House to take up bills easing stress test, supervision for non-bank firms

Two more pieces of legislation related to federal financial institution regulation are scheduled to be considered on the House floor this week as lawmakers consider measures limiting stress testing at non-bank financial companies and how a federal oversight group determines which non-bank entities are “systemically important financial institutions” (SIFIs).

H.R. 4566, the Alleviating Stress Test Burdens to Help Investors Act, sponsored by Rep. Bruce Poliquin (R-Maine), seeks to eliminate “burdensome costs for nonbank financial companies” by eliminating stress testing requirements imposed on them by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The committee report for the legislation asserts that the stress tests “are structured and designed for banks and do not appropriately reflect risks to nonbanks.”

Under current law, the Federal Reserve is required to conduct annual stress tests of large bank holding companies and non-bank SIFIs to evaluate ‘‘whether such companies have the capital necessary to absorb losses as a result of adverse economic conditions.’’ The Federal Reserve also has discretion to require the same tests as non-bank financial companies that are not systemically important. Additionally, according to the committee report, the Dodd-Frank Act requires ‘‘financial companies’’ with total consolidated assets of more than $10 billion, and that have a primary federal financial regulatory agency, to conduct annual stress tests in accordance with regulations issued by the relevant agency.

The legislation is scheduled to be considered as early as Tuesday on the House floor.

H.R. 4061, the Financial Stability Oversight Council Improvement Act of 2017, sponsored by Rep. Dennis Ross (R-Fla.), would require the Financial Stability Oversight Council (FSOC) to “evaluate the need to subject nonbanks to heightened prudential standards by the Federal Reserve and reevaluate annually and periodically, in coordination with the designated company and the appropriate prudential or market regulator, whether designated companies still pose a systemic risk to the financial system,” according to the committee report.

The legislation would require the FSOC, when identifying a non-bank financial company as a potential threat to the nation’s financial stability, to provide that company with a written notice explaining “with specificity” the basis for identifying the entity and would require a copy of the notice to be provided to the company’s primary financial regulatory agency.

“For example, for an insurance company, the Dodd-Frank Act defines its primary financial regulatory agency as ‘the State insurance authority of the State in which an insurance company is domiciled,’” the committee report states. “Therefore, if the FSOC is considering the designation of an insurance company, H.R. 4061 would require the FSOC to notify the applicable state insurance regulator early in the designation process and would have an opportunity to address risks that the FSOC identifies.”

The bill is set to be considered on the House floor as early as Wednesday.

Committee report, H.R. 4566

Committee report, H.R. 4061