Transcripts For CSPAN3 Hearing On Financial Stability Oversight Council Operations 20151209

Committee will come to order. The panel will take their seats. Chair now recognizes the gentleman from kentucky, mr. Barr, for five minutes. Thank you, mr. Chairman. Mr. Woodall, since youve been the topic of much conversation as a fi beta kappa from kentucky, fellow kentuckian im going to leave you alone for the most part today. Let me start with Bank Regulators, prudential regulators and just note at a macro prudential level fsoc and banking regulators have participated in International Agreements with the Financial Stability board, basel and other forums and the main difference between u. S. Requirements and those promulgated internationally is that it seems that our domestic standards are more stringent than our foreign counterparts. A few examples, capital surcharge on Global Financial firms nearly doubled the International Standard. Supplemental leverage ratio that is double adopted internationally. A liquidity coverage ratio more restrictive than the International Standard and arbitrarily punishes certain products. Otc margin requirements that are considerably more punitive than International Standards. So the question is this, for miss matz, mr. Watt, mr. Groomburg, mr. Cordray, mr. Curry. The question is, i assume that you all agree that these prudential rules and other reforms have improved safety and soundness, and if you agree with that general proposition, raise your hand. All of you agree these new prudential rules enhance safety and soundness. A followup question, do you believe that the benefits of these new prudential rules outweigh potentially the cost to International Competitiveness . Given that we have Higher Standards than that internationally . Okay. Most of you agree with that. When combined with volcker, Financial Institutions seem to be making a couple of changes and the regulations are producing a couple results. One is that theres a migration of activities out of heavily regulated banks and into much less regulated nonbank Financial Firms, the socalled shadow Banking System and i want you to address that. But also there is much talk about illiquidity in the markets, institutions dropping certain products and services, pulling back from marketmaking functions critical to investors, extension of credit affecting various fixed income Asset Classes in different ways. So my question to some of our market regulators, mr. Masad, chair white. The fsoc annual report acknowledges that there are changes in terms of reduced liquidity in the Capital Markets, the office of Financial Research is corroborating this. Certainly theres other indicators. The center for Financial Stability found market liquidity declined by 46 . As you have noted and mr. Curry noted this potential lack of liquidity that is resulting from regulation could mean Financial Markets have less capacity to deal with shocks and would more likely seize up in a panic as they did in the 2008 financial crisis. So given that our Bank Regulators are making the case to fsoc that this is a this is good for Financial Stability and yet we see a liquidity problem developing, from your perspective what do you make of all of this . Well, i look. I talked about this at my last hearing. I think its a concern of all of us in terms of, you know, reductions, significant reduction in liquidity. Obviously there are rules that have very beneficial purposes that may or may not be causing that. We do analyses to see whether volcker, for example, will report quarterly to this committee. The volcker rule, we have not determined that its having a negative impact on liquidity. When we talk about shadow banking, i think we have to be careful, too. I mean, that covers a broad swath. I mean, a lot of the things that fit under that category are heavily regulated by the Capital Markets regulators. But i think, bottom line is we all, and should be very concerned about impacts on liquidity. I think we should look at regulation as a cause to financial instability as a result of the lack of liquidity were seeing developing in the marketplace. Thats something fsoc should be paying attention to and revisiting these regulations to the extent they compromise Financial Stability. Finally let me go back to mr. Watt lel really quickly. They are exempt from rules im talking about. Agency mbss are carved out of the volcker rule and agency mbss are the cash and cashlike equivalents banks need to hold to comply with capital and liquidity rules. Any question to you in my limited remaining amount of time is why are these standards good for the private sector but not for gses under your oversight and why have a double standard if as you signal by raising your hand that these Capital Requirements are important for Financial Stability . Shouldnt they be important for the gses as well . Well, if they were not in conservatorship i think you would be absolutely right. Well, why should we continue to have the risk on the taxpayer . Well, because we continue in conservatorship because the legislative branch has not acted on gse reform. I think we should look at that double standard and i yield back. Time of the gentleman has expired. Chair now recognizes the gentleman from delaware, mr. Carney. Thank you, mr. Chairman. Thank you to the Ranking Member and everyone who is here today. This is the biggest panel that i can remember that weve had before us. Part of our responsibility i think for todays hearing is oversight of the fsoc and as i understand i was not here when dodd frank was passed. The primary responsibility of the fsoc was to identify emerging Systemic Risks. And id just like to hear from many of you what you see out there as those emerging risks and can you share those with us . Why dont we start with mr. Gruenberg and go to controller cur ary in terms of your responsibility as part of the fsoc. What are the Systemic Risks and emerging vulnerabilities that youre seeing out there . The annual fsoc report outlines a series of Systemic Risks to focus on, interestingly, in this report the lead risk that it cites is Cyber Security and the potential consequence of vulnerabilities relating to Cyber Security could have for the functioning of the financial sp system, and that certainly has been a focus of discussion and attention by the fsoc and i frankly think by each of our agencies individually. Id also reference is there anything we should be doing or looking at with respect to providing you with the necessary tools . Were going to be talking about a data breach bill later today. I know that congress is considering legislation to facilitate information sharing which is one of the Critical Issues in terms of being prepared to deal with the cyber incident. So i think there is a significant role for the congress and certainly for all the agencies at this panel working among the regulatory agencies as well as with Law Enforcement and National Security communities. It really is going to require in the classified briefings that weve had are pretty scary, frankly, and the attacks are coming on a regular basis, on a daily basis and frankly, it feels to me like were fortunate we havent had a more significant attack than what we have had, and i know that institutions are dealing with it on a regular basis. Controller curry, what would you say in terms of emerging risks or existing vulnerabilities . I would agree completely with chairman gruenberg. Cyber security is the number one concern both as comptroller and member of the fsoc. I think the ramifications of a successful attack on the core system of Financial Institution regardless of their size could really undermine Public Confidence in our entire Banking System and thats really why its imperative from a regulatory standpoint to make sure all of our banks from the smallest to the largest are are prepared to repel attacks and are there a position to respond as quickly as possible in the event of a successful intrusion. The chairman also mentioned, and its in the fsoc annual report increased risk taking in a lowyield environment. We are very concerned about the decisions that the Financial Institutions we supervise are taking today, whether its to go long or get into activities that theyre either unfamiliar with or not prepared to deal with the risks inherent in those activities. We think that is a potential emerging risk for individual institutions and for the system. Thank you, chair white, anything you would like to add . No, i think you cant emphasize enough the cyber risk. I mean, its not a coincidence. Its listed first in the emerging risks in the fsoc annual report. Thank you, director watt , you and i have had conversations about the last subject you talked to mr. Barr about with respect to the gses and i know its been your view that youre waiting on congress to act. What