October 28, 2009

WASHINGTON - Congressman Spencer Bachus, the Ranking Republican on the House Financial Services Committee, today raised strong objections to legislation submitted by the Obama Administration and released by Committee Chairman Barney Frank to reform the financial regulatory structure.  The sweeping proposal calls for establishing a so-called "resolution authority" that promotes continued taxpayer bailouts and reorganizations of failing companies, rather than liquidating them through bankruptcy.

Ranking Member Bachus said, "Under the draft legislation, the government will continue to spare financial firms from the consequences of their mistakes by imposing those costs on others, including the taxpayers."

Bachus is urging Congress to reject any more bailouts by requiring insolvent non-bank institutions - no matter how large or systemically important - to be resolved through the bankruptcy system.

On July 23, Bachus and House Judiciary Committee Ranking Republican Lamar Smith introduced legislation (H.R. 3310) to create a new chapter of the bankruptcy code to make it more efficient and better suited for resolving large non-bank financial institutions.  This new chapter will facilitate coordination between regulators and the courts to ensure technical and specialized expertise is applied when dealing with these complex institutions.  Bankruptcy judges would also have the power to stay claims by creditors and counterparties to prevent runs on troubled institutions.

The plan offered by the two senior House Republicans encourages creditors to be more vigilant in assessing the creditworthiness and business practices of the parties to whom they are extending credit.  And by making clear that the government will not step in to bail out a failing institution or its creditors, the government can remove the uncertainty and confusion that roiled the markets last September when market participants were left guessing as to the government's "next steps" in seeking to contain the financial crisis.

Bachus also criticized the Obama Administration's plan to keep secret the list of financial institutions that regulators consider to pose a system risk to the financial markets. 

Bachus said, "The draft legislation provides regulators with the authority to decide what's best for large financial institutions, using taxpayer dollars with no accountability.  In an attempt to avoid naming the institutions it deems "too-big-to-fail," the Administration's legislative proposal forgoes the transparency and full disclosure that are the hallmark of America's capital markets for a regulatory regime built on secrecy and political favoritism."