H. Rept. 115-592 - FINANCIAL STABILITY OVERSIGHT COUNCIL IMPROVEMENT ACT OF 2017115th Congress (2017-2018)
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115th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 115-592
======================================================================
FINANCIAL STABILITY OVERSIGHT COUNCIL IMPROVEMENT ACT OF 2017
_______
March 9, 2018.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Hensarling, from the Committee on Financial Services, submitted the
following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 4061]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 4061) to amend the Financial Stability Act of
2010 to improve the transparency of the Financial Stability
Oversight Council, to improve the SIFI designation process, and
for other purposes, having considered the same, report
favorably thereon without amendment and recommend that the bill
do pass.
Purpose and Summary
On October 10, 2017, Representative Dennis Ross introduced
H.R. 4061, the ``Financial Stability Oversight Council
Improvement Act'', which amends Title I of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank) to
require the Financial Stability Oversight Council (FSOC), as it
determines whether to subject a U.S. or a foreign nonbank
financial company to supervision by the Board of Governors of
the Federal Reserve System (Federal Reserve), to consider the
appropriateness of imposing heightened prudential standards as
opposed to other forms of regulation to mitigate identified
risks to U.S. financial stability.
Background and Need for Legislation
The goal of H.R. 4061 is to enhance transparency and
procedural fairness of the nonbank systemically important
financial institution (SIFI) designation process. Criticisms
about FSOC's opaqueness are well known and H.R. 4061 will in
the words of the National Association of Insurance
Commissioners ``address many of our concerns and represent a
positive step forward in improving FSOC's operations,
processes, communication, and transparency.'' The proposed
reforms in the Financial Stability Oversight Council
Improvement Act address many of our concerns and represent a
positive step forward in improving FSOC's operations,
processes, communication, and transparency. The legislation
would require the FSOC to evaluate the need to subject nonbanks
to heightened prudential standards by the Federal Reserve and
reevaluate annually and periodically, in coordination with the
designated company and the appropriate prudential or market
regulator, whether designated companies still pose a systemic
risk to the financial system. Bank-style regulation, such as
capital requirements, is fundamentally incompatible with the
market-based entities, such as the asset management business
model. Imposing bank-like standards on asset managers would
increase costs and fees and reduce investment returns for
savers. In a January 16, 2018 letter to the Committee, SIFMA
noted, ``Designating an asset management company as a
systemically important financial institution has significant
consequences, imposing stringent, bank-like capital standards
resulting in undue and burdensome costs that would be passed
onto investors, ultimately harming their retirement savings and
future financial security.'' The financial regulatory regime
can better serve investors if companies, identified by either
the FSOC or their functional regulator, have the opportunity
first to address identified risks and then modify their
business, structure, or operations prior to a SIFI designation.
Section 113 of the Dodd-Frank Act authorizes the FSOC to
determine that the material financial distress of a nonbank
financial company could pose a threat to the financial
stability of the United States. Once the FSOC makes a
determination about a nonbank financial company, the nonbank
financial company becomes subject to heightened prudential
supervision and regulation by the Fed. Dodd-Frank requires the
FSOC to consider a number of factors as it considers a SIFI
determination. H.R. 4061 would add an additional factor to the
FSOC's requirements before it can designate a nonbank financial
company as systemically important. Specifically, H.R. 4061
requires the FSOC to consider the ``appropriateness of the
imposition of prudential standards as opposed to other forms of
regulation to mitigate the identified risks.''
Section 113(e) of the Dodd-Frank Act requires the FSOC to
provide a nonbank financial company a written notice of a
proposed designation determination, including an explanation of
the basis of the proposed determination. Dodd-Frank entitles
the nonbank financial company to a hearing and can submit
written materials to the FSOC to contest a proposed
determination. H.R. 4061 would require the FSOC, upon
identifying a nonbank financial company as a potential threat
to the financial stability of the United States, to provide the
nonbank financial company with a written notice that explains
with specificity the basis for identifying the company and
would require a copy of the notice to be provided to the
company's primary financial regulatory agency. For example, for
an insurance company, the Dodd-Frank Act defines its primary
financial regulatory agency as ``the State insurance authority
of the State in which an insurance company is domiciled.''
Therefore, if the FSOC is considering the designation of an
insurance company, H.R. 4061 would require the FSOC to notify
the applicable state insurance regulator early in the
designation process and would have an opportunity to address
risks that the FSOC identifies.
Upon its receipt of a notice of potential designation, H.R.
4061 would afford a nonbank the opportunity to submit written
materials to the FSOC for consideration and meet with the FSOC
to discuss the FSOC's analysis. The legislation requires the
FSOC to give the nonbank financial company a list of the public
sources of information that FSOC used to evaluate a potential
designation. The FSOC would then be permitted to approve a
resolution that identifies with specificity any risks to the
financial stability of the United States that the FSOC has
identified relating to the nonbank financial company by a vote
of at least two-thirds of the voting members of the FSOC,
including the affirmative vote of the Treasury Secretary. The
nonbank financial company's primary regulator would have 180
days to consider the risks identified in the resolution and
provide a written response to the FSOC that includes its
assessment of the risks identified and the degree to which they
are or could be addressed by existing regulation and, as
appropriate, issue proposed regulations or undertake other
regulatory action to mitigate the identified risks. In
addition, the nonbank financial company would be (i) permitted
to meet with the FSOC to discuss the FSOC's analysis, (ii)
permitted to submit written materials to the FSOC, (iii)
entitled to receive an explanation from the FSOC of how any
request by the FSOC for information from the nonbank financial
company relates to the potential systemic risks posed by the
company; and (iv) entitled to receive written notice when the
FSOC deems its evidentiary record to be complete.
After following the above process, the FSOC could, by a
vote of at least two-thirds of the voting members of the FSOC,
including the affirmative vote of the Treasury Secretary, make
a proposed designation of a nonbank. Prior to making a proposed
designation, the legislation requires the FSOC to determine
that any proposed regulations or other regulatory actions taken
by the primary regulator are insufficient to mitigate the risks
identified in the resolution. If the FSOC makes a proposed
designation, H.R. 4061 requires FSOC to provide an explanation
of the specific risks to the financial stability of the United
States presented by the nonbank financial company and a
detailed explanation of why existing regulations are
insufficient. Following a proposed designation, the nonbank
financial company would be permitted to request a hearing
before the FSOC to contest its decision and present a
remediation plan to modify the company's business, structure,
or operations. If the FSOC approves the remediation plan, then
the FSOC would monitor implementation of the plan. If the FSOC
rejects the remediation plan, then the FSOC could vote to make
a final designation.
