On July 9, it became official: The Federal Stability Oversight Council designated American International Group (AIG) as a systemically important financial institution (or SIFI), pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. Two more firms—GE and Prudential Financial—were also named as SIFIs. GE will accept the designation, while Prudential has appealed and says it plans to fight the SIFI tag.
Any company designated as systemically important could be subject to higher capital levels and regular stress tests to ensure they can absorb losses, though the specific capital rules for insurers remain far from complete.
While the decision is historic—no insurer has been federally regulated for more than 150 years, according to recent testimony by an official of the Congressional Research Service—the news was a surprise to no one, least of all AIG CEO Robert H. Benmosche, who has been saying since January that he welcomed the designation and understood that government oversight would be a fait accompli for insurers going forward. In a July 2 statement, the insurer said it already had been working closely with the Federal Reserve Bank of New York “as our regulator.”
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