GE Capital, the financial arm of conglomerate GE, no longer poses enough of a threat to the financial system that it needs to be regulated like a bank, federal regulators announced Wednesday.
The Financial Stability Oversight Council, the supergroup of regulators empowered to identify financial risks and regulate non-banks, said Wednesday morning that had voted Tuesday to remove the “systemically important financial institution” label from GE Capital, the finance arm of GE.
The announcement comes three months after the company requested to be removed from the list after it effectively broke itself up.
Treasury Secretary Jack Lew, the head of the Council, said in a statement that the rescission of the label proves that the government’s power to identify firms as “systemic threats” is a “two-way street,” meaning that the companies can get off the list if they reduce their risk profile.
“The Council will remove a designation when that company no longer poses risks to U.S. financial stability,” Treasury Lew said. “The Council follows the facts: When it identifies a company that could threaten financial stability, it acts; when those risks change, the Council also acts.”
In a statement provided to the Washington Examiner, GE Capital CEO Keith Sherin said that the decisions “is a result of the transformation of GE Capital into a smaller, safer financial services company that meaningfully contributes to the success of GE’s industrial businesses.” The company claimed that it had signed agreements to sell $180 billion worth of business lines since announcing in April that it would slim down.
With GE Capital’s de-designation, there are only three non-banks remaining that have been named systemically important.
One is American International Group, the insurance company at the heart of the 2008 crisis. Another is Prudential Financial. The third is the insurer MetLife, which has challenged the Council’s decision to designate it in federal court and won. The government has appealed the decision.
The Council’s power to name any firm “systemically important” is one of the more controversial authorities given to regulators in the 2010 Dodd-Frank financial reform law, passed in response to the financial crisis.
Members of Congress, including Democrats as well as Republicans, have raised concerns that the regulators do not act with enough transparency, and that they don’t give firms the ability to change their operations and increase their safety in order to avoid the heightened regulation. Republicans, in particular, have said that the label amounts to an admission that a particular firm is “too big to fail” and would be in line for a taxpayer bailout if it failed.
Meanwhile, one defender of the 2010 law said that Wednesday’s announcement indicated that the law is “working as designed both for taxpayers and for the financial system.”
“Contrary to the nonstop, hysterical claims of industry and its political allies, FSOC has been thorough, deliberative, and fair throughout the designation process, focusing carefully on a rigorous data-driven analysis and clear systemic threats,” said Dennis Kelleher, head of the nonprofit group Better Markets that advocates tighter financial regulations.
In deciding to remove the systemically important label from GE Capital, the Council cited the business’ smaller size and reduced reliance on short-term loans. It also published a 23-page explanation of the decision.
