Transcripts For CSPAN3 Key Capitol Hill Hearings 20140918 :

CSPAN3 Key Capitol Hill Hearings September 18, 2014

Who is here and has helped not only device doddfrank but also supported it. Ill just close on this comment. You know, i would hope that this is true across the spectrum, that all of you realize that while you may ultimately deal with significant corporations in this country, that at the end of the day, it is the public who we collectively seek to serve, and that is best served by transparency and openness and an opportunity to understand what companies are doing. Whether thats ceo pay to worker pay or whether that is using potentially millions of dollars of corporate funds to maybe the disadvantage of the very investors who are investing in that company. So i hope that the hallmark of what we can expect from all of you but certainly in this case where you have some particular unique jurisdiction, is a push towards Greater Transparency so that investors really understand what choices they are making and whether the companys best serving them. Thank you, mr. Chairman. Senator johanns. Thank you, mr. Chairman. Governor tarullo, let me get back to the question the chairman asked you about capital standards relative to Insurance Companies. And i fear we have kind of left you folks in a difficult position. This bill, as you know, has moved through the senate by unanimous consent tonight. Thank my colleague senator brown for his help on this bill. So i think on the senate side, were in pretty good shape. Its even kind of rare that things would move by unanimous consent. But this did. On the house side, it hasnt happened yet. We hope it will. In fact, my sincere desire is that that will happen very quickly, certainly by the end of the year. But we dont know if thats going to happen, and there you are. Youre caught in this kind of limbo situation of what do you and that would allow us to shape Capital Requirements at the consolidated Holding Company level in a way that fully took account of those differences in business models. In the absence of the legislation, well still be able to do some things because there are Insurance Products that do not resemble existing bank products, so in some cases, we can and were already planning to assign different risk weights to those based upon our assessment of the actual risk associated with those assets. But thats thats where the two tracking is actually taking place. I mentioned a little while back the quantitative impact study were doing. By getting more information, i think, from the Insurance Companies, we hope to actually find a few other areas where consistent with existing statutory requirements we could still make some adjustments. But i think in the end, senator, it does all come down to core insurance activities and the different kind of liability risks that are associated with them. The assets are often the same. Its really on that liability side of the Balance Sheet that you feel a difference in what a property and casualty insurer does as opposed to what a bank does. Thats what we would like to be able to take into account. Your comments lead me to another kind of whole other area of inquiry that were not going to be able to get too far into with the limited time, but let me just throw out a question, and this probably impacts other panel members, too. Theres so much about the Insurance Industry that you are telling us you want more information on. You have the quantitative impact study and theres probably some other areas where youre seeking additional information. And yet we have three Insurance Companies, metlife, aig, prudential, who have been designated systemically risky or whatever. How do you do that . How do you get so far down the road and identify these folks as being that when by your own testimony, you acknowledge that there are things about the Insurance Industry that you want more information on . Senator, i guess i draw a distinction between the creation of capital standards for traditional core insurance activities on the one hand and an assessment of Systemic Risk on the other. My own reading of the fsoc process with respect to pru and aig is theres not a lot of concern about the core insurance activities of those companies. The concerns were with respect to nontraditional activity nontraditional insurance activities where runability is more of a concern, and also respect to things that are not insurance activities of any sort. Thats where the analysis would allow one to conclude theres systemic importance. I personally dont think that the issue of whether theres systemic importance in traditional insurance activities has really been broached, and im not sure we need to broach it. My strong presumption is there isnt. Thank you, mr. Chairman. Senator brown. Thank you, mr. Chairman. Chair white, i sent you a letter in the s. E. C. s labor policies. I appreciated your response. We received it yesterday and well follow up on it. Governor tarrillo, i appreciated your comments and discussion and mr. Greenbergs with senator corker. Ze i thought that was helpful yorb you said capital surcharges to the largest banks could be c higher than the 2. 5 basel rule. They said they could be as high as 4. 5 . Not surprisingly, the industry tells us that those additional those additional requirements would be costly, would put them at a competitive disadvantage. Tell the committee why theyre important for financial stability. Senator, i would say several things. First, i think that as some of you may recall a few years ago when we were beginning this exercise on capital surcharges, we did quite a bit of analysis. While we didnt think we could come up with a point estimate of exactly precisely what was an appropriate surcharge given the additional risks to the system in the failure of one of these firms, we did come up with a upn5รท tjr in all honestly, the 1 to 2. 