Federal Regulators Remove AIG From Tougher Oversight

By ARTIN CRUTSINGER | October 2, 2017

A panel of federal regulators has voted to remove insurance giant American International Group from the tougher government oversight that had been imposed on the company in the wake of its near collapse in 2008.

The Financial Stability Oversight Council said late Friday it had voted 6-3 to rescind the designation that AIG could pose a threat to the U.S. financial system if it faced financial distress in the future. Treasury Secretary Steven Mnuchin and Federal Reserve Chair Janet Yellen both supported the move.

The decision represents one of the most high-profile examples of the push by the Trump administration to dismantle what it sees as unnecessary regulatory burdens erected following the 2008 financial crisis.

AIG’s near collapse led to the largest government bailout of the crisis. The company received $182 billlion in the form of both loans and federal guarantees, support that it was able eventually to pay back.

At the height of the crisis, AIG became a symbol for excessive Wall Street risk-taking and a touchstone for public anger. It was criticized at the time by members of Congress for providing millions of dollars in bonuses to executives even as the company was being propped up by government support.

Mnuchin, who chairs the council, said its decision “demonstrates our commitment to act decisively to remove any designation if a company does not pose a threat to financial stability.”

While Mnuchin, Yellen and four other council members supported the decision, it was opposed Richard Cordray, director of the Consumer Financial Protection Bureau, Martin J. Gruenberg, chairman of the Federal Deposit Insurance Corp., and Melvin Watt, director of the Federal Housing Finance Agency.

Under the 2010 Dodd-Frank Act, which toughened financial regulations in an effort to avoid a repeat of the 2008 crisis, the oversight panel had the power to designate non-bank institutions such as AIG as systemically important financial institutions, meaning that their failure could pose a risk to the entire financial system.

The designation subjected non-banks such as AIG to the same types of tighter regulations that had been imposed on the nation’s biggest banks by the Dodd-Frank Act.

AIG President Brian Duperreault praised the council’s action, saying it recognized moves the company has taken to lower risks.

“The company is committed to continued vigilant risk management and to working closely with our numerous regulators to enable a strong AIG to continue to serve our clients,” he said in a statement.

New York-based AIG is now about half the size it was when it nearly collapsed during the financial crisis.

It got into trouble by selling guarantees on mortgage securities that forced it to pay billions of dollars after the subprime mortgage bubble burst in 2007. It was intertwined with the financial system through its sale of mortgage-related investments to big Wall Street banks, which themselves eventually received bailouts.

(Associated Press reporter Marcy Gordon contributed to this report.)

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