U.S. regulatory council votes to remove AIG’s systemically risky label

WASHINGTON (Reuters) – A panel of U.S. financial regulators voted on Friday to release American International Group (AIG.N) from stricter government oversight, marking the end of an era for the insurance giant that came to embody the 2007-2009 global financial crisis.

The U.S. Financial Stability Oversight Council (FSOC) determined that AIG – which received a $182 billion U.S. government bailout during the crisis – is no longer critical to the health of the global financial system.

The decision reflects the changing tone towards financial regulation under Republican President Donald Trump, who in April ordered a review of how FSOC determines which companies are systemically risky as part his broader pledge to ease post-crisis rules.

“The Council has worked diligently to thoroughly reevaluate whether AIG poses a risk to financial stability,” said Treasury Secretary Steven Mnuchin.

“This action demonstrates our commitment to act decisively to remove any designation if a company does not pose a threat to financial stability.”

The company’s shares rose 1 percent in after-hours trading.

AIG’s huge pile of credit derivatives helped spark the global financial crisis, and the company quickly became a focus of public outrage when employee bonuses were paid after the government bailout in September 2008.

The labeling of major financial institutions as globally systemically important had its roots in AIG’s rescue, which came just before the company would have been forced to file for bankruptcy protection amid mounting losses on its derivatives book. The company repaid taxpayers in full by the end of 2012.

Since the crisis, AIG, which remains the largest commercial insurer in the United States and Canada, has sold dozens of businesses, including two Asian life insurance operations and one of the world’s biggest aircraft leasing businesses. It recently sold a mortgage-insurance unit.

The FSOC, which comprises the heads of financial regulators across the government, requires a two-thirds majority to agree to remove a company’s designation as a “systemically important financial institution” or SIFI. The panel only once before has removed a SIFI designation with GE Capital in 2016.

By law, all banks with over $50 billion in assets are automatically considered SIFIs, while the FSOC can apply the label to nonbanks on a case-by-case basis.

Following the FSOC’s decision, there is only one nonbank “systemically important financial institution” remaining: Prudential (PRU.N). That company is also expected to mount an effort to receive similar regulatory relief from the council.

A third insurance company, Metlife(MET.N), had also received the SIFI label, but mounted a legal challenge against the decision. A federal court ruled in the company’s favor. That decision was appealed by the government under President Barack Obama and remains pending in an appeals court.

Reporting by Michelle Price; editing by Cynthia Osterman

Our Standards:The Thomson Reuters Trust Principles.

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