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115th Congress    }                                 {        Report
                        HOUSE OF REPRESENTATIVES
 2d Session       }                                 {         115-601
======================================================================



 
         ALLEVIATING STRESS TEST BURDENS TO HELP INVESTORS ACT

                                _______
                                

 March 15, 2018.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

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

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 4566]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 4566) to amend the Dodd-Frank Wall Street Reform 
and Consumer Protection Act to provide relief to nonbanks from 
certain stress test requirements under such Act, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Alleviating Stress Test Burdens to 
Help Investors Act''.

SEC. 2. STRESS TEST RELIEF FOR NONBANKS.

  Section 165(i) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (12 U.S.C. 5365(i)) is amended--
          (1) in paragraph (1)(B)(ii), by striking ``and nonbank 
        financial companies''; and
          (2) in paragraph (2)--
                  (A) in subparagraph (A), by striking ``are regulated 
                by a primary Federal financial regulatory agency'' and 
                inserting: ``whose primary financial regulatory agency 
                is a Federal banking agency or the Federal Housing 
                Finance Agency'';
                  (B) in subparagraph (C), by striking ``Each Federal 
                primary financial regulatory agency'' and inserting 
                ``Each Federal banking agency and the Federal Housing 
                Finance Agency''; and
                  (C) by adding at the end the following:
                  ``(D) SEC and cftc.--The Securities and Exchange 
                Commission and the Commodity Futures Trading Commission 
                may each issue regulations requiring financial 
                companies with respect to which they are the primary 
                financial regulatory agency and that have total 
                consolidated assets of more than $10,000,000,000 to 
                conduct periodic analyses of the financial condition, 
                including available liquidity, of such companies under 
                adverse economic conditions.''.

SEC. 3. RULE OF CONSTRUCTION.

  Nothing in this Act shall be construed to limit the authority of the 
Financial Stability Oversight Council under section 120 of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 5330).

                          Purpose and Summary

    On December 6, 2017, Representative Bruce Poliquin 
introduced H.R. 4566, the ``Alleviating Stress Test Burdens to 
Help Investors Act'', which amends Title I of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) 
to exempt nonbank financial institutions not under the 
supervision by the Board of Governors of the Federal Reserve 
System (Federal Reserve) from the Dodd-Frank Act's stress-
testing requirements. Additionally, the bill allows the 
Securities and Exchange Commission (SEC) and the Commodity 
Futures Trading Commission (CFTC) to issue regulations to 
require entities subject to their respective jurisdictions, 
referred to as ``financial companies'' in Title I of the Dodd-
Frank Act, that have total consolidated assets of more than $10 
billion to conduct periodic analysis of the financial condition 
of such entities under adverse economic conditions.

