New tack on fund to dissolve failed firms
Support grows for companies to pay into account ahead of a crisis

By Brady Dennis
Washington Post Staff Writer
Saturday, October 31, 2009

Rep. Barney Frank, chairman of the House Financial Services Committee, indicated Friday his willingness to change gears and support a provision that would require financial companies to pay ahead of time into a fund that the government could use to wind down large, troubled financial firms.

Legislation the Massachusetts Democrat put forward earlier this week, in consultation with the Treasury Department, initially called for companies with more than $10 billion in assets to be assessed fees only after a large firm's collapse, rather than contributing ahead of time into an insurance-like fund.

Lawmakers on both sides of the aisle, as well as Federal Deposit Insurance Corp. Chairman Sheila C. Bair, questioned that approach. Bair asserted that a pre-funded structure has "significant advantages" and recommended against assessing firms such fees during a crisis.

"The fear that the administration had, that I shared, was if you put it out there beforehand, that will be announcement to people that it's available and they might behave irresponsibly. It turns out that doesn't have any impact because everybody thinks it's going to be there anyway," Frank said in an interview Friday with Bloomberg Television.

The legislation is aimed at preventing a repeat of last fall's bailouts of financial giants such as American International Group and Citigroup, when officials believed that their only options were to save the firms with taxpayer dollars or allow them to collapse into bankruptcy.

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