U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Publishing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

99–796 PDF 2017

OVERSIGHT OF THE FINANCIAL 

STABILITY OVERSIGHT COUNCIL 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

DECEMBER 8, 2015 

Printed for the use of the Committee on Financial Services 

Serial No. 114–65 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

December 8, 2015 ............................................................................................. 1 

Appendix: 

December 8, 2015 ............................................................................................. 83 

WITNESSES 

TUESDAY, DECEMBER 8, 2015 

Cordray, Hon. Richard, Director, Consumer Financial Protection Bureau ........ 10 

Curry, Hon. Thomas J., Comptroller of the Currency, Office of the Comptroller of the Currency ......................................................................................... 11 

Gruenberg, Hon. Martin J., Chairman, Federal Deposit Insurance Corporation ........................................................................................................................ 9 

Massad, Hon. Timothy G., Chairman, Commodity Futures Trading Commission ........................................................................................................................ 6 

Matz, Hon. Debbie, Chairwoman, National Credit Union Administration ......... 7 

Watt, Hon. Melvin L., Director, Federal Housing Finance Agency ..................... 8 

White, Hon. Mary Jo, Chair, U.S. Securities and Exchange Commission .......... 5 

Woodall, Hon. S. Roy, Jr., independent member with insurance expertise, 

Financial Stability Oversight Council ................................................................ 7 

APPENDIX 

Prepared statements: 

Cordray, Hon. Richard ..................................................................................... 84 

Curry, Hon. Thomas J. ..................................................................................... 86 

Gruenberg, Hon. Martin J. .............................................................................. 94 

Massad, Hon. Timothy G. ................................................................................ 109 

Matz, Hon. Debbie ............................................................................................ 113 

Watt, Hon. Melvin L. ....................................................................................... 123 

White, Hon. Mary Jo ........................................................................................ 125 

Woodall, Hon. S. Roy, Jr. ................................................................................. 131 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Murphy, Hon. Patrick: 

Written responses to questions for the record submitted to Hon. Richard 

Cordray .......................................................................................................... 137 

Written responses to questions for the record submitted to Hon. Thomas 

J. Curry .......................................................................................................... 140 

Written responses to questions for the record submitted to Hon. Melvin 

L. Watt ........................................................................................................... 141 

(1) 

OVERSIGHT OF THE FINANCIAL 

STABILITY OVERSIGHT COUNCIL 

Tuesday, December 8, 2015 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The committee met, pursuant to notice, at 10:04 a.m., in room 

2128, Rayburn House Office Building, Hon. Jeb Hensarling [chairman of the committee] presiding. 

Members present: Representatives Hensarling, Royce, Lucas, 

Garrett, Neugebauer, Pearce, Posey, Fitzpatrick, Westmoreland, 

Luetkemeyer, Huizenga, Duffy, Stivers, Fincher, Stutzman, 

Mulvaney, Hultgren, Ross, Pittenger, Wagner, Barr, Rothfus, 

Messer, Schweikert, Guinta, Tipton, Williams, Poliquin, Love, Hill, 

Emmer; Waters, Maloney, Velazquez, Sherman, Meeks, Hinojosa, 

Clay, Lynch, Scott, Green, Cleaver, Ellison, Himes, Carney, Foster, 

Murphy, Sinema, Beatty, Heck, and Vargas. 

Chairman HENSARLING. The Committee on Financial Services 

will come to order. Without objection, the Chair is authorized to declare a recess of the committee at any time. 

Today’s hearing is entitled, ‘‘Oversight of the Financial Stability 

Oversight Council.’’ Today, we have 8 of its 10 voting members as 

witnesses. Secretary Lew testified, according to statute, earlier in 

the year, and Chair Yellen has regrettably declined to give testimony today. 

I now recognize myself for 3 minutes to give an opening statement. Financial regulators possessed every regulatory power to 

prevent the 2008 financial crisis, but failed to do so. Yet, Washington rewarded them with vast new sweeping powers over our 

lives and our economy. Nowhere is that more evident than in the 

Dodd-Frank Act’s Financial Stability Oversight Council (FSOC), 

whose members, again, save two, sit before us today. 

FSOC is clearly one of the most powerful Federal entities ever 

to exist. Unfortunately, it is also one of the least transparent and 

least accountable. 

First, the Council’s power is concentrated in the hands of one political party, the one that happens to control the White House. All 

but one of its members is the presidentially-appointed head of an 

agency, but interestingly the agencies themselves are not members, 

thus denying bipartisan representation. This structure clearly injects partisan politics into the regulatory process. It erodes agency 

independence and harms accountability. 

Furthermore, FSOC’s budget is not subject to congressional approval, removing yet another check and balance to its immense 

2 

power. FSOC has earned bipartisan condemnation for its lack of 

transparency. Two-thirds of its proceedings are conducted in private. Minutes of those meetings are devoid of any useful substantive information on what was discussed. 

Dennis Kelleher, the CEO of the left-leaning Better Markets, has 

said, ‘‘FSOC’s proceedings make the Politburo look open by comparison. At the few open meetings they had, they snap their fingers 

and it is over. They are all scripted. They treat their information 

as if it were state secrets.’’ 

Of all the Council’s activities, none generates more controversy 

than its designation of non-bank financial institutions as systemically important financial institutions, or SIFIs, by acronym. 

Designation anoints institutions as too-big-to-fail, meaning today’s SIFI designations are tomorrow’s taxpayer-funded bailouts. 

Designation also ominously grants the Federal Reserve near de 

facto management authority over such institutions, thus allowing 

huge swathes of the economy to potentially be controlled by the 

Federal Government. 

Members of the Council can merely raise the prospect of a SIFI 

designation and thereby eliminate entrepreneurial risk-taking, innovation, and growth from our economy. As a result, Americans 

may find themselves paying more to insure their homes and families. Investors who relied on mutual funds to save for their children’s education or their own retirement will find they have earned 

less. 

In addition to SIFI designations, FSOC is charged with identifying emerging threats to our financial stability, but refuses to look 

in the mirror. In its latest annual report, it conspicuously omits 

any references to specific government policies or agencies as helping to cause the systemic risk it identifies: ‘‘Greater risk-taking 

across the financial system is encouraged by an historically low 

yield environment,’’ the Council reports. Yet, the Council refuses to 

identify the obvious source of this apparent risk: the Fed’s unprecedented loose monetary policy. 

The Council warns of reduced liquidity in the capital bond markets, yet never acknowledges that Dodd-Frank’s Volcker Rule and 

other regulations have drastically reduced liquidity. The Council 

lists risk-taking in large, complex interconnected financial institutions as a threat, yet again, it fails to mention that Dodd-Frank 

amplifies the threat by empowering the Council to designate certain firms as too-big-to-fail. 

FSOC typifies not only the shadow regulatory system, but also 

the unfair Washington system that Americans have come to fear 

and loathe: powerful government administrators; secretive government meetings; arbitrary rules; and unchecked power to punish. 

Thus, oversight and reform is paramount. 

I yield back. 

The Chair now recognizes the gentleman from New Jersey, the 

chairman of our Capital Markets Subcommittee, Mr. Garrett, for 1 

minute. 

Mr. GARRETT. I thank the chairman. And I thank all of our witnesses for being here today. 

I guess all of our witnesses have gotten to know each other pretty well, because you meet regularly in closed-door sessions where 

3 

the public is not allowed, to basically discuss how to fundamentally 

change the U.S. economy. 

So I thought I would just take this minute to introduce ourselves 

to you. We are the U.S. Congress. We were created by Article I of 

the U.S. Constitution. We are the ones who are actually elected 

representatives of the American public. And we are the ones who 

send you all those pesky letters that you all routinely ignore. 

And I know you are probably confused by this setting, that the 

public is here, that there are TV cameras here, so this is probably 

unusual for you. But this is what we do. We are open to the American public. We are transparent. And we are before the American 

public. 

So, if there is one thing that you take away today, it should be 

that in the way you run your hearings, and the way you conduct 

yourselves, you need to become more like us: more transparent and 

more open to the American public. You need to adopt these policies 

so you are no longer working behind closed doors and in secret. 

With that, I yield back. 

Chairman HENSARLING. The Chair now recognizes the ranking 

member for 5 minutes. 

Ms. WATERS. Thank you, Mr. Chairman. And thank you to the 

distinguished members of the Council for joining us for this hearing. 

We gather today to examine the activities of the Financial Stability Oversight Council, or FSOC, which, since the passage of the 

Dodd-Frank Act, has fulfilled its mandate to monitor and respond 

to the types of systemic risks that nearly brought our economy to 

its knees in 2008. 

This important work cuts across every corner of our banking, 

capital markets, housing, and insurance sectors. Which is why Congress specifically designed the Council to draw on all of the expertise of the witnesses here before us today. 

Unfortunately, many of my colleagues on the other side of the 

aisle seem to have caught a convenient case of amnesia about this 

important mandate. 

Indeed, it was only 7 short years ago that our economy lost nearly $16 trillion in household wealth, $13 trillion in economic growth, 

and 9 million jobs. 

In large part, this was because our regulators were too often 

caught in silos not communicating with one another and not considering gaps between their agencies or interconnectedness within 

the financial sector. Even worse, we saw too many cases where regulators were captured by the very entities they were meant to police. 

Many of these lessons appear to be forgotten, as we have seen 

with recent markups, as well as attempts to laden government 

funding bills with poison pill riders. Some opponents of DoddFrank are far too focused on dismantling Wall Street reform by attacking core elements like the FSOC and the Consumer Financial 

Protection Bureau. 

These attempts to roll back Dodd-Frank started the minute this 

reform was signed into law, and make no mistake, these attempts 

continue today, even as our economy has experienced a remarkable 

rebound with 6 to 9 straight months of positive job numbers, GDP 

4 

growth, and a housing market where sustainable access to credit 

continues to expand, all of which are signs pointing to the sort of 

stability and growth that the law was designed to promote. 

FSOC has contributed to this growth and stability by convening 

the 10 component regulatory agencies for periodic informationsharing about emerging risk and reporting on those risks to the 

public. Further, the Council has now designated four institutions 

for enhanced supervision by the Federal Reserve. This designation 

will ensure that companies like AIG never again are able to engage 

in risky, unregulated activity that could threaten the entire global 

economy. 

And far from the talking points of some members on the opposite 

side of the aisle, this enhanced oversight is now causing some large 

non-bank financial companies to consider whether simplifying their 

structures and breaking themselves up might provide better value 

to their shareholders. 

I am also encouraged that the money market fund industry is 

now less susceptible to bank lack runs as a result of the pressure 

the FSOC brought to overcome gridlock at the Securities and Exchange Commission. 

Finally, I appreciate that the Council has made an effort to conduct this work in a manner that is responsive to feedback from 

Congress and outside stakeholders. For example, with this announcement in February, the FSOC took the step of voluntarily 

agreeing to certain due process and transparency measures that 

will further serve to improve their operations. This type of dialogue 

and openness to feedback should be applauded. 

As we hear from the voting members of the Council today, I will 

be interested to learn more about their interagency collaboration 

and their work to address emerging threats. Again, this work is 

central to preventing the types of contagion and risk that nearly 

crashed Main Street just 7 years ago. 

Thank you, Mr. Chairman, and I yield back the balance of my 

time. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Missouri, Mr. Luetkemeyer, chairman of our Housing and Insurance Subcommittee, for 1 minute. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. An inefficient secretive regulatory structure that does not reflect the reality of the 

U.S. financial system can have real economic consequences for 

businesses and the American people. This is particularly true of 

the banks that have been deemed to be SIFIs, not based on risk 

posed to the U.S. financial system, but purely on arbitrary asset 

size. 

On the non-bank side, designations are part of the regulatory 

system that has become synonymous with the overzealous enforcement climate so prevalent today. In vital power, the FSOC should 

alarm all Americans, judging by what we know of the staff hours 

spent on non-bank analysis, which we will get into shortly in the 

question-and-answer period. 

It is clear to me that these designations, and the lack of a clear 

path for de-designation, is a Federal Reserve-driven effort to expand government’s power and influence. 

5 

It is time to force more transparency, to require pragmatic regulation, and to curb the growing regulatory scene crippling our institutions and their customers. With that, Mr. Chairman, I yield back. 

Chairman HENSARLING. The gentleman yields back. 

We will now turn to our panel. Today, we welcome the testimony 

of the Honorable Mary Jo White, Chair of the Securities and Exchange Commission; the Honorable Timothy Massad, Chairman of 

the Commodities Futures Trading Commission; the Honorable Roy 

Woodall, Jr., the FSOC’s independent member with insurance experience; the Honorable Debbie Matz, Chairwoman of the National 

Credit Union Administration; and an especially warm welcome to 

our former colleague, the Honorable Mel Watt, Director of the Federal Housing Finance Agency; the Honorable Martin Gruenberg, 

Chairman of the Federal Deposit Insurance Corporation; the Honorable Richard Cordray, Director of the Consumer Financial Protection Bureau; and last but not least, the Honorable Thomas Curry, 

the Comptroller of the Currency. 

Since all of our witnesses have previously testified before Congress, I believe they need no further introduction. Without objection, your written statements will be made a part of the record by 

agreement with the ranking member. Each of you will be recognized for 3 minutes to give an oral presentation of your testimony. 

Chair White, you are now recognized. 

STATEMENT OF THE HONORABLE MARY JO WHITE, CHAIR, 

U.S. SECURITIES AND EXCHANGE COMMISSION 

Ms. WHITE. Thank you. Chairman Hensarling, Ranking Member 

Waters, and members of the committee, thank you for inviting me 

to testify regarding the Financial Stability Oversight Council. 

As you know, the Dodd-Frank Act established the Council to provide comprehensive monitoring of the stability of our Nation’s financial system. It also provides a formal forum for coordination 

among the various financial regulators, assisting in bringing about 

the kind of collaborative sharing of information and concerns that 

is very important to safeguarding the U.S. financial system. 

As one of two capital market regulators on the Council, the perspective that I and the SEC staff bring to the Council is important. 

In particular, the SEC’s historical tripartite mission of protecting 

investors, maintaining fair, orderly and efficient markets, and facilitating capital formation necessarily gives the SEC unique insight into many areas on which the Council is focused, such as the 

potential financial stability risks of asset management activities 

and products, the ongoing changes to market structure, and the 

role of central counter-parties. 

SEC engagement with the Council on these issues helps to ensure that relevant expertise is brought to bear on these important 

subjects. With respect to designations of any non-bank financial 

companies as systemically important, it is important to be datadriven and to conduct rigorous analysis throughout the process. 

The Council is also focused on enhancing its process and the 

transparency of its functions, which I consider to be quite important. Toward that end, as the ranking member indicated, in February of this year the Council unanimously adopted changes to the 

designation process, including increased and earlier engagement 

6 

with companies under review, increased public transparency concerning the designation factors, and an opportunity for designated 

firms to meet with Council staff in connection with the annual review of their designations. 

I look forward to our continued study of possible further enhancements and agree with the observation that the Council is a 

relatively new organization and should continuously study ways to 

optimize its functioning. 

Thank you again for the opportunity to testify today. I would be 

pleased to answer your questions. 

[The prepared statement of Chair White can be found on page 

125 of the appendix.] 

Chairman HENSARLING. Chairman Massad, you are now recognized. 

STATEMENT OF THE HONORABLE TIMOTHY G. MASSAD, 

CHAIRMAN, COMMODITY FUTURES TRADING COMMISSION 

Mr. MASSAD. Thank you, Chairman Hensarling, Ranking Member Waters, and members of the committee. I appreciate the invitation to testify today. 

The CFTC oversees the U.S. derivatives markets, and although 

most Americans do not participate in these markets, they are vital 

to our economy, affecting the prices we all pay for food, energy, and 

other goods and services. For these markets to work well, sensible 

regulation is essential. We learned that lesson in 2008 when a lack 

of oversight led to a buildup of excessive swap risk that contributed 

to the worst global financial crisis since the Great Depression. 

My perspective as a member of the FSOC is shaped by my responsibilities as CFTC Chairman, and today I would like to highlight a few of the CFTC’s priorities that are particularly relevant 

to the FSOC. 

First is the implementation of a regulatory framework for overthe-counter swaps where we have made great progress, and a number of financial regulators have responsibilities in this area, and 

the FSOC provides a useful way to communicate. 

The second area is making sure clearinghouses are strong and 

resilient. While we are the primary supervisor of clearinghouses in 

the derivatives markets, we work together with the Federal Reserve, the FDIC, and the SEC on these important issues. The 

CFTC has taken many actions to strengthen clearinghouse resilience, but there is more work to do in this area. 

Another priority of the FSOC and the CFTC is strong, resilient 

markets. Following the volatility in the Treasury market on October 15th of last year, the FSOC served as a forum to share information. Shortly after the events, CFTC staff provided a preliminary analysis of what happened in the futures markets to the 

Council, and subsequently, we worked with other FSOC members 

to prepare a detailed report analyzing what happened. 

Together, we continue to look at these issues pertaining to the 

evolution and oversight of these markets. 

In addition, cyber-security is one of our agency’s top priorities 

and one of the greatest risks to our financial system today. And 

here again, the FSOC plays an important role in facilitating cooperation. 

7 

Another area of focus for the CFTC that is important to FSOC 

is the oversight of benchmarks. Integrity is critical and has been 

a priority in our enforcement efforts. 

One of the most valuable functions of the FSOC is simply to 

bring together the agencies and regulators responsible for oversight 

of our financial institutions and markets. I believe doing so better 

positions us to identify and address potential threats to financial 

stability and better serve the American people. 

Thank you, and I look forward to your questions. 

[The prepared statement of Chairman Massad can be found on 

page 109 of the appendix.] 

Chairman HENSARLING. Mr. Woodall, you are now recognized. 

STATEMENT OF THE HONORABLE S. ROY WOODALL, JR., INDEPENDENT MEMBER WITH INSURANCE EXPERTISE, FINANCIAL STABILITY OVERSIGHT COUNCIL 

Mr. WOODALL. Thank you, Mr. Chairman, Ranking Member 

Waters, and members of the committee for inviting me to appear 

before you today. 

Mr. Chairman, you have asked that we be succinct in our oral 

testimony this morning. The committee received my written testimony last Friday morning, and in view of your request, I do not 

feel it is necessary for me to expound on it in detail. 

But in short, as the committee examines ways to improve the 

structure and the operations of the Council, my written testimony 

discussion falls into three broad categories. 

First, the background and legislative history of the independent 

member position in Dodd-Frank. Second, the lack of explicit statutory duties and authorities pertaining to the position, other than 

just being a member of the Council and the difficulties that has 

presented from being only ‘‘three lines in the statute.’’ The first line 

creates the position. The second one sets the 6-year term. And the 

third one sets salary. That is all that is in Dodd-Frank about my 

position. 

Finally, the third section of my written testimony tries to go into 

my willingness to work with Congress on how the role and authorities of the position can be clarified to strengthen the independence 

of the position in order for the holder of this position to be more 

effective in contributing to the work of the Council. 

Thank you. I am happy to answer any questions. 

[The prepared statement of Mr. Woodall can be found on page 

131 of the appendix.] 

Chairman HENSARLING. Chairwoman Matz, you are now recognized for your testimony. 

STATEMENT OF THE HONORABLE DEBBIE MATZ, 

CHAIRWOMAN, NATIONAL CREDIT UNION ADMINISTRATION 

Ms. MATZ. Thank you, Chairman Hensarling, Ranking Member 

Waters, and members of the committee. I appreciate the opportunity to discuss the Financial Stability Oversight Council. 

Congress established the Council in response to the 2008–2009 

financial crisis. The crisis made clear that financial markets cannot 

quickly absorb the collapse of very large, interconnected companies. 

8 

FSOC’s primary goal is to prevent system-wide financial crises. 

The Council’s multi-agency structure also ensures that a diverse 

array of views on emerging risks in each financial sector is considered when making decisions. 

From the beginning, the Council has recognized the importance 

of transparency and public participation. The Council committed to 

publicly disseminating timely information about decisions, while 

balancing the need to protect proprietary information and avoid unduly moving markets. Public feedback has also helped FSOC clarify 

procedures, enhance analysis, and improve decision-making. As an 

FSOC principal, I am committed to continuing such improvements. 

Each Council member brings to the table a unique perspective 

informed by our areas of expertise and experiences. As a Federal 

financial regulator for almost 10 years, I lead an agency that now 

supervises and insures more than 6,000 institutions with assets exceeding $1.1 trillion. 

Financial institutions of every size must carefully manage assets 

and liabilities. In fact, major elements of FSOC’s designation of a 

systemically important institution include the composition of the 

balance sheet, off balance sheet exposure, and interconnectedness 

with the entire financial services sector. 

FSOC has moved deliberately in creating its process for identifying non-bank financial companies. In response to public comments and congressional feedback, the Council has also invited 

company participation earlier in the process. 

Another important aspect of FSOC’s work is its annual report. 

The 2015 report called for heightened risk management and supervisory attention in areas such as cybersecurity and reaching for 

yield. 

In conclusion, FSOC has promoted collaboration across financial 

regulators, established rules and procedures which reflect public 

input, identified systemically important institutions, and furthered 

public awareness of threats to our financial system. 

Going forward, the Council must continue to evolve, provide 

transparency, and remain flexible when considering new issues. 

I look forward to your questions. 

[The prepared statement of Chairwoman Matz can be found on 

page 113 of the appendix.] 

Chairman HENSARLING. Director Watt, you are now recognized 

for your testimony. 

STATEMENT OF THE HONORABLE MELVIN L. WATT, 

DIRECTOR, FEDERAL HOUSING FINANCE AGENCY 

Mr. WATT. Chairman Hensarling, Ranking Member Waters, and 

members of the committee, thank you for the opportunity to testify 

today about the Financial Stability Oversight Council. And to be 

back before this committee, on which I served for 21 years. 

As an independent regulator, FHFA is responsible for the supervision, regulation, and housing mission oversight of Fannie Mae, 

Freddie Mac, and the Federal Home Loan Bank System. In addition, since 2008 FHFA has served as conservator of Fannie Mae 

and Freddie Mac. FHFA’s housing market expertise contributes to 

FSOC’s ability to understand and better assess broad systemic risk. 

9 

As I recall, ensuring that FHFA contributed this kind of expertise to FSOC was especially important to Congress, both because 

housing represents a significant part of our economy, and because 

the most recent severe disruption that our economy experienced resulted from business entities and others making unsafe and unsound housing and housing finance decisions. 

Through FHFA’s active participation in all FSOC committees, 

FHFA engages with other FSOC members to share information, 

evaluate policy matters, and conduct risk assessments of business 

entities and markets in which they operate. FHFA also participates 

with other members of FSOC in making assessments of whether to 

designate non-bank financial companies for supervision by the Federal Reserve. 

If so designated, these companies are required to meet enhanced 

prudential standards. This is a significant and important FSOC 

function, and it is one that all FSOC members, including myself, 

take very seriously. These decisions are made only after extensive 

engagement with the company, a thorough analysis of the facts, 

and careful deliberations. 

Going forward, I look forward to continuing to engage with fellow 

FSOC members to meet our duties and responsibilities in a manner 

that fosters transparency, is fair and analytical, and contributes to 

appropriate risk management and risk reduction. 

I will limit my comments to these statements, and I look forward 

to answering your questions today. 

[The prepared statement of Director Watt can be found on page 

123 of the appendix.] 

Chairman HENSARLING. Chairman Gruenberg, you are now recognized. 

STATEMENT OF THE HONORABLE MARTIN J. GRUENBERG, 

CHAIRMAN, FEDERAL DEPOSIT INSURANCE CORPORATION 

Mr. GRUENBERG. Chairman Hensarling, Ranking Member 

Waters, and members of the committee, thank you for the opportunity to testify today on the work of the Financial Stability Oversight Council. The financial crisis that began in 2007 exposed a 

number of serious vulnerabilities in the U.S. financial system. 

While some risks affecting individual products and institutions 

have been recognized, neither the financial markets nor the regulatory community was able to see the whole picture. The FSOC was 

established in 2010 by the Dodd-Frank Act to address this gap in 

the regulatory framework. Its key functions are to facilitate information sharing among its member agencies, to identify and respond to emerging risks to financial stability, and to promote market discipline. 

The FSOC is also responsible for designating non-bank systemically important financial institutions for heightened supervision by 

the Federal Reserve. We now have the benefit of five FSOC annual 

reports, which together outline the key systemic risks facing the financial system and how they have evolved over time. 

