H. Rept. 112-566 - 112th Congress (2011-2012)

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House Report 112-566 - AMENDING THE DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT TO ADJUST THE DATE ON WHICH CONSOLIDATED ASSETS ARE DETERMINED FOR PURPOSES OF EXEMPTING CERTAIN INSTRUMENTS OF SMALLER INSTITUTIONS FROM CAPITAL DEDUCTIONS

[House Report 112-566]
[From the U.S. Government Publishing Office]


112th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     112-566

======================================================================


 
AMENDING THE DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT 
  TO ADJUST THE DATE ON WHICH CONSOLIDATED ASSETS ARE DETERMINED FOR 
PURPOSES OF EXEMPTING CERTAIN INSTRUMENTS OF SMALLER INSTITUTIONS FROM 
                           CAPITAL DEDUCTIONS

                                _______
                                

 June 29, 2012.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Bachus, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 3128]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 3128) to amend the Dodd-Frank Wall Street Reform 
and Consumer Protection Act to adjust the date on which 
consolidated assets are determined for purposes of exempting 
certain instruments of smaller institutions from capital 
deductions, having considered the same, report favorably 
thereon without amendment and recommend that the bill do pass.

                          Purpose and Summary

    The purpose of H.R. 3128 is to provide regulatory relief 
from the requirements of Section 171 of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (the Dodd-Frank Act) 
(P.L. 111-203) to certain bank holding companies with less than 
$15 billion in assets. H.R. 3128 amends the Dodd-Frank Act to 
permit bank holding companies to continue counting hybrid 
capital instruments issued before May 19, 2010, as Tier 1 
capital so long as the company held less than $15 billion in 
assets as of either December 31, 2009 or March 31, 2010.

                  Background and Need for Legislation

    Section 171 of the Dodd-Frank Act prohibits bank holding 
companies from counting hybrid capital instruments, such as 
trust preferred securities, towards their Tier 1 capital 
requirements. The prohibition applies immediately to capital 
instruments issued on or after May 19, 2010. Instruments issued 
before then either will continue to be included in Tier 1 
capital or may be phased out over a three-year period, 
depending on the size of the bank holding company on December 
31, 2009. Bank holding companies with less than $15 billion in 
total assets as of December 31, 2009, may continue counting 
hybrid capital instruments issued before May 19, 2010, as Tier 
1 capital. Bank holding companies with more than $15 billion in 
total assets as of December 31, 2009, will be required to phase 
out Tier 1 hybrid capital over the three-year period from 2013 
to 2016.
    Because Section 171 of the Dodd-Frank Act may prove to be 
costly and onerous for institutions, H.R. 3128 was drafted to 
ensure that Section 171 does not inadvertently ensnare 
financial institutions that have traditionally held less than 
$15 billion in total assets. H.R. 3128 amends Section 171 to 
provide a second date--March 31, 2010--from which bank holding 
companies may elect to have their consolidated assets 
determined for purposes of permitting them to continue counting 
hybrid capital instruments as Tier 1 capital.

                                Hearings

    The Subcommittee on Financial Institutions and Consumer 
Credit held a legislative hearing on May 18, 2012, entitled 
``The Impact of the Dodd-Frank Act: Understanding Heightened 
Regulatory Capital Requirements.'' The following witnesses 
testified at the hearing:
     Mr. Daniel McCardell, Senior Vice President and 
Head of Regulatory Affairs, The Clearing House
     Mr. Richard Wald, Chief Regulatory Officer, 
Emigrant Bank

                        Committee Consideration

    The Committee on Financial Services met in open session on 
May 31, 2012, and ordered H.R. 3128 favorably reported to the 
House by a record vote of 35 yeas and 15 nays (Record vote no. 
FC-77).

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. A 
motion by Chairman Bachus to report the bill to the House with 
a favorable recommendation was agreed to by a record vote of 35 
yeas and 15 nays (Record vote no. FC-77). The names of Members 
voting for and against follow:

