GE Plan Opens Escape Path From Fed Too-Big-To-Fail Label
By Ian Katz
General Electric Co.’s plan to exit most lending operations could make its finance arm the first entity to escape the grip of the Federal Reserve’s
too-big-to-fail oversight, a move that would free the company from strict capital requirements and reduce government monitoring. As part of a broad restructuring announced Friday, GE General Counsel Brackett Denniston said the finance unit will apply to lose its systemically important label sometime next year. GE has already discussed its overhaul, which includes the sale of $26 billion of real estate, with U.S. regulators who will decide whether the company can go free. “We think we’ve come a long way and you can argue we’re not systemic right now,” Denniston said an in interview. “When the plan is further advanced, when we think the argument is even stronger and more compelling, that’s the right way to do it.” GE Capital is one of four non-banks hit with the tighter scrutiny, which applies to firms that regulators believe could threaten the U.S. economy if they failed. Companies have sought to avoid the capital, liquidity and leverage constraints that can come with being selected, with insurer Metlife Inc. suing the U.S. government to try to escape. Once the restructuring is complete, GE’s ending net investment in GE Capital — a balance-sheet gauge that excludes non-interest bearing liabilities and cash — will fall to $90 billion from $363 billion, the company said. Just $40 billion of that will be in the U.S., making it “inconceivable” that the company could be considered
systemic, Denniston said. GE’s overhaul “could well warrant de-designation,” said Karen Shaw Petrou, managing partner of Washington-based research firm Federal Financial Analytics Inc. “I would guess that it would.”