The House Financial Services Committee has passed the Financial Stability Improvement Act, H.R.3996, by a 31-27 vote.
The legislation targets systemic risk, providing a dissolution process for ‘too big to fail’ institutions, as well as creating an interagency oversight council that would identify and monitor the activities of systemically important firms. The bill also consolidates the Office of Thrift Supervision with the Office of the Comptroller of the Currency, while preserving the thrift charter for thrifts dedicated to mortgage lending.
Firms categorized as too big to fail would be subjected stricter oversight and regulation than other firms. Additionally, H.R.3996 would establish a process for dismantling any large failing financial institution in a way that protects taxpayers and minimizes the impact on the financial system, a committee statement explains.
The cost of a company's wind down would 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 financial companies with assets of more than $50 billion and hedge funds with assets of more than $10 billion.
As part of H.R.3996, lenders would also be required to retain a portion of the risk they generate. New rules from the banking regulators and the Securities and Exchange Commission would require creditors to retain at least 5% of the credit risk associated with any loans that are transferred, sold or securitized.
The bill additionally opens the Federal Reserve up to enhanced audits from the Government Accountability Office.