Regulators Tell AIG, Prudential And GE Capital to Improve 'Living Wills'

By Ryan Tracy 

        WASHINGTON--Regulators told three huge financial firms to do a better job explaining how they would handle a bankruptcy without harming the U.S. economy, signaling that the companies have work to do to avoid regulatory sanctions in the future.
        The firms-- General Electric Co.'s financing arm, American International Group Inc. and Prudential Financial Inc.--have been designated "systemically important." The label comes with a requirement for the companies to draft credible "living will" plans for their own demise that don't involve support from taxpayers.
        The Federal Reserve and the Federal Deposit Insurance Corp. said Tuesday the three firms need to make improvements to their plans before they file new versions at the end of this year. Although the regulators called for improvements, their tone was softer than the one they struck with a set of the largest U.S. banks that went through the "living will" process last year. Regulators at the time raised doubts about the credibility of 11 big banks including J.P. Morgan Chase & Co. and Citigroup, Inc. and directed them to make significant revisions or face regulatory sanctions.
        Under the 2010 Dodd-Frank law, the Fed and FDIC can force systemically important firms without credible living wills to break apart or maintain more loss-absorbing capital.
        The regulators asked the three nonbank financial firms Tuesday for more detailed information and analysis about how they would overcome obstacles to orderly bankruptcy, such as ensuring that offices around the globe would have funding during a crisis. They gave each firm individual feedback and instructed them to describe "the progress they are making, and the steps remaining," toward making it easier to unwind the firm without taxpayer support.
        They said their feedback was tailored to the specific business model of the firms--a nod to fears that the two agencies, which have historically regulated banks, would try to impose banklike rules on insurance firms.
        The Fed and FDIC also told the three firms to put more information into the public versions of the "living wills."
        AIG declined to comment, and a Prudential spokesman said the company "will carefully consider" the regulators' feedback.
        A spokesman for the GE unit, GE Capital Corp., said the firm "will work to address" the issues regulators raised.
        Jim Wigand, a former FDIC official who is managing director at restructuring firm Millstein & Co., said Tuesday's move was similar to guidance regulators gave big banks before the stinging rebuke last August, in that it gives the three firms "additional direction as to where improvements need to be made" without explicitly threatening "additional actions to be taken by the regulators."
        GE Capital appeared to get a bit more leeway from the Fed and FDIC. The regulators said their feedback to the firm acknowledged its plans to sell off major pieces of the finance unit in an effort to reduce its importance to the broader financial system.
        Last week, the Fed gave GE Capital a temporary reprieve from stricter capital and liquidity rules that apply to the largest financial firms. GE Capital is planning to apply to remove the "systemically important" label next year, arguing it has made enough changes that it should no longer have to submit living wills and meet stricter capital rules.
        Write to Ryan Tracy at ryan.tracy@wsj.com
        (END) Dow Jones Newswires

        July 28, 2015 17:07 ET (21:07 GMT)

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