AIG 2012 Annual Report Download - page 43

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Capital Requirements
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Section 171 of Dodd-Frank (the Collins Amendment) subjects SLHCs to capital requirements that must be no less
stringent than the requirements generally applicable to insured depository institutions or quantitatively lower than the
requirements in effect for insured depository institutions as of July 21, 2010. The regulatory capital requirements
currently applicable to insured depository institutions, such as AIG Federal Savings Bank, are computed in
accordance with the U.S. federal banking agencies’ generally applicable risk-based capital requirements, which are
based on accords established by the Basel Committee on Banking Supervision (Basel Committee). These accords
have evolved over time, and are referred to as Basel I, Basel II and Basel III.
In June 2012, the federal banking agencies issued proposed rules that would revise and replace current regulatory
capital rules for banking organizations, including SLHCs.
We are still considering the full impact of the proposed capital rules and the FRB and the other federal banking
agencies have not adopted final rules. In addition, the FRB has announced that the rules will not be effective as of
January 1, 2013, as originally proposed, but has not provided a revised effective date.
Also in June 2012, the FRB and the other federal banking agencies issued revised final rules that modify their
market risk regulatory capital requirements for banking institutions with significant trading activities. These
modifications are designed to address the adjustments to the market risk regulatory capital framework that were
announced by the Basel Committee in June 2010 (referred to as ‘‘Basel II.5’’) and the prohibition on the use of
external credit ratings, as required by Dodd-Frank. These changes become effective for banking institutions in 2013
and will likely become effective for us when capital requirements for SLHCs are implemented. These changes will
result in increased regulatory capital requirements for market risk. We are still considering the full impact of these
capital requirements.
Volcker Rule
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In July 2012, Section 619 of Dodd-Frank, referred to as the ‘‘Volcker Rule,’’ became effective, although the final rule
implementing Section 619 has not yet been released. Under the proposed rule released in October 2011, if we
continue to be regulated as an SLHC due to our control of AIG Federal Savings Bank, or control another insured
depository institution, we and our affiliates would be considered banking entities for purposes of the rule and, after
the rule’s conformance date of July 21, 2014, would be prohibited from ‘‘proprietary trading’’ and sponsoring or
investing in ‘‘covered funds,’’ subject to the rule’s exceptions. Even if we are no longer regulated as an SLHC or no
longer control an insured depository institution, we could be subject to restrictions on these activities if we are
designated as a SIFI, as Dodd-Frank authorizes the FRB to subject SIFIs to capital requirements, quantitative limits
or other restrictions if they engage in activities prohibited for banking entities 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.
Other Effects of Dodd-Frank
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In addition, Dodd-Frank will also have the following effects on us:
• If we are designated as a SIFI, the FRB could (i) limit our 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 us to sell or
otherwise transfer assets or off-balance-sheet items to unaffiliated entities.
• If we are designated as a SIFI, we will be required to provide to regulators an annual plan for our rapid and orderly
resolution in the event of material financial distress or failure, which must, among other things, ensure that AIG
Federal Savings Bank is adequately protected from risks arising from our other entities and meet several specific
standards, including requiring a detailed resolution strategy and analyses of our material entities, organizational
structure, interconnections and interdependencies, and management information systems, among other elements.
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AIG 2012 Form 10-K26
ITEM 1 / BUSINESS