WASHINGTON BUREAU — Just about everyone now agrees that the federal government needs the authority to deal with “systemic risk” at large insurers, Rep. Paul Kanjorski said here today.
Kanjorski, D-Pa., chairman of the House Financial Services Committee’s capital markets subcommittee, was speaking at hearing of the full committee on Obama administration financial services proposals.
During a hearing panel on the idea of creating a national insurance office, Kanjorski asked for support for a revision of H.R. 2609 that includes a Federal Insurance Office provision.
The provision would create an office with the ability to represent U.S. insurance interests in international deliberations, and the ability to handle problems at big, national insurers that were severe enough to threaten the stability of the financial system.
The need for a federal ability to handle systemic risk at insurers has become obvious, because what happened at American International Group Inc., New York, in late 2008 “was almost a complete disaster,” Kanjorski said.
Gov. David Paterson, D-N.Y., was prepared to let AIG get $30 billion out of its insurance subsidiaries to use as collateral for credit default swaps, Kanjorski said.
“Luckily, that offer was not accepted” because the Federal Reserve Board stepped in and helped, Kanjorski said.
Even though the AIG insurance companies were not involved, he said, the company’s financial products unit was, and AIG was almost “the largest insurance financial disaster in the history of our country,” Kanjorski said. “We can’t afford to let that happen in the future.”
Therese Vaughan, chief executive officer of the National Association of Insurance Commissioners, Kansas City, Mo., said it was not clear whether Paterson would have had the authority to get $30 billion from the life insurance subsidiaries of AIG to provide CDS collateral.
Other states would have had to approve, and it is not clear whether they would have granted that authority, Vaughan said.
Hearing panel witnesses from property-casualty insurance groups questioned whether the Kanjorski bill would give the proposed FIO overly broad authority, and they suggested that the U.S. Treasury Department might have the authority to ask small businesses and agents for information not now submitted to state regulators.