Life insurance company MetLife on Monday will present its case to a supergroup of regulators that its failure would not jeopardize the financial system.
A MetLife spokesman confirmed that the company will appear before the Financial Stability Oversight Council Monday to appeal the council’s proposal to label it a “systemically important financial institution.”
The council, which was created by the 2010 Dodd-Frank financial reform law to assess threats to the system and is made up of all the major regulatory agencies, first proposed attaching the “systemically important” designation to MetLife in September. If implemented, MetLife would be regulated as if it were a big Wall Street bank, with higher capital standards and oversight from the Federal Reserve.
The council announced last week that it would meet Monday to discuss designating non-bank financial businesses “systemically important” as well as recent developments in markets. The appeal hearing will take place separately.
Following the appeal hearing, the council will make a final determination on MetLife’s status within 60 days.
MetLife declined to comment on what its strategy would be at the hearing, and the council doesn’t discuss the process by which non-banks become labeled systemically important.
MetLife CEO Steven Kandarian said last year, when the council began looking into the company, that it did not pose the threat that a big bank does. “Not only does exposure to MetLife not threaten the financial system, but I cannot think of a single firm that would be threatened by its exposure to MetLife,” he said.
But one expert and critic of the council suggested that MetLife’s strategy wouldn’t matter, and that the decision has already been made to regulate MetLife like a bank.
Peter Wallison, a scholar at the right-leaning American Enterprise Institute, said the top members of the council, including Treasury Secretary Jack Lew and Federal Reserve Chairwoman Janet Yellen, have already moved to declare MetLife systemically important internationally as part of the global version of the Council, the Financial Stability Board.
Having voted to label MetLife globally systemically important already, Wallison said, Lew and Yellen are not likely to back off the designation in the U.S.
Calling Monday’s hearing “a sham,” Wallison said that “it’s complete pro forma. I don’t think they’ll really get a hearing until they go to court.”
When life insurer Prudential Financial Inc. was designated by the council last year, it didn’t seek legal recourse. In addition to Prudential, General Electric Capital Corp. is already officially listed as a systemically important institution, as well as American International Group, Inc. It was AIG’s 2008 failure and bailout, in part, that led Congress to create the council so it could find risks to the financial system outside of banks.
Critics of the council’s power to label non-banks “systemically important” say that the designation will create the perception that those companies are on the hook for a bailout if they get into trouble. In other words, that they are viewed by the government as too big to fail.
But even more so, congressional and outside critics have raised concerns about the process. The House passed a bill this year to prevent the council from designating companies systemically important until they could implement reforms that would change the process, including by allowing members of committees with oversight of financial regulators into the council’s meetings.
