efforts to address life insurers'potential liquidity risks and develop a liquidity stress testing framework for large life insurers through the naic's macro prudential initiative. the primary functional supervisor for insurance companies for which the board is consolidated supervisor is a state insurance regulator. it is just good policy for the authorities that mutually supervise firms to coordinate efforts in order to streamline, seek harmony, and minimize inconsistencies. to that end, in august of 2017, the federal reserve initiated contact with the naic and state insurance supervisors to engage in dialogue with the aim of achieving consistency, wherever possible, between the two capital frameworks under development. we have met frequently and engaged substantively with representatives of the naic and the states. input from the naic and the states has helped identify areas of commonality while remaining respectful of the somewhat different objectives of the relevant supervisory bodies and legal environments. some differences between the board's bba and the naic's gcc may arise. there are reasons for this. the board's mandate includes protection of a federally insured depository institution and the attendant safety - and - soundness objectives. as to a firm's insurance subsidiaries, the states'focus is on policyholder protection, while the board serves as the overall firm's consolidated safety - and - soundness supervisor. the board's capital standard also must comport with federal law for insurance holding companies with depository institution subsidiaries, while the naic's gcc interfaces primarily with state laws. moreover, because of the characteristics of the current population of insurance thrift holding companies, the bba currently would only need to scale between two regimes : the naic's insurance risk - based capital regime and federal bank capital rules. by contrast, the firms to which the gcc may apply can encompass operations in a number of non - u. s. jurisdictions, calling for a much more extensive set of scaling parameters. the naic has announced its plan to conduct a field test of the gcc this spring. likewise, to be transparent, gather additional input, and provide a valuable test of our approach, the federal reserve intends to conduct a quantitative impact study of the bba as part of our rulemaking process. we hope supervised firms will take advantage of this opportunity to contribute valuable information and feedback on our approach. our dialogue with the naic and state insurance regulators has been productive and helpful in the bba's development. moreover

- frank act 9 - - for instance, allowing only instruments meeting the criteria under the board's bank capital rules to qualify as capital for an insurance holding company - - and technical adjustments. aggregation requires a further step after adjustments are applied to each building block, a step that is frequently termed " scaling. " two building blocks under two different capital regimes cannot simply be added together if, as is frequently the case, each regime has a different scale for its ratios and thresholds. the bba proposes to scale and equate capital positions in different regimes through analyzing historical defaults under those regimes. once the insurance holding company's aggregate capital position is calculated, the bba would impose a minimum requirement that is calibrated to be consistent with the board's role to ensure that the risks of the enterprise do not present undue risk to the safety and soundness of the depository institution. our goal with the bba is to capture all material risk of each supervised organization, leverage existing legal - entity standards, and minimize burden. in developing the bba, we have been mindful of the role that the insurance industry plays through its buy - and - hold, long - term approach to investments. a capital standard can have incentive effects, sometimes substantial. a capital standard that uses market - based valuation can 3 / 6 bis central bankers'speeches introduce volatility and procyclicality, and one that is excessively volatile or procyclical can influence a firm to veer away from a long - term perspective and concentrate instead on the short term. this can have undesirable consequences, including diminishing product availability. in contrast, a capital standard that is stable in its valuation, conservative in its design, and appropriately reflective of financial soundness can influence firms to plan for the long term, consistent with the nature of life insurance and retirement products, and similarly invest for the long term through assets like government and municipal bonds, corporate bonds, and infrastructure. moreover, a capital standard like the bba that largely builds on state - based insurance capital standards would tend to reinforce, rather than frustrate, the important role that insurers'investments play in our economy. engagement with the naic in developing the bba, we also have been mindful of the potential interaction with the valuable work of another team usa member, the naic, to develop its group capital calculation ( gcc ). we also applaud the naic's