FRB Establishes Enhanced Prudential Standards for GECC (with Lofchie Comment)

The Board of Governors of the Federal Reserve System (the "FRB") issued a final order establishing enhanced prudential standards applicable to the General Electric Capital Corporation ("GECC"). GECC is a nonbank financial company designated by the Financial Stability Oversight Council ("FSOC"), for supervision by the FRB. According to the FRB press release, substantial similarities exist between the GECC's activities and risk profile and those of a large bank holding company; accordingly, the enhanced prudential standards that have been imposed are similar to those that are applicable to bank holding companies. However, the FRB requirements also are tailored to reflect the unique characteristics of the GECC and include (1) capital requirements, (2) capital-planning and stress-testing requirements, (3) liquidity requirements, and (4) risk-management and risk-committee requirements.

Effective on January 1, 2016, the GECC must comply with risk-based and leverage capital requirements, the liquidity coverage ratio rule, and related reporting requirements.

Lofchie Comment: If the government believes that it is appropriate to establish a system of regulation that governs nonbanks, then it should adopt a scheme of regulation that applies generally to banks and everyone else. Rules that are developed to fit the "unique characteristics" of a single firm on an ad-hoc basis are inherently inconsistent with the way in which a government operating under the rule of law should work.

See: FRB Press Release.