CONGRESSWOMAN ELISE STEFANIK
On Monday, July 8, 2013, the House will consider H.R. 1341, the Financial Competitive Act of 2013. The bill was introduced on March 21, 2013 by Rep. Stephen Fincher (R-TN) and referred to the Committee on Financial Services, which reported the bill by a vote of 59-0. The bill was also referred to the Committee on Agriculture, but consideration of the bill was waived.
H.R. 1341 requires the Financial Stability Oversight Council (FSOC) to conduct a study on the implementation of the Credit Valuation Adjustment (CVA) capital requirement on U.S. consumers, end users, and U.S. financial institutions. The study will assess the differences in approaches taken regarding implementation of the CVA capital requirement, as well as the impact that these differences will have on financial institutions that conduct derivatives transactions. This study is intended to determine whether U.S. financial institutions will be at a competitive disadvantage as a result of European CVA exemptions for certain derivatives trades such as Risk-Weighted Assets (RWAs).
The bill will also require an assessment of the costs of and services available to end users of derivatives and requires an analysis of the competitiveness of U.S. financial institutions and derivatives markets. H.R. 1341 also requires recommendations regarding the steps that financial regulatory agencies and Congress should take in order to minimize negative effects and encourage greater international consistency in implementing these standards.
A written report must be submitted to the Committees on Agriculture and Financial Services no more than 90 days after the date of enactment.
The Financial Stability Oversight Council (FSOC) was established by Title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) in order to monitor risks to the U.S. financial system and to respond to threats to U.S. financial stability. The FSOC was also established to streamline communication among financial regulatory agencies.
The Basel Accords are a set of agreements established by the Basel Committee on Bank Supervision (BCBS), which provided recommendations related to capital, market, and operational risk. These recommendations are intended to provide financial institutions the tools and capital they need to manage losses. The Third Basel Accord (Basel III) sets capital and liquidity recommendations which are designed to improve the banking sector’s ability to absorb shocks arising from financial stress, improve risk management, and strengthen transparency. The Credit Value Adjustment (CVA), an additional capital requirement agreed to in Basel III, is an adjustment that takes into account credit risk. It does so by calculating the difference between the risk-free valuation of a portfolio and of a value which takes into account the possibility of a counterparty default.
Assuming the FSOC would increase fees to offset the cost of running the study, H.R. 1341 would impose a private-sector mandate. This would happen by increasing the cost of an existing mandate on financial institutions that are already required to pay fees to the FSOC. Based upon information provided by the FSOC, CBO estimates that the cost of the mandate would total $1 million over the next ten years, but would be offset by fee increases. H.R. 1341 will not affect the budgets of state, local, or tribal governments.
For questions or further information contact David Smentek in the Conference Policy Shop at 5-5107.