WASHINGTON BUREAU — The Financial Stability Oversight Council (FSOC) has given insurance industry groups plenty to think about with new systemic risk draft regulations, a major Volcker Rule study, and a lingering voting insurance seat vacancy.
Congress brought the FSOC to life with a provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The council, an arm of the U.S. Treasury Department, is supposed to track the kinds of trends and events that could threaten the stability of the U.S. financial system.
The chairman is Treasury Secretary Timothy Geithner. Most of the other voting members are heads of federal financial services regulatory agencies, such as the Federal Reserve Board and the Federal Deposit Insurance Corp. The council is supposed to include a voting insurance member to be nominated by the president and confirmed by the Senate, and the head of the new Federal Insurance Office (FIO), another Treasury Department arm created by the Dodd-Frank Act.
The FSOC is still missing the voting insurance member and the FIO director.
At the first two monthly meetings, the FSOC focused mainly on organizational matters, such as adopting by-laws, a transparency policy and a committee structure. The major regulatory filings had to do with “systemically important financial market utilities” and an “advanced notice of proposed rulemaking” (ANPR), or set of questions for commenters, concerning how the FSOC might go about regulating “nonbank financial companies” such as insurance companies and broker-dealers.
At the meeting held Tuesday, the FSOC members began talking about concentration of risk, curbs on speculative trading, and regulation of systemically important nonbank financial companies in more specific terms.
One major document the FSOC has unveiled is a notice of proposed rulemaking, or draft regulation, implementing Section 113 of the Dodd-Frank Act.
Section 113 of the act gives the FSOC the authority to require that a nonbank financial company be supervised by the Federal Reserve Board if it thinks the company is large enough, interconnected enough, or important enough in other ways that problems at the company could threaten the financial stability of the United States.
At the FSOC meeting Tuesday, the FSOC staff gave a summary of comments submitted in response to the nonbank financial company ANPR.
Missouri Insurance Director John Huff, who is serving on the FSOC as a non-voting representative of the National Association of Insurance Commissioners, Kansas City, Mo., asked what the implications would be for a nonbank financial institution that is “designated under Section 113.”
The FSOC staff said a designated company would be subject to consolidated supervision by the Fed regardless of whether the company owned a bank or not.
Fed Chairman Ben Bernanke asked about coordination at the international level.
Discussions have been taking place with international bodies with regard to both banks and nonbanks, but the FSOC discussion has been focused more on nonbanks, according to the FSOC staff.