Federal Reserve Governor
Both the House and Senate have passed legislation to modify the rules for insurers designated as significantly important financial institutions — or SIFI. The designation comes with heavy financial responsibility and rules as designated by the Dodd-Frank Act.
All of the nation’s biggest banks automatically were given SIFI designations and will have higher capital standards and must come up with plans to unwind if they get into catastrophic financial trouble.
Some insurers — AIG, Prudential and MetLife — were given the SIFI designation by the Financial Stability Oversight Council (FSOC). The problem is insurers and banks have totally different financial dealings and supervision. Banks are regulated by the federal government and insurers by states.
The two congressional bodies need to get together and finish the process. But Congress is on recess until after the November election and the House bill makes other modifications to Dodd-Frank that the Senate isn’t going to accept.
Maybe knowing that caused the Federal Reserve — who supervises the SIFI designees — to study the impact of forcing these insurance companies to meet the same restrictions as banks.
This has been on the mind of Fed Governor Daniel Tarullo told a Senate panel earlier this month that the regulator could tailor capital rules for insurance products that are not offered by banks, but lawmakers must revise Dodd-Frank if they want substantially different requirements for insurers.
In announcing the study, the Fed said it wants to “better understand how to design a capital framework for insurance holding companies it supervises.”
MetLife’s Christopher Stern said his company — who has pushed hard to get the FSOC to see the difference between insurance and banks to no avail — is happy with the Fed decision. “This is a welcome step in the right direction. Done properly, this study could go a long way toward helping the Federal Reserve understand the negative consequences of imposing bank-centric rules on life insurance companies and consumers.”