AIG to sell thrift to avoid Volcker Rule restrictions

Robert Benmosche

American International Group plans to sell off its savings and loan due to concerns regarding the restrictions that would be imposed by the controversial Volcker Rule, not federal regulations.

Robert Benmosche, the president and CEO of AIG, welcomed federal regulation, saying “we want someone over our shoulder,” particularly in the wake of the firm’s $2.77 trillion bailout in 2008, LifeHealthPro reports.

If the company does sell off its thrift, AIG will most likely be subject to federal regulation by the Financial Stability Oversight Council as a non-bank. The bank would also be subject to consolidated-asset oversight by the Federal Reserve. Benmosche said that he wants the Fed to restore AIG’s credibility through rigorous oversight.

Benmosche said that to accomplish that, AIG would have to present to the Fed a strong balance sheet so that the central bank will allow the firm to pay shareholder dividends, according to LifeHealthPro.

Additionally, Benmosche said that the firm would soon sell a small bank owned by AIG, as insurers take long-term positions in securities to match the long-term nature of liabilities, adding that the Volcker Rule, a provision of the 2010 Dodd-Frank Act that seeks to prohibit proprietary trading, may not allow the firm to take such positions.

“The Volcker Rule, as a rule, doesn’t really work for insurance companies as it does for banks,” Benmosche said, DealBook reports. “Some of the investments they want to prohibit, an insurance company has to make because of long liabilities.”

AIG may still be subject to limits on proprietary trading even after it sells the bank. The Volcker Rule under Dodd-Frank mandates that “systemically important” financial institutions can be subject to the restrictions even if they are non-banks or do not have bank holdings.

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