Terrorism Risk Insurance Program Reauthorization Act of 2015

Floor Speech

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Mr. CRAPO. Mr. President, it is my pleasure to rise to speak in favor of H.R. 26, the Terrorism Risk Insurance Program Reauthorization Act or what is more popularly known as the TRIA legislation.

During the last Congress my colleagues and I worked hard to put together a bipartisan bill that gained wide support. However, literally in the waning hours of the session, we were unable to complete our work at the end of the last Congress. I am very glad to see that this legislation has now been moved promptly by the House of Representatives and again promptly today in the Senate toward finalization and passage.

I particularly wish to thank the majority leader for bringing this bill to the floor so quickly because reauthorization of the TRIA Program is essential for the certainty we need in our insurance marketplace and for other important functions in our markets. I also wish to recognize some of the Senators who have been very heavily involved in this process in the past. There are many who could be named, but in particular I think we need to recognize Senator Kirk and Senator Heller on the Republican side and Senator Schumer and Senator Reed on the Democratic side, as well as Senator Brown, our new ranking member on the Democratic side, and many others who have worked to help us move this legislation forward.

Additionally, I wish to give thanks to the former chairman of the banking committee, Senator Johnson and his staff, who deserve a great amount of thanks as they have worked with us very closely in moving this bill forward, and of course my own staff on the Republican side who have put in so much time and effort to make sure we got this important legislation moved over the finish line. Working together we developed a bill that was supported unanimously out of the banking committee in what was a very partisan environment that we can all recall from last Congress. We then approved it in the Senate by a vote of 93 to 4, showing the broad, bipartisan support that has been developed for this legislation.

Building on the Senate's framework, the House passed their own version of TRIA last Congress by an overwhelming vote of 417 to 7. Yesterday in this new Congress the House again voted by a margin of 416 to 5 to extend the program another 6 years--the legislation that is currently before us in the Senate. These strong votes demonstrate the importance of this program.

Chairman Hensarling, Representative Neugebauer, Senator Schumer, and others deserve our thanks for bringing the differences to a focus and getting us to this point.

This bill requires the private insurance industry to absorb and cover the losses for all but the largest acts of terror--ones in which the Federal Government would almost certainly be forced to step in if this program were not in place.

The bill increases the insurance industry's aggregate retention level and the company coinsurance level, meaning that it increases the participation of the private sector in responding to the insurance issues created by an act of terrorism in the United States but still provides the stability the market needs to assure there is coverage and protection. Once it reaches that level, the recoupment will be indexed to the amount of insurer deductibles for all insurers participating in the program.

This is a significant reduction in the potential exposure and cost to taxpayers.

Under this bill each company will take on a greater portion of losses above their deductible. This is done by increasing the coinsurance level from 15 percent to 20 percent and raising the level at which the program is triggered from $100 million to $200 million. As these levels are increased, the Federal share is reduced.

This bill maintains the amendment offered by Senator Flake to create an advisory committee focused on finding additional private sector solutions to lowering the Federal exposure to loss from a catastrophic terrorist incident in the United States. Getting terrorism risk insurance right is important in order to protect taxpayers and to limit the economic and physical impact of any future terrorist attack on the United States.

This bill will help us maintain a properly balanced terrorism risk insurance program that increases the Nation's economic resilience to terrorism.

The bill also includes separate legislation that will establish the National Association of Registered Agents and Brokers or what is commonly known as NARAB. I have been an original cosponsor of this legislation in the past because it simplifies the process of agent licensing across State lines while preserving States rights--specifically, the authority of state insurance regulators.

The bill has broad support from the insurance community, including the National Association of Insurance Commissioners, Independent Insurance Agents and Brokers of America, the National Association of Insurance and Financial Advisors, and the Council of Insurance Agents and Brokers.

By reducing costs and increasing competition among insurance producers, we will generate lower costs and better service for consumers.

Importantly, NARAB II, this legislation, deals specifically with marketplace entry and would not impact the States' day-to-day authority over the insurance marketplaces. State regulators will serve on the board of NARAB with the same objectives they have as insurance commissions--to protect the public interest by promoting the fair and equitable treatment of insurance consumers. The idea for NARAB is now 14 years old, and I am very glad to see we are now going to get it across the finish line.

The final TRIA bill includes the Vitter amendment that was added in the Senate to require that the Federal Reserve Board have at least one member with experience working in or supervising community banks.

