GE Capital no longer ‘systemically important’ institution, government rules

The U.S. Treasury’s Financial Stability Oversight Council Tuesday rescinded its determination that GE Capital Global Holdings is too big to fail. One member was recused. Higher capital requirements and other rules give financial firms a choice: either accept the more stringent rules as a way of making themselves safer, or else shrink enough that they don’t pose a systemic danger in the first place.

While the move is a big win for GE, it’s also a victory the Obama administration and its vision for how finance should be overseen.

“The Council unanimously determined that GE Capital no longer meets the standards for a determination”, the FSOC announced on Wednesday.

Having the “SIFI” designation removed effectively means that General Electric’s financial operations are no longer in the “too big to fail” category.

But since that time, GE Capital has signed deals to sell 180 billion in financial assets, and has closed about 156 billion of those deals, GE said in a statement Wednesday.

GE shares rose 2.2% to $30.60 in afternoon trading.

Lifting the designation is expected to allow GE Capital to free up cash from its balance sheet and allow parent company GE to deploy it for other uses, particularly share buybacks and its increased focus on aviation and energy.

“This decision is a result of the transformation of GE Capital into a smaller, safer financial services company that meaningfully contributes to the success of GE’s industrial businesses”, GE Capital CEO Keith Sherin said in a statement.

MetLife was another nonbank that was flagged as a SIFI in 2014, but the insurer fought the federal government over the designation in court this spring and won its removal.

Some non-bank institutions, such as the insurer MetLife, have bristled at being labeled systemically important.

It made a decision to designate GE Capital because of its “reliance on short-term wholesale funding and its leading position in a number of funding markets”, Lew said.

He adds, “We are rapidly shedding the remainder of our overseas assets not aligned with GE, and once complete we will go forward with a business portfolio that is properly capitalized and directly aligned with GE’s industrial businesses”.

“I think it’s positive, it’s a step in the right direction”, said J. Stephen Zielezienski, senior vice president and general counsel at the American Insurance Association.