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U.S. Fed plans enhanced capital standards for GE unit

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(Reuters) — The U.S. Federal Reserve on Tuesday proposed to impose tougher capital standards on General Electric's finance unit, one of a handful of non-bank firms deemed critically important to the health of the financial system.

The Fed is also working on capital standards for two large insurance companies that have been designated as systemically important, American International Group Inc. and Prudential Financial Inc., an issue that is closely watched by the industry.

The proposed standards for GE Capital would be generally similar to those that apply to large banks, the Fed said. The proposal was open for public comment for a period of 60 days.

The 2010 Dodd-Frank Wall Street reform act automatically designated banks with more than $50 billion in assets as “systemically important financial institutions.”

But it also gave the Financial Stability Oversight Council the power to tap financial firms that are not banks, if they are so big and risky that their activities could destabilize U.S. markets.

“GE Capital has been preparing for the enhanced regulatory standards provided for in the Dodd-Frank Act,” company spokesman Seth Martin said. It had already reduced the size of its balance sheet and expected to submit a comment to the Fed.

GE has said it is seeking to reduce its exposure to the unit, hoping to cut the profit contribution to 25% by 2016, down from about 45% last year.

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