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HFSC Markup of FSOC and Muni LCR Bills

House Financial Services Committee

Markup

Tuesday, November 3, 2015

Key Topics & Takeaways

Bills Considered

  • H.R. 1309, the “Systemic Risk Designation Improvement Act of 2015”
  • H.R. 1478, the “Policyholder Protection Act of 2015”
  • H.R. 1550, the “Financial Stability Oversight Council Improvement Act of 2015”
  • H.R. 1660, the “Federal Savings Association Charter Flexibility Act of 2015”
  • H.R. 2209, to require the appropriate Federal banking agencies to treat certain municipal obligations as level 2A liquid assets, and for other purposes
  • H.R. 3340, the “Financial Stability Oversight Council Reform Act”
  • H.R. 3557, the “FSOC Transparency and Accountability Act”
  • H.R. 3738, the “Office of Financial Research Accountability Act of 2015”
  • H.R. 3868, the “Small Business Credit Availability Act”
  • H.R. 3857, to require the Board of Governors of the Federal Reserve System and the Financial Stability Oversight Council to carry out certain requirements under the Financial Stability Act of 2010 before making any new determination under section 113 of such Act, and for other purpose. 

H.R. 1309, the “Systemic Risk Designation Improvement Act of 2015″

Rep. Blaine Luetkemeyer (R-Mo.) said his bill would remove the “arbitrary approach” of a $50 billion asset threshold for enhanced regulation and replace it with analysis of actual risk factors related to interconnectedness and complexity. He stressed that the authority of the regulatory agencies to oversee institutions would not be impacted and that the only intent of the legislation is to allow for “enhanced and more appropriate oversight.” 

Ranking Member Maxine Waters (D-N.Y.) said many Democrats genuinely want to support community banks, but warned that this “Republican bill” would make it impossible for banking regulators to do their job by stripping away their authority and handing it to the Financial Stability Oversight Council, which other bills to be considered in the markup will then attempt to weaken. She criticized the bill for undermining financial regulations, and urged support for a substitute that would help community banks without “gutting” financial regulation and repealing an important part of Dodd-Frank. 

Chairman Jeb Hensarling (R-Texas) retorted that this “Republican bill,” as Waters called it, has a number of Democratic co-sponsors and that former Congressman Barney Frank (D-Mass.) himself has been critical of the $50 billion threshold as an arbitrary figure. 

Reps. Randy Neugebauer (R-Texas), Randy Hultgren (R-Ill.), Roger Williams (R-Texas), Steve Stivers (R-Ohio), Keith Rothfus (R-Pa.), Mia Love (R-Utah) and French Hill (R-Ark.) all spoke in support of the bill, generally criticizing the shortcomings of a $50 billion threshold and stressing that the legislation would not weaken the regulatory system, but rather add qualitative analysis. 

Rep. Brad Sherman (D-Calif.) spoke in support of the bill, arguing that it would support medium-sized banks facing intense regulatory regimes that were supposed to be reserved for the largest institutions. He stressed the importance of helping medium-sized banks compete with larger institutions and also mentioned his support of initiatives to break up systemic firms into many medium-sized ones. 

Rep. Al Green (D-Texas) noted that Glass-Steagall was repealed after many decades, and that it was likely a significant factor in the financial crisis. He then decried that an important part of the Dodd-Frank Act would be repealed after just six years. He warned against the legislation, commenting that he considers it to be a “Glass-Steagall moment.” 

Reps. Keith Ellison (D-Minn.), Ruben Hinojosa (D-Texas), Ed Perlmutter (D-Colo.). Bill Foster (D-Ill.) and Michael Capuano (D-Mass.) all criticized the bill for rolling back Dodd-Frank protections and spoke against the elimination of the $50 billion asset threshold. 

Maloney Amendment

Rep. Carolyn Maloney (D-N.Y.) offered an amendment that would maintain the $50 billion threshold, but require the Federal Reserve to tailor regulations for banks based on actual measures of systemic risk. Institutions would be sorted into buckets based on their systemic risk, she explained, and regulations would be tailored for each bucket. 

Luetkemeyer said that while he appreciated Maloney’s effort, her amendment risks further complicating the designation process. 

The amendment was rejected in a 21-33 vote. 

Final Vote

H.R. 1309 was approved by the Committee in a 39-16 vote 

H.R. 1550, the “Financial Stability Oversight Council Improvement Act of 2015″

Rep. Dennis Ross (R-Fla.) said his bill would codify reforms already adopted by the FSOC into law and ensure that companies’ primary regulators have a meaningful role in the designation process. He stated that the legislation would provide non-bank firms, such as asset managers, an opportunity to identify and eliminate risks before being designated, which would ensure that the FSOC can perform as Congress intended in mitigating financial risk. 

Rep. John Delaney added that the bill is focused on non-bank financial institutions and would change nothing with banks. He stressed that it expands the powers of the FSOC by giving it more options to encourage de-risking. 