The first report, published in 2011, described a still fragile financial system recovering slowly from the deepest financial crisis since 

the Depression. In contrast, the most recent report describes a 

10 

more stable but still recovering economy, and broad-based improvement in most financial markets and market participants. 

Three areas of risk which the FSOC has been following closely 

and which are of particular consequence to the FDIC are interest 

rate risk, credit risk, and cyber-security, which are expanded upon 

in my written statement. 

As previously noted, the Dodd-Frank Act also authorizes the 

FSOC to designate a non-bank financial company if the FSOC determines that material financial distress at the company or the nature, scope, size, scale, concentration, interconnectednees or mix of 

activities of the company could pose a threat to the financial stability of the United States. 

FSOC policies and procedures were crafted to ensure an exchange of information throughout the designation process. As the 

process has evolved, opportunities for additional transparency both 

within the operations and the designation process were identified 

by the FSOC and in comments by external parties. As a result, the 

FSOC undertook several initiatives over the past year-and-a-half to 

improve both transparency and engagement with financial companies. These steps are outlined in my written statement. 

Mr. Chairman, that concludes my oral statement, and I will be 

glad to respond to questions. 

[The prepared statement of Chairman Gruenberg can be found 

on page 94 of the appendix.] 

Chairman HENSARLING. Director Cordray, you are now recognized for your testimony. 

STATEMENT OF THE HONORABLE RICHARD CORDRAY, 

DIRECTOR, CONSUMER FINANCIAL PROTECTION BUREAU 

Mr. CORDRAY. Thank you, Chairman Hensarling, Ranking Member Waters, and members of the committee for the opportunity to 

testify today. I am glad to work with you and with my colleagues 

on the Council to strengthen our financial system. 

As we are all aware, just a few years ago disruptions in the housing market preceded a financial crisis that caused significant damage to our people and our economy. The ensuing deep recession 

caused millions of Americans to lose their jobs, and millions of families to lose their homes, as the ranking member noted. Many saw 

their retirement savings diminished as Americans lost trillions of 

dollars in household wealth. 

Severe deficiencies in the loans supporting mortgage-backed securities in particular created shocks that upended the financial system. 

In the aftermath of the crisis, Congress passed financial reform 

legislation to address the problems that led to the crisis and help 

ensure they would not happen again. Among the steps taken were 

the creation of the Financial Stability Oversight Council and the 

Consumer Financial Protection Bureau (CFPB). 

The creation of the FSOC provides for the first time a means of 

comprehensively monitoring the stability of our Nation’s financial 

system. Prior to the crisis, the U.S. financial regulatory framework 

focused more on individual institutions and individual markets in 

isolation from one another. No one regulatory body was responsible 

for monitoring and addressing overall risk to financial stability, 

11 

which too often involved different types of financial firms operating 

in complex and intertwined ways across multiple markets. 

The potential for supervisory and regulatory gaps were viewed as 

creating blind spots in important parts of the financial system. 

After the crisis, Congress recognized the need for a mechanism to 

bring financial regulators together to monitor the financial system, 

share information and expertise, and coordinate the regulatory efforts to respond effectively to emerging threats to financial stability. 

One approach that Congress specified to address these issues 

was to designate certain financial institutions and financial market 

utilities as systemically important to the stability of the U.S. financial system for the purpose of applying enhanced prudential standards and supervision. 

As you know, the FSOC includes the Consumer Bureau, which 

is the first Federal agency solely focused on protecting consumers 

in the financial marketplace. Products such as mortgages and credit cards are involved in some of the most important financial transactions in people’s lives. These products are often funded through 

complex financial markets and they may constitute the underlying 

assets for more complex and highly levered securities. 

As the crisis made clear, financial stability, market discipline, 

and consumer protections are closely interrelated. Part of the mission of the Consumer Bureau, therefore, is to help ensure that the 

recent economic meltdown is not repeated. The practices that led 

to the financial crisis are inconsistent with principles of fairness, 

transparency, and competitiveness in markets. 

We are exercising the authority Congress gave us to ensure balanced oversight and prevent harmful practices in consumer financial markets. When honest and innovative businesses can succeed 

on the merits, fair competition drives growth and progress and the 

entire financial system rests on stronger and sturdier foundations. 

As the Director of the Consumer Bureau, I look forward to continuing to fulfill Congress’ vision for our agency in my role in the 

FSOC. That is what we are here today working together to do. 

Thank you again for the opportunity to testify, and I look forward 

to your questions. 

[The prepared statement of Director Cordray can be found on 

page 84 of the appendix.] 

Chairman HENSARLING. And Comptroller Curry, you are now recognized for your testimony. 

STATEMENT OF THE HONORABLE THOMAS J. CURRY, COMPTROLLER OF THE CURRENCY, OFFICE OF THE COMPTROLLER OF THE CURRENCY 

Mr. CURRY. Chairman Hensarling, Ranking Member Waters, and 

members of the committee, thank you for this opportunity to provide the views of the OCC on the functions and operations of the 

FSOC. 

The OCC charters, regulates, and supervises national banks and 

Federal savings associations. These banks range from small community banks to multitrillion dollar institutions that are among 

the world’s largest financial companies. Together, they hold nearly 

$11 trillion in assets, or just over two-thirds of the industry’s total. 

12 

The OCC’s mission is to ensure that these banks operate in a 

safe and sound manner, provide fair access to financial services, 

treat customers fairly, and comply with applicable laws and regulations. As the only Federal financial regulator with prudential regulation as its primary focus, the OCC has specialized knowledge 

about the safe and sound operations of banks. 

In 2010, as part of the Dodd-Frank Act, Congress established the 

FSOC to identify, monitor, and respond to systemic risk. The Council brings together its member agencies to fulfill this critical mission. Through its committees and staff, the FSOC provides a formal, structured process for communicating, coordinating and responding to emerging market, industry, and regulatory developments as well as to unforeseen events. 

As one of the FSOC’s 10 voting members, the OCC brings considerable expertise to the Council. Our examiners monitor several 

areas of financial risk in the banking sector every day, including 

credit, liquidity, interest rate, and operational risk. These are 

among the risks that the FSOC reviews in its evaluation of systemic risks with respect to non-bank financial companies and financial market utilities. 

Similarly, as many of the institutions we supervise are engaged 

in asset management activities, the OCC’s expertise in this area is 

also quite robust. Since its establishment, the Council has demonstrated a sustained commitment to working collaboratively to 

fulfill its statutory mission. 

Council members and their staffs have developed strong working 

relationships and the Council provides a constructive forum to hold 

candid conversations, share confidential market sensitive information, and ask the tough questions that help make the U.S. financial 

system safer. 

The Council has also made positive strides in enhancing its 

transparency both to the general public and to the companies 

under consideration for designation. Dodd-Frank provides the 

FSOC with important duties and responsibilities to promote the 

stability of the U.S. financial system. The issues that the Council 

confronts in carrying out these duties are by their nature complex 

and far-reaching. 

My written testimony includes additional information about the 

specific mandates Congress has given the FSOC and a discussion 

of some of the important actions the Council has undertaken recently. For our part, the OCC is strongly committed to helping the 

Council achieve its mission. 

Again, thank you for the opportunity to appear today, and I 

would be happy to answer any questions. 

[The prepared statement of Comptroller Curry can be found on 

page 86 of the appendix.] 

Chairman HENSARLING. The Chair now recognizes himself for 5 

minutes for questions. 

By a show of hands, how many of you have any professional experience in the private insurance industry? Please raise your hand. 

I see two, Mr. Woodall and Ms. White. Let the record reflect that. 

How many of you have had experience in regulating insurance 

companies? By a show of hands, please raise your hand. Let the 

record reflect that only Mr. Woodall raised his hand. 

13 

Mr. Woodall, as FSOC’s independent member having insurance 

experience, you dissented in both the MetLife and Prudential SIFI 

designation. In your dissent to the designation of MetLife, you 

wrote, ‘‘It confounds me that much of the Council and staff continue to misunderstand and mischaracterize the insurance regulatory framework.’’ You went on to say that FSOC’s analysis ‘‘relies 

on implausible, contrived scenarios as well as failures to appreciate 

fundamental aspects of insurance and annuity products and, importantly, State insurance regulation and the framework of the 

McCarran-Ferguson Act.’’ Do you still stand by those comments? 

Mr. WOODALL. Yes, I do, Mr. Chairman. And if I could expound 

just a little bit, the basis of all of that, to put it in perspective, is 

that I was pointing out that under the statute, there are two determination standards under which the Council comes up with its 

idea that a company is a SIFI, and the first one is the only one 

that has been used so far, which is if there is material financial 

distress at that individual company which could be a threat to the 

entire U.S. financial system. 

The other is activities, are there activities that could be a threat? 

My push has been to get the second standard of activities to be 

used across sectors so we can get at the very things that are causing this systemic risk. If we have a situation where if we have a 

company that is a SIFI, and it knows that it is doing an activity 

that is systemically risky, it can sell that activity to somebody that 

is not a SIFI and then, essentially, we have lost them. They are 

there, but the systemic risk could still be in the system. 

Chairman HENSARLING. Mr. Woodall, what are the implications 

of designating a traditional insurance company as a SIFI, since 

they are under State-based regulations? Will we have a duplicate 

regulatory system? Do you believe those costs could be imposed 

upon policyholders and insurance company investors? 

In other words, what is the harm in designating a traditional insurance company as a SIFI? 

Mr. WOODALL. I think there is a harm that it could come to higher prices because they have higher regulatory costs. Also, with a 

higher regulatory cost, their products have to be priced higher, as 

I said, and that costs more. 

It puts them in an unlevel playing field with the people and the 

companies that are not designated SIFIs. 

Chairman HENSARLING. Chairwoman Matz, prior to voting to 

designate Prudential as a SIFI, did you make inquiries, or request 

any type of economic analysis on what this designation could mean 

to insurance policyholders? Was that part of your decision-making 

process? 

Ms. MATZ. No, it was not. 

Chairman HENSARLING. It was not. Do you believe it should have 

been? 

Ms. MATZ. That was not the mandate that we had. The mandate 

is to determine if material distress at a non-financial institution 

could pose a threat to the stability of the United States. 

Chairman HENSARLING. Under Section 113(a)(2) of Dodd-Frank, 

there are 11 different factors you are to consider in making your 

designation. With respect to the Prudential decision, to what extent 

14 

did the leverage of the company play a role in your decision to designate it a SIFI? 

Ms. MATZ. It was the combination. We were briefed extensively 

on the financial— 

Chairman HENSARLING. I’m sorry. Briefed by whom? 

Ms. MATZ. Briefed by the FSOC staff and the NCUA staff that 

works with them, that participates with them— 

Chairman HENSARLING. So does the NCUA staff have expertise 

in insurance company leverage? What was the specific leverage of 

Prudential that caused you concern? 

Ms. MATZ. No. The determination wasn’t based on the insurance 

activities. It was based on the financial activities of the company 

and how they are interwoven with other— 

Chairman HENSARLING. And specifically, which activities were 

interwoven that concerned you? 

Ms. MATZ. It was their derivatives position, the extent of their 

leverage. Their— 

Chairman HENSARLING. But I asked you about the leverage. 

Ms. MATZ. The securities lending. Their debt position. The extent 

of the difficulty to resolve them if there was financial distress. So, 

it was not one factor. 

Chairman HENSARLING. The Chair’s time has expired. The Chair 

recognizes the ranking member for 5 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

Let me first go to Mr. Woodall. Is AIG designated as a SIFI, Mr. 

Woodall? 

Mr. WOODALL. Yes. 

Ms. WATERS. Should it be? 

Mr. WOODALL. At the time when they were designated, we were 

coming right out of the financial crisis. The first two designations 

were AIG and JECC, companies which had had some problems 

during the crisis. 

Ms. WATERS. Some problems? Big problems. 

Mr. WOODALL. Big problems. 

Ms. WATERS. Okay. So, it should be designated a SIFI? 

Mr. WOODALL. At that time. 

Ms. WATERS. At this time? 

Mr. WOODALL. It is not half the company now that it was then. 

Ms. WATERS. At this time? At this time, should it be a SIFI? 

Mr. WOODALL. Right. 

Ms. WATERS. Let me just go on to Mr. Gruenberg on another 

matter. In the Dodd-Frank Act, Congress recognized that our banking regulators failed to engage in regulatory oversight of large 

banks leading up to the crisis. 

As such, we put in place enhanced prudential standards that set 

forth the basic requirements for a bank to be well-run—capital resolution; risk management; and liquidity, among other factors—at 

the same time the deliberative process in Congress led to an exemption from these requirements for banks below $50 billion in assets. 

Congress also directed the Fed to tailor certain regulations for 

large regional banks based on size, as well as provided the Fed 

with the option to exempt certain banks above $50 billion from certain requirements. Both in committee and through potential riders 

15 

to funding bills, Congress is now contemplating legislative proposals that would undo this important work. 

These proposals would, instead, rely on the Financial Stability 

Oversight Council to affirmatively designate banks for enhanced 

prudential standards for all but the very largest global megabanks. 

Chairman Gruenberg, do you think that such proposals would be 

ill-advised? What did the 2008 financial crisis teach us about how 

the failure of one or more large regional banks could harm our financial system? And in terms of bank resolution, which failure during crisis era was the most costly for the FDIC’s deposit insurance 

fund? 

Mr. GRUENBERG. To answer the question you raised at the end, 

the most costly failure to the FDIC during the crisis was the failure 

of IndyMac, which was a thrift institution with assets of about $30 

billion that ultimately cost the deposit insurance fund over $12 billion, which is the most significant loss during this crisis, and I believe in the history of the FDIC. 

And it does show the importance of having a prudential framework for larger institutions relating to capital and liquidity and 

other standards, and to respond to the first part of your question, 

as a general matter, I think the framework in place is a reasonable 

one. It generally gives discretion to the agencies to tailor the prudential standards to the size and complexity of the institution. And 

I generally think that is an appropriate approach. 

Ms. WATERS. Let me just ask you this, so it can be reiterated. 

Has the Federal Reserve begun tailoring enhanced prudential 

standards for banks above $50 billion with increased stringency 

based on bank size? Would you just kind of continue on that? 

Mr. GRUENBERG. Yes, Congresswoman. I believe—I wouldn’t 

want to speak for the Fed. But just as an observer, I believe the 

Fed has done that, generally focused the enhanced prudential 

standards on the larger institutions above $250 billion, and has tailored standards for those below. 

Ms. WATERS. All right. Can more be done in this regard without 

reopening Dodd-Frank to potentially negative consequences? 

Mr. GRUENBERG. Yes. I do think that as we progress in this process, this is a focus for all of the agencies to ensure our regulations 

are appropriate to the size and complexity of the institutions. 

Ms. WATERS. So, basically what you are telling us is there has 

been no resistance to FSOC taking a close look at what can be done 

and using its discretion to make sure that they not only honor 

Dodd-Frank but they have the flexibility to make modifications 

where necessary? 

Mr. GRUENBERG. I agree with that, Congresswoman. 

Ms. WATERS. Thank you. Mr. Chairman, I yield back. 

Chairman HENSARLING. The gentlelady yields back. The Chair 

now recognizes the gentleman from New Jersey, Mr. Garrett, chairman of our Capital Markets Subcommittee. 

Mr. GARRETT. Thanks, Mr. Chairman. I have been looking 

through the minutes, Mr. Chairman—if you can call them that— 

that FSOC published. And one of the things I notice is who actually shows up, and who can attend FSOC meetings. It seems that 

certain people, like that Governor, who is not a member of FSOC, 

16 

is able to attend, and attends various meetings of FSOC, while 

Commissioners of the various boards and Commissions do not attend. 

It seems that there is a—well, not a very clear criteria as to who 

can and cannot attend. In September, according to minutes, the 

FSOC held with about 20 or so invited guests from various agencies. And again, yes—yet again, the Commissioners of various 

agencies are not on those lists. 

So, I am going to take a page out of Al Green’s methodology here 

and ask for a show of hands. All of you who are on the panel today, 

who are part of an organization that has either a commission or 

a board, can you raise your hand, so we know what we are talking—because not everybody up there has a commission or a board, 

right? 

Okay, so, for those who raised your hand, do you trust your Commissioners or your board members as their ability to keep things 

confidential? So, I would say, do the members who just raised their 

hand trust their board members? 

Maybe I should flip it the other way. Is there any member here 

who does not trust their board members or their Commissioners? 

They can’t keep things secret? 

Okay. So, if that is the case, let me run—Chairman Massad, if 

any of the members of your Commission wanted to come to you and 

ask to attend an FSOC meeting, and you trust them, can they come 

to an FSOC meeting? 

Mr. MASSAD. Thank you, Congressman, for the question. 

I don’t think that is the structure provided for in the law. 

Mr. GARRETT. Would you personally object to them being there? 

Mr. MASSAD. I think it is important for the FSOC to follow the— 

Mr. GARRETT. I don’t know that there is anything in the FSOC 

rules that—is there anything specifically in the requirements that 

says they cannot attend but other guests can attend? 

Mr. MASSAD. I would have to get back to you on that, Congressman. 

Mr. GARRETT. You allowed 20 other guests to be there in September, and I guess that was okay. Did you know at that time 

whether or not they were allowed to be there? 

Let me go to Chair White, since he doesn’t know. Would you object if one of your Commissioners wanted to attend an FSOC meeting personally? Would you have a problem with that? 

Ms. WHITE. The protocol is for the Chairman to pick one person, 

typically a staff person, to accompany them. That is the structure 

of FSOC. 

Mr. GARRETT. Right. I understand what the structure is. I understand that you have been—the whole entire board has been precluding openness and transparency. What I am trying to find out 

is for all of you who have just raised your hand, who said you trust 

your board or commission with secrecy, is there anyone who would 

say that they cannot attend? Well, good. 

Can I have a commitment, then, from all of those people who just 

said they would not object, that you will work to, for the next meeting, allow your board and Commissioners? Anyone here—please 

raise your hand if you will not encourage your chairman to allow 

them to attend the next board meeting. 

17 

So, let the record reflect two people. Mr. Gruenberg, you will 

not— 

Ms. WHITE. Can you repeat that? 

Mr. GARRETT. —recommend to the chairman that your Commissioners be able to attend? 

Ms. WHITE. I would follow— 

Mr. GARRETT. No, let me just go there. You didn’t raise your 

hand. Do you not trust your members? Are they not able to keep 

things secret? I just want to be clear on that. 

Mr. GRUENBERG. I certainly do, Congressman. Just a couple of 

points, if I may. 

Mr. GARRETT. Sure. 

Mr. GRUENBERG. From the FDIC, as it happens as a matter of 

statue, three of the members of our board are statutory members 

of the FSOC. So a majority of our board are represented. And I certainly have the greatest trust in our other Directors. I would note 

that I share with our other Directors all of the information available to the FSOC. 

Mr. GARRETT. But you have no problem with Dan Tarullo’s attending quite frequently. So it is something about your board that 

you don’t trust them is what I am taking from this. 

Mr. GRUENBERG. No, sir. 

Mr. GARRETT. So why do you object to them being there? 

Mr. GRUENBERG. I think it is a matter of the—it is a matter for 

the entire FSOC, it is a matter of functionality in terms of the 

number of— 

Mr. GARRETT. So in September, there were 20-some. That was 

not an issue of functionality, but for your own board members—I 

am taking the perception here that either you don’t trust your people or that you are doing something in secret. So which one is that, 

Mr. Gruenberg? Do you not trust your people or you are trying to 

do something in secret? 

Mr. GRUENBERG. Neither, Congressman. For what it is worth— 

Mr. GARRETT. Then, you haven’t given us an answer. 

Chair White, will you recommend to the Chair, will the rest of 

you now—the rest of the panel who raised their hand, will you recommend to the chairman that these people—that meetings be open 

to the rest of the Commission? 

Ms. WHITE. I will follow the congressional structure. I think that 

is something— 

Mr. GARRETT. There is nothing in the congressional structure. 

That has already been pointed out, so will you make that recommendation? 

Ms. WHITE. I would discuss it with my fellow members of FSOC 

and the Chairman. Discuss it with them, as I have done before. 

Mr. GARRETT. Will anyone here make that recommendation, positive recommendation? So, let the record reflect that no one who has 

come before us today will make a recommendation; they want to 

continue to keep their meetings secret. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from New York, Ms. 

Velazquez. 

18 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. Mr. Cordray, the 

CFPB’s core mission is consumer protection, which may not seem 

linked to systemic risk. However, I don’t think that is the case. 

Can you elaborate on what role consumer financial protection 

plays in the stability of our economy and how your agencies work 

and help inform FSOC? 

Mr. CORDRAY. Thank you, Congresswoman. First of all, Congress 

set the structure of the Council and determined which agencies 

should be represented there. And it is a broad cross-section of the 

Federal financial regulators. 

In the case of the Consumer Bureau in particular, it is worth 

noting that the financial crisis that gave rise to the Council was 

caused, everybody agrees, by irregularities in the mortgage and 

housing markets. 

People disagree somewhat as to the chain of events that led to 

this, but a meltdown in the housing and mortgage markets was 

transmitted by various channels throughout the economy and 

threatened the stability of the financial system. 

The very first issue that was raised at the first meeting, which 

is before I joined the FSOC—I was not yet the Director of the Consumer Bureau—was mortgage servicing and foreclosures. There 

were briefings on those at the first several meetings. Those are 

issues that are very central to the work that has been done in the 

early years by the Consumer Financial Protection Bureau. 

All of us on the Council are charged by law with examining the 

economic system for emerging threats to financial stability, which 

we do. The annual report has been a very good and transparent 

and thorough account of the Council’s thinking about both present 

and emerging threats and is our best attempt to monitor and report on what we see in the financial system at that time. 

There were various issues that each member of the Council and 

each entity that they represent is more or less expert in. And we 

share that expertise with one another to try to arrive at a broader, 

more comprehensive view of the financial system than each of us 

could do alone. 

Ms. VELAZQUEZ. Thank you. 

Mr. Gruenberg, we have heard from opponents of the SIFI process that there is insufficient opportunity to engage with the Council after designation. Do SIFI-designated firms have opportunities 

to meet with FSOC staff to review their status? 

Mr. GRUENBERG. Yes, Congresswoman. As you know, as a statutory matter, the Council is required to re-evaluate a designation 

annually. 

Ms. VELAZQUEZ. Thank you. I yield back. 

Chairman HENSARLING. The gentlelady yields back. The Chair 

now recognizes the gentleman from Texas, Mr. Neugebauer, chairman of our Financial Institutions Subcommittee. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

Chairwoman Matz, there has been a lot of discussion about what 

it means for a bank to be systemically important. And as you know, 

in February the Office of Financial Research (OFR) released a report where they examined the systemic risk indicators. They used 

the indicators that had been developed by the Basel Committee 

19 

and they applied those to some of the largest banks and holding 

companies. 

And what was kind of an interesting finding is that the report 

concluded that the least systemic US GSIB was several times more 

systemically—more systemic than the other major U.S. banks, the 

regional banks. Yet, all of those institutions fall under the requirement for enhanced prudential standards based on their asset size. 

And so are you familiar with that report? 

Ms. MATZ. I’m sorry. I have not seen that report. 

Mr. NEUGEBAUER. You have not seen that report? 

Ms. MATZ. No. 

Mr. NEUGEBAUER. One of the requirements is—or, I guess, main 

functions of the OFR is to furnish the committee with the information to hopefully help them make better determinations. And so I 

would hope that you would avail yourself of that report. 

But would you agree that setting up certain standards to measure companies is appropriate? If you haven’t seen the report, basically they took the Basel standards and they took five of them and 

applied them to those companies. Do you think that is a good way 

to approach that? 

Ms. MATZ. We have stayed away from creating bright lines and 

instead look at whether material distress at a company could pose 

a threat to the financial stability of the United States. And since 

each company has different business plans, different business models, we have not drawn a bright line or been very rigid about what 

the standard is. It is looking at the entire company and then making a determination after very deliberate consideration. 

Mr. NEUGEBAUER. Director Watt, have you seen the OFR report? 

Mr. WATT. I have not seen the report that you are referring to. 

Mr. NEUGEBAUER. Well, let me—since you haven’t read the report, I guess I will go to another line of questions. Section 113 of 

Dodd-Frank requires FSOC voting members to consider at least 11 

factors before designating a non-bank financial company for heightened Federal supervision including leverage, off-balance sheet exposures, scope, size, and scale. 

I will start with you, Chairwoman Matz. Do you think it is appropriate to use 11 different factors in the determination of whether a non-bank company is systemically important? 

Ms. MATZ. Yes. 

