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With an eye on preventing future shocks to the American economy and improving the nation’s ability to compete on a global stage, Congresswoman Melissa Bean (IL-08) has taken a leading role in pushing for regulatory reform of the financial services industry.
As a Vice-Chair of the pro-growth New Democrat Coalition (NDC), and co-chair of its Financial Services Task Force, Bean has been working closely with the Obama Administration and Financial Services Committee Chairman Barney Frank to determine a broad framework for reform to our outdated regulatory system to ensure efficient and effective regulatory oversight, enhance market stability and transparency, and provide for robust consumer and investor protection.
“Regulatory reform is vitally important to creating a functional, sustainable financial system that families and businesses can count on,” Bean said. “We must avoid future breakdowns that jeopardize the value of our pensions, our homes, our businesses and our national economy.”
Congresswoman Bean has also become a national leader in the push to reform the insurance industry to protect against systemic risks to the economy. She is the co-author of H.R. 1880, the National Insurance Consumer Protection Act.
Regulatory Reform and the NDC:
The NDC released their 21 principles for regulatory reform at a Capitol Hill press conference in February 2009. Bean and the NDC met with the President in March to discuss reg reform and other fiscal issues. In June 2009, Bean and other NDC leaders joined President Obama at the White House to support his proposed reform of the regulations governing financial services. The President’s plan includes many of the principles advocated by the New Dems.
As a caucus dedicated to restoring economic growth and improving America’s ability to compete in a global economy, the NDC knows the value of a smoothly functioning financial system to our small businesses and economy. With 16 members on the Financial Services Committee and many Members with private sector financial experience, the coalition has the expertise and the will to help Chairman Frank and the Administration guide a regulatory reform agenda through Congress.
The principles are as follows:
NEW DEMOCRATS’ PLAN FOR CREATING A
21st CENTURY FINANCIAL REGULATORY STRUCTURE
Efficient and Effective Regulation
- Create a systemic risk regulator that can monitor systemically important institutions and their counterparties to mitigate the risk of systemic collapse.
- Reduce redundant regulatory structures in exchange for robust regulatory oversight.
- Ensure oversight over new financial instruments that currently do not have regulatory oversight.
- Require regulators to use prudential supervision to proactively work with those they regulate to prevent violations and keep communication lines open to better monitor efficacy and unintended consequences.
- Increase coordination and communication between federal regulators through expansion of the President’s Working Group on the Financial Markets to include all federal financial regulators.
- Modernize the regulation and oversight of the insurance industry to ensure adequate information and a consolidated U.S. position in international trade discussions.
Market Stability and Transparency
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Reform how regulators evaluate capital requirements when using fair value accounting values (mark to market) on hold to maturity assets in a temporarily impaired market.
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Prohibit excessive leverage on debt and derivative instruments by requiring necessary capital reserves to prevent against the potential risk of default.
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Create a countercyclical mechanism to temper extreme market fluctuations.
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Support measures to prohibit manipulation that can lead to extreme fluctuations in securities prices that could destabilize fair and orderly markets.
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Support open exchanges and price disclosure to increase transparency in opaque markets like the credit default swaps market
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Require lenders to hold a small percentage of loans in a first loss position to ensure originators retain some stake in the loans they underwrite.
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Conduct a thorough review of rating agencies’ methodologies, models and compensation structures to ensure that ratings are accurate and not subject to conflict.
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Hold Treasury accountable to regularly collect data from all federal sources that receive financial data from recipients of TARP funds.
Robust Consumer and Investor Protection
1. Aggressively pursue a multi-tiered strategy that prevents unnecessary foreclosures for credit worthy borrowers while protecting taxpayers and preserving the moral hazard principle.
2. Work towards reintroduction of mortgage reform legislation and pass into law.
3. Ensure that credit is available and appropriate for consumers through strengthened oversight and regulation of predatory loans while protecting businesses’ ability to price for risk.
4. Hold federal financial regulators accountable for enforcement of consumer and investor protections.
5. Protect and continue to encourage simpler disclosure of status and terms and conditions of Americans’ retirement and investment accounts.
6. Reduce incentives for excessive risk taking and improve corporate governance by empowering shareholders.
7. Increase fraud prevention efforts.
National Insurance Consumer Protection Act:
Citing the meltdown of insurance giant AIG and the broad crisis in the nation’s financial system as proof of the vital need for regulatory reform, Congresswoman Melissa Bean (D-IL-08) and Congressman Ed Royce (R-CA-40) introduced the National Insurance Consumer Protection Act to create a robust federal regulator for insurance to act as an alternative to the antiquated, non-uniform system of state insurance regulators currently in operation.
“The events of 2008 show us that insurance reg reform can no longer be postponed — it is needed now,” Bean said. “This bill will provide consumer protection and choice while eliminating barriers to industry competitiveness in the global market.”
The National Insurance Consumer Protection Act (NICPA) establishes a national system of regulation and supervision for nationally registered insurers, agencies, and producers (agents and brokers) to monitor the systemic risk to the economy from the insurance market, enhance consumer protection and choice, and reduce inefficient regulatory complexity that puts U.S. firms at a competitive disadvantage. States would maintain responsibility for regulating state-licensed insurers, agencies and producers.
Major points of the bill include:
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Consumer protections. By creating a world-class regulator, consumers working with a nationally chartered insurer benefit from best practices in consumer protection. The bill directly implements the model laws propagated by the National Association of Insurance Commissioners covering consumer protection. A single nationwide telephone number will connect consumers with problems to their local federal or state insurance regulator. The Office of National Insurance will have a physical office and staff in every state through its Division of Consumer Affairs.
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Consumer choice. By eliminating outdated price controls insurance customers across the country will have products more closely reflecting actuarially sound prices available to them. (Illinois, one of the only states without price controls, enjoys lower-than-average insurance rates as insurers compete for customers.) By providing an alternative to the antiquated patchwork of state regulators, nationally chartered insurers will be able to bring new products to market more quickly, providing greater consumer options.
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Risk reduction. NICPA reflects the importance of monitoring the insurance sector for "systemic threats" to the economy and anticipates the need to coordinate with a systemic risk regulator, likely to be created by Congress. The bill calls on this regulator to gather financial data from insurers and affiliates within holding companies, and to consult with the Office of National Insurance to determine the most effective form of functional regulation for systemically important institutions. Under these provisions, AIG’s insurance subsidiaries – in addition to its holding companies and non-insurance subsidiaries, like the financial products division – would have been overseen by ONI.
In the President's recent plan for financial regulatory reform, the Administration declared the need for a national approach to reforming what it called the “fragmented, inconsistent, and inefficient” system of state-based insurance regulation and called for the creation of an “Office of National Insurance,” same as H.R. 1880.
A fact sheet about the bill can be found here.
Congresswoman Bean will continue to work on regulatory reform from her seat on the Financial Services Committee.
"With a common-sense approach to reforming our financial regulations, we will restore confidence and market stability and we can prevent the kind of massive government intervention that was necessary last year, but that nobody wants to do again,” Bean said.
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