The National Conference of Insurance Legislators says Congress should include state insurance regulators in any systemic risk oversight effort.

New York state Sen. James Seward, R-Oneonta, N.Y., the president of NCOIL, Troy, N.Y., and other NCOIL officers present that argument in a letter sent to the leaders of the congressional financial services committees.

Treasury Secretary Timothy Geithner has talked about putting the Federal Reserve Board in charge of oversight of “systemic risk” involving the biggest insurers, and Federal Deposit Insurance Corp. Chairman Sheila Bair has suggested creating a committee to oversee systemic risk.

NCOIL officers say there should be “an equal partnership between and among state and federal regulators to oversee systemic risk.”

Systemic risk oversight should rely on “horizontal communication between and among regulators” because that would “avoid the dangers associated with consolidating power in any one agency or entity,” NCOIL officers write in their letter.

Designating a single federally managed systemic regulator could lead to regulatory capture, bias in favor of one particular financial sector or perspective, and inadvertent loopholes, the NCOIL officers write.

“The value of state regulation must be recognized in the reform process,” the NCOIL officers write.

The NCOIL officers stress the need for state expertise in systemic oversight.

“It is frankly difficult to trace our current financial crisis to lapses in state regulation,” the NCOIL officers write. “Indeed, some of the problems our markets now face might have been mitigated had the states’ consumer protection authority not been curtailed or preempted in certain areas.”

A spokesman for Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, says Congress will take action on creating a systemic risk regulator when the legislation is ready.

“Mr. Frank has discussed July 4th as a tentative time to complete our committee’s work, but that is not set in stone,” the spokesman says.