You’re a SIFI, Charlie Brown
That’s what the Charlie Brown, star of comic strip Peanuts and cartoon spokesman for the MetLife insurance firm, might say about the government’s actions against MetLife yesterday.
The Financial Stability Oversight Council (FSOC), an unaccountable, secretive task force of financial bureaucrats created by the Dodd-Frank “financial reform” bill that was rammed through a Democrat-controlled Congress in 2010. Yesterday, FSOC designated MetLife as a “systemically important financial institution” or SIFI. This means that the federal government officially considers MetLife to be “too big to fail” and subject to the same Dodd-Frank bailout regime set up for banks.
Many firms would see being tagged as a too-big-to-fail SIFI as a blessing. As CEI argues in our constitutional challenge to the FSOC, part of our comprehensive lawsuit against Dodd-Frank, the SIFI designation confers on a firm a strong competitive advantage, as investors know the government won’t let it fail. That’s why big banks and MetLife competitor AIG, who have already received billions in taxpayer bailouts, have eagerly embraced their SIFI status.
But MetLife, to its great credit, has public stated it’s not too big to fail and does not want the special privileges that come with the SIFI status. MetLife’s Chairman and CEO Steven A. Kandarian declared publicly last year, “I do not believe that MetLife is a systemically important financial institution.”
Unlike AIG and the big banks, MetLife has never taken a dime in taxpayer bailouts. And all it is asking for now is not a handout, but for the federal government to keep its hands off of the successful business model MetLife has utilized for decades to provide insurance to many satisfied customers.
The FSOC is acting like Charlie Brown’s nemesis Lucy, pulling the proverbial football away just as it is about to be kicked and causing MetLife, its policy holders, and U.S. taxpayers to land on their collective keister. Or as a Wall Street Journal editorial put it in another analogy involving the sport, “it’s as if a committee of baseball umpires rewrote the rules of football despite protests from NFL players, owners and referees.”
To use another slightly creative Peanuts analogy, part of the FSOC’s SIFI scheme is as simple as a bully taking Charlie Brown’s lunch money to subsidize Pigpen’s rolls in the dirt. Under Dodd-Frank’s system, when one SIFI fails, the other SIFIs pay the bailout costs.
As my colleague Iain Murray explains in his piece, “Dodd-Frank’s Mystery SIFI Theater,” from The American Spectator, “there are two classes of SIFIs — 1) the high-rolling institutions that may be tempted to take unreasonable risks with the money people have entrusted to them, and 2) the large stable firms that actually have the money (again, entrusted to them by clients) that can be expropriated by government to pay for the mistakes of the first class.”
The conservatively managed MetLife is clearly in the second category, as FSOC has designated it and its policy holders to be those whose lunch money is taken to bail out the high-rolling Pig Pens. This will cause premiums to rise and possibly services to be cut.
Unfortunately, this is not the worst part. The SIFI scheme, combined with other provisions of Dodd-Frank, institutes an economic theory on par with Lucy’s nonsensical “little known facts” such as “bugs make the grass grow” and “fir trees give us fur.” This Lucy-like “fact” governing MetLife is that insurance companies should be regulated by the exact same capital rules as banks.
This theory strikes even arch-liberal lawmakers like Sen. Sherrod Brown (D-Ohio) as having the value of “peanuts.” Brown has said: “I want strong capital standards, but they have to make sense. Applying bank standards to insurers could make the financial system riskier, not safer.”
As I have written here previously, Imposing bank capital standards on insurers would raise costs for life insurance consumers by $5 billion to $8 billion, according to the economic consulting firm Oliver Wyman. These costs could hit policy holders both through higher premiums and reduced benefits. And some policies simply could become unavailable as insurers “exit certain product lines,” the Oliver Wyman study found.
And ironically, such bank-like standards would also likely heighten risks for insurers, according to risk-management professionals. A letter to Congress from the American Academy of Actuaries warns that forcing insurers to follow bank-capital rules both “assigns risks to insurers that are not necessarily significant to them” and “understates risks that may be more significant to insurers than to entities such as banks.”
Fortunately, a piece of legislation is hovering around the Capitol that, like Snoopy as a flying ace, could partially save the day. The Insurance Capital Standards Clarification Act of 2014 (S. 2270), which the Senate passed unanimously on June 3, would revise Dodd-Frank by clarifying that it is not Congress’ apply bank capital rules to insurance firms.
Now, all the House has to do is pass an identical companion measure, the bipartisan H.R. 4510, and send it to President Obama’s desk. Obama has the choice to either sign the bill or face veto-proof majorities in both houses. As I wrote in National Review, forcing Obama’s hand here will rightfully “erode much of what little luster there is from Dodd-Frank” and make it politically easier to repeal or grant relief from other horrific parts of the law.
But the main reason to pass this bill to prevent the not-so-good grief among the insured that will occur if the FSOC is left unchecked. We have already seen what happened when the football was pulled away in the health insurance market thanks to Obamacare.