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October 2, 2012 7:09 pm
AIG has said it is under advanced consideration to be labelled as systemically important by US regulators, a widely expected move that would subject the US insurer to extra oversight and more costly financial restrictions.
The insurer said on Tuesday that the Financial Stability Oversight Council, a collection of US financial authorities, informed it that it has advanced to the third stage of a three-step review process that will ultimately determine whether it poses a systemic risk to the US financial system.
At this point, AIG will be asked to supply further information to regulators who may then vote to designate the company as a systemically important financial institution (Sifi). The label would subject AIG to oversight by the Federal Reserve, higher capital and liquidity requirements, and regular stress tests.
US banks with more than $50bn in assets are automatically labelled in this way. Even more stringent requirements apply to the largest of these big banks.
Tim Geithner, US Treasury secretary, has said he hopes the first systemic designation of non-banks would happen by the year’s end. He has previously suggested that AIG and GE Capital, the financing arm of the US conglomerate, may be designated as systemic non-bank groups. GE Capital declined to comment.
Although some companies are trying to lobby US regulators to avoid the systemic designation, Robert Benmosche, AIG chief executive, told the FT earlier this year: “There may be some value to being a Sifi some day – borrowing costs, perception, the strength of an organisation, how well regulated you are.”
The FSOC’s move comes as global regulators are also training their sights on non-banks that could become a source of danger to the broader system.
The Financial Stability Board is working on plans to force “global systemically important” insurers to hold extra capital against their non-traditional insurance businesses. It is also set to report later this year on how best to tame the risks posed by the so-called “shadow banking” sector.
Additional reporting by Brooke Masters in London.
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