vulnerabilities exist there . Increasingly the taxpayer or freddie and fannie are guaranteeing those mortgagebacked securities. Whats your view of the sense of urgency around that issue . I think weve been in conservatorship, fannie and freddie, for eight years. It is the longest conservatorship has has ever occurred under government control, and while the risk of the work that we are doing is much, much less now than it was at the onset of the meltdown, staying in conservatorship is just not sustainable. You have a high risk of losing the most qualified people to the private sector. Its just i could keep going on. So we should act . You should act, yes. Thank you, mr. Chairman, i yield back. Time of the gentleman has expired. Chair now recognizes gentleman from pennsylvania, mr. Rothfuss. Thank you, mr. Chairman. Mr. Woodall, your criticism of the metlife sifi designation process is a matter of record and has been discussed at the hearing today. Your wellfounded concerns are shared by many of us and ultimately we should ask ourselves whether its wise for people with little or no experience in a given industry to be given the power to make significant consequential decisions such as sifi designation. Theres a broader question as well i was hoping to get your thoughts on. Many are concerned that american regulators are ceding responsibility to the fsb, which is composed of central banks, finance ministers and regulators from around the world. Given our shared misgivings about, for instance, fsoc members without insurance experience deciding to designation an american insurer, shouldnt we also be concerned about letting foreign regulators who lack experience in the American Financial Services Industry and who act in the best interest of their countries take the lead in regulating our Financial Firms . Thats a point thats been discussed quite a bit. A lot of it goes to the fact the european insurers have a different background. They have a different accounting system. Their products arent the same. Now theyre pretty well united with their solvency two regulation which goes into effect next year and theyre working on equivalencies as to whether were equivalent. Theres been some temporary equivalencies given but if we dont get equivalency, it could increase the cost of our companies doing business in the eu countries tremendously. One of fsocs most basic authorities under dodd frank is to make recommendations to the fed concerning which heightened pru determi prudential standards should apply but to date the fsoc hasnt done so. It would appear fsoc is putting the cart before the horse. Designated companies for heightened supervision but make nothing recommendations for what those heightened requirements must be. The basic principle of regulation is that the benefits of opposing regulation should outweigh the costs associated with doing so. Designating a firm for heightened supervision is not without costs. Its a serious matter that impacts Firm Behavior and may have broader repercussions for the Financial Services industry as well as consumers. Chair white, how is it possible to ascertain the costs and benefits of designating an Insurance Firm as a sifi if the fed has not prescribed the heighten prudential standards that will apply to designated firms . Well, again, i go back to sort of the primary mandate of fsoc which is to, you know, identify systemically important Financial Institutions that could impact the Financial Stability of the u. S. Financial system. I do think, and now i think the fed has actually, i think adopted, if im right, but certainly put out for notice and comment, i think adopted standards with respect to gecc. So thats there now. But i certainly understand the point that youre making in terms of if you dont know what the standards are that are going to be applied, its obviously a part of your analysis that you cant do. I dont think were obligated to do it. Indeed, i think were only gaited to deal with the issue of systemically important institutions in the first instance and not wait for that action. It is a good idea wouldnt you agree a basic principle of regulation is that the benefits of composing regulation should outweigh the cost associated with doing so . Again, i think the premise of the responsibilities of fsoc is what a tremendous cost the financial crisis was and to try to prevent that, one of the tools that fsoc has is the systemic designation powers. However, i think speaking for myself, we certainly want to act on full information including that. Director watt, is the fsoc evaluating the feds historically accommodative Monetary Policy stance to see whether that policy has led to excessive risk taking in the Financial System . Not directly. We are always evaluating every decision that all of these regulators make but we dont oversee the fed. Do the feds destabilizing monetary policies get a pass from the fsoc because the fed chair sits on the fsoc . Well, that assumes theyre destabilizing. I wouldnt assume that. Thats your conclusion. So the fsoc isnt taking a look at the feds balance sheet, for example, that has gone from 800 billion to 4. 5 trillion. Thats not in the jurisdiction of fsoc. Thank you. The chairman yields back. The time of the gentleman has expired. Chair recognizes the gentleman from minnesota, mr. Ellison. Thank you, mr. Chairman, Ranking Member. I want to thank each of you and your staff for your comprehensive and insightful written testimonies and i want to thank you for your service on the Financial Stability Oversight Council. Weve all learned the painful reality that markets do not regulate themselves in a nation as powerful as ours, we must invest in regulation that identifies in response to emerging threats to our stability. So your report, 150 pages, details the councils unprecedented progress to protect our Financial System from risk and to prevent an Economic Disaster from happening which i remember very well. I wish everyone running for president would read it, maybe then we could have folks talk about how to really understand how to protect our economy and be successful in that effort. My first question is to controller curry. Its been a while since youve been before the committee. I want to welcome you back. Thank you. And since youre here, i want to ask you again about a topic that you and i have spoken about in the past and that is the issue of somali remittences. Our Financial Institutions are regulated by the closing accounts of Money Services businessing serving somalia due to compliance costs, reputational risk, inability to cover the cost, lack of clarity in the exams or for other reasons. Congressman, as we discussed i think there are a variety of reasons why individual institutions are making determinations about what their risk tolerance is under the Bank Secrecy Act and Money Laundering statutes. Those are some of the factors that i believe some institutions are making. In terms of regulatory clarity weve tried to make clear what our expectations are. We did put out in 2014 Additional Guidance on dealing with Money Services businesses but ultimately its the decision of the individual institution whether or not to do business with an individual business or individual. I just want you to know that somali parliament, ive had a chance to talk with some of them, they are passing an antiMoney Laundering, antiterrorist financing law. They havent passed it yet but theyre working on it. Thats coming up. They opened up their embassy here in the United States and i believe the more stable that country is the less susceptible it will be for terrorists to come in and set up shop and operate, try to operate out of there. I think those are very good improvements. As we discussed, its important there be a strong local Banking System and a regulatory system overseeing its compliance with important laws like that bsa. Thank you. Mr. Watt, always a pleasure to see you. Very proud of you and the work you do. Welcome back to the committee. It must be weird to be on that side of the divide. Anyway, i just want to say to you the report calls for legislation to address the conservatorship of fannie mae and freddie mac of the federal and state markets and Mortgage Markets. While congress has not acted on any particular proposal regarding the gses, i am interested in what your current policies are doing to improve Credit Access to africanamerican and latino borrowers. I have a chart up which ill direct your attention to. As shown by the chart, we know that the majority of new households are going to be africanamerican and latino and asianpacific american yet they seem nearly shut out of the Mortgage Market now. Gse loans to africanamerican borrowers in 2013 were 2. 2 . Gse loans to hispanic borrowers no 2013 were about 5. 