WASHINGTON BUREAU — Treasury Undersecretary Neal Wolin says the staff of the new Federal Insurance Office (FIO) already has served an “important consultative role” in connection with issues related to the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Wolin talked about the FIO today during a Senate Banking, Housing and Urban Affairs Committee hearing on implementation of the Dodd-Frank Act systemic risk monitoring provisions.
The Dodd-Frank Act created the Financial Stability Oversight Council (FSOC), an agency that is supposed to help federal regulators identify and react to trends and events that could threaten the stability of the U.S. financial system.
The Dodd-Frank Act also required the Treasury Department to set up the FIO and hire a department employee to be the FIO director.
Michael McRaith, the Illinois insurance commissioner, is supposed to take over as the FIO director June 1.
The FIO staff has helped the Treasury Department with matters such as the Volcker rule and orderly liquidation authority regulations, Wolin said.
The Volcker rule is supposed to keep financial services companies from using taxpayer-backed guarantee programs as an incentive to engage in risky activities; the “orderly liquidation authority” regulations are supposed to give government agencies the authority they need to resolve problems at troubled companies that pose a risk to the financial system.
The FIO has become a provisional member of the International Association of Insurance Supervisors
(IAIS), Basel, Switzerland, and it hopes to become a full member in the fall, Wolin said.
The FIO also is leading the U.S. delegation on the insurance and pensions committee at the Organization for Economic Co-operation and Development, Paris, Wolin said.
The FIO staff has participated in the FSOC insurance working group, Wolin said.
McRaith will be a non-voting member of the FSOC, and the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., has appointed John Huff of Missouri to be a non-voting member of the FSOC.
The Dodd-Frank Act requires the Obama administration to appoint a third member of the FSOC with an interest in insurance — an “independent member with insurance expertise.” The independent insurance member will be the only voting FSOC member with insurance expertise.
The Obama administration has not yet submitted an independent member nomination to Congress, and Wolin did not discuss that topic at the hearing.
Sen. Sherrod Brown, D-Ohio, asked whether any mutual insurance companies would be regarded as being systemically significant.
“It would be premature” to comment on that, Wolin said.
The Dodd-Frank Act requires the FSOC to determine which non-bank companies are systemically risky enough enough that they ought to be overseen by the Federal Reserve Board.
Sen. Richard Shelby, R-Ala., the highest ranking Republican on the Senate Banking Committee, said there is a great deal of confusion about the criteria the FSOC will use to determine which non-bank companies will be classified as being potentially systemically important.
“This has created uncertainty in our markets as firms are unsure which types of activities will cause them to be subject to systemic risk regulation,” Shelby said.
The witnesses at the hearing said the FSOC will ask for more comments about the criteria.