MetLife challenges US “too big to fail” label in court

MetLife lawyers head to court on Wednesday seeking to overturn a "too-big-to-fail" designation in a lawsuit.  The court case could, if the insurer prevails, reduce the government's ability to rein in large financial firms.

According to Reuters, the U.S. government and the largest life insurer in the country face off in federal court on Wednesday over whether regulators can designate non-banking firms as "too big to fail," which is one of the major reforms that followed the financial crisis. U.S. District Judge Rosemary Collyer heard MetLife Inc.'s claims that the Financial Stability Oversight Council (FSOC) used a secretive and flawed process when it designated the insurer as systemically important.

Collyer interrupted the FSOC's lawyer, Eric Beckenhauer, with questions. She asked why the council stated that it would conduct a "vulnerability analysis" of MetLife and then didn't really follow its statement. But she also noted that the standard for the label  that a company "could pose" a threat to the financial system, isn't "a very high bar."

Bloomberg reported that the suit by New York-based company has been a major challenge yet to the council, which was created by the 2010 Dodd-Frank law to help ward off future financial crises. But if the insurer prevails, this could reduce the government's ability to rein in large financial firms and push those companies to challenge FSOC designations in court.

MetLife received the designation in 2014 when the heads of the major U.S. financial regulatory agencies found out that a collapse of the insurer could destroy the U.S. financial system. Other non-bank firms receiving the designation were insurers American International Group Inc. and Prudential Financial, Inc., and General Electric Capital, as claimed by CHANNEL NEWSASIA.

And in fact, just last year, MetLife was sued because it had not followed its own guidance on designating a firm as systemically important. MetLife allegedly changed the rules to ensure the determination was made.

In court on Wednesday, the federal government argues that its process was fair and that a collapse by the insurer  would indeed harm the financial system. It said it was open to the company during a 17-month process that included exchange of thousands of pages of documents and several meetings, including one with the full council.

Meanwhile, insurance is still being regulated at the state level, and MetLife claimed that the designation could force it to comply with two layers of regulation. With that, the National Association of Insurance Commissioners has filed a court brief supporting MetLife's lawsuit.

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