8 . Both low. What policies can gse implement postconservatorship to improve access to credit for africanamerican, latino and native american borrowers that fannie and freddie cannot implement now. Youre asking about postconservatorship . Well, what can they do what is it that might be done later that cant be done now . Im basically asking how do we make progress on this . Well, a lot of what can be done after conservatorship depends on how gse reform is done and what the rules of the road Going Forward are. Part of the challenge of being in conservatorship is one of the things ive found to be true is that lenders price uncertainty and right now they dont know what the future is so as prices go up, theres a price to uncertainty of what the future holds in this area. So i just i mean, there are a number of things that need to be done to address this because we need the availability of capital for people to be either homeowners or affordable renters. The time of the gentleman has expired. The chair now recognizes gentleman from arizona, mr. Schweikert. Thank you, mr. Chairman. Its been floated around a couple times. In many ways when i read many of the articles about what youre all doing its a discussion of are we fighting the last war and the concentration of risk of unintended consequences you know, we have our section 113, the list of criteria, are we going to wake up tomorrow and find out that the shadow on the horizon, the black swan, was something that because of the concentration, the way you look at the world you completely missed but there have been a couple bits of testimony here that i need to drive into because im concerned about the things i heard. The gentleman from florida, mr. Ross, was asking some questions about insurance and a comment was made and is it ms. Matz . You stated on prudential one of the reasons they made your list, shall we say, is their derivative book. Is that because they didnt have enough hedging of their interest exposure . I dont know if they were doing duration exposure but their interest exposure . And are you saying they had a derivative book and because they were ensuring their interest, the derivation expore was that forced him on to your list, what did you see when you said the derivative book . They had such a large exposure that the failure of that institution or financial when you say that institution,. Of prudential. Okay. So theyre buying an additional hedge to protect their Interest Rate expose your that if it moves against their 100 coverage. Explain how that would work. First of all, the derivative position is just one position. But if they are interwoven or so interconnected with other Financial Institutions that if they failed not if they im sorry, will the gentleman suspend . I wish to alert members that regrettably there is yet another procedural vote on the floor. I think were drawing near to the end of the hearing and so if members who have yet to ask questions wish to go vote now and return i think we can keep this thing going except for mr. Tipton whos next. If members wish to go vote, im sorry to interrupt the gentleman. The gentleman from arizona is recognized again. Thank you, mr. Chairman. Look, were talking passage of this because everything i know about why your derivative contracts to protect your Interest Rate exposure that would be something you would find joyful, not put them into a designation. In looking over parts of the reports about prudential, their repo contracts are 100 offset and collateralized. Im just trying to figure out where you found exposure. Its all exposure. I mean, what the assumption that if youre 100 covered and youre also covered your Interest Rate risk, the expose exposure is what . The assumption that is made in making our determination is that there is material distress at the designated institutions. So were starting from the assumption so i have an institution thats 100 covered plus also done additional Financial Products insurance to cover markets moving against them. But were operating from the assumption that theres material distress at that institution. So if theres material distress, then they cant cover the outstanding debt that they have or the loans that they have. But theyre contract loans. I mean, the Insurance Products that theyre offering are all under contract. So they have the ability to say, according to our contract you may be making a claim for this but under the contract we have the ability to pay as the contract is designated. Unless theyre in material distress. Okay, ill give this to you in writing. Were talking past each other because it makes no sense. When i look at your section 113 tests and i go up and down this, is it the last one, k, other risks that the council may deem appropriate . When i look at this particularly on an insured like this which is 100 covered and then hedged your coverage im trying to find out on this list where you find the exposures. Its the its their interconnectedness with the other institutions and the assumption that that Financial Institution is suffering material distress. I mean, i think its basic well, i wish i had you in grad school because there had been some fascinating questions. All right, my last 20 sends. Mr. Curry, youre the only one on the panel ive heard touch something that made me very happy and that was sort of the unknown. The future Financial Markets are moving silicon valleycentric, the new ways people are going to borrow money, buy credit, invest, move around. Isnt that much suffer a and much more robust than a concentrated Banking System because the way capital is acquired is a much more distributed model . From the fsoc standpoint, we have identified as one of our emerging risks the financial migration and innovation of activities so its an area were discussing and will devote additional attention. As the comptroller, were interested in that because of the impact of fin tech and innovation on the delivery of banking services. And im going to give you something in writing. Were way over time. I beg of you, if its creating diffused risk, if were seeing a distributive model, please do not beat up innovation. We desperately need it. Actually, im calling for fostering responsible innovation. With that i have to yield back. Thank you. The gentleman yields back from a very salient point which i think he will agree with the chairman that just citing interconnectedness is not enough of a criteria because no one else from the panel, i see, was able to answer your question as well. My daughters former Lemonade Stand is also interconnected if you go through the whole realm so i think there has to be more substance to it than that. But with that, i will yield to mr. Tipton for five minutes. Microphone, please. Does that work . Thanks for taking the time to be here. We have a large group and id like to echo comments made by mr. Lucas and mr. Stivers in regard to Community Banks, something critical for rural america, particularly in my district. Youve had to raise your hands simply because of the size of the panel several times here but i would like to be able to just get a sense of your feeling on the panel who is concerned about the challenges faced by americas Community Banks and Financial Institutions and small communities . Everyone has raised their hand. In response to mr. Stivers, youve made the comment that how much time does the council actually spend in regards to Community Banks and the answers were some or its going to be at the staff level. Id like to start with chair greenberg and maybe comptroller curry. If it is actually something this is in your wheelhouse, why isnt more time spent on Community Banks . It actually is. The occ along with the fdic, a swee have we have 1700 banks. Lot of the banks are Community Banks, thats been a major focus as my term as comptroller is to look at and make sure we have a strong, Viable Community banking sector. I think were very fortunate to have a diverse Banking System in the United States. Weve looked at and as part of our process what are the burdens of particularly facing Community Banks . Weve identified some areas where we think we can make a difference whether its called reform, capital reform and were looking at can we reduce the cost structures . Were looking at a white paper that encouraged from a regulatory standpoint, banks, particularly Smaller Banks in Rural Communities to collaborate with, whether its a joint venture, sharing employees, working on participation so that they can continue to be viable entities and serve their communities. If i may, lets talk about when youre talking about a vibrant Banking System youre aware that right now approximately one third of the counties in the entire United States are served by only one Community Bank . Do you recognize that . Yes. How vibrant, how competitive is that . What were trying to do is really make sure that this is, again, the balance between whats