DOJ Argues MetLife Reversal Would Undermine SIFI Mission

MetLife’s challenge to its designation as a systemically important financial institution (SIFI) is “meritless” and should be dismissed, the Department of Justice (DOJ) argues in a filing in Federal Court in Washington, D.C.

DOJ lawyers filed the brief in a case being heard by Judge Rosemary M. Collyer.

MetLife brought the case against the Financial Stability Oversight Council in January. It argues that it is a mere insurance company and that its activities pose no threat to the U.S. financial system.

The DOJ brief on behalf of the FSOC contends in strong terms that the FSOC acted appropriately in designating MetLife as a SIFI. MetLife is more than an insurance company, the DOJ brief argues.

“Moreover, MetLife’s complaints, if accepted, would frustrate the express statutory purpose of the Council: to address potential risks to financial stability posed by the distress of certain companies before that distress occurs and poses an imminent, grave threat to the nation’s economy,” the brief contends.

The brief also says that, in addition to MetLife’s institutional and capital markets products and activities, the FSOC identified a second source of “potential liquidity strain,” explaining that “MetLife’s retail insurance and annuity products that entitle policyholders to obtain cash from MetLife.”

The brief was filed late Thursday by the DOJ on behalf of the FSOC. A redacted version of the FSOC filing was released late Monday by the DOJ.

The brief also takes on MetLife’s arguments that the voting member of the FSOC with insurance expertise, plus the non-voting members appointed by the National Association of Insurance Commissioners (NAIC) are not the only participants in FSOC discussions with insurance expertise.

MetLife “incorrectly characterizes the dissenting independent member as the only voting member of the FSOC with relevant expertise to evaluate the potential effects of MetLife’s material financial distress,” the brief said in a footnote.

“The members of the FSOC have broad and deep expertise in economic, financial, and market issues across the financial system, including in insurance,” the brief says.

As one example, the Federal Reserve is responsible for the consolidated supervision of financial holding companies with insurance affiliates, it says. “In addition, Dodd–Frank established the Federal Insurance Office (FIO) within the Treasury Department with authorities including identifying insurance regulatory issues that could contribute to a systemic crisis in the U.S. financial system,” the filing says.

Moreover, the director of the FIO is responsible for advising the Treasury Secretary on major domestic insurance policy issues and serves in an advisory capacity on the FSOC, the filing says.

The filing explains that MetLife’s “life insurance activities alone did not lead to its designation.”

Rather, the filing sasays that the FSOC found that MetLife engages in complex financial transactions and capital markets activities which, in a distress situation, “not only could expose other major market participants to substantial losses, but could also put cash strains on the company, requiring it to sell assets at a scale and speed that could impair or freeze up broader financial markets.”

The briefing said that, “Because MetLife is a significant, active participant in the U.S. financial system, and because it is significantly interconnected with other financial companies through its institutional and capital markets activities and insurance products, the FSOC concluded that material financial distress at MetLife could impair financial markets so severely as to inflict broader damage on the United States economy.”

The brief said the FSOC’s conclusions were based on detailed financial analyses and “its considered expertise and predictive judgments about risks to the financial system as a whole.”

The next step in the process is MetLife’s reply to the government brief.

According to a March filing, a court decision on whether MetLife’s designation as a SIFI will be sustained is “unlikely to occur before the first few months of 2016."

In fact, a court hearing on the MetLife challenge to its designation is unlikely to occur before October or November, the March filing said.

InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].

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InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].