As the House Financial Services Committee considers legislation to confront systemic risk, one lawmaker is proposing an amendment that would grant the government authority to bust up institutions that are too big to fail.

Rep. Paul E. Kanjorski (D-PA), chairman of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, said this week the amendment was targeted at 15-20 financial services firms whose size and interconnectedness make their failure a threat to the nation's financial health.

In a letter to the committee, American Insurance Association President and CEO Leigh Ann Pusey contended that traditional property/casualty companies do not pose a systemic risk and should be exempt from resolution authority. "Notwithstanding our industry’s critical role in the economy, traditional property/casualty companies do not operate like banks or other financial firms. Therefore, it is absolutely critical that as lawmakers proceed on any systemic risk or resolution authority legislation, these differences are taken into account," she wrote.

Moreover, Pusey said that insurance company funds should not be used to prop up other failing financial services firms. "In addition to stringent regulatory standards, there is a robust resolution mechanism in place with the state guaranty fund system," she wrote. "Therefore, the resolution authority and assessment mechanism contained in the legislation should not tap the assets of an insurance company in an effort to resolve the failure of another type of financial institution. That is, there should be strong firewalls in place to preserve the assets of an insurance company for policyholder claims."


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