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ITEM 1 / BUSINESS.....................................................................................................................................................................................Capital Requirements..............................................................................................................................................................................................Section 171 of Dodd-Frank (the Collins Amendment) subjects SLHCs to capital requirements that must be no lessstringent than the requirements generally applicable to insured depository institutions or quantitatively lower than therequirements in effect for insured depository institutions as of July 21, 2010. The regulatory capital requirementscurrently applicable to insured depository institutions, such as AIG Federal Savings Bank, are computed inaccordance with the U.S. federal banking agencies’ generally applicable risk-based capital requirements, which arebased on accords established by the Basel Committee on Banking Supervision (Basel Committee). These accordshave evolved over time, and are referred to as Basel I, Basel II and Basel III.In June 2012, the federal banking agencies issued proposed rules that would revise and replace current regulatorycapital rules for banking organizations, including SLHCs.We are still considering the full impact of the proposed capital rules and the FRB and the other federal bankingagencies have not adopted final rules. In addition, the FRB has announced that the rules will not be effective as ofJanuary 1, 2013, as originally proposed, but has not provided a revised effective date.Also in June 2012, the FRB and the other federal banking agencies issued revised final rules that modify theirmarket risk regulatory capital requirements for banking institutions with significant trading activities. Thesemodifications are designed to address the adjustments to the market risk regulatory capital framework that wereannounced by the Basel Committee in June 2010 (referred to as ‘‘Basel II.5’’) and the prohibition on the use ofexternal credit ratings, as required by Dodd-Frank. These changes become effective for banking institutions in 2013and will likely become effective for us when capital requirements for SLHCs are implemented. These changes willresult in increased regulatory capital requirements for market risk. We are still considering the full impact of thesecapital requirements.Volcker Rule..............................................................................................................................................................................................In July 2012, Section 619 of Dodd-Frank, referred to as the ‘‘Volcker Rule,’’ became effective, although the final ruleimplementing Section 619 has not yet been released. Under the proposed rule released in October 2011, if wecontinue to be regulated as an SLHC due to our control of AIG Federal Savings Bank, or control another insureddepository institution, we and our affiliates would be considered banking entities for purposes of the rule and, afterthe rule’s conformance date of July 21, 2014, would be prohibited from ‘‘proprietary trading’’ and sponsoring orinvesting in ‘‘covered funds,’’ subject to the rule’s exceptions. Even if we are no longer regulated as an SLHC or nolonger control an insured depository institution, we could be subject to restrictions on these activities if we aredesignated as a SIFI, as Dodd-Frank authorizes the FRB to subject SIFIs to capital requirements, quantitative limitsor other restrictions if they engage in activities prohibited for banking entities under the Volcker Rule. The VolckerRule, as proposed, contains an exemption for proprietary trading by insurance companies for their general account,but the final breadth and scope of this exemption is uncertain.Other Effects of Dodd-Frank..............................................................................................................................................................................................In addition, Dodd-Frank will also have the following effects on us:• If we are designated as a SIFI, the FRB could (i) limit our ability to merge with, acquire, consolidate with, orbecome affiliated with another company, to offer specified financial products or to terminate specified activities;(ii) impose conditions on how we conduct our activities or (iii) with approval of the Council, and a determinationthat the foregoing actions are inadequate to mitigate a threat to U.S. financial stability, require us to sell orotherwise transfer assets or off-balance-sheet items to unaffiliated entities.• If we are designated as a SIFI, we will be required to provide to regulators an annual plan for our rapid and orderlyresolution in the event of material financial distress or failure, which must, among other things, ensure that AIGFederal Savings Bank is adequately protected from risks arising from our other entities and meet several specificstandards, including requiring a detailed resolution strategy and analyses of our material entities, organizationalstructure, interconnections and interdependencies, and management information systems, among other elements...................................................................................................................................................................................................................................26 AIG 2012 Form 10-K