Rep. Frank changes position, says he now supports pre-funded bailout trust

Rep. Barney Frank (D-Mass.) has shifted his position on a key part of the debate over financial reform.

Frank, the chairman of the House Financial Services Committee, said Friday that he is in favor of financial firms paying into a pre-funded trust that would cover the costs when the government takes over failing firms.

This puts Frank on the side of Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation (FDIC). In testimony to Frank’s committee on Thursday, she opposed the notion of raising money from fees after a firm fails. Instead, she said companies should be assessed beforehand.

The Obama administration is strongly urging lawmakers to support new so-called “resolution authority” powers so future administrations don’t need to seek bailout money from Congress.

The Obama administration and Frank earlier this week both said said they support an after-the-fact assessment to help pay the costs associated with a failed firm. That assessment would fall on firms that have at least $10 billion in assets.

It is unclear whether the Obama administration still holds that position.

Steve Adamske, Frank’s spokesman, confirmed Friday that Frank has changed his view in favor of a pre-funded pool of money.

The switch would represent a major change in how “resolution authority” works.

Treasury Secretary Timothy Geithner has said resolution authority is one of the top priorities of the broader effort to overhaul the financial regulatory system.

Democrat and Republican critics of the proposal say that it would perpetuate the government’s role in supporting failing businesses.