Member Corner

Washington Policies Like Dodd-Frank Threaten U.S. Financial Stability

Members of the Committee on Thursday questioned Treasury Secretary Jacob Lew on the threats posed to America’s financial stability by misguided government policies, including the Dodd-Frank Act.

The most recent annual report issued by the Dodd-Frank-created Financial Stability Oversight Council (FSOC) identifies several threats to financial stability that are the direct result of these policies.  However, “it conspicuously omits any references to specific government policies or agencies as helping cause the systemic risks it identifies,” said Chairman Jeb Hensarling (R-TX).

“FSOC simply refuses to look in the mirror,” he said.  “Mr. Secretary, your council and the rest of Washington needs to awaken to this obvious truth:  when it comes to systemic risk, Washington is a large part of the problem.”

Not only does FSOC fail to identify the Washington sources of these threats, it ignores other key threats to our financial stability, such as the nation’s $18 trillion – and growing – national debt.

“CBO points out the debt is a problem for our economy, and yet your report does nothing, says nothing about it.  And you are supposed to be an agency that points out these problems," Rep. Blaine Luetkemeyer (R-MO) said.

"The Federal Reserve Bank of Richmond recently reported that 60 percent of the financial system’s liabilities are backed by taxpayers. This report directly contradicts claims by Secretary Lew and the Administration that the Dodd-Frank Act ended ‘too big to fail’ – a stated objective of the Dodd-Frank Act - and that American taxpayers will never again have to foot the bill for bailouts," said Rep. Robert Hurt (R-VA).

Rep. Ann Wagner (R-MO) pointed out that FSOC’s deeply flawed process for designating so-called “non-bank SIFIs” further entrenches another threat to our financial stability:  Too Big to Fail.

“To date, FSOC has designated four non-bank financial companies as systemically important financial institutions, or SIFIs, essentially signaling to market participants that the government considers them Too Big to Fail. As a result, Richmond Fed President Jeffrey Lacker stated that shareholders and creditors of those firms can expect the government to shield them from losses during periods of distress, ultimately putting the taxpayer on the hook for a future potential bailout,” she said.

A Cyber Attack Every 34 Seconds

The Oversight and Investigations Subcommittee held a hearing on Tuesday to continue the Committee’s ongoing efforts to combat cyber threats to consumers and the financial sector.

Subcommittee Chairman Sean Duffy (R-WI) said that while the motivations behind cyber attacks may vary, “there remains one constant. They intend to hurt America and our interests. Not only are they targeting the critical infrastructure of our country, like banks, power grids, food supplies, but they also pose a much graver threat directly to the citizens of the United States."

Witnesses called by the Subcommittee shed light on the prevalence of cyber threats to the financial sector.  Frank Cilluffo, Associate Vice President of the George Washington University and the Director for the Center for Cyber and Homeland Security, said one major U.S. bank faced 30,000 cyber attacks just last week.  “This amounts to an attack every 34 seconds each and every day.  And these are just the attacks that the bank actually knows about,” he told the Subcommittee.

Michael Madon of RedOwl Analytics and an advisor to the Center on Sanctions and Illicit Finance, called for a more pro-active stance by the federal government in fighting cyber attacks. "It is clear from watching these attacks dramatically increase in both frequency and damage, our nation's current defensive posture is simply not sufficient to address the threat. We need to have a more pro-active approach, one that shifts the paradigm away from defense to offense."

Subcommittee Reviews Economic Growth Proposals

Building on the success of the bipartisan Jumpstart Our Business Startups (JOBS) Act, the Capital Markets and Government Sponsored Enterprises Subcommittee chaired by Rep. Scott Garrett (R-NJ) has been identifying legal, regulatory and market impediments to capital formation, particularly for small and medium-capitalized companies.  On Tuesday, the Subcommittee continued its work with a hearing on the Small Business Credit Availability Act and the Fair Investment Opportunities for Professional Experts Act.

The Small Business Credit Availabiltiy Act, sponsored by Rep. Mick Mulvaney (R-SC), is geared toward updating regulation of Business Development Companies.  “We've heard that in other hearings BDCs have played an increasingly important role in our economy," said Chairman Garrett.

The Fair Investment Opportunities for Professional Experts Act, sponsored by Rep. David Schweikert (R-AZ), “would allow more Americans to have the opportunities to secure their financial future," said Chairman Garrett.

Witnesses at the hearing spoke about the importance of modernizing the regulation of BDCs and expanding the pool of investment opportunities.

Vincent D. Foster of Main Street Capital said, "Modernizing BDC regulations will help support American jobs and foster economic growth by improving access to the public capital markets for BDCs. It will also free up significant resources at the SEC, which can be utilized more effectively to protect investors."

"With the JOBS Act, Congress helped to modernize existing regulations and establish new systems to provide the opportunities to allow Emerging Growth Companies (EGCs) to grow into public companies," said Tom Quaadman with the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness. "The proposals before us today continue that tradition and are important as they help small and mid-size businesses continue on the path to becoming EGCs."

For further information on these legislative proposals, click here.

Impact of the IMF:  Economic Stability or Moral Hazard?

Members of the Monetary Policy and Trade Subcommittee on Thursday expressed concerns that the IMF, in providing public funds to ease current financial problems in Europe is, in effect, transferring the cost of Europe’s past risky lending practices to the American public at large and to commercial banks that were more conservative in selecting their loan portfolios.  

“The use of the IMF as a backstop for advanced European countries calls into question, in my mind, whether this institution has become an enabling crutch instead of a helping hand,” Subcommittee Chairman Bill Huizenga (R-MI) said.

MEMBER SPOTLIGHT

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    On the Horizon 

June 24, 2015 2:00 p.m.
Task Force to Investigate Terrorism Financing Hearing
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June 25, 2015 10:00 a.m.
Oversight and Investigations Subcommittee Hearing
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  In the News

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Bloomberg | Hensarling Accuses Fed of Willful Obstruction of Leak Probe

American Banker | CFPB Grapples with Spike in Employee Bias Complaints

The Hill | Hensarling accuses Fed of 'willful obstruction' in leak probe

Politico | HUD aid for its own workers includes $100k move

HousingWire | TRID, Discrimination and Accountability: The Appalling CFPB Double Standard

Wall Street Journal | Small Firms Aim to Raise Capital More Easily Under New Rules

MarketWatch | Lew, Hensarling Spar Over Bond Market Liquidity

Bloomberg | Risk Panel Will Divulge Why AIG, MetLife Are Too Big to Fail

Washington Times | Obama-Elizabeth Warren payday lender rules slammed by Florida Democrats