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tv   Politics and Public Policy Today  CSPAN  December 10, 2015 5:00pm-6:01pm EST

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information that the fsoc was using is part of that stage two review. as well as notice if a firm is not advanced from stage two to stage three. and if a firm is advanced from stage two to stage three, it would be notified of that and then a set of procedures for engagement with stage three. so, it was an effort to provide both greater insight for the firm in terms of notice and greater opportunity to engage with the fsoc. >> could i simply add, to me this exemplifies vigorous congressional oversight. the congress and this committee have had comments on transparency of the fsoc. we've listened to those. the gao did a report with comments. we've listened to those. it's a new body. it's still just a few years old. transparency is developing and evolving as we go. and i believe has been responsive to a lot of the concerns raised here. >> thank you.
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and what changes have you made to the annual and five-year designation review processes to ensure more due process rights are available to companies? mr. greenberg, can you? >> yeah, the -- i think the procedures make clear that as part of the annual evaluation process a company can submit information, engage with the staff in terms of the information being presented, and get feedback in regard to the process. and the procedures provide assurance of a hearing with the fsoc at least every five years. >> general electric has announced it would shed most of its financial assets which operated out of ge capital. in making the announcement ge noted that the company will work closely with its regulators and staff of fsoc to take the
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actions necessary to designate ge capital as a systemically important financial institution. further, ge's ceo noted we have a constructive relationship with our regulators and will continue to work with them as we go through this process. can you describe how fsoc will go about working with ge? anyone? yes, sir. >> there's an ongoing dialogue with the company as to what its plans are, what its strategic or structural changes are. that will continue. at an annual review or sooner, a decision will be made once those plans have been actually executed. >> i see. thank you very much. and, mr. chair, i yield back the balance of my time.
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>> the gentleman yields back. the chair now recognizes gentleman from michigan mr. huizenga chairman of our monetary and policy subcommittee. >> i apologize. i had to step out. i had visiting constituents and wanted to kind of make sure that i understood where my fellow subchair was headed. and i think we're kind of on the same -- on the same path and direction. i do want to at some point get back to your written testimony, which i found very fascinating and have a couple of questions there. but i would like to also see a show of hands. who here believes that congress has the right to understand how fsoc makes its determination decisions? so, if you believe that congress has the ability -- should have. the record reflect that all
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believe that that is an important part. well, i'd like to get a sense of what materials fsoc members reviewed before making final determinations. and are there memoranda, other materials prepared by fsoc staff that you rely on to make your decisions, who here is willing to share that? if you could give me a show of hands. if you'd raise your hand who is willing to share that with us. nobody? let me repeat the first question i guess. >> congressman, can i make a comment? >> sure. >> i think congress is entitled generally to whatever information it wants. i would simply want to check with staff in particular to make sure we're abiding by our obligations to keep nonpublic information confidential. but certainly congress is entitled to get what information it wants. >> okay. i mean -- and maybe that's not even public meeting. maybe it's a private meeting being able to share that.
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>> congressman, you know, i think the analogy here is to one of our regulatory agencies considering action in regard to a particular institution, that's really what the fsoc is doing. >> sure. >> and so two points. one, if we're dealing with confidential supervisory information which would probably be an applicable standard in the fsoc, that's generally not shared, but upon congressional request as we have in other instances at the end of the day congress gets the information it requests. >> that sometimes takes a little longer than the time frame you have noticed around here. so, you believe congress has the right to review fsoc's deliberative materials? >> i think congress has the right to request, you know, any information -- >> those are two very different things. >> i think if you're dealing -- if you accept the premise we're dealing with confidential
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superrisupe super -- >> what i don't want are redacted sheets that look like they're blacked out all the way. what i'm looking for is a venue, then, for us to be able to review, to understand. because frankly i think if you hear a lot of questioning on both sides of the aisle, we simply do not understand. >> i was just going to mention i think there's one confidential memorandum that has been made public. the confidential basis in the metropolitan life case, it's my understanding has been filed in the court and is a public record. >> okay. mr. watt? >> i just want to be clear that the reason i would not raise my hand because i would not make a unilateral decision. this is a collaborative body. and fsoc if we got together would turn over whatever would appropriately be turned over to congress. and i think i would be supportive of that being a
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robust turnover of information. but i certainly wouldn't make a unilateral decision. >> you've sat on this side of the microphone and know that sometimes it takes far too long to get responses. >> but that's not a justification for an individual member of a collaborative body to make a unilateral decision to turn over confidential information. >> i understand. but you all just raised your hand and since you are the voting members you all just said we've got a right to this, so let's come up with a collaborative way of finding out how we're going to do that. mr. woodall, real quickly, i was fascinated in your written testimony how you've been prevented from being in the room with international insurance policymakers. a number of us did a trip to switzerland back about two months ago. they seemed genuinely surprised that congress was not up to speed on exactly what team usa is saying and doing in that room. and also i would -- as we were
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indicating, many of us, support your involvement in that, they seemed genuinely perplexed that someone with insurance expertise was not being allowed to be a part of that process. so, real quickly, if you'd comment. >> you know, in international things you work by consensus. the consensus within the team usa, you've got three u.s. people, representatives -- >> and you've said that you've been supported by two of those for being in the room. the third one that is not supportive is? >> it's the -- it's treasury. without that -- without that consensus -- and they're taking a position, and i want to be fair about this. they are taking the position that the statute gives me no such authorities that i have no duties or responsibilities designated in the statute at all. >> the time of the gentleman has expired. >> i look forward to remedying
