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Regulation

FSOC rescinds Prudential’s systemically important financial institution designation

Prudential Financial Inc. Tower in Newark, N.J.

Prudential Financial's designation as a non-bank systemically important financial institution was rescinded by the Financial Stability Oversight Council, federal regulators announced Wednesday.

The council's vote was unanimous. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, Prudential was added in 2013 to a list of non-banks that regulators concluded would threaten the financial system if they collapsed.

The SIFI label brings tough oversight by the Federal Reserve and a series of difficult supervisory exercises, such as stress tests and the submission of strategies for how the companies can be safely wound down in a bankruptcy.

"The council's decision today follows extensive engagement with the company and a detailed analysis showing that there is not a significant risk that the company could pose a threat to financial stability," said Treasury Secretary Steven T. Mnuchin, in a news release. "The council has continued to act decisively to remove any designation that is not warranted."

In April 2017, President Donald Trump directed Mr. Mnuchin to launch a "thorough review" of the FSOC's designation methods, with a particular focus on making its approach more transparent and giving firms a better chance of getting out. Prudential was the last of four non-bank companies with the SIFI designation.

MetLife successfully sued to remove the designation and General Electric Capital reorganized and sold off parts of its business, which led to the designation being reversed. Last fall, the panel rescinded American International Group's designation in a 6-3 vote.

In a statement, Prudential said the decision affirms its long-standing belief that it never met the standard for designation. "This outcome reflects Prudential's sustainable business model, capital strength and comprehensive risk management, which have (enabled) and continue to enable us to fulfill our promises to our customers, deliver consistent performance and meet regulatory obligations," the statement said.

Dennis Kelleher, president and CEO of non-profit advocacy group Better Markets, said in a statement that the FSOC's designation decision is a "tragic dereliction of duty" and predicted it "will revive the shadow banking system by recreating the two-tier regulatory system which will incentivize the migration of risk from the higher regulated banking system to the unregulated shadow banking system."

In a separate statement, Susan Neely, president and CEO of the American Council of Life Insurers, applauded the decision. She said Prudential's designation "was the outcome of a flawed process that demonstrated a lack of understanding of the insurance business model and ignored state insurance regulators' effective oversight of the life insurance industry."