Lead Senate negotiators have reached a deal on the portion of the Wall Street reform bill that deals with banks considered "too big to fail", Sen. Chris Dodd (D-Conn.), the chairman of the Banking Committee, announced on the Senate floor Tuesday afternoon.
Dodd has been negotiating with ranking Republican Richard Shelby (R-Ala.) on and off for months.
"After weeks of negotiations, months, really, if you consider all the work that has gone in on this piece of legislation over the last year, year and a half, I'm proud to say that the two of us have an agreement in this area. We intend to offer it as an amendment to the bill early this afternoon," Dodd said.
The Federal Deposit Insurance Corporation (FDIC), said Dodd, would be tasked with the "orderly liquidation" of failing firms. Shareholders and unsecured creditors would bear the losses and management would be fired.
"Regulators will still have the authority to break up a company if it poses a grave threat to the financial stability of the United States, a very important point," said Dodd. But they would not be required to do so.
A proposal that FDIC chair Sheila Bair had demanded, that banks pay into a fund that would later be used to liquidate them, was dropped, said Dodd. "This was not in our initial draft that I offered in November and was opposed by the Obama administration. Other Republicans have now expressed concerns about the prepaid fund," Dodd said. Senate Minority Leader Mitch McConnell (R-Ky.) had pointed to the fund as evidence that the bill amounted to a "permanent taxpayer bailout."
"So because whether they pay in advance or after the fact, these costs will be paid by Wall Street and not taxpayers, I have no objections to dropping that provision. In fact, I was rather agnostic on it, as many of my colleagues were," said Dodd.
"These measures will end the idea that any one company is too big to fail," Dodd asserted.