Frank says financial industry should pay now for future bailouts
Rep. Barney Frank, chairman of the House Financial Services Committee, told reporters today that he would make significant changes to a proposed government fund to help pay for any large financial firms that would be seized and dismantled to prevent major damage to the economy.
The so-called resolution fund is a key part of legislation that Frank introduced last week following negotiations with the Treasury Department to give the government new power to avoid future financial crises. The fund is designed to make the industry -- not taxpayers -- pay the cost of future bailouts.
Under the bill, the fund would be paid by financial institutions with total assets of at least $10 billion each only after a government intervention to repay the outlay of taxpayer money. The legislation would not place any limit on how much taxpayer money the government could use to seize a major financial firm and would give Congress no say in any decision to use the money.
After some lawmakers and regulators criticized the plans for the fund last week, Frank said he would make changes as his committee begins to wrap up the legislation this week. The Massachusetts Democrat said he expected the full House to vote during the first week of December on all components of the proposed overhaul of financial regulations, including creation of a new agency to protect consumers in the marketplace.
As for the resolution fund, Frank said he would require firms to pay into it ahead of any use, as is now done by banks with the Federal Deposit Insurance Corp. fund that helps insure customer deposits.
That way the money would be in place to cover the costs of seizing and dismantling a major financial firm, limiting the outlay of government money. Frank also said he favored “some congressional involvement” if the Treasury Department needed to lend any money to the fund to cover a shortfall before more money could be collected from the industry.
“It will not be an unfettered executive decision,” Frank said. He suggested allowing any member of Congress to request a vote to stop a disbursement of taxpayer money into the fund.
Rep. Brad Sherman (D-Sherman Oaks) has criticized the legislation for creating what he called a permanent, unlimited version of the $700-billion bailout fund. Though he said Frank was moving in the right direction with the proposed changes, he wants more details.
Sherman said there was a major difference between a congressional vote to prevent the disbursement of money and one authorizing it. Under the first option, a bill to prevent Treasury from lending money to the fund could be vetoed by the president, which would require a two-thirds majority of both houses to override.
Requiring Treasury to seek congressional approval for any disbursement would mean that only a simple majority of both Houses would be needed to stop it. He said the committee debate on the bill would be important in structuring that mechanism.
“The less support there is for unlimited permanent bailout authority, the better the bill will be,” Sherman said.
-- Jim Puzzanghera
Photo: Barney Frank sits in the East Room of the White House on Oct. 9. Credit: Gerald Herbert / Associated Press.