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that. >> the chair recognizes the gentle lady from new york, ms. maloney, ranking member of our capital markets subcommittee. >> thank the chairman and ranking member for calling this important hearing. actually, this is the most people i have ever seen at that desk at any hearing or review in history at a hearing. and it's a very important topic. i'm glad to see my former colleague mel watt, welcome back. my question is, when the fsoc is analyzing whether a company is systemically important, it doesn't measure whether the failure of the company would destabilize the system in normal times. instead it measures whether the company would destabilize the system in a period of stress in the financial industry. and i have two questions for the panel related to this. first, why did the fsoc choose that standard? it seems that this standard could certainly play a key role
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in determining whether or not a company is systemically important. and secondly, what historical precedent does the fsoc review in making these evaluations in a period of stress in the financial community? do you look at the 2008 financial crisis, the asian financial crisis of 1997 and '98? what do you look at as precedent when you study these crisis and i'd like to start with controller curry and the thoughts from the panel on these two questions. thank you. >> thank you, congresswoman. i think the view was that that would -- the impact, the failure of the firm two have in a stressed environment would be the most realistic scenario to try to assess the systemic consequence of the firm. i think it was very much a product certainly of the 2008
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crisis experienced. and i think we looked to the experience in other crises in trying to make these assessments but i think that was the threshold judgment. >> yes. if i could pick up there. i agree with that analysis. i think the council in its guidance announced how it would be approaching that, and it would be analyzing in a period of stress which only i think would make sense given what your purpose was in terms of judging and trying to prevent significant negative impacts on the financial system. things work in times of nonstress don't work so well in times of stress. in terms of what is looked to, not limited certainly to how things operated in the 2008 period, but certainly that is, you know, typically part of the analysis, but you look to other scenarios, stress scenarios as well. >> curry and then watt. >> yes, congresswoman maloney, i think, i agree with my colleagues, i think in order to
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assess especially the interconnected aspects of the financial system, you have to assume in the first place that it is in a period of stress. i also think there's some textual support within the statutory standard to take that approach. and in terms of what we would look to for the range of historical experience, i think the 2008 crisis certainly stands out in terms of its significa e significance, its breadth and what i think people would have never assumed would be the underlying source of it, or the spark, the housing crisis. and i think that would be our approach. >> okay. mel? >> i was just going to refer you to the specific wording of the statute which says that council determines that material financial distress at the nonbank financial company, that's the standard that is set up in the statute.
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so, it's an appropriate standard, i think, but, again, we're not trying to second-guess the statutory provision that was written by congress. we're following the statute, not second-guessing it. >> okay. well, i'd like to ask chair white, as you know there's been a great, great deal of discussion this year about how the fsoc could improve its sifi designation. one of the suggestions that i kept hearing and probably you heard also was that the fsoc should tell companies what actions they needed to take in order to avoid being designated as a sifi. and this sort of struck me as a dubious idea because do we really want the fsoc to be making these kinds of core business decisions for private companies? and my opinion the fsoc should identify the systemic risk, and then the company should figure out the best way to restructure its business to eliminate the
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risk. and when the council adopted changes to the designation process in february, you decided not to include this suggestion. can you elaborate on why the council wanted to maintain this distinction, and do you think it's important for the fsoc not to use the designation process as a way to tell. companies how they should be run? >> well, speaking for myself, i largely agree with your assessment. i don't think fsoc should be telling companies how to structure their business. i think maximum transparency as we've been discussing earlier is obviously something we care about at fsoc and is important to do, but very often also -- most often i think the designations are not going to be based on one or two or three metrics, but rather a business model, so it's a very complex undertaking as well. but i don't think fsoc ought to be telling companies how to run or structure their business. >> my time has expired. thank you very much. >> the chair now recognizes the
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duffy, chairman of our oversight and investigations subcommittee. >> thank you, mr. chairman. just to reiterate i believe when the chairman asked the panel who had insurance experience, if i recall it was mr. woodall and chair white, is that correct? and so if i'm to ask the panel if you were to point out the one insurance expert of all the witnesses today, who would you point to? t you have two choices. >> mr. woodall. >> i would probably agree with you. does it concern the panel that the one person with insurance expertise is the one individual who dissented in the designation of prudential and metlife? or, chair matz, as you say it doesn't matter because we're looking looking at the financial services side. >> that's correct. it also should be noted that the head of the federal insurance office did support the
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designation and also has considerable experience in the insurance industry. >> do they vote on fsoc? >> no. >> no, that's right. so, mr. woodall does who is the one with the insurance expertise which is concerning. i think the panel has all agreed on the oversireght front that congress is entitled to have oversight over fsoc, is that correct? you all agree with that? our committee under the signature of the chairman and every single subcommittee chairman sent a letter to jack lew asking for 13 different points of information from fsoc. there were partial compliance with a couple of those. does the panel disagree that if we've already gone through a designation process that congress is not entitled to nonpublic information? you don't disagree with that, do you? why aren't -- why aren't we getting this information?
