WASHINGTON A U.S. senator who backed tougher capital rules for nonbank financial firms said on Tuesday that regulators misread how that requirement applied to insurance companies, and she has proposed new legislation to clear up the confusion.
Senator Susan Collins, a Republican from Maine, introduced an amendment to the 2010 Dodd-Frank Wall Street oversight law that said large nonbank firms should meet leverage limits that are at least as stringent as the rules that banks follow.
Insurance companies have since complained that they are structured differently than banks and already meet leverage requirements imposed by state regulators, so they should not have to follow the same capital rules.
Officials with the U.S. Federal Reserve, which now regulates American International Group Inc and Prudential Financial Inc, have questioned whether Dodd-Frank allows them to tailor the rules for insurers.
Collins told the Senate Banking Committee on Tuesday that the Fed has flexibility to tailor its rules. She introduced a bill on Monday that she said would make that clear.
"My legislation would ... clarify that, in establishing minimum capital requirements for holding companies on a consolidated basis, the Federal Reserve is not required to include insurers so long as the insurers are engaged in activities regulated as insurance at the state level," Collins said in remarks prepared for the hearing.
Senators Sherrod Brown, a Democrat who called the hearing, and Mike Johanns, a Republican, introduced legislation in 2013 to address the same issue. That bill has not yet been considered by the banking panel.
The squabble stems from the 2007-2009 financial crisis, when AIG nearly collapsed and had to be rescued by U.S. officials. Reform advocates said nonbank financial companies had never been held to the same leverage and other rules that big U.S. banks had to meet.
The Dodd-Frank law allowed regulators to subject nonbank firms deemed "too big to fail" to bank-like rules. AIG, Prudential and General Electric Co's finance arm have been named already, and insurer MetLife Inc is being considered for heightened scrutiny.
Insurance executives, their state regulators, many lawmakers and some Fed officials all have said insurers are not subject to runs on the business in the way banks are in a crisis and do not hold the same types of assets.
Collins, who is not a member of the banking panel but was asked to testify about her amendment, said she would work with the committee to give the Fed more flexibility as long as "we not take action that would diminish taxpayer protections."
(Reporting by Emily Stephenson; Editing by Andrea Ricci)