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U.S. to appeal MetLife financial oversight ruling

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The federal government will appeal a federal judge’s ruling that MetLife Inc. should be removed from the government’s list of systemically important financial institutions.

U.S. District Judge Rosemary M. Collyer in the District of Columbia rescinded MetLife’s designation as a SIFI in an opinion made public Thursday, saying the FSOC’s determination was “fatally flawed.”

Two other insurers — American International Group Inc. and Prudential Insurance Co. — also have been designated as SIFIs subject to heightened reporting and stress test requirements, but only MetLife challenged the designation in court. SIFIs also are subject to “enhanced supervision” and “prudential standards,” but the Federal Reserve has not issued regulations spelling out what that supervision and standards will be.

In her ruling, Judge Collyer said the Financial Stability Oversight Council had ignored some of its own standards for designating a nonbank financial institution as a SIFI, had focused exclusively on the presumed benefits of its designation and ignored the potential costs, and said that the council had acted in an “arbitrary and capricious” manner.

Treasury Secretary Jacob V. Lew, who chairs FSOC, issued a statement criticizing the decision, and late Thursday the Treasury Department issued a one-sentence statement attributed to a “treasury spokesperson” saying, “The government will appeal the district court’s decision to rescind FSOC’s designation of MetLife.”

Meanwhile, the decision drew praise from other groups.

The National Association of Insurance Commissioners released a statement saying the opinion “confirms what members of the National Association of Insurance Commissioners have long argued: the Financial Stability Oversight Council’s designation of MetLife as a systemically important financial institution is flawed.”

“State regulators serving on FSOC have previously pointed out concerns with its analytical approach, including FSOC’s inability to demonstrate that MetLife’s failure would disrupt the broader economy,” said NAIC President and Missouri Insurance Director John Huff in the statement.

Dirk Kempthorne, president and CEO of the Washington-based American Council of Life Insurers, also hailed the decision.

“The facts quite simply did not support MetLife being designated as a SIFI,” he said in a statement. “Indeed, we don’t believe the facts support the conclusion that any life insurer presents a systemic risk to the nation’s economy.”

“ACLI hopes that the members of Financial Stability Oversight Council, including the Department of the Treasury, adopt a more sensible and transparent process going forward and is much more transparent regarding the analysis it undertakes in the designation process,” said Mr. Kempthorne. “FSOC should also offer a clear ‘exit ramp’ to companies so that they can understand the de-risking strategies they could use to be de-designated from SIFI oversight.”