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Is Aetna a systemic risk?

Aetna came up often in the nation's debate over the future of health care insurance, but now the company's lawyers are raising the question of whether the company will be declared a systemic risk by the new council of regulators. The company disclosed in its more recent quarterly financial filing:

We believe that we fall within the Financial Reform Act's definition of "nonbank financial company," but we cannot predict whether the Council will designate us a "systemically important" company, which the Financial Reform Act identifies as those that could pose a threat to financial stability either due to the potential of material financial distress at the company or due to the company's ongoing activities. Many of the systemic risk provisions give regulators discretion to modify the statutory standards or issue exemptions. Furthermore, the Council is not yet operational and has not yet adopted internal rules and procedures. As a result, it is difficult to predict the scope and content of systemic risk regulations or their effect on us, should we be designated a "systemically important" nonbank financial company.

The financial reform bill creates a council of regulators that will impose special restrictions on companies that are too big too fail. Does Aetna count?

The bill left the decision up to the council, and at first blush it's hard to see how Aetna could count. When we think of too big too fail, we think of Bank of America, Citigroup, American International Group -- companies with hundreds of billions of dollars of assets and massive exposure to the financial system. Would the end of Aetna significantly damage the financial system overall?

Footnoted, which first noted the odd disclosure, points out it's hard to tell without more information from the company.

There's no question that Aetna is pretty important to the country's health-care system. But a systemically important nonbank financial company? It's conceivable: Aetna clearly concluded it qualifies as a nonbank financial company under the new law, so it probably wouldn't hurt to know why it came to that conclusion.

But if the company has reason to think its forays into the derivatives market -- or some other facets of its financial life -- may be significant enough to catch the eye of regulators, it should be more specific. And if it doesn't, maybe it should spare its lawyers the hand-wringing -- and its investors the empty boilerplate.

Aetna's assets at the end of the second were $38.3 billion. That's not nothing. It would make it the 38th largest bank holding company in the United States. The 37th largest: Utrecht-America Holdings.

Per Footnoted:

Lawyers are a cautious bunch, but when it comes to the corporate sort, they also have a reputation for a certain dullness: They're not exactly supposed to get carried away with flights of fancy, especially not when drafting public disclosures

By Zachary Goldfarb  |  August 2, 2010; 2:07 PM ET
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