[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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