Washington, D.C: The Financial Stability Oversight Council (FSOC) on Wednesday announced that it has rescinded its determination that material financial distress at Prudential Financial, Inc. (Prudential) could pose a threat to U.S. financial stability and that Prudential shall be subject to supervision by the Board of Governors of the Federal Reserve System and enhanced prudential standards.
The U.S. Financial Stability Oversight Council (FSOC) announcement that it had removed the systemically risky label from Prudential Financial (PRU) frees the insurance company from more rigorous oversight by the Federal Reserve.
“The Council’s decision today follows extensive engagement with the company and a detailed analysis showing that there is not a significant risk that the company could pose a threat to financial stability,” said Treasury Secretary Steven T. Mnuchin. “The Council has continued to act decisively to remove any designation that is not warranted.”
Section 113(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires the Council to reevaluate its nonbank financial company determinations at least annually.
The Council approved the rescission of Prudential’s designation unanimously. Securities and Exchange Commission (SEC) Chairman Jay Clayton was recused from this matter and delegated his voting authority to SEC Commissioner Elad Roisman.
The decision by the regulatory council Council could cut regulatory costs at Prudential, which no longer will have to meet enhanced capital and liquidity standards and comply with Fed regulators. It also means regulators no longer consider any nonbanks to pose a threat to the entire financial system.
“We are pleased with this decision, which affirms our longstanding belief that Prudential never met the standard for designation,” the company said in a statement.
The move by the FSOC, a regulatory panel composed of top Trump administration regulators charged with monitoring the financial system for looming threats, had been widely expected.
Prudential was the only remaining nonbank to be considered a “systemically important financial institution” meriting tougher oversight. The FSOC discussed the company’s status at a closed meeting Tuesday.
Treasury Secretary Steven Mnuchin, who chairs the FSOC, said the decision was based on “a detailed analysis showing that there is not a significant risk that the company could pose a threat to financial stability.”
Regulators were given the power to identify single firms as potential threats to the entire financial system under the 2010 Dodd-Frank financial reform law. The Obama administration identified a handful of nonbanks as systemic, but Wednesday’s announcement means no nonbanks will be subjected to that sort of oversight going forward.
In November, the Treasury Department recommended regulators monitor types of financial activity, rather than specific companies, when monitoring market-wide risks.
Prudential Financial is no longer considered a systemically important financial institution (SIFI) the last nonbank financial institution to lose that label.
This is not a surprise move, as it’s been expected at some point since the beginning of the Trump administration. As recently as 2016, four non-bank firms were SIFI designated (AIG, GE Capital and MetLife have since been removed).
Nine of the council’s 10 voting members are Trump appointees.