Filed Under:Markets, Regulation/Legislation

Senate Backs USAA Request For 'Volcker Rule' Exception

NU Online News Service, May 25, 2:15 p.m. EDT

The Senate agreed Monday night to pursue a change in financial services legislation that would exempt insurers that own banks or thrifts from the "proprietary trading" restrictions imposed by the so-called "Volcker rule."

The narrow exemption from the rule contained in the instructions to conferees on the bill approved Monday night, will likely satisfy only property and casualty insurers providing limited investment services to their customers through an insured financial institution.

These include USAA, San Antonio, Texas, which enlisted its employees and members in a lobbying campaign seeking support for the amendment.

Action on the Senate bill was delayed until support was won from Rep. Barney Frank, D-Mass., chairman of the House Financial Services committee, for a commitment for a broader exemption for large life insurers in a final bill.

It was only after Rep. Frank's action that Sen. Scott Brown, R-Mass., agreed Thursday to support an amendment that would limit debate on the Senate measure.

The Senate bill passed several hours later.

The Volcker rule, named after its chief proponent, Paul Volcker, an advisor to President Obama and former chairman of the Federal Reserve Board, would limit the investment activities of financial services firms through their bank or thrift affiliates only to highly-rated government securities.

The Volcker rule is only contained in the Senate version of financial H.R. 4173, passed late Thursday by the Senate. The House has no similar provision.

In an 87-4 vote, however, the Senate decided last night to instruct those senators who will represent it at the House-Senate conference, starting next month, to reconcile differing versions of the bill "to ensure that the Volcker Rule's proprietary trading restrictions do not extend to the normal operations of insurance affiliates of insured depository institutions."

The vote was an amendment sponsored by Sen. Kay Bailey Hutchinson, R-Texas, and Sen. Kay Hagan, D-N.C.

The chief advocate for the amendment USAA, several weeks ago sent a letter to its members and employees seeking support for the exemption, which as stated by Sen. Hutchinson during a brief floor debate Monday night, was "to preserve the convenient access to the full spectrum of financial services for the U.S. military community."

USAA did not respond to requests for comment.

At the same time it passed the amendment, the Senate appointed 12 members, seven Democrats and five Republicans, as its representatives to the conference to reconcile the differing versions of the legislation.

According to insurance industry lobbyists, the House is not expected to appoint conferees until it returns from its Memorial Day recess June 8th. The lobbyists don't expect work to begin on reconciling the bills until the second week of June. The Obama administration wants work on the bill completed before Congress leaves for its July 4th recess.

In her floor comments, Ms. Hutchinson said it was important to say that the proprietary trading that insurance entities engage in is "significantly different" from the proprietary trading that is the target of the Volcker Rule.

First, she said, insurers use premiums to fund trades, not customer deposits.

"Thus, insurers are trading their own funds, not those of depositors, and the insurance trades are generally low risk, focus on long-term payment of claims and profitability and are already heavily regulated by state insurance regulators," she said, adding, "Simply put, proprietary trading is essential to the life insurance and property and casualty insurance business."

In asking its employees and members to lobby Congress for the exemption, Joe Robles, USAA chief executive officer, said the impact of the Volcker rule as contained in the Senate bill "could mean that all of the investment activity essential to the running of the insurance operations would be significantly limited to investment in only government securities, despite these operations already being heavily regulated by state insurance regulators."

The result, the letter said, was that "products that require more robust investments to support them would be limited to government securities, which do not earn enough to keep the cost of such products affordable."

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