[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]








                       OVERSIGHT OF THE FINANCIAL
                      STABILITY OVERSIGHT COUNCIL

=======================================================================

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            DECEMBER 8, 2015

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 114-65



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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
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    December 8, 2015.............................................     1
Appendix:
    December 8, 2015.............................................    83

                               WITNESSES
                       Tuesday, December 8, 2015

Cordray, Hon. Richard, Director, Consumer Financial Protection 
  Bureau.........................................................    10
Curry, Hon. Thomas J., Comptroller of the Currency, Office of the 
  Comptroller of the Currency....................................    11
Gruenberg, Hon. Martin J., Chairman, Federal Deposit Insurance 
  Corporation....................................................     9
Massad, Hon. Timothy G., Chairman, Commodity Futures Trading 
  Commission.....................................................     6
Matz, Hon. Debbie, Chairwoman, National Credit Union 
  Administration.................................................     7
Watt, Hon. Melvin L., Director, Federal Housing Finance Agency...     8
White, Hon. Mary Jo, Chair, U.S. Securities and Exchange 
  Commission.....................................................     5
Woodall, Hon. S. Roy, Jr., independent member with insurance 
  expertise, Financial Stability Oversight Council...............     7

                                APPENDIX

Prepared statements:
    Cordray, Hon. Richard........................................    84
    Curry, Hon. Thomas J.........................................    86
    Gruenberg, Hon. Martin J.....................................    94
    Massad, Hon. Timothy G.......................................   109
    Matz, Hon. Debbie............................................   113
    Watt, Hon. Melvin L..........................................   123
    White, Hon. Mary Jo..........................................   125
    Woodall, Hon. S. Roy, Jr.....................................   131

              Additional Material Submitted for the Record

Murphy, Hon. Patrick:
    Written responses to questions for the record submitted to 
      Hon. Richard Cordray.......................................   137
    Written responses to questions for the record submitted to 
      Hon. Thomas J. Curry.......................................   140
    Written responses to questions for the record submitted to 
      Hon. Melvin L. Watt........................................   141

 
                       OVERSIGHT OF THE FINANCIAL
                      STABILITY OVERSIGHT COUNCIL

                              ----------                              


                       Tuesday, December 8, 2015

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:04 a.m., in 
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling 
[chairman of the committee] presiding.
    Members present: Representatives Hensarling, Royce, Lucas, 
Garrett, Neugebauer, Pearce, Posey, Fitzpatrick, Westmoreland, 
Luetkemeyer, Huizenga, Duffy, Stivers, Fincher, Stutzman, 
Mulvaney, Hultgren, Ross, Pittenger, Wagner, Barr, Rothfus, 
Messer, Schweikert, Guinta, Tipton, Williams, Poliquin, Love, 
Hill, Emmer; Waters, Maloney, Velazquez, Sherman, Meeks, 
Hinojosa, Clay, Lynch, Scott, Green, Cleaver, Ellison, Himes, 
Carney, Foster, Murphy, Sinema, Beatty, Heck, and Vargas.
    Chairman Hensarling. The Committee on Financial Services 
will come to order. Without objection, the Chair is authorized 
to declare a recess of the committee at any time.
    Today's hearing is entitled, ``Oversight of the Financial 
Stability Oversight Council.'' Today, we have 8 of its 10 
voting members as witnesses. Secretary Lew testified, according 
to statute, earlier in the year, and Chair Yellen has 
regrettably declined to give testimony today.
    I now recognize myself for 3 minutes to give an opening 
statement. Financial regulators possessed every regulatory 
power to prevent the 2008 financial crisis, but failed to do 
so. Yet, Washington rewarded them with vast new sweeping powers 
over our lives and our economy. Nowhere is that more evident 
than in the Dodd-Frank Act's Financial Stability Oversight 
Council (FSOC), whose members, again, save two, sit before us 
today.
    FSOC is clearly one of the most powerful Federal entities 
ever to exist. Unfortunately, it is also one of the least 
transparent and least accountable.
    First, the Council's power is concentrated in the hands of 
one political party, the one that happens to control the White 
House. All but one of its members is the presidentially-
appointed head of an agency, but interestingly the agencies 
themselves are not members, thus denying bipartisan 
representation. This structure clearly injects partisan 
politics into the regulatory process. It erodes agency 
independence and harms accountability.
    Furthermore, FSOC's budget is not subject to congressional 
approval, removing yet another check and balance to its immense 
power. FSOC has earned bipartisan condemnation for its lack of 
transparency. Two-thirds of its proceedings are conducted in 
private. Minutes of those meetings are devoid of any useful 
substantive information on what was discussed.
    Dennis Kelleher, the CEO of the left-leaning Better 
Markets, has said, ``FSOC's proceedings make the Politburo look 
open by comparison. At the few open meetings they had, they 
snap their fingers and it is over. They are all scripted. They 
treat their information as if it were state secrets.''
    Of all the Council's activities, none generates more 
controversy than its designation of non-bank financial 
institutions as systemically important financial institutions, 
or SIFIs, by acronym.
    Designation anoints institutions as too-big-to-fail, 
meaning today's SIFI designations are tomorrow's taxpayer-
funded bailouts. Designation also ominously grants the Federal 
Reserve near de facto management authority over such 
institutions, thus allowing huge swathes of the economy to 
potentially be controlled by the Federal Government.
    Members of the Council can merely raise the prospect of a 
SIFI designation and thereby eliminate entrepreneurial risk-
taking, innovation, and growth from our economy. As a result, 
Americans may find themselves paying more to insure their homes 
and families. Investors who relied on mutual funds to save for 
their children's education or their own retirement will find 
they have earned less.
    In addition to SIFI designations, FSOC is charged with 
identifying emerging threats to our financial stability, but 
refuses to look in the mirror. In its latest annual report, it 
conspicuously omits any references to specific government 
policies or agencies as helping to cause the systemic risk it 
identifies: ``Greater risk-taking across the financial system 
is encouraged by an historically low yield environment,'' the 
Council reports. Yet, the Council refuses to identify the 
obvious source of this apparent risk: the Fed's unprecedented 
loose monetary policy.
    The Council warns of reduced liquidity in the capital bond 
markets, yet never acknowledges that Dodd-Frank's Volcker Rule 
and other regulations have drastically reduced liquidity. The 
Council lists risk-taking in large, complex interconnected 
financial institutions as a threat, yet again, it fails to 
mention that Dodd-Frank amplifies the threat by empowering the 
Council to designate certain firms as too-big-to-fail.
    FSOC typifies not only the shadow regulatory system, but 
also the unfair Washington system that Americans have come to 
fear and loathe: powerful government administrators; secretive 
government meetings; arbitrary rules; and unchecked power to 
punish. Thus, oversight and reform is paramount.
    I yield back.
    The Chair now recognizes the gentleman from New Jersey, the 
chairman of our Capital Markets Subcommittee, Mr. Garrett, for 
1 minute.
    Mr. Garrett. I thank the chairman. And I thank all of our 
witnesses for being here today.
    I guess all of our witnesses have gotten to know each other 
pretty well, because you meet regularly in closed-door sessions 
where the public is not allowed, to basically discuss how to 
fundamentally change the U.S. economy.
    So I thought I would just take this minute to introduce 
ourselves to you. We are the U.S. Congress. We were created by 
Article I of the U.S. Constitution. We are the ones who are 
actually elected representatives of the American public. And we 
are the ones who send you all those pesky letters that you all 
routinely ignore.
    And I know you are probably confused by this setting, that 
the public is here, that there are TV cameras here, so this is 
probably unusual for you. But this is what we do. We are open 
to the American public. We are transparent. And we are before 
the American public.
    So, if there is one thing that you take away today, it 
should be that in the way you run your hearings, and the way 
you conduct yourselves, you need to become more like us: more 
transparent and more open to the American public. You need to 
adopt these policies so you are no longer working behind closed 
doors and in secret.
    With that, I yield back.
    Chairman Hensarling. The Chair now recognizes the ranking 
member for 5 minutes.
    Ms. Waters. Thank you, Mr. Chairman. And thank you to the 
distinguished members of the Council for joining us for this 
hearing.
    We gather today to examine the activities of the Financial 
Stability Oversight Council, or FSOC, which, since the passage 
of the Dodd-Frank Act, has fulfilled its mandate to monitor and 
respond to the types of systemic risks that nearly brought our 
economy to its knees in 2008.
    This important work cuts across every corner of our 
banking, capital markets, housing, and insurance sectors. Which 
is why Congress specifically designed the Council to draw on 
all of the expertise of the witnesses here before us today.
    Unfortunately, many of my colleagues on the other side of 
the aisle seem to have caught a convenient case of amnesia 
about this important mandate.
    Indeed, it was only 7 short years ago that our economy lost 
nearly $16 trillion in household wealth, $13 trillion in 
economic growth, and 9 million jobs.
    In large part, this was because our regulators were too 
often caught in silos not communicating with one another and 
not considering gaps between their agencies or 
interconnectedness within the financial sector. Even worse, we 
saw too many cases where regulators were captured by the very 
entities they were meant to police.
    Many of these lessons appear to be forgotten, as we have 
seen with recent markups, as well as attempts to laden 
government funding bills with poison pill riders. Some 
opponents of Dodd-Frank are far too focused on dismantling Wall 
Street reform by attacking core elements like the FSOC and the 
Consumer Financial Protection Bureau.
    These attempts to roll back Dodd-Frank started the minute 
this reform was signed into law, and make no mistake, these 
attempts continue today, even as our economy has experienced a 
remarkable rebound with 6 to 9 straight months of positive job 
numbers, GDP growth, and a housing market where sustainable 
access to credit continues to expand, all of which are signs 
pointing to the sort of stability and growth that the law was 
designed to promote.
    FSOC has contributed to this growth and stability by 
convening the 10 component regulatory agencies for periodic 
information-sharing about emerging risk and reporting on those 
risks to the public. Further, the Council has now designated 
four institutions for enhanced supervision by the Federal 
Reserve. This designation will ensure that companies like AIG 
never again are able to engage in risky, unregulated activity 
that could threaten the entire global economy.
    And far from the talking points of some members on the 
opposite side of the aisle, this enhanced oversight is now 
causing some large non-bank financial companies to consider 
whether simplifying their structures and breaking themselves up 
might provide better value to their shareholders.
    I am also encouraged that the money market fund industry is 
now less susceptible to bank lack runs as a result of the 
pressure the FSOC brought to overcome gridlock at the 
Securities and Exchange Commission.
    Finally, I appreciate that the Council has made an effort 
to conduct this work in a manner that is responsive to feedback 
from Congress and outside stakeholders. For example, with this 
announcement in February, the FSOC took the step of voluntarily 
agreeing to certain due process and transparency measures that 
will further serve to improve their operations. This type of 
dialogue and openness to feedback should be applauded.
    As we hear from the voting members of the Council today, I 
will be interested to learn more about their interagency 
collaboration and their work to address emerging threats. 
Again, this work is central to preventing the types of 
contagion and risk that nearly crashed Main Street just 7 years 
ago.
    Thank you, Mr. Chairman, and I yield back the balance of my 
time.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Missouri, Mr. Luetkemeyer, chairman of our Housing and 
Insurance Subcommittee, for 1 minute.
    Mr. Luetkemeyer. Thank you, Mr. Chairman. An inefficient 
secretive regulatory structure that does not reflect the 
reality of the U.S. financial system can have real economic 
consequences for businesses and the American people. This is 
particularly true of the banks that have been deemed to be 
SIFIs, not based on risk posed to the U.S. financial system, 
but purely on arbitrary asset size.
    On the non-bank side, designations are part of the 
regulatory system that has become synonymous with the 
overzealous enforcement climate so prevalent today. In vital 
power, the FSOC should alarm all Americans, judging by what we 
know of the staff hours spent on non-bank analysis, which we 
will get into shortly in the question-and-answer period.
    It is clear to me that these designations, and the lack of 
a clear path for de-designation, is a Federal Reserve-driven 
effort to expand government's power and influence.
    It is time to force more transparency, to require pragmatic 
regulation, and to curb the growing regulatory scene crippling 
our institutions and their customers. With that, Mr. Chairman, 
I yield back.
    Chairman Hensarling. The gentleman yields back.
    We will now turn to our panel. Today, we welcome the 
testimony of the Honorable Mary Jo White, Chair of the 
Securities and Exchange Commission; the Honorable Timothy 
Massad, Chairman of the Commodities Futures Trading Commission; 
the Honorable Roy Woodall, Jr., the FSOC's independent member 
with insurance experience; the Honorable Debbie Matz, 
Chairwoman of the National Credit Union Administration; and an 
especially warm welcome to our former colleague, the Honorable 
Mel Watt, Director of the Federal Housing Finance Agency; the 
Honorable Martin Gruenberg, Chairman of the Federal Deposit 
Insurance Corporation; the Honorable Richard Cordray, Director 
of the Consumer Financial Protection Bureau; and last but not 
least, the Honorable Thomas Curry, the Comptroller of the 
Currency.
    Since all of our witnesses have previously testified before 
Congress, I believe they need no further introduction. Without 
objection, your written statements will be made a part of the 
record by agreement with the ranking member. Each of you will 
be recognized for 3 minutes to give an oral presentation of 
your testimony.
    Chair White, you are now recognized.

     STATEMENT OF THE HONORABLE MARY JO WHITE, CHAIR, U.S. 
               SECURITIES AND EXCHANGE COMMISSION

    Ms. White. Thank you. Chairman Hensarling, Ranking Member 
Waters, and members of the committee, thank you for inviting me 
to testify regarding the Financial Stability Oversight Council.
    As you know, the Dodd-Frank Act established the Council to 
provide comprehensive monitoring of the stability of our 
Nation's financial system. It also provides a formal forum for 
coordination among the various financial regulators, assisting 
in bringing about the kind of collaborative sharing of 
information and concerns that is very important to safeguarding 
the U.S. financial system.
    As one of two capital market regulators on the Council, the 
perspective that I and the SEC staff bring to the Council is 
important. In particular, the SEC's historical tripartite 
mission of protecting investors, maintaining fair, orderly and 
efficient markets, and facilitating capital formation 
necessarily gives the SEC unique insight into many areas on 
which the Council is focused, such as the potential financial 
stability risks of asset management activities and products, 
the ongoing changes to market structure, and the role of 
central counter-parties.
    SEC engagement with the Council on these issues helps to 
ensure that relevant expertise is brought to bear on these 
important subjects. With respect to designations of any non-
bank financial companies as systemically important, it is 
important to be data-driven and to conduct rigorous analysis 
throughout the process.
    The Council is also focused on enhancing its process and 
the transparency of its functions, which I consider to be quite 
important. Toward that end, as the ranking member indicated, in 
February of this year the Council unanimously adopted changes 
to the designation process, including increased and earlier 
engagement with companies under review, increased public 
transparency concerning the designation factors, and an 
opportunity for designated firms to meet with Council staff in 
connection with the annual review of their designations.
    I look forward to our continued study of possible further 
enhancements and agree with the observation that the Council is 
a relatively new organization and should continuously study 
ways to optimize its functioning.
    Thank you again for the opportunity to testify today. I 
would be pleased to answer your questions.
    [The prepared statement of Chair White can be found on page 
125 of the appendix.]
    Chairman Hensarling. Chairman Massad, you are now 
recognized.

    STATEMENT OF THE HONORABLE TIMOTHY G. MASSAD, CHAIRMAN, 
              COMMODITY FUTURES TRADING COMMISSION

    Mr. Massad. Thank you, Chairman Hensarling, Ranking Member 
Waters, and members of the committee. I appreciate the 
invitation to testify today.
    The CFTC oversees the U.S. derivatives markets, and 
although most Americans do not participate in these markets, 
they are vital to our economy, affecting the prices we all pay 
for food, energy, and other goods and services. For these 
markets to work well, sensible regulation is essential. We 
learned that lesson in 2008 when a lack of oversight led to a 
buildup of excessive swap risk that contributed to the worst 
global financial crisis since the Great Depression.
    My perspective as a member of the FSOC is shaped by my 
responsibilities as CFTC Chairman, and today I would like to 
highlight a few of the CFTC's priorities that are particularly 
relevant to the FSOC.
    First is the implementation of a regulatory framework for 
over-the-counter swaps where we have made great progress, and a 
number of financial regulators have responsibilities in this 
area, and the FSOC provides a useful way to communicate.
    The second area is making sure clearinghouses are strong 
and resilient. While we are the primary supervisor of 
clearinghouses in the derivatives markets, we work together 
with the Federal Reserve, the FDIC, and the SEC on these 
important issues. The CFTC has taken many actions to strengthen 
clearinghouse resilience, but there is more work to do in this 
area.
    Another priority of the FSOC and the CFTC is strong, 
resilient markets. Following the volatility in the Treasury 
market on October 15th of last year, the FSOC served as a forum 
to share information. Shortly after the events, CFTC staff 
provided a preliminary analysis of what happened in the futures 
markets to the Council, and subsequently, we worked with other 
FSOC members to prepare a detailed report analyzing what 
happened.
    Together, we continue to look at these issues pertaining to 
the evolution and oversight of these markets.
    In addition, cyber-security is one of our agency's top 
priorities and one of the greatest risks to our financial 
system today. And here again, the FSOC plays an important role 
in facilitating cooperation.
    Another area of focus for the CFTC that is important to 
FSOC is the oversight of benchmarks. Integrity is critical and 
has been a priority in our enforcement efforts.
    One of the most valuable functions of the FSOC is simply to 
bring together the agencies and regulators responsible for 
oversight of our financial institutions and markets. I believe 
doing so better positions us to identify and address potential 
threats to financial stability and better serve the American 
people.
    Thank you, and I look forward to your questions.
    [The prepared statement of Chairman Massad can be found on 
page 109 of the appendix.]
    Chairman Hensarling. Mr. Woodall, you are now recognized.

  STATEMENT OF THE HONORABLE S. ROY WOODALL, JR., INDEPENDENT 
MEMBER WITH INSURANCE EXPERTISE, FINANCIAL STABILITY OVERSIGHT 
                            COUNCIL

    Mr. Woodall. Thank you, Mr. Chairman, Ranking Member 
Waters, and members of the committee for inviting me to appear 
before you today.
    Mr. Chairman, you have asked that we be succinct in our 
oral testimony this morning. The committee received my written 
testimony last Friday morning, and in view of your request, I 
do not feel it is necessary for me to expound on it in detail.
    But in short, as the committee examines ways to improve the 
structure and the operations of the Council, my written 
testimony discussion falls into three broad categories.
    First, the background and legislative history of the 
independent member position in Dodd-Frank. Second, the lack of 
explicit statutory duties and authorities pertaining to the 
position, other than just being a member of the Council and the 
difficulties that has presented from being only ``three lines 
in the statute.'' The first line creates the position. The 
second one sets the 6-year term. And the third one sets salary. 
That is all that is in Dodd-Frank about my position.
    Finally, the third section of my written testimony tries to 
go into my willingness to work with Congress on how the role 
and authorities of the position can be clarified to strengthen 
the independence of the position in order for the holder of 
this position to be more effective in contributing to the work 
of the Council.
    Thank you. I am happy to answer any questions.
    [The prepared statement of Mr. Woodall can be found on page 
131 of the appendix.]
    Chairman Hensarling. Chairwoman Matz, you are now 
recognized for your testimony.

 STATEMENT OF THE HONORABLE DEBBIE MATZ, CHAIRWOMAN, NATIONAL 
                  CREDIT UNION ADMINISTRATION

    Ms. Matz. Thank you, Chairman Hensarling, Ranking Member 
Waters, and members of the committee. I appreciate the 
opportunity to discuss the Financial Stability Oversight 
Council.
    Congress established the Council in response to the 2008-
2009 financial crisis. The crisis made clear that financial 
markets cannot quickly absorb the collapse of very large, 
interconnected companies.
    FSOC's primary goal is to prevent system-wide financial 
crises. The Council's multi-agency structure also ensures that 
a diverse array of views on emerging risks in each financial 
sector is considered when making decisions.
    From the beginning, the Council has recognized the 
importance of transparency and public participation. The 
Council committed to publicly disseminating timely information 
about decisions, while balancing the need to protect 
proprietary information and avoid unduly moving markets. Public 
feedback has also helped FSOC clarify procedures, enhance 
analysis, and improve decision-making. As an FSOC principal, I 
am committed to continuing such improvements.
    Each Council member brings to the table a unique 
perspective informed by our areas of expertise and experiences. 
As a Federal financial regulator for almost 10 years, I lead an 
agency that now supervises and insures more than 6,000 
institutions with assets exceeding $1.1 trillion.
    Financial institutions of every size must carefully manage 
assets and liabilities. In fact, major elements of FSOC's 
designation of a systemically important institution include the 
composition of the balance sheet, off balance sheet exposure, 
and interconnectedness with the entire financial services 
sector.
    FSOC has moved deliberately in creating its process for 
identifying non-bank financial companies. In response to public 
comments and congressional feedback, the Council has also 
invited company participation earlier in the process.
    Another important aspect of FSOC's work is its annual 
report. The 2015 report called for heightened risk management 
and supervisory attention in areas such as cybersecurity and 
reaching for yield.
    In conclusion, FSOC has promoted collaboration across 
financial regulators, established rules and procedures which 
reflect public input, identified systemically important 
institutions, and furthered public awareness of threats to our 
financial system.
    Going forward, the Council must continue to evolve, provide 
transparency, and remain flexible when considering new issues.
    I look forward to your questions.
    [The prepared statement of Chairwoman Matz can be found on 
page 113 of the appendix.]
    Chairman Hensarling. Director Watt, you are now recognized 
for your testimony.

 STATEMENT OF THE HONORABLE MELVIN L. WATT, DIRECTOR, FEDERAL 
                     HOUSING FINANCE AGENCY

    Mr. Watt. Chairman Hensarling, Ranking Member Waters, and 
members of the committee, thank you for the opportunity to 
testify today about the Financial Stability Oversight Council. 
And to be back before this committee, on which I served for 21 
years.
    As an independent regulator, FHFA is responsible for the 
supervision, regulation, and housing mission oversight of 
Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System. 
In addition, since 2008 FHFA has served as conservator of 
Fannie Mae and Freddie Mac. FHFA's housing market expertise 
contributes to FSOC's ability to understand and better assess 
broad systemic risk.
    As I recall, ensuring that FHFA contributed this kind of 
expertise to FSOC was especially important to Congress, both 
because housing represents a significant part of our economy, 
and because the most recent severe disruption that our economy 
experienced resulted from business entities and others making 
unsafe and unsound housing and housing finance decisions.
    Through FHFA's active participation in all FSOC committees, 
FHFA engages with other FSOC members to share information, 
evaluate policy matters, and conduct risk assessments of 
business entities and markets in which they operate. FHFA also 
participates with other members of FSOC in making assessments 
of whether to designate non-bank financial companies for 
supervision by the Federal Reserve.
    If so designated, these companies are required to meet 
enhanced prudential standards. This is a significant and 
important FSOC function, and it is one that all FSOC members, 
including myself, take very seriously. These decisions are made 
only after extensive engagement with the company, a thorough 
analysis of the facts, and careful deliberations.
    Going forward, I look forward to continuing to engage with 
fellow FSOC members to meet our duties and responsibilities in 
a manner that fosters transparency, is fair and analytical, and 
contributes to appropriate risk management and risk reduction.
    I will limit my comments to these statements, and I look 
forward to answering your questions today.
    [The prepared statement of Director Watt can be found on 
page 123 of the appendix.]
    Chairman Hensarling. Chairman Gruenberg, you are now 
recognized.

   STATEMENT OF THE HONORABLE MARTIN J. GRUENBERG, CHAIRMAN, 
             FEDERAL DEPOSIT INSURANCE CORPORATION

    Mr. Gruenberg. Chairman Hensarling, Ranking Member Waters, 
and members of the committee, thank you for the opportunity to 
testify today on the work of the Financial Stability Oversight 
Council. The financial crisis that began in 2007 exposed a 
number of serious vulnerabilities in the U.S. financial system.
    While some risks affecting individual products and 
institutions have been recognized, neither the financial 
markets nor the regulatory community was able to see the whole 
picture. The FSOC was established in 2010 by the Dodd-Frank Act 
to address this gap in the regulatory framework. Its key 
functions are to facilitate information sharing among its 
member agencies, to identify and respond to emerging risks to 
financial stability, and to promote market discipline.
    The FSOC is also responsible for designating non-bank 
systemically important financial institutions for heightened 
supervision by the Federal Reserve. We now have the benefit of 
five FSOC annual reports, which together outline the key 
systemic risks facing the financial system and how they have 
evolved over time.
    The first report, published in 2011, described a still 
fragile financial system recovering slowly from the deepest 
financial crisis since the Depression. In contrast, the most 
recent report describes a more stable but still recovering 
economy, and broad-based improvement in most financial markets 
and market participants.
    Three areas of risk which the FSOC has been following 
closely and which are of particular consequence to the FDIC are 
interest rate risk, credit risk, and cyber-security, which are 
expanded upon in my written statement.
    As previously noted, the Dodd-Frank Act also authorizes the 
FSOC to designate a non-bank financial company if the FSOC 
determines that material financial distress at the company or 
the nature, scope, size, scale, concentration, 
interconnectednees or mix of activities of the company could 
pose a threat to the financial stability of the United States.
    FSOC policies and procedures were crafted to ensure an 
exchange of information throughout the designation process. As 
the process has evolved, opportunities for additional 
transparency both within the operations and the designation 
process were identified by the FSOC and in comments by external 
parties. As a result, the FSOC undertook several initiatives 
over the past year-and-a-half to improve both transparency and 
engagement with financial companies. These steps are outlined 
in my written statement.
    Mr. Chairman, that concludes my oral statement, and I will 
be glad to respond to questions.
    [The prepared statement of Chairman Gruenberg can be found 
on page 94 of the appendix.]
    Chairman Hensarling. Director Cordray, you are now 
recognized for your testimony.

