Major insurance trade groups are asking the Senate BankingCommittee not to require large financial institutions to prefund asystemic risk resolution fund as part of financial services reformlegislation.

Creation of such a fund, the organizations argued, would havenegative economic consequences.

The fund–created through assessments on financial institutionswith assets of more than $50 billion–would be used to pay for thefailure of systemically significant financial firms. Such aprovision is included in H.R. 4173, the Wall Street Reform andConsumer Protection Act.

The House bill would authorize creation of a fund of up to $150billion. In the letter, the trade groups say that to create a $100billion fund, roughly $13-to-$14 billion per year would be neededin the next five-to-six years, “using conservative estimates.”

The industry trade groups that signed the letter represent large property and casualty and lifeinsurance companies. They joined groups representing securities,brokerage and mutual fund companies in signing the letter, whichwas sent to the chair and ranking minority member of the Senatebanking panel.

The Senate committee is working to draft bipartisan financialservices legislation similar to the House bill. It hopes to have abill ready for committee consideration before Congress departs forthe Christmas recess.

“A new, prefunded systemic fund would threaten the economicrecovery by diverting capital from job creation when previousefforts to augment capital are beginning to have an impact,” theletter said. “Further, there is no evidence that the existence ofsuch a fund would deter the creation of new asset bubbles or othermarket distortions.”

Those groups signing the letter include the American InsuranceAssociation, the Property Casualty Insurers Association of Americaand the American Council of Life Insurers, as well as the FinancialServices Forum, the Financial Services Roundtable and theSecurities Industry and the Financial Markets Association.