THE FEDERAL GOVERNMENT’S REACTION TO A WORLDWIDE BANKING CRISIS INCLUDED REGULATING INSURERS: HOW CAN INSURANCE COMPANIES SHAPE THE EMERGING POLICY AND MOUNT CHALLENGES TO A BANK-CENTRIC DESIGNATION?

Wall Street Journal laid their eyes upon on September 16, 2008 starkly summarized the previous ten days in the banking world, “[m]ore than 200 years after it was born at the base of a buttonwood tree, Wall Street as we have known it is ceasing to exist.” However, that morning’s above the fold article failed to mention the looming government takeover of an entity that truly was “too-big-to-fail” and that exceeded the size of all but one of the previous bank failures. The next morning’s paper brought that headline though: “U.S. to Take Over AIG in $85 Billion Bailout; Central Banks Inject Cash as Credit Dries Up: Emergency Loan Effectively Gives Government Control of Insurer; Historic Move Would Cap 10 Days That Reshaped U.S. Finance.” Where the federal government had taken a laissez-faire attitude only the day before as Lehman Brothers filed the largest bankruptcy ever with an estimated $613 billion in debt and Merrill Lynch was acquired by Bank of America, now the government was essentially buying control of a worldwide company with multiple subsidiaries in insurance and non-insurance lines of business. While the government stood back during the previous period of days, suddenly it had interjected itself. Ironically, it was the nature of American International Group (“AIG”) at the time of its rescue that would have some of the most pronounced effects in shaping federal regulation in the coming years. Part II of this note will examine the background of the financial crisis that shaped the subsequent reform efforts. View More