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Federal Bailout Program Doesn't Include Insurers

Source: National Underwriter

Posted on 11 Feb 2009

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According to a top Treasury official, insurers will not be permitted to participate in the federal government's bailout program for financial institutions.

The official, who cannot be named due to ground rules established by the agency, said that federally regulated financial institutions will be the only ones eligible for the various aid programs. Insurers, however, would be allowed to sell troubled assets as part of another program.

The official spoke at a background briefing for media after Treasury Secretary Tim Geithner unveiled the Obama administration’s financial stability plan.

The high-level Treasury official was clear in stating that insurers, who had applied for aid under the program, could not receive funds. The group reportedly included 12 life insurers who already had or were approved to have thrift holding company or bank holding company units as well as troubled bond insurers.

“No insurance companies will be allowed to participate,” the official said. “Only federally regulated institutions will be allowed to participate in the Capital Purchase Program” under the Troubled Asset Relief Program established under the Emergency Economic Stabilization Act passed in September, he said.

They will be allowed to participate in a new program that will allow financial institutions to sell troubled assets to the private market with government guarantees.

“We believe insurance companies will benefit if the steps we are taking will lead to stability in the financial markets,” the official.

The official appeared to indicate that the reason insurers will not be allowed access to the program is because federal regulators will not be able to conduct a comprehensive “stress test” that will be a prerequisite to financial institutions being eligible for a so-called “capital buffer.”

Specifically, Secretary Geithner said earlier, this “comprehensive stress test” will involve a “coordinated review process” conducted by federal banking and securities regulators.

It will be required for all banking institutions with assets in excess of $100 billion who seek to be eligible for funds under the new program.

The “capital buffer” program was explained by Secretary Geithner as something designed to help troubled banks, thrifts and securities firms absorb losses caused by bad loans and investments “and serve as a bridge to receiving increase private capital.”