Obama Would Leave Most Insurance Regulation To States

Specifically, the document says, Treasury will support "proposals," presumably legislation enacted by Congress, designed "to modernize and improve our system of insurance regulation in accordance" with the principles outlined for regulation of other financial services sectors.

Moreover, the proposal would create a Consumer Financial Protection Agency which presumably could have the authority to establish rules for products sold by insurers to consumers.

And Monday administration officials in a Washington Post opinion article specifically mentioned that one product covered would be variable annuities.

And the white paper also calls for heightened roles in consumer protection for the Securities and Exchange Commission and the Federal Trade Commission.

The Treasury Department also outlined the proposals in broad strokes at a background briefing for reporters yesterday.

And a "new regime," presumably controlled by federal regulators, would be established "to resolve nonbank financial institutions whose failure could have serious systemic effects," according to the "white paper" outlining the proposed scheme obtained last night by National Underwriter.

After today's briefing by the President, Laurence Summers, director of the National Economic Council in the White House, and Timothy Geithner, secretary of the Treasury, are due to fill in the details for reporters.

The President's proposal also calls for creating an "Office of National Insurance" within the Treasury Department.

According to the document, this office would "gather information, develop expertise, negotiate international agreements and coordinate policy in the insurance sector."

The white paper explained that the administration would support "increased national uniformity through either a federal charter or effective action by the states."

It also said an Office of National Insurance within Treasury would have the authority to recommend to the Fed "any insurance companies that the Office believes should be supervised as Tier 1 financial holding companies."

The proposal does not give state regulators a role in the Financial Services Oversight Council that would be created to advise the Federal Reserve Board on which non-bank institutions that held potential systemic risk the Fed would oversee.

The criteria for establishing a firm as potentially risky would be those firms "whose failure could pose a threat to financial stability due to their combination of size, leverage, and interconnectedness." These would be called Tier Financial Holding Companies.

The regulators who would constitute this panel would include the secretary of the Treasury, who would serve as chairman; the chairman of the Fed; and the director of the combined Office of the Comptroller of the Currency/Office of Thrift Supervision.

It will also include the director of the Consumer Financial Protection Agency, the chairman of the Securities and Exchange Commission, the chairman of the Commodities Future Trading Commission, the chairman of the Federal Deposit Insurance Corporation, and the director of the Federal Housing Finance Agency.

The staff of this agency would be given the "authority to gather information from any financial firm and the responsibility for referring emerging risks to the attention of the regulators with the authority to respond."

This staff would be permanent, have full-time experts, and be housed at Treasury.