Section 113(d) currently requires the FSOC annually to
reevaluate each determination and rescind any determination if
at least two-thirds of the voting members of the FSOC,
including the affirmative vote of the Treasury Secretary,
determine that the material financial distress of the nonbank
financial company could not pose a threat to the financial
stability of the United States. H.R. 4061 would amend this
provision and require the FSOC, in connection with its annual
review, to allow each designated company (i) an opportunity to
submit written materials to contest the determination, (ii)
provide each designated company an opportunity to meet with the
FSOC, and (iii) provide the designated company and its primary
financial regulatory agency with the reasons for the FSOC's
decision to maintain a designation. In addition, the bill
requires the FSOC, at least every five years, to conduct a
reevaluation of a determination and hold a vote on whether to
rescind a determination. In connection with this five-year
review, the legislation would permit the company to submit a
remediation plan that would explain how the company could
modify its business, structure, or operations. The FSOC would
be required to consider whether the plan, if implemented, would
cause the company to no longer pose a threat to the financial
stability of the United States.
H.R. 4061 would also require the FSOC to disclose in its
annual report the number of nonbank financial companies from
the previous year that were subject to preliminary analysis,
further review, and a proposed or final determination. The FSOC
would be required to publish information regarding its
methodology for calculating any quantitative thresholds or
other metrics used to identify nonbank financial companies for
analysis by the FSOC. In addition, the FSOC would be required
every five years to conduct a study of the FSOC's
determinations and comprehensively assess the impact of such
determinations, including whether such determinations are
having the intended result of improving the financial stability
of the United States.
On November 17, 2017, Treasury, in response to an April 21,
2017 Executive Order signed by President Trump, released a
report on Financial Stability Oversight Council Designations
that recommended many of the provisions in H.R. 4061, including
engagement with nonbank financial companies under review,
engagement with primary regulators, and increasing public
transparency in regards to determinations or rescissions of
determinations. Additionally the report recommends that FSOC
provide a clear ``off-ramp'' for designated nonbank financial
companies. Ultimately H.R. 4061 is smart regulation and as the
Investment Company Institute noted that the legislation will
make the ``nonbank SIFI designation process more accountable
and transparent, and ensures that a SIFI designation is only
used when systemic risk cannot be addressed more effectively by
an entity's primary regulator or by an action of the entity
itself.''
Hearings
The Committee on Financial Services held a hearing
examining matters relating to H.R. 4061 on April 26, 2017 and
April 28, 2017.
Committee Consideration
The Committee on Financial Services met in open session on
January 17, 2018, and January 18, 2018, and ordered H.R. 4061
to be reported favorably to the House without amendment by a
recorded vote of 45 yeas to 10 nays (Record vote no. FC-146), a
quorum being present.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. The
sole recorded vote was on a motion by Chairman Hensarling to
report the bill favorably to the House without amendment. The
motion was agreed to by a recorded vote of 45 yeas to 10 nays
(Record vote no. FC-146), a quorum being present.
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. 4061
will promote accountability in the designation of systemically
important nonbank financial institutions for the Federal
Reserve supervision and regulation by, among other things,
reforming the process leading to designation and requiring
review of whether such designations remain appropriate and are
having their intended effect of reducing risks to the U.S.
financial system.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee adopts as its
own the estimate of new budget authority, entitlement
authority, or tax expenditures or revenues contained in the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to section 402 of the Congressional
Budget Act of 1974.
Congressional Budget Office Estimates
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, March 8, 2018.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4061, the
Financial Stability Oversight Council Improvement Act of 2017.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Stephen
Rabent.
Sincerely,
Keith Hall,
Director.
Enclosure.
H.R. 4061--Financial Stability Oversight Council Improvement Act of
2017
Summary: H.R. 4061 would change the procedures that federal
regulators follow for determining which nonbank financial
institutions should be designated by the Financial Stability
Oversight Council (FSOC) as systemically important financial
institutions (SIFIs). For example, the bill would increase the
frequency and complexity of studies, reviews, and meetings that
must be completed before the FSOC can designate a nonbank
company as a SIFI. The bill also would allow companies to
contest prior designations on the basis of the new criteria and
procedures.
CBO estimates that enacting H.R. 4061 would increase net
direct spending by $29 million and reduce revenues by $5
million over the 2019-2027 period. CBO estimates that, on net,
budget deficits would increase by $34 million over the 2018-
2027 period. Because enacting H.R. 4061 would affect direct
spending and revenues, pay-as-you-go procedures apply. CBO also
estimates that implementing the bill would cost $1 million over
the 2019-2022 period, subject to the availability of
appropriated funds.
CBO estimates that enacting H.R. 4061 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. 4061 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA).
If the FSOC, the Federal Housing Finance Agency (FHFA), the
National Credit Union Administration (NCUA), the Office of the
Comptroller of the Currency (OCC), or the Securities and
Exchange Commission (SEC) raises the fees they charge to offset
the costs associated with implementing the bill, H.R. 4061
would increase the cost of an existing mandate on private
entities required to pay those fees. Using information from the
affected agencies, CBO estimates that the incremental cost of
the mandate would be small. CBO estimates that the incremental
cost of the mandate would fall 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. 4061 is shown in the following table.
The costs of this legislation fall within budget function 370
(commerce and housing credit).
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By fiscal year, in millions of dollars--
---------------------------------------------------------------------------------------------
2019 2020 2021 2022 2023 2024 2025 2026 2027 2019-2022 2019-2027
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INCREASES IN DIRECT SPENDING
Additional Costs to Resolve Nonbank Financial
Institutions:
Estimated Budget Authority............................ 0 0 0 0 1 3 4 4 4 0 16
Estimated Outlays..................................... 0 0 0 0 1 3 4 4 4 0 16
Administrative Costs to Financial Regulators:
Estimated Budget Authority............................ 1 1 1 1 1 2 2 2 2 5 13
Estimated Outlays..................................... 1 1 1 1 1 2 2 2 2 5 13
Total:
Estimated Budget Authority........................ 1 1 1 1 2 5 6 6 6 5 29
Estimated Outlays................................. 1 1 1 1 2 5 6 6 6 5 29
DECREASES IN REVENUES
Estimated Revenues........................................ * -1 -1 -1 -1 -1 -1 -1 * -2 -5
NET INCREASE IN THE DEFICIT FROM CHANGES IN DIRECT SPENDING AND REVENUES
Effect on the Deficit..................................... 1 2 2 2 3 6 6 6 6 7 34
INCREASES IN SPENDING SUBJECT TO APPROPRIATION
Estimated Net Authorization Level......................... * * * * * * * * * 1 3
Estimated Outlays......................................... * * * * * * * * * 1 3
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Components may not sum to totals because of rounding; * = between -$500,000 and $500,000.
