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115th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 115-423
======================================================================
SYSTEMIC RISK DESIGNATION IMPROVEMENT ACT OF 2017
_______
November 28, 2017.--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. 3312]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 3312) to amend the Dodd-Frank Wall Street Reform
and Consumer Protection Act to specify when bank holding
companies may be subject to certain enhanced supervision, 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 (stated in terms of the page and line numbers
of the introduced bill) is as follows:
Page 11, line 3, strike ``1-year'' and insert ``18-month''.
Purpose and Summary
Introduced by Representative Luetkemeyer on October 12,
2017, H.R. 3312, the ``Systemic Risk Designation Improvement
Act of 2017,'' amends Title I of the Dodd-Frank Wall Street
Reform and Consumer Protection Act to remove the $50 billion
asset threshold used to automatically designate certain
financial institutions as ``systemically important financial
institutions'' and instead subjects these financial
institutions to enhanced regulatory standards based on the
institutions activities.
The bill also authorizes the Financial Stability Oversight
Council (FSOC) to subject a bank holding company to enhanced
supervision and prudential standards by the Board of Governors
of the Federal Reserve System (the Federal Reserve), if an
institution has been identified as global systemically
important bank (G-SIB) under the indicator-based measurement
approach established under section 217.402 of title 12, Code of
Federal Regulations. This measurement is based on a particular
institution's ``systemic indicator scores,'' that reflects
size, interconnectedness, cross-jurisdictional activity,
substitutability, and complexity relative to the other U.S. and
foreign banking organizations identified by the Basel Committee
on Banking Supervision and any other banking organization
included in the Basel Committee's sample for a given year.
This bill also substitutes G-SIB status in place of the
current monetary threshold as the determinant for the Federal
Reserve's authority over bank holding company acquisition
restrictions, prohibitions on interlocks between management of
different financial companies, and enhanced supervision and
prudential standards.
The changes made by H.R. 3312 take effect after the end of
an 18 month period following the date of the enactment.
Background and Need for Legislation
Title I of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (P.L. 111-203) contains two central elements
purportedly designed to address systemic risk. The first is the
establishment of the Financial Stability Oversight Council
(FSOC), which is charged with monitoring systemic risk in the
U.S. financial sector and coordinating regulatory responses by
its member agencies. The second element is the automatic
designation of banks with more than $50 billion in assets as
``systemically important financial institutions'' and then
subjects these institutions to enhanced regulatory standards.
FSOC
Title I, Subtitle A, of the Dodd-Frank Act created the FSOC
and authorizes the body ``to identify 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 bank holding companies (BHCs) or
nonbank financial companies, or that could arise outside the
financial services marketplace; [and] to respond to emerging
threats to the stability of the United States financial
system.''\1\ This broad authority also allows the FSOC to
designate non-bank institutions as systemically important
financial institutions (SIFIs) and subject to increased
supervision and regulation by the Federal Reserve Board.
---------------------------------------------------------------------------
\1\12 U.S.C. 5322.
---------------------------------------------------------------------------
In making its decision on whether to designate, the FSOC
may consider several factors, including the firm's leverage,
its off-balance sheet exposures, its relationship with other
financial institutions, the firm's size and
``interconnectedness,'' the firm's reliance on short-term
funding, and ``any other factors the [FSOC] deems
appropriate.'' Yet these determinative factors fundamentally
lacked specificity. While the Dodd-Frank Act mentions many
factors as being part of the evaluation process, no determinant
is weighted more heavily, so as to signal or require
designation, making the process appear highly subjective. In
addition to the undifferentiated criteria upon which FSOC
structures its evaluations, FSOC is further authorized to
consider ``any other risk-related factors the Council deems
appropriate,'' which broadens that authority. Therefore, the
current process makes it difficult for companies to assess
whether they risk SIFI designation and allows for broad changes
in the direction of regulation when administrations change.
Section 165
Section 165 of the Dodd-Frank Act requires the Federal
Reserve Board to apply enhanced prudential standards to bank
holding companies (BHCs) with total consolidated assets of $50
billion or more. These standards are designed to ``mitigate
risks to the financial stability of the United States from the
material financial distress or failure, or ongoing activates,
of large, interconnected financial institutions.'' The enhanced
prudential standards established by the Federal Reserve Board
under Section 165 (including rules related to capital,
leverage, liquidity, concentration limits, short-term debt
limits, enhanced disclosures, risk management, and resolution
plans) must be more stringent than those standards applicable
to other bank holding companies.\2\ The standards also increase
in stringency based on several factors, including the size and
risk characteristics of a company subject to the rule, and the
Federal Reserve Board must take into account the difference
among bank holding companies and nonbank financial companies
based on the same factors.\3\ In practice, the application of
enhanced prudential standards to BHCs with assets of $50
billion or more has created a de facto designation of these
institutions as ``systemically important financial
institutions'' (SIFIs).
---------------------------------------------------------------------------
\2\12 U.S.C. 5365(a)(1)(A).
\3\See 12 U.S.C. 5365(a)(1)(B). Under section 165(a)(1)(B) of the
Dodd-Frank Act, the enhanced prudential standards must increase in
stringency based on the considerations listed in section 165(b)(3).
---------------------------------------------------------------------------
However, since the passage of the Dodd-Frank Act, the
discussion has focused on the appropriate measurement of
systemic importance and the regulatory burden imposed by
enhanced prudential standards once there has been the
designation of an institution. Numerous commentators, including
former Congressman Barney Frank, have expressed concerns
regarding the arbitrary threshold used by the Dodd-Frank Act to
designate bank holding companies as systemically important.
H.R. 3312 repeals the automatic SIFI designation for banks
with consolidated assets exceeding $50 billion. Before a
determination is made to require enhanced supervision, the
legislation requires the regulators to undertake a review of an
institution's size, interconnectedness, substitutability,
global cross-jurisdictional activity, and complexity. Through
this process, regulators will be able to better tailor
regulations to the risk posed by different kinds of banking
organizations. As a result, financial institutions will be able
to allocate more resources to provide credit for small
businesses and consumers, enhance consumer choice, encourage
economic growth, expand a banking organization's current
activities, enter markets or asset classes, and increase
competition in the marketplace for the delivery of financial
products and services.
In a letter of support for H.R. 3312 dated October 10,
2017, the American Bankers Association wrote:
Under the Dodd Frank Act (DFA), an institution with
$50 billion or more in consolidated assets is
automatically deemed to be a ``systemically important
financial institution'' or a ``SIFI'', and subject to
higher levels of regulation regardless of the real
``risk'' it might pose to the financial system. This
arbitrary size threshold--and the significant
regulatory requirements that come with it--has
unnecessarily ensnared many banks without cause,
limiting their abilities to provide needed credit and
other services to consumers, businesses and their
communities.
This legislation would replace the DFA's automatic
SIFI designation with a process for the Federal Reserve
Board (Fed) to make a determination that an individual
financial institution, or group of institutions, is
systemically important and subject to enhanced
supervision and prudential regulation. The Fed would
make its determination by analyzing a variety of
relevant measures of risk outlined in the bill, rather
than being bound by the sole criterion of asset size--
which taken alone is a poor measure of risk--and allow
the regulators to ``tailor'' their supervision and
reduce regulatory burdens as appropriate.
Size-only regulation is a simple shortcut means of
supervising financial institutions and it is
inappropriate and needlessly burdensome for many
financial institutions with noncomplex operations and
business models. It increases costs and reduces
products and services to bank customers.
In a letter of support for H.R. 3312 dated October 11,
2017, the Financial Services RoundTable wrote:
H.R. 3312 is bipartisan legislation that changes the
current designation method for enhanced supervision of
banks by replacing the $50 billion asset threshold with
business activity standards to determine an
institution's systemic risk. Assessing business
activities and the associated risks is a better
measurement of the need for enhanced supervision versus
a single, arbitrary measure. An approach based on
business activities is in line with the Federal
Reserve's method for evaluating globally systemic
institutions.
The use of a single measure for determining the need
for enhanced supervision automatically subjects certain
financial institutions to enhanced supervision, even
though many of those institutions do not impose
systemic risk to the financial system. Such an
incomplete and inefficient approach to determine
systemic risk imposes undue costs, and inhibits growth
opportunities for consumers, businesses and communities
that come with access to responsible lending.
Assessing an institution through various factors as
opposed to asset size only will allow for a
comprehensive assessment of risk to the overall
financial system. H.R. 3312 advances that goal and will
lead to more effective tailored regulations. Reviewing
the impact of financial regulations on banks of all
sizes to ensure they are appropriately calibrated and
not unnecessarily holding back lending, will allow
financial institutions to better serve consumers and
businesses while helping to grow the economy.