appropriate supervisory standards and how we supervise those institutions so that they can continue to lend, to be leaders in their communities Going Forward. You know, youve talked about collaboration for the banks to come together to share employees what type of collaboration is going on that requires small Community Banks to answer to several master, if you will and driving up costs which are increasing the costs for loans, for communities, inhibiting those banks abilities to survive, driving consolidation or actually failure of these small banks. I think the primary area were addressing that for Community Banks is at the federal Financial Institutions Examination Council which all the state and federal bank and credit union regulators are part of and thats part of the mission of the ffiec. Just as a little more followup on this, as we reviewed the fsoc minutes theres never a mention of small banks in the minutes. So i am pleased to hear that you are putting out some comments and some white papers. I think the question that our Community Banks would like to have answered is when are they going to get some relief rather than talk . If i may say, congressman, i do think Community Banks have been a focus of enormous attention by the Bank Regulators who have responsibility for them. Thats what really disturbs the Community Banks. Community banks play a Critical Role in the Financial System. Weve shown at fdic studies that Community Banks account today for about 14 of the banking assets that hold about 45 of all the loans to Small Businesses and farms. So the role they play is critical. I think thats to be distinguished from whether they pose in and of themselves a threat to the Financial System that would warrant fsocs attention but theyre critical to the Financial System certainly can be impacted significantly by Systemic Risk as we saw in this recent crisis. They themselves are not a source of Systemic Risk and where they are the focus, you know, are by the Bank Regulatory agencies and we have been conducting a review as were required by law of the regulations weve imposed over the past ten years, weve held outreach meetings across the country, are seeking Public Comment and i am hopeful well come out with a series of regulatory measures that will be helpful in terms of reducing the cost of regulatory. I hope you can. Because simply as mr. Schweikert was pointing out, when were talking about connectivity thats going on, while you may say and are accurate, theyre not going to be systematically important to the overall economy of the United States, certainly feeling the impacts of those broader rules and regulations that through loan participation, whatever it happens to be that is cascading down and inhibiting their ability to address the people that you cite and i agree with you are very important, our Small Businesses and agricultural communities. Thank you, mr. Chairman, i yield back. The gentleman yields back. Thank you, mr. Chair, appreciate it very much. I wish everybody a merry, Merry Christmas and a happy holiday season. Thank you for being here. Its very important for us here on the committee and for our fellow americans. Chair matz, id like to ask a couple questions if i may. Are you familiar with the december 14 announcement by chair white dealing with the new regulatory process dealing with Asset Managers. Are you familiar with that . Ive read about it. Can you remember what the content of that was, maam . Okay, let me help you out. And could you speak closer to the microphone . My ears arent what they used to be. Chair white mentioned that shed be looking at Liquidity Risk, leverage as per use of derivatives, stress testing and things of that nature. Does that ring a bell . Pardon . Does that ring a bell . Yes. Okay, good. Can you think of anything the s. E. C. Is not doing to regulate Asset Managers, theyve been so good at doing this for 75 years. Can you think of anything shes left out in the new way shes proposing to regulate Asset Managers . Well, as i said, i havent reviewed it, i have great confidence in chair white. Great. Im going to take that that you dont have anything to add with respect to her job regulating Asset Managers. Are you familiar, maam, with the fsocs decision to review Asset Managers, products and activities. Yes. You voted on that, it was voted on in december of last year. Are you familiar with section 113 of the doddfrank act . Yes. Good. Okay, there are 11 different parts of that section of 113, ms. Matz, one of them which deals with what you folks are responsible for in weighing whether or not an asset manager, mutual fund, Pension Fund Manager should be so designated a sifi. One of them, and i quote the degree to which the company is already regulated by one or more primary financial regulatory agencies. Now, the s. E. C. Is one of those primary regulatory agencies, right . From Asset Managers . Okay. So my question to you, ms. Matz, is that what in the world is fsoc even doing in this business . We have a regulator here thats been doing this for 57 years. You agreed theres nothing you can think of to add to her job but at the same time you voted along with everybody else to consider designating Asset Managers as sifis. So what am i getting wrong here . We didnt vote to consider speak up, please. My ears are bad. We didnt vote to consider Asset Managers as sifis, we voted to consider to have the staff look at the activities of the Asset Managers to determine whether well, thats legal speak. Thats the same thing, isnt it . No. If youre asking the staff and you folks can decide whether or not an asset manager is designated as a sifi and looking at the criteria, thats the same thing. Well, we have not made any determination. I know, but why are you in this business . Because our mandate is to look at those institutions that could pose a threat to the Financial Stability of the United States. The s. E. C. Is already doing that. Her mandate is i just read you the criteria. Shes dealing with Liquidity Risk and leverage with respect to derivatives and stress testing and you couldnt add anything else to the parade so my question is why dont you folks move on . You have other things to do, why should you get involved in this space at all . Two things. One that we have not made that determination yet but that the s. E. C. Is not looking at the threat to the Financial Stability of the United States. Theyre looking at the narrow securities market. Is that correct, mary jo . Im asking you, maam. Ms. Matz, im asking you. Let me ask you this question. Since you folks clearly have gone down this path or are going down this path to consider whether or not you should designate an asset manager as a sifi, you must have some analysis that concludes will what the s. E. C. Is doing is not full. Do you have that analysis for me . Their mandate isnt to look at the do you have the analysis that you use, ms. Matz, and everybody else used to so determine that the s. E. C. Is not fulfilling their job . We did not come to that conclusion that the s. E. C. Was not fulfilling their job. Well, you had to make a decision based on what . Based on our mandate. Lets move on. Are you familiar with a study done by douglas holts eakin, a director of the nonpartisan cbo. The study on all right, youre probably not. It was done in 2014. Let me give you the ultimate conclusion. It says the following if an asset manager proposes that represents no Systemic Risk to the markets or to the economy, if theyre so designated as a sifi then the costs will go up, weve discussed this today, the Product Offerings will go down and the long term rate of savers for their retirement and putting their kids through college will likely go down by 25 . Now also in 113 of the doddfrank there are other risks you should consider. Do you folks consider the risk to the small investor, a nurse in lewiston, maine, or a logger in doverfoxcroft, maine, that are trying to save money for their retirement or for the kids education . Are you considering the risk to them if the Asset Managers that run their money are so designated as sifi and they get dinged by about 25 in their rate of return . Do you consider that . We have not made any even been given potential recommendation so we have not considered any aspect of it. Do you factor in the Economic Cost to the people were supposed to help in this country in making these decisions whether or not an asset manager should be so designated a sifi . Were not at the point of making that determination. Time of the gentleman has expired. The chair recognizes the gentleman from arkansas, mr. Hill. Thank you, mr. Chairman, i thank the witnesses for being here today. So many questions, such a distinguished panel and so little time. Very frustrating. Chair white, if i could start with you, please. Traditionally, your testimony and your in