Senate Backs Anti-Bailout Changes to Financial Bill

The U.S. Senate today broke a logjam in the debate over financial-overhaul legislation, approving two amendments that strengthen language aimed at ending taxpayer- funded bailouts.

Lawmakers voted 93-5 for an amendment offered by Senators Christopher Dodd, a Connecticut Democrat, and Richard Shelby, an Alabama Republican, to drop a $50 billion industry-supported fund to cover the cost of unwinding a failing firm and ensure that shareholders and unsecured creditors bear losses when the government liquidates a business.

The Senate also voted 96-1 in favor of an amendment offered by Senator Barbara Boxer, a California Democrat, to bar use of taxpayer funds to rescue failing financial companies.

“We’ve ended the too-big-to-fail debate,” Dodd, the Senate Banking Committee chairman who drafted the overhaul bill, told reporters after the votes. “No longer do I expect any argument to be made that this bill exposes the American taxpayer.”

Both amendments were aimed at allaying Republican concerns that Dodd’s bill would leave loopholes that would allow future bailouts of Wall Street firms. The Senate is debating the proposal for a sweeping rewrite of rules governing Wall Street, intended to prevent a repeat of the 2008 financial crisis that led the U.S. to extend $700 billion in taxpayer aid to companies including Citigroup Inc. and Bank of America Corp.

Republicans had focused their opposition on a provision giving the government authority to liquidate failing financial firms whose collapse would roil the economy.

Held Up Votes

Dodd today announced he and Shelby struck a deal on the amendment after a week of negotiations that held up votes on other changes.

After the floor debate began last week, Democrats said Republicans were obstructing progress by refusing to consider any changes until the Shelby-Dodd language was completed. Today’s votes open the door to discussions of the other amendments.

The measure would bar the Federal Reserve from propping up firms such as New York-based insurer American International Group Inc. and require that the Fed only use its emergency lending authority to help solvent firms. It calls for most large financial companies to be liquidated through bankruptcy and Congress to approve the use of debt guarantees.

Shelby

Shelby said his agreement with Dodd didn’t mean he supported the broader bill.

“This over 1,500-page bill contains a broad reach into the global financial system and the American economy,” Shelby said on the Senate floor. “Now that we are over this particular hurdle, we will be addressing many additional concerns that we have in the coming days.”

The Boxer amendment would require firms seized by regulators to be liquidated. Any funds the government spends to unwind a failed firm would be recovered through the sale of the company’s assets or fees on the financial industry.

Dodd’s bill, which was approved by the Senate Banking Committee in March over Republican opposition, is based on a proposal President Barack Obama released last June. The measure is similar to legislation approved by the House of Representatives in December.