WASHINGTON, Oct 27 (Reuters) - The U.S. House of Representatives Financial Services Committee and Treasury Department released draft legislation on Tuesday that would address systemic risk and financial institutions.
The Financial Stability Improvement Act would create ways to monitor systemically risky firms, establish a process to wind down large institutions, and overhaul the financial regulatory system.
Specifically, it would:
- Create a financial services oversight council to identify companies and activities that pose threats to financial stability. The council would put those threats, along with certain payment, clearing and settlement activities, under heightened oversight and regulation.
- Remove restraints on the Federal Reserve's authority and give the central bank greater ability to regulate financial dealings. Thrift holding companies would be supervised by the Fed, as well. If regulators do not quickly address problems that the oversight council identifies, the Fed would step in.
- Allow the Fed to provide temporary liquidity assistance during short-term credit market emergencies only with approval from the Treasury secretary.
- Require constant communication among different regulators such as the Securities and Exchange Commission and the oversight council.
- Have shareholders and unsecured creditors bear the losses when large, highly complex financial companies fail.
- Give the Federal Deposit Insurance Commission power to unwind failed firms so existing contracts and creditors' claims would be addressed in a process that would not disrupt the U.S. economy.
- Cover the costs of resolving a failed firm with assets from the firm.
- Create a resolution fund with the costs spread over a broad range of financial companies with assets of $10 billion or more.
- Have creditors retain 10 percent or more of the credit risks associated with any loans that are transferred or sold. This would include loans that are securitized. For securitization that does not originate with the creditor, then the group that securitized the loan would have to retain the amount.
(Reporting by Lisa Lambert from a document provided by the Financial Services Committee; Editing by Leslie Adler) Keywords: FINANCIAL REGULATION/DRAFT (lisa.lambert@thomsonreuters.com; +1-202-898-8328; Reuters Messaging: lisa.lambert.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
The Financial Stability Improvement Act would create ways to monitor systemically risky firms, establish a process to wind down large institutions, and overhaul the financial regulatory system.
Specifically, it would:
- Create a financial services oversight council to identify companies and activities that pose threats to financial stability. The council would put those threats, along with certain payment, clearing and settlement activities, under heightened oversight and regulation.
- Remove restraints on the Federal Reserve's authority and give the central bank greater ability to regulate financial dealings. Thrift holding companies would be supervised by the Fed, as well. If regulators do not quickly address problems that the oversight council identifies, the Fed would step in.
- Allow the Fed to provide temporary liquidity assistance during short-term credit market emergencies only with approval from the Treasury secretary.
- Require constant communication among different regulators such as the Securities and Exchange Commission and the oversight council.
- Have shareholders and unsecured creditors bear the losses when large, highly complex financial companies fail.
- Give the Federal Deposit Insurance Commission power to unwind failed firms so existing contracts and creditors' claims would be addressed in a process that would not disrupt the U.S. economy.
- Cover the costs of resolving a failed firm with assets from the firm.
- Create a resolution fund with the costs spread over a broad range of financial companies with assets of $10 billion or more.
- Have creditors retain 10 percent or more of the credit risks associated with any loans that are transferred or sold. This would include loans that are securitized. For securitization that does not originate with the creditor, then the group that securitized the loan would have to retain the amount.
(Reporting by Lisa Lambert from a document provided by the Financial Services Committee; Editing by Leslie Adler) Keywords: FINANCIAL REGULATION/DRAFT (lisa.lambert@thomsonreuters.com; +1-202-898-8328; Reuters Messaging: lisa.lambert.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.