Financial Stability Oversight Council Reform Act

Floor Speech

I rise in opposition to H.R. 3340, which would impede the important work of the Financial Stability Oversight Council, commonly referred to as FSOC, and the Office of Financial Research, referred to as OFR, by subjecting their funding to the congressional appropriations process.

This bill would also hamstring the OFR's ability to conduct impartial research by requiring the Office to solicit public comment before issuing any report, rule, or regulation.

Just in case people don't understand who FSOC is, it includes the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Association, the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Consumer Financial Protection Bureau, the Federal Housing Finance Agency, and independent members with insurance expertise, chaired by the Treasury Secretary.

What you have is every representation from all of these oversight and regulatory agencies coming together, working together in the best interests of this country, identifying risk and where that risk is and what to do about it. But the changes that are now being suggested or being made in this bill will have serious adverse effects on financial stability in the United States.

The Dodd-Frank Wall Street Reform Act created FSOC to oversee and prevent threats to our financial markets, and the OFR was established to support FSOC's critical work with analytical research. Dodd-Frank specifically empowered both agencies with independent budgets, the same way our other banking regulators, like the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation, operate. The FSOC and OFR are funded outside of appropriations, through fees on large financial institutions. They were meant to be funded by the institutions they oversee and be shielded from congressional politics.

Republicans say they want accountability by overseeing regulators' budgets, but what they really want is control, so they can eliminate funding for these agencies altogether. This bill would prevent efforts to properly mitigate systemic risk, to the detriment of the entire economy; and in this Congress, it would subject the agencies to the uncertainty caused by the dysfunctional, failed Republican budget process.

All we have to do is look at the struggles facing the Securities and Exchange Commission and the Commodity Futures Trading Commission. They continue to be underfunded, despite dramatic changes in the markets. It is a struggle every year to secure adequate resources to supervise complex institutions to the benefit of industries, but at dramatic cost to our economy.

Understandably, the administration opposes this bill, and the President's senior advisers would recommend a veto. The administration specifically says that subjecting these bodies to congressional appropriations would hinder their independence and would limit their ability to monitor and address threats to financial stability.

In addition, this bill would interfere with OFR's work.

Republicans also say they want transparency and cost-benefit analysis with regard to OFR's activities, but what they really want is to give industry a leg up on our regulators. In addition, by requiring the OFR to tell the industry what it is studying, the bill would corrupt OFR's findings and could have a chilling effect on its important work.

For similar reasons, I also will be urging my colleagues to oppose an amendment by Mr. Royce that we will consider later on today that requires detailed disclosure of the OFR's research agenda and practices. This is not the norm of any research organization and would severely limit OFR's ability to conduct rigorous, impartial analyses.

Our regulators need to act with certainty, impartiality, and position resources to conduct robust oversight of our financial markets so that we can properly detect and deter systemic risk. Unfortunately, this bill will be a step back in that effort, not forward, and it is further evidence that Republicans seek to dismantle Dodd-Frank and the improvements we have made in our financial markets, one bill at a time.

I am going to urge my colleagues to oppose this bill.

My friends on the opposite side of the aisle keep talking about accountability and what Congress' responsibility is and what the Constitution says we should do. But I find it very interesting, while they are claiming that OFR and FSOC should be given more oversight, they don't seem to really want to exercise the responsibility to do that.

Republicans claim that only when OFR and FSOC are subject to the annual appropriations process, will these two entities be accountable to Congress.

However, how many times has the Financial Services Committee requested the director of the Office of Financial Research to testify?

Only one time.

Section 153 of the Dodd-Frank Act requires that the OFR director testify before our committee annually, and yet, OFR Director Berner has only been invited to testify once in the last 4 years--the only time being in March of 2013. That means for more than 3 years, our committee, under Republican leadership, has shirked its duties to oversee the OFR. Any Member who has met Director Berner can attest that he has always stated his eagerness to update Congress on what OFR is doing.

Mr. Speaker, this bill is not some valiant attempt to hold FSOC and OFR accountable, no. This bill is yet another attack on a Dodd-Frank financial reform by Republicans, who never supported financial reform in the very first place.

Wasserman Schultz).
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Ms. MAXINE WATERS of California. Mr. Speaker, I reserve the balance of my time.

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Ms. MAXINE WATERS of California. Mr. Speaker, I reserve the balance of my time.