Hearings
The Committee on Financial Services' Subcommittee on
Financial Institutions and Consumer Credit held a hearing
examining matters relating to H.R. 3312 on September 7, 2017.
Committee Consideration
The Committee on Financial Services met in open session on
October 11, 2017 and October 12, 2017 and ordered H.R. 3312 to
be reported favorably to the House as amended by a recorded
vote of 47 yeas to 12 nays (Record vote no. FC-81), a quorum
being present. Before the motion to report was offered, the
Committee adopted an amendment offered by Mr. Foster 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
sole 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 47 yeas to 12 nays (Record
vote no. FC-81), 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. 3312
will reduce excessive regulatory burdens by repealing
provisions of the Dodd-Frank Act whereby bank holding companies
with $50 billion or more in assets are automatically subject to
enhanced prudential supervision by the Federal Reserve Board of
Governors and providing authority to designate BHCs for
supervision on a case-by-case basis.
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.
Committee Cost Estimate
The Committee adopts as its own 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, November 13, 2017.
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. 3312, the Systemic
Risk Designation Improvement Act of 2017.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Kathleen
Gramp and Sarah Puro (for federal costs), and Nathaniel Frentz
(for revenues).
Sincerely,
Keith Hall,
Director.
Enclosure.
H.R. 3312--Systemic Risk Designation Improvement Act of 2017
Summary: H.R. 3312 would amend current law to change the
process and procedures for determining which bank holding
companies should be designated as systemically important
financial institutions (SIFIs). Under current law, all banks
with consolidated assets exceeding $50 billion are
automatically designated as SIFIs and are subject to additional
requirements imposed by the financial regulators. H.R. 3312
would repeal the automatic designation for most banks and
assign the responsibility for making such designations to the
Federal Reserve.
Based on information from the federal financial regulators,
CBO estimates that enacting the legislation would increase net
direct spending by $53 million and increase revenues by $10
million over the next 10 years, leading to a net increase in
the deficit of $43 million over the 2018-2027 period. Some of
that cost would be recovered from financial institutions in
years after 2027. Pay-as-you-go procedures apply because
enacting the bill would affect direct spending and revenues.
CBO estimates that enacting H.R. 3312 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.
H.R. 3312 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA). The bill would
increase the cost of an existing private-sector mandate on
entities that pay fees to the Federal Reserve and the Financial
Stability Oversight Council (FSOC), but CBO estimates that the
incremental cost of the mandate would be well below the annual
threshold for private-sector mandates established in UMRA ($156
million in 2017, adjusted annually for inflation).
Estimated cost to the Federal Government: The estimated
budgetary effect of H.R. 3312 is shown in the following table.
The costs of this legislation fall within budget function 370
(advancement of commerce).
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------------------------------------------------
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2018-2022 2018-2027
--------------------------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE OR DECREASE (-) IN THE DEFICIT FROM CHANGES IN DIRECT SPENDING AND REVENUES
Administrative Costs to the Federal Reserve, FSOC, and the 1 1 1 1 1 -2 * * * * 5 3
OFR........................................................
Additional Costs to the FDIC to Resolve Failed Financial 0 0 6 11 8 5 3 2 2 3 25 40
Institutions\a\............................................
Total Change in the Deficit............................. 1 1 7 12 9 3 3 2 2 3 30 43
Memorandum: Components of the Net Change in the Deficit
INCREASES IN DIRECT SPENDING
Estimated Budget Authority.................................. 0 0 7 12 9 7 5 4 4 5 28 53
Estimated Outlays........................................... 0 0 7 12 9 7 5 4 4 5 28 53
INCREASES OR DECREASES (-) IN REVENUES
Revenues.................................................... -1 -1 * * 0 4 2 2 2 2 -2 10
--------------------------------------------------------------------------------------------------------------------------------------------------------
Amounts may not sum to totals because of rounding; * = Between -$500,000 and $500,000; FSOC = Financial Stability Oversight Council; OFR = Office of
Financial Research; FDIC = Federal Deposit Insurance Corporation.
\a\Costs to resolve financial institutions are eventually offset by assessments on federally insured depository institutions and other large financial
firms.
Basis of estimate: The budgetary effects of the legislation
would stem from changes in administrative costs primarily at
the Federal Reserve and 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 during
fiscal year 2018. Estimated spending is based on historical
patterns.
Administrative costs to the Federal Reserve, the Financial Stability
Oversight Council, and the Office of Financial Research
Enacting H.R. 3312 would change the framework under which
financial institutions are designated as SIFIs. Under current
law, all banks with consolidated assets exceeding $50 billion
are automatically designated as SIFIs. Eighteen months after
enactment, H.R. 3312 would repeal that automatic designation
for most banks--those that are not designated as globally
significant by the Basel Committee--and assign the
responsibility for additional designations to the Federal
Reserve. (The eight banks that are currently designated as
globally significant would retain that designation.)
The Federal Reserve Board of Governors spends about $700
million a year on enhanced prudential regulation and
supervision of SIFIs.\1\ Based on an analysis of information
from the Federal Reserve, CBO expects that they would
temporarily reassign a number of staff members whose
responsibilities currently include supervision and regulation
of SIFIs to complete the new rulemakings and evaluations of
bank holding companies required by the bill. CBO expects that
the initial evaluations would be made within the first several
years, after which the total number of staff supervising and
regulating SIFIs would be the same as under current law.
However, the cost estimate reflects the probability that the
Federal Reserve would have to hire additional legal staff to
evaluate and defend SIFI designations. Administrative costs to
the Federal Reserve are reflected in the federal budget as a
reduction in remittances to the Treasury (which are recorded in
the budget as revenues). The costs of any new legal staff would
be offset over time by assessments on SIFIs. As a result, CBO
estimates that administrative costs to the Federal Reserve, net
of fees, would decrease revenues by $2 million over the 2018-
2027 period. The remainder would be recovered after 2027.
---------------------------------------------------------------------------
\1\For a definition of enhanced prudential regulations see Enhanced
Prudential Standards for Bank Holding Companies and Foreign Banking
Organizations in the Federal Register, March 27, 2014.
---------------------------------------------------------------------------
H.R. 3312 would require FSOC to consult with the Federal
Reserve and review any rules the agency develops to designate
additional bank holding companies as SIFIs. Under the bill,
FSOC would be required to approve additional designations
proposed by the Federal Reserve. CBO expects that the Federal
Reserve also would consult with the Office of Financial
Research (OFR) on any additional designations. Based on
information from the agencies, CBO estimates that
administrative costs for FSOC and the OFR to provide additional
support to the Federal Reserve and to review any proposed
designations would increase the deficit by $1 million over the
2018-2027 period. That amount includes increases in direct
spending of $4 million and increases in revenues of $3 million
(net of effects on income and payroll taxes). Under current
law, expenses of FSOC are considered to be expenses of the OFR,
which is recorded in the budget as a change in direct spending.
The OFR is authorized to levy assessments on certain financial
institutions to offset its operating costs. These assessments
are recorded in the budget as revenues.
Additional costs to the FDIC to resolve failed financial institutions
Under current law, firms that are designated as SIFIs are
subject to enhanced prudential regulation by financial
regulators. Among other things, those regulations require SIFIs
to undergo special stress tests, develop resolution plans, and
maintain certain levels of liquidity and financial capacity to
absorb losses. Based on an analysis of information from
national credit rating agencies and academic, industry, and
regulatory experts, CBO concludes that the added capital and
transparency that results from enhanced prudential regulation
improves the safety and soundness of the affected firms. CBO
expects that the value of that enhanced prudential regulation
will reduce losses incurred by regulated institutions by about
$450 million over the 2018-2027 period. On balance, CBO
estimates that such regulation lowers the FDIC's gross cost to
resolve insolvent firms (whether through the Orderly
Liquidation Fund or the Deposit Insurance Fund) because those
measures should result in shareholders and other creditors
absorbing a larger share of any losses in the event of
insolvency.
CBO expects that enacting H.R. 3312 would primarily affect
the SIFI designation of banks with consolidated assets of less
than $250 billion that are not designated as globally
significant. Those banks account for roughly 25 percent of
assets held at bank holding companies currently designated as
SIFIs. Based on the most recent banking profile published on
October 26, 2017, by the OFR, CBO anticipates that under the
bill the Federal Reserve Board would designate banks with
assets of more than $250 billion as SIFIs and would complete
that designation process by 2020.\2\ Using that OFR profile,
CBO also expects that the handful of institutions with
consolidated assets of less than $100 billion would no longer
be classified as SIFIs. Because of the uncertainty surrounding
the Federal Reserve Board's designation of banks with
consolidated assets between $100 billion and $250 billion, CBO
assumes for this estimate that roughly one-half of the assets
at those banks (excluding those continuing to be designated as
globally significant) would no longer be subject to enhanced
prudential regulation under H.R. 3312.
