NU Online News Service, June 9, 4:14 p.m.EDT

WASHINGTON–The Obama administration will proposeputting large insurance companies under the control of a federalsystemic risk regulator for the financial services system, andprobably a U.S. insurance regulator as well, according to a draftdocument obtained by National Underwriter.

The plan, due for release next week, has been circulating onCapitol Hill today, several sources said.

However, a Treasury Department spokesman, when asked about thedraft, said he would look into it but he was "very skeptical" itwas accurate.

On another front, sources said, House Republicans could unveiltheir own regulatory reform proposal this Thursday.

According to the administration draft, large insurers likelywill be pre-empted from state laws, but will not be "deregulated"and it may not be optional. Also, those designated as "nationalinsurers" will likely be subject to new financial product safetycommission regulations.

The administration is expected to unveil its principles forfinancial services reform on June 17, and Treasury SecretaryTimothy Geithner will explain the plan the next day in testimonybefore the House Financial Services Committee, according toinsurance industry lobbyists.

Mr. Geithner confirmed the administration's plans in testimonyon June 9 before the Subcommittee on Financial Services and GeneralGovernment of the Senate Appropriations Committee.

"As we have made repairs to the financial system, we haveunderstood that repair alone is not enough," Mr. Geithnertestified. "We must also reform the system so that it is less proneto crises of the dimensions that we now face."

Specifically, he said that "in the next few weeks, we willoutline a comprehensive plan of reform that will include systemicrisk regulations to ensure that no large and interconnected firm ormarket can take on so much risk that its failure could destabilizethe entire financial system."

He said the plan calls for bolstering consumer and investorprotections, "and it will streamline our out-of-date regulatorystructure so that our regulatory system matches the size, shape andspeed of our modern financial system."

The administration proposal would give the systemic riskregulator the authority to set capital, liquidity and other safetyand soundness requirements. It will propose that this authority begranted to the Federal Reserve.

But the proposal is likely to state that the administration"would be open to a strong council as long as the chair would havesufficient authority to be effective."

The authority to resolve systemically risky financial servicesfirms would be given to the Federal Deposit Insurance Corp., butthe draft does not specifically say that insurers would be subjectto this authority.

Under the plan, hedge funds would be regulated via mandatoryregistration and additional disclosure of positions, while largehedge funds would be subject to the authority of the new systemicrisk regulator.

The administration plan will call for the Securities andExchange Commission to gain power, but the Commodity FuturesTrading Commission will remain independent, according to thedocument.

It also states that creation of a Consumer Product SafetyCommission is "under serious consideration," and would focus onconsumer finance issues, but due to resistance from the SEC, itwill leave investor protections to the SEC and CFTC.

The draft said that a dual banking charter will be continued,but the systemic risk regulator "will take even more power awayfrom the state regulators."

It also said that the Office of Thrift Supervision is likely tobe merged with the Office of the Comptroller of the Currency, andthat OCC will also be given a more prominent role in examinations,and may take over many of the Federal Reserve and FDIC examinationroles, and will gather most of the data going forward.