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Frank Announces House Offer on Financial Stability; Orderly Liquidation Authority; Payment, Clearing, and Settlement Supervision

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Washington, DC, June 16, 2010 | comments

Chairman Frank, on behalf of the House conferees, released the House offer on the titles listed below.  The issues will be subject to debate when the House-Senate Conference Committee convenes tomorrow.

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Chairman Frank, on behalf of the House conferees, released the House offer on the titles listed below.  The issues will be subject to debate when the House-Senate Conference Committee convenes tomorrow.

The issues for tomorrow’s offer:

  • Title 2: Orderly liquidation authority
  • Title 8:  Payment, clearing, and settlement supervision
  • Title 1: Financial stability

Title 2: Orderly Liquidation Authority

The House proposes to accept Title II of the Base Text with the following amendments:

  • Strike Senate provision containing the definition of “financial company” and related text and replace with House provision (replace Senate bill § 201(a)(11), Page 130, line 19 – Page 132, line 8, with House bill § 1602(9), Page 328, line 7 – Page 330, line 3, and strike Senate bill §§ 201(a)(14)-(15), Page 132, line 21 – Page 133, line 3, and 201(b), Page 133, lines 6-20)). 

  • Amend Senate provision regarding invoking the Orderly Liquidation Authority to provide for involvement of the relevant state insurance commissioner in connection with a decision to liquidate an insurance company, and to clarify that assets of the insurance company are used for the protection of policy holders (Senate bill § 203(a), Page 150 after line 10 and § 203(e), Page 159, line 15 – Page 160, line 2). 

  • Strike Senate provisions regarding an ex post funding mechanism for orderly liquidations (except for the provision requiring an orderly liquidation plan to be in place prior to use of the fund, which plan must seek to mitigate potential adverse impacts on low-income, minority, or underserved communities, which is relocated) and replace with House provisions that provide for an ex ante funding mechanism  (replace Senate bill § 210(n)-(o), Page 307, line 1 -  Page 320, line 21, with House bill § 210(n)-(s), Page 460, line 3 – Page 488, line 2, and relocate Senate bill § 210(n)(9), Page 312, line 17 – Page 313, line 11).

  • Add House provision that requires the FDIC to establish a separate subcorporation to handle orderly liquidations under title II (House bill, § 1613, Page 498, line 14 – Page 501, line 6.)

  • Add provision that requires the FDIC to study the impact of secured creditor haircuts (new text offered in lieu of House bill § 1609(a)(4)(D)(iv).)

Title 8: Payment, Clearing, and Settlement Supervision

The House proposes the following amendment to the Base Text:

  • Strike title VIII in its entirety.  (Senate §§ 801-812.)

Title 1: Financial Stability
 

The House proposes the following amendments to the Base Text: 

Strike Senate Title I, except for § 171, which is revised to provide for greater flexibility in application, and replace with House provisions that contain corresponding subject matter. (Replace Senate bill §§ 101-170, Page 23, line 20 – Page 128, line 2) with House bill §§ 1000, 1001-1008, 1100-1108, 1112-1113, 1115-1119, and a portion of §1301; revise section 171(Page 124, line 3 – Page 128, line 2)).

The provisions of the House bill being substituted:

  • Include the NCUA, Federal Insurance Office and representatives of state financial regulators on the Financial Services Oversight Council.
     
  • Ensure that standards for subjecting a company to stricter regulation
    • Allow companies to be brought within stricter regulation based on the nature of their activities as well as the impact of their material financial distress; and
    • Ensure that size is not determinative of stricter regulation.
       
  • Prevent arbitrage opportunities by
    • Requiring Council action (based on consideration of risks) to subject any company to stricter regulation;
    • Providing limited Fed authority to reach the foreign parent of a foreign-based firm;
    • Allowing regulators to deny U.S. access to companies with inadequate home-country regimes; and
    • Requiring President and financial regulators to make efforts to insist that no other country undercuts our standards.
       
  • Ensure strong, but appropriately focused, regulation of companies with mixed financial/commercial activities by
    • Being clear that stricter standards are required once Council makes its decision;
    • Requiring financial activities of a company that has some commercial activities to be conducted through an intermediate holding company that is separate from the company’s commercial activities, and being clear that Fed regulates only the financial part on a day-to-day basis; and
    • Requiring that stricter standards be adapted to a company’s business model.
       
  • Includes a 15-1 leverage limit for companies subject to stricter standards, with an exemption for Federal Home Loan Banks (this would be in addition to revised § 171 that addresses capital standards more broadly).
     
  • Preserve House language regarding breaking up companies that pose grave threats to financial stability, stress testing, and rapid resolution plans. 
     

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