[Congressional Record Volume 164, Number 58 (Wednesday, April 11, 2018)]
[House]
[Pages H3112-H3119]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
STRESS TEST IMPROVEMENT ACT OF 2017
Mr. HENSARLING. Mr. Speaker, pursuant to House Resolution 780, I call
up the bill (H.R. 4293) to reform the Comprehensive Capital Analysis
and Review process, the Dodd-Frank Act Stress Test process, and for
other purposes, and ask for its immediate consideration in the House.
The Clerk read the title of the bill.
The SPEAKER pro tempore (Mr. Katko). Pursuant to House Resolution
780, in lieu of the amendment in the nature of a substitute recommended
by the Committee on Financial Services, printed in the bill, an
amendment in the nature of a substitute consisting of the text of Rules
Committee Print 115-63, modified by the amendment printed in part B of
House Report 115-600, is adopted, and the bill, as amended, is
considered read.
The text of the bill, as amended, is as follows:
H.R. 4293
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 ``Stress Test Improvement Act
of 2017''.
SEC. 2. CCAR AND DFAST REFORMS.
Section 165(i) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (12 U.S.C. 5365(i)) is amended--
(1) in paragraph (1)--
(A) in subparagraph (B)(i)--
(i) by striking ``3 different'' and inserting ``2
different''; and
(ii) by striking ``, adverse,''; and
(B) by adding at the end the following:
``(C) CCAR requirements.--
``(i) Limitation on qualitative capital planning
objections.--In carrying out CCAR, the Board of Governors may
not object to a company's capital plan on the basis of
qualitative deficiencies in the company's capital planning
process.
``(ii) CCAR defined.--For purposes of this subparagraph and
subparagraph (E), the term `CCAR' means the Comprehensive
Capital Analysis and Review established by the Board of
Governors.''; and
(2) in paragraph (2)--
(A) in subparagraph (A), by striking ``semiannual'' and
inserting ``annual''; and
(B) in subparagraph (C)(ii), by striking ``3 different sets
of conditions, including baseline, adverse,'' and inserting
``2 different sets of conditions, including baseline''.
SEC. 3. RULE OF CONSTRUCTION.
The amendments made by this Act may not be construed to
prohibit an appropriate Federal banking agency (as defined in
section 3 of the Federal Deposit Insurance Act (12 U.S.C.
1813)) from--
(1) ensuring the safety and soundness of an entity
regulated by such an appropriate Federal banking agency; and
(2) ensuring compliance with applicable laws, regulations,
and supervisory policies, and the following of appropriate
guidance, by an entity regulated by such an appropriate
Federal banking agency.
SEC. 4. REDUCTION OF SURPLUS FUNDS OF FEDERAL RESERVE BANKS.
(a) In General.--Section 7(a)(3)(A) of the Federal Reserve
Act (12 U.S.C. 289(a)(3)(A)) is amended by striking
``$7,500,000,000'' and inserting ``$7,480,000,000''.
(b) Effective Date.--Subsection (a) shall take effect on
June 1, 2018.
The SPEAKER pro tempore. The bill, as amended, shall be debatable for
1 hour equally divided and controlled by the chair and ranking minority
member of the Committee on Financial Services.
The gentleman from Texas (Mr. Hensarling), and the gentlewoman from
California (Ms. Maxine Waters) each will control 30 minutes.
The chair recognizes the gentleman from Texas.
General Leave
Mr. HENSARLING. Mr. Speaker, I ask unanimous consent that all Members
may have 5 legislative days in which to revise and extend their remarks
and submit extraneous material on the bill under consideration.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Texas?
There was no objection.
Mr. HENSARLING. Mr. Speaker, I yield myself such time as I may
consume.
Mr. Speaker, I rise today in very strong support of H.R. 4293, the
Stress Test Improvement Act of 2017. I want to thank the gentleman from
New York (Mr. Zeldin), who is a real workhorse on the Financial
Services Committee and a real leader in trying to ensure that we have
affordable credit for our constituents so that they can achieve the
American Dream. In his legislation, he will bring clarity and
reasonableness to the stress test regime.
Currently, as we know, banks face two separate, legally mandated
stress tests: the CCAR and the DFAST. Together, these two programs
constitute one of the greatest expansions of the Federal Reserve's
supervisory powers in recent history. But what is important to note,
Mr. Speaker, is that, in addition to these mandated stress tests, banks
conduct stress tests every single week on one asset class or another.
It is important to know how banks can withstand tough, stormy
financial weather, but this was taking place even prior to either DFAST
or CCAR. What has happened now, Mr. Speaker, is these particular tests
are incredibly onerous to the point where the reports are not just
measured in pages, they are measured in pounds, and it is doubtful that
anyone actually reads them.
Then, to compound the challenge, Mr. Speaker, the Federal Reserve's
stress tests have become kind of a cat-and-mouse exercise in which the
Fed staff and compliance officers attempt to outwit each other in a
game that has no rules and no transparency. In other words, it is a
secret test. Nobody really knows what is on it. It is difficult for
Congress, it is difficult for our markets, and it is difficult for the
public to even assess whether or not these tests are effective.
Mr. Speaker, it is very important to note, if you don't know what is
on the test, how can you adhere to the rule of law if you don't know
what the law is? And so something really needs to change here.
Now, it is fortunate that yesterday the Federal Reserve finally took
action to begin to simplify and refine the CCAR stress testing regime.
Recognizing the opacity of the stress test regime, Federal Reserve Vice
Chairman for Supervision Randy Quarles said in a statement: ``Our
regulatory measures are most effective when they are as simple and
transparent as possible.'' I couldn't agree more, as does the gentleman
from New York as well.
[[Page H3113]]
Unfortunately, Mr. Speaker, this particular proposal is somewhat
modest in its attempt to simplify the process. It does follow the
results of a review undertaken by former Fed Chair Yellen, which found
a need to reduce the burden resulting from stress testing requirements.
Almost everybody agrees with that, especially on our smaller financial
institutions. So that is one more reason why this is needed.
I am glad the Federal Reserve recognizes the need to reform the
stress test regime because, again, it contributes to a climate of legal
and regulatory uncertainty when the rule of law is so critical to the
foundation of our society and it is so critical to economic growth.