                  Background and Need for Legislation

    The goal of H.R. 4566 is to eliminate burdensome costs for 
nonbank financial companies by eliminating stress testing 
requirements that are structured and designed for banks and do 
not appropriately reflect risks to nonbanks. Ultimately, these 
stress testing requirements impose high costs on nonbanks, 
which would include the asset management industry that 
ultimately will be borne by investors.
    The financial crisis led to questions--domestically and 
internationally--about how to address financial stability and 
create a regulatory framework to mitigate systemic risk. 
Section 165 of the Dodd-Frank Act confers a host of powerful 
new supervisory tools upon the Federal Reserve to oversee the 
activities of bank holding companies with total consolidated 
assets of $50 billion or more and nonbank financial companies 
designated by the Financial Stability Oversight Council for 
heightened prudential supervision by the Federal Reserve. Two 
of these new authorities--living wills and stress tests--have 
been particularly controversial. First, Living wills and stress 
tests effectively put government bureaucrats in the position to 
dictate the business models and operational objectives of 
private businesses. Second, the Federal Reserve failed to 
implement its Section 165 statutory authorities with complete 
transparency and the Federal Reserve did not provide clear 
guidance about the conduct of the stress tests to market 
participants.
    With respect to stress tests, under Section 165(i)(1)(A) of 
the Dodd-Frank Act, requires the Federal Reserve to conduct 
annual stress tests of large bank holding companies and nonbank 
systemically important financial institutions (SIFIs). By 
statute, the purpose of these tests is to allow the Federal 
Reserve to evaluate ``whether such companies have the capital 
necessary to absorb losses as a result of adverse economic 
conditions.'' Section 165(i)(1)(B)(ii) gives the Federal 
Reserve Board full discretion to require the same tests as 
nonbank financial companies that are not systemically 
important, which thus could include registered funds and 
investment advisers.
    In addition to bank holding companies, Section 165(i)(2) of 
the Dodd-Frank Act requires ``financial companies'' with total 
consolidated assets of more than $10 billion, and that have a 
primary federal financial regulatory agency, to conduct annual 
stress tests in accordance with regulations issued by the 
relevant agency. The term ``financial company'' is defined 
broadly and sweeps in registered investment companies (e.g., 
mutual funds) and registered investment advisers. According to 
information provided by the Investment Company Institute, more 
than 400 funds had $10 billion in assets or more as of July 31, 
2017.
    The Dodd-Frank Act's red tape does not stop there, but it 
also requires the primary financial regulatory agency--in this 
case, the SEC--to issue implementing regulations for the 
financial companies under its jurisdiction. To fulfill this 
requirement, the SEC must coordinate with the Federal Reserve 
and Federal Insurance Office and issue regulations that are 
``consistent and comparable'' with those the Federal Reserve 
and other banking regulators have adopted for banking 
organizations. As with bank stress tests, the methodologies the 
SEC establishes must include three sets of conditions: (1) 
baseline, (2) adverse, and (3) severely adverse scenarios. 
Results are required to be reported to both the SEC and the 
Federal Reserve, and the company is required to publish a 
summary of the results. To date, though, the SEC has yet to 
propose a stress-testing rule under Section 165(i)(2).
    The statutory requirement for stress tests of large 
investment advisers and mutual funds came about, in part, 
because of the success of the initial supervisory stress test 
exercise led by the Federal Reserve for the largest bank 
holding companies in the midst of the financial crisis. Stress 
testing in the context of banking organizations is designed to 
test for capital adequacy in stressed conditions. The concept 
of ``capital adequacy'' is entirely appropriate in the banking 
context. If a bank does not have adequate capital, it risks 
being unable to meet its obligations to depositors. In times of 
market stress, inadequate bank capital could have broader 
implications for financial stability.
    But in reality the concept of capital adequacy does not 
have the same application when it comes to nonbanks. For 
example, asset management is an agency-based business model, as 
opposed to the principal-based business model of banks. This 
means that asset managers manage funds on behalf of clients, 
but they do not generally own the investments themselves. 
Furthermore, asset managers are legally separated from the 
funds--e.g., the assets and liabilities of the manager are 
distinct from assets and liabilities of the funds. On the other 
hand, the bank business model directly subjects the bank to the 
risks and obligations of its assets and liabilities. In short, 
to the extent that systemic risks arise from the asset 
management industry, prudential regulation of asset management 
is unlikely to be the most effective regulatory approach for 
mitigating these risks.
    After all, asset managers and investment funds, in contrast 
to banks, generally are not highly leveraged and do not engage 
in maturity and liquidity transformation to the same degree 
that banks do through the use of bank deposits and other forms 
of credit. Any decline in the value of a fund's assets results 
is a corresponding reduction in the investor's investment, 
whereas a bank's obligation to its depositors and creditors 
remains the same even if the bank suffers losses on its asset 
exposures. For example, registered funds do not guarantee any 
return to investors or even promise that investors will see the 
return of their principal. Fund investors know that any gains 
or losses belong to them on a pro rata basis. Further, fund 
assets are not on the adviser's balance sheet. Gains or losses 
are borne solely by funds or other client accounts and do not 
flow through to the adviser. These characteristics of both 
registered funds and advisers hold true in both normal and 
stress periods. They help explain why, even in times of severe 
market stress, registered stock and bond funds and fund 
advisers routinely exit the market in an orderly fashion, with 
no effect on the broader financial system or need for 
government intervention.
    Not only does the prudential stress-testing regime fail to 
fit the nonbank model, prudential stress testing for asset 
management raises significant implementation challenges, 
including how to engage in such testing when fluctuations in 
asset values are passed through to fund investors by design. 
While the SEC has implemented stress testing rules for some 
situations, these are tailored to the specific industry. In 
2016, then-SEC Chief Economist Mark Flannery stated that the 
Dodd-Frank Act requires stress tests for large banks, but there 
is a ``false parallel'' for stress testing asset managers: 
``The parallel to bank stress tests is really extremely 
misleading. It's as if Dodd-Frank said `stress test the big 
banks, and, oh, you might as well go ahead and do the asset 
management companies.'''
    In its Asset Management and Insurance Report issued on 
November 15, 2017 pursuant in response to President Trump's 
February 3, 2017 Executive Order 13772 on ``Core Principles for 
Regulating the United States Financial System'', the U.S. 
Department of Treasury said that:

          entity-based systemic risk evaluations of asset 
        managers or their funds are generally not the best 
        approach for mitigating risks arising from asset 
        management. Instead, primary federal regulators should 
        focus on potential systemic risks arising from asset 
        management products and activities, and on implementing 
        regulations that strengthen the asset management 
        industry as a whole.

Further, the Treasury Department's November 15, 2017 report 
supports legislative action to eliminate the stress-testing 
requirement for investment advisers and investment companies:

          Treasury rejects the need for stress testing of asset 
        management firms. Stress testing is a regulatory tool 
        that can be a part of systemic risk evaluation. 
        Treasury recognizes the possibility of liquidity risk 
        that may arise during mutual fund redemptions, but 
        believes a strong liquidity risk management framework 
        is a more effective approach to addressing the 
        concern.''

