LiveBlog: Modernizing America’s Financial Regulatory Structure

Senator John Sununu raised the question today about how federal regulation of the insurance business would work.  Sununu is broaching on something that is a bit of a third rail, but as a departing Senator, he has some freedom to speak openly.  Insurance companies own a lot of assets, and their businesses are so large that they can present risks to the entire financial system.  The need to bail out AIG is only the largest example of why insurance matters, and why insurance regulation is an important question for how policy navigates through the credit crisis.

“There are some aspects of certain insurance corporations that required federal rescue,” said Joel Seligman, the President of the University of Rochester and a member of the board of FINRA.

Insurance regulation is anachronistic,” he said.  Right now, insurers are regulated on the state level.  They are ruled by 55 different governments (50 states, DC, Puerto Rico, et al.)

Proposed was the idea of regulation, on a mandatory basis, based upon firm size.  It could be based upon size of assets, or some measure of policies.

Its not the only place for new scope of regulation.  Another idea was a combination of the FDIC and the SEC.