MetLife is challenging a central part of the US’s response to the financial crisis by suing the government for classing it as an institution that could threaten financial stability if it fell into distress.
The US’s largest insurer by assets, MetLife, on Tuesday filed a lawsuit against its designation by US regulators as a systemically important financial institution, which came last December after the company lost a previous appeal.
The designation — based on MetLife’s widely-held insurance products and its involvement in capital markets — would subject the insurer to tougher oversight by the Federal Reserve.
The insurer’s move is another attack from the financial services sector on the post-crisis Dodd-Frank legislative reforms from 2010, which placed a priority on tightening the oversight of businesses that could jeopardise financial stability.
The reforms are also under fire from Republicans who have this year taken control of Congress.
While MetLife regularly champions its “leading market position” in the US, its opposition to the designation is based on an argument that, while big and important, it is not as integral to the financial system as regulators have concluded.
Steven Kandarian, MetLife’s chief executive, told the Financial Times: “We’re not contesting the law. We’re simply contesting the application of the law as it applies to MetLife.”
He said MetLife had hoped to avoid litigation by giving regulators evidence that his group was not systemically important, and stressed that it was now taking advantage of a provision for judicial review in the Dodd-Frank law.
The insurance industry as a whole had lobbied hard to escape the net, arguing that it was much safer than banking and was being punished for the past sins of AIG, which came close to collapse because of risky derivatives contracts it wrote.
MetLife’s legal challenge will be the first test of the powers of a panel of regulatory chiefs called the Financial Stability Oversight Council, which was created out of Dodd-Frank and includes Treasury secretary Jack Lew, Federal Reserve chair Janet Yellen and Securities and Exchange Commission head Mary Jo White
When it designated MetLife as systemically important, FSOC said: “[M]aterial financial distress at MetLife could lead to an impairment of financial intermediation or of financial market functioning that would be sufficiently severe to inflict significant damage on the broader economy.”
It added that its conclusion did not signal that MetLife was experiencing, or was likely to experience, financial troubles.
AIG, GE Capital and Prudential Financial have already been deemed systemic risks by the FSOC, and are now overseen by the Fed. Of those companies, only Prudential appealed the council’s decision but declined to pursue a legal challenge.
A Treasury spokesperson said it had been notified of MetLife’s complaint: “The council’s decision to designate a nonbank financial company is reached only after a thorough analysis and extensive engagement with the company, both of which occurred in this case. We are confident in the council’s work.”
MetLife has been the most aggressive opponent of the systemically important label, arguing it would put the company on an uneven playing field with its competitors.
Mr Kandarian — a former regulator himself — said he was a supporter of strong rules and was not concerned that the challenge would harm MetLife’s relations with its supervisors.
The lawsuit would take up time and money, he noted, but added: “That is a small cost compared to not getting this right and putting us on an unlevel playing field where a couple of large life insurers are regulated differently than the rest of the industry, putting us potentially at a real competitive disadvantage.”
The FSOC has been criticised by Democrats and Republicans for lacking transparency, and some lawmakers have called on the body to put a hold on it issuing Sifi designations while its operating procedures are reviewed.
However, the council’s defenders argue that it plays a crucial role in bringing regulators together to monitor risk in the financial system in the aftermath of the 2008 crisis.
MetLife has hired prominent legal counsel, including Eugene Scalia, who successfully challenged the SEC’s proxy access rule and is a son of Supreme Court Justice Antonin Scalia.
Fonte: Financial Times

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