Senators have now proposed a bill that could give the Federal Reserve more wiggle room.
A bipartisan group made up of U.S. senators has now proposed a new bill that would provide the Federal Reserve a larger amount of flexibility for the regulation of companies that are systemically important to the insurance industry, such as American International Group Inc. (AIG).
This new bill is meant to put new “capital standards” into place that are customized to the “unique characteristics”.
This, according to the bill, which had senators sponsoring it who included Mike Johanns (R-Nebraska) and Sherrod Brown (D-Ohio), the purpose is to make sure that the insurance industry’s unique characteristics are properly met through newly developed and carefully tailored capital standards.
The insurance industry bill comes at a time in which systemic risks for insurers are growing considerably.
At the moment, the Financial Stability Oversight Council (FSOC), a panel of regulators, is creating a systemic risk designation in order to be able to demonstrate to the federal government that insurers should not be lumped under the same type of capital standards that are used for the banks in the country.
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According to Brown, who spoke in an interview, “We’re looking at what kind of regulations they are handing down and how insurance companies can be governed differently.” The FSOC named AIG – a New York based insurer – as a systemically important non-bank financial company at the start of this month. Jacob J. Lew, the Treasury Secretary, currently leads the council and is also thinking about whether or not Prudential Financial Inc. and MetLife Inc. should also be designated as systemically important to the insurance industry. This could make them subject to federal supervision.
On July 11, Federal Governor Daniel Tarullo informed the Senate Banking Committee that the central bank was paced “under a constraint” by the Dodd-Frank Act through a requirement that “generally applicable capital requirements be applied to all of the holding companies that we supervise.” This latest Senate bill would make sure that the Dodd-Frank Act – which requires that bank regulators create leverage and minimum risk-based capital standards – would not apply to the insurance industry.