[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
THE FINANCIAL STABILITY BOARD'S
IMPLICATIONS FOR U.S. GROWTH
AND COMPETITIVENESS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON MONETARY
POLICY AND TRADE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 27, 2016
__________
Printed for the use of the Committee on Financial Services
Serial No. 114-106
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HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking
Vice Chairman Member
PETER T. KING, New York CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California
SCOTT GARRETT, New Jersey GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico RUBEN HINOJOSA, Texas
BILL POSEY, Florida WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK, STEPHEN F. LYNCH, Massachusetts
Pennsylvania DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin KEITH ELLISON, Minnesota
ROBERT HURT, Virginia ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina BILL FOSTER, Illinois
RANDY HULTGREN, Illinois DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania DENNY HECK, Washington
LUKE MESSER, Indiana JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
TOM EMMER, Minnesota
Shannon McGahn, Staff Director
James H. Clinger, Chief Counsel
Subcommittee on Monetary Policy and Trade
BILL HUIZENGA, Michigan, Chairman
MICK MULVANEY, South Carolina, Vice GWEN MOORE, Wisconsin, Ranking
Chairman Member
FRANK D. LUCAS, Oklahoma BILL FOSTER, Illinois
STEVAN PEARCE, New Mexico ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia JAMES A. HIMES, Connecticut
MARLIN A. STUTZMAN, Indiana JOHN C. CARNEY, Jr., Delaware
ROBERT PITTENGER, North Carolina TERRI A. SEWELL, Alabama
LUKE MESSER, Indiana PATRICK MURPHY, Florida
DAVID SCHWEIKERT, Arizona DANIEL T. KILDEE, Michigan
FRANK GUINTA, New Hampshire DENNY HECK, Washington
MIA LOVE, Utah
TOM EMMER, Minnesota
C O N T E N T S
----------
Page
Hearing held on:
September 27, 2016........................................... 1
Appendix:
September 27, 2016........................................... 21
WITNESSES
Tuesday, September 27, 2016
Bergner, Jonathan, Assistant Vice President for Federal Policy,
National Association of Mutual Insurance Companies (NAMIC)..... 9
McDowell, Carter, Managing Director and Associate General
Counsel, the Securities Industry and Financial Markets
Association (SIFMA)............................................ 6
Stanley, Marcus, Policy Director, Americans for Financial Reform. 7
Stevens, Paul Schott, President and Chief Executive Officer, the
Investment Company Institute (ICI)............................. 4
APPENDIX
Prepared statements:
Bergner, Jonathan............................................ 22
McDowell, Carter............................................. 29
Stanley, Marcus.............................................. 43
Stevens, Paul Schott......................................... 49
Additional Material Submitted for the Record
Huizenga, Hon. Bill:
Written statement of the American Council of Life Insurers... 73
Written statement of the Property Casualty Insurers
Association of America..................................... 76
THE FINANCIAL STABILITY BOARD'S
IMPLICATIONS FOR U.S. GROWTH
AND COMPETITIVENESS
----------
Tuesday, September 27, 2016
U.S. House of Representatives,
Subcommittee on Monetary
Policy and Trade,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2 p.m., in
room 2128, Rayburn House Office Building, Hon. Bill Huizenga
[chairman of the subcommittee] presiding.
Members present: Representatives Huizenga, Mulvaney,
Pearce, Pittenger, Schweikert, Guinta; Moore, Foster, Himes,
Murphy, and Heck.
Chairman Huizenga. The Subcommittee on Monetary Policy and
Trade will come to order. Without objection, the Chair is
authorized to declare a recess of the subcommittee at any time.
Today's hearing is entitled, ``The Financial Stability
Board's Implications for U.S. Growth and Competitiveness.''
Just for notification, they have called votes. We are going
to keep an eye on this. We are going to try to get as far as we
can. We will do some opening statements here of the two members
and we will kind of be assessing our timing. And then, we would
just ask for members and for staff who are with members to try
to get people back here as soon as possible right after votes
and we will continue.
So, with that, I now recognize myself for 5 minutes to give
an opening statement.
The 2007-2008 financial crisis and subsequent global
economic turmoil underscored the interconnectedness of the
global financial system as well as its weaknesses. Following
the crisis, leaders from the United States and other countries
have pursued a wide range of reforms to the international
financial regulatory system.
In 2009, the Group of 20, or G20, created the Financial
Stability Board (FSB) as a group of finance ministers, central
bankers, and financial regulators tasked with promoting
international financial stability. Primary U.S. representatives
to the FSB are the Board of Governors of the Federal Reserve
System, the Securities and Exchange Commission, and the
Treasury Department. The FSB is charged with a very broad
mandate to address vulnerabilities affecting the global
financial system and to develop and promote implementation of
effective supervisory and regulatory policies promoting
financial stability.
According to the FSB, while its decisions are not legally
binding on its members, ``The organization operates by moral
suasion and peer pressure in order to set internationally
agreed-upon policies and minimum standards that its members
commit to implementing at national level.'' However, to ensure
domestic implementation of FSB standards, the FSB has adopted
measures to pressure jurisdictions to comply with these
criteria.
Since 2008, the FSB has aggressively designated large banks
and insurers as global systemically important financial
institutions, or G-SIFIs. In fact, in July of 2013, the FSB
designated nine large insurance groups as G-SIFIs, including
three from the United States: American International Group;
Prudential Financial; and MetLife, Incorporated. Shortly
thereafter, the Financial Stability Oversight Council (FSOC)
appeared to rubber-stamp the FSB's decision and named AIG,
Prudential, and MetLife as SIFIs.
Although the AIG decision was expected by many, since the
company had famously been bailed out by the Treasury and the
Federal Reserve during the financial crisis, it is unclear as
to why Prudential and MetLife were deemed SIFIs. If the FSOC
SIFI designation has any validity, it must have the ability to
act independently, meaning without interference from
international regulatory entities, and describe how each
decision was reached.
For example, the Prudential decision was the first
designation of a nonbank financial institution as a SIFI,
although the firm had not yet suffered any significant
financial distress during the financial crisis. However, the
available evidence indicates that rather than exercising its
own independent judgment about SIFI designations and other
regulatory initiatives, the FSOC, led by the Treasury and the
Federal Reserve, instead outsourced its regulatory authority to
the FSB.