Hensarling offered his support of the bill, stating that it is simply an attempt to “bring in some due process.” Rep. Luke Messer (R-Ind.) agreed that the bill brings about common sense reforms to the designation process and ensuring greater transparency. Rep. Bruce Poliquin (R-Maine) and Hill offered similar statements. 

Reps. Jim Himes (D-Conn.), John Carney (D-Del.) and Sherman also supported the bill for codifying existing practice and establishing a mechanism to allow firms to de-risk. Sherman said reducing risk in the system in this way is “better than increasing regulation.” 

Waters said she would oppose the bill because it could “bog the FSOC down in endless analysis and litigation.” She said she views it as another attempt by the industry to delay designation, and expressed concern about the strategy to “continually attack the FSOC in every conceivable way.” 

Hinojosa also criticized the bill, warning that it would not improve the regulatory structure of the FSOC, but rather make it ineffective by adding more bureaucracy and further burdening it. 

Rep. Michael Capuano (D-Mass.) said that while agrees with the need for transparency and with a mechanism to allow de-risking, he could not support the bill because it would leave taxpayers at risk during the period of de-risking because firms would be given two years to address systemic risks already identified by the FSOC. He stated his willingness to support a bill that would satisfy his concerns. Reps. Maloney and Gwen Moore (D-Wis.) agreed with Capuano’s concern, and Moore added that she also is worried about an “endless process” of designation as noted by Waters previously. 

Final Vote

H.R. 1550 was approved by the Committee in a 44-12 vote. 

H.R. 1478, the “Policyholder Protection Act of 2015″

Rep. Bill Posey (R-Fla.) immediately offered an amendment in the nature of a substitute and said his revised bill would protect the customers of insurance companies and ensure that claims will continue to be paid by walling off insurance companies organized under thrift holding companies from being held financially responsible for an affiliated bank’s failure or financial stress. 

Amendment

Posey’s amendment in the nature of a substitute was accepted in a voice vote. 

Final Vote

H.R. 1478 was approved by the Committee in a 57-0 vote. 

H.R. 1660, the “Federal Savings Association Charter Flexibility Act of 2015″

Rep. Keith Rothfus (R-Pa.) highlighted that H.R. 1660 would amend the Home Owners’ Loan Act to allow federal savings associations to operate with the rights and duties of a national bank. 

Final Vote

H.R. 1660 was approved by the Committee in a voice vote. 

H.R. 2209, to require the appropriate Federal banking agencies to treat certain municipal obligations as level 2A liquid assets, and for other purposes

Rep. Luke Messer (R-Ind.) said that his bill would ensure U.S. municipal bonds would be categorized as level 2A liquid assets under the Liquidity Coverage Ratio (LCR) put forth by the Federal Reserve, Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC).  Messer argued that it did not make sense to exclude municipal bonds from the LCR, because they are “among the safest in the world.” This bill, he explained, would direct the Federal banking regulators to “treat a 2A asset as a 2A asset.” 

Rep. Maloney (D-NY) stated that she “strongly, strongly supports this bill” which she said would “level the playing field” for municipal bonds that are “just as liquid as corporate bonds.”  Maloney further clarified that this bill “does not undermine safety and soundness.”  Reps. Poliquin and Hultgren also offered their support for the bill.  

Final Vote

H.R. 2209 was approved by the Committee in a 56-1 vote. 

H.R. 3340, the “Financial Stability Oversight Council Reform Act”

Rep. Tom Emmer (R-Minn.) explained that his bill would improve the operation and performance of the FSOC and Office of Financial Research (OFR) by increasing transparency, accountability and Congressional oversight over their actions.  Emmer asserted that the bill would make a “minor and simple change” to the Dodd-Frank Act to bring FSOC and the OFR under the Congressional appropriations process.  He also foreshadowed that he would offer a manager’s amendment – to exempt the OFR’s annual and quarterly reports from the public notification and comment requirements – in order to address concerns conveyed by the Ranking Member. 

Waters said Emmer’s bill is one of several that is intended to “undermine and undercut” Dodd-Frank, and stated that it “borders on the absurd.” She expressed concern with a provision requiring cost-benefit analysis that would “completely corrupt” the OFR’s findings.

 

Reps. Tipton, Luetkemeyer, Barr, Williams, and Hensarling offered their support for the bill.  Many Republican members supported the provisions that bring FSOC and the OFR’s budget under the Congressional appropriations process in order to improve accountability of the executive agencies.  In contrast, Rep. Perlmutter argued that the Republicans’ comments on this bill are “contradictory” compared to earlier views they have shared.  

Amendment

Rep. Emmer proposed a manager’s amendment, which was intended to address the concerns of Waters by exempting certain reports of OFR from public notice and comment requirements.  

Emmer’s amendment was adopted in a voice vote. 

