U.S. government, MetLife set for rematch over 'too big to fail'

Mon Oct 24, 2016 1:34am EDT
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By Lisa Lambert

WASHINGTON (Reuters) - The U.S. government and the country's largest life insurer are set for a rematch in a U.S. appeals court on Monday over how federal regulators decide a company is "too big to fail," one of the most significant reforms to come out of the financial crisis.

The heart of the fight is whether the Financial Stability Oversight Council (FSOC), made up of the heads of U.S. financial regulators, should have designated MetLife Inc. (MET.N: Quote) a "systemically important financial institution."

The label indicates MetLife's collapse could devastate the financial system, and it triggers tighter oversight. MetLife would also have to set aside capital to ensure it would not need a government bailout during a crisis.

In March, U.S. District Judge Rosemary Collyer struck down the designation, saying the council used an "arbitrary and capricious" process in assessing MetLife's vulnerabilities. She also said the government should have analyzed costs and benefits to MetLife, the likelihood it would fail and possible counterparty losses.

Most of the arguments before the three judges on Monday's appeals panel will revolve around the steps the FSOC took, with the U.S. government saying Collyer's requirements are not found in any laws and the government cannot assess the likelihood of a company's failure or counterparty losses.

MetLife was designated "too big to fail" in 2014. It says the FSOC decided first that it was "too big to fail" and then created a justification for the label.

MetLife will also argue the FSOC should have followed an alternative process known as the activities-based approach, that it says is less costly and better suited to insurance. In that approach, the FSOC would decide a certain activity poses a risk and then regulate it across all companies.

The FSOC has said it does not have authority to designate an activity under statute. In April, however, it announced it would use the activities-based method to assess risk in asset managers and mutual funds, leaving MetLife to call its fairness into question.   Continued...

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