WASHINGTON — While the call for the creation of a catastrophic insurance fund for mortgage-backed securities 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 asset-backed securities.

According to an unpublished paper provided to American Banker, the central bank officials are proposing to create a deposit insurance-like system for the secondary market.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 asset-backed securities could ensure the stability of the system in future financial crises and help eliminate the concept of "too big to fail" institutions.

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