Basis of estimate: For this estimate, CBO assumes that H.R.
4061 will be enacted late in 2018. Estimated spending is based
on historical patterns for similar regulatory activities. The
budgetary effects of the legislation would stem from increased
administrative costs to the federal financial regulators and
additional costs to resolve certain financial institutions.
Background
Under current law, the voting membership of the FSOC
consists of one independent member with insurance expertise and
the heads of nine federal agencies--the FHFA, NCUA, OCC, SEC,
the Consumer Financial Protection Bureau (CFPB), the Commodity
Futures Trading Commission (CFTC), the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve System, and
the Department of the Treasury.
The operating costs for six of those banking regulators
(the CFPB, FDIC, FHFA, FSOC, NCUA, and OCC) are classified as
direct spending. All of those agencies except the CFPB collect
fees to offset their operating costs. Because of lags between
the time that costs are incurred and fees are imposed, not all
additional costs resulting from the bill would be recovered
within the next 10 years. Costs incurred by the Federal Reserve
would reduce remittances to the Treasury (such remittances are
recorded as revenues). Any costs for the CFTC, SEC, and the
Treasury are subject to the availability of annual
appropriations. However, the SEC is authorized under current
law to collect fees sufficient to offset its annual
appropriation, and CBO estimates that the net costs to the SEC
would be negligible, assuming appropriation actions consistent
with that authority.
Additional costs to the FDIC to resolve failed financial institutions
Under current law, nonbank SIFIs may be subject to what is
known as enhanced prudential regulation by the Board of
Governors of the Federal Reserve. Using information from
national credit-rating agencies and other experts, CBO
concludes that standards similar to those imposed on banking
institutions improve the safety and soundness of the affected
institutions. CBO estimates that such regulation lowers the
FDIC's cost of resolving insolvent institutions through the
Orderly Liquidation Fund (OLF), primarily because those
measures should result in shareholders' and other creditors'
absorbing a larger share of any losses in the event of
insolvency.
Although only one nonbank institution is currently
classified as a SIFI, CBO anticipates that others may be
designated in the future as a result of FSOC's ongoing
assessments of such companies.\1\ Based on the scope of past
oversight of nonbank SIFIs, CBO projects that under current
law, the enhanced prudential regulation of such companies will
reduce the net deficit over the 2019-2027 period by about $60
million, less than one-half of one percent of CBO's projected
cost of the OLF over that period.
---------------------------------------------------------------------------
\1\In 2014, four nonbank institutions were designated as SIDIs. By
the end of fiscal year 2017, two of those companies had reduced the
size of their operations and risks, resulting in a rescission of their
designation. The status of a third firm is under judicial review. As a
result, only one nonbank financial company currently is being regulated
as a SIFI. See Standard & Poor's, ``Nonbank SIFI,'' a Currently
Symbolic Designation, Is Down to One Designee (October 2017).
---------------------------------------------------------------------------
Based on recent trends in the pace of FSOC's review of
nonbank institutions, CBO anticipates that implementing the
bill would roughly double the time needed to review and
possibly approve any new designations. For this estimate, CBO
assumes that such delays would result in a corresponding
reduction in the assets of nonbank companies subject to
enhanced prudential regulation relative to current law,
resulting in a net increase in the deficit of $15 million over
the 2019-2027 period. That estimate reflects an increase in
direct spending of $16 million and an increase in revenues of
$1 million from fees paid by large financial institutions to
offset costs incurred by the OLF. Most of the costs incurred in
the 10-year period would be offset by fees collected after
2027.
Additional administrative costs
Compared with current procedures, H.R. 4061 would increase
the frequency and complexity of studies, reviews, and meetings
that must be completed for the FSOC to complete the designation
process for nonbank financial institutions. CBO estimates an
increase in work for the FSOC and other financial regulators
that are charged with designating SIFIs. Using information from
the affected financial regulators, CBO expects that the FSOC
and federal financial regulators would need to hire about 15
additional employees (with average annual costs of around
$225,000 each) to comply with the requirements of the bill. CBO
expects that those employees would primarily be at agencies
with direct spending authority, although some could work for
agencies whose spending is subject to appropriation.
In total, CBO estimates that enacting the administrative
provisions of H.R. 4061 would cost $35 million over the 2019-
2027 period to conduct the expanded review and designation
process. Of those costs:
$26 million would be for direct spending
agencies and would be offset by $13 million in fees,
$6 million would result from reduced
remittances by the Federal Reserve, and
$3 million would be for agencies with
spending subject to annual appropriations.
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. 4061, THE FINANCIAL STABILITY OVERSIGHT COUNCIL IMPROVEMENT ACT OF 2017, AS ORDERED REPORTED BY THE HOUSE
COMMITTEE ON FINANCIAL SERVICES ON JANUARY 18, 2018
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By fiscal year, in millions of dollars--
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2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2018-2022 2018-2027
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NET INCREASE IN THE DEFICIT
Statutory Pay-As-You-Go Impact.................... 0 1 2 2 2 3 6 6 6 6 7 34
Memorandum:
Changes in Outlays............................ 0 1 1 1 1 2 5 6 6 6 5 29
Changes in Revenues........................... 0 0 -1 -1 -1 -1 -1 -1 -1 0 -2 -5
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Increase in long-term direct spending and deficits: CBO
estimates that enacting H.R. 4061 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: If the FHFA, FSOC, NCUA, OCC, or SEC increased
fees to offset the costs associated with implementing the bill,
H.R. 4061 would increase the cost of an existing mandate on
private entities required to pay those fees. Using information
from the affected agencies, CBO estimates that the incremental
cost of the mandate would fall well below the annual threshold
for private-sector mandates established in UMRA ($156 million
in 2017, adjusted annually for inflation).
