Banking and Finance Law Daily MetLife, FSOC settle argument over ‘systemically important’ designation
Friday, January 19, 2018

MetLife, FSOC settle argument over ‘systemically important’ designation

By Richard A. Roth, J.D.

The Financial Stability Oversight Council and MetLife, Inc., have asked for the dismissal of the FSOC’s appeal of a decision that the designation of the company as a systemically important nonbank financial institution was arbitrary and capricious. The company and FSOC plan to ask the U.S. district court who entered the decision to modify one of her criticisms of the council’s determination, but the remainder of the ruling will be left intact. The agreement marks a clear win for MetLife.

The FSOC designated MetLife as a SIFI on Dec. 14, 2014, and in doing so subjected the company to enhanced supervision by the Federal Reserve Board. According to the judge’s opinion, the FSOC acted based on determinations that:

  1. MetLife’s counterparties would be exposed to significant losses if the company experienced material financial distress.
  2. Financial distress of that nature could cause MetLife to liquidate assets quickly, which could disrupt capital markets.
  3. Existing supervision was inadequate to prevent either danger from occurring.
  4. The company’s complexity would interfere with the resolution process.

The judge concluded, however, that the FSOC had disregarded its own guidance on how SIFI designations would be made, failed to explain that deviation, and refused to consider the costs the designation would impose on MetLife (see Banking and Finance Law Daily, April 7, 2016).

Joint motion to dismiss. The joint motion to dismiss the FSOC’s appeal does not give any reasons. However, statements by MetLife and Treasury Secretary Steven T. Mnuchin fill in the blanks, to some extent.

According to MetLife, it and the FSOC will jointly ask the district court judge to vacate the part of the opinion in which she decided that the required cost-benefit analysis had not been performed. The remainder of the opinion will stand.

Mnuchin said that, since the decision, Treasury had recommended improvements to the SIFI designation and review process. Treasury wants the FSOC to:

  • include in its analysis an assessment of the probability that a company will experience material financial distress;
  • designate a company as a SIFI only if a cost-benefit analysis shows that the financial stability benefits will outweigh the costs to the company;
  • improve its communication with companies being considered for a SIFI designation, and also with the companies’ primary regulators; and
  • create a clear and effective process for the annual review of each SIFI designation and the rescission of a designation.

Companies: MetLife, Inc.

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