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House Committee on Financial Services: Full Committee Markup

House Committee on Financial Services
Full Committee Markup
Thursday, February 29, 2024

Topline

  • The House Financial Services Committee marked up and reported four bills and one resolution.
  • H.J. Res. 109, a resolution of congressional disapproval under the CRA against the SEC’s SAB 121, was the most contentious proposal considered, and advanced by a vote of 31 to 20.

Legislation

  • H.R. 6864, the “HUD Accountability Act of 2023.”
    • An amendment in the nature of a substitute, offered by Mr. Lawler.
  • H.R. 7280, the “HUD Transparency Act of 2024.”
    • An amendment in the nature of a substitute, offered by Ms. De La Cruz.
  • H.R. 7156, the “Combating Money Laundering in Cyber Crime Act of 2024.”
    • An amendment in the nature of a substitute, offered by Mr. Fitzgerald.
  • H.J.Res. 109, Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Securities and Exchange Commission relating to “Staff Accounting Bulletin No. 121.”
  • H.R. 7462, the “Wildfire Insurance Coverage Study Act of 2023.”

Opening Statements

Financial Services Committee Chair Patrick McHenry (R-N.C.)

In his opening statement, McHenry explained that the Financial Services Committee had to suddenly reduce the time for the markup due to a last-minute change in the legislative schedule. He noted the Committee would only be considering five bills, instead of 12 as originally planned. McHenry discussed his intent to advance a bipartisan piece of legislation to strike down the SEC’s Staff Accounting Bulletin (SAB) 121 to ensure that digital assets can be procured through secure avenues. He also discussed his support for Rep. Mike Lawler’s (R-N.Y.) bill to require the HUD Secretary to testify yearly before Congress. McHenry noted the Committee planned to consider the Combatting Money Laundering in Cyber Crime Act to ensure the Secret Service has the tools it needs to go after money laundering involving digital assets.

Financial Services Committee Ranking Member Maxine Waters (D-Calif.)

In her opening statement, Waters explained why her bill, the Wildfire and Insurance Coverage Act, is urgently needed. She warned that entire communities are being destroyed by wildfires caused by climate change. Waters also urged Congress to think about protecting small businesses, particularly in the face of a government shutdown brought on by Republicans. She discussed the consideration of a resolution that would gut the SEC’s SAB 121, which she said would increase confusion for the crypto industry. Waters expressed her deep disappointment that while millions face homelessness, the only solution the Republicans have in the housing space is to require the HUD Secretary to testify before Congress rather than actual legislation to help the American public. She concluded by calling on the Committee to consider the Housing Crisis Response Act and the Down Payment Toward Equity Act to spur investment in fair and affordable housing.

Consideration of Legislation

H.J. Res. 109, Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Securities and Exchange Commission relating to “Staff Accounting Bulletin No. 121.”

Rep. Mike Flood (R-Nebr.) explained how H.J. Res. 109 would strike down the SEC’s SAB 121. He noted that SAB 121 directs covered entities that custody digital assets to do so on balance sheet, which precludes banks from taking custody of digital assets altogether due to how on-balance sheet treatment would affect their other regulatory obligations. Flood blasted SAB 121 for barring banks from the business they understand best, custody of assets. He noted that there are only four custodians for Bitcoin ETFs, and none of them are banks. He also criticized the lack of coordination with prudential regulators in the creation of SAB 121. Flood concluded that the GAO determined that SAB 121 meets the definition of a rule that instructs regulated entities how to take custody of assets.

Waters noted that the crypto industry has long complained about the lack of clarity on crypto regulations and argued that SAB 121 offers clarity. She explained that the SEC’s guidance is designed to prevent the mishandling of digital assets by custodians, an issue that was at the core of the collapse of FTX.  Waters explained how using the Congressional Review Act to strike down SAB 121 would have a chilling effect on the SEC’s ability to issue substantial bulletins and other non-binding guidance for public companies in the future. She concluded that H.J. Res. 109 would cause serious harm to the markets, and urged members to vote no.