5 the Basel Committee conclude said, while an important step nr forward, was at the low end of that range. I think we will feel more comfortable to be somewhat closer to the middle end of the range of estimates of the kind of additional resiliency that is needed. Second point i would make is that a few other countries have already come to similar conclusions. Switzerland has on its own applied higher surcharges than the basel approach calls for for its two large globally active institutions. Sweden and the netherlands for their globally, each has one globally systemically important institution. They have done the same, and i think at least one of two other countries are thinking of it. I think were all trying to come to grips with what we really need in order to provide more assurance that these firms do not threaten the financial system. And the third point i would make, which i alluded to in the written testimony, is the whole idea of these being increasingly strict surcharges, higher surcharges, as the systemic importance of the entity increases is grounded in i think the very sound principal embodies in doddfrank, that the stringency of these additional prudential standards should increase as the systemic importance of the firm increases. Why is that important . Well, its important because of the potential harm to society if the firm gets in trouble. But it also provides the firm with a kind of tradeoff. If the firm really thinks that the activities that it has to be this big and this complicated to engage in a certain set of activities or to have a certain sized Balance Sheet, then it can do so, but it has to have very high levels of capital. If on the other hand those highest levels of capital appear to not be worth it, then it has the option of changing what people have called its systemic footprint. I think for all of those reasons this is a really quite important step forward, globally, for everybody to do surcharges, but i think for us and some other countries to recognize that we need to go a little further than the minimums that have been provided in basel. Thank you. And i would note that under these estimates, it could take the largest banks to 14 requirement. Theres a great deal of support in this committee and i think throughout the house and senate on stronger capital standards like that. Controller curry, thank you for your occ finalizing rules for heightened expectations just because of lack of time, i want to ask you a question, but thank you for that. I think you have taken major steps towards changing the culture in boardrooms. I think were obviously not there yet. I know you think that, too, changing the culture in terms of Risk Management and elevating Risk Management to a particularly important part of large banks and Holding Companies Decision Making process. Thank you. For my final question, chairman white, i asked you about industry guide three, the s. E. C. s disclosure for Holding Companies. You agreed a few of the rules which the staff said has not been updated since 1986. The review was warranted. When can we expect the s. E. C. To update its guide three disclosures to help make the largest banks that have increased measurably and dramatically in size and complexity in this threedecade time period, when can we expect you to come forward to make them more transparent . As part of our disclosure effectiveness review, the industry guide 3 is under review for the staff. The staff is in the process of actually preparing recommendations to update guide three, including whether to bring the requirements as they ultimately end up, into regulation sk, if we change our disclosure requirements, they would also be put out for notice and comment. We opened a window in connection with this initiative where we have been receiving some Public Comments on that, so it is moving along in terms of the when question, i cant answer precisely, but its something were actively engaged on now. I reached out in august to governor tarullo to invite the feds input into that too because of their rule over bank Holding Companies. Thank you. Senator shelby. Thank you, mr. Chairman. You know, weve wrestled with this right here with most of you for years. Capital. Whats adequate capital . What is good capital . What is liquidity, which is i guess, goes to the basis of what were talking about. In the insurance field, have you shared with the committee, the chairman or the Ranking Member, the methodology of how you designated some of these Big Insurance Companies like metlife and prudential and others, as systemically risky . Do you furnish any of the information to the committee or would you be willing to do that . Because this is a topic of more than passing interest right now. Governor tarullo. I have to confess, senator, that i dont know the answer to that question. Treasury, as you know, chaired the fsoc. I dont know if my colleagues know if theres a formal submission process to the senator, i dont know if theres a specific submission for the committee. After a final decision is c reached, i believe there is a Public Document that is released laying out the basis for the action in some detail, not disclosing proprietary information, but i dont know theres been a specific communication to the committee apart from that. I know a lot of the people, participants, and ceos and Board Members in the Insurance Company are really concerned because they dont know what direction. R marilyn tavenner. Nancy chockley. Rayburn house. Reinhardt. What is liquidity, which is i guess goes to the basis of what were talking about. In the insurance field have you shared with the committee, the chairman of the Ranking Member the methodology of how you designated some of these Big Insurance Companies like met life and prudential and others as systematically risky . Do you furnish any of the information to the committee or would you be willing to do that . Because this is a topic of more than passing interest right now. Governor . I have to