It is very troubling that American regulators would
relinquish any regulatory authority to unelected European
bureaucrats who meet behind closed doors in a secretive fashion
to determine the fate of U.S. financial institutions. Because
very little is known about the FSB, I have very serious
concerns about the arbitrary decision-making process used to
formulate policy that is devoid of any and all public
participation.
It is important to note that the FSB has no supervisory
authority or regulatory power to compel compliance with
internationally agreed-upon standards. However, it appears the
FSB has become a shadow regulatory agency, using backdoor
channels to determine a one-size-fits-all approach to applying
European standards on American financial institutions.
Even in today's challenging economic environment, America
has consistently outperformed our friends across the Atlantic.
I find it mind-boggling that U.S. regulators would allow
themselves to be ``pressured into ceding regulatory sovereignty
to the very bureaucrats who have crippled innovation and ground
economic growth to a halt in Europe.'' It is completely
unacceptable, and I look forward to hearing from our witnesses
today on these issues.
The Chair now recognizes the ranking member of the
subcommittee, the gentlelady from Wisconsin, Ms. Moore, for 5
minutes for an opening statement.
Ms. Moore. Thank you so much, Mr. Chairman.
And I just want to thank this distinguished panel. We do
apologize ahead of time for having to run off, but we will
return eager to hear your testimony.
You guys are veterans on this subject, and so I just want
to begin with some perspective. We have learned, kind of the
hard way, that there is nothing as global as capital, and it
moves and it moves very fast. We have literally drilled holes
in the sides of mountains so that we could lay the fiberoptic
cable from Chicago to New York to facilitate trades at near the
speed of light. And the cost to lay that cable was $300
million, built to arbitrage the difference in price between New
York Stock Exchange and CME option prices. And it got trades
down from 13.1 milliseconds to 12.98 milliseconds.
What is my point here? Global markets are moving in
nanoseconds, and weaknesses in our financial regulation will be
exploited with the same ruthless efficiency.
The reality today is that these firms operate globally and
have trillions of dollars in assets under management. We talk a
lot about size, but neither Lehman Brothers nor Bear Stearns
were the largest players, but in the post-Dodd-Frank Wild West
of Wall Street, they were able to cause untold financial pain
on untold Americans.
And I think that the overarching regulatory goals of the
FSOC and FSB are exactly on point. I have listened and I have
been very sympathetic to some of the concerns regarding both
the domestic FSOC designation process and the FSOC-FSB
coordination with respect to differences in U.S. and European
regulatory models, primarily in the area of insurance and also
in the mutual fund industry.
Specifically, I pushed back against money market mutual
fund rules that require floating the net asset value of funds
by introducing bipartisan legislation. We are seeing a five-
time increase in borrowing costs for our State and local
governments as a result of this floating NAV, and it is just
not acceptable in Europe. And Europe abandoned a similar
proposal already.
But overall, we need to collectively breathe and understand
that the decisions of the FSB are not binding on the United
States. Equivalent does not mean identical, though, and the
FSOC/FSB have generally moved cautiously and worked with
tremendous coordination among the various regulators, industry,
and this Congress.
I have stated my strong support for State-based regulation
of insurance. And I think we all clearly understand the
different approaches to regulation in the United States and
Europe. What is more, U.S. regulators understand and appreciate
the differences.
With that, I can tell you one thing: Going back to a pre-
Dodd-Frank world does not help U.S. competitiveness nor growth.
U.S. markets run on confidence. Savers want confidence that
financial firms are being operated in a safe and sane manner
and that their employees at those firms are acting on behalf of
their clients.
Markets mean taking risks, yes. Tolerating and harboring
schemes, fraud, and scams is something entirely different.
With that, I yield back, and I look forward to our
continued discussion.
Chairman Huizenga. The gentlelady yields back.
And I, too, look forward to our continued conversation.
We are down to 5 minutes left in this vote across the
street, so I believe we are going to have to hustle over there.
I would like for any staff listening as well, if you could make
sure that your Members know that at 5 minutes after the last
vote, we would like to reconvene.
[recess]
Chairman Huizenga. The subcommittee will come to order.
Thank you for your patience. I appreciate that.
Today, we welcome the testimony of Mr. Paul Stevens,
president and chief executive officer of the Investment Company
Institute (ICI); Mr. Carter McDowell, managing director and
associate general counsel for the Securities Industry and
Financial Markets Association (SIFMA); Dr. Marcus Stanley, the
policy director at Americans for Financial Reform; and Mr.
Jonathan Bergner, assistant vice president for Federal policy,
National Association of Mutual Insurance Companies (NAMIC).
Each of you will be recognized for 5 minutes to give an
oral presentation of your testimony. And without objection,
each of your written statements will be made a part of the
record.
And with that, Mr. Stevens, you are now recognized for 5
minutes.
STATEMENT OF PAUL SCHOTT STEVENS, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, THE INVESTMENT COMPANY INSTITUTE (ICI)
Mr. Stevens. Thank you, Chairman Huizenga, Ranking Member
Moore, and members of the subcommittee. I am pleased to be here
to testify on the role of the Financial Stability Board.
ICI supports appropriate regulation to ensure a resilient
financial system, and that includes looking at potential risks
in asset management. We also favor international regulatory
coordination, and we have responded constructively to the FSB's
efforts to date. Just last week, we filed a comment letter
commending the FSB for its focus on activities across the asset
management sector and for referring specific recommendations to
the International Organization of Securities Commissions
(IOSCO) and to its securities regulatory members. Here in the
United States, we have supported SEC Chair Mary Jo White's
examination of asset management practices and related
rulemakings.
And all that having been said, the work of the FSB remains
a cause for deep concern. Why? Because the FSB has promised to
return to the question of designating institutions like large
U.S. stock and bond funds as ``systemically important,'' a step
that could have grave implications for U.S.-regulated funds and
the 90 million Americans who depend upon them.
From its inception, the FSB has been dominated by central
bankers and a banking mentality. To these central bankers,
capital markets activity constitutes ``shadow banking,'' a
risky, shadowy form of finance. Why? Because it is not
regulated like banks. While IOSCO and securities regulators are
beginning to take a larger role, the FSB's work on asset
management is still overseen by banking regulators who,
frankly, lack understanding of capital markets. That is
reflected in FSB's emphasis on distress and disorderly failure,
concepts that are derived from banking. And the FSB's return to
SIFI designation for funds could bring asset management under
bank-style regulation, no matter how harmful or inappropriate
that might be.
