Bernanke backs fed charter for insurers

Washington -- U.S. Federal Reserve Chairman Ben Bernanke said the idea of a federal charter for insurance companies, particularly large ones, had merit.

"We did not have effective holding-company supervision in some cases where we have had problems," Bernanke told members of the House of Representatives Financial Services Committee Wednesday, Business Insurance reported.

Bernanke said, "An optional federal charter would be a direction worth giving serious consideration."

"One of the big problems is that if we wanted to close down a major institution, we don't have the legal authorities and the framework to do it," Bernanke told a Senate panel Tuesday in response to a question from Sen. Richard Shelby, R-Ala., who asked the chairman to focus on the issue of systemic risk.

Bernanke said American International Group, now 80 percent owned by the government, "had a financial products division, which was very lightly regulated."

Bernanke said Congress should build on the Federal Deposit Insurance Corporation Improvement Act of 1991 to define rules for regulators to use for shutting down various companies where a company failure poses a risk to the broader financial system.

Without those rules, "we really are having to play it by ear," Bernanke said.

Copyright 2009 by United Press International.