Bill to Be Introduced Exempting Insurers from SIFI Designation

“At this time we do not have any language available nor do we have any information regarding cosponsors,” said a spokesman for Garrett. More information will be forthcoming next week, he said. 

The American Enterprise Institute, the conservative think tank, has taken a dim view of the SIFI designation, as have some Republican lawmakers.

If, as expected, the FSOC goes forward with its SIFI designations this year, “the entire financial services industry will be set on a course toward domination by a few large firms that have been chosen for special government attention,” wrote Peter Wallison, AEI fellow in financial policy studies in April. 

“If the Fed declares, for example, that finance companies must hold more capital, it will raise the costs of these firms in their competition with banks,” Wallison warned. “If the Fed waves its wand and decides that insurers must increase their liquidity, it will change their investment performance in comparison with mutual funds or pension funds.”

Garrett is the second most powerful member of the House FSC, serving as chairman of its key Capital Markets Subcommittee.

The legislation is likely to run into strong opposition. The insurance industry vehemently opposes a SIFI designation, but does want the Federal Insurance Office, also created by DFA, to help its members negotiate trade agreements with foreign countries on favorable terms.

The industry also opposes having to provide financial information to another agency within Treasury created by DFA, the Office of Financial Research.

However, in a report released last Friday, the OFR argued that the insurance industry is “an important locus of contingent exposure,” and cited gaps in the financial data currently compiled by the industry, as well as the National Association of Insurance Commissioners.

The report said there is a dire need to gather even more data, either from the NAIC or from the companies themselves. It has the authority to ask for that data.

In general, “These [data] gaps underscore once again the need for a more comprehensive picture of the financial system,” the OFR report said.

“The failure of supervisors to foresee the 2007–2009 crisis, despite an elaborate combination of aggregate analysis, regular examinations, and continuous monitoring at the largest commercial and investment banks, illustrates the need for further investment and research to improve the information sources that they have available to monitor financial stability,” the report concluded.