De-SIFI

31 March 2017 By Gina Chon Follow @GinaChon

With deregulation in the air, AIG and Prudential could lose their systemically risky labels – along with MetLife. That would end Fed monitoring. But they’re also global SIFIs in the eyes of regulators in the EU and elsewhere. Fragmented state oversight might not cut it overseas.

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The U.S. Financial Stability Oversight Council is under pressure from Republican lawmakers to free insurers AIG and Prudential Financial of their designations as systemically important financial institutions. The label subjects them to enhanced regulatory scrutiny, including Federal Reserve oversight. The other U.S. insurer designated as a SIFI, MetLife, sued the government to shed its designation and has so far been successful. The government's appeal is still in progress.

The European Union has recognized the Fed as an acceptable supervisor for U.S. insurers considered globally systemically important. If the FSOC's SIFI designation is removed, individual U.S. states' insurance watchdogs would be left as the main regulator of the companies rather than the central bank.

Separately, the EU and the United States have yet to finalize an agreement on the so-called prudential regulation of insurance companies active in Europe. The terms as negotiated with the Obama administration would have seen the EU recognize America’s state-based system for insurers other than those deemed globally systemically important, freeing them from the bloc's company-wide capital and related rules that would otherwise apply, according to the U.S. Treasury Department.

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