Three weeks after a bipartisan bill was introduced in the U.S. Senate to limit the Federal Reserve's authority to bail out big banks, similar bipartisan legislation was introduced in the U.S. House of Representatives, according to an announcement on Representative Scott Garrett's (R-New Jersey) website.
Garrett and Mike Capuano (D-Massachusetts) introduced H.R. 2625, also known as the Bailout Prevention Act (BPA) of 2015 in response to the Fed's perceived failure to make any meaningful changes with regards to implementing certain provisions of Dodd-Frank that would limit the Fed's broad powers.
The BPA would prohibit the Fed from lending to insolvent financial institutions; require a "penalty rate" for borrowers that are using a lending facility under Section 13(3) of the Federal Reserve Act, which was the basis for the Fed to bail out some of the nation's largest financial institutions that were deemed by the government as "too big to fail" with trillions in low-cost loans; establish criteria for determining if a lending facility is broad-based (facilities under Section 13(3) are required to have a minimum of five borrowers); require Congressional approval for those facilities that are not considered broad-based under the new criteria; and make reports available to the public in a timely manner (within 60 days).
"Amidst the financial crisis of 2008, we witnessed the worst kinds of government cronyism when huge financial institutions were bailed out through section 13(3) of the Federal Reserve Act without much prudence or oversight," Garrett said. "While Dodd-Frank promised to end the cycle of ‘too big to fail,’ all it did was codify this unfair practice into law and put the American taxpayers on the hook for untold billions—or even trillions—of dollars. I’m happy to introduce this bill with Representative Capuano to implement the systemic changes and Congressional oversight needed to ensure that the notoriously opaque Federal Reserve is held accountable to our constituents."
The bill introduced in the Senate last month, also called the Bailout Prevention Act, was sponsored by Elizabeth Warren (D-Massachusetts) and David Vitter (R-Louisiana).
"America’s largest financial institutions received unprecedented assistance from the Federal Reserve during the crisis, much of it unknown to the Congress or public at the time," Capuano said. "While the Dodd-Frank Act brought some reforms, the perception lingers that some financial institutions are simply too big to fail and could be bailed out again. This perception has consequences favoring the biggest players in the financial system. We may not know today what the next crisis will look like, but we all have a right to know the full extent of measures that may be taken to prevent a crisis. This legislation will help protect taxpayer dollars by increasing oversight of the Federal Reserve’s emergency lending powers and bringing much needed transparency to the process."