A Senate measure to protect taxpayers in future government Wall Street interventions is gaining bipartisan support as pro-regulation activists and the Obama administration girded themselves for a fight over financial controls with the banking lobby.
The Senate was scheduled to vote Tuesday on an amendment to the sweeping regulatory overhaul that would assert that taxpayers would bear no losses from any government liquidation of a large financial firm.
Taxpayers could still be called on to front billions of dollars to help cover the costs of taking down a failed firm through loans from the Treasury to the Federal Deposit Insurance Corp. But the legislation would require the Treasury to recover those costs over time from the sale of a firm's assets and by assessing a fee to other large financial institutions.
The amendment, which Sen. Barbara Boxer, D-Calif., proposed, is set to be the lead-off vote in what is expected to be at least two weeks of debate on how to change the pending legislation. It has broad support in the Senate where lawmakers are eager to inoculate themselves against the publicly unpopular $700 billion financial bailout many supported at the height of the financial crisis in 2008.
Senate Banking Committee Chairman Christopher Dodd, D-Conn., welcomed the amendment but said it merely reaffirms requirements already in the bill that taxpayers would be repaid for any liquidation costs. Sen. Bob Corker of Tennessee, a Republican on the banking committee, called it a "cover" for senators worried that critics would label the bill a "taxpayer bailout."
"The Boxer vote is totally, absolutely window dressing," he said. "It has nothing to do with substance at all. Nothing, zero."
President Barack Obama backs the Democratic Senate bill, which attempts to undertake the broadest rewrite of the rules that govern financial institutions since the Great Depression.
A House-passed bill and the pending Senate version would create a mechanism for liquidating large firms, set up a council to detect systemwide financial threats and establish a consumer protection agency to police lending, credit cards and other bank-customer transactions.
"We cannot allow these reforms to be watered down," Obama told the annual meeting of the Business Council on Tuesday. "And for those of you in the financial industry whose companies may be employing lobbyists seeking to weaken this bill, I want to urge you, as I said on Wall Street a couple weeks ago, to join us rather than to fight us."
Anticipating a fight on the floor of the Senate, the White House on Tuesday listed potential bank-backed amendments that it believes would weaken the bill.
Under the headline "The 10 Most Wanted Lobbyist Loopholes," White House Communications Director Dan Pfeiffer cautioned against changes that would take power away from state attorneys general to enforce federal consumer regulations and efforts to create exceptions from those rules for auto dealers that make loans and department stores with financial services centers.
The White House also was wary of any changes that would create regulatory exceptions for firms that trade in derivatives and for nonbanks that would come under Fed supervision.
Banking Committee Chairman Dodd and the committee's top Republican, Richard Shelby of Alabama, on Tuesday were negotiating an amendment that would address Republicans complaints about how large failing firms would be liquidated under the bill. One likely outcome would be to eliminate a key provision in the bill — a $50 billion fund financed by large banks that would have been used to pay some of the liquidation costs.
Republicans argued that the mere existence of such a fund would create incentives for large firms and their creditors to behave recklessly.
By removing the fund, however, the FDIC would have to borrow more money from the Treasury to liquidate a large failing firm. That would force taxpayers to front that money until Treasury is paid back through the sale of company assets or by an assessment on large financial institutions.
"On the pre-fund you're not using taxpayer dollars, you're using companies' dollars," conceded Corker, one of the few Republicans who had called for a pre-financed pool of money paid through an assessment on large institutions.
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