Eakinomics: FSOC and the Courts

The Dodd-Frank Act created the Financial Stability Oversight Council (FSOC) and empowered it to designate non-bank financial entities as Systemically Important Financial Institutions (SIFIs). That is as it should be — Congress creates law. At the outset, FSOC followed an entity-based approach to designating SIFIs — for all practical purposes, a focus on the size of entities — and used this to designate the insurers MetLife, Prudential, and AIG as SIFIs. Again, that is how policy should be made — the Administration implements law.

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“Earlier this year the Treasury Department invited AAF to participate in a roundtable discussion with other think tanks and academics as it researched and wrote its report on banks and credit unions, pursuant to Executive Order 13772. At least three other Treasury reports are due for publication this fall. For the next report, in lieu of further roundtables, however, interested groups and individuals are invited to submit written comments on FSOC-specific matters. Below are written comments from AAF President Douglas-Holtz-Eakin and AAF Director of Financial Services Policy Meghan Milloy to Treasury staff regarding FSOC and recommendations for reform.”

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Earlier this year MetLife asked the DC Circuit Court to hold off on issuing an opinion in their court case against the Financial Stability Oversight Council (FSOC) until the Treasury Department completed its report on FSOC as directed by the administration’s Presidential Memorandum from April. The court granted MetLife’s request, but only for 60 days, or until July 11th. That means that unless the court extends the abeyance to the full 180 days, it could deliver a ruling on the case well before the Treasury report is due later this fall. Therefore, the court should extend the abeyance for another 120 days to give Treasury ample time to complete the report so that the court will have the full report and all of Treasury’s research and findings at its disposal while making its decision.

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Metlife, Inc.’s motion to hold appeal in abeyance pending the Secretary of the Treasury’s forthcoming report on the FSOC designation process.

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MetLife, Inc. (NYSE: MET) Chairman, President and CEO Steven A. Kandarian issued the following statement today on passage of the Financial CHOICE Act by the U.S. House of Representatives:

“The Financial CHOICE Act is an important step toward the permanent removal of the authority of the Financial Stability Oversight Council (FSOC) to designate non-bank insurance companies as Systemically Important Financial Institutions (SIFIs).

“Singling out a few large insurance companies for redundant regulation harms competition, leads to higher prices and less financial protection for consumers, and fails to make the financial system safer. The life insurance industry is already subject to a strong and proven state regulatory system with capital rules designed to address risks associated with the insurance business model.”

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The Financial Stability Oversight Council (FSOC) hosted its first meeting under the Trump administration this week. This super council of federal financial regulators represents but one of the enormous powers granted to the executive branch by the Dodd-Frank Act. In the Trump administration, it may ironically prove to be the most powerful tool to implement the president’s promise to rethink Dodd-Frank, particularly as major financial services reform legislation likely stalls in the Senate.

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