AIG no longer systemically important institution
The Financial Stability Oversight Council (Council) said on Sept. 29 that it has rescinded its determination that material financial distress at American International Group (AIG) could pose a threat to US financial stability and that AIG shall be subject to supervision by the Board of Governors and enhanced prudential standards.
“The Council has worked diligently to thoroughly re-evaluate whether AIG poses a risk to financial stability,” said Treasury Secretary Steven Mnuchin.
“This action demonstrates our commitment to act decisively to remove any designation if a company does not pose a threat to financial stability.”
AIG CEO Brian Duperreault commented: “I welcome the decision by the Financial Stability Oversight Council to rescind AIG’s SIFI designation. The Council’s decision reflects the substantial and successful de-risking that AIG’s employees have achieved since 2008. The company is committed to continued vigilant risk management and to working closely with our numerous regulators to enable a strong AIG to continue to serve our clients.”
Research firm CreditSights noted that it had regarded the non-bank systemically important financial institution (SIFI) designation as credit positive for AIG. However, the Federal Reserve and associated rulemaking bodies had never put forward any substantial rules for SIFIs. In addition, CreditSights analysts said that with the change to the Trump administration, the likelihood of meaningful capital standards, enhanced liquidity requirements, stress testing scenarios, or other regulations became less likely.
AIG’s efforts to de-designate as a SIFI was supported by its significant reduction in total assets since the financial crisis. AIG reported total assets of around $500 billion as of the second quarter of 2017, down from more than $1.0 billion at the end of 2007. Prudential, MetLife and Berkshire are larger publicly traded US insurers than AIG in terms of total assets. At this point, Prudential is the last remaining non-bank SIFI, according to the CreditSights report.
The original idea of a non-bank SIFI envisaged to regulate the affected companies on a holding level. Under current US insurance regulation, insurers are only regulated at the operating company level by the state in which an individual insurance operating company is domiciled.
AIG is a prime example of the potential shortcomings of the current regulatory framework, the analysts noted. In the case of AIG, state insurance regulators had no authority over AIG’s financial products business. Ultimately, it was activities at the unregulated financial products group that caused the near collapse of the company.
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