Senate Banking Committee Chairman Christopher Dodd said he and Sen. Richard Shelby, R-Ala., agreed to strengthen language in Mr. Dodd's financial-regulation overhaul legislation aimed at ending taxpayer-funded bailouts.
The amendment would bar the Federal Reserve from propping up firms such as American International Group, drop a $50 billion industry-supported fund to cover the cost of unwinding failing companies and ensure shareholders and unsecured creditors bear losses when the government liquidates a business, Mr. Dodd, D-Conn., said Wednesday on the Senate floor.
“These measures will prevent large failing firms from holding our country hostage,” Mr. Dodd said.
Mr. Dodd's deal with Mr. Shelby, the banking committee's top Republican, may allow the Senate to vote on other changes to the sweeping proposal after a week's delay as the two lawmakers worked toward compromise.
The Senate will vote later Wednesday on the Dodd-Shelby amendment and a similar proposal offered by Sen. Barbara Boxer, D-Calif., which would prohibit use of taxpayer funds to keep failing firms in business.
Both amendments target a provision in Mr. Dodd's bill that would give the FDIC power to liquidate large failing financial firms whose collapse would shake the economy. Republicans used procedural votes last week to block debate of the bill, protesting what they said was a loophole that would perpetuate bailouts such as the $182.3 billion AIG has received since credit markets froze in 2008.
Under the agreement with Mr. Shelby, most large financial companies would have to be liquidated through bankruptcy and Congress would have to approve use of debt guarantees, Mr. Dodd said. The Fed could use its emergency lending authority only to help solvent companies, and regulators could bar executives and directors of failed firms from working in the financial industry, he said.
“With this agreement, there can be no doubt that this Senate is unified in its commitment to end taxpayer-funded bailouts,” Mr. Dodd said.