A senior Republican member of the House Financial Services Committee plans to introduce legislation next week that would bar federal regulators from designating insurance companies as systemically significant.
Rep. Scott Garrett, R-N.J., disclosed his plans in comments at the House FSC hearing where Treasury Secretary Timothy Geithner reported to the committee on the first year’s operations of the Financial Stability Oversight Council.
In questioning Geithner at the hearing, Garrett questioned “the reasoning behind spreading the Too-Big-To-Fail doctrine to other parts of our financial system.”
He asked Geithner, “Why is it a good idea for FSOC to designate other firms in other parts of the financial sector as Too-Big-To-Fail as you plan to do in the near future?”
He then asked Geithner, “Why do we want to harden the minds of the marketplace into believing asset management firms, insurance companies and finance companies are Too-Big-To-Fail?
“Why do we want to spread the problems from the banking sector to these new businesses where they will receive cheaper funding in the marketplace and be able to swallow up their less competitive counterparts?” he asked Geithner.
“I believe we should not be doing this,” he told Geithner. “I believe the FSOC should not designate any nonbanks as Too-Big-To-Fail and I plan on introducing legislation next week to remove that authority.”
At an earlier hearing, Garrett called the entire SIFI debate a “charade” and suggested that discussions should center on how to end too big to fail and the moral hazard it poses.
The FSOC, created by the Dodd-Frank Act, is charged with identifying threats to the financial stability of the United States; promoting market discipline; and responding to emerging risks to the stability of the United States financial system.
Insurers have vehemently opposed designation as so-called “SIFIs.” They said the FSOC wants to use bank-centric metrics to identify non-banks as potentially systemically significant, and that, unlike banks, insurers pose no risks to the financial system.
For example, MetLife is in the process of selling its bank to GE Capital out of concern that keeping the bank will make it more likely that it will be designated a SIFI and therefore subject to both state and federal regulation.