I would like to take a moment and talk about why we created the FSOC and the OFR in the very first place since my Republican colleagues seem to think that more regulatory cooperation and the overseeing of our financial system is such a bad thing.

Simply put, we created FSOC to look across regulatory silos and detect, prevent, and mitigate systemic risk in the U.S. financial system so that we would never again be caught off guard when major financial firms, like AIG, fail.

Recall that AIG created an entire business model that was designed to avoid regulation, which sent its major operations and risky credit default swaps to the London-based unit, AIG Financial Products, which, in turn, was guaranteed by the U.S. parent company. What is more, AIG was allowed to select as a regulator the Office of Thrift Supervision, OTS.

According to the Financial Crisis Inquiry Commission, which is the FCIC, the OTS failed to effectively exercise its authority over AIG and its affiliates. It lacked the capability to supervise an institution of the size and complexity of AIG's. It did not recognize the risk inherent in AIG's sales of credit default swaps, and it did not understand its responsibility to oversee the entire company, including AIG Financial Products.

As we all know, this regulatory arbitrage ultimately spelled failure for AIG because its enormous sales of credit default swaps were made without putting up initial collateral, setting aside capital reserves, or hedging its exposure--a profound failure in corporate governance, particularly in its risk management practices.

In having just witnessed the takeover of Merrill Lynch by Bank of America and the bankruptcy of Lehman Brothers a mere 24 hours before, the U.S. Government stepped in and committed more than $180 billion to ensure that AIG's collapse didn't bring down the rest of the financial system to which it was so interconnected. From there, the Bush administration requested the authority to bail out the big banks.

When the dust began to settle, Democrats in Congress worked to come up with a solution to eliminate this regulatory arbitrage and encourage our financial regulators to communicate with one another. Of course, the commonsense solution was to create a council on which each of our financial regulators had a voice and could meet to consider gaps between the agencies' interconnectedness within the financial sector. This council would also hold each regulator accountable to how the regulators as a whole were mitigating systemic risk to our economy.

To help inform and support the council, we created the Office of Financial Research to research and report on potential systemic risk to our economy. Dodd-Frank ensured that the council of the OFR and that Congress would all be focused on emerging threats to our economy and would never be caught unawares by another AIG. H.R. 3340, however, undermines these reforms, and it should be opposed.

Mr. Speaker and Members, many of the Members on the opposite side of the aisle are talking about our oversight responsibility, but they don't even exercise oversight responsibility or get the regulators in and have a real discussion with them about how it all works. AIG was complicated. None of the Members of Congress really understood how it operated, how it was formed, how it was set up, and what it was doing. We have learned our lesson from AIG, and I hope that the Members of this Congress will not forget it.

Under Democratic leadership, our country has made tremendous strides in creating jobs, in growing the economy, and in stabilizing the housing market since the depths of the 2008 recession. This was despite significant headwinds from both overseas crises and Republican intransigence. Instrumental to our achievements is the Dodd-Frank Wall Street Reform and Consumer Protection Act, which has bolstered our Nation's financial stability and has brought accountability to the entire system.

Among its many accomplishments, such as protecting consumers from predatory practices, Dodd-Frank sought to address the excessive risk taking by the largest and most complex financial institutions by creating the Financial Stability Oversight Council--that is FSOC--and the Office of Financial Research, OFR. These two agencies were charged with looking at the big picture and identifying cracks in the system that could cause a breakdown in our economy. They oversee all aspects of the financial system and our largest institutions that can cause systemic risk.

FSOC works to identify and to address systemic risk posed by large, complex companies and activities before they threaten the stability of the economy. It provides for the cooperation and information sharing between agencies in order to research and correct threats before they become crises. OFR helps to provide the necessary tools to FSOC by collecting and analyzing data on the health of our financial markets and by conducting research on potential sources of financial instability. It flags emerging threats and shares that information with other regulators so that they can intervene before a crisis occurs.

Together, these two agencies have addressed the devastating, widespread failures in supervision and regulation that brought our economy to its knees in 2008. They fill the regulatory gaps to make sure that no institution, however powerful, can circumvent our rules and regulations.

