House Financial Services Committee passes "Too Big to Fail" legislation

House Financial Services Committee passes "Too Big to Fail" legislation

December 3, 2009

The House Financial Services Committee has approved legislation that will put an end to “too big to fail” financial firms, help prevent the failure of large institutions from becoming a systemwide crisis, and ensure that taxpayers are never again left on the hook for Wall Street’s reckless actions. The Financial Stability Improvement Act (HR 3996), which passed by a vote of 31-27, marks the ninth major bill approved by the committee this year to modernize America’s financial rules. Once signed into law, this comprehensive set of reforms will work in tandem to address the myriad causes – from predatory lending to unregulated derivatives--that led to last year’s crisis.
HR 3996 specifically targets the issue of systemic risk within the financial system and the potential harm that regulatory gaps and large, interconnected companies like AIG can pose to the economy. The legislation will:
 
► Identify and subject systemically risky firms to increased scrutiny and regulation: HR 3996 will create an interagency oversight council that will identify and monitor financial firms and activities that could potentially undermine the nation’s financial stability. Once identified, these firms and activities will be subject to stricter oversight, standards, and regulation.
► Ensure that the collapse of a large, interconnected financial institution does not lead to another taxpayer bailout or jeopardize the economy: Currently, there is no system in place to responsibly shut down a failing financial company like AIG or Lehman Brothers. This bill establishes an orderly process for the dismantling any large failing financial institution in a way that protects taxpayers and minimizes the impact to the financial system.
► Hold Wall Street accountable for its actions: If a large institution fails, the bill holds the financial industry and shareholders responsible for the cost of the company’s orderly wind down, not taxpayers. Under HR 3996, any costs for dismantling a failed financial company will be repaid first from the assets of the failed firm at the expense of shareholders and creditors. Any shortfall would then be covered by a “dissolution fund” pre-funded by large financial companies with assets of more than $50 billion and hedge funds with assets of more than $10 billion.
For further details and a summary of HR 3996, click here.
For more information, visit financialservices.house.gov.

Compliance, Secondary, Trends

Subscribe to the nmp Daily

Subscribe to the nmp Daily