At its December 18, 2014, meeting, with one dissent, the Financial Stability Oversight Council (“FSOC”) approved the designation of MetLife Inc. as a systemically important financial institution, or SIFI. As a SIFI, it will be subject to supervision by the Federal Reserve Board and may be subject to heightened prudential standards similar to those applicable to large US holding companies. The FSOC member with insurance expertise, S. Roy Woodall, Jr., dissented.
The FSOC was created in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, and is tasked with identifying potential risks to the stability of the United States, and designating large nonbank financial companies as SIFIs.
MetLife’s designation was not totally unexpected. An October 8, 2014, blog post noted that MetLife had disclosed that it had been preliminarily designated as a SIFI and had requested a hearing before the FSOC. Even though the FSOC had not disclosed MetLife’s name as a potential SIFI, MetLife itself had made it public that it was under consideration as a SIFI, and expressed its disagreement strongly with the potential designation.
MetLife now has 30 days to contest the designation in US District Court. None of the three previously designated SIFIs (Prudential, AIG and General Electric Capital Corporation) sought judicial review of its designation.
In addition, this appears to be the first SIFI designation that was not unanimous. A unanimous vote is not required; only a 2/3rds vote of the FSOC voting members serving, including the Secretary of the Treasury, is required for a SIFI designation.
In a 31 page order (more than twice as long as those for the other three SIFIs), the FSOC provided a lengthy description of MetLife’s product offerings and the risks that it had determined such products pose to the financial stability of the United States, and a detailed description of its reasons for designating MetLife as a SIFI. This order contains much more detail than the other SIFI orders and is heavily footnoted. In addition, there is a reference to additional confidential information relied upon by the FSOC for its determination that could not be discussed in the public order.
The dissent made by Mr. Woodall, a former insurance commissioner, criticized the FSOC on several grounds, but focused on his theory that the FSOC decision to designate MetLife as a SIFI was pre-ordained and stems from a July 2013 decision by the Financial Stability Board (FSB), an organization of the world’s finance ministers and central bankers, to designate MetLife as a global systemically important financial institution (G-SIFI), along with AIG and Prudential. Considering that some FSOC members are part of the FSB (the Treasury Department, the Federal Reserve Board and the Securities and Exchange Commission) and that in voting on G-SIFI designations, members of the FSB commit to seeking stronger regulation of G-SIFIs, Mr. Woodall contends that the decision on MetLife in effect already had been made, prior to a full administrative record being developed and the entire FSOC voting on the designation pursuant to the criteria set forth in Dodd-Frank, not the FSB’s criteria.
In addition to its federal government voting members and the insurance representative, the FSOC has nonvoting advisory members that are representatives from the state securities, insurance and banking regulators. The current nonvoting insurance commissioner, Adam Hamm, is the North Dakota banking commissioner. He also issued a statement criticizing the result, centering his remarks on what he saw as the failure of the FSOC to take into account the robust insurance regulatory regime that exists at the state level, or the ability of state insurance regulators to take swift targeted action to address any possible risks to financial stability when they arise.