July 3, 2013 12:11 am

Prudential appeals stricter Fed oversight

Prudential Financial has appealed against US regulators’ decision to brand it a “systemically important” institution, a designation that comes with increased capital requirements and oversight from the Federal Reserve.

The second-biggest US insurance group said in a regulatory filing on Tuesday that it had “provided notice” to the Financial Stability Oversight Council requesting a private hearing “to contest the council’s proposed determination”.

AIG, the insurance group, and GE Capital, the finance arm of General Electric – the other two financial groups named in the first round of designations – said they would not appeal against the regulators’ ruling.

The FSOC, comprising the heads of the major regulators and chaired by the Treasury secretary, was set up under the 2010 regulatory overhaul. One of its main tasks is to identify financial groups other than the largest banks, which are automatically deemed systemically important, which could pose a risk to the financial system.

Prudential said when the first proposed designations were unveiled last month that it was considering challenging the determination. AIG had previously said it can live with it. GE Capital had not commented.

Both AIG and GE Capital have long been the posterchildren for the programme, which aims to impose on the riskiest “non-bank” financial groups similarly tough standards of capital, liquidity and supervision as are required of big banks.

Both got into distress during the financial crisis, with AIG requiring a $182bn bailout from the US government, and GE Capital tapping government debt guarantees as its access to credit dried up.

Prudential and other insurers, such as MetLife, have protested, arguing in meetings with government officials and in some public comments that they are not as risky as Wall Street banks, or the AIG of 2008 and do not warrant the same standards of oversight.

Even after the council examines all possible companies and appeals are exhausted, there is not a fixed list. Companies can be added or removed every year. Uncertainty also governs what happens to the designated companies as rules have not been finalised. But the Fed has proposed minimum capital levels and a limit on credit with a single counterparty, part of an attempt to stop the domino effect of distress that was seen in 2008.

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