MetLife Case Challenging SIFI Label Nears Hearing
February 09 2016 - 2:10PM
Dow Jones News
A central part of the 2010 Dodd Frank financial law is about to
get its own stress test.
MetLife Inc. will try to persuade a federal judge Wednesday that
it shouldn't be designated a "systemically important financial
institution," in the first court hearing of a case with potential
either to curtail or to solidify the law's reach. A ruling is
likely months away.
The company wants the court to nullify its "SIFI" label—a tag
the law created for financial firms that pose a risk to the economy
and must receive stricter federal oversight. But its broad legal
attack could also hamstring the Financial Stability Oversight
Council, the new regulatory group created by Dodd-Frank to identify
risky activities and financial firms, by overturning one of its
most significant accomplishments.
MetLife, the largest U.S. life insurer by assets and known for
its smiling Snoopy mascot, has hired a lawyer with a bulldog track
record of overturning Dodd-Frank rules in court: Eugene Scalia, a
partner at Gibson Dunn & Crutcher LLP and a son of Supreme
Court Justice Antonin Scalia.
The lawsuit, filed in January 2015, stems from a 9-1 vote by the
oversight council in December 2014 to designate MetLife as a SIFI,
sending the company to the Federal Reserve for potentially stiff
capital and other requirements that have yet to be determined.
MetLife is the first SIFI to sue the oversight council, known as
FSOC. If it succeeds in upending its SIFI designation, it may not
be the last. Three other SIFIs—insurers American International
Group Inc. and Prudential Financial Inc. and General Electric Co.'s
financing arm, GE Capital—are watching the case closely and would
likely mount their own challenges if MetLife prevails.
Already, the tougher regulation expected to come with SIFI
status is causing major changes at GE and MetLife, and possibly
AIG. In April 2015, General Electric made one of the biggest
strategic moves in its history by laying plans to get out of the
banking business—at the heart of its SIFI designation—and refocus
on its industrial operations.
Last month, MetLife announced a plan driven by both strategy and
regulatory reasons to divest a chunk of its operations that could
be small enough to avoid the SIFI tag.
AIG is currently resisting a proposal by activist investor Carl
Icahn to break into three parts as a way to shed its SIFI
designation, saying such a split isn't in shareholders' best
interests for many reasons.
A legal victory for MetLife could be a defining moment,
signaling that regulatory restrictions for those firms will
diminish.
An FSOC victory, on the other hand, would protect what
Dodd-Frank proponents consider a major accomplishment of the law:
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," said
Robert Jackson, a Columbia University law professor who worked at
the Treasury Department during the development of the law. Mr.
Jackson filed a legal brief last year supporting FSOC.
A decision by Judge Rosemary M. Collyer of the U.S. District
Court for the District of Columbia would likely be appealed by the
losing side, so her opinion isn't the last chapter in the case.
Judge Collyer, appointed to the court by President George W. Bush,
doesn't have an ideological reputation.
Mr. Scalia, who is expected to argue the case for MetLife, has
successfully challenged a half-dozen actions by the Securities and
Exchange Commission and Commodity Futures Trading Commission,
including rules mandated by Dodd-Frank.
For MetLife, Mr. Scalia is reprising a familiar role, arguing
that a regulatory agency made an arbitrary decision without
properly considering its costs. In court filings, MetLife and its
lawyers say the oversight council concocted "unprecedented doomsday
scenarios," such as panicked life insurance policyholders canceling
their policies en masse, to justify the conclusion that distress at
the company could put the U.S. financial system at risk.
"If an agency can make assumptions without empirical evidence,
where are the boundaries of where regulatory agencies can't go?"
said Thomas Vartanian, a partner at Dechert LLP who helped write a
brief supporting MetLife for the U.S. Chamber of Commerce.
FSOC, which is headed by Treasury Secretary Jacob Lew and
includes the leaders of the Fed, SEC and other agencies, has said
that Congress didn't require it to do a cost-benefit analysis or to
determine the likelihood of significant distress at MetLife.
"Congress undoubtedly recognized that no company is immune from
distress or failure," FSOC's lawyers said in a recent court
filing.
Leslie Scism contributed to this article.
Write to Ryan Tracy at ryan.tracy@wsj.com
(END) Dow Jones Newswires
February 09, 2016 13:55 ET (18:55 GMT)
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