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WASHINGTON BUREAU -- Insurance regulation would remain primarily at the state level under a new financial services regulatory strategy that President Obama plans to unveil Wednesday.
But the proposal would grant broad authority to the Federal Reserve Board to oversee systemically risky institutions. A "new regime" would be established "to resolve nonbank financial institutions whose failure could have serious systemic effects," according to a white paper outlining the administration’s regulatory proposals.
The white paper says the Treasury Department would leave the door open for Congress to create a federal insurance regulatory system but would support "increased national uniformity through either a federal charter or effective action by the states."
Obama is scheduled to unveil the financial services proposal in a speech in the East Room of the White House. After the briefing, Lawrence Summers, director of the National Economic Council in the White House, and Treasury Secretary Timothy Geithner will fill in the details for reporters.
Treasury will support proposals designed "to modernize and improve our system of insurance regulation in accordance" with the principles outlined for regulation of other financial services sectors, the white paper says.
The Obama administration also will work to create a Consumer Financial Protection Agency. In an op-ed that appeared in the Washington Post Monday, administration officials suggested that the agency would cover variable annuities.
In addition, the white paper calls for strengthening Securities and Exchange Commission and Federal Trade Commission financial services consumer protection programs.
The white paper also calls for creating an "Office of National Insurance" within the Treasury Department. The ONI would "gather information, develop expertise, negotiate international agreements and coordinate policy in the insurance sector."
The white paper would not give state regulators a role in the Financial Services Oversight Council that would be created to advise the Federal Reserve Board on which non-bank institutions the Fed would treat as potentially systemically risky.
The top-tier financial holding companies would be those firms "whose failure could pose a threat to financial stability due to their combination of size, leverage, and interconnectedness," according to the white paper. The ONI would help identify insurers that ought to be supervised as top-tier financial holding companies.
The members of the Financial Services Oversight Council would include the secretary of the Treasury, who would serve as chairman; the chairman of the Fed; and the director of an agency that would combine the Office of the Comptroller of the Currency and the Office of Thrift Supervision.
The council also would include the director of the Consumer Financial Protection Agency; the chairman of the SEC; the chairman of the Commodities Future Trading Commission; the chairman of the Federal Deposit Insurance Corp.; and the director of the Federal Housing Finance Agency.
The staff of the council would be given the "authority to gather information from any financial firm and the responsibility for referring emerging risks to the attention of the regulators with the authority to respond."
The staff would be permanent, have full-time experts, and be housed in the Treasury Department.