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Tarullo: standards for "too big to fail" insurance firms coming soon

WASHINGTON, May 20 (Reuters) - The Federal Reserve will soon take up prudential standards and liquidity requirements for insurance companies deemed "too big to fail" that are intended to head off risks to financial stability, Fed Governor Daniel Tarullo said in a speech to the National Association of Insurance Commissioners on Friday.

It will also propose capital requirements for insurance firms it regulates, with separate tracks for the handful of those companies designated "systemically important" and for smaller holding companies that own banks.

Under the Dodd-Frank Wall Street reform law, federal regulators can determine non-bank companies such as AIG could put the entire financial system in danger should they fail and require they take certain measures, such as holding more capital, to stave off threats to the country's financial stability.

Tarullo said "the enhanced corporate governance and risk-management standards for systemically important insurance companies will likely build on the core provisions of our consolidated supervisory framework for large domestic and foreign banking organizations" and include adjustments for the unique nature of the insurance industry.

The liquidity requirements to be suggested as part of the enhanced standards will likely involve stress-testing, cash flow projections, contingency plans to manage liquidity stress events, and internal controls, he added.

(Reporting by Lisa Lambert; Editing by Chizu Nomiyama)