Statements on Introduced Bills and Joint Resolutions

Floor Speech

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S. 2270. A bill to clarify the application of certain leverage and risk-based requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act; to the Committee on Banking, Housing, and Urban Affairs.

Ms. COLLINS. Mr. President, I am delighted to be joined today by my colleagues, Mike Johanns and Sherrod Brown, in introducing the Insurance Capital Standards Clarification Act of 2014. We are pleased to be joined by Senators Kirk and Tester as cosponsors. This legislation clarifies the Federal Reserve's authority to recognize the distinctions between banking and insurance when implementing section 171 of the Dodd-Frank Act, commonly referred to as the ``Collins Amendment'' since I wrote this provision of the law.

Before I describe our bill in detail, I would like to provide some background on section 171 and why it is so important that nothing be done to diminish or weaken it.

We all recall the circumstances we faced 4 years ago, as our Nation was emerging from the most serious financial crisis since the Great Depression. That crisis had many causes, but among the most important was the fact that some of our nation's largest financial institutions were dangerously undercapitalized, while at the same time, they held interconnected assets and liabilities that could not be disentangled in the midst of a crisis.

The failure of these over-leveraged financial institutions threatened to bring the American economy to its knees. As a consequence, the federal government was forced to step in to prop-up financial institutions that were considered ``too big to fail.'' Little has angered the American public more than these taxpayer-funded bailouts.

That is the context in which I offered my capital standards amendment, which became section 171 of Dodd-Frank. Section 171 is aimed at addressing the ``too big to fail'' problem at the root of the 2008-2009 crisis by requiring large financial holding companies to maintain a level of capital at least as high as that required for our nation's community banks, equalizing their minimum capital requirements, and eliminating the incentive for banks to become ``too big to fail.''

Incredibly, prior to the passage of Section 171, the capital and risk standards for our Nation's largest financial institutions were more lax than those that applied to smaller depository banks, even though the failure of larger institutions was much more likely to trigger the kind of cascade of economic harm that we experienced during the crisis. Section 171 gave the regulators the tools, and the direction, to fix this problem.

It is important to recognize that Section 171 allows the federal regulators to take into account the significant distinctions between banking and insurance, and the implications of those distinctions for capital adequacy. I have written to the financial regulators on more than one occasion to underscore this point. For example, in a November 26, 2012, letter I stressed that it was not Congress's intent to replace State-based insurance regulation with a bank-centric capital regime. For that reason, I called upon the federal regulators to acknowledge the distinctions between banking and insurance, and to take those distinctions into account in the final rules implementing Section 171.

While the Federal Reserve has acknowledged the important distinctions between insurance and banking, it has repeatedly suggested that it lacks authority to take those distinctions into account when implementing the consolidated capital standards required by Section 171. As I have already said, I do not agree that the Fed lacks this authority and find its disregard of my clear intent as the author of section 171 to be frustrating, to say the least. Experts testifying before the Financial Institutions and Consumer Protection subcommittee of the Senate Banking Committee, chaired by Senator Brown, concur that the Federal Reserve has ample authority to draw these distinctions.

Nevertheless, the bill we are introducing today clarifies the Federal Reserve's authority to recognize the distinctions between insurance and banking.

Specifically, our legislation would add language to section 171 to clarify that, in establishing minimum capital requirements for holding companies on a consolidated basis, the Federal Reserve is not required to include insurance activities so long as those activities are regulated as insurance at the State level. Our legislation also provides a mechanism for the Federal Reserve, acting in consultation with the appropriate State insurance authority, to provide similar treatment for foreign insurance entities within a U.S. holding company where that entity does not itself do business in the United States. In addition, our legislation directs the Fed not to require insurers which file holding company financial statements using Statutory Accounting Principles to instead prepare their financial statements using Generally Accepted Accounting Principles.

I should point out that our legislation does not, in any way, modify or supersede any other provision of law upon which the Federal Reserve may rely to set appropriate holding company capital requirements.

In closing, I want to thank my colleagues, Senators Brown and Johanns, for working so hard with me over many months to help craft the language we are introducing today. I believe our language removes any doubt about the Federal Reserve's authority to address the legitimate concerns raised by insurers that they not have a bank-centric capital regime for their insurance activities imposed upon them. I urge my colleagues to support this legislation.

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