Senate Banking Committee Chairman Mike Crapo (R-ID) recently said he would work with Ranking Member Sherrod Brown (D-OH) to modify the Dodd-Frank Act to allow the Financial Stability Oversight Council’s member with insurance expertise (the Independent Member) to continue serving after their term expires. This would be a positive development because it would ensure that FSOC would not be without crucial insurance expertise for an extended period.
The term of the current Independent Member, Roy Woodall, is set to expire this September.
The Independent Member’s position was created late in Dodd-Frank’s development. AIG’s central role in the financial crisis convinced policymakers to include an insurance expert as a voting member of the new FSOC. The logical choice seemed to be the director of the new Federal Insurance Office, but this would have given the Treasury Department two votes on FSOC, since FIO would be housed at Treasury.
Because the Independent Member was added so late in the process, Dodd-Frank provided little detail about how the position should work. The statute simply says that the Independent Member be appointed by the president and confirmed by the Senate, have a six-year term, have insurance expertise, and be compensated at Level III on the federal government’s Executive Schedule.
The inability to serve beyond term expiration could deprive FSOC of a voting member with expert knowledge of insurance for a lengthy period.
Dodd-Frank does not include many of the details that are defined for the other voting members of FSOC, including anything on the Independent Member’s specific duties. For example, Dodd-Frank does not say whether the Independent Member can hire staff, exercise control of their budget, or participate in global forums. This has already been problematic, as the Independent Member was excluded from observing meetings of the International Association of Insurance Supervisors (IAIS) even though the Independent Member votes on matters—such as whether to designate U.S.-based insurers as systemically important—that directly relate to policies that the IAIS pursues.
Dodd-Frank also does not include a provision that the Independent Member may continue to serve in their role beyond the expiration of their term in office until a successor is nominated and confirmed, something that all other FSOC voting members who head regulatory agencies are allowed to do.
The Bipartisan Policy Center’s research has found that the length of the process to fill a vacancy at these agencies now takes more than three times as long as it did in the 1980s, meaning that the inability to serve beyond term expiration could deprive FSOC of a voting member with expert knowledge of insurance for a lengthy period.
BPC has recommended that the positions of Independent Member and FIO director be combined in a new FIO that would be independent of the Treasury Department, thus solving the problem of Treasury having two votes on FSOC. Regardless, Congress should clarify the role of the voting member of FSOC with insurance expertise, currently the Independent Member, including allowing that person to continue to serve until a replacement is confirmed.