American International Group is now officially regulated as one of the first two non-banks designated as systemically important.
The Financial Stability Oversight Council officially announced it designated AIG and GE Capital as systemically important financial institutions (SIFIs) pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, says Jacob Lew, Treasury secretary and FSOC chairman, in a statement late June 9.
Prudential Financial has appealed such a designation and the FSOC will hold a closed hearing within 30 days.
The designation, effective Monday night, is in some ways a formality because AIG has been under consolidated supervision of the Federal Reserve Bank of New York as a savings and loan holding company since last August, when it fell below the threshold of having more than 50 percent of its stock owned by the government.
The FSOC designation will bring with it higher standards than mandated for thrift holding companies.
These will include capital standards and other prudential standards, higher liquidity requirements, tighter risk management, concentration limits and a requirement that it create a "living will," a process for liquidating the company if it faces solvency problems.
"Today, the FSOC has taken a decisive step to address threats to U.S. financial stability and create a safer and more resilient financial system," Lew said.
"These designations will help protect the financial system and broader economy from the types of risks that contributed to the financial crisis. The Council will continue to review additional companies in the designations process, to address remaining threats to financial stability."
AIG says it "did not contest this designation and welcomes it."
The decision is historic, because no insurer has been federally regulated for more than 150 years, according to recent testimony by an official of the Congressional Research Service.
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