US removes GE Capital’s ‘too big to fail’ status

The US government has reversed a controversial decision to brand GE Capital as a group warranting tougher regulation because it poses a potential threat to financial stability.

Three years after effectively designating GE Capital as “too big to fail”, a group of regulators on Wednesday rescinded a decision that lay at the heart of efforts to prevent a repeat of the last financial crisis.

The move came after General Electric took big steps to shrink its sprawling financial business and shake off its unwanted status, a dramatic case of corporate restructuring driven by post-crisis regulation.

The decision was taken by the Financial Stability Oversight Council, a group including the US Treasury department, which has become a lightning rod for Republican criticism of Obama administration regulation.

"Today's decision clearly demonstrates that the council's designation of non-bank financial companies is a two-way process. The council will remove a designation when that company no longer poses risks to US financial stability," said Jack Lew, Treasury secretary.

“The council follows the facts: when it identifies a company that could threaten financial stability, it acts; when those risks change, the council also acts.”

GE Capital was one of four groups outside the banking sector to be classed as “systemically important” and deserving of stricter oversight, but Republicans have criticised the process for lacking transparency.

The insurer MetLife, another designated group, is waging a bitter legal fight against the Obama administration to get its classification thrown out by the courts.

Big banks are designated automatically as “too big to fail” based on their size.

The regulators’ decision is a vindication of GE’s strategy, launched last year, of shifting from being a conglomerate that at times earned more than half of its profits from financial services to an industrial group focused on products such as power turbines and aircraft engines.

– Copyright The Financial Times 2016