Yesterday, the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises approved the Financial Stability Improvement Act (H.R. 3996). This bill is intended to address systemic risk in the US financial system, in particular, fixing regulatory gaps and mitigating the risk amplification caused by interrelated financial institutions once thought to be "too big to fail."
According to the Committee, the draft bill will:
- Create a mechanism for monitoring and reducing the threats that systemically risky firms pose to the financial system.
- Establish a process for winding down large, financially-troubled non-bank financial institutions in a way that protects American taxpayers and minimizes the [effect] on the financial system.
- Overhaul and update our financial regulatory system.
More specifically, the bill will:
- Create the Financial Services Oversight Council to monitor systematic risks.
- Harmonize and consolidate holding company regulation so there is “no place to hide,” and ensure communication and coordination among regulators and maintains clear lines of authority.
- Subject firms or activities that pose significant risks to the system to heightened, comprehensive scrutiny by Federal regulators.
- Provide for the orderly wind-down of failing firms and end “too big to fail” to ensure that industry and shareholders absorb the risks and costs of failure, not taxpayers.
- Provide new accountability for the Fed when it addresses short-term credit market disruptions in emergency situations.
- Direct the federal banking regulators and the Securities and Exchange Commission to jointly write rules to require creditors to retain 10 percent or more, of the credit risk associated with any loans that are transferred or sold including for the purpose of securitization.
The full text of the Financial Stability Improvement Act is available at: http://www.house.gov/apps/list/press/financialsvcs_dem/title_i_discussion_draft_final.pdf
The Committee's summary of the bill is available at: http://www.house.gov/apps/list/press/financialsvcs_dem/presstitleone_102709.shtml
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