Sign up for our daily briefing

Make your busy days simpler with Axios AM/PM. Catch up on what's new and why it matters in just 5 minutes.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Catch up on the day's biggest business stories

Subscribe to Axios Closer for insights into the day’s business news and trends and why they matter

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Sign up for Axios Pro Rata

Dive into the world of dealmakers across VC, PE and M&A with Axios Pro Rata. Delivered daily to your inbox by Dan Primack and Kia Kokalitcheva.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Sports news worthy of your time

Binge on the stats and stories that drive the sports world with Axios Sports. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Tech news worthy of your time

Get our smart take on technology from the Valley and D.C. with Axios Login. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Get the inside stories

Get an insider's guide to the new White House with Axios Sneak Peek. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Catch up on coronavirus stories and special reports, curated by Mike Allen everyday

Catch up on coronavirus stories and special reports, curated by Mike Allen everyday

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Denver news?

Get a daily digest of the most important stories affecting your hometown with Axios Denver

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Des Moines news?

Get a daily digest of the most important stories affecting your hometown with Axios Des Moines

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Twin Cities news?

Get a daily digest of the most important stories affecting your hometown with Axios Twin Cities

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Tampa Bay news?

Get a daily digest of the most important stories affecting your hometown with Axios Tampa Bay

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Charlotte news?

Get a daily digest of the most important stories affecting your hometown with Axios Charlotte

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Nashville news?

Get a daily digest of the most important stories affecting your hometown with the Axios Nashville newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Columbus news?

Get a daily digest of the most important stories affecting your hometown with the Axios Columbus newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Dallas news?

Get a daily digest of the most important stories affecting your hometown with the Axios Dallas newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Austin news?

Get a daily digest of the most important stories affecting your hometown with the Axios Austin newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Atlanta news?

Get a daily digest of the most important stories affecting your hometown with the Axios Atlanta newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Philadelphia news?

Get a daily digest of the most important stories affecting your hometown with the Axios Philadelphia newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Chicago news?

Get a daily digest of the most important stories affecting your hometown with the Axios Chicago newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Sign up for Axios NW Arkansas

Stay up-to-date on the most important and interesting stories affecting NW Arkansas, authored by local reporters

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top DC news?

Get a daily digest of the most important stories affecting your hometown with the Axios DC newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Illustration: Lazaro Gamio/Axios

The most likely cause of a future financial crisis isn't the banks, it's the non-banks. They're enormous, they're much less regulated than banks are, and they tend to have much greater leverage.

Flashback: Never forget that when the U.S. financial system fell apart in September 2008, the bank (Lehman Brothers) was deemed small enough to fail. It was the insurance company (AIG) that was too big to fail and needed a $182 billion government bailout.

  • Today, the most systemically dangerous non-bank in America is Prudential, the insurance company. Prudential remained on Treasury's "too big to fail" list of systemically-important financial institutions even after all the other non-banks fell off it: GE Capital, AIG, MetLife.
  • Now, even Prudential is officially considered no longer systemically dangerous. The Financial Stability Oversight Council, under the leadership of Treasury Secretary Steven Mnuchin, has officially removed the insurer from the list.
  • "We are pleased with this decision, which affirms our longstanding belief that Prudential never met the standard for designation," said Prudential in a statement. "Prudential’s approach resulted in the Council’s appropriate conclusion that Prudential does not pose systemic risk."

The official explanation for why Prudential fell off the list is not very helpful, since a lot of important numbers have been redacted. But the numbers that remain are scarily large.

  • Prudential is not huge by conventional stock-market standards: Its market capitalization is just $42 billion, and its book value (assets minus liabilities) is $48 billion.
  • But those assets and liabilities are truly enormous: According to the FSOC report, Prudential has $832 billion of assets, and $778 billion of liabilities. Compare its rival Berkshire Hathaway, which has $702 billion in assets but a much more modest $350 billion in liabilities.
  • Prudential also has an eye-popping $1.4 trillion in financial assets under management.
  • The biggest number of all: Prudential has $3.7 trillion of life insurance. That's about 20% of U.S. GDP.

The weirdest part about the FSOC's decision is that they all but say explicitly that Prudential is systemically important. A couple of quotes:

"The Council therefore determined that the negative effects of Prudential’s material financial distress could be transmitted to other financial firms and markets through the exposure channel, which could cause an impairment of financial intermediation or financial market functioning sufficiently severe to impose significant damage on the broader economy.
The Council concluded that such a forced liquidation of assets could cause significant disruptions to key markets, including corporate debt and asset-backed securities markets, particularly during a period of overall stress in the financial services industry and in a weak macroeconomic environment."

Why it matters: Expect further migration of risk from banks to non-banks now that the FSOC has made it clear that it has no interest in regulating the latter.

Insurance companies are regulated primarily at the state level — which, in Prudential's case, means New Jersey. They're also inherently extremely dangerous.

  • Prudential's entire market capitalization could be wiped out with $42 billion of unexpected losses on its life insurance portfolio. That's just 1.1% of its portfolio.
  • Can such a thing happen? Yes. Look at the number of healthy men, in their prime earning years, who dropped dead during the AIDS epidemic of the 1990s. Most of those men didn't have life insurance. But if they had, a lot of insurers would have become insolvent.

If a large unexpected mortality event saddled Prudential with a lot of claims, its massive life-insurance claims would only be the beginning of its — and the country's — problems.

  • Millions of policyholders would start moving their life insurance somewhere more stable, precipitating the insurance equivalent of a run on the bank.

The bottom line: Prudential could be forced to start liquidating its assets at fire-sale prices, which could set off a chain reaction in the rest of the financial markets and even the economy as a whole.

Go deeper:

Go deeper

Mike Allen, author of AM
45 mins ago - World

Courage vs. coddling with China

Peng Shuai of China serves during the China Open in Beijing in 2017. Photo: Andy Wong/AP

The women's professional tennis tour suspended tournaments in China Wednesday out of concern for Peng Shuai, on the same day that a top business voice made excuses for Beijing.

Why it matters: Ahead of February's Winter Olympics in Beijing, some sports figures are taking on the regime — while Big Business shrinks from confrontation with the world's second-largest economy.

1 hour ago - Sports

What to know about the first MLB lockout since 1995

Illustration: Shoshana Gordon/Axios

Hope you enjoyed the recent flurry of free-agent activity, because it's likely the last non-lockout-related MLB news for a while.

Driving the news: The owners locked out the players after the collective bargaining agreement expired at midnight last night, leading to MLB's ninth work stoppage — and first since 1995.

Biden extends mask mandates for travelers into 2022

President Biden delivers remarks at the White House on Dec. 1. Photo: Anna Moneymaker via Getty Images

President Biden will announce new testing protocols for international travelers on Thursday and extend masking requirements through March as the U.S. prepares to fight the Omicron variant this winter, according to senior administration officials.

Driving the news: The U.S. will tighten pre-departure testing protocols starting early next week by requiring all inbound international travelers to take COVID-19 tests within one day of their departure rather than three.