By Silla Brush - 02/26/10 08:12 PM EST
Senate Banking Committee lawmakers are planning to unveil legislation that creates a regulatory system with high hurdles for the government to take over a failing financial firm, sources familiar with the plan said on Friday.
Lawmakers on the panel are trying to create a system to wind down large firms that are failing and threaten the broader financial system so that future administrations do not need to turn to taxpayers for bailout funds.
The Federal Reserve Board would have to approve the move on a two-thirds vote. A new systemic risk council would need to support the move on a two-thirds vote. And the Treasury Secretary, in consultation with the president, would need to approve the move.
Three sources confirmed the plan to The Hill, which could be unveiled by senators as early as next week. The system would create incentives for firms, shareholders and creditors to create their own plans in the event of a failure. The plan also would shift the burden away from the government for dealing with firms that are failing.
Senate staffers described the plan in a meeting on Friday morning with representatives for the insurance industry and representatives for insurance regulators.
The plan could be changed or amended during committee debate.
Senate Banking Committee Chairman Chris Dodd (D-Conn.) is expected early next week to unveil a bill to overhaul the financial industry.
The bill is expected to include new resolution system measures, provisions bolstering consumer financial protections, new regulations of the multi-trillion dollar derivatives market and new efforts to regulate the industry for systemic risk.