Proposed $50 bailout fund nixed from financial regs bill

By Vicki Needham - 05/04/10 06:08 PM ET

Senate Democrats have agreed to nix a proposed $50 billion fund that would help failing financial institutions unwind from the financial regulation reform bill.

Removing the major sticking point from the bill could help clear the path for the measure, which still has a couple more high hurdles to jump, according to news reports.

The bill's new language, crafted by Senate Banking leaders Chris Dodd (D-Conn.) and Richard Shelby (R-Ala.) could reach the floor as one of the legislation's first amendments, probably within the next day or two. New language was expected to be released sometime tonight, according to Democratic aides.

Republicans have argued that the fund -- proposed by FDIC Chairwoman Sheila Bair -- would allow taxpayer-financed bailouts to continue.

Sen. Bob Corker (R-Tenn.) said today that the Dodd-Shelby agreement would close loopholes for loans provided by the Federal Reserve and FDIC, placing stricter limits on those funds while requiring they be paid back in full.

During the past couple of weeks there were various reports from Republican ranks that the bailout fund had been removed from the bill. More recently, several Democratic Senators close to the negotiations including Sen. Mark Warner (D-Va.) said they were under the impression that the fund was still intact.

President Barack Obama told some of the nation's top executives today that the bill can't get watered down in compromise and, as he's done for several weeks, urged lobbyists to "join us rather than to fight us."

The White House and Treasury Secretary Tim Geithner have publicly opposed the fund and, instead, have pushed for a bank tax. Senate Finance Chairman Max Baucus (D-Mont.) told The Hill earlier today that it didn't look like a bank tax had enough votes for approval to be added to the bill to put tighter controls on Wall Street firms.

Senate Majority Leader Harry Reid (D-Nev.) said today he wants to complete the bill by next week. But his counterpart Senate Minority Leader Mitch McConnell said it would take longer than that.

Agreements have yet to be worked on how a consumer protection agency would work or how derivatives would be regulated.