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why aren't fsoc members complying with our request? it's concerning for our panel. if you're concerned about the questions that you get today about the transparency of fsoc, it's because the elected members of this body don't have timely compliance or any compliance from mr. lew or any of you. would you guys -- if there's already been a designation, if we're asking questions about aig, prudential or ge, you can make the argument that with metlife there's listgation, so we don't want to give you that. you might say that, i won't agree with that but fair enough. aig, prudential and ge. will you comply with our requests about the analysis that went into the designation process? the memo, the correspondence, all that information? everyone here, will you comply with that request? raise your hand if you'll comply with the request to provide us that documentation. i got no takers.
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so, why not? why not? >> congressman, if i say, you raise a fair question. i think i would probably want to go back and look at the request. it seems to me the line here is when you're dealing with confidential supervisory information and we're dealing with the three companies you referenced, they are open institutions. so you have to strike a balance there. i take your point. >> listen, do you know that there was a recent attack -- some allege by isis in san bernardino? >> yes. >> you're aware of that, correct? do you know that this body gets intelligence briefings from the fbi in regard to isis and terrorist attacks? now, i would argue that american lives are in danger by these radical extremists. does anyone argue on this panel that anyone's life is in danger by the work that you do on fsoc? raise your hand? is anyone's life in danger?
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and so we can get fbi briefings but you won't give us briefings on the analysis that's gone in to designation of certain companies in america? will you explain that to me? why am i entitled to briefings on isis and not from fsoc designation? >> well, sir, i can only speak to the fsoc issues. i'm not familiar with the intelligence side. but i would say that as a general matter i think certainly transparency and accountability is important -- >> no, no, explain why i get isis, fbi briefings and you can't send me information on designation. >> i think there are things we have to think about -- >> the fbi gives me nonpublic information. >> i respect that. >> are you making decisions that affect someone's life? >> no. >> is isis affecting people's lives? >> yes. >> i would think that's far more serious and the information we're entrusted with is far more serious than the information you have and are not complying with.
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>> i -- >> one quick question, the bank of england sent a letter to fsoc asking questions about why berkshire hathaway is not being considered as a sifi. some have argued they have political clout in this town. i think barack obama said he's a great friend. is there a political analysis and connectivity with people in power that go into the determination of designation on fsoc? quick answer, maybe, mr. chairman? >> not from me. >> anyone? >> no. >> no. >> i yield back. >> the chair now recognizes the gentleman from california, mr. sherman. >> thank you. folks, i do think that your decisions are life and death. you'll never meet the people, but we have another 2008, every one of our districts will have higher divorce rates, higher unemployment rates, higher drug use rates, and we will never be able to go to a particular funeral the way you can in san
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bernardino and say, this is what happened. but there are thousands of americans who would be alive today if we didn't have the 2008 meltdown. so, your work is every bit as important as those who are focused on terrorism. ms. white, we've got the financial stability board. we don't have -- well, we have one of its members here. but it doesn't answer to the american people. how can we be sure that they don't push us to an activities-based approach on asset managers or anything else, that the decisions that are made that affect the american people will reflect the decisions made by those answerable to the u.s. government and that it won't be just a matter of, well, we went to the meeting, everybody else
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kind of wanted to go in this distributi direction. people talk about terrorism, we made loans from the world bank to imf and i was told, oh, we'd never let that happen, it's all consensus, and then they came back and said, oh, sorry, we got outvoted. so, how do i know that to get along we're not going to go along with policies that don't reflect u.s. decision making? >> well, i think as you point out the treasury and the fed and the s.e.c. actually sit on the steering committee of the fsb and have i think since 2009 when it was established very importantly to look over potential risks to financial stability globally. but whatever comes out of the fsb in terms of recommendations or suggested standards is not binding on the u.s. and certainly with respect to where there's overlap, for example, in the designations that have been talked so much about, you know, we act
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independently of the fsb, there's separate processes. >> thank you. thank you. there's all this focus on whether an organization -- an entity has a lot of assets. lehman brothers didn't go under because it had too many assets. it went under because it had too many liabilities and contingent liabilities. ms. white, when you analyze whether an entity should be designated as sifi, do you look at the size of their assets? the size of their balance sheet liabilities? or the size of their off-balan e off-balance? >> a lot of other things. >> i would hope you would focus on liabilities rather than assets. no one went under because they had too many assets. >> understood. >> but in looking at contingent liability, mr. woodall, i hope that we would not count those
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liabilities of -- contingent liabilities of insure -- of regulated insurance companies. because the state regulation of insurance companies seems to have weathered the storm. would we designate a company as a sifi just because they had a lot of assets and liabilities if all those assets and liabilities we were looking on were part of a state-regulated insurance companies where the state regulators had determined that they had adequate reserves? >> congressman, one of the factors is the regulatory scrutiny that the company goes through. and obviously we do have to look at not only assets and liability, but the matching of the asset and liabilities. and in insurance companies those liabilities are long-term liabilities. they're not, like, liabilities of a bank that could disappear if everyone came in and withdrew their account.
