[House Report 115-593]
[From the U.S. Government Publishing Office]


115th Congress    }                                {          Report
                        HOUSE OF REPRESENTATIVES
 2d Session       }                                {          115-593
======================================================================



 
                  STRESS TEST IMPROVEMENT ACT OF 2017

                                _______
                                

 March 13, 2018.--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. 4293]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
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, having considered the same, 
report favorably thereon with an amendment and recommend that 
the bill as amended do pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

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.

                          Purpose and Summary

    Introduced by Representative Lee Zeldin on November 7, 
2017, H.R. 4293, the ``Stress Test Improvement Act of 2017'' 
improves the stress testing processes mandated by both Title I 
of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act (``Dodd-Frank'') (P.L. 111-203) and the Federal Reserve for 
bank holding companies by requiring certain bank holding 
companies to conduct company-run stress tests once each year 
rather than semiannually. This bill would also reduce the 
number of supervisory scenarios from three to two--the baseline 
and severely adverse scenario, do away with mid-year stress 
tests, and prohibit the Federal Reserve's objection to a bank 
holding company's capital plan based solely on qualitative 
deficiencies.

                  Background and Need for Legislation

    The Board of Governors of the Federal Reserve System 
(``Federal Reserve'') administers a set of ``stress tests'' to 
determine the ability of U.S. bank holding companies to 
withstand periods of economic turmoil. The Federal Reserve 
administers contemporaneously two stress tests, the 
Comprehensive Capitol Analysis and Review (CCAR) and the Dodd-
Frank Act Stress Tests (DFAST) which together constitute one of 
the greatest expansions of the Federal Reserve's powers in 
recent history.
    The Federal Reserve's stress tests have become a type of 
``cat-and-mouse'' exercise whereby Federal Reserve supervisory 
staff and bank compliance officers attempt to outwit one 
another in a game without either rules or transparency. The 
secrecy which surrounds the stress test regime makes it 
difficult for Congress and the public to assess either the 
effectiveness of the Federal Reserve's regulatory oversight or 
the integrity of the findings yielded by the tests.
    Academics have identified multiple problems which arise 
from the lack of transparency in the stress-testing process. In 
testimony before the Financial Services Committee on July 23, 
2015, Columbia University Professor Charles Calomiris described 
the stress test process as a ``Kafkaesque Kabuki drama in which 
regulators punish banks for failing to meet standards that are 
never stated (either in advance or after the fact). This makes 
stress tests a source of uncertainty rather than a helpful 
guide against unanticipated risks.'' Professor Calomiris went 
on to question how such a secretive and opaque process could be 
squared with basic American constitutional precepts:
    In addition to the stress test's economic costs and 
questionable contributions to financial stability, it is hard 
to believe that the stress tests' current structure could occur 
in a country like the United States, which prizes the rule of 
law and adherence to due process. The current stress test 
regime is objectionable as regulators at the Federal Reserve 
not only impose unstated quantitative standards for bank 
holding companies to meet certain stressed scenarios, but also 
retain the option of simply deciding that banks fail on the 
basis of a qualitative judgment unrelated even to their own 
model's criteria.
    Former Senator and Senate Banking, Housing, and Urban 
Affairs Committee Chairman Phil Gramm, testified at a July 28, 
2015, Financial Services Committee hearing, and echoed these 
concerns: ``What does the stress test test? Not only does no 
one know, but the regulators see that as a virtue. The Fed's 
Vice Chairman has stated that giving banks a clear road map for 
compliance might make it easier to game the test.' But isn't 
the fact that compliance is easier when you know what the law 
says the whole point of the rule of law?''
    Indeed, the non-partisan Government Accountability Office 
(GAO) agrees with former Senator Gramm. A November 2016 report 
by the GAO, commissioned by Financial Services Committee 
Chairman Jeb Hensarling, underscored these concerns. For 
example, the GAO found that: (1) the Federal Reserve has not 
always followed its own guidance or principles; (2) the Federal 
Reserve cannot be reasonably assured that small adjustments to 
its stress scenario variables would produce outcomes that 
neither amplify nor dampen economic cycles; and (3) the Federal 
Reserve has limited its perspective and has not always followed 
its own guidance for banking institutions on model-risk 
management practices. The report highlighted the lack of 
transparency in the process:
    The fundamental flaws in the Federal Reserve's stress test 
methodology were also laid bare by an October 29, 2015, report 
issued by the Federal Reserve's own Office of Inspector General 
(OIG), which examined the extent to which the model risk 
management practices the Fed uses in its supervisory stress 
testing program are ``consistent with supervisory guidance on 
model risk management'' that the Fed applies to the banking 
organizations it oversees. The report found significant 
deficiencies related to the Federal Reserve's model validation 
and broader governance practices.
    In addition, the OIG report noted that ``similar findings 
identified at institutions supervised by the Federal Reserve 
have been characterized [by the Fed] as matters requiring 
immediate attention or as matters requiring attention.'' The 
stress tests thus perfectly encapsulate the double standard 
that is the hallmark of the modern regulatory state: one set of 
rules for the bureaucratic elites and another for the entities 
they regulate.
    Transparency is a key feature of accountability and this 
limited disclosure about the stress tests may hinder 
understanding of the CCAR program, limit public and market 
confidence in the program, and the extent to which the Federal 
Reserve can be held accountable for its decisions in its 
conduct of the stress tests. The Federal Reserve also has not 
regularly updated guidance to firms about supervisory 
expectations and peer practices related to the qualitative 
assessment. Bank holding companies that must meet these 
expectations annually may face challenges from the irregular 
timing of communications, which could limit the Federal 
Reserve's achievement of its CCAR goals.
    Not only academics, but regulators have recognized a need 
for many of the reforms set forth in this bill--most notably 
from the Federal Reserve itself. For example, in a June 16, 
2017, letter to Rep. Blaine Luetkemeyer (MO), then-Federal 
Reserve Chair Janet Yellen committed to provide more details on 
how the Federal Reserve conducts the annual stress tests, to 
include the qualitative part of the tests. During testimony 
before the Senate Banking Committee on June 22, 2017, Federal 
Reserve Governor Jerome Powell stated ``[t]he Federal Reserve 
is committed to increasing the transparency of the stress 
testing and CCAR processes. We will soon seek public feedback 
concerning possible forms of enhanced disclosure.''
    Other regulators have recognized the need for some form of 
regulatory reform regarding CCAR/DFAST stress tests, even if 
those reforms were only to reduce the number of financial 
institutions subject to the stress tests. For example, during 
testimony before the Senate Banking Committee on June 22, 2017, 
FDIC Chairman Martin Gruenberg stated:

