The U.S. Financial Stability Oversight Council (FSOC) announced on Wednesday that it has voted to rescind its decision that GE Capital Global Holdings, LLC is a systemically important financial institution (SIFI) that could pose a threat to U.S. financial stability if it faced financial distress.
The FSOC reports that it unanimously determined that GE Capital “no longer meets the standards” of a SIFI, with one member of the council recused from the vote. The decision allows GE Capital to avoid the added regulatory requirements facing firms that are deemed critical to the stability of the overall financial system.
The FSOC originally deemed GE Capital to be systemically important in July 2013. Since then, the firm has “executed significant divestitures, transformed its funding model and implemented a corporate reorganization” that has effectively reduced its systemic importance to an acceptable level, the FSOC’s announcement states.
“Today’s decision clearly demonstrates that the council’s designation of nonbank financial companies is a two-way process. The council will remove a designation when that company no longer poses risks to U.S. financial stability,” says U.S. Treasury Secretary, Jacob Lew, in a statement on the decision.
“The council follows the facts: when it identifies a company that could threaten financial stability, it acts; when those risks change, the council also acts,” he adds, noting that U.S. rules require the FSOC to review these determinations annually and to rescind a designation if two-thirds of the council approves.
Being designated as a SIFI would’ve required the firm to be subject to U.S. Federal Reserve Board supervision and to face enhanced prudential standards intended to protect the U.S. financial system.
“One of the key lessons from the financial crisis is that the distress of large, interconnected financial firms can threaten the entire system — making the council’s authority to designate nonbank financial companies for supervision and enhanced prudential standards so important,” Lew noted.