The Senate on Wednesday jettisoned Democrats’ contentious $50 billion liquidation fund for failing financial service companies and instead overwhelmingly embraced an alternative that would try to shield taxpayers even as the government tries to impose “orderly liquidation” on big failed firms.
Republicans said killing the fund was a big step for bipartisanship as the Senate finally got down to voting on amendments to the massive 1,500-page bill, which seeks to head off a future financial catastrophe and limit future damage from firms deemed “too big to fail.”
“We’ve had a burst of activity here,” said Sen. Richard C. Shelby, the Alabama Republican who struck the bipartisan deal with Sen. Christopher J. Dodd, Connecticut Democrat, to eliminate the $50 billion fund.
Instead, the Federal Deposit Insurance Corp. will manage liquidation of major firms whose bankruptcy the FDIC figures could damage the financial system. The liquidation would be funded initially by the government, but those costs would be recovered by selling off the firms’ assets or, if need be, by assessing a fee to other big financial institutions.
Managers at failed firms would be fired.
“These measures will end the idea that any one company is too big to fail,” Mr. Dodd said.
The vote to kill the $50 billion fund was 93-5, with four Republicans and one Democrat voting against it.
Opponents said they didn’t support the fund but said the new version still enshrines different treatment for big financial institutions compared to other businesses. The opponents said they would rather see expedited bankruptcy proceedings instead of having political appointees at the FDIC make decisions.
At the White House, spokesman Robert Gibbs said the $50 billion fund was never in the original proposal and said the new deal appears to preserve President Obama’s core principle of holding taxpayers harmless for failed banks.
Senate Republican Leader Mitch McConnell of Kentucky, who voted for the amendment, said the GOP deserves credit for forcing Democrats to allow time for Mr. Dodd and Mr. Shelby to negotiate the agreement.
Even as the liquidation fund was settled, Republicans saw another line of attack Wednesday after Freddie Mac asked for another $10.6 billion in federal aid.
Republicans have blasted Democrats for not reforming Freddie Mac and Fannie Mae, two government-sponsored enterprises whose home-lending practices have been blamed for helping start the financial chaos that hit in 2008.
Other thorny issues also remain to be tackled.
Republicans have offered their own version of a consumer protection agency, while Democrats have promised fights over amendments to audit the Federal Reserve and limit the size of firms to prevent them from reaching the “too big to fail” threshold.
The House approved its own financial regulation measure in December.
• Stephen Dinan can be reached at sdinan@washingtontimes.com.
Please read our comment policy before commenting.