Former Fed Chairman Volcker Favors Optional Federal Charter

Paul Volcker, former chairman of the U.S. Federal Reserve, said in testimony to a congressional committee that he favored a federal charter for insurers.

He said he urges "consideration of making a national insurance charter available to insurance companies willing to accept federal prudential standards." Volcker brought the issue up among a list of other topics in his Sept. 24 testimony before a House Financial Services Committee hearing, which was aimed more broadly at systemic risk.

Volcker, Fed chairman during the Reagan and Carter administrations, is now chairman of the Obama administration's Economic Recovery Advisory Board, created in February.

Though the idea of an optional federal charter for the industry isn't a component of this year's financial system reform effort, leading congressional lawmakers have promised it'll come up for further consideration soon. The topic has been discussed at recent congressional hearings, including one before the Senate Banking, Housing and Urban Affairs Committee that focused on the insurance industry. Chairman Sen. Chris Dodd, D-Conn., didn't take a definite position after the hearing, but he told BestWire last month that "rate setting and market rules and so forth ? particularly in certain areas ? I think are best left at the state level. In other lines of insurance, you could make a strong case that maybe in those areas, maybe the national approach makes some sense" (BestWire, Aug. 3, 2009).

At the beginning of the year, a report authored by Volcker and others on behalf of the Group of Thirty called for "a framework for national-level consolidated prudential regulation and supervision over large internationally active insurance companies" (BestWire, Jan. 26, 2009). Volcker is chairman of the board of trustees for the Group of Thirty, an organization of high-level officials in the private and public sectors of the financial world.

According to its Jan. 15 report: "This framework of state, rather than national, laws and regulations has limited the degree and effectiveness of oversight of the capital market activities of large, complex affiliates of regulated insurance companies."