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Senate Approves Bill Providing Capital Flexibility to Insurers

U.S. regulators would gain flexibility in how they apply capital standards to insurance companies under a bill approved by the Senate.

The bill, approved by a voice vote yesterday, would ease a Dodd-Frank Act provision that imposes bank-like capital standards on the insurance industry.

“Applying bank standards to insurers could make the financial system riskier, not safer,” Senator Sherrod Brown, an Ohio Democrat who was a lead sponsor of the bill, said at a committee meeting yesterday. “That is why the Federal Reserve must recognize the differences between the industries and ensure that institutions engaging in insurance are not held to the same capital requirements as traditional banks.”

The Dodd-Frank section, written by Susan Collins, a Maine Republican, requires the Federal Reserve to set minimum capital and leverage standards for non-bank firms, including the insurance industry. Collins has said her provision wasn’t meant to subject insurance companies to the same standards as banks, and the proposed revision was broadly supported by senators from both parties.

Federal Reserve Chairman Janet Yellen and her predecessor, Ben S. Bernanke, have said they agree that insurance companies should meet different capital standards than banks. Fed officials have also said the language of Collins’s original proposal limits their ability to develop a different capital regime for insurance companies.

Brown and Collins’ bill would give the Fed flexibility to distinguish between banking and insurance when implementing capital standards.

“It never made sense to treat insurance companies like big banks and this clarification makes sure that doesn’t happen,” Senator Mike Johanns, a Nebraska Republican who also sponsored the bill, said in a statement after the Senate vote.

To become law, the bill, S. 2270, would need to be approved by the House of Representatives and signed by President Barack Obama.

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