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AIG might get special oversight as potential financial system risk

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By Jim Puzzanghera
Los Angeles Times
Published:
WASHINGTON -- Bailed-out insurance giant American International Group, whose largely unregulated activities helped trigger the financial crisis, could face special federal oversight as one of a handful of large firms outside the banking system that pose a risk to the nation's fiscal health if they were to go bankrupt.
The company, in which taxpayers still have a 15.9 percent ownership stake, said Tuesday it had been notified by federal officials that it is being considered for designation as a systemically important financial institution.
The designation, created by the 2010 Dodd-Frank financial reform law, comes with regulatory oversight by the Federal Reserve and tougher "prudential" standards, such as holding more capital in reserve in case of problems.
Bank holding companies with assets of more than $50 billion are automatically designated as systemically important financial institutions, meaning their failure could threaten another financial crisis.
The Financial Stability Oversight Council, a new panel of regulators created by the 2010 law, also can slap the designation on large financial companies that are not banks.
That includes firms that have more than $50 billion in consolidated assets, and also meet other criteria, such as at least $3.5 billion in derivatives liability or at least $20 billion in total outstanding debt.
The council, which is headed by Treasury Secretary Timothy F. Geithner, voted privately last week to move some non-bank financial companies into the third -- and final -- stage of review for the designation.
"The council will undertake further analysis of these companies before voting on any proposed designations," a Treasury spokesman said. "The council will notify the companies that were advanced but does not intend to publicly announce the name of any non-bank financial company that is under evaluation before a final designation of such company."
AIG opted to make its consideration public in a statement Tuesday.
The government bailed out AIG in September 2008 as the company teetered neared a bankruptcy that could have caused cascading problems through the financial system because it had insured billions of dollars of mortgage-backed securities.
The Treasury and the Federal Reserve promised more than $182 billion in aid to AIG in exchange for a 92 percent ownership stake as part of a complex bailout. The government had been selling shares, reducing its stake in AIG, which has recovered financially.
Last month, Treasury officials said the sale of about $20.7 billion in AIG shares had reduced the government's stake to 15.9 percent and locked in at least a $15.1 billion profit for taxpayers.

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