your capacity and previously always has our famous boilerplate that says the views expressed in the testimony of the chairs of the s. E. C. Do not represent the views of the full commission or any commissioner. Standard procedure. But while this is a good disclaimer for general testimony and we love it when you all give personal views occasionally and not stand on the party line, here in the concept of an fsoc testimony it causes me to want to ask you a few questions. Of course you serve on fsoc as one of the ten Voting Members. Heres my question. If one of the other four s. E. C. Commissioners was opposed to one or more of your fsoc positions, does doddfrank require the fec to vote ahead of the fsoc to how you would represent that view at the fsoc meeting . It does not although i do consult with my fellow commissioners before and after the fsoc meetings but the short answer is no. So in that consultation, can you give me an example of where there has been disagreement between commissioners . Its more just informationally briefing of whats going to come up before fsoc, what im intending and under the structure im the Voting Member but the member of fsoc, if there is anything to take a position on at the meeting i convey that and obviously listen to any input or difference of point of view and then afterwards record to the commissioners on what transpired at the meeting but theres not a structure to take a vote in advance. But if a to continue sort of the line of questioning earlier this morning. If you had a commissioner who was particularly passionate on a topic, would you be open to taking them to an fsoc meeting . You know, again i am totally amen to believe that point of view and making certain that i fully understand it and take it into account, again, under the current structure and protocol the chair or the head of the agencies that are the designated ten members, Voting Members can bring a plus one, as its called in this town to the meeting with us, which has been a staff member. So its not structured to have the other president ial appointees. Obviously that creates sensitivities, no question about it, attend those meetings or vote on the matters. Thats not the current structure. Its up to congress if they want to change that. It seems internally it would be good if there was a level of disagreement where a commissioner wanted to express their views to fsoc but that might merit a formal Commission Discussion and view of the commission and potentially before you simply represent the commission in your own individual capacity. One of the reasons when i became chairman that i tried to change how we proceeded to get fuller input was precisely that but, again, existing structure presents the challenges youre outlying. One thing that ive only been in congress 11 months or so but one thing thats coming up consistently, thats why its helpful to have so many of you in one hearing is this lack of transparency and the process that many in the industry feel. And yes its a new industry and has growing pains and structure to put in place but theres a right way and wrong way to do things in washington. We know the administrative procedures act, we know our obligation to openness. In some cases weve taken action before we have ruled. I think weve referenced that weve designated Insurance Companies before weve set what the standards might be for Insurance Companies. So one thing i looked it for in gsifi, capital surcharges, theres a very transparent mathematic ive seen it written down, how to designate somebody for a gsifi surcharge. That looked very transparent to me yet we dont have that level of information on routine decisions in considering nonbank sifi designations or even to some degree activitiesbased sifi analysis. Who wants to comment on that . Maybe chairman gruenberg you might comment on that since its a banking and a nonbank designation. Congressman, we as was discussed earlier, the fsoc established a process for a sifi designation pursuant to rule making and Public Notice and comment. I think the rule making went through three series of Public Comments and the first stage of the process, as im sure you know, is a set of metrics, a set of thresholds through which an institution would pass and i must say there are a very high set of threshold which is almost by definition would be limited to the largest or most interlinked companies in the Financial System and that is something that any company can calculate in terms of projecting what the impact might be. The chair recognizes the gentlelady from utah, mass love. Thank you, mr. Chairman. First of all, thank you for being here. I know everyone is excited about the holiday season, i want to wish you all a Merry Christmas. And also to have such a great group of so many of you here today, its really beneficial to me as a freshman. Thank you, ive learned a lot today. I have just a couple of questions with. Comptroller curry, you stated in your previous in your you previously testified that tailoring is important pool in the occ supervisory tool box because youve stated while bank asset size is a starting point in our assessment of appropriate standards its rarely if ever the sole determinant. Do you still agree with your statement to that effect . Yes, i do. Okay, so when a Regional Bank with simple trading lending model and minimal interconnectiveness grows to 49. 9 billion to in total assets to 50. 1 billion in total assets, what new requirements apply to that institution . Well, there is a cliff effect if its under the Holding Company under section 165 of doddfrank so it will trigger heightened capital liquidity and other standards because it has crossed that threshold. Does it make sense to automatically designate that Institution Even though it does not engage in trading or other complex operations . Again, im the supervisor of the bank. But im asking i just want to clarify. As we supervise the bank part of the Holding Company we are not driven by the asset figure in terms of how we supervise that institution. Okay, but we just determined that new requirements are applied to that institution so im trying to figure out your thoughts on this and whether that designation, does that make sense . In terms of engaging. Asset threshold is initial, i mean it has value as initial or first screen so you can make general observations about some institutions at a certain asset size level may not be or may be engaged in a particular activity. You know, in my earlier testimony our focus as a supervisor is on that particular institution, particular activities in what its engaged in and the risks those activities present and we deal with individualized or tailored plan of supervision according to that analysis. And assessment. So i guess what im asking you is if you think that an institution like that without just having that automatically trigger, do you think an institution like that realistically threatened the Financial Stability of the United States . Again, i think its an individualized determination, and again, i dont think that theres any magic to any asset threshold. Okay, so wouldnt it make sense to look more closely at some of the banks which are actually similarly situated and determine whether the designation is more beneficial or burdensome to the community in which they serve . Again, i supervise the banking subsidiary and thats exactly what we do. But right now, automatically, instead of actually doing the work first to see thats the fact of the statute, yes. Okay, well. Thats i guess the point im making. Yes, i understand. Okay. If a 50 billion sifi were raised or eliminated, could the fec still have the regulatory or supervisory tools that they need necessary to make sure that all supervised banking organizations are operated in a safe and sound manner . Again, purely as a supervisor, thats what we would want to see to make sure we have to safe and sound institution. Okay, so you are pretty much saying you would like to do that work first before its automatically designated . Thats what we do as a matter of course, as Bank Supervisors with the national bank. Would you support that statute being changed . Again, i think in previous testimony, thats really a matter for congress to decide what that initial first threshold is. In terms of my role as a supervisor as the bank, and i dont want to belabor that point, we will continue to apply riskbased focus to our supervisory activities and standards. Thank you. Thank you, mr. Chairman. The time of the gentlelady has expired. The chair recognizes the gentleman from minnesota. Thank you, mr. Chairman, Ranking Member. Thank you to the witnesses for being here for so long today. For you, its good to see you again. We first had the opportunity or inopportunity to meet while i was serving on the ag committee. I wanted to ask you, when ill put it that