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>> dodd/frank calls for annual review of designations. do you have a way for a company -- do we have a good process to allow companies to be de-designated particularly if they've reduced their risk profile? ms. white? >> i think there is a good process. you always want to keep looking at possibly enhancing it, but at least annually the council has to look at that. it was also made clear that the companies can engage with the staff on those issues and then every five years under some of the new procedures they're entitled to full hearing. >> i hope that you'd refine that process further. i yield back. >> time of the gentleman has expired. the chair now recognizes the gentleman from oklahoma, mr. lucas. >> thank you, mr. chairman. since we have this distinguished group together, i'd like to visit about my concerns with the basel 3 leverage ratio rule as it is applied to certain
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derivative clearance services and the impact it will have on the ability of my constituents to hedge risks. first i would turn, of course, to the derivative market regulators. when market participants utilize derivatives to manage their risk through future options and cleared swaps, they must find a member of the derivatives clearinghouse willing to guarantee their transaction with the clearinghouse. how does the margin that a market participant posts to a clearing member affect the clearing member's ultimately guarantee exposure to the clearinghouse? >> thank you for the question, congressman. i do believe it does reduce that exposure. let me say generally on this issue that i support strong bank capital requirements and i support the slr generally. and the issue i've raised is really a very narrow one. i don't believe we should be excludeing derivatives from the slr, but i do believe it's important to make sure we're measuring the exposure
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accurately and i do believe that the margin that is held by the ccp, in other words, margin collected but then actually transferred to the ccp, that we should think about that in terms of how we recognize the exposure. >> chair white? >> i would just add that i think you should always be judging, you know, the impacts, sufficient as you describe, frankly on a variety of contexts and a variety of different rule contexts as well. >> i'd now turn to our banking regulator friends. in many instances these clearinghouse members are banks subject to basel capital requirements which require them to hold capital against the guarantee they provide on behalf on their clients. we can all agree banks have exposure in the event the clients are unable to fulfill the obligations and banks should hold capital against that exp e exposu exposure, but shouldn't that measure of exposure accurately reflect the client's margin,
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offsets the bank's exposure to the clearinghouse? >> congressman, i think the number one protection in the clearinghouse context is really that the member bank be strongly capitalized and to be able to perform in adverse circumstances. so, having strong capital ratios really is a fundamental part of our regulatory structure and the safety and soundness of the system including, you know, the clearing of swaps. just by definition, i just want to point out, a leverage ratio is not by definition a risk-based measure. so, by definition it would inconsistent to import measures of exposure or risk as a general matter. >> congressman, i agree with comptroller curry. i think the core issue here is, you know, the margin is posted with the ccp.
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but in addition, the ccp is asking the intermediary bank for a guarantee. and the potential loss from the derivative exposure could substantially exceed the margin that's posted with the ccp. that's why, you know, the guarantee is imposed. and the capital is really designed to protect the bank against the downside risk from that derivative exposure. >> i would just simply note to my friends, if we create a system that we require such capital requirements above and beyond what would appear to be necessary, we will cause financial institutions to not participate. and the next time we have a lehman brothers or an fm global and a major failure and their clients need quickly to find a new clearing member, a new place to cover their outstanding positions, their margin, there may not be any sources.
