Federal reserve building, Washington DC

The U.S. Federal Reserve Board is proposing to establish new capital requirements for certain insurance companies.

On Friday, the Fed issued a proposal for public comment that aims to introduce capital requirements for insurers falling under its supervision.

The proposal would build on existing state-based capital standards, and would set both minimum capital requirements and an additional capital buffer.

The Fed says its proposed framework would adopt the Building Block Approach (BBA), requiring holding companies with significant insurance businesses to aggregate their state-based requirements into a single consolidated capital requirement.

“The BBA accounts for risks that are specific to the business of insurance and is different from the calculations used for bank capital requirements,” the Fed said in a release. “However, the minimum standard under the BBA would be comparable to one of the key measures of banks’ health, the minimum total capital ratio, which is set at 8% for banks.”

In the release, Randal Quarles, vice chair for supervision at the Fed, said banks and insurance companies can face “materially different risks, and this proposal takes that into account.”

Comments on the proposal are due 60 days after the proposal is published in the Federal Register.

The Fed noted that it will also conduct a quantitative impact study as it finalizes the framework.