We have serious reservations about transparency, fairness,
and accountability in the FSB's work. As members of this
subcommittee know, Congress cannot even determine what
positions the U.S. delegation takes in the FSB's deliberations.
The FSB's work falls far short of being evidence-based. It
disregards empirical data and analysis in favor of conjectures,
conjuring up visions of fire sales and spillover effects to
claim that regulated funds may pose threats to financial
stability.
ICI and its members have provided extensive analysis that
squarely rebuts the FSB's hypotheses about regulated funds and
fund managers, and we have urged, thus far to no avail, that
the FSB reexamine its work in light of empirical evidence.
Taken together, all of these problems raise questions as to
whether the FSB's work in asset management is simply results
oriented, that is, intended to ensure the designation of the
largest and most successful funds on the globe, almost all of
them U.S. funds. After all, the FSB's very purpose is to
influence and shape regulation in the United States and other
countries.
We are concerned that the FSB's designation work could
front run and prejudge issues at our Financial Stability
Oversight Council. The U.S. representatives to the FSB are
principal players on our FSOC. The FSB's designation of three
U.S.-based insurance companies presaged FSOC's designation of
those very same companies. Similarly, a flawed FSB methodology
that identifies U.S. funds might very well lead to designation
of those funds by the FSOC. If that happens, we believe the
consequences for funds and their millions of investors will be
serious indeed.
Under Dodd-Frank, designated funds would be subject to
inappropriate bank-style regulation, including capital
requirements. Investors will face higher costs and lower
returns. Fed supervision could put the interests of the banking
system ahead of the fund's fiduciary duty to their own
shareholders, and America's retirement savers could be on the
hook to help bail out other failing financial institutions.
For all of these reasons, we urge that Congress provide
effective oversight of the U.S. agencies participating in the
FSB and encourage constructive reforms. Congress must extend
its oversight to multilateral bodies like the FSB that are
expressly designed to shape domestic U.S. regulations.
Finally, Mr. Chairman, let me just note that the FSB's
process, transparency, and analytical shortcomings are also
apparent at the FSOC. That is why the ICI strongly supports
H.R. 1550, the bipartisan Ross-Delaney FSOC Improvement Act, a
bill that will codify improvements to the SIFI designation
process and advance the goal of reducing systemic risk.
Thank you for your attention. I look forward to your
questions.
[The prepared statement of Mr. Stevens can be found on page
49 of the appendix.]
Chairman Huizenga. Thank you.
With that, Mr. McDowell, you are recognized for 5 minutes.
STATEMENT OF CARTER MCDOWELL, MANAGING DIRECTOR AND ASSOCIATE
GENERAL COUNSEL, THE SECURITIES INDUSTRY AND FINANCIAL MARKETS
ASSOCIATION (SIFMA)
Mr. McDowell. Thank you, Chairman Huizenga, Ranking Member
Moore, and distinguished members of the subcommittee. Thank you
for providing me the opportunity to testify today on behalf of
SIFMA and to share our perspectives on the effect that
international standard-setting bodies such as the FSB, the
Basel Committee, and IOSCO have on the financial services
industry and the U.S. economy.
I begin with an observation that echos what many on this
committee have identified: U.S. financial markets are
unparalleled in their size, depth, dynamism, diversification,
and resiliency. These attributes and qualities are not a given,
and SIFMA works with its members to preserve these attributes.
Capital markets play a more significant role in the U.S.
economy than they do elsewhere. In fact, here in the United
States, about 80 percent of capital formation happens in the
capital markets, and only about 20 percent of lending happens
in the banking sector. In the rest of the world, those
percentage are reversed.
As Ranking Member Moore stated in her opening statement,
there is nothing more global than capital. And U.S. firms
operate both domestically and globally in all of these markets,
and they compete among themselves and with U.S. nonfinancial
firms.
Our industry has worked with regulators since the financial
crisis to make top-to-bottom reforms, implement the
requirements of the Dodd-Frank Act, and establish other robust
risk management practices to rebuild trust in the financial
services industry.
One of the strengths of the U.S. financial markets has been
the result of a regulatory system that has historically been
transparent and collaborative, involved robust public
participation, and considered the particular circumstances of
U.S. markets. However, in recent times global policymakers have
found it increasingly necessary to establish harmonized
regulatory standards for financial institutions internationally
with the goal of leveling the playing field among financial
institutions based in different jurisdictions, minimizing the
opportunity for cross-border arbitrage, and creating more
consistent rules of the road for financial institutions and
their customers and counterparts. SIFMA supports and shares
these goals.
The result of this dynamic, however, is that major changes
affecting the regulatory framework of the United States'
prudential and market regulation increasingly originate in
international regulatory standard-setting bodies. The process
typically begins with the adoption of an international standard
at the FSB, the Basel Committee, or somewhat less frequently,
IOSCO. And only after final adoption of the international
standards, do U.S. regulators typically initiate a notice-and-
comment rulemaking procedure under the Administrative
Procedures Act to translate the international standard into
U.S. law.
SIFMA recognizes that international standard-setting bodies
have necessary and appropriate roles to play in coordinating
global regulatory efforts. However, these bodies and the U.S.
regulators' participation in them should be subject to much
more robust scrutiny, transparency, and procedural requirements
than they are currently. Procedural reforms that enhance public
participation in the rulemaking process would improve the
quality and fit of international and domestic regulation,
ultimately to the benefit of U.S. financial markets and the
businesses and customers who rely on these markets.
In light of the increasing internationalization of
financial regulation and the many serious issues outlined in my
written statement, SIFMA believes it is time for a critical
examination of how U.S. regulators engage with international
bodies because of the impact these bodies have on U.S. domestic
policy.
We hope that Congress will use this opportunity to mandate
improvements in the international standard-setting process in
two ways. First, Congress should require the U.S. regulators to
improve the process they use when they participate in
international rulemaking. SIFMA strongly supports Section 10 of
H.R. 3189, the Fed Oversight Reform and Modernization Act, or
the FORM Act, which would require the U.S. banking regulators--
the U.S. Treasury and the SEC--to notify the public before
participating in a process of setting international financial
standards and to seek public comment on the subject matter,
scope, and goals of such process.
