Patrick McHenryChairman

Washington, December 5, 2019 -

Today, the House Financial Services Committee held a hearing with Secretary of the Treasury Steven Mnuchin in his role as Chairman of the Financial Stability Oversight Council (FSOC) to discuss the Council’s work to identify and mitigate risks facing the U.S. financial system.

At the hearing, Committee Republicans expressed their concerns on issues including Democrats’ harmful financial transactions tax (FTT) proposals, cybersecurity threats, and the risks involved with the transition from the London Interbank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR), among other topics to ensure the stability and security of the U.S. financial system. 

On the negative impact of the FTT:

Ranking Republican Patrick McHenry (NC-10): “Finally, Secretary Mnuchin, I wrote to you last month regarding an issue that I believe is an alarming issue, of potentially enormous consequences, and that is the financial transactions tax. This is not a honey pot of money that just comes from heaven, this will be a tax based off of buying or selling stocks, bonds, or other financial instruments that many are talking about as a new way to derive revenue for the federal government. And the rhetoric is that it will only hit the wealthiest. The reality is that average everyday investors, especially mutual fund investors and those that are saving for retirement will be severely impacted by this nefarious tax. In fact, one study indicated that a typical mutual fund investor will have to save an additional $600 per year or work an additional 2 years to achieve the same goals.”

On the FTT’s impact on everyday investors:

Vice Ranking Republican Ann Wagner (MO-2): “We have seen proposals to implement a financial transactions tax in both the House and the Senate, and in addition a number of Democrat presidential candidates have either endorsed or are considering a financial transactions tax. These proposals would place taxes on financial transactions typically involving stocks, and bonds, and derivatives. This tax would result in fewer trades and would lead market participants to look for other ways to avoid the tax. … While proponents of the financial transactions tax argue that it would only affect the wealthy, that is simply not the case. This tax would impact all investors, most specifically including millions of main-street investors saving and investing in mutual funds, retirement accounts, a child’s education, or maybe a pension plan. Secretary Mnuchin, what sort of impact could imposing a financial transactions tax have on the US financial system?”

Secretary Mnuchin: “I share your concern about this potential tax. I think as you know the United States is the leader in financial services and capital markets, and it’s something that people come from all over the world to raise capital in the United States. So, I am very concerned that [a financial transactions tax] would destroy our capital markets, and the cost to American holders of mutual funds would bear the majority of the cost.”

On combatting cybersecurity threats:

Congressman Frank Lucas (OK-3): “Secretary Mnuchin, in the Council’s annual report it recommended that government and private sector should have more effective information sharing practices. Could you expand on how agencies can best work with financial institutions to address cybersecurity concerns without inhibiting the growth of emerging technologies?”

Secretary Mnuchin: “So as I highlighted in my opening comments, cybersecurity is one of my most important priorities. While I think the industry is well prepared, we can never be prepared enough. The bad people continue to operate, we need to make sure our financial markets are not only protected for today but are protected for the future. And it’s a coordinated response between private companies, public companies, the intel community, as well as the Treasury and the regulators.”

On the transition from LIBOR to SOFR:

Congressman John Rose (TN-6): “I wanted to ask you about the FSOC’s work on the transition away from LIBOR as a reference rate. LIBOR is set to be phased out as a bank reference rate by [the end of] 2021. From the FSOC September minutes I understand LIBOR is the underlying reference rate for approximately 200 trillion in financial contracts worldwide. Secretary Mnuchin, I know this will likely cause a bit of disruption in our markets and that the Alternative Reference Rate Committee’s preferred alternative to LIBOR is the Secured Overnight Financing Rate, or SOFR. What makes the SOFR a suitable alternative?”

Secretary Mnuchin: “Well, I think the most important issue is that we have a transition from all these loans and all these securities. The thing that we like about SOFR … is that it’s a very liquid market, it can’t be manipulated, and it’s really calculable. I met with a group of banks yesterday, there may also be – no different than there were LIBOR loans and there were prime loans – there may be more of a credit-oriented index that develops as well, but this is something where we’re very focused on the transition.”

Learn more about today’s hearing here.