FSOC Rescinds "Systemically Important" Designation of GE Capital
Commentary by Steven Lofchie
The Financial Stability Oversight Council ("FSOC") voted unanimously to rescind its determination that GE Capital Global Holdings, LLC ("GE Capital") is a systemically important financial institution ("SIFI"). GE Capital was designated a SIFI in 2013. It was one of four nonbank financial companies to receive that designation.
The Dodd-Frank Act requires FSOC to review each of its nonbank financial company determinations annually. On March 31, 2016, GE Capital submitted a written request to FSOC to have its designation as a SIFI rescinded. In April and May of 2016, FSOC staff members and member agencies met with GE Capital to review and engage in follow-up discussions concerning the designation.
In a publicly issued explanation for the rescission, FSOC asserted that GE Capital completed the following actions since its initial designation as a SIFI: (i) divested roughly $272 billion of assets (resulting in a decrease of over 50%), (ii) reduced its use of short-term funding by 86% (mostly by limiting its reliance on issuing commercial paper), and (iii) implemented a corporate reorganization that would facilitate a more orderly liquidation. FSOC also noted GE Capital's decreased interconnectedness with large financial institutions. As a result of the actions, FSOC found that the company is a "much less significant participant in the U.S. markets and the economy."
U.S. Treasury Secretary Jacob J. Lew commented:
Today's decision clearly demonstrates that the Council's designation of nonbank financial companies is a two-way process. The Council will remove a designation when that company no longer poses risks to U.S. financial stability.
Commentary
FSOC deserves credit for rescinding its original SIFI designation. It should specify fully the criteria used for the determination and the removal of its designation, as well as the procedures involved in making it. Notwithstanding this action taken by the FSOC, Congress should revisit the provisions of Dodd-Frank that established the designation process, and should reconsider whether it was good government to grant such open-ended authority to a regulatory agency in the first place.
Related Articles
-
The Financial Stability Oversight Council and several amicus curiae urged the D.C. Circuit to reverse the decision by a lower court that removed FSOC's designation of MetLife, Inc. as a systemically important financial institution subject to prudential supervision by the Federal Reserve.
-
GE Capital urged the Financial Stability Oversight Council to rescind its designation as a nonbank Systemically Important Financial Institution due to its "complete transformation" into a "smaller, simpler and less interconnected" company.
-
-
In accordance with its authority under Title I of the Dodd-Frank Act, the Financial Stability Oversight Council ("FSOC") designated two nonbank financial companies for consolidated supervision and enhanced prudential standards by the Federal Reserve Board of Governors.