U.S. Rep. Dennis Ross (FL-15) questioned the Federal Reserve Chairman Ben Bernanke at the Chairman's semi-annual address (Humphrey-Hawkins Hearing) to the House Financial Services Committee. In their discussion, Chairman Bernanke mentioned the need to address the debt ceiling. He also discussed the delaying of Basel III rules for non-bank financial institutions (insurance companies) and the need for congressional legislation to untie their hands from the Dodd-Frank Act. Below are excerpts from their exchange.
ON THE DEBT CEILING
Ross: "My concern with that is that I believe that at $17 trillion dollars and counting in debt, as we see in our national debt clock up there, when six percent of our federal budget is used to pay interest payments alone on national debt, I firmly believe that our sovereign debt should not go unpaid, but there is a tremendous difference between borrowing money to pay for an IRS Star Trek video and paying our sovereign debt
"It wasn't so much the debate on the debt that we had, it was the fact that we failed to take action to reduce in a systemic fashion, in a long-term fashion, our debt. Out of the debt ceiling debates that we've had in the past, we've come out with things as pay-as-you-go, the Gramm Rudman Act. There have been good things to help us with that so I think it is important that we acknowledge that having a healthy debate on the debt ceiling is prudent and responsible."
Bernanke: " I wasn't trying to make a policy recommendation other than to say that the last time around we did get a pretty big shock to consumer sentiment and it was harmful to the economy so I just hope that whatever is done, that it is done in a way that is confidence-inspiring."
ON INSURERS REGULATED AS BANKS -- THE COLLINS AMENDMENT
Ross: " Last week when Fed Governor Tarullo testified before the Senate Banking Committee, he told Senator Johnson that in regard to postponing and delaying the rules (as you've testified before on Basel III on non-bank financial institutions) he said that is to say that the, "Collins Amendment does require that generally-applicable capital requirements be applied to all of the holding companies we supervise.'
"I look at the Collins Amendment and what concerns me is that I'm afraid your hands may be tied, in that we have two different types of financial institutions here.
"We have the short-term funding of the banks and we have the long-term funding of insurance companies and yet we're going to give risk-based capital requirements, expanded requirements, based on general accepted accounting principles which don't apply to insurance companies. We're going to increase the cost of insurance and I come from a state where insurance is very important in Florida. And more importantly we're going to probably result in a conflict between the McCarran-Ferguson Act and the implementation of a Basel III capital requirement for insurance companies. How do you feel that we can resolve that? Can we resolve that?"
Bernanke: "On insurance companies, we're going to do our best to tailor our consolidated supervision to insurance companies but I agree with you that the Collins Amendment does put some tough restrictions.
"On the Collins Amendment, it does make it more difficult for us because it imposes as you say "bank-style capital requirements' on insurance companies."
Ross: "Would it be safe to say that the future is not too bright for the non-bank financial institutions in terms of having any reduction in their capital requirements?"
Bernanke: "Well there are some assets that insurance companies hold that we can differentially weight, for example. There are some things that we can do. But, again, I think this does pose some difficulty for our oversight."