MetLife sued the Financial Stability Oversight Council, a creature of the Dodd Frank Act that determines whether a giant financial company’s potential collapse would impact the broader economy, on Jan. 13.
The complaint takes aim at a final determination the council issued last month, deeming MetLife as a nonbank systemically important financial institution – a company that could have a catastrophic effect on the economy if it were to collapse.
MetLife says this finding was arbitrary and in violation of the council’s own Dodd Frank-established rules.
Compounding these errors, the council applied rules meant to govern the banking industry to an insurance company, according to the complaint.
“FSOC made numerous critical errors that fatally undermined the reasoning in its Final Designation of MetLife,” MetLife says, abbreviating the council’s name. “First, FSOC failed to understand or give meaningful weight to, the comprehensive state insurance regulatory regime that supervises every aspect of MetLife’s U.S. insurance business, despite statutory and regulatory requirements that direct the Council to consider existing regulatory scrutiny.”
The complaint also challenges the council’s “fixat[ion] on MetLife’s size and so-called interconnections with other financial companies – factors that, considered alone, would inevitably lead to the designation of virtually any large financial company.”
Other statutorily mandated considerations meanwhile weighed sharply against designation, the complaint continues.
MetLife accuses the council as well of relying on vague standards and assertions, unsubstantiated speculation, and unreasonable assumptions inconsistent with historical experience – including the conditions of the 2008 financial collapse.
“In doing so, FSOC wholly ignored the tools used by federal regulators to assess the potential impact of severely adverse economic conditions in other contexts, including Federal Reserve Board ‘stress tests,'” the complaint states.
MetLife describes the council’s process as “opaque,” and says it deprived MetLife “of a meaningful opportunity to rebut FSOC’s assumptions or otherwise respond to its analysis.”
The company claims that only voting member of the council with expertise regarding the insurance industry dissented in writing from the designation.
It further asserts that, in the unlikely event of its collapse, it could liquidate its assets and cover its liabilities.
Designating MetLife as too big to fail exposes it to enhanced scrutiny and prudential standards from the Federal Reserve, but the company claims that the council has yet to come up with such standards for insurance companies, which violates both Dodd Frank and the Administrative Procedure Act.
Imposing new standards on the insurer will also cost it billions in compliance costs, according to the complaint.
“An empirically-based estimate shows that the annual consumer cost of applying additional capital requirements to nonbank SIFI and thrift-owning insurers could be as great as $8 billion, depending on the capital requirements applied,” MetLife says.
The company’s 79-page complaint asks the court to vacate the designation, declaring it in violation of federal law.
MetLife is represented by Eugene Scalia, the son of U.S. Supreme Court Justice Antonin Scalia, of Gibson, Dunn & Crutcher.
A day before MetLife filed its action, a man that the company insures in New York brought a federal class action there, alleging misrepresentation on the basis of the council’s warning.
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