American International Group (AIG), the first non-bank to disclose it’s under consideration to be labeled a potential risk to the financial system, said it won’t contest such a designation, which could lead to tighter capital rules.
'In fact, we welcome supervision by the Federal Reserve', Chief Executive Officer Robert Benmosche said in a November 1st letter to the office of the Financial Stability Oversight Council.
Bloomberg reports that Federal regulators are evaluating which non-banks should be subject to additional oversight as systemically important financial institutions to prevent a repeat of the bailouts that were undertaken in 2008 to stabilize the economy. Benmosche has scaled back risk and sought to assure investors, clients and regulators that AIG is better able to weather a downturn.
'AIG today is remarkably smaller in size, far less complex, and operates with a markedly improved risk profile compared to 2008', Benmosche said in the letter. 'We have had extraordinary success in de-risking our business'.
In the meantime, Bloomberg also reports that Starr International Co.’s lawsuit against the Federal Reserve Bank of New York over the government’s bailout of AIG was dismissed by a federal judge in New York.
Starr, an AIG shareholder headed by the insurer’s former chief executive officer, Hank Greenberg, claimed the government used its 2008 bailout of the New York-based company to channel money improperly to its trading partners. U.S. District Judge Paul Engelmayer in Manhattan rejected the claims in a decision that was made public November 16th.
Starr sued the New York Fed last November, saying it breached its fiduciary duty to AIG shareholders by loaning $85bn at 14.5% interest while offering better terms to banks in a 'backdoor bailout'. AIG almost collapsed after bets tied to the housing market soured, and the bailout was revised at least four times before reaching $182bn.
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