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April 03, 2013 at 11:17 AM
Although MetLife has deregistered as a bank holding company with the sale of its bank to GE Capital in February, it is maintaining a tough stance toward any possible designation as systemically risky, subject to what it feels is ill-fitting future regulation by the Federal Reserve.
In its annual report filed with the SEC March 22, MetLife said that substantial uncertainty remains on the regulatory front because it still faces the possibility of being named a nonbank systemically important financial institution (SIFI), which would place it back under Federal Reserve supervision.
The report to shareholders went further, in a statement by chairman and CEO Steven Kandarian, by defending its perceived position as not systemically risky to even one firm, noting that even if deemed to be a SIFI, it should get rules tailored just to the life insurance business model.
Kandarian also warned of economic and public policy consequences both at the company level and for consumers.
“The relevant question to ask of MetLife is: Would the failure of our company ‘threaten the financial stability of the United States’?”
“We believe the answer is no’,” Kandarian stated.
“Not only would we pose no threat to the broader economy, we cannot think of a single firm that would be brought down by its exposure to MetLife,” the CEO added.
Kandarian went on to enumerate the risks to itself and the economy of being named a SIFI.
MetLife, when a bank holding company, was subject to stress tests, what it felt were inappropriate capital requirements and a Federal grip on its ability to buy back shares. MetLife was under constraints imposed by the Fed on raising its dividend and buying back shares after MetLife failed the stress test.
Naming the nation’s largest life insurers as SIFIs and subjecting them to unmodified bank-style capital and liquidity rules would constrain our ability to issue guarantees, said Kandarian, pressing for the need for specially-tailored regulation, not blanket bank-centric regulation on the companies deemed to be nonbank SIFIs.
The federal government could undermine competition in our industry by imposing a potentially onerous layer of federal regulation on a select few life insurance companies, which are already regulated by the states, Kandarian said.
“Life insurers would have to raise the price of the products they offer, reduce the amount of risk they take on, or stop offering certain products altogether,” if they are faced with costly new regulations, Kandarian warned.
He also warned of the federal government unwittingly possibly thwarting consumers’ needs for retirement products.
“At a time when government social safety nets are under increasing pressure and corporate pensions are disappearing, sound public policy should preserve competitively priced financial protection for consumers,” he stated.
Kandarian suggests identifying and regulating only those activities that fueled the financial crisis in the first place.
He underscored his and his colleagues’ argument that regulated life insurance activities were not responsible for the financial crisis.
“Perhaps that is why the federal government’s own report on the crisis, the Financial Crisis Inquiry Report, mentions “life insurance” only once in 663 pages,” he pointed out to shareholders.
