House Republicans are finalizing their plan to overhaul the financial regulatory system, which would direct failing companies into bankruptcy instead of bailouts and would strip the Federal Reserve of its oversight authority on the financial industry, according to people close to the discussions.
These people described the plan as one that “stops rewarding failure,” ensures “taxpayers are never again asked to pick up the tab for bad bets on Wall Street” and restores “market discipline.”
Republican members of the House Financial Services Committee are aiming to complete their proposal with House Republican leadership by Tuesday. House Democrats and the Obama Administration are writing the details of their proposals, perhaps announcing their reform bill in the next couple of weeks, according to Administration officials.
The Republican plan offers direct opposition to the creation of a systemic risk regulator and granting the government resolution authority -- two integral components of regulatory reform backed by the White House, Treasury Secretary Timothy Geithner, House and Senate leadership, and Federal Reserve Chairman Ben Bernanke.
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The Republican plan calls for the creation of a Consumer Protection and Market Stability Board instead of a systemic risk regulator, according to people close to the negotiations. The board would monitor the economy for regulatory gaps and report that information to Congress and existing regulatory agencies. It would have no enforcement authority.
The House Republican proposal would also subject the Federal Reserve to audits by the Government Accountability Office, and strips it of many of its oversight and consumer protection powers and transfers them to other agencies. The plan would also combine the Office of the Comptroller of the Currency and the Office of Thrift Supervision, according to people close to the negotiations.
The House Republican proposal also challenges the idea of a systemic risk regulator. This plan calls for failing, systemically important companies to go through the existing bankruptcy process. The proposal would create a new chapter in the bankruptcy code to allow judges to halt claims by creditors to avoid runs on the company, according to people close to the negotiations.
The proposal would end the conservatorships of Fannie Mae (FNM) and Freddie Mac (FRE) -- longstanding Republican targets -- in the next two years, and mandate they transform into fully private institutions.
The proposal also calls for stricter oversight of credit-rating firms and stronger authority for government agencies to enforce consumer protections.
