FSOC Proposes Preliminary Designation of MetLife as a Non-Bank Systematically Important Financial Institution

In a closed meeting, the Financial Stability Oversight Council (“FSOC”) voted to propose a preliminary determination of MetLife as a non-bank Systemically Important Financial Institution (“SIFI”). 

According to the FSOC press release, the Council’s vote was unanimous with one member voting present.  FSOC did not specifically name MetLife as the company it designated, explaining that it will not publicly announce the name of any non-bank financial company until the final determination is made.  FSOC stated that it provided the company with a written explanation of the proposed determination, and the company has 30 days to request a hearing to contest the determination.

MetLife President and CEO Steven A. Kandarian stated that MetLife “strongly disagrees” with the preliminary designation.  He explained that MetLife served as a “source of financial strength and stability during times of economic distress, including the 2008 financial crisis.”  Furthermore, Mr. Kandarian said that MetLife is not “ruling out any of the available remedies under Dodd-Frank to contest a SIFI designation.”

Lofchie Comment:  Although there are many parts of Dodd-Frank that seem questionable as a matter of economic regulatory policy, the legal authority the government granted itself with respect to the designation of “systemically important financial institutions” is the most troublesome.  The exercise of such discretionary and subjective power violates fundamental principles that rules of law should be established in advance of government actions, and should be reasonably objective, so that persons (both natural and corporate) can adjust their behavior in advance to conform to, or possibly to avoid acting in a manner inconsistent with those laws.  The power to designate entities as SIFIs is inconsistent with the notion that persons (both natural and corporate) should be treated in an even-handed and objective manner, since the designation of SIFIs is done on an inherently subjective and one-off basis, without the establishment of any objective measures

The objection made in this comment to the SIFI designation “rule” is not an objection to the government exercising authority over large, financial entities; it is to the manner in which the government exercises that authority.  There is nothing to prevent the federal government from exercising power over insurance companies or from exercising greater powers over large insurance companies than it does over small.  By way of example, the government imposes rules over banks that vary with respect to their size.  The same could be done for insurance companies.  Or they could be regulated based on some other objective measure, such as the number of individuals that they insure or the size of the premiums that they collect or the claims that they pay.  Instead, the government has given itself the authority to regulate based on a variety of wholly subjective measures (such as “interconnectedness”) that are to be weighted by a wholly unknown formula.  Section 113(a) of Dodd-Frank.  This arbitrary power to designate entities as SIFIs is amplified because it appears that the requirements that will be imposed on any entity so designated will be equally arbitrary (or perhaps sui generis might be a fairer term) given the complete diversity of the types of entities subject to such designation.

To quote Friedrich Hayek: “Nothing distinguishes more clearly a free country from a country under arbitrary government than the observance in the former of the great principles known as the Rule of Law. Stripped of technicalities, this means that government in all its actions is bound by rules fixed and announced beforehand.”

See: FSOC Press Release; MetLife Press Release.

 

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