By Emily Stephenson | Business Insider
The U.S. financial risk council on Tuesday said it has designated American International Group (AIG.N) and GE Capital (GE.N) as systemically risky, bringing them under stricter regulatory oversight.
The Financial Stability Oversight Councilís decision to name its first set of "systemically important" non-bank firms had been long expected by the financial services industry.
The designation shows that regulators believe the two companies are so big their failure could destabilize the financial system. The firms now come under regulation by the Federal Reserve and must meet capital and other requirements.
"These designations will help protect the financial system and broader economy from the types of risks that contributed to the financial crisis," said Treasury Secretary Jacob Lew, who also leads the oversight council.
The risk council, which includes the heads of other financial regulatory agencies, is a relatively new federal body that is testing its powers under the 2010 Dodd-Frank financial reform law for the first time.
After a number of non-bank firms struggled during the 2007-2009 financial crisis, Dodd-Frank gave the regulatory council the power to identify potentially risky non-bank firms and regulate them more like banks.
The first set of designations will not come as a surprise to the financial services industry. AIG in particular was expected to be tagged ísystemically importantí after it received a crisis-era bailout amid fears its size and interconnectedness could bring down the financial system.
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