American International Group Inc., which played a central role in the 2008 crisis, got labeled even though it had shrunk after the meltdown. Additional insurers including Prudential and MetLife Inc. that were bigger than AIG also received the tag. But Warren Buffett’s Berkshire and Blackrock, the world’s largest money manager, didn’t.
Last year, Treasury proposed a road map for overhauling FSOC designations that would make it harder to affix the risk tags.
The plan urged the council to focus on how an entire industry might pose risks, rather than prioritizing the dangers presented by specific firms. Labeling companies as systemically important should only be done if the council was certain a firm was likely to get into trouble. The result: More hurdles for a process that had mostly ground to a halt even during the Obama administration.
Craig Phillips, a top Treasury official, said recently that regulators were working on a way to declare specific business activities -- not companies -- as risks.
Such an approach is designed to fail because FSOC has no direct method for regulating activities that set off alarms, Stanley of Americans for Financial Reform argued. He called it “an excuse for doing nothing.”
At the height of its muscle-flexing in the years immediately after the 2008 crisis, FSOC placed Prudential and three other financial titans under heightened Fed oversight: AIG, MetLife and General Electric Co.’s finance arm. Asset managers Blackrock and Pacific Investment Management Co. avoided the risk label after aggressively lobbying agency heads appointed by former President Barack Obama.
Starting in 2016, companies began slipping out of FSOC’s grasp, with GE Capital exiting after selling financial assets and MetLife winning a court battle over its designation. Last year, regulators selected by Trump helped let out AIG.
This article was provided by Bloomberg News.