U.S. Says AIG Still Too Big Too Fail, May Get Heightened Oversight

Insurance giant AIG (NYSE:AIG) is one of the major nonbank financial companies being considered for greater regulation and oversight under the Dodd-Frank act.

The company was notified that it was bumped to the third stage of the Financial Stability Oversight  Council’s review of nonbank financial firms on Tuesday, which would essentially tag AIG as “too big too fail” and put it under much stricter watch.

The decision followed a vote by the Council during a meeting held on Monday with Treasury Secretary Tim Geithner. The group is responsible for determining which banks and nonbank financial institutions are so big they would seriously threaten U.S. financial stability if they were to fail.

New York-based AIG said it received a notice from the Council that is being considered as a “systematically important financial institution,” or SIFI, under Dodd-Frank’s Wall Street reform rules.

Under section 113 of Dodd-Frank, the Council may designate nonbank financial companies for additional supervision by the Board of Governors of the Federal Reserve System.

The Council will further review AIG before it makes a final decision.

AIG has long said it expects to be tagged by the Council and has been preparing for the heightened scrutiny.

AIG has been working to pay back the U.S. government after its $182 billion bailout during the 2008 financial crisis. Last month, AIG said it would sell another $2 billion of its shares of Asian life insurer AIA Group in an effort to acquire another $5 billion of stock from the U.S. The government’s stake in the insurer has fallen from a high of 92% to as low as 53% recently.

Shares of AIG ticked slightly higher to $33.49 on Tuesday.