Feds strip AIG of ‘systemically important’ label, loosening oversight

An interagency group of financial regulators announced Friday that AIG would no longer be subject to stricter federal oversight under a Dodd-Frank Act provision aimed at preventing crisis-causing bank failures.

The Financial Stability Oversight Committee (FSOC) said the insurance and financial services company would no longer be considered a “systemically important financial institution” or SIFI.

Large banks and financial firms that hold more than $50 billion in assets are automatically considered SIFIs and subject to stringent capital requirement and stress tests.

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“The Council has worked diligently to thoroughly reevaluate whether AIG poses a risk to financial stability,” Treasury Secretary Steven Mnuchin said in a statement. “This action demonstrates our commitment to act decisively to remove any designation if a company does not pose a threat to financial stability.”

AIG, whose 2007 collapse helped trigger the ensuing financial crisis and inspired the SIFI label, had long sought to lose the designation.

The company as it stands today is much smaller and insurance-focused than the sprawling company whose risky investments helped lead to the Dodd-Frank regulations on large firms.

FSOC had been considering stripping AIG’s designation for months, but failed to do so at a meeting last week. The panel hastily announced a Friday meeting before they voted 6 to 3 to remove AIG’s designation.

Mnuchin, Federal Reserve Board Chair Janet Yellen, Acting Comptroller of the Currency Keith Noreika, Commodity Futures Exchange Commission Chairman J. Christopher Giancarlo, National Credit Union Administration Chairman Mark McWatters and independent member with insurance expertise Roy Woodall voted to strip AIG’s designation.

Consumer Financial Protection Bureau Director Richard Cordray, Federal Deposit Insurance Corporation Chairman Martin Gruenberg and Federal Housing Finance Agency Director Mel Watt voted to keep the designation. Securities and Exchange Commission Chairman Jay Clayton recused himself from the vote.

AIG was one of two non-bank SIFIs designated by FSOC. Prudential is currently seeking the removal of its SIFI designation, while MetLife is defending a federal court decision to strike down its labeling.