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UPDATE 2-AIG may come under much more U.S. regulatory oversight

* Company has said it expected to be tagged 'too big to fail'

* Federal Reserve would become primary regulator * Shares up 0.8 percent

(Adds details on review process, updates share movement)

Oct 2 (Reuters) - A federal panel may tag American International Group Inc as "too big to fail," a move the company has been expecting and one that would sharply increase regulatory oversight of the government-rescued insurer.

AIG said on Tuesday that the Financial Stability Oversight Council had said it may designate the company as a "systemically important financial institution," or SIFI, under the Dodd-Frank reform laws.

The FSOC is charged with identifying banks and nonbank institutions that are so large or otherwise so important that their collapse could have repercussions across the economy. It has now moved AIG to the so-called Stage 3 review process for nonbank SIFIs.

In the third stage, the council looks for factors that would "mitigate or aggravate" a company's potential to cause harm, including its "resolvability, the opacity of its operations, its complexity, and the extent and nature of its existing regulatory scrutiny," according to final rules adopted earlier this year.

AIG, which received a $182 billion bailout after nearly failing four years ago, has said repeatedly that it fully expects to be tagged by the FSOC and that it has been preparing itself accordingly.

In its second-quarter financial report, AIG said it was large enough to meet at least the beginning criteria for an FSOC review, although it could not predict the outcomes of the second- or third-stage reviews.

For much of the period since the rescue, the company did not have a primary regulator. If the company is ultimately designated by the council, the Federal Reserve would assume that role.

Shares of AIG were up 0.8 percent at $33.54 in early trading. Early last month, the U.S. Treasury sold more than $20 billion of AIG stock at $32.50 per share, reducing its ownership in the company to 15.9 percent.

(Reporting by Ben Berkowitz in Boston; Editing by Gerald E. McCormick and Lisa Von Ahn)

((Ben.Berkowitz@thomsonreuters.com)(+1-617-856-4334)(Reuters

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