the Wharton School.
And there, in that position, we pulled together, along with
John Sculley, who was the chairman of our board and chairman of
Pepsi-Cola at the time, an extraordinary program of wealth
building. But what we found out was there were three elemental
areas that prohibited wealth building and investment:
education; financial advice; and the overarching complexity and
diversity of the investment options in our system.
This Department of Labor rule will have a devastating
effect on the African-American community, and on other lower
and middle income, because they don't have that money to pay up
front the fee costs. And when you put a contract there for them
to sign, they are going to run away. I know. I have been there.
I have worked with the African-American Chamber of Commerce on
this.
So what I want to ask you all, you all are the Financial
Stability Council of the United States Government. Take for a
moment and look at the most unstable financial caring in this
country as in African-American communities. Is it not too much
for somebody on your committee to ask the President to hold off
until we actually see just how devastating it is, affecting
African-Americans? That is what I am asking you to do.
I asked Ms. White the other day in our meeting at the SEC,
but she seems to have ceded her authority to the Labor
Department, when we clearly put it, as you know, Mr. Watt, you
were here. We wrote it into Section 913 in Dodd-Frank, that was
the domain fiduciary of the Securities and Exchange Commission.
At no time did we hear from the Labor Department at the
recent--talking about they had the retirement. And if they do,
wouldn't it be respectful for them to sit with the regulatory
agency that handles financial investments--the SEC and FINRA
and work that out? I just urge you to examine these because the
devastating impact is terrible.
My paper--the Atlanta General Constitution--I urge you to
read it. Sunday's edition--front page of the business talks
about the struggle of African-American families to build and
growth wealth. And the number one reason why it is so slow is
they can't get the education or the information.
Rich people investing, they don't have any problem. They
can pay for that fee for service and most of them do. But when
you get to annuities or trying to turn your life insurance into
whole life or whatever you need advice for that.
Anyway, I urge you to ask the President to put a pause on
this and let us see what the impact is on the Black families.
Now, Mr. Massad, I wanted to--I think I have time. We had a
terrible problem with the European Union on this equivalency
with derivatives.
December 15th is the deadline and I want to know because it
is going to have a devastating effect on our end users, on our
exchanges and clearing houses. If we don't get equivalency in
terms of our regulatory regime with the E.U. especially when
they have given equal status to Singapore and other areas. What
is the status on that in that we are just a week away from the
deadline?
Mr. Massad. Thank you, Congressman. They have pushed out
that immediate deadline. I think we are still working in good
faith to try and resolve this. I think we have narrowed our
differences. I am hopeful that we can do so.
I of course believe they should have granted us equivalence
some time ago but I recognize the issues that they are
concerned about. And we are working very hard to work them out.
Mr. Scott. Thank you, sir.
Chairman Hensarling. The time of the gentlemen has expired.
The Chair now recognizes the gentleman from Ohio, Mr. Stivers.
Mr. Stivers. Thank you, Mr. Chairman. I appreciate all of
you for being here. I would like to go on a quick tour of the
segments of the financial services industry. How many of the
witnesses believe that small banks and credit unions caused the
crisis in 2008? Could you raise your hand if anybody believes
that? Okay. I would like to note that no one did.
You have an important role as a coordinating council of
regulators as well and I am curious if you could go down the
line, starting with Ms. White, and tell me how many hours in
the last year you have spent discussing and identifying
regulatory conflicts and unnecessary regulations that might be
harming our community banks and credit unions?
Where better coordination could reduce unintended
consequences and costs and differing regulatory interpretations
by agents in the field. Just how many hours this year the
Council spent talking about that? Just if you could each give
me a number and we could do this quickly.
Ms. White. I do not think we have a very accurate estimate.
Those discussions have occurred at the staff level but I can't
say.
Mr. Stivers. You would say zero--
Ms. White. I wouldn't say zero but yes.
Mr. Stivers. At the staff level, okay but on the Council.
That is what I care about. That is who you are. Let's keep
moving.
Mr. Massad. I also could not give a number but I--
Mr. Stivers. Okay. Sounds like another zero. Keep moving.
Mr. Woodall?
Mr. Woodall. I don't think there is a definite figure, but
I think there has been discussion leading up--
Mr. Stivers. Okay. So some discussion. Nobody can put a
number on it in hours. Ms. Matz?
Ms. Matz. I would agree that--
Mr. Stivers. You would agree you don't have any idea how
many hours but it has happened--
Ms. Matz. No--but I think it has happened but--
Mr. Stivers. Okay. Let's keep moving. Obviously, there is a
pattern. Does anybody have a number? Will anybody give me any
kind of number?
Mr. Watt. I quit keeping time when I left--
Mr. Stivers. Good man--
Mr. Watt. --to practice law, Mr. Stivers.
Mr. Stivers. I am still keeping time so let's move--
Mr. Watt. We spend a lot of time--
Mr. Stivers. I got it.
Mr. Watt. --discussing a lot of issues and I--
Mr. Stivers. Okay. I think we have a pattern--
Mr. Watt. Regulatory overlap is one of those I think--
Mr. Stivers. I appreciate it. I think we have a pattern
here. You are not discussing it enough at the Council level.
The staff is discussing it but you need to discuss it. These
are important community assets that dot the fabric of our
country and the 15th district of Ohio. And these companies--
small companies, small banks and credit unions are struggling
to keep up.
Many of your field agents actually misinterpret regulations
intended for big banks and put extra pain and cost on these
small banks and they are having real struggles. Let's move on
to regional banks. How many of you believe that regional banks,
which I will define as kind of $50 billion to $250 billion,
caused the crisis? Again, no--oh, I have a couple of hands
there maybe.
Mr. Gruenberg. Just to make the point for what it is worth
and--
Mr. Stivers. We are running out of time. It can be quick.
Mr. Gruenberg. The regional banks generally are
individually not systemic. I would point out that as was
mentioned earlier the most expensive bank failure during this
crisis and in the history of the FDIC was a $12 billion loss
caused by the failure of IndyMac, which was a $30 billion
thrift. So a regional institution can have its--a failure of
one or more regional institutions can have a significant
consequence--
Mr. Stivers. It can, and I believe that. So let's talk
about what you have done to use your regulatory flexibility
that Secretary Lew says you have between trillion dollar banks
and $50 billion banks. Can anybody explain to me exactly how
you have used that regulatory flexibility? Mr. Curry?
Mr. Curry. Congressman, the OCC supervises a range of
institutions: small rural banks to globally active banks. We
are very concerned about the regulatory burden, particularly on
community banks. The FSOC is not necessarily the forum where we
discuss reducing regulatory burden. We do that on the banking
and credit union side on the Federal Financial Institutions
Examination Council (FFIEC).
We really are concerned about the impact the EGRPRA process
really is designed to reduce regulatory--
Mr. Stivers. I appreciate that, Mr. Curry and I want to
talk about that. But we are talking about regional banks now.
So can you tell me how you use the flexibility that--
Mr. Curry. Definitely, definitely--
Mr. Stivers. Secretary Lew says you have. Have you used it?
And if so, exactly how--
Mr. Curry. Yes. As a supervisor of a number of regional or
mid-sized institutions we place a great deal of value on
collaboration and coordination with our other regulatory
agencies. And I would include the Fed, the FDIC and the CFPB.
It is really a regulatory imperative to make sure we are
working together and not--
Mr. Stivers. You haven't answered how--you are trying to
eat up time here, it sounds like.
Mr. Curry. No.
Mr. Stivers. You have not answered one specific way in
which you have used your regulatory flexibility. Could you give
me one specific way, Mr. Gruenberg? One way. That is all I am
asking.
Mr. Gruenberg. As you know, Congressman, one of the
consequences of--is a requirement of submitting a resolution
plan. And we certainly for the smaller institutions have--
Mr. Stivers. The tailored plan is the only true answer. And
how--that cuts a little cost but they still have to do the CCAR
stress test, the regular stress test. There are way too many
things built in that you have the power to fix and I wish you
would take a look at it. I didn't even get to non-bank
financial entities and my time has expired. But please look at
those things. Thank you, Mr. Chairman. I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Texas, Mr. Green,
ranking member of our Oversight and Investigations
Subcommittee.
Mr. Green. Thank you, Mr. Chairman. And I thank the ranking
member, and of course I thank the august body of witnesses who
have appeared today. In my years on the committee, I don't
think I have seen quite the number of financial stability heads
assembled at one time for the purposes of questioning. So I
thank you for being here.
Mr. Woodall, much has been made of the fact that you are
the only person on the FSOC with insurance expertise.
Incidentally, is that the only area that you claim expertise
in? Do you claim expertise in other areas to this extent?
Mr. Woodall. I will say being on the Council is a learning
experience. They are learning about insurance and I am learning
about banking.
Mr. Green. So you don't claim expertise in banking but you
are learning about it. Mr. Woodall, based upon what has been
said, there seems to be an implication or an indication that
only persons with insurance expertise should judge an insurance
company. And I ask this because MetLife has appealed its case
in this study that is file in a district court in the District
of Columbia--Federal District Court. Do you think that judge
ought to be an insurance expert to hear the MetLife case?
Mr. Woodall. I am not going to make any statements about
the MetLife appeal.
Mr. Green. I understand. I will continue to ask you
questions and you will continue to have no response. Do you
think that the jurors who will hear the MetLife case--if we do
have a panel of jurors--will have to have insurance expertise?
Mr. Woodall. Of course not.
Mr. Green. Of course not.
In fact, across the length and breadth of this country on a
daily basis, we have jurors who are ordinary, everyday working
people who hear complex cases involving antitrust, billions of
dollars. In Texas, you had the Pennzoil case; there were lots
of laypeople there hearing a case. People hear these cases all
the time and make life-and-death decisions who don't have
expertise in a given area that the case happens to be focused
on.
Do you agree with this, Mr. Woodall?
Mr. Woodall. I would say that the FSOC--
Mr. Green. I think you do. Let me continue. It appears to
me, Mr. Woodall, that the indication of only a person with
expertise in a given area should be able to judge would lend
itself to asking at least one question. Have you made any
decisions with reference to banks since you have been on the
FSOC?
Mr. Woodall. Banking regulators are the ones who do that.
Mr. Green. But have you voted--have you had a vote on
anything related to banks? Have you had a vote since you have
been there on anything related to banks?
Mr. Woodall. Not as such.
Mr. Green. Not as such. I don't have the time to drill down
with that, Mr. Woodall. There is a way to get to the ``not as
such'' answer, but I don't care to do it now. So have you voted
as such on some things related to banks?
Mr. Woodall. Obviously, we get into financial market
utilities--
Mr. Green. I understand. So you have not recused yourself
from issues related to banks? You have voted because you are a
Phi Beta Kappa from Kentucky. And as a Phi Beta Kappa from
Kentucky, you can understand these banking issues, can't you?
Mr. Woodall. Yes. And they can understand insurance
issues--
Mr. Green. And that leads me right to my next question.
Thank you so much, Mr. Woodall.
My next question is this: If you believe that a person must
have insurance expertise to sit in judgment of an insurance
company on FSOC, raise your hand. If you think you only can do
it if you have insurance expertise, raise your hand. Anyone?
Let the record reflect, none.
But because I want the record to be perspicuously clear,
let me ask the question another way. If you believe that you
can sit in judgment of an insurance company and not be a Phi
Beta Kappa from Kentucky, raise your hand, please. If you
believe you can. All right.
Mr. Woodall. You have voted for--
Mr. Green. You are the only person who thinks that you have
to be a Phi Beta Kappa from Kentucky. I see his hand didn't go
up. So Mr. Woodall, I assume that I should now put in the
record that you are a person who believes that you must be a
Phi Beta Kappa from Kentucky before you can sit in judgment of
an insurance company on FSOC? Should I put that in the record?
Mr. Woodall. No, but I think you should put in the record--
Mr. Green. Okay. That should go in the records. I am going
to take it from that comment, Mr. Woodall, that you joined the
rest of your colleagues and let the record should show there is
unanimous consent that you don't have to be an insurance expert
to sit in judgment of an insurance company.
Mr. Woodall. I am not sure what an insurance expert is.
Mr. Green. I am glad you said it, because some people have
claimed that you are, so my assumption is that you don't know
what you are.
Mr. Woodall. That is because it was put in the title of
Dodd-Frank.
Mr. Green. Okay. Well--Mr. Woodall--look, by the way, let
me share this with you before I end. Mr. Woodall, I want to
make this very clear: I love you.
[laughter]
Because sometimes it can appear that I don't love people
because I have to ask the tough questions, and I regret that I
didn't get to some other things. But God bless you, dear
brother. I love you.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Illinois, Mr.
Hultgren.
Mr. Hultgren. Thank you, Mr. Chairman. And thank all of you
for being here.
I am going to address my first question to Chairwoman Matz,
if that is all right. You said earlier that designation of
insurers was not about life insurance activities; it was about
financial activities. My understanding was at the time of the
designation, which again, my records show to be June 30, 2013,
the reference date for much of FSOC's analysis, 98 percent of
MetLife's consolidated assets, 96 percent of its liabilities
and 95 percent of its revenues were in these highly regulated
insurance subsidiaries.