---------------------------------------------------------------------------
\2\See www.financialresearch.gov/viewpont-papers/files/OFRvp_17-
04_Systemically-Important-Banks.pdf
---------------------------------------------------------------------------
Assets at the institutions that CBO estimates would no
longer be subject to enhanced prudential regulation under H.R.
3312 account for roughly 10 percent to 15 percent of total
assets currently subject to such regulation. CBO estimates that
removing the SIFI designation from some financial institutions
would increase gross losses to the FDIC by about $50 million.
CBO expects that about $10 million of losses incurred by the
FDIC would be recouped over the 2018-2027 period, but that most
of those costs would be offset after 2027 by income to the FDIC
from fees paid by insured depository institutions, which are
recorded in the budget as offsets to direct spending, and by
fees paid by certain large financial institutions which are
recorded in the budget as revenues. As a result, CBO estimates
that additional costs to the FDIC would result in net deficit
increases of $40 million over the 2018-2027 period.
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. 3312, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON FINANCIAL SERVICES ON OCTOBER 12, 2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------------------------------------------------
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2018-2022 2018-2027
--------------------------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE OR DECREASE (-) IN THE DEFICIT
Statutory Pay-As-You-Go Impact.............................. 1 1 7 12 9 3 3 2 2 3 30 43
Memorandum:
Changes in Outlays...................................... 0 0 7 12 9 7 5 4 4 5 28 53
Changes in Revenues..................................... -1 -1 0 0 0 4 2 2 2 2 -2 10
--------------------------------------------------------------------------------------------------------------------------------------------------------
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. 3312 contains no intergovernmental mandates
as defined UMRA. CBO expects the Federal Reserve and FSOC would
increase assessments to offset the costs of implementing the
additional regulatory activities required by H.R. 3312. Thus,
the bill would increase the cost of an existing mandate on
private entities required to pay those assessments. Based on
information from FSOC and the Federal Reserve, CBO estimates
that the incremental cost of the assessments would be below $3
million annually and would be under the annual threshold for
private-sector mandates established in UMRA ($156 million in
2017, adjusted annually for inflation).
Estimate prepared by: Federal costs: Kathleen Gramp and
Sarah Puro; Federal revenues: Nathaniel Frentz; Mandates:
Rachel Austin.
Estimate approved by: H. Samuel Papenfuss, Deputy Assistant
Director for Budget Analysis.
Federal Mandates Statement
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates reform
Act.
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
rulemakings: The Committee estimates that the bill requires no
directed rulemakings within the meaning of such section.
Section-by-Section Analysis of the Legislation
Section 1. Short title
This section cites H.R. 3312 as the `Systemic Risk
Designation Improvement Act of 2017.'
Section 2: Revisions to Council authority
This section makes certain technical and conforming changes
to the authority of the FSOC under Sections 112, 115, 116, 121,
and 155 of the Dodd-Frank Act.
Section 3. Revisions to Board authority
This section replaces the $50 billion threshold, and
provides that a bank holding company or category of bank
holding companies, not identified as global systemically
important banks (G-SIB), shall be subject to enhanced
supervision and prudential regulation upon determination by the
Federal Reserve that the material financial distress, or the
nature, scope, size, scale, concentration, interconnectedness,
or mix of the activities of the individual bank holding
company, could pose a threat to the financial stability of the
United States. In making a determination the Federal Reserve is
required to consider an institution's ``systemic indicator
scores,'' reflecting size, interconnectedness, cross-
jurisdictional activity, substitutability, and complexity
relative to the other U.S. and foreign banking organizations
identified by the Basel Committee on Banking Supervision and
any other banking organization included in the Basel
Committee's sample for a given year.
The FSOC must approve, by a vote of no fewer than 2/3 of
the voting members then serving, including an affirmative vote
by the Chairperson, the metrics used in establishing any
regulation developed by the Federal Reserve to designate
additional bank holding companies.
An institution that has been identified as a G-SIB under
the indicator-based measurement approach established under
section 217.402 of title 12, Code of Federal Regulations is
automatically subject to enhanced prudential standards.
This section also makes certain technical and conforming
changes to the authority of the Federal Reserve Board of
Governors under Sections 163, 164, and 165 of the Dodd-Frank
Act.
Section 4. Rule of construction
This section maintains the Board of Governors of the
Federal Reserve System's authority to apply enhanced
supervisory standards to bank holding companies based on
217.402 of title 12, Code of Federal Regulations.
Section 5. Effective date
This section effectuates amendments to the bill eighteen
months following the date of enactment of H.R. 3312.
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 italic, 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 A--Financial Stability Oversight Council
* * * * * * *
SEC. 112. COUNCIL AUTHORITY.
(a) Purposes and Duties of the Council.--
(1) In general.--The purposes of the Council are--
(A) to identify 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 bank holding companies or
nonbank financial companies, or that could
arise outside the financial services
marketplace;
(B) to promote market discipline, by
eliminating expectations on the part of
shareholders, creditors, and counterparties of
such companies that the Government will shield
them from losses in the event of failure; and
(C) to respond to emerging threats to the
stability of the United States financial
system.
(2) Duties.--The Council shall, in accordance with
this title--
(A) collect information from member agencies,
other Federal and State financial regulatory
agencies, the Federal Insurance Office and, if
necessary to assess risks to the United States
financial system, direct the Office of
Financial Research to collect information from
bank holding companies and nonbank financial
companies;
(B) provide direction to, and request data
and analyses from, the Office of Financial
Research to support the work of the Council;
(C) monitor the financial services
marketplace in order to identify potential
threats to the financial stability of the
United States;
(D) to monitor domestic and international
financial regulatory proposals and
developments, including insurance and
accounting issues, and to advise Congress and
make recommendations in such areas that will
enhance the integrity, efficiency,
competitiveness, and stability of the U.S.
financial markets;
(E) facilitate information sharing and
coordination among the member agencies and
other Federal and State agencies regarding
domestic financial services policy development,
rulemaking, examinations, reporting
requirements, and enforcement actions;
(F) recommend to the member agencies general
supervisory priorities and principles
reflecting the outcome of discussions among the
member agencies;
(G) identify gaps in regulation that could
pose risks to the financial stability of the
United States;
(H) require supervision by the Board of
Governors for nonbank financial companies that
may pose risks to the financial stability of
the United States in the event of their
material financial distress or failure, or
because of their activities pursuant to section
113;
(I) make recommendations to the Board of
Governors concerning the establishment of
heightened prudential standards for risk-based
capital, leverage, liquidity, contingent
capital, resolution plans and credit exposure
reports, concentration limits, enhanced public
disclosures, and overall risk management for
nonbank financial companies and large,
interconnected bank holding companies
supervised by the Board of Governors, which
have been identified as global systemically
important bank holding companies pursuant to
section 217.402 of title 12, Code of Federal
Regulations, or subjected to a determination
under subsection (l) of section 165;
(J) identify systemically important financial
market utilities and payment, clearing, and
settlement activities (as that term is defined
in title VIII);
(K) make recommendations to primary financial
regulatory agencies to apply new or heightened
standards and safeguards for financial
activities or practices that could create or
increase risks of significant liquidity,
credit, or other problems spreading among bank
holding companies, nonbank financial companies,
and United States financial markets;
(L) review and, as appropriate, may submit
comments to the Commission and any standard-
setting body with respect to an existing or
proposed accounting principle, standard, or
procedure;
(M) provide a forum for--
(i) discussion and analysis of
emerging market developments and
financial regulatory issues; and
(ii) resolution of jurisdictional
disputes among the members of the
Council; and
(N) annually report to and testify before
Congress on--
(i) the activities of the Council;
(ii) significant financial market and
regulatory developments, including
insurance and accounting regulations
and standards, along with an assessment
of those developments on the stability
of the financial system;
(iii) potential emerging threats to
the financial stability of the United
States;
(iv) all determinations made under
section 113 or title VIII, and the
basis for such determinations;
(v) all recommendations made under
section 119 and the result of such
recommendations; and
(vi) recommendations--
(I) to enhance the integrity,
efficiency, competitiveness,
and stability of United States
financial markets;
(II) to promote market
discipline; and
(III) to maintain investor
confidence.
