The Hill is reporting that the Senate Banking Committee’s more moderate Democrats intend to vote against the financial services reform package put together by Chairman Richard Shelby, R-Ala., at this morning’s mark-up session.

The news won’t have immediate impact, as Shelby’s Financial Regulatory Improvement Act of 2015 still would be expected to pass the committee. But a strictly party-line vote would bode poorly for its chances to survive procedural challenges on the Senate floor.

According to the newspaper, Sens. Mark Warner, D-Va., Heidi Heitkamp, D-N.D., Bob Menendez, D-N.J., and Jon Tester, D-Mont. – all of whom have in the past been open to some tweaks and clarifications to 2010’s landmark Dodd-Frank Act – will vote against the proposal, according to unnamed sources.

The committee has bickered along partisan lines throughout the negotiation process, with Republicans expressing frustration that [Ranking Member Sherrod] Brown did not engage in negotiations despite their repeated efforts.

Democrats say Shelby didn’t attempt to work with all of the Democrats on the panel. Shelby aides have argued that they were following committee structure in which the chairman negotiates with the ranking member.

Though primarily concerned with rules governing credit extended by smaller banks and credit unions, and the powers delegated by Dodd-Frank to the Consumer Financial Protection Bureau, the measure also includes provisions that would more forcefully defend the U.S. system of state-based insurance regulation in what is coming to be a bitter turf war between international regulators.

Shelby himself presided over a recent hearing on the subject in which he called members of the Financial Stability Oversight Council to task for what he viewed as their incorporating decisions of the Financial Stability Board — an advisory panel of the G-20 — into FSOC’s treatment of non-bank financial institutions deemed to be “systemically important.” FSOC has designated the insurers American International Group, Prudential Financial and MetLife Inc. as systemically important institutions, though MetLife is contesting the designation.

The FSB is not a U.S. regulator, and it is not accountable to Congress or the American people. Therefore, the FSOC should not merely be a rubber stamp for the decisions made by an unaccountable international body like the FSB.

The Treasury Secretary, who also chairs the FSOC, has told this Committee that the FSB’s decisions do not bind the FSOC. The FSOC’s recent actions, however, leave us to wonder if some of the FSOC members agree with Secretary Lew on this point.

Shelby echoed concerns from many in the domestic insurance industry that similar considerations could influence the Federal Reserve’s planned quantitative impact study on the appropriate capital framework to apply to insurance holding companies that include thrifts. That cohort of about a dozen major insurance groups – including names like State Farm, USAA and TIAA-CREF – was placed under Fed supervision by Dodd-Frank. Shelby said it would be “unfortunate…if the Fed uses the QIS process solely to buy time for international insurance capital standards to be developed and subsequently adopted here.”

The Shelby draft has earned plaudits from the National Association of Insurance Commissioners and from domestic trade groups like the National Association of Mutual Insurance Companies, the Property Casualty Insurance Association of America and the Independent Insurance Agents and Brokers of America. Of particular interest has been its proposal to establish an Insurance Policy Advisory Committee on International Capital Standards. That U.S.-based panel would theoretically serve as a competing sphere of influence, dominated by state regulators and probably more reflective of the wishes of the U.S. industry, to the one represented by the International Association of Insurance Supervisors.

The stakes have been particularly heightened by the IAIS’ decision last October that it would close its meetings to “non-members” who previously had “observer” status. That group includes six state insurance commissioners; the NAIC’s consumer representatives; FSOC insurance representative Roy Woodall; a host of internationally active property/casualty, life and health insurers and reinsurers; the U.S. trade associations PCI, the American Council of Life Insurers, the American Insurance Association and the Reinsurance Association of America; the U.S. standards-setting organization ACORD; the rating agency A.M. Best; a number of consultants; and international groups like the International Actuarial Association, the World Federation of Insurance Intermediaries and Insurance Europe.

Retaining its status as an IAIS “member” is the Treasury Department’s Federal Insurance Office.

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