WASHINGTON BUREAU — The House Financial Services Committee today approved H.R. 3996, the Financial Stability Improvement Act bill, and H.R. 2609, the Federal Insurance Office Act bill.

H.R. 3996 passed with a 31-27 party line vote. That bill would require that financial services companies with $50 billion or more in assets to contribute to a fund that would be used to bail out troubled companies.

The committee approved H.R. 2609, the FIO bill, by a voice vote.

The FIO bill would create a Federal Insurance Office within the U.S. Treasury Department. The office would oversee international matters, provide information to a new systemic risk regulator about potentially risky insurers, and collect data on insurer solvency.

H.R. 3996, H.R. 2609 and other financial services bills, such as H.R. 3817, the Investor Protection Act bill, are on track to reach the House floor quickly.

Congressional staffers believe that the House could begin debate on financial services reform bills as early as Dec. 9, with bills coming up for final votes as early as Dec. 11.

The House Financial Services Committee passed H.R. 3817, the IPA bill, Nov. 4. Insurance agents are deeply concerned about a provision in that bill that would give the U.S. Securities and Exchange Commission the authority to “harmonize” the standards of care investment advisors and broker-dealers must use when selling investment products.

H.R. 2609 – The Federal Insurance Office Act

The American Council of Life Insurers, Washington, and the National Association of Insurance and Financial Advisors, Falls Church, Va., are backing the idea of creating an FIO.

“The Treasury Department needs to develop expertise on a $5 trillion industry that affects the lives of tens-of-millions of Americans,” ACLI President Frank Keating says in a statement. “In the aftermath of the financial crisis, it is important to eliminate the knowledge gap within the federal government. It is also important to enhance the ability of the federal government to negotiate international insurance agreements with foreign countries.”

NAIFA President Tom Currey says establishing a centralized body would help advance insurance expertise and understanding at the federal level.

An FIO also would bring “some degree of uniformity when dealing with domestic and international insurance regulatory and trade matters,” Currey says.

But the FIO would have no authority to regulate insurers, and, in the current version, its ability to negotiate international agreements would be weaker than in the original bill draft.

A manager’s amendment would require the proposed FIO to share the authority to negotiate international agreements with the Office of the U.S. Trade Representative.

Moreover, any agreements reached would only be effective after a “layover” period. Congress could take action on an agreement during that period.

The manager’s amendment also would provide for review in federal court for challenges brought against federal preemption of state insurance regulations.

Another amendment adopted by the committee would require the FIO to study and report to Congress in one year on how to modernize and improve the system of insurance regulation in the U.S.

The study would measure progress against the Obama administration’s six principles for insurance regulatory reform.

Rep. Barney Frank, D-Mass., chairman of the committee, said during debate on the FIO bill that creating an optional federal charter for insurance remains on the table, and the committee will hold hearings on OFC bills in the spring.

H.R. 3996 — The Financial Stability Improvement Act

H.R. 3996 is a systemic risk that was created, in part, because of the need for the federal government to bail out American International Group Inc., New York.

The bill would create a council of federal regulators, headed by the secretary of the Treasury, that would identify systemically risky institutions in need of stronger supervision.

The bill also would give the Federal Deposit Insurance Corp. authority to create a fund that would be used to dissolve large, troubled financial institutions without government assistance.

At the request of the insurance industry, an amendment was added that says the assessments would be based on a “risk matrix” that “takes into account” the risks presented to the financial system.

Another amendment would give the proposed Systemic Risk Council the authority to monitor international regulatory developments, including those developments relating to insurance and accounting.

Still another amendment would mandate that the domiciliary state regulator be involved in any federal regulatory decision involving higher prudential supervision of an insurance company and whether or not to subject an entity that includes an insurance company to the FDIC’s resolution authority.

The insurance industry also won an amendment that transfers authority over insurance companies that own thrifts to the Federal Reserve Board, from the Office of Thrift Supervision.

Groups Back Strong FIO

As the House Financial Services Committee geared up to vote on the FIO bill, four groups wrote to the committee to oppose efforts to weaken the proposed FIO’s authority.

In addition to the American Council of Life Insurers, Washington, the groups that sent the letter included the American Insurers Association, Washington; the Financial Services Roundtable, Washington; and the Reinsurance Association of America, Washington.

Rep. Paul Kanjorski, D-Pa., chairman of the committee’s capital markets subcommittee, negotiated the changes to get support for the bill from the National Association of Insurance Commissioners, Kansas City, Mo.

The compromise language would limit the Treasury Department’s authority to preempt state insurance regulations even if a state rule conflicted with an international trade agreement.

A savings clause would prevent preemption of state insurance measures governing capital or solvency of an insurer even if no solvency related regulatory gap were created.

Top NAIC officials sent a letter Nov. 17 that indicates that the trade group would support creation of an FIO if the manager’s amendment sustaining the authority of state regulators on prudential matters were included in the final bill.

The ACLI and the other groups that wrote to the Financial Services Committee Tuesday said the FIO’s ability to carry out its international function would be hamstrung by some proposed changes, including the proposed addition of language requiring de novo judicial review of any preemption determination.