Ellison Introduces Banking Regulation Reform Bill

Press Release

Ellison Introduces Banking Regulation Reform Bill

Congressman Keith Ellison (D-Minneapolis) introduced legislation (H.R. 3968) this week to further strengthen banking regulations, close a financial regulatory loophole, and improve oversight of companies that own banks.

Under existing law, federal banking regulators are required to take "prompt corrective action" (PCA) against banks when they hold insufficient amounts of capital. Although this law applies to all banks, it does not apply to large, complex financial institutions that own them. To address this problem, Ellison's bill would apply these same standards to bank-holding companies, which are institutions that own one or more banks (and may also own a broker-dealer, an insurance company and other nonbank affiliates).

"Bank-holding companies should be subject to the same capital requirements that are applied to banks. Inadequate regulation of nonbank entities was a major factor in causing our current financial crisis. This is one way to get at that problem," Ellison said.

Under the current system of regulation, federal banking regulators classify banks into five different categories (well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized) based upon the adequacy of the capital that they hold relative to the size of their assets. Those banks that fail to meet the requirements of being adequately capitalized are required to submit a capital restoration plan and are subject to other requirements and restrictions. More drastic measures (namely, the placement of the bank into receivership or conservatorship) become effective if the entity is critically undercapitalized. Under this legislation, the Federal Reserve would be given regulatory powers for bank-holding companies that are comparable to the ones that banking regulators have with respect to banks.

"My legislation will provide regulators with a robust set of powers to address the problem of capital deficiencies in the holding companies of banks, allowing us to close down yet another financial regulatory loophole," concluded Ellison.

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