Mr. NEUGEBAUER. Director Watt, would you agree with that? 

Mr. WATT. Yes. We are not second-guessing the statute. We 

didn’t write the statute, but I think all of them are—well, actually, 

I was involved in writing the statute. 

[laughter] 

But I am not in a position to second-guess it now. I voted for it. 

Right. 

Mr. NEUGEBAUER. I think the point I am trying to make here is 

that it is a little puzzling to me that it is appropriate for non-bank 

entities to be subject to standards. And I think, in fact, Director 

Watt, you said you are committed to an analytical process. 

And so, I think the interesting thing is, is we subject these nonbank SIFIs to 11 different factors. Yet, we only subject banks to 

one factor, and that is size. If this is going to be an analytical procVerDate Nov 24 2008 15:19 Feb 08, 2017 Jkt 099796 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\DOCS\99796.TXT TERI
20 

ess, shouldn’t we establish factors for analyzing banks in a way of 

analyzing whether or not they are systemically risky? 

Mr. WATT. I think these are really the same factors that any of 

us would take into account. It may not be specified in a statute for 

individual banks. But one of the primary problems during the meltdown was there was no supervision, and no method to get at nonbank entities, because they didn’t have—they weren’t answering to 

anybody. 

Mr. NEUGEBAUER. Yes. I am not talking about non-banks. We 

have talked about what— 

Mr. WATT. I thought that is what this was designed—specifically 

what this talks about. 

Mr. NEUGEBAUER. I guess the question is, we are subjecting 

banks, based on their size; we don’t even consider the other factors. 

So, shouldn’t we be considering a litany of factors to determine 

whether these banks should be subject to enhanced prudential 

standards? 

Mr. WATT. I think it would probably be more appropriate for Mr. 

Curry and Mr. Gruenberg to answer that. I don’t regulate banks. 

But I would think that they take into account all of these considerations. 

Mr. NEUGEBAUER. But you do sit on FSOC, isn’t that correct? 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Hinojosa. 

Mr. HINOJOSA. Thank you, Chairman Hensarling and Ranking 

Member Waters, for holding this important hearing. I also wish to 

thank our distinguished panelists for testifying today, and for the 

dedication to ensuring the safety and soundness of our financial 

system through their participation on the Financial Stability Oversight Council. 

As a senior member of this committee, I applaud the Council’s 

progress to date, and I look forward to hearing from our panelists 

on the Council’s priorities moving forward. 

Two particular lessons learned from the crisis come to mind 

today. First, it is absolutely essential to have a bird’s-eye view of 

our financial system, in order to identify and prevent systemic 

risks from destabilizing our entire economy. In crafting the DoddFrank Act, we in Congress recognized this fact and created the Financial Oversight Stability Council, an entity comprised of our 

banking, insurance market, and housing regulators who are tasked 

with ensuring the financial stability of the system as a whole. 

Secondly, we should not just assume that the markets will take 

care of themselves. Instead, we must support and empower our regulators to be able to act when needed. We should be looking to 

strengthen our financial system and the safeguards we incorporated after lessons learned from the last crisis, rather than berating our regulators and attempting to restrict their ability to act 

by tying them up in bureaucratic knots. 

My first question is for Mary Jo White. A much criticized report 

from the Office of Financial Research (OFR) discussed the risk that 

the asset management industry posed to the United States financial system. The critics argued that the asset management industry 

poses absolutely no risk to our financial system. 

21 

However, haven’t the Council’s actions, including the publication 

of the report by the OFR, spurred the SEC to take action with respect to money market funds? 

Ms. WHITE. The answer is that the SEC independently proceeded. I am aware, obviously, of the preliminary recommendation 

of the FSOC. But the SEC proceeded independently to reform the 

structure, in some ways, of money market funds. 

Mr. HINOJOSA. Can you elaborate on how the SEC was spurred 

by the FSOC and how these actions were making our markets and 

investors safer? 

Ms. WHITE. The SEC proceeded independently of the FSOC recommendation. 

The SEC has been studying it for some time, certainly since I 

have been there as Chair, and proceeded totally independently. It 

was an important thing to do. To allude back to your first comment, though, I think it is very important from a bird’s-eye view, 

that big picture view be provided by all the financial regulators 

who sit on FSOC. 

Mr. HINOJOSA. Thank you. Next question, to the Comptroller of 

the Currency, Mr. Thomas Curry. Some critics have criticized 

Dodd-Frank’s FSOC structure for allowing some of your agencies to 

have voting rights non-bank systemically important financial institution designations made by the FSOC. 

Are you comfortable with the deliberative materials received 

from the Council staff? And do these materials adequately prepare 

you to make informed decisions? 

Mr. CURRY. Thank you, Congressman. There is an extensive 

amount of material presented to me as a member of the FSOC in 

connection with any designation. And there is actually a fairly 

elaborate process of three stages by which that information is developed. 

Stage one is from publicly available information or from contacts 

with supervisors. Stage two, which gives notice to and engages an 

institution under consideration the opportunity to engage with the 

Council staff and our designation committee. 

And then finally, stage three, where there is extensive communication and development of analysis and records for the Council’s 

consideration. 

Mr. HINOJOSA. Thank you. Mr. Cordray, when assessing systemic 

risk for our financial system, has the FSOC taken a look at aggregate depth levels from various areas of the economy? 

Mr. CORDRAY. We have. And I believe we should. 

Mr. HINOJOSA. Do you think the current amount of debt in the 

aggregate poses a risk to our economy? And why or why not? 

Mr. CORDRAY. I think everybody could have their own personal 

point of view on that. I think one of the factors that the FSOC has 

looked at, in terms of thinking about systemic risk, is both debt 

and leveraging of levels of investment. 

And therefore how much risk could be transmitted through the 

system, if there were adverse developments to the extent to which 

capital is deployed. And so, I do think that is an appropriate factor 

in looking at the kind of issues raised before the Council. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

22 

Luetkemeyer, chairman of our Housing and Insurance Subcommittee. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. We have put up 

a chart, I don’t know if everyone can see it or not; I know we can 

see it pretty well on the back. And it is on the side, I am not sure 

we can get there. 

But I would like to follow up on the chairman’s comments and 

questions while we go, with regards to non-bank designations. And 

what I am concerned about is perhaps Fed-driven decisions on 

some of these designations. And if you look at the bottom part of 

the chart there, you can see that the National Credit Union Administration in 2012 and 2013 had two members that they dedicated 

to or who had done some analysis with regard to non-bank designations. 

And in 2014, we have none. Ms. Matz, are you an expert on insurance analysis? Okay, so we have— 

Ms. MATZ. No. 

Mr. LUETKEMEYER. You are not an expert. And we have no one 

at your agency who is designated to do analysis. And this information—you can’t read the fine print there, you can in the back of the 

room. This analysis, by the way, comes from data given by your 

agency to the GAO, if I am not mistaken, which is in this report 

right here. 

Ms. MATZ. I don’t think that is correct, though. 

Mr. LUETKEMEYER. Sorry, Ms. Matz. That is information you 

gave to the GAO when requested. And so, my concern is the Federal Reserve has 25 people designated to make this analysis. You 

have zero. 

Ms. MATZ. That is not correct. 

Mr. LUETKEMEYER. That is not correct? 

Ms. MATZ. It has been stated. I don’t know where they got that 

information from, but it— 

Mr. LUETKEMEYER. They got it from you. 

Ms. MATZ. It is not from me personally. It is not— 

Mr. LUETKEMEYER. It is written on the bottom of the sheet. It 

says that the information came from each member agency and represents individuals involved in the analytical work. So— 

Ms. MATZ. It is not correct. We still have— 

Mr. LUETKEMEYER. How many do you have, then? 

Ms. MATZ. We have two people. 

Mr. LUETKEMEYER. Two people. Okay. Are they experts in insurance? 

Ms. MATZ. They are not experts in insurance. 

Mr. LUETKEMEYER. They are not experts in insurance. So, how 

can we make an educated analysis whenever you are making designations with regards to non-bank designations, which involve insurance companies? How do you make that determination, then? 

Ms. MATZ. It is not the insurance part of the business that results in a designation. It is in the financial services part of the 

business, and how intertwined it is. 

Mr. LUETKEMEYER. So, the insurance part of the business is not 

important with regards to the designation of a SIFI? 

Ms. MATZ. No. It is not. It is the financial services part of the 

business— 

23 

Mr. LUETKEMEYER. The financial services part of the business is 

the only part that you look at? 

Ms. MATZ. Yes. 

Mr. LUETKEMEYER. Wow. Okay. 

Mr. Cordray, you sort of struck out all across-the-board there as 

well. Are you an insurance expert, sir? 

Mr. CORDRAY. I am not an insurance expert. 

Mr. LUETKEMEYER. Is this number incorrect, as Ms. Matz indicated hers was? 

Mr. CORDRAY. I am not exactly sure what analysis was used to 

get to that number. But the reality is that each of us has deputies 

who work together on the FSOC on the analysis. Then, I am 

briefed on the analysis and have a chance to review the materials— 

Mr. LUETKEMEYER. Well— 

Mr. CORDRAY. —extensive materials— 

Mr. LUETKEMEYER. —you are saying— 

Mr. CORDRAY. —submitted by Congress— 

Mr. LUETKEMEYER. —this number is incorrect as well, even 

though this is information your agency gave to the GAO? 

Mr. CORDRAY. I am saying that the slice on it here I think is not 

reflective of the full work done at the FSOC. 

Nonetheless, I am not an insurance expert. But other members 

of the Council are not banking experts. Certain members of the 

Council are not investment experts. It is all of us together— 

Mr. LUETKEMEYER. Mr. Cordray— 

Mr. CORDRAY. —who work together. 

Mr. LUETKEMEYER. This goes to the heart of the matter here. 

You are sitting on a board that makes a decision on the designation 

of whether something is systemically important or not. And if you 

don’t have the personal expertise, you need to have somebody on 

your staff, because otherwise it is not an independent vote that you 

are casting. 

It is a vote based on how the Federal Reserve or some other 

member of this board is telling you it should be done. And that is 

not the way the system should work. 

Mr. CORDRAY. I don’t think that is correct. First, there is FSOC 

staff. There is staff of the member agencies contributed who work 

together. And then there is our own analysis. 

But again, to focus only on the insurance company potential designations is only a partial picture. There are bank designations. 

There are other financial company designations. There are investor 

area designations. Everybody has relative expertise in some 

areas— 

Mr. LUETKEMEYER. Okay— 

Mr. CORDRAY. —and less in others. 

Mr. LUETKEMEYER. I am running out of time here. 

Mr. Massad, you have zero people all the way across-the-board. 

Is that incorrect as well? 

Mr. MASSAD. I think your chart runs through July of 2014. 

Mr. LUETKEMEYER. Right. 

Mr. MASSAD. I took office in June. 

Mr. LUETKEMEYER. Okay. 

Mr. MASSAD. Shortly after that— 

24 

Mr. LUETKEMEYER. Okay. 

Mr. MASSAD. —I had my staff involved in the designation that 

was— 

Mr. LUETKEMEYER. So now you do have some people involved in 

this designation? 

Mr. MASSAD. A few of them— 

Mr. LUETKEMEYER. How many? 

Mr. MASSAD. —of our staff— 

Mr. LUETKEMEYER. One, two, ten? 

Mr. MASSAD. It depends on the issue, sir. We are a small agency. 

We are very limited in our resources. No one is fully dedicated to 

these issues. But certainly I try to get people involved as necessary— 

Mr. LUETKEMEYER. Okay. One more quick comment before I am 

out of time here. 

With regards to the SEC, Ms. White, your numbers are zero, two 

and now twelve. And in your testimony you indicate or you say 

that it is important that it be data-driven and conduct rigorous 

analysis throughout the process. 

How can you do rigorous analysis when back in 2013, you made 

the designation true with 2 people, and now you have 12 people? 

Was that a stumble back then and you realized you didn’t have 

adequate staff? Or what was the problem back then? 

Ms. WHITE. I can only speak to the time since I have been there, 

which is— 

Mr. LUETKEMEYER. You were there at the time this was done. 

Ms. WHITE. But I didn’t participate in the designation. I would 

have to drill down a little bit on those figures. 

But what we do at the SEC, I think my written testimony reflects this, is—and again, it is not full-time people devoted to FSOC 

work streams. But who we need in particular areas are called upon 

to assist me and analyze— 

Mr. LUETKEMEYER. The concern is still there that we are not 

doing our job of doing analysis— 

Chairman HENSARLING. Time. 

Mr. LUETKEMEYER. —and letting the Fed— 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes another gentleman from Missouri, Mr. 

Clay, ranking member of our Financial Institutions Subcommittee. 

Mr. CLAY. Thank you, Mr. Chairman. 

And I thank all of the witnesses for attending today. 

Some have criticized the FSOC’s designation process as being 

opaque. The GAO also made several recommendations to the FSOC 

to improve its transparency. 

To your knowledge, how has the FSOC addressed the recommendations of the GAO? Would you also describe how the FSOC 

changed its process with the February 2015 supplemental procedures announcement? Anyone on the panel can answer. There are 

so many to choose from. Ms. White maybe? 

Ms. WHITE. In terms of the GAO-specific recommendations, I 

think those were responded to by the Secretary of the Treasury as 

the chairman of FSOC, not agreeing or disagreeing with the recommendations. 

25 

But I do think that the, what I will call the process and transparency changes made by FSOC in 2015 address a number of those 

concerns in terms of both transparency, and clearer information to 

companies as to when they can interact, when they are being analyzed in stage two. 

There was a lot of back and forth before those changes, but I 

think a number of those changes are responsive to those recommendations. 

Mr. CLAY. Can you—oh, yes, sir? Go right ahead. 

Mr. GRUENBERG. Just to respond to your question, Congressman, 

I think the focus of the Federal procedures was to try to enhance 

engagement and transparency for the stage two process. So it provided notice to the firm that it could advance from stage one to 

stage two, an opportunity for the firm to engage with the FSOC 

staff. 

It requested the public information that the FSOC was using as 

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. 

Mr. CORDRAY. Could I simply add something? To me, this exemplifies vigorous congressional oversight. 

The Congress and this committee have had comments on transparency at the FSOC. We have listened to those. The GAO did a 

report with comments. We have listened to those. 

It is a new body. It is 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. 

Mr. CLAY. Thank you. 

And what changes have you made to the annual and 5-year designation review processes to ensure more due process rights are 

available to companies? Mr. Gruenberg? 

Mr. GRUENBERG. Yes. 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 an assurance of a hearing with the FSOC at least 

every 5 years. 

Mr. CLAY. General Electric has announced that 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 the staff of FSOC to take the actions 

necessary to designate GE Capital as a systemically important financial institution. 

Further, the CEO of GE noted that, ‘‘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? 

Mr. CURRY. There is an ongoing dialogue with the company as 

to what its plans are, what its strategic or structural changes are. 

26 

And that will continue at an annual review or sooner. A decision 

will be made once those plans have been actually executed. 

Mr. CLAY. I see. Thank you very much. 

And Mr. Chairman, I yield back the balance of my time. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from Michigan, Mr. 

Huizenga, chairman of our Monetary Policy and Trade Subcommittee. 

Mr. HUIZENGA. Thank you, Mr. Chairman. 

I apologize that I had to step out. I have had some visiting constituents and wanted to make sure that I understood where my fellow Subcommittee Chair was headed. And I think we are kind of 

on the same path and direction. 

I do want to, at some point, Mr. Woodall, get back to your written testimony, which I found very fascinating, and I 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 should— 

okay. The record will reflect that all of you believe that is an important part. 

I would 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 would give me a show 

of hands, if you would raise your hand, who is willing to share that 

with us? 

[laughter] 

Nobody? Okay. Let me repeat the first question, I guess. 

Mr. MASSAD. Congressman? Can I make a comment? 

Mr. HUIZENGA. Sure, Mr. Massad. 

Mr. MASSAD. I think Congress is entitled generally to whatever 

information it wants. I would want to simply check with staff in 

particular to make sure we are abiding by our obligations to keep 

non-public information confidential. 

Mr. HUIZENGA. Sure. 

Mr. MASSAD. But certainly, Congress is entitled to get whatever 

information it wants. 

Mr. HUIZENGA. Okay. And maybe that is not even public meeting. Maybe that is a private meeting being able to share that. 

So, Mr. Gruenberg? 

Mr. GRUENBERG. Congressman, I think the analogy here is one 

of our regulatory agencies considering action with regard to a particular institution. That is what FSOC is doing. 

Mr. HUIZENGA. Sure. 

Mr. GRUENBERG. So, two points. One, if we are dealing with confidential, supervisory information which would probably be an applicable standard here in the FSOC. That is generally not shared. 

Although upon congressional request, as we have in other instances, Congress gets the information it requests. 

Mr. HUIZENGA. That sometimes takes longer than the timeframe, 

if you haven’t noticed around here. 

27 

Mr. GRUENBERG. I do understand. I think that would sort of be 

the— 

Mr. HUIZENGA. So you believe that Congress has the right to review FSOC’s deliberative materials. 

Mr. GRUENBERG. I think Congress has the right to request. 

Mr. HUIZENGA. Those are two very different things. Okay. 

Mr. GRUENBERG. I think if you accept the premise we are dealing 

with confidential supervisory— 

Mr. HUIZENGA. Sure. And if we can do that and whether there 

are certain things that—what I don’t want are redacted sheets that 

look like they are blacked out all the way. What I am 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. 

Mr. Woodall? 

Mr. WOODALL. I think there is one confidential memorandum 

that has been made public. The confidential basis in the Metropolitan Life case. It is my understanding has been filed in the court 

and is a public record. 

Mr. HUIZENGA. Okay. 

Mr. Watt? 

Mr. WATT. I want to be clear that the reason I would not raise 

my hand is because I would not make a unilateral decision. This 

is a collaborative body. FSOC, if we got together, would turn over 

whatever would appropriately be turned over to Congress. And I 

think I would be a supporter of that being a robust turn over of 

information. But I certainly wouldn’t make even a unilateral decision. 

Mr. HUIZENGA. You have sat on this side of the microphone and 

know that sometimes it takes far too long to get responses. 

Mr. WATT. But that is not a justification for an individual member of a collaborative body to make a unilateral decision to turn 

over confidential information. 

Mr. HUIZENGA. I fully understand. So, I would love to have it. 

But you all just raised your hands. And since you are the voting 

members, you all said we have a right to this. So, let’s come up 

with a collaborative way of finding out how we are going to do that. 

Mr. Woodall, quickly, I was fascinated in your written testimony 

about how you had been prevented from ‘‘being in the room’’ with 

international insurance policymakers. 

A number of us did a trip to Switzerland back about 2 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 indicating, many of us, both sides 

of the aisle again, that were on this strip, supportive of 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 quickly, if you could comment? 

Mr. WOODALL. In international things, you work by consensus as 

you have been told. The consensus within the team USA, you have 

three U.S. people, representatives at the IEIS. 

Mr. HUIZENGA. And you said that you had been supported by two 

of those for being in the room. 

Mr. WOODALL. Right. 

28 

Mr. HUIZENGA. The third who is not supportive is? 

Mr. WOODALL. It is Treasury right now. 

Mr. HUIZENGA. Treasury? 

Mr. WOODALL. Without that consensus, and they are taking the 

position—and I want to be fair about this. They are taking the position that the statute gives me no such authority, that I have no 

duties or responsibilities designated in the statute at all. 

Chairman HENSARLING. The time of the gentleman has expired. 

Mr. HUIZENGA. I look forward to remedying this. 

Chairman HENSARLING. The Chair now recognizes the gentlelady 

from New York, Mrs. Maloney, ranking member of our Capital 

Markets Subcommittee. 

Mrs. MALONEY. I thank the chairman and the ranking member 

for calling this important hearing. And this is actually the most 

people I have ever seen at that desk at any hearing or reviewed 

in the history at a hearing. And it is a very important topic. I am 

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 in determining whether or not a 

company is systemically important. 

And secondly, what historical precedence 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 1998? What do you look at as precedent 

when you study these crises? 

And I would like to start with Chairman Gruenberg. SEC Chair 

White, and Comptroller Curry, and the thoughts from the panel on 

these two questions. Thank you. 

Mr. GRUENBERG. Thank you, Congresswoman. I think the view 

was that would—the impact, the failure the firm would have in a 

stressed environment would be the most realistic scenario to try to 

assess this systemic consequence of the firm. And I think it was 

very much a product, certainly of the 2008 crisis experience. 

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. 

Ms. WHITE. If I could pick up there, I would agree with that 

analysis that the Council’s guidance announced how it would be approaching that. It would be analyzing in a period of stress which 

would only make sense given what your purpose was in terms of 

judging—in trying to prevent significant negative impacts on the financial system. 

Things that work in times of non-stress, don’t work so well in 

times of stress. In terms of what is looked to, it is not just limited 

to how things operated in the 2008 period, but certainly that is 

typically part of the analysis, but you look to other scenarios, stress 

scenarios, as well. 

Mrs. MALONEY. Comptroller Curry? And then, Director Watt? 

29 

Mr. CURRY. Congresswoman Maloney, I agree with my colleagues. I think in order to assess, especially the interconnected aspects of the financial system, you have to assume that it is in a 

period of stress. I also think there is some textural 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 significance, its breadth, and what I think people never would 

have assumed would be the underlying source of it or the spark, 

the housing crisis. And I think that would be our approach. 

Mrs. MALONEY. Okay. 

Mr. WATT. I was just going to refer you to the specific wording 

of the statute which says that we—the Council determines that 

material financial distress at the non-bank financial company, that 

is the standard that is set up in the statute. 

So, it is an appropriate standard, I think. But, again, we are not 

trying to second-guess the statutory provision that was written by 

Congress. We are following the statute, not second-guessing it. 

Mrs. MALONEY. I would like to ask Chair White, as you know, 

there has been a great, great deal of discussion this year about how 

the FSOC could improve its SIFI designation. One of the suggestions 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 kind of core business decisions for private companies? And in 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 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 is important for the FSOC not to 

use the designation process as a way to tell companies how they 

should be run? 

Ms. WHITE. Speaking for myself, I largely agree with your assessment. I don’t think FSOC should be telling companies how to 

structure their business. I do think maximum transparency, as we 

were discussing earlier, is obviously something that 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 is a very complex undertaking, as well. But I 

don’t think FSOC ought to be telling companies how to run or 

structure their business. 

Mrs. MALONEY. My time has expired. Thank you very much. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Wisconsin, Mr. Duffy, chairman of our Oversight and Investigations Subcommittee. 

Mr. DUFFY. Thank you, Mr. Chairman. Just to reiterate, I believe 

when Chairman Hensarling asked the panel who had insurance experience, if I recall, it was Mr. Woodall and Chair White. Is that 

correct? 

30 

And if I asked the panel to point out the one insurance expert 

of all the witnesses today, who would you point to? 

Yes, Chair White? 

Ms. WHITE. Mr. Woodall. 

Mr. DUFFY. Thank you. I would probably agree with you, Chair 

White. 

Ms. WHITE. I overstated my expertise. 

Mr. DUFFY. 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, 

that really doesn’t matter because we are not looking at the insurance side, we are looking at the financial services side? 

Ms. MATZ. I think that is correct. And, it should be noted that 

the head of the Federal Insurance Office did support the designation and also has considerable experience in the insurance industry. 

Mr. DUFFY. Did they vote on FSOC? 

Ms. MATZ. No. 

Mr. DUFFY. No, that is right. So Mr. Woodall, who does vote, was 

the one dissenter— 

Ms. MATZ. That is correct. 

Mr. DUFFY. Who is the one with insurance expertise, which is 

concerning. 

Does the panel—I think the panel has all agreed on the oversight 

front that Congress is entitled to do 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 was partial compliance with a couple of those. Does the 

panel disagree that if we have already gone through a designation 

process, that Congress is not entitled to non-public information? 

You guys don’t disagree with that, do you? Why aren’t we getting 

this information? Why aren’t FSOC members complying with our 

request? 

It is concerning for our panel. If you are concerned about the 

questions that you get today about the transparency of FSOC, it is 

because the elected members of this body don’t have timely compliance or any compliance from Mr. Lew or any of you. 

Can—would you—if there has already been a designation, if we 

are asking questions about AIG, Prudential or GE, I can—you can 

make the argument that with MetLife there is litigation, 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 memos, 

the correspondence, all that information? Everyone here, will you 

comply with that request? 

Raise your hand if you will comply with the request to provide 

us that documentation. 

I have no takers. So, why not? Mr. Gruenberg, why not? 

