Legislation to create a special section of the bankruptcy code for banks advanced in the House Wednesday, a step toward preparing a new system to prevent chaotic bank failures that have prompted taxpayer bailouts.
The Judiciary Committee advanced the legislation Wednesday on a voice vote, but future action on bank bankruptcy could turn contentious.
In a joint statement, committee Chairman Bob Goodlatte, R-Va., and bill author Rep. Tom Marino, R-Pa., said that “the costs associated with a failing a financial institution should be borne by those who have a stake in the company, and hard-working Americans should not have to worry that their tax dollars will be used to bailout another Wall Street bank.”
Speaking at Wednesday’s vote, the top Democrat on the committee, Rep. John Conyers of Michigan, agreed that the collapse of investment bank Lehman Bros. in the financial crisis in 2008 “clearly revealed that current bankruptcy law is ill-equipped to deal with complex financial institutions in economic distress.”
The bankruptcy bill, he said, would be an “excellent complement” to the government-led process for resolving banks created by the 2010 Dodd-Frank financial reform law signed by former President Barack Obama.
Yet House Republicans on the Financial Services Committee are expected to advance a Dodd-Frank replacement measure that would repeal the government resolution process for banks, which conservatives have said encourages bailouts.
Democrats disagree on that point. Some outside conservative advocates of updating the bankruptcy code for banks also believe that a government resolution process is necessary for the scenario in which a number of banks fail at once.
The House has passed bank bankruptcy legislation in recent years, although this is the first year with a president who has said that he shares the goal of cutting back Dodd-Frank rules.
