MET MetLife Inc

By Donna Borak 

WASHINGTON -- The Obama administration on Thursday laid out its case to an appeals court on why MetLife Inc. should be under government oversight, its latest bid to overturn a federal judge's decision revoking a label of the insurer as "systemically important."

In a 98-page legal brief to the U.S. District Court of Appeals for the District of Columbia, the administration gave its reasoning on the government's decision to bring the company, with $900 billion in assets and liabilities, under the Federal Reserve's thumb.

The Financial Stability Oversight Council "found that MetLife's size, leverage, interconnectedness, potential liquidity risk, and complexity could cause material financial distress at MetLife to threaten the U.S. financial system," according to the government's legal brief.

In March, U.S. District Judge Rosemary Collyer overruled regulators' determination that distress at MetLife could put the economy at risk. She took regulators to task for what she called an "unreasonable" decision that didn't consider potential costs and relied on a process she said was "fatally flawed." Judge Collyer said the government's findings included assumptions that weren't backed up by analysis of potential losses at MetLife and its counterparties.

The administration, represented by the Justice Department, in April appealed the judge's decision, which challenged one of the major changes the Obama administration and Congress enacted after the 2008 financial crisis.

On Thursday, the administration maintained its argument that policy makers weren't required to undertake an additional assessment under the law in making the determination, calling the court's review of the guidance "profoundly mistaken."

Of the 10 factors the council is required to consider in evaluating a firm as a "systemically important," none calls for the council to evaluate the likelihood the company could experience material financial distress or to estimate specific counterparty losses, the government argued.

"The council did not set itself the impossible task of predicting the precise impact of a company's distress on its counterparties and the broader market," according to the government brief.

Separately, the government argued that policy makers weren't required to do a cost-benefit analysis along with a decision.

A spokesman for MetLife said the firm would respond to the government's brief in its own filing by Aug. 15. Oral arguments are slated for Sept. 9.

A spokesman for Treasury Secretary Jacob Lew, who heads the council, said late Thursday that "the district court's ruling in this case overturned the collective judgment of the heads of every U.S. financial regulatory agency and left one of the largest financial companies in the world subject to even less oversight than before the financial crisis."

MetLife, which received the "systemically important financial institution" label by a 9-1 vote of the council in December 2014, is the only firm to challenge the regulators' decision in court. It is possible American International Group Inc. and Prudential Inc. could follow with their own lawsuits if MetLife is ultimately successful, undoing one of the Obama administration's post-financial-crisis regulatory accomplishments.

The oversight council also includes the heads of the Federal Reserve, the Securities and Exchange Commission and other regulators. The 2010 Dodd-Frank financial-overhaul law gave the council authority to designate firms as systemically important if their failure or activities could threaten stability.

That label comes with tougher oversight from the Fed, including annual "stress tests" and limits on borrowing that are expected to go beyond those applied to other insurance companies, which are primarily regulated by the states.

Write to Donna Borak at donna.borak@wsj.com

(END) Dow Jones Newswires

June 16, 2016 21:27 ET (01:27 GMT)

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