Washington In the face of stiff GOP opposition, Obama administration officials want Senate Democrats to purge a $50 billion fund for dismantling “too big to fail” banks from legislation that aims to protect against a new financial crisis. Republicans contend the provision would simply continue government bailouts of Wall Street.
The sweeping bill aims to prevent a recurrence of the crisis that nearly caused a Wall Street meltdown in 2008. Beside creating a mechanism for liquidating large firms, House and Senate bills would govern previously unregulated derivatives, create a council to detect systemwide financial threats and establish a consumer protection agency to police lending, credit cards and other bank-customer transactions.
President Barack Obama declared Friday he would veto the bill if it doesn’t regulate the freewheeling derivatives market. “We can’t afford another AIG,” the president said, referring to the giant insurance conglomerate that relied heavily on the complex, sometimes exotic investment instruments.
One senior Treasury official said Friday that the fund for dismantling giant failing banks, which would be financed by large financial institutions themselves, is unnecessary. He said the costs of dismantling the firms could be recouped from the industry after a liquidation.
If the chairman of the Senate Banking Committee, Christopher Dodd, D-Conn., complies, that would remove one component of the bill that Republicans have persistently used to rally opposition. But it was unclear whether that step alone would yield any Republican votes.
Senate Republicans stood solidly against the bill Friday after GOP leader Mitch McConnell persuaded Susan Collins, R-Maine, to join 40 fellow lawmakers in expressing their opposition and demanding further negotiation.
McConnell suggested it wouldn’t be enough to satisfy Republicans.
“I appreciate the Obama administrations recognition of the need to substantively improve this bill,” McConnell said. “And I hope we can work with them to close the remaining bailout loopholes that put American taxpayers on the hook for financial institutions that become too big to fail.”
The legislation would for the first time regulate derivatives, the instruments such as mortgage-backed securities that contributed to the near meltdown when their value plummeted during the housing crisis.