WASHINGTON—Creating an optional federal charter for insurers is a "useful idea," Federal Reserve Chairman Ben Bernanke told a House panel Wednesday.
In response to a question from Rep. Ed Royce, R-Calif., Mr. Bernanke acknowledged that the OFC issue is complex and involves many issues. But "to cut to the bottom line, I think that it would be a useful idea to create a federal option for insurance companies," particularly large "systemically important ones," Mr. Bernanke told the House Financial Services Committee, according to a transcript released by Rep. Royce's office.
He added that in general, company-level supervision of systemically important institutions is "very important."
"We did not have effective holding-company supervision in some of the cases where we have had problems," said Mr. Bernanke. "So I do believe an optional federal charter would be a direction worth giving serious consideration."
Reps. Royce and Melissa Bean, D-Ill., are expected to introduce a bill that would create a system of federal regulation of insurers.
Meanwhile, Mr. Bernanke told a Senate panel Tuesday that Congress should change the laws governing financial institutions to formalize how and when regulators can close down firms that pose a risk to the entire financial system.
Mr. Bernanke's assertion came after Sen. Richard Shelby, R-Ala., and the ranking member of the Senate Banking, Housing and Urban Affairs Committee, asked him if he had thought about ways to deal with the issue of systemic risk, citing "some banks" and "some institutions like" American International Group Inc. as entities that posed systemic risk to the financial system.
Mr. Bernanke said "we're working right now on some proposals." But he added that "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."
Congress should put forward "a much more elaborate version" of the Federal Deposit Insurance Corporation Improvement Act of 1991, "that would apply to large financial institutions of various types, that would give guidance to regulators" about under what circumstances the firms can be shut down in a way "that doesn't disrupt the financial markets," he said.
Without such guidance, "we really are having to play it by ear," Mr. Bernanke said.
Again citing AIG, Sen. Shelby also asked whether insurance, which is subject to state regulation under the McCarran-Ferguson Act, should be regulated under a broader-based system.
"AIG had a financial products division which was very lightly regulated and was a source of a great deal of systemic trouble," said Mr. Bernanke. "So I think that we do need to have broader-based coverage, more even coverage, more even playing field to make sure that as our system evolves, that there aren't markets and products and approaches that get out of the line of vision of the regulators, and that was the problem we had in the last few years."
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