It was not Congress’ intent that federal regulators “supplant state-based regulation with a bank-centric capital regime,” Sen. Susan Collins, R-Maine, says in a Nov. 26 letter to Federal Reserve Chairman Ben Bernanke and other U.S. banking regulators.
Collins is the author of the “Collins Amendment” in the Dodd Frank Act, which requires bank holding companies to be subject to certain capital requirements. Insurers and NAIC staff have said they have had conversations with Collins' staff and requested she tell the Fed her intent was not to subject insurers to strict bank capital standards if the Fed was their prudential regulator. In October, some Senators made that case, and now Collins is adding to their collective voice.
Her letter tells the crafters of capital rules that insurance companies should be treated differently from banks, and her intent was not to have them treated the same, a point which the industry and the National Association of Insurance Commissioners have been making to the Fed and others. Washington lobbyists had hoped Collins would chime in, and now she has, a day before a scheduled hearing on Basel III capital standards implementation before a joint hearing before the Insurance, Housing and Community Opportunity and Financial Institutions and Consumer Credit Subcommittees.
Kevin McCarty, Florida Insurance Commissioner is scheduled to testify on behalf of the NAIC as the association’s president.
The trouble for insurers is that the amendment ropes in the roughly two dozen that have savings and loans/thrifts, including TIAA-CREF, The Principal Financial, Nationwide, USAA, Country Financial and Mass Mutual. These savings and loan holding companies (SLHCs) are subject to proposed rules under development by the federal banking regulators, and do not have the compliance delay built in for foreign-owned banks.
“I do not understand why the proposed rules fail to implement this provision, as required by Congressional intent and the clear language of the statute,” Collins wrote in the letter, referring to a delay applying to SLHCs.
Collins adds that companies will need time to adjust their balance sheets in order to comply with the new capital standards. They were to go into effect Jan. 1, 2013, but on Nov. 9, the three U.S. federal banking agencies delayed the implementation date after a massive campaign by insurance (and banking) industry lawyers.
Also, Collins championed the industry’s main line of thought with regard to these standards in that “consideration should be given to the distinctions between banks and insurance companies, a point which Chairman Bernanke rightly acknowledged in testimony before the House Banking Committee this summer.”
Banks and insurers typically have different composition of assets and liabilities, since it is fundamental to insurance companies to match assets to liabilities, unlike most banks, she said.
The American Council of Life Insurers (ACLI) says it welcomed Collins' letter.
“The agencies’ decision to delay implementation of Basel III is understandable given the complexities of the issue. As stated in our October 12 comment letter, ACLI supports the application of risk-based capital standards for insurers over the bank-centric capital standards from Basel III,” stated the ACLI after the initial delay.
In a letter to the Fed last month, Nationwide Mutual Insurance Company said the Basel III regulation, if adopted as proposed, “could threaten the existence of the savings and loan holding company industry.”
Insurance CFOs suggested in an Oct. 22 letter to the banking regulators that because insurance companies that have savings and loans have not been regulated by the Fed previously, new capital requirements should not be applicable until July 15.
“Such companies have never been subject to Basel requirements and this extremely short transition period is unduly burdensome and contrary to the express intent of Congress in the Collins Amendment,” the CFO letter said.