WASHINGTON — The Financial Stability Oversight Council today reversed its designation of GE Capital as a “systemically important financial institution” (SIFI), a key decision with strong financial and political implications.
Amongst other implications, it is likely to end the effort by Republicans in Congress, especially in the House, to rein in the FSOC this year, although the effort was unlikely to succeed.
The FSOC acted GE reduced the potential liability of its financial services arm by divesting more than $150 billion.
By divesting the SIFI designation, GE Capital will no longer be directly overseen by the Federal Reserve Board as the regulatory arm of the FSOC. The designation involved rigorous federal regulation on top of all other regulation, and imposed additional capital requirements on GE Capital.
The divestiture is part of the effort by GE chairman Jeffrey R. Immelt to pull GE away from non-manufacturing assets.
GE was designated because the government aided it during the financial meltdown that began in 2007.
GE sought to diversify into the financial industry under prior management in the 1990s, investing heavily in the credit card, mortgage loan and private equity lending business.
Amongst the acquisition it divested was the old Life Insurance Co. of Virginia. It renamed it Genworth and invested in, among other things, insuring mortgages. It divested Genworth during the financial crisis. It is now one of the largest factors in the long-term care insurance businesses, but has been struggling mightily in the current low-interest rate environment that is plaguing the insurance industry.
All of these acquisitions ultimately made it one of the nation’s largest financial firms, and got into deep financial waters as these investments declined steeply in value. It also made investors view it as a risky financial stock rather than as a mundane manufacturer of sophisticated airplane engines and electrical turbines worldwide. GE is also divesting most of its consumer businesses, including washing machines and kitchen appliances.
Financial firms have also been hard-hit by the recent turmoil over Brexit.