Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Friday, November 20, 2009

House Financial Services Committee Passes Amendment to Dismantle Firms "Too Large to Fail"

On Nov. 18 the House Financial Services Committee passed an amendment offered by Congressman Paul E. Kanjorski (D-PA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, to the Financial Stability Improvement Act by a vote of 38-29.  The Kanjorski amendment would empower federal regulators to rein in and dismantle financial firms that are so large, inter-connected, or risky that their collapse would put at risk the entire American economic system, even if those firms currently appear to be well-capitalized and healthy.  Therefore, American taxpayers should no longer be on the hook for bailouts, as financial companies would not be able to become “too big to fail.” The Kanjorski amendment outlines clear and objective standards for regulators to examine financial companies and reduce the level of risk their activities pose to our financial stability and our economy.

The Kanjorski amendment expands on a segment of the Financial Stability Improvement Act, by enabling federal action to address financial companies that are deemed “too big to fail” before resolution authority is needed.  The amendment transfers such mitigatory action from the Federal Reserve to the Financial Services Oversight Council and establishes objective standards for the Council to effectively evaluate companies to determine whether they are systemically risky.  Additionally, the amendment provides clear checks and balances by requiring the Council to consult with the President before taking extraordinary mitigatory actions.  A financial company also has the right to appeal any actions.

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