But in light of the Fed's announcement yesterday, it is also
important to point out what the Fed did can easily be undone next week,
next month, or next year. That is why it is critical that Congress has
to make improvements in the stress testing regime permanent, especially
for the CCAR process, which is not--I repeat, not--a creation of
statute.
The gentleman from New York (Mr. Zeldin) has come up again with just
the right bill, H.R. 4293, and it will help provide a commonsense, and,
oh, by the way, bipartisan reform that will inject badly needed
accountability, transparency, and targeted relief to reduce legal and
regulatory uncertainty for financial institutions.
Why is this important, Mr. Speaker? At the end of the day, it is not
really the banks that are the subject of these regulations. At the end
of the day, it is their customers. And what this committee and what
this House has to do is ensure that there is affordable and available
credit to help fund people's American Dreams.
I heard from a gentleman by the name of John in my district from
Mesquite, Texas. He said:
Credit helped me obtain my first home, and 13 years later,
I am still in it. It has helped us grow from one child, when
we moved in, to four. We ran into some bad times, but I was
able to withstand it all with the help of the available
credit lines that I had at the time. Without the credit, it
would have been nearly impossible to still be where me and my
family are today.
That is why it is so important, Mr. Speaker. People need credit to
pay their bills, to buy their homes, to pay for their car repairs; and
all of these regulations, the regulatory onslaught that has been taking
place for almost a decade, makes that credit less available and more
expensive. It shrinks the American Dream, and we can't allow that to
happen on our watch, Mr. Speaker.
That is why it is so important that we bring some rationality to the
stress test so that, hopefully, people like John in Mesquite can
continue to get that line of credit. Mr. Speaker, that is why it is so
important that we all vote for H.R. 4293 today.
I reserve the balance of my time.
Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself such
time as I may consume.
Mr. Speaker, I rise to oppose H.R. 4293, the Stress Test Improvement
Act, which is designed to line Wall Street's pockets by weakening a
critical tool to prevent a future financial crisis.
Bank stress tests are a forward-looking tool where a hypothetical
scenario or two are tested, such as, how would a megabank fare if a
major recession occurred next year with unemployment and foreclosures
going way up? These tests, incredibly, are very helpful to see if banks
might need to maintain more capital to help buffer against such a
scenario.
{time} 1430
These are similar to crash tests for cars where a manufacturer runs
their cars through crash test simulations to see if passengers will
remain safe in various kinds of crashes. Such testing provides valuable
insights regarding what design adjustments might be needed to ensure
the car is as safe as possible.
So let us take a look at how this safeguard developed. When President
Obama took office, his administration inherited an economy in free fall
with about 800,000 jobs lost that very month. Many wondered how many
more financial firms might fail. So Treasury Secretary Geithner worked
with the Federal Reserve, and together they designed the Supervisory
Capital Assessment Program.
These stress tests checked how resilient the largest banks were if,
in fact, the economy continued to deteriorate. Results were published,
and we learned that 10 of the 19 participating firms were collectively
about $75 billion short of the required capital ratios. These tests
provided criminal transparency to the market, thereby enabling the
banks to begin recapitalizing themselves with new funds from investors
who themselves had renewed confidence in the banking industry.
Following this success, Congress decided to mandate these stress
tests to be regularly required of the Nation's largest banks in Dodd-
Frank. This would ensure banks and their regulators remained vigilant,
especially when times were good, so that they could spot problems much
earlier and take corrective action.
The Federal Reserve implemented these Dodd-Frank stress tests
alongside their Comprehensive Capital Analysis and Review, known as
CCAR, which added a capital planning component to the tests.
According to credit rating agencies and financial analysts, these
stress tests, along with Dodd-Frank's other enhanced prudential
requirements of the largest banks, have made our financial system much
safer.
Now, let me give you some numbers. Since 2009, the 34 largest banks
have increased their capital by $750 billion, bringing the industry's
total capital buffer to nearly $2 trillion today. That is $750 billion
in more high-quality funding that banks can safely lend and invest,
which helps explain why business lending has also increased almost 80
percent the last 8 years.
But H.R. 4293, this bill, would undermine all of that and proposes
three changes that megabanks like Wells Fargo would love to see. First,
the bill would eliminate the adverse scenario from Fed-run stress
tests. But like in car crash tests today, multiple scenarios can help
ensure an institution can survive a wider range of unforeseen events.
Second, the bill would bar the Fed from making qualitative objections
to a bank's capital plan. Even the Federal Reserve led by President
Trump's appointees issued a lengthy proposal yesterday altering some of
the stress testing rules, and their proposal maintains their ability to
make qualitative objections. So there is no basis for Congress to
unilaterally make it harder for regulators to ensure megabanks are well
run and capitalized.
Third, the bill would allow Wall Street megabanks to conduct fewer
company-run stress tests--annually instead of semiannually. But given
how quickly tides can shift, routine, semiannual testing can better
identify problems before they grow into larger problems.
As a former Federal Reserve official wrote last year: ``Had stress
tests as conducted now been in place before the crisis, they could have
made firms more resilient to unexpected losses, and at a minimum could
have given supervisors the ability to question banks' continued
dividend and share buybacks in the quarters leading to the height of
the crisis.''
Accordingly, I strongly urge Members to reject this rollback for Wall
Street megabanks.
Let me just add by saying: Why would we do this?
Why would we, knowing what we went through in 2008 where we had this
subprime meltdown, we went into a recession--almost a depression--and
we discovered that the banks were undercapitalized and they could not
deal with this kind of change in the economy, they could not deal with
the fact that something had gone wrong and be prepared to deal with it
rather than us having to bail them out in the way that we did?
I don't know why we would do this now. So I would simply ask Members
to ask the question: Why is it we would take away something that would
make the banks safer, that would make them more stable, and that would
make them able to be able to sustain despite the fact there was a
crisis developing in the economy?
Why would we want to take away this safety that we have built with
stress testing?
So, with that, Mr. Speaker, I would ask the Members to reject this
rollback for Wall Street megabanks, and I reserve the balance of my
time.
