USAA’s anti-finreg campaign

By Felix Salmon
April 23, 2010
an excellent bank, and that structure -- which is unusual if not unique in this country -- puts it into conflict with the Volcker rule. Insurers, by their nature, invest in diversified portfolios of stocks and bonds, which is an activity which looks very much like prop trading if you're a bank. Since the Volcker rule would ban prop trading at banks, USAA is worried that it will fall foul of it.

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The Euro-style bancassurance business model has never really taken off in the U.S., but there’s one big exception: USAA, the financial services company for military families. It’s an insurer which owns an excellent bank, and that structure — which is unusual if not unique in this country — puts it into conflict with the Volcker rule. Insurers, by their nature, invest in diversified portfolios of stocks and bonds, which is an activity which looks very much like prop trading if you’re a bank. Since the Volcker rule would ban prop trading at banks, USAA is worried that it will fall foul of it.

But I’m not a fan of USAA’s reaction to this legislative threat. The CEO has sent out an alarmist message to all of USAA’s members, which is very light on specifics and which doesn’t even mention the word “insurance”.  I doubt that one member in 100 understands what he’s talking about when he writes that “the current Senate bill would disproportionally impact USAA because we are a unique and fully integrated association”. A follow-up blog entry isn’t much clearer.

The result is predictable, and can be seen in the comments at USAA.com:

It looks as though the government is taking control of all of us. Our freedom is going down the drain quickly.

I am for less government control. It is not good and nothing good will become of it. Let’s pray for deliverance from this evil.

The fact is that this entire issue could probably be addressed pretty easily by tweaking USAA’s corporate structure and making the insurer a different company to the bank. They could still cross-sell each others’ products, they just wouldn’t be liable for each others’ losses. It’s the sort of thing which makes quite a bit of sense even without the Volcker rule.

But instead of being constructive and helpful, USAA is being opaque and obstructive. I would have hoped for better from them.

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