Nov. 6 (Bloomberg) -- No large financial firm should be too big to fail, said two members of the U.S. Senate Banking, Housing and Urban Affairs Committee.

“We do not need to have in this country a situation where an entity is so large it cannot fail,” Republican Senator Bob Corker said. “It should fail if it fails.”

Corker from Tennessee and Democratic Senator Mark Warner from Virginia are sponsoring legislation to give the Federal Deposit Insurance Corp. the authority to force large bank holding companies into receivership. Any firm that benefits from a government-funded orderly wind-down would be required to close its doors permanently to avoid a perpetual series of government bailouts.

The senators spoke in an interview in Washington for Bloomberg Television’s “Conversations with Judy Woodruff,” airing today.

“We’ve got to put in place an ability to allow these institutions, if they get into trouble, to fail in an orderly fashion,” Warner said.

The Warner-Corker legislation does not specify how such an FDIC resolution authority would be funded. Warner said he would prefer requiring financial institutions to pay into a fund during “good times.” He said he opposed President Barack Obama’s preference to have companies pay only after the government intervenes.

Obama Approach

The Obama approach “would mean that the bad-acting party would have gotten away scot-free,” Warner said. “We need to have some of these additional fees or penalties pop up during the good times and not just during the bad times.”

“If we got into another crisis and you had to do a post- crisis assessment, chances are the institutions would all be in tough times again,” Warner said. “They would all complain about that assessment at that point.”

On executive pay, Warner said Wall Street faces populist anger over pay structures that reward short-term gains.

“I wish Wall Street would be a little more cooperative and collaborative on this,” Warner said.

The idea of government regulators setting pay limits on private enterprises is “incredibly un-American,” Corker said, unless those companies have accepted federal bailout money.

“On those firms that have gotten involved with us - and hopefully they’ll never do it again - I think it’s perfectly appropriate for some involvement there,” said Corker.

House Proposal

In the House, the Financial Services Committee is considering legislation that would require companies with assets of more than $10 billion to pay into a fund for the dismantling of other large companies that fail. The measure is designed to prevent taxpayer-funded bailouts of companies whose collapse could threaten the financial system.

Representative Paul Kanjorski has proposed a separate plan to allow the federal government additional power to break up certain large financial firms. Kanjorski, a Pennsylvania Democrat, is coordinating with the European Union, which is forcing asset sales by state-aided banks.

In Europe, Royal Bank of Scotland Plc and Lloyds Banking Group Plc, the two biggest U.K. banks to get aid, said yesterday they would sell branches and divisions to win EU approval for their bailouts.

“My guess is at the end of the day we’re going to be successful in ending any thought of an organization being too big to fail,” Corker said. “There’s too much momentum on both sides of the aisle to keep that from being the main course.”

Bipartisan Alliance

Warner and Corker have formed a bipartisan alliance to push financial services regulation and could play key roles in any banking committee vote. Since March, the two first-term senators have been inviting policy makers and opinion leaders to closed- door meetings to help educate lawmakers and their staff on challenges facing the financial services industry.

Both senators praised FDIC Chairwoman Sheila Bair. Warner called her leadership “independent, determined and bold.”

Bair “has been probably the most listened-to of anybody who’s come forth” during the financial regulation debate, Corker said.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net.

Last Updated: November 6, 2009 00:00 EST