[Congressional Record Volume 160, Number 62 (Tuesday, April 29, 2014)]
[Senate]
[Pages S2471-S2473]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
By Ms. COLLINS (for herself, Mr. Brown, Mr. Johanns, Mr. Kirk,
and Mr. Tester):
S. 2270. A bill to clarify the application of certain leverage and
risk-based requirements under the Dodd-Frank Wall Street Reform and
Consumer Protection Act; to the Committee on Banking, Housing, and
Urban Affairs.
Ms. COLLINS. Mr. President, I am delighted to be joined today by my
colleagues, Mike Johanns and Sherrod Brown, in introducing the
Insurance Capital Standards Clarification Act of 2014. We are pleased
to be joined by Senators Kirk and Tester as cosponsors. This
legislation clarifies the Federal Reserve's authority to recognize
[[Page S2472]]
the distinctions between banking and insurance when implementing
section 171 of the Dodd-Frank Act, commonly referred to as the
``Collins Amendment'' since I wrote this provision of the law.
Before I describe our bill in detail, I would like to provide some
background on section 171 and why it is so important that nothing be
done to diminish or weaken it.
We all recall the circumstances we faced 4 years ago, as our Nation
was emerging from the most serious financial crisis since the Great
Depression. That crisis had many causes, but among the most important
was the fact that some of our nation's largest financial institutions
were dangerously undercapitalized, while at the same time, they held
interconnected assets and liabilities that could not be disentangled in
the midst of a crisis.
The failure of these over-leveraged financial institutions threatened
to bring the American economy to its knees. As a consequence, the
federal government was forced to step in to prop-up financial
institutions that were considered ``too big to fail.'' Little has
angered the American public more than these taxpayer-funded bailouts.
That is the context in which I offered my capital standards
amendment, which became section 171 of Dodd-Frank. Section 171 is aimed
at addressing the ``too big to fail'' problem at the root of the 2008-
2009 crisis by requiring large financial holding companies to maintain
a level of capital at least as high as that required for our nation's
community banks, equalizing their minimum capital requirements, and
eliminating the incentive for banks to become ``too big to fail.''
Incredibly, prior to the passage of Section 171, the capital and risk
standards for our Nation's largest financial institutions were more lax
than those that applied to smaller depository banks, even though the
failure of larger institutions was much more likely to trigger the kind
of cascade of economic harm that we experienced during the crisis.
Section 171 gave the regulators the tools, and the direction, to fix
this problem.
It is important to recognize that Section 171 allows the federal
regulators to take into account the significant distinctions between
banking and insurance, and the implications of those distinctions for
capital adequacy. I have written to the financial regulators on more
than one occasion to underscore this point. For example, in a November
26, 2012, letter I stressed that it was not Congress's intent to
replace State-based insurance regulation with a bank-centric capital
regime. For that reason, I called upon the federal regulators to
acknowledge the distinctions between banking and insurance, and to take
those distinctions into account in the final rules implementing Section
171.
While the Federal Reserve has acknowledged the important distinctions
between insurance and banking, it has repeatedly suggested that it
lacks authority to take those distinctions into account when
implementing the consolidated capital standards required by Section
171. As I have already said, I do not agree that the Fed lacks this
authority and find its disregard of my clear intent as the author of
section 171 to be frustrating, to say the least. Experts testifying
before the Financial Institutions and Consumer Protection subcommittee
of the Senate Banking Committee, chaired by Senator Brown, concur that
the Federal Reserve has ample authority to draw these distinctions.
Nevertheless, the bill we are introducing today clarifies the Federal
Reserve's authority to recognize the distinctions between insurance and
banking.
