Key takeaways

• On Friday, June 3, 2016, the Federal Reserve published an advance notice of proposed rulemaking to solicit comment on two approaches to capital requirements for Federal Reserve Board supervised institutions significantly engaged in insurance activities.  Although the Federal Reserve has broad authority to establish regulatory capital requirements for these institutions, the Federal Reserve has yet to establish any such requirements and, until recently, has not even indicated its approach to proposing such capital requirements.
• The first approach, the so-called Building Block Approach (BBA), would aggregate capital resources and requirements across the various legal entities within a savings and loan holding company group to determine qualifying and required capital for these firms.  The second approach, the so-called Consolidated Approach (CA), would establish a consolidated regulatory capital standard for insurance nonbank financial companies designated as systematically important under Title I of the Dodd Frank Act.  The CA would categorize an NB-SIFI's insurance liabilities, assets and other exposures into risk segments, determine consolidated capital requirements based on these segments, and then compare qualifying available capital to this required capital amount.
• The ANPR is an important milestone in the development of enhanced regulatory standards for NB-SIFIs and other insurance companies the Federal Reserve regulates.  It also will likely have a significant impact on the design of group capital standards both in the U.S. and internationally, and may represent an important counterweight to the approaches followed in the international capital standards being developed by the International Association of Insurance Supervisors as those are finalized by the end of 2019.