The Biden administration has reportedly started the preliminary work to impose stricter regulations on nonbank firms, as per a Wall Street Journal (WSJ) report. The move comes amid heightened concerns about the stability of nonbanks, a category that includes asset managers, hedge funds, insurance companies, mortgage companies, and cryptocurrency exchanges.
The collapse of FTX, a cryptocurrency exchange, reinforces the need for better regulations for financial companies that are not classified as banks.
Efforts to Address Risks Related to Nonbanks
Citing people familiar with the matter, the WSJ report stated that the Financial Stability Oversight Council (FSOC) would likely ease or revoke the regulations implemented during the Trump administration that had limited the scrutiny of nonbanks.
The FSOC’s efforts are expected to make it easier to categorize nonbank firms as systemically important financial institutions (SIFI). The SIFI designation implies that the collapse of the financial company would lead to a serious risk to the economy and thus requires tighter government scrutiny. Presently, this designation is applicable only to the country’s largest banks. The FSOC’s work related to nonbanks is reportedly in the early stages and could be implemented in the first few months of 2023.
Interestingly, under the Obama administration, the FSOC assigned the SIFI designation to American International Group (AIG), GE Capital, Prudential Financial (PRU), and MetLife (MET). The council also reviewed BlackRock (BLK) and Berkshire Hathaway (BRK.A) (BRK.B) but decided that these two firms didn’t qualify as SIFIs.
Nonetheless, the SIFI tag for GE Capital was removed in 2016 as the financial institution shrank in size by divesting certain businesses. Meanwhile, the SIFI status of AIG, Metlife, and Prudential Financial was removed under the Trump administration.
Using TipRanks’ Stock Comparison Tool, let’s find out which of these nonbank publicly trading companies scores the Street’s “Strong Buy” consensus rating.