MetLife has won its battle over being designated too-big-to-fail by the Dodd-Frank Act’s Financial Stability Oversight Council (FSOC). Too-big-to-fail actually has a name. It is SIFI or a systemically important financial institution. Whether the battle is over depends on what the U.S. Treasury — who oversees the FSOC — wants to do next.
The government has 60 days to appeal.
The designation was given in December of 2014. Before MetLife the other two insurers given the designation are AIG and Prudential. So far the lone non-insurer with the designation is GE.
MetLife is the lone insurer — and in the case of GE, non-insurer — to battle the label and filed its suit a year ago. Company CEO Steve Kandarian argued that the designation by the FSOC is arbitrary and unjustified and said it put his company at a “significant competitive disadvantage.” U.S. District Judge Rosemary Collyer — who sealed the reasons for her decision — apparently agreed and last week issued the historic ruling.
At the announcement MetLife’s stock price shot up.
Eugene Scalia defended MetLife. He’s the son of late Supreme Court Justice Antonin Scalia. During the court proceedings in February, Scalia said the methods used to arrive at the SIFI designation violate federal administrative procedure law and MetLife’s right to due process.
He said the designation process — which is quite secretive and in which the FSOC does not hold public meetings — is “clouded in mystery.”
Judge Collyer pushed Justice Department attorney Eric Beckenhauer about that. She noted the government called for a vulnerability analysis of MetLife before making the designation and then didn’t do one.
Collyer wanted to know why. Beckenhauer’s answer is that the government was acting on its authority to assess which non-bank institutions posed a threat to the economy. With little evidence other than that, the judge said, “That’s not risk analysis. That’s assuming the worst of the worst of the worst.”
MetLife’s Kandarian and other officials have made some comments, and say some of the spinoffs begun by the company will continue. Other than that, not much has been said by MetLife.
The decision — however — may have implications for the other designees. Neither AIG, Prudential or GE really responded to comment, but AIG CEO Peter Hancock — while still saying he’s comfortable with oversight by the Federal Reserve — did say he’s keeping options open.
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