AIG Opts Against Contesting Systemic-Risk Designation
American International Group Inc. (AIG), the first non-bank to disclose it’s under consideration to be labeled a potential risk to the financial system, said it won’t contest such a designation, which could lead to tighter capital rules.
“In fact, we welcome supervision by the Federal Reserve,” Chief Executive Officer Robert Benmosche said in a Nov. 1 letter to the office of the Financial Stability Oversight Council.
Federal regulators are evaluating which non-banks should be subject to additional oversight as systemically important financial institutions to prevent a repeat of the bailouts that were undertaken in 2008 to stabilize the economy. Benmosche has scaled back risk and sought to assure investors, clients and regulators that AIG is better able to weather a downturn.
“AIG today is remarkably smaller in size, far less complex, and operates with a markedly improved risk profile compared to 2008,” Benmosche said in the letter. “We have had extraordinary success in de-risking our business.”
AIG received a rescue in 2008 that swelled to $182.3 billion to prevent the firm from collapsing amid the financial crisis. The New York-based insurer is still 16 percent owned by the U.S., which has recouped the cost of the bailout. Jim Ankner, a spokesman for the insurer, declined to comment.
Prudential Financial Inc. (PRU), the second-largest U.S. life insurer, and General Electric Co.’s finance arm are also under review to be designated systemically important. The oversight council can still consider other companies.
MetLife Inc. (MET), the largest U.S. life insurer, is already regulated by the Fed because it owns a deposit-taking institution. It’s seeking to exit banking to end the oversight, and could be named a non-bank SIFI after exiting the industry. Neither MetLife nor Prudential received funds from the Treasury’s Troubled Asset Relief Program.
Benmosche said in the letter that oversight should be tailored to insurance companies and take account of state regulation of insurers that’s already in place. It’s not clear what capital requirements the Fed may impose, David Herzog, AIG’s chief financial officer, said on a Nov. 2 conference call.
Prudential is having “really constructive dialogue with our regulators around the significant differences between insurance and banks,” CFO Richard Carbone said on a Nov. 8 conference call with analysts. “Unfortunately, we can’t predict the outcome on the regulatory front, particularly around the nonbank SIFI impact.”
The oversight council was created in the aftermath of the crisis under the Dodd-Frank law and evaluates leverage and derivative liabilities of firms with more than $50 billion in assets. Bank holding companies with more than $50 billion in assets -- including Bank of America Corp., JPMorgan Chase & Co., Morgan Stanley, Goldman Sachs Group Inc., Wells Fargo & Co. and Citigroup Inc. -- are automatically subject to heightened Fed supervision under Dodd-Frank.