Transcripts For CSPAN3 Hearing On Financial Stability Oversight Council Operations 20151208

Live coverage starting shortly right here on cspan3. And we will let you know later at 1 00 eastern time, live coverage of remarks by the new secretary of the smithsonian institution. He will talk about his plans for the smithsonian museums at the National Press club. Watch that here live on cspan3. Tonight at 6 30, the World Affairs council will hear from pakistans ambassador to the United States on relations between the u. S. And pakistan, security and its defenses, live at 6 30 here on cspan3. While were waiting for the Financial Stability for this hearing on Financial Stability to begin, we will let you know on capitol hill also the houseworking on the visa waiver bill. Getting under way on cspan. The senate starting its day voting at 11 30 to advance a replacement for the no child left behind law. Live this morning here on cspan3, the House Financial Services Committee Hearing from some members of the Financial Stability Oversight Council, that was a council created in 2010 because of the doddfrank law. We will hear from the securities and Exchange Commission chair Mary Jo White and also the director of the Consumer Financial protection board, Richard Cordray. The chair is authorized to declare a recess of the committee at any time. This hearing is entitled oversight of the Financial Stability Oversight Council. Today we have eight of the ten voting members as witnesses today. Secretary lou has testified according to statute earlier in the year and chair yellen has regrettably declined to give testimony today. I recognize myself for three 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 effort than in the doddfrank act whose members, save two, sit before us today. Its one of the most powerful federal entities to exist. Unfortunately, also one of the legal transparent and least accountable as well. First the councils power is concentrated in the hands of one mril cal party, the one that controls the white house. All but one member is the head of an agency but interestingly the agencies are not members thus denying bipartisan representation. The structure clearly injects partisan politics into the regulatory process. It erodes Agency Independence and harms accountability. The budget is not suggest to congressional approval removing another check and balance to its immense power. It has earned bipartisan condemnation for lack of transparency. Twothirds of the proceedings are conducted in private. Minutes are devote of any useful substantive information on what was discussed. The ceo of the better market said, quote, the proceedings make the poll it bureau look open by comparison. At the few open meetings they have, they snap their fingers and its over. They are all scripted. They treat their information as if it were state secrets, unquote. Of all the councils activities none generates more controversy than designation of nonbank instituti institutions. Designation anoints institutions is too big to fail meaning todays designations are tomorrows taxpayer funded bailouts. Designation ominously grants the Federal Reserve near defactor Management Authority over such institutions, thus allowing hung swaths of of the economy to be controlled by the federal government. Members of the council can raise the prospect of a designation and eliminate entrepreneurial risk taking, innovation and growth from our economy. As a result, americans may find themselves pay are nothing to ensure their homes and families. Investors who relied on mutual funds to save for their childrens education or retirement wim find they have earned less. They are charged with identifying emerging threats to our Financial Stability but refuses to look in the mirror. In its latest report, it omits any references to specific Government Policies or agencies as helping caused the Systemic Risk it identifies. Greater risk taking across the Financial System is encouraged by low yield environment the council reports. Yet they refuse to identify the feds loose monetary policy. They never acknowledge that doddfranks rule has reduced lily quiddity. It fails to mention that doddfrank amplifies the threat by empow iring the council to designate certain firms as too big to fail. It tip phis not only the regulatory system but the unfair washington system that americans have come to fear and loath, powerful governmented aminute straighters, secretive government meetings, arbitrary rules and unchecked power to punish are reward. Oversight is paramount. The chair now recognizes the gentleman from new jersey, the chairman of our Capital Markets committee, mr. Garrett. I thank all of our witnesses here today. I guess all of our witnesses you 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 to fundamentally change the u. S. Economy. I thought i would take this minute to introduce ourselves to you. Were the u. S. Congress. We were created by article one of the u. S. Constitution. Were the ones who are actually elected representatives of the american public. And were the ones who send you all those pesky letters that you all routinely ignore. I know you are probably confused by this setting that the public is here, that theres tv cameras here, so this is probably unusual for you. But this is what we do. Were open to the american public. We are transparent. 57bd we are before the american public. So if theres one thing that you take away today, and thats the way you run your hearings, and thats the way conduct yourselves, you need to become more like us, more transparent, more open to the american public, more showing what your agencies are doing and adopt these policies so you are no longer working behind closed doors and in secret. With that, i yield back. The chair now recognizes the Ranking Member for five minutes. Thank you, mr. Chairman. 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 which sense the passage of the doddfrank act has fulfilled its mandate to monitor and respond to the types of Systemic Risk 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 up 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 case of amnesia about this important mandate. Indeed, it was only seven short years ago that our economy lost nearly 16 trillion in household wealth, 13 trillion in Economic Growth and 9 million jobs. This was because our regulators were too often caught in silos not communicating with one another and not considering gaps between their agencies our 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 have poison pill riders, some opponents of doddfrank are focused on dismantling wall street reform by attacking core elements like the Consumer Financial protection bureau. These attempts to roll back dadfrank started the minute this reform was signed into law and make no mistake, these attempts continue today even as our economy has experienced aid remarkable rebound with six to nine 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. It has contributed to this growth and stability by convening the ten 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 Nonbank Financial Companies to consider whether simplifying their structures and breaking themselves up might provide better value to their shareholde shareholders. Im also encouraged that the Money Market Fund industry is now less susceptible to bank lack runs as a result of the pressure it 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. With this announcement in february, they 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 wall street. Thank you. I yield back the balance of my time. The chair now recognizes the gentleman from missouri, chairman of the housing and insurance subcommittee for one minute. Thank you, mr. Chairman. An secretive structure that does not reflect the reality of the u. S. Financial system can have consequences for businesses and the American People. This is particularly true of the banks that have been deemed purely on asset size. On the nonbank side its with the overenforcement. It should alarm all americans, judging by what we know of the staff hours spent on nonbank analysis, which we will get into in the question and answer period that i have, its clear to me that these deg iz nations and the lack of a clear path for dedesignation is a Federal Reserve driven effort to expand governments power and influence. Its time to force more transparency, to require pragmatic regulation and to curb the scene crippling our institutions and their customers. I yield back. The gentleman yields back. Today we welcome the testimony of the honorable Mary Jo White, chair of the securities and Exchange Commission. Timothy massid, chairman of the commodities futures trading commission, worry woodall, debbie matz, National Credit Union Administration and especially warm welcome to our former colleague mel watt, director of the federal Housing Finance agency, martin gro groomberg, Richard Cordray and last but not least, thomas curry, controller of the currency. Since all of our witnesses have previously testified before congress, i believe they need no further introduction. Without objection, your written statement will be made part of the record by agreement with the Ranking Member. Each of you will be recognized for three