The Federal Reserve is opening 2012 with new moves for better governance of large businesses critical to the broader financial system—banks and non-banks alike.

The Fed proposed new rules Dec. 20 addressing stress tests, capital requirements, board oversight, and numerous other issues spelled out in the Dodd-Frank Act. They would apply to all U.S. bank holding companies with more than $50 billion in assets, plus any other non-bank financial firms (hedge funds, for example) designated as systemically important by the Financial Stability Oversight Council run out of the Treasury Department.

Spanning 173 pages, the proposed rules aim to impose more rigorous risk management on large financial firms, to avoid the chaos and paralysis experienced in the fall of 2008 after Lehman Brothers suddenly filed for bankruptcy. For example, the Fed proposes that all publicly traded banks with more than $10 billion in total assets include a risk committee on their board of directors. That committee would need to be chaired by an independent director, and include at least one member with “risk management expertise commensurate with the company's capital structure, risk profile, complexity, activities, size, and other appropriate risk-related factors.” The committee would also need a formal, written charter.

As proposed right now, the Fed does not spell out exactly what it means by risk-management expertise; compliance executives who were on the job in 2002 might recall similar vague language with the Sarbanes-Oxley Act called for someone with “financial expertise” to serve on the audit committee. The Fed's proposal does, however, seek public comment on whether its definition of risk-management expertise should be more specific.

Likewise, the proposal also calls for covered financial firms to name a chief risk officer—a job that already exists at most large banks, but not all. Again, the rules don't specify what sort of experience this CRO should have, but they do ask for public comment on that point.

Comments on the proposed rules are due by March 31.

The Fed's proposals, implementing Sections 165 and 166 of Dodd-Frank, are merely its latest efforts to wrestle the risks of large financial institutions under control. A related portion of the law requires all covered firms to draft a “living will” for how the business should be dissolved quickly should it lurch into insolvency. Those rules, which went into effect Nov. 30, require covered financial firms to submit those plans to the Federal Deposit Insurance Corp. and then follow up with periodic reports to the FDIC about the firms' credit risks.