The bill contains no intergovernmental mandates as defined
in UMRA.
Estimate prepared by: Federal Costs: Stephen Rabent (for
the FSOC), Kathleen Gramp (for the OLF), and Sarah Puro (for
the FDIC, the OCC, and the NCUA); Revenues: Nathaniel Frentz;
Mandates: Rachel Austin.
Estimate approved by: H. Samuel Papenfuss, Deputy Assistant
Director for Budget Analysis.
Federal Mandates Statement
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995.
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of the section
102(b)(3) of the Congressional Accountability Act.
Earmark Identification
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
Duplication of Federal Programs
In compliance with clause 3(c)(5) of rule XIII of the Rules
of the House of Representatives, the Committee states that no
provision of the bill establishes or reauthorizes: (1) a
program of the Federal Government known to be duplicative of
another Federal program; (2) a program included in any report
from the Government Accountability Office to Congress pursuant
to section 21 of Public Law 111-139; or (3) a program related
to a program identified in the most recent Catalog of Federal
Domestic Assistance, published pursuant to the Federal Program
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No.
98-169).
Disclosure of Directed Rulemaking
Pursuant to section 3(i) of H. Res. 5, (115th Congress),
the following statement is made concerning directed
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. 4061 as the ``Financial Stability
Oversight Council Improvement Act of 2017''.
Section 2. SIFI designation process
Amends section 113 of the Financial Stability Act of 2010
to require the FSOC to examine the impact on the U.S. financial
system of imposing heightened prudential standards by the
Federal Reserve in lieu of other regulation.
In addition, this section directs the FSOC to reevaluate,
both annually and periodically, final determinations of
systemic risk regarding a nonbank financial company under
supervision by the Federal Reserve. Where a reevaluation
determines that a nonbank financial company no longer poses a
threat to the financial stability of the United States,
affirmed by a vote of two-thirds of the FSOC voting membership,
this bill directs FSOC to rescind the determination.
Further, this section prescribes procedural requirements
for proposed FSOC determinations and final decision-making,
including: written notification, opportunity to submit written
materials to FSOC as part of the initial evaluation,
opportunity to meet with the FSOC to discuss the analysis, and
disclosure of the public sources of information considered by
the FSOC as part of its analysis.
Finally, this section directs the FSOC every five years to
study: (1) the impact of its determinations to subject nonbank
financial companies to supervision by the Federal Reserve and
prudential standards, and (2) whether such determinations have
the intended result of improving domestic financial stability.
Section 3. Rule of construction
This section stipulates that this bill does not limit the
powers of the FSOC to implement their emergency powers under
section 113(f) of the Financial Stability Act.
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):
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):
FINANCIAL STABILITY ACT OF 2010
* * * * * * *
TITLE I--FINANCIAL STABILITY
* * * * * * *
Subtitle A--Financial Stability Oversight Council
* * * * * * *
SEC. 113. AUTHORITY TO REQUIRE SUPERVISION AND REGULATION OF CERTAIN
NONBANK FINANCIAL COMPANIES.
(a) U.S. Nonbank Financial Companies Supervised by the Board
of Governors.--
(1) Determination.--The Council, on a nondelegable
basis and by a vote of not fewer than \2/3\ of the
voting members then serving, including an affirmative
vote by the Chairperson, may determine that a U.S.
nonbank financial company shall be supervised by the
Board of Governors and shall be subject to prudential
standards, in accordance with this title, if the
Council determines that material financial distress at
the U.S. nonbank financial company, or the nature,
scope, size, scale, concentration, interconnectedness,
or mix of the activities of the U.S. nonbank financial
company, could pose a threat to the financial stability
of the United States.
(2) Considerations.--In making a determination under
paragraph (1), the Council shall consider--
(A) the extent of the leverage of the
company;
(B) the extent and nature of the off-balance-
sheet exposures of the company;
(C) the extent and nature of the transactions
and relationships of the company with other
significant nonbank financial companies and
significant bank holding companies;
(D) the importance of the company as a source
of credit for households, businesses, and State
and local governments and as a source of
liquidity for the United States financial
system;
(E) the importance of the company as a source
of credit for low-income, minority, or
underserved communities, and the impact that
the failure of such company would have on the
availability of credit in such communities;
(F) the extent to which assets are managed
rather than owned by the company, and the
extent to which ownership of assets under
management is diffuse;
(G) the nature, scope, size, scale,
concentration, interconnectedness, and mix of
the activities of the company;
(H) the degree to which the company is
already regulated by 1 or more primary
financial regulatory agencies;
(I) the amount and nature of the financial
assets of the company;
(J) the amount and types of the liabilities
of the company, including the degree of
reliance on short-term funding; [and]
(K) the appropriateness of the imposition of
prudential standards as opposed to other forms
of regulation to mitigate the identified risks;
and
[(K)] (L) any other risk-related factors that
the Council deems appropriate.
(b) Foreign Nonbank Financial Companies Supervised by the
Board of Governors.--
(1) Determination.--The Council, on a nondelegable
basis and by a vote of not fewer than \2/3\ of the
voting members then serving, including an affirmative
vote by the Chairperson, may determine that a foreign
nonbank financial company shall be supervised by the
Board of Governors and shall be subject to prudential
standards, in accordance with this title, if the
Council determines that material financial distress at
the foreign nonbank financial company, or the nature,
scope, size, scale, concentration, interconnectedness,
or mix of the activities of the foreign nonbank
financial company, could pose a threat to the financial
stability of the United States.
(2) Considerations.--In making a determination under
paragraph (1), the Council shall consider--
(A) the extent of the leverage of the
company;
(B) the extent and nature of the United
States related off-balance-sheet exposures of
the company;
(C) the extent and nature of the transactions
and relationships of the company with other
significant nonbank financial companies and
significant bank holding companies;
(D) the importance of the company as a source
of credit for United States households,
businesses, and State and local governments and
as a source of liquidity for the United States
financial system;
(E) the importance of the company as a source
of credit for low-income, minority, or
underserved communities in the United States,
and the impact that the failure of such company
would have on the availability of credit in
such communities;
(F) the extent to which assets are managed
rather than owned by the company and the extent
to which ownership of assets under management
is diffuse;
(G) the nature, scope, size, scale,
concentration, interconnectedness, and mix of
the activities of the company;
(H) the extent to which the company is
subject to prudential standards on a
consolidated basis in its home country that are
administered and enforced by a comparable
foreign supervisory authority;
(I) the amount and nature of the United
States financial assets of the company;
(J) the amount and nature of the liabilities
of the company used to fund activities and
operations in the United States, including the
degree of reliance on short-term funding; [and]
(K) the appropriateness of the imposition of
prudential standards as opposed to other forms
of regulation to mitigate the identified risks;
and
[(K)] (L) any other risk-related factors that
the Council deems appropriate.
