Insurance carriers have long argued that because their industry operates so differently from banking and other sectors under the financial services umbrella, it should not be subject to the same levels of scrutiny under the 2010 Dodd-Frank law.
Now, that stricture is getting its day in court.
MetLife Inc. is preparing for a Wednesday hearing in which it will attempt to persuade a federal judge that it should not be designated a “systemically important financial institution,” and thus subject to federal oversight. Filed in January 2015, the lawsuit responds to a 9-1 vote by the Financial Stability Oversight Council to designate
MetLife a SIFI.
The outcome will be significant not only for the future of Dodd-Frank, but for other insurers that may earn a SIFI label – including American International Group and Prudential Financial.
MetLife is the first SIFI to sue the oversight council, though exactly what the SIFI designation will mean for the group is still being determined.
Still, fears over stiff capital requirements and strict government oversight have prompted several SIFIs and would be-SIFIs to restrategize. MetLife announced a plan last month to divest a large piece of its operations in order to be small enough to avoid the label, and
AIG is in defense mode after a proposal by investor Carl Icahn to break the company into three parts in order to dodge its own SIFI designation.
A legal victory for MetLife would be a watershed moment for insurers, crippling the FSOC and establishing a lessened degree of regulatory restrictions.
If the company loses its case, however, Dodd-Frank would succeed in what the
Wall Street Journal calls “extending broad federal supervision to major financial firms that operated before the financial crisis without a regulator watching over their consolidated operations.”
“If the court adds new obligations or makes it harder for FSOC to [designate SIFIs], it would be undoing, rewriting or undermining arguably the most significant part of Dodd-Frank,” Robert Jackson, a Columbia University law professor who worked at the Treasury Department, told the
WSJ.
Regardless of the outcome, the decision will likely be appealed by the losing side.
