GE Capital breaks free of its SIFI designation
GE Capital Global Holdings is no longer a threat to financial stability, according to the Financial Stability Oversight Council. That makes it the first entity to successfully negotiate an exit from what critics derisively describe as the agencies “Hotel California” designation process.
While MetLife prevailed in a lawsuit to shed its designation as a nonbank systemically important financial institution [with the government appealing that decision], GE Capital did so by working within the agencies appeals framework. Having its SIFI status means it will no longer be subjected to heightened capital and regulatory requirements.
The Council designated GE Capital in July 2013 after identifying a number of concerns, including a reliance on short-term wholesale funding and the company’s leading position in a number of funding markets. “GE Capital believes it poses no threat to U.S. financial stability and, as of today, no longer meets the criteria for designation as a nonbank SIFI,” the company wrote in a letter to FSOC in March, as the agency was conducting an annual reevaluation of the designation. In April and May 2016, FSOC members and member agencies met with the company and engaged in follow-up discussions.
“Today’s decision clearly demonstrates that the Council’s designation of nonbank financial companies is a two-way process. The Council will remove a designation when that company no longer poses risks to U.S. financial stability,” Treasury Secretary Jacob Lew said in a statement that may have been directed at critics who criticize the SIFI designation process as nearly impossible to shake.
“GE Capital has made fundamental strategic changes that have resulted in a company that is significantly smaller and safer, with more stable funding,” Lew added. “After a rigorous review and engagement with the company over the last year, the Council determined that, based on these changes, the designation is no longer warranted.”
The Dodd-Frank Act requires FSOC to review each nonbank financial company determination at least annually and rescind a determination if it, by a two-thirds majority of voting members, including an affirmative vote by the chairperson, determines that the company no longer meets the statutory standards for a SIFI designation.