Applying bank capital standards to insurers which operates thrifts "would be inappropriate and could have a number of negative effects for insurers," a top official of TIAA-CREF testified before Congress on Thursday.
Instead, Gina Wilson, executive vice president and chief financial officer for the New York-based firm, suggested two alternative approaches that she said would accomplish the goals of the Federal Reserve Board, which under the Dodd-Frank Act (Dodd-Frank) now oversees financial firms which operate thrift holding companies.
"Adopting either of these alternatives would ensure insurance-centric savings and loans holding companies (SLHCs) continue to adhere to a robust set of capital standards tailored to the risks of their business model while also remaining in line with the Fed's micro and macro prudential supervisory goals of improving the safety and the soundness of financial institutions and reducing systemic risk for the overall economy," Wilson said.
Wilson was one of three insurance officials who testified at a hearing convened by two subcommittees of the House Financial Services Committee dealing with proposed capital rules for U.S. financial services firms.
The proposals deal with proposals by federal regulators that would apply the proposed Basel III international accounting standards to U.S. financial firms, including insurers.
Rules proposed by federal regulators in June also include provisions dealing with consolidated oversight of insurance companies which operate SLHCs.
Under the Dodd-Frank financial services reform law, insurers which operate SLHCs would be subject to consolidated regulation by the Fed.
In his testimony, Paul Smith, State Farm senior vice president and chief financial officer, said the proposed capital standards for insurers operating thrifts don't "make sense."
Smith also charged that, if the Fed persists in insisting upon bank-oriented rules that are inappropriate for insurance-based SLHCs, "it is hard to avoid the conclusion some have offered that the proposed rules are the latest step toward the back door elimination of the thrift charter and grandfathered unitary SLHCs."
Kevin McCarthy, Florida insurance commissioner and president of the National Association of Insurance Commissioners, testified that federal regulators should not impose "one-size-fits-all" financial standards on U.S. financial firms, that is, apply "bank-centric" capital rules on insurers.
He also said that solvency problems of AIG would not be prevented from recurring through the proposed rules.
"Capital requirements alone cannot enhance the safety and soundness of complex financial institutions – they are just one tool in a bigger toolbox," McCarty said.
"For instance, the Basel III capital requirement would not have prevented the AIG meltdown," he said.
