A little-noticed provision in the Wall Street reform bill illustrates one of the central questions of the effort:
Who should be in charge of regulating the industry?
A Senate provision that would create a national insurance office in the Treasury Department has sparked a debate over how much authority the federal government should have to overrule state laws.
The House bill puts stricter limits on the federal authority and gives more leeway to the states. The debate has scrambled the usual partisan lines — with some Republicans arguing for a greater federal role.
House and Senate lawmakers were still working to bridge the differences in the two bills late Tuesday afternoon as the conference committee on Wall Street reform returned to action for the week.
Good-government groups have championed the House bill’s strict limits as another way to get tough on the financial industry. They argue that strong state regulations were crucial to ensuring that the insurance industry was not brought to its knees by the economic meltdown.
And some suggest that giving the federal government authority to pre-empt state laws would make it easier for the financial industry to concentrate its lobbying power in Washington, instead of having to work in 50 state capitals.
The industry, meanwhile, is urging conferees to use the Senate’s version — saying it would give the federal government only the ability to negotiate international agreements, something states don’t have authority to do.
Sen. Judd Gregg (R-N.H.) said the creation of a national office makes sense.
“Insurance is one of those products that’s sold across state lines, and you can create tremendous efficiencies and make it much more available and commercially viable if you have some sense to it across state lines,” he said.
Gregg dismissed the suggestion that Republicans support the office because it makes lobbying easier for the insurance industry. “I think I’m helping the consumer,” he said.
The American Insurance Association supports the Senate version because it would give the newly created national office narrow pre-emption authority to negotiate international agreements, said Blain Rethmeier, the group’s spokesman.
“It’s just an informational office. It has no regulatory authority,” he said. “We’re not trying to infringe upon any sort of state regulatory authority here. We’re just trying to give the industry a voice in the international arena that it hasn’t had.”
Sen. Bob Corker (R-Tenn.) echoed that sentiment, saying the office “really is not in any way taking the place of jurisdiction that the states now have over insurance companies.” The office, he said, is “really weak” and doesn’t have authority to regulate the industry.
But Carmen Balber of Consumer Watchdog, which opposes the Senate version, disagreed with the industry’s interpretation.
“The scope of pre-emption is much broader in the Senate bill than the insurance industry would like you to believe,” she said.
The Senate version, she said, allows the Treasury Department to write new rules that could pre-empt state laws, while the House bill limits Treasury’s authority to recognize foreign laws.
To support the Senate bill, Balber said, is to support “a move to weaken the strongest state regulations.”
“State insurance regulation kept the insurance industry solvent and able to pay policyholder claims throughout the economic crisis that shook the rest of the financial industry. Those solvency protections that kept state insurers stable are on the line in this legislation,” she said. “Treasury cannot be allowed to override state laws that protected consumers and made sure insurance companies could pay their claims.”
Republican Sen. Saxby Chambliss of Georgia said Treasury should not regulate insurers.
“I think our states do a pretty good job of that. And again, the insurance companies were not a part of the problem,” he said. “But to allow Treasury to come in and add another level of bureaucracy to insurance companies when they are not a part of the problem really makes it more expensive to operate as an insurance company and does not solve any problem.”
The American Insurance Association, the American Bankers Insurance Association, the Financial Services Roundtable and other groups sent a letter to House and Senate conference committee leaders asking them to support the Senate language.
“In our view, the language [of the Senate bill] will create an office with more clearly defined power to effectuate international agreements on prudential insurance measures,” the groups wrote. “As you are aware, the U.S. insurance market does not have a representative for international matters. This important function has never been more necessary.”
Senate Banking Committee Chairman Chris Dodd (D-Conn.) and House Financial Services Committee Chairman Barney Frank (D-Mass.) have released the rest of this week’s conference schedule, and Wednesday likely will be the most contentious day of the conference to date, with the conferees set to debate executive compensation, a measure to audit the Fed that passed the Senate with last-minute brokering from Dodd, and emergency liquidity provisions.
On Thursday, the conference will deal with resolution authority. The House bill includes a $150 billion resolution fund that was removed in the Senate by Dodd in an agreement with top GOP Senate negotiator Richard Shelby of Alabama in order to open debate on the sweeping reform bill.
With the announced schedule, conferees will have to hash out many of the toughest provisions in the last week of negotiations. Still on the to-do list by the end of this week will be discussions on a newly created Consumer Financial Protection Agency, which was slammed by Senate Republicans as a “vast governmental overreach” during original debate of the bill, interchange fees and derivatives.
Meredith Shiner contributed to this report.
