To the surprise of no one, including the company itself, the Financial Stability Oversight Council has designated Metlife, the nation’s largest insurance company, as a Systemically Important Financial Institution.
Although FSOC has not announced that designation, voted on behind closed-doors on Wednesday, MetLife ended speculation with a statement of its own on Thursday. “We are disappointed in the FSOC decision,” it said. “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 council initially proposed the designation in September.
“FSOC has a superior regulatory tool at its disposal if necessary – an approach based on identifying and regulating activities that pose systemic risk irrespective of the size or type of entity that engages in them. FSOC has already embraced this activities-based approach for the asset management industry, but has rejected it for the life insurance industry,” the company added.
MetLife has 30 days from final designation to decide whether to ask a federal judge to review FSOC’s decision.
Created by the Dodd-Frank Act, FSOC, comprised of federal and state regulators and an independent insurance expert, uses the following criteria when evaluating whether an entity poses systemic risk: having at least $50 billion of total assets, $30 billion in outstanding credit default swaps, $3.5 billion in derivative liabilities, or $20 billion of debt. Firms with a leverage ratio of more than 15-to-1 in assets to equity, or a short-term debt to asset ratio of 10 percent, also warrant consideration. In conducting its three-stage analysis, FSOC may assess additional factors that relate to a company's size, interconnectedness, liquidity risk, and existing regulatory scrutiny.
SIFIs are required to conduct regular stress tests, prepare credit exposure reports, and draft “living wills” that document resolution and liquidation plans. They may also face enhanced prudential standards, including requirements regarding risk-based capital and leverage, liquidity, risk management, early remediation, and credit concentration.
“MetLife will now be subject to regulation by the Board of Governors of the Federal Reserve. However, the Fed has not yet written the rules for insurance companies, and those rules may not be finalized for many months,” a separate statement posted on the company’s website says. As to why it is protesting the designation, MetLife wrote that it will put them “at a competitive disadvantage” to non-SIFI peers.”
MetLife joins American International Group, Prudential Financial, and GE Capital on the list on non-bank SIFIs. Similarly designated banks include Goldman Sachs, JPMorgan Chase, Morgan Stanley, Citigroup, Bank of America, Merrill Lynch, and Wells Fargo.