Regulators are poised to target non-bank firms that are deemed to be potential risks to the U.S. financial system.
After the nearly $182.3 billion bailout of AIG, regulators want to impose more rigorous regulations on firms posing a potential risk to the U.S. financial system. Potential firms targeted by the FCOC include AIG, GE Capital, Metlife, and Prudential Financial.
The Financial Stability Oversight Council (“FSOC”) plans to request confidential information from several non-bank firms later this month. The information would be used in deciding whether the firms are “systematically important,” a designation that would subject the firms to a regulatory regime similar to the one imposed on banks.
The council, which includes the heads of the Federal Reserve, Securities and Exchange Commission, Federal Deposit Insurance Corp., and Commodity Futures Trading Commission, is expected to request details on a firm’s financial relationships with other companies.
In addition to analyzing financial relationships, the council is expected to deem companies with more than $50 billion in assets as systematically important if they also meet one of the following thresholds: a 15-to-1 leverage ratio; $3.5 billion in derivatives liabilities; $20 billion of outstanding loans borrowed and bonds issues; $30 billion in gross notional credit default swaps outstanding; or a 10% ratio of short term debt to assets.
MetLife CEO Steven Kandarian said on an August 2 conference “We do not believe regulated insurance activities pose systematic risk to the U.S. financial system… In the event that certain insurance companies are named [systematically important financial institutions], the impact is a matter of public debate.”