By K.C. Gulino

WASHINGTON (MNI) - The House Financial Services Committee continued its battle Wednesday to nail down sensitive final details of its version of the financial regulatory reform legislation, in particular, the expanded role the FDIC would play under the proposal.

The committee approved an amendment Wednesday which would make permanent the FDIC's Temporary Liquidity Guarantee Program for solvent financial institutions. This time, however, it would underwritten by the banking industry.

The institutions, Committee Chairman Barney Frank stressed, would pay for their own guarantee. The reformulated program, he said, is "entirely voluntary" and is not "prefunded."

Frank said the oversight panel had concerns with the overall atmosphere of risk and how the program has been operated so far. This time, he said, there would be more safeguards and that his amendment is "strongly advocated by the head of the FDIC." The program, he said, is one "that will provide liquidity in a crisis situation."

"This is a service that they offer and you have to pay a fee for the guarantee," he said. The fees "will be collected at the time that the guarantee was issued," and will be offered to "any institution ... as long as the FDIC finds them solvent."

The TGLP was extended for senior unsecured debt issued after April 1 and before Oct. 31 and maturing before the end of the year. Fees on debt issuance were increased. The FDIC also set up in October a six-month emergency guarantee facility.

The FDIC also has available a guarantee on financial institution transactions.

Under the committee's proposal, the FDIC can choose not to extend its guarantee program on a case-by-case basis. "It has to be two willing parties, the bank has to want it, and the FDIC has to agree," Frank said.

The FDIC would set up criteria for the financial firms to follow in order to apply for this program. "It's in their discretion to set a guarantee amount and to price it appropriately" Frank said of the FDIC. And, he sadded, "The FDIC is mandated to not bite off more than they can chew."

Asked why the financial regulatory reform legislation has to include something similar to what the FDIC has already provided, Frank answered that although the existing program has worked reasonably well "and in fact made a profit for the federal government ... after Lehman Brothers (collapse) there was this fear, people weren't lending to people who were solvent ... . That was the problem this last couple of years."

The FDIC has extended about $600 billion in debt guarantees, collecting about $10 billion in fees and surcharges with no losses so far.

Frank said the taxpayer would not be placed at risk, "not according to this bill," he said. "There was some suggestion of that and I've stricken it from the bill." Republicans universally opposed the measure, describing it and the rest of the bill as a permanent bailout for banks.

The fees paid by institutions are "subject to the notion that they may be increased later if there is a need for it," Frank said. Also, if the FDIC makes a mistake in pricing, then the FDIC will be mandated to borrow money from the government but the borrowers will know they also face a liability. The special fund would not, however, be able to draw on the FDIC's bank deposit insurance fund, he said.

Still pending before the committee are proposals to allow increased audits of the Federal Reserve by the Government Accountability Office. One proposal would limit such audits to routine operations and another, originated by Rep. Ron Paul with more than 300 co-sponsors, would allow auditing of the FOMC's monetary policy. Fed Chairman Ben Bernanke has opposed that as a serious threat to the central bank's necessary independence.

On the Senate side, the Banking Committe formally begins its work Thursday on its version of financial regulatory reform.

** Market News International Washington Bureau: 202-371-2121 **