STATEMENT OF THE HONORABLE RICHARD CORDRAY, DIRECTOR, CONSUMER 
                  FINANCIAL PROTECTION BUREAU

    Mr. Cordray. Thank you, Chairman Hensarling, Ranking Member 
Waters, and members of the committee for the opportunity to 
testify today. I am glad to work with you and with my 
colleagues on the Council to strengthen our financial system.
    As we are all aware, just a few years ago disruptions in 
the housing market preceded a financial crisis that caused 
significant damage to our people and our economy. The ensuing 
deep recession caused millions of Americans to lose their jobs, 
and millions of families to lose their homes, as the ranking 
member noted. Many saw their retirement savings diminished as 
Americans lost trillions of dollars in household wealth.
    Severe deficiencies in the loans supporting mortgage-backed 
securities in particular created shocks that upended the 
financial system.
    In the aftermath of the crisis, Congress passed financial 
reform legislation to address the problems that led to the 
crisis and help ensure they would not happen again. Among the 
steps taken were the creation of the Financial Stability 
Oversight Council and the Consumer Financial Protection Bureau 
(CFPB).
    The creation of the FSOC provides for the first time a 
means of comprehensively monitoring the stability of our 
Nation's financial system. Prior to the crisis, the U.S. 
financial regulatory framework focused more on individual 
institutions and individual markets in isolation from one 
another. No one regulatory body was responsible for monitoring 
and addressing overall risk to financial stability, which too 
often involved different types of financial firms operating in 
complex and intertwined ways across multiple markets.
    The potential for supervisory and regulatory gaps were 
viewed as creating blind spots in important parts of the 
financial system. After the crisis, Congress recognized the 
need for a mechanism to bring financial regulators together to 
monitor the financial system, share information and expertise, 
and coordinate the regulatory efforts to respond effectively to 
emerging threats to financial stability.
    One approach that Congress specified to address these 
issues was to designate certain financial institutions and 
financial market utilities as systemically important to the 
stability of the U.S. financial system for the purpose of 
applying enhanced prudential standards and supervision.
    As you know, the FSOC includes the Consumer Bureau, which 
is the first Federal agency solely focused on protecting 
consumers in the financial marketplace. Products such as 
mortgages and credit cards are involved in some of the most 
important financial transactions in people's lives. These 
products are often funded through complex financial markets and 
they may constitute the underlying assets for more complex and 
highly levered securities.
    As the crisis made clear, financial stability, market 
discipline, and consumer protections are closely interrelated. 
Part of the mission of the Consumer Bureau, therefore, is to 
help ensure that the recent economic meltdown is not repeated. 
The practices that led to the financial crisis are inconsistent 
with principles of fairness, transparency, and competitiveness 
in markets.
    We are exercising the authority Congress gave us to ensure 
balanced oversight and prevent harmful practices in consumer 
financial markets. When honest and innovative businesses can 
succeed on the merits, fair competition drives growth and 
progress and the entire financial system rests on stronger and 
sturdier foundations.
    As the Director of the Consumer Bureau, I look forward to 
continuing to fulfill Congress' vision for our agency in my 
role in the FSOC. That is what we are here today working 
together to do. Thank you again for the opportunity to testify, 
and I look forward to your questions.
    [The prepared statement of Director Cordray can be found on 
page 84 of the appendix.]
    Chairman Hensarling. And Comptroller Curry, you are now 
recognized for your testimony.

STATEMENT OF THE HONORABLE THOMAS J. CURRY, COMPTROLLER OF THE 
      CURRENCY, OFFICE OF THE COMPTROLLER OF THE CURRENCY

