MetLife Inc. has won a major legal challenge to the government’s policy for preventing another financial crisis: A federal judge tossed out its designation by regulators that its failure would pose a threat to the financial system.
MetLife, the largest U.S. insurance company by assets, took the government to court more than a year ago to appeal its labeling by the Financial Stability Oversight Council as “systemically important” and requiring stricter supervision. That meant regulators deemed MetLife to be so big and entwined with the financial system that it could threaten the economy if it collapsed.
U.S. District Judge Rosemary Collyer issued an order Wednesday removing the designation of New York-based MetLife.
The government has the right to appeal. The Treasury Department said in a statement that it “will continue to defend the council’s designations process vigorously.”
In fighting the oversight agency’s action, MetLife said that tougher requirements on life insurance companies would force the companies to raise the prices of their products, reduce the amount of risk they take on in selling their products, or stop offering some products altogether. Capital requirements for banks were established to protect depositors, rather than ensuring that life insurers can meet their obligations to policyholders, the company said.
MetLife said Wednesday that Collyer’s ruling validated its decision to challenge the regulators’ action in court.
“From the beginning, MetLife has said that its business model does not pose a threat to the financial stability of the United States,” said Steven Kandarian, chairman, president and chief executive, in a statement. “This decision is a win for MetLife’s customers, employees and shareholders.”
Collyer didn’t make public the reasons behind her decision, keeping her legal opinion under seal — possibly because it contains company information deemed to be confidential.
The oversight council is a group of top federal regulators created by the 2010 Wall Street overhaul law to monitor the financial system with an eye to preventing another crisis. Its label of “systemically important” brings stricter government oversight and, in MetLife’s view, excessive costs.
The designation required MetLife to increase its cushion of capital held in reserve against losses, limit its use of borrowed money, submit to inspections by federal examiners and come under the supervision of the Federal Reserve. MetLife’s primary regulator had been New York state.
The oversight council was empowered by the 2010 law to tag certain companies for stricter supervision as a way to end “too big to fail” — the idea that some financial institutions are so big and crucial to the system that the government would step in to rescue them if they veered toward collapse. That’s what happened in the 2008 crisis, with hundreds of millions of dollars in taxpayer aid going to big U.S. banks and other financial institutions.
The council is led by Treasury Secretary Jack Lew, and includes Federal Reserve Chairwoman Janet Yellen and Mary Jo White, chairwoman of the Securities and Exchange Commission.
In its statement Wednesday, the Treasury Department said it strongly disagrees with the judge’s ruling. “We are confident that FSOC’s determination was lawful and will continue to defend the council’s designations process vigorously,” it said.
“FSOC conducted a rigorous analysis of MetLife, including extensive engagement with the company, and determined that material financial distress at MetLife could pose such a threat to the financial system,” the Treasury Department said. “We firmly believe that FSOC acted well within its legal authority to protect the entire global economy.”
MetLife was the fourth nonbank financial firm to be given the label by the council. The others were American International Group Inc., General Electric Capital Corp. — the finance arm of General Electric Co. — and Prudential Financial Inc. They did not appeal the designation.