A few weeks ago I wrote about an article in Bloomberg Business that suggested the “too big to fail” banks were shrinking as a result of the regulations contained in Dodd/Frank. On Friday, we got news about one company in particular.

General Electric plans to sell off most of its finance arm over the next two years, redefining the multinational conglomerate as it seeks to complete a transformation begun amid the tumult of the financial crisis…

Rapidly shrinking the finance arm, GE Capital — once the most powerful driver of the company’s earnings until it rocked the parent company after the fall of Lehman Brothers in 2008 — will erase one of the most prominent legacies of G.E.’s former chief executive, Jack Welch.

But it could also release the company from one of its biggest burdens: strict regulatory requirements that come with GE Capital’s being regarded as a financial institution that is too big to fail…

Perhaps one of the most notable potential consequences of the drastic move is that G.E. will be able to shed its designation as a “systemically important financial institution.” Such status comes with high requirements to keep capital on hand, potentially limiting its financial returns.

As this news points out, a lot of the proposals floating around about how to deal with “too big to fail banks” are misleading because many of these companies aren’t “banks” in the way we have typically thought of them. GE is a good example of that. As a result of Dodd/Frank, it has been identified as a “systemically important financial institution” (SIFI) that is subject to special regulation – which provided the incentive for them to downsize.

This is how Federal Reserve Chair Janet Yellen described it:

“We’re beginning to see discussions that these capital charges are sufficiently large it’s causing those firms to think seriously about whether or not they should spin off some of their enterprises to reduce their systemic footprint,” Federal Reserve Chairman Janet Yellen told the House Financial Services Committee on Wednesday. “And frankly, that’s exactly what we want to see happen.”

Nancy LeTourneau

Follow Nancy on Twitter @Smartypants60.