WASHINGTON, D.C. — Today, U.S. Representative Ed Royce (R-CA) released the following statement after joining Representatives Blaine Luetkemeyer (R-MO), and Dennis Ross (R-FL) in introducing H.R. 5381, the Government Risk and Taxpayer Exposure Reduction (GRATER) Act which reduces the risk of bailing out federal government programs by encouraging prudent risk management by agency and department heads:
“Too often, American taxpayers are on the hook for government failures. However, recent examples of federal de-risking have shown that this doesn’t have to be the case. In the past several years, the government saved billions of dollars by transferring taxpayer risk off of its balance sheet for programs like the National Flood Insurance Program. Instead of taxpayers paying for all the damage, private reinsurance covered over $1 billion in losses from Hurricane Harvey.
“There is a ready market for the federal government to build on successful precedents and extend de-risking to more federal programs, such as export financing, U.S. aid, agricultural credits, and housing finance programs.”
The full bill text of the GRATER Act can be found HERE.
The GRATER Act directs the Office of Management and Budget to identify areas of the federal balance sheet where de-risking could be used to protect taxpayers from future bailouts. This legislation builds on previous examples of successful government de-risking.
In 2012, FHFA initiated a credit risk transfer program with the goal of reducing Fannie Mae and Freddie Mac’s overall risk. Using global capital and reinsurance markets, Freddie and Fannie have transferred almost $10 billion of taxpayer risk, while the figures from the reinsurance industry support the notion that the private sector could take up to $80 billion.
As a result of the reauthorization of the National Flood Insurance Program, FEMA and the NFIP were required to buy $1 billion of reinsurance in what was essentially a pilot program. Unfortunately, hurricanes generated a large number of insured losses in 2017 and early reports are that taxpayers will recover eighty-five cents per dollar spent on reinsurance at NFIP.
Analysis by Aon Benfield, a global reinsurer, has estimated that there currently is an estimated $605 billion in reinsurance capital and capacity available to meet the demand for derisking and other purposes worldwide. A recent white paper by a former U.S. Treasury official, Greg Wilson, found that derisking not only protects taxpayers from future losses, but also reduces systemic risk, and enables federal agencies to meet their statutory objectives more efficiently.