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Fed briefs Council on enhanced SIFI standards

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Acting Deputy Treasury Secretary Mary Miller today convened a meeting of the Financial Stability Oversight Council (FSOC) in a closed session at the Treasury Department that made no apparent movement toward designating MetLife a systemically important financial institution (SIFI) as it is expected to do at a later date.

MetLife has been under Stage 3 review consideration as a nonbank SIFI for about six months now. Today’s FSOC meeting shows that the book on MetLife is not closed on it yet, indicating the controversial “run on the bank” scenario roadmap provided by AIG and Prudential Financial, designated last year, may not be the same as used for MetLife. 

In an Aug. 1 earnings conference call, MetLife CEO Steve Kandarian said that it’s unclear how long MetLife will remain in Stage 3 of the designation process, noting MetLife’s only frame of reference from the insurance industry is the experience of AIG and Prudential, both of which spent more than seven months in Stage 3.

However, in the meeting today, Federal Reserve Board staff did give a presentation on enhanced prudential standards that apply to SIFIs, which at the moment include Prudential and AIG as insurers. The enhanced prudential standards for maintaining stability of large U.S. financial institutions globally and domestically are mandated under Dodd-Frank Wall Street Reform and Consumer Protection Act and will be applied by the Fed. 

The Fed would not elaborate beyond that but the enhanced prudential standards would require SIFIs to meet liquidity and capital standards. 

The concern that these would throttle insurers’ risk-based capital regimes by imposing bank-centric standards is an ongoing insurance industry concern.

In April 2012, the National Association of Insurance Commissioners (NAIC) wrote to the Fed stating that ”enhanced prudential standards applied to insurance groups that have been identified as SIFIs should be aimed at returning them to non-SIFI status, thus avoiding a market perception that some insurance companies are safer than others.”

To the extent that any insurance company is designated a SIFI, the rules for implementing enhanced prudential standards will have critically important, and potentially detrimental implications for the industry that we regulate and ultimately for the policyholders we serve to protect,” the NAIC stated then.

The meeting today also included Director Mel Watt of the Federal Housing Finance Agency, Fed Vice Chair Janet Yellen, who was confirmed by the Senate earlier this week to succeed Chairman Ben Bernanke, and acting Chairman Mark Wetjen of the Commodity Futures Trading Commission (CFTC), according to the read-out from Treasury.