Why Changing a Dodd-Frank Provision Is an Uphill Battle in the Senate

Insurers and lawmakers agree on a solution. But that doesn’t make it easy.

Yoshino Cherry trees are in bloom in front of the U.S. Capitol on April 9, 2014 in Washington, DC. Washington's famed Cherry Blossom trees are on track to be in full bloom this weekend.
National Journal
Michael Catalin
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Michael Catalin
May 6, 2014, 4:35 p.m.

When Fed Chair Janet Yel­len test­i­fies be­fore the Joint Eco­nom­ic Com­mit­tee on Wed­nes­day, she may not get asked about the Collins Amend­ment to the Dodd-Frank bill, which calls for min­im­um cap­it­al re­quire­ments for fin­an­cial in­sti­tu­tions.

“I could write her an­swer for her at this point,” offered one lob­by­ist for the in­sur­ance in­dustry.

The lob­by­ist’s cer­tainty about the Fed chief’s po­s­i­tion is a sign of just how stale­mated the is­sue has be­come, with reg­u­lat­ors in one corner and mem­bers of Con­gress and the in­sur­ance in­dustry in the oth­er.

In­to this fray, law­makers on both sides of the Cap­it­ol and in both parties, in­clud­ing Sen. Susan Collins her­self, are push­ing le­gis­la­tion aimed at cla­ri­fy­ing what they say is a mere mis­un­der­stand­ing. It’s an ex­ample of the rare case where mem­bers of both parties agree and there is little op­pos­i­tion in Con­gress, and yet the bill’s pro­spects are still un­cer­tain.

At is­sue is the Fed’s in­ter­pret­a­tion of how cap­it­al re­quire­ments are ap­plied to in­surers. The prob­lem, at least as in­surers and many mem­bers in Con­gress — in­clud­ing Collins — see it, is that the Fed is in­cor­rectly in­ter­pret­ing Collins’s amend­ment.

From the Fed’s point of view, while Yel­len has ac­know­ledged the dif­fer­ence between the bank­ing and in­sur­ance busi­nesses, the cent­ral bank does not have the leg­al au­thor­ity to reg­u­late in­surers dif­fer­ently than banks un­der the Dodd-Frank pro­vi­sion.

“The Collins Amend­ment does re­strict what is pos­sible for the Fed­er­al Re­serve in design­ing an ap­pro­pri­ate set of rules,” Yel­len said earli­er this year at a Sen­ate Bank­ing Com­mit­tee hear­ing. “So it does pose some con­straints on what we can do, and we will do our very best to craft an ap­pro­pri­ate set of rules sub­ject to that con­straint.”

In re­sponse, Collins, Demo­crat­ic Sen. Sher­rod Brown of Ohio, and Re­pub­lic­an Sen. Mike Jo­hanns of Neb­raska have in­tro­duced a bill that would ex­empt in­surers from reg­u­la­tion un­der the pro­vi­sion if their busi­ness is reg­u­lated as in­sur­ance at the state level.

“I’m as much in fa­vor of reg­u­la­tions for fin­an­cial ser­vices as any­one. This doesn’t do that,” said Brown, speak­ing of the Fed’s in­ter­pret­a­tion of the law. In a sign of just how eager he is to see Con­gress move on this is­sue, Brown chaired a sub­com­mit­tee hear­ing on the is­sue in March and even dropped his own bill so he could back Collins’s latest meas­ure.

Sen. Tim John­son of South Dakota, who chairs the Bank­ing Com­mit­tee, called the Collins-Brown-Jo­hanns bill a “top pri­or­ity,” but wouldn’t com­mit to when the pan­el would re­port it out. He shares the view that bank­ing stand­ards should not ap­ply to in­sur­ance com­pan­ies, but is still re­view­ing the le­gis­la­tion, a com­mit­tee aide said.

So, with all the ap­par­ent sup­port in the Sen­ate, what is the hol­dup?

For one, the Bank­ing Com­mit­tee’s le­gis­lat­ive run­way is jammed at the mo­ment. The com­mit­tee is in the throes of re­port­ing out a bill that would dis­mantle Fan­nie Mae and Fred­die Mac. The bill has bi­par­tis­an sup­port and could pass com­mit­tee, aides ac­know­ledge, but John­son is work­ing be­hind the scenes to build more sup­port among Demo­crats, a seni­or Demo­crat­ic aide said. The think­ing is that the bill needs more back­ing to clear the floor.

Then, there’s reau­thor­iz­a­tion of the Ter­ror­ism Risk In­sur­ance Act, which ex­pires at the end of the year. That law set up a com­pens­a­tion sys­tem for pub­lic and private losses due to ter­ror­ism. It’s also a pri­or­ity for John­son, and could be a light­ning rod as well, aides said.

That leaves in­sur­ance lob­by­ists, and the bill’s au­thors, chart­ing a path for pas­sage. Collins wants to see the bill move as a stand-alone meas­ure.

“My hope is that it will move quickly through the com­mit­tee. We’ve worked ex­tens­ively to reach con­sensus,” Collins said. “I would hate for a bill “¦ after many months to have achieved con­sensus, to get bogged down in un­re­lated is­sues.”

Brown did not of­fer spe­cif­ics on how and if the le­gis­la­tion would get done, but said the clock is tick­ing. In­deed, in­sur­ance lob­by­ists say the Fed would hold off on its rule un­til Janu­ary 2015. “It’s gotta get done be­fore the end of the year,” Brown said.

Lob­by­ists sug­gest that adding the le­gis­la­tion as an amend­ment to some must-pass le­gis­la­tion could be an op­tion. But one prob­lem with that ap­proach is the de­teri­or­a­tion of the amend­ments pro­cess in the Sen­ate, where Ma­jor­ity Lead­er Harry Re­id rarely al­lows Re­pub­lic­ans to of­fer amend­ments.

An­oth­er is­sue, lob­by­ists say, is that Dodd-Frank as a top­ic might be polit­ic­ally ra­dio­act­ive, mak­ing law­makers skit­tish about ad­dress­ing the law again. But Collins dis­misses that fear.

“This isn’t re­open­ing a ma­jor is­sue in Dodd-Frank,” she said. “It is simply bring­ing clar­ity to a pro­vi­sion that I au­thored that the Fed has mis­in­ter­preted. I think giv­en how closely we’ve worked with every­one, it really is more of a tech­nic­al cor­rec­tion.”

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