The plan goes beyond the powers requested by the Obama administration in its proposed overhaul of financial regulations to allow the government to seize and dismantle large companies on the brink of failure if such a collapse would threaten to damage the financial system. “I recognize this is extraordinary power. Hopefully, it will never have to be used,” Kanjorski said. It would be used only if other regulatory measures did not reduce the threat of sprawling companies failing, he said.

A new council of financial regulators would have authority to dismantle large operations. Under the plan, the forced divestiture of assets worth more than US$10 billion would have to be approved by the Treasury secretary, and any divestiture of more than US$100 billion would require consultation with the president.

The House Financial Services Committee voted 38-29 to add Kanjorski's proposal to legislation that would grant federal regulators so-called resolution authority to dissolve large financial companies teetering near bankruptcy.

The Obama administration said it needs the authority to avoid situations such as last year's collapse of giant insurer American International Group Inc. The Federal Reserve bailed out the insurance giant because officials feared the economic chaos from a bankruptcy would have reverberated through the financial markets worldwide. The committee is expected to approve the broader legislation Thursday.

Republicans on the committee strongly opposed the new break-up power, calling it “draconian” and “unconstitutional.”

“When the government says you are too big and we're going to make you dismantle, that is a taking of private property rights in this country,” said Rep. Randy Neugebauer, R-Texas.

Financial giants also adamantly oppose the idea. Jamie Dimon, chief executive of JP Morgan Chase, said last week that he endorsed enacting resolution authority to allow for the orderly dismantling of a large financial company at risk of collapse. But he said the size of financial companies should not be capped, in part, because they would not be able to compete with huge banks based in other countries.

Still, the idea of breaking up such too-big-to-fail financial giants before they can pose a threat to the system is gaining momentum.

Former Federal Reserve Chairmen Paul Volcker and Alan Greenspan recently endorsed the idea, as has the head of the Bank of England. Senate Banking Committee Chairman Christopher Dodd, D-Conn., has similar power in his proposed overhaul of regulations.

But the Obama administration has been cool to the idea, preferring to force tougher regulations on huge financial companies, such as requiring them to hold more money as a cushion against losses. A company would be broken up only when in danger of collapsing, according to the Obama administration's proposal.