So I just wanted to make sure I understand the basis for
your decision. Are you saying that FSOC analyzed only 2 percent
of MetLife's consolidated assets and only 4 percent of its
liabilities and 5 percent of its revenues? These activities are
outside of regulated insurance entities at the company, I
believe, and found that those assets alone to be systemically
important and a threat to the financial system? Is that your
testimony?
Ms. Matz. I do want to say that we cannot comment on
MetLife, but in terms of our designation of other insurance
companies, we do look at how their balance sheet and off
balance sheet activities are interconnected with other
systemically important institutions.
Mr. Hultgren. I am going to stick with Chairwoman Matz on
this, then open it up to others as well.
As all of you should know, insurance companies are
extensively supervised by States. Despite the existing
regulation, FSOC has designated three insurers as systemically
important. Chairwoman Matz, could you provide an overview of
how and why you determined the State insurance regulation, and
in particular, State guarantee system for failed insurers, is
ineffective?
Ms. Matz. Thank you for asking that. I don't think any of
us--and I can't speak for anyone else, but on this, I would say
that I don't think any of us think that the State insurers are
ineffective.
But our mandate is to look at how the activities of the
insurance companies affect the financial stability of the
United States. They are really looking at the effect on
policyholders. It is a very different direction that they are
taking.
Mr. Hultgren. With making that determination of what you
should pull away from the States--again, clearly legislatively,
authority--most authority of regulation for insurance companies
is with the States.
I would argue both for protection of policyholders, but
also--protection of policyholder would, by definition, State--
you know, financial stability of that company. Those would be
directly related. Those aren't separate issues.
So what specific information analysis did you, as a voting
member of FSOC, rely on to reach the determination that should
be separated out, that States were unable to handle this?
Ms. Matz. As I said, they have a different mandate than we
do. They are looking at the institution and the solvency vis-a-
vis the policyholders. We are looking at the institution and
its interconnectedness with other institutions and its ability
to threaten the financial stability of the United States.
It is a different mandate. It doesn't mean that they are
doing their job any better or worse than we are or vice-versa.
It is just a different tack that they are taking.
Mr. Hultgren. As you are making this decision, was there an
independent analysis done by your agency?
Ms. Matz. An independent analysis of?
Mr. Hultgren. Again, the standing, I guess, of these
insurance companies, their ability, if there was a threat
nationally to financial markets or--I would say also to
policyholders, was there an independent analysis done by your
agency to make the determination, again, that the States
weren't capable of doing this, that this was something that you
all needed to do?
Ms. Matz. We rely on the FSOC staff. We did not do an
independent evaluation, no.
Mr. Hultgren. Let me switch in my last minute here--a
little-discussed provision of the Dodd-Frank Act, Section 170,
directs the Fed, on behalf of and in consultation with FSOC, to
issue regulations setting forth criteria for exempting certain
classes or categories of non-bank financial companies from
heightened Fed supervision.
However, to date, no such regulations have been issued.
This requirement represents a tool Congress created to
delineate between those entities that pose systemic risks and
those that do not, and provide clear criteria for institutions
on how to conduct their business and structure their operations
in such a way as to be non-systemic.
Chair White, in the last few seconds I have, why has this
provision never been used?
Ms. White. I really can't answer that. It would have to
come from the Fed initially.
Mr. Hultgren. I guess, in my last seconds, just a show of
hands, following on my friend from Texas, who among you has
advocated for a class of financial company to be exempted from
heightened supervision? If you could raise your hand, if you
have advocated for a class of financial company to be exempted
from heightened supervision?
For the record, nobody raised their hand. My time has
expired. I yield back, Mr. Chairman.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from Ohio, Mrs. Beatty.
Mrs. Beatty. Thank you, Mr. Chairman. And thank you,
Ranking Member Waters.
Let me associate my opening comments with those of my
colleagues. As someone relatively new, I have certainly never
seen the number of people, which is not as important as the
work and the service you do. So thank you for that.
We have heard a lot of questions about what you don't do.
What is interesting to me is, I listen to the example about
what you would provide as it relates to giving us information.
And I think the analogy was to us getting classified
information for ISIS.
We certainly know, from everything we have read and we have
heard that our country is in trouble. So you were asked, and
given that analogy, do you think, since your role is to protect
the financial stability for us, are we in financial crisis
right now, as we were, let's say, in 2008?
So I am trying to get--are we like ISIS is, to a threat in
your world? And that is a yes or no, if you could just go down
the panel. Are we in that same kind of threat in financial?
Ms. White?
Ms. White. No, but I think we can't be complacent.
Mrs. Beatty. Yes or no, straight down. Quickly.
Mr. Massad. I would agree with Chair White's statement.
Mr. Woodall. Me too. No.
Ms. Matz. No.
Mr. Cordray. No.
Mr. Watt. I agree.
Mr. Gruenberg. No.
Mrs. Beatty. Okay. I have an insurance question, but I will
come back to that, Mr. Woodall, since you have been asked so
many questions about this.
I also would like to associate, for the sake of time,
myself with the words of Congressman Scott from Atlanta as it
relates to not only the issue he talked about, but more
importantly about Black wealth or minorities.
I am very concerned, and I know many of you have OMWE
boards. But my question is beyond OMWE because I am not pleased
with the answers that I have been given by you all with OMWE.
While it is a big deal to me in Section 342, I don't think
people have taken it as seriously as we should.
With that said, as a group, as you look at making your
projections, as you evaluate where we should be financially,
can at least three of you tell me what you do with minorities,
and more specifically African-Americans, as it relates to
banks, financial institutions? How are they included? Because
you make projections that affect us and our constituents. And
so I am concerned. Can anyone address that, quickly?
Mr. Curry. I will start in terms of what we do with
minority-owned institutions and populations. In terms of
minority depository institutions, I have an advisory committee
that advises me on the issues facing those committees, how we
can help alleviate those issues through technical assistance
and other means that are mandated by the statute.
As a bank regulatory agency we also enforce the Community
Reinvestment Act, which has a direct impact on low- to
moderate-income communities. And we have active outreach
efforts associated with that in both banks and interested
groups.
Mrs. Beatty. Okay.
Mr. Cordray. I would--
Mrs. Beatty. --quickly.
Mr. Cordray. I would add that we enforce the Equal Credit
Opportunity Act. We work with the Justice Department on those
matters. We recently resolved the largest redlining mortgage
lending matter in the history of this country.
We have had significant matters in auto lending
discrimination and credit card as well. This is an important
means of making sure that everybody across our society has
equal access to credit and aren't discriminated against on the
basis of race and ethnic origin.
Mrs. Beatty. Okay. We will take one more.
Mr. Gruenberg. Congressman, I will just mention we also
have an extensive program as required by law to support
minority depository institutions. The FDIC also has an advisory
committee on economic inclusion where one of the things we
focused on is asset building for low- and moderate-income
families. And certainly the mortgage crisis, as you well know,
had a disproportionate impact on the minority households and
African-American households.
Mrs. Beatty. Okay. Thank you.
If Congress were to reduce stability of FSOC to perform its
statutorily mandated function of overseeing financial markets
for threats to stability, how could that impact the U.S.
economy? We will go to the other end. Ms. White?
Ms. White. It would defeat the entire purpose of FSOC,
which is a very important one, which is to look out for the
financial stability of the U.S. financial system.
Mrs. Beatty. Okay.
Mr. Chairman, the Commodity Futures Trading Commission--
later today the committee will be marking up a data security
related bill, which I am sure should be very interesting to us.
I am interested to hear what measures specifically FSOC has
taken to facilitate dialogue to help us protect that.
Mr. Massad. I think generally, FSOC has taken the issue of
cybersecurity, broadly speaking, very seriously. It has listed
that as a primary concern in its annual reports.
It is--FSOC also serves as a very useful way for all of us
as members to compare notes and coordinate what we are doing
individually in our agencies.
Mrs. Beatty. And do we have any--my time is up, I am sure.
Do we have any best practices developed? Yes or no?
Mr. Massad. I think, most definitely so. A lot of us are
very focused on those best practices issues. We are in our own
agency, I hope that we will come out with some standards
specifically on--
Mrs. Beatty. Thank you. And--
Chairman Hensarling. The time of the gentlelady has
expired.
The Chair now recognizes the gentleman from Florida, Mr.
Ross.
Mr. Ross. Thank you, Mr. Chairman.
Mr. Woodall, I have to just follow up on what my colleague
from Texas was pursuing. And as a litigator of 25 years I know
that the trier of fact, whether it be a jury or judge, must
rely on evidence brought before them. And that evidence, of
course, is in the best form when it is brought by an expert.
And when that expert testimony is uncontroverted then it
becomes clear matter of fact that that opinion should gain the
day.
Clearly on this board, on FSOC, you are eminently qualified
and by far the only person who could be considered an expert in
the insurance arena. You have experienced not only academically
but also practically as an insurance commissioner.
So I have to ask. What was it, in your opinion, that drew
FSOC to disregard uncontroverted expert insurance opinion, and
designate MetLife and Prudential as SIFIs?
Mr. Woodall. I think what you outline might be a
professional disagreement. I have a lot of respect for all my
colleagues. We had a very hearty debate. I listened to them and
they listened to me and we--
Mr. Ross. I don't think they listened to you, is the
problem.
Mr. Woodall. --agreed to disagree.
Mr. Ross. And I think that there might have even been some
influence.
In reading your testimony about not being at the table with
the IAIS, is that a factor that may play into the domestic
category of creating these SIFIs, the non-bank SIFIs because
they are more concerned about the international process than
they are the domestic process?
Mr. Woodall. But my job is to try to monitor the whole
insurance industry international so I can give my
recommendations. There is a statutory provision that every
member is supposed to monitor developments in international
insurance matters.
Mr. Ross. They haven't been listening to you, though, have
they? That is clear in your testimony.
Mr. Woodall. Well--
Mr. Ross. And I--
Mr. Woodall. I voted with them on AIG.
Mr. Ross. Right.
Mr. Woodall. It was a unanimous decision.
Mr. Ross. But with regard to the designation--
Mr. Woodall. --right.
Mr. Ross. Yes, no--
Mr. Woodall. These were companies that have not had the
type of problems with--
Mr. Ross. Right. There hasn't been a run on life insurance,
has there? Are people all of a sudden going to go and cash in
their life insurance policies? Because if they are, then our
serious consequences for economic structure are way out of
line.
Chair Matz, 90 percent of Prudential's balance sheet assets
and liabilities are in regulated insurance companies. It
engages in no proprietary trading and its limited security of
ease lending business was fully collateralized. What would be
the basis for your decision that Prudential poses a risk to the
financial stability of the United States?
Ms. Matz. We look at the overall composition of the
company's assets and liabilities, their balance sheet and off
balance sheet activity. And in their case we looked at, and we
were concerned about, their derivatives position.
Mr. Ross. And you testified, I think earlier to Chairman
Luetkemeyer's question, that you relied on staff, the expertise
of the staff.
And I think, Mr. Cordray, you went on to say even further
that everyone on FSOC has their own expertise and that FSOC
members also rely on the expertise of FSOC staff, among others.
This begs the question, who are the other people FSOC is
relying on to make these determinations if not the panel? And
who are the staff? And what is their expertise in such arenas
as insurance? Yes, sir?
Mr. Cordray. I think we rely on FSOC staff. We rely on the
analysis done by them. There are people loaned from the member
agencies of FSOC who do work on this. And then we talk to our
own staffs.
But to go back to the point my colleague Mr. Woodall made a
moment ago, in terms of insurance companies there seems to be a
lot of dissatisfaction here with the designation of MetLife and
Prudential.
Mr. Ross. Yes, I would think so.
Mr. Cordray. AIG is also an insurance company--
Mr. Ross. Yes, but--
Mr. Cordray. --designated by this body. And it had
tremendous reach--
Mr. Ross. But they had a diversified portfolio--
Mr. Cordray. That is right--
Mr. Ross. --not unlike Prudential and--
Mr. Cordray. And there have also been a number of insurance
companies that meet the $50 billion asset threshold that have
not been designated. So it is a spectrum here. And it is a
judgment that has to be made--
Mr. Ross. On your FSOC staff, I doubt if you have anybody
as eminently qualified as Mr. Woodall. If you are relying on
those expert as opposed to the member, Mr. Woodall, then I
think there are some problems there.
But let's talk about asset managers. What are we doing here
designating asset managers as SIFIs when in fact they are
basically brokers? They are not carrying the assets.
And in fact, the impact it will have on mom and pops and
retirees because of now what they are going to have to do is
pay fees in order to justify why they are brokering with a SIFI
when we have not even established that an asset manager should
be a SIFI. Yes, sir?
Mr. Cordray. We have not designated any asset managers as
SIFIs. It is a matter that is--
Mr. Ross. Oh, you got them in stage two already.
Mr. Cordray. --under consideration--
Mr. Ross. They learned through a Wall Street Journal
article.
Don't you think it would be more prudent to allow these
asset managers to have the ability to correct whatever may be
wrong so that they can save not only the financial system, but
also those with whom they serve, instead of waiting until the
opportunity where a collapse may occur that you seem to
foresee?
