Prudential Financial Inc., the second-largest U.S. life insurer, abandoned its challenge to a U.S. designation from a Treasury Department panel that subjects the company to increased regulatory oversight.
The insurer opted against filing a lawsuit seeking to overturn its status as a systemically important financial institution, or SIFI, Newark, New Jersey-based Prudential said yesterday in a statement.
The firm decided that “after careful review, it will not seek to rescind the designation,” according to the statement.
Prudential, led by Chief Executive Officer John Strangfeld, in July became the first company to challenge a SIFI designation from the Financial Stability Oversight Council. The council, which counts Treasury Secretary Jacob J. Lew as chairman, rejected Prudential’s appeal in September, and the insurer had 30 days in which to file a court challenge.
“Material distress at Prudential could pose a threat to the financial stability of the United States,” Lew’s panel said in September.
The council was authorized by the 2010 Dodd-Frank Act and charged with preventing another financial crisis by identifying too-big-to-fail firms whose collapse could threaten the economy. The vote to designate Prudential was 7 to 2, with Edward DeMarco, acting director of the Federal Housing Finance Agency, and Roy Woodall, a former Kentucky insurance regulator, voting against.
Asset Quality
“No large financial institution has more than a de minimus amount of its equity capital exposed to Prudential,” DeMarco said in his dissent. The FSOC’s analysis of Prudential’s balance sheet “does not fully take account of the stability of Prudential’s liabilities, the quality of its assets, or the strength of its equity capital.”
American International Group Inc. and General Electric Co.’s finance unit were also labeled non-bank systemically important financial institutions this year, and neither company contested the decision. AIG took a U.S. bailout that swelled to $182.3 billion amid the financial crisis. Prudential didn’t take rescue funds.
MetLife Inc., the largest U.S. life insurer, has said it’s in the last stage of review to be designated systemically important. Steve Kandarian, MetLife’s CEO, has said his firm shouldn’t be deemed a SIFI. New York-based MetLife has about $816 billion of assets, compared with $706 billion at Prudential, as of June 30.
Leverage, Liquidity
The Federal Reserve can impose tighter capital, leverage and liquidity rules on SIFIs and demand measures including stress-testing and wind-down plans. The largest U.S. banks are subject to similar measures. The final rules for non-banks that are deemed SIFIs haven’t been written. Insurers have traditionally been monitored by state regulators in the U.S.
MetLife and Prudential have been pressing the Fed to avoid regulating insurers with bank-like capital rules tied to the Basel III standard. MetLife has said bank standards may miss risks related to insurance liabilities.
Prudential will work with overseers to “develop regulatory standards that take into account the differences between insurance companies and banks, particularly in the use of capital,” the company said in its statement. Suzanne Elio, a Treasury spokeswoman, declined to comment.
–With assistance from Ian Katz in Washington. Editors: Dan Kraut, Steven Crabill