Legislation to dismantle banks 'too-big-to-fail' approved by Senate

The US Senate has approved legislation which will allow the authorities to break up financial institutions deemed ‘too-big-to-fail’.

Plans to create a $50 million fund to pay for the unwinding of firms have been dropped after a proposal by Democrat and Republican senators, Chris Dodd and Richard Shelby,

Following the 93-5 vote in favour of the amendment, the US government will now have new powers to dismantle ailing companies.

The deal is thought to have been reached following many months of negotiations by the pair.

Mr Dodd was quoted by Bloomberg as saying: “We’ve ended the 'too-big-to-fail' debate.

“No longer do I expect any argument to be made that this bill exposes the American taxpayer.”

Another amendment, proposed by senator Barbara Boxer, to outlaw the use of taxpayer money to help support struggling firms was also agreed upon by members of Congress.

Tim Geithner, added: “The strong bipartisan support for this provision demonstrates the growing momentum for passing comprehensive financial reform."

The new proposals are aimed at preventing taxpayer money being used to bail out firms such as Lehman Brothers, which collapsed during the global credit crisis in 2008.

By Jim Ottewill