The U.S. Treasury Department should open up the Capital Purchase Program to more life insurers, according to a financial services trade group head.
Steve Bartlett, president of the Financial Services Roundtable, Washington, made the case for CPP expansion today here at a hearing of the House Financial Services Committee on the Emergency Economic Stabilization Act.
Bartlett recommended making the CPP available to life insurers that do not have federally regulated subsidiaries and to insurers that are foreign-owned.
Up till now, Treasury has opened the program only to insured banks and thrifts, bank and thrift holding companies, and insurance companies that are also thrift holding companies.
The Troubled Asset Relief Program, a program created by the Emergency Economic Stabilization Act, has two parts.
Bartlett’s testimony dealt with the CPP, a TARP operation that invests in financial institutions to encourage them to resume lending.
Since Friday, four insurers have announced plans to acquire troubled thrifts and to apply for CPP participation.
The 4 applicants are Hartford Financial Services Group Inc., Hartford; Genworth Financial Inc., Richmond, Va.; Lincoln National Corp., Philadelphia; and AEGON N.V., The Hague, Netherlands.
Treasury Secretary Henry Paulson testified at the hearing that the Treasury Department would be selective about letting insurers participate in the CPP by creating a bank holding company or a thrift holding company.
“I’m not sure that’s going to be a successful strategy,” Paulson said.
Using a bank or thrift holding company operation to apply for the CPP “may make sense” for insurers that have had bank holding companies for some time, Paulson said.
Bartlett testified that non-bank financial institutions “perform equally important roles in supporting and stabilizing the economy, including life insurance firms and consumer finance companies, and the EESA authorizes assistance to all financial institutions.”
“Life insurance companies are a major provider of mortgage funds, and consumer lending companies are a critical component for our consumer industries,” Bartlett said.
Some sources have questioned whether Treasury will open the CPP to Aegon.
Bartlett said the CPP should be made available to foreign-owned financial institutions that have a significant operation in the United States.
“The U.S. customers of those institutions should be able to benefit from the program,” Bartlett said.
“While we understand the public policy arguments [for] not including foreign-owned institutions, there are many foreign-owned institutions that are ‘controlled’ by their U.S. subsidiaries,” Bartlett said. “Additionally, foreign-owned institutions play a significant role in the U.S. market.”
Foreign-owned life insurers account for about 25% of the U.S. life market, Bartlett said.
“Treasury has the statutory authority to extend the program to all types of financial institutions, including foreign-owned financial institutions with significant operations in the U.S., and it should do so, in the context of addressing financial services stability and U.S. competitiveness in global markets,” Bartlett said.
In related news: AEGON put out a statement saying that it does not need core capital and that it is not yet sure whether it wants to participate in the CPP.
But, “in the current market environment, we want to make sure that we carefully explore all financing options,” Jos Streppel, AEGON’s chief financial officer, says in a statement. “And, as a company with sizable operations in the United States, it makes sense for us to examine the terms and conditions which may be available under the U.S. government’s TARP program.”