[[Page H3114]]
Mr. HENSARLING. Mr. Speaker, I yield 6 minutes to the gentleman from
New York (Mr. Zeldin), who is a hardworking member of the House
Financial Services Committee and the bill's sponsor.
Mr. ZELDIN. Mr. Speaker, I thank the chairman for all of his great
leadership and mentorship throughout this process to get this bill to
the floor today.
Mr. Speaker, I rise in strong support of H.R. 4293, the Stress Test
Improvement Act. It is critical bipartisan legislation that injects
transparency, consistency, and fairness into the stress testing
process.
I especially want to thank my bipartisan supporter and partner on
this important bill, Congressman David Scott of Georgia.
Stress tests are one of the aspects of current law that are
contributing to the climate of legal and regulatory uncertainty because
the Federal Reserve has failed to provide the necessary transparency
around this process.
A stress test is a financial analysis performed internally by a
financial institution or done externally by a regulator to assess if a
bank can withstand stressful economic conditions. Stress tests, when
done correctly, are an important way for banks and regulators to
understand the ability of financial institutions to survive a
contracting economy or weather a major economic storm like a recession.
Ensuring that these tests are done right, with fairness and
objectivity, is essential for protecting depositors and the overall
financial system. That is why passing the reforms in this bill should
be a priority on both sides of the aisle.
Working together on a bipartisan basis, Mr. Scott offered an
amendment to this bill that was accepted unanimously by the members of
the Financial Services Committee, including the ranking member, and
this bill cleared a committee markup with a bipartisan vote of 38-21.
By focusing the bill on three core reforms, we are improving this
important process to protect soundness in the banking system, while
also reforming the negative unintended consequences and damaging
overreach of Dodd-Frank.
By striking the adverse scenario requirement from stress testing,
these important tests can actually focus on real-world conditions to
protect financial institutions and the customers they serve from
threats to the stability of the financial system.
By repealing the ability of the Federal Reserve to reject a company's
capital plan based solely on a qualitative stress test, we are making
the process more transparent and fair.
This legislation ends the ability of regulators to arbitrarily reject
a financial institution's capital plan without feedback or constructive
criticism. These secretive rejections by regulators have done little to
protect consumers and inserted more, not less, uncertainty into the
financial system.
By eliminating the midcycle review and shifting from biannual to
annual stress testing requirements, we are lessening the compliance tax
that has raised the cost of lending and hurt consumers who have lost
access to the small business loans or mortgages that help finance their
American Dream.
Without needed reform, rather than ensuring financial stability, the
Federal Reserve's stress tests are likely missing real risks while
constraining the competitive flow of financial services that is
critical to increasing economic opportunity.
While a valuable resource, stress test results may be creating a
false sense of security, while at the same time sowing the seeds of
financial instability. In order to succeed, a stress test must build
from an accurate forecast of the next macroeconomic storm, and even the
best forecasts tend to be wrong.
The Stress Test Improvement Act will make stress testing more
effective by making the rules more transparent and fair. We are not
gutting standards but making them work for the real world. This bill is
a bipartisan team effort to accomplish these goals.
Without transparency about what the stress testing rules are, there
is no way to ensure the government plays by the rules. By subjecting
financial institutions to a questionable regime that lacks
accountability and transparency, regulators are failing to achieve the
important goals that they are tasked with: ensuring safety and
soundness.
With the critical reforms in this legislation, we are upholding
sensible standards for financial institutions, while clarifying the
requirements for and the frequency of stress tests.
To the hardworking men and women in my district and nationwide, it is
common sense that banks ought to know the standards and tests their
regulators are subjecting them to. By injecting some transparency and
consistency into the stress testing regime, we are taking needed
capital off the sidelines so it can be invested in the private economy
to create jobs and wealth.
I want to thank Chairmen Hensarling and Luetkemeyer for their
leadership on this important issue. I also want to thank my Democratic
partner on this important bill, David Scott.
Mr. Speaker, I urge adoption of this bill.
Ms. MAXINE WATERS of California. Mr. Speaker, I reserve the balance
of my time.
Mr. HENSARLING. Mr. Speaker, I yield 3 minutes to the gentlewoman
from Utah (Mrs. Love).
Mrs. LOVE. Mr. Speaker, when it comes to bank regulation, the job of
the regulator is to balance the need for economic growth with the
safety and soundness of the financial system. With fresh memories of
the most recent financial crisis, it is natural for regulators to err
on the side of being overly cautious so they aren't blamed when
something goes wrong.
Unfortunately, this has led to a situation in which regulators are
evaluating stress tests based on subjective and unclear standards. The
stress tests are opaque; it is like asking banks to kick a field goal
when they don't even know where the goal posts are. What is more, the
regulators keep ratcheting up the standards.
For the stress tests to achieve their goal, however--the goal of
keeping the financial system safe and sound--they need to be
transparent and they need to be fair.
H.R. 4293, a bill with bipartisan support, would approve the stress
testing process for bank holding companies by repealing the ability of
regulators to reject a financial institution's stress test based on
subjective and opaque standards.
Another important improvement to the process would be the elimination
of the overly burdensome midcycle review by shifting from biannual to
annual stress testing requirements.
These reforms would make it easier for Congress, the markets, and the
public to assess both the integrity of the findings of the stress tests
and the effectiveness of the Fed's regulatory oversight.
Some critics, nonetheless, have claimed that this bill would weaken
Dodd-Frank. On the contrary, H.R. 4293 would improve the flawed
standards of Dodd-Frank and strengthen the stress testing process to
ensure that it produces the results we seek: a safer and more stable
financial system.
Mr. Speaker, I thank my colleague from New York, Lee Zeldin, and
Congressman David Scott for supporting this bill, and I urge my
colleagues to support this bill.
Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself such
time as I may consume.
Mr. Speaker, again, I raise the question of why are we considering a
bill that would reduce the amount of scrutiny that we have with this
stress testing from the biggest banks in America, when, in fact, we
know that this stress testing was created because of the problems that
we were faced with in 2008?
We learned an awful lot about what we should not do and what we
should change in order never to be in the position again where we have
to bail out all of these big banks.
