As expected, MetLife is formally contesting its designation as a non-bank Systemically Important Financial Institution by the Financial Stability Oversight Council. In an 8-K filing with the Securities and Exchange Commission, MetLife disclosed that it has notified FSOC of its request fo a written and oral evidentiary hearing to contest the proposed determination. The Council will schedule a hearing within 30 days and make a final determination within 60 days after the hearing.
FSOC, comprised of federal and state regulators and an independent insurance expert appointed by the President, 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.
Although MetLife was not named at the time, the proposed SIFI designation was made at a Sept. 4 FSOC meeting. "MetLife strongly disagrees with the preliminary designation,” CEO Steven Kandarian wrote following that vote. "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.”
Unless the appeal prevails, MetLife would become the fourth non-bank to receive SIFI status. Last year, 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.
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