Mr. GRUENBERG. Congressman, if I may say, you raise a fair 

question. I think I probably want to go back and look at the request. It seems to me the line here is when you are dealing with 

31 

confidential supervisory information or dealing with the three companies you referenced. They are open institutions. So you have to 

strike a balance there— 

Mr. DUFFY. Chairman Gruenberg, listen. Do you know that there 

was a recent attack, some alleged by ISIS, in San Bernardino? 

Mr. GRUENBERG. Yes. 

Mr. DUFFY. You are 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 from these 

radical extremists. Does anyone argue on this panel think that 

anyone’s life is in danger from the work that you do on the FSOC? 

Mr. GRUENBERG. No. 

Mr. DUFFY. Raise your hand. Is anyone’s life in danger? And so 

we can get FBI briefings but you won’t give us briefings on the 

analysis that has gone into designation of certain companies in 

America? 

Mr. Massad, will you explain that to me? Why am I entitled to 

briefings on ISIS and not on FSOC designation? 

Mr. MASSAD. Well, sir, I can only speak to the FSOC issues. I 

am not familiar with the intelligence side. But I would say that as 

a general matter, I think, certainly transparency and accountability is important— 

Mr. DUFFY. No, no. Explain why I get ISIS FBI briefings and you 

can’t send me information on designation. 

Mr. MASSAD. I do think there are issues that we have to think 

about in terms of the non-public nature of certain information— 

Mr. DUFFY. No, no. The FBI sends me non-public information, as 

well. 

Mr. MASSAD. I respect that, sir. 

Mr. DUFFY. Are you making decisions that affect someone’s life? 

Mr. MASSAD. No. 

Mr. DUFFY. Is ISIS affecting people’s lives? 

Mr. MASSAD. Yes. 

Mr. DUFFY. I would think that is far more serious. And the information that we are entrusted with is far more serious than the information you have and aren’t complying with. 

Mr. MASSAD. I do think— 

Mr. DUFFY. 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 is 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? 

Mr. WATT. Not from me. 

Mr. DUFFY. Anyone? 

No. I yield back. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from California, Mr. Sherman. 

Mr. SHERMAN. Thank you. 

Folks, I do think that your decisions are life and death. You will 

never meet the people. But if we have another 2008, every one of 

32 

our districts will have higher divorce rates, higher unemployment 

rates, and higher drug use rates. And we will never be able to go 

to a particular funeral the way you can in San 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 have 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 kind of wanted to go in this direction. 

I have seen this—people talk about terrorism. We made loans 

from the World Bank to IMF and I was told, we would never let 

that happen, it is all consensus. Then they came back and said, 

sorry, we got outvoted. 

So how do I know that to get along we are not going to go along 

with policies that don’t reflect the U.S. decision-making? 

Ms. WHITE. As you point out, the Treasury, and the Fed, and the 

SEC, actually sit on the Steering Committee of the FSB, and have 

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 United States and certainly with respect to where there is overlap, for example in the 

designations that have been talked so much about. We act independently of the FSB. There are separate processes. 

Mr. SHERMAN. Thank you. 

There is 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 in 

contingent liabilities. 

Ms. White, when you analyze whether an entity should be designated as a SIFI, do you look at the size of their assets, the size 

of their balance sheet liabilities, or the size of their off-balance 

sheet—contingent liabilities, including credit default swaps? 

Ms. WHITE. All of the above and then a host of other factors, too. 

So that you can— 

Mr. SHERMAN. I would hope that you would focus on liabilities 

rather than assets. No one ever went under because— 

Ms. WHITE. Understood. 

Mr. SHERMAN. —they had too many assets. But in looking at contingent liabilities, Mr. Woodall, I hope that we would not count 

those contingent liabilities 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 the assets and liabilities we are 

looking on were part of State regulated insurance companies where 

the State regulators determined they had adequate reserves? 

33 

Mr. WOODALL. Yes, 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 assets and liabilities. And in insurance companies, those liabilities are long-term liabilities. They are not like liabilities of a 

bank that could disappear if everyone came in and withdrew their 

account. 

Mr. SHERMAN. Dodd-Frank calls for an 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 

have reduced their risk profile? 

Ms. White? 

Ms. WHITE. I think there is a good process. You always want to 

keep looking at possibly enhancing it. But essentially, 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 5 years, under some of the 

new procedures, they are entitled to a full hearing. 

Mr. SHERMAN. I hope that you will refine that process further. 

I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Oklahoma, Mr. 

Lucas. 

Mr. LUCAS. Thank you, Mr. Chairman. And since we have this 

distinguished panel together, I would like to visit about my concerns with the Basel III leverage ratio rule, as it is applied to certain derivative clearing services and the impact it will have on the 

ability of my constituents to hedge risks. 

So first, I would turn, of course, to our derivatives market regulators, Mr. Massad and Chair White. When market participants 

utilize derivatives to manage their risk through futures, options, 

and cleared swaps, they must find a member of the 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 ultimate guarantee exposure to the clearinghouse? 

Mr. MASSAD. 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 have raised is really a very 

narrow one. 

I don’t believe we should be excluding derivatives from the SLR, 

but I do believe it is important to make sure we are measuring the 

exposure 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. 

Mr. LUCAS.Chair White? 

Ms. WHITE. I would just add that I think you should always be 

judging the impacts such as you described, frankly, in a variety of 

contexts and a variety of different rule contexts as well. 

Mr. LUCAS. And I will now turn to our banking regulator friends, 

Comptroller Curry, and Chairman Gruenberg. In many instances, 

these clearinghouse members are banks subject to Basel capital reVerDate Nov 24 2008 15:19 Feb 08, 2017 Jkt 099796 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 K:\DOCS\99796.TXT TERI
34 

quirements which require them to hold capital against the guarantee they provide on behalf of their clients. 

Now we can all agree that banks have exposure in the event 

their clients are unable to fulfill the obligations and banks should 

hold capital against that exposure. But shouldn’t that measure of 

exposure accurately reflect the client’s margin, offsets the bank’s 

exposure to the clearinghouse? 

Mr. CURRY. Congressman, I think the number one protection in 

the clearinghouse context is really that the member bank be 

strongly capitalized and 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 the clearing of swaps. 

I want to point out that a leverage ratio is not by definition a 

risk-based measure. So by definition, it would be inconsistent to 

import measures of exposure or risk as a general matter. 

Mr. GRUENBERG. Congressman, I agree with Comptroller Curry. 

I think the core issue here is, the margin is posted with the CCP, 

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 is posted with the CCP. 

That is why the guarantee is imposed and the capital is really 

designed to protect the bank against the downside risk from that 

derivative exposure. 

Mr. LUCAS. 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 number, a new place to cover their outstanding positions 

of their margin, there may not be any sources. 

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 am just concerned with Basel, we are headed in a direction that will limit my constituents’ options, thereby increasing 

their costs and reduce these risk-mitigating tools. So I would just 

simply note that to all of you and ask that you bear that in mind. 

We are undergoing pressure back home now in Oklahoma in both 

the agriculture and energy sectors. It is real pressure and it is 

something that will take time to overcome. But these tools have 

been and continue to be important. So let’s not allow Basel to cause 

unintended damage. 

With that, Mr. Chairman, I yield back the balance of my time. 

Chairman HENSARLING. The gentleman yields back. The Chair 

now recognizes the gentleman from Massachusetts, Mr. Lynch. 

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 Gruenberg. A number of the 

members on this committee have been working with Vice Chair 

Tom Hoenig on a proposal that would give some regulatory relief 

to some of our small banks. 

35 

Now, we are looking at banks, community banks that are in the 

traditional business of banking, taking deposits, making loans to 

businesses and individuals. And the way this would work, we have 

not accepted all of Vice Chairman Hoenig’s recommendations, but 

we have focused on a number of them which would be to be eligible 

for regulatory relief, the financial institution must hold no trading 

assets, no derivative positions other than interest rate or foreign 

exchange, have a limited notional value of all the bank derivative 

exposures or otherwise, and maintain a ratio of gap equity to assets of about 10 percent; no less than 10 percent, I’m sorry. 

And in return for that, under this legislation, we would give relief in this form. 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 test would 

be every 18 months instead of every year, so we are 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 are actually regulating activity, not necessarily size. So 

if a bank is not engaged in risky activity, we think—and they are 

doing the right thing—we think they a ought to be entitled to relief. And this has been a high-cost issue for the smaller banks. 

I just wanted to get your sense on whether this is something that 

you would be receptive to? 

Mr. GRUENBERG. Congressman, I am similarly sympathetic to 

the concept, the core concept being that if a smaller institution is 

very strongly capitalized on the leverage ratio—that is the 10 percent that you referenced—and does it engage in high-risk activities, 

it would be eligible to reduce or compliance with risk-based capital 

standards. I think that core concept really makes some sense and 

I think that is certainly is an issue for Congress to consider. 

And I think as part of our regulatory review process, within the 

framework of our capital rules, that may be something that we 

might be able to consider on a regulatory basis. 

Mr. LYNCH. Okay. I do want to fixate on that word ‘‘sympathy’’ 

because I think a lot of our small banks are good with the sympathy. They are looking for actual relief now. 

Mr. GRUENBERG. I am—let me say I am open to pursuing that 

approach. 

Mr. LYNCH. All right. Mr. Cordray, do you have any worries 

about that? Have you thought about that proposal? I don’t want 

to—you might be out of pocket on this issue, I am not sure. 

Mr. CORDRAY. No. 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 is 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. 

36 

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. 

We will continue to do so. 

Mr. LYNCH. You hit right on a point that I didn’t mention, which 

is that in most cases where a bank is willing to keep their FAT 

mortgage in their portfolio, it would be deemed a qualifying mortgage because you are not issuing to sell it. 

Mr. CORDRAY. We are 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. So at smaller levels, 

I am quite comfortable with that. 

Mr. LYNCH. All right, fair enough. 

Thank you, Mr. Chairman. I will yield back. 

Chairman HENSARLING. The gentleman yields back. The Chair 

now recognizes the gentleman from California, Mr. Royce, chairman of the House Foreign Affairs Committee. 

Mr. ROYCE. Thank you, Mr. Chairman. Last month, in a hearing 

before the committee about due process issues with the FSOC, Professor Jonathan Macey of Yale Law School stated that with respect 

to the actions that the FSOC have already taken, there is a significant danger of increasing rather than decreasing systemic risk. 

His point, as he explained, was that this was because the FSOC 

is ignoring certain risk mitigation strategies and herding 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 cost of compliance and creating greater 

economies of scale. We have seen this in the banking sector, or 

more directly, with the implied or explicit backing of the government, as in the case 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 will also ask Chair Matz, 

that the FSOC’s designations and enhanced prudential standards 

of the Fed are not increasing systemic risk, per the thesis that the 

Yale professor puts forward. 

Mr. CURRY. Congressman, the FSOC actually is looking at, and 

this is referenced in our annual report, 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, the impact of non-banks. 

Those are all things that we have identified as emerging or potential emerging risks that require further monitoring, and if necessary, potential action down the road. 

Mr. ROYCE. And Chair Matz, if you could just weigh in there? 

Ms. MATZ. Thank you. More specifically, as the designation is 

being considered, 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 determining whether to designate, they have every opportunity to 

make that information available to us. 

37 

Mr. ROYCE. And lastly, I will just ask Chair White, do you agree 

that this is a problem? Would you like to weigh in on it? 

Ms. WHITE. I think it is certainly something that I think we need 

to be constantly keeping in mind with all of our regulations, what 

impacts they are having, what mitigators we ought to be considering in addition. 

Mr. ROYCE. Now I am 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 in public on an OFR report regarding the asset management 

industry, the FSOC sought public views on the industry, and later 

issued a request or notice and comment on asset management 

products and activities. 

Separately, the SEC 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 the public notice and comment? Does 

anyone take exception to that concept? 

For the record, Mr. Chairman, I would 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 is the 

point I wanted to make. I think it is important that they do so. 

If I have time here, the FSOC has not designated any asset managers as SIFIs, which is a step I support, as these firms operate 

with little leverage, if any, and the risks they manage are borne 

by those whose funds they invest. 

But the FSOC is now apparently considering the industry under 

activities base 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? 

Mr. WOODALL. Congressman, I think that we have already discussed the fact that in activities, which has been my main goal in 

the insurance company, it is evolving now in the Council. The 

Council is young, it is evolving, and I welcome the idea of taking 

a pause and getting into looking at the activities across the segment. I hope that they will do that for the insurance industry. 

Mr. ROYCE. Thank you, Mr. Chairman. 

And thank you, Mr. Woodall. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Georgia, Mr. Scott. 

Mr. SCOTT. Thank you very much, Mr. Chairman. Panel, I am 

very concerned about the Department of Labor’s fiduciary rule. Let 

me explain why. 

I have spent most of my adult life working hard in the area of 

wealth building in the African-American community, and our President is a wonderful person; he is a decent, good man. But as an 

African-American, I am 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 terms of wealth building. 

38 

Now I say that as one who—I am a graduate of the 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, the executive board of directors of the 

Wharton School. 

And there, in that position, we pulled together, along with John 

Sculley, who was the chairman of our board and chairman of PepsiCola at the time, an extraordinary program of wealth building. But 

what we found out was there were three elemental areas that prohibited wealth building and investment: education; financial advice; 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 community, and on other lower and middle 

income, because they don’t have that money to pay up front the fee 

costs. And when you put a contract there for them to sign, they are 

going to run away. I know. I have been there. I have 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 as 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 is 

what I am asking you to do. 

I asked Ms. White the other day in our meeting at the SEC, but 

she seems to have ceded her authority to the Labor Department, 

when we clearly put it, as you know, Mr. Watt, you were here. We 

wrote it into Section 913 in Dodd-Frank, that was the domain fiduciary of the Securities and Exchange Commission. 

At no time did we hear from the Labor Department at the recent—talking about they had the retirement. And if they do, 

wouldn’t it be respectful for them to sit with the regulatory agency 

that handles financial investments—the SEC and FINRA and work 

that out? I just urge you to examine these because the devastating 

impact is terrible. 

My paper—the Atlanta General Constitution—I urge you to read 

it. Sunday’s edition—front page of the business talks about the 

struggle of African-American families to build and growth wealth. 

And the number one reason why it is 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 and 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 is on the Black families. Now, Mr. 

Massad, I wanted to—I think I have time. We had a terrible problem with the European Union on this equivalency with derivatives. 

December 15th is the deadline and I want to know because it is 

going to have a devastating effect on our end users, on our exchanges and clearing houses. If we don’t get equivalency in terms 

of our regulatory regime with the E.U. especially when they have 

39 

given equal status to Singapore and other areas. What is the status 

on that in that we are just a week away from the deadline? 

Mr. MASSAD. Thank you, Congressman. They have pushed out 

that immediate deadline. I think we are still working in good faith 

to try and resolve this. I think we have narrowed our differences. 

I am 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 are concerned about. 

And we are working very hard to work them out. 

Mr. SCOTT. Thank you, sir. 

Chairman HENSARLING. The time of the gentlemen has expired. 

The Chair now recognizes the gentleman from Ohio, Mr. Stivers. 

Mr. STIVERS. Thank you, Mr. Chairman. I appreciate all of you 

for being here. I would like to go on a quick tour of the segments 

of the financial services industry. How many of the witnesses believe that small banks and credit unions caused the crisis in 2008? 

Could you raise your hand if anybody believes that? Okay. I would 

like to note that no one did. 

You have an important role as a coordinating council of regulators as well and I am curious if you could go down the line, starting with Ms. White, and tell me how many hours in the last year 

you have 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 costs 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 could 

do this quickly. 

Ms. WHITE. I do not think we have a very accurate estimate. 

Those discussions have occurred at the staff level but I can’t say. 

Mr. STIVERS. You would say zero— 

Ms. WHITE. I wouldn’t say zero but yes. 

Mr. STIVERS. At the staff level, okay but on the Council. That is 

what I care about. That is who you are. Let’s keep moving. 

Mr. MASSAD. I also could not give a number but I— 

Mr. STIVERS. Okay. Sounds like another zero. Keep moving. Mr. 

Woodall? 

Mr. WOODALL. I don’t think there is a definite figure, but I think 

there has been discussion leading up— 

Mr. STIVERS. Okay. So some discussion. Nobody can put a number on it in hours. Ms. Matz? 

Ms. MATZ. I would agree that— 

Mr. STIVERS. You would agree you don’t have any idea how many 

hours but it has happened— 

Ms. MATZ. No—but I think it has happened but— 

Mr. STIVERS. Okay. Let’s keep moving. Obviously, there is a pattern. Does anybody have a number? Will anybody give me any kind 

of number? 

Mr. WATT. I quit keeping time when I left— 

Mr. STIVERS. Good man— 

Mr. WATT. —to practice law, Mr. Stivers. 

Mr. STIVERS. I am still keeping time so let’s move— 

Mr. WATT. We spend a lot of time— 

40 

Mr. STIVERS. I got it. 

Mr. WATT. —discussing a lot of issues and I— 

Mr. STIVERS. Okay. I think we have a pattern— 

Mr. WATT. Regulatory overlap is one of those I think— 

Mr. STIVERS. I appreciate it. I think we have a pattern here. You 

are not discussing it enough at the Council level. The staff is discussing it but you need to discuss it. These are important community assets that dot the fabric of our country and the 15th district 

of Ohio. And these companies—small companies, small banks and 

credit unions are struggling to keep up. 

Many of your field agents actually misinterpret regulations intended for big banks and put extra pain and cost on these small 

banks and they are having real struggles. Let’s move on to regional 

banks. How many of you believe that regional banks, which I will 

define as kind of $50 billion to $250 billion, caused the crisis? 

Again, no—oh, I have a couple of hands there maybe. 

Mr. GRUENBERG. Just to make the point for what it is worth 

and— 

Mr. STIVERS. We are running out of time. It can be quick. 

Mr. GRUENBERG. The regional banks generally are individually 

not systemic. I would point out that as was mentioned earlier the 

most expensive bank failure during this crisis and in the history 

of the FDIC was a $12 billion loss caused by the failure of 

IndyMac, which was a $30 billion thrift. So a regional institution 

can have its—a failure of one or more regional institutions can 

have a significant consequence— 

Mr. STIVERS. It can, and I believe that. So let’s talk about what 

you have done to use your regulatory flexibility that Secretary Lew 

says you have between trillion dollar banks and $50 billion banks. 

Can anybody explain to me exactly how you have used that regulatory flexibility? Mr. Curry? 

Mr. CURRY. Congressman, the OCC supervises a range of institutions: small rural banks to globally active banks. We are very concerned about the regulatory burden, particularly on community 

banks. The FSOC is not necessarily the forum where we discuss reducing regulatory burden. We do that on the banking and credit 

union side on the Federal Financial Institutions Examination 

Council (FFIEC). 

We really are concerned about the impact the EGRPRA process 

really is designed to reduce regulatory— 

Mr. STIVERS. I appreciate that, Mr. Curry and I want to talk 

about that. But we are talking about regional banks now. So can 

you tell me how you use the flexibility that— 

Mr. CURRY. Definitely, definitely— 

Mr. STIVERS. Secretary Lew says you have. Have you used it? 

And if so, exactly how— 

Mr. CURRY. Yes. As a supervisor of a number of regional or midsized 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 is really a regulatory 

imperative to make sure we are working together and not— 

Mr. STIVERS. You haven’t answered how—you are trying to eat 

up time here, it sounds like. 

Mr. CURRY. No. 

41 

Mr. STIVERS. You have not answered one specific way in which 

you have used your regulatory flexibility. Could you give me one 

specific way, Mr. Gruenberg? One way. That is all I am asking. 

Mr. GRUENBERG. As you know, Congressman, one of the consequences of—is a requirement of submitting a resolution plan. 

And we certainly for the smaller institutions have— 

Mr. STIVERS. The tailored plan is the only true answer. And 

how—that cuts a little cost but they still have to do the CCAR 

stress test, the regular stress test. There are way too many things 

built in that you have the power to fix and I wish you would take 

a look at it. I didn’t even get to non-bank financial entities and my 

time has expired. But please look at those things. Thank you, Mr. 

Chairman. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Green, 

ranking member of our Oversight and Investigations Subcommittee. 

Mr. GREEN. Thank you, Mr. Chairman. And I thank the ranking 

member, and of course I thank the august body of witnesses who 

have appeared today. In my years on the committee, I don’t think 

I have seen quite 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, is 

that the only area that you claim expertise in? Do you claim expertise in other areas to this extent? 

Mr. WOODALL. I will say being on the Council is a learning experience. They are learning about insurance and I am learning about 

banking. 

Mr. GREEN. 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 an indication that only persons 

with insurance expertise should judge an insurance company. And 

I ask this because MetLife has appealed its case in this study that 

is file in a district court in the District of Columbia—Federal District Court. Do you think that judge ought to be an insurance expert to hear the MetLife case? 

Mr. WOODALL. I am not going to make any statements about the 

MetLife appeal. 

Mr. GREEN. I understand. I will continue to ask you questions 

and you will 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—will have to have insurance expertise? 

Mr. WOODALL. Of course not. 

Mr. GREEN. Of course not. 

In fact, across the length and breadth of this country on a daily 

basis, we have jurors who are ordinary, everyday working people 

who hear complex cases involving antitrust, billions of dollars. In 

Texas, you had the Pennzoil case; there were lots of laypeople there 

hearing a case. People hear these cases all the time and make lifeand-death decisions who don’t have expertise in a given area that 

the case happens to be focused on. 

Do you agree with this, Mr. Woodall? 

42 

Mr. WOODALL. I would say that the FSOC— 

Mr. GREEN. 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 have been on the FSOC? 

Mr. WOODALL. Banking regulators are the ones who do that. 

Mr. GREEN. But have you voted—have you had a vote on anything related to banks? Have you had a vote since you have been 

there on anything related to banks? 

Mr. WOODALL. Not as such. 

Mr. GREEN. Not as such. 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 don’t care to do it now. So have you voted as such on 

some things related to banks? 

Mr. WOODALL. Obviously, we get into financial market utilities— 

Mr. GREEN. I understand. So you have not recused yourself from 

issues related to banks? You have voted because you are a Phi Beta 

Kappa from Kentucky. And as a Phi Beta Kappa from Kentucky, 

you can understand these banking issues, can’t you? 

Mr. WOODALL. Yes. And they can understand insurance issues— 

Mr. GREEN. And that leads me right to my next question. Thank 

you so much, Mr. Woodall. 

My next question is this: If you believe that a person must have 

insurance expertise to sit in judgment of an insurance company on 

FSOC, raise your hand. If you think you only can do it if you have 

insurance expertise, raise your hand. Anyone? Let the record reflect, none. 

But because I want the record to be perspicuously clear, let me 

ask the question another way. If you believe that you can sit in 

judgment of an insurance company and not be a Phi Beta Kappa 

from Kentucky, raise your hand, please. If you believe you can. All 

right. 

Mr. WOODALL. You have voted for— 

Mr. GREEN. You are the only person who thinks that you have 

to be a Phi Beta Kappa from Kentucky. I see his hand didn’t go 

up. So Mr. Woodall, I assume that I should now put in the record 

that you are a person who believes that you must be a Phi Beta 

Kappa from Kentucky before you can sit in judgment of an insurance company on FSOC? Should I put that in the record? 

Mr. WOODALL. No, but I think you should put in the record— 

Mr. GREEN. Okay. That should go in the records. I am going to 

take it from that comment, Mr. Woodall, that you joined the rest 

of your colleagues and let 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. 

Mr. WOODALL. I am not sure what an insurance expert is. 

Mr. GREEN. I am glad you said it, because some people have 

claimed that you are, so my assumption is that you don’t know 

what you are. 

Mr. WOODALL. That is because it was put in the title of DoddFrank. 

43 

Mr. GREEN. Okay. Well—Mr. Woodall—look, by the way, let me 

share this with you before I end. Mr. Woodall, I want to make this 

very clear: I love you. 

[laughter] 

Because sometimes it can appear that I don’t love people because 

I have to ask the tough questions, and I regret that I didn’t get to 

some other things. But God bless you, dear brother. I love you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Illinois, Mr. 

Hultgren. 

Mr. HULTGREN. Thank you, Mr. Chairman. And thank all of you 

for being here. 

I am going to address my first question to Chairwoman Matz, if 

that is all right. You said earlier that designation of insurers was 

not about life insurance activities; it was about financial activities. 

