American International Group Inc. (AIG) lacks comprehensive and rigorous regulation almost four years after the federal government bailed out the faltering insurer at the height of the financial crisis, a watchdog said Wednesday.
AIG was at the center of Wall Street's 2008 meltdown, though the insurer has since shed its most toxic assets, sold off some businesses and returned to profit.
"I think most people are going to be very surprised to learn that for the last two years, AIG has had no consolidated regulator over its financial business, its noninsurance business," Christy Romero, the special inspector general for the Troubled Asset Relief Program, said in an interview.
Ms. Romero's office, established by Congress to oversee TARP's management, Wednesday released its quarterly report to Congress on bailout programs. A special section on AIG detailed the federal government's intervention and recent developments at the insurer.
The federal government committed $161 billion to AIG, including $67.8 billion through TARP. Loans from the Federal Reserve have been recouped. But the Treasury Department still holds about 61% of AIG's common stock, and roughly $30.4 billion in TARP funds are outstanding, the report said.
Taxpayers could end up making an overall profit on AIG investments, according to some estimates.
"AIG has taken significant action since the crisis--working with Treasury and the Federal Reserve--to restructure, reduce risk and streamline its operations to focus on its core insurance business," said Treasury spokesman Matt Anderson.
Still, Ms. Romero's office has warned repeatedly that the U.S. financial system remains vulnerable to another crisis and urged regulators to toughen oversight.
AIG's U.S. insurance business is regulated at the state level. The Office of Thrift Supervision oversaw AIG's noninsurance business leading up to the crisis; the office admitted failures and has since been abolished.
U.S. regulators, meanwhile, are weighing a new designation for big, complex financial firms that would trigger heightened oversight by the Federal Reserve. The first designations of "systemically important" nonbanks are expected this year, and AIG is one candidate.
"At AIG we welcome additional regulatory oversight, which, combined with the discipline we have imposed on our company, only serves to make AIG much stronger," said AIG spokesman Jim Ankner. "AIG also remains committed to making America whole, plus a profit."
Ms. Romero faulted the Treasury Department, the Fed and other top regulators for moving too slowly. "They don't have to designate all of them at once, but should roll out some of these. If AIG is one, they should designate it," she said.
Wednesday's report highlights challenges to regulating AIG's vast business holdings.
Effective oversight of AIG would require the Fed to have extensive expertise of an array of nonbanking businesses, including its insurance operations, aircraft-leasing business, mortgage guaranty, securities lending and other derivatives-trading operations, the report said.