MET MetLife Inc

   (FROM THE WALL STREET JOURNAL 2/10/16) 
   By Ryan Tracy 

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 also could hamstring the Financial Stability Oversight Council, the 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. 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, GE 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 itself of a chunk of its operations so that it could be small enough to avoid the SIFI tag.

AIG is 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.

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 likely would 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.

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Leslie Scism contributed to this article.

(END) Dow Jones Newswires

February 10, 2016 02:47 ET (07:47 GMT)

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