The U.S. Federal Reserve Board has its eye on General Electric Capital Corporation and may require the nonbank financial company to submit to the same Fed regulatory regime as that of other large banks.
In a press release today, the large bank regulator is inviting public comment on “enhanced prudential standards for the regulation and supervision of General Electric Capital Corporation (GECC), a nonbank financial company that the Financial Stability Oversight Council has designated for supervision by the Board.” GE Capital Corp was designated as systemically important financial institution by the Financial Stability Oversight Council in 2013.
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Why regulate GE Capital?
The need to regulate GE Capital, which primarily makes loan to businesses, was necessitated by “the substantial similarity of (GE Capital’s) activities and risk profile to that of a similarly-sized bank holding company.” As such, the Fed is proposing that it apply enhanced standards to GE Capital similar to those that apply to large bank holding companies. This would include similar requirements for risk-based and leverage capital, capital planning, stress testing, liquidity, and risk management.
In particular, the Fed will look to examine “certain unique aspects related to (GE Capital’s) activities, risk profile, and structure.” These standards would include additional independence requirements for GE Capital’s board of directors, as well as restrictions on intercompany transactions between GE Capital Corporation, a financial services firm, and General Electric Company (NYSE:GE), which is a heavy manufacturer. The new Fed regulatory oversight would also subject GE Capital to “the enhanced supplementary leverage ratio,” a standard that is applied to the largest, most systemic U.S. banking organizations. The proposed order would also require GE Capital to file certain reports with the Board that are similar to the reports required of large bank holding companies, the Fed announcement said.
As it considers its methods to regulate nonbank companies, the bank regulator “intends to thoroughly assess the business model, capital structure, risk profile, and systemic footprint of a designated company to determine how the enhanced prudential standards would apply,” the central bank said in its proposal.
The public comment period will last for 60 days from the point the proposal is published in the Federal Register.