way. I wrote it out so id do it right. Does it concern you that the regulatory body comprised primarily of Banking Credit Union Housing and other regulators have the authority to intervene in markets that you, the cftc regulate and potentially substitute their judgment for yours in highly complex or highly technical matters . Well, thank you for the question, congressman. I think the structure we have is a very good one in that it brings all the regulators together which allows us to look across the Financial System, to look at emerging risks. There are issues in our markets where other regulators have certain responsibilities, whether theyre things like margin rules for swaps, regulation of central if i can interrupt you. Because its limited time. I wasnt asking for the mission statement. Im asking specifically with respect to the cftc. Ive heard all kinds of questioning today, and ive done a little reading about how the fsoc decided in spite of the one Insurance Expert Voting Member, they substituted their judgment in place of his. Im asking you, doesnt it concern you, or does it present a concern to you that this body, this regulatory body might substitute its opinion for yours at the cftc . Well, i see it as a structure which doesnt so much involve substituting its opinion for ours, but rather bringing regulators together so that they can share information, cooperate, and coordinate what were doing. I think thats very beneficial to the overall system. Let me put it to you this way. When the cftc members meet to consider issuing a proposed or final rule, or deciding enforcement matter, even though you are the chairman of the cftc, your vote counts the same as all of your fellow commissioners, correct . That is correct. But when you sit on the board and you take a vote that might be different from what your fellow commissioners would do at the cftc, how is that not corrupting, if you will . Maybe thats a very strong word. But the process that we put in place or that has been put in place to operate the cftc . The fsoc isnt taking votes on our matters. Or on the rules that were issuing. I dont see a conflict there, sir. What if your position on the fsoc differs from one of your four commissioners at the cftc . What recourse do any of those commissioners have for your votes on the fsoc . I try to have an open door with all my commissioners and always am willing to share my thoughts and hear theirs. So they just have to trust you . Well, i would say that the structure that congress has decided is one where each of us as individuals i know what theyve decided. I dont mean to be disrespectful. But the bottom line is they dont have any recourse other than your open door, and then theyd have to trust you to do what to change or do what theyre asking you to do . Well, i think again, we try to have a good dialogue about all these issues, and im someone who likes to listen, and i try to respect other peoples opinions and take those into account, sir. Article 1, section 7, im directing this at you because of your experience and the respect you have for members in congress for your service here. And ill just cut to the chase. The constitution gives congress the power of the purse, correct . Yes. When we look at the Financial Stability Oversight Council, hows it funded . Its funded the way you set up under the statute. You all have the authority to change it if you wanted to do that. Well, let me help. Assessments from bank Holding Companies, banking Holding Companies managing 50 billion or more in assets. Are taken and placed in a treasury called the Financial Research fund. This money is giving to fsoc in the office of Financial Research without oversight. Ive got a bill that would actually subject the fsoc and the office of Financial Research to oversight. Do you agree with that, congressional oversight . Well, i dont agree or disagree. If you can get it passed, im sure fsoc would comply with it. Well, im looking at the budget that fsoc approved for itself in 2015. Can you tell me, sir, under nonlabor costs, what is included in other support . Weve got full briefing before we voted on that budget. At the time, i understood every aspect of it. I dont remember specifically what each category is now. But we didnt just rubber stamp that budget, i can assure you. Would you submit that to my office on request . I think it would be appropriate for fsoc, for you to make that request to fsoc rather than to me individually. I would not submit it as an individual member of fsoc. Thank you. The time of the gentleman has expired. There is another vote on the floor, approximately 12 minutes. We have three members remaining in the queue, one who has left to go vote on the floor. I think we can get through this and hopefully adjourn thereafter. The chair now recognizes the gentleman from florida, mr. Posey. Thank you very much, mr. Chairman. Id like to read a couple quotes. This is from the wall street journal. For the weekend of october 28th, the Bank Reported holding negative 1. 4 billion of Investment Grade Corporate Bonds maturing in at least 13 months, according to the Federal Reserve bank of new york data. The figures, which signify banks have pledged to sell more bonds than they will buy, reflect the net holdings at banks that act as a primary dealer authorized to trade billions of dollars of u. S. Securities with the fed and buy treasury debt directed option. On may 1st, 2015, richard kechum stated there have been direct changes with respect to the fixed income market in recent years. Many have come in the reaction of the failures and Market Impact coming out of the credit crisis. That has led to much higher Capital Requirements. The volcker rule that limits proprietary of bank trading, a range of other issues that have all had Significant Impact from the standpoint of liquidity of the fixed income market. And finally, the director of Exchange Traded funds for the search firm said volume in the Corporate Bond market has dried up so much that it alone may pose a significant systemic threat. And so my question for director cordroy, according to the fsoc website, the Financial Stability Oversight Council has a clear statutory mandate that creates for the first time collective accountability for identifying risk and responding to emerging threats to Financial Stability. While the rest of the world has been identifying an emerging threat to Financial Stability, namely regulations like volcker rule and liquidity standards and other doddfrank mandates that are draining liquidity from our fixed income markets, the fsoc and its chairman, secretary lu, has steadfastly refused to acknowledge that regulations are playing any role in creating this Systemic Risk. As a Voting Member of fsoc, what resources have you marshalled and what experts have you consulted to better understand the causes and consequences of reduced Bond Market Liquidity . So i think i would add that to a point i thought i made earlier was also a good point, which is that as we add structure and regulations and requirements, we should consider the effects on the International Competitiveness, and i also think youre raising a fair point, which is we should consider the effects on potential liquidity in the markets, and its been raised earlier in the hearing as well. These are the kinds of considerations that should go into the kinds of work that is being done by the fsoc, and frankly, work thats being done by the congress. Quite a bit of the criteria that fsoc is employing is criteria that congress set, that were merely following, enforcing, and carrying out. But i think its a fair point that youre making about how different requirements and different structures can potentially affect on the one hand stability, safety, and on the other hand, potentially liquidity. So i think its fair for us to consider that as we go. What kind of Technical Expertise do we have on the treasury staff to address that . So i think we have the same Technical Expertise there that we have on all the other issues the fsoc is considering, which is there is fsoc staff itself in the office of Financial Research, and from the member agencies of fsoc, there was a graph put up earlier from a gao report. It was used at the time to suggest that certain agencies didnt devote enough people to certain problems, but what was notable is when you look down the columns, the aggregate number of peoples devoted to address certain issues was ranged from in the 50s to in the 90s. Its a considerable amount of support. This is very high level support. Were talking about some of the top analysts, economists, statisticians and researchers from all of these member agencies, including treasury and the Federal Reserve. Theyre the same kind of people who work on all the complicated difficult Financial Issues in our economy, such as Monetary Policy, fiscal