(Oct 17): U.S. regulators agreed to drop Prudential Financial Inc’s label as too big to fail, making it the last non-bank to escape a post-crisis designation that subjected firms to extra oversight.
The Financial Stability Oversight Council agreed in a Tuesday vote that the insurer doesn’t pose a special risk to the stability of the financial system, the Treasury Department said in a statement. The other non-banks that had been deemed systemically important financial institutions — American International Group Inc, MetLife Inc and General Electric Co’s financial arm — had been freed by FSOC over the past few years.
The decision to scrap Prudential’s designation removes an additional layer of regulatory oversight, potentially saving the life insurer millions of dollars annually in compliance costs. The Newark, New Jersey-based company was named a SIFI in 2013, along with AIG and GE’s finance business.
The insurer said it supported the “appropriate conclusion that Prudential does not pose systemic risk,” according to a statement the company released Wednesday. It said its “longstanding belief” was “that Prudential never met the standard for designation.”
The four non-banks took different paths to escaping the label. MetLife sued and won a ruling in 2016, striking down its designation. AIG was freed last year, after privately telling FSOC it should no longer be considered a SIFI, while GE shed assets and petitioned regulators to drop the designation.
FSOC, which is led by the Treasury secretary and includes the heads of other agencies, was created as part of a broader effort to keep a close watch on firms whose failure could threaten the financial system. Companies’ efforts to shed too-big-to-fail status has been aided by a shift in the regulatory attitude under President Donald Trump.
While Prudential will continue to be overseen by state regulators, the move will free the company from extra costs it faced to comply with FSOC requirements. During an earnings call last year, the company said it spent US$135 million in 2016 on SIFI-related reporting or activities. Executives have said over the past year that they didn’t think that the insurer would continue to be designated as it saw competitors lose the label.
Prudential Vice Chairman Mark Grier, who is planning to step down, has explained that he didn’t believe the designation was a particular burden for the company. That’s partially because New Jersey regulators will continue to have strict oversight of Prudential and because the company didn’t manage its capital in anticipation of certain requirements that federal regulators might have, Grier said last year.
The decision “follows extensive engagement with the company and a detailed analysis showing that there is not a significant risk that the company could pose a threat to financial stability," Treasury Secretary Steven Mnuchin said Wednesday in a statement.