New York : Financial regulation legislation that would require property, casualty and auto insurers to help pay to liquidate failed banks may be altered by the US Senate to exempt companies that don't contribute to a future market collapse.
Companies that write property, casualty, auto and business insurance say they shouldn't be required to help pay for bank failures because they didn't cause the 2008 financial crisis. The firms also say they already contribute to state funds to guarantee that claims against insolvent insurers are paid.
An amendment with bipartisan sponsorship would excuse companies such as Boston-based Liberty Mutual Group Inc., Berkshire Hathaway Inc.'s Geico Corp. and other property, casualty and auto insurers from being assessed to help finance liquidations of banks if the insurers didn't engage in practices that caused another market failure.
"Roping them into this thing is pretty foolish," said Senator Judd Gregg, a New Hampshire Republican who is one of the amendment's sponsors.
"The only reason it's being done is A) somebody doesn't like them or B) somebody is looking for money or capital" to finance the programme that would deal with failed financial firms.
As originally drafted by the Senate Banking Committee, the financial regulation bill would have required banks and insurance companies to contribute to a $50 billion "rainy day" fund to pay for the orderly liquidation of failed firms. The fund was eliminated in a compromise amendment approved earlier this week after Republicans argued that it would only perpetuate future bailouts of institutions "too big to fail."
Still, property, casualty and automobile insurers with assets of more than $50 billion would be obligated to pay assessments for the liquidation of failed firms under the amendment adopted May 5. The assessments would be imposed by the Federal Deposit Insurance Corp. to amass working capital for orderly liquidation.
Such a requirement is unfair to insurers because "our consumers are well protected" by state regulations against insolvency of insurance companies, said Ben McKay, a Washington-based lobbyist for Property Casualty Insurers Association of America.
"We have already been obligated to pay into the guaranty funds to cover the failure of insurance companies" he said. "The reverse isn't true" because "investment banks don't have to pay into our fund."
Assessing insurers for the cost of liquidating Wall Street firms means "you could have your grandmother in her Delta 88 paying for the failure of some investment banker who has the two houses in the Hamptons," McKay said.
If the proposed amendment were adopted, McKay said property and casualty insurers would "really be much more comfortable with" the overall bill.
The chief sponsor of the financial regulations measure, Democratic Senator Christopher Dodd of Connecticut, said of the insurer's concerns: "Hopefully, we will address some of that."
Another sponsor of the insurers amendment, Democratic Senator Jeanne Shaheen of New Hampshire said "there is still a discussion" about whether the proposal, among more than 170 amendments offered, would be accepted.
Senate Majority Leader Harry Reid, a Nevada Democrat, has vowed to try to finish Senate debate next week and then seek a vote on the bill's final passage. It then would have to be reconciled with a House version passed New Powers
The legislation would give federal financial regulators new powers to supervise banks and investment firms. The Senate yesterday rejected a proposed amendment to alter a proposed consumer financial protection bureau and another to force the largest banks to shrink in size.