Federal officials have been tasked with deciding if a number of key nonbank financial firms should be scrutinized more closely, according to Wall Street Journal reporters Michael R. Crittenden and Leslie Scism. Sources have apparently told the WSJ that the panel of officials will make that decision on Monday.
Nonbank Firms Being Considered Include AIG
The Financial Stability Oversight Council is said to be considering placing three or more companies on its list of firms that are “systemically important.” If the panel decides to do that, those firms would then fall under the oversight of the Federal Reserve.
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The three firms that are under consideration are American International Group Inc (NYSE:AIG), Prudential Financial Inc (NYSE:PRU) and General Electric Company (NYSE:GE)’s GE Capital division. ValueWalk’s Marie Cabural reported back in October that AIG said that the government was considering it “too big to fail” and considering whether the firm should be under increased regulatory oversight.
GE Capital and Prudential Financial have also disclosed in the past that they were in the final stage of the process for consideration of enhanced regulation, although regulators have not officially released the names of the firms they are considering.
Decision Expected Monday
The Treasury Department is heading up the panel, which includes regulators and the nations’ top banking officials. The panel has been working since the Dodd-Frank Act passed to assess which nonbank firms are systemically important to the economy.
If the panel decides to increase regulation of these key nonbank financial firms, Monday’s vote will start a 30-day timer allowing the firms to put up challenges to the decision and ask for hearings. If companies don’t challenge the panel’s decision, within 40 days the panel must finalize that decision with another vote.
Firms which are subjected to increased regulation will be required to keep higher capital levels and have to undergo regular stress tests just like the nation’s largest banks. U.S. banks with over $50 billion in assets were automatically subjected to these stress tests and increased regulatory oversight.
The Pros And Cons Of Greater Regulation
Some analysts within the financial industry have expressed concerns that increasing regulatory oversight over these firms will damage their ability to run share buyback programs or raise dividends. However, insurance executives have said that borrowing costs could be lowered and that consumers may be more inclined to purchase policies from insurance providers who are more closely watched by the Fed.