Both life and P&C insurers, as well as their trade groups, have been urging both the Fed and Congress to provide such flexibility since the Fed started to implement the Dodd-Frank financial services reform law last year.

The Fed has also strongly signaled recently that such legislation was needed to give it the flexibility to regulate insurers with capital rules tailored to deal with insurance products, not subject to the bank-centric model imposed by a provision of the Dodd-Frank Act, and that the Fed would support such legislation.

The Fed gave Congress time to act when it provided insurers a respite until 2015 from the Basel III capital regimen in a final rule published July 2.

The provision, Sec. 171, requires federal agencies to apply consolidated minimum risk-based and leverage capital requirements for depository institution holding companies, savings and loan holding companies, “that are no less than the generally applicable capital requirements that apply to insured depository institutions under the prompt corrective action framework,” that is, banks.

The bill was introduced by Democratic Sens. Sherrod Brown, Ohio, and John Tester, Montana, and Republicans Mike Johanns, Nebraska, Mark Kirk, Illinois and Pat Toomey, Pa.

The law, if enacted, would allow the Fed to oversee insurers which operate savings and loan holding companies, as well as those that must be governed under the Basel III regulatory standards. This is a framework centered on imposing higher bank capital standards in the wake of the 2007-2010 financial crisis.

However, insurers designated systemically important will have to comply with heightened capital standards, although the Fed has also signaled that it is willing to tailor those capital standards to accommodate the business model of insurers.

Currently, the FSOC recently designated AIG as a systemically important financial institution (SIFI) and seeks to designate Pru Financial as SIFI. It has also moved MetLife to the third stage of such designation.

The bill is likely in response to a letter sent by Federal Reserve Chairman Ben Bernanke to 24 senators Feb. 6.

The letter said the Fed interpreted Sec. 171 as mandating imposition of bank-centric standards when regulating insurers.

That stance was reiterated by Bernanke in answer to a question posed last week by a House member during his semi-annual testimony on the state of the economy and Fed monetary policy.

Fed. Gov. Daniel K. Tarullo said the same thing in congressional testimony July 11.