On January 23, 2018, the last step occurred in the challenge by MetLife of its designation by the Financial Stability Oversight Council (FSOC) as a nonbank systemically important financial institution (SIFI) when the U.S. Court of Appeals dismissed the appeal with prejudice, approving a motion jointly filed by the MetLife and FSOC. The last remaining SIFI now is Prudential.
Thus ended a tale beginning in 2014, when the FSOC made a determination that MetLife was a SIFI. MetLife challenged that determination in court proceedings that began with a lawsuit filed in the US District Court for the District of Colombia in January 2015. The US District Court ruled in MetLife’s favor in March 2016. The FSOC appealed and oral argument was held in October 2016. However, after the change in the White House in January 2017, stays were issued in the case, including an order holding the appeal in abeyance until the issuance of a report required to be made by the Treasury Department, pursuant to an April 2017 Presidential Memorandum, after the Treasury Secretary undertook a thorough review of the FSOC determination process. Once that report, discussed below, was issued, the parties jointly filed a motion to dismiss the case.
The report in question, “Financial Stability Oversight Council Designations,” was issued by the Treasury Department on November 17, 2017. After a review of the current designation process, the Treasury Department made several recommendations regarding the FSOC, including the following:
- Simplify the FSOC designation process and focus on an activities-based or industry-wide approach to addressing risks to U.S. financial stability
- Assess the likelihood of a firm’s material financial distress as part of a SIFI analysis
- Conduct a cost benefit analysis as part of the SIFI determination process and only designate a company as a SIFI if the expected benefits to financial stability outweigh the costs of a SIFI designation
- Improve the FSOC’s communication with nonbank financial companies under review for potential designation, undertake greater engagement with companies’ primary regulators throughout the process and increase transparency to the public regarding the basis for any SIFI determinations
- Any FSOC determination should set out more clearly to a designated SIFI the specific risks that led to such designation
You can access previous posts on the Administration’s deregulation initiative here.