          ``[s]ome EGRPRA commenters suggested raising the $10 
        billion in total assets threshold for conducting annual 
        stress tests set forth in Section 165(i)(2) of the 
        Dodd-Frank Act. The FDIC agrees with these commenters, 
        and supports legislative efforts to increase the 
        threshold from $10 billion to $50 billion. However, the 
        FDIC also believes it is important to retain 
        supervisory authority to require stress testing if 
        warranted by a banking organization's risk profile or 
        condition.''

And, as part of former Federal Reserve Governor Daniel 
Tarullo's departing remarks in April 2017, he acknowledged 
that:

          ``there are clearly some changes that can be made 
        without endangering financial stability. Foremost among 
        these are the various bank size thresholds established 
        in the Dodd-Frank Act or in agency regulations for the 
        application of stricter prudential requirements . . . . 
        Similarly, the $10 billion asset threshold for banks to 
        conduct their own required stress tests seems too low. 
        And the fact that community banks are subject at all to 
        some of the Dodd-Frank Act rules seems unnecessary to 
        protect safety and soundness, and quite burdensome on 
        the very limited compliance capabilities of these small 
        banks.''

    In fact, in following a 2016 public comment period, the 
Federal Reserve took steps to limit the reach of the 
qualitative element of CCAR. The law firm of Davis Polk 
analyzed the change to 2017 CCAR process and found:

          ``while in previous years all U.S. BHCs subject to 
        CCAR faced the possibility of a qualitative objection 
        to their capital plans, a Federal Reserve amendment to 
        the capital plan and stress test rules issued in early 
        2017 has limited the qualitative assessment to the 
        subset of CCAR BHCs with $250 billion or more in total 
        consolidated assets, $75 billion or more of total 
        nonbank assets or $10 billion or more in on-balance-
        sheet foreign exposures (large and complex BHCs), which 
        currently comprises the 13 largest BHCs. For other BHCs 
        subject to CCAR (large and noncomplex BHCs), the 
        Federal Reserve will assess the qualitative aspects of 
        these firms' capital planning processes as part of . . 
        . its normal supervisory process, without the 
        possibility of a qualitative objection, through a 
        targeted Horizontal Capital Review.''

While these modest changes made by the Federal Reserve do not 
go far enough to improve the stress test regime, the changes 
demonstrates that the regulators recognize the problems with 
qualitative assessments in stress testing.
    In June 2017, the Treasury Department published a report 
entitled A Financial System That Creates Economic 
Opportunities: Banks and Credit Unions, that sets forth its 
recommendations for regulatory relief for banks and credit 
unions in furtherance of President Trump's February 3, 2017 
Executive Order 13772 on Core Principles for Regulating the 
United States Financial System. The June 2017 report 
recommended reforms to the existing stress testing regime, 
which overlap with this bill's reforms in many significant 
regards. Like this legislation, the June 2017 report 
recommended the elimination of the mid-year DFAST cycle and the 
alteration of no longer allowing qualitative CCAR element to be 
the sole basis for the Federal Reserve's rejection of capital 
plans, and reducing the number of DFAST supervisory scenarios. 
The June 2017 report also suggested going further by raising 
the DFAST threshold from $10 billion to $50 billion, raising 
the CCAR threshold to match the revised enhanced prudential 
standards threshold, subjecting stress-testing and capital 
review to public notice and comment process, allowing leeway 
for the company to determine the appropriate number of models 
for DFAST, reassessing CCAR assumptions, modeling according to 
firms unique risk profiles, providing firms an accurate 
understanding of the capital buffers they would have under the 
severely adverse scenario.
    On November 7, 2017, Federal Reserve Vice Chair of 
Supervision, Governor Randall Quarles, announced that the 
Federal Reserve will soon propose providing more granular 
information about the central bank's expectations for loss 
rates on particular portfolios of loans and will seek public 
comment on the proposal in the near future. In addition, the 
proposal will seek comment on the assumptions which underlie 
the stress tests.
    In an effort to inject badly needed accountability, 
transparency, and targeted relief into the stress test 
processes, this legislation introduced by Congressman Zeldin, 
and amended by Congressman David Scott (D-GA), makes a number 
of important reforms. H.R. 4293 would overhaul the current 
regime for stress testing banks and would make the company-run 
stress test an annual exercise, reduce the number of 
supervisory scenarios from three to two--the baseline and 
severely adverse scenario,--and extend the Federal Reserve's 
regulatory relief from CCAR's qualitative assessment to all 
banks.

                                Hearings

    The Committee on Financial Services held a hearing 
examining matters relating to H.R. 4293 on April 26, 2017 and 
April 28, 2017.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
November 14, 2017, and November 15, 2017, and ordered H.R. 4293 
to be reported favorably to the House as amended by a recorded 
vote of 38 yeas to 21 nays (Record vote no. FC-115), a quorum 
being present. Before the motion to report was offered, the 
Committee adopted an amendment offered by Mr. Scott by voice 
vote.

                            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 
first recorded vote was a Motion to Table Mr. Perlmutter's 
appeal of the ruling of the Chair on the question of 
germaneness on the Perlmutter amendment. The motion was agreed 
to 28 yeas to 14 nays. (Record vote no. FC-102), a quorum being 
present. The second and final recorded vote was on a motion by 
Chairman Hensarling to report the bill favorably to the House 
as amended. The motion was agreed to by a recorded vote of 38 
yeas to 21 nays (Record vote no. FC-115), a quorum being 
present.




