Crapo said retiring Fed chairman Ben Bernanke told the committee that legislation is needed to allow the Fed flexibility to deal with the “Collins amendment” and tailor appropriate capital requirements for insurance companies. The Collins amendment requires the Fed to oversee insurers designated as thrift holding companies using the same standards as it uses to regulate banks. Bernanke and Michael Gibson, director of the Fed Division of Banking Supervision and Regulation, have argued the Collins amendment limits the Fed's ability to regulate insurers differently than banks.

Yellen also said the Fed is undertaking a cost/benefit analysis in advance of a requirement that State Farm switch from statutory accounting principles to Generally Accepted Accounting Principles, a conversion the Fed is considering as part of its new responsibilities as the consolidated regulator of State Farm, which operates a thrift.

A number of other thrifts operated by property and casualty insurance companies are also involved, including San Antonio-based USAA. They have claimed that the conversion will cost them “a couple hundred million dollars,” as cited by Illinois Republican Sen. Mark Kirk, who asked Yellen about the conversion.

Yellen defended the Fed's recent decision to seek membership in the International Association of Insurance Supervisors (IAIS). That decision has stirred concerns that the Fed is seeking to squeeze out both the Federal Insurance Office, which is charged through the new Dodd-Frank Financial Services reform law as representing insurers on the international level, as well as members of the National Association of Insurance Commissioners, who also seek to be a strong voice in establishing international insurance regulatory standards.

“Now that the Federal Reserve has been charged with supervising some of the largest insurance companies that have been designated by the Financial Stability Oversight Council as systemic, we want to be in a position to work with regulators in other countries, as we have in the case of banking rules, to make sure that we have internationally compatible [standards],” Yellen said.

Currently, the FSOC has designated American International Group and Prudential Financial as systemically significant, and also oversees a number of insurers who operate thrift holding companies. It has declined repeatedly to disclose the exact number. The FSOC is also considering MetLife as a SIFI, MetLife has confirmed in regulatory filings.

Asked by Tester if the FIO isn't already in a position to fill that role, Yellen said that, “I'm not certain. I think we felt it would be beneficial to participate in that group.”