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Insurance vs Banking: Understand the Differences with New BPC Report

Tuesday, September 29, 2015

Washington, D.C. – A new Bipartisan Policy Center report, The Business of Insurance and Banking: Understanding Two Different Industries, offers insights about the differences between two key financial sectors to help guide policymakers and others through the changing landscape of federal regulation.

Financial products from banks and insurance companies are based on fundamentally different business models and concepts. This poses a challenge for policymakers like the Federal Reserve, Treasury Department, and FDIC, which have significant new insurance regulatory authority in the post Dodd-Frank era.

“When the Dodd-Frank Act created a new federal role for insurance regulation, it left many policymakers scrambling to understand the difference between the insurance and banking industries. This guide is intended to help explain the basics of how the two industries resemble each other and how they stand apart,” Justin Schardin, associate director of the BPC’s Financial Regulatory Reform Initiative, said.

Some highlights include:

  • Banks and insurers encourage savings and promote economic growth, but they do so in different ways and make different promises to their customers
  • The failure of an insurance company is typically a slow process, which takes years or decades to resolve. Bank failures are usually resolved in a matter of hours or days
  • The Federal Reserve regulates one-third of the life and property and casualty insurance industry, becoming the first federal entity to regulate a major portion of the insurance industry