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A U.S. life insurance trade group said it’s concerned with the measure in the financial-services regulatory reform bill that would create a pre-funded systemic risk resolution plan.
Life insurers are already — though rarely — subject to state-based assessments through state guaranty associations after an insurer has trouble paying claims, said Whit Cornman, a spokesman for the American Council of Life Insurers, Washington, D.C.
A study done by Promontory Financial found a pre-funded resolution plan would drain billions out of the financial system at a time when the United States is experiencing a liquidity crunch, he said.
The systemic risk resolution fund would charge the largest financial firms $50 billion for an up-front fund, built up over time, which would be used if needed for any liquidation. The industry would take a hit for liquidating large, interconnected financial companies.
It also would allow the Federal Deposit Insurance Corp. to borrow from the Treasury for working capital it expects to be repaid from the assets of the company being liquidated.
“Life insurers already are subject to a state-based, post-event assessment and represent a poor fit for a new resolution fund,” said Frank Keating, president and chief executive officer of the ACLI, in a statement.
Last week, the Senate’s Banking, Housing and Urban Affairs Committee passed the Democrats’ major financial reform bill with a party-line 13-10 vote, sending it on to the Senate floor, with GOP opponents holding back their resistance for now (BestWire, March 23, 2010). Its future depends on finding Republican support. Without at least one GOP vote in the Senate, the bill to remake the U.S. financial system can’t escape a potential filibuster
The recent study commissioned by the ACLI noted a pre-funded resolution plan also could “create incentives for lenders to extend credit to financially shaky enterprises under the belief that if an enterprise fails, the authority would bail it out,” Keating said.
Other provisions of the bill the ACLI supports, however, include the proposal that would create an Office of National Insurance.
Though the legislation had been the focus of several months of bipartisan negotiations, the committee markup clocked in at 20 minutes, with remarks delivered only by the chairman, Sen. Chris Dodd, D-Conn., who introduced the bill, and ranking GOP Sen. Richard Shelby of Alabama.
“I remain, today, optimistic that we can, over time, reach an agreement that will garner broad bipartisan support,” said Shelby. Chairman Dodd has made it clear that he intends to move forward without Republican support” (BestWire, March 23, 2010).
(By Fran Matso Lysiak, senior associate editor, BestWeek: firstname.lastname@example.org)