American International Group (AIG) officials are looking favorably at federal oversight, as they say they are preparing for regulation by the Federal Reserve Board in addition to state monitoring.

“In a way, we see it as a big positive,” says Robert Benmosche, AIG's president and CEO.

It is believed that AIG will come under federal oversight as a systemically important financial institution (SIFI) under a provision of the Dodd-Frank financial-services reform law once federal ownership of the company dips below 50 percent.

Benmosche brought the issue of federal regulation to the front burner during a recent conference call with financial analysts following AIG's second-quarter earnings announcement.

“We really don't know when we will be regulated, but we do believe we will be regulated by the Federal Reserve, probably,” he told analysts. “We're putting an enormous amount of effort and cost to make sure that we are Fed-ready.”

However, the final level of Treasury Department ownership depends on how much it gets for the remainder of the offering. Earlier this month, strong investor demand for AIG's stock allowed the Treasury to reduce its ownership in the insurer to 53 percent from 61 percent—still above the 50-percent threshold needed to trigger federal regulation of AIG.

In his comments, Benmosche says AIG has made a comprehensive study of how it will be impacted by federal regulation and that its only concern is whether it should divest itself of its Wilton, Conn.-based thrift.

He acknowledged that AIG “is giving thought to whether we should now close the bank we have because we're concerned about that aspect of it, and an insurance company invests very differently than a bank would.”

But aside from that issue, he continues, “this is really about making sure we have a really good process and good controls, especially in the risk-management arena.”

Other carriers could be eligible for federal regulation either by being designated SIFI or because they own thrift-holding companies.

Special Reports /

AIG: Gearing Up for Regulation

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