(c) Antievasion.--
(1) Determinations.--In order to avoid evasion of
this title, the Council, on its own initiative or at
the request of the Board of Governors, may determine,
on a nondelegable basis and by a vote of not fewer than
\2/3\ of the voting members then serving, including an
affirmative vote by the Chairperson, that--
(A) material financial distress related to,
or the nature, scope, size, scale,
concentration, interconnectedness, or mix of,
the financial activities conducted directly or
indirectly by a company incorporated or
organized under the laws of the United States
or any State or the financial activities in the
United States of a company incorporated or
organized in a country other than the United
States would pose a threat to the financial
stability of the United States, based on
consideration of the factors in subsection
(a)(2) or (b)(2), as applicable;
(B) the company is organized or operates in
such a manner as to evade the application of
this title; and
(C) such financial activities of the company
shall be supervised by the Board of Governors
and subject to prudential standards in
accordance with this title, consistent with
paragraph (3).
(2) Report.--Upon making a determination under
paragraph (1), the Council shall submit a report to the
appropriate committees of Congress detailing the
reasons for making such determination.
(3) Consolidated supervision of only financial
activities; establishment of an intermediate holding
company.--
(A) Establishment of an intermediate holding
company.--Upon a determination under paragraph
(1), the company that is the subject of the
determination may establish an intermediate
holding company in which the financial
activities of such company and its subsidiaries
shall be conducted (other than the activities
described in section 167(b)(2)) in compliance
with any regulations or guidance provided by
the Board of Governors. Such intermediate
holding company shall be subject to the
supervision of the Board of Governors and to
prudential standards under this title as if the
intermediate holding company were a nonbank
financial company supervised by the Board of
Governors.
(B) Action of the board of governors.--To
facilitate the supervision of the financial
activities subject to the determination in
paragraph (1), the Board of Governors may
require a company to establish an intermediate
holding company, as provided for in section
167, which would be subject to the supervision
of the Board of Governors and to prudential
standards under this title, as if the
intermediate holding company were a nonbank
financial company supervised by the Board of
Governors.
(4) Notice and opportunity for hearing and final
determination; judicial review.--Subsections (d)
through (h) shall apply to determinations made by the
Council pursuant to paragraph (1) in the same manner as
such subsections apply to nonbank financial companies.
(5) Covered financial activities.--For purposes of
this subsection, the term ``financial activities''--
(A) means activities that are financial in
nature (as defined in section 4(k) of the Bank
Holding Company Act of 1956);
(B) includes the ownership or control of one
or more insured depository institutions; and
(C) does not include internal financial
activities conducted for the company or any
affiliate thereof, including internal treasury,
investment, and employee benefit functions.
(6) Only financial activities subject to prudential
supervision.--Nonfinancial activities of the company
shall not be subject to supervision by the Board of
Governors and prudential standards of the Board. For
purposes of this Act, the financial activities that are
the subject of the determination in paragraph (1) shall
be subject to the same requirements as a nonbank
financial company supervised by the Board of Governors.
Nothing in this paragraph shall prohibit or limit the
authority of the Board of Governors to apply prudential
standards under this title to the financial activities
that are subject to the determination in paragraph (1).
[(d) Reevaluation and Rescission.--The Council shall--
[(1) not less frequently than annually, reevaluate
each determination made under subsections (a) and (b)
with respect to such nonbank financial company
supervised by the Board of Governors; and
[(2) rescind any such determination, if the Council,
by a vote of not fewer than \2/3\ of the voting members
then serving, including an affirmative vote by the
Chairperson, determines that the nonbank financial
company no longer meets the standards under subsection
(a) or (b), as applicable.
[(e) Notice and Opportunity for Hearing and Final
Determination.--
[(1) In general.--The Council shall provide to a
nonbank financial company written notice of a proposed
determination of the Council, including an explanation
of the basis of the proposed determination of the
Council, that a nonbank financial company shall be
supervised by the Board of Governors and shall be
subject to prudential standards in accordance with this
title.
[(2) Hearing.--Not later than 30 days after the date
of receipt of any notice of a proposed determination
under paragraph (1), the nonbank financial company may
request, in writing, an opportunity for a written or
oral hearing before the Council to contest the proposed
determination. Upon receipt of a timely request, the
Council 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 sole discretion
of the Council, oral testimony and oral argument).
[(3) Final determination.--Not later than 60 days
after the date of a hearing under paragraph (2), the
Council shall notify the nonbank financial company of
the final determination of the Council, which shall
contain a statement of the basis for the decision of
the Council.
[(4) No hearing requested.--If a nonbank financial
company does not make a timely request for a hearing,
the Council shall notify the nonbank financial company,
in writing, of the final determination of the Council
under subsection (a) or (b), as applicable, not later
than 10 days after the date by which the company may
request a hearing under paragraph (2).]
(d) Reevaluation and Rescission.--
(1) Annual reevaluation.--Not less frequently than
annually, the Council shall reevaluate each
determination made under subsections (a) and (b) with
respect to a nonbank financial company supervised by
the Board of Governors and shall--
(A) provide written notice to the nonbank
financial company being reevaluated and afford
such company an opportunity to submit written
materials, within such time as the Council
determines to be appropriate (but which shall
be not less than 30 days after the date of
receipt by the company of such notice), to
contest the determination, including materials
concerning whether, in the company's view,
material financial distress at the company, or
the nature, scope, size, scale, concentration,
interconnectedness, or mix of the activities of
the company could pose a threat to the
financial stability of the United States;
(B) provide an opportunity for the nonbank
financial company to meet with the Council to
present the information described in
subparagraph (A); and
(C) if the Council does not rescind the
determination, provide notice to the nonbank
financial company, its primary financial
regulatory agency and the primary financial
regulatory agency of any of the company's
significant subsidiaries of the reasons for the
Council's decision, which notice shall address
with specificity how the Council assessed the
material factors presented by the company under
subparagraphs (A) and (B).
