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April 24, 2013 at 10:31 AM
The Financial Stability Oversight Council will meet Thursday amid signs that the first designation of an insurer as systemically significant is imminent.
They are approving the FSOC annual report in the public part of the hearing at 2:30, but the key decision by the FSOC will likely be made later in private session, and perhaps not announced for several days.
The implication is historic, because, according to officials of the Congressional Research Service, insurance has been regulated exclusively by the states for 150 years.
Indeed, a provision of the Gramm-Leach-Bliley Act of 1999 specifically bars the Federal Reserve from overseeing insurance holding companies.
“The FSOC is finally nearing a decision to name several large, nonbank financial institutions as nonbank Systemically Important Financial Institutions (SIFIs),” Ryan Schoen of Washington Analysis, which advises institutional investors and hedge funds, said in an investor’s note Tuesday.
“We continue to expect that AIG, General Electric, and Prudential, will comprise the first round of designations,” Schoen said.
“We also expect MetLife to be designated shortly thereafter, possibly as early as the third quarter of this year, Schoen said.
See also: MetLife CEO rejects SIFI
Schoen said that under the SIFI designation, the companies will be overseen by the Fed. He said they will be held to minimum capital and liquidity standards, in addition to counterparty credit exposure limits.
“However, it is not clear how tailored these standards will be for a given type of institution.
John Nadel, of Sterne Agee & Leach in New York, also dealt with the latter issue in interpreting a decision this week by MetLife to raise its dividend as a potential sign that MetLife, which has aggressively lobbied against designation as a SIFI, is coming to a meeting of the Fed.
“We start with this premise – that it is highly unlikely in our view that MetLife’s management and board would raise the dividend without some form of discussion with the Fed, recognizing that there is a high probability the Fed will in fact again be MetLife’s regulator assuming a nonbank SIFI designation,” Nadel said.
“If our assumption is accurate (we’d hope for some clarity on this from MetLife’s first quarter conference call next week), then it might follow that the Fed is indeed demonstrating it both: 1) Recognizes insurance companies are different and 2) Is willing (several officials have already acknowledged this in public events) to stress-test insurance company SIFIs under a unique (as opposed to bank) set of standards,” Nadel said.
