Fed chief Yellen says AIG’s threat to stability is reduced

NEW YORK: American International Group Inc (AIG) poses less of a threat to financial stability because it shrank its assets by more than $500 billion, Federal Reserve Chair Janet Yellen said on Monday in explaining why she voted in favour of releasing the company from stricter oversight.
Her comments and others published by regulators on Monday shed light on a process financial firms say is too opaque and unaccountable, indicating big banks and insurers will have to downsize dramatically if they are to shake off the “systemically risky” label.
The comments also expose ongoing divisions among financial regulators over how to determine if a company is systemically risky a decade since the 2007-2009 global financial crisis began.
The US Financial Stability Oversight Council (FSOC) said that AIG — which received a $182 billion US government bailout during the crisis — is no longer critical to the health of the US financial system.
“Since the financial crisis, AIG has largely sold off or wound down its capital markets businesses, and has become a smaller firm that poses less of a threat to financial stability,” Yellen said in the statement.
“The possibility of de-designation provides an incentive for designated firms to significantly reduce their systemic footprint,” she added.
The FSOC, which comprises the heads of financial regulators across the federal government, requires a two-thirds majority to agree to remove a company’s designation as a “systemically important financial institution,” or SIFI. — Reuters