House Financial Services Committee And Treasury Department

On October 27, 2009, the House Financial Services Committee and the Treasury Department released a draft of the Financial Stability Improvement Act to address systemic risk and "too big to fail" financial institutions. Treasury Secretary Timothy Geithner testified to the House Financial Services Committee regarding the proposed legislation on October 29 and Congress is expected to hold additional hearings on the proposed legislation.

Among other things, the draft legislation includes the following provisions:

Financial Services Oversight Council. The bill would establish the Financial Services Oversight Council to identify and monitor financial institutions and activities that pose a threat to financial stability, subjecting such institutions to heightened oversight. The council would also be responsible for the oversight, standards and regulation of payment, clearing and settlement activities. Expanded Federal Reserve Authority. The bill would expand the authority of the Federal Reserve and other federal regulatory agencies to regulate for financial stability purposes. Restructuring Of "Non-Bank" Banks. The bill would subject "non-bank" companies such as industrial loan companies to the oversight of the Federal Reserve by requiring these companies to create bank holding companies and would prevent additional commercial companies from owning banks, industrial loan companies or any other specialty bank charters. Eliminates Gramm-Leach-Bliley Act Exemptions. The bill would eliminate the provisions in the Gramm-Leach-Bliley Act that enabled many financial institutions subject to consolidated regulation to avoid federal oversight. Eliminates "Regulator Shopping." While the bill would not eliminate the thrift charter, it would prevent "regulator shopping" by subjecting thrift holding companies to Federal Reserve supervision. Currently, financial institutions can essentially choose their regulator, by obtaining thrift charters, which are regulated by the Office of Thrift Supervision (the primary regulator of the nation's thrifts). The Obama Administration had initially proposed to eliminate the Office of Thrift Supervision. Resolution Mechanism For Institutions That Pose A...