Yesterday, MetLife filed a complaint in the DDC protesting its designation as systemically important, which carries with it increased capital requirements and possibly burdensome oversight by the Fed.  Most systemically important financial institutions (or SIFIs), are banks, used to burdesome capital requirements and oversight by the Fed.  An insurance company is used to neither, hence the umbrage from MetLife.  

The lawyer is Eugene Scalia, so the complaint is naturally well-written and thoughtful.  I'm withholding judgment on the various statutory arguments posed, and on which it appears MetLife believes to have its best shot - they posit things like only financial companies can be designated as SIFIs, and financial companies must do 85% of their financial business in the US under the language of the statute, and MetLife, with its foreign insurance operations, does not do so.  That sort of statutory flyspecking doesn't usually work in financial regulation, but maybe this time it's different.

But two of the firm's longer shots are worth considering.  First, there is an effort to require the FSOC to do a cost benefit analysis in its SIFI designations, which it has steadfastly resisted so far.  MetLife argues that the committee arbitrarily "did not address MetLife’s evidence of substantial market and company-specific costs, and did not even opine on whether designating MetLife was, on balance, for good or for ill."  It is by no means clear that these considerations must be taken into account from the statute, but there are those who believe that some sort of weighing is something that every agency must do.  This sort of argument worked when the DC Circuit had fewer Obama appointees on it.

MetLife is also arguing that it has been deprived of due process by the designation.  It was "repeatedly was denied access to the full record on which FSOC’s action was based,"and anyway, "FSOC never identified the thresholds that result in SIFI designation or the manner in which the various statutory and regulatory factors regarding designation are balanced against one another in FSOC’s analysis," not least because of "the extraordinary design in the Dodd-Frank Act of FSOC itself, which identifies individual companies for designation, establishes the standards that govern the designation decision, and then sits in judgment of its own recommendations."

MetLife is right about the way that FSOC works, although the so-called "combination of functions" problems, whereby agencies both prosecute and adjudicate regulatory violations, has never been a big problem in administrative law.  It especially has never been a problem in banking regulation, where the deal is that banks give up due process rights - they can be failed at any moment by the FDIC, based on an only somewhat clearly articulated CAMELS standard - in exchange for cheap, federal insured funding by small depositors, and the possibility of a bailout if things get really bad.  MetLife doesn't get the cheap funding, but it does, as its SIFI designation suggests, get the benefit of being too big to fail, and therefore the likely recipient of a bailout.  Should the fact that insurers only get a part of the benefit of the bargain of being a financial institution mean that they should get more process rights than banks?  in some ways, that is what MetLife's constitutional claim posits.

Administrative Law, Finance, Financial Institutions | Bookmark

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