World financial news

A senior U.S. lawmaker unveiled a much-anticipated proposal on Wednesday that would give government regulators the power to break up financial firms that pose a risk to economic stability.

Democratic Representative Paul Kanjorski, chairman of the House capital markets subcommittee, said his proposal would give that power to a Financial Services Oversight Council, subject to review by the president in some cases.

He offered the plan as an amendment to a bill being debated and amended this week by the House Financial Services Committee as part of a broad push by the Obama administration and Democrats to tighten bank and capital market regulation.

“If my amendment is accepted, financial firms would need to demonstrate to regulators that their failure would not undermine the financial stability of the American economy,” Kanjorski said in a statement.

“No firm should be considered to be ‘too big to fail.’ 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,” he said.

Financial companies could appeal council actions, under the bill, according to a summary.

Size would be one factor considered by the council in determining whether to take action against a firm. Other factors would include “scope, scale, exposure, leverage, interconnectedness of financial activities,” the summary said.

Actions that could be taken would include “modifying existing prudential standards, imposing conditions on or terminating activities, limiting mergers and acquisitions, and in the most extreme cases, breaking up the company,” it said cash til payday.

Kanjorski added he will coordinate with the European Union on the issue. “After meeting with many European Union officials and members of the European Parliament earlier this year, I realized that we share many of the same concerns,” he said.

EU regulators are considering measures to force banks across Europe to sell assets and sometimes even break up to compensate for massive state aid they have received.

BIG BANKS WARN

On Monday, some of the world’s largest financial firms urged Financial Services Committee Chairman Barney Frank, a Democrat, not to pursue big bank break-up legislation.

The Financial Services Forum, a lobbying group for CEOs of firms such as Goldman Sachs and JPMorgan Chase, said empowering regulators to break up “too-big-to-fail” banks could cause “long-term damage to the U.S. economy.”

But small and mid-sized banks, which have demonstrated considerable political clout through this year’s financial reform debate, support break-up legislation, which would cut their largest rivals down to size, lobbyists said.

Giving break-up power to regulators would be “a good thing,” said Paul Miller, a policy analyst at investment firm FBR Capital Markets, on Wednesday. 

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