{time} 1445
We are simply saying: Banks, you have to be tested. You have to have
a stress test to see if you can withstand the difficulty that will be
presented if, in fact, the economy gets in trouble. It is as simple as
that.
Do you have enough capital? Are you organized in such a way that you
won't go under, that you won't create a problem in our economy because
of the size of your bank if you get in trouble?
[[Page H3115]]
So I would simply ask our Members to reject this bill because this
bill is not needed. It is simply a way by which to comply with the
megabanks' request to not have to do the work that is necessary to
prove that they are safe. And I don't know why we would do that.
Mr. Speaker, I reserve the balance of my time.
Mr. HENSARLING. Mr. Speaker, I yield 3 minutes to the gentlewoman
from New York (Ms. Tenney), another hardworking member of the House
Financial Services Committee.
Ms. TENNEY. Mr. Speaker, I rise in support of H.R. 4293, the Stress
Test Improvement Act, bipartisan legislation by my great colleague, the
gentleman from New York (Mr. Zeldin).
We keep hearing about megabanks, but all banks affect industries,
small businesses, and large businesses. So every time we adjust the
marketplace and we make more regulations, you also impact small
businesses as well, and our ability to survive. As the owner of a small
business, this affects me as well.
But stress testing is an important tool that can encourage the safety
and soundness of an individual depository institution and the overall
health of the banking system, including all banks, across all sizes and
sectors. However, the Federal Reserve has implemented its stress
testing in a manner that imposes unnecessary burdens without providing
proportionate benefits. This is especially true for smaller
institutions for which the cost of this exercise is disproportionately
burdensome. It can also affect larger banks.
H.R. 4293 would fix the tests so they can properly show smarter ways
to strengthen a financial institution's planning. This legislation
improves the Federal Reserve's stress testing processes mandated by the
Dodd-Frank Act by requiring a select group of banks, or bank holding
companies, to conduct internal, company-run stress tests once a year
rather than semiannually.
I want to thank Mr. Zeldin again for sponsoring this, as always, a
bipartisan piece of legislation. And it is important to note that, if
we are going to reduce regulations and burdensome fees and procedures
on companies, it has to be across all sectors, not just one. And I
think this legislation shows that and shows the sponsor's willingness
to do that.
Mr. Speaker, I thank the gentleman, and I urge all my colleagues on
both sides of the aisle to support this legislation.
Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself such
time as I may consume.
Mr. Speaker, I would like to share with Members a Communications
Workers of America letter to us on H.R. 4293.
And they state: H.R. 4293 would undermine the effectiveness of the
Federal Reserve's Comprehensive Capital Analysis and Review--that is,
CCAR--stress test. Specifically, the bill would prohibit the Federal
Reserve from objecting to a capital plan on the basis of qualitative
reasons; such as, the reasonableness of the assumptions and analysis
underlying the plan. The bill would also cut the frequency of CCAR
tests in half, taking away tools and reducing the amount of information
available to the Federal Reserve about bank health and is a
fundamentally bad idea.
Really, it is basically what we have been saying. We have been saying
that this would reduce the stress tests from semiannually to an annual
test.
Why would you want to have less scrutiny of these banks? Why would
you want to reduce the amount of time that they would have relative to
being able to prove that they are safe?
Also, I think it is very important what is being said here about the
Fed and the Fed's ability to basically review, on the basis of
qualitative reasons, such as reasonableness and of assumptions and
analyses underlying the plan.
So they are looking to see if these banks are well capitalized, if
these banks can withstand, again, problems in our economy that would
arise that could create unemployment and all kinds of other adverse
conditions.
So I would ask the Members to oppose this bill. This is just another
deregulation bill for the biggest banks in America. We should not be
doing that because these are the banks that, if they are
undercapitalized, if they don't have what is needed to withstand
problems in our society that could arise in the economy, it could cause
us to go into another recession, even a depression perhaps.
Mr. Speaker, I reserve the balance of my time.
Mr. HENSARLING. Mr. Speaker, I yield 3 minutes to the gentleman from
Kentucky (Mr. Barr), the chairman of our Financial Services
Subcommittee on Monetary Policy and Trade.
Mr. BARR. Mr. Speaker, I thank the chairman for the recognition and
the author of this legislation, Mr. Zeldin, for his leadership on the
Stress Test Improvement Act, which I strongly support.
Mr. Speaker, the Federal Reserve administers two stress tests that
they believe analyze the ability of U.S. firms to weather various forms
of economic turbulence. While the Fed failed to sound the alarm prior
to the last financial crisis, the thought is that, with these tests,
one of which was instituted by the Dodd-Frank financial control law in
the aftermath of the financial crisis, the Fed can prevent or at least
mitigate the severity of the next crisis.
I believe that stress tests can be very productive and useful, but
there is such a thing as overkill. When a relatively healthy patient
goes to the doctor, the doctor typically doesn't say: And you need to
go to another doctor, and you need to come see me again every month.
That is really not required. It adds costs, it is redundant, it is
duplicative, and it doesn't materially benefit the patient in terms of
better health outcomes.
The analogy applies to banks. Stress testing is good, but overkill is
costly, and it costs the financial system and doesn't materially add to
financial stability. Certainly there is merit to stress testing, but
there is no doubt that the cloud of secrecy surrounding these tests
confounds the ability of financial firms to correctly identify systemic
risks, to take corrective action, to chart a more sustainable or
profitable path for the future. As a result, financial firms, many of
them banks, are left trying to anticipate these Fed models, wasting
valuable time and resources that could be used to actually address
risks that threaten our economy.
So this environment of regulatory uncertainty actually, I would
argue, undermines financial stability because it distracts from the
mission of the institution, and it certainly is costly in terms of
driving up costs and taking away access to capital for productive
activities that actually strengthen the economy. For these reasons, I
am a proud supporter of this bill, which is a great first step to clean
up some of the regulatory uncertainties surrounding these tests.
The bill does a few things. First, it reduces the frequency of the
required company-run stress tests to once per year. One is enough to
identify risks, instead of two. Second, it eliminates one of the
supervisory scenarios that must be run, leaving just two, again
eliminating redundancy and superfluous, costly activities. Finally, it
prohibits the Federal Reserve from objecting to a bank holding
company's capital plan based on unknown qualitative reasons.
