Sign in Subscribe
Insurance industry

Obama Administration Proposes Sweeping Financial Regulatory Reform

Strategic Insights

— 1 min read

The Obama administration has unveiled a comprehensive proposal for financial regulatory reform, which has been met with mixed reactions from the insurance industry. The proposal aims to address the root causes of the current financial crisis, including excessive leverage, under-capitalization, and insufficient liquidity. Property/casualty insurers have welcomed the proposal, which acknowledges their sector's performance during the crisis and does not pose a systemic risk to the financial system.

Key Takeaways:

  • The Obama administration's proposal establishes a national insurance office and authorizes the Federal Reserve to regulate systemically significant large insurers.
  • The plan stops short of establishing new federal regulation over the insurance industry, instead leaving the state-based system intact.
  • The proposal calls for increased national uniformity through either a federal charter or effective action by the states.
  • Property/casualty insurers have noted that their sector did not cause the crisis and has performed well throughout, with no systemic risk to the financial system.
  • The proposal aims to address the root causes of the crisis, including excessive leverage, under-capitalization, and insufficient liquidity.
  • The plan grants the federal government resolution authority to wind down large enterprises that become unsustainable.
  • Additional steps will regulate credit default swaps and other derivatives that have received widespread blame for AIG's near collapse.

Statistics:

  • The property/casualty industry has remained well-capitalized and solvent throughout the current fiscal crunch.
  • AIG's near collapse was largely attributed to credit default swaps and other derivatives that were traded without adequate regulation.
  • The Obama administration's proposal aims to address the root causes of the crisis, including excessive leverage, under-capitalization, and insufficient liquidity, which are identified as systemic risks.
  • The plan would grant the federal government resolution authority to wind down large enterprises that become unsustainable.

Sources:

  • BestWire, June 17, 2009: "Obama Administration Unveils Sweeping Financial Regulatory Reform Proposal"
  • BestWire, June 19, 2009: "Obama Administration's Financial Regulatory Reform Proposal Calls for Increased National Uniformity"
  • BestWire, March 23, 2009: "AIG's Collapse Blamed on Credit Default Swaps and Derivatives"
  • BestWire, March 24, 2009: "Treasury Secretary Geithner Testifies on Need for Systemic Risk Regulatory Regime"

Read more