One day after a federal judge revoked MetLife’s designation as a “systemically important financial institution” by the Financial Stability Oversight Council, GE—specifically the wholly owned subsidiary GE Capital—is requesting that it also be able to shed the classification and increased regulatory demands that come with being "too big to fail."
“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 on Thursday. The company was designated as a SIFI in July 2013.
The designation centered on General Electric Capital (GECC), a savings and loan holding company. It was described in FSOC documents as “a significant source of credit to the U.S. economy.” Large global banks and large non-bank financial companies also had significant exposure to GECC.
“GECC holds a large portfolio of on-balance sheet assets comparable to those of the largest U.S. bank holding companies,” the FSOC determination says. If it had to rapidly liquidate assets, the impact could drive down asset prices and cause balance sheet losses for other large financial firms “on a scale similar to those that could be caused by asset sales by some of the largest U.S. bank holding companies.”
The request to remove the SIFI designation details changes and dispositions GE Capital has made since 2013. In April 2015, GE announced that it would “become a more focused digital industrial company by dramatically reducing the size of GE Capital.”
“GE continues to quickly and successfully execute the transformation of GE Capital into a smaller, more focused financial services firm,” the company wrote in the letter to FSOC. “The filing demonstrates that GE Capital has substantially reduced its risk profile and is significantly less interconnected to the financial system, and therefore does not pose any conceivable threat to U.S. financial stability.”
In making the case to wind down SIFI obligations, the letter emphasizes that:
GE Capital has completely transformed itself, primarily through the sale or split-off of most of its legacy financial services businesses, into a smaller, simpler company focused on customers and markets aligned with GE’s industrial businesses.
GE Capital reduced its assets 52 percent, from $549 billion to $265 billion.
Loans to consumers are down 95 percent, from $72 billion to $4 billion; in the U.S., loans to consumers are down to $0.
Commercial paper (CP) is down 88 percent, from $43 billion outstanding to $5 billion, taking it from being the top issuer of U.S. CP to representing less than one-tenth of 1 percent of the market.
Securitization funding is down 90 percent, from $30 billion to $3 billion.
GE Capital does not plan to issue any incremental debt for the next four years. GE also assumed or guaranteed all of GE Capital’s unsecured debt, which mitigates the likelihood of and reduces the impact if GE Capital were to experience financial distress.
GE Capital has exited one of its U.S. bank charters through the completed split-off of Synchrony Financial and regulatory approval has been granted for the sale of its U.S. deposit business to Goldman Sachs. The sale and the surrender of that second bank charter should be completed by April 30, 2016, after which GE Capital will no longer own any banks with deposits insured by the Federal Deposit Insurance Corporation.
GE Capital has exited all leveraged lending, all consumer lending in the U.S., most consumer lending in the E.U., and nearly all middle market lending and commercial real estate financing globally.
GE Capital’s regulated operations are now centered in Europe. GE Capital consolidated its non-U.S. operations into GE Capital International Holdings Limited, whose operations are prudentially supervised by the U.K. Prudential Regulation Authority.
“Our submission details the complete transformation of GE Capital. Our plan to change our business model, shrink the Company and reduce our risk profile has been successful,” GE Capital Chairman and CEO Keith Sherin said in a statement.