The "Too Big to Fail" Penalty: A New Era of Insurance Regulation in the Wake of the Financial Crisis

The Dodd-Frank Act is one of the most far-reaching efforts in financial reform since the Great Depression. The Dodd-Frank Act's new regulatory regime seeks to rein in 'systemically important financial institutions,' or 'SIFIs,' which are financial institutions so large that their downfall would cause wide-ranging damage throughout the entire American economy. The Financial Stability Oversight Council ('FSOC'), one of the agencies created by the Dodd-Frank Act, has the authority to label non-bank financial companies, such as insurance companies, as SIFIs. This Essay argues that the Dodd-Frank Act's new regulatory regime has reduced systemic risk in the financial services industry.

This Essay also argues that the Dodd-Frank Act and the Federal Reserve's intervention in the insurance industry may signal the beginning of a new era of regulation: one where federal regulators take a more active role in the state-dominated insurance regulatory system.