minutes to give an oral presentation of your testimony. Chair white, you are now recognized. Thank you. Thank you for inviting me to testify regarding the Financial Stability Oversight Council. As you know, the doddfrank act established the council to provide comprehensive monitoring of the stability of our nations 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 in my view 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 scc staff bring to the council is important in particular the secs Historical Mission of protecting investors, maintaining fair, ordinarily and efficient markets and facilitating Capital Formation necessarily gives the sec unique insight into many areas in which the council is focused, such as the potential Financial Stability risks of asset mgsment ak receiveties and products, the ongoing changes to Market Structure and the role of central counselter parties. It helps to ensure that relevant expertise is brought to bear on these important suggests. With respect to designations of any Nonbank Financial Companies as systemically important, i believe its important to be data driven and conduct 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. Chairman massid, you are now recognized. Thank you. I appreciate the invitation to testify today. The cftc overseed the u. S. Derivatives market. Although most americans do not participate, they are vital to our economy, affecting prices we pay for food, energy and other goods and services. For the markets to work well, regulation is essential. We learned that in 2 0e8 8 when a lack of oversight led to a buildup of excessive ris that can contributes to the worst global crisis. Today i would like to highlight a few of the cftcs priorities that are particularly relevant. First is the implementation for overthe counter swaps. A number of financial regulators have responsibilities in this area. It provides a useful way to communicate. Second area is making sure clearinghouses are strong and resilient. We are the primary supervisor of clearinghouses in the Derivatives Market, we Work Together with the Federal Reserve, fdic and sec on these important issues. It has taken many actions to strengthen clearinghouse resilience, but theres more work to do in this area. Another priority is strong resilient markets. Following the volatility in the treasury market last year, it was a forum to share information. Shortly after the events, staff provided a preliminary analysis of what happened in the futures markets to the council and subsequently we worked with other 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 agencys Top Priorities and one of the greatest risks to our Financial System. Here again, it is an Important Role in facilitating cooperation. Another area of focus for the cftc thats 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 to bring together 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. Mr. Woodall, you are now recognized. Thank you, mr. Chairman. Ranking member and members of the committee for inviting me to appear before you today. Mr. Chairman, you have asked we be suprecise in our testimony. In view of your request, i do not feel its 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 discuss falls into three broad categories. First, the background and legislative history of the independent member position in doddfrank. Second, the lack of explicit strat tore r statutory duties and authorities pertain together position other than just being a member of the council and the difficulties that has presented from being only, quote, three lines in the statute. The first line creates the position. The second one sets the sixyear term. And the third one sets salary. Thats all thats in doddfrank 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. Im happy to answer any questions. Chair woman matz, you are recognized for the testimony. Thank you, chairman hensarli hensarling. I appreciate the opportunity to discuss the Financial Stability Oversight Council. Congress established the council in response to the 2008 financial crisis. The crisis made clear that Financial Markets cannot quickly absorb the collapse of very large interconnected companies. Fsocs primary goal is to prevent financial crisis. The councils multiagency structure also ensures that a diverse array of views on 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 publically disseminating timely information about decisions while balancing the need to protect proprietary information and avoid unduly moving markets. Public feedback has helped fsoc clarify procedures, enhance analysis and improve Decision Making. As an fsoc principal, im 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 ten years, i lead an agency that now supervises an ensures 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 fsocs designation of an institution include the xoe sdigsz of the Balance Sheet, off balance street expore you are and interconnectedness with the Financial Services sector. Fsoc has moved in creating its process for identifying Nonbank Financial Companies. In response to Public Comments and congressional feedback, the council has invited Company Participation earlier in the process. Another important asset is its annual report. The 2015 report called for heightened Risk Management and supervisory attention in areas such as Cyber Security and reaching for yield. In conclusion, fsoc has promoted collaboration across financial regulators, established rules and procedures which reflect public input, identified suss stemically important i sti institutions and furned public aware of threats to our Financial System. The council must continue to evolve, provide transparency and remain flexible when considered new issues. I look forward to your questions. Director white, you are recognized. Chairman hensarling, 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 system. In addition, since 2008, fhfa has served as conservator of fannie mae and freddie mac. Fhfas housing Financial Market expertise contributes to fsocs 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 of our economy that our economy experienced resulted from business entities and others making unsafe and unsound housing and Housing Finance decisions. Through fhfas 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 Nonbank 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 its one all 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. Chairman, you are now recognized. Thank you for the opportunity to testify today on the work of the Financial Stability Oversight Council. Financial crisis that began in 2007, exposed a number of serious vulnerabilities in the u. S. Financial system. 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 doddfrank act to address this gap in the Regulatory Framework. Its key functions are to sill tate information sharing among the member agencies, to identify and respond to emerging risks to Financial Stability and to promote market discipline. The fsoc is responsible for designating nonbank systemically important Financial Institutions for heightened supervision by the Federal Reserve. We now have the benefit of five fsoc annual reports which outline the key Systemic Risks facing the Financial System and how they have evolved over time. The first report published in 2011 described a fragile Financial System recovering slowly from the deepest financial crisis since the depression. In contrast, most recent report describes a more stable but still recovering economy and broad based improvement in most Financial Markets and Market Participants. Areas of risk which the fsoc has been following closely in which are 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 doddfrank act authorizes the fsoc to designate a Nonbank Financial Company if the fsoc determines that material financial distress of the company of the nature, scope, size, scale, concentration 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 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 comment biz 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. Will be glad to respond to questions. Director, you are recognized. Thank you chairman hensarling, members of the committee. Im glad to work with you and my colleagues on council to strength our Financial System. As were all aware, a few years ago, disruptions in Housing Market proceeded a financial crisis that caused significant damage to our people and our economy. The ensuing recession caused millions of americans to lose their jobs, millions of families to lose their homes as the Ranking Member noted. Many saw their Retirement Savings did iminidiminished. Sufficiencies created shocks that offended 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 Consumer Protection bureau. The creation of the fsoc provides for the first time a means of comprehensively monitoring the stability of our nations Financial System. Prior to the crisis, the u. S. Financial Regulatory Framework focused 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 involved different types of Financial Firms operating in complex ways across multiple markets. The potential for supervisory and regulatory gaps were viewed as creating blind spots. After the crisis, congress recognized the need for a mechanism to bring