Finally, the bill also includes a very critical reform to the Dodd-Frank financial legislation. This commonly has been referred to as the end user amendment issue--a piece of legislation that historically has also received wide bipartisan support. This is a targeted fix I have been pushing for over 4 years. Ever since the Dodd-Frank conference, there has been a debate regarding whether nonfinancial end users were exempt from margin requirements. Most Americans won't really understand the details of these kinds of transactions if they aren't involved in the derivatives industry. But it is critical that we allow end users, those who produce products or provide services--those are the ones who are using the financial system and the benefits it can provide to provide productive additions to our economy--that they not be subjected to the rigorous requirements that were put into place to control financial sector dealings in derivatives.

Then-Chairman Dodd and Senator Lincoln acknowledged that the language for end users was not perfect and tried to clarify the intent of their language with a joint letter. In the letter, they stated:

The legislation does not authorize the regulators to impose margins on end-users, those exempt entities that use swaps to hedge or mitigate commercial risk. If regulators raise the costs of end-user transactions, they may create more risk. It is imperative that the regulators do not unnecessarily divert working capital from our economy into margin accounts, in a way that would discourage hedging by end-users or impair economic growth.

I might add to that quote from these Senators that it would also increase costs in the marketplace to consumers.

Stand-alone legislation passed the House to fix this problem last Congress with 411 votes--broad bipartisan support. In the Senate, legislation to deal with the end-user program was introduced originally by a bipartisan group of six Democrats and six Republicans. Congressional intent was to provide an explicit exemption from margin requirements for nonfinancial end users that qualify for the clearing exemption, which this language accomplishes.

Unless Congress acts, the new regulations will make it more expensive for farmers, manufacturers, energy producers, and many small business owners across this country to manage their own unique business risks associated with their daily operations--an unintended and harmful consequence of the language in the Dodd-Frank legislation.

I mentioned in my earlier statement that this bill had the support of 93 Senators in the last Congress. The final bill before us today passed the House by an overwhelming vote of 416 to 5.

Again, I encourage all of the Senators to vote for the legislation we have before us today and help this first piece of legislation in the Senate in this Congress get a quick resolution so we can resolve one--in fact, two or three--of the critical issues facing our economy today, help strengthen our economy, promote jobs, and increase our movement along the pathway toward economic recovery.

Again, I thank Senator Schumer, Senator Reed, Senator Kirk, and Senator Heller for their partnership in bringing this bill forward.

I yield the floor.

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Mr. CRAPO. Madam President, I do not see another speaker on our side so I would like to take a few minutes and just respond to some of the remarks of my colleagues.

First of all, let me say I am very pleased to see that we have strong support across the aisle on a bipartisan basis for two of the three key parts of this legislation, the reauthorization of TRIA--or the Terrorism Risk Insurance Program--and the NARAB provision for the insurance industry. It appears that the focus of the debate between us or disagreement between us is going to come down to that part of the bill that deals with the end user exemption under the Dodd-Frank legislation. So I would like to talk about that for a little bit, because in some of the arguments about this provision there has been the implication that this is an effort to help strengthen Wall Street at the expense of Main Street. The reality is just the reverse. This is an opportunity to try to stop unintended and bad legislative language from hammering Main Street under the guise that it was to protect us against Wall Street.

Let me explain what I mean. Derivatives are--I am reading right now from the summary of the House bill, which is the version of the language we are going to be voting on today. I will be reading and summarizing some. But derivatives are contracts whose value is linked to changes in another variable, such as the price of a physical commodity.

My colleague from Ohio, Senator Brown, referenced Delta Airlines, which buys contracts for fuel for their airplanes. They do this in order to hedge the risk on the price of fuel. It is a critical part of their risk management for their business. Other businesses, farmers in Idaho, hedge their risks in their farming and ranching operations in the same way, by trying to make sure they have protected the price of certain commodities they need to utilize in the conduct of their business.

Derivatives have historically been used by large businesses, such as Delta, and small, such as the Idaho farmer, and everything in between, to manage the risk of their business. End users trade in derivatives to hedge business and economic risk. That is very important to understand because over time derivatives have grown and the use of an investment in derivatives has grown. Instead of just end users trying to manage risks in commodities for their products and for their physical needs and business needs, many derivatives, in fact probably most of the many--more than a majority of the derivatives that are invested in today are no longer based on a physical commodity but are linked to variables such as interest rates or stock prices or currency valuations or other factors such as that.

The market in derivatives has moved into areas that are similar to investments such as in the stock market. Because of that, Dodd-Frank sought to--and one of those kinds of activities was one of the big problems in the financial collapse. So Dodd-Frank tried to address that abuse of derivatives that was found during the time of the financial collapse.