Mr. Cordray. That is a point of view. And these are the
kinds of issues that are under consideration--
Mr. Ross. If I went to the doctor and knew I had something
wrong, I would want to be diagnosed and treated immediately,
rather than wait until I was on life support.
I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Washington, Mr.
Heck.
Mr. Heck. Thank you, Mr. Chairman.
Mr. Woodall, I think I would like to direct this to you if
I may, please. Over the last couple of--I am over here. Over
the last couple of years we have heard a lot of witnesses and
no small number of the members of this committee indicate
publicly and explicitly that receiving a SIFI designation was
locking in an unfair competitive advantage.
It seemed to be premised on the idea that lenders would be
willing to extend debt to them at a discounted rate. I am
having a hard time squaring that circle in the face of the fact
that everybody who is a target for designation fights it tooth
and nail. And secondly, the action of the S&P recently to
downgrade the debt rating of, I think, eight financial
institutions.
What is your impression? Is this a good thing, to be SIFI
designated? Is it a desirable thing by them? Does it in fact
lock in a competitive advantage?
Mr. Woodall. It is a good thing if they are systemic, and
present a systemic risk.
Mr. Heck. Is it a good thing for them?
Mr. Woodall. But we need to know and they need to know what
activities they are doing that make them a significant--
Mr. Heck. Does it give them a competitive advantage?
Mr. Woodall. Yes, we have talked about that, it can give
them a competitive--we don't know, yet.
Mr. Heck. Why do they fight it?
Mr. Woodall. We don't know yet, because the Fed hasn't come
up with their capital standards are.
Mr. Heck. Why would they fight it and why would S&P
downgrade them?
Mr. Woodall. I think they don't know what the future is,
they don't know how high their capital requirements are going
to be, and they don't know how it will affect them, and they
don't know what businesses that they sell that they would have
to get rid of.
Mr. Heck. Director Watt, as I pursue this, please remember
that I respect you, I wouldn't go quite as far as the gentleman
from Texas, but I have affection as both a former colleague and
somebody I respect.
Since you have taken over, I have written you two letters,
or signed on to two letters. The first had to do with the
forced marriage of the Seattle and the Des Moines Federal Home
Loan Banks. And I specifically asked that you ensure that the
new bank's affordable housing program distribute its funding
equitably throughout the combined district.
And that is something that when the bank was just in
Seattle, they ensured. And in fact, the Des Moines bank, the
new consolidated bank, came out with its nine criteria for
distributing funds, and made no mention whatsoever of equitable
distribution.
I cannot exaggerate to you the depth of my disappointment
on this. I convey it to you. I am not letting go of this, and I
am deeply disappointed that there was not more attention paid
to this basic principle.
The second letter that I sent to you had to do with
concerns about the proposed rule to limit membership, I think
66 of my colleagues got on, the rule came out, we hear rumors
that it is not going to be changed. I have signed on to
legislation with Mr. Luetkemeyer, Mr. Carney, and Mr. McHenry,
to sponsor a bill is to stop it.
Now, in a private meeting I put a question to you, which I
now put to you publicly. And I am asking you to respond
personally, not necessarily with your agency hat on. You are a
long time former member, much respected, of this committee.
Given the forced marriage between Seattle and Des Moines,
given the blowback and apparent disagreement about the proposed
membership rule, is it not time that the Congress take a look
at the basic structure of Federal Home Loan Banks? It has not
been touched in 80 years. For all practical purposes, its roots
are the same as when they were created.
I believe that in 8 decades, circumstances have evolved and
it should be up to us to take a look at that. In fact, the
disagreement you and I had privately was, I think it should be
up to you or your agency to bring forth ideas of how you might
do that.
Your reaction, please, sir?
Mr. Watt. I think there is an ongoing obligation of
Congress to look at every aspect of the financial services
industry and the housing finance industry. And I think there
are important needs that could be looked at in the Federal Home
Loan Bank System.
Mr. Heck. Thank you. Comptroller Curry, you are the sole
Director of an agency that is not subject to appropriations.
How many times have you testified before this committee?
Mr. Curry. Three times.
Mr. Heck. Over what period of time?
Mr. Curry. Since my appointment in 2012.
Mr. Heck. Dr. Watt, same question?
Mr. Watt. I come whenever you call me. I have been here one
time, since I was--
Mr. Heck. One time? Director Cordray, how many times?
Mr. Cordray. I don't know here, but in front of Congress,
more than 50 times the Bureau has been called to testify.
Mr. Heck. I think the point is clear. Thank you.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from New Mexico, Mr.
Pearce.
Mr. Pearce. Thank you, Mr. Chairman. I appreciate each one
of you being here. Mr. Woodall, you have been, I think, engaged
in a discussion at a previous appearance you made in front of
this committee, talking about some of the downstream effects of
the listing of AIG and Prudential and MetLife. So that is going
to have an effect on the insurance market itself, will it not,
if I remember from our previous discussion?
Mr. Woodall. Yes.
Mr. Pearce. So we in the United States enjoy competitive
advantage throughout much of the world. And coming from the
business world, specifically repairing oil wells, down hole--
which is filled with liability, we utilize that insurance
market to great advantage, to allow us to create jobs, to do a
better competitive effort than some of our friends overseas
could do.
And so will there be downstream effects from any actions
you all take regarding the too-big-to-fail? Will there be
effects in the insurance market?
Mr. Woodall. Well, yes. You used terminology that--
obviously, if someone has increased regulatory expenses, it is
going to affect how they operate in the market.
Mr. Pearce. So there is a possible threat from what you all
do to the market?
Mr. Massad, have you all discussed that in the FSOC
meetings?
Mr. Massad. Congressman, I wouldn't characterize it that
way. I would point out for example, that what we do can protect
people. When we consider AIG, for example, this government had
to commit $182 billion to prevent the collapse of that company,
which would have probably taken us into a worse Great
Depression than what we had in the 1930's. Fortunately, we were
able to get all that money back.
Mr. Pearce. What about MetLife and Prudential?
Mr. Massad. Congressman, with all due respect, I was not
there for the Prudential designation. With respect to MetLife,
that is a matter under litigation, so I don't think it is
appropriate to comment on the reasons for it.
Mr. Pearce. Ms. White, would you have a comment on that? In
other words, you all, as FSOC, your underlying call is to
prevent excessive risk to the U.S. financial system. And what I
am saying is that there are certain financial risks to what you
are doing, to the actions you all are taking.
So Ms. White, did you all discuss the potential downside of
what you are doing here and how it might affect the market? And
now you have referred to the guy who made his living regulating
insurance and living in the insurance. And sometimes staff have
not had that on the ground experience.
So regardless of what anybody else says, do you all sit
quietly behind the doors and say, hey, we ought to really take
a close look at what we are doing?
Ms. White. I think we have to carry out the mandate we were
given, which is basically to identify and address systemic
risks to the financial system, the financial stability of the
financial system.
Mr. Pearce. So you don't think that you as an agency could
be the systemic risk yourself?
Ms. White. You want to consider all factors. And certainly
when we do our rulemakings at the SEC, we directly consider all
of the impacts. I think we do consider and discuss factors, a
wide range in FSOC, too. But our primary responsibility is to
carry out the mandate we were given to--
Mr. Pearce. The mandate is to watch--excuse me, I keep
shifting back and forth. The mandate is to watch for systemic
risk, is that right?
Ms. White. It is to identify and address systemic risk to
the overall financial system.
Mr. Pearce. And so I am saying that if you all--according
to Mr. Woodall's discussion back some time, and kind of
reiterating now, you all could be the systemic risk that you
are trying to avoid, if you are not very careful, because this
insurance market is extraordinarily thin.
If you are watching--I don't mean to be rowing in other
stuff--but if you are watching people bail out of the insurance
market in healthcare right now, you understand what I am
talking about.
We have disrupted an entire insurance market, and before
you all do something that causes the same evacuation out of the
insurance, just remember the poor saps out there in the field
like myself who are just trying to buy insurance off the open
market, to where we could do our business.
And it could be that you all are the problem which causes
that market to disappear. And that is my point. I would hope
that you all would have more thorough discussions about the
problem that you all represent instead of the systemic risk
that maybe you ought to be identifying somewhere else.
Thank you, Mr. Chairman, I yield back.
Chairman Hensarling. The gentleman yields back. The Chair
wishes to alert all Members that there is currently one
procedural vote on the Floor. There are 11 minutes remaining in
that vote.
I will recognize the gentlelady from Missouri. Members may
want to go vote and come back. And then after the gentlelady
from Missouri, we will recess briefly for the vote. The
gentlelady from Missouri is recognized.
Mrs. Wagner. Thank you, Mr. Chairman. And thank you all for
being here. I would like to quickly associate myself with my
colleague across the aisle from Georgia, Mr. Scott, about this
very misguided Administration's rule-laying by the Department
of Labor, on fiduciary issues. I would encourage you all to
speak to the President and his team on this issue, too. He did
not seem interested in my concerns last night at the Christmas
party.
I am particularly interested in knowing the role that the
international forum, known as the Financial Stability Board,
has played with regard to decisions about domestic matters made
by FSOC. Due to the non-transparent nature in which FSOC
conducts its business, it can cause one to question, I think,
whether our U.S. regulators are really fighting on behalf of
the interests of the United States of America when they are at
the international negotiating table, or whether they are simply
letting international counterparts make important decisions for
us.
Mr. Woodall, in your dissent to the Prudential SIFI
designation, you made the point that the international and
domestic designation processes are not entirely separate and
distinct. Specifically, sir, you noted that an unnamed U.S.
national authority agreed to the international designation of
Prudential before the company's determination before FSOC.
Could you please be specific and elaborate, who is that? The
national authority?
Mr. Woodall. Yes, the national authority. Well, there are
three at FSB, there are three national authorities: Treasury;
the Fed; and the FCC.
Mrs. Wagner. Yes. And who is the unnamed authority that
agreed to the international designation of Prudential before
the company's hearing and final determination before FSOC?
Mr. Woodall. That is hard to say. As far as I know,
actually, before the hearing at Prudential, the Treasury
notified Prudential that they had been designated as a global
SIFI.
Mrs. Wagner. Before their hearing, before their final
determination before FSOC, Treasury--if I understand your
testimony--let them know that they had been designated.
Mr. Woodall. That is my understanding.
Mrs. Wagner. This seems questionable. As you stated, the
U.S. representatives on the FSB--Treasury, the Fed, and the
FCC--are not insurance regulators, as has been pointed out by
so many of my colleagues. Nor are they necessarily Phi Beta
Kappas from Kentucky.
Meanwhile, the FSB's membership is dominated by banking
regulators who know little about the insurance industry. Does
it concern you that those regulators are the only U.S.
representatives in the room when decisions are made about
insurance issues, sir?
Mr. Woodall. Yes. I think the CFTC and the FDIC should be
in the room at the meetings at the FSB. And I think insurance
regulators should be in the room if they are making decisions
that are going to affect the businesses that they regulate.
Mrs. Wagner. Thank you. Given the sequencing of FSB
designations, and then later FSOC's SIFI designations, how can
U.S.-based insurers be confident that their designations are
the result of a domestic decision, rather than an international
process that isn't accountable to the U.S. policymakers like
us?
Mr. Woodall. As I said, they are technically separate
things, but they are not--
Mrs. Wagner. They are not. They are not accountable to U.S.
policymakers. Thank you. Can you describe what attention or
consideration FSOC gives to designations by the FSB?
Mr. Woodall. No direct--it is not mentioned in the
discussions, because we try to base it on what Dodd-Frank says.
Mrs. Wagner. Do you believe that your colleagues would feel
comfortable disagreeing with a decision, or challenging a
decision made by the Fed, the Treasury, and the FCC at the
Financial Stability's Board?
Mr. Woodall. Of course, they are still just three votes on
the board. The board, the Financial Stability Board is not an
organization that this Congress created by a treaty, or any
other statutory thing. It is kind of an ad hoc group.
Mrs. Wagner. Absolutely, it is an ad hoc group. Do you
believe--
Mr. Woodall. It is really self-appointed.
Mrs. Wagner. Do you believe that your colleagues would vote
to de-designate any of the insurance companies, if such
companies were still designated by the FSB?
Mr. Woodall. I would hope so.
Mrs. Wagner. One last question. Since everyone has said
that they--I don't have much time left--rely on FSOC's staff
for info, is there a memo or analysis that is distributed to
members before a vote? Who writes this? Is it Treasury? Is it
the Fed? Would you allow the committee to view any of these
documents?
Mr. Woodall. It goes through a committee called the Non-
Banks Designation Committee. It goes to the secretariat, which
is within Treasury. And you are looking at 600, 700 pages
sometimes in these memos. They are more than memos. It is quite
extensive with a lot of good work done by the top economists at
the Fed and other agencies.
Mrs. Wagner. Thank you, sir.
Chairman Hensarling. The time of the gentlelady has
expired. The committee will now recess for the vote pending on
the House Floor. The Chair expects the recess to last
approximately 10 minutes. The committee will reconvene
immediately after the vote. The committee stands in recess.
[recess]
Chairman Hensarling. Members will take their seats.
The Chair now recognizes the gentleman from Kentucky, Mr.
Barr, for 5 minutes.
