Kanjorski Amendment Lays Out Objective Standards to Determine Risk of Financial Companies to Economic System

WASHINGTON - Congressman Paul E. Kanjorski (D-PA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, today released his amendment to the Financial Stability Improvement Act that 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.

"No firm should be considered to be ‘too big to fail.'  Financial firms that want to play in a casino need to have their own resources to cover their bets and not assume that tax dollars are available in reserve if their bets fail," said Chairman Kanjorski.  "If my amendment is accepted, financial firms would need to demonstrate to regulators that their failure would not undermine the financial stability of the American economy.  To maintain a vibrant economy, financial companies need to take risks, but we cannot afford the risk of losing our entire economy.  Having made the difficult decision last year to rescue our economic system with the use of federal tax dollars, I hope that no Congress will need to face a similar situation in the future."

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.

Chairman Kanjorski noted that he intends to continue to coordinate with the European Union to ensure that American-based firms are not put at an economic disadvantage under his amendment.  "After meeting with many European Union officials and Members of the European Parliament earlier this year, I realized that we share many of the same concerns on both sides of the Atlantic.  If we work in cooperation with one another now, we can establish reasonable standards to protect the global economy from catastrophe."

A summary of the Kanjorski amendment follows:

• Objective Standards. Size is by no means the only factor to determine if a financial company is "too big to fail." The recent financial crisis has shown that many other factors can also cause a company to become a systemic risk. Rather, the amendment considers a variety of objective standards to determine if financial firms pose a threat to our financial stability, including the scope, scale, exposure, leverage, interconnectedness of financial activities, as well as size of the financial company. The Kanjorski amendment does not cap the size of financial institutions.

• Mitigatory Actions. If a financial company is deemed systemically risky, the Kanjorski amendment provides responsible preventative actions to protect our financial system and curtail those risks. These include modifying existing prudential standards, imposing conditions on or terminating activities, limiting mergers and acquisitions, and in the most extreme cases, breaking up the company.

• Protects American Competitiveness. We have learned from this financial crisis that we are all connected. The Kanjorski amendment addresses the concern that our regulatory system works in conjunction with those around the globe. Currently, the European Union is considering similar action, and harmonized regulations would benefit both economies.

Click here to view the text of the Kanjorski amendment.

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