Earlier this week, chairman of the Senate Committee on Banking, Housing and Urban Affairs Sen. Chris Dodd, D-Conn., released a draft of legislation that would completely overhaul the entire regulatory structure for the financial services sector. While the legislation’s stated purpose is to address the issues that led to the recent financial crisis, NAMIC is concerned that many of the proposed remedies could overreach and lead to duplicative, ineffective, and costly new regulations.
Sen. Dodd’s bill contains several fundamental differences from the package that House Financial Services Committee Chairman Barney Frank, D-Mass., is putting together, although the structure is largely the same. Like in the House, the cornerstone of the Senate proposal is the creation of a Consumer Financial Protection Agency. This new independent federal agency would oversee all consumer protection regulation and rulemaking with regard to financial products and services. Arguing that consumers are already heavily protected by state laws, NAMIC is working to ensure that the Senate removes property/casualty insurance from the jurisdiction of the CFPA. We were able to achieve this success earlier in the House.
The Senate proposal would create the Agency for Financial Stability (AFS), a strong, independent entity that would be tasked with monitoring and responding to the growth of systemic risk in the financial system. The AFS would write increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity, imposing significant costs on companies that are determined to pose risks to the financial system. The new regulator would also be granted the unprecedented authority to break up these large, complex companies if they even pose a threat to the financial stability of the United States – in other words: prior to failure, at the discretion of the board. Additionally the AFS would be granted the resolution authority to unwind any company that did in fact fail and would pay for this process with a post-event assessment on all financial companies – even those not regulated by the AFS – with over $10 billion in assets. Since the beginning of the crisis, NAMIC has maintained the position that property/casualty insurance does not pose a systemic risk and should not be included – and certainly not assessed – in any new systemic risk structure that is established. Additionally, property/casualty insurance has a resolution authority already in existence through the state guaranty fund system.
Similarly to the House, the Senate package also includes a provision that would create a federal office to monitor insurance called the Office of National Insurance (ONI). This proposal is an improved version of the Obama Administration’s original ONI proposal – adopting many of the improvements NAMIC suggested – but several issues remain including the insurers’ lack of protection from subpoenas and the inclusion of a study that has the potential to lead to an increased future federal role in insurance oversight. NAMIC has already met with staff on the Senate Banking Committee to express our concerns and will continue to work to see them addressed.
Chairman Dodd has indicated that the committee could begin working on the package as early as the week of Nov. 16. Given the scope of this legislation, and the continuing debate over healthcare reform, this appears to be an ambitious schedule and it is possible that this timetable could slip, as has been seen with other legislation.
The situation has remained largely unchanged on the other side of Capitol Hill. The House Financial Services Committee is slated to continue work on their systemic risk legislation next Tuesday, Nov. 17. We anticipate that this could take longer than expected and will move consideration of legislation to create the Federal Insurance Office (FIO) back to the week of Nov. 30. In anticipation of that debate, NAMIC sent a letter to Capitol Hill urging the House Financial Services Committee to address several key concerns with FIO. The letter was the latest in an extensive series of actions taken by NAMIC to help shape the House debate and final product.
Over the course of the last several months, NAMIC has sent letters, submitted testimony, and worked closely with congressional staff in an effort to make needed changes to the FIO bill and protect our member companies from a costly new dual regulatory structure. Throughout this process we have succeeded in pushing each consecutive version of this bill in the right direction. The most recent proposal for the FIO is a vast improvement over the original; however, several serious concerns remain.
NAMIC will continue to work closely with both the House and the Senate to recommend further changes as they work toward reconciling their competing versions of the legislation.
Please direct questions to Jimi Grande.