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AFR Statement: Regulators were wrong to remove Prudential Financial from list of systemically important financial companies

Submitted by on October 17, 2018 – 10:22 pm

FOR IMMEDIATE RELEASE

Oct. 17, 2018

CONTACT:

Marcus Stanley, marcus@ourfinancialsecurity.org, (202) 466-3672

Washington, D.C. – Today, the Financial Stability Oversight Council (FSOC) announced that it has reversed its designation of Prudential Financial, Inc. as a systemically important financial institution (SIFI). The Council, under the leadership of Secretary Mnuchin, has now freed from Federal Reserve consolidated oversight the last of the four previously designated nonbank SIFIs.

Americans for Financial Reform released the following statement:

An important lesson from the 2008 financial crisis is that financial distress or the failure of large nonbank financial institutions, like Lehman Brothers or AIG, can pose significant threats to U.S. and global financial stability. The Dodd-Frank Act established the FSOC precisely to designate the most systemically important of those institutions for enhanced, consolidated oversight by the Federal Reserve. It is disappointing and worrisome to see that ten years after the crisis the lesson seems forgotten and today no nonbank financial institution remains under enhanced regulations to protect the public from once again being called upon to bailout a “too big to fail” firm for the sake of financial stability.  

Prudential has actually grown its assets by 17 percent since it was originally designated as a SIFI, and is now an $832 billion company that remains significantly large and interconnected to the rest of the financial system through risky financial products and capital market activities. Prudential will once again be regulated using the same approach as was used for large insurance companies prior to the financial crisis, an approach that demonstrably failed to control systemic risk at insurers such as AIG. While there are strengths to the state-based approach, it is inadequate to address the systemic risks of a large global insurance company operating in numerous jurisdictions. By its actions and stated policies the Trump Administration FSOC has demonstrated that it is not willing to designate large non-bank financial companies for enhanced supervision even when they pose potential risks to the financial system, and has not learned the lessons of the 2008 financial crisis. That creates the potential for tremendous harm to our economic security.

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