Mr. Barr. Thank you, Mr. Chairman.
And Mr. Woodall, since you have been the topic of much
conversation as a Phi Beta Kappa from Kentucky, as a fellow
Kentuckian, I am going to try to leave you alone for the most
part today.
Let me start with some of our bank regulators, our
prudential regulators, and note that at a macro prudential
level, FSOC and our banking regulators have participated in
international agreements with the Financial Stability Board,
Basel, and other forums. And the main difference between U.S.
requirements and those promulgated internationally is that it
seems that our domestic standards are more stringent than our
foreign counterparts.
So just a few examples: A capital surcharge on global
financial firms nearly doubled the international standard;
supplemental leverage ratio that is double adopted--that
adopted internationally; a liquidity coverage ratio that is
more restricted than the international standard, and
arbitrarily punishes certain products like municipal
securities; a total loss absorbing capital rule that goes
beyond international standards; OTC margin requirements that
are considerably more punitive than international standards.
So this question is for Ms. Matz, Mr. Watt, Mr. Gruenberg,
Mr. Cordray, and Mr. Curry. I assume that you all agree that
these prudential rules and other reforms have improved safety
and soundness. And if you agree with that general proposition,
raise your hand.
So, all of you agree that these new prudential rules
enhance safety and soundness. A follow-up question: do you
believe that the benefits of these new prudential rules
outweigh potentially the cost to international competitiveness,
given that we have higher standards than that international--
okay. So, most of you agree with that.
When combined with Volcker, financial institutions seem to
be making a couple of changes in the regulations and producing
a couple of results. One is that there is a migration of
activities out of heavily regulated banks and into much less
regulated non-bank financial firms, the so-called shadow
banking system. And I want you to address that.
But also there is much talk about illiquidity in the
markets, institutions dropping certain products and services,
pulling back from market-making functions critical to
investors, extension of credit affecting various fixed income
asset classes in different ways.
So my question to some of our market regulators, Mr.
Massad, Chair White, is that the FSOC annual report
acknowledges that there are changes in terms of reduced
liquidity in the capital markets. The Office of Financial
Research is corroborating this.
Certainly, there are other indicators. The Center for
Financial Stability found that market liquidity has declined by
46 percent. And as you all have already noted, and Mr. Curry
has noted, this potential lack of liquidity that is resulting
from regulation could mean that financial markets have less
capacity to deal with shocks, and would more likely seize up in
a panic just as they did in the 2008 financial crisis.
So, given that our bank regulators are making the case to
FSOC that this is good for financial stability, and yet we see
a liquidity problem developing, from your perspective, what do
you make of all this?
Ms. White. I talked a little bit about this, I think, at my
last hearing. It is a concern for all of us in terms of
significant reduction in liquidity. Obviously, there are rules
that have very beneficial purposes that may or may not be
causing that.
We do analyses to see whether Volcker, for example. We will
report quarterly to this committee. We have not determined that
the Volcker Rule is having a negative impact on liquidity.
When we talk about shadow banking, I think we have to be
careful too. That term covers a broad swathe. A lot of the
things that fit under that category are heavily regulated by
the capital markets regulators.
But I think you know the bottom line is that we are all,
and should be, very concerned about impacts on the--
Mr. Barr. I think we should look at regulation as a cause
of financial instability as a result of the lack of liquidity
that we are seeing developing in the marketplace. That is
something that FSOC should be paying attention to and
revisiting some of these regulations to the extent that they do
compromise financial stability.
Finally, let me just go back to Mr. Watt really quickly.
The GSEs are exempt from Mr. Cordray's QM rule. They are
exempt from capital and liquidity rules that I am talking
about. Agency MBS's are carved out of the Volcker Rule, and
agency MBS's are some of the few cash and cash-like equivalents
that banks need to hold to comply with these capital and
liquidity rules.
My question to you in my limited remaining amount of time
is, why are these standards good for the private sector, but
not for GSEs under your oversight? And why have a double
standard if, as you signaled by raising your hand, these
capital requirements are important for financial stability?
Shouldn't it be important for the GSEs as well?
Mr. Watt. If they were not in conservatorship, I think you
would be absolutely right.
Mr. Barr. Why should we continue to have the risk on the
taxpayer?
Mr. Watt. Because we continue in conservatorship because
the Legislative Branch has not acted on GSE reform.
Mr. Barr. I think we should look at that double standard.
And I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Delaware, Mr.
Carney.
Mr. Carney. Thank you, Mr. Chairman. And thank you to the
ranking member and to everyone who is here today. This is the
biggest panel that I can remember that we have had here before.
Part of our responsibility, I think, for today's hearing is
oversight of the FSOC. And as I understand it--I was not here
when Dodd-Frank was passed--the primary responsibility of the
FSOC was to identify emerging systemic risks. And I would just
like to hear from many of you what you see out there as those
emerging risks. And can you share those with us?
Why don't we start with Mr. Gruenberg and go to Comptroller
Curry in terms of your responsibility as part of the FSOC. What
are the emerging risks? What are the systemic vulnerabilities
that you are seeing out there?
Mr. Gruenberg. The annual FSOC report outlines a series of
systemic risks to focus on, interestingly, in this report, the
leaderess--that it cites is cybersecurity and the potential
consequence, vulnerabilities relating to cybersecurity could
have for the functioning of the financial system.
And that certainly has been a focus of discussion and
attention by the FSOC. And I frankly think for each of our
agencies individually.
I would also reference--
Mr. Carney. Is there anything that we should be doing or
looking at with respect to providing you with the necessary
tools? We are going to be talking about a data breach bill
later today.
Mr. Gruenberg. I note the Congress is considering
legislation to facilitate information sharing, which I think is
one of the critical issues in terms of being prepared to deal
with a cyber incident.
So I think there is a significant role for the Congress,
and certainly for the--all the agencies at this panel working
among the regulatory agencies, as well as with the law
enforcement and national security communities. It is really
going to require--
Mr. Carney. The classified briefings that we have had are
pretty scary, frankly. And the attacks are coming on a regular
basis, on a daily basis.
And frankly, it feels like to me that we are fortunate that
we haven't had a more significant attack than what we have had.
And I know that institutions are dealing with this on a regular
basis.
Comptroller Curry, what would you say in terms of emerging
risks or existing vulnerabilities?
Mr. Curry. I would agree completely with Chairman
Gruenberg. Cybersecurity is a number one concern, both as
Comptroller and as a member of the FSOC.
I think the ramifications of a successful attack on the
core systems of financial institutions, regardless of their
size, could really undermine public confidence in our entire
banking system. And that is really why it is imperative from a
regulatory standpoint to make sure all of our banks, from the
smallest to the largest, are prepared to repel attacks and are
in a position to respond as quickly as possible in the event of
a successful intrusion.
The chairman also mentioned, and it is in the FSOC annual
report, increased risk-taking in a low yield environment. We
are very concerned about the decisions that the financial
institutions we supervise are taking today, whether it is to go
along or to get into activities that they are either unfamiliar
with or not prepared to deal with the risks that are inherent
in those activities. We think that is a potential emerging risk
for individual institutions and for the system.
Mr. Carney. Thank you.
Chair White, is there anything you would like to add?
Ms. White. No, I think you can't emphasize enough the cyber
risk. It is not a coincidence that it is listed first in the
emerging risks in the FSOC annual report.
Mr. Carney. Thank you.
Director Watt, you and I have had some conversations about
the last subject you talked to Mr. Barr about with respect to
the GSEs, and I know it has been your view that you are waiting
on Congress to act.
What vulnerabilities exist there? Increasingly, the
taxpayer or Freddie and Fannie are guaranteeing those mortgage-
backed securities. What is your view of the sense of urgency
around that issue?
Mr. Watt. I think we been in conservatorship, Fannie and
Freddie, for 8 years. It is the longest conservatorship that
has ever occurred under government control. While the risk of
the work that we are doing is much, much less now than it was
at the onset of the meltdown, staying in conservatorship is
just not sustainable.
You have a high risk of losing the most qualified people to
the private sector. I could keep going on.
Mr. Carney. We should do something. We should act.
Mr. Watt. You should act, yes.
Mr. Carney. Thank you, Mr. Chairman. I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Pennsylvania, Mr.
Rothfus.
Mr. Rothfus. Thank you, Mr. Chairman. Mr. Woodall, your
criticism of the MetLife SIFI designation process is a matter
of record and has been discussed at the hearing today. Your
well-founded concerns are shared by many of us, and ultimately
we should all ask ourselves whether it is wise for people with
little or no experience in a given industry to be given the
power to make significant consequential decisions such as SIFI
designation.
There is a broader question as well that I was hoping to
get your thoughts on. Many of us are concerned that American
regulators are ceding responsibility to the FSB, which is
composed of central banks, finance ministers, and regulators
from around the world.
Given our shared misgivings about, for instance, FSOC
members without insurance experience deciding to designate an
American insurer, shouldn't we also be concerned about letting
foreign regulators who lack experience in the American
financial services industry, and who act in the best interest
of their respective countries, take the lead in regulating our
financial firms?
Mr. Woodall. Well, that is the point that has been
discussed quite a bit, and a lot of it goes to the fact that
the European insurers have a lot different background. They
have a different accounting system, their products aren't the
same. Now, they are pretty well united with their solvency 2
regulation, which goes into effect next year.
And they are working on equivalencies as to whether we are
equivalent. There has been some temporarily equivalencies
given. If we don't get equivalency, it could increase the cost
of our companies doing business in EU countries tremendously.
Mr. Rothfus. One of FSOC's most basic authorities under
Section 112 of Dodd-Frank is to make recommendations to the Fed
concerning which heightened prudential standards should apply
to non-bank financial companies. Yet to date, the FSOC has not
done so.
It would appear that FSOC is putting the cart before the
horse, designating companies for heightened supervision but
making no recommendations for what those heightened
requirements must be.
The basic principle of regulation is that the benefits of
imposing a regulation should outweigh the costs associated with
doing so. Designating a firm for heightened supervision is not
without costs. It is a serious matter that impacts firm
behavior and may have even broader repercussions for the
financial services industry, as well as consumers.
Chair White, how is it possible to ascertain the costs and
benefits of designating an insurance firm as a SIFI if the Fed
has not yet prescribed the heightened prudential standards that
will apply to designated firms?
Ms. White. Again, I go back to the primary mandate of FSOC,
which is to identify systemically important financial
institutions that can impact the financial stability of the
U.S. financial system.
I do think the Fed has actually adopted, if I am right, but
certainly it put out for notice and comment, standards with
respect to GECC. So that is there now. But I certainly
understand the point that you are making in terms of if you
don't know what the standards are that are going to be applied,
it is obviously part of your analysis that you can't do.
I don't think we are obligated to do it. And indeed, I
think we are obligated to deal with the issue of systemically
important institutions in the first instance, and not wait for
that action.
Mr. Rothfus. It is a good idea, wouldn't you agree, that a
basic principle of regulation is that the benefits of proposing
a regulation should outweigh the costs associated with doing
so?
Ms. White. Again, I think the premise of the
responsibilities of FSOC is what a tremendous cost the
financial crisis was, and to try to prevent that. One of the
tools that FSOC has is the systemic designation powers.
However, speaking for myself, we certainly want to act on
full information, including that.
Mr. Rothfus. Director Watt, is the FSOC evaluating the
Fed's historically accommodative monetary policy stance to see
whether that policy has led to excessive risk-taking in the
financial system?
Mr. Watt. Not directly. We are always evaluating every
decision that all of these regulators make. But we don't
oversee the Fed.
Mr. Rothfus. Do the Fed's destabilizing monetary policies
get a pass from the FSOC because the Fed Chair sits on the
FSOC?
Mr. Watt. That assumes that they are destabilizing. I
wouldn't assume that position or conclusion.
Mr. Rothfus. So the Fed--or the FSOC isn't taking a look at
the Fed's balance sheet, for example, that it has gone from
$800 billion to $4.5 trillion over the--
Mr. Watt. That is not in the jurisdiction of FSOC.
Mr. Rothfus. Thank you, Mr. Chairman. I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Minnesota, Mr.
Ellison.
Mr. Ellison. Thank you, Mr. Chairman, and Ranking Member
Waters.
I want to thank each of the witnesses and your staffs for
your comprehensive and insightful written testimonies. I also
want to thank you for your service on the Financial Stability
Oversight Counsel. We have all learned the painful reality that
markets do not regulate themselves, and a nation as powerful as
ours must invest in regulation and identify in response to
emerging threats to our stability.
So your report, 150 pages, details the Council's
unprecedented progress to protect the financial system from
risk and to prevent another economic disaster from happening,
which I remember very well. I wish everyone running for
President would read it. Maybe then we could have folks talk
about how to really understand how to protect our economy and
be successful in that effort.
So my first question is to Comptroller Curry. It has been a
while since you have been before the committee. I want to
welcome you back. And since you are here, I want to ask you
again about a topic that you and I have spoken about in the
past, and that is the issue of Somali remittances.
Are financial institutions regulated by the OCC closing
accounts of money services businesses serving Somalia due to
compliance costs, reputational risk, inability to cover the
cost, lack of clarion exams, or for other reasons?
