Financial Stability Oversight Council Votes AIG, Prudential are Non-Bank Systemically Important Financial Institutions
Jun 4, 2013
The Financial Stability Oversight Council met yesterday, June 3, 2013, on whether to designate AIG and Prudential as non-bank systemically important financial institutions (SIFIs) pursuant to the Dodd-Frank Act of 2010. GE Capital was also considered for the same designation.
Following is a comprehensive report on the meeting from LifeHealthPro.com.
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Insurers both acknowledge receipt of the proposed determination
By Elizabeth D. Festa and Arthur D. Postal
The Financial Stability Oversight Council (FSOC) voted today on whether to designate two insurers as systemically important financial institutions (SIFI) in the first-ever vote for nonbank SIFIs under the 2010 Dodd-Frank Act.
The three companies up for a vote were AIG, Prudential Insurance and GE Capital. Treasury does not comment on the companies or publically name them at this stage of the process. However, the companies themselves are free to disclose if they are named.
“As noted in the Council’s interpretive guidance, the Council does not intend to publicly announce the name of any nonbank financial company that is under evaluation before a final determination is made,” stated Treasury Spokesperson Suzanne Elio.
AIG acknowledged late today that it received notice from the U.S. Treasury that the FSOC has made a proposed determination that it is a SIFI institution pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Prudential Financial, confirmed it also received notice of a proposed determination that it should be subject to stricter prudential regulatory standards and supervision by the Board of Governors of the Federal Reserve System.
Prudential is currently evaluating whether to request a nonpublic evidentiary hearing before the Council to contest the proposed determination, as it is entitled to do under the applicable regulations, it stated.
“If the Company is designated by the FSOC as a Covered Company, it could be subject to stricter prudential standards under the Dodd-Frank Act, which may include requirements regarding risk-based capital and leverage, liquidity, stress-testing, overall risk management, resolution plans, early remediation, and credit concentration; and may also include additional standards regarding capital, public disclosure, short-term debt limits, and other related subjects as appropriate,” Prudential advised in a statement.
The ball is now in the companies’ courts, and the clock will begin on a final determination today.
The historic vote could set some insurers on a course where they will be not only regulated by the Federal Reserve, as some thrift holding company insurers already are, but put them in a class separate from their competitors, where different rules and expectations from all stakeholders apply, changing the market, regulatory world and perhaps the products sold from what it has experienced up until now.
The Council is made up of 10 voting members and five nonvoting members. Two of the nonvoting members are insurance-related positions. The third insurance position, the insurance expert confirmed by the Senate, votes along with the chairs of financial services agencies.
Treasury Secretary Jacob J. Lew, the chairperson of the FSOC stated, “The Council has made significant progress over the last two years in making our financial system safer, stronger and more resilient. Today, 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.”
Once an insurer comes under the SIFI umbrella, it is then subject to enhanced prudential standards from the Federal Reserve, its new regulator. These rules have been proposed but not finalized and insurers have said they are not sure what the capital standards will be under a Fed regime.
The insurers also might be subject to strict Basel III minimum capital requirements unless insurers are able to get a fix for a seemingly intractable part of the Dodd-Frank statute, Section 171, which would apply strict minimum capital requirements for banks upon any nonbank SIFIs.
There are a few scenarios that could play out. All votes pass on two-thirds vote, including the vote of the FSOC chairperson, the Treasury secretary. Lew has testified recently that he plans to get moving on all facets of Dodd-Frank implementation.
If a company does not request a hearing and says it is okay with the designation, the FSOC has 10 days to make a final determination. Thus, if a company responds that it is okay with the SIFI mantle as early as tomorrow, June 4, there could be a final SIFI designation made by June 14, or even before, if FSOC wants to really get down to business.
FSOC members do not have to be present in a room at Treasury to vote.
A company could receive a proposed designation and request a hearing. It must do so within 30 days of today. The FSOC must hold a hearing within 30 days of the request. The FSOC will then have 10 days to make a final determination. Thus, a request for a proposed hearing for June 4 would require a hearing by July 4. A hearing request made July 3 would give FSOC until early August to grant one.
If a company stays silent, the FSOC will make a final determination within 10 days, after the clock runs out on the hearing request time frame of 30 days.
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