U.S. financial regulators discuss labeling nonbank firm ‘too big to fail’

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By Lisa Lambert | WASHINGTON

WASHINGTON The Financial Stability Oversight
Council, made up of all major U.S. financial regulators, met
late Thursday afternoon and reviewed its designation of a
nonbank firm as “too big to fail,” according to a statement from
the Treasury Department.

While the statement did not name the firm, only three
nonbank companies are labeled “systemically important financial
institutions,” (SIFIs) a designation that triggers tougher
oversight and requires firms to hold more capital.

According to a source familiar with the meeting, the council
discussed rescinding the firm’s designation, but no decision has
been made.

The council analyzes its designations each year to see if
they are still relevant, but the Thursday discussion stood out
because it was the first meeting chaired by newly confirmed
Treasury Secretary Steven Mnuchin. During his confirmation
hearing, Mnuchin said he would like to review the council’s
work. President Donald Trump has said he wants to cut a lot out
of the 2010 Dodd-Frank Wall Street reform law that created the
council and the designations.

“The council discussed the ongoing annual reevaluation of
its designation of a nonbank financial company, including the
review of materials submitted by the company and engagement with
the company,” according to the statement.

One of the three, insurer American International Group, received a $182 billion government bailout during the
2007-09 financial crisis, which led lawmakers to include the “too big to fail” label for nonbanks in Dodd-Frank.

The others are Prudential Financial and MetLife Inc
. A judge last year struck down the designation of
MetLife, and the government is appealing the decision.

Of late, AIG has been selling assets and reducing its size,
raising the possibility it will follow in the footsteps of
General Electric Co, which last year persuaded the
council to remove its systemically important label by shedding
its capital unit and many of its ties to the financial system.

Billionaire activist investor Carl Icahn, currently advising
Trump on federal regulation, had pressed AIG to become a leaner
company in order to lose the SIFI designation. After Trump’s
surprise election win in November, Icahn said AIG was still
undervalued, but doing better after the asset sales. He also
said some Dodd-Frank measures went too far.

AIG last week said in an annual filing that the label
creates “considerable uncertainty” for insurers. (Additional reporting by Suzanne Barlyn in New York)

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