2015 1208 - GOV (House) - Oversight of the Financial Stability Oversight Council (FSOC)

  • (p14) - Ms. MATZ. No. The determination wasn’t based on the insurance activities. It was based on the financial activities of the company and how they are interwoven with other—
  • Chairman Jeb HENSARLING (R-TX). And specifically, which activities were interwoven that concerned you?
  • Ms. MATZ. It was their derivatives position, the extent of their leverage. Their—
  • Chairman HENSARLING. But I asked you about the leverage.
  • Ms. MATZ. The securities lending. Their debt position. The extent of the difficulty to resolve them if there was financial distress. So, it was not one factor
  • (p37) - Roy WOODALL. Congressman, I think that we have already discussed the fact that in activities, which has been my main goal in the insurance company, it is evolving now in the Council.
    • The Council is young, it is evolving, and I welcome the idea of taking a pause and getting into looking at the activities across the segment.
    • I hope that they will do that for the insurance industry.
  • (p46-47) - Dennis ROSS (D-FL). Mr. Woodall, I have to just follow up on what my colleague from Texas was pursuing.
    • And as a litigator of 25 years I know that the trier of fact, whether it be a jury or judge, must rely on evidence brought before them.
      • And that evidence, of course, is in the best form when it is brought by an expert.
      • And when that expert testimony is uncontroverted then it becomes clear matter of fact that that opinion should gain the day.
      • Clearly on this board, on FSOC, you are eminently qualified and by far the only person who could be considered an expert in the in surance arena. You have experienced not only academically but also practically as an insurance commissioner.
    • So I have to ask. What was it, in your opinion, that drew FSOC to disregard uncontroverted expert insurance opinion, and designate MetLife and Prudential as SIFIs?
  • Mr. WOODALL. I think what you outline might be a professional disagreement. I have a lot of respect for all my colleagues. We had a very hearty debate. I listened to them and they listened to me and we—
  • Mr. ROSS. I don’t think they listened to you, is the problem. 
  • (p47) - Mr. ROSS. There hasn’t been a run on life insurance, has there?
    • Are people all of a sudden going to go and cash in their life insurance policies?
    • Because if they are, then our serious consequences for economic structure are way out of line.
  • (p60) - David Schweikert - (R-AZ) - Are we going to wake up tomorrow and find out that the shadow on the horizon, the black swan was something that because of the concentration of the way you look at the world you completely miss?
  • (p61) - David Schweikert - (R-AZ) - But there have been a couple bits of testimony here that I need to drive into because I am a little disturbed and concerned about some of the things I heard.
    • The gentleman from Florida, Mr. Ross, was asking some questions about insurance.
    • And a comment was made by Ms. Matz—you actually stated that on Prudential, one of the reasons they made your list, shall we say, is their derivatives book.
    • Now is that because they didn’t have enough hedging of their interest exposure?
    • I don’t know if they were doing duration exposure, but their interest exposure.
    • And are you saying they had a derivatives book and because they were actually insuring their interest— exposure that forced them onto your list?
    • What do you mean when you said the derivatives book?
    • Ms. MATZ. They had such a large exposure that the failure of that institution or financial—
    • Mr. SCHWEIKERT. When you say that institution?
    • Ms. MATZ. Of Prudential.
    • Mr. SCHWEIKERT. Okay. So they are buying an additional hedge to protect their interest rate exposure so if that moves against their 100 percent coverage. Explain to me how that would work.
    • Ms. MATZ. First of all, the derivatives position is just one position. But if they are so interwoven or so interconnected with other financial institutions that if they failed—
    • Mr. SCHWEIKERT. No, no, no, no. Not—if they—they are not—
    • ........
    • Mr. SCHWEIKERT.  Look, we are talking past each other because, you know, everything I know about why your derivatives contracts to protect your interest rate exposure, that would be something you would find joyful, not put them into a designation.
      • Also, in looking over parts of the reports about Prudential, okay, so their repo contracts are 100 percent offset and collateralized.
      • I am just trying to figure out where you found exposure.  [BonkNote: Typos]
    • Ms. MATZ. It is all exposure. What is the assumption that—
    • Mr. SCHWEIKERT. If you are 100 percent covered and you have also covered your interest rate risk, the exposure is what?
    • Ms. MATZ. The assumption that is made in making our determination is that there is material distress at the designated institution. So we are starting from the assumption—
    • Mr. SCHWEIKERT. So I have an institution. It is 100 percent covered.
      • Plus, it has also done additional financial products insurance to cover markets moving against them.
    • Ms. MATZ. But we are operating from the assumption that there is material distress at that institution.
      • So, if there is material distress, that they can cover the outstanding debt that they have or the loans that they have.