Rep. Tom Emmer (R-Minn.) described SAB 121 as one more data point in Chairman Gensler’s prejudice against digital assets. He alleged that the SEC issued this illegal rule to lock banks out of digital assets.

Emmer noted that not one single bank provides custodial services for any of the 11 Bitcoin ETFs, forcing customers to rely on riskier financial outlets. He explained that while the SEC’s statutory mission is to protect investors and facilitate capital formation, Chair Gensler is not doing either through SAB 121.

Rep. Wiley Nickel (D-N.C.) said SAB 121 makes the digital asset industry less safe for consumers by preventing banks from taking custody of digital assets. He explained that we should want the most heavily regulated institutions, who also happen to be experts at custodianship, to be involved in digital assets. Nickel noted that eight of the 11 Bitcoin exchange-traded products (ETPs) are held by the same custodian, posing a concentration risk to the financial system. He discussed how SAB 121’s overly broad definition of digital assets discriminates against any sort of financial transaction that occurs on a blockchain. Nickel asked members to support this resolution to protect investors and restore the role of Congress in rule making procedures.

Rep. Andy Barr (R-Ky.) described SAB 121 as upending decades of precedent on traditional custodial practices. He noted that Federal Reserve Chair Jerome Powell said that SAB 121 moves away from traditional custodial practices. He then said that in theory under SAB 121, a bank could take custody of a digital asset, but it would be totally impractical. Barr said SAB 121 and the onerous Basel III endgame proposal will cause havoc in the digital asset market. He noted that the SEC did not consult any prudential regulators before issuing SAB 121, a practice that has become quite common for Chair Gensler. Barr emphasized the need to ensure that the proper regulators are being consulted on issues so that the cumulative effects of rules are understood. He concluded by urging his colleagues to vote yes on the resolution.

Rep. Brad Sherman (D-Calif.) explained that while SAB 121 may not be perfect, if H.J. Res. 109 passes, the SEC would be prevented from passing any regulation in the digital asset space. He explained that one cannot argue that any custodian should not have to demonstrate digital assets on a balance sheet, due to the fraud in the crypto space. Sherman noted that SAB 121 impacts only the financial statements that go directly to the investors, and bank regulators are free to regard this as a footnote disclosure rather than a balance sheet item that would affect capital requirement ratios. He described crypto as nothing more than an electronic pet rock and said the crypto industry wants a secret currency that prevents our laws from being enforced. Sherman emphasized that the goal of the cryptocurrency industry is to dislodge the dollar as the world’s reserve currency.

Rep. Young Kim (R-Calif.) said H.J. Res. 109 will allow banks to be on a level playing field when it comes to custody of digital assets. She explained that by voting in favor of this resolution, Congress will incentivize competition for custody of digital assets.

Rep. Bill Foster (D-Ill.) explained that as we start to contemplate holding billions in digital assets within banks, we must consider the risk that down the line, a state or non-state actor could develop an advanced quantum computer that will be able to steal all digital assets in circulation. He warned that a CRA would prevent any future action in this rapidly evolving space.

Rep. French Hill (R-Ark.) cited SEC Commissioner Hester Peirce, who warned that the Commission should not issue the SAB. Hill explained that SAB 121 is essentially a rule, because it can compel behavioral change and will impact the future of this space. He noted that prudential regulators already have the rules necessary to govern and mitigate the risks posed by digital asset custody. Hill concluded that this is not the place to put any remedial actions on digital assets and criticized Chairman Gensler for failing to coordinate policy with other regulators.

McHenry said the SEC’s actions would make the digital asset market riskier by keeping it out of the hands of prudential regulators. He encouraged his colleagues to vote yes on the resolution.

H.J. Res 109 was ordered to be reported favorably the House. (31 ayes, 20 nays).

