MetLife has become the first company to challenge the federal government’s “too big too fail” status in court.
In a press release Tuesday, the New York City-based life insurance company said that it would file an action in the U.S. District Court for the District of Columbia to overturn the Financial Stability Oversight Council’s designation of the company as a non-bank systemically important financial institution.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in 2010, Congress permits companies to petition the federal courts for judicial review of their SIFI designations.
Steven A. Kandarian, Metlife’s chairman and chief executive said that having a different federal standard for the country’s largest life insurance companies would ”drive up the cost of financial protection for consumers without making the financial system any safer.”
“The government should preserve a level playing field in the life insurance industry,” Kandarian wrote. “If additional regulation is necessary, the government has a superior tool at its disposal—an approach that focuses on potentially systemic activities regardless of the size of the firm. FSOC has already embraced that activities-based approach for the asset management industry.”
He added that the SIFI designation was “premature” because specific rules for systemically-important life insurers have not been written yet. Congress bolstered that argument in December by clarifying that insurance companies would not have to follow the banking capital requirements outlined in Basel III, according to a New York Times story.
The tighter capital standards are intended to further improve the stability of the overall financial system to “prevent the domino effect that swept the financial system in 2008,” the Times says. But Metlife has long contended that FSOC’s criteria based on Basel III doesn’t accurately determine systemic risk within the life insurance industry and only serves to dampen performance, the Times wrote. American International Group and Prudential Financial have also been designated as systemically important.
“It is not enough to designate companies as SIFIs merely because they are big,” Kandarian said in Metlife’s release. “The Dodd-Frank Act is clear that size alone does not make a company systemic. We look forward to a legal review of FSOC’s decision.”