Secondly, Congress should require, through legislation,
reforms in the standard-setting process of the international
bodies themselves. These reforms could include requiring the
holding of public meetings, publication of records, more
reliance on data, public disclosure of the cost-benefit
analysis, and republication of any material changes that are
made to the accords prior to their adoption.
It is clear Congress does not have the authority to impose
requirements directly on international regulatory bodies.
However, you can impose conditions on the participation of U.S.
regulators in these bodies. And participation of the United
States is so important to the legitimacy and influence of these
bodies that they would likely adopt any reasonable conditions
that Congress imposed. The important role these bodies play can
be coordinated, and we underscore the need for that. I look
forward to your questions.
[The prepared statement of Mr. McDowell can be found on
page 29 of the appendix.]
Chairman Huizenga. Thank you.
Dr. Stanley, you are recognized for 5 minutes.
STATEMENT OF MARCUS STANLEY, POLICY DIRECTOR, AMERICANS FOR
FINANCIAL REFORM
Mr. Stanley. Chairman Huizenga, Ranking Member Moore, and
members of the subcommittee, thank you for the opportunity to
testify today.
I believe our starting point in thinking about the
implications of the Financial Stability Board for the U.S.
economy should be the actual powers of the FSB. It is a
nongovernmental association with no statutory powers under U.S.
law. Its output consists of reports and recommendations, not
laws or regulations. The FSB's standards and recommendations
can only be legally realized through the actions of legislative
or administrative bodies in member states. In the United
States, such actions require either laws to be made through the
constitutional processes or regulations passed through notice-
and-comment rulemaking.
Since the FSB does not have legal status under U.S. law,
its direct impact on the U.S. economy is close to nonexistent.
This is in sharp contrast to some other international
discussions, such as those resulting in trade agreements. The
negotiation process for trade agreements provides far less
transparency than the FSB process, and such agreements become
part of U.S. law once they are ratified. It is ironic that many
who do not question the effect of trade agreements on U.S.
sovereignty are expressing such concerns about the impact of
the FSB.
At the same time, the standards set by the FSB do indicate
the consensus of the international regulatory community.
Elements of this consensus have come under strong attack from
industry interests in the United States. These attacks are
sometimes made, even when there is no strong difference in
views on FSB policy recommendations. For example, the latest
comment letter from the Investment Company Institute to the FSB
states: ``And large, we have few objections to the proposed
policy recommendations.''
The ICI's concern seems to be less with the FSB's actual
recommendations than with the very fact that the FSB believes
there is the possibility of systemic risk in the asset
management sector.
It is useful to consider the general role of the FSB as a
forum for international coordination of financial regulation.
Given the globalized nature of financial markets, the need for
such a forum is obvious. We regularly see industry calling for
improvements in cross-border regulatory coordination. From a
different perspective, public interest groups such as my own
have fought for high standards of financial regulations across
all global financial centers. If an international forum like
the FSB did not exist, we would probably all be urging
regulators to create it.
But international coordination should not mean a one-size-
fits-all approach. National circumstances and preferences
differ. AFR has consistently fought for super equivalence of
U.S. regulations when the consensus of international regulators
fell short of the level or type of oversight needed to ensure
the safety of the U.S. financial system.
Much of the specific criticism of the FSB relates to
regulation of nonbanks, particularly investment funds, and
insurance companies. We support the efforts of the FSB to
examine potential risks in these sectors. At the heart of the
2008 financial crisis was a comprehensive failure of capital
market liquidity. As major players in the capital markets,
asset managers and insurance companies can contribute to such
failures of liquidity through disorderly forced selling of
assets and/or an inability to execute on commitments to
investors.
This concern is not simply theoretical. As outlined in my
written testimony, we know that insurance companies played a
major role in the 2008 financial crisis, both directly and
indirectly. My written testimony also outlines a variety of
ways in which poor management of investment funds can
contribute to systemic risk.
Investigating these potential threats to financial
stability is exactly what we should be asking our regulators to
do. International coordination can only help in that effort.
Regulations should be tailored to the specific national markets
being regulated. However, since the FSB does not directly
regulate U.S. markets, FSB involvement does not remove control
of these issues from the U.S. political or regulatory system.
Specific regulation can be promulgated by U.S. agencies and,
indeed, must be promulgated through U.S. agencies through the
notice-and-comment process.
This is exactly what is happening today. The SEC has
responded to concerns about asset management by issuing several
proposed rules addressing issues ranging from fund disclosure
to planning for investor redemptions. The Federal Reserve has
issued proposals related to the oversight of insurance
companies within their jurisdiction. Both industry and the
public can respond to these proposals, and both industry and
the public are currently doing so. The international dialogue
facilitated through the FSB is a helpful supplement to this
process.
Thank you for the opportunity to testify before you today,
and I am happy to answer any questions you may have.
[The prepared statement of Dr. Stanley can be found on page
43 of the appendix.]
Chairman Huizenga. Thank you.
And Mr. Bergner, you are recognized for 5 minutes.
STATEMENT OF JONATHAN BERGNER, ASSISTANT VICE PRESIDENT FOR
FEDERAL POLICY, NATIONAL ASSOCIATION OF MUTUAL INSURANCE
COMPANIES (NAMIC)
Mr. Bergner. Good afternoon, Chairman Huizenga, Ranking
Member Moore, and members of the subcommittee. Thank you for
the opportunity to speak to you today. My name is Jonathan
Bergner, and I am the assistant vice president for Federal
policy for the National Association of Mutual Insurance
Companies.
NAMIC is the largest property casualty insurance trade
association in the country, with more than 1,400 member
companies, representing 40 percent of the total market. We are
very appreciative of this subcommittee's focus on the
activities of the Financial Stability Board. Let me start by
saying that NAMIC believes that international organizations
which focus on joint monitoring, coordinating, and
communicating among regulatory jurisdictions can play an
important role in helping to protect a global economy.
However, NAMIC maintains that provisions in the FSB's
charter go well beyond generally expressed objectives and have
resulted in the FSB taking a more direct and prescriptive role
in monitoring how various countries implement global rules at
home. This extensive role has become particularly troubling for
the U.S. property casualty insurance industry.