    Mr. Curry. Chairman Hensarling, Ranking Member Waters, and 
members of the committee, thank you for this opportunity to 
provide the views of the OCC on the functions and operations of 
the FSOC.
    The OCC charters, regulates, and supervises national banks 
and Federal savings associations. These banks range from small 
community banks to multitrillion dollar institutions that are 
among the world's largest financial companies. Together, they 
hold nearly $11 trillion in assets, or just over two-thirds of 
the industry's total.
    The OCC's mission is to ensure that these banks operate in 
a safe and sound manner, provide fair access to financial 
services, treat customers fairly, and comply with applicable 
laws and regulations. As the only Federal financial regulator 
with prudential regulation as its primary focus, the OCC has 
specialized knowledge about the safe and sound operations of 
banks.
    In 2010, as part of the Dodd-Frank Act, Congress 
established the FSOC to identify, monitor, and respond to 
systemic risk. The Council brings together its member agencies 
to fulfill this critical mission. Through its committees and 
staff, the FSOC provides a formal, structured process for 
communicating, coordinating and responding to emerging market, 
industry, and regulatory developments as well as to unforeseen 
events.
    As one of the FSOC's 10 voting members, the OCC brings 
considerable expertise to the Council. Our examiners monitor 
several areas of financial risk in the banking sector every 
day, including credit, liquidity, interest rate, and 
operational risk. These are among the risks that the FSOC 
reviews in its evaluation of systemic risks with respect to 
non-bank financial companies and financial market utilities.
    Similarly, as many of the institutions we supervise are 
engaged in asset management activities, the OCC's expertise in 
this area is also quite robust. Since its establishment, the 
Council has demonstrated a sustained commitment to working 
collaboratively to fulfill its statutory mission.
    Council members and their staffs have developed strong 
working relationships and the Council provides a constructive 
forum to hold candid conversations, share confidential market 
sensitive information, and ask the tough questions that help 
make the U.S. financial system safer.
    The Council has also made positive strides in enhancing its 
transparency both to the general public and to the companies 
under consideration for designation. Dodd-Frank provides the 
FSOC with important duties and responsibilities to promote the 
stability of the U.S. financial system. The issues that the 
Council confronts in carrying out these duties are by their 
nature complex and far-reaching.
    My written testimony includes additional information about 
the specific mandates Congress has given the FSOC and a 
discussion of some of the important actions the Council has 
undertaken recently. For our part, the OCC is strongly 
committed to helping the Council achieve its mission.
    Again, thank you for the opportunity to appear today, and I 
would be happy to answer any questions.
    [The prepared statement of Comptroller Curry can be found 
on page 86 of the appendix.]
    Chairman Hensarling. The Chair now recognizes himself for 5 
minutes for questions.
    By a show of hands, how many of you have any professional 
experience in the private insurance industry? Please raise your 
hand. I see two, Mr. Woodall and Ms. White. Let the record 
reflect that.
    How many of you have had experience in regulating insurance 
companies? By a show of hands, please raise your hand. Let the 
record reflect that only Mr. Woodall raised his hand.
    Mr. Woodall, as FSOC's independent member having insurance 
experience, you dissented in both the MetLife and Prudential 
SIFI designation. In your dissent to the designation of 
MetLife, you wrote, ``It confounds me that much of the Council 
and staff continue to misunderstand and mischaracterize the 
insurance regulatory framework.'' You went on to say that 
FSOC's analysis ``relies on implausible, contrived scenarios as 
well as failures to appreciate fundamental aspects of insurance 
and annuity products and, importantly, State insurance 
regulation and the framework of the McCarran-Ferguson Act.'' Do 
you still stand by those comments?
    Mr. Woodall. Yes, I do, Mr. Chairman. And if I could 
expound just a little bit, the basis of all of that, to put it 
in perspective, is that I was pointing out that under the 
statute, there are two determination standards under which the 
Council comes up with its idea that a company is a SIFI, and 
the first one is the only one that has been used so far, which 
is if there is material financial distress at that individual 
company which could be a threat to the entire U.S. financial 
system.
    The other is activities, are there activities that could be 
a threat? My push has been to get the second standard of 
activities to be used across sectors so we can get at the very 
things that are causing this systemic risk. If we have a 
situation where if we have a company that is a SIFI, and it 
knows that it is doing an activity that is systemically risky, 
it can sell that activity to somebody that is not a SIFI and 
then, essentially, we have lost them. They are there, but the 
systemic risk could still be in the system.
    Chairman Hensarling. Mr. Woodall, what are the implications 
of designating a traditional insurance company as a SIFI, since 
they are under State-based regulations? Will we have a 
duplicate regulatory system? Do you believe those costs could 
be imposed upon policyholders and insurance company investors?
    In other words, what is the harm in designating a 
traditional insurance company as a SIFI?
    Mr. Woodall. I think there is a harm that it could come to 
higher prices because they have higher regulatory costs. Also, 
with a higher regulatory cost, their products have to be priced 
higher, as I said, and that costs more.
    It puts them in an unlevel playing field with the people 
and the companies that are not designated SIFIs.
    Chairman Hensarling. Chairwoman Matz, prior to voting to 
designate Prudential as a SIFI, did you make inquiries, or 
request any type of economic analysis on what this designation 
could mean to insurance policyholders? Was that part of your 
decision-making process?
    Ms. Matz. No, it was not.
    Chairman Hensarling. It was not. Do you believe it should 
have been?
    Ms. Matz. That was not the mandate that we had. The mandate 
is to determine if material distress at a non-financial 
institution could pose a threat to the stability of the United 
States.
    Chairman Hensarling. Under Section 113(a)(2) of Dodd-Frank, 
there are 11 different factors you are to consider in making 
your designation. With respect to the Prudential decision, to 
what extent did the leverage of the company play a role in your 
decision to designate it a SIFI?
    Ms. Matz. It was the combination. We were briefed 
extensively on the financial--
    Chairman Hensarling. I'm sorry. Briefed by whom?
    Ms. Matz. Briefed by the FSOC staff and the NCUA staff that 
works with them, that participates with them--
    Chairman Hensarling. So does the NCUA staff have expertise 
in insurance company leverage? What was the specific leverage 
of Prudential that caused you concern?
    Ms. Matz. No. The determination wasn't based on the 
insurance activities. It was based on the financial activities 
of the company and how they are interwoven with other--
    Chairman Hensarling. And specifically, which activities 
were interwoven that concerned you?
    Ms. Matz. It was their derivatives position, the extent of 
their leverage. Their--
    Chairman Hensarling. But I asked you about the leverage.
    Ms. Matz. The securities lending. Their debt position. The 
extent of the difficulty to resolve them if there was financial 
distress. So, it was not one factor.
    Chairman Hensarling. The Chair's time has expired. The 
Chair recognizes the ranking member for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman.
    Let me first go to Mr. Woodall. Is AIG designated as a 
SIFI, Mr. Woodall?
    Mr. Woodall. Yes.
    Ms. Waters. Should it be?
    Mr. Woodall. At the time when they were designated, we were 
coming right out of the financial crisis. The first two 
designations were AIG and JECC, companies which had had some 
problems during the crisis.
    Ms. Waters. Some problems? Big problems.
    Mr. Woodall. Big problems.
    Ms. Waters. Okay. So, it should be designated a SIFI?
    Mr. Woodall. At that time.
    Ms. Waters. At this time?
    Mr. Woodall. It is not half the company now that it was 
then.
    Ms. Waters. At this time? At this time, should it be a 
SIFI?
    Mr. Woodall. Right.
    Ms. Waters. Let me just go on to Mr. Gruenberg on another 
matter. In the Dodd-Frank Act, Congress recognized that our 
banking regulators failed to engage in regulatory oversight of 
large banks leading up to the crisis.
    As such, we put in place enhanced prudential standards that 
set forth the basic requirements for a bank to be well-run--
capital resolution; risk management; and liquidity, among other 
factors--at the same time the deliberative process in Congress 
led to an exemption from these requirements for banks below $50 
billion in assets.
    Congress also directed the Fed to tailor certain 
regulations for large regional banks based on size, as well as 
provided the Fed with the option to exempt certain banks above 
$50 billion from certain requirements. Both in committee and 
through potential riders to funding bills, Congress is now 
contemplating legislative proposals that would undo this 
important work.
    These proposals would, instead, rely on the Financial 
Stability Oversight Council to affirmatively designate banks 
for enhanced prudential standards for all but the very largest 
global mega-banks.
    Chairman Gruenberg, do you think that such proposals would 
be ill-advised? What did the 2008 financial crisis teach us 
about how the failure of one or more large regional banks could 
harm our financial system? And in terms of bank resolution, 
which failure during crisis era was the most costly for the 
FDIC's deposit insurance fund?
    Mr. Gruenberg. To answer the question you raised at the 
end, the most costly failure to the FDIC during the crisis was 
the failure of IndyMac, which was a thrift institution with 
assets of about $30 billion that ultimately cost the deposit 
insurance fund over $12 billion, which is the most significant 
loss during this crisis, and I believe in the history of the 
FDIC.
    And it does show the importance of having a prudential 
framework for larger institutions relating to capital and 
liquidity and other standards, and to respond to the first part 
of your question, as a general matter, I think the framework in 
place is a reasonable one. It generally gives discretion to the 
agencies to tailor the prudential standards to the size and 
complexity of the institution. And I generally think that is an 
appropriate approach.
    Ms. Waters. Let me just ask you this, so it can be 
reiterated. Has the Federal Reserve begun tailoring enhanced 
prudential standards for banks above $50 billion with increased 
stringency based on bank size? Would you just kind of continue 
on that?
    Mr. Gruenberg. Yes, Congresswoman. I believe--I wouldn't 
want to speak for the Fed. But just as an observer, I believe 
the Fed has done that, generally focused the enhanced 
prudential standards on the larger institutions above $250 
billion, and has tailored standards for those below.
    Ms. Waters. All right. Can more be done in this regard 
without reopening Dodd-Frank to potentially negative 
consequences?
    Mr. Gruenberg. Yes. I do think that as we progress in this 
process, this is a focus for all of the agencies to ensure our 
regulations are appropriate to the size and complexity of the 
institutions.
    Ms. Waters. So, basically what you are telling us is there 
has been no resistance to FSOC taking a close look at what can 
be done and using its discretion to make sure that they not 
only honor Dodd-Frank but they have the flexibility to make 
modifications where necessary?
    Mr. Gruenberg. I agree with that, Congresswoman.
    Ms. Waters. Thank you. Mr. Chairman, I yield back.
    Chairman Hensarling. The gentlelady yields back. The Chair 
now recognizes the gentleman from New Jersey, Mr. Garrett, 
chairman of our Capital Markets Subcommittee.
    Mr. Garrett. Thanks, Mr. Chairman. I have been looking 
through the minutes, Mr. Chairman--if you can call them that--
that FSOC published. And one of the things I notice is who 
actually shows up, and who can attend FSOC meetings. It seems 
that certain people, like that Governor, who is not a member of 
FSOC, is able to attend, and attends various meetings of FSOC, 
while Commissioners of the various boards and Commissions do 
not attend.
    It seems that there is a--well, not a very clear criteria 
as to who can and cannot attend. In September, according to 
minutes, the FSOC held with about 20 or so invited guests from 
various agencies. And again, yes--yet again, the Commissioners 
of various agencies are not on those lists.
    So, I am going to take a page out of Al Green's methodology 
here and ask for a show of hands. All of you who are on the 
panel today, who are part of an organization that has either a 
commission or a board, can you raise your hand, so we know what 
we are talking--because not everybody up there has a commission 
or a board, right?
    Okay, so, for those who raised your hand, do you trust your 
Commissioners or your board members as their ability to keep 
things confidential? So, I would say, do the members who just 
raised their hand trust their board members?
    Maybe I should flip it the other way. Is there any member 
here who does not trust their board members or their 
Commissioners? They can't keep things secret?
    Okay. So, if that is the case, let me run--Chairman Massad, 
if any of the members of your Commission wanted to come to you 
and ask to attend an FSOC meeting, and you trust them, can they 
come to an FSOC meeting?
    Mr. Massad. Thank you, Congressman, for the question.
    I don't think that is the structure provided for in the 
law.
    Mr. Garrett. Would you personally object to them being 
there?
    Mr. Massad. I think it is important for the FSOC to follow 
the--
    Mr. Garrett. I don't know that there is anything in the 
FSOC rules that--is there anything specifically in the 
requirements that says they cannot attend but other guests can 
attend?
    Mr. Massad. I would have to get back to you on that, 
Congressman.
    Mr. Garrett. You allowed 20 other guests to be there in 
September, and I guess that was okay. Did you know at that time 
whether or not they were allowed to be there?
    Let me go to Chair White, since he doesn't know. Would you 
object if one of your Commissioners wanted to attend an FSOC 
meeting personally? Would you have a problem with that?
    Ms. White. The protocol is for the Chairman to pick one 
person, typically a staff person, to accompany them. That is 
the structure of FSOC.
    Mr. Garrett. Right. I understand what the structure is. I 
understand that you have been--the whole entire board has been 
precluding openness and transparency. What I am trying to find 
out is for all of you who have just raised your hand, who said 
you trust your board or commission with secrecy, is there 
anyone who would say that they cannot attend? Well, good.
    Can I have a commitment, then, from all of those people who 
just said they would not object, that you will work to, for the 
next meeting, allow your board and Commissioners? Anyone here--
please raise your hand if you will not encourage your chairman 
to allow them to attend the next board meeting.
    So, let the record reflect two people. Mr. Gruenberg, you 
will not--
    Ms. White. Can you repeat that?
    Mr. Garrett. --recommend to the chairman that your 
Commissioners be able to attend?
    Ms. White. I would follow--
    Mr. Garrett. No, let me just go there. You didn't raise 
your hand. Do you not trust your members? Are they not able to 
keep things secret? I just want to be clear on that.
    Mr. Gruenberg. I certainly do, Congressman. Just a couple 
of points, if I may.
    Mr. Garrett. Sure.
    Mr. Gruenberg. From the FDIC, as it happens as a matter of 
statue, three of the members of our board are statutory members 
of the FSOC. So a majority of our board are represented. And I 
certainly have the greatest trust in our other Directors. I 
would note that I share with our other Directors all of the 
information available to the FSOC.
    Mr. Garrett. But you have no problem with Dan Tarullo's 
attending quite frequently. So it is something about your board 
that you don't trust them is what I am taking from this.
    Mr. Gruenberg. No, sir.
    Mr. Garrett. So why do you object to them being there?
    Mr. Gruenberg. I think it is a matter of the--it is a 
matter for the entire FSOC, it is a matter of functionality in 
terms of the number of--
    Mr. Garrett. So in September, there were 20-some. That was 
not an issue of functionality, but for your own board members--
I am taking the perception here that either you don't trust 
your people or that you are doing something in secret. So which 
one is that, Mr. Gruenberg? Do you not trust your people or you 
are trying to do something in secret?
    Mr. Gruenberg. Neither, Congressman. For what it is worth--
    Mr. Garrett. Then, you haven't given us an answer.
    Chair White, will you recommend to the Chair, will the rest 
of you now--the rest of the panel who raised their hand, will 
you recommend to the chairman that these people--that meetings 
be open to the rest of the Commission?
    Ms. White. I will follow the congressional structure. I 
think that is something--
    Mr. Garrett. There is nothing in the congressional 
structure. That has already been pointed out, so will you make 
that recommendation?
    Ms. White. I would discuss it with my fellow members of 
FSOC and the Chairman. Discuss it with them, as I have done 
before.
    Mr. Garrett. Will anyone here make that recommendation, 
positive recommendation? So, let the record reflect that no one 
who has come before us today will make a recommendation; they 
want to continue to keep their meetings secret.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentlelady from New York, Ms. 
Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman. Mr. Cordray, the 
CFPB's core mission is consumer protection, which may not seem 
linked to systemic risk. However, I don't think that is the 
case.
    Can you elaborate on what role consumer financial 
protection plays in the stability of our economy and how your 
agencies work and help inform FSOC?
    Mr. Cordray. Thank you, Congresswoman. First of all, 
Congress set the structure of the Council and determined which 
agencies should be represented there. And it is a broad cross-
section of the Federal financial regulators.
    In the case of the Consumer Bureau in particular, it is 
worth noting that the financial crisis that gave rise to the 
Council was caused, everybody agrees, by irregularities in the 
mortgage and housing markets.
    People disagree somewhat as to the chain of events that led 
to this, but a meltdown in the housing and mortgage markets was 
transmitted by various channels throughout the economy and 
threatened the stability of the financial system.
    The very first issue that was raised at the first meeting, 
which is before I joined the FSOC--I was not yet the Director 
of the Consumer Bureau--was mortgage servicing and 
foreclosures. There were briefings on those at the first 
several meetings. Those are issues that are very central to the 
work that has been done in the early years by the Consumer 
Financial Protection Bureau.
    All of us on the Council are charged by law with examining 
the economic system for emerging threats to financial 
stability, which we do. The annual report has been a very good 
and transparent and thorough account of the Council's thinking 
about both present and emerging threats and is our best attempt 
to monitor and report on what we see in the financial system at 
that time.
    There were various issues that each member of the Council 
and each entity that they represent is more or less expert in. 
And we share that expertise with one another to try to arrive 
at a broader, more comprehensive view of the financial system 
than each of us could do alone.
    Ms. Velazquez. Thank you.
    Mr. Gruenberg, we have heard from opponents of the SIFI 
process that there is insufficient opportunity to engage with 
the Council after designation. Do SIFI-designated firms have 
opportunities to meet with FSOC staff to review their status?
    Mr. Gruenberg. Yes, Congresswoman. As you know, as a 
statutory matter, the Council is required to re-evaluate a 
designation annually.
    Ms. Velazquez. Thank you. I yield back.
    Chairman Hensarling. The gentlelady yields back. The Chair 
now recognizes the gentleman from Texas, Mr. Neugebauer, 
chairman of our Financial Institutions Subcommittee.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    Chairwoman Matz, there has been a lot of discussion about 
what it means for a bank to be systemically important. And as 
you know, in February the Office of Financial Research (OFR) 
released a report where they examined the systemic risk 
indicators. They used the indicators that had been developed by 
the Basel Committee and they applied those to some of the 
largest banks and holding companies.
    And what was kind of an interesting finding is that the 
report concluded that the least systemic US GSIB was several 
times more systemically--more systemic than the other major 
U.S. banks, the regional banks. Yet, all of those institutions 
fall under the requirement for enhanced prudential standards 
based on their asset size. And so are you familiar with that 
report?
    Ms. Matz. I'm sorry. I have not seen that report.
    Mr. Neugebauer. You have not seen that report?
    Ms. Matz. No.
    Mr. Neugebauer. One of the requirements is--or, I guess, 
main functions of the OFR is to furnish the committee with the 
information to hopefully help them make better determinations. 
And so I would hope that you would avail yourself of that 
report.
    But would you agree that setting up certain standards to 
measure companies is appropriate? If you haven't seen the 
report, basically they took the Basel standards and they took 
five of them and applied them to those companies. Do you think 
that is a good way to approach that?
    Ms. Matz. We have stayed away from creating bright lines 
and instead look at whether material distress at a company 
could pose a threat to the financial stability of the United 
States. And since each company has different business plans, 
different business models, we have not drawn a bright line or 
been very rigid about what the standard is. It is looking at 
the entire company and then making a determination after very 
deliberate consideration.
    Mr. Neugebauer. Director Watt, have you seen the OFR 
report?
    Mr. Watt. I have not seen the report that you are referring 
to.
    Mr. Neugebauer. Well, let me--since you haven't read the 
report, I guess I will go to another line of questions. Section 
113 of Dodd-Frank requires FSOC voting members to consider at 
least 11 factors before designating a non-bank financial 
company for heightened Federal supervision including leverage, 
off-balance sheet exposures, scope, size, and scale.
    I will start with you, Chairwoman Matz. Do you think it is 
appropriate to use 11 different factors in the determination of 
whether a non-bank company is systemically important?
    Ms. Matz. Yes.
    Mr. Neugebauer. Director Watt, would you agree with that?
    Mr. Watt. Yes. We are not second-guessing the statute. We 
didn't write the statute, but I think all of them are--well, 
actually, I was involved in writing the statute.
    [laughter]
    But I am not in a position to second-guess it now. I voted 
for it. Right.
    Mr. Neugebauer. I think the point I am trying to make here 
is that it is a little puzzling to me that it is appropriate 
for non-bank entities to be subject to standards. And I think, 
in fact, Director Watt, you said you are committed to an 
analytical process.
    And so, I think the interesting thing is, is we subject 
these non-bank SIFIs to 11 different factors. Yet, we only 
subject banks to one factor, and that is size. If this is going 
to be an analytical process, shouldn't we establish factors for 
analyzing banks in a way of analyzing whether or not they are 
systemically risky?
    Mr. Watt. I think these are really the same factors that 
any of us would take into account. It may not be specified in a 
statute for individual banks. But one of the primary problems 
during the meltdown was there was no supervision, and no method 
to get at non-bank entities, because they didn't have--they 
weren't answering to anybody.
    Mr. Neugebauer. Yes. I am not talking about non-banks. We 
have talked about what--
    Mr. Watt. I thought that is what this was designed--
specifically what this talks about.
    Mr. Neugebauer. I guess the question is, we are subjecting 
banks, based on their size; we don't even consider the other 
factors. So, shouldn't we be considering a litany of factors to 
determine whether these banks should be subject to enhanced 
prudential standards?
    Mr. Watt. I think it would probably be more appropriate for 
Mr. Curry and Mr. Gruenberg to answer that. I don't regulate 
banks. But I would think that they take into account all of 
these considerations.
    Mr. Neugebauer. But you do sit on FSOC, isn't that correct?
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Texas, Mr. 
Hinojosa.
    Mr. Hinojosa. Thank you, Chairman Hensarling and Ranking 
Member Waters, for holding this important hearing. I also wish 
to thank our distinguished panelists for testifying today, and 
for the dedication to ensuring the safety and soundness of our 
financial system through their participation on the Financial 
Stability Oversight Council.
    As a senior member of this committee, I applaud the 
Council's progress to date, and I look forward to hearing from 
our panelists on the Council's priorities moving forward.
    Two particular lessons learned from the crisis come to mind 
today. First, it is absolutely essential to have a bird's-eye 
view of our financial system, in order to identify and prevent 
systemic risks from destabilizing our entire economy. In 
crafting the Dodd-Frank Act, we in Congress recognized this 
fact and created the Financial Oversight Stability Council, an 
entity comprised of our banking, insurance market, and housing 
regulators who are tasked with ensuring the financial stability 
of the system as a whole.
    Secondly, we should not just assume that the markets will 
take care of themselves. Instead, we must support and empower 
our regulators to be able to act when needed. We should be 
looking to strengthen our financial system and the safeguards 
we incorporated after lessons learned from the last crisis, 
rather than berating our regulators and attempting to restrict 
their ability to act by tying them up in bureaucratic knots.
    My first question is for Mary Jo White. A much criticized 
report from the Office of Financial Research (OFR) discussed 
the risk that the asset management industry posed to the United 
States financial system. The critics argued that the asset 
management industry poses absolutely no risk to our financial 
system.
    However, haven't the Council's actions, including the 
publication of the report by the OFR, spurred the SEC to take 
action with respect to money market funds?
    Ms. White. The answer is that the SEC independently 
proceeded. I am aware, obviously, of the preliminary 
recommendation of the FSOC. But the SEC proceeded independently 
to reform the structure, in some ways, of money market funds.
    Mr. Hinojosa. Can you elaborate on how the SEC was spurred 
by the FSOC and how these actions were making our markets and 
investors safer?
    Ms. White. The SEC proceeded independently of the FSOC 
recommendation.
    The SEC has been studying it for some time, certainly since 
I have been there as Chair, and proceeded totally 
independently. It was an important thing to do. To allude back 
to your first comment, though, I think it is very important 
from a bird's-eye view, that big picture view be provided by 
all the financial regulators who sit on FSOC.
    Mr. Hinojosa. Thank you. Next question, to the Comptroller 
of the Currency, Mr. Thomas Curry. Some critics have criticized 
Dodd-Frank's FSOC structure for allowing some of your agencies 
to have voting rights non-bank systemically important financial 
institution designations made by the FSOC.
    Are you comfortable with the deliberative materials 
received from the Council staff? And do these materials 
adequately prepare you to make informed decisions?
    Mr. Curry. Thank you, Congressman. There is an extensive 
amount of material presented to me as a member of the FSOC in 
connection with any designation. And there is actually a fairly 
elaborate process of three stages by which that information is 
developed.
    Stage one is from publicly available information or from 
contacts with supervisors. Stage two, which gives notice to and 
engages an institution under consideration the opportunity to 
engage with the Council staff and our designation committee.
    And then finally, stage three, where there is extensive 
communication and development of analysis and records for the 
Council's consideration.
    Mr. Hinojosa. Thank you. Mr. Cordray, when assessing 
systemic risk for our financial system, has the FSOC taken a 
look at aggregate depth levels from various areas of the 
economy?
    Mr. Cordray. We have. And I believe we should.
    Mr. Hinojosa. Do you think the current amount of debt in 
the aggregate poses a risk to our economy? And why or why not?
    Mr. Cordray. I think everybody could have their own 
personal point of view on that. I think one of the factors that 
the FSOC has looked at, in terms of thinking about systemic 
risk, is both debt and leveraging of levels of investment.
    And therefore how much risk could be transmitted through 
the system, if there were adverse developments to the extent to 
which capital is deployed. And so, I do think that is an 
appropriate factor in looking at the kind of issues raised 
before the Council.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Missouri, Mr. 
Luetkemeyer, chairman of our Housing and Insurance 
Subcommittee.
    Mr. Luetkemeyer. Thank you, Mr. Chairman. We have put up a 
chart, I don't know if everyone can see it or not; I know we 
can see it pretty well on the back. And it is on the side, I am 
not sure we can get there.
    But I would like to follow up on the chairman's comments 
and questions while we go, with regards to non-bank 
designations. And what I am concerned about is perhaps Fed-
driven decisions on some of these designations. And if you look 
at the bottom part of the chart there, you can see that the 
National Credit Union Administration in 2012 and 2013 had two 
members that they dedicated to or who had done some analysis 
with regard to non-bank designations.
    And in 2014, we have none. Ms. Matz, are you an expert on 
insurance analysis? Okay, so we have--
    Ms. Matz. No.
    Mr. Luetkemeyer. You are not an expert. And we have no one 
at your agency who is designated to do analysis. And this 
information--you can't read the fine print there, you can in 
the back of the room. This analysis, by the way, comes from 
data given by your agency to the GAO, if I am not mistaken, 
which is in this report right here.
    Ms. Matz. I don't think that is correct, though.
    Mr. Luetkemeyer. Sorry, Ms. Matz. That is information you 
gave to the GAO when requested. And so, my concern is the 
Federal Reserve has 25 people designated to make this analysis. 
You have zero.
    Ms. Matz. That is not correct.
    Mr. Luetkemeyer. That is not correct?
    Ms. Matz. It has been stated. I don't know where they got 
that information from, but it--
    Mr. Luetkemeyer. They got it from you.
    Ms. Matz. It is not from me personally. It is not--
    Mr. Luetkemeyer. It is written on the bottom of the sheet. 
It says that the information came from each member agency and 
represents individuals involved in the analytical work. So--
    Ms. Matz. It is not correct. We still have--
    Mr. Luetkemeyer. How many do you have, then?
    Ms. Matz. We have two people.
    Mr. Luetkemeyer. Two people. Okay. Are they experts in 
insurance?
    Ms. Matz. They are not experts in insurance.
    Mr. Luetkemeyer. They are not experts in insurance. So, how 
can we make an educated analysis whenever you are making 
designations with regards to non-bank designations, which 
involve insurance companies? How do you make that 
determination, then?
    Ms. Matz. It is not the insurance part of the business that 
results in a designation. It is in the financial services part 
of the business, and how intertwined it is.
    Mr. Luetkemeyer. So, the insurance part of the business is 
not important with regards to the designation of a SIFI?
    Ms. Matz. No. It is not. It is the financial services part 
of the business--
    Mr. Luetkemeyer. The financial services part of the 
business is the only part that you look at?
    Ms. Matz. Yes.
    Mr. Luetkemeyer. Wow. Okay.
    Mr. Cordray, you sort of struck out all across-the-board 
there as well. Are you an insurance expert, sir?
    Mr. Cordray. I am not an insurance expert.
    Mr. Luetkemeyer. Is this number incorrect, as Ms. Matz 
indicated hers was?
    Mr. Cordray. I am not exactly sure what analysis was used 
to get to that number. But the reality is that each of us has 
deputies who work together on the FSOC on the analysis. Then, I 
am briefed on the analysis and have a chance to review the 
materials--
    Mr. Luetkemeyer. Well--
    Mr. Cordray. --extensive materials--
    Mr. Luetkemeyer. --you are saying--
    Mr. Cordray. --submitted by Congress--
    Mr. Luetkemeyer. --this number is incorrect as well, even 
though this is information your agency gave to the GAO?
    Mr. Cordray. I am saying that the slice on it here I think 
is not reflective of the full work done at the FSOC.
    Nonetheless, I am not an insurance expert. But other 
members of the Council are not banking experts. Certain members 
