"Bank-centric capital rules should not be applied to insurance companies," said Senate Banking Committee Chairman Tim Johnson, urging a separate vote on a bill to amend the Dodd-Frank Act. Photo: Bloomberg News
"Bank-centric capital rules should not be applied to insurance companies," said Senate Banking Committee Chairman Tim Johnson, urging a separate vote on a bill to amend the Dodd-Frank Act. Photo: Bloomberg News

The Senate Banking Committee unanimously approved legislation Tuesday to extend the Terrorism Risk Insurance Act, a critical program important to large banks that is facing a yearend deadline.

The bill would reauthorize the program, which provides a government backstop for the insurance market in the event of an act of terrorism, and make some minor tweaks to its design.

"The Banking Committee worked to develop a program that will help limit the economic damage of any future terrorist attack, make our economy more resilient, and increase taxpayer protection," said Sen. Mike Crapo, R-Idaho, the ranking member on the panel, in a statement.

Below we offer three key findings from the banking panel vote, including what happens next in the TRIA debate and the fate of a separate bill over insurance capital standards discussed at the markup.

Smooth sailing for reauthorization—so far

The TRIA bill, based on legislation introduced this spring by Sens. Charles Schumer, D-N.Y., Mark Kirk, R-Ill., Dean Heller, R-Nev., and Chris Murphy, D-Conn., ultimately passed the banking panel with unanimous support from the committee and relatively little debate.

In addition to extending the program for seven years, the measure would raise the mandatory recoupment threshold to $37.5 billion from $27.5 billion and increase insurers' co-pay to 20% from 15% after a deductible.

"The TRIA extension says go forward, that this is such an unconventional act that can occur anywhere, with devastation, that to simply sit back and say, 'how would Adam Smith have handled this?' doesn't quite work. You don't have to be a liberal or a conservative, a Democrat or Republican to recognize that," said Schumer at the markup. "We obviously had to balance very carefully the private money that has to go up front, versus how much it will inhibit development. And I think we've done a very careful job, and that's why we have such broad support on this committee."

The bill is expected to move to the Senate floor, where it is likely to pass with fairly strong support.

"I would think the Senate would move quickly, just to put pressure on the House to get the process moving well before yearend," said Brian Gardner, an analyst at Keefe, Bruyette & Woods.

House action expected soon

With the Senate beginning to move forward, the biggest remaining question mark around TRIA reauthorization remains the Republican-controlled House, where lawmakers are expected to demand more significant changes to the program.

"The real fight on TRIA is in the details—how long is it reauthorized for, what type of terrorist attacks are covered, and what is the deductible and co-insurance required by the private market?" said Edward Mills, a policy analyst at FBR Capital Markets. "The House, by no surprise, is taking a much more conservative stance, with a shorter extension period, more buy-in from industry and the exclusion of certain perils."

But the strong vote out of the Senate banking panel could help set the tone for less contentious negotiations, given that even conservative Republicans on the committee all chose to the back the bill.

"The Senate banking panel has put up a united front—they’re trying to have the strongest hand possible going into negotiations with the House," Mills added.

Rep. Randy Neugebauer said at a hearing last month that he is drafting a bill for the House Financial Services Committee "that would reauthorize TRIA, but also modernize and reform the program."

The House bill will be introduced soon and marked up in coming weeks, according to a panel spokesman.

Whether lawmakers will then opt to ping-pong legislation back and forth across chambers or schedule a conference to settle bill differences remains unclear.

"My bet is that Chairman Hensarling would want to go to conference with the Senate, despite the fact that the final report would likely look more like today's bill," said Brandon Barford, a partner at Beacon Policy Advisors. "Conservative House Republicans could be outvoted because the House Democrats will side with many from the Senate to outvote those Republicans wanting a shorter duration and a lower threshold."

He added: "You’re never going to get the Senate to vote on a House-passed version of the bill—they’d amend it and send it right back. A conference is better for the House because otherwise it could have to vote on a purely Senate product, or one from leadership, which puts members of the Financial Services Committee in a worse bargaining position."

A change to the Collins amendment looks likely

The banking panel also discussed several unrelated proposals offered and then immediately withdrawn as amendments to the TRIA bill.

The most significant is a measure clarifying that systemically important nonbank institutions, including insurance companies, are not required to abide by the same capital standards that banks face under the Dodd-Frank Act.

"It was an unintended consequence, Congress likes to show they are doing something and there’s bipartisan support," said Mills. "There are enough questions about what it means to be regulated by the [Federal Reserve] as a nonbank SIFI, it's a whole other level to subject them to capital levels that don’t make sense."

The new measure would effectively change the Collins amendment, the Dodd-Frank provision that sets a statutory floor for risk-based capital requirements for systemically important institutions.

In the days leading up to the markup, lawmakers had reportedly considered attaching the Collins Amendment fix to the TRIA reauthorization, but for now have indicated they will instead seek approval on the Senate floor via unanimous consent. Sen. Tim Johnson, D-S.D., chairman of the Banking Committee, and Crapo both spoke in favor of moving forward with a floor vote for the provision, sponsored by Sens. Susan Collins, R-Maine, Sherrod Brown, D-Ohio, and Mike Johanns, R-Neb.

"I agree that bank-centric capital rules should not be applied to insurance companies. While I also share the view that the Fed has authority to fix this by regulation, I support a narrow legislative fix if the Fed will not use the flexibility they have," Johnson said during the markup. "I urge my colleagues to support their request to move their bill by unanimous consent. If that fails, while I and the ranking member do not control the floor, I will work with Sens. Johanns, Brown and Crapo to find a way to add this provision on the floor."

Analysts warned that attaching the provision to the TRIA bill on the Senate floor could slow down the legislative process and potentially open up a fight for broader changes to Dodd-Frank.

"By adding a 'Collins Amendment' component to TRIA, you would open the bill up to all the ugliness of the amendment process because Dodd-Frank is being altered. Members from both sides are going to want to insert changes to the [Consumer Financial Protection Bureau] or bank size, or other parts of Dodd-Frank," said Barford. "Even if the Senate could agree to limit the scope of any amendments, the inclusion of Collins means that House Republicans could make a conference a nightmare before the election. There also is no time impetus for Collins, compared to TRIA, since the Federal Reserve has acted exceedingly cautiously in promulgating new regulations for insurance companies."

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