Prudential Financial Inc. is laying the groundwork to escape the government’s label that it’s too big to fail, a move that would dramatically reduce federal oversight of the largest U.S. life insurer.
Prudential is preparing to push a federal watchdog — the Financial Stability Oversight Council — to remove it from a list of nonbanks that regulators concluded would threaten the financial system if they collapsed, said two people familiar with the company’s plans.
With business-friendly officials appointed by President Donald Trump taking over FSOC, the Newark, New Jersey-based company sees an opening, said the people, who asked not to be named because a final decision hasn’t been made. And the Treasury Department is expected to release a report as soon as next month criticizing how the government has gone about designating companies such as Prudential, which could provide momentum for the insurer to get out.
Another factor helping Prudential is rival MetLife Inc.’s legal victory last year overturning its label as a systemically important financial institution, or SIFI.
The creation of FSOC — and granting it power to flag companies as so big and interconnected that their failure could imperil the economy — was one of lawmakers’ key responses to the 2008 financial crisis. But the council, which is led by the Treasury secretary, has been controversial from the start. Republican lawmakers say its decisions are opaque and arbitrary, while companies have griped over designations or had to sell businesses to exit the government’s grip.
Under the Dodd-Frank Act, big banks such as JPMorgan Chase & Co. and Goldman Sachs Group Inc. automatically received the systemic-risk label but the number of companies FSOC designated has been falling in recent years, with Prudential and American International Group Inc. the only two remaining. The label brings tough oversight by the Federal Reserve and a series of difficult supervisory exercises, such as stress tests and the submission of strategies for how the companies can be safely wound down in a bankruptcy.
Prudential quietly began its exit campaign as soon as Trump’s Treasury secretary, Steven Mnuchin, arrived on the job in February, sending him a welcome letter contending that its status as a SIFI wasn’t appropriate, the people said.
“We expect that ultimately we may not wind up as a SIFI,” Mark Grier, Prudential’s vice chairman, told shareholders in a May conference call, adding that Washington is “moving in the right direction” on the topic of nonbank designations. “Exactly how we get there, I’m not quite sure.”
Prudential has “long maintained” it shouldn’t have been labeled risky in the first place and only got to that point through “flaws” in the council’s process, the company said in a Thursday statement to Bloomberg News.