FSOC Meets to Consider Prudential's Challenge to Non-Bank SIFI Designation
July 23, 2013 by Jeff Jeffrey
WASHINGTON – The Financial Stability Oversight Council held a hearing in Washington to consider Prudential Financial Inc.’s challenge to a proposed designation as a non-bank systemically important financial institution.
Prudential was included on a proposed list of non-bank SIFIs earlier this month. However, Prudential requested a hearing, arguing that its businesses do not pose a risk to the U.S. financial system.
The Treasury Department released a statement confirming the hearing but did not name Prudential as the company that requested it. However, Prudential was the only company to say publicly that it intended to challenge the designation after FSOC released its proposed list of non-bank SIFIs earlier this month.
FSOC has 60 days to reach a final decision on Prudential’s non-bank SIFI designation, according to a Treasury Department spokeswoman.
Efforts to reach Prudential for comment were not immediately successful.
To be deemed “significant,” a company must have $50 billion or more in total consolidated assets or have been designated by the FSOC as systemically important (Best’s News Service, April 9, 2013).
FSOC can order companies designated as SIFIs to be placed under the Federal Reserve Board’s supervision if 85% or more of the company’s revenues or assets come from activities covered by the Bank Holding Company Act. The rule allows FSOC to recommend a company’s primary regulator apply heightened regulatory standards to a specific financial activity or practice that it deems to be risky.
Earlier this month, American International Group Inc. became the first insurance company to be designated a non-bank SIFI by the FSOC, making it the first insurance company to be regulated by the federal government in more than a century.
FSOC has also designated GE Capital as a non-bank SIFI, however GE Capital does not have an insurance component (Best’s News Service, June 4, 2013). GE Capital has said previously it will not challenge the designation.
MetLife Inc., the largest life insurance company in the United States, has confirmed that it has reached stage three in FSOC’s process to determine whether it would be named a non-bank SIFI (Best’s News Service, July 17, 2013).
Prudential was also included on the G-20’s Financial Stability Board’s list of global systemically important insurers, which will be subject to additional regulatory oversight and higher capital requirements.
The FSB released July 18 an initial list of G-SIIs that will be subject to additional regulatory oversight and higher capital requirements. The initial list includes Allianz SE; American International Group, Inc.; Assicurazioni Generali S.p.A.; Aviva plc; Axa S.A.; Metropolitan Life Insurance Co. Inc.; Ping An Insurance Company of China, Ltd.; Prudential Financial Inc.; and Prudential plc. (Best’s News Service, July 18, 2013).
The way the two sets of rules are set up, it is possible to be named a G-SII and not be named a SIFI by the FSOC.
The insurance industry has been pushing back against efforts to label individual insurers as systemically important, both in the United States and internationally.
Prudential has an A.M. Best Financial Strength Rating of A+ (superior).
(By Jeff Jeffrey, Washington Bureau manager: jeff.jeffrey@ambest.com)
