MetLife and others in the U.S.insurance industry — even regulators — are trying to figure out what it means to be a globally systemically important insurer (G-SII.)
On July 18, the Financial Stability Board (FSB) designated AIG and Prudential Financial as G-SIIs. MetLife was also designated.
“Our understanding is that being named a G-SII has no legal effect unless MetLife is designated a systemically important financial institution (SIFI) by the Financial Stability Oversight Council (FSOC). If we are designated a SIFI, MetLife would be subject to enhanced prudential standards promulgated by the Federal Reserve,” said CEO Steve Kandarian in a conference call Aug. 1 to discuss MetLife’s second quarter earnings.
According to this thinking, Prudential Financial, which officially protested its SIFI designation in a hearing before FSOC last week, would shake off the G-SII designation if it successfully argues against the SIFI designation.
This is unlikely, but points to the reasons the Administration has pushed for coordination between the international systemic risk evaluations and the domestic ones. That is, under the Dodd-Frank Act, a G-SII that was not also a SIFI might have no meaning.
According to Treasury, which is basically the seat of the FSOC, under the Dodd-Frank Act, the FSOC has the authority to impose consolidated supervision on a G-SII by designating the company for Federal Reserve supervision and enhanced prudential standards.
Thus, determining authority resides with FSOC, according to Treasury.
But under Kandarian’s statement, it is the Federal Reserve Board: “The Fed will have to determine whether to subject U.S.-based G-SIIs to additional supervision and prudential rules,” he said.
Treasury’s spokesperson did not respond to an attempt to clarify the next steps.
The FSOC is working through the domestic nonbank designation process, having recently designated two “complex” nonbank financial companies and is continuing work “on other companies in various stages of the process,” a spokesperson said back in July, hinting that it is not only MetLife among nonbanks that it is evaluating.