Government brief rips into recent MetLife ruling

WASHINGTON — The nation’s chief financial agencies late Thursday ripped a federal court’s March decision, which stripped them of authority to oversee Metropolitan Life Insurance Co., as “profoundly mistaken.”

The filing, made in the U.S. Distruct Court for the District of Columbia by the Department of Justice on behalf of the Financial Stability Oversight Council, was the opening step in the government’s appeal of the March 31 decision by Judge Rosemary Collyer to throw out the designatation of MetLife as a systemically important financial institution (SIFI).

She had declared the government’s decision arbitrary and capricious, and said it had not taken into consideration the additional costs MetLife would bear as a SIFI.

The government’s brief was dramatic. “The court’s ruling leaves one of the largest, most complex, and most interconnected financial companies in the country without the regulatory oversight that Congress found essential,” the brief said. “The district court overturned the collective judgment of the heads of the nation’s financial regulatory agencies that material distress at MetLife could pose a threat to the country’s financial stability.”

Moreover, “Nothing in the district court’s analysis casts any doubt on the reasoning of the council’s 341-page decision,” the government brief added.

Amongst its arguments, the government brief held that Collyer “erred” in holding that the council was compelled to assess the costs of designation to MetLife. “The ten statutory factors that the council must consider in making a designation include neither cost nor any other effect of designation on the company,” the brief said.

In sum, the brief concluded, the Financial Stability Oversight Council “properly exercised its expert judgment in faithfully applying the governing statute and its own interpretive guidance. The designation of MetLife should be upheld.”

The issue is important because it’s a keystone of the strengthened regulatory oversight imposed by the Dodd-Frank law in the wake of the Great Recession of 2007-2010, and because the FSOC already has three other non-banks it is overseeing as a result of Dodd-Frank: American International Group Inc., Prudential Financial Inc. and GE Capital.

MetLife’s reply brief is due Aug. 15. The government is pushing for oral arguments in the case to be held in September. That’s because MetLife’s counsel, Eugene Scalia, has told the court he has a conflict with another case and won’t be able to appear at oral arguments in the previously scheduled October date.

MetLife said it would not respond until the court-mandated reply.

The Treasury Department responded to this development through a spokesman. “We continue to believe that the FSOC acted well within its legal authority in designating MetLife and are vigorously defending the council’s work on appeal,” that agency said in a statement.

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Semantics seesaw

Collyer’s decision held that by designating MetLife, the Financial Stability Oversight Council ”focused exclusively on the presumed benefits” of making Met a systemically important financial institution without consideration of the costs, “which is itself unreasonable.”

The government responded to that by saying, the district court declared that the cost of designation to MetLife was a “risk-related factor” — a conclusion without basis in the statute or common sense.”

In her decision, Collyer also argued that Metlife was already subject to strong state oversight, that non-bank SIFI regulation creates an unlevel competitive situation, and the Fed should instead address specific systemic activities (similar to the asset management industry) regardless of the size of companies.

The FSOC brief also rejected two other Collyer holdings in her decision, one of which was that the FSOC abandoned its own standards on two issues – failing to assess the insurer’s vulnerability to distress or explain how said distress could affect financial stability.

“The final determination hardly adhered to any standard when it came to assessing MetLife’s threat to U.S. financial stability,”Collyer write in her decision. ”Assumptions pervade the analysis.”