My understanding was at the time of the designation, which again, 

my records show to be June 30, 2013, the reference date for much 

of FSOC’s analysis, 98 percent of MetLife’s consolidated assets, 96 

percent of its liabilities and 95 percent of its revenues were in 

these highly regulated insurance subsidiaries. 

So I just wanted to make sure I understand the basis for your 

decision. Are you saying that FSOC analyzed only 2 percent of 

MetLife’s consolidated assets and only 4 percent of its liabilities 

and 5 percent of its revenues? These activities are outside of regulated insurance entities at the company, I believe, and found that 

those assets alone to be systemically important and a threat to the 

financial system? Is that your testimony? 

Ms. MATZ. 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 

are interconnected with other systemically important institutions. 

Mr. HULTGREN. I am going to stick with Chairwoman Matz on 

this, then open 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 as systemically important. Chairwoman 

Matz, could you provide an overview of how and why you determined the State insurance regulation, and in particular, State 

guarantee system for failed insurers, is ineffective? 

Ms. MATZ. Thank you for asking that. I don’t think any of us— 

and I can’t speak for anyone else, but on this, I would say that I 

don’t think any of us think that the State insurers are ineffective. 

But our mandate is to look at how the activities of the insurance 

companies affect the financial stability of the United States. They 

are really looking at the effect on policyholders. It is a very different direction that they are taking. 

Mr. HULTGREN. With making that determination of what you 

should pull away from the States—again, clearly legislatively, authority—most authority of regulation for insurance companies is 

with the States. 

I would argue both for protection of policyholders, but also—protection of policyholder would, by definition, State—you know, financial stability of that company. Those would be directly related. 

Those aren’t separate issues. 

44 

So what specific information analysis did you, as a voting member of FSOC, rely on to reach the determination that should be separated out, that States were unable to handle this? 

Ms. MATZ. As I said, they have a different mandate than we do. 

They are looking at the institution and the solvency vis-a-vis the 

policyholders. We are looking at the institution and its interconnectedness with other institutions and its ability to threaten the 

financial stability of the United States. 

It is a different mandate. It doesn’t mean that they are doing 

their job any better or worse than we are or vice-versa. It is just 

a different tack that they are taking. 

Mr. HULTGREN. As you are making this decision, was there an 

independent analysis done by your agency? 

Ms. MATZ. An independent analysis of? 

Mr. HULTGREN. Again, the standing, I guess, of these insurance 

companies, their ability, if there was a threat nationally to financial markets or—I would say also to policyholders, was there an 

independent analysis done by your agency to make the determination, again, that the States weren’t capable of doing this, that this 

was something that you all needed to do? 

Ms. MATZ. We rely on the FSOC staff. We did not do an independent evaluation, no. 

Mr. HULTGREN. Let me switch in my last minute here—a littlediscussed provision of the Dodd-Frank Act, Section 170, directs the 

Fed, on behalf of and in consultation with FSOC, to issue regulations setting forth criteria for exempting certain classes or categories of non-bank financial companies from heightened Fed supervision. 

However, to date, no such regulations have been issued. This requirement represents a tool Congress created to delineate between 

those entities that pose systemic risks and those that do not, and 

provide clear criteria for institutions on how to conduct their business and structure their operations in such a way as to be non-systemic. 

Chair White, in the last few seconds I have, why has this provision never been used? 

Ms. WHITE. I really can’t answer that. It would have to come 

from the Fed initially. 

Mr. HULTGREN. I guess, in my last seconds, just a show of hands, 

following on my friend from Texas, who among you has advocated 

for a class of financial company to be exempted from heightened 

supervision? If you could raise your hand, if you have advocated for 

a class of financial company to be exempted from heightened supervision? 

For the record, nobody raised their hand. My time has expired. 

I yield back, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Ohio, Mrs. Beatty. 

Mrs. BEATTY. Thank you, Mr. Chairman. And thank you, Ranking Member Waters. 

Let me associate my opening comments with those of my colleagues. As someone relatively new, I have certainly never seen the 

number of people, which is not as important as the work and the 

service you do. So thank you for that. 

45 

We have heard a lot of questions about what you don’t do. What 

is interesting to me is, I listen to the example about what you 

would provide as it relates to giving us information. And I think 

the analogy was to us getting classified information for ISIS. 

We certainly know, from everything we have read and we have 

heard that our country is in trouble. So you were asked, and given 

that analogy, do you think, since your role is to protect the financial stability for us, are we in financial crisis right now, as we 

were, let’s say, in 2008? 

So I am trying to get—are we like ISIS is, to a threat in your 

world? And that is a yes or no, if you could just go down the panel. 

Are we in that same kind of threat in financial? 

Ms. White? 

Ms. WHITE. No, but I think we can’t be complacent. 

Mrs. BEATTY. Yes or no, straight down. Quickly. 

Mr. MASSAD. I would agree with Chair White’s statement. 

Mr. WOODALL. Me too. No. 

Ms. MATZ. No. 

Mr. CORDRAY. No. 

Mr. WATT. I agree. 

Mr. GRUENBERG. No. 

Mrs. BEATTY. Okay. I have an insurance question, but I will 

come back to that, Mr. Woodall, since you have been asked so 

many questions about this. 

I also would like to associate, for the sake of time, myself with 

the words of Congressman Scott from Atlanta as it relates to not 

only the issue he talked about, but more importantly about Black 

wealth or minorities. 

I am very concerned, and I know many of you have OMWE 

boards. But my question is beyond OMWE because I am not 

pleased with the answers that I have been given by you all with 

OMWE. While it is a big deal to me in Section 342, I don’t think 

people have taken it as seriously as we should. 

With that said, as a group, as you look at making your projections, as you evaluate where we should be financially, can at least 

three of you tell me what you do with minorities, and more specifically African-Americans, as it relates to banks, financial institutions? How are they included? Because you make projections that 

affect us and our constituents. And so I am concerned. Can anyone 

address that, quickly? 

Mr. CURRY. I will start in terms of what we do with minorityowned institutions and populations. In terms of minority depository 

institutions, I have an advisory committee that advises me on the 

issues facing those committees, how we can help alleviate those 

issues through technical assistance and other means that are mandated by the statute. 

As a bank regulatory agency we also enforce the Community Reinvestment Act, which has a direct impact on low- to moderate-income communities. And we have active outreach efforts associated 

with that in both banks and interested groups. 

Mrs. BEATTY. Okay. 

Mr. CORDRAY. I would— 

Mrs. BEATTY. —quickly. 

46 

Mr. CORDRAY. I would add that we enforce the Equal Credit Opportunity Act. We work with the Justice Department on those matters. We recently resolved the largest redlining mortgage lending 

matter in the history of this country. 

We have had significant matters in auto lending discrimination 

and credit card as well. This is an important means of making sure 

that everybody across our society has equal access to credit and 

aren’t discriminated against on the basis of race and ethnic origin. 

Mrs. BEATTY. Okay. We will take one more. 

Mr. GRUENBERG. Congressman, I will just mention we also have 

an extensive program as required by law to support minority depository institutions. The FDIC also has an advisory committee on 

economic inclusion where one of the things we focused on is asset 

building for low- and moderate-income families. And certainly the 

mortgage crisis, as you well know, had a disproportionate impact 

on the minority households and African-American households. 

Mrs. BEATTY. Okay. Thank you. 

If Congress were to reduce stability of FSOC to perform its statutorily mandated function of overseeing financial markets for 

threats to stability, how could that impact the U.S. economy? We 

will go to the other end. Ms. White? 

Ms. WHITE. It would defeat the entire purpose of FSOC, which 

is a very important one, which is to look out for the financial stability of the U.S. financial system. 

Mrs. BEATTY. Okay. 

Mr. Chairman, the Commodity Futures Trading Commission— 

later today the committee will be marking up a data security related bill, which I am sure should be very interesting to us. I am 

interested to hear what measures specifically FSOC has taken to 

facilitate dialogue to help us protect that. 

Mr. MASSAD. I think generally, FSOC has taken the issue of cybersecurity, broadly speaking, very seriously. It has listed that as 

a primary concern in its annual reports. 

It is—FSOC also serves as a very useful way for all of us as 

members to compare notes and coordinate what we are doing individually in our agencies. 

Mrs. BEATTY. And do we have any—my time is up, I am sure. 

Do we have any best practices developed? Yes or no? 

Mr. MASSAD. I think, most definitely so. A lot of us are very focused on those best practices issues. We are in our own agency, I 

hope that we will come out with some standards specifically on— 

Mrs. BEATTY. Thank you. And— 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Florida, Mr. Ross. 

Mr. ROSS. Thank you, Mr. Chairman. 

Mr. Woodall, I have to just follow up on what my colleague from 

Texas was pursuing. And as a litigator of 25 years I know that the 

trier of fact, whether it be a jury or judge, must rely on evidence 

brought before them. And that evidence, of course, is in the best 

form when it is brought by an expert. And when that expert testimony is uncontroverted then it becomes clear matter of fact that 

that opinion should gain the day. 

Clearly on this board, on FSOC, you are eminently qualified and 

by far the only person who could be considered an expert in the inVerDate Nov 24 2008 15:19 Feb 08, 2017 Jkt 099796 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 K:\DOCS\99796.TXT TERI
47 

surance arena. You have experienced not only academically but 

also practically as an insurance commissioner. 

So I have to ask. What was it, in your opinion, that drew FSOC 

to disregard uncontroverted expert insurance opinion, and designate MetLife and Prudential as SIFIs? 

Mr. WOODALL. I think what you outline might be a professional 

disagreement. I have a lot of respect for all my colleagues. We had 

a very hearty debate. I listened to them and they listened to me 

and we— 

Mr. ROSS. I don’t think they listened to you, is the problem. 

Mr. WOODALL. —agreed to disagree. 

Mr. ROSS. And I think that there might have even been some influence. 

In reading your testimony about not being at the table with the 

IAIS, is that a factor that may play into the domestic category of 

creating these SIFIs, the non-bank SIFIs because they are more 

concerned about the international process than they are the domestic process? 

Mr. WOODALL. But my job is to try to monitor the whole insurance industry international so I can give my recommendations. 

There is a statutory provision that every member is supposed to 

monitor developments in international insurance matters. 

Mr. ROSS. They haven’t been listening to you, though, have they? 

That is clear in your testimony. 

Mr. WOODALL. Well— 

Mr. ROSS. And I— 

Mr. WOODALL. I voted with them on AIG. 

Mr. ROSS. Right. 

Mr. WOODALL. It was a unanimous decision. 

Mr. ROSS. But with regard to the designation— 

Mr. WOODALL. —right. 

Mr. ROSS. Yes, no— 

Mr. WOODALL. These were companies that have not had the type 

of problems with— 

Mr. ROSS. Right. There hasn’t been a run on life insurance, has 

there? Are people all of a sudden going to go and cash in their life 

insurance policies? Because if they are, then our serious consequences for economic structure are way out of line. 

Chair Matz, 90 percent of Prudential’s balance sheet assets and 

liabilities are in regulated insurance companies. It engages in no 

proprietary trading and its limited security of ease lending business was fully collateralized. What would be the basis for your decision that Prudential poses a risk to the financial stability of the 

United States? 

Ms. MATZ. We look at the overall composition of the company’s 

assets and liabilities, their balance sheet and off balance sheet activity. And in their case we looked at, and we were concerned 

about, their derivatives position. 

Mr. ROSS. And you testified, I think earlier to Chairman 

Luetkemeyer’s question, that you relied on staff, the expertise of 

the staff. 

And I think, Mr. Cordray, you went on to say even further that 

everyone on FSOC has their own expertise and that FSOC members also rely on the expertise of FSOC staff, among others. 

48 

This begs the question, who are the other people FSOC is relying 

on to make these determinations if not the panel? And who are the 

staff? And what is their expertise in such arenas as insurance? Yes, 

sir? 

Mr. CORDRAY. I think we rely on FSOC staff. We rely on the 

analysis done by them. There are people loaned from the member 

agencies of FSOC who do work on this. And then we talk to our 

own staffs. 

But to go back to the point my colleague Mr. Woodall made a moment ago, in terms of insurance companies there seems to be a lot 

of dissatisfaction here with the designation of MetLife and Prudential. 

Mr. ROSS. Yes, I would think so. 

Mr. CORDRAY. AIG is also an insurance company— 

Mr. ROSS. Yes, but— 

Mr. CORDRAY. —designated by this body. And it had tremendous 

reach— 

Mr. ROSS. But they had a diversified portfolio— 

Mr. CORDRAY. That is right— 

Mr. ROSS. —not unlike Prudential and— 

Mr. CORDRAY. And there have also been a number of insurance 

companies that meet the $50 billion asset threshold that have not 

been designated. So it is a spectrum here. And it is a judgment 

that has to be made— 

Mr. ROSS. On your FSOC staff, I doubt if you have anybody as 

eminently qualified as Mr. Woodall. If you are relying on those expert as opposed to the member, Mr. Woodall, then I think there are 

some problems there. 

But let’s talk about asset managers. What are we doing here designating asset managers as SIFIs when in fact they are basically 

brokers? They are not carrying the assets. 

And in fact, the impact it will have on mom and pops and retirees because of now what they are going to have to do is pay fees 

in order to justify why they are brokering with a SIFI when we 

have not even established that an asset manager should be a SIFI. 

Yes, sir? 

Mr. CORDRAY. We have not designated any asset managers as 

SIFIs. It is a matter that is— 

Mr. ROSS. Oh, you got them in stage two already. 

Mr. CORDRAY. —under consideration— 

Mr. ROSS. They learned through a Wall Street Journal article. 

Don’t you think it would be more prudent to allow these asset 

managers to have the ability to correct whatever may be wrong so 

that they can save not only the financial system, but also those 

with whom they serve, instead of waiting until the opportunity 

where a collapse may occur that you seem to foresee? 

Mr. CORDRAY. That is a point of view. And these are the kinds 

of issues that are under consideration— 

Mr. ROSS. If I went to the doctor and knew I had something 

wrong, I would want to be diagnosed and treated immediately, 

rather than wait until I was on life support. 

I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

49 

The Chair now recognizes the gentleman from Washington, Mr. 

Heck. 

Mr. HECK. Thank you, Mr. Chairman. 

Mr. Woodall, I think I would like to direct this to you if I may, 

please. Over the last couple of—I am over here. Over the last couple of years we have heard a lot of witnesses and no small number 

of the members of this committee indicate publicly and explicitly 

that receiving a SIFI designation was locking in an unfair competitive advantage. 

It seemed to be premised on the idea that lenders would be willing to extend debt to them at a discounted rate. I am having a hard 

time squaring that circle in the face of the fact that everybody who 

is a target for designation fights it tooth and nail. And secondly, 

the action of the S&P recently to downgrade the debt rating of, I 

think, eight financial institutions. 

What is your impression? Is this a good thing, to be SIFI designated? Is it a desirable thing by them? Does it in fact lock in a 

competitive advantage? 

Mr. WOODALL. It is a good thing if they are systemic, and present 

a systemic risk. 

Mr. HECK. Is it a good thing for them? 

Mr. WOODALL. But we need to know and they need to know what 

activities they are doing that make them a significant— 

Mr. HECK. Does it give them a competitive advantage? 

Mr. WOODALL. Yes, we have talked about that, it can give them 

a competitive—we don’t know, yet. 

Mr. HECK. Why do they fight it? 

Mr. WOODALL. We don’t know yet, because the Fed hasn’t come 

up with their capital standards are. 

Mr. HECK. Why would they fight it and why would S&P downgrade them? 

Mr. WOODALL. I think they don’t know what the future is, they 

don’t know how high their capital requirements are going to be, 

and they don’t know how it will affect them, and they don’t know 

what businesses that they sell that they would have to get rid of. 

Mr. HECK. Director Watt, as I pursue this, please remember that 

I respect you, I wouldn’t go quite as far as the gentleman from 

Texas, but I have affection as both a former colleague and somebody I respect. 

Since you have taken over, I have written you two letters, or 

signed on to two letters. The first had to do with the forced marriage of the Seattle and the Des Moines Federal Home Loan Banks. 

And I specifically asked that you ensure that the new bank’s affordable housing program distribute its funding equitably throughout the combined district. 

And that is something that when the bank was just in Seattle, 

they ensured. And in fact, the Des Moines bank, the new consolidated bank, came out with its nine criteria for distributing funds, 

and made no mention whatsoever of equitable distribution. 

I cannot exaggerate to you the depth of my disappointment on 

this. I convey it to you. I am not letting go of this, and I am deeply 

disappointed that there was not more attention paid to this basic 

principle. 

50 

The second letter that I sent to you had to do with concerns 

about the proposed rule to limit membership, I think 66 of my colleagues got on, the rule came out, we hear rumors that it is not 

going to be changed. I have signed on to legislation with Mr. 

Luetkemeyer, Mr. Carney, and Mr. McHenry, to sponsor a bill is 

to stop it. 

Now, in a private meeting I put a question to you, which I now 

put to you publicly. And I am asking you to respond personally, not 

necessarily with your agency hat on. You are a long time former 

member, much respected, of this committee. 

Given the forced marriage between Seattle and Des Moines, 

given the blowback and apparent disagreement about the proposed 

membership rule, is it not time that the Congress take a look at 

the basic structure of Federal Home Loan Banks? It has not been 

touched in 80 years. For all practical purposes, its roots are the 

same as when they were created. 

I believe that in 8 decades, circumstances have evolved and it 

should be up to us to take a look at that. In fact, the disagreement 

you and I had privately was, I think it should be up to you or your 

agency to bring forth ideas of how you might do that. 

Your reaction, please, sir? 

Mr. WATT. I think there is an ongoing obligation of Congress to 

look at every aspect of the financial services industry and the housing finance industry. And I think there are important needs that 

could be looked at in the Federal Home Loan Bank System. 

Mr. HECK. Thank you. Comptroller Curry, you are the sole Director of an agency that is not subject to appropriations. How many 

times have you testified before this committee? 

Mr. CURRY. Three times. 

Mr. HECK. Over what period of time? 

Mr. CURRY. Since my appointment in 2012. 

Mr. HECK. Dr. Watt, same question? 

Mr. WATT. I come whenever you call me. I have been here one 

time, since I was— 

Mr. HECK. One time? Director Cordray, how many times? 

Mr. CORDRAY. I don’t know here, but in front of Congress, more 

than 50 times the Bureau has been called to testify. 

Mr. HECK. I think the point is clear. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from New Mexico, Mr. 

Pearce. 

Mr. PEARCE. Thank you, Mr. Chairman. I appreciate each one of 

you being here. Mr. Woodall, you have been, I think, engaged in 

a discussion at a previous appearance you made in front of this 

committee, talking about some of the downstream effects of the 

listing of AIG and Prudential and MetLife. So that is going to have 

an effect on the insurance market itself, will it not, if I remember 

from our previous discussion? 

Mr. WOODALL. Yes. 

Mr. PEARCE. So we in the United States enjoy competitive advantage throughout much of the world. And coming from the business 

world, specifically repairing oil wells, down hole—which is filled 

with liability, we utilize that insurance market to great advantage, 

51 

to allow us to create jobs, to do a better competitive effort than 

some of our friends overseas could do. 

And so will there be downstream effects from any actions you all 

take regarding the too-big-to-fail? Will there be effects in the insurance market? 

Mr. WOODALL. Well, yes. You used terminology that—obviously, 

if someone has increased regulatory expenses, it is going to affect 

how they operate in the market. 

Mr. PEARCE. So there is a possible threat from what you all do 

to the market? 

Mr. Massad, have you all discussed that in the FSOC meetings? 

Mr. MASSAD. Congressman, I wouldn’t characterize it that way. 

I would point out for example, that what we do can protect people. 

When we consider AIG, for example, this government had to commit $182 billion to prevent the collapse of that company, which 

would have probably taken us into a worse Great Depression than 

what we had in the 1930’s. Fortunately, we were able to get all 

that money back. 

Mr. PEARCE. What about MetLife and Prudential? 

Mr. MASSAD. Congressman, with all due respect, I was not there 

for the Prudential designation. With respect to MetLife, that is a 

matter under litigation, so I don’t think it is appropriate to comment on the reasons for it. 

Mr. PEARCE. Ms. White, would you have a comment on that? In 

other words, you all, as FSOC, your underlying call is to prevent 

excessive risk to the U.S. financial system. And what I am saying 

is that there are certain financial risks to what you are doing, to 

the actions you all are taking. 

So Ms. White, did you all discuss the potential downside of what 

you are doing here and how it might affect the market? And now 

you have referred to the guy who made his living regulating insurance and living in the insurance. And sometimes staff have not had 

that on the ground experience. 

So regardless of what anybody else says, do you all sit quietly behind the doors and say, hey, we ought to really take a close look 

at what we are doing? 

Ms. WHITE. I think we have to carry out the mandate we were 

given, which is basically to identify and address systemic risks to 

the financial system, the financial stability of the financial system. 

Mr. PEARCE. So you don’t think that you as an agency could be 

the systemic risk yourself? 

Ms. WHITE. You want to consider all factors. And certainly when 

we do our rulemakings at the SEC, we directly consider all of the 

impacts. I think we do consider and discuss factors, a wide range 

in FSOC, too. But our primary responsibility is to carry out the 

mandate we were given to— 

Mr. PEARCE. The mandate is to watch—excuse me, I keep shifting back and forth. The mandate is to watch for systemic risk, is 

that right? 

Ms. WHITE. It is to identify and address systemic risk to the 

overall financial system. 

Mr. PEARCE. And so I am saying that if you all—according to Mr. 

Woodall’s discussion back some time, and kind of reiterating now, 

you all could be the systemic risk that you are trying to avoid, if 

52 

you are not very careful, because this insurance market is extraordinarily thin. 

If you are watching—I don’t mean to be rowing in other stuff— 

but if you are watching people bail out of the insurance market in 

healthcare right now, you understand what I am talking about. 

We have disrupted an entire insurance market, and before you 

all do something that causes the same evacuation out of the insurance, just remember the poor saps out there in the field like myself 

who are just trying to buy insurance off the open market, to where 

we could do our business. 

And it could be that you all are the problem which causes that 

market to disappear. And that is my point. I would hope that you 

all would have more thorough discussions about the problem that 

you all represent instead of the systemic risk that maybe you ought 

to be identifying somewhere else. 

Thank you, Mr. Chairman, I yield back. 

Chairman HENSARLING. The gentleman yields back. The Chair 

wishes to alert all Members that there is currently one procedural 

vote on the Floor. There are 11 minutes remaining in that vote. 

I will recognize the gentlelady from Missouri. Members may 

want to go vote and come back. And then after the gentlelady from 

Missouri, we will recess briefly for the vote. The gentlelady from 

Missouri is recognized. 

Mrs. WAGNER. Thank you, Mr. Chairman. And thank you all for 

being here. I would like to quickly associate myself with my colleague across the aisle from Georgia, Mr. Scott, about this very 

misguided Administration’s rule-laying by the Department of 

Labor, on fiduciary issues. I would encourage you all to speak to 

the President and his team on this issue, too. He did not seem interested in my concerns last night at the Christmas party. 

I am particularly interested in knowing the role that the international forum, known as the Financial Stability Board, has played 

with regard to decisions about domestic matters made by FSOC. 

Due to the non-transparent nature in which FSOC conducts its 

business, it can cause one to question, I think, whether our U.S. 

regulators are really fighting on behalf of the interests of the 

United States of America when they are at the international negotiating table, or whether they are simply letting international counterparts make important decisions for us. 

Mr. Woodall, in your dissent to the Prudential SIFI designation, 

you made the point that the international and domestic designation 

processes are not entirely separate and distinct. Specifically, sir, 

you noted that an unnamed U.S. national authority agreed to the 

international designation of Prudential before the company’s determination before FSOC. Could you please be specific and elaborate, 

who is that? The national authority? 

Mr. WOODALL. Yes, the national authority. Well, there are three 

at FSB, there are three national authorities: Treasury; the Fed; 

and the FCC. 

Mrs. WAGNER. Yes. And who is the unnamed authority that 

agreed to the international designation of Prudential before the 

company’s hearing and final determination before FSOC? 

53 

Mr. WOODALL. That is hard to say. As far as I know, actually, 

before the hearing at Prudential, the Treasury notified Prudential 

that they had been designated as a global SIFI. 

Mrs. WAGNER. Before their hearing, before their final determination before FSOC, Treasury—if I understand your testimony—let 

them know that they had been designated. 

Mr. WOODALL. That is my understanding. 

