WASHINGTON — If sustained, a lower court ruling barring federal financial regulators from overseeing MetLife would “fundamentally undermine” Congressional intent, a liberal-leaning legal trade group said today 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 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.
See also: MetLife defends its SIFI challenges
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.
Its backers “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.”
The 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.
That filing was submitted June 16 by the Department of Justice on behalf of the Federal Financial Oversight Council. It was the opening step in the government’s appeal of the March 30 decision of Collyer to declare that the FSOC’s designation of MetLife as a systemically important financial (SIFI) was arbitrary and capricious.
Besides Dodd and Frank, the Democratic leadership of Congress joined the brief, including Sen. Sherrod Brown, ranking minority member of the Senate Banking Committee. Others joining the brief included Sen. Elizabeth Warren, D-Mass.
The brief argued that the FSOC “appropriately considered” whether financial distress at MetLife could threaten the nation’s financial stability, not MetLife’s likelihood of financial distress, as contended by Collyer in her opinion.
Moreover, the FSOC “appropriately considered the factors specified in DFA in Its designation determination and correctly did not add the costs to MetLife to those factors,” the brief.
The brief also contended that Collyer improperly substituted her judgement for the agency’s, “notwithstanding Congress’s decision not to establish deferential review for FSOC determinations.”
MetLife’s reply brief is due Aug. 15, and 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.
Elizabeth Wydra, CAC president, likened the Collyer decision as politically motivated Elizabeth Wydra added, “This challenge to Dodd-Frank’s efforts to protect consumers and our economy is cut from the same cloth as the politically-motivated legal attacks on other progressive milestones, including the Affordable Care Act and climate change regulation.”
She said that like those other lawsuits, “this one should also fail.
“The text, history, and legislative plan of this law clearly give the FSOC the power to designate certain very large nonbank financial institutions as exceptionally threatening to the stability of the financial system as a whole, and I look forward to the Court of Appeals overturning Judge Collyer’s deeply flawed ruling.”