Specifically, our legislation would add language to section 171 to
clarify that, in establishing minimum capital requirements for holding
companies on a consolidated basis, the Federal Reserve is not required
to include insurance activities so long as those activities are
regulated as insurance at the State level. Our legislation also
provides a mechanism for the Federal Reserve, acting in consultation
with the appropriate State insurance authority, to provide similar
treatment for foreign insurance entities within a U.S. holding company
where that entity does not itself do business in the United States. In
addition, our legislation directs the Fed not to require insurers which
file holding company financial statements using Statutory Accounting
Principles to instead prepare their financial statements using
Generally Accepted Accounting Principles.
I should point out that our legislation does not, in any way, modify
or supersede any other provision of law upon which the Federal Reserve
may rely to set appropriate holding company capital requirements.
In closing, I want to thank my colleagues, Senators Brown and
Johanns, for working so hard with me over many months to help craft the
language we are introducing today. I believe our language removes any
doubt about the Federal Reserve's authority to address the legitimate
concerns raised by insurers that they not have a bank-centric capital
regime for their insurance activities imposed upon them. I urge my
colleagues to support this legislation.
Mr. President, I ask unanimous consent that the text of the bill and
a letter of support be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
S. 2270
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Insurance Capital Standards
Clarification Act of 2014''.
SEC. 2. CLARIFICATION OF APPLICATION OF LEVERAGE AND RISK-
BASED CAPITAL REQUIREMENTS.
Section 171 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (12 U.S.C. 5371) is amended--
(1) in subsection (a), by adding at the end the following:
``(4) Business of insurance.--The term `business of
insurance' has the same meaning as in section 1002(3).
``(5) Person regulated by a state insurance regulator.--The
term `person regulated by a State insurance regulator' has
the same meaning as in section 1002(22).
``(6) Regulated foreign subsidiary and regulated foreign
affiliate.--The terms `regulated foreign subsidiary' and
`regulated foreign affiliate' mean a person engaged in the
business of insurance in a foreign country that is regulated
by a foreign insurance regulatory authority that is a member
of the International Association of Insurance Supervisors or
other comparable foreign insurance regulatory authority as
determined by the Board of Governors following consultation
with the State insurance regulators, including the lead State
insurance commissioner (or similar State official) of the
insurance holding company system as determined by the
procedures within the Financial Analysis Handbook adopted by
the National Association of Insurance Commissioners, where
the person, or its principal United States insurance
affiliate, has its principal place of business or is
domiciled, but only to the extent that--
``(A) such person acts in its capacity as a regulated
insurance entity; and
``(B) the Board of Governors does not determine that the
capital requirements in a specific foreign jurisdiction are
inadequate.
``(7) Capacity as a regulated insurance entity.--The term
`capacity as a regulated insurance entity'--
``(A) includes any action or activity undertaken by a
person regulated by a State insurance regulator or a
regulated foreign subsidiary or regulated foreign affiliate
of such person, as those actions relate to the provision of
insurance, or other activities necessary to engage in the
business of insurance; and
``(B) does not include any action or activity, including
any financial activity, that is not regulated by a State
insurance regulator or a foreign agency or authority and
subject to State insurance capital requirements or, in the
case of a regulated foreign subsidiary or regulated foreign
affiliate, capital requirements imposed by a foreign
insurance regulatory authority.''; and
(2) by adding at the end the following new subsection:
``(c) Clarification.--
``(1) In general.--In establishing the minimum leverage
capital requirements and minimum risk-based capital
requirements on a consolidated basis for a depository
institution holding company or a nonbank financial company
supervised by the Board of Governors as required under
paragraphs (1) and (2) of subsection (b), the appropriate
Federal banking agencies shall not be required to include,
for any purpose of this section (including in any
determination of consolidation), a person regulated by a
State insurance regulator or a regulated foreign subsidiary
or a regulated foreign affiliate of such person engaged in
the business of insurance, to the extent that such person
acts in its capacity as a regulated insurance entity.
[[Page S2473]]
``(2) Rule of construction on board's authority.--This
subsection shall not be construed to prohibit, modify, limit,
or otherwise supersede any other provision of Federal law
that provides the Board of Governors authority to issue
regulations and orders relating to capital requirements for
depository institution holding companies or nonbank financial
companies supervised by the Board of Governors.