Final Vote

H.R. 3340 was approved by the Committee in a 33-24 vote. 

H.R. 3557, the “FSOCTransparency and Accountability Act”

Rep. Scott Garrett (R-N.J.) explained that the bill would address the “shadow regulatory system,” by which regulators operate without any oversight or transparency.  Garrett maintained that the transparency measures adopted by FSOC are no more than “window dressing.”  As a result, Garrett sponsored this bill to require that any vote made by FSOC members must represent the majority view of that agency, to ensure that different views are heard in the regulatory process. Garrett further added that his bill would subject FSOC to “good government” requirements such as the Sunshine Act and the Federal Advisory Committee Act, which, he claimed, would “bring FSOC out of the darkness and into the light.” 

Reps. Hurt, Hensarling, Tipton offered their support for the bill to bring transparency and accountability to FSOC. 

In contrast, Rep. Emmanuel Cleaver (D-Mo.) voiced concerns about the bill, arguing that it would “dramatically politicize” membership on the agencies, “gum up” the FSOC decision making process, and “open the door for Wall Street to be in charge.” 

Perlmutter offered his views on the virtues of the Dodd-Frank Act to restoring confidence in the economy, and Himes countered claims that the Dodd-Frank Act (or regulation in general) constitutes a material barrier to economic growth.  

Final Vote

H.R. 3557 was approved by the Committee in a 33-24 vote. 

H.R. 3738, the “Office of Financial Research Accountability Act of 2015″

Rep. Royce explained that the bill will require the OFR to submit for public notice and comment an annual work plan, require them to coordinate with financial regulators and agencies, and implement a cybersecurity plan. Royce maintained that his bill would make “public transparency the norm” by adding it to the OFR’s core mission. 

Rep. Hill offered his support for the bill, noting in particular that the introduction of required public notice and comment periods would ensure the OFR did not produce “shoddy work” and that the data protection and cybersecurity requirements would alleviate concerns about the data collected and stored by the agency. 

Final Vote

H.R. 3738 was approved by the Committee in a 35-22 vote. 

H.R. 3868, the “Small Business Credit Availability Act”

Rep. Mulvaney held that his bipartisan bill would enable business development companies (BDCs) to lend money to small and medium-sized enterprises that need access to capital.  Mulvaney explained that the bill would expand the leverage ratio for BDCs slightly to 2:1, allow them to invest a certain portion of their assets in financial institutions, and increase protections for retail investors.   

Waters supported the bill, despite the fact that it is “not the bill [she] would have offered.” She noted that it is a “sincere effort” to support small businesses and has required compromise on key provisions.  

Amendment

Himes offered and withdrew an amendment to strike the section that would allow BDCs to invest 20 percent of their assets in financial companies “in an effort to reduce overall leverage.”  Himes offered to work with Mulvaney to address concerns and increase protections for retail investors.  Mulvaney noted Himes’s concerns but assured him that many of his concerns have been addressed in the bill already.  

Amendment 2

Rep. Nydia Velazquez (D-N.Y.) explained that her “common sense” amendment would preserve the SEC’s authority to draft rules to address potential conflicts of interest between BDCs and investment advisors.  

Reps. Mulvaney and Moore offered their support for Velazquez’s amendment. 

Velazquez’s amendment was adopted by voice vote. 

Waters noted the bill’s potential overlap with the Volcker Rule and requested clarification on whether anything in this bill would prevent banking regulators from amending the Volcker Rule, should they wish to do so. Mulvaney affirmed that nothing in the bill would change Rule 619 of the Dodd-Frank Act or the Volcker Rule. 

Amendment 3

Moore expressed her concern about some of the businesses that might benefit from this bill such as debt collection agencies and payday lenders. Waters agreed with Rep. Moore’s concerns and invited her to work with them to address that issue.  Moore offered and withdrew her amendment. 

Final Vote

H.R. 3868 was approved by the Committee in a 53-4 vote. 

H.R. 3857, to require the Board of Governors of the Federal Reserve System and the Financial Stability Oversight Council to carry out certain requirements under the Financial Stability Act of 2010 before making any new determination under section 113 of such Act, and for other purpose.

Messer noted that he has “heard time and time again” that the FSOC’s SIFI designation process is “flawed and lacks transparency.”  He explained that his bill “simply requires regulators to follow the law” by postponing further non-bank SIFI designations until the FSOC and Fed have established what further regulatory standards would apply to those designated.    

Hensarling called for all of the “zealous supporters of Dodd-Frank” to support this bill.  

In contrast, Waters asserted that this bill would “severely obstruct” and delay the FSOC’s ability to designate another non-bank financial company as a SIFI and urged her colleagues to oppose this bill.  

Ross and Neugebauer offered their strong support for the bill. 

Waters submitted three letters from industry groups including Better Markets to be submitted for the record. 

Final Vote

H.R. 3857 was approved by the Committee in a 33-24 vote. 

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