As expected, and long-anticipated, the Financial Stability Oversight Council has initiated a process that could lead to insurance giant MetLife being classified as a systematically Important Financial Institution, subjecting it to greater regulatory expectations and capital requirements.

In a statement, following a closed session at the Treasury Department, the FSOC provided only sparse information about its proposed determination and MetLife was not specifically named. Following its unanimous vote (with one member voting present), the FSOC says it “provided the company with a detailed written explanation of the basis of the proposed determination,” giving it 30 days to request a hearing to contest the proposed determination. After that hearing, if one is requested, a final determination will be made.

 “The Council does not intend to publicly announce the name of any nonbank financial company that is under evaluation before a final determination is made,” the FSOC statement says. However, MetLife, in a statement of its own, put to rest any mystery. "MetLife strongly disagrees with the FSOC’s preliminary designation of it as a SIFI, CEO Steven Kandarian wrote.  "MetLife is not systemically important under the Dodd-Frank Act criteria. In fact, MetLife has served as a source of financial strength and stability during times of economic distress, including the 2008 financial crisis.”

“Imposing bank-centric capital rules on life insurance companies will make it more difficult for Americans to buy products that help protect their financial futures," he added. "At a time when government social safety nets are under increasing pressure and corporate pensions are disappearing, the goal of public policy should be to preserve and encourage competitively priced financial protection for consumers.

"MetLife is not ruling out any of the available remedies under Dodd-Frank to contest a SIFI designation,” Kandarian wrote.

Unless it’s likely appeal stands, MetLife would become the fourth non-bank to face SIFI status. Last year, the FSOC added American International Group, Prudential Financial, and GE Capital to the SIFI list because, it said, their size and scope make insolvency a threat to the broader financial marketplace. Similarly designated banks include Goldman Sachs, JPMorgan Chase, Morgan Stanley, Citigroup, Bank of America, Merrill Lynch, and Wells Fargo.

The FSOC, established under the Dodd-Frank Act, consists of 10 voting members and five nonvoting members that include federal and state regulators and an independent insurance expert appointed by the President. Among the criteria it relies upon in 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 SIFI analysis, the 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.

 

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