Prudential to fight U.S. proposal to label it 'systemic'

Tue Jul 2, 2013 7:19pm EDT
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By Sarah N. Lynch

WASHINGTON (Reuters) - Insurance company Prudential Financial Inc (PRU.N: Quote) said on Tuesday it will contest a proposal by the new U.S. risk council to designate it as systemically important, a tag that would subject it to stricter oversight by federal banking regulators.

In a financial filing on Tuesday, the company declared it would request a closed-door hearing before the Financial Stability Oversight Council, a new body of regulators created by the 2010 Dodd-Frank reform law.

"We continue to have faith in the integrity of the FSOC's review process, which provides for the ability to contest the proposed designation under the applicable regulations," the company said.

So far, only a small group of non-bank financial firms have revealed that the FSOC has proposed tagging them as systemic. Prudential's decision came one day before the end of a 30-day window to notify the FSOC that it intended to legally challenge the designation.

In deciding to appeal, Prudential is wading into uncharted legal territory.

The FSOC, which is chaired by the Treasury Secretary and comprised of the country's top federal financial regulators, is a relatively new federal body that is testing its legal powers.

It is tasked generally with policing for systemic risks in the marketplace. It has the specific power to classify large firms whose failure could threaten financial markets as "systemically important financial institutions," or SIFIs, which triggers additional scrutiny by the Federal Reserve.

The designation also comes with higher capital requirements and other costly rules.   Continued...