The US government’s labeling of a major insurance corporation as “too big to fail” was ruled invalid by a federal court in Washington.
District Judge Rosemary Collyer said Wednesday that MetLife, the largest insurer in the US, should not be considered a “systemically important financial institution” (SIFI).
The designation–given to the insurance giant in December 2014 by a cross-agency body called the Financial Stability Oversight Council (FSOC)–meant MetLife was subject to additional supervision and reserve requirements by federal regulators.
It isn’t clear if the US government plans on appealing the ruling. The Treasury Department said that it “strongly disagree[s]” with Collyer, a George W. Bush-appointee, and vowed “to defend the Council’s designations process vigorously.” The statement made no overt commitment to challenging Wednesday’s decision.
If MetLife does not significantly alter it’s incumbent business strategy, the Obama admnistration might not feel the need to appeal the decision. In January, MetLife already started to sell off its retail operations because of the SIFI designation.
“Even though we are appealing our SIFI designation in court and do not believe any part of MetLife is systemic, this risk of increased capital requirements contributed to our decision,” MetLife CEO Steve Kandarian stated at the start of the year. “An independent company would benefit from greater focus, more flexibility in products and operations, and a reduced capital and compliance burden.”
On Wednesday, Kandarian said Collyer’s ruling “validates MetLife’s decision to fight the SIFI designation.” He also reiterated company claims, saying MetLife “does not pose a threat to the financial stability of the United States.”
MetLife has about $880 billion in assets, according to Dealbook. Roughly $240 billion of those are in the retail sector.
Bloomberg noted Wednesday that although MetLife hasn’t specified how it will sell off its retail operations, the insurance giant “struck a deal in February to sell a distribution network with 4,000 financial advisers to Massachusetts Mutual Life Insurance Co.”
The implications of the precedent set by Collyer’s ruling won’t be known until about April 6, according to the Wall Street Journal. The judge’s opinion was issued temporarily under seal, to give both the government and MetLife an opportunity to ask for information to be redacted.
That didn’t stop investors from expressing optimism. MetLife was up by about 5 percent in the wake of the ruling, WSJ noted. Shares in Prudential and AIG, other insurers that have been slapped with the SIFI label, were also up, by about 3 percent and 1.6 percent.
The Dodd-Frank Act of 2010 created the FSOC and gave it the power to hand out SIFI designations to “nonbank financial companies”–financial firms large enough to cause entire markets to fail by going bust. The distinction triggers additional regulatory oversight.
Four insurance companies have been called “systemically important” by FSOC: MetLife, Prudential, AIG and General Electric Capital Corp. MetLife is the only one of the quartet to contest its SIFI designation in court. It launched its legal campaign last year.
