Federal Deposit Insurance Corp. Chairman Sheila Bair defended an amendment that would allow the agency to impose a 20% haircut on secured creditors when resolving systemically important institutions.

At a speech Wednesday, Bair said the haircut would be used rarely and could provide greater market discipline.

"I think it is fair, and I think it does provide an additional layer of protection for the government," she said. "It also on the margin addresses the problem which we saw in this crisis, which was that large financial institutions relied excessively on very short-term, secured funding secured by what turned out to be highly volatile … very difficult-to-value securities."

The House Financial Services Committee adopted the amendment to a systemic-risk bill, which the panel approved Wednesday.

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