(b) Statements by Voting Members of the Council.--At the time
at which each report is submitted under subsection (a), each
voting member of the Council shall--
(1) if such member believes that the Council, the
Government, and the private sector are taking all
reasonable steps to ensure financial stability and to
mitigate systemic risk that would negatively affect the
economy, submit a signed statement to Congress stating
such belief; or
(2) if such member does not believe that all
reasonable steps described under paragraph (1) are
being taken, submit a signed statement to Congress
stating what actions such member believes need to be
taken in order to ensure that all reasonable steps
described under paragraph (1) are taken.
(c) Testimony by the Chairperson.--The Chairperson shall
appear before the Committee on Financial Services of the House
of Representatives and the Committee on Banking, Housing, and
Urban Affairs of the Senate at an annual hearing, after the
report is submitted under subsection (a)--
(1) to discuss the efforts, activities, objectives,
and plans of the Council; and
(2) to discuss and answer questions concerning such
report.
(d) Authority To Obtain Information.--
(1) In general.--The Council may receive, and may
request the submission of, any data or information from
the Office of Financial Research, member agencies, and
the Federal Insurance Office, as necessary--
(A) to monitor the financial services
marketplace to identify potential risks to the
financial stability of the United States; or
(B) to otherwise carry out any of the
provisions of this title.
(2) Submissions by the office and member agencies.--
Notwithstanding any other provision of law, the Office
of Financial Research, any member agency, and the
Federal Insurance Office, are authorized to submit
information to the Council.
(3) Financial data collection.--
(A) In general.--The Council, acting through
the Office of Financial Research, may require
the submission of periodic and other reports
from any nonbank financial company or bank
holding company for the purpose of assessing
the extent to which a financial activity or
financial market in which the nonbank financial
company or bank holding company participates,
or the nonbank financial company or bank
holding company itself, poses a threat to the
financial stability of the United States.
(B) Mitigation of report burden.--Before
requiring the submission of reports from any
nonbank financial company or bank holding
company that is regulated by a member agency or
any primary financial regulatory agency, the
Council, acting through the Office of Financial
Research, shall coordinate with such agencies
and shall, whenever possible, rely on
information available from the Office of
Financial Research or such agencies.
(C) Mitigation in case of foreign financial
companies.--Before requiring the submission of
reports from a company that is a foreign
nonbank financial company or foreign-based bank
holding company, the Council shall, acting
through the Office of Financial Research, to
the extent appropriate, consult with the
appropriate foreign regulator of such company
and, whenever possible, rely on information
already being collected by such foreign
regulator, with English translation.
(4) Back-up examination by the board of governors.--
If the Council is unable to determine whether the
financial activities of a U.S. nonbank financial
company pose a threat to the financial stability of the
United States, based on information or reports obtained
under paragraphs (1) and (3), discussions with
management, and publicly available information, the
Council may request the Board of Governors, and the
Board of Governors is authorized, to conduct an
examination of the U.S. nonbank financial company for
the sole purpose of determining whether the nonbank
financial company should be supervised by the Board of
Governors for purposes of this title.
(5) Confidentiality.--
(A) In general.--The Council, the Office of
Financial Research, and the other member
agencies shall maintain the confidentiality of
any data, information, and reports submitted
under this title.
(B) Retention of privilege.--The submission
of any nonpublicly available data or
information under this subsection and subtitle
B shall not constitute a waiver of, or
otherwise affect, any privilege arising under
Federal or State law (including the rules of
any Federal or State court) to which the data
or information is otherwise subject.
(C) Freedom of information act.--Section 552
of title 5, United States Code, including the
exceptions thereunder, shall apply to any data
or information submitted under this subsection
and subtitle B.
* * * * * * *
SEC. 115. 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,
failure, or ongoing activities of large, interconnected
financial institutions, the Council may make
recommendations to the Board of Governors concerning
the establishment and refinement of prudential
standards and reporting and disclosure requirements
applicable to nonbank financial companies supervised by
the Board of Governors and [large, interconnected bank
holding companies] bank holding companies which have
been identified as global systemically important bank
holding companies pursuant to section 217.402 of title
12, Code of Federal Regulations, or subjected to a
determination under subsection (l) of section 165,
that--
(A) are more stringent than those applicable
to other 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) Recommended application of required standards.--
In making recommendations under this section, [the
Council may--]
[(A) differentiate] the Council may
differentiate among companies that are subject
to heightened standards 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 Council
deems appropriate[; or].
[(B) recommend an asset threshold that is
higher than $50,000,000,000 for the application
of any standard described in subsections (c)
through (g).]
(b) Development of Prudential Standards.--
(1) In general.--The recommendations of the Council
under subsection (a) may include--
(A) risk-based capital requirements;
(B) leverage limits;
(C) liquidity requirements;
(D) resolution plan and credit exposure
report requirements;
(E) concentration limits;
(F) a contingent capital requirement;
(G) enhanced public disclosures;
(H) short-term debt limits; and
(I) overall risk management requirements.
(2) Prudential standards for foreign financial
companies.--In making recommendations concerning the
standards set forth in paragraph (1) that would apply
to foreign nonbank financial companies supervised by
the Board of Governors or foreign-based bank holding
companies, the Council 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 nonbank financial company or foreign-
based bank holding 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 making recommendations
concerning prudential standards under paragraph (1),
the Council 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 factors that the
Council 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 section 165; and
(C) adapt its recommendations 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.
(c) Contingent Capital.--
(1) Study required.--The Council shall conduct a
study of the feasibility, benefits, costs, and
structure of a contingent capital requirement for
nonbank financial companies supervised by the Board of
Governors and bank holding companies described in
subsection (a), which study shall include--
(A) an evaluation of the degree to which such
requirement would enhance the safety and
soundness of companies subject to the
requirement, promote the financial stability of
the United States, and reduce risks to United
States taxpayers;
(B) an evaluation of the characteristics and
amounts of contingent capital that should be
required;
(C) an analysis of potential prudential
standards that should be used to determine
whether the contingent capital of a company
would be converted to equity in times of
financial stress;
(D) an evaluation of the costs to companies,
the effects on the structure and operation of
credit and other financial markets, and other
economic effects of requiring contingent
capital;
(E) an evaluation of the effects of such
requirement on the international
competitiveness of companies subject to the
requirement and the prospects for international
coordination in establishing such requirement;
and
(F) recommendations for implementing
regulations.
(2) Report.--The Council shall submit a report to
Congress regarding the study required by paragraph (1)
not later than 2 years after the date of enactment of
this Act.
(3) Recommendations.--
(A) In general.--Subsequent to submitting a
report to Congress under paragraph (2), the
Council may make recommendations to the Board
of Governors to require any nonbank financial
company supervised by the Board of Governors
and any bank holding company described in
subsection (a) to maintain a minimum amount of
contingent capital that is convertible to
equity in times of financial stress.
(B) Factors to consider.--In making
recommendations under this subsection, the
Council shall consider--
(i) an appropriate transition period
for implementation of a conversion
under this subsection;
(ii) the factors described in
subsection (b)(3);
(iii) capital requirements applicable
to a nonbank financial company
supervised by the Board of Governors or
a bank holding company described in
subsection (a), and subsidiaries
thereof;
(iv) results of the study required by
paragraph (1); and
(v) any other factor that the Council
deems appropriate.
(d) Resolution Plan and Credit Exposure Reports.--
(1) Resolution plan.--The Council may make
recommendations to the Board of Governors concerning
the requirement that each nonbank financial company
supervised by the Board of Governors and each bank
holding company described in subsection (a) report
periodically to the Council, the Board of Governors,
and the Corporation, the plan of such company for rapid
and orderly resolution in the event of material
financial distress or failure.
(2) Credit exposure report.--The Council may make
recommendations to the Board of Governors concerning
the advisability of requiring each nonbank financial
company supervised by the Board of Governors and bank
holding company described in subsection (a) to report
periodically to the Council, the Board of Governors,
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 such
significant nonbank financial companies and
significant bank holding companies have credit
exposure to that company.
(e) Concentration Limits.--In order to limit the risks that
the failure of any individual company could pose to nonbank
financial companies supervised by the Board of Governors or
bank holding companies described in subsection (a), the Council
may make recommendations to the Board of Governors to prescribe
standards to limit such risks, as set forth in section 165.
(f) Enhanced Public Disclosures.--The Council may make
recommendations to the Board of Governors to require periodic
public disclosures by bank holding companies described in
subsection (a) and by nonbank financial companies supervised by
the Board of Governors, in order to support market evaluation
of the risk profile, capital adequacy, and risk management
capabilities thereof.
