Daily Management Review

US Judge designates as 'Arbitrary, Capricious' MetLife's 'too big to fail' tag


US Judge designates as 'Arbitrary, Capricious' MetLife's 'too big to fail' tag
The determination by the Federal regulators who had taken the decision to designate insurer MetLife Inc as "too big to fail" was opined to be "arbitrary and capricious" by the U.S. judge. The determination was struck down by the judge last month and the comments of the judge were unsealed on Thursday.
A Treasury spokesman said in a statement late on Thursday that the U.S. government plans to appeal the court decision.
The work of the Financial Stability Oversight Council (FSOC) was vigorously defended by Treasury Secretary Jack Lew who said he strongly disagreed with the decision. The FSOC is made up of several U.S. regulatory agency chiefs and it is the body that designated MetLife as a systemically important financial institution in 2014.
The government considers that four nonbank companies would pose a risk to the financial system if they collapsed and the label was given to the four companies.
It was considering breaking up its business to shed the designation, which triggers more regulation said Metlife which is the largest U.S. life insurer.
"This decision leaves one of the largest and most highly interconnected financial companies in the world subject to even less oversight than before the financial crisis. I am confident that we will prevail," Lew said in a statement earlier on Thursday.
Alleging that the FSOC used a secretive, flawed process in determining that it could hurt the U.S. financial system if it faces financial distress, the MetLife had sued the U.S. government last year.
The opinion that U.S. District Judge Rosemary Collyer had expressed while rescinding the designation on March 30 was put under seal until Thursday.
Collyer wrote that while the FSOC said in its designation that the insurer could cause significant damage to the U.S. economy "but never explained how it would result".
"That assumption reflected a change in policy, one that was neither acknowledged nor explained in the final determination, and which was therefore arbitrary and capricious," she wrote.
FSOC ignored two of its own definitions of "material financial distress" and "threat to the financial stability of the United States" during the designation process, she added.  
"FSOC also focused exclusively on the presumed benefits of its designation and ignored the attendant costs, which is itself unreasonable. FSOC's unacknowledged departure from its guidance and express refusal to consider cost require the court to rescind the final determination," Collyer wrote.
A part of the Dodd-Frank Wall Street reform law passed after the 2008 financial crisis gave authority to designate U.S. nonbank companies as "too big to fail".
Claiming that it had shrunk to the point where it would not pose a threat to the financial system if it experiences distress, last week lender GE Capital, a unit of General Electric Co, asked to have its designation removed.
It was "evaluating what is in the best interests of the company and our stakeholders," said Prudential Financial Inc, another insurer.
In the thick of the financial crisis American International Group Inc, received a $182 billion U.S. government bailout to avoid collapse also has the label. AIG declined to comment on Collyer's decision.
FSOC takes "a deliberative and data-driven approach, relying on a careful analysis of available information, including intensive engagement with each company" it designates, Lew said.
"In overturning the conclusions of experienced financial regulators, the court imposed new requirements that Congress never enacted, and contradicted key policy lessons from the financial crisis," he added.

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