Representatives of three banking and securities industry tradegroups all urged Congress today to create a greater role forfederal regulators in overseeing insurance companies.

The comments were made at a hearing before the House FinancialServices Committee on how financial regulation should berestructured to reflect the lessons learned from the currentmeltdown of financial services companies due to investment incredit default swaps and mortgage-backed securities.

Edward Yingling, president and chief executive officer of theAmerican Bankers Association, said, "given the current problems inthe financial markets, it would be a remarkable oversight forCongress not to develop a federal approach to insuranceregulation."

Moreover, he said, the current insurance regulatory system"greatly impedes our ability to negotiate in the internationalregulatory arena."

He explained that the "difficulty of entering the U.S. marketsunder the current state regulatory system dissuades foreign capitalfrom investing in the U.S., thereby restricting overall insurancecapacity and reducing the number of insurance products available toU.S. consumers.

"It simply is the case that relatively few foreign companies arewilling to expend the time and resources necessary to navigate allof the harbors in our state-based regulatory system," Mr. Yinglingadded.

Voicing similar comments in their testimony were representativesof the Financial Services Roundtable and the Securities Industryand Financial Markets Association.

In his comments, Timothy Ryan, president and CEO of SIFMA and aformer director of the Office of Thrift Supervision, suggestedthat, at the very least, Congress should consider creating afinancial markets stability regulator.

This regulator should at least have power "over systemicallyimportant financial institutions," Mr. Ryan said. Although he didnot state so explicitly, this would include oversight over suchinstitutions as American International Group, which was recentlyeffectively taken over by the government as an alternative toinsolvency.

Mr. Ryan said that, among things, this office should have theauthority, alone or in coordination with the institution'sfunctional or prudential regulator, to set consolidated capitalrequirements at the parent company level and to recommend capitalrequirements at any subsidiary level.

It should, he said, also have the authority to examine theparent company and any of its subsidiaries, and to bringenforcement actions.

"In short, its powers could correspond to those that the FederalReserve currently has as the umbrella supervisor of bank holdingcompanies, but we believe it would not be appropriate to includethe authority to impose the kind of activity restrictions thatapply to bank holding companies," Mr. Ryan said.

In addition to creating a financial markets stability regulator,Mr. Ryan said, Congress should, "in addition, consider the creationof a federal insurance charter and a federal insuranceregulator."

Steve Bartlett, president and CEO of the FSR, agreed. Congress,he said, should "strengthen the oversight of insurance markets andpotential insurance risks by authorizing optional Federalchartering and supervision of firms engaged in the business ofinsurance."

And, in answering a question from a member of Congress aboutwhether passage of the Gramm-Leach-Bliley Act in 1999, contributedto the market meltdown, Alice Rivlin, who also testified, said, "Idon't think we can go back to a world where we separate thedifferent kinds of financial services," she said, "that didn'twork."

She also counseled against recreating the barriers between saleof financial products created by the 1933 Glass Steagall Act, whichthe Gramm-Leach-Bliley Financial Services Modernization Actreplaced, and also warned that Congress should not reintroduce thebarriers to interstate banking between 1927 and 1994.

The National Council of Insurance Legislators wrote a letter tothe committee in conjunction with the hearing that made clear thatstates will work hard to sustain the current state-based insuranceregulatory system when the issue of future regulation of allfinancial services companies is dealt with by Congress nextyear.

The letter noted that, "The stability of state-regulatedinsurance companies during this ongoing financial crisis, ascompared to other financial sectors, demonstrates the effectivenessof our state insurance laws and regulations."

The letter added that, "While finger-pointing will not repairthe problems with the present system, we are proud to note thatstate-regulated insurers were largely unharmed when compared tofederally regulated banking and investment institutions."