Fed confirms to Maloney that pending legislation would allow tailoring of capital standards for insurance companies

WASHINGTON – In a response to a question from Rep. Carolyn B. Maloney (D-NY) during a hearing of the House Financial Services Subcommittee on Oversight and Investigations, Federal Reserve General Counsel Scott Alvarez confirmed for the first time that the Insurance Capital Standards Clarification Act of 2014 (S. 2270) would allow the Federal Reserve to tailor capital standards for insurance companies. The Senate unanimously approved S. 2270 on June 3, 2014. Maloney is a cosponsor of the House companion, HR 4510.

“I’m very pleased that, for the first time on the record, Federal Reserve General Counsel Scott Alvarez confirmed that the Insurance Capital Standards Clarification Act of 2014 will give the Federal Reserve the legal authority it needs to tailor capital standards for insurance companies and that the agency will recognize the congressional intent behind the legislation,” said Maloney, who is a cosponsor of the legislation. “Congress never intended for the Dodd-Frank financial reform bill to force insurance companies to be held to the same type of capital requirements as large, multinational banks, but the Federal Reserve has had a different interpretation. Mr. Alvarez’s statement makes it clear that the bill we have introduced would make the necessary clarification.”

“The Federal Reserve itself has acknowledged that applying bank capital requirements to insurance companies is the wrong approach and could have negative consequences,” Maloney continued. “Large insurance companies absolutely should have strong financial standards and rigorous oversight, but those standards need to be appropriate for that industry. Now that we know that the Insurance Capital Standards Clarification Act of 2014 will appropriately address this problem and the Senate has approved this bill, I hope the House will move to swiftly pass this important legislation.”

Background:

S. 2270, introduced by Senator Susan Collins (ME-R) and approved by the Senate, improves the Dodd-Frank Act by revising Section 171, which requires the Federal Reserve to apply capital standards to systemically important financial institutions under its supervision. Specifically, the legislation:

• Clarifies that the Federal Reserve can apply insurance-based capital standards to the insurance portion of the business, while still keeping banking capital standards for the banking portion of the business.

• Prevents the Federal Reserve from requiring non-publicly traded insurance companies from preparing financial statements in accordance with generally accepted accounting principles, when they are already preparing financial statements in accordance with state-based statutory accounting principles.