H.R.____, Insurance Capital Standards Clarification Act of 2014

H.R. ____

Insurance Capital Standards Clarification Act of 2014

Sponsor
Rep. Andy Barr

Date
September 15, 2014 (113th Congress, 2nd Session)

Staff Contact
Communications

Floor Situation

On Monday, September 15, 2014, the House will consider H.R. _____, a bill to clarify the application of certain leverage and risk-based requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act, and for other purposes, under a suspension of the rules.  H.R. _____ was introduced by Rep. Andy Barr (R-KY).

Bill Summary

H.R. _____ is a package of bill that includes a bill that passed the Senate (S. 2270), and three bills that have already been passed by the House.

Title I, the Insurance Capital Standards Clarification Act of 2014

Title I amends the Dodd-Frank Wall Street Reform Act to clarify capital requirements for insurance companies.  This legislation states that Federal banking agencies shall not be required to subject any individual to minimum capital requirements to the extent that the person: 1) acts in its capacity as a regulated insurance entity; or 2) is a regulated foreign subsidiary engaged in the business of insurance.  Moreover, this legislation states that a board-supervised depository institution engaged in the insurance business shall not be required to prepare financial statements in accordance with Generally Accepted Accounting Principles.  Finally, it states that nothing in the Act shall:  1) limit Board authority to conduct any regulatory or supervisory activity of either a depository institution holding company or a non-bank financial company under Board jurisdiction; or 2) excuse the Board from its obligations to comply with Dodd-Frank requirements regarding the examination of nonbank financial companies.

Title II, the Restoring Proven Financing for American Employers Act

Title II, originally passed by the House as H.R. 4167 by voice vote on April 29, 2014, corrects a provision of the final rule issued on December 10, 2013, to implement Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”)(P.L. 111-203), also known as the “Volcker Rule,” regarding the treatment of collateralized loan obligations (“CLOs”) as impermissible covered fund investments.

H.R. 4167 amends Section 13(g) of the Bank Holding Company Act to: (i) clarify that nothing in Section 13(g) shall be construed to require the divestiture of any debt securities of CLOs, if such CLOs were issued before January 31, 2014; (ii) clarify that a banking entity shall not be considered to have an ownership interest in a CLO because it acquired or retains a debt security in the CLO, if such debt security has no indicia of ownership other than the right to participate in the removal for cause or in the selection of a replacement investment manager or investment adviser of the CLO; (iii) define the term “collateralized loan obligation” as any issuing entity of an asset-backed security, as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)), that is comprised primarily of commercial loans; and (iv) clarify the conditions by which an investment manager or investment adviser shall be deemed to be removed “for cause.”

Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known more commonly as the “Volcker Rule,” prohibiting U.S. bank holding companies and their affiliates from engaging in proprietary trading, as well as sponsoring hedge funds and private equity funds.[1]  The final Volcker Rule approved by five Federal regulators on December 10, 2013[2], would force many banks, of all sizes, that own interests in CLOs to divest them on or before July 21, 2105.  The CLO divestment will disrupt a market for business loans that have provided financing to companies such as Sears, JC Penny, DollarGeneral, Rite Aid, Regal Cinema, JCrew, Michael’s Craft Stores, Tempurpedic, Delta Airlines, and American Airlines.   In addition, the historic default for CLOs is less than 1% H.R. 4167 would allow CLO investments to be permissible under the Volcker Rule’s covered funds defintion and not force banks to divest of these debt securities issued before January 31, 2014.

Title III, the Mortgage Choice Act of 2014

Title III, originally passed by the House as H.R. 3211 under suspension, would modify the definition of “points and fees” in the Truth in Lending Act for purposes of determining whether a mortgage is a Qualified Mortgage.  Rules that were finalized by the Consumer Financial Protection Bureau (CFPB)  limit the points and fees charged for a mortgage to no more than 3% of the loan amount.  The CFPB’s definition of “points and fees” would include affiliated title charges and payments that are held in escrow to cover property taxes and insurance in the calculation of the 3% limitation.  This Title would exclude from the calculation of points and fees those fees that are paid for affiliated title charges and charges that are paid for the escrow of insurance and taxes.

Title IV, the Business Risk Mitigation and Price Stabilization Act of 2013

Title IV, originally passed by the House as H.R. 634 by a roll call vote of 411-12 on June 12, 2013, , amends Title VII of the Dodd-Frank Act to clarify that the Act’s margin requirements do not apply to the end-users of derivatives.  “End-users” are companies, large and small, which use derivatives to hedge their business risk from price fluctuations. Because end-users’ swap and security-based swap transactions do not pose a systemic risk to the financial system, Congress did not intend that end-user derivatives transactions would be subject to the margin and capital requirements of Title VII of the Dodd-Frank Act.  The bill also stipulates that the bill is to be implemented through a modified regulatory process, precluding the regulatory process from starting de novo.

Cost

A CBO estimate for Title I is currently unavailable.  Cost estimates for Titles II-IV are as follows:

  • CBO estimates that Title II would affect direct spending and revenues, but that those effects would be insignificant. Title II would not affect discretionary spending.[1]
  • CBO estimates that Title III would affect direct spending, but that those effects would be insignificant. Title III would not affect discretionary spending or revenues.[2]
  • CBO estimates that Title IV would affect direct spending and revenues, but that those effects would be insignificant. Title II would not affect discretionary spending.[3]

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[1] http://www.cbo.gov/sites/default/files/cbofiles/attachments/hr4167.pdf
[2] http://www.cbo.gov/sites/default/files/cbofiles/attachments/hr3211.pdf
[3] http://www.cbo.gov/sites/default/files/cbofiles/attachments/hr634_0.pdf

Additional Information

For questions or further information contact the GOP Conference at 5-5107.