The Federal Deposit Insurance Corp. (FDIC) has completed work on regulations that could affect the steps it would take if it became the receiver of an insurance company or of an affiliate of an insurance company.
The FDIC developed the final rule — “Certain Orderly Liquidation Authority Provisions”– to implement parts of Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Congress responded to concerns that regulatory gaps may have contributed to the severity of the financial crisis that started in 2007 by giving federal financial services regulators, including the FDIC, broader jurisdiction.
The Dodd-Frank Act leaves most responsibility for dealing with problems at insurance companies with state insurance regulators. But, if a state fails to address problems at a large, systemically important insurance companies for 60 days, the FDIC has the authority under Dodd-Frank to oversee the resolution of the problems at the insurer under the insurance company receivership laws in effect in the company’s home state.
The FDIC is supposed to work with the new Financial Stability Oversight Council to determine which insurers are important enough and weak enough to need federal attention.
The FDIC issued a notice of proposed rulemaking in October 2010, and it released interim final regulations implementing the provisions in January. The FDIC inserted the regulations as Part 380, sections 380.1 through 380.6, in Title 12 in the Code of Federal Regulations (CFR).
The interim final rule addressed the “treatment of any remaining shareholder value in the case of a covered financial company that is a subsidiary of an insurance company and limitations on liens that the FDIC may take on the assets of a covered financial company that is an insurance company or a covered subsidiary of an insurance company,” FDIC officials said in a preamble to the new final rule.
In addition to FDIC handling of insurer-related insolvencies, the final rule also deals with other issues relating to financial company failures, such as the rules for clawing back compensation paid to the senior executives and directors responsible for a company’s failure.
The FDIC received a total of 31 responses to the proposed rule and the interim final rule, officials say.
Some commenters with an interest in bankruptcy law asked the FDIC to show as much deference as possible to bankruptcy laws, rules and processes, officials say.
Similarly, officials say, commenters from the insurance industry, “urged the greatest possible deference to state regulators and to state laws, rules and regulations governing insurance companies,” officials say. “One commenter has repeatedly requested clarification that mutual insurance holding companies will be treated as insurance companies for the purposes of the Dodd-Frank Act.”
In the interim final rule, “Section 380.5 provides that if the FDIC acts as receiver for a direct or indirect subsidiary of an insurance company and that subsidiary is not an insured depository institution or an