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AIG stripped of ‘too big to fail’ label

‘NO THREAT’:Trump said he would nominate a new Fed chair within weeks after meeting with candidates, including Kevin Warsh, Fed governor during the 2008 crisis

AFP, WASHINGTON

American International Group Inc (AIG), rescued by the US government at the peak of the 2008 financial crisis, will no longer face the stricter oversight of a “too big to fail” institution, the US Department of the Treasury said on Friday.

Regulators with the Financial Stability Oversight Council voted 6-3 to relieve AIG of the designation that its failure could “pose a threat to US financial stability,” the department said.

The move greatly eases the regulatory oversight of AIG, which was rescued in a government bailout at the height of the crisis because of its close links with other key financial institutions.

The US government saved AIG with a controversial US$182 billion bailout that was later repaid in full by the insurer in what was one of the most momentous decisions taken at the height of the crisis.

Once the world’s largest insurer, AIG was teetering on the verge of collapse under tens of billions of US dollars of souring, unhedged derivatives contracts in September 2008, when it sought liquidity from the New York Fed.

On the same climactic weekend that they let investment banking giant Lehmann Brothers Holdings Inc fail, the government agreed to lend AIG an initial US$85 billion in exchange for a 79.9 percent controlling stake.

AIG was saved as the global financial system stood at the brink of disaster. The insurer recovered its leading role in the US industrial and property insurance market after it unloaded key international units.

The treasury sold its final shares in December 2012.

“The council has worked diligently to thoroughly reevaluate whether AIG poses a risk to financial stability,” US Secretary of the Treasury Steven Mnuchin said. “This action demonstrates our commitment to act decisively to remove any designation if a company does not pose a threat to financial stability.”

Mnuchin was joined in the majority by other regulators including Federal Reserve Chair Janet Yellen.

Those voting against included Consumer Financial Protection Bureau Director Richard Cordray.

“The council’s decision reflects the substantial and successful derisking that AIG’s employees have achieved since 2008,” AIG chief executive Brian Duperreault said.

“The company is committed to continued vigilant risk management and to working closely with our numerous regulators to enable a strong AIG to continue to serve our clients,” he added.

Separately, US President Donald Trump on Friday said he would select his nominee to be the next Fed chair within weeks, after meeting potential candidates.

Trump said he would decide who chairs the US central bank after interviewing Kevin Warsh, a Fed governor during the 2008 financial crisis and former Morgan Stanley banker, Fed Governor Jerome Powell and two other candidates.

“I’ve had four meetings,” Trump said as he left the White House for a weekend at his golf club in New Jersey. “I’ll be making a decision over the next two or three weeks.”

The US leader has to decide whether to replace Yellen as Fed chair when her four-year term is up in February next year.

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