These institutions need to know what the Fed is looking for in order
to satisfy the stress testing that is applied to them. Again, I applaud
Congressman Zeldin and Chairman Hensarling for their hard work on this
commonsense regulatory improvement bill. It is not deregulation. It is
better regulation. It is more effective regulation to not only unleash
greater capital under the economy but actually enhance financial
stability.
For those reasons, Mr. Speaker, on behalf of the American economy and
for financial stability, I urge my colleagues to vote for the Stress
Test Improvement Act.
Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself such
time as I may consume.
Mr. Speaker, I don't know what this overkill argument is all about.
This is about deregulation. The banks, these megabanks, don't need any
more deregulation or help from Congress. In 2016, the industry made
record-breaking profits, more than $170 billion in profits. The
Republicans gave the eight largest Wall Street banks a $15 billion
windfall from their tax scam bill. And CEOs are making more money on
Wall
[[Page H3116]]
Street, as much as they made in 2006, before they drove our economy
into a massive ditch.
Megabanks need reasonable but strong stress tests to keep our economy
safe. And I want to tell you, after Dodd-Frank reforms were put in
place--and the stress test was one of the things that had to be done--
the banks resisted it, but finally they came into compliance. And it
took them several years, and then they did it the way that Dodd-Frank
would have them do it. So there are no problems.
These stress tests now are stress tests that reveal exactly what is
going on in the bank. And so why are we trying to undo this? Why do you
want to see them once a year instead of twice a year? Twice a year has
proven that we can keep them straight, that we can make sure that they
are well capitalized, that we can make sure they have a good financial
plan.
So I would simply say, let's not get involved in more deregulation
and take us back to where we were when we got in trouble in 2008. I
would ask the Members to vote ``no'' on this bill.
Mr. Speaker, I reserve the balance of my time.
Mr. HENSARLING. Mr. Speaker, may I inquire how much time I have
remaining.
The SPEAKER pro tempore (Mr. Palazzo). The gentleman from Texas has
11\1/2\ minutes remaining.
Mr. HENSARLING. Mr. Speaker, I yield myself such time as I may
consume.
Mr. Speaker, I listened very carefully to the distinguished ranking
member, who observed that our banks have more capital today. And this
is a good thing. To the extent that Dodd-Frank had anything to do with
it, I would say congratulations to the Dodd-Frank Act. But I also
noticed that, for many of us, many of our banks are still
undercapitalized.
And the ranking member had every opportunity to vote for the
Financial CHOICE Act that would require 10 percent, far more capital
than these banks that she is concerned about failing have today, but
she rejected that.
She often uses the phrase ``Wall Street megabanks,'' but it is her
side of the aisle that supports a taxpayer bailout fund for what she
calls the Wall Street megabanks. That comes from our friends on that
side of the aisle, Mr. Speaker; not on this side. She says we have to
bail out these banks.
No, we don't have to. We don't have to. We should support bankruptcy
over bailout. And we should support high levels of capital over
incredibly intrusive Federal control, Federal control that ultimately
gets resolved into less credit and more expensive credit for many of
our constituents.
Again, Mr. Speaker, I would add, banks have stress-tested themselves
long before the appearance of Dodd-Frank. Long before the appearance of
Dodd-Frank. In fact, stress tests are taking place on some group of
assets at every bank in America every day. Many, many banks,
particularly the larger banks, may do up to 200 stress tests a week.
What the gentleman from New York is trying to do is add some level of
clarity, sanity, and reasonableness to the federally instituted CCAR
process, something that can take literally 40,000 pages--40,000 pages--
can take tens of millions, if not over $100 million, to produce that
could have been used to loan to our constituents to buy their home, to
repair their car, to put groceries on the table, to pay for their
healthcare premiums.
{time} 1500
And some say, well, these tests have to be conducted semiannually.
Why semiannually? What is wrong with annually? What is sacrosanct about
semiannually? And, oh, by the way, why are we testing for both worst-
case scenario and some mid- scenario?
Okay. Either you are going to survive the 100-year flood or you are
not. If you can survive the 100-year flood, surely you can survive the
50-year flood. So why do we need that other test?
I mean, what we hear from our friends on the other side of aisle: Oh,
my God, we can't question the Federal regulators. I mean, they come
from Mount Olympus. They have this great wisdom that we can never
challenge them.
Well, the truth is we are Article I of the Constitution, and we are
the ones who make the law, and that is why we have hearings, and we
listen very closely. We listen closely to our regulators; we listen
closely to our constituents; we listen closely to market participants;
and then we make judgments. We make judgments.
So, yes, there is a balance. There is a balance between economic
opportunity and financial stability. We want there to be strong
financial stability, but we also want there to be strong, strong
economic opportunity for all of our constituents.
Mr. Speaker, I reserve the balance of my time.
Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself such
time as I may consume.
Mr. Speaker, I would like to share with Members the opinions of
former Chair Janet Yellen, who has stated that stress testing improves
public understanding of risk at large banking firms, provides a
forward-looking examination of firms' potential losses, and has
contributed to significant improvement in risk management.
Former Chair Ben Bernanke has praised stress testing for playing a
crucial role in the recovery of the economy and creating a more
resilient postcrisis U.S. banking system.
The deceptively named Stress Test Improvement Act--that is, this
bill--severely weakens this key element of bank oversight and must be
rejected. We cannot ignore the analyses that are being given by these
former Fed Chairs. I mean, they are saying do not be tricked, do not be
fooled, that this is a deceptive bill, and that stress testing must
continue in order to ensure the stability of our banks in the event the
economy goes awry.
Mr. Speaker, I reserve the balance of my time.
Mr. HENSARLING. Mr. Speaker, I yield 3 minutes to the gentleman from
Georgia (Mr. David Scott), the Democratic cosponsor of this
legislation and a proud member of the Financial Services Committee.
Mr. DAVID SCOTT of Georgia. Mr. Speaker, I thank Chairman Hensarling
and my distinguished ranking member, who has some very serious
concerns.
