- The Washington Times - Thursday, July 23, 2009

House Republicans plan to introduce legislation Thursday that calls for sweeping regulatory reforms of the financial services industry that would make it more difficult for institutions to receive federal bailout money.

The Washington Times received an advance copy of the bill, which is an alternative to the Obama administration’s proposal for a new financial oversight agency to protect consumers and investors. The White House plan met with praise from Democrats but skepticism from Republicans and Wall Street.

The Republican plan would rewrite bankruptcy laws to require failed financial institutions other than traditional banks to immediately file for bankruptcy - thus making them ineligible for a federal bailout. Banks facing insolvency would still be protected by the Federal Deposit Insurance Corp.

The proposal differs from the Obama plan, which would allow the Treasury Department and the White House to decide if a financial institution should receive federal assistance.

Republicans and Wall Street investors argue the administration’s plan would stifle investment and innovation in the financial world and possibly slow down the flow of capital through the markets, a scenario blamed for last year’s Wall Street meltdown.

Backers of the Republican bill, sponsored by Rep. Spencer Bachus of Alabama, the top Republican on the Financial Services Committee, say it would make financial institutions more accountable and increase market discipline.

“Republicans think there is a better alternative to perpetual bailouts and more government bureaucracy,” said a House Republican senior aide. “It’s not real reform if taxpayers continue to pick up the tab for Wall Street’s excesses, the government can still pick winners and losers and consumers and small businesses can’t get the credit they need.”

Both plans were drafted in response to the $700 billion Troubled Asset Relief Program, or TARP, which had been credited with avoiding a catastrophic Wall Street meltdown but criticized by both parties for allowing TARP recipients to spend the money with too few restrictions.

Lawmakers and the public were particularly galled when the troubled insurance giant American International Group doled out $165 million in bonuses after it was bailed out with taxpayer funds.

Another key Republican proposal not included in the administration’s plan calls for significant reforms to the Federal Reserve, including stripping the agency of its authority to unilaterally give aid to specific institutions. The Fed only could provide bailout money with approval from the Treasury Department and Congress.

The Republican plan would make major reforms to Fannie Mae and Freddie Mac - government-sponsored companies that either guarantee or own almost half the nation’s mortgages. The proposal would cut the pair’s ties to the government if they can’t prove to be “financially viable.”

The plan also would streamline government regulatory authority over Wall Street, which now is spread over several agencies. Under the plan, banking supervision responsibilities of the Federal Reserve, Office of Thrift Supervision and Office of the Comptroller of the Currency would be consolidated into one agency. A consumer protection agency would be created within the new group.

With Democrats controlling both chambers of Congress and the White House, the Republican bill has little hope of passing as it is written. But Republicans hope that at least some components will be incorporated into the final version.

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