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having been a member of this committee through the wonders of 2008, when the worst-case scenario occurs, you have to be totally prepared. i'm just concerned with basel we're headed in a direction that will limit my constituents' options, thereby, increasing their cost and reduce these risk -- these risk mitigating tools. so, i just simply note that to all of you and ask that you bear that in mind. we're undergoing pressure back home now in oklahoma in the ag and energy sector. it's real pressure. it's something that will take time to overcome. but these tools have been and continue to be important, so let's not -- let's not allow basel to cause unintended damage. with that, mr. chairman, i yield back the balance of my time. >> the chair now recognizes the gentleman from massachusetts, mr. lynch. >> thank you, mr. chairman. i want to thank the witnesses for your willingness to help the committee with its work today. i have a question for chairman
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gruenberg. a number of the members on this committee have been working with vice chair tom hannig on a proposal that would give regulatory relief to some of our small banks. we're looking at banks, community banks, that are there in the traditional business of banking, taking zps and making loans to businesses and individuals. and the way this would work -- we have not accepted all of the recommendations but we have focused on a number of them. which would be to be eligible for regulatory relief, the financial institution must hold note-trading assets, no derivative positions other than interest rate or foreign exchange, have a limited notional value of all the bank's derivative exposure otherwise and maintain a ratio of debts to assets no less than 10%. and in return for that we would
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give under this legislation we would give relief in this form. those banks would be -- the compliant banks would be exempt from basel risk-based capital standards. the test -- the stress tests, in some cases they would be exempt. in other cases the stress tests would be every 18 months instead of every year, so trying to reduce the cost there for compliance. and also exemptions from submitting call reports and schedules. now, this actually goes back to mr. sherman's question before where we're actually regulating activity, not necessarily size. so, if a bank's not engaged in risky activity, we think they ought to be entitled to relief. this has been a very high-cost issue for smaller banks. i just wanted to get your sense on whether this is something that you would be receptive to. >> congressman, i am sympathetic to the concept.
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the core concept being that if a smaller institution is very strongly capitalized on the leverage ratio, that's the 10% that you referenced, and doesn't engage in high-risk activities, it would be eligible to reduce or compliance with the risk-based capital standards. i think that core concept really makes some sense. i think that certainly an issue for the congress to consider. and i think as part of our regulatory review process, within the framework of our capital rules, that may be something we might be able to consider on a regulatory basis. >> i do want to fixate on that word sympathy. because i think a lot of our small banks, they're good with the sympathy, you know, they're looking for actual relief now. >> let me say, i'm open to pursuing that approach. >> mr. cordray, you got any worries about that? have you thought about that
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proposal? i don't want to -- you might be out of pocket on this issue, i'm not sure. >> we have been. if you look at our mortgage rules, we tiered the application of those rules on the qualified mortgage what we call the ability to repay rule. we made special provisions for smaller creditors and, in fact, they have increased their share of the mortgage market, credit unions and community banks. and frankly, it's appropriate. because if you look through the financial crisis, the default rates on loans that were issued by smaller creditors, particularly depository institutions, had a much better -- that is lower -- rate of default than other mortgages made generally in the marketplace. so, where we can take that into account and think about how we can apply different provisions for different levels of risk, i think that is entirely appropriate. >> thank you. >> we will continue to do so. >> and i do want to -- you hit right on a point that i didn't
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mention, which is that in those cases where a bank is willing to keep their -- that mortgage in their portfolio, it would be deemed a qualifying mortgage. so, because you're not -- you're not issuing to sell it, you know? >> we're comfortable with that, particularly for smaller entities. but there were larger entities before the crisis that kept mortgages on their balance sheet and blew up the system, washington mutual, countrywide and others. at smaller levels i'm quite comfortable with that. >> fair enough. thank you, mr. chairman. i yield back. >> the gentleman yields back. the chair now recognizes the gentleman from california mr. royce, chairman of the house foreign affairs committee. >> thank you very much, mr. chairman. i had a -- >> i don't think your microphone is on. >> thank you, mr. chairman. last month in a hearing before the committee about due process issues with fsoc, professor jonathan macy of yale law school stated that with respect to the
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actions that the fsoc have already taken there is a significant danger of increasing rather than decreasing systemic risk. and his point as he explained was that this was because the fsoc is ignoring certain risk mitigation strategies and hurting entities into particular risk strategies which decreases diversification and then increases the systemic risk. this could also happen indirectly with companies making choices to merge, sharing in the costs of compliance and creating greater economies of scale. we've seen this in the banking sector. or more directly with the implied or explicit backing of the government as ict,w the ca with the gses. so, i was going to ask mr. curry, do you view the potential for regulators to create systemic risk as a problem? and what actions have you taken to make sure that -- and i'll
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ask this of chair matz that the fsoc designations are not increasing systemic risk per the thesis that the yale professor puts forward. >> congressman, with the fsoc actually is looking at -- this is referenced in our annual report, looking at some of the consequences of changes within the marketplace, including regulatory changes. there are behaviors that have changed, institutions have either left or entered different types of business, not the impact to nonbanks. those are all things that we've identified as emerging or potential or emerging risks that require further monitoring and if necessary potential action down the road. >> chair matz, if you could just weigh in there. >> thank you. more specifically, as the designation is being considered,
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the company has an opportunity to present any evidence to the staff, whether in person or in writing, and so if they think that there might be information that would be helpful in making the -- in determining whether to designate, they have every opportunity to make that information available to us. >> and lastly, i'll just ask chair white, do you agree that this is a problem? would you like to weigh in? >> it's certainly something that i think we need to be constantly keeping in mind with all of our regulations, what impacts they're having, what mitigators we ought to be considering in addition. >> okay. now, i'm trying to better understand how the interaction on another subject here between the office of financial research and fsoc members works. after criticism by this committee and the public on an ofr report regarding the asset management industry, the fsoc sought public views on the
