Bernanke, Volcker, Dodd, Frank Join MetLife Regulation Fight
June 23 2016 - 7:10PM
Dow Jones News
By Gabriel T. Rubin
WASHINGTON -- An all-star roster of financial-crisis
heavyweights jumped into the legal battle between the federal
government and MetLife Inc., urging an appeals court to allow
regulators to boost oversight of the insurance giant.
In separate briefs filed Thursday, former Federal Reserve
Chairmen Ben Bernanke and Paul Volcker, as well as former lawmakers
Chris Dodd and Barney Frank -- co-authors of the landmark
Dodd-Frank financial overhaul legislation -- backed a government
appeal of a March ruling by a federal judge nullifying strict new
federal regulation of MetLife.
All four men played leading roles in creating the regulatory
regime created after the 2008 financial crisis, including rules
that extended banklike oversight to large nonbanks deemed
"systemically important financial institutions," or SIFI.
"The district court's decision, if upheld, would fundamentally
undermine" Dodd-Frank, Mr. Frank, a Democrat and former member of
the House of Representatives for Massachusetts, said in a call with
reporters.
The fight revolves around the 2014 decision by the Financial
Stability Oversight Council -- a committee of major federal
financial regulators created under the 2010 law -- to designate
MetLife a SIFI, a decision that subjected the firm to more
oversight and federal capital requirements. MetLife took the
decision to court, and on March 30, U.S. District Judge Rosemary
Collyer blocked the FSOC move, calling it an "unreasonable"
decision that didn't consider potential costs, and relied on a
process that was "fatally flawed."
The Obama administration appealed the ruling, and submitted its
own brief last week. No date has been set yet for oral arguments in
the case.
Messrs. Bernanke and Volcker said in their brief that Judge
Collyer's ruling "defies the compelling logic behind the
designation process contemplated by Congress when it established
FSOC."
One brief supporting FSOC was filed Thursday by 20 current and
former Democratic members of Congress, including Mr. Dodd, who was
a Connecticut senator, and Mr. Frank. Another brief was filed
jointly by Messrs. Bernanke and Volcker, who both played major
roles in the response to the financial crisis -- Mr. Bernanke as
Fed chairman, and Mr. Volcker as a senior economic adviser to
President Barack Obama.
They argued that if the courts let the MetLife victory stand, it
could have significant repercussions for regulators seeking to
designate other firms as systemically important, and could
encourage other firms to appeal their designations. In addition to
MetLife, FSOC also designated as SIFIs two other insurers, American
International Group Inc. and Prudential Financial Inc.
"We are concerned about the implications of the District Court
decision, " Messrs. Bernanke and Volcker wrote. "There can be no
question that MetLife...could, under stress, affect the stability
of financial markets more generally."
A MetLife spokesman said the insurance company will file its own
brief by Aug. 15 and supporting amicus briefs by the following
week.
Mr. Frank's brief, drafted by the liberal Constitutional
Accountability Center, takes issue with two major parts of the
Judge Collyer's ruling, which calls on FSOC to use cost-benefit
analysis in its designation process and to factor in the likelihood
that a firm will experience financial distress. FSOC is responsible
for designating large bank and nonbank firms, like MetLife, as
SIFIs if it believes their failure would pose a threat to financial
stability.
Mr. Frank rejected both of those criteria as over-readings of
Dodd-Frank, which doesn't require cost-benefit analysis of a
possible designation and doesn't require FSOC to determine a firm's
vulnerability to failure.
He particularly criticized the notion that regulators should be
required to consider the future costs of regulation when
designating a firm, saying it would be impossible to do so
accurately.
"People are for cost-benefit analysis for things they're not in
favor of, " Mr. Frank said. "It would clearly have the effect of
essentially debilitating the statute."
Messrs. Bernanke and Volcker also took issue with the notion
that FSOC must predetermine the likelihood of an institution
experiencing financial distress before designating it as
systemically important. To wait until that determination can be
made, they wrote, "would be contrary to the basic purposes for
which the FSOC was created -- to avoid financial excesses that
could in fact lead to or aggravate a financial crisis."
A spokesman for the Treasury Department, which chairs FSOC, said
the supporting briefs showed the strength of the council's case.
"The broad array of legislators, policy officials, economists,
insurance experts and other scholars who filed in support of FSOC
makes clear that FSOC's designation of MetLife fully complied with
the law and applied the lessons of the financial crisis," he
said.
Write to Gabriel T. Rubin at gabriel.rubin@wsj.com
(END) Dow Jones Newswires
June 23, 2016 18:55 ET (22:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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