A couple of U.S. financial firms report they have been told they will likely be designated as systemically important to the U.S. financial system, meaning they will likely face tougher regulation.
Both American International Group, Inc. (NYSE:AIG) and Prudential Financial Inc. (NYSE:PRU) say they have received notice from the U.S. Treasury that the Financial Stability Oversight Council (FSOC) is proposing to designate them as systemically important financial institutions (SIFIs).
Prudential notes that, as a result, it expects to be subject to stricter prudential regulatory standards and supervision by the U.S. Federal Reserve Board of Governors, under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The company says it’s currently evaluating whether to request a hearing before the Council to contest the proposed determination, as it is entitled to do under the regulations.
Companies that are designated by the FSOC would likely be subject to stricter prudential standards, including requirements regarding risk-based capital and leverage, liquidity, stress-testing, overall risk management, resolution plans, early remediation, and credit concentration; and may also include additional standards regarding capital, disclosure, and short-term debt limits, among other things.
For the past couple of years, the Financial Stability Board (FSB) has been designating some of the world’s largest financial firms as systemically important to the global financial system; meaning they face tougher regulatory standards. And, earlier this year, the Office of the Superintendent of Financial Institutions (OSFI) in Canada announced that the Big Six banks have been deemed systemically important to the Canadian financial system, and that they will face closer supervision, enhanced disclosure requirements, and a 1% risk-weighted capital surcharge by 2016, as a result.