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House committee approves financial industry regulation bill

[JURIST] The US House of Representatives Financial Services Committee [official website] on Wednesday approved [press release] the Financial Stability Improvement Act [HR 3996 materials; summary, PDF] to address various economic dangers posed by large financial institutions. The bill seeks to increase regulation and to allow government regulators to control the collapse of large financial firms to lessen any potential economic strains. This would allow for orderly and controlled dissolutions at the expense of only the shareholders and creditors. If passed, the legislation would require companies with assets of more than $50 billion and hedge funds with assets over $10 billion to pay into a "Systemic Dissolution Fund" that would bear the cost of winding down the affairs of failing companies. The creation of such a dissolution fund would shift the burden of future bailouts from taxpayers to the financial services industry itself.

The collapse of complex financial firms has recently spurred government action to increase regulation and oversight. In September, marking the one-year anniversary of the collapse of Lehman Brothers, President Barack Obama stressed the need [JURIST report] for stronger financial industry regulations. Last month, Senate Banking Committee [official website] chair Chris Dodd (D-CT) introduced financial regulatory legislation [JURIST report] designed to limit systemic risk to the country's economy. In April, the House approved [JURIST report] a bill [HR 1664 materials] that allows the Treasury Department to ban certain types of compensation at companies which receive federal bailout money from the Troubled Asset Relief Program (TARP).

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