7/31/2019 Fast Facts: Too Big To Fail Reforms

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To: Fast Facts List

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 reducedthrough industry improvements and more stringent systemic oversight.

FACT: Financial services companies considered systemically important have strengthened their balancesheets, 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. SeeFast 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 othercapital distributions. All 19 banks participating in the Federal Reserves 2012 capital stress testshad 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 testseach year and publicly disclose information about the results. In addition, the Fed conducts itsown independent stress test annually.

Resolution Plans: Large financial services companies must submit resolution pl ans to theFederal Deposit Insurance Corporation and Federal Reserve each year. The resolution plansprovide extensive information about the companys interconnectedness, exposures, structure, andhow to unwind the company should it fail.

FACT: Systemic oversight is in place for the first time in history. The Financial Stability OversightCouncil (FSOC) was created to monitor risk across the entire financial services system, and identify andhead-off emerging trends that could be a threat to financial stability. The members of FSOC are headsof 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 therisk of potential failure.

FACT: In the unlikely event that a large financial company actually fails, the Federal DepositInsurance Corporation has liquidation authority to swiftly isolate and resolve the firm. This reduces therisk of contagion effects on other companies or the economy.

a FSOC is still in its early stages. To be truly effective at reducing systemic risk, FSOC must coordinate with existingregulators and exercise greater transparency with the public.

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Taxpayers and TBTF

According to Section 214 of theDodd-Frank Act, the cost of the

liquidation of a financial institutionwill be paid from assets of the failed

financial institution and anassessment on the remaining largefinancial services companies not

by taxpayers

.

Financial Services HOTLINE: If you have questions about this topic or any other issue facingfinancial 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 202-289-4322.Learn more about the Financial Services Industry at www.OurFinancialFuture.com . OurFinancialFuture.com is continuously updated to bring you the most useful information about theindustry in real-time.

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