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June 14, 2011 at 08:00 PM
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.