    The misapplication of the stress-testing regime to non-SIFI 
nonbanks is important because the U.S. asset management 
industry is the global leader in promoting vibrant capital 
markets and diverse investment and savings opportunities for 
investors and businesses. An asset manager manages assets on 
behalf of investors, businesses, and other institutions using 
different types of funds and other investment structures. U.S. 
asset managers range in size from a few million dollars to over 
five trillion dollars in assets under management. In the United 
States alone, registered investment companies, a type of 
investment fund, held almost $20 trillion of assets under 
management, representing the investments of more than 95 
million individuals.
    While assets under management have risen, so have costs. 
One of the largest drivers of rising costs is the cost of 
compliance with the increased regulatory burden since the 
financial crisis. For example, in a recent study of global 
asset managers, banks, and brokers, participants highlighted 
perceptions that regulations are increasing costs and that 
compliance spending at a typical firm is expected to double 
over the next five years. Many of these costs are passed along 
to individual retail investors in the form of expenses higher 
than they would be if compliance costs had been the same.
    The effect is felt on Main Street because registered funds 
are the investment vehicles of choice for millions of Americans 
seeking to buy a home, pay for college, or plan for financial 
security in retirement. Application of unnecessary, ill-suited 
stress-testing requirements to registered funds and advisers 
will increase costs for these funds and advisers--and hence, 
investors--without providing any corresponding benefits. As 
discussed above, such stress testing requirements would do 
nothing to promote public policy goals, such as financial 
stability or investor protection, because their underlying 
purpose is pegged to the business model, operations, and risks 
of banks and is at odds with the distinct, defining attributes 
of registered funds and advisers.
    In short, H.R. 4566 would eliminate ineffectual costs for 
nonbank financial institutions that have not been designated as 
systemically important by removing Dodd Frank's bank-centric, 
mandatory stress test requirement, which does not make sense 
for the asset management industry and only adds costs that will 
ultimately be borne by investors who rely on these funds. 
Additionally, to the extent stress tests might be useful in 
certain contexts, rather than apply the Federal Reserve's bank-
centric stress tests, H.R. 4566 provides that the SEC and CFTC 
may issue regulations requiring financial companies for which 
they are the primary financial regulatory agency and have total 
assets of more than $10 billion to conduct periodic stress 
tests.

                                Hearings

    The Committee on Financial Services held a hearing 
examining matters relating to H.R. 4566 on April 26, 2017, and 
April 28, 2017.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
January 17, 2018, and January 18, 2018, and ordered H.R. 4566 
to be reported favorably by a recorded vote of 47 yeas to 8 
nays (Record vote no. FC-147), a quorum being present. Before 
the motion to report was offered, an amendment in the nature of 
a substitute offered by Mr. Poliquin was agreed to by a voice 
vote and an amendment to the amendment in the nature of a 
substitute offered by Mrs. Maloney was agreed to by a voice 
vote.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. The 
sole recorded vote was on a motion by Chairman Hensarling to 
report the bill favorably to the House as amended. The motion 
was agreed to by a recorded vote of 47 yeas to 8 nays (Record 
vote no. FC-147), a quorum being present.



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 4566 
will reduce burdensome regulatory costs on nonbank financial 
companies, that are ultimately passed down to investors, by 
eliminating the requirement that they comply with the Dodd-
Frank Act stress testing requirements.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

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

                 Congressional Budget Office Estimates

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

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, March 14, 2018.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4566, the 
Alleviating Stress Test Burdens to Help Investors Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Nathaniel 
Frentz.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

H.R. 4566--Alleviating Stress Test Burdens to Help Investors Act

    H.R. 4566 would exempt certain nonbank financial firms from 
requirements to conduct assessments of their ability to 
withstand financial stress. It would also remove the Federal 
Reserve's authority to conduct stress tests at nonbank 
financial companies more often than once per year.
    Because the Federal Reserve currently does not conduct 
stress tests on nonbank financial firms, enacting the bill 
would have a negligible effect on its spending in the near 
term. Although some types of stress testing may begin under 
current law at some point over the 2018-2027 period, CBO 
anticipates that those activities probably would not be 
affected by the restrictions in this bill. In addition, based 
on information from the Federal Reserve, CBO estimates that 
provisions in the bill that may exempt some financial companies 
from certain capital planning requirements would have no 
significant effect on the operating costs of the Federal 
Reserve. As a result, CBO estimates that implementing the bill 
would have no significant effect on Federal Reserve remittances 
to the U.S. Treasury, which are recorded in the budget as 
revenues.
    Because enacting H.R. 4566 would affect revenues, pay-as-
you-go procedures apply. Enacting the bill would not affect 
direct spending.
    CBO estimates that enacting H.R. 4566 would not 
significantly increase net direct spending or on-budget 
deficits in any of the four consecutive 10-year periods 
beginning in 2028.
    H.R. 4566 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Nathaniel 
Frentz. The estimate was approved by John McClelland, Assistant 
Director for Tax Analysis, and Theresa Gullo, Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995.
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                      Advisory Committee Statement

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

                  Applicability to Legislative Branch

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

                         Earmark Identification

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                    Duplication of Federal Programs

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139; or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(i) of H. Res. 5, (115th Congress), 
the following statement is made concerning directed 
rulemakings: The Committee estimates that the bill requires no 
directed rulemakings within the meaning of such section.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section cites H.R. 4566 as the ``Alleviating Stress 
Test Burdens to Help Investors Act.''

Section 2. Stress test relief for nonbanks

    This section amends section 165(i) of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act to exempt nonbank 
financial institutions that are not under the supervision by 
the Federal Reserve from the Dodd-Frank Act's stress testing 
requirements. Additionally, this section allows the Securities 
and Exchange Commission and the Commodity Futures Trading 
Commission to issue regulations to require financial companies 
that have total consolidated assets of more than $10 billion to 
conduct periodic analysis of the financial condition of such 
companies under adverse economic conditions.

         Changes in Existing Law Made by the Bill, as Reported

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

         Changes in Existing Law Made by the Bill, as Reported

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

       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. 165. ENHANCED SUPERVISION AND PRUDENTIAL STANDARDS FOR NONBANK 
                    FINANCIAL COMPANIES SUPERVISED BY THE BOARD OF 
                    GOVERNORS AND CERTAIN BANK HOLDING COMPANIES.

