WASHINGTON (AP) — Legislation laying out rules for big failing banks that enter bankruptcy proceedings advanced in Congress as lawmakers still grapple with the aftermath of the financial crisis.
The House passed the bipartisan legislation on a voice vote Monday. The rewrite of bankruptcy law, which is supported by Wall Street banks, applies to the biggest U.S. banks and other big financial firms like insurance companies. Critics say it favors big banks at the expense of their trading partners and does nothing to prevent another taxpayer bailout of banks in a future crisis.
Prospects for the legislation in the Senate aren't clear. The House vote came in the lame duck session following last month's midterm elections. Control of the Senate will flip from the Democrats to the Republicans in January.
The 2010 overhaul law enacted in response to the crisis gives the Federal Deposit Insurance Corp. the authority to seize and dismantle big banks and financial firms that could collapse and threaten the broader system.
Under the new legislation, the FDIC could still take over a failing firm's parent company but allow its healthy subsidiaries to continue operating, reducing disruptions.
The legislation would provide relief to a bank or financial firm in bankruptcy from some legal obligations to other banks and to its trading partners. The partner companies would have to wait several days before canceling some financial transactions with the failing bank or firm.
The bill "removes potential obstacles to an efficient bankruptcy of a financial institution," said its chief sponsors, Republican Reps. Bob Goodlatte of Virginia and Spencer Bachus of Alabama, and Democrat John Conyers of Michigan.