financial regulatories together to monitor the situation. And coordinate the regulatory efforts to respond effectively to emerging threats to Financial Stability. One approach that congress specified to address the issues was to designate certain Financial Institutions and market utilities as systemically important to the Financial System. For the purposeof applying supervision. The fsoc includes consumer bureau, which is focused on protecting consumers in the Financial Marketplace. Products such as mortgages and credit cards are involves in some of the most important Financial Transactions in peoples lives. They are funded through complex markets and constitute the underlying assets for securities. As the crisis made clear, Financial Stability, market discipline and Consumer Protections are closely irn lly interrelated. Market of t part of the mission is to help ensure it is not repeated. Practices that led to the financial crisis. We are exercising the Authority Congress gave us to ensure balanced oversight and prevent harmful practices. When honest and innovative businesses can succeed on the merits, fair competition drives progress and it rests on stronger and sturdier foundations. I look forward to continuing to fulfill congresss vision for our agency and my role in the fsoc. Thats what were here today working together to do. Thank you again for the opportunity to testify. I look forward to your questions. You are now recognized for your testimony. 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 Worlds Largest Financial Institutions. They hold nearly 11 trillion in assets or just over twothirds of the industrys total. The occs 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 applicable laws and regulations. As the only federal financial regulator with prudential regulation as its primary noek us, the occ has special iced knowledge about the safe and sound operations of the banks. In 2010, as part of the doddfrank act, congress established the fosc 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 communica communicating, coordinating and responding to emerging market, industry and regulatory developments as well as to unforeseen events. As one of the fsocs ten 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,ly quiddity and operational risk. These are among the risks that the fsoc reviews in its evaluation of risks with resmekt to Nonbank Financial Companies and Financial Market utilities. Similarly, as many of the institutions we supervise are engaged in Asset Management ak receiveties, the occs expertise in this area is also quite robust. Since its establishment, the council has demonstrated a sustained commitment to working collaboratively to fulfill its store story mission. The Council Members and their staff have developed strong working relationships and the council provides a Constructive Forum to hold con did conversations, share market Sensitive Information and to 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. Dod doddfrank provides the fsoc with duties and responsible to promote the stability of the u. S. Financial system. The issues that the council confronts in carrying out the 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. The occ is strongly committed to helping the council achieve its mission. Thank you for the opportunity to appear today. I would be happy to answer any questions. The chair recognizes himself for five minutes for questions. By 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 miss white. Let the record reflect that. How many of you have had experience in regulating Insurance Companies by show of hands, please, raise your hand. Let the record reflect only mr. Woodall raised i had hand. As having insurance experience, you descended in the met life and prudential designation. You wrote, it confounds me that much of the council and staff continue to misunderstand the insurance Regulatory Framework. You went on to say that fsocs nal sis relies on implausible, contrived scenarios as well as fair yours to appreciate aspects of insurance and annuity products and importantly state insurance regulation and the framework of the Mccarron Ferguson ashct. Do you still stand by those comments . Yes, i do. If i could expound just a little bit the basis of all of that and put it in per spec stiff. 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 siffy. The first one is the only one thats been used so far. That is if theres a 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. Across sectors. We have a situation where if we have a company and it knows its doing an activity thats systemically risky, it can sell it and then essentially we have lost them. They are there, but the risk and the Systemic Risk could be in the system. What are the implications of designating a Traditional Insurance Company a siffy, since they are under state based rel lags, we will have a duplicate regulatory system . Do you believe those costs could be imposed upon policyholders and Insurance Company investors . In other words, whats the harm in designatiing an Insurance Company . It could come to higher prices because they have higher regulatory costs. Also, with a higher regulatory cost, the products have to be pri priced higher. It puts them in an unlevel Playing Field with the people and the companies that are not designated. Chair woman matz, prior to designating prudential, did you make inquiries, request, Economic Analysis on what this designation could mean to insurance policy hold sneakers was that part of your Decision Making process . Im sorry. No, it was. It was not. Do you believe it should have been . That was not the mandate that we had. The mandate is to determine if material distress at a nonFinancial Institution could cause could pose an emerging threat to the stability of the United States. Under section 113a2 of doddfrank, there are 11 different factors you are kto consider. With respect to the prudential decision, to what extent did the leverage of the company play a role in your decision to designate it . It was the combination. We were briefed extensively on the financial im sorry. Briefed by who . Briefed by the fsoc staff and the staff that works with them, that participates with them. So does the ncua staff have expertise in Insurance Company leverage . What was the specific leverage of prudential that caused you concern . The determination wasnt based on the insurance activities. It was based on the financial activities of the company and how they are interwoven with other specifically, which activities were those that were interwoven that concerned you . The extent of their leverage. The derivatives. I asked you about the leverage. Securities lending. Their debt position. The difficulty to resolve them if there was financial distress. It was not one factor. Chairs time has expired. The chair recognizes the Ranking Member for five minutes. Thank you very much, mr. Chairman. Let me first go to mr. Woodall. Is aig designated, mr. Woodall . Yes. Should it be . Well, 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 who had had some problems during the crisis. Some problems . Big problems. Big problems. Okay. So it should be a siffy . At that time. At this time . Its half the company it was then. At this time . Should it be a siffy . Let me just go on to mr. Gruenberg. In the doddfrank act congress recognized 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 to set forth the basic requirements for a bank to be well run, capital resolution, Risk Management, among other factors at the same time the dlibive process in congress let to an exemgs from the requirement. They were to provide the fed with the option to exempt several banks from certain requirements. Both in committee and through potential riders to funding bills, congress has now contemplating legislative proposals that would undue this work. These proposals would rely on the Financial Stability Oversight Council to affirmatively designate banks for enhanced prudential standards for all but the very Largest Global megabanks. 