The Obama administration’s plans to seek authority to take over troubled non-bank financial services companies create “tremendous concerns” for the state regulatory and guaranty fund system, an industry lawyer said today.
The administration is expected to give details about the plans Thursday, when Treasury Secretary Timothy Geithner testifies before the House Financial Services Committee.
After reviewing an outline of the plans released today by the U.S. Treasury Department, Francine Semaya, a lawyer in the New York office of Nelson Levin de Luca & Horst L.L.C., said the proposal likely would give the federal government the authority to regulate the underlying operating insurance subsidiaries of a troubled insurance holding company.
“It is hard to tell from the outline if they plan to regulate only the holding company of a troubled insurance company, or the underlying insurance assets as well,” Semaya says.
“If they do seek authority that will give them the power to deal with the underlying insurance subsidiaries, this bill would be an attempt to usurp the current state receivership and guaranty fund system,” says Semaya, who is president of the International Association of Insurance Receivers, New York.
Under the Obama administration proposal, she says, the new resolving authority, likely the Federal Deposit Insurance Corp., would have the authority to sell assets, terminate contracts and regulate the underlying state-insurance regulated entities.
Under current law, the holding company of an insolvent insurance company comes under the authority of the federal bankruptcy court system, while the underlying insurance company subsidiaries are dealt with through the state receivership and guaranty fund system.