Following the collapse of Lehman Brothers Holdings Inc. and other financial institutions in 2008, lawmakers drafted the resolution authority, which allows the Federal Deposit Insurance Corp. to borrow funds from the U.S. Treasury to resolve firms while maintaining financial stability. The FDIC could then impose a fee on the nation’s largest financial organizations in order to recover the taxpayer money used in the bailout, according to Bloomberg.
The repeal is part of a larger effort that would cut, at minimum, $29.8 billion from the budget as mandated by Dodd-Frank. Chairman Spencer Bachus of the Financial Services Committee has proposed total cuts of $35.1 billion over the next 10 years through four different actions – repealing the resolution authority, subjecting the Consumer Financial Protection Bureau to the congressional appropriations process, ending the Home Affordable Modification Program and reauthorizing structural changes to the National Flood Insurance Program.
“Congress has an obligation to make tough choices that cut spending, reduce the deficit and do so in a way that does not imperil our nation’s defenses,” Bachus said on Friday, Bloomberg reports.
Lawmakers are currently developing a plan to cut $261 billion from the budget or otherwise face automatic cuts to the defense budget beginning in January. The debt-limit agreement signed in 2011 mandated that the federal budget would see $1 trillion in automatic cuts if a budget-cutting committee could not agree on a plan to reduce the national deficit.
The Congressional Budget Office estimates that repealing the resolution authority would cut approximately $22 billion from the budget over the next 10 years. In 2010, the CBO said that, over the course of the next decade, much of the direct spending resulting from Dodd-Frank would be related to the implementation and use of the resolution authority, adding that the legislation itself would not contribute to the deficit, according to Bloomberg.