Top U.S. regulators rightly tagged MetLife Inc. as “too big to fail,” a lawyer for the government told a federal appeals court, urging it to reverse a ruling that set back efforts to rein in risk in the American financial system.
The Financial Stability Oversight Council took the correct approach when it designated MetLife as a systemically important financial institution in December 2014, Mark Stern, an attorney for the government, said during a hearing Monday. He disputed assertions that the FSOC was required to consider the likelihood a crisis could upend the biggest U.S. life insurance company and not merely what would happen if it did.
“Once a crisis develops, how it’s going to proceed is very difficult to predict,” Stern said.
Had it stood, the council’s determination would have subjected MetLife to enhanced capital and liquidity requirements and compelled the insurer to prepare plans for its orderly dissolution in the event of a crisis. In March, U.S. District Judge Rosemary Collyer rescinded the designation, calling the government’s analysis “fatally flawed.”
The council, Collyer said, failed to follow its own guidelines and reversed itself on whether a company’s vulnerability to market distress would be considered and what it means to threaten the financial stability of the U.S.
FSOC’s Creation
FSOC was created under the 2010 Dodd-Frank reform legislation, with the intent of more closely regulating the financial industry in the wake of the global economic crisis of 2008. Among its 10 voting members are Treasury Secretary Jacob J. Lew, Federal Reserve Chair Janet Yellen and Consumer Financial Protection Bureau Director Richard Cordray.
The three-judge appellate panel in Washington, which included two appointees of President Barack Obama and one nominee of former President George H.W. Bush, heard about an hour of argument from both sides in the case.
MetLife’s lawyer, Eugene Scalia, defended Collyer’s decision.
“They just plunge MetLife to whatever depths are necessary, without any serious examination of how it got there,” Scalia said, noting that MetLife Chief Executive Officer Steven Kandarian once told the council the designation was “the biggest threat to this company in its history.”