AIG 2011 Annual Report Download - page 35

ongoing process that has begun and is anticipated to continue over the next few years. While a number of
regulations have been adopted, other regulations have only been proposed or have yet to be proposed. Therefore,
AIG cannot predict with certainty the requirements of the regulations ultimately adopted or how or whether
Dodd-Frank and such regulations will affect the financial markets generally; impact AIG’s businesses, results of
operations, cash flows or financial condition; or require AIG to raise additional capital or result in a downgrade of
AIG’s credit ratings.
On January 5, 2012, the Board of Governors of the Federal Reserve System (the FRB) published for public
comment a notice of proposed rulemaking implementing the enhanced prudential standards and early remediation
requirements that will apply to non-bank systemically important financial institutions (SIFIs). If those rules are
adopted in the form proposed and AIG is designated as a non-bank SIFI, AIG would be required, among other
things,
• to comply with FRB regulations relating to capital plans and stress tests and to calculate AIG’s minimum
risk-based and leverage capital requirements, each as if it were a bank holding company;
• to maintain a Tier 1 risk-based capital ratio of four percent, a total risk-based capital ratio of eight percent
and a Tier 1 leverage ratio of four percent;
• to maintain a ratio of Tier 1 common equity to risk weighted assets of five percent under both expected and
stressed conditions in order to be able to engage in capital distributions;
• to comply with additional liquidity-related requirements, such as to produce comprehensive cash flow
projections, to regularly stress test cash flow projections, to maintain a liquidity buffer of highly liquid assets
that are unencumbered, to establish and maintain a contingency funding plan for liquidity stress events, and
to establish or maintain limits on potential sources of liquidity risk;
• not to have aggregate net credit exposure to any single unaffiliated counterparty that exceeds 25 percent of
AIG’s consolidated capital stock and surplus, or 10 percent if the counterparty has $500 billion or more in
total consolidated assets;
• to be subject to an annual stress test conducted by the FRB and annual and semi-annual self-administered
stress tests;
• to be subject to early remediation actions upon occurrence of trigger events (such as failure to maintain the
capital that is commensurate with the level and nature of the risks to which AIG is exposed, or
non-compliance with FRB’s stress test), which early remediation actions could vary from heightened
supervisory review by the FRB to an FRB-recommended resolution of AIG, based on the seriousness of the
trigger events;
• to maintain a debt-to-equity ratio, measured by ‘‘total liabilities’’ and ‘‘total equity capital’’, of no more than
15-to-1 upon a determination by the Financial Stability Oversight Council (the Council) that (i) the company
poses a grave threat to the financial stability of the United States and (ii) the imposition of such
requirement is necessary to mitigate the risk that such company poses to the financial stability of the United
States; and
• to comply with certain corporate governance requirements, such as additional responsibilities of the board of
directors and the creation of a separate risk committee of the board of directors.
Dodd-Frank’s potential impact on AIG also includes the following:
• The new legislation provides two scenarios in which the Board of Governors of the FRB could become
AIG’s regulator: (1) if AIG is recognized as a ‘‘savings and loan holding company’’ as defined by the HOLA
and/or (2) if Council designates AIG as a SIFI.
• If AIG becomes subject, as a savings and loan holding company, to the examination, enforcement and
supervisory authority of the FRB, the FRB would be required to impose minimum leverage and risk-based
capital requirements on AIG and its subsidiaries. AIG cannot predict what capital regulations the FRB
would promulgate under these authorizations, either generally or as applicable to insurance businesses, nor
AIG 2011 Form 10-K 21