AIG, Prudential named systemically important by U.S. panel

Taxpayer Risk

The council’s move puts taxpayers at “greater risk of being forced to fund yet another Wall Street bailout,” Jeb Hensarling, a Texas Republican, said in a statement. “Designating any company as ‘too big to fail’ is bad policy and even worse economics.”

AIG Chief Executive Officer Robert Benmosche told the council in November that the insurer wouldn’t oppose designation. Regulators are working to prevent a repeat of 2008 bailouts such as AIG’s by subjecting some firms to added oversight. AIG received a rescue that swelled to $182.3 billion after bets on housing soured amid the financial crisis. The insurer finished repaying the U.S. in December.

GE Capital, based in Norwalk, Connecticut, is a savings-and-loan holding company regulated by the Fed. It had $538 billion of assets at the end of last year, making it larger than all but six U.S. banks, Fed data show. It sold $32.1 billion of bonds in the U.S. last year, more than any other company, according to data compiled by Bloomberg.

Credit Dwindled

General Electric CEO Jeff Immelt pledged to shrink GE Capital after its access to credit dwindled in the wake of Lehman Brothers Holdings Inc.’s 2008 bankruptcy. He has since exited businesses such as Irish mortgage lending and sold Canadian real estate holdings.

Immelt cut GE’s dividend for the first time since the Great Depression and tapped Warren Buffett’s Berkshire Hathaway Inc. for a $3 billion investment to stabilize the company as the finance unit struggled. GE Capital sold $59 billion of bonds backed by the Federal Deposit Insurance Corp. and tapped the Fed’s Commercial Paper Funding Facility to issue $16 billion in short-term debt.

MetLife Inc., the largest U.S. life insurer, wasn’t included in the final stage of review with AIG, Prudential and GE Capital because it was already regulated by the Fed due to its size and ownership of a deposit-taking institution. The New York-based insurer sold its deposits to end the oversight, and said it could eventually be named a systemically important financial institution, or SIFI.

Regulating Insurers

U.S. insurers are overseen by state regulators. The Fed hasn’t yet written final rules for oversight of non-bank SIFIs, so it’s not clear what the designation will require, Ed Mills, an analyst at FBR Capital Markets, wrote in a research note. The Fed will probably tailor the regulations to insurers, rather than using rules written for banks, he said.

Dodd-Frank puts bank-holding companies with more than $50 billion in assets, such as Bank of America Corp. and Wells Fargo & Co., under increased Fed supervision. It gives the council the responsibility to decide which non-bank financial companies warrant heightened Fed supervision.

<< Page 2 of 2

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome