US insurers can seek thrift charter to get state cash

Washington: US insurance companies trying to get access to government funding can apply for a bank or thrift charter at the same time as they apply for a cash infusion under the US government's Dh2,171.41 billion ($700 billion) financial services rescue package, two sources briefed on the matter said on Friday.

Under the Treasury Department's current capital injection programme, insurers without a federally regulated bank or thrift are not eligible for capital injections.

A Treasury spokeswoman Brookly McLaughlin did not specify that insurers could seek capital this way, but said: "As a matter of process, we will accept applications to the capital purchase programme from institutions that are at the same time applying for a bank/thrift charter."

Financial institutions that want access to the Treasury's cash infusion programme have until November 14 to submit their applications.

Consequently, the Office of Thrift Supervision, which regulates thrifts, most likely will not grant a thrift charter for an insurer within a week, but could allow insurers to buy a thrift, one of the sources said.

Capital purchase

So far, Treasury has set aside $250 billion in the bailout programme to inject capital into financial institutions in a bid to help unclog credit markets.

Nearly half has been distributed to the eight largest banks such as Bank of America and about $30 billion has been earmarked for smaller regional banks like Zions Bancorp.

Banks will receive government funds in exchange for preferred shares and warrants.

"We have always said... that eligible institutions for the capital purchase programme are federally regulated banks and thrifts and the ultimate parent company, if there is one, must be predominantly engaged in the business of banking or other financial activities," said McLaughlin.

Some insurers had approached the Treasury Department in October to explore ways to access the rescue programme and work around the lack of a federal insurance regulator.

Insurers are regulated by individual US states, which makes it difficult for the Treasury to assess if a company is fundamentally sound.

Insurers wanted the Treasury to make the capital injection programme mandatory for the insurers as it did with the first nine banks to squash any negative perceptions associated with government help, two sources briefed on the matter said.

There was speculation that Treasury would consider another programme for insurers.

But now, Treasury has made it clear that the only way to participate in the capital injection programme is if an insurer owns a bank or thrift, the two sources said.