Q: Who Supervised AIGFP Prior to the OTS?
- FCIC Interview mp3 - Greenberg (4/5)
- <State Insurance Commissioners could have, but didn't.>
AIG Financial Products ...
- ... was a subsidiary of AIG that originated the credit default swaps that were part of AIG’s problems.
- It was operating long before OTS had any responsibility for AIG.
- . OTS became the regulator of AIG after the company applied for and received a federal savings bank charter in 1999. (p58)
-- Statement of Michael E. Finn, Northeast Regional Director, Office of Thrift Supervision
8. It is not an accident, for example, that AIG's credit default swap activities occurred outside the insurance entities.
- Had these activities been undertaken within the insurance companies they would have been subject to capital and reserving requirements. (p5)
(p42-43) - Prepared Statement of John E. Parsons, Ph.D., Senior Lecturer, Sloan School of Management, Massachusetts Institute of Technology
The company’s London subsidiary, AIG Financial Products, had long profited on the sale of credit default swaps.
- The deregulation of the OTC derivatives market allowed these to be sold without any up-front capital or margin.
- The state insurance commissioners who supervised AIG’s other insurance businesses had no authority vis-a`-vis these derivatives, despite the fact that these swaps were marketed to serve a role comparable to insurance.
- AIG’s financial regulator, the Office of Thrift Supervision, was ill equipped and completely ineffective at supervising the company’s derivative operation.
2015 0729 - GOV (House) - Dodd-Frank Turns Five: Assessing the Progress of Global Derivatives Reforms - [PDF-106p,
- 2000 0616 - NYSID - Letter from Rochelle Katz, Associate Att’y, State of N.Y. Ins. Dep’t, to Bertil Lundqvist, Att’y, Skadden, Arps, Slate, Meagher & Flom, LLP (June 16, 2000) (on file with the N.Y. Dept. of Ins. Gen. Counsel). / NYSID Letter to Starr International Inc. Regarding Credit Default Option Facility - 2p
(p50) - Before the CFMA was passed, there was uncertainty about whether or not state insurance regulators had authority over credit default swaps.
- In June 2000, in response to a letter from the law firm of Skadden, Arps, Slate, Meagher & Flom, LLP, the New York State Insurance Department determined that “naked” credit default swaps did not count as insurance and were therefore not subject to regulation.51
- In addition, when an insurance company sells a policy, insurance regulators require that it put aside reserves in case of a loss. <Bonk: Monolines - MBIA / AMBAC??>