WASHINGTON (CN) – The House Financial Services Committee and the Treasury Department released a financial reform bill Tuesday that could hold other large financial institutions responsible when one fails and outlines other ways to handle “too big to fail” institutions.
The action is part of a broader government effort in pushing financial reform.
The bill would set up a fund that financial companies with more than $10 billion in assets would have to pay into.
When a large institution fails, creditors and shareholders would be the first to bear the costs, and if this isn’t enough, the fund would kick in.
To oversee the risky firms, the bill would create an inter-agency council to monitor the institutions and outlines how to slowly close larger firms down if they are considered to be a danger to the rest of the financial system.
Federal Reserve officials would have the authority to intervene if regulators do not respond quickly enough to address problems recognized by the council.
Also, when a large failing financial institution is wound down, the bill would make shareholders and creditors responsible for the losses, and taxpayers will hopefully be saved from expensive bailouts.
The method of winding down a failing “too big to fail” company would be unique from filing for bankruptcy. In this case, regulators would take into consideration the institution’s connection to other financial firms
The committee approved taking up the bill by a 67 to 1 vote.
The Obama administration has proposed a Consumer Financial Protection Agency that would require more capital cushion behind investments and would extend regulation beyond the banking sector to cover all firms that play a critical role in the market.
Obama has said that the broader goal of such reforms is to make the market more resilient against periodic crises and price bubbles in order to prevent a repeat of the conditions that created the current economic crisis.