Mr. Curry. Congressman, as we discussed, I think there are
a variety of reasons why individual institutions are making
determinations about what their risk tolerance is under the
Bank Secrecy Act and the anti-money laundering statutes.
In terms of regulatory clarity, we have tried to make clear
what our expectations are. We did put out in 2014 additional
guidance on dealing with money services businesses, but
ultimately it is the decision of the individual institution
whether or not to do business with an individual business or
individual.
Mr. Ellison. I just want you to know the Somali
parliament--I have had a chance to talk with some of them. They
are passing an anti-money laundering, antiterrorist financing
law. They haven't passed it yet, but they are working on it.
That is coming up. They opened up their embassy here in the
United States, and I believe that the more stable that country
is, the less susceptible it will be for terrorists to come and
set up shop and try to operate out of there.
Mr. Curry. I think those are very good improvements. As we
discussed, it is important that there be a strong local banking
system and the regulatory system overseeing its compliance with
important laws like the BSA.
Mr. Ellison. Yes. Thank you.
Mr. Watt, it's always a pleasure to see you. I'm very proud
of you and the work that you do. Welcome back to the committee.
It must be weird to be on that side of the divide.
But anyway, I just want to say to you, the report calls for
a comprehensive litigation legislation to address the
conservatorship of Fannie Mae and Freddie Mac. It also urges
Congress to clarify the future role of the Federal and State
Governments in mortgage markets. While Congress has not acted
on any particular proposal regarding the GSEs, I am interested
in what your current policies are doing to improve credit
access to African-American and Latino borrowers.
I have a chart up, which I will direct your attention to.
And as shown by the chart, we know that the majority of new
households are going to be African-American, Latino, Pacific
and Asian-Pacific American. Yet, they seem nearly shut out of
the mortgage market now.
GSE loans to African-American borrowers in 2013 were about
2.2 percent, and GSE loans to Hispanic borrowers in 2013 were
about 5.8 percent, both low. What policies can GSEs implement
post-conservatorship to improve access to credit for African-
American, Latino, and Native American borrowers that Fannie and
Freddie cannot implement now?
Mr. Watt. You are asking about post conservatorship or--
Mr. Ellison. What can they do--what is it that might be
done later that can't be done now? And I am basically asking,
how do we make progress on this?
Mr. Watt. Well, a lot of what can be done after
conservatorship depends on how GSE reform is done--
Mr. Ellison. Right.
Mr. Watt. --and what the rules of the road going forward
are.
Part of the challenge of being in conservatorship is one of
the things I have found to be true is that lenders price
uncertainty. And right now they don't know what the future is.
So as prices go up, there is a price to uncertainty of what the
future holds in this area.
So, I just--there are a number of things that need to be
done to address this because we need the availability of
capital for people to be either homeowners or affordable
renters.
Mr. Ellison. We will follow up--
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Arizona, Mr.
Schweikert.
Mr. Schweikert. Thank you, Mr. Chairman.
Just first conceptually, because it has been sort of
floated around a couple of times, in many ways when I read the
articles about what you are all doing it is a discussion of,
are we fighting the last war, and the concentration of risk of
unintended consequences.
We have our Section 113, the list of criteria. Are we going
to wake up tomorrow and find out that the shadow on the
horizon, the black swan was something that because of the
concentration of the way you look at the world you completely
miss?
But there have been a couple bits of testimony here that I
need to drive into because I am a little disturbed and
concerned about some of the things I heard. The gentleman from
Florida, Mr. Ross, was asking some questions about insurance.
And a comment was made by Ms. Matz--you actually stated that on
Prudential, one of the reasons they made your list, shall we
say, is their derivatives book.
Now is that because they didn't have enough hedging of
their interest exposure? I don't know if they were doing
duration exposure, but their interest exposure. And are you
saying they had a derivatives book and because they were
actually insuring their interest--exposure that forced them
onto your list? What do you mean when you said the derivatives
book?
Ms. Matz. They had such a large exposure that the failure
of that institution or financial--
Mr. Schweikert. When you say that institution?
Ms. Matz. Of Prudential.
Mr. Schweikert. Okay. So they are buying an additional
hedge to protect their interest rate exposure so if that moves
against their 100 percent coverage. Explain to me how that
would work.
Ms. Matz. First of all, the derivatives position is just
one position. But if they are so interwoven or so
interconnected with other financial institutions that if they
failed--
Mr. Schweikert. No, no, no, no. Not--if they--they are
not--
Chairman Hensarling. I'm sorry. Will the gentleman suspend?
I wish to alert Members that regrettably there is yet
another procedural vote on the Floor. I think we are drawing
near to the end of the hearing so if Members who have yet to
ask questions wish to go vote now and return, I think we can
keep this thing going, except for Mr. Tipton, who is next. So
if Members wish to go vote and return quickly.
I am sorry to interrupt the gentleman. The gentleman from
Arizona is recognized again.
Mr. Schweikert. Thank you, Mr. Chairman.
Look, we are talking past each other because you know
everything I know about why your derivatives contracts to
protect your interest rate exposure, that would be something
you would find joyful, not put them into a designation.
Also, in looking over parts of the reports about
Prudential, okay, so their repo contracts are 100 percent
offset and collateralized. I am just trying to figure out where
you found exposure.
Ms. Matz. It is all exposure. What is the assumption that--
Mr. Schweikert. If you are 100 percent covered and you have
also covered your interest rate risk, the exposure is what?
Ms. Matz. The assumption that is made in making our
determination is that there is material distress at the
designated institution. So we are starting from the
assumption--
Mr. Schweikert. So I have an institution. It is 100 percent
covered. Plus, it has also done additional financial products
insurance to cover markets moving against them.
Ms. Matz. But we are operating from the assumption that
there is material distress at that institution. So, if there is
material distress, that they can cover the outstanding debt
that they have or the loans that they have.
Mr. Schweikert. But they are contract loans. The insurance
products that they are offering are all under contract. So they
have the ability to say, according to our contract you may be
making a claim for this, but under the contract we have the
ability to pay as the contract is designated. Because--
Ms. Matz. Unless they are in material distress.
Mr. Schweikert. Okay. I will give this one to you in
writing because we are talking past each other because that
makes absolutely no sense.
When I look at your Section 113 tests, and I go up and down
this, is it the last one? Are there risks that the Council may
deem appropriate? When I look at this list, particularly on an
insurer like this which is 100 percent covered and then hedged
their coverage, I am trying to find out on this list where do
you find the exposures?
Ms. Matz. Interconnectedness. It is their
interconnectedness with the other institutions. And the
assumption that a financial institution is suffering material
distress, I think is--
Mr. Schweikert. I wish I had you in grad school because
there would been some fascinating questions.
All right. Last bit in my last 20 seconds, Mr. Curry, you
are the only one in the panel I have heard actually touch on
something that made me very happy. And that was sort of the
unknown, the reality that future financial markets are moving
Silicon Valley bank--or excuse me, Silicon Valley centric, the
new ways people are going to borrow money, buying credit,
invest, move around.
Isn't that, though, actually much safer and much more
robust than a concentrated banking system because the way
capital is acquired is much more distributed model?
Mr. Curry. Again, from the FSOC's standpoint we have
identified as one of our emerging risks the financial
innovation and migration of activities. So it is an area that
we are discussing. And I think we will devote additional
attention to those issues.
As the Comptroller, we are very interested in this because
of the impact of financial technology and innovation on the
delivery of banking services--
Mr. Schweikert. Okay. And I am going to give you something
in writing--I know we are way over time.
Mr. Curry. Sure.
Mr. Schweikert. But I beg of you, if it is creating
diffused risk, if we are seeing sort of a distributive model,
please do not beat up innovation. We desperately need it--
Mr. Curry. Actually, I am calling for fostering responsible
innovation.
Mr. Schweikert. And with that, I have to yield back. Thank
you.
Mr. Garrett [presiding]. The gentleman yields back from a
very salient point, which I think he will agree with the
chairman that just citing interconnectedness is not enough of a
criteria because--and no one else from the panel I see was able
to answer your question as well.
My daughter's former lemonade stand is also interconnected
if you go through the whole realm. So I think there has to be
more substance to it than that. But with that, I will now yield
to Mr. Tipton for 5 minutes.
Mr. Tipton. Thank you, Mr. Chairman. And I thank the
witnesses for taking the time to be here. We have a large
group, and I would like to be able to echo some of the comments
that were made by Mr. Lucas, Mr. Stivers, in regards to
community banks, something that is critical for rural America,
and particularly in my district.
You have had to raise your hand, simply because of the size
of the panel, several times here. But I would like to be able
to just get a sense of your feeling on the panel, who is
concerned about the challenges faced by America's community
banks and financial institutions in these small communities.
Everyone has raised their hand. In response to Mr. Stivers,
you have made comments that--how much time does the Council
actually spend in regards to community banks? And the answers
were some, or it is going to be at the staff level. And I would
maybe like to start with Chair Gruenberg, and maybe Comptroller
Curry. If it is actually something--this is in your wheelhouse,
why isn't more time spent on community banks?
Mr. Curry. It actually is. The OCC supervises approximately
1,700 banks. The majority of them are community banks. A major
focus of my tenure as Comptroller is to look at and make sure
we have a strong, viable community banking sector.
I think we are very fortunate to have a diverse banking
system in the United States. We have looked at the burdens
particularly facing community banks. We have identified some
areas where we think we can make a difference, whether it is
call-report reform or capital reform.
At the OCC, we are really looking at how can we reduce the
cost structure. So we put out a White Paper a little over a
year ago, encouraging from a regulatory standpoint, banks,
particularly smaller banks in rural communities, to
collaborate, whether it is a joint venture, sharing employees,
working on participation, so that they can continue to be
viable entities and serve their communities.
Mr. Tipton. If I may, let's talk a little bit about--when
you are talking about a viable, vibrant baking system, you are
aware that right now, approximately one-third of the counties
in the entire United States are served by only one community
bank. Do you recognize that?
Mr. Curry. Yes.
Mr. Tipton. How vibrant, how competitive is that?
Mr. Curry. What we are trying to do is really make sure
there is a balance between appropriate supervisory standards in
how we supervise those institutions, so that banks can continue
to lend and be leaders in their communities going forward.
Mr. Tipton. You talked a little bit about collaboration,
for the banks to be able to come together, to be able to share
employees. What type of collaboration is going on in the FSOC
to be able to identify redundant regulations that are
overlapping, and requiring small community banks to be able to
answer to several masters, if you will, and driving up those
costs, which were increasing the cost for loans, for
communities, inhibiting those banks' ability to be able to
survive, driving, actually consolidation, or actually failure
of some of these small banks?
Mr. Curry. I think the primary area where we are addressing
that for community banks is at the Federal Financial
Institutions Examination Council, which State and Federal bank
and credit union regulators are part of. That is really part of
the mission of the FFIEC.
Mr. Tipton. Just as a little bit more of a follow up on
this, as we reviewed the FSOC minutes, there is never a mention
of small banks in the minutes. So I am pleased to hear that you
are actually putting out some comments and some White Papers. I
think the question that our community banks would like to have
answered is, when are they actually going to get some relief,
rather than talk?
Mr. Gruenberg. If I may say, Congressman, I do think
community banks have been a focus of enormous attention by the
bank regulators who have responsibility for it.
Mr. Tipton. That is what really disturbs the community
banks.
Mr. Gruenberg. As you know, community banks play a critical
role in the financial system. We have shown at FDIC studies
that community banks account today for about 14 percent of the
banking assets, and hold about 45 percent of all the loans to
small businesses and farms by all banks in the United States.
So the role they play is really quite critical.
I do think that is to be distinguished from whether they
pose, in and of themselves, a threat to the financial system
that would warrant the FSOC's attention, or they are critical
to the financial system certainly can be impacted significantly
by systemic risk, as we saw in this recent crisis. They
themselves are not a source of systemic risk. And where they
are the focus, are by the bank regulatory agencies.
And we, as you know, have been conducting a review, as we
are required by law, of the regulations we have imposed over
the past 10 years, have held outreach meetings across the
country, are seeking public comment. And I am hopeful we will
be able to come out with a series of regulatory measures that
will be helpful in terms of reducing the cost of regulatory--
Mr. Tipton. I hope you can, because simply, as Mr.
Schweikert was pointing out when we were talking about the
connectivity that is going on, while you may say--and are
accurate, they are not going to be systemically important to
the overall economy of the United States.
They are certainly feeling the impacts of those broader
rules, regulations, through loan participation, whatever it
happens to be, that is cascading down and inhibiting their
ability to be able to address the very people that you cite--
and I agree with you are very important--are small businesses
and our agricultural communities.
Thank you, Mr. Chairman. I yield back.
Mr. Garrett. The gentleman yields back. Mr. Poliquin is
recognized now for 5 minutes.
Mr. Poliquin. Thank you, Mr. Chairman. I appreciate it very
much. I wish everybody a merry, merry Christmas, and a happy
holiday season. Thank you all very much for being here. It is
very important for us here on the committee, and for our fellow
Americans.
Chair Matz, I would like to ask you a couple of questions,
if I may. Are you familiar with the December 14th announcement
by Chair White dealing with the new regulatory process, dealing
with asset managers? Are you familiar with that?