                                              Record vote no. FC-77
----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Bachus.....................        X   ........  .........  Mr. Frank (MA)...        X   ........  .........
Mr. Hensarling.................  ........        X   .........  Ms. Waters.......        X   ........  .........
Mr. King (NY)..................        X   ........  .........  Mrs. Maloney.....        X   ........  .........
Mr. Royce......................  ........        X   .........  Mr. Gutierrez....        X   ........  .........
Mr. Lucas......................        X   ........  .........  Ms. Velazquez....  ........  ........  .........
Mr. Paul.......................        X   ........  .........  Mr. Watt.........        X   ........  .........
Mr. Manzullo...................        X   ........  .........  Mr. Ackerman.....        X   ........  .........
Mr. Jones......................  ........        X   .........  Mr. Sherman......  ........        X   .........
Mrs. Biggert...................  ........        X   .........  Mr. Meeks........        X   ........  .........
Mr. Gary G. Miller (CA)........  ........        X   .........  Mr. Capuano......        X   ........  .........
Mrs. Capito....................  ........        X   .........  Mr. Hinojosa.....  ........  ........  .........
Mr. Garrett....................  ........        X   .........  Mr. Clay.........  ........  ........  .........
Mr. Neugebauer.................  ........        X   .........  Mrs. McCarthy            X   ........  .........
                                                                 (NY).
Mr. McHenry....................        X   ........  .........  Mr. Baca.........        X   ........  .........
Mr. Campbell...................  ........        X   .........  Mr. Lynch........  ........        X   .........
Mrs. Bachmann..................        X   ........  .........  Mr. Miller (NC)..        X   ........  .........
Mr. McCotter...................        X   ........  .........  Mr. David Scott    ........  ........  .........
                                                                 (GA).
Mr. McCarthy (CA)..............  ........  ........  .........  Mr. Al Green (TX)        X   ........  .........
Mr. Pearce.....................  ........        X   .........  Mr. Cleaver......  ........  ........  .........
Mr. Posey......................  ........        X   .........  Ms. Moore........        X   ........  .........
Mr. Fitzpatrick................  ........        X   .........  Mr. Ellison......  ........  ........
Mr. Westmoreland...............        X   ........  .........  Mr. Perlmutter...        X   ........  .........
Mr. Luetkemeyer................        X   ........  .........  Mr. Donnelly.....        X   ........  .........
Mr. Huizenga...................        X   ........  .........  Mr. Carson.......        X   ........  .........
Mr. Duffy......................  ........  ........  .........  Mr. Himes........        X   ........  .........
Ms. Hayworth...................  ........  ........  .........  Mr. Peters.......        X   ........  .........
Mr. Renacci....................        X   ........  .........  Mr. Carney.......  ........  ........
Mr. Hurt.......................        X   ........  .........
Mr. Dold.......................        X   ........  .........
Mr. Schweikert.................        X   ........  .........
Mr. Grimm......................  ........  ........  .........
Mr. Canseco....................        X   ........  .........
Mr. Stivers....................        X   ........  .........
Mr. Fincher....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee has held hearings and 
made findings that are reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    The objective of H.R. 3128 is to provide regulatory relief 
from the requirements of Section 171 of the Dodd-Frank Wall Act 
to certain bank holding companies with less than $15 billion in 
assets. H.R. 3128 would permit bank holding companies to 
continue counting hybrid capital instruments issued before May 
19, 2010, as Tier 1 capital so long as the company held less 
than $15 billion in assets as of either December 31, 2009, or 
March 31, 2010.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 19, 2012.
Hon. Spencer Bachus,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3128, a bill to 
amend the Dodd-Frank Wall Street Reform and Consumer Protection 
Act to adjust the date on which consolidated assets are 
determined for purposes of exempting certain instruments of 
smaller institutions from capital deductions.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Daniel 
Hoople.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

H.R. 3128--A bill to amend the Dodd-Frank Wall Street Reform and 
        Consumer Protection Act to adjust the date on which 
        consolidated assets are determined for purposes of exempting 
        certain instruments of smaller institutions from capital 
        deductions

    H.R. 3128 would allow a depository institution holding 
company to use one of two reporting dates to determine whether 
it must phase out the use of certain financial instruments as 
regulatory capital. CBO estimates that enacting the legislation 
would not affect direct spending or revenues; therefore, pay-
as-you-go procedures do not apply.
    Under current law, certain depository institution holding 
companies must phase out the use of previously issued, trust-
preferred securities (preferred stock issued by a wholly owned 
trust subsidy of a company; also known as TruPS) as tier 1 
capital for regulatory purposes. Tier 1 capital is a measure 
used by regulators to gauge a bank's financial strength. 
Smaller institutions (defined as those with less than $15 
billion in total consolidated assets as of December 31, 2009) 
may continue to use TruPS issued before May 19, 2010, to meet 
capital requirements.
    H.R. 3128 would expand the definition of a small 
institution, for purposes of this exemption, to include 
depository institution holding companies with total 
consolidated assets of less than $15 billion as reported on 
either December 31, 2009, or March 30, 2010. CBO estimates that 
the expanded definition would allow TruPS issued by one 
institution to count as tier 1 capital that would not otherwise 
qualify under current law. As a result, that institution may 
reduce other types of tier 1 capital that would be more 
flexible if its capital position were to deteriorate; however, 
CBO does not expect any significant effect on either the 
institution's probability of failure or assistance provided by 
the federal government. As such, CBO estimates no effect on the 
federal budget over the next 10 years.
    H.R. 3128 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The CBO staff contact for this estimate is Daniel Hoople. 
The estimate was approved by Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    H.R. 3128 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

             Section-by-Section Analysis of the Legislation


Section 1. Date for determining consolidated assets

    This section amends Section 171(b)(4)(C) of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (P.L. 111-203) 
to permit bank holding companies to continue counting hybrid 
capital instruments issued before May 19, 2010, as Tier 1 
capital so long as the company held less than $15 billion in 
assets as of either December 31, 2009, or March 31, 2010.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italic and existing law in which no change is 
proposed is shown in roman):

DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT

           *       *       *       *       *       *       *


TITLE I--FINANCIAL STABILITY

           *       *       *       *       *       *       *


Subtitle C--Additional Board of Governors Authority for Certain Nonbank 
Financial Companies and Bank Holding Companies

           *       *       *       *       *       *       *


SEC. 171. LEVERAGE AND RISK-BASED CAPITAL REQUIREMENTS.

  (a) * * *
  (b) Minimum Capital Requirements.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Effective dates and phase-in periods.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Debt or equity instruments of smaller 
                institutions.--For debt or equity instruments 
                issued before May 19, 2010, by depository 
                institution holding companies with total 
                consolidated assets of less than 
                $15,000,000,000 as of December 31, 2009, or 
                March 31, 2010, and by organizations that were 
                mutual holding companies on May 19, 2010, the 
                capital deductions that would be required for 
                other institutions under this section are not 
                required as a result of this section.

           *       *       *       *       *       *       *