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GE Capital asks to lose ‘too big to fail’ status

A woman is reflected on the black door of a General Electric refrigerator.
A woman is reflected on the black door of a General Electric refrigerator. FREDERIC J. BROWN/AFP/Getty Images

General Electric Co. is trying to convince federal regulators that its financial arm is no longer too big to fail.

Having sold off billions of dollars in consumer loans and other lending operations, the company Thursday formally asked that its GE Capital unit no longer be designated a “systemically important financial institution,” or SIFI. That’s a classification created after the 2008 crisis for companies that regulators believe could drag down the financial system if they collapsed.

SIFIs, which get heightened scrutiny by the Federal Reserve, must operate with limits on borrowing that can make some financial businesses less profitable. In the wake of the crisis, GE Capital found itself lumped in with some of the nation’s largest banks, insurance companies, and Wall Street firms.

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Since getting the designation in 2013, the maker of jet engines and power generators has been working to pare back GE Capital, which at the time accounted for more than half of GE’s profits. Its assets have dropped to $265 billion from $549 billion at the end of 2012.

“Our plan to change our business model, shrink the company and reduce our risk profile has been successful,” GE Capital chief executive Keith Sherin said in a statement Thursday. “We believe GE Capital no longer meets the criteria to be designated” a systemically important institution.

GE filed a “request for rescission” of that status with the Financial Stability Oversight Council, a body led by the US Treasury secretary that was created by the Dodd-Frank overhaul of Wall Street following the crisis. GE, which is moving its corporate headquarters to Boston from Fairfield, Conn., is the first company to apply to be released from the stepped-up oversight.

Insurer MetLife Inc. of New York won relief from the designation in federal court this week.

GE Capital and MetLife are two of four nonbank companies named by the FSOC. The other two are also insurers: New York-based American International Group Inc., which nearly failed in the crisis because of risky investments, and Prudential Financial Inc. of Newark, N.J.

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Treasury spokesman Rob Friedlander said in a statement that the Council “carefully reexamines each of its previous designations” yearly and invites the companies to make a case for changes.

But it was unclear how soon GE Capital’s 200-page filing would be reviewed or what the chances are that its request would be granted.

GE Capital plans to further reduce assets so they account for less than 10 percent of GE’s total earnings. Its remaining lending operations are linked to the parent company’s core businesses — aviation, energy, and health care. It’s no longer dealing in consumer credit cards or middle market loans and has shed the majority of its loans linked to real estate.

This week, GE also exited pension management, selling a $100 billion investment operation to Boston-based State Street Corp. for $485 million. While not part of GE Capital, the company positioned the sale as part of its overall effort to “focus on its industrial core.”

The slimming down of GE Capital comes as GE also is seeking to update its image as a high-tech innovator, with a footprint on Boston’s waterfront. The company has said it will move 200 corporate employees here and hire 600 designers and developers.

About 24,000 people work for GE Capital, which is based in Norwalk, Conn., not far from Fairfield. Total employment at GE is 333,000 globally.

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“Before the financial crisis, some of the largest, riskiest nonbank financial companies were not subject to adequate oversight,” Friedlander said in the statement. “The Council will continue to act within its authority to protect the US economy.”

In addition to GE Capital and the three insurers, the Council has named eight trading and clearing groups as systemically important, including the Chicago Mercantile Exchange.

The Dodd-Frank Act separately provides for enhanced oversight for banks with more than $50 billion in assets, a rule that covers about 30 of the nation’s largest banks and Wall Street firms.


Beth Healy can be reached at beth.healy@globe.com. Follow her on Twitter @HealyBeth.