MetLife wins legal case against FSOC's SIFI designation

By Staff Writer

Mar 31, 2016 08:34 PM EDT

MetLife has won a legal case against US regulators over 'systemically important' financial institution (SIFI). A Washington court has rejected Financial Stability Oversight Counsil's (FSOC) decision to classify MetLife as SIFI. MetLife's win against the US Dodd Frank Act is considered to be a major blow to the Barack Obama-led government which is expected to appeal on this verdict. 

MetLife is the largest insurer by assets. The case was considered too big to fail. The latest legal verdict against US Dodd Frank Act will have implications for the US financial system.

A Washington Court has opined that it had acted unlawfully by agreeing on tougher regulations on a systemically important financial institution. This ruling is expected to create tremors in implementation of Dodd Frank legislative reforms. 

Financial Times reports that the latest verdict by a Washington court favoring MetLife may lead few more legal battles from other insurance companies deemed to be SIFIs. There are such SIFIs category insurers including American International Group (AIG) and Prudential Financial. However, the banks that have been already classified as SIFIs will have less chances of avoiding via courts. Because of the eligibility for SIFI designation is written directly into the US laws. Non-banks have different criteria altogether.

Financial Stability Oversight Council's (FSOC) members had voted nine to one favoring of designating MetLife as a SIFI. This status will pave the way to additional regulatory scrutiny and requirement of higher capital as well. 

The verdict is a major breakthrough for Steven Kandarian, Chief Executive at MetLife. Kandarian said "Today's ruling validates MetLife's decision to seek judicial review. From the beginning, MetLife has said that its business model does not pose a threat to the financial stability of the United States."

Forbes further adds that MetLife's win against US Dodd Frank Act will reverberate throughout the US economy. Some banking and insurance analysts say that the US government should ensure the reduction of risk, while identifying which organization is fit for the systemically important financial institution tag. Without leverage and the maturity transformation of reserve, one can't say that an organization will fail owing to its larger size. However, the Obama government has criticized the ruling and may appeal. 

US Fed Chair Janet Yellen, and Jack Lew, US Treasury Secretary, are the members of FSOC. A Treasury spokesman said "We strongly disagree with the court's decision. We are confident that FSOC's determination was lawful and will continue to defend the council's designations process vigorously."

Some economists term the US court verdict as a surprise. The Washington court rejected FSOC's attempt to tag the SIFI status to MetLife. SIFI tag is subject to more regulations by Federal Reserve.

Some opine that SIFI shouldn't simply be given to an organization just considering how big it is. For instance, Apple has a lot of money. Vanguard has over $3 trillion under management as against $878 billion of assets by MetLife. Economists suggest that the financial distress of a company that damages broader financial system should be taken into consideration for deciding on the SIFIstatus, as reported by Bloomberg view.

Washington District court found FSOC had acted unlawfully by giving MetLife an amnesty. The latest decision favoring MetLife had pushed its share price upwards, soaring over five percent. 

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