The end of GE Capital

Everything you need to know, in four paragraphs

(Image credit: (AP Photo/Thibault Camus, File))

General Electric is "getting out of the banking business," said Rob Cox at Reuters. The storied American corporation announced last week that it plans to sell off much of GE Capital, its $500 billion financial arm. It's a major corporate transformation, designed to "return GE to its industrial roots" — manufacturing jet engines, oil drills, and washing machines. Though GE Capital, the brainchild of former CEO Jack Welch, was a cash cow throughout much of the 1990s and 2000s, and remains the seventh-largest financial firm in the U.S., banking has simply become riskier and less profitable since the 2008 financial crisis.

To understand this "landmark in American capitalism" — one of the most dramatic shifts in GE's 123-year history — "you have to start with Jack," said The Economist. As GE's CEO from 1981 to 2001, Welch turned the company "into a closet bank," providing tens of billions of dollars in business loans, credit cards, and mortgages each year without much regulatory oversight. For years, that made Welch, already a corporate guru, "look like a visionary." Earnings from financial services soared as the U.S. "financial bubble" grew. At its peak, GE Capital contributed nearly 60 percent of GE's overall profits. Then the financial crisis delivered a near death blow, said Peter Eavis at The New York Times. Struggling under a portfolio laden with risky loans, GE was bailed out to the tune of $139 billion in government — guaranteed debt and lost its prized AAA credit rating. Washington also got wind of the serious risks "posed by large financial firms that were not regulated banks." The Federal Reserve's response under the 2010 Dodd-Frank financial reform bill — to designate GE as systemically important to the financial system and regulate it just like a bank — led directly to the company's decision to slim down.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.


Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up
To continue reading this article...
Continue reading this article and get limited website access each month.
Get unlimited website access, exclusive newsletters plus much more.
Cancel or pause at any time.
Already a subscriber to The Week?
Not sure which email you used for your subscription? Contact us