Bills
| 3.23.22

Should the Feds Not Have the Ability to Liquidate Failing Financial Firms? (H.R. 4894)

Do you support or oppose this bill?

What is H.R. 4894?

(Updated April 5, 2019)

This bill would repeal Title II of the Dodd-Frank Act, which gives the federal government the ability to force large, systemically important financial institutions into liquidation if they become or are in danger of becoming insolvent.

Currently, the Federal Deposit Insurance Corporation (FDIC) has the ability to resolve the bankruptcies of such banks and financial institutions over a three to five year period if they become insolvent. The FDIC is authorized to borrow from the Treasury to provide the cash for an “orderly liquidation fund” that would be used to pay off the creditors of failed banks.

Argument in favor

The FDIC shouldn’t be able to choose which failing financial institutions are in need of liquidation and bail them out with taxpayer dollars. This bill takes that option away from the FDIC.

Argument opposed

This bill undermines the Dodd-Frank Act and the stability of the financial system by getting rid of an important mechanism that allows failing megabanks to be efficiently liquidated.

Impact

Large, systemically important financial institutions that are or are at risk of becoming insolvent; the FDIC; and the Treasury.

Cost of H.R. 4894

The CBO estimates that enacting this bill would reduce the deficit by $15.2 billion over the 2017-2026 period.

Additional Info

In-Depth: Rep. Randy Neugebauer (R-TX) explained why House Republicans object to the “orderly liquidation authority” that the FDIC is granted under Title II of Dodd-Frank during committee debate over this bill:

“What Title II is, is a parachute clause… Just in case we get it wrong again like we did in 2008, we have got this little provision here that we can bail out these entities again. Eliminating Title II basically does eliminate the taxpayers from having to be on the forefront… because it takes away an important funding process.”

House Democrats have expressed their opposition to this bill, as a statement by Reps. Maxine Waters (D-CA), Ed Perlmutter (D-CO), and Ruben Hinojosa (D-TX) referred to it as “extremist ideology” while adding that “we absolutely should not repeal the only mechanism to terminate a failing megabank.”

The House Financial Services Committee passed this bill on a party-line vote of 34-22, which was introduced by Rep. Lynn Westmoreland (R-GA) and has one cosponsor — Rep. Rick Allen (R-GA).


Media:

Summary by Eric Revell
(Photo Credit: Vlad Lazarenko / Creative Commons)