By Rachelle Younglai
WASHINGTON, Jan 11 (Reuters) – Key U.S. senators are considering the creation of a special bankruptcy court for troubled financial services firms, a person familiar with the plans said on Monday.
Senate Banking Committee members are trying to toughen up parts of a draft bill that overhauls how the financial system is supervised. The draft, introduced by Senate Banking Committee Chairman Christopher Dodd, would create a system to unwind troubled financial firms.
But members of the committee want a more specific and tougher regime to deal with troubled financial firms after the federal government used billions of dollars in taxpayer funds to prop up firms like Bank of America.
Members are discussing a two-stage process that would create a preferential option for bankruptcy followed by a regulator-managed resolution if bankruptcy fails, the person said. The source requested anonymity because the draft is in flux and has not been made public.
Dodd’s proposal would give the Federal Deposit Insurance Corp the authority to dismantle large troubled financial services firms. The FDIC would be able to guarantee debts of firms in receivership.