Taking aim at Wall Street and the nation's central bank, a key House committee voted Thursday to assess upfront fees on large financial firms to pay for the failure of their peers and to require a sweeping congressional audit of the secretive Federal Reserve.
The votes were the final brush strokes to the House Financial Services Committee's response to last year's banking meltdown.
In a surprise, however, committee Chairman Barney Frank, D-Mass., delayed final action on a long-awaited regulatory overhaul bill until after Thanksgiving. Frank said members of the Congressional Black Caucus requested the delay because they were "troubled by a lack of response to the economic situation."
Lawmakers have been pressing the Obama administration to take further steps to assist the unemployed and create more jobs. "This is a critical issue for my constituents," said committee Democrat Maxine Waters of California, a member of the black caucus.
The votes on fees and on the Fed audit came despite objections from the Obama administration. They illustrated the strong sentiment in Congress to curb the central bank's power and assure voters that taxpayers won't be on the hook for future Wall Street failures.
If Frank can win final passage in his committee in two weeks, the House could vote on the full overhaul next month.
The Senate Banking Committee began its own rewrite of the rules that govern Wall Street on Thursday, but the committees top Republican panned the bill proposed by its chairman, Christopher Dodd, D-Conn.
From the sidelines, Treasury Secretary Timothy Geithner prodded Congress to move quickly on the measures.
In seeking to have large firms pay upfront fees for dismantling failing nonbank financial institutions, the House committee rejected warning from the Obama administration and objections from big Wall Street companies.
The money would be paid into a $150 billion "dissolution fund" by firms with assets of more than $50 billion. Hedge funds with assets of more than $10 billion would also have to pay. The Federal Deposit Insurance Corp. would use the fund to unravel and break up collapsing nonbank financial firms. The FDIC could also borrow an extra $50 billion, provided Congress approves.
Treasury Secretary Timothy Geithner and Wall Street prefer that the fee be assessed after a failed firm has been dismantled. Such a step, however, could require up front payment by taxpayers.
"This amendment will end taxpayer financed bailouts, eliminate 'too big to fail' (firms) and will create a system going forward where we force the big-bank, Wall Street fat cats to pay any mess they make," said Rep. Luis Gutierrez, D-Ill.
On auditing the Fed, the committee adopted a plan by Rep. Ron Paul, R-Texas, that had the support of a bipartisan roster of more than 300 members of Congress. It would give the Government Accountability Office the authority to audit the entirety of the Fed's balance sheet, credit facilities and all securities purchase programs. Critics, led by Frank and Rep. Melvin Watt, D-N.C., argued that Paul's proposal was too intrusive and could indirectly lead to higher interest rates. They proposed a more limited audit.
"If we open all of the discussions, the deliberations, the transactional gives and takes, what we will do is scare off capital because other governments will not deal with our Fed," Watt said.
Paul, who ran a long-shot campaign for president last year, argued Watt's more limited proposal would exclude much of the Fed's work from scrutiny.
"There is no reason in the world why this country and our people can't know eventually about what's going on in the Federal Reserve," Paul said.
In the Senate, Sen. Richard Shelby of Alabama, the top Republican on the Senate's banking panel, sharply criticized Dodd's proposed legislation.
"It significantly expands the federal government's ability to bail out not only banks, but any large, politically connected company," Shelby said. Dodd could still pass the bill with Democratic votes in his committee, but would find it far more difficult to get the needed votes in the full Senate without some Republican backing.
Dodd argued that a year after the near collapse of the financial system, it was now time to correct the government's oversight.
"As we sit here today, with gaping holes in our regulatory structure, we cannot tell our constituents that we're ready to prevent another shock," he said.
Earlier in the day, Geithner said the government's $700 billion bailout program will end "as soon as we can," and that part of it will be used to lower the record U.S. budget deficit.
During a Joint Economic Committee hearing, Geithner was pressed to disclose the administration's plan for dealing with the unpopular financial rescue program. He did not say how much of the bailout would go toward paying down the deficit, which hit an all-time high of $1.42 trillion for the budget year that ended Sept. 30 and is expected to rise even higher this year.
"We are winding it down and will close it as soon as we can," he said.
Geithner was in Congress pushing lawmakers to move quickly in overhauling badly flawed U.S.financial rules, which he says is essential for the health of the economy.
Both the House and Senate are making progress toward revamping the current regulations, but Geithner said a rapid conclusion is needed to keep the economic recovery on track.
"To ensure the vitality, the strength and the stability of our economy going forward, we must bring our system of financial regulation into the 21st century," Geithner testified.
The House Financial Services Committee and the Senate Banking Committee are working on their own versions of sweeping overhaul plans, but the two panels are taking sharply divergent approaches in some areas.
Both proposals also face sharp opposition from major sectors in the financial industry, casting doubt on how quickly Congress will be able to reach agreement and send a finished bill to the White House.
Geithner said the administration wants to ensure that firms not be able to escape or avoid oversight by shopping for the most lenient regulator, a situation critics say contributed to the worst financial market crisis in seven decades.
"The fact that investment banks like Bear Stearns or Lehman Brothers or other large firms like AIG could escape meaningful consolidated federal supervision simply by virtue of their legal form should be considered unthinkable from now on," Geithner said.
Another item the administration wants to see approved by Congress is to make sure the financial system as a whole is more capable of absorbing shocks and coping with failures. Geithner said this will require putting a greater focus on the quality of capital that firms are allowed to hold.
Capital reserves are the cushion financial firms carry to absorb loses.