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 was the most costly for the fdics Deposit Insurance Fund . Hit the microphone, please. To answer the question question 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 related to capital and other standards and to respond to the first part of your question, i as a general matter, i think the framework in place is a reasonable one. It gives discretion to the agencies to taylor the standards to the size and complexity of the institution. I think thats an appropriate approach. Well, let me just ask you this so it can be reiterated. Has the Federal Reserve began this . Would you just kind of continue on that . Yes. I believe i wouldnt want to speak for the fed. But just to 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. All right. Can more be done in this regard without reopening doddfrank to potentially negative consequences . Yeah. I do think as we progress in this process that this is a focus for all of the agencies to ensure our regulations are appropriate to the size and complexity of the institution. So basically what you are telling us, theres been no resistance to fsoc, you know, taking a close look at what can be done and using its discretion to make sure that not only they honor doddfrank but they have the flexibility to make modifications where necessary . I agree with that, congresswoman. Thank you. I yield back. The chair now recognizes the gentleman from new jersey, mr. Garrett, chairman of our Capital Market subcommittee. Thanks. Ive been looking through the minutes if you can call them that of the fsoc published. One of the things i notice is to who actually shows up and who can attend fsoc meetings. People like the fed 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. Seems that theres a 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. Yet again, the commissioners of various agencies are not on those lists. Im going to take out of al greens methodology here and ask for a show of hands. All of you who are on the panel today who are part of a organization that has either a commission or a board, can you raise your hand so we know not everybody up there has a commission or a bard, right . For those who raised their hand, do you trust your commissioners or your Board Members as their ability to keep things con pi den shall . Do the members who raised their hand trust their Board Members . Maybe i should flip it the other way. Is there any member who does not trust their Board Members or commissioner snz they cant keep things secret . So. If thats the case, let me run chairman, if any of the member of your commission wanted to come to you and ask to attend an fsoc meeting, you trust them come to an fsoc meeting . Thank you for the question. I dont think thats the structure provided for in the law. Will you personally object to them being there . Well, i think it is important for the fsoc to follow the i dont know theres anything in the rules is there anything specifically in the requirements that say they cannot attend but other guests can attend . Id have to get back to you on that, congressman . You have allowed 20 other guests to be in september. I guess that was okay. Did you know whether they were allowed to be there or not . Let me go to chair white since he doesnt know on. Would you object if one of your commissioners wanted to attend an fsoc committee . I think the protocol is to pick one person, typically staff person to accompany them. Thats the structure. I understand what the structure is. I understand that the whole entire board has been precluding openness and transparency. What im trying to find out for all of you who just raised your hand saying you trust your board or commission with secrecy, is there anyone that would say that they cannot attend . Well, good. Then can i have a commitment of all those people who said they will not object that you will work to to allow your board and commissioners, please raise your hand if you will not encourage your commissioner to not attend the next board member. So let the record reflect two people. You will not recommend to the chairman that your commissioners be able to attend . I would follow let me just two there. You didnt raise your hand. Do you not trust your members . Are they not able to keep things secret . I want to be clear on that. I certainly do, congressman. Just a couple of points if i might. Sure. The fdic, as it happens, as a matter of statue, three are statutory members of fsoc. So the 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 the Information Available to the fsoc. You have no problem with dan true low. So it is something about your board that you dont trust them. No, sir. Why do you object to them being there . It is a matter for the entire fsoc. So in september there was some 20. There was not a matter of functionality. Im taking the perception here that either you dont trust your people or youre doing something in secret . So which is it, mr. Gruenberg . Neither, congressman. Then you havent given us an answer. Will you recommend to the chair, will the rest of the panel who raised their hand, will you represented that meetings be open to the rest of the commission . I will follow the congressional structure. There is nothing in the congressional structure. Thats already been pointed. I would discuss it with my fellow members of msoc, discuss it, as i have before. Discuss it. So will no one here make that positive recommendation . Let the chair reflect that no one who can has come before will make a recommendation. They want to continue to keep their meetings in secret. The time of the gentleman has expired. The chair recognizes the gentlelady from new york, ms. Velasquez. Thank you, mr. Chairman. Mr. Cordray, Consumer Protection may not seem link to Systemic Risk. However, i dont 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, how it is informed fsoc . Congresswoman, first of all, congress set the structure of the council and determined which agencies should be represented there. And its a broad crosssection of the federal financial regulators. In the case of the consumer pure in particular, its worthy of note that the financial crisis that gave rise to the council was caused. Everybody agrees. People disagree somewhat as to the chain of events that led to this. But a meltdown in the housing and Mortgage Markets that transmitted through various channels through the economy and threatened the stability of the Financial System, greatly threatened it. 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. And there were briefings on those of 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. And all of us on the council are charged by law examining the Economic System for emerging threats to Financial Stability, which we do the a annual report has been a very good and transparent and thorough account of the counsels 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 245 expertise with one another to try to arrive at a broader, more comprehensive view of the system than each of us could do alone. Thank you. We have heard from opponents from the process that there is in sufficient opportunity to engage with the council after designation. Do firms have opportunities to meet with fsoc staff to review their status . Yes, congresswoman. As you know, as a statutory matter, we are required to reevaluate a designation annually. Thank you. I yield back. The gentlelady yields back. The gentleman from texas, chairman of the Financial Institution subcommittee. Thank you, mr. Chairman. Chairwoman, there has been a lot of discussion about what it means for a bank to be systemically important. The office of Financial Research released a report where they examined the Systemic Risk indicators. They used the indicators that had been developed by the basil complete and applied them to the larger banks and holding companies. The report concluded that the least systemic usgsip 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 provincial standards based on their asset size. So are you familiar with that report . I have not seen that report. You have not seen that report . No. One of the requirements the main functions of ofr is to furnish the committee with information to hopefully help them make better determinations. So i would avail yourself of that report. Would you agree that setting up certain standards to measure companies is appropriate . I mean, if you havent seen the report, basically they took the basil standards, five of them, and applied them to the companies. Do you think thats a good way to approach that . 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 on very deliberate consideration. Director watt, have you seen the ofr report . I have not seen the report youre referring to. Section 113 of the doddfrank requires fsoc voting members to at least 11 factors before designating a nonback financial for federal supervision including leverage, scope size, scales. Chairman matz, do you think thats appropriate to use 11 different factors in the determination of whether a nonbank company is systemically important . Yes. Director watt, would you agree with that . Yes. Were not secondguessing the statute. We didnt write the statute. Well, actually i was involved in writing the statute. But im not in a position to secondguess it now. I voted for it. Well, i think the point im trying to make here is that it is a little puzzling to me that it is appropriate for nonbank entities to be subject to standards. And i think, in fact, director watts you said your testimony you are committed to an analytical process. We subject these to 11 different factors. Yet we only subject banks to one factor. That is size. So shouldnt we be if this is going to be an analytical process, shouldnt we establish factors for analyzing banks in a way of analyzing whether they are systemically risky or not . 