The systemic risk fund -- worth at least $100 billion, depending on the congressional proposal -- is part of a bill that recently passed the House of Representatives' Financial Services Committee. "At a time when the industry is rebuilding its capital and helping to restore the economy, redirecting $100 billion in capital will further hamper economic recovery," the group -- including six industry associations -- wrote in a letter to the chairman and ranking member of the Senate committee considering the legislation. "In addition to upending bankruptcy laws and distorting investments, it will disadvantage U.S. firms who would compete against foreign firms with no such obligations."
The organizations signing onto the letter were the American Council of Life Insurers, American Insurance Association, The Financial Services Forum, The Financial Services Roundtable, Property Casualty Insurers Association of America and the Securities Industry and Financial Markets Association.
The systemic risk bill, which would assess fees from major firms to build a fund to help ward off the need for future federal bailouts, is now joined with several other House financial reform bills in a package of major changes to the regulation of the U.S. financial system. But on the Senate side, a similar package of legislation -- a massive bill proposed by Sen. Chris Dodd, chairman of the Banking, Housing and Urban Affairs Committee -- is still being negotiated. These latest industry arguments are targeted at those lawmakers.
As explained by the office of Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, the legislation in that chamber "provides protection for American taxpayers, creating a special fund to cover the costs of the dissolution process, which would be prepaid for by financial firms with assets more than $50 billion and hedge funds with assets over $10 billion."
The industry letter says the idea, which "could be viewed as extending open-ended aid to creditors and shareholders," would hit an industry "already hampered by capital depletion and investor uncertainty." It also argued: "Insured depository institutions, brokers and dealers, and insurance companies already are subject to resolution regimes that depend on a guaranty mechanism funded by assessments."
Insurers have also criticized their inclusion in this systemic-risk arena. "This proposal for [Federal Deposit Insurance Corp.] assessments of life insurers is a bad idea right from the start for so many reasons, such as the fact that we already can be assessed under state guaranty associations," said Jack Dolan, a spokesman for ACLI. "More specifically, to include life insurers in a pre-funded systemic risk resolution fund is outrageous."