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Could Prudential be "Too Big to Fail?"

The new U.S. risk council has moved closer to deciding whether Prudential Financial is "systemically important," a Prudential spokesman said on Friday, a tag that would translate into greater regulatory scrutiny for the second-largest U.S. life insurer.

WASHINGTON, Oct 19 The new U.S. risk council has moved closer to deciding whether Prudential Financial is "systemically important," a Prudential spokesman said on Friday, a tag that would translate into greater regulatory scrutiny for the second-largest U.S. life insurer.

The 2010 Dodd-Frank law gave the Financial Stability Oversight Council (FSOC), which is chaired by Treasury Secretary Timothy Geithner, the power to name large non-bank financial firms with the "systemically important" tag if it feels their collapse could send shock-waves through the U.S. financial system.

Any company named a systemically important financial institution, or "SIFI," will be subject to extra regulatory oversight from the Federal Reserve.

Prudential has received notice that FSOC moved the company to the third level of the evaluation process, spokesman Scot Hoffman said.

"The company plans to continue its ongoing discussions with regulators about the differences between banks and insurance companies as they consider whether insurance companies are systemically important," Hoffman said.

The risk council met behind closed doors on Thursday. Treasury said the panel continued its review of certain non-bank financial companies and whether to advance them to "stage three" - the final step before designations are determined.

A Treasury spokeswoman declined to comment about Prudential and said the council will not publicly announce company names before final decisions are made.

Prudential's advancement to round three of the FSOC review process was reported earlier on Friday by Bloomberg, citing people familiar with matter.

It is among a handful of companies that are widely expected to be designated.

Hedge funds and major insurance companies have feared that they could be designated as systemically important because of their size and how interconnected they are with other financial firms. They would then face the type of scrutiny Dodd-Frank assigned to Bank of America, JPMorgan Chase, Goldman Sachs and others.

Some critics say naming nonbank firms systemically important enshrines them as "too big to fail." Others say it harms those firms by putting them more firmly under the government's thumb.

American International Group, also an insurer, said earlier this month that it was being considered for SIFI designation.

GE Capital is another large financial operation that could be labeled a SIFI, but GE has not directly commented on whether it is under consideration. Spokesman Russell Wilkerson said on Friday the company is "prepared for whatever decision is reached."

"We are already regulated by the Fed," he added.

Copyright 2010 by Reuters. All rights reserved.

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