[Congressional Record Volume 163, Number 181 (Tuesday, November 7, 2017)]
[House]
[Pages H8545-H8547]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                   RISK-BASED CREDIT EXAMINATION ACT

  Mr. HUIZENGA. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 3911) to amend the Securities Exchange Act of 1934 with 
respect to risk-based examinations of Nationally Recognized Statistical 
Rating Organizations.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 3911

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Risk-Based Credit 
     Examination Act''.

     SEC. 2. RISK-BASED EXAMINATIONS OF NATIONALLY RECOGNIZED 
                   STATISTICAL RATING ORGANIZATIONS.

       Section 15E(p)(3)(B) of the Securities Exchange Act of 1934 
     (15 U.S.C. 78o-7(p)(3)(B)) is

[[Page H8546]]

     amended in the matter preceding clause (i), by inserting ``, 
     as appropriate,'' after ``Each examination under subparagraph 
     (A) shall include''.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Michigan (Mr. Huizenga) and the gentleman from Michigan (Mr. Kildee) 
each will control 20 minutes.
  The Chair recognizes the gentleman from Michigan (Mr. Huizenga).


                             general leave

  Mr. HUIZENGA. Mr. Speaker, I ask unanimous consent that all Members 
have 5 legislative days to revise and extend their remarks and to 
include extraneous material on this bill.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Michigan?
  There was no objection.
  Mr. HUIZENGA. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, nationally recognized statistical rating organizations--
or NRSROs, as they are known--have been heavily criticized for the role 
that they played in facilitating the financial crisis.
  In the years leading up to the crisis, the government adopted a 
series of policies that had the effect of conferring a ``Good 
Housekeeping'' seal of approval on the rating agencies and on their 
products, including designating certain agencies as nationally 
recognized--a label that they had put on--and hardwiring references to 
their ratings into numerous Federal statutes and regulations.
  These regulatory privileges and the perception that the government 
had placed its blessing on the rating agencies' assessments led to a 
sense of complacency among investors and a failure of private sector 
due diligence that contributed to mispriced risk and a collapse of 
market confidence when ratings of certain asset-backed securities were 
called into question during the credit meltdown of 2007 and 2008.
  Mr. Speaker, as a result, the Dodd-Frank Act mandated myriad 
regulatory requirements on these NRSROs that were aimed at enhancing 
their disclosure and transparency. While some of these provisions may 
have been constructive, several created new barriers to entry and 
further entrenched a type of rating agency oligopoly that has not 
served investors or the economy well.
  The Dodd-Frank Act follows a ``registration, not regulation'' 
approach. While it does not require the SEC--the Securities and 
Exchange Commission--to regulate or evaluate the rating agencies' 
methodologies or models, it does seek to ensure that ratings are based 
on an objective application of the methodologies and that commercial 
considerations do not influence ratings decisions.
  Specifically, section 932, creates the Office of Credit Ratings at 
the Securities and Exchange Commission, which imposes more stringent 
conflict-of-interest regulations on credit rating agencies and gives 
the compliance officers at these rating agencies additional 
responsibilities, including filing annual reports with the SEC.
  While credit agencies must be held accountable, these increased 
reporting requirements have given the burden to small credit rating 
agencies and have hurt investors who bear the true cost of these rules. 
That one-size-fits-all annual reporting requirements imposed by Dodd-
Frank on all NRSROs placed unnecessary burdens and compliance costs on 
small NRSROs, who in no way were a cause of the financial crisis.
  As a result of the annual reporting requirements, large NRSROs that 
can absorb these compliance costs have gotten bigger; and smaller 
NRSROs, for whom these compliance costs really impose a 
disproportionate burden, they have been prevented from entering the 
marketplace and providing necessary competition.
  On May 15, 2013, former Securities and Exchange Commission Chair Mary 
Jo White wrote a letter on behalf of a unanimous commission to Chairman 
Hensarling of the Financial Services Committee to request the 
provisions of H.R. 3911 as a legislative proposal. She said: ``Rather 
than focusing every year on each of the designated eight review areas, 
allowing a risk-based approach would permit the SEC staff to tailor 
examinations. . . . As a result, staff could focus limited resources on 
these specific risks rather than reviewing the designated eight areas, 
some of which may not present a risk for a particular firm. . . . `'
  Consistent with former Chair White's request, H.R. 3911, statutorily 
changes the annual reporting requirements so that they are risk-based, 
instead of requiring the burdensome review of all eight review areas 
currently mandated.
  This approach is a commonsense balance that still ensures large 
NRSROs are regulated while smaller NRSROs are provided necessary relief 
to enter and thrive in the marketplace.
  The legislation unanimously passed the Financial Services Committee 
last month, and I was pleased to be a part of that.
  At this time I would like to commend the bipartisan work of 
Representatives Wagner and Foster on this important bill. I encourage 
all of my colleagues to vote in favor of H.R. 3911.
  Mr. Speaker, I reserve the balance of my time.
  Mr. KILDEE. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I think the House should note that the Speaker and the 
two gentlemen controlling the time are from the greatest State, the 
great State of Michigan, so I think we are in good hands.

