(Recasts, adds regulatory details, background on Treasury secretary and financial industry)
By Lisa Lambert
WASHINGTON, May 1 (Reuters) - The heads of the U.S. financial regulators will meet next week to dive into the sensitive process of labeling companies "systemically important," better known as "too big to fail."
The Financial Stability Oversight Council will discuss President Donald Trump's April memorandum instructing the FSOC chair, U.S. Treasury Secretary Steven Mnuchin, to examine how the council makes the designations, according to a notice from the U.S. Treasury on Monday.
The May 8 meeting will also address Trump's executive order in February to review the 2010 Dodd-Frank Wall Street reform law that created the council and designations, which were intended to prevent a repeat of the 2007-2009 financial crisis and recession. The order requires Mnuchin to submit possible regulatory changes and legislation modifying Dodd-Frank by June 3.
The council will also be briefed on a nonbank financial company currently designated as too big to fail, which was not identified. By law, the annual evaluations can lead to lifting a company's designation. The meeting is closed to the public.
While Treasury's announcement did not name the firm to be discussed, only two insurance companies, American International Group, and Prudential Financial, currently have the label.
Some companies are wary of the "systemically important" designation because it forces them to hold on to capital and creates extra oversight they say is burdensome.
Republican senators wrote to Mnuchin in March saying the current designation process lacks transparency and consistency and that the label creates additional costs for firms while maintaining the possibility of a future bailout.
Proponents say the council of experts can identify banks and nonbanks that are large enough to devastate the financial system should they fall into distress. They argue the firms should be required to take precautions to quarantine any possible problems.
This will be the second FSOC meeting that Mnuchin has chaired since he was confirmed in February.
The former Goldman Sachs Group Inc executive and movie producer has expressed skepticism about the council, saying during his confirmation hearings he would like to investigate its workings.
AIG, which received a $182 billion government bailout during the crisis, has recently taken steps to shrink. That could be part of an attempt to shed the designation.
Meanwhile, MetLife Inc successfully fought in court to have its designation removed. The FSOC appealed the decision, and the largest U.S. life insurer recently asked to have the case put on pause during Trump's review. (Editing by Matthew Lewis)