Insurers that think they will be classified as systemically important financial institutions (SIFIs) may want to consider setting aside office space for representatives from the Federal Deposit Insurance Corp. (FDIC).

And, another thing: The FDIC reps may want the insurer SIFIs to clean up their organizational charts.

Witnesses talked about insurers only briefly, but about SIFIs — including any insurers that prove to be SIFIs — a great deal, today at a hearing organized by the financial institutions subcommittee of the House Financial Services Committee.

Organizers asked whether the Dodd-Frank Wall Street Reform and Consumer Protection Act has ended the idea of eliminating the belief that some financial institutions are too big to fail. The Dodd-Frank Act includes provisions that are supposed to lead to extra scrutiny of SIFIs.

Economists say the concept that the government will keep some financial institutions from failing gives those companies an unfair advantage when times are good and may lead to foolish concentrations of risk that will cause severe economic problems when times are bad.

Christy Romero, acting special inspector general at the Trouble Asset Relief Progam’s Office of the Special Inspector General scoffed at the idea that the Dodd-Frank Act has ended the Age of Too Big to Fail.

The government did a good job of stabilizing Citigroup Inc., New York, during the recent recession, and it seems to have made a profit on the deal, Romero said.

But the government left the 2008 managers of Citigroup in place, and now Moody’s Investors Service, New York, has officially included the prospect of permanent government support in the ratings of 8 large banks, Romero said.

“As long as the financial institutions, counterparties, and ratings agencies believe there will be future bailouts, competitive advantages associated with ‘too big to fail’ designated institutions will almost certainly persist,” Romero said, according to a written version of her remarks provided by the committee.

Michael Krimminger, general counsel of the FDIC, smiled at the idea of financial institutions wanting to be SIFIs.

SIFIs will face many extra reporting requirements, tests and layers of oversight, and “in light of these significant regulatory requirements, the FDIC has detected absolutely no interest on the part of any financial institution in being named a SIFI,” Krimminger said.

SIFIs are supposed to create “resolution reports,” or “living wills,” that explain how, in a severe crisis, regulators could “resolve” their operations, or shut the operations down.

“Under the new SIFI resolution framework, the FDIC should have a presence at all designated SIFIs, working with the firms and reviewing their resolution plans as part of their normal course of business,” Krimminger said. “If this is the case, the onsite presence of the FDIC would not be seen as a signal of distress, but rather as a positive sign that management is routinely being encouraged to consider fully any downside consequences of its actions, to the benefit of the institution and the stability of the system as a whole.”

Some SIFIs conduct business using hundreds, or even thousands, of subsidies, and they may have business lines that cross organizational structures and regulatory jurisdictions, Krimminger said.

“This can make it very difficult to implement an orderly liquidation of one part of the company without triggering a costly collapse of the entire company,” Krimminger said. “To solve this problem, the FDIC and the [Federal Reserve Board] must be willing to insist on organizational changes that better align business lines and legal entities well before a crisis occurs. Unless these structures are rationalized and simplified in advance, there is a real danger that their complexity could make a SIFI resolution far more costly and more difficult than it needs to be.”

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