[House Report 114-878]
[From the U.S. Government Publishing Office]


114th Congress   }                                     {        Report
                        HOUSE OF REPRESENTATIVES
 2d Session      }                                     {       114-878

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





 
TO REQUIRE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM AND THE 
FINANCIAL STABILITY OVERSIGHT COUNCIL TO CARRY OUT CERTAIN REQUIREMENTS 
    UNDER THE FINANCIAL STABILITY ACT OF 2010 BEFORE MAKING ANY NEW 
  DETERMINATION UNDER SECTION 113 OF SUCH ACT, AND FOR OTHER PURPOSES

                                _______
                                

 December 16, 2016.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 3857]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 3857) to require the Board of Governors of the 
Federal Reserve System and the Financial Stability Oversight 
Council to carry out certain requirements under the Financial 
Stability Act of 2010 before making any new determination under 
section 113 of such Act, and for other purposes, having 
considered the same, report favorably thereon without amendment 
and recommend that the bill do pass.

                          PURPOSE AND SUMMARY

    H.R. 3857 would prevent the FSOC from designating any non-
bank financial institution for heightened Fed supervision until 
90 days after: the Federal Reserve establishes prudential 
standards for nonbank financial companies and bank holding 
companies, as required by Section 165(a) and (b) of the Dodd-
Frank Act; the Federal Reserve promulgates regulations setting 
forth criteria for exempting certain types of classes of U.S. 
nonbank financial companies or foreign nonbank financial 
companies from supervision, as required by Section 170 of Dodd-
Frank; and the FSOC reevaluates within calendar year 2016 each 
previous SIFI designation and rescinds any such designation if 
it determines that the nonbank financial company no longer 
meets the standards for designation and submits a report to the 
House and Senate Banking Committees explaining the reasons that 
the Council did not rescind any such designation.

                  BACKGROUND AND NEED FOR LEGISLATION

    Under Section 165 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (the Dodd-Frank Act), the Financial 
Stability Oversight Council (FSOC) is authorized to determine 
that a nonbank financial company will be subject to the 
consolidated supervision of the Federal Reserve and enhanced 
regulatory prudential standards if the company's material 
financial distress--or the nature, scope, size, scale, 
concentration, interconnectedness, or mix of its activities--
could pose a threat to U.S. financial stability. Although the 
term does not expressly appear in the Dodd-Frank Act, companies 
designated by the FSOC for Federal Reserve supervision are 
commonly referred to as ``systemically important financial 
institutions,'' or ``SIFIs.''
    The intended purpose of the enhanced prudential regulation 
as authorized under Section 165, is to avert or minimize risks 
to the financial stability of the United States in the event of 
a failure of a SIFI. Section 165 also requires the Federal 
Reserve to develop enhanced prudential standards to strengthen 
regulation and supervision of both large bank holding companies 
and nonbank SIFIs designated by the FSOC.
    The implementation of the regulatory scheme relating to 
nonbank SIFIs continues on an uncertain course as the Federal 
Reserve has not yet proposed comprehensive prudential 
regulations regarding the oversight and supervision of such 
entities.
    Additionally, Section 170 of Dodd-Frank Act directs the 
Federal Reserve, in consultation with the FSOC, to issue 
regulations exempting certain classes or categories of 
companies from supervision by the Federal Reserve. However, to 
date no such regulations have been issued. Promulgating a rule 
provides meaningful information to market participants, and 
provides notice to nonbank financial companies and the public 
as to what is intended, so that there will be more certainty 
around the process.
    In testimony before the committee on April 30, 2015, 
executive vice president and chief financial officer of 
Prudential Financial, Inc., Robert Falzon stated:

    If you think about the objective of this regulation, it is 
not to simply classify companies as systemic and then . . . 
hold them into that designation for a long term but rather to 
encourage them to reduce those activities that are leading to 
systemic risk in the U.S. economy. Without the tools to 
identify the activities that give rise to that risk we're 
unable to address appropriately our activities in a way that 
would be constructive and responsive to the intent of the 
regulation.

    In a letter of support for H.R. 3857 dated November 2, 
2015, the U.S. Chamber of Commerce wrote:

    [H.R. 3857] would allow the federal government to 
appropriately identify and address systemic risk in a more 
efficient way while providing businesses with clear rules of 
the road.

                                HEARINGS

    The Committee on Financial Services held no hearings 
examining matters relating to H.R. 3857.

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
November 3, 2015 and November 4, 2015 and ordered H.R. 3857 to 
be reported favorably to the House without amendment by a 
recorded vote of 33 yeas to 24 nays (recorded vote no. FC-73), 
a quorum being present.

                            COMMITTEE VOTES

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. The 
sole recorded vote was on a motion by Chairman Hensarling to 
report the bill favorably to the House without amendment. The 
motion was agreed to by a recorded vote of 33 yeas to 24 nays 
(Record vote no. FC-73), a quorum being present.
    [Please see attached vote tallies.]
    
