Monday, September 08, 2014

House Oversight Chairs Question FSOC SIFI Designation of Insurers

The Chair of the House Capital Markets Subcommittee, Rep. Scott Garrett (R-NJ), and six other members of Congress, including Rep. Spencer Bachus (R-AL), Chair Emeritus of the Financial services Committee, have serious concerns over the lack of empirical analysis leading up to the Financial Stability Oversight Council designation of insurance companies as systemically important financial institutions (SIFIs). In a letter to Treasury Secretary Jacob Lew in his capacity as FSOC Chair, the members noted that FSOC has devoted far less effort to empirical analysis, stakeholder outreach, and transparency in its consideration of insurance companies for SIFI designation than it has for asset management firms. They said that this disparate treatment has created uncertainty in the insurance industry and raised concern that FSOC’s approach to insurance companies is to designate first and ask questions later.

In contrast, while the Council’s treatment of the asset management industry remains problematic, the Office of Financial Research did publish a report on that industry in an effort to conduct a thoughtful analysis. No similar analysis has been done of the insurance industry. Another example of disparate treatment is that, while FSOC has refocused its examination of the asset management sector from asset managers to products and activities, no such similar refocus is underway in the insurance sector

The House leaders are especially disappointed that the OFR has not acted on a recommendation by its Advisory Subcommittee to conduct a detailed study to determine whether and where systemic risk issues may arise in the insurance industry and how such risks are currently being handled.

All that said, the House members asked Secretary Lew to direct the Office of Financial Research to act on the recommendation to conduct a detailed study to determine whether and where systemic risk issues may arise in the insurance industry and how such risks are currently handled in the regulatory framework before designating any additional insurance companies as SIFIs. They also asked him to hold a public conference on the insurance industry similar to the asset management conference held back on May 19, 2014 to better understand the unique risks, challenges and business models of insurance companies. Finally, the Secretary should direct FSOC staff should be directed to undertake a more focused analysis of industry-wide products and activities to assess potential risks associated with the insurance industry, just as the Council is currently doing with regard to the asset management industry before designating one more insurer as a SIFI.

No comments: