Tags: Senate | Billion | Failed | Firms

Senate Said to Weigh $50 Billion for Failed Firms

Wednesday, 10 Mar 2010 03:38 PM

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Senate negotiators reportedly are closing in on a deal to create a $50 billion trust fund from fees on large financial firms that may include Goldman Sachs and Citigroup.

Senators Mark Warner and Bib Corker are said to be nearing an agreement that would create a mechanism to dissolve companies without using taxpayer funds, Bloomberg reports.

“The goal is to have a bill that’s presented to committee that’s close enough to the middle of the road, in balance, that people can offer substantive amendments,” Corker told CNBC. “I don’t think we ought to try and pass legislation that solves all the problems in the world.”

An agreement on the powers to close large institutions would remove one of several roadblocks that have stalled Senate negotiations on the overhaul legislation, observers note.

Should a systemic firm fail, Treasury would transfer cash from the $50 billion fund to the resolution authority to cover any costs to shut the firm, after which the Federal Deposit Insurance Corp. could assess the banking industry for any losses incurred by the trust fund.

According to a report in The Wall Street Journal, Elizabeth Warren, who chairs the five-member Congressional Oversight Panel, said it was clear that financial markets do assume the guarantee exists, pointing to a recent ratings-company report that specifically noted the government's role in backing Citigroup.

"The market clearly perceives that there is a too-big-to-fail guarantee," Ms. Warren said.

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