At a hearing held by the House Financial Services Committee, Property Casualty Insurers Association of America (PCI) President and CEO David Sampson offered proposals to help regulators craft systemic risk oversight.
“Size alone does not indicate systemic risk,” Sampson said. “For example, a company can be highly leveraged and at-risk of failure, but limited in cyclicality or interconnectedness and not affect the larger credit or liquidity market. Or a particular activity could have cyclical risks, but still be so small and unleveraged that it would be unlikely to present a major economic impact. There are many examples, but the bottom line is that a combination of probability of failure, cyclicality and economic impact creates systemic risk, not any of these factors in isolation or based on size. The vulnerability is not found in companies that are ‘too big to fail,’ but rather in those whose activities are too risky, cyclical and interconnected.”
Sampson also addressed the contentious issue of resolution authority. He said that PCI supports the creation of a federal resolution authority to resolve systemically risky companies that are not otherwise subject to federal or state regulatory resolution. Accordingly, he suggested that a federal risk regulator should be able to manage a parent holding company’s equity interests but, should not be able to reach down into affiliates already subject to separate resolution authority.
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