of the Council are not investment experts. It is all of us 
together--
    Mr. Luetkemeyer. Mr. Cordray--
    Mr. Cordray. --who work together.
    Mr. Luetkemeyer. This goes to the heart of the matter here. 
You are sitting on a board that makes a decision on the 
designation of whether something is systemically important or 
not. And if you don't have the personal expertise, you need to 
have somebody on your staff, because otherwise it is not an 
independent vote that you are casting.
    It is a vote based on how the Federal Reserve or some other 
member of this board is telling you it should be done. And that 
is not the way the system should work.
    Mr. Cordray. I don't think that is correct. First, there is 
FSOC staff. There is staff of the member agencies contributed 
who work together. And then there is our own analysis.
    But again, to focus only on the insurance company potential 
designations is only a partial picture. There are bank 
designations. There are other financial company designations. 
There are investor area designations. Everybody has relative 
expertise in some areas--
    Mr. Luetkemeyer. Okay--
    Mr. Cordray. --and less in others.
    Mr. Luetkemeyer. I am running out of time here.
    Mr. Massad, you have zero people all the way across-the-
board. Is that incorrect as well?
    Mr. Massad. I think your chart runs through July of 2014.
    Mr. Luetkemeyer. Right.
    Mr. Massad. I took office in June.
    Mr. Luetkemeyer. Okay.
    Mr. Massad. Shortly after that--
    Mr. Luetkemeyer. Okay.
    Mr. Massad. --I had my staff involved in the designation 
that was--
    Mr. Luetkemeyer. So now you do have some people involved in 
this designation?
    Mr. Massad. A few of them--
    Mr. Luetkemeyer. How many?
    Mr. Massad. --of our staff--
    Mr. Luetkemeyer. One, two, ten?
    Mr. Massad. It depends on the issue, sir. We are a small 
agency. We are very limited in our resources. No one is fully 
dedicated to these issues. But certainly I try to get people 
involved as necessary--
    Mr. Luetkemeyer. Okay. One more quick comment before I am 
out of time here.
    With regards to the SEC, Ms. White, your numbers are zero, 
two and now twelve. And in your testimony you indicate or you 
say that it is important that it be data-driven and conduct 
rigorous analysis throughout the process.
    How can you do rigorous analysis when back in 2013, you 
made the designation true with 2 people, and now you have 12 
people? Was that a stumble back then and you realized you 
didn't have adequate staff? Or what was the problem back then?
    Ms. White. I can only speak to the time since I have been 
there, which is--
    Mr. Luetkemeyer. You were there at the time this was done.
    Ms. White. But I didn't participate in the designation. I 
would have to drill down a little bit on those figures.
    But what we do at the SEC, I think my written testimony 
reflects this, is--and again, it is not full-time people 
devoted to FSOC work streams. But who we need in particular 
areas are called upon to assist me and analyze--
    Mr. Luetkemeyer. The concern is still there that we are not 
doing our job of doing analysis--
    Chairman Hensarling. Time.
    Mr. Luetkemeyer. --and letting the Fed--
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes another gentleman from Missouri, 
Mr. Clay, ranking member of our Financial Institutions 
Subcommittee.
    Mr. Clay. Thank you, Mr. Chairman.
    And I thank all of the witnesses for attending today.
    Some have criticized the FSOC's designation process as 
being opaque. The GAO also made several recommendations to the 
FSOC to improve its transparency.
    To your knowledge, how has the FSOC addressed the 
recommendations of the GAO? Would you also describe how the 
FSOC changed its process with the February 2015 supplemental 
procedures announcement? Anyone on the panel can answer. There 
are so many to choose from. Ms. White maybe?
    Ms. White. In terms of the GAO-specific recommendations, I 
think those were responded to by the Secretary of the Treasury 
as the chairman of FSOC, not agreeing or disagreeing with the 
recommendations.
    But I do think that the, what I will call the process and 
transparency changes made by FSOC in 2015 address a number of 
those concerns in terms of both transparency, and clearer 
information to companies as to when they can interact, when 
they are being analyzed in stage two.
    There was a lot of back and forth before those changes, but 
I think a number of those changes are responsive to those 
recommendations.
    Mr. Clay. Can you--oh, yes, sir? Go right ahead.
    Mr. Gruenberg. Just to respond to your question, 
Congressman, I think the focus of the Federal procedures was to 
try to enhance engagement and transparency for the stage two 
process. So it provided notice to the firm that it could 
advance from stage one to stage two, an opportunity for the 
firm to engage with the FSOC staff.
    It requested the public information that the FSOC was using 
as part of that stage two review, as well as notice if a firm 
is not advanced from stage two to stage three. And if a firm is 
advanced from stage two to stage three, it would be notified of 
that and then a set of procedures for engagement with stage 
three.
    So it was an effort to provide both greater insight for the 
firm in terms of notice and greater opportunity to engage with 
the FSOC.
    Mr. Cordray. Could I simply add something? To me, this 
exemplifies vigorous congressional oversight.
    The Congress and this committee have had comments on 
transparency at the FSOC. We have listened to those. The GAO 
did a report with comments. We have listened to those.
    It is a new body. It is still just a few years old. 
Transparency is developing and evolving as we go, and I believe 
has been responsive to a lot of the concerns raised here.
    Mr. Clay. Thank you.
    And what changes have you made to the annual and 5-year 
designation review processes to ensure more due process rights 
are available to companies? Mr. Gruenberg?
    Mr. Gruenberg. Yes. I think the procedures make clear that 
as part of the annual evaluation process, a company can submit 
information, engage with the staff in terms of the information 
being presented, and get feedback in regard to the process. And 
the procedures provide an assurance of a hearing with the FSOC 
at least every 5 years.
    Mr. Clay. General Electric has announced that it would shed 
most of its financial assets which operated out of GE Capital. 
In making the announcement, GE noted that the company will work 
closely with its regulators and the staff of FSOC to take the 
actions necessary to designate GE Capital as a systemically 
important financial institution.
    Further, the CEO of GE noted that, ``We have a constructive 
relationship with our regulators and will continue to work with 
them as we go through this process.''
    Can you describe how FSOC will go about working with GE? 
Anyone? Yes, sir?
    Mr. Curry. There is an ongoing dialogue with the company as 
to what its plans are, what its strategic or structural changes 
are. And that will continue at an annual review or sooner. A 
decision will be made once those plans have been actually 
executed.
    Mr. Clay. I see. Thank you very much.
    And Mr. Chairman, I yield back the balance of my time.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from Michigan, Mr. 
Huizenga, chairman of our Monetary Policy and Trade 
Subcommittee.
    Mr. Huizenga. Thank you, Mr. Chairman.
    I apologize that I had to step out. I have had some 
visiting constituents and wanted to make sure that I understood 
where my fellow Subcommittee Chair was headed. And I think we 
are kind of on the same path and direction.
    I do want to, at some point, Mr. Woodall, get back to your 
written testimony, which I found very fascinating, and I have a 
couple of questions there.
    But I would like to also see a show of hands. Who here 
believes that Congress has the right to understand how FSOC 
makes its determination decisions? So if you believe that 
Congress should--okay. The record will reflect that all of you 
believe that is an important part.
    I would like to get a sense of what materials FSOC members 
reviewed before making final determinations. And are there 
memoranda, other materials prepared by FSOC staff that you rely 
on to make your decisions?
    Who here is willing to share that? If you would give me a 
show of hands, if you would raise your hand, who is willing to 
share that with us?
    [laughter]
    Nobody? Okay. Let me repeat the first question, I guess.
    Mr. Massad. Congressman? Can I make a comment?
    Mr. Huizenga. Sure, Mr. Massad.
    Mr. Massad. I think Congress is entitled generally to 
whatever information it wants. I would want to simply check 
with staff in particular to make sure we are abiding by our 
obligations to keep non-public information confidential.
    Mr. Huizenga. Sure.
    Mr. Massad. But certainly, Congress is entitled to get 
whatever information it wants.
    Mr. Huizenga. Okay. And maybe that is not even public 
meeting. Maybe that is a private meeting being able to share 
that.
    So, Mr. Gruenberg?
    Mr. Gruenberg. Congressman, I think the analogy here is one 
of our regulatory agencies considering action with regard to a 
particular institution. That is what FSOC is doing.
    Mr. Huizenga. Sure.
    Mr. Gruenberg. So, two points. One, if we are dealing with 
confidential, supervisory information which would probably be 
an applicable standard here in the FSOC. That is generally not 
shared. Although upon congressional request, as we have in 
other instances, Congress gets the information it requests.
    Mr. Huizenga. That sometimes takes longer than the 
timeframe, if you haven't noticed around here.
    Mr. Gruenberg. I do understand. I think that would sort of 
be the--
    Mr. Huizenga. So you believe that Congress has the right to 
review FSOC's deliberative materials.
    Mr. Gruenberg. I think Congress has the right to request.
    Mr. Huizenga. Those are two very different things. Okay.
    Mr. Gruenberg. I think if you accept the premise we are 
dealing with confidential supervisory--
    Mr. Huizenga. Sure. And if we can do that and whether there 
are certain things that--what I don't want are redacted sheets 
that look like they are blacked out all the way. What I am 
looking for is a venue then for us to be able to review to 
understand. Because frankly, I think if you hear a lot of 
questioning on both sides of the aisle, we simply do not 
understand.
    Mr. Woodall?
    Mr. Woodall. I think there is one confidential memorandum 
that has been made public. The confidential basis in the 
Metropolitan Life case. It is my understanding has been filed 
in the court and is a public record.
    Mr. Huizenga. Okay.
    Mr. Watt?
    Mr. Watt. I want to be clear that the reason I would not 
raise my hand is because I would not make a unilateral 
decision. This is a collaborative body. FSOC, if we got 
together, would turn over whatever would appropriately be 
turned over to Congress. And I think I would be a supporter of 
that being a robust turn over of information. But I certainly 
wouldn't make even a unilateral decision.
    Mr. Huizenga. You have sat on this side of the microphone 
and know that sometimes it takes far too long to get responses.
    Mr. Watt. But that is not a justification for an individual 
member of a collaborative body to make a unilateral decision to 
turn over confidential information.
    Mr. Huizenga. I fully understand. So, I would love to have 
it. But you all just raised your hands. And since you are the 
voting members, you all said we have a right to this. So, let's 
come up with a collaborative way of finding out how we are 
going to do that.
    Mr. Woodall, quickly, I was fascinated in your written 
testimony about how you had been prevented from ``being in the 
room'' with international insurance policymakers.
    A number of us did a trip to Switzerland back about 2 
months ago. They seemed genuinely surprised that Congress was 
not up to speed on exactly what team USA is saying and doing in 
that room.
    And also I would--as we were indicating, many of us, both 
sides of the aisle again, that were on this strip, supportive 
of your involvement in that. They seemed genuinely perplexed 
that someone with insurance expertise was not being allowed to 
be a part of that process. So quickly, if you could comment?
    Mr. Woodall. In international things, you work by consensus 
as you have been told. The consensus within the team USA, you 
have three U.S. people, representatives at the IEIS.
    Mr. Huizenga. And you said that you had been supported by 
two of those for being in the room.
    Mr. Woodall. Right.
    Mr. Huizenga. The third who is not supportive is?
    Mr. Woodall. It is Treasury right now.
    Mr. Huizenga. Treasury?
    Mr. Woodall. Without that consensus, and they are taking 
the position--and I want to be fair about this. They are taking 
the position that the statute gives me no such authority, that 
I have no duties or responsibilities designated in the statute 
at all.
    Chairman Hensarling. The time of the gentleman has expired.
    Mr. Huizenga. I look forward to remedying this.
    Chairman Hensarling. The Chair now recognizes the 
gentlelady from New York, Mrs. Maloney, ranking member of our 
Capital Markets Subcommittee.
    Mrs. Maloney. I thank the chairman and the ranking member 
for calling this important hearing. And this is actually the 
most people I have ever seen at that desk at any hearing or 
reviewed in the history at a hearing. And it is a very 
important topic. I am glad to see my former colleague, Mel 
Watt. Welcome back.
    My question is, when the FSOC is analyzing whether a 
company is systemically important, it doesn't measure whether 
the failure of the company would destabilize the system in 
normal times. Instead, it measures whether the company would 
destabilize the system in a period of stress in the financial 
industry.
    And I have two questions for the panel related to this. 
First, why did the FSOC choose that standard? It seems that 
this standard could certainly play a key role in determining 
whether or not a company is systemically important.
    And secondly, what historical precedence does the FSOC 
review in making these evaluations in a period of stress in the 
financial community? Do you look at the 2008 financial crisis, 
the Asian financial crisis of 1997 and 1998? What do you look 
at as precedent when you study these crises?
    And I would like to start with Chairman Gruenberg. SEC 
Chair White, and Comptroller Curry, and the thoughts from the 
panel on these two questions. Thank you.
    Mr. Gruenberg. Thank you, Congresswoman. I think the view 
was that would--the impact, the failure the firm would have in 
a stressed environment would be the most realistic scenario to 
try to assess this systemic consequence of the firm. And I 
think it was very much a product, certainly of the 2008 crisis 
experience.
    And I think we looked to the experience in other crises in 
trying to make these assessments. But I think that was the 
threshold judgment.
    Ms. White. If I could pick up there, I would agree with 
that analysis that the Council's guidance announced how it 
would be approaching that. It would be analyzing in a period of 
stress which would only make sense given what your purpose was 
in terms of judging--in trying to prevent significant negative 
impacts on the financial system.
    Things that work in times of non-stress, don't work so well 
in times of stress. In terms of what is looked to, it is not 
just limited to how things operated in the 2008 period, but 
certainly that is typically part of the analysis, but you look 
to other scenarios, stress scenarios, as well.
    Mrs. Maloney. Comptroller Curry? And then, Director Watt?
    Mr. Curry. Congresswoman Maloney, I agree with my 
colleagues. I think in order to assess, especially the 
interconnected aspects of the financial system, you have to 
assume that it is in a period of stress. I also think there is 
some textural support within the statutory standard to take 
that approach.
    And in terms of what we would look to for the range of 
historical experience, I think the 2008 crisis certainly stands 
out in terms of its significance, its breadth, and what I think 
people never would have assumed would be the underlying source 
of it or the spark, the housing crisis. And I think that would 
be our approach.
    Mrs. Maloney. Okay.
    Mr. Watt. I was just going to refer you to the specific 
wording of the statute which says that we--the Council 
determines that material financial distress at the non-bank 
financial company, that is the standard that is set up in the 
statute.
    So, it is an appropriate standard, I think. But, again, we 
are not trying to second-guess the statutory provision that was 
written by Congress. We are following the statute, not second-
guessing it.
    Mrs. Maloney. I would like to ask Chair White, as you know, 
there has been a great, great deal of discussion this year 
about how the FSOC could improve its SIFI designation. One of 
the suggestions I kept hearing, and probably you heard also, 
was that the FSOC should tell companies what actions they 
needed to take in order to avoid being designated as a SIFI.
    And this sort of struck me as a dubious idea. Because do we 
really want the FSOC to be making these kind of core business 
decisions for private companies? And in my opinion, the FSOC 
should identify the systemic risk. And then the company should 
figure out the best way to restructure its business to 
eliminate the risk.
    And when the Council adopted changes to the designation 
process in February, you decided not to include this 
suggestion.
    Can you elaborate on why the Council wanted to maintain 
this distinction? And do you think it is important for the FSOC 
not to use the designation process as a way to tell companies 
how they should be run?
    Ms. White. Speaking for myself, I largely agree with your 
assessment. I don't think FSOC should be telling companies how 
to structure their business. I do think maximum transparency, 
as we were discussing earlier, is obviously something that we 
care about at FSOC and is important to do.
    But very often, also, most often, I think the designations 
are not going to be based on one or two or three metrics but 
rather a business model. So it is a very complex undertaking, 
as well. But I don't think FSOC ought to be telling companies 
how to run or structure their business.
    Mrs. Maloney. My time has expired. Thank you very much.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Wisconsin, Mr. Duffy, chairman of our Oversight and 
Investigations Subcommittee.
    Mr. Duffy. Thank you, Mr. Chairman. Just to reiterate, I 
believe when Chairman Hensarling asked the panel who had 
insurance experience, if I recall, it was Mr. Woodall and Chair 
White. Is that correct?
    And if I asked the panel to point out the one insurance 
expert of all the witnesses today, who would you point to?
    Yes, Chair White?
    Ms. White. Mr. Woodall.
    Mr. Duffy. Thank you. I would probably agree with you, 
Chair White.
    Ms. White. I overstated my expertise.
    Mr. Duffy. Does it concern the panel that the one person 
with insurance expertise is the one individual who dissented in 
the designation of Prudential and MetLife? Or, Chair Matz, as 
you say, that really doesn't matter because we are not looking 
at the insurance side, we are looking at the financial services 
side?
    Ms. Matz. I think that is correct. And, it should be noted 
that the head of the Federal Insurance Office did support the 
designation and also has considerable experience in the 
insurance industry.
    Mr. Duffy. Did they vote on FSOC?
    Ms. Matz. No.
    Mr. Duffy. No, that is right. So Mr. Woodall, who does 
vote, was the one dissenter--
    Ms. Matz. That is correct.
    Mr. Duffy. Who is the one with insurance expertise, which 
is concerning.
    Does the panel--I think the panel has all agreed on the 
oversight front that Congress is entitled to do oversight over 
FSOC. Is that correct? You all agree with that?
    Our committee, under the signature of the chairman and 
every single subcommittee chairman, sent a letter to Jack Lew 
asking for 13 different points of information from FSOC.
    There was partial compliance with a couple of those. Does 
the panel disagree that if we have already gone through a 
designation process, that Congress is not entitled to non-
public information?
    You guys don't disagree with that, do you? Why aren't we 
getting this information? Why aren't FSOC members complying 
with our request?
    It is concerning for our panel. If you are concerned about 
the questions that you get today about the transparency of 
FSOC, it is because the elected members of this body don't have 
timely compliance or any compliance from Mr. Lew or any of you.
    Can--would you--if there has already been a designation, if 
we are asking questions about AIG, Prudential or GE, I can--you 
can make the argument that with MetLife there is litigation, so 
we don't want to give you that.
    You might say that. I won't agree with that, but fair 
enough. AIG, Prudential and GE, will you comply with our 
requests about the analysis that went into the designation 
process? The memos, the correspondence, all that information? 
Everyone here, will you comply with that request?
    Raise your hand if you will comply with the request to 
provide us that documentation.
    I have no takers. So, why not? Mr. Gruenberg, why not?
    Mr. Gruenberg. Congressman, if I may say, you raise a fair 
question. I think I probably want to go back and look at the 
request. It seems to me the line here is when you are dealing 
with confidential supervisory information or dealing with the 
three companies you referenced. They are open institutions. So 
you have to strike a balance there--
    Mr. Duffy. Chairman Gruenberg, listen. Do you know that 
there was a recent attack, some alleged by ISIS, in San 
Bernardino?
    Mr. Gruenberg. Yes.
    Mr. Duffy. You are aware of that, correct? Do you know that 
this body gets intelligence briefings from the FBI in regard to 
ISIS and terrorist attacks?
    Now, I would argue that American lives are in danger from 
these radical extremists. Does anyone argue on this panel think 
that anyone's life is in danger from the work that you do on 
the FSOC?
    Mr. Gruenberg. No.
    Mr. Duffy. Raise your hand. Is anyone's life in danger? And 
so we can get FBI briefings but you won't give us briefings on 
the analysis that has gone into designation of certain 
companies in America?
    Mr. Massad, will you explain that to me? Why am I entitled 
to briefings on ISIS and not on FSOC designation?
    Mr. Massad. Well, sir, I can only speak to the FSOC issues. 
I am not familiar with the intelligence side. But I would say 
that as a general matter, I think, certainly transparency and 
accountability is important--
    Mr. Duffy. No, no. Explain why I get ISIS FBI briefings and 
you can't send me information on designation.
    Mr. Massad. I do think there are issues that we have to 
think about in terms of the non-public nature of certain 
information--
    Mr. Duffy. No, no. The FBI sends me non-public information, 
as well.
    Mr. Massad. I respect that, sir.
    Mr. Duffy. Are you making decisions that affect someone's 
life?
    Mr. Massad. No.
    Mr. Duffy. Is ISIS affecting people's lives?
    Mr. Massad. Yes.
    Mr. Duffy. I would think that is far more serious. And the 
information that we are entrusted with is far more serious than 
the information you have and aren't complying with.
    Mr. Massad. I do think--
    Mr. Duffy. One quick question. The Bank of England sent a 
letter to FSOC asking questions about why Berkshire Hathaway is 
not being considered as a SIFI. Some have argued they have 
political clout in this town. I think Barack Obama said he is a 
great friend.
    Is there a political analysis and connectivity with people 
in power that go into the determination of designation on FSOC?
    Quick answer, maybe, Mr. Chairman?
    Mr. Watt. Not from me.
    Mr. Duffy. Anyone?
    No. I yield back.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from California, Mr. Sherman.
    Mr. Sherman. Thank you.
    Folks, I do think that your decisions are life and death. 
You will never meet the people. But if we have another 2008, 
every one of our districts will have higher divorce rates, 
higher unemployment rates, and higher drug use rates. And we 
will never be able to go to a particular funeral the way you 
can in San Bernardino and say, this is what happened. But there 
are thousands of Americans who would be alive today if we 
didn't have the 2008 meltdown.
    So your work is every bit as important as those who are 
focused on terrorism.
    Ms. White, we have the Financial Stability Board. We don't 
have--well, we have one of its members here. But it doesn't 
answer to the American people. How can we be sure that they 
don't push us to an activities-based approach on asset managers 
or anything else, that the decisions that are made that affect 
the American people will reflect the decisions made by those 
answerable to the U.S. Government? And that it won't be just a 
matter of, well, we went to the meeting, everybody else kind of 
wanted to go in this direction.
    I have seen this--people talk about terrorism. We made 
loans from the World Bank to IMF and I was told, we would never 
let that happen, it is all consensus. Then they came back and 
said, sorry, we got outvoted.
    So how do I know that to get along we are not going to go 
along with policies that don't reflect the U.S. decision-
making?
    Ms. White. As you point out, the Treasury, and the Fed, and 
the SEC, actually sit on the Steering Committee of the FSB, and 
have since 2009, when it was established very importantly to 
look over potential risks to financial stability globally.
    But whatever comes out of the FSB in terms of 
recommendations or suggested standards is not binding on the 
United States and certainly with respect to where there is 
overlap, for example in the designations that have been talked 
so much about. We act independently of the FSB. There are 
separate processes.
    Mr. Sherman. Thank you.
    There is all this focus on whether an organization--an 
entity has a lot of assets. Lehman Brothers didn't go under 
because it had too many assets. It went under because it had 
too many liabilities in contingent liabilities.
    Ms. White, when you analyze whether an entity should be 
designated as a SIFI, do you look at the size of their assets, 
the size of their balance sheet liabilities, or the size of 
their off-balance sheet--contingent liabilities, including 
credit default swaps?
    Ms. White. All of the above and then a host of other 
factors, too. So that you can--
    Mr. Sherman. I would hope that you would focus on 
liabilities rather than assets. No one ever went under 
because--
    Ms. White. Understood.
    Mr. Sherman. --they had too many assets. But in looking at 
contingent liabilities, Mr. Woodall, I hope that we would not 
count those contingent liabilities of regulated insurance 
companies, because the State regulation of insurance companies 
seems to have weathered the storm.
    Would we designate a company as a SIFI just because they 
had a lot of assets and liabilities if all the assets and 
liabilities we are looking on were part of State regulated 
insurance companies where the State regulators determined they 
had adequate reserves?
    Mr. Woodall. Yes, Congressman. One of the factors is the 
regulatory scrutiny that the company goes through. And 
obviously, we do have to look at not only assets and liability 
but the matching of the assets and liabilities. And in 
insurance companies, those liabilities are long-term 
liabilities. They are not like liabilities of a bank that could 
disappear if everyone came in and withdrew their account.
    Mr. Sherman. Dodd-Frank calls for an annual review of 
designations. Do you have a way for a company--do we have a 
good process to allow companies to be de-designated, 
particularly if they have reduced their risk profile?
    Ms. White?
    Ms. White. I think there is a good process. You always want 
to keep looking at possibly enhancing it. But essentially, at 
least annually, the Council has to look at that.
    It was also made clear that the companies can engage with 
the staff on those issues. And then every 5 years, under some 
of the new procedures, they are entitled to a full hearing.
    Mr. Sherman. I hope that you will refine that process 
further. I yield back.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Oklahoma, Mr. 
Lucas.
    Mr. Lucas. Thank you, Mr. Chairman. And since we have this 
distinguished panel together, I would like to visit about my 
concerns with the Basel III leverage ratio rule, as it is 
applied to certain derivative clearing services and the impact 
it will have on the ability of my constituents to hedge risks.
    So first, I would turn, of course, to our derivatives 
market regulators, Mr. Massad and Chair White. When market 
participants utilize derivatives to manage their risk through 
futures, options, and cleared swaps, they must find a member of 
the clearinghouse willing to guarantee their transaction with 
the clearinghouse.
    How does the margin that a market participant posts to a 
clearing member affect the clearing member's ultimate guarantee 
exposure to the clearinghouse?
    Mr. Massad. Thank you for the question, Congressman. I do 
believe it does reduce that exposure. Let me say generally on 
this issue that I support strong bank capital requirements and 
I support the SLR generally. And the issue I have raised is 
really a very narrow one.
    I don't believe we should be excluding derivatives from the 
SLR, but I do believe it is important to make sure we are 
measuring the exposure accurately and I do believe that the 
margin that is held by the CCP--in other words, margin 
collected but then actually transferred to the CCP--that we 
should think about that in terms of how we recognize the 
exposure.
    Mr. Lucas.Chair White?
    Ms. White. I would just add that I think you should always 
be judging the impacts such as you described, frankly, in a 
variety of contexts and a variety of different rule contexts as 
well.
    Mr. Lucas. And I will now turn to our banking regulator 
friends, Comptroller Curry, and Chairman Gruenberg. In many 
instances, these clearinghouse members are banks subject to 
Basel capital requirements which require them to hold capital 
against the guarantee they provide on behalf of their clients.
    Now we can all agree that banks have exposure in the event 
their clients are unable to fulfill the obligations and banks 
should hold capital against that exposure. But shouldn't that 
measure of exposure accurately reflect the client's margin, 
offsets the bank's exposure to the clearinghouse?
    Mr. Curry. Congressman, I think the number one protection 
in the clearinghouse context is really that the member bank be 
strongly capitalized and be able to perform in adverse 
circumstances.
    So having strong capital ratios really is a fundamental 
part of our regulatory structure and the safety and soundness 
of the system, including the clearing of swaps.
    I want to point out that a leverage ratio is not by 
definition a risk-based measure. So by definition, it would be 
inconsistent to import measures of exposure or risk as a 
general matter.
    Mr. Gruenberg. Congressman, I agree with Comptroller Curry. 
I think the core issue here is, the margin is posted with the 
CCP, but in addition, the CCP is asking the intermediary bank 
for a guarantee. And the potential loss from the derivative 
exposure could substantially exceed the margin that is posted 
with the CCP.
    That is why the guarantee is imposed and the capital is 
really designed to protect the bank against the downside risk 
from that derivative exposure.
    Mr. Lucas. I would just simply note to my friends, if we 
create a system that we require such capital requirements above 
and beyond what would appear to be necessary, we will cause 
financial institutions to not participate.
    And the next time we have a Lehman Brothers or an FM Global 
and a major failure and their clients need quickly to find a 
new clearing number, a new place to cover their outstanding 
positions of their margin, there may not be any sources.
    Having been a member of this committee through the wonders 
of 2008, when the worst-case scenario occurs, you have to be 
totally prepared. I am just concerned with Basel, we are headed 
in a direction that will limit my constituents' options, 
thereby increasing their costs and reduce these risk-mitigating 
tools. So I would just simply note that to all of you and ask 
that you bear that in mind.
    We are undergoing pressure back home now in Oklahoma in 
both the agriculture and energy sectors. It is real pressure 
and it is something that will take time to overcome. But these 
tools have been and continue to be important. So let's not 
allow Basel to cause unintended damage.
    With that, Mr. Chairman, I yield back the balance of my 
time.
    Chairman Hensarling. The gentleman yields back. The Chair 
now recognizes the gentleman from Massachusetts, Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman. I want to thank the 
witnesses for your willingness to help the committee with its 
work today.
    I have a question for Chairman Gruenberg. A number of the 
members on this committee have been working with Vice Chair Tom 
Hoenig on a proposal that would give some regulatory relief to 
some of our small banks.
    Now, we are looking at banks, community banks that are in 
the traditional business of banking, taking deposits, making 
loans to businesses and individuals. And the way this would 
work, we have not accepted all of Vice Chairman Hoenig's 
recommendations, but we have focused on a number of them which 
would be to be eligible for regulatory relief, the financial 
institution must hold no trading assets, no derivative 
positions other than interest rate or foreign exchange, have a 
limited notional value of all the bank derivative exposures or 
otherwise, and maintain a ratio of gap equity to assets of 
about 10 percent; no less than 10 percent, I'm sorry.
    And in return for that, under this legislation, we would 
give relief in this form. The compliant banks would be exempt 
