What's Up, Punxsutawney Phil?

Approval of CPP aid to insurers would show that Treasury and the new administration are prepared to set up a process that might ultimately lead to hands-on regulation, either as a partner with existing regulators or as a direct regulator.

In any case, the likely first step for any direct federal role in regulating insurance will be legislation likely to be acted on sometime in the first 6 months of the year authorizing a federal regulator to oversee any financial institution deemed to present a potential systemic risk to its counterparties.

This was the criteria used in providing aid–albeit at a high price–to American International Group last September.

Also expected to be part of an early regulatory push is dealing with the conflicts inherent in having rating agencies who compete with each other evaluate the creditworthiness of instruments or balance sheets of companies who must pay a fee for the rating agencies to provide the service.

Also on the agenda for prompt action is federal regulation of mortgage brokers, no bit players in the U.S. housing crisis that has slowed the world economy to a crawl.

How Congress and the administration jointly decide who is to regulate mortgage brokers could provide a harbinger into who–for example, the Securities and Exchange and/or the Financial Industry Regulatory Authority–would regulate insurance agents and brokers when that issue comes up down the road.

It is also interesting that supporters of federal insurance regulation have decided that as a first step they will ask the Treasury Department to set up an Office of Insurance Information within Treasury that won’t have preemptive authority.

That request, being relayed to Geithner by Representatives Melissa Bean, D-Ill., and Ed Royce, R-Calif., primary sponsors in the past Congress of legislation creating an optional federal charter, represents a significant switch in tactics.

It means supporters within the insurance industry of a federal role in overseeing insurers have determined that political reality might force them to be overseen by an existing federal agency, for example, the Federal Reserve Board.

In any case, the only thing certain is that the shape of insurance regulation for the foreseeable future remains unclear, meaning that Punxsutawney Phil’s behavior today is unlikely to provide insight into whether state regulation of insurance will continue as now or whether some form of federal regulation will supplant it.