  (a) In General.--
          (1) Purpose.--In order to prevent or mitigate risks 
        to the financial stability of the United States that 
        could arise from the material financial distress or 
        failure, or ongoing activities, of large, 
        interconnected financial institutions, the Board of 
        Governors shall, on its own or pursuant to 
        recommendations by the Council under section 115, 
        establish prudential standards for nonbank financial 
        companies supervised by the Board of Governors and bank 
        holding companies with total consolidated assets equal 
        to or greater than $50,000,000,000 that--
                  (A) are more stringent than the standards and 
                requirements applicable to nonbank financial 
                companies and bank holding companies that do 
                not present similar risks to the financial 
                stability of the United States; and
                  (B) increase in stringency, based on the 
                considerations identified in subsection (b)(3).
          (2) Tailored application.--
                  (A) In general.--In prescribing more 
                stringent prudential standards under this 
                section, the Board of Governors may, on its own 
                or pursuant to a recommendation by the Council 
                in accordance with section 115, differentiate 
                among companies on an individual basis or by 
                category, taking into consideration their 
                capital structure, riskiness, complexity, 
                financial activities (including the financial 
                activities of their subsidiaries), size, and 
                any other risk-related factors that the Board 
                of Governors deems appropriate.
                  (B) Adjustment of threshold for application 
                of certain standards.--The Board of Governors 
                may, pursuant to a recommendation by the 
                Council in accordance with section 115, 
                establish an asset threshold above 
                $50,000,000,000 for the application of any 
                standard established under subsections (c) 
                through (g).
  (b) Development of Prudential Standards.--
          (1) In general.--
                  (A) Required standards.--The Board of 
                Governors shall establish prudential standards 
                for nonbank financial companies supervised by 
                the Board of Governors and bank holding 
                companies described in subsection (a), that 
                shall include--
                          (i) risk-based capital requirements 
                        and leverage limits, unless the Board 
                        of Governors, in consultation with the 
                        Council, determines that such 
                        requirements are not appropriate for a 
                        company subject to more stringent 
                        prudential standards because of the 
                        activities of such company (such as 
                        investment company activities or assets 
                        under management) or structure, in 
                        which case, the Board of Governors 
                        shall apply other standards that result 
                        in similarly stringent risk controls;
                          (ii) liquidity requirements;
                          (iii) overall risk management 
                        requirements;
                          (iv) resolution plan and credit 
                        exposure report requirements; and
                          (v) concentration limits.
                  (B) Additional standards authorized.--The 
                Board of Governors may establish additional 
                prudential standards for nonbank financial 
                companies supervised by the Board of Governors 
                and bank holding companies described in 
                subsection (a), that include--
                          (i) a contingent capital requirement;
                          (ii) enhanced public disclosures;
                          (iii) short-term debt limits; and
                          (iv) such other prudential standards 
                        as the Board or Governors, on its own 
                        or pursuant to a recommendation made by 
                        the Council in accordance with section 
                        115, determines are appropriate.
          (2) Standards for foreign financial companies.--In 
        applying the standards set forth in paragraph (1) to 
        any foreign nonbank financial company supervised by the 
        Board of Governors or foreign-based bank holding 
        company, the Board of Governors shall--
                  (A) give due regard to the principle of 
                national treatment and equality of competitive 
                opportunity; and
                  (B) take into account the extent to which the 
                foreign financial company is subject on a 
                consolidated basis to home country standards 
                that are comparable to those applied to 
                financial companies in the United States.
          (3) Considerations.--In prescribing prudential 
        standards under paragraph (1), the Board of Governors 
        shall--
                  (A) take into account differences among 
                nonbank financial companies supervised by the 
                Board of Governors and bank holding companies 
                described in subsection (a), based on--
                          (i) the factors described in 
                        subsections (a) and (b) of section 113;
                          (ii) whether the company owns an 
                        insured depository institution;
                          (iii) nonfinancial activities and 
                        affiliations of the company; and
                          (iv) any other risk-related factors 
                        that the Board of Governors determines 
                        appropriate;
                  (B) to the extent possible, ensure that small 
                changes in the factors listed in subsections 
                (a) and (b) of section 113 would not result in 
                sharp, discontinuous changes in the prudential 
                standards established under paragraph (1) of 
                this subsection;
                  (C) take into account any recommendations of 
                the Council under section 115; and
                  (D) adapt the required standards as 
                appropriate in light of any predominant line of 
                business of such company, including assets 
                under management or other activities for which 
                particular standards may not be appropriate.
          (4) Consultation.--Before imposing prudential 
        standards or any other requirements pursuant to this 
        section, including notices of deficiencies in 
        resolution plans and more stringent requirements or 
        divestiture orders resulting from such notices, that 
        are likely to have a significant impact on a 
        functionally regulated subsidiary or depository 
        institution subsidiary of a nonbank financial company 
        supervised by the Board of Governors or a bank holding 
        company described in subsection (a), the Board of 
        Governors shall consult with each Council member that 
        primarily supervises any such subsidiary with respect 
        to any such standard or requirement.
          (5) Report.--The Board of Governors shall submit an 
        annual report to Congress regarding the implementation 
        of the prudential standards required pursuant to 
        paragraph (1), including the use of such standards to 
        mitigate risks to the financial stability of the United 
        States.
  (c) Contingent Capital.--
          (1) In general.--Subsequent to submission by the 
        Council of a report to Congress under section 115(c), 
        the Board of Governors may issue regulations that 
        require each nonbank financial company supervised by 
        the Board of Governors and bank holding companies 
        described in subsection (a) to maintain a minimum 
        amount of contingent capital that is convertible to 
        equity in times of financial stress.
          (2) Factors to consider.--In issuing regulations 
