Rep. Barney Frank, chair of the House Committee on Financial Services, says that the committee will take up the issue of an Optional Federal Charter during the next session.
Frank made his remarks to a crowded room of state legislators and insurance industry participants during the summer national meeting of the National Conference of Insurance Legislators, Troy, N.Y.
Frank promised to be a “neutral broker” on the issue and open it up in deference to fellow members in Congress. When the OFC issue is raised, Frank said that he will insist that there are consumer protections at the federal level and as well as at the state level. He advised anyone with strong feelings on the matter to start talking to your representatives in Congress.
During his speech, he also said that insurers should not be concerned about the inside buildup in life insurance policies being taxed because even if the proposal is presented it would not have traction in Congress.
He added that the issue is not divided by party lines. Other issues Frank said are not broken out along party lines include reforming the structure of the Federal Reserve Bank and reforming the availability of funding for housing. Frank says that the appointment of seven regional bank presidents selected by private citizens creates the possibility of “undue influence from banks.” And, he continued, the approach to housing needs to be changed after Fannie Mae and Freddie Mac, troubled federal housing agencies, are ended. Rather than make funds available solely for buying a house, Frank says that the government should help make rental units available either by building them or using foreclosed properties. The reason, he explains, is that a homeowner needs both resources and an “integrated life” that allows them to manage unforeseen circumstances.
On the unforeseen circumstance of the collapse of American International Group, New York, Frank reiterated that state insurance commissioners and state regulation was sound, protected consumers and resulted in strong insurance units at the troubled financial services company.
In fact, according to Frank, were profitable enough to send cash to the top of the company where money was not managed as well. He noted that management did not have a clear idea of what it owed on insurance it had written on mortgage-backed securities.
He added that the current version of the Dodd-Frank Act of 2010 (HR 4173) which he says has the votes in the Senate to pass, establishes an office which will provide insurance expertise but also is different from the Senate version of the bill which created broader powers to establish international agreements. The House version uses a narrower definition and allows for issues to be contested in courts.
And, he said, that the current legislation includes a ‘risk matrix’ so that financial institutions with more risk will pay a larger assessment. So, insurance companies should fare well and pay less than banks that have bigger risk, Frank added.
When this bill is passed, Frank said that “the regulation of insurance will have changed far less than other areas.”
Frank was asked whether credit default swaps should be regulated at the state level. He responded that they are used for a wide range of activities beyond insurance, noting however, that there was some abuse of these instruments. He added that CDS are really financial instruments.