Federal regulators defended their heightened oversight of giant
insurer MetLife Inc. in an unsealed filing Monday, saying the
company could pose a threat to U.S. financial stability because of
its complex financial transactions and capital-markets
activities.
The defense came in a 75-page filing seeking the dismissal of a
lawsuit filed by MetLife in the U.S. District Court for the
District of Columbia, in January. The MetLife lawsuit challenges a
federal panel's designation of the company as a "systemically
important financial institution."
The label from the Financial Stability Oversight Council means
federal regulators believe the company could pose significant risks
to the financial system should it collapse, and thus warrants
additional oversight, such as more robust capital buffers against
losses.
MetLife has been adamant that its activities don't pose any sort
of risk to the broader financial system, and that the government
used flawed metrics in arriving at its decision. The nation's
biggest life insurer by assets also maintains that the designation
is premature, because the rules governing insurers aren't yet
written and could put the company at a disadvantage as compared
with other insurers.
The New York company's lawsuit is the biggest test yet for
regulators responsible for protecting the U.S. financial system
from another crisis.
A MetLife spokesman said: "Far from presenting systemic risk to
the U.S. economy, MetLife is a source of financial stability. We
strongly disagree with the arguments laid out by the government in
its brief and look forward to responding in court next month."
The panel's brief was filed on Friday and a redacted version was
entered into the court record late Monday. It contains relatively
few redactions among its many pages.
In the filing, the Financial Stability Oversight Council
repeated some of its earlier arguments about why MetLife had been
designated as systemically important.
The company "engages in significant financial activities beyond
simply selling life insurance," the council said in the filing.
"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."
MetLife "is a complex organization, with 359 subsidiaries in 50
countries," according to the filing, and its operations "are
subject to separate regulatory regimes administered by scores of
state, federal, or foreign regulators." In a case where MetLife
experiences financial distress, winding it down "could thus prolong
uncertainty, requiring complex coordination among numerous
regulators, receivers, or courts that would have to disentangle a
vast web of intercompany agreements."
The panel defended its earlier analysis as "far from being
"vague and generalized," as MetLife contends." The designation
followed 17 months of study, during which the council or staff met
with MetLife more than a dozen times, reviewed nearly 21,000 pages
of material submitted by the company, and issued a 270-page
proposed decision that the company challenged in both a written and
an oral hearing before the council, according to the filing.
Write to Leslie Scism at leslie.scism@wsj.com
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