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Dodd-Frank: One Year Later — A Look Back – and a Look Ahead

August 3, 2011 Comments off

Dodd-Frank: One Year Later — A Look Back – and a Look Ahead
Source: National Association of Mutual Insurance Companies

July 21, 2011 marks the one-year anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act being signed into law.

The financial crisis that began in the fall of 2008 with the collapse of Bear Stearns and Lehman Brothers, the near-failure of AIG, and worldwide market losses culminated in the United States with the single largest overhaul of financial services regulation since the New Deal. The Democratic-controlled Congress and the Obama Administration were determined to rein in what was perceived to be a financial services industry out of control.

Coming on the heels of the federal government’s emergency bailouts of the country’s largest banks, the federal support of the collapsing auto industry and the passage of a massively expensive economic stimulus bill, the Dodd-Frank bill was constructed to increase regulation of banks, hedge funds and other financial institutions that were believed to have precipitated the crisis. While property/casualty insurers played no role in creating the economic crisis and remained healthy and solvent throughout the meltdown, this enormous legislative response threatened to drag in every corner of the financial services universe regardless of complicity in creating the problem or ability to weather the storm.

Following two full years of legislative debate – and long hours of hard work advocating and educating on Capitol Hill – NAMIC succeeded in persuading lawmakers to exclude the mutual property/casualty industry from the vast majority of the legislation.

A major source of contention concerned the question of which industry sectors and institutions create “systemic risk” and are therefore “systemically significant,” meaning that their failure could cause the entire financial system to collapse. Through NAMIC’s efforts, the business and conduct of insurance companies was largely recognized as not creating systemically significant risk and was thus excluded from the new Consumer Financial Protection Bureau and the investment restrictions of the Volcker Rule. Strict limits were also placed on the regulatory power of the new Federal Insurance Office.

NAMIC is applying the same arguments that were successful on Capitol Hill to the various federal agencies responsible for the on-going Dodd-Frank implementation process. NAMIC remains vigilant to ensure that these agencies do not overreach in putting the various sections of the law into place. It was clearly Congress’s intent to exclude the property/casualty insurance industry from the majority of Dodd-Frank and prevent it from being improperly placed under federal regulatory jurisdiction – and NAMIC will be there reminding the regulators of this fact.

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