Wed Mar 30, 2016 12:41pm EDT
U.S. district judge strikes down designation of MetLife as ‘too big to fail’
U.S. District Judge Rosemary Collyer on Wednesday struck down the designation made by the heads of the country’s financial regulatory agencies that major insurer MetLife Inc is systemically important to the U.S. financial system.
MetLife had argued in court that the Financial Stability Oversight Council (FSOC) used a secretive and flawed process when, in 2014, it determined that a collapse of the insurer could devastate the U.S. financial system just as much as failure of a major bank such as Citigroup.
Collyer’s opinion is currently sealed, but parts may be made public next month, according to the judge’s order, which also said the federal government may appeal.
The decision, a major defeat for the council, was a boost to the largest U.S. life insurer, which had said earlier this year it was considering breaking up its business to shed the designation of being “too big to fail.”
Its shares rose nearly 8 percent on the news, to $45.84, and could close at its highest level in more than four years.
Shares of other insurers designated systemically important rose, as well. Prudential Financial Inc rose 2.8 percent and American International Group Inc was up 2.3 percent.
At the heart of the case is whether the government can designate non-banks as systemically important. The 2010 Dodd-Frank Wall Street reform law authorized the U.S. to designate banks as ‘systemically important’ after AIG received a government bailout of $182 billion during the 2008 financial meltdown.
MetLife sued the council last year. It said the council, which includes the Treasury Secretary and Federal Reserve Chair, had not followed its own guidance on designating a firm as systemically important, essentially changing the rules to ensure the determination was made.
In court in February, the federal government argued its process was fair and that a collapse by the insurer, with its many financial ties, products and contracts, would indeed hurt the financial system. It said it was open with the company during a 17-month process that included exchange of thousands of pages of documents and several meetings, including one with the full council.
Representatives of MetLife and the Treasury Department did not immediately respond to requests for comment.