GE aims to lose ‘too big to fail’ label

March 31, 2016 8:35 pm Published by

GE Capital aims to lose ‘too big to fail’ status

  • 31 March 2016
  • From the section Business

GE logoImage copyright
Getty Images

General Electric’s financing arm – GE Capital- has asked regulators to remove it from the list of institutions deemed “too big to fail” after having shrunk the size of its business.

GE said it no longer posed “any conceivable threat to US financial stability”.

US regulators labelled GE Capital a systemically important financial institution (SIFI) in 2013.

SIFIs fall under stricter regulations to protect the financial system.

The label is given by a group of US regulators – known as the Financial Stability Oversight Council- which includes the US Treasury Department and Federal Reserve.

Most SIFIs are banks such as JP Morgan and Citigroup, but the FSOC has labelled a number of institutions in this category, including insurance firms and non-bank lenders.

A spokesperson from the US Treasury Department said in a statement, “The council’s authority to designate nonbank financial companies is a critical tool to address potential threats to financial stability.”

The spokesperson said there was a “clear process for de-designation” but gave no timeline for addressing GE’s application.

Image copyright
Getty Images

The “too big to fail” label

The SIFI designation was developed as part of the 2010 Wall Street reforms, after the US public was forced to bailout Wall Street banks and insurer AIG.

The label is given to institutions whose collapse could have a significant impact on the financial system and the economy. It requires them to hold excess funds to protect against a collapse.

The government argued that because insurance firms and non-bank lenders have ties to many other financial institutions and hold large amounts of financial obligations, their collapse could be detrimental to the US economy.

GE announced in April 2015 that it would be reducing the size of GE Capital and focusing on industrial and manufacturing financing.

“Our plan to change our business model, shrink the company and reduce our risk profile has been successful,” said GE Capital chief executive, Keith Sherin.

“We believe GE Capital no longer meets the criteria to be designated as a SIFI and we look forward to working co-operatively and constructively with the FSOC through the rescission process,” he said.

On Wednesday, US insurance firm MetLife won a court battle to remove its “too big to fail” label.

MetLife filed a lawsuit in 2015 arguing the regulators had violated their own rules when it placed the insurer in the same category as large banks.

“From the beginning, MetLife has said that its business model does not pose a threat to the financial stability of the United States. This decision is a win for MetLife’s customers, employees and shareholders,” Steven Kandarian, MetLife’s chief executive said in a statement.

The decision was a blow to regulators and could mean more non-bank SIFIs appeal against the “too big to fail” tag in court, rather than reducing their size like GE.

The Treasury Department said on Wednesday that it “strongly disagreed” with the judges decision.

“We are confident that FSOC’s determination was lawful and will continue to defend the Council’s designations process vigorously,” a spokesperson said.

Categorised in:

This post was written by FSB News