State insurance regulators are thinking about tightening the rules governing securities lending.
Pennsylvania Insurance Commissioner Joel Ario discussed the topic last week, while testifying before a House Financial Services Committee capital markets subcommittee panel on the problems at American International Group Inc., New York.
AIG’s difficulties “exposed some problems” in the securities lending area, “and improvements are under way,” Ario said. “Going forward, state insurance regulators are considering changes to regulations involving holding company groups, as well as investments held by insurers.”
The issues at the AIG holding company securities lending program that affected AIG’s U.S. life units “will be key considerations in these discussions,” Ario said.
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Although Ario defended state regulation, he cited state securities lending regulations as examples of state regulations in need of modernization.
Other types of state regulations in need of revisions include producer licensing regulations and product review regulations, Ario said.
Securities lending “did not pose unmanageable systemic risk and was not the reason for federal intervention,” Ario testified.
The problems in the derivatives operations at AIG’s federally regulated AIG Financial Products Corp. unit caused the run on AIG and “exacerbated a securities lending problem that state regulators were otherwise on the way to resolving,” Ario said.