Regulators to consider downgrading federal oversight of AIG

AIG, the poster child for the 2008 financial meltdown, has been subject to extra-stringent oversight for years. Now government regulators are reconsidering that

Regulators to consider downgrading federal oversight of AIG

Insurance News

By Ryan Smith

Federal regulators are pondering whether to remove American International Group’s designation as a “systemically important financial institution” (SIFI). The designation subjects AIG to especially stringent federal oversight. The Financial Stability Oversight Council, which consists of senior regulators, is discussing the matter at a meeting Friday.

AIG, which was one of the companies at the center of the 2008 global financial meltdown, became infamous in that era for symbolizing the worst of Wall Street excesses – huge executive bonuses and corporate junkets to luxury retreats.

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The company received a $180 billion government bailout, and its troubles were among the primary motivators behind the creation of the oversight council and the Dodd-Frank Act, according to a Wall Street Journal report. In 2013, the oversight council determined that AIG was large enough that its failure would pose a risk to the economy and dubbed it a SIFI.

The oversight council is required to review SIFI designations every year, the Journal reported. If it determines that a problem at AIG would no longer pose a risk to the nation’s financial stability, the committee could remove its SIFI designation.

AIG is no longer quite the behemoth it was in pre-crisis days. In 2007, the company had $1.048 trillion in total assets, the Journal reported. Since then, it’s divested itself of dozens of assets and it now about half its former size, with $499.76 billion in total assets as of June 30. It’s still, however, one of the world’s biggest sellers of P&C insurance to businesses.

Removing a SIFI designation takes a two-thirds vote of the council, according to the Journal. A former AIG employee said that it’s time for the designation to go.

“If they decide to keep it a SIFI, it will be based upon politics, based upon notions of what AIG used to be, which is dramatically different from today’s AIG,” Thomas Russo, former general counsel at AIG, told the Journal.

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