Fed takes on 'too big to fail'


The central bank added that it was "imprudent risk taking" that forced the government to step in and save financial institutions like AIG.

The rules are aimed at the nation's largest banks, those that have $50 billion or more in assets. In addition, any other financial institution deemed by regulators to play a critical role in the financial system would be subject to the heightened requirements. 

The Financial Stability Oversight Council (FSOC), a new panel that gathers top financial regulators from across the government, is still working on how it plans to define such "systemically important financial institutions," or SIFIs.

Under the Fed's proposal, such institutions would have to meet certain requirements on capital reserves and liquidity, as well as subject themselves to annual stress tests conducted by the Fed, which would have the Fed run the institution's financials through various scenarios of possible economic and financial market developments to test their resilience.

Furthermore, institutions would be limited in the amount of credit exposure they could have to a single entity, in an attempt to limit their risk. Banks and other financial firms subject to the new rules would also have to regularly submit to regulators' plans for how they could be orderly wound down if they were to fail.