policy, international issues, and the like. So essentially, were talking about the treasury staff then . No. I think were talking about staff from all the member agencies. And depending on the issue, there may be more or less staff from different parts, more banking agency, staff on a banking issue, more investment regulator, staff on an investment issue, and the like. Well, if compelling evidence is presented to the fsoc, that regulations are, in fact, contributing to the illiquidity of the bond market, and thereby creating potential Systemic Risk, do you agree that fsocs mandate from congress requires it to make recommendations, which could revisiting the aspects of the postcrisis regulatory response like volcker . So youre asking me to speak only for myself, this is not a consensus view of fsoc. If that were shown to be the case, if the evidence were so demonstrated, i think that would be fair game. The time of the gentleman has expired. The chair recognizes the gentleman from north carolina, mr. Pittinger. Thank you. In the report, it reviewed the Consumer Complaint database on page 28. The recommendation was made to improve the process of how difficult the complaints of the database can be identified, including a recommendation that they must be verbatim. Do you recognize the grave concern that this is for these companies who are stigmatized. Do you see the impact this is having, and particular if theres not an investigation to determine that these to verify these complaints before they go to the website . What does the Department Plan to do, the bureau plan to do to correct this . So, we actually just had a completed report and audit study done by our Inspector General of the Consumer Complaint database. It was just issued in september. So less than two months ago, it indicated that there were a very small number of errors in the system. And that was a report and study and investigation that we followed very closely. Thats available for review . Yeah. I believe publicly available, its been issued. And gao has also looked at this over the years and made a number of recommendations to us. Were very mindful of those. Were very mindful of recommendations that you and your colleagues may want to bring to us as well. We do feel strongly that a public complaint database is important for institutions to step up their customer response. Do you agree it should be verbatim to be deemed as being the same complaint . It will have to be verbatim . There are issues around the term verbatim. And ive been in discussions with that with our ombudsman, with that with other overseers. Its something our consumer Response Group is looking at carefully to try to make sure that they scrub that. I appreciate that. Well be happy to give you more information. Will each of you provide the committee with any fsoc documents containing or relating to communications between the Financial Stability board and fsoc . Each bodies members or staff concerning the designation nonbank Financial Companies, or systemically important Financial Institutions. As far as global sefis is that acceptable to each of you all . I dont have any. I can tell you that now. Nor do i. Im not a member of the fsb. I have attended one or two meetings. Id like to hear the question again, but i dont believe i have anything. Go ahead, chair. I was going to say, i think theyre based on production of documents, but i would check. I think the basis is one of transparency. I think weve recognized the lack of adequate transparency with the agencies and were looking to find ways to rectify that. Lets have a show of hands then, if you would, regarding your belief that fsocs deliberations should be more open to the public. Scrutiny than in current practice. Would you all agree to that then . Do you believe that there should be more openness . I think weve provided for more openness as weve been amending and changing procedures. Do you think theres a basis to be more open . In light of whats been discussed today . Let me say what i have in mind. Clearly, we believe transparency is vital in our government. And i will be introducing a bill later on today that will provide a greater measure of transparency. Here are the two elements of this bill. First is to testify semiannually, each of you, before the fsc, and you cannot decline, its a requirement. It would be mandatory. Or permit all members of the Financial Services committee and the Senate Banking committee to attend all fsoc meetings, whether or not theyre open to the public. Would you agree that that would be acceptable . Is there a problem with any of those . If you can get it passed, i mean, well comply with the law. I will comply with whatever law you pass. Do you think thats reasonable . I dont think its reasonable do you think its reasonable . I certainly think we all should be responsive to bodies of congress. All of us at any time were asked without the necessity of a bill, but i think were just saying to testify semiannually or allow us to come to the hearings. But i think in terms of the fsoc process, we have to be very careful about what its designed to do, and also, the nature of the its designed toward openness. I think we should continue to look at the openness for sure. Thats what its designed for, thank you. The time of the gentleman has expired. The chair recognizes the gentleman from new york, mr. Meeks. Thank you, mr. Chairman. The banking regulators just concluded that total loss of capacity, proposal for globally systemically important banks would require banks to hold a certain amount of capital, but also requires them to issue a certain amount of unsecured debt that can be converted to capital in case of the banks failure. However some observe earn observers, including, i believe, your vice chair is concerned that the proposals call for banks to take on more debt at a time that the fed is getting ready to raise Interest Rates. He says that this is a risky and dangerous proposition. Is this concern legitimate . I think the insecure debt requirement is an important component of efforts to make these systemic companies able to fail in an orderly way without putting the taxpayer at risk, congressman. The experience is that when a Financial Institution fails, all of its capital, all of its equity is wiped out. The only thing that remains is debt held by the firm, which is then available on a closed institution basis after the institution fails to be converted to capital so that the private creditors of the failed company bear the losses for managing the failure of the institution. And as it turns out, most of the Large Financial Companies in the United States, if you have substantial amounts of insecure debt, it would ensure that they maintained the minimum amount. So if they get into difficulty, they can fail. And its the private creditors and not taxpayers that are put on the hook. So for that reason, i think the proposal has merit. Thank you. Let me jump to someone who im used to seeing sit up here. Its still funny to see him sit down there. Thats the honorable mel watt. In recent weeks, theyve shifted from wholesale replacement to genuine reform as replacing fanny and freddie in the political environment seems more unlikely. Replacing them is completely unlikely. We all want more private capital in housing finance, but my question is do you believe there is enough private capital to fulfill the role the dses play without raising Mortgage Rates substantially. And what other challenges and lessons are you experiencing as you get more involved in the risk sharing mechanisms . Weve tried out a number of risksharing mechanisms, trying to transfer as much of the risk to the private sector as possible. We are concerned that the private sector, the capacity of the private sector to take on this risk. Particularly in an economic downturn or a distress situation would concern us greatly. If the entire system were converted to the private sector, you would have that risk of not having a backstop during a downturn and you would have the risk of i think of increased cost to borrowers. Both of which i think would need to be evaluated by congress as they evaluate the move forward. Thank you. I would love to have gone back. Let me ask this question real quickly. Amid regular laegss and supervision, the good news is we are starting to see banks taking steps to reduce risks and exit out of certain risky activities. On the other hand, theres a concern because some of the activities are just shifting to less regulated shadow banking entities and that banks are getting out of certain communities and in certain countries. So are we denying services to millions of lower income americans . Because the Profit Margins are not as high or too low . To my knowledge, theres no evidence of that, congressman. It is something we would assess in the course of our