House Panel Approves Systemic-Risk Measure, Advancing Overhaul

Dec. 2 (Bloomberg) -- A House panel approved legislation strengthening U.S. authority to police large, complex firms that pose risks to the economy, advancing the Obama administration’s effort to overhaul U.S. financial rules.

The House Financial Services Committee voted 31-27 today for a bill creating a council of regulators to monitor systemic risk, shifting the cost of a failure to the financial industry and giving regulators the power to break up healthy firms.

The legislation would give the Federal Deposit Insurance Corp. the authority to dismantle systemically risky firms and merge two bank regulators, the Office of Thrift Supervision and the Office of the Comptroller of the Currency.

The legislation was amended by Representative Paul Kanjorski, a Pennsylvania Democrat, to let regulators dismantle healthy, well-capitalized financial firms whose size would threaten the economy.

The measure removes a three-decade ban on congressional audits of Federal Reserve interest-rate decisions, an amendment offered by Representative Ron Paul, a Republican from Texas who has called for the abolition of the central bank.

Another amendment creates a fund to cover the government’s costs for unwinding a failed firm. The measure puts the FDIC in charge of the fund, to be supported by fees from companies with more than $50 billion in assets that would generate as much as $150 billion.

Senate Banking Committee Chairman Christopher Dodd introduced similar legislation last month.

Obama Overhaul

The legislation is part of the Obama administration’s plan to overhaul U.S. rules governing Wall Street to prevent a repeat of last year’s financial market collapse, leading to more than $1 trillion in taxpayer bailout programs.

The vote was postponed from November because members of the Congressional Black Caucus on the committee pledged to withhold their votes in a bid to win economic concessions from the Obama administration. Caucus members were absent from today’s vote.

The committee today began debating legislation to create a national insurance regulator, the last piece of House Financial Services Committee Chairman Barney Frank’s overhaul package. Insurers are regulated by states.

“A federal insurance office will provide national policy makers with access to the information and resources needed to respond to crises, mitigate systemic risk and help ensure a well-functioning financial system,” said Kanjorski, sponsor of the legislation.

Frank, a Massachusetts Democrat, said the panel would vote on the insurance legislation later today, and the full House would begin debate on the regulatory legislation on Dec. 9.