MetLife Is Designated 'Systemically Important,' but Firm Plans a Fight
A federal panel on Thursday assigned MetLife to a club it does not want to join, designating it a 'systemically important financial institution,' or Sifi, and subjecting it to more intensive regulation than most other life insurers.
Since the financial crisis of 2008 the federal government has been looking for ways to better regulate 'too big to fail' financial institutions - those considered so large and dominant in the financial system that their failure would topple others. The Financial Stability Oversight Council, which was created within the Treasury Department but includes top officials from other regulators like the Federal Reserve, has the authority to vote on the designation.
Already, three non-bank institutions have been designated Sifis: the American International Group, Prudential Financial and General Electric Capital. MetLife not only held out longer, but indicated on Thursday that it was likely to keep fighting the designation, which it called preliminary.
'MetLife strongly disagrees with the Financial Stability Oversight Council's preliminary designation of MetLife as a Sifi,' the company's chief executive, Steven A. Kandarian, said in a statement. 'MetLife is not systemically important under the Dodd-Frank criteria. In fact, MetLife has served as a source of financial strength and stability during times of economic distress, including the 2008 financial crisis.'
Most parts of the insurance industry are regulated by the states and even the insurers that are designated as systemically important will continue to follow state regulations in the future. But the Sifi institutions would also be subject to additional oversight by the Fed and tougher new capital requirements, rules that reduce the institutions' degree of leverage. MetLife has long said that the coming capital requirements will make it uncompetitive with other life insurers.
Complicating things, the new capital requirements have not yet been issued, according to a MetLife spokesman, Randolph Clerihue. The chairwoman of the Federal Reserve, Janet Yellen, has estimated that a draft version of the rules will be issued for public review and comment sometime in 2015.
Mr. Clerihue also said that the Fed indicated that it was required by law to administer one set of capital rules for both banks and insurance companies. He said that having just one set of rules was inappropriate because life insurers are less vulnerable than banks to mismatches between its assets and liabilities. He added that insurers do not have depositors who can demand all their money back at a moment's notice.
'That's the major moving part for us, not knowing what these capital rules are going to look like,' he said. MetLife now has 30 days to file an administrative appeal to the council; after that, the council will have 30 more days to hold a hearing on MetLife's objections. From then, the council will have 60 more days to make its final decision. If MetLife is still designated as systemically important, the company could bring a lawsuit in federal court.
When the insurer Prudential was first named to the list, it filed an administrative appeal but did not succeed; Prudential did not then take the issue to court. The American International Group accepted the council's preliminary decision as final, saying it thought having Sifi status would reassure its customers about its financial strength.
Congress has been considering a bill to allow the Fed to write separate capital requirements for insurers that would differ from those imposed on Sifi banks.
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