(2) Periodic reevaluation.--
(A) Review.--Every 5 years after the date of
a final determination with respect to a nonbank
financial company under subsection (a) or (b),
as applicable, the nonbank financial company
may submit a written request to the Council for
a reevaluation of such determination. Upon
receipt of such a request, the Council shall
conduct a reevaluation of such determination
and hold a vote on whether to rescind such
determination.
(B) Procedures.--Upon receipt of a written
request under paragraph (A), the Council shall
fix a time (not earlier than 30 days after the
date of receipt of the request) and place at
which such company may appear, personally or
through counsel, to--
(i) submit written materials (which
may include a plan to modify the
company's business, structure, or
operations, which shall specify the
length of the implementation period);
and
(ii) provide oral testimony and oral
argument before the members of the
Council.
(C) Treatment of plan.--If the company
submits a plan in accordance with subparagraph
(B)(i), the Council shall consider whether the
plan, if implemented, would cause the company
to no longer meet the standards for a final
determination under subsection (a) or (b), as
applicable. The Council shall provide the
nonbank financial company an opportunity to
revise the plan after consultation with the
Council.
(D) Explanation for certain companies.--With
respect to a reevaluation under this paragraph
where the determination being reevaluated was
made before the date of enactment of this
paragraph, the nonbank financial company may
require the Council, as part of such
reevaluation, to explain with specificity the
basis for such determination.
(3) Rescission of determination.--
(A) In general.--If the Council, by a vote of
not fewer than \2/3\ of the voting members then
serving, including an affirmative vote by the
Chairperson, determines under this subsection
that a nonbank financial company no longer
meets the standards for a final determination
under subsection (a) or (b), as applicable, the
Council shall rescind such determination.
(B) Approval of company plan.--Approval by
the Council of a plan submitted or revised in
accordance with paragraph (2) shall require a
vote of not fewer than \2/3\ of the voting
members then serving, including an affirmative
vote by the Chairperson. If such plan is
approved by the Council, the company shall
implement the plan during the period identified
in the plan, except that the Council, in its
sole discretion and upon request from the
company, may grant one or more extensions of
the implementation period. After the end of the
implementation period, including any extensions
granted by the Council, the Council shall
proceed to a vote as described under
subparagraph (A).
(e) Requirements for Proposed Determination, Notice and
Opportunity for Hearing, and Final Determination.--
(1) Notice of identification for initial evaluation
and opportunity for voluntary submission.--Upon
identifying a nonbank financial company for
comprehensive analysis of the potential for the nonbank
company to pose a threat to the financial stability of
the United States, the Council shall provide the
nonbank financial company with--
(A) written notice that explains with
specificity the basis for so identifying the
company, a copy of which shall be provided to
the company's primary financial regulatory
agency;
(B) an opportunity to submit written
materials for consideration by the Council as
part of the Council's initial evaluation of the
risk profile and characteristics of the
company;
(C) an opportunity to meet with the Council
to discuss the Council's analysis; and
(D) a list of the public sources of
information being considered by the Council as
part of such analysis.
(2) Requirements before making a proposed
determination.--Before making a proposed determination
with respect to a nonbank financial company under
paragraph (3), the Council shall--
(A) by a vote of not fewer than \2/3\ of the
voting members then serving, including an
affirmative vote by the Chairperson, approve a
resolution that identifies with specificity any
risks to the financial stability of the United
States the Council has identified relating to
the nonbank financial company;
(B) with respect to nonbank financial company
with a primary financial regulatory agency,
provide a copy of the resolution described
under subparagraph (A) to the primary financial
regulatory agency and provide such agency with
at least 180 days from the receipt of the
resolution to--
(i) consider the risks identified in
the resolution; and
(ii) provide a written response to
the Council that includes its
assessment of the risks identified and
the degree to which they are or could
be addressed by existing regulation
and, as appropriate, issue proposed
regulations or undertake other
regulatory action to mitigate the
identified risks;
(C) provide the nonbank financial company
with written notice that the Council--
(i) is considering whether to make a
proposed determination with respect to
the nonbank financial company under
subsection (a) or (b), as applicable,
which notice explains with specificity
the basis for the Council's
consideration, including any aspects of
the company's operations or activities
that are a primary focus for the
Council; or
(ii) has determined not to subject
the company to further review, which
action shall not preclude the Council
from issuing a notice to the company
under subparagraph (1)(A) at a future
time; and
(D) in the case of a notice to the nonbank
financial company under subparagraph (C)(i),
provide the company with--
(i) an opportunity to meet with the
Council to discuss the Council's
analysis;
(ii) an opportunity to submit written
materials, within such time as the
Council deems appropriate (but not less
than 30 days after the date of receipt
by the company of the notice described
under clause (i)), to the Council to
inform the Council's consideration of
the nonbank financial company for a
proposed determination, including
materials concerning the company's
views as to whether it satisfies the
standard for determination set forth in
subsection (a) or (b), as applicable;
(iii) an explanation of how any
request by the Council for information
from the nonbank financial company
relates to potential risks to the
financial stability of the United
States and the Council's analysis of
the company;
(iv) written notice when the Council
deems its evidentiary record regarding
such nonbank financial company to be
complete; and
(v) an opportunity to meet with the
members of the Council.
(3) Proposed determination.--
(A) Voting.--The Council may, by a vote of
not fewer than \2/3\ of the voting members then
serving, including an affirmative vote by the
Chairperson, propose to make a determination in
accordance with the provisions of subsection
(a) or (b), as applicable, with respect to a
nonbank financial company.
(B) Deadline for making a proposed
determination.--With respect to a nonbank
financial company provided with a written
notice under paragraph (2)(C)(i), if the
Council does not provide the company with the
written notice of a proposed determination
described under paragraph (4) within the 180-
day period following the date on which the
Council notifies the company under paragraph
(2)(C) that the evidentiary record is complete,
the Council may not make such a proposed
determination with respect to such company
unless the Council repeats the procedures
described under paragraph (2).
