WASHINGTON BUREAU — Prefunding a resolution authority that would be used to wind down large, troubled financial institutions “may encourage the same irresponsible behavior that gave rise to the economic crisis,” Promontory Financial Group L.L.C. says in a new paper.
The American Council of Life Insurers, Washington, commissioned Promontory, Washington, to prepare the paper.
Promontory, an economic consulting and research firm, says using assessments on financial firms to put cash in a “systemic dissolution” fund for large, failing financial institutions would hamper economic growth and be unfair to participating financial firms.
Prefunding a systemic dissolution fund also could promote riskier activity among financial institutions, Promontory says.
What Your Peers Are Reading
Promontory released the paper as Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking, Housing and Urban Affairs Committee, continued to work on a financial services bill. Some say the bill could come out next week.
A draft released in December 2009, the Restoring American Financial Stability Act of 2009 draft bill, would permit assessments only after the systemic resolution fund receives a claim.