American International Group dates back to 1919, when American Asiatic Underwriters was founded in Shanghai, expanding through the region, and opening a US office in 1926 and shifting its head office to New York in 1939. It received a US$85 billion bailout in 2008. It subsequently sold assets to raise cash, including its Hong Kong arm, AIA Group, which subsequently raised more than US$20 billion in an IPO.
US risk council designates AIG, GE Capital for tougher oversight
Designation shows that regulators believe both companies so big that their failure could destabilize financial system
The US financial risk council on Tuesday said it has designated American International Group and GE Capital as systemically risky, bringing them under stricter regulatory oversight.
The Financial Stability Oversight Council’s decision to name its first set of “systemically important” non-bank firms had been long expected by the financial services industry.
The designation shows that regulators believe the two companies are so big their failure could destabilize the financial system. The firms now come under regulation by the Federal Reserve and must meet capital and other requirements.
“These designations will help protect the financial system and broader economy from the types of risks that contributed to the financial crisis,” said Treasury Secretary Jacob Lew, who also leads the oversight council.
The risk council, which includes the heads of other financial regulatory agencies, is a relatively new federal body that is testing its powers under the 2010 Dodd-Frank financial reform law for the first time.
After a number of non-bank firms struggled during the 2007-2009 financial crisis, Dodd-Frank gave the regulatory council the power to identify potentially risky non-bank firms and regulate them more like banks.
The first set of designations will not come as a surprise to the financial services industry. AIG in particular was expected to be tagged ‘systemically important’ after it received a crisis-era bailout amid fears its size and interconnectedness could bring down the financial system.
AIG and GE Capital chose not to fight the group’s efforts to bring them under tougher regulatory scrutiny.
“AIG did not contest this designation and welcomes it,” the company said in a statement on Tuesday.
Russell Wilkerson, a spokesman for GE Capital, which is the financial services arm of General Electric, said the company had been prepared for the council’s decision.
“We have strong capital and liquidity positions, and we are already supervised by the Fed,” he said.
The oversight group does not name companies under consideration for this designation until it makes a final decision, but AIG and GE Capital had previously disclosed that the council had proposed declaring them systemically risky.
Prudential Financial had also disclosed that the council had proposed designating it as systemically risky, but the company last week said it would contest the proposal by asking for a hearing before the regulatory group.
The council said on Tuesday it would hold a written and oral hearing for a nonbank firm, but it did not name the company. Prudential declined to comment on Tuesday.