[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. 4293 
will reform the living wills submission process to make it more 
transparent, responsive, and efficient for submitting bank 
holding companies.

   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 prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                 Congressional Budget Office Estimates

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, March 9, 2018.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4293, the Stress 
Test Improvement Act of 2017.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Sarah Puro.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

H.R. 4293--Stress Test Improvement Act of 2017

    Summary: Twice a year, large financial intuitions prepare 
reports for federal financial regulators regarding their 
ability to withstand financial stress. Under H.R. 4293 those 
institutions would prepare annual reports instead. The bill 
also would prohibit the Federal Reserve from using its 
qualitative assessment of a financial institution's ability to 
withstand financial stress as a basis for objecting to that 
institution's plan to draw down capital.
    CBO estimates that enacting H.R. 4293 would increase the 
deficit by $14 million over the 2018-2027 period. That figure 
includes an increase in direct spending of $16 million and an 
increase in revenues of $2 million. Because enacting the bill 
would affect direct spending and revenues, pay-as-you-go 
procedures apply.
    CBO estimates that enacting H.R. 4293 would not increase 
net direct spending or on-budget deficits by more than $2.5 
billion in one or more of the four consecutive 10-year periods 
beginning in 2028.
    H.R. 4293 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA).
    Estimated cost to the Federal Government: The estimated 
budgetary effect of H.R. 4293 is shown in the following table. 
The costs of this legislation fall within budget function 370 
(commerce and housing credit).

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  By fiscal year, in millions of dollars--
                                                   -----------------------------------------------------------------------------------------------------
                                                     2018    2019    2020    2021    2022    2023    2024    2025    2026    2027   2018-2022  2018-2027
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              INCREASES IN DIRECT SPENDING
 
Estimated Budget Authority........................       0       1       1       2       2       2       2       2       2       2         6         16
Estimated Outlays.................................       0       1       1       2       2       2       2       2       2       2         6         16
 
                                                                  INCREASES IN REVENUES
 
Estimated Revenues................................       0       0       0       0       0       0       0       0       1       1         0          2
 
                                       NET INCREASE IN THE DEFICIT FROM INCREASES IN DIRECT SPENDING AND REVENUES
 
Effect on the Deficit.............................       0       1       1       2       2       2       2       2       1       1         6         14
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Basis of estimate: The estimated budgetary effects of H.R. 
4293 stem from the small chance that the Federal Deposit 
Insurance Corporation (FDIC) would incur additional costs to 
resolve failed financial institutions. For this estimate, CBO 
assumes that the bill will be enacted near the end of 2018.
    CBO's estimate for H.R. 4293 is based on the analysis 
underlying its projections for banking programs in its June 
2017 baseline. Those projections incorporate the small 
probability of a financial crisis in each year during the 
projection period and the more likely scenario of an average 
number of bank and credit union failures in any given year. As 
a result, the estimated cost represents a weighted probability 
of different outcomes for future failures of financial 
institutions. Some of those outcomes have a very low 
probability of occurring but if they do, the costs to the 
Deposit Insurance Fund (DIF) or the Orderly Liquidation Fund 
(OLF) are very large. Costs incurred by the DIF are recovered 
over time by assessments on insured depository institutions. 
Fees paid to recover costs incurred by the OLF are classified 
in the budget as revenues. Both of those funds are administered 
by the FDIC.
    The estimated costs result from provisions that would 
prohibit the Federal Reserve from using its qualitative 
assessments of the ability of large banking intuitions to 
withstand financial stress as a basis for objecting to a 
financial institution's plan to draw down capital. According to 
the major private credit-rating agencies and other financial 
analysts, the Federal Reserve's quantitative and qualitative 
stress tests have improved the financial strength and 
resiliency of large banking institutions.\1\ Companies 
typically resolve shortcomings identified by the tests by 
strengthening internal controls and reducing the portion of 
equity used for dividends and stock repurchases, which 
increases the capital held by the company.
---------------------------------------------------------------------------
    \1\See Office of Financial Research, Capital Buffers and the Future 
of Bank Stress Test, Brief 7-20 (February 2017), 
www.financialresearch.gov/briefs; Government Accountability Office, 
Federal Reserve: Additional Actions Could Help Ensure the Achievement 
of Stress Test Goals, GAO-17-49 (November 2016), www.gao.gov/products/
GAO-17-48; and Moody's Investors Service, ``Fed Stress Testing Has 
Strengthened Banks' Capital and Risk Management (June 21, 2016), http:/
/tinyurl.com/yd7uhz7r.
---------------------------------------------------------------------------
    Since 2013, only a few financial institutions have been 
cited for qualitative shortcomings, and most of those cases 
were resolved quickly. The actions required by the Federal 
Reserve were relatively minor, in part because those 
institutions were still recovering from the financial 
crisis.\2\ Based on those actions of the Federal Reserve, CBO 
estimates that implementing H.R. 4293 would reduce the average 
amount of capital held by all large, systemically important 
banking institutions by less than 1 percent.
---------------------------------------------------------------------------
    \2\Daniel K. Tarullo, Governor, Federal Reserve, ``Next Steps in 
the Evolution of Stress Testing'' (speech at the Yale University School 
of Management Leaders Forum, New Haven, Conn., September 26, 2016), 
https://go.usa.gov/xnJZc.
---------------------------------------------------------------------------
    Changes in the amount of capital that a financial 
institution holds may affect both that institution's likelihood 
of failure and the costs incurred by the OLF or DIF to resolve 
failed assets. Most of the costs from enacting the legislation 
would primarily be incurred by the OLF. CBO estimates that 
implementing the bill would increase the deficit by $14 
million, or by roughly 0.02 percent of that baseline's 
projection of the FDIC's programs over the next decade. That 
total consists of an increase in direct spending of $16 million 
and an increase of revenues of $2 million. CBO expects that 
most of the costs over the 2018-2027 period under the bill 
would be offset after 2027 by an increase in fees paid to the 
FDIC by financial institutions.
    Pay-As-You-Go considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget-reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. The net changes in outlays and revenues that are 
subject to those pay-as-you-go procedures are shown in the 
following table.

  CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 4293, THE STRESS TEST IMPROVEMENT ACT OF 2017, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON FINANCIAL
                                                              SERVICES ON NOVEMBER 15, 2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       By fiscal year, in millions of dollars--
                                                             -------------------------------------------------------------------------------------------
                                                               2018   2019   2020   2021   2022   2023   2024   2025   2026   2027  2018-2022  2018-2027
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               NET INCREASE IN THE DEFICIT
 
Statutory Pay-As-You-Go Impact..............................      0      1      1      2      2      2      2      2      1      1         6         14
Memorandum:
    Changes in Outlays......................................      0      1      1      2      2      2      2      2      2      2         6         16
    Changes in Revenues.....................................      0      0      0      0      0      0      0      0      1      1         0          2
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Increase in long-term direct spending and deficits: CBO 
estimates that enacting the legislation would not increase net 
direct spending or on-budget deficits by more than $2.5 billion 
in any of the four consecutive 10-year periods beginning in 
2028.
    Mandates: H.R. 4293 contains no intergovernmental or 
private-sector mandates as defined in UMRA.
    Estimate prepared by: Federal costs: Sarah Puro and 
Kathleen Gramp (for the FDIC) and Nathaniel Frentz (for the 
Federal Reserve); Mandates: Rachel Austin.
    Estimate approved by: H. Samuel Papenfuss, Deputy Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995.
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                      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 the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                    Duplication of Federal Programs

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139; or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(i) of H. Res. 5, (115th Congress), 
the following statement is made concerning directed rule 
makings: The Committee states that the bill requires two 
directed rule makings.
    The rulemaking directs the Federal Reserve Board (Federal 
Reserve) to provide for at least 3 different sets of conditions 
under which the evaluation required by this subsection shall be 
conducted, including baseline, adverse, and severely adverse, 
and methodologies, including models used to estimate losses on 
certain assets, and the Board of Governors shall not carry out 
any such evaluation until 60 days after such regulations are 
issued; and provide copies of such regulations to the 
Comptroller General of the United States and the Panel of 
Economic Advisors of the Congressional Budget Office before 
publishing such regulations.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section cites H.R. 4293 as the ``Stress Test 
Improvement Act of 2017.''

Section 2. CCAR and DFAST reforms

    This section amends 165(i) of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act to require the Federal 
Reserve Board's (Federal Reserve) Comprehensive Capitol 
Analysis and Review (CCAR) be conducted once each year, rather 
than semiannually. This section also reduces the number of 
supervisory scenarios from three to two by striking the adverse 
scenario, and prohibits the Federal Reserve's objection to a 
bank holding company's capital plan based solely on qualitative 
deficiencies.

Section 3. Rule of construction

    This section clarifies that the amendments made by this Act 
may not be construed to prohibit an appropriate Federal banking 
agency from ensuring the safety and soundness of an entity 
regulated by such an appropriate Federal banking agency, and 
ensuring compliance with applicable laws, regulations, and 
supervisory policies.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, and existing law in which no 
change is proposed is shown in roman):

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, and existing law in which no 
change is proposed is shown in roman):

DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT

           *       *       *       *       *       *       *



TITLE I--FINANCIAL STABILITY

           *       *       *       *       *       *       *


Subtitle C--Additional Board of Governors Authority for Certain Nonbank 
Financial Companies and Bank Holding Companies

           *       *       *       *       *       *       *


SEC. 165. ENHANCED SUPERVISION AND PRUDENTIAL STANDARDS FOR NONBANK 
                    FINANCIAL COMPANIES SUPERVISED BY THE BOARD OF 
                    GOVERNORS AND CERTAIN BANK HOLDING COMPANIES.