``(3) Rule of construction on accounting principles.--
Notwithstanding any other provision of law, a depository
institution holding company or nonbank financial company
supervised by the Board of Governors of the Federal Reserve
that is also a person regulated by a State insurance
regulator or a regulated foreign subsidiary or a regulated
foreign affiliate of such person that files its holding
company financial statements utilizing only Statutory
Accounting Principles in accordance with State law, shall not
be required to prepare such financial statements in
accordance with Generally Accepted Accounting Principles.''.
____
U.S. Senate,
Washington, DC, November 26, 2012.
Hon. Ben S. Benanke,
Chairman, Board of Governors of the Federal Reserve System,
Washington, DC.
Hon. Martin J. Gruenberg,
Acting Chairman, Federal Deposit Insurance Corporation,
Washington, DC.
Hon. Thomas J. Curry,
Comptroller, Department of the Treasury, Office of the
Comptroller, Washington, DC.
Re Regulatory Capital Rules: Regulatory Capital,
Implementation of Basel III, Minimum Regulatory Capital
Ratios, Capital Adequacy, Transition Provisions, and
Prompt Corrective Action (RIN 3064-AD95); Regulatory
Capital Rules: Standardized Approach for Risk-weighted
Assets; Market Discipline and Disclosure Requirements
(RIN 3064-AD96); Regulatory Capital Rules: Advanced-
Approaches Risk-Based Capital Rule; Market Risk Capital
Rule (RN 3064-AD87).
Dear Chairman Bernanke, Acting Chairman Gruenberg, and
Comptroller Curry: I am writing to comment on the proposed
rules implementing the Basel III regulatory capital
framework.
As the author of Section 171 (the ``Collins Amendment'') of
the Dodd-Frank Act, I believe strongly that capital
requirements must ensure that firms have an adequate capital
cushion in difficult economic times, and provide a
disincentive to their becoming `too big to fail.' To achieve
this, Section 171 requires that large bank holding companies
be subject, at a minimum, to the same capital requirements
that small community banks have traditionally faced.
During consideration of the Dodd-Frank Act, I supported
modifications to the final language to Section 171 to ensure
a smooth transition to increased capital standards. Among
these modifications were provisions to delay, for five years,
the application of new capital requirements for savings and
loan holding companies (``SLHCs''), and for certain foreign-
owned bank holding companies. See subsections (b)(4)(D) and
(E) of Section 171. These modifications were intended to
allow these entities the time they need to adjust their
balance sheets and capital levels in order to come into
compliance with the new capital standards. The proposed rules
implement the five year delay provided to foreign-owned bank
holding companies by Section 171 (b)(4)(E), but neglect to
implement the nearly identical delay for SLHCs provided by
Section 171 (b)(4)(E). I do not understand why the proposed
rules fail to implement this provision, as required by
Congressional intent and the clear language of the statute.
I am hopeful, too, that in crafting final rules, you will
give further consideration to the distinctions between
banking and insurance, and the implications of those
distinctions for capital adequacy. It is, of course,
essential that insurers with depository institution holding
companies in their corporate structure be adequately
capitalized on a consolidated basis. Even so, it was not
Congress's intent that federal regulators supplant prudential
state-based insurance regulation with a bank-centric capital
regime. Instead, consideration should be given to the
distinctions between banks and insurance companies, a point
which Chairman Bernanke rightly acknowledged in testimony
before the House Banking Committee this summer. For example,
banks and insurers typically have a different composition of
assets and liabilities, since it is fundamental to insurance
companies to match assets to liabilities, but this is not
characteristic of most banks. I believe it is consistent with
my amendment that these distinctions be recognized in the
final rules.
I am hopeful you will keep these concerns in mind as you
continue to implement the Dodd-Frank Act and the proposed
rules referenced above implementing the Basel III regulatory
capital framework.
Sincerely,
Susan M. Collins,
United States Senator.
____________________