But it was never intended to deal with the original utilization of the derivatives by end users--again, as I said earlier, those who produce a product such as a farmer or deliver a service such as airline transportation similar to Delta Airlines or others, those who utilize derivatives in their business to hedge a business risk and economic risk as opposed to those who invest in derivatives for speculation in a market. That distinction was very important.

I was on the conference committee when we did the conference committee on Dodd-Frank. We discussed this then. Everyone, literally all of us, including the two sponsors of the bill, Senator Dodd and Representative Frank, agreed that end users were not intended to be covered.

In fact, I will quote again the language that Dodd--after the passage of Dodd-Frank--put into a letter along with his then-colleague Senator Lincoln. This is Senator Dodd's language:

The legislation does not authorize the regulators to impose margins on end users, those exempt entities that use swaps to hedge or mitigate commercial risk. If regulators raise the cost of end user transactions, they may create more risk.

I am still quoting Senator Dodd--continuing: ``It is imperative that the regulators do not unnecessarily divert working capital from our economy into margin accounts, in a way that would discourage hedging by end users or impair economic growth.''

So it was not the intent, although it was a concern at the time that the language may have gone too far. But clearly the sponsors of the amendment--and I don't have the language in front of me, but Representative Frank has made similar comments that it was not intended for this to be covered by the legislation. But the language actually did go so far as to cover end users.

Now the regulators, in hearings before the banking committee, have uniformly told us they feel their hands are tied and that following the language of Dodd-Frank they have to start imposing margin requirements on end users, which will cause the kind of economic harm which I have discussed earlier. So it is necessary for Congress to respond and clarify that this exemption exists for end users in our financial system.

Now, one of the arguments that has been made--actually, before I move on to that, let me go back and give a couple of examples. This is, I believe, from testimony that was given in the House, where hearings have been held multiple times on this issue. It is true we haven't been able to get hearings in the Senate on this issue, but it doesn't mean the issue hasn't been raised in the Senate.

I personally, in 2011, brought an amendment to an appropriations bill to make this exemption part of the law and was stopped by the then-majority, who said they would not allow either a vote or a hearing on the issue. So it is true that we have not been able to engage in hearings or votes in the Senate on this issue, but it is not true that we have not been engaging in trying to get to this issue in the Senate.

In the House they were able to hold hearings. I wish to quote a couple of examples of testimony that were made in the House. This first one is from the CEO of MillerCoors, Craig Reiners, who gave this testimony said:

MillerCoors uses derivatives for the sole purpose of reducing commercial risk associated with our business. At MillerCoors, we brew beer, and our commitment to our customers is to produce the best beer in the United States and to deliver it at a competitive price. In order to achieve these goals, we must find a way to mitigate and prudently manage our inherent commodity risks.

This is what the end users do. The other example is Ball Corporation, which is a supplier of metal and plastic packaging to the beverage and food industries. In testimony in the House, the CFO of Ball stated:

A requirement for end-users to post margin would have a serious impact on our ability to invest in and grow our business. For example, Ball is currently investing significant amounts of capital in plant expansions in Texas, Indiana, California, and Colorado, totaling well in excess of $150 million, and adding several hundred jobs when complete. Tying up capital for initial and variation margin could put those types of projects at risk at a time when our economy can ill afford it. The impact of posting initial margin for us can easily exceed $100 million, while the change in value on our trades over time could easily surpass $300 million. Diverting more than $400 million of working capital into margin accounts would have a direct and adverse impact on our ability to grow our business and create and maintain jobs.

Again, my point is the end-user exemption must distinguish between those who invest in derivatives for speculation and those who invest in derivatives in order to control and hedge risk in their business--a critical distinction. Economists, experts, and regulators alike have said that imposing those extra margin requirements on the end user will have negative economic effects and not positive stabilizing economic effects.

Having said that, I want to move forward. Again, going back to the House report--and I am almost done--it says:

However, derivative end-users, the firms trying to manage their risk, rather than speculate for profits, do not pose a systemic risk. Furthermore, forcing end-users to post margin in the form of cash or government securities could cause harmful effects for the economy and consumers. If end-users are posting a margin, those funds are unavailable for investment in jobs and expansion.

That means we are pulling capital out of our economy unnecessarily and in a harmful way, in the very arena--not Wall Street but Main Street--the very arena where we need capital formation and need the kind of growth in our economy that would then cause us to generate greater jobs, strength, and stability.

The examples I have used were examples of companies that were dealing in hundreds of millions of dollars of issues. But as I said earlier, this is not just that. Small businesses, ranchers, farmers, and others, all utilize this in order to hedge their commodity risks and their business risks in our economy.

I want to reinforce the point and make it clear that this is something that was never intended to be in the law and that our regulators have said they have to do.