  (a) In General.--
          (1) Purpose.--In order to prevent or mitigate risks 
        to the financial stability of the United States that 
        could arise from the material financial distress or 
        failure, or ongoing activities, of large, 
        interconnected financial institutions, the Board of 
        Governors shall, on its own or pursuant to 
        recommendations by the Council under section 115, 
        establish prudential standards for nonbank financial 
        companies supervised by the Board of Governors and bank 
        holding companies with total consolidated assets equal 
        to or greater than $50,000,000,000 that--
                  (A) are more stringent than the standards and 
                requirements applicable to nonbank financial 
                companies and bank holding companies that do 
                not present similar risks to the financial 
                stability of the United States; and
                  (B) increase in stringency, based on the 
                considerations identified in subsection (b)(3).
          (2) Tailored application.--
                  (A) In general.--In prescribing more 
                stringent prudential standards under this 
                section, the Board of Governors may, on its own 
                or pursuant to a recommendation by the Council 
                in accordance with section 115, differentiate 
                among companies on an individual basis or by 
                category, taking into consideration their 
                capital structure, riskiness, complexity, 
                financial activities (including the financial 
                activities of their subsidiaries), size, and 
                any other risk-related factors that the Board 
                of Governors deems appropriate.
                  (B) Adjustment of threshold for application 
                of certain standards.--The Board of Governors 
                may, pursuant to a recommendation by the 
                Council in accordance with section 115, 
                establish an asset threshold above 
                $50,000,000,000 for the application of any 
                standard established under subsections (c) 
                through (g).
  (b) Development of Prudential Standards.--
          (1) In general.--
                  (A) Required standards.--The Board of 
                Governors shall establish prudential standards 
                for nonbank financial companies supervised by 
                the Board of Governors and bank holding 
                companies described in subsection (a), that 
                shall include--
                          (i) risk-based capital requirements 
                        and leverage limits, unless the Board 
                        of Governors, in consultation with the 
                        Council, determines that such 
                        requirements are not appropriate for a 
                        company subject to more stringent 
                        prudential standards because of the 
                        activities of such company (such as 
                        investment company activities or assets 
                        under management) or structure, in 
                        which case, the Board of Governors 
                        shall apply other standards that result 
                        in similarly stringent risk controls;
                          (ii) liquidity requirements;
                          (iii) overall risk management 
                        requirements;
                          (iv) resolution plan and credit 
                        exposure report requirements; and
                          (v) concentration limits.
                  (B) Additional standards authorized.--The 
                Board of Governors may establish additional 
                prudential standards for nonbank financial 
                companies supervised by the Board of Governors 
                and bank holding companies described in 
                subsection (a), that include--
                          (i) a contingent capital requirement;
                          (ii) enhanced public disclosures;
                          (iii) short-term debt limits; and
                          (iv) such other prudential standards 
                        as the Board or Governors, on its own 
                        or pursuant to a recommendation made by 
                        the Council in accordance with section 
                        115, determines are appropriate.
          (2) Standards for foreign financial companies.--In 
        applying the standards set forth in paragraph (1) to 
        any foreign nonbank financial company supervised by the 
        Board of Governors or foreign-based bank holding 
        company, the Board of Governors shall--
                  (A) give due regard to the principle of 
                national treatment and equality of competitive 
                opportunity; and
                  (B) take into account the extent to which the 
                foreign financial company is subject on a 
                consolidated basis to home country standards 
                that are comparable to those applied to 
                financial companies in the United States.
          (3) Considerations.--In prescribing prudential 
        standards under paragraph (1), the Board of Governors 
        shall--
                  (A) take into account differences among 
                nonbank financial companies supervised by the 
                Board of Governors and bank holding companies 
                described in subsection (a), based on--
                          (i) the factors described in 
                        subsections (a) and (b) of section 113;
                          (ii) whether the company owns an 
                        insured depository institution;
                          (iii) nonfinancial activities and 
                        affiliations of the company; and
                          (iv) any other risk-related factors 
                        that the Board of Governors determines 
                        appropriate;
                  (B) to the extent possible, ensure that small 
                changes in the factors listed in subsections 
                (a) and (b) of section 113 would not result in 
                sharp, discontinuous changes in the prudential 
                standards established under paragraph (1) of 
                this subsection;
                  (C) take into account any recommendations of 
                the Council under section 115; and
                  (D) adapt the required standards as 
                appropriate in light of any predominant line of 
                business of such company, including assets 
                under management or other activities for which 
                particular standards may not be appropriate.
          (4) Consultation.--Before imposing prudential 
        standards or any other requirements pursuant to this 
        section, including notices of deficiencies in 
        resolution plans and more stringent requirements or 
        divestiture orders resulting from such notices, that 
        are likely to have a significant impact on a 
        functionally regulated subsidiary or depository 
        institution subsidiary of a nonbank financial company 
        supervised by the Board of Governors or a bank holding 
        company described in subsection (a), the Board of 
        Governors shall consult with each Council member that 
        primarily supervises any such subsidiary with respect 
        to any such standard or requirement.
          (5) Report.--The Board of Governors shall submit an 
        annual report to Congress regarding the implementation 
        of the prudential standards required pursuant to 
        paragraph (1), including the use of such standards to 
        mitigate risks to the financial stability of the United 
        States.
  (c) Contingent Capital.--
          (1) In general.--Subsequent to submission by the 
        Council of a report to Congress under section 115(c), 
        the Board of Governors may issue regulations that 
        require each nonbank financial company supervised by 
        the Board of Governors and bank holding companies 
        described in subsection (a) to maintain a minimum 
        amount of contingent capital that is convertible to 
        equity in times of financial stress.
          (2) Factors to consider.--In issuing regulations 
        under this subsection, the Board of Governors shall 
        consider--
                  (A) the results of the study undertaken by 
                the Council, and any recommendations of the 
                Council, under section 115(c);
                  (B) an appropriate transition period for 
                implementation of contingent capital under this 
                subsection;
                  (C) the factors described in subsection 
                (b)(3)(A);
                  (D) capital requirements applicable to the 
                nonbank financial company supervised by the 
                Board of Governors or a bank holding company 
                described in subsection (a), and subsidiaries 
                thereof; and
                  (E) any other factor that the Board of 
                Governors deems appropriate.
  (d) Resolution Plan and Credit Exposure Reports.--
          (1) Resolution plan.--The Board of Governors shall 
        require each nonbank financial company supervised by 
        the Board of Governors and bank holding companies 
        described in subsection (a) to report periodically to 
        the Board of Governors, the Council, and the 
        Corporation the plan of such company for rapid and 
        orderly resolution in the event of material financial 
        distress or failure, which shall include--
                  (A) information regarding the manner and 
                extent to which any insured depository 
                institution affiliated with the company is 
                adequately protected from risks arising from 
                the activities of any nonbank subsidiaries of 
                the company;
                  (B) full descriptions of the ownership 
                structure, assets, liabilities, and contractual 
                obligations of the company;
                  (C) identification of the cross-guarantees 
                tied to different securities, identification of 
                major counterparties, and a process for 
                determining to whom the collateral of the 
                company is pledged; and
                  (D) any other information that the Board of 
                Governors and the Corporation jointly require 
                by rule or order.
          (2) Credit exposure report.--The Board of Governors 
        shall require each nonbank financial company supervised 
        by the Board of Governors and bank holding companies 
        described in subsection (a) to report periodically to 
        the Board of Governors, the Council, and the 
        Corporation on--