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 is there was no supervision, they werent answering to anybody. Im not talking about nonbanks. I thought thats what this was designed specifically what this talks about. The question is, were subjecting banks based on their size. We dont even consider the other factors. Shouldnt we be considering a litany of factors from we determine whether these banks should be subject to enhanced standards . I think it would probably be more appropriate for mr. Curry and mr. Gruenberg to answer that. I dont regulate banks. But i would think that they take into account all of these considerations. But you do sit on fsoc, is that correct . Time for the gentleman expired. The gentleman from texas. Thank you, chairman 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 safety and soundness of the foreman system on their participation of the financial Oversight Council. As a Senior Member of this committee, i applaud the counsels progress to date, and i look forward to hearing from our panelists on the counsels priorities moving forward. Two particularly lessons come to mind today. First, it is absolutely essential to have a birdseye view of our Financial System in order to identify and prevent Systemic Risks from destabilizing the entire economy. In crafting the doddfrank act in congress recognized this and had an entity of our banking, Insurance Market and housing regulators with ensuring the system as a whole. Secondly, we should not just assume that the markets will 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 strength our system and the safeguards we incorporated after Lessons Learned from the last crisis rather than berating our regulators in an attempt to restrict their ability to act by tying them up in bureaucratic knots. The first question to Mary Jo White. Much criticized report from the office of Financial Research discussed the risk that the Asset Management industry posed to the United States Financial System, critics argued that the Asset Management industry poses absolutely no risk to our Financial System. However, havent counsels actions, including the publication of the report by the offer spurred sec to take action with respect to Money Market Funds . The answer is sec independently proceeded. Im aware obviously of the public recommendation of the fsoc. But it proceeded independently in the structure of Money Market Funds. Can you elaborate on what sec were spurred by the fsoc and how these actions were making our markets and investors safer . Well, again, i think the sec proeldedded independently of the fsoc recommendation. Certainly since i have been there as chair, proceeded totally independently. It was an important thing to do. To allude back to your first comment, though, it is very important that birdseye view, big picture view be provided by all the financial regulators that do sit on fscoc. Thank you. The currency, some if criticized doddfranks structure for allowing some of the agencies to have Voting Rights systemically designations made by the fsoc. Are you comfortable with with the deliberative materials received from the Council Staff and do these materials adequately prepare you to make informed decisions . Thank you, congressman. There is an extensive amount of material presented to me as a member of the fsoc in connection with any designation. There is a fairly elaborate process, three stages by which that information is developed. Stage one is for publicly available information or from contacts potentially with supervisors. Stage two, which engages gives notice to and engages a institution under con sipperation. The designation committee. And finally we have a process, stage three, where there is extensive communication and development of analysis and records for the counsels consideration. Thank you. Mr. Cordray, has the fsoc taken a look at aggregate depth levels from various areas of the economy . We have. And i believe we should. Do you think the current amount of debt in the aggregate poses a risk to our economy and why or why not . I think everyone could have their own personal point of view on that. I think this is certainly 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. So i do think that is an appropriate factor in looking at the kind of issues raised before the council. The time has expiredment the gentleman from new jersey, housing and insurance subcommittee. Thank you, mr. Chairman. We put up a chart, i dont know if everyone can see is it or not. The side, im not sure we can get there. I would like to follow up on the chairmans comments and questions with regard to nonbank designations. What im concerned about is feddriven 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 12 and 13 had two numbers that they dedicated or had done some analysis with regards to nonbank designations. And in 14 we have none. An expert on insurance analysis. No. You are not an expert. And we have no one designated to do analysis is. This information you cant read the fine print there. This analysis comes from data given by your agency to the gao, if im not mistaken, which is in this report right here. I dont think thats correct, though. Sorry, ms. Matz. Thats information you gave to the gao when requested. So my concern is the Federal Reserve has 25 people designated to make this analysis. You have zero. Thats not correct. Its correct. Its been stated. I dont know where they got that information from. They got it from you. It is not from me personally. It is written on the bottom of the sheet. It says each agency, the information came from each Member Agency and represents individuals involved in the analytical work. Its not correct. How many do you have them . We have two people. Two people. Are they experts in insurance . They are not experts in insurance. They are not experts in insurance. How can with we make an educated analysis is whenever youre making designations with regards to nonbank designations which involve Insurance Companies . How do you make that determination then . It is not the insurance part of the business that results in the designation. Its in the Financial Services part of the business. And how enter 2009ed it is. So the insurance part of the business is not important with regards to the designation of a sfi . No. Its not. It is the Financial Services part of the business. The Financial Services part of the business is the only part that you look at . Yes. Wow. Okay. Mr. Cordray, you sort of struck out across the board there as well. Are you an Insurance Expert, sir . I am not an Insurance Expert. Is this number incorrect as ms. Matz indicated hers was . Im not sure what analysis was used to get to that number. But the reality is each of us has deputies who Work Together on the fsoc on the analysis. Then i am briefed and have a chance to review the materials, extensive numbers submitted by companies you are saying this information is incorrect based on the information your agency gave gao . I am saying the slice on it here is not reflective of the full work done at the fsoc. Nonetheless, im not an Insurance Expert, but certain members are not investment experts or banking experts. It is all of us together. Mr. Cordray, this goes to the heart of the matter here. You are sitting on a board that makes a decision on the designation whether something is systemically important or not. If you dont have the personal expertise, you need to have someone on your staff were. Its not an independent vote youre casting. It is based on whether somebody on this board is telling you it should be done. Thats not the way the system should work. I dont think thats correct. There is fsoc staff. Staff of the member agencies contributed to worked together and our own analysis. Again, to focus only on the Insurance Company potential designations is only a partial picture. There are bank designations, other Financial Company designations, investor area designations. Everybody has relative expertise in some areas. Okay. Were not done. You have zero people across the board. Is that incorrect as well . I think your chart runs through july 2014. Thats right. I took office in june. Okay. Shortly after that i have my staff involved in the designation. So now you do have some people involved in this designation . A few of our staff. One, two, ten . Well, it depends on the issues. Were air smallsxmo agency. Were limited in our resources. No one is fully dedicated to these issues. Certainly i try to get people involved as necessary. One more quick comment before im out of time here. With regards to the sec, ms. White, your numbers are 0, 2, and now 12. In your testimony you indicate or you say that its important that it be data driven and conduct rigorous analysis throughout the process. How can you do rigorous analysis back in 13 when you made it approved with two people and now you have 12 . Was that a stumble back then and you realized you didnt have adequate staff . What was the problem back then . I can only speak to the time i was in there. You were there. I didnt participate in the designation. I would have is to drill down on those figures. It is not full time people dwighted to fsoc work streams but who we need in the particular areas are called upon to assist me. So the concern is still there, that we are not doing our job doing analysis. Time for the gentleman has expired. The chair recognized another Gentleman Center missouri, mr. Clay, Ranking Member of the Financial Institution subcommittee. Thank you, mr. Chairman. Thank all the witnesses for attending today. Some have criticized the fsoc designation process as being opaque. Gao also made several recommendations to the fsoc to improve its transparency. To your knowledge, how has the fsoc addressed the recommendation of the gao . Would you also describe how the fsoc changed its process with the february 2015 supplemental procedures announcement. And, i