Financial Regulatory Improvement Bill Out Of Committee, But Unlikely To Pass In Current Form

By Arthur Postal

WASHINGTON — A bill that would significantly reduce federal agencies’ authority to regulate insurance companies was reported out of committee today, despite it being unlikely to win enough votes in its present form to become law.

The Senate Banking Committee passed the Financial Regulatory Improvement Act 12-10 along party lines.

The bill will likely need significant narrowing before it can win enough votes to be enacted. It was passed without Democratic support, and is opposed by the White House.

The Banking Committee rejected an alternative proposed by Sen. Sherrod Brown, D-Ohio, that stripped out all provisions relating to federal insurance and big bank oversight.

Brown’s alternative proposal would confine the bill to issues dealing with community banks, credit unions and mortgage-related issues, as well as those providing greater consumer protections on financial issues for members of the armed services.

The Republican version of the bill, proposed by Sen. Richard Shelby, R-Ala., is much broader.

It would effectively bar the designation of any financial institution as systemically important financial institution (SIFI) unless it had assets of more than $500 billion, and allow non-banks which have already been designated SIFI to seek to “off-ramp” federal regulation at least once every five years.

It would do so by substituting current SIFI criteria for institutions with more than $500 billion in assets with criteria proposed by the American Council of Life Insurers. It would also involve the National Association of Insurance Commissioners (NAIC) closely in the process.

And, to help insurers overseen by the Federal Reserve as savings and loan holding companies, it would require the Fed to ensure that the rules used to oversee these institutions are cost-effective and don’t impact their competitiveness.

As reported earlier by InsuranceNewsNet, the bill contains provisions that were proposed several weeks ago by Sens. Dean Heller, R-Nev., and Jon Tester, R-Mont. That proposal would have the Fed, the Federal Insurance Office and state insurance regulators develop “consensus positions” in international discussions on capital standards for insurers and “increase transparency in those discussions.”

Shelby’s version of the bill also establishes an advisory committee on insurance matters at the Fed.

Shelby defended the insurance provisions in comments today, noting for example that the SIFI designation procedures address “the growing consensus that the mandatory $500 billion asset threshold contained in current law is not only arbitrary, it is a blunt instrument that acts as a substitute for more sophisticated and thoughtful supervision.”

Sherrod, by contrast, argued that the designation procedures in the Shelby bill “would trample” on many of the protections that the Dodd-Frank Act “provides to prevent another catastrophe – for our economy or for our neighbor who has saved for years to buy a home.”

He also argued that the Shelby bill “would open the door to the same type of behavior that brought on the (2008-2010 banking) crisis.”

Sen. Elizabeth Warren, D-Mass., the self-designated protector of all Dodd-Frank Act provisions, added that Shelby’s bill “is good for giant banks, but it's bad for families and it's dangerous for the economy.”

InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].

InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].