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industry, and later issued a request for notice and comment on asset management products and activities. separately the s.e.c. put out the ofr report for public comment. can i ask the panel, do any of you see a reason why all ofr public reports should not be open to public notice and comment? does anyone take exception to that concept? for the record, mr. chairman, i'd like to say that the witnesses for the record saw no reason to continue the practice of ofr not allowing for public comment on their reports. that's the point i wanted to make. i think it's important that they do so. and if i have time here, the fsoc has not designated any asset managers as sifis which is
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a step i support because the risks they manager born by those whose funds they invest. but the fsoc is now apparently considering the industry under activities-based regulation, the second prong of section 113 of the dodd/frank act rather than material financial distress, the first prong. my question is not about asset managers but, rather, how fsoc came to this decision and why a similar process wasn't used when designating insurance companies. mr. woodall, is it fair for the fsoc to offer different amounts of process to different industries? and why not take the same amount of time and get it right? >> congressman, i think that we've already discussed the fact that inactivities, which has been my main goal in the insurance company, it's evolving now in the council.
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the council is young. it's evolving. and i welcome the idea of taking a pause and getting into looking at the activities across the segment. and i hope that they will do that for the insurance industry, too. >> thank you, mr. chairman and mr. woodall. >> the chair now recognizes the gentleman from georgia, mr. scott. >> thank you very much, mr. chairman. panel, i'm very concerned about the department of labor's few di f fiduciary role. i've spent many years in the african-american community, and our president is a wonderful person. he is a decent, good man. but as an african-american, i'm not sure that he has been properly advised as to how devastating this department of labor ruling will be on the african-american families in
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terms of wealth building. now, i say that as one who -- i'm a graduate of wharton school of finance where i got my mba. i went off and much of my work has been in investment. i had an investment portfolio in my own business that i started. as a result of that, they put me on the board of directors, executive board of directors of the wharton school, and there in that position we pulled together along with john scully who was chairman of our board, and chairman of pepsi-cola at that time, an extraordinary program of wealth building. but what we found out there were three elemental areas that prohibited wealth building and investment and that was education, financial advise. and the overarching complexity and diversity of the investment options in our system. this department of labor rule will have a devastating effect on the african-american
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community and on other lower and middle income. because they don't have that money to pay up front with fee costs. and when you put a contract there for them to sign, they're going to run away. i know. i've been there. i've worked with the african-american chamber of commerce on this. so, what i want to ask you all, you all are the financial stability council of the united states government. take for a moment and look at the most unstable financial caring in this country is in african-american communities. is it not too much for somebody on your committee to ask the president to hold off until we actually see just how devastating it is affecting african-americans? that's what i'm asking you to do. i ask ms. white the other day in our meeting at southeastern
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conference, but she seems to have creeded her authority to t labor department. mr. watt, you were here, we wrote it into section 913 of dodd/frank that was the domain of the securities and exchange commission. at no time did we hear about it and if they do, wouldn't it be respectful for them to sit down with the regulatory agency that handles financial investments, the s.e.c. and fendra, to work that out. i just urge you to examine these. because the devastating impact is terrible. my paper, i urge you to read it. sunday's edition, front page of the business. talks about the struggle of african-american families to
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build and grow wealth. and the number one reason why it's so slow is they can't get the education or the information. rich people investing, they don't have any problem. they can pay for that fee for service. most of them do. but when you get to annuities or trying to turn your life insurance into whole life or whatever, you need advice for that. anyway, i urge you to ask the president to put a pause on this and let us see what the impact on the black families are. now, i wanted to -- i think i got time. we got a terrible problem with the european union on this equivalency with derivatives. december 15 is the deadline. and i want to know, because it's going to have a devastating effect on our end users, on our
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exchanges and clearinghouses if we don't get equivalency in terms of our regulatory regime with the eu. especially when they've given equal status to singapore and other areas. what's the status on that in that we're just a week away from the deadline? >> thank you, congressman. they have pushed out that immediate deadline. i think we are still working in good faith to try to resolve this. i think we've narrowed our differences. i'm hopeful that we can do so. i, of course, believe they should have granted us equivalence some time ago. but i recognize the issues that they're concerned about, and we're working very hard to work them out. >> thank you, sir. >> time of the gentleman has expired. the chair now recognizes the gentleman from ohio, mr. stivers. >> thank you for being here. i'd like to go on a quick tour of the segments of the financial services industry. how many of you believe -- how many of the witnesses believe that small banks and credit
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unions caused the crisis in 2008? could you raise your hand if anybody believes that. okay. i would like to note that no one -- no one did say that. and you have an important role as a coordinating council of regulators as well, and i'm curious if you could go down the line starting with ms. white, and could you tell me how many hours in the last year you've spent discussing and identifying regulatory conflicts and unnecessary regulations that might be harming our community banks and credit unions where better coordination could reduce unintended consequences and cost and differing regulatory interpretations by agents in the field? just how many hours this year the council spent talking about that, just if you could each give me a number and we can do this quickly. >> i can't give a very accurate estimate. those discussions have occurred at the staff level, but i can't say -- i can't really give you -- >> you'd say zero. >> i wouldn't say zero. >> at the staff level, but on the council, that's what i care about. that's who you are.