Mrs. WAGNER. This seems questionable. As you stated, the U.S. 

representatives on the FSB—Treasury, the Fed, and the FCC—are 

not insurance regulators, as has been pointed out by so many of my 

colleagues. Nor are they necessarily Phi Beta Kappas from Kentucky. 

Meanwhile, the FSB’s membership is dominated by banking regulators who know little about the insurance industry. Does it concern you that those regulators are the only U.S. representatives in 

the room when decisions are made about insurance issues, sir? 

Mr. WOODALL. Yes. I think the CFTC and the FDIC should be 

in the room at the meetings at the FSB. And I think insurance regulators should be in the room if they are making decisions that are 

going to affect the businesses that they regulate. 

Mrs. WAGNER. Thank you. Given the sequencing of FSB designations, and then later FSOC’s SIFI designations, how can U.S.-based 

insurers be confident that their designations are the result of a domestic decision, rather than an international process that isn’t accountable to the U.S. policymakers like us? 

Mr. WOODALL. As I said, they are technically separate things, 

but they are not— 

Mrs. WAGNER. They are not. They are not accountable to U.S. 

policymakers. Thank you. Can you describe what attention or consideration FSOC gives to designations by the FSB? 

Mr. WOODALL. No direct—it is not mentioned in the discussions, 

because we try to base it on what Dodd-Frank says. 

Mrs. WAGNER. Do you believe that your colleagues would feel 

comfortable disagreeing with a decision, or challenging a decision 

made by the Fed, the Treasury, and the FCC at the Financial 

Stability’s Board? 

Mr. WOODALL. Of course, they are still just three votes on the 

board. The board, the Financial Stability Board is not an organization that this Congress created by a treaty, or any other statutory 

thing. It is kind of an ad hoc group. 

Mrs. WAGNER. Absolutely, it is an ad hoc group. Do you believe— 

Mr. WOODALL. It is really self-appointed. 

Mrs. WAGNER. Do you believe that your colleagues would vote to 

de-designate any of the insurance companies, if such companies 

were still designated by the FSB? 

Mr. WOODALL. I would hope so. 

Mrs. WAGNER. One last question. Since everyone has said that 

they—I don’t have much time left—rely on FSOC’s staff for info, 

is there a memo or analysis that is distributed to members before 

a vote? Who writes this? Is it Treasury? Is it the Fed? Would you 

allow the committee to view any of these documents? 

Mr. WOODALL. It goes through a committee called the Non-Banks 

Designation Committee. It goes to the secretariat, which is within 

Treasury. And you are looking at 600, 700 pages sometimes in 

54 

these memos. They are more than memos. It is quite extensive 

with a lot of good work done by the top economists at the Fed and 

other agencies. 

Mrs. WAGNER. Thank you, sir. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The committee will now recess for the vote pending on the House 

Floor. The Chair expects the recess to last approximately 10 minutes. The committee will reconvene immediately after the vote. The 

committee stands in recess. 

[recess] 

Chairman HENSARLING. Members will take their seats. 

The Chair now recognizes the gentleman from Kentucky, Mr. 

Barr, for 5 minutes. 

Mr. BARR. Thank you, Mr. Chairman. 

And Mr. Woodall, since you have been the topic of much conversation as a Phi Beta Kappa from Kentucky, as a fellow Kentuckian, I am going to try to leave you alone for the most part 

today. 

Let me start with some of our bank regulators, our prudential 

regulators, and note that at a macro prudential level, FSOC and 

our banking regulators have participated in international agreements with the Financial Stability Board, Basel, and other forums. 

And the main difference between U.S. requirements and those promulgated internationally is that it seems that our domestic standards are more stringent than our foreign counterparts. 

So just a few examples: A capital surcharge on global financial 

firms nearly doubled the international standard; supplemental leverage ratio that is double adopted—that adopted internationally; 

a liquidity coverage ratio that is more restricted than the international standard, and arbitrarily punishes certain products like 

municipal securities; a total loss absorbing capital rule that goes 

beyond international standards; OTC margin requirements that are 

considerably more punitive than international standards. 

So this question is for Ms. Matz, Mr. Watt, Mr. Gruenberg, Mr. 

Cordray, and Mr. Curry. I assume that you all agree that these 

prudential rules and other reforms have improved safety and 

soundness. And if you agree with that general proposition, raise 

your hand. 

So, all of you agree that these new prudential rules enhance safety and soundness. A follow-up question: do you believe that the 

benefits of these new prudential rules outweigh potentially the cost 

to international competitiveness, given that we have higher standards than that international—okay. So, most of you agree with 

that. 

When combined with Volcker, financial institutions seem to be 

making a couple of changes in the regulations and producing a couple of results. One is that there is a migration of activities out of 

heavily regulated banks and into much less regulated non-bank financial firms, the so-called shadow banking system. And I want 

you to address that. 

But also there is much talk about illiquidity in the markets, institutions dropping certain products and services, pulling back from 

market-making functions critical to investors, extension of credit 

affecting various fixed income asset classes in different ways. 

55 

So my question to some of our market regulators, Mr. Massad, 

Chair White, is that the FSOC annual report acknowledges that 

there are changes in terms of reduced liquidity in the capital markets. The Office of Financial Research is corroborating this. 

Certainly, there are other indicators. The Center for Financial 

Stability found that market liquidity has declined by 46 percent. 

And as you all have already noted, and Mr. Curry has noted, this 

potential lack of liquidity that is resulting from regulation could 

mean that financial markets have less capacity to deal with shocks, 

and would more likely seize up in a panic just as they did in the 

2008 financial crisis. 

So, given that our bank regulators are making the case to FSOC 

that this is good for financial stability, and yet we see a liquidity 

problem developing, from your perspective, what do you make of all 

this? 

Ms. WHITE. I talked a little bit about this, I think, at my last 

hearing. It is a concern for all of us in terms of significant reduction in liquidity. Obviously, there are rules that have very beneficial purposes that may or may not be causing that. 

We do analyses to see whether Volcker, for example. We will report quarterly to this committee. We have not determined that the 

Volcker Rule is having a negative impact on liquidity. 

When we talk about shadow banking, I think we have to be careful too. That term covers a broad swathe. A lot of the things that 

fit under that category are heavily regulated by the capital markets 

regulators. 

But I think you know the bottom line is that we are all, and 

should be, very concerned about impacts on the— 

Mr. BARR. I think we should look at regulation as a cause of financial instability as a result of the lack of liquidity that we are 

seeing developing in the marketplace. That is something that 

FSOC should be paying attention to and revisiting some of these 

regulations to the extent that they do compromise financial stability. 

Finally, let me just go back to Mr. Watt really quickly. 

The GSEs are exempt from Mr. Cordray’s QM rule. They are exempt from capital and liquidity rules that I am talking about. 

Agency MBS’s are carved out of the Volcker Rule, and agency 

MBS’s are some of the few cash and cash-like equivalents that 

banks need to hold to comply with these capital and liquidity rules. 

My question to you in my limited remaining amount of time is, 

why are these standards good for the private sector, but not for 

GSEs under your oversight? And why have a double standard if, 

as you signaled by raising your hand, these capital requirements 

are important for financial stability? Shouldn’t it be important for 

the GSEs as well? 

Mr. WATT. If they were not in conservatorship, I think you would 

be absolutely right. 

Mr. BARR. Why should we continue to have the risk on the taxpayer? 

Mr. WATT. Because we continue in conservatorship because the 

Legislative Branch has not acted on GSE reform. 

Mr. BARR. I think we should look at that double standard. 

And I yield back. 

56 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Delaware, Mr. 

Carney. 

Mr. CARNEY. Thank you, Mr. Chairman. And thank you to the 

ranking member and to everyone who is here today. This is the biggest panel that I can remember that we have had here before. 

Part of our responsibility, I think, for today’s hearing is oversight 

of the FSOC. And as I understand it—I was not here when DoddFrank was passed—the primary responsibility of the FSOC was to 

identify emerging systemic risks. And I would just like to hear 

from many of you what you see out there as those emerging risks. 

And can you share those with us? 

Why don’t we start with Mr. Gruenberg and go to Comptroller 

Curry in terms of your responsibility as part of the FSOC. What 

are the emerging risks? What are the systemic vulnerabilities that 

you are seeing out there? 

Mr. GRUENBERG. The annual FSOC report outlines a series of 

systemic risks to focus on, interestingly, in this report, the 

leaderess—that it cites is cybersecurity and the potential consequence, vulnerabilities relating to cybersecurity could have for 

the functioning of the financial system. 

And that certainly has been a focus of discussion and attention 

by the FSOC. And I frankly think for each of our agencies individually. 

I would also reference— 

Mr. CARNEY. Is there anything that we should be doing or looking at with respect to providing you with the necessary tools? We 

are going to be talking about a data breach bill later today. 

Mr. GRUENBERG. I note the Congress is considering legislation to 

facilitate information sharing, which I think is one of the critical 

issues in terms of being prepared to deal with a cyber incident. 

So I think there is a significant role for the Congress, and certainly for the—all the agencies at this panel working among the 

regulatory agencies, as well as with the law enforcement and national security communities. It is really going to require— 

Mr. CARNEY. The classified briefings that we have had are pretty 

scary, frankly. And the attacks are coming on a regular basis, on 

a daily basis. 

And frankly, it feels like to me that we are fortunate that we 

haven’t had a more significant attack than what we have had. And 

I know that institutions are dealing with this on a regular basis. 

Comptroller Curry, what would you say in terms of emerging 

risks or existing vulnerabilities? 

Mr. CURRY. I would agree completely with Chairman Gruenberg. 

Cybersecurity is a number one concern, both as Comptroller and as 

a member of the FSOC. 

I think the ramifications of a successful attack on the core systems of financial institutions, regardless of their size, could really 

undermine public confidence in our entire banking system. And 

that is really why it is imperative from a regulatory standpoint to 

make sure all of our banks, from the smallest to the largest, are 

prepared to repel attacks and are in a position to respond as quickly as possible in the event of a successful intrusion. 

57 

The chairman also mentioned, and it is in the FSOC annual report, increased risk-taking in a low yield environment. We are very 

concerned about the decisions that the financial institutions we supervise are taking today, whether it is to go along or to get into 

activities that they are either unfamiliar with or not prepared to 

deal with the risks that are inherent in those activities. We think 

that is a potential emerging risk for individual institutions and for 

the system. 

Mr. CARNEY. Thank you. 

Chair White, is there anything you would like to add? 

Ms. WHITE. No, I think you can’t emphasize enough the cyber 

risk. It is not a coincidence that it is listed first in the emerging 

risks in the FSOC annual report. 

Mr. CARNEY. Thank you. 

Director Watt, you and I have had some conversations about the 

last subject you talked to Mr. Barr about with respect to the GSEs, 

and I know it has been your view that you are waiting on Congress 

to act. 

What vulnerabilities exist there? Increasingly, the taxpayer or 

Freddie and Fannie are guaranteeing those mortgage-backed securities. What is your view of the sense of urgency around that issue? 

Mr. WATT. I think we been in conservatorship, Fannie and 

Freddie, for 8 years. It is the longest conservatorship that has ever 

occurred under government control. While the risk of the work that 

we are doing is much, much less now than it was at the onset of 

the meltdown, staying in conservatorship is just not sustainable. 

You have a high risk of losing the most qualified people to the 

private sector. I could keep going on. 

Mr. CARNEY. We should do something. We should act. 

Mr. WATT. You should act, yes. 

Mr. CARNEY. Thank you, Mr. Chairman. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Pennsylvania, Mr. 

Rothfus. 

Mr. ROTHFUS. Thank you, Mr. Chairman. Mr. Woodall, your criticism of the MetLife SIFI designation process is a matter of record 

and has been discussed at the hearing today. Your well-founded 

concerns are shared by many of us, and ultimately we should all 

ask ourselves whether it is wise for people with little or no experience in a given industry to be given the power to make significant 

consequential decisions such as SIFI designation. 

There is a broader question as well that I was hoping to get your 

thoughts on. Many of us are concerned that American regulators 

are ceding responsibility to the FSB, which is composed of central 

banks, finance ministers, and regulators from around the world. 

Given our shared misgivings about, for instance, FSOC members 

without insurance experience deciding to designate an American 

insurer, shouldn’t we also be concerned about letting foreign regulators who lack experience in the American financial services industry, and who act in the best interest of their respective countries, take the lead in regulating our financial firms? 

Mr. WOODALL. Well, that is the point that has been discussed 

quite a bit, and a lot of it goes to the fact that the European insurers have a lot different background. They have a different accountVerDate Nov 24 2008 15:19 Feb 08, 2017 Jkt 099796 PO 00000 Frm 00061 Fmt 6633 Sfmt 6633 K:\DOCS\99796.TXT TERI
58 

ing system, their products aren’t the same. Now, they are pretty 

well united with their solvency 2 regulation, which goes into effect 

next year. 

And they are working on equivalencies as to whether we are 

equivalent. There has been some temporarily equivalencies given. 

If we don’t get equivalency, it could increase the cost of our companies doing business in EU countries tremendously. 

Mr. ROTHFUS. One of FSOC’s most basic authorities under Section 112 of Dodd-Frank is to make recommendations to the Fed 

concerning which heightened prudential standards should apply to 

non-bank financial companies. Yet to date, the FSOC has not done 

so. 

It would appear that FSOC is putting the cart before the horse, 

designating companies for heightened supervision but making no 

recommendations for what those heightened requirements must be. 

The basic principle of regulation is that the benefits of imposing 

a regulation should outweigh the costs associated with doing so. 

Designating a firm for heightened supervision is not without costs. 

It is a serious matter that impacts firm behavior and may have 

even broader repercussions for the financial services industry, as 

well as consumers. 

Chair White, how is it possible to ascertain the costs and benefits 

of designating an insurance firm as a SIFI if the Fed has not yet 

prescribed the heightened prudential standards that will apply to 

designated firms? 

Ms. WHITE. Again, I go back to the primary mandate of FSOC, 

which is to identify systemically important financial institutions 

that can impact the financial stability of the U.S. financial system. 

I do think the Fed has actually adopted, if I am right, but certainly it put out for notice and comment, standards with respect to 

GECC. So that is there now. But I certainly understand the point 

that you are making in terms of if you don’t know what the standards are that are going to be applied, it is obviously part of your 

analysis that you can’t do. 

I don’t think we are obligated to do it. And indeed, I think we 

are obligated to deal with the issue of systemically important institutions in the first instance, and not wait for that action. 

Mr. ROTHFUS. It is a good idea, wouldn’t you agree, that a basic 

principle of regulation is that the benefits of proposing a regulation 

should outweigh the costs associated with doing so? 

Ms. WHITE. Again, I think the premise of the responsibilities of 

FSOC is what a tremendous cost the financial crisis was, and to 

try to prevent that. One of the tools that FSOC has is the systemic 

designation powers. 

However, speaking for myself, we certainly want to act on full information, including that. 

Mr. ROTHFUS. Director Watt, is the FSOC evaluating the Fed’s 

historically accommodative monetary policy stance to see whether 

that policy has led to excessive risk-taking in the financial system? 

Mr. WATT. Not directly. We are always evaluating every decision 

that all of these regulators make. But we don’t oversee the Fed. 

Mr. ROTHFUS. Do the Fed’s destabilizing monetary policies get a 

pass from the FSOC because the Fed Chair sits on the FSOC? 

59 

Mr. WATT. That assumes that they are destabilizing. I wouldn’t 

assume that position or conclusion. 

Mr. ROTHFUS. So the Fed—or the FSOC isn’t taking a look at the 

Fed’s balance sheet, for example, that it has gone from $800 billion 

to $4.5 trillion over the— 

Mr. WATT. That is not in the jurisdiction of FSOC. 

Mr. ROTHFUS. Thank you, Mr. Chairman. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Minnesota, Mr. Ellison. 

Mr. ELLISON. Thank you, Mr. Chairman, and Ranking Member 

Waters. 

I want to thank each of the witnesses and your staffs for your 

comprehensive and insightful written testimonies. I also want to 

thank you for your service on the Financial Stability Oversight 

Counsel. We have all learned the painful reality that markets do 

not regulate themselves, and a nation as powerful as ours must invest in regulation and identify in response to emerging threats to 

our stability. 

So your report, 150 pages, details the Council’s unprecedented 

progress to protect the financial system from risk and to prevent 

another economic disaster from happening, which I remember very 

well. I wish everyone running for President would read it. Maybe 

then we could have folks talk about how to really understand how 

to protect our economy and be successful in that effort. 

So my first question is to Comptroller Curry. It has been a while 

since you have been before the committee. I want to welcome you 

back. And since you are here, I want to ask you again about a topic 

that you and I have spoken about in the past, and that is the issue 

of Somali remittances. 

Are financial institutions regulated by the OCC closing accounts 

of money services businesses serving Somalia due to compliance 

costs, reputational risk, inability to cover the cost, lack of clarion 

exams, or for other reasons? 

Mr. CURRY. Congressman, as we discussed, I think there are a 

variety of reasons why individual institutions are making determinations about what their risk tolerance is under the Bank Secrecy Act and the anti-money laundering statutes. 

In terms of regulatory clarity, we have tried to make clear what 

our expectations are. We did put out in 2014 additional guidance 

on dealing with money services businesses, but ultimately it is the 

decision of the individual institution whether or not to do business 

with an individual business or individual. 

Mr. ELLISON. I just want you to know the Somali parliament— 

I have had a chance to talk with some of them. They are passing 

an anti-money laundering, antiterrorist financing law. They 

haven’t passed it yet, but they are working on it. That is coming 

up. They opened up their embassy here in the United States, and 

I believe that the more stable that country is, the less susceptible 

it will be for terrorists to come and set up shop and try to operate 

out of there. 

Mr. CURRY. I think those are very good improvements. As we discussed, it is important that there be a strong local banking system 

60 

and the regulatory system overseeing its compliance with important laws like the BSA. 

Mr. ELLISON. Yes. Thank you. 

Mr. Watt, it’s always a pleasure to see you. I’m very proud of you 

and the work that you do. Welcome back to the committee. It must 

be weird to be on that side of the divide. 

But anyway, I just want to say to you, the report calls for a comprehensive litigation legislation to address the conservatorship of 

Fannie Mae and Freddie Mac. It also urges Congress to clarify the 

future role of the Federal and State Governments in mortgage markets. While Congress has not acted on any particular proposal regarding the GSEs, I am interested in what your current policies 

are doing to improve credit access to African-American and Latino 

borrowers. 

I have a chart up, which I will direct your attention to. And as 

shown by the chart, we know that the majority of new households 

are going to be African-American, Latino, Pacific and Asian-Pacific 

American. Yet, they seem nearly shut out of the mortgage market 

now. 

GSE loans to African-American borrowers in 2013 were about 2.2 

percent, and GSE loans to Hispanic borrowers in 2013 were about 

5.8 percent, both low. What policies can GSEs implement post-conservatorship to improve access to credit for African-American, 

Latino, and Native American borrowers that Fannie and Freddie 

cannot implement now? 

Mr. WATT. You are asking about post conservatorship or— 

Mr. ELLISON. What can they do—what is it that might be done 

later that can’t be done now? And I am basically asking, how do 

we make progress on this? 

Mr. WATT. Well, a lot of what can be done after conservatorship 

depends on how GSE reform is done— 

Mr. ELLISON. Right. 

Mr. WATT. —and what the rules of the road going forward are. 

Part of the challenge of being in conservatorship is one of the 

things I have found to be true is that lenders price uncertainty. 

And right now they don’t know what the future is. So as prices go 

up, there is a price to uncertainty of what the future holds in this 

area. 

So, I just—there are a number of things that need to be done to 

address this because we need the availability of capital for people 

to be either homeowners or affordable renters. 

Mr. ELLISON. We will follow up— 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Arizona, Mr. 

Schweikert. 

Mr. SCHWEIKERT. Thank you, Mr. Chairman. 

Just first conceptually, because it has been sort of floated around 

a couple of times, in many ways when I read the articles about 

what you are all doing it is a discussion of, are we fighting the last 

war, and the concentration of risk of unintended consequences. 

We have our Section 113, the list of criteria. Are we going to 

wake up tomorrow and find out that the shadow on the horizon, 

the black swan was something that because of the concentration of 

the way you look at the world you completely miss? 

61 

But there have been a couple bits of testimony here that I need 

to drive into because I am a little disturbed and concerned about 

some of the things I heard. The gentleman from Florida, Mr. Ross, 

was asking some questions about insurance. And a comment was 

made by Ms. Matz—you actually stated that on Prudential, one of 

the reasons they made your list, shall we say, is their derivatives 

book. 

Now is that because they didn’t have enough hedging of their interest exposure? I don’t know if they were doing duration exposure, 

but their interest exposure. And are you saying they had a derivatives book and because they were actually insuring their interest— 

exposure that forced them onto your list? What do you mean when 

you said the derivatives book? 

Ms. MATZ. They had such a large exposure that the failure of 

that institution or financial— 

Mr. SCHWEIKERT. When you say that institution? 

Ms. MATZ. Of Prudential. 

Mr. SCHWEIKERT. Okay. So they are buying an additional hedge 

to protect their interest rate exposure so if that moves against their 

100 percent coverage. Explain to me how that would work. 

Ms. MATZ. First of all, the derivatives position is just one position. But if they are so interwoven or so interconnected with other 

financial institutions that if they failed— 

Mr. SCHWEIKERT. No, no, no, no. Not—if they—they are not— 

Chairman HENSARLING. I’m sorry. Will the gentleman suspend? 

I wish to alert Members that regrettably there is yet another 

procedural vote on the Floor. I think we are drawing near to the 

end of the hearing so if Members who have yet to ask questions 

wish to go vote now and return, I think we can keep this thing 

going, except for Mr. Tipton, who is next. So if Members wish to 

go vote and return quickly. 

I am sorry to interrupt the gentleman. The gentleman from Arizona is recognized again. 

Mr. SCHWEIKERT. Thank you, Mr. Chairman. 

Look, we are talking past each other because you know everything I know about why your derivatives contracts to protect your 

interest rate exposure, that would be something you would find joyful, not put them into a designation. 

Also, in looking over parts of the reports about Prudential, okay, 

so their repo contracts are 100 percent offset and collateralized. I 

am just trying to figure out where you found exposure. 

Ms. MATZ. It is all exposure. What is the assumption that— 

Mr. SCHWEIKERT. If you are 100 percent covered and you have 

also covered your interest rate risk, the exposure is what? 

Ms. MATZ. The assumption that is made in making our determination is that there is material distress at the designated institution. So we are starting from the assumption— 

Mr. SCHWEIKERT. So I have an institution. It is 100 percent covered. Plus, it has also done additional financial products insurance 

to cover markets moving against them. 

Ms. MATZ. But we are operating from the assumption that there 

is material distress at that institution. So, if there is material distress, that they can cover the outstanding debt that they have or 

the loans that they have. 

62 

Mr. SCHWEIKERT. But they are contract loans. The insurance 

products that they are offering are all under contract. So they have 

the ability to say, according to our contract you may be making a 

claim for this, but under the contract we have the ability to pay 

as the contract is designated. Because— 

Ms. MATZ. Unless they are in material distress. 

Mr. SCHWEIKERT. Okay. I will give this one to you in writing because we are talking past each other because that makes absolutely no sense. 

When I look at your Section 113 tests, and I go up and down 

this, is it the last one? Are there risks that the Council may deem 

appropriate? When I look at this list, particularly on an insurer 

like this which is 100 percent covered and then hedged their coverage, I am trying to find out on this list where do you find the 

exposures? 

Ms. MATZ. Interconnectedness. It is their interconnectedness 

with the other institutions. And the assumption that a financial institution is suffering material distress, I think is— 

Mr. SCHWEIKERT. I wish I had you in grad school because there 

would been some fascinating questions. 

All right. Last bit in my last 20 seconds, Mr. Curry, you are the 

only one in the panel I have heard actually touch on something 

that made me very happy. And that was sort of the unknown, the 

reality that future financial markets are moving Silicon Valley 

bank—or excuse me, Silicon Valley centric, the new ways people 

are going to borrow money, buying credit, invest, move around. 

Isn’t that, though, actually much safer and much more robust 

than a concentrated banking system because the way capital is acquired is much more distributed model? 

Mr. CURRY. Again, from the FSOC’s standpoint we have identified as one of our emerging risks the financial innovation and migration of activities. So it is an area that we are discussing. And 

I think we will devote additional attention to those issues. 

As the Comptroller, we are very interested in this because of the 

impact of financial technology and innovation on the delivery of 

banking services— 

Mr. SCHWEIKERT. Okay. And I am going to give you something 

in writing—I know we are way over time. 

