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May 16, 2012
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mr. auer, let me ask you this first question. is the fsoc the only way to further regulate systemically important nonbanks? or have alternative methods been contemplated? >> so, some nonbank companies are already subject to some degree of regulation subject to state insurance and supervision even if their holding companies are not. hedge funds have certain reporting requirements as do asset managers. so, there are bits and pieces, elements on which nonbank financial companies may, in some cases, already be subject to supervision. but the rule in the dodd frank act for those firms that could affect the stability of the united states, those firms that could pose such a threat are subject to enhanced prudential standards. >> does it seem prudent to impose bank-like regulations on nonbanks? >> what we have proposed in section 165 and 166 is focused on the banks. that section applies to both bank-holding companies that are both 50 billion and above and any nonbank companies designated by the counci
mr. auer, let me ask you this first question. is the fsoc the only way to further regulate systemically important nonbanks? or have alternative methods been contemplated? >> so, some nonbank companies are already subject to some degree of regulation subject to state insurance and supervision even if their holding companies are not. hedge funds have certain reporting requirements as do asset managers. so, there are bits and pieces, elements on which nonbank financial companies may, in some...
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May 23, 2012
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mr. auer, just to get his feedback on a problem i see here, that i don't think is going to go away. and that is that the market is going to make a determination once that these firms are deemed significant by you. and it's reflected in the credit rating agencies, deciding already that the cost of borrowing, based upon their decision, they shared with us that they believe that implicitly there is a likelihood of government support. so the cost of borrowing is lower for these firms than their competitors. and the consequences of that are that when you're in a situation like that, you often can gobble up your competitors, your smaller competitors especially. you can outperform them. frankly, you can overleverage. but you require your competition and the competition shrinks in the market as a result. liquidity was supposed to imply, i think at some point, liquidation. but these firms will never fail. i want to quote back to you the new head of the fdic and mr. gruenberg's recent comments and get y
mr. auer, just to get his feedback on a problem i see here, that i don't think is going to go away. and that is that the market is going to make a determination once that these firms are deemed significant by you. and it's reflected in the credit rating agencies, deciding already that the cost of borrowing, based upon their decision, they shared with us that they believe that implicitly there is a likelihood of government support. so the cost of borrowing is lower for these firms than their...
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May 23, 2012
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my question to mr. auer, is do you agree that the wall street reforms act mechanism for designating nonbank financial companies for federal supervision as implemented by the fsoc's recent final rule, will help prevent future crisis by insuring that there is no place to hide from appropriate regulation? >> thank you, congressman. yes, we've view the authority to designate nonbank financial companies that could pose a threat to the financial stability of the united states as a key part of the dodd-frank reforms and an essential element to insure that those types of firms that encounter distress and were at the heart of the last financial crisis, can be better identified going forward and subject to heightened standards. better risk management. capital and liquidity rules so that they are less likely to get into distress in the future. as well as being subject to an order of liquidation authority and requirement to provide living wills. they will describe how they can be wound down without government support. i
my question to mr. auer, is do you agree that the wall street reforms act mechanism for designating nonbank financial companies for federal supervision as implemented by the fsoc's recent final rule, will help prevent future crisis by insuring that there is no place to hide from appropriate regulation? >> thank you, congressman. yes, we've view the authority to designate nonbank financial companies that could pose a threat to the financial stability of the united states as a key part of...
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May 19, 2012
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mr. auer, my time has expired. if i could, as i read the guidance provided from fsoc, it says that fsoc may advantage any that irrespective of whether such company meets the thresholds in stage one. again, i see no clarity here. >> mr. green for two minutes -- i mean five minutes. excuse me. >> thank you, madame chair. i thank you and the ranking member again. let's start with siffy. to a good many members of the public, it is sci-fi. it really is. perhaps we can find a way to explain this in a much more intelligible fashion for persons who are not privy to much of the intelligence that you two fine witnesses are sharing with us. let's start with the very basic question. was aig a nonbank financial institution? mr. gibson? thank you. >> yes. >> thank you. i tend to ask questions that you can answer yes or no. was aig into many different kinds of products, if you will, exotic products, credit swaps, derivatives? was aig into what we now refer to as exotic products, mr. gibson? >> well, with the
mr. auer, my time has expired. if i could, as i read the guidance provided from fsoc, it says that fsoc may advantage any that irrespective of whether such company meets the thresholds in stage one. again, i see no clarity here. >> mr. green for two minutes -- i mean five minutes. excuse me. >> thank you, madame chair. i thank you and the ranking member again. let's start with siffy. to a good many members of the public, it is sci-fi. it really is. perhaps we can find a way to...