(g) Short-term Debt Limits.--The Council may make
recommendations to the Board of Governors to require short-term
debt limits to mitigate the risks that an over-accumulation of
such debt could pose to bank holding companies described in
subsection (a), nonbank financial companies supervised by the
Board of Governors, or the financial system.
SEC. 116. REPORTS.
(a) In General.--Subject to subsection (b), the Council,
acting through the Office of Financial Research, may require a
bank holding company [with total consolidated assets of
$50,000,000,000 or greater] which has been identified as a
global systemically important bank holding company pursuant to
section 217.402 of title 12, Code of Federal Regulations, or
subjected to a determination under subsection (l) of section
165 or a nonbank financial company supervised by the Board of
Governors, and any subsidiary thereof, to submit certified
reports to keep the Council informed as to--
(1) the financial condition of the company;
(2) systems for monitoring and controlling financial,
operating, and other risks;
(3) transactions with any subsidiary that is a
depository institution; and
(4) the extent to which the activities and operations
of the company and any subsidiary thereof, could, under
adverse circumstances, have the potential to disrupt
financial markets or affect the overall financial
stability of the United States.
(b) Use of Existing Reports.--
(1) In general.--For purposes of compliance with
subsection (a), the Council, acting through the Office
of Financial Research, shall, to the fullest extent
possible, use--
(A) reports that a bank holding company,
nonbank financial company supervised by the
Board of Governors, or any functionally
regulated subsidiary of such company has been
required to provide to other Federal or State
regulatory agencies or to a relevant foreign
supervisory authority;
(B) information that is otherwise required to
be reported publicly; and
(C) externally audited financial statements.
(2) Availability.--Each bank holding company
described in subsection (a) and nonbank financial
company supervised by the Board of Governors, and any
subsidiary thereof, shall provide to the Council, at
the request of the Council, copies of all reports
referred to in paragraph (1).
(3) Confidentiality.--The Council shall maintain the
confidentiality of the reports obtained under
subsection (a) and paragraph (1)(A) of this subsection.
* * * * * * *
SEC. 121. MITIGATION OF RISKS TO FINANCIAL STABILITY.
(a) Mitigatory Actions.--If the Board of Governors determines
that a bank holding company [with total consolidated assets of
$50,000,000,000 or more] which has been identified as a global
systemically important bank holding company pursuant to section
217.402 of title 12, Code of Federal Regulations, or subjected
to a determination under subsection (l) of section 165, or a
nonbank financial company supervised by the Board of Governors,
poses a grave threat to the financial stability of the United
States, the Board of Governors, upon an affirmative vote of not
fewer than \2/3\ of the voting members of the Council then
serving, shall--
(1) limit the ability of the company to merge with,
acquire, consolidate with, or otherwise become
affiliated with another company;
(2) restrict the ability of the company to offer a
financial product or products;
(3) require the company to terminate one or more
activities;
(4) impose conditions on the manner in which the
company conducts 1 or more activities; or
(5) if the Board of Governors determines that the
actions described in paragraphs (1) through (4) are
inadequate to mitigate a threat to the financial
stability of the United States in its recommendation,
require the company to sell or otherwise transfer
assets or off-balance-sheet items to unaffiliated
entities.
(b) Notice and Hearing.--
(1) In general.--The Board of Governors, in
consultation with the Council, shall provide to a
company described in subsection (a) written notice that
such company is being considered for mitigatory action
pursuant to this section, including an explanation of
the basis for, and description of, the proposed
mitigatory action.
(2) Hearing.--Not later than 30 days after the date
of receipt of notice under paragraph (1), the company
may request, in writing, an opportunity for a written
or oral hearing before the Board of Governors to
contest the proposed mitigatory action. Upon receipt of
a timely request, the Board of Governors shall fix a
time (not later than 30 days after the date of receipt
of the request) and place at which such company may
appear, personally or through counsel, to submit
written materials (or, at the discretion of the Board
of Governors, in consultation with the Council, oral
testimony and oral argument).
(3) Decision.--Not later than 60 days after the date
of a hearing under paragraph (2), or not later than 60
days after the provision of a notice under paragraph
(1) if no hearing was held, the Board of Governors
shall notify the company of the final decision of the
Board of Governors, including the results of the vote
of the Council, as described in subsection (a).
(c) Factors for Consideration.--The Board of Governors and
the Council shall take into consideration the factors set forth
in subsection (a) or (b) of section 113, as applicable, in
making any determination under subsection (a).
(d) Application to Foreign Financial Companies.--The Board of
Governors may prescribe regulations regarding the application
of this section to foreign nonbank financial companies
supervised by the Board of Governors and foreign-based bank
holding companies--
(1) giving due regard to the principle of national
treatment and equality of competitive opportunity; and
(2) taking into account the extent to which the
foreign nonbank financial company or foreign-based bank
holding company is subject on a consolidated basis to
home country standards that are comparable to those
applied to financial companies in the United States.
* * * * * * *
Subtitle B--Office of Financial Research
* * * * * * *
SEC. 155. FUNDING.
(a) Financial Research Fund.--
(1) Fund established.--There is established in the
Treasury of the United States a separate fund to be
known as the ``Financial Research Fund''.
(2) Fund receipts.--All amounts provided to the
Office under subsection (c), and all assessments that
the Office receives under subsection (d) shall be
deposited into the Financial Research Fund.
(3) Investments authorized.--
(A) Amounts in fund may be invested.--The
Director may request the Secretary to invest
the portion of the Financial Research Fund that
is not, in the judgment of the Director,
required to meet the needs of the Office.
(B) Eligible investments.--Investments shall
be made by the Secretary in obligations of the
United States or obligations that are
guaranteed as to principal and interest by the
United States, with maturities suitable to the
needs of the Financial Research Fund, as
determined by the Director.
(4) Interest and proceeds credited.--The interest on,
and the proceeds from the sale or redemption of, any
obligations held in the Financial Research Fund shall
be credited to and form a part of the Financial
Research Fund.
(b) Use of Funds.--
(1) In general.--Funds obtained by, transferred to,
or credited to the Financial Research Fund shall be
immediately available to the Office, and shall remain
available until expended, to pay the expenses of the
Office in carrying out the duties and responsibilities
of the Office.
(2) Fees, assessments, and other funds not government
funds.--Funds obtained by, transferred to, or credited
to the Financial Research Fund shall not be construed
to be Government funds or appropriated moneys.
(3) Amounts not subject to apportionment.--
Notwithstanding any other provision of law, amounts in
the Financial Research Fund shall not be subject to
apportionment for purposes of chapter 15 of title 31,
United States Code, or under any other authority, or
for any other purpose.
(c) Interim Funding.--During the 2-year period following the
date of enactment of this Act, the Board of Governors shall
provide to the Office an amount sufficient to cover the
expenses of the Office.
(d) Permanent Self-funding.--Beginning 2 years after the date
of enactment of this Act, the Secretary shall establish, by
regulation, and with the approval of the Council, an assessment
schedule, including the assessment base and rates, applicable
to bank holding companies [with total consolidated assets of
50,000,000,000 or greater] which have been identified as global
systemically important bank holding companies pursuant to
section 217.402 of title 12, Code of Federal Regulations, or
subjected to a determination under subsection (l) of section
165 and nonbank financial companies supervised by the Board of
Governors, that takes into account differences among such
companies, based on the considerations for establishing the
prudential standards under section 115, to collect assessments
equal to the total expenses of the Office.
* * * * * * *
Subtitle C--Additional Board of Governors Authority for Certain Nonbank
Financial Companies and Bank Holding Companies
* * * * * * *
SEC. 163. ACQUISITIONS.
(a) Acquisitions of Banks; Treatment as a Bank Holding
Company.--For purposes of section 3 of the Bank Holding Company
Act of 1956 (12 U.S.C. 1842), a nonbank financial company
supervised by the Board of Governors shall be deemed to be, and
shall be treated as, a bank holding company.
(b) Acquisition of Nonbank Companies.--
(1) Prior notice for large acquisitions.--
Notwithstanding section 4(k)(6)(B) of the Bank Holding
Company Act of 1956 (12 U.S.C. 1843(k)(6)(B)), a bank
holding company [with total consolidated assets equal
to or greater than $50,000,000,000] which has been
identified as a global systemically important bank
holding company pursuant to section 217.402 of title
12, Code of Federal Regulations, or subjected to a
determination under subsection (l) of section 165 or a
nonbank financial company supervised by the Board of
Governors shall not acquire direct or indirect
ownership or control of any voting shares of any
company (other than an insured depository institution)
that is engaged in activities described in section 4(k)
of the Bank Holding Company Act of 1956 having total
consolidated assets of $10,000,000,000 or more, without
providing written notice to the Board of Governors in
advance of the transaction.
