The proposed bill, drafted by the Treasury and Rep. Barney Frank, head of the House Financial Services Committee, would impose fees on firms, banks and hedge funds with more than $10 billion in assets. Those fees would then be pooled in a fund and used to pay for any government-initiated bailouts of firms that fail.
In addition, the bill would establish a new regulatory council, composed of the heads of many existing Washington federal regulating agencies and chaired by the Treasury secretary, to identify and set rules for large firms whose failure could pose a threat to the economy.
The Federal Reserve would also have the authority to order a firm to sell a failing division or stop trading deemed too risky. The Fed will also impose higher capital standards and review and shape firms’ liquidation plans should rescue efforts not succeed.
The Federal Deposit Insurance Corporation would also be empowered with new authority to seize large failing financial institutions like insurance companies or hedge funds.
Referencing the special bailout fund that will be created, a statement by the committee Tuesday said that the legislation will follow a “polluter-pays model where the financial industry has to pay for its mistakes — not taxpayers.”
In a letter to Frank on Tuesday, President Barack Obama congratulated the committee on a “strong package” of financial regulations and urged Frank to move forward.
“Taxpayers simply must not be put in the position of paying for losses incurred by private institutions,” Mr. Obama wrote. “When major financial firms fail, government must have the ability to dissolve them in an orderly way, with losses absorbed by equity holders and creditors.”