mean, anyone can volunteer on the panel. Theres so many to choose from. Ms. White maybe . I think it terms of the gao specific recommendations, i think those were responded to by the secretary of treasury as the chairman of fsoc not agreeing or disagreeing with the recommendations. I do think what ill call process and transparency change made by fsoc in 2015 address a number of those in terms of both transparency, clearer information to companies as to when they can interact, when they are being analyzed in stage two. There is a lot of back and forth before those changes. I think a number of changes are responsive to those recommendations. Can you yes, sir . Just to respond to your question, congressman, i think the focus of the february procedures was to try to enhance engagement of transparency for the stage two process so it provided notice to the firm that it did advance from stage one to stage two and an opportunity for the firm to engage with the fsoc staff. If 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, they would be notified of that and a set of procedures 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. Could i simply add, to me this exemplifies vigorous congressional oversight. The congress and this committee had comments on fsoc. We have hand listened to those. We have listened to the gao reports. It is a new body. Transparency is developing as we go. And i believe has been responsive to a lot of the concerns raised here. And what changes have you made to the annual and fiveyear designation review processes to ensure more Due Process Rights are available to companies . Mr. Gruenberg . I think the procedures made clear that 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 assurance of a hearing with the fsoc at least every five years. Generally, General Electric said it would share most of its assets operated out of g. E. Capital. G. E. Noted the company will work closely with regulators and staff of fsoc to take the action necessary to designate g. E. Capital as a systemically important Financial Institution. Further, g. E. Ceo noted, 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. There is an ongoing dialogue with the company as to what its plans are, what its structural changes are. That will continue at an annual review or sooner. A decision will be made once those plans have been actually executed. I see. Thank you very much. Mr. Chair, i yield back the balance of my time. The gentleman yields back. The chair recognizes the gentleman from michigan, mr. Huizinga, chair and trade subcommittee. Thank you, mr. Chairman. I apologize. I had to step out i had visiting constituents. I wanted to make sure i understood where my fellow subchair was headed. And i think were kind of on the same path and direction. I want to at some point get back to your written testimony, which i found very fascinating. 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. Let the record reflect that all believe that that is an important part. I would like to get a sense of what materials fsoc materials were reviewed. Are there memory done prepared by fsoc staff that you rely to to make your decisions. Who here is willing to share that . Raise your hands. Who is willing to share that with us . Nobody . Let me repeat the first question i guess. Can i make a comment . I think congress is entitled generally to whatever information it wants. I would want to simply check with staff to make sure we are abiding by our obligations to keep nonPublic Information confidential. Congress is entitled to get whatever information it wants. Maybe thats not even public meeting. Maybe thats a private meeting being able to share that. Mr. Gruenberg . Congressman, i think the analogy is one of our regulatory agencies considering action with regard to a particular institution. That is what fsoc is doing. Sure. So two points. One, dealing with confidential supervisory information which would probably be an applicable standard here in the fsoc. That is generally not shared. Although as we have at other instances, Congress Gets the information it requests. Sometimes that takes longer than the time frame. So you believe congress has the right to review the materials. I think congress has the right to request. Those are two very different things. I think if you accept the premise we are dealing with confidential supervisory if we can do that, whether there are certain things what i dont want are redacted sheets that look like theyre blacked out all the way. Im looking for a venue for us to review. Frankly, if you hear a lot of questioning on both sides of the aisle, we simply do not understand. Mr. Woodall . I think there is one confidential memorandum that has been made public. The confidential basis in the pet politan case. It is my understanding has been filed in the court and is a public record. Okay. I would just 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 would be supporter of that being a robust order. You sat on this side of the microphone. Sometimes that takes far too often to get responses. That is not a justification for an individual member of a collaborative body. I fully understand. But you all just raised your hand. Since you are the voting members, you all said weve got a right to this. So lets come up with a collaborative way of finding out how were going to do that. Real quickly, i was fascinated in your written testimony how you had been prevented from, quote, being in the room with International Insurance policymakers. A number of us did a trip to switzerland back about two 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 part of that process. So real quickly, if you could comment. International things you work. The consensus within team usa, you have three u. S. Equal representatives at the iais. And i said you had been supported by two of those for being in the room. Right. The third that is not supportive is . Its treasurely. Without that consensus is. They are taking the position and i want to be fair about this. They are taking position that the statute gives me no such authority. I have no duties or responsibilities designated in the statute. The time has expired. The chair now recognizes the gentlelady from new york, Ranking Member of Capital Market subcommittee. I thank the chairman and Ranking Member for calling this important hearing. This is the most people i have ever seen at that desk in any hearing or reviewed in the history at a hearing. Its its 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 doesnt 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 98 . What do you look at as precedent when you study these crises. I would like to start with chairman gruenberg and chair white, and curry and the panels thoughts on these two questions. Thank you. Thank you, congressman. I think the view was the impact 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 of the 2008 crisis experience. And i think we looked to the experience another crises in trying to make these assessments. But i think that was a threshold judgment. I agree with that analysis and its guidance and it would be analyzing in a period of stress which would only make sense given what your purpose was in terms of judging and trying to prevent significant negative impacts on the Financial System. In terms of what is looked to, not limited to how things operated in the 2008 period, but that is typically part of the other scenarios as well. Mr. Curry and then watt. 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 in the first place that it is in a period of stress. I also think there is some textureal support to take that approach. In terms of what we would look to for the range of historic experience i think the 2008 crisis certainly stands out in terms of its significance. I think what people never would have assumed is the underlying source of it or the spark, the housing crisis. And i think that would be our approach. I was just going to refer you to a specific wording of the statute which said council determines that material financial distress at the Nonbank Financial Company, thats the standard set up in the statute. It is an appropriate standard, i think. But, again, were not trying to secondguess the statutory provision that was written by congress. Were following the statute, not secondguessing it. Well, id like to ask chair white, as you know, theres 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, is the fsoc should Tell Companies what actions they needed to take in order to avoid being designated as a sifi. This struck me as a dubious idea. 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. Then the company should figure out the best way to restructure its business to eliminate the risk. And when the Council Adopted changes in february, you decided not to include this suggestion. Can you elaborate why they wanted this distinction and do you think it is important not to use the designation process as a way to Tell Companies how to be run . I largely agree with your assessment. I dont think fsoc should Tell Companies how to structure their business. I think maximum transparently is obviously something we care about at fsoc and is important to do. 