MetLife ruling bolsters other firms arguing systemic unimportance

Thu Mar 31, 2016 8:49pm EDT
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By Lauren Tara LaCapra

NEW YORK (Reuters) - A federal judge's ruling that MetLife Inc is not important enough to warrant special regulatory scrutiny has opened the door for other non-bank financial firms to try and unshackle themselves from the designation of "too big to fail."

Those that stand to benefit from Wednesday's decision include insurers Prudential Financial Inc and American International Group Inc, as well as General Electric Co's GE Capital and asset managers like BlackRock Inc, Fidelity Investments and The Vanguard Group Inc.

Metlife, Prudential, AIG and GE Capital are the only four non-banks that have been deemed systemically important financial institutions, or SIFIs, by the Financial Stability Oversight Council. BlackRock, Fidelity and Vanguard have not been assigned systemic importance, but analysts and regulatory experts say they are large enough to merit consideration.

It is difficult to assess whether any of these firms can avoid a "too big to fail" classification forever because the criteria are fluid and SIFI assessments start fresh every year. As such, even MetLife's victory may be short-lived.

The Financial Stability Oversight Council, known as FSOC, is comprised of members from 15 regulatory bodies, 10 of which have a vote on matters including SIFI designations. The council was created as part of the 2010 Dodd-Frank financial reform law. Its SIFI designations are meant to add an extra layer of oversight on firms that could cause a system-wide financial crisis if they get into trouble, because of how large and interconnected they are.

FSOC has been plagued by criticism about opaqueness nearly since its birth, even as it has taken steps to address complaints.

In 2014 the U.S. Government Accountability Office, a nonpartisan watchdog, criticized FSOC's "lack of full transparency," saying FSOC did not always disclose public documents or explain the rationale for SIFI designations. Republican lawmakers have also lashed out at FSOC for not sharing enough information.

The council has taken corrective measures, both in its public disclosures and in the way it interacts with companies. At an event last year, GE Capital Chief Executive Keith Sherin called GE Capital's designation as a systemically important institution "very clear" and "very understandable."   Continued...

The MetLife building is seen in New York, March 8, 2010. REUTERS/Shannon Stapleton