Financial Stability Reform Bill Clears House Panel

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

The House Financial Services Committee voted 31 to 27 December 2 in favor of a broad legislative package that targets systemic risk by allowing a new council of regulators to break up large, failing financial firms that are considered a risk to the economy. The bill also seeks to put an end to taxpayer bailouts of troubled institutions.

House Financial Services Committee Chairman Rep. Barney Frank, D-Mass., said he expects H.R. 3996, the Financial Stability Improvement Act, to move to the House floor next week for three days of debate, followed by a vote.

The broad package of reform calls for banks to pay into a $150 billion fund that would be tapped in the case of a bank failure. It also creates a Consumer Financial Protection Agency, allows the Government Accountability Office (GAO) to audit Federal Reserve Board activities, increases oversight of derivatives, and creates new investor protection regulations.

A new Financial Stability Oversight Council would monitor and address systemic risk in the economy, and oversee tougher regulations on large, interconnected financial firms. The Fed would act as the agent of the council in regulating systemically risky firms.  Meanwhile, the bill would also consolidate the Office of Thrift Supervision with the Office of the Comptroller of the Currency.

Other elements of the legislation would put additional safeguards on industrial loan corporations (ILC) and other non-bank depository institutions. It also closes the ILC loophole so that no additional commercial companies would be able to own banks or ILCs.

Meanwhile the House panel also approved the Federal Insurance Office Act, H.R. 2609, which establishes a Federal Insurance Office within the Treasury Department to monitor all aspects of the industry.