fail, instead of getting back to less leverage and higher capital requirements for those few firms, the government instead will publicly stamp institutions, potentially dozens of institutions as systemic. and the explicit statement to the market is that washington believes these firms are special. and the implicit statement to the market is also going to be that washington will never allow these firms to fail. and given the precedent that has been set, given the propensity of government to err on the side of intervention, err on the side of bailouts to save systematically important firms, it is my hope that we can cast the smallest possible net in this and designate only the firms na everyone agrees are too big to fail but frankly the approach was the wrong approach. i yield back. >> gentleman yields back. mr. green for two minutes. >> thank you, madame chair. i thank the ranking member, as well. of one thing i am totally

absolutely and completely convinced, it is this. regardless as to how we feel, the publicing is of the opinion that too big to fail is the right size to regulate. it's the right size to deal with such that it does not bring down the economy. aig is a prime example of what will we did not have the authority and ability to properly deal with when it was going out of business as it were. we cannot allow ourselves on our watch to have simply say we need to get back to business as usual. and i hear a lot of that in

other words. let's get back to business as usual. we cannot afford business as usual because it brings down the economy with these institutions when they become so large that they will have an impact across not only the american economy but the economy of the world. so today, i think it is appropriate for us to examine the rules but it's also appropriate to note that we cannot allow business as usual to become the order of the day. il yield back the balance of my time. >> gentleman yields back. i believe that concludes our opening statements. so i'd like to ask the witnesses i'd like to recognize the witnesses for the purposes of a five-minute summation of your submitted statement and our first panelist is mr. lance auer, deputy assistant secretary for financial institutions, u.s. department of treasury. welcome. >> thank you, chairman capito, ranking member maloney and members of the subcommittee.

>> do you have your microphone on? maybe pull it closer. >> how is this? much better. all right. .chairman capito, ranking members maloney, members of the subcommittee, thank you for the opportunity to discuss the financial stability oversight council's rule and guidance for identifying nonbank financial companies subject to enhanced standards and supervision by the federal reserve. in the 2008 financial crisis, financial distress at certain nonbank financial companies contributed to a broad seizing up of the national markets. to address potential risks posed to u.s. financial stability by these types of companies, the dodd-frank wall street reform and consumer pro tksz authorizes the counsel to determine that will certain companies could pose a threat to u.s. financial stability and would be subject to the oversight of the federal reserve and enhanced standards. although the dodd-frank act

outlines substantive considerations and requirements for designating nonbank companies, the council elected to engage in a rule making process in order to obtain input from all interested parties and to provide increased transparency to the public. to these ends, the council provided the public with three separate opportunities to comments on its proposal. after receiving significant input from market participants, non-profits, academician mings and other members of the public, the council approve the its final rule in april of this year. the final rule provides a robust process for evaluating whether a financial company should be subject to federal reserve supervision and enhanced credential standards. the council will approach each determination using a consistent framework but ultimately, each designation must be made on a company-specific basis considering the unique risks to the u.s. financial stability that each nonbank company may pose. the council's rule and guidance

explained the three-stage process that the council intends to use in assessing nonbank financial companies. in stage one, the council will an apply uniform quantitative thresholds to identify those nonbank financial companies that will be subject to the further evaluation. the use of clear thresholds in stage one enables the public to assess whether a particular company is likely to be subject to further evaluation by the council. in stage two, the council will analyze the nonbank financial companies identified in stage one using a broad range of information available to the council primarily through existing public and regulatory sources. this review includes both quantitative and qualitative information. in is taken 3, the council will contact each nonbank financial company that the council believes merits further review to collect information directly from the company that was not available in prior stages.

for an in-depth review. each nonbank financial company that is reviewed in is taken will 3 will be provided an opportunity to submit written materials to the council for the council's consideration. if the council votes to approve a proposed determination, the nonbank financial company will receive a written explanation of the basis of the proposed determination. the company may also request a hearing to contest the proposed determination. after the hearing, a final determination requires a second vote of the council. the authority under the dautd frank act for the council to designate nonbank financial companies for enhanced credentials supervision standards and federal reserve supervirgs is an important part of the council's abilities to carry out its duties to identify risks to u.s. financial responsibility and respond to such threats in order to protect the u.s. financial system.

thank you, and i'd be happy to answer any of your questions. >> thank you. our second witness is mr. michael gibson, director, division of banking supervision and regulation, board of governors of the federal reserve system. welcome. >> chairman capito, ranking member maloney and other members of the subcommittee, thank you for the opportunity to testify today on implementation of the dodd-frank act as it relates to the designation, supervision and regulation of systemically important nonbank financial companies. the recent financial crisis showed that some financial companies, including nonbank financial companies not historically subject to consolidated prudential supervision had grown so large, so lever ands and so interconnected that their failure could pose a threat to overall financial stability. the sudden collapses or near collapses of major financial companies were among the most destabilizing events of the crisis.

the dodd-frank act addresses key gaps in the framework for supervising and regulating systemically important nonbank financial institutions through a multi pronged approach that includes first the establish. of the financial stability oversight council which has the authority to the designate nonbank financial companies that could pose a threat to financial stability, second, a new framework for consolidated supervision and regulation of felon bank financial companies designated by the council, and third, improved tools for the resolution of failed nonbank financial companies. with respect to the first prong, the financial stability oversight council was created to coordinate efforts to identify and mitigate threats to u.s. financial stability across a range of institutions and markets. including by establishing a framework for designating nonbank financial companies whose failure could pose a

threat to financial stability. on april 3rd, the council issued a final rule and interpretive