Rules for 'too big to fail' insurance firms coming soon: Fed official

Fri May 20, 2016 1:56pm EDT
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By Lisa Lambert

WASHINGTON (Reuters) - The Federal Reserve will soon take up rules for insurance companies deemed "too big to fail" intended to head off risks to U.S. financial stability, Fed Governor Daniel Tarullo said on Friday.

It will also in coming weeks propose requirements on how much capital that firms across the industry should hold, he said in a speech to the National Association of Insurance Commissioners.

The industry has waited for more than five years to see the proposals, which are tied to the Dodd-Frank Wall Street reform law passed in 2010 after the financial crisis.

Under the law, federal regulators can determine that non-bank companies such as American International Group Inc (AIG.N: Quote) could put the entire financial system in danger if they fail, and require they take certain measures to stave off threats.

Tarullo said he expects the Fed will propose standards for those systemically important insurance companies that build on the framework used for large banks and adjust for the unique nature of the industry. They will include requirements to ensure the companies have enough liquidity such as stress-testing and cash flow projections, he added.

Prudential Financial Inc (PRU.N: Quote) and MetLife Inc (MET.N: Quote), the largest U.S. life insurer, have also been designated as systemically important, although a federal judge struck down MetLife's determination in March. The U.S. government is currently appealing the decision.

The insurance companies largely welcomed Tarullo's comments, with a spokesman for Prudential saying it is "encouraged by the progress that the Federal Reserve is making in designing capital and liquidity standards tailored to insurance companies."


Federal Reserve Board of Governors member Daniel Tarullo speaks during an open board meeting at the Federal Reserve in Washington December 14, 2012. REUTERS/Kevin Lamarque