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Bair: Some Insurers May Face Federal Data Calls

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WASHINGTON BUREAU — Insurers designated systemically risky by federal regulators may need to provide data that is not currently collected or otherwise available in public filings, the Federal Deposit Insurance Corp. Chairman Sheila Bair testified today.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 has given the new Financial Stability Oversight Council (FSOC) it created the authority to ask the Federal Reserve Board to conduct an examination of a company that is being considered for designation as systemically risky, Bair said at Dodd-Frank Act implementation hearing organized by the Senate Banking, Housing Sheila Bairand Urban Affairs Committee.

“By collecting more information in advance of designation, the FSOC can be much more judicious in determining which firms it designates as systemically important financial institutions, or SIFIs,” Bair said. “This will minimize both the threat of an unexpected systemic failure and the number of firms that will be subject to additional regulatory requirements under Title I [of Dodd-Frank].”

A staff committee working under the FSOC has divided the nonbank sector into four broad categories:

  • Specialty lenders.
  • Broker-dealers and futures commission merchants.
  • Hedge funds, private equity firms and asset managements firms.
  • The insurance industry.

The FSOC has started developing the risk measures it will use to develop the criteria for designating a company as a SIFI, Bair said.

In other FSOC news, Rep. Ed Royce, R-Calif., is leading a 14-member, bipartisian group at the House Financial Services Committee that has sent a letter asking President Obama and Treasury Secretary Timothy Geithner for prompt appointments of the independent voting insurance member of the FSOC and the director of the Federal Insurance Office (FIO).

The FIO director is supposed to be a non-voting member of the FSOC.

“An insurance-designee to the FSOC will provide a better understanding of the

insurance sector as well as the regulatory structure overseeing it,” the 14-member House Financial Services group says in the letter. “Additionally, a FIO director will be essential as we work to modernize and improve insurance regulation in the United States.”

The FSOC already has acted on issues with a direct effect on the insurance sector, by, for example, releasing a proposed rule outlining the criteria that will be considered for designating nonbank financial institutions as systemically important, and it did that without the voting insurance member or the FIO director, the lawmakers say in the letter.

The insurance members’ inpurt “would have brought a better understanding of the nature of traditional insurance activities and current regulatory structure overseeing this market,” the lawmakers say.

The FIO director vacancy may hamper action on an important study on how best to modernize and improve insurance regulation in the United States, the lawmakers say.

Rep. Barney Frank, D-Mass., and other members of Congress have also written letters in recent weeks asking the administration to put off making decisions about the insurance industry until the insurance members of the FSOC are seated.