from Basel risk-based capital standards. The test, the stress 
tests, in some cases, they would be exempt, in other cases, the 
stress test would be every 18 months instead of every year, so 
we are trying to reduce the cost there for compliance. And also 
exemptions from submitting call reports and schedules.
    Now, this actually goes back to Mr. Sherman's question 
before where we are actually regulating activity, not 
necessarily size. So if a bank is not engaged in risky 
activity, we think--and they are doing the right thing--we 
think they a ought to be entitled to relief. And this has been 
a high-cost issue for the smaller banks.
    I just wanted to get your sense on whether this is 
something that you would be receptive to?
    Mr. Gruenberg. Congressman, I am similarly sympathetic to 
the concept, the core concept being that if a smaller 
institution is very strongly capitalized on the leverage 
ratio--that is the 10 percent that you referenced--and does it 
engage in high-risk activities, it would be eligible to reduce 
or compliance with risk-based capital standards. I think that 
core concept really makes some sense and I think that is 
certainly is an issue for Congress to consider.
    And I think as part of our regulatory review process, 
within the framework of our capital rules, that may be 
something that we might be able to consider on a regulatory 
basis.
    Mr. Lynch. Okay. I do want to fixate on that word 
``sympathy'' because I think a lot of our small banks are good 
with the sympathy. They are looking for actual relief now.
    Mr. Gruenberg. I am--let me say I am open to pursuing that 
approach.
    Mr. Lynch. All right. Mr. Cordray, do you have any worries 
about that? Have you thought about that proposal? I don't want 
to--you might be out of pocket on this issue, I am not sure.
    Mr. Cordray. No. We have been--if you look at our mortgage 
rules, we tiered the application of those rules on the 
qualified mortgage, what we call the ability-to-repay rule. We 
made special provisions for smaller creditors, and in fact, 
they have increased their share of the mortgage market, credit 
unions and community banks.
    And frankly, it is appropriate, because if you look through 
the financial crisis, the default rates on loans that were 
issued by smaller creditors, particularly depository 
institutions, had a much better--that is, lower rate of 
default--than other mortgages made generally in the 
marketplace.
    So where we can take that into account and think about how 
we can apply different provisions for different levels of risk, 
I think that is entirely appropriate.
    We will continue to do so.
    Mr. Lynch. You hit right on a point that I didn't mention, 
which is that in most cases where a bank is willing to keep 
their FAT mortgage in their portfolio, it would be deemed a 
qualifying mortgage because you are not issuing to sell it.
    Mr. Cordray. We are comfortable with that, particularly for 
smaller entities, but there were larger entities before the 
crisis that kept mortgages on their balance sheet and blew up 
the system, Washington Mutual, Countrywide, and others. So at 
smaller levels, I am quite comfortable with that.
    Mr. Lynch. All right, fair enough.
    Thank you, Mr. Chairman. I will yield back.
    Chairman Hensarling. The gentleman yields back. The Chair 
now recognizes the gentleman from California, Mr. Royce, 
chairman of the House Foreign Affairs Committee.
    Mr. Royce. Thank you, Mr. Chairman. Last month, in a 
hearing before the committee about due process issues with the 
FSOC, Professor Jonathan Macey of Yale Law School stated that 
with respect to the actions that the FSOC have already taken, 
there is a significant danger of increasing rather than 
decreasing systemic risk.
    His point, as he explained, was that this was because the 
FSOC is ignoring certain risk mitigation strategies and herding 
entities into particular risk strategies, which decreases 
diversification and then increases the systemic risk.
    This could also happen indirectly with companies making 
choices to merge, sharing in the cost of compliance and 
creating greater economies of scale. We have seen this in the 
banking sector, or more directly, with the implied or explicit 
backing of the government, as in the case with the GSEs.
    So I was going to ask Mr. Curry, do you view the potential 
for regulators to create systemic risk as a problem, and what 
actions have you taken to make sure that--and I will also ask 
Chair Matz, that the FSOC's designations and enhanced 
prudential standards of the Fed are not increasing systemic 
risk, per the thesis that the Yale professor puts forward.
    Mr. Curry. Congressman, the FSOC actually is looking at, 
and this is referenced in our annual report, some of the 
consequences of changes within the marketplace, including 
regulatory changes. There are behaviors that have changed. 
Institutions have either left or entered different types of 
business, the impact of non-banks.
    Those are all things that we have identified as emerging or 
potential emerging risks that require further monitoring, and 
if necessary, potential action down the road.
    Mr. Royce. And Chair Matz, if you could just weigh in 
there?
    Ms. Matz. Thank you. More specifically, as the designation 
is being considered, the company has an opportunity to present 
any evidence to the staff, whether in person or in writing, and 
so if they think that there might be information that would be 
helpful in determining whether to designate, they have every 
opportunity to make that information available to us.
    Mr. Royce. And lastly, I will just ask Chair White, do you 
agree that this is a problem? Would you like to weigh in on it?
    Ms. White. I think it is certainly something that I think 
we need to be constantly keeping in mind with all of our 
regulations, what impacts they are having, what mitigators we 
ought to be considering in addition.
    Mr. Royce. Now I am trying to better understand how the 
interaction on another subject here, between the Office of 
Financial Research and FSOC members works. After criticism by 
this committee in public on an OFR report regarding the asset 
management industry, the FSOC sought public views on the 
industry, and later issued a request or notice and comment on 
asset management products and activities.
    Separately, the SEC put out the OFR report for public 
comment. Can I ask the panel, do any of you see a reason why 
all OFR public reports should not be open to the public notice 
and comment? Does anyone take exception to that concept?
    For the record, Mr. Chairman, I would like to say that the 
witnesses, for the record, saw no reason to continue the 
practice of OFR not allowing for public comment on their 
reports. That is the point I wanted to make. I think it is 
important that they do so.
    If I have time here, the FSOC has not designated any asset 
managers as SIFIs, which is a step I support, as these firms 
operate with little leverage, if any, and the risks they manage 
are borne by those whose funds they invest.
    But the FSOC is now apparently considering the industry 
under activities base regulation, the second prong of Section 
113 of the Dodd-Frank Act, rather than material financial 
distress, the first prong.
    My question is not about asset managers but rather how FSOC 
came to this decision and why a similar process wasn't used 
when designating insurance companies?
    Mr. Woodall, is it fair for the FSOC to offer different 
amounts of process to different industries, and why not take 
the same amount of time and get it right?
    Mr. Woodall. Congressman, I think that we have already 
discussed the fact that in activities, which has been my main 
goal in the insurance company, it is evolving now in the 
Council. The Council is young, it is evolving, and I welcome 
the idea of taking a pause and getting into looking at the 
activities across the segment. I hope that they will do that 
for the insurance industry.
    Mr. Royce. Thank you, Mr. Chairman.
    And thank you, Mr. Woodall.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Georgia, Mr. Scott.
    Mr. Scott. Thank you very much, Mr. Chairman. Panel, I am 
very concerned about the Department of Labor's fiduciary rule. 
Let me explain why.
    I have spent most of my adult life working hard in the area 
of wealth building in the African-American community, and our 
President is a wonderful person; he is a decent, good man. But 
as an African-American, I am not sure that he has been properly 
advised as to how devastating this Department of Labor ruling 
will be on the African-American families in terms of wealth 
building.
    Now I say that as one who--I am a graduate of the Wharton 
School of Finance, where I got my MBA. I went off and much of 
my work has been in investment. I had an investment portfolio 
in my own business that I started. As a result of that, they 
put me on the board of directors, the executive board of 
directors of the Wharton School.
    And there, in that position, we pulled together, along with 
John Sculley, who was the chairman of our board and chairman of 
Pepsi-Cola at the time, an extraordinary program of wealth 
building. But what we found out was there were three elemental 
areas that prohibited wealth building and investment: 
education; financial advice; and the overarching complexity and 
diversity of the investment options in our system.
    This Department of Labor rule will have a devastating 
effect on the African-American community, and on other lower 
and middle income, because they don't have that money to pay up 
front the fee costs. And when you put a contract there for them 
to sign, they are going to run away. I know. I have been there. 
I have worked with the African-American Chamber of Commerce on 
this.
    So what I want to ask you all, you all are the Financial 
Stability Council of the United States Government. Take for a 
moment and look at the most unstable financial caring in this 
country as in African-American communities. Is it not too much 
for somebody on your committee to ask the President to hold off 
until we actually see just how devastating it is, affecting 
African-Americans? That is what I am asking you to do.
    I asked Ms. White the other day in our meeting at the SEC, 
but she seems to have ceded her authority to the Labor 
Department, when we clearly put it, as you know, Mr. Watt, you 
were here. We wrote it into Section 913 in Dodd-Frank, that was 
the domain fiduciary of the Securities and Exchange Commission.
    At no time did we hear from the Labor Department at the 
recent--talking about they had the retirement. And if they do, 
wouldn't it be respectful for them to sit with the regulatory 
agency that handles financial investments--the SEC and FINRA 
and work that out? I just urge you to examine these because the 
devastating impact is terrible.
    My paper--the Atlanta General Constitution--I urge you to 
read it. Sunday's edition--front page of the business talks 
about the struggle of African-American families to build and 
growth wealth. And the number one reason why it is so slow is 
they can't get the education or the information.
    Rich people investing, they don't have any problem. They 
can pay for that fee for service and most of them do. But when 
you get to annuities or trying to turn your life insurance into 
whole life or whatever you need advice for that.
    Anyway, I urge you to ask the President to put a pause on 
this and let us see what the impact is on the Black families. 
Now, Mr. Massad, I wanted to--I think I have time. We had a 
terrible problem with the European Union on this equivalency 
with derivatives.
    December 15th is the deadline and I want to know because it 
is going to have a devastating effect on our end users, on our 
exchanges and clearing houses. If we don't get equivalency in 
terms of our regulatory regime with the E.U. especially when 
they have given equal status to Singapore and other areas. What 
is the status on that in that we are just a week away from the 
deadline?
    Mr. Massad. Thank you, Congressman. They have pushed out 
that immediate deadline. I think we are still working in good 
faith to try and resolve this. I think we have narrowed our 
differences. I am hopeful that we can do so.
    I of course believe they should have granted us equivalence 
some time ago but I recognize the issues that they are 
concerned about. And we are working very hard to work them out.
    Mr. Scott. Thank you, sir.
    Chairman Hensarling. The time of the gentlemen has expired. 
The Chair now recognizes the gentleman from Ohio, Mr. Stivers.
    Mr. Stivers. Thank you, Mr. Chairman. I appreciate all of 
you for being here. I would like to go on a quick tour of the 
segments of the financial services industry. How many of the 
witnesses believe that small banks and credit unions caused the 
crisis in 2008? Could you raise your hand if anybody believes 
that? Okay. I would like to note that no one did.
    You have an important role as a coordinating council of 
regulators as well and I am curious if you could go down the 
line, starting with Ms. White, and tell me how many hours in 
the last year you have spent discussing and identifying 
regulatory conflicts and unnecessary regulations that might be 
harming our community banks and credit unions?
    Where better coordination could reduce unintended 
consequences and costs and differing regulatory interpretations 
by agents in the field. Just how many hours this year the 
Council spent talking about that? Just if you could each give 
me a number and we could do this quickly.
    Ms. White. I do not think we have a very accurate estimate. 
Those discussions have occurred at the staff level but I can't 
say.
    Mr. Stivers. You would say zero--
    Ms. White. I wouldn't say zero but yes.
    Mr. Stivers. At the staff level, okay but on the Council. 
That is what I care about. That is who you are. Let's keep 
moving.
    Mr. Massad. I also could not give a number but I--
    Mr. Stivers. Okay. Sounds like another zero. Keep moving. 
Mr. Woodall?
    Mr. Woodall. I don't think there is a definite figure, but 
I think there has been discussion leading up--
    Mr. Stivers. Okay. So some discussion. Nobody can put a 
number on it in hours. Ms. Matz?
    Ms. Matz. I would agree that--
    Mr. Stivers. You would agree you don't have any idea how 
many hours but it has happened--
    Ms. Matz. No--but I think it has happened but--
    Mr. Stivers. Okay. Let's keep moving. Obviously, there is a 
pattern. Does anybody have a number? Will anybody give me any 
kind of number?
    Mr. Watt. I quit keeping time when I left--
    Mr. Stivers. Good man--
    Mr. Watt. --to practice law, Mr. Stivers.
    Mr. Stivers. I am still keeping time so let's move--
    Mr. Watt. We spend a lot of time--
    Mr. Stivers. I got it.
    Mr. Watt. --discussing a lot of issues and I--
    Mr. Stivers. Okay. I think we have a pattern--
    Mr. Watt. Regulatory overlap is one of those I think--
    Mr. Stivers. I appreciate it. I think we have a pattern 
here. You are not discussing it enough at the Council level. 
The staff is discussing it but you need to discuss it. These 
are important community assets that dot the fabric of our 
country and the 15th district of Ohio. And these companies--
small companies, small banks and credit unions are struggling 
to keep up.
    Many of your field agents actually misinterpret regulations 
intended for big banks and put extra pain and cost on these 
small banks and they are having real struggles. Let's move on 
to regional banks. How many of you believe that regional banks, 
which I will define as kind of $50 billion to $250 billion, 
caused the crisis? Again, no--oh, I have a couple of hands 
there maybe.
    Mr. Gruenberg. Just to make the point for what it is worth 
and--
    Mr. Stivers. We are running out of time. It can be quick.
    Mr. Gruenberg. The regional banks generally are 
individually not systemic. I would point out that as was 
mentioned earlier the most expensive bank failure during this 
crisis and in the history of the FDIC was a $12 billion loss 
caused by the failure of IndyMac, which was a $30 billion 
thrift. So a regional institution can have its--a failure of 
one or more regional institutions can have a significant 
consequence--
    Mr. Stivers. It can, and I believe that. So let's talk 
about what you have done to use your regulatory flexibility 
that Secretary Lew says you have between trillion dollar banks 
and $50 billion banks. Can anybody explain to me exactly how 
you have used that regulatory flexibility? Mr. Curry?
    Mr. Curry. Congressman, the OCC supervises a range of 
institutions: small rural banks to globally active banks. We 
are very concerned about the regulatory burden, particularly on 
community banks. The FSOC is not necessarily the forum where we 
discuss reducing regulatory burden. We do that on the banking 
and credit union side on the Federal Financial Institutions 
Examination Council (FFIEC).
    We really are concerned about the impact the EGRPRA process 
really is designed to reduce regulatory--
    Mr. Stivers. I appreciate that, Mr. Curry and I want to 
talk about that. But we are talking about regional banks now. 
So can you tell me how you use the flexibility that--
    Mr. Curry. Definitely, definitely--
    Mr. Stivers. Secretary Lew says you have. Have you used it? 
And if so, exactly how--
    Mr. Curry. Yes. As a supervisor of a number of regional or 
mid-sized institutions we place a great deal of value on 
collaboration and coordination with our other regulatory 
agencies. And I would include the Fed, the FDIC and the CFPB. 
It is really a regulatory imperative to make sure we are 
working together and not--
    Mr. Stivers. You haven't answered how--you are trying to 
eat up time here, it sounds like.
    Mr. Curry. No.
    Mr. Stivers. You have not answered one specific way in 
which you have used your regulatory flexibility. Could you give 
me one specific way, Mr. Gruenberg? One way. That is all I am 
asking.
    Mr. Gruenberg. As you know, Congressman, one of the 
consequences of--is a requirement of submitting a resolution 
plan. And we certainly for the smaller institutions have--
    Mr. Stivers. The tailored plan is the only true answer. And 
how--that cuts a little cost but they still have to do the CCAR 
stress test, the regular stress test. There are way too many 
things built in that you have the power to fix and I wish you 
would take a look at it. I didn't even get to non-bank 
financial entities and my time has expired. But please look at 
those things. Thank you, Mr. Chairman. I yield back.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Texas, Mr. Green, 
ranking member of our Oversight and Investigations 
Subcommittee.
    Mr. Green. Thank you, Mr. Chairman. And I thank the ranking 
member, and of course I thank the august body of witnesses who 
have appeared today. In my years on the committee, I don't 
think I have seen quite the number of financial stability heads 
assembled at one time for the purposes of questioning. So I 
thank you for being here.
    Mr. Woodall, much has been made of the fact that you are 
the only person on the FSOC with insurance expertise. 
Incidentally, is that the only area that you claim expertise 
in? Do you claim expertise in other areas to this extent?
    Mr. Woodall. I will say being on the Council is a learning 
experience. They are learning about insurance and I am learning 
about banking.
    Mr. Green. So you don't claim expertise in banking but you 
are learning about it. Mr. Woodall, based upon what has been 
said, there seems to be an implication or an indication that 
only persons with insurance expertise should judge an insurance 
company. And I ask this because MetLife has appealed its case 
in this study that is file in a district court in the District 
of Columbia--Federal District Court. Do you think that judge 
ought to be an insurance expert to hear the MetLife case?
    Mr. Woodall. I am not going to make any statements about 
the MetLife appeal.
    Mr. Green. I understand. I will continue to ask you 
questions and you will continue to have no response. Do you 
think that the jurors who will hear the MetLife case--if we do 
have a panel of jurors--will have to have insurance expertise?
    Mr. Woodall. Of course not.
    Mr. Green. Of course not.
    In fact, across the length and breadth of this country on a 
daily basis, we have jurors who are ordinary, everyday working 
people who hear complex cases involving antitrust, billions of 
dollars. In Texas, you had the Pennzoil case; there were lots 
of laypeople there hearing a case. People hear these cases all 
the time and make life-and-death decisions who don't have 
expertise in a given area that the case happens to be focused 
on.
    Do you agree with this, Mr. Woodall?
    Mr. Woodall. I would say that the FSOC--
    Mr. Green. I think you do. Let me continue. It appears to 
me, Mr. Woodall, that the indication of only a person with 
expertise in a given area should be able to judge would lend 
itself to asking at least one question. Have you made any 
decisions with reference to banks since you have been on the 
FSOC?
    Mr. Woodall. Banking regulators are the ones who do that.
    Mr. Green. But have you voted--have you had a vote on 
anything related to banks? Have you had a vote since you have 
been there on anything related to banks?
    Mr. Woodall. Not as such.
    Mr. Green. Not as such. I don't have the time to drill down 
with that, Mr. Woodall. There is a way to get to the ``not as 
such'' answer, but I don't care to do it now. So have you voted 
as such on some things related to banks?
    Mr. Woodall. Obviously, we get into financial market 
utilities--
    Mr. Green. I understand. So you have not recused yourself 
from issues related to banks? You have voted because you are a 
Phi Beta Kappa from Kentucky. And as a Phi Beta Kappa from 
Kentucky, you can understand these banking issues, can't you?
    Mr. Woodall. Yes. And they can understand insurance 
issues--
    Mr. Green. And that leads me right to my next question. 
Thank you so much, Mr. Woodall.
    My next question is this: If you believe that a person must 
have insurance expertise to sit in judgment of an insurance 
company on FSOC, raise your hand. If you think you only can do 
it if you have insurance expertise, raise your hand. Anyone? 
Let the record reflect, none.
    But because I want the record to be perspicuously clear, 
let me ask the question another way. If you believe that you 
can sit in judgment of an insurance company and not be a Phi 
Beta Kappa from Kentucky, raise your hand, please. If you 
believe you can. All right.
    Mr. Woodall. You have voted for--
    Mr. Green. You are the only person who thinks that you have 
to be a Phi Beta Kappa from Kentucky. I see his hand didn't go 
up. So Mr. Woodall, I assume that I should now put in the 
record that you are a person who believes that you must be a 
Phi Beta Kappa from Kentucky before you can sit in judgment of 
an insurance company on FSOC? Should I put that in the record?
    Mr. Woodall. No, but I think you should put in the record--
    Mr. Green. Okay. That should go in the records. I am going 
to take it from that comment, Mr. Woodall, that you joined the 
rest of your colleagues and let the record should show there is 
unanimous consent that you don't have to be an insurance expert 
to sit in judgment of an insurance company.
    Mr. Woodall. I am not sure what an insurance expert is.
    Mr. Green. I am glad you said it, because some people have 
claimed that you are, so my assumption is that you don't know 
what you are.
    Mr. Woodall. That is because it was put in the title of 
Dodd-Frank.
    Mr. Green. Okay. Well--Mr. Woodall--look, by the way, let 
me share this with you before I end. Mr. Woodall, I want to 
make this very clear: I love you.
    [laughter]
    Because sometimes it can appear that I don't love people 
because I have to ask the tough questions, and I regret that I 
didn't get to some other things. But God bless you, dear 
brother. I love you.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Illinois, Mr. 
Hultgren.
    Mr. Hultgren. Thank you, Mr. Chairman. And thank all of you 
for being here.
    I am going to address my first question to Chairwoman Matz, 
if that is all right. You said earlier that designation of 
insurers was not about life insurance activities; it was about 
financial activities. My understanding was at the time of the 
designation, which again, my records show to be June 30, 2013, 
the reference date for much of FSOC's analysis, 98 percent of 
MetLife's consolidated assets, 96 percent of its liabilities 
and 95 percent of its revenues were in these highly regulated 
insurance subsidiaries.
    So I just wanted to make sure I understand the basis for 
your decision. Are you saying that FSOC analyzed only 2 percent 
of MetLife's consolidated assets and only 4 percent of its 
liabilities and 5 percent of its revenues? These activities are 
outside of regulated insurance entities at the company, I 
believe, and found that those assets alone to be systemically 
important and a threat to the financial system? Is that your 
testimony?
    Ms. Matz. I do want to say that we cannot comment on 
MetLife, but in terms of our designation of other insurance 
companies, we do look at how their balance sheet and off 
balance sheet activities are interconnected with other 
systemically important institutions.
    Mr. Hultgren. I am going to stick with Chairwoman Matz on 
this, then open it up to others as well.
    As all of you should know, insurance companies are 
extensively supervised by States. Despite the existing 
regulation, FSOC has designated three insurers as systemically 
important. Chairwoman Matz, could you provide an overview of 
how and why you determined the State insurance regulation, and 
in particular, State guarantee system for failed insurers, is 
ineffective?
    Ms. Matz. Thank you for asking that. I don't think any of 
us--and I can't speak for anyone else, but on this, I would say 
that I don't think any of us think that the State insurers are 
ineffective.
    But our mandate is to look at how the activities of the 
insurance companies affect the financial stability of the 
United States. They are really looking at the effect on 
policyholders. It is a very different direction that they are 
taking.
    Mr. Hultgren. With making that determination of what you 
should pull away from the States--again, clearly legislatively, 
authority--most authority of regulation for insurance companies 
is with the States.
    I would argue both for protection of policyholders, but 
also--protection of policyholder would, by definition, State--
you know, financial stability of that company. Those would be 
directly related. Those aren't separate issues.
    So what specific information analysis did you, as a voting 
member of FSOC, rely on to reach the determination that should 
be separated out, that States were unable to handle this?
    Ms. Matz. As I said, they have a different mandate than we 
do. They are looking at the institution and the solvency vis-a-
vis the policyholders. We are looking at the institution and 
its interconnectedness with other institutions and its ability 
to threaten the financial stability of the United States.
    It is a different mandate. It doesn't mean that they are 
doing their job any better or worse than we are or vice-versa. 
It is just a different tack that they are taking.
    Mr. Hultgren. As you are making this decision, was there an 
independent analysis done by your agency?
    Ms. Matz. An independent analysis of?
    Mr. Hultgren. Again, the standing, I guess, of these 
insurance companies, their ability, if there was a threat 
nationally to financial markets or--I would say also to 
policyholders, was there an independent analysis done by your 
agency to make the determination, again, that the States 
weren't capable of doing this, that this was something that you 
all needed to do?
    Ms. Matz. We rely on the FSOC staff. We did not do an 
independent evaluation, no.
    Mr. Hultgren. Let me switch in my last minute here--a 
little-discussed provision of the Dodd-Frank Act, Section 170, 
directs the Fed, on behalf of and in consultation with FSOC, to 
issue regulations setting forth criteria for exempting certain 
classes or categories of non-bank financial companies from 
heightened Fed supervision.
    However, to date, no such regulations have been issued. 
This requirement represents a tool Congress created to 
delineate between those entities that pose systemic risks and 
those that do not, and provide clear criteria for institutions 
on how to conduct their business and structure their operations 
in such a way as to be non-systemic.
    Chair White, in the last few seconds I have, why has this 
provision never been used?
    Ms. White. I really can't answer that. It would have to 
come from the Fed initially.
    Mr. Hultgren. I guess, in my last seconds, just a show of 
hands, following on my friend from Texas, who among you has 
advocated for a class of financial company to be exempted from 
heightened supervision? If you could raise your hand, if you 
have advocated for a class of financial company to be exempted 
from heightened supervision?
    For the record, nobody raised their hand. My time has 
expired. I yield back, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentlelady from Ohio, Mrs. Beatty.
    Mrs. Beatty. Thank you, Mr. Chairman. And thank you, 
Ranking Member Waters.
    Let me associate my opening comments with those of my 
colleagues. As someone relatively new, I have certainly never 
seen the number of people, which is not as important as the 
work and the service you do. So thank you for that.
    We have heard a lot of questions about what you don't do. 
What is interesting to me is, I listen to the example about 
what you would provide as it relates to giving us information. 
And I think the analogy was to us getting classified 
information for ISIS.
    We certainly know, from everything we have read and we have 
heard that our country is in trouble. So you were asked, and 
given that analogy, do you think, since your role is to protect 
the financial stability for us, are we in financial crisis 
right now, as we were, let's say, in 2008?
    So I am trying to get--are we like ISIS is, to a threat in 
your world? And that is a yes or no, if you could just go down 
the panel. Are we in that same kind of threat in financial?
    Ms. White?
    Ms. White. No, but I think we can't be complacent.
    Mrs. Beatty. Yes or no, straight down. Quickly.
    Mr. Massad. I would agree with Chair White's statement.
    Mr. Woodall. Me too. No.
    Ms. Matz. No.
    Mr. Cordray. No.
    Mr. Watt. I agree.
    Mr. Gruenberg. No.
    Mrs. Beatty. Okay. I have an insurance question, but I will 
come back to that, Mr. Woodall, since you have been asked so 
many questions about this.
    I also would like to associate, for the sake of time, 
myself with the words of Congressman Scott from Atlanta as it 
relates to not only the issue he talked about, but more 
importantly about Black wealth or minorities.
    I am very concerned, and I know many of you have OMWE 
boards. But my question is beyond OMWE because I am not pleased 
with the answers that I have been given by you all with OMWE. 
While it is a big deal to me in Section 342, I don't think 
people have taken it as seriously as we should.
    With that said, as a group, as you look at making your 
projections, as you evaluate where we should be financially, 
can at least three of you tell me what you do with minorities, 
and more specifically African-Americans, as it relates to 
banks, financial institutions? How are they included? Because 
you make projections that affect us and our constituents. And 
so I am concerned. Can anyone address that, quickly?
    Mr. Curry. I will start in terms of what we do with 
minority-owned institutions and populations. In terms of 
minority depository institutions, I have an advisory committee 
that advises me on the issues facing those committees, how we 
can help alleviate those issues through technical assistance 
and other means that are mandated by the statute.
    As a bank regulatory agency we also enforce the Community 
Reinvestment Act, which has a direct impact on low- to 
moderate-income communities. And we have active outreach 
efforts associated with that in both banks and interested 
groups.
    Mrs. Beatty. Okay.
    Mr. Cordray. I would--
    Mrs. Beatty. --quickly.
    Mr. Cordray. I would add that we enforce the Equal Credit 
Opportunity Act. We work with the Justice Department on those 
matters. We recently resolved the largest redlining mortgage 
lending matter in the history of this country.
    We have had significant matters in auto lending 
discrimination and credit card as well. This is an important 
means of making sure that everybody across our society has 
equal access to credit and aren't discriminated against on the 
basis of race and ethnic origin.
    Mrs. Beatty. Okay. We will take one more.
    Mr. Gruenberg. Congressman, I will just mention we also 
have an extensive program as required by law to support 
minority depository institutions. The FDIC also has an advisory 
committee on economic inclusion where one of the things we 
focused on is asset building for low- and moderate-income 
families. And certainly the mortgage crisis, as you well know, 
had a disproportionate impact on the minority households and 
African-American households.
    Mrs. Beatty. Okay. Thank you.
    If Congress were to reduce stability of FSOC to perform its 
statutorily mandated function of overseeing financial markets 
for threats to stability, how could that impact the U.S. 
economy? We will go to the other end. Ms. White?
    Ms. White. It would defeat the entire purpose of FSOC, 
which is a very important one, which is to look out for the 
financial stability of the U.S. financial system.
    Mrs. Beatty. Okay.
    Mr. Chairman, the Commodity Futures Trading Commission--
later today the committee will be marking up a data security 
related bill, which I am sure should be very interesting to us. 
I am interested to hear what measures specifically FSOC has 
taken to facilitate dialogue to help us protect that.
    Mr. Massad. I think generally, FSOC has taken the issue of 
cybersecurity, broadly speaking, very seriously. It has listed 
that as a primary concern in its annual reports.
    It is--FSOC also serves as a very useful way for all of us 