    
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
                      COMMITTEE OVERSIGHT FINDINGS

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    PERFORMANCE GOALS AND OBJECTIVES

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 3857 
will provide clarity to markets and nonbank financial companies 
by streamlining the designation process and exempting certain 
classes of companies from heightened prudential standards.

   NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate to be prepared by the Director of the 
Congressional Budget Office pursuant to section 402 of the 
Congressional Budget Act of 1974.

                        COMMITTEE COST ESTIMATE

    The Committee adopts as its own the cost estimate to be 
prepared by the Director of the Congressional Budget Office 
pursuant to section 402 of the Congressional Budget Act of 
1974.

                 CONGRESSIONAL BUDGET OFFICE ESTIMATES

    With respect to clause 3(c)(3) of rule XIII of the Rules of 
the House of Representatives, an estimate and comparison 
prepared by the Director of the Congressional Budget Office 
pursuant to section 402 of the Congressional Budget Act of 1974 
was not submitted to the Committee before the filing of this 
report.

                       FEDERAL MANDATES STATEMENT

    The Committee adopts as its own the estimate of Federal 
mandates to be prepared by the Director of the Congressional 
Budget Office pursuant to section 423 of the Unfunded Mandates 
reform Act.

                      ADVISORY COMMITTEE STATEMENT

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  APPLICABILITY TO LEGISLATIVE BRANCH

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

                         EARMARK IDENTIFICATION

    H.R. 3857 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                    DUPLICATION OF FEDERAL PROGRAMS

    Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), 
the Committee states that no provision of H.R. 3857 establishes 
or reauthorizes a program of the Federal Government known to be 
duplicative of another Federal program, a program that was 
included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.

                   DISCLOSURE OF DIRECTED RULEMAKING

    Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), 
the Committee states that H.R. 3857 contains no directed 
rulemaking.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Requirements related to the Financial Stability Act of 2010

    This Section states that the Board of Governors of the 
Federal Reserve System and the Financial Stability Oversight 
Council must carry out certain requirements establishing 
prudential standards for nonbank financial companies, criteria 
from exempting certain classes of nonbank financial companies 
from supervision, reevaluations of nonbank financial companies 
that no longer meet the new standards and reports to Congress, 
under the Financial Stability Act of 2010 before making any new 
determination under section 113 of such Act.

         CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    H.R. 3857 does not repeal or amend any section of a 
statute. Therefore, the Office of Legislative Counsel did not 
prepare the report contemplated by Clause 3(e)(1)(B) of rule 
XIII of the House of Representatives.

                             MINORITY VIEWS

    H.R. 3857 is one of several Republican proposals to 
severely obstruct the ability of the Financial Stability 
Oversight Council (FSOC) to function in a timely manner to 
ensure our nation's stability. Specifically, the bill would 
prohibit the FSOC from designating additional non-bank 
financial companies as systemically important until 90 days 
after both (1) the Federal Reserve Board promulgates rules for 
those companies on enhanced prudential requirements and 
criteria for exempting types of assets or companies from Fed 
supervision; and (2) the FSOC, within 2016, reevaluates each 
designated company, rescinds designations where appropriate, 
and then reports to the House Financial Services and Senate 
Banking Committees on why it did not rescind any determination. 
Such a lengthy delay is unacceptable and puts the U.S. economy 
at risk for another financial crisis fueled by companies like 
AIG, which had little to no regulatory oversight.
    Since its creation in 2010 with the Dodd-Frank Act, the 
FSOC has been working diligently to comply with its statutory 
duty to identify firms that pose a systemic risk to the 
stability of our financial system and, therefore, merit 
increased regulation by the Fed. This approach has been 
thorough and fact-based, leading to the designations of AIG, GE 
Capital, Prudential, and MetLife. Moreover, the FSOC has 
endeavored to provide the public and industry with transparency 
over its designation and reevaluation process.
    For its part, the Fed has taken a cautious approach to the 
regulation of designated firms, stating that enhanced 
prudential standards for these companies will reflect an 
evaluation of the business model, capital structure, and risk 
profile of each designated nonbank financial company. Such an 
approach is beneficial to both the Fed and the designated 
firms, as it puts companies on notice of future regulation so 
that they may provide the Fed with sufficient information to 
enable it to tailor its rules.
    H.R. 3857 ignores these efforts and requires the FSOC to 
halt further designations until after the Fed finishes all of 
its enhanced prudential regulations and promulgates exemptions 
from Fed supervision. This delay to oversight and regulation of 
our nation's riskiest financial institutions fails to protect 
the American public and is opposed by the Department of 
Treasury and Better Markets. Indeed, according to Treasury 
Secretary Lew, this and similar Republican proposals ``would 
severely undermine and impair the Council,'' and ``is the wrong 
approach and wrong lesson from a crisis that far too many 
American families continue to recover from.''
    For these reasons we oppose H.R. 3857.

                                   Maxine Waters.
                                   Wm. Lacy Clay.
                                   Ruben Hinojosa.
                                   Keith Ellison.
                                   Al Green.

                                  [all]