NAMIC has significant concerns with many of the activities
at the FSB, as well as the opaque processes by which they are
conducted. Little is known about the decision-making process at
the FSB, and there is no formal process for communicating NAMIC
members' concerns to the U.S. representatives, which are the
Treasury, the Fed, and the SEC. But most importantly, there are
no U.S. State insurance regulators serving on the FSB. This
calls into question their ability to effectively determine what
is appropriate for insurance regulation. Nonetheless, this
bank-centric organization is directly guiding the policy work
and the timing of that work for the International Association
of Insurance Supervisors (IAIS).
In 2013, the global insurance industry was informed that
the FSB had directed the IAIS to develop a new group capital
standard for all large internationally active insurance groups.
These groups were arbitrarily defined and include over 50
companies that have not been designated as globally significant
insurance institutions. The IAIS has been working on this
capital standard since 2013, yet neither the FSB nor the IAIS
have ever actually defined the problem they were trying to
solve and have offered little substantive explanation as to why
these decisions were made.
Despite the intentions of the FSB and the IAIS, the
application of a global capital standard to individual
companies that come from very different regulatory environments
with very different economic and political objectives will not
produce comparable indicators of capital adequacy. But in their
zeal to achieve comparability, the FSB, through the IAIS, will
succeed only in generating unnecessary costs to governments,
insurers, and ultimately to the policyholders, and those costs
to the United States could be substantial.
In this process, our country has had to consider major
changes to our supervisory regulations, corporate law, and
accounting systems in order to accommodate the proposed group
capital requirements. These proposed standards are largely
derived from existing European standards, which will result in
U.S. insurers being placed at a competitive disadvantage
relative to their European counterparts. Indeed, some experts
have suggested that is entirely the point.
The FSB also appears to be having an undue influence on the
Financial Stability Oversight Council's designation of
systemically important financial institutions here in the
United States. The FSB had already decided that two U.S.
insurers, MetLife and Prudential, were global systemically
important insurers prior to the FSOC conducting its own
supposedly fair, objective, and evidence-based designation
process.
These questionable designations of Prudential and MetLife
were made over the objections of the single voting member of
the Council who possessed insurance expertise, Roy Woodall, as
well as the State insurance regulator on the FSOC, John Huff.
Apparently, the Treasury, the Federal Reserve, and the SEC
valued the findings of the foreign-dominated FSB over that of
U.S. insurance experts. Even more concerning is that the FSB
determinations did not include any involvement or consultation
by the functional State insurance regulators of the actual U.S.
insurance entities being designated.
Mr. Woodall has stated in congressional testimony that he
has concerns about inappropriate FSB influence on the
development of U.S. regulatory policy. NAMIC believes the
evidence clearly demonstrates that he is right to be concerned.
In summary, it is the position of NAMIC that the impact of
FSB actions on the U.S. insurance industry has not been
positive and, in fact, may very well operate to inhibit the
growth and competitiveness of the U.S. insurance industry in
the future. Again, thank you for the opportunity to speak to
you today, and I look forward to answering any questions you
may have.
[The prepared statement of Mr. Bergner can be found on page
22 of the appendix.]
Chairman Huizenga. Thank you.
The Chair now recognizes himself for 5 minutes for
questions.
I personally believe the FSB has become a bit of a shadow
regulatory authority. I had an opportunity to travel to Europe,
with a bipartisan group that went last October, and that became
pretty clear, I think, to many of us. It doesn't hold public
hearings. It doesn't provide the public with any written record
of its deliberations. In fact, neither Congress nor the
American public even know the positions that U.S. regulators
have taken on these critical regulatory decisions. And that was
something that has been attempted to be made clear, our
displeasure with Treasury and with others at various times.
I am curious. I am going to start with you, Mr. Stevens.
Dr. Stanley asserts that--I think I wrote this down properly--
there is ``no real effect on the U.S. economy'' from the FSB
because they don't have direct regulatory and enforcement on
that. Is it really that benign?
Mr. Stevens. I find it really an extraordinary statement.
It is not that benign. It is not an idle exercise. If it were,
we wouldn't have some of the most senior financial regulators
in the United States actively participating in every phase of
it. It is intended to shape U.S. regulation.
And just to be clear, how we got concerned about this at
the beginning was, the first of the consultations about asset
management made it very clear the FSB was on a path to
recommend for designation as SIFIs every fund over $100 billion
in assets under management. As we sit here today, there are 17
such funds in the world. Sixteen of them are U.S. funds. One is
a Chinese fund. So think about this. The head of the regulatory
efforts at the Fed is over in Europe devising methodologies to
designate SIFIs that would be recommended to the FSOC here in
the United States on which the Fed is an important member, the
decisions out of which would determine the Fed's jurisdiction
over additional portions of the financial system. So, this is
not an idle game.
Chairman Huizenga. Mr. McDowell, I will let you address
that as well. But are firms, companies, given information about
why they are designated or how to become dedesignated? That is
a softball.
Mr. McDowell. I wouldn't even dance around the designation.
No. With the FSB, we know who sits on the FSB for the United
States, but all of the work is done through committees. You
can't even find out who's on the committees that are actually
doing the work. It is very hard to get a schedule of when they
are going to meet. So if you don't know who's on the committee,
and you don't know when they are going to meet, it is hard to
have any sort of influence--
Chairman Huizenga. That doesn't sound benign.
So, Mr. Stevens, in your testimony you stated that public
comment has really been discarded and not taken in on
consultation. Do you care to expand on that?
Mr. Stevens. Well, to be fair, we have had the opportunity
to submit comment letters. We have been invited to roundtables,
sort of off-the-record discussions. The problem is that we
submit extensive empirical data and analysis of our experience
as an industry in one market crisis after another, none of
which appears to be taken into account in the next
consultation. So it just simply seems to be a process that is
unhinged from any evidence-based approach.
Chairman Huizenga. Do you believe the FSB's sort of
parameters really fit reality on sort of their hypotheses and
what their assumptions are? Do you think they fit the reality
of what--
Mr. Stevens. I think the bank regulators at the table have
preconceived notions, the very best evidence of which is they
continue to refer to mutual funds, one of the most
comprehensively regulated portions of our financial system, as
shadow banks. We are not shadowy, and we don't bear any
relationship to banks, except that is the way they begin. And,
of course, if anything not regulated like a bank is dangerous,
and we are not regulated as banks and never thought necessary
to be, then to them we look dangerous. And I think in some ways
it is as simple as that.
Chairman Huizenga. Okay.
Mr. McDowell, I am going to quickly move on. You mentioned,
thank you, my Section 10 of the FORM Act. I appreciate that.
