Back in December, the Financial Stability Oversight Council used it authority under Dodd-Frank to require MetLife to address its potential threats to financial stability and designated it a non-bank systemically important financial institution.
As a result, Board of Governors of the Federal Reserve System will supervise MetLife, in addition to receiving enhanced prudential standards.
The council determined that material financial distress at this company – if it were to occur – could pose a threat to U.S. financial stability.
MetLife is not alone in this category though. This is the fourth company that has been designated by the council. In 2013, the council designated Prudential Financial, American International Group and General Electric Capital Corporation.
“After a year and a half of extensive and in-depth analysis – including significant engagement with the company – the Council has determined that material financial distress at MetLife could pose a threat to U.S. financial stability,” said Treasury Secretary Jacob Lew, chairperson of the council.
“Designation of a nonbank financial company is a critical tool for the Council to address potential threats to U.S. financial stability. Consistent with its mandate, the Council remains focused on protecting the broader economy from the types of risk that contributed to the financial crisis,” he continued.
At the time, MetLife released the statement:
“We are disappointed in the FSOC decision. We continue to believe that MetLife is not systemically important under the Dodd-Frank Act’s criteria, and the company has presented substantial and compelling evidence to FSOC to support this conclusion.
“As we have said many times, singling out two large life insurance companies for SIFI designation will harm competition, lead to higher prices and less choice for consumers, and ultimately could result in less financial protection for middle-class families – who need it the most.
“FSOC has a superior regulatory tool at its disposal if necessary – an approach based on identifying and regulating activities that pose systemic risk irrespective of the size or type of entity that engages in them. FSOC has already embraced this activities-based approach for the asset management industry but has rejected it for the life insurance industry.
“Under the Dodd-Frank Act, MetLife now has 30 days to seek judicial review of FSOC’s decision. The company will carefully review the designation rationale as it considers its next steps.”
MetLife is the first financial company to go to court over the issue since the government started singling out too-big-to-fail institutions.
In an interview with Bloomberg, Kandarian said, “We are taking this action in a very respectful way. I don’t anticipate that the Fed, which will be the ultimate regulator for MetLife as a SIFI, which is one of 10 voting members of FSOC, is going to look at this as something that would change the way they’re going to regulate us.”
According to Seeking Alpha, in a conference call with reporters over JPMorgan’s fourth-quarter earnings, CEO Jamie Dimon said, “Banks are under assault. We have five or six regulators coming at us on every issue.”
And JPMorgan is not alone. Since the financial crisis, banks and nonbanks alike have dealt with an onslaught of regulation from government authorities, in addition to an increase of regulation to ensure that the same mistakes are never made again.
This is not to say the government’s actions are not justified, but to some, the pendulum swung too far in the other direction.
The MetLife lawsuit is still in the works, but this decision could be a game changer for other companies being sued by the government, even if it's only as an inspiration about someone who finally fought back.