Love it or hate it, the Dodd-Frank Wall Street Reform and Consumer Protection Act is real, and its effects are beginning to settle on the financial markets. The Financial Stability Oversight Council, an agency created and given powers by the Dodd-Frank Act, reported Tuesday that the first nonbank financial institutions have been designated as systemically important. American International Group Inc. (NYSE:AIG) and GE Capital (NYSE:GE) will now both be subjected to consolidated supervision and enhanced prudential standards.
“Today, the Council has taken a decisive step to address threats to U.S. financial stability and create a safer and more resilient financial system,” said Treasury Secretary Jacob J. Lew, chairman of the council. “These designations will help protect the financial system and broader economy from the types of risks that contributed to the financial crisis. The Council will continue to review additional companies in the designations process, to address remaining threats to financial stability.”
The new designation subjects the companies to regulation by the Board of Governors of the Federal Reserve, which is not necessarily new. Both firms are already in some way supervised by the Fed and, after the Dodd-Frank act was passed in 2010, saw this move coming. GE Capital and AIG have made substantial efforts in the post-crisis era to streamline operations to stabilize their financial positions, and both are arguably better off now for the changes.