American International Group Inc., Prudential Financial Inc. and a unit of General Electric Co. were identified by U.S. regulators as potential risks to the financial system in a step toward putting the firms under tighter government scrutiny.
AIG and Prudential, in statements issued yesterday after a meeting of the Financial Stability Oversight Council, said they were notified of the proposed designations. Russell Wilkerson, a spokesman for GE Capital, said in an e-mail that his company also received a notice.
The council didn’t identify the companies it decided should be subjected to heightened Federal Reserve oversight. AIG, Prudential and GE Capital had previously said they were in the final stage of review.
“The council took another important step forward by exercising one of its principal authorities to protect taxpayers, reduce risk in the financial system and promote financial stability,” Treasury Secretary Jacob J. Lew said in a statement.
Prudential, the second-largest U.S. life insurer, said it is evaluating whether to appeal the decision. AIG previously said it wouldn’t oppose such a ruling.
The vote marks the first time the council, which is led by Lew and includes Fed Chairman Ben S. Bernanke, has designated companies systemically important, meaning they could pose a risk to the broader financial system if they were to fail. The panel was created by the Dodd-Frank law three years ago to help prevent another financial crisis.
Shares of AIG increased 0.6% to $45.03 at 10:06 a.m. in New York, Prudential gained 0.8% to $70.14 and General Electric rose 0.1% to $23.67.
Designated companies have 30 days to appeal. The council’s final vote will take place after the companies have a chance to challenge. The council, or FSOC, doesn’t release company names until the final designation is made, in part because of “the potential for market participants to misinterpret such an announcement,” according to the council’s rules.
“The number of firms that will be affected is very limited,” Stephen Myrow, managing director at Washington-based ACG Analytics Inc., said in a phone interview. “Those firms had plenty of time to prepare for the consequences.”
Myrow, a former Treasury official under the George W. Bush administration, said “it’s too optimistic to think that we’re going to prevent future crises, but the goal is to mitigate the consequences of those.”
The panel’s decision was criticized by the chairman of the House Financial Services Committee.
Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.