The U.S. Federal Reserve Board approved an advance notice of proposed rulemaking (ANPR) on Monday that seeks comment on “conceptual frameworks” for capital standards that could apply to systemically important insurance companies and to insurers that own a bank or thrift.
The Fed is publishing the proposal “to provide ample opportunity for … comment on the appropriate structure of capital standards to promote financial stability and to protect depository institutions owned by insurance companies.”
“The frameworks we are considering would address all the risks across an insurance company’s regulated and unregulated subsidiaries,” says Fed chairwoman Janet Yellen in a statement. “I believe this proposal is an important step toward capital standards that are both appropriate for our supervised insurance firms and that enhance the resiliency and stability of our financial system.”
For systemically important insurers, the Fed’s proposed approach would categorize a firm’s assets and liabilities into risk segments, apply risk factors to each segment, and then set a minimum ratio of required capital.
The proposed approach for insurance companies that own a bank would aggregate existing capital requirements across a firm’s different legal entities to arrive at a combined, group-level capital requirement.
“The dual approach proposed today is another example of our efforts to tailor capital regulation to the different risks posed by financial intermediaries of varying types and complexity,” says Fed governor Daniel Tarullo in a statement.
In addition, the Fed approved a proposed rule to apply enhanced prudential standards to systemically important insurers, including added liquidity, corporate governance and risk-management standards.
Comments on both the ANPR and proposed rule are due by Aug. 2.