                              {time}  1415

  Mr. Speaker, I rise today in support of H.R. 3911, which is offered, 
as my colleague has said, in a bipartisan fashion by Representatives 
Wagner and Foster.
  This legislation would allow the Securities and Exchange Commission 
to focus on the most high-risk areas when conducting annual 
examinations of certain credit rating agencies known as nationally 
recognized statistical rating organizations.
  Credit rating agencies did, in fact, play a central role in the 
subprime mortgage meltdowns by routinely assigning inflated credit 
ratings to high-risk structured mortgage products. These ratings, which 
were issued by agencies operating under conflicts of interests, allowed 
banks to assume unreasonable amounts of risk and resulted in the loss 
of trillions of dollars when the mortgages underlying those risky 
investments began to default.
  In the wake of the ensuing financial crisis, the Dodd-Frank Act 
strengthened oversight of credit rating agencies, including by 
directing the SEC to create an Office of Credit Ratings responsible for 
conducting annual examinations of the rating organizations.
  Currently, each rating organization examination must include a review 
of eight topic areas designed to assess the adequacy of each agency's 
internal controls, conflicts of interests, and rating methodologies, 
among other areas.
  This legislation, H.R. 3911, is responsive to former SEC Chair Mary 
Jo White's 2013 request to the Financial Services Committee for 
legislation that would allow the SEC staff to take a risk-based 
approach to annual rating organization examinations. Such an approach 
would allow the SEC to focus valuable resources on the areas where 
problematic conduct is most likely to exist.
  H.R. 3911 is designed to strengthen regulatory efforts rather than 
provide a basis for reduced accountability. So I do urge the SEC to use 
the discretion afforded under H.R. 3911 in order to focus on areas that 
present the greatest risk of misconduct.
  It is vital that our ratings organizations are accountable, and I 
believe this bill is an important step to ensure that the inflated 
ratings that led up to the financial crisis are not repeated.
  Mr. Speaker, I support H.R. 3911. I thank Representatives Foster and 
Wagner for their bipartisan work on this bill, and I reserve the 
balance of my time.
  Mr. HUIZENGA. Mr. Speaker, I yield such time as she may consume to 
the gentlewoman from Missouri (Mrs. Wagner), who is the author of this 
bill and chair of the Financial Services Oversight and Investigations 
Subcommittee and, as I had said, sponsor of this legislation.
  Mrs. WAGNER. Mr. Speaker, I thank the chairman of the Capital 
Markets, Securities, and Investments Subcommittee, my friend and 
colleague, Mr. Huizenga, for his support.
  Mr. Speaker, first, I also wish to thank the ranking member and 
Congressman Foster for his support of this issue both in the 114th 
Congress and the 115th Congress.