I want to take a moment to explain that the bill is basically my
bipartisan amendment that Mr. Zeldin and I worked on that passed in
committee, and I think it is very important for me to work through this
to explain how it will not affect as my ranking member has stated.
However, I want to make sure that people know we have got things in
here to address.
It keeps intact the essence of what we were trying to accomplish with
stress tests in Dodd-Frank. Now, my amendment essentially rewrote this
bill, as I said, so that we are left with just three simple things,
tweaks that we are making.
The first one is, in today's CCAR test, banks are now required to run
stress tests that have, one, a baseline, adverse, and severely adverse
scenario. My amendment simply removes the adverse requirement.
And why is that? Because, in talking about how we can stimulate more
growth for our banks while at the same time maintaining the proper
stress test, we heard that the adverse scenario rarely proved or shed
any light on the health of the bank that isn't already shown when
testing a bank for a severely adverse scenario. So we didn't need the
other one if one is doing it, and so we eliminated that.
Secondly, my amendment eliminated the Fed's ability to reject a
capital plan solely on what we refer to as the qualitative portion of
the test. Now, Mr. Speaker, we did this because stress tests are tests
of both the bank's books, which is the quantitative side, and a test of
the bank's internal controls, which is the qualitative side. So
rejecting a capital plan solely on the qualitative portion of the test
generates a lot of uncertainty within our banking system for banks, and
it is something that the Federal regulators already, earlier last year,
stopped requiring the banks under $250 million from having to do. So we
simply removed that.
And then, lastly, my amendment eliminated the midyear tests that
banks are required to do internally. Why did we do that? Because right
now, if you are a bank above a certain
[[Page H3117]]
asset size, you are required to do internal tests. My amendment just
changes this so that the tests are done.
The SPEAKER pro tempore (Mr. Duncan of Tennessee). The time of the
gentleman has expired.
Mr. HENSARLING. Mr. Speaker, I yield an additional 30 seconds to the
gentleman.
Mr. DAVID SCOTT of Georgia. Mr. Speaker, I want to urge my colleagues
who are looking at this that I very carefully listened to my ranking
member, and I have made sure, when we worked it in the process, that we
adhered to that. No phase of this stress test is eliminated.
And the thing I want to add, over in the Senate, in the reg bill, S.
2155, two of the three parts of this bill and my amendment are already
captured in S. 2155, which received 67 bipartisan votes.
So it is with gracious affection to my ranking member, because
oftentimes we have to work together, and respect to my chairman that I
urge all our Members, both Democrats and Republicans, to support this
very important and worthwhile legislation.
Ms. MAXINE WATERS of California. Mr. Speaker, I reserve the balance
of my time.
Mr. HENSARLING. Mr. Speaker, I yield 3 minutes t the gentleman from
Pennsylvania (Mr. Rothfus), who served as our vice chairman of the
Financial Services Subcommittee on Financial Institutions and Consumer
Credit.
Mr. ROTHFUS. Mr. Speaker, I thank the chairman for yielding.
I rise to express my support for H.R. 4293, the Stress Test
Improvement Act.
I also want to commend my colleague Representative Zeldin for his
work on this important issue.
Those of us who travel our districts to speak with the men and women
who work at financial institutions are well aware of the high costs and
lack of clarity in the stress test process. Companies are being forced
to dedicate substantial resources and immense amounts of time to go
through the Comprehensive Capital Analysis and Review, or CCAR, and the
Dodd-Frank Act Stress Tests, DFAST.
I have spoken to compliance staff who reported submissions in the
tens of thousands of pages. For each dollar or staffer put towards CCAR
or DFAST, there are fewer resources being dedicated to innovation or
helping customers.
Of course, we all believe that stress tests can and should be useful
experiences. Some of the information turned up in stress tests could be
helpful, but we are desperately in need to enact meaningful reform to
provide better transparency, clarity, and reduce undue burden.
Columbia University Professor Charles Calomiris described the process
as one in which ``regulators punish banks for failing to meet standards
that are never stated.'' Let me repeat that: ``. . . failing to meet
standards that are never stated.'' It is sort of a Kafkaesque creature
of our bureaucracy.
Zeldin's bill improves the stress testing process by requiring the
Federal Reserve to follow regular notice-and-comment practices and
issue clear regulations on economic conditions and methodologies and to
assess the effectiveness of the Fed's models. It also alleviates the
compliance burden on firms by spacing out CCARs and DFASTs. These are
targeted, reasonable reforms that can greatly improve the process. This
will enhance, not hurt, financial stability and leave us with a
healthier more vibrant economy.
Again, I urge my colleagues to support the Stress Test Improvement
Act.
Ms. MAXINE WATERS of California. Mr. Speaker, may I ask how much time
I have left.
The SPEAKER pro tempore. The gentlewoman has 15\1/2\ minutes
remaining.
Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself the
balance of my time.
Mr. Speaker, my colleagues on the other side of the aisle continue to
focus on pushing through giveaways to Wall Street and megabanks like
Wells Fargo that could be harmful to consumers, investors, and our
Nation's economy. Week after week, Republicans advance legislation that
is basically reckless and misguided. H.R. 4293 is yet another bad bill
from the Republicans that weakens critical protections put in place by
Democrats to prevent another financial crisis.
As we have discussed, the bill undermines the stress test framework
for our Nation's largest banks. Stress tests are an important
regulatory tool that have much improved the safety of our financial
system.
Mr. Speaker, when we crafted Dodd-Frank, we mandated these stress
tests and put in place other enhanced prudential guardrails for large
banks to not only prevent damage to our economy, but also help grow our
economy, and they are working. H.R. 4293 weakens the rigor and
frequency of these stress tests, a move that simply makes no sense.
Rather than harmful measures such as this one, Congress should be
working to strengthen consumer protections, reform our broken system of
credit reporting, provide tailored, responsible relief for community
banks, and ensure that recidivist megabanks are held accountable for
breaking the law.
I urge a ``no'' vote on this bill, and I urge Members again to simply
ask the question: Why, at this point in time, would we want to
basically reduce the ability for us to know exactly what is going on in
those banks, whether or not they are fully capitalized, whether or not
they could withstand a serious problem in our economy?
