Risk council tightens regulations on Metlife

The Financial Stability Oversight Council (FSOC) on Friday voted to subject a large insurance company to tougher oversight because of its significance to the economy.

The council designated New York-based MetLife as “systemically significant” to the financial system, a designation that was created in an effort to protect the broader economy from a repeat of the 2008 crisis.

{mosads}“After a year and a half of extensive and in-depth analysis, including significant engagement with the company, the council has determined that material financial distress at MetLife could pose a threat to U.S. financial stability,” said Treasury Secretary Jack Lew, the council’s chairman.

“Designation of a nonbank financial company is a critical tool for the council to address potential threats to U.S. financial stability,” he added.

The vote was 9-1.  

MetLife, in a statement, said it was “disappointed” in the council’s decision.

“We continue to believe that MetLife is not systemically important under the Dodd-Frank Act’s criteria, and the company has presented substantial and compelling evidence to FSOC to support this conclusion.”

The insurance company argues that the move, in addition to last year’s designation of other large insurance companies, will “harm competition, lead to higher prices and less choice for consumers, and ultimately could result in less financial protection for middle-class families — who need it the most.”

Under Dodd-Frank rules, MetLife, the nation’s largest life insurer, could face additional oversight, such as stricter capital and liquidity requirements.

Recently, Congress used legislation to make the capital requirements for insurers lower than that for large banks.

The FSOC, under Dodd-Frank rules, has been designating companies as “systemically important financial institution,” or SIFI, as part of an effort to avoid another economic meltdown like the one that began in 2008.

MetLife appealed the designation in October and has 30 days to request a court review of the decision.

The council provided some insight into its decision, saying it determined that upheaval at the company — if it were to occur — could pose a threat to the broader financial system.

“The council’s authority to make designations is an important tool to mitigate risks to financial stability posed by individual companies and to provide enhanced prudential standards under which those companies must operate,” it said in its decision.  

MetLife is the fourth company that has been designated “systemically significant” by the council.  

In 2013, the council designated Prudential Financial, American International Group and General Electric Capital Corp.  

The council said it plans to evaluate at least annually its designation of MetLife and rescind if it is determined that the company no longer meets the statutory standards for designation.