GE Erases ‘Too-Big-to-Fail’ Tag with Sale of Financial Businesses

By Richard Clough | June 29, 2016

General Electric Co. won approval to drop its designation as a too-big-to-fail financial institution, capping a transformation that has included the sale of nearly all of its lending business.

The decision marks the first time a company has been granted formal release by the Financial Stability Oversight Council, it said Wednesday in a statement.

GE has been working with regulators for more than a year to escape the classification — which identifies companies whose failures would threaten U.S. financial stability — and the increasingly restrictive capital and leverage requirements that come with it.

“GE Capital has made fundamental strategic changes that have resulted in a company that is significantly smaller and safer, with more stable funding,” Treasury Secretary Jacob Lew, who also heads the oversight council, said in the release. “After a rigorous review and engagement with the company over the last year, the council determined that based on these changes, the designation is no longer warranted.”

The move marks a victory for Chief Executive Officer Jeffrey Immelt, who opted to sell nearly $200 billion of finance assets with the goal of removing the company’s designation as a systemically important financial institution. By pulling GE out of the lending business built up under former CEO Jack Welch, Immelt has shifted focus to industrial manufacturing and a growing software division.

Since unveiling the plan in April 2015, GE has unloaded businesses including vehicle-fleet financing and commercial real estate. The company plans only to retain financial units, such as aircraft leasing, that support GE’s manufacturing operations.

The Financial Stability Oversight Council, a panel of regulators that identifies systemic risks, in 2013 named GE Capital as one of four systemically important nonbank financial firms. The designation tightened regulatory scrutiny of the unit and in coming years will lead to stricter capital-planning and stress-testing requirements.

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