I don't think that the opposite side of the aisle, my friends, could
really answer that question because this is simply a deregulatory bill
for the biggest banks in America, for the megabanks, not needed, and
certainly we need the information. We never want to go through a period
of time like we did in 2008 where we discovered that our banks were not
well capitalized and could not withstand the problems that we
encountered.
I simply ask all Members to oppose this bill, and I yield back the
balance of my time.
Mr. HENSARLING. Mr. Speaker, may I ask how much time I have left.
The SPEAKER pro tempore. The gentleman from Texas has 2 minutes
remaining.
Mr. HENSARLING. Mr. Speaker, I yield myself the balance of my time.
Well, the ranking member poses the question, ``Why?'' I can tell you
why, Mr. Speaker. It is because Therese from Waco has written:
I would like to express my disappointment at being rejected
for a home loan, which would cost less than the house I
presently have been renting for 5 years. As a small-business
owner, I run my design studio out of my home office and take
every tax break that is legal to offset the taxes payable if
I didn't.
We do it for Sherry from Eustace, who writes:
After a divorce 4 years ago, I needed to buy a car because
my car was over 10 years old. I have a checking account in my
name, I have a savings account, but they did not loan me
money.
There is an onslaught of financial regulations that is costly,
intrusive, burdensome, and is causing credit to be less available--less
available--to the people who need it. That is why we do this, Mr.
Speaker, week after week after week. We do it to make sure that our
constituents can buy homes, that they can have cars. If they have tough
times, if they lose a job, if they go through a painful divorce, that
is why we do it, Mr. Speaker.
{time} 1515
Again, stress-tests are important. That is why banks do it themselves
every single week.
But the question is: How do we calibrate this?
We have used the ranking member's prescription, and that of my
friends on the other side of the aisle, and it brought us 1.6 percent
economic growth. Thankfully, today, with a new Congress and with a new
President, we have 3 percent economic growth, and all types of
opportunities are coming.
We should not listen and go back to those days. It is time to go
forward to a better America with greater opportunity for all Americans.
That means we have to reform the stress test to ensure that not only do
we have financial stability, but we have financial opportunity as well.
That is the work of the gentleman from New York.
Mr. Speaker, I urge everyone to support H.R. 4293, the Stress Test
Improvement Act of 2017, and I yield back the balance of my time.
[[Page H3118]]
The SPEAKER pro tempore. All time for debate has expired.
Pursuant to House Resolution 780, the previous question is ordered on
the bill, as amended.
The question is on the engrossment and third reading of the bill.
The bill was ordered to be engrossed and read a third time, and was
read the third time.
Motion to Recommit
Ms. MAXINE WATERS of California. Mr. Speaker, I have a motion to
recommit at the desk.
The SPEAKER pro tempore. Is the gentlewoman opposed to the bill?
Ms. MAXINE WATERS of California. In its current form, I am.
The SPEAKER pro tempore. The Clerk will report the motion to
recommit.
The Clerk read as follows:
Ms. Maxine Waters of California moves to recommit the bill
H.R. 4293 to the Committee on Financial Services with
instructions to report the same back to the House forthwith
with the following amendment:
Page 2, line 7, strike ``and''.
Page 2, line 14, strike the period and insert ``; and''.
Page 2, after line 14, insert the following:
(3) by adding at the end the following:
``(3) Treatment of certain gsib bad actors.--
``(A) In general.--The following shall apply to any global
systemically important bank holding company and any
subsidiary thereof, if such global systemically important
bank holding company or any subsidiary thereof has engaged in
a pattern or practice of unsafe or unsound banking practices
and other violations related to consumer harm:
``(i) The Board of Governors shall provide for an
additional adverse set of condition under paragraph (1)(B)(i)
for the evaluation required by paragraph (1).
``(ii) Subparagraph (C) of paragraph (1) shall not apply.
``(iii) The stress tests required by paragraph (2)(A) shall
be required semiannually.
``(iv) In issuing regulations under paragraph (2)(C), each
Federal primary financial regulatory agency shall establish
methodologies for the conduct of stress tests required by
paragraph (2) that shall provide for an additional adverse
set of condition.
``(B) Definitions.--For purposes of this paragraph:
``(i) Federal consumer financial law.--The term `Federal
consumer financial law' has the meaning given that term under
section 1002 of the Consumer Financial Protection Act of 2010
(12 U.S.C. 5481).
``(ii) Global systemically important bank holding
company.--
``(I) In general.--The term `global systemically important
bank holding company' means--
``(aa) a bank holding company that has been identified by
the Board of Governors of the Federal Reserve System as a
global systemically important bank holding company pursuant
to section 217.402 of title 12, Code of Federal Regulations;
and
``(bb) a global systemically important foreign banking
organization, as defined under section 252.2 of title 12,
Code of Federal Regulations.
``(II) Treatment of existing gsibs.--A company or
organization described under clause (i) or (ii) of
subparagraph (A) on the date of the enactment of this Act
shall be deemed a global systemically important bank holding
company for purposes of this Act.
``(iii) Pattern or practice of unsafe or unsound banking
practices and other violations related to consumer harm.--The
term `pattern or practice of unsafe or unsound banking
practices and other violations related to consumer harm'
means engaging in all of the following activities, to the
extent each activity was discovered or occurred at least once
in the 10 years preceding the date of the enactment of this
Act:
``(I) Having unsafe or unsound practices in the
institution's risk management and oversight of the
institution's sales practices, as evidenced by--
``(aa) an institution lacking an enterprise-wide sales
practices oversight program that enables the institution to
adequately monitor sales practices to prevent and detect
unsafe or unsound sales practices and mitigate risks that may
result from such unsafe and unsound sales practices; and
``(bb) an institution lacking a comprehensive customer
complaint monitoring process that--
``(AA) enables the institution to assess customer complaint
activity across the institution;
``(BB) adequately monitors, manages, and reports on
customer complaints; and
``(CC) analyzes and understands the potential risks posed
by the institution's sales practices.
``(II) Engaging in unsafe and unsound sales practices, as
evidenced by the institution--
``(aa) opening more than one million unauthorized deposit,
credit card, or other accounts;
``(bb) performing unauthorized transfers of customer funds;
and
``(cc) performing unauthorized credit inquiries for
purposes of the conduct described in clause (i) or (ii).