(C) Review of actions of primary financial
regulatory agency.--With respect to a nonbank
financial company with a primary financial
regulatory agency, the Council may not vote
under subparagraph (A) to make a proposed
determination unless--
(i) the Council first determines that
any proposed regulations or other
regulatory actions taken by the primary
financial regulatory agency after
receipt of the resolution described
under paragraph (2)(A) are insufficient
to mitigate the risks identified in the
resolution;
(ii) the primary financial regulatory
agency has notified the Council that
the agency has no proposed regulations
or other regulatory actions to mitigate
the risks identified in the resolution;
or
(iii) the period allowed by the
Council under paragraph (2)(B) has
elapsed and the primary financial
regulatory agency has taken no action
in response to the resolution.
(4) Notice of proposed determination.--The Council
shall--
(A) provide to a nonbank financial company
written notice of a proposed determination of
the Council, including an explanation of the
basis of the proposed determination of the
Council, that a nonbank financial company shall
be supervised by the Board of Governors and
shall be subject to prudential standards in
accordance with this title, an explanation of
the specific risks to the financial stability
of the United States presented by the nonbank
financial company, and a detailed explanation
of why existing regulations or other regulatory
action by the company's primary financial
regulatory agency, if any, is insufficient to
mitigate such risk; and
(B) provide the primary financial regulatory
agency of the nonbank financial company a copy
of the nonpublic written explanation of the
Council's proposed determination.
(5) Hearing.--
(A) In general.--Not later than 30 days after
the date of receipt of any notice of a proposed
determination under paragraph (4), the nonbank
financial company may request, in writing, an
opportunity for a written or oral hearing
before the Council to contest the proposed
determination, including the opportunity to
present a plan to modify the company's
business, structure, or operations in order to
mitigate the risks identified in the notice,
and which plan shall also include any steps the
company expects to take during the
implementation period to mitigate such risks.
(B) Grant of hearing.--Upon receipt of a
timely request, the Council shall fix a time
(not earlier than 30 days after the date of
receipt of the request) and place at which such
company may appear, personally or through
counsel, to--
(i) submit written materials (which
may include a plan to modify the
company's business, structure, or
operations); or
(ii) provide oral testimony and oral
argument to the members of the Council.
(6) Council consideration of company plan.--
(A) In general.--If a nonbank financial
company submits a plan in accordance with
paragraph (5), the Council shall, prior to
making a final determination--
(i) consider whether the plan, if
implemented, would mitigate the risks
identified in the notice under
paragraph (4); and
(ii) provide the nonbank financial
company an opportunity to revise the
plan after consultation with the
Council.
(B) Voting.--Approval by the Council of a
plan submitted under paragraph (5) or revised
under subparagraph (A)(ii) shall require a vote
of not fewer than \2/3\ of the voting members
then serving, including an affirmative vote by
the Chairperson.
(C) Implementation of approved plan.--With
respect to a nonbank financial company's plan
approved by the Council under subparagraph (B),
the company shall have one year to implement
the plan, except that the Council, in its sole
discretion and upon request from the nonbank
financial company, may grant one or more
extensions of the implementation period.
(D) Oversight of implementation.--
(i) Periodic reports.--The Council,
acting through the Office of Financial
Research, may require the submission of
periodic reports from a nonbank
financial company for the purpose of
evaluating the company's progress in
implementing a plan approved by the
Council under subparagraph (B).
(ii) Inspections.--The Council may
direct the primary financial regulatory
agency of a nonbank financial company
or its subsidiaries (or, if none, the
Board of Governors) to inspect the
company or its subsidiaries for the
purpose of evaluating the
implementation of the company's plan.
(E) Authority to rescind approval.--
(i) In general.--During the
implementation period described under
subparagraph (C), including any
extensions granted by the Council, the
Council shall retain the authority to
rescind its approval of the plan if the
Council finds, by a vote of not fewer
than \2/3\ of the voting members then
serving, including an affirmative vote
by the Chairperson, that the company's
implementation of the plan is no longer
sufficient to mitigate or prevent the
risks identified in the resolution
described under paragraph (2)(A).
(ii) Final determination vote.--The
Council may proceed to a vote on final
determination under subsection (a) or
(b), as applicable, not earlier than 10
days after providing the nonbank
financial company with written notice
that the Council has rescinded the
approval of the company's plan pursuant
to clause (i).
(F) Actions after implementation.--
(i) Evaluation of implementation.--
After the end of the implementation
period described under subparagraph
(C), including any extensions granted
by the Council, the Council shall
consider whether the plan, as
implemented by the nonbank financial
company, adequately mitigates or
prevents the risks identified in the
resolution described under paragraph
(2)(A).
(ii) Voting.--If, after performing an
evaluation under clause (i), not fewer
than \2/3\ of the voting members of the
Council then serving, including an
affirmative vote by the Chairperson,
determine that the plan, as
implemented, adequately mitigates or
prevents the identified risks, the
Council shall not make a final
determination under subsection (a) or
(b), as applicable, with respect to the
nonbank financial company and shall
notify the company of the Council's
decision to take no further action.
(7) Final council decisions.--
(A) In general.--Not later than 90 days after
the date of a hearing under paragraph (5), the
Council shall notify the nonbank financial
company of--
(i) a final determination under
subsection (a) or (b), as applicable;
(ii) the Council's approval of a plan
submitted by the nonbank financial
company under paragraph (5) or revised
under paragraph (6); or
(iii) the Council's decision to take
no further action with respect to the
nonbank financial company.
(B) Explanatory statement.--A final
determination of the Council, under subsection
(a) or (b), shall contain a statement of the
basis for the decision of the Council,
including the reasons why the Council rejected
any plan by the nonbank financial company
submitted under paragraph (5) or revised under
paragraph (6).
(C) Notice to primary financial regulatory
agency.--In the case of a final determination
under subsection (a) or (b), the Council shall
provide the primary financial regulatory agency
of the nonbank financial company a copy of the
nonpublic written explanation of the Council's
final determination.
(f) Emergency Exception.--
(1) In general.--The Council may waive or modify the
requirements of subsection (e) with respect to a
nonbank financial company, if the Council determines,
by a vote of not fewer than \2/3\ of the voting members
then serving, including an affirmative vote by the
Chairperson, that such waiver or modification is
necessary or appropriate to prevent or mitigate threats
posed by the nonbank financial company to the financial
stability of the United States.
(2) Notice.--The Council shall provide notice of a
waiver or modification under this subsection to the
nonbank financial company concerned as soon as
practicable, but not later than 24 hours after the
waiver or modification is granted.
