Following its exit from most of its most of its financial and real estate services businesses, GE Capital has shed its designation as a systemically important financial institution (SIFI).
The Financial Stability Oversight Council (FSOC) approved a request from GE filed earlier this year to rescind the burdensome designation, which subjects financial institutions to the supervision of the Federal Reserve.
“The FSOC’s decision reflects the substantial reduction in GE Capital’s size and risk profile and confirms that GE Capital does not pose any threat to US financial stability,” the company said in a statement.
The approval means that GE Capital’s activities will no longer be subject to the supervision of the Federal Reserve or Dodd Frank regulations, including minimum regulatory capital and liquidity requirements, submission of annual resolution plans, and regulatory reporting requirements, which have proven burdensome for many top US banks.
Shedding the SIFI designation also means that any future financings the firm continues to pursue, including those into industrial and healthcare assets, which remain a focus, would not be subject to the stricter regulations currently imposed on the banks.
“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,” added GE Capital chairman and CEO Keith Sherin. “We will continue to re-evaluate our capital requirements to reflect our reduced risk profile and right size our organization as we go forward.”
The SIFI designation was seen as a major reason the company felt overburdened as a CRE lender, and the designation could continue to impact the decisions of other large real estate lenders being scrutinized by regulators. When GE announcemed it would break from its financial businesses to focus on its digital industrial business last year, its chiefs also stressed that the “capital allocation decision” was driven by the pressure on returns from heavier regulation and the group’s wholesale funding-lending model.
Since the announcement, GE Capital has signed agreements for the sale of approximately $180 billion of businesses and has closed approximately $156 billion of those transactions, and plans to have largely completed the process of selling approximately $200 billion of GE Capital businesses not linked to GE by the end of 2016.
GE Capital was designated as a SIFI in 2013 and filed a request at the end of March 2016 to FSOC detailing the changes, dispositions and dramatic reduction in size. Its non-US operations will remain subject to the supervision of the U.K. Prudential Regulation Authority “until GE Capital’s international holding company no longer includes licensed credit institutions, a process that GE Capital is targeting to complete in the first half of 2017.”
As established under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the FSOC was put in place to identify risks to the financial stability of the US.