Senate Banking Committee Chairman Christopher Dodd (D.-Conn.) is prepared to release draft legislation that would overhaul how the financial services industry is regulated.

Dodd’s bill, which he crafted without the input of Republicans on the committee, is expected to be more modest in scope than the either the Restoring American Financial Stability Act of 2009 that Dodd championed last year or the Obama Administration plan, which called for creation of a stand-alone consumer financial protection agency.

Ahead of the bill introduction, members of the insurance industry are voicing concern over the legislation, especially the prospect that the insurers may be asked to contribute to a resolution fund to bailout troubled financial services firms.

Last week, the National Conference of Insurance Legislators adopted a resolution asking that to exclude insurers from systemic risk regulation and assessments for the resolution of systemically risky companies. “Subjecting insurance companies to liability for assessments to pay for the resolution of failing systemically risky non-insurers would inappropriately shift the costs of financial industry segments that pose significant systemic risk to an industry that does not pose systemic risk, creating additional moral hazard that would increase financial system risk and distort economic incentives.” the resolution reads.

Also last week, the American Council of Life Insurers (ACLI), released a new study that criticized the impacts of dissolution authority funding mechanisms. “A pre-funded system would take the wrong steps at the worst possible time. Frank Keating, ACLI president and CEO said in a statement. “It would drain tens of billions of dollars out of the financial system even though our nation is still experiencing a liquidity crunch. It could create incentives for lenders to extend credit to financially-shaky enterprises under the belief that if the enterprise fails, the authority would bail them out. The fledgling economic recovery could suffer a substantial setback.”

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