By Phil Mattingly and Rebecca Christie March 10 (Bloomberg) — Senate negotiators are closing in on a deal to create a $50 billion trust fund from fees on large U.S. financial firms that likely will include Goldman Sachs Group Inc. and Citigroup Inc. and be used to wind down failing institutions, said a Senate aide and two people familiar with the talks. Senator Mark Warner , a Virginia Democrat, and Senator Bob Corker , a Tennessee Republican, are near agreement to create a mechanism that will dissolve companies in an orderly way without using taxpayer funds, according to two Senate aides who declined to be identified yesterday because the talks are private. Treasury Secretary Timothy Geithner met Warner and Corker yesterday to discuss the overhaul negotiations without reaching a deal, said a person familiar with the meeting. An agreement on the powers to shut large institutions would remove one of several roadblocks that have stalled Senate negotiations on the overhaul legislation. A final agreement hasn’t yet been reached on the resolution powers, or on the broader measure, the aides said. The House in December passed legislation that created a larger, $150 billion fund, to avoid taxpayer bailouts, such as the rescue of American International Group Inc. in 2008. The measure would give the government power to prop up non-bank firms, the authority regulators said they lacked when Lehman Brothers Holdings Inc. filed for bankruptcy in 2008. The Federal Deposit Insurance Corp. would get primary responsibility for managing the shutdown of a systemically risky firm on the verge of failure, the people said. Fed, Treasury Role The Senate compromise would give the Federal Reserve the power to decide which firms would pay into a trust fund that would be held and managed by the Treasury Department, according to a person familiar with the matter. Banks deemed to be a systemic risk would pay into the fund, and the firms could earn interest, the person said. The trust would be structured to avoid altering a company’s earnings or capital levels, the person said. 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. The FDIC then could assess the banking industry for any losses incurred by the trust fund, the person said. The committee also is considering a proposal that would require regulators to consult with a bankruptcy court before acting against a failing firm, according to people familiar with the matter. If the court approved, Treasury would appoint the FDIC as the receiver. Geithner Proposal Geithner last year proposed assessing a wind-down fee on financial firms after an institution failed. Geithner, in testimony to the House Financial Services Committee, said on Oct. 29 that paying in advance would create “moral hazard” by signaling to companies cash was available in the event of a failure. House Democrats said the banking industry should be forced to pre-pay for any failures. House Republicans have objected to any prepaid fund, saying it would create a “permanent bailout authority.” FDIC Chairman Sheila Bair has backed a prepaid fund so that shareholders and creditors bear any losses, not taxpayers. Senate negotiators, led by Banking Chairman Christopher J. Dodd , a Connecticut Democrat, and Corker have been in negotiations for the past three weeks that Dodd said are tedious and fragile. “I can tell you very candidly, it’s very delicate and this thing could trip easily,” Dodd told reporters yesterday. To contact the reporter on this story: Phil Mattingly in Washington at pmattingly@bloomberg.net .
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Senate Said to Weigh Setting Up $50 Billion Fund to Wind Down Failed Firms
