MercoPress. South Atlantic News Agency

US banks “too big to fail” could be dismantled under new legislation

Democrat Paul Kanjorski, who sponsored the proposal.

A key US House of Representatives committee has voted to give the government the power to take apart banks that are “too big to fail”. The bill would give a proposed new council of regulators the right to dismantle firms whose scale could hurt the economy - even if they are healthy.

Wall Street is opposed to such a measure, which is part of efforts to overhaul the banking industry.

But it will have to go through several more steps before it becomes law.

“No firm should be considered to be too big to fail,” said Democrat Paul Kanjorski, who sponsored the proposal.

“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.

Many Republicans oppose the bill, arguing that it gives too much power to regulators and would force financial firms to scale back their size and put them at a disadvantage.

The legislation would establish a Financial Services Oversight Council, which would have to consider a bank's “scope, scale, exposure, leverage, interconnectedness of financial activities”.

The council would have to consult the president before taking “extraordinary” actions.

The committee's approval makes the measure more likely to become law, but it must be first be voted on by the House and then ratified by the Senate.