U.S. government, MetLife
set for rematch over 'too big to fail'
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[October 24, 2016]
By Lisa Lambert
WASHINGTON
(Reuters) - The U.S. government and the country's largest life insurer
are set for a rematch in a U.S. appeals court on Monday over how federal
regulators decide a company is "too big to fail," one of the most
significant reforms to come out of the financial crisis.
The heart of the fight is whether the Financial Stability Oversight
Council (FSOC), made up of the heads of U.S. financial regulators,
should have designated MetLife Inc. <MET.N> a "systemically important
financial institution."
The label indicates MetLife's collapse could devastate the financial
system, and it triggers tighter oversight. MetLife would also have to
set aside capital to ensure it would not need a government bailout
during a crisis.
In March, U.S. District Judge Rosemary Collyer struck down the
designation, saying the council used an "arbitrary and capricious"
process in assessing MetLife's vulnerabilities. She also said the
government should have analyzed costs and benefits to MetLife, the
likelihood it would fail and possible counterparty losses.
Most of the arguments before the three judges on Monday's appeals panel
will revolve around the steps the FSOC took, with the U.S. government
saying Collyer's requirements are not found in any laws and the
government cannot assess the likelihood of a company's failure or
counterparty losses.
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MetLife was designated "too big to fail" in 2014. It says the FSOC
decided first that it was "too big to fail" and then created a
justification for the label.
MetLife will also argue the FSOC should have followed an alternative
process known as the activities-based approach, that it says is less
costly and better suited to insurance. In that approach, the FSOC would
decide a certain activity poses a risk and then regulate it across all
companies.
The FSOC has said it does not have authority to designate an activity
under statute. In April, however, it announced it would use the
activities-based method to assess risk in asset managers and mutual
funds, leaving MetLife to call its fairness into question.
Collyer's decision was considered a blow to the 2010 Dodd-Frank Wall
Street reform law, one of the most important pieces of legislation
passed during President Barack Obama's tenure, and which has been under
attack from Republicans in Congress.
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![](../images/102416pics/busine45.jpg)
The MetLife building is seen in New York, March 8, 2010.
REUTERS/Shannon Stapleton/File Photo
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The
law authorized the council to designate nonbank companies in response to the
$182 billion government bailout that insurer American International Group
received during the 2008 financial crisis. AIG and Prudential Insurance
are also labeled systemically important.
Two of the judges hearing Monday's arguments, Sri Srinivasan and Patricia
Millett, were appointed by Obama and the third, A. Raymond Randolph, by former
President George H. W. Bush, a Republican.
A
decision could come before next year. The losing side may ask the full court for
a review or may appeal to the Supreme Court.
Many familiar names from the crisis filed briefs supporting the government's
appeal of Collyer's decision, including former Senator Chris Dodd, former
Representative Barney Frank and former Federal Reserve Chair Ben Bernanke.
The National Association of Insurance Commissioners, made up of the industry's
state regulators, supports MetLife.
The company says it recently decided to break up its business in response to the
regulatory environment.
(Reporting by Lisa Lambert; Editing by Leslie Adler)
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