Hearings Continue For Optional Federal Charter
The Senate Banking Committee held more hearings this week for the creation of an Optional Federal Charter(OFC). It is unlikely any kind of legislative action will take place before the current Congressional session ends but the current hearings could lay the groundwork for future regulatory policy decisions.
The ongoing breakdown of the financial services sector over the past year has opened the door for the sweeping regulatory reform movement in Washington. It should be noted that the insurance industry is no where near the condition of their financial brethren in commercial and investment banking sectors.
Don’t get me wrong, the insurance industry has taken it’s fair share of lumps during the current economic downturn, with losses outpacing the payments made in the aftermath of Hurricane Katrina. That being said, there’s no government bailout being drawn up for the insurance industry and it’s not like the Fed has had to open up the discount window for them like it did for investment banking firms.
Let’s face it, the economy is in the dumps for the time being and with the stock market struggling it’s going to adversely affect of the bottom line for the insurance industry for some time. However, that’s because the industry holds a substantial amount of capital, most of it held as investments, in order to meet the potential liabilities from claims that can arise at any given time.
The is no question the commercial and investment banking sectors are definitely in need of more stringent regulatory controls. The OFC on the other hand would give insurance companies the option for less regulation than they currently have with the current state system.
There’s a reason why the insurance industry hasn’t gone down the drain like the rest of the financial services sector. It’s quite obvious that states have done a much better job than the federal government at policing the excessive risk taking that has been standard practice since firms conveniently forgot the hard lessons from the Savings & Loan debacle.