(2) Exemptions.--The prior notice requirement in
paragraph (1) shall not apply with regard to the
acquisition of shares that would qualify for the
exemptions in section 4(c) or section 4(k)(4)(E) of the
Bank Holding Company Act of 1956 (12 U.S.C. 1843(c) and
(k)(4)(E)).
(3) Notice procedures.--The notice procedures set
forth in section 4(j)(1) of the Bank Holding Company
Act of 1956 (12 U.S.C. 1843(j)(1)), without regard to
section 4(j)(3) of that Act, shall apply to an
acquisition of any company (other than an insured
depository institution) by a bank holding company [with
total consolidated assets equal to or greater than
$50,000,000,000] which has been identified as a global
systemically important bank holding company pursuant to
section 217.402 of title 12, Code of Federal
Regulations, or subjected to a determination under
subsection (l) of section 165 or a nonbank financial
company supervised by the Board of Governors, as
described in paragraph (1), including any such company
engaged in activities described in section 4(k) of that
Act.
(4) Standards for review.--In addition to the
standards provided in section 4(j)(2) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1843(j)(2)), the
Board of Governors shall consider the extent to which
the proposed acquisition would result in greater or
more concentrated risks to global or United States
financial stability or the United States economy.
(5) Hart-Scott-Rodino filing requirement.--Solely for
purposes of section 7A(c)(8) of the Clayton Act (15
U.S.C. 18a(c)(8)), the transactions subject to the
requirements of paragraph (1) shall be treated as if
Board of Governors approval is not required.
SEC. 164. PROHIBITION AGAINST MANAGEMENT INTERLOCKS BETWEEN CERTAIN
FINANCIAL COMPANIES.
A nonbank financial company supervised by the Board of
Governors shall be treated as a bank holding company for
purposes of the Depository Institutions Management Interlocks
Act (12 U.S.C. 3201 et seq.), except that the Board of
Governors shall not exercise the authority provided in section
7 of that Act (12 U.S.C. 3207) to permit service by a
management official of a nonbank financial company supervised
by the Board of Governors as a management official of any bank
holding company [with total consolidated assets equal to or
greater than $50,000,000,000] which has been identified as a
global systemically important bank holding company pursuant to
section 217.402 of title 12, Code of Federal Regulations, or
subjected to a determination under subsection (l) of section
165, or other nonaffiliated nonbank financial company
supervised by the Board of Governors (other than to provide a
temporary exemption for interlocks resulting from a merger,
acquisition, or consolidation).
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] which have been
identified as global systemically important bank
holding companies pursuant to section 217.402 of title
12, Code of Federal Regulations, or subjected to a
determination under subsection (l) 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] shall, 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 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.
(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 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, 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] which
has been identified as a global systemically important
bank holding company pursuant to section 217.402 of
title 12, Code of Federal Regulations, or subjected to
a determination under subsection (l) 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.
(l) Additional Bank Holding Companies Subject to Enhanced
Supervision and Prudential Standards by Tailored Regulation.--
(1) Determination.--The Board of Governors may,
within the limits of its existing resources--
(A) determine that a bank holding company
that has not been identified as a global
systemically important bank holding company
pursuant to section 217.402 of title 12, Code
of Federal Regulations, shall be subject to
certain enhanced supervision or prudential
standards under this section, tailored to the
risks presented, based on the considerations in
paragraph (3), where material financial
distress at the bank holding company, or the
nature, scope, size, scale, concentration,
interconnectedness, or mix of the activities of
the individual bank holding company, could pose
a threat to the financial stability of the
United States; or
(B) by regulation determine that a category
of bank holding companies that have not been
identified as global systemically important
bank holding companies pursuant to section
217.402 of title 12, Code of Federal
Regulations, shall be subject to certain
enhanced supervision or prudential standards
under this section, tailored to the risk
presented by the category of bank holding
companies, based on the considerations in
paragraph (3), where material financial
distress at the category of bank holding
companies, or the nature, scope, size, scale,
concentration, interconnectedness, or mix of
the activities of the category of bank holding
companies, could pose a threat to the financial
stability of the United States.
(2) Council approval of regulations with respect to
categories.--Notwithstanding paragraph (1)(B), a
regulation issued by the Board of Governors to make a
determination under such paragraph (1)(B) shall not
take effect unless the Council, by a vote of not fewer
than \2/3\ of the voting members then serving,
including an affirmative vote by the Chairperson,
approves the metrics used by the Board of Governors in
establishing such regulation.
(3) Considerations.--In making any determination
under paragraph (1), the Board of Governors shall
consider the following factors:
(A) The size of the bank holding company.
(B) The interconnectedness of the bank
holding company.
(C) The extent of readily available
substitutes or financial institution
infrastructure for the services of the bank
holding company.
(D) The global cross-jurisdictional activity
of the bank holding company.
(E) The complexity of the bank holding
company.
(4) Consistent application of considerations.--In
making a determination under paragraph (1), the Board
of Governors shall ensure that bank holding companies
that are similarly situated with respect to the factors
described under paragraph (3), are treated similarly
for purposes of any enhanced supervision or prudential
standards applied under this section.
(5) Use of currently reported data to avoid
unnecessary burden.--For purposes of making a
determination under paragraph (1), the Board of
Governors shall make use of data already being reported
to the Board of Governors, including from calculating a
bank holding company's systemic indicator score, in
order to avoid placing an unnecessary burden on bank
holding companies.
(m) Systemic Identification.--With respect to the
identification of bank holding companies as global systemically
important bank holding companies pursuant to section 217.402 of
title 12, Code of Federal Regulations, or subjected to a
determination under subsection (l), the Board of Governors
shall--
(1) publish, including on the Board of Governors's
website, a list of all bank holding companies that have
been so identified, and keep such list current; and
(2) solicit feedback from the Council on the
identification process and on the application of such
process to specific bank holding companies.
* * * * * * *
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FEDERAL RESERVE ACT
* * * * * * *
Sec. 11. The Board of Governors of the Federal Reserve
System shall be authorized and empowered:
(a)(1) To examine at its discretion the accounts, books and
affairs of each Federal reserve bank and of each member bank
and to require such statements and reports as it may deem
necessary. The said board shall publish once each week a
statement showing the condition of each Federal reserve bank
and a consolidated statement for all Federal reserve banks.
Such statements shall show in detail the assets and liabilities
of the Federal reserve banks, single and combined, and shall
furnish full information regarding the character of the money
held as reserve and the amount, nature and maturities of the
paper and other investments owned or held by Federal reserve
banks.
(2) To require any depository institution specified in this
paragraph to make, at such intervals as the Board may
prescribe, such reports of its liabilities and assets as the
Board may determine to be necessary or desirable to enable the
Board to discharge its responsibility to monitor and control
monetary and credit aggregates. Such reports shall be made (A)
directly to the Board in the case of member banks and in the
case of other depository institutions whose reserve
requirements under section 19 of this Act exceed zero, and (B)
for all other reports to the Board through the (i) Federal
Deposit Insurance Corporation in the case of insured State
savings associations that are insured depository institutions
(as defined in section 3 of the Federal Deposit Insurance Act),
State nonmember banks, savings banks, and mutual savings banks,
(ii) National Credit Union Administration Board in the case of
insured credit unions, (iii) the Comptroller of the Currency in
the case of any Federal savings association which is an insured
depository institution (as defined in section 3 of the Federal
Deposit Insurance Act) or which is a member as defined in
section 2 of the Federal Home Loan Bank Act, and (iv) such
State officer or agency as the Board may designate in the case
of any other type of bank, savings association, or credit
union. The Board shall endeavor to avoid the imposition of
unnecessary burdens on reporting institutions and the
duplication of other reporting requirements. Except as
otherwise required by law, any data provided to any department,
agency, or instrumentality of the United States pursuant to
other reporting requirements shall be made available to the
Board. The Board may classify depository institutions for the
purposes of this paragraph and may impose different
requirements on each such class.
(b) To permit, or, on the affirmative vote of at least five
members of the Board of Governors of the Federal Reserve System
to require Federal reserve banks to rediscount the discounted
paper of other Federal reserve banks at rates of interest to be
fixed by the Board of Governors of the Federal Reserve System.
(c) To suspend for a period not exceeding thirty days, and
from time to time to renew such suspension for periods not
exceeding fifteen days, any reserve requirements specified in
this Act.
