The Senate Banking Committee on March 22 approved the Restoring American Financial Stability Act of 2010 by a 13-10 vote along party lines.

  • The bill would create a new systemic risk regulator to be called the Financial Stability Oversight Council. The Oversight Council would have nine voting members, including the heads of the current federal banking agencies. The Oversight Council would identify risks to the financial system and would, among other powers, have the authority to make recommendations to the Federal Reserve regarding prudential standards for “covered institutions.”
  • The bill would create a new Consumer Financial Protection Bureau (CFPB) with broad rule-writing authority under a wide range of consumer protection laws applicable to all banks, and broad powers to supervise and enforce consumer protection laws. The CFPB would be housed within the Federal Reserve, but its Director would be appointed by the President and it would have separate funding.
  • The bill would prohibit new thrift charters, but grandfather existing ones. After one year, the OTS would be abolished, and the current functions of the OTS would be divided up among the other agencies.
  • The bill would eliminate the Federal Reserve’s authority to regulate state member banks.
  • An Orderly Liquidation Fund with a target size of $50 billion would be established in the Treasury to cover the costs of resolving failed “covered financial companies,” defined to mean financial companies other than insured depository institutions that are systemically significant and with respect to which there is no viable private sector alternative available to resolve the company.
  • The national bank lending limit would be applicable to all insured institutions, including state chartered banks.
  • The Federal Reserve would have supervision of bank holding companies and savings and loan holding companies with $50 billion or more in assets, as well as all rulemaking authority over both bank holding companies and savings and loan holding companies of any size.
  • The OCC would have supervision and regulation of national banks and federal savings associations of any size, supervision of bank holding companies with less than $50 billion in assets (but only if the majority of assets held by depository institution subsidiaries are held by national banks and federal savings associations), supervision of savings and loan holding companies with less than $50 billion in assets (but only if the majority of assets held by depository institution subsidiaries are held by national banks and federal savings associations), and joint rulemaking authority with the FDIC for state and federal savings associations.
  • The FDIC would have supervision of bank holding companies with less than $50 billion in assets (but only if the majority of assets held by depository institution subsidiaries are held by state chartered institutions), rulemaking and supervisory authority with respect to state member banks, supervisory authority over savings and loan holding companies with less than $50 billion in total assets (but only if the majority of assets held by depository institution subsidiaries are held by state chartered institutions), supervisory authority over state savings associations, and joint rulemaking authority with the OCC for state and federal savings associations.
  • Depository institutions and their holding companies would not be able to engage in proprietary trading of securities, including bonds, equities, derivatives, options, commodities or other financial instruments. The prohibition on proprietary trading would not apply to investments in U.S. Government securities, GNMA, FNMA and FHLMC instruments, and state and municipal bonds.

Nutter Notes: The U.S. Senate has not yet acted on the bill. Any bill approved by the full Senate will need to be reconciled with different legislation that has already been approved by the U.S. House of Representatives.