Nov. 3 (Bloomberg) -- U.S. House Financial Services Committee Chairman Barney Frank said he wants to make public the firms deemed to be systemically risky as part of legislation being considered to prevent taxpayer-funded bailouts.

Frank reversed course on provisions in a bill he crafted with the Obama administration and proposed last week, saying he would drop a proposal that would keep secret the identity of firms deemed to be a risk.

“The way an institution will be publicly identified as systemically important is the day it is hit with severe, stricter constraints,” Frank said today at a Washington news conference. Restraints may include higher capital requirements and limits on size or actions, the Massachusetts Democrat said.

Frank’s bill creates a council of regulators to monitor large firms and the economy for systemic risks and gives the Federal Deposit Insurance Corp. power to liquidate large failing firms. The measure, to be debated by the committee beginning tomorrow, is part of the effort to rewrite rules for Wall Street based on President Barack Obama’s overhaul.

The legislation is aimed at preventing companies from becoming so large their failure would shock the economy. Lawmakers are seeking to prevent further taxpayer bailouts after last year’s rescues of American International Group Inc., Citigroup Inc. and Bank of America Corp.

Frank plans to require advance payment from firms with more than $10 billion in assets for a fund used to unwind failing companies. He dropped a proposal sought by the administration to charge the financial industry to recoup costs for dissolving a failing firm.

‘People Are Skeptical’

Paying after a failure “means that you have to have the Treasury advance the money to be paid back by an assessment,” Frank said. “People are skeptical of that. We will adopt an amendment that will establish the fund” beforehand.

If the fund runs dry, the Treasury Department will cover any costs and be repaid through assessments on the banking industry “with significant congressional involvement,” Frank said. The size of the fund hasn’t been determined, he said.

The legislation also will prevent the Federal Reserve from providing funds to any individual institutions, such as broker Bear Stearns Cos. before its March 2008 sale of JPMorgan Chase & CO. with an emergency Fed backstop.

“No more Fed to AIG,” Frank said. “No more Fed to Bear Stearns.”

Congress may encourage the Fed to fund a liquidity facility for institutions, similar to the Temporary Liquidity Guarantee Program set up by the FDIC last year to offer backing for senior unsecured bank debt, he said.

Second Assessments

“That’s something we will be working out -- how that money is available,” Frank said. “We will not put the U.S. Treasury at risk. There may be a second set of assessments.”

Frank said the committee plans to complete debate on the measure next week with a House vote on the overhaul package in December.

Frank endorsed Elizabeth Warren, a Harvard University law professor, to lead the Consumer Financial Protection Agency that will police banks for credit card and mortgage lending abuses. The committee approved the agency Oct. 22.

Senate Banking Committee Chairman Christopher Dodd plans to release a draft regulation bill as early as next week and start debate the week of Nov. 16, spokeswoman Kirstin Brost said.

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.

Last Updated: November 3, 2009 16:37 EST