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 under taking as well. I dont think fsoc got to tell people how to run or structure their business. Our time has expired. Thank you very much. The chair recognizes the gentleman from wisconsin, mr. Duffy. Chairman of oversight investigation subcommittee. Thank you, mr. Chairman. Just to reiterate. I believe when asked the panel who had insurance experience, it was mr. Woodall and chair white. Is that correct . So if im to ask the panel, if you were to point out the one Insurance Expert of all the witnesses today, who would you point to . Mr. Woodall. Thank you. I would kindly agree with you. Mr. Woodall. I dont want to overstate my expertise. 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, were not really looking at the insurance side, we are looking at Financial Services side so it doesnt matter . Thats correct. And also the head of the federal Insurance Office did support the designation and also has considerable experience in the insurance agency. Did they vote on fsoc . Who is the one with Insurance Expert . Congress is entitled to do oversight over fsoc. Is that correct . You all agree with that. Our committee, under the signature of the chairman, sent a letter to jack lew asking for 13 different points of information from fsoc there were partial compliance with a couple of those. If we have already gone through a designation process, that congress is not entitled to nonPublic Information . You dont disagree with that, do you . Why arent we getting this information . Why arent fsoc members complying with our request . It is concerning for our panel. If youre concerned about the questions you get about the transparency of fsoc, it is because the elected members of this body dont have timely compliance or any compliance from mr. Lew or any of you. If theres already been a designation, if were asking about aig, prudential or g. E. , you can make the argument with metlife there is litigation. So we dont want to give you that. You might say that. I wont agree with that. But fair enough. Aig, prudential and g. E. 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 document that information. I got no takers. So, why not . Mr. Gruenberg, why not . Congressman, if i may say, you raise a fair question. I think probably want to go back and look at the request. It seems to me the line here is when youre dealing with supervisory information or dealing with the three companies you referenced. They are open institutions. So you have to strike a balance there. Chairman gruenberg, listen, do you know there was a recent attack some allege by isis in San Bernardino . Yes. You know that, right . Do you know this body gets Intelligence Briefings from the fbi in regards to eyes skpeus terrorist attacks . I would argue american lives are in danger by these radical extremists. Does anyone argue that anyones life is in danger by the work done by fsoc . Raise your hand. So we can get fbi briefings but you wont give us briefings on the analysis thats gone into designation of Certain Companies in america . Will you explain that to me . Why am i entitled to briefings on isis and not from fsoc designation . Well, certain i can only speak to the fsoc issues. Im not familiar with the intelligence side. As a general matter, certainly transparency and accountability is different. Why cant you send me issues on designation . There are determinations in the fbi says it is nonPublic Information as well. I respect that, sir. Are you making decisions that affect someones life . No. Is isis affecting peoples lives . Yes. I would think that is far more information and the information we are entrusted is far more serious than the information you have and arent complying with. The bank of england sent a letter asking why Berkshire Hathaway is not considered a sifi. I think barack obama said he was a great friend. Is there a political analysis and connectivity with people in power that go into the designation on fsoc . Not from me. Anyone . I yield back. The chair now recognizes the gentleman from california, mr. Sherman. Thank you. Folks, i do think your decisions are life and death. Youll never meet the people. We have another 2008, every one of our districts will have higher divorce rates, higher unemployment rates, 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. You there are thousands of americans who would be alive today if we didnt have the 2008 meltdown. So your work is every bit as important as those who are focused on terrorism. The ms. White, weve got the Financial Stability board. We dont have well, we have one of its members here. But it doesnt answer to you, the American People. How can we be sure that they dont push us to an activitiesbased 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 wont be just a matter of, well, we went to the meeting, everyone else kind of wanted to go in this direction. People talk about terrorism. We made loans to the imf. They said, oh, sorry, we got outvoted. So how do i know that to get along we dont go along with policies . As you point out, the treasury, fed and the sec, set on the fsb i think in 2009 when it was established very importantly to look over potentially risks to Financial Risks globally. But whatever comes out of the fsb in terms of recommendations or suggested standards is not binding on the u. S. And certainly with respect to where there is overlap and the designations that have been talked so much about. We act independently. Thank you. Lehman brothers didnt go under pause it had too many assets. It had too many liabilities and contingent liabilities. Ms. White, when you analyze whether an entity should be designated as sifi, do you look at the size of their assets, the size of their Balance Sheet liabilities, or on the size of their off Balance Sheet contingent liabilities, including credit default swaps. All the above. And a host of other factors too. I would hope you would focus on liabilities rather than assets. No one ever went under because they had too many assets. I understand. Looking at contingent liabilities, mr. Woodall, i would hope we would not count 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 those assets and liabilities were looking at were state regulated Insurance Companies, where the state regulators determined they had adequate reserves . Yes, congressman. One of the factors is the regulatory scrutiny that the company goes through. Obviously we do have to look at not only assets and liability but the matching of the assets and liabilities. And in Insurance Companies, they are longterm liabilities. They are not liabilities of a bank that could disappear if everyone came in and withdrew their account. Doddfrank calls for annual review of designations. Do you have a way for a company do we have a good process to allow companies to be d designated, particularly if theyve reduced their profile . Ms. White . I think there is a good process. You want to look at enhancing it. At least annually they have to look at that. And the companies can engage with the staff on those issues. And then every five years under some of the new procedures theyre entitled to full hearing. I hope that you have refined that process further. I yield back. The chair now recognizes the gentleman from oklahoma, mr. Lucas. Thank you, mr. Chairman. Since we have this distinguished together, i would like to look at the basil 3 rule, as it is derived from services and the impact it will have on the ability of my constituents to hedge risks. Of course i would turn to our Derivatives Market regulators. Market participants utilize derivatives to manage their risks through futures, options, clear 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 clear members ultimate guarantee exposure, the clearinghouse . 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 ive raised is really a very narrow one. I dont believe we should be excluding derivatives from the slr. But i do believe it is important to make sure we are measuring the ex poerb herb accurately. And i do believe the margin that is held by the ccp, in other words, margin collected but then actually but then transferred to the ccp is how we recognize exposure. I would add you should always be judging the impacts such as you described. In ava right of contexts and variety of rule context as well. I would now turn to our banking regulator friends, chairman gruenberg. In many instances these clearinghouse members are banks subject to basil Capital Requirements which require them to hold capital against the guarantee they provide on behalf of their clients. We can all agree banks have exposure in the event they are unable obligatio obligations. Shouldnt that measure of exposure accurately reflect the clients margin, offset the banks exposure to the clearinghouse . Congressman, i think the Number One Protection in the clearinghouse context is really that the member bank be strongly capitalized and to 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 in the clearing of swaps. Just by definition, i i want to point out a leverage ratio is not by definite nation a riskbased measure. So by definition, it would be inconsistent to import measures of exposure or risks as a general matter. Congressman, i agree with controller curry. It is posted with the ccp. But in addition that ccp is interesting the