To: Members of the H.R. 4173 Restoring American Financial Stability Act of 2010 Conference Committee
Re: Support House Offer on Title II – Resolution Authority to Improve Regulatory Capacity to Prevent the Next Financial Crisis
The over 250 consumer, employee, investor, community, small business and civil rights groups who are members of Americans for Financial Reform (AFR) write to express our vigorous support for the House offer on Title II. We urge the Senate to accept the House offer.
It is essential that the Wall Street Reform bill protects taxpayers from future bailouts, and efficiently and effectively terminates failed financial institutions. The House offer on Title II substantially improves the Senate bill via the following key provisions:
1.) $150 billion Orderly Liquidation Fund: The House offer’s orderly liquidation fund—created entirely through industry assessments—provides the FDIC with the financial tools necessary to dismantle and terminate failed financial institutions. The OLF in no way serves to bailout and resuscitate failed firms; it is a funeral fund. Because the OLF is comprised entirely of industry assessments, taxpayers are fully protected from being assessed for liquidation and bailout funds.
2.) Secured Creditor Haircut: The House offer provides for a study regarding secured creditor haircuts. Bank creditors enforce market discipline by not guaranteeing creditors 100 cents on the dollar (as happened in the case of AIG) in the event of resolution. This would apply only in the rare circumstance where losses were so severe that all other creditors have been wiped out, and would force secured creditors of products such as “repo” repurchase agreements to take a small haircut before Treasury funds are spent. To provide for a haircut for secured creditors is important market disciplinary mechanism that would make our financial system safer and more stable.
Americans for Financial Reform