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The House on Thursday passed a financial services and general government spending bill for fiscal year 2017 that would magnify scrutiny on some regulators and make funding cuts to the Internal Revenue Service and Securities and Exchange Commission, MorningConsult.com reported on Friday. Lawmakers voted 239-185 to pass H.R. 5485 after considering 70 amendments. The White House last month threatened to veto the legislation, which now heads to the Senate. The spending bill would cut $236 million in IRS funding from 2016 levels and $50 million from the SEC’s budget. It also would give Congress a firmer grip on regulators like the Consumer Financial Protection Bureau. Lawmakers adopted an amendment offered by Rep. Scott Garrett (R-N.J.) that would prohibit the use of funds to classify nonbank firms as systemically important financial institutions. They also adopted one offered by Rep. Sean Duffy (R-Wis.) that would bar funds from being used to implement, administer or enforce new regulatory actions of more than $100 million.

Legislation to make the bankruptcy of a big bank more feasible is gaining steam on Capitol Hill, a development that could help the largest U.S. financial firms counter criticism that they remain “too big to fail” without a taxpayer bailout, the Wall Street Journal reported today. Changes to the Bankruptcy Code were included in a financial-services budget bill the House passed yesterday, along with other regulatory provisions such as congressional oversight of the Consumer Financial Protection Bureau’s budget. The “Financial Institutions Bankruptcy Act” would establish a section of the Bankruptcy Code specifically for large financial firms. It is designed to prevent a repeat of the 2008 Lehman Brothers debacle, when that investment bank’s bankruptcy filing caused widespread financial panic that brought the global economy to its knees. Under the bill, regulators and bankruptcy judges would have more power and flexibility to sort out the liabilities of a failing firm and to stabilize its continuing operations. The bill has already passed the House Judiciary Committee unanimously, and passed the House by voice vote. By including it in a budget bill, it becomes more likely to clear Congress this year. The White House said last month, regarding the House bill, that “revisions to the Bankruptcy Code have no place in an appropriations bill.” But the statement didn’t oppose the substance of the bankruptcy code changes, and many regulators have previously supported reworking the bankruptcy code to better handle large financial firms.

Three major bond insurers are bracing for the possibility of a historic payout if Puerto Rico defaults on debt due today, the Wall Street Journal reported. Puerto Rico Gov. Alejandro García Padilla yesterday reiterated statements that the commonwealth cannot afford to make the payment and cited an April law that allows Puerto Rico to temporarily stop paying bond debt. García Padilla has long said that the island would not be able cover the July 1 payment of nearly $2 billion. That could trigger as much as hundreds of millions in payments from insurers Ambac Financial Group, National Public Finance Guarantee Corp. and Assured Guaranty Ltd. to cover principal and interest, in what would be the biggest insurer payout to date in Puerto Rico. It isn’t yet known how likely this worst-case scenario is since it is unclear just how much the insurers will have to pay. In some cases, the reserve funds set aside by Puerto Rico could cover payments. Analysts said the ultimate impact will be limited because all three insurers have money set aside for such claims and their share prices have already suffered because of Puerto Rico’s troubles. Insurers also agree to pay only the amount due on the day it is due, not to accelerate payment on the defaulted bonds. Read more. (Subscription required.) 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.