The confirmation of Jacob Lew as secretary of the Treasury late Wednesday clears the way for action on several insurance-related issues, including the release of a long-delayed report on insurance-regulation modernization.
Indeed, at a hearing Wednesday, Rep. Gary Miller, R-Calif., vice chairman of the House Financial Services Committee, told Federal Reserve Board chairman Ben Bernanke that, “There's a tremendous amount of havoc in that [insurance] industry today because of what they don't know [about federal regulatory initiatives].”
Miller was referring to capital standards for insurers that operate thrifts as well as action by the Financial Stability Oversight Council on designating non-banks as systemically important financial institutions (SIFIs).
Bernanke told Miller that the Fed understands that insurance companies are different from banks, but that it is constrained as to how it can regulate them differently by provisions of the Dodd-Frank law that mandated that the Fed oversee nonbank SIFIs and thrift holding companies as well as pure banks.
He also said that the Fed was considering conducting a study of the potential quantitative impact of new capital rules on insurance companies before it finalizes them, but has made no final decision.
“We are discussing the feasibility of such a study and we recognize that there are important differences between banks and insurance companies,” Bernanke told Miller.
“At the same time, of course, we have statutory constraints, the Collins amendment for example, that say that a certain amount of capital is necessary,” Bernanke said.
But, he added, “we have also heard from Congress about this insurance/banking distinction and we're looking at it very seriously.”
Bernanke also disclosed that the Fed has been “consulting” with state insurance regulators, with the Federal Insurance Office (FIO), with the industry, “with a lot of other stakeholders to make sure we understand these issues.”
Lew is chairman of the FSOC. And, the Fed would oversee “significantly important financial institutions (SIFIs) and now has authority to oversee insurers who operate thrifts.
AIG and Prudential Insurance Co. of America have confirmed that they have been notified that they could potentially be designated as a non-bank SIFI, but those firms are still in a holding pattern, waiting for a final determination. MetLife likewise could be considered for non-bank SIFI designation, but to date has not received any formal notification that a designation may be in the works. A Treasury Department spokesman declined comment. “I would refer you to our language in the interpretive guidance,” the spokesman said.
“The FSOC does not intend to publicly announce the name of any nonbank financial company that is under evaluation before a final determination with respect to such company,” the spokesman said.
Lew, 57, was confirmed by the Senate, 71-26. He is scheduled to be sworn in as Treasury secretary at 12:30 p.m. at the White House by Vice President Joe Biden, according to a statement from the White House.
Lew will immediately return to the Treasury Department from the White House to chair that meeting.
As for the report on insurance regulation, mandated under the Dodd-Frank Financial Services Modernization Act, the FIO, an agency within Treasury, was supposed to release it last January.
Industry officials surmised it was delayed in part because the White House and Treasury officials wanted a new Treasury secretary to sign off on it before it was released. Treasury officials have declined comment.
Lew would succeed Timothy Geithner, who announced last year that he would not serve as Treasury secretary during President Obama’s second term. Geithner now serves as a senior fellow at the Council on Foreign Relations in New York.
Lew brings different skills to the job than Geithner. Lew is a budget expert, and has served as budget director for both Obama and President Bill Clinton.
Geithner served as president of the New York Federal Reserve Bank before being named Treasury secretary in January 2009.
Corrected to show that MetLife had not received a formal notification regarding a possible SIFI designation.