House Financial Services Committee OKs powers to break up large firms

A key House panel voted on Wednesday to give the federal government broad new powers that could be used to break up large financial firms before they fail.

The House Financial Services Committee voted 38-29 to support an amendment sponsored by Rep. Paul Kanjorski (D-Pa.) that drew strong objections from Republicans and wariness from some centrist Democrats.

Kanjorski said his amendment to the sweeping financial overhaul legislation was inspired by a belief that lawmakers would not vote for future emergency bailout funds like they did a year ago with the $700 billion bailout package.

“We’ve gone to the edge. We’ve almost seen a world meltdown. What I’m saying is before we get back into those circumstances, we’re going to cure that,” Kanjorski said.

Democrats Reps. Gregory Meeks (N.Y.), Dan Maffei (N.Y.) and Melissa Bean (Ill.) joined all Republicans in opposition to the amendment.

The Obama administration and congressional lawmakers have been wrestling with how to end government bailouts and the problem of firms that are “too big to fail.” But Kanjorski’s measure goes a step further than lawmakers and President Barack Obama had originally proposed.

The Kanjorski measure requires federal regulators to look closely at the 50 largest financial firms by assets and determine whether their size, scope, interconnectedness and other factors need additional regulation.

Regulators would then be able to impose stricter regulations, limit a firm’s ability to merge and also possibly sell or divest parts of the firm. Companies would be able to submit their own business plans, subject to approval from a council of regulators in advance of the government taking action.

The Treasury Secretary would need to sign off on a regulatory move to divest more than $10 billion of a firm’s business. The president would need to be consulted on a divestiture of more than $100 billion.

The provision will continue to face stiff opposition from Republicans and large financial institutions, and it faces an uncertain future with the full House and Senate. The Senate Banking Committee on Thursday will begin marking up overhaul legislation.

The Financial Services Forum and New York City business interests strongly urged lawmakers to oppose the amendment, and they argued that there is nothing inherent in large companies that make them riskier.

“Proposals to preemptively break up large, well-managed and well-capitalized institutions are concerning and potentially damaging to economic growth, job creation, and our nation’s international competitiveness,” said Rob Nichols, president of the Financial Services Forum.

The Financial Services Committee also approved amendments that would allow the Federal Deposit Insurance Corporation (FDIC) to run a program in the future to provide liquidity to solvent banks. Companies that chose to participate in the program would be subject to fees.

The committee also approved on a voice vote an amendment that benefits a handful of companies, including Ford Motor Co., Caterpillar Inc. and John Deere & Co. The amendment broadened a grandfather clause in the financial bill that would allow regulators to continue reviewing companies with pending applications for industrial loan companies (ILCs).

The financial legislation aims to end new ILCs, but the amendment would allow regulators to continue reviewing pending applications. Rep. Gary Peters (D-Mich.) authored the amendment, which was lobbied for heavily by Ford.

The committee on Thursday will continue to debate how to raise funds for a government fund to cover the costs for potential future takeovers of failing financial firms.

Democratic Reps. Meeks, Luis Gutierrez (Ill.), Keith Ellison (Minn.), Dennis Moore (Kan.) and Stephen Lynch (Mass.) circulated an amendment on Wednesday that would set up a $150 billion fund to cover takeover costs.

Under the measure, regulators would assess financial firms with at least $10 billion in assets but would be required to consider a broad range of factors when imposing the fee, including the risk level of the firm.

The financial lobby has closely watched how the fund would be structured. The Independent Community Bankers of America (ICBA), National Association of Federal Credit Unions (NAFCU) and Credit Union National Association (CUNA) have all looked for exemptions or ways to mitigate the burden on their companies.

“ICBA strongly supports the Gutierrez amendment,” said Steve Verdier, senior vice president at the association. “We have been advocating this kind of a system from the beginning of the debate.”

Pat Keefe, a spokesman for CUNA, said the amendment was a “step in the right direction,” but the association continues to have concerns with its impact on credit unions.

“Credit unions have their own insurance fund, and a regulator that has the tools to resolve problems within the credit union movement,” Keefe said. “Credit unions should not be asked to pay for the failure of complex for-profit financial companies.”

Rep. Brad Sherman (D-Calif.) may also on Thursday propose a measure to increase the $10 billion threshold to $50 billion or possibly $75 billion, his office said.