While the call for the creation of a catastrophic insurance fund for MBS has been gaining ground in recent weeks, two leading Federal Reserve Board economists are poised to push the concept one step further, suggesting a backstop for all ABS.

According to an unpublished paper provided to American Banker, the central bank officials are proposing to create a deposit insurance-like system for the secondary market. The economists — Wayne Passmore and Diana Hancock, the associate director and deputy associate director, respectively, in the division of research and statistics at the Fed — argue that an explicit backstop of certain ABS could ensure the stability of the system in future financial crises and help eliminate the concept of "too big to fail" institutions.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.