House Financial Services Committee Chairman Barney Frank is refuting accusations that a bill he helped author would lead to a rash of taxpayer-funded Wall Street bailouts.
House members from both parties in recent days have complained that the measure, designed to avoid a repeat of the $700 billion Wall Street bailout, would still allow the federal government to pump rescue funds into failing banks.
But Mr. Frank told reporters Tuesday that any taxpayer money doled out under such circumstances only would be used to help dismantle the company - not to keep it afloat.
“Aid to an institution will be the equivalent of a last meal,” the Massachusetts Democrat said. “It will be to ease the pain to the [overall financial] system - not [directed] to the shareholders, not to the board of directors, not to anybody else.”
Democratic Reps. Paul E. Kanjorski of Pennsylvania and Brad Sherman of California expressed concern at a committee hearing last week that the measure potentially would give the White House too much power in deciding which firms were “too big to fail.”
The bill, which Mr. Frank’s committee is scheduled to debate and “mark up” this week, is part of broad push by the Obama administration to overhaul Wall Street’s regulatory structure in the wake of last year’s near collapse of the economy.
The proposal, hashed out between Mr. Frank and the administration, would give the Federal Reserve the authority to step in and “wind down” failing nonbank financial firms deemed so large that their demise could bring down the economy.
Financial-sector regulators have similar authority over traditional banks but were powerless last year when Lehman Brothers investment bank and insurance giant American International Group Inc. faced collapse. The situation led Congress to enact the Bush administration’s $700 billion Troubled Asset Relief Program, or TARP, to rescue failing financial firms.
The measure also calls for large financial firms to help foot the bill to euthanize failing companies by paying into a reserve fund.
Mr. Frank initially wanted to collect money for the fund only after a firm was deemed to be failing. On Friday, he switched his position to allow the fund to be prepaid, heeding the recommendation of Federal Deposit Insurance Corp. Chairman Sheila C. Bair and others.
Mr. Frank also clarified actions and statements in recent days that suggested he was in favor of shielding the identity of struggling companies targeted for government aid, saying he was “misinterpreted.”
He said the confusion stemmed from his position to make public the names of those firms when they are awarded taxpayer money, but not before.
“I said I want a public list, [but] it was unclear apparently, so people acting on what they reasonably thought I was saying misinterpreted that, and I take responsibility for the garble,” he said.
The full House is expected to vote on the bill and other financial reform proposals in early December.
• Sean Lengell can be reached at slengell@washingtontimes.com.
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