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Crackdown Targets Banks Deemed ‘Too Big to Fail’

The head of a key House committee unveiled legislation Wednesday that would grant the federal government sweeping new powers to police giant financial firms. Jim Lehrer talks to two financial analysts about the debate over "too big to fail" institutions.

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  • JIM LEHRER:

    Next tonight: dealing with the financial industry's too-big-to-fail problem.

    "NewsHour" congressional correspondent Kwame Holman begins our coverage.

  • KWAME HOLMAN:

    Since the financial crisis hit last September, the government has injected hundreds of billions of taxpayers' dollars into firms such as Bank of America, Citigroup, and AIG, all deemed too big to fail.

    In the wake of the collapse of Lehman Brothers and the credit crisis that followed it, government officials repeatedly have said they had no other option.

    Federal Reserve Chairman Ben Bernanke explained his thinking during a "NewsHour" forum this summer.

    BEN BERNANKE, chairman, Federal Reserve: The problem we have is that, in a financial crisis, if you let the big firms collapse in a disorderly way, they will bring down the whole system. We really need — and this is critically important — we really need a new regulatory framework that will make sure that we do not have this problem in the future.

  • KWAME HOLMAN:

    Yesterday, House Financial Services Chairman Barney Frank brought forth new legislation designed to provide that framework.

    The bill, which was drafted in conjunction with the Treasury Department, would give the Federal Reserve authority to take over firms that are at risk of failing and present a danger to the broader economy. It would allow the government to dismantle a company without sending it through a standard bankruptcy.

    To pay for that process, banks and other firms with more than $10 billion in assets would contribute to a special fund. Shareholders and creditors of institutions would take losses, and top management could be removed.

    The bill also would strengthen oversight, creating a new regulatory council overseen by the treasury secretary to address risk and toughen regulations on large companies.

    Late yesterday, President Obama expressed strong support for the proposal in a letter to Chairman Frank, saying, small changes were not enough to fix the system.

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