Earlier this week, the Financial Stability Oversight Council (FSOC) removed GE Capital from its list of systemically important financial institutions (or SIFIs). How big a deal is this? Big. And not so big. And a little bit scary. Let’s back up a bit to see why.
FSOC is a new entity created by Dodd-Frank. Its members are the heads of the federal financial agencies, with the Secretary of the Treasury serving as Chair. In comparison to other similar bodies, which only advise the president, FSOC has broad authority to act. Chief among its tools is the ability to designate an entity as a SIFI, and to impose stringent oversight and regulatory requirements on it thereafter.
The SIFI designation and attendant oversight have been promoted as a means to end Too Big to Fail. Many people, myself among them, have questioned how labeling entities as systemically important and putting them under greater oversight can possibly end Too Big to Fail. Isn’t a SIFI designation essentially the same as slapping a big “TBTF” label on the thing? Well, here’s where GE Capital’s story gets scary.