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MetLife Wins Epic Battle With Federal Regulators

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The U.S. Court of Appeals for the District of Columbia has ended the epic legal battle between the Financial Stability Oversight Council and MetLife Inc.

FSOC formally joined with MetLife last week to ask the appeals court to drop the case.

The appeals court shut down the case with two sentences.

“Upon consideration of the joint stipulated motion to voluntarily dismiss appeal, it is ordered that the clerk note on the docket that this case is dismissed,” the court said in the order, which was filed Tuesday. “No mandate will issue.”

A copy of the order is available here. 

SIFI Designation Program

A meltdown in the U.S. residential mortgage loan market started in 2007 and led to a massive wave of financial institution rescue efforts in 2009 and 2010.

Many federal regulators, members of Congress and others blamed the Great Recession on the effects of mortgage market problems on mortgage-backed securities, credit default swaps and other financial instruments that typical federal policymakers knew little about.

(Related: The Sovereign-Debt Doom Loop Still Threatens Banks)

When Democrats in Congress were drafting the Dodd-Frank Act, they added the FSOC provision because they wanted to give federal financial services regulators, who were involved mainly in the banking and securities sectors, a way to understand problems at “systemically important financial institutions” (SIFIs), or critical entities outside the banking and securities sectors.

The organizers of FSOC tried to create a broad, flexible program for identifying entities as SIFIs, to keep important entities from making relatively minor changes in their operations simply to avoid SIFI oversight.

FSOC v. MetLife

Under former President Barack Obama, FSOC tried to classify MetLife and several other insurers as SIFIs.

MetLife, a company founded in 1868, ended up putting its individual life and annuity operations in a separate company, Brighthouse Financial Inc., in part because of concerns about the SIFI designation.

Steven Kandarian (Photo: AP)

Steven Kandarian (Photo: AP)

MetLife fought the SIFI designation in court, arguing that the process FSOC used to classify it as such was unfair and unclear, and that FSOC had failed to provide a clear explanation of how a company designated as a SIFI could escape from the SIFI category.

A district court judge sided with MetLife.

FSOC appealed.

When President Donald Trump came into office, he changed course and began the process of pulling back from the Obama administration’s approach to SIFI oversight.

MetLife’s Reaction

Steven Kandarian, MetLife’s president, welcomed the dismissal order. 

“This is the right outcome not only for MetLife’s customers, employees and shareholders, but for the broader financial system as well,” Kandarian said in a statement.

“MetLife has always supported prudent regulation of the insurance industry and is effectively regulated at the state level, but FSOC’s 2014 designation of MetLife was a textbook case of regulatory overreach.

“MetLife wants a level playing field where we are neither advantaged nor disadvantaged by regulation. We are not ‘too big to fail’ and never have been. We do not want the burdens that come with that label and, to the extent it has any benefits, we do not want those either. For nearly 150 years, MetLife has stood on its own two feet without any need for a government backstop.

“Regulating companies reasonably is critical to fueling robust economic growth and creating jobs. If systemically important activities are taking place anywhere in the insurance industry, primary regulators should focus on those activities directly, as we have advocated since 2009.”

— Read Global Markets Are Less Stable Than They Appear on ThinkAdvisor.

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