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May 19, 2012
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i would like to ask mr. auer, i understand the criteria the council has established by regulation and statute, but i would like more clarity on the exact metrics that will be used in designating non-bank financial companies as sfis. for example, how much interconnectedness makes a firm a sfi. could you elaborate in this area? >> certainly. again, the multiple rounds of a comment that we received, there was a desire led to a development of a three-stage process. the first stage is based on publicly available data and easily call can you labl metrics in order to provide greater clarity to the public about the types of entities the council is likely to want to examine further in stages 2 and 3. however, the council is very clear that it wants to look in stages 2 and 3 on a firm by firm basis and the rule and guidance lay out a specific framework for it to do so. interconnectedness is one of the elements that the council will be looking at in stages 2 and in stages 3, but it is one of six broad categories of framewor
i would like to ask mr. auer, i understand the criteria the council has established by regulation and statute, but i would like more clarity on the exact metrics that will be used in designating non-bank financial companies as sfis. for example, how much interconnectedness makes a firm a sfi. could you elaborate in this area? >> certainly. again, the multiple rounds of a comment that we received, there was a desire led to a development of a three-stage process. the first stage is based on...
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May 16, 2012
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mr. auer, am i pronouncing your name correctly? >> yes. >> aig was a part of the glue holding the economic order together, true? >> i think aig was involved with a great number of other financial firms. >> and that is your way of saying yes? >> yes. >> thank you. given that we know that there are other aigs not in the sense that they are right now about to go out of business, but there are other big businesses that may pose systemic risks. they may become sysfis. is there a way to deal with them without making an attempt to prevent them from making bad disease decisi business decisions. my belief is that that happens and that is a part of the ebb and flow of doing business but we can deal with the consequences of bad decisions. and is that what we are attempting to do here, mr. gibson, to deal with the consequences of bad decisions by these mega businesses? >> yes. and one of the enhanced prudential standards that non-bank companies will be subject to is enhanced capital requirements that will make sure that a buffer exists to cove
mr. auer, am i pronouncing your name correctly? >> yes. >> aig was a part of the glue holding the economic order together, true? >> i think aig was involved with a great number of other financial firms. >> and that is your way of saying yes? >> yes. >> thank you. given that we know that there are other aigs not in the sense that they are right now about to go out of business, but there are other big businesses that may pose systemic risks. they may become...
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May 16, 2012
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mr. auer, so designated nonbank sifis, how much weight will the fsoc give to existing regulators? perhaps you have an international nonbank financial institution and in their home country they have supervisory authority that's very clear. would the fed be likely that the fed would be designated or less likely? >> both in the framework that the council lays out in its rule and guidance stages two and three, the council does plan to take into account existing regulatory scrutiny, whether that scrutiny is domestic or foreign, whether at the conso d consolidated level or legal entity level. that would all be factors that would lead into the council's ultimate determination about whether or not that firm poses a threat to financial stability. >> mr. fwibson, you said earlier that you have the authority, the fed has the authority to tailor standards as appropriate to nonfinancial companies. now, isn't this unchartered territory for the fed? >> we have the authority to tailor the standards for nonbank financial companies. commercial companies would not be subject to the nonbank. so there
mr. auer, so designated nonbank sifis, how much weight will the fsoc give to existing regulators? perhaps you have an international nonbank financial institution and in their home country they have supervisory authority that's very clear. would the fed be likely that the fed would be designated or less likely? >> both in the framework that the council lays out in its rule and guidance stages two and three, the council does plan to take into account existing regulatory scrutiny, whether...
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May 17, 2012
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. >> i would like to ask mr. auer, i understand the criteria aaron established but i would like more clarity on the exact metrics that will be used in designating non-bank financial companies. for example, how much interconnectedness makes a firm? >> in the multiple rounds of public comment we receive, there was a desire to have a three stage process. the first stage is based on countable metrics in order to provide greater clarity about the types of an entity is the council is likely to want to examine further. however, the council wants to look at stages two and three on a firm by a firm basis. there is a specific framework to do so. interconnected this is one of the elements the council will be looking at. it is one of six broad categories of the framework. the others are size,
. >> i would like to ask mr. auer, i understand the criteria aaron established but i would like more clarity on the exact metrics that will be used in designating non-bank financial companies. for example, how much interconnectedness makes a firm? >> in the multiple rounds of public comment we receive, there was a desire to have a three stage process. the first stage is based on countable metrics in order to provide greater clarity about the types of an entity is the council is...
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May 16, 2012
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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
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...