NYS Assembly Insurance Chair to Explore Credit-default Swaps
After being directed by New York Assembly Speaker Sheldon Silver to hold a committee hearing on the regulation of credit-default swaps, Insurance Chairman Joseph Morelle, indicated he plans to hold the first of what could be several hearings in New York, Dec. 5. Reportedly, the hearing will focus on reviewing new regulations and guidelines proposed by Governor David Paterson and New York Insurance Superintendent Eric Dinallo to cover one segment of the controversial market.
The rules are scheduled to take effect Jan. 1, and would cover swaps involving the state's Financial Guaranty Insurers, which write bond insurance. By labeling the "swaps" as insurance, Dinallo believes that they can be regulated by the insurance department. Currently neither New York state nor the U.S. Securities and Exchange Commission regulates "naked swaps" because the entities that hold them have no stake in the bonds.
Morelle indicated the state may be able to use contract laws to regulate the credit-default swaps that were at the heart of the near failure of AIG. The move could cover a segment of the controversial market that is now off limits to insurance regulators, even though it endangered the solvency of at least two major workers compensation carriers. Morelle said his panel may explore New York state's potential role in talks by the Federal Reserve and private partners of creating an electronic platform that would act as a kind of public exchange, similar to a stock exchange, for CDS.
Morelle said he wants to determine whether a CDS exchange would render the collateral and reserves backing CDS transparent and provide better protection for bond and property/casualty insurers. Credit-default swaps have been linked to financial troubles for two of the nation's top five workers compensation carriers.
Published on October 13, 2008
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