        under this subsection, the Board of Governors shall 
        consider--
                  (A) the results of the study undertaken by 
                the Council, and any recommendations of the 
                Council, under section 115(c);
                  (B) an appropriate transition period for 
                implementation of contingent capital under this 
                subsection;
                  (C) the factors described in subsection 
                (b)(3)(A);
                  (D) capital requirements applicable to the 
                nonbank financial company supervised by the 
                Board of Governors or a bank holding company 
                described in subsection (a), and subsidiaries 
                thereof; and
                  (E) any other factor that the Board of 
                Governors deems appropriate.
  (d) Resolution Plan and Credit Exposure Reports.--
          (1) Resolution plan.--The Board of Governors shall 
        require each nonbank financial company supervised by 
        the Board of Governors and bank holding companies 
        described in subsection (a) to report periodically to 
        the Board of Governors, the Council, and the 
        Corporation the plan of such company for rapid and 
        orderly resolution in the event of material financial 
        distress or failure, which shall include--
                  (A) information regarding the manner and 
                extent to which any insured depository 
                institution affiliated with the company is 
                adequately protected from risks arising from 
                the activities of any nonbank subsidiaries of 
                the company;
                  (B) full descriptions of the ownership 
                structure, assets, liabilities, and contractual 
                obligations of the company;
                  (C) identification of the cross-guarantees 
                tied to different securities, identification of 
                major counterparties, and a process for 
                determining to whom the collateral of the 
                company is pledged; and
                  (D) any other information that the Board of 
                Governors and the Corporation jointly require 
                by rule or order.
          (2) Credit exposure report.--The Board of Governors 
        shall require each nonbank financial company supervised 
        by the Board of Governors and bank holding companies 
        described in subsection (a) to report periodically to 
        the Board of Governors, the Council, and the 
        Corporation on--
                  (A) the nature and extent to which the 
                company has credit exposure to other 
                significant nonbank financial companies and 
                significant bank holding companies; and
                  (B) the nature and extent to which other 
                significant nonbank financial companies and 
                significant bank holding companies have credit 
                exposure to that company.
          (3) Review.--The Board of Governors and the 
        Corporation shall review the information provided in 
        accordance with this subsection by each nonbank 
        financial company supervised by the Board of Governors 
        and bank holding company described in subsection (a).
          (4) Notice of deficiencies.--If the Board of 
        Governors and the Corporation jointly determine, based 
        on their review under paragraph (3), that the 
        resolution plan of a nonbank financial company 
        supervised by the Board of Governors or a bank holding 
        company described in subsection (a) is not credible or 
        would not facilitate an orderly resolution of the 
        company under title 11, United States Code--
                  (A) the Board of Governors and the 
                Corporation shall notify the company of the 
                deficiencies in the resolution plan; and
                  (B) the company shall resubmit the resolution 
                plan within a timeframe determined by the Board 
                of Governors and the Corporation, with 
                revisions demonstrating that the plan is 
                credible and would result in an orderly 
                resolution under title 11, United States Code, 
                including any proposed changes in business 
                operations and corporate structure to 
                facilitate implementation of the plan.
          (5) Failure to resubmit credible plan.--
                  (A) In general.--If a nonbank financial 
                company supervised by the Board of Governors or 
                a bank holding company described in subsection 
                (a) fails to timely resubmit the resolution 
                plan as required under paragraph (4), with such 
                revisions as are required under subparagraph 
                (B), the Board of Governors and the Corporation 
                may jointly impose more stringent capital, 
                leverage, or liquidity requirements, or 
                restrictions on the growth, activities, or 
                operations of the company, or any subsidiary 
                thereof, until such time as the company 
                resubmits a plan that remedies the 
                deficiencies.
                  (B) Divestiture.--The Board of Governors and 
                the Corporation, in consultation with the 
                Council, may jointly direct a nonbank financial 
                company supervised by the Board of Governors or 
                a bank holding company described in subsection 
                (a), by order, to divest certain assets or 
                operations identified by the Board of Governors 
                and the Corporation, to facilitate an orderly 
                resolution of such company under title 11, 
                United States Code, in the event of the failure 
                of such company, in any case in which--
                          (i) the Board of Governors and the 
                        Corporation have jointly imposed more 
                        stringent requirements on the company 
                        pursuant to subparagraph (A); and
                          (ii) the company has failed, within 
                        the 2-year period beginning on the date 
                        of the imposition of such requirements 
                        under subparagraph (A), to resubmit the 
                        resolution plan with such revisions as 
                        were required under paragraph (4)(B).
          (6) No limiting effect.--A resolution plan submitted 
        in accordance with this subsection shall not be binding 
        on a bankruptcy court, a receiver appointed under title 
        II, or any other authority that is authorized or 
        required to resolve the nonbank financial company 
        supervised by the Board, any bank holding company, or 
        any subsidiary or affiliate of the foregoing.
          (7) No private right of action.--No private right of 
        action may be based on any resolution plan submitted in 
        accordance with this subsection.
          (8) Rules.--Not later than 18 months after the date 
        of enactment of this Act, the Board of Governors and 
        the Corporation shall jointly issue final rules 
        implementing this subsection.
  (e) Concentration Limits.--
          (1) Standards.--In order to limit the risks that the 
        failure of any individual company could pose to a 
        nonbank financial company supervised by the Board of 
        Governors or a bank holding company described in 
        subsection (a), the Board of Governors, by regulation, 
        shall prescribe standards that limit such risks.
          (2) Limitation on credit exposure.--The regulations 
        prescribed by the Board of Governors under paragraph 
        (1) shall prohibit each nonbank financial company 
        supervised by the Board of Governors and bank holding 
        company described in subsection (a) from having credit 
        exposure to any unaffiliated company that exceeds 25 
        percent of the capital stock and surplus (or such lower 
        amount as the Board of Governors may determine by 
        regulation to be necessary to mitigate risks to the 
        financial stability of the United States) of the 
        company.
          (3) Credit exposure.--For purposes of paragraph (2), 
