“You can check-out any time you like, but you can never leave!”—The
Eagles, Hotel California
With the announcement by General Electric Company (GE) that it intends to sell a big piece of its subsidiary General Electric Capital Corporation (GECC, the company has first the first salvo to shed the systemically important financial institution (SIFI) designation the Financial Stability Oversight Council (FSOC) pinned on GECC in July 2013. In addition to GECC, FSOC has designated MetLife, Inc., American International Group, Inc., and Prudential Financial, Inc., as nonbank SIFIs.
As part of the sale, GE will sell off real estate assets to Wells Fargo and the private equity firm Blackstone, but will retain its financing operations related to aircraft, energy and health care.
“Significant” issuer. In its SIFI designation, FSOC determined that GECC, in its role as one of the largest U.S. savings and loan holding companies, was a “significant” issuer of commercial paper to money market funds and other asset managers. Other factors that led to the designation included the size of its on-balance sheet assets, which rivals those of the biggest bank holding companies and ties to global financial intermediaries.
Following the news of the pending sale, pundits reacted in a number
of ways.
Dodd-Frank victory. Groups advocating the breakup of large
financial conglomerates called the sale, a victory for the Dodd-Frank Act.
Dennis Kelleher, President and CEO of Better Markets said,
“GE’s decision today shows that some of the financial reform measures
regulators have taken are working: firms that threaten America’s financial
system—like Wall Street’s too-big-to-fail banks—have to be made to bear the
costs of their risky business so taxpayers don’t have to pay the bill when their
risks explode like in 2008.” He added that “While not as well-known to the
public as the bailouts for Wall Street’s biggest banks, GE also had to be
supported by the taxpayers in 2008 and has remained a dangerous too-big-to-fail
firm.” Better Markets is an independent,
nonprofit, nonpartisan organization that promotes the public interest in
financial reform in the domestic and global capital and commodity markets.
Bart Naylor, Financial Policy Advocate, at Public Citizen’s
Congress Watch Division issued statement
saying, “GE gets it: Leaner business models pose less risk to the company
itself, less risk to shareholders and less risk to financial markets and the
broader economy. In the wake of GE’s announcement, investors are already
responding enthusiastically.” Public Citizen is a nonprofit
organization that “serves as the people’s voice in the nation’s capital.”
The statement continued, “GE isn’t the only one thinking about
shrinking.” The advocacy group added, “Other leaders in finance are calling for
breaking up the major banks, including Sanford Weill, who merged Travelers
Group with John Reed’s Citicorp to form Citigroup.” Public Citizen also noted
that Bank of America shareholders will vote on a proposal
from Public Citizen to analyze the benefits of breaking up the bank.
Quick FSOC action. On the pro-business side, Thomas J. Donohue, President and CEO, U.S. Chamber of Commerce, called
on FSOC to “quickly move
forward with a clear and timely process to remove GE's designation as a
Systemically Important Financial Institution.”
Hotel California? Finally, Aaron Klein and Justin Schardin of the
Bipartisan Policy Council called GE’s action as a “seminal test for whether the
Financial Stability Oversight Council (FSOC) can implement the Dodd-Frank Act
as Congress intended.”
In a blog post, they pondered, “is SIFI designation a Hotel
California, where institutions are checked in but then can never leave? Or,
is it a two-way street?” They noted that the Dodd-Frank Act envisioned a
de-designation process to implicitly allow companies that changed their
business models so that they are no longer systemically important to be treated
as such.
Given GE’s intention, Klein and Schardin concluded that “FSOC is
now on the clock to come up with a strong and meaningful de-designation
process.”
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