Ms. Matz. I have read about it, but I am not--
Mr. Poliquin. Okay. Can you remember what the content of
that was, ma'am? Okay, let me help you out. Could you speak a
little bit closer to the microphone? My ears aren't what they
used to be.
In that, Chair White mentioned that going forward and
regulating the asset managed, she would be looking at liquidity
risk, leverage, as per use of derivatives, stress testing, and
things of that nature. Does that ring a bell?
Ms. Matz. Pardon me?
Mr. Poliquin. Does that ring a bell?
Ms. Matz. Yes.
Mr. Poliquin. Okay, good. And can you think of anything
that the SEC is not doing to regulate asset management, so good
at doing this for 75 years. Can you think of anything that she
has left out in the new way that she is proposing to raise
asset managers?
Ms. Matz. As I said, I haven't reviewed it. I am not
intimately familiar with it, but I have great confidence in
Chair White.
Mr. Poliquin. Okay, good. I am going to take that as that
you don't have anything to add with respect to her job
regulating asset managers. Are you familiar, ma'am, with the
FSOC's decision to review asset managers' products and
activities?
Ms. Matz. Yes.
Mr. Poliquin. You are? Okay, because you voted on that, it
was unanimous back in December of last year, I believe. Are you
also familiar with Section 113 of the Dodd-Frank Act?
Ms. Matz. Yes.
Mr. Poliquin. Good, okay. There are 11 different parts of
that Section 113, Ms. Matz. One of them, which deals with what
you folks are responsible for in weighing whether or not an
asset manager, mutual fund, pension fund managers, so forth and
so on, should be so designated as SIFI.
One of them, ``The degree to which the company is already
regulated by one or more primary financial regulatory
agencies--''
The SEC is one of those primary regulatory agencies, right,
from asset managers? Okay. So my question to you, Ms. Matz, is
what in the world is FSOC even doing in this business? We have
a regulator here that has been doing this for 75 years.
You agreed there was nothing you can think of to add to her
job. But at the same time, you voted along with everybody else
to consider designating asset managers as SIFIs. So what am I
getting wrong here?
Ms. Matz. We didn't vote to consider--
Mr. Poliquin. Speak up, please. My ears are bad.
Ms. Matz. We didn't vote to consider asset managers as
SIFIs. We voted to consider to have the staff look at the
activities of the asset managers, to determine whether--
Mr. Poliquin. That is legal speak. That is the same thing.
If you are asking the staff, and you folks are going to decide
whether or not you are going to designate an asset manager as a
SIFI, and looking at the criteria thereof, that is the same
thing, isn't it?
Ms. Matz. We have not made any determination.
Mr. Poliquin. I know you haven't. Why are you even in this
business?
Ms. Matz. Because our mandate is to look at those
institutions that could pose a threat to the financial
stability of the United States.
Mr. Poliquin. She is already doing that. The SEC is already
doing that. I just read you the criteria, ma'am. She is dealing
with liquidity risk, and leverages, respect to derivatives, and
stress testing, and everything else. And you couldn't add
anything else to the parade. So my question is, why don't you
folks move on? You have other good things to do. Why should you
get involved in this space at all?
Ms. Matz. Well, two things. One is that we have not made
that determination yet, and also that the SEC is not looking at
the threat to the financial stability of the United States.
They are looking at the narrow securities market.
Mr. Poliquin. Okay. Let me--no, I am asking you, ma'am. Ms.
Matz, I am asking you. Thank you.
All right. Let me ask you this question. Since you folks
clearly have gone down this path or are going down this path to
consider whether or not you should designate an asset manager
as a SIFI, you must have some analysis which concludes that
what the SEC doing is not full. Do you have that analysis for
me or for my office?
Ms. Matz. Their mandate isn't to look at the financial
stability of the--
Mr. Poliquin. Do you have the analysis that you use, Ms.
Matz, and everybody else used to so determine that the SEC is
not fulfilling their job?
Ms. Matz. We--
Mr. Poliquin. It does dictate advice--
Ms. Matz. We did not come to that conclusion, that the SEC
is not fulfilling its job.
Mr. Poliquin. Okay. Well, you had to make the decision
based on what?
Ms. Matz. Based on our mandate.
Mr. Poliquin. Let's move on a little bit. Are you familiar
with a study done by Mr. Douglas Holtz-Eakin, the former
Director of the nonpartisan CBO?
Ms. Matz. The study on?
Mr. Poliquin. All right. You are probably not. It was done
in 2014. Let me just give you the ultimate conclusion. It
basically says the following: If an asset manager that
represents no systemic risk to the markets or to the economy,
if they are so designated as a SIFI, then the costs will go up.
And we have discussed this today. The product offerings will go
down. And the long-term rate of return of savers for their
retirement and putting their kids through college will likely
go down by 25 percent.
Now also in Section 113 of Dodd-Frank, there are other
risks that you should consider. Do you folks consider the risk
to the small investor such as a nurse in Lewiston, Maine, or a
logger in Dover-Foxcroft, Maine, who are trying to save money
for their retirement or for their kids' education, are you
considering the risk to them if the asset managers that run
their money are so designated as SIFI and they get dinged by
about 25 percent in their rate of return? Do you consider that?
Ms. Matz. We have not made any--even been given any
potential recommendations. So we have not considered any aspect
of--
Mr. Poliquin. Okay. So when you factor in the economic cost
to the people we are supposed to help in this country in making
these decisions, whether or not an asset manager should be so
designated a SIFI.
Ms. Matz. We are not even at that point of making that
determination.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Arkansas, Mr.
Hill.
Mr. Hill. Thank you, Mr. Chairman.
And I thank the witnesses for being here today. So many
questions, such a distinguished panel, and so little time; it's
very frustrating.
Chair White, if I could start with you, please.
Traditionally your testimony and in your capacity and
previously always has our boiler--famous boilerplate that says
the views expressed and the testimony are those of the Chair of
the SEC and do not necessarily represent the views of the full
Commission or any Commissioner, standard procedure.
But while this is a good disclaimer, I think for general
testimony we do love it when you all actually give personal
views occasionally and not stand on the party line.
Here in the concept of an FSOC testimony it causes me to
want to ask you a few questions. You serve on FSOC as one of
the 10 voting members. Here is my question: If one of the other
four SEC Commissioners was opposed to one or more of your FSOC
positions, does Dodd-Frank require the SEC to vote ahead of the
FSOC meeting to determine how you would then represent that
view at the FSOC meeting?
Ms. White. It does not, although I do consult with my
fellow Commissioners before and after the FSOC meetings. But
the short answer is ``no.''
Mr. Hill. And so in that consultation can you give me an
example of where there has been disagreement between
Commissioners?
Ms. White. No. It is more just informationally briefing on
what is going to come up before FSOC, what I am intending to
do.
And again, under the structure, I am the member and
obviously the voting member of FSOC. If there is anything to
take a position on at the meeting, I convey that and obviously
listen to any input or different points of view, and then
afterwards report to the Commissioners on what transpired at
the meeting. But there is not a structure to take a vote in
advance.
Mr. Hill. But to continue sort of the line of questioning
early this morning, if you had a Commissioner who was
particularly passionate on a topic, would you be open to taking
them to an FSOC meeting?
Ms. White. Again, I certainly am totally amenable to that
point of view and making certain that I fully understand it and
take it into account.
Again, under the current structure and protocol, the Chair
or the head of the agencies that are the designated 10 voting
members, can bring a plus one, as it is called in this town, to
the meeting with us, which has been a staff member.
So it is really not structured to have the other
Presidential appointees attend these meetings or vote on these
matters. Obviously, that creates some sensitivities, no
question about it. As I said, it is up to Congress if they want
to change that structure.
Mr. Hill. It just seems that internally it would be good if
there were that level of disagreement where maybe a
Commissioner wanted to express their views directly to FSOC,
that that might even merit a formal Commission discussion and a
formal view of the Commission potentially, before you simply
represented the Commission in your own individual capacity.
Ms. White. When I became Chair, I tried to change how we
proceeded to get fuller input. But again, existing structure
presents some of the challenges you are outlining.
Mr. Hill. So, I have only been in Congress 11 months or so,
but one thing that has come up consistently, Mr. Watt--it is
very helpful to have so many of you in one hearing--is this
lack of transparency in the process that many in the industry
feel.
And yes, it is a new agency and it has growing pains and
has structure to be put in place.
But there is a right way and kind of a wrong way, I think,
to do things in Washington. We all know the Administrative
Procedure Act. We all know our obligation to openness. And in
some cases we have taken actions before we even have rules. I
think somebody referenced that we have designated insurance
companies before we have even set what the standards might be
for insurance companies.
So one thing I looked at is that for--in G-SIFIs certain
capital surcharges there is a very transparent, mathematic--I
have seen it written down, how to designate somebody for a G-
SIFI surcharge. And that looked very transparent to me.
And yet, we don't even have that level of information on
routine decisions in considering non-bank SIFI designations, or
even, to some degree, activities-based SIFI analysis.
Who wants to comment on that? Maybe Chairman Gruenberg, you
might comment on that, since it is both a banking and a non-
bank designation question?
Mr. Gruenberg. Congressman, as was discussed earlier, the
FSOC established a process for a SIFI designation pursuant to a
rulemaking and public notice and comment. Actually, I think the
rulemaking went through three series of public comments.
And the first stage of the process, as I am sure you know,
is a set of metrics, a set of thresholds through which an
institution would pass.
And I must say there is a very high set of thresholds which
would, almost by definition, be limited to some of the largest
or most interlinked companies in the financial system. And that
is something that is--any company can calculate in terms of
projecting what the impact might be. And anyway, I will stop
here.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from Utah, Mrs.
Love.
Mrs. Love. Thank you, Mr. Chairman.
First of all, thank you all for being here. I know everyone
is excited about the holiday season. I want to wish you all a
Merry Christmas. And also to have such a great group of just so
many of you here today, it is just really beneficial to me as a
freshman. So, thank you. I have learned a lot today.
I have just a couple of questions. Comptroller Curry, you
have previously testified that tailoring is an important tool
in the OCC supervisory and regulatory toolbox because, as you
have stated, while bank asset size is often a starting point in
our assessment of appropriate standards, it is rarely, if ever,
the sole determinant. Do you still agree with your statement to
that effect?
Mr. Curry. Yes, I do.
Mrs. Love. Okay. So when a regional bank with simple
trading lending model and minimal interconnectedness grows to
$49.9 billion to--in total assets to $50.1 billion in total
assets, what new requirements apply to that institution?
Mr. Curry. There is a cliff effect for the holding company
under Section 165 of Dodd-Frank. So it will trigger heightened
capital liquidity and other standards because it has crossed
that threshold.
Mrs. Love. Okay. So does it make sense to automatically
designate that institution, even though it does not engage in
trading or other complex operations?
Mr. Curry. Again, I am the supervisor of the bank--
Mrs. Love. I know--
Mr. Curry. That is what I want to clarify. As we supervise
the bank part of the holding company, we are not driven by the
asset figure in terms of how we supervise that institution.
Mrs. Love. Okay. But we just determined that new
requirements are applied to that institution. So I am trying to
figure out your thoughts on this, and whether that
designation--does that actually make sense, in terms of
engaging in that type of regulatory--
Mr. Curry. An asset threshold is initial, it has some value
as initial or a first screen. So you can make some general
observations about some institutions, that a certain asset size
level may or may not be engaged in a particular activity.
As I stated in my earlier testimony, our focus as a
supervisor is on that particular institution, the particular
activities it is engaged in, and what are the risks that those
activities present. And then we deal with our individualized or
tailored plan of supervision according to that analysis and
assessment.
Mrs. Love. Okay. So what I am trying to say is that the
triggers automatically are applied to that institution. They
automatically have those new requirements. So I guess what I am
asking you is if you think that an institution like that,
without just having that automatically trigger, do you think an
institution like that realistically threaten the financial
stability of the United States?
Mr. Curry. I think it is an individualized determination.
And again, I don't think that there is any magic to any asset
threshold.
Mrs. Love. Okay. So wouldn't it make sense to look more
closely at some of the banks which are actually similarly
situated, and determine whether that designation is more
beneficial or burdensome to the community in which they serve?
Mr. Curry. I supervise the banking subsidiary, and that is
exactly what we do.
Mrs. Love. Okay. But right now, it automatically--instead
of actually doing the work first to see if that is actually--
Mr. Curry. That is the effect of the statute, yes.
Mrs. Love. Okay. Well, I guess that is the point I am
making.
Mr. Curry. I understand.
Mrs. Love. Okay. If a $50 billion SIFI threshold were
raised or eliminated, could the OCC still have the regulatory
or supervisory tools that they need, necessary to make sure
that all supervised banking organizations are operated in a
safe and sound manner?
Mr. Curry. As supervisor, that is what we would want to
see, to make sure we have a safe and sound institution.
Mrs. Love. Okay. So you are pretty much saying that you
would like to do that work first before it is automatically
designated?
Mr. Curry. That is what we do as a matter of course, as a
bank supervisor to the national bank.
Mrs. Love. So would you support that statute being changed?
