The U.S. Treasury’s Financial Stability Oversight Council Tuesday rescinded its determination that GE Capital Global Holdings is too big to fail.
According to the announcement, the FSOC pulled its determination that “material financial distress at [GE Capital] could pose a threat to U.S. financial stability” and decided that the firm should be subject to supervision by the Federal Reserve System and enhanced prudential standards.
The FSOC originally designated GE Capital in July 2013, and since then the company has “executed significant divestitures, transformed its funding model, and implemented a corporate reorganization,” according to statement. “As a result, the company is a much less significant participant in U.S. financial markets and the economy” and, therefore, does not pose a significant threat for bailout the way it once did.
In 2008, the FDIC backed $139 billion in capital debt for GE; a year ago, the embattled company announced it would dismantle much of its financial services and sell off most of GE Capital, a $500 billion lending business at the time. According to the Treasury, GE Capital was a significant source of credit to the U.S. economy, “providing financing to more than 243,000 commercial customers, 201,000 small businesses through retail programs, and 57 million consumers.”
“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.”
Treasury Secretary Jacob Lew
After selling off nearly $168 billion of an intended $200 billion in assets, GE’s impact on U.S. financial markets has been greatly minimized.
“Today’s decision clearly demonstrates that the Council’s designation of nonbank financial companies is a two-way process,” said Treasury Secretary Jacob Lew. “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.”
Treasury’s decision somewhat flies in the face of its plan to fight the removal of the “significantly important financial institutions,” or SIFI, designation from MetLife. Judge Rosemary Collyer, in the U.S. District Court in the District of Columbia, recently ruled in a sealed opinion that the SIFI tag should be removed from MetLife, stating that the government body that applied the designation used a “fatally flawed” process.
Treasury disagreed and plans to appeal the decision.
MetLife had sued the FSOC in January 2015 to have the SIFI designation removed, because as a nonbank SIFI, MetLife said it would be subject to heightened regulation which the company says will increase compliance costs, hence increasing costs to consumers without any added safety benefit for the financial system.