I
nsurance compa-
nies that own or
operate a sav-
ings & loan will
face fresh over-
sight from the
Federal Reserve
Board, which is cre-
ating a process by which to examine
those financial institutions that have
significant banking assets.
At present, National Underwriter
has learned that the Fed has identified at least 20 institutions whose
holding companies and constituent
thrifts it intends to oversee. These
include American International
Group (AIG), State Farm, Nationwide,
Prudential, Northwestern Mutual,
Massachusetts Mutual and W.R.
Berkley. But this list of regulated
companies is considered a “moving
target” by federal regulators and is
subject to change.
The entire process is being overseen on behalf of the Fed by Frank
Tarullo, a Fed governor who also
serves as the Fed representative
to the Financial Stability Oversight
Council (FSOC), the unit created
by the Dodd-Frank Act to ensure
stronger oversight of large financial
institutions.
According to information provided by the Fed, as well as industry
officials and their outside lawyers,
the purpose of this new process is
broad, designed to increase its own
understanding of the insurance business and the differences between
banking and insurance. But more
importantly, the Fed also intends to
oversee thrifts operated by financial
firms at the holding company level,
through authority granted to it under
the Dodd-Frank Act.
A third purpose, as noted by
Federal Reserve Chairman Ben
Bernanke in a recent speech in New
York, is to increase federal oversight so that the oversight of large,
complex financial services conglomerates - such as AIG in the run-up to
the global financial crisis - does not
somehow fall through the cracks.
Some of the companies on the Fed’s
list are already either shedding their
thrift operations, or are planning to
do so out of concern of facing an ad-
ditional layer of regulation through
the Fed. For example, Prudential has
announced plans through a securi-
ties filing to downgrade its thrift to
a trust bank, thereby escaping Fed
oversight. As a result, its thrift will
be regulated by the Office of the
Comptroller of the Currency.
According to Prudential spokes-
man Robert DeFillippo, Prudential is
accomplishing this by divesting itself
of all assets insured by the Federal
Deposit Insurance Corporation. That
will also allow Prudential to escape
regulation under the Volcker rule,
which limits proprietary trading by
financial firms from their own ac-
counts.
DeFillippo explained that its
trading partners in the commercial
mortgage business want Prudential
to trade alongside them on these
securities, which Prudential believes
is appropriate. “We just don’t want
to be considered a bank,” DeFillippo
said. “We are an insurance company,
and that’s what we want to remain.”
According to information provided by the Fed, as well as industry of-
ficials and their outside lawyers, the purpose of this new process is
broad, designed to increase its own understanding of the insurance
business and the differences between banking and insurance. But more
importantly, the Fed also intends to oversee thrifts operated by finan-
cial firms at the holding company level, through authority granted to it
under the Dodd-Frank Act.