Intermediary Bank for a guarantee. And the potential loss from the derivative exposure could substantially exceed the margin thats posted with the ccp. Thats why the guarantee is imposed and the capital is really designed to protect the bank against the down side were risk from that derivative exposure. I would just simply note to my friends, if we create a system that we require such Capital Requirements above and beyond what appear to be necessary. It does not participate. And the next time we have a Lehman Brothers or fm global, major failure in 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. Ive been a member of this committee through the wonders of 2008. You have to be totally prepared. Im just concerned were head indeed a direction that will will limit my constituentss options, thereby increasing their costs and these riskmitigating tools. I just simply note that. And to all of you and ask that you bear that in mind. Were undergoing pressure back home in oklahoma and in the ag and energy sector. Its real pressure. It is something that will take time to overcome. But these tools have continued to be important. So is lets not allow boswell to cause unintended damage. With that, mr. Chairman, i yield back the remainder of my time. The chair recognize mrs. Lynch. Thank you, mr. Chairman. I thank the witnesses for your willingness to work with the committee today. I have a question for chairman gruenberg. A number of members on this committee have been working with the vice chair tom honig on a proposal that would give 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 our comments, recommendations. But we have focused on a number of them which would be to be eligible for regulatory relief, Financial Institution must hold note trading assets, no derivative other than foreign exchange, have a limited notional value of all the Bank Derivatives or otherwise, and maintain a ratio of gap Equity Assets of about 10 . No less than 10 , im sorry. In return for that, we would give, under this legislation we would give relief in this form. Those banks would be the couple pliant banks would be exempt from basil riskbased capital standards. The stress tests, in some cases they would be exempt. In other cases, they would be every 18 months instead of every year. Try to reduce the cost there for compliance. And also exemptions from submitting call reports and schedules. This actually goes back to mr. Shermans question before where we are actually regulating activity. If a bank is not engaged in risky activity and theyre doing the right thing, they a ought to be entitled to relief. This has been a highcost issue for the smaller banks. I just wanted to get your sense on whether this is something that you would be receptive to . Congressman, i am similar sympathetic to the concept. It is very strongly cap a capitalized on the ratio. It will be eligible to reduce or compliance with riskbased capital standards. I think that core concept really makes some sense. And i think that certainly is an issue for congress to consider. And i think it is part of our regulatory review process within the framework of our capital rules that might be something that we might be able to consider on a regulatory basis. Okay. I do want to fixate on that word sympathy. A lot of small banks are good with the sympathy. Theyre looking for actually relief now. Let me say im open to pursuing that approach. All right. Mr. Cordray, do you have any worries about that . Have you thought about that proposal . It might be out of pocket on is sure. 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 with Credit Unions and Community Banks. And frankly, its an 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 raid generally in the marketplace. So when 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 and we will continue to do so. I do want you hit right on a point that i didnt mention, which is that in those cases where a bank is willing to keep that mortgage in their portfolio, it would be deemed a qualifying mortgage, because youre not issuing to sell it, you know. Were comfortable with that, particularly for smaller entities. But there were larger entities before the crisis that kept balances. At smaller levels im quite comfortable with that. Fair enough. Thank you, mr. Chairman. Ill yield back. The gentleman yields back. The chair recognizes mr. Royce. Thank you very much, mr. Chairman. I dont think your microphone is on. Thank you, chairman. Last month in a hearing before the committee about due process issues with fsoc, johnathan macy 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. And his point, as he explained, was that this was because the fsoc is ignoring certain Risk Mitigation strategies and herding into strategies which increases the Systemic Risk. This could also happen incorrectly 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 with the case of 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 ill also ask this of chair matz, that the fsocs enhanced standards of the fed are not increasing Systemic Risk per the thesis that the yale professor puts forward . Congressman, the fsoc actually is looking at, and this is referenced in our annual report, looking at 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 to nonbanks. Those are all thingstpo weve identified as emerging or potential emerging risks that require future monitoring and potential action down the road. Chair matz . 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 making the in determining whether to designate, they have every opportunity to make that Information Available to us. And lastly, ill just ask chair white, do you agree that this is a problem . Would you like to weigh in . I think its certainly something that i think we need to be constantly keeping in mind, with all of our regulations, what impacts theyre having, what mitigators we ought to be considering in addition. Im 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 and the public on an ofr report regarding the Asset Management industry, the fsoc sought public views on the industry, and later issued a request for 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 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. Thats the point i wanted to make. I think its important that they do so. And 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 are managed are borne by those whose funds though invest. But the fsoc is now apparently considering activities under the second prong of section 113 of the dod 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 wasnt used when designating Insurance Companies. Mr. Woodall, is it fair for the fsoc to offer different amounts process to different industries, and why not take the same amount of time and get it right . Congressman, i think that weve already discussed the fact that inactivity, which has been my main goal in the Insurance Company, its evolving now in the council. The council is young. Its evolving. And i welcome the idea of taking a pause and getting into looking at the activities across the settin segment. And i hope they will do that for the Insurance Industry. The time of the gentleman has expired. The chair recognizes the gentleman from georgia, mr. Scott. Thank you, mr. Chairman. Panel, im concerned about the department of labors fiduciary rule. Let me explain why. I have spent most of my adult life working hard in the area of building in the africanamerican community. Our president is a wonderful person, he is a decent, good man. But as an africanamerican, im not sure that he has been properly advised as to how devastating this department of labor ruling will be on the africanamerican families in terms of wealth building. I say that as one who, im a graduate of Wharton School of finance, where i got my m. B. A. 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, executive board of directors of the Wharton School. And there, in that position, we pulled together, along with john scully, who was the chairman of our board and chairman of pepsicola at the time, an Extraordinary Program of wealth building. But what we found out is there were three elemental areas that prohibited wealth building and investment. And that was 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 africanamerican communities and on other lower and middle income, because they dont have that money to pay up front with fee costs. And when you put a contract there for them to sign, theyre going to run away. I know. Ive been there. Ive worked with the africanamerican 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 end stable financial caring in this country is in africanamerican communities. Is it not too much for somebody on your community to ask the president to hold off until we actually see just how devastating it is, affecting africanamericans . Thats what im asking you to do. I asked ms. White, but she seems to have ceded her authority to the Labor Department. We wrote it into section 913, in dod frank, that that was the domain for the judiciary securities and change commission. At no time, no time, did we hear from the Labor Department or erisa talking about retirement. And if they do, wouldnt it be respectful for them to sit down 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