The Obama Administration has provided Congress with legislative text to implement its proposal to reform the way firms that may pose systemic risk are regulated.  In conjunction with the Financial Services Oversight Council, the FRB would govern any firm – bank or non-bank – found to present risk to the U.S. financial system or economy as a whole, including foreign firms.   Firms that meet certain size and revenue criteria would need to provide reports to the Board, which would then select entities to govern under the systemic-risk rubric.  Any such firm would come under stiff new capital, prudential, concentration and activity restrictions.  These would force massive change in covered firm franchises and likely force them to disaggregate into smaller pieces in which lines of business not amenable to bank-style regulation are spun off.  The Board would have broad authority over all aspects of a covered firm’s operations, including those of functionally-regulated subsidiaries, giving it considerable power over banking, securities, insurance and other entities within a covered firm regardless of other federal regulators, although the FRB would be charged with cooperating with them to the greatest degree possible.  The FDIC would get back-up authority over covered firms, perhaps subjecting them to still more stringent regulation.   

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