Bloomberg News

AIG Should Be Systemically Important, TARP Watchdog Says

October 25, 2012

American International Group Inc. (AIG:US), the insurer rescued by the U.S. government in 2008, should be deemed systemically important to guard the public’s investment, the watchdog for the bailout program said.

“American taxpayers who are still on the hook for billions of dollars for their TARP investment in AIG must be protected with the strongest federal regulation,” the Office of the Special Inspector General for the Troubled Asset Relief Program said today in its quarterly report to Congress. The office is led by Christy Romero.

The U.S. Treasury Department stake (AIG:US) in AIG stands at 16 percent, after hitting 92 percent during a bailout of the firm that swelled to $182.3 billion, including aid from the Federal Reserve Bank of New York. AIG said Oct. 2 that it’s in the final stage of review for designation as a systemically important financial institution, which leads to Federal Reserve supervision including stress tests.

AIG is currently regulated by the Fed as a savings-and-loan holding company because it owns a bank, according to the report. Chief Executive Officer Robert Benmosche, 68, has said the New York-based firm may retreat from banking to mitigate effects of the Volcker rule, which limits proprietary trading and investment in private equity and hedge funds.

“If AIG sells or closes its bank, it would again have no federal banking regulator, a factor in favor of designating AIG as systemically important,” the U.S. watchdog said. “The designation of AIG as a systemically important financial institution is necessary to ensure strong federal regulation of the company so that taxpayer dollars are not put at risk.”

Getting Ready

AIG has said it’s preparing for increased supervision.

“We’re putting an enormous amount of effort and cost to make sure that we are Fed-ready,” Benmosche said on an Aug. 3 conference call with analysts.

Prudential Financial Inc. (PRU:US) and General Electric Co. (GE:US)’s finance arm are also under consideration to be deemed systemically important. MetLife Inc. (MET:US), already regulated by the Fed because it owns a bank, is seeking to sell deposits to limit the oversight. The Fed also oversees the largest U.S. lenders, including JPMorgan Chase & Co. (JPM:US)

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


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Companies Mentioned

  • AIG
    (American International Group Inc)
    • $52.04 USD
    • 0.37
    • 0.71%
  • PRU
    (Prudential Financial Inc)
    • $83.25 USD
    • 0.87
    • 1.05%
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