If sustained, a lower court ruling barring federal financial regulators from overseeing MetLife would “fundamentally undermine” Congressional intent, a legal trade group said Thursday in a friend-of-the-court brief to the U.S. Court of Appeals for the D.C. Circuit.
The brief was filed by the liberal-leaning Constitutional Accountability Center in MetLife v. Financial Stability Oversight Council (FSOC) on behalf of the Democratic congressional leadership, including former Sen. Chris Dodd, D-Conn., and former Rep. Barney Frank, D-Mass., named sponsors of the Dodd-Frank Act, the law that created the FSOC.
The April 30 decision by Judge Rosemary Collyer would do so by “making it difficult, perhaps impossible, for FSOC to play the role Congress intended it to play—one in which it will use the federal and state government’s combined financial regulatory expertise to make the predictive judgments necessary to target potential causes of a catastrophic financial crisis before it occurs,” the brief said.
“Amici therefore have a strong interest in preserving the regulatory scheme that Congress put in place when it enacted the Dodd-Frank Act (DFA),” the brief added.
Frank released a statement in connection with the filing. “I was surprised that the district court judge substituted her judgment for the FSOC’s on a specific issue that is solely within its jurisdiction and competence,” Frank said.
But, he added, “I was shocked that the judge went on to substitute her judgment for that of the entire Congress, by effectively amending the statute.” Frank, a lawyer, served in Congress from 1981 to 2013, and was a primary drafter of the DFA.
He also said he was “very troubled” that Collyer amended the provision in the DFA that created the FSOC it by adding two requirements that Congress rejected, “and that have the effect of rendering a significant part of the law unworkable.”
As to other non-banks, the FSOC is currently deferring to the Securities and Exchange Commission on overseeing mutual funds and similar asset managers. It is doing so under intense pressure from industry and members of Congress. The FSOC is unlikely to even consider dealing with those non-banks through the end of the Obama administration, and perhaps for several years. Indeed, such action may have to await a change in control in Congress to the Democrats.
The Thursday brief said Congress crafted the FSOC provisions in the DFA in order that federal regulators would be able to identify entities before they threaten the nation’s financial stability in order to prevent another crisis like the Great Recession of 2008.
Specifically, the brief said, the FSOC, a broad-based expert body composed of all agency heads regulating the financial sector, “was tasked with identifying nonbank entities that have the same potential as the large, interconnected bank holding companies to threaten the financial stability of the United States.”
By subjecting them to heightened scrutiny, “the new plan was designed to prevent problems before they occur, thereby avoiding another financial crisis like the one that devastated so many Americans,” the brief said.
Further, the brief said, those crafting the law “know that the district court’s decision misunderstands the overall structure of this statute and how it was designed to strengthen the framework of federal and state financial regulation.”
The brief follows submission of the FSOC’s original brief to the Appeals Court, filed last week.