House panel would give regulators right to break up large, interconnected firms

Panel: US can dismantle ‘too big to fail’ firms

WASHINGTON — A House committee voted Wednesday to give the government the right to dismantle financial firms that are so big, interconnected and leveraged that they could harm the economy, even if they are healthy.

Voting along party lines, the House Financial Services Committee modified a sweeping financial regulation bill to give broad new power to a proposed Financial Services Oversight Council that would monitor risk across the financial system.

The provision, proposed by Rep. Paul Kanjorski, D-Pa., was staunchly opposed by Wall Street because it would let the government break apart firms even if they were sound and well-capitalized.

“No firm should be considered to be too big to fail,’” Kanjorski said in a statement. “Financial firms that want to play in a casino need to have their own resources to cover their bets and not assume that tax dollars are available in reserve if their bets fail.”

The amendment approved Wednesday says the government could intervene when a firm presents a “grave threat” to the financial system — a higher bar than what many large financial institutions thought Kanjorski would set.

The legislation also would take into account a number of factors for breaking up a firm. In addition to size, the council would also have to consider the “scope, scale, exposure, leverage, interconnectedness of financial activities.”

“This is more moderate than other approaches out there, but we still oppose it,” said Scott Talbott, a senior lobbyist for the Financial Services Roundtable, which represents institutions that could be affected by the legislation.

Critics have argued that the legislation would effectively force financial institutions to scale back their size and place them at an international disadvantage.

Kanjorski said he would coordinate with the European Union to ensure that doesn’t happen.