March 5, Ladies and Gentlemen:

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1 March 5, 2012 United States 1500 Pennsylvania Avenue, N.W. Washington, D.C Attn: Financial Research Fund Assessment Comments Docket number TREAS-DO Re: Assessment of Fees on Large Bank Holding Companies and Nonbank Financial Companies Supervised by the Federal Reserve Board To Cover the Expenses of the Financial Research Fund Ladies and Gentlemen: The Clearing House Association 1 and the 2 (together, the Associations or we ) thank the ( Treasury ) for the opportunity to provide our views in connection with its notice of proposed rulemaking ( NPR ) regarding the assessment schedule for bank holding companies with total consolidated assets of $50 billion or more ( BHCs ) and those nonbank financial companies ( Nonbanks ) to be supervised by the Board of Governors of the Federal Reserve System ( Federal Reserve ) to collect assessments equal to the total expenses of the Office of Financial Research ( OFR ) 3 under Section 155 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd- 1 Established in 1853, The Clearing House is the oldest banking association and payments company in the United States. It is owned by the world s largest commercial banks, which collectively employ over 2 million people and hold more than half of all U.S. deposits. The Clearing House Association L.L.C. is a nonpartisan advocacy organization representing through regulatory comment letters, amicus briefs and white papers the interests of its owner banks on a variety of systemically important banking issues. Its affiliate, The Clearing House Payments Company L.L.C., provides payment, clearing, and settlement services to its member banks and other financial institutions, clearing almost $2 trillion daily and representing nearly half of the automated-clearing-house, fundstransfer, and check-image payments made in the U.S. See The Clearing House s web page at 2 The represents banks of all sizes and charters and is the voice for the nation s $13 trillion banking industry and its 2 million employees. Learn more at 3 Under the Dodd-Frank Act, in addition to expenses of the OFR itself, expenses of the Financial Stability Oversight Council ( FSOC ) and of the FDIC in implementing its orderly-liquidation authorities ( OLA ) are considered expenses of, and paid by, the OFR. See Sections 118 and 210 of Dodd-Frank, respectively.

2 United States -2- March 5, 2012 Frank Act or Dodd-Frank ). 4 The Associations stand behind the letter that we submitted to Treasury on March 2, 2012, with the Securities Industry and Financial Markets Association, the Financial Services Roundtable and the Institute of International Bankers (the Joint Letter ). However, we wish to raise an additional concern with the NPR; namely, that assessments should be reasonably and fairly allocated among all covered companies. Much of the OFR s and the FSOC s expenses have been, and are likely to continue to be, attributable to the agencies responsibilities to research, oversee and manage the systemic risks associated with Nonbanks. For example, the FSOC has spent considerable effort, as evidenced by one advanced notice of proposed rulemaking and two notices of proposed rulemakings to date, to design a methodology for determining whether to designate a nonbank financial company as systemically important within the meaning of Dodd-Frank and its supervisory and risk-management provisions. 5 These efforts will presumably continue as the FSOC finalizes its approach and implements its actual designation process. Because no nonbanks have yet been designated, BHCs will exclusively bear all OFR and FSOC expenses until the FSOC begins to designate Nonbanks. Forcing BHCs to bear all costs associated with the initial start-up of the OFR an agency that will have to spend much of its budget researching, monitoring and designating nonbanks is an easily avoidable inequity. Dodd-Frank mandates that both BHCs and Nonbanks fund the long-term costs of the OFR and FSOC. Imposing these costs solely on BHCs, for whatever length of time, is inconsistent with the statute. Had the OFR been stood up in the normal course, the Federal Reserve, which Dodd- Frank makes responsible for the first two years of OFR and FSOC expenses, would have funded the initial start-up expenses of both the OFR and FSOC. 6 However, as stated in the Joint Letter, due to the unforeseen delay in these agencies operations, the majority of their start-up costs would, under the NPR, be shifted solely to BHCs, with no contributions from Nonbanks until after their designation. Treasury could more equitably allocate expenses by delaying the proposed assessments until after the FSOC has made its initial designation of nonbanks. Until then the Federal Reserve could, pursuant to its Dodd-Frank mandate, continue to fund the OFR. While Section 155(d) requires the Treasury to establish an assessment schedule after July 2012, it does not specify a required effective date for the schedule. Furthermore, although Section 155(c) requires the Federal Reserve to provide interim funding to the OFR through July 2012, the law does not preclude the Federal Reserve from providing funding beyond this date. Moreover, as we note below, it would be consistent with congressional expectations regarding the funds required to start up the OFR to assess Nonbanks for the cost attributable to the oversight of any systemic risk with which they are associated. 4 Unless otherwise noted, all section references in this comment letter are to sections of the Dodd-Frank Act. 5 See 75 Fed. Reg (October 6, 2010), 76 Fed. Reg (January 26, 2011), and 76 Fed. Reg (October 18, 2011). 6 See 12 U.S.C

