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AIG loses ‘too big to fail’ status

Posted On: Sep. 29, 2017 5:54 PM CST

AIG loses ‘too big to fail’ status

The Financial Stability Oversight Council rescinded American International Group Inc.’s “too big to fail” designation by a 6-3 vote on Friday.

The decision comes nine years after the government injected more than $180 billion into the insurer to prevent its collapse amid the financial crisis. AIG was a key player in the credit default swap market and officials feared its collapse would cause spiraling problems with other financial institutions.

Since the crisis, FSOC has held the responsibility of evaluating companies and had designated four nonbank institutions as systemically important financial institutions, including New York-based AIG. Institutions designated as SIFIs are subject to stricter oversight and stricter capital requirements.

But the council said on Friday it has rescinded its determination that material financial distress at AIG could pose a threat to U.S. financial stability and that AIG should be subject to supervision by the Board of Governors and enhanced prudential standards.

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

The move by FSOC is a significant victory for AIG President and CEO Brian Duperreault, who took on the job earlier this year.

“The council’s decision reflects the substantial and successful de-risking that AIG’s employees have achieved since 2008,” he said in a statement on Friday. “The company is committed to continued vigilant risk management and to our working closely with our numerous regulators to enable a strong AIG to continue to serve our clients.”

After selling off numerous assets, AIG repaid the bailout funds in 2012.

Mr. Mnuchin was one of the six council members who voted in favor of lifting the designation. Other votes in favor came from: Chair of the Board of Governors of the Federal Reserve System Janet L. Yellen, Acting Comptroller of the Currency Keith Noreika, Chairman of the Commodity Futures Trading Commission J. Christopher Giancarlo, Chairman of the National Credit Union Administration J. Mark McWatters and Roy Woodall, independent member with insurance expertise.

Voting against were Richard Cordray, director of the Consumer Financial Protection Bureau, Martin J. Gruenberg, chairman of the Federal Deposit Insurance Corporation, and Melvin Watt, director of the Federal Housing Finance Agency.

One Council member, Securities and Exchange Commission Chairman Jay Clayton, was recused and did not participate in the vote.

The rescission drew swift praise from the insurance industry.

“The overwhelming consensus among insurance experts is that traditional insurance activities are not systemically risky,” David A. Sampson, president and CEO of the Property Casualty Insurers Association of America, said in a statement on Friday. “Designating a handful of insurance companies as SIFIs and subjecting them to bank-like federal regulations and capital requirement does nothing to reduce true systemic risk and instead drives up the cost of financial protection products and services.”

Section 113(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires the council to reevaluate its nonbank financial company determinations at least annually.