Big insurance banks can take government assistance but not 'regulation'
(Prefatory note: Sorry for all the acronyms, but, hey, I’m talking about federal banking regulation here.)
Harry Truman famously said: "If you can’t stand the heat, get out of the kitchen."
Certain insurers are taking that advice to heart.
In February, Allstate Corp. (the "good hands" people) announced it would exit the banking world by selling its Allstate Bank deposit-taking operations to Discover Bank.
The Discover deal fell through, however, so Allstate will now dissolve the bank outright.
It cites changes in the "regulatory environment" under the Dodd-Frank law as the reason for dropping out of banking.
It particularly doesn’t like being regulated by the Federal Reserve.
Because Allstate Bank is a federal savings association (FSA), its parent is a "savings and loan holding company" (SLHC) under U.S. banking law.
Pre-Dodd-Frank, FSAs and SLHCs were subject to light-handed (some might say, no-handed) regulation by the Office of Thrift Supervision (OTS).
But Dodd-Frank killed the OTS, transferring its responsibilities for FSAs to the Comptroller of the Currency and for SLHCs to the Fed.
Fed regulation of banks -- according to Allstate -- is just too burdensome.
It includes such things as maintaining consolidated capital ratios and acting as a "source of strength" to bank subsidiaries.
And, if that weren’t enough, owning a bank makes it more likely the big insurer will be tagged a "systemically important financial institution" (SIFI), subject to "enhanced" regulation under Dodd-Frank.
MetLife Inc. (the "Snoopy" people), which already is a "bank holding company" (BHC) subject to Fed rules, seems to concur.
Also citing regulatory burdens, MetLife is looking to sell the deposit-gathering business of MetLife Bank.
But, with the Fed so focused on meddling in financial markets, I question how much of a threat it really poses to these two insurance leviathans.
The Fed's track record as a regulator isn’t exactly stellar. Just read the Financial Crisis Inquiry Commission report.
In fact, my guess is that, when the next financial meltdown hits, Allstate and MetLife won’t hesitate to line up at the financial services feeding trough for government assistance, including support from the Fed.
They can always find another small bank to acquire to qualify for the dole.
That’s what the Hartford (the "Stag" people) did in 2008, when it bought a tiny thrift just to get TARP dollars.
(It sold it earlier this year, by the way.)
You see, what’s "burdensome regulation" in good times is "preserving capitalism" in bad.