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From Banking and Finance Law Daily, June 29, 2016

GE Capital SIFI designation rescinded

By Richard A. Roth, J.D.

The Financial Stability Oversight Council has decided, without dissent, that GE Capital Global Holdings, LLC, should no longer be designated as a systemically important financial institution. Changes the company has made since its designation mean that material financial distress at the company would not pose a threat to U.S. financial stability. As a result of the vote, GE Capital no longer will be subject either to Federal Reserve Board supervision or to an enhanced prudential standards regime, the FSOC said.

According to Treasury Secretary Jacob J. Lew, GE Capital was designated as a SIFI in 2013 principally due to concerns over the extent of its reliance on short-term wholesale funding and its importance in many funding markets. Since then, the company has "executed significant divestitures, transformed its funding model, and implemented a corporate reorganization," which together have greatly reduced the financial stability threat that the company could pose.

The FSOC noted that GE Capital has been meeting with FSOC staff for more than a year to discuss steps the company could take to reduce its threat level.

Basis for rescinding designation. The FSOC provided a public, 23-page explanation of the reasons for the original designation and the reasons for the rescission. While the rescission was based in part on nonpublic information that GE Capital submitted, the explanation said that the company has:

  • reduced its use of wholesale funding and the exposures of large financial institutions to the company by reducing its outstanding commercial paper by 88 percent and reducing its share of the U.S. commercial paper market to less than 0.1 percent;
  • replaced lines of credit from 54 financial institutions with a single credit line from its parent company, General Electric Corporation;
  • reduced its reliance on sources of short-term funding by 86 percent, reduced the size of its balance sheet, and increased the highly liquid assets it could sell if necessary;
  • ceased lending to small businesses and consumers and greatly reduced its receivables financing activities; and
  • simplified its organizational structure by reducing the number of legal entities in the structure and, for the most part, separating its U.S. and non-U.S. assets.

GE Capital has divested about $272 billion in assets since 2013, the explanation observed. The reduced reliance on short-term funding has brought about an increased reliance on more stable long-term debt; moreover, the total of the company’s long-term debt has fallen from $269 billion at the end of 2012 to $159 billion at the end of the first quarter of 2016. Also, GE has guaranteed almost all of GE Capital’s long-term debt and commercial paper, the FSOC said.

Companies: GE Capital Global Holdings, LLC; General Electric Corporation

MainStory: TopStory DoddFrankAct FederalReserveSystem FinancialStability

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