Unsurprisingly, minds failed to be changed, and Prudential Insurance lost its appeal before the Financial Stability Oversight Council (FSOC) this week, despite strong opposition from the independent insurance expert on the insurer’s ability to cause systemic risk to or within the economy if it failed.
The council presumably voted again 7-2, meeting the two-thirds of sitting FSOC voting members, with the abstention of Securities and Exchange Commission Chairwoman Mary Jo White, to designate Prudential a systemically important financial institution (SIFI) despite Prudential’s appeal on July 23 that it was not, even as one of the world’s largest life insurers, a SIFI. This would mirror the initial vote June 3. Prudential has more than $1 trillion in assets but — unlike AIG, which accepted the mantel of its formal SIFI designation in July — doesn’t have half its business outside the life insurance industry.
Under the Dodd-Frank Act, within 30 days following receipt of the notice, the company is entitled to bring an action in U.S. federal court for an order requiring that the final determination be rescinded, Prudential said in an 8-K filing today.
“We are reviewing the rationale that FSOC gave us and we are reviewing our options,” said a spokesman for the company.
Prudential, of course, asked for the appeal to its designation in the first place under Dodd-Frank guidelines.
The company has already been designated a global systemically important insurer (G-SII) by the Financial Stability Board of the G-20, as have AIG and MetLife in the U.S., thereby sealing their fate as SIFIs in the U.S., some would say. One cannot be a G-SII and not be SIFI, and still be subject to Fed oversight.
The designation means that Prudential will be subject not only to enhanced standards imposed by the Federal Reserve Board, but also to strict minimum capital requirements under Basel III that will apply to all SIFIs and savings and loan holding companies, regardless of their primary insurance business models.