Mr. Curry. Again, as stated in previous testimony, that is
really a matter for Congress to decide what that initial first
threshold is. In terms of my role as a supervisor of the bank,
we will continue to apply a risk-based focus to our supervisory
activities and standards.
Mrs. Love. Thank you. Thank you, Mr. Chairman.
Chairman Hensarling. The time of the gentlelady has
expired. The Chair now recognizes the gentleman from Minnesota,
Mr. Emmer.
Mr. Emmer. Thank you, Mr. Chairman, and Ranking Member
Waters. And thank you to the witnesses for being here for so
long today.
Chair Massad, for you, it is good to see you again. We
first had the opportunity, or inopportunity, to meet while I
was serving on the Agriculture Committee. I wanted to ask you--
I will put it this way. I wrote it out so I can do it right.
Does it concern you that a regulatory body comprised primarily
of banking, credit union, housing, and other regulators has the
authority to intervene in markets that you, the CFTC, regulate,
and potentially substitute their judgment for yours in highly
complex or highly technical matters?
Mr. Massad. Thank you for the question, Congressman. I
think the structure we have is a very good one, in that it
brings all the regulators together, which allows us to look
across the financial system, to look at emerging risks. There
are issues in our markets where other regulators have certain
responsibilities, whether they are things like margin rules for
swaps, regulation of central clearing houses.
Mr. Emmer. If I could interrupt you, because it is limited
time, and I appreciate--I wasn't asking for the mission
statement. I am asking specifically with respect to the CFTC. I
have heard all kinds of questioning today.
I have done a little reading about how the FSOC decided
that in spite of the one insurance expert voting member, they
substituted their judgment in place of his. And I am asking
you, doesn't it concern you, or does it present any concern to
you, that this body, this regulatory body, might substitute its
opinion for yours at the CFTC?
Mr. Massad. I see it as a structure which doesn't so much
involve substituting its opinion for ours, but rather, bringing
regulators together so that they can share information,
cooperate, and coordinate what we are doing. And I think that
is very beneficial to the overall system.
Mr. Emmer. Let me put it to you this way: When the CFTC
members meet to consider issuing a proposed or final rule, or
decide an enforcement matter, even your--even though you are
the Chairman of the CFTC, your vote counts the same as all of
your fellow Commissioners, correct?
Mr. Massad. That is correct, sir.
Mr. Emmer. All right. But now, when you sit on the FSOC
board, and you take a vote that might be different from what
your fellow Commissioners would do at the CFTC, how is that not
corrupting, if you will--maybe that is a very strong word--the
process that we put in place, or that has been put in place to
operate the CFTC?
Mr. Massad. The FSOC isn't taking votes on our enforcement
matters, or on the rules that we are issuing. So I don't see a
conflict there, sir.
Mr. Emmer. What if your position on the FSOC differs from
one of your four Commissioners at the CFTC? What recourse do
any of those Commissioners have for your votes on the FSOC?
Mr. Massad. I try to have an open door with all my
Commissioners, and I am always willing to share my thoughts and
hear theirs.
Mr. Emmer. So they just have to trust you?
Mr. Massad. I would say that the structure that Congress
has decided is one where each of us as individuals are the--
Mr. Emmer. I know what they decided, and I apologize. I
don't mean to be disrespectful. But the bottom line is they
don't have any recourse other than your open door, and then
they would have to trust you to do what they--to change or do
what they are asking you to do.
Mr. Massad. I think again, we try to have a good dialogue
about all these issues. And I am someone who likes to listen,
and I try to respect other people's opinions, and take those
into account, sir.
Mr. Emmer. Mr. Watt, Article 1, Section 7--and I am
directing this at you because of your experience, your lengthy
experience, and the respect you have from Members in Congress
for your service here. And I will just cut to the chase. The
Constitution gives Congress the power of the purse, correct?
Mr. Watt. Yes.
Mr. Emmer. When we look at the Financial Stability
Oversight Council, how is it funded?
Mr. Watt. It is funded the way it is set up under the
statute. You will have the authority to change it if you wanted
to do that. But--
Mr. Emmer. Well, let me help. Assessments from bank holding
companies managing $50 billion or more in assets, are taken and
placed into a fund at the Treasury called a Financial Research
Fund. This money is given to FSOC in the Office of Financial
Research without oversight.
I have a bill that would actually subject the FSOC and the
Office of Financial Research to oversight. Do you agree with
that, congressional oversight?
Mr. Watt. I don't agree or disagree. If you can get it
passed, I am sure FSOC would comply with it.
Mr. Emmer. I am looking at the budget that your--that FSOC
approved for itself by 2015. Can you tell me, sir, under non-
labor costs, what is ``included in other support?''
Mr. Watt. We had a full briefing before we voted on that
budget, and I am sure at the time, I understood every aspect of
it. I don't remember specifically what each category is now.
But we didn't just rubber-stamp that budget, I can assure you.
Mr. Emmer. And would you submit that briefing to my office
on request?
Mr. Watt. I think it would be appropriate for you to make
that request to FSOC rather than to me individually. I would
not submit it as an individual member of FSOC.
Chairman Hensarling. The time of the gentleman has expired.
Members are advised there is another procedural vote on the
Floor, with approximately 12 minutes remaining in the vote. We
have three Members remaining in the queue, one who has left to
go vote on the Floor, so I think we can get through this, and
hopefully adjourn thereafter.
The Chair now recognizes the gentleman from Florida, Mr.
Posey.
Mr. Posey. Thank you very much, Mr. Chairman. I would like
to just read a couple of quotes. This is from The Wall Street
Journal.
``For the weekend of October 28th, the banks reported
holding negative $1.4 billion of investment-grade corporate
bonds maturing in at least 13 months, according to the Federal
Reserve Bank of New York data. The figures, which signify
banks, have pledged to sell more bonds than they will buy,
reflect the net holdings at banks that act as a primary dealer
authorized to trade billions of dollars of U.S. securities with
the Fed, and buy Treasury debt direct at auction.
``On May 1, 2015, FINRA CEO Richard Ketchum stated there
have been dramatic changes with respect to the fixed income
market in recent years. Many of them have come in the reaction
of the failures and market impact coming out of the credit
crisis. That has led to much higher capital requirements, the
Volcker Rule that limits the ability of proprietary trading
with respect to bank holding companies, a range of other issues
that have all had significant impact from the standpoint of
liquidity of the fixed income market.''
And then finally, Dave Nadig, Director of Exchange Traded
Funds for the search firm FactSet said buy-in in the corporate
bond market has dried up so much that it alone may pose a
significant systemic threat.
And so my question for Director Cordray is, according to
the FSOC website, the Financial Stability Oversight Council has
a clear statutory mandate that creates for the first time
collective accountability for identifying risk and responding
to emerging threats to financial stability.
While the rest of the world has identified an emerging
threat to financial stability, namely regulations like the
Volcker Rule, Basel III's capital and liquidity standards, and
other Dodd-Frank mandates that are draining liquidity from our
fixed income markets, the FSOC and its chairman, Treasury
Secretary Lew, has steadfastly refused to acknowledge that
regulations are playing any role in creating this systemic
risk.
As a voting member of FSOC, what resources have you
marshaled, and what experts have you consulted to better
understand the causes and consequences of reduced bond market
liquidity?
Mr. Cordray. I think I would add that to a point that I
thought made earlier was also a good point, which is as we add
structure and regulations and requirements, we should consider
the effects on international competitiveness.
I also think that you are raising a fair point, which is we
should consider the effects on potential liquidity in the
markets. It has been raised earlier in the hearing as well.
These are the kinds of considerations that should go into
the kinds of work that is being done by the FSOC, and frankly
work that is being done by the Congress. Quite a bit of the
criteria that FSOC is employing are criteria that were embedded
in the statute that Congress set that we are merely following,
enforcing and carrying out.
But I think it is a fair point that you are making about
how different requirements and different structures can
potentially affect on the one hand stability and safety, and on
the other hand potentially liquidity. I think it is fair for us
to consider that as we go.
Mr. Posey. What kind of technical expertise is there on the
Treasury staff to address that?
Mr. Cordray. I think we have the same technical expertise
there that we have on all the other issues the FSOC is
considering, which is, there is FSOC staff itself in the Office
of Financial Research, and from the member agencies of FSOC.
There was a graph put up earlier from the GAO report, and
it was used at the time to suggest that certain agencies didn't
devote enough people to certain problems. But I thought it was
notable that when you look down the columns, the aggregate
numbers of people being devoted by the agencies to address
certain issues was ranged from in the 50s to in the 90s.
It is a considerable amount of support. This is very high
level of support. We are talking about some of the top
analysts, economists, statisticians, and researchers from all
of these member agencies, including Treasury and the Federal
Reserve. They are the same kind of people who work on all the
complicated, difficult financial issues in our economy such as
monetary policy, fiscal policy, international issues, and the
like.
Mr. Posey. So essentially, we are talking about the
Treasury staff?
Mr. Cordray. No. I think we are talking about staff from
all the member agencies. Depending on the issue, there may be
more or less staff from different parts: more banking agency
staff on a banking issue; more investment regulator staff on an
investment issue; and the like.
Mr. Posey. If compelling evidence is presented to the FSOC
that regulations are in fact contributing to the illiquidity of
the bond market and thereby creating potential systemic risk,
do you agree that FSOC's mandate from Congress requires it to
make recommendations designed to mitigate the risk, which could
include revisiting the wisdom of aspects of the post-crisis
regulatory response like the Volcker Rule and Basel III?
Mr. Cordray. You are asking me to speak only for myself.
This is not a consensus view of FSOC. But if that were shown to
be the case, if the evidence so demonstrated, I think that
would be fair game.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from North Carolina,
Mr. Pittenger.
Mr. Pittenger. Thank you, Mr. Chairman.
Director Cordray, the CFPB ombudsman recently released
their 2015 annual report to the Director. In the report it
reviewed the Consumer Complaint Database on page 28. The
recommendation was made to improve the process of how difficult
the complaints in the database can be identified, including a
recommendation that to remove the requirement, it must be
verbatim to be deemed duplicative.
Mr. Cordray, do you recognize the grave concern that this
is to these companies who are stigmatized through it? They are
regarded--this is regarded really as unfair attribution. Do you
see the impact this is having, and particularly that there is
not investigation to determine that these--to verify these
complaints before they go to the website?
What does the department plan to do and the Bureau plan to
do to correct this?
Mr. Cordray. We actually just had a completed report and
audit study done by our Inspector General of the Consumer
Complaint Database. It was just issued in September, so less
than 2 months ago. It indicated that there were a very small
number of errors in the system. And that was a report and study
and investigation that we followed very closely. There are
recommendations that--
Mr. Pittenger. Is that study available for review?
Mr. Cordray. Yes, I believe it is publicly available. It
has been issued. And the GAO has also looked at this over the
years and made a number of recommendations to us.
We are very mindful of those. We are very mindful of
recommendations that you and your colleagues may want to bring
to us as well. We do feel strongly that a public complaint
database is an important incentive for institutions to step up
their customer response--
Mr. Pittenger. But do you agree--
Mr. Cordray. --and I think they are learning a lot from--
Mr. Pittenger. --that they shouldn't have to be verbatim to
be deemed as being the same complaint? They don't have to be
verbatim.
Mr. Cordray. There are issues around the term ``verbatim.''
And I have been in discussions about that with our ombudsman,
been in discussions with that with other overseers, including
the Inspector General and the like. It is something our
consumer response group is looking at carefully to try to make
sure--
Mr. Pittenger. Okay . Thank you.
Mr. Cordray. --that they scrub that.
Mr. Pittenger. I appreciate that.
Mr. Cordray. So we will be happy to give you more
information as you--
Mr. Pittenger. Would each of you provide the committee with
any FSOC documents containing or relating to communications
between the Financial Stability Board and FSOC? And each body
members or staff concerning the designation non-bank financial
companies, are there systemically important financial
institutions or as global SIFIs? Is that acceptable to each of
you all?
Mr. Watt. I don't have any. So, I can tell you that now.
Ms. Matz. Nor do I.
Mr. Massad. I am not a member of the FSB. I have attended
one or two meetings. I would like to hear the question again,
but I don't believe I have anything.
Mr. Pittenger. Go ahead, Chair White.
Ms. White. I was going to say that I think there has been
some production of documents in that vein. But I would have to
check.
Mr. Pittenger. Isn't the basis here one of transparency? I
think we have recognized today the lack of adequate
transparency with the agencies. And we are looking to find ways
to rectify that.
Let's have a show of hands then, if you would, regarding
your belief that FSOC's deliberations should be more open to
the public scrutiny than in current practice. Would you all
agree to that, then? Do you believe that there should be more
openness?
Mr. Cordray. I think we have provided for more openness as
we have been amending and changing procedures as we go--
Mr. Pittenger. Do you think there is a basis to be more
open?
Mr. Cordray. I think we--
Mr. Pittenger. In light of what has been discussed today?
Let me tell you what I have in mind.
Clearly, we believe that transparency is vital in our
government. And I will be introducing a bill later on today
that will provide a greater measure of transparency. Here are
the two elements of this bill.
