Insurance companies are regulated by each state but who was responsible to regulate the "holding" company? That is where the abuses and illegal activity came from. Remember, the 170 divisions o AIG were all profitable - probably mosly due to state regulators. And while on the topic, I still don't understand why a "holdng" company does not draw on its assets and cash from its own divisions before crying "we're broke and need your money taxpayers".
No one has yet addresed this issuue that has plagued me since we gave AIG their first dollar of taxpayer funds.
Again, if you see flaws aor deficiancies in the House Subcommittees proposed legislation, contact your Representative. Let them know what you think.
October 27, 2009
Washington, DC – Today, the House Financial Services Committee and the Treasury Department released draft legislation to address the issue of systemic risk and “too big to fail” financial institutions. The draft bill will:
A summary of the draft legislation can be viewed below; the full text can be viewed here.
Summary of the Financial Stability Improvement Act
Specifically, the draft legislation:
Creates the Financial Services Oversight Council to monitor systemic risks.
- Removes the Gramm-Leach-Bliley Act’s restraints on the Fed’s authority over companies subject to consolidated regulation and provides specific authority to the Fed and other federal financial agencies to regulate for financial stability purposes and quickly address potential problems.
- Puts safeguards on current ILC and other non-bank bank institutions and closes the ILC and other non-bank bank exemptions going forward; current non-bank banks, industrial loan companies, and similar companies that engage in commercial activities but are not currently subject to bank holding company regulation will not have to divest, but will have to restructure, creating a bank holding company to hold all financial activities, and will face limits on transactions between the bank holding company and any commercial affiliates. Going forward, no additional commercial companies will be allowed to own banks, ILCs or any other specialty bank charters.
- Preserves the thrift charter for those thrifts dedicated to mortgage lending, but subjects thrift holding companies to supervision by the Fed to eliminate opportunities for regulatory arbitrage.
Subjects firms or activities that pose significant risks to the system to heightened, comprehensive scrutiny by Federal regulators.
- Regulators’ inability to see developments outside their narrow “silos” allowed the current crisis to grow unchecked. The bill’s information gathering and sharing requirements for the Council and all of the financial regulators (including SEC and CFTC) will ensure constant communication and the ability to look across markets for potential risks
- Federal regulators will impose heightened standards through a variety of options tailored to the specific threat posed – there is no “one size fits all” approach.
- The Fed will have back-up authority to step in if regulators do not act quickly to address developing problems identified by the Council.
- Large, highly complex financial companies that fail will do so in an orderly and controlled manner, ensuring that shareholders and unsecured creditors bear the losses, not taxpayers, and the stability of the overall financial system is protected.
- The FDIC will be able to unwind a failing firm so that existing contracts can be dealt with, creditors’ claims can be addressed, and parties required to bear losses do so. Unlike traditional bankruptcy, which does not account for complex interrelationships of such large firms and may endanger financial stability, this more flexible process will help prevent contagion and disruption to the entire system and the overall economy.
- Costs to resolve a failing firm will be repaid first from the assets of the failed firm at the expense of shareholders and creditors, and to the extent of any shortfall, from assessments on all large financial firms. In this instance we follow the “polluter pays” model where the financial industry has to pay for their mistakes—not taxpayers.
- Resolution Fund is structured to spread the cost over a broad range of financial companies with assets of $10 billion or more, and provides for a flexible repayment period to avoid potential procyclical effect of such assessments.
- Requires approval by the Treasury Secretary for the Fed to provide temporary liquidity assistance using section 13(3) of the Federal Reserve Act, and confines that assistance to generally available facilities.
- Credit Risk Retention
- Directs the federal banking regulators and the Securities and Exchange Commission to jointly write rules to require creditors to retain 10 percent or more, of the credit risk associated with any loans that are transferred or sold including for the purpose of securitization. Regulators can adjust the level of risk retention above or below 10 percent, but not lower than 5 percent. In the case of the securitization of assets that are not originated by creditors, the regulators will require the securitizer to retain the credit risk.
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