House lawmakers push to narrow FDIC powers

House lawmakers this week are seeking to narrow a controversial provision in financial overhaul legislation that would give federal regulators power to impose losses on secured creditors.

The amendment, originally sponsored by Reps. Brad Miller (D-N.C.) and Dennis Moore (D-Kan.), would have given the Federal Deposit Insurance Corporation (FDIC) power to impose a 20 percent haircut on secured creditors in the event that the government needs to recoup money to cover the costs of winding down a financial firm.

The amendment, Miller's office told The Hill on Tuesday, is expected to be revised but will stay in the legislation at a 10 percent haircut. There had been efforts to strike the language entirely before the full House debates the language, but one amendment to strike it was withdrawn.

The measure has been watched closely by the financial industry, as some analysts said it could increase the cost of borrowing and hurt the "repo" market, where investors provide money to banks for a short period of time.

Miller's office said the revised language would exempt Treasury-backed debt, depository institutions, agency-backed debt and debt issued by the Federal Home Loan Banks, Fannie Mae, Freddie Mac and Ginnie Mae.

The new language would also exempt debt backed by "real property" such as commercial real estate and secured credit agreements with more than 30-day terms.

The bill would also add a "preferential transfers" provision and clarify that more junior claims — unsecured creditors and shareholders — should be wiped out before the haircut takes effect.

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