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US House of Representatives to set up law to monitor the insurance industry

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A US House of Representatives committee on Wednesday approved key regulatory legislation intended to curb the harmful economic effects of financial services institutions deemed “too big to fail.” including insurance firms. The vote on Wednesday to approve a bill that for the first time would set up a federal government office to monitor the insurance industry, but not regulate it

The bill, which is meant to keep the collapse of large institutions from provoking system-wide crises, passed in the Financial Services Committee by 31 votes to 27.

The Financial Stability Improvement Act is part of the vast financial regulatory reform being championed by President Barack Obama.

The legislation proposes to identify and subject “risky” firms to more scrutiny and regulation, specifically creating an inter-agency oversight council that would identify and monitor financial firms and activities.

The bill aims to prevent the United States from being once again faced with the prospect of systemic economic chaos if large failing firms are not bailed out.
“Currently there is no system in place to responsibly shut down a failing financial company like AIG or Lehman Brothers,” a press statement said.

“This bill establishes an orderly process for… dismantling any large failing financial institution in a way that protects taxpayers and minimizes the impact to the financial system.”

US insurance giant AIG teetered on the edge of financial disaster in September 2008, requiring a record 170 billion dollars in US government bailout funding to keep it afloat.

And the 158-year-old Lehman filed for bankruptcy protection in September 2008, in the largest US bankruptcy filing in history which sent a financial tsunami across the globe that continues to reverberate today.

According to the new legislation, if a large institution fails, the financial industry and shareholders are responsible for the cost of the company being wound down, not taxpayers.

“Any shortfall would then be covered by a ‘dissolution fund’ pre-funded by large financial companies with assets of more than 50 billion dollars and hedge funds with assets of more than 10 billion dollars,” the statement said.

The legislation has yet to be sent to the Senate, where it is expected to face long and active debate.