WASHINGTON — Sens. Elizabeth Warren, D-Mass., and David Vitter, R-La., have joined forces for a second time this month on legislation to reform the Federal Reserve.

The Bailout Prevention Act, unveiled Wednesday, would limit the Fed's emergency lending authority to help stop future bailouts of the country's largest banks.

"If big financial institutions know they can get cheap cash from the Fed in a crisis, they have less incentive to manage their risks carefully — which further increases the chance of another financial crisis," Warren said in a press release. "This bill would make our financial system safer and help level the playing field between the megabanks and their smaller competitors."

The legislation would require any lending program to be broad-based, available to at least five institutions, and banks would have to borrow at a "penalty rate" of 5 percentage points more than the rate for Treasury securities. The Fed would be able to lend absent those two requirements only if it secures approval from Congress within 30 days.

Separately, the bill would close a loophole in a 1999 banking law that allows Goldman Sachs and Morgan Stanley to hold physical commodities, an issue lawmakers on both sides of the aisle have raised concerns about before.

The two Banking Committee members argue that removing the grandfather clause would "reduce the risk of future bailouts and market manipulation," according to the press release.

Last week, Vitter and Warren introduced a bill that would allow Federal Reserve Board governors to hire individual staffs and would require the board to sign off on settlements and enforcement actions over $1 million.

That bill was included in a package of regulatory reforms unveiled Tuesday by Sen. Richard Shelby, R-Ala., chairman of the Banking Committee. It's possible the bailout provision could be raised as an amendment to the broader legislation at a markup on May 21.

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