WASHINGTON — The White House is considering S. Roy Woodall, a former Kentucky insurance commissioner, to fill an insurance slot on a new council charged with overseeing risk in the financial system, according to people familiar with the matter.
If Mr. Woodall is nominated it could help quell growing concerns among lawmakers and insurers that the Financial Stability Oversight Council (FSOC) is operating without adequate insurance expertise.
The FSOC, created by last year’s Dodd-Frank financial law, is in the process of determining which non-bank financial firms pose a “systemic” risk to financial markets and should be subject to heightened regulatory and capital requirements. Large insurers, such as American International Group Inc. and Prudential Financial Inc., are among the firms that could be tagged with the “systemic” designation.
Regulators plan to give additional guidance in late July on the criteria being used to determine which financial firms are so large and interconnected that their failure poses risk to the financial system, people familiar with the matter said. The process of actually labeling firms as “systemic” isn’t expected to happen until the first quarter of 2012 at the earliest, these people said.
The administration has come under fire for not yet nominating an independent insurance expert who will be a voting member of the FSOC. The council, headed by the Treasury Department, has two non-voting members with insurance backgrounds: Mike McRaith, a former Illinois insurance director who recently came on board to head the newly created Federal Insurance Office; and John Huff, the Missouri Department of Insurance director.
At a recent hearing before the U.S. House of Representatives, Mr. Huff told lawmakers “there is inadequate insurance expertise on FSOC” and said his attempts at bringing more state insurance experts on board had been rebuffed. Mr. Huff’s contention drew swift sympathy from Republicans and Democrats, who said the administration needs to have someone in place as key decisions are being made.
“We worked very hard in writing the bill to make sure that the insurance industry was given representation … we are going to be making decisions that could affect them,” said Rep. Barney Frank (D., Mass).
The insurance industry has been lobbying regulators to try to avoid the systemic designation, arguing insurers aren’t highly leveraged and don’t pose broad risk to the financial system. Industry groups such as the American Insurance Association have been urging regulators to consider whether a firm is engaging in risky activities rather than using broad metrics such as size to gauge whether a firm is systemic.
“The fact that nobody has been nominated and Dodd Frank has been enacted for nearly a year now is very troubling because we are making some of the most important decisions that have ever been made in the history of the U.S. financial system,” said Robert Hartwig, president of the Insurance Information Institute.
Government officials say the FSOC, comprising 10 voting members including the heads of the Federal Reserve, Federal Deposit Insurance Corp. and the Treasury, has insurance expertise, including Messrs. Huff and McRaith. They say it is likely the FSOC will fill the insurance slot well before it begins designating any firms as “systemic,” a move which isn’t expected until sometime early next year.
The White House is currently vetting Mr. Woodall and could decide to nominate him shortly, according to people familiar with the matter. Mr. Woodall, a former president of the National Association of Life Companies, worked at the Treasury Department in the George W. Bush and Obama administrations, dealing with terrorism-risk-insurance issues. He was also a consultant on insurance issues to Congress through the Congressional Research Service.
Even if Mr. Woodall is nominated it remains to be seen whether he can be confirmed. Republican senators have threatened to block key Obama administration appointments, particularly those related to Dodd-Frank. Mr. Woodall’s chances may be helped by the fact that both Republicans and Democrats want to see an insurance representative on the council and withholding confirmation for that spot wouldn’t prevent the FSOC from proceeding with its duties.
Write to Deborah Solomon at deborah.solomon@wsj.com
Corrections & Amplifications
Mike McRaith is the director of the Federal Insurance Office. His last name was misspelled “McGraith” in an earlier version of this article.
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