Monday, February 1, 2016

Monday, February 1, 2016

The House will meet 12:00 p.m. for morning hour and 2:00 p.m. for legislative business. Votes will be postponed until 6:30 p.m

1) H.R. 2187 - Fair Investment Opportunities for Professional Experts Act (PDF)

Sponsor: Rep. David Schweikert (R-AZ)

2) H.R. 2209 - To require the appropriate Federal banking agencies to treat certain municipal obligations as level 2A liquid assets, and for other purposes (PDF)

Sponsor: Rep. Luke Messer (R-IN)

3) H.R. 3784 - SEC Small Business Advocate Act of 2016, as amended (PDF)

Sponsor: Rep. John Carney (D-DE)

4) H.R. 4168 - Small Business Capital Formation Enhancement Act (PDF)

Sponsor: Rep. Bruce Poliquin (R-ME)

5) Concur in the Senate Amendment to H.R. 515 - International Megan’s Law to Prevent Child Exploitation and Other Sexual Crimes Through Advanced Notification of Traveling Sex Offenders (PDF)

Sponsor: Rep. Chris Smith (R-NJ)

6) H.R. 400 - Trafficking Prevention in Foreign Affairs Contracting Act, as amended (PDF)

Sponsor: Rep. Ed Royce (R-CA)

7) S. 2152 - Electrify Africa Act of 2015 (PDF)

Sponsor: Sen. Bob Corker (R-TN)

8) Concur in the Senate Amendment to H.R. 4188 - Coast Guard Authorization Act of 2015 (PDF)

Sponsor: Rep. Duncan Hunter (R-CA)

H.R. 2187, Fair Investment Opportunities for Professional Experts Act

Floor Situation

On Monday, February 1, 2016, the House will consider H.R. 2187, the Fair Investment Opportunities for Professional Experts Act, under suspension of the rules. The bill was introduced on April 30, 2015, by Rep. David Schweikert (R-AZ) and was referred to the Committee on Financial Services, which ordered the bill reported, as amended, by a vote of 54 to 2, on December 9, 2015.

Summary

H.R. 2187 amends the definition of accredited investor under the Securities Act of 1933.  Under this legislation, an accredited investor will include any individual:

• whose individual net worth, including their spouse’s, exceeds $1 million;
• with an income greater than $200,000 individually, or $300,000 jointly;
• with a current securities-related license; or
• who the Securities and Exchange Commission (SEC) determines has demonstrated education or job experience to qualify as having professional subject-matter knowledge to a particular investment. Such education or experience must be verified by the Financial Industry Regulatory Authority.

Background

The SEC is an independent  regulatory agency responsible for administering Federal securities law.  It has broad regulatory authority over the securities industry, including stock exchanges, mutual funds, investment advisers, and brokerage firms.[1]

The SEC’s  Advisory Committee on Small and Emerging Companies noted that the majority of new jobs in the United States are generated by companies less than five years old.[2]  The ability of these companies to raise capital is critical to the economic well-being of the United States. Under current law, companies are required to register with the SEC prior to raising funds through public and private offerings.[3] The Securities Act provides for certain exemptions. Regulation D, which provides such exemptions, states that the obligation to register with the government does not apply to any transaction not involving a public offering.  The Supreme Court has previously ruled that an offering would be considered private and not public when “the particular class of persons affected needs the protection” of securities laws and should utilized only by persons who can “fend for themselves.”[4] To further define individuals who can “fend for themselves”, the SEC adopted the term “accredited investor”.

Under the SEC’s standards, an investor’s financial status is a proxy for his ability to fend for himself. Thus, a natural person is accredited if that person (1) earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, or (2) has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).[5]

This past fall, the Investor Advisor Committee recommended changes to the definition of accredited investor to allow investors to participate in private offerings even though they do not satisfy the net worth test. [6] The Committee suggested that individuals could be accredited investors if they had adequate financial sophistication, education or professional credentials, or expertise as demonstrated by the successful completion of an exam demonstrating their investment knowledge.[7] H.R. 2187 expands the definition of an accredited investor to include persons who meets certain financial education standards.  

