Every Day Counts: Capital Standards Bill Needs to go to the President Now | Commentary
Ten-thousand Americans will celebrate their 65th birthday today. And 10,000 more tomorrow. And every single day after that for the next 15 years.
One of the greatest tasks facing our nation is helping retirees achieve lifetime financial security. This must be achieved in a way that doesn’t break the backs of states, the federal government, or especially, America’s taxpayers.
When confronted with challenges like these, Congress often looks to life insurers for solutions. On two occasions this year, Treasury and the Labor Department took steps to encourage American workers to obtain guaranteed income for life by promoting the use of annuities in employer-sponsored plans.
That helps explain why Congress must send capital-standards legislation to the White House. At first glance, capital standards do not appear to involve retirement security at all. But they do. Without appropriate standards, the Federal Reserve Board will have to regulate life insurers like banks, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. This would fundamentally affect life insurers’ ability to plan for the long term and address Americans’ retirement planning concerns.
Let’s remember how we got here.
The Dodd-Frank Act gave the Federal Reserve the authority to regulate non-bank organizations that own savings and loans or are designated as “systematically important financial institutions (SIFIs).” One provision imposed a floor for capital requirements for all institutions. Federal Reserve Board Chairman Janet L. Yellen has said this provision constrains the ability of the Fed to tailor capital and liquidity standards appropriate for life insurers. It would tie life insurers’ capital into a system designed for a vastly different business structure.
Keep in mind: Life insurers’ obligations can span decades. They must balance their long-term liabilities with investments of similar durations, typically fixed-income securities. Insurance companies’ capital requirements directly reflect this level of matching, enabling them to provide long-term guarantees to customers.
Banks are more dependent on short-term sources of funding, and their assets and liabilities are not matched like life insurers. Understandably, the capital requirements for banks are much different than they are for life insurers.
The Senate and the House both get the picture. In June, the Senate voted unanimously to clarify the Fed’s authority on the matter. The House approved similar language in September. But, until the legislation is sent to the White House, the Fed continues to prepare to move forward with a bank-centric plan for life insurers.
It is time to bring this issue to a close. America’s life insurers support strong regulation overall and tough capital standards. They only ask that they be appropriate for their own business, and not the business of banking.
Inappropriate regulation would undermine life insurers’ mission of providing financial and retirement security products that Americans rely upon — and products that policymakers are relying upon to help reduce demands on government resources.
The time is now for the legislation to be sent to the White House and for it to be signed into law. Every day counts.
Dirk A. Kempthorne is president and CEO of the Washington-based American Council of Life Insurers. He served as the 49th secretary of the Interior; as Idaho’s governor and as a U.S. senator, and was mayor of Boise.