Mr. CURRY. Sure. 

Mr. SCHWEIKERT. But I beg of you, if it is creating diffused risk, 

if we are seeing sort of a distributive model, please do not beat up 

innovation. We desperately need it— 

Mr. CURRY. Actually, I am calling for fostering responsible innovation. 

Mr. SCHWEIKERT. And with that, I have to yield back. Thank you. 

Mr. GARRETT [presiding]. The gentleman yields back from a very 

salient point, which I think he will agree with the chairman that 

just citing interconnectedness is not enough of a criteria because— 

and no one else from the panel I see was able to answer your question as well. 

My daughter’s former lemonade stand is also interconnected if 

you go through the whole realm. So I think there has to be more 

substance to it than that. But with that, I will now yield to Mr. 

Tipton for 5 minutes. 

63 

Mr. TIPTON. Thank you, Mr. Chairman. And I thank the witnesses for taking the time to be here. We have a large group, and 

I would like to be able to echo some of the comments that were 

made by Mr. Lucas, Mr. Stivers, in regards to community banks, 

something that is critical for rural America, and particularly in my 

district. 

You have had to raise your hand, simply because of the size of 

the panel, several times here. But I would like to be able to just 

get a sense of your feeling on the panel, who is concerned about 

the challenges faced by America’s community banks and financial 

institutions in these small communities. 

Everyone has raised their hand. In response to Mr. Stivers, you 

have made comments that—how much time does the Council actually spend in regards to community banks? And the answers were 

some, or it is going to be at the staff level. And I would maybe like 

to start with Chair Gruenberg, and maybe Comptroller Curry. If it 

is actually something—this is in your wheelhouse, why isn’t more 

time spent on community banks? 

Mr. CURRY. It actually is. The OCC supervises approximately 

1,700 banks. The majority of them are community banks. A major 

focus of my tenure as Comptroller is to look at and make sure we 

have a strong, viable community banking sector. 

I think we are very fortunate to have a diverse banking system 

in the United States. We have looked at the burdens particularly 

facing community banks. We have identified some areas where we 

think we can make a difference, whether it is call-report reform or 

capital reform. 

At the OCC, we are really looking at how can we reduce the cost 

structure. So we put out a White Paper a little over a year ago, encouraging from a regulatory standpoint, banks, particularly smaller 

banks in rural communities, to collaborate, whether it is a joint 

venture, sharing employees, working on participation, so that they 

can continue to be viable entities and serve their communities. 

Mr. TIPTON. If I may, let’s talk a little bit about—when you are 

talking about a viable, vibrant baking system, you are aware that 

right now, approximately one-third of the counties in the entire 

United States are served by only one community bank. Do you recognize that? 

Mr. CURRY. Yes. 

Mr. TIPTON. How vibrant, how competitive is that? 

Mr. CURRY. What we are trying to do is really make sure there 

is a balance between appropriate supervisory standards in how we 

supervise those institutions, so that banks can continue to lend and 

be leaders in their communities going forward. 

Mr. TIPTON. You talked a little bit about collaboration, for the 

banks to be able to come together, to be able to share employees. 

What type of collaboration is going on in the FSOC to be able to 

identify redundant regulations that are overlapping, and requiring 

small community banks to be able to answer to several masters, if 

you will, and driving up those costs, which were increasing the cost 

for loans, for communities, inhibiting those banks’ ability to be able 

to survive, driving, actually consolidation, or actually failure of 

some of these small banks? 

64 

Mr. CURRY. I think the primary area where we are addressing 

that for community banks is at the Federal Financial Institutions 

Examination Council, which State and Federal bank and credit 

union regulators are part of. That is really part of the mission of 

the FFIEC. 

Mr. TIPTON. Just as a little bit more of a follow up on this, as 

we reviewed the FSOC minutes, there is never a mention of small 

banks in the minutes. So I am pleased to hear that you are actually putting out some comments and some White Papers. I think 

the question that our community banks would like to have answered is, when are they actually going to get some relief, rather 

than talk? 

Mr. GRUENBERG. If I may say, Congressman, I do think community banks have been a focus of enormous attention by the bank 

regulators who have responsibility for it. 

Mr. TIPTON. That is what really disturbs the community banks. 

Mr. GRUENBERG. As you know, community banks play a critical 

role in the financial system. We have shown at FDIC studies that 

community banks account today for about 14 percent of the banking assets, and hold about 45 percent of all the loans to small businesses and farms by all banks in the United States. So the role 

they play is really quite critical. 

I do think that is to be distinguished from whether they pose, in 

and of themselves, a threat to the financial system that would warrant the FSOC’s attention, or they are critical to the financial system certainly can be impacted significantly by systemic risk, as we 

saw in this recent crisis. They themselves are not a source of systemic risk. And where they are the focus, are by the bank regulatory agencies. 

And we, as you know, have been conducting a review, as we are 

required by law, of the regulations we have imposed over the past 

10 years, have held outreach meetings across the country, are seeking public comment. And I am hopeful we will be able to come out 

with a series of regulatory measures that will be helpful in terms 

of reducing the cost of regulatory— 

Mr. TIPTON. I hope you can, because simply, as Mr. Schweikert 

was pointing out when we were talking about the connectivity that 

is going on, while you may say—and are accurate, they are not 

going to be systemically important to the overall economy of the 

United States. 

They are certainly feeling the impacts of those broader rules, regulations, through loan participation, whatever it happens to be, 

that is cascading down and inhibiting their ability to be able to address the very people that you cite—and I agree with you are very 

important—are small businesses and our agricultural communities. 

Thank you, Mr. Chairman. I yield back. 

Mr. GARRETT. The gentleman yields back. Mr. Poliquin is recognized now for 5 minutes. 

Mr. POLIQUIN. Thank you, Mr. Chairman. I appreciate it very 

much. I wish everybody a merry, merry Christmas, and a happy 

holiday season. Thank you all very much for being here. It is very 

important for us here on the committee, and for our fellow Americans. 

65 

Chair Matz, I would like to ask you a couple of questions, if I 

may. Are you familiar with the December 14th announcement by 

Chair White dealing with the new regulatory process, dealing with 

asset managers? Are you familiar with that? 

Ms. MATZ. I have read about it, but I am not— 

Mr. POLIQUIN. Okay. Can you remember what the content of that 

was, ma’am? Okay, let me help you out. Could you speak a little 

bit closer to the microphone? My ears aren’t what they used to be. 

In that, Chair White mentioned that going forward and regulating the asset managed, she would be looking at liquidity risk, leverage, as per use of derivatives, stress testing, and things of that 

nature. Does that ring a bell? 

Ms. MATZ. Pardon me? 

Mr. POLIQUIN. Does that ring a bell? 

Ms. MATZ. Yes. 

Mr. POLIQUIN. Okay, good. And can you think of anything that 

the SEC is not doing to regulate asset management, so good at 

doing this for 75 years. Can you think of anything that she has left 

out in the new way that she is proposing to raise asset managers? 

Ms. MATZ. As I said, I haven’t reviewed it. I am not intimately 

familiar with it, but I have great confidence in Chair White. 

Mr. POLIQUIN. Okay, good. I am going to take that as that you 

don’t have anything to add with respect to her job regulating asset 

managers. Are you familiar, ma’am, with the FSOC’s decision to review asset managers’ products and activities? 

Ms. MATZ. Yes. 

Mr. POLIQUIN. You are? Okay, because you voted on that, it was 

unanimous back in December of last year, I believe. Are you also 

familiar with Section 113 of the Dodd-Frank Act? 

Ms. MATZ. Yes. 

Mr. POLIQUIN. Good, okay. There are 11 different parts of that 

Section 113, Ms. Matz. One of them, which deals with what you 

folks are responsible for in weighing whether or not an asset manager, mutual fund, pension fund managers, so forth and so on, 

should be so designated as SIFI. 

One of them, ‘‘The degree to which the company is already regulated by one or more primary financial regulatory agencies—’’ 

The SEC is one of those primary regulatory agencies, right, from 

asset managers? Okay. So my question to you, Ms. Matz, is what 

in the world is FSOC even doing in this business? We have a regulator here that has been doing this for 75 years. 

You agreed there was nothing you can think of to add to her job. 

But at the same time, you voted along with everybody else to consider designating asset managers as SIFIs. So what am I getting 

wrong here? 

Ms. MATZ. We didn’t vote to consider— 

Mr. POLIQUIN. Speak up, please. My ears are bad. 

Ms. MATZ. We didn’t vote to consider asset managers as SIFIs. 

We voted to consider to have the staff look at the activities of the 

asset managers, to determine whether— 

Mr. POLIQUIN. That is legal speak. That is the same thing. If you 

are asking the staff, and you folks are going to decide whether or 

not you are going to designate an asset manager as a SIFI, and 

looking at the criteria thereof, that is the same thing, isn’t it? 

66 

Ms. MATZ. We have not made any determination. 

Mr. POLIQUIN. I know you haven’t. Why are you even in this 

business? 

Ms. MATZ. Because our mandate is to look at those institutions 

that could pose a threat to the financial stability of the United 

States. 

Mr. POLIQUIN. She is already doing that. The SEC is already 

doing that. I just read you the criteria, ma’am. She is dealing with 

liquidity risk, and leverages, respect to derivatives, and stress testing, and everything else. And you couldn’t add anything else to the 

parade. So my question is, why don’t you folks move on? You have 

other good things to do. Why should you get involved in this space 

at all? 

Ms. MATZ. Well, two things. One is that we have not made that 

determination yet, and also that the SEC is not looking at the 

threat to the financial stability of the United States. They are looking at the narrow securities market. 

Mr. POLIQUIN. Okay. Let me—no, I am asking you, ma’am. Ms. 

Matz, I am asking you. Thank you. 

All right. Let me ask you this question. Since you folks clearly 

have gone down this path or are going down this path to consider 

whether or not you should designate an asset manager as a SIFI, 

you must have some analysis which concludes that what the SEC 

doing is not full. Do you have that analysis for me or for my office? 

Ms. MATZ. Their mandate isn’t to look at the financial stability 

of the— 

Mr. POLIQUIN. Do you have the analysis that you use, Ms. Matz, 

and everybody else used to so determine that the SEC is not fulfilling their job? 

Ms. MATZ. We— 

Mr. POLIQUIN. It does dictate advice— 

Ms. MATZ. We did not come to that conclusion, that the SEC is 

not fulfilling its job. 

Mr. POLIQUIN. Okay. Well, you had to make the decision based 

on what? 

Ms. MATZ. Based on our mandate. 

Mr. POLIQUIN. Let’s move on a little bit. Are you familiar with 

a study done by Mr. Douglas Holtz-Eakin, the former Director of 

the nonpartisan CBO? 

Ms. MATZ. The study on? 

Mr. POLIQUIN. All right. You are probably not. It was done in 

2014. Let me just give you the ultimate conclusion. It basically says 

the following: If an asset manager that represents no systemic risk 

to the markets or to the economy, if they are so designated as a 

SIFI, then the costs will go up. And we have discussed this today. 

The product offerings will go down. And the long-term rate of return of savers for their retirement and putting their kids through 

college will likely go down by 25 percent. 

Now also in Section 113 of Dodd-Frank, there are other risks 

that you should consider. Do you folks consider the risk to the 

small investor such as a nurse in Lewiston, Maine, or a logger in 

Dover-Foxcroft, Maine, who are trying to save money for their retirement or for their kids’ education, are you considering the risk 

to them if the asset managers that run their money are so desVerDate Nov 24 2008 15:19 Feb 08, 2017 Jkt 099796 PO 00000 Frm 00070 Fmt 6633 Sfmt 6633 K:\DOCS\99796.TXT TERI
67 

ignated as SIFI and they get dinged by about 25 percent in their 

rate of return? Do you consider that? 

Ms. MATZ. We have not made any—even been given any potential recommendations. So we have not considered any aspect of— 

Mr. POLIQUIN. Okay. So when you factor in the economic cost to 

the people we are supposed to help in this country in making these 

decisions, whether or not an asset manager should be so designated 

a SIFI. 

Ms. MATZ. We are not even at that point of making that determination. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Arkansas, Mr. 

Hill. 

Mr. HILL. Thank you, Mr. Chairman. 

And I thank the witnesses for being here today. So many questions, such a distinguished panel, and so little time; it’s very frustrating. 

Chair White, if I could start with you, please. Traditionally your 

testimony and in your capacity and previously always has our boiler—famous boilerplate that says the views expressed and the testimony are those of the Chair of the SEC and do not necessarily represent the views of the full Commission or any Commissioner, 

standard procedure. 

But while this is a good disclaimer, I think for general testimony 

we do love it when you all actually give personal views occasionally 

and not stand on the party line. 

Here in the concept of an FSOC testimony it causes me to want 

to ask you a few questions. You serve on FSOC as one of the 10 

voting members. Here is my question: If one of the other four SEC 

Commissioners was opposed to one or more of your FSOC positions, 

does Dodd-Frank require the SEC to vote ahead of the FSOC meeting to determine how you would then represent that view at the 

FSOC meeting? 

Ms. WHITE. It does not, although I do consult with my fellow 

Commissioners before and after the FSOC meetings. But the short 

answer is ‘‘no.’’ 

Mr. HILL. And so in that consultation can you give me an example of where there has been disagreement between Commissioners? 

Ms. WHITE. No. It is more just informationally briefing on what 

is going to come up before FSOC, what I am intending to do. 

And again, under the structure, I am the member and obviously 

the voting member of FSOC. If there is anything to take a position 

on at the meeting, I convey that and obviously listen to any input 

or different points of view, and then afterwards report to the Commissioners on what transpired at the meeting. But there is not a 

structure to take a vote in advance. 

Mr. HILL. But to continue sort of the line of questioning early 

this morning, if you had a Commissioner who was particularly passionate on a topic, would you be open to taking them to an FSOC 

meeting? 

Ms. WHITE. Again, I certainly am totally amenable to that point 

of view and making certain that I fully understand it and take it 

into account. 

68 

Again, under the current structure and protocol, the Chair or the 

head of the agencies that are the designated 10 voting members, 

can bring a plus one, as it is called in this town, to the meeting 

with us, which has been a staff member. 

So it is really not structured to have the other Presidential appointees attend these meetings or vote on these matters. Obviously, 

that creates some sensitivities, no question about it. As I said, it 

is up to Congress if they want to change that structure. 

Mr. HILL. It just seems that internally it would be good if there 

were that level of disagreement where maybe a Commissioner 

wanted to express their views directly to FSOC, that that might 

even merit a formal Commission discussion and a formal view of 

the Commission potentially, before you simply represented the 

Commission in your own individual capacity. 

Ms. WHITE. When I became Chair, I tried to change how we proceeded to get fuller input. But again, existing structure presents 

some of the challenges you are outlining. 

Mr. HILL. So, I have only been in Congress 11 months or so, but 

one thing that has come up consistently, Mr. Watt—it is very helpful to have so many of you in one hearing—is this lack of transparency in the process that many in the industry feel. 

And yes, it is a new agency and it has growing pains and has 

structure to be put in place. 

But there is a right way and kind of a wrong way, I think, to 

do things in Washington. We all know the Administrative Procedure Act. We all know our obligation to openness. And in some 

cases we have taken actions before we even have rules. I think 

somebody referenced that we have designated insurance companies 

before we have even set what the standards might be for insurance 

companies. 

So one thing I looked at is that for—in G-SIFIs certain capital 

surcharges there is a very transparent, mathematic—I have seen 

it written down, how to designate somebody for a G-SIFI surcharge. And that looked very transparent to me. 

And yet, we don’t even have that level of information on routine 

decisions in considering non-bank SIFI designations, or even, to 

some degree, activities-based SIFI analysis. 

Who wants to comment on that? Maybe Chairman Gruenberg, 

you might comment on that, since it is both a banking and a nonbank designation question? 

Mr. GRUENBERG. Congressman, as was discussed earlier, the 

FSOC established a process for a SIFI designation pursuant to a 

rulemaking and public notice and comment. Actually, I think the 

rulemaking went through three series of public comments. 

And the first stage of the process, as I am sure you know, is a 

set of metrics, a set of thresholds through which an institution 

would pass. 

And I must say there is a very high set of thresholds which 

would, almost by definition, be limited to some of the largest or 

most interlinked companies in the financial system. And that is 

something that is—any company can calculate in terms of projecting what the impact might be. And anyway, I will stop here. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Utah, Mrs. Love. 

69 

Mrs. LOVE. Thank you, Mr. Chairman. 

First of all, thank you all for being here. I know everyone is excited about the holiday season. I want to wish you all a Merry 

Christmas. And also to have such a great group of just so many 

of you here today, it is just really beneficial to me as a freshman. 

So, thank you. I have learned a lot today. 

I have just a couple of questions. Comptroller Curry, you have 

previously testified that tailoring is an important tool in the OCC 

supervisory and regulatory toolbox because, as you have stated, 

while bank asset size is often a starting point in our assessment 

of appropriate standards, it is rarely, if ever, the sole determinant. 

Do you still agree with your statement to that effect? 

Mr. CURRY. Yes, I do. 

Mrs. LOVE. Okay. So when a regional bank with simple trading 

lending model and minimal interconnectedness grows to $49.9 billion to—in total assets to $50.1 billion in total assets, what new requirements apply to that institution? 

Mr. CURRY. There is a cliff effect for the holding company under 

Section 165 of Dodd-Frank. So it will trigger heightened capital liquidity and other standards because it has crossed that threshold. 

Mrs. LOVE. Okay. So does it make sense to automatically designate that institution, even though it does not engage in trading 

or other complex operations? 

Mr. CURRY. Again, I am the supervisor of the bank— 

Mrs. LOVE. I know— 

Mr. CURRY. That is what I want to clarify. As we supervise the 

bank part of the holding company, we are not driven by the asset 

figure in terms of how we supervise that institution. 

Mrs. LOVE. Okay. But we just determined that new requirements 

are applied to that institution. So I am trying to figure out your 

thoughts on this, and whether that designation—does that actually 

make sense, in terms of engaging in that type of regulatory— 

Mr. CURRY. An asset threshold is initial, it has some value as initial or a first screen. So you can make some general observations 

about some institutions, that a certain asset size level may or may 

not be engaged in a particular activity. 

As I stated in my earlier testimony, our focus as a supervisor is 

on that particular institution, the particular activities it is engaged 

in, and what are the risks that those activities present. And then 

we deal with our individualized or tailored plan of supervision according to that analysis and assessment. 

Mrs. LOVE. Okay. So what I am trying to say is that the triggers 

automatically are applied to that institution. They automatically 

have those new requirements. So I guess what I am asking you is 

if you think that an institution like that, without just having that 

automatically trigger, do you think an institution like that realistically threaten the financial stability of the United States? 

Mr. CURRY. I think it is an individualized determination. And 

again, I don’t think that there is any magic to any asset threshold. 

Mrs. LOVE. Okay. So wouldn’t it make sense to look more closely 

at some of the banks which are actually similarly situated, and determine whether that designation is more beneficial or burdensome 

to the community in which they serve? 

70 

Mr. CURRY. I supervise the banking subsidiary, and that is exactly what we do. 

Mrs. LOVE. Okay. But right now, it automatically—instead of actually doing the work first to see if that is actually— 

Mr. CURRY. That is the effect of the statute, yes. 

Mrs. LOVE. Okay. Well, I guess that is the point I am making. 

Mr. CURRY. I understand. 

Mrs. LOVE. Okay. If a $50 billion SIFI threshold were raised or 

eliminated, could the OCC still have the regulatory or supervisory 

tools that they need, necessary to make sure that all supervised 

banking organizations are operated in a safe and sound manner? 

Mr. CURRY. As supervisor, that is what we would want to see, 

to make sure we have a safe and sound institution. 

Mrs. LOVE. Okay. So you are pretty much saying that you would 

like to do that work first before it is automatically designated? 

Mr. CURRY. That is what we do as a matter of course, as a bank 

supervisor to the national bank. 

Mrs. LOVE. So would you support that statute being changed? 

Mr. CURRY. Again, as stated in previous testimony, that is really 

a matter for Congress to decide what that initial first threshold is. 

In terms of my role as a supervisor of the bank, we will continue 

to apply a risk-based focus to our supervisory activities and standards. 

Mrs. LOVE. Thank you. Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Minnesota, Mr. 

Emmer. 

Mr. EMMER. Thank you, Mr. Chairman, and Ranking Member 

Waters. And thank you to the witnesses for being here for so long 

today. 

Chair Massad, for you, it is good to see you again. We first had 

the opportunity, or inopportunity, to meet while I was serving on 

the Agriculture Committee. I wanted to ask you—I will put it this 

way. I wrote it out so I can do it right. Does it concern you that 

a regulatory body comprised primarily of banking, credit union, 

housing, and other regulators has the authority to intervene in 

markets that you, the CFTC, regulate, and potentially substitute 

their judgment for yours in highly complex or highly technical matters? 

Mr. MASSAD. Thank you for the question, Congressman. I think 

the structure we have is a very good one, in that it brings all the 

regulators together, which allows us to look across the financial 

system, to look at emerging risks. There are issues in our markets 

where other regulators have certain responsibilities, whether they 

are things like margin rules for swaps, regulation of central clearing houses. 

Mr. EMMER. If I could interrupt you, because it is limited time, 

and I appreciate—I wasn’t asking for the mission statement. I am 

asking specifically with respect to the CFTC. I have heard all kinds 

of questioning today. 

I have done a little reading about how the FSOC decided that in 

spite of the one insurance expert voting member, they substituted 

their judgment in place of his. And I am asking you, doesn’t it concern you, or does it present any concern to you, that this body, this 

71 

regulatory body, might substitute its opinion for yours at the 

CFTC? 

Mr. MASSAD. I see it as a structure which doesn’t so much involve substituting its opinion for ours, but rather, bringing regulators together so that they can share information, cooperate, and 

coordinate what we are doing. And I think that is very beneficial 

to the overall system. 

Mr. EMMER. Let me put it to you this way: When the CFTC 

members meet to consider issuing a proposed or final rule, or decide an enforcement matter, even your—even though you are the 

Chairman of the CFTC, your vote counts the same as all of your 

fellow Commissioners, correct? 

Mr. MASSAD. That is correct, sir. 

Mr. EMMER. All right. But now, when you sit on the FSOC board, 

and you take a vote that might be different from what your fellow 

Commissioners would do at the CFTC, how is that not corrupting, 

if you will—maybe that is a very strong word—the process that we 

put in place, or that has been put in place to operate the CFTC? 

Mr. MASSAD. The FSOC isn’t taking votes on our enforcement 

matters, or on the rules that we are issuing. So I don’t see a conflict there, sir. 

Mr. EMMER. What if your position on the FSOC differs from one 

of your four Commissioners at the CFTC? What recourse do any of 

those Commissioners have for your votes on the FSOC? 

Mr. MASSAD. I try to have an open door with all my Commissioners, and I am always willing to share my thoughts and hear 

theirs. 

Mr. EMMER. So they just have to trust you? 

Mr. MASSAD. I would say that the structure that Congress has 

decided is one where each of us as individuals are the— 

Mr. EMMER. I know what they decided, and I apologize. I don’t 

mean to be disrespectful. But the bottom line is they don’t have 

any recourse other than your open door, and then they would have 

to trust you to do what they—to change or do what they are asking 

you to do. 

Mr. MASSAD. I think again, we try to have a good dialogue about 

all these issues. And I am someone who likes to listen, and I try 

to respect other people’s opinions, and take those into account, sir. 

Mr. EMMER. Mr. Watt, Article 1, Section 7—and I am directing 

this at you because of your experience, your lengthy experience, 

and the respect you have from Members in Congress for your service here. And I will just cut to the chase. The Constitution gives 

Congress the power of the purse, correct? 

Mr. WATT. Yes. 

Mr. EMMER. When we look at the Financial Stability Oversight 

Council, how is it funded? 

Mr. WATT. It is funded the way it is set up under the statute. 

You will have the authority to change it if you wanted to do that. 

But— 

Mr. EMMER. Well, let me help. Assessments from bank holding companies managing $50 billion or more in assets, are taken and 

placed into a fund at the Treasury called a Financial Research 

Fund. This money is given to FSOC in the Office of Financial Research without oversight. 

72 

I have a bill that would actually subject the FSOC and the Office 

of Financial Research to oversight. Do you agree with that, congressional oversight? 

Mr. WATT. I don’t agree or disagree. If you can get it passed, I 

am sure FSOC would comply with it. 

