Treasury Plan Has No Bailout Money For Insurers

National Underwriter News
February 10, 2009

WASHINGTON --Insurers will not be allowed to participate in the federal government's bailout program for financial institutions, a top Treasury official said today.

Only federally regulated financial institutions will be eligible for the various aid programs, according to the official, who cannot be identified by name due to ground rules established by the agency. However, insurers would be allowed to sell troubled assets as part of another program.

The comments were made at a background briefing for media after Treasury Secretary Tim Geithner unveiled the Obama administration's financial stability plan.

The high-level Treasury official was explicit in saying that insurers, who had applied for aid under the program, could not receive funds. The group reportedly included 12 life insurers who already had or were approved to have thrift holding company or bank holding company units as well as troubled bond insurers.

"No insurance companies will be allowed to participate," the official said. "Only federally regulated institutions will be allowed to participate in the Capital Purchase Program" under the Troubled Asset Relief Program established under the Emergency Economic Stabilization Act passed in September, he said.

They will be allowed to participate in a new program that will allow financial institutions to sell troubled assets to the private market with government guarantees.

"We believe insurance companies will benefit if the steps we are taking will lead to stability in the financial markets," the official.

The official appeared to indicate that the reason insurers will not be allowed access to the program is because federal regulators will not be able to conduct a comprehensive "stress test" that will be a prerequisite to financial institutions being eligible for a so-called "capital buffer."

Specifically, Secretary Geithner said earlier, this "comprehensive stress test" will involve a "coordinated review process" conducted by federal banking and securities regulators.

It will be required for all banking institutions with assets in excess of $100 billion who seek to be eligible for funds under the new program.

The "capital buffer" program was explained by Secretary Geithner as something designed to help troubled banks, thrifts and securities firms absorb losses caused by bad loans and investments "and serve as a bridge to receiving increase private capital."

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