``(III) Lacking adequate oversight of third-party vendors
for purposes of risk-mitigation, to prevent abusive and
deceptive practices in the vendor's provision of consumer
products or services.
``(IV) Having deficient policies and procedures for sharing
customers' personal identifiable information with third-party
vendors for litigation purposes that led to inadvertent
disclosure of such information to unintended parties.
``(V) Violating Federal consumer financial laws with
respect to mortgage loans, including charges of hidden fees
and unauthorized or improper disclosures tied to home
mortgage loan modifications.
``(VI) Engaging in unsafe or unsound banking practices
related to residential mortgage loan servicing and
foreclosure processing.
``(VII) Violating the Servicemembers Civil Relief Act.''.
Ms. MAXINE WATERS of California (during the reading). Mr. Speaker, I
ask unanimous consent that the reading be waived.
The SPEAKER pro tempore. Is there objection to the request of the
gentlewoman from California?
There was no objection.
The SPEAKER pro tempore. Pursuant to the rule, the gentlewoman from
California is recognized for 5 minutes in support of her motion.
Ms. MAXINE WATERS of California. Mr. Speaker, this is the final
amendment to the bill, which will not kill the bill or send it back to
committee. If adopted, the bill will immediately proceed to final
passage, as amended.
Mr. Speaker, we have talked at length about how H.R. 4293 is a bill
for Wall Street megabanks to line their pockets while reducing
safeguards that better protect the Main Street economy from another
financial crisis. While I deeply disagree with the bill's approach, I
offer this motion to recommit, not in a manner that sends the bill to
the committee and kills the bill, but rather to attempt to improve the
bill before the House votes on final passage of the measure.
We all know megabanks have been given a free ride in Washington for
far too long when it comes to repeated, egregious offenses. They just
get a fine--the equivalent of a slap on the wrist--for harming
consumers.
Since 2010, megabanks have racked up over $160 billion worth of
fines, yet they keep breaking the law.
We have talked about Wells Fargo's growing list of illegal actions
that have harmed millions of consumers. Sure they have been fined, but
these fines, even $1 billion in fines, are just the cost of doing
business for a company that made over $22 billion in profit in 2017.
This soft enforcement approach is just increasing their operational
risk and losses, which, at the end of the day, will impact not only all
of their consumers, but the broader economy as well.
I hope Republicans and Democrats can all agree that any megabank that
engages in a pattern or practice of unsafe or unsound banking practices
and other egregious violations that has resulted in profound consumer
harm in the last 10 years is not entitled to any benefit of regulatory
relief provided under this bill, especially regulatory relief that
would eliminate the type of oversight that makes sure our economy stays
safe. So my amendment would exclude a megabank like Wells Fargo that
has fraudulently opened millions of accounts without their customers'
consent, enrolled consumers in life insurance policies without their
consent, and forced nearly 1 million Americans to purchase auto
insurance they didn't need.
Since 2016, I have been calling for Wells Fargo to face real
penalties. I introduced H.R. 3937, the Megabank Accountability and
Consequences Act, to compel the Federal bank regulators to fully
utilize existing authorities to stop megabanks from repeatedly flouting
the law and harming millions of consumers. So I was glad to see Janet
Yellen, on her last day at the Fed, take bold action to cap the bank's
size until it cleans up its act.
We must do more to send a strong message to all megabanks that there
will be real consequences for their bad actions that mislead, abuse, or
deceive its customers. H.R. 4293, in its current form, would send the
opposite message to recidivist megabanks and undermine the hard work we
have done since the 2007-2009 financial crisis.
Mr. Speaker, I urge my colleagues to adopt this motion to recommit so
that we do not reward a recidivist megabank like Wells Fargo for
repeated operational failures that ripped
[[Page H3119]]
off millions of consumers, and I yield back the balance of my time.
Mr. HENSARLING. Mr. Speaker, I claim the time in opposition.
The SPEAKER pro tempore. The gentleman from Texas is recognized for 5
minutes.
Mr. HENSARLING. Mr. Speaker, as the ranking member talks about the
hundreds of millions of dollars of fines that these banks have paid,
who have violated provisions of civil law, maybe that means the system
is working. That is what ought to happen to wrongdoers. There ought to
be fines.
No one can defend what happened at Wells Fargo. I hope that the
current management team is cleaning up what has been a mess and what
has harmed consumers for many, many years under the previous team.
But I do know this: that Wells Fargo has been fined almost a half a
billion dollars already. Their former CEO had $75 million clawed back
in compensation. They lost $29 billion of market value--their
investors--and investigations are ongoing, as it well should be.
But I would point out that our prudential regulators continue to have
full authority to enforce all of our consumer protection laws: the
Alternative Mortgage Transaction Parity Act, the Consumer Leasing Act,
the Electronic Fund Transfer Act, the Equal Credit Opportunity Act, and
the Fair Credit Billing Act. When they find violations, people are
fined, as they well should be.
But what we are talking about, once again, is trying to create
economic opportunity for all those who need it, to make credit more
available and less expensive for people who are trying to buy a home,
repair a car, and put groceries on the table.
What the gentleman from New York is saying, again, when it comes to a
federally imposed stress test, after hours and hours of testimony, we
believe that maybe that test ought to be administered annually, instead
of semiannually. That would be a better balance. That is what is
happening from the gentleman from New York.
What the ranking member's motion to recommit would do is simply water
that down when all of our consumer protection laws remain fully in
effect. They are working.
Mr. Speaker, I urge rejection of the motion to recommit, I urge
adoption of H.R. 4293, the Stress Test Improvement Act, from Mr. Zeldin
from New York.
Mr. Speaker, I yield back the balance of my time
The SPEAKER pro tempore. Without objection, the previous question is
ordered on the motion to recommit.
There was no objection.
The SPEAKER pro tempore. The question is on the motion to recommit.
The question was taken; and the Speaker pro tempore announced that
the noes appeared to have it.
Ms. MAXINE WATERS of California. 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 question will be postponed.
____________________