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let's keep moving. >> i also could not give you a number but -- >> it sounds like another zero. keeping moving, mr. woodall. >> i think there has been discussion leading up. >> okay, so some discussion, nobody can put a number on it in hours. ms. matz? >> i would agree. >> you would agree you don't know how many hours but it's happened. >> i think it's happened -- >> let's keep moving obviously there's a pattern here. does anybody have a number? can anybody give me any kind of number? >> i quit keeping time when i left the practice of law. >> good man. i'm still keeping time, so let's move. >> we spent a lot of time discussing a lot of issues and regulatory overlap is one of those. >> i think we got a pattern here. you're not discussing it enough at the council level. the staff is discussion it, but you need to discuss it. these are important community assets that dot fabric of our country and the small banks
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and credit unions are struggling to keep up. many of your field agents misinterpret regulations meant for the big banks and put extra pain and cost on the small banks and they're having real strug e struggles. let's move to regional banks and how many of you think regional banks -- and i'll define those as kind of maybe $50 billion to $250 billion. how many believe that those regional banks caused the crisis? again, no -- got a couple hands there, maybe? >> just to make the point for what it's worth and -- >> we're running out of time. you can be quick. >> the regional banks generally are individually not systemic. i would point out, as was mentioned earlier, the most expensive bank failure during this crisis and in the history of the fdic was a $12 billion lost cause by the failure of indy mac which was a $30 billion thrift, so a regional institution can have a -- a
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failure of a regional -- one or more regional institutions can have a significant consequence. >> they can and i believe that. let's talk about what you've done to use your regulatory flexibility that secretary can anybody explain to me exactly how you've used that regulatory flexibility? >> the occ supervises a range of institutions, small rural banks to globally active banks. we're very concerned about the regulatory burden, particularly on community banks. you know, the fsoc is not necessarily the form that we discussed reducing regulatory burden. we do that on the banking and credit union side, on the ffiec, the federal and financial institutions examination council. we really are concerned about the impact of the process which is designed to reduce regulatory burden. >> i appreciate that. i want to talk about that. but we're talking about regional banks now. can you tell me how you've used the flexibility that secretary
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lu says you have? have you used it, and if so, how? >> as the supervisor of a number of regional or mid-sized institutions, we place a great deal of value on collaboration and coordination with our other regulatory agencies. and i would include the fed, the fdic, and the cfpb. it's really a regulatory imperative to make sure we're working together. >> you haven't answered -- you're trying to eat up time here. you have not answered one specific way in which you've used your regulatory flexibility. could you give me one way? that's all i'm asking. >> as you know, congressman, one of the consequences is your requirement of submitting a resolution plan. we certainly for -- >> the tailored plan is the only true answer. and how that cuts a little cost. they still have to do the c-car stress test, the regular stress test. there are way too many things
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built in that you have the power to fix. and i wish you'd take a look at it. i didn't even get to non-bank financial entities, and my time has expired. please look at those things. thank you, mr. chairman. i yield back. >> the time of the gentleman has expired. the chair now recognizes the gentleman from texas, mr. green. ranking member of the oversight subcommittee. >> thank you, mr. chairman. i thank the ranking member and the august witnesses that have appeared today. in my years on the committee i don't think i've quite seen the number of financial stability heads assembled at one time for the purposes of questioning. so i thank you for being here. mr. woodall, much has been made of the fact that you are the only person on the fsoc with insurance expertise. incidentally, do you claim expertise in other areas to this extent?
