By Emily Stephenson
WASHINGTON, July 9 The U.S. financial risk
council on Tuesday said it has designated American International
Group and GE Capital as systemically risky,
bringing them under stricter regulatory oversight.
The Financial Stability Oversight Council's decision to name
its first set of "systemically important" non-bank firms had
been long expected by the financial services industry.
The designation shows that regulators believe the two
companies are so big their failure could destabilize the
financial system. The firms now come under regulation by the
Federal Reserve and must meet capital and other requirements.
"These designations will help protect the financial system
and broader economy from the types of risks that contributed to
the financial crisis," said Treasury Secretary Jacob Lew, who
also leads the oversight council.
The risk council, which includes the heads of other
financial regulatory agencies, is a relatively new federal body
that is testing its powers under the 2010 Dodd-Frank financial
reform law for the first time.
After a number of non-bank firms struggled during the
2007-2009 financial crisis, Dodd-Frank gave the regulatory
council the power to identify potentially risky non-bank firms
and regulate them more like banks.
The first set of designations will not come as a surprise to
the financial services industry. AIG in particular was expected
to be tagged 'systemically important' after it received a
crisis-era bailout amid fears its size and interconnectedness
could bring down the financial system.
AIG and GE Capital chose not to fight the group's efforts to
bring them under tougher regulatory scrutiny.
"AIG did not contest this designation and welcomes it," the
company said in a statement on Tuesday.
Russell Wilkerson, a spokesman for GE Capital, which is the
financial services arm of General Electric, said the company had
been prepared for the council's decision.
"We have strong capital and liquidity positions, and we are
already supervised by the Fed," he said.
The oversight group does not name companies under
consideration for this designation until it makes a final
decision, but AIG and GE Capital had previously disclosed that
the council had proposed declaring them systemically risky.
Prudential Financial had also disclosed that the
council had proposed designating it as systemically risky, but
the company last week said it would contest the proposal by
asking for a hearing before the regulatory group.
The council said on Tuesday it would hold a written and oral
hearing for a nonbank firm, but it did not name the company.
Prudential declined to comment on Tuesday.