GOP pushing for tougher measures to end ‘too big to fail’

Key Senate Republicans said Sunday that while the financial regulation bill is headed in right direction, it is not tough enough on large financial institutions that require government intervention in case they fail, and they indicated that all 41 Republican senators will vote against a procedural motion Monday in order to gain leverage in ongoing negotiations.

Meanwhile the White House was noncommittal on the toughest proposal that would regulate complicated financial instruments called derivatives.

Sen. Richard Shelby, Alabama Republican, said that the bill in its current form does not bar the Federal Deposit Insurance Corporation – which would have authority to take over and wind down large banks or investment firms on the edge of failure – from going to the Federal Reserve for large amounts of money to distribute to creditors.

“We need to tighten that up to make sure that it doesn’t happen. The message should be, unambiguously, that nothing’s too big to fail,” Shelby said on NBC’s “Meet the Press.” “And if you fail, we’re going to put you, put you to sleep.”

Shelby’s point goes to the heart of Republican reservations about the bill written by Senate Banking Committee Chairman Chris Dodd, Connecticut Democrat. Republicans say the bill does not do enough to end the problem of “too big to fail,” while Dodd and the White House say it does.

The GOP, especially House Republicans, worry that if the federal government is given the responsibility to wind down large banks, that process will end up becoming politicized and the FDIC will end up treating creditors differently based on political loyalties.

Many House Republicans want big firms to go through an updated bankruptcy system revised specifically to accommodate their special circumstances, which would put bankruptcy court judges in control of the process rather than the central government.

Senate Republicans like Shelby, the ranking member on the Banking Committee, and Sen. Robert Corker of Tennessee, the second-ranking member, are trying to come to an agreement on a bill that allows the FDIC this authority, but don’t want the federal government to have carte blance on who they give money to in those situations.

According to a Shelby aide, the Dodd bill as of now would allow the FDIC to pay creditors and shareholders of a failed firm more than they would get in a regular bankruptcy process, and possibly even more than 100 cents on the dollar.

“These creditors will become more reckless, not more diligent,” the aide told The Daily Caller. “As a result, the system becomes more dangerous, not more sound.”

Dodd, however, said that he has already compromised to require congressional approval for government payouts to creditors.

“We’re down to the point of insisting that Congress be involved in determining whether not it can go forward,” Dodd said on “Meet the Press.” “We’ve never done that before. So it, it’s very, very tight, in our view.”

Corker has talked before about making “resolution” so painful that no financial institution would want to enter it. And Sunday he gave some detail on how he would like to accomplish that, appearing on ABC’s “This Week.”

“If a large entity like this has to go through this resolution where in essence they’re liquidated in an orderly way, I think that everything that the executive team and the board members have earned through this company over the last five years needs to be clawed back,” Corker said.

Corker’s fairly radical proposal appeared to catch White House economic adviser Austan Goolsbee off guard. Goolsbee noted that a failed firm would have to fire its management, but did not comment either way on whether the administration favors taking back the last five years of compensation from executives of a failed firm.

“We’re open to looking at negotiating the details of how we carry out the president’s principles,” he said.

Goolsbee was also noncommittal about a proposal from Senate Agricultural Committee Chairman Blanche Lincoln, Arkansas Democrat, that would force financial institutions to separate their banking and trading operations.

Goolsbee’s answer prompted Corker to remark, “I think what Austan is saying is he doesn’t support it.” Goolsbee did not contest Corker’s assertion. Late Sunday, ABC reported that Dodd and Lincoln had reached an agreement to include her language in the Dodd bill.

Republicans remain united in opposition to the Dodd bill until they are satisfied that it won’t guarantee future bailouts or unfair advantages for large financial firms, they said.

Senate Majority Leader Harry Reid, Nevada Democrat, has scheduled a vote for Monday afternoon that would move the chamber to debate on the bill and closer to a final vote. But the GOP will likely vote against this motion, which requires 60 votes to pass.

Treasury Secretary Tim Geithner said he understood the GOP united front against the current version of the bill to be a negotiating tactic rather than whole cloth opposition to any reform.

“They’re doing what you would expect. And I think you’d do the same thing in their shoes,” Geithner said on CNN’s “Fareed Zakaria GPS.” “They’re trying to maximize the chance that they have leverage still to pull this bill in certain directions.”

“I think really on balance there are a very substantial number of Republicans who want to be for a strong set of reforms,” Geithner said. “And again, I say this on the basis of what we tell — what they tell me in private.”

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  • elektramourns

    the GOP better show it is on the side of the Joe Average and not Big Money orpay the price.

    Since 2004 the average GOP senator has taken 2.1 million from insurance and real estate industries (known as FIRE)as oposed to 1.6 for Dems.

    • gbenton

      Did you catch the part where Goldman Sachs contributes heavily to both parties, a million going to Obamma alone? May also want to do an investigation of the top recipients of Fannie/Freedie money, like Chris Dodd.

      Wall Street, Insurance, Unions, and much, much more have been stuffing the Dem’s pockets like they know what’s good for em.

      Both parties have been against the little guy too often, I’m hoping that the rise of the Tea Party sentiment will scare Washington into better representation of the people – but this bill certainly isn’t giving me much to hope for because it’s not gonna change anything – besides making bail outs more frequent.

      It is the persistent myth that the Dems are for the ‘little guy’ that is so obscene.

      • des1

        Well, we know Barney Frank got a little something for his support of Freddie Mac. It gives a whole new meaning to “Supporting the little guy.”


        • gbenton

          Des1, you bring up an unfortunate and ugly truth. Bawney does put a face, at least, on the folks who are ‘giving it’ to the little guy. Ewwww is right.

  • Dredd

    C’mon, we all know that only war budgets are too big to fail.

    • des1

      I really hate douchebags who come to other people’s sites to promote their own amateurish crap. Especially when they don’t have anything to say in the first place.

  • emem

    As long as Congress persists in saving Fannie/Freddie to promote their housing agenda, they will allow Wall Street to take on high levels of risk for funding those programs. At our expense and peril of course. Glass Stegal (repealed in 1999) seperated the risk, but reduced the easy money for mortgages. It took less than 10 years for the system to crumble under this social agenda.

    The republican’s led the charge and the house democrats were in total support. Clinton should have never signed the bill.

  • badmotherfarker

    Shockingly, Ben Stein is backing Obama’s reform plan:

  • grayzel

    Key sentences. “According to a Shelby aide, the Dodd bill as of now would allow the FDIC to pay creditors and shareholders of a failed firm more than they would get in a regular bankruptcy process, and possibly even more than 100 cents on the dollar.” “These creditors will become more reckless, not more diligent,” the aide told The Daily Caller. “As a result, the system becomes more dangerous, not more sound.”

    Let us look at it this way. You are a gambler that plays black jack at the local casino. You have a friend with what you think is unlimited resources backing you. You don’t have to use any of your own money. Will you be more cautious or take more chances?