Efforts are now underway to push legislation through the Senateon an expedited basis that would clarify that the Federal ReserveBoard can apply insurance-based capital standards to the insuranceportion of any insurance holding company it oversees.

The bill is S. 2270, "the Insurance Capital StandardsClarification Act of 2014." It would revise Sec. 171 of theDodd-Frank Act, the so-called "Collins Amendment." The Fed says itslawyers interpret the Collins Amendment" to require the FederalReserve to apply bank capital rules to insurance companies itsupervises.

S. 2270 and the companion House bill, H.R. 4510, clarifies thatthe Fed can apply insurance-based capital standards to theinsurance portion of the business, while still keeping bankingcapital standards for the banking portion of thebusiness. 

Leadership of the Senate Banking Committee decided today not toinclude the Collins Amendment in its TRIA-extension bill, optinginstead to "hotline" S. 2270, which means that if no senatorobjects, the bill would sail through the Senate over the nextcouple of days under expedited procedures.

"Hotlining is a streamlined Senate procedure that allowsnon-controversial legislation to bypass the usual Senate-floordebate and voting process, instead moving it with the unanimousconsent of the Senate," says Ryan Schoen of Washington Analysis inan investment note. 

"While the precise timing of Senate approval is unclear, wethink the Collins fix could be quickly approved by the Senate inthe coming days or weeks," Schoen says.

It would impact insurers such as American International Groupand Prudential Financial that have been designated as systemicallyimportant financial institutions (SIFI), and eventually MetLife,which is being evaluated as a potential SIFI, from bank-likecapital regulation by the Fed, Schoen explains.

It would also impact insurers such as State Farm and USAA, whichthe Fed oversees as their consolidated regulator because theyoperate savings and loan holding companies. The Fed has neverdisclosed a list of insurers it oversees in this capacity.

The decision to hotline the measure is a significant victory forthe American Council of Life Insurers (ACLI). The ACLI took out afull-page advertisement in Roll Call May 28 that will be repeatedin Politico June 4 highlighting the life insurance industry'ssupport for S. 2270 and the House companion legislation, H.R.4510.

"This issue is vitally important to ACLI and its membercompanies," the advertisements say.

Schoen says after Senate passage, the next questions are how andwhen the House will approve the bill. 

"While we expect the House Financial Services Committee tounveil TRIA legislation with similar SIFI insurance language by theend of June, the aggressive Senate approach to approving theCollins bill increases the odds that the House could fast track thelegislation as well," Schoen says. H.R. 4510, the companionlegislation in the House, "is expected to attract broad bipartisanfrom the House Financial Services Committee, including Chairman JebHensarling, R-Texas, Schoen says. He also says he remains"skeptical" that the Fed will try to force Congress to passlegislation to fix Dodd-Frank's capital treatment of insurers byissuing a harsh, bank-like capital rule this year, despite marketrumors.

"Instead, we expect that the current stand-off within the Fedbetween the General Counsel's office, led by Scott Alvarez, andpolicy staff regarding the extent of flexibility available to craftnon-bank-centric rules under Dodd-Frank will continue whileCongress attempts to carve out insurers,' Schoen says.