confess, senator, that i dont know the answer to that question. Treasury chairs the fsoc. I dont know whether any of my colleagues know whether theres a formal submission process to the committee. Senator, i dont know if theres a specific submission for the committee after a final decision is reached i believe theres a Public Document thats released laying out the basis for the action in some detail, not disclose proprietary information. I know a lot of the people, participants and ceos and Board Members in the Insurance Company are really concerned because they dont know what direction i think i see the direction but dont know whats happening next, you know, in their field. Is there any way you can give them some certainty there, or is it just work in progress as far as youre concerned . You designated what, three Big Insurance Companies . How many . Systematically risky. There have been final determinations on two. Two. Senator, theres been a news report on a third. News. But that is not a complete administrative determination yet. The third already designated as ge capital which is not insurance. Senator yes, sir. The fsoc has adopted procedures, to outline how we approach our determinations. I do believe to answer your question that we probably do a better job in explaining and informing affected institutions and how that process works and making sure that we get the most relevant information possible to make our decision. Let me get into the surcharge a minute. M0taaajah arge f that do business here, will they be subject to the surcharge too, 3 or whatever, 2. 5 , 3 above basel 3 . Governor . Senator, that is not our current intention although as i mention ad moment ago a number of other countries, home authorities of countries have already at a consolidated level imposed higher than basel levels on their own institutions. What youre doing here . Not sure anybody would go as high but thats probably because those three countries dont have anybody whose currently in the socalled top buckets. Okay. But do you basically believe as a matter of Public Policy that large foreign banks doing business in the u. S. Should be subject to our regulatory standards yes. Standards yes. Thats why we adopted the ye. Thats why we adopted the intermediate Holding Company regulatory requirement and made sure all the operations of the big foreign banks are brought under one umbrella and they are subject to capital standards, liquidity standards and if need be resolution standards here in the u. S. Chairman, you agree with that . I do, senator. Yes, senator. Thats all, thank you. Senator warner. Thank you. I want to make a couple of editorial comments before i get to the question. First i want to follow up on it was a new idea. There were others, senator brown and others who had more clearly defined cap on too big to fail. A fair debate took place. I think that debate continues to be revisited. I would simply say or urge again i understand this process but we really need to keep a fire lit underneath this, and if at some point the fsoc doesnt act to start using some of these tools that were given, then i really do question whether we as well intentioned as we were whether we got it right in title i and title ii in terms of ending the too big to fail. So my editorial comment would be, lets, you know, speed up this process, the fact that were now going into many, many years of getting these plans right, we got to get it right but i would also like to see it come to a conclusion, and i think some evidence that some of these tools that were broad and grant would actually be used. Secondly, governor i was pleased to hear your comments at the outset. I would like to follow up with you both one looking at the asset capsize of 50 billion may not be the right number. I think we need to acknowledge again Congress Never gets it 100 right, you have to come back and do fixit bills. I think its time for a fix it bill around doddfrank. Also what senator crapo emphasized that we tried to put in restrictions on smaller enterprise, Community Banks. One thing senator crapo brought in was the regulatory creep. We tried to be explicit on Community Banks not falling into the, some of the more burdensome regulatory requirements of doddfrank. My fear is when we put that in as a legislative exclusion of i believe under 10 billion cap that best practices creep has kind of come in to that and i find repeatedly from smaller institutions enormous additional marginal costs added. So i hope you come back with some specific suggestions there on how we might look at that. Chairman white, i cant get in front of a Public Session without echoing once again urging you to move on the jobs act. I sent you another letter last friday. Im looking at whats happening or not happening around the country for that matter on equity fundraising. I still think its a tool. We may not get it 100 right but we need to use that tool. Sooner the better. I would like to get to a question. You know, ive been spending some time looking at the excess complexity and equity trading, and i think sometimes allows entrenched firms advantage over smaller firms. For example direct edge is one example has 100 different ways a share stock can be billed. They have 12 different tiers, seven of which pay customers to trade. And certain select customers the repay per share fee is greater than the take fee. So, i know weve talked about make or taker in some of these areas. This is a level of complexity further down. Do you have any specific influenza address complexity in the marketplace specifically with the sec support ensuring transparency for Market Participants by providing them the authority to audit fees or rebates or banning some of these practices. How far down trail are you looking at this issue . We have a number of initiatives. I discussed this in june with respect to enhancing the transparency, the

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