2009 0514 - GOV (House) - How Should the Federal Government Oversee Insurance?

  • 2009 0514 - GOV (House) - How Should the Federal Government Oversee Insurance?, Paul Kanjorski (D-PA)  ---  [BonkNote]
  • (p5) - Ed Royce
  • 28:00 - 
  • (p12) - 3:30 -  Baird Webel, CRS - What is Systemic Risk?
    • So is an Asteroid a financial Risk?  What does a Systemic Risk Regulator have to do about this? Who would represent the Insurance Industry on a systemic risk panel?
    • [Bonk: 1950 1208 - NYT - Life Concerns Gird Against Atom Risk - [link]]
  • Section 1: Identification of Systemic Risk
    • 1.1 Definition of Systemic Risk
      • As a working premise, we define systemic risk to be the risk of a failure in a transaction or series of transactions extending beyond the parties directly involved, impacting many or most participants in the marketplace.
      • And the public gains awareness of these systemic effects on the larger group only after the breakdown has occurred.
      • The successful identification of systemic risk needs to include the consideration of the impact of risks that are currently considered highly improbable or not measurable.

AAA - 2009 0514 - Testimony - James Rech, Vice President, Risk Management and Financial Reporting Council of the American Academy of Actuaries - 12p

Part 2

  • (p28) - Melissa Bean (D-IL) - The subcommittee has talked a lot about the $200 billion in Federal tax dollars that have gone to AIG, and how it was essentially focused on the financial products unit.
    • But almost $70 billion in taxpayer money did go to bailing out AIG insurance subsidiaries and their securities lending program.
    • In the current State-based system, who is responsible for overseeing the insurance subsidiaries’ securities lending program?
  • Mr. WEBEL. It is a little unclear.
    • I mean, the securities came up out of the insurance-related subsidiaries.
    • Presumably, the insurance regulators at some degree okayed those securities coming up.
    • I have seen different suggestions from the State regulators as to exactly how little oversight they had once the securities came up out of the subs.
    • But presumably they would have had to approve the securities coming up out of the subsidiaries.
  • Ms. BEAN. So given the complexities of the securities markets, do you believe that individual State regulators or the NAIC has the sophistication to evaluate these types of activities of the insurers
    that they regulate?

    • And I am going to give you two other questions that you can answer as well. 
    • Did the passage of Gramm-Leach-Bliley enable AIG to get into the CDS market?
    • And the last question for you is, is the State system able to properly regulate insurance holding companies and their non-insurance subsidiaries?
  • Mr. WEBEL. I mean, it is really unclear with regard to the securities lending again whether they didn’t have the sophistication to know what was going on in AIG or didn’t have the authority, or
    whether they just made the same mistakes that everybody else did, which was thinking that AAA-rated mortgage-backed securities actually were good things to be investing in. With regard to Gramm-Leach-Bliley, from what I can tell and have been told, prior to Gramm-Leach-Bliley, prior to becoming an Office of Thrift Supervision holding company, the AIG at a holding company level would have been essentially unregulated.
  • Ms. BEAN. Yes. If they didn’t have a thrift, they wouldn’t have had—
  • Mr. WEBEL. Right. So AIGFP existed before Gramm-Leach-Bliley, and it seems to have been primarily pressure from the Europeans to have a sort of national-level regulator that drove AIG to
    become an Office of Thrift Supervision-regulated holding company.So that in terms of that specific aspect, it doesn’t appear—it appears that, if anything, Gramm-Leach-Bliley may have increased
    the oversight on AIG, not lessened.
  • Ms. BEAN. Because there would have been none?
  • Mr. WEBEL. Yes.
  • (p38) - Alan Grayson (D-FL) - Let’s assume, for the sake of argument, that we agree that something went badly wrong in the case of AIG, and that bailing out AIG was not the best use of $100 billion of taxpayer funds. 
    • ⇒  Somewhere along the line, somebody should have had the authority and the guts to say to AIG, you are doing something wrong. You need to stop. 
  • And what I want to hear from you all is I would like to hear your best ideas about what the substantive rules should be in order to avoid a recurrence of the situation that we have had with AIG. And I am talking about specific limits because I am concerned that if we simply say to a systemic risk regulator, you figure it out, that is not being responsible.
  • ...
  • What are your best ideas about when to tell AIG or any other insurance company that enough is enough?