House OK's "Collins Amendment" fix

The House passed legislation late Tuesday under accelerated procedures that would clarify that the Federal Reserve Board can apply insurance-based capital standards to the insurance portion of any insurance holding company it oversees.

However, the bill, the “Insurance Capital Standards Clarification Act of 2014,” H.R. 5461, carries baggage through other provisions unlikely to be accepted by the Senate, thereby virtually certainly delaying final legislative action on the clarification until Congress returns to work in a so-called “lame duck” session after the mid-term elections.

The Fed has made clear that it will honor congressional intent and likely delay any substantive oversight of insurers subject to its jurisdiction until such legislation is enacted, likely in November or December.

The American Council of Life Insurers voiced support for the House action and urged immediate passage.

The ACLI said in a statement that the House bill gives the Fed the ability to develop insurance-specific standards for insurance companies — not bank-centric standards — as it moves forward. “ACLI believes consumers, life insurance companies, the economy and the nation overall benefit from a strong insurance regulatory system,” the statement said. “But, rules governing life insurers on all issues must be appropriate for life insurers,” the statement said.

The ACLI statement noted that there is broad agreement on this position. “The Obama administration, Democrats and Republicans in the House and the Senate, state and federal regulators and private industry all agree that life insurers should not be subject to capital standards more suited for banking,” the statement said.

The Senate measure S. 2270, “the Insurance Capital Standards Clarification Act of 2014,” is simple legislation, merely clarifying that statutory accounting principles can be used by the Fed in overseeing insurance companies.

That bill would “revise” Sec. 171, the so-called “Collins Amendment,” a provision of the Dodd-Frank financial services reform law. The Fed says its lawyers interpret the “Collins Amendment” to “require” the Federal Reserve to apply bank capital rules to insurance companies it supervises. The Senate bill was passed as a separate through unanimous consent June 3.

Final passage almost certainly must wait until after the November mid-terms because, “This bill attaches three divisive measures that make substantive changes to the Dodd-Frank Wall Street Reform law to a bipartisan, Senate-passed measure that makes technical changes to the law,” said Rep. Maxine Waters, D-Calif., ranking minority member of the Financial Services Committee (FSC).

According to analysts at the Washington Analysis, a buy-side securities analytical firm, unlike the Senate measure, the controversial provisions in the House bill would expand exemptions for bank ownership of collateralized loan obligations (CLOs) under the Volcker Rule, as well as marginally expand the definition of a Qualified Mortgage (QM).