According to the Committee, ”expanding the pool of eligible investors that can participate in private placements will increase capital formation and amending  the definition of accredited investor to account for educational or professional expertise will help to increase that eligibility pool. Individual investors that have the risk appetite and ability to understand the private offering should be able to invest – the government should not limit the options of individual investors to only those the government deems worthy.”

Cost

The Congressional Budget Office (CBO) estimates implementing H.R. 2187 would cost less than $500,000 over the 2016 to 2020 period for rulemaking activities related to the change in definition. Enacting H.R. 2187 would not affect direct spending or revenues; therefore, pay-as-you-go procedures do not apply.

 

Staff Contact

For questions or further information please contact Robert Goad with the House Republican Policy Committee by email or at 6-1831.

 

H.R. 2209, To require the appropriate Federal banking agencies to treat certain municipal obligations as level 2A liquid assets, and for other purposes

 

Floor Situation

On Monday, February 1, 2016, the House will consider H.R. 2209, to require the appropriate Federal banking agencies to treat certain municipal obligations as level 2A liquid assets, and for other purposes, under suspension of the rules. H.R. 2209 was introduced on May 1, 2015 by Rep. Luke Messer (R-IN), and was referred to the Committee on Financial Services, which ordered the bill reported by a vote of 56 to 1 on November 4, 2015.

Summary

H.R. 2209 requires the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency (OCC) to treat certain investment grade municipal securities as level 2A High Quality Liquid Assets (HQLA), in order to allow these securities to be counted towards certain[1] institution’s liquidity coverage ratio (LCR).

Background

Liquidity is a term that can apply to assets, markets, or firms. An asset is liquid if it is easily bought and sold (i.e., converted into cash). Markets are generally considered to be liquid if there are many ready buyers and sellers. Banks hold liquid assets to reliably meet cash flow needs, which may be variable and unpredictable. The cost of holding liquid assets is that they have a lower expected rate of return than less liquid assets. When banks hold more liquid assets, they hold fewer loans, which are generally illiquid.[2] Additionally, the Federal Reserve is authorized to set bank reserve requirements which require banks to hold a certain percentage of its liabilities in cash based upon the entity’s transactions.[3]

 

In response to acute liquidity shortages during the 2008 financial crisis, 27 countries agreed in 2010 to modify the Basel Accords, which are internationally negotiated bank regulatory standards, to increase certain financial institution’s liquidity requirements.[4] On September 3, 2014, the OCC, Federal Reserve, and the FDIC issued a final rule that implements the Liquidity Coverage Ratio (LCR) rule consistent with the Basel Committees standards. The final rule is designed to strengthen the liquidity risk management of banks, savings associations, and bank holding companies.

The new LCR rule aims to require banks to hold enough High Quality Liquid Assets (HQLA) to match net cash outflows for 30 days during a hypothetical scenario of market stress where creditors are withdrawing funds. An asset can qualify as a HQLA if it has low risk, has a high likelihood of remaining liquid during a crisis, is actively traded in secondary markets, is not subject to excessive price volatility, can be easily valued, and is accepted by the Federal Reserve as collateral for loans.[5] The rule did not include investment grade municipal securities in the rule’s HQLA definition.

According to investors, many municipal securities are considered to be one of the safest available investments, as state and local governments are generally not at risk of default.[6] By excluding municipal securities to qualify for HQLA status under this new rule, state and local governments will face increased borrowing costs for infrastructure construction and maintenance projects.  H.R. 2209 classifies investment grade municipal bonds as HQLA in an attempt to ensure low-cost infrastructure financing remains available to state and local governments.

According to the bill sponsor, “By excluding all municipal securities from HQLA eligibility, financial institutions are discouraged from holding municipal debt. This has a real-world impact.  It could raise borrowing costs for state and local governments to finance infrastructure projects and force municipalities to reduce, or even stop, projects that are financed with municipal bonds. We can’t allow Federal bureaucrats to promote policies that disincentivize investment in our local communities.[7]

Cost

The Congressional Budget Office estimates that enacting H.R. 2209 could affect direct spending; therefore, pay-as-you-go procedures do apply. However, CBO estimates that the net cost of the bill would be negligible.

Staff Contact

For questions or further information please contact Robert Goad with the House Republican Policy Committee by email or at 6-1831.