U.S. House Financial Services Committee introduces bill to address systemic financial risk

Posted on October 30, 2009

Secretary Geithner
Secretary Geithner
Photo Courtesy of
www.treasury.gov
On October 27, the U.S. House Committee on Financial Services announced the introduction, in conjunction with the Treasury Department, of draft legislation intended "to address the issue of systemic risk and 'too big to fail' financial institutions." Specifically, the legislation would establish a "Financial Services Oversight Council" to identify financial companies and financial activities that should be subject to "heightened prudential standards in order to promote financial stability and mitigate systemic risk". A variety of options would be available to regulators in response to identified risks and according to the release, the proposed legislation would provide "for the orderly wind-down of failing firms" to ensure that "industry and shareholders absorb the risks and costs of failure, not taxpayers."

Secretary of the Treasury Timothy Geithner, meanwhile, testified yesterday before the House Committee on Financial Services regarding the draft legislation. Secretary Geithner cited the five key elements necessary for reform, being: (i) the orderly resolution of failing financial institutions; (ii)  no open-bank assistance to failing financial institutions; (iii) protecting taxpayers from losses; (iv) limiting the Federal Reserve's and the FDIC's emergency authorities; and (v) stronger constraints on size and leverage. According to Secretary Geithner, "the test for any effective set of reforms" is whether the above elements are included. According to the Secretary, the draft legislation "meets that test."

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Canadian Securities Law Online - October 30, 2009 2:54 PM
It's been a busy week for the U.S. House Financial Services Committee. Following its approval of a private adviser registration bill and the introduction of draft legislation to address systemic financial risk, the Committee has also approved a bill re...
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