Democrats Tweak Bank Bill to Preclude Bailouts

Democrats Tweak Bank Bill to Preclude Bailouts
By DAVID M. HERSZENHORN
Copyright by The New York Times
Published: April 29, 2010
http://www.nytimes.com/2010/04/30/business/30regulate.html?th&emc=th


WASHINGTON — The Senate opened debate on Thursday on a far-reaching financial regulation bill, and Democrats moved quickly to demonstrate that the legislation would not provide any future taxpayer bailouts of failing financial companies — answering a Republican criticism that the Democrats had dismissed as false.

The first amendment proposed to the bill, by Senator Barbara Boxer, Democrat of California, was intended to tighten language in the bill regarding how the government would handle any future collapses of financial companies.

The bill, sponsored by Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking Committee, calls for the government to shut down failed banks, and it would create a $50 billion fund, paid for by major financial institutions, to help pay for unwinding failed companies.

Some Republicans, including the party’s Senate leader, Mitch McConnell of Kentucky, had criticized the Democrats’ legislation, saying that it would encourage, rather than prevent, taxpayer-financed bailouts of big banks.

The Democrats forcefully rejected that charge, saying that the bill was written specifically to prevent government bailouts and that the $50 billion fund would ensure that the financial industry, not taxpayers, would pay to liquidate failed companies.

In the negotiations that led Republicans to allow floor debate to get under way, Democrats indicated a willingness to remove the $50 billion fund from the legislation. The Obama administration had also opposed the fund, out of concern that it might actually hamper the government’s ability to deal with costly bank failures.

In a floor speech, Mrs. Boxer again rejected the Republican criticism, although her amendment suggested that there might have been some reason to question the possibility of future bailouts.

“When I heard my colleagues on the other side say Senator Dodd’s bill would ensure taxpayer bailouts, I knew it was false,” she said. “It is like saying this glass of water is a cup of coffee. No, this glass of water is a glass of water. It is not coffee.”

Still, Mrs. Boxer said, Why not clear things up? “I said to Chairman Dodd, I have an idea that we should put together a very simple bill, an amendment to the bill that basically says what we know is true, that all financial companies put into receivership under this title shall be liquidated. No company is going to be kept afloat. All funds expended will be repaid to the taxpayers by the financial sector through assessments or the sale of the assets of the company.”

In a provision titled, “Liquidation required,” Mrs. Boxer’s amendment states: “All financial companies put into receivership under this title shall be liquidated. No taxpayer funds shall be used to prevent the liquidation of any financial company under this title. All funds expended in the liquidation of a financial company under this title shall be recovered from the disposition of assets of such financial company, or shall be the responsibility of the financial sector, through assessments.”

Her amendment also stresses that taxpayers will not pay for shutting down failed companies. “Taxpayers shall bear no losses from the exercise of any authority under this title,” it states. “All funds expended in the liquidation of a financial company under this title shall be the responsibility of the financial sector, through assessments.”

No votes were expected on amendments to the legislation until sometime next week. With the Kentucky Derby taking place in Louisville this weekend, Mr. McConnell, in particular, has reason to want to head home from Washington.

Debate on the legislation moved forward after Republicans said on Wednesday that they would no longer block the Democrats from bringing the bill to the floor.

The floor fight is expected to last at least two weeks. Republicans control enough votes to filibuster the measure and, if they remain united, could block it from being adopted.

As the debate began, Senator Richard C. Shelby of Alabama, the senior Republican on the Banking Committee, said that he would work aggressively to force changes to the legislation.

“My goal during consideration of this legislation here will be to reshape this bill,” he said, “so that it actually ends bailouts, protects consumers without jeopardizing our small community banks and brings transparency, as Senator Dodd mentioned, to the world of derivatives, without sacrificing economic growth and job creation, which we desperately need in this country.”

Mr. Shelby also said he would work to prevent overregulation that could allow the government to interfere with the functioning of the economy. He said he would work “to remove dozens of provisions that unnecessarily expand the reach of the federal government into the private affairs of Americans and potentially endanger our civil liberties.”

And Mr. Shelby said he expected Democrats to agree to remove the $50 billion “bailout fund some people call a honey pot.”

Mr. Dodd, in his opening speech, said the parties would work together to adopt an important law. “The status quo is unacceptable,” he said. “We cannot leave the American people vulnerable to the present construct of our financial regulatory system. The American people have paid too high a price for the failure of our system to stop Wall Street greed.”