                  (A) the nature and extent to which the 
                company has credit exposure to other 
                significant nonbank financial companies and 
                significant bank holding companies; and
                  (B) the nature and extent to which other 
                significant nonbank financial companies and 
                significant bank holding companies have credit 
                exposure to that company.
          (3) Review.--The Board of Governors and the 
        Corporation shall review the information provided in 
        accordance with this subsection by each nonbank 
        financial company supervised by the Board of Governors 
        and bank holding company described in subsection (a).
          (4) Notice of deficiencies.--If the Board of 
        Governors and the Corporation jointly determine, based 
        on their review under paragraph (3), that the 
        resolution plan of a nonbank financial company 
        supervised by the Board of Governors or a bank holding 
        company described in subsection (a) is not credible or 
        would not facilitate an orderly resolution of the 
        company under title 11, United States Code--
                  (A) the Board of Governors and the 
                Corporation shall notify the company of the 
                deficiencies in the resolution plan; and
                  (B) the company shall resubmit the resolution 
                plan within a timeframe determined by the Board 
                of Governors and the Corporation, with 
                revisions demonstrating that the plan is 
                credible and would result in an orderly 
                resolution under title 11, United States Code, 
                including any proposed changes in business 
                operations and corporate structure to 
                facilitate implementation of the plan.
          (5) Failure to resubmit credible plan.--
                  (A) In general.--If a nonbank financial 
                company supervised by the Board of Governors or 
                a bank holding company described in subsection 
                (a) fails to timely resubmit the resolution 
                plan as required under paragraph (4), with such 
                revisions as are required under subparagraph 
                (B), the Board of Governors and the Corporation 
                may jointly impose more stringent capital, 
                leverage, or liquidity requirements, or 
                restrictions on the growth, activities, or 
                operations of the company, or any subsidiary 
                thereof, until such time as the company 
                resubmits a plan that remedies the 
                deficiencies.
                  (B) Divestiture.--The Board of Governors and 
                the Corporation, in consultation with the 
                Council, may jointly direct a nonbank financial 
                company supervised by the Board of Governors or 
                a bank holding company described in subsection 
                (a), by order, to divest certain assets or 
                operations identified by the Board of Governors 
                and the Corporation, to facilitate an orderly 
                resolution of such company under title 11, 
                United States Code, in the event of the failure 
                of such company, in any case in which--
                          (i) the Board of Governors and the 
                        Corporation have jointly imposed more 
                        stringent requirements on the company 
                        pursuant to subparagraph (A); and
                          (ii) the company has failed, within 
                        the 2-year period beginning on the date 
                        of the imposition of such requirements 
                        under subparagraph (A), to resubmit the 
                        resolution plan with such revisions as 
                        were required under paragraph (4)(B).
          (6) No limiting effect.--A resolution plan submitted 
        in accordance with this subsection shall not be binding 
        on a bankruptcy court, a receiver appointed under title 
        II, or any other authority that is authorized or 
        required to resolve the nonbank financial company 
        supervised by the Board, any bank holding company, or 
        any subsidiary or affiliate of the foregoing.
          (7) No private right of action.--No private right of 
        action may be based on any resolution plan submitted in 
        accordance with this subsection.
          (8) Rules.--Not later than 18 months after the date 
        of enactment of this Act, the Board of Governors and 
        the Corporation shall jointly issue final rules 
        implementing this subsection.
  (e) Concentration Limits.--
          (1) Standards.--In order to limit the risks that the 
        failure of any individual company could pose to a 
        nonbank financial company supervised by the Board of 
        Governors or a bank holding company described in 
        subsection (a), the Board of Governors, by regulation, 
        shall prescribe standards that limit such risks.
          (2) Limitation on credit exposure.--The regulations 
        prescribed by the Board of Governors under paragraph 
        (1) shall prohibit each nonbank financial company 
        supervised by the Board of Governors and bank holding 
        company described in subsection (a) from having credit 
        exposure to any unaffiliated company that exceeds 25 
        percent of the capital stock and surplus (or such lower 
        amount as the Board of Governors may determine by 
        regulation to be necessary to mitigate risks to the 
        financial stability of the United States) of the 
        company.
          (3) Credit exposure.--For purposes of paragraph (2), 
        ``credit exposure'' to a company means--
                  (A) all extensions of credit to the company, 
                including loans, deposits, and lines of credit;
                  (B) all repurchase agreements and reverse 
                repurchase agreements with the company, and all 
                securities borrowing and lending transactions 
                with the company, to the extent that such 
                transactions create credit exposure for the 
                nonbank financial company supervised by the 
                Board of Governors or a bank holding company 
                described in subsection (a);
                  (C) all guarantees, acceptances, or letters 
                of credit (including endorsement or standby 
                letters of credit) issued on behalf of the 
                company;
                  (D) all purchases of or investment in 
                securities issued by the company;
                  (E) counterparty credit exposure to the 
                company in connection with a derivative 
                transaction between the nonbank financial 
                company supervised by the Board of Governors or 
                a bank holding company described in subsection 
                (a) and the company; and
                  (F) any other similar transactions that the 
                Board of Governors, by regulation, determines 
                to be a credit exposure for purposes of this 
                section.
          (4) Attribution rule.--For purposes of this 
        subsection, any transaction by a nonbank financial 
        company supervised by the Board of Governors or a bank 
        holding company described in subsection (a) with any 
        person is a transaction with a company, to the extent 
        that the proceeds of the transaction are used for the 
        benefit of, or transferred to, that company.
          (5) Rulemaking.--The Board of Governors may issue 
        such regulations and orders, including definitions 
        consistent with this section, as may be necessary to 
        administer and carry out this subsection.
          (6) Exemptions.--This subsection shall not apply to 
        any Federal home loan bank. The Board of Governors may, 
        by regulation or order, exempt transactions, in whole 
        or in part, from the definition of the term ``credit 
        exposure'' for purposes of this subsection, if the 
        Board of Governors finds that the exemption is in the 
        public interest and is consistent with the purpose of 
        this subsection.
          (7) Transition period.--
                  (A) In general.--This subsection and any 
                regulations and orders of the Board of 
                Governors under this subsection shall not be 
                effective until 3 years after the date of 
                enactment of this Act.
                  (B) Extension authorized.--The Board of 
                Governors may extend the period specified in 
                subparagraph (A) for not longer than an 
                additional 2 years.
  (f) Enhanced Public Disclosures.--The Board of Governors may 
prescribe, by regulation, periodic public disclosures by 
nonbank financial companies supervised by the Board of 
Governors and bank holding companies described in subsection 
(a) in order to support market evaluation of the risk profile, 
capital adequacy, and risk management capabilities thereof.
  (g) Short-term Debt Limits.--
          (1) In general.--In order to mitigate the risks that 
        an over-accumulation of short-term debt could pose to 
        financial companies and to the stability of the United 
        States financial system, the Board of Governors may, by 
        regulation, prescribe a limit on the amount of short-
        term debt, including off-balance sheet exposures, that 
        may be accumulated by any bank holding company 
        described in subsection (a) and any nonbank financial 
        company supervised by the Board of Governors.
          (2) Basis of limit.--Any limit prescribed under 
        paragraph (1) shall be based on the short-term debt of 
        the company described in paragraph (1) as a percentage 
        of capital stock and surplus of the company or on such 
        other measure as the Board of Governors considers 
        appropriate.
          (3) Short-term debt defined.--For purposes of this 
        subsection, the term ``short-term debt'' means such 
        liabilities with short-dated maturity that the Board of 
        Governors identifies, by regulation, except that such 
        term does not include insured deposits.
          (4) Rulemaking authority.--In addition to prescribing 
        regulations under paragraphs (1) and (3), the Board of 
        Governors may prescribe such regulations, including 
        definitions consistent with this subsection, and issue 
        such orders, as may be necessary to carry out this 
        subsection.
          (5) Authority to issue exemptions and adjustments.--
        Notwithstanding the Bank Holding Company Act of 1956 
        (12 U.S.C. 1841 et seq.), the Board of Governors may, 
        if it determines such action is necessary to ensure 
        appropriate heightened prudential supervision, with 
