Phillip Swagel's take on the Senate's financial regulatory overhaul bill ("Ironing Out The Kinks in the Dodd Bill," op-ed, April 30) does an excellent job of pointing out problems with the $50 billion bailout fund that has been at center stage in Washington. But it neglects to identify an even larger potential moral hazard, the unlimited post-disaster fund that has gone almost completely unnoticed.
Buried deep within the 1400-page bill, the federal government could soon be given the power to impose unlimited assessments on all financial companies to recoup future resolution expenses.
So while the pre-assessed $50 billion fund may be off the table for now, a much greater threat lurks in the shadows—with much broader scope and authority.
Here's another important point: Home, auto and business insurance companies, which even the Obama administration has said had no role in creating the financial crisis, have been swept into the new federal resolution net.
Property and casualty insurers are not looking for a carve-out. In fact, we believe that industries should pay for their own failures and, if structured properly, resolution funds play an important role in protecting consumers. But this new proposal means insurance companies pay twice for resolution costs, while investment firms only pay once. Great Aunt Sally in Tulsa should not pay more for her auto insurance to resolve risky investment gambles in Manhattan.
It's simply a fact that all property and casualty and life insurers already pay into state guaranty funds, which are funded solely by the insurance industry. The state insurance resolution system pays policyholder claims in the unlikely event of a company insolvency.
Observers, beware, the debate over resolution authority has only just begun. It's time to look at the federal government's post-event emergency plan and who will be footing the bill. Making property casualty insurers pay twice for resolution threatens to increase costs for the 270 million home, auto and business policies that we honor across the nation.