analysis of the investment act. The chair recognizes the gentleman from South Carolina for five minutes. I thank the panel for sticking around. It means a lot to us that yall dont put hard stops on us, it lets us have some flexibility and do this throughout the day. I also apologize for having to to run and out throughout the day. Were having serial motions to adjourn. It has to do with guns, im told. Couldnt explain it while i was here, so i certainly cant explain it now. I hear you. I want to go back to something that mr. Green said early on in the hearing today. He mentioned the metlife lawsuit and talked about the jurors, and said those folks dont have to have any particular insurance experience, dont they . And of course, they dont, thats not the way our legal system works. Then he asked you if you agree with that. I think everybody agreed jurors dont need to have that. Thats not really the standard. For the members of this group, right . Does anybody think that ten good persons in true could serve in this role, or is it a good idea to have everybody agrees we should have some expertise, right . Thats why youre there. And that you couldnt do this job if we just randomly picked you off the streets. So i didnt want people walking out of here thinking the standard for you folks is the standard for a juror. And i want to go into something that i believe he said to the chairman early on about the process you went through. Your Decision Making regarding metlife. You said you were briefed extensively, which i want to talk about a little bit. You said it was done by the fsoc staffers. Lets talk about that. Was this to you individually . Was it to you and your staff . Was it to you as a group . Tell me how you were briefed on this, ms. Matz. I was briefed by my staff who participates actively with the fsoc staff, the fsoc deputys council. And then we were briefed extensively as a council, and we also received a great deal of briefing material. Gotcha. All right. The final determination has been june 30th. Do you remember the first time you were briefed on that . I dont. Was it days in advance . Weeks . Months . It had been in the works for probably a year or more, more than a year. We were briefed on progress and consideration. So i couldnt tell you when it was. But the staff worked on the designation for quite a long time. The staff worked on it. I get that. We do that here as well, as mr. Watt would say. But how much time did you spend on it yourself . I spent a long time because it was a tremendous amount of information both to get in briefings and reading material. The basis was i believe 300 orsomeodd pages. Okay. Did you block off times during the day for reading those materials . I brought them home. At night and on weekends. I do the same thing. The reason im focusing on you, is you mentioned it during your opening statement. I think you also mentioned mr. Holkrin in response to some of his questions. Given your extensive responses on the material and the understanding that the statute requires you to look at 11 different factors, i want to go through them very briefly. You mentioned in your opening testimony or response that one of the things that stood out in your mind was the derivative. That that was one of the things that stood out in your mind, making the metlife decision, or voting for the designation. So tell me what it was about the derivatives that you thought was important. We just cant discuss that right now because its in litigation. So we have Public Information on the fsoc website, but were not at liberty to discuss the details of the deliberation. Let me ask you that way. I disagree with that, by the way. We get that a lot. I dont like it now that im here. Because you can tell us stuff. Well skip it then. You made the same determination for prudential. And you voted to designate them. And they are not in the lawsuit right now. So i take it you did the same level of preparation in making your decisions for prudential than you did for metlife . Correct. So what was it about the derivative decision that prudential had that made you inclined to vote for the designation . Well, it wasnt just one item. It was the totality of i get that. Tell me one thing about the derivative position. The size of it. I cant remember off the top of my head. It was a huge amount of derivatives. Huge in relation to what . In relation to other institutions, how they were exposed to other institutions, and exposed other institutions thats not my question. In relation to the size of their assets . Their exposure. It wasnt in relation to the size of their assets. We view it in relation to their exposure to the Financial System of the United States. Was it a billion dollars . What was the size of their derivatives . I dont know. Thank you. The gentlemans time has expired. The chair now recognizes himself for five minutes. Its a fundamental american principle that in america we follow the rule of law. And for the rule of law to be meaningful, of course it has to be transparent. It has to be written down. People have to have the ability to understand the law and see whether theyre complying with it. We want to talk about that principle in the context of the fsocs current approach and designated nonbank Financial Institutions, particularly Insurance Companies under that designation. Under the rule of law, folks first ought to understand why theyre being regulated, what are the standards were applying to determine whether youll be regulated and how theyll be regulated. What are the standards youll be held accountable to if you are designated a nonbank sifi. Mr. Woodall, youve been very patient today. I have to concede, this is a panel full of phi beta kappas. Im phi beta kappas. For this complex world of acronyms and regulatory structure, were trying to figure it out. In the construct of the rule of law that i talked about, i have offered legislation that i think is really a modest proposal. Its hr3857. And heres what it does very simply. Ill read it here to make sure im getting it accurate. The bill would simply prevent fsoc from designating any further nonbank Financial Institutions for heightened fed supervision until 90 days after. First the Federal Reserve establishes prudential standards, as required by section 165a and b of doddfrank. Two, the Federal Reserve promulgates regulations exempting certain types of nonbank Financial Companies from supervision, as required by section 170 of dodd frank. And third, the fsoc reevaluates within calendar year 2016 each previous sifi designation and rescinds any such designation if it determines that the Nonbank Financial Company no longer meets the standard for designation that have been brought forward. Just would like to get your reaction. Would that legislation prevent fsoc from doing its job . I was waiting to see what the question was going to be. Would it prevent what now . Fsoc from doing its job. Would that seem like a reasonable proposal . The company that will be designated or entities that are designated, nonbank sifis have some way of understanding why it is theyre designated that way and and off ramp that would allow them to determine that was your third point. It seems to me thats what were working for right now. To try to get more clarify in what that exit ramp is. I have submitted a list of 17 different options for the fsoc to consider. Its now being submitted by their deputies. Theres ways to clarify that where it can be much more clear to the company what it needs to do. The company says tell us what were doing wrong and well fix it. Is there any way you can provide that list of 17 to the committee . Yes. Thank you. I guess i will open it up to the rest of the panel. Can someone give me the rationale for designating nonbank entity sifis before establishing any public standard for doing so . And question two, before establishing the criteria that they will be held to . I think the criteria by which we designate will set forth in the statute. And they were further spelled out as far as the procedures in our rules, which are subject to so youre telling me you believe that the entities that are being designated sifis understand the standards by which theyre being evaluated . They are publicly available, and i think we also provide memoranda to the Company Prior to the designation. Any others . Thank you. Seeing no one else in the queue and no further questions, i thank the panel for their stamina, and for their testimony today. Without objection, all members will have five legislative days within which to submit additional written questions for the witnesses to the chair, which will be forwarded to witnesses for their response. I ask our witnesses to please respond as promptly as you are able. Without objection, all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record. The hearing is now adjourned