In hearings before the Senate banking committee I have asked our regulators about this. In fact, frankly, that reminds me that we have actually had testimony in the Senate on this issue because I have raised it in multiple banking hearings with our financial regulators.

They have told us they believe this fix is a prudent fix. We have our regulators telling us they have to issue regulations they don't feel are needed or necessary and that a congressional fix would be helpful to our financial markets and to our business productivity in America.

We have those being regulated as end users pleading for relief from this harmful statutory language, and we have an opportunity today to correct that problem. I encourage all Senators to recognize the critical need to move forward rapidly on fixing this end-user exemption just as we need to move forward rapidly on reauthorizing TRIA and passing the NARAB legislation.

With that, I yield the floor.

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Mr. CRAPO. The architects of the Dodd-Frank legislation itself--Senators Lincoln and Dodd on the Senate side--stated their intent to provide an explicit exemption from margin requirements for nonfinancial end users. I know that is a complicated issue to explain. I have explained it in detail already, so I will not do that again now. But acknowledging that the language for end users in the draft of Dodd-Frank was not perfect, they sent a letter, which I quoted from earlier, to then-Chairmen Frank and Peterson, stating that ``[T]he legislation does not authorize the regulators to impose margins on end-users, those exempt entities that use swaps to hedge or mitigate commercial risk.''

Despite the clarity of their intent, Dodd-Frank was not fixed in conference and regulators had interpreted that in fact the statutory language does contain an ambiguity which they interpret requires them to impose margin requirements. It is not just current or former Senators who have advocated for this clarity.

Regulators have spoken out about it as well.

As I mentioned earlier, in February 2013 at a Humphrey-Hawkins hearing, then-Chairman of the Federal Reserve, Ben Bernanke, identified the end-user exemption as one of the specific Dodd-Frank provisions that Congress should reconsider. I specifically asked him about it.

I asked:

If we were able to achieve some bipartisan consensus on steps to improve Dodd-Frank, what are some of the provisions that you think need clarification, or improvement for reconsideration?

An end-user legislation reform was one of those he identified. I also asked former Chairman Bernanke about the role of end users in our economy and whether they posed a systemic risk.

He stated:

I certainly agree that nonfinancial end-users benefit, and that the economy benefits, from the use of derivatives. It seems to be the sense of a large portion of Congress that that [end-user] exemption should be made explicit. And speaking for the Federal Reserve, we're very comfortable with that proposal.

We attempted to address this issue in the last Congress. We introduced a Senate bill with six Republican and six Democratic sponsors, which ultimately grew to 20 sponsors, but were unable to get any consideration of it in this Congress.

Unless Congress acts, regulations based on the current statute will go into place which will make it more expensive for farmers, manufacturers, energy producers, and many small business owners across this country to manage their risks. There are many examples of other Members of Congress in the House and Senate, Republican and Democratic, who have spoken about the need for certainty and exemptions with respect to this provision.

I will conclude by reading from a letter sent out by a coalition of end users. These are businesses, as I said, large and small across this country, that are alarmed at the damage this current statutory language will do to their business operation. I gave several specific examples of this earlier in our debate.

The end-user coalition has said in a letter it sent to Congress that they represent hundreds of end-user companies that employ derivatives to manage their business risks; in other words, not to speculate in markets but to manage their business risks and that they strongly support this language.

Their point is that this language ``would not help financial companies. It would not create any systemic risk. It would not reverse any regulatory policy. And it would not create an exemption that Congress did not intend. In fact, it fulfills the commitments made on the record to end-users by the committee chairs and sponsors of the Dodd-Frank Act at the time of its passage. The end-user language simply would protect main street companies''--and I emphasize Main Street; we are not talking about Wall Street--``from harmful and unnecessary margin requirements and preserve jobs.''

A Coalition survey of chief financial officers and corporate treasurers released earlier this year underscores the need. .....

Eighty-six percent of the survey of these companies responded ``that fully collateralizing over-the-counter derivatives would adversely impact business investment, acquisitions, research & development and job creation. Another Coalition survey found that a 3% initial margin requirement could reduce capital spending by as much as $5.1 to $6.7 billion ..... and cost 100,000 to 130,000 jobs.''

The issue is not just fixing an issue because it is going to have a huge, damaging impact on companies across this country that need it for their business risk management, it is an issue for developing more robust economic development and jobs in our economy which badly needs it.

The idea for providing clarity to end users and regulators precedes the passage of Dodd-Frank, and I am hopeful that now we can get it across the finish line.

Including the end-user fix provides certainty for Main Street businesses that played no role in the financial crisis by establishing a clear exemption for excessive margin requirements on our economy.

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