But does Section 10 really go far enough or are there other
reforms that you think Congress ought to be looking at?
Mr. McDowell. It is a great start. As I said in the written
testimony, probably the principal thing is there needs to be
more cost-benefit analysis of what is happening at the FSB.
Another big objection--I guess it echoes something that Mr.
Stevens said--is we are given an opportunity to comment, but
one of the things that we have noticed is there are, many
times, material changes made in the final accord that is
adopted, that we didn't have an opportunity to comment on. They
will put a proposal out before something is finalized, so it is
like they are throwing a lot of things on the wall.
We will write comments talking about all of those, and then
when they put out the final proposal, it is materially
different from what we even talked about, and we don't get a
second chance to comment on what they are now proposing be
adopted.
Chairman Huizenga. Okay. My time has expired.
With that, the Chair now recognizes the ranking member for
5 minutes.
Ms. Moore. Thank you so much, Mr. Chairman. And once again,
I thank the panel for sticking around.
I want to start with Mr. McDowell, just some clarification
about your testimony. I was looking through it, and you talked
on page 3 about the dynamic of a lot of the regulatory
framework that we look at in the United States that starts from
an international level. And I am wondering if you think that is
somehow appropriate, given the rest of your testimony where you
talked about--you listed a number of bullets here about how
different international bodies are, that they lack procedural
safeguards, international bodies lacking public records,
lacking public positions by members, lack of public comment, a
little explanation for the basis of rules, the reliance on
nonpublic data, no cost-benefit analysis, and yet in your
testimony, you say that some of the regulatory framework that
we eventually adopt comes from an international perspective.
Can you just give me some clarification?
Mr. McDowell. Yes, I will try. One of the most important
things, I think, you have to realize is, in the United States,
about 80 percent of lending happens in the capital markets and
only about 20 percent happens through commercial bank lending.
In the rest of the world, those percentages are reversed. So
when Mr. Stevens talks about a bank-centric approach, we may
have a bank-centric approach here in the United States, but it
is even more bank-centric outside of the United States.
Another sort of anecdote. I have been at SIFMA for about 7
years. When I started, I would basically write comment letters
on behalf of the industry in the prudential space. I would say
that I spent about 85 percent of my time in the beginning
writing domestic comment letters to the Fed or the OCC or the
Treasury Department, and only about 15 percent would be spent
writing letters to Basel or one of the international standard-
setting bodies. Today, I would say it is about 50/50.
Almost everything that the U.S. regulators are doing in the
prudential space is first being considered in the global arena.
And look, we support the existence of the FSB, and we realize
that there needs to be harmonization. And there is a role here.
What we are arguing is there just needs to be more of a process
in place for doing that.
Ms. Moore. Let me ask Mr. Stevens some questions then. You
have mentioned that it is so bank-centric--many of you have
said that--and yet, as we heard Mr. McDowell explain, that the
FSB and international bodies are kind of driving the train
here. Can you just explain the impact of bank-like requirements
of capital for mutual funds and the relationship of mutual fund
companies to individual funds in a family and how stress in a
particular fund would impact the other funds in a fund company?
Mr. Stevens. Thank you, ma'am. It is an excellent question.
We know from Dodd-Frank what happens to a financial institution
that is designated as a SIFI in the United States. It is
subject to capital requirements. Mutual funds have never been
subject to capital requirements, because the best way to think
of them is 100 percent capital. It is all risk capital. But
bank regulators have a sense that, well, we need a cushion. So
the capital requirement of 8 percent, or whatever it might be,
is likely to be put into the fund as a cash cushion. Now, you
put that into a fund as a cash cushion, it is going to be a
fund that doesn't perform as well as other funds. So it is
going to make it uncompetitive right from the beginning. It
shows you how nonsensical a capital standard is with respect to
a fund.
Secondly, they would be subject to enhanced prudential
supervision by the Fed. We already have a thorough regime of
regulation and oversight by the SEC. Enhanced prudential
supervision by the Fed would mean that the Fed could come in
and tell the fund's portfolio manager how to manage the fund in
a crisis, not in the best interests of the shareholders, but in
the best interests of what the Fed thinks the financial system
or the banking system or the issuers in the portfolio might
need at a given moment.
Ms. Moore. Okay.
Mr. Stevens. That completely changes the nature of a fund's
duties and obligations to their shareholders.
Ms. Moore. Right. We just have a few seconds left. And so,
Mr. Stevens, I just want you to--you predicted, and I was
concerned, that floating the NAV here would raise the costs for
State and local governments. And so now our municipalities and
governmental entities are not having their bonds purchased. Can
you just talk about the trillions of dollars that are being
lost?
Mr. Stevens. We estimate that about $910 billion so far has
left prime and tax-exempt money market funds. The cost of
municipal finance for short-term purposes has risen 77 basis
points. So the predictions that we made about the impacts on
markets, I think, have come true and much of that increase is
as a result of changes in money market fund rules. The costs in
the short-term borrowing space certainly have risen, as we
feared.
Ms. Moore. Sorry. My time has expired. Thank you. I think
we had an objection from the other side.
Chairman Huizenga. I will resist any temptation to gavel
down any outbursts on this side of the aisle at this point, but
I would like to welcome Olivia Schweikert. I am not sure of her
legal standing here as a voting member, but she certainly adds
color and is welcome any time.
You are welcome.
With that, the Chair recognizes the Vice Chair of the
subcommittee, Mr. Mulvaney of South Carolina, for 5 minutes.
Mr. Mulvaney. Thank you, Mr. Chairman. I thank each of you
gentlemen for coming and doing this today.
One of the things--and you all have seen this, if you
follow this at all--we have tried to do over the course of the
last couple of years is to try and figure out exactly not only
how you get to be a SIFI, but how you get to unbe a SIFI. Okay.
I mean, because I think that is probably just as important a
question. Yes, we are starting to understand, maybe, a little
bit about the process of being designated, but what about the
process of being undesignated? Or is it a lifetime sentence?
And I think the MetLife case sort of raised the very real
possibility for all of us that maybe this isn't permanent and
that maybe one day you might be a SIFI and then the next day
you aren't.
So here is one of my questions. That seems like a fairly
reasonable thing to ask of the FSB, tell us how you get to be
one and then tell us how you get to unbe one?
Mr. Bergner, I will start with you. Why haven't they done
that?
