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U.S. District Judge Rosemary Collyer has struck down the Financial Stability Oversight Council’s (FSOC) designation of the insurer MetLife Inc. as a systemically important financial institution (SIFI). The government can appeal. 

Under Section 113 of the Dodd-Frank Act, FSOC has the authority to designate an institution as systemically important in order to address systemic risk caused by non-bank financial institutions (NBFIs). A consequence of that designation is that the institution concerned will be supervised by the Federal Reserve and will be subject to higher prudential standards, both of which are considered costly by MetLife and its shareholders. The designation can be made if material financial distress, or the nature, scope, size, scale, concentration, interconnectedness, or mix of the activities of the U.S. nonbank financial company, could pose a threat to the US financial stability.

MetLife argued that the determination was “arbitrary and capricious, conflicted with the Council’s statutory obligations under the Dodd-Frank Act and the rules and guidance that the Council promulgated for designating nonbank financial companies, and was reached through a procedure that denied MetLife its due process rights and violated the constitutional separation of powers.” It argued, inter alia, that FSOC did not take into account the economic impact on the insurer of the designation, and that their business model does not pose a threat to financial system. A dissenting opinion from a member of the FSOC council similarly argued that the majority’s reasoning was not sufficiently specific to MetLife’s activities as an insurer. 

The argument concerning FSOC’s presumed lack of consideration for its specific business model reveals deeper uncertainties about our understanding of SIFIs. Even where our conceptual thinking in this area has evolved, the underlying case for SIFI-designations of specific NBFIs can be muddy in practice. A judgment challenging the reasoning of FSOC on this point could, therefore, have implications for NBFIs other than MetLife. Accordingly, share prices of MetLife as well as AIG and Prudential Financial rallied following the publication of the court’s judgment.

For now, the judgment of the DC District Court remains sealed, but a public version is expected after April 6. The details of this judgment will be important to determine the wider impact of this ruling.


Katrien Morbee and Thom Wetzer are DPhil Candidates in Law and Finance at the University of Oxford, studying the regulation of SIFIs.