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April 18, 2010 at 08:00 PM
The battle over the shape of financial services reform legislation is heating up as the Senate version of the bill edges closer to floor action and the Obama administration makes it clear it would support it.
Specifically, in comments at a White House meeting April 14 with the Senate and House leadership of both parties, President Barack Obama said, “I am actually confident that we can work out an effective bipartisan package that assures that we never have ‘too big to fail’ again.”
The meeting was prompted by strong comments at mid-week by Sen. Mitch McConnell, R-Ken., Senate minority leader, and a response by Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee.
In his response April 14, Sen. Dodd said he will start the maneuvers needed to bring his bill to the Senate floor “in the next several days.”
At the same time, two other issues of apparent importance to the life insurance industry emerged last week.
The first critical issue involved the reporting out of legislation by the Senate Agriculture Committee that narrowed the exemption that swaps traders have from conducting their activities through major exchanges.
Bills passed by the House and the Senate Banking Committee provide an exemption for end-users such as airlines, manufacturers and farmers, which use them to hedge against business risk, although the exemption is through different means.
The life insurance industry sought the exemption because they use derivatives to reduce their interest rate and capital loss risk on long-term securities used to fund insurance policies, annuities and other products.
However, while narrowing the exemptions, the Agriculture Committee bill does exempt from placement on exchanges those transactions “for those end users who are hedging legitimate commercial risk.”
Although industry lobbyists said they had not seen the actual language, they believe the tighter language will still allow use of custom derivates by insurance companies.
On another issue, the American Council of Life Insurers signed on to a letter objecting to a provision in the Senate bill that would prohibit institutions deemed systemically important from lending an amount to any unaffiliated company that exceeds 25% of the capital stock and surplus of the lending institution.
The letter said that could limit lending to institutions such as insurers by the Federal Home Loan banks, citing different language in the House version of the legislation.
