The Financial Stability Oversight Council (FSOC) recently voted unanimously to seek public comment on a proposed rule that provides specific standards that could potentially subject insurance companies and other nonbanks to greater federal regulation. The FSOC was created under the Dodd-Frank financial reform legislation in order to expand existing regulatory oversight into large companies that may pose a systemic threat to the overall financial system. Various companies and trade groups have lobbied for months against being subject to greater scrutiny by the FSOC. According to the proposed rule, financial companies (including insurers) would be subject to greater regulatory oversight if they are holding at least $50 billion in assets and meet one of several other characteristics, including having: (i) $20 billion in debt; (ii) $3.5 billion in derivative liabilities; (iii) a 15-1 leverage ratio of total assets to total equity; (iv) short-term debt measuring 10 percent of total assets; or (v) credit-default swaps written against the company with at least $30 billion in notional value.
According to Treasury Secretary and Chairman of the FSO Timothy Geithner, the additional oversight of nonbank entities is "one of the most important things that the Dodd-Frank Act did." However, some insurance trade groups have lobbied against potentially stricter regulation: "Property casualty insurers are not highly leveraged or interconnected and have a fundamentally different business model than banks, a fact that warrants different regulatory treatment," said Ben McKay, a lobbyist for the Property Casualty Insurers Association.
According to the proposed rules, the FSOC would make decisions on a case-by-case basis as to whether a company would fall under the outlined categories for further oversight. ("Fed Oversight of Nonbank Financial Companies Is Weighed," The New York Times, October 13, 2011).