The first is to testify semiannually, each of you, before
the House Financial Services Committee and the Senate Banking
Committee. And you cannot decline the requirement. It would be
mandatory. Or permit all members of the Financial Services
Committee and the Senate Banking Committee to attend all FSOC
meetings, whether or not they are open to the public.
Would you agree that would be acceptable? Do you have any
problem with any of those?
Mr. Watt. If you can get it passed, we will comply with the
law. I will comply with whatever law you pass. But--
Mr. Pittenger. But do you think that is reasonable?
Mr. Watt. I don't think it is reasonable--
Mr. Pittenger. Chair White, do you think it is reasonable?
Ms. White. I certainly think we all should be responsive to
Congress, all of us, at any time we are asked, frankly, without
the necessity of a bill.
Mr. Pittenger. Would you say--testify semiannually, or
allow us to come to the hearings?
Ms. White. But I think in terms of the FSOC process, we
have to be very careful about what it is designed to do, and
the nature of the information it considers.
Mr. Pittenger. It is designed for openness and
transparency.
Ms. White. I think we should continue to look at openness
for sure.
Mr. Pittenger. That is what it is designed for. Thank you.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from New York, Mr.
Meeks.
Mr. Meeks. Thank you, Mr. Chairman.
Let me start with Mr. Gruenberg. The banking regulator just
concluded that total loss-absorbing capacity (TLAC) for global
systemically important banks would require banks to hold a
certain amount of capital, but also requires them to issue a
certain amount of unsecured debt that could be converted to
capital in case of the bank's failure.
However, some observers, including I believe your Vice
Chair, are concerned that the proposals call for banks to take
on more debt at a time that the Fed is getting ready to raise
interest rates. And he says that this is a risky and dangerous
proposition. Is his concern legitimate?
Mr. Gruenberg. I think the unsecured debt requirement is an
important component of efforts to make these systemic companies
able to fail in an orderly way without putting the taxpayer at
risk, Congressman. The experience is that when a financial
institution fails, all of its capital, all of its equity, is
wiped out.
The only thing that remains is the debt held by the firm,
which is then available on a closed-institution basis, after
the institution fails, to be converted to capital, so that the
private creditors of the failed company bear the losses for
managing the failure of the institution.
And as it turns out, most of the large financial companies
in the United States, most of our G-SIFIs, have substantial
amounts of unsecured debt.
The rule that the Federal Reserve has proposed would ensure
that they maintain a minimum amount. So if they get into
difficulty, they can fail, and it is the private creditors, and
not taxpayers, that are on the hook. And so for that reason, I
think the proposal has merit.
Mr. Meeks. Thank you. Let me jump to someone whom I am used
to seeing sit up here. It is still funny to see him sit down
there. That is the Honorable Mel Watt.
In recent weeks, the debate over what to do about the
mortgage giants, Fannie Mae and Freddie Mac, has shifted from
wholesale replacement to genuine reform, as replacing Fannie
and Freddie as the political environment seems more unlikely.
It seems like just replacing them is completely unlikely.
We all want more private capital in housing finance. But my
question is, do you believe there is enough private capital to
fulfill the role the GSEs play without raising mortgage rates
substantially? And what are the challenges and lessons you are
experiencing as you get more involved in the risk-sharing
mechanisms?
Mr. Watt. We have tried out a number of risk-sharing
mechanisms, trying to transfer as much of the risk to the
private sector as possible. We are concerned about the capacity
of the private sector to take on this risk, particularly in an
economic downturn, or a distress situation.
And if the entire system were converted to the private
sector, you would have that risk of not having a backstop
during a downturn, and you would have the risk of--I think--of
increased cost to a borrower, both of which I think would need
to be evaluated by Congress as they evaluate how to move
forward.
Mr. Meeks. Thank you. I have a few seconds left, but I have
one other question. I would have loved to have gone back. Let
me just quickly direct this question to Comptroller Curry.
Amid regulations and supervision, the good news is that we
are starting to see banks taking bolder steps to reduce risk
and exit out of certain risky activities. On the other hand, I
see that this raises concerns, because some of the activities
are just shifting to less-regulated shadow banking entities.
And banks are getting out of certain communities, and in
certain countries.
Are we denying services to millions of lower-income
Americans, not because the risk is too high, but simply because
the profit margins are not as high or are too low?
Mr. Curry. To my knowledge, there is no evidence of that,
Congressman. It is something that we would assess in the course
of our compliance examinations for the Community Reinvestment
Act.
Chairman Hensarling. The Chair now recognizes the gentleman
from South Carolina, Mr. Mulvaney, for 5 minutes.
Mr. Mulvaney. I thank the chairman. And I thank the panel,
especially for sticking around. It means a lot to us that you
all don't put hard stops on us, and let us have some
flexibility, and do this throughout the day.
I also apologize for having to run in and out during the
day. We are evidently having serial motions to adjourn, Mr.
Watt. You can explain to me why your side is doing that later
on. It has to do with guns, I am told, believe it or not.
Anyway, not my--
Mr. Watt. I generally couldn't explain it when I was here,
so I certainly can't explain it now.
Mr. Mulvaney. I hear you. I want to go back to something
that Mr. Green said early on in the hearing today. He mentioned
the MetLife lawsuit, talked a little about the jurors, and said
those folks don't have to have any particular insurance
experience, do they? And of course, they don't. That is not the
way our legal system works.
Then he looked at you and asked you if you agreed with
that, and everybody sort of agreed the jurors don't need to
have that. But that is not really the standard for the members
of this group, right?
Does anybody really think that 12 good persons and true
could serve in this role, or is it a good idea to have--
everybody agrees we should have some expertise, right, in this?
That is why you are there, and that you couldn't do this
job if we just randomly picked you off the street. So I didn't
want people walking out of there thinking the standard for you
folks is the same as the standard for a juror.
And I want to go into something that I believe Ms. Matz
said to the chairman early on about the process you went
through in your decision-making regarding MetLife. You said you
were briefed extensively, which I want to talk about a little
bit. You said it was done by the FSOC staffers. Let's talk
about that. Was this to you individually? Was it to you and
your staff? Was it to you as a group? Tell me how you were
briefed on this, Ms. Matz?
Ms. Matz. I was briefed by my staff, who participate
actively with the FSOC staff, and the FSOC Deputies Council.
Then we were briefed extensively as a Council, and we also
received a great deal of briefing material.
Mr. Mulvaney. Okay. The final determination was made on
June 30th. Do you remember the first time you were briefed on
MetLife?
Ms. Matz. I don't.
Mr. Mulvaney. Was it days in advance, weeks, months?
Ms. Matz. Oh, no. It was longer. It had been in the works
for probably a year or more, more than a year. So no, we were
briefed on progress being made so I couldn't tell you when it
was. But the staff worked on that designation for quite a long
time.
Mr. Mulvaney. So the staff worked on it. I get that. We do
that here as well, as Mr. Watt would say. We rely on our staff.
How much time did you spend on it yourself?
Ms. Matz. I spent a long time because of the tremendous
amount of information both to get in briefings and reading
material. The basis was I believe 300 or some-odd pages.
Mr. Mulvaney. Did you block off time during the day for
reading those materials?
Ms. Matz. I brought them home. I read them at night and on
weekends.
Mr. Mulvaney. I do the same thing. Let me ask you this
then. The reason I am focusing on you is you mentioned it
during your opening statement. I think you also mentioned it to
Mr. Hultgren in response to some of his questions.
Given your extensive briefing on the material, and the
understanding that the statute requires you to look at 11
different factors, I want to go through them very, very
briefly.
For example, you mentioned in your opening testimony--or
response to the chairman--that one of the things that stood out
in your mind was the derivatives. But that was one of the
things that stood out in your mind as to the MetLife, in making
the MetLife decision, or voting for the designation. So tell
me, what it was about the derivatives that you thought was
important?
Ms. Matz. We just can't discuss that right now, because it
is in litigation. We have public information on the FSOC
website, but we are not at liberty to discuss the details of
the deliberation.
Mr. Mulvaney. Okay, I will ask it this way, then. I
disagree with that, by the way. We get that a lot. Mr. Watt
didn't allow it when he was here, and I don't like it now that
I am here, because you can tell us stuff. But we will skip it
then. You made the same determination for Prudential, right?
Ms. Matz. Yes.
Mr. Mulvaney. And you voted to designate them. And they are
not in the lawsuit right now. So what was it--I take it you did
the same level of preparation in making your decisions for
Prudential that you did for MetLife?
Ms. Matz. Correct.
Mr. Mulvaney. So what was it about the derivatives decision
that Prudential had that made you inclined to vote for the
designation?
Ms. Matz. Well, it wasn't just one item. It was the
totality of--
Mr. Mulvaney. I get that. Tell me one thing about the
derivatives position?
Ms. Matz. The size of it. I can't remember off the top of
my head. It was a huge amount of derivatives and exposures--
Mr. Mulvaney. Huge in relation to what?
Ms. Matz. In relation to other institutions, how they were
exposed to other institutions, and exposed other institutions--
Mr. Mulvaney. No, that is not my question. Huge in relation
to what? The size of their assets? The size of the--
Ms. Matz. No, their exposure. It wasn't in relation to the
size of their assets. We view it in relation to their exposure
to the financial system of the United States.
Mr. Mulvaney. Within a billion dollars, what was the size
of their derivatives?
Ms. Matz. I don't recall.
Mr. Mulvaney. Thank you.
Mr. Messer [presiding]. The gentleman's time has expired.
The Chair now recognizes himself for 5 minutes for questions.
It is a fundamental American principle that in America we
follow the rule of law. And for the rule of law to be
meaningful, of course it has to be transparent.
It has to be written down. People have to have the ability
to understand the law and see whether they are complying with
it. But we want to talk about that principle in the context of
the FSOC's current approach and designated non-bank financial
institutions, particularly insurance companies, under that
designation.
Under the rule of law, folks first ought to understand why
they are being regulated, what are the standards we are
applying to determine whether you will be regulated, and then
how they will be regulated.
What are the standards you will be held accountable to if
you are designated a non-bank SIFI? Mr. Woodall, you have been
very patient today, I have to concede, for all this Kentucky
Phi Beta Kappa this is of course, a panel full of Phi Beta
Kappas and Ivy League decorated folks. I will admit something I
rarely admit in public, which is I am a Phi Beta Kappa.
But I will tell you, for this complex world of acronyms and
initials and regulatory structure and laws, I think, like most
Americans, we are just--it is all Greek to us and we are trying
to figure it out.
In the construct of the rule of law that I talked about,
Mr. Woodall, I have offered legislation that I think is really
a modest proposal. It is H.R. 3857. And here is what it does
very simply.
I will read it here to make sure I am getting it accurate.
The bill would simply prevent FSOC from designating any further
non-bank financial institutions for heightened Fed supervision
until 90 days after.
First, the Federal Reserve establishes prudential standards
for non-bank financial companies as required by Section 165(a)
and (b) of Dodd-Frank.
Second, the Federal Reserve promulgates regulations,
setting forth criteria for exempting certain types of classes
of U.S. non-bank financial companies or foreign non-bank
financial companies from supervision, as required by Section
170 of Dodd-Frank.
And third, the FSOC re-evaluates within calendar year 2016,
each previous SIFI designation and rescinds any such
designation if it determines that the non-bank financial
company no longer meets the standards for designation that have
been brought forward. I would just like to get your reaction.
Would that legislation prevent FSOC from doing its job?
Mr. Woodall. I was waiting to see what the question was
going to be. Would it prevent what now?
Mr. Messer. Would it prevent FSOC from doing its job?
Again, would that seem like a reasonable proposal? That the
companies that will be designated or the entities that are
designated, non-bank SIFIs, have some way of understanding why
it is they are designated that way and of course the, an off-
ramp that would allow them to determine their--
Mr. Woodall. That was your third point and it seems to me
that is what we are working for right now, is to try to get
more clarity in what that exit ramp is. I have just recently
submitted a list of 17 different options for the FSOC to
consider. It is now being considered by their deputies.
And it is ways to clarify that where it can be much more
clear to the company what it needs to do. As I have said
several times before, the company says to the regulator, tell
us what we are doing wrong and we will fix it.
Mr. Messer. Yes. Is there any way you can provide that list
of 17 options to the committee?
Mr. Woodall. Yes.
Mr. Messer. Thank you. I guess I will open it up to the
rest of the panel. Could someone give me the rationale for
designating non-bank entities as SIFIs before establishing any
public standard for doing so?
And question two, before establishing the criteria that
they will be held to?
Mr. Massad. I think, Congressman, the criteria by which we
designate were set forth in the statute. And they were further
spelled out as far as the procedures in our rules, which were
subject to notice--
Mr. Messer. So you are telling me you believe that the
entities that are being designated SIFIs understand the
standards by which they are being evaluated?
Mr. Massad. They are--
Mr. Messer. Every entity I talk to says they are not.
Mr. Massad. --publicly available, and I think we also
provide memoranda to the company prior to the designation.
Mr. Messer. Any others?
Thank you.
Seeing no one else in the queue and no further questions, I
thank the panel for their stamina and for their testimony
today.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
The hearing is now adjourned.
[Whereupon, at 2:26 p.m., the hearing was adjourned.]
A P P E N D I X
December 8, 2015
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