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Why GE’s Lending Arm Had a ‘Systemically Important’ Label

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What’s a SIFI?

A systemically important financial institution (or SIFI) is defined as a bank, insurance company, or other financial institution whose failure could trigger a financial crisis.

SIFI is a label that requires companies to adhere to sticker rules and regulations. This adherence is supervised by the Federal Reserve.

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Why General Electric’s lending arm was classified as SIFI

Following the 2008 financial crisis, General Electric’s (GE) financial services business had substantial exposure to wholesale funding and underwriting. GE’s financial services (XLF) business had assets worth more than $400 billion, making it equivalent to the seventh largest bank in the United States.

Due to GECC’s (General Electric Capital Corporation) sheer size and ability to disrupt the economy in the event of trouble, it was categorized as a SIFI by the Federal Reserve. As a result, it was subject to stricter regulations.

Following the 2008 financial crisis, MetLife (MET), Prudential Financial (PRU), and American International Group (AIG) also came under the Fed’s radar.

Investors who want to understand General Electric’s business model in a simplified manner can refer to Market Realist’s overview of its business.

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