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Fast Facts: TOO BIG TO FAIL REFORMS


Week 2 of 3: Health of the Financial Services Industry
The risk and impact of a financial services institution failing has been significantly reduced through industry improvements and more stringent systemic oversight. FACT: Financial services companies considered systemically important have strengthened their balance sheets, improved their capital and liquidity positions, enhanced their internal governance and risk management capabilities, and upgraded their underwriting policies and practices. Many of these improvements occurred immediately after the crisis and before Dodd-Frank. See Fast Facts: FORTRESS BALANCE SHEETS from last week. FACT: Supervision of large financial services companies has increased dramatically. For example: Capital Plans: Large banks must submit detailed capital plans and stress tests to the Federal Reserve on an annual basis before they can pay out dividends to shareholders or make any other capital distributions. All 19 banks participating in the Federal Reserves 2012 capital stress tests had sufficient capital to continue operations even under a hypothetical economic catastrophe. Stress Tests: The Dodd-Frank Act mandates that large banks conduct two rigorous stress tests each year and publicly disclose information about the results. In addition, the Fed conducts its own independent stress test annually. Resolution Plans: Large financial services companies must submit resolution plans to the Federal Deposit Insurance Corporation and Federal Reserve each year. The resolution plans provide extensive information about the companys interconnectedness, exposures, structure, and how to unwind the company should it fail. FACT: Systemic oversight is in place for the first time in history. The Financial Stability Oversight Council (FSOC) was created to monitor risk across the entire financial services system, and identify and head-off emerging trends that could be a threat to financial stability. The members of FSOC are heads of the major financial regulatory agencies.a FACT: If an insured bank faces a significant problem, the Federal Reserve has proposed rules for an active intervention (early remediation) with the goal of restoring that firm to health and mitigating the risk of potential failure. FACT: In the unlikely event that a large financial company actually fails, the Federal Deposit Insurance Corporation has liquidation authority to swiftly isolate and resolve the firm. This reduces the risk of contagion effects on other companies or the economy.
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FSOC is still in its early stages. To be truly effective at reducing systemic risk, FSOC must coordinate with existing regulators and exercise greater transparency with the public.

Taxpayers and TBTF


According to Section 214 of the Dodd-Frank Act, the cost of the liquidation of a financial institution will be paid from assets of the failed financial institution and an assessment on the remaining large financial services companies not by taxpayers

Financial Services HOTLINE: If you have questions about this topic or any other issue facing financial services, please reach out to Abby McCloskey, Director of Research at the Financial Services Roundtable, at 202-589-2531 or Scott Talbott, Senior Vice President of Government Affairs, at 202-2894322. Learn more about the Financial Services Industry at www.OurFinancialFuture.com. OurFinancialFuture.com is continuously updated to bring you the most useful information about the industry in real-time.

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