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GE Capital should lose ‘systemically important financial institution’ designation: General Electric

March 31, 2016   by The Associated Press

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NEW YORK – General Electric Co. asked the U.S. government to drop the “too big to fail” tag for GE Capital, saying that its financing operations are a shadow of what they were when the Federal Reserve placed it under strict oversight in the aftermath of the global economic crisis almost a decade ago.

The company has been in broad retreat over the past year from its financial ventures, largely because of the cost and risk of complying with boundaries set by the Federal Reserve. It’s shed billions in financial assets as it returns to its industrial roots.

GE Capital was listed a “systemically important financial institution,” by the Financial Stability Oversight Council following the financial collapse of 2008, a financial institutions deemed to be so big and entwined with the U.S. financial system that it could threaten the entire economy if it failed.

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That, General Electric said Thursday, has changed.

GE Capital has reduced its assets to 52 per cent to $265 billion, the company said Thursday. Financing receivables are down 74 per cent, from $277 billion to $72 billion. Loans secured by real estate are down 77 per cent, GE said.

Loans to consumers are down 95 per cent, from $72 billion to $4 billion. Those loans are gone in the U.S.

On Wednesday, the company announced the $485 million sale of GE Asset Management.

“We have completed over 80 per cent of our projected asset reductions; exited leveraged lending and U.S. consumer lending; exited nearly all middle market lending; reduced real estate debt by more than 75 per cent and real estate equity by 100 per cent; and reduced outstanding commercial paper almost 90 per cent,” said GE Capital Chairman and CEO Keith Sherin in a printed statement.

Related: Nine global insurers deemed ‘systemically important’ institutions

The request comes a day after MetLife, the largest U.S. insurance company, had the same designation tossed out by a federal judge.

It was a major legal victory for MetLife, which took the government to court more than a year ago.

Related: FSB exploring possible ‘policy remedies’ to address asset managers’ risk: OSFI

In fighting the oversight agency’s action, MetLife said that tougher requirements on life insurance companies would force the companies to raise the prices of their products, reduce the amount of risk they take on in selling their products, or stop offering some products altogether.

Capital requirements for banks were established to protect depositors, rather than ensuring that life insurers can meet their obligations to policyholders, the company said.

Other than MetLife and GE Capital, the other two nonbank companies under SIFI oversight are American International Group Inc. and Prudential Financial Inc.

Banks labeled “too big to fail” include JP Morgan Chase, Citigroup, Morgan Stanley, Bank of New York Mellon, Bank of America, Wells Fargo, and Goldman Sachs.

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