WASHINGTON — Several industry groups, as well as state regulators, argue, in friends of the court briefs to the U.S. Court of Appeals for the D.C. Circuit, that the lower court was correct in ruling that the Financial Stability Oversight Council (FSOC) inappropriately designated MetLife as a systemically important financial institution (SIFI).
Besides making their own arguments, the briefs on behalf of the U.S. Chamber of Commerce, the Investment Company Institute (ICI), the American Council of Life Insurance (ACLI) and the National Association of Insurance Commissioners (NAIC) all support the basic argument of MetLife in the case.
That argument is that the FSOC failed to “adhere to its own regulatory standards and the basic precepts of reasoned agency decision-making” in inappropriately designating MetLife as a SIFI.
All three briefs were filed Monday in MetLife v. FSOC, No. 16-5086, the government’s appeal of a decision by Judge Rosemary Collyer, a D.C. Circuit court judge, March 30 that declared the government’s decision as ‘arbitrary and capricious.’
MetLife submitted a reply brief to the government’s appeal on Aug. 15. The government’s reply brief is due Sept. 9.
In a memo filed with the court Aug. 18, the government asked for expedited handling of the case, with oral arguments scheduled for October. MetLife, in a memo filed with the court a day later, said it would support October oral arguments. In its memo to the court, the government asked for expedited action because Collyer’s decision “nullifies an important action that the nation’s financial regulators collectively took in response to a potential threat to U.S. financial stability.”
In their brief, the Chamber of Commerce and the ICI said Collyer “correctly set aside” the FSOC’s determination that MetLife is a SIFI because the FSOC committed “fundamental violations of established administrative law.”
Moreover, the Chamber and ICI brief said, the FSOC’s decision to forgo any threshold analysis of MetLife’s supposed vulnerability to financial collapse and instead to “assume material financial distress” in considering MetLife for SIFI designation was inconsistent with the analysis “clearly contemplated” by the terms and structure of a provision of the Dodd-Frank Act (DFA). The DFA was the 2010 law that created a process for designating non-bank financial institutions as systemically significant.
The Chamber and ICI brief also contended that the FSOC’s approach to designation “leaves the sheer size of an entity and the extent of its corporate or customer relationships as the only meaningful factors in a SIFI determination, and “that arbitrary result is incompatible with the balanced goals of the Dodd-Frank Act.”
In its brief, the ACLI said that MetLife “convincingly demonstrates” why its designation as a SIFI by the FSOC was arbitrary and capricious as well as “unsupported by the record, empirical fact, or economic logic; and contrary to law.”
The ACLI also said that the FSOC in designating MetLife failed to account for the basic differences between banks, on the one hand, and insurance companies, on the other, including differences in the products offered, the liabilities assumed, and the economic risks respectively faced by banks and insurers.
“Bedrock principles of reasoned decision making under the Administrative Procedure Act required the FSOC both to identify and account for the differences between these two very different types of financial institutions,” the ACLI said. Instead, the FSOC “glossed them over, effectively assuming that banks and insurance companies were alike, when, in fact, they differ.”
In its brief, the NAIC said that in designating MetLife, the FSOC “failed to adequately consider the full range of regulatory tools available to state regulators at the individual entity and group level.”
The NAIC also contended that in designating MetLife, the FSOC failed to assess the risk of asset liquidation against existing regulatory authority to actively prevent a “run on the bank” scenario, including early warning through risk-based capital requirements and stays on surrender activity — tools used by state regulators in overseeing insurers.
Moreover, the NAIC said in its brief, the FSOC failed to assess the risk of MetLife’s ultimate failure “against the deliberate, incremental process that applies to troubled companies supervised by state insurance commissioners.”
We’re on Facebook, are you?