Mr. Bergner. I think the transparency question answers
that. We don't know why they haven't done it. We don't know
much of why they do anything. I would just start by pointing
that out. I would also note that they haven't de-designated
MetLife, although as we know, the Federal case has a--
Mr. Mulvaney. That is a great point, and we don't know why
they haven't.
Mr. Bergner. No, we don't. And I think the point was made,
perhaps by Mr. McDowell earlier, that Congress can't pass a law
to direct the FSB to do something. However, there may be
options that Congress can pursue to work with the U.S.
representatives to say, listen, we need you to abide by ABC and
XYZ before you are permitted to go participate at these
international forums.
Mr. Mulvaney. Dr. Stanley, since you are sort of the
sacrificial lamb here to try and defend the FSB today, why
haven't they done this? Why haven't they made a transparent and
reasonable, rational explanation of what it takes to be
undeclared a SIFI?
Mr. Stanley. We have seen that GE Capital has been
undeclared a SIFI, and I think FSOC explained the set of things
that GE did in order to reduce its systemic significance. And
the FSOC is required to reexamine its SIFI designations on a
regular basis. So I think we do have a roadmap for how to
become undesignated a SIFI.
And I just want to say something about this issue, the
impact of the FSB on the U.S. economy. What I said in my
testimony is that there is no direct impact of the FSB because
the FSB's recommendations only take effect when U.S. regulators
act on them. And we have not seen, despite the FSB's discussion
of asset manager designation, any indication that the FSOC is
going to designate any entity as any asset manager as
systemically significant. And to me that is a good example that
if U.S. regulators don't pick up on it, the FSB's lists or
whatever they come up with don't make a difference within the
U.S. regulatory system.
Mr. Mulvaney. We get lost here in the alphabet soup. I know
that I do. I asked my staff a question. I think we are right
about this. I think while GE came off of the FSOC list, they
didn't come off of the FSB list. Let's see if there is
something we can agree on in a bipartisan basis.
Is there any objection, from your point of view, to having
the FSB codify the things that would go into the decisionmaking
about de-identifying or delisting a SIFI? Is there any
objection to doing that, writing it down so we know what the
law is or know what the rules are? That is a good idea, right?
Mr. Stanley. We don't have an objection to it, but I don't
think it is necessary because the FSB's lists are not U.S. law.
For the FSOC, it makes sense, but for the FSB, I don't see that
it is called for.
Mr. Mulvaney. Generally speaking, isn't it a good idea to
let everybody here, on both sides of the aisle, whether you are
a banker or a politician, know what the rules are that you play
by and to maybe have those written down? You would agree with
that generally, right?
Mr. Stanley. Sure.
Mr. Mulvaney. Okay, good. That is progress. We might be
able to build on that.
I want ask you, Mr. Stevens, a couple of questions about
your industry because you said something that caught my
attention, which is that they are dealing with you as shadow
banks, which frightens me because I know this much about mutual
funds and I know they are not banks. I know that a capital
requirement for a mutual fund is a non sequitur, that you are
using language to talk about something that is completely
unrelated.
What happens if a mutual fund gets designated as a SIFI?
What is it going to mean to the folks in my district who invest
in those facilities?
Mr. Stevens. As I said, capital requirements, which will
make the fund perform worse and less competitive. Prudential
regulations by the Fed, which can mean the fund is no longer
being run solely in the interests of its investors, but instead
in the interests of whatever the Fed's policy concerns are at a
given time. If a SIFI bank or some other systemically important
institution were to fail, that fund would have to put money,
according to Dodd-Frank, into a pool to help bail it out. From
my point of view, a fund that is designated as a SIFI is not
going to be too-big-to-fail. It is going to be too-burdened-to-
succeed.
Mr. Mulvaney. Thank you for that. Let me do this in
wrapping up, well, as long as some of my Democrat friends are
here. I think this is one of the things we might be able to
work on. Because understanding what the rules are, having
people play by the rules, probably just makes sense. Sooner or
later, hopefully, my party is going to be in charge of this
organization. My guess is, at that time, you all will want to
know what the rules are that we are playing by. So maybe that
is one of those little things we can do.
By the way, the other thing we do that surprises me, which
is I have heard this story many times about the AIG--I can't
remember whether it was AIG designation or MetLife designation,
that the one person that we put on there--by ``we,'' I mean
you, because you all created this--who actually knew about
insurance said we should not have designated those folks. We
should look at possibly allowing the people that we put on
there to have influence in the field they actually know
something about.
Thank you, Mr. Chairman, for your indulgence.
Chairman Huizenga. The gentleman's time has expired.
With that, the Chair recognizes Mr. Heck of Washington for
5 minutes.
Mr. Heck. Thank you, Mr. Chairman. Let's keep talking some
about insurance.
Mr. Bergner, let me pick on you. I have some legislation I
am working on and it is predicated on a couple of principles,
and I want to get your reaction to those. The first is that
when we, the United States, discuss insurance in an
international forum, that our representatives should include
our primary insurance regulators. Does that make sense to you?
Mr. Bergner. It is a great principle.
Mr. Heck. And why do you agree with me on that?
Mr. Bergner. Because they are the ones that know how to
regulate insurance companies.
Mr. Heck. So I imagine that it would not be too far of a
stretch if I were to ask you that we ought to actually include
that requirement statutorily, that they should be included and
at a minimum consulted?
Mr. Bergner. I think it is a wonderful idea.
Mr. Heck. So here is what I believe. I believe that if we
fail to do that, we literally are undermining the very national
framework for insurance regulation, which is McCarran-Ferguson,
and that we have done it through the back door without actually
having come back here and asking the Congress to do that. Your
reaction, sir?
Mr. Bergner. I think, certainly, Congress exercising its
legitimate authority to be involved in the creation of
regulatory standards that are ultimately going to impact your
constituents should never be viewed as somehow inappropriate.
And I know NAMIC very much supports the idea of legislation
that will ensure that our U.S. representatives seek standards
that are reflective of U.S. practice and law and that,
ultimately, are not going to require changes to that practice
or law.
Mr. Heck. So it would follow that if members of this
committee had an opportunity to support or co-sponsor
legislation as such, that you would encourage them to do so?
Mr. Bergner. Strongly encourage them, yes.
Mr. Heck. Thank you. But let's not be hasty. There is a
second principle, a little bit more straightforward, which is
that U.S. financial policy should be made in the United States.
