Prudential drops Too Big to Fail label
The term ‘Too Big to Fail’ is a term popularised by U.S. Congressman Stewart McKinney during a discussion on the Federal Deposit Insurance Corporation's intervention with Continental Illinois. This refers to the theory that some financial institutions are so large and interconnected that their failure would be disastrous for the economic system.
For Prudential to be rescinded from the label of being a systematically important financial institution (SIFI), it shows that Prudential is no longer deemed to pose any systemic risks. This would also save Prudential could save millions in dollars in compliance cost as they now have a lesser regulation to comply to. This is especially so as the company had reported that it spent $135 million in 2016 on related reporting or activities. (Bloomberg)
Prudential is the last of the non-bank institutions that has dropped the label, after officials rescinded AIG and MetLife’s label. With regards to the larger picture, this indicates that it is unlikely that other non-bank giants such as Berkshire Hathaway Inc. or BlackRock Inc. will be declared systemically important financial institutions anytime soon.
Although this has been welcomed by Prudential and its investors, the change in label has potentially of undermined the aims of the Dodd Frank Act to make the financial system safer after the 2008 crisis.
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