AIG 2011 Annual Report Download - page 48

Protection Act (Dodd-Frank), which effects comprehensive changes to the regulation of financial services in the
United States, was signed into law. Dodd-Frank directs existing and newly-created government agencies and bodies
to promulgate regulations implementing the law, an ongoing process anticipated to continue over the next few
years. We cannot predict with certainty the requirements of the regulations ultimately adopted or how or whether
Dodd-Frank and such regulations will affect our businesses, results of operations, cash flows or financial condition,
require us to raise additional capital or result in a downgrade of our credit ratings.
Under Dodd-Frank, we may become subject to the examination, enforcement and supervisory authority of the
FRB as a savings and loan holding company or a SIFI. AIG expects that when the Department of the Treasury
ceases to own at least 50 percent of the outstanding shares of our Common Stock, we would be regulated by the
FRB as a savings and loan holding company. In either event:
• We would become subject to the examination, enforcement and supervisory authority of the FRB. We cannot
predict how the FRB would exercise general supervisory authority over us.
• The FRB would be required to impose minimum leverage and risk-based capital requirements on us not less
than those applicable to insured depository institutions.
• We may be required to place our financial activities in an intermediate holding company separate from our
non-financial activities (as defined for purposes of the Bank Holding Company Act) subject to restrictions on
transactions between the two businesses, which could be burdensome and costly to implement.
If we are designated as a SIFI:
• We would become subject to stress tests to determine whether, on a consolidated basis, we have the capital
necessary to absorb losses due to adverse economic conditions.
• We would be subject to stricter prudential standards, including stricter requirements and limitations relating
to risk-based capital, leverage, liquidity and credit exposure, as well as overall risk management
requirements, management interlock prohibitions and a requirement to maintain a plan for rapid and orderly
dissolution in the event of severe financial distress.
• We would become subject to a new early remediation regime process to be administered by the FRB.
If we are designated as a SIFI and determined to be a grave threat to U.S. financial stability:
• We would be required to maintain a debt-to-equity ratio of no more than 15:1.
• The FRB may:
• limit our ability to merge with, acquire, consolidate with, or become affiliated with another company;
• restrict our ability to offer specified financial products;
• require us to terminate specified activities;
• impose conditions on how we conduct our activities; or
• with approval of the Financial Stability Oversight Council (the Council), and a determination that the
foregoing actions are inadequate to mitigate a threat to U.S. financial stability, require us to sell or
otherwise transfer assets or off-balance-sheet items to unaffiliated entities.
See Business — Regulation for further discussion of this potential regulation.
If we continue to control AIG Federal Savings Bank or another insured depository institution, we would
become subject to the ‘‘Volcker Rule’’, which could place limits on ‘‘proprietary trading’’ and the sponsorship of,
or investment in ‘‘covered funds.’’ The term ‘‘covered funds’’ could include hedge, private equity or similar funds
and, in certain cases, issuers of asset backed securities if such securities have equity-like characteristics. These
prohibitions could substantially impact our investment portfolios as they are currently managed. The Volcker Rule,
as proposed, contains an exemption for proprietary trading by insurance companies for their general account, but
the final extent of this exemption cannot be predicted. Even if we no longer controlled an insured depository
34 AIG 2011 Form 10-K