Win or lose, Met-Life's decision to challenge its designation as a systemically import- ant financial institution by the Financial Stability Oversight Council is good for financial services.
Should
MetLife win its challenge, the costs of such designation will not be passed on to the insurance company's customers through higher premiums.
Should the company lose, at least the Financial Stability Oversight Council will have had to defend its decision and explain its processes as applied to
MetLife in open court.
We should demand greater transparency from powerful government agencies such as the FSOC.
In addition to
MetLife and Prudential, American International Group and General Electric's GE Capital unit are the nonbank financial institutions designated as systemically important. The designation imposes increased capital requirements and more intense regulatory scrutiny on the companies.
The criteria the FSOC uses in determining whether to apply the designation include direct or indirect linkages with other financial companies, size, leverage — as measured by the ratio of assets to capital, or economic risk to capital — liquidity risk and maturity mismatch, as well as existing regulatory scrutiny.
In defending
MetLife's selection, the FSOC will have to explain publicly how it applied these and other criteria to America's largest insurer.
Sheer size should not be a major criterion. Perhaps because it was the largest,
MetLife was sufficiently capitalized to get through the Great Recession without help from the Troubled Asset Relief Program, making the SIFI designation seem unnecessary. (Prudential also declined the TARP funds.)
MetLife has argued that it doesn't deserve the designation, because the unlikely event of its failure would not threaten the financial system.
MetLife also can point out that it is closely monitored by what is now the New York State Department of Financial Services — long regarded as a state-of-the-art insurance regulatory agency.
While it's unusual for a company to challenge regulators in this way,
MetLife also might hope to influence the SIFI rules being developed. After all, Congress has given the FSOC more flexibility in how it tailors the rules for insurers.
MetLife's decision to challenge the SIFI designation should be applauded.