        respect to a company described in paragraph (1) that 
        does not control an insured depository institution, 
        issue to such company an exemption from or adjustment 
        to the limit prescribed under paragraph (1).
  (h) Risk Committee.--
          (1) Nonbank financial companies supervised by the 
        board of governors.--The Board of Governors shall 
        require each nonbank financial company supervised by 
        the Board of Governors that is a publicly traded 
        company to establish a risk committee, as set forth in 
        paragraph (3), not later than 1 year after the date of 
        receipt of a notice of final determination under 
        section 113(e)(3) with respect to such nonbank 
        financial company supervised by the Board of Governors.
          (2) Certain bank holding companies.--
                  (A) Mandatory regulations.--The Board of 
                Governors shall issue regulations requiring 
                each bank holding company that is a publicly 
                traded company and that has total consolidated 
                assets of not less than $10,000,000,000 to 
                establish a risk committee, as set forth in 
                paragraph (3).
                  (B) Permissive regulations.--The Board of 
                Governors may require each bank holding company 
                that is a publicly traded company and that has 
                total consolidated assets of less than 
                $10,000,000,000 to establish a risk committee, 
                as set forth in paragraph (3), as determined 
                necessary or appropriate by the Board of 
                Governors to promote sound risk management 
                practices.
          (3) Risk committee.--A risk committee required by 
        this subsection shall--
                  (A) be responsible for the oversight of the 
                enterprise-wide risk management practices of 
                the nonbank financial company supervised by the 
                Board of Governors or bank holding company 
                described in subsection (a), as applicable;
                  (B) include such number of independent 
                directors as the Board of Governors may 
                determine appropriate, based on the nature of 
                operations, size of assets, and other 
                appropriate criteria related to the nonbank 
                financial company supervised by the Board of 
                Governors or a bank holding company described 
                in subsection (a), as applicable; and
                  (C) include at least 1 risk management expert 
                having experience in identifying, assessing, 
                and managing risk exposures of large, complex 
                firms.
          (4) Rulemaking.--The Board of Governors shall issue 
        final rules to carry out this subsection, not later 
        than 1 year after the transfer date, to take effect not 
        later than 15 months after the transfer date.
  (i) Stress Tests.--
          (1) By the board of governors.--
                  (A) Annual tests required.--The Board of 
                Governors, in coordination with the appropriate 
                primary financial regulatory agencies and the 
                Federal Insurance Office, shall conduct annual 
                analyses in which nonbank financial companies 
                supervised by the Board of Governors and bank 
                holding companies described in subsection (a) 
                are subject to evaluation of whether such 
                companies have the capital, on a total 
                consolidated basis, necessary to absorb losses 
                as a result of adverse economic conditions.
                  (B) Test parameters and consequences.--The 
                Board of Governors--
                          (i) shall provide for at least [3 
                        different] 2 different sets of 
                        conditions under which the evaluation 
                        required by this subsection shall be 
                        conducted, including baseline[, 
                        adverse,] and severely adverse;
                          (ii) may require the tests described 
                        in subparagraph (A) at bank holding 
                        companies and nonbank financial 
                        companies, in addition to those for 
                        which annual tests are required under 
                        subparagraph (A);
                          (iii) may develop and apply such 
                        other analytic techniques as are 
                        necessary to identify, measure, and 
                        monitor risks to the financial 
                        stability of the United States;
                          (iv) shall require the companies 
                        described in subparagraph (A) to update 
                        their resolution plans required under 
                        subsection (d)(1), as the Board of 
                        Governors determines appropriate, based 
                        on the results of the analyses; and
                          (v) shall publish a summary of the 
                        results of the tests required under 
                        subparagraph (A) or clause (ii) of this 
                        subparagraph.
                  (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.
          (2) By the company.--
                  (A) Requirement.--A nonbank financial company 
                supervised by the Board of Governors and a bank 
                holding company described in subsection (a) 
                shall conduct [semiannual] annual stress tests. 
                All other financial companies that have total 
                consolidated assets of more than 
                $10,000,000,000 and are regulated by a primary 
                Federal financial regulatory agency shall 
                conduct annual stress tests. The tests required 
                under this subparagraph shall be conducted in 
                accordance with the regulations prescribed 
                under subparagraph (C).
                  (B) Report.--A company required to conduct 
                stress tests under subparagraph (A) shall 
                submit a report to the Board of Governors and 
                to its primary financial regulatory agency at 
                such time, in such form, and containing such 
                information as the primary financial regulatory 
                agency shall require.
                  (C) Regulations.--Each Federal primary 
                financial regulatory agency, in coordination 
                with the Board of Governors and the Federal 
                Insurance Office, shall issue consistent and 
                comparable regulations to implement this 
                paragraph that shall--
                          (i) define the term ``stress test'' 
                        for purposes of this paragraph;
                          (ii) establish methodologies for the 
                        conduct of stress tests required by 
                        this paragraph that shall provide for 
                        at least [3 different sets of 
                        conditions, including baseline, 
                        adverse,] 2 different sets of 
                        conditions, including baseline and 
                        severely adverse;
                          (iii) establish the form and content 
                        of the report required by subparagraph 
                        (B); and
                          (iv) require companies subject to 
                        this paragraph to publish a summary of 
                        the results of the required stress 
                        tests.
  (j) Leverage Limitation.--
          (1) Requirement.--The Board of Governors shall 
        require a bank holding company with total consolidated 
        assets equal to or greater than $50,000,000,000 or a 
        nonbank financial company supervised by the Board of 
        Governors to maintain a debt to equity ratio of no more 
        than 15 to 1, upon a determination by the Council that 
        such company poses a grave threat to the financial 
        stability of the United States and that the imposition 
        of such requirement is necessary to mitigate the risk 
        that such company poses to the financial stability of 
        the United States. Nothing in this paragraph shall 
        apply to a Federal home loan bank.
          (2) Considerations.--In making a determination under 
        this subsection, the Council shall consider the factors 
        described in subsections (a) and (b) of section 113 and 
        any other risk-related factors that the Council deems 
        appropriate.
          (3) Regulations.--The Board of Governors shall 
        promulgate regulations to establish procedures and 
        timelines for complying with the requirements of this 
        subsection.
  (k) Inclusion of Off-balance-sheet Activities in Computing 
Capital Requirements.--
          (1) In general.--In the case of any bank holding 
        company described in subsection (a) or nonbank 
        financial company supervised by the Board of Governors, 
        the computation of capital for purposes of meeting 
        capital requirements shall take into account any off-
        balance-sheet activities of the company.
          (2) Exemptions.--If the Board of Governors determines 
        that an exemption from the requirement under paragraph 
        (1) is appropriate, the Board of Governors may exempt a 
        company, or any transaction or transactions engaged in 
        by such company, from the requirements of paragraph 
        (1).
          (3) Off-balance-sheet activities defined.--For 
        purposes of this subsection, the term ``off-balance-
        sheet activities'' means an existing liability of a 
        company that is not currently a balance sheet 
        liability, but may become one upon the happening of 
        some future event, including the following 
        transactions, to the extent that they may create a 
        liability:
                  (A) Direct credit substitutes in which a bank 
                substitutes its own credit for a third party, 
                including standby letters of credit.
                  (B) Irrevocable letters of credit that 
                guarantee repayment of commercial paper or tax-
                exempt securities.
                  (C) Risk participations in bankers' 
                acceptances.
                  (D) Sale and repurchase agreements.
                  (E) Asset sales with recourse against the 
                seller.
                  (F) Interest rate swaps.
                  (G) Credit swaps.
                  (H) Commodities contracts.
                  (I) Forward contracts.
                  (J) Securities contracts.
                  (K) Such other activities or transactions as 
                the Board of Governors may, by rule, define.

