Ex-NY Insurance Regulator Dinallo: No Apologies For MBIA Split
September 10 2009 - 2:59PM
Dow Jones News
New York's former insurance industry regulator, who may make a
run for statewide office next year, defended one of his most
controversial regulatory decisions Thursday.
In February, Eric Dinallo, then New York's Insurance
Superintendent, allowed bond insurer MBIA Inc. (MBI) to split its
municipal bond insurance business from its troubled structured
finance business. The move triggered lawsuits against the company,
the New York Insurance Department and Dinallo himself in his
regulatory capacity.
In evaluating his approval of MBIA's split, Dinallo said
Thursday, "The test is what we knew at the time," not how the plan
plays out in the longer term. He made the comments after a
lunch-time speech at an insurance conference in New York sponsored
by Keefe, Bruyette & Woods Inc.
Dinallo resigned as the Empire State's top insurance regulator
in July; a month later he formed a campaign committee to run for
state attorney general should the current AG, Andrew Cuomo, not run
for re-election and instead run for governor.
Dinallo approved MBIA's petition in February. Within months, 18
banks with exposure to MBIA through its structured finance business
filed a lawsuit over the split.
The issue was $5 billion in capital that MBIA diverted to the
municipal bond business in the split. The banks argued the money
should be available to cover potential losses in their structured
finance holdings.
The 18 financial institutions, which include Barclays PLC (BCS),
Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM),
said the insurance department had no right to approve the move,
which they said benefitted some policyholders at the expense of
others.
The banks are asking a New York State Court to void that
approval.
Dinallo said Thursday that in the event a troubled insurance
company is seized, "all policies are not created equal" under the
law.
-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141;
lavonne.kuykendall@dowjones.com
-By Marshall Eckblad, Dow Jones Newswires; 212-416-2156;
marshall.eckblad@dowjones.com