Tags: insurance | bank | regulation | bills

House Financial Services Subcommittee Offers More Insurance Bills

By    |   Wednesday, 28 May 2014 07:51 AM

The Committee on House Financial Services' Subcommittee on Housing and Insurance, chaired by Rep. Randy Neugebauer, R-Texas, held a hearing May 20 titled "Legislative Proposals to Reform Domestic Insurance Policy." Witnesses primarily represented the heavy-hitting industry lobbies, a specialized insurer and an academic witness requested by Democrats.

The opening statements were more meaningful than usual, as several members made comments that are likely to assume greater significance if and when legislators take on more difficult issues than are raised by the bills considered at this hearing, which are relatively technical in nature and leave more fundamental matters for another time, perhaps a time when the leadership of the Senate Banking Committee is determined.

Neugebauer briefly described the bills, and the main one is H.R. 4510, the "Insurance Capital Standards Clarification Act," which may solve a protracted fight over so-called bank-centric capital standards that the insurance industry accused the Federal Reserve of trying to impose.

The Fed has claimed that it agrees in principle that regulation should be "tailored" to each affected industry, but it lacks the authority to do this because of the Collins amendment to Dodd-Frank. This is a joke, because regulatory agencies brazenly follow the agendas of their clients regardless of the plain language of statutes such as the one granting the Fed the authority to police the practices of the mortgage industry, which they chose not to implement for 14 years. On the other hand, the Fed bailed out Bear Stearns in spite of the fact that leading authorities, such as none other than Paul Volcker, openly doubted the Fed's authority to do this.

Rep. Carolyn McCarthy, D-N.Y., the Democratic co-sponsor of the bill, told the committee that the way is prepared on the Senate side to move this bill with the support of Sen. Susan Collins, R-Maine.

H.R. 605, the "Insurance Consumer Protection and Solvency Act," would exempt the insurance industry from having to contribute to any deals that might be undertaken by the FDIC under the so-called Orderly Liquidation Authority (OLA) it was given under Dodd-Frank. Since it is unlikely that this provision can ever be implemented, the insurance industry has little to fear.

H.R. 4557, the "Policyholder Protection Act," is also fairly technical in that it applies to thrift-based holding companies owned by insurance companies the same provision that already applies to bank holding companies that allows states to ring-fence insurance companies from having their assets diverted to address shortages in an affiliated depository institution. This doesn't mean there won't still be messy situations if the state regulators allow these institutions to drift into insolvency, so it would be best to resolve these before the issue of diverting policyholder assets would arise.

In other remarks of interest, Rep. Michael Capuano, D-Mass., played the role of the dog that didn't bark when he announced his support of a bipartisan package without making any of the cautionary points that were laid out in the comprehensive testimony of the Democratic witness, Daniel Schwarcz, a professor at the University of Minnesota Law School.

Rep. Brad Sherman, D-Calif., pointed to AIG as a case study of what can happen when regulators fail to recognize that credit default swaps are a form of insurance, while Rep. Ed Royce, R-Calif., noted that this failure was one of state and federal regulation, and he proclaimed the fact that insurance regulation has finally evolved into one that will involve traditional state regulators, but also the Treasury and the Fed.

Rep. Scott Garrett, R-N.J., raised the prospect of a broader effort to revisit the Dodd-Frank Act. The unspoken assumption is that something dramatic will happen at the Senate Banking Committee.

(Archived video, the staff memorandum and a legislative proposal can be found here.)

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The Committee on House Financial Services' Subcommittee on Housing and Insurance, chaired by Rep. Randy Neugebauer, R-Texas, held a hearing May 20 titled "Legislative Proposals to Reform Domestic Insurance Policy."
insurance, bank, regulation, bills
Wednesday, 28 May 2014 07:51 AM
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