NEW YORK (The Deal) -- Under intense pressure from insurance companies, the Senate late Tuesday approved a measure that would give the Federal Reserve authority to set up liquidity and capital rules specifically for "systemically important" insurers, rather than subjecting them to tougher bank-like capital regulations.
The issue is critical to large insurers Prudential Financial (PRU - Get Report) and American International Group (AIG - Get Report), which have been designated by federal regulators as "Systemically Important Financial Institutions," or SIFIs, because of concerns over the collateral impact to the economy if they were to collapse.
The Federal Reserve is required by a measure in the post-crisis Dodd-Frank Act known as the Collins Amendment to impose bank capital requirements on designated insurance companies unless there is a legislative fix.The Senate approved the insurance measure by unanimous consent, which means that there was no formal vote by individual Senators on the provision. The move indicates that the provision is likely to be approved by the House and President Barack Obama fairly soon as long as House Republicans don't seek to add additional items to the measure that Democrats would oppose. Rep. Gary Miller, R-Calif., introduced a similar companion bill in the House. "There is broad bipartisan agreement that providing traditional life, property and casualty insurance is different from banking," said Sen. Sherrod Brown, D-Ohio, and one of the key sponsors of the measure. "I want strong capital standards, but they have to make sense. Applying bank standards to insurers could make the financial system riskier, not safer. That is why the Federal Reserve must recognize the differences between the industries and ensure that institutions engaging in insurance are not held to the same capital requirements as traditional banks."