Dodd releases details on 'too big to fail' provisions

Senate Banking Chairman Chris Dodd (D-Conn.) expects to offer an amendment sometime Wednesday that reflects an agreement with Republicans reached on 'too big to fail' provisions to the financial regulatory reform bill.

Dodd outlined the bill today saying that "most of the provisions stay intact, because we agree on the fundamentals of this bill." 

He said was willing to drop the $50 billion fund that was to be used to unwind failing financial firms, which he pointed out was not in his draft legislation. The White House opposed the fund and Republicans said it would allow taxpayer-financed bailouts to continue. 

Republican Sen. Bob Corker (R-Tenn.) urged his colleagues to support the amendment. 

Despite the agreement, Senate Banking ranking member Richard Shelby (R-Ala.) said the "overall legislation still has a long way to go to gain my support."

The provision will provide for an orderly liquidation mechanism for the FDIC to unwind "systemically significant" firms. 

Most banks will still be expected to be resolved through the bankruptcy process. 

It will require shareholders and unsecured creditors to take losses and remove management. Regulators will still have the authority to break up a company if it poses a grave threat to the U.S. economy. 

Also, large bank holding companies that have received Troubled Asset Relief Program funds won't be able to avoid supervision by the Federal Reserve by dropping their banks. It also won't let the Fed prop up failed firms such as AIG. 

"These measures represent a fundamental change in our country's ability to protect taxpayers from the economic fallout of having a large, interconnected firm collapse," Dodd said in a release.