A controversial amendment to a far-reaching bill to overhaul the U.S. financial system that would require secured creditors to take losses in the event of a bank failure may not survive in the final legislation.

The amendment is "generating a lot of controversy," House Financial Services Committee Chairman Barney Frank (D., Mass.) told Dow Jones Newswires Wednesday. He said he wouldn't be surprised to see "an effort to knock it out of the bill."

The amendment is sponsored by Brad Miller (D. NC) and Dennis Moore (D., KS). It would require secured creditors under certain circumstances to take haircuts of up to 20% should a financial firm fail.

The financial sector is concerned that the amendment, if passed as stands, would add significantly to banks' cost of funding in the securities repurchase market, where financial firms borrow against collateral. It could also raise the cost of government funding by making it costlier for dealers to hedge.

Overall, it would make money more expensive for everyone, from businesses to consumers.

Frank said that it's too early to speculate on the potential impact of components of the bill, but noted that legislators are open to changing parts of the bill.

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