EveryCRSreport.com – Are There Any Systemically Important Nonbanks?, October 17, 2018. IN10982.
“During the 2008 financial crisis, problems at AIG, Bear Stearns, and Lehman Brothers led to broader financial instability or government “bailouts” in order to prevent instability. At the time, these firms were nonbank financial institutions and not generally subject to effective safety and soundness regulation on a consolidated basis.
The Dodd Frank Act (P.L. 111-203) provided the Financial Stability Oversight Council (FSOC) with the authority to designate nonbanks for enhanced prudential oversight by the Federal Reserve as systemically important financial institutions (SIFIs). Since enactment, FSOC has designated three insurers (AIG, MetLife, and Prudential) and one other firm (GE Capital). Subsequently, all four designations have been removed, three by FSOC and one (MetLife) through a successful lawsuit. Most recently, Prudential was de-designated on October 17, 2018.
Proponents believe that designation could make it less likely that a large nonbank would experience a failure that destabilized the financial system. Opponents question whether any nonbank poses systemic risk, and if any does, whether institution-based regulation is the best way to address that risk…”