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Bank failures should be steered toward bankruptcy code, Mnuchin says

The government should not have statutory mechanisms for bailing out large banks in place of bankruptcy, former Goldman Sachs Group Inc. and OneWest Bank Group LLC executive Steven Mnuchin told senators Jan. 19.

During his confirmation hearing to be secretary of the U.S. Treasury, Mnuchin agreed with Sen. Pat Toomey, R-Pa., that the Title II provision of the Dodd-Frank Act is not the proper avenue for dealing with failed banks. The provision creates an "orderly liquidation authority" framework in which the FDIC can act as receiver for large, interconnected banks.

"I think if we have the proper regulation, a lot of the need for Title II also goes away," Mnuchin said.

Mnuchin also spoke about housing reform, which he said should happen alongside reform of government-sponsored enterprises. Fannie Mae and Freddie Mac have been well-run for long stretches of time without too much risk to the government, Mnuchin said.

Sen. Mark Warner, D-Va., asked Mnuchin if he agreed with the notion that the government should allow them to return to the operations that preceded their recession-era bailout without significant changes.

Mnuchin said he thought changes should involve the enterprises and the market. "I believe we can find a bipartisan fix for these so on one hand we don't end up with a giant bailout, and on the other hand we don't run the risk of completely limiting housing finance," Mnuchin said.