69–006 

114TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 114–878 

TO REQUIRE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM AND THE FINANCIAL STABILITY OVERSIGHT COUNCIL TO CARRY 

OUT CERTAIN REQUIREMENTS UNDER THE FINANCIAL STABILITY ACT 

OF 2010 BEFORE MAKING ANY NEW DETERMINATION UNDER SECTION 

113 OF SUCH ACT, AND FOR OTHER PURPOSES 

DECEMBER 16, 2016.—Committed to the Committee of the Whole House on the State 

of the Union and ordered to be printed 

Mr. HENSARLING, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

together with 

MINORITY VIEWS 

[To accompany H.R. 3857] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 3857) to require the Board of Governors of the Federal 

Reserve System and the Financial Stability Oversight Council to 

carry out certain requirements under the Financial Stability Act of 

2010 before making any new determination under section 113 of 

such Act, and for other purposes, having considered the same, report favorably thereon without amendment and recommend that 

the bill do pass. 

PURPOSE AND SUMMARY

H.R. 3857 would prevent the FSOC from designating any nonbank financial institution for heightened Fed supervision until 90 

days after: the Federal Reserve establishes prudential standards 

for nonbank financial companies and bank holding companies, as 

required by Section 165(a) and (b) of the Dodd-Frank Act; the Federal Reserve promulgates regulations setting forth criteria for exempting certain types of classes of U.S. nonbank financial companies or foreign nonbank financial companies from supervision, as 

required by Section 170 of Dodd-Frank; and the FSOC reevaluates 

within calendar year 2016 each previous SIFI designation and rescinds any such designation if it determines that the nonbank financial company no longer meets the standards for designation and 

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plaining the reasons that the Council did not rescind any such designation. 

BACKGROUND AND NEED FOR LEGISLATION

Under Section 165 of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act (the Dodd-Frank Act), the Financial Stability Oversight Council (FSOC) is authorized to determine that a 

nonbank financial company will be subject to the consolidated supervision of the Federal Reserve and enhanced regulatory prudential standards if the company’s material financial distress—or the 

nature, scope, size, scale, concentration, interconnectedness, or mix 

of its activities—could pose a threat to U.S. financial stability. Although the term does not expressly appear in the Dodd-Frank Act, 

companies designated by the FSOC for Federal Reserve supervision 

are commonly referred to as ‘‘systemically important financial institutions,’’ or ‘‘SIFIs.’’ 

The intended purpose of the enhanced prudential regulation as 

authorized under Section 165, is to avert or minimize risks to the 

financial stability of the United States in the event of a failure of 

a SIFI. Section 165 also requires the Federal Reserve to develop 

enhanced prudential standards to strengthen regulation and supervision of both large bank holding companies and nonbank SIFIs 

designated by the FSOC. 

The implementation of the regulatory scheme relating to 

nonbank SIFIs continues on an uncertain course as the Federal Reserve has not yet proposed comprehensive prudential regulations 

regarding the oversight and supervision of such entities. 

Additionally, Section 170 of Dodd-Frank Act directs the Federal 

Reserve, in consultation with the FSOC, to issue regulations exempting certain classes or categories of companies from supervision 

by the Federal Reserve. However, to date no such regulations have 

been issued. Promulgating a rule provides meaningful information 

to market participants, and provides notice to nonbank financial 

companies and the public as to what is intended, so that there will 

be more certainty around the process. 

In testimony before the committee on April 30, 2015, executive 

vice president and chief financial officer of Prudential Financial, 

Inc., Robert Falzon stated: 

If you think about the objective of this regulation, it is 

not to simply classify companies as systemic and then . . . 

hold them into that designation for a long term but rather 

to encourage them to reduce those activities that are leading to systemic risk in the U.S. economy. Without the tools 

to identify the activities that give rise to that risk we’re 

unable to address appropriately our activities in a way 

that would be constructive and responsive to the intent of 

the regulation. 

In a letter of support for H.R. 3857 dated November 2, 2015, the 

U.S. Chamber of Commerce wrote: 

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

the road. 


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HEARINGS

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

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on November 3, 2015 and November 4, 2015 and ordered H.R. 3857 to 

be reported favorably to the House without amendment by a recorded vote of 33 yeas to 24 nays (recorded vote no. FC–73), a 

quorum being present. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. The sole recorded 

vote was on a motion by Chairman Hensarling to report the bill favorably to the House without amendment. The motion was agreed 

to by a recorded vote of 33 yeas to 24 nays (Record vote no. FC– 

73), a quorum being present. 

[Please see attached vote tallies.] 


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COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the findings and recommendations of the Committee based on oversight activities under clause 2(b)(1) of rule X 

of the Rules of the House of Representatives, are incorporated in 

the descriptive portions of this report. 

