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Lawmakers Move to Protect Insurers

Source: WSJ Blog - Michael R. Crittenden

Posted on 26 Jul 2013 by Neilson

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Dodd FrankA group of U.S. senators is seeking to make sure insurance firms won't have to meet capital requirements intended for banks with new legislation targeting a measure Federal Reserve officials have said puts them in a bind.

The group, which includes Sen. Sherrod Brown (D., Ohio), are introducing legislation to remove insurance companies from under a section of the 2010 Dodd-Frank financial overhaul law commonly known as the Collins amendment. That provision requires the Fed to apply minimum capital and leverage requirements to the financial holding companies it oversees.

Insurers have balked at the prospect of being subject to capital requirements originally written for banks, noting that they don't operate in the same way and fund their businesses differently. Those arguments have garnered sympathy on Capitol Hill, with many lawmakers expressing concern during testimony by Fed officials.

"Inappropriate capital standards could affect the price and availability of financial protection for families and retirees," said Jack Dolan, a spokesman for the American Council of Life Insurers.

For their part, top Fed officials including Chairman Ben Bernanke have said the law as written forces their hand even though they understand the concerns expressed by insurers. Fed Gov. Daniel Tarullo, the central bank's point man on regulation, told lawmakers earlier this month that "we do operate under a constraint here."

"I can assure you that we're working as much as we can on tailoring risk weighting for unique insurance products. But we are a little bit confined here," Mr. Tarullo told a Senate panel.

The legislation being introduced by the senators would exempt insurers from the Collins amendment. Insurance holding companies would have to adhere to the state-based capital requirements they've long been subject to, while their bank affiliates would have to meet requirements set by federal regulators. Insurers deemed by federal regulators to pose a systemic risk to the broader financial system would have to meet additional capital requirements set by the Fed.

"Sen. Brown believes that the Fed already has the flexibility to make these changes, which recognize that insurance companies have different business models from banks, under the current law. He encourages the Fed to do so," a spokesman for Mr. Brown said.