MetLife, the country’s largest life insurance company, could have its day of reckoning next week with regard to a potential systemically important financial institution designation.
Treasury Secretary Jacob Lew has scheduled a closed session of the Financial Stability Oversight Council (FSOC) for Thursday, Sept. 4.
If later designated, MetLife would be subject to enhanced prudential supervision from the Federal Reserve Board, with a host of accompanying holding company oversight and capital standards, a yet to be worked out by the Fed.
A vote by the 10-member Council would not mean a proposed SIFI designation is official until MetLife is given a chance to respond, which may mean it decides to appeal or does nothing and the time-frame to respond elapses.
According to the FSOC’s notice, the preliminary agenda next week includes a discussion of nonbank financial company designations, consideration of the Council’s fiscal year 2015 budget, a discussion of the its analysis on asset management’s systemic risk, if any, and an update on the Board of Governors of the Federal Reserve System and FDIC’s recent review of resolution plans submitted by large, complex banking organizations.
Although the book is closed on MetLife now, after an August 19 notational vote by FSOC in a closed session, that doesn’t mean the FSOC is necessarily ready with its proposal to designate MetLife and has scheduled a vote. The Council agenda’s use of the word “preliminary” means things are still fluid in workflow in that corner of the world that determines SIFI designations. It is also understood, based on earlier minutes referring to presentations from the Federal Insurance Office (FIO) that there is another insurer under review, in Stage 2 of SIFI analysis. This may be Berkshire Hathaway, as was suggested by Bloomberg news reports in early 2014.
On Aug. 19, the Council deemed its evidentiary record regarding a nonbank financial company
to be complete in accordance the rules and guidance of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
FSOC will not officially identify the institutions under review until a final determination is made but MetLife, like Prudential Financial land AIG before it, has made no bones about its position. It also has opposed SIFI status in public remarks for well over the year MetLife has been under consideration.
There is legislation pending in the House meant to establish a six-month moratorium on SIFI designations and to make the meetings open to more officials developed by members who fear a black box operation at the FSOC. Meanwhile, in both chambers of Congress, there is legislation to make Section 171 of Dodd Frank, the so-called Collins Amendment, flexible so it does not establish unwanted minimum capital standards in line with bank models on insurers supervised by the Fed, which include not only SIFIs but insurers with savings and loans. The Fed’s general counsel Scott Alvarez has issued an opinion that as Section 171 stands, there is no flexibility to carve out a way to treat insurers differently.
MetLife, along with AIG and Prudential, are already deemed to be global systemically important insurers (G-SIIs). reinsurers are expected to be named by the International Association of Insurance Supervisors (IAIS) and the G-20’s Financial Stability Board (FSB) in November.