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee states that H.R. 3857 will provide clarity to markets and nonbank financial companies by 

streamlining the designation process and exempting certain classes 

of companies from heightened prudential standards. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate to be prepared by the Director of the Congressional Budget Office pursuant 

to section 402 of the Congressional Budget Act of 1974. 

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate to be prepared by the Director of the Congressional Budget Office pursuant 

to section 402 of the Congressional Budget Act of 1974. 

CONGRESSIONAL BUDGET OFFICE ESTIMATES

With respect to clause 3(c)(3) of rule XIII of the Rules of the 

House of Representatives, an estimate and comparison prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974 was not submitted to 

the Committee before the filing of this report. 

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates to be prepared by the Director of the Congressional Budget 

Office pursuant to section 423 of the Unfunded Mandates reform 

Act. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

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


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EARMARK IDENTIFICATION

H.R. 3857 does not contain any congressional earmarks, limited 

tax benefits, or limited tariff benefits as defined in clause 9 of rule 

XXI. 

DUPLICATION OF FEDERAL PROGRAMS

Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), the 

Committee states that no provision of H.R. 3857 establishes or reauthorizes a program of the Federal Government known to be duplicative of another Federal program, a program that was included 

in any report from the Government Accountability Office to Congress pursuant to section 21 of Public Law 111–139, or a program 

related to a program identified in the most recent Catalog of Federal Domestic Assistance. 

DISCLOSURE OF DIRECTED RULEMAKING

Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), the 

Committee states that H.R. 3857 contains no directed rulemaking. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Requirements related to the Financial Stability Act of 

2010 

This Section states that the Board of Governors of the Federal 

Reserve System and the Financial Stability Oversight Council must 

carry out certain requirements establishing prudential standards 

for nonbank financial companies, criteria from exempting certain 

classes of nonbank financial companies from supervision, reevaluations of nonbank financial companies that no longer meet the new 

standards and reports to Congress, under the Financial Stability 

Act of 2010 before making any new determination under section 

113 of such Act. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

H.R. 3857 does not repeal or amend any section of a statute. 

Therefore, the Office of Legislative Counsel did not prepare the report contemplated by Clause 3(e)(1)(B) of rule XIII of the House of 

Representatives. 


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MINORITY VIEWS 

H.R. 3857 is one of several Republican proposals to severely obstruct the ability of the Financial Stability Oversight Council 

(FSOC) to function in a timely manner to ensure our nation’s stability. Specifically, the bill would prohibit the FSOC from designating additional non-bank financial companies as systemically important until 90 days after both (1) the Federal Reserve Board promulgates rules for those companies on enhanced prudential requirements and criteria for exempting types of assets or companies 

from Fed supervision; and (2) the FSOC, within 2016, reevaluates 

each designated company, rescinds designations where appropriate, 

and then reports to the House Financial Services and Senate Banking Committees on why it did not rescind any determination. Such 

a lengthy delay is unacceptable and puts the U.S. economy at risk 

for another financial crisis fueled by companies like AIG, which 

had little to no regulatory oversight. 

Since its creation in 2010 with the Dodd-Frank Act, the FSOC 

has been working diligently to comply with its statutory duty to 

identify firms that pose a systemic risk to the stability of our financial system and, therefore, merit increased regulation by the Fed. 

This approach has been thorough and fact-based, leading to the 

designations of AIG, GE Capital, Prudential, and MetLife. Moreover, the FSOC has endeavored to provide the public and industry 

with transparency over its designation and reevaluation process. 

For its part, the Fed has taken a cautious approach to the regulation of designated firms, stating that enhanced prudential standards for these companies will reflect an evaluation of the business 

model, capital structure, and risk profile of each designated 

nonbank financial company. Such an approach is beneficial to both 

the Fed and the designated firms, as it puts companies on notice 

of future regulation so that they may provide the Fed with sufficient information to enable it to tailor its rules. 

H.R. 3857 ignores these efforts and requires the FSOC to halt 

further designations until after the Fed finishes all of its enhanced 

prudential regulations and promulgates exemptions from Fed supervision. This delay to oversight and regulation of our nation’s 

riskiest financial institutions fails to protect the American public 

and is opposed by the Department of Treasury and Better Markets. 

Indeed, according to Treasury Secretary Lew, this and similar Republican proposals ‘‘would severely undermine and impair the 

Council,’’ and ‘‘is the wrong approach and wrong lesson from a crisis that far too many American families continue to recover from.’’ 

For these reasons we oppose H.R. 3857. 

MAXINE WATERS. 

WM. LACY CLAY. 

RUBE ́ N HINOJOSA. 

KEITH ELLISON. 


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AL GREEN. 

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