Senate Debate Opens On Financial Reform

As debate continues on financial services reform legislation in the Senate, the insurance industry will be working to revise regulatory provisions they consider too "bank-centric."

After three days of sparring, the Senate approved a procedural move last Wednesday night that will allow debate on S. 3217, the "Wall Street Transparency and Accountability Act of 2010," to proceed.

The Senate is expected to spend two weeks debating the measure.

The legislation is regarded as imposing the most comprehensive changes in financial services regulation since the various bills enacted to deal with the Great Depression.

According to Blain Rethmeier, senior vice president for public affairs for the American Insurance Association, as presently drafted, insurers remain concerned that the bill continues to reflect a "very bank-centric approach to reform." While it recognizes that insurers should be left in the state-based resolution system and financing the state-based guaranty programs, it includes insurers in payments for a post-event assessment mechanism, he said.

Specifically, in a provision in the Senate bill, federal regulators functioning as a Systemic Risk Council would be able to levy a fee against large insurers that would be used to wind down a financial services firm that the Council determined posed a systemic risk to the financial system.

Mr. Rethmeier said insurers will argue that they "should not be forced to pay for a resolution system that won't even be applied to the industry."

Other bank restrictions that adversely and inadvertently impact insurers include the Volcker rule prohibition on proprietary trading, he said. "This provision needs to be modified to reflect unique nature of insurers," he added.

The Volcker rule is named for Paul Volcker, chairman of the Federal Reserve Board before Alan Greenspan took over in the late 1980s and a very conservative banker. It would limit financial institutions' involvement in speculative investments, including in private equity transactions and in hedge funds, as well as trading in derivatives unless those investments favor their customers.

Some of the same concerns expressed by AIA were voiced by Paul Mattera, chief public relations officer for Liberty Mutual, in a video aired at the Risk and Insurance Management Society meeting last week in Boston.

Mr. Mattera argued in the video that such a council would be dominated by bank regulators, that insurers already have to pay to wind down troubled insurers through a guaranty system, and that making insurers subject to such federal authority would raise the cost of insurance to both companies and to buyers of insurance.

At the same time, Mr. Mattera voiced support for the provision of the legislation creating an Office of National Insurance, calling it a "step in the right direction" but not a "substitute for legislation creating an optional federal charter for insurance."