Senate Banking Committee Chairman Christopher Dodd (D.–Conn.) has unveiled a discussion draft of his ambitious plan to revamp oversight of the financial services sector. The plan calls for the creation of a Financial Institutions Regulatory Administration (FIRA) that would assume the role as the top regulator of the financial services sector. Under Dodd’s plan, the Office of Thrift Supervision and Office of the Comptroller of the Currency would be eliminated and their regulatory roles would be assigned to FIRA and the Federal Reserve and Federal Deposit Insurance Corp. would also relinquish their regulatory roles.

While the 1,136-page proposal is aimed primarily at banks and hedge funds, there are large implications for insurers, even those that do not operate swifts. Per the draft, FIRA would be imbued with broad resolution powers to unwind financial institutions deemed too big to fail. Leigh Ann Pusey, president of the American Insurance Association expressed concern that the resolution authority was too broad and that insurers may be asked to contribute to a fund to resolve failing non-depository institutions.

“Under this proposed structure, while insurance subsidiaries are appropriately left out of this resolution regime in deference to existing state insolvency mechanisms, insurance companies could also be subject to inappropriate assessments to pay for failing institutions that are under the resolution authority, and such assessments would not benefit insurers because they are already covered by state guaranty fund systems,” Pusey said in a statement.“It would be a "one way" proposition for insurers who do not pose the same type of risk as others in the financial sector.”

Elsewhere, the Dodd bill calls for a Consumer Financial Protection Agency, similar to legislation recently passed by the House Financial Services Committee.

“AIA is disappointed that the Dodd draft provisions establishing a new Consumer Financial Protection Agency specifically include credit, title and mortgage insurance,” Pusey said. “While there is an express carve out of insurance from the CFPA’s jurisdiction over ‘financial activity,’ AIA strongly believes that this exemption should include all lines of insurance, and that no doubt should remain about the scope of that exemption.”

Dodd’s plan also calls for the creation of a new Office of National Insurance (ONI) within the Treasury Department “to monitor the insurance industry, coordinate international insurance issues, and require a study on ways to modernize insurance regulation and provide Congress with recommendations.” Not surprisingly, one of areas of the study includes “the feasibility of regulating only certain lines of insurance at the Federal level, while leaving other lines of insurance to be regulated at the State level.”

It is no doubt this last clause that is striking a sour note with proponents of state regulation of insurance. The National Association of Mutual Insurance Companies (NAMIC) expressed concerns about the purview of the ONI.

“Sen. Dodd has proposed a historic restructuring of the financial regulatory system, and he should be applauded for his work,” Jimi Grande, SVP of federal and political affairs for NAMIC, said in a statement. “However, virtually every examination of what happened last year has found that property/casualty insurance played no significant role in the crisis and that property/casualty insurers inherently pose no systemic risk to the economy. NAMIC has some concern that the powers granted in the bill to this new federal office could have unintended negative consequences for consumers.”

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