Insurance giant MetLife announced Tuesday that it will seek to sell off its insurance business to reduce regulatory pressure it faces as a massive financial institution.
The company specifically cited federal regulators’ attempt to label it a “systemically important financial institution,” a designation that means it will be regulated as if it were a big bank, as a reason for the move.
MetLife CEO Steve Kandarian said the regulatory requirements would place his company at a “significant competitive disadvantage.” Even though the company is fighting the federal government in court over its status, Kandarian said, “this risk of increased capital requirements contributed to our decision to pursue the separation of the business.”
The move would be intended to help the new company to be separated out, MetLife’s life insurance business, avoid the stricter regulation and higher capital requirements that come with the “systemically important” label. It makes up 20 percent of MetLife’s current income and would have $240 billion in assets. After the separation, MetLife would continue to be designated and would still pursue its legal challenge against the federal government.
MetLife is the second company to consider restructuring as a result of the big bank-style regulations that result from being labeled “systemically important” by the group of financial regulators known as the Financial Stability Oversight Council.
GE Capital, the finance arm of General Electric, began selling off lines of business last spring in an attempt to shed the “systemically important” label.
The Financial Stability Oversight Council, created by the 2010 Dodd-Frank financial reform law, comprises the heads of all the major regulatory agencies and is tasked with identifying threats to the financial system that might originate outside banks, which are already regulated by several banking agencies, including the Federal Reserve.
The council deemed MetLife such a threat in fall 2014. The company responded by appealing the decision and then suing the council for lacking authority in the early 2015. MetLife’s suit was broad enough to represent a challenge to the legitimacy of the financial architecture put in place to regulate non-bank financial firms.
MetLife was the firm to most recently be named a systemically important financial institution. The first was American International Group, the insurer whose collapse in 2008 threatened to bring down Wall Street and prompted Congress to create the council. Prudential is also designated systemically important, in addition to GE Capital.
No firm has been successful in shedding the label by slimming down. Lawmakers have pushed the Fed to spell out more clearly what conditions must be met for that to happen.