as members to compare notes and coordinate what we are doing 
individually in our agencies.
    Mrs. Beatty. And do we have any--my time is up, I am sure. 
Do we have any best practices developed? Yes or no?
    Mr. Massad. I think, most definitely so. A lot of us are 
very focused on those best practices issues. We are in our own 
agency, I hope that we will come out with some standards 
specifically on--
    Mrs. Beatty. Thank you. And--
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from Florida, Mr. 
Ross.
    Mr. Ross. Thank you, Mr. Chairman.
    Mr. Woodall, I have to just follow up on what my colleague 
from Texas was pursuing. And as a litigator of 25 years I know 
that the trier of fact, whether it be a jury or judge, must 
rely on evidence brought before them. And that evidence, of 
course, is in the best form when it is brought by an expert. 
And when that expert testimony is uncontroverted then it 
becomes clear matter of fact that that opinion should gain the 
day.
    Clearly on this board, on FSOC, you are eminently qualified 
and by far the only person who could be considered an expert in 
the insurance arena. You have experienced not only academically 
but also practically as an insurance commissioner.
    So I have to ask. What was it, in your opinion, that drew 
FSOC to disregard uncontroverted expert insurance opinion, and 
designate MetLife and Prudential as SIFIs?
    Mr. Woodall. I think what you outline might be a 
professional disagreement. I have a lot of respect for all my 
colleagues. We had a very hearty debate. I listened to them and 
they listened to me and we--
    Mr. Ross. I don't think they listened to you, is the 
problem.
    Mr. Woodall. --agreed to disagree.
    Mr. Ross. And I think that there might have even been some 
influence.
    In reading your testimony about not being at the table with 
the IAIS, is that a factor that may play into the domestic 
category of creating these SIFIs, the non-bank SIFIs because 
they are more concerned about the international process than 
they are the domestic process?
    Mr. Woodall. But my job is to try to monitor the whole 
insurance industry international so I can give my 
recommendations. There is a statutory provision that every 
member is supposed to monitor developments in international 
insurance matters.
    Mr. Ross. They haven't been listening to you, though, have 
they? That is clear in your testimony.
    Mr. Woodall. Well--
    Mr. Ross. And I--
    Mr. Woodall. I voted with them on AIG.
    Mr. Ross. Right.
    Mr. Woodall. It was a unanimous decision.
    Mr. Ross. But with regard to the designation--
    Mr. Woodall. --right.
    Mr. Ross. Yes, no--
    Mr. Woodall. These were companies that have not had the 
type of problems with--
    Mr. Ross. Right. There hasn't been a run on life insurance, 
has there? Are people all of a sudden going to go and cash in 
their life insurance policies? Because if they are, then our 
serious consequences for economic structure are way out of 
line.
    Chair Matz, 90 percent of Prudential's balance sheet assets 
and liabilities are in regulated insurance companies. It 
engages in no proprietary trading and its limited security of 
ease lending business was fully collateralized. What would be 
the basis for your decision that Prudential poses a risk to the 
financial stability of the United States?
    Ms. Matz. We look at the overall composition of the 
company's assets and liabilities, their balance sheet and off 
balance sheet activity. And in their case we looked at, and we 
were concerned about, their derivatives position.
    Mr. Ross. And you testified, I think earlier to Chairman 
Luetkemeyer's question, that you relied on staff, the expertise 
of the staff.
    And I think, Mr. Cordray, you went on to say even further 
that everyone on FSOC has their own expertise and that FSOC 
members also rely on the expertise of FSOC staff, among others.
    This begs the question, who are the other people FSOC is 
relying on to make these determinations if not the panel? And 
who are the staff? And what is their expertise in such arenas 
as insurance? Yes, sir?
    Mr. Cordray. I think we rely on FSOC staff. We rely on the 
analysis done by them. There are people loaned from the member 
agencies of FSOC who do work on this. And then we talk to our 
own staffs.
    But to go back to the point my colleague Mr. Woodall made a 
moment ago, in terms of insurance companies there seems to be a 
lot of dissatisfaction here with the designation of MetLife and 
Prudential.
    Mr. Ross. Yes, I would think so.
    Mr. Cordray. AIG is also an insurance company--
    Mr. Ross. Yes, but--
    Mr. Cordray. --designated by this body. And it had 
tremendous reach--
    Mr. Ross. But they had a diversified portfolio--
    Mr. Cordray. That is right--
    Mr. Ross. --not unlike Prudential and--
    Mr. Cordray. And there have also been a number of insurance 
companies that meet the $50 billion asset threshold that have 
not been designated. So it is a spectrum here. And it is a 
judgment that has to be made--
    Mr. Ross. On your FSOC staff, I doubt if you have anybody 
as eminently qualified as Mr. Woodall. If you are relying on 
those expert as opposed to the member, Mr. Woodall, then I 
think there are some problems there.
    But let's talk about asset managers. What are we doing here 
designating asset managers as SIFIs when in fact they are 
basically brokers? They are not carrying the assets.
    And in fact, the impact it will have on mom and pops and 
retirees because of now what they are going to have to do is 
pay fees in order to justify why they are brokering with a SIFI 
when we have not even established that an asset manager should 
be a SIFI. Yes, sir?
    Mr. Cordray. We have not designated any asset managers as 
SIFIs. It is a matter that is--
    Mr. Ross. Oh, you got them in stage two already.
    Mr. Cordray. --under consideration--
    Mr. Ross. They learned through a Wall Street Journal 
article.
    Don't you think it would be more prudent to allow these 
asset managers to have the ability to correct whatever may be 
wrong so that they can save not only the financial system, but 
also those with whom they serve, instead of waiting until the 
opportunity where a collapse may occur that you seem to 
foresee?
    Mr. Cordray. That is a point of view. And these are the 
kinds of issues that are under consideration--
    Mr. Ross. If I went to the doctor and knew I had something 
wrong, I would want to be diagnosed and treated immediately, 
rather than wait until I was on life support.
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Washington, Mr. 
Heck.
    Mr. Heck. Thank you, Mr. Chairman.
    Mr. Woodall, I think I would like to direct this to you if 
I may, please. Over the last couple of--I am over here. Over 
the last couple of years we have heard a lot of witnesses and 
no small number of the members of this committee indicate 
publicly and explicitly that receiving a SIFI designation was 
locking in an unfair competitive advantage.
    It seemed to be premised on the idea that lenders would be 
willing to extend debt to them at a discounted rate. I am 
having a hard time squaring that circle in the face of the fact 
that everybody who is a target for designation fights it tooth 
and nail. And secondly, the action of the S&P recently to 
downgrade the debt rating of, I think, eight financial 
institutions.
    What is your impression? Is this a good thing, to be SIFI 
designated? Is it a desirable thing by them? Does it in fact 
lock in a competitive advantage?
    Mr. Woodall. It is a good thing if they are systemic, and 
present a systemic risk.
    Mr. Heck. Is it a good thing for them?
    Mr. Woodall. But we need to know and they need to know what 
activities they are doing that make them a significant--
    Mr. Heck. Does it give them a competitive advantage?
    Mr. Woodall. Yes, we have talked about that, it can give 
them a competitive--we don't know, yet.
    Mr. Heck. Why do they fight it?
    Mr. Woodall. We don't know yet, because the Fed hasn't come 
up with their capital standards are.
    Mr. Heck. Why would they fight it and why would S&P 
downgrade them?
    Mr. Woodall. I think they don't know what the future is, 
they don't know how high their capital requirements are going 
to be, and they don't know how it will affect them, and they 
don't know what businesses that they sell that they would have 
to get rid of.
    Mr. Heck. Director Watt, as I pursue this, please remember 
that I respect you, I wouldn't go quite as far as the gentleman 
from Texas, but I have affection as both a former colleague and 
somebody I respect.
    Since you have taken over, I have written you two letters, 
or signed on to two letters. The first had to do with the 
forced marriage of the Seattle and the Des Moines Federal Home 
Loan Banks. And I specifically asked that you ensure that the 
new bank's affordable housing program distribute its funding 
equitably throughout the combined district.
    And that is something that when the bank was just in 
Seattle, they ensured. And in fact, the Des Moines bank, the 
new consolidated bank, came out with its nine criteria for 
distributing funds, and made no mention whatsoever of equitable 
distribution.
    I cannot exaggerate to you the depth of my disappointment 
on this. I convey it to you. I am not letting go of this, and I 
am deeply disappointed that there was not more attention paid 
to this basic principle.
    The second letter that I sent to you had to do with 
concerns about the proposed rule to limit membership, I think 
66 of my colleagues got on, the rule came out, we hear rumors 
that it is not going to be changed. I have signed on to 
legislation with Mr. Luetkemeyer, Mr. Carney, and Mr. McHenry, 
to sponsor a bill is to stop it.
    Now, in a private meeting I put a question to you, which I 
now put to you publicly. And I am asking you to respond 
personally, not necessarily with your agency hat on. You are a 
long time former member, much respected, of this committee.
    Given the forced marriage between Seattle and Des Moines, 
given the blowback and apparent disagreement about the proposed 
membership rule, is it not time that the Congress take a look 
at the basic structure of Federal Home Loan Banks? It has not 
been touched in 80 years. For all practical purposes, its roots 
are the same as when they were created.
    I believe that in 8 decades, circumstances have evolved and 
it should be up to us to take a look at that. In fact, the 
disagreement you and I had privately was, I think it should be 
up to you or your agency to bring forth ideas of how you might 
do that.
    Your reaction, please, sir?
    Mr. Watt. I think there is an ongoing obligation of 
Congress to look at every aspect of the financial services 
industry and the housing finance industry. And I think there 
are important needs that could be looked at in the Federal Home 
Loan Bank System.
    Mr. Heck. Thank you. Comptroller Curry, you are the sole 
Director of an agency that is not subject to appropriations. 
How many times have you testified before this committee?
    Mr. Curry. Three times.
    Mr. Heck. Over what period of time?
    Mr. Curry. Since my appointment in 2012.
    Mr. Heck. Dr. Watt, same question?
    Mr. Watt. I come whenever you call me. I have been here one 
time, since I was--
    Mr. Heck. One time? Director Cordray, how many times?
    Mr. Cordray. I don't know here, but in front of Congress, 
more than 50 times the Bureau has been called to testify.
    Mr. Heck. I think the point is clear. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from New Mexico, Mr. 
Pearce.
    Mr. Pearce. Thank you, Mr. Chairman. I appreciate each one 
of you being here. Mr. Woodall, you have been, I think, engaged 
in a discussion at a previous appearance you made in front of 
this committee, talking about some of the downstream effects of 
the listing of AIG and Prudential and MetLife. So that is going 
to have an effect on the insurance market itself, will it not, 
if I remember from our previous discussion?
    Mr. Woodall. Yes.
    Mr. Pearce. So we in the United States enjoy competitive 
advantage throughout much of the world. And coming from the 
business world, specifically repairing oil wells, down hole--
which is filled with liability, we utilize that insurance 
market to great advantage, to allow us to create jobs, to do a 
better competitive effort than some of our friends overseas 
could do.
    And so will there be downstream effects from any actions 
you all take regarding the too-big-to-fail? Will there be 
effects in the insurance market?
    Mr. Woodall. Well, yes. You used terminology that--
obviously, if someone has increased regulatory expenses, it is 
going to affect how they operate in the market.
    Mr. Pearce. So there is a possible threat from what you all 
do to the market?
    Mr. Massad, have you all discussed that in the FSOC 
meetings?
    Mr. Massad. Congressman, I wouldn't characterize it that 
way. I would point out for example, that what we do can protect 
people. When we consider AIG, for example, this government had 
to commit $182 billion to prevent the collapse of that company, 
which would have probably taken us into a worse Great 
Depression than what we had in the 1930's. Fortunately, we were 
able to get all that money back.
    Mr. Pearce. What about MetLife and Prudential?
    Mr. Massad. Congressman, with all due respect, I was not 
there for the Prudential designation. With respect to MetLife, 
that is a matter under litigation, so I don't think it is 
appropriate to comment on the reasons for it.
    Mr. Pearce. Ms. White, would you have a comment on that? In 
other words, you all, as FSOC, your underlying call is to 
prevent excessive risk to the U.S. financial system. And what I 
am saying is that there are certain financial risks to what you 
are doing, to the actions you all are taking.
    So Ms. White, did you all discuss the potential downside of 
what you are doing here and how it might affect the market? And 
now you have referred to the guy who made his living regulating 
insurance and living in the insurance. And sometimes staff have 
not had that on the ground experience.
    So regardless of what anybody else says, do you all sit 
quietly behind the doors and say, hey, we ought to really take 
a close look at what we are doing?
    Ms. White. I think we have to carry out the mandate we were 
given, which is basically to identify and address systemic 
risks to the financial system, the financial stability of the 
financial system.
    Mr. Pearce. So you don't think that you as an agency could 
be the systemic risk yourself?
    Ms. White. You want to consider all factors. And certainly 
when we do our rulemakings at the SEC, we directly consider all 
of the impacts. I think we do consider and discuss factors, a 
wide range in FSOC, too. But our primary responsibility is to 
carry out the mandate we were given to--
    Mr. Pearce. The mandate is to watch--excuse me, I keep 
shifting back and forth. The mandate is to watch for systemic 
risk, is that right?
    Ms. White. It is to identify and address systemic risk to 
the overall financial system.
    Mr. Pearce. And so I am saying that if you all--according 
to Mr. Woodall's discussion back some time, and kind of 
reiterating now, you all could be the systemic risk that you 
are trying to avoid, if you are not very careful, because this 
insurance market is extraordinarily thin.
    If you are watching--I don't mean to be rowing in other 
stuff--but if you are watching people bail out of the insurance 
market in healthcare right now, you understand what I am 
talking about.
    We have disrupted an entire insurance market, and before 
you all do something that causes the same evacuation out of the 
insurance, just remember the poor saps out there in the field 
like myself who are just trying to buy insurance off the open 
market, to where we could do our business.
    And it could be that you all are the problem which causes 
that market to disappear. And that is my point. I would hope 
that you all would have more thorough discussions about the 
problem that you all represent instead of the systemic risk 
that maybe you ought to be identifying somewhere else.
    Thank you, Mr. Chairman, I yield back.
    Chairman Hensarling. The gentleman yields back. The Chair 
wishes to alert all Members that there is currently one 
procedural vote on the Floor. There are 11 minutes remaining in 
that vote.
    I will recognize the gentlelady from Missouri. Members may 
want to go vote and come back. And then after the gentlelady 
from Missouri, we will recess briefly for the vote. The 
gentlelady from Missouri is recognized.
    Mrs. Wagner. Thank you, Mr. Chairman. And thank you all for 
being here. I would like to quickly associate myself with my 
colleague across the aisle from Georgia, Mr. Scott, about this 
very misguided Administration's rule-laying by the Department 
of Labor, on fiduciary issues. I would encourage you all to 
speak to the President and his team on this issue, too. He did 
not seem interested in my concerns last night at the Christmas 
party.
    I am particularly interested in knowing the role that the 
international forum, known as the Financial Stability Board, 
has played with regard to decisions about domestic matters made 
by FSOC. Due to the non-transparent nature in which FSOC 
conducts its business, it can cause one to question, I think, 
whether our U.S. regulators are really fighting on behalf of 
the interests of the United States of America when they are at 
the international negotiating table, or whether they are simply 
letting international counterparts make important decisions for 
us.
    Mr. Woodall, in your dissent to the Prudential SIFI 
designation, you made the point that the international and 
domestic designation processes are not entirely separate and 
distinct. Specifically, sir, you noted that an unnamed U.S. 
national authority agreed to the international designation of 
Prudential before the company's determination before FSOC. 
Could you please be specific and elaborate, who is that? The 
national authority?
    Mr. Woodall. Yes, the national authority. Well, there are 
three at FSB, there are three national authorities: Treasury; 
the Fed; and the FCC.
    Mrs. Wagner. Yes. And who is the unnamed authority that 
agreed to the international designation of Prudential before 
the company's hearing and final determination before FSOC?
    Mr. Woodall. That is hard to say. As far as I know, 
actually, before the hearing at Prudential, the Treasury 
notified Prudential that they had been designated as a global 
SIFI.
    Mrs. Wagner. Before their hearing, before their final 
determination before FSOC, Treasury--if I understand your 
testimony--let them know that they had been designated.
    Mr. Woodall. That is my understanding.
    Mrs. Wagner. This seems questionable. As you stated, the 
U.S. representatives on the FSB--Treasury, the Fed, and the 
FCC--are not insurance regulators, as has been pointed out by 
so many of my colleagues. Nor are they necessarily Phi Beta 
Kappas from Kentucky.
    Meanwhile, the FSB's membership is dominated by banking 
regulators who know little about the insurance industry. Does 
it concern you that those regulators are the only U.S. 
representatives in the room when decisions are made about 
insurance issues, sir?
    Mr. Woodall. Yes. I think the CFTC and the FDIC should be 
in the room at the meetings at the FSB. And I think insurance 
regulators should be in the room if they are making decisions 
that are going to affect the businesses that they regulate.
    Mrs. Wagner. Thank you. Given the sequencing of FSB 
designations, and then later FSOC's SIFI designations, how can 
U.S.-based insurers be confident that their designations are 
the result of a domestic decision, rather than an international 
process that isn't accountable to the U.S. policymakers like 
us?
    Mr. Woodall. As I said, they are technically separate 
things, but they are not--
    Mrs. Wagner. They are not. They are not accountable to U.S. 
policymakers. Thank you. Can you describe what attention or 
consideration FSOC gives to designations by the FSB?
    Mr. Woodall. No direct--it is not mentioned in the 
discussions, because we try to base it on what Dodd-Frank says.
    Mrs. Wagner. Do you believe that your colleagues would feel 
comfortable disagreeing with a decision, or challenging a 
decision made by the Fed, the Treasury, and the FCC at the 
Financial Stability's Board?
    Mr. Woodall. Of course, they are still just three votes on 
the board. The board, the Financial Stability Board is not an 
organization that this Congress created by a treaty, or any 
other statutory thing. It is kind of an ad hoc group.
    Mrs. Wagner. Absolutely, it is an ad hoc group. Do you 
believe--
    Mr. Woodall. It is really self-appointed.
    Mrs. Wagner. Do you believe that your colleagues would vote 
to de-designate any of the insurance companies, if such 
companies were still designated by the FSB?
    Mr. Woodall. I would hope so.
    Mrs. Wagner. One last question. Since everyone has said 
that they--I don't have much time left--rely on FSOC's staff 
for info, is there a memo or analysis that is distributed to 
members before a vote? Who writes this? Is it Treasury? Is it 
the Fed? Would you allow the committee to view any of these 
documents?
    Mr. Woodall. It goes through a committee called the Non-
Banks Designation Committee. It goes to the secretariat, which 
is within Treasury. And you are looking at 600, 700 pages 
sometimes in these memos. They are more than memos. It is quite 
extensive with a lot of good work done by the top economists at 
the Fed and other agencies.
    Mrs. Wagner. Thank you, sir.
    Chairman Hensarling. The time of the gentlelady has 
expired. The committee will now recess for the vote pending on 
the House Floor. The Chair expects the recess to last 
approximately 10 minutes. The committee will reconvene 
immediately after the vote. The committee stands in recess.
    [recess]
    Chairman Hensarling. Members will take their seats.
    The Chair now recognizes the gentleman from Kentucky, Mr. 
Barr, for 5 minutes.
    Mr. Barr. Thank you, Mr. Chairman.
    And Mr. Woodall, since you have been the topic of much 
conversation as a Phi Beta Kappa from Kentucky, as a fellow 
Kentuckian, I am going to try to leave you alone for the most 
part today.
    Let me start with some of our bank regulators, our 
prudential regulators, and note that at a macro prudential 
level, FSOC and our banking regulators have participated in 
international agreements with the Financial Stability Board, 
Basel, and other forums. And the main difference between U.S. 
requirements and those promulgated internationally is that it 
seems that our domestic standards are more stringent than our 
foreign counterparts.
    So just a few examples: A capital surcharge on global 
financial firms nearly doubled the international standard; 
supplemental leverage ratio that is double adopted--that 
adopted internationally; a liquidity coverage ratio that is 
more restricted than the international standard, and 
arbitrarily punishes certain products like municipal 
securities; a total loss absorbing capital rule that goes 
beyond international standards; OTC margin requirements that 
are considerably more punitive than international standards.
    So this question is for Ms. Matz, Mr. Watt, Mr. Gruenberg, 
Mr. Cordray, and Mr. Curry. I assume that you all agree that 
these prudential rules and other reforms have improved safety 
and soundness. And if you agree with that general proposition, 
raise your hand.
    So, all of you agree that these new prudential rules 
enhance safety and soundness. A follow-up question: do you 
believe that the benefits of these new prudential rules 
outweigh potentially the cost to international competitiveness, 
given that we have higher standards than that international--
okay. So, most of you agree with that.
    When combined with Volcker, financial institutions seem to 
be making a couple of changes in the regulations and producing 
a couple of results. One is that there is a migration of 
activities out of heavily regulated banks and into much less 
regulated non-bank financial firms, the so-called shadow 
banking system. And I want you to address that.
    But also there is much talk about illiquidity in the 
markets, institutions dropping certain products and services, 
pulling back from market-making functions critical to 
investors, extension of credit affecting various fixed income 
asset classes in different ways.
    So my question to some of our market regulators, Mr. 
Massad, Chair White, is that the FSOC annual report 
acknowledges that there are changes in terms of reduced 
liquidity in the capital markets. The Office of Financial 
Research is corroborating this.
    Certainly, there are other indicators. The Center for 
Financial Stability found that market liquidity has declined by 
46 percent. And as you all have already noted, and Mr. Curry 
has noted, this potential lack of liquidity that is resulting 
from regulation could mean that financial markets have less 
capacity to deal with shocks, and would more likely seize up in 
a panic just as they did in the 2008 financial crisis.
    So, given that our bank regulators are making the case to 
FSOC that this is good for financial stability, and yet we see 
a liquidity problem developing, from your perspective, what do 
you make of all this?
    Ms. White. I talked a little bit about this, I think, at my 
last hearing. It is a concern for all of us in terms of 
significant reduction in liquidity. Obviously, there are rules 
that have very beneficial purposes that may or may not be 
causing that.
    We do analyses to see whether Volcker, for example. We will 
report quarterly to this committee. We have not determined that 
the Volcker Rule is having a negative impact on liquidity.
    When we talk about shadow banking, I think we have to be 
careful too. That term covers a broad swathe. A lot of the 
things that fit under that category are heavily regulated by 
the capital markets regulators.
    But I think you know the bottom line is that we are all, 
and should be, very concerned about impacts on the--
    Mr. Barr. I think we should look at regulation as a cause 
of financial instability as a result of the lack of liquidity 
that we are seeing developing in the marketplace. That is 
something that FSOC should be paying attention to and 
revisiting some of these regulations to the extent that they do 
compromise financial stability.
    Finally, let me just go back to Mr. Watt really quickly.
    The GSEs are exempt from Mr. Cordray's QM rule. They are 
exempt from capital and liquidity rules that I am talking 
about. Agency MBS's are carved out of the Volcker Rule, and 
agency MBS's are some of the few cash and cash-like equivalents 
that banks need to hold to comply with these capital and 
liquidity rules.
    My question to you in my limited remaining amount of time 
is, why are these standards good for the private sector, but 
not for GSEs under your oversight? And why have a double 
standard if, as you signaled by raising your hand, these 
capital requirements are important for financial stability? 
Shouldn't it be important for the GSEs as well?
    Mr. Watt. If they were not in conservatorship, I think you 
would be absolutely right.
    Mr. Barr. Why should we continue to have the risk on the 
taxpayer?
    Mr. Watt. Because we continue in conservatorship because 
the Legislative Branch has not acted on GSE reform.
    Mr. Barr. I think we should look at that double standard.
    And I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Delaware, Mr. 
Carney.
    Mr. Carney. Thank you, Mr. Chairman. And thank you to the 
ranking member and to everyone who is here today. This is the 
biggest panel that I can remember that we have had here before.
    Part of our responsibility, I think, for today's hearing is 
oversight of the FSOC. And as I understand it--I was not here 
when Dodd-Frank was passed--the primary responsibility of the 
FSOC was to identify emerging systemic risks. And I would just 
like to hear from many of you what you see out there as those 
emerging risks. And can you share those with us?
    Why don't we start with Mr. Gruenberg and go to Comptroller 
Curry in terms of your responsibility as part of the FSOC. What 
are the emerging risks? What are the systemic vulnerabilities 
that you are seeing out there?
    Mr. Gruenberg. The annual FSOC report outlines a series of 
systemic risks to focus on, interestingly, in this report, the 
leaderess--that it cites is cybersecurity and the potential 
consequence, vulnerabilities relating to cybersecurity could 
have for the functioning of the financial system.
    And that certainly has been a focus of discussion and 
attention by the FSOC. And I frankly think for each of our 
agencies individually.
    I would also reference--
    Mr. Carney. Is there anything that we should be doing or 
looking at with respect to providing you with the necessary 
tools? We are going to be talking about a data breach bill 
later today.
    Mr. Gruenberg. I note the Congress is considering 
legislation to facilitate information sharing, which I think is 
one of the critical issues in terms of being prepared to deal 
with a cyber incident.
    So I think there is a significant role for the Congress, 
and certainly for the--all the agencies at this panel working 
among the regulatory agencies, as well as with the law 
enforcement and national security communities. It is really 
going to require--
    Mr. Carney. The classified briefings that we have had are 
pretty scary, frankly. And the attacks are coming on a regular 
basis, on a daily basis.
    And frankly, it feels like to me that we are fortunate that 
we haven't had a more significant attack than what we have had. 
And I know that institutions are dealing with this on a regular 
basis.
    Comptroller Curry, what would you say in terms of emerging 
risks or existing vulnerabilities?
    Mr. Curry. I would agree completely with Chairman 
Gruenberg. Cybersecurity is a number one concern, both as 
Comptroller and as a member of the FSOC.
    I think the ramifications of a successful attack on the 
core systems of financial institutions, regardless of their 
size, could really undermine public confidence in our entire 
banking system. And that is really why it is imperative from a 
regulatory standpoint to make sure all of our banks, from the 
smallest to the largest, are prepared to repel attacks and are 
in a position to respond as quickly as possible in the event of 
a successful intrusion.
    The chairman also mentioned, and it is in the FSOC annual 
report, increased risk-taking in a low yield environment. We 
are very concerned about the decisions that the financial 
institutions we supervise are taking today, whether it is to go 
along or to get into activities that they are either unfamiliar 
with or not prepared to deal with the risks that are inherent 
in those activities. We think that is a potential emerging risk 
for individual institutions and for the system.
    Mr. Carney. Thank you.
    Chair White, is there anything you would like to add?
    Ms. White. No, I think you can't emphasize enough the cyber 
risk. It is not a coincidence that it is listed first in the 
emerging risks in the FSOC annual report.
    Mr. Carney. Thank you.
    Director Watt, you and I have had some conversations about 
the last subject you talked to Mr. Barr about with respect to 
the GSEs, and I know it has been your view that you are waiting 
on Congress to act.
    What vulnerabilities exist there? Increasingly, the 
taxpayer or Freddie and Fannie are guaranteeing those mortgage-
backed securities. What is your view of the sense of urgency 
around that issue?
    Mr. Watt. I think we been in conservatorship, Fannie and 
Freddie, for 8 years. It is the longest conservatorship that 
has ever occurred under government control. While the risk of 
the work that we are doing is much, much less now than it was 
at the onset of the meltdown, staying in conservatorship is 
just not sustainable.
    You have a high risk of losing the most qualified people to 
the private sector. I could keep going on.
    Mr. Carney. We should do something. We should act.
    Mr. Watt. You should act, yes.
    Mr. Carney. Thank you, Mr. Chairman. I yield back.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Pennsylvania, Mr. 
Rothfus.
    Mr. Rothfus. Thank you, Mr. Chairman. Mr. Woodall, your 
criticism of the MetLife SIFI designation process is a matter 
of record and has been discussed at the hearing today. Your 
well-founded concerns are shared by many of us, and ultimately 
we should all ask ourselves whether it is wise for people with 
little or no experience in a given industry to be given the 
power to make significant consequential decisions such as SIFI 
designation.
    There is a broader question as well that I was hoping to 
get your thoughts on. Many of us are concerned that American 
regulators are ceding responsibility to the FSB, which is 
composed of central banks, finance ministers, and regulators 
from around the world.
    Given our shared misgivings about, for instance, FSOC 
members without insurance experience deciding to designate an 
American insurer, shouldn't we also be concerned about letting 
foreign regulators who lack experience in the American 
financial services industry, and who act in the best interest 
of their respective countries, take the lead in regulating our 
financial firms?
    Mr. Woodall. Well, that is the point that has been 
discussed quite a bit, and a lot of it goes to the fact that 
the European insurers have a lot different background. They 
have a different accounting system, their products aren't the 
same. Now, they are pretty well united with their solvency 2 
regulation, which goes into effect next year.
    And they are working on equivalencies as to whether we are 
equivalent. There has been some temporarily equivalencies 
given. If we don't get equivalency, it could increase the cost 
of our companies doing business in EU countries tremendously.
    Mr. Rothfus. One of FSOC's most basic authorities under 
Section 112 of Dodd-Frank is to make recommendations to the Fed 
concerning which heightened prudential standards should apply 
to non-bank financial companies. Yet to date, the FSOC has not 
done so.
    It would appear that FSOC is putting the cart before the 
