American International Group (AIG) will give its banking unit back their money and close out their accounts. The move is because the Dodd-Frank Wall Street Reform and Consumer Protection Act has imposed limits on insurers that have units that take deposits.
In a letter to clients, the insurance giant said that retail deposit accounts would stop being serviced as of September 30 and AIG Bank will become a “trust-only organization.” Interest will be included in the fund returns.
AIG is streamlining its focus before rules limiting proprietary trading and investments by insurance companies in banking units in hedge funds or private equity go into effect. Already, Allstate Corp., Hartford Financial Services Group Inc., MetLife Inc. (MET) have stepped back from banking or sold deposits because of greater regulator oversight.
Because of AIG’s involvement in banking, the Office of Thrift Supervision was its main federal regulator before the economic crisis. In 2009, the OTS said that it “fell short” of that oversight and failed to identify the risk involved in the insurer’s credit-default swap portfolio. The US later spent $182.3 billion to bail out the insurer, which the latter repaid last year. AIG is now overseen by the Fed, and state watchdogs can regulate its insurance units.
In July, AIG received the designation of “systematically important,” which could subject it to stricter cap rules and additional oversight by the Fed. To receive this designation indicates that regulators believe the company could threaten the financial system if the insurer were to fail.
Our securities fraud law firm represents investors that sustained losses because financial representatives, investment advisers, broker-dealers and/or firm executives were negligent, careless, or committed financial fraud. Shepherd Smith Edwards and Kantas, LTD LLP has helped thousands of clients recoup their investments.
AIG to Close Down Savings Bank Unit Due to Dodd-Frank Limits, Insurance Journal, July 30, 2013
AIG to Shut Bank Accounts in Dodd-Frank Deposits Retreat, Bloomberg, July 29, 2013
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