Regulators propose new oversight of AIG, Prudential

in In the News
June 3rd, 2013

Regulators on Monday proposed designating non-bank financial companies including American International Group and Prudential Financial for heightened regulatory oversight.

From Reuters
By Emily Stephenson
June 3, 2013

A group of regulators known as the Financial Stability Oversight Council said it had voted to propose dubbing certain companies “systemically important,” or so big their failure could destabilize financial markets, in a long-anticipated and controversial move aimed at cracking down on risks.

Regulators did not name the companies involved. AIG and Prudential both issued statements on Monday saying they had been notified that the risk council had proposed designating them.

A final determination by the council that a firm is systemically important would trigger extra regulatory scrutiny by the Federal Reserve…

The 2010 Dodd-Frank law created the risk council and gave it the power to bring big, non-bank firms under the Fed’s oversight after several such companies flirted with failure or had to be bailed out during the 2007-2009 financial crisis.

Companies tagged for extra oversight would have to participate in regular stress tests, comply with new capital requirements and write living wills, or blueprints for how they could be taken apart if they were to fail.

The risk council has so far designated eight large clearinghouses and other firms that handle trillions of dollars in transactions as systemically important.

Observers have been expecting a new round of designations for months. Members of the risk council initially said they hoped to designate non-bank companies by the end of 2012…

“It’s almost three years since they enacted the statute and, you know, if these were truly institutions that are menacing to the system, which is what they are supposed to be, then it seems like we should have known it more than three years late,” said Cornelius Hurley, a professor of banking law at Boston University.

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