        ``credit exposure'' to a company means--
                  (A) all extensions of credit to the company, 
                including loans, deposits, and lines of credit;
                  (B) all repurchase agreements and reverse 
                repurchase agreements with the company, and all 
                securities borrowing and lending transactions 
                with the company, to the extent that such 
                transactions create credit exposure for the 
                nonbank financial company supervised by the 
                Board of Governors or a bank holding company 
                described in subsection (a);
                  (C) all guarantees, acceptances, or letters 
                of credit (including endorsement or standby 
                letters of credit) issued on behalf of the 
                company;
                  (D) all purchases of or investment in 
                securities issued by the company;
                  (E) counterparty credit exposure to the 
                company in connection with a derivative 
                transaction between the nonbank financial 
                company supervised by the Board of Governors or 
                a bank holding company described in subsection 
                (a) and the company; and
                  (F) any other similar transactions that the 
                Board of Governors, by regulation, determines 
                to be a credit exposure for purposes of this 
                section.
          (4) Attribution rule.--For purposes of this 
        subsection, any transaction by a nonbank financial 
        company supervised by the Board of Governors or a bank 
        holding company described in subsection (a) with any 
        person is a transaction with a company, to the extent 
        that the proceeds of the transaction are used for the 
        benefit of, or transferred to, that company.
          (5) Rulemaking.--The Board of Governors may issue 
        such regulations and orders, including definitions 
        consistent with this section, as may be necessary to 
        administer and carry out this subsection.
          (6) Exemptions.--This subsection shall not apply to 
        any Federal home loan bank. The Board of Governors may, 
        by regulation or order, exempt transactions, in whole 
        or in part, from the definition of the term ``credit 
        exposure'' for purposes of this subsection, if the 
        Board of Governors finds that the exemption is in the 
        public interest and is consistent with the purpose of 
        this subsection.
          (7) Transition period.--
                  (A) In general.--This subsection and any 
                regulations and orders of the Board of 
                Governors under this subsection shall not be 
                effective until 3 years after the date of 
                enactment of this Act.
                  (B) Extension authorized.--The Board of 
                Governors may extend the period specified in 
                subparagraph (A) for not longer than an 
                additional 2 years.
  (f) Enhanced Public Disclosures.--The Board of Governors may 
prescribe, by regulation, periodic public disclosures by 
nonbank financial companies supervised by the Board of 
Governors and bank holding companies described in subsection 
(a) in order to support market evaluation of the risk profile, 
capital adequacy, and risk management capabilities thereof.
  (g) Short-term Debt Limits.--
          (1) In general.--In order to mitigate the risks that 
        an over-accumulation of short-term debt could pose to 
        financial companies and to the stability of the United 
        States financial system, the Board of Governors may, by 
        regulation, prescribe a limit on the amount of short-
        term debt, including off-balance sheet exposures, that 
        may be accumulated by any bank holding company 
        described in subsection (a) and any nonbank financial 
        company supervised by the Board of Governors.
          (2) Basis of limit.--Any limit prescribed under 
        paragraph (1) shall be based on the short-term debt of 
        the company described in paragraph (1) as a percentage 
        of capital stock and surplus of the company or on such 
        other measure as the Board of Governors considers 
        appropriate.
          (3) Short-term debt defined.--For purposes of this 
        subsection, the term ``short-term debt'' means such 
        liabilities with short-dated maturity that the Board of 
        Governors identifies, by regulation, except that such 
        term does not include insured deposits.
          (4) Rulemaking authority.--In addition to prescribing 
        regulations under paragraphs (1) and (3), the Board of 
        Governors may prescribe such regulations, including 
        definitions consistent with this subsection, and issue 
        such orders, as may be necessary to carry out this 
        subsection.
          (5) Authority to issue exemptions and adjustments.--
        Notwithstanding the Bank Holding Company Act of 1956 
        (12 U.S.C. 1841 et seq.), the Board of Governors may, 
        if it determines such action is necessary to ensure 
        appropriate heightened prudential supervision, with 
        respect to a company described in paragraph (1) that 
        does not control an insured depository institution, 
        issue to such company an exemption from or adjustment 
        to the limit prescribed under paragraph (1).
  (h) Risk Committee.--
          (1) Nonbank financial companies supervised by the 
        board of governors.--The Board of Governors shall 
        require each nonbank financial company supervised by 
        the Board of Governors that is a publicly traded 
        company to establish a risk committee, as set forth in 
        paragraph (3), not later than 1 year after the date of 
        receipt of a notice of final determination under 
        section 113(e)(3) with respect to such nonbank 
        financial company supervised by the Board of Governors.
          (2) Certain bank holding companies.--
                  (A) Mandatory regulations.--The Board of 
                Governors shall issue regulations requiring 
                each bank holding company that is a publicly 
                traded company and that has total consolidated 
                assets of not less than $10,000,000,000 to 
                establish a risk committee, as set forth in 
                paragraph (3).
                  (B) Permissive regulations.--The Board of 
                Governors may require each bank holding company 
                that is a publicly traded company and that has 
                total consolidated assets of less than 
                $10,000,000,000 to establish a risk committee, 
                as set forth in paragraph (3), as determined 
                necessary or appropriate by the Board of 
                Governors to promote sound risk management 
                practices.
          (3) Risk committee.--A risk committee required by 
        this subsection shall--
                  (A) be responsible for the oversight of the 
                enterprise-wide risk management practices of 
                the nonbank financial company supervised by the 
                Board of Governors or bank holding company 
                described in subsection (a), as applicable;
                  (B) include such number of independent 
                directors as the Board of Governors may 
                determine appropriate, based on the nature of 
                operations, size of assets, and other 
                appropriate criteria related to the nonbank 
                financial company supervised by the Board of 
                Governors or a bank holding company described 
                in subsection (a), as applicable; and
                  (C) include at least 1 risk management expert 
                having experience in identifying, assessing, 
                and managing risk exposures of large, complex 
                firms.
          (4) Rulemaking.--The Board of Governors shall issue 
        final rules to carry out this subsection, not later 
        than 1 year after the transfer date, to take effect not 
        later than 15 months after the transfer date.
  (i) Stress Tests.--
          (1) By the board of governors.--
                  (A) Annual tests required.--The Board of 
                Governors, in coordination with the appropriate 
                primary financial regulatory agencies and the 
