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Fed Orders Two-Phase Plan for GE Capital Standards

July 21, 2015, 07:15 AM
Filed Under: Regulatory News

The Federal Reserve Board on Monday issued a final order that establishes enhanced prudential standards for General Electric Capital Corporation (GECC), a nonbank financial company designated by the Financial Stability Oversight Council (FSOC) for supervision by the Board.

In light of the plan announced and in the process of execution by General Electric (GE), parent company of GECC, to substantially shrink GECC's systemic footprint and retain only those business lines that support GE's core industrial businesses, the final order provides for application of enhanced prudential standards in two distinct phases.

Because of the substantial similarity of GECC's current activities and risk profile to that of a large bank holding company, the enhanced prudential standards that would be applied to GECC are similar to those that apply to large bank holding companies, but are tailored to reflect the unique characteristics of GECC. The standards for both phases include: (1) capital requirements; (2) capital-planning and stress-testing requirements; (3) liquidity requirements; and (4) risk-management and risk-committee requirements.

The final order takes into account GE's announced timeline to accomplish this plan, progress made to date toward executing it, and GE's stated intention to seek de-designation by FSOC of GECC by phasing in GECC's compliance with the prudential standards in two stages. Effective January 1, 2016, GECC must comply with risk-based and leverage capital requirements, the liquidity coverage ratio rule, and related reporting requirements. These standards will help ensure that GECC maintains high-quality regulatory capital and liquidity in amounts commensurate with its risk as it executes its divestiture plan.

If GECC is still designated by the FSOC prior to January 1, 2018, GECC would be required to comply with liquidity risk-management, general risk-management, capital-planning, and stress-testing requirements, as well as restrictions on intercompany transactions. Additionally, GECC would also be subject to certain governance requirements unique to its structure.

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