AIG 2011 Annual Report Download - page 36

can AIG predict how the FRB would exercise general supervisory authority over AIG. AIG expects,
however, that when the Department of the Treasury ceases to own at least 50 percent of the outstanding
shares of AIG Common Stock, AIG will become regulated by the FRB as a savings and loan holding
company.
• If AIG is designated as a SIFI the FRB could (i) limit AIG’s ability to merge with, acquire, consolidate with,
or become affiliated with another company, to offer specified financial products or to terminate specified
activities; (ii) impose conditions on how we conduct our activities or (iii) with approval of the Council, and a
determination that the foregoing actions are inadequate to mitigate a threat to U.S. financial stability,
require AIG to sell or otherwise transfer assets or off-balance-sheet items to unaffiliated entities.
• In either scenario, AIG would become subject to stress tests to determine whether, on a consolidated basis,
AIG has the capital necessary to absorb losses due to adverse economic conditions.
• The Council may recommend that state insurance regulators or other regulators apply new or heightened
standards and safeguards for activities or practices that AIG and other insurers or other financial services
companies engage in.
• In October 2011, federal regulators issued a proposed rule implementing certain provisions in Dodd-Frank
referred to as the ‘‘Volcker Rule’’. Under the proposed rule, if AIG continues to control AIG Federal
Savings Bank, AIG and its affiliates would be considered banking entities and would become subject to the
provisions of Dodd-Frank prohibiting, subject to the rule’s exceptions, ‘‘proprietary trading’’ and the
sponsorship of, or investment in, hedge, private equity or similar funds and the provision of guarantees
related to such activities. Even if AIG no longer controlled an insured depository institution, AIG might still
be subject to additional capital and quantitative limitations under the Volcker Rule. The Volcker Rule, as
proposed, contains an exemption for proprietary trading by insurance companies for their general account,
but the final breadth and scope of this exemption is uncertain.
• Title II of Dodd-Frank provides that a financial company whose largest United States subsidiary is an insurer
may be subject to a special liquidation process outside the federal bankruptcy code. That process is to be
administered by the Federal Deposit Insurance Corporation (the FDIC) upon a coordinated determination
by the Secretary of the Treasury, the director of the Federal Insurance Office and the Board of Governors of
the Federal Reserve System, in consultation with the FDIC, that such a financial company is in default or in
danger of default and presents a systemic risk to U.S. financial stability. AIG is a financial company and its
largest U.S. subsidiary is an insurer.
• Dodd-Frank establishes a new framework for regulation of the over-the-counter (OTC) derivatives markets
and certain market participants that could affect various activities of AIG and its insurance subsidiaries, as
well as Global Capital Markets. These regulations could impose margin or collateral requirements on
derivative transactions entered into by AIG prior to the passage of Dodd-Frank or intercompany derivative
transactions between AIG and one or more of its affiliates or between affiliates. Any such margin or
collateral requirements could adversely affect AIG’s liquidity and credit ratings. The Commodity Futures
Trading Commission (CFTC) and SEC have published proposed rules governing major swap participants and
major security-based swap participants. If AIG or one or more of its subsidiaries meet the tests finally
adopted by the CFTC or SEC, AIG or one or more of its subsidiaries may become subject to derivative
transaction clearing, execution and reporting requirements, capital and margin requirements and business
conduct rules.
• Dodd-Frank mandated a study to determine whether stable value contracts should be included in the
definition of ‘‘swap.’’ If that study concludes that stable value contracts are swaps, Dodd-Frank authorizes
certain federal regulators to determine whether an exemption from the definition of a swap is appropriate
and in the public interest. Certain affiliates of AIG are in or may participate in the stable value contract
business. AIG cannot predict what regulations might emanate from the aforementioned study or be
promulgated applicable to this business in the future.
• Dodd-Frank established a Federal Insurance Office (FIO) within the Department of the Treasury headed by
a director appointed by the Secretary of the Treasury. While not having a general supervisory or regulatory
22 AIG 2011 Form 10-K