Gov’t to unveil rules for financial firms

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Bill Radke: Reports out this morning say the government is about to propose some new rules for dealing with huge and shaky financial institutions. A House committee could introduce a measure today. It would give the government more power to take apart these financial giants that get into trouble. Here’s Marketplace’s Ashley Milne-Tyte.

Ashley Milne-Tyte: When a regular bank gets into trouble, the government has the authority to step in and reorganize the bank. But so far it lacks that authority when it comes to big financial institutions, like Citigroup or AIG or the failed Lehman Brothers.

The new legislation would let the government reorganize a colossus. And as University of Maryland business professor Peter Morici says, avoid the lengthy process of bankruptcy court.

Peter Morici:This permits the federal government to go in and act surgically, get it over with quickly, and keep the financial system going.

He says it’s a good way to stop the financial pain from spreading like it did last year after Lehman Brothers failed.

But banking consultant Bert Ely is concerned about potentially shifting a troubled financial giant.

Bert Ely:From the bankruptcy courts, to where creditors can get a hearing, into some type of administrative process, where there would be much less, if any, judicial review.

He said the new rules could mean large companies have to start paying a lot more for credit.

I’m Ashley Milne-Tyte for Marketplace.