Other possible designees include Fidelity Investments, Vanguard Group and State Street's (STT) State Street Global Advisors.
The mega-insurer MetLife reported in July that the council is in the third stage of a three-stage designation review process with it.
The designation will eventually subject Prudential, which has more than $1 trillion of assets under management, to new capital and liquidity restrictions as well as obligations to write a so-called living will explaining how it will dismantle itself in a way that doesn't wreak havoc on the markets. However, specifications for most of those requirements have not yet been set so it remains unclear when the compliance burdens any firms designated as SIFIs will fully kick in.
Prudential on Friday said after careful review it won't seek to rescind the designation. Firms have 30 days from when they are designated to decide if they want to file a lawsuit challenging the decision.Regulatory observers said they expect the council to designate other large financial institutions, including, possibly, big hedge funds, private equity firms and even large mutual fund managers, in the months and years to come. Analysts and people familiar with the council's Prudential decision contend that the next firms to be designated are unlikely to follow up with judicial challenges in federal district court even though they are permitted to do so. This is because the legal hurdles are almost insurmountable and even if they win their lawsuits the market will continue to believe that they could pose a risk to the financial system, they said. Donald N. Lamson, partner at Shearman & Sterling LLC in Washington, said he expects that the general trend will be for designated financial institutions not to challenge their designation in judicial proceedings. "The process is really stacked against the industry participant," Lamson said. Lamson said that even if a company succeeds at overturning a designation in court, the market will continue to believe that it could pose a risk to the financial system. He added that even if a company wins in court there is no assurance that the FSOC will not come back and designate the firm the following year.
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