GE Capital cuts back its lending business to escape stricter rules and supervision by the Federal Reserve
By Joe Rosengarten
The Financial Stability Oversight Council has decided to remove the ‘systemically important institution’ designation from GE’s lending arm after the U.S. colossus decided to significantly reduce its business. GE has been cutting away its financial business since April 2015, and since then has agreed to sell off almost $200 billion of lending assets.
GE’s scaling back of their lending business has led regulators to deem that the firm no longer poses a direct threat to the stability of the country’s economy. The removal of the designation will also enable the firm to escape tighter rules and capital requirements put in place after the financial crisis.
Regulators have been demanding that the big financial firms reduce their risk-taking, and GE’s move should be seen as a victory for both the Financial Stability Oversight Council and GE Capital itself.
“GE Capital has made fundamental strategic changes that have resulted in a company that is significantly smaller and safer, with more stable funding,” said Treasury Secretary and head of the oversight council Jacob Lew, in a statement.
After stepping back from the lending business, GE has put a more sustained focus on the manufacturing of jet engines, power turbines and its growing software division. The efforts to remove the ‘systemically important financial institution’ label allows GE to borrow up to $20 billion for further stock buybacks, GE executives said.
Regulators said that the Oversight Council voted unanimously in approval of the change in designation, although one member did recuse. This is the first time that a “systemically important” designation has been formally released since the label was created in 2010.
GE’s shares rose 1.6% to $30.42 just before 2pm on Wednesday in New York. Through Tuesday, the firm was down 3.9% percent this year.
The Financial Stability Oversight Council has decided to remove the ‘systemically important institution’ designation from GE’s lending arm after the U.S. colossus decided to significantly reduce its business. GE has been cutting away its financial business since April 2015, and since then has agreed to sell off almost $200 billion of lending assets.
GE’s scaling back of their lending business has led regulators to deem that the firm no longer poses a direct threat to the stability of the country’s economy. The removal of the designation will also enable the firm to escape tighter rules and capital requirements put in place after the financial crisis.
Regulators have been demanding that the big financial firms reduce their risk-taking, and GE’s move should be seen as a victory for both the Financial Stability Oversight Council and GE Capital itself.
“GE Capital has made fundamental strategic changes that have resulted in a company that is significantly smaller and safer, with more stable funding,” said Treasury Secretary and head of the oversight council Jacob Lew, in a statement.
After stepping back from the lending business, GE has put a more sustained focus on the manufacturing of jet engines, power turbines and its growing software division. The efforts to remove the ‘systemically important financial institution’ label allows GE to borrow up to $20 billion for further stock buybacks, GE executives said.
Regulators said that the Oversight Council voted unanimously in approval of the change in designation, although one member did recuse. This is the first time that a “systemically important” designation has been formally released since the label was created in 2010.
GE’s shares rose 1.6% to $30.42 just before 2pm on Wednesday in New York. Through Tuesday, the firm was down 3.9% percent this year.