(d) To supervise and regulate through the Secretary of the
Treasury the issue and retirement of Federal reserve notes,
except for the cancellation and destruction, and accounting
with respect to such cancellation and destruction, of notes
unfit for circulation, and to prescribe rules and regulations
under which such notes may be delivered by the Secretary of the
Treasury to the Federal reserve agents applying therefor.
(e) To add to the number of cities classified as Reserve
cities under existing law in which national banking
associations are subject to the Reserve requirements set forth
in section twenty of this Act; or to reclassify existing
Reserve cities or to terminate their designation as such.
(f) To suspend or remove any officer or director of any
Federal reserve bank, the cause of such removal to be forthwith
communicated in writing by the Board of Governors of the
Federal Reserve System to the removed officer or director and
to said bank.
(g) To require the writing off of doubtful or worthless
assets upon the books and balance sheets of Federal reserve
banks.
(h) To suspend, for the violation of any of the provisions of
this Act, the operations of any Federal reserve bank, to take
possession thereof, administer the same during the period of
suspension, and, when deemed advisable, to liquidate or
reorganize such bank.
(i) To require bonds of Federal reserve agents, to make
regulations for the safeguarding of all collateral, bonds,
Federal reserve notes, money or property of any kind deposited
in the hands of such agents, and said board shall perform the
duties, functions, or services specified in this Act, and make
all rules and regulations necessary to enable said board
effectively to perform the same.
(j) To exercise general supervision over said Federal reserve
banks.
(k) To delegate, by published order or rule and subject to
the Administrative Procedure Act, any of its functions, other
than those relating to rulemaking or pertaining principally to
monetary and credit policies, to one or more administrative law
judges, members or employees of the Board, or Federal Reserve
banks. The assignment of responsibility for the performance of
any function that the Board determines to delegate shall be a
function of the Chairman. The Board shall, upon the vote of one
member, review action taken at a delegated level within such
time and in such manner as the Board shall by rule prescribe.
The Board of Governors may not delegate to a Federal reserve
bank its functions for the establishment of policies for the
supervision and regulation of depository institution holding
companies and other financial firms supervised by the Board of
Governors.
(l) To employ such attorneys, experts, assistants, clerks, or
other employees as may be deemed necessary to conduct the
business of the board. All salaries and fees shall be fixed in
advance by said board and shall be paid in the same manner as
the salaries of the members of said board. All such attorneys,
experts, assistants, clerks, and other employees shall be
appointed without regard to the provisions of the Act of
January sixteenth, eighteen hundred and eighty-three (volume
twenty-two, United States Statutes at Large, page four hundred
and three), and amendments thereto, or any rule or regulation
made in pursuance thereof: Provided, That nothing herein shall
prevent the President from placing said employees in the
classified service.
(n) To examine, at the Board's discretion, any depository
institution, and any affiliate of such depository institution,
in connection with any advance to, any discount of any
instrument for, or any request for any such advance or discount
by, such depository institution under this Act.
(o) Authority To Appoint Conservator or Receiver.--The Board
may appoint the Federal Deposit Insurance Corporation as
conservator or receiver for a State member bank under section
11(c)(9) of the Federal Deposit Insurance Act.
(p) Authority.--The Board may act in its own name and through
its own attorneys in enforcing any provision of this title,
regulations promulgated hereunder, or any other law or
regulation, or in any action, suit, or proceeding to which the
Board is a party and which involves the Board's regulation or
supervision of any bank, bank holding company (as defined in
section 2 of the Bank Holding Company Act of 1956), or other
entity, or the administration of its operations.
(q) Uniform Protection Authority for Federal Reserve
Facilities.--
(1) Notwithstanding any other provision of law, to
authorize personnel to act as law enforcement officers
to protect and safeguard the premises, grounds,
property, personnel, including members of the Board, of
the Board, or any Federal reserve bank, and operations
conducted by or on behalf of the Board or a reserve
bank.
(2) The Board may, subject to the regulations
prescribed under paragraph (5), delegate authority to a
Federal reserve bank to authorize personnel to act as
law enforcement officers to protect and safeguard the
bank's premises, grounds, property, personnel, and
operations conducted by or on behalf of the bank.
(3) Law enforcement officers designated or authorized
by the Board or a reserve bank under paragraph (1) or
(2) are authorized while on duty to carry firearms and
make arrests without warrants for any offense against
the United States committed in their presence, or for
any felony cognizable under the laws of the United
States committed or being committed within the
buildings and grounds of the Board or a reserve bank if
they have reasonable grounds to believe that the person
to be arrested has committed or is committing such a
felony. Such officers shall have access to law
enforcement information that may be necessary for the
protection of the property or personnel of the Board or
a reserve bank.
(4) For purposes of this subsection, the term ``law
enforcement officers'' means personnel who have
successfully completed law enforcement training and are
authorized to carry firearms and make arrests pursuant
to this subsection.
(5) The law enforcement authorities provided for in
this subsection may be exercised only pursuant to
regulations prescribed by the Board and approved by the
Attorney General.
(r)(1) Any action that this Act provides may be taken only
upon the affirmative vote of 5 members of the Board may be
taken upon the unanimous vote of all members then in office if
there are fewer than 5 members in office at the time of the
action.
(2)(A) Any action that the Board is otherwise authorized to
take under section 13(3) may be taken upon the unanimous vote
of all available members then in office, if--
(i) at least 2 members are available and all
available members participate in the action;
(ii) the available members unanimously determine
that--
(I) unusual and exigent circumstances exist
and the borrower is unable to secure adequate
credit accommodations from other sources;
(II) action on the matter is necessary to
prevent, correct, or mitigate serious harm to
the economy or the stability of the financial
system of the United States;
(III) despite the use of all means available
(including all available telephonic,
telegraphic, and other electronic means), the
other members of the Board have not been able
to be contacted on the matter; and
(IV) action on the matter is required before
the number of Board members otherwise required
to vote on the matter can be contacted through
any available means (including all available
telephonic, telegraphic, and other electronic
means); and
(iii) any credit extended by a Federal reserve bank
pursuant to such action is payable upon demand of the
Board.
(B) The available members of the Board shall document in
writing the determinations required by subparagraph (A)(ii),
and such written findings shall be included in the record of
the action and in the official minutes of the Board, and copies
of such record shall be provided as soon as practicable to the
members of the Board who were not available to participate in
the action and to the Chairman of the Committee on Banking,
Housing, and Urban Affairs of the Senate and to the Chairman of
the Committee on Financial Services of the House of
Representatives.
(s) Federal Reserve Transparency and Release of
Information.--
(1) In general.--In order to ensure the disclosure in
a timely manner consistent with the purposes of this
Act of information concerning the borrowers and
counterparties participating in emergency credit
facilities, discount window lending programs, and open
market operations authorized or conducted by the Board
or a Federal reserve bank, the Board of Governors shall
disclose, as provided in paragraph (2)--
(A) the names and identifying details of each
borrower, participant, or counterparty in any
credit facility or covered transaction;
(B) the amount borrowed by or transferred by
or to a specific borrower, participant, or
counterparty in any credit facility or covered
transaction;
(C) the interest rate or discount paid by
each borrower, participant, or counterparty in
any credit facility or covered transaction; and
(D) information identifying the types and
amounts of collateral pledged or assets
transferred in connection with participation in
any credit facility or covered transaction.
(2) Mandatory release date.--In the case of--
(A) a credit facility, the Board shall
disclose the information described in paragraph
(1) on the date that is 1 year after the
effective date of the termination by the Board
of the authorization of the credit facility;
and
(B) a covered transaction, the Board shall
disclose the information described in paragraph
(1) on the last day of the eighth calendar
quarter following the calendar quarter in which
the covered transaction was conducted.
(3) Earlier release date authorized.--The Chairman of
the Board may publicly release the information
described in paragraph (1) before the relevant date
specified in paragraph (2), if the Chairman determines
that such disclosure would be in the public interest
and would not harm the effectiveness of the relevant
credit facility or the purpose or conduct of covered
transactions.
(4) Definitions.--For purposes of this subsection,
the following definitions shall apply:
(A) Credit facility.--The term ``credit
facility'' has the same meaning as in section
714(f)(1)(A) of title 31, United States Code.
(B) Covered transaction.--The term ``covered
transaction'' means--
(i) any open market transaction with
a nongovernmental third party conducted
under the first undesignated paragraph
of section 14 or subparagraph (a), (b),
or (c) of the 2nd undesignated
paragraph of such section, after the
date of enactment of the Dodd-Frank
Wall Street Reform and Consumer
Protection Act; and
(ii) any advance made under section
10B after the date of enactment of that
Act.