           *       *       *       *       *       *       *


                             MINORITY VIEWS

    One of the most important policy developments following the 
largest financial crisis since the Great Depression was the 
enactment of stress testing for our nation's largest banks. 
H.R. 4293 would make several harmful changes to the current 
bank stress test regime, specifically the stress tests required 
by the Dodd-Frank Wall Street Reform and Consumer Protection 
Act as well as the Comprehensive Capital Analysis and Review 
(CCAR) program administered by the Board of Governors of the 
Federal Reserve System.
    While it is appropriate for Congress to examine the 
effectiveness of enhanced prudential standards, and how they 
are applied and tailored to our largest banks, H.R. 4293 would 
make a series of one-sided changes that weaken oversight of 
Wall Street banks.
    Although the bill was modestly narrowed during the 
Committee's markup, H.R. 4293 still makes it harder for 
regulators to object to a deficient capital plan submitted by a 
megabank, and reduces the frequency of company-run stress tests 
required for the nation's largest bank holding companies.
    U.S. banks added more than $700 billion in capital to 
absorb potential losses since the financial crisis of 2007-
2009. Even though banks are well capitalized today, we should 
not let complacency allow us to overlook how unexpected risks 
can quickly materialize and tank our economy. We should also 
not forget the lessons of the financial crisis and how costly 
and painful that was for our constituents and the country.
    Furthermore, we would highlight testimony the Committee 
received warning about the dangers of rushing to rollback 
stress testing requirements. Former Assistant Secretary of the 
Treasury, Michael Barr, testified that, ``stress testing is a 
central and innovative risk management tool used since the 
financial crisis by both regulators and practitioners. Unlike 
fixed capital ratios, of either the risk-based or leverage 
ratio type, stress testing seeks to understand how macro shocks 
would deplete capital. It would be a serious mistake to . . . 
hamstring stress testing by the Fed.''
    Mr. Barr's fears were also echoed by Ms. Emily Liner, 
Senior Policy Advisor at Third Way. She testified that, 
``eventually, there will be another economic downturn, and we 
need to be certain that our largest financial institutions can 
weather the storm so that we can return to growth, we can 
return to strong markets, and we can prevent massive investor 
losses far more quickly. If we had had stress tests before the 
financial crisis, we could have been prepared to take action 
before the chain reaction of bank failures unfolded.''
    For these reasons, we oppose H.R. 4293.

                                   Maxine Waters.
                                   Keith Ellison.
                                   Michael E. Capuano.
                                   Vicente Gonzalez.
                                   Carolyn B. Maloney.
                                   Daniel T. Kildee.
                                   Wm. Lacy Clay.
                                   Stephen F. Lynch.
                                   Al Green.

                                  [all]