WASHINGTON–Federal Reserve Board Chairman Ben Bernanke told House members today it would be a "useful idea" to create a federal charter option for insurance companies, "particularly for large, systemically critical insurance companies."
Mr. Bernanke made his comments in response to a question from Rep. Ed Royce, R-Calif., before the House Financial Services Committee today. Mr. Royce is a cosponsor of legislation recently introduced in the House of Representatives that would create a federal charter option for insurers.
The Federal Reserve Board chairman was before the committee giving his semi-annual monetary policy report to Congress.
In responding to Rep. Royce's question, Mr. Bernanke said the issue of the option of a federal charter for insurance is a "complex one" and there "are a lot of issues involved," but to cut to the bottom line, "I think that it would be a useful idea to create a federal option for insurance companies–particularly for large, systemically critical insurance companies."
He added that, "in general, I believe that holding company level supervision of large, systemically critical institutions is very important."
Reiterating views in comments before the Senate Banking Committee the day before, he said, "We did not have effective holding company supervision in some of the cases where we have had problems.
"So I do believe an optional federal charter would be a direction worth giving serious consideration."
In an immediate response to the comments by Chairman Bernanke, the executive director of the American Bankers Insurance Association "commended" the chairman for his comments.
"Chairman Bernanke's testimony today highlights the urgent need to have a national discussion that recognizes the value of this much needed reform," said Kevin McKechnie, executive director of ABIA. "This long overdue measure would create greater efficiency and modernization for the insurance regulatory system."
Mr. McKechnie explained that consensus behind an OFC has increasingly picked up steam following the failure of the current state-by-state regulatory system to act in preventing the problems at insurance giant American International Group from becoming a systemic risk to the national economy.
"To suggest that the states can appropriately police insurance companies with worldwide operations, when other nations are loudly suggesting a global systemic risk regulator, is na?ve," Mr. McKechnie said. "Clearly, solvency is a federal question."
At the same time as Mr. Bernanke spoke, President Barack Obama convened a meeting this afternoon with the leadership of both the House and Senate financial services committees to discuss an overhaul of the regulatory structure of the financial system.
The meeting is linked to President Obama's "day of reckoning" comments in his speech before Congress Tuesday. In the speech, the president committed himself to prompt action to strengthen regulation of financial institutions.
Treasury Secretary Timothy Geithner is attending the closed-door meeting the president is having with the chairmen and ranking members of the Senate Banking, Housing and Urban Affairs Committee and the House Financial Services Committee.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.