GE Capital to meet new regulations as “systemically important”

The Federal Reserve has proposed a set of tougher rules for GE Capital designed to mitigate the threat the firm poses to the financial system as a designated “systemically important” institution, one of a handful of non-bank firms deemed to be critically important.

The Federal Reserve said its proposed rules are “generally similar” to the requirements faced by the largest banks. GE Capital would face risk-based capital and leverage requirements as well as have to go through an annual “stress test,” which seeks to ensure firms can continue to lend during a sharp economic downturn.

GE Capital’s unique activities and profile mean the rules will be tailored to address its structure as the financial arm of a blue-chip industrial company, the central bank said. It plans to follow a similar process for other non-bank firms that are deemed systemically important, which include some large insurers. Proposals are subject to a 60 day consultation.

Among the biggest changes that the Fed proposal would require is an increase in the independence of GE Capital’s board from the parent company. The proposal would require GE Capital to appoint new board members independent of GE and GE Capital’s own management.

The 2010 Dodd-Frank Wall Street reform act automatically designated banks with more than $50 billion in assets as “systemically important financial institutions.”
But it also gave the Financial Stability Oversight Council the power to tap financial firms that are not banks, if they are so big and risky that their activities could destabilize US markets.