Metlife is contesting a preliminary designation as a nonbank financial company posing a risk to the financial stability of the United States. Such a designation would subject it to supervision by the Federal Reserve Board and additional standards with which it would have to comply.
One of the major objectives of The Dodd-Frank Wall Street Reform and Consumer Protection Act was to address systemic risk. Bank holding companies with total consolidated assets in excess of $50 billion essentially are deemed of systemic risk and are subject to a host of enhanced prudential standards.
In addition, the Financial Stability Oversight Council (FSOC), the US interagency council formed under Dodd-Frank and chaired by the Secretary of the Treasury, can designate nonbank financial companies as being of systemic risk. A nonbank financial company has at least 85% of its consolidated assets and/or its gross revenues attributable to engaging in financial activities, such as insurance, banking and securities activities. To date, the FSOC has designated only three “systemically important financial institutions” or SIFIs as they are known: AIG, GE Capital Corporation and Prudential Financial. The additional regulatory oversight would only be with respect to the SIFI’s financial activities.
There is an FSOC internal administrative SIFI designation process, and even after formal designation, a SIFI may contest the FSOC designation in a US federal court. To date, there have been no such lawsuits filed.
While the FSOC does not publicly identify a nonbank financial institution as a SIFI until the final vote to do so, it has been public knowledge for some time that Metlife was under SIFI consideration, and that Metlife is opposing such a designation.
The administrative process has apparently reached the end-stage of the administrative process because on September 4, 2014, the FSOC notified Metlife that it had preliminarily designated Metlife as a SIFI and gave Metlife 30 days to notify the FSOC that it wished to contest such preliminary designation. On October 3, 2014, Metlife notified the FSOC of its request for a written and evidentiary hearing to so contest. It also made a formal filing with the Securities and Exchange Commission publicly disclosing this news.
During its October 6, 2014 meeting, the FSOC voted to grant Metlife’s request for a hearing. Review the FSOC’s press release regarding its meeting.
Under Dodd-Frank, the hearing must be scheduled within 30 days of Metlife’s request, and the FSOC must notify Metlife of its decision within 60 days after the hearing. Under Dodd-Frank, at least 2/3rds of the FSOC voting members then serving, including the chair, must approve a SIFI designation.
Even if formally designated a SIFI, Metlife will have 30 days after it receives the FSOC’s decision to file a lawsuit to contest the designation in the US District Court in Washington, DC, or the US District Court in the judicial district in which its home office is located.