Financial Council Labels Prudential Systematically Risky

Thursday, 19 Sep 2013 06:01 PM

 

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Insurer Prudential Financial Inc. said on Thursday that U.S. regulators had voted to designate the company as systemically risky, bringing it under stricter regulatory oversight.

A group of regulators known as the Financial Stability Oversight Council had been weighing whether Prudential was so big that its failure could threaten U.S. financial markets.

It was doing so under a provision of the 2010 Dodd-Frank law that says the risk council can designate non-bank financial firms as "systemically important." The tag brings tougher capital requirements and means the firms will be regulated by the Federal Reserve.

Prudential had opposed regulators' attempts to give it the systemic tag and argued that it was not too big to fail. The insurer now has 30 days to determine whether it will ask a court to overturn the regulators' decision.

"We are currently reviewing the rationale for the determination and our options," Prudential said in a statement.

Regulators already tapped American International Group and GE Capital, the financial services arm of General Electric, for this new oversight. Both accepted the designation.

The risk council also proposed naming Prudential, the second-largest U.S. life insurer, a globally systemic insurer, according to an international regulatory group.

But Prudential appealed to regulators to change their minds, becoming the first firm to formally contest the U.S. designation.

The council, which is led by Treasury Secretary Jack Lew, stuck by its initial decision, Prudential said on Thursday. A Treasury spokeswoman declined to comment.

The regulatory group's procedures stipulate that after it votes to designate a non-bank financial company as risky, it must wait one business day before announcing the decision.

Prudential's designation makes it appear more likely the council will next name MetLife, another big U.S. insurer, as systemically important. MetLife has said regulators were considering it for tougher oversight, but it was not as far along in the process.

© 2014 Thomson/Reuters. All rights reserved.

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