U.S. Justice Department lawyers presented a motion to dismiss MetLife’s suit against the government on Friday, May 8th in U.S. District Court in Washington DC. MetLife filed the suit in January, after being named by the U.S. Financial Stability Oversight Council (FSOC) as a company that is a Systemically Important Financial Institution (SIFI), known colloquially as “Too Big to Fail.” MetLife became the 4th nonbank entity to be classified as SIFI, joining American International Group (AIG), Prudential, and GE Capital. The reason for the dismissal is unclear, as the motion was filed under seal due to its containment of sensitive business information that could inadvertently leak into the public record. With both parties agreeing to the motion being sealed, Judge Rosemary Collyer instructed them to consult in order for the government to file a redacted, publicly available copy of the motion by May 18th. MetLife, the nation’s largest insurer, is fighting the SIFI designation which calls for stricter capital requirements and increased regulation by the Federal Reserve, as opposed to its current state-level oversight. The company, arguing that it isn’t primarily a financial institution, is the first non-bank to fight this designation, which was created by the 2010 Dodd-Frank financial reforms.
In the January complaint against the designation, MetLife attorney, Eugene Scalia wrote that the company’s current oversight is sufficient, calling it a “regime that supervises every aspect of MetLife’s U.S. insurance business,” as opposed to the FSOC’s “vague standards and assertions, unsubstantiated speculation and unreasonable assumptions.” In an email statement responding to the suit, Treasury spokesperson, Suzanne Elio said the designation was made after “a thorough analysis and extensive engagement with the company,” adding,“We are confident in the council’s work.” Scalia asserts that the company does not fall within the requirements of a “U.S. Nonbank Financial company” because more than 15 percent of the company’s revenue and assets are involved in foreign markets. He also argues that the insurance business does not have the same short-term life-cycle of other business that have been assigned this designation, claiming there is little “run-risk” in its activities. MetLife brings a compelling case, as the Dodd-Frank rules regarding these matters have yet to be finalized. MetLife argues in the complaint that no company should be designated as SIFI without knowing what the actual final rules are. During a call with investors the day before the dismissal motion was filed, CEO Steve Kandarian said, “The regulatory environment remains uncertain. We’ve not yet seen draft capital rules, and there is no clarity on when those rules will be issued.”
If the case continues, it will run through the 5th anniversary of Dodd-Frank’s July, 2010 enactment. Despite the legislation being a linchpin of the post-2008 financial cleanup, many on both sides of the public-private divide have questioned the ambiguity of the large-scale reforms. The FSOC is a 10-member panel that includes the heads of the Federal Reserve, the Security and Exchange Commission (SEC), the Federal Deposit Insurance Corporation (FDIC), among others and chaired by Treasury Secretary, Jacob J. Lew. Knowing that a legal challenge was likely forthcoming, the commission spent over a year analyzing MetLife before giving it the SIFI designation. SEC Commissioner Dan Gallagher appeared bluntly frustrated with the Dodd-Frank regulations in a May 5th conversation with CNBC’s Bob Pisani. Stating that “Dodd-Frank has been an awful distraction to the agency,” and that, “This is my fourth year as commissioner, I’ve been on the staff before, and I can tell you in the past four years we are somewhere between 10 and 20 times the number of normal rule writing capacity.” Gallagher adds that the 2,319 page legislation which includes 400 mandates that must be individually researched and turned into rules, hence the delays in completing the legislation. As mentioned in a post last month, many bank regulators have complained that Dodd-Frank turns bank directors into managers, and that the industry has been forced to become more risk-averse than reward-motivated. While certainly frustrating, Dodd-Frank’s focus has been on avoiding another meltdown like in 2008, even if at the expense of some level of sanity. Although the SIFI designation is geared to protect the economy and in some respects, protect MetLife as well, it remains to be seen if the incomplete Dodd-Frank regulations will be a strong enough legal justification to keep the company under the FSOC’s control.
Bloomberg Business – Andrew Zajac, Ian Katz, and Zachary Tracer
CNBC –Bob Pisani
National Law Journal Legal Times – Jenna Greene