Mr. EMMER. I am looking at the budget that your—that FSOC 

approved for itself by 2015. Can you tell me, sir, under non-labor 

costs, what is ‘‘included in other support?’’ 

Mr. WATT. We had a full briefing before we voted on that budget, 

and I am sure at the time, I understood every aspect of it. I don’t 

remember specifically what each category is now. But we didn’t 

just rubber-stamp that budget, I can assure you. 

Mr. EMMER. And would you submit that briefing to my office on 

request? 

Mr. WATT. I think it would be appropriate for you to make that 

request to FSOC rather than to me individually. I would not submit it as an individual member of FSOC. 

Chairman HENSARLING. The time of the gentleman has expired. 

Members are advised there is another procedural vote on the Floor, 

with approximately 12 minutes remaining in the vote. We have 

three Members remaining in the queue, one who has left to go vote 

on the Floor, so I think we can get through this, and hopefully adjourn thereafter. 

The Chair now recognizes the gentleman from Florida, Mr. 

Posey. 

Mr. POSEY. Thank you very much, Mr. Chairman. I would like 

to just read a couple of quotes. This is from The Wall Street Journal. 

‘‘For the weekend of October 28th, the banks reported holding 

negative $1.4 billion of investment-grade corporate bonds maturing 

in at least 13 months, according to the Federal Reserve Bank of 

New York data. The figures, which signify banks, have pledged to 

sell more bonds than they will buy, reflect the net holdings at 

banks that act as a primary dealer authorized to trade billions of 

dollars of U.S. securities with the Fed, and buy Treasury debt direct at auction. 

‘‘On May 1, 2015, FINRA CEO Richard Ketchum stated there 

have been dramatic changes with respect to the fixed income market in recent years. Many of them have come in the reaction of the 

failures and market impact coming out of the credit crisis. That 

has led to much higher capital requirements, the Volcker Rule that 

limits the ability of proprietary trading with respect to bank holding companies, a range of other issues that have all had significant 

impact from the standpoint of liquidity of the fixed income market.’’ 

And then finally, Dave Nadig, Director of Exchange Traded 

Funds for the search firm FactSet said buy-in in the corporate bond 

market has dried up so much that it alone may pose a significant 

systemic threat. 

And so my question for Director Cordray is, according to the 

FSOC website, the Financial Stability Oversight Council has a 

clear statutory mandate that creates for the first time collective accountability for identifying risk and responding to emerging threats 

to financial stability. 

73 

While the rest of the world has identified an emerging threat to 

financial stability, namely regulations like the Volcker Rule, Basel 

III’s capital and liquidity standards, and other Dodd-Frank mandates that are draining liquidity from our fixed income markets, 

the FSOC and its chairman, Treasury Secretary Lew, has steadfastly refused to acknowledge that regulations are playing any role 

in creating this systemic risk. 

As a voting member of FSOC, what resources have you marshaled, and what experts have you consulted to better understand 

the causes and consequences of reduced bond market liquidity? 

Mr. CORDRAY. I think I would add that to a point that I thought 

made earlier was also a good point, which is as we add structure 

and regulations and requirements, we should consider the effects 

on international competitiveness. 

I also think that you are raising a fair point, which is we should 

consider the effects on potential liquidity in the markets. It has 

been raised earlier in the hearing as well. 

These are the kinds of considerations that should go into the 

kinds of work that is being done by the FSOC, and frankly work 

that is being done by the Congress. Quite a bit of the criteria that 

FSOC is employing are criteria that were embedded in the statute 

that Congress set that we are merely following, enforcing and carrying out. 

But I think it is a fair point that you are making about how different requirements and different structures can potentially affect 

on the one hand stability and safety, and on the other hand potentially liquidity. I think it is fair for us to consider that as we go. 

Mr. POSEY. What kind of technical expertise is there on the 

Treasury staff to address that? 

Mr. CORDRAY. I think we have the same technical expertise there 

that we have on all the other issues the FSOC is considering, 

which is, there is FSOC staff itself in the Office of Financial Research, and from the member agencies of FSOC. 

There was a graph put up earlier from the GAO report, and it 

was used at the time to suggest that certain agencies didn’t devote 

enough people to certain problems. But I thought it was notable 

that when you look down the columns, the aggregate numbers of 

people being devoted by the agencies to address certain issues was 

ranged from in the 50s to in the 90s. 

It is a considerable amount of support. This is very high level of 

support. We are talking about some of the top analysts, economists, 

statisticians, and researchers from all of these member agencies, 

including Treasury and the Federal Reserve. They are the same 

kind of people who work on all the complicated, difficult financial 

issues in our economy such as monetary policy, fiscal policy, international issues, and the like. 

Mr. POSEY. So essentially, we are talking about the Treasury 

staff? 

Mr. CORDRAY. No. I think we are talking about staff from all the 

member agencies. Depending on the issue, there may be more or 

less staff from different parts: more banking agency staff on a 

banking issue; more investment regulator staff on an investment 

issue; and the like. 

74 

Mr. POSEY. If compelling evidence is presented to the FSOC that 

regulations are in fact contributing to the illiquidity of the bond 

market and thereby creating potential systemic risk, do you agree 

that FSOC’s mandate from Congress requires it to make recommendations designed to mitigate the risk, which could include 

revisiting the wisdom of aspects of the post-crisis regulatory response like the Volcker Rule and Basel III? 

Mr. CORDRAY. You are asking me to speak only for myself. This 

is not a consensus view of FSOC. But if that were shown to be the 

case, if the evidence so demonstrated, I think that would be fair 

game. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from North Carolina, 

Mr. Pittenger. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

Director Cordray, the CFPB ombudsman recently released their 

2015 annual report to the Director. In the report it reviewed the 

Consumer Complaint Database on page 28. The recommendation 

was made to improve the process of how difficult the complaints in 

the database can be identified, including a recommendation that to 

remove the requirement, it must be verbatim to be deemed duplicative. 

Mr. Cordray, do you recognize the grave concern that this is to 

these companies who are stigmatized through it? They are regarded—this is regarded really as unfair attribution. Do you see 

the impact this is having, and particularly that there is not investigation to determine that these—to verify these complaints before 

they go to the website? 

What does the department plan to do and the Bureau plan to do 

to correct this? 

Mr. CORDRAY. We actually just had a completed report and audit 

study done by our Inspector General of the Consumer Complaint 

Database. It was just issued in September, so less than 2 months 

ago. It indicated that there were a very small number of errors in 

the system. And that was a report and study and investigation that 

we followed very closely. There are recommendations that— 

Mr. PITTENGER. Is that study available for review? 

Mr. CORDRAY. Yes, I believe it is publicly available. It has been 

issued. And the GAO has also looked at this over the years and 

made a number of recommendations to us. 

We are very mindful of those. We are very mindful of recommendations that you and your colleagues may want to bring to 

us as well. We do feel strongly that a public complaint database is 

an important incentive for institutions to step up their customer response— 

Mr. PITTENGER. But do you agree— 

Mr. CORDRAY. —and I think they are learning a lot from— 

Mr. PITTENGER. —that they shouldn’t have to be verbatim to be 

deemed as being the same complaint? They don’t have to be verbatim. 

Mr. CORDRAY. There are issues around the term ‘‘verbatim.’’ And 

I have been in discussions about that with our ombudsman, been 

in discussions with that with other overseers, including the InspecVerDate Nov 24 2008 15:19 Feb 08, 2017 Jkt 099796 PO 00000 Frm 00078 Fmt 6633 Sfmt 6633 K:\DOCS\99796.TXT TERI
75 

tor General and the like. It is something our consumer response 

group is looking at carefully to try to make sure— 

Mr. PITTENGER. Okay . Thank you. 

Mr. CORDRAY. —that they scrub that. 

Mr. PITTENGER. I appreciate that. 

Mr. CORDRAY. So we will be happy to give you more information 

as you— 

Mr. PITTENGER. Would each of you provide the committee with 

any FSOC documents containing or relating to communications between the Financial Stability Board and FSOC? And each body 

members or staff concerning the designation non-bank financial 

companies, are there systemically important financial institutions 

or as global SIFIs? Is that acceptable to each of you all? 

Mr. WATT. I don’t have any. So, I can tell you that now. 

Ms. MATZ. Nor do I. 

Mr. MASSAD. I am not a member of the FSB. I have attended one 

or two meetings. I would like to hear the question again, but I 

don’t believe I have anything. 

Mr. PITTENGER. Go ahead, Chair White. 

Ms. WHITE. I was going to say that I think there has been some 

production of documents in that vein. But I would have to check. 

Mr. PITTENGER. Isn’t the basis here one of transparency? I think 

we have recognized today the lack of adequate transparency with 

the agencies. And we are looking to find ways to rectify that. 

Let’s have a show of hands then, if you would, regarding your belief that FSOC’s deliberations should be more open to the public 

scrutiny than in current practice. Would you all agree to that, 

then? Do you believe that there should be more openness? 

Mr. CORDRAY. I think we have provided for more openness as we 

have been amending and changing procedures as we go— 

Mr. PITTENGER. Do you think there is a basis to be more open? 

Mr. CORDRAY. I think we— 

Mr. PITTENGER. In light of what has been discussed today? Let 

me tell you what I have in mind. 

Clearly, we believe that transparency is vital in our government. 

And I will be introducing a bill later on today that will provide a 

greater measure of transparency. Here are the two elements of this 

bill. 

The first is to testify semiannually, each of you, before the House 

Financial Services Committee and the Senate Banking Committee. 

And you cannot decline the requirement. It would be mandatory. 

Or permit all members of the Financial Services Committee and 

the Senate Banking Committee to attend all FSOC meetings, 

whether or not they are open to the public. 

Would you agree that would be acceptable? Do you have any 

problem with any of those? 

Mr. WATT. If you can get it passed, we will comply with the law. 

I will comply with whatever law you pass. But— 

Mr. PITTENGER. But do you think that is reasonable? 

Mr. WATT. I don’t think it is reasonable— 

Mr. PITTENGER. Chair White, do you think it is reasonable? 

Ms. WHITE. I certainly think we all should be responsive to Congress, all of us, at any time we are asked, frankly, without the necessity of a bill. 

76 

Mr. PITTENGER. Would you say—testify semiannually, or allow us 

to come to the hearings? 

Ms. WHITE. But I think in terms of the FSOC process, we have 

to be very careful about what it is designed to do, and the nature 

of the information it considers. 

Mr. PITTENGER. It is designed for openness and transparency. 

Ms. WHITE. I think we should continue to look at openness for 

sure. 

Mr. PITTENGER. That is what it is designed for. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from New York, Mr. 

Meeks. 

Mr. MEEKS. Thank you, Mr. Chairman. 

Let me start with Mr. Gruenberg. The banking regulator just 

concluded that total loss-absorbing capacity (TLAC) for global systemically important banks would require banks to hold a certain 

amount of capital, but also requires them to issue a certain amount 

of unsecured debt that could be converted to capital in case of the 

bank’s failure. 

However, some observers, including I believe your Vice Chair, 

are concerned that the proposals call for banks to take on more 

debt at a time that the Fed is getting ready to raise interest rates. 

And he says that this is a risky and dangerous proposition. Is his 

concern legitimate? 

Mr. GRUENBERG. I think the unsecured debt requirement is an 

important component of efforts to make these systemic companies 

able to fail in an orderly way without putting the taxpayer at risk, 

Congressman. The experience is that when a financial institution 

fails, all of its capital, all of its equity, is wiped out. 

The only thing that remains is the debt held by the firm, which 

is then available on a closed-institution basis, after the institution 

fails, to be converted to capital, so that the private creditors of the 

failed company bear the losses for managing the failure of the institution. 

And as it turns out, most of the large financial companies in the 

United States, most of our G-SIFIs, have substantial amounts of 

unsecured debt. 

The rule that the Federal Reserve has proposed would ensure 

that they maintain a minimum amount. So if they get into difficulty, they can fail, and it is the private creditors, and not taxpayers, that are on the hook. And so for that reason, I think the 

proposal has merit. 

Mr. MEEKS. Thank you. Let me jump to someone whom I am 

used to seeing sit up here. It is still funny to see him sit down 

there. That is the Honorable Mel Watt. 

In recent weeks, the debate over what to do about the mortgage 

giants, Fannie Mae and Freddie Mac, has shifted from wholesale 

replacement to genuine reform, as replacing Fannie and Freddie as 

the political environment seems more unlikely. It seems like just 

replacing them is completely unlikely. 

We all want more private capital in housing finance. But my 

question is, do you believe there is enough private capital to fulfill 

the role the GSEs play without raising mortgage rates substanVerDate Nov 24 2008 15:19 Feb 08, 2017 Jkt 099796 PO 00000 Frm 00080 Fmt 6633 Sfmt 6633 K:\DOCS\99796.TXT TERI
77 

tially? And what are the challenges and lessons you are experiencing as you get more involved in the risk-sharing mechanisms? 

Mr. WATT. We have tried out a number of risk-sharing mechanisms, trying to transfer as much of the risk to the private sector 

as possible. We are concerned about the capacity of the private sector to take on this risk, particularly in an economic downturn, or 

a distress situation. 

And if the entire system were converted to the private sector, you 

would have that risk of not having a backstop during a downturn, 

and you would have the risk of—I think—of increased cost to a borrower, both of which I think would need to be evaluated by Congress as they evaluate how to move forward. 

Mr. MEEKS. Thank you. I have a few seconds left, but I have one 

other question. I would have loved to have gone back. Let me just 

quickly direct this question to Comptroller Curry. 

Amid regulations and supervision, the good news is that we are 

starting to see banks taking bolder steps to reduce risk and exit 

out of certain risky activities. On the other hand, I see that this 

raises concerns, because some of the activities are just shifting to 

less-regulated shadow banking entities. And banks are getting out 

of certain communities, and in certain countries. 

Are we denying services to millions of lower-income Americans, 

not because the risk is too high, but simply because the profit margins are not as high or are too low? 

Mr. CURRY. To my knowledge, there is no evidence of that, Congressman. It is something that we would assess in the course of our 

compliance examinations for the Community Reinvestment Act. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from South Carolina, Mr. Mulvaney, for 5 minutes. 

Mr. MULVANEY. I thank the chairman. And I thank the panel, especially for sticking around. It means a lot to us that you all don’t 

put hard stops on us, and let us have some flexibility, and do this 

throughout the day. 

I also apologize for having to run in and out during the day. We 

are evidently having serial motions to adjourn, Mr. Watt. You can 

explain to me why your side is doing that later on. It has to do 

with guns, I am told, believe it or not. Anyway, not my— 

Mr. WATT. I generally couldn’t explain it when I was here, so I 

certainly can’t explain it now. 

Mr. MULVANEY. I hear you. I want to go back to something that 

Mr. Green said early on in the hearing today. He mentioned the 

MetLife lawsuit, talked a little about the jurors, and said those 

folks don’t have to have any particular insurance experience, do 

they? And of course, they don’t. That is not the way our legal system works. 

Then he looked at you and asked you if you agreed with that, 

and everybody sort of agreed the jurors don’t need to have that. 

But that is not really the standard for the members of this group, 

right? 

Does anybody really think that 12 good persons and true could 

serve in this role, or is it a good idea to have—everybody agrees 

we should have some expertise, right, in this? 

That is why you are there, and that you couldn’t do this job if 

we just randomly picked you off the street. So I didn’t want people 

78 

walking out of there thinking the standard for you folks is the 

same as the standard for a juror. 

And I want to go into something that I believe Ms. Matz said to 

the chairman early on about the process you went through in your 

decision-making regarding MetLife. You said you were briefed extensively, which I want to talk about a little bit. You said it was 

done by the FSOC staffers. Let’s talk about that. Was this to you 

individually? Was it to you and your staff? Was it to you as a 

group? Tell me how you were briefed on this, Ms. Matz? 

Ms. MATZ. I was briefed by my staff, who participate actively 

with the FSOC staff, and the FSOC Deputies Council. Then we 

were briefed extensively as a Council, and we also received a great 

deal of briefing material. 

Mr. MULVANEY. Okay. The final determination was made on 

June 30th. Do you remember the first time you were briefed on 

MetLife? 

Ms. MATZ. I don’t. 

Mr. MULVANEY. Was it days in advance, weeks, months? 

Ms. MATZ. Oh, no. It was longer. It had been in the works for 

probably a year or more, more than a year. So no, we were briefed 

on progress being made so I couldn’t tell you when it was. But the 

staff worked on that designation for quite a long time. 

Mr. MULVANEY. So the staff worked on it. I get that. We do that 

here as well, as Mr. Watt would say. We rely on our staff. How 

much time did you spend on it yourself? 

Ms. MATZ. I spent a long time because of the tremendous amount 

of information both to get in briefings and reading material. The 

basis was I believe 300 or some-odd pages. 

Mr. MULVANEY. Did you block off time during the day for reading 

those materials? 

Ms. MATZ. I brought them home. I read them at night and on 

weekends. 

Mr. MULVANEY. I do the same thing. Let me ask you this then. 

The reason I am focusing on you is you mentioned it during your 

opening statement. I think you also mentioned it to Mr. Hultgren 

in response to some of his questions. 

Given your extensive briefing on the material, and the understanding that the statute requires you to look at 11 different factors, I want to go through them very, very briefly. 

For example, you mentioned in your opening testimony—or response to the chairman—that one of the things that stood out in 

your mind was the derivatives. But that was one of the things that 

stood out in your mind as to the MetLife, in making the MetLife 

decision, or voting for the designation. So tell me, what it was 

about the derivatives that you thought was important? 

Ms. MATZ. We just can’t discuss that right now, because it is in 

litigation. We have public information on the FSOC website, but we 

are not at liberty to discuss the details of the deliberation. 

Mr. MULVANEY. Okay, I will ask it this way, then. I disagree 

with that, by the way. We get that a lot. Mr. Watt didn’t allow it 

when he was here, and I don’t like it now that I am here, because 

you can tell us stuff. But we will skip it then. You made the same 

determination for Prudential, right? 

Ms. MATZ. Yes. 

79 

Mr. MULVANEY. And you voted to designate them. And they are 

not in the lawsuit right now. So what was it—I take it you did the 

same level of preparation in making your decisions for Prudential 

that you did for MetLife? 

Ms. MATZ. Correct. 

Mr. MULVANEY. So what was it about the derivatives decision 

that Prudential had that made you inclined to vote for the designation? 

Ms. MATZ. Well, it wasn’t just one item. It was the totality of— 

Mr. MULVANEY. I get that. Tell me one thing about the derivatives position? 

Ms. MATZ. The size of it. I can’t remember off the top of my head. 

It was a huge amount of derivatives and exposures— 

Mr. MULVANEY. Huge in relation to what? 

Ms. MATZ. In relation to other institutions, how they were exposed to other institutions, and exposed other institutions— 

Mr. MULVANEY. No, that is not my question. Huge in relation to 

what? The size of their assets? The size of the— 

Ms. MATZ. No, their exposure. It wasn’t in relation to the size of 

their assets. We view it in relation to their exposure to the financial system of the United States. 

Mr. MULVANEY. Within a billion dollars, what was the size of 

their derivatives? 

Ms. MATZ. I don’t recall. 

Mr. MULVANEY. Thank you. 

Mr. MESSER [presiding]. The gentleman’s time has expired. The 

Chair now recognizes himself for 5 minutes for questions. 

It is a fundamental American principle that in America we follow 

the rule of law. And for the rule of law to be meaningful, of course 

it has to be transparent. 

It has to be written down. People have to have the ability to understand the law and see whether they are complying with it. But 

we want to talk about that principle in the context of the FSOC’s 

current approach and designated non-bank financial institutions, 

particularly insurance companies, under that designation. 

Under the rule of law, folks first ought to understand why they 

are being regulated, what are the standards we are applying to determine whether you will be regulated, and then how they will be 

regulated. 

What are the standards you will be held accountable to if you are 

designated a non-bank SIFI? Mr. Woodall, you have been very patient today, I have to concede, for all this Kentucky Phi Beta 

Kappa this is of course, a panel full of Phi Beta Kappas and Ivy 

League decorated folks. I will admit something I rarely admit in 

public, which is I am a Phi Beta Kappa. 

But I will tell you, for this complex world of acronyms and initials and regulatory structure and laws, I think, like most Americans, we are just—it is all Greek to us and we are trying to figure 

it out. 

In the construct of the rule of law that I talked about, Mr. 

Woodall, I have offered legislation that I think is really a modest 

proposal. It is H.R. 3857. And here is what it does very simply. 

I will read it here to make sure I am getting it accurate. The bill 

would simply prevent FSOC from designating any further nonVerDate Nov 24 2008 15:19 Feb 08, 2017 Jkt 099796 PO 00000 Frm 00083 Fmt 6633 Sfmt 6633 K:\DOCS\99796.TXT TERI
80 

bank financial institutions for heightened Fed supervision until 90 

days after. 

First, the Federal Reserve establishes prudential standards for 

non-bank financial companies as required by Section 165(a) and (b) 

of Dodd-Frank. 

Second, the Federal Reserve promulgates regulations, setting 

forth criteria for exempting certain types of classes of U.S. nonbank financial companies or foreign non-bank financial companies 

from supervision, as required by Section 170 of Dodd-Frank. 

And third, the FSOC re-evaluates within calendar year 2016, 

each previous SIFI designation and rescinds any such designation 

if it determines that the non-bank financial company no longer 

meets the standards for designation that have been brought forward. I would just like to get your reaction. Would that legislation 

prevent FSOC from doing its job? 

Mr. WOODALL. I was waiting to see what the question was going 

to be. Would it prevent what now? 

Mr. MESSER. Would it prevent FSOC from doing its job? Again, 

would that seem like a reasonable proposal? That the companies 

that will be designated or the entities that are designated, nonbank SIFIs, have some way of understanding why it is they are 

designated that way and of course the, an off-ramp that would 

allow them to determine their— 

Mr. WOODALL. That was your third point and it seems to me that 

is what we are working for right now, is to try to get more clarity 

in what that exit ramp is. I have just recently submitted a list of 

17 different options for the FSOC to consider. It is now being considered by their deputies. 

And it is ways to clarify that where it can be much more clear 

to the company what it needs to do. As I have said several times 

before, the company says to the regulator, tell us what we are 

doing wrong and we will fix it. 

Mr. MESSER. Yes. Is there any way you can provide that list of 

17 options to the committee? 

Mr. WOODALL. Yes. 

Mr. MESSER. Thank you. I guess I will open it up to the rest of 

the panel. Could someone give me the rationale for designating 

non-bank entities as SIFIs before establishing any public standard 

for doing so? 

And question two, before establishing the criteria that they will 

be held to? 

Mr. MASSAD. I think, Congressman, the criteria by which we designate were set forth in the statute. And they were further spelled 

out as far as the procedures in our rules, which were subject to notice— 

Mr. MESSER. So you are telling me you believe that the entities 

that are being designated SIFIs understand the standards by 

which they are being evaluated? 

Mr. MASSAD. They are— 

Mr. MESSER. Every entity I talk to says they are not. 

Mr. MASSAD. —publicly available, and I think we also provide 

memoranda to the company prior to the designation. 

Mr. MESSER. Any others? 

Thank you. 

81 

Seeing no one else in the queue and no further questions, I thank 

the panel for their stamina and for their testimony today. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

The hearing is now adjourned. 

[Whereupon, at 2:26 p.m., the hearing was adjourned.] 

(83) 

A P P E N D I X 

December 8, 2015 

84 


99796.001
85 


99796.002
86 


99796.003
87 


99796.004
88 


99796.005
89 


99796.006
90 


99796.007
91 


99796.008
92 


99796.009
93 


99796.010
94 


99796.011
95 


99796.012
96 


99796.013
97 


99796.014
98 


99796.015
99 


99796.016
100 


99796.017
101 


99796.018
102 


99796.019
103 


99796.020
104 


99796.021
105 


99796.022
106 


99796.023
107 


99796.024
108 


99796.025
109 


99796.026
110 


99796.027
111 


99796.028
112 


99796.029
113 


99796.030
114 


99796.031
115 


99796.032
116 


99796.033
117 


99796.034
118 


99796.035
119 


99796.036
120 


99796.037
121 


99796.038
122 


99796.039
123 


99796.040
124 


99796.041
125 


99796.042
126 


99796.043
127 


99796.044
128 


99796.045
129 


99796.046
130 


99796.047
131 


99796.048
132 


99796.049
133 


99796.050
134 


99796.051
135 


99796.052
136 


99796.053
137 


99796.054
138 


99796.055
139 


99796.056
140 


99796.057
141 


99796.058
142 


99796.059