Senior House Republicans have introduced legislation to prevent the use of Dodd-Frank’s orderly-liquidation authority for some insurance companies. As a result, covered insurance companies would fail under applicable state guaranty regimes, likely protecting policy-holders, but perhaps still creating systemic-risk fears for creditors or other counterparties that OLA might assuage. However, OLA could still be used for insurance companies outside state-resolution regimes or for parent companies that are not themselves “insurance companies,” perhaps mitigating fears about potential panic akin to those the AIG rescue in 2008 was designed to address and OLA is meant to cure going forward. Nothing in the bill would prevent the FSOC from declaring an insurance company to be a systemic nonbank financial company and, then, subjecting it to FRB regulation.
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