Today, Congressman Brad Sherman, a senior member of the House Financial Services Committee issued the following statement concerning financial regulatory reform.
"Previously I voiced concern that Senator Dodd's financial reform bill could allow the executive branch to place unlimited billions at risk in connection with winding down the activities of a defunct Wall Street giant.
"My most important concern was that Section 210(n)(10) would allow the FDIC to borrow an unlimited amount of money from the Treasury and use these funds for the "orderly liquidation" of a defunct financial institution.
"Senator Dodd's manager's amendment effectively eliminated subdivision "A" of Section 210(n)(10) and replaced that subsection with other text. This important technical change will make sure that there are strict limits on the amount borrowed by the FDIC in connection with liquidating a financial institution, and that the amount borrowed never exceeds the value of the assets of the entity being liquidated.
"After meeting with Senator Dodd, I am convinced he never intended to allow unlimited borrowing in conjunction with the liquidation of a financial institution. With this change, I am convinced that the bill will achieve Senator Dodd's objectives, and will not allow unlimited amounts of taxpayer funds to be put at risk in conjunction with the liquidation of a financial institution.
"I look forward to working with Senator Dodd and others to impose limits on the powers of the FDIC to guarantee the obligations of solvent banks. I also look forward to working with him and others to restrict the authority that the Federal Reserve Board has had since 1935 to make virtually unlimited loans in times of financial distress. This can be accomplished by adopting the House Bill's restrictions on Section 13-3 of the Federal Reserve Act.
"In the past I have expressed my concerns that the Senate bill would allow permanent, unlimited bailout authority. Those comments relate to the prior version of the bill. The Senate changes make my prior comments no longer applicable.
"I would call upon those who have been quoting me to make it clear that my comments relate to the prior draft of the bill, and not the legislation currently being considered by the Senate."