Warner said Sunday on CNN’s State of the Union, that the disputed fund was the last in a series of measures designed to revamp how Washington oversees Wall Street and to prevent taxpayers from again being called on to provide massive infusions of cash to financial institutions that are the pillars of the economy.
Despite Republican protests that Democrats are trying to pass the reform legislation in a partisan way and with next to no Republican input or support, Warner said the process of crafting the bill “has been very bipartisan.” He said he has been working for more than a year with Sen. Bob Corker, R-Tennessee, on crafting the package of reforms.
The crafting of the legislation, the former Virginia governor said, has been driven by three goals: (1) “end ‘too big to fail,’” the notion that some financial institutions are so important to the economy that they should not be allowed to collapse under any circumstances because of the wider damage their demise would do to the economy; (2) “never have taxpayer exposure [for bailouts] again,” and (3) “make sure that we set up financial rules of the road for the 21st century.”
These considerations, he said, led to the inclusion of a number of provisions in the bill that are designed to act as “trip wires, speed bumps to make sure we don’t get to a crisis.” Warner said the bill sets up a systemic risk council to act as “an early warning system.” The bill also sets additional capital requirements for large financial institutions, limits the ability of firms to leverage their assets relative to their liabilities, and creates a new class of contingent capital in the form of debt that would convert to equity if a firm fell on tough financial times.
Warner said the bill requires “large, systemically important firms” to “write their own funeral plan,” a plan developed beforehand “so that if they get in trouble there’s an orderly process through bankruptcy that can unwind them appropriately.”
The $50 billion fund that has been the focus of partisan barbs in the past week is only a fall-back measure if all other components of the bill fail to forestall another financial crisis like the one that occurred in late 2007 and early 2008, Warner said. In that situation, a firm that fails would be subject to a resolution process through bankruptcy under the bill. “It’s set up in such a way that no rational management team would ever want it,” Warner told CNN Chief Political Correspondent Candy Crowley.
The $50 billion fund “would be funded by industry,” Warner said, and was conceived of as a way “to keep the lights on [at a collapsing firm] until you could actually borrow enough money through the FDIC process to orderly resolve and get rid of the firm.”
Warner said he was open to alternatives to the fund, which many Republicans view as opening the door to perpetual, taxpayer-funded Wall Street bailouts. “I’d love to hear from Senator McConnell and some of the others, specifics not just general attacks,” Warner told Crowley. He said Republicans were being “a bit hypocritical” in attacking the $50 billion fund because without it, taxpayers might have to pay to begin the process of winding down a large financial institution.
Sounding a common refrain during this week’s partisan wrangling over the financial reform bill, Warner said he would like to see Democrats and Republicans set their differences aside.
“This should not be a partisan issue,” he said. “I think it’s time to get on with it,” he added, pointing out that new regulatory measures are still not in place 18 months after the greatest financial crisis since The Great Depression.