These Companies Might Rather Not Be So Important

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Usually, it's a good thing to be considered important -- unless you are talking about financial institutions being systemically important enough to cause economic upheaval if they fail, prompting extra governmental oversight. For banks, this is a category that includes the biggest and most powerful, such as Bank of America (NYSE: BAC  ) and JPMorgan Chase (NYSE: JPM  ) . These institutions may not like this designation, or the scrutiny that goes along with it, but they expect it as a part of doing business.

For companies such as General Electric (NYSE: GE  ) and MetLife (NYSE: MET  ) , however, the designation as a systemic risk may be unwanted -- and, according to some company officials -- unwarranted.

Dodd-Frank's attempt to protect the system from collapse
The Financial Stability Oversight Council, created by the Dodd-Frank legislation and overseen by the Treasury, is currently considering a handful of non-banks for the status of systemically significant: Insurers AIG (NYSE: AIG  ) , Prudential (NYSE: PRU  ) , and MetLife, in addition to GE.Recently, both GE and AIG were notified that they had entered a third stage of review to determine if they pose a high risk to the financial system.

While the mission of the FSOC is laudable, at least one company has found the council's dedication to avert another financial crisis a bit of a headache. Last spring, MeLlife's president testified at a congressional hearing that insurance companies should not be held to the same stringent capital requirements as banks. It isn't difficult to understand this point of view, since the insurer's banking arm reflected less than 2% of earnings for last year.

Finding its pleas falling on deaf ears, MetLife has been striving to rid itself of its banking arm in an attempt to get out of regulators' sights. Its plan to sell its bank business to GE Capital has been stalled by the Federal Deposit Insurance Corporation, whose blessing is necessary for the deal to close. The insurer is so desperate to leave the financial sector behind that the parties have now agreed to change the destination of MetLife's bank deposits to GE Capital Retail Bank -- which is overseen by the Office of the Comptroller of the Currency, rather than the FDIC.

As for giant insurer AIG, the recent stock sales that reduced the government's ownership of the company has exposed the company, the owner of a small bank, to increased regulation by the Federal Reserve.

One Fool's take
The reality of heightened federal oversight of non-bank entities is  here to stay, since Dodd-Frank gives the FSOC wide latitude to decide which of these companies poses significant financial risk to the economy. Since AIG has proved that it certainly fits that profile, chances are good that the shoe will fit, and AIG will be forced to wear it.

As for MetLife, it should be out from under the government's intense gaze as soon as its amended deal with GE closes. GE, of course, is bulking up its banking business with this purchase, which makes the high-risk designation look more probable for this company.

While these companies don't welcome additional rules and regulations, there is no reason to believe that more oversight will hurt their profits any more than it does the large banks'. Hopefully, the new rules, equitably applied, will help keep the financial system on an even keel -- which should help safeguard everyone's bottom line.

Fool contributor Amanda Alix has no positions in the stocks mentioned above. The Motley Fool owns shares of American International Group, Bank of America, General Electric Company, and JPMorgan Chase & Co. and has the following options: long JAN 2014 $25.00 calls on American International Group. Motley Fool newsletter services recommend American International Group. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2052028, ~/Articles/ArticleHandler.aspx, 10/26/2016 5:47:47 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 8 hours ago Sponsored by:
DOW 18,169.27 -53.76 -0.30%
S&P 500 2,143.16 -8.17 -0.38%
NASD 5,283.40 -26.43 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/25/2016 4:00 PM
AIG $60.55 Up +0.23 +0.38%
American Internati… CAPS Rating: ***
BAC $16.72 Down -0.05 -0.30%
Bank of America CAPS Rating: ****
GE $28.65 Down -0.27 -0.93%
General Electric CAPS Rating: ****
MET $46.29 Down -0.35 -0.75%
MetLife CAPS Rating: *****
PRU $82.89 Down -0.65 -0.78%
Prudential Financi… CAPS Rating: ****