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The Financial Stability Oversight Council’s proposed changes to the nonbank systemically important financial institution designation process would be credit negative for insurers and asset managers if adopted, according to an official with Moody’s Investors Service.
The FSOC voted unanimously on Wednesday to issue proposed interpretive guidance that would implement an activities-based approach to identifying and addressing potential risks to financial stability and enhance “the analytical rigor and transparency” of the council’s process for designating nonbank financial companies.
The council would also perform a cost-benefit analysis before designating any nonbank financial company and would only designate a nonbank financial company if the expected benefits justify the expected costs of the designation, according to the proposed guidance.
“Requiring a cost/benefit analysis and probability assessment of a company’s financial distress would raise the nonbank SIFI bar so high, that few, if any, companies would be designated, thereby foregoing the benefits of additional U.S. Federal Reserve oversight,” Moody’s Vice President Laura Bazer said in a statement on Friday.
The FSOC’s current process for designating nonbank financial institutions has come under significant criticism.
In October, the FSOC unanimously voted to rescind Prudential Financial Inc.’s “too big to fail” tag, meaning no insurers carry the designation anymore — a decision welcomed by major players in the insurance sector.
The FSOC had designated Newark, New Jersey-based Prudential as a SIFI in September 2013. The council removed the designation for New York-based American International Group Inc. in September and jointly moved for dismissal of the litigation involving New York-based MetLife Inc.’s designation in January.
President Donald Trump will nominate Thomas Workman to be the independent insurance expert on the Financial Stability Oversight Council.