GE 2015 Annual Report Download - page 138

REGULATIONS AND SUPERVISION
110 GE 2015 FORM 10-K
REGULATIONS AND SUPERVISION
GE Capital is a nonbank SIFI and as a result subject to FRB supervision. With the completion of the Synchrony Financial split-off, and
the )5%¶V subsequent approval of GE &DSLWDO¶V application to deregister as a saving and loan holding company, GE Capital is no longer
a savings and loan holding company.
On July 20, 2015 the Federal Reserve published a final order applying enhanced prudential standards to GE Capital as a nonbank SIFI.
The final order staggers the application of the enhanced prudential standards with the first set of standards becoming applicable on
January 1, 2016 and the second set becoming applicable on January 1, 2018. Under the standards applicable on January 1, 2016 GE
Capital became subject to the )5%¶V capital adequacy framework using the standardized approach to calculate risk weighted assets.
GE Capital also became subject to a liquidity coverage ratio (LCR) of 90% until December 31, 2016. After December 31, 2016, GE
Capital will need to maintain 100% LCR coverage.
If GE Capital is still a nonbank SIFI on January 1, 2018 the second set of enhanced prudential standards will apply. These standards
include stress testing and capital planning requirements under the )5%¶V more formal comprehensive capital analysis and review
(CCAR) regulations, enhanced leverage ratio requirements, enhanced governance requirements, daily liquidity calculations, additional
reporting requirements and a market terms requirement for transactions between GE and GE Capital.
While the enhanced prudential standards do not subject GE Capital to the Federal 5HVHUYH¶V capital plan rule applicable to large bank
holding companies until the capital planning cycle beginning January 1, 2018, GE Capital conducts at a minimum an annual review of
their capital adequacy prior to establishing a plan for dividends to us, the parent. This review is based on a forward-looking assessment
of their material enterprise risks and involves the consideration of a number of factors. This analysis also includes an assessment of
their capital and liquidity levels, as well as incorporating risk management and governance considerations. The most recent capital
adequacy review, which contemplated the GE Capital Exit Plan, was approved by the GE Capital board of directors and the GE Board
of Directors Risk Committee in October 2015. While a nonbank SIFI like GE Capital is currently not required to obtain FRB approval to
pay a dividend, it may not, under FRB regulations, conduct its operations in an unsafe or unsound manner.
As a nonbank SIFI, GE Capital is also required to submit an annual resolution plan to the FRB and Federal Deposit Insurance
Corporation (FDIC). GE Capital submitted its first resolution plan to the FRB and FDIC on June 30, 2014 and feedback was provided on
July 28, 2015. GE &DSLWDO¶V second Resolution Plan was submitted to the FRB and FDIC on December 31, 2015. GE &DSLWDO¶V
resolution plan describes how GE Capital could be resolved under existing insolvency regimes in a manner that mitigates potential
disruption to the U.S. financial system and the global financial markets without the use of government support or taxpayer funds. If the
FRB and FDIC determine that their resolution plan is deficient, the DFA authorizes the FRB and FDIC to impose more stringent capital,
leverage or liquidity requirements on GE Capital or restrict their growth or activities until they submit a plan remedying the deficiencies.
If the FRB and FDIC ultimately determine that GE Capital has not adequately addressed the deficiencies, they could order GE Capital
to divest assets or operations in order to facilitate their orderly resolution in the event of their failure.
GE Capital is also subject to the Volcker Rule, which U.S. regulators finalized on December 10, 2013. The rule prohibits companies that
are affiliated with U.S. insured depository institutions from engaging in ³SURSULHWDU\ WUDGLQJ´ or acquiring or retaining ownership interest
in, or sponsoring or engaging in certain transactions with, a ³KHGJH IXQG´ or a ³SULYDWH equity IXQG´ Proprietary trading and fund
investing, as prohibited by the rule, are not core activities for GE Capital.
As previously discussed, on April 10, 2015, the company announced the GE Capital Exit Plan to reduce the size of its financial services
businesses. GE has discussed the GE Capital Exit Plan, with its regulators and staff of the FSOC and plans to file its application with
the FSOC in early 2016 to terminate the )62&¶V designation of GE Capital as a nonbank SIFI.
In addition, in connection with the December 2015 reorganization described in The GE Capital Exit Plan section of the MD&A, GE
&DSLWDO¶V international operations were consolidated under a new international holding company, GE Capital International Holdings
Limited. GE Capital International Holdings Limited is a wholly owned subsidiary of GE Capital with its own capital structure, and it is
supervised by the U.K. Prudential Regulation Authority (PRA). The 35$¶V supervision includes capital and liquidity standards that could
impact the payment of dividends to GE Capital, and GE Capital International Holdings Limited will remain subject to such supervision
even if GE &DSLWDO¶V designation as a nonbank SIFI is terminated.
110 GE 2015 FORM 10-K