Systemic Risk

The traditional business of life insurance does not pose systemic risk.

Steven A. Kandarian, April 10, 2013

Systemic Risk

In the wake of the financial crisis of 2008, Congress passed the Dodd-Frank Act which created the Financial Stability Oversight Commission (FSOC) and charged it with identifying “risks to the financial stability of the United States.” The FSOC has the authority to designate firms it determines to be Systemically Important Financial Institutions (SIFIs) and subject them to heightened supervision including higher capital requirements. In December, 2014 MetLife was designated as a SIFI by FSOC. MetLife challenged FSOC’s designation in the U.S. District Court for the District of Columbia. On March 30, 2016, the U.S. District Court ruled in MetLife’s favor and the SIFI designation was rescinded. The decision is now pending appeal.

U.S. District Court for District of Columbia

Icon: MetLife's Complaint

MetLife's Complaint
Icon: Unsealed Opinion

Unsealed Opinion

U.S. Court of Appeals for the DC Circuit

Icon: MetLife's Renewed Motion to Hold Appeal in Abeyance Pending the Secretary of the Treasury's Forthcoming Report on the FSOC Designation Process

MetLife's Renewed Motion to Hold Appeal in Abeyance Pending the Secretary of the Treasury's Forthcoming Report on the FSOC Designation Process
Icon: MetLife Asks Court to Delay Decision on SIFI Case Pending White House Review of FSOC Policies

MetLife Asks Court to Delay Decision on SIFI Case Pending White House Review of FSOC Policies
Icon: MetLife Brief, U.S. Court Appeals, DC Circuit

MetLife Brief, U.S. Court Appeals, DC Circuit
Icon: Amicus Brief: American Council of Life Insurers (ACLI)

Amicus Brief: American Council of Life Insurers (ACLI)
Icon: Amicus Brief: National Association of Insurance Commissioners (NAIC)

Amicus Brief: National Association of Insurance Commissioners (NAIC)
Icon: Amicus Brief: U.S. Chamber of Commerce

Amicus Brief: U.S. Chamber of Commerce
Icon: Amicus Brief: Washington Legal Foundation

Amicus Brief: Washington Legal Foundation
Icon: Amicus Brief: Cato Institute

Amicus Brief: Cato Institute
Icon: Amicus Brief: Academic Experts

Amicus Brief: Academic Experts
Icon: MetLife, Inc. v. Financial Stability Oversight: Oral Argument Recordings

MetLife, Inc. v. Financial Stability Oversight: Oral Argument Recordings
Icon: MetLife, Inc. versus Financial Stability Oversight Council

MetLife, Inc. versus Financial Stability Oversight Council

An activities-based approach to systemic regulation

If additional regulation is necessary, the government has a superior tool at its disposal – an approach that focuses on potentially systemic activities regardless of the size of the firm. An activities-based approach would target those activities that caused the financial crisis in the first place while preserving competition. A company-specific approach using size as a key criterion runs the risk of overlooking real threats to the financial system that could reside in a company of any size. FSOC has already embraced an activities-based approach for the asset management industry.

Activities-based regulation resources

Icon: Life Insurers as SIFIs - A case of mistaken identity?

Life Insurers as SIFIs - A case of mistaken identity?
KANDARIAN SPEECH
Icon: Systemic Risk and Regulation: The Misguided Case of Insurance SIFIs

Systemic Risk and Regulation: The Misguided Case of Insurance SIFIs
SCOTT E. HARRINGTON | WHARTON SCHOOL, U. PENN

FSOC Reform

The Dodd-Frank Act established the Financial Stability Oversight Council to “identify risks to the financial stability of the United States” arising from the financial distress or failure of large, interconnected banks and nonbank financial companies. Since its inception, there have been several legislative proposals aimed at increasing FSOC’s transparency and improving its procedures for designating companies as systemically risky. In her March 30, 2016 decision rescinding FSOC’s designation of MetLife as a Systemically Important Financial Institution, Judge Rosemary Collyer called FSOC’s process “fatally flawed.”

Systemic Risk Resources

Icon: FSOC Reform: An overview of recent proposals

FSOC Reform: An overview of recent proposals
BIPARTISAN POLICY CENTER
Icon: Testimony before the house committee on financial services

Testimony before the house committee on financial services
SCALIA STATEMENT
Icon: Testimony Before the Subcommittee on Oversight and Investigations, Committee on Financial Services, House of Representatives

Testimony Before the Subcommittee on Oversight and Investigations, Committee on Financial Services, House of Representatives
Statement of A. Nicole Clowers

Systemic Risk FAQ's

Why did MetLife get designated in the first place?

The Financial Stability Oversight Council (FSOC) was created by the U.S. Congress in the wake of the 2008 financial crisis. FSOC is charged with identifying risks to the financial stability of the United States. In that role, the FSOC has the authority to designate companies as SIFIs. In addition to MetLife, FSOC designated one other life insurance company as a non-bank SIFI – Prudential. The U.S. District Court’s decision means that MetLife is no longer a non-bank SIFI and it is not subject to Federal Reserve regulation. MetLife does not believe the business of life insurance creates systemic risk. On the contrary, we believe life insurance companies are a source of financial stability.

Why is MetLife concerned about the SIFI designation?

MetLife has always supported strong regulation of the life insurance industry and believes that all companies should be treated the same. Companies designated as SIFIs are supervised by the Federal Reserve and could be subjected to more onerous regulations than their competitors, which limits competition and choice for consumers.

Featured Systemic Risk News

Note: These resources are provided to broaden information about systemic risk but do not imply MetLife’s support all of the positions or specific recommendations of outside papers or organizations.