3 United States -3- March 5, 2012 The Associations encourage Treasury to consider fully the additional fairness concerns associated with the timing of a Nonbank s designation relative to a determination date. Significantly, the date on which the FSOC officially determines that a nonbank is to be subject to Federal Reserve supervision is not necessarily the date on which it became systemically important. Nonbanks will have likely been systemically important for some time before they are designated and thus assessable. As a result, they should as is the case with BHCs be subject to both initial and subsequent assessments that apply for so long as they remain systemically important and designated as such. Furthermore, assessments should, to be equitable, recognize and take into account that an institution became systemically important well before the designation date. 7 Heightening our concern with the NPR is the fact that BHCs would be forced to bear a disproportionate share of the OFR s start-up costs as a result of Treasury s delay in establishing the OFR and FSOC s delay in designating Nonbanks. The Associations believe that this skewed outcome further supports the conclusion that the Federal Reserve should, as Congress intended, appropriately fund OFR start-up costs. One further concern regarding the allocation of assessments between BHCs and Nonbanks arises out of the initial focus of the FSOC and OFR on Nonbanks. Well-established laws and regulations have long provided a robust reporting system for bank holding companies. These requirements have long provided bank regulators with the scope and depth of information that they need to examine and supervise BHCs. In addition, their supervisory agencies are required to share information about the BHCs with the OFR. This sharing of information should reduce the portion of the OFR s research and resource expenditures that is attributable to BHCs. 8 In contrast, nonbank financial company is an entirely new regulatory classification, one in existence only since the passage of the Dodd-Frank Act. As a result, the FSOC and OFR will likely have to invest a significantly larger proportion of their resources to determine properly which Nonbanks should be designated and to research, supervise, and manage the systemic risks with which they are associated. To allocate assessments equitably, therefore, the methodology should appropriately take into account the relatively large proportion of the FSOC s and OFR s expenditures that is attributable to the oversight of Nonbanks. To that end the Associations further recommend that Treasury design a system of subsequent credits available to previously assessed BHCs and Nonbanks so that any expenses for which they paid that are reasonably attributable to later-assessed companies are properly and ratably distributed. Credits have been successfully incorporated in similar contexts, 7 However, in no case should this period begin earlier than the initial determination date, which the NPR proposes be the date on which the initial assessments are determined. The NPR proposes that the initial determination date be December 31, If Treasury agrees to delay the initial assessments, as we suggest in this letter and the Joint Letter, the initial determination date would presumably change as well. 8 See 12 U.S.C (requiring the OFR to mitigate the reporting burden by first seeking data from regulatory agencies charged with the supervision of a given BHC or Nonbank before requiring it to submit a report).

4 United States -4- March 5, 2012 including, in the bank-regulatory sphere, with the Federal Deposit Insurance Corporation s Deposit Insurance Fund. 9 * * * * We welcome the opportunity to comment on this NPR. The Associations stand ready to assist the Treasury in any way that we can to achieve a transparent, reasonable, and equitable assessment structure that adequately reflects the statutory provisions. If you have any questions, please do not hesitate to or call the undersigned. Sincerely, Mark Zingale Senior Vice President and Associate General Counsel The Clearing House Association Mark.Zingale@TheClearingHouse.org (212) Cecelia A. Calaby Senior Vice President, Office of Regulatory Policy ccalaby@aba.com (202) cc: Hon. Timothy F. Geithner Hon. Mary Miller Hon. Cyrus Amir-Mokri Hon. Ben Bernanke Board of Governors of the Federal Reserve System Hon. Martin Gruenberg Federal Deposit Insurance Corporation 9 See 12 C.F.R (2006), a rule promulgated under Pub. L. No Stat. 4 (2006), which granted a one-time initial assessment credit (of approximately $4.7 billion) to recognize institutions past contributions to the fund.

5 United States -5- March 5, 2012 Hon. Gary Gensler Commodity Futures Trading Commission Hon. Richard Cordray Consumer Financial Protection Bureau Hon. Mary Schapiro Securities and Exchange Commission Hon. Debbie Matz National Credit Union Administration Board Mr. Edward DeMarco Federal Housing Finance Agency Mr. Richard Berner Office of Financial Research Mr. John Walsh Office of the Comptroller of the Currency Mr. Paul Saltzman The Clearing House Association, L.L.C Mr. Alex Radetsky The Clearing House Association, L.L.C. Mr. Wayne Abernathy Ms. Beth Knickerbocker Mr. Kenneth E. Bentsen, Jr. Securities Industry and Financial Markets Association Mr. Carter McDowell Securities Industry and Financial Markets Association Mr. Richard M. Whiting The Financial Services Roundtable Mr. Richard Coffman Institute of International Bankers