Bernanke, Volcker, Dodd, Frank Join MetLife Regulation Fight
June 23 2016 - 7:20PM
Dow Jones News
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 19:05 ET (23:05 GMT)
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