Oversight

FSOC makes third designation in naming Prudential as SIFI

140px-US-DeptOfTheTreasury-Seal.svgThe Financial Stability Oversight Council voted on Thursday to designate Prudential Financial as a systemically important nonbank financial institution that threatens financial stability, an authority granted to the council under the Dodd-Frank Act.

“The Council has taken another important step to address threats to U.S. financial stability and the broader economy,” U.S. Treasury Secretary and FSOC Chairman Jacob J. Lew said. “The Council will continue to use critical new tools it has to monitor and address threats to U.S. financial stability and protect the broader economy from the types of risk that contributed to the financial crisis.”

Prudential’s designation—the third after AIG and G.E. Capital—subjects it to enhanced prudential standards and supervision by the Federal Reserve. The designation means that if the company were to find itself in financial distress, it poses a threat to the country’s financial stability.

The company received notice in June that the FSOC had proposed a designation. Prudential sought a hearing to contest the proposed designation, which was granted in July, though regulators proceeded with the designation.

“Because of Prudential’s interconnectedness, size, certain characteristics of its liabilities and products, the potential effects of a rapid liquidation of a significant portion of its assets, potential challenges with resolvability, and other factors described herein, material financial distress at Prudential could lead to an impairment of financial intermediation or of financial market functioning that would be sufficiently severe to inflict significant damage on the broader economy,” the FSOC said in its designation.

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