The US government is a step closer to having the power to dismantle large financial institutions after a House of Representatives Committee voted through the proposals.
Under the terms of the bill, a new council of regulators would be set up.
To be known as the Financial Services Oversight Council, it would have the power to break up firms deemed to have grown too large and influential – even if they are in good financial health.
When considering breaking up a bank, the council would look into the "scope, scale, exposure, leverage [and] interconnectedness of financial activities".
Democrat Paul Kanjorski, a sponsor of the proposal, said: "No firm should be considered to be too big to fail.
"Financial firms that want to play in a casino need to have their own resources to cover their bets and not assume that tax dollars are available in reserve if their bets fail."
The bill is being opposed both on Wall Street and in sections of the Republican Party, on the grounds that it would hand too much power to regulators while putting financial institutions at a disadvantage by making them downsize.
It was slightly amended this week to say that the government would only intervene when organizations present a "grave threat" to the financial system, but has still been met with opposition.
Scott Talbot, a senior lobbyist for the Financial Services Roundtable, told the Associated Press that Wall Street continued to be against the idea, despite the proposal being made more moderate.
The bill needs to be passed by the House of Representatives and ratified by the Senate before it becomes law.
It is just one of a series of ideas proposed by politicians to better regulate global banking.
Earlier this month, UK prime minister Gordon Brown suggested that a tax on transactions between financial institutions should be introduced to provide the funds to pay for any future bailouts.
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