Rep. Barney Frank Voices More Optional Charter Support

WASHINGTON--Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, voiced support yesterday for an optional federal charter for insurance companies, especially for life insurance.

At the same time, Rep. Melissa Bean, D-Ill., and Rep. Ed Royce, R-Calif., announced separately this week that they continue to retool their legislation that would create an optional federal charter for all insurers and hope to have their bill introduced in the House within several weeks.

Also yesterday Sen. Tim Johnson, D-S.D., and Don Kohn, vice chairman of the Federal Reserve Board, both cited an optional federal charter as something that should be explored. Their separate comments came at a Senate Banking Committee hearing on the latest federal bailout of American International Group.

On another insurance legislation issue, Rep. Spencer Bachus, R-Ala., ranking minority member of the House FSC, said he would support legislation modernizing and reforming the surplus lines industry. His remarks came at the same meeting where Rep. Bean outlined what would be included in her optional charter bill.

Rep. Bachus was more vague when asked for his view on an OFC, saying he would support a more incremental approach to insurance regulatory reform.

At the same time, Rep. Bachus indicated a measure of support for legislation creating an Office of Insurance Information within the Treasury, a bill proposed last year by Rep. Paul Kanjorski, D-Pa., chairman of the Capital Markets Subcommittee of the House FSC.

The bill passed the House last September.

In his comments, Rep. Frank said it is "overwhelmingly likely" that House Democrats will move to create an OFC for life insurers.

Reiterating comments he has made in the past, Mr. Frank said one of the factors has been requests from European regulators and insurers for a more simplified approach to insurance regulation in the U.S.

"Because of our European allies' concerns, we will have to think about doing an optional federal charter for life insurance," he said.

But, also reiterating earlier comments, he expressed reservations about approving a federal charter for personal lines property-casualty insurers, especially laws preempting state rate regulation.

Rep. Bean made her latest comments at the annual Insurance Reform Summit presented by Networks Financial Institute at Indiana State University.

She said the bill will include provisions requiring a physical presence for the Office of Insurance Information that would regulate national insurers in each state.

The bill also would create a systemic risk regulator with the authority to oversee insurance firms defined as "systemically important." Rep. Bean said the scope of the proposed systemic risk regulator's authority is still under discussion as well as the definition of the term "systemic risk."

Rep. Ed Royce, R-Calif., who plans to co-sponsor an OFC bill with Ms. Bean, noted that earlier this week, Federal Reserve Chairman Ben Bernanke had expressed his frustration with the ability of AIG to "exploit a huge gap in the regulatory system. This regulatory gap must be filled by a world-class federal regulator for insurance," Rep. Royce said.

"The various state insurance regulators simply do not have the ability to oversee massive global financial firms like AIG," said. Rep. Royce.

He added that taxpayers "have a vested interest in the ability of this Congress to establish a world-class regulatory alternative to the fragmented 50-state system overseeing the insurance market."

At the Senate Banking Committee hearing on AIG, Sen. Johnson said, "For many years I have advocated for a modernized system of federal insurance regulation; I am even more convinced after the past six months that our current, outdated state-by state regulatory system is ill-equipped to deal with a 21st Century insurance company."

He added, "We cannot afford another situation like AIG, and we must ensure that our regulators can assess the risks across all financial services including insurance."

Fed Vice Chairman Kohn, when asked his view as to whether there is a need for federal insurance regulation, replied, "I think that's something that should be considered as part of the overall look at regulation.

"I think my first priority would be to get some umbrella regulator, some overall regulator for every systemically important institution, wherever that might be," he added.

"But, the federal charter is an option you should be looking at, I think...and we must ensure that our regulators can assess the risks across all financial services including insurance."

Sen. Johnson also asked Vice Chairman Kohn his view as to whether there is a need for federal insurance regulation.

Mr. Kohn replied, "I think that's something that should be considered as part of the overall look at regulation.

"I think my first priority would be to get some umbrella regulator, some overall regulator for every systemically important institution, wherever that might be," Vice Chairman Kohn said.

"But, the federal charter is an option you should be looking at, I think," he added.