Metropolitan Life Insurance Co., Americas, President William “Bill” Wheeler told a House panel in no uncertain terms that it does not believe insurers should be regulated like banks and warned against marketplace distortion should the final federal capital enhancement rules not be crafted well–or even if they are and insurers are designated as too big to fail by the Financial Stability Oversight Council (FSOC).
Wheeler said that, having lived with Federal Reserve regulation, MetLife had been “forced to stand on the sidelines as nearly all of MetLife’s competitors– including those that took federal bailouts – returned capital to shareholders while bank-centric rules prevented the largest life insurance company in America, from doing so.”
Wheeler testified before the House Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Committee on May 16.
MetLife owns a bank and is therefore subject to the Federal Reserve supervision. It is trying to shed its bank, but may still potentially be considered a systemically important financial institution (SIFI) under the Dodd Frank Act guidelines and thrown back under Fed supervision. These guidelines were the crux of the hearing.
Wheeler objected to designating a handful of insurance companies as SIFIs because it would upset the insurance industry balance in the United States.
The government will be “picking winners and losers in the insurance industry,” Wheeler warned lawmakers.
On the one hand, SIFI insurers may get a competitive advantage for being perceived as too big to fail, and have better ratings and better access to lower-cost money, but shareholders may pay the price, according to Wheeler.
These SIFI insurers “would have to hold more capital and maintain higher liquidity levels, which would reduce returns on equity for shareholders and impose higher prices on customers. In addition, they would have to deal with two levels of regulation compared with one for the rest of the industry,” Wheeler testified.
“Naming only a few large insurance companies as SIFIs is an unsettling thought – it would needlessly upset the competitive landscape in the insurance sector and possibly discourage these large insurance companies from offering the insurance products average Americans rely upon as part of their financial planning,” he testified.
“Even in the event of insolvency, we would not “threaten the stability of the financial system of the United States,” Wheeler testified.
If there are to be insurer SIFIs, then it is “imperative for regulators to get the prudential rules for non-bank SIFIs right. At the very least, they should regulate insurance companies as insurers, not as banks,” Wheeler told Congress.
House lawmakers expressed concern and a need for clarity about designating nonbanks as SIFIs, with the chairman of the Financial Institutions Subcommittee was even asking if the Federal Reserve System even had the “expertise” to regulate non-bank firms from different industries.
Rep. Shelley Moore Capito, R-W.Va., the panel’s chairman, said there are “legitimate questions” about standards for designating a SIFI and how new standards will work once a non-bank firm is designated.
“How well have the FSOC and the Federal Reserve coordinated to ensure the standards for (SIFI) designation and supervision are in harmony? Are they working with their counterparts across the globe to harmonize the standards [for SIFIs and global (G-SIFIs)?], Capito asked in her opening statement.
Subcommittee Ranking Member Rep. Carolyn Maloney D-N.Y., grilled officials from the Federal Reserve and the U.S. Treasury on different models for treating insurance companies, which are
very different from banks, she said.
Rep. Donald A. Manzullo, R-Il, zeroed in on the meat of the Subcommittee’s concerns on insurance (some New York and other lawmakers focused on asset management firms as SIFIs).
Will MetLife be a SIFI, he asked, and regulated by the Fed?
MetLife is regulated now by the Fed because they have a bank holding company, the Board of Governors of the Federal Reserve Division of Banking Supervision and Regulation Director Michael Gibson retorted.
But once it sheds its bank, MetLife will no longer be regulated by the Fed, Manzullo asked. Gibson agreed.
Manzullo asked then whether the FSOC plans to have MetLife designated a SIFI and bring it back to Fed regulation. “I don’t know whether the Council plans to designate it or not,” Auer said.
“What do you think–they pose no systemic risk,” Manzullo said, referring to MetLife. “So should not be regulated under this new regulation.”