(3) International coordination.--In making a
determination under paragraph (1), the Council shall
consult with the appropriate home country supervisor,
if any, of the foreign nonbank financial company that
is being considered for such a determination.
(4) Opportunity for hearing.--The Council shall allow
a nonbank financial company to request, in writing, an
opportunity for a written or oral hearing before the
Council to contest a waiver or modification under this
subsection, not later than 10 days after the date of
receipt of notice of the waiver or modification by the
company. Upon receipt of a timely request, the Council
shall fix a time (not later than 15 days after the date
of receipt of the request) and place at which the
nonbank financial company may appear, personally or
through counsel, to submit written materials (or, at
the sole discretion of the Council, oral testimony and
oral argument).
(5) Notice of final determination.--Not later than 30
days after the date of any hearing under paragraph (4),
the Council shall notify the subject nonbank financial
company of the final determination of the Council under
this subsection, which shall contain a statement of the
basis for the decision of the Council.
(g) Consultation.--The Council shall consult with the primary
financial regulatory agency, if any, for each nonbank financial
company or subsidiary of a nonbank financial company that is
being considered for supervision by the Board of Governors
under this section [before the Council makes any final
determination] from the outset of the Council's consideration
of the company, including before the Council makes any proposed
or final determination with respect to such nonbank financial
company under subsection (a), (b), or (c).
(h) Judicial Review.--If the Council makes a final
determination under this section with respect to a nonbank
financial company, such nonbank financial company may, not
later than 30 days after the date of receipt of the notice of
final determination under subsection (d)(2), (e)(3), or (f)(5),
bring an action in the United States district court for the
judicial district in which the home office of such nonbank
financial company is located, or in the United States District
Court for the District of Columbia, for an order requiring that
the final determination be rescinded, and the court shall, upon
review, dismiss such action or direct the final determination
to be rescinded. Review of such an action shall be limited to
whether the final determination made under this section was
arbitrary and capricious.
(i) International Coordination.--In exercising its duties
under this title with respect to foreign nonbank financial
companies, foreign-based bank holding companies, and cross-
border activities and markets, the Council shall consult with
appropriate foreign regulatory authorities, to the extent
appropriate.
(j) Public Disclosure Requirement.--The Council shall--
(1) in each case where a nonbank financial company
has been notified that it is subject to the Council's
review and the company has publicly disclosed such
fact, confirm that the nonbank financial company is
subject to the Council's review, in response to a
request from a third party;
(2) upon making a final determination, publicly
provide a written explanation of the basis for its
decision with sufficient detail to provide the public
with an understanding of the specific bases of the
Council's determination, including any assumptions
related thereof, subject to the requirements of section
112(d)(5);
(3) include, in the annual report required by section
112, the number of nonbank financial companies from the
previous year subject to preliminary analysis, further
review, and subject to a proposed or final
determination; and
(4) within 90 days after the enactment of this
subsection, publish information regarding its
methodology for calculating any quantitative thresholds
or other metrics used to identify nonbank financial
companies for analysis by the Council.
(k) Periodic Assessment of the Impact of Designations.--
(1) Assessment.--Every five years after the date of
enactment of this section, the Council shall--
(A) conduct a study of the Council's
determinations that nonbank financial companies
shall be supervised by the Board of Governors
and shall be subject to prudential standards;
and
(B) comprehensively assess the impact of such
determinations on the companies for which such
determinations were made and the wider economy,
including whether such determinations are
having the intended result of improving the
financial stability of the United States.
(2) Report.--Not later than 90 days after completing
a study required under paragraph (1), the Council shall
issue a report to the Congress that--
(A) describes all findings and conclusions
made by the Council in carrying out such study;
and
(B) identifies whether any of the Council's
determinations should be rescinded or whether
related regulations or regulatory guidance
should be modified, streamlined, expanded, or
repealed.
* * * * * * *
MINORITY VIEWS
H.R. 4061 is an attempt to prevent the Financial Stability
Oversight Council (FSOC) from doing its statutorily-required
job of preventing another financial crisis by bogging it and
its designation process down in endless analysis and
litigation. Congress created the FSOC when it passed the Dodd-
Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank) for the purpose of identifying and responding to risks
to financial stability, as well as eliminating expectations the
government will shield market participants from losses.
Congress specifically granted the FSOC authority to determine
that a U.S. nonbank financial company should be supervised by
the Federal Reserve and subject to enhanced prudential
standards if financial distress at, or the activities of the
company, would pose a threat to U.S. financial stability.
The Dodd-Frank Act contains guidelines for identifying such
systemically important financial institutions (SIFIs) and
activities, including the consideration of risks like leverage,
off-balance sheet exposures, transactions and relationships
with other financial companies, the impact of the company as a
creditor, assets and liabilities, current regulation and
supervision, and the company's financial activities. The Act
also requires the FSOC to take certain steps to ensure
transparency and due process. For example, after making a
proposed designation, the FSOC must submit a report to the
House Financial Services and Senate Banking Committees
detailing the reasons for making its designation and provide
notice and an explanation to the nonbank financial company. The
company is given 30 days after receipt of the notice to contest
FSOC's determination and an additional 30 days after a final
determination to appeal the determination in U.S. courts.
Pursuant to the Dodd-Frank Act, the Council established a
three-stage process for the designation of nonbank financial
companies. In 2015, following months of evaluation and
engagement with financial companies, trade associations,
nonbank financial companies subject to previous FSOC
determinations, public interest groups, and Congressional
stakeholders, the FSOC adopted 17 changes designed to promote
transparency related to the evaluation of nonbank financial
companies. Generally, these changes include: informing
companies earlier in the process that they are under review;
providing the company with additional opportunities to engage
with and present information to the FSOC, its staff and their
regulator; and making more information about FSOC designations
public.
H.R. 4061 goes much further and more than doubles time it
would take for the FSOC designate a company like American
International Group (AIG). H.R. 4061 would take the FSOC's
already lengthy and deliberative two year process to more than
four years. Such delays would allow companies to avoid
prudential measures intended to mitigate threats to our economy
for the benefit of their own shareholders. H.R. 4061 seeks to
provide institutions that the markets likely conclude are
``too-big-to-fail'' with a statutory roadmap to challenge the
FSOC indefinitely.
For these reasons, we oppose this bill.
Maxine Waters.
Carolyn B. Maloney.
Keith Ellison.
Al Green.
Stephen F. Lynch.
[all]