This crucial work is supported by a majority of Americans-- Republicans and Democrats--who favor Dodd-Frank and the reforms it has implemented. Yet, instead of recognizing the importance of these institutions and the interests of the American public, House Republicans are undermining our regulators' efforts to the benefit of the industries that are lining their own pockets. I am troubled by the amnesia that plagues my colleagues about the causes of the 2008 financial crisis and why Wall Street reform was so critical.

We created FSOC and OFR because our fractured regulatory system allowed firms to skirt the rules of the road. This behavior left millions homeless and unemployed, and it plunged us into the worst recession since the Great Depression. What is worse is that hundreds of communities across the country are still struggling to recover.

By cutting off FSOC and OFR's independent funding streams, H.R. 3340 will subject the agencies to the volatility of the congressional appropriations process and the same funding uncertainty faced by the SEC and the FCFTC.

Make no mistake. The bill before us today is part of a concerted effort by House Republicans to impede the progress of financial reform.

Yesterday Republicans passed a bill in committee to repeal the only mechanism to unwind a megabank without destabilizing the economy as well as a bill to eliminate funding for the bureau tasked with protecting consumers from predatory loans.

Earlier today and for much of this month, committee Republicans will depose public servants at the CFPB, Treasury, and FSOC, despite agencies providing thousands of pages of documents at the Republicans' request. Soon I expect my chairman to bring up bills repealing the rest of our reform.

Democrats in the House are all too familiar with these attacks. Are we not? Republicans have proposed $6 trillion in cuts to initiatives like Medicare, Medicaid, and food stamps. They have prevented us from debating America's sacred right to vote. Most Republicans voted against upholding the full faith and credit of our Nation's debt. I could go on and on and on.

So, to my colleagues, we have pulled the cover off of them, and we are pointing out to you in no uncertain terms how they are singularly focused on killing Dodd-Frank reforms.

They are not exercising their oversight responsibility. They are determined that they are going to have their way, and they have it under the banner of overregulation.

Well, that old argument is tired, ladies and gentlemen. Overregulation every time they want to do something for the big banks, et cetera.

I urge my colleagues to oppose this coordinated attack and vote ``no'' on this harmful bill.

I yield back the balance of my time.

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Ms. MAXINE WATERS of California. Mr. Speaker, I claim time in opposition to the amendment.

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Ms. MAXINE WATERS of California. I yield myself such time as I may consume.

Mr. Speaker, I rise in opposition to the Royce amendment, which the Financial Services Committee considered last November as H.R. 3738. The amendment is yet further evidence of the Republican plan to kill Dodd- Frank with a thousand cuts.

If adopted, the Office of Financial Research would have to disclose its research agenda at the beginning of each year, potentially alarming markets, just as the underlying bill, the Royce amendment, would mean that any study of the OFR would become corrupted.

Our market actors would see that the OFR, an office that makes recommendations to the Financial Stability Oversight Council about systemic risks, was concerned about a particular topic.

In response, those actors would begin to change their behavior even if the OFR might later conclude that there was never any risks to our economy.

In addition, this amendment would require OFR to go into great detail when disclosing what it plans to study, something that is not done by any other research organization.

Finally, I am troubled by the amendment's provisions requiring the OFR to disclose its consultations. Internal consultations and deliberations are explicitly excluded by the Freedom of Information Act and for good reason. Individuals would not likely participate in OFR studies if their offline, candid remarks were made part of the public record.

Will this prevent industry lobbyists and trade associations from commenting? Of course not. They will continue earning their keep, and the amendment gives them even more opportunities.

Why would independent researchers, academics, and scientists want to weigh in on a public fight? This amendment, the underlying bill, and many of the other Republican initiatives we have seen this year all share the same goal. They are aimed at undoing all of the progress the Obama administration and Democrats have made in the last 8 years.

How many times are we going to find ways to kill financial reform? How many times are we going to vote to kill job-creating agencies, like the Export-Import Bank? How many times are we going to vote to get rid of ObamaCare and the health insurance of millions of Americans?

There is important work to be done, passing a budget, for one, ending homelessness in America, funding the administration's requests to help combat the Zika virus, helping Puerto Rico to restructure their crippling debt so that the island can grow and prosper and create jobs.

When are Republicans going to hear the cries of everyday Americans?

I encourage Members to support their constituents by continuing to fight for these issues and oppose Republican attempts like this to simply roll back Democrat reform.

I urge a ``no'' vote on the Royce amendment.

I yield back the balance of my time.

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