WASHINGTON – U.S. regulators have labeled insurer American International Group Inc. and General Electric Co.’s finance arm as potential threats to the financial system, designations that bring stricter government oversight.
The Financial Stability Oversight Council on Tuesday announced the two companies would be the first to be designated “systemically important.” As a result, they must increase their cushion against losses, limit their use of borrowed money and submit to inspections by examiners.
The companies did not challenge the designation. A third company, which wasn’t named but appears to be Prudential Financial Inc., was granted a hearing on its status.
AIG received a $182 billion taxpayer-funded bail-out during the financial crisis, the largest for a single company. It has since repaid the bailout. The government offered to insure up to $139 billion of GE Capital’s debt during the crisis.
Members of the council, a group of top regulators, include Federal Reserve Chairman Ben Bernanke and Treasury Secretary Jacob Lew.
Nonbank financial firms include insurers, hedge funds, mutual fund companies and private equity firms.
The council last month proposed that several companies, which it didn’t name, be tagged as potential threats. AIG, GE Capital and Prudential Financial Inc. said at the time that they were among the companies, and Prudential said it was considering whether to request a hearing before the council to contest the proposed designation.
“Today the council has taken a decisive step to address threats to U.S. financial stability and create a safer and more resilient financial system,” Lew said in a statement. He said the group will continue to review companies for possible designation as systemically important.
New York-based AIG, whose primary regulator will be the Federal Reserve, said in a statement that it “did not contest this designation and welcomes it.”