Mr. Bergner. I agree, 100 percent, and particularly in the
insurance context given how different the regulatory models are
in other jurisdictions.
Mr. Heck. Do you think we are adhering to these two
principles now?
Mr. Bergner. I think there are many reasons to believe that
we could do better at adhering to those principles.
Mr. Heck. So if we, in fact, engage in international
discussions and do not have these people at the table, we are,
by implication, not setting U.S. financial policy in the United
States and are not adhering to either of those principles?
Mr. Bergner. That would seem to be the case to me, yes.
Mr. Heck. And as with the first one, does it make sense to
you that we codify the statement that U.S. financial policy
should be set in the United States?
Mr. Bergner. Absolutely.
Mr. Heck. Mr. McDowell, I liked your body language. If I am
misreading you, go ahead and feel free to pass, but if you have
something to add with respect to this line--
Mr. McDowell. I was just saying that I think your
principles apply beyond just insurance. I don't represent
insurance companies, but I think one of the things that we are
talking about is there ought to be an opportunity for notice
and public comment on what the U.S. regulators are going to do
in these international bodies. So, before they get on a plane
and start discussing something, they ought to know what people
think about the topic that they are going to be discussing.
Mr. Heck. So since I agreed with the principles that my
good friend from South Carolina expressed, and since he went so
far over his own time, and I have time left, I will gladly
yield back the balance of my time, Mr. Chairman, and thank you.
Chairman Huizenga. Thank you. I think a number of us over
here are looking forward to working with you on this principle,
and I am sure we will make great progress.
The Chair recognizes Mr. Pittenger of North Carolina for 5
minutes.
Mr. Pittenger. Thank you, Mr. Chairman. Thank you for this
important hearing, and I thank each of you for your
participation.
Given that the U.S. economy is quite different than the
rest of the world and that we have more reliance on capital
markets rather than on traditional bank lending, do you think
we are put at a disadvantage, Mr. McDowell, with our domestic
regulations?
Mr. McDowell. That possibility certainly exists. And, we
see it where in Europe and in Asia, they have a universal bank
model where they are doing insurance, capital markets, bank
lending, under one charter. Here we have functional regulation.
So in the broker-dealer space or asset management space, we
have the SEC. We have the banking agencies. We have the States
involved in insurance. It is just a different setup. We have
the Fed with a holding company structure, and others don't have
that at all. And so people just come at it from a different
perspective.
And I am not saying that there isn't something to be gained
from a diversity of perspectives. I guess I just come back to
what I was saying earlier. I think that before the United
States signs on to any of these principles, it would be nice if
we had the opportunity to apply something like the
Administrative Procedures Act, which happens domestically, so
that we have a chance to really weigh in and know that the
points we are going to make will have to be considered.
A lot of the commenting that happens at the global level--
and I would love to know what others think--is it just seems
like a lot of window dressing. We are writing letters, but I am
not sure that they are really being read or considered.
Mr. Pittenger. So, you are in total agreement then that our
domestic regulators follow too closely the international
standards for us without taking into account our own markets?
Mr. McDowell. They take into account the markets, but they
have competing interests too. One thing I would say here is
that the goal is harmonization, but we need to be very clear,
that is a goal that we are never going to achieve and for some
very simple reasons. One, we have different legal systems. We
have different tax systems, different corporate structures, as
I have described. And so, it just depends on where you put the
emphasis and the balance. And I think what Congress needs to do
is help sort of weigh in on this balancing that takes place.
Mr. Pittenger. We have heard a lot of concerns about
transparency with the international groups and their standards,
having the potential of locking up tens of billions of dollars
or credit in the U.S. economy. Should this be a concern to
policymakers?
Mr. McDowell. Absolutely. We are spending billions and
billions of dollars on compliance. And in a lot of cases, we
are having to build new systems. We haven't talked much about
it, but also, the timelines that are done for some of these
things are often very arbitrary and don't take into account
what is necessary in order to build compliance.
Mr. Pittenger. What type of measures would you have to
improve the transparency that would benefit the entire process?
Mr. McDowell. We made two recommendations. One was there
could be more process around what the U.S. regulators do when
they go to these meetings. So the principal one would be if
they are going to, say, talk about international capital
standards, before the United States goes, they ought to do a
notice and public comment about the types of things that they
are going to be proposing so that we are seeing it in advance
so that it is not vague. So that would be one area where you
can change what the regulators are doing in the bodies.
The other thing is you could order the U.S. regulators to
argue for a change in the international body itself. Congress
doesn't have the ability to force your will on other countries,
but we are an important player in these bodies. And something
akin to what we are talking about with the FORM Act or with the
Administrative Procedures Act, requiring more cost-benefit
analysis to take place at the global level, I think would go a
long way towards improving the process.
Mr. Pittenger. The regulatory standards that have been
developed since the crisis, what does it mean on a community
basis in terms of our economy?
Mr. McDowell. We can't get to the bottom of that. There is
nobody out there that is looking at the cumulative impact, at
the global or the domestic level. It is one of the things that
we have been calling for. They are starting to do some of this
work in Europe and in the UK. We have been calling for it to be
done here. A lot of these rules that are written--the other
thing about the FSB or the Basel Committee, is that it isn't
just one committee. There are different silos within each of
these bodies working on individual regulation, and oftentimes
they don't talk to each other and they don't coordinate.
Sometimes you get policies that are divergent, and that don't
work in harmony together, and no one is looking at the
cumulative impact, whether it be the FSB or the FSOC here in
the United States. And it is one of the things that we think
need to happen.
Mr. Pittenger. Should we?
Mr. McDowell. We absolutely should.
Mr. Pittenger. Thank you. My time is up.
I yield back.
Chairman Huizenga. The gentleman's time has expired.
This has been very helpful. I think this has been very
enlightening. I appreciate your time and your patience as we
had a little 40-, 45-minute interruption there.
So with that, I would like to thank our witnesses for their
testimony today, both written and oral. And without objection,
I would also like to submit the following statements for the
record: the Property Casualty Insurers Association of America;
and the American Council of Life Insurers.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
And again, I appreciate your time and your patience today,
and your insight. So with that, the hearing is adjourned.
[Whereupon, at 3:43 p.m., the hearing was adjourned.]
A P P E N D I X
September 27, 2016
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