2009 0514 - GOV (House) - How Should the Federal Government Oversee Insurance?

  • (p5) - Ed Royce
  • 28:00 - 

Part 2

  • (p28) - Melissa Bean (D-IL) - The subcommittee has talked a lot about the $200 billion in Federal tax dollars that have gone to AIG, and how it was essentially focused on the financial products unit.
    • But almost $70 billion in taxpayer money did go to bailing out AIG insurance subsidiaries and their securities lending program.
    • In the current State-based system, who is responsible for overseeing the insurance subsidiaries’ securities lending program?
  • Mr. WEBEL. It is a little unclear.
    • I mean, the securities came up out of the insurance-related subsidiaries.
    • Presumably, the insurance regulators at some degree okayed those securities coming up.
    • I have seen different suggestions from the State regulators as to exactly how little oversight they had once the securities came up out of the subs.
    • But presumably they would have had to approve the securities coming up out of the subsidiaries.
  • Ms. BEAN. So given the complexities of the securities markets, do you believe that individual State regulators or the NAIC has the sophistication to evaluate these types of activities of the insurers
    that they regulate?

    • And I am going to give you two other questions that you can answer as well. 
    • Did the passage of Gramm-Leach-Bliley enable AIG to get into the CDS market?
    • And the last question for you is, is the State system able to properly regulate insurance holding companies and their non-insurance subsidiaries?
  • Mr. WEBEL. I mean, it is really unclear with regard to the securities lending again whether they didn’t have the sophistication to know what was going on in AIG or didn’t have the authority, or
    whether they just made the same mistakes that everybody else did, which was thinking that AAA-rated mortgage-backed securities actually were good things to be investing in. With regard to Gramm-Leach-Bliley, from what I can tell and have been told, prior to Gramm-Leach-Bliley, prior to becoming an Office of Thrift Supervision holding company, the AIG at a holding company level would have been essentially unregulated.
  • Ms. BEAN. Yes. If they didn’t have a thrift, they wouldn’t have had—
  • Mr. WEBEL. Right. So AIGFP existed before Gramm-Leach-Bliley, and it seems to have been primarily pressure from the Europeans to have a sort of national-level regulator that drove AIG to
    become an Office of Thrift Supervision-regulated holding company.So that in terms of that specific aspect, it doesn’t appear—it appears that, if anything, Gramm-Leach-Bliley may have increased
    the oversight on AIG, not lessened.
  • Ms. BEAN. Because there would have been none?
  • Mr. WEBEL. Yes.