WASHINGTON BUREAU — Republican lawmakers are questioning how well federal regulators can take insurance interests into account without the Financial Stability Oversight Council (FSOC) having a voting member with insurance expertise.

The issue came up today when Lael Brainard, under secretary of the Treasury for international affairs, testified at a House Financial Services Committee hearing on the international context of financial regulatory reform.

The major federal financial regulatory reform package — the Dodd-Frank Wall Street Reform U.S. Capitol and Consumer Protection Act of 2010 — has created the FSOC to help federal agencies track trends and events that could affect the stability of the U.S. financial system.

Dodd-Frank also created a Federal Insurance Office at the U.S. Treasury Department. The FIO director — Michael McRaith — and a representative from the National Association of Insurance Commissioners, Kansas City, Mo. — Missouri Insurance Director John Huff — are non-voting members of the FSOC. But the Obama administration still has not nominated an “independent voting member with insurance expertise.”

Rep. Spencer Bachus, R-Ala., chairman of the House Financial Services Committee, and Rep. Shelley Moore Capito, R-W.Va., chairman of the panel’s financial institutions subcommittee, both brought up the FSOC issue when questioning Brainard.

Capito asked Brainard, “When will the voting member Insurance expert be appointed?”

Brainard said she had no answer on the timeline but would get back to Capito.

Later, Bachus told Brainard that, “Many of our members are concerned about the insurance voting member.”

Brainard said McRaith, the FIO director and former Illinois insurance director, is proceeding “right away” to set up the FIO.

At another point during the hearing, Brainard said, “Yes, it’s important that the insurance industry have representation” in dealing with insurance issues, such as international capital and liquidity standards, and

in fostering the international competitiveness of the U.S. financial services industry.

The “insurance industry will be represented throughout the international process,” Brainard said.

Brainard said the FSOC “will take into account the unique nature of insurance” in its deliberations about which firms will be considered systemically significant and therefore subject to additional oversight through the FSOC.

“We will examine the current level of regulation across all industries when implementing the Dodd-Frank Act,” Brainard told Capito.

Republican members also asked about whether insurers will be allowed to invest in private equity arrangements, through an exception to the Dodd-Frank Act’s “Volcker rule” provision.

Brainard said allowing insurers to invest in private equity “is under consideration” at the FSOC.

Daniel Tarullo, a hearing witness who represented the Federal Reserve Board, said whether an insurer will be allowed to invest in private equity will be determined by whether or not an insured depository institution owned by an insurer is engaged in such an activity.

Mary Schapiro, chairman of the Securities and Exchange Commission, said the Volcker rule applies only to banking entities that are part of complex financial institutions, so whether an insurer is allowed to engage in private equity “will depend on how the entity is structured.”

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CORRECTION: Due to an editing change, an earlier version of this article gave an incorrect description of questioning at the House Financial Services Committee hearing. Republican lawmakers asked about the effects of the empty insurance member seat at the FSOC on consideration of issues such systemic significance.

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