H.R. 6864, the HUD Accountability Act of 2023

Rep. Mike Lawler (R-N.Y.) noted that affordability remains a persistent challenge and agreed with Waters’ opening remarks that housing policy is of major concern to our nation. He warned that mortgage rates are at their highest since the new millennium and discussed commercial real estate’s 52% drop-off in Q2 of 2023 due to higher interest rates and delinquent payments. Lawler called for greater oversight from HUD asked members to vote in favor of his legislation, the HUD Accountability Act. He concluded that his bill would ensure that the Secretary is overseeing the health of the mortgage market, testifying regularly before Congress, and monitoring any other relevant activities of the market.

Waters emphasized that the country has an affordable housing crisis and noted the Committee already received testimony on how to resolve the issue. She criticized the Committee for only considering one housing bill, to require testimony from the HUD Secretary, which the Chairman can already compel.

She blasted the Republican’s oversight plan for failing to mention housing and urged the Committee to consider the Housing Crisis Response Act. Waters noted that no one disagrees with Lawler’s bill in principle but criticized Republicans for failing to understand the gravity of the housing crisis in America.

Rep. Warren Davidson (R-Ohio) commended Lawler for introducing the bill and noted that Secretary Fudge described the bill as a reasonable idea. He also discussed how the burden of housing mandates continues to harm families. Rep. Bill Huizenga (R-Mich.) also emphasized his support for Lawler’s efforts.

Rep. Nydia Velazquez (D-N.Y.) explained that it is misguided to hold the HUD Secretary accountable for the mistakes made by NYCHA. She discussed how failures to invest in public housing have prevented millions of New Yorkers from obtaining affordable housing. Velazquez told Republicans they can’t starve an agency of resources and then punish it when it doesn’t work properly.

Waters said housing must be a priority for the committee and said she would introduce an amendment to require the HUD Secretary’s testimony to demonstrate progress on the housing crisis. Lawler said he would support her amendment.

McHenry asked Waters if she would support the underlying bill if her amendment was included. Waters replied that she would. McHenry then encouraged support for the bill.

Rep. Josh Gottheimer (D-N.J.) described the bill as a win for accountability and transparency, and said he was glad to support it. Gottheimer said he would sponsor an amendment to require the HUD Secretary’s testimony include an update on the impact the SALT cap has on homeownership in states like New Jersey. Lawler said he supported Gottheimer’s amendment. Davidson said that Gottheimer’s amendment was not needed.

Gottheimer’s amendment was adopted by voice vote.

H.R. 6864, as amended, was reported favorably to the House. (50 ayes, 0 nays).

H.R. 7280, the HUD Transparency Act of 2024

Rep. Monica De La Cruz (R-Texas) explained that her bipartisan legislation would require the Inspector General of HUD to testify before Congress annually. She discussed the importance of maintaining formal oversight capabilities of HUD’s activities and said her legislation would support the mission of the HUD Inspector General to root out waste, fraud, and abuse at HUD. De La Cruz emphasized that the importance of HUD’s programs is not in question, noting they are critical to Hispanic and working-class communities.

Rep. Emanuel Cleaver (D-Mo.) said he would offer an amendment to ensure that the HUD Inspector General testifies about the resources available to HUD to carry out their mission. He noted there is already an annual report available to the public from the HUD Inspector General and emphasized that several HUD OIG findings are attributable to the lack of funding for HUD. Cleaver noted that the American Rescue Plan already made $50 billion in housing investments and lifted more people out of poverty than any other time in the last 50 years.

De La Cruz said she would not support Cleaver’s amendment. Waters said Cleaver’s amendment would address whether HUD and its programs are adequately resourced to carry out their mission. Waters noted that when the HUD IG testified before Congress last year, he exposed that many issues are a direct result of divestment in HUD. Waters also criticized Republicans for attempting to blame the lack of utilization for affordable housing waivers on the Biden Administration, while the issue started under Donald Trump.

McHenry said Cleaver’s amendment guts the underlying bill and takes away the ability of the HUD IG to investigate and report on fraud. He urged his colleagues to vote no on the amendment and urged Cleaver to withdraw his amendment and write it as an additionality for the underlying bill.