                Federal Insurance Office, shall conduct annual 
                analyses in which nonbank financial companies 
                supervised by the Board of Governors and bank 
                holding companies described in subsection (a) 
                are subject to evaluation of whether such 
                companies have the capital, on a total 
                consolidated basis, necessary to absorb losses 
                as a result of adverse economic conditions.
                  (B) Test parameters and consequences.--The 
                Board of Governors--
                          (i) shall provide for at least 3 
                        different sets of conditions under 
                        which the evaluation required by this 
                        subsection shall be conducted, 
                        including baseline, adverse, and 
                        severely adverse;
                          (ii) may require the tests described 
                        in subparagraph (A) at bank holding 
                        companies [and nonbank financial 
                        companies], in addition to those for 
                        which annual tests are required under 
                        subparagraph (A);
                          (iii) may develop and apply such 
                        other analytic techniques as are 
                        necessary to identify, measure, and 
                        monitor risks to the financial 
                        stability of the United States;
                          (iv) shall require the companies 
                        described in subparagraph (A) to update 
                        their resolution plans required under 
                        subsection (d)(1), as the Board of 
                        Governors determines appropriate, based 
                        on the results of the analyses; and
                          (v) shall publish a summary of the 
                        results of the tests required under 
                        subparagraph (A) or clause (ii) of this 
                        subparagraph.
          (2) By the company.--
                  (A) Requirement.--A nonbank financial company 
                supervised by the Board of Governors and a bank 
                holding company described in subsection (a) 
                shall conduct semiannual stress tests. All 
                other financial companies that have total 
                consolidated assets of more than 
                $10,000,000,000 and [are regulated by a primary 
                Federal financial regulatory agency] whose 
                primary financial regulatory agency is a 
                Federal banking agency or the Federal Housing 
                Finance Agency shall conduct annual stress 
                tests. The tests required under this 
                subparagraph shall be conducted in accordance 
                with the regulations prescribed under 
                subparagraph (C).
                  (B) Report.--A company required to conduct 
                stress tests under subparagraph (A) shall 
                submit a report to the Board of Governors and 
                to its primary financial regulatory agency at 
                such time, in such form, and containing such 
                information as the primary financial regulatory 
                agency shall require.
                  (C) Regulations.--[Each Federal primary 
                financial regulatory agency] Each Federal 
                banking agency and the Federal Housing Finance 
                Agency, in coordination with the Board of 
                Governors and the Federal Insurance Office, 
                shall issue consistent and comparable 
                regulations to implement this paragraph that 
                shall--
                          (i) define the term ``stress test'' 
                        for purposes of this paragraph;
                          (ii) establish methodologies for the 
                        conduct of stress tests required by 
                        this paragraph that shall provide for 
                        at least 3 different sets of 
                        conditions, including baseline, 
                        adverse, and severely adverse;
                          (iii) establish the form and content 
                        of the report required by subparagraph 
                        (B); and
                          (iv) require companies subject to 
                        this paragraph to publish a summary of 
                        the results of the required stress 
                        tests.
                  (D) SEC and cftc.--The Securities and 
                Exchange Commission and the Commodity Futures 
                Trading Commission may each issue regulations 
                requiring financial companies with respect to 
                which they are the primary financial regulatory 
                agency and that have total consolidated assets 
                of more than $10,000,000,000 to conduct 
                periodic analyses of the financial condition, 
                including available liquidity, of such 
                companies under adverse economic conditions.
  (j) Leverage Limitation.--
          (1) Requirement.--The Board of Governors shall 
        require a bank holding company with total consolidated 
        assets equal to or greater than $50,000,000,000 or a 
        nonbank financial company supervised by the Board of 
        Governors to maintain a debt to equity ratio of no more 
        than 15 to 1, upon a determination by the Council that 
        such company poses a grave threat to the financial 
        stability of the United States and that the imposition 
        of such requirement is necessary to mitigate the risk 
        that such company poses to the financial stability of 
        the United States. Nothing in this paragraph shall 
        apply to a Federal home loan bank.
          (2) Considerations.--In making a determination under 
        this subsection, the Council shall consider the factors 
        described in subsections (a) and (b) of section 113 and 
        any other risk-related factors that the Council deems 
        appropriate.
          (3) Regulations.--The Board of Governors shall 
        promulgate regulations to establish procedures and 
        timelines for complying with the requirements of this 
        subsection.
  (k) Inclusion of Off-balance-sheet Activities in Computing 
Capital Requirements.--
          (1) In general.--In the case of any bank holding 
        company described in subsection (a) or nonbank 
        financial company supervised by the Board of Governors, 
        the computation of capital for purposes of meeting 
        capital requirements shall take into account any off-
        balance-sheet activities of the company.
          (2) Exemptions.--If the Board of Governors determines 
        that an exemption from the requirement under paragraph 
        (1) is appropriate, the Board of Governors may exempt a 
        company, or any transaction or transactions engaged in 
        by such company, from the requirements of paragraph 
        (1).
          (3) Off-balance-sheet activities defined.--For 
        purposes of this subsection, the term ``off-balance-
        sheet activities'' means an existing liability of a 
        company that is not currently a balance sheet 
        liability, but may become one upon the happening of 
        some future event, including the following 
        transactions, to the extent that they may create a 
        liability:
                  (A) Direct credit substitutes in which a bank 
                substitutes its own credit for a third party, 
                including standby letters of credit.
                  (B) Irrevocable letters of credit that 
                guarantee repayment of commercial paper or tax-
                exempt securities.
                  (C) Risk participations in bankers' 
                acceptances.
                  (D) Sale and repurchase agreements.
                  (E) Asset sales with recourse against the 
                seller.
                  (F) Interest rate swaps.
                  (G) Credit swaps.
                  (H) Commodities contracts.
                  (I) Forward contracts.
                  (J) Securities contracts.
                  (K) Such other activities or transactions as 
                the Board of Governors may, by rule, define.

