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WASHINGTON Prudential Financial Inc. became the third nonbank firm on Thursday to be designated as a risk to the financial system by a group of regulators.
September 19 -
Federal Reserve Board Chairman Ben Bernanke on Wednesday avoided giving specifics on how the central bank will oversee a growing list of nonbank financial companies deemed systemically risky.
September 18 -
Prudential Financial was given the opportunity to challenge its designation as a "systemically important financial institution" in a closed-door hearing with the Financial Stability Oversight Council.
July 23
WASHINGTON Prudential Financial has opted not to appeal a decision made by U.S. regulators to label the firm as a risk to the financial system.
In a statement on Friday, the Newark, N.J.-based insurance giant said it "will not seek to rescind" the decision made by the Financial Stability Oversight Council earlier this year to designate the company as a non-bank systemically important financial institution.
"The company will continue to work with the Board of Governors of the Federal Reserve System and other regulators to develop regulatory standards that take into account the differences between insurance companies and banks, particularly in the use of capital, and that benefit consumers and preserve competition within the insurance industry," the company said in its statement.
In September, Prudential became the third nonbank firm to be officially designated by the council, which is headed by Treasury Secretary Jacob Lew. That decision came after the company protested an initial June decision to designate the firm.
The company had 30 days to consider its response to FSOC's final determination.
Jaret Seiberg, an analyst with Guggenheim Securities, said Prudential's decision to forgo yet another appeal was outweighed by the costs of "going to legal war against your regulator" a proposition that is always "risky."
"It tends to lead to hardened positions at the regulators, which increases the risk that regulations will be poorly crafted and have unintended consequences," Seiberg wrote in an analyst note. "Regulators also may be less receptive to input from the financial firm if that firm is also suing the agency."
Instead, Prudential now has the opportunity to provide feedback to the Fed in how it crafts the rules it will now face.
Prudential joins American International Group and GE Capital in facing a tougher set of supervisory standards and will be required to prepare and file a plan with regulators detailing how to safely unwind the company if it's on the brink of failure. It's unclear exactly what additional capital and liquidity requirements those nonbank firms would face under the Fed's supervision.