(5) Termination of credit facility by operation of
law.--A credit facility shall be deemed to have
terminated as of the end of the 24-month period
beginning on the date on which the credit facility
ceases to make extensions of credit and loans, unless
the credit facility is otherwise terminated by the
Board before such date.
(6) Consistent treatment of information.--Except as
provided in this subsection or section 13(3)(D), or in
section 714(f)(3)(C) of title 31, United States Code,
the information described in paragraph (1) and
information concerning the transactions described in
section 714(f) of such title, shall be confidential,
including for purposes of section 552(b)(3) of title 5
of such Code, until the relevant mandatory release date
described in paragraph (2), unless the Chairman of the
Board determines that earlier disclosure of such
information would be in the public interest and would
not harm the effectiveness of the relevant credit
facility or the purpose of conduct of the relevant
transactions.
(7) Protection of personal privacy.--This subsection
and section 13(3)(C), section 714(f)(3)(C) of title 31,
United States Code, and subsection (a) or (c) of
section 1109 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act shall not be construed as
requiring any disclosure of nonpublic personal
information (as defined for purposes of section 502 of
the Gramm-Leach-Bliley Act (12 U.S.C. 6802)) concerning
any individual who is referenced in collateral pledged
or assets transferred in connection with a credit
facility or covered transaction, unless the person is a
borrower, participant, or counterparty under the credit
facility or covered transaction.
(8) Study of foia exemption impact.--
(A) Study.--The Inspector General of the
Board of Governors of the Federal Reserve
System shall--
(i) conduct a study on the impact
that the exemption from section
552(b)(3) of title 5 (known as the
Freedom of Information Act) established
under paragraph (6) has had on the
ability of the public to access
information about the administration by
the Board of Governors of emergency
credit facilities, discount window
lending programs, and open market
operations; and
(ii) make any recommendations on
whether the exemption described in
clause (i) should remain in effect.
(B) Report.--Not later than 30 months after
the date of enactment of this section, the
Inspector General of the Board of Governors of
the Federal Reserve System shall submit a
report on the findings of the study required
under subparagraph (A) to the Committee on
Banking, Housing, and Urban Affairs of the
Senate and the Committee on Financial Services
of the House of Representatives, and publish
the report on the website of the Board.
(9) Rule of construction.--Nothing in this section is
meant to affect any pending litigation or lawsuit filed
under section 552 of title 5, United States Code
(popularly known as the Freedom of Information Act), on
or before the date of enactment of the Dodd-Frank Wall
Street Reform and Consumer Protection Act.
[(s)] (t) Assessments, Fees, and Other Charges for Certain
Companies.--
(1) In general.--The Board shall collect a total
amount of assessments, fees, or other charges from the
companies described in paragraph (2) that is equal to
the total expenses the Board estimates are necessary or
appropriate to carry out the supervisory and regulatory
responsibilities of the Board with respect to such
companies.
(2) Companies.--The companies described in this
paragraph are--
(A) all bank holding companies [having total
consolidated assets of $50,000,000,000 or more]
which have been identified as global
systemically important bank holding companies
pursuant to section 217.402 of title 12, Code
of Federal Regulations, or subjected to a
determination under subsection (l) of section
165 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act;
(B) all savings and loan holding companies
having total consolidated assets of
$50,000,000,000 or more; and
(C) all nonbank financial companies
supervised by the Board under section 113 of
the Dodd-Frank Wall Street Reform and Consumer
Protection Act.
* * * * * * *
MINORITY VIEWS
H.R. 3312 is another step back from the progress Congress
has made to ensure that oversight of the top one percent of the
nation's largest banks is appropriately robust to protect
taxpayers and promote stable economic growth.
Congress passed the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act), which establishes a
tiered and tailored regulatory framework for overseeing
financial institutions. Instead of imposing a one-size-fits-all
approach for regulating all firms, one of the hallmark features
of the Dodd-Frank Act, is that the law appropriately applies
the toughest rules on the largest and most complex financial
firms, which as we saw in the 2007-2008 financial crisis, can
destabilize the financial system and inflict long-lasting
damage to the economy and the constituents we serve.
As former Federal Reserve Board Governor Daniel Tarullo put
it: ``A key regulatory innovation in Dodd-Frank was regulatory
tiering--the creation of different classes of banking
organizations, based dominantly though not exclusively on asset
size, to which different regulations were to apply. Underlying
this tiering was the principle that progressively more
stringent regulation should apply to the different classes of
banks based on their relative importance to the financial
system, and thus the harm that could be expected to the system
if they failed.''\1\
---------------------------------------------------------------------------
\1\Remarks by Daniel K. Tarullo, Tailoring Community Bank
Regulation and Supervision, at ICBA's 2015 Washington Policy Summit
(Apr. 30, 2015).
---------------------------------------------------------------------------
While the Dodd-Frank Act has strengthened consumer
protections and the financial system is much safer, it is worth
noting the banking industry has been making record profits,
including the largest banks with more than $50 billion in
assets. Lending to businesses has also increased 75 percent
since the Dodd-Frank Act was signed into law.
Congress has monitored the law's implementation progress
carefully and, in situations where it has been warranted, has
passed targeted legislation or encouraged regulators to further
tailor rules to reduce unnecessary compliance requirements on
community financial institutions while maintaining robust
standards and appropriate protections that are in the public
interest.
H.R. 3312, however, would weaken some of the most important
rules under the Dodd-Frank Act by eliminating the $50 billion
minimum threshold to apply enhanced prudential standards to the
top one percent of all banks by asset size in the country.
These enhanced standards include capital, liquidity, leverage,
living will, stress test, risk management and other critical
prudential requirements that are at the core of promoting
financial stability and a safe and sound banking system. The
Dodd-Frank Act clearly requires these enhanced and important
standards be implemented in a tiered and tailored way and,
importantly, that regulators have exercised this mandate to do
so. For example, the most stringent capital requirements only
apply to global systemically important banks (G-SIBs), not the
other bank holding companies with more than $50 billion in
assets. Another tier of enhanced prudential standards only
apply to bank holding companies with more than $250 billion in
assets, and less stringent requirements are applied to smaller
banks with more than $50 billion in assets.
These tiered and tailored enhanced prudential standards
could certainly be refined and tiered further. However, this
sweeping bill goes well beyond modest improvements and would
undermine the tiered regulatory framework under the Dodd-Frank
Act in a manner that could make it harder for banks with less
than $50 billion to compete with these very large banks.
H.R. 3312 would also likely accelerate the consolidation
trends where community banks are acquired by larger banks.
Importantly, the only banks that would obtain relief under this
bill are the largest banks in the country. Currently, 99
percent of all banks are much smaller and have far less than
$50 billion in assets. Large banks that are no longer subject
to enhanced prudential standards because of H.R. 3312 will be
regulated much more like their smaller peers instead of like
the large enterprises they are.
While G-SIBs would remain subject to heightened standards,
the bill would make it much more difficult to apply enhanced
standards to most other large banks. The bill would allow the
Federal Reserve to either designate individual banks, or a
group designation process through regulation that two-thirds of
the Financial Stability Oversight Council (FSOC) would have to
approve. Unfortunately, this means applying enhanced prudential
standards, if the bill were enacted, would be much more
difficult. For example, individual banks that are designated
would likely challenge this designation in court. In addition,
a minority of FSOC members could block the application of
enhanced prudential standards to a group of the largest banks,
even if a majority of FSOC members, including the Federal
Reserve Board Chair and the Secretary of the Treasury, agree
that they should be applied.
Furthermore, the designation process under H.R. 3312 would
be subject to a very proscriptive and detailed set of criteria.
But the bill would only allow a short, 18 month time period
before large banks, which are currently subject to more
stringent prudential requirements, would become exempt without
a designation. It is worth noting that it generally takes FSOC
two years to designate a non-bank for enhanced supervision. It
is unclear how many large banks the Federal Reserve
realistically could designate in 18 months given that it must
use existing resources to carry out this new task and meet
specified criteria that could be challenged in a court of law
by any designated bank.
While we are open to examining how the enhanced prudential
standards under the Dodd-Frank Act are currently being tiered
and tailored for the nation's largest banks and targeted
improvements to the existing framework, we strongly oppose this
sweeping proposal that would put community banks at a
competitive disadvantage to their much larger peers while
undermining U.S. financial stability and eroding the safety and
soundness of the banking system.
For these reasons, we oppose H.R. 3312.
Maxine Waters.
Keith Ellison.
Michael E. Capuano.
Al Green.
Nydia M. Velazquez.
Wm. Lacy Clay.
Daniel T. Kildee.
Stephen F. Lynch.
Ed Perlmutter.
Carolyn B. Maloney.
[all]
