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Life Insurers Next in Line for Bailout

Now it’s the life insurance industry’s turn for a bailout, The Wall Street Journal reports today. The Treasury Department has approved allowing life insurance

Jul 31, 2020
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Now it’s the life insurance industry’s turn for a bailout, The Wall Street Journal reportstoday. The Treasury Department has approved allowing life insurance companies to participate in the Troubled Assets Relief Program, according to The Journal. A formal announcement should come within days. Life insurance companies that own federally chartered banks and thrifts will be eligible for the program, the story said.
Here’s the part that particularly interested me:
A number of life insurers, including Hartford Financial Services GroupInc., Genworth FinancialInc. and Lincoln NationalCorp., struck deals last fall to buy regulated savings and loans so they could call themselves banks and qualify for government funds. Hartford and Lincoln have applied for TARP funds. Genworth said it has applied with the Office of Thrift Supervision to approve its thrift purchase as a step toward gaining access to the federal funds.
In January, TWI reportedon this development — but it goes beyond what The Journal reports.
Banking analyst Bert Ely told TWI that the insurers actually were teaming up with the Office of Thrift Supervision, which found them troubled thrifts to buy. That way, insurers could get a chance at TARP money – and avoid stricter federal oversight. Buying thrifts instead of banks would allow the insurers to be regulated by the Office of Thrift Supervision, which is well-known for its lax oversight. Thrifts, or savings and loans, operate slightly differently from banks (which traditionally focus on commercial loans, in addition to deposits, and are regulated by the Federal Reserve) because thrifts concentrate on mortgage and real estate lending — though the distinction has blurred in recent years. If insurance companies had purchased banks instead, they would be subject to stricter oversight by the Federal Reserve.
Now that Treasury Secretary Timothy Geithner has proposed a sweeping expansion of federal oversight of the financial regulatory system, the insurers’ OTS strategy might not work, anyway. But until any new system is in place, the insurers have found and exploited a regulatory loophole while no one noticed — and the move gives the OTS powerful allies as it fights to survive any new regulatory reorganization.
Here’s how Ely summed up the situation, from TWI’s story in January:
The notion of insurance companies buying thrifts to get government money and avoid stricter federal regulations at the same time should be troubling, Ely said. If the companies bought banks instead, they could still get TARP money – but as bank holding companies they would be subject to tougher oversight, including more stringent requirements for reserves set aside to cover possible losses, among other things. “I can’t help but conclude that plays a role in why these companies are going out and buying crappy thrifts,” Ely said. “This ought to be generating some questions and concerns.”
Apparently, it’s not generating enough questions to keep all the deals from going through. It will be well worth keeping an eye on what happens at OTS now. If it retains its authority as the Obama administration restructures the financial regulatory system, we’ll all know which powerful friends the office will have to thank for that.
Dexter Cooke

Dexter Cooke

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Dexter Cooke is an economist, marketing strategist, and orthopedic surgeon with over 20 years of experience crafting compelling narratives that resonate worldwide. He holds a Journalism degree from Columbia University, an Economics background from Yale University, and a medical degree with a postdoctoral fellowship in orthopedic medicine from the Medical University of South Carolina. Dexter’s insights into media, economics, and marketing shine through his prolific contributions to respected publications and advisory roles for influential organizations. As an orthopedic surgeon specializing in minimally invasive knee replacement surgery and laparoscopic procedures, Dexter prioritizes patient care above all. Outside his professional pursuits, Dexter enjoys collecting vintage watches, studying ancient civilizations, learning about astronomy, and participating in charity runs.
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