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AIG no longer risk to US financial stability

Any failure of AIG, one the world's largest insurers, would no longer officially pose a threat to US financial stability. Rescued by the government during the 2008 financial crisis, AIG is no longer "too big to fail."

Regulators at the Financial Stability Oversight Council voted 6-3 on Friday to end classification of AIG as an institution whose failure could "pose a threat to US financial stability," the Treasury Department said on Friday. Shares in AIG rose 1.0 percent on the news.

"The Council has worked diligently to thoroughly reevaluate whether AIG poses a risk to financial stability," Treasury Secretary Steven Mnuchin said. Other regulators, including Federal Reserve Chair Janet Yellen, also backed the move.

"The Council's decision reflects the substantial and successful de-risking that AIG's employees have achieved since 2008," said AIG chief executive Brian Duperreault.

AIG was a symbol for excessive Wall Street risk-taking during the 2008 crisis.

The decision represents one of the most high-profile examples of the push by the Trump administration to dismantle what it sees as unnecessary regulatory burdens erected following the 2008 financial crisis. 

The government saved AIG with a $182 billion (160 billion euros) bailout that was later fully repaid. AIG was on the verge of collapse under tens of billions of dollars of souring, unhedged derivatives contracts in September 2008 when it sought liquidity from the New York Fed.

Back to light touch regulation 

Under the 2010 Dodd-Frank Act, which toughened financial regulations in an effort to avoid a repeat of the 2008 crisis, the oversight panel had the power to designate non-bank institutions such as AIG as systemically important financial institutions, meaning that their failure could pose a risk to the entire financial system.

At the same time investment banking giant Lehmann Brothers was allowed to fail.

The US government agreed to lend AIG an initial $85 billion in exchange for a 79.9 percent controlling stake, which it sold in December 2012.

AIG recovered its leading role in the US industrial and property insurance market after it unloaded key international units.

If AIG had failed, former Treasury Secretary Henry Paulson said in 2015 in a trial over whether the bailout was even legal, "it would have taken down the financial system and hurt millions of Americans."

New York-based AIG is now about half the size it was when it nearly collapsed during the financial crisis.

jbh/kl (AFP, AP)

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