           *       *       *       *       *       *       *


                             MINORITY VIEWS

    H.R. 4566, the so-called ``Alleviating Stress Test Burdens 
to Help Investors Act'' would unwisely eliminate a commonsense 
tool that gives financial companies and regulators an 
opportunity to identify and correct problems before they could 
lead to another financial crisis. Specifically, the bill, as 
amended, would eliminate the Federal Reserve's discretion under 
Dodd Frank to stress test any nonbank financial company that 
the Financial Stability Oversight Council (``FSOC'') may be in 
the process of designating as systemically important. As 
amended, H.R. 4566 would also weaken the mandate in Dodd-Frank 
that large firms regulated by the Securities and Exchange 
Commission (``SEC'') and Commodity Futures Trading Commission 
(``CFTC'') conduct annual company stress tests. The bill would 
thus undermine a valuable early warning system for our nation's 
economy.
    One of the major policy achievements following the 2008 
financial crisis was to require rigorous stress tests of the 
nation's largest financial institutions. Importantly, the Dodd-
Frank stress testing regime allows regulators to reach beyond 
banks to better monitor risks and vulnerabilities in other 
parts of the financial system. If stress testing had been 
conducted on firms like Lehman Brothers on an annual basis in 
the years between 2006 through 2008, it might have revealed 
significant problems before the failure of these institutions 
led to the near-collapse of the global financial system.
    As former SEC Chair Mary Jo White stated in a December 2014 
speech, ``stress testing is an important tool routinely used by 
banking regulators. Implementing this new mandate in asset 
management, while relatively novel, will help market 
participants and the Commission better understand the potential 
impact of stress events.'' Members of the asset management 
industry have also recognized that stress testing is critical 
to effectively managing risk. In a 2015 letter to the SEC, the 
Asset Management Group of the Securities Industry and Financial 
Markets Association (``SIFMA AMG''), whose members manage more 
than $30 trillion in assets, wrote, ``Stress testing is one 
part of an effective and coherent risk management process for 
asset managers . . . .'' Moreover, in a 2015 survey of SIFMA 
AMG members, nearly two-thirds (62%) of the asset managers 
surveyed reported that they already stress test their funds.
    Nevertheless, H.R. 4566 would eliminate the Dodd-Frank 
requirement that large financial institutions under the SEC's 
purview that manage trillions of dollars of hardworking 
Americans' retirement funds and other savings conduct an 
internal evaluation of how the firm would fair in a stressed 
economy. As stated by Americans for Financial Reform in a 
letter to the Committee opposing H.R. 4566, ``large asset 
managers such as Blackrock manage trillions of dollars and 
their risk management procedures are essential to the health of 
the financial markets. Such entities should be subject to 
stress testing . . . .''
    H.R. 4566 would make it harder for the Federal Reserve to 
identify and mitigate future systemic risks before they have 
catastrophic effects on our financial stability and would 
remove the requirement that firms like asset managers conduct 
annual stress tests.
    For these reasons, we oppose H.R. 4566.

                                   Maxine Waters.
                                   Joyce Beatty.
                                   Al Green.
                                   Stephen F Lynch.
                                   Keith Ellison.

                                  [all]