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>> i would say being on the council is a learning experience. they're learning about insurance and i'm learning about banking. >> so you don't claim expertise in banking, but you are learning about it. mr. woodall, based upon what has been said, there seems to be an implication or indication that only persons with insurance expertise should judge an insurance company. i ask this because metlife has appealed its case in the sense that it has filed in the federal district court in the district of columbia. do you think that judge ought to be an insurance expert to hear the metlife case? >> i'm not going to make any statements about the metlife appeal. >> i understand. well, i'll continue to ask you questions and you continue to have no response. do you think that the jurors who will hear the metlife case, if we do have a panel of jurors, do you think that they all have to have insurance expertise? >> of course not. >> of course not.
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in fact, across the length and breadth of this country on a daily basis, we have jurors, ordinary, everyday working people who hear complex cases involving antitrust, billions of dollars, in texas we had the pennzoil case, people hear these cases all the time and make life and death decisions who don't have expertise in a given area that the case happens to be focused on. do you agree with this? >> i think the fsoc -- >> i think you do. let me continue. it appears to me, mr. woodall, that the indication of only a person with expertise in a given area should be able to judge would lend itself to asking at least one question. have you made any decisions with reference to banks since you've been on the fsoc? >> banking regulators are the ones that do that. >> but have you voted on anything related to banks?
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have you had a vote since you've been there on anything related to banks? >> not as such. >> not as such. well, i don't have the time to drill down with that, mr. woodall. there is a way to get to the "not as such" answer, but i care to do it now. so have you voted on something as such? >> when it comes to utilities -- >> i understand. so you have not recused yourself from issues related to banks? you're a phi beta kappa from kentucky. you can understand these banking issues, can't you? and if you believe that a person must have insurance expertise to
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sit in judgment of an insurance company on fsoc, raise your hand. if you think you only can do it with insurance expertise, raise your hand. anyone? let the record reflect, none. let me ask the question another way. if you believe that you can sit in judgment of an insurance company and not be an phi beta kappa from kentucky, raise your hand, please. if you believe you can. you're the only person who thinks you've got to be an phi beta kappa from kentucky. i assume i can now put in the record that you are a person who believes you must be a phi beta kappa from kentucky before you can -- okay, that should go in the record. i take it you have joined the rest of your colleagues and the record should show there is unanimous consent that you don't have to be an insurance expert to sit in judgment of an insurance company? >> i'm not sure what an insurance expert is. >> i'm glad you said it, because
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some people have claimed you are. my assumption is you don't know what you are. >> that was because it was put in the title by dodd/frank. >> mr. woodall, i want to make this very clear. i love you. because sometimes it can appear that i don't love people because i have to ask the tough questions. i regret i didn't get to some other things. but god bless you, brother. i love you. >> thank you, mr. chairman. thank you for being here, way over to the side here. i'm going to address my first question to chairman matz. you said earlier designation should have insurers. my understanding was the time of the designation, june of 2013, 98% of metlife's consolidated assets, 96% of its liabilities, 95% of its revenues, were in
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these highly regulated insurance subsidiaries. i just wanted to make sure i understand the basis for your decisions. are you saying fsoc analyzed only 2% of metlife's assets and 4% of its revenues, and found those assets alone to be systemically important and a threat to the financial system? is that your testimony? >> i do want to say that we cannot comment on metlife. but in terms of our designation of other insurance companies, we do look at how their balance sheet and off-balance sheet activities could -- are interconnected with other systemically important institutions. >> i'm going to stick again with chairman matz on this, then open
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it up to others as well. as all of you should know, insurance companies are extensively supervised by states, despite the existing regulation, fsoc has designated three insurers has systemically important. chairman, could you provide an overview of how and why you determined the state insurance regulation, in particular the state guarantee system for failed insurers, is effective? >> thank you for asking that. i don't think any of us, and i can't speak for anyone, but on this i would say i don't think any of us think the state insurers are ineffective. but our mandate is to look at how the activities of the insurance company affect the financial stability of the united states. they're really looking at the effect on policyholders. it's a very different direction that they're taking. >> with making that determination of what you should pull away from the states, again, clearly legislatively,
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most authority of regulation for insurance companies is with the states. i would argue for protection of policyholders but also protection of policyholder would by definition, you know, include the financial stability of that company. those would be directly related. those aren't separate issues. what analysis did you as a voting member of fsoc rely on to reach the determination that that should be separated out, that states were unable to handle this? >> as i said, they have a different mandate than we do. they're looking at the institution and the solvency vis-a-vis the policyholders. we're looking at the institution and its interconnectedness with other institutions and its ability to threaten the financial stability of the united states. it's a different mandate. it doesn't mean that they're doing their job any better or worse than we are or vice versa. it's just a different tack that they're taking. >> as you're making this decision, was there an independent analysis done by a


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