NU Online News Service, Feb. 7, 2:20 p.m.

If the Dodd-Frank Act had been in place years ago, regulatorsprobably still would not have intervened to stop problems atAmerican International Group's Financial Products unit, threeformer U.S. financial regulators said last week.

The three men—Brian McCormally, a 20-year veteran of the Officeof the Comptroller of the Currency and the Office of ThriftSupervision (OTS); Simon Lorne, who formerly served as legalcounsel to the Securities and Exchange Commission; and GeorgeCurtis, who served as SEC deputy director of enforcement in 2008and 2009—spoke in New York last Thursday at a session of theD&O Symposium of Minneapolis-based Professional LiabilityUnderwriting Society (PLUS).

The Dodd-Frank Wall Street Reform and Consumer Protection Actbecame law in July 2010. Congress developed the Act with a goal ofpreventing the types of situations that ultimately prompted a U.S.government bailout of the parent company of AIGFP and othersignificant financial services firms.

At last week's PLUS session, the three former employees of U.S.financial regulatory agencies reviewed some worrisome unintendedconsequences of the act that could impact directors and officersliability and other professional liability insurance underwriters.At the end of the session, an audience participant asked whetherAIGFP would have been the subject of regulatory action ifDodd-Frank had been in place when the London-based AIG unit wasengaged in the sale of credit default swaps that pushed the parentcompany to the brink of bankruptcy.

Mr. McCormally, the former legal staffer of U.S. bankingregulatory agencies who is now a partner at Arnold & Porter inWashington, was the first to say that it would not.

"The OTS supervised AIG's parent company. They want to pretendas though they didn't," he reported. "AIG is a savings and loanholding company" and it is publicly known information that the OTShad examiners in AIG.

"They had examiners in London," Mr. McCormally said. "Thepassage of [Dodd-Frank] legislation would not have changedanything. The fact is the agency just dropped the ball, and theydid not understand credit default swaps," he said.

Mr. Lorne, former SEC counsel who is now vice chair and chieflegal officer of Millennium Management, a New York-based hedge fundmanager, said he disagreed with Mr. McCormally slightly.

Now that "AIG has happened," and now that the FinancialStability Oversight  Counsel of Dodd-Frank in place, "ifAIG happened tomorrow, if it was exactly the same circumstances,the FSOC would step in and do something," Mr. Lorne said.

"But if AIG hadn't happened, would they be aware of it? I thinknot," he said.

He added, "I think the odds of the next big calamity five yearsfrom now, 10 years from now, or 20 years from now, are not verymuch changed by virtue of Dodd-Frank."

Mr. McCormally, revealing details of conversations he has hadwith the "people in Washington who were the ones with their fingerson the button," said that those regulators suggest that the generalcollapse of financial system—not just AIG—"occurred so fast thatnobody could react."

"No regulator had the functionality to address the issuesbecause they were coming so quickly," these people tell Mr.McCormally, he reported.

Giving his own take, Mr. McCormally said the speed of collapse"may have been a problem because they were not perceiving problems[earlier, but] I can tell you from the inside—when I was at the OCCin 2004, 2005, we were getting information that the bubble wasabout ready to blow up.

"So for the [federal] agencies to suggest that it was too quickfor them to react is a little Pollyannaish given the fact that theywere looking at observable facts," he said.

Mr. Curtis, the former SEC director of enforcement who is now apartner with Gibson, Dunn & Crutcher in Denver, suggested thatanother issue that fueled AIG's near collapse was the firm'sinability to assess it's own risk. "I don't see anything inDodd-Frank that's going to change that appreciably," Mr. Curtissaid.

See the Feb. 21 edition of NU magazine and the Feb. 14 and21 editions of NU's eNewsletter Specialty Markets Insights, formore reports from the PLUS D&O conference, including more fromthis session about:

• The unintended consequences of the whistleblowerprovision of the Dodd-Frank Act

• The expected activities of the Federal DepositInsurance Corporation to sue more than 100 directors and officersof failed banks

• The renewed interest of the SEC and theDepartment of Justice in enforcing the Foreign Corrupt PracticesAct—an anti-bribery and accounting law that's been on the bookssince 1977.