By Silla Brush - 01/13/10 12:54 AM EST
Senators from both parties are considering ways to bolster the bankruptcy code to deal with large failing financial firms.
As the Senate Banking Committee crafts financial overhaul legislation, some senators are discussing ways to beef up the bankruptcy process to deal with big firms whose failure would threaten the broader financial system and economy, sources familiar with the discussion said.
Sen. Bob CorkerBob CorkerGOP senator: Something 'very, very good' can come from Brexit vote GOP senators: Brexit vote a wake-up call Bipartisan gun measure survives test vote MORE (R-Tenn.) said that he is interested in a court modeled on the special Foreign Intelligence Surveillance Court (FISA) that handles national security matters.
Corker said the court would need specialized staff and judges to deal with the complexity of large bank holding companies and the interests of creditors.
“If we’re going to use the bankruptcy system which I’d like to see us use then we have to set it up so it can deal with highly complex bank holding companies,” Corker said.
He added that there is “keen interest” among lawmakers in a greater use of the bankruptcy code for resolution matters.
The Senate Judiciary Committee would need to mark up legislation on the bankruptcy code. The panel has not yet considered the matter.
The bankruptcy provisions may come in addition to a new “resolution authority” process for federal regulators to wind down financial firms. The House in December approved a financial overhaul that included new authorities for the Federal Deposit Insurance Corporation to dissolve failing firms.
The Obama administration backs new powers for the government to dissolve the firms so that future administrations do not need to turn to Congress for emergency funds in the middle of a crisis.
The House legislation would create a $150 billion fund paid for by large financial firms that could be tapped in the event of a firm failing.
The administration had originally supported an assessment on the financial industry to cover the costs of winding down a firm after it failed.
The issue of how to deal with failing firms has been among the most contentious aspects of the financial overhaul debate.
A Pew task force recently came out in support of a special court that would have power to resolve failing institutions that do not take deposits. The Pew report envisions a backstop resolution authority process if the special court is not sufficient.
House and Senate Republicans broadly support additional powers under the bankruptcy code to deal with failing firms.
House Republicans slammed Democrats for the resolution fund, arguing that it would perpetuate government bailouts. Democrats maintain that it would be covered by the financial industry and would prevent taxpayers from being on the hook for emergency funds.