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Smoke signals: Insurance SIFIs on the horizon?

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The Financial Stability Oversight Council (FSOC) has cleared the path for a vote on systemically important financial institutions (SIFI) by closing the book on the evidentiary record for a set of nonbank financial companies and sending a letter notifying them.

The vote could come as early as next week, but it would be up to the companies to disclose any action or results — FSOC nor the Treasury will divulge any company-specific labels or information until a final determination is made.

The Council approved the letter and the resolution completing its evidence-gathering work May 24, setting in motion a 180-day time period for it to vote on whether a company should be designated a SIFI or not. 

If FSOC votes at its next meeting Monday, June 3, companies voted to be SIFIs would be given 30 days to respond and request a hearing. The ball is then in FSOC’s court for 30 days.  

A final determination requires a vote of two-thirds of the FSOC. The vote to close the books on the evidentiary process was unanimous. 

There is only one insurance expert as a voting member of FSOC, Roy Woodall. NAIC’s John Huff and Federal Insurance Office (FIO) Director Michael McRaith have weighed in and their staff involved in the process.

The nonbank companies that have made it to Stage 3 of the review process include insurers AIG and Prudential Insurance Co. of America, as both have previously aknowledged. GE Capital is also in the mix of nonbanks under consideration.  

A vote can come any time between now and Thanksgiving, but Treasury Secretary Jacob Lew has made it clear in testimony to the Senate on May 21 that he wants the Dodd-Frank Act work done without delay, although there was no deadline for a vote on the first set of nonbank SIFIs until now, he said.

“I have actually stepped on the accelerator,” with regard to Dodd-Frank implementation, Lew said later on in the hearing. Lew said in testimony that finalizing Dodd-Frank work is a matter of “public trust.” He mentioned the FSOC meeting to be held next week, as well, in his testimony, without prompting.

The Treasury-led emphasis on timeliness and speed means that some companies might no longer be able to outrun a designation through months of politicking and policy persuasion.

Scot Hoffman, a spokesman for Prudential, declined comment.

Prudential Insurance has said in the past that it does not meet the SIFI designation requirements, and even if it is designated one, does not know what it would mean in terms of specific new regulations as parameters have not been set.

Matt Gallagher, a spokesman for AIG, said the company would decline comment on the release of the FSOC meeting minutes.

AIG has not postured publicly as being against any SIFI designation.

MetLife, which meets some threshold criteria in terms of size, has not been notified at this time by FSOC that it is in Stage 3 for a more detailed and in depth view of its proprietary financials in consideration of a nonbank SIFI designation. 

MetLife is not in the initial mix. It was, until recently, a bank holding company until it sold those assets. It has been busy trying to persuade policymakers that it should not be a SIFI.

Any nonbank SIFIs would be subjected to enhanced prudential regulation by the Federal Reserve. Stress tests, ew capital requirements nad more top-down supervision would be required.

Just last week, Rep. Gary G. Miller, R-Calif., and Carolyn McCarthy, D-N.Y., introduced the Insurance Capital and Accounting Standards Act of 2013, a bill to get around the Section 171 rule of Dodd-Frank that would appear to require insurance companies to meet the same capital standards as banks, without regard to the distinctly different risk profile and business model of insurance companies.” 

The new legislation would have capital standards for insurance companies be aligned with their asset and risk profile.

 “At this point, we know SIFIs will be held to minimum capital and liquidity standards, counterparty credit exposure limits, living wills and Orderly Liquidation Authority, limits on proprietary trading, stress test and examination requirements, and possible intermediate holding company requirements,” stated Washington Analysis in a report today. “While it is not clear how tailored these standards will be for a given type of institution, the Fed will begin oversight of nonbank SIFIs shortly after they are designated.”

Dave Postal contributed to this article.


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