As CEI brings suit before the D.C. Circuit Court of Appeals tomorrow challenging the constitutionality of unaccountable bureaucracies created by the Dodd-Frank “financial reform” law of 2010, it looks like we may have some high-profile company in litigation against Dodd-Frank’s Financial Stability Oversight Council (FSOC).
The FSOC is a secretive, unaccountable task force of financial bureaucrats of various agencies created to designate banks and other financial firms “systemically important,” or too-big-to-fail. In September, the FSOC preliminarily decreed insurer MetLife a “systemically important financial institution,” or SIFI.
As CEI argues in our legal challenge to the Dodd-Frank Act (including the FSOC’s role of identifying risk), the SIFI designation confers on a firm a strong competitive advantage, as investors and creditors know the government won’t let it fail. That’s why big banks and MetLife competitor American International Group (AIG), which have already received billions in taxpayer bailouts, have eagerly embraced their SIFI status.
But MetLife, to its credit, has publicly stated that it is not too big to fail and does not want the special privileges that come with SIFI status, nor the regulatory costs. MetLife chairman and CEO Steven A. Kandarian declared last year, “I do not believe that MetLife is a systemically important financial institution.”
Now, The Wall Street Journal reports that “MetLife Inc. doesn’t want to be tagged as “systemically important” and is preparing to possibly take the U.S. government to court to avoid it, people familiar with the matter said.” The insurance firm has hired Eugene Scalia, attorney with Gibson, Dunn & Crutcher, who has put forth successful suits against other provisions of Dodd-Frank.
What is remarkable about the MetLife designation is that it has seemed to attract opposition in every political corner. While there has been some knee-jerk defense of FSOC by The New York Times—Paul Krugman’s circular reasoning in his fawning Rolling Stone piece on the achievements of the administration is that designating MetLife as a SIFI must be good because “MetLife is making an all-out effort to be kept off the SIFI list”—some liberals usually at swords ends with CEI on financial regulation are saying that the FSOC’s action toward MetLife just don’t make any sense.
New York State Superintendent of Financial Services Benjamin Lawsky, for instance, is relentlessly and wrongheadedly pursuing Bitcoin and online lenders. But as MetLife’s primary state regulator, he questioned FSOC planned designation of FSOC as a SIFI in a recent letter.
MetLife does not engage in any non-traditional, non-insurance activities that create any appreciable systemic risk; that, in the event that MetLife or one or more of its insurance subsidiaries were to fail, DFS [Department of Financial Services] and other state regulators would be able to ensure an orderly resolution of the enterprise; and that MetLife’s life insurance businesses already are closely and carefully regulated by DFS and other regulators.
And, as I wrote recently in National Review, even arch-liberal Sen. Sherrod Brown (D-Ohio) called absurd the bank-like capital rules that go along with insurers being designated as SIFIs. “I want strong capital standards, but they have to make sense,” Brown said. “Applying bank standards to insurers could make the financial system riskier, not safer.”
Yet FSOC has very little accountability to Congress, no matter which party is in charge. My CEI colleague Iain Murray recently laid out how the constitutional defects in FSOC and the Consumers Financial Protection Bureau—which we are challenging—lead directly to their abuses of power. As he concludes, “the nation as a whole needs injunctive relief from these provisions of Dodd-Frank.” We hope the courts and Congress will grant it.