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AIG considers eliminating banking division as a result of Volcker Rule

Robert Benmosche

American International Group is considering closing its banking unit as regulatory burdens increase.

“We are discussing internally the effects the Volcker [R]ule could have on us,” Robert Benmosche, the CEO of AIG, said on Friday, according to Bloomberg. “We are giving thought to whether we should now close the bank we have.”

Several insurance groups, including MetLife, Allstate, Ameriprise and Hartford Financial Services, are also considering eliminating their banking units.

“They can be subject to less regulation and all the associated costs by simply disposing of the bank,” James Barth, a finance professor at Auburn University, said, Bloomberg reports. “If the bank is a small portion of its overall activities, then one has to say, ‘Why keep the bank?’”

Should AIG choose to keep its banking division, the company would then be subject to the Volcker Rule, which prohibits banks from engaging in proprietary trading and investment in equity and hedge funds. The rule contains an exemption for insurers trading for general accounts, but AIG said that “the final breadth and scope of this exemption is uncertain,” Bloomberg reports.

In 2010, AIG sold a majority stake in American General Finance, its consumer lender, to Fortress Investment Group. The Office of Thrift Supervision then became AIG’s chief federal regulator before the financial crisis.

The OTS in 2009 said that it “fell short” in its supervision of AIG, which received a $182.3 billion taxpayer-funded bailout. Using proceeds from asset sales, AIG has reduced outstanding U.S. aid by approximately $30 billion. The U.S. Treasury owns 61 percent of AIG, and the company said that when the government’s stake falls below 50 percent, it will likely be regulated by the Federal Reserve as a savings-and-loan holding company, according to Bloomberg.

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