The Federal Reserve on Monday said that it would apply new rules to oversee GE Capital in two phases, as GE slowly unwinds most of its banking operations as part of its efforts to have GE Capital de-classified as a “nonbank systemically important financial institution.”
Effective Jan, 1, 2016, GE Capital must comply with risk-based and leverage capital requirements, the liquidity coverage ratio rule, and related reporting requirements, the Fed said. These standards will help ensure that the bank maintains high-quality regulatory capital and liquidity in amounts commensurate with its risk as it executes its divestiture plan.
If GE Capital is still designated as a non-bank SIFI by the Financial Stability Oversight Council prior to Jan. 1, 2018, the company will be required to comply with liquidity risk-management, general risk-management, capital-planning, and stress-testing requirements, as well as restrictions on intercompany transactions.
Additionally, GE Capital would also be subject to certain governance requirements unique to its structure.
“This approach will assure that” GE Capital “maintains important loss buffers for its continuing operations while it executes its divestiture strategy,” Fed Governor Daniel Tarullo said. If the bank “is de-designated during the next two-and-a-half years, the full set of enhanced prudential standards will never take effect.”
A Reuters story said that GE’s financial arm was one of four non-banking companies that U.S. financial regulators deemed a SIFI, “a designation that comes with tougher and more costly rules enforced by the Fed to buffer the financial system should the firm collapse.”