Huizenga discussed his support for the bill, citing a growing pattern of agencies becoming more reluctant to come before Congress.

Waters criticized Republicans for seeking performative solutions to the housing crisis. She explained that De La Cruz’s bill would single out HUD for additional scrutiny in a way that is inappropriate. Waters noted that Committee Republicans have already failed to hold several statutorily required hearings with the Federal Reserve Chair and the Financial Stability and Oversight Council. She also noted that Committee Republicans can already compel the HUD Secretary to testify at any time. Waters concluded that the bill is an attempt to blame HUD for the failings of House Republicans to take action on affordable housing.

Rep. Sylvia Garcia (D-Texas) said she would introduce an amendment to require the HUD IG to testify on a regular basis and address the impact of providing an annual $25,000 housing subsidy to low-income families. She noted that Congress gets an annual per diem for their housing in DC and said families should get a similar allowance. Garcia said that just 1 in 4 households that qualify for HUD assistance receive their checks due to years of divestment. She warned homelessness would continue to grow until Congress takes action.

Davidson strongly opposed Garcia’s amendment, describing it as a down payment on a Universal Basic Income program. Waters supported Garcia’s amendment and criticized Republicans for trying to slash funding for the federal housing budget, which would push millions of Americans into homelessness. Garcia’s amendment was not adopted by voice vote.

Cleaver offered a new amendment, that made no additional changes to the underlying bill, but had the same purpose as his previous amendment. It was adopted by voice vote.

H.R. 7280 was reported favorably to the House (49 ayes, 2 nays).

H.R. 7156, the Combating Money Laundering in Cyber Crime Act of 2024

Rep. Scott Fitzgerald (R-Wisc.) explained that the US Secret Service investigates cybercrimes involving digital assets in organizations that are not considered financial institutions. He said H.R. 7156 would harmonize federal banking statutes and expand the sunset requirement to five years for reporting language for law enforcement working with financial institutions. He urged his colleagues to support the bipartisan legislation.

Rep. Gregory Meeks (D-N.Y.) emphasized his strong support for the bill, explaining that it would empower the U.S. to respond to threats from Russia and North Korea by bringing digital assets in line with other fungible assets when it comes to cybercrimes.

Rep. Zach Nunn (R-Iowa) also discussed his support for the bill, noting that cybercrimes in the United States cost $11 trillion. He explained how the bill significantly strengthens the ability of the Secret Service to investigate cybercrimes involving digital assets without harming innovation in the digital asset space.

Waters agreed that the Secret Service must have authority over transnational cybercrimes.

H.R. 7156, as amended, was reported favorably to the House (49 ayes, 0 nays)

H.R. 7462, the Wildfire Insurance Coverage Study Act of 2023

Waters discussed how her bill would require the GAO to study the impacts of wildfires on communities and how the insurance industry is responding to the threat of wildfires. She cited yesterday’s wildfires in Texas and noted that insurers are halting coverage in regions impacted by changing weather patterns. Waters said insurance has nationwide implications for consumers and financial markets, which can make it more difficult for people to purchase homes. She concluded that her legislation would respond to market failure.

McHenry discussed the devastating impact of wildfires and noted that the bill is not about climate change but seeks to study the real impacts of wildfires on the housing market. He thanked Waters for her work on the legislation.

Rep. Al Green (D-Texas) said wildfires are part of the consequences of ignoring climate change and warned of the devastating impacts of failing to address these issues.

Garcia discussed the need to ensure insurance companies are not declining coverage for those impacted by climate change. Rep. Joyce Beatty (D-Ohio) noted her support for the bill.

Kim also noted her support for the bill, and discussed California Prop 103, which she said essentially forced insurers to stop writing homeowners insurance policies in her home state. She explained that fewer players in the insurance market decreases competition and forces people to purchase state homeowner insurance policies, which are unaffordable. Kim warned that Californians are leaving the state in record numbers and called on the California state government to enact reforms to the housing insurance market through market driven practices.

H.R. 7462 was reported favorably to the House (47-2).

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