American International Group is no longer too big to fail. That's according to the Financial Stability Oversight Council. The official ruling from the Council is that a i G is no longer a systemically important financial institution or city. The label was pinned on it in in a step by regulators to protect the financial system from companies seen as posing a potential risk. AIGs collapse in two thousand and
eight was at the center of the financial crisis. With that city label came stricter government oversight and tighter capital rules. The Risk Council voted six to three to make the change, with Treasury Secretary Stephen Manuchin and Federal Reserve Chair Janet Yellen supporting it, along with several of the newer regulators appointed by President Trump. Joining us is Robert Hockett, a
professor at Cornell University Law School Bob. The decision was opposed by the director of the Consumer Financial Protection Bureau, the chairman of the fdi C, and the director of the Federal Housing Finance Agency, all Obama pointees. Was it the right decision? Well, I'll say this much and again thanks for having me on. It's not clearly the wrong decision,
even though it might be the often decision. And here's why there have been substantial changes at a I G, at least along one dimension that's actually relevant for these purposes, and that has to do essentially with the short term
character of its liabilities. The problem with a I G in two thousand and eight was that it was much like a bank in the sense that it's derivatives business was such as to render the firm prone to what we call run risks, that basically, people might suddenly call their various loans that have been made to I G in various forms, so that A I G might suffer
a significant liquidity crisis. It has since then spun off a lot of that derivatives business, and in that sense it's less prone to run risk than it used to be, and in that sense less bank like. On the other hand, it still is have been very, very interconnected with other financial firms throughout the economy. It still is also gigantic, and indeed it's now looking into acquiring other firms and becoming yet larger. So I think this is a kind
of a tough call. Miss. I'll say it wouldn't be clearly right to keep it a city, But it wouldn't have been clearly wrong to keep it one either, And in this case as well, I don't think it's clearly wrong, uh to sort of remove the designation as long as it stays the way it has become since the crisis, Bob, Prudential has been supposedly, you know, I'm laying the groundwork to try to get a similar ruling. Does this ruling mean the Prudential has got a good chance of getting
out from under the designation? I think it does mean that. I think, I mean, there are a number of reasons why it's probably why we should probably bet that it's not going to remain ASSIFFI. One is this ruling which suggests that the Council itself is becoming a little bit less strict than it was, and that's no surprise because
of all the Trump appointees. And the second is because in effect, Prudential has a bit of a blueprint now after looking at what happened at g E Capital, what happened at MetLife, and what happened at a I G. It has a kind of blueprint for what it has to do to look less systemically significant in the eyes of the Council. Bob, you explained how A I G
Is a smaller, leaner company. Now it's sold off a hundred billion dollars in assets, but the announced goal of its CEO is to now expand through mergers and acquisitions. Is that a dangerous move? It's definitely potentially dangerous. I certainly didn't mean to suggest that A I G is an extent small or lean um. It's it's definitely small lurb.
But as I mentioned before, it does intend to grow, and of course many of its shareholders are demanding this carl Icon among them, So it's going to become gigantic again if it's not indeed still gigantic. And therefore I think that the real focus of the f stock was probably on the liquidity risk that the institution faced. In other words, how panic prone was it right, how bank
run vulnerable was it? As long as it stays uh sort of less bank like in that particular sense, my impressions, the F stock is going to be less concerned even while it grows. Now. I don't think that's good necessarily. I think that size matters, and interconnectiveness matters even more. But it looks as I the F sac is currently focusing on liquidity risk and in so far as the i G seems to be less liquidity risky than it once was, the Fox seems to be viewing it as
in effect favor or less systemically dangerous. Well, Bob, you know, as with many of the court decisions, we see it, it looks like the who appointed the members has a big impact here. Is this really something that you think, uh, is you know, kind of based upon say, liquidity risk or is it is it just going to be one of these things where it depends which president appointed the members of the Council at the time as to how it gets enforced. Well, I sincerely hope that it's not
the ladder um. But that being said, I fear that it is in large part the ladder. That's just say to Trump has announced his intention right from the get go, and even back in January, notwithstanding all of his campaign promises to go much lighter on Wall Street. Even then the Obama administration had done and we should be clear, the Obama administration was not particularly rough on Wall Street, nor were the Congresses that were in session during Obama's presidency.
But nevertheless, Trump said he's going to go deeven lighter and it seems pretty clear that he's appointing people who have that intention. Bob in about thirty seconds about how much money does a I G save by not being a city. Oh, that's hard to calculate. Um, It's it's not just a matter of how much it saves in the form of costs to sort of put together living
wills and the like. It's also a matter of how much capital it no longer has to sort of maintain as a buffer, and thus which is able to invest in a sort of more speculative and it's potentially profitable but also potentially dangerous manner. I don't know that I can actually quantify that right here, June, you've done large. You've explained so much to us. One of our favorite guests, that's Bob Hocket. He is a professor at Ornell University Law School.