A trade group of the nation’s largest banks sent a letter to each member of the House Financial Services Committee on Sunday urging them to vote against a bill that would give the government more power to break up a failing financial services firm. (Read letter to HFSC.)
Amendments to the bill would also allow the government to potentially break up healthy financial company, if the government determined its potential collapse could imperil the broader economy. The House panel is scheduled to vote on the bill Wednesday.
The Financial Services Roundtable, whose members including Bank of America Corp., Citigroup Inc., and J.P. Morgan Chase & Co., wrote in an 11-page letter “the bill will have a significant impact on our fragile economic recovery and the long-term growth of the economy.”
The letter says “the bill damages the ability of financial institutions, especially larger financial institutions, to finance the economic recovery and facilitate long-term economic growth.”
The trade group says higher capital requirements for banks and a requirement that banks pay into a fund to handle future financial collapses would “reduce lending and other activities by large financial companies.” For example, the bankers said requiring banks to finance in advance a $150 billion would equate to a loss of $3 trillion in new loans.
Large financial companies will have higher costs of funding “and may accelerate the failure of a troubled institution,” the Financial Services Roundtable said.
Many of the bills that have passed through the House Financial Services Committee to overhaul financial regulation have gone with little Republican support, but the measure to be voted on Wednesday could be different. The bill includes an amendment championed by Rep. Ron Paul (R., Texas) that would subject the Federal Reserve to much more scrutiny. Some Republicans might vote for the broader bill because it includes Rep. Paul’s amendment.
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