FDIC Could Guarantee Insurance Limits If Federal Charters Issued, Predicts Chairman

In remarks at the annual conference of the International Association of Deposit Insurers, Sheila Blair, Chairman of the FDIC, said that her agency could play an expanded role in regulting insurance companies if Congress shifts regulation of the U.S. insurance industry from state to federal control.  Much like the current guarantees of deposits in U.S. banks, the FDIC could provide guarantees of insurance policy proceeds.

I have previously reported on the progress of legislation moving in the direction of optional federal chartering.  (See Broad Federal Insurance Regulation To Follow? and So What Happened to Legislation to Create Office of Insurance Information?)

Federal chartering for insurance companies is controversial even within the insurance industry.  Current widespread financial troubles have provided some ammunition to those in favor of federal regulation.  Just look at AIG.  Listen to Chairman Blair.

Ironically, however, opponents of moving away from state regulation also point to the example of AIG.  The AIG insurance companies were not involved in or hurt by the company's near-collapse from speculation in mortgage-linked investments, an operation of AIG Techical Services, which is not one of the AIG insurance companies.  What better recommnendation of the soundness of state regulation, say supporters of the current system, than the contrast between AIG's insuring sectors, that are financially unscathed, and the company's financial sector, which collapsed?

Stay tuned.