[[Page H8547]]

  H.R. 3911, the Risk-Based Credit Examination Act, makes the criteria 
required in annual reporting by nationally recognized statistical 
rating organizations, or NRSROs, just that: risk based.
  In 2008, the financial crisis taught us many lessons. It also 
highlighted how NRSROs regularly gave high ratings to mortgage-backed 
securities. As we now know, these mortgage-backed securities led to one 
of the largest financial collapses, which some economists have put on 
par with the Great Depression of the 1930s.
  In 2010, with the passage of Dodd-Frank and in an attempt to prevent 
previous mistakes, these organizations were hit with new requirements 
aimed at enhancing their disclosures and transparency. Unfortunately, 
the one-size-fits-all annual reporting requirements mandated under 
section 932 of Dodd-Frank placed unnecessary burdens and compliance 
costs on small NRSROs that were in no way the cause of the financial 
crisis.
  Contrary to what some might believe, more regulation doesn't solve 
everything; in fact, it doesn't solve most things.
  After the Office of Credit Ratings was created in 2012 and the new 
requirements were put into place, smaller NRSROs found it difficult to 
enter the marketplace. Ironically, the large credit rating agencies--
which, again, had a hand in the financial crisis--are getting bigger, 
driving out small credit rating agencies and making it clear that these 
new regulatory requirements missed their intended mark and placed 
unnecessary requirements on smaller NRSROs.
  Mr. Speaker, a move to a risk-based model will alleviate the burden 
on small NRSROs and provide competition while continuing to maintain 
oversight and transparency over the industry. The marketplace needs 
this fix. As the chairman noted in a 2013 letter, SEC Chairman Mary Jo 
White concurred with these conclusions.
  Let's be clear. This bill does not eliminate reporting requirements 
for credit rating agencies; instead, it simply makes the criteria 
required in annual reports risk based. Credit rating agencies will 
still be held accountable, while allowing real competition in the 
market.
  Mr. Speaker, I urge my colleagues to support this legislation that is 
both bipartisan and commonsense, something we don't often see in 
Washington, D.C.
  Mr. KILDEE. Mr. Speaker, in closing, I would just reiterate two 
things. One, I think here is an opportunity for us to demonstrate that 
there are times when we come together to deal with specific problems in 
a bipartisan fashion. We ought to encourage it, and I am pleased to be 
a part of it.
  Again, I would like to reiterate the point that this legislation is 
not intended to weaken oversight; in fact, it is intended to focus 
oversight on those areas of greatest risk. It is my hope and my sincere 
belief that that is the approach that the SEC will take upon passage 
and enactment of this legislation. It is a step in the right direction, 
and I urge my colleagues to support this legislation.
  Mr. Speaker, I yield back the balance of my time.
  Mr. HUIZENGA. Mr. Speaker, I would like to echo the words of my 
colleague from Michigan: a bipartisan, unanimous bill coming out of the 
Financial Services Committee deserves the support of this House. We are 
very pleased that we have been able to strike this accommodation, this 
balance, between making sure that those rating agencies that truly did 
have a hand in causing our economic downturn are separated from those 
smaller institutions that really had nothing to do with that.

  Now, with this overregulation that has occurred due to Dodd-Frank, I 
have really been put at a disadvantage and, ironically, have lowered 
competition in this space. So we believe that we are restoring some 
commonsense provisions back into the law. With that, I would like to 
encourage all of my colleagues to vote for H.R. 3911.
  Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from Michigan (Mr. Huizenga) that the House suspend the rules 
and pass the bill, H.R. 3911.
  The question was taken.
  The SPEAKER pro tempore. In the opinion of the Chair, two-thirds 
being in the affirmative, the ayes have it.
  Mr. HUIZENGA. Mr. Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further 
proceedings on this motion will be postponed.

                          ____________________