|‘We cannot allow these reforms to be watered down,’ President Obama said of the plan for more control over Wall Street.|
Democrats yield on $50b fund in financial overhaul bill
GOP deemed it mechanism for perpetual bailouts
WASHINGTON — In a widely expected concession, Senate Democrats agreed yesterday to jettison a $50 billion fund that Republicans attacked repeatedly as a perpetual Wall Street bailout-in-waiting, officials in both parties said, clearing one of the key obstacles to approval of tougher controls over the financial industry.
A formal announcement was held up pending a review by key lawmakers and the Obama administration, but the emerging agreement was designed to ensure that any future taxpayer costs arising from the liquidation of big firms would be temporary and on a case-by-case basis.
The agreement marked a retreat by Democrats, who had protested bitterly that Republicans were inaccurate with claims that the multibillion-dollar fund would serve as a source for bailouts.
President Obama has made an election-year priority of passing legislation to prevent future economic calamities. Opinion polls suggest strong support for additional regulations, even though numerous surveys also report high levels of public distrust of government.
Obama said there would be “legitimate differences on the details of what is a complicated piece of legislation’’ in coming days. Yet, he said, “We cannot allow these reforms to be watered down.
“And for those of you in the financial industry whose companies may be employing lobbyists seeking to weaken this bill, I want to urge you, as I said on Wall Street a couple of weeks ago, to join us rather than to fight us.’’
The tentative compromise was struck by Senators Chris Dodd, a Democrat, and Richard Shelby, a Republican, the parties’ two seniors members of the Banking Committee.
The fund would be gone, but taxpayers could still wind up fronting billions of dollars to help cover the costs of taking down a failed firm, money that would take the forms of loans from the Treasury to the Federal Deposit Insurance Corp.
The Treasury would be required to recover those costs over time from the sale of a firm’s assets and from its creditors. As a last resort if not enough money could be raised, the government would assess a fee on other large financial institutions.
The Democratic-backed bill calls for an independent consumer protection agency with authority to police lending, credit cards, and other similar transactions. Republicans say the provision is so broad it could hurt car dealers and dentists whose patients pay over time.
Additionally, Democrats hope to create controls on complex investments known as derivatives, which many experts blame for the near-collapse of the economy in 2008.
The House has already cleared its version of the measure.
Also yesterday, Treasury Secretary Timothy F. Geithner urged Congress to impose a 10-year, $90 billion tax on the largest financial institutions to recoup the costs of the 2008 bailouts. But he faced skeptical lawmakers.
The Obama administration proposed the tax, which it calls the Financial Crisis Responsibility Fee, in January. It is not part of the overhaul of financial regulations, but could be added to it.
The American Bankers Association and the Financial Services Roundtable sharply criticized the proposal. While lawmakers did not reject the idea outright, some questioned its impact on consumers and small businesses.
“This is a simple and fair principle: Banks, not the taxpayer, should pay for bank failures,’’ Geithner said.
Senator Charles E. Grassley, Republican of Iowa, called the fee an excise tax and urged that the proceeds be used to reduce the deficit.
Material from The New York Times was used in this report.