horse, designating companies for heightened supervision but 
making no recommendations for what those heightened 
requirements must be.
    The basic principle of regulation is that the benefits of 
imposing a regulation should outweigh the costs associated with 
doing so. Designating a firm for heightened supervision is not 
without costs. It is a serious matter that impacts firm 
behavior and may have even broader repercussions for the 
financial services industry, as well as consumers.
    Chair White, how is it possible to ascertain the costs and 
benefits of designating an insurance firm as a SIFI if the Fed 
has not yet prescribed the heightened prudential standards that 
will apply to designated firms?
    Ms. White. Again, I go back to the primary mandate of FSOC, 
which is to identify systemically important financial 
institutions that can impact the financial stability of the 
U.S. financial system.
    I do think the Fed has actually adopted, if I am right, but 
certainly it put out for notice and comment, standards with 
respect to GECC. So that is there now. But I certainly 
understand the point that you are making in terms of if you 
don't know what the standards are that are going to be applied, 
it is obviously part of your analysis that you can't do.
    I don't think we are obligated to do it. And indeed, I 
think we are obligated to deal with the issue of systemically 
important institutions in the first instance, and not wait for 
that action.
    Mr. Rothfus. It is a good idea, wouldn't you agree, that a 
basic principle of regulation is that the benefits of proposing 
a regulation should outweigh the costs associated with doing 
so?
    Ms. White. Again, I think the premise of the 
responsibilities of FSOC is what a tremendous cost the 
financial crisis was, and to try to prevent that. One of the 
tools that FSOC has is the systemic designation powers.
    However, speaking for myself, we certainly want to act on 
full information, including that.
    Mr. Rothfus. Director Watt, is the FSOC evaluating the 
Fed's historically accommodative monetary policy stance to see 
whether that policy has led to excessive risk-taking in the 
financial system?
    Mr. Watt. Not directly. We are always evaluating every 
decision that all of these regulators make. But we don't 
oversee the Fed.
    Mr. Rothfus. Do the Fed's destabilizing monetary policies 
get a pass from the FSOC because the Fed Chair sits on the 
FSOC?
    Mr. Watt. That assumes that they are destabilizing. I 
wouldn't assume that position or conclusion.
    Mr. Rothfus. So the Fed--or the FSOC isn't taking a look at 
the Fed's balance sheet, for example, that it has gone from 
$800 billion to $4.5 trillion over the--
    Mr. Watt. That is not in the jurisdiction of FSOC.
    Mr. Rothfus. Thank you, Mr. Chairman. I yield back.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Minnesota, Mr. 
Ellison.
    Mr. Ellison. Thank you, Mr. Chairman, and Ranking Member 
Waters.
    I want to thank each of the witnesses and your staffs for 
your comprehensive and insightful written testimonies. I also 
want to thank you for your service on the Financial Stability 
Oversight Counsel. We have all learned the painful reality that 
markets do not regulate themselves, and a nation as powerful as 
ours must invest in regulation and identify in response to 
emerging threats to our stability.
    So your report, 150 pages, details the Council's 
unprecedented progress to protect the financial system from 
risk and to prevent another economic disaster from happening, 
which I remember very well. I wish everyone running for 
President would read it. Maybe then we could have folks talk 
about how to really understand how to protect our economy and 
be successful in that effort.
    So my first question is to Comptroller Curry. It has been a 
while since you have been before the committee. I want to 
welcome you back. And since you are here, I want to ask you 
again about a topic that you and I have spoken about in the 
past, and that is the issue of Somali remittances.
    Are financial institutions regulated by the OCC closing 
accounts of money services businesses serving Somalia due to 
compliance costs, reputational risk, inability to cover the 
cost, lack of clarion exams, or for other reasons?
    Mr. Curry. Congressman, as we discussed, I think there are 
a variety of reasons why individual institutions are making 
determinations about what their risk tolerance is under the 
Bank Secrecy Act and the anti-money laundering statutes.
    In terms of regulatory clarity, we have tried to make clear 
what our expectations are. We did put out in 2014 additional 
guidance on dealing with money services businesses, but 
ultimately it is the decision of the individual institution 
whether or not to do business with an individual business or 
individual.
    Mr. Ellison. I just want you to know the Somali 
parliament--I have had a chance to talk with some of them. They 
are passing an anti-money laundering, antiterrorist financing 
law. They haven't passed it yet, but they are working on it. 
That is coming up. They opened up their embassy here in the 
United States, and I believe that the more stable that country 
is, the less susceptible it will be for terrorists to come and 
set up shop and try to operate out of there.
    Mr. Curry. I think those are very good improvements. As we 
discussed, it is important that there be a strong local banking 
system and the regulatory system overseeing its compliance with 
important laws like the BSA.
    Mr. Ellison. Yes. Thank you.
    Mr. Watt, it's always a pleasure to see you. I'm very proud 
of you and the work that you do. Welcome back to the committee. 
It must be weird to be on that side of the divide.
    But anyway, I just want to say to you, the report calls for 
a comprehensive litigation legislation to address the 
conservatorship of Fannie Mae and Freddie Mac. It also urges 
Congress to clarify the future role of the Federal and State 
Governments in mortgage markets. While Congress has not acted 
on any particular proposal regarding the GSEs, I am interested 
in what your current policies are doing to improve credit 
access to African-American and Latino borrowers.
    I have a chart up, which I will direct your attention to. 
And as shown by the chart, we know that the majority of new 
households are going to be African-American, Latino, Pacific 
and Asian-Pacific American. Yet, they seem nearly shut out of 
the mortgage market now.
    GSE loans to African-American borrowers in 2013 were about 
2.2 percent, and GSE loans to Hispanic borrowers in 2013 were 
about 5.8 percent, both low. What policies can GSEs implement 
post-conservatorship to improve access to credit for African-
American, Latino, and Native American borrowers that Fannie and 
Freddie cannot implement now?
    Mr. Watt. You are asking about post conservatorship or--
    Mr. Ellison. What can they do--what is it that might be 
done later that can't be done now? And I am basically asking, 
how do we make progress on this?
    Mr. Watt. Well, a lot of what can be done after 
conservatorship depends on how GSE reform is done--
    Mr. Ellison. Right.
    Mr. Watt. --and what the rules of the road going forward 
are.
    Part of the challenge of being in conservatorship is one of 
the things I have found to be true is that lenders price 
uncertainty. And right now they don't know what the future is. 
So as prices go up, there is a price to uncertainty of what the 
future holds in this area.
    So, I just--there are a number of things that need to be 
done to address this because we need the availability of 
capital for people to be either homeowners or affordable 
renters.
    Mr. Ellison. We will follow up--
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Arizona, Mr. 
Schweikert.
    Mr. Schweikert. Thank you, Mr. Chairman.
    Just first conceptually, because it has been sort of 
floated around a couple of times, in many ways when I read the 
articles about what you are all doing it is a discussion of, 
are we fighting the last war, and the concentration of risk of 
unintended consequences.
    We have our Section 113, the list of criteria. Are we going 
to wake up tomorrow and find out that the shadow on the 
horizon, the black swan was something that because of the 
concentration of the way you look at the world you completely 
miss?
    But there have been a couple bits of testimony here that I 
need to drive into because I am a little disturbed and 
concerned about some of the things I heard. The gentleman from 
Florida, Mr. Ross, was asking some questions about insurance. 
And a comment was made by Ms. Matz--you actually stated that on 
Prudential, one of the reasons they made your list, shall we 
say, is their derivatives book.
    Now is that because they didn't have enough hedging of 
their interest exposure? I don't know if they were doing 
duration exposure, but their interest exposure. And are you 
saying they had a derivatives book and because they were 
actually insuring their interest--exposure that forced them 
onto your list? What do you mean when you said the derivatives 
book?
    Ms. Matz. They had such a large exposure that the failure 
of that institution or financial--
    Mr. Schweikert. When you say that institution?
    Ms. Matz. Of Prudential.
    Mr. Schweikert. Okay. So they are buying an additional 
hedge to protect their interest rate exposure so if that moves 
against their 100 percent coverage. Explain to me how that 
would work.
    Ms. Matz. First of all, the derivatives position is just 
one position. But if they are so interwoven or so 
interconnected with other financial institutions that if they 
failed--
    Mr. Schweikert. No, no, no, no. Not--if they--they are 
not--
    Chairman Hensarling. I'm sorry. Will the gentleman suspend?
    I wish to alert Members that regrettably there is yet 
another procedural vote on the Floor. I think we are drawing 
near to the end of the hearing so if Members who have yet to 
ask questions wish to go vote now and return, I think we can 
keep this thing going, except for Mr. Tipton, who is next. So 
if Members wish to go vote and return quickly.
    I am sorry to interrupt the gentleman. The gentleman from 
Arizona is recognized again.
    Mr. Schweikert. Thank you, Mr. Chairman.
    Look, we are talking past each other because you know 
everything I know about why your derivatives contracts to 
protect your interest rate exposure, that would be something 
you would find joyful, not put them into a designation.
    Also, in looking over parts of the reports about 
Prudential, okay, so their repo contracts are 100 percent 
offset and collateralized. I am just trying to figure out where 
you found exposure.
    Ms. Matz. It is all exposure. What is the assumption that--
    Mr. Schweikert. If you are 100 percent covered and you have 
also covered your interest rate risk, the exposure is what?
    Ms. Matz. The assumption that is made in making our 
determination is that there is material distress at the 
designated institution. So we are starting from the 
assumption--
    Mr. Schweikert. So I have an institution. It is 100 percent 
covered. Plus, it has also done additional financial products 
insurance to cover markets moving against them.
    Ms. Matz. But we are operating from the assumption that 
there is material distress at that institution. So, if there is 
material distress, that they can cover the outstanding debt 
that they have or the loans that they have.
    Mr. Schweikert. But they are contract loans. The insurance 
products that they are offering are all under contract. So they 
have the ability to say, according to our contract you may be 
making a claim for this, but under the contract we have the 
ability to pay as the contract is designated. Because--
    Ms. Matz. Unless they are in material distress.
    Mr. Schweikert. Okay. I will give this one to you in 
writing because we are talking past each other because that 
makes absolutely no sense.
    When I look at your Section 113 tests, and I go up and down 
this, is it the last one? Are there risks that the Council may 
deem appropriate? When I look at this list, particularly on an 
insurer like this which is 100 percent covered and then hedged 
their coverage, I am trying to find out on this list where do 
you find the exposures?
    Ms. Matz. Interconnectedness. It is their 
interconnectedness with the other institutions. And the 
assumption that a financial institution is suffering material 
distress, I think is--
    Mr. Schweikert. I wish I had you in grad school because 
there would been some fascinating questions.
    All right. Last bit in my last 20 seconds, Mr. Curry, you 
are the only one in the panel I have heard actually touch on 
something that made me very happy. And that was sort of the 
unknown, the reality that future financial markets are moving 
Silicon Valley bank--or excuse me, Silicon Valley centric, the 
new ways people are going to borrow money, buying credit, 
invest, move around.
    Isn't that, though, actually much safer and much more 
robust than a concentrated banking system because the way 
capital is acquired is much more distributed model?
    Mr. Curry. Again, from the FSOC's standpoint we have 
identified as one of our emerging risks the financial 
innovation and migration of activities. So it is an area that 
we are discussing. And I think we will devote additional 
attention to those issues.
    As the Comptroller, we are very interested in this because 
of the impact of financial technology and innovation on the 
delivery of banking services--
    Mr. Schweikert. Okay. And I am going to give you something 
in writing--I know we are way over time.
    Mr. Curry. Sure.
    Mr. Schweikert. But I beg of you, if it is creating 
diffused risk, if we are seeing sort of a distributive model, 
please do not beat up innovation. We desperately need it--
    Mr. Curry. Actually, I am calling for fostering responsible 
innovation.
    Mr. Schweikert. And with that, I have to yield back. Thank 
you.
    Mr. Garrett [presiding]. The gentleman yields back from a 
very salient point, which I think he will agree with the 
chairman that just citing interconnectedness is not enough of a 
criteria because--and no one else from the panel I see was able 
to answer your question as well.
    My daughter's former lemonade stand is also interconnected 
if you go through the whole realm. So I think there has to be 
more substance to it than that. But with that, I will now yield 
to Mr. Tipton for 5 minutes.
    Mr. Tipton. Thank you, Mr. Chairman. And I thank the 
witnesses for taking the time to be here. We have a large 
group, and I would like to be able to echo some of the comments 
that were made by Mr. Lucas, Mr. Stivers, in regards to 
community banks, something that is critical for rural America, 
and particularly in my district.
    You have had to raise your hand, simply because of the size 
of the panel, several times here. But I would like to be able 
to just get a sense of your feeling on the panel, who is 
concerned about the challenges faced by America's community 
banks and financial institutions in these small communities.
    Everyone has raised their hand. In response to Mr. Stivers, 
you have made comments that--how much time does the Council 
actually spend in regards to community banks? And the answers 
were some, or it is going to be at the staff level. And I would 
maybe like to start with Chair Gruenberg, and maybe Comptroller 
Curry. If it is actually something--this is in your wheelhouse, 
why isn't more time spent on community banks?
    Mr. Curry. It actually is. The OCC supervises approximately 
1,700 banks. The majority of them are community banks. A major 
focus of my tenure as Comptroller is to look at and make sure 
we have a strong, viable community banking sector.
    I think we are very fortunate to have a diverse banking 
system in the United States. We have looked at the burdens 
particularly facing community banks. We have identified some 
areas where we think we can make a difference, whether it is 
call-report reform or capital reform.
    At the OCC, we are really looking at how can we reduce the 
cost structure. So we put out a White Paper a little over a 
year ago, encouraging from a regulatory standpoint, banks, 
particularly smaller banks in rural communities, to 
collaborate, whether it is a joint venture, sharing employees, 
working on participation, so that they can continue to be 
viable entities and serve their communities.
    Mr. Tipton. If I may, let's talk a little bit about--when 
you are talking about a viable, vibrant baking system, you are 
aware that right now, approximately one-third of the counties 
in the entire United States are served by only one community 
bank. Do you recognize that?
    Mr. Curry. Yes.
    Mr. Tipton. How vibrant, how competitive is that?
    Mr. Curry. What we are trying to do is really make sure 
there is a balance between appropriate supervisory standards in 
how we supervise those institutions, so that banks can continue 
to lend and be leaders in their communities going forward.
    Mr. Tipton. You talked a little bit about collaboration, 
for the banks to be able to come together, to be able to share 
employees. What type of collaboration is going on in the FSOC 
to be able to identify redundant regulations that are 
overlapping, and requiring small community banks to be able to 
answer to several masters, if you will, and driving up those 
costs, which were increasing the cost for loans, for 
communities, inhibiting those banks' ability to be able to 
survive, driving, actually consolidation, or actually failure 
of some of these small banks?
    Mr. Curry. I think the primary area where we are addressing 
that for community banks is at the Federal Financial 
Institutions Examination Council, which State and Federal bank 
and credit union regulators are part of. That is really part of 
the mission of the FFIEC.
    Mr. Tipton. Just as a little bit more of a follow up on 
this, as we reviewed the FSOC minutes, there is never a mention 
of small banks in the minutes. So I am pleased to hear that you 
are actually putting out some comments and some White Papers. I 
think the question that our community banks would like to have 
answered is, when are they actually going to get some relief, 
rather than talk?
    Mr. Gruenberg. If I may say, Congressman, I do think 
community banks have been a focus of enormous attention by the 
bank regulators who have responsibility for it.
    Mr. Tipton. That is what really disturbs the community 
banks.
    Mr. Gruenberg. As you know, community banks play a critical 
role in the financial system. We have shown at FDIC studies 
that community banks account today for about 14 percent of the 
banking assets, and hold about 45 percent of all the loans to 
small businesses and farms by all banks in the United States. 
So the role they play is really quite critical.
    I do think that is to be distinguished from whether they 
pose, in and of themselves, a threat to the financial system 
that would warrant the FSOC's attention, or they are critical 
to the financial system certainly can be impacted significantly 
by systemic risk, as we saw in this recent crisis. They 
themselves are not a source of systemic risk. And where they 
are the focus, are by the bank regulatory agencies.
    And we, as you know, have been conducting a review, as we 
are required by law, of the regulations we have imposed over 
the past 10 years, have held outreach meetings across the 
country, are seeking public comment. And I am hopeful we will 
be able to come out with a series of regulatory measures that 
will be helpful in terms of reducing the cost of regulatory--
    Mr. Tipton. I hope you can, because simply, as Mr. 
Schweikert was pointing out when we were talking about the 
connectivity that is going on, while you may say--and are 
accurate, they are not going to be systemically important to 
the overall economy of the United States.
    They are certainly feeling the impacts of those broader 
rules, regulations, through loan participation, whatever it 
happens to be, that is cascading down and inhibiting their 
ability to be able to address the very people that you cite--
and I agree with you are very important--are small businesses 
and our agricultural communities.
    Thank you, Mr. Chairman. I yield back.
    Mr. Garrett. The gentleman yields back. Mr. Poliquin is 
recognized now for 5 minutes.
    Mr. Poliquin. Thank you, Mr. Chairman. I appreciate it very 
much. I wish everybody a merry, merry Christmas, and a happy 
holiday season. Thank you all very much for being here. It is 
very important for us here on the committee, and for our fellow 
Americans.
    Chair Matz, I would like to ask you a couple of questions, 
if I may. Are you familiar with the December 14th announcement 
by Chair White dealing with the new regulatory process, dealing 
with asset managers? Are you familiar with that?
    Ms. Matz. I have read about it, but I am not--
    Mr. Poliquin. Okay. Can you remember what the content of 
that was, ma'am? Okay, let me help you out. Could you speak a 
little bit closer to the microphone? My ears aren't what they 
used to be.
    In that, Chair White mentioned that going forward and 
regulating the asset managed, she would be looking at liquidity 
risk, leverage, as per use of derivatives, stress testing, and 
things of that nature. Does that ring a bell?
    Ms. Matz. Pardon me?
    Mr. Poliquin. Does that ring a bell?
    Ms. Matz. Yes.
    Mr. Poliquin. Okay, good. And can you think of anything 
that the SEC is not doing to regulate asset management, so good 
at doing this for 75 years. Can you think of anything that she 
has left out in the new way that she is proposing to raise 
asset managers?
    Ms. Matz. As I said, I haven't reviewed it. I am not 
intimately familiar with it, but I have great confidence in 
Chair White.
    Mr. Poliquin. Okay, good. I am going to take that as that 
you don't have anything to add with respect to her job 
regulating asset managers. Are you familiar, ma'am, with the 
FSOC's decision to review asset managers' products and 
activities?
    Ms. Matz. Yes.
    Mr. Poliquin. You are? Okay, because you voted on that, it 
was unanimous back in December of last year, I believe. Are you 
also familiar with Section 113 of the Dodd-Frank Act?
    Ms. Matz. Yes.
    Mr. Poliquin. Good, okay. There are 11 different parts of 
that Section 113, Ms. Matz. One of them, which deals with what 
you folks are responsible for in weighing whether or not an 
asset manager, mutual fund, pension fund managers, so forth and 
so on, should be so designated as SIFI.
    One of them, ``The degree to which the company is already 
regulated by one or more primary financial regulatory 
agencies--''
    The SEC is one of those primary regulatory agencies, right, 
from asset managers? Okay. So my question to you, Ms. Matz, is 
what in the world is FSOC even doing in this business? We have 
a regulator here that has been doing this for 75 years.
    You agreed there was nothing you can think of to add to her 
job. But at the same time, you voted along with everybody else 
to consider designating asset managers as SIFIs. So what am I 
getting wrong here?
    Ms. Matz. We didn't vote to consider--
    Mr. Poliquin. Speak up, please. My ears are bad.
    Ms. Matz. We didn't vote to consider asset managers as 
SIFIs. We voted to consider to have the staff look at the 
activities of the asset managers, to determine whether--
    Mr. Poliquin. That is legal speak. That is the same thing. 
If you are asking the staff, and you folks are going to decide 
whether or not you are going to designate an asset manager as a 
SIFI, and looking at the criteria thereof, that is the same 
thing, isn't it?
    Ms. Matz. We have not made any determination.
    Mr. Poliquin. I know you haven't. Why are you even in this 
business?
    Ms. Matz. Because our mandate is to look at those 
institutions that could pose a threat to the financial 
stability of the United States.
    Mr. Poliquin. She is already doing that. The SEC is already 
doing that. I just read you the criteria, ma'am. She is dealing 
with liquidity risk, and leverages, respect to derivatives, and 
stress testing, and everything else. And you couldn't add 
anything else to the parade. So my question is, why don't you 
folks move on? You have other good things to do. Why should you 
get involved in this space at all?
    Ms. Matz. Well, two things. One is that we have not made 
that determination yet, and also that the SEC is not looking at 
the threat to the financial stability of the United States. 
They are looking at the narrow securities market.
    Mr. Poliquin. Okay. Let me--no, I am asking you, ma'am. Ms. 
Matz, I am asking you. Thank you.
    All right. Let me ask you this question. Since you folks 
clearly have gone down this path or are going down this path to 
consider whether or not you should designate an asset manager 
as a SIFI, you must have some analysis which concludes that 
what the SEC doing is not full. Do you have that analysis for 
me or for my office?
    Ms. Matz. Their mandate isn't to look at the financial 
stability of the--
    Mr. Poliquin. Do you have the analysis that you use, Ms. 
Matz, and everybody else used to so determine that the SEC is 
not fulfilling their job?
    Ms. Matz. We--
    Mr. Poliquin. It does dictate advice--
    Ms. Matz. We did not come to that conclusion, that the SEC 
is not fulfilling its job.
    Mr. Poliquin. Okay. Well, you had to make the decision 
based on what?
    Ms. Matz. Based on our mandate.
    Mr. Poliquin. Let's move on a little bit. Are you familiar 
with a study done by Mr. Douglas Holtz-Eakin, the former 
Director of the nonpartisan CBO?
    Ms. Matz. The study on?
    Mr. Poliquin. All right. You are probably not. It was done 
in 2014. Let me just give you the ultimate conclusion. It 
basically says the following: If an asset manager that 
represents no systemic risk to the markets or to the economy, 
if they are so designated as a SIFI, then the costs will go up. 
And we have discussed this today. The product offerings will go 
down. And the long-term rate of return of savers for their 
retirement and putting their kids through college will likely 
go down by 25 percent.
    Now also in Section 113 of Dodd-Frank, there are other 
risks that you should consider. Do you folks consider the risk 
to the small investor such as a nurse in Lewiston, Maine, or a 
logger in Dover-Foxcroft, Maine, who are trying to save money 
for their retirement or for their kids' education, are you 
considering the risk to them if the asset managers that run 
their money are so designated as SIFI and they get dinged by 
about 25 percent in their rate of return? Do you consider that?
    Ms. Matz. We have not made any--even been given any 
potential recommendations. So we have not considered any aspect 
of--
    Mr. Poliquin. Okay. So when you factor in the economic cost 
to the people we are supposed to help in this country in making 
these decisions, whether or not an asset manager should be so 
designated a SIFI.
    Ms. Matz. We are not even at that point of making that 
determination.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Arkansas, Mr. 
Hill.
    Mr. Hill. Thank you, Mr. Chairman.
    And I thank the witnesses for being here today. So many 
questions, such a distinguished panel, and so little time; it's 
very frustrating.
    Chair White, if I could start with you, please. 
Traditionally your testimony and in your capacity and 
previously always has our boiler--famous boilerplate that says 
the views expressed and the testimony are those of the Chair of 
the SEC and do not necessarily represent the views of the full 
Commission or any Commissioner, standard procedure.
    But while this is a good disclaimer, I think for general 
testimony we do love it when you all actually give personal 
views occasionally and not stand on the party line.
    Here in the concept of an FSOC testimony it causes me to 
want to ask you a few questions. You serve on FSOC as one of 
the 10 voting members. Here is my question: If one of the other 
four SEC Commissioners was opposed to one or more of your FSOC 
positions, does Dodd-Frank require the SEC to vote ahead of the 
FSOC meeting to determine how you would then represent that 
view at the FSOC meeting?
    Ms. White. It does not, although I do consult with my 
fellow Commissioners before and after the FSOC meetings. But 
the short answer is ``no.''
    Mr. Hill. And so in that consultation can you give me an 
example of where there has been disagreement between 
Commissioners?
    Ms. White. No. It is more just informationally briefing on 
what is going to come up before FSOC, what I am intending to 
do.
    And again, under the structure, I am the member and 
obviously the voting member of FSOC. If there is anything to 
take a position on at the meeting, I convey that and obviously 
listen to any input or different points of view, and then 
afterwards report to the Commissioners on what transpired at 
the meeting. But there is not a structure to take a vote in 
advance.
    Mr. Hill. But to continue sort of the line of questioning 
early this morning, if you had a Commissioner who was 
particularly passionate on a topic, would you be open to taking 
them to an FSOC meeting?
    Ms. White. Again, I certainly am totally amenable to that 
point of view and making certain that I fully understand it and 
take it into account.
    Again, under the current structure and protocol, the Chair 
or the head of the agencies that are the designated 10 voting 
members, can bring a plus one, as it is called in this town, to 
the meeting with us, which has been a staff member.
    So it is really not structured to have the other 
Presidential appointees attend these meetings or vote on these 
matters. Obviously, that creates some sensitivities, no 
question about it. As I said, it is up to Congress if they want 
to change that structure.
    Mr. Hill. It just seems that internally it would be good if 
there were that level of disagreement where maybe a 
Commissioner wanted to express their views directly to FSOC, 
that that might even merit a formal Commission discussion and a 
formal view of the Commission potentially, before you simply 
represented the Commission in your own individual capacity.
    Ms. White. When I became Chair, I tried to change how we 
proceeded to get fuller input. But again, existing structure 
presents some of the challenges you are outlining.
    Mr. Hill. So, I have only been in Congress 11 months or so, 
but one thing that has come up consistently, Mr. Watt--it is 
very helpful to have so many of you in one hearing--is this 
lack of transparency in the process that many in the industry 
feel.
    And yes, it is a new agency and it has growing pains and 
has structure to be put in place.
    But there is a right way and kind of a wrong way, I think, 
to do things in Washington. We all know the Administrative 
Procedure Act. We all know our obligation to openness. And in 
some cases we have taken actions before we even have rules. I 
think somebody referenced that we have designated insurance 
companies before we have even set what the standards might be 
for insurance companies.
    So one thing I looked at is that for--in G-SIFIs certain 
capital surcharges there is a very transparent, mathematic--I 
have seen it written down, how to designate somebody for a G-
SIFI surcharge. And that looked very transparent to me.
    And yet, we don't even have that level of information on 
routine decisions in considering non-bank SIFI designations, or 
even, to some degree, activities-based SIFI analysis.
    Who wants to comment on that? Maybe Chairman Gruenberg, you 
might comment on that, since it is both a banking and a non-
bank designation question?
    Mr. Gruenberg. Congressman, as was discussed earlier, the 
FSOC established a process for a SIFI designation pursuant to a 
rulemaking and public notice and comment. Actually, I think the 
rulemaking went through three series of public comments.
    And the first stage of the process, as I am sure you know, 
is a set of metrics, a set of thresholds through which an 
institution would pass.
    And I must say there is a very high set of thresholds which 
would, almost by definition, be limited to some of the largest 
or most interlinked companies in the financial system. And that 
is something that is--any company can calculate in terms of 
projecting what the impact might be. And anyway, I will stop 
here.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from Utah, Mrs. 
Love.
    Mrs. Love. Thank you, Mr. Chairman.
    First of all, thank you all for being here. I know everyone 
is excited about the holiday season. I want to wish you all a 
Merry Christmas. And also to have such a great group of just so 
many of you here today, it is just really beneficial to me as a 
freshman. So, thank you. I have learned a lot today.
    I have just a couple of questions. Comptroller Curry, you 
have previously testified that tailoring is an important tool 
in the OCC supervisory and regulatory toolbox because, as you 
have stated, while bank asset size is often a starting point in 
our assessment of appropriate standards, it is rarely, if ever, 
the sole determinant. Do you still agree with your statement to 
that effect?
    Mr. Curry. Yes, I do.
    Mrs. Love. Okay. So when a regional bank with simple 
trading lending model and minimal interconnectedness grows to 
$49.9 billion to--in total assets to $50.1 billion in total 
assets, what new requirements apply to that institution?
    Mr. Curry. There is a cliff effect for the holding company 
under Section 165 of Dodd-Frank. So it will trigger heightened 
capital liquidity and other standards because it has crossed 
that threshold.
    Mrs. Love. Okay. So does it make sense to automatically 
designate that institution, even though it does not engage in 
trading or other complex operations?
    Mr. Curry. Again, I am the supervisor of the bank--
    Mrs. Love. I know--
    Mr. Curry. That is what I want to clarify. As we supervise 
the bank part of the holding company, we are not driven by the 
asset figure in terms of how we supervise that institution.
    Mrs. Love. Okay. But we just determined that new 
requirements are applied to that institution. So I am trying to 
figure out your thoughts on this, and whether that 
designation--does that actually make sense, in terms of 
engaging in that type of regulatory--
    Mr. Curry. An asset threshold is initial, it has some value 
as initial or a first screen. So you can make some general 
observations about some institutions, that a certain asset size 
level may or may not be engaged in a particular activity.
    As I stated in my earlier testimony, our focus as a 
supervisor is on that particular institution, the particular 
activities it is engaged in, and what are the risks that those 
activities present. And then we deal with our individualized or 
tailored plan of supervision according to that analysis and 
assessment.
    Mrs. Love. Okay. So what I am trying to say is that the 
triggers automatically are applied to that institution. They 
automatically have those new requirements. So I guess what I am 
asking you is if you think that an institution like that, 
without just having that automatically trigger, do you think an 
institution like that realistically threaten the financial 
stability of the United States?
    Mr. Curry. I think it is an individualized determination. 
And again, I don't think that there is any magic to any asset 
threshold.
    Mrs. Love. Okay. So wouldn't it make sense to look more 
closely at some of the banks which are actually similarly 
situated, and determine whether that designation is more 
beneficial or burdensome to the community in which they serve?
    Mr. Curry. I supervise the banking subsidiary, and that is 
exactly what we do.
    Mrs. Love. Okay. But right now, it automatically--instead 
of actually doing the work first to see if that is actually--
    Mr. Curry. That is the effect of the statute, yes.
    Mrs. Love. Okay. Well, I guess that is the point I am 
making.
    Mr. Curry. I understand.
    Mrs. Love. Okay. If a $50 billion SIFI threshold were 
raised or eliminated, could the OCC still have the regulatory 
or supervisory tools that they need, necessary to make sure 
that all supervised banking organizations are operated in a 
safe and sound manner?
    Mr. Curry. As supervisor, that is what we would want to 
see, to make sure we have a safe and sound institution.
    Mrs. Love. Okay. So you are pretty much saying that you 
would like to do that work first before it is automatically 
designated?
    Mr. Curry. That is what we do as a matter of course, as a 
bank supervisor to the national bank.
    Mrs. Love. So would you support that statute being changed?
    Mr. Curry. Again, as stated in previous testimony, that is 
really a matter for Congress to decide what that initial first 
threshold is. In terms of my role as a supervisor of the bank, 
we will continue to apply a risk-based focus to our supervisory 
activities and standards.
    Mrs. Love. Thank you. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentlelady has 
expired. The Chair now recognizes the gentleman from Minnesota, 
Mr. Emmer.
    Mr. Emmer. Thank you, Mr. Chairman, and Ranking Member 
Waters. And thank you to the witnesses for being here for so 
long today.
    Chair Massad, for you, it is good to see you again. We 
first had the opportunity, or inopportunity, to meet while I 
was serving on the Agriculture Committee. I wanted to ask you--
I will put it this way. I wrote it out so I can do it right. 
Does it concern you that a regulatory body comprised primarily 
of banking, credit union, housing, and other regulators has the 
authority to intervene in markets that you, the CFTC, regulate, 
and potentially substitute their judgment for yours in highly 
complex or highly technical matters?
    Mr. Massad. Thank you for the question, Congressman. I 
think the structure we have is a very good one, in that it 
brings all the regulators together, which allows us to look 
across the financial system, to look at emerging risks. There 
are issues in our markets where other regulators have certain 
responsibilities, whether they are things like margin rules for 
swaps, regulation of central clearing houses.
    Mr. Emmer. If I could interrupt you, because it is limited 
time, and I appreciate--I wasn't asking for the mission 
statement. I am asking specifically with respect to the CFTC. I 
have heard all kinds of questioning today.
    I have done a little reading about how the FSOC decided 
that in spite of the one insurance expert voting member, they 
substituted their judgment in place of his. And I am asking 
you, doesn't it concern you, or does it present any concern to 
you, that this body, this regulatory body, might substitute its 
opinion for yours at the CFTC?
    Mr. Massad. I see it as a structure which doesn't so much 
involve substituting its opinion for ours, but rather, bringing 
regulators together so that they can share information, 
cooperate, and coordinate what we are doing. And I think that 
is very beneficial to the overall system.
    Mr. Emmer. Let me put it to you this way: When the CFTC 
members meet to consider issuing a proposed or final rule, or 
decide an enforcement matter, even your--even though you are 
the Chairman of the CFTC, your vote counts the same as all of 
your fellow Commissioners, correct?
    Mr. Massad. That is correct, sir.
    Mr. Emmer. All right. But now, when you sit on the FSOC 
board, and you take a vote that might be different from what 
your fellow Commissioners would do at the CFTC, how is that not 
corrupting, if you will--maybe that is a very strong word--the 
process that we put in place, or that has been put in place to 
operate the CFTC?
    Mr. Massad. The FSOC isn't taking votes on our enforcement 
matters, or on the rules that we are issuing. So I don't see a 
conflict there, sir.
    Mr. Emmer. What if your position on the FSOC differs from 
one of your four Commissioners at the CFTC? What recourse do 
any of those Commissioners have for your votes on the FSOC?
    Mr. Massad. I try to have an open door with all my 
Commissioners, and I am always willing to share my thoughts and 
hear theirs.
    Mr. Emmer. So they just have to trust you?
    Mr. Massad. I would say that the structure that Congress 
has decided is one where each of us as individuals are the--
    Mr. Emmer. I know what they decided, and I apologize. I 
don't mean to be disrespectful. But the bottom line is they 
don't have any recourse other than your open door, and then 
they would have to trust you to do what they--to change or do 
what they are asking you to do.
    Mr. Massad. I think again, we try to have a good dialogue 
about all these issues. And I am someone who likes to listen, 
and I try to respect other people's opinions, and take those 
into account, sir.
    Mr. Emmer. Mr. Watt, Article 1, Section 7--and I am 
directing this at you because of your experience, your lengthy 
experience, and the respect you have from Members in Congress 
for your service here. And I will just cut to the chase. The 
Constitution gives Congress the power of the purse, correct?
    Mr. Watt. Yes.
    Mr. Emmer. When we look at the Financial Stability 
Oversight Council, how is it funded?
    Mr. Watt. It is funded the way it is set up under the 
statute. You will have the authority to change it if you wanted 
to do that. But--
    Mr. Emmer. Well, let me help. Assessments from bank holding 
companies managing $50 billion or more in assets, are taken and 
placed into a fund at the Treasury called a Financial Research 
Fund. This money is given to FSOC in the Office of Financial 
Research without oversight.
    I have a bill that would actually subject the FSOC and the 
Office of Financial Research to oversight. Do you agree with 
that, congressional oversight?
    Mr. Watt. I don't agree or disagree. If you can get it 
passed, I am sure FSOC would comply with it.
    Mr. Emmer. I am looking at the budget that your--that FSOC 
approved for itself by 2015. Can you tell me, sir, under non-
labor costs, what is ``included in other support?''
    Mr. Watt. We had a full briefing before we voted on that 
budget, and I am sure at the time, I understood every aspect of 
it. I don't remember specifically what each category is now. 
But we didn't just rubber-stamp that budget, I can assure you.
    Mr. Emmer. And would you submit that briefing to my office 
on request?
    Mr. Watt. I think it would be appropriate for you to make 
that request to FSOC rather than to me individually. I would 
not submit it as an individual member of FSOC.
    Chairman Hensarling. The time of the gentleman has expired. 
Members are advised there is another procedural vote on the 
Floor, with approximately 12 minutes remaining in the vote. We 
have three Members remaining in the queue, one who has left to 
go vote on the Floor, so I think we can get through this, and 
hopefully adjourn thereafter.
    The Chair now recognizes the gentleman from Florida, Mr. 
Posey.
    Mr. Posey. Thank you very much, Mr. Chairman. I would like 
to just read a couple of quotes. This is from The Wall Street 
Journal.
    ``For the weekend of October 28th, the banks reported 
holding negative $1.4 billion of investment-grade corporate 
bonds maturing in at least 13 months, according to the Federal 
Reserve Bank of New York data. The figures, which signify 
banks, have pledged to sell more bonds than they will buy, 
reflect the net holdings at banks that act as a primary dealer 
authorized to trade billions of dollars of U.S. securities with 
the Fed, and buy Treasury debt direct at auction.
    ``On May 1, 2015, FINRA CEO Richard Ketchum stated there 
have been dramatic changes with respect to the fixed income 
market in recent years. Many of them have come in the reaction 
of the failures and market impact coming out of the credit 
crisis. That has led to much higher capital requirements, the 
Volcker Rule that limits the ability of proprietary trading 
with respect to bank holding companies, a range of other issues 
that have all had significant impact from the standpoint of 
liquidity of the fixed income market.''
    And then finally, Dave Nadig, Director of Exchange Traded 
Funds for the search firm FactSet said buy-in in the corporate 
bond market has dried up so much that it alone may pose a 
significant systemic threat.
    And so my question for Director Cordray is, according to 
the FSOC website, the Financial Stability Oversight Council has 
a clear statutory mandate that creates for the first time 
collective accountability for identifying risk and responding 
to emerging threats to financial stability.
    While the rest of the world has identified an emerging 
threat to financial stability, namely regulations like the 
Volcker Rule, Basel III's capital and liquidity standards, and 
other Dodd-Frank mandates that are draining liquidity from our 
fixed income markets, the FSOC and its chairman, Treasury 
Secretary Lew, has steadfastly refused to acknowledge that 
regulations are playing any role in creating this systemic 
risk.
    As a voting member of FSOC, what resources have you 
marshaled, and what experts have you consulted to better 
understand the causes and consequences of reduced bond market 
liquidity?
    Mr. Cordray. I think I would add that to a point that I 
thought made earlier was also a good point, which is as we add 
structure and regulations and requirements, we should consider 
the effects on international competitiveness.
    I also think that you are raising a fair point, which is we 
should consider the effects on potential liquidity in the 
markets. It has been raised earlier in the hearing as well.
    These are the kinds of considerations that should go into 
the kinds of work that is being done by the FSOC, and frankly 
work that is being done by the Congress. Quite a bit of the 
criteria that FSOC is employing are criteria that were embedded 
in the statute that Congress set that we are merely following, 
enforcing and carrying out.
    But I think it is a fair point that you are making about 
how different requirements and different structures can 
potentially affect on the one hand stability and safety, and on 
the other hand potentially liquidity. I think it is fair for us 
to consider that as we go.
    Mr. Posey. What kind of technical expertise is there on the 
Treasury staff to address that?
    Mr. Cordray. I think we have the same technical expertise 
there that we have on all the other issues the FSOC is 
considering, which is, there is FSOC staff itself in the Office 
of Financial Research, and from the member agencies of FSOC.
    There was a graph put up earlier from the GAO report, and 
it was used at the time to suggest that certain agencies didn't 
devote enough people to certain problems. But I thought it was 
notable that when you look down the columns, the aggregate 
numbers of people being devoted by the agencies to address 
certain issues was ranged from in the 50s to in the 90s.
    It is a considerable amount of support. This is very high 
level of support. We are talking about some of the top 
analysts, economists, statisticians, and researchers from all 
of these member agencies, including Treasury and the Federal 
Reserve. They are the same kind of people who work on all the 
complicated, difficult financial issues in our economy such as 
monetary policy, fiscal policy, international issues, and the 
like.
    Mr. Posey. So essentially, we are talking about the 
Treasury staff?
    Mr. Cordray. No. I think we are talking about staff from 
all the member agencies. Depending on the issue, there may be 
more or less staff from different parts: more banking agency 
staff on a banking issue; more investment regulator staff on an 
investment issue; and the like.
    Mr. Posey. If compelling evidence is presented to the FSOC 
that regulations are in fact contributing to the illiquidity of 
the bond market and thereby creating potential systemic risk, 
do you agree that FSOC's mandate from Congress requires it to 
make recommendations designed to mitigate the risk, which could 
include revisiting the wisdom of aspects of the post-crisis 
regulatory response like the Volcker Rule and Basel III?
    Mr. Cordray. You are asking me to speak only for myself. 
This is not a consensus view of FSOC. But if that were shown to 
be the case, if the evidence so demonstrated, I think that 
would be fair game.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from North Carolina, 
Mr. Pittenger.
    Mr. Pittenger. Thank you, Mr. Chairman.
    Director Cordray, the CFPB ombudsman recently released 
their 2015 annual report to the Director. In the report it 
reviewed the Consumer Complaint Database on page 28. The 
recommendation was made to improve the process of how difficult 
the complaints in the database can be identified, including a 
recommendation that to remove the requirement, it must be 
verbatim to be deemed duplicative.
    Mr. Cordray, do you recognize the grave concern that this 
is to these companies who are stigmatized through it? They are 
regarded--this is regarded really as unfair attribution. Do you 
see the impact this is having, and particularly that there is 
not investigation to determine that these--to verify these 
complaints before they go to the website?
    What does the department plan to do and the Bureau plan to 
do to correct this?
    Mr. Cordray. We actually just had a completed report and 
audit study done by our Inspector General of the Consumer 
Complaint Database. It was just issued in September, so less 
than 2 months ago. It indicated that there were a very small 
number of errors in the system. And that was a report and study 
and investigation that we followed very closely. There are 
recommendations that--
    Mr. Pittenger. Is that study available for review?
    Mr. Cordray. Yes, I believe it is publicly available. It 
has been issued. And the GAO has also looked at this over the 
years and made a number of recommendations to us.
    We are very mindful of those. We are very mindful of 
recommendations that you and your colleagues may want to bring 
to us as well. We do feel strongly that a public complaint 
database is an important incentive for institutions to step up 
their customer response--
    Mr. Pittenger. But do you agree--
    Mr. Cordray. --and I think they are learning a lot from--
    Mr. Pittenger. --that they shouldn't have to be verbatim to 
be deemed as being the same complaint? They don't have to be 
verbatim.
    Mr. Cordray. There are issues around the term ``verbatim.'' 
And I have been in discussions about that with our ombudsman, 
been in discussions with that with other overseers, including 
the Inspector General and the like. It is something our 
consumer response group is looking at carefully to try to make 
sure--
    Mr. Pittenger. Okay . Thank you.
    Mr. Cordray. --that they scrub that.
    Mr. Pittenger. I appreciate that.
    Mr. Cordray. So we will be happy to give you more 
information as you--
    Mr. Pittenger. Would each of you provide the committee with 
any FSOC documents containing or relating to communications 
between the Financial Stability Board and FSOC? And each body 
members or staff concerning the designation non-bank financial 
companies, are there systemically important financial 
institutions or as global SIFIs? Is that acceptable to each of 
you all?
    Mr. Watt. I don't have any. So, I can tell you that now.
    Ms. Matz. Nor do I.
    Mr. Massad. I am not a member of the FSB. I have attended 
one or two meetings. I would like to hear the question again, 
but I don't believe I have anything.
    Mr. Pittenger. Go ahead, Chair White.
    Ms. White. I was going to say that I think there has been 
some production of documents in that vein. But I would have to 
check.
    Mr. Pittenger. Isn't the basis here one of transparency? I 
think we have recognized today the lack of adequate 
transparency with the agencies. And we are looking to find ways 
to rectify that.
    Let's have a show of hands then, if you would, regarding 
your belief that FSOC's deliberations should be more open to 
the public scrutiny than in current practice. Would you all 
agree to that, then? Do you believe that there should be more 
openness?
    Mr. Cordray. I think we have provided for more openness as 
we have been amending and changing procedures as we go--
    Mr. Pittenger. Do you think there is a basis to be more 
open?
    Mr. Cordray. I think we--
    Mr. Pittenger. In light of what has been discussed today? 
Let me tell you what I have in mind.
    Clearly, we believe that transparency is vital in our 
government. And I will be introducing a bill later on today 
that will provide a greater measure of transparency. Here are 
the two elements of this bill.
    The first is to testify semiannually, each of you, before 
the House Financial Services Committee and the Senate Banking 
Committee. And you cannot decline the requirement. It would be 
mandatory. Or permit all members of the Financial Services 
Committee and the Senate Banking Committee to attend all FSOC 
meetings, whether or not they are open to the public.
    Would you agree that would be acceptable? Do you have any 
problem with any of those?
    Mr. Watt. If you can get it passed, we will comply with the 
law. I will comply with whatever law you pass. But--
    Mr. Pittenger. But do you think that is reasonable?
    Mr. Watt. I don't think it is reasonable--
    Mr. Pittenger. Chair White, do you think it is reasonable?
    Ms. White. I certainly think we all should be responsive to 
Congress, all of us, at any time we are asked, frankly, without 
the necessity of a bill.
    Mr. Pittenger. Would you say--testify semiannually, or 
allow us to come to the hearings?
    Ms. White. But I think in terms of the FSOC process, we 
have to be very careful about what it is designed to do, and 
the nature of the information it considers.
    Mr. Pittenger. It is designed for openness and 
transparency.
    Ms. White. I think we should continue to look at openness 
for sure.
    Mr. Pittenger. That is what it is designed for. Thank you.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from New York, Mr. 
Meeks.
    Mr. Meeks. Thank you, Mr. Chairman.
    Let me start with Mr. Gruenberg. The banking regulator just 
concluded that total loss-absorbing capacity (TLAC) for global 
systemically important banks would require banks to hold a 
certain amount of capital, but also requires them to issue a 
certain amount of unsecured debt that could be converted to 
capital in case of the bank's failure.
    However, some observers, including I believe your Vice 
Chair, are concerned that the proposals call for banks to take 
on more debt at a time that the Fed is getting ready to raise 
interest rates. And he says that this is a risky and dangerous 
proposition. Is his concern legitimate?
    Mr. Gruenberg. I think the unsecured debt requirement is an 
important component of efforts to make these systemic companies 
able to fail in an orderly way without putting the taxpayer at 
risk, Congressman. The experience is that when a financial 
institution fails, all of its capital, all of its equity, is 
wiped out.
    The only thing that remains is the debt held by the firm, 
which is then available on a closed-institution basis, after 
the institution fails, to be converted to capital, so that the 
private creditors of the failed company bear the losses for 
managing the failure of the institution.
    And as it turns out, most of the large financial companies 
in the United States, most of our G-SIFIs, have substantial 
amounts of unsecured debt.
    The rule that the Federal Reserve has proposed would ensure 
that they maintain a minimum amount. So if they get into 
difficulty, they can fail, and it is the private creditors, and 
not taxpayers, that are on the hook. And so for that reason, I 
think the proposal has merit.
    Mr. Meeks. Thank you. Let me jump to someone whom I am used 
to seeing sit up here. It is still funny to see him sit down 
there. That is the Honorable Mel Watt.
    In recent weeks, the debate over what to do about the 
mortgage giants, Fannie Mae and Freddie Mac, has shifted from 
wholesale replacement to genuine reform, as replacing Fannie 
and Freddie as the political environment seems more unlikely. 
It seems like just replacing them is completely unlikely.
    We all want more private capital in housing finance. But my 
question is, do you believe there is enough private capital to 
fulfill the role the GSEs play without raising mortgage rates 
substantially? And what are the challenges and lessons you are 
experiencing as you get more involved in the risk-sharing 
mechanisms?
    Mr. Watt. We have tried out a number of risk-sharing 
mechanisms, trying to transfer as much of the risk to the 
private sector as possible. We are concerned about the capacity 
of the private sector to take on this risk, particularly in an 
economic downturn, or a distress situation.
    And if the entire system were converted to the private 
sector, you would have that risk of not having a backstop 
during a downturn, and you would have the risk of--I think--of 
increased cost to a borrower, both of which I think would need 
to be evaluated by Congress as they evaluate how to move 
forward.
    Mr. Meeks. Thank you. I have a few seconds left, but I have 
one other question. I would have loved to have gone back. Let 
me just quickly direct this question to Comptroller Curry.
    Amid regulations and supervision, the good news is that we 
are starting to see banks taking bolder steps to reduce risk 
and exit out of certain risky activities. On the other hand, I 
see that this raises concerns, because some of the activities 
are just shifting to less-regulated shadow banking entities. 
And banks are getting out of certain communities, and in 
certain countries.
    Are we denying services to millions of lower-income 
Americans, not because the risk is too high, but simply because 
the profit margins are not as high or are too low?
    Mr. Curry. To my knowledge, there is no evidence of that, 
Congressman. It is something that we would assess in the course 
of our compliance examinations for the Community Reinvestment 
Act.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from South Carolina, Mr. Mulvaney, for 5 minutes.
    Mr. Mulvaney. I thank the chairman. And I thank the panel, 
especially for sticking around. It means a lot to us that you 
all don't put hard stops on us, and let us have some 
flexibility, and do this throughout the day.
    I also apologize for having to run in and out during the 
day. We are evidently having serial motions to adjourn, Mr. 
Watt. You can explain to me why your side is doing that later 
on. It has to do with guns, I am told, believe it or not. 
Anyway, not my--
    Mr. Watt. I generally couldn't explain it when I was here, 
so I certainly can't explain it now.
    Mr. Mulvaney. I hear you. I want to go back to something 
that Mr. Green said early on in the hearing today. He mentioned 
the MetLife lawsuit, talked a little about the jurors, and said 
those folks don't have to have any particular insurance 
experience, do they? And of course, they don't. That is not the 
way our legal system works.
    Then he looked at you and asked you if you agreed with 
that, and everybody sort of agreed the jurors don't need to 
have that. But that is not really the standard for the members 
of this group, right?
    Does anybody really think that 12 good persons and true 
could serve in this role, or is it a good idea to have--
everybody agrees we should have some expertise, right, in this?
    That is why you are there, and that you couldn't do this 
job if we just randomly picked you off the street. So I didn't 
want people walking out of there thinking the standard for you 
folks is the same as the standard for a juror.
    And I want to go into something that I believe Ms. Matz 
said to the chairman early on about the process you went 
through in your decision-making regarding MetLife. You said you 
were briefed extensively, which I want to talk about a little 
bit. You said it was done by the FSOC staffers. Let's talk 
about that. Was this to you individually? Was it to you and 
your staff? Was it to you as a group? Tell me how you were 
briefed on this, Ms. Matz?
    Ms. Matz. I was briefed by my staff, who participate 
actively with the FSOC staff, and the FSOC Deputies Council. 
Then we were briefed extensively as a Council, and we also 
received a great deal of briefing material.
    Mr. Mulvaney. Okay. The final determination was made on 
June 30th. Do you remember the first time you were briefed on 
MetLife?
    Ms. Matz. I don't.
    Mr. Mulvaney. Was it days in advance, weeks, months?
    Ms. Matz. Oh, no. It was longer. It had been in the works 
for probably a year or more, more than a year. So no, we were 
briefed on progress being made so I couldn't tell you when it 
was. But the staff worked on that designation for quite a long 
time.
    Mr. Mulvaney. So the staff worked on it. I get that. We do 
that here as well, as Mr. Watt would say. We rely on our staff. 
How much time did you spend on it yourself?
    Ms. Matz. I spent a long time because of the tremendous 
amount of information both to get in briefings and reading 
material. The basis was I believe 300 or some-odd pages.
    Mr. Mulvaney. Did you block off time during the day for 
reading those materials?
    Ms. Matz. I brought them home. I read them at night and on 
weekends.
    Mr. Mulvaney. I do the same thing. Let me ask you this 
then. The reason I am focusing on you is you mentioned it 
during your opening statement. I think you also mentioned it to 
Mr. Hultgren in response to some of his questions.
    Given your extensive briefing on the material, and the 
understanding that the statute requires you to look at 11 
different factors, I want to go through them very, very 
briefly.
    For example, you mentioned in your opening testimony--or 
response to the chairman--that one of the things that stood out 
in your mind was the derivatives. But that was one of the 
things that stood out in your mind as to the MetLife, in making 
the MetLife decision, or voting for the designation. So tell 
me, what it was about the derivatives that you thought was 
important?
    Ms. Matz. We just can't discuss that right now, because it 
is in litigation. We have public information on the FSOC 
website, but we are not at liberty to discuss the details of 
the deliberation.
    Mr. Mulvaney. Okay, I will ask it this way, then. I 
disagree with that, by the way. We get that a lot. Mr. Watt 
didn't allow it when he was here, and I don't like it now that 
I am here, because you can tell us stuff. But we will skip it 
then. You made the same determination for Prudential, right?
    Ms. Matz. Yes.
    Mr. Mulvaney. And you voted to designate them. And they are 
not in the lawsuit right now. So what was it--I take it you did 
the same level of preparation in making your decisions for 
Prudential that you did for MetLife?
    Ms. Matz. Correct.
    Mr. Mulvaney. So what was it about the derivatives decision 
that Prudential had that made you inclined to vote for the 
designation?
    Ms. Matz. Well, it wasn't just one item. It was the 
totality of--
    Mr. Mulvaney. I get that. Tell me one thing about the 
derivatives position?
    Ms. Matz. The size of it. I can't remember off the top of 
my head. It was a huge amount of derivatives and exposures--
    Mr. Mulvaney. Huge in relation to what?
    Ms. Matz. In relation to other institutions, how they were 
exposed to other institutions, and exposed other institutions--
    Mr. Mulvaney. No, that is not my question. Huge in relation 
to what? The size of their assets? The size of the--
    Ms. Matz. No, their exposure. It wasn't in relation to the 
size of their assets. We view it in relation to their exposure 
to the financial system of the United States.
    Mr. Mulvaney. Within a billion dollars, what was the size 
of their derivatives?
    Ms. Matz. I don't recall.
    Mr. Mulvaney. Thank you.
    Mr. Messer [presiding]. The gentleman's time has expired. 
The Chair now recognizes himself for 5 minutes for questions.
    It is a fundamental American principle that in America we 
follow the rule of law. And for the rule of law to be 
meaningful, of course it has to be transparent.
    It has to be written down. People have to have the ability 
to understand the law and see whether they are complying with 
it. But we want to talk about that principle in the context of 
the FSOC's current approach and designated non-bank financial 
institutions, particularly insurance companies, under that 
designation.
    Under the rule of law, folks first ought to understand why 
they are being regulated, what are the standards we are 
applying to determine whether you will be regulated, and then 
how they will be regulated.
    What are the standards you will be held accountable to if 
you are designated a non-bank SIFI? Mr. Woodall, you have been 
very patient today, I have to concede, for all this Kentucky 
Phi Beta Kappa this is of course, a panel full of Phi Beta 
Kappas and Ivy League decorated folks. I will admit something I 
rarely admit in public, which is I am a Phi Beta Kappa.
    But I will tell you, for this complex world of acronyms and 
initials and regulatory structure and laws, I think, like most 
Americans, we are just--it is all Greek to us and we are trying 
to figure it out.
    In the construct of the rule of law that I talked about, 
Mr. Woodall, I have offered legislation that I think is really 
a modest proposal. It is H.R. 3857. And here is what it does 
very simply.
    I will read it here to make sure I am getting it accurate. 
The bill would simply prevent FSOC from designating any further 
non-bank financial institutions for heightened Fed supervision 
until 90 days after.
    First, the Federal Reserve establishes prudential standards 
for non-bank financial companies as required by Section 165(a) 
and (b) of Dodd-Frank.
    Second, the Federal Reserve promulgates regulations, 
setting forth criteria for exempting certain types of classes 
of U.S. non-bank financial companies or foreign non-bank 
financial companies from supervision, as required by Section 
170 of Dodd-Frank.
    And third, the FSOC re-evaluates within calendar year 2016, 
each previous SIFI designation and rescinds any such 
designation if it determines that the non-bank financial 
company no longer meets the standards for designation that have 
been brought forward. I would just like to get your reaction. 
Would that legislation prevent FSOC from doing its job?
    Mr. Woodall. I was waiting to see what the question was 
going to be. Would it prevent what now?
    Mr. Messer. Would it prevent FSOC from doing its job? 
Again, would that seem like a reasonable proposal? That the 
companies that will be designated or the entities that are 
designated, non-bank SIFIs, have some way of understanding why 
it is they are designated that way and of course the, an off-
ramp that would allow them to determine their--
    Mr. Woodall. That was your third point and it seems to me 
that is what we are working for right now, is to try to get 
more clarity in what that exit ramp is. I have just recently 
submitted a list of 17 different options for the FSOC to 
consider. It is now being considered by their deputies.
    And it is ways to clarify that where it can be much more 
clear to the company what it needs to do. As I have said 
several times before, the company says to the regulator, tell 
us what we are doing wrong and we will fix it.
    Mr. Messer. Yes. Is there any way you can provide that list 
of 17 options to the committee?
    Mr. Woodall. Yes.
    Mr. Messer. Thank you. I guess I will open it up to the 
rest of the panel. Could someone give me the rationale for 
designating non-bank entities as SIFIs before establishing any 
public standard for doing so?
    And question two, before establishing the criteria that 
they will be held to?
    Mr. Massad. I think, Congressman, the criteria by which we 
designate were set forth in the statute. And they were further 
spelled out as far as the procedures in our rules, which were 
subject to notice--
    Mr. Messer. So you are telling me you believe that the 
entities that are being designated SIFIs understand the 
standards by which they are being evaluated?
    Mr. Massad. They are--
    Mr. Messer. Every entity I talk to says they are not.
    Mr. Massad. --publicly available, and I think we also 
provide memoranda to the company prior to the designation.
    Mr. Messer. Any others?
    Thank you.
    Seeing no one else in the queue and no further questions, I 
thank the panel for their stamina and for their testimony 
today.
    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.
    The hearing is now adjourned.
    [Whereupon, at 2:26 p.m., the hearing was adjourned.]

                            A P P E N D I X



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