U.S. insurance companies trying to get access to government funding can apply for a bank or thrift charter at the same time as they apply for a cash infusion under the U.S. government’s $700 billion financial services rescue package, two sources briefed on the matter said Friday.
Under the Treasury Department’s current capital injection program, insurers without a federally regulated bank or thrift are not eligible for capital injections.
A Treasury spokeswoman Brookly McLaughlin did not specify that insurers could seek capital this way, but said: “As a matter of process, we will accept applications to the capital purchase program from institutions that are at the same time applying for a bank/thrift charter.”
Financial institutions that want access to the Treasury’s cash infusion program have until Nov. 14 to submit their applications.
Consequently, the Office of Thrift Supervision, which regulates thrifts, most likely will not grant a thrift charter for an insurer within a week, but could allow insurers to buy a thrift, one of the sources said.
So far, Treasury has set aside $250 billion in the bailout program to inject capital into financial institutions in a bid to help unclog credit markets.
Nearly half has been distributed to the eight largest banks such as Bank of America and about $30 billion has been earmarked for smaller regional banks like Zions Bancorp . Banks will receive government funds in exchange for preferred shares and warrants.
“We have always said… that eligible institutions for the capital purchase program are federally regulated banks and thrifts and the ultimate parent company, if there is one, must be predominantly engaged in the business of banking or other financial activities,” said McLaughlin.
Some insurers had approached the Treasury Department in October to explore ways to access the rescue program and work around the lack of a federal insurance regulator.
Insurers are regulated by individual U.S. states, which makes it difficult for the Treasury to assess if a company is fundamentally sound.
Insurers wanted the Treasury to make the capital injection program mandatory for the insurers as it did with the first nine banks to squash any negative perceptions associated with government help, two sources briefed on the matter said.
There was speculation that Treasury would consider another program for insurers. But now, Treasury has made it clear that the only way to participate in the capital injection program is if an insurer owns a bank or thrift, the two sources said.
(Reporting by David Lawder, Rachelle Younglai; editing by Carol Bishopric)
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