By Karey Wutkowski and Clare Baldwin WASHINGTON/NEW YORK (Reuters) - A reserve fund must be established ahead of time to give the government the working capital it needs to dismantle large, troubled financial companies, a top U.S. bank regulator said on Tuesday. Sheila Bair, chairman of the Federal Deposit Insurance Corp, said she opposes the proposal by the Obama administration and a leading senator to collect fees from financial companies after another firm is seized and dismantled. "This would not be a bail-out fund. This would not be an insurance fund," Bair said in prepared remarks to the Institute of International Bankers. "It would provide short-term liquidity to maintain essential operations of the institution as it is broken up and sold off." Senate Banking Committee Chairman Christopher Dodd earlier on Tuesday released draft legislation that calls for any government expenses to be recouped after a financial company fails and is liquidated. The FDIC would be in charge of dismantling the company. Treasury Secretary Timothy Geithner has been adamant that creating a standing fund would enhance moral hazard and be viewed by the financial industry as an insurance fund that would insulate it from risky bets. Bair, however, has been successful in convincing Representative Barney Frank to reverse his opinion on the topic. He recently said he now supports pre-funding the so-called resolution authority. The resolution authority is just one piece of sweeping legislation moving through Congress to overhaul financial regulation. Other pieces include creating a new consumer agency to police financial products, consolidating bank regulators and creating a new council to oversee risks to the financial system. The House has made considerably more progress through public bill-writing sessions and hopes to have a full House vote by early December. The Senate Banking Committee will start drafting formal language and consider amendments in early December, Dodd said on Tuesday. He did not estimate when the full Senate might vote. Continued... |