Eugene Scalia, of the family Scalia, has been the scourge of the SEC with his until recently effective insistence on a cost-benefit analysis to justify the imposition of new major rules on the capital markets.  Now he's working for MetLife, the insurance company recently designated as a SIFI (which stands for "dangerously big bank-like institution"), and I guess the argument will be that the designation was arbitrary and capricious, and so inconsistent with the federal standards for administrative procedure, which probably, in Scalia's view, require a quantitative cost-benefit analysis done with meticulous care.  Some thoughts:

• Courts often stay out of financial stability inquiries, but, then, they used to defer to the SEC's capital markets expertise, until Eugene Scalia came along.  Perhaps Scalia can do something in this really nascent field of disputing SIFI designations.  Still, uphill battle.
• If the FSOC somehow lost this case, it could always go global, and ask the Financial Stability Board to designate Met Life as a G-SIFI, which would give foreign regulators the right to persecute the firm's foreign operations, and maybe super-persecute it, if the American regulators could do nothing to control its SIFIness.
• The basic idea, by the way, which is hardly ludicrous, is that insurance companies aren't subject to bank runs, even if they are really big, and that only one of them failed, or was even at risk, during the last financial crisis.  Since Met Life isn't in the business of writing unhedged credit default swaps (which is what AIG did, bolstered by its AAA rating and huge balance sheet), why should it have to hold bank-like levels of capital?  There's more to that story, but I assume that is part of the story that MetLife will be telling.

HT: Matt Levine

Administrative Law, Finance, Financial Crisis, Financial Institutions | Bookmark

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