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In a move aimed at jump-starting bipartisan negotiations on Wall Street reform, Obama administration officials have signaled that they want Democratic Sen. Christopher Dodd to remove a $50 billion bank liquidation fund from his financial regulation bill.

Republicans have pounced on the $50 billion provision, saying the legislation will lead to more government bailouts of large banks, effectively stalling progress on the bill.

"The ex-ante fund was not in our original proposal we announced almost a year ago, and we don't feel it is an essential part of final legislation," said one administration official late Friday. "The president will only sign a bill if it passes the test of putting an end to bailouts."

White House aides have vehemently denied for days the provision will spark more bailouts. Republican aides asserted the shift is a sign the White House fears the criticism is having an impact.

But Democratic officials suggested the move is really an attempt to challenge Republicans on whether they will still oppose the reform bill even after the controversial provision is removed. That would play into the White House's efforts to portray the GOP as defenders of the status quo on Wall Street.

Still, White House aides said the president is more focused on the larger issue of reform instead of any one provision.

"What is important is that we have a mechanism that allows us to wind down failing firms at no cost to the taxpayer," said White House spokeswoman Amy Brundage. "The Dodd bill does that, and we will work with Congress to make sure we achieve that objective."

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There is established in the Treasury of the United States a separate fund to be known as the ‘‘Orderly Liquidation Fund’’, which shall be available to the Corporation to carry out the authorities contained in this title, for the cost of actions authorized by this title, including the orderly liquidation of covered financial companies, payment of administrative expenses, the payment of principal and interest by the Corporation on obligations issued under paragraph (9), and the exercise of the authorities of the Corporation under this title.

(2) PROCEEDS.—Amounts received by the Corporation, including assessments received under sub section (o), proceeds of obligations issued under paragraph (9), interest and other earnings from in vestments, and repayments to the Corporation by covered financial companies, shall be deposited into the Fund.

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Fact Check: Big Banks and risky financial institutions, not taxpayers, are on the hook for failures. The fund is paid for entirely by large, risky financial corporations, not taxpayers. It is meant to protect taxpayers and require risky financial companies to pay the costs of their own failure. That’s why the banking industry opposes what is essentially a tax on their reckless gambling.

Fact Check: The fund will never be used to bail out a company. The only way the $50 billion Orderly Liquation Fund can be accessed is during the process of orderly liquidation. Thanks to the addition of Senator Shelby’s own provision in the bill (see p. 54 of Manager’s Amendment), any company entering liquidation must be liquidated and wiped out.

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When a bank fails, it needs to be wound down in an orderly fashion aside from the insured deposits. Assets and liabilities need to be distributed. According to Sheila Bair, Chair of FDIC and the one who's been kicking butt, this money is basically a higher insurance premium, so that tax dollars do NOT have be used to wind down a failed bank.

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