Judge's Rejection of MetLife's 'Systemically Important' Label Is Appealed -- Update

By Gabriel T. Rubin 

The Financial Stability Oversight Council on Friday appealed a federal judge's decision rescinding the council's designation of MetLife Inc. as a systemically important financial institution, a ruling that calls into question the council's ability to impose tighter regulation on large insurers.

The appeal follows U.S. District Judge Rosemary Collyer's determination that the government had not properly backed up its claim that MetLife could put the economy at risk. Her ruling also puts pressure on FSOC to defend its designation process, which Judge Collyer said doesn't consider potential costs and relies on a "fatally flawed" process.

Last week's court order, released in full on Thursday, could encourage other large insurance companies that have been designated as systemically important, including Prudential Financial Inc. and American International Group Inc., to challenge FSOC's regulatory authority.

The judge took regulators to task for what she called an "unreasonable" decision that didn't consider potential costs and relied on a process that was "fatally flawed."

Judge Collyer said the government's findings included assumptions that weren't backed up by analysis of potential losses at MetLife and its counterparties. "Every possible effect of MetLife's imminent insolvency was summarily deemed grave enough to damage the economy," she wrote.

Her findings challenge one of the major changes the Obama administration and Congress enacted after the 2008 financial crisis, when financial institutions that weren't subject to strict federal oversight put the economy at risk. Her opinion contradicts some of the top financial regulators on the FSOC and sets up a legal battle that will determine whether they continue to supervise some of the largest U.S. insurance companies.

Treasury Secretary and FSOC Chairman Jacob Lew said in a statement ahead of the formal appeal that the council's "authority to designate nonbank financial companies is a critical tool to address potential threats to financial stability, and it has made our financial system safer and more resilient. " He said the council plans "to continue defending vigorously the process and the integrity of FSOC's work, and I am confident that we will prevail."

Write to Gabriel T. Rubin at [e-mail]

(END) Dow Jones Newswires

April 08, 2016 14:38 ET (18:38 GMT)

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