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Prudential's SIFI Status Is Still Grist for FSOC Talks

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Despite submitting additional information to the Financial Stability Oversight Council as part of its ongoing evaluation as a systemically important financial institution Prudential Financial remains the only insurer with the SIFI label.

FSOC discussed Prudential’s SIFI status at a July meeting as part of the work the oversight body is doing to re-evaluate the company’s designation, according to a short description of the meeting released Wednesday by the Treasury Department, which chairs the FSOC.

Prudential’s SIFI status was also discussed at FSOC’s latest meeting, held Wednesday.

After months of deliberation by the multi-agency body, the giant insurer and money manager is still subject to heightened federal capital, governance and liquidity standards for its risk profile.

Prudential — which continues to contest the designation — is identified in the Treasury readout as a nonbank financial company, but was once one of three insurers, together with AIG and MetLife, who were SIFIs.

FSOC voted to remove AIG’s SIFI yoke last year, while MetLife had successfully sued to remove its designation, leaving Prudential as the only insurance SIFI.

Prudential said in a Thursday statement to ThinkAdvisor that it has “a long track record of consistent execution through market cycles — delivering on our promises to our customers. We have and continue to maintain that we do not meet the standard for designation and that flaws in the designation process led to this outcome. We are contesting our designation as part of the annual review process, which is ongoing. We will continue our active engagement as the process moves forward.”

The Federal Reserve Board subjects SIFIs to enhanced regulation in addition to their traditional oversight from other regulators, with the exception of insurers organized as savings and loan holding companies. However, the Fed doesn’t impose the same heightened capital, resolvability and other requirements on these insurance thrifts.

Minutes of the July FSOC meeting released Wednesday reveal that Prudential has been continuing to submit new information to the Council regarding its SIFI review.

If the insurer and money manager expected a swift end to its too-big-to fail status with the Trump administration, it has yet to materialize. Meanwhile, FSOC has been continuing to discuss a timeline for the ongoing Prudential analysis.

Stephen Ledbetter, director of policy in the Office of the Financial Stability Oversight Council at Treasury, has been spearheading the analysis and discussions, according to meeting minutes.

Before a vote on Prudential’s fate, FSOC has to compile a written basis for any de-designation, and when it decides to make changes to Prudential’s status, a source familiar with the FSOC process told ThinkAdvisor.

In previous FSOC meetings, dating back to February or even earlier, FSOC members discussed the insurer’s size, leverage, capital markets activities, counterparty exposures, liabilities, investment portfolio and current regulatory scrutiny.

A spokeswoman for Treasury did not provide a comment on the timeline or completion for the company review.

However, Treasury and FSOC officials have maintained that they are looking at activities for financial stability risk issues now and in the future, rather than focusing on specific companies.


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