The Federal Reserve Board recognizes there are “criticaldifferences” between banks and insurance companies, FederalReserve Board chairman-designate Janet Yellen told a Senatecommittee at her confirmation hearing Nov. 14.

However, Yellen declined to be hemmed in on how the Fed willdeal with that issue, saying only that the Fed is undertaking astudy as part of its new responsibilities to oversee systemicallyimportant insurers as well as insurers designated as thrift holdingcompanies.

“I do believe that one-size-fits-all should not be the model forregulation and that we need to develop appropriate models forregulation and supervision of different kinds of institutions,”Yellen said in testimony before the Senate Banking Committee.“Insurance certainly has some very unique features that make themvery different from banks. And we're taking the time to try tostudy what the best way is to craft regulations that would beappropriate for those organizations.”

Sen. Mike Crapo, R-Idaho, ranking minority member of thepanel, raised concerns about the Fed's policies in regulatinginsurance, but did not pursue them.

Crapo said retiring Fed chairman Ben Bernanke told the committeethat legislation is needed to allow the Fed flexibility to dealwith the “Collins amendment” and tailor appropriate capitalrequirements for insurance companies. The Collins amendmentrequires the Fed to oversee insurers designated as thrift holdingcompanies using the same standards as it uses to regulate banks.Bernanke and Michael Gibson, director of the Fed Division ofBanking Supervision and Regulation, have argued the Collinsamendment limits the Fed's ability to regulate insurers differentlythan banks.

Yellen also said the Fed is undertaking a cost/benefitanalysis in advance of a requirement that State Farm switchfrom statutory accounting principles to Generally AcceptedAccounting Principles, a conversion the Fed is considering as partof its new responsibilities as the consolidated regulator of StateFarm, which operates a thrift.

A number of other thrifts operated by property and casualtyinsurance companies are also involved, including San Antonio-basedUSAA. They have claimed that the conversion will cost them “acouple hundred million dollars,” as cited by Illinois RepublicanSen. Mark Kirk, who asked Yellen about the conversion.

Yellen defended the Fed's recent decision to seekmembership in the International Association of InsuranceSupervisors (IAIS). That decision has stirred concerns that the Fedis seeking to squeeze out both the Federal Insurance Office, whichis charged through the new Dodd-Frank Financial Services reform lawas representing insurers on the international level, as well asmembers of the National Association of Insurance Commissioners, whoalso seek to be a strong voice in establishing internationalinsurance regulatory standards.

“Now that the Federal Reserve has been charged with supervisingsome of the largest insurance companies that have been designatedby the Financial Stability Oversight Council as systemic, wewant to be in a position to work with regulators in othercountries, as we have in the case of banking rules, to make surethat we have internationally compatible [standards],” Yellensaid.

Currently, the FSOC has designated American International Groupand Prudential Financial as systemically significant, and alsooversees a number of insurers who operate thrift holding companies.It has declined repeatedly to disclose the exact number. The FSOCis also considering MetLife as a SIFI, MetLife has confirmed inregulatory filings.

Asked by Tester if the FIO isn't already in a position to fillthat role, Yellen said that, “I'm not certain. I think we felt itwould be beneficial to participate in that group.”