Donald Trump's election as president and the Republican sweep of Congress will probably buoy shares in the country's largest insurance companies and asset managers, including the poster child for the financial crisis, American International Group. (AIG) .
The reason? Analysts expect the Financial Stability Oversight Council, a regulatory body that has tightened the rules on AIG and Prudential Financial (PRU) in recent years, will become dormant in the months and years ahead.
The council was set up by the post-2008 Dodd-Frank Act, partly to put tougher regulations on non-traditional financial institutions after regulators failed to identify significant risk at AIG in the period leading to the crisis. The insurer ultimately received a $182 billion taxpayer bailout and legislators dismantled its primary federal regulator at the time, the Office of Thrift Supervision, an agency chiefly responsible for overseeing small U.S. savings and loans.
The stability council identifies non-bank companies whose failure could pose a risk to the broader economy and designates them "Systemically Important Financial Institutions," or SIFIs, a label that subjects them to stricter limits on capital spending, heightens liquidity standards and requires yearly stress tests and regularly updated living wills, or plans to wind themselves down without damaging the financial system in the event of bankruptcy.
The multi-agency council originally designated AIG, Prudential, General Electric's (GE) GE Capital unit and MetLife (MET) as SIFIs. The panel agreed to lift GE's designation this year after CEO Jeffrey Immelt shed $180 billion in assets, convincing the council that the lending business was no longer a potential risk.
A federal court judge in March ordered U.S. regulators to remove MetLife's SIFI designation, arguing that the council failed to conduct a cost-benefit analysis for whether it was necessary.
While the government appealed that decision, observers say it's unlikely under current circumstances that MetLife will be re-designated anytime soon, especially since the mega-insurer has spun off a large part of its business. "There are a number of different possible outcomes I could see, but I don't expect MetLife to be a SIFI a year from now," said Ian Katz, financial policy analyst at Capital Alpha Partners in Washington.