Under the Bank Holding Company Act, passed in the 1950s, the Federal Reserve has supervisory authority over a bank holding company, but no effective federal regulation exists for complex financial institutions that do not have a bank subsidiary. This left ineffective or even no federal oversight of investment banking holding companies, insurance holding companies and other financial conglomerates. Also, even in the context of bank holding companies, the coordination and authority of the Federal Reserve, as the holding company regulator, in relation to other regulators overseeing particular subsidiaries needs to be enhanced.
The Administration and Congressional proposals address these issues by creating an overall prudential regulatory scheme for complex financial firms. This would ensure that one regulator, working in coordination with other regulators, could set capital, liquidity, risk management and other prudential standards for major financial firms. This would include setting standards for subsidiaries that otherwise are not subject to prudential regulation, as well as working with the primary regulators of subsidiaries that are currently regulated.