(Bloomberg) -- The Federal Reserve would get more flexibility to set separate capital standards for systemically important insurance companies under legislation passed by the U.S. House of Representatives.

The measure, adopted yesterday as part of a package of changes to the Dodd-Frank Act, would let the Fed treat insurers such as Prudential Financial Inc. and MetLife Inc. differently than big banks in imposing safeguards demanded by the 2010 law. It would modify a Dodd-Frank provision written by Senator Susan Collins, a Maine Republican, who has said it wasn’t meant to apply similarly to insurers and lenders.

While the vote moves the revision closer to becoming law, obstacles remain in the form of House amendments that would change rules governing mortgages, derivatives end-users and collateralized loan obligations. Those proposals will require negotiation with the Senate, which passed a bill in June that addressed only the rule for insurers.

“Congress should pass a narrow bill that would ensure that the Federal Reserve recognizes the differences between the industries and prevents banking capital standards from being applied to insurers,” Meghan Dubyak, a spokeswoman for Senator Sherrod Brown, said in a statement. “The Senate bill, which passed with unanimous support, could be sent to the President’s desk tomorrow.” Brown, an Ohio Democrat, co-sponsored the Senate bill.

In Dodd-Frank, the sweeping regulatory overhaul enacted in response to the 2008 credit crisis, the Collins measure grouped insurers and other non-bank companies with the financial firms that would face minimum capital and leverage standards to be imposed by the Fed.

Fed Flexibility

Daniel Tarullo, the Fed governor responsible for financial regulation, said at a Senate Banking Committee hearing last week that legislation is needed for the central bank to have flexibility in writing separate standards for insurers.

Prudential, based in Newark, New Jersey, was named systemically important last year and MetLife is in the final stage of a review to determine whether it gets the same designation, making it subject to heightened Fed oversight. New York-based MetLife, which hasn’t authorized a share repurchase since 2008, has said regulatory uncertainty is the biggest challenge to meetings its profitability target.

The House bill includes a measure that would exclude certain collateralized loan obligations from Volcker Rule trading limits. It also would clarify an exemption for commercial and manufacturing end-users from having to post collateral to support swaps and exclude fees to third-party services from a consumer mortgage rule.

“The addition of these amendments is a negative development of the Collins fix,” Isaac Boltansky, a policy analyst at Compass Point Research and Trading LLC, said in an interview before the vote. “The Senate now needs to decide whether it